[250] Stephen B. Murray, Jr., Murray Law Firm, New Orleans, LA, for Appellants Daniel Raymond Stephenson, Susan Stephenson, Daniel Anthony Stephenson and Emily Elizabeth Stephenson.

Gerson S. Smoger, Smoger & Associates, Oakland, CA (Mark R. Cuker, Williams, Cuker & Berezofsky, Philadelphia, [251] PA, Ronald Simon, Simon & Associates, Washington, DC, of counsel), for Appellants Joe Isaacson and Phyllis Lisa Isaacson.

Stephen Brock, Rivkin, Radler & Kremer, LLP, Uniondale, NY, for Appellee Dow Chemical Co. (John C. Sabetta, Seyfarth, Shaw, Fairweather & Geraldson, New York, NY, for Appellee Monsanto Co.; Michael M. Gordon, Cadwalader, Wickersham & Taft, New York, NY, for Appellees Occidental Chemical Corporation, Ultramar Diamond Shamrock Corp., Maxus Energy Corp., Chemical Land Holdings, Inc.; William A. Krohley, Kelley, Drye & Warren LLP, New York, NY, for Appellee Hercules Incorporated; Myron Kalish, Parker, Duryee, Rosoff & Haft, P.C., New York, NY, for Appellees Uniroyal Chemical Co., Uniroyal, Inc., C.D.U. Holding, Inc.; Lawrence D'Aloise, Clark, Gagliardi & Miller, White Plains, NY, for Appellees Nutrition Co., Inc., Thompson Hayward Chemical Co., T-H Agriculture, Harcros Chemicals, Inc.).

Steve Jensen, Baron & Budd, P.C., Dallas, TX, (Brent M. Rosenthal, Dallas, Texas; Leslie Brueckner, Trial Lawyers for Public Justice, Washington, District of Columbia; Arthur Bryant, Trial Lawyers for Public Justice, Oakland, California), for Amicus Curiae Trial Lawyers for Public Justice.

Before: CARDAMONE and PARKER, Circuit Judges, and SPATT, District Judge.^[1]

PARKER, Circuit Judge.

This appeal requires us to determine the effect of the Supreme Court's landmark class action decisions in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997), and Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999), on a previously settled class action concerning exposure to Agent Orange during the Vietnam War. Daniel Stephenson and Joe Isaacson are two Vietnam War veterans who allege that they were injured by exposure to Agent Orange while serving in the military in Vietnam. In the late 1990s, Stephenson and Isaacson (along with their families) filed separate lawsuits against manufacturers of Agent Orange. These lawsuits were eventually transferred to Judge Jack B. Weinstein in the Eastern District of New York by the Judicial Panel on Multidistrict Litigation ("MDL Panel").

In 1984, however, some twelve years before these suits, virtually identical claims against these defendants, brought by a class of military personnel who were exposed to Agent Orange while in Vietnam between 1961 and 1972, were globally settled. The Isaacson and Stephenson actions were brought in 1998 and 1999 respectively. Judge Weinstein, who presided over the 1984 settlement, dismissed the claims of Stephenson and Isaacson, concluding that the prior settlement barred their suits. On appeal, plaintiffs chiefly contend, citing Amchem and Ortiz, that they were inadequately represented and, therefore, due process considerations prevent the earlier class action settlement from precluding their claims. Because we agree that Amchem and Ortiz prevent applying res judicata to bar plaintiffs' claim, we vacate the district court's dismissal and remand for further proceedings.^[2]

I. BACKGROUND

A. Prior Agent Orange Litigation

The Agent Orange class action litigation has a lengthy and complicated history, [252] which we set forth in some detail below in order to convey the magnitude of this decision.

The first Agent Orange litigation began in the late 1970s, when individual veterans and their families filed class action suits in the Northern District of Illinois and Southern and Eastern Districts of New York, alleging that exposure to Agent Orange caused them injury. In re "Agent Orange" Prod. Liab. Litig., 635 F.2d 987, 988 (2d Cir.1980) ("Agent Orange I"). By order of the MDL Panel, these actions were transferred to the Eastern District of New York and consolidated for pretrial purposes. Id. Plaintiffs asserted claims of negligent manufacture, strict liability, breach of warranty, intentional tort and nuisance. In re "Agent Orange" Prod. Liab. Litig., 597 F.Supp. 740, 750 (E.D.N.Y.1984) ("Agent Orange III"); aff'd 818 F.2d 145 (2d Cir.1987).

In 1983, the district court certified the following class under Federal Rule of Civil Procedure 23(b)(3):

those persons who were in the United States, New Zealand or Australian Armed Forces at any time from 1961 to 1972 who were injured while in or near Vietnam by exposure to Agent Orange or other phenoxy herbicides, including those composed in whole or in part of 2, 4, 5-trichlorophenoxyacetic acid or containing some amount of 2, 3, 7, 8-tetrachlorodibenzo-p-dioxin. The class also includes spouses, parents, and children of the veterans born before January 1, 1984, directly or derivatively injured as a result of the exposure.

In re "Agent Orange" Prod. Liab. Litig., 100 F.R.D. 718, 729 (E.D.N.Y.1983) ("Agent Orange II"). To support class certification, the district court specifically found:

(1) that the affirmative defenses [including the "military contractor" defense] and the question of general causation are common to the class, (2) that those questions predominate over any questions affecting individual members, and (3) given the enormous potential size of plaintiffs' case and the judicial economies that would result from a class trial, a class action is superior to all other methods for a "fair and efficient adjudication of the controversy."

Id. at 724. The court also ordered notice by mail, print media, radio and television to be provided to class members, providing in part that persons who wished to opt out must do so by May 1, 1984. Id. at 729-32.

Trial of the class claims was to begin on May 7, 1984. In re "Agent Orange" Prod. Liab. Litig., 818 F.2d 145, 154 (2d Cir.1987) ("Agent Orange V"). On the eve of trial, the parties reached a settlement. Agent Orange III, 597 F.Supp. at 746. The settlement provided that defendants would pay $180 million into a settlement fund, $10 million of which would indemnify defendants against future state court actions alleging the same claims. See id. at 863-65. The settlement provided that "[t]he Class specifically includes persons who have not yet manifested injury." Id. at 865. Additionally, the settlement specifically stated that the district court would "retain jurisdiction over the Fund pending its final disposition." Id. at 866.

The district court held fairness hearings throughout the country, and approved the settlement as fair, reasonable and adequate. See id. at 746-47; see also Ryan v. Dow Chem. Co. (In re "Agent Orange" Prod. Liab. Litig.), 618 F.Supp. 623 (E.D.N.Y.1985) (approving final settlement and dismissing merits). The court rejected the motion to certify a subclass of those class members who objected to terms of the settlement. Agent Orange III, 597 F.Supp. at 757. The court concluded that "[n]o purpose would have been served by [253] appointing counsel for a subclass of disappointed claimants except to increase expenses to the class and delay proceedings."^[3] Id.

Seventy-five percent of the $180 million was to be distributed directly "`to exposed veterans who suffer from long-term total disabilities and to the surviving spouses or children of exposed veterans who have died.'" Agent Orange V, 818 F.2d at 158. "A claimant would qualify for compensation by establishing exposure to Agent Orange and death or disability not `predominately' caused by trauma...." Id. Payments were to be made for ten years, beginning January 1, 1985 and ending December 31, 1994:

No payment will be made for death or disability occurring after December 31, 1994. Payment will be made for compensable deaths occurring both before and after January 1, 1985. Payments will be made for compensable disability to the extent that the period of disability falls within the ten years of the program's operation.

Ryan v. Dow Chem. Co. (In re "Agent Orange" Prod. Liab. Litig.), 611 F.Supp. 1396, 1417 (E.D.N.Y.1985) ("Agent Orange IV"), rev'd in part on other grounds, In re "Agent Orange" Prod. Liab. Litig., 818 F.2d 179 (2d Cir.1987) ("Agent Orange VI"). "Most of the remaining [25%] of the settlement fund established the Agent Orange Class Assistance Program, ... which made grants to agencies serving Vietnam veterans and their families." Ivy v. Diamond Shamrock Chems. Co. (In re "Agent Orange" Prod. Liab. Litig.), 996 F.2d 1425, 1429-30 (2d Cir.1993) ("Ivy/Hartman II"). Explaining the creation of this kind of fund, Judge Weinstein stated that it was "[t]he most practicable and equitable method of distributing benefits to" those claimants who did not meet eligibility criteria for cash payments. Agent Orange IV, 611 F.Supp. at 1431.

We affirmed class certification, settlement approval and much of the distribution plan. See Agent Orange V, 818 F.2d 145, 163-74 (approving settlement and class certification); Agent Orange VI, 818 F.2d 179, 184-86 (reversing only the portion of distribution plan that allowed an independent foundation to monitor the funding of projects to assist the class, but allowing district court to establish and supervise such a fund). We rejected challenges to class certification, concluding that "class certification was justified under Rule 23(b)(3) due to the centrality of the military contractor defense." Agent Orange V, 818 F.2d at 166-67. We specifically rejected an attack based on adequacy of representation, again based on the military contractor defense which, we reasoned, "would have precluded recovery by all plaintiffs, irrespective of the strengths, weaknesses, or idiosyncrasies of their claims." Id. at 167. We additionally concluded that the notice scheme devised by Judge Weinstein was the "best notice practicable" under Federal Rule of Civil Procedure 23(c)(2). Id. at 167-69. Finally, we affirmed the settlement as fair, reasonable and adequate, given the serious weaknesses of the plaintiffs' claims. See id. at 170-74.

In 1989 and 1990, two purported class actions, Ivy v. Diamond Shamrock Chemicals Co. and Hartman v. Diamond Shamrock Chemicals Co., were filed in Texas state courts. Ivy/Hartman II, 996 F.2d at 1430. These suits, on behalf of Vietnam [254] veterans exposed to Agent Orange,^[4] sought compensatory and punitive damages against the same companies as in the settled suit. See Ivy/Hartman I, 781 F.Supp. at 912-13. The plaintiffs alleged that their injuries manifested only after the May 7, 1984 settlement. See id. Additionally, the Ivy/Hartman plaintiffs expressly disclaimed any reliance on federal law, asserting only state law claims. See id. Nonetheless, the defendants removed the actions to federal court on the grounds that these claims had already been asserted and litigated in federal court. See id. at 913. The MDL Panel transferred the actions to Judge Weinstein in the Eastern District of New York. See Ivy/Hartman II, 996 F.2d at 1430.

The district court rejected plaintiffs' motion to remand, reasoning that it had jurisdiction over the class action because it "ha[d] authority to ensure that [its prior orders] and the Settlement Agreement [were] enforced," especially given the injunction it issued enjoining all class members from commencing any action arising out of Agent Orange exposure. Ivy/Hartman I, 781 F.Supp. at 914, 916. In support of its decision, the district court cited the All-Writs Act, 28 U.S.C. § 1651 (1994), which authorizes writs "necessary or appropriate" in aid of its jurisdiction. See id. at 918.

The district court then turned to the plaintiffs' substantive arguments that it was unfair to bind them to the settlement when their injuries were not manifested until after the settlement had been reached. The district court rejected this argument, based on the following reasoning:

All of the courts which considered the Agent Orange Settlement were fully cognizant of the conflict arguments now hypothesized by the plaintiffs and took steps to minimize the problem in the way they arranged for long-term administration of the Settlement Fund.

In many cases the conflict between the interests of present and future claimants is more imagined than real. In the instant case, for example, the injustice wrought upon the plaintiffs is nonexistent. These plaintiffs, like all class members who suffer death or disability before the end of 1994, are eligible for compensation from the Agent Orange Payment Fund. The relevant latency periods and the age of the veterans ensure that almost all valid claims will be revealed before that time.

Even when it is proper and necessary for the courts to be solicitous of the interests of future claimants, the courts cannot ignore the interests of presently injured plaintiffs as well as defendants in achieving a settlement. Class action settlements simply will not occur if the parties cannot set definitive limits on defendants' liability. Making settlement of Rule 23 suits too difficult will work harms upon plaintiffs, defendants, the courts, and the general public.

Id. at 919-20 (emphasis added). The district court therefore dismissed the Ivy/Hartman litigation.

We affirmed the district court's dismissal. Ivy/Hartman II, 996 F.2d 1425, 1439. We agreed with the district court's assertion [255] of federal jurisdiction under the All Writs Act and held:

A district court, in exceptional circumstances, may use its All Writs authority to remove an otherwise unremovable state court case in order to "effectuate and prevent the frustration of orders it has previously issued in its exercise of jurisdiction otherwise obtained."

Id. at 1431 (quoting United States v. N.Y. Tel. Co., 434 U.S. 159, 172, 98 S.Ct. 364, 54 L.Ed.2d 376 (1977)).

We then addressed plaintiffs' argument that they were not members of the prior class, because they were not "injured" as the term was used in the class definition. Id. at 1433. We concluded that, for the purposes of the Agent Orange litigation, "injury occurs when a deleterious substance enters a person's body, even though its adverse effects are not immediately apparent." Id. at 1433-34. We emphasized that the plaintiffs in the original suit had sought to include such "at-risk" plaintiffs, over defendants' objections, and that we had already affirmed the inclusion of these plaintiffs in the class. See id.

We likewise rejected plaintiffs' argument that their due process rights were violated because they were denied adequate representation and adequate notice in the prior action. See id. at 1435-36. We reasoned that "providing individual notice and opt-out rights to persons who are unaware of an injury would probably do little good." Id. at 1435. We concluded that the plaintiffs were adequately represented in the prior action, and that a subclass of future claimants was unnecessary "`because of the way [the settlement] was structured to cover future claimants.'" Id. at 1436 (quoting Ivy/Hartman I, 781 F.Supp. at 919)(alteration in original).

Shortly before our decision in Ivy/Hartman II, the $10 million set aside for indemnification from state court Agent Orange judgments was transferred to the Class Assistance Program, because the district court deemed such a fund unnecessary. The distribution activities had begun in 1988, and concluded in June 1997. During the ten year period of the settlement, $196.5 million was distributed as cash payments to approximately 52,000 class members. The program paid approximately $52 million to "after-manifested" claimants, whose deaths or disabilities occurred after May 7, 1984. Approximately $71.3 million of the fund was distributed through the Class Assistance Program.

B. The Instant Litigation

1. The Parties

Daniel Stephenson served in Vietnam from 1965 to 1970, serving both on the ground in Vietnam and as a helicopter pilot in Vietnam. He alleges that he was in regular contact with Agent Orange during that time. On February 19, 1998, he was diagnosed with multiple myeloma, a bone marrow cancer, and has undergone a bone marrow transplant.

Joe Isaacson served in Vietnam from 1968 to 1969 as a crew chief in the Air Force, and worked at a base for airplanes which sprayed various herbicides, including Agent Orange. In 1996, Isaacson was diagnosed with non-Hodgkins lymphoma.

Defendants are chemical manufacturers who produced and sold to the United States Government the herbicide Agent Orange during the Vietnam War.

2. Proceedings Below

In August 1998, Isaacson filed suit in New Jersey state court, asserting claims only under state law. Defendants quickly removed the case to federal court and Isaacson's subsequent motion to remand was denied by Chief Judge Anne Thompson in the District of New Jersey. Thereafter, [256] Isaacson's case was transferred to Judge Weinstein by the MDL Panel.

Stephenson filed his suit pro se in the Western District of Louisiana in February 1999, but he soon retained his current counsel. In April 1999, defendants moved for and were granted a Conditional Transfer Order by the MDL Panel, transferring this action to Judge Weinstein. After Stephenson's case was transferred, it was consolidated with the Isaacson case.

Defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), asserting that plaintiffs' claims were barred by the 1984 class action settlement and subsequent final judgment. Judge Weinstein granted this motion from the bench following argument, rejecting plaintiffs' argument that they were inadequately represented and concluding that plaintiffs' suit was an impermissible collateral attack on the prior settlement.

Because we disagree with this conclusion, based on the Supreme Court's holdings in Amchem and Ortiz, we must vacate the district court's dismissal and remand for further proceedings.

II. DISCUSSION

"We review a dismissal under Rule 12(b)(6) de novo, accepting all factual allegations in the complaint as true and drawing all reasonable inferences in the plaintiffs' favor." Ganino v. Citizens Utilities Co., 228 F.3d 154, 161 (2d Cir.2000).

A. Removal Jurisdiction

The Isaacson appellants contend that Isaacson's case should have been remanded for lack of federal jurisdiction. Isaacson initially filed suit in New Jersey state court, alleging only claims under state law. Defendants removed his case to the District of New Jersey, where Isaacson's subsequent motion to remand was denied.

The district court based removal jurisdiction on the All Writs Act, 28 U.S.C. § 1651,^[5] and concluded that the court best suited to determine the settlement's preclusive effect would be the court that approved the settlement. Ivy/Hartman I, 781 F.Supp. at 918.

"A district court, in exceptional circumstances, may use its All Writs authority to remove an otherwise unremovable ... case in order to `effectuate and prevent the frustration of orders it has previously issued in its exercise of jurisdiction otherwise obtained.'" Ivy/Hartman II, 996 F.2d at 1431 (quoting United States v. N.Y. Tel. Co., 434 U.S. 159, 172, 98 S.Ct. 364, 54 L.Ed.2d 376 (1977)). In Ivy/Hartman II, we concluded that such exceptional circumstances warranted removal jurisdiction in that case because "[i]f Agent Orange victims were allowed to maintain separate actions in state court, the deleterious effect on the ... settlement mechanism would be substantial." Id. Isaacson contends that this case, however, presents no such "exceptional circumstances," because the settlement fund no longer exists.

We disagree. Although the settlement funds are now depleted, maintenance of these actions in state court necessarily requires interpretation of the scope of the Agent Orange Settlement and could have the potential to disturb the judgment underlying the settlement depending on the position taken by defendants. Although we ultimately hold that Isaacson's suit is not precluded by the settlement judgment, removal and transfer were appropriate simply for the purpose of determining the [257] settlement's preclusive effect.^[6] Indeed, the court "best situated to make this determination" is the court that entered judgment. Id. This conclusion is not altered by our determination that the district court here erred.

B. Collateral Attack

The parties devote much energy to debating the permissibility of a collateral attack in this case. Plaintiffs assert that, since the Supreme Court's decision in Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22 (1940), courts have allowed collateral attacks on class action judgments based upon due process concerns. Defendants strenuously disagree and contend that to allow plaintiffs' suit to go forward, in the face of the 1984 global settlement, would "violate defendants' right to due process of law." Appellees' Br. at 39. Defendants likewise strenuously argue that the district court's injunction against future litigation prevents these appellants from maintaining their actions. While it is true that "[a]n injunction must be obeyed until modified or dissolved, and its unconstitutionality is no defense to disobedience," Met. Opera Ass'n. v. Local 100, Hotel Employees and Rest. Employees Int'l Union, 239 F.3d 172, 176 (2d Cir.2001) (citing Walker v. Birmingham, 388 U.S. 307, 314-21, 87 S.Ct. 1824, 18 L.Ed.2d 1210 (1967)), defendants' injunction-based argument misses the point. The injunction was part and parcel of the judgment that plaintiffs contend failed to afford them adequate representation. If plaintiffs' inadequate representation allegations prevail, as we so conclude, the judgment, which includes the injunction on which defendants rely, is not binding as to these plaintiffs.

Defendants contend that Supreme Court precedent permits a collateral attack on a class action judgment "only where there has been no prior determination of absent class members' due process rights." Appellees' Br. at 40. According to defendants, because the "due process rights of absent class members have been extensively litigated in the Agent Orange litigation," Appellees' Br. at 44, these plaintiffs cannot now attack those prior determinations. We reject defendants' arguments and conclude that plaintiffs' collateral attack, which seeks only to prevent the prior settlement from operating as res judicata to their claims, is permissible.

First, even if, as defendants contend, collateral attack is only permitted where there has been no prior determination of the absent class members' rights, plaintiffs' collateral attack is allowed. It is true that, on direct appeal and in the Ivy/Hartman litigation, we previously concluded that there was adequate representation of all class members in the original Agent Orange settlement. However, neither this Court nor the district court has addressed [258] specifically the adequacy of representation for those members of the class whose injuries manifested after depletion of the settlements funds. See Ivy/Hartman II, 996 F.2d at 1436 (creating a subclass of future claimants was unnecessary because the settlement covered such claimants); Ivy/Hartman I, 781 F.Supp. at 919 ("These plaintiffs, like all class members who suffer death or disability before the end of 1994, are eligible for compensation from the Agent Orange Payment Fund." (emphasis added.)) Therefore, even accepting defendants' argument, plaintiffs' suit can go forward because there has been no prior adequacy of representation determination with respect to individuals whose claims arise after the depletion of the settlement fund.^[7]

Second, the propriety of a collateral attack such as this is amply supported by precedent. In Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22 (1940), the Supreme Court entertained a collateral attack on an Illinois state court class action judgment that purported to bind the plaintiffs. The Court held that class action judgments can only bind absent class members where "the interests of those not joined are of the same class as the interests of those who are, and where it is considered that the latter fairly represent the former in the prosecution of the litigation." Id. at 41, 61 S.Ct. 115; cf. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 805, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985) ("[I]t is true that a court adjudicating a dispute may not be able to predetermine the res judicata effect of its own judgment."). Additionally, we have previously stated that a "[j]udgment in a class action is not secure from collateral attack unless the absentees were adequately and vigorously represented." Van Gemert v. Boeing Co., 590 F.2d 433, 440 n. 15 (2d Cir.1978); aff'd 444 U.S. 472, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980).

Allowing plaintiffs' suit would be consistent with many other circuit decisions recognizing the ability of later plaintiffs to attack the adequacy of representation in an earlier class action. For example, the Fifth Circuit holds:

To answer the question whether the class representative adequately represented the class so that the judgment in the class suit will bind the absent members of the class requires a two-pronged inquiry: (1) Did the trial court in the first suit correctly determine, initially, that the representative would adequately represent the class? and (2) Does it appear, after the termination of the suit, that the class representative adequately protected the interest of the class? The first question involves us in a collateral review of the ... [trial] court's determination to permit the suit to proceed as a class action with [the named plaintiff] as [259] the representative, while the second involves a review of the class representative's conduct of the entire suit — an inquiry which is not required to be made by the trial court but which is appropriate in a collateral attack on the judgment....

Gonzales v. Cassidy, 474 F.2d 67, 72 (5th Cir.1973); see also Williams v. Gen. Elec. Capital Auto Lease, Inc., 159 F.3d 266 (7th Cir.1998) (addressing due process considerations of prior class action settlement on collateral attack); Twigg v. Sears, Roebuck & Co., 153 F.3d 1222, 1226 (11th Cir.1998) ("Before the bar of claim preclusion may be applied to the claim of an absent class member, it must be demonstrated that invocation of the bar is consistent with due process, and an absent class member may collaterally attack the prior judgment on the ground that to apply claim preclusion would deny him due process."); Crawford v. Honig, 37 F.3d 485, 488 (9th Cir.1994) (finding that when absent class members were not adequately represented in a post-settlement modification of a class-wide injunction, "res judicata did not bar them from collaterally attacking the [modification] proceedings") (citation omitted).

Defendants' citation to Federated Department Stores, Inc. v. Moitie, 452 U.S. 394, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981), is unavailing. According to that case, a "judgment merely voidable because based upon an erroneous view of the law is not open to collateral attack, but can be corrected only by a direct review and not by bringing another action upon the same cause [of action]." Id. at 398, 101 S.Ct. 2424 (alteration in original). Defendants' reliance on this case misperceives plaintiffs' argument. Plaintiffs do not attack the merits or finality of the settlement itself, but instead argue that they were not proper parties to that judgment. If plaintiffs were not proper parties to that judgment, as we conclude below, res judicata cannot defeat their claims. Further, such collateral review would not, as defendants maintain, violate defendants' due process rights by exposing them to double liability. Exposure to liability here is not duplicative if plaintiffs were never proper parties to the prior judgment in the first place.

We therefore hold that a collateral attack to contest the application of res judicata is available. We turn next to the merits of this attack.

C. Due Process Considerations and Res Judicata

The doctrine of res judicata dictates that "a final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action." Kremer v. Chem. Constr. Corp., 456 U.S. 461, 466 n. 6, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). Res judicata ordinarily applies "if the earlier decision was (1) a final judgment on the merits, (2) by a court of competent jurisdiction, (3) in a case involving the same parties or their privies, and (4) involving the same cause of action." Anaconda-Ericsson Inc. v. Hessen (In re Teltronics Servs., Inc.), 762 F.2d 185, 190 (2d Cir.1985).

Plaintiffs' argument focuses on element number three in the res judicata analysis: whether they are parties bound by the settlement. Plaintiffs rely primarily on the United States Supreme Court's decisions in Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997), and Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999).

In Amchem, the Supreme Court confronted, on direct appeal, a challenge to class certification for settlement purposes in an asbestos litigation. The class defined in the complaint included both individuals [260] who were presently injured as well as individuals who had only been exposed to asbestos. Amchem, 521 U.S. at 602 n. 5, 117 S.Ct. 2231. The Supreme Court held that this "sprawling" class was improperly certified under Federal Rules of Civil Procedure 23(a) and (b). Id. at 622-28, 117 S.Ct. 2231. Specifically, the Court held that Rule 23(a)(4)'s requirement that the named parties "`will fairly and adequately protect the interests of the class'" had not been satisfied. Id. at 625-26, 117 S.Ct. 2231. The Court reasoned that

named parties with diverse medical conditions sought to act on behalf of a single giant class rather than on behalf of discrete subclasses. In significant respects, the interests of those within the single class are not aligned. Most saliently, for the currently injured, the critical goal is generous immediate payments. That goal tugs against the interest of exposure-only plaintiffs in ensuring an ample, inflation-protected fund for the future.

Id. at 626, 117 S.Ct. 2231.

Amchem also implied, but did not decide, that the notice provided to exposure-only class members was likewise inadequate. The Court stated that, because many exposure-only individuals, may not be aware of their exposure or realize the ramifications of exposure, "those without current afflictions may not have the information or foresight needed to decide, intelligently, whether to stay in or opt out." Id. at 627, 117 S.Ct. 2231.

In Ortiz, the Supreme Court again addressed a settlement-only class action in the asbestos litigation context. Ortiz, however, involved a settlement-only limited fund class under Rule 23(b)(1)(B). The Supreme Court ultimately held that the class could not be maintained under Rule 23(b)(1)(B), because "the limit of the fund was determined by treating the settlement agreement as dispositive, an error magnified" by conflicted counsel. Ortiz, 527 U.S. at 864, 119 S.Ct. 2295. In so holding, Ortiz noted that "it is obvious after Amchem that a class divided between holders of present and future claims (some of the latter involving no physical injury and attributable to claimants not yet born) requires division into homogeneous subclasses under Rule 23(c)(4)(B), with separate representation to eliminate conflicting interests of counsel." Id. at 856, 119 S.Ct. 2295.

Res judicata generally applies to bind absent class members except where to do so would violate due process. Gonzales, 474 F.2d at 74. Due process requires adequate representation "at all times" throughout the litigation, notice "reasonably calculated ... to apprise interested parties of the pendency of the action," and an opportunity to opt out. Shutts, 472 U.S. at 811-12, 105 S.Ct. 2965.

Both Stephenson and Isaacson fall within the class definition of the prior litigation: they served in the United States military, stationed in Vietnam, between 1961 and 1972, and were allegedly injured by exposure to Agent Orange. However, they both learned of their allegedly Agent Orange-related injuries only after the 1984 settlement fund had expired in 1994. Because the prior litigation purported to settle all future claims, but only provided for recovery for those whose death or disability was discovered prior to 1994, the conflict between Stephenson and Isaacson and the class representatives becomes apparent.^[8] No provision was made for post-1994 [261] claimants, and the settlement fund was permitted to terminate in 1994. Amchem and Ortiz suggest that Stephenson and Isaacson were not adequately represented in the prior Agent Orange litigation.^[9] Those cases indicate that a class which purports to represent both present and future claimants may encounter internal conflicts.^[10]

Defendants contend that there was, in fact, no conflict because all class members' claims were equally meritless and would have been defeated by the "military contractor" defense. This argument misses the mark. At this stage, we are only addressing whether plaintiffs' claims should be barred by res judicata. We are therefore concerned only with whether they were afforded due process in the earlier litigation. Part of the due process inquiry (and part of the Rule 23(a) class certification requirements) involves assessing adequacy of representation and intra-class conflicts. The ultimate merits of the claims have no bearing on whether the class previously certified adequately represented these plaintiffs.

Because these plaintiffs were inadequately represented in the prior litigation, they were not proper parties and cannot be bound by the settlement. We therefore must vacate the district court's dismissal and remand for further proceedings. We, of course, express no opinion as to the ultimate merits of plaintiffs' claims.

III. CONCLUSION

For the foregoing reasons, we hold that the prior Agent Orange settlement does not preclude these plaintiffs from asserting their claims alleging injury due to Agent Orange exposure. Because these plaintiffs were inadequately represented in the prior litigation, based on the Supreme Court's teaching in Amchem and Ortiz, they were not proper parties to the litigation. We therefore vacate the district court's dismissal and remand the case to the district court for further proceedings consistent with this opinion.

[1] The Honorable Arthur D. Spatt, of the United States District Court for the Eastern District of New York, sitting by designation.

[2] Trial Lawyers for Public Justice, as amicus curiae, filed a brief in support of the plaintiffs' position.

[3] The district court had earlier rejected a motion to establish a plaintiff's steering committee, reasoning that lead counsel had expressed willingness to "consider all ideas and suggestions submitted by attorneys for separate plaintiffs." In re "Agent Orange" Prod. Liab. Litig., 534 F.Supp. 1046, 1052-53 (E.D.N.Y.1982).

[4] Two plaintiffs in the Ivy litigation alleged injuries stemming from Agent Orange exposure while acting in a civilian capacity, and thus were not members of the class bound by the 1984 settlement. Their claims were severed from the claims of the other plaintiffs. See Ryan v. Dow Chem. Co. (In re "Agent Orange") Prod. Liab. Litig., 781 F.Supp. 902, 914 (E.D.N.Y.1991) ("Ivy/Hartman I"); aff'd sub nom Ivy v. Diamond Shamrock Chem. Co. (In re "Agent Orange" Prod. Liab. Litig.), 996 F.2d 1425 (2d Cir.1993).

[5] This section provides that "[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." 28 U.S.C. § 1651(a).

[6] In Ivy/Hartman II, this Court noted that "[i]t is difficult to conceive of any state court properly addressing a victim's tort claim without first deciding the scope of the Agent Orange I class action and settlement." Ivy/Hartman II, 996 F.2d at 1431. Whether or not funds from the original settlement pool remained available for these victims, a state court could not consider the merits of the plaintiffs' cases without first deciding whether the original Agent Orange Settlement Agreement addressed (and therefore now precluded) their claims. As we held in Ivy/Hartman II, "[t]he court best situated [to determine whether a plaintiff's claim is barred by the original settlement] is the court that approved the settlement and entered [the] judgment enforcing it." Id. Although we express no opinion as to whether maintenance of these actions in the state court would actually disturb the settlement, we find the need for interpretation of the settlement and the possibility of such disturbance a sufficient basis for the "extraordinary circumstances" warranting removal under the All Writs Act.

[7] Defendants rely heavily on a recent Ninth Circuit decision, Epstein v. MCA, Inc., 179 F.3d 641 (9th Cir.1999), in support of their limited collateral review theory. Epstein held that a collateral attack is available only "to consider whether the procedures in the prior litigation afforded the party against whom the earlier judgment is asserted a `full and fair opportunity' to litigate the claim or issue." Id.at 648-49. According to the Ninth Circuit,

Due process requires that an absent class member's right to adequate representation be protected by the adoption of the appropriate procedures by the certifying court and by the courts that review its determinations; due process does not require collateral second-guessing of those determinations and that review.

Id. at 648. Here, neither the district court nor this Court has determined the adequacy of representation with respect to these plaintiffs whose injuries did not arise until after the settlement expired. Without adopting the Ninth Circuit's decision in Epstein, we conclude that plaintiffs' collateral attack is proper even under its standard.

[8] Again, we distinguish the Ivy/Hartman cases, which held that pre 1994 claimants were adequately represented in the prior Agent Orange litigation. This conclusion was based, at least in part, on those claimants' eligibility for compensation from the settlement fund. See Ivy/Hartman I, 781 F.Supp. at 919; Ivy/Hartman II, 996 F.2d at 1435-36.

[9] We also note that plaintiffs likely received inadequate notice. Shutts provides that adequate notice is necessary to bind absent class members. Shutts, 472 U.S. at 812, 105 S.Ct. 2965. As described earlier, Amchem indicates that effective notice could likely not ever be given to exposure-only class members. Amchem, 521 U.S. at 628, 117 S.Ct. 2231. Because we have already concluded that these plaintiffs were inadequately represented, and thus were not proper parties to the prior litigation, we need not definitively decide whether notice was adequate.

[10] Both Amchem and Ortiz addressed the possibility of internal conflicts in the limited context of settlement-only classes. For such certifications, Amchem held that internal conflicts would prevent adequate representation when the named plaintiffs (having present injuries) did not act with "a proper understanding of their representational responsibilities" towards class members whose injuries would surface later. Amchem, 521 U.S. at 627-28, 117 S.Ct. 2231. Ortiz, while recognizing the need for some limit to "reclassification with separate counsel," found that because of the lack of procedural safeguards like subclasses in the Ortiz certification, the settlement-only class presented could not adequately protect included future plaintiffs. Ortiz, 527 U.S. at 855-57, 864-65, 119 S.Ct. 2295(noting that the application of Rule 23(b)(1)(B) to a plan addressing actual and potential tort claims is "subject to question").

[979] [980] Nels Ackerson, Kathleen Clubb Kauffman (argued), Ackerson Group Chartered, Washington, DC, for Plaintiffs-Appellees.

Jack E. McClard, Hunton & Williams, Richmond, VA, G. Ronald Heath, Hoover Hull Baker & Heath, Indianapolis, IN, for Defendant-Appellee.

Irwin B. Levin (argued), Cohen & Mald, Indianapolis, IN, for Intervenor-Appellant.

John J. Rademacher, American Farm Bureau Federation, Park Ridge, IL, for Amicus Curiae.

Before COFFEY, DIANE P. WOOD and WILLIAMS, Circuit Judges.

Rehearing and Rehearing En Banc Denied November 26, 2002.^[1]

DIANE P. WOOD, Circuit Judge.

This litigation arose after Thoroughbred Technology & Telecommunications, Inc. (T-Cubed) announced that it had the right to install conduits for fiber optic cables along railroad right-of-way corridors. Timothy Elzinga, a property owner along a right-of-way owned by the Norfolk Southern Railway, disagreed. In his view, such a use by T-Cubed without the permission of the adjacent landowners would amount to a slander of their title and a trespass. Discussions took place between Elzinga and T-Cubed, which eventually bore fruit in the form of a proposed class-wide settlement. This proposed settlement presumed that Elzinga would be certified as the representative of the putative class. With this much accomplished, Elzinga then filed suit and simultaneously sought certification of a settlement class, consisting of all the persons who owned real estate on either side of the railroad tracks along the route T-Cubed proposed to use for its cable.

One particular complication figures significantly in this appeal. At any given point, T-Cubed will lay fiber optic cable on only one side of the tracks. Ex ante, it is impossible to know which side that will be; detailed engineering surveys and technical criteria will govern the company's final choice. The settlement agreement attempts to deal with this uncertainty by dividing the class members into two categories: the Cable Side and the Non-Cable Side. (It does not address separately the possibility that one landowner might own land on both sides of the track; presumably such a person falls within both subgroups.) Under the terms of the agreement, the two groups will receive different forms of compensation. All class members, however, will become shareholders in Class Corridor, LLC (Class Corridor), a newly created limited liability company.

[981] The appellant in this case, Cathy Mason, is an unnamed class member who claims that the settlement is unfair, and more formally, that it fails to satisfy the requirements of FED. R. CIV. P. 23(a) and (b). (While a dispute remains as to whether Mason will be entitled to any benefits under the settlement agreement, the fact that she is claiming that she should receive something is enough to ensure that she has standing to intervene.) The district court granted Mason's motion to intervene, but it then overruled her objections and approved both the certification of the settlement class and the settlement agreement itself. We affirm.

I

The class Elzinga represents has approximately 58,000 members. They all own property along several thousand miles of railroad track.^[2] Although some class members own their property in fee simple absolute, in most instances, the property immediately adjacent to the track is subject to an easement or right-of-way owned by Norfolk Southern Corporation (Norfolk Southern). Regardless, all parties admit that in many cases, title to the properties will be difficult to prove.

Norfolk Southern granted to T-Cubed, its subsidiary, the right to lay fiber optic cable in the corridors along the railway easements. T-Cubed then announced its intention to install its cables in those corridors so that it could then market network services to communications providers. Elzinga's complaint alleged slander of title (arising from T-Cubed's claim that it has a property interest along the railroad right-of-way) and actual or threatened trespass (arising from T-Cubed's surveying of the property and its planned installment of conduits). On behalf of himself and the proposed class, he requested declaratory relief proclaiming the owners' interest in the land and injunctive relief prohibiting T-Cubed from taking further unlawful action.

Before we proceed to the details of the settlement agreement, we must first address the composition of the class the district court agreed to certify. The two groups within the class, the Cable Side and the Non-Cable Side, are determined by the eventual use of the side of the track on which the class members' property resides (which is a significant issue for those who do not own the property on both sides of a given section of track). As we noted above, this distinction is important because T-Cubed will lay its cables on only one side of the railroad track. Furthermore, T-Cubed has refused to identify which properties would be Cable Side and which would be Non-Cable Side, because it claimed that there was no way it could know until after it had entered the land and surveyed it (and thus committed the trespass the complaint was in part trying to prevent). As a result, class representative Elzinga had to agree to the settlement before knowing on which side of the tracks his own property fell. This "veil of uncertainty" exists as well for Mason; although she objects that the settlement agreement [982] is not fair, she does not know whether she will be in the Cable Side or Non-Cable Side group.

Under the settlement approved by the district court, all class members, Cable Side and Non-Cable Side, will abandon any claims against T-Cubed and transfer an easement to T-Cubed for the specific purpose of laying cable. In exchange for the easement, depending upon whether they turn out to be Cable Side or Non-Cable Side, the class members will receive varying compensation.

In keeping with the fact that the Cable Side class members will have given up the most, they will receive the most generous compensation. T-Cubed will pay each one $6,000 per linear mile and a percentage of its revenue from the sale, lease, and license of the conduits it installs along the corridors. They will also receive ownership interests in the new company, Class Corridor, described below. The Non-Cable Side owners will not receive direct cash payments. They too, however, will receive the same kind of ownership interests in Class Corridor, and will benefit financially in their capacity as shareholders.

The settlement agreement places Class Corridor at the heart of the overall process. All class members (Cable Side and Non-Cable Side), will transfer easements to the new company. T-Cubed, for its part, must give Class Corridor assets including dark optical fiber and an option for Class Corridor to purchase a conduit from T-Cubed. In addition, if T-Cubed leases or sells four or more conduit systems to a telecommunications company, T-Cubed will pay either $316 per fiber mile or up to 16 dark fibers to Class Corridor. T-Cubed will also transfer non-cash telecommunication assets to Class Corridor, permitting it either to own and manage a telecommunications company or to take a specified sum of money. Finally, Class Corridor will convey all Cable Side easements to T-Cubed once T-Cubed determines which side of the corridor it will use for its cables. If T-Cubed fails to install a telecommunication system along the railway, the easements will terminate four years after the effective date of the approval of the settlement.

As noted above, class members will be entitled to share in any revenues that Class Corridor may earn from the telecommunication assets. They will own 100% of the company at a rate of one membership share for each ten linear feet of real estate owned by that class member, along with apportioned voting rights. Shareholder distributions are within the discretion of the Class Corridor Board of Directors and will be made as reasonably determined.

Finally, class counsel will receive $2,000 per linear mile for the first three conduits installed in the settlement corridors, a percentage of T-Cubed's gross receipts with respect to the fourth and successive conduits, and 25% of certain revenues generated by Class Corridor or the cash payment to which Non-Cable Side class members are entitled from Class Corridor. This means that class counsel will receive compensation of the same type and at the same time as class members; as one expert testified, class counsel can never receive compensation that is more advantageous than that which goes to the class members.

Mason acknowledges that Class Corridor has an upside, in that it permits class members to participate in any successes in the telecommunications market and to have greater control over future uses of their property. She points out, however, that there is also a downside. Most importantly in her view, any future benefit the class members may receive from Class Corridor is speculative. Class Corridor may never be able to commence its intended business, it might not be able to raise [983] sufficient financing to fund its operations, and it may experience difficulties achieving profitability. As readers of the business pages of the newspapers know all too well at this point, the telecommunications market has been volatile. This means that, insofar as their compensation is tied to Class Corridor, the class members might do very well or they might wind up empty-handed.

The district court was aware of these gloomier possibilities. Despite that, the court approved the settlement agreement. Overall, the court found it to be fair to all parties, particularly in light of the potential weakness of the plaintiffs' individual cases and the risks for all parties that accompanied delay. It also found that Elzinga could adequately represent all the class members, future Cable Side and Non-Cable Side, and certified the class over Mason's objections.

II

A. Jurisdictional Amount

Before proceeding to the merits we must first satisfy ourselves that the $75,000 amount in controversy requirement of 28 U.S.C. § 1332(a) has been met. This amount is determined by an evaluation of the controversy described in the plaintiff's complaint and the record as a whole, as of the time the case was filed. Shaw v. Dow Brands, Inc., 994 F.2d 364, 366 (7th Cir.1993). It is obvious that in conducting the required inquiry the court may consider the value of any benefit the named representatives may receive. In a case that seeks only money damages, the amount the defendant will lose is more or less the same. But in a case like this one, for injunctive relief, there may be an asymmetry. The question has thus arisen whether it is proper in determining amount in controversy to look in the alternative to the cost the defendant will incur in complying with the injunction the plaintiff seeks. In this circuit, the answer to the latter question has been yes: it is established that the jurisdictional amount should be assessed looking at either the benefit to the plaintiff or the cost to the defendant of the requested relief — the so-called "either viewpoint" rule. See, e.g., In re Brand Name Prescription Drugs Antitrust Litigation, 123 F.3d 599, 609 (7th Cir.1997); McCarty v. Amoco Pipeline Co., 595 F.2d 389, 391-95 (7th Cir. 1979). Those cases specifically establish that the cost to a defendant of complying with an injunction sought by the plaintiff may properly be considered in determining the amount in controversy. As the Ninth Circuit recognized in In re Ford Motor Co./Citibank (South Dakota), N.A., 264 F.3d 952, 958-59 (9th Cir.2001), cert. granted under the name Ford Motor Co. v. McCauley, 534 U.S. 1126, 122 S.Ct. 1063, 151 L.Ed.2d 966 (2002) (No. 01-896), it may be more difficult to make this assessment in the class action context. We too have recognized that there are difficulties in that situation, but we have chosen to resolve them by looking separately at each named plaintiff's claim and the cost to the defendant of complying with an injunction directed to that plaintiff. Brand Name Drugs, 123 F.3d at 610. In our view, that ensures that we are not undermining the nonaggregation rule that still applies to class actions where the named plaintiff's claim does not satisfy the jurisdictional amount. The Ninth Circuit apparently rejected our approach in its Ford Motor Co. opinion. The Supreme Court now has the case under advisement, and we recognize that its decision may affect the rule we have followed. Nonetheless, we see no reason to hold this case for the decision in Ford Motor Co.; instead, we respectfully choose to adhere to the Brand Name Drugs approach. We are confident that the parties will be able to preserve their rights to have any contrary Supreme [984] Court ruling applied, should the Court find the Ninth Circuit's approach persuasive.

The reason it is necessary to consider this wrinkle of jurisdictional doctrine stems from the fact that Elzinga was unsure whether he was on Cable Side or Non-Cable Side. This means that there is a serious question whether his injury satisfied the jurisdictional amount. Standing alone, the value of an easement on his property is probably insufficient: the relief he requested in his complaint was primarily declaratory, and if he ends up being on the Non-Cable Side, the trespass will be solely for the purpose of surveying the land. Elzinga argues, however, that under the "either viewpoint" rule, there is more than $75,000 at stake with his individual claim (which is necessary even under this court's view of the scope of 28 U.S.C. § 1367 and Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973), see Stromberg Metal Works, Inc. v. Press Mechanical, Inc., 77 F.3d 928, 930-33 (7th Cir.1996)). He asserts that it is unquestioned that T-Cubed would have to spend more than $75,000 to avoid the costs of injunction and condemnation even if only his land was involved. See McCarty, 595 F.2d at 395. Mason has offered nothing to refute that factual assertion. We are satisfied, looking at this case from T-Cubed's viewpoint, that the jurisdictional amount requirement of § 1332 is satisfied, Gottlieb v. Westin Hotel Co., 990 F.2d 323, 329-30 (7th Cir.1993), and we therefore proceed to Mason's next challenge.

B. Justiciability

This one, which Mason raised at oral argument, also goes to the court's jurisdiction: she claims that the claims of the class members are non-justiciable at this stage of the proceedings. To resolve this justiciability argument, we must look at how the class is defined. If, as Mason argues, the class's claims are future claims, largely hypothetical at this stage, then the claims may not be ripe. If that were true, we would have to vacate the order below and our analysis would end here. See generally U.S. Bancorp. Mortgage Co. v. Bonner Mall P'ship, 513 U.S. 18, 21-23, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994) (vacatur proper where mootness arises from external circumstances or from unilateral action of prevailing party; or case was always moot).

The class in this case has some similarities to certain toxic tort cases, insofar as the eventual harm to the class members was uncertain at the time the complaint was filed and at the time of the settlement. But the similarity is not complete, and in the end it tends more to support the plaintiffs than to undermine them. In many toxic tort cases, uncertainties abound: which class members were exposed to the substance? who has suffered compensable injuries already? who may never suffer injuries? But if the risk itself is immediate, contingent claims based on that risk are justiciable and are routinely addressed both in toxic tort settlements and in bankruptcy proceedings. In this case, parts of the controversy are already unquestionably ripe: the class members' titles have already been slandered, and T-Cubed will need to enter the property at least for purposes of its surveys. The only thing (important though it is) that is not known is whether any particular owner will be Cable Side or Non-Cable Side (or both). Furthermore, at the time of settlement, the slander claim was justiciable because some harm had already occurred. This is enough to permit the court to address the entire suit, including the claims for trespass and the injunction. On these facts, those claims are in no way hypothetical; their immediacy and their relation to the slander claim is enough to permit the court to address the entire controversy.

[985] This is particularly true in light of the fact that we are addressing a settlement. Williams v. General Elec. Capital Auto Lease, 159 F.3d 266, 274 (7th Cir.1998) ("It is not at all uncommon for settlements to include a global release of all claims past, present, and future, that the parties might have brought against each other."). The fact that each individual class member did not know the full extent of the burden she would suffer is unimportant. T-Cubed claimed rights to all of the property, and the settlement required all class members to provide T-Cubed with an easement.

III

Satisfied that we may proceed to the merits, we turn next to the issue of class certification. We review the district court's certification of a class for an abuse of discretion. This is true even in the settlement context. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 630, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); Retired Chicago Police Assoc. v. City of Chicago, 7 F.3d 584, 596 (7th Cir.1993). For a district court to certify a class under Rule 23(a) of the FEDERAL RULES OF CIVIL PROCEDURE, the class must satisfy the requirements of (1) numerosity; (2) commonality; (3) typicality; and (4) representativeness.

A. Class Representative

Much of Mason's argument centers around what she deems conflicting subgroups that were only assigned one representative. In Amchem, 521 U.S. at 619, 117 S.Ct. 2231, and Ortiz v. Fibreboard Corp., 527 U.S. 815, 828 n. 6, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999), the Supreme Court emphasized that although settlement is relevant to class certification, the requirements of Rule 23 must still be satisfied. Thus, a district court may not abandon the Federal Rules merely because a settlement seems fair, or even if the settlement is a "good deal." In some ways, the Rule 23 requirements may be even more important for settlement classes, for which (as this court has put it), the district court must act almost as a fiduciary of the class when approving settlements. Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 279-80 (7th Cir.2002).

A class may not satisfy the requirements of Rule 23(a)(4) if the class representative does not "possess the same interest and suffer the same injury as the class members." East Tex. Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395, 403, 97 S.Ct. 1891, 52 L.Ed.2d 453 (1977) (citing Schlesinger v. Reservists Committee to Stop the War, 418 U.S. 208, 216, 94 S.Ct. 2925, 41 L.Ed.2d 706 (1974)). This requires the district court to ensure that there is no inconsistency between the named parties and the class they represent. Amchem, 521 U.S. at 625, 117 S.Ct. 2231. As the Supreme Court also noted in Amchem, some classes are more prone than others to intra-class conflicts that are not suitable for a single class representative — even if the single class representative believes "that the Settlement serves the aggregate interests of the entire class." 521 U.S. at 627, 117 S.Ct. 2231.

Although Mason has expressed legitimate concerns about Elzinga's literal and figurative representation of both sides of the track, we think she misses the mark in the end. Her objection is premised on the idea that the class must be viewed solely from an ex post perspective. See John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 COLUM. L. REV. 1343, 1435-36 (1995). Nothing in Amchem compels such an approach. In Amchem, the Court found the class to be overbroad in part because it contained both exposure-only and currently injured plaintiffs. In the instant case all members of the class are, for the most significant part of the feared damages, "exposure only": they have all been slandered and [986] many have suffered a surveying trespass, but they are unaware if they will yet suffer trespass injuries from the installation of cable. Thus, if we view Elzinga's adequacy at the time of the settlement, he was in the same position as all class members. T-Cubed did not limit its claims to rights in Cable Side property; it claimed rights to all property adjacent to and beneath the railway.

Moreover, the fact that Cable Side and Non-Cable Side will receive different compensation under the settlement does not make it novel or unfair. See Petrovic v. Amoco, 200 F.3d 1140, 1147 (8th Cir.1999) (holding differences in the amount of damages do not necessarily prohibit class certification). True, the district court could have appointed two representatives, one to represent the future Cable Side owners and one to represent the future Non-Cable Side owners. But we see no reason why it was compelled to do this, since the named representative had an equal incentive to represent both sides as long as he did not know where his property would end up. Until the cable has been laid, no "Cable Side" exists. In the end the Cable Side and Non-Cable Side may have diverging goals — the classes are mutually exclusive; by definition, Elzinga cannot be on both sides of the track. Cable Side's goal would be compensation for the conduits on their land, while the Non-Cable Side goal would be preparation for future infringement by telecommunications groups through the formation of Class Corridor.

The district court observed that Elzinga was able to serve as a good class representative because he would be a "concrete working example of John Rawls' celebrated theory of the `veil of ignorance.'" We need not decide if we have a pure Rawlsian situation here, or what the legal consequences should be if we did. The important fact is that Elzinga was not merely an uninterested neutral participant, unable to serve as an effective advocate for the class. He was someone who had a real stake in all aspects of the case: the slander of title claims, the surveying trespass claims, and the cable conduit trespass claims. See Rand v. Monsanto Co., 926 F.2d 596, 599 (7th Cir.1991). In light of the arguments presented to it, the district court did not abuse its discretion in finding Elzinga satisfied the requirements of Rule 23(a)(4). (We do not comment on whether possible differences in ownership rights, state law, or other factors should have influenced the certification decision, as Mason does not rely on these factors to challenge the propriety of the settlement class. See, e.g., Isaacs v. Sprint Corp., 261 F.3d 679 (7th Cir.2001) (reversing certification of a class in a similar case).)

B. Class Corridor

Having determined that the district court did not abuse its discretion in certifying the class, we at last turn to the merits of the decision to approve the settlement. Mason argues that the settlement is not fair in large part because it relies so heavily on the newly created Class Corridor. Federal courts favor settlement, so the district court's inquiry into the settlement structure is limited to whether the settlement is lawful, fair, reasonable and adequate. Isby v. Bayh, 75 F.3d 1191, 1198-99 (7th Cir.1996). Mason must do more than just argue that she would have preferred a different settlement structure, as this court's review of the settlement structure is even more narrow. We will reject the district court's decision to approve it only if we find an abuse of discretion. Id.

In approving the settlement, the district court considered factors from the Manual for Complex Litigation and Moore's Federal Practice. It placed considerable [987] weight on the strength (or lack thereof) of the plaintiffs' case on the merits. It noted the potential difficulty for individual landowners to bring this claim. Although T-Cubed claimed that it owned all of the easements, what is more likely is that some of the individual landowners own the land outright, some may have granted the railroad easements strictly limited to railroad purposes, and others may have granted broader easements to Norfolk Southern that it could convey immediately to T-Cubed. See Isaacs, 261 F.3d at 681-82 (noting in a similar class action the difficulty in identifying different conveyances by and to different parties made at different times over a period of more than a century).

Mason agrees that the settlement is probably a good deal overall, and applauds class counsel for reaching such an unusual and innovative settlement. Her complaint is only that the settlement runs the risk of leaving Non-Cable Side class members without any compensation at all (even though, if Class Corridor succeeds, all class members might benefit handsomely from it). We agree with Mason that the future of Class Corridor is indeed speculative, despite what the appellees describe as a "blue-ribbon" Board of Advisors ready to propose a Board of Directors, and despite the fact that T-Cubed is obligated to give it certain assets. Class Corridor will have the burdens of any startup company — no employees, officers, operating capital, or startup financing to meet daily expenses. But it is unclear why this makes the Non-Cable Side class members worse off than they would be without the settlement, recalling that by definition T-Cubed would not be buying a permanent easement from them. In re Mexico Money Transfer Litigation, 267 F.3d 743, 748 (7th Cir.2001) ("[O]ne must ask whether the value of relief in the aggregate is a reasonable approximation of the value of plaintiffs' claim."). Non-Cable Side's only injuries are the slander of title and the limited trespass for survey purposes. Although, under the settlement, they will remain encumbered by a telecommunications easement owned by Class Corridor, this unused easement is not likely to be much different from the railroad easement to which much of this property was subject. Therefore, the fact that Non-Cable Side's recovery is minimal is unproblematic since their damages are also minimal. Indeed the only recovery ordinarily granted for slander is the cost of clearing the title — in this case, title to land the individual might not even have.

We also think this settlement structure is different from the one rejected by the Second Circuit in In re Agent Orange Product Liability Litigation, 818 F.2d 179, 181 (2d Cir.1987). In Agent Orange, the district court devised an independent foundation to administer funds on behalf of class members. The Second Circuit rejected the district court's transfer of judicial duties to an independent organization as "there is no principle of law authorizing such a broad delegation of judicial authority to private parties." Id. at 185. Unlike the independent body the Agent Orange court disapproved, Class Corridor is not only a product of the settlement. It signed the settlement agreement. Like the other parties to the agreement, it will remain under the district court's jurisdiction as it distributes cash and shares. Moreover, issuing securities as a settlement has long been accepted. General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1082 (7th Cir.1997). Perhaps there could have been an even more creative settlement or, alternatively, one that is more traditional. But that is not the question we must resolve. The district court did not abuse its discretion when it determined that the settlement before it (on behalf of a class from which [988] only 250 of the 58,000 class members opted out) complied with Rule 23.

IV

We AFFIRM the judgment of the district court.

[1] Judge Kenneth F. Ripple did not participate in the consideration of this petition.

[2]The formal definition of the class reads as follows:

All persons or entities owning land that is under or adjacent to railroad corridors used by Norfolk Southern Railway Company, certain of its subsidiaries and Pennsylvania Lines LLC on the following ten point-to-point corridors (the "Settlement Corridors") on which T-Cubed plans to install telecommunications conduit and/or fiber optic cable:

A. Atlanta, GA — Jacksonville, FL    362 milesB. Atlanta, GA — Chattanooga, TN     170 milesC. Chattanooga, TN — Cincinnati, OH  190 milesD. Chattanooga, TN — Memphis, TN     299 milesE. Cincinnati, OH — Bellevue, OH     263 milesF. Detroit, MI — Toledo, OH           57 milesG. Atlanta, GA — Charlotte, NC       220 milesH. Chicago, IL — Harrisburg, PA      719 milesI. Harrisburg, PA — Alexandria, VA   169 milesJ. Cleveland, OH — Erie, PA           73 miles

[284] John J. Pentz, III, Esq. [Argued], Class Action Fairness Group, Maynard, MA, for Non Party-Appellant.

Howard J. Bashman, Esq. [Argued], Willow Grove, PA, George M. Plews, Esq., Christopher J. Braun, Esq., Plews Shadley Racher & Braun LLP, Indianapolis, IN, for Non Party-Appellant Susan M. Quinn.

William Bernstein, Esq., Eric B. Fastiff, Esq., Lieff, Cabraser, Heimann & Bernstein, Joseph D. Cooper, Esq., Tracy R. Kirkham, Esq., Cooper & Kirkham, San Francisco, CA, for Plaintiff-Appellee Shawn Sullivan.

Craig C. Corbitt, Esq., Zelle, Hofmann, Voelbel & Mason, San Francisco, CA, Samuel Issacharoff, Esq., [Argued], New York University Law School, New York, NY, Steven A. Katz, Esq., Korein Tillery, St. Louis, MO, Susan G. Kupfer, Esq., Glancy, Binkow & Goldberg, San Francisco, CA, John A. Maher, Esq., Summit, NJ, Joseph J. Tabacco, Jr., Esq., Berman, De-Valerio, Pease, Tabacco, Burt & Pucillo, San Francisco, CA, for Plaintiffs-Appellees Arrigotti Fine Jewelry Shawn Sullivan and James Walnum.

Jessica Biggio, Esq., Skadden, Arps, Slate, Meagher & Flom, New York, NY, Francis Ciani-Dausch, Esq., Tara S. Emory, Esq., Steven C. Sunshine, Esq., Skadden, Arps, Slate, Meagher & Flom, Washington, DC, Matthew P. Hendrickson, Esq., Skadden, Arps, Slate, Meagher & Flom, New York, NY, for Defendant-Appellee DeBeers SA.

Ben Kinzler, Esq., Diamond Manufacturers & Importers Association of America, New York, NY, Robert J. LaRocca, Esq., Kohn Swift & Graf, Philadelphia, PA, Joanne Zack, Esq., Bonio & Zack, Bala Cynwyd, PA, for Non-Party Amicus Appellee, Diamond Manufacturers and Importers Association of America.

Edward W. Harris, III, Esq., Taft, Stettinius & Holister, Indianapolis, IN, Robert A. Skirnick, Esq., Meredity, Cohen, Greenfogel & Skirnick, Jared Stamell, Esq., Stamell & Schager, New York, NY, for Non Party-Appellees Anco Ind. Diamond Corp.; Amer Diamond Tool & Gauge Inc. And British Diamond Import Co.

Cecilia L. Gardner, Esq., Jewelers Vigilance Committee, New York, NY, for Non Party-Amicus Appellee Jewelers Vigilance Comm.

Scott W. Browne, Esq., Browne & Browne, Beaumont, TX, Kenneth E. Nelson, Esq., Kansas City, MO, Edward F. Siegel, Esq. Cleveland, OH, for Non Party-Appellants William Benjamin Coffey, Jr., Marvin L. Union, Tim Henning, Neil Freeman and Kylie Luke.

Christpher A. Bandas, Esq., Bandas law Firm, Corpus Christie, TX, for Non Party-Appellant Aaron Petrus.

Robert E. Margulies, Esq., Margulies Wind, Jersey City, NJ, Jeffrey L. Weinstein, Athens, TX, for Non Party-Appellant Janet Giddings.

Ricky E. Bagolie, Esq., Bagolie Friedman Injury Lawyers, Jersey City, NJ, Andrea Boggio, Esq., Bryant University, Smithfield, RI, for Non Party-Appellants Frank Ascione, Rosaura Bagolie, Matthew Delong, Ed McKenna Peter Perera, Thomas Vaughan.

Robert J. Gaudet, Jr., Esq. [ARGUED], RJ Gaudet & Associates, Seattle, WA, for Non Party-Appellants Sandeep Gopalan, Manoj Kolel-Veetil, Matthew Metz, Anita Pal, Deb K. Pal, Jay Pal and Rangesh K. Shah.

Eric L. Cramer, Esq., Berger & Montague, Philadelphia, PA, for Non Party-Amicus Appellee American Antitrust Institute.

Kristen Dishman, Wareham, MA, pro se.

[285] Margaret Marasco, Lynn, MA, pro se.

James B. Hicks, Hicks Parks, Los Angeles, CA, pro se.

Before: RENDELL and JORDAN, Circuit Judges, and AMBROSE^[1], District Judge.

Before: SCIRICA, RENDELL, AMBRO, FUENTES, SMITH, FISHER, CHAGARES, JORDAN and VANASKIE, Circuit Judges.

OPINION OF THE COURT

RENDELL, Circuit Judge, with whom Circuit Judges SCIRICA, AMBRO, FUENTES, FISHER, CHAGARES and VANASKIE, join.

At issue on appeal in this class action litigation is the propriety of the District Court's certification of two nationwide settlement classes comprising purchasers of diamonds from De Beers S.A. and related entities ("De Beers").^[2] The settlement provided for a fund of $295 million to be distributed to both the direct and indirect purchasers: the direct purchasers were to receive $22.5 million of the fund, while the indirect purchasers would receive $272.5 million. A panel of our Court held that the District Court's ruling was inconsistent with the predominance inquiry mandated by Federal Rule of Civil Procedure 23(b)(3), and remanded the matter for further proceedings. See Sullivan v. DB Investments, Inc., 613 F.3d 134 (3d Cir.2010), reh'g en banc granted and vacated by Sullivan v. DB Investments, Inc., 619 F.3d 287 (3d Cir.2010). We then granted the plaintiffs' petition for rehearing en banc and vacated the prior order. Accordingly, we address anew the propriety of the District Court's certification of the direct and indirect purchaser classes pursuant to Federal Rule of Civil Procedure 23(b)(2) and 23(b)(3), and also consider for the first time the objections raised to the fairness of the class settlement.^[3]

We believe that the predominance inquiry should be easily resolved here based on De Beers's conduct and the injury it caused to each and every class member, and that the straightforward application of Rule 23 and our precedent should result in affirming the District Court's order certifying the class. But the objectors to the class certification and our dissenting colleagues insist that, when deciding whether to certify a class, a district court must ensure that each class member possesses a viable claim or "some colorable legal claim," (Dissenting Op. at 344). We disagree, and accordingly, we will reason [286] through our analysis in a more deliberate manner in order to explain why the addition of this new requirement into the Rule 23 certification process is unwarranted.

I. Factual & Procedural Background

A. Present Litigation & Settlement Proceedings

The allegations in the present case arose from De Beers's undisputed position as the dominant participant in the wholesale market for gem-quality diamonds throughout much of the twentieth century.^[4] It is alleged that, beginning in 1890 and continuing through the filing of the Complaints at issue in this appeal, De Beers coordinated the worldwide sales of diamonds by, inter alia, executing output-purchase agreements with competitors, synchronizing and setting production limits, restricting the resale of diamonds within certain geographic regions, and directing marketing and advertising. Through its coordinated network of diamond producers, De Beers was able to value diamonds according to certain physical characteristics and to then control the quantity and prices of diamonds in the marketplace by strictly regimenting sales to preferred wholesalers, known as "sightholders."^[5] Sightholders resold these diamonds to jewelry manufacturers and retailers—either as rough diamonds or as cut, polished, and finished stones—and constituted De Beers's primary channel for distribution of its diamonds.^[6]

Between 2001 and 2002, plaintiffs brought suit complaining that De Beers's aforementioned business practices contravened state and federal antitrust, consumer protection, and unjust enrichment laws, and constituted unfair business practices and false advertising under common law and relevant state statutes. Specifically, the plaintiffs alleged that De Beers exploited its market dominance to artificially inflate the prices of rough diamonds; this, in turn, caused reseller and consumer purchasers of diamonds and diamond-infused products to pay an unwarranted premium for such products. The initial two price-fixing lawsuits were filed in the United States District Courts for the District of New Jersey and the Southern District of New York in 2001, and five subsequent lawsuits were initiated in federal and state courts in other parts of the country.^[7] [287] Three of the lawsuits were filed in state court in Arizona, California, and Illinois, respectively; the last was then removed to the United States District Court for the Southern District of Illinois. The five suits in federal court were subsequently all transferred to and consolidated in the United States District Court for the District of New Jersey, and are presently before us.

The plaintiffs in the seven cases are best characterized as falling within one of two types of purchaser classes. The first category includes direct purchasers of gem diamonds, who purchased directly from De Beers or one of its competitors ("Direct Purchaser Class" or "Direct Purchasers"). These plaintiffs advanced claims of price-fixing and monopolization pursuant to §§ 1 and 2 of the Sherman Act, and sought monetary and injunctive relief under §§ 4 and 16 of the Clayton Act. The second category of plaintiffs consists of indirect purchasers of rough or cut-and-polished diamonds; this category of consumers, jewelry retailers and other middlemen acquired diamonds from sightholders or other direct purchasers, rather than directly from De Beers or its competitors ("Indirect Purchaser Class" or "Indirect Purchasers"). While both categories of purchasers alleged the same antitrust injury and sought injunctive relief pursuant to § 16 of the Clayton Act, the Indirect Purchasers sought damages pursuant only to state antitrust, consumer protection, and unjust enrichment statutes and common law.

As it had for well over a half-century, De Beers initially rejected the plaintiffs' assertion that courts in the United States possessed personal jurisdiction over it and its associated entities, arguing that it never transacted business directly in the United States. De Beers refused to appear in the lawsuits, resulting in defaults or default judgments being entered against it in each of the filed cases with the exception of Cornwell. While continuing to insist that these default judgments were unenforceable, counsel for De Beers approached [288] plaintiffs' counsel in May 2005 to discuss settlement of the Indirect Purchasers' claims. These discussions yielded an agreement to settle Sullivan, Hopkins, Null, and Cornwell (the "Indirect Purchaser Settlement"), with De Beers agreeing to establish a settlement fund of $250 million to be distributed to class members, and further agreeing not to contest certification of a settlement class of indirect purchasers.^[8] The settlement also provided for a stipulated injunction, enjoining De Beers from engaging in certain conduct violative of United States antitrust laws. Pursuant to the settlement, De Beers would consent to the District Court's jurisdiction for the limited purpose of fulfilling the terms of the settlement and enforcement of the injunction.

The District Court entered an order on November 30, 2005, preliminarily approving the Indirect Purchaser Settlement and conditionally certifying a settlement class of Indirect Purchasers pursuant to Federal Rule of Civil Procedure 23(b)(2)—for purposes of entering the stipulated injunction—and 23(b)(3)—in order to distribute the settlement fund to class members.

De Beers then entered into settlement discussions with plaintiffs' counsel for the Direct Purchasers in Anco and British Diamond, ultimately reaching an agreement in March 2006. The latter agreement paralleled the Indirect Purchaser Settlement in that De Beers agreed to not contest certification of a Direct Purchaser settlement class, to abide by substantively identical injunctive relief as imposed under the Indirect Purchaser Settlement, and to establish a $22.5 million fund to satisfy the Direct Purchasers' claims. As part of this settlement, De Beers also agreed to increase the Indirect Purchaser Settlement fund by $22.5 million to accommodate those putative class members characterized as Indirect Purchasers in the lawsuits filed by the Direct Purchasers who had not participated in the Indirect Purchaser Settlement.

On March 31, 2006, the District Court modified its November 30, 2005 Order to conditionally certify both the Direct and Indirect Purchaser settlement classes under Rules 23(b)(2) and 23(b)(3), and to preliminarily approve a combined settlement fund for both classes totaling $295 million, of which $22.5 million was allotted to Direct Purchasers and $272.5 million was allocated to the Indirect Purchaser claims. The combined settlement also provided for entry of a stipulated injunction, which required De Beers to, inter alia, comply with and abide by federal and state antitrust laws, to limit its purchases of diamonds from third-party producers, to abstain from setting or fixing the prices of diamonds sold by third-party producers, to desist from restricting the geographic regions within which sightholders could resell De Beers diamonds, and barred De Beers from purchasing diamonds in the United States for the principal purpose of restraining supply. Notably, De Beers agreed to subject itself to personal jurisdiction in the United States for purposes of enforcing the combined settlement agreement.

B. Special Master & Objections

After granting preliminary approval to the combined settlement agreement, the District Court referred the case to a Special Master pursuant to Rules 23, 53, and 54 of the Federal Rules of Civil Procedure to consider and recommend a plan for dissemination of the Notice of Settlement, a distribution plan for members of the [289] Indirect and Direct Purchaser settlement classes, division of the fund between the Indirect Purchaser reseller and consumer subclasses, the amount of incentive awards for named plaintiffs, and the fee requests filed by plaintiffs' counsel. After two years of proceedings, the Special Master authored several lengthy Report and Recommendations finding the settlement fair, reasonable, and adequate based upon the parties' agreement to seek the certification of the following two nationwide Settlement Classes:

(i) The "Direct Purchaser Class." All natural persons and legal entities located in the United States who purchased any Gem Diamond directly from a Defendant or Defendants' Competitors (including any entity controlled by or affiliated with any such party) from September 20, 1997 to the date of settlement class certification. The class shall exclude Defendants, the officers, directors or employees of any Defendant, any entity in which any Defendant has a controlling interest, any affiliate of any Defendant, Defendants' Competitors, any person or entity which is or was a Sightholder for the time period(s) during which such person or entity had Sightholder status, any federal, state or local governmental entity, and any judicial officer presiding over this Settlement, and any member of the judicial officer's family and court staff; and

(ii) The "Indirect Purchaser Class." All natural persons and legal entities located in the United States who purchased any Diamond Product from January 1, 1994 to the date of settlement class certification, provided that any purchases of any Gem Diamond made directly from a Defendant (including any entity in which any Defendant has a controlling interest and any affiliate of any Defendant) or Defendants' competitors (including any entity controlled by or affiliated with any such party) shall be excluded. The class shall also exclude Defendants, the officers, directors or employees of any Defendant, any entity in which any Defendant has a controlling interest, any affiliate of any Defendant, any federal, state or local governmental entity, and any judicial officer presiding over this Settlement, and any member of the judicial officer's family and court staff

(App'x 270 (quoting September 4, 2007 Report and Recommendation of Special Master Alfred M. Wolin ("R & R") at 21, App'x 1433-34).) The Indirect Purchaser Class was further subdivided into two subclasses for purposes of effectuating the Settlement Agreement:

(1) The "Indirect Purchaser Reseller Subclass," consisting of all members of the Indirect Purchaser Class who purchased any diamond product for resale; and

(2) The "Indirect Purchaser Consumer Subclass," consisting of all members of the Indirect Purchaser Class who purchased any diamond product for use and not for resale.

(Id. 270-71.)^[9]

After reviewing the record, the competing econometric reports furnished by several experts, and other reliable data, the Special Master recommended that, apart from the $22.5 million allocated to the Direct Purchaser Class,^[10] the Indirect Purchaser [290] Settlement Fund of $272.5 million should be allocated 50.3%, approximately $137.1 million, to the Resellers Subclass, and 49.7%, approximately $135.4 million, to the Consumers Subclass.^[11] (App'x 1508.) Unlike Direct Purchasers, who purchased diamonds only, Indirect Purchasers generally purchased jewelry and other products containing diamonds; given this, the Special Master attempted to ascertain the cost of the diamonds in the final purchased product separate and apart from the cost of other components. The Special Master further recommended that claims that would result in de minimis recoveries from the settlement fund—equating to less than ten dollars^[12]—not be paid in light of high administrative costs.^[13]

With respect to plaintiffs' counsel's request for attorneys' fees and reimbursement of litigation expenses, the Special Master recommended a percentage of recovery approach with a lodestar cross-check, and concluded that the request for 25% of the settlement fund in fees, and for under 1% of the fund in expenses, was fair, reasonable, and adequate.^[14] The Special Master further decided that the $220,000 in incentive awards sought on behalf of class representatives was appropriate in light of the benefits conferred upon the class and the risks incurred in engaging in litigation.

In response to the preliminary certification of the Settlement Agreement and the Special Master's recommendations, the District Court received twenty separate objections on behalf of thirty-seven objectors. All of the objectors were members of the Indirect Purchaser Class; none of the Direct Purchasers objected to the Settlement.^[15] [291] Fifteen of the twenty objections opposed class certification of the settlement, four objected to the stipulated provision for injunctive relief, six opposed the allocation and distribution of the Settlement Funds, and nine objected to the provisions for attorneys' fees. As required by the Federal Rules, the District Court conducted a Fairness Hearing in the matter on April 14, 2008. Fed.R.Civ.P. 23(e)(2).

The objectors challenging the propriety of certifying the two settlement classes raised two primary arguments. First, the objectors contended that a nationwide class of Indirect Purchasers should not be certified under Rule 23(b)(3) for purposes of administering a monetary settlement of state law claims because significant differences existed among the various antitrust, consumer protection, and unjust enrichment laws of the relevant state jurisdictions. Specifically, the objectors argued that the substantive law of many states prohibits indirect purchasers from recovering damages for antitrust injuries, exposing the class to particularized legal variations and precluding a finding that common questions of law or fact predominated over individual issues.^[16] Second, the objectors challenged the certification of both Direct and Indirect Purchaser classes for purposes of implementing injunctive relief pursuant to Rule 23(b)(2). The objectors asserted that the market for rough gem diamonds had become competitive during the course of the instant litigation, rendering an injunction to enforce compliance with antitrust laws superfluous, and divesting the Indirect Purchasers of antitrust standing to seek relief.

Other objections challenged the fairness and adequacy of the Settlement and the plan of allocation for the Indirect Purchaser Settlement Fund as between the Reseller and Consumer Subclasses, averring that each class member would collect only $1-2 in exchange for their full release of claims against De Beers if every single putative class member requested compensation; also, they might receive nothing under the de minimis provision in the Settlement. Objectors also urged that the award of attorneys' fees to plaintiffs' counsel was excessive and unreasonable in a default judgment case with minimal litigation.

C. Acceptance and Certification of Class Settlement

In its May 22, 2008 Opinion, the District Court considered and rejected each of the objections. Responding to the Rule 23(b)(3) objections, the Court concluded that differences in state antitrust and consumer protection statutes did not override class commonalities. Observing that "`predominance is a test readily met in certain cases alleging consumer or securities fraud or violations of the antitrust laws,'" (App'x 276 (quoting Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997))), the District Court noted that "at the class certification stage, the Court need not concern itself with whether Plaintiffs can prove their allegations" so long as they "`make a threshold showing that the elements of impact will predominantly involve [292] generalized issues of proof, rather than questions which are particular to each member of the plaintiff class,'" (id. 277 (quoting In re Linerboard Antitrust Litig., 305 F.3d 145, 152 (3d Cir.2002)).) In this regard, the District Court presented the following operative factual and legal inquiries that, in its view, constituted common questions that predominated over individual issues in the litigation:

(a) Whether Defendants combined or conspired with others to fix, raise, stabilize and maintain the prices of polished diamonds;

(b) Whether Defendants monopolized or combined or conspired with others to monopolize the supply of polished diamonds;

(c) Whether Defendants' conduct caused the prices of polished diamonds to be maintained at higher levels than would exist in a competitive market;

(d) Whether Plaintiffs and the Classes are entitled to injunctive relief; and

(e) Whether Defendants' conduct caused injury to the business or property of Plaintiffs and the other Class and Subclass Members and, if so, the appropriate class-wide measure of damages.

(App'x 276 (alterations omitted).) The District Court also stressed that all class members shared a common jurisdictional question pertaining to De Beers's refusal to submit to the jurisdiction of United States courts and the potential burden of confirming domestic contacts for purposes of establishing personal jurisdiction. (Id. 279.)

Considering the nature of De Beers's central role in the alleged diamond conspiracy, the Court determined that each class member shared "a similar legal question arising from whether De Beers engaged in a broad conspiracy" aimed at affecting diamond prices in the United States; concurrently, all class members shared common factual issues pertaining to the form, duration, and extent of the conspiracy. (App'x 278-79.) The Court concluded that the totality of common issues predominated over individual questions, and, as a result, the objectors' assertion that disparities in state law precluded a nationwide class settlement was unavailing. In its analysis, the Court emphasized the expense, complexity, and imprecision of weighing the relative strengths of different state law claims, the policy interest in securing an expedient resolution to the disparate claims of the Direct and Indirect Purchasers, and De Beers's insistence upon a release of all potential damage claims in all fifty states.

With respect to the Rule 23(b)(2) analysis for injunctive relief, the District Court rejected the objectors' assertion that both of the purchaser classes faced no risk of future harm. The Court observed that De Beers had stipulated to the injunction and "waived the right to demand proof of substantive elements of the claims" advanced by plaintiffs, namely, that De Beers's ongoing conduct would continue to anti-competitively increase the price of all diamonds on the market. (App'x 285.) Accordingly, the Court determined that injunctive relief was appropriate and would benefit all classes and subclasses.

Having ruled that the Rule 23(b) elements were satisfied, the District Court then responded to the other objections relating to the fairness and adequacy of the Settlement and the plan of allocation and distribution, as well as to objections pertaining to attorneys' fees. The District Court conducted a fairness evaluation of the final settlement by applying and weighing the fairness factors set forth in Girsh v. Jepson, 521 F.2d 153 (3d Cir. 1975), "being mindful of the heightened standard of review in place for a settlement-only [293] class that has not yet been entirely certified." (App'x 288-89.) The Court concluded that the final settlement agreement and the plan of allocation were fair, reasonable, and adequate. The District Court also reviewed the attorneys' fees application pursuant to Gunter v. Ridgewood Energy Corp., 223 F.3d 190 (3d Cir.2000), similarly finding the Special Master's recommendation for 25% of the settlement fund in fees to be fair, reasonable, and adequate.

Accordingly, the District Court entered a final order on May 22, 2008, certifying the Direct and Indirect Purchaser Classes under Rules 23(b)(2) and 23(b)(3). The Direct Purchaser Class consists of all sightholders who purchased rough gem diamonds directly from De Beers between September 20, 1997 and March 31, 2006. The Indirect Purchaser Class includes all Indirect Purchasers who acquired gem diamonds between January 1, 1994 and March 31, 2006, regardless of whether De Beers or one of its competitors supplied the diamonds.^[17] The Court's order further included the previously agreed-upon injunction, which is to remain in effect for five years from the date of its issuance. The objectors then filed the appeals presently before us.

D. Proceedings On Appeal

On appeal, a divided panel of this Court initially determined that the District Court abused its discretion in certifying the nationwide class of litigants. We vacated this Opinion and granted rehearing en banc. While we do not usually discuss the analysis contained in a vacated opinion, we do so here because the Panel's decision reflected, accepted, and elaborated upon one or more of the views advanced by the objectors, with which we take issue. Our dissenting colleagues also embrace certain of these views.

Addressing the objectors' challenge to the District Court's finding of predominance under Rule 23(b)(3), the Panel undertook a wide-ranging fact-finding review of state antitrust statutes, noting that the variance among states "is mainly a function of whether a state has chosen to follow the Sherman Act principles regarding standing laid down by the Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977)." Sullivan, 613 F.3d at 146. There, the Supreme Court decided that only direct purchasers possessed standing under the federal Sherman Act to sue for monetary damages incurred from an antitrust injury. The Panel observed that some states follow this framework and prohibit monetary recovery for indirect purchasers, while other states have enacted statutes known as "Illinois Brick repealers," which extend antitrust standing to indirect purchasers and consumers.^[18] Id. As a result, the Panel found that "only some of th[e] jurisdictions recognize the claims for which recovery is sought," and that such distinctions reflected "fundamental policy differences among the several states." Id. at 147, 149. Based on its belief that many members of the Indirect Purchaser Class lacked a substantive right to recover damages, the Panel decided that "no question of law or fact regarding their legal rights is uniform [294] throughout the class," thereby defeating a finding of predominance. Id. at 149.

The Panel then considered the various state consumer protection and unjust enrichment claims implicated by the District Court's certification, again noting several variations among jurisdictions: differences in whether indirect purchasers may invoke consumer protection and unjust enrichment statutes to gain antitrust relief; variations in the extent of elements of proof necessary to establish unjust enrichment or consumer fraud; and dissimilarities in whether a plaintiff must lack an adequate remedy at law to bring an equitable claim. Id. at 150-51. Based upon these discrepancies, the Panel decided that "evidence of price-fixing and monopolization does not give rise in every state to an unjust enrichment or consumer protection claim for indirect purchasers," defeating predominance and rendering the District Court's certification of a nationwide class an abuse of discretion. Id. at 151.

The Panel further observed that the District Court's certification order contravened the Rules Enabling Act, 28 U.S.C. § 2072(b), by extending antitrust remedies not rooted in state substantive law to putative class members. Id. The Panel expressly rejected the plaintiffs' argument that De Beers's willingness to stipulate to liability in all fifty states should suffice for the District Court's predominance inquiry, holding instead that such an approach would invite collusive settlements. Id. In the same vein, the Panel expressed concern that the District Court sacrificed principles of federalism in favor of obtaining an expedient settlement by certifying the nationwide class "despite the fact that only some of those jurisdictions recognize the claims for which recovery is sought." Id. at 152. Finding that certain states categorically deny to indirect purchasers a right to antitrust recovery as a matter of substantive law, the Panel concluded that the instant certification "wrongly allowed the sovereignty of the states to be subordinated to De Beers's desire to resolve all indirect purchaser claims simultaneously." Id.

Finally, the Panel rejected the District Court's certification of the Indirect Purchaser Class under Rule 23(b)(2) for the purpose of awarding injunctive relief under § 16 of the Clayton Act, 15 U.S.C. § 26. Relying upon expert reports written to identify a methodology for calculating damages, the Panel concluded that De Beers's market share fell from approximately 65% in 2000 to 45% in 2006, and determined that, as a result, plaintiffs face "no significant threat of future antitrust harm in the absence of the injunction because... the market has become increasingly competitive from 2006 onward." Id. at 157-58. Accordingly, the Panel found that plaintiffs lacked antitrust standing under § 16 of the Clayton Act and vacated the District Court's order certifying the injunctive class.

The Panel Opinion remanded the matter to the District Court to consider whether "a more limited class of indirect purchasers is appropriate under Rule 23," and instructed the District Court to more precisely identify "a readily discernible, clear, and complete list of the claims, issues or defenses to be treated on a class basis." Id. at 154 (quoting Fed.R.Civ.P. 23(c)(2)). The Panel noted that the Court failed to clearly delineate the precise state law claims subject to class treatment and did not explicitly state whether the claims advanced apply to the Indirect Purchasers' antitrust, consumer protection, or unjust enrichment claims, or to some combination of the three. Accordingly, the Panel directed the District Court to "identify with particularity both the prerequisites for membership in the class and the issues or [295] claims that will be resolved on a class-wide basis." Id. at 155.

In response, Appellees Shawn Sullivan, Arrigotti Fine Jewelry, and James Walnum petitioned for rehearing, urging that the Panel Opinion was inconsistent with our precedent governing class action settlements. In support, they raised several arguments. First, they contended that the Panel's demand that all class members assert at least one "uniform" claim in order for disparate state claims to be settled at once contravened our clear holdings in Warfarin and Prudential. (See Pet. of Appellees for Reh'g or Reh'g En Banc 2.) Next, they urged that the Panel's extensive inquiry into the legal viability of plaintiff's claims at the class certification stage improperly adjudicated the merits of the asserted claims and undermined the "strong judicial policy in favor of class action settlement." (Id. (citation omitted).) Finally, the Appellees observed that the Panel's methodology supplanted the District Court as primary fact-finder and unilaterally reached factual conclusions based upon evidence unrelated to the subject at issue. (Id. 3-4.)

We granted the petition for the entire Court to address these issues.

II. Jurisdiction And Standard of Review

The District Court exercised federal question jurisdiction over the Direct Purchasers' Sherman Act antitrust claim for damages pursuant to § 4 of the Clayton Act, 15 U.S.C. § 15, and over both the Direct and Indirect Purchasers' claims for injunctive relief under § 16 of the same Act, 15 U.S.C. § 26. Original jurisdiction over the federal claims also arose under 28 U.S.C. §§ 1331 and 1337(a). The District Court possessed supplemental jurisdiction over the Indirect Purchasers' state-law antitrust, consumer protection, and unjust enrichment claims pursuant to 28 U.S.C. § 1367. We review final orders of the District Court pursuant to 28 U.S.C. § 1291.

"Our role as an appellate court is to ascertain whether or not the trial judge clearly abused his or her discretion in approving or rejecting a settlement agreement." Ehrheart v. Verizon Wireless, 609 F.3d 590, 593 (3d Cir.2010). A district court abuses its discretion if its "`decision rests upon a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact.'" In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 312 (3d Cir.2008) (quoting In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 783 (3d Cir.1995) ("GM Truck")). "If the court's analysis on these points is correct, [however,] then `it is fair to say that we will ordinarily defer to its exercise of discretion' embodied in the findings on predominance and superiority." Linerboard, 305 F.3d at 149-50 (quoting Bogosian v. Gulf Oil Corp., 561 F.2d 434, 448 (3d Cir.1977)); see also United Steel, Paper & Forestry, Rubber, Mfg. Energy, Allied Indus. & Serv. Workers Int'l Union v. ConocoPhillips Co., 593 F.3d 802, 807 (9th Cir.2010) ("We review ... the underlying determination whether the predominance requirement of Rule 23(b)(3) has been satisfied for abuse of discretion.") (citation omitted). "Whether an incorrect legal standard has been used is an issue of law to be reviewed de novo." Id. (citation omitted).

The District Court's "determination that the settlement was fair, reasonable, and adequate" is likewise reviewed for abuse of discretion. In re Cendant Corp. Litig., 264 F.3d 201, 231 (3d Cir.2001).

III. Discussion

At issue on appeal is the District Court's approval of the class settlement agreement [296] and certification of the Indirect Purchaser Class pursuant to Rule 23(b)(3) and both the Direct and Indirect Purchaser Classes under Rule 23(b)(2). We begin by discussing the standards for certifying a settlement class and will address the pertinent objections in light of the District Court's— and the vacated Panel's—Opinions. We will then consider the objections pertaining to the fairness of the settlement, the plan of allocation, and the attorneys' fees award, which we have not previously addressed.^[19]

A. Certification Pursuant to Rule 23

As we have consistently observed, "Rule 23 is designed to assure that courts will identify the common interests of class members and evaluate the named plaintiffs' and counsel's ability to fairly and adequately protect class interests." In re Comm. Bank of N. Va., 622 F.3d 275, 291 (3d Cir.2010) ("Comm. Bank II") (quoting GM Truck, 55 F.3d at 799) (alterations omitted). In turn, before approving a class settlement agreement, "a district court first must determine that the requirements for class certification under Rule 23(a) and (b) are met." In re Pet Food Prods. Liab. Litig., 629 F.3d 333, 341 (3d Cir.2010). Rule 23(a) contains four threshold requirements, which every putative class must satisfy:

(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

Fed.R.Civ.P. 23(a); see also Amchem, 521 U.S. at 613, 117 S.Ct. 2231. Upon finding each of these prerequisites satisfied, a district court must then determine that the proposed class fits within one of the categories of class actions enumerated in Rule 23(b).

As mentioned, Rule 23(b)(2) authorizes class actions seeking injunctive relief in instances where the defendant "has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief ... is appropriate respecting the class as a whole." Fed.R.Civ.P. 23(b)(2); see In re Comm. Bank of N. Va. (Comm. Bank I), 418 F.3d 277, 302 n. 14 (2005). Separately, certification pursuant to Rule 23(b)(3) seeking monetary compensation is permitted where (1) "questions of law or fact common to class members predominate over any questions affecting only individual members," and (2) "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." Fed.R.Civ.P. 23(b)(3); see Collins v. E.I. DuPont de Nemours & Co., 34 F.3d 172, 180 (3d Cir.1994). These twin requirements are commonly referred to as predominance and superiority. We address the certification of the damages class first before turning to the certification for injunctive relief.

1. Predominance of Common Legal or Factual Issues Under Rule 23(b)(3)

The objectors challenge the District Court's Rule 23(b)(3) analysis with regard to the state law claims asserted by the Indirect Purchasers against De Beers. The District Court concluded that differences in state law did not override predominantly common factual and legal issues [297] presented by De Beers's integral role in perpetuating the alleged conspiracy. Rejecting this view, the objectors argue that the existence of substantive variations in the state antitrust laws underlying the Indirect Purchaser damages claims should preclude a court from finding that common issues affecting the class as a whole predominate. They also urge that differences among state consumer protection and unjust enrichment laws would likewise preclude a finding of predominance. Our dissenting colleagues focus on this issue as well, and adopt a specific requirement that every class member has "some colorable legal claim" in order for a district court to certify a class. (Dissenting Op. at 344.) In our view, this requirement would result in a radical departure from what Rule 23 envisions and what our precedent demands, and it founders for many reasons.^[20]

a. Legal Framework

The predominance inquiry "`tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation,'" In re Ins. Broker. Antitrust Litig., 579 F.3d 241, 266 (3d Cir.2009) (quoting Amchem, 521 U.S. at 624, 117 S.Ct. 2231), and assesses whether a class action "would achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated," Fed.R.Civ.P. 23(b)(3) advisory committee's note to 1966 amendment. See also 2 William Rubenstein, Alba Conte & Herbert Newberg, Newberg on Class Actions, § 4:25 (4th ed. 2010) ("[T]he predominance test asks whether a class suit for the unitary adjudication of common issues is economical and efficient in the context of all the issues in the suit."). Parallel with Rule 23(a)(2)'s commonality element, which provides that a proposed class must share a common question of law or fact, Rule 23(b)(3)'s predominance requirement imposes a more rigorous obligation upon a reviewing court to ensure that issues common to the class predominate over those affecting only individual class members. Ins. Broker., 579 F.3d at 266. "Hence, we consider the Rule 23(a) commonality requirement to be incorporated into the more stringent Rule 23(b)(3) predominance requirement, and therefore deem it appropriate to `analyze the two factors together, with particular focus on the predominance requirement.'" Id. (quoting In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 528 (3d Cir.2004)); see also Danvers Motor Co., Inc. v. Ford Motor Co., 543 F.3d 141, 148 (3d Cir.2008) ("[T]he commonality requirement is subsumed by the predominance requirement.").

From our case law, we can distill at least three guideposts that direct the predominance inquiry: first, that commonality is informed by the defendant's conduct as to all class members and any resulting injuries common to all class members; second, that variations in state law do not necessarily defeat predominance; and third, that concerns regarding variations in state law largely dissipate when a court is considering the certification of a settlement class. We address each of these guideposts in turn. Then, we turn to case law demonstrating that Rule 23(b)(3) does not, as urged by the objectors and the dissent, require individual class members to individually state a valid claim for relief. Next, we address the flaws inherent in the framework proposed by the dissent. Finally, we discuss why an important by-product of the class action device—settlement [298] of all potential claims—supports the decision we reach here.

i) Precedent Regarding Predominance: Defendant's Conduct and Class Members' Injuries

Our precedent provides that the focus of the predominance inquiry is on whether the defendant's conduct was common as to all of the class members, and whether all of the class members were harmed by the defendant's conduct. Our reasoning in Warfarin is instructive on this point. The claims asserted there were remarkably similar to the specific claims at issue here. There, we considered the propriety of the certification of a settlement class arising out of DuPont Pharmaceuticals' alleged dissemination of misleading information about a competitor's product. 391 F.3d at 522. The plaintiffs averred that DuPont engaged in anticompetitive conduct that allowed it to maintain a 67% market share and to charge supracompetitive prices, in violation of federal antitrust law, the antitrust statutes of Illinois Brick repealer states,^[21] the consumer protection and deceptive practices statutes of all fifty states and the District of Columbia, and the common law prohibitions on unjust enrichment and tortious interference of every jurisdiction. Id. at 523-25. After reaching a class settlement with the defendant and receiving the district court's preliminary approval, objections were lodged contesting the certification of a single nationwide class of plaintiffs. The objectors argued that such certification was inappropriate due to inconsistencies in state antitrust and consumer fraud statutes' provision of statutory standing to assert antitrust claims and eligibility for treble or punitive damages recovery, and the relative weakness of certain consumer claims. Id. at 529-31.

Guided by the Supreme Court's observation that "[p]redominance is a test readily met in certain cases alleging consumer[ ] fraud or violations of the antitrust laws," we stated:

This case falls squarely into that category: plaintiffs have alleged that DuPont engaged in a broad-based campaign, in violation of federal and state consumer fraud and antitrust laws, to deceive consumers, TPPs, health care professionals, and regulatory bodies into believing that generic warfarin sodium was not an equivalent alternative to Coumadin. These allegations naturally raise several questions of law and fact common to the entire class and which predominate over any issues related to individual class members, including the unlawfulness of DuPont's conduct under federal antitrust laws as well as state law, the causal linkage between DuPont's conduct and the injury suffered by the class members, and the nature of the relief to which class members are entitled.

Id. at 528. In light of DuPont's allegedly deceptive "broad-based, national campaign conducted by and directed from corporate headquarters," we emphasized that proof of liability of DuPont's conduct "depends on evidence which is common to the class members" because "liability depends on the conduct of DuPont, and whether it conducted a nationwide campaign of misrepresentation and deception, [and] does not depend on the conduct of individual class members." Id. As a result, we affirmed the District Court's ruling that class members shared predominantly common issues as to the conduct of the defendants [299] despite possessing claims arising under differing state laws. Id. at 530.^[22]

We applied a similar approach in Insurance Brokerage, where, in evaluating a challenge to certification of a settlement class on the basis of predominance, we determined that the elements of a Sherman Act violation for concerted anticompetitive activity focused upon "the conduct of the defendants." 579 F.3d at 268. Noting the presence of several shared questions of law and fact—including, among others, whether the defendants conspired to allocate a particular market, whether the conduct actually reduced competition in the market by consolidating the industry, and whether the conspiratorial conduct raised premiums for all members of the class—we concluded that "common questions abound with respect to whether the defendants engaged in illegal, concerted action." 579 F.3d at 268. As a result, we held that "individual issues d[id] not overwhelm the common ones."^[23] Id.; see also Linerboard, 305 F.3d at 162 ("[C]ommon issues [ ] predominate here because the inquiry necessarily focuses on defendants' conduct, that is, what defendants did rather than what plaintiffs did.") (citation & quotations omitted); cf. In re LifeUSA Holding Inc., 242 F.3d 136, 145-46 (3d Cir.2001) (reversing certification of litigation class where plaintiffs' claims arose "not out of one single event or misrepresentation," but out of "non-standardized and individualized sales `pitches'").

In this regard, we note the dissent's misreading of the Supreme Court's recent opinion in Wal-Mart Stores Inc. v. Dukes, ___ U.S. ___, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011) as supporting its thesis that an inquiry into the existence or validity of each class member's claim is required at the class certification stage. To the contrary, Dukes actually bolsters our position, making clear that the focus is on whether the defendant's conduct was common as to all of the class members, not on whether each plaintiff has a "colorable" claim. In Dukes, the Court held that commonality and predominance are defeated when it cannot be said that there was a common course of conduct in which the defendant engaged with respect to each individual. But commonality is satisfied where common questions generate common answers "apt to drive the resolution of the litigation." 131 S.Ct. at 2551. That is exactly what is presented here, for the answers to questions about De Beers's alleged misconduct and the harm it caused would be [300] common as to all of the class members, and would thus inform the resolution of the litigation if it were not being settled.

Specifically, here, plaintiffs allege that De Beers engaged in anticompetitive activity by exploiting its 65% share of the diamond market and control of the world's supply of rough diamonds to impose rigid constraints on the sale and resale of those diamonds. This conduct resulted in a common injury as to all class members—inflated diamond prices—in violation of federal antitrust law, and the antitrust, consumer protection, or unjust enrichment laws of every state and the District of Columbia.^[24] In this respect, as in Warfarin and Insurance Brokerage, De Beers's asserted price-fixing and monopolization conduct lies at the core of plaintiffs' claims, as do the common injuries which all class members suffered as a result. Based upon our case law, we can distill that "each class member shares a similar legal question arising from whether De Beers engaged in a broad conspiracy that was aimed to and did affect diamond prices in the United States." (App'x 278-79 (emphasis added).) Evidence for this legal question would entail generalized common proof as to "the implementation of De Beers'[s] conspiracy, the form of the conspiracy, and the duration and extent of the conspiracy." (Id. 278.)

The plaintiffs likewise share common factual questions as to whether De Beers "acted in concert to artificially fix, maintain, and stabilize prices and to monopolize trade and commerce in the market for polished diamonds," and whether said activity resulted "in an inflation in the prices of diamonds sold to consumers." (Id. 278-79.) These allegations are unaffected by the particularized conduct of individual class members, as proof of liability and liability itself would depend entirely upon De Beers's allegedly anticompetitive activities. Indeed, the presence of these questions stemming solely from De Beers's asserted behavior and the fact that all class members purchased diamonds is an apt illustration of why the predominance test is "readily met in certain cases alleging consumer [ ] fraud or violations of the antitrust laws."^[25] Ins. Broker., 579 F.3d at 266 (quoting Amchem, 521 U.S. at 624, 117 S.Ct. 2231); see generally Fed.R.Civ.P. 23(b)(3) advisory committee's notes to 1966 amendment (providing that "a fraud perpetrated on numerous persons by the use of similar misrepresentations may be an appealing situation for a class action"). Considering this presentation of common issues, a finding that common inquiries predominated over individual questions particular to any putative class member appears reasonably within the discretion of the District Court.

The dissent urges that according to our view, the class is "practically limitless." (Dissenting Op. at 344.) This is plainly incorrect: the limits are found in the conduct of the defendant and the injuries sustained by class members as a result of the conduct. These provide sufficient class [301] contours. The instant class is not made up of "everyone on earth," "regardless of diamond purchases." (Dissenting Op. at 343 n. 5.) Instead, each member is a Direct or Indirect Purchaser, harmed by what De Beers did. These class members, moreover, possess a legally cognizable injury acknowledged in hornbook law, as their injuries are real, and stem not from simply feeling "wronged," as the dissent suggests (Dissenting Op. at 343), but from De Beers's alleged anti-competitive conduct, conduct which antitrust laws forbid.

ii) Precedent Regarding Variations in State Law

Furthermore, our precedent provides that "variations in the rights and remedies available to injured class members under the various laws of the fifty states [do] not defeat commonality and predominance." Warfarin, 391 F.3d at 529 (quoting In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 315 (3d Cir.1998)). This is so because "`a finding of commonality does not require that all class members share identical claims,'" and predominance is not considered deficient merely "because claims were subject to the [varying] laws of fifty states." Id. "`Predominance under Rule 23(b)(3) cannot be reduced to a mechanical, single-issue test'"; rather, "`[a]s long as a sufficient constellation of common issues binds class members together, variations in the sources and application'" of applicable laws will not foreclose class certification. Linerboard, 305 F.3d at 162-63 (quoting with approval Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 296 (1st Cir.2000) (rejecting argument that variations in twenty states' laws concerning reliance, waiver, and statutes of limitations defeated predominance)); see also Smilow v. Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 39 (1st Cir. 2003) ("Rule 23(b)(3) requires merely that common issues predominate, not that all issues be common to the class.") (emphasis added). Thus, it is not surprising that we can find no support in our Court's jurisprudence for the proposition that commonality and predominance are defeated merely because available rights and remedies differ under the several laws that form the basis for the class claims.^[26]

We have never required the presentation of identical or uniform issues or claims as a prerequisite to certification of a class. Rather, our jurisprudence evinces a pragmatic response to certifications of common claims arising under varying state laws. In Prudential, we addressed the certification of a settlement class arising under federal securities law and varying state law formulations of common law fraud, breach of contract, bad faith, negligent misrepresentation, negligence, unjust enrichment, and breach of state consumer fraud statutes. 148 F.3d at 315. We emphasized our willingness to certify nationwide classes where differences in state law fell "into a limited number of predictable patterns," and any deviations "could be overcome at trial by grouping similar state laws together and applying them as a unit." Id. As such, we affirmed the district court's decision to subsume the relatively [302] minor differences in state law within a single class. Id.; see also Ins. Broker., 579 F.3d at 271 (noting that "subclasses are appropriate `where a class is found to include subclasses divergent in interest'") (citation & alteration omitted).

Similarly, in GM Truck, we approved the certification of nationwide (b)(3) litigation classes where "the laws of the 50 states could be reduced to [several] general patterns, providing the framework for sub-classes if the nationwide action had proven unmanageable." 55 F.3d at 817-18 (discussing In re School Asbestos Litig., 789 F.2d 996, 1010 (3d Cir.1986)). Observing that "we [could not] conceive that each of the forty-nine states [] represented here has a truly unique statutory scheme," we determined that a nationwide class "could have been properly certified." Id. This alternative to outright rejection of certification of a nationwide class was deemed to be especially fitting because it could "surmount[] some of the individual issues while retaining some of the substantive advantages of the class action." Id. at 818.

Echoing this approach, our fellow Courts of Appeals have agreed that, for purposes of litigation classes, "if the applicable state laws can be sorted into a small number of groups, each containing materially identical legal standards," then certification of subgroups "embracing each of the dominant legal standards can be appropriate." Klay v. Humana, Inc., 382 F.3d 1241, 1262 (11th Cir.2004); see also Walsh v. Ford Motor Co., 807 F.2d 1000, 1017 (D.C.Cir.1986) (R.B. Ginsburg, J.) (holding that class certification is appropriate where state law variations can be grouped by similar legal doctrines).

Where "a sufficient constellation of common issues binds class members together," Linerboard, 305 F.3d at 162-63, differences in state law treatment of indirect purchaser claims likely fall into a handful of clearly discernible statutory schemes. Nothing in our case law or the language of Rule 23 commands that everyone in a class must allege precisely identical or "uniform" causes of action, see Sullivan, 613 F.3d at 149, and statutory variations do not defeat predominance in the presence of other exceedingly common issues.^[27] Instead, as Prudential and GM Truck explain, where a defendant's singular conduct gives rise to one cause of action in one state, while providing for a different cause of action in another jurisdiction, the courts may group both claims in a single class action. This tactic in litigation advances the laudatory purposes of the class action device, "preserv[ing] the resources of both the courts and the parties by permitting issues affecting all class members to be litigated in an efficient, expedited, and manageable fashion." Allison v. Citgo Petrol. Corp., 151 F.3d 402, 410 (5th Cir.1998).

iii) Certification of Settlement Classes: Diminished Concern Regarding Variations in State Law

But we need not rely merely on certifications involving actual litigation of the class issues for the proposition that differing state laws do not defeat commonality or predominance. The correct outcome is even clearer for certification of a settlement class because the concern for manageability that is a central tenet in the certification of a litigation class is removed from the equation. Indeed, the class settlement [303] posture of this case largely marginalizes the objectors' concern that state law variations undermine a finding of predominance.

In Warfarin, we rejected an objection essentially indistinguishable from the one advanced here, namely, that "variations in and inconsistencies between the state consumer fraud and antitrust laws of the fifty states defeat the commonality and predominance requirements of Rule 23." 391 F.3d at 529. In light of the Supreme Court's guidance that a district court "[c]onfronted with a request for settlement-only class certification" need not inquire whether the case "would present intractable management problems," Amchem, 521 U.S. at 620, 117 S.Ct. 2231, in Warfarin, we delineated a "key" distinction between certification of a class for settlement versus certification for purposes of litigation, 391 F.3d at 529. Specifically, we observed that, in the settlement context, variations in state antitrust, consumer protection and unjust enrichment laws did not present "the types of insuperable obstacles" that could render class litigation unmanageable.^[28] Id. (citing Prudential, 148 F.3d at 315). We emphasized, as a result, that "variations [in state laws] are irrelevant to certification of a settlement class" since a settlement would eliminate the principal burden of establishing the elements of liability under disparate laws. Id.; see, e.g., Davis v. J.P Morgan Chase & Co., 775 F.Supp.2d 601, 609 (W.D.N.Y.2011) ("[S]tate-law distinctions impact trial manageability, which is relevant principally with respect to litigation at trial.") (citing Warfarin, 391 F.3d at 529-30); In re Lupron Mktg. & Sales Practices Litig., 228 F.R.D. 75, 92 (D.Mass.2005) (finding that "differences in the state consumer protection laws" implicate manageability concerns and do not pose an obstacle to certification of a settlement class).

Hence, our consideration of varying laws in the context of predominance has primarily focused on manageability of a litigation class. This is a particularly important point, as the objectors seem to conflate the predicate predominance analysis for certification of a settlement class with that required for certification of a litigation class, relying exclusively upon cases implicating the manageability obstacles inherent in class litigation. See, e.g., Sacred Heart Health Sys., Inc. v. Humana Mil. Healthcare Servs., Inc., 601 F.3d 1159, 1180 (11th Cir.2010); Cole v. Gen. Motors Corp., 484 F.3d 717, 724 (5th Cir.2007). The Panel likewise referenced authority that focused on the manageability issues pertinent to certification of litigation classes in rejecting the settlement class certification. See Sullivan, 613 F.3d at 151 (quoting Clay v. Am. Tobacco Co., 188 F.R.D. 483, 501 (S.D.Ill.1999) (discussing "unmanageable" nature of varying state unjust enrichment laws)).

Because we are presented with a settlement class certification, "we are not as concerned with formulating some prediction as to how [variances in state law] would play out at trial, for the proposal is that there be no trial." Ins. Broker., 579 F.3d at 269 (internal citations & quotations omitted). As such, we simply need not inquire whether the varying state treatments [304] of indirect purchaser damage claims at issue would present the type of "insuperable obstacles" or "intractable management problems" pertinent to certification of a litigation class.^[29] Comm. Bank I, 418 F.3d at 299; Warfarin, 391 F.3d at 529. The proposed settlement here obviates the difficulties inherent in proving the elements of varied claims at trial or in instructing a jury on varied state laws, and "the difference is key."^[30] Warfarin, 391 F.3d at 529. Accordingly, while we are cognizant of our responsibility to "protect absentees by blocking unwarranted or overbroad class definitions," Comm. Bank II, 622 F.3d at 291, state law variations are largely "irrelevant to certification of a settlement class," Warfarin, 391 F.3d at 529.[31]

iv) Rule 23(b)(3) and our Precedent do not Require that Individual Class Members State a Valid Claim

At bottom, we can find no persuasive authority for deeming the certification of a class for settlement purposes improper based on differences in state law. The objectors and our dissenting colleagues nevertheless insist that, despite the prevalence of the shared issues of fact and law stemming from the defendant's conduct common as to all class members and each class member's resulting injury, states' inconsistent treatment of indirect purchaser damages claims overwhelms the commonalities. They advocate this because approximately twenty-five states have not extended antitrust standing to indirect purchasers through Illinois Brick repealer [305] statutes or judicial edict; likewise, some uncertain number of states do not permit an end-run around antitrust standing through claims based on consumer protection and/or unjust enrichment statutes. (See Quinn Supp. Br. on Reh'g En Banc 21-22.) It follows then, they argue, that a large proportion of the Indirect Purchaser Class lacks any valid claims under applicable state substantive law, and, therefore, cannot "predominantly" share common issues of law or fact with those Indirect Purchasers actually possessing valid claims.^[32] In turn, they insist that a district court must undertake a thorough review of applicable substantive law to assure itself that each class member has "at least some colorable legal claim" (Dissenting Op. at 344) or "has a valid claim" (Quinn Supp. Br. at 16) before certifying a settlement.

But this focus is misdirected. The question is not what valid claims can plaintiffs assert; rather, it is simply whether common issues of fact or law predominate. See Fed.R.Civ.P. 23(b)(3). Contrary to what the dissent and objectors principally contend, there is no "claims" or "merits" litmus test incorporated into the predominance inquiry beyond what is necessary to determine preliminarily whether certain elements will necessitate individual or common proof. Such a view misreads Rule 23 and our jurisprudence as to the inquiry a district court must conduct at the class certification stage. An analysis into the legal viability of asserted claims is properly considered through a motion to dismiss under Rule 12(b) or summary judgment pursuant to Rule 56, not as part of a Rule 23 certification process. See Comm. Bank II, 622 F.3d at 303 ("[T]he Rule 23 requirements `differ in kind from legal rulings under Rule 12(b)(6).'") (quoting Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 676 (7th Cir.2001)).

To adopt the position of the dissent and the objectors is to introduce a Rule 12(b)(6) inquiry as to every claim in the class before a class may be certified. But Rule 23 makes clear that a district court has limited authority to examine the merits when conducting the certification inquiry:

Although an evaluation of the probable outcome on the merits is not properly part of the certification decision, discovery in aid of the certification decision often includes information required to identify the nature of the issues that actually will be presented at trial. In this sense it is appropriate to conduct controlled discovery into the "merits," limited to those aspects relevant to making the certification decision on an informed basis.

2003 Amendments to Rule 23 (emphasis added); see also Hassine v. Jeffes, 846 F.2d 169, 178 (3d Cir.1988) ("The ability of a named plaintiff to succeed on his or her individual claims has never been a prerequisite to certification of the class."). A court may inquire whether the elements of asserted claims are capable of proof through common evidence, but lacks authority to adjudge the legal validity or soundness of the substantive elements of asserted claims. Put another way, a district court may inquire into the merits of the claims presented in order to determine whether the requirements of Rule 23 are met, but not in order to determine whether the individual elements of each claim are satisfied.

Citing our holdings in Hydrogen Peroxide and Newton v. Merrill Lynch, [306] Pierce, Fenner & Smith, Inc., 259 F.3d 154 (3d Cir.2001), the objectors argue that the District Court abused its discretion by failing to establish as part of the certification process that each class member possessed a valid claim under the applicable substantive laws.^[33] (See Quinn Br. at 17.) But these cases do not stand for this proposition. We explained in Hydrogen Peroxide that an examination of the elements of plaintiffs' claim is sometimes necessary, not in order to determine whether each class member states a valid claim, but instead to determine whether the requirements of Rule 23—namely, that the elements of the claim can be proved "through evidence common to the class rather than individual to its members"—are met. 552 F.3d at 311-12. In Newton, we similarly stated that a court may "delve beyond the pleadings to determine whether the requirements for class certification are satisfied," and held that a court's rigorous certification analysis may include a "preliminary inquiry into the merits." 259 F.3d at 167 (citations & quotations omitted). But we did not state that an inquiry into the merits was necessary in order to prove that each class member has state a valid claim as a prerequisite to class certification. Rather, the Rules and our case law have consistently made clear that plaintiffs need not actually establish the validity of claims at the certification stage.^[34]

Moreover, the merits inquiry is particularly unwarranted in the settlement context since a district court need not "envision the form that a trial" would take, Newton, 259 F.3d at 167, nor consider "the available evidence and the method or methods by which plaintiffs propose to use the evidence to prove" the disputed element at trial, Hydrogen Peroxide, 552 F.3d at 312. In fact, the absence of evidentiary and trial manageability concerns that initially motivated our instruction to conduct a preliminary merits inquiry in the predominance context reinforces the "key" distinction between certification of a litigation and settlement class. Warfarin, 391 F.3d at 529. As such, the objectors' focus on the legal strengths and weaknesses of class members' claims misconstrues the requirements of Rule 23.^[35] See Newton, 259 F.3d at 167-69.

[307] Even still, the objectors and the dissent urge that the absence of one particular element for some class members—statutory standing—means that these members cannot state a valid claim, and therefore, the class cannot be certified. While it may be correct that states abiding by Illinois Brick require a plaintiff to be a direct purchaser as one element of an antitrust or consumer protection claim, the possibility that some of the Indirect Purchasers in the instant class might be unable to establish this element at trial is beside the point. This element, often confusingly denoted as a statutory standing requirement, is not jurisdictional.^[36] Statutory standing is distinct from jurisdictional standing in that "Article III standing is required to establish a justiciable case or controversy within the jurisdiction of the federal courts," whereas "lack of antitrust standing affects a plaintiff's ability to recover, but does not implicate the subject matter jurisdiction of the court." Gerlinger v. Amazon.com Inc., 526 F.3d 1253, 1256 (9th Cir.2008) (citation omitted); see e.g., Lerner v. Fleet Bank, N.A., 318 F.3d 113, 128 (2d Cir.2003) (noting that "statutory standing under the antitrust laws is not a prerequisite to federal subject matter jurisdiction"); Hammes v. AAMCO Transmissions, Inc., 33 F.3d 774, 778 (7th Cir.1994) ("[D]espite the suggestive terminology, `antitrust standing' is not a jurisdictional requirement and is therefore waivable."). Accordingly, statutory standing is simply another element of proof for an antitrust claim, rather than a predicate for asserting a claim in the first place.

Here, the supposed lack of one element necessary to prove a violation on the merits—statutory standing—does not establish a concomitant absence of other predominantly common issues. See Prudential, 148 F.3d at 315 (affirming a district court's certification of a settlement class despite the fact that some objectors challenged the settlement on the grounds that some plaintiffs could not establish reliance—a necessary element of their state-law fraud claims). This is especially true in the settlement context where no proof on the merits need be adduced. See Linerboard, 305 F.3d at 162-63 ("`[T]he mere fact that such concerns [of individualized factual and legal determinations] may arise and may affect different class members differently does not compel a finding that individual issues predominate over common ones.'") (quoting Mowbray, 208 F.3d at 296). Common questions as to the nature of De Beers's "conduct under federal antitrust laws as well as state law" and "the causal linkage between [De Beers's] conduct and the injury suffered by the class members" may still be found to predominate. See Warfarin, 391 F.3d at 528; see also Pet Food, 629 F.3d at 342 ("[T]he predominance requirement was satisfied because the same set of core operative facts and theory of proximate cause apply to each member of the class.") (internal quotations omitted).^[37]

[308] v) The Dissent's Proposed Framework

The dissent's proposed framework mistakenly places the cart before the horse by requiring the District Court to establish the validity of the disputed elements of the asserted claims—namely, the viability of indirect purchaser actions under state substantive laws—prior to certifying the class. Under this approach, the dissent seems to require that class members show that they can state a valid claim for relief. But the Rule 23 inquiry does not, and should not, involve a Rule (12)(b)(6) inquiry.^[38]

Were we to require district courts to ensure that "each member of a settlement class has a valid claim" in order to establish predominance, (Quinn Supp. Br. at 16), or that each class member has a "colorable legal claim," district courts would be obligated at the class certification stage to, sua sponte, conduct a thorough Rule 12(b)(6) analysis of every statutory and common-law claim to ensure that each plaintiff—including absent class members—possesses a valid cause of action or a "colorable claim" under the applicable federal or state substantive law. Such an inquiry into the merits goes beyond the requirements of Rule 23, for Rule 23 does not require a district court to determine whether class members individually have a colorable claim—one that "appear[s] to be true, valid, or right." (Dissenting Op. at 344 n. 8.) In addition to exceeding the plain requirements of Rule 23, in nationwide class settlements, such as the one here, and even if limited to a statutory standing inquiry, this analysis would necessitate an intensive, fifty-state cataloguing of differences in state law at an early stage of the proceedings, and without the benefit of a developed record.^[39] Despite the dissent's view, Rule 23 does not require such an intensive cataloguing of each class member's claim in order to establish predominance. Even more troublesome, this merits [309] analysis might not actually answer the salient question of whether common issues of fact or law actually predominate over individual ones.

Moreover, district courts undertaking the scrupulous review of state laws could not ensure the validity of each individual claim without first settling upon the precise state law governing each of the putative class members' claims. This choice-of-law analysis would be particularly difficult in a nationwide class action where an array of factors beyond the residence of the class members must be considered, including, inter alia, the location of the parties and the purchased items, and the place of contracting and performance. See generally Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 467 (3d Cir.2006). The Seventh Circuit rightly noted that "choice-of-law issues in nationwide class actions are rarely so uncomplicated that one can delineate clear winning and losing arguments at an early stage in the litigation"; "the legal uncertainty resulting from the complicated choice-of-law issues" would unduly complicate the process for establishing predominance under Rule 23. Mirfasihi v. Fleet Mortg. Corp., 450 F.3d 745, 750 (7th Cir.2006). As a result, many courts find it "inappropriate to decide choice of law issues incident to a motion for class certification." See, e.g., In re Kirschner Med. Corp. Sec. Litig., 139 F.R.D. 74, 84 (D.Md.1991); Singer v. AT & T Corp., 185 F.R.D. 681, 691 (S.D.Fla. 1998) ("It is well-established that consideration of choice of law issues at the class certification stage is generally premature.").

Even were a district court to properly ascertain the applicable law after conducting the choice-of-law inquiry, it would likely encounter unsettled legal questions, further undermining its ability to assess the viability of some class members' claims and increasing the costs of administration. By way of example, in Warfarin, we remarked on the "unsettled question of law as to whether Tennessee's antitrust statutes... cover only violations occurring in intrastate commerce or extend to cover violations occurring in interstate commerce as well." 391 F.3d at 530 n. 12. Relegating the issue to a footnote, we did not think it necessary to pry into the legal merits of the Tennessee claims in approving the class settlement. In another instance, the Fifth Circuit confronted the unresolved question of whether Louisiana antitrust law granted standing to indirect purchasers of consumer products as part of the class certification process, and asked the Louisiana Supreme Court to accept certification of the question. See Free v. Abbott Labs., Inc., 176 F.3d 298, 298-99 (5th Cir. 1999). When the state court declined, the Fifth Circuit was "le[ft] to fathom Louisiana's unsettled antitrust law." Id. By requiring district courts to assess the validity of unsettled state law claims at the certification stage, we would needlessly introduce additional legal uncertainty into a certification process that does not demand it.^[40]

[310] We raise the following questions to further demonstrate the error of the proposed framework adopted by our dissenting colleagues. If the dissent's "colorable legal claim" test is a threshold inquiry for commonality, why should the court not consider every potential disqualifier from one's having a "colorable legal claim?" For example, in any class certification case, should the court consider whether all potential class members complied with applicable pre-notice requirements under the relevant substantive law? Should the court consider whether every potential class member exhausted her administrative remedies under the relevant substantive law? Should the court evaluate whether each class member's claim complies with the applicable statute of limitations? The answers to these questions most certainly implicate whether a litigant, in a class action or otherwise, has a "colorable legal claim." These questions, moreover, show how flawed, from an administrative, logical, and practical standpoint, the dissent's and objectors' approach really is. No class would ever be certified because it would be impossible to demonstrate that every class member has a "colorable legal claim." (Dissenting Op. at 344.) More than this, it would gut commonality, for, most certainly, individual issues would then predominate. There would simply be no class that could meet this commonality and predominance test.

vi) Settlements

Finally, were we to mandate that a class include only those alleging "colorable" claims, we would effectively rule out the ability of a defendant to achieve "global peace" by obtaining releases from all those who might wish to assert claims, meritorious or not. We need not take judicial notice of the fact that plaintiffs with non-viable claims do nonetheless commence legal action. Here, in an effort to avoid protracted litigation and future relitigation of settled questions in federal and state courts across numerous jurisdictions, De Beers pursued a global settlement and demanded a release of potential damage claims in all fifty states. See Prudential, 148 F.3d at 326 n. 82 (noting that release of all claims "serves the important policy interest of judicial economy by permitting parties to enter into comprehensive settlements [311] that prevent relitigation of settled questions at the core of a class action") (citation & quotations omitted). Specifically, De Beers sought "global peace" in a settlement covering plaintiffs in every federal and state case, as well as potential plaintiffs who had not yet filed cases in either federal or state court. See generally Klein v. O'Neal, Inc., 2009 WL 1174638, at *3 (N.D.Tex. Apr. 29, 2009) ("In a class action settlement setting, defendants seek and pay for global peace—i.e., the resolution of as many claims as possible."); In re Vioxx Prods. Liability Litig., 574 F.Supp.2d 606, 613 (E.D.La.2008) (quoting In re Guidant Corp. Implantable Defibrillators Prods. Liability Litig., MDL No. 05-1708, 2008 WL 682174, at *3 (D.Minn. 2008) (noting that the parties "contemplated a global settlement covering Plaintiffs from both the MDL and state cases, and included Plaintiffs whose cases had been filed or transferred to the MDL, Plaintiffs whose cases were filed outside the MDL in state court proceedings, and potential Plaintiffs who had not yet filed their cases")). The parties entered a mutual agreement and sought certification of a settlement class with the aim of avoiding countless individual suits in diverse jurisdictions.

Our dissenting colleagues disparage the concept of "global peace" as if it were an impermissible objective in using the class action device. From a practical standpoint, however, achieving global peace is a valid, and valuable, incentive to class action settlements. Settlements avoid future litigation with all potential plaintiffs—meritorious or not. If the dissent's position were adopted, there would be no settlements, collusive or otherwise. First of all, litigating whether a claim is "colorable" and defending who is in and who is not in the class would be an endless process, preventing the parties from seriously getting to, and engaging in, settlement negotiations. And, as discussed above, the "individualized" nature of the task would doom the class certification process from the outset. Second, since releases would necessarily be limited to the qualifying class members, those ultimately excluded would no doubt go right back into court to continue to assert their claims. No defendants would consider settling under this framework, for they could never be assured that they have extinguished every claim from every potential plaintiff.^[41]

As applied here, the objectors' approach would subject De Beers to numerous individual suits brought by claimants excluded from the class, undermining "the strong presumption in favor of voluntary settlement agreements, which we have explicitly recognized with approval." Ehrheart, 609 F.3d at 594 (citing Pennwalt Corp. v. Plough, 676 F.2d 77, 79-80 (3d Cir.1982)). "This presumption is especially strong in class actions and other complex cases ... because they promote the amicable resolution of disputes and lighten the increasing load of litigation faced by the federal courts." Id. (citations omitted). By contrast, requiring a class to assert uniform or identical questions of law or fact and to preemptively demonstrate their legal viability "would seriously undermine the possibility for settling any large, multi district class action." Prudential II, [312] 261 F.3d at 367. Apart from imposing immense administrative costs, the extraordinary requirement that class members individually possess a "colorable legal claim" would make it increasingly difficult to approve nationwide class settlements entailing predominantly common issues but arising under varying state laws. The resulting framework would likely siphon the various state law claims from federal class actions, and defendants seeking to settle "in such suits would always be concerned that a settlement of the federal class action would leave them exposed to countless suits in state court despite settlement of the federal claims." Id.; see also Pet Food, 629 F.3d at 342 ("[A]bsent class certification, the Court may be faced with litigating over 100 individual lawsuits all of which would arise out of the same set of operative facts.").

Rather than "concentrating the litigation of the claims" in a superior single action, Fed.R.Civ.P. 23(b)(3)(C), this would serve to frustrate "[t]he core purpose of Rule 23(b)(3)," which "is to vindicate the claims of consumers and other groups of people whose individual claims would be too small to warrant litigation," Amchem, 521 U.S. at 617, 117 S.Ct. 2231.

b. Rules Enabling Act & Federalism Concerns

The objectors further contend that the District Court's certification of the settlement class was flawed because it "recognized as valid, for purposes of Rule 23, claims that are not recognized as valid under applicable state law." (Quinn Supp. Br. at 28.) Accordingly, they argue, the order ran afoul of the Rules Enabling Act, which provides that the rules of procedure "shall not abridge, enlarge or modify any substantive right." 28 U.S.C. § 2072(b).^[42] We cannot agree.

In Prudential, we approved a district court's certification of a proposed settlement despite objections that the certification modified or abridged state law rights. 148 F.3d at 324 (discussing 962 F.Supp. 450, 461-62 (D.N.J.1997)). We agreed with the district court that "approval of a settlement under Rule 23 merely recognizes the parties' voluntary compromise of their rights and does not itself affect their substantive state law rights." Id. (citation & alterations omitted). As a result, we also agreed with the district court's assessment that the proposed settlement could not violate the Rules Enabling Act since a "court's approval of a voluntary settlement, by nature a compromise of rights, does not affect substantive state rights." Prudential, 962 F.Supp. at 462.

It is well established that "settlement agreements are creatures of private contract law." See, e.g., Bauer v. Trans. Sch. Dist. of City of St. Louis, 255 F.3d 478, 482 (8th Cir.2001). "A district court is not a party to the settlement, nor may it modify the terms of a voluntary settlement agreement between parties." Ehrheart, 609 F.3d at 593 (emphasis added). Thus, a district court's certification of a settlement simply recognizes the parties' deliberate decision to bind themselves according to mutually agreed-upon terms without engaging in any substantive adjudication of the underlying causes of action. [313] In the absence of a finding that plaintiffs are actually entitled to relief under substantive state law, we reiterate that a court does not "abridge, enlarge, or modify any substantive right" by approving a voluntarily-entered class settlement agreement. § 2072(b).

In the same vein, we disagree with the contention that the District Court violated principles of federalism by extending to the plaintiffs a substantive right that they could not have asserted in state court.^[43] As an initial matter, the District Court's approval of the parties' settlement should not be considered a recognition or expansion of substantive rights unavailable in a particular state.^[44] See supra. In this regard, the disputed certification order did not subordinate the states' interests, as it did not in fact validate any asserted claims purportedly rejected by the states.^[45]

Moreover, consideration of the policy imperatives underlying Illinois Brick confirms that the District Court's certification of a settlement class here did not infringe upon federalism principles. Illinois Brick's restriction on indirect purchaser recovery was motivated by prudential concerns for manageability; it does not reflect a categorical policy judgment that indirect purchasers do not merit antitrust protection. As we previously highlighted, the Illinois Brick Court offered "three policy reasons for its holding":

(1) a risk of duplicative liability for defendants and potentially inconsistent adjudications could arise if courts permitted both direct and indirect purchasers to sue defendants for the same overcharge; (2) the evidentiary complexities and uncertainties involved in ascertaining the portion of the overcharge that the direct purchasers had passed on to the various levels of indirect purchasers would place too great a burden on the courts; and (3) permitting direct and [314] indirect purchasers to sue only for the amount of the overcharge they themselves absorbed and did not pass on would cause inefficient enforcement of the antitrust laws by diluting the ultimate recovery and thus decreasing the direct purchasers' incentive to sue.

Howard Hess Dental Labs. Inc. v. Dentsply Intern., Inc., 424 F.3d 363, 369-70 (3d Cir.2005) (citing Illinois Brick, 431 U.S. at 730-35, 740-43, 97 S.Ct. 2061).^[46] Nevertheless, the Supreme Court acknowledged that its aversion to administering indirect purchaser recoveries undoubtedly "denie[d] recovery to those indirect purchasers who may have been actually injured by antitrust violations." Illinois Brick, 431 U.S. at 746, 97 S.Ct. 2061.^[47]

Here, contrary to the dissent's and the objectors' argument, the District Court's certification order did not undermine these prudential considerations. De Beers's agreement to a specified recovery payment—and the interrelated removal of a need to ascertain and prove the amount of passed-on overcharges—marginalizes the first two Illinois Brick concerns for duplicative liability and complexity in ascertaining the passed-on overcharges. The third prudential concern is similarly inapposite since the Direct Purchaser Class pursued and approved a separate settlement agreement and there is no indication that the Indirect Purchaser Settlement undermined "the direct purchasers' incentive to sue." Dentsply, 424 F.3d at 370. Indeed, the immediate relief offered by the instant settlement appears to offer the most "[]efficient enforcement of the antitrust laws," id., when compared to the highly uncertain result the plaintiffs would encounter by engaging in protracted litigation against a party with a long track record of avoiding the jurisdiction of courts in the United States. See generally Comment, The Diamond Cartel, 56 Yale L.J. 1404, 1411 (1947) (discussing De Beers's avoidance of effective antitrust prosecution in light of "the twin difficulties of obtaining jurisdiction over the foreign corporations and of retaining within the court's reach tangible assets sufficient to enforce a decree").

Accordingly, we reject the assertion that the District Court inappropriately subordinated state sovereignty in certifying the class.

c. Identification of Class Claims Pursuant to Rule 23(c)(1)(B)

Apart from our disagreement with the objectors' arguments regarding commonality and predominance, we similarly reject the view that the District Court's Order in this case failed to satisfy all of [315] Rule 23(c)(1)(B)'s substantive requirements.

As we have explicated, Rule 23(c) provides that a certification order "must include (1) a readily discernible, clear, and precise statement of the parameters defining the class or classes to be certified, and (2) a readily discernible, clear, and complete list of the claims, issues or defenses to be treated on a class basis." Hydrogen Peroxide, 552 F.3d at 320-21 (citation & quotations omitted); see also Fed.R.Civ.P. 23(c)(1)(B) ("An order that certifies a class action must define the class and the class claims, issues, or defenses...."). The District Court's Order "easily meets the requirements of Rule 23(c)(1)(B) with respect to the definition of the class itself." Wachtel ex rel. Jesse v. Guardian Life Ins. Co. of Am., 453 F.3d 179, 188 (3d Cir.2006). The Court properly delineated the parameters of the Indirect Purchaser Class, defining class members as any purchasers of any diamond product in the United States except for those who purchased directly from De Beers or its competitors. (App'x 270.)

As to the second prong of the above test, the contention is raised that the Court's Order did not "explicitly define which claims, issues, or defenses are to be treated on a class basis." Wachtel, 453 F.3d at 189. We disagree with this characterization, as the settlement posture of this class action makes our decision on this front particularly simple. As we noted in Wachtel, a "critical" purpose of Rule 23(c)(1)'s requirement of a "full and clear articulation of the litigation's contours at the time of class certification" was the "need [] to determine how the case will be tried" through presentation of "a `trial plan' that describes the issues likely to be presented at trial and tests whether they are susceptible to class-wide proof." 453 F.3d at 186 (quoting Fed.R.Civ.P. 23(c)(1)(A) advisory committee's note) (quotations omitted). In the settlement context, however, this concern evaporates, "for the proposal is that there be no trial." Comm. Bank II, 622 F.3d at 291 (citing Amchem, 521 U.S. at 620, 117 S.Ct. 2231). As such, we agree with the Seventh Circuit's sentiment that "[g]iven the settlement, no one need draw fine lines among [the various] theories of relief." Mexico Money, 267 F.3d at 747.

The District Court's Order identified six common legal or factual issues it reasonably found to "predominate" over individual questions and susceptible to class treatment, (see App'x 276); the Court also expressly included in its Opinion a background section titled "Underlying Claims, Cases & Parties," which laid out in depth all the claims asserted in each individual suit to be resolved by the class settlement, (App'x 263-65). See also supra note 6. It is undisputed that the Settlement Agreement resolves and releases each and every one of these asserted claims and issues, obviating any need to "cobble together" some uncertain category of issues to be tried as a class. Wachtel, 453 F.3d at 189. "[N]o particular format is necessary in order to meet the substantive requirement of [Rule 23(c) ], and we will not set aside substantively conforming certification orders purely over matters of form." Id. at 188 n. 10. The District Court's Opinion "facilitate[d] meaningful appellate review of [this] complex certification decision[]" by providing us with ample guidance as to the "contours" of the settlement. Id. at 186.^[48]

[316] Accordingly, we conclude that the District Court did not run afoul of the requirements of Rule 23(c)(1)(B) and properly certified the two classes of claims.

2. Injunctive Relief Pursuant to Rule 23(b)(2)

In addition to certifying the Direct and Indirect Purchaser Classes under Rule 23(b)(3), the District Court further certified the purchaser classes pursuant to Rule 23(b)(2) for the purpose of awarding injunctive relief under § 16 of the Clayton Act, 15 U.S.C. § 26.^[49] (App'x 285.) Plaintiffs alleged that, in the absence of injunctive relief, De Beers's anticompetitive conduct would continue to cause the entire membership of all classes to pay artificially inflated prices. The objectors counter that class members lack antitrust standing to seek injunctive relief because they cannot demonstrate a significant threat of injury from an impending violation of the antitrust laws. In support, they point to expert reports submitted in 2008 for the targeted purpose of identifying a common methodology benchmark for calculating damages; these reports suggested that the market for rough diamonds became more competitive in the interim between mid-2006 and 2008, in concert with De Beers's weakening position in the market.^[50] In making this argument, the objectors reject the District Court's conclusion that De Beers's willful entry into the settlement removed the plaintiffs' burden to establish the likelihood of future injury. (See App'x 285.)

In contrast to the damages provision of § 4 of the Clayton Act, "`Section 16 has been applied more expansively, both because its language is less restrictive than that of § 4 ... and because the injunctive remedy is a more flexible and adaptable tool for enforcing the antitrust laws than the damage remedy....'"^[51] [317] McCarthy v. Recordex Serv., Inc., 80 F.3d 842, 856 (3d Cir.1996) (quoting Schoenkopf v. Brown & Williamson Tobacco Corp., 637 F.2d 205, 210 (3d Cir.1980)). Because actions seeking injunctive relief under § 16 do "not present the countervailing considerations—such as the risk of duplicative or ruinous recoveries and the spectre of a trial burdened with complex and conjectural economic analyses," plaintiffs need not "satisfy the direct purchaser requirement as a condition of seeking injunctive relief." In re Warfarin Sodium Antitrust Litig., 214 F.3d 395, 400 (3d Cir.2000) (Warfarin I) (quoting Mid-West Paper Prods. Co. v. Continental Group, Inc., 596 F.2d 573, 594 (3d Cir.1979)) (quotations omitted). Instead, to establish the need for injunctive relief, plaintiffs must generally demonstrate three uncomplicated prerequisites: "a threat of loss"; that the injury in question "is of the type the antitrust laws were intended to prevent"; and "a significant threat of injury from a violation of the antitrust laws." Id. at 399 (citations & quotations omitted; alterations added).

Despite this burden, it is well established that "parties to a suit have the right to agree to anything they please in reference to the subject matter of their litigation, and the court, when applied to, will ordinarily give effect to their agreement, if it comes within the general scope of the case made by the pleadings." Sansom Comm. by Cook v. Lynn, 735 F.2d 1535, 1548 (3d Cir.1984) (quoting Pac. R.R. v. Ketchum, 101 U.S. 289, 297, 25 L.Ed. 932 (1879) (quotations & alterations omitted)). In turn, "[a]s the Supreme Court has recognized, a district court may `provide broader relief in an action that is resolved before trial than the court could have awarded after a trial.'" In re Agent Orange Prod. Liability Litig., 818 F.2d 179, 185 (2d Cir.1987) (quoting Local No. 93, Int'l Assoc. of Firefighters v. City of Cleveland, 478 U.S. 501, 525, 106 S.Ct. 3063, 92 L.Ed.2d 405 (1986) (alterations omitted)). Accordingly, district courts are afforded wide discretion to give effect to joint compromises that timely advance the interests of the parties without wasteful litigation.^[52] In exercising this discretion, the District Court here could reasonably approve a mutually agreed-upon stipulation enjoining conduct within the Court's jurisdiction regardless of whether the plaintiffs could have received identical relief in a contested suit by satisfying each of the aforementioned requirements at trial.

Yet because of the class nature of the instant suit, the District Court's approval of the stipulated injunction borne out of a class settlement did need to satisfy an additional test. Specifically, Rule 23(b)(2) authorizes class certification only when "the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole." Fed.R.Civ.P. 23(b)(2).^[53] Important to the analysis "is [318] that the relief sought ... should benefit the entire class," and "the putative class [must] `demonstrate that the interests of the class members are so like those of the individual representatives that injustice will not result from their being bound by such judgment in the subsequent application of principles of res judicata.'" Baby Neal for and by Kanter v. Casey, 43 F.3d 48, 59 (3d Cir.1994) (quoting Hassine, 846 F.2d at 179). "[I]njunctive actions, seeking to define the relationship between the defendant and the `world at large,' will usually satisfy the requirement." Id.

Here, we have no difficulty concluding that Rule 23(b)(2)'s requirement that De Beers's alleged conduct be "generally applicable to the class" was satisfied. Indeed, much of our discussion of "predominance" in the previous section of this Opinion specifically emphasized the common elements of the complained of conduct that are equally applicable to "the class as a whole." See supra. As the District Court discussed, the plaintiffs alleged that De Beers's anticompetitive behavior "caused the entire membership of all classes to pay artificially inflated prices," and that, in the absence of injunctive relief, all classes would continue to pay artificial premiums. (App'x 285.) These claims demonstrate shared interests between the members of the putative class, and, these allegations, if proven, would support injunctive relief respecting the class as a whole. Likewise, the parties' mutual decision to settle claims "on grounds generally applicable to the class" complies with the text of Rule 23(b)(2) and should be respected.

In reaching this decision, we also reject the objectors' request that we engage in fact-finding as to whether all class members could show an imminent threat of prospective antitrust injury. Due to the settlement posture of this case, which controls, we need not concern ourselves with this issue. Moreover, the District Court never addressed the question of whether changes in the market negatively affected De Beers's ability to extract higher rents from diamond sightholders and subsequent purchasers.^[54] Without the benefit of the [319] District Court's factual findings on the matter in any event, "[w]e deem it inappropriate to treat this question without any evidence having been presented on [it] and without the benefit of the findings and opinion of the district judge." Merola v. Atl. Richfield Co., 515 F.2d 165, 173 (3d Cir.1975).

At bottom, we hold that the District Court acted within its discretion in accepting De Beers's stipulation to the injunctive relief.

B. Fairness of the Class Action Settlement & the Plan of Allocation

Apart from contesting the certification of the settlement class, the objectors raise two other arguments as to the fairness and adequacy of the proposed settlement. First, they quarrel with the District Court's approval of the settlement as a whole under Federal Rule of Civil Procedure 23(e)'s requirement that the settlement be "fair, reasonable, and adequate." (See Bagolie Br. at 18-28.) Second, the objectors dispute the fairness and adequacy of the settlement's plan of allocation for a portion of the settlement. Specifically, they urge that the proposed Indirect Purchaser Settlement distribution is "patently unfair" and presents "an intra-class conflict of interest that renders Class Counsel, as well as the class representative, inadequate." (See Murray Consol. Br. at 13; Quinn Br. at 63-64; Petrus Br. at 12-13.) We address each objection in order.

1. Approval of the Settlement

Before approving a class settlement agreement, a district court must find that the requirements for class certification under Rule 23(a) and (b) are met, and must separately "determine that the settlement is fair to the class under [Rule] 23(e)." Ins. Broker., 579 F.3d at 257. Rule 23(e) provides that a proposed settlement may only be approved "after a hearing and on finding that it is fair, reasonable, and adequate." Fed.R.Civ.P. 23(e)(2). In this process, "trial judges bear the important responsibility of protecting absent class members," and must be "assur[ed] that the settlement represents adequate compensation for the release of the class claims." Pet Food, 629 F.3d at 349 (citation & quotations omitted); see also Ehrheart, 609 F.3d at 593 (stressing that "[t]he purpose of Rule 23(e) is to protect the unnamed members of the class," and that a "district court acts as a fiduciary" for absent class members) (citing Warfarin, 391 F.3d at 534). "[W]here settlement negotiations precede class certification, and approval for settlement and certification are sought simultaneously, district courts should be even `more scrupulous than usual' when examining the fairness of the proposed settlement." Warfarin, 391 F.3d at 534 (quoting GM Truck, 55 F.3d at 805).

In assessing the fairness of a proposed settlement, we have articulated nine well-established primary factors for a district court to consider in conducting its inquiry:

(1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the [320] risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; [and] (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation.

Pet Food, 629 F.3d at 350 (quoting Girsh v. Jepson, 521 F.2d 153, 157 (3d Cir.1975)). (internal quotation marks and alterations omitted).

Furthermore, a district court may consider several other factors "illustrative of additional inquiries that in many instances will be useful for a thoroughgoing analysis of a settlement's terms," id:

[T]he maturity of the underlying substantive issues, as measured by experience in adjudicating individual actions, the development of scientific knowledge, the extent of discovery on the merits, and other factors that bear on the ability to assess the probable outcome of a trial on the merits of liability and individual damages; the existence and probable outcome of claims by other classes and subclasses; the comparison between the results achieved by the settlement for individual class or subclass members and the results achieved—or likely to be achieved—for other claimants; whether class or subclass members are accorded the right to opt out of the settlement; whether any provisions for attorneys' fees are reasonable; and whether the procedure for processing individual claims under the settlement is fair and reasonable.

Id. (quoting Prudential, 148 F.3d at 323). The "settling parties bear the burden of proving that the Girsh factors weigh in favor of approval of the settlement" throughout this analysis.^[55] Id. (citation omitted). "Because of the district court's proximity to the parties and to the nuances of the litigation, we accord great weight to the court's factual findings" in conducting the fairness inquiry. Prudential, 148 F.3d at 317.

The District Court in this instance engaged in a thorough review of the Girsh factors, holding that the relevant considerations on balance weighed in favor of a finding of fairness under Rule 23(e). We conclude that the Court did not abuse its discretion in finding the settlement to be fair, reasonable, and adequate.

a. Complexity, Expense, and Likely Duration of the Litigation

The first Girsh factor "captures the probable costs, in both time and money, of continued litigation." Warfarin, 391 F.3d at 536 (citation omitted). The District Court found that this litigation "would have been difficult, as multiple parties, multiple claims, extensive jurisdictional problems, and complicated discovery would be involved." (App'x 289.) The Court further discussed the likelihood of extensive motion practice as to jurisdiction, the lifting of default judgments, statute of limitations issues, and the concern for protecting [321] foreign litigants in United States courts. (Id. 289-90.)

We agree with the District Court's conclusion that litigation of the numerous legal and factual issues discussed would have inevitably contributed to the expense and duration of the proceedings. Faced with the uncertainty arising from the existing defaults and De Beers's ongoing denial of personal jurisdiction, the settlement provided substantial and immediate relief to the class without further expense. Moreover, extended motion practice "would not only further prolong the litigation but also reduce the value of any recovery to the class." Warfarin, 391 F.3d at 536. Accordingly, this first factor favors the settlement.

b. The Reaction of the Class to the Settlement

The second Girsh factor "attempts to gauge whether members of the class support the settlement," by considering the number of objectors and opt-outs and the substance of any objections. Prudential, 148 F.3d at 318. The District Court determined that the reaction of the class was overwhelmingly positive,^[56] and noted that all twenty of the objections pertained to the Indirect Purchaser Class, with all but four objections relating to the consumer subclass, which consists of between 67 and 117 million members. (App'x 290-91.) We agree with the District Court's observation that the minimal number of objections and requests for exclusion are consistent with class settlements we have previously approved, and we are satisfied that the District Court acted within its discretion in finding this factor to favor settlement.

c. The Stage of the Proceedings and the Amount of Discovery Completed

The third Girsh factor "captures the degree of case development that class counsel had accomplished prior to settlement," and allows the court to "determine whether counsel had an adequate appreciation of the merits of the case before negotiating." Warfarin, 391 F.3d at 537 (citation, quotations & alterations omitted). The District Court thoroughly discussed the development of this case prior to settlement, highlighting the extensive factual discovery of industry participants, consumers, and experts in the field; the retention of economic experts; the review of publicly available information; the experiences of counsel who had previously sued De Beers for price-fixing; and the analysis of proceedings relating to De Beers's other contractual entanglements in the field. (App'x 292.) The Court further observed that several of the individual suits had been in litigation for years before negotiation of the settlement, and emphasized that classes had been certified in several individual suits after significant factual investigation and legal development. (Id.) The Court committed no error in concluding that counsel adequately appreciated the merits of the case prior to reaching a settlement, and we agree that this factor favors approval of the settlement.

[322] d. The Risks of Establishing Liability

The fourth Girsh factor "examine[s] what the potential rewards (or downside) of litigation might have been had class counsel decided to litigate the claims rather than settle them." Cendant, 264 F.3d at 237. As already highlighted, the District Court discussed at length the various difficulties plaintiffs would likely encounter in attempting to collect on default judgments in foreign jurisdictions, observing that the Court's monetary judgments would likely be perceived as "beyond its authority" and "effectively void." (App'x 294-95.) The objectors' misguided contention that no risk of establishing liability exists entirely disregards the potential drawbacks of litigating and attempting to collect in foreign jurisdictions, including the extensive motion practice and expense such an uncertain tactic would entail. We are also influenced by De Beers's track record of rejecting United States jurisdiction over its legal affairs and the fact that De Beers has continued to deny any wrongdoing even in reaching a settlement agreement in this matter. Accordingly, we discern no error in the District Court's conclusion that this factor favors settlement.

e. The Risks of Establishing Damages

As with the fourth Girsh factor, "this inquiry attempts to measure the expected value of litigating the action rather than settling it at the current time." Cendant, 264 F.3d at 238-39 (citation & quotations omitted). The District Court found that entry of a default judgment against De Beers would prompt the court to "conduct such hearings or order such references as it deems necessary and proper" to ascertain the amount of damages since the damages had not presently been established with certainty. (App'x 296 (quoting Fed.R.Civ.P. 55(b)).) The expert reports submitted by the various parties indicated that these proceedings would likely entail a "battle of the experts," with each side presenting its figures and defenses to the other side's proposals. (Id. 297.) Because of the "uncertainty attendant to such a battle," the District Court determined this factor to weigh in support of settlement, (id.), and the objectors do not contest this finding on appeal. Accordingly, we find no flaw in the District Court's decision that the additional "risk in establishing damages" counsels in favor of approval of the settlement. Cendant, 264 F.3d at 239.

f. The Risks of Maintaining the Class Action Through Trial

The sixth Girsh factor "measures the likelihood of obtaining and keeping a class certification if the action were to proceed to trial" in light of the fact that "the prospects for obtaining certification have a great impact on the range of recovery one can expect to reap from the class action." Warfarin, 391 F.3d at 537 (internal quotations & citation omitted). Class certification is tenuous, as a "district court retains the authority to decertify or modify a class at any time during the litigation if it proves to be unmanageable." Id. (citation omitted). As we have discussed supra, although the size and variety of issues implicated in this nationwide class action do not present an obstacle to certification of a settlement class, "there is a significant risk that such a class would create intractable management problems if it were to become a litigation class, and therefore be decertified." Id. Accordingly, we agree with the District Court that the considerable risk of maintaining the class action through trial weighed in favor of settlement.^[57]

[323] g. Ability of Defendants to Withstand a Greater Judgment

The seventh Girsh factor considers "whether the defendants could withstand a judgment for an amount significantly greater than the settlement." Warfarin, 391 F.3d at 537-38 (citation, quotations, & alteration omitted). The District Court observed that "little fact-finding has been done on this issue," and noted that the parties did not dispute De Beers's ability to withstand a greater judgment. (App'x 298-99.) Even so, the Court found this factor to neither favor nor disfavor the proposed settlement because "it would be extremely difficult, if not impossible, to collect a judgment from De Beers." (Id.) The objectors contend that the District Court made insufficient findings as to De Beers's market capitalization, which suggested an ability to withstand a much higher judgment, and, therefore, should have weighed this factor against the settlement. (Bagolie Br. at 26-27).

In comparing the value of settlement versus trial, we must be careful to judge the fairness factors "against the realistic, rather than theoretical, potential for recovery after trial." In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 461 (S.D.N.Y.2004). In this regard, a finding that an immediate settlement is preferable to the high unlikelihood of collecting a theoretical judgment against De Beers appears entirely reasonable. Moreover, a defendant's ability to withstand a much higher judgment does not necessarily "mean that it is obligated to pay any more than what the [class members] are entitled to under the theories of liability that existed at the time the settlement was reached." Warfarin, 391 F.3d at 538. That said, "[t]he proponents of a settlement bear the burden of proving that the Girsh factors weigh in favor of approval," and we have previously found that defendants' speculative ability to pay "substantially more than they did under the Settlement" cut against approval, "albeit only moderately." Cendant, 264 F.3d at 241.

At bottom, we agree that, "in any class action against a large corporation, the defendant entity is likely to be able to withstand a more substantial judgment, and, against the weight of the remaining factors, this fact alone does not undermine the reasonableness of the instant settlement." Weber v. Gov't Empl. Ins. Co., 262 F.R.D. 431, 447 (D.N.J.2009). As such, we find no error in the District Court's conclusion that De Beers's ability to withstand a greater judgment does not necessarily undermine the fairness of the settlement.

h. The Range of Reasonableness of the Settlement in Light of the Best Possible Recovery and All Attendant Risks of Litigation

The final two Girsh factors consider "whether the settlement represents a good value for a weak case or a poor value for a strong case." Warfarin, 391 F.3d at 538. The reasonableness of a proposed settlement is assessed by comparing "the present value of the damages plaintiffs would likely recover if successful [324] [at trial], appropriately discounted for the risk of not prevailing . . . with the amount of the proposed settlement." Prudential, 148 F.3d at 322. Notably, in conducting the analysis, the court must "guard against demanding too large a settlement based on its view of the merits of the litigation; after all, settlement is a compromise, a yielding of the highest hopes in exchange for certainty and resolution." GM Truck, 55 F.3d at 806 (citations omitted).

Applying this framework, the District Court described the methodology utilized by the Indirect Purchaser Consumer Subclass's expert, who theorized that the average overcharge for diamond sales was 4.85% and the total worldwide overcharge equalled $4.99 billion; the United States consumes approximately 50% of the diamonds and diamond jewelry worldwide, rendering the overcharge to the U.S. market equal to $2.49 billion. (App'x 300.) Accordingly, the proposed $272.5 million Indirect Purchaser Settlement Fund represented 10.93% of this overcharge. (Id.) The expert further posited that although the Direct Purchaser Class recovery could not be precisely quantified in the absence of data as to the exact amount of non-De Beers sales to Direct Purchasers, the value could reasonably be estimated. Placing the total value of United States imports of rough diamonds during the Direct Purchaser Class Period at $4.3 billion, the expert estimated that at least 46%—or approximately $2 billion—of the rough diamond sales were excluded sales; applying the 4.85 weighted overcharge percentage to that $2 billion, the expert theorized that the overcharge percentage was near $100 million. (Id.) As such, the proposed $22.5 million recovery represented more than 20% of the single damages. (Id.) The District Court found this estimate reasonable and the objectors do not protest this methodology.

Instead, the objectors contend that the District Court abused its discretion in overvaluing the settlement by considering only estimated single damages in its "best possible recovery" inquiry, rather than comparing the settlement amount to the treble damages that are an automatic component of antitrust damages recovery in many jurisdictions. (Bagolie Br. 28, 32-43.) Although the objectors correctly note that the District Court compared the settlement recovery to single damages in evaluating the propriety of the settlement's monetary component, (App'x 301), we do not agree with the objectors that this methodology constituted legal error.

Some disagreement exists in the case law as to whether the reasonableness of a settlement amount should be evaluated by comparison to the potential single damages of a class or the trebled damages authorized in certain jurisdictions. Compare County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1324 (2d Cir.1990) ("[T]he district judge correctly recognized that it is inappropriate to measure the adequacy of a settlement amount by comparing to a trebled base recovery figure."), Carnegie v. Household Intern., Inc., 445 F.Supp.2d 1032, 1035 (N.D.Ill.2006) ("[N]umerous courts have held that in determining a settlement value, the potential for treble damages should not be taken into account."), and Lorazepam & Clorazepate Antitrust Litig., 205 F.R.D. 369, 376 (D.D.C.2002) ("[T]he standard for evaluating settlement involves a comparison of the settlement amount with the estimated single damages."), with In re Auction Houses Antitrust Litig., 2001 WL 170792, at *7 (S.D.N.Y. Feb. 22, 2001) ("[T]here are few perceptible justifications of the single damages standard for the determination of the fairness of antitrust class actions," which "places the settlement court, [acting] as a fiduciary for the absent class members, in [325] a position in which it may be forced to approve a settlement that no non-representative plaintiffs would accept"), and In re Compact Disc Minimum Advertised Price Antitrust Litig., 216 F.R.D. 197, 210 n. 30 (D.Me.2003) ("[I]f a settlement reflects a potential damage recovery, it should logically reflect the other parts of that recovery (trebling and attorneys' fees) that the statute awards automatically.").

That said, "we know of no authority that requires a district court to assess the fairness of a settlement in light of the potential for trebled damages."^[58] Comm. Bank II, 622 F.3d at 312 (emphasis in original); see also Rodriguez v. West Publishing Corp., 563 F.3d 948, 964-65 (9th Cir.2009) ("We have never precluded courts from comparing the settlement amount to both single and treble damages. By the same token, we do not require them to do so in all cases."). Rather, "courts generally determine fairness of an antitrust class action settlement based on how it compensates the class for past injuries, without giving much, if any, consideration to treble damages."^[59] Rodriguez, 563 F.3d at 964; see also City of Detroit v. Grinnell Corp., 495 F.2d 448, 458-59 (2d Cir.1974) ("[T]he vast majority of courts which have approved settlements . . . have given their approval . . . based on an estimate of single damages only."), overruled on other grounds as recognized by U.S. Football League v. Nat'l Football League, 887 F.2d 408, 415-16 (2d Cir.1989). Without delving into the debate over whether single or treble damages are the proper variable of comparison, we cannot label the District Court's adherence to the commonly accepted procedure for assessing the fairness, adequacy, and reasonableness of a settlement an abuse of discretion.^[60] Moreover, many of the state law claims asserted would not provide for treble damages recovery.

Finding no abuse in the District Court's conclusion that the proposed settlement offered a reasonable recovery, particularly [326] "when accounting for the additional relief provided by the injunction," (App'x 301), we are also not persuaded that the Court erred in assessing the reasonableness of the settlement in light of all of the attendant risks of litigation. Girsh, 521 F.2d at 157. The District Court found the "magnitude of the potential risks in litigation, including likely profound difficulties enforcing United States default judgments in the relevant foreign countries, establishing personal jurisdiction, and establishing liability," to compare unfavorably to the recovery offered by the proposed settlement. (App'x 301-02.) Based on this assessment, we find the District Court's conclusion that these final factors weigh in favor of the settlement compelling.

On balance, we conclude that the District Court did not abuse its discretion in finding the Settlement as a whole fair, adequate, and reasonable.

2. Plan of Allocation

The objectors next aver that the previously discussed differences in state law mandate a differential allocation in the percentage of recovery within the Indirect Purchaser Consumer Settlement Fund, which should "account for the[] varying strengths and weaknesses" of consumer claims as informed by the applicable state law treatments of indirect purchaser causes of action. (Murray Br. at 15-18.) Accordingly, they contend that the District Court should utilize subclasses in accounting for the varied rights to recovery caused by Illinois Brick disparities in state laws. (Quinn Answer to Pet. for Reh'g En Banc at 11.)

A district court's "principal obligation" in approving a plan of allocation "is simply to ensure that the fund distribution is fair and reasonable as to all participants in the fund." Walsh v. Great Atl. & Pac. Tea Co., Inc., 726 F.2d 956, 964 (3d Cir.1983). In prior instances where objectors challenged the fairness of intra-class allocation of settlement funds, we have explained that "where a class is found to include subclasses divergent in interest," the use of subclasses may be appropriate and "is designed to prevent conflicts of interest in class representation." Ins. Broker., 579 F.3d at 271. We have likewise noted the potential drawbacks of subclassing, including the potential "`Balkanization' of the class action," and creation of "a huge obstacle to settlement if each subclass has an incentive to hold out for more money." Id. (quoting In re Cendant Corp. Sec. Litig., 404 F.3d 173, 202 (3d Cir.2005) ("Cendant Sec.")). We accord "substantial deference to district courts with respect to their resolution of this issue" because such decisions "require[] a balancing of costs and benefits that can best be performed by a district judge." Ins. Broker., 579 F.3d at 271. "Where the district court has declined to certify a subclass" and treats all class members as falling within a single class for purposes of a fund allocation, "we will ordinarily defer to its decision unless it constituted an abuse of discretion." Id. (quoting Cendant Sec., 404 F.3d at 202) (quotations & alterations omitted).

In Insurance Brokerage, the objectors asserted that the district court abused its discretion in failing to require the establishment of subclasses where "the increased recovery of one sub-class was achieved at the expense of another subclass's diminished recovery." Id. at 270. There, the plan of allocation tied reimbursement "to the extent of damages incurred on certain policies of insurance," and was "allocated in such a way that policyholders who likely incurred the most damage are entitled to a larger proportion of the recovery than those whose injuries were less severe." Id. at 272-73. Although we observed that the proposed subclasses [327] "ha[d] some appeal" in remedying an unequal division of the settlement fund, we deferred to the district court's thorough explanation that the objectors had failed to evidence "divergent or antagonistic interests between the three groups," and had not established that "these groups have claims of varying merit." Id. at 272 (citation & quotations omitted). Indeed, despite the factual disparities in the type of insurance at issue, the district court had highlighted that "all of the class members shared a unified interest in establishing [] liability for engaging in anticompetitive conduct which increased the cost of premium for all policyholders," undermining the showing of divergent interests. Id. at 273. We further noted that the plan of allocation "was carefully devised to ensure a fair distribution of the settlement fund," and "merely created a structure for ensuring that reimbursement [was] tied to the extent of damages incurred." Id. at 272. Accordingly, we found the settlement allocation fair and within the district court's discretion. Id.

We reached a different conclusion in Pet Food, 629 F.3d at 353. There, the district court carefully examined the fairness of the total settlement fund, but did not discuss whether an allocation of the fund to a sub-segment of claims—namely, to consumers who had received refunds outside of the settlement—was inadequate and rendered the settlement unfair and unreasonable to those who had received nothing on account of their claims. 629 F.3d at 353 (noting that although "we do not doubt the able District Court properly determined that the fund was a fair and adequate settlement of all the claims advanced by plaintiffs in this case[,] . . . [w]e are unable to determine whether the $250,000 allocation was a fair and adequate settlement of the Purchase Claims"). There, we decided that the district court lacked sufficient information to decide whether the allocation to certain claimants was fair, and, thus, we remanded for further proceedings. Id. at 356.

Like the progressive settlement contemplated in Insurance Brokerage, the settlement at issue here provides for a pro rata distribution to all class members, and does not distinguish based upon any variables, such as the applicable state law of claimants' states of residence or location of purchase. While the District Court here did not specifically evaluate the pro rata allocation through the fairness lens, it did consider the differential allocation question in conducting the predominance analysis, noting the imprecision inherent in weighing class member claims "based on the relative strength of different state law claims." (App'x 279.) The District Court further noted in its Rule 23(a) analysis that the various "individual classes were represented by separate counsel during settlement negotiations, allowing for `adequate structural protections to assure that differently situated plaintiffs negotiate for their own unique interests.'" (App'x 220 (quoting Warfarin, 391 F.3d at 533).) Moreover, the Court observed that there were no intra-class conflicts since all putative members experienced injury caused by De Beers, all sought recovery for overpayment caused by allegedly anticompetitive behavior, and all shared common interests in establishing damages and injunctive relief. (Id. at 220-21.)

It may be entirely reasonable to apply the same damages calculation to claimants from all states because, as the district court in Warfarin observed, "[i]t is purely speculative that claimants from indirect purchaser states could anticipate a greater recovery than claimants from other states." In re Warfarin Sodium Antitrust Litig., 212 F.R.D. 231, 260 (D.Del.2002); see also Cendant, 264 F.3d at 250 (given [328] the "speculative" nature of such an inquiry, differences in the liability standards between § 11 and § 10(b) securities claims did not warrant differential plan of allocation). And only by engaging in the type of fact-intensive merits and choice-of-law analyses that we have rejected could a district court attempt to assay the "varying strengths and weaknesses" of asserted state claims. (See Murray Br. at 15-18.) We can find no support in our case law for differentiating within a class based on the strength or weakness of the theories of recovery. Accordingly, we decline to require such an analysis.

Moreover, it is noteworthy that each putative class member suffered the same alleged injury as a result of De Beers's anticompetitive conduct, irrespective of the vagaries of applicable state laws. Recognizing this, the plan of allocation here "adjust[s] diamond purchases to a common measure," allowing an "apples to apples" comparison "of the relative amount of damages suffered by various claimants within the classes and subclasses and permits distribution pro rata based on the relative amounts of damages suffered." (App'x 1530.) Courts "generally consider plans of allocation that reimburse class members based on the type and extent of their injuries to be reasonable," In re Corel Corp. Inc., Sec. Litig., 293 F.Supp.2d 484, 493 (E.D.Pa.2003), and we are mindful that "district courts have broad supervisory powers over the administration of class action settlements to allocate the proceeds among the claiming class members equitably," McCoy v. Health Net, Inc., 569 F.Supp.2d 448, 469 (D.N.J.2008). The record here confirms that the District Court carefully considered expert advice in accepting the plan of allocation, and "[t]his kind of decision is intensely fact-based, falling within the purview of the District Court's decision." Cendant, 264 F.3d at 254. In light of the foregoing analysis, we cannot conclude that the District Court abused its discretion in accepting the carefully negotiated plan of allocation.

Lastly, the objectors contend that the settlement's minimum claim payment requirement of $10 provides inadequate settlement relief, as it will eliminate the rights of many class members without providing any compensation. (Petrus/Giddings Br. at 12.) They urge that a minimum payment provision contradicts the purpose of the class action mechanism to provide recovery even where the amount is "paltry." (Id. at 16 (quoting Yang v. Odom, 392 F.3d 97, 106 (3d Cir.2004)).) We disagree and find no abuse in the District Court's decision to approve the minimum claim payment threshold.

As other courts have observed, "de minimis thresholds for payable claims are beneficial to the class as a whole since they save the settlement fund from being depleted by the administrative costs associated with claims unlikely to exceed those costs and courts have frequently approved such thresholds, often at $10." In re Gilat Satellite Networks, Ltd., No. CV-02-1510, 2007 WL 1191048, at *9 (E.D.N.Y. Apr. 19, 2007); see, e.g., In re Global Crossing Sec. & ERISA Litig., 225 F.R.D. 436, 463 (S.D.N.Y.2004) (noting that the minimum recovery requirement is a common procedure that addresses "the undeniable fact that claims-processing costs money, which comes out of the settlement fund"); Mehling v. New York Life Ins. Co., 248 F.R.D. 455, 463 (E.D.Pa.2008) (approving settlement plan with $50 minimum payment). The District Court adopted the Special Master's considered decision that "administrative costs to make de minimis payments are too large to justify the small payments," and the objectors have offered only conclusory counter-allegations. (App'x 1531). Indicative of the disingenuous [329] nature of their responses is the objectors' assertion that "[i]n exchange for their release, millions of class members [will] receive no money." (Quinn Br. at 63-64.) This argument fails to acknowledge the injunctive relief offered by the settlement, however, which is intended to benefit all class members regardless of individual monetary recovery.^[61]

Furthermore, the objectors appear to ignore a key rationale underlying the class action mechanism. In addition to providing individual class members with payments, "`[t]he policy at the very core of the class action mechanism'" is to provide sufficient incentive to prosecute an action "`by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor,'" Yang, 392 F.3d at 106 (quoting Amchem, 521 U.S. at 617, 117 S.Ct. 2231). In this instance, the representative parties and their counsel were properly incentivized to bring and prosecute this action through settlement, resulting in a net benefit to the class. As a result, based upon the evidence offered before the Special Master and the arguments alleged herein, we cannot conclude that the District Court abused its discretion in approving this element of the plan of allocation.

C. Objections to the Fee Award

The objectors likewise aver that the District Court abused its discretion in awarding attorneys' fees that they urge are excessive. (Quinn Br. at 65; Hicks Prelim. Op. Br. at 7; Petrus/Giddings Br. at 12.) They contend that class counsel will receive in excess of $73 million—equal to approximately 25% of the $293 million principal settlement fund—despite this being a default judgment case, which entailed minimal motions practice and discovery. Additionally, considering the large number of putative class members and the alleged lack of risk undertaken by class counsel in prosecuting this case to settlement, the objectors urge that the award is unjustified under our jurisprudence. We disagree.

Our case law makes clear that a "robust" and "thorough judicial review of fee applications is required in all class action settlements," In re Diet Drugs, 582 F.3d 524, 537-38 (3d Cir.2009) (citation & quotations omitted), but that "the amount of a fee award . . . is within the district court's discretion so long as it employs correct standards and procedures and makes findings of fact not clearly erroneous," In re Rite Aid Corp. Sec. Litig., 396 F.3d 294, 299 (3d Cir.2005) (citation & quotations omitted). See also Ursic v. Bethlehem Mines, 719 F.2d 670, 675 (3d Cir.1983) ("[T]he district court has discretion in determining the amount of a fee award . . . in view of [its] superior understanding of the litigation and the desirability of avoiding frequent appellate review of what essentially are factual matters.") (quoting Hensley v. Eckerhart, 461 U.S. 424, 436, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983)).

[330] Attorneys' fees requests are generally assessed under one of two methods: the percentage-of-recovery ("POR") approach or the lodestar scheme. "The former applies a certain percentage to the settlement fund," while "[t]he latter multiplies the number of hours class counsel worked on a case by a reasonable hourly billing rate for such services." Diet Drugs, 582 F.3d at 540 (citation, quotations, & alterations omitted). The POR method "is generally favored in common fund cases because it allows courts to award fees from the fund `in a manner that rewards counsel for success and penalizes it for failure.'" Rite Aid, 396 F.3d at 300 (citation & quotations omitted). The lodestar method, which is more commonly utilized in statutory fee-shifting cases and "where the expected relief has a small enough monetary value that a percentage-of-recovery method would provide inadequate compensation," Diet Drugs, 582 F.3d at 540-41, is then used "to cross-check the reasonableness of a percentage-of-recovery fee award," In re AT & T Corp., 455 F.3d 160, 164 (3d Cir.2006).^[62] Because the case at issue entailed a common fund, the District Court applied the POR method and utilized a lodestar crosscheck. (App'x 310.). The objectors do not dispute the propriety of this approach, and we find no fault with this decision.

In determining the appropriate percentage fee award, the District Court then devoted detailed consideration to each of the ten factors that we identified in Gunter v. Ridgewood Energy Corp., 223 F.3d 190 (3d Cir.2000),^[63] and Prudential, 148 F.3d 283,^[64] finding, inter alia, that the complexity and duration of the litigation, the time and skill committed to the litigation, the ever-present risk of nonpayment from De Beers's tenuous status in the United States, the absence of substantial objections, and the achievement of both monetary and injunctive relief without any governmental investigation or assistance all weighed in favor of approving the Special Master's recommended 25% attorneys' fee award. (App'x 311-21.) The objectors do not contend that the District Court applied incorrect legal standards or procedures or that the Court improperly "brushed over our required analysis." In re Cendant Corp. PRIDES Litig., 243 F.3d 722, 735 (3d Cir.2001). Rather, they disagree with the Court's factual findings as to two of the factors; they contend that we [331] should find an abuse of discretion because this case is "`neither legally nor factually complex and did not require significant motion practice or discovery' by class counsel." (Quinn Br. at 65 (quoting Cendant PRIDES, 243 F.3d at 743).)

Because of the objectors' narrow focus before us and the District Court's thorough analysis of each of the Gunter and Prudential factors, we will only address the specific objections raised herein. As an initial matter, the objectors neglect to mention the primary reason for our finding of error in Cendant PRIDES—the principal case advanced in support of their position. There, we criticized the district court's failure to "explicitly consider any of [the Gunter] factors," and its neglect to "`make its reasoning and application of the fee-awards jurisprudence clear.'" Cendant PRIDES, 243 F.3d at 734-35 (quoting Gunter, 223 F.3d at 196). We engaged in our own analysis of the propriety of the fee award only because the district court failed to consider the fee award factors that we had deemed "essential to a proper exercise of discretion." Id. at 735; see also Ne. Women's Ctr. v. McMonagle, 889 F.2d 466, 475 (3d Cir.1989) ("[A]n appellate court, which relies on a cold record, is even more poorly positioned to assess the nature and quality of the legal services performed at the trial court level."). We have no such concern here, as the District Court clearly set forth its reasoning for the fee award. Indeed, the objectors never explain exactly where in its lengthy analysis the District Court misapplied the Gunter factors; the objectors simply dislike the conclusion reached by the Court. See generally McMonagle, 889 F.2d at 475 ("[T]he appellate court may not upset a trial court's exercise of discretion on the basis of a visceral disagreement with the lower court's decision.") (citation & quotations omitted).

Moreover, the District Court's factual findings as to the complexity and demands of this case further distinguish the instant circumstances from Cendant PRIDES and do not suggest an abuse of discretion. As we discussed in Rite Aid, the Cendant PRIDES counsel "only spent approximately 5,600 hours on the action," "Cendant had conceded liability and no risks pertaining to liability or collection were pertinent." 396 F.3d at 304 (discussing Cendant PRIDES, 243 F.3d at 735). These factors are absent in this case. Contrary to the objectors' contention, the Special Master and District Court both observed that counsel devoted nearly 39,000 hours to litigating this matter in the various federal and state courts and to the subsequent negotiations and disputes pertaining to the settlement itself. The Court noted that, apart from addressing complicated legal questions and the secrecy surrounding the diamond industry, plaintiffs' counsel was forced to litigate against opposition from intervenors and amicus curiae, engaged in protracted settlement negotiations lasting approximately one year, and ultimately confronted the difficult settlement, distribution, and injunctive issues addressed in this appeal. (App'x 317-18.) Given the complexity of the legal and factual issues implicated and the difficult questions raised in the post-settlement process, we find no abuse of discretion in the District Court's conclusion that the complexity and duration of the litigation supported the requested fee.^[65]

[332] Furthermore, unlike in Cendant PRIDES, the risk of nonpayment here remained ever-present throughout the litigation and settlement proceedings. The objectors dispute that counsel faced such risk after agreeing to settle and the depositing of the settlement amount into an escrow account. It is unclear, however, whether an agreement to settle after inception and prosecution of a matter should play a role in a court's evaluation of the risk of nonpayment; indeed, our case law has "never addressed whether courts must reconsider the risk of nonpayment as the action evolves." Diet Drugs, 582 F.3d at 543. Although we previously approved a district court's evaluation of risk "as of `the inception of the action and not through the rosy lens of hindsight,'" we emphasized that our endorsement took into consideration the district court's "more comprehensive" reevaluation of the risk over the course of the proceedings. Id. (quoting In re Diet Drugs, 553 F.Supp.2d 442, 478 (E.D.Pa.2008)). There, we did not directly resolve whether a district court should reassess risk throughout a litigation, but found the risk of nonpayment to be ongoing, noting that while a settlement agreement and "the escrow funds undoubtedly reduced the risk of nonpayment, those funds were but one part of an intricate agreement" and the efforts of counsel could still "have been for naught." Id.

Here, we are similarly satisfied that counsel faced a legitimate risk of nonpayment throughout the litigation. The District Court found that De Beers possessed few assets in the United States against which a judgment could be enforced and effectively dodged jurisdiction in the United States for over fifty years, evidencing a cognizable risk of nonpayment at the inception stage. (App'x 319.) Although the District Court's order did not address the prospects for nonpayment post-settlement, it is evident that De Beers never conceded liability or admitted any wrongdoing, and that the escrow funds "were but one part of an intricate agreement" that—as demonstrated by the Panel's original decision to reject settlement class certification— continued to pose a genuine risk of nonpayment to counsel. As such, the objectors' "view of the risk of nonpayment is more myopic than the Court's," Diet Drugs, 582 F.3d at 543, and we are not persuaded that the District Court abused its discretion in finding this factor to favor the requested fee.

Finally, the objectors' assertion that the award improperly exceeds the awards in similar cases is equally unavailing. In Cendant PRIDES, we discussed fee awards in class actions in which the settlement fund exceeded $100 million and which relied upon the POR method, finding [333] that "the attorneys' fee awards ranged from 2.8% to 36% of the total settlement fund." 243 F.3d at 737. Similarly, in Rite Aid, we found no abuse of discretion in a district court's reliance on three studies that demonstrated an average percentage fee recovery in large class action settlements of 31%, 27-30%, and 25-30%. 396 F.3d at 303. Here, the District Court determined that the 25% fee requested by counsel fell within this range. (App'x 320.)

We are cognizant that a comparison of this award to fees ordered in other cases is a complex analytical task, in light of variations in the efforts exerted by attorneys and the presence of complex legal and factual issues. That said, we have emphasized "that a district court may not rely on a formulaic application of the appropriate range in awarding fees but must consider the relevant circumstances of the particular case." Cendant PRIDES, 243 F.3d at 736. Although this case may have lacked some of the contested motion practice and extensive discovery elicited in some of the other cases receiving similar percentage awards, see id. at 740-41, the case presented other challenges, including "De Beers'[s] denial of jurisdiction [and liability], the secrecy of the diamond industry, and unavailability of ordinary discovery methods, the substantial risk of non-collection of a U.S. judgment in foreign countries and the historic injunction obtained." (February 15, 2008 Report and Recommendation of Special Master on Incentive Awards, Cost Reimbursement & Attorneys' Fee Awards at 31.) The District Court here properly considered the relevant Gunter and Prudential factors, and determined that the case presented all of the factors we had recognized as supporting a higher award: "complex and/or novel legal issues, extensive discovery, acrimonious litigation, and tens of thousands of hours spent on the case by class counsel." (App'x 320 (quoting Cendant PRIDES, 243 F.3d at 741).)

Because the District Court employed the "correct standards and procedures" and its findings of fact are not clearly erroneous, we do not find an abuse of discretion in its calculation of the attorneys' fee award. Rite Aid, 396 F.3d at 299.^[66]

IV. Conclusion

For the foregoing reasons, we will affirm the District Court's Order.

SCIRICA, Circuit Judge, concurring.

I fully concur in the Court's opinion. I write separately to address this case in the wider context of the evolving law on settlement classes.

Ever since the Supreme Court's landmark decisions in Amchem Products Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997) and Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct. 2295, [334] 144 L.Ed.2d 715 (1999), one of the most vexing questions in modern class action practice has been the proper treatment of settlement classes, especially in cases national in scope that may also implicate state law. Grounded in equitable concepts of structural and procedural fairness for absent plaintiffs—competent and conflict-free representation, fair allocation of settlement, absence of collusion—Amchem and Ortiz set down important standards and guidelines for settlement classes.^[67]

Despite initial uncertainty the opinions might pose formidable obstacles for settling massive, complex cases, this has not, for the most part, proved to be the case. Nonetheless, class settlement in mass tort cases (especially personal injury claims) remains problematic, leading some practitioners to avoid the class action device— most prominently in the recent $4.85 billion mass settlement of 50,000 claims arising out of use of the drug Vioxx. In fact, some observers believe there has been a shift in mass personal injury claims to aggregate non-class settlements. "The Zyprexa and Ephedra settlements, as well as the more recent Guidant and Vioxx settlements, suggest that the MDL process has supplemented and perhaps displaced the class action device as a procedural mechanism for large settlements." Thomas E. Willging & Emery G. Lee III, From Class Actions to Multidistrict Consolidations: Aggregate Mass-Tort Litigation after Ortiz, 58 U. Kan. L.Rev. 775, 801 (2010); see also Thomas E. Willging & Shannon R. Wheatman, Attorney Choice of Forum in Class Action Litigation: What Difference Does It Make?, 81 Notre Dame L.Rev. 591, 636 tbl. 12 (2006) (presenting evidence that, in sample, 41% of cases denied class certification ended in non-class settlement). This is significant, for outside the federal rules governing class actions,^[68] there is no prescribed independent review of the structural and substantive fairness of a settlement including evaluation of attorneys' fees, potential conflicts of interest, and counsel's allocation of settlement funds among class members.^[69]

Because of the pivotal role and ensuing consequences of the class certification decision, trial courts must conduct a "rigorous analysis" of Rule 23's prerequisites. Wal-Mart Stores, Inc. v. Dukes, ____ U.S. ____, 131 S.Ct. 2541, 2551-52, 180 L.Ed.2d 374 [335] (2011); In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 315-21 (3d Cir. 2008); In re Initial Pub. Offerings Secs. Litig., 471 F.3d 24, 31-42 (2d Cir.2006).^[70] The same analytical rigor is required for litigation and settlement certification, but some inquiries essential to litigation class certification are no longer problematic in the settlement context. A key question in a litigation class action is manageability— how the case will or can be tried, and whether there are questions of fact or law that are capable of common proof. But the settlement class presents no management problems because the case will not be tried. Conversely, other inquiries assume heightened importance and heightened scrutiny because of the danger of conflicts of interest, collusion, and unfair allocation. See Amchem, 521 U.S. at 620, 117 S.Ct. 2231 ("[O]ther specifications of the Rule [23]—those designed to protect absentees by blocking unwarranted or overbroad class definitions—demand undiluted, even heightened, attention in the settlement context.").

In conducting a "rigorous analysis" under Rule 23, lower courts have applied the strictures laid down in Amchem and Ortiz, and added some of their own. So far, the developing jurisprudence appears to have justified the judgment of the Judicial Conference's Committee on Rules of Practice and Procedure and Advisory Committee on Civil Rules to defer consideration of a variant rule for settlement class actions.

Rule 23(a) sensibly provides that every certified class must share common questions of law or fact. For (b)(3) classes, common questions must predominate over individual questions, claims must be typical, and the class action device must be superior to other available methods for fairly and efficiently adjudicating the controversy. Naturally, there is some overlap in the requirements for commonality, typicality, and predominance—all of which must be shown.

Commonality for a settlement class should be satisfied under the standard for supplemental jurisdiction first set forth in United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), allowing joinder of claims deriving from a common nucleus of operative fact. See also Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., ____ U.S. ____, 130 S.Ct. 1431, 1443, 176 L.Ed.2d 311 (2010) (Scalia, J., plurality opinion) ("A class action, no less than traditional joinder (of which it is a species), merely enables a federal court to adjudicate claims of multiple parties at once, instead of in separate suits."). Variation in state law should not necessarily bar class certification. The focus in the settlement context should be on the conduct (or misconduct) of the defendant and the injury suffered as a consequence. The claim or claims must be related and cohesive and should all arise out of the same nucleus of operative fact. The "common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." Dukes, 131 S.Ct. at 2551. The interests of the class members should be aligned.

[336] The nature of the predominance analysis reflects the purpose of the inquiry, which is to determine whether "a class action would achieve economies of time, effort, and expense, and promote . . . uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results." Amchem, 521 U.S. at 615, 117 S.Ct. 2231 (quoting Fed.R.Civ.P. 23 advisory committee note). This is important even though, in the settlement context, a court need not worry about the challenge of litigating the claims to a verdict in a single proceeding. If the class presented a grab-bag of unrelated claims, a trial court would be unable to ensure that absent class members' interests were protected. The question, then, is what kind of common issues a settlement class must share to satisfy commonality and predominance.

In certain areas, such as antitrust, common issues tend to predominate because a major focus is the allegedly anticompetitive conduct of the defendant and its downstream effects on plaintiffs. See In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 268 (3d Cir.2009). Commonality and predominance are usually met in the antitrust settlement context when all class members' claims present common issues including (1) whether the defendant's conduct was actionably anticompetitive under antitrust standards; and (2) whether that conduct produced anticompetitive effects within the relevant product and geographic markets. See id. at 267.

Even when a settlement class satisfies the predominance requirement, the inclusion of members who have a questionable chance of a favorable adjudication may present fairness concerns that demand the district court's attention. Trial courts must enforce the Rule 23(a) and (b) requirements in order to obtain a "structural assurance of fair and adequate representation for the diverse groups and individuals affected." Amchem, 521 U.S. at 627, 117 S.Ct. 2231. In discharging this responsibility, district courts have a number of ways to address fairness concerns.^[71] Due to the context-specific nature of these judgments, district courts should be afforded a broad ambit of discretion.

For viable settlement classes, Amchem and Ortiz made clear that expediency could not negate the requirements of Rule 23, which serve to protect absent class members. See Amchem, 521 U.S. at 621, 117 S.Ct. 2231 ("Subdivisions (a) and (b) [of Rule 23] focus court attention on whether a proposed class has sufficient unity so that absent members can be fairly bound by decisions of class representatives. That dominant concern persists when settlement, rather than trial, is proposed."). The principal danger of collusion [337] lies in the prospect that class counsel, induced by defendants' offer of attorneys' fees, will "trade away" the claims of some or all class members for inadequate compensation. There is also the possibility that a settlement will not serve the interests of all of the class members, which may be in tension. In Amchem, for instance, the Court concluded the settlement was not demonstrably fair-there was insufficient allocation to asbestos claimants who were seriously injured (e.g. mesothelioma) and insufficient protection of non-impaired plaintiffs. 521 U.S. at 625-28, 117 S.Ct. 2231. The Court worried that the claims of the exposure-only class members were being released without adequate protection. Id.; see also In re Prudential Ins. Co. of Am. Sales Practice Litig., 148 F.3d 283, 315 (3d Cir.1998) ("Prudential") (identifying and distinguishing Amchem's concerns); In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liability Litig., 55 F.3d 768, 784-86 (3d Cir.1995) (providing summary of the debate regarding propriety of mass tort settlements prior to Amchem).

These observations elucidate the issues of predominance and fairness present in this case. Here, the objectors contend certain claims (claims under state-law following Illinois Brick) are not viable—that is, they fail to state a cause of action.^[72] For this reason, objectors believe that defendants are barred from settling these claims in a settlement class action because of the predominance requirement. Under objectors' view of Rule 23, trial courts would be obligated at the settlement class certification stage to decide which state's law would govern for that particular plaintiff, and whether a plaintiff has stated a valid cause of action, even if no defendant has raised a Rule 12(b)(6) objection—the usual way to contest the validity of a claim. Objectors contend they seek to protect absent class members, but fail to explain how absent class members—all of whom claim injury—are harmed by the defendants' willingness to settle all potential claims.

This interpretation also presents significant administrative problems. Objectors view the indirect purchaser class as composed of members who either have valid claims under the laws of states with Illinois Brick repealers or members who have invalid claims under the laws of non-repealer states. But a claim cannot be declared invalid without proper analysis, which would require a choice-of-law examination for each class member's claim. Such analyses may pose difficulties in cases where the residence of the class member is not the sole consideration; modern choice-of-law standards often consider an array of factors particular to individual plaintiffs. Consequently, individual 12(b)(6) inquiries for settlement class certification could present serious difficulties in administration and greatly increase costs and fees, and may deplete rather than increase the recovery of even successful plaintiffs.^[73]

[338] Issues of predominance and fairness do not undermine this settlement. All plaintiffs here claim injury that by reason of defendants' conduct—market manipulation and fraud—has caused a common and measurable form of economic damage. They seek redress under federal antitrust laws and state antitrust, consumer protection, and unjust enrichment laws. All claims arise out of the same course of defendants' conduct; all share a common nucleus of operative fact, supplying the necessary cohesion. Class members' interests are aligned. The entire DeBeers settlement class consists of members with some pleaded claim (but not necessarily the exact same one) arising out of the same course of allegedly wrongful conduct such that shared issues of fact or law outweigh issues not common to the class and individual issues do not predominate. As the class structure and settlement assure fairness to all class members, there appears to be nothing in Rule 23 that would prohibit certification and settlement approval.

Moreover, the focus on the alleged insufficiency of some members' claims is misplaced. Settlement of a class action is not an adjudication of the merits of the members' claims. It is a contract between the parties governed by the requirements of Rule 23(a), (b), and particularly (e),^[74] and establishes a contractual obligation as well as a contractual defense against future claims. Here, class members and DeBeers want to settle all state and federal claims arising out of defendant's alleged misconduct. Amchem recognized the legitimacy of such a settlement under Rule [339] 23, setting forth applicable parameters. The court's responsibility is to supervise and assume control over a responsible and fair settlement. Those requirements have been met here.

A responsible and fair settlement serves the interests of both plaintiffs and defendants and furthers the aims of the class action device. Plaintiffs receive redress of their claimed injuries without the burden of litigating individually. Defendants receive finality. Having released their claims for consideration, class members are precluded from continuing to press their claims. Collateral attack of settlements and parallel proceedings in multiple fora are common realities in modern class actions—features that can imperil the feasibility of settlements if defendants lack an effective way to protect bargained-for rights. See Prudential, 314 F.3d at 104-05. If the indirect-purchaser claims at issue here were excluded, nothing would bar the plaintiffs from bringing them as separate class actions or as aggregate individual actions, leaving defendants "exposed to countless suits in state court" despite the settlement. In re Prudential Ins. Co. of Am. Sales Practice Litig., 261 F.3d 355, 367 (3d Cir.2001) ("Prudential II"). (Here, prior to removal and MDL consolidation, it appears an Illinois state court certified a nationwide litigation class asserting indirect-purchaser claims under the laws of all 50 states.) Perhaps a defendant will be willing and able to defend or settle all of these actions separately, or perhaps it won't. Either way, the costs (direct and indirect) and risks of continuing litigation will be greater. A defendant, therefore, may be motivated to pay class members a premium and achieve a global settlement in order to avoid additional lawsuits, even ones where it might be able to file a straightforward motion to dismiss for failure to state a claim.^[75]

Finally, new limitations such as those proposed by objectors would, I believe, undercut the policy goals of the Class Action Fairness Act of 2005 ("CAFA"), Pub.L. No. 109-2, 119 Stat. 4, and the Multidistrict Litigation Statute, 28 U.S.C. § 1407, both of which are designed to encourage the consolidation of mass claims national in scope—and in the case of CAFA, with particular reference to class actions based on state law claims. Of course, district courts must fully enforce the requirements of Rule 23. But the limitations objectors propose here "would seriously undermine the possibility for settling any large, multi district class action." Prudential II, 261 F.3d at 367.^[76]

[340] The class action device and the concept of the private attorney general are powerful instruments of social and economic policy. Despite inherent tensions, they have proven efficacious in resolving mass claims when courts have insisted on structural, procedural, and substantive fairness. Among the goals are redress of injuries, procedural due process, efficiency, horizontal equity among injured claimants, and finality. Arguably a legal system that permits robust litigation of mass claims should also provide ways to fairly and effectively resolve those claims. Otherwise, mass claims will likely be resolved without independent review and court supervision.^[77]

JORDAN, Circuit Judge, joined by SMITH, Circuit Judge, dissenting.

This is the Majority's considered view of the law: in certifying a class action, it makes no difference whether the class is defined to include members who lack any claim at all. As my colleagues in the Majority see it, "were we to mandate that a class include only those alleging `colorable' claims, we would effectively rule out the ability of a defendant to achieve `global peace' by obtaining releases from all those who might wish to assert claims, meritorious or not." (Op. at 310.) So, "come one, come all," regardless of substantive legal rights. That remarkable declaration sets the class action ship in our Circuit badly adrift.

To be clear, the problem with the enormous, nationwide class most particularly at issue in this case is not that it may include people with marginal or dubious claims. The class of indirect purchasers of De Beers diamonds actually presents a far more troubling problem than that. It includes people who have no legal claim whatsoever. That is clear on the face of the statutory and decisional law of several states whose laws are invoked as the basis for this class action,^[78] and no one has been able to mount a cogent argument to the contrary. Despite the Majority's elaborate construction and dismantling of straw man arguments about commonality and predominance, those state laws ought to stand as an insurmountable barrier to any proper certification of a nationwide indirect purchaser class. By treating the dictates of state law as irrelevant, to be passed over in the name of "global peace," the Majority has endorsed the fabrication of substantive rights where none before existed. This is, in short, a bad day for [341] Rule 23, for federalism, and for those who thought the Rules Enabling Act was a restraint on judicial legislating. I therefore dissent.

I. Where We Agree

The Majority devotes much attention to the question of whether "commonality and predominance are defeated merely because available rights and remedies differ under the several laws that form the basis for the class claims." (Op. at 301.) In addressing that question, the Majority inaccurately characterizes the now-vacated panel opinion as having required "that everyone in a class must allege precisely identical or `uniform' causes of action."^[79] (Op. at 302) (citing Sullivan v. DB Investments, Inc., 613 F.3d 134, 149 (3d Cir.2010), reh'g en banc granted and vacated by Sullivan v. DB Investments, Inc., 619 F.3d 287 (3d Cir.2010)). But the panel opinion made no such statement, nor have the objectors claimed that all class members must share a "uniform cause of action." The only "uniformity" required by the panel opinion, or argued for by the objectors, is that at least some "question of law or fact regarding [class members'] legal rights [be] uniform throughout the class." Sullivan, 613 F.3d at 149. Insisting that there be a uniform question of law or fact is nothing more than an application of the Rule 23(a)(2) requirement that there be "questions of law or fact common to the class." The Majority's assertion that the panel demanded there be uniform causes of action—a requirement far different than requiring uniform questions—is unfounded and should not detain us any longer.

On this much we can agree: that, as the Majority says, "where a defendant's singular conduct gives rise to one cause of action in one state, while providing for a different cause of action in another jurisdiction, the courts may group both claims in a single class action." (Op. at 302.) If that were the case before us, we would have unanimity. The problem, though, is that the defendants' singular conduct here gives rise to causes of action in some states while providing for no cause of action at all in others. Under these circumstances, there can be no grouping of claims into a single class action, because, by definition, some would-be class members have no claim. As a result, and as discussed in the following section, there can be no common questions of law or fact with respect to that subset of would-be class members and, therefore, neither the commonality requirement of Rule 23(a)(2) nor the predominance requirement of Rule 23(b)(3) can be satisfied.

II. Commonality And Predominance Under Rule 23

The objectors^[80] have challenged the commonality of the indirect purchaser [342] class, stating that "putative class members who do not even have an arguable cause of action under applicable law do not qualify for inclusion in a class action for failure to satisfy [the] Rule 23(a)(2) requirement of `questions of law or fact common to the class.'" (Supplemental Brief of Appellant Susan M. Quinn on Rehearing En Banc at 11-12) (quoting Fed.R.Civ.P. 23(a)(2).) While they initially couched their arguments about commonality in terms of predominance under Rule 23(b)(3), the objectors' position has always been that common questions of law or fact do not predominate because there simply are no questions of law or fact common to the entire class of indirect purchasers. (See, e.g., Brief for Appellant Susan M. Quinn at 32 ("The evidence supporting a lack of commonality is abundant."); id. at 38 ("[T]he question of antitrust conspiracy is not common to the class."); id. at 44 ("The district court did not even determine that there was a common question involving unjust enrichment."); id. at 45 ("The district court did not find a common question regarding [the consumer protection/deceptive trade practice] claims.").) The panel opinion thus addressed the objectors' arguments in that light, holding that there was no predominance because there were no questions of law or fact common to the entire class. Sullivan, 613 F.3d at 148 ("[T]here can be no certification of a nationwide class of state indirect purchaser plaintiffs because there is no common question of law or material fact.").

Ultimately, though, whether the objectors' argument is framed as a Rule 23(a)(2) commonality challenge or a Rule 23(b)(3) predominance challenge is immaterial.^[81] As noted by the Majority, we have said before that "`we consider the Rule 23(a) commonality requirement to be incorporated into the more stringent Rule 23(b)(3) predominance requirement, and therefore deem it appropriate to analyze the two factors together.'" (Op. at 297 (quoting In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 266 (3d Cir.2009)).) Whatever label we hang on the objectors' argument, it always has been clear that their basic contention is that there are no questions of law or fact common to all class members, which necessarily means that common questions do not predominate. Whether coined as a Rule 23(a)(2) problem or as a [343] Rule 23(b)(3) problem, the determinative question of commonality is the same.

The Majority spends little time explaining what makes questions "common," but the principle they seem to espouse is that questions are common when the "defendant's conduct was common as to all of the class members" and when "all of the class members were harmed by the defendant's conduct." (Op. at 298.) Based on that, the Majority asserts that, as to the indirect purchaser class, "each class member shares a similar legal question arising from whether De Beers engaged in a broad conspiracy that was aimed to and did affect diamond prices in the United States" (Op. at 300 (internal quotation marks omitted)) and shares "common factual questions as to whether De Beers `acted in concert to artificially fix, maintain, and stabilize prices and to monopolize trade and commerce in the market for polished diamonds.'" (Op. at 300 (quoting App. 278-79).) Those questions are common to the class, according to the Majority, because the "allegations are unaffected by the particularized conduct of individual class members, as proof of liability and liability itself would depend entirely upon De Beers's allegedly anticompetitive activities." (Op. at 300.)

In seeking to justify its "welcome all comers" approach to class certification, the Majority has produced an internally inconsistent definition of commonality. On the one hand, as just noted, the Majority emphasizes that "proof of liability and liability itself would depend entirely upon De Beers's allegedly anticompetitive activities" (Op. at 300), as if no reference need be made to the status of individual class members. Indeed, if one examines what the Majority identifies as "common factual questions" and "similar legal question[s,]" it is apparent that no reference to anyone but De Beers is called for, which means that the class is entirely unbounded. Everyone in the world could share in a class defined on those lines.^[82] On the other hand, evidently recognizing the problem with a commonality definition that looks only at De Beers's activities, the Majority adds as something of an afterthought that, well yes, there must be some limiting feature of the class and that feature is injury; class members must have been injured by De Beers's unlawful conduct. (Op. at 297-98.)

Of course, as soon as one acknowledges that commonality requires a consideration of whether class members have sustained injury, one ought also have to acknowledge, by logic grounded in hornbook law, that "injury" is not an abstraction but rather refers to a concrete and legally cognizable injury. A definition of commonality that says, in effect, "if you feel wronged, you have a claim" is a giant step away from precedent and the underlying premise of Rule 23, which is designed to efficiently handle claims recognized by law, not to create new claims. Cf. Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., ____ U.S. ____, 130 S.Ct. 1431, 1442, 176 L.Ed.2d 311 (2010) ("Congress authorized. . . promulgat[ion] [of] rules of procedure subject to its review, 28 U.S.C. § 2072(a), but with the limitation that those rules `shall not abridge, enlarge or modify any substantive right,' § 2072(b)."). Never before has any court, to my knowledge, tried to take the position effectively adopted by the Majority here, namely that, in deciding commonality, one need not be concerned [344] with whether the alleged injuries of class members are legally cognizable.^[83]

In stark contrast to the Majority's practically limitless definition of commonality is the measured definition provided by the Supreme Court in its recent decision in Wal-Mart Stores, Inc. v. Dukes, ____ U.S. ____, 131 S.Ct. 2541, 180 L.Ed.2d 374 (2011). The Court there clarified the meaning of "commonality" under Rule 23, saying that the concept is "easy to misread." Id. at 2551. In a passage particularly apropos of the Majority's new rule, the Supreme Court said:

[A]ny competently crafted class complaint literally raises common `questions,' For example: Do all of us plaintiffs indeed work for Wal-Mart? Do our managers have discretion over pay? Is that an unlawful employment practice? What remedies should we get? Reciting those questions is not sufficient to obtain class certification.

Id. (internal quotation marks and citations omitted). Emphasizing a point that the Majority ignores, the Court explained that "`[w]hat matters to class certification . . . is not the raising of common "questions"— even in droves—but, rather the capacity of a classwide proceeding to generate answers apt to drive the resolution of the litigation.'" Id. (quoting Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U.L.Rev. 97, 132 (2009)). In other words, common questions must have answers that "will resolve an issue that is central to the validity of each one of the claims in one stroke." Id. Thus, as defined by Dukes, "common questions" are those that, because they have answers that will affect the validity of all class members' claims, can be said to be legally relevant.^[84]

A necessary corollary of that definition is that, for there to be any common questions, all class members must have at least some colorable legal claim.^[85] Otherwise, it is nonsense to speak of "resolv[ing] an issue that is central to the validity of each one of the claims. . . ." Id. It cannot be sufficient, as the Concurring Opinion in this case suggests, simply for each class member to have "some pleaded claim." (Concurrence Op. at 338.) Merely pleading a claim is not enough, because "Rule 23 does not set forth a mere pleading standard. A party seeking class certification must . . . prove that there are in fact. . . common questions of law or fact. . . . [S]ometimes it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question." [345] Dukes, 131 S.Ct. at 2551 (internal quotation marks omitted); see In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 316 (3d Cir.2008) ("[T]he requirements set out in Rule 23 are not mere pleading rules. The court may delve beyond the pleadings to determine whether the requirements for class certification are satisfied." (internal quotation marks and citations omitted)). As the panel opinion explained it, "to obtain certification of an indirect purchaser class, plaintiffs would have to show that all class members share a right to recover for antitrust harms, such that one or more common issues affect all members' claims."^[86] Sullivan, 613 F.3d at 154.

Dukes's instruction that, for questions to be "common" in the sense contemplated by Rule 23, their answers must affect the validity of claims, does not set forth a new principle.^[87] In Amchem Products, Inc. v. Windsor, the Supreme Court, in a discussion of predominance, said that the common questions that matter are those "that qualify each class member's case as a genuine controversy." 521 U.S. 591, 623, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). It seems self-evident that there can be no "genuine controversy" with respect to plaintiffs whose claims are nonexistent as a matter of substantive law. Likewise, in Hydrogen Peroxide, we noted that Rule 23 requires plaintiffs to show that the elements of their claim are "capable of proof at trial through evidence that is common to the class rather than individual to its members." 552 F.3d at 311-12. Again, for plaintiffs who lack any claim, there are certainly no elements of a claim that are "capable of proof," either common or individual. Accordingly, in assessing commonality or predominance, an inherent step is deciding that class members possess at least some legal basis for asserting a claim.

By misconstruing Supreme Court precedent, the Majority denies that district courts have either the need or the power to take that essential step. My colleagues declare that "[a] court may inquire [at the class certification stage] whether the elements of asserted claims are capable of [346] proof through common evidence, but lacks authority to adjudge the legal validity or soundness of the substantive elements of asserted claims." (Op. at 305 (emphasis added).) However, the Majority's position is contrary to what the Supreme Court has just said in Dukes:

A statement in one of our prior cases, Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974), is sometimes mistakenly cited. . .: "We find nothing in either the language or history of Rule 23 that gives a court any authority to conduct a preliminary inquiry into the merits of a suit in order to determine whether it may be maintained as a class action." But in that case, the judge had conducted a preliminary inquiry into the merits of a suit, not in order to determine the propriety of certification under Rules 23(a) and (b) (he had already done that, see id. at 165, 94 S.Ct. 2140), but in order to shift the cost of notice required by Rule 23(c)(2) from the plaintiff to the defendants. To the extent the quoted statement goes beyond the permissibility of a merits inquiry for any other pretrial purpose, it is the purest dictum and is contradicted by our other cases.

131 S.Ct. at 2552. Thus, any suggestion that a district court is prevented from "adjudging the legal validity or soundness of the substantive elements of asserted claims" at the class certification stage is clearly mistaken after Dukes. That should already have been clear, however, from our statement in Hydrogen Peroxide that "[a] concern for merits-avoidance should not be talismanically invoked to artificially limit a trial court's examination of the factors necessary to a reasoned determination of whether a plaintiff has met her burden of establishing each of the Rule 23 class action requirements." 552 F.3d at 318 n. 17 (internal quotation marks omitted).

The Majority repeatedly suggests that requiring adherence to substantive law would "introduce a Rule 12(b)(6) inquiry as to every claim in the class." (Op. at 305.) More specifically, my colleagues in the Majority say that, if my approach were followed, "district courts would be obligated at the class certification stage to, sua sponte, conduct a thorough Rule 12(b)(6) analysis of every . . . claim to ensure that each plaintiff . . . possesses a valid cause of action. . . ." (Op. at 308.) That characterization is incorrect. Rather, I advocate a procedure essentially identical to the one that occurred here: A district court is approached with a class complaint requesting relief under a variety of state statutes. Because of differences among those statutes, it is clear that some class members are entirely without a cognizable claim. Objectors bring those issues to the district court's attention. Because "such variances. . . are so significant as to defeat commonality and predominance even in a settlement class certification," In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 529-30 (3d Cir.2004) (hereinafter "Warfarin Sodium II"), the district court should deny certification. Assuming the parties revise the class to eliminate claims clearly lacking a colorable legal basis, and assuming the class otherwise satisfies Rule 23, the district court could then certify the class.^[88]

[347] Note that the court in this hypothetical has neither performed a Rule 12(b)(6) inquiry, nor conducted an individualized assessment of claims.^[89] It has simply engaged in a straightforward analysis of the applicable law. This is by no means unusual in considering the certification of a settlement class. In Prudential, the plaintiffs "compiled a series of charts setting forth comprehensive analyses of the various states' laws potentially applicable to their common law claims." 148 F.3d at 315 (internal quotation marks omitted). There, we concurred with the district court's conclusion that "the elements of the[] common law claims are substantially similar and any differences fall into a limited number of predictable patterns." Id.

In short, I have proposed only what the law has heretofore always required: one must actually have a legal claim before getting in line for a legal recovery. When objections are raised that persuasively demonstrate that a portion of a proposed class does not have any such claim, courts of law are obliged to follow the law. That is the circumstance we face, as was detailed at length in the panel opinion and is again described briefly herein.

[348] III. Some Class Members Lack A Claim

As noted by the Majority, the indirect purchasers in the consolidated actions "sought damages pursuant only to state antitrust, consumer protection, and unjust enrichment statutes and common law." (Op. at 287.) Unlike the direct purchasers, the indirect purchasers did not seek damages under federal law, because, pursuant to the Supreme Court's decision in Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), only direct purchasers may bring an antitrust claim under federal law.

Although most states have traditionally followed federal law in interpreting their own state antitrust laws, some have enacted "Illinois Brick Repealers," rejecting the rule that only direct purchasers may recover for an antitrust violation. See, e.g., CAL. BUS. & PROF.CODE § 16750(a). By contrast, others have expressly followed Illinois Brick and declared unequivocally that, in their states, indirect purchasers lack standing to bring a claim. See, e.g., Johnson v. Microsoft Corp., 106 Ohio St.3d 278, 834 N.E.2d 791, 798 (2005). Several states have been even more precise, explaining that indirect purchasers lack standing to bring what is effectively an antitrust claim, regardless of how the claim is labeled, so that recovery is precluded even if, for example, it is sought under a consumer protection act ("CPA") or the common law. See, e.g., Abbott Labs., Inc. (Ross Labs. Div.) v. Segura, 907 S.W.2d 503, 507 (Tex.1995) ("We will not interpret the [Texas CPA] in a manner that rewards creative pleading at the expense of consistent application of legal principles. . . . Our holding today only forecloses the recovery of damages for seeking a prohibited antitrust recovery under the masquerade of our [CPA]."); Johnson, 834 N.E.2d at 801 (holding that Ohio antitrust statute "provides the exclusive remedy for" claims predicated upon "monopolistic pricing practices," and thus dismissing claims under Ohio's CPA and common law). In at least some states, then, indirect purchasers are absolutely precluded from bringing an antitrust claim, no matter how they dress it up.^[90]

[349] Nevertheless, the Majority declares that those class members whose claims purportedly arise in states that preclude indirect purchaser recovery can still be part of the indirect purchaser class. The Majority offers two arguments in support of that conclusion. First, noting that indirect purchasers lack only statutory standing under Illinois Brick, rather than Article III standing, the Majority asserts that "statutory standing is simply another element of proof for an antitrust claim, rather than a predicate for asserting a claim in the first place." (Op. at 307.) The Majority does not cite any authority to support that assertion, and there is reason to doubt it.^[91] But, in any event, it misses the point. Even if the Majority's ipse dixit were true as to antitrust claims under federal law, there is no basis for saying it is so with respect to claims under the laws of the several states that have adopted the ultimate holding of Illinois Brick. Indeed, in several of those states, courts have indicated that indirect purchasers are barred from asserting a claim because they lack standing.^[92] For instance, the Ohio Supreme Court has stated that "an indirect [350] purchaser of goods may not assert a Valentine Act [, i.e., a state antitrust act] claim for alleged violations of Ohio antitrust law." Johnson, 834 N.E.2d at 798. Likewise, the New Jersey Supreme Court has held that "indirect purchasers . . . have no standing to assert a private right of action under the New Jersey Antitrust Act." Wilson v. Gen. Motors Corp., 190 N.J. 336, 921 A.2d 414, 416 (2007). The Connecticut Supreme Court has said the same, explaining that Connecticut law allows "only those consumers who purchase directly from the antitrust defendant to bring suit under our state antitrust law." Vacco v. Microsoft Corp., 260 Conn. 59, 793 A.2d 1048, 1058 (2002). Thus, it is clear that there are states that decidedly do treat statutory standing^[93] as "a predicate for asserting a claim in the first place." (Op. at 307.)

Second, the Majority asserts, using the Ohio Supreme Court's Johnson case as an example, that "although Johnson provides that an indirect purchaser lacking an antitrust claim under Illinois Brick cannot circumvent this limitation by relying upon the Ohio consumer protection statute, the Ohio Supreme Court did not, nor could it, preclude consumer protection claims predicated on fraud or deception." (Id. at 310 n. 39.) The Majority then says that "claims settled here include allegations of fraud and deception separate from the antitrust allegations." (Id. at 310 n. 39.) While the Majority is correct that Ohio does not "preclude consumer protection claims predicated on fraud or deception," it is not correct that such claims were brought in this case under the Ohio CPA—or under the CPA of any state following Illinois Brick. Of the seven complaints covered by the proposed class action settlement, only two made allegations referencing violations of the Ohio CPA, Sullivan v. DB Investments, Inc., No. 04-cv-02819 (D.N.J.) and Null v. DB Investments, Inc., No. 05-L-209 (S.D.Ill.), and both of those complaints predicated their Ohio CPA claims on monopolistic pricing practices. In Sullivan, the only allegation with respect to the Ohio CPA is that "Defendants' contract, combination and conspiracy in unreasonable restraint of trade and to monopolize and defendants' monopolization constitute a violation of various state antitrust and/or consumer protection and deceptive and unfair business practices acts and laws." (App. at 652 ¶ 47.) Likewise, the allegations in Null are that the CPA "laws of the various states" were violated "through one or more of the following unfair and/or deceptive acts and/or practices: illegally and artificially restraining trade and increasing the price of diamonds by controlling inventory, limiting supply, restricting purchase and falsely advertising the scarceness of diamonds." (App. at 629 ¶ 61, 626 ¶ 45.) Thus, the only claims brought under the Ohio CPA in any of the class actions now at issue were "predicated upon monopolistic pricing practices," and, therefore, according to the highest court in Ohio, those claims are precluded. Johnson, 834 N.E.2d at 801.

Moreover, even if any of the complaints could be construed as raising claims for fraud under some state CPAs,^[94] those [351] claims were, it appears, never brought to the attention of, or considered by, the District Court, nor were they raised before the Panel. As a result, the District Court made no findings with respect to fraud claims under state CPAs, including whether the elements of those claims could be proven by "evidence common to the class," as required by Hydrogen Peroxide, 552 F.3d at 325. Of the five common questions identified by the District Court, none pertain to fraud.^[95] Thus, even if there were fraud claims for all class members—which, for the reasons I have identified, there are not—there has been no finding of commonality and predominance with respect to those claims and, therefore, the District Court's class certification cannot rightly be affirmed on that basis.

The bottom line is that, as to those class members who purport to bring claims under the laws of states following Illinois Brick, the status of being an indirect purchaser is not only the gateway to membership in the class, it is what entirely disqualifies them from asserting any claim based on De Beers's price-fixing conduct. That is a straightforward application of state law.^[96] The class thus includes members who are barred from asserting a claim in the first place. And, because those class members lack any claim, there are no questions common to all class members for which the answers "will resolve an issue that is central to the validity of each one of the claims." Dukes, 131 S.Ct. at 2551. Consequently, pursuant to long-standing principles of aggregate litigation, most recently reaffirmed in Dukes, there is neither commonality nor predominance under Rule 23.^[97]

[352] IV. The Rules Enabling Act and Federalism

In addition to violating the terms of Rule 23, certifying this class violates the Rules Enabling Act and basic principles of federalism. The Rules Enabling Act authorizes the creation of "rules of practice and procedure," but states that "[s]uch rules shall not abridge, enlarge, or modify any substantive right." 28 U.S.C. § 2072(a), (b). In Dukes, the Supreme Court highlighted the role of the Rules Enabling Act in class certification decisions, holding that, "[b]ecause the Rules Enabling Act forbids interpreting Rule 23 to `abridge, enlarge or modify any substantive right,'" the proposed class could not be certified because it would have abridged Wal-Mart's statutory right to litigate certain defenses. 131 S.Ct. at 2561 (quoting 28 U.S.C. § 2072(b)). That point is consistent with the Court's past cautionary statements that an overly expansive reading of Rule 23 will violate the Rules Enabling Act. See Ortiz v. Fibreboard Corp., 527 U.S. 815, 845, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999) ("The Rules Enabling Act underscores the need for caution. As we said in Amchem, no reading of the rule can ignore the Act's mandate that rules of procedure shall not abridge, enlarge, or modify any substantive right." (internal quotation marks omitted)); Amchem, 521 U.S. at 613, 117 S.Ct. 2231 ("We therefore follow the path taken by the Court of Appeals, mindful that Rule 23's requirements must be interpreted in keeping with Article III's constraints, and with the Rules Enabling Act, which instructs that rules of procedure `shall not abridge, enlarge or modify any substantive right.'" (quoting 28 U.S.C. § 2072(b))).

In this case, by approving certification of the indirect purchaser class, the Majority proceeds heedless of that advice and endorses the enlarging of substantive rights. Using the Majority's example of a member of the indirect purchaser class asserting under Ohio law a claim based on De Beers's price-fixing, it is indisputable that the same member would, if he tried to bring his claim individually in an Ohio court, be immediately shown the exit.^[98] [353] Controlling law allows no result but dismissal of such a claim. But, under the Majority's class action certification theory, that individual now has a right to share in the settlement fund based on a claim he is otherwise forbidden to bring. If that is not an enlargement or modification of substantive rights, it is hard to know what would be. Cf. Shady Grove Orthopedic Assocs., 130 S.Ct. at 1442 (stating that, for purposes of the Rules Enabling Act, a rule is substantive in nature if it alters the rules of decision by which courts adjudicate rights). The Majority seems to have a "no harm, no foul" feeling about dispensing new rights, but legitimate class members are harmed. If we enforced substantive law as we ought to, those who actually have claims would not be required to share the proceeds of a proper settlement with those who do not.^[99]

Certifying the indirect purchaser class is, for the same reasons, contrary to principles of federalism. The policy decisions of the constituent states of our country are "fundamental aspect[s] of our federal republic and must not be overridden in a quest to clear the queue in court." In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1020 (7th Cir.2002). When one of those states says to its citizens "you have no claim"—and the law covering many of the class members here is just that clear—but those under that edict nevertheless are joined in a class with people who do have a claim, by what logical process consistent with federalism can aggregating the "haves" and the "have-nots" imbue those "have-nots" with the very claim that the state has said is foreclosed to them? There is no sound answer to that question. There is only the Majority's and the Concurrence's policy preference, in derogation of controlling state law, for "global peace" through unfettered access to class action settlements.^[100]

My colleagues in the Majority of course dispute that certifying this class implicates either the Rules Enabling Act or federalism. [354] With respect to the Rules Enabling Act, they say that there has been a "voluntary settlement agreement between parties" (Op. at 312) (quoting Ehrheart v. Verizon Wireless, 609 F.3d 590, 593 (3d Cir.2010)), and "a district court's certification of a settlement simply recognizes the parties' deliberate decision to bind themselves according to mutually agreed-upon terms without engaging in any substantive adjudication of the underlying causes of action" (id.). That may be so when a settlement involves only private parties who all participate in the settlement process, but it is not true in a class action settlement. In that latter context, the Federal Rules of Civil Procedure require district courts to be intimately involved, because the approval of a class action settlement gives the government's imprimatur to the terms of the settlement and binds absent parties.^[101] As already discussed, a court is not supposed to certify a class without determining that there is a "genuine controversy" or, in other words, that there is at least some legal basis for class members to claim relief. If a district court credits potential class members with having a valid claim when the underlying state law says there is none, the court has, by definition, enlarged and modified those class members' rights.

Moreover, while De Beers is now pleased to stipulate to liability in all fifty states, and, for its own purposes, is willing to forego legal arguments that it could have raised about the substantive rights of class members, a defendant's willingness to waive an argument is not a reason to ignore it. It is rather the very reason that collusive settlements are a problem. No matter how much De Beers wants to bind everyone in America, and no matter how much the attorneys involved stand to gain from their percentage of the settlement, and no matter how laudatory the "global" resolution of a price-fixing case may be as policy matter, there are limits on the power of federal courts to facilitate settlements and bind absent class members and objectors. Amchem admonishes courts approving settlement classes to pay "undiluted, even heightened, attention" to issues of predominance as well as to the other requirements of Rule 23 to ensure that a certified class is not overbroad. 521 U.S. at 620, 117 S.Ct. 2231. Approving a class certification that groups together plaintiffs who have claims with those who plainly do not results in such a class.

Furthermore, while the Majority speculates that the approach I suggest will seriously impede class action settlements, it is far from clear that limiting class certification to people who have legal claims would actually undermine the goal of global peace. Indeed, as the Concurrence acknowledges, similar concerns in other cases have proved largely unfounded. (Concurrence Op. at 334.) But even if one assumes that the Majority's concerns about "global peace" have some merit, Rule 23 remains the sole benchmark for determining whether a settlement class can be certified. In Amchem, the Supreme Court reiterated that point over Justice Breyer's criticism that the Court had given insufficient weight to the value of settlement. See Amchem, 521 U.S. at 629, 117 S.Ct. 2231 ("Rule 23, which must [355] be interpreted with fidelity to the Rules Enabling Act and applied with the interests of absent class members in close view, cannot carry the large load CCR, class counsel, and the District Court heaped upon it."); id. (Breyer, J., dissenting) ("I believe that the need for settlement of this mass tort case, with hundreds and thousands of lawsuits, is greater than the Court's opinion suggests."). In Ortiz, the Court rejected a settlement expressly designed for "total peace," 527 U.S. at 864-65, 119 S.Ct. 2295, even as several justices acknowledged the need for a resolution to the "elephantine mass of asbestos cases," id. at 865, 119 S.Ct. 2295 (Rehnquist, C.J., concurring). We are not free to rewrite the requirements of Rule 23 simply because it would allegedly advance the goal of global peace.

The Majority also dismisses any federalism concern, reasoning that the policy concerns behind Illinois Brick do not apply. As the Majority sees it, "Illinois Brick's restriction on indirect purchaser recovery was motivated by prudential concerns for manageability; it does not reflect a categorical policy judgment that indirect purchasers do not merit antitrust protection." (Op. at 313.) Thus, says the Majority, because the "District Court's certification order did not undermine these prudential concerns," the District Court did not "inappropriately subordinate[] state sovereignty in certifying the class." (Op. at 314.) But regardless of the Majority's novel views about the policy judgments underlying Illinois Brick and whether "indirect purchasers . . . merit antitrust protection," the states which have chosen to follow Illinois Brick have decided—and plainly stated—that indirect purchasers have no substantive right to recovery under their laws. Principles of federalism do not permit us to write our own exceptions into unambiguous state laws simply because we think that the states would see things differently if only they had our policy insights.^[102] Somehow, though, the Majority thinks that "the class settlement posture of this case largely marginalizes the objectors' concern that state law variations undermine a finding of predominance." (Op. at 302-03.) Once again, the promise of settlement trumps everything else, even variations in state laws as wide as "you have a claim" versus "you have none."

V. Conclusion

I cannot voice strongly enough my disagreement with this elevation of settlement to the status of ultimate and overriding good. (See Op. at 310) ("[W]ere we to mandate that a class include only those alleging `colorable' claims, we would effectively rule out the ability of a defendant to achieve `global peace' by obtaining releases from all those who might wish to assert claims, meritorious or not."). It has been aptly observed that "[s]ocial peace is not the Article III mission." Paul D. Carrington & Derek P. Apanovitch, The Constitutional Limits of Judicial Rulemaking: the Illegitimacy of Mass-Tort Settlements Negotiated Under Federal Rule 23, 39 ARIZ. L.REV. 461, 475 (1997). Rather, we are to "decide cases or controversies." Id. Social [356] peace becomes a natural and very welcome byproduct of focusing on that specific mission, "because for every carefully wrought judicial decision, there may be hundreds or thousands of matters that are privately resolved `in the shadow' of the law." Id.

On its own terms, then, the Majority's decision is short-sighted and counterproductive. In the interest of short-term peace, it sacrifices long-term legitimacy and, with that, a more stable, lasting peace. By failing to enforce the limits of Rule 23, today's decision will encourage frivolous class action claims and have the predictable consequence of weakening the incentives—the sheltering shadow—under which non-frivolous disputes would otherwise be properly resolved.

In sum, when a federal court issues an order certifying that there are questions of fact or law common to all class members, it necessarily concludes, whether explicitly stated or not, that all class members have at least some colorable legal claim. When there are members of a putative class who do not, under the operative substantive law in a case, have a colorable claim, certification of the class enlarges the substantive rights of those members. Any such order is thus a violation of the Rules Enabling Act, and, when it occurs in a class whose only claims are based in state law, it also violates core principles of federalism. The damage done by that judicial usurpation is not made better by invoking the benefits of social peace through litigation settlement. Private parties have a free hand in settling their own disputes, but class action settlements require federal courts to determine the rights and obligations of people who are not there to speak for themselves—hence the Supreme Court's insistence that class action settlements "demand undiluted, even heightened, attention . . .," especially when there is a risk of "unwarranted or overbroad class definitions," Amchem, 521 U.S. at 620, 117 S.Ct. 2231. That risk has been realized here.

[1] Honorable Donetta W. Ambrose, United States District Court Judge for the Western District of Pennsylvania, sitting by designation.

[2] The Settlement involved five individual class actions pending in federal court and two other class suits pending in state court. The individual federal suits presently before us are: Sullivan v. DB Investments, Inc., Index No. 04-cv-02819 (D.N.J.); Null v. DB Investments, Inc., Madison Co. No. 05-L-209 (Madison County, Ill. Cir. Ct., removed to S.D. Ill.); Leider v. Ralfe, No. 01-CV-3137 (S.D.N.Y.); Anco Industrial Diamond Corp. v. DB Investments, Inc., No. 01-cv-04463 (D.N.J.); and British Diamond Import Co. v. Central Holdings Ltd., No. 04-cv-04098 (D.N.J.). The two other class actions pending in state court pertinent to the Settlement and this set of appeals are: Hopkins v. De Beers Centenary A.G., San Francisco County No. CGC-04-432954 (Cal.Super.Ct.), and Cornwell v. DB Investments, Inc., Maricopa Co. No. CV2005-2968 (Ariz.Super.Ct.).

[3] Because the Panel found the certification of the class to be flawed, it did not reach the Rule 23 fairness objections to the settlement, distribution plan, and fee award, or the District Court's resolution of these objections. See Sullivan, 613 F.3d at 142 n. 6. Because we now conclude that the District Court's certification of the proposed settlement was appropriate, we will also address these issues.

[4] The vacated Panel Opinion describes the history, progression to power, and eventual market dominance of De Beers and its related entities in greater detail. See Sullivan, 613 F.3d at 138-39. For the sake of brevity, we provide a summary.

[5] Sightholders are selected by De Beers's subsidiary Diamond Trading Company ("DTC") based upon specific criteria, "including their financial standing and reliability, their market position, their distribution ability, their marketing ability, and their compliance with Diamond Trading Company Diamond Best Practice Principles." (App'x 1438.) In 2006, DTC had ninety-three sightholders, nine of which had head offices in the United States and seventy-six of which had sales offices in the country. (Id.) Sightholders sell both rough and polished diamonds, as well as diamond jewelry. (Id.) By way of example, the retailer Tiffany & Co. is a majority-owner of the South African sightholder Rand Precision Cut Diamonds, which sells polished diamonds and manufactures jewelry for sale in Tiffany stores. (Id. 1438-39.)

[6] The process by which De Beers sold its rough diamonds entailed a "diamond pipeline," which began with the sale of rough diamonds and ended with the purchase of retail diamond jewelry by consumers. The participants in the diamond pipeline included rough stone wholesalers, cutters and polishers of rough diamonds, finished stone wholesalers, diamond jewelry manufacturers and wholesalers, and retailers.

[7] The theories of recovery in the individual cases are as follows: Anco Industrial was filed on behalf of all direct purchasers of rough diamonds pursuant to Clayton Act §§ 4 and 16, 15 U.S.C. §§ 15 and 26, to prevent and restrain violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2. British Diamond was filed on behalf of direct purchasers of polished diamonds pursuant to Clayton Act §§ 4 and 16, 15 U.S.C. §§ 15 and 26, to prevent and restrain violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2. Cornwell was filed on behalf of all purchasers of diamonds in Arizona pursuant to Ariz.Rev. Stat. Ann. § 44-1402 for monopolization of the market for diamonds, and under § 44-1403 for establishment, maintenance or use of monopoly. Hopkins was filed on behalf of California residents who purchased diamonds in California pursuant to Cal. Bus. & Prof. Code § 16720, et seq., alleging engagement in a continuing unlawful restraint of trade; pursuant to § 17200, et seq., for violation of the unfair competition law; and under California common law for monopolization and attempted monopolization. Leider was filed on behalf of consumers who purchased diamonds or diamond jewelry pursuant to the Wilson Tariff Act, 15 U.S.C. §§ 8-11; under § 16 of the Clayton Act, 15 U.S.C. § 26, for injunctive relief in connection with §§ 1 and 2 of the Sherman Act, and for damages for violations of § 2 of the Sherman Act; pursuant to federal and New York state common law for damages and injunctive relief; under N.Y. Gen. Bus. §§ 349-350; and under New York's Donnelly Act and the antitrust laws of fifteen other states and the District of Columbia. Null was filed on behalf of all purchasers of De Beers diamonds pursuant to 815 Ill. Comp. Stat. § 505/1, et seq., and § 510/2, alleging unfair methods of competition and unfair or deceptive acts or practices, and, in the alternative, pursuant to the consumer fraud and deceptive practice laws of the various states where purchases of diamonds were made. Sullivan was filed on behalf of a class of all persons and businesses in the United States who purchased polished diamonds indirectly from De Beers pursuant to §§ 1 and 2 of the Sherman Act for injunctive relief, and pursuant to state antitrust and deceptive practices acts for monetary relief.

[8] The Leider plaintiffs subsequently reached agreement with the parties to the Indirect Purchaser Settlement to resolve that matter in accordance with the terms of the Settlement.

[9] The Indirect Purchaser Consumer Subclass is estimated to contain between 67 and 117 million members, while the Indirect Purchaser Reseller Subclass contains an estimated 38,152 members. The Direct Purchaser Class is estimated to contain approximately 130 members. (App'x 275 n.1.)

[10] The Special Master advised that distribution of the Direct Purchaser Settlement Fund be conducted on a pro rata basis and that each Direct Class member receive the Net Settlement amount multiplied by the quotient of the Adjusted Purchases of the claimant divided by the aggregate Adjusted Purchases of all approved direct purchaser claims. The Adjusted Purchases of a claimant would be calculated by multiplying the amount paid for Rough Diamonds by 1.22 (the average Rough to Polished Matrix factor), and adding the total amount paid for Polished Diamonds. (App'x 1533-34.)

[11] The Special Master recommended that the Indirect Purchaser Consumer Subclass receive a pro rata share of the Indirect Purchaser Settlement Fund, calculated by multiplying the Net Consumer settlement fund amount by the quotient of a consumer's total recognized diamond claim divided by the total recognized diamond claims of all consumers. (App'x 1547.) In contrast, a Reseller Subclass member's claim would be calculated in a three step process: (1) all of the claimant's diamond purchases are converted to the common metric of polished wholesale value and adjusted to reflect the number of years each Reseller operated during the class period; (2) claims are weighted by applying the absorption weighting factor derived from a fixed effects regression analysis for each type of diamond purchase; and (3) the claimant's pro rata share of the Reseller Subclass settlement fund is the ratio of the claimant's "absorption adjusted purchases" to the sum of all claimants' "absorption adjusted purchases." (Id. 1575.)

[12] The Special Master's report noted that Indirect Purchaser Consumer claims aggregating less than $165 for mixed stone jewelry or products, and less than $95 for diamond only jewelry or products, would be considered de minimis. (App'x 1547-48.)

[13] Additionally, the Special Master recommended a four-part notification program— entailing direct notice, publication notice, "earned media outreach" in the form of press releases and news reporting, and electronic notice—finding that it provided notice "in a reasonable manner to all class members who would be bound by the proposed settlement." (App'x 1518-27 (quoting Fed.R.Civ.P. 23(e)).) The District Court adopted this recommendation and method of notification in its October 1, 2007 Order.

[14] The District Court rejected the Special Master's recommendation of adding a percentage of the interest earned on the total settlement fund to the total attorneys' fees.

[15] Four objectors were members of the Indirect Purchaser Reseller Subclass and thirty-three objectors belonged to the Indirect Purchaser Consumer Subclass. (App'x 272.)

[16] A related objection was filed on grounds that the equal allocation of the Indirect Purchaser Settlement Fund without consideration of a claimant's state of controlling law was improper since some states purportedly prohibited recovery by indirect purchasers. These objectors asserted that class members from states permitting indirect purchaser recovery should be entitled to greater monetary compensation.

[17] As the Panel Opinion noted, the parties did not explain, nor did the record reveal, any reason for the disparity in the time periods covered by the Settlement between the Indirect and Direct Purchaser classes. See Sullivan, 613 F.3d at 143 n. 8. We do not consider this difference pertinent to the appeals.

[18] Based on its assessment, the Panel found that at least twenty-five states and the District of Columbia possess Illinois Brick repealer statutes or have judicially extended antitrust standing to indirect purchasers.

[19] As mentioned above, because the Panel concluded that certification was inappropriate, it did not reach the Special Master's recommendations or the objections to the distribution plan and fee award. Sullivan, 613 F.3d at 142 n. 6. In light of our finding that class certification is appropriate, we assess these objections for the first time.

[20] The objectors also challenge the District Court's purported failure to identify the state law claims that should receive class treatment under the existing certification order, as we discuss below.

[21] As mentioned, certain states have enacted statutes known as "Illinois Brick repealers," which extend antitrust standing to indirect purchasers and consumers. See supra n. 17.

[22] Contrary to the objectors' and the Panel's view that Warfarin's analysis is inapplicable because the plaintiffs in that case purportedly shared a common claim under the Delaware Consumer Fraud Act, our holding in Warfarin did not address the Delaware statute in analyzing predominance. 391 F.3d at 528-29. Indeed, Warfarin did not consider whether every class member even possessed a claim under Delaware law, nor did it undertake a choice-of-law analysis to determine whether all members in the nationwide class could assert a claim under the Delaware statute. Rather, we simply concluded that any claims arising under the varying state laws and the Delaware statute could be proved with common evidence, thereby supporting a finding of predominance. Id.

[23] A comparable approach is evidenced in our decision in Prudential, where we affirmed the district court's finding of predominance based upon the central issue in the case—a common nationwide scheme of deceptive conduct by the defendant to defraud millions of customers. 148 F.3d at 315. Similarly, in Linerboard, we noted that the "critical inquiry will be whether defendants successfully concealed the existence of the alleged conspiracy," and "the fact of concealment [] is the polestar in an analysis of fraudulent concealment." 305 F.3d at 163 (emphasis in original). Because it was the defendant's conduct that demanded attention, we found that "allegations of proof are all common to the defendants, not the plaintiffs." Id.

[24] No one seriously disputes that De Beers's alleged conduct, if true, was anticompetitive and violated state antitrust laws. Our disagreement with the dissent arises solely out of the question whether certain class members' potential inability to satisfy some states' statutory standing requirements should have precluded the District Court from certifying the settlement class in this case.

[25] As we noted in Insurance Brokerage, we do not presume here "that common issues necessarily predominate in every antitrust case." 579 F.3d at 267 n. 26 (citing Hydrogen Peroxide, 552 F.3d at 321-22). Here, we merely conclude that the District Court was free to determine that common issues of law or fact stemming from De Beers's conduct in this instance satisfied the predominance requirement.

[26] Other courts have similarly declined to examine the controlling substantive law pertinent to asserted claims at the class certification stage. See, e.g., Schumacher v. Tyson Fresh Meats, Inc., 221 F.R.D. 605, 612 (D.S.D. 2004) ("Where federal claims and common law claims are predicated on the same factual allegations and proof will be essentially the same, `even if the law of different states might ultimately govern the common law claims— an issue that need not and is not decided at this juncture—certification of the class for the whole action is appropriate.'") (quoting Walsh v. Chittenden Corp., 798 F.Supp. 1043, 1055 (D.Vt.1992)) (alteration omitted).

[27] We do not reach this conclusion so as to allow district courts to "shirk" the requirements of Rule 23 when certifying the class, as the dissent suggests. (Dissenting Op. at 348 n. 13.) We do not ignore the differences in state law, but rather find, based on our precedent, that those differences do not defeat predominance.

[28] In conducting the analysis in Warfarin, we expressly distinguished the Seventh Circuit's decision in In re Bridgestone/Firestone Inc., 288 F.3d 1012 (7th Cir.2002), in which certification of a nationwide class arising under the tort laws of all fifty states was sought for purposes of litigation, rather than settlement. 391 F.3d at 529.

[29] We are aware that there may still be circumstances, as we and other Courts of Appeals have noted, where "`[i]n a multi-state class action, variations in state law may swamp any common issues and defeat predominance.'" Klay v. Humana, Inc., 382 F.3d 1241, 1261 (11th Cir.2004) (quoting Castano v. Am. Tobacco Co., 84 F.3d 734, 741 (5th Cir.1996)). But these decisions are inapplicable here, as the certification orders at issue pertained to litigation classes and were preoccupied with the attendant manageability aspects of certification. More explicitly, the courts expressed unease that if "more than a few of the laws of the fifty states differ, the district judge would face an impossible task of instructing a jury on the relevant law," and noted "the difficulties in trying the [] claims on a class basis." Id. (citation & quotations omitted). Unlike those situations "where the certification inquiry [is] set against the backdrop of an impending trial," Ins. Broker., 579 F.3d at 269, the settlement context here does not present equivalent concerns.

[30] Unsurprisingly, we are not alone in recognizing the "key" distinction between certification for settlement purposes versus litigation, and "courts are more inclined to find the predominance test met [in the settlement context], even when there are differences in applicable state laws." Ersler v. Toshiba Am., Inc., No. CV-07-2304, 2009 WL 454354, at *4 (E.D.N.Y. Feb. 24, 2009) (citing In re Grand Theft Auto Video Game Consumer Litig., 251 F.R.D. 139, 158 (S.D.N.Y.2008)); see, e.g., In re Mexico Money Transfer Litig., 267 F.3d 743, 746-47 (7th Cir.2001) (noting that while certification of litigation classes arising under varying consumer fraud statutes is often inappropriate, the same is not true for settlement classes where "no one need draw fine lines among state-law theories of relief"); In re Inter-Op Hip Prosthesis Liability Litig., 204 F.R.D. 330, 347 (N.D.Ohio 2001) ("[W]hen taking the proposed settlement [] into consideration for purposes of determining class certification, individual issues which are normally present in ... litigation become irrelevant, allowing the common issues to predominate.") (citation & quotations omitted).

[31] Although we will not here speculate as to the type of "situations where variations in state laws are so significant so as to defeat commonality and predominance even in a settlement class certification," Warfarin, 391 F.3d at 530, we are confident that the several common questions of law or fact arising from a "single central issue"—namely, De Beers's alleged anticompetitive conduct and the resulting injury caused to each class member— predominate over any issues concerning individual class members, Prudential, 148 F.3d at 314 (citation & quotations omitted).

[32] As noted, the Panel conducted an extensive review of relevant state statutes and reached the conclusion that "indirect purchasers do not have a right to recover in all states, and, therefore, no question of law or fact regarding their legal rights is uniform throughout the class." Sullivan, 613 F.3d at 149.

[33] The Panel echoed the objectors' position, concluding after examining the laws of fifty states that many jurisdictions "categorically foreclosed" a legal right to recover on the merits to indirect purchasers. Sullivan, 613 F.3d at 151 n. 14.

[34] The marginal role played by the question of "validity" of claims in class settlement certification situations is further evidenced by considering our subsequent Prudential decision. See In re Prudential Ins. Co. of Am. Sales Practice Litig., 261 F.3d 355, 366 (3d Cir.2001) ("Prudential II"). There, we released all state-law claims—including unnamed claims—"arising from the same nucleus of operative facts as the claims" actually considered by the Court without adjudicating the validity of those other allegations. Id. We observed that "a judgment pursuant to a class settlement can bar later claims based on the allegations underlying the claims in the settled class action" even where the "precluded claim was not presented, and could not have been presented, in the class action itself." Id. (citations omitted). We reasoned that while our "power to release those claims as part of a judgment" may "seem anomalous," "we have endorsed the rule because it `serves the important policy interest of judicial economy by permitting parties to enter into comprehensive settlements that `prevent relitigation of settled questions at the core of a class action."'" Id. (quoting TBK Partners, Ltd. v. Western Union Corp., 675 F.2d 456, 460 (2d Cir.1982)). As such, the unidentified prospective claims could be included in the settlement without adjudication of their validity since they arose from the identical fraudulent scheme perpetrated by the defendant.

[35] The objectors' associated argument that the predominance inquiry presupposes that every putative class members possesses at least a single valid cause of action likewise misses the point. While Rule 23 may presuppose that every class member does actually allege a predominantly common claim against a defendant, Rule 23 does not mandate that each of these claims must be shown capable of prevailing on the merits at the certification stage.

[36] To further clarify, we use the term "statutory standing" to refer to the possession of a viable claim or right to relief, not to a jurisdictional requirement. See generally Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) ("It is firmly established in our cases that the absence of a valid (as opposed to arguable) cause of action does not implicate subject-matter jurisdiction," and "jurisdiction is not defeated by the possibility that the averments might fail to state a cause of action") (citations and alterations omitted).

[37] The Panel analyzed the antitrust claims separately from the consumer protection and unjust enrichment claims, seemingly concluding that plaintiffs could only prevail if each putative class member alleged either a "uniform" antitrust cause of action, a "uniform" consumer protection cause of action, or a "uniform" unjust enrichment claim. Sullivan, 613 F.3d at 146, 150. We will not read into Rule 23 this heightened threshold requirement that plaintiffs must allege an identical cause of action, when all that is required is that common issues of law or fact predominate over questions particular to individual class members.

[38] The dissent describes this requirement in varied ways: under their view, class members who, "according to the plain terms of controlling law have no claim at all" (Dissenting Op. at 347 n. 11), have "no legal claim" (Id. at 340), have "no cause of action," (Id. at 341), have a claim "clearly lacking a colorable basis" (Id. at 346), or have a claim "nonexistent as a matter of substantive law" (Id. at 345), are barred from partaking in this class action settlement. The problem with this requirement, however, is that in order to separate class members possessing an "existent" legal claim from those possessing a "nonexistent" one, district courts would have to perform a Rule 12(b)(6) inquiry into each class member's claim.

[39] At the same time, it is by no means clear that the dissent's proposed analysis could be cabined to only consider the differing statutory standing requirements in the process of evaluating the validity of claims. As discussed supra, statutory standing for indirect purchasers is treated as but one element of a cause of action, rather than a jurisdictional requirement, as the dissent mistakenly suggests. If a district court were required to evaluate the statutory standing element to assess a claim's viability, logic and consistency suggest that the court should also consider other aspects of a claim for Rule 12(b)(6) and other deficiencies. This approach would delay proceedings in the trial court, as it would require the parties to engage in ill-timed, protracted merits litigation at the class certification stage.

[40] Application of the proposed inquiry to the instant matter demonstrates the likely obstacles the District Court would encounter under this approach. The objectors present Ohio's statutory regime as emblematic of the impropriety of the type of class settlement certification at issue here. Citing the Ohio Supreme Court's decision in Johnson v. Microsoft Corp., 106 Ohio St.3d 278, 834 N.E.2d 791 (2005), they urge that Ohio law prohibits all indirect purchaser claims asserting violations of Ohio antitrust law, common law claims for unjust enrichment where a purchaser cannot establish that he conferred a benefit upon a defendant, and claims alleging violations of the Ohio Consumer Sales Practices Act predicated upon monopolistic pricing practices. (Quinn Br. at 60-61.) As a result, they insist that, "[d]irectly contrary to the district court's [certification], an Ohio class member does not have a valid claim under Ohio law." (Id. at 61.) The objectors contend that a similar problem exists for other Illinois Brickstates.

This inference is flawed for several reasons. First, the objectors fail to engage in the type of choice-of-law exercise necessitated by their proposed approach—the evaluation of whether an Ohio class member is asserting a claim pursuant to Ohio law or pursuant to the law of a repealer state or a state affording an alternative basis for recovery. Undoubtedly, this analysis would present significant hurdles and potentially alter the presumed outcome. Second, although Johnson provides that an indirect purchaser lacking an antitrust claim under Illinois Brick cannot circumvent this limitation by relying upon the Ohio consumer protection statute, the Ohio Supreme Court did not, nor could it, preclude consumer protection claims predicated on fraud or deception. As the plaintiffs point out, the claims settled here include allegations of fraud and deception separate from the antitrust allegations, suggesting that some avenue of recovery arising from the same defendant conduct remains available to indirect purchasers even in Ohio. (See Pls.' Br. in Response to Quinn's Response to Class Counsel's Mot. for Leave to File Record Excerpts 13-14.) Finally, if the court is to evaluate the viability of plaintiffs' statutory standing element under Ohio law at the class certification stage, the objectors presented no sensible reason why the court should not likewise inspect the viability of every other aspect of an antitrust, consumer protection, or unjust enrichment claim, such as statutes of limitation, conditions precedent to suit, and the like. We do not doubt that such an exhaustive analysis would produce absurd results and cause undue delay in our trial courts.

[41] Of course, some global settlements may nevertheless be rejected for failing to meet the requirements of Rule 23. In Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999), the Supreme Court rejected a global settlement in a mandatory class action based on a limited fund theory under Rule 23(b)(1)(B). There, the plaintiffs seeking class certification failed to demonstrate that the fund available to pay claims was limited beyond the fund amount agreed to by the parties. There, the requirements of Rule 23(b)(1)(B) were not met; here, the requirements of Rule 23(b)(3) are met.

[42] The Panel agreed with this characterization, holding that "the order contravenes the Rules Enabling Act" because it "extends antitrust remedies that, in many instances, have no root in state substantive law." Sullivan, 613 F.3d at 149. The Panel rejected the argument that De Beers's willingness to stipulate to liability obviated this concern, noting that a court was obligated even in the settlement context to ensure that all of Rule 23's requirements were met and could not "effectively grant[] relief to individuals to whom De Beers had no antitrust liability." Id. The dissent repeats this argument.

[43] The Panel agreed with this argument, noting that certain states' "categorical refus[al] to allow indirect purchasers to bring a price-fixing claim" was "not trivial" and represented "fundamental policy differences among the several states." Sullivan, 613 F.3d at 152, 148. The Panel concluded that these state interests were in effect "subordinated to De Beers's desire to resolve all indirect purchaser claims simultaneously" and "in a quest to clear the queue in court." Id. at 152 (citation & quotations omitted).

[44]The dissent concludes that approving class certification here endorses the enlargement of substantive rights because had some class members brought these claims individually in state court, they would "be immediately shown the exit." (Dissenting Op. at 352.) This is incorrect, for the state court would not automatically dismiss them without a motion from De Beers. More significantly, nothing would prevent De Beers from settling those claims in lieu of moving to dismiss them, and doing so in that scenario would not be an enlargement of substantive rights.

In responding to this point, the dissent equates an objection to class certification with a motion to dismiss, but such treatment demonstrates the very flaw in its position. Class certification and motions to dismiss involve two distinct (and different) standards, and the former does not permit as extensive an inquiry into the merits as the latter does. (See Dissenting Op. at 352-53 n. 21.)

[45] The dissent decries this position, contending that including Indirect Purchasers in the class who could not, on an individual basis, state a claim for recovery impermissibly modifies the rights of those Indirect Purchasers who could recover individually. In so asserting, the dissent assumes that the size of the settlement fund would be the same if the Indirect Purchasers who cannot recover individually were excluded from the class. Surely this cannot be the case, for the settlement amount to which De Beers has agreed must be based in large part on the number of potential class members and on securing global peace. Had those Indirect Purchasers who could not recover individually been excluded, we seriously doubt that the Indirect Purchaser settlement fund would still be $272.5 million.

[46] Other Courts of Appeals have recognized a similar functional focus in the Supreme Court's decision. See, e.g., Freedom from Religion Found., Inc. v. Chao, 433 F.3d 989, 991 (7th Cir.2006) ("An example of the prudential limitations on standing is the judge-made `indirect purchaser' doctrine of antitrust law," which is premised on minimizing complicated litigation), rev'd on other grounds, Hein v. Freedom from Religion Found., Inc., 551 U.S. 587, 127 S.Ct. 2553, 168 L.Ed.2d 424 (2007); County of Oakland v. City of Detroit, 866 F.2d 839, 852 (6th Cir.1989) ("The question of whether a plaintiff has standing to sue under the antitrust laws depends largely on prudential considerations").

[47] States on both sides of the indirect purchaser restriction have likewise appreciated the pragmatic origins of and purposes served by Illinois Brick. See, e.g., Lorix v. Crompton Corp., 736 N.W.2d 619, 624 (Minn.2007) (noting that antitrust standing "has prudential limits based on remoteness of injury and complexity of proof"); Comes v. Microsoft Corp., 646 N.W.2d 440, 449 (Iowa 2002) ("[T]he Illinois Brick court was wholly concerned with the complexity of litigation and the possibility of multiple liability."); Abbott Labs., Inc. v. Segura, 907 S.W.2d 503, 506-07 (Tex. 1995) (discussing the prudential policy concerns underlying Illinois Brick).

[48] We find additional support for our conclusion from the First Circuit's recent ruling in In re Pharmaceutical Industry Average Wholesale Price Litigation, 588 F.3d 24 (1st Cir. 2009). There, the Court remarked that "Rule 23(c)(1)(B) was added ... to help appellate courts reviewing an order better understand the district court's decision," and to allow "appellate courts, attorneys, and parties [to] proceed with more information and mutual understanding." Id. at 40 (citing Wachtel, 453 F.3d at 186-87). As a result, the Court upheld a district court's certification order that "plainly defined the class and the class claims, issues, and defenses in sufficient detail," "devoted many pages to the class's factual allegations against the defendant," "carefully analyzed the proposed class's suitability for certification, again explaining the issues common to the class," and also "discussed the state consumer protection statutes underlying the class's claims, noting differences among them." Id. Likewise here, the District Court clearly defined the class, listed six common claims and issues, devoted significant discussion to the factual allegations, analyzed the class's suitability for certification by explaining the predominantly common issues, and noted the differences among the various statutes implicated in the claims. As succinctly stated by our fellow Court of Appeals, "[t]hat is enough." Id. at 41.

[49]15 U.S.C. § 26 reads in pertinent part:

Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust law ... when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity.

[50] After evaluating the mentioned expert reports, the Panel agreed with the objectors that plaintiffs no longer faced "a significant threat of future antitrust harm in the absence of the injunction," and, therefore, lacked antitrust standing under § 16 of the Clayton Act. Sullivan, 613 F.3d at 157-58.

[51]Section 16 provides in pertinent part:

Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws, ... when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity.

15 U.S.C. § 26.

[52] Unsurprisingly, a paucity of case law addresses the issue of whether parties to a lawsuit may consent to the issuance of an injunction that is agreeable to all parties without a court's asking whether the prerequisites of Rule 23(b)(2) have been satisfied. This dearth of precedent is to be expected since it would be highly illogical for a defendant to dispute an injunction to which it in fact agreed, and for a plaintiff beneficiary to object to an injunction entered for its benefit. Curiously, the latter situation is presented here.

[53] "This rule applies when the putative class seeks injunctive or declaratory relief, and `does not extend to cases in which the appropriate final relief relates exclusively or predominantly to money damages,'" as with a certification pursuant to Rule 23(b)(3). Beck v. Maximus, Inc., 457 F.3d 291, 301 (3d Cir. 2006) (quoting Fed.R.Civ.P. 23(b)(2) advisory committee's note).

[54] The objectors urge, based on the damages methodology expert reports, that De Beers's market share fell to approximately 46% in 2006, and, therefore, posed little continuing threat of future antitrust harm. (Quinn Br. 19.) Although the experts mentioned that De Beers lost its dominant share of an increasingly competitive market, the experts never opined—as the objectors contend—that plaintiffs face no significant threat of future antitrust harm. Were we to conduct our own independent analysis, we might draw a very different conclusion as to De Beers's asserted ability to inflict future harm: we might decide that De Beers's ongoing leadership position— considering its purported 46% market share in the diamond market—afforded it ample opportunity to influence diamond prices, posing an ongoing and significant threat of antitrust injury. See generally United States v. Continental Can Co., 378 U.S. 441, 459, 84 S.Ct. 1738, 12 L.Ed.2d 953 (1964) (discussing defendant's "dominant position" based upon a 43%-46% market share in a highly concentrated industry). The objectors place far too much stock in De Beers's purported market share, ignoring one of the basic tenets in assessing market power: "Obviously no magic inheres in numbers; the relative effect of percentage command of a market varies with the setting in which that factor is placed." Times-Picayune Pub. Co. v. United States,345 U.S. 594, 612, 73 S.Ct. 872, 97 L.Ed. 1277 (1953).

Curiously, the objectors and the Panel also rejected the plaintiffs' contention that the injunction entered by the District Court in 2006—an injunction directly tailored to fostering competition—played any role in the increasingly competitive market. Sullivan, 613 F.3d at 157. The Panel opined that although the mid-2006 competitive increases "roughly coincided with the District Court's issuance of the injunction," this coincidence did not support the reasonable deduction that the injunction "played a meaningful role in producing those competitive gains." Id. at 157-58. An equally logical inference would be that increased competition approximating the issuance of the injunction evidenced the efficacy of the relief. That said, we will abstain from extrapolating broad legal conclusions of market competitiveness from data narrowly focused on damages methodology.

[55] We have separately observed that "an initial presumption of fairness" may apply when reviewing a proposed settlement where: "(1) the settlement negotiations occurred at arm's length; (2) there was sufficient discovery; (3) the proponents of the settlement are experienced in similar litigation; and (4) only a small fraction of the class objected." Warfarin, 391 F.3d at 535 (quoting In re Cendant Corp. Litig., 264 F.3d 201, 232 (3d Cir.2001) ("Cendant")). The District Court did not consider or rely upon this presumption in assessing fairness. Because we find no error in the Court's thorough analysis, we will likewise disregard this presumption.

[56] The Court noted that, as of March 31, 2008, it had received 433,891 claims forms from all classes—nine from members of the Direct Purchaser Class and 433,882 from the Indirect Purchaser Class, with 431,380 from the Consumer Subclass and 2,502 from the Reseller Subclass. (App'x 291.) The Court also stated that five requests for exclusion had been received from the Direct Purchaser Class and 139 from the Indirect Purchaser Class (66 from the Reseller Subclass and 69 from the Consumer Subclass). (Id.) The Court received no objections from any direct purchasers and also noted that notice was provided to the United States Attorney General and the Attorney Generals of all fifty states, with none seeking to participate in the proceedings. (Id. 290-291, 1449-1450.)

[57] The objectors aver that drawing a distinction between settlement and litigation classes "would create two standards for class certification" although "the federal rules do not provide for such a difference." (Bagolie Br. at 25.) This argument patently disregards our clear and consistent precedent on the subject. While the standards for class certification are the same for both settlement and litigation classes, certification in the former context need not consider "whether the case, if tried, would present intractable management problems, for the proposal is that there be no trial." Comm. Bank II, 622 F.3d at 291 (citing Amchem, 521 U.S. at 620, 117 S.Ct. 2231). This added risk is of utmost significance in determining whether a settlement would best serve the interests of the class.

[58] Peculiarly, the objectors at once argue "that treble damages could be considered in assessing" fairness while also presuming without cause that a fairness inquiry "necessarily involves consideration of treble damages." (Bagolie Br. 38-39 (emphasis added).)

[59] We agree with our fellow Court of Appeals that, in reaching a private consensual settlement, the "parties, counsel, mediators, and district judges naturally arrive at a reasonable range for settlement by considering the likelihood of a plaintiffs' or defense verdict, the potential recovery, and the chances of obtaining it, discounted to present value." Rodriguez, 563 F.3d at 965. Our principal role in this engagement "is to protect the unnamed members of the class." Ehrheart, 609 F.3d at 593. As such, we must remain cognizant that our "`intrusion upon what is otherwise a private consensual agreement negotiated between the parties to a lawsuit must be limited to the extent necessary to reach a reasoned judgment that the agreement is not the product of fraud or overreaching by, or collusion between, the negotiating parties.'" Rodriguez, 563 F.3d at 965 (quoting Hanlon v. Chrysler Corp., 150 F.3d 1011, 1027 (9th Cir.1998)); see also GM Truck, 55 F.3d at 805 (same). No assertion of collusion, fraud, or overreaching is advanced or evidenced in the settlement at issue here.

[60] The objectors also allege legal error in the District Court's estimate of the "best possible recovery" for the Indirect Purchaser Class by reference to the class as a whole, rather than by making separate findings as to estimated damages for the Consumer and Reseller subclasses. (Bagolie Br. at 27.) This argument falls short. The Special Master—whose findings were accepted by the District Court— thoroughly considered several expert reports and econometric models submitted by various counsel discussing the proper share of damages within the Indirect Purchaser class. The Special Master established an appropriate distribution of the Indirect Purchaser fund based upon estimated damages to both the Consumer and Reseller subclasses, and the objectors have not demonstrated the inaccuracy of this analysis. (See App'x 1473-1508.)

[61] The objectors' related argument that the de minimis provision will deprive 57 million consumers of monetary recovery even if they file a claim is equally weak. (Giddings/Petrus Br. 9.) This contention unfairly presumes that every single putative class member will timely submit claims forms, rendering every member's pro rata recovery below $10. By contrast, the evidence accepted by the Special Master demonstrated that "consumer claim filing rates rarely exceed seven percent, even with the most extensive notice campaigns." (App'x 1550 (citation & quotations omitted).) In the absence of any credible evidence subjecting the objectors' position, we cannot conclude that the District Court abused its discretion in adopting the distribution plan.

[62] The lodestar crosscheck "is performed by dividing the proposed fee award by the lodestar calculation, resulting in a lodestar multiplier." AT & T Corp., 455 F.3d at 164. The multiplier endeavors "to account for the contingent nature or risk involved in a particular case," and may be adjusted "to account for particular circumstances, such as the quality of representation, the benefit obtained for the class, [and] the complexity and novelty of the issues presented." Id. at 164 n. 4 (citations & quotations omitted).

[63] The Gunterfactors are as follows:

(1) the size of the fund created and the number of persons benefitted; (2) the presence or absence of substantial objections by members of the class to the settlement terms and/or fees requested by counsel; (3) the skill and efficiency of the attorneys involved; (4) the complexity and duration of the litigation; (5) the risk of nonpayment; (6) the amount of time devoted to the case by plaintiffs' counsel; and (7) the awards in similar cases.

223 F.3d at 195 n. 1.

[64] The Prudentialfactors are:

(8) the value of benefits attributable to the efforts of class counsel relative to the efforts of other groups, such as government agencies conducting investigations, (9) the percentage fee that would have been negotiated had the case been subject to a private contingent fee arrangement at the time counsel was retained, and (10) any innovative terms of settlement.

Diet Drugs, 582 F.3d at 541 (citing Prudential, 148 F.3d at 338-40).

[65] The objectors' further contention that the size of the percentage fee award should decrease in light of the large size of the overall settlement, (Quinn Br. at 66), is premised on several of our opinions in which we stated that "the percentage of a recovery devoted to attorneys' fees should decrease as the size of the overall settlement or recovery increases." Cendant, 264 F.3d at 284 n. 55 (citations & quotations omitted). We so ruled because "in many instances the increase in recovery is merely a factor of the size of the class and has no direct relationship to the efforts of counsel." Id. In particular, we have vacated large fee awards "`when much of the settlement apparently resulted from the work of state regulators and a multi-state insurance task force.'" Rite Aid, 396 F.3d at 303 (quoting Prudential, 148 F.3d at 338-342). But "there is no rule that a district court must apply a declining percentage reduction in every settlement involving a sizable fund," and we have approved large settlements where "class counsel's efforts played a significant role in augmenting and obtaining an immense fund." Id. Ultimately, "the fact-intensive Prudential/Gunter analysis" must trump all other considerations. Id.

Here, plaintiffs' counsel prosecuted this matter through settlement with no certainty as to their ability to enforce any judgment against De Beers. The District Court's fact-intensive Gunter analysis found that plaintiffs' counsel deftly and efficiently handled this complex matter and played a significant role in the outcome. Accordingly, we disagree that the size of the overall settlement bears no relationship to the efforts of counsel and will defer to the District Court's considered judgment.

[66] We also reject the sole objection pertaining to the District Court's decision to grant incentive awards to class representatives. "Incentive awards are not uncommon in class action litigation and particularly where . . . a common fund has been created for the benefit of the entire class." Lorazepam, 205 F.R.D. at 400 (internal quotations omitted). "The purpose of these payments is to compensate named plaintiffs for the services they provided and the risks they incurred during the course of class action litigation," and to "reward the public service of contributing to the enforcement of mandatory laws." Bredbenner v. Liberty Travel, Inc., No. 09-905, 2011 WL 1344745, at *22 (D.N.J. Apr. 8, 2011) (citations & quotations omitted). Contrary to the objectors' contention, the District Court—relying upon the Special Master's more detailed findings—discussed the role played by the several class representatives and the risks taken by these parties in prosecuting this matter. (App'x 326-27; R & R on Awards at 42-46.) We find no error in the District Court's decision.

[67] The class action device has a venerable pedigree in equity practice. As early as the seventeenth century, English chancery courts employed bills of peace to facilitate representative suits analogous to "common question" suits under Rule 23(b)(3). Geoffrey C. Hazard, Jr. et al., An Historical Analysis of the Binding Effect of Class Suits, 146 U. Pa. L.Rev. 1849, 1861-65 (1998). Inchoate class actions continued in the American legal system until codified under Rule 23 in Federal Rules of Civil Procedure in 1938. Id. at 1878-1942. The 1966 amendments to Rule 23 substantially modified earlier practice and ushered in a class action "revolution" by introducing most of the current aspects of class action litigation, particularly the broad provisions of 23(b)(3) and the concomitant procedural safeguards requiring predominance and notice. Stephen B. Burbank, The Class Action Fairness Act of 2005 in Historical Context: A Preliminary View, 156 U. Pa. L.Rev. 1439, 1484-89 (2008).

[68] Bankruptcy may also provide a vehicle for some measure of compensation to mass claimants (creditors) and for resolution of liability.

[69] Nevertheless, some MDL transferee judges have treated the MDL proceedings as quasi class actions and restricted contingent fee agreements in non-class aggregate settlements under their equitable and supervisory powers. See In re Vioxx Prods. Liab. Litig., 650 F.Supp.2d 549, 558-62 (E.D.La.2009); In re Guidant Corp. Implantable Defibrillators Prods. Liab. Litig., MDL No. 05-1708 (DWF/AJB), 2008 WL 682174 (D.Minn. Mar. 7, 2008); In re Zyprexa Prods. Liab. Litig., 424 F.Supp.2d 488, 491 (E.D.N.Y.2006).

[70] For a litigation class, the key decision is whether or not to certify the class. Once a class is certified, the dynamics of the case change dramatically. For many plaintiffs, denial of certification may sound the death knell of the action because the claims are too small to be prosecuted individually. For many defendants, class certification may create hydraulic pressure to settle, even for claims defendants deem non-meritorious. For these reasons, the Supreme Court adopted Federal Rule of Civil Procedure 23(f) to permit a discretionary interlocutory appeal from the grant or denial of class certification.

[71] Trial courts can certify subclasses in situations where divergent interests implicate fair allocation—a situation not presented here, as all indirect class members have aligned interests. Certifying subclasses may be proper "[w]here a class is found to include subclasses divergent in interest." In re Ins. Brokerage Antitrust Litig., 579 F.3d at 271 (quoting Fed. R.Civ.P. 23(c) advisory committee note). Even the conflicts in Amchem were amenable to resolution through sub-classes. See Ortiz, 527 U.S. at 856, 119 S.Ct. 2295 (explaining that Amchem requires "a class divided between holders of present and future claims" to be "divi[ded] into homogeneous subclasses. . . with separate representation to eliminate conflicting interests of counsel"). Objector Quinn, in her answer to the petition for rehearing, states that subclasses would adequately address the Illinois Brick-based disparities in this case; she does not argue that it would be categorically improper to afford class treatment to indirect purchasers governed by Illinois Brick. See Quinn Answer at 11. The District Court here examined whether indirect purchasers' interests diverged depending on the law applied to their claims, and found such differences to be irrelevant in the context of this settlement. I find no abuse of discretion in such a conclusion.

[72] Objectors also claim that variance on state claims (based on consumer protection and unjust enrichment laws) defeats predominance as well.

[73] The purported "overbreadth" of the putative class at issue here is qualitatively different from the Supreme Court's concerns in Amchem. Under Amchem the significance of variations in state laws is properly assessed in terms of the interests of absent class members. The proposed Amchem settlement, extinguishing claims for different injuries with different onsets incurred at different times due to conduct of different defendants, undercompensated exposure-only claims and those with mesothelioma. Here, objectors contend some class members do not have a valid cause of action, but these class members with non-repealer state law claims have lost nothing through inclusion in the class. Objectors speculate inclusion of non-repealer state law claims necessarily diminishes the settlement accrued to class members whom they contend have undisputedly valid claims. But they provided no support for their assertion. In Amchem the objectors provided evidence of intraclass conflicts detrimental to class members. For example, 15% of the proposed Amchem settlement's mesothelioma claims arose in California, where the average recovery for a mesothelioma claim was more than double their maximum recovery in the settlement. Amchem,521 U.S. at 610 n. 14, 117 S.Ct. 2231.

The objectors have not shown that plaintiffs suffering identical economic injuries due to a single course of conduct on the part of the defendant have conflicting interests solely because some class members may have stronger claims depending upon variation in state law. Objectors assume that the non-repealer state claims have zero settlement value and that defendants would contribute the same amount to the common settlement fund regardless of how many claims the settlement may extinguish. But the settlement of the considerable bulk of claims against the defendants for a prior course of conduct may be of substantially greater value to defendants than a settlement of only the strongest claims against them. And, unlike in Amchem, objectors have not shown the inclusion of more claims was achieved by grossly underpaying some class members.

[74]Rule 23(e) is especially relevant in this context because it governs the settlement, dismissal, or compromise of a class action. It requires court approval of any agreement, and establishes five procedural requirements that must be satisfied:

(1) The court must direct notice in a reasonable manner to all class members who would be bound by the proposal.

(2) If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate.

(3) The parties seeking approval must file a statement identifying any agreement made in connection with the proposal.

(4) If the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so.

(5) Any class member may object to the proposal if it requires court approval under this subdivision (e); the objection may be withdrawn only with the court's approval.

Fed.R.Civ.P. 23(e).

[75] Facing liability for alleged misconduct, a defendant may desire global settlement for several possible reasons: (1) redressing plaintiffs' injuries; (2) the possibility of liability; (3) the direct costs of defending suits, often in multiple fora; (4) the risk of financially unmanageable jury verdicts which may threaten bankruptcy; (5) the effects of pending or impending mass litigation on its stock price or access to capital markets; (6) the stigma of brand-damaging litigation; and (7) maintaining financial stability.

[76] In Prudential II, we affirmed the grant of an injunction enjoining a state-court action brought by policyholders who were members of the Prudential class to the extent the state-law claims were based on or related to claims released in the class action. We agreed with the district court that allowing the policyholders to prosecute their civil actions in state court "would allow an end run around the Class settlement by affording them (and other class members who might later attempt the same strategy) an opportunity for relitigation of the released claims." 261 F.3d at 367 (internal quotation marks omitted). We noted that the position urged by the policyholders "would seriously undermine the possibility for settling any large, multi district class action. Defendants in such suits would always be concerned that a settlement of the federal class action would leave them exposed to countless suits in state court despite settlement of the federal claims. . . . [S]uch state suits could number in the millions." Id. It is for this reason that releases of all claims— whether state or federal—have been held valid, "provided they are based on the same factual predicate." Prudential, 148 F.3d at 326 n. 82. So long as a sufficient factual predicate exists, a release can even bar later claims which could not have been brought in the court rendering the settlement judgment. Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 377, 116 S.Ct. 873, 134 L.Ed.2d 6 (1996).

[77] The final draft of the American Law Institute's Principles of the Law of Aggregate Litigation points out the current lack of judicial oversight over non-class aggregate settlement. § 3.15 cmt. a (2010). It notes that, unlike class settlements, "[n]on-class aggregate settlements are governed primarily by ethical rules and are rarely subject to court review or approval for fairness" and so advocates "a fresh look . . . at how non-class aggregate settlements should be regulated." Id. In particular, it proposes a rule to provide each plaintiff a nonwaivable right to challenge in court a settlement that is allegedly "not procedurally and substantively fair and reasonable." § 3.18(a). The ALI Principles analogizes these proposed requirements to those applied to class settlements. § 3.17 cmt. e.

[78] More precisely, we are dealing here with a set of class actions, since the settlement involves the resolution of several cases, as the Majority opinion notes. For ease of reference, however, I will often refer to these matters in the singular.

[79] The Majority is oddly persistent in this confusion. Despite the clear language in the panel opinion and repeated assurance in this dissent that class members need not all share a "uniform cause of action" to satisfy the requirements of Rule 23, the Majority continues to say by implication and assertion that the panel opinion suggested that all members of the class must assert a "uniform" cause of action or "identical . . . issues or claims." See Op. at 301 ("We have never required the presentation of identical or uniform issues or claims as a prerequisite to certification of a class."); id. at 302 ("Nothing in our case law or the language of Rule 23 commands that everyone in a class must allege precisely identical or `uniform' causes of action . . . and statutory variations do not defeat predominance in the presence of other exceedingly common issues." (internal citations omitted)); id. at 308 n. 36 ("The Panel . . . seemingly conclude[ed] that plaintiffs could only prevail if each putative class member alleged either a `uniform' antitrust cause of action, a `uniform' consumer protection cause of action, or a `uniform' unjust enrichment claim.").

[80] Both before the panel and the en banc court, objector Susan M. Quinn has taken the lead on the issues of commonality and predominance, and my references to the arguments of the objectors come from her briefs.

[81] Although the parties do not particularly press the issue in their briefs, an argument can be made that the proposed class might also fail to meet the requirements of Rule 23(a)(4), which provides that a court may certify a class only if "the representative parties will fairly and adequately protect the interests of the class." Fed.R.Civ.P. 23(a)(4). By proposing a class that consists of individuals who have no cause of action under state or federal law, the class representatives have diluted the recovery for those who actually have claims. Moreover, the class representatives also unnecessarily incur the cost of giving notice under Rule 23 to individuals who have no right to relief, as well as the cost of compensating class counsel for undertaking unnecessary tasks associated with such notice. Cf. In the Matter of Aqua Dots Prods. Liability Litig., 654 F.3d 748, 752 (7th Cir. 2011) ("A representative who proposes that high transaction costs (notice and attorneys' fees) be incurred at the class members' expense to obtain a refund that is already on offer is not adequately protecting the class members' interests." (citing Thorogood v. Sears, Roebuck & Co., 627 F.3d 289, 293-94 (7th Cir.2010))). Those costs reduce the total amount of recovery available to the appropriate members of the proposed class (i.e., individuals who may assert an antitrust claim under federal or state law). In other words, a class representative who unnecessarily increases the cost of litigating a class action by including improper plaintiffs in the class definition is at risk of being found to not "adequately protect the interests of the class." Fed.R.Civ.P. 23(a)(4).

[82] If one were actually to accept a test that looked solely at the behavior of the alleged wrongdoer, it would make no difference who was in the class. Thus, in this case, it would be appropriate to certify a class consisting of everyone on earth, regardless of diamond purchases, since the supposedly common questions would stay the same.

[83] While trying to distance itself from the consequences of its own ruling today, the Majority asserts that the "[indirect purchaser] class members . . . possess a legally cognizable injury acknowledged in hornbook law, as their injuries are real, and stem not from simply feeling `wronged,' as the dissent suggests . . ., but from De Beers's alleged anticompetitive conduct, conduct which antitrust laws forbid." (Op. at 301.) If only my colleagues in the Majority actually applied that assertion, this dissent would be unnecessary, since the assertion concedes that (1) recovery should be preconditioned on the existence of an injury that is legally cognizable, and (2) whether an injury is legally cognizable depends on the operative substantive law.

[84] Similarly, if predominance means anything, it must mean that the resolution of something will actually affect somehow the claims of all class members. The claims might vary among the class members, but, at a minimum, some legal right to recover has to be held by everyone in the class.

[85] A colorable claim is one that at least "appear[s] to be true, valid, or right." BLACK'S LAW DICTIONARY 301(9th ed.2009). Requiring a district court to consider whether a claim appears to be valid before certifying class, when the court is expressly apprised of good reasons to doubt the same, does not transform the Rule 23 inquiry into one under Rule 12(b)(6), as I discuss infra.

[86] To the extent that the quoted statement, read in isolation, might suggest a rule that all class members had to share an antitrust claim, the context of the statement—coming after a discussion of other types of statutory or common law claims that might give rise to common questions—makes it clear that the panel was requiring only that all class members' right to recover arise from the same harm or injury—something unambiguously required under Supreme Court precedent. See, e.g., Dukes, 131 S.Ct. at 2551 ("Commonality requires the plaintiff to demonstrate that the class members have suffered the same injury." (internal quotation marks omitted)).

[87] The following passage in the American Law Institute's Principles of the Law of Aggregate Litigationarticulates this basic principle:

The legal and factual issues involved in any individual civil claim are a function of applicable substantive law. . . . Factual issues concern disputes about whether the evidence at trial demonstrates, under the applicable standard of proof, the existence of a given element. . . . A factual issue may rise to the level of a common issue if . . . a common body of evidence to be presented on behalf of multiple claimants at trial is capable of proving the existence of a material fact as to all such claimants.

ALI, Principles of Law: Aggregate Litigation § 2.01(b)(2010). Thus, the treatise supports the proposition that in order to satisfy Rule 23(b)(3)'s commonality requirement, there must be some "material" issue. Materiality is a "function of applicable substantive law." See id.; In re Lemington Home for the Aged, 659 F.3d 282, 290 (3d Cir.2011) ("A material fact is `[a] fact[] that might affect the outcome of the suit under the governing law.'" (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986))). By necessary implication, if certain members of the proposed class cannot assert a claim under either federal or state law, then there can be no common questions of law or fact that are "material."

[88] There are at least two other problems with the Majority's assertion that "[t]o adopt the position of the dissent and the objectors is to introduce a Rule 12(b)(6) inquiry as to every claim in the class before a class may be certified." (Op. at 305.) First, it ducks the difficulty at the center of this case, which is not and never has been about merely dubious claims. Claims that are of doubtful quality still have, as the adjective indicates, some doubt about them, which means they still retain at least some superficial possibility of being valid. Such claims, because they cling to that possibility, will typically not need to cause a district judge any agita in addressing the certification of a class for settlement purposes. The central problem in this case, however, goes beyond factual disputes or debatable points of law. The problem here is that there are class members who, according to the plain terms of controlling law, have no claim at all, not even a dubious one. We are not rightfully at liberty to ignore that, nor was the District Court. The second problem with the Majority's parade-of-horribles rhetoric in response to the suggestion that class members should actually have claims (see Op. at 307-11) is that objectors have always been entitled to raise a legal challenge to claims being included in a class, even a settlement class. Cf. Hydrogen Peroxide, 552 F.3d at 320 ("[A] district court exercising proper discretion in deciding whether to certify a class will . . . make findings that each Rule 23 requirement is met or not met, having considered all relevant evidence and arguments presented by the parties."). In other words, district courts have always been required to ensure that the requisites of Rule 23 have been met, and that includes an obligation to address the non-frivolous arguments and objections that are put to them. A court does not need to assess sua sponte every potential problem, nor need it engage in "an intensive cataloguing of each class member's claim" (Op. at 308), but it must give objections their due.

[89] The Majority's recoiling at the individualized assessment of claims also reflects a failure to appreciate that some such assessment does typically take place at some point during the settlement process. The parties share a common interest in ensuring that individuals falling outside the class do not share the benefits of the settlement. For that reason, a class member here must submit a proof of claim demonstrating his or her purchase of a diamond within the relevant time period. As is often the case, parties to an antitrust settlement want to ensure that individuals seeking a share of the settlement actually bought a product with an allegedly inflated price, demonstrating their membership in the class. See Warfarin Sodium II, 391 F.3d at 525. Some settlements create elaborate systems for evaluating not only the validity but the severity of each class member's injury. See In re Prudential Insurance Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 295-96 (3d Cir. 1998). These proofs of claim are rarely evaluated by the court. "Although the court has general supervisory powers over settlements, it usually does not handle the actual administration. As a rule, the administration is delegated either to a special master or to the plaintiff's counsel or a committee of counsel." 4 Alba Conte & Herbert Newberg, Newberg on Class Actions § 11:33 at 68-69 (4th ed.2002). It is universally recognized that the special master, committee, or other body created to administer the settlement agreement is responsible for evaluating the validity of claims and calculating the individualized recovery of a particular class member. See David F. Herr, Manual for Complex Litigation § 21.661 (4th ed. 2011) ("The administrator or special master may be charged with reviewing the claims and deciding whether to allow claims that are late, deficient in documentation, or questionable for other reasons.").

[90] For a more detailed discussion of which states preclude claims entirely, see Sullivan,613 F.3d at 147-48 & n. 10-11, 150-51. According to the Majority, the panel opinion "undertook a wide-ranging fact-finding review of state antitrust statutes. . . ." (Op. at 293.) That description is puzzling, however, because there was no fact-finding involved. The review of state law was just that: a review of law. The panel opinion took the very ordinary approach of examining the laws on which the plaintiffs purported to base their claims, including state antitrust laws. The opinion also stated:

We are certainly not saying that nuanced differences among state laws will prevent the certification of a class, nor are we suggesting that a state-by-state cataloguing of differences in state law is necessary every time a multi-jurisdiction class is certified. We are saying that the difference between having an antitrust claim under state law and having none is no mere nuance and cannot be solved by any reconfiguration of the nationwide class short of changing it from a nationwide class to one or more classes that exclude those who have no claim.

Sullivan, 613 F.3d at 148 n. 12. Both the Majority and the Concurring Opinions claim that it is wrong for us to pay attention to the differences in state law because, as the Concurrence puts it, "trial courts would be obligated at the settlement class certification stage to decide which state's law would govern. . . ." (Concurrence Op. at 337.) It bears repeating, then, that nothing said by the panel opinion or in this dissent would entail the cataloguing of differences in state law in the mine run of cases. However, when, as in this case, an objection has been raised pointing out that there is a body of claims that are undeniably impermissible under the law of the state which governs them, we are not free to shirk the responsibility of separating those unfounded claims from the class.

[91] It is not clear, to begin with, that the Majority's "statutory standing" label accurately describes the substantive law of the several states denying a claim to indirect purchasers. That aside, and although a dismissal for lack of statutory standing may be viewed as akin to a dismissal under Federal Rule of Civil Procedure 12(b)(6), see Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69, 73 (3d Cir.2011) (noting that "[a] dismissal for lack of statutory standing is effectively the same as a dismissal for failure to state a claim"), compelling authority teaches that the absence of statutory standing can also implicate the court's power to adjudicate a dispute under Article III, see Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998) ("Dismissal for lack of subject-matter jurisdiction because of the adequacy of the federal claim is proper . . . when the claim is so insubstantial, implausible, foreclosed by prior decisions of this Court, or otherwise completely devoid of merit as not to involve a federal controversy." (internal quotation marks omitted)). We have suggested this ourselves, see Malaysia Int'l Shipping Corp. v. Sinochem Int'l Co. Ltd., 436 F.3d 349, 359 (3d Cir.2006) (stating that "non-Article III jurisdictional issues like statutory standing" fit within a category of cases somewhere between cases that have "jurisdictional issues that cannot be bypassed because Article III of our Constitution requires that they be addressed" and cases "with merits-related issues, which cannot be reached without first verifying jurisdiction" (internal citations and quotation marks omitted)), rev'd on other grounds, 549 U.S. 422, 127 S.Ct. 1184, 167 L.Ed.2d 15 (2007), and other circuits have held the same, see Crawford v. Lamantia, 34 F.3d 28, 32 (1st Cir.1994) (statutory standing under ERISA) ("[W]e note that the basis for `[s]tanding, since it goes to the very power of the court to act, must exist at all stages of the proceeding, and not merely when the action is initiated or during an initial appeal.'"); Alexander v. Anheuser-Busch Co., 990 F.2d 536, 538 (10th Cir.1993) (statutory standing under ERISA) ("In reviewing Alexander's ERISA claims, we raise, sua sponte, the question whether he has standing to bring such claims. The issue of standing is jurisdictional in nature."); Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan, 883 F.2d 345, 349 (5th Cir.1989) (statutory standing under ERISA) ("We have recognized, however, that standing is essential to the exercise of jurisdiction, and that lack of standing can be raised at any time by a party or by the court."); cf. MainStreet Org. of Realtors v. Calumet City, 505 F.3d 742, 747 (7th Cir. 2007) (Posner, J.) (describing lack of statutory standing under Illinois Brick as "not jurisdictional, at least in the conventional sense[,]" but nonetheless "belong[ing] to an intermediate class of cases in which a court can notice an error and reverse on the basis of it even though no party has noticed it").

[92] Whether a party has standing under Article III is a distinct inquiry from whether the party may assert a cause of action under state or federal law. In Bond v. United States, ____ U.S. ____, 131 S.Ct. 2355, 2362, 180 L.Ed.2d 269 (2011), the Supreme Court made clear that a party may have standing under Article III, but fail to assert a cause of action under state law. See id. at 2362 ("Still, the question whether a plaintiff states a claim for relief `goes to the merits' in the typical case, not the justiciability of a dispute, and conflation of the two concepts can cause confusion." (internal citation and quotation marks omitted)). However, even assuming indirect purchasers have standing under Article III, they have no claim under federal law and many of them lack standing to assert any claim under relevant state law. Because the proposed class includes such individuals, it cannot satisfy Rule 23(b)(3)'s commonality requirement.

[93] Again, assuming that "statutory standing" is the appropriate description of the principle under state law. See supra n. 13.

[94] The Majority uses Ohio's CPA as an example and does not discuss whether fraud claims were brought under the CPAs of other states following Illinois Brick. Nonetheless, the pleading deficiency is the same for allegations involving the laws of other states. The Sullivan and Null complaints are the only complaints to invoke the CPAs of the states following Illinois Brick and, as discussed above, neither of those complaints allege fraud; they merely pin the "fraud" label on the price-fixing behavior at issue. Consequently, there is no claim for fraud under the laws of any state adhering to Illinois Brick.

[95]Those questions are:

(a) Whether [D]efendants combined or conspired with others to fix, raise, stabilize and maintain the prices of polished diamonds;

(b) Whether [D]efendants monopolized or combined or conspired with others to monopolize the supply of polished diamonds;

(c) Whether [D]efendants' conduct caused the prices of polished diamonds to be maintained at higher levels than would exist in a competitive market;

(d) Whether [P]laintiffs and the Class[es] are entitled to injunctive relief; and

(e) Whether [D]efendants' conduct caused injury to the business or property of [P]laintiffs and the other [Class and] Subclass Members and, if so, the appropriate class-wide measure of damages.

(App. at 276.)

[96] In its effort to diminish the significance of the state laws denying a cause of action to indirect purchasers, the Majority likens those laws to pre-suit notice requirements or other issues of form that may vary from state to state. (Op. at 310.) But we are not talking here about the niceties of notice. In a class action invoking the laws of multiple jurisdictions, there will often be variations in the law pertaining to how a particular claim is to be presented. Those variations may at times be framed as prerequisites to the bringing of a cause of action or restrictions on the manner in which the action is brought. Were the aggregated claims to be brought individually, those prerequisites would in all likelihood be met on a claim-by-claim basis, but, since the claims are aggregated, those prerequisites are appropriately bypassed. They amount to nothing more than variations in form, not in kind, and neither the panel opinion in this case nor the objectors nor this dissent have advocated the elevation of form over substance. Differences in form are not at issue here; it is the very existence of any cause of action at all that is at stake. The distinction is crucial.

[97]I am not suggesting that no class of indirect purchasers could have been certified here. On the contrary, as the panel opinion noted,

It may be that the antitrust and consumer protection statutes in a more limited number of states are sufficiently similar that common issues of law or fact would predominate with respect to plaintiffs in those jurisdictions. However, it was improper for the District Court to certify a nationwide class of plaintiffs based on state law when many states withhold antitrust standing from indirect purchasers and where the variability in consumer protection and unjust enrichment law in a context like this is extreme.

Sullivan, 613 F.3d at 153-54.

[98] The Majority tries to deny this, saying that a state court would only dismiss the invalid claim upon a motion by the defendant. (Op. at 313 n. 43.) But the procedural mechanism that prompts application of substantive law is irrelevant. Whether or not a motion brings to light a claim's fatal flaw, the flaw is there. To continue with the Ohio law example, there is clearly no colorable claim for an indirect purchaser, and that is true whether or not a defendant chooses to file a motion to dismiss. Ohio law does not depend on the whim of De Beers or any other defendant. It is telling that the Majority's rejoinder on this point is, in effect, "yes, the claimant could be tossed out of state court, but only if there were a motion." That seems a concession that the differing results that now obtain in this Circuit and in Ohio state courts reflect an expansion of substantive rights. As to the "there must be a motion" comment, irrelevant and of questionable accuracy though it may be, it prompts re-emphasis of this fact: there was a motion in this case, in the form of the objections to the nationwide settlement of the indirect purchaser class. Thus, the legal problem was squarely before the District Court, as it is now before us. It does not matter that the motion came from someone other than De Beers. The issue has been raised and cannot be dodged by saying no one brought it up. Nor can it be avoided by saying that De Beers could have settled an individual suit in Ohio. We are obviously not dealing with the settlement of a dispute between private parties in Ohio state court; we are dealing with a class action settlement binding on absent parties and sanctioned by a federal court purporting to apply Ohio law.

[99] Herein lies a fundamental flaw in the Concurring Opinion as well, which takes the view that "[u]nder Amchem the significance of variations in state law is properly assessed in terms of the interests of absent class members[,]" and that here class members from states adhering to Illinois Brick "have lost nothing through inclusion in the class." (Concurrence Op. at 337 n. 7.) Very true. The problem here is not that some absent class members who deserve compensation are left out by the settlement. The problem is that some class members who deserve nothing are included in the settlement and hence are diluting the recovery of those who are entitled to make claims. That harm is real, and the cause of it, the overbreadth of the class, is akin to the problem in Amchem. See Amchem, 521 U.S. at 620, 117 S.Ct. 2231 ("But other specifications of [Rule 23]—those designed to protect absentees by blocking unwarranted or overbroad class definitions—demand undiluted, even heightened, attention in the settlement context.").

[100] The Majority cites Warfarin Sodium II in an effort to justify its decision today, but we were careful to say in that case that "there may be situations where variations in state law are so significant so as to defeat commonality and predominance even in a settlement class." 391 F.3d at 529. That observation seems obvious and unassailable, and we are presented here with exactly that kind of situation. If we cannot bring ourselves to say plainly that the certification here was improper, one is forced to wonder what limit is left on the reach of Rule 23.

[101] The Majority also writes that, in Prudential, "we agreed with the district court that `approval of a settlement under Rule 23 merely recognizes the parties' voluntary compromise of their rights and does not itself affect their substantive state law rights," and, therefore, held that "the proposed settlement could not violate the Rules Enabling Act." (Op. at 312 (quoting Prudential, 148 F.3d at 324).) However, we also held in Prudential that the proposed settlement was not contrary to the cited state law, and, therefore, the Rules Enabling Act could not possibly have been implicated. Prudential, 148 F.3d at 324 & n. 77.

[102] The Concurring Opinion's assertion that the settlement of a class action is merely "a contract between the parties" (Concurrence Op. at 338) misses this point, though the opinion adds a reference to Rule 23 (id. at 338 n. 8). The states have an interest in not having their laws strained beyond recognition or ignored entirely. A class action settlement, whether it involves a settlement or a litigation class, is not simply a private contract. If it were, it would not need court approval, and federal courts called upon to supervise class actions, including resulting settlements, are obligated to see that Rule 23 does not become a tool for modifying state law.

[134] [135] [136] Paul Benton Weeks, III (argued), Wichita, KS, Michael W. Hanna, Raytown, MO, Randall E. Fisher, (argued), Wichita, KS, for Jack French, Robert West, Charles E. Merritt and Gary Blades.

Robert B. Gerard, (argued) Gerard & Associates, San Diego, CA, Jeffrey A. Miller, Dummit, Faber & Briegleb, San Diego, CA, Clyde C. Greco, Jr., Scott A. Johnson, Greco & Traficante, San Diego, CA, E. David Chanin, Tannebaum & Chanin, Philadelphia, PA, for Jesus Garibay, Jerome Hope, Jr., Robert and Lucille White and Carlos Zabala.

Lynde Selden, II (argued), Lynde Selden Chartered, PLC, San Diego, CA, Jack Stolier, Sullivan, Stolier and Daigle, New Orleans, LA, Joe R. McCray, (argued) Law Office of Joe R. McCray, San Francisco, CA, Richard H. Rosenthal, Law Office of Richard H. Rosenthal, Carmel Valley, CA, for Dan Tureck, and Joseph Geller, Appellants.

Robert J. LaRocca (argued), Dianne M. Nast, Roda and Nast, P.C., Lancaster, PA, Elizabeth J. Cabraser, Lieff, Cabraser, Heimann & Bernstein, L.L.P., San Francisco, CA, for Appellees John Martin, et al.

Karen N. Walker, Jeffrey A. Rosen (argued), John Gibson Mullan, Antony B. Klapper, Kirkland & Ellis, Washington, DC, Lee A. Schutzman, Edward C. Wolfe, General Motors Corporation, Detroit, MI, Francis P. Burns, III, Lavin, Coleman, Finarelli & Gray, Philadelphia, PA, for Appellee General Motors Corporation.

Alan M. Mansfield, Milberg, Weiss, Bershad, Hynes & Lerach, San Diego, CA, for Appellee Stone Ridge Agri, Inc.

Michael G. Crow, Karen L. Wilkins, Adams & Reese, New Orleans, LA, for Appellee Edsel Fisher.

Before: BECKER, MANSMANN, Circuit Judges, and HOEVELER, District Judge.^[1]

OPINION OF THE COURT

BECKER, Circuit Judge.

This is a sequel to our opinion in In re General Motors Corp. Pick-Up Truck Fuel Tank Prod. Liab. Litig., 55 F.3d 768 (3d Cir.), cert. denied sub nom. General Motors Corp. v. French, 516 U.S. 824, 116 S.Ct. 88, 133 L.Ed.2d 45 (1995) [hereinafter GM I], in [137] which we held that the District Court for the Eastern District of Pennsylvania had erred in certifying a nationwide settlement class of General Motors ("GM") truck owners who sought damages and injunctive relief as the result of the allegedly defective design of the fuel system in certain GM Trucks, which is said to have created a high risk of fire following side collisions. The Eastern District of Pennsylvania litigation was made up of a large number of cases transferred to that court by the Judicial Panel on Multidistrict Litigation ("JPML") pursuant to 28 U.S.C. § 1407 for consolidated pretrial proceedings (the "MDL cases"). In GM I, we vacated the class certification order and set aside the settlement but left open the possibility that the defect in the certification procedure might be cured, the class certified, and a revised settlement approved on remand. However, instead of proceeding further in the Eastern District of Pennsylvania, the parties to the settlement repaired to the 18th Judicial District for the Parish of Iberville, Louisiana, where a similar suit had been pending, restructured their deal, and submitted it to the Louisiana court, which ultimately approved it.

The action before us is an appeal from an order of the district court denying emergency applications by a number of GM truck owners who were members of the Eastern District of Pennsylvania class for an injunction against further class action proceedings in the Louisiana case, White v. General Motors Corp., No. 42,865 Division "D" (18th Judicial District, Louisiana). At the time of the district court's order, the Louisiana state court was considering whether to approve a settlement between GM and a certified settlement class of GM pickup truck owners, though it stayed entry of its final order until the district court could rule on the request for injunction.

The Louisiana settlement class is composed of persons who purchased over a fifteen-year period certain mid- and full-size GM pickup trucks with model C, K, R, or V chassis with fuel tanks located outside the frame rails. Like the federal plaintiffs, the Louisiana plaintiffs allege that the fuel system design leads to an increased risk of fire following side collisions. Appellants are members of that settlement class, and none of them has chosen to opt out of that class.

Following the conditional certification of the settlement class by the Louisiana court, the present appellants, truck owners who were never parties but were successful objectors to the proposed Eastern District of Pennsylvania settlement, moved to intervene in the on-going proceedings in the MDL cases and requested the court to enjoin the Louisiana state court from considering the settlement agreement before it. The district court, which at that time had 277 plaintiffs with cases pending before it, denied appellants' motion for intervention as untimely, and also denied the motion for injunctive relief. Appellants then filed Emergency Motions with this Court requesting injunctions against the Louisiana court proceedings. We denied those motions and ordered full briefing. Thereafter, the Louisiana state court entered final judgment approving the settlement. The present appellants also filed notices of appeal from that judgment in the Louisiana appellate system, so that they were proceeding simultaneously with their appeal from the district court's denial of their motion for injunction and their Louisiana appeal.

Appellants' claim centers on their argument that the Louisiana settlement is little changed from the one previously rejected by us in GM I. Accordingly, they view the settlement as an "end run" around, and a flagrant violation of, the jurisdiction of the Eastern District of Pennsylvania MDL court to which we had remanded the case for further proceedings. Although the procedure followed by appellees gives us pause, the precedent of this Court and the Supreme Court compels us to disagree with appellants and to affirm the district court's decision on several grounds.

Because the attempt to enjoin the Louisiana court proceedings is functionally an attempt to enjoin the individual plaintiffs and class members from proceeding there, we analyze it in those terms. Viewed from that perspective, neither the district court nor this Court has personal jurisdiction over the almost 5.7 million absentee plaintiffs who are [138] (1) not before the district court, (2) have no minimum contacts with Pennsylvania, and (3) have not consented to personal jurisdiction. Second, now that the Louisiana court has entered a final judgment on the settlement, our review is barred by both the Full Faith and Credit Act and the Rooker-Feldman doctrine, which prevents intermediate federal appellate review of state court decisions. Finally, appellants' requested injunction does not fall under any of the three exceptions to the Anti-Injunction Act, which authorize a federal court to stay state court proceedings only when "expressly authorized by an Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C. § 2283.

I. FACTS AND PROCEDURAL HISTORY

A. The MDL Proceedings

Although the background facts have been set forth in greater detail in our first opinion in this case, see GM I, 55 F.3d at 779-83, we rescribe those facts necessary to our present decision. Between 1973 and 1991, GM sold over 6.3 million pickup trucks with fuel tanks mounted outside of the frame rails. These trucks are allegedly defective because they are subject to an increased risk of fire in the event of a side collision. In late October 1992, counsel filed claims on behalf of plaintiffs in 26 federal courts and 11 state courts, including Louisiana. On February 26, 1993, the JPML transferred all related federal actions to the District Court for the Eastern District of Pennsylvania for coordinated discovery and pre-trial proceedings pursuant to 28 U.S.C. § 1407.

On March 5, 1993, pursuant to an order of the transferee judge, plaintiffs filed a Consolidated Amended Class Action Complaint with 277 named plaintiffs seeking equitable relief and damages. Specifically, the complaint alleged violations of the Magnuson-Moss Warranty Act, 15 U.S.C. §§ 2301 et seq., the Lanham Trademark Act, 15 U.S.C.§ 1125(a), as well as a variety of state common law claims including negligence, strict liability, fraud, unfair practices, and breach of written and implied warranty.

Also on March 5, 1993, plaintiffs filed a consolidated motion for nationwide class certification. The district court set July 19, 1993, as the date for the hearing on this motion. Discovery proceeded, focusing on the certification issue, while the parties began exploring the possibility of settlement. By the date of the hearing, the parties had reached a settlement in principle and petitioned the court for approval. Without prejudice to GM's opposition to class certification, the parties agreed to certification of a settlement class of GM pickup truck owners.

While the provisional settlement included many detailed terms, the most important term provided for a coupon with limited transferability and redeemability provisions. Basically, class members would receive a $1,000 coupon, redeemable toward the purchase of any new GMC truck or Chevrolet light duty truck for a fifteen month period. Under its terms, the approved settlement would have had no effect on any accrued or future claims for personal injury or death, and would not have affected the rights of class members to participate in any future remedial action that might be required by the National Traffic and Motor Safety Act of 1966, 15 U.S.C. §§ 1381 et seq.

The district court reviewed the substantive terms of the settlement, and on July 20, 1993, preliminarily determined that the settlement was reasonable. The court also provisionally certified the class of GM truck owners as a settlement class pursuant to Fed.R.Civ.P. 23(b)(3). The class included all persons and entities (except for residents of the State of Texas) who had purchased in the United States and were owners as of July 19, 1993, of (1) a 1973-1986 model year GM full-size pickup truck or chassis cab of the "C" or "K" series; or (2) a 1987-1991 model year GM full-size or chassis cab of the "R" or "V" series.

In response to the notices mailed to almost 5.7 million registered truck owners and published nationally, over 5,200 truck owners elected to opt out of the class, and approximately 6,500 truck owners objected to the settlement. On October 26, 1993, the district court held a fairness hearing and approved the settlement as fair, reasonable, and adequate. [139] See In re General Motors, 846 F.Supp. 330 (E.D.Pa.1993).

The objectors appealed, and we reversed. See GM I, 55 F.3d at 768. We held that settlement classes must satisfy the Rule 23(a) requirements of numerosity, commonality, typicality, and adequacy of representation, as well as the relevant (b)(3) requirements to the same extent as litigation classes, and that the district court must make findings to that effect. See id. We also held that a finding that the settlement was "fair and reasonable", which was all that the district court had made, was not a surrogate for the Rule 23 class findings. See id. Then, identifying potential problems with meeting the commonality, typicality, and predominance requirements, we vacated the orders that had certified the settlement class and had approved the settlement, and remanded the case for further proceedings.

Following remand, plaintiffs amended their complaint, filed a renewed motion for class certification, and proceeded with discovery pursuant to our opinion. Prior to the order giving rise to this appeal, the litigation in the district court had been proceeding in accordance with Pretrial Order No. 12, issued on April 4, 1996, allowing for supplemental discovery relating to class certification, liability, and damages. There are approximately 277 named plaintiffs left in the MDL case, none of whom are appellants here. Moreover, according to the district court, no settlement is pending, and the motion for class certification is not yet ripe. See In re General Motors Corp. Pickup Truck Fuel Tank Prod. Liab. Litig., 1996 WL 683785, *2 (E.D.Pa.) [hereinafter GM II].

B. The Louisiana Proceedings

In addition to the litigation that had been consolidated and was progressing in the district court, plaintiffs had concurrently filed actions in 11 state courts, including Louisiana. The Louisiana action was filed on February 11, 1993. On May 18, 1993, a Louisiana trial court granted plaintiffs' motion for class certification of a statewide class as the basis for litigation. This decision was stayed by a Louisiana appellate court on August 8, 1993, based upon the preliminary nationwide settlement reached in the Eastern District of Pennsylvania MDL cases.

After we vacated the order creating the settlement class, a new round of negotiations between Louisiana class counsel and GM began. On June 27, 1996, these negotiations came to fruition. The parties filed their new provisional settlement agreement in the 18th District Court for the Parish of Iberville, where the statewide litigation class had previously been certified. The Louisiana court preliminarily approved the new settlement and provisionally certified a nationwide class. The court ordered individual notices disseminated to the 5.7 million class members, scheduled a formal fairness hearing for November 6, 1996, and requested objections and notices of exclusions. 200 of the 277 plaintiffs in the federal MDL successfully moved to intervene in the Louisiana proceedings.

The new Louisiana settlement, while similar in content to the original settlement provisionally approved by the MDL court in 1993 and later rejected by this Court, differs in several ways, all responsive to our comments in GM I about perceived problems with the earlier settlement. First, the Louisiana settlement extends the period during which class members could validly redeem their $1,000 coupons (from 15 to 33 months for consumers and from 15 to 50 months for fleet and government owners). Second, the settlement provides for greater transferability of the coupons. Third, the settlement would allow class members to apply the coupon value toward the purchase of any GM vehicle (except Saturn automobiles), rather than just GM pickup trucks. Fourth, the settlement stipulates that GM and plaintiffs' counsel will fund two new safety programs, researching the safety of general fuel systems and testing proposed retrofits for safety and feasibility, purported to be worth a combined $5.1 million. Fifth, commitments have apparently been made by a major bank to purchase the transferable coupons, thereby creating a secondary market.

Appellants and appellees strongly dispute the viability and significance of the differences between the two settlements. Appellees contend that these changes satisfy most, if not all, of this Court's problems with the [140] original agreement. They note significantly that all the governmental and fleet entities, as well as the Public Citizen Litigation Group and the Center for Auto Safety, which objected to the original settlement, support the Louisiana settlement. Appellants, conversely, assert that class counsel and GM have essentially repackaged the agreement that had been rejected in Philadelphia, made purely cosmetic changes, and have run off to Louisiana for approval.

A particular point of contention is the safety programs. Certain appellants attack them as either unhelpful, wasteful, or unnecessary. Appellants Dan Tureck and Joseph Geller, for example, submit that the proposed research programs will, by definition, not involve any of the trucks in this litigation, because they will only investigate the safety of vehicles five years old or less — all of the trucks affected in this litigation were built before 1992. They also contend that the fund may be inadequate or misspent and may not lead to a practical or affordable retrofit. Finally, they argue that GM already has a satisfactory retrofit design — simply placing the fuel tanks inside the frame rails as GM has already done in its Suburban/Blazer configuration, which was built on the same chassis as the trucks at issue here. For the purposes of this appeal however, it is not necessary for us to resolve any of the disputes regarding the true character of the Louisiana settlement.

C. The Motion to Enjoin

On October 18, 1996, objectors Jack French, Robert M. West, Charles E. Merritt, and Gary Blades (the "French objectors") petitioned this Court for a temporary stay, show cause order, and a writ of injunction to stay the proceedings of the Louisiana court. On October 22, 1996, we transferred this application to the district court pursuant to 28 U.S.C. § 1631. Dan Tureck and Joseph Geller (the "Tureck objectors"); and Jesus Garibay, Jerome Hope Jr., Robert and Lucille White, and Carlos Zabala (the "Garibay objectors") also moved in the district court to enjoin the Louisiana proceedings. All three sets of objectors later moved to intervene in the MDL.

On November 25, 1996, the district court denied the objectors' motions to intervene and their motions for an injunction.^[2] Appellants then appealed the district court's decision and moved for an emergency injunction against proceedings in the Louisiana court. We denied appellants' emergency motion without opinion and ordered full briefing. In the meantime, on November 6, 1996, the Louisiana court conducted its fairness hearing. On December 19, 1996, the Louisiana court entered final judgment approving the settlement.

II. PERSONAL JURISDICTION

At the threshold, we must examine our power over the parties. See Carlough v. [141] Amchem Prods., Inc., 10 F.3d 189, 198 (3d Cir.1993) (application of the Anti-Injunction and All-Writs Acts must be preceded by satisfaction of jurisdictional requirements). Appellees assert that the district court had no jurisdiction to enjoin the Louisiana court in the first instance (had it chosen to do so), and thus we can have no jurisdiction to enjoin that court on appeal. This contention is grounded upon appellees' submission that any injunction issued by this Court would affect the nationwide group of 5.7 million people who have already settled their claims with GM through the Louisiana proceedings, and therefore, that any injunction of the Louisiana Court would necessarily enjoin those 5.7 million individual settling class members and would require this Court to exercise personal jurisdiction over them. We agree.

The minimum standards of due process require that "in order to subject a defendant to a judgment in personam, if he not be present within the territory of the forum, he must have certain minimum contacts with it such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.'" International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945) (citations omitted). In the Rule 23(b)(3) context, the Supreme Court has held that it is possible for a court to bind an absentee class member to a judgment without abrogating minimal due process protection, even if the party did not have minimum contacts with the forum. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812-13, 105 S.Ct. 2965, 2974, 86 L.Ed.2d 628 (1985). But here, in the wake of our judgment in GM I, there is no class pending before the MDL court, and thus, virtually none of the 5.7 million class members in Louisiana are before this Court in any respect, and there is no basis upon which we can infer their consent.^[3]

To be more precise, the Louisiana class members are not parties before us; they have not constructively or affirmatively consented to personal jurisdiction; and they do not, as far as has been demonstrated, have minimum contacts with Pennsylvania. Therefore, due process deprives us of personal jurisdiction and prevents us from issuing the injunction prayed for by appellants.

III. FULL FAITH AND CREDIT AND THE ROOKER-FELDMAN DOCTRINE.

Appellees contend that even if we had personal jurisdiction over the class members certified in Louisiana sufficient to enjoin the Louisiana proceedings, now that the Louisiana court has entered a final judgment, we can no longer simply enjoin the Louisiana court from entering judgment on the provisional settlement. In their submission, we would have to first direct the district court to vacate the Louisiana court's final judgment and then enjoin it from entering any new judgment on the settlement. Appellees contend that both the Full Faith and Credit Act, 28 U.S.C. § 1738, and the Rooker-Feldman doctrine prevent us from vacating the final judgment of the Louisiana court.

A. The Full Faith and Credit Act

28 U.S.C. § 1738 provides in pertinent part:

The ... judicial proceedings of any court of any such State, Territory, or Possession ... shall have the same full faith and credit in every court within the United States and its Territories and Possessions as they have by law or usage in the courts of such State, Territory, or Possession from which they are taken.

As interpreted by the Supreme Court, § 1738 "directs all courts to treat a state [142] court judgment with the same respect that it would receive in the courts of the rendering state." Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 373, 116 S.Ct. 873, 877, 134 L.Ed.2d 6 (1996). We may not "`employ [our] own rules ... in determining the effect of state judgments,' but must `accept the rules chosen by the State from which the judgment is taken.' "Id. (citing Kremer v. Chemical Const. Corp., 456 U.S. 461, 481-82, 102 S.Ct. 1883, 1898, 72 L.Ed.2d 262 (1982)); see also In re Glenn W. Turner Enterprises Litig., 521 F.2d 775, 780 (3d Cir.1975) ("absent statutory or constitutional directive, the state and lower federal courts are independent, and ... a federal action is not superior to a state proceeding merely because of its federal character ... judgments resulting from federal actions are not preferred to judgments resulting from state actions because of their federal character").

Under Louisiana law, the class action settlement that appellants seek to enjoin here is a final judgment. See La.Code Civ. Proc. Ann. art. 1841. Facially, therefore, § 1738 leaves us no choice but to decline appellants' request. This conclusion is confirmed by the Supreme Court's recent decision in Matsushita, at 367, 116 S.Ct. at 873.

In Matsushita, the Supreme Court considered whether a class action settlement agreement releasing claims within the exclusive jurisdiction of the federal courts was subject to the usual application of § 1738. The Court held that neither the fact that the judgment was a product of a class action rather than an individual claim, nor the fact that the settlement released claims exclusively within the jurisdiction of the federal courts undermined the applicability that section.^[4] See id. at 372-75, 116 S.Ct. at 877-78. As the Court said, "[t]he judgment of a state court in a class action is plainly the product of a `judicial proceeding' within the meaning of § 1738. Therefore, a judgment entered in a class action, like any other judgment entered in a state judicial proceeding, is presumptively entitled to full faith and credit under the express terms of the Act." Id. at 374, 116 S.Ct. at 878.

The final word has yet to be written in (or about) Matsushita. Justice Ginsburg's dissent identified serious potential due process problems in the procedures followed in the Delaware state court (where the settlement was approved) as they are used to justify nationwide application of full faith and credit. See id. at 394-99, 116 S.Ct. at 888-90 (Ginsburg, J., dissenting). On remand, a panel of the Ninth Circuit considered the issues raised in the dissent and divided sharply.^[5] Further proceedings before an en banc Ninth Circuit, or the Supreme Court in Matsushita may cast light (or doubt) on the viability of the Louisiana judgment here in due process terms. Moreover, the Supreme Court can consider any such problems with the Louisiana settlement on certiorari to the Louisiana court. If appellants are correct, the Court will be disturbed by what Matsushita has wrought here insofar as it is said to have facilitated an end run around the Eastern District of Pennsylvania proceedings.

But whatever may be the ramifications of Matsushita, the present appellants are members [143] of the Louisiana class who did not exercise their opt out rights. They are active participants in the settlement approval process there, and have timely appealed the adverse judgment there as well. Especially under these circumstances, the Full Faith and Credit Act prevents this Court from vacating the now final judgment of the Louisiana court.

B. The Rooker-Feldman Doctrine

Under the Rooker-Feldman doctrine, "federal district courts lack subject matter jurisdiction to review final adjudications of a state's highest court or to evaluate constitutional claims that are `inextricably intertwined with the state court's [decision] in a judicial proceeding.'" Blake v. Papadakos, 953 F.2d 68, 71 (3d Cir.1992) (quoting District of Columbia Court of Appeals v. Feldman, 460 U.S. 462, 483 n. 16, 103 S.Ct. 1303, 1315 n. 16, 75 L.Ed.2d 206, (1983)); see also Rooker v. Fidelity Trust Co., 263 U.S. 413, 416, 44 S.Ct. 149, 150, 68 L.Ed. 362, (1923). The concerns that underlie the doctrine are respect for the state courts and concerns over finality of judgments. See Guarino v. Larsen, 11 F.3d 1151, 1156-57 (3d Cir.1993). District courts lack subject matter jurisdiction once a state court has adjudicated an issue because Congress has conferred only original jurisdiction, not appellate jurisdiction, on the district courts. See Rooker, 263 U.S. at 416, 44 S.Ct. at 150. We have interpreted the doctrine to encompass final decisions of lower state courts. See FOCUS v. Allegheny County Court of Common Pleas, 75 F.3d 834, 840 (3d Cir.1996) (citing Port Auth. Police Benev. Ass'n v. Port Auth., 973 F.2d 169, 178 (3d Cir.1992)).

As was discussed supra with respect to the Full Faith and Credit Act, the Louisiana court has entered a valid final judgment. See La.Code Civ. Proc. Ann. art. 1841. The decision by that Court was clearly an adjudicative and not a legislative or ministerial act. See Guarino, 11 F.3d at 1157-58 (setting forth the prerequisites for Rooker-Feldman application); see also Kamilewicz v. Bank of Boston Corp., 92 F.3d 506, 510 (7th Cir.1996) (refusing under the Rooker-Feldman doctrine to overturn a state court judgment approving a settlement entered after a fairness hearing). Therefore, in order for us to grant appellants' requested relief, we would first have to "determine that the state court judgment was erroneously entered." FOCUS, 75 F.3d at 840. Rooker-Feldman bars exactly this sort of intermediate appellate review of state court judgments and divests this Court of subject matter jurisdiction of this appeal.

IV. THE ANTI-INJUNCTION ACT

Under the terms of the Anti-Injunction Act, "[a] court of the United States may not grant an injunction to stay proceedings in a State court except as expressly authorized by Act of Congress, or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C. § 2283. If an injunction falls within one of these three exceptions, the All-Writs Act provides the positive authority for federal courts to issue injunctions of state court proceedings.^[6] See Carlough, 10 F.3d at 201 n. 9 (3d Cir.1993) (citing In re Asbestos Sch. Litig., 1991 WL 61156, (E.D.Pa. April 16, 1991), aff'd mem, 950 F.2d 723 (3d Cir.1991)). The two statutes act in concert, and the parallel "necessary in aid of jurisdiction" language is construed similarly. See id. Appellees assert that even assuming that this case was not barred for all of the reasons discussed above, the Anti-Injunction Act would still frustrate appellants' prayers for relief.

Our judgment in GM I concerning the requirements that a settlement class must meet under Rule 23, which would have applied in the MDL action on remand had the parties sought to forge a new settlement in the district court, became final when the Supreme Court denied GM's petition for certiorari. See General Motors Corp. v. French, 516 U.S. 824, 116 S.Ct. 88, 133 L.Ed.2d 45 (1995). According to appellants, this precludes all other courts (state and federal) from adopting any other interpretation [144] of class settlement requirements, under either state or federal law. Therefore, they say, under the principles of collateral estoppel and "law of the case", the settlement class issue is insulated from reevaluation in other forums.

Translated into a statutory context, appellants argue that this situation falls under an exception to the Anti-Injunction Act, and therefore under the positive force of the All-Writs Act, the district court had the power to enjoin the Louisiana proceedings either "in aid of its jurisdiction" or "to protect and effectuate its judgments". As we will now explain, however, the exceptions to the Anti-Injunction Act are very narrow indeed, and the Act serves as an absolute bar to district court injunctive action here.

The Anti-Injunction Act is "an absolute prohibition against enjoining State Court proceedings, unless the injunction falls within one of three specifically defined exceptions." Atlantic Coast Line R. Co. v. Brotherhood of Locomotive Eng'rs, 398 U.S. 281, 286, 90 S.Ct. 1739, 1743, 26 L.Ed.2d 234 (1970); 1975 Salaried Retirement Plan v. Nobers, 968 F.2d 401, 405 (3d Cir.1992). This prohibition applies whether appellants seek to enjoin the parties to the action or the state court itself. See Atlantic Coast, 398 U.S. at 287, 90 S.Ct. at 1743; Nobers, 968 F.2d at 405. Moreover, these three exceptions are to be rigorously construed and "should not be enlarged by loose statutory construction." Atlantic Coast, 398 U.S. at 287, 90 S.Ct. at 1743. "[A] federal court does not have inherent power to ignore the limitations of § 2283 and to enjoin state court proceedings merely because those proceedings interfere with a protected federal right or invade an area preempted by federal law, even when the interference is unmistakably clear." Id. at 294, 90 S.Ct. at 1747.

Finally, "[a]ny doubts as to the propriety of a federal injunction against state court proceedings should be resolved in favor of permitting the state court to proceed in an orderly fashion to finally determine the controversy." Id. at 297, 90 S.Ct. at 1748. With this background, we now proceed with the relevant exceptions to the Act.^[7]

A. "Necessary in Aid of Its Jurisdiction"

Appellants' primary argument for injunctive relief is that this action falls under the "in aid of its jurisdiction" exception to the Anti-Injunction Act. Appellants argue that because the same attorneys representing the same class of plaintiffs were once pursuing settlement in the Eastern District in the MDL and now, having had their proposed settlement rejected by this Court, are pursuing a similar settlement in Louisiana, they are engaged in forum shopping, evading the dictates of this Court, and ultimately, impeding the federal court's ability to exercise its jurisdiction.

First, we note that the "necessary in aid of its jurisdiction" exception applies only "to prevent a state court from so interfering with a federal court's consideration or disposition of a case as to seriously impair the federal court's flexibility and authority to decide that case." Atlantic Coast, 398 U.S. at 295, 90 S.Ct. at 1747. No such interference or impairment appears in this record. Indeed, in those cases cited by appellants where a state action has been enjoined, the federal court had already approved or conditionally approved its own settlement or the approval was imminent. That is not the case [145] here. The MDL court is not considering a nationwide settlement pursuant to our remand in GM I. Moreover, the Louisiana settlement contained opt out provisions, thereby protecting the rights of the 277 remaining MDL plaintiffs.

We are also constrained by the narrow application the "necessary in aid of its jurisdiction" exception has been given. We noted in Nobers that "the typical application of this exception has been in removal cases (where a district court must ensure its exclusive governance of the particular litigation removed) and in in rem cases (where, under the traditional view, only one court can entertain jurisdiction over a particular res)." 968 F.2d at 407 (footnotes and citations omitted). Neither the removal nor in rem application of this exception is implicated here.

In Carlough, this Court fashioned a third, and narrow, application of the "necessary in aid of its jurisdiction" exception in the context of a complex class action which was also an MDL case where a settlement was imminent; where the federal court had already expended considerable time and resources; and where the pending state action threatened to derail the provisional settlement. There, we upheld an injunction that prevented absentee members from seeking a declaratory judgment in state court that would have declared that all putative West Virginia members had opted-out of the federal class. See 10 F.3d at 204. Our holding that the injunction was within the district court's "sound discretion" in Carlough is not applicable here. The state court plaintiffs in Carlough were seeking not merely to litigate the same cause of action in state court, but rather to use the state action as a "preemptive strike" against the federal suit, attempting to have the state court declare what the federal court should and should not do with respect to the federal settlement. See id. at 203.

In addition, the state court plaintiffs in Carlough were attempting to effectuate a "mass opting out" of an entire state sub-class of plaintiffs, the result of which would have confused the sub-class members (who would have received simultaneous and inconsistent state and federal class notices), disrupted the federal court's on-going management of the settlement negotiations, and "cause[d] havoc" on the settlement's prospects. See id. at 204. Under these narrow circumstances, we held that an injunction was appropriately within the district court's discretion.

Here, none of the Carlough circumstances exist. There is no classwide settlement pending before the district court (indeed, the conditional class certification by the district court no longer subsists), and no stipulation of settlement or prospect of settlement in that court is imminent. Furthermore, it simply cannot be said that the Louisiana court is attempting to dictate to the district court the scope and terms of a settlement, since none is pending before the district court. Finally, there can be no confusion by class members, for only one set of notices has been sent out (from the Louisiana court).

In fact, if the settlement is ultimately approved by the Louisiana appellate system (and the United States Supreme Court, if necessary), then the nationwide class will be certified (in Louisiana), and (excepting opt outs) no court will have any plaintiffs left with which to proceed. If disapproved, then the district court (or any other court) can continue with discovery. In short, none of the concerns which animated our narrow application of the "necessary in aid of its jurisdiction" exception to the Anti-Injunction Act in Carlough exist here.

B. "To Protect or Effectuate Its Judgments"

Appellants alternatively argue that appellees are purposefully attempting to avoid our decision in GM I, 55 F.3d at 768, which vacated the class certification. Under the so-called "relitigation exception" of the Anti-Injunction Act, this is, according to appellants, precisely the sort of situation where an injunction is in order "to protect or effectuate [the] judgments" of this Court. While the district court would have been bound on remand to apply the precepts we announced about the requisites for class certification and the anatomy of the class (including sub-classing), appellants nonetheless are incorrect when they attempt to attach res judicata or collateral estoppel effect to our GM I decision in other jurisdictions.

[146] In Chick Kam Choo v. Exxon, 486 U.S. 140, 147, 108 S.Ct. 1684, 1690, 100 L.Ed.2d 127 (1988), the Supreme Court held that:

The relitigation exception was designed to permit a federal court to prevent state litigation of an issue that previously was presented to and decided by the federal court. It is founded in the well-recognized concepts of res judicata and collateral estoppel.

With this in mind, appellants' contention that our opinion in GM I disapproving the settlement and decertifying the provisional settlement class is a "judgment" that has res judicata or collateral estoppel effect is flawed for several reasons.

First, denial of class certification is not a "judgment" for the purposes of the Anti-Injunction Act while the underlying litigation remains pending. See J.R. Clearwater Inc. v. Ashland Chem. Co., 93 F.3d 176, 179 (5th Cir.1996). We endorse the Fifth Circuit's rationale that denial of class certification under these circumstances lacks sufficient finality to be entitled to preclusive effect. Second, the decision by this Court to reject the provisional settlement class is not a "judgment" with respect to the Louisiana settlement agreement, and our interpretation of Rule 23 is not binding on the Louisiana court. All that we did in GM I was hold that the district court had erred in certifying the settlement class without making factual findings to support class certification under Rule 23(a) and (b)(3), and require that certain problems with meeting the Rule 23(a) and (b) requirements be corrected by the MDL court on remand. See GM I, 55 F.3d at 778. We held open the possibility that on remand, settlement "in either [ ] original or a renegotiated form" might later be approved. See id. at 819. Moreover, our construction of Rule 23 and application to the provisional settlement class is not controlling on the Louisiana court, because it is not bound by our interpretation of Rule 23. Rather, the Louisiana court properly applied La.Code Civ. Proc. Ann. arts. 591 and 592, the parallel Louisiana class certification rule.^[8]

Since appellants have failed to show that an exception to the Anti-Injunction Act under these circumstances was either expressly authorized by Congress, necessary in the aid of the MDL court's jurisdiction, or necessary to protect or effectuate a final judgment of the MDL court, neither this Court nor the district court has the authority to enjoin the Louisiana proceedings.

The order of the district court will be affirmed.

[1] Honorable William M. Hoeveler, United States District Judge for the Southern District of Florida, sitting by designation.

[2] Appellants assign the denial of intervention as error. We review for abuse of discretion, see United States v. Alcan Aluminum, Inc., 25 F.3d 1174, 1179 (3d Cir.1994), and find none. Appellants did not move to intervene until four months after the Louisiana court granted provisional certification of a nationwide class, and almost two months after they received notice of the proposed settlement. Indeed, their motion came just nine days before the Louisiana fairness hearing. According to the district court, appellants offered no explanation as to why they did not intervene earlier or why they did not file in federal court and become a party in the MDL. See GM II,1996 WL 683785, at *5. They have similarly offered no explanation to us in their briefs, except for the contention that they had no basis to intervene until they found out that the class counsel had reached a provisional settlement in Louisiana.

We disagree with appellants' contention. They could have intervened as early as July of 1993 after class counsel and GM submitted the first provisional settlement to the district court, to which they interposed such strong (and successful) objection in GM I. Even during the pendency of the appeal, they could have moved for remand to the district court for the purpose of permitting them to intervene. At all events, given the circumstances here (appellants waited two months after receiving notice of the proposed Louisiana settlement to intervene and then formally moved only days before the Louisiana fairness hearing), the district court did not abuse its discretion in denying appellants' motion to intervene.

The intervention issue is cognate to appellees' claims that appellants lack Article III standing to object because they are not parties to any action presently pending in the Eastern District of Pennsylvania (and because there is no subsisting class in that court). That issue is not free from doubt. Neither is appellees' argument that the subject matter of this appeal is moot because we cannot enjoin the entry of a final judgment by the Louisiana court after it has already been entered. In view of our disposition, however, we decline to address either contention.

[3] We note that enjoining the few Louisiana class members that the MDL court does have personal jurisdiction over (the 200 named MDL plaintiffs who have successfully intervened in the Louisiana proceeding) would serve no purpose. Barring the other procedural barriers discussed infra, it is conceivable that we could direct the district court to enjoin those 200 plaintiffs from pursuing their state damage remedies in Louisiana. As the district court properly pointed out, however, since the appellants' stated goal here is to prevent the Louisiana court from further consideration of the settlement in toto, little would be accomplished by enjoining only those 200 plaintiffs, see GM II, 1996 WL 683785, at *6, and we have not been asked to do so. At all events, the limited injunction would not halt the Louisiana proceedings because the original Louisiana plaintiffs (over whom we have no jurisdiction) could simply continue with the settlement.

[4] While Matsushita answered the more difficult (and controversial) question of whether a state court can release exclusive federal claims, see Marcel Kahan & Linda Silberman, Matsushita and Beyond: The Role of State Courts in Class Actions Involving Exclusive Federal Claims, 1996 Sup.Ct. Rev. 219 (1996) (criticizing the Supreme Court's holding in Matsushita arguing that it may undermine some of Congress' reforms in the Private Securities Litigation Reform Act), that issue is not implicated here. The claims settled by GM and the class members in Louisiana included state-based contract and tort claims against GM on behalf of pickup truck owners. The only federal claims arise under the Lanham Trademark Act and the Magnuson-Moss Warranty Act. None of the claims confer exclusive jurisdiction on the federal courts.

[5] The majority held that the Delaware judgment violated the due process rights of the plaintiff class before the federal court (made up of non-objecting, non-opting out Delaware absentee members) because Delaware class counsel could not adequately represent them. See Epstein v. MCA, Inc., 126 F.3d 1235, 1255 (9th Cir.1997). The dissenting judge argued forcefully that the inadequacy question had been fully and fairly litigated in Delaware and finally decided there. See id. at 1256 (O'Scannlain, J., dissenting). Therefore, in his opinion, the Full Faith and Credit Act (as well as the underlying policies of federalism, comity, and finality) barred reconsideration of the Delaware decision by the federal courts.

[6] The All-Writs Act provides: "The Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their jurisdiction and agreeable to the usages and principles of law." 28 U.S.C. § 1651.

[7] The first exception to the Anti-Injunction Act— "expressly authorized by act of Congress" — was not invoked by the appellants and merits little discussion. The only federal statutes potentially implicated in this case are Fed.R.Civ.P. 23, the Lanham Trademark Act, and the Magnuson-Moss Warranty Act. Neither the Lanham Act nor the Magnuson-Moss Act meets the Mitchum v. Foster test for the "expressly authorized" exception, which requires that a statute clearly create a federal right or remedy that could be given its intended scope only by the stay of a state court proceeding. See Nobers, 968 F.2d at 408 (citing Mitchum v. Foster, 407 U.S. 225, 237-38, 92 S.Ct. 2151, 2159-60, 32 L.Ed.2d 705 (1972)). In addition, Rule 23(b)(3) does not constitute a predicate act of Congress exempting this action from the Anti-Injunction Act. See In re Glenn W. Turner, 521 F.2d at 781 ("Since Rule 23 by its own terms creates a mechanism leaving parties in a b(3) action free to continue with any state proceedings, we cannot hold that a Rule 23(b)(3) class action can `be given its intended scope only by the stay of a state court proceeding.'"); Carlough, 10 F.3d at 202 (same).

[8]Under similar circumstances, the Fifth Circuit noted:

While Texas Rule of Civil Procedure 42 is modeled on Rule 23 of the Federal Rules, and federal decisions are viewed as persuasive authority regarding the construction of the Texas class action rule, a Texas court might well exercise this discretion in a different manner. It is our considered view that the wide discretion inherent in the decision as to whether or not to certify a class dictates that each court — or at least each jurisdiction — be free to make its own determination in this regard. This reasoning is particularly applicable when matters of state-federal relations are involved....

J.R. Clearwater, 93 F.3d at 180 (citations and footnote omitted).

[278] Roger W. Kirby (argued), Kirby, McInerney & Squire, New York City, Ronald L. Futterman, Futterman & Howard, Chicago, IL, for Lynne Carnegie.

Henry Monaghan (argued), Columbia University Law School, Naomi Katz, Holland & Knight, New York City, for Ronnie Haese and Nancy Haese.

Matthew E. Van Tine (argued), Marvin A. Miller, Miller, Faucher & Cafferty, Chicago, IL, Daniel M. Harris, Chicago, IL, Francine Schwartz, Arlington, Heights, IL, Charles M. Thompson, Thompson Hutsler, Birmingham, AL, John J. Pentz, Sudbury, MA, for Cheryl Reynolds, Nannie Triplett and DeCarlo Turner.

Burt M. Rublin (argued), Ballard, Spahr, Andrews & Ingersoll, Chicago, IL, James D. Adducci, Adducci, Dorf, Lehner, Mitchell & Blankenship, Chicago, IL, Daniel R. Young, Bryan Cave, Kansas City, MO, for Beneficial Nat. Bank and Beneficial Tax Masters, Inc.

[279] David H. Latham, Chicago, IL, N. Louise Ellingsworth, Daniel R. Young, Bryan Cave, Kansas City, MO, Mark W. Brennan (argued), for H&R; Tax Services, Inc.

Lawrence W. Schonbrun, Berkeley, CA, for Pearl Martinez.

Howard B. Prossnitz, Chicago, IL, for DeCarlo Turner.

Steven E. Angstreich (argued), Levy, Angstreich, Finney, Baldante, Mann & Burkett, Philadelphia, PA, William H. London, Michael B. Hyman, Much, Shelist, Freed, Denenberg, Ament & Rubenstein, Chicago, IL, Thomas C. Cronin, Cummins & Cronin, Chicago, IL, Kenneth W. Behrend, Behrend & Ernsberger, Pittsburgh, PA, for Geral Mitchell, Ann Westfall, Lester Westfall, Rachel Ramsey and Donna L. Lonzo.

Francine Schwartz, Arlington Heights, IL, pro se.

Howard Brian Prossnitz, Birndorf & Birndorf, Chicago, IL, for Nannie Triplett.

Howard Brian Prossnitz, Birndorf & Birndorf, Chicago, IL, pro se.

R. Stephen Griffis, Birmingham, AL, Charles M. Thompson, Thompson Hutsler, Birmingham, AL, John J. Pentz, Sudbury, MA, for Janice Williams, Ann Abercrombie and Karen Boden.

Daniel A. Edelman, James O. Latturner, Amy A. Breyer, Edelman, Combs & Latturner, Chicago, IL, for Belinda Peterson.

Christened V. Anyone, Chicago, IL, for Roy Carbajal.

Steven E. Angstreich (argued), Levy, Angstreich, Finney, Baldante, Mann & Burkett, Philadelphia, PA, William H. London, Much, Shelist, Freed, Denenberg, Ament & Rubenstein, Chicago, IL, Frank H. Tomlinson, Pritchard, McCall & Jones, LLC, Birmingham, AL, for Tommy Jones and Tommy Vaughn.

Before CUDAHY, POSNER, and ROVNER, Circuit Judges.

POSNER, Circuit Judge.

We have consolidated for decision a number of appeals from orders by the district court approving a settlement of consumer-finance class action litigation, denying petitions to intervene, and awarding attorneys' fees. "Federal Rule of Civil Procedure 23(e) requires court approval of any settlement that effects the dismissal of a class-action. Before such a settlement may be approved, the district court must determine that a class-action settlement is fair, adequate, and reasonable, and not a product of collusion." Joel A. v. Giuliani, 218 F.3d 132, 138 (2d Cir.2000). The principal issue presented by these appeals is whether the district judge discharged the judicial duty to protect the members of a class in class-action litigation from lawyers for the class who may, in derogation of their professional and fiduciary obligations, place their pecuniary self-interest ahead of that of the class. This problem, repeatedly remarked by judges and scholars, see, e.g., Culver v. City of Milwaukee, 277 F.3d 908, 910 (7th Cir.2002); Greisz v. Household Bank (Illinois), N.A., 176 F.3d 1012, 1013 (7th Cir.1999); Rand v. Monsanto Co., 926 F.2d 596, 599 (7th Cir.1991); Duhaime v. John Hancock Mutual Life Ins. Co., 183 F.3d 1, 7 (1st Cir.1999); John C. Coffee, Jr., "Class Action Accountability: Reconciling Exit, Voice, and Loyalty in Representative Litigation," 100 Colum. L.Rev. 370,-385-93 (2000); David L. Shapiro, "Class Actions: The Class as Party and Client," 73 Notre Dame L.Rev. 913, 958-60 and n. 132 (1998), requires district judges to exercise the highest degree of vigilance in scrutinizing proposed settlements of class actions. We and other [280] courts have gone so far as to term the district judge in the settlement phase of a class action suit a fiduciary of the class, who is subject therefore to the high duty of care that the law requires of fiduciaries. Culver v. City of Milwaukee, supra, 277 F.3d at 915; Stewart v. General Motors Corp., 756 F.2d 1285, 1293 (7th Cir.1985); In re Cendant Corp. Litigation, 264 F.3d 201, 231 (3d Cir.2001); Grant v. Bethlehem Steel Corp., 823 F.2d 20, 22 (2d Cir.1987).

We do not know whether the $25 million settlement that the district judge approved is a reasonable amount given the risk and likely return to the class of continued litigation; we do not have sufficient information to make a judgment on that question. What we do know is that, as in such cases as In re General Motors Corp. Engine Interchange Litigation, 594 F.2d 1106, 1124 (7th Cir.1979); Ficalora v. Lockheed California Co., 751 F.2d 995, 997 (9th Cir.1985) (per curiam); Holmes v. Continental Can Co., 706 F.2d 1144, 1150-51 (11th Cir.1983), and Pettway v. American Cast Iron Pipe Co., 576 F.2d 1157, 1214, 1218-19 (5th Cir.1978), the judge did not give the issue of the settlement's adequacy the care that it deserved.

This litigation arose out of refund anticipation loans made jointly by the two principal defendants, Beneficial National Bank and H & R Block, the tax preparer. When H & R Block files a refund claim with the Internal Revenue Service on behalf of one of its customers, the customer can expect to receive the refund within a few weeks unless the IRS decides to scrutinize the return for one reason or another. But even a few weeks is too long for the most necessitous taxpayers, and so Beneficial through Block offers to lend the customer the amount of the refund for the period between the filing of the claim and the receipt of the refund. The annual interest rate on such a loan will often exceed 100 percent — easily a quarter of the refund, even though the loan may be outstanding for only a few days. Block arranges the loan but Beneficial puts up the money for it. Not disclosed to the customer is the fact that Beneficial pays Block a fee for arranging the loan and also that Block owns part of the loan.

Beginning in 1990, more than twenty class actions were brought against the defendants on behalf of the refund anticipation borrowers. The suits charged a variety of violations of state and federal consumer-finance laws and also breach of fiduciary duty under state law. Some of the alleged violations appear to be technical. The most damaging charge appears to be that Block's customers are led to believe that Block is acting as their agent or fiduciary, much as if they had hired a lawyer or accountant to prepare their income tax returns, as affluent people do, whereas Block is, without disclosure to them, engaged in self-dealing.

Most of the suits failed on one ground or another; none has resulted in a final judgment against Beneficial or Block. But in the late 1990s several withstood motions to dismiss or motions for summary judgment, and at least one, a Texas suit, was slated for trial.

On September 3, 1997, two lawyers who had prosecuted two of the unsuccessful class actions, Howard Prossnitz and Francine Schwartz, had lunch in Chicago with Burt Rublin, who was and remains Beneficial's lead lawyer in defending against the class-action avalanche. Prossnitz and Schwartz brought with them to the lunch another lawyer, Daniel Harris. Although neither Prossnitz nor Schwartz, nor their friend Harris, had a pending suit against Beneficial (or against Block, which was not represented at the lunch), they discussed "a global RAL settlement" with Rublin. It is doubtful whether Prossnitz or Schwartz [281] even had a client at this time; and certainly Harris did not. Schwartz later "bought" a client from another lawyer, to whom she promised a $100,000 referral fee. The necessity for such a transaction, when the class contains 17 million members, eludes our understanding.

In the hearing before the district judge on the adequacy of the settlement (the "fairness hearing," as it is called), Harris testified that at the lunch Rublin "`threw out' a number, for purposes of illustration, of $24 or $25 million." The judge described this testimony (which he elsewhere describes as "Harris believes he heard Rublin say the case was worth $23 or $24 million"), though it is vociferously denied by Rublin, as "credible." There was, however, no actual settlement negotiation at the lunch.

Prossnitz, Schwartz, and Harris, all solo practitioners, brought a substantial law firm, Miller Faucher and Cafferty LLP, into the picture. In April of the following year the foursome filed two class action suits against Beneficial similar to the others that had been filed and that were (those that hadn't flopped) wending their way through the courts of various states. One of the two suits filed also named as defendants H & R Block and three affiliated Block entities, but three of those, including Block itself, were voluntarily dismissed from the suit by the plaintiffs in October 1998 and the fourth was dismissed in February 1999. Shortly after the suits were filed, Harris made a settlement offer to Beneficial that was rejected, but after a hiatus negotiations began. Block was included in the settlement negotiations, despite the fact that there were by then no claims pending against it. It was included because Beneficial was reluctant to settle without Block, having promised to indemnify it for any liability resulting from Block's role in Beneficial's refund anticipation loans.

In October of 1999, a class jointly represented by the three solo practitioners and the Miller firm (we'll call these the "settlement class lawyers"), plus Beneficial and Block, entered into a settlement agreement which they submitted to the district court for its approval. The agreement contemplated the filing of an amended complaint naming H & R Block as a defendant, and by its terms covered claims against five Block entities, of which four were the entities originally named but subsequently dismissed as defendants in one of the two original class action complaints. The agreement defined the class as all persons who had obtained refund anticipation loans from Beneficial between January 1, 1987, and October 26, 1999, and provided for the release of all claims "arising out of or in any way relating to the tax refund anticipation loans (`RALs,' sometimes erroneously referred to as `Rapid Refunds') obtained by the Class at any time up to and through" that date. The defendants agreed to create a fund of $25 million against which members of the class could file a claim not to exceed $15. Any money left in the fund after the expiration of the period for filing claims was to revert to the defendants, who also agreed to injunctive relief in the form of certain required disclosures to future customers, primarily of the financial arrangements between Beneficial and Block, and to bear the cost of notice to class members and of the class counsel's legal fees out of their own pockets rather than out of the settlement fund. One RAL class action, the Basile suit pending in the Pennsylvania courts, was excluded from the agreement, apparently because Block thought it could get the supreme court of that state to reverse a lower court decision that had gone against the company. Beneficial and [282] Block agreed to split the expense of the settlement 50-50.

The district judge approved the settlement except for the reversion and the $15 cap, which at his insistence the parties raised to $30 for those members of the class (apparently the vast majority) who had received two or more tax refund anticipation loans from Block. With these changes the settlement was approved and notices mailed to 17 million persons — most of whom ignored them; several million of the notices, moreover, were undeliverable, presumably because the addressees had moved and left no forwarding address. Only 1 million of the recipients filed claims, which would be enough, however, to exhaust the settlement fund. Only about 6,000 of the recipients opted out of the class action so that they could seek additional relief against the defendants.

Incidentally, there is an unremarked conflict of interest within the class, between those class members who took out one or two refund anticipation loans and those who took out more than two and thus will receive no compensation for the additional damages that they incurred. Conflicts of interest can create serious problems for class action settlements, see, e.g., Amchem Products, Inc. v. Windsor, 521 U.S. 591, 626-27, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 598 (7th Cir.1993), and require the creation of separately represented subclasses. But in light of the modesty of the stakes even of class members who had multiple refund anticipation loans and the expense of subdividing the class (and how many subdivisions would be necessary to reflect the full range of damages?), we are not disposed to regard this particular defect in the settlement as fatal.

In finding that $25 million was an adequate settlement, the judge relied in part on an unsworn report by James Adler, an accountant who purported to estimate the damages caused by the defendants' alleged violations of law. He was not deposed or subjected to cross-examination and the judge did not discuss the adequacy of his methodology. Adler came up with a figure of $60 million, but it is unclear whether this was intended to be an estimate of the entire damages that the class might hope to recover if the case was tried and went to judgment and what legal assumptions underpinned the estimates.

The various objectors to the settlement, primarily intervening or would-be intervening plaintiffs who have claims that the settlement will release, contend that the settlement agreement is the product of a "reverse auction," the practice whereby the defendant in a series of class actions picks the most ineffectual class lawyers to negotiate a settlement with in the hope that the district court will approve a weak settlement that will preclude other claims against the defendant. Blyden v. Mancusi, 186 F.3d 252, 270 n. 9 (2d Cir.1999); Coffee, supra, at 392; Samuel Issacharoff, "Governance and Legitimacy in the Law of Class Actions," 1999 Sup. Ct. Rev. 337, 388; Marcel Kahan & Linda Silberman, "The Inadequate Search for `Adequacy' in Class Actions: A Critique of Epstein v. MCA, Inc.," 73 N.Y.U. L.Rev. 765, 775 (1998); John C. Coffee, Jr., "Class Wars: The Dilemma of the Mass Tort Class Action," 95 Colum. L.Rev. 1343, 1370-73 (1995). The ineffectual lawyers are happy to sell out a class they anyway can't do much for in exchange for generous attorneys' fees, and the defendants are happy to pay generous attorneys' fees since all they care about is the bottom line — the sum of the settlement and the attorneys' fees — and not the allocation of money between the two categories of expense. The defendants agreed to pay attorneys' fees in this [283] case, to the three solo practitioners and the law firm that negotiated the settlement, of up to $4.25 million.

Although there is no proof that the settlement was actually collusive in the reverse-auction sense, the circumstances demanded closer scrutiny than the district judge gave it. He painted with too broad a brush, substituting intuition for the evidence and careful analysis that a case of this magnitude, and a settlement proposal of such questionable antecedents and circumstances, required. The initial agreement submitted for the judge's approval, remember, had provided for a reversion and also capped each class member's recovery at $15. If the parties had an inkling that only 1 million class members would file claims, they were agreeing to a settlement worth only $15 million, and probably less; for if 1 million class members filed claims capped at $30, fewer would have filed claims capped at $15. Yet according to a credibility determination by the district judge that we are not in a position to second guess, two and half years earlier, before RAL plaintiffs began having some success in the courts, Beneficial's counsel had indicated that $23 to $25 million were ballpark figures for a settlement with Beneficial alone. Beneficial's share of a $15 million settlement in which Block was a codefendant would be only $7.5 million (remember that Beneficial and Block agreed to split the cost of the settlement 50-50) — yet that is the settlement the lawyers for the settlement class agreed to, plus injunctive relief the value of which no one has attempted to monetize and which is barely discussed in the briefs or by the judge. The injunctive relief signally does not include a requirement that H & R Block disclose its interest in Beneficial's refund anticipation loans.

Moreover, H & R Block appears to have faced substantial exposure in a Texas class action in which it was accused of breach of fiduciary obligations to its customers. The class in that suit was seeking disgorgement of all the fees paid to Block by the banks that made refund anticipation loans through it. The class argued that such a forfeiture was mandatory if Block was found to have violated its fiduciary duties. Disgorgement was also sought of all other fees that Block had received "in connection with each RAL transaction" — that is, the tax-preparation and electronic-filing fees that Block had charged its RAL customers to file their taxes for them — a form of relief that the class claimed was within the trial court's equitable discretion. The total amount sought could have reached $2 billion. The class had been certified, the case was proceeding in the Texas courts, and the theory of liability and damages could not be dismissed as frivolous; indeed, the case had been set for trial. Even if the class had only a 1 percent chance of prevailing, the expected value of its suit might reach $20 million. (This is on the unrealistic assumption that the only possible outcomes were a $2 billion judgment and a zero judgment. Realistic intermediate possibilities would make the $20 million estimate expand.)

Remarkably in view of the progress and promise of the Texas suit relative to the half-hearted efforts of the settlement class counsel, the district judge enjoined the Texas suit on the authority of the All Writs Act, 28 U.S.C. § 1651(a), reasoning that the suit might upend the settlement. In re VMS Securities Litigation, 103 F.3d 1317, 1323-24 (7th Cir.1996); In re Agent Orange Product Liability Litigation, 996 F.2d 1425, 1431-32 (2d Cir.1993); In re Baldwin-United Corp. (Single Premium Deferred Annuities Ins. Litigation), 770 F.2d 328, 335-38 (2d Cir.1985). The effect of the injunction is that the settlement release, if upheld, would release the claims in the Texas suit. For this release of [284] potentially substantial claims against H & R Block the settlement class received no consideration. In fact the settlement class received no consideration for the release of any claims against Block. The only effect of bringing Block into the settlement was to allow Beneficial to cut its own expense of the settlement in half. The lawyers for the settlement class were richly rewarded for negotiations that greatly diminished the cost of settlement to Beneficial from the level that it had considered to be in the ballpark years earlier when the cases were running more in its favor than when the settlement agreement was negotiated. In effect, the settlement values the Texas and all other claims against Block at zero.

The district judge enjoined the lawyers for the Texas class from notifying the members of that class of the status of the Texas litigation to assist them in deciding whether to opt out of the settlement that the settlement class counsel had negotiated with Beneficial and Block and continue to litigate in the Texas courts. The judge should not have done this, especially since opting out was likely to be the sensible course of action given the ungenerosity of the settlement to the Texas class. A pattern of withholding information likely to undermine the settlement emerged when, after approving the settlement, the district judge encouraged the solo practitioners to submit their fee applications in camera, lest the paucity of the time they had devoted to the case (for which the judge awarded them more than $2 million in attorneys' fees) be used as ammunition by objectors to the adequacy of the representation of the class. There was no sound basis for sealing the fee applications, let alone for sealing the number of hours each of the settlement class counsel had devoted to the case. The applications are not in the appellate record and we do not know what the total number of hours devoted by the class counsel to this litigation was, but apparently it was a small number. This is not surprising, since the lawyers' efforts between the filing of the complaint and the settlement negotiations were singularly feeble, illustrated by their responding to the Block defendants' motion to dismiss for lack of personal jurisdiction with a voluntary dismissal of the claims against those defendants. Their representation of the class was almost certainly inadequate, an independent reason for disapproving a settlement. Ortiz v. Fibreboard Corp., 527 U.S. 815, 856 and n. 31, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999); Culver v. City of Milwaukee, supra, 277 F.3d at 913; Linney v. Cellular Alaska Partnership, 151 F.3d 1234, 1238-39 (9th Cir.1998). But in addition it reinforces our concern with the adequacy of the district judge's consideration of the settlement.

The judge approved the settlement primarily because he thought the prospects for the class if the litigation continued were uncertain. They might lose in the end, or win little; and even if they won a lot, the delay in winning would make the relief eventually awarded the class worth much less in present-value terms. To most people, a dollar today is worth a great deal more than a dollar ten years from now. It is especially likely to be worth more to the members of the class in this litigation. Only a person with a very high discount rate (that is, a strong preference for present over future dollars—a preference that may reflect desperation rather than fecklessness or shortsightedness) would borrow at an astronomical interest rate in order to get a sum of money now rather than a few weeks from now.

All this is true, but in the suspicious circumstances that we have recited the judge should have made a greater effort (he made none) to quantify the net expected value of continued litigation to the class, since a settlement for less than that value [285] would not be adequate. Determining that value would require estimating the range of possible outcomes and ascribing a probability to each point on the range, In re General Motors Corp. Engine Interchange Litigation, supra, 594 F.2d at 1132-33 n. 44, though as just noted those outcomes must be discounted to the present using a reasonable, and in this case perhaps a steep, interest rate. In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 806 (3d Cir.1995); cf. Transcraft, Inc. v. Galvin, Stalmack, Kirschner & Clark, 39 F.3d 812, 819 (7th Cir.1994). We say "perhaps" because even a person with a high discount rate may not care much whether he receives $15 to $30 now or in the future, since it is such a trivial amount of money even to a person who is usually strapped for funds. If, moreover, the court would award prejudgment interest in a case litigated to judgment, discounting might wash out of the picture altogether.

A high degree of precision cannot be expected in valuing a litigation, especially regarding the estimation of the probability of particular outcomes. Still, much more could have been done here without (what is obviously to be avoided) turning the fairness hearing into a trial of the merits. For example, the judge could have insisted that the parties present evidence that would enable four possible outcomes to be estimated: call them high, medium, low, and zero. High might be in the billions of dollars, medium in the hundreds of millions, low in the tens of millions. Some approximate range of percentages, reflecting the probability of obtaining each of these outcomes in a trial (more likely a series of trials), might be estimated, and so a ballpark valuation derived.

Some arbitrary figures will indicate the nature of the analysis that we are envisaging. Suppose a high recovery were estimated at $5 billion, medium at $200 million, low at $10 million. Suppose the midpoint of the percentage estimates for the probability of victory at trial was .5 percent for the high, 20 percent for the medium, and 30 percent for the low (and thus 49.5 percent for zero). Then the net expected value of the litigation, before discounting, would be $68 million; discounting, depending on an estimate of the likely duration of the litigation, would bring this figure down, though probably not to $25 million — and any discounting might be inappropriate, as we explained. These figures are arbitrary; our point is only that the judge made no effort to translate his intuitions about the strength of the plaintiffs' case, the range of possible damages, and the likely duration of the litigation if it was not settled now into numbers that would permit a responsible evaluation of the reasonableness of the settlement.

Two classes were absorbed into the settlement even though their claims were sharply different from those of the classes represented by the settlement counsel. A class action brought by Belinda Peterson years before the suit that gave rise to the settlement complained of Block's promise, for which it levied a separate charge, that a customer would receive a "rapid refund" from the IRS. The Peterson class alleges that Block knew that customers such as Peterson who were seeking a refund on the basis of the Earned Income Tax Credit would not receive it rapidly because the IRS was subjecting this class of refund requests to special scrutiny. No loan was involved. The district judge nevertheless held that the Peterson class was embraced by the settlement and release, meaning that the members of the class would be entitled to damages of $15 apiece, period. The settlement class counsel had never complained about, or so far as appears knew anything about, the rapid refunds, [286] and indeed Harris testified that the Peterson class was intended to be excluded from the settlement. "Rapid Refunds" are mentioned in the release only because the term is sometimes used to describe refund anticipation loans, an entirely different practice from Block's promise of a rapid refund. Whatever injury the promise caused Block's customers is not measured by the $15 award, which was an estimate of the injury inflicted by violations connected with refund anticipation loans. The Peterson class was included in the settlement as a result of a purely semantic coincidence.

Another class that got swept up in the settlement as it were accidentally, the Carbajal class, was complaining about the defendants' "intercepting" IRS refunds in order to offset debts owed by the customer on previous refund anticipation loans. Block would apply to the IRS for a refund for its customer but direct that the refund be paid to it, and it would then deduct whatever the customer owed it and its partner lending institutions and forward the balance (if any) to the customer. This practice was distinct from nondisclosure, misrepresentation, and other alleged wrongs concerning the making of refund anticipation loans. The relation was closer than in the case of the rapid refunds, because the interception practice, though not involving a loan as such, involved an effort to collect debts based on past refund anticipation loans. But the $15 damages award that the members of the Carbajal class received as part of the settlement that the district judge approved was just as unrelated to whatever injury the interception inflicted on them.

All things considered, we conclude that the district judge abused his discretion in approving the settlement. Because of this conclusion, the other issues raised by the appeals need not be decided, but for guidance on remand we will address the principal ones, which concern attorneys' fees. To begin with, we disapprove the practice (a practice we had never heard of and can find no case law concerning) of encouraging or permitting the submission of fee applications in camera. In the unlikely event that some confidential information is contained in the applications, that information can be whited out. To conceal the applications and in particular their bottom line paralyzes objectors, even though inflated attorneys' fees are an endemic problem in class action litigation and the fee applications of such attorneys must therefore be given beady-eyed scrutiny by the district judge. Gunter v. Ridgewood Energy Corp., 223 F.3d 190, 192 (3d Cir. 2000); 7B Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1803, pp. 510-11 (2d ed.1986). Second, class counsel's compensation must be proportioned to the incremental benefits they confer on the class, not the total benefits. Supposing that with absolutely minimal effort the class counsel could, as appears to be the case, have obtained a settlement for $20 million back in 1997 when they met with Rublin, the question would be how much they should be rewarded for having pushed the settlement up to $25 million. Surely not the $4.25 million that the judge pursuant to the agreement between the parties to the settlement awarded, especially since the class counsel, but for prodding by the judge, would have settled for less than Rublin appears to have been prepared to offer years earlier.

Several lawyers, each representing a class member, appeared at the fairness hearing to object to various features of the proposed settlement, primarily the reversion which the judge later struck. They wanted a fee for having conferred a benefit on the class by arguing successfully [287] against the reversion. The judge turned them down.

An initial question is whether we have jurisdiction of their appeals, since their clients, although members of the class, were denied intervention in the district court and are not appealing that denial. These plaintiffs say they have no reason to be parties at this stage because they are content with the revised settlement, which axed the reversion. Ordinarily only a party to a litigation, including a class action, can appeal. Marino v. Ortiz, 484 U.S. 301, 304, 108 S.Ct. 586, 98 L.Ed.2d 629 (1988) (per curiam); Karcher v. May, 484 U.S. 72, 77, 108 S.Ct. 388, 98 L.Ed.2d 327 (1987); In re Navigant Consulting, Inc., Securities Litigation, 275 F.3d 616, 617-18 (7th Cir.2001). (Not all courts agree that a class member can appeal only if he has intervened and thus become a named party; the line up is reviewed in Scardelletti v. Debarr, 265 F.3d 195, 205-06, 209 (4th Cir.), cert. granted, ___ U.S. ___, 122 S.Ct. 663, 151 L.Ed.2d 578 (2001).) But to this as to most legal generalizations there are exceptions — see, e.g., United States Catholic Conference v. Abortion Rights Mobilization, Inc., 487 U.S. 72, 76, 108 S.Ct. 2268, 101 L.Ed.2d 69 (1988), recognizing the right of third-person witnesses, not named parties to the case, to appeal from a contempt citation for noncompliance with subpoenas served on them by a named party — most relevantly for cases in which a lawyer appeals from a sanction imposed on him, Vollmer v. Publishers Clearing House, 248 F.3d 698, 701, 705, 711 (7th Cir.2001); Corroon v. Reeve, 258 F.3d 86, 88, 90, 92 (2d Cir.2001), or from the denial of a motion for fees. Gaskill v. Gordon, 160 F.3d 361, 362-63 (7th Cir.1998); Florin v. Nationsbank of Georgia, N.A., 34 F.3d 560, 562 and n. 1 (7th Cir.1994); In re Continental Illinois Securities Litigation, 962 F.2d 566, 568 (7th Cir.1992). The lawyer doesn't have to move to intervene in the district court in order to appeal to us; nor does the objector have to move to intervene in order to appeal the lawyer's fee. Powers v. Eichen, 229 F.3d 1249, 1251, 1256 (9th Cir.2000); Rosenbaum v. MacAllister, 64 F.3d 1439, 1441-43 (10th Cir.1995); see also Zucker v. Occidental Petroleum Corp., 192 F.3d 1323, 1326 (9th Cir.1999). We just the other day rejected the proposition that a lawyer must be made a party before he can be ordered to disgorge a fee wrongfully retained, and though not a party the lawyer was permitted to appeal the order. Dale M. v. Board of Education, 282 F.3d 984 (7th Cir.2002).

The situation here is similar. The clients being content with the settlement, the only issue is whether their lawyers here are entitled to a fee. They are in effect volunteer lawyers for the class asking that they receive a fee for their efforts. We think they can appeal without their clients' having intervened. Intervention would not only be a pointless formality. Powers v. Eichen, supra, 229 F.3d at 1256. It would be a futile one. For the clients, being content with the settlement, could not appeal even if they were parties, because they seek no relief from us and standing must continue throughout the entire litigation. United States Parole Comm'n v. Geraghty, 445 U.S. 388, 397, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980); Levin v. Attorney Registration & Disciplinary Comm'n, 74 F.3d 763, 767 and n. 5 (7th Cir.1996); Chong v. District Director, INS, 264 F.3d 378, 383-84 (3d Cir.2001). Unless the lawyers can appeal, there will be no appellate review of the district judge's decision not to award them fees.

It would be a different case if the claim for attorneys' fees rested on a fee-shifting statute, so that the money would come from the defendants and not diminish the [288] $25 million fund. Then the objectors would have to intervene, because it is the litigants rather than the lawyers who hold the entitlement to awards under fee-shifting statutes. Central States, Southeast & Southwest Areas Pension Fund v. Central Cartage Co., 76 F.3d 114, 116 (7th Cir. 1996). The objectors might be obliged by contract to pay these sums to their lawyers, but that would not make the lawyers parties. To be entitled to appeal, however, the objectors would have to become parties.

But in fact the lawyers are claiming fees in their own name, so that any fees awarded to them would come from the $25 million fund under the common-fund doctrine. When a lawyer lays claim to a portion of the kitty, he becomes a real party in interest; and should he therefore have to intervene — not only for purposes of taking an appeal himself but so that he will be an appellee if class members oppose the district court's award and want the money back? We do not see why a person who has received money by order of the district court at the expense of a party must be named as a party in order for the party harmed by the order to be able to appeal. After all, a defendant could appeal from a fee award to the plaintiff's lawyer that he thought excessive.

We need not pursue this interesting question, on which the Supreme Court may shed considerable light when it decides the Scardelletti case, any further, since the claim for attorneys' fees falls with the settlement. But assuming these lawyers can appeal, let us for the sake of guidance for the future consider the merits of their appeals.

The law generally does not allow good Samaritans to claim a legally enforceable reward for their deeds. Nadalin v. Automobile Recovery Bureau, Inc., 169 F.3d 1084, 1086 (7th Cir.1999); Saul Levmore, "Explaining Restitution," 71 Va. L.Rev. 65 (1985). But when professionals render valuable albeit not bargained-for services in circumstances in which high transaction costs prevent negotiation and voluntary agreement, the law does allow them to claim a reasonable professional fee from the recipient of their services. Gaskill v. Gordon, supra, 160 F.3d at 363; In re Continental Illinois Securities Litigation, supra, 962 F.2d at 568, 571; Levmore, supra, at 66. That is the situation of objectors to a class action settlement. It is desirable to have as broad a range of participants in the fairness hearing as possible because of the risk of collusion over attorneys' fees and the terms of settlement generally. This participation is encouraged by permitting lawyers who contribute materially to the proceeding to obtain a fee. Gottlieb v. Barry, 43 F.3d 474, 490-91 (10th Cir.1994); Fisher v. Procter & Gamble Mfg. Co., 613 F.2d 527, 547 (5th Cir. 1980); White v. Auerbach, 500 F.2d 822, 828 (2d Cir.1974).

The principles of restitution that authorize such a result also require, however, that the objectors produce an improvement in the settlement worth more than the fee they are seeking; otherwise they have rendered no benefit to the class. Class Plaintiffs v. Jaffe & Schlesinger, P.A., 19 F.3d 1306, 1308 (9th Cir.1994) (per curiam); see also Stewart v. General Motors Corp., supra, 756 F.2d at 1294; Petrovic v. Amoco Oil Co., 200 F.3d 1140, 1156 (8th Cir.1999).

The judge denied a fee to the objectors in part on the ground that he had already decided, without telling anybody, not to accept the reversion. But objectors must decide whether to object without knowing what objections may be moot because they have already occurred to the judge. A compelling ground for denying the objectors a fee in this case does exist, however. [289] It is that other lawyers at the hearing, notably counsel for the Carnegie intervenors, had vigorously objected to the reversion; the objectors added nothing. In re Synthroid Marketing Litigation, 264 F.3d 712, 722-23 (7th Cir.2001). For similar reasons the judge was correct to deny intervention to class representatives (Mitchell, Westfall, Ramsey, Jones, Vaughn, and Longo) whose arguments had already been covered by existing plaintiffs. Fed.R.Civ.P. 24(a)(2).

The judgment approving the class action settlement and awarding attorneys' fees is reversed and the case is remanded to the district court for further proceedings consistent with this opinion. The injunction against the Texas class action must be vacated in light of our disapproval of the settlement. See Bradford Exchange v. Trein's Exchange, 600 F.2d 99, 101-02 (7th Cir.1979) (per curiam); cf. Rufo v. Inmates of Suffolk County Jail, 502 U.S. 367, 383, 112 S.Ct. 748, 116 L.Ed.2d 867 (1992); In re Hendrix, 986 F.2d 195, 198 (7th Cir.1993). The action of a panel of this court in upholding the district judge's interlocutory injunction against the Texas suit, entered while settlement negotiations were in process, does not bear on the validity of the final injunction, which is an incident of the settlement agreement and falls with it.

Finally, we have decided that Circuit Rule 36 shall apply on remand.

REVERSED AND REMANDED.

[285] [286] [287] Michael P. Malakoff (Argued), Malakoff, Doyle & Finberg, Pittsburgh, Pennsylvania, for Appellants Richard P. Krell, et al.

Lynde Selden, II, Lynde Selden Chartered, San Diego, California, for Appellant Richard E. Johnson.

Melvyn I. Weiss (Argued), Milberg, Weiss, Bershad, Hynes & Lerach, New York City, Allyn Z. Lite, Goldstein, Lite & DePalma, Newark, New Jersey, for Appellee George A. Zoller, Class Action Plaintiff Representative.

Reid L. Ashinoff (Argued), Michael H. Barr, Sonnenschein, Nath & Rosenthal, New [288] York City, for Appellees Prudential Insurance Company of America and Ron D. Barbaro.

Brian S. Wolfman (Argued), Alan B. Morrison, Public Citizen Litigation Group, Washington, DC, for Amicus Curiae-Appellant Public Citizen, Inc.

John J. Gibbons, Gibbons, Del Deo, Dolan, Griffinger & Vecchione, Newark, New Jersey, for Appellee Robert C. Winters.

Frederick B. Lacey, LeBoeuf, Lamb, Greene & MacRae, Newark, New Jersey, for Appellee Frances K. Beck, as Executrix of the Estate of Robert A. Beck.

Before: SCIRICA, ROTH and RENDELL, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

TABLE OF CONTENTS

OPINION OF THE COURT .............................................................................288  I.  BACKGROUND AND PROCEDURAL HISTORY ..........................................................290      A.  The Multi-State Life Insurance Task Force ..............................................290      B.  The Federal Class Action ...............................................................292          1.  The Proposed Settlement ............................................................294              a.  The Alternative Dispute Resolution Process .....................................295              b.  Basic Claim Relief .............................................................296              c.  Enhancements To the Task Force Plan ............................................296          2.  The Fairness Hearing ...............................................................298  II.  ISSUES RAISED ON APPEAL AND STANDARD OF REVIEW ............................................299 III.  JURISDICTION ..............................................................................299       A.  Subject Matter Jurisdiction ...........................................................299           1.  Federal Question Jurisdiction as a Basis for Supplemental Jurisdiction ............300           2.  Diversity Jurisdiction as a Basis for Supplemental Jurisdiction ...................303       B.  Personal Jurisdiction .................................................................306       C.  Article III ...........................................................................306  IV.  CLASS CERTIFICATION .......................................................................307       A.  Settlement-Only Class Certification ...................................................307       B.  Class Certification under Rule 23 .....................................................308           1.  The Rule 23(a) Criteria............................................................309               a.  Numerosity ....................................................................309               b.  Commonality ...................................................................309               c.  Typicality ....................................................................310               d.  Adequacy of Representation.....................................................312           2.  The Rule 23(b) Criteria ...........................................................313               a.  Predominance ..................................................................314               b.  Superiority ...................................................................315       C.  Conclusion ............................................................................316   V.  THE FAIRNESS OF THE PROPOSED SETTLEMENT ...................................................316       A.  The Girsh Factors .....................................................................318           1.  The complexity and duration of the litigation .....................................318           2.  The reaction of the class to the settlement .......................................318           3.  The stage of the proceedings and amount of discovery completed.....................319           4.  The risks of establishing liability and damages ...................................319               a.  Replacement Claims.............................................................320           5.  The risks of maintaining the class action through trial ...........................321           6.  The ability of the defendants to withstand a greater judgment .....................321           7.  The range of reasonableness of the settlement fund in light of the                best possible recovery and all the attendant risks of litigation..................322

 [289]        B.  Other Objections ......................................................................324           1.  The Rules Enabling Act and the McCarran-Ferguson Act ..............................324           2.  Failure to Allow Discovery.........................................................324       C.  "Other Sales Claims" ..................................................................325           1.  The Alleged Expansion of the Class ................................................325           2.  Adequacy of Class Notice...........................................................326       D.  Conclusion.............................................................................328  VI.  ATTORNEYS' FEES ...........................................................................329       A.  The Fee Agreement .....................................................................329       B.  Fee Opinion ...........................................................................330       C.  Analysis ..............................................................................333           1.  "Clear-Sailing" Fee Agreement .....................................................334           2.  Adverse Effect on Class Members ...................................................335           3.  Fairness of the Award .............................................................336               a.  The Value of the Settlement....................................................336               b.  The Appropriate Percentage Recovery............................................338               c.  Lodestar Calculation ..........................................................340                   i.   Multiplier ...............................................................340                   ii.  Time Records..............................................................341       D.  Conclusion.............................................................................342 VII.  KRELL'S MOTION TO RECUSE...................................................................342       A.  Procedural History ....................................................................342       B.  Legal Standard.........................................................................343       C.  Krell's Arguments on Appeal............................................................343           1.  Ex Parte Meetings .................................................................343           2.  The Conference With State Insurance Regulators.....................................344           3.  Rutt v. Prudential ................................................................345VIII.  CONCLUSION ................................................................................346

This is an appeal from the approval of the settlement of a nationwide class action lawsuit against Prudential Life Insurance Company alleging deceptive sales practices affecting over 8 million claimants throughout the fifty states and the District of Columbia.

The class is comprised of Prudential policyholders who allegedly were the victims of fraudulent and misleading sales practices employed by Prudential's sales force. The challenged sales practices consisted primarily of churning, vanishing premiums and fraudulent investment plans, and each cause of action is based on fraud or deceptive conduct. There are no allegations of personal injury; there are no futures classes. The settlement creates an alternative dispute resolution mechanism and establishes protocols to determine the kind and amount of relief to be granted. The relief awarded includes full compensatory damages consisting of what plaintiffs thought they were purchasing from the insurance agent. There is no cap on the amount of compensatory damages for those who qualify, and although punitive damages are not included in the settlement, Prudential has agreed to pay a remediation amount in addition to the payments made through dispute resolution process.

The case involves five consolidated appeals from the judgments of the District Court for the District of New Jersey approving the settlement and awarding attorneys' fees to class counsel. Appellants, members of the certified class who object to the settlement, challenge the district court's jurisdiction, the certification of the settlement class, the fairness of the settlement itself, the award of attorneys' fees, and the district court's refusal to disqualify itself.

We hold the district court properly exercised jurisdiction. Federal subject matter jurisdiction is properly grounded on the alleged violations of the federal securities laws. Although most of the claims implicate state law, supplemental jurisdiction is proper because all of the claims arise out of a common nucleus of operative fact. The district court had personal jurisdiction over the class because [290] actual notice was given to each of the 8 million policyholders by direct mail, and disseminated through television, radio and print advertising throughout the fifty states and the District of Columbia. We also hold there was no reason for the district court to recuse itself from these proceedings.

The district court properly certified a national class under Fed.R.Civ.P. 23(b)(3). The court assessed the numerosity and commonality of the asserted claims, the typicality of those claims, and the adequacy of representation provided by the named plaintiffs and class counsel, and found they satisfied the certification standards. The court also concluded the proposed class action was the superior means of addressing plaintiffs' claims of widespread sales abuse, and the issues common to all members of the class predominated over individual issues related to the members of the class.

We hold the district court properly evaluated the settlement, finding it fair, reasonable and adequate. Prudential's deceptive practices occurred nationwide. It may be argued that problems national in scope deserve the attention of national courts when there is appropriate federal jurisdiction. Because of the extraordinary number of claims, fairness counsels that plaintiffs similarly injured by the same course of deceptive conduct should receive similar results with respect to liability and damages. The proposed class settlement offers plaintiffs several advantages, including full compensation for their injuries, no obligation to pay attorneys' fees, and a relatively speedy resolution of their claims. The alternative dispute resolution process is sensible and provides adequate safeguards for individual treatment of claims, including appeals. We will affirm the district court's approval of the class certification and the settlement.

The district court awarded $90 million in attorneys' fees as a percentage of a common fund created under the settlement. We will vacate and remand the fee award and ask the district court to recalculate the fee to account for work done by the multi-state task force whose efforts served as a basis for the final settlement in this case. Furthermore, we question the multiplier employed in the lodestar analysis used by the court to cross check the size of the fee award. Although granting discovery on fee applications is within the sound discretion of the district court, we will ask the district court to reconsider whether it should grant limited discovery to the objectors on the fee application.

I. BACKGROUND AND PROCEDURAL HISTORY

This case began in early 1994, when the first of many individual and class action lawsuits alleging improper sales and marketing practices was filed against Prudential, the nation's largest life insurer. As lawsuits began to accumulate, the New Jersey Insurance Commissioner sought to organize a group to investigate the allegations against Prudential.^[1] The resulting investigation into market conduct sought to determine the scope of any improper sales practices, and to develop a remedial plan designed to compensate injured policyholders, to prevent future violations, and to restore public confidence in the insurance industry. Report of The Multi-State Life Insurance Task Force and Multi-State Market Conduct Examination of The Prudential Insurance Company of America at 2 ("Task Force Report"). While the Task Force proceeded with its investigation, federal and state court actions alleging sales practice abuses by Prudential continued to accumulate. Although our primary concern is the outcome of the federal litigation, the history of both the Multi-State Life Insurance Task Force's investigation and the various lawsuits filed against Prudential overlap to a certain degree, and thus warrant discussion.

A. The Multi-State Life Insurance Task Force

At the instigation of the New Jersey Insurance Commissioner, the Multi-State Life Insurance Task Force was formed on April 25, 1995, with the stated goal of conducting a thorough and extensive examination of Prudential's sales practices during the period [291] from 1985 until 1995. In all, thirty states and jurisdictions elected to participate.^[2] The Task Force interviewed 283 agents and 27 sales management executives, and reviewed voluminous materials provided by Prudential. Among those materials were internal computer data bases reflecting complaints, policy transactions, and agent discipline. The Task Force also reviewed market conduct reports prepared by other states which had examined Prudential's business practices, and examined the historical developments which affected sales practices in the insurance industry.^[3]

In July 1996, the Task Force issued its final report, citing widespread evidence of fraudulent sales practices and inadequate supervision by Prudential's management. It explained that Prudential's records revealed the company "knew of cases of alleged misrepresentation and other improper sales practices by its agents, and in many instances failed to adequately investigate and impose effective discipline." Task Force Report at 15. According to the report, interviews with Prudential agents revealed "little if any consistency in agent training and agent awareness of company and regulatory guidelines." Id. at 16. While the Task Force concluded that not all of the sales during the time period investigated were fraudulent or improper, it recognized the difficulty in ascertaining precisely which policyholders had been harmed,^[4] and therefore recommended the implementation of a remediation plan which would "reach out to all potentially affected policyholders." Id. at 17-18. Under the plan, which was developed with Prudential's input and cooperation, policyholders were given the option of pursuing claims in an Alternative Dispute Resolution process ("ADR") or through a "no-fault" remedy known as Basic Claim Relief.^[5]

As part of the Task Force Plan, Prudential agreed to conduct an extensive outreach program, including individual notice to all persons who purchased a policy between 1982 and December 31, 1995. Those electing the ADR process could submit their claim for evaluation. The remediation plan addressed four categories of claims: financed or replacement sales; sales involving abbreviated payment plans; life insurance sold as an investment; and other claims "falling outside of the first three categories." Id. at 19. Those electing Basic Claim Relief would be eligible for preferred-rate loans or the opportunity to purchase discounted policies.

Forty-three states and the District of Columbia signed a Consent Order adopting the [292] Task Force Plan, with the understanding that if the pending class action achieved a better result, the Task Force and the states could join in the improved plan. The Task Force also recommended a separate $35 million fine to be divided among the states and the District of Columbia.

B. The Federal Class Action

While the Task Force was conducting its investigation, parties continued to file individual claims and class actions against Prudential in both state and federal court. On February 6, 1995, named plaintiff Nicholson filed a class action in Illinois state court which was removed one month later to the United States District Court for the Southern District of Illinois. The Kuchas plaintiffs filed their federal class action on February 28, 1995 in the District of Connecticut. Four other federal class actions were filed in the District of New Jersey in early 1995. Appellant Krell filed his class complaint in Ohio state court in June 1995.

On April 26, 1995, Prudential moved to consolidate the various federal actions in the District of New Jersey. On August 3, 1995, the Judicial Panel on Multidistrict Litigation granted Prudential's motion and transferred several actions to the District of New Jersey.^[6] Prudential then removed the various state actions to federal court, including the Krell action, and requested these additional cases be consolidated in New Jersey. The MDL Panel granted that request as well.^[7]

In October 1995, the district court appointed Melvin Weiss of Milberg, Weiss, Bershad, Hynes & Lerach and Michael B. Hyman of Much, Shelist, Freed, Deneberg, Ament, Bell & Rubenstein as Co-Lead Counsel for plaintiffs, and ordered plaintiffs to file a consolidated complaint. On October 24, 1995, plaintiffs filed the First Consolidated Amended Class Action Complaint.

The named plaintiffs filed suit on behalf of all persons who purchased new or additional life insurance policies between January 1, 1980 and the time of the complaint as a result of Prudential's alleged fraudulent scheme.^[8] They alleged that Prudential management developed and implemented a fraudulent scheme to sell life insurance policies through a variety of deceptive sales practices, including "churning," "vanishing premium," and "investment plan" sales tactics. Plaintiffs also challenged Prudential's dividend practices, among them the so-called "investment generation approach," and "Prudential's deceptive administration of class members' policies to conceal fraudulent sales and effectuate the scheme, including Prudential's use of unauthorized policy loans and similar contrivances to deplete policyholders' cash values." Lead Counsel Brief at 5. The Complaint alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, common law fraud, breach of contract, bad faith, negligent misrepresentation, negligence, unjust enrichment, and breach of state consumer fraud statutes.

On December 26, 1995, Prudential moved to dismiss the complaint under Fed.R.Civ.P. 12(b)(6). At the same time, Prudential approached Lead Counsel to discuss a possible settlement. Those discussions ended, however, when Lead Counsel indicated they would not settle the case without significant discovery. The parties renewed their settlement discussions in early 1996, after Prudential agreed to provide discovery, but once again failed to reach an agreement. When the talks ceased, Prudential stopped its production of documents. Lead Counsel nevertheless pursued its own investigation, interviewing approximately thirty former Prudential agents and customers, and reviewing the limited array of documents provided by Prudential.

[293] The district court granted Prudential's motion in part on May 10, 1996, dismissing without prejudice all claims of three of the five named plaintiffs, and several claims of the remaining two. It also noted that plaintiffs would not likely prevail on many of their claims at trial. The district court then ordered Prudential to provide plaintiffs with copies of the substantial discovery materials already provided to the Task Force.

Following the issuance of the Task Force Report in July 1996, Lead Counsel and Prudential once again entered settlement negotiations, and again Prudential agreed to Lead Counsel's demands for discovery.^[9] By August 8, 1996, Prudential had provided plaintiffs with over 70 boxes of documents in response to Lead Counsel's requests.

On September 19, 1996, plaintiffs filed their Second Amended Consolidated Complaint. The Second Amended Consolidated Complaint contained essentially the same claims as the first, alleging Prudential implemented a systematic fraudulent marketing scheme which made use of false and misleading sales presentations, policy illustrations, and marketing materials. Once again, the Complaint specifically referred to Prudential's "churning," "vanishing premium," and "investment plan" sales tactics.^[10] Each of the named plaintiffs claimed to have been injured by this common scheme, and alleged one or more of the specified sales practices.^[11] Plaintiffs also sued several persons in their individual capacities: Robert A. Beck, Prudential President from 1972 until 1979 and Chairman from 1978 until 1987; Ronald D. Barbaro, Prudential's President from 1990 until 1992; and Robert C. Winters, Chairman and CEO from 1987 until 1994, and President from 1993 until 1994.

[294] According to the Second Amended Consolidated Complaint, Prudential was aware of these fraudulent sales practices as early as 1982, when internal investigations discovered patterns of abuse involving financed insurance. Plaintiffs alleged that Prudential failed to take serious steps to combat the abuses, focusing instead on "damage control" and warning internal auditors not to "rock the boat." For example, when Prudential's auditing department tested a new computer system to detect churning in its Minneapolis office, sales dropped off sharply. Instead of addressing the concerns raised by the audit department, Prudential merely referred the matters to the "marketing" group, which took no steps to stop the fraudulent activities. Second Am. Cons.Compl. ¶ 86.

Three days after the filing of the Second Amended Consolidated Complaint, Prudential and class counsel entered into a settlement agreement. There were three preconditions to the agreement. First, those states which had adopted the Task Force Remediation Plan through the execution of the Consent Order had to agree to modify the Consent Order to conform to the Settlement Agreement. Second, the final Stipulation of Settlement had to be executed by October 28, 1996. Lastly, the parties reserved the right to modify the Stipulation of Settlement to reflect any new information revealed by class counsel's ongoing discovery.^[12] The Settlement Agreement did not address attorneys' fees.^[13]

On October 28, 1996, the parties filed a final Stipulation of Settlement. At that time, the district court issued an order conditionally certifying a national settlement class, directing issuance of class notice, issuing an injunction,^[14] and scheduling a fairness hearing for January 21, 1997. The notice was sent to each of the more than 8 million class members by first class mail on or before November 4, 1996, and gave them until December 19, 1996 to file objections or opt out of the class.^[15]

1. The Proposed Settlement

The proposed settlement was largely based on the Task Force Report and its proposed remediation plan. Like the Task Force plan, the settlement proposed a remediation scheme by which class members had the option of either pursuing their claims through an Alternate Dispute Resolution procedure or electing Basic Claim Relief. The proposed settlement class included all persons who owned one or more Prudential insurance policies between January 1, 1982 and December 31, 1995, with certain exceptions.^[16] The class included approximately [295] eight million Prudential policyholders who own or owned approximately 10.7 million policies.

a. The Alternative Dispute Resolution Process

Under the ADR process contained in the proposed settlement, class members who believed they had been misled could submit a claim to Prudential. The claim form provided to all potential class members contained both narrowly drawn questions designed to elicit information relating to specific evidentiary scoring criteria established under the settlement, as well as more open-ended questions allowing claimants to explain the exact nature of their claims. Claimants were also asked to submit any supporting documents in their possession. Prudential established a toll-free hotline to allow claimants to speak to a Claimant Support team, whose members are specially trained to answer policyholder inquiries, assist with filling out claim forms, and advise them with respect to the collection of supporting documents. Once the claim form was submitted, Prudential was obligated to locate all of its records pertaining to the claim and submit them for consideration.

Once a claim has been filed and all the relevant materials gathered, the claim is subject to a four tier review process. At the first level, the claim would be examined by a member of the Claim Evaluation Staff, who will apply a set of specific criteria for each of four general categories of sales complaints: (1) financed insurance (taking a loan against an existing policy in order to pay the premiums on a new policy); (2) abbreviated payment plans (using dividends from a policy to pay the premiums on that policy); (3) life insurance sold as an investment; and (4) other improper sales practices.^[17] Based on the application of the established criteria, the reviewers then assign a score from zero to 3 to each claim.^[18] The Claim Evaluation Staff is comprised of specially trained Prudential employees who are not associated with Prudential's individual life insurance sales force.

Any claim not receiving a score of "3" will automatically be reviewed by a team of independent claim evaluators who are selected by class counsel and representatives of the state regulators. This team will apply the same criteria as the Claim Evaluation Staff, and make a written recommendation if it believes the claimant's score should be adjusted.

That recommendation is then examined by a member of the Claim Review Staff, which is comprised of Prudential employees who have not worked as or had supervisory authority over Prudential sales agents. The determination of the Claim Review Staff may not be appealed by Prudential. The claimant, however, may appeal the decision to the fourth level of review, the Appeals Committee. The Appeals Committee is selected by class counsel and representatives of the state regulators from a list agreed upon by class counsel, the state regulators, and Prudential. [296] While the Appeals Committee must apply the same criteria, its review of the claim is de novo.^[19]

The relief afforded a claimant varies depending on the final score he or she is awarded. Those obtaining a score of zero are afforded no relief. Those with a score of "1" may obtain relief only through Basic Claim Relief. Those with scores of "2" or "3" are entitled to compensatory relief.^[20]

b. Basic Claim Relief

Basic Claim Relief allows the class member to obtain one or more forms of relief without having to demonstrate liability on Prudential's part. The available forms of Basic Claim Relief include: (1) low interest loans to help policy holders make premium payments on existing policies; (2) enhanced value policies which allow members to purchase new policies with additional coverage paid for by Prudential; (3) deferred annuities enhanced by contributions from Prudential; and (4) the opportunity to purchase shares in designated mutual funds enhanced by a contribution from Prudential.

c. Enhancements To the Task Force Plan

The district court found the settlement improved upon the Task Force's remediation plan in several ways. Fairness Opinion, 962 F.Supp. at 492-95. First, the court found that the settlement improved the structure of the ADR process by including class counsel and their representatives in the monitoring process, and improving the claim scoring criteria^[21] and evidentiary factors used to analyze ADR claims.^[22] It also enhanced the remedies [297] available through both the ADR process and Basic Claim Relief,^[23] and provided for a blanket waiver of statute of limitations and other defenses which Prudential might otherwise have.

Second, it provided minimum financial guarantees which were not contained in the Task Force plan. In addition to the uncapped relief provided under both the Task Force plan and the proposed settlement, Prudential guaranteed to pay at least $260 million for each 110,000 claims remedied (up to 330,000), with a minimum payment of $410 million regardless of the number of claims remedied. Prudential also agreed to pay an additional remediation amount based on a sliding scale from $50 to $300 million, depending on the number of claims remedied. This amount was to be allocated by the district court.

Finally, the district court noted the "Proposed Settlement establishe[d] an unparalleled outreach program to ensure that class members are adequately informed." Fairness Opinion, 962 F.Supp. at 492. This included mailing individual notice to over 8 million current and former policyholders, and publishing summary notices in the national editions of The New York Times, The Wall Street Journal, USA Today, and The Newark Star Ledger. The summary notice was also published in the largest newspaper in each of the fifty states and the District of Columbia. In addition, the Stipulation of Settlement provided that, following final approval of the settlement, post-settlement notice would be (a) mailed to each class member, (b) published in the national editions of The New York Times, The Wall Street Journal, USA Today, The Newark Star Ledger, and other regional newspapers, and (c) disseminated through television and radio advertising "on stations having representative regional coverage." Stipulation of Settlement at 27-29. Finally, the outreach program established a six-day-a-week toll-free "800" number, staffed by specially trained personnel, to answer class member questions.^[24] The Task Force plan did not describe [298] how its outreach program would be implemented. Fairness Opinion, 962 F.Supp. at 494.

2. The Fairness Hearing

The district court held the fairness hearing on February 24, 1997.^[25] At that time the court heard oral argument from all parties who requested the opportunity to speak, including objectors. The district court also permitted appearances by several states and allowed the California Insurance Commissioner and the Florida Insurance Commissioner to appear as amicus curiae. The court allowed the Massachusetts Insurance Commissioner, the Massachusetts Attorney General and the Texas Insurance Commissioner to intervene under Rule 24(b). The New Jersey Department of Insurance appeared informally as amicus curiae, on its own behalf and on behalf of the Multi-State Life Insurance Task Force.

Before the fairness hearing, Prudential reached agreements with the remaining state objectors — California, Florida, Texas and Massachusetts — whereby several enhancements were made to the Proposed Settlement. Among those were an automatic score of "3" where a claimant had a life insurance application containing an unauthorized signature, and consideration as one of the scoring criteria the fact that a claimant was over the age of sixty at the time of sale.^[26] These enhancements were subsequently incorporated into the settlement and made available to all claimants. Fairness Opinion, 962 F.Supp. at 473.^[27] The district court also took notice that these four states received, in addition to the negotiated enhancements, additional fines and penalties from Prudential which were paid to the states, and not to aggrieved policyholders.

On March 7, 1997 the able district court issued a summary Memorandum Opinion and [299] Order certifying the class and approving the settlement as fair and reasonable, and ten days later filed a lengthy (almost 250 pages) and thorough opinion explaining its decision.

II. ISSUES RAISED ON APPEAL AND STANDARDS OF REVIEW

Appellants principally challenge five distinct elements of the settlement. First, they raise the threshold issue whether the district court had jurisdiction over this class action. Second, they challenge the court's certification of the settlement class. Third, they contest the district court's order approving the proposed settlement as fair and reasonable. Fourth, appellants take issue with the district court's $90 million award of attorneys' fees. Finally, they once more take aim at the district court's handling of this case, appealing the denial of their motion to disqualify under 28 U.S.C. §§ 455(a), 455(b)(1) and 455(b)(5)(iv).

"The decision of whether to approve a proposed settlement of a class action is left to the sound discretion of the district court." Girsh v. Jepson, 521 F.2d 153, 156 (3d Cir.1975). Consequently, we will reverse the district court "for a clear abuse of discretion." Id. at 156 n. 7. In addition, the certification of a class and the award of reasonable attorneys' fees are also subject to an abuse of discretion standard. In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 782 (3d Cir.1995) ("G.M. Trucks"). "An appellate court may find an abuse of discretion where the `district court's decision rests upon a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact.'" Id. at 783 (quoting International Union, UAW v. Mack Trucks, Inc., 820 F.2d 91, 95 (3d Cir.1987)). Our review of jurisdictional issues, however, is plenary. Anthuis v. Colt Industries Operating Corp., 971 F.2d 999, 1002 (3d Cir.1992).

III. JURISDICTION

The Krell and Johnson appellants contend the district court lacked subject matter jurisdiction over most of the class, including objectors. Additionally, they contend that there is no Article III "case or controversy" with respect to the class claims, and that the court's exercise of supplemental jurisdiction was improper.

A. Subject Matter Jurisdiction

As an initial matter, the district court found it had subject matter jurisdiction over the named plaintiffs in this class action. In particular, the court found it had both federal question jurisdiction and diversity jurisdiction over the class, as well as supplemental jurisdiction under 28 U.S.C. § 1367. Fairness Opinion, 962 F.Supp. at 500.

The district court found exclusive federal question jurisdiction under 28 U.S.C. § 1331 based on the claims of named plaintiff Dorfner. Dorfner alleged violations of the federal securities laws, in particular Sections 10(b) and 20(a) of the Securities and Exchange Act, and Rule 10b-5 promulgated thereunder. In addition, approximately 30% of the policies at issue were registered securities, and thus fell within the court's federal question jurisdiction. The district court also found it had diversity jurisdiction over each of the named plaintiffs under 28 U.S.C. § 1332. All named plaintiffs were residents of different states from the defendants named in the complaint. Additionally, the named plaintiffs have each alleged more than $50,000 in losses as a result of Prudential's fraudulent scheme, and thus meet the "amount-in-controversy" requirement in effect at the time the complaint was filed.^[28]

The primary jurisdictional objection raised on appeal relates to the district court's assertion of supplemental jurisdiction over the absentee class members on the basis of 28 U.S.C. § 1367. The court found that all of the class claims are "inextricably factually intertwined" because they are all "premised upon a common course of conduct by Prudential ... relat[ing] to the same alleged company wide development and implementation of the patently fraudulent sales techniques." [300] Fairness Opinion, 962 F.Supp. at 501. Noting that § 1367 applies to both pendent parties and pendent claims, the district court concluded it had the discretion to exercise supplemental jurisdiction over the entire dispute and the proposed settlement on the basis of its initial federal question jurisdiction. The court also found it could exercise supplemental jurisdiction over the state claims on the basis of its diversity jurisdiction. Id. at 505.

Appellants dispute both of these asserted grounds for supplemental jurisdiction. They contend the federal claims of plaintiff Dorfner, the claims of persons with purely state law claims, and the panoply of "other" sales claims do not derive from a common nucleus of operative fact, and thus the district court cannot exercise supplemental jurisdiction based on its jurisdiction over plaintiffs' federal securities claims.^[29] Johnson Brief at 4. Appellants also contest the district court's assertion of supplemental jurisdiction based on its initial diversity jurisdiction. They contend that, in order for the district court to exercise supplemental jurisdiction, each putative class member must meet the amount-in-controversy requirement of § 1332. Johnson Brief at 7-8 (citing Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973)). Finally, appellants argue the district court's application of 28 U.S.C. § 1367 to assert jurisdiction over the proposed class violates Article III.

The settling parties respond with two arguments. First, they claim the district court correctly exercised supplemental jurisdiction based on its original federal question jurisdiction because all class members' claims arise from the same case or controversy. Thus there is no need to address the question of the district court's diversity jurisdiction. In the alternative, they argue that appellants' reliance on Zahn is misplaced, and that § 1367 overruled Zahn's requirement that all class members meet the amount-in-controversy requirement of § 1332. Consequently, the court could properly exercise supplemental jurisdiction based on its original diversity jurisdiction.

1. Federal Question Jurisdiction as a Basis for Supplemental Jurisdiction

None of the parties contest the district court's assertion of federal question jurisdiction "over [plaintiff] Dorfner's federal securities claims, and the federal securities claims of other similarly situated plaintiffs." Fairness Opinion, 962 F.Supp. at 500. Instead they focus their arguments on the court's exercise of supplemental jurisdiction.

Before enactment of § 1367, a district court could only exercise jurisdiction over claims which did not satisfy the requirements of §§ 1331 and 1332 by applying the principles of ancillary or pendent jurisdiction. The concept of pendent jurisdiction, as explained by the Supreme Court in United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), allowed a court to hear non-federal claims over which it did not have diversity jurisdiction provided those claims shared a "common nucleus of operative fact" with the claims that supported the court's original jurisdiction. But this extension of jurisdiction was permitted only when it would promote "judicial economy, convenience and fairness to litigants." 383 U.S. at 726, 86 S.Ct. 1130.

While pendent jurisdiction allowed district courts to hear additional, non-federal claims which were part of the same "case" as those claims within the court's original jurisdiction, the doctrine of ancillary jurisdiction allowed courts to hear claims brought against additional parties. Ancillary jurisdiction, however, was more limited than its counterpart. In Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978), the Court held ancillary jurisdiction could not be asserted when to do so was contrary to the rule of complete diversity. Further, the Court found the doctrine of ancillary jurisdiction did not allow the addition of parties who were not within the court's original jurisdiction, even in cases in which the district court had exclusive federal [301] jurisdiction. Finley v. United States, 490 U.S. 545, 109 S.Ct. 2003, 104 L.Ed.2d 593 (1989). But the Finley Court noted the cases addressing the scope of ancillary and pendent jurisdiction were not entirely consistent, and offered the possibility that "[w]hatever we say regarding the scope of jurisdiction conferred by a particular statute can of course be changed by Congress." Id. at 556, 109 S.Ct. 2003.

Congress responded by passing the Judicial Improvements Act of 1990, which added § 1367 to the jurisdictional arsenal of the federal courts and essentially overruled Finley. Section 1367 combined the two concepts of pendent and ancillary jurisdiction under the rubric of "supplemental" jurisdiction, providing for jurisdiction "in any civil action of which the district courts have original jurisdiction" over "all other claims that are so related ... that they form part of the same case or controversy under Article III." 28 U.S.C. 1367(a). The statute explicitly included "claims that involve the joinder or intervention of additional parties." Id.

The enactment of § 1367 has elicited a strong reaction from legal scholars. Some have argued that Congress intended § 1367 to be interpreted broadly, and hoped to encourage the federal courts to hear claims which might otherwise have fallen outside of their reach. See John B. Oakley, Recent Statutory Changes in the Law of Federal Jurisdiction and Venue: The Judicial Improvements Acts of 1988 and 1990, 24 U.C. Davis L.Rev. 735, 766 (Spring 1991) ("By the juxtaposition of sections 1367(a) and 1367(c) Congress appears to have created a strong presumption in favor of the exercise of supplemental jurisdiction."); 2 Herbert B. Newberg and Alba Conte, Newberg on Class Actions, § 6.11, at 6-45 (3d ed. 1992) ("[T]here are multiple reasons to expect that the rulings of Zahn v. International Paper Co., requiring allegations that each class member satisfied jurisdictional amount requirements in diversity actions, have been legislatively bypassed."). Others have felt that § 1367 is constrained by prior Supreme Court decisions, and does not expand the courts' jurisdictional grant. Thomas D. Rowe, Jr., Stephen B. Burbank & Thomas M. Mengler, Compounding or Creating Confusion About Supplemental Jurisdiction? A Reply to Professor Freer, 40 Emory L.J. 943, 960 n. 90 (Fall 1991) (acknowledging that while a facial construction of § 1367 would appear to overrule Zahn, "the legislative history was an attempt to correct the oversight"); Denis F. McLaughlin, The Federal Supplemental Jurisdiction Statute — A Constitutional And Statutory Analysis, 24 Ariz. St. L.J. 849, 973 (Fall 1992)("[Section] 1367 should be interpreted as effecting no change in the prior practice and continuing undisturbed the rule of Zahn."). Regardless of Congress's intent with respect to Zahn, it is clear that § 1367 does not abrogate the rule of law established in Gibbs, and thus any exercise of supplemental jurisdiction must meet the requirements of Article III's "case or controversy" standard. See H.R.Rep. No. 101-734 at n. 15 (1990), reprinted in 1990 U.S.C.C.A.N. 6860, 6875 n. 15 (stating that § 1367(a) "codifies the scope of supplemental jurisdiction first articulated by the Supreme Court in United Mine Workers v. Gibbs"); New Rock Asset Partners, L.P. v. Preferred Entity Advancements, Inc., 101 F.3d 1492, 1505 (3d Cir.1996) ("The Supreme Court delineated the modern constitutional bounds of pendent [now referred to as supplemental] jurisdiction in United Mine Workers v. Gibbs."); Oakley, 24 U.C. Davis L.Rev. at 764 (noting that under § 1367, the district court's exercise of supplemental jurisdiction "extends to the limits of Article III, thus ratifying and incorporating the constitutional analysis of United Mine Workers v. Gibbs").

There is no dispute the district court had jurisdiction over the federal securities claims alleged in the Second Amended Consolidated Complaint. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987) (citing Gully v. First National Bank, 299 U.S. 109, 112-113, 57 S.Ct. 96, 81 L.Ed. 70 (1936)) ("The presence or absence of federal-question jurisdiction is governed by the `well-pleaded complaint rule,' which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint."). It is equally clear that, under § 1367, the district court could exercise supplemental jurisdiction over any claims which [302] were part of the same Article III "case or controversy" as the federal securities claims. Consequently, our analysis turns on whether the claims asserted in the Second Amended Consolidated Complaint meet the standard established in Gibbs.

Under Gibbs, three requirements must be met for a court to exercise supplemental jurisdiction:

The federal claims must have substance sufficient to confer subject matter jurisdiction on the court. The state and federal claims must derive from a common nucleus of operative fact. But if considered without regard to their state or federal character, a plaintiff's claims are such that he would ordinarily be expected to try them all in one judicial proceeding, then, assuming substantiality of the federal issues, there is power in the federal courts to hear the whole.

383 U.S. at 725, 86 S.Ct. 1130 (emphasis omitted) (footnote and internal citation omitted).

A district court may not assert supplemental jurisdiction over state claims that are totally unrelated to the federal claims that form the basis of the court's jurisdiction. Lyon v. Whisman, 45 F.3d 758, 761 (3d Cir.1995). In Lyon, the district court had original jurisdiction to hear claims under the Fair Labor Standards Act, and elected to exercise supplemental jurisdiction over state contract and tort claims. The federal claim involved the employer's failure to pay overtime wages, while the state claims related to a failure to pay certain bonuses. This Court ruled that the exercise of supplemental jurisdiction was inappropriate, because the only nexus between the state and federal claims was the employer/employee relationship, rather than the conduct underlying the claims.^[30] Id. at 764.

The Second Amended Consolidated Complaint alleges that Prudential engaged in a widespread scheme to defraud customers. As part of that scheme, Prudential allegedly used "false and misleading sales presentations, policy illustrations, marketing materials," and other information approved, prepared and disseminated by Prudential to its nationwide sales force. Second Amended Consolidated Complaint at 3. According to plaintiffs, certain actions taken by Prudential in furtherance of that scheme violated § 10(b)^[31] and § 20(a)^[32] of the Securities and Exchange Act. As noted, the district court agreed with the settling parties, finding that all of the class claims were "inextricably intertwined" [303] because there was a common scheme to defraud.^[33]

We agree. The Second Amended Consolidated Complaint clearly alleges that Prudential engaged in a common scheme to defraud. Each category of claims raised in the Complaint relied on the implementation of that scheme, the training of Prudential's agents in conformity with it, and the use of pre-approved materials to support it. While only one category of claims alleged in the Complaint involved violations of the federal securities laws, all of the claims derive from the same common scheme, and thus from the same "nucleus of operative fact." That implementation of Prudential's scheme resulted in a variety of unlawful transactions does not negate the common basis they all shared. We recognize the need to scrutinize assertions of federal subject matter jurisdiction in these kinds of class actions where there are significant state law claims. But we believe the nexus between the federal and state claims is so close here that federal jurisdiction is appropriate. Consequently, we hold the district court properly exercised supplemental jurisdiction over the class members' state claims based on its federal question jurisdiction.

Of course, § 1367 does not permit courts to take jurisdiction over tangentially related claims. The issue is whether there is a "common nucleus of operative fact" and whether the claims are part of the "same case or controversy under Article III." Here the facts underlying the investment deception are so intertwined with the other misrepresentations and frauds that, given the allegations of the overall scheme, they have the same factual predicate, making extension of federal jurisdiction appropriate.

2. Diversity Jurisdiction as a Basis for Supplemental Jurisdiction

The district court also found that it had supplemental jurisdiction under § 1367 based on its original diversity jurisdiction over named plaintiffs' claims under § 1332. As noted, the named plaintiffs satisfy the pre-requisites for diversity jurisdiction. None of the named plaintiffs is a citizen of the same state as any defendant, satisfying the complete diversity requirement, and each of the named plaintiffs has alleged damages in excess of $50,000, satisfying the amount in-controversy requirement. The more perplexing question is whether the remaining class members must also satisfy the requirements of diversity jurisdiction in order for the court to exercise supplemental jurisdiction over their claims.

Before enactment of § 1367, absentee class members seeking to establish the court's subject matter jurisdiction based on diversity of citizenship were not subject to the same requirements as the class representatives. According to the Supreme Court, the complete diversity requirement did not apply to absentee class members, but was satisfied so long as the named plaintiffs were completely diverse from defendants. Supreme Tribe of Ben Hur v. Cauble, 255 U.S. 356, 365-67, 41 S.Ct. 338, 65 L.Ed. 673 (1921). But the absentee class members were each subject to the same amount-in-controversy requirement as the named plaintiffs, and could not aggregate their claims in order to satisfy § 1332. Zahn, 414 U.S. at 301, 94 S.Ct. 505.

Although the complete diversity rule of Supreme Tribe of Ben-Hur remains intact, the passage of § 1367 has raised serious questions about the continuing viability of Zahn. On the one hand, it is generally conceded that the plain language of § 1367 states a different amount-in-controversy rule from that set forth in Zahn.^[34] See, e.g., Russ [304] v. State Farm Mut. Auto. Ins. Co., 961 F.Supp. 808, 817-20 (E.D.Pa.1997). Section 1367(a) gives courts discretion to exercise supplemental jurisdiction in all cases where the original claim supporting federal jurisdiction and the additional claim are part of the same Article III case or controversy, including those additional claims involving the joinder of parties. At the same time, § 1367(b) establishes certain exceptions to this permissive rule in cases where the court's original jurisdiction is based solely on diversity. In particular, § 1367(b) prohibits federal courts from exercising supplemental jurisdiction over persons made parties under Rules 14, 19, 20, and 24, unless those additional claims independently satisfy § 1332. Under the principle of expressio unius est exclusio alterius, Congress's failure to include Rule 23 among the restrictions in subsection (b) would seem to indicate Congress did not intend to restrict the district court's exercise of supplemental jurisdiction in class actions. In addition, Zahn's critics contend that, from a policy standpoint, the decision runs counter to Supreme Tribe of Ben-Hur. They argue that while the complete diversity requirement upholds the very essence of diversity jurisdiction, the amount-in-controversy requirement is merely an administrative concept designed to limit the caseload of the federal judiciary. Consequently, they contend it would make little sense to create an exception to complete diversity in the context of class actions but to continue requiring all class members to meet the amount-in-controversy requirement. See Zahn, 414 U.S. at 309, 94 S.Ct. 505 (Brennan, J. dissenting) ("Particularly in view of the constitutional background on which the statutory diversity requirements are written, it is difficult to understand why the practical approach the Court took in Supreme Tribe of Ben-Hur must be abandoned where the purely statutory `matter in controversy' requirement is concerned.").^[35]

By contrast, others contend § 1367 was never intended to eliminate the amount-in-controversy requirement for absentee class members established in Zahn. This argument relies heavily on the legislative history of the statute, in particular the House Judiciary Committee Report that explicitly states § 1367 "is not intended to affect the jurisdictional requirements of 28 U.S.C. § 1332 in diversity-only class actions, as those requirements were interpreted prior to Finley." H.R.Rep. No. 101-734 at 29 (1990), reprinted in 1990 U.S.C.C.A.N. 6860, 6875 (footnote omitted). The footnote to this section of the Report specifically refers to Supreme Tribe of Ben-Hur and Zahn, and supports the argument that the complete diversity and amount-in-jurisdiction rules of those cases survive the enactment of § 1367. Additionally, the Report of the Federal Courts Study Committee urges Congress to "expressly authorize federal courts to hear any claim arising out of the same `transaction or occurrence' as a claim within federal jurisdiction, including claims, within federal question jurisdiction, that require the joinder of additional parties, namely, defendants against whom [305] that plaintiff has a closely related state claim." Report of the Federal Courts Study Committee 47 (1990) (quoted in Russ, 961 F.Supp. at 815). The limited scope of the Committee's suggestion can be read as support for upholding the restrictions of Zahn.^[36]

The cases addressing this issue reflect this difference of opinion. The only two appellate courts to examine this question have both found the language of the statute controlling, and concluded that § 1367 overrules Zahn. See In re Abbott Laboratories, 51 F.3d 524, 528 (5th Cir.1995); Stromberg Metal Works v. Press Mechanical, Inc., 77 F.3d 928, 930 (7th Cir.1996). The Abbott Laboratories court reasoned that it could not "search legislative history for congressional intent unless [it found] the statute unclear or ambiguous," and that in the absence of such ambiguity "the statute is the sole repository of congressional intent." 51 F.3d at 528-29 (citing United States v. X-Citement Video, Inc., 513 U.S. 64, 68-71, 115 S.Ct. 464, 130 L.Ed.2d 372 (1994); West Virginia Univ. Hosps., Inc. v. Casey, 499 U.S. 83, 99-100, 111 S.Ct. 1138, 113 L.Ed.2d 68 (1991)). Because it found the plain language of the statute unambiguous, the court concluded that "under § 1367 a district court can exercise supplemental jurisdiction over members of a class, although they did not meet the amount-in-controversy requirement, as did the class representatives." Id. at 529.

Unlike the class action facing the court in Abbott Laboratories, the Court of Appeals for the Seventh Circuit addressed this question in the context of two plaintiffs seeking to join an additional claim that did not meet the amount-in-controversy requirement. Stromberg, 77 F.3d at 930. The Stromberg court also reasoned that "[w]hen text and legislative history disagree, the text controls," and allowed the exercise of supplemental jurisdiction in that instance. 77 F.3d at 931 (citing In re Sinclair, 870 F.2d 1340 (7th Cir.1989)).

Most of the district courts that have addressed this issue have concluded otherwise. These courts have relied primarily on the legislative history to find that Zahn is still good law. See, e.g., Russ, 961 F.Supp. at 817-20; Crosby v. America Online, Inc., 967 F.Supp. 257, 263-64 (N.D.Ohio 1997); Griffin v. Dana Point Condominium Ass'n, 768 F.Supp. 1299, 1301-02 (N.D.Ill.1991). Judge Louis Pollak's opinion in Russ, while conceding that the plain language of the statute would appear to overrule Zahn, presents a persuasive analysis of the legislative history and the policy reasons supporting his conclusion that Zahn is unaffected by the enactment of the supplemental jurisdiction statute.

The district court here followed the reasoning of Abbott Laboratories and concluded the plain language of § 1367 overruled Zahn. Consequently, the district court found it also had supplemental jurisdiction over the non-federal claims of absentee class members based on its diversity jurisdiction over the claims of the named plaintiffs.

The question is by no means an easy one. From a policy standpoint, it can be argued that national (interstate) class actions are the paradigm for federal diversity jurisdiction because, in a constitutional sense, they implicate interstate commerce, foreclose discrimination by a local state, and tend to guard against any bias against interstate enterprises. Yet there are strong countervailing arguments that, at least under the current jurisdictional statutes, such class actions may be beyond the reach of the federal courts.

Regardless of the relative strength of the competing arguments over Zahn's continued viability, we need not enter the fray. Because we have found that the district court properly exercised supplemental jurisdiction over class members' non-federal claims based on its original federal question jurisdiction, [306] we need not decide whether the district court properly found it had supplemental jurisdiction based on its exercise of diversity jurisdiction over the claims of the named plaintiffs. The continued viability of Zahn and its effect on class actions will undoubtedly be addressed in the near future, either by the Supreme Court or by Congress, and at present we need not resolve the issue.

B. Personal Jurisdiction

The district court also found it had personal jurisdiction over all members of the proposed class. We agree. In the class action context, the district court obtains personal jurisdiction over the absentee class members by providing proper notice of the impending class action and providing the absentees with the opportunity to be heard or the opportunity to exclude themselves from the class. Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985). The combination of reasonable notice, the opportunity to be heard and the opportunity to withdraw from the class satisfy the due process requirements of the Fifth Amendment. Consequently, silence on the part of those receiving notice is construed as tacit consent to the court's jurisdiction. Id.; see also Carlough v. Amchem Prods., Inc., 10 F.3d 189, 199 (3d Cir.1993).

The district court here directed that notice of the class action be sent to all persons who owned one or more Prudential insurance policies between 1982 and the present. Initially, we note the provision of individual notice to each class member is by no means typical of the notice provided in most class actions, and certainly qualifies as unprecedented. The notice provided here met the requirements for personal jurisdiction. It explained that each individual receiving notice was a member of the proposed class, and clearly set forth the procedure for opting out of the class. The notice also contained the proposed release, which explained that all claims would be waived if the individual did not elect to opt out of the class. Consequently, we find the members of the proposed class were adequately informed of their potential claims against Prudential, and the district court had personal jurisdiction over those members of the putative class who did not timely opt out.^[37]

C. Article III

Appellants also dispute the district court's finding that this case qualified as a "case or controversy" under Article III. Fairness Opinion, 962 F.Supp. at 505-06. Appellants contend that, "whether analyzed under the feigned case doctrine or as a failure of Article III standing," the inclusion of both injured and uninjured policyholders in the certified class violates the case or controversy requirement of Article III because the parties have not suffered an "injury in fact." Public Citizen Brief at 16. Appellants also contend the inclusion and release of claims arising out of not only the three primary activities complained of, but also based on "other improper sales practices," disqualifies the action as a case or controversy under Article III. Id. at 16-17. Amicus curiae Public Citizen further argues that the record is devoid of information concerning these other improper sales practices, that no plaintiff has claimed an injury as a result of them, and that there was never an intent to litigate them. Consequently, "there never has been any live controversy between Prudential and the `other improper sales practices' class." Id. at 17. The district court addressed appellants' contentions and found them to be without merit. Fairness Opinion, 962 F.Supp. at 506.

We agree with the district court. Article III requires that federal courts may only adjudicate an actual "case or controversy." As the district court noted, whether an action presents a "case or controversy" under Article III is determined vis-a-vis the named parties. Id. at 506 (citing Allee v. Medrano, 416 U.S. 802, 94 S.Ct. 2191, 40 L.Ed.2d 566 (1974)). "Once threshold individual standing by the class representative is met, a proper party to raise a particular issue is before the court, and there remains [307] no further separate class standing requirement in the constitutional sense."1 Newberg on Class Actions § 2.05 at 2-29 (3d Ed.1992). The record in this case is replete with examples of the adversarial nature of these proceedings, and it is clear that all of the named representatives have a valid "case or controversy" with respect to Prudential's alleged fraudulent sales scheme. There is also ample evidence that each named party has suffered an "injury in fact" as a result of Prudential's sales practices and therefore has standing to bring suit. Thus, the named plaintiffs satisfy Article III. The absentee class members are not required to make a similar showing, because once the named parties have demonstrated they are properly before the court, "the issue [becomes] one of compliance with the provisions of Rule 23, not one of Article III standing." Goodman v. Lukens Steel Co., 777 F.2d 113, 122 (3d Cir.1985), aff'd, 482 U.S. 656, 107 S.Ct. 2617, 96 L.Ed.2d 572 (1987).

We also note that, with respect to appellants' "feigned case" argument, the notice and the ADR process here were designed to determine which members of the class could demonstrate a compensable injury as a result of Prudential's allegedly deceptive practices. To require the named plaintiffs to determine beforehand which of the 8 million policyholders were deceived and provide notice to only those persons would eliminate the viability of the class action device.

We also disagree that the parties never intended to litigate the "other sales practices" claims. As discussed, those claims, along with the three categories of specific violations, were all intertwined as part of the common scheme allegedly employed by Prudential. If the parties litigated the churning, vanishing premium and investment plan claims, they would have litigated their "other sales practice" claims as well.

Based on the foregoing, we will affirm the district court's exercise of jurisdiction.

IV. CLASS CERTIFICATION

A. Settlement-Only Class Certification

Under the Federal Rules of Civil Procedure, a district court generally makes a determination whether to certify a class "as soon as practicable after the commencement of an action brought as a class action." Fed. R.Civ.P. 23(c)(1). This certification may be conditional, and may be modified as needed. Id. Although the initial complaint in this case was filed on October 24, 1995, the district court delayed consideration of the certification issue pending the outcome of the Task Force investigation.^[38]

On October 28, 1996, the district court conditionally certified the proposed class for settlement purposes only. Reviewing the class action device historically, the Supreme Court noted that "[a]mong current applications of Rule 23(b)(3), the `settlement only' class has become a stock device .... all Federal Circuits recognize the utility of Rule 23(b)(3) settlement classes." Amchem Products Inc. v. Windsor, ___ U.S. ___, ___, 117 S.Ct. 2231, 2247, 138 L.Ed.2d 689 (1997) (citations omitted); see also G.M. Trucks, 55 F.3d at 786-800 (examining the arguments for and against the use of settlement classes). But drawing on Judge Edward Becker's comprehensive opinion in Georgine v. Amchem Products, Inc., 83 F.3d 610 (3d Cir. 1996),<sup>[39]</sup> the Amchem Court noted the special [308] problems encountered with settlement classes. Although as a general matter it approved the certification of classes for settlement purposes only, the Supreme Court cautioned that the certification inquiry is still governed by Rule 23(a) and (b), and that "[f]ederal courts ... lack authority to substitute for Rule 23's certification criteria a standard never adopted—that if a settlement is `fair,' then certification is proper." Amchem, ___ U.S. at ___ _ ___, 117 S.Ct. at 2248-49.

Consequently, a district court must first find a class satisfies the requirements of Rule 23, regardless whether it certifies the class for trial or for settlement. Amchem, ___ U.S. at ___, 117 S.Ct. at 2248 ("The safeguards provided by the Rule 23(a) and (b) class-qualifying criteria, we emphasize, are not impractical impediments—shorn of utility — in the settlement class context."); G.M. Trucks, 55 F.3d at 799-800 ("In sum, `a class is a class is a class,' and a settlement class, if it is to qualify under Rule 23, must meet all of its requirements.").

The district court may take the proposed settlement into consideration when examining the question of certification. Amchem, at ___, 117 S.Ct. at 2248.^[40] In Amchem, the Supreme Court held "a district court [determining whether to certify a class for settlement purposes only] need not inquire whether the case, if tried, would present intractable management problems ... for the proposal is that there be no trial." Id. at ___, 117 S.Ct. at 2248. But at the same time the Court noted that "other specifications of the rule — those designed to protect absentees by blocking unwarranted or overbroad class definitions — demand undiluted, even heightened, attention in the settlement context." Id. In particular, the Court emphasized the importance of applying the class certification requirements of Rules 23(a) and (b) separately from its fairness determination under Rule 23(e). The Court noted that "[i]f a common interest in a fair compromise could satisfy the predominance requirement of Rule 23(b)(3), that vital prescription would be stripped of any meaning in the settlement context." Id. at ___ _ ___, 117 S.Ct. at 2249-50.^[41] At the same time, the Court stressed the requirements found under Rule 23(a), in particular the stricture that "the representative parties will fairly and adequately protect the interests of the class." Indeed, the key to Amchem appears to be the careful inquiry into adequacy of representation. Id. at ___, 117 S.Ct. at 2248 ("Subdivisions (a) and (b) [of Rule 23] focus court attention on whether a proposed class has sufficient unity so that absent members can fairly be bound by decisions of class representatives. That dominant concern persists when settlement, rather than trial, is proposed.")

With this standard in mind, we will review the district court's analysis of the Rule 23 certification criteria.

B. Class Certification under Rule 23

"Rule 23 is designed to assure that courts will identify the common interests of class members and evaluate the named plaintiff's and counsel's ability to fairly and adequately protect class interests." G.M. Trucks, 55 F.3d at 799. In order to be certified, a class must satisfy the four requirements of Rule 23(a): (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy [309] of representation.^[42] If the Rule 23(a) criteria are satisfied, the court must also find that the class fits within one of the three categories of class actions defined in Rule 23(b).^[43] In this instance the parties sought to certify the class under Rule 23(b)(3).^[44] In order to pass muster under Rule 23(b)(3), the district court must determine that common questions of law or fact predominate and that the class action mechanism is the superior method for adjudicating the case. The requirements of subsections (a) and (b) are designed to insure that a proposed class has "sufficient unity so that absent class members can fairly be bound by decisions of class representatives." Amchem, ___ U.S. at ___, 117 S.Ct. at 2248; see also Hassine v. Jeffes, 846 F.2d 169, 177 n. 4 (3d Cir.1988) ("`[C]ommonality' like `numerosity' evaluates the sufficiency of the class itself, and `typicality' like `adequacy of representation' evaluates the sufficiency of the named plaintiff...."). As noted, these class certification requirements are to be determined independently from the court's determination of the "fairness" of the proposed settlement under Rule 23(e).^[45] Amchem, ___ U.S. at ___, 117 S.Ct. at 2248 (Rule 23(e) "was designed to function as an additional requirement, not a superseding direction, for the `class action' to which Rule 23(e) refers is one qualified for certification under Rule 23(a) and (b).").

1. The Rule 23(a) Criteria

a. Numerosity

The court must find that the class is "so numerous that joinder of all members is impracticable." Fed.R.Civ.P.23(a)(1). No one has challenged the district court's finding that the proposed class satisfies the numerosity requirement. Indeed, the proposed class consists of more than 8 million present and former policyholders.

b. Commonality

The commonality prong of Rule 23(a) asks whether "there are questions of law or fact common to the class." Fed.R.Civ.P. 23(a)(2).^[46] The district court found the proposed [310] class easily satisfied the commonality requirement, citing several common factual and legal issues which the class members would need to establish in order to prove Prudential's liability.^[47] Fairness Opinion, 962 F.Supp. at 512. The district court also noted that the MDL Transfer Order recognized that the transferred actions "involve common questions of fact ... involv[ing] allegations that deceptive life insurance sales practices occurred or were encouraged as a[sic] result of some larger scheme or schemes organized by Prudential." Id. (quoting August 3, 1995 Transfer Order at 1-2). Finally, the court found Prudential had asserted affirmative defenses which were common to all class members, and independently would satisfy the predominance requirement. Id. at 512-13.^[48]

We believe the court's finding that the proposed class satisfied the commonality requirement was within its sound discretion. A finding of commonality does not require that all class members share identical claims, and indeed "factual differences among the claims of the putative class members do not defeat certification." Baby Neal v. Casey, 43 F.3d 48, 56 (3d Cir.1994) (citing Eisenberg v. Gagnon, 766 F.2d 770 (3d Cir.1985)).^[49] "The commonality requirement will be satisfied if the named plaintiffs share at least one question of fact or law with the grievances of the prospective class." Id. As the district court found, the allegations in the Second Amended Consolidated Complaint raise numerous issues which all members of the class would need to demonstrate in order to succeed at trial. Consequently, the proposed class satisfies Rule 23(a)(2).

c. Typicality

The district court found the claims of the class representatives were typical of the class as a whole. First, the court noted all of the named plaintiffs have alleged either churning, vanishing premium, or investment plan claims, or some combination of the three. Second, it relied on the "prominent guiding thread through all plaintiffs' claims — Prudential's scheme to defraud" to support its conclusion that the claims of the named plaintiffs are typical of the class as a whole. Fairness Opinion, 962 F.Supp. at 518. The court rejected the argument that "the class fails for [311] lack of typicality because no class representative claims to have been injured by `other improper sales practices.'" Id. The court reasoned that the "class members injured by `other fraudulent sales practices' have suffered the same injury — they are victims of Prudential's deception — and have suffered the same generic type of harm — they have economic damages — as the named plaintiffs," thereby satisfying the typicality requirement. Id. at 519 (citing General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 159, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982)).

On appeal, Krell reasserts his argument that the inclusion of the "other claims" defeats a finding of typicality. In particular, Krell contends the named plaintiffs' claims cannot be representative of the class because the "other claims" are not identified. Krell Brief at 29; see also Public Citizen Brief at 13-16. Additionally, Krell contends the court failed to consider the variations among the laws of the 50 states, making its typicality analysis inadequate.^[50] Amicus Public Citizen, relying on Falcon, argues plaintiffs must "show that the plaintiff class ha[s] been injured in the same manner as ha[ve] the named representative[s]." Public Citizen Brief at 15 (emphasis omitted).

"The concepts of commonality and typicality are broadly defined and tend to merge." Baby Neal, 43 F.3d at 56 (citing 7A Charles Alan Wright, Arthur R. Miller, Mary Kay Kane, Federal Practice and Procedure § 1764, at 247 (1986)). The typicality requirement is designed to align the interests of the class and the class representatives so that the latter will work to benefit the entire class through the pursuit of their own goals. Id. at 57 ("The typicality inquiry is intended to assess whether the action can be efficiently maintained as a class and whether the named plaintiffs have incentives that align with those of absent class members so as to assure that the absentees' interests will be fairly represented."); 1 Newberg on Class Actions, § 3.13. In this respect the commonality and typicality requirements both seek to ensure that the interests of the absentees will be adequately represented. Falcon, 457 U.S. at 157 n. 13, 102 S.Ct. 2364 n. 13. However, "neither of these requirements mandates that all putative class members share identical claims." Baby Neal, 43 F.3d at 56; Hassine v. Jeffes, 846 F.2d at 176-77; Weiss v. York Hosp., 745 F.2d 786, 809 (3d Cir.1984), cert. denied, 470 U.S. 1060, 105 S.Ct. 1777, 84 L.Ed.2d 836 (1985). In addition, "factual differences among the claims of the putative class members do not defeat certification." Baby Neal, 43 F.3d at 56.

We believe the district court's typicality analysis is correct. The named plaintiffs, as well as the members of the proposed class, all have claims arising from the fraudulent scheme perpetrated by Prudential. That overarching scheme is the linchpin of the Second Amended Consolidated Complaint, regardless whether each class member alleges a churning claim, a vanishing premium claim, an investment plan claim, or some other injury falling within the category of "other sales" claims. "Commentators have noted that cases challenging the same unlawful conduct which affects both the named plaintiffs and the putative class usually satisfy the typicality requirement irrespective of the varying fact patterns underlying the individual claims." Baby Neal, 43 F.3d at 58. Consequently, the factual distinctions among and between the named plaintiffs and the 8 million putative class members do not defeat a finding of typicality. "[E]ven relatively pronounced factual differences will generally not preclude a finding of typicality where there is a strong similarity of legal theories" or where the claim arises from the same practice or course of conduct. Id.

This conclusion is further buttressed by the Supreme Court's holding in Falcon. The Supreme Court reversed certification of a class of Mexican-Americans who were challenging their employers hiring and promotion decisions on typicality grounds.^[51] Falcon, 457 [312] U.S. at 157-59, 102 S.Ct. 2364. Krell relies on Falcon for the proposition that "across-the-board" classes do not satisfy Rule 23. Krell Brief at 27-28. We disagree. Falcon did not strike down "across-the-board" classes per se, and, in fact, it agreed "with the proposition underlying the across-the-board rule — that racial discrimination is by definition class discrimination." Falcon, 457 U.S. at 157, 102 S.Ct. 2364. The Court nonetheless reversed the class certification because the district court had improperly presumed that Falcon's claims were typical of the class claims. In particular, the Court emphasized that Falcon's claim was based on the theory of disparate treatment, while the class claims relied on the theory of disparate impact. Consequently, Falcon would need to "prove much more than the validity of his own claim" in order to prove the claims of the absentee class members, and thus his claims were not typical of the class. Id. at 158, 102 S.Ct. 2364.

The present case is readily distinguishable. Unlike the plaintiff in Falcon, the named plaintiffs here have not relied on allegations that they were singled out and defrauded by Prudential. They have instead alleged that they suffered harm as the result of the same company-wide conduct that injured the absentee class members. The various forms which their injuries may take do not negate a finding of typicality, provided the cause of those injuries is some common wrong. Baby Neal, 43 F.3d at 58 (citing Falcon, 457 U.S. at 157-59, 102 S.Ct. 2364) ("Where an action challenges a policy or practice, the named plaintiffs suffering one specific injury from the practice can represent a class suffering other injuries, so long as all the injuries are shown to result from the practice."). In this instance, the alleged common scheme provides an appropriate basis for a finding of typicality. Since all members of the class would need to demonstrate the existence of this scheme, their interests are sufficiently aligned that the class representatives can be expected to adequately pursue the interests of the absentee class members. Amchem, ___ U.S. at ___, 117 S.Ct. at 2248 (Rule 23 asks "whether a proposed class has sufficient unity so that absent class members can fairly be bound by decisions of class representatives").

d. Adequacy of Representation

The final Rule 23(a) prerequisite encompasses two distinct inquiries designed to protect the interests of absentee class members. First, the adequacy of representation inquiry "tests the qualifications of the counsel to represent the class." G.M. Trucks, 55 F.3d at 800. Second, it "serves to uncover conflicts of interest between named parties and the class they seek to represent." Amchem, ___ U.S. at ___, 117 S.Ct. at 2250. The district court found that both class counsel and the named plaintiffs satisfied these tests.

With respect to class counsel, the court found that plaintiffs' counsel were highly competent and experienced class action attorneys, and had pursued the interests of the class vigorously. Fairness Opinion, 962 F.Supp. at 519-20. With respect to the class representatives, the court found named plaintiffs' interest in proving Prudential's "knowledge and orchestration of the scheme to defraud" and their "interest in obtaining relief commensurate with individual injury," as well as punitive damages, demonstrates that "there are no disparate interests to impair plaintiffs' incentive to prosecute fully all aspects of their claims against Prudential." Id. at 521.

Krell contests the district court's analysis on several grounds. First, Krell disputes the district court's finding that class counsel adequately served the interests of the class. In particular, Krell argues that class counsel failed to take adequate discovery, and that an improper "clear sailing" fee agreement between class counsel and Prudential created an impermissible conflict of interest.^[52] Krell Brief at 19-21, 51-53.

[313] Second, Krell contends the inclusion of the category of "other claims" defeats a finding of adequate representation. Krell argues because policyholders have an equity interest in any "surplus" of Prudential, the expansion of the class to include policyholders with unidentified "other claims," whose interests were "adverse to those with asserted claims," created a detriment on behalf of the "other" policyholders for the benefit of those with asserted claims. According to Krell, this conflict destroys the adequacy of named plaintiffs' representation.

Third, Krell repeats his argument that the court's failure to consider the variations among the laws of the 50 states demonstrates that there was no adequate protection of the claims of absentees. In particular, Krell claims there was a conflict between class members with replacement claims and those without, so that the district court should have created a subclass of replacement claimants.^[53] Finally, both Krell and Public Citizen argue the proposed class improperly includes a subset of "futures" claimants, thereby running afoul of Amchem.

We believe the district court exercised its sound discretion when it found class counsel and the named plaintiffs adequately represent the class. First, we believe class counsel vigorously pursued this class action. Both the uncapped nature of the proposed settlement and the "unprecedented" outreach program indicate that class counsel and the named plaintiffs have attempted to serve the best interests of the class as a whole. Further, we agree with the district court's finding that the attorneys' fee arrangement between class counsel and Prudential did not affect the adequacy of representation. See infra § VI.C.1.

Second, we also agree with the district court that the named plaintiffs adequately represent the interests of the absentee class members. As discussed, the crux of this class action is the allegation that Prudential engaged in a scheme to defraud policyholders by means of company-wide deceptive sales practices. The named parties, like the members of the class, would need to establish this scheme in order to succeed on any of the claims in the Second Amended Consolidated Complaint. Even those class members with "other" claims share the common task of demonstrating the existence and implementation of this scheme. Consequently, we believe the proposed class satisfies the adequacy of representation requirement of Rule 23(a).

We also reject the argument that the class as constituted included persons who are currently unaware of their injury, and that this "futures" class is barred under Amchem. Amchem, of course, found the proposed class did not meet the adequacy of representation standard because the interests of those with present injuries differed from those with "futures" claims. Amchem, ___ U.S. at ___, 117 S.Ct. at 2251 (finding that the economic interest of the currently injured claimants "tugs against the interest of the exposure-only plaintiffs"). But Amchem is easily distinguished on its facts. Unlike the "exposure-only" plaintiffs in Amchem, the class members here need not wait to determine if they have been harmed by Prudential's fraudulent sales practices. There is no "future" manifestation of injury, because any injury suffered by a member of the class has already occurred. Having received notice of the pending class action and the availability of relief, members of the class can determine whether they have been victims of Prudential's fraud, either through a review of their records or by calling the toll-free number established by the settling parties. Consequently, the district court exercised its sound discretion in finding the proposed class meets the adequacy of representation requirement of Rule 23(a)(4).

2. The Rule 23(b) Criteria

In order to certify an opt-out class under Rule 23(b)(3) the district court must make two additional findings: predominance and superiority. Issues common to the class [314] must predominate over individual issues, and the class action device must be superior to other means of handling the litigation. The district court found both requirements were satisfied.

a. Predominance

The Supreme Court's recent decision in Amchem addressed the application of the predominance prong to "settlement only" classes. Although the Court made clear that consideration of the proposed settlement was proper when making a decision on class certification, it also placed limits on the weight to be accorded to the settlement. In particular, Amchem rejected the idea that the potential benefits of settlement are relevant to the predominance inquiry. According to the Court, the predominance "inquiry trains on the legal or factual questions that qualify each member's case as a genuine controversy, questions that preexist any settlement." Amchem, ___ U.S. at ___, 117 S.Ct. at 2249. The court noted the "claims and defenses" relevant to both the predominance test and the Rule 23(a)(4) adequacy of representation inquiry "refer to the kinds of claims or defenses that can be raised in courts of law as part of an actual or impending law suit." ___ U.S. at ___ n. 18, 117 S.Ct. at 2249 n. 18 (quoting Diamond v. Charles, 476 U.S. 54, 76-77, 106 S.Ct. 1697, 90 L.Ed.2d 48 (1986) (O'Connor, J. concurring in part and concurring in judgment)).

In its predominance determination, the court focused primarily on plaintiffs' allegation that Prudential engaged in a common course of conduct by which it defrauded class members, and concluded that "[w]here many purchasers have been defrauded over time by similar misrepresentations, or by a common scheme to which alleged non-disclosures related, courts have found that the purchasers have a common interest in determining whether the defendant's course of conduct is actionable." Fairness Opinion, 962 F.Supp. at 511 (citations omitted).

The district court also rejected the argument that claimants' need to demonstrate reliance destroyed predominance, reasoning that "reliance is an issue secondary to establishing the fact of defendant's liability." Id. at 516 (citing 1 Newberg § 4.26 at 4-104) ("Challenges based on ... reliance have usually been rejected and will not bar predominance satisfaction because [reliance pertains] to the right of a class member to recover in contrast to underlying common issues of the defendant's liability."). Additionally, the court noted that "most of the plaintiffs' claims do not even involve a reliance element," including their claims for breach of contract, breach of implied obligation of good faith and fair dealing, negligence, negligent training and supervision, and unjust enrichment. Id. Finally, the court found that, because "plaintiffs' fraud-based claims stem largely from misleading omissions," reliance can be presumed. Id.

The district court also distinguished this case from Georgine. First, the court reasoned that "Prudential's alleged intentional use of the fraudulent sales tactics provides the `single central issue' lacking" in Georgine. Id. at 511 n. 45. Whereas Georgine involved a variety of claims encompassing scores of individual issues, a trial in this instance would be focused on Prudential management's conduct. Id. Second, the court noted the class here is comprised of persons who purchased one type of product (life insurance policies) from one company, in contrast to the Georgine class members who were exposed to different asbestos-containing products manufactured by different companies. Finally, the district court noted the class here lacked "futures" plaintiffs, because "class members are readily identifiable and have already suffered injury by the purchase of a product that was misrepresented." Id.

As the Supreme Court noted in Amchem, "[p]redominance is a test readily met in certain cases alleging consumer or securities fraud or violations of the antitrust laws .... [e]ven mass tort cases arising from a common cause or disaster may, depending upon the circumstances, satisfy the predominance requirement." Amchem, ___ U.S. at ___, 117 S.Ct. at 2250 (citing Adv. Comm. Notes, 28 U.S.C.App., p. 697). This case, involving a common scheme to defraud millions of life insurance policy holders, falls within that category. The district court's opinion sets forth a litany of common issues which the class [315] must demonstrate in order to prevail. See supra § IV.B.1 and n. 47-48. While individual questions may arise during the course of this litigation, we agree with the district court that the presence of individual questions does not per se rule out a finding of predominance. In particular, the "presence of individual questions as to the reliance of each investor does not mean that the common questions of law and fact do not predominate." Eisenberg v. Gagnon, 766 F.2d 770, 786 (3d Cir.1985).

Krell contends the district court did not conduct a proper analysis under Rule 23(b)(3), and instead "presumed" predominance by finding the central issue in this case was nationwide deceptive conduct by Prudential's management. We disagree. A review of the district court's fairness opinion belies the contention that it merely presumed predominance. See Fairness Opinion, 962 F.Supp. at 510-17. The district court's finding that common issues predominated in this case was within its sound discretion, was supported by the record, and was amply demonstrated in its opinion.

Krell also reasserts his argument that the class here suffers the same defects as the class of asbestos plaintiffs in Amchem. We find the district court's analysis of this comparison convincing. The two cases are markedly different, and easily distinguished. The Amchem class failed the predominance inquiry because of the disparate questions facing class members, based in part on their differing levels of exposure, their differing medical histories, and the presence of exacerbating conditions such as smoking. Of course, the complexity of a case alleging physical injury as a result of asbestos exposure differs greatly from a case alleging economic injury as a result of deceptive sales practices. The elements of proof are less difficult when the vagaries of medical testimony and scientific expertise are removed from consideration. Furthermore, the Amchem class was further undermined by the schism between the differing medical needs of currently injured class members and exposure-only or "futures" claimants. As noted, there is no "futures" class in this case.

We also reject Krell's contention that predominance is defeated because the class claims are subject to the laws of the fifty states. Courts have expressed a willingness to certify nationwide classes on the ground that relatively minor differences in state law could be overcome at trial by grouping similar state laws together and applying them as a unit. This Court has affirmed a class certification based on a "creditable showing, which apparently satisfied the district court, that class certification [did] not present insuperable obstacles" relating to variances in state law. See In re School Asbestos Litigation, 789 F.2d 996, 1010 (3d Cir.1986).^[54] In this instance Krell has failed to demonstrate that the differences in applicable state law were sufficient to foreclose a similar approach.^[55] In support of class certification, plaintiffs compiled "a series of charts setting forth comprehensive analyses of the various states' laws potentially applicable to their common law claims." Fairness Opinion, 962 F.Supp. at 525. The court concluded that the "elements of these common law claims are substantially similar and any differences fall into a limited number of predictable patterns." Id. The district court "considered the choice of law issues that confront[ed] the Court and conclude[d] that these choice of law issues [did] not render this class action unmanageable." Id. We agree.

b. Superiority

Rule 23(b)(3) sets out several factors relevant to the superiority inquiry.^[56] The district [316] court addressed these factors and found the class action mechanism was superior to other possible means of adjudicating this case. First, the court examined the relatively modest size of individual claims and the sheer volume of those claims in the aggregate, and concluded a class action presented the "only rational avenue of redress for many class members." Id. at 523. Second, the court reasoned the relatively small number of individual suits pending against Prudential indicated that individual policyholders lacked a compelling interest to control the prosecution of their own claims, and at the same time represented a potentially great strain on judicial resources. Third, the court found it was appropriate to litigate the case in New Jersey, Prudential's principal place of business. Finally, the district court determined that the case, while challenging, would not present insurmountable case management problems if it were tried.^[57] Id. at 525.

Krell objects to the finding of superiority, claiming the district court erred by only comparing the nationwide class with the prospect of individual proceedings, without considering the possibility of subclasses and without allowing Krell to develop the subclass issue.

The superiority requirement asks the court "to balance, in terms of fairness and efficiency, the merits of a class action against those of `alternative available methods' of adjudication." Georgine, 83 F.3d at 632 (citing Katz v. Carte Blanche Corp., 496 F.2d 747, 757 (3d Cir.) (en banc), cert. denied, 419 U.S. 885, 95 S.Ct. 152, 42 L.Ed.2d 125 (1974)). We believe the court's superiority determination was within its sound discretion. With respect to Krell's subclass argument, the district court found no conflict between replacement and nonreplacement claimants. Fairness Opinion, 962 F.Supp. at 522. We agree. As discussed infra at § V.A.4., Krell has not demonstrated that replacement claimants differ from other class members so as to require the creation of a subclass. Because the replacement claimants did not require specialized or distinct treatment, the court's failure to create a separate subclass for those claimants, as well as its superiority determination, was not an abuse of discretion.^[58]

C. Conclusion

Based on our review of the prerequisites of Rule 23(a) and 23(b)(3), we believe the "proposed class has sufficient unity so that absent members can fairly be bound by decisions of class representatives." Amchem, ___ U.S. at ___, 117 S.Ct. at 2248. Consequently, we will affirm the district court's certification of the class.

V. THE FAIRNESS OF THE PROPOSED SETTLEMENT

Even if it has satisfied the requirements for certification under Rule 23, a class action cannot be settled without the approval of the court and a determination that the proposed settlement is "fair, reasonable and adequate."^[59] G.M. Trucks, 55 F.3d at 785. "Rule 23(e) imposes on the trial judge the duty of protecting absentees, which is executed by the court's assuring the settlement represents adequate compensation for the release of the class claims." Id. at 805 (citations omitted).

In deciding the fairness of a proposed settlement, we have said that "[t]he evaluating [317] court must, of course, guard against demanding too large a settlement based on its view of the merits of the litigation; after all, settlement is a compromise, a yielding of the highest hopes in exchange for certainty and resolution." Id. at 806 (citations omitted). At the same time, we have noted that cases such as this, where the parties simultaneously seek certification and settlement approval, require "courts to be even more scrupulous than usual" when they examine the fairness of the proposed settlement. Id. at 805. This heightened standard is designed to ensure that class counsel has demonstrated "sustained advocacy" throughout the course of the proceedings and has protected the interests of all class members. Id. at 806.

"The decision of whether to approve a proposed settlement of a class action is left to the sound discretion of the district court." Girsh v. Jepson, 521 F.2d 153, 156 (3d Cir. 1975). Because of the district court's proximity to the parties and to the nuances of the litigation, we accord great weight to the court's factual findings. Bell Atlantic Corp. v. Bolger, 2 F.3d 1304, 1305-6 (3d Cir.1993) (citing Ace Heating & Plumbing Co. v. Crane Co., 453 F.2d 30, 34 (3d Cir.1971)).

As the district court recognized, our decision in Girsh sets out appropriate factors to be considered when determining the fairness of a proposed settlement. Those factors are:

(1) the complexity, expense and likely duration of the litigation ...; (2) the reaction of the class to the settlement ...; (3) the stage of the proceedings and the amount of discovery completed ...; (4) the risks of establishing liability ...; (5) the risks of establishing damages ...; (6) the risks of maintaining the class action through trial ...; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery ...; (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation....

Girsh, 521 F.2d at 157 (quoting City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir.1974)) (the "Girsh factors"). The court examined each of these factors and found "the Proposed Settlement is indeed fair, reasonable, and adequate and should be approved." Fairness Opinion, 962 F.Supp. at 534.

In addition to the Girsh analysis, the district court offered other reasons for its conclusion that the settlement was fair and reasonable. Describing the proposed settlement as "exceptional," the court noted the settlement's structure was based on the class action settlements approved in Willson v. New York Life Ins. Co., No. 94-127804, 1995 N.Y. Misc. LEXIS 652 (N.Y.Sup.Ct. Feb. 1, 1996), aff'd, 228 A.D.2d 368, 644 N.Y.S.2d 617 (1st Dept.), and Michaels v. Pheonix Home Life Ins. Co., No. 95-5318, 1997 N.Y. Misc. LEXIS 171 (N.Y.Sup.Ct. Jan. 3, 1997), both of which received the praise of "[c]ourts, academic and industry experts, and various independent organizations." Fairness Opinion, 962 F.Supp. at 535. The court also relied on the expertise of the insurance regulators from the fifty states and the District of Columbia, all of whom endorsed the settlement.

The court found the terms of the settlement "benefit[] the class enormously," emphasizing the uncapped nature of the relief, the fairness of the ADR process, and the availability of Basic Claim Relief to those class members who either elect not to participate in the ADR process or who cannot demonstrate they have a compensable claim. The court found this relief was enhanced by the inclusion of "Additional Remediation Amounts," which it described as the "punitive damage counterpart to the Proposed Settlement," and by Prudential's agreement to pay all attorneys' fees and costs associated with the settlement. Id. at 535-36. Finally, the court emphasized the settlement provided class members the opportunity to file claims immediately after court approval of the settlement, rather than waiting through what no doubt would be protracted litigation. Id. at 536.

Krell raises several challenges to the district court's fairness determination.^[60] First, [318] Krell claims the district court applied several of the Girsh factors improperly, and in some cases not at all, and that it erred by not creating a separate subclass to address replacement claims. Krell Brief at 43-50. Second, he contends the district court's fairness determination violated the McCarran-Ferguson Act and the Rules Enabling Act by altering the substantive contractual and statutory insurance rights of the class. Id. at 36-40. Finally, Krell alleges the certification and fairness proceedings lacked due process. Id. at 40-42.

A. The Girsh Factors

Although Krell has not directly challenged the court's analysis with respect to each of the nine Girsh factors, we will examine each of them in turn.

1. The complexity and duration of the litigation

Citing the myriad complex legal and factual issues which would arise at trial, the district court found the "anticipated complexity, costs, and time necessary to try this case greatly substantiate the fairness of the settlement." Fairness Opinion, 962 F.Supp. at 536. The court found that litigation would require expensive and time consuming discovery, would necessitate the use of several expert witnesses, and would not be completed for years. Consequently, the court concluded this factor weighed in favor of settlement.

We agree. Examining the sheer magnitude of the proposed settlement class as well as the complexity of the issues raised, we conclude the trial of this class action would be a long, arduous process requiring great expenditures of time and money on behalf of both the parties and the court. The prospect of such a massive undertaking clearly counsels in favor of settlement.^[61]

2. The reaction of the class to the settlement

This factor attempts to gauge whether members of the class support the settlement. Although the response rate in a 23(b)(3) class action is relevant to the fairness determination, see, e.g., Bell Atlantic, 2 F.3d at 1313 n. 15 (3d Cir., 1993); Shlensky v. Dorsey, 574 F.2d 131, 148 (3d Cir.1978), "a combination of observations about the practical realities of class actions has led a number of courts to be considerably more cautious about inferring support from a small number of objectors to a sophisticated settlement." G.M. Trucks, 55 F.3d at 812 (citation omitted).

The district court found that, of the 8 million policyholders to whom Prudential sent the class notice, approximately 19,000 policyholders or 0.2 per cent of the class opted out.^[62] The court also noted that approximately 300 policyholders filed objections to the settlement. The court found the small percentage of opt outs and objectors was "truly insignificant," and noted that the "most vociferous objectors to the Proposed Settlement are a handful of litigants represented by counsel in cases that compete with or overlap the claims asserted in the Second Amended Complaint." Fairness Opinion, 962 F.Supp. at 537. Consequently, the court concluded the limited number of objections filed also weighed in favor of approving the settlement. Id. at 537-38.

We see no abuse of discretion. While we do not read too much into the low rate of response, we believe the district court properly analyzed this factor.^[63]

[319] 3. The stage of the proceedings and amount of discovery completed

The parties must have an "adequate appreciation of the merits of the case before negotiating." G.M. Trucks, 55 F.3d at 813. To ensure that a proposed settlement is the product of informed negotiations, there should be an inquiry into the type and amount of discovery the parties have undertaken. Krell contends that class counsel's discovery was insufficient to support the proposed settlement, claiming that Lead Counsel's pre-settlement discovery consisted only of 70 boxes of documents received in August 1996 pursuant to informal letter requests, and a number of meetings with Prudential's chairman, Arthur Ryan. Krell questions how Lead Counsel could have been in "second stage settlement negotiations" before receiving Prudential's production of over 1 million documents, videotapes, audio tapes and computer tapes in mid-August. Finally, Krell contends there was no vigorous, adversarial discovery because "virtually all of Prudential's discovery obligations" were stayed between October 1995 and September 10, 1996, and the parties didn't agree on a free exchange of information until August 20, 1996, only a few weeks before the proposed settlement was announced.

The district court found that "counsel for plaintiffs and Prudential did not commence serious settlement discussions until 18 months of vigorous litigation had transpired," noting the parties had filed and argued a multitude of motions, including consolidation motions, jurisdictional motions, motions to stay competing class actions, case management motions, and Prudential's motion to dismiss under F.R.C.P. 12(b)(6). Fairness Opinion, 962 F.Supp. at 538 n. 62. In addition to its in-court efforts, the district court concluded that class counsel's pursuit of discovery also supported the settlement. The court found class counsel reviewed a multitude of documents provided by Prudential,^[64] conducted its own interviews with hundreds of current and former Prudential employees, took twenty depositions, and had access to all of the materials collected by the Task Force. Id. at 541. The district court also found class counsel took sufficient time to review the discovery materials it collected, noting that class counsel refused to discuss settlement on two separate occasions because it believed it needed further discovery. Id. (citing Weiss Aff. ¶¶ 49, 101-02.) Finally, the court found class counsels' "use of informal discovery was especially appropriate in this case because the Court stayed plaintiffs' right to formal discovery for many months, and because informal discovery could provide the information that plaintiffs needed." Id. at 542. Based on the foregoing, the district court concluded "the volume and substance of Class Counsel's knowledge of this case are unquestionably adequate to support this settlement." Id. at 541. We see no error here.

4. The risks of establishing liability and damages

The fourth and fifth Girsh factors survey the possible risks of litigation in order to balance the likelihood of success and the potential damage award if the case were taken to trial against the benefits of an immediate settlement. Examining plaintiffs' ability to establish liability and damages at trial, the court concluded "the risks of establishing liability weigh in favor of approving the settlement." Id. at 540.

We believe the district court properly examined the risks faced by the putative class. The court found plaintiffs would face a difficult burden at trial demonstrating, inter alia, (1) class members were deceived by Prudential's written disclosures and illustrations; (2) their contract claims were not barred by the parol evidence rule because they conflict with the unambiguous language in the insurance contracts; (3) the necessary reliance to support their federal securities claims; and (4) their federal securities claims were not barred by the one year statute of limitations and the three year statute of repose. Id. at 539. As further evidence of the barriers facing plaintiffs, the district court took notice [320] of a similar life insurance sales practice case in Alabama state court in which the judge overturned a substantial jury verdict against Prudential. Id. (citing Key v. Prudential Ins. Co. of America, Civ. No. 93-479 (Al.Cir. Ct. Dec. 28, 1995)). We believe the district court offered substantial reasons for its findings.

a. Replacement Claims

Krell argues the district court failed to consider separately the likelihood of success at trial for those class members who alleged "replacement claims," contending those claims require a lesser degree of proof and may be established by an objective review of the documents in Prudential's files. Both Prudential and Lead Counsel contend that "replacement policyholders faced similar burdens to those of other Class Members in establishing liability and damages against Prudential."^[65] Prudential Brief at 35.

The district court did not believe that "replacement claims" are easier to prove and therefore required separate consideration. Fairness Opinion, 962 F.Supp. at 522. We agree. Krell offers no authority or analysis to support this blanket assertion. In addition, the findings of the Multi-State Task Force undermine Krell's argument.

The primary focus of the Multi-State Task Force was the practice known as "churning" or "twisting," which it defined as "the sale of any policy based upon incomplete or misleading comparisons." Task Force Report at 35. According to the Multi-State Task Force Report, the transactions most frequently the subject of churning or twisting complaints were financed sales and abbreviated payment plans. Replacement transactions are a subcategory of financed sales in which at least 25% of an existing policy's value is used to fund the purchase of a new policy. Id. (citing the current NAIC Replacement Life Insurance and Annuities Model regulation, adopted in 1984).

The Task Force Report makes clear that "none of these types of sales, financed, replacement or abbreviated pay, is in violation of the replacement regulation if properly done." Id. at 36 (emphasis omitted). It also notes that, during the late 1970s and early 1980's, the previous industry-wide disinclination for replacement sales began to give way. In 1978, for example, the National Association of Insurance Commissioners modified its model replacement regulations to reflect the growing acceptance of replacement sales, provided those sales were accompanied by necessary information and disclosure to allow consumers to "make an informed choice."^[66] Id. at 39-40.

Turning to its examination of Prudential, the Task Force acknowledged its goal was "to determine whether during the sale of new policies, those involving financing or replacement, consumers were adequately advised of the potential failings of the new policies or the funding basis on which they were sold." Id. at 45. The Report notes that although all of the required disclosure forms may have been completed and filed by Prudential, "[o]ne must look beyond the required forms to determine whether or not presentations were accurate and not misleading." Id. In its discussion of the remediation protocol, the Task Force explained "the documentation received from Prudential did not always support the consumer's assertion," and consequently "[w]hat was or was not agreed upon at the time of sale became a question of fact." Id. at 189; see also id. at 191 (noting that while "some replacements may have been appropriate ... misrepresentation is never appropriate," and thus "the challenge is to distinguish appropriate replacement activity.")

[321] Consequently, it appears that misrepresentation, rather than compliance with bookkeeping requirements, was the primary concern of the Task Force examination of Prudential's replacement sales. As the Task Force Report states, it is incorrect "to assume that in any and every case where a replacement was not identified or the regulatory requirements were not met, the policyholder did not understand the transaction or that it was not properly explained." Id. at 17. We also find it significant that the state insurance regulators who crafted the initial Task Force Report did not incorporate a lesser burden of proof or otherwise distinguish "replacement claims" from other types of claims.^[67] Consequently, we believe the district court properly considered the role of replacement claims when analyzing the fourth and fifth Girsh factors.^[68]

5. The risks of maintaining the class action through trial

Under Rule 23, a district court may decertify or modify a class at any time during the litigation if it proves to be unmanageable. In re School Asbestos Litigation, 789 F.2d at 1011 (3d Cir.1986); G.M. Trucks, 55 F.3d at 815. In this instance, the district court concluded that although "this case is manageable as a class action and [] the class action device is the most appropriate means to adjudicate this controversy, as the case evolves, maintaining the class action may become unworkable" and require decertification. Fairness Opinion, 962 F.Supp. at 540. The court also noted Prudential had sought to preserve its objections to class certification, and would likely contest certification if the case proceeded to trial. Consequently, the court concluded that there was a risk the case might eventually be decertified, all of which weighed in favor of settlement.

Although we agree with the district court's analysis and find there was some risk of decertification which supports settlement, we pause to comment on the application of this factor in "settlement-only" class actions following the Supreme Court's decision in Amchem. Because the district court always possesses the authority to decertify or modify a class that proves unmanageable, examination of this factor in the standard class action would appear to be perfunctory. There will always be a "risk" or possibility of decertification, and consequently the court can always claim this factor weighs in favor of settlement. The test becomes even more "toothless" after Amchem. The Supreme Court in Amchem held a district court could take settlement into consideration when deciding whether to certify a class, and that, "[c]onfronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems ... for the proposal is that there be no trial." ___ U.S. at ___, 117 S.Ct. at 2248. It would seem, therefore, that after Amchem the manageability inquiry in settlement-only class actions may not be significant.

6. The ability of the defendants to withstand a greater judgment

The district court found "Prudential's ability to withstand a greater judgment is a matter of concern."^[69] Fairness Opinion, 962 [322] F.Supp. at 540. Noting that the settlement was valued between $1 billion and $2 billion, the court found a larger judgment could negatively impact Prudential's declining credit rating.^[70] Id. The court also expressed concern that, because Prudential is a mutual insurer, non-class member policyholders could conceivably be adversely affected by an excessive settlement in the form of lower dividends. Id.

Krell claims the district court erred by finding that Prudential could not withstand a greater judgment because "neither Lead Counsel nor Prudential submitted any reliable evidence of the true value of the ADR relief." Krell Brief at 50. Krell speculates that even the $410 million minimum is inaccurate because it does not account for "profits, if any" generated by Basic Claim Relief.

We see no error here. As the district court noted, the value of the proposed settlement is difficult to determine because both the compensatory relief available under the ADR and the additional relief available through Basic Claim Relief are uncapped. The parties' experts offered valuations between $1 and $2 billion, with an absolute minimum of $410 million. While these numbers are imprecise, they are a sufficient basis for the district court to decide whether Prudential could withstand a greater judgment. In addition, Prudential's credit rating during the course of the litigation may be an appropriate indicator, among others, for the court's consideration, and its decline would support the court's analysis.

7. The range of reasonableness of the settlement fund in light of the best possible recovery and all the attendant risks of litigation

The last two Girsh factors ask whether the settlement is reasonable in light of the best possible recovery and the risks the parties would face if the case went to trial. In order to assess the reasonableness of a proposed settlement seeking monetary relief, "the present value of the damages plaintiffs would likely recover if successful, appropriately discounted for the risk of not prevailing, should be compared with the amount of the proposed settlement." G.M. Trucks, 55 F.3d at 806 (quoting Manual for Complex Litigation 2d § 30.44, at 252). On appeal, Krell argues the district court declined to address this issue, instead finding the analysis unnecessary because all injured policyholders would receive full compensatory relief.

Krell has mischaracterized the district court's opinion. The district court applied the final two Girsh factors, although it did not attempt to reduce its analysis to a concrete formula. The district court found that calculating the best possible recovery for the class in the aggregate would be "exceedingly speculative," and in this instance such a calculation was unnecessary because the reasonableness of the settlement could be fairly judged. The court instead examined the nature of the settlement and the range of possible outcomes for those participating in either the ADR process or Basic Claim Relief, and concluded that "an individual's recovery exceeds the value of the best possible recovery discounted by the risks of litigation." Fairness Opinion, 962 F.Supp. at 540.

For example, the court found class members who have clear claims against Prudential will receive scores of "3" and will "receive a choice between full rescissionary or compensatory relief plus interest." Thus they will receive full compensation without paying attorneys fees and without undue delay.^[71] The court concluded this relief "is not only fair, it is exceptional." Id. at 540-41. Those [323] class members who received a score of "2" — where the evidence on balance supports the claim — would receive 50% of their damages without having to pay litigation costs or fees, an award the court concluded was equivalent to what the claimant would have received at trial. Id. at 541 ("The 50% award plus 100% interest is equivalent to a full award minus litigation costs, attorneys' fees, and the price of delay."). The court also found the settlement was fair for those receiving a score of "1" in the ADR process and for those electing Basic Claim Relief — those who would not have had a claim or not elected to bring one — because the Basic Claim Relief recovery is greater than what they would have gotten at trial.^[72] Id.

We believe the district court adequately addressed these factors and agree its examination "accounts appropriately for the nuances of this Proposed Settlement." Id. at 535 n. 58. As the court noted, both the structure of the settlement and the uncapped nature of the relief provided make it difficult to determine accurately the actual value of the settlement. Consequently, the traditional calculus suggested by the Manual for Complex Litigation 2d and adopted by this Court in G.M. Trucks cannot be applied to this case. But we cannot find the district court abused its discretion when it found that the remedies available under the proposed settlement provided extraordinary relief. When balanced against the best possible recovery and the risks of taking this case to trial, these remedies weighed in favor of the proposed settlement.

It is worth noting that since Girsh was decided in 1975, there has been a sea-change in the nature of class actions, especially with respect to mass torts. In this regard, it may be useful to expand the traditional Girsh factors to include, when appropriate, these factors among others: the maturity of the underlying substantive issues, as measured by experience in adjudicating individual actions, the development of scientific knowledge, the extent of discovery on the merits, and other factors that bear on the ability to assess the probable outcome of a trial on the merits of liability and individual damages; the existence and probable outcome of claims by other classes and subclasses; the comparison between the results achieved by the settlement for individual class or subclass members and the results achieved — or likely to be achieved — for other claimants; whether class or subclass members are accorded the right to opt out of the settlement; whether any provisions for attorneys' fees are reasonable; and whether the procedure for processing individual claims under the settlement is fair and reasonable.^[73] Of these factors, the [324] only one relevant here is the fairness and reasonableness of the ADR procedure. See also discussion supra § V.D.

B. Other Objections

1. The Rules Enabling Act and the McCarran-Ferguso n Act

Krell argues the proposed settlement violates the Rules Enabling Act^[74] and the McCarran-Ferguson Act^[75] because it "would alter policyholders' past and future substantive contractual and statutory insurance rights." Krell Brief at 36. The district court rejected both arguments. First, the court found the McCarran-Ferguson Act does not apply to an agreement between private parties. Fairness Opinion, 962 F.Supp. at 561. Second, the court found approval of a settlement under Rule 23 "merely recognizes the parties' voluntary compromise of their rights" and does not itself affect their substantive state law rights.^[76] Id. at 561-62. For the reasons outlined by the district court, we agree the proposed settlement in this case does not violate either the McCarran-Ferguson Act or the Rules Enabling Act.^[77]

2. Failure to Allow Discovery

Krell alleges the district court deprived him of fundamental due process by denying him the opportunity to take necessary discovery. Krell Brief at 40-42. Krell [325] contends additional discovery was essential because class counsel's own discovery was inadequate, and the district court's denial of Krell's requests for settlement and fee related discovery^[78] resulted in an erroneous assessment of the fairness of the settlement.

Krell complains his discovery attempts were hampered by the court order requiring all discovery requests be served on Prudential through Lead Counsel. According to Krell, Lead Counsel refused Krell's requests both prior and subsequent to signing the settlement agreement in September 1996, and excluded him from the "free exchange" of documents. Krell also requested cross-examination of affiants supporting the settlement, depositions from the named plaintiffs with respect to jurisdiction and adequacy of representation, and other document discovery.^[79]

Objectors are "entitled to an opportunity to develop a record in support of [their] contentions by means of cross-examination and argument to the court." Greenfield v. Villager Indus., Inc., 483 F.2d 824, 833 (3d Cir.1973). There is no dispute Krell was given the opportunity to present his arguments to the court during the fairness hearing. In addition, the district court found Krell had ample opportunity to avail himself of the substantial discovery provided to Lead Counsel but failed to do so, and that additional discovery was unnecessary because Krell focused primarily on legal issues. Fairness Opinion, 962 F.Supp. at 563.

We believe the district court acted well within its discretion here. Faced with the prospect of immense discovery requests, the district court attempted to exert some control over the discovery process. Krell cannot impute to the court his own failure to avail himself of the opportunity to review the discovery in this case.

C. "Other Sales Claims"

The final issue we address with respect to fairness relates to the category of "other sales claims." Krell raises two arguments in opposition to this broad category of claims. First, Krell contends that the "other claims" were improperly added at the last minute to secure an all-encompassing release for Prudential. Second, Krell contends the notice provided under the settlement did not adequately explain the category to absentee members, and consequently millions of policyholders would inadvertently waive their right to recover for Prudential's fraudulent acts.

1. The Alleged Expansion of the Class

According to Krell, the "class definition was at the last minute expanded to release nearly 8 million additional policyholders not included in the class pled only 3 days earlier." Krell Brief at 4.^[80] In addition to the previously-noted ramifications of this "expansion" with respect to the Rule 23 certification prerequisites, Krell also contends the release of these claims is improper because it exceeds the scope of the class complaint.

Prudential and Lead Counsel counter that the certified class is actually smaller than the "putative class defined in plaintiffs' initial pleadings" and that the Task Force remediation plan also included an "other claims" category. As Lead Counsel explains, plaintiffs have contended "from the outset that Prudential's common course of deceptive conduct extended beyond the churning, vanishing premium, and investment sales tactics and permeated its product design, agent training and oversight, sales activities, and dividend, expense and investment practices." Lead Counsel Brief at 20. The settling parties maintain that, even if such claims were not included in the Second Amended Consolidated [326] Complaint, those claims could still be released because they arose from the conduct alleged in the Complaint.

The district court held the release was not unfairly broad, finding it generally corresponded with the allegations in the Second Amended Consolidated Complaint. The court also found that "releases may include all claims, including unpleaded claims that arise out of the same conduct alleged in the case."^[81] Fairness Opinion, 962 F.Supp. at 558 (citing Grimes v. Vitalink Communications Corp., 17 F.3d 1553, 1563 (3d Cir.), cert. denied, 513 U.S. 986, 115 S.Ct. 480, 130 L.Ed.2d 393 (1994); Sandler Assocs., L.P. v. Bellsouth Corp., 818 F.Supp. 695, 704-05 (D.Del.1993), aff'd, 26 F.3d 123 (3d Cir.1994)).

The crux of the plaintiffs' complaint was that Prudential engaged in a common scheme of deceptive sales practices. Although the Second Amended Consolidated Complaint specifically lists three types of deceptive sales claims — the churning, vanishing premium and investment plan claims — other allegations address conduct which supports the common scheme theory and which does not fall neatly within the three enumerated categories. See supra note 11. Therefore, we agree with the district court the "other claims" were properly released.^[82] While it is essential to protect the interests of absentee class members, we believe the claims of the absentees here are adequately incorporated in the terms of the settlement. The category of "other claims" are part and parcel of the "common scheme" which underlies plaintiffs' entire case, and are separately addressed in the procedural guidelines which forms the basis for the ADR process. Finally, the settling parties have represented that the settlement "does not release unknown claims relating to the servicing or administration of class members' policies," but is limited to claims relating to the actual sale of insurance policies.^[83] Lead Counsel Brief at 62-63. Consequently, we believe the "other claims" were appropriately included in the release.

2. Adequacy of Class Notice

Rule 23 of the Federal Rules of Civil Procedure contains two distinct notice provisions. Rule 23(c)(2) requires notice be given to all potential members of a Rule 23(b)(3) class informing them of the existence of the class action, the requirements for opting out of the class and/or entering an appearance with the court, and the applicability of any final judgment to all members who do not opt out of the class.^[84] Rule 23(e) requires all members of the class be notified of the terms [327] of any proposed settlement.^[85] The Rule 23(e) notice is designed to summarize the litigation and the settlement and "to apprise class members of the right and opportunity to inspect the complete settlement documents, papers, and pleadings filed in the litigation." 2 Newberg on Class Actions § 8.32 at 8-109.

In this instance, the parties prepared a joint notice, combining the information required by Rules 23(c)(2) and 23(e). The district court's October 28, 1996 order required the settling parties to mail individual notice^[86] to the last known address of the over 8 million present and former policyholders who comprised the putative class.^[87] In addition, the Order required the parties to publish notice in the national editions of The New York Times, The Wall Street Journal, USA Today and The Newark Star Ledger.^[88] Prudential went even further, publishing notice in the largest circulating newspaper in each of the fifty states and the District of Columbia. Fairness Opinion, 962 F.Supp. at 495. The notices were published over a three day period, from November 20, 1996 until November 22, 1996.^[89]

The district court described the notice and outreach program as unparalleled and found "the comprehensive notice program in this case far exceeded the requirements of Rule 23 and due process." Id. at 526. The district court also examined and rejected various objections to the form and content of the notice. Id. at 528-34.

We agree with the district court's assessment of the scope of the outreach program.^[90] Providing individual notice to over 8 million class members is a daunting task, and no doubt an expensive one. In addition, the combination of individual and publication notice, combined with the unsolicited news coverage the settlement received, greatly increased the possibility that Prudential will ultimately compensate a greater number of injured policyholders than would otherwise have been possible.^[91] The parties also provided additional notices to the class, each designed to update the parties as to their rights and obligations under the settlement.^[92]

[328] We agree with the district court that the notice provided all of the required information concerning the class members' right and obligations under the settlement. It detailed the procedures for opting out, entering an appearance, and filing objections, and notified the policyholders that if they did not opt out of the class they would be bound by the settlement if approved. It explained the ADR process and Basic Claim Relief available to the class, provided the text of the release, and provided notification that all related documents were available for public inspection. Finally, it explained the nature of the claims covered under the settlement, and provided an 800 number through which class members could obtain information and make further inquiries. The fact that approximately 1.8 million inquiries have already been processed through the 800 number supports the conclusion that the class notice was effective.

The only legitimate concern raised with respect to the notice provided relates to the category of "other claims." After a careful review of the record, we hold the notice provided with respect to the category of "other claims" provided sufficient information to apprise the class of the scope of the allegations against Prudential. While this catch-all category is by its nature difficult to describe, we believe the class notice makes clear that additional claims which do not fit neatly into one of the other three categories may nonetheless be remedied through the ADR process.

The third page of the cover letter to the class notice specifically sets forth the four categories of sales claims — financed insurance, abbreviated payment, investment plan, and "other improper sales practices." The types of relief available for each of the four categories of claims are clearly listed on pages 10-11 of the Notice of Class Action, Proposed Settlement, Settlement Hearing And Right To Appear.^[93] The four categories of claims are also listed in the question-and-answer pamphlet included with the Class Notice. Compared to the first three categories of claims, which require some understanding of insurance policies, the catch-all category of "other improper sales practices" is arguably easier for the uninformed layman to comprehend, and may in fact encourage class members to respond to the Class Notice.

Consequently, we believe the notice provided to the absentee class members in this case supports the district court's finding that the settlement is fair and reasonable.

D. Conclusion

As we have noted, a review of the Girsh factors strongly supports the district court's conclusion that the proposed settlement is fair and reasonable. In addition, the parties have fully satisfied the notice requirements of Rule 23, and provided the class with both individual and publication notice regarding the terms of the settlement. There are also other facets of the settlement which counsel in favor of its approval.

First, we are impressed with the nature and extent of the relief provided under the settlement. The ADR process provides an efficient and individually tailored approach to the remediation of claims. Rather than offering 8 million class members a small refund or a coupon towards the purchase of other policies (which we believe would have failed the fairness evaluation), the ADR process responds to the individual claims of the class and provides compensation based on the harm they have suffered. As a result, the potential class recovery is uncapped, a fact which weighs strongly in favor of the settlement.

Second, we are also impressed with the procedural safeguards created by the settlement. [329] The four tier review process, in which the first and third levels of review are conducted by Prudential employees and the second and fourth levels are conducted by independent reviewers selected by class counsel, provide assurance that the ADR process will accurately assess and compensate the claims of injured class members.

Third, we are mindful of the external indicia of fairness which attach to this settlement. In particular, we are cognizant that the original framework of this settlement resulted from the efforts of the Multi-State Task Force. The involvement of the various state insurance regulators, with their vast experience and expertise, provides great support in favor of the fairness of the settlement. In addition, we are impressed by the seal of approval this settlement has received from the insurance regulators of each of the 50 states and the District of Columbia.

Fourth, that Prudential will bear all administrative costs associated with the remediation process and will pay class counsel's fees and costs weighs in favor of the settlement. By agreeing to cover these expenses, Prudential has ensured that the administrative and legal costs of the settlement will not diminish the class recovery.

Based on the foregoing, we conclude that the district court's finding that the proposed settlement was fair, reasonable and adequate was well within its sound discretion.

VI. ATTORNEYS' FEES

A. The Fee Agreement

The settling parties addressed attorneys' fees in § K of the Stipulation of Settlement filed October 28, 1996. Under the settlement, Lead Counsel would request $90 million in attorneys' fees from the district court, a request Prudential agreed not to oppose.^[94] The full amount, as well as certain administrative costs associated with the settlement plan, would be paid entirely by Prudential.^[95] Stipulation of Settlement § K.4. The fee arrangement was designed so that payment of class counsel's fees and expenses would not "directly or indirectly reduce, limit or modify the remedies provided in the ADR process or Basic Claim Relief." Id. The Stipulation of Settlement also created a timetable for payment. Prudential would pay $45 million of the attorneys' fees plus expenses within five days of the district court's approval of the settlement, the remaining fees payable after the final disposition of any appeals.^[96] Id. at § K.2.

On November 22, 1996, Lead Counsel submitted an application for attorneys' fees in conformity with § K. Several class members, among them Krell, filed objections to the award. As the district court noted, no state insurance commissioner opposed the fee petition. In re Prudential Ins. Co. of America Sales Practices Litigation, 962 F.Supp. 572, 575 (D.N.J.1997) ("Fee Opinion"). Advocating the propriety of the proposed fee, Lead Counsel contended the remedies established under the Proposed Settlement were analogous to a "common fund" and, consequently, the size of the fee award should be determined as a percentage of the class members' total recovery. In order to establish the [330] value of the settlement, Lead Counsel submitted the affidavit of its expert Robert Hoyer, a Participating Principal with Arthur Andersen LLP, and managing partner of the firm's Life & Health Actuarial Service group. Hoyer estimated the total value of the settlement at $1.987 billion, $1.187 billion attributable to the ADR process, and $799.6 million to Basic Claim Relief.^[97] Hoyer Aff. ¶¶ 6, 11, 15. According to Hoyer's calculations, $863.7 million of the settlement's total value was created under the Task Force plan, while the remaining $1.123 billion was the result of the enhancements created by class counsel. See Fee Opinion, 962 F.Supp. at 575.

To assist with its fee determination, the district court appointed an independent fee examiner, Stephen Greenberg, on November 6, 1996.^[98] Greenberg was charged with analyzing the fairness of Lead Counsel's fee request. The fee examiner submitted his Report and Recommendation on February 13, 1997, concluding the $90 million fee award was fair and reasonable. Krell was the only objector to the Fee Examiner's Report. Fee Opinion, 962 F.Supp. at 576. On March 10, 1997, the district court held a hearing dedicated to attorneys' fees, and provided an opportunity for all interested parties to address the fairness of the Fee Petition.

B. Fee Opinion

On March 20, 1997 the court issued its opinion and order with respect to attorneys' fees. As urged by Lead Counsel in its fee petition, the district court found this case analogous to the common fund paradigm, and elected to apply the percentage-of-recovery method to calculate the attorneys' fee award.^[99] Fee Opinion, 962 F.Supp. at 579. Despite accepting the percentage-of-recovery method, the district court rejected both the fee petition and the fee examiner's Recommendation and Report, and in its place constructed a bifurcated fee award designed to provide no less than $45 million and no more than $90 million to class counsel.^[100]

The district court found that "any fee awarded to class counsel in this case should be based upon the entire value of the settlement, including any portion which would have been provided to the class under the Task Force Plan." Fee Opinion, 962 F.Supp. at 581 (emphasis omitted). The court reasoned the Task Force Plan "resulted in substantial measure from the efforts of class counsel in this litigation," noting that Prudential began to urge the formation of the Task Force only after the consolidated lawsuits were filed. Fee Opinion, 962 F.Supp. at 581-82. Considering both the causal connection as well as the additional enhancements created by the Proposed Settlement, the court concluded class counsel could reasonably be credited with all of the benefits provided under the settlement.

Turning to the value of the settlement, the district court found the only "specific, comprehensive valuation of the settlement that is of record" was submitted by class counsels' expert, Robert Hoyer.^[101] Relying on Hoyer's [331] figures, the fee examiner's report calculated the value of the proposed settlement between $1.2 and $2 billion, depending on the number of class members who ultimately have claims remediated through the ADR process. Fee Examiner's Report at 56. But the district court "question[ed] the reasonableness of any valuation that may differ by as much as $800 million," and expressed concern that a range of possible values might not satisfy the requirement that a district court determine the actual value of the settlement when calculating the award of attorneys' fees. Fee Opinion, 962 F.Supp. at 583. Consequently, the court found "the nature of the Settlement Agreement simply [did] not lend itself to a reasonable valuation" and rejected the fee examiner's report. Id.

The court also found it imprudent to apply the lodestar method as its primary tool in calculating attorneys' fees.^[102] First, the court noted there was no need in this instance to "ensure the procurement of competent counsel," one of the underlying purposes of the lodestar method. Additionally, the court found the involvement of over 25 law firms and 250 attorneys and paralegals would make a lodestar calculation time-consuming and burdensome.^[103] Finally, the court reasoned that application of the lodestar method was unnecessary because a modified version of the percentage-of-recovery method could be applied. Id. at 27-28.

The district court decided to calculate the fee award in two parts; first, an award based on "a percentage of recovery on the known value of the settlement—Prudential's guaranteed minimum payout of $410 million (the "Minimum Fund")," Fee Opinion, 962 F.Supp. at 584; and second, an award based on a "separate percentage of recovery with respect to the future, additional value of benefits to be paid to class members who come forward under the Settlement Agreement (the "Future Fund")." Id.

Examining several factors in order to calculate an appropriate percentage under this two tier analysis, the court noted that, although percentages from 20 to 30% have been deemed appropriate, the exceptional size of the class recovery in this instance counseled in favor of a lower percentage of recovery. The district court examined the fee awards in other cases involving substantial recoveries, and found a range of 4.1% to 17.92% in cases where the recovery exceeded $100 million. The district court also considered the quality of class counsel's representation, the "innovative" terms of the settlement, the enhancements over the Task Force Plan, and the overall fairness of the settlement. Id. at 585-87. The court concluded the "results achieved by plaintiffs' counsel in [332] this case in the face of significant legal, factual and logistical obstacles and formidable opposing counsel, are nothing short of remarkable." Id. at 585-86.

Finally, the court considered the fee percentage private parties would likely have negotiated. The fee examiner's report examined the fee awarded in the settlement between Penzoil and Texaco and concluded that class counsel would have received a contingent fee of at least 10-15%. Fee Examiner's Report at 61. While the court ultimately rejected the fee report, it nonetheless agreed that "given the obvious risks and burdens required for its prosecution, lawyers of plaintiffs' counsels' standing would have negotiated a fee of at least 10 to 15% of the recovery."^[104] Fee Opinion, 962 F.Supp. at 587 (quoting Fee Examiner's Report at 61).

Turning to the first part of its bifurcated fee award, the district court found that 11% was a fair and reasonable recovery with respect to the $410 million Minimum Fund. Accordingly, the court ordered Prudential to pay class counsel $45 million, plus expenses, within five days. The court then conditioned the second half of the fee award on the number of claims ultimately handled through the ADR process. In the event 330,000 claims were filed by June 1, 1997, Prudential would pay class counsel an additional $45 million. Assuming the full $90 million were awarded, the fee would equal approximately 6.7% of the minimum recovery guaranteed by Prudential under the settlement.^[105] The court found this figure to be fair and reasonable. In the event the 330,000 threshold were not met, class counsel would not be entitled to an automatic fee award, but would receive a 5% contingent fee based on the value of the Future Fund — "the total value of the settlement less the Minimum Fund" — to be determined annually on the anniversary date of the Fee Opinion.^[106] Fee Opinion, 962 F.Supp. at 588-89.

The court then applied the lodestar method as a cross-check of its initial calculation. According to an analysis provided by Lead Counsel, the lodestar as of January 31, 1997 was $17.7 million, plus expenses of just over $3 million. Id. at 591. Using these figures, the court found the maximum fee award of $90 million would be equivalent to a multiplier of 5.1 and an average hourly rate of $1,148.70. The court found that, when the lodestar was updated, the resulting multiplier and hourly rate would be lower. Nonetheless, the district court found these higher, unadjusted figures were substantially less than the multiplier and average hourly rate applied by the district court and affirmed by this court in Weiss v. Mercedes-Benz of N. Am., Inc., 66 F.3d 314 (3d Cir.1995), aff'g 899 F.Supp. 1297, 1304 (D.N.J.). Consequently, the district court concluded the cross-check under the lodestar supported the fairness and reasonableness of the fee award. Fee Opinion, 962 F.Supp. at 592-93.^[107]

[333] The district court summarized its reasons why this fee arrangement was both appropriate and beneficial. Id. at 589-91. First, the court found the award "obviate[d] the need to guesstimate the value of the settlement and ensures an award of attorneys' fees that is rationally related to the success of the settlement." Id. at 589. Second, the fee award used the percentage-of-recovery method preferred in common fund cases and avoided the difficulties in applying the lodestar method. Third, the court found the bifurcated award worked as a safeguard in the event the settlement was "unsuccessful" by only providing a portion of the award up front, and making the second part of the award dependent on the actual remediation rate. Fourth, the court noted the fee award generally upheld the agreement of the parties. Fifth, the court reasoned the bifurcated award would provide class counsel an incentive to pursue diligently remediation for class members. Finally, the court found the fee arrangement "answer[ed] the few class members, including Krell, who objected to the parties' fee agreement as a `lay down' by Prudential." Id. at 591.

C. Analysis

"[A] thorough judicial review of fee applications is required in all class action settlements." G.M. Trucks, 55 F.3d at 819. When parties are negotiating settlements, the court must always be mindful of the "danger ... that the lawyers might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment for fees." Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 524 (1st Cir.1991). On appeal, we review the district court's award of attorney's fees for an abuse of discretion. G.M. Trucks, 55 F.3d at 782.

There are two basic methods for calculating attorneys' fees — the percentage-of-recovery method and the lodestar method. "[E]ach method has distinct advantages for certain kinds of actions, which will make one of the methods more appropriate as a primary basis for determining the fee." G.M. Trucks, 55 F.3d at 820. The percentage-of-recovery method is generally favored in cases involving a common fund, and is designed to allow courts to award fees from the fund "in a manner that rewards counsel for success and penalizes it for failure." Id. at 821. The lodestar method is more commonly applied in statutory fee-shifting cases, and is designed to reward counsel for undertaking socially beneficial litigation in cases where the expected relief has a small enough monetary value that a percentage-of-recovery method would provide inadequate compensation. Id.^[108] It may also be applied in cases where the nature of the recovery does not allow the determination of the settlement's value necessary for application of the percentage-of-recovery method. Id. Although each of these methods is generally applied to certain types of cases, we have noted previously that "it is sensible for a court to use a second method of fee approval to cross check" its initial fee calculation. Id. at 820.

We agree with the district court that this case is more appropriately viewed under the common fund paradigm than as a statutory fee-shifting case.^[109] Consequently, the [334] district court was required to make a "reasonable estimate" of the settlement's value in order to calculate attorneys' fees using the percentage-of-recovery method. Id. at 822 (holding that "the district court on remand needs to make some reasonable assessment of the settlement's value"); Weiss v. Mercedes-Benz of N. Am., Inc., 899 F.Supp. at 1304. But, as the district court noted, this is "an atypical common fund case" involving an uncapped, "future fund" whose ultimate value is dependent on the final number of claims remediated under the settlement, and, as a result, "the settlement ... cannot reasonably be valuated." Fee Opinion, 962 F.Supp. at 583. The fee examiner's report reflected this uncertainty. The report could only offer a range of possible values, with the highest and lowest figures separated by over $800 million. Even class counsel's own expert conceded that his calculations were merely "approximations." Hoyer Aff. ¶ 18. Consequently, a straightforward application of the percentage-of-recovery test is difficult in this instance.

The district court attempted to overcome this problem by bifurcating the fee award, exercising its sound discretion to award reasonable attorneys' fees. Silberman v. Bogle, 683 F.2d 62, 64-65 (3d Cir.1982). The district court's plan was designed to overcome the speculative nature of the tentative and imprecise settlement valuations. It took into account the settlement's more definite terms by providing an immediate payment based on a percentage of the guaranteed minimum recovery of $410 million, while requiring future payments to be based on actual results in recognition that the ultimate class recovery is not quantifiable at this point. We hold the district court's creation of a bifurcated fee structure was an appropriate and innovative response to the structure of the settlement, and well within its sound discretion.^[110]

Our review does not end here, however. We must still examine the fee award calculated by the district court under this bifurcated structure and determine whether the amount of the award was fair and reasonable. Before doing that, however, we will first address two objections raised by Krell which focus on procedural aspects of the fee award. First, Krell claims the settling parties improperly discussed attorneys' fees and entered into a "clear-sailing fee" agreement, thereby creating a conflict between class counsel and the class. Second, Krell maintains the attorneys' fee award adversely affects class members by reducing the value of the members' equity interest in Prudential. The net result, he argues, is that class members are forced to shoulder the burden of the fee award, despite class counsel's and Prudential's assertions to the contrary.^[111]

1. "Clear-Sailing" Fee Agreement

Krell maintains the settling parties improperly entered into negotiations on [335] counsel fees before concluding settlement negotiations. Krell hypothesizes that because Prudential wanted as broad a release as possible in order to avoid all future liability, they offered class counsel large fees.

In both its Fairness Opinion and its Fee Opinion, the district court addressed Krell's contention the parties simultaneously negotiated the settlement and fee agreements. The district court found "the parties obviated the danger of an actual or apparent conflict of interest on the part of class counsel by negotiating in a manner expressly recommended by the Third Circuit in Prandini and by a Task Force appointed by the Third Circuit to report on the subject of court awarded attorneys' fees." Fee Opinion, 962 F.Supp. at 577 (citing Court Awarded Attorney Fees, Report of the Third Circuit Task Force, 108 F.R.D. 237 (Oct. 8, 1995)).^[112] Relying on the settling parties' sworn affidavits,^[113] the district court found all parties acted appropriately, having first completed negotiation of the Settlement Agreement on September 22, 1996 and then obtained the court's authorization on October 11, 1996 to address fees. Id. at 577 n. 14; see also Fairness Opinion, 962 F.Supp. at 542 ("The parties' negotiation of attorneys' fees was completely appropriate and followed the final settlement negotiations."). The court also found Krell had failed to produce "sound evidence" to support its contentions.

We agree with the district court. There is no indication the parties began to negotiate attorneys' fees until after they had finished negotiating the settlement agreement. On review we grant deference to the district court's factual findings. Despite Krell's repeated references to the "September 22, 1996 clear sailing fee provision," the Settlement Agreement signed on that date did not contain a "clear sailing" provision. Unlike Section K of the final Stipulation of Settlement filed on October 28, 1996, the September 22, 1996 Settlement Agreement did not address the amount of fees, the timetable for the payment of fees, or Prudential's agreement not to object to any fee petition filed by plaintiffs' counsel. As Lead Counsel notes, the September 22 Settlement Agreement contained a termination provision which allowed Prudential, but not plaintiffs, to terminate the agreement if the issue of attorneys' fees was not resolved to its satisfaction.^[114] Lead Counsel Brief at 83-84.

2. Adverse Effect on Class Members

Krell also claims the district court failed to consider the negative financial impact the settlement would have on class members. According to this argument, class members, who as policyholders have an "equity interest" in Prudential's surplus, are harmed because the settlement will decrease that surplus. Krell Brief at 67-68.

[336] The district rejected this argument, finding the payment of attorneys' fees would not have a negative financial impact on class members. The court reasoned that "any such payment of fees may come from the proceeds of director and officer liability insurance or from Prudential's capital surplus ... [and] will not necessarily affect policyholders' future dividends and interest payments on their policies." Fee Opinion, 962 F.Supp. at 589 n. 40.

Krell points to no record evidence to demonstrate the settlement would have a detrimental effect on the dividends of Prudential policyholders. Krell cites only to Exhibit G of his fee discovery motion, dated December 11, 1996, which contains the affidavit of Professor David F. Babbel of The Wharton School of the University of Pennsylvania, originally filed in connection with the Phoenix Home Life Mutual Insurance Company litigation in New York state court. Although Professor Babbel's affidavit explains that compensation paid by a mutual insurer to a hypothetical class comprised of the insurer's policyholders may result in "a reduction in dividends paid to the policyholders, or a reduction in the surplus that backs the claims of the policy owners against the firm," Babbel Aff. ¶ 9, he concludes the proposed settlement^[115] "[took] advantage of the financial strength and economies of scale available to" the mutual insurer and overcame the concerns for the policy owners' equity interest. Babbel Aff. ¶ 11. We see no error here.

3. Fairness of the Award

Krell's remaining objections focus on whether the district court properly calculated the fee award. In particular, he challenges the court's decision to credit class counsel for all of the benefits created by the Task Force plan, as well as its determination of the appropriate fee percentage. Krell also contends the district court improperly denied his requests for discovery, and as a result did not have sufficient information to assess the fairness of the award. Because the discovery issues are intertwined with the court's final calculation of class counsel's fee, we will address these objections together.

a. The Value of the Settlement

As noted, the district court found the settlement was most closely aligned to the common fund paradigm and that a percentage-of-recovery calculation was the appropriate measure of the attorneys' fee award. In addition, the court created a bifurcated award designed to compensate class counsel based on the "guaranteed minimum" benefit created under the settlement, while at the same time tying the second part of the award to the class's response rate, in order to create an incentive for class counsel's continued participation in the remediation process. While we agree with both the method of calculation selected by the court and the structure of the fee award it crafted, we are nonetheless troubled by the actual calculation of class counsel's fee.

In particular, we question the court's decision to base its fee calculation on "the entire value of the settlement, including any portion which would have been provided to the class under the Task Force Plan." Fee Opinion, 962 F.Supp. at 581 (emphasis omitted). This decision was based on the court's conclusion that class counsel was a "material factor in bringing about the regulators' Task Force plan." Id. at 582. The court offered two reasons for this conclusion. First, the court found "Prudential's counsel acknowledged the causal relationship between the lawsuits and the Task Force's formation and subsequent remediation plan." Id. (citing Fee Examiner's Report at 56). Second, the district court explained "the record shows that plaintiffs' counsel otherwise substantially contributed to the terms of the Task Force plan." Id.

The district court relied in part on our decision in Institutionalized Juveniles v. Secretary of Pub. Welfare, 758 F.2d 897 (3d Cir.1985).^[116] In that case, a class action civil [337] rights lawsuit was filed on behalf of all juveniles in Pennsylvania who had been voluntarily committed to state mental health institutions. The class challenged the constitutionality of Pennsylvania's "voluntary" commitment statute on due process and equal protection grounds. Pennsylvania eventually enacted legislation and accompanying regulations which provided much of the relief sought by the class, and the district court entered judgment for defendants and terminated the class. Plaintiffs petitioned for attorneys' fees under 42 U.S.C. § 1988. We affirmed the causation finding, noting "the district court specifically found that defendants had been `extensively involved in the legislative process' and that defendants `actively worked with the legislature to achieve passage of the 1976 Act.'" 758 F.2d at 917. The district court here placed great emphasis on our holding that "although the litigation must have been a `catalyst' ... it need not have been the only catalyst." Id. at 916. As a result, the district court concluded it "should consider not only those remedies conferred directly through the litigation process, but also those extra-judicial benefits to the plaintiffs which resulted from counsels' efforts in the litigation." Fee Opinion, 962 F.Supp. at 581 (citations omitted).

As a preliminary matter, we believe the facts of that case are distinguishable. In Institutionalized Juveniles, we noted the record contained an affidavit from the chairman of the Pennsylvania Senate Health and Welfare Committee responsible for drafting the litigation in question, in which he confirmed that the litigation, and plaintiffs' counsel in particular, were an "`important catalyst' in bringing about the changes in Pennsylvania law." 758 F.2d at 917. In addition, it is easy to overstate the principle set forth in Institutionalized Juveniles. While a party need not be the only catalyst in order to be considered a "material factor" and may be credited for extra-judicial benefits created, there must still be a sound basis that the party was more than an initial impetus behind the creation of the benefit. Allowing private counsel to receive fees based on the benefits created by public agencies would undermine the equitable principles which underlie the concept of the common fund, and would create an incentive for plaintiffs attorneys to "minimize the costs of failure ... by free riding on the monitoring efforts of others." Coffee, Understanding the Plaintiff's Attorney, 86 Colum. L.Rev. at 681 (noting that the "classic illustration of this pattern is in the field of antitrust enforcement, where private antitrust class actions have tended to piggyback on a prior governmental proceeding").

It is not clear on the record before us that class counsel had so significant a role in the institution of the Task Force proceedings that the district court was justified in crediting counsel for all of the benefits created under the Task Force plan. Indeed the district court offers no record citation or other explanation to supports its assertion that class counsel made "substantial contributions" to the terms of the Task Force plan.

After reviewing the record, we have doubts whether class counsel was a material factor in bringing about the Task Force plan. Although Prudential may have urged the formation of the Task Force following the institution of the lawsuits, there is evidence to suggest that, absent the institution of the class action proceedings, state regulators would have reached an agreement with Prudential similar to the Task Force plan. For example, Lead Counsel notes that "[a]t least every five years, the New Jersey Department of Banking and Insurance is required to conduct a market conduct examination of [338] Prudential ... [and in] March 1995, New Jersey was beginning another such examination." Weiss Aff. ¶ 27. The results of that examination were issued on July 28, 1996, only a few weeks after the Task Force Report, and examined a number of the same issues as the Task Force Report, including customer complaints of vanishing premiums, misrepresentation, improper replacements, and other improper underwriting other than replacements. Furthermore, the Task Force itself explained that it was formed "in response to widespread allegations of improper sales and marketing activity of life insurers" in general, not just allegations involving Prudential. Taken together, the record evidence raises questions about whether the district court could appropriately base class counsel's fee on the entire value of the proposed settlement.

Assuming arguendo that class counsel was a "catalyst" for the Task Force plan, the question remains to what degree that factor must be considered when calculating the fee award. "[N]umerous courts have concluded that the amount of the benefit conferred logically is the appropriate benchmark against which a reasonable common fund fee charge should be assessed." Conte, 1 Attorney Fee Awards § 2.05, at 37. The district court found class counsel should be credited for the entire value created by the Task Force plan, instead of only those enhancements created by class counsel under the Settlement Agreement. We are not so certain. Krell notes that a stay order was in place from October 1995 until after the Task Force issued its report on July 9, 1996, and questions how the district court could credit class counsel for the entire value of the Task Force Plan. In addition, we question why class counsel should be credited for the global enhancements negotiated between Prudential and each of the four objecting states, enhancements which the district court found were incorporated into the final settlement.

We do not dispute that class counsel's efforts benefitted the class and that they should receive a fee award which recognizes those efforts. The district court described several enhancements class counsel made to the Task Force plan. See supra § I.B.1. & notes 21-22. Even Krell conceded that class counsel created additional benefits for the class. Fee Hr'g Tr. at 17-18. Our concern is not the number of enhancements created, but rather how to value the benefits created by class counsel. The crux of this inquiry is distinguishing those benefits created by class counsel from the benefits created under the Task Force Plan. This determination is especially crucial in consumer class actions where federal or state agencies, including attorneys general, have conducted their own investigations of wrongdoing. The district court did not address these issues. Because it credited class counsel with creating the entire value of the settlement it did not attempt to distinguish between those benefits created by the Task Force and those created by class counsel. Consequently, we will remand to the district court for further examination.

In addition, the matters raised here may counsel in favor of allowing additional limited discovery on this issue on remand. While plaintiffs' expert found that class counsel was responsible for $1.123 billion of the settlement's total value, he also conceded that those figures were merely "approximations." Krell claims the lack of discovery prevented him from performing a similar analysis and rebutting the expert's valuations. Although mindful of the common wisdom that "discovery in connection with fee motions should rarely be permitted," Manual for Complex Litigation, Third § 24.224, we believe limited discovery may be necessary in this instance to properly determine the value of those benefits for which class counsel can properly be credited. We leave this to the sound discretion of the district court.

b. The Appropriate Percentage Recovery

We are also troubled by the district court's calculation of the appropriate percentage award. The district court actually examined two distinct percentages in connection with its bifurcated fee award. First, it awarded class counsel approximately 11% of the "Minimum Fund" of $410 million created by the settlement, resulting in an initial award of $45 million. Second, based on the submission of at least 330,000 election forms, the court awarded class counsel an additional $45 [339] million. Assuming the threshold were met and the full $90 million fee were awarded, the court found this fee constituted 6.7% of the "common fund" created under the settlement,^[117] a figure the district court concluded was "fair and reasonable ... [and] comport[ed] with the Fee examiner's recommendation of an award of 7-8%." Fee Opinion, 962 F.Supp. at 587-88.

The district court considered several factors in order to determine the appropriate percentage award, including the size of the award, fee percentages applied in other class actions, the quality of class counsel, and the fee percentage that would likely have been negotiated between private parties. While we agree these factors offer some guidance, in cases of this magnitude they should receive less weight.

In considering the size of the expected recovery under the proposed settlement, the district court observed that "percentage awards generally decrease as the amount of the recovery increases." Fee Opinion, 962 F.Supp. at 580 (citations omitted). The basis for this inverse relationship is the belief that "[i]n many instances the increase [in recovery] is merely a factor of the size of the class and has no direct relationship to the efforts of counsel." In re First Fidelity Bancorporation Securities Litigation, 750 F.Supp. 160, 164 n. 1 (D.N.J.1990). The district court concluded that "some reduction is appropriate in this case where the recovery will equal at least $410 million." Fee Opinion, 962 F.Supp. at 585.

We agree with the district court's analysis, but question whether the "reduction" implemented adequately adjusted the fee in relation to the size of this settlement. Compared to the other large settlements examined by the district court, the size of this settlement exceeds all of them by a considerable margin.^[118] Yet the 6.7% fee the court awarded was actually higher than some of the smaller cases it used as a benchmark.

The district court also examined the fee awards in class actions with recoveries exceeding $100 million and found the fee percentages ranged from 4.1% to 17.92%. Id. at 585. The court reasoned the "enormous settlements" in those cases made them comparable, and provided some guidance as to an appropriate percentage. Id. at 586 n. 32. While we agree this is an appropriate factor to consider in most class actions, we believe in this instance the size of the class and the settlement render such comparisons unreliable. As noted, the fee percentage awarded by the court was actually higher than some of the fee awards in these large class actions, despite the court's finding that the common fund here would be at least $410 million and could increase to more than $1 billion.

The district court also found class counsel's representation and the results achieved were "nothing short of remarkable." Id. at 585-86. Among the factors it examined were the "innovative" terms of the settlement, including the availability of full compensatory relief, the extensive and comprehensive outreach, and the multi-tiered review process designed to ensure fair scoring of claims; the approval given to the settlement by insurance regulators from all fifty states and the District of Columbia; and the standing and skill of class counsel.

We agree. As discussed, the settlement is a fair and reasonable resolution of this class action. Furthermore, there is no doubt as to class counsel's skill and reputation. All [340] agree class counsel added value to the Task Force plan.^[119]

The district court then noted the fee examiner's conclusion that "were this case the subject of a private contingent fee agreement at the time of engagement, counsel might well have demanded and received ... upward of 20%, and even as high as 40%, of any future recovery." Id. at 587 (quoting Fee Examiner's Report at 60). While the court did not give great weight to this hypothetical exercise, it nonetheless agreed with the fee examiner's conclusion that class counsel "would have negotiated a fee of at least 10 to 15% of the recovery." Id. (quoting Fee Examiner's Report at 61).

We question the significance of this inquiry to class action lawsuits of this magnitude. While such private fee arrangements might be appropriate in smaller class actions or litigation involving individual plaintiffs, we do not believe they provide much guidance in cases involving the aggregation of over 8 million plaintiffs and a potential recovery exceeding $1 billion.

Because the district court's basis for, and calculation of, the appropriate fee percentage was unclear in light of the facts and cases it referenced, and because it should set forth a reasoned basis and conclusion regarding the proper percentage applicable in this case, we will remand for a more thorough examination and explication of the proper percentage to be awarded to class counsel in this case, in light of the magnitude of the recovery.

c. Lodestar Calculation

Krell objects to the district court's application of the lodestar method to cross-check its fee award, in particular its application of a "risk" multiplier to the lodestar in order to bring the calculation in line with the fee awarded under the percentage-of-recovery method. In addition, Krell contends the court improperly based its lodestar calculation on inaccurate time summaries provided by class counsel.

i. Multiplier

Once the district court created its bifurcated fee award using the percentage-of recovery model, it employed the lodestar method to cross-check the fee award. See G.M. Trucks, 55 F.3d at 820. Based on the analysis submitted by Lead Counsel, the court found the lodestar as of January 31, 1997 was approximately $17.7 million^[120] plus expenses of just over $3 million. While it noted this figure was understated because it did not include hours billed after Lead Counsel submitted the analysis, the court found the lodestar figure would result in a multiplier of only 5.1 and an average hourly rate of $1,148.70 if the full $90 million were awarded under the modified fee schedule. The court found this multiplier was "substantially less" than the multiplier approved by this Court in Weiss v. Mercedes-Benz of North America, Inc., 66 F.3d 314 (3d Cir.1995), aff'g 899 F.Supp. 1297, 1304 (D.N.J.) (awarding a fee that resulted in a multiplier of 9.3 and an average hourly rate of $2,779.63).

We question the use of such a large a multiplier in this instance. Courts apply multipliers to lodestar calculations for various reasons. Multipliers may reflect the risks of nonrecovery facing counsel, may serve as an incentive for counsel to undertake socially beneficial litigation, or may reward counsel for an extraordinary result. By nature they are discretionary and not susceptible to objective calculation. The Third Circuit Task Force on Court Awarded Attorney Fees implicitly recognized this difficulty. Court Awarded Attorney Fees, 108 F.R.D. at 247 (the lodestar calculation "is subject to manipulation by judges who ... first determine what they wish to award, either in percentage or dollar amount terms, and then massage the major variables in the [lodestar] fee-setting procedure"). Consequently, courts must take care to explain how [341] the application of a multiplier is justified by the facts of a particular case. Hensley v. Eckerhart, 461 U.S. 424, 437, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983) ("It remains important, however, for the district court to provide a concise but clear explanation of its reasons for the fee award."); Ranco Industrial Products Corp. v. Dunlap, 776 F.2d 1135, 1140 (3d Cir.1985) ("[C]areful appellate review requires that the district court explain on the record the basis for its calculation.").

In this instance, the court offers little explanation as to why a multiplier was necessary or appropriate. With no explanation for its application, we have no basis to evaluate it.^[121] While we are cognizant that "[m]ultiples ranging from one to four are frequently awarded in common fund cases when the lodestar method is applied," 3 Newberg § 14.03 at 14-5, we cannot assess the propriety of a multiplier without findings to review.^[122]

Furthermore, the testimony of one of plaintiffs' own experts appears to call into question the multiplier of 5.1. Plaintiffs' expert noted the speed and quality of the results achieved were attributable "in no small part to the fact that many of class counsel had participated in the New York Life insurance litigation ... in which they created what became the blueprint for the Task Force plan which, in turn, became the baseline from which class counsel began their negotiations with Prudential." Joint Appendix at 4793. While plaintiffs' expert reasoned this expertise should not lead to the conclusion that class counsel "should not be rewarded for what arguably appears to be duplicative," we also decline to draw the opposite conclusion.

We recognize the district court employed the lodestar calculation only as a cross check. Yet we cannot agree with its conclusion that the "cross-check under the lodestar method confirms that the fees and expenses awarded here are fair and reasonable under the circumstances of this case." Fee Opinion, 962 F.Supp. at 592-93. Based on the present record, we cannot find a justification for the multiplier, which appears merely to correspond with the total fee award. Our concerns regarding the lodestar calculation only underscore our questions about the propriety of the district court's fee award.

ii. Time Records

Krell also disputes the district court's calculation of the lodestar figure, claiming its reliance on time summaries, rather than detailed time records, undermines its value as a cross-check of the fee award. Krell raises certain issues which allegedly demonstrate the unreliability of class counsel's time summaries. First, he questions the number of hours worked by class counsel, noting the figure seems high in light of the district court's order staying discovery from October 1995 until August 1996.^[123] Second, [342] Krell alleges Lead Counsel's fee petition contained "millions of dollars of overcharges and potential overcharges."^[124] Third, Krell notes the lodestar amount nearly doubled between the November and the February petitions, with Lead Counsel claiming additional time had been spent on due diligence, despite the fact that due diligence was expected to end on October 28, 1996. Finally, Krell points out that the fee examiners' report included a $1 million overcharge for expenses.^[125]

The district court disagreed, finding detailed time summaries were unnecessary where, as here, it was merely using the lodestar calculation to double check its fee award. The court also dismissed Krell's objection to the hours allegedly worked after the settlement was filed on October, 1996, reasoning that class counsel had other responsibilities after that date, including monitoring the 800 number established under the settlement, negotiating the outreach program, and preparing documents in support of the settlement.

As we have noted, district courts generally decide fee awards without full blown discovery. In any event, whether to grant discovery is committed to the sound discretion of the court. Also, we are mindful of the Supreme Court's admonition that "[a] request for attorneys' fees should not result in a second major litigation." Hensley, 461 U.S. at 437, 103 S.Ct. 1933. We recognize the lodestar calculation in this case was solely intended as a cross-check of the court's primary fee calculation using the percentage-of-recovery methodology, which counsels a cautious approach to additional fee discovery. Furthermore, our primary concern with the lodestar approach here is the multiplier. As a result, we see no abuse of discretion in declining to grant discovery here on the time records. As we have set forth, the district court on remand should reconsider permitting limited discovery on the benefits to the class secured by class counsel.

D. Conclusion

In awarding attorneys' fees, the district court has considerable discretion. We recognize that in cases of this magnitude, the broad standards set forth in the case law provide little guidance. What is important is that the district court evaluate what class counsel actually did and how it benefitted the class. Furthermore, where so much of the settlement was achieved by the Task Force, and other enhancements resulted from the separate negotiations of state regulators, it is essential to separate out the benefits attributable to class counsel.

VII. KRELL'S MOTION TO RECUSE

A. Procedural History

On December 3, 1996, the Krell and Kittle plaintiffs moved on an emergency basis to recuse the district judge from this case under 28 U.S.C. § 455,^[126] alleging inter alia improper ex parte meetings and judicial interference with related state court proceedings. The court issued a show cause order dated December 5, 1996, requesting interested parties to oppose or support the motion, and scheduled a hearing for December 13, 1996.^[127] Following oral argument, the court [343] denied Krell's motion. Krell subsequently filed a petition for mandamus with this court, again seeking recusal. That petition was denied without opinion on February 7, 1997. On appeal, Krell once more raises the issue of the district court's recusal. Once more, we shall reject it.

On appeal, Krell reasserts his claim that the district court should have recused itself based on its "tireless and unrelenting" bias in favor of the settling parties. According to Krell, "the District Court did what was necessary to impose upon Prudential's policyholders one sweeping class action resolution providing global peace for Prudential." Krell Reply Brief at 67. But Krell's briefs offer no new arguments in support of his claims. We review under an abuse of discretion standard. United States v. Antar, 53 F.3d 568, 573 (3d Cir.1995).

B. Legal Standard

The Krell objectors brought this motion under 28 U.S.C. §§ 455(a), 455(b)(1) and 455(b)(5)(iv).^[128] A party seeking recusal need not show actual bias on the part of the court, only the possibility of bias. Liteky v. United States, 510 U.S. 540, 553, 114 S.Ct. 1147, 127 L.Ed.2d 474 (1994). But, as we noted in Antar, "[b]iases stemming from facts gleaned during judicial proceedings themselves must be particularly strong in order to merit recusal." 53 F.3d at 574. The court must "reveal such a high degree of favoritism or antagonism as to make fair judgment impossible." Liteky, 510 U.S. at 555, 114 S.Ct. 1147. Under § 455(a), "if a `reasonable man, were he to know all the circumstances, would harbor doubts about the judge's impartiality' under the applicable standard, then the judge must recuse." Antar, 53 F.3d at 574 (quoting In re Larson, 43 F.3d 410, 415 (8th Cir.1994)).

C. Krell's Arguments on Appeal

With these standards in mind, we now examine Krell's specific arguments.

1. Ex Parte Meetings

First, Krell argues the court's remarks at an October 1996 hearing indicate the district judge had an off-the-record discussion of alleged document destruction with Attorney David Gross, counsel to former Prudential employee David Fastenberg. At that hearing, the judge stated that "Fastenberg's own lawyers say there was no document destruction." Tr. of Hearing, Joint App. at 1975. According to Krell, this was an acknowledgment that the court "had obtained off-the-record factual information concerning a material and disputed evidentiary matter (document destruction) then before it." Krell Brief at 17. We cannot agree.

Prudential fired Fastenberg for allegedly allowing the destruction of documents in the office he supervised. In response, Fastenberg filed a wrongful termination suit against Prudential, denying his involvement in any document destruction. Consequently, Fastenberg's denial was already a matter of public record. In addition, as noted by the district court at the recusal hearing, Fastenberg's termination and his subsequent lawsuit were widely reported in the press. Joint App. at 4728; see also Joint App. at 11421-11438. Finally, Krell has offered no other evidence to support his contention that the district judge had an improper, ex parte [344] meeting with Fastenberg's attorney. Based on the record before us, we se no abuse of discretion.

2. The Conference With State Insurance Regulators

Krell also claims the district court held an improper, nonjudicial conference with insurance regulators and the news media on October 16, 1996, in order to discuss the proposed settlement. Krell claims that notice of this meeting was not provided to counsel of record, and thus he was deprived of the opportunity to present the court and the regulators with class concerns and objections. In addition, Krell takes issue with several statements made by the district court at the conference.

The district judge addressed Krell's concerns about the content of the October 16 meeting during the recusal hearing, noting that "the Court did not request the meeting, nor did it set the agenda." Joint App. at 4725. The meeting was organized by Lead Counsel and counsel for Prudential, and the insurance regulators were invited by the "New Jersey Insurance Regulators." Id. Lead Counsel explained the meeting was called in mid-October to address the possibility of merging the two then-pending settlements — the Task Force settlement and the proposed national class settlement. The Task Force settlement called for Prudential to begin sending class notices and election forms to policyholders by November 1, 1998. The meeting on October 16 was called to discuss timing issues related to the November notice deadline and the Rule 23 approval process. Both Prudential and Lead Counsel contend the October 16 conference transcript demonstrates that the adequacy of the settlement was not discussed during this meeting.

Once again, we see no abuse of discretion. As the settling parties note, and a review of the transcript confirms, the adequacy of the settlement was not discussed at the October 16 meeting. The primary issue considered by the parties at that conference was the timing of the notice Prudential was required to send under the Task Force Plan. The district court gave no indication that his decision was contingent upon or affected by Prudential's obligations under the Task Force plan. Consequently, Krell was not prejudiced by his counsel's absence.

Krell next accuses the district court of using "an off-therecord procedure to convene" the October 16, 1996 conference. Krell Brief at 18 n. 19. According to Krell, "there is no record as to how, when and why this conference came about, [and] there is no record which reflects why the Court determined not [sic] to inform various non-party insurance regulators and news reporters but not interested parties including Krell." Id.

This statement is untrue. As the district court explained, the October 16 meeting was organized by Lead Counsel and Prudential, not the district court. Consequently, the court did nothing to prejudice Krell.^[129]

Krell also objects to the district judge's reference to the proposed settlement as "my settlement." Krell claims that Judge Wolin demonstrated a bias in favor of the settlement when he "exhorted" those present to "hang together [so that we may] accomplish what we have to accomplish for all our respective interests."

We accept the district court's explanation that he was merely using the expression "my settlement" as a convenient method to distinguish between the Proposed Settlement and the Task Force Settlement. Joint App. at 4726. At the October 16th hearing, the district court made it clear that it had not yet made any decisions regarding the terms of the proposed settlement or the proposed settlement class. "No one should leave here today thinking that Judge Wolin's silence, Judge Wolin's nod, a smile at a particular time, means that he will approve this settlement. I don't have the slightest idea. I don't know who the objectors are. I haven't heard any evidence." Tr. of October 16 Hearing at 38. Clearly, Krell's allegation has no merit.

[345] 3. Rutt v. Prudential

Third, Krell argues the district court attempted to influence the Pennsylvania state court proceeding in Rutt v. Prudential, scheduled before Judge Allison in the Court of Common Pleas for Lancaster County. According to Krell, the record indicates that Prudential's attorney informed Judge Allison that the district judge was "receptive to a discussion" with Judge Allison regarding potential ethical improprieties implicating both cases. Krell also claims that, at the show cause hearing on December 2, 1996, "Judge Wolin stated he could speak with any state court and saw nothing wrong with the use of the Court's name in the way it was used by Prudential to influence Judge Allison in Rutt." Krell Brief at 18-19. The settling parties note the district court expressly denied attempting to influence Judge Allison. See Tr. of December 2, 1996 Show Cause Hearing at 6-7.

In late 1996, Prudential moved to disqualify Bruce Miller, lead counsel in the parallel actions filed against Prudential by a group of former Prudential agents, on the grounds that Miller had arranged for one of his clients to be paid for testimony in a state court action against Prudential in Alabama. The district court requested and received from Mr. Miller certain documents relating to the Alabama case of Key v. Prudential and reviewed those documents in camera. Concerned that the documents raised certain ethical concerns, the district court issued an order to show cause on November 20, 1996 why those documents should not be released to Prudential. Prudential, concerned about Miller's representation in the Pennsylvania state court case Rutt v. Prudential, sought to raise the issue of possible ethical improprieties with Judge Allison. During an on-the-record conference in Judge Allison's chambers, Harold Hirshman, Prudential's attorney and a partner of Prudential's counsel in this matter, provided Judge Allison with a copy of the district court's November 20th letter and show cause order with respect to Mr. Miller. Mr. Hirshman also informed Judge Allison that "[t]he one thing we did learn in addition to what I've already said, or my office learned, I did not speak to Judge Wolin's office myself, is that Judge Wolin is receptive to a discussion with Your Honor by telephone about his views, and we have no objection to that telephone call going ahead." Tr. of November 26, 1996 Hearing in Rutt v. Prudential at 4. Mr. Hirshman goes on to suggest that Judge Allison "place such a call to Judge Wolin and see what he has to say." Id. at 5. According to Krell, this was a clear attempt by the district court to influence the Rutt litigation, and demonstrates a bias in favor of Prudential.

We disagree. We do not impute any bias to the district court. There is no indication the district court asked Mr. Hirshman to make such a representation to Judge Allison. On the contrary, during the show cause hearing on December 2, 1996, the district court explicitly stated that he did "not send any representative to see Judge Allison in the Pennsylvania case of Rutt v. Prudential." Tr. of December 2, 1996 Show Cause Hearing at 6-7. According to the district judge, he had merely stated that, if a state court judge called him, he would speak to that judge "as a matter of courtesy." Id. at 7. There is nothing in the record, save the statements made by Mr. Hirshman, to support Krell's contention.

Finally, we note that we see nothing wrong with members of the federal and state judiciary trying to coordinate where their cases overlap. Coordination among judges can only foster the just and efficient resolution of cases.

There is no basis for believing the district court was attempting to influence the state court proceedings in Rutt. Krell's claims, now before us for the second time, are clearly without merit. We find no abuse of discretion here.

The resolution of a class action, especially one as large as this, is never a simple task. Based on our review of the record, we note the extraordinary manner in which the district judge addressed the complex legal and factual issues raised by this case and handled the myriad procedural and administrative responsibilities which accompany a class action of this size.

[346] VIII. CONCLUSION

For the foregoing reasons, we will affirm the certification of the proposed class and the approval of the settlement, and vacate and remand on the issue of attorneys' fees.

ROTH, Circuit Judge, concurring.

While I join in the majority's ultimate conclusion that the district court had jurisdiction over the claims of all classmembers, I respectfully disagree with its determination in subsection III.A.1 that the district court had supplemental jurisdiction by virtue of its federal question jurisdiction over the federal securities claims of named plaintiff, Martin Dorfner. Only 30% of the absent classmembers have claims arising under federal law; the remaining classmembers assert claims under state fraud statutes. Under the Supreme Court's decision in United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966), courts may exercise supplemental jurisdiction only when the federal and state claims arise from a common nucleus of operative fact. Thus, for example, supplemental jurisdiction may be asserted when the federal and state claims "are merely alternative theories of recovery based on the same acts." Lyon v. Whisman, 45 F.3d 758, 761 (3d Cir.1995) (quoting Lentino v. Fringe Employee Plans, Inc., 611 F.2d 474, 479 (3d Cir.1979)).

In this case, the district court found the federal and state claims alleged by class members to be "inextricably intertwined" because they "are premised upon a common course of conduct by Prudential; all related to the same alleged company-wide development and implementation of patently fraudulent sales techniques." In re the Prudential Ins. Co. of America Sales Practices Litigation, 962 F.Supp. 450, 501 (D.N.J.1997). Although the injuries of all classmembers may arise from a common scheme to defraud, it is far from clear that all of their state claims share a common nucleus of operative fact with Dorfner's federal securities claims.

In contrast, I find the requirement of a common nucleus of operative fact would be satisfied if the basis for the application of supplemental jurisdiction was derived from the district court's diversity jurisdiction over the state law claims of the remaining named plaintiffs. These plaintiffs raise a more diverse array of claims than those alleged by Dorfner. As a group, their claims are representative of the claims of the class as a whole.

The majority opinion undertakes a detailed and well-reasoned analysis of the present uncertainty surrounding the use of diversity jurisdiction as a basis for supplemental jurisdiction in subsection III.A.2, only to avoid answering the ultimate question of whether the Supreme Court's decision in Zahn v. International Paper Co., 414 U.S. 291, 94 S.Ct. 505, 38 L.Ed.2d 511 (1973), remains good law following the enactment of 28 U.S.C. § 1367. I would reach this question and would hold that under the plain language of § 1367, the amount-in-controversy requirement articulated in Zahn is no longer applicable to absent classmembers.

I am concerned that, by avoiding the question of whether § 1367 overrules Zahn and by basing its finding of jurisdiction on the securities claims, the majority establishes a dangerous precedent. I fear the majority's decision on jurisdiction risks opening the federal courts to a wide array of state claims whenever a complaint incorporates both federal and state claims, no matter how tangentially related the state claims might be to federal claim upon which jurisdiction is based. As this Court wrote in Lyon, "when a court exercises federal jurisdiction pursuant to a rather narrow and specialized federal statute it should be circumspect when determining the scope of its supplemental jurisdiction." 45 F.3d at 764.

Accordingly, I join with the majority in holding that the district court had jurisdiction over the claims of all classmembers, but I do so based on my determination that supplemental jurisdiction can be derived from the diversity claims of the named plaintiffs.

[1] The New Jersey Department of Banking and Insurance also conducted an independent market conduct investigation of Prudential's New Jersey business. Its report was issued on July 9, 1996.

[2] According to the Task Force Report, eleven states and the District of Columbia "actively participated" in the investigation: Arizona, Arkansas, California, Illinois, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, Ohio, and Washington. These twelve jurisdictions represented approximately 36.5 percent of the 10.7 million Prudential policies sold during the investigation period. Report of the Multi-State Life Insurance Task Force and Multi-State Market Conduct Examination of the Prudential Insurance Company of America at 1-2 ("Task Force Report"). The Attorney General of the State of Connecticut began a separate investigation of Prudential in April 1995, in response to the filing of a class action complaint in United States District Court for the District of Connecticut. Although the Connecticut Insurance Commissioner subsequently joined the Multi-State Task Force, the Attorney General completed its independent investigation and issued a report on November 21, 1995.

[3] According to the Task Force Report, a combination of regulatory and economic changes in the 1970s and 1980s created an atmosphere within the insurance industry that was more amenable to the replacement of insurance policies. For example, the rise in interest rates allowed insurance companies to offer new products "designed to compete with banks, money market funds and newly founded life insurers," and thus led companies to abandon their usually conservative approach. Task Force Report at 7. At the same time, the original model replacement regulations, which stated that replacement transactions were generally not in the best interest of the customer, were modified to allow for these transactions in certain cases. See discussion infra § V.A.4. & n. 66. As a result of these changes, replacement activity flourished.

[4] The Task Force found that, "[b]ecause of the nature of the transactions and possible improprieties, an electronic analysis could not identify every instance of sales abuse or violation of law or regulation." Task Force Report at 6.

[5] The structure of this remediation plan was based on a settlement reached between a number of the class counsel here and New York Life Insurance Company in a similar class action. Task Force Report at 198.

[6] More than 100 actions have been centralized in the District of New Jersey by the MDL Panel. In re The Prudential Ins. Co. of America Sales Practice Litigation, 962 F.Supp. 450, 479 n. 13 (D.N.J.1997) ("Fairness Opinion").

[7] Appellant Krell moved the district court to remand his case to state court. After the district court denied that motion on April 16, 1996, Krell filed a petition for mandamus relief with this Court. We denied that motion without opinion on September 25, 1996.

[8] Krell declined to join the class, claiming that Ohio policyholders with replacement claims deserved the protection of Ohio insurance law. Krell Brief at 5.

[9] According to Lead Counsel, the negotiations then proceeded through three stages. The first, from July 6th through August 16th, involved preliminary negotiation of the terms of settlement. During the second phase, which ran from August 17th through September 22nd, the parties negotiated the details of the actual Settlement Agreement. Finally, from September 23rd until October 28th, the parties worked out the final Stipulation of Settlement. Weiss Aff. ¶ 103.

[10] While the Complaint stated that "Prudential's scheme involved [these] three notorious deceptive life insurance sales tactics," Second Am. Cons.Compl. ¶ 5, the allegations detailed therein also refer to other sales abuses which fall outside these three categories. See, e.g., Second Am. Cons.Compl. ¶ 89-91 (alleging Prudential took affirmative steps to conceal its misrepresentations); ¶ 114-16 (alleging Prudential agents informed the Nicholson plaintiffs to "ignore" notices concerning lapses in their policies); ¶ 128 (alleging a Prudential agent made unauthorized withdrawals from the policy of named plaintiff Dorfner).

[11]Carol Nicholson brought suit as executrix of the estate of her deceased husband Keith. From 1966 to 1984, the Nicholsons purchased four Prudential policies worth approximately $30,000. In 1986, Keith Nicholson purchased an addition $100,000 policy, allegedly as a result of Prudential's fraudulent sales practices. Carol Nicholson alleged churning, vanishing premium and investment plan claims.

Martin Dorfner and his wife operate a small grocery store in Pennsylvania. By July 1989, they owned several Prudential policies. Dorfner alleges that his Prudential agent informed the Dorfners that they were entitled to a "free" policy, and proceeded to open another whole life policy for them using funds drawn from their existing policies. In addition, the same agent persuaded the Dorfners to purchase a $50,000 variable appreciable life insurance policy from Prudential in April 1991, allegedly using misleading sales information. Dorfner brought suit in January 1995, alleging churning and vanishing premium claims.

Vincent and Elizabeth Kuchas are Connecticut residents who purchased individual variable life policies from Prudential. In 1987, their agent suggested that they purchase additional policies. The Kuchases allege that they informed the agent that they were seeking an investment similar to an IRA, and could not afford an investment plan if they had to continue payment on their current Prudential policies. The agent allegedly persuaded the Kuchases to purchase two VAL policies while misinforming them as to their continuing payment obligations with respect to their initial policies. In September 1994, the Kuchases learned that the initial policies had lapsed and that their agent had taken out loans against the initial policies to pay for the VALs. They filed suit in February 1995.

Norman Gassman, an Ohio citizen, filed suit against Prudential in May of 1995, alleging an investment plan claim. According to Gassman, a Prudential agent persuaded Gassman to take $20,000 from a certificate of deposit and "invest" it in a VAL policy. Gassman alleges that the agent held himself out as a "financial planner" or "financial consultant" and explained that a VAL policy was part of an "investment plan," paid a higher rate of interest than a CD at a low risk, and was tax free. In reliance on these representations, Gassman purchased the VAL policy.

[12] On October 25, 1996, Prudential formally responded to plaintiffs' discovery requests, producing over one million pages of documents, 160 computer diskettes, and more than 500 audio and video tapes. See Weiss Aff. ¶ 85.

[13] Although § K of the Settlement Agreement was entitled "Attorneys' Fees, Costs and Expenses," subsection K.1 was left blank. Subsection K.2 addressed certain additional expenses to be included in any payment of fees, and guaranteed that any payment of fees would not reduce the remedies provided under the agreement. Subsection K.3 also provided that Prudential's liability for fees would be limited only to those fees expressly provided for by the Settlement Agreement.

[14] The injunction barred policyholders from pursuing overlapping litigation unless the policyholder had opted out of the class, and prevented them from excluding other policyholders from the class. After the class notice was mailed, several named plaintiffs in a competing nationwide class action, filed and certified in Alabama state court three days after the Settlement Agreement was signed (the "Steele action"), opted out of the class. The so-called "Steele Opt-outs" also attempted, as class representatives in the Steele action, to execute opt-outs on behalf of the entire class. At Prudential's request, the district court issued an Order to Show Cause on January 22, 1997. On May 28, 1997, the district court ruled that the opt-out of the Steele class was null and void as a violation of the permanent injunction. The Steele Opt-outs filed an appeal with this Court. We affirmed the district court in an unpublished opinion.

[15] In December 1996, Krell moved the district court to recuse itself. The district court denied the motion, and Krell's subsequent petition for mandamus relief was denied by this Court without opinion on April 4, 1997.

[16] The following were explicitly excluded from the class: (1) policyholders who were represented by counsel and had already settled a claim and signed a release with Prudential; (2) policyholders that are corporations, banks, trusts or other non-natural entities that purchased policies as corporate or trust-owned life insurance and under which (a) there are fifty or more separate insured individuals, or (b) the aggregate premium paid over an eight year period, ending with the close of 1996, exceeds $1 million; and (3) those policyholders who were issued policies in 1995 by Prudential Select Life Insurance Company of America. Stipulation of Settlement at 13.

[17] The financed insurance criteria include an assessment of Prudential's conformity with state replacement laws.

[18]The scoring system set forth in the Stipulation of Settlement is as follows:

— A score of "3" is assigned in the event that either (i) Company Documentation expressly supports the Misstatement, or (ii) the Agent Statement confirms the Claimant's allegation of the Misstatement and this confirmation is not undermined by Available Evidence.

— A score of "2" is assigned in the event that the alleged Misstatement is not expressly in writing and the Agent Statement denies the allegations, but (i) Available Evidence, on balance, supports the Claimant's allegation of the Misstatement, or (ii) the Agent has a Complaint History.

— A score of "1" is assigned in the event that the alleged Misstatement is not expressly in writing and the Agent Statement denies the allegation, and Available Evidence, on balance, neither supports nor undermines the Claimant's allegation of the Misstatement.

— A score of "0" is assigned in the event that Available Evidence exists which undermines the Claimant's allegation of the Misstatement and suggests that no Misstatement occurred.

— A score of "N/A" is assigned in the event that the Claim Resolution Factor is "not applicable" to the Claim submitted.

Prudential Alternative Dispute Resolution Guidelines, Stipulation of Settlement, Ex. B, at 9.

[19] During this phase of the review, claimants may receive cost-free representation from a representative selected by class counsel and approved by the state regulators. The claimant is entitled to a full rehearing if the representative determines that a "manifest injustice" has occurred.

[20]Under the Stipulation of Settlement, the following relief is available based on the category of claim proven:

Financed Insurance — The policyholder may obtain a refund of the loans, dividends, or values improperly used, with interest in some cases. The policyholder also may be entitled to cancel the "new" policy and get back some or all of the premiums paid, with interest in some cases.

Abbreviated Payment — The policyholder may be permitted to cancel the policy and obtain a refund of some or all of the premiums paid, with interest in some cases. Alternatively, the policyholder may be permitted to keep the policy without having to make any additional out-of-pocket payments for some or all of the premiums due.

Investment Product — The policyholder may be allowed to cancel the policy and obtain a refund of some or all of the premiums paid, with interest in some cases. Alternatively, the policyholder may be able to exchange the policy for an annuity.

Other Claims — If a policyholder was misled in some other way, the policyholder may be allowed to cancel the policy and obtain a refund of some or all of the premiums paid, with interest in some cases, or may be able to use the refund to purchase another policy.

Fairness Opinion, 962 F.Supp. at 490 (citing February 1, 1997 Notice at 7-8).

[21]The district court noted several improvements to the Settlement's ADR process that would enhance the ability of a policyholder to establish the presumption that he or she was misled. These enhancements to the ADR process were:

(1) Provided that boilerplate statements in policy illustrations and contracts explaining that the dividends, interest or investment returns are "not guaranteed" or "non-guaranteed," will not independently undermine a claim;

(2) Reduced from six complaints to three the number of policyholder complaints against an agent which would entitle a claimant to a score of at least "2"; and

(3) Extended the period during which policyholder complaints would be considered from July 9, 1996 to February 1, 1997.

Fairness Opinion, 962 F.Supp. at 492.

[22]The district court also noted the proposed settlement "include[d] significant improvements in the factors and evidentiary considerations used to evaluate claims." Fairness Opinion, 962 F.Supp. at 492. The court found that the settlement enhanced the Task Force ADR plan by:

(1) Allowing a claimant's score to be raised if documents originally kept by Prudential that could affect the scoring have improperly been destroyed and no copies can be located;

(2) Allowing the claimant's score for "churning" to be raised if 12% of the selling agent's total sales were "financed insurance" sales, as opposed to a threshold figure of 15% under the Task Force plan;

(3) Allowing a claimant's score to be raised if blank, unsigned disbursement forms were used without the policyholder's consent;

(4) Allowing a claimant's score to be raised for "vanishing premium" claims if an agent used the phrases "vanishing premium" or "vanishing point" in writing in connection with the sale of the policy at issue;

(5) Removing as a negative consideration the fact that a policy lapsed prior to the date when the premiums were to "vanish", if it appears that the policyholder became aware, prior to the misrepresented "vanish" date, that the policy would not perform as illustrated;

(6) Requiring Prudential to contact agents regarding policies they sold to obtain additional information about the sale of the policy, and to encourage honest responses by agreeing not to take disciplinary action against an agent based on his or her truthful statements;

(7) Removing Prudential from its co-equal role with the regulators in the selection of a representative to advocate on behalf of the claimant at the arbitration level, and eliminating the $10 million cap on the funding the representative could receive; and

(8) Creating an entirely new position, the "Claimant Representative," selected by Class Counsel and responsible for overseeing the entire process on behalf of the claimant, including the initial claim review.

Id. at 492-93.

[23]The enhancements to the ADR remedies were:

(1) The settlement provided 100% interest to claimants scoring a "2" or a "3" in the ADR process (compared to the Task Force plan, which provided zero interest for scores of "2"), and allows rescission of the policy and a refund of the premiums, with interest;

(2) The settlement allowed a claim receiving a either a "2" or a "3" to receive relief where a policy lapsed before the claimant died, as opposed to the requirement under the Task Force plan that a claimant receive a "3." three.

(3) Full compensatory relief for a vanishing premium claim where a Prudential agent promised the claimant would have a "paid up" policy;

(4) Removal of the exclusion in the Task Force plan which prevented claims on behalf of the decedent where the policyholder/decedent died while the policy was in force.

Fairness Opinion, 962 F.Supp. at 493-94.

The court found that the settlement enhanced the Basic Claim Relief by:

(1) Eliminating fifty basis points on Optional Premium Loans;

(2) Increasing Prudential's contributions to the annual premiums for Enhanced Value Policies;

(3) Increasing Prudential's contributions toward the purchase price of Enhanced Value Annuities;

(4) Creating a new form of Basic Claim relief known as Mutual Fund Enhancements, for which Prudential would contribute 4% of the initial purchase price to the fund, up to a maximum of $2,000.

Id. at 494.

[24] At oral argument, Lead Counsel noted that approximately 1.8 million phone calls had already been processed. Tr. of Oral Argument, January 26, 1998, at 125 (Testimony of Melvyn Weiss).

[25] The district court postponed the hearing date, originally set for January 21, 1997, in order to allow policyholders more time to respond to the class notice and to provide the parties more time to prepare.

[26]The district court noted five enhancements which resulted from the negotiations between the state regulators and Prudential. These were:

(1) The extension of the complaint history cutoff until February 1, 1997;

(2) An increase in the interest paid on claims receiving a score of "2" from 50% to 100%;

(3) The addition of an evidentiary criterion allowing the claim evaluator to consider that a claimant was 60 years or older at the time of the sale;

(4) The addition of a claim resolution factor awarding an automatic score of "3" if a claimant's life insurance application contained an unauthorized signature; and

(5) The requirement that Prudential provide claimants, at the claimants request, with current account information, such as outstanding loans, dividend payments and "currently illustrated year of abbreviation."

Fairness Opinion, 962 F.Supp. at 498.

[27] Krell disputes this finding, and argues that the additional enhancements benefitted only the citizens of those four states. Krell Brief at 47 n. 56. Krell's argument relies primarily on its assertion that Florida residents received better notice and were benefitted by more favorable evidentiary presumptions, including a more favorable definition of replacements. Id.; see also Krell Reply Brief at 49-51. Lead Counsel responds that the court was correct to rely on Prudential's statements in open court to the effect that the enhancements would be available to all class members. Lead Counsel Brief at 58. Additionally, Lead Counsel notes that the district court found the settlement was fair and reasonable even without the state-negotiated enhancements. Id.

We disagree with Krell. At the Fairness Hearing on February 24, 1997, Krell raised his concern regarding the state-negotiated enhancements. Prudential explained that "the ADR plan changes that were agreed to with the four states in terms of modifications of scoring and relief will be made available nationally through the class settlement." Tr. of Fairness Hearing at 141. An examination of the settlements signed by the four objecting states and the Amendment to Stipulation of Settlement filed by the settling parties supports the district court's finding. Also, while Prudential's explanation does not specifically respond to Krell's assertion that Florida residents received enhanced notice, we do not believe this is significant. As discussed infra, we find the notice provided under the settlement was adequate, and it is not rendered inadequate by any additional notice provisions negotiated by an individual state. Finally, Krell's argument with respect to replacement claims misses the mark. As Prudential explained at the hearing, the "scoring enhancements [in the ADR process] where there was a violation of state regulations on replacement will be based on each states' individual replacement regulations where the policy was sold ... [t]he Florida provision is confirmatory and expands what is already in the plan." Tr. of Fairness Hearing at 174. Thus, any provision negotiated by Florida regarding the definition of replacement is based on Florida law and is not applicable to other states.

[28] The 1996 Amendment to 28 U.S.C. § 1332, which raised the amount-in-controversy requirement from $50,000 to $75,000, did not take affect until after the filing of the Second Amended Consolidated Complaint. See Pub.L. No. 104-317, § 205(b) (1996).

[29] They also argue that Dorfner could not be expected to bring both his federal claims and his purely state law claims in the same suit.

[30] The Lyoncourt found that "under any standard, the nexus between the federal and state claims in this case is inadequate" to support supplemental jurisdiction. 45 F.3d at 762. The court went on to note:

Lyon's FLSA claim involved very narrow, well-defined factual issues about hours worked during particular weeks. The facts relevant to her state law contract and tort claims, which involved Whisman's alleged underpayment of a bonus and its refusal to pay the bonus if Lyon started looking for another job, were quite distinct. In these circumstances it is clear that there is so little overlap between the evidence relevant to the FLSA and state claims, that there is no "common nucleus of operative fact" justifying supplemental jurisdiction over the state law claims. In fact, it would be charitable to characterize the relationship of the federal and state claims as involving even a "loose" nexus.

Id. at 763.

[31]Section 10(b) of the Securities Exchange Act of 1934 provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange —

* * * * * *

(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

15 U.S.C. § 78j(b).

[32]Section 20(a) of the Securities Exchange Act of 1934 provides:

Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.

15 U.S.C. § 78t(a).

[33] Furthermore, many plaintiffs had more than one claim stemming from the conduct of Prudential's sales agents. For example, named plaintiff Nicholson alleged churning, vanishing premium and investment plan claims, while named plaintiff Dorfner alleged churning and vanishing premium claims. See supra note 11.

[34]Section 1367 provides:

(a) Except as provided in subsections (b) and

(c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.

(b) In any civil action of which the district courts have original jurisdiction founded solely on section 1332 of this title, the district courts shall not have supplemental jurisdiction under subsection (a) over claims by plaintiffs against persons made parties under Rule 14, 19, 20, or 24 of the Federal Rules of Civil Procedure, or over claims by persons proposed to be joined as plaintiffs under Rule 19 of such rules, or seeking to intervene as plaintiff under Rule 24 of such rules, when exercising supplemental jurisdiction over such claims would be inconsistent with the jurisdictional requirements of section 1332.

(c) The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if —

(1) the claim raises a novel or complex issue of State law,

(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,

(3) the district court has dismissed all claims over which it has original jurisdiction, or

(4) in exceptional circumstances, there are other compelling reasons for declining jurisdiction.

28 U.S.C. § 1367.

[35] It is interesting to note that one of the primary rationales for class actions is allowing access to the courts for parties whose individual claims are so small that it would be economically infeasible to pursue them individually. See 1 Herbert Newberg & Alba Conte, Newberg on Class Actions § 4.27 at 4-107 to 4-109 (3d ed.1992). Consequently, upholding Zahn's amount-in-controversy requirement would largely undercut this purpose.

[36] The Federal Courts Study Committee Working Papers showed that the matter had come to the attention of the Committee. 1 Federal Courts Study Committee Working Papers and Subcommittee Reports 561 n. 33 ("From a policy standpoint, [Zahn] makes little sense, and we therefore recommend that Congress overrule it."). Nonetheless, the Committee did not adopt the proposal and, indeed, cautioned against reliance on the Working Papers. See Preface to Working Papers ("These [Working Papers] were valued background materials which the Committee determined should be published for general consideration whether or not the Committee agreed with their substantive proposals.... In no event should the [Working Papers] be construed as having been adopted by the Committee.").

[37] Appellants have questioned whether the notice adequately described the category of "other improper sales practices" claims so as to inform members that they might have a valid, compensable claim against Prudential. We believe it did. See discussion infra § V.C.2.

[38] As noted above, the district court partially granted Prudential's motion to dismiss on May 10, 1996.

[39] The proposed settlement in Georgine was the by-product of ongoing negotiation and litigation involving a group of asbestos manufacturers and a myriad of plaintiffs whose cases had been consolidated in the Eastern District of Pennsylvania by the Multidistrict Litigation Panel. Counsel for both sides negotiated separate settlements to resolve both the then-pending claims against the CCR and the inventory of unfiled claims held by plaintiffs' counsel. Once the extant cases were settled, the parties filed the Georgine class action on behalf of approximately 2 million individuals who had not previously filed lawsuits against the asbestos defendants, but who had been exposed to asbestos products produced by defendants. While some members of the class had suffered physical injuries as a result of their exposure, other members of the class were "exposure-only" plaintiffs who had not yet developed any asbestos-related illness. The parties simultaneously-filed a complaint, an answer, a proposed settlement and a joint motion for conditional class certification. The district court granted the motion, and subsequently approved the settlement. On appeal, the Georgine court vacated the district court's opinion and remanded for decertification of the class, finding that the class did not satisfy the typicality, adequacy of representation, predominance and superiority requirements of Rule 23. Georgine, 83 F.3d at 618. The Supreme Court affirmed. Amchem,___ U.S. at ___, 117 S.Ct. at 2244.

Throughout this opinion, we will distinguish between the opinions of this Court and the Supreme Court by referring to the Supreme Court's decision as Amchem, and referring to this Court's opinion as Georgine.

[40] The district court did not have the benefit of the Amchem decision when it rendered its opinion, and did not take settlement into consideration when conducting its certification analysis.

[41] In his separate opinion concurring in part and dissenting in part, Justice Breyer, joined by Justice Stevens, questioned the consistency of the majority approach. "If the majority means that these pre-settlement questions are what matters, then how does it reconcile its statement with its basic conclusion that `settlement is relevant' to class certification." Amchem, ___ U.S. at ___, 117 S.Ct. at 2254.

[42]Rule 23(a) provides:

One or more members of a class may sue or be sued as representative parties on behalf of all only if (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.

Fed.R.Civ.P. 23(a).

[43] Rule 23(b)(1) authorizes certification in cases where separate actions by or against individual class members would risk establishing "incompatible standards of conduct for the party opposing the class," Rule 23(b)(1)(A), or would "as a practical matter be dispositive of the interests" of nonparty class members "or substantially impair or impede their ability to protect their interests," Rule 23(b)(1)(B). Rule 23(b)(2) authorizes class actions seeking declaratory or injunctive relief, for example civil rights cases alleging class based discrimination.

[44]Rule 23(b)(3) provides:

(b) An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:

* * * * * *

(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.

Fed.R.Civ.P. 23(b)(3).

[45]Rule 23(e) provides:

A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such a manner as the court directs.

Fed.R.Civ.P. 23(e)

[46] Courts frequently examine the Rule 23(a) requirement of commonality in conjunction with Rule 23(b)(3)'s "predominance" standard, reasoning that the "predominance requirement incorporates the commonality requirement." Georgine, 83 F.3d at 626; 1 Newberg on Class Actions § 3.13, at 3-71. Although the district court followed this approach and examined the predominance and commonality requirements together, appellants have not questioned the court's finding that the proposed class satisfies this element of Rule 23(a).

[47]The district court found that plaintiffs would need to establish the following common factual issues at trial:

• Prudential's common course of conduct;

• Prudential's development of the sales presentations and materials, and artificial inflation and maintenance of dividend scales;

• the sale of replacement and vanishing premium policies by material omission;

• the misrepresentation of policies as investment or retirement plans;

• the failure to train or supervise agents;

• Prudential's unwillingness to prevent deceptive sales practices; and

• Prudential's scienter.

Fairness Opinion, 962 F.Supp. at 512.

The district court also found that plaintiffs would need to establish the following common legal issues at trial:

• whether policyholder reliance could be presumed;

• whether Prudential's offer to finance a policyholder's purchase of a policy constitutes an enforceable financing contract distinct from the policy itself;

• whether Prudential breached the financing contract;

• whether Prudential breached an obligation of good faith and fair dealing;

• whether constructive trust principles apply to premiums received as a result of deceptive sales practices;

• whether compensatory claims can be effectively quantified on a class wide basis; and

• whether punitive damages should be imposed.

Id.

[48] The court also cited the following as examples of issues common to all class members: Prudential's fraudulent concealment of its misrepresentations; the use of substantially similar, and sometimes identical, oral and written misrepresentations by Prudential agents in furtherance of its fraudulent scheme; the required use of pre-approved written marketing materials; and the fact that Prudential trained its agents to use these fraudulent sales techniques. Fairness Opinion, 962 F.Supp. at 513-16.

[49] Krell objects to the district court's reference to Baby Neal, complaining that the court was inappropriately applying the Rule 23(b)(2) standard for injunctive relief in a Rule 23(b)(3) class action. The objection is clearly without merit. The district court applied Baby Neal in the context of its Rule 23(a) "commonality" analysis, a factor applicable whether the class action is brought under Rule 23(b)(2) or (b)(3).

[50] Krell also argues the court improperly evaluated the typicality requirement because it merely presumed the factual and legal elements of named plaintiffs' claims were aligned with the claims of absentee class members. Krell's claim that the district court presumed typicality simply ignores the findings contained in the district court's opinion.

[51] Falcon involved a Mexican-American employee who was denied a promotion, allegedly based on his national origin. After obtaining a right-to-sue letter from the EEOC, Falcon commenced a class action under Title VII of the Civil Rights Act of 1964, alleging discrimination against Mexican-Americans with respect to promotion. The class, however, was comprised of all Mexican-American employees and Mexican-Americans who had been denied employment.

[52] The court specifically noted that the fee agreement negotiated with Prudential subsequent to the negotiation of the Proposed Settlement did not undermine the adequacy of class counsel's representation. Fairness Opinion, 962 F.Supp. at 519; see also infra § VI.C.1.

[53] The district court explicitly rejected this argument. Fairness Opinion, 962 F.Supp. at 522. For a more detailed discussion of Krell's replacement claims, see infra § V.A.4.

[54] While we reached a different conclusion in Georgine, our decision there turned on our belief that the case "could not be broken into anywhere near that small a number of patterns." 83 F.3d at 627 n. 13.

[55] In addition, Krell's concern is addressed by the fact that "the ADR scoring procedures specifically incorporate state replacement regulations." Fairness Opinion, 962 F.Supp. at 550 n. 79.

[56]Rule 23(b)(3) lists the following factors for consideration by the courts:

(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.

Fed.R.Civ.P. 23(b)(3).

[57] While we believe the district court correctly analyzed whether application of the laws of the fifty states would be manageable, we note this analysis, depending on the facts in each case, may no longer be necessary in the context of settlement-only class certification. See Amchem, ___ U.S. at ___, 117 S.Ct. at 2248 ("Confronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems ... for the proposal is that there be no trial.").

[58] The district court expressly left open the possibility that it would create subclasses if they became necessary. Fairness Opinion, 962 F.Supp. at 525.

[59] Both Rule 23(e) and Rule 23(c) require that notice of the proposed settlement be given to all members of the class as directed by the court. For a discussion of the notice provided, see discussion infra § V.C.2.

[60] Prudential contends that nearly "[e]very argument Krell makes is based on th[e] mistaken premise that his `replacement claims' were stronger than the misrepresentation claims of the other Class Members." Prudential Brief at 41 & n. 10. As a result, Prudential argues, all but one of the objections to the settlement's fairness are "felled by Krell's error of law." Id. We do not agree that Krell's arguments can be dismissed so easily, and will address Krell's replacement claim objections in the context of his other arguments.

[61] We also note that no parties have objected to this portion of the district court's analysis.

[62] The court found that approximately 700 of those who opted out wrote "to indicate they do not feel they were misled in the purchase of their insurance, are satisfied with their policies, and do not want to participate in the action against Prudential." Fairness Opinion, 962 F.Supp. at 537 n. 61.

[63] Krell argues that the low response rate was the result of inadequate notice. We disagree. As discussed infra § V.C.2, we believe the class notice adequately apprised the class members of their right to enter an appearance, file objections, or opt out of the proposed class, and provided a detailed explanation of the procedures for doing so.

[64] This discovery included over 1 million documents, 160 computer diskettes, 500 audio and video tapes. Fairness Opinion, 962 F.Supp. at 541.

[65] Prudential also notes that Ohio state courts have found that a violation of state replacement laws does not give rise to a private cause of action. Prudential Brief at 36 (citing Springfield Impregnators, Inc. v. Ohio State Life Ins. Co., No. C.A. 3090, 1994 WL 95219 at *9 (Ohio App. Mar. 23, 1994); Strack v. Westfield Companies, 33 Ohio App.3d 336, 515 N.E.2d 1005, 1007-08 (Ohio App.1986)).

[66] The Task Force also noted that, in 1985, the Federal Trade Commission acknowledged that many older insurance policies were "candidates for replacement." Task Force Report at 42-3 (quoting Michael P. Lynch and Robert J. Mackay, Life Insurance Products and Consumer Information, Staff Report, Bureau of Economics, Federal Trade Commission, Washington, D.C. (November 1985)).

[67] We note that even if the different claims alleged by plaintiffs require proof of different elements to establish liability, those differences are adequately addressed during the ADR process. ADR claims will be examined using a set of criteria specific to the type of claim filed. For example, the evidentiary considerations for a churning claim include misstatements by a Prudential agent concerning the applicable interest rate on a policy loan, the policyholder's annual income, and the use of blank, signed disbursement forms. Prudential Alternative Dispute Resolution Guidelines, Stipulation of Settlement, Ex. B, at 17. Considerations for a vanishing premium claim include whether the policyholder was advised to disregard notices from Prudential, whether the policyholder made a "significant financial decision" in reliance on the belief that premium payments would cease, and whether the policyholder received altered or unclear sales materials from an agent. Id. at 26-27.

[68] The district court also noted that "[n]one of the four states that objected to the Proposed Settlement have ever prohibited financed insurance sales and three of the four did not regulate in any respect financed insurance sales for great portions of the Class Period." Fairness Opinion, 962 F.Supp. at 549 n. 77.

[69] Prudential argued that consideration of this factor was unnecessary because of the uncapped nature of the relief. The district court rejected this claim, noting that while the compensatory relief was uncapped, the "punitive damages" component of the settlement-the Additional Remediation Amount — was limited, and thus the district court was obligated to examine this factor.

[70] The court found that Prudential's credit rating had already declined during the course of the litigation. Fairness Opinion, 962 F.Supp. at 540.

[71] In response, Krell contends that the court's belief that full compensatory relief is available relies on the flawed "assumption that 100% of the wrongfully replaced policyholders will understand the notice and form the requisite `belief' and complete the 16 page proof of claim form and thereafter prevail in ADR." Krell Brief at 45. But Krell ignores the fact that any claim, whether brought at trial or under the ADR process, will require evidence of deceptive conduct in order to support liability.

[72] The district court also took notice of the procedural safeguards contained in the ADR process, including the four tier review process designed to ensure an accurate and fair scoring of class members' claims. See discussion supra § I.B.1.

[73] SeeEdward H. Cooper, Mass Torts Model, prepared for the Conference On Mass Torts, Mass Torts Working Group, Philadelphia, PA (May 1998).

Other related factors that also may be relevant to this inquiry are discussed by Judge William Schwarzer in his article, Settlement of Mass Tort Class Actions: Order Out of Chaos, 80 Cornell L.Rev. 837, 843-44 (May 1995). The factors suggested by Judge Schwarzer include:

(1) Whether the prerequisites set forth in subdivisions (a) and (b) [of Rule 23] have been met;

(2) Whether the class definition is appropriate and fair, taking into account among other things whether it is consistent with the purpose for which the class is certified, whether it may be overinclusive or underinclusive, and whether division into subclasses may be necessary or advisable;

(3) Whether persons with similar claims will receive similar treatment, taking into account any differences in treatment between present and future claimants;

(4) Whether notice to members of the class is adequate, taking into account the ability of persons to understand the notice and its significance to them;

(5) Whether the representation of members of the class is adequate, taking into account the possibility of conflicts of interest in the representation of persons whose claims differ in material respects from those of other claimants;

(6) Whether opt-out rights are adequate to fairly protect interests of class members;

(7) Whether provisions for attorneys' fees are reasonable, taking into account the value and amount of services rendered and the risks assumed;

(8) Whether the settlement will have significant effects on parties in other actions pending in state or federal courts;

(9) Whether the settlement will have significant effects on potential claims of class members for injury or loss arising out of the same or related occurrences but excluded from the settlement;

(10) Whether the compensation for loss and damage provided by the settlement is within the range of reason, taking into account the balance of costs to defendant and benefits to class members; and

(11) Whether the claims process under the settlement is likely to be fair and equitable in its operation.

80 Cornell L.Rev. at 843-44.

[74] The Rules Enabling Act grants the Supreme Court the "power to prescribe general rules of practice and procedure." 28 U.S.C. § 2072(a). The Act further provides that "[s]uch rules shall not abridge, enlarge or modify any substantive right." 28 U.S.C. § 2072(b).

[75] The McCarran-Ferguson Act provides "[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance." 15 U.S.C. § 1012(b). Krell claims the Federal Rules of Civil Procedure constitute an Act of Congress for purposes of the McCarran-Ferguson Act. Krell further contends the proposed settlement "relieves Prudential of compliance with state insurance laws" which regulate the form and content of documents used to sell insurance or modify existing insurance contracts. Consequently, Krell reasons that the approval of the class action settlement under Rule 23 must violate the McCarran-Ferguson Act.

[76] For a discussion of whether settlements of class actions under Rule 23 violate the Rules Enabling Act, see Linda S. Mullenix, The Constitutionality of the Proposed Rule 23 Class Action Amendments, 39 Ariz. L.Rev. 615 (Summer 1997) (responding to arguments that the proposed inclusion of a "settlement-only" class in Rule 23 violates the Rules Enabling Act); but see Paul D. Carrington & Derek P. Apanovitch, The Constitutional Limits of Judicial Rulemaking: The Illegitimacy of MassTort Settlements Negotiated Under Federal Rule 23, 39 Ariz. L.Rev. 461 (Summer 1997).

[77]In support of its contention, Krell argues the sale of insurance under the Basic Claim Relief and the modification of existing contracts by the incorporation of the release and ADR provision in all contracts since 1982 violates state laws regulating the form and content of insurance contracts. Krell further contends the class certification and settlement notices would not pass muster under state laws requiring that material used to advertise new insurance sales or modify insurance contracts not be misleading, because the class notice omits material facts, including: (a) the nature of the "other sales" claims; (b) the district court's finding that the jury value of each class member's claim could exceed $50,000; and (c) the indirect payment of Lead Counsel's fees by the class members. Finally, Krell contends that the settlement violates state laws barring mandatory arbitration of claims.

Prudential and Lead Counsel respond by noting that the insurance regulators for all 50 states and the District of Columbia have endorsed the settlement, and that the requirements of state insurance laws have been incorporated in the ADR scoring system. They also respond that: (a) the settlement agreement and class notice are not insurance contracts or policy forms and therefore need not meet state requirements for form, content and readability; (b) the district court found that the Settlement and Class Notice are excluded from the NAIC definition of advertising; and (c) the ADR is not "mandatory arbitration" but rather constitutes part of the settlement.

We agree. The settlement does not violate applicable state law.

[78] Discovery concerns relating to attorneys' fees will be addressed separately. See infra § VI.C.

[79] The district court suggested that alternative methods might be available to test the veracity of the affidavits.

[80] Krell also argues that the proposed class here is an "across the board" sales practice class, and that the Supreme Court has "rejected the creation of an `across the board' racial discrimination class because its overbreadth posed serious unfairness to absent class members bound by the judgment." Krell Brief at 28-29 (citing Falcon, 457 U.S. at 161, 102 S.Ct. 2364). As discussed earlier, Krell misreads the Supreme Court's decision in Falcon. See supra n. 51 and accompanying text.

[81] The district court also rejected Krell's objection to the scope of the release on the grounds that class members could simply have opted out of the class. While we agree with the statement as a factual matter, it does not address Krell's concern. The court's line of reasoning would render any objection meritless, and consequently we reject it.

[82] "[I]t is widely recognized that courts without jurisdiction to hear certain claims have the power to release those claims as part of a judgment." Grimes, 17 F.3d at 1563; see also Class Plaintiffs v. City of Seattle, 955 F.2d 1268, 1287-88 (9th Cir.), cert. denied, 506 U.S. 953, 113 S.Ct. 408, 121 L.Ed.2d 333 (1992) (noting that the weight of authority holds that a federal court may release claims which are not in the complaint provided they are based on the "same factual predicate"). As we noted in Grimes, "[t]his rule of law serves the important policy interest of judicial economy by permitting parties to enter into comprehensive settlements that `prevent relitigation of settled questions at the core of a class action.'" 17 F.3d at 1563 (quoting TBK Partners Ltd. v. Western Union Corp., 675 F.2d 456, 460 (2d Cir.1982)).

[83] Although the release provides that class members waive certain state law protections against the waiver of claims through general releases, that waiver provision is limited to claims arising out of Prudential's "insurance sales practices." Stipulation of Settlement at 36. Of course, we express no opinion of the validity of the waiver of any state law protections.

[84]Rule 23(c)(2) provides:

In any class action maintained under subdivision (b)(3), the court shall direct to the members of the class the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort. The notice shall advise each member that (A) the court will exclude the member from the class if the member so requests by a specified date; (B) the judgment, whether favorable or not, will include all members who do not request exclusion; and (C) any member who does not request exclusion may, if the member desires, enter an appearance through counsel.

Fed.R.Civ.P. 23(c)(2).

[85]Rule 23(e) provides:

A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such a manner as the court directs.

Fed.R.Civ.P. 23(e).

[86] The individual notice provided a description of the litigation, the settlement class, and the terms of the proposed settlement, including the relief available. It set out the information regarding the fairness hearing, including the date of the hearing, the opportunity for class members to appear at the hearing, and the procedure for filing objections with the court. The notice also explained the consequences for class members who remain in the class and provided the full text of the release. Finally, the notice provided class members with the toll-free 800 number established by Prudential to address class member concerns.

[87] The Stipulation of Settlement also provided the parties would remail any returned notices containing a forwarding address, and retain an independent research firm to determine a current address for any returned notices that did not contain a forwarding address. Stipulation of Settlement § G.3.

[88] The publication notice described the settlement class and provided information regarding, inter alia, the hearing, the deadline for opting out or entering an appearance, and the consequences of opting out or remaining in the class.

[89] On January 6, 1997, the district court postponed the fairness hearing from January 21 until February 24, 1997. Although not required to do so, the district court ordered the parties to provide additional notice to all class members notifying them of the postponement.

[90] We note that, in addition to the outreach program implemented by the settling parties, several states conducted there own outreach programs to supplement the notice provided under the settlement. For example, the California Department of Insurance ran a series of television and radio advertisements during the three weeks preceding the June 1, 1997 claim filing deadline. Prudential v. Florida, No. 97-5264 (3d Cir. May 22, 1997), slip op. at 6.

[91] The district court took judicial notice of the news coverage received by the settlement, including wire service articles published in various state, local and trade newspapers. Fairness Opinion, 962 F.Supp. at 496.

[92] For example, following the court's approval of the settlement, the parties provided additional notice to those class members who initially excluded themselves from the class. The notice explained that several enhancements had been made to the original settlement remediation plan as a result of negotiations with various states, and provided an election form with which the class members could indicate their decision to rejoin the class and elect either the ADR process or Basic Claim Relief. A similar notice was provided to the rest of the class, extending the date for electing the ADR process or Basic Claim Relief until June 1, 1997.

[93] Under the category of "other claims," the notice explains that "[i]f evidence shows other improper life insurance sales practices, you may be remedied through the cancellation of your policy with a refund of some or all of the premiums you paid, including interest in some cases, or the issuance of a substitute product purchased with the amount otherwise available for refund." Class Notice at 11.

[94]Section K.1. of the Proposed Settlement Agreement states:

Lead Counsel agrees to make, and the Defendants agree not to oppose, an application for an award of Attorney's Fees in the Centralized Proceeding not to exceed a total of $90 million (the "Total Fees"). Additionally, Class Members will not be required to pay any portion of the Attorneys' Fees.

Stipulation of Settlement § K.1.

[95] These costs included the publication, printing and mailing costs of various class notices; post-office box rental costs; the costs of establishing and maintaining the 800 telephone number established under the settlement; the costs of processing the exclusion requests and Election Forms; and all administrative costs associated with both the ADR Process and Basic Claim Relief, including the fees paid to claim evaluators and Appeals Committee members.

[96] Lead Counsel was responsible for the allocation and distribution of the fee award among the 25 law firms representing plaintiffs, Stipulation of Settlement ¶ K.2, and consequently the court need not undertake the difficult task of assessing counsels' relative contributions. See Dennis E. Curtis & Judith Resnik, Contingency Fees In Mass Torts: Access, Risk, And The Provision Of Legal Services When Layers Of Lawyers Work For Individuals And Collectives of Clients, 47 DePaul L.Rev. 425, 448-49 (Winter 1998) (noting the difficulty of "assessing the value of contributions of a multitude of attorneys to a particular outcome").

[97] This figure assumes a 3% remediation rate, which is equivalent to the remediation of approximately 330,000 claims.

[98] Although Krell filed an emergency motion to vacate this order, the district court denied the motion on the grounds that Krell had waived his right to object. See Fee Opinion, 962 F.Supp. at 575 n. 9 (citing In re Prudential Ins. Co. of America Sales Practice Litigation, No. 95-cv-4704, slip op. (D.N.J. Feb. 11, 1997)). Krell has renewed his objections to the fee examiner on appeal.

[99] The court reasoned that, although the class settlement and the attorneys' fee award were negotiated independently, Prudential was responsible for both and therefore they are drawn from the same "fund." In addition, the court found that the minimum payments required of Prudential constituted a common fund on which it could accurately calculate a portion of the fee award. Fee Opinion, 962 F.Supp. at 579.

[100] The district court also rejected separate fee petitions filed by attorneys for various objectors. Fee Opinion, 962 F.Supp. at 593-94 ("The Court finds that Objectors' Attorneys neither improved the settlement, assisted the court nor enhanced the recovery ... [and] will deny the Objectors' Attorneys request for attorneys' fees.").

[101] Hoyer calculated the settlement's total value at $1.987 billion, assuming 330,000 remediated claims. He attributed $1.187 billion to the ADR program, and the remaining $799 million to Basic Claim Relief. Hoyer also calculated the value of the Task Force plan to be approximately $863 million, with $490 attributable to the ADR program and $373 attributable to Basic Claim Relief. This represents a total enhancement of $1.123 billion. Hoyer also found the settlement would result in increased remediation, calculating that for every 110,000 claims remediated under the proposed settlement, only 83,300 claims would be remediated under the Task Force plan. SeeHoyer Aff. ¶¶ 6, 11, 13, 15; Fee Opinion, 962 F.Supp. at 575.

Prudential submitted separate valuations from Patricia Guinn, of Tillinghast-Towers Perrin, and Daniel McCarthy, of Milliman & Robertson, Inc., calculating the value of the ADR and Basic Claim Relief. Guinn found that the "shared elements" of the ADR programs contained in the Task Force plan and the proposed settlement have a value of $221 million per 110,000 claims remedied. She also calculated that, with the enhancements, the number of claims remedied would rise to 118,480 and have a value of $261.2 million. McCarthy calculated that the value of the Basic Claim Relief under the proposed settlement would range from $272 million to $686 million, and that the best estimate of its value was $425 million. This was an improvement over the value of the Basic Claim Relief contained in the Task Force plan, which ranged from $208 million to $535 million, with a "best estimate" of $330 million. Fee Opinion, 962 F.Supp. at 582 n. 25.

Although the district court accepted Hoyer's calculations, it found the valuations submitted by Guinn and McCarthy were flawed. The court noted that Guinn's calculations did not provide an estimate of the number of claims that would ultimately be addressed. Similarly, the court questioned McCarthy's conservative estimate of the value of the Basic Claim Relief, which was far below previous calculations, noting that the "BCR valuations generally have gone uncontested in this litigation." Id.

[102] The lodestar method calculates the attorneys' fees based on the number of hours reasonably expended by counsel.

[103] The court found that, as of January 31, 1997, the lodestar amount totaled $17.7 million, a figure which did not include "significant events" such as the fairness hearing, which occurred after that date. Fee Opinion, 962 F.Supp. at 584 & n. 29.

[104] While the district court does not offer any explanation of the "risks and burdens" facing class counsel, we assume this is a reference to the risks of establishing liability and damages at trial discussed in the court's fairness opinion. But see Janet Cooper Alexander, Do the Merits Matter? A Study of Settlements in Securities Class Actions, 43 Stan. L.Rev. 497, 578 (Feb. 1991) (arguing that a multiplier designed to address the contingency factor is unnecessary because "there appears to be no appreciable risk of nonrecovery, for virtually all cases are settled").

[105] Under the settlement, Prudential guaranteed to pay a minimum of $260 million per 110,000 claims processed. Assuming 330,000 claims, this would result in a minimum payment of $780 million. In addition, Prudential promised to pay an additional remediation amount of $300 million in the event more than 330,000 claims were remediated. Combining these figures with the minimum valuation of the Basic Claim Relief — $272 million—the court calculated that Prudential would be obligated to pay $1.352 billion. See Fee Opinion, 962 F.Supp. at 589 n. 38.

[106] This figure was capped so that the total fee award, including the initial $45 million, would not exceed $90 million. Fee Opinion, 962 F.Supp. at 589.

[107] Krell objected to the district court's application of the lodestar method, arguing the court improperly based its calculations on time summaries provided by class counsel rather than detailed time reports. The court rejected this argument, reasoning that the time summaries were sufficient in this case because the court was only using the lodestar analysis as a cross-check on the fee award. Fee Opinion, 962 F.Supp. at 591 n. 47. In addition, the court noted that the lodestar figures used were actually understated because they did not include time spent by class counsel subsequent to January 31, 1997. Id.

[108] Some critics have argued that the lodestar method gives attorneys an incentive to increase their billable hours by delaying settlement as long as possible. See, e.g., Court Awarded Attorney Fees, Report of the Third Circuit Task Force, 108 F.R.D. 237, 247-48 (Oct. 8, 1995) (citing In re Fine Paper Antitrust Litigation, 751 F.2d 562 (3d Cir.1984)). Others contend the lodestar method creates a rift between the class and its counsel, and may lead to collusive settlements in which plaintiffs' attorneys are willing to accept a low settlement in exchange for lucrative fees. See, e.g., John C. Coffee, Jr., Understanding the Plaintiff's Attorney: The Implications of Economic Theory for Private Enforcement of Law Through Class and Derivative Actions, 86 Colum. L.Rev. 669, 716-17 (May 1986).

[109] While the use of contingent fees has generally been favored, courts have encountered several difficulties in determining the correct fee. Fee cutting in aggregate mass torts can usually be justified because the aggregation of claims lessens the force of the traditional justifications for contingency fees — enabling access, providing legal services and rewarding risk. See Curtis & Resnik, Contingency Fees In Mass Torts, 47 DePaul L.Rev. at 448. Yet aggregation does not entirely eliminate the risks involved in mass torts, and thus these cases often require difficult factual analysis to determine an appropriate fee. We note that there may be better ways to assess the work done by attorneys in these kinds of cases. Administrative regulations or the fees awarded in probate court may provide a closer analogy than the individual contingent award common in individual cases. Id. at 454.

[110] We note, however, that we have some doubt as to the ultimate effectiveness of the incentives created by the fee award. The court hoped that, by linking the fee award to a threshold number of responses, class counsel will have an incentive to remain involved. But here that threshold figure was easily met, and thus the incentive for class counsel's continued involvement has been removed. While we believe that incorporating such an incentive is appropriate, it would be arguably more effective to link the second half of the fee award to a threshold which is more indicative of the settlement's success. For example, basing the second portion of the fee on the number of claims actually remediated would better serve the district court's goal of encouraging class counsel's continued participation.

[111] Krell also renews his objection that the fee examiner in this case did an inadequate job of reviewing Lead Counsel's fee request. Krell claims that the fee examiner was a Rule 53 special master, as stated in the February 11, 1997 order, and thus was required to keep a record. Instead, Krell claims the fee examiner based his conclusions on ex parte submissions and kept no record of the evidence or testimony he considered. The district court rejected these arguments in its Fee Opinion, concluding that Krell misunderstood the fee examiner's role. First, the court noted that the November 6, 1996 order does not refer to Rule 53, and points out that, at the fee hearing on March 10, 1996, the court specifically stated that the fee examiner had been appointed as a technical expert under Rule 54(d)(2)(D). Second, the court said it had already addressed Krell's "hyper-technical" arguments for disqualification of the fee examiner in its opinion denying Krell's emergency motion to vacate the November 6th order. Finally, the court noted it had determined not to adopt the Fee Examiner's Report. Fee Opinion, 962 F.Supp. at 576 n. 11. We see no abuse of discretion here.

[112] In Prandini v. National Tea Co., 557 F.2d 1015 (3d Cir.1977), we rejected a settlement agreement which contained an award of attorneys' fees, holding class counsel should not simultaneously negotiate both a settlement and attorneys' fees. The Task Force, concerned about the chilling effect Prandini might have on settlement, suggested "the defendant should be permitted to make an offer of settlement that is conditional on a subsequent satisfactory resolution of the question of fees," or the parties could seek the court's permission to discuss fees. Court Awarded Attorney Fees, 108 F.R.D. at 269. The Supreme Court has also held that parties may simultaneously negotiate a "defendant's liability on the merits and his liability for his opponents' attorney's fees." Evans v. Jeff D., 475 U.S. 717, 738 n. 30, 106 S.Ct. 1531, 89 L.Ed.2d 747 (1986).

[113] The district court found it could properly rely on the settling parties' affidavits, noting the Third Circuit Task Force report specifically authorizes a district court to "ascertain whether improper talks have taken place by requesting the information in a signed statement that would be subject to the sanction provisions of Federal Rules 7 and 11." Fee Opinion, 962 F.Supp. at 577 n. 14 (quoting Court Awarded Attorney Fees, 108 F.R.D. at 267).

[114]Section N.3 of the Settlement Agreement provides:

Notwithstanding the preceding subsection N.2., Plaintiffs may not terminate the Settlement Agreement solely because of the amount of Attorneys' Fees awarded by the [District] Court or any appellate court(s). Prudential, however, may elect to terminate the Settlement Agreement on or before October 25, 1996, if the Settling parties cannot agree on the amount of Attorneys' Fees that Plaintiffs will apply for and Prudential will not oppose.

[115] The settlement in that case contained relief similar to the ADR process and Basic Claim Relief available here.

[116] Krell argues that this reliance is misplaced. Krell contends that Institutionalized Juveniles only addresses the question of counsel's entitlement to attorneys' fees in the context of a statutory fee-shifting case, but not the distinct question of how much of a common fund may be attributed to the efforts of counsel. We disagree. The question of entitlement to a statutory fee shifting award and the entitlement to a portion of a common fund are analogous, and the same concerns undergird the determination in both cases. As we noted in Institutionalized Juveniles, the relevant inquiry to determine eligibility for fees (whether plaintiffs prevailed and whether the litigation was causally linked to the relief obtained) "focuses a court's attention on the benefits actually received and caused by plaintiffs, [and] will determine not only the often evident threshold question of eligibility for fees, but it will also be critical in determining the amount of a reasonable fee award, in that the final award must depend on a full assessment of the extent of the benefits received by plaintiffs." 758 F.2d at 910.

[117] The court calculated this figure by taking the minimum ADR payment required in the event 330,000 claims were remediated — $1.08 billion — and adding the lowest estimated value for Basic Claim Relief — $272 million. The resulting "common fund" would be $1.352 billion.

[118] Among the settlements considered by the district court were In re Baldwin-United Corp. Litig., 1986 WL 12195 (S.D.N.Y.), where attorneys' fees constituted 4.1% of the $183.8 million settlement fund; In re Agent Orange Prod. Liab. Litig., 611 F.Supp. 1296 (E.D.N.Y.1985), where the fee award constituted 5.5% fee of the $180 million settlement fund; and In re MGM Grand Hotel Fire Litig., 660 F.Supp. 522 (D.Nev.1987), where the fee award constituted 7% fee of the $205 million settlement fund. This comparison does not include the $3 billion recovery in the Penzoil litigation, for which plaintiffs' counsel received an estimated fee of 14% based on a privately negotiated fee agreement. See Fee Opinion, 962 F.Supp. at 587 n. 35 (citations omitted).

[119] The district court noted that Krell's counsel conceded that "there is no question that lead counsel is entitled to a fee. They have created benefits." Fee Opinion, 962 F.Supp. at 578 n. 15 (quoting Fee Hr'g Tr. at 17-18).

[120] This figure is based on the 75,607 hours claimed by class counsel, and excludes the district court's estimate of the hours spent in connection with the court-ordered investigation of alleged document destruction.

[121] Interestingly, the district court noted in its opinion there was some question as to the application of multipliers following the Supreme Court's decision in City of Burlington v. Dague,505 U.S. 557, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992), and claimed to avoid the issue by not considering risk enhancement factors in its determination of the appropriate percentage. Fee Opinion, 962 F.Supp. at 581 n. 24.

As the district court discussed, the Supreme Court held risk enhancements are inappropriate in the statutory fee-shifting context. See Dague, 505 U.S. at 565-67, 112 S.Ct. 2638. Although the Supreme Court has not addressed whether this prohibition also applies in common fund cases, the district court found "the Court's reasoning for excluding risk enhancements in fee-shifting cases applies equally to common fund cases." In addition, the court also took notice that jurisdictions are split as to the application of risk enhancements in the common fund context. Fee Opinion, 962 F.Supp. at 581 n. 24 (citing Alan Hirsch & Diane Sheehey, Awarding Attorneys' Fees and Managing Fee Litigation 49, 70-71 (Fed. Judicial Ctr.1994); 3 Newberg § 14.03 (Supp. July 1996)). Assuming that multipliers for risk or counsel's expertise are appropriate in the lodestar cross-check in common fund cases, they require particular scrutiny and justification.

[122] The Federal Judicial Center has also noted that the application of the lodestar method in common fund cases requires "virtually the same analysis as it does in fee-shifting cases." A. Hirsch & D. Sheehey, Awarding Attorneys' Fees, at 67. In addition, the Judicial Center notes that "[s]ome of the factors justifying an adjustment of the lodestar in feeshifting cases will also apply in a common fund situation" regardless of which method is used to calculate fees. Id. at 69.

[123] Although the district court based its Fee Opinion on Lead Counsel's analysis of the lodestar as of January 31, 1997, Krell relies primarily on Lead Counsel's fee petition dated November 22, 1996. Krell Brief at 63. Krell raises many of the same issues with regard to the revised fee petition, filed by Lead Counsel on February 7, 1997. Id. at 64-65.

[124] Krell claims that at least one law firm which petitioned for fees was fictitious. According to Krell, the son of a senior partner at Co-Lead Counsel Much, Shelist, Freed, Deneberg, Ament, Bell & Rubenstein, filed a fee petition for a non-existent firm requesting over $2 million. The district court deemed these mistakes unintentional and irrelevant. Fee Opinion, 962 F.Supp. at 592 n. 47.

[125] The district court denied Krell's motion for fee discovery by order dated February 18, 1997.

[126] The Krell and Kittle plaintiffs were joined in their motion by Bruce Miller, on behalf of former Prudential agent Ricky Martin and as lead counsel in the Agent Action, and Anderson B. Doguli, representing seven individual policyholders from the state of Florida.

[127] In an emergency motion to amend the Court's Order, Krell argued that the existing record was sufficient for the court to decide the recusal motion, and that supplementary evidence was improper. Krell's Brief in Support of Emergency Motion to Amend December 5, 1996 Show Cause Order at 1-2. On appeal, Krell argues that, under Alexander v. Primerica Holdings, Inc., 10 F.3d 155, 163-64 (3d Cir.1993), the district court improperly supplemented the then-existing record and allowed other parties to do the same. Krell Reply Brief at 68. We disagree. In its decision granting a petition of mandamus seeking the recusal of the district court judge, the Alexander court specifically considered evidence which was not part of the record at the time the initial motion to recuse was filed. In particular, the court examined a letter written by the district court judge in response to the petition for mandamus, and found that the letter gave the appearance that the judge was biased against the moving party. 10 F.3d at 165-66.

[128]These subsections of 28 U.S.C. § 455 provide:

(a) Any justice, judge, or magistrate of the Unite d States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.

(b) [The judge] shall also disqualify himself in the following circumstances:

(1) Where he has a personal bias or prejudice concerning a party, or personal knowledge of disputed evidentiary facts concerning the proceeding;

(5) He or his spouse ...:

(iv) Is to the judge's knowledge likely to be a material witness in the proceeding.

[129] In addition, Lead Counsel argues that Krell's counsel was not counsel of record in this case and thus was not entitled to notice of the conference. At the recusal hearing, the district court observed that "Mr. Malakoff, on behalf of Kittle and Krell, has consistently maintained that he is not part of the national class action." Joint App. at 4721.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

[2] [3] O'Connor, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Stevens, Souter, Ginsburg, and Breyer, JJ., joined. Scalia, J.,filed a dissenting opinion, in which Kennedy and Thomas, JJ., joined, post, p. 15.

Thomas C. Goldstein argued the cause for petitioner. With him on the briefs were Erik S. Jaffe and Brian Wolfman.

Laurence Gold argued the cause for respondents. With him on the brief were Andrew D. Roth, David L. Shapiro, William F. Hanrahan, and Kenneth M. Johnson.

Patricia A. Millett argued the cause for the United States et al. as amici curiae urging affirmance. On the brief were Solicitor General Olson, Assistant Attorney General McCallum, Deputy Solicitor General Kneedler, Gregory G. Garre, Marleigh D. Dover, Irene M. Solet, David M. Becker, Jacob H. Stillman, and Eric Summergrad.^[1]

Justice O'Connor, delivered the opinion of the Court.

Petitioner, a nonnamed member of a class certified under Federal Rule of Civil Procedure 23(b)(1), sought to appeal the approval of a settlement over objections he stated at the fairness hearing. The Court of Appeals for the Fourth Circuit held that he lacked the power to bring such an appeal because he was not a named class representative and because [4] he had not successfully moved to intervene in the litigation. We now reverse.

I

Petitioner Robert Devlin, a retired worker represented by the Transportation Communications International Union (Union), participates in a defined benefits pension plan (Plan) administered by the Union. In 1991, on the recommendation of the Plan's trustees, the Plan was amended to add a cost of living adjustment (COLA) for retired and active employees. As it turned out, however, the Plan was not able to support such a large benefits increase. To address this problem, the Plan's new trustees sought to freeze the COLA. Because they were concerned about incurring Employee Retirement Income Security Act of 1974 (ERISA) liability by eliminating the COLA for retired workers, see 29 U. S. C. § 1054(g)(1) (1994 ed.) (providing that accrued benefits "may not be decreased by an amendment of the plan"), the trustees froze the COLA only as to active employees. Because the Plan still lacked sufficient funds, the new trustees obtained an equitable decree from the United States District Court for the District of Maryland in 1995 declaring that the former trustees had breached their fiduciary duties and that ending the COLA for retired workers would not violate ERISA. Scardelletti v. Bobo, 897 F. Supp. 913 (Md. 1995); Scardelletti v. Bobo, No. JFM-95-52 (D. Md., Sept. 8, 1997). Accordingly, in a 1997 amendment, the new trustees eliminated the COLA for all Plan members.

In October 1997, those trustees filed the present class action in the United States District Court for the District of Maryland, seeking a declaratory judgment that the 1997 amendment was binding on all Plan members or, alternatively, that the 1991 COLA amendment was void. Originally, petitioner was proposed as a class representative for a subclass of retired workers because of his previous involvement in the issue. He refused to become a named representative, however, preferring to bring a separate action in [5] the United States District Court for the Southern District of New York, arguing, among other things, that the 1997 Plan amendment violated the Age Discrimination in Employment Act of 1967, 81 Stat. 602, as amended, 29 U. S. C. § 621 et seq. (1994 ed. and Supp. V). The New York District Court dismissed petitioner's claim involving the 1997 amendment, which was later affirmed by the Second Circuit because:

"The exact COLA issue that the appellants are pursuing . . . is being addressed by the district court in Maryland. . . . It seems eminently sensible that the Maryland district court should resolve fully the COLA amendment issue." Devlin v. Transportation Commu- nications Int'l Union, 175 F. 3d 121, 132 (CA2 1999).

At the time petitioner's claim was dismissed, the District Court in Maryland had already conditionally certified a class under Federal Rule of Civil Procedure 23(b)(1), dividing it into two subclasses: a subclass of active employees and a subclass of retirees. On April 20, 1999, petitioner's attorney sent a letter to the District Court informally seeking to intervene in the class action. On May 12, 1999, petitioner sent another letter repeating this request. He did not, however, formally move to intervene at that time.

Also in May, the Plan's trustees and the class representatives agreed on a settlement whereby the COLA benefits would be eliminated in exchange for the addition of other benefits. On August 27, 1999, the trustees filed a motion for preliminary approval of the settlement. On September 10, 1999, petitioner formally moved to intervene pursuant to Federal Rule of Civil Procedure 24. On November 12, 1999, the District Court denied petitioner's intervention motion as "absolutely untimely." Scardelletti v. Debarr, 265 F. 3d 195, 201 (CA4 2001). It then heard objections to the settlement, including those advanced by petitioner, and, concluding that the settlement was fair, approved it. App. C to Pet. for Cert. 1-3.

[6] Shortly thereafter, petitioner noted his appeal, challenging the District Court's dismissal of his intervention motion as well as its decision to approve the settlement. The Court of Appeals for the Fourth Circuit affirmed the District Court's denial of intervention under an abuse of discretion standard. 265 F. 3d, at 203-204. It further held that, because petitioner was not a named representative of the class and because he had been properly denied the right to intervene, he lacked standing to challenge the fairness of the settlement on appeal. Id., at 208-210.

Petitioner sought review of the Fourth Circuit's holding that he lacked the ability to appeal the District Court's approval of the settlement. We granted certiorari, 534 U. S. 1064 (2001), to resolve a disagreement among the Circuits as to whether nonnamed class members who fail to properly intervene may bring an appeal of the approval of a settlement. Compare Cook v. Powell Buick, Inc., 155 F. 3d 758, 761 (CA5 1998) (holding that nonnamed class members who have not successfully intervened may not appeal settlement approval); Gottlieb v. Wiles, 11 F. 3d 1004, 1008-1009 (CA10 1993) (same); Guthrie v. Evans, 815 F. 2d 626, 628-629 (CA11 1987) (same); Shults v. Champion Int'l Corp., 35 F. 3d 1056, 1061 (CA6 1994) (same), with In re PaineWebber Inc. Ltd. Partnerships Litigation, 94 F. 3d 49, 53 (CA2 1996) (any nonnamed class member who objected at the fairness hearing may appeal); Carlough v. Amchem Prods., Inc., 5 F. 3d 707, 710 (CA3 1993) (same); Marshall v. Holiday Magic, Inc., 550 F. 2d 1173, 1176 (CA9 1977) (same).

II

Although the Fourth Circuit framed the issue as one of standing, 265 F. 3d, at 204, we begin by clarifying that this issue does not implicate the jurisdiction of the courts under Article III of the Constitution. As a member of the retiree class, petitioner has an interest in the settlement that creates a "case or controversy" sufficient to satisfy the constitutional [7] requirements of injury, causation, and redressability. Lujan v. Defenders of Wildlife, 504 U. S. 555 (1992); see also In re Navigant Consulting, Inc., Securities Litigation, 275 F. 3d 616, 620 (CA7 2001).

Nor do appeals by nonnamed class members raise the sorts of concerns that are ordinarily addressed as a matter of prudential standing. Prudential standing requirements include:

"[T]he general prohibition on a litigant's raising another person's legal rights, the rule barring adjudication of generalized grievances more appropriately addressed in the representative branches, and the requirement that a plaintiff's complaint fall within the zone of interests protected by the law invoked." Allen v. Wright, 468 U. S. 737, 751 (1984).

Because petitioner is a member of the class bound by the judgment, there is no question that he satisfies these three requirements. The legal rights he seeks to raise are his own, he belongs to a discrete class of interested parties, and his complaint clearly falls within the zone of interests of the requirement that a settlement be fair to all class members. Fed. Rule Civ. Proc. 23(e).

What is at issue, instead, is whether petitioner should be considered a "party" for the purposes of appealing the approval of the settlement. We have held that "only parties to a lawsuit, or those that properly become parties, may appeal an adverse judgment." Marino v. Ortiz, 484 U. S. 301, 304 (1988) (per curiam). Respondents argue that, because petitioner is not a named class representative and did not successfully move to intervene, he is not a party for the purposes of taking an appeal.

We have never, however, restricted the right to appeal to named parties to the litigation. In Blossom v. Milwaukee & Chicago R. Co., 1 Wall. 655 (1864), for instance, we allowed a bidder for property at a foreclosure sale, who was not a [8] named party in the foreclosure action, to appeal the refusal of a request he made during that action to compel the sale. In Hinckley v. Gilman, C., & S. R. Co., 94 U. S. 467 (1877), we allowed a receiver, who was an officer of the court rather than a named party to the case, to appeal from an order "relat[ing] to the settlement of his accounts," reasoning that "[f]or this purpose he occupies the position of a party to the suit." Id., at 469. More recently, we have affirmed that "[t]he right of a nonparty to appeal an adjudication of contempt cannot be questioned," United States Catholic Conference v. Abortion Rights Mobilization, Inc., 487 U. S. 72, 76 (1988), given the binding nature of that adjudication upon the interested nonparty.

Justice Scalia attempts to distinguish these cases by characterizing them as appeals from collateral orders to which the appellants "were parties." Post, at 16 (dissenting opinion). But it is difficult to see how they were parties in the sense in which Justice Scalia uses the term—those "`named as a party to an action,' " usually "`in the caption of the summons or complaint.' " Post, at 15 (quoting Restatement (Second) of Judgments § 34(1), p. 345 (1980); id., Comment a, Reporter's Note, at 347). Because they were not named in the action, the appellants in these cases were parties only in the sense that they were bound by the order from which they were seeking to appeal.

Petitioner's interest in the District Court's approval of the settlement is similar. Petitioner objected to the settlement at the District Court's fairness hearing, as nonnamed parties have been consistently allowed to do under the Federal Rules of Civil Procedure. See Fed. Rule Civ. Proc. 23(e) ("A class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs"); see also 2 H. Newberg & A. Conte, Class Actions § 11.55, p. 11-132 (3d ed. 1992) (explaining that Rule 23(e) entitles all class members [9] to an opportunity to object). The District Court's approval of the settlement—which binds petitioner as a member of the class—amounted to a "final decision of [petitioner's] right or claim" sufficient to trigger his right to appeal. See Williams v. Morgan, 111 U. S. 684, 699 (1884) (describing the cases discussed above). And like the appellants in the prior cases, petitioner will only be allowed to appeal that aspect of the District Court's order that affects him—the District Court's decision to disregard his objections. Cf. supra, at 6. Petitioner's right to appeal this aspect of the District Court's decision cannot be effectively accomplished through the named class representative—once the named parties reach a settlement that is approved over petitioner's objections, petitioner's interests by definition diverge from those of the class representative.

Marino v. Ortiz, supra, is not to the contrary. In that case, we refused to allow an appeal of a settlement by a group of white police officers who were not members of the class of minority officers that had brought a racial discrimination claim against the New York Police Department. Although the settlement affected them, the District Court's decision did not finally dispose of any right or claim they might have had because they were not members of the class.

Nor does considering nonnamed class members parties for the purposes of bringing an appeal conflict with any other aspect of class action procedure. In a related case, the Seventh Circuit has argued that nonnamed class members cannot be considered parties for the purposes of bringing an appeal because they are not considered parties for the purposes of the complete diversity requirement in suits under 28 U. S. C. § 1332. See Navigant Consulting, 275 F. 3d, at 619; see also Snyder v. Harris, 394 U. S. 332, 340 (1969). According to the Seventh Circuit, "[c]lass members cannot have it both ways, being non-parties (so that more cases can come to federal court) but still having a party's ability to litigate independently." 275 F. 3d, at 619. Nonnamed class members, [10] however, may be parties for some purposes and not for others. The label "party" does not indicate an absolute characteristic, but rather a conclusion about the applicability of various procedural rules that may differ based on context.

Nonnamed class members are, for instance, parties in the sense that the filing of an action on behalf of the class tolls a statute of limitations against them. See American Pipe & Constr. Co. v. Utah, 414 U. S. 538 (1974). Otherwise, all class members would be forced to intervene to preserve their claims, and one of the major goals of class action litigation— to simplify litigation involving a large number of class members with similar claims—would be defeated. The rule that nonnamed class members cannot defeat complete diversity is likewise justified by the goals of class action litigation. Ease of administration of class actions would be compromised by having to consider the citizenship of all class members, many of whom may even be unknown, in determining jurisdiction. See 7A C. Wright, A. Miller, & M. Kane, Federal Practice and Procedure § 1755, pp. 63-64 (2d ed. 1986). Perhaps more importantly, considering all class members for these purposes would destroy diversity in almost all class actions. Nonnamed class members are, therefore, not parties in that respect.

What is most important to this case is that nonnamed class members are parties to the proceedings in the sense of being bound by the settlement. It is this feature of class action litigation that requires that class members be allowed to appeal the approval of a settlement when they have objected at the fairness hearing. To hold otherwise would deprive nonnamed class members of the power to preserve their own interests in a settlement that will ultimately bind them, despite their expressed objections before the trial court. Particularly in light of the fact that petitioner had no ability to opt out of the settlement, see Fed. Rule Civ. Proc. 23(b)(1), appealing the approval of the settlement is petitioner's only [11] means of protecting himself from being bound by a disposition of his rights he finds unacceptable and that a reviewing court might find legally inadequate.

Justice Scalia rightly notes that other nonnamed parties may be bound by a court's decision, in particular, those in privity with the named party. See post, at 18. True enough. It is not at all clear, however, that such parties may not themselves appeal. Although this Court has never addressed the issue, nonnamed parties in privity with a named party are often allowed by other courts to appeal from the order that affects them. 5 Am. Jur. 2d, Appellate Review § 265 (1995).

Respondents argue that, nonetheless, appeals from nonnamed parties should not be allowed because they would undermine one of the goals of class action litigation, namely, preventing multiple suits. See Guthrie v. Evans, 815 F. 2d, at 629 (arguing that allowing nonnamed class members' appeals would undermine a "fundamental purpose of the class action": "to render manageable litigation that involves numerous members of a homogenous class, who would all otherwise have access to the court through individual lawsuits"). Allowing such appeals, however, will not be as problematic as respondents claim. For one thing, the power to appeal is limited to those nonnamed class members who have objected during the fairness hearing. This limits the class of potential appellants considerably. As the longstanding practice of allowing nonnamed class members to object at the fairness hearing demonstrates, the burden of considering the claims of this subset of class members is not onerous.

III

The Government, as amicus curiae, admits that nonnamed class members are parties who may appeal the approval of a settlement, but urges us nonetheless to require class members to intervene for purposes of appeal. See Brief for [12] United States et al. as Amici Curiae 12-27. To address the fairness concerns to objecting nonnamed class members bound by the settlement they wish to appeal, however, the Government also asserts that such a limited purpose intervention generally should be available to all those, like petitioner, whose objections at the fairness hearing have been disregarded. Federal Rule of Civil Procedure 24(a)(2) provides for intervention as of right:

"Upon timely application . . . when the applicant claims an interest relating to the property or transaction which isthe subject of the action and the applicant is so situated that the disposition of the action may as a practical matter impair or impede the applicant's ability to protect that interest, unless the applicant's interest is adequately represented by existing parties."

According to the Government, nonnamed class members who state objections at the fairness hearing should easily meet these three criteria. For one thing, it claims, a settlement binding on them will establish the requisite interest in the action. Moreover, it argues, any intervention motion filed "within the time period in which the named plaintiffs could have taken an appeal" should be considered "timely filed" for the purposes of such limited intervention. United Airlines, Inc. v. McDonald, 432 U. S. 385, 396 (1977). Finally, it asserts, the approval of a settlement over a nonnamed class member's objection, and the failure of a class representative to appeal such an approval, should "invariably" show that the class representative does not adequately represent the nonnamed class member's interests on appeal. Brief for United States et al. as Amici Curiae 20.

Given the ease with which nonnamed class members who have objected at the fairness hearing could intervene for purposes of appeal, however, it is difficult to see the value of the Government's suggested requirement. It identifies only [13] a limited number of instances where the initial intervention motion would be of any use: where the objector is not actually a member of the settlement class or is otherwise not entitled to relief from the settlement, where an objector seeks to appeal even though his objection was successful, where the objection at the fairness hearing was untimely, or where there is a need to consolidate duplicative appeals from class members. Id., at 23-25. In such situations, the Government argues, a district court can disallow such problematic and unnecessary appeals.

This seems to us, however, of limited benefit. In the first two of these situations, the objector stands to gain nothing by appeal, so it is unlikely such situations will arise with any frequency. Justice Scalia argues that if such objectors were undeterred by this fact at the time they filed their original objections, they will be undeterred at the appellate level. See post, at 21-22. This misunderstands the point. As to the first group—those who are not actually entitled to relief—one would not expect them to have filed objections in the district court in the first place. The few irrational persons who wish to pursue one round of meaningless relief will, we agree, probably be irrational enough to pursue a second. But there should not be many of such persons in any case. As for the second—those whose objections were successful at the district court level—they were far from irrational in the filing of their initial objections, and they should not generally be expected to lose this level of sensibility when faced with the prospect of a meaningless appeal. Moreover, even if such cases did arise with any frequency, such concerns could be addressed by a standing inquiry at the appellate level.

The third situation—dealing with untimely objections— implicates basic concerns about waiver and should be easily addressable by a court of appeals. A court of appeals also has the ability to avoid the fourth by consolidating cases raising [14] duplicative appeals. Fed. Rule App. Proc. 3(b)(2). If the resolution of any of these issues should turn out to be complex in a given case, there is little to be gained by requiring a district court to consider these issues, which are the type of issues (standing to appeal, waiver of objections below, and consolidation of appeals) typically addressed only by an appellate court. As such determinations still would most likely lead to an appeal, such a requirement would only add an additional layer of complexity before the appeal of the settlement approval may finally be heard.

Nor do we agree with the Government that, regardless of the desirability of an intervention requirement for effective class management, the structure of the rules of class action procedure requires intervention for the purposes of appeal. According to the Government, intervention is the method contemplated under the rules for nonnamed class members to gain the right to participate in class action proceedings. We disagree. Just as class action procedure allows nonnamed class members to object to a settlement at the fairness hearing without first intervening, see supra, at 8-9, it should similarly allow them to appeal the District Court's decision to disregard their objections. Moreover, no federal statute or procedural rule directly addresses the question of who may appeal from approval of class action settlements, while the right to appeal from an action that finally disposes of one's rights has a statutory basis. 28 U. S. C. § 1291.

IV

We hold that nonnamed class members like petitioner who have objected in a timely manner to approval of the settlement at the fairness hearing have the power to bring an appeal without first intervening. We therefore reverse the judgment of the Court of Appeals for the Fourth Circuit and remand the case for further proceedings consistent with this opinion.

It is so ordered.

[15] Justice Scalia, with whom Justice Kennedy and Justice Thomas join, dissenting.

"The rule that only parties to a lawsuit, or those that properly become parties, may appeal an adverse judgment, is well settled." Marino v. Ortiz, 484 U. S. 301, 304 (1988) (per curiam); Fed. Rule App. Proc. 3(c)(1) ("The notice of appeal must . . . specify the party or parties taking the appeal"). This is one well-settled rule that, thankfully, the Court leaves intact. Other chapters in the hornbooks are not so lucky.

I

The Court holds that petitioner, a nonnamed member of the class in a class action litigated by a representative member of the class, is a "party" to the judgment approving the class settlement. This is contrary to well-established law. The "parties" to a judgment are those named as such— whether as the original plaintiff or defendant in the complaint giving rise to the judgment, or as "[o]ne who [though] not an original party . . . become[s] a party by intervention, substitution, or third-party practice," Karcher v. May, 484 U. S. 72, 77 (1987). As the Restatement puts it, "[a] person who is named as a party to an action and subjected to the jurisdiction of the court is a party to the action," Restatement (Second) of Judgments § 34(1), p. 345 (1980) (hereinafter Restatement); "[t]he designation of persons as parties is usually made in the caption of the summons or complaint but additional parties may be named in such pleadings as a counterclaim, a complaint against a third party filed by a defendant, or a complaint in intervention," id., § 34, Comment a, Reporter's Note, at 347. As was the case here, the only members of a class who are typically named in the complaint are the class representatives; thus, it is only these members of the class, and those who intervene or otherwise enter through third-party practice, who are parties to the class judgment. This is confirmed by the application of those Federal Rules of Civil Procedure that confer upon [16] "parties" to the litigation the rights to take such actions as conducting discovery and moving for summary judgment, e. g., Fed. Rules Civ. Proc. 30(a)(1), 31(a)(1), 33(a), 34(a), 36(a), 45(a)(3), 56(a), 56(b), 56(e). It is undisputed that the class representatives are the only members of the class who have such rights.

Petitioner was offered the opportunity to be named the class representative, but he declined; nor did he successfully intervene. Ante, at 4, 5. Accordingly, he is not a party to the class judgment.

A

The Court does not deny that, at least as a general matter, only those persons named as such are the "parties." Rather, it contends that persons "may be parties for some purposes and not for others," ante, at 10, and that petitioner is a party to the class judgment at least for the "purposes of appealing," ante, at 7.^[2] The Court bases these contentions on three of our precedents, which it says stand for the proposition that "[w]e have never . . . restricted the right to appeal to named parties to the litigation." Ibid. These precedents stand for nothing of the sort.

All of these precedents are perfectly consistent with the rule that only named parties to a judgment can appeal the judgment because they involved appeals not from judgments but from collateral orders. The appellants were allowed to appeal from the collateral orders to which they were parties, [17] even though they were not named parties to (and hence would not have been able to appeal from) the underlying judgments. We made this distinction between appealing the judgment and appealing a collateral order quite explicit in Blossom v. Milwaukee & Chicago R. Co., 1 Wall. 655 (1864). In that case, the appellant was not a named party to the underlying foreclosure decree, from which it was therefore "certainly true that he [could not] appeal," yet he was a party (obviously, as the movant) to the motion he filed asking the court to complete the foreclosure sale, and therefore could appeal from the order denying that motion. Ibid. Our decisions in Hinckley v. Gilman, C., & S. R. Co., 94 U. S. 467 (1877), and United States Catholic Conference v. Abortion Rights Mobilization, Inc., 487 U. S. 72 (1988), are to the same effect. In the former, the appellant was not a named party to the underlying foreclosure decree, from which we said he "cannot and does not attempt to appeal," but he was obviously a party to the collateral order directing him by name to transfer funds to the court, from which we said he could appeal. 94 U. S., at 469. In the latter, witnesses who had been dismissed as named parties to the underlying litigation, 487 U. S., at 75, were allowed to appeal from a collateral order holding them in contempt for their failure to comply with a subpoena addressed to them (and to which they were therefore obviously parties), id., at 76. These cases demonstrate why, even though petitioner should not be able to appeal the District Court's judgment approving the class settlement, there is no dispute that petitioner could (and did) appeal the District Court's collateral order denying his motion to intervene; as the movant, he was a party to the latter. See Marino, 484 U. S., at 304 ("[S]uch motions are, of course, appealable").^[3]

[18] B

The Court's other grounds for holding that petitioner is a party to the class judgment are equally weak. First, it contends that petitioner should be considered a party to the judgment because, as a member of the class, he is bound by it. Ante, at 10 ("What is most important to this case is that nonnamed class members are parties to the proceedings in the sense of being bound by the settlement"). This will come as news to law students everywhere. There are any number of persons who are not parties to a judgment yet are nonetheless bound by it. See Restatement § 41(1), at 393 (listing examples); id., § 75, Comment a, at 210 ("A person is bound by a judgment in an action to which he is not a party if he is in `privity' with a party"). Perhaps the most prominent example is precisely the one we have here. Nonnamed members of a class are bound by the class judgment, even though they are not parties to the judgment, because they are represented by class members who are parties:

"A person who is not a party to an action but who is represented by a party is bound by and entitled to the benefits of a judgment as though he were a party. A person is represented by a party who is . . . [t]he representative of a class of persons similarly situated, designated as such with the approval of the court, of which the person is a member." Id., § 41(1)(e), at 393.

Accord, id., § 75, Comment a, at 210 ("Persons bound through representation by virtue of a relationship with a party are to be contrasted with persons bound by a judgment because they are parties . . ."). Petitioner here, in the words of the Restatement, "is not a party" but "is bound by [the] judgment [19] as though he were a party." Because our "wellsettled" rule allows only "parties" to appeal from a judgment, petitioner may not appeal the class settlement.^[4]

Second, the Court contends that petitioner should be considered a party to the judgment because he filed an objection to the class settlement. We have already held, however, that filing an objection does not make one a party if he does not also intervene. Marino, supra, at 304.

II

The most pernicious aspect of today's decision, however, is not its result, but its reasoning. I mentioned in a recent dissent the Court's "penchant for eschewing clear rules that might avoid litigation," US Airways, Inc. v. Barnett, 535 U. S. 391, 412 (2002). Today's opinion not only eschews such [20] a rule; it destroys one that previously existed. It abandons the bright-line rule that only those persons named as such are parties to a judgment, in favor of a vague inquiry "based on context." Ante, at 10 ("The label `party' does not indicate an absolute characteristic, but rather a conclusion about the applicability of various procedural rules that may differ based on context"). Although the Court does not say how one goes about selecting the result-determinative "context" for its oh-so-sophisticated new inquiry, I gather from its repeated invocation of this phrase that the relevant context in the present case is the "goals of class action litigation," ante, at 10, 11. This means, I suppose, that, in a labor case, who are the parties to a judgment will depend on the goals of the labor laws, and, in a First Amendment case, who are the parties to a judgment will depend on the goals of the First Amendment. Or perhaps not.

What makes this exponential increase in indeterminacy especially unfortunate is the fact that it is utterly unnecessary. Despite the Court's assertion in one breath that treating nonnamed class members as parties is the "only means" by which they would not be "deprive[d] . . . of the power to preserve their . . . interests," ante, at 10, the Court in the next breath concedes that there is another—and very easy— means for nonnamed class members to do just that: becoming parties to the judgment by moving to intervene. Ante, at 12 (noting "the ease with which nonnamed class members who have objected at the fairness hearing could intervene for purposes of appeal"). The Court does not dispute that nonnamed class members will typically meet the requirements for intervention as of right under Federal Rule of Civil Procedure 24, including intervention only for the purpose of appeal, and even after the class judgment has been entered.^[5] Ante, at 11-12.

[21] The Court does dispute whether there is any "value" in requiring nonnamed class members who object to the settlement to intervene in order to take an appeal. Ante, at 12. In my view, avoiding the reduction to indeterminacy of the hitherto clear rule regarding who is a party is "value" enough. But beyond that, it makes sense to require objectors to intervene before appealing, for the reason advanced by the Government: to enable district courts "to perform an important screening function." Brief for United States et al. as Amici Curiae 23. For example, when considering whether to allow an objector to intervene, a district court can verify that the objector does not fall outside the definition of the settlement class and is otherwise entitled to relief in the class action, that the objection has not already been resolved in favor of the objector in the approved settlement, and that the objection was presented in a timely manner. Id., at 23-24. The Court asserts that there is no "value" to these screening functions because a court of appeals can pass on those matters just as easily, and in any event an objector who is unable to obtain relief from the class settlement will not seek to appeal "with any frequency," as he "stands to gain nothing by appeal." Ante, at 13.

As to the last point: The person who has nothing to gain from an appeal also had nothing to gain from filing his objection in the first place, but was undeterred (as many are), see, e. g., Shaw v. Toshiba American Information Systems, Inc., 91 F. Supp. 2d 942, 973-974, and nn. 17-18 (ED Tex. 2000). The belief that meritless objections, undeterred the first time, will be deterred the second, surely suggests the triumph [22] of hope over experience.^[6] And as for the suggestion that the court of appeals can pass on these questions just as easily: Since when has it become a principle of our judicial administration that what can be left to the appellate level should be left to the appellate level? Quite the opposite is true. District judges, who issue their decrees in splendid isolation, can be multiplied ad infinitum. Courts of appeals cannot be staffed with too many judges without destroying their ability to maintain, through en banc rehearings, a predictable law of the circuit. In any event, the district court, being intimately familiar with the facts, is in a better position to rule initially upon such questions as whether the objections to the settlement were procedurally deficient, late filed, or simply inapposite to the case. If it denies interventions on such grounds, and if the denials are not appealed, the court of appeals will be spared the trouble of considering those objections altogether. And even when the denials are appealed, the court of appeals will have the benefit of the district court's opinion on these often fact-bound questions. (Typically, the only occasion the district court would have had to pass on these questions is in the course of considering the motion to intervene; when considering whether to approve the class settlement, district courts typically do not treat objections individually even on substance, let alone form. E. g., id., at 973-974.) Finally, it is worth observing that the Court's assertions regarding the merits of allowing objectors to appeal a class settlement without intervening apply with equal force to the objectors who sought to appeal [23] the class judgment in Marino. Yet there we concluded (no doubt for the reasons discussed above) that "the better practice" is to require objectors "to seek intervention for purposes of appeal." 484 U. S., at 304.

For these reasons, I would affirm the Court of Appeals.

[1] Briefs of amici curiae urging reversal were filed for the Council of Institutional Investors by Mark C. Hansen and Neil M. Gorsuch; and for Charles C. Yeomans by Katherine K. Yunker.

Seth P. Waxman, Edward C. DuMont, and Christopher R. Lipsett filed a brief for Citibank (South Dakota), N. A., as amicus curiae urging affirmance.

Thaddeus Holt filed a brief for Charles L. Grimes et al. as amici curiae.

[2] The Court provides only one other example of a purpose for which a nonnamed class member is purportedly a "party": we have, it says, tolled the statute of limitations for such a person between the time the class action is filed and the time class certification is denied. Ante, at 10 (citing American Pipe & Constr. Co. v.Utah, 414 U. S.538 (1974)). Not even petitioner, however, is willing to advance the novel and surely erroneous argument that a nonnamed class member is a party to the class-action litigationbefore the class is certified. Brief for Petitioner 24-26. This lonesome example is, in other words, entirely irrelevant to the question of party status.

[3] The Court finds it "difficult" to understand how the appellants in these cases can be considered parties in the traditional sense because they were not named in the "summons or complaint." Ante, at 8 (internal quotation marks omitted). Quite so. Our whole point is that, in order to appeal a collateral order, one need not be a party to the underlying litigation (and therefore need not be named in the complaint giving rise to that litigation), but need only be a party to the collateral proceedings (and therefore need only be named in the filings giving rise to those proceedings).

[4] The Court contends that those in privity with the parties to a judgment are "often allowed by other courts" to appeal by mere virtue of the fact that they are bound by the judgment. Ante, at 11 (citing 5 Am. Jur. 2d § 265 (1995)). I should think that the significant datum on this point is not that such appeals have been "often allowed by other courts," but that they have never been allowed by this Court. Indeed, the "other courts" whose opinions are cited by the authority on which the Court relies consist entirely of state courts, with the exception of one federal case decided before our decision in Marino v. Ortiz, 484 U. S. 301 (1988) (per curiam), which affirmed the "well-settled" rule that in federal court "only parties to a lawsuit . . . may appeal an adverse judgment." Id., at 304. While this difference between the procedures of federal and state courts seemingly escapes the Court's attention, it was well enough recognized (and the clear federal rule acknowledged) in the very next paragraph of the American Jurisprudence annotation on which the Court relies: "Caution: Applicable rules of procedure may bar a nonparty from taking an appeal notwithstanding his or her interest in the subject matter of the case. Thus, the United States Supreme Court has, under the Federal Rules of Appellate Procedure, rejected the principle of permitting appeal by a nonparty who has an interest affected by the trial court's judgment, stating that the better practice is for such nonparty to seek intervention for the purposes of appeal." 5 Am. Jur. 2d, Appellate Review § 265, at 40 (citing Marino, supra ).

[5] It is true that petitioner's motion to intervene was denied as untimely by the District Court. Even if this decision was correct, a question on which petitioner did not seek certiorari, it does not cast doubt on the ability of the ordinary nonnamed class member to intervene for purposes of appeal. Petitioner was not the ordinary nonnamed class member seeking intervention for purposes of appeal. He moved to intervene generally, Brief for Petitioner 6, despite having rejected invitations to participate in the litigation until after the settlement was preliminarily approved.

[6] The Court assures us that these appeals will be "few" because, like the objections on which they are based, they are "irrational." Ante, at 13. To say that the substance of an objection (and of the corresponding appeal) is irrational is not to say that it is irrational to make the objection and file the appeal. See Shaw, 91 F. Supp. 2d, at 973-974, and n. 18 (noting "`canned' objections filed by professional objectors who seek out class actions to simply extract a fee by lodging generic, unhelpful protests"). The Court cites nothing to support its sunny surmise that the appeals will be few.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT.

[389] Kent L. Jones argued the cause pro hac vice for petitioners. With him on the briefs were Solicitor General McCree, Assistant Attorney General Heymann, Deputy Solicitor General Easterbrook, Jerome M. Feit, and Elliott Schulder.

Kenneth N. Flaxman argued the cause for respondent. With him on the brief was Thomas R. Meites.^[1]

[390] MR. JUSTICE BLACKMUN delivered the opinion of the Court.

This case raises the question whether a trial court's denial of a motion for certification of a class may be reviewed on appeal after the named plaintiff's personal claim has become "moot." The United States Court of Appeals for the Third Circuit held that a named plaintiff, respondent here, who brought a class action challenging the validity of the United States Parole Commission's Parole Release Guidelines, could continue his appeal of a ruling denying class certification even though he had been released from prison while the appeal was pending. We granted certiorari, 440 U. S. 945 (1979), to consider this issue of substantial significance, under Art. III of the Constitution, to class-action litigation,^[2] and to resolve the conflict in approach among the Courts of Appeals.^[3]

[391] I

In 1973, the United States Parole Board adopted explicit Parole Release Guidelines for adult prisoners.^[4] These guidelines establish a "customary range" of confinement for various classes of offenders. The guidelines utilize a matrix, which combines a "parole prognosis" score (based on the prisoner's age at first conviction, employment background, and other personal factors) and an "offense severity" rating, to yield the "customary" time to be served in prison.

Subsequently, in 1976, Congress enacted the Parole Commission and Reorganization Act (PCRA), Pub. L. 94-233, 90 Stat. 219, 18 U. S. C. §§ 4201-4218. This Act provided the first legislative authorization for parole release guidelines. It required the newly created Parole Commission to "promulgate rules and regulations establishing guidelines for the powe[r] . . . to grant or deny an application or recommendation to parole any eligible prisoner." § 4203. Before releasing a prisoner on parole, the Commission must find, "upon consideration of the nature and circumstances of the offense and the history and characteristics of the prisoner," that release "would not depreciate the seriousness of his offense or promote disrespect for the law" and that it "would not jeopardize the public welfare." § 4206 (a).

Respondent John M. Geraghty was convicted in the United States District Court for the Northern District of Illinois of [392] conspiracy to commit extortion, in violation of 18 U. S. C. § 1951, and of making false material declarations to a grand jury, in violation of 18 U. S. C. § 1623 (1976 ed. and Supp. II).^[5] On January 25, 1974, two months after initial promulgation of the release guidelines, respondent was sentenced to concurrent prison terms of four years on the conspiracy count and one year on the false declarations count. The United States Court of Appeals for the Seventh Circuit affirmed respondent's convictions. United States v. Braasch, 505 F. 2d 139 (1974), cert. denied sub nom. Geraghty v. United States, 421 U. S. 910 (1975).

Geraghty later, pursuant to a motion under Federal Rule of Criminal Procedure 35, obtained from the District Court a reduction of his sentence to 30 months. The court granted the motion because, in the court's view, application of the guidelines would frustrate the sentencing judge's intent with respect to the length of time Geraghty would serve in prison. United States v. Braasch, No. 72 CR 979 (ND Ill., Oct. 9, 1975), appeal dism'd and mandamus denied, 542 F. 2d 442 (CA7 1976).

Geraghty then applied for release on parole. His first application was denied in January 1976 with the following explanation:

"Your offense behavior has been rated as very high severity. You have a salient factor score of 11. You have been in custody for a total of 4 months. Guidelines established by the Board for adult cases which consider the above factors indicate a range of 26-36 months to be served before release for cases with good institutional program performance and adjustment. After review of all relevant factors and information presented, it is found [393] that a decision at this consideration outside the guidelines does not appear warranted." App. 5.

If the customary release date applicable to respondent under the guidelines were adhered to, he would not be paroled before serving his entire sentence minus good-time credits. Geraghty applied for parole again in June 1976; that application was denied for the same reasons. He then instituted this civil suit as a class action in the United States District Court for the District of Columbia, challenging the guidelines as inconsistent with the PCRA and the Constitution, and questioning the procedures by which the guidelines were applied to his case.

Respondent sought certification of a class of "all federal prisoners who are or who will become eligible for release on parole." Id., at 17. Without ruling on Geraghty's motion, the court transferred the case to the Middle District of Pennsylvania, where respondent was incarcerated. Geraghty continued to press his motion for class certification, but the court postponed ruling on the motion until it was prepared to render a decision on cross-motions for summary judgment.

The District Court subsequently denied Geraghty's request for class certification and granted summary judgment for petitioners on all the claims Geraghty asserted. 429 F. Supp. 737 (1977). The court regarded respondent's action as a petition for a writ of habeas corpus, to which Federal Rule of Civil Procedure 23 applied only by analogy. It denied class certification as "neither necessary nor appropriate." 429 F. Supp., at 740. A class action was "necessary" only to avoid mootness. The court found such a consideration not comprehended by Rule 23. It found class certification inappropriate because Geraghty raised certain individual issues and, inasmuch as some prisoners might be benefited by the guidelines, because his claims were not typical of the entire proposed class. 429 F. Supp., at 740-741. On the merits, the court ruled that the guidelines are consistent with the PCRA and [394] do not offend the Ex Post Facto Clause, U. S. Const., Art. I, § 9, cl. 3. 429 F. Supp., at 741-744.

Respondent, individually "and on behalf of a class," appealed to the United States Court of Appeals for the Third Circuit. App. 29. Thereafter, another prisoner, Becher, who had been denied parole through application of the guidelines and who was represented by Geraghty's counsel, moved to intervene. Becher sought intervention to ensure that the legal issue raised by Geraghty on behalf of the class "will not escape review in the appeal in this case." Pet. to Intervene After Judgment 2. The District Court, concluding that the filing of Geraghty's notice of appeal had divested it of jurisdiction, denied the petition to intervene. Becher then filed a timely notice of appeal from the denial of intervention. The two appeals were consolidated.

On June 30, 1977, before any brief had been filed in the Court of Appeals, Geraghty was mandatorily released from prison; he had served 22 months of his sentence, and had earned good-time credits for the rest. Petitioners then moved to dismiss the appeals as moot. The appellate court reserved decision of the motion to dismiss until consideration of the merits.

The Court of Appeals, concluding that the litigation was not moot, reversed the judgment of the District Court and remanded the case for further proceedings. 579 F. 2d 238 (CA3 1978). If a class had been certified by the District Court, mootness of respondent Geraghty's personal claim would not have rendered the controversy moot. See, e. g., Sosna v. Iowa, 419 U. S. 393 (1975). The Court of Appeals reasoned that an erroneous denial of a class certification should not lead to the opposite result. 579 F. 2d, at 248-252. Rather, certification of a "certifiable" class, that erroneously had been denied, relates back to the original denial and thus preserves jurisdiction. Ibid.

On the question whether certification erroneously had been denied, the Court of Appeals held that necessity is not a prerequisite [395] under Rule 23. 579 F. 2d, at 252. The court expressed doubts about the District Court's finding that class certification was "inappropriate." While Geraghty raised some claims not applicable to the entire class of prisoners who are or will become eligible for parole, the District Court could have "certif[ied] certain issues as subject to class adjudication, and . . . limite[d] overbroad classes by the use of sub-classes." Id., at 253. Failure "to consider these options constituted a failure properly to exercise discretion." Ibid. "Indeed, this authority may be exercised sua sponte." Ibid. The Court of Appeals also held that refusal to certify because of a potential conflict of interest between Geraghty and other members of the putative class was error. The subclass mechanism would have remedied this problem as well. Id., at 252-253. Thus, the Court of Appeals reversed the denial of class certification and remanded the case to the District Court for an initial evaluation of the proper subclasses. Id., at 254. The court also remanded the motion for intervention. Id., at 245, n. 21.^[6]

In order to avoid "improvidently dissipat[ing] judicial effort," id., at 254, the Court of Appeals went on to consider whether the trial court had decided the merits of respondent's case properly. The District Court's entry of summary judgment was found to be error because "if Geraghty's recapitulation of the function and genesis of the guidelines is supported by the evidence," the guidelines "may well be" unauthorized or unconstitutional. Id., at 259, 268. Thus, the dispute on the merits also was remanded for further factual development.

II

Article III of the Constitution limits federal "judicial Power," that is, federal-court jurisdiction, to "Cases" and "Controversies." This case-or-controversy limitation serves [396] "two complementary" purposes. Flast v. Cohen, 392 U. S. 83, 95 (1968). It limits the business of federal courts to "questions presented in an adversary context and in a form historically viewed as capable of resolution through the judicial process," and it defines the "role assigned to the judiciary in a tripartite allocation of power to assure that the federal courts will not intrude into areas committed to the other branches of government." Ibid. Likewise, mootness has two aspects: "when the issues presented are no longer `live' or the parties lack a legally cognizable interest in the outcome." Powell v. McCormack, 395 U. S. 486, 496 (1969).

It is clear that the controversy over the validity of the Parole Release Guidelines is still a "live" one between petitioners and at least some members of the class respondent seeks to represent. This is demonstrated by the fact that prisoners currently affected by the guidelines have moved to be substituted, or to intervene, as "named" respondents in this Court. See n. 1, supra. We therefore are concerned here with the second aspect of mootness, that is, the parties' interest in the litigation. The Court has referred to this concept as the "personal stake" requirement. E. g., Franks v. Bowman Transportation Co., 424 U. S. 747, 755 (1976); Baker v. Carr, 369 U. S. 186, 204 (1962).

The personal-stake requirement relates to the first purpose of the case-or-controversy doctrine—limiting judicial power to disputes capable of judicial resolution. The Court in Flast v. Cohen, 392 U. S., at 100-101, stated:

"The question whether a particular person is a proper party to maintain the action does not, by its own force, raise separation of powers problems related to improper judicial interference in areas committed to other branches of the Federal Government. . . . Thus, in terms of Article III limitations on federal court jurisdiction, the question of standing is related only to whether the dispute sought to be adjudicated will be presented in an adversary [397] context and in a form historically viewed as capable of judicial resolution. It is for that reason that the emphasis in standing problems is on whether the party invoking federal court jurisdiction has `a personal stake in the outcome of the controversy,' Baker v. Carr, [369 U. S.], at 204, and whether the dispute touches upon `the legal relations of parties having adverse legal interests,' Aetna Life Insurance Co. v. Haworth, [300 U. S.], at 240-241."

See also Schlesinger v. Reservists to Stop the War, 418 U. S. 208, 216-218 (1974).

The "personal stake" aspect of mootness doctrine also serves primarily the purpose of assuring that federal courts are presented with disputes they are capable of resolving. One commentator has defined mootness as "the doctrine of standing set in a time frame: The requisite personal interest that must exist at the commencement of the litigation (standing) must continue throughout its existence (mootness)." Monaghan, Constitutional Adjudication: The Who and When, 82 Yale L. J. 1363, 1384 (1973).

III

On several occasions the Court has considered the application of the "personal stake" requirement in the class-action context. In Sosna v. Iowa, 419 U. S. 393 (1975), it held that mootness of the named plaintiff's individual claim after a class has been duly certified does not render the action moot. It reasoned that "even though appellees . . . might not again enforce the Iowa durational residency requirement against [the class representative], it is clear that they will enforce it against those persons in the class that appellant sought to represent and that the District Court certified." Id., at 400. The Court stated specifically that an Art. III case or controversy "may exist . . . between a named defendant and a member of the class represented by the named plaintiff, even [398] though the claim of the named plaintiff has become moot." Id., at 402.^[7]

Although one might argue that Sosna contains at least an implication that the critical factor for Art. III purposes is the timing of class certification, other cases, applying a "relation back" approach, clearly demonstrate that timing is not crucial. When the claim on the merits is "capable of repetition, yet evading review," the named plaintiff may litigate the class certification issue despite loss of his personal stake in the outcome of the litigation. E. g., Gerstein v. Pugh, 420 U. S. 103, 110, n. 11 (1975). The "capable of repetition, yet evading review" doctrine, to be sure, was developed outside the class-action context. See Southern Pacific Terminal Co. v. ICC, 219 U. S. 498, 514-515 (1911). But it has been applied where the named plaintiff does have a personal stake at the outset of the lawsuit, and where the claim may arise again with respect to that plaintiff; the litigation then may continue notwithstanding the named plaintiff's current lack of a personal stake. See, e. g., Weinstein v. Bradford, 423 U. S. 147, 149 (1975); Roe v. Wade, 410 U. S. 113, 123-125 (1973). Since the litigant faces some likelihood of becoming involved in the same controversy in the future, vigorous advocacy can be expected to continue.

When, however, there is no chance that the named plaintiff's expired claim will reoccur, mootness still can be avoided through certification of a class prior to expiration of the named plaintiff's personal claim. E. g., Franks v. Bowman Transportation Co., 424 U. S., at 752-757. See Kremens v. Bartley, [399] 431 U. S. 119, 129-130 (1977). Some claims are so inherently transitory that the trial court will not have even enough time to rule on a motion for class certification before the proposed representative's individual interest expires. The Court considered this possibility in Gerstein v. Pugh, 420 U. S., at 110, n. 11. Gerstein was an action challenging pretrial detention conditions. The Court assumed that the named plaintiffs were no longer in custody awaiting trial at the time the trial court certified a class of pretrial detainees. There was no indication that the particular named plaintiffs might again be subject to pretrial detention. Nonetheless, the case was held not to be moot because:

"The length of pretrial custody cannot be ascertained at the outset, and it may be ended at any time by release on recognizance, dismissal of the charges, or a guilty plea, as well as by acquittal or conviction after trial. It is by no means certain that any given individual, named as plaintiff, would be in pretrial custody long enough for a district judge to certify the class. Moreover, in this case the constant existence of a class of persons suffering the deprivation is certain. The attorney representing the named respondents is a public defender, and we can safely assume that he has other clients with a continuing live interest in the case." Ibid.

See also Sosna v. Iowa, 419 U. S., at 402, n. 11.

In two different contexts the Court has stated that the proposed class representative who proceeds to a judgment on the merits may appeal denial of class certification. First, this assumption was "an important ingredient," Deposit Guaranty Nat. Bank v. Roper, ante, at 338, in the rejection of interlocutory appeals, "as of right," of class certification denials. Coopers & Lybrand v. Livesay, 437 U. S. 463, 469, 470, n. 15 (1978). The Court reasoned that denial of class status will not necessarily be the "death knell" of a small-claimant action, since there still remains "the prospect of prevailing on [400] the merits and reversing an order denying class certification." Ibid.

Second, in United Airlines, Inc. v. McDonald, 432 U. S. 385, 393-395 (1977), the Court held that a putative class member may intervene, for the purpose of appealing the denial of a class certification motion, after the named plaintiffs' claims have been satisfied and judgment entered in their favor. Underlying that decision was the view that "refusal to certify was subject to appellate review after final judgment at the behest of the named plaintiffs." Id., at 393. See also Coopers & Lybrand v. Livesay, 437 U. S., at 469. And today, the Court holds that named plaintiffs whose claims are satisfied through entry of judgment over their objections may appeal the denial of a class certification ruling. Deposit Guaranty Nat. Bank v. Roper, ante, p. 326.

Gerstein, McDonald, and Roper are all examples of cases found not to be moot, despite the loss of a "personal stake" in the merits of the litigation by the proposed class representative. The interest of the named plaintiffs in Gerstein was precisely the same as that of Geraghty here. Similarly, after judgment had been entered in their favor, the named plaintiffs in McDonald had no continuing narrow personal stake in the outcome of the class claims. And in Roper the Court points out that an individual controversy is rendered moot, in the strict Art. III sense, by payment and satisfaction of a final judgment. Ante, at 333.

These cases demonstrate the flexible character of the Art. III mootness doctrine.^[8] As has been noted in the past, [401] Art. III justiciability is "not a legal concept with a fixed content or susceptible of scientific verification." Poe v. Ullman, 367 U. S. 497, 508 (1961) (Plurality opinion). "[T]he justiciability doctrine [is] one of uncertain and shifting contours." Flast v. Cohen, 392 U. S., at 97.

IV

Perhaps somewhat anticipating today's decision in Roper, petitioners argue that the situation presented is entirely different when mootness of the individual claim is caused by "expiration" of the claim, rather than by a judgment on the claim. They assert that a proposed class representative who individually prevails on the merits still has a "personal stake" in the outcome of the litigation, while the named plaintiff whose claim is truly moot does not. In the latter situation, where no class has been certified, there is no party before the court with a live claim, and it follows, it is said, that we have no jurisdiction to consider whether a class should have been certified. Brief for Petitioners 37-39.

We do not find this distinction persuasive. As has been noted earlier, Geraghty's "personal stake" in the outcome of the litigation is, in a practical sense, no different from that of the putative class representatives in Roper. Further, the opinion in Roper indicates that the approach to take in applying Art. III is issue by issue. "Nor does a confession of judgment [402] by defendants on less than all the issues moot an entire case; other issues in the case may be appealable. We can assume that a district court's final judgment fully satisfying named plaintiffs' private substantive claims would preclude their appeal on that aspect of the final judgment; however, it does not follow that this circumstance would terminate the named plaintiffs' right to take an appeal on the issue of class certification." Ante, at 333. See also United Airlines, Inc. v. McDonald, 432 U. S., at 392; Powell v. McCormack, 395 U. S., at 497.

Similarly, the fact that a named plaintiff's substantive claims are mooted due to an occurrence other than a judgment on the merits does not mean that all the other issues in the case are mooted. A plaintiff who brings a class action presents two separate issues for judicial resolution. One is the claim on the merits; the other is the claim that he is entitled to represent a class. "The denial of class certification stands as an adjudication of one of the issues litigated," Roper, ante, at 336. We think that in determining whether the plaintiff may continue to press the class certification claim, after the claim on the merits "expires," we must look to the nature of the "personal stake" in the class certification claim. Determining Art. III's "uncertain and shifting contours," see Flast v. Cohen, 392 U. S., at 97, with respect to nontraditional forms of litigation, such as the class action, requires reference to the purposes of the case-or-controversy requirement.

Application of the personal-stake requirement to a procedural claim, such as the right to represent a class, is not automatic or readily resolved. A "legally cognizable interest," as the Court described it in Powell v. McCormack, 395 U. S., at 496, in the traditional sense rarely ever exists with respect to the class certification claim.^[9] The justifications that led to the development of the class action include the protection of [403] the defendant from inconsistent obligations, the protection of the interests of absentees, the provision of a convenient and economical means for disposing of similar lawsuits, and the facilitation of the spreading of litigation costs among numerous litigants with similar claims. See, e. g., Advisory Committee Notes on Fed. Rule Civ. Proc. 23, 28 U. S. C. App., pp. 427-429; Note, Developments in the Law, Class Actions, 89 Harv. L. Rev. 1318, 1321-1323, 1329-1330 (1976). Although the named representative receives certain benefits from the class nature of the action, some of which are regarded as desirable and others as less so,^[10] these benefits generally are by-products of the class-action device. In order to achieve the primary benefits of class suits, the Federal Rules of Civil Procedure give the proposed class representative the right to have a class certified if the requirements of the Rules are met. This "right" is more analogous to the private attorney general concept than to the type of interest traditionally thought to satisfy the "personal stake" requirement. See Roper, ante, at 338.

As noted above, the purpose of the "personal stake" requirement is to assure that the case is in a form capable of judicial resolution. The imperatives of a dispute capable of judicial resolution are sharply presented issues in a concrete factual setting and self-interested parties vigorously advocating opposing positions. Franks v. Bowman Transportation Co., 424 U. S., at 753-756; Baker v. Carr, 369 U. S., at 204; Poe v. Ullman, 367 U. S., at 503 (plurality opinion). We conclude that these elements can exist with respect to the class certification issue notwithstanding the fact that the named plaintiff's claim on the merits has expired. The question whether class certification is appropriate remains as a concrete, sharply presented [404] issue. In Sosna v. Iowa it was recognized that a named plaintiff whose claim on the merits expires after class certification may still adequately represent the class. Implicit in that decision was the determination that vigorous advocacy can be assured through means other than the traditional requirement of a "personal stake in the outcome." Respondent here continues vigorously to advocate his right to have a class certified.

We therefore hold that an action brought on behalf of a class does not become moot upon expiration of the named plaintiff's substantive claim, even though class certification has been denied.^[11] The proposed representative retains a "personal stake" in obtaining class certification sufficient to assure that Art. III values are not undermined. If the appeal results in reversal of the class certification denial, and a class subsequently is properly certified, the merits of the class claim then may be adjudicated pursuant to the holding in Sosna.

Our holding is limited to the appeal of the denial of the class certification motion. A named plaintiff whose claim expires may not continue to press the appeal on the merits until a class has been properly certified. See Roper, ante, at 336-337. If, on appeal, it is determined that class certification properly was denied, the claim on the merits must be dismissed as moot.^[12]

[405] Our conclusion that the controversy here is not moot does not automatically establish that the named plaintiff is entitled to continue litigating the interests of the class. "[I]t does [406] shift the focus of examination from the elements of justiciability to the ability of the named representative to `fairly and adequately protect the interests of the class.' Rule 23 (a)." [407] Sosna v. Iowa, 419 U. S., at 403. We hold only that a case or controversy still exists. The question of who is to represent the class is a separate issue.^[13]

We need not decide here whether Geraghty is a proper representative for the purpose of representing the class on the merits. No class as yet has been certified. Upon remand, the District Court can determine whether Geraghty may continue to press the class claims or whether another representative would be appropriate. We decide only that Geraghty was a proper representative for the purpose of appealing the ruling denying certification of the class that he initially defined. Thus, it was not improper for the Court of Appeals to consider whether the District Court should have granted class certification.

V

We turn now to the question whether the Court of Appeals' decision on the District Court's class certification ruling was proper. Petitioners assert that the Court of Appeals erred in requiring the District Court to consider the possibility of certifying [408] subclasses sua sponte. Petitioners strenuously contend that placing the burden of identifying and constructing subclasses on the trial court creates unmanageable difficulties. Brief for Petitioners 43-51. We feel that the Court of Appeals' decision here does not impose undue burdens on the district courts. Respondent had no real opportunity to request certification of subclasses after the class he proposed was rejected. The District Court denied class certification at the same time it rendered its adverse decision on the merits. Requesting subclass certification at that time would have been a futile act. The District Court was not about to invest effort in deciding the subclass question after it had ruled that no relief on the merits was available. The remand merely gives respondent the opportunity to perform his function in the adversary system. On remand, however, it is not the District Court that is to bear the burden of constructing subclasses. That burden is upon the respondent and it is he who is required to submit proposals to the court. The court has no sua sponte obligation so to act. With this modification, the Court of Appeals' remand of the case for consideration of subclasses was a proper disposition.

It would be inappropriate for this Court to reach the merits of this controversy in the present posture of the case. Our holding that the case is not moot extends only to the appeal of the class certification denial. If the District Court again denies class certification, and that decision is affirmed, the controversy on the merits will be moot. Furthermore, although the Court of Appeals commented upon the merits for the sole purpose of avoiding waste of judicial resources, it did not reach a final conclusion on the validity of the guidelines. Rather, it held only that summary judgment was improper and remanded for further factual development. Given the interlocutory posture of the case before us, we must defer decision on the merits of respondent's case until after it is determined affirmatively that a class properly can be certified.

[409] The judgment of the Court of Appeals is vacated, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

MR. JUSTICE POWELL, with whom THE CHIEF JUSTICE, MR. JUSTICE STEWART, and MR. JUSTICE REHNQUIST join, dissenting.

Respondent filed this suit as a class action while he was serving time in a federal prison. He sought to represent a class composed of "all federal prisoners who are or who will become eligible for release on parole." App. 17. The District Court denied class certification and granted summary judgment for petitioners. Respondent appealed, but before briefs were filed, he was unconditionally released from prison. Petitioners then moved to dismiss the appeal as moot. The Court of Appeals denied the motion, reversed the judgment of the District Court, and remanded the case for further proceedings. Conceding that respondent's personal claim was moot, the Court of Appeals nevertheless concluded that respondent properly could appeal the denial of class certification. The Court today agrees with this conclusion.

The Court's analysis proceeds in two steps. First, it says that mootness is a "flexible" doctrine which may be adapted as we see fit to "nontraditional" forms of litigation. Ante, at 400-402. Second, the Court holds that the named plaintiff has a right "analogous to the private attorney general concept" to appeal the denial of class certification even when his personal claim for relief is moot. Ante, at 402-404. Both steps are significant departures from settled law that rationally cannot be confined to the narrow issue presented in this case. Accordingly, I dissent.

I

As the Court observes, this case involves the "personal stake" aspect of the mootness doctrine. Ante, at 396. There [410] is undoubtedly a "live" issue which an appropriate plaintiff could present for judicial resolution. The question is whether respondent, who has no further interest in this action, nevertheless may—through counsel—continue to litigate it.

Recent decisions of this Court have considered the personal stake requirement with some care. When the issue is presented at the outset of litigation as a question of standing to sue, we have held that the personal stake requirement has a double aspect. On the one hand, it derives from Art. III limitations on the power of the federal courts. On the other, it embodies additional, self-imposed restraints on the exercise of judicial power. E. g., Singleton v. Wulff, 428 U. S. 106, 112 (1976); Warth v. Seldin, 422 U. S. 490, 498 (1975). The prudential aspect of standing aptly is described as a doctrine of uncertain contours. Ante, at 402. But the constitutional minimum has been given definite content: "In order to satisfy Art. III, the plaintiff must show that he personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant." Gladstone, Realtors v. Village of Bellwood, 441 U. S. 91, 99 (1979).^[14] Although noneconomic injuries can confer standing, the Court has rejected all attempts to substitute abstract concern with a subject— or with the rights of third parties—for "the concrete injury required by Art. III." Simon v. Eastern Kentucky Welfare Rights Org., 426 U. S. 26, 40 (1976).^[15]

[411] As the Court notes today, the same threshold requirement must be satisfied throughout the action. Ante, at 397; see Sosna v. Iowa, 419 U. S. 393, 402 (1975). Prudential considerations not present at the outset may support continuation of an action in which the parties have invested substantial resources and generated a factual record.^[16] But an actual case or controversy in the constitutional sense "`must be extant at all stages of review.'" Preiser v. Newkirk, 422 U. S. 395, 401 (1975), quoting Steffel v. Thompson, 415 U. S. 452, 459, n. 10 (1974). Cases that no longer "`touc[h] the legal relations of parties having adverse legal interests'" are moot because "federal courts are without power to decide questions that cannot affect the rights of litigants in the case before them." North Carolina v. Rice, 404 U. S. 244, 246 (1971) (per curiam), quoting Aetna Life Ins. Co. v. Haworth, 300 U. S. 227, 240-241 (1937). The limitation flows directly from Art. III. DeFunis v. Odegaard, 416 U. S. 312, 316 (1974) (per curiam).^[17]

Since the question is one of power, the practical importance of review cannot control. Sosna v. Iowa, supra, at 401, n. 9; Richardson v. Ramirez, 418 U. S. 24, 36 (1974); United States v. Alaska S. S. Co., 253 U. S. 113, 116 (1920). Nor can public interest in the resolution of an issue replace the [412] necessary individual interest in the outcome. See DeFunis v. Odegaard, supra, at 316. Collateral consequences of the original wrong may supply the individual interest in some circumstances. Sibron v. New York, 392 U. S. 40, 53-58 (1968). So, too, may the prospect of repeated future injury so inherently transitory that it is unlikely to outlast the normal course of litigation. Super Tire Engineering Co. v. McCorkle, 416 U. S. 115 (1974); Southern Pacific Terminal Co. v. ICC, 219 U. S. 498, 515 (1911). The essential and irreducible constitutional requirement is simply a nonfrivolous showing of continuing or threatened injury at the hands of the adversary.

These cases demonstrate, contrary to the Court's view today, that the core requirement of a personal stake in the outcome is not "flexible." Indeed, the rule barring litigation by those who have no interest of their own at stake is applied so rigorously that it has been termed the "one major proposition" in the law of standing to which "the federal courts have consistently adhered . . . without exception." Davis, Standing: Taxpayers and Others, 35 U. Chi. L. Rev. 601, 617 (1968) (emphasis deleted).^[18] We have insisted upon the personal stake requirement in mootness and standing cases because it is embedded in the case-or-controversy limitation imposed by the Constitution, "founded in concern about the proper—and properly limited—role of the courts in a democratic society." Warth v. Seldin, supra, at 498. In this [413] way we have, until today, "prevent[ed] the judicial process from becoming no more than a vehicle for the vindication of the value interests of concerned bystanders." United States v. SCRAP, 412 U. S. 669, 687 (1973); see Simon v. Eastern Kentucky Welfare Rights Org., 426 U. S., at 60 (BRENNAN, J., concurring in judgment); Sierra Club v. Morton, 405 U. S. 727, 740 (1972).

II

The forgoing decisions establish principles that the Court has applied consistently. These principles were developed outside the class action context. But Art. III contains no exception for class actions. Thus, we have held that a putative class representative who alleges no individual injury "may [not] seek relief on behalf of himself or any other member of the class." O'Shea v. Littleton, 414 U. S. 488, 494 (1974). Only after a class has been certified in accordance with Rule 23 can it "acquir[e] a legal status separate from the interest asserted by [the named plaintiff]." Sosna v. Iowa, supra, at 399. "Given a properly certified class," the live interests of unnamed but identifiable class members may supply the personal stake required by Art. III when the named plaintiff's individual claim becomes moot. Franks v. Bowman Transportation Co., 424 U. S. 747, 755-756 (1976); Sosna v. Iowa, supra, at 402.

This case presents a fundamentally different situation. No class has been certified, and the lone plaintiff no longer has any personal stake in the litigation.^[19] In the words of his own [414] lawyer, respondent "can obtain absolutely no additional personal relief" in this case. Tr. of Oral Arg. 25. Even the lawyer has evinced no interest in continuing to represent respondent as named plaintiff, as distinguished from other persons presently incarcerated. Ibid.^[20] In these circumstances, Art. III and the precedents of this Court require dismissal. But the Court views the case differently, and constructs new doctrine to breathe life into a lawsuit that has no plaintiff.

The Court announces today for the first time—and without attempting to reconcile the many cases to the contrary—that there are two categories of "the Art. III mootness doctrine": "flexible" and "less flexible." Ante, at 400, and n. 7. The Court then relies on cases said to demonstrate the application of "flexible" mootness to class action litigation. The cases principally relied upon are Gerstein v. Pugh, 420 U. S. 103, 110-111, n. 11 (1975), United Airlines, Inc. v. McDonald, 432 U. S. 385 (1977), and today's decision in Deposit Guaranty Nat. Bank v. Roper, ante, p. 326. Each case is said to show that a class action is not mooted by the loss of the class representative's personal stake in the outcome of the lawsuit, even though no class has been certified. Ante, at 400. Sosna itself is cited for the proposition that the requirements of Art. III may be met "through means other than the traditional requirement of a `personal stake in the outcome.'" Ante, at 404. In my view, the Court misreads these precedents.

[415] A

In Sosna, the Court simply acknowledged that actual class certification gives legal recognition to additional adverse parties. Cf. Aetna Life Ins. Co. v. Haworth, 300 U. S., at 240.^[21] And in Gerstein, the Court applied a rule long established, outside the class action context, by cases that never have been thought to erode the requirement of a personal stake in the outcome. Gerstein held that a class action challenging the constitutionality of pretrial detention procedures could continue after the named plaintiffs' convictions had brought their detentions to an end. The Court did not suggest that a personal stake in the outcome on the merits was unnecessary. The action continued only because of the transitory nature of pretrial detention, which placed the claim within "that [416] narrow class of cases" that are "distinctly `capable of repetition, yet evading review.'" 420 U. S., at 110, n. 11.^[22]

McDonald and Roper sanction some appeals from the denial of class certification notwithstanding satisfaction of the class representative's claim on the merits. But neither case holds that Art. III may be satisfied in the absence of a personal stake in the outcome. In McDonald, a putative class member intervened within the statutory time limit to appeal the certification ruling. 432 U. S., at 390.^[23] Because the Court found that her claim was not time-barred, the intervenor in McDonald possessed the stake necessary to pursue the action. Indeed, the Court devoted its entire opinion to showing that the intervenor's claim for relief had not expired.^[24] At most, McDonald holds only that an action which is kept alive by interested parties within prescribed periods of limitations does not "die" in an Art. III sense.

There is dictum in McDonald that the "refusal to certify was subject to appellate review after final judgment at the behest of the named plaintiffs. . . ." 432 U. S., at 393. That gratuitous sentence, repeated in Coopers & Lybrand v. Livesay, [417] 437 U. S. 463, 469, 470, n. 15 (1978), apparently is elevated by the Court's opinion in this case to the status of new doctrine. There is serious tension between this new doctrine and the much narrower reasoning adopted today in Roper. In Roper the Court holds that the named plaintiffs, who have refused to accept proffered individual settlements, retain a personal stake in sharing anticipated litigation costs with the class. Ante, at 334, n. 6, 336. Finding that Art. III is satisfied by this alleged economic interest, Roper reasons that the rules of federal practice governing appealability permit a party to obtain review of certain procedural rulings that are collateral to a generally favorable judgment. See ante, at 333-334, 336. The Court concludes that the denial of class certification falls within this category, as long as the named plaintiffs "assert a continuing stake in the outcome of the appeal." Ante, at 336.

It is far from apparent how Roper can be thought to support the decision in this case. Indeed, the opinion by THE CHIEF JUSTICE in Roper reaffirms the obligation of a federal court to dismiss an appeal when the parties no longer retain the personal stake in the outcome required by Art. III. Ibid. Here, there is not even a speculative interest in sharing costs, and respondent affirmatively denies that he retains any stake or personal interest in the outcome of his appeal. See supra, at 413-414. Thus, a fact that was critical to the analysis in Roper is absent in this case. One can disagree with that analysis yet conclude that Roper affords no support for the Court's ruling here.

B

The cases cited by the Court as "less flexible"—and therefore less authoritative—apply established Art. III doctrine in cases closely analogous to this one. Indianapolis School Comm'rs v. Jacobs, 420 U. S. 128 (1975) (per curiam); Weinstein v. Bradford, 423 U. S. 147 (1975) (per curiam); Pasadena City Board of Education v. Spangler, 427 U. S. 424, 430 [418] (1976). As they are about to become second-class precedents, these cases are relegated to a footnote. Ante, at 400-401, n. 7. But the cases are recent and carefully considered decisions of this Court. They applied long-settled principles of Art. III jurisprudence. And no Justice who participated in them suggested the distinction drawn today. The Court's backhanded treatment of these "less flexible" cases ignores their controlling relevance to the issue presented here.

In Jacobs, six named plaintiffs brought a class action to challenge certain high school regulations. The District Court stated on the record that class treatment was appropriate and that the plaintiffs were proper representatives, but the court failed to comply with Rule 23. After this Court granted review, we were informed that the named plaintiffs had graduated. We held that the action was entirely moot because the "class action was never properly certified nor the class properly identified by the District Court." 420 U. S., at 130.^[25] Since the faulty certification prevented the class from acquiring separate legal status, Art. III required a dismissal. We reached precisely the same conclusion in Spangler, an action saved from mootness only by the timely intervention of a third party. 427 U. S., at 430-431. See also Baxter v. Palmigiano, 425 U. S. 308, 310, n. 1 (1976). And in Bradford, where the District Court had denied certification outright, the Court held that the named plaintiff's release from prison required the [419] dismissal of his complaint about parole release procedures. 423 U. S., at 149. See also Memphis Light, Gas & Water Div. v. Craft, 436 U. S. 1, 8 (1978).

The Court suggests that Jacobs and Spangler may be distinguished because the plaintiffs there were not appealing the denial of class certification. The Court overlooks the fact that in each case the class representatives were defending a judgment on the merits from which the defendants had appealed. The plaintiffs/respondents continued vigorously to assert the claims of the class. They did not take the procedural route of appealing a denial of certification only because the District Court had granted—albeit defectively—class status. We chose not to remand for correction of the oral certification order in Jacobs because we recognized that the putative class representative had suffered no injury that could be redressed by adequate certification. Underlying Jacobs, and Bradford as well, is the elementary principle that no one has a personal stake in obtaining relief for third parties, through the mechanism of class certification or otherwise.^[26] The Court rejects that principle today.

III

While the Court's new concept of "flexible" mootness is unprecedented, the content given that concept is even more disturbing. The Court splits the class aspects of this action into two separate "claims": (i) that the action may be maintained by respondent on behalf of a class, and (ii) that the class is entitled to relief on the merits. Since no class has been certified, the Court concedes that the claim on the merits is moot. Ante, at 404, 408. But respondent is said to [420] have a personal stake in his "procedural claim" despite his lack of a stake in the merits.

The Court makes no effort to identify any injury to respondent that may be redressed by, or any benefit to respondent that may accrue from, a favorable ruling on the certification question.^[27] Instead, respondent's "personal stake" is said to derive from two factors having nothing to do with concrete injury or stake in the outcome. First, the Court finds that the Federal Rules of Civil Procedure create a "right," "analogous to the private attorney general concept," to have a class certified. Second, the Court thinks that the case retains the "imperatives of a dispute capable of judicial resolution," which are identified as (i) a sharply presented issue, (ii) a concrete factual setting, and (iii) a self-interested party actually contesting the case. Ante, at 403.^[28]

[421] The Court's reliance on some new "right" inherent in Rule 23 is misplaced. We have held that even Congress may not confer federal-court jurisdiction when Art. III does not. Gladstone, Realtors v. Village of Bellwood, 441 U. S., at 100; O'Shea v. Littleton, 414 U. S., at 494, and n. 2; see Marbury v. Madison, 1 Cranch 137, 175-177 (1803). Far less so may a rule of procedure which "shall not be construed to extend . . . the jurisdiction of the United States district courts." Fed. Rule Civ. Proc. 82. Moreover, the "private attorney general concept" cannot supply the personal stake necessary to satisfy Art. III. It serves only to permit litigation by a party who has a stake of his own but otherwise might be barred by prudential standing rules. See Warth v. Seldin, 422 U. S., at 501; Sierra Club v. Morton, 405 U. S., at 737-738.

Since neither Rule 23 nor the private attorney general concept can fill the jurisdictional gap, the Court's new perception of Art. III requirements must rest entirely on its tripartite test of concrete adverseness. Although the components of the test are no strangers to our Art. III jurisprudence, they operate only in "`cases confessedly within [the Court's] jurisdiction.'" Franks v. Bowman Transportation Co., 424 U. S., at 755-756, and n. 8, quoting Flast v. Cohen, 392 U. S. 83, 97 (1968). The Court cites no decision that has premised jurisdiction upon the bare existence of a sharply presented issue in a concrete and vigorously argued case, and I am aware of none.^[29] Indeed, each of these characteristics is [422] sure to be present in the typical "private attorney general" action brought by a public-spirited citizen.^[30] Although we have refused steadfastly to countenance the "public action," the Court's redefinition of the personal stake requirement leaves no principled basis for that practice.^[31]

The Court reasons that its departure from precedent is compelled by the difficulty of identifying a personal stake in a "procedural claim," particularly in "nontraditional forms of litigation." Ante, at 402. But the Court has created a false dilemma. As noted in Roper, class certification issues are "ancillary to the litigation of substantive claims." Ante, [423] at 332. Any attempt to identify a personal stake in such ancillary "claims" often must end in frustration, for they are not claims in any ordinary sense of the word. A motion for class certification, like a motion to join additional parties or to try the case before a jury instead of a judge, seeks only to present a substantive claim in a particular context. Such procedural devices generally have no value apart from their capacity to facilitate a favorable resolution of the case on the merits. Accordingly, the moving party is neither expected nor required to assert an interest in them independent of his interest in the merits.

Class actions may advance significantly the administration of justice in appropriate cases. Indeed, the class action is scarcely a new idea. Rule 23 codifies, and was intended to clarify, procedures for dealing with a form of action long known in equity. See 1 H. Newberg, Class Actions § 1004 (1977). That federal jurisdiction can attach to the class aspect of litigation involving individual claims has never been questioned. But even when we deal with truly new procedural devices, our freedom to "adapt" Art. III is limited to the recognition of different "`means for presenting a case or controversy otherwise cognizable by the federal courts.'" Aetna Life Ins. Co. v. Haworth, 300 U. S., at 240 (Declaratory Judgment Act), quoting Nashville, C. & St. L. R. Co. v. Wallace, 288 U. S. 249, 264 (1933) (emphasis added). The effect of mootness on the vitality of a device like the class action may be a relevant prudential consideration.^[32] But it [424] cannot provide a plaintiff when none is before the Court, for we are powerless to assume jurisdiction in violation of Art. III.^[33]

IV

In short, this is a case in which the putative class representative— respondent here—no longer has the slightest interest in the injuries alleged in his complaint. No member of the class is before the Court; indeed, none has been identified. The case therefore lacks a plaintiff with the minimal personal stake that is a constitutional prerequisite to the jurisdiction of an Art. III court. In any realistic sense, the only persons before this Court who appear to have an interest are the defendants and a lawyer who no longer has a client.^[34]

I would vacate the decision of the Court of Appeals and remand with instructions to dismiss the action as moot.

[1] Robert J. Hobbs filed a brief for the National Client Council, Inc., et al. as amici curiae urging affirmance.

[2] The grant of certiorari also included the question of the validity of the Parole Release Guidelines, an issue left open in United States v. Addonizio, 442 U. S. 178, 184 (1979). We have concluded, however, that it would be premature to reach the merits of that question at this time. See infra, at 408.

While the petition for a writ of certiorari was pending, respondent Geraghty filed a motion to substitute as respondents in this Court five prisoners, then incarcerated, who also were represented by Geraghty's attorneys. In the alternative, the prisoners sought to intervene. We deferred our ruling on the motion to the hearing of the case on the merits. 440 U. S. 945 (1979). These prisoners, or most of them, now also have been released from incarceration. On September 25, 1979, a supplement to the motion to substitute or intervene was filed, proposing six new substitute respondents or intervenors; each of these is a presently incarcerated federal prisoner who, allegedly, has been adversely affected by the guidelines and who is represented by Geraghty's counsel.

Since we hold that respondent may continue to litigate the class certification issue, there is no need for us to consider whether the motion should be granted in order to prevent the case from being moot. We conclude that the District Court initially should rule on the motion.

[3] See, e. g., Armour v. City of Anniston, 597 F. 2d 46, 48-49 (CA5 1979); Susman v. Lincoln American Corp., 587 F. 2d 866 (CA7 1978), cert. pending, No. 78-1169; Goodman v. Schlesinger, 584 F. 2d 1325, 1332-1333 (CA4 1978); Camper v. Calumet Petrochemicals, Inc., 584 F. 2d 70 (CA5 1978); Roper v. Consurve, Inc., 578 F. 2d 1106 (CA5 1978), aff'd sub nom. Deposit Guaranty Nat. Bank v. Roper, ante, p. 326; Satterwhite v. City of Greenville, 578 F. 2d 987 (CA5 1978) (en banc), cert. pending, No. 78-1008; Vun Cannon v. Breed, 565 F. 2d 1096 (CA9 1977); Winokur v. Bell Federal Savings & Loan Assn., 560 F. 2d 271 (CA7 1977), cert. denied, 435 U. S. 932 (1978); Lasky v. Quinlan, 558 F. 2d 1133 (CA2 1977); Kuahulu v. Employers Ins. of Wausau, 557 F. 2d 1334 (CA9 1977); Boyd v. Justices of Special Term, 546 F. 2d 526 (CA2 1976); Napier v. Gertrude, 542 F. 2d 825 (CA10 1976), cert. denied, 429 U. S. 1049 (1977).

[4] 38 Fed. Reg. 31942-31945 (1973). The guidelines currently in force appear at 28 CFR § 2.20 (1979).

[5] The extortion count was based on respondent's use of his position as a vice squad officer of the Chicago police force to "shake down" dispensers of alcoholic beverages; the false declarations concerned his involvement in this scheme.

[6] Apparently Becher, too, has now been released from prison.

[7] The claim in Sosna also fit the traditional category of actions that are deemed not moot despite the litigant's loss of personal stake, that is, those "capable of repetition, yet evading review." See Southern Pacific Terminal Co. v. ICC, 219 U. S. 498, 515 (1911). In Franks v. Bowman Transportation Co., 424 U. S. 747, 753-755 (1976), however, the Court held that the class-action aspect of mootness doctrine does not depend on the class claim's being so inherently transitory that it meets the "capable of repetition, yet evading review" standard.

[8] Three of the Court's cases might be described as adopting a less flexible approach. In Indianapolis School Comm'rs v. Jacobs, 420 U. S. 128 (1975), and in Weinstein v. Bradford, 423 U. S. 147 (1975), dismissal of putative class suits, as moot, was ordered after the named plaintiffs' claims became moot. And in Pasadena City Bd. of Education v. Spangler, 427 U. S. 424, 430 (1976), it was indicated that the action would have been moot, upon expiration of the named plaintiffs' claims, had not the United States intervened as a party plaintiff. Each of these, however, was a case in which there was an attempt to appeal the merits without first having obtained proper certification of a class. In each case it was the defendant who petitioned this Court for review. As is observed subsequently in the text, appeal from denial of class classification is permitted in some circumstances where appeal on the merits is not. In the situation where the proposed class representative has lost a "personal stake," the merits cannot be reached until a class properly is certified. Although the Court perhaps could have remanded Jacobs and Weinstein for reconsideration of the class certification issue, as the Court of Appeals did here, the parties in those cases did not suggest "relation back" of class certification. Thus we do not find this line of cases dispositive of the question now before us.

[9] Were the class an indispensable party, the named plaintiff's interests in certification would approach a "legally cognizable interest."

[10] See, e. g., Landers, Of Legalized Blackmail and Legalized Theft: Consumer Class Actions and the Substance-Procedure Dilemma, 47 S. Cal. L. Rev. 842 (1974); Simon, Class Actions—Useful Tool or Engine of Destruction, 55 F. R. D. 375 (1972).

[11] We intimate no view as to whether a named plaintiff who settles the individual claim after denial of class certification may, consistent with Art. III, appeal from the adverse ruling on class certification. See United Airlines, Inc. v. McDonald, 432 U. S. 385, 393-394, and n. 14 (1977).

[12] MR. JUSTICE POWELL, in his dissent, advocates a rigidly formalistic approach to Art. III, post, at 412, and suggests that our decision today is the Court's first departure from the formalistic view. Post, at 414-419. We agree that the issue at hand is one of first impression and thus, in that narrow sense, is "unprecedented," post, at 419. We do not believe, however, that the decision constitutes a redefinition of Art. III principles or a "significant departur[e]," post, at 409, from "carefully considered" precedents, post, at 418.

The erosion of the strict, formalistic perception of Art. III was begun well before today's decision. For example, the protestations of the dissent are strikingly reminiscent of Mr. Justice Harlan's dissent in Flast v. Cohen, 392 U. S. 83, 116, in 1968. Mr. Justice Harlan hailed the taxpayer-standing rule pronounced in that case as a "new doctrine" resting "on premises that do not withstand analysis." Id., at 117. He felt that the problems presented by taxpayer standing "involve nothing less than the proper functioning of the federal courts, and so run to the roots of our constitutional system." Id., at 116. The taxpayers were thought to complain as "private attorneys-general," and "[t]he interests they represent, and the rights they espouse, are bereft of any personal or proprietary coloration." Id., at 119. Such taxpayer actions "are and must be . . . `public actions' brought to vindicate public rights." Id., at 120.

Notwithstanding the taxpayers' lack of a formalistic "personal stake," even Mr. Justice Harlan felt that the case should be held nonjusticiable on purely prudential grounds. His interpretation of the cases led him to conclude that "it is . . . clear that [plaintiffs in a public action] as such are not constitutionally excluded from the federal courts." Ibid. (emphasis in original).

Is it not somewhat ironic that MR. JUSTICE POWELL, who now seeks to explain United Airlines, Inc. v. McDonald, supra, as a straightforward application of settled doctrine, post, at 416-417, expressed in his dissent in McDonald, 432 U. S., at 396, the view that the holding rested on a fundamental misconception about the mootness of an uncertified class action after settlement of the named plaintiffs' claims? He stated:

"Pervading the Court's opinion is the assumption that the class action somehow continued after the District Court denied class status. But that assumption is supported neither by the text nor by the history of Rule 23. To the contrary, . . . the denial of class status converts the litigation to an ordinary nonclass action." Id., at 399.

The dissent went on to say:

"[Petitioner] argues with great force that, as a result of the settlement of their individual claims, the named plaintiffs `could no longer appeal the denial of class' status that had occurred years earlier. . . . Although this question has not been decided by this Court, the answer on principle is clear. The settlement of an individual claim typically moots any issues associated with it. . . . This case is sharply distinguishable from cases such as Sosna v. Iowa . . . and Franks v. Bowman Transp. Co. . . . where we allowed named plaintiffs whose individual claims were moot to continue to represent their classes. In those cases, the District Courts previously had certified the classes, thus giving them `a legal status separate from the interest[s] asserted by [the named plaintiffs]' Sosna v. Iowa, supra, at 399. This case presents precisely the opposite situation: The prior denial of class status had extinguished any representative capacity." Id., at 400 (footnote omitted).

Thus, the assumption thought to be "[p]ervading the Court's opinion" in McDonald, and so vigorously attacked by the dissent there, is now relegated to "gratuitous" "dictum," post, at 416. MR. JUSTICE POWELL, who finds the situation presented in the case at hand "fundamentally different" from that in Sosna and Franks, post, at 413, also found the facts of McDonald "sharply distinguishable" from those previous cases. 432 U. S., at 400.

We do not recite these cases for the purpose of showing that our result is mandated by the precedents. We concede that the prior cases may be said to be somewhat confusing, and that some, perhaps, are irreconcilable with others. Our point is that the strict, formalistic view of Art. III jurisprudence, while perhaps the starting point of all inquiry, is riddled with exceptions. And, in creating each exception, the Court has looked to practicalities and prudential considerations. The resulting doctrine can be characterized, aptly, as "flexible"; it has been developed, not irresponsibly, but "with some care," post, at 410, including the present case.

The dissent is correct that once exceptions are made to the formalistic interpretation of Art. III, principled distinctions and bright lines become more difficult to draw. We do not attempt to predict how far down the road the Court eventually will go toward premising jurisdiction "upon the bare existence of a sharply presented issue in a concrete and vigorously argued case," post, at 421. Each case must be decided on its own facts. We hasten to note, however, that this case does not even approach the extreme feared by the dissent. This respondent suffered actual, concrete injury as a result of the putatively illegal conduct, and this injury would satisfy the formalistic personal-stake requirement if damages were sought. See, e. g., Powell v. McCormack, 395 U. S., at 495-500. His injury continued up to and beyond the time the District Court denied class certification. We merely hold that when a District Court erroneously denies a procedural motion, which, if correctly decided, would have prevented the action from becoming moot, an appeal lies from the denial and the corrected ruling "relates back" to the date of the original denial.

The judicial process will not become a vehicle for "concerned bystanders," post, at 413, even if one in respondent's position can conceivably be characterized as a bystander, because the issue on the merits will not be addressed until a class with an interest in the outcome has been certified. The "relation back" principle, a traditional equitable doctrine applied to class certification claims in Gerstein v. Pugh, 420 U. S. 103 (1975), serves logically to distinguish this case from the one brought a day after the prisoner is released. See post, at 420-421, n. 15. If the named plaintiff has no personal stake in the outcome at the time class certification is denied, relation back of appellate reversal of that denial still would not prevent mootness of the action.

[13] See, e. g., Comment, A Search for Principles of Mootness in the Federal Courts: Part Two—Class Actions, 54 Texas L. Rev. 1289, 1331-1332 (1976); Comment, Continuation and Representation of Class Actions Following Dismissal of the Class Representative, 1974 Duke L. J. 573, 602-608.

[14] See, e. g., Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U. S. 59, 72 (1978); Arlington Heights v. Metropolitan Housing Dev. Corp., 429 U. S. 252, 260-261 (1977); Warth v. Seldin, 422 U. S. 490, 499 (1975); Linda R. S. v. Richard D., 410 U. S. 614, 617 (1973). Each of these cases rejects the view, once expressed by Mr. Justice Harlan and now apparently espoused by the Court, that the personal stake requirement lacks constitutional significance. Ante, at 404-407, n. 11; Flast v. Cohen, 392 U. S. 83, 120 (1968) (Harlan, J., dissenting); see also United States v. Richardson, 418 U. S. 166, 180 (1974) (POWELL, J., concurring). Until today, however, that view never had commanded a majority.

[15] See, e. g., Schlesinger v. Reservists to Stop the War, 418 U. S. 208, 227 (1974); O'Shea v. Littleton, 414 U. S. 488, 494 (1974); Moose Lodge No. 107 v. Irvis, 407 U. S. 163, 166-167 (1972); Sierra Club v. Morton, 405 U. S. 727, 736-738 (1972); Tileston v. Ullman, 318 U. S. 44, 46 (1943) (per curiam). The rule is the same when the question is mootness and a litigant can assert no more than emotional involvement in what remains of the case. Ashcroft v. Mattis, 431 U. S. 171, 172-173 (1977) (per curiam).

[16] See 13 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 3533, p. 265 (1975); Note, The Mootness Doctrine in the Supreme Court, 88 Harv. L. Rev. 373, 376-377 (1974).

[17] See, e. g., Preiser v. Newkirk, 422 U. S. 395, 401-402 (1975); SEC v. Medical Comm. for Human Rights, 404 U. S. 403, 407 (1972); Powell v. McCormack, 395 U. S. 486, 496, n. 7 (1969); Liner v. Jafco, Inc., 375 U. S. 301, 306, n. 3 (1964).

[18] The Court states that "the erosion of the strict, formalistic perception of Art. III was begun well before today's decision," and that the Art. III personal stake requirement is "riddled with exceptions." Ante, at 404-405, 406, n. 11. It fails, however, to cite a single Court opinion in support of either statement. To the extent that the decision in Flast v. Cohen, supra, supports the position ascribed to it in the dissent, 392 U. S., at 117-120, it does not survive the long line of express holdings that began with Warth v. Seldin, supra, and were reaffirmed only last Term. Gladstone, Realtors v. Village of Bellwood, 441 U. S. 91, 99 (1979). See nn. 1 and 2, supra. Even before Warth, Professor Davis observed that the personal stake requirement had no exceptions. 35 U. Chi. L. Rev., at 616, 617.

[19] No one suggests that respondent could be affected personally by any ruling on the class certification question that is remanded today. In fact, the Court apparently concedes that respondent has no personal stake—"in the traditional sense"—in obtaining certification. Ante, at 402.

Several prisoners now in federal custody have filed a motion to intervene as parties respondent in this Court. Although the Court does not rule on that motion, I note that the motion was received well over a year after respondent was released from prison. In the interim, respondent obtained a ruling from the Court of Appeals and filed his petition for certiorari in this Court. Such untimely intervention comes too late to save the action under United Airlines, Inc. v. McDonald, 432 U. S. 385 (1977).

[20] Respondent's lawyer opened his argument by saying that "[t]he mootness question in this case is, from a practical standpoint, not very significant." If the action is dismissed as moot he plans simply to "file a new case" on behalf of prisoners serving longer terms. Tr. of Oral Arg. 25. On the basis of this representation by counsel, there is reason to believe that members of the putative class at issue ultimately will be included in a class action that will not moot out.

[21] Certification is no mere formality. It represents a judicial finding that injured parties other than the named plaintiff exist. It also provides a definition by which they can be identified. Certification identifies and sharpens the interests of unnamed class members in the outcome; only thereafter will they be bound by the outcome. After certification, class members can be certain that the action will not be settled or dismissed without appropriate notice. Fed. Rule Civ. Proc. 23 (c); 3 H. Newberg, Class Actions § 5050 (1977); cf. Almond, Settling Rule 23 Class Actions at the Precertification Stage: Is Notice Required?, 56 N. C. L. Rev. 303 (1978). Vigorous advocacy is assured by the authoritative imposition on the named plaintiffs of a duty adequately to represent the entire class. If the named plaintiff's own claim becomes moot after certification, the court can re-examine his ability to represent the interests of class members. Should it be found wanting, the court may seek a substitute representative or even decertify the class. Fed. Rules Civ. Proc. 23 (c) (1), 23 (d); see 1 Newberg, supra, § 2192; Comment, Continuation and Representation of Class Actions Following Dismissal of the Class Representative, 1974 Duke L. J. 573, 589-590, 602-603. After certification, the case is no different in principle from more traditional representative actions involving, for example, a single party who cannot participate himself because of his incompetence but is permitted to litigate through an appointed fiduciary.

[22] The Court's Gerstein analysis, which emphasized that "[p]retrial detention is by nature temporary" and that "[t]he individual could. . . suffer repeated deprivations" with no access to redress, falls squarely within the rule of Southern Pacific Terminal Co. v. ICC, 219 U. S. 498, 515 (1911). See Roe v. Wade, 410 U. S. 113, 125 (1973). In similar cases we have noted that the continuation of the action will depend "`especially [upon] the reality of the claim that otherwise the issue would evade review.'" Swisher v. Brady, 438 U. S. 204, 213, n. 11 (1978), quoting Sosna v. Iowa, 419 U. S. 393, 402, n. 11 (1975). These limitations are inconsistent with the concept of "flexible" mootness and the redefinition of "personal stake" adopted today.

[23] The individual claims of the original named plaintiffs had been settled after judgment on the question of liability. 432 U. S., at 389, 393, n. 14.

[24] This extensive inquiry would have been unnecessary if, as the Court holds today, the intervenor had a personal stake in the class certification issue itself. Since the present respondent's claim long since has "expired," he stands in the same position as a member of the putative class whose claim has "expired" by reason of the statute of limitations.

[25] The vitality of the Jacobs result is underscored by the repeated dictum that a properly certified class is necessary to supply adverseness once the named plaintiff's claim becomes moot. East Texas Motor Freight v. Rodriguez, 431 U. S. 395, 406, n. 12 (1977); Franks v. Bowman Transportation Co., 424 U. S. 747, 754, n. 6, 755-756 (1976); see Kremens v. Bartley, 431 U. S. 119, 129-130 (1977); Richardson v. Ramirez, 418 U. S. 24, 39 (1974). Conversely, we have often stated that the named plaintiff's individual claim must be a live one both at the time the action is filed and at the time of certification. Kremens v. Bartley, supra, at 143, n. 6 (BRENNAN, J., dissenting); Sosna v. Iowa, supra, at 402, 403; see Bell v. Wolfish, 441 U. S. 520, 526, n. 5 (1979); Zablocki v. Redhail, 434 U. S. 374, 382, n. 9 (1978).

[26] In some circumstances, litigants are permitted to argue the rights of third parties in support of their claims. E. g., Singleton v. Wulff 428 U. S. 106, 113 (1976); Barrows v. Jackson, 346 U. S. 249, 255-256 (1953). In each such case, however, the Court has identified a concrete, individual injury suffered by the litigant himself. Ibid.; see n. 2, supra, and accompanying text.

[27] In a footnote, ante, at 406, n. 11, the Court states:

"This respondent suffered actual, concrete injury as a result of the putatively illegal conduct, and this injury would satisfy the formalistic personal-stake requirement if damages were sought. See, e. g., Powell v. McCormack, 395 U. S., at 495-500."

This appears to be a categorical claim of the actual, concrete injury our cases have required. Yet, again, the Court fails to identify the injury. The reference to damages is irrelevant here, as respondent sought no damages—only injunctive and declaratory relief. Moreover, counsel for respondent frankly conceded that his client "can obtain absolutely no additional personal relief" in this case. Tr. of Oral Arg. 25. If the Court seriously is claiming concrete injury "at all stages of review," see supra, at 411, it would be helpful for it to identify specifically this injury that was not apparent to respondent's counsel. Absent such identification, the claim of injury is indeed an empty one.

[28] The Court attempts to limit the sweeping consequences that could flow from the application of these criteria, see infra, at 421-422, and n. 18, by asserting that "[e]ach case must be decided on its own facts" on the basis of "practicalities and prudential considerations." Ante, at 406, n. 11. The Court long has recognized a difference between the prudential and constitutional aspects of the standing and mootness doctrines. See supra, at 410. I am not aware that the Court, until today, ever has merged these considerations for the purpose of eliminating the Art. III requirement of a personal stake in the litigation. The Court cites no prior case for this view. Moreover, the Court expounds no limiting principle of any kind. Adverse practical consequences, even if relevant to Art. III analysis, cannot justify today's holding as none whatever would flow from a finding of mootness. See n. 18, infra. Nor does the Court's reliance upon a "`relation back' principle," ante, at 407, n. 11, further the analysis. Although this fiction may provide a shorthand label for the Court's conclusion, it is hardly a principle and certainly not a limiting one.

[29] The Court often has rejected the contention that a "spirited dispute" alone is sufficient to confer jurisdiction. E. g., Richardson v. Ramirez, 418 U. S., at 35-36; Hall v. Beals, 396 U. S. 45, 48-49 (1969) (per curiam).

[30] The Court's assertion to the contrary notwithstanding, there is nothing in the record to suggest that respondent has any interest whatever in his new-found "right to have a class certified." Ante, at 403. In fact, the record shows that respondent's interest in the merits was the sole motivation for his attempt to represent a class. The class claims were added to his complaint only because his lawyer feared that mootness might terminate the action. App. 17; Brief for Respondent 23, 33. The record does not reveal whether respondent—as distinguished from his lawyer—now wishes to continue with the case. If he does, it is clear that his interest has nothing to do with the procedural protections described by the Court as the "primary benefits of class suits." Ante, at 403. It is neither surprising nor improper that respondent should be concerned with parole procedures. But respondent's actual interest is indistinguishable from the generalized interest of a "private attorney general" who might bring a "public action" to improve the operation of a parole system.

[31] The Court's view logically cannot be confined to moot cases. If a plaintiff who is released from prison the day after filing a class action challenging parole guidelines may seek certification of the class, why should a plaintiff who is released the day before filing the suit be barred? As an Art. III matter, there can be no difference.

Even on prudential grounds, there is little difference between this action and one filed promptly after the named plaintiff's release from prison. In the present case, this Court has ruled on neither the merits nor the propriety of the class action. At the same time, it has vacated a judgment by the Court of Appeals that in turn reversed the judgment of the District Court. No determination on any issue is left standing. For every practical purpose, the action must begin anew—this time without a plaintiff. The prudential considerations in favor of a finding of mootness could scarcely be more compelling.

[32] I do not imply that the result reached today is necessary in any way to the continued vitality of the class action device. On the contrary, the practical impact of mootness in this case would be slight indeed. See n. 18, supra. And this may well be typical of class actions brought under Rule 23 (b) (1) or (2) to seek injunctive or declaratory relief. Such actions are not subject to frustration through sequential settlement offers that "buy off" each intervening plaintiff. Cf. Deposit Guaranty Nat. Bank v. Roper, ante, at 339. Nor will substitute plaintiffs be deterred by the notice costs that attend certification of a class under Rule 23 (b) (3).

[33] The Court's efforts to "save" this action from mootness lead it to depart strikingly from the normal role of a reviewing court. The Court fails to identify how, if at all, the District Court has erred. Nothing is said about the District Court's ruling on the merits or its refusal to certify the broad class sought by respondent. Nor does the Court adopt the Court of Appeals' conclusion that the District Court erred in failing to consider the possibility of subclasses sua sponte. Nevertheless, respondent— or his lawyer—is given the opportunity to raise the subclass question on remand. That result cannot be squared with the rule that a litigant may not raise on appeal those issues he has failed to preserve by appropriate objection in the trial court. The Court intimates that the District Court waited too long to deny the class certification motion, thus making a motion for subclasses a "futile act." Ante, at 408. But nothing in the record suggests that the District Court would not have entertained such a motion. Since respondent sought certification in the first place only to avoid mootness on appeal, the entry of an order against him on the merits provides no excuse for his subsequent failure to present a subclass proposal to the District Court.

[34] I imply no criticism of counsel in this case. The Court of Appeals agreed with counsel that the certification issue was appealable, and the case was brought to this Court by the United States.

[338] [339] William J. Pinilis, (Argued), Gabriel H. Halpern, PinilisHalpern, LLP, Morristown, N.J., for Appellant.

Bruce D. Greenberg, (Argued), Lite DePalma Greenberg & Rivas, LLC, Newark, N.J., for Appellees.

Before SCIRICA, Chief Judge, FISHER and ALARCON,^[1] Circuit Judges.

SCIRICA, Chief Judge.

At issue is whether a putative class representative's claim is mooted by a Rule 68 offer of judgment so as to defeat federal subject matter jurisdiction in a suit requesting class-wide relief. This appeal reflects the tension between two rules of civil procedure-Fed. R. Civ. P. 23 and Fed.R.Civ.P. 68-and whether they can be harmonized when the only individual relief requested by the representative plaintiff has been satisfied through an offer of judgment.^[2] The District Court granted defendants' motion to dismiss on grounds of mootness. We will reverse and remand.

I. Facts

On October 25, 2000, defendant bill collector Regal Collections mailed a letter to Richard Weiss demanding payment of a debt allegedly owed to Citibank. Contending that certain statements in the letter constituted unfair debt collection practice in violation of the Fair Debt Collections Practices Act ("FDCPA"), 15 U.S.C. § 1692, Weiss filed a federal class action complaint on February 21, 2001, seeking statutory damages on behalf of himself and a putative nationwide class. On March 2, 2001, Weiss filed an amended complaint seeking declaratory and injunctive relief under the FDCPA, and adding Lancer Investments as a co-defendant.

On April 16, 2001, before filing an answer, and before Weiss moved to certify a class, defendants made a Fed.R.Civ.P. 68^[3] offer of judgment to Weiss in the amount of $1000 plus attorney fees and expenses-the maximum amount an individual may recover under the FDCPA. The offer of [340] judgment provided no relief to the class and offered neither injunctive nor declaratory relief. Weiss declined to accept the offer of judgment. Defendants then filed a motion to dismiss under Fed.R.Civ.P. 12(b)(1), arguing Weiss's claim was rendered moot because the Rule 68 offer provided him the maximum damages available under the statute.^[4] For this reason, defendants contended the District Court no longer had subject matter jurisdiction over Weiss's claims. The District Court agreed and dismissed the class action complaint.

II. Discussion

On appeal, Weiss asserts the Rule 68 offer did not provide the maximum possible recovery because the complaint requested declaratory and injunctive relief, and sought recovery for a putative nationwide class. As such, Weiss argues his claim was not rendered moot by the Rule 68 offer, and the District Court erred in dismissing the class action complaint.^[5] Despite Weiss's assertion, the FDCPA does not permit private actions for declaratory or injunctive relief. The principal question, therefore, is whether defendants' Rule 68 offer mooted the claim.

Article III of the United States Constitution limits the jurisdiction of the federal courts to "cases and controversies." U.S. Const. art. III § 2; Flast v. Cohen, 392 U.S. 83, 94, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968). When the issues presented in a case are no longer "live" or the parties lack a legally cognizable interest in the outcome, the case becomes moot and the court no longer has subject matter jurisdiction. County of Los Angeles v. Davis, 440 U.S. 625, 631, 99 S.Ct. 1379, 59 L.Ed.2d 642 (1979). An offer of complete relief will generally moot the plaintiff's claim, as at that point the plaintiff retains no personal interest in the outcome of the litigation. Rand v. Monsanto Co., 926 F.2d 596, 598 (7th Cir.1991) ("Once the defendant offers to satisfy the plaintiff's entire demand, there is no dispute over which to litigate and a plaintiff who refuses to acknowledge this loses outright, under Fed.R.Civ.P. 12(b)(1), because he has no remaining stake.") (internal citation omitted); see also 13A Charles Alan Wright & Arthur R. Miller, Fed. Practice and Procedure: Jurisdiction 2d § 3533.2, at 236 (2d ed. 1984) ("Even when one party wishes to persist to judgment, an offer to accord all of the relief demanded may moot the case.").

A.

As a threshold matter, we hold defendant's Rule 68 offer of judgment, in the amount of $1,000 plus reasonable costs and fees provided the maximum statutory relief available to Weiss individually under the FDCPA. The FDCPA allows a plaintiff to recover "any actual damage sustained"^[6] as a result of the debt collector's violation of the FDCPA, as well as "such additional damages as the court may allow, but not exceeding $1,000," and "the costs of the action, together with a reasonable attorney's fees determined by the court." 15 U.S.C. § 1692k(a)(1), (2)(A), (3).

[341] The FDCPA contains no express provision for injunctive or declaratory relief in private actions. See 15 U.S.C. § 1692k (listing damages and counsel fees as remedies, but not declaratory or injunctive relief).^[7] Most courts have found equitable relief unavailable under the statute, at least with respect to private actions. See Crawford v. Equifax Payment Servs., Inc., 201 F.3d 877, 882 (7th Cir.2000) (noting that all private actions under the FDCPA are for damages); Bolin v. Sears Roebuck & Co., 231 F.3d 970, 977 n. 39 (5th Cir.2000) ("[A]lthough this circuit has not definitively ruled on the issue, courts uniformly hold that the FDCPA does not authorize equitable relief."); Sibley v. Fulton DeKalb Collection Servs., 677 F.2d 830, 834 (11th Cir.1982) (noting that equitable relief is not available to an individual under the Act.)^[8]

The remedies under the FDCPA differ depending on who brings the action.^[9] Compare 15 U.S.C. § 1692k(a) (damage remedies for private litigants) with 15 U.S.C. § 16921 (administrative enforcement by Federal Trade Commission). The statute authorizes damages for civil liability, but permits only the Federal Trade Commission to pursue injunctive or declaratory relief. See 15 U.S.C. § 16921.^[10] Some trial courts have interpreted this statutory structure to preclude injunctive or declaratory relief in private actions. See Zanni v. Lippold, 119 F.R.D. 32, 33-34 (C.D.Ill.1988) ("`The FDCPA specifically authorizes the Federal Trade Commission (FTC) to seek injunctive relief ... and defendant persuasively argues that this is a strong indication of Congress' intent to limit private actions to damage claims.'") (quoting Strong v. Nat'l Credit Mgmt. Co., 600 F.Supp. 46 (E.D.Ark.1984)); see also Washington v. CSC Credit Servs., 199 F.3d 263, 268 (5th Cir.2000) ("[Under the Fair Credit Reporting Act, the] affirmative grant of power to the FTC to pursue injunctive relief, coupled with the absence of a similar grant to private litigants, when they are expressly granted the right to obtain damages and other relief, persuasively demonstrates that Congress vested the power to obtain injunctive relief solely [342] with the FTC."). Because the statute explicitly provides declaratory and equitable relief only through action by the Federal Trade Commission, we believe the different penalty structure demonstrates Congress's intent to preclude equitable relief in private actions.

For these reasons, we hold injunctive and declaratory relief are not available to litigants acting in an individual capacity under the FDCPA. Therefore, the Rule 68 offer provided all the relief available to Weiss as an individual plaintiff acting in his personal capacity.

Of course, the Rule 68 offer did not provide the maximum damages to the putative class. For class actions, the maximum relief under the FDCPA is greater. The FDCPA authorizes additional recovery for non-named class members "without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector." 15 U.S.C. § 1692k(a)(2)(B). Because defendants' Rule 68 offer included no relief for the putative class, either under the provisions of the FDCPA or through the aggregation of class claims, we address the mootness question in that context.

B.

1.

The Federal Rules of Civil Procedure are designed to be interdependent. See Fed.R.Civ.P. 1 ("These rules govern the procedure in ... all suits of a civil nature...."); Canister Co. v. Leahy, 182 F.2d 510, 514 (3d Cir.1950) ("[The Rules] must be considered in relation to one another."). Whenever possible we should harmonize the rules. In the event of an unreconcilable conflict, then one rule of procedure may have to take precedence over another.

As discussed, under traditional mootness principles, an offer for the entirety of a plaintiff's claim will generally moot the claim. We have held a class action may be dismissed when the named plaintiff's claim is rendered moot before filing a motion for class certification. See Brown v. Phila. Hous. Auth., 350 F.3d 338, 343 (3d Cir.2003) ("[W]hen claims of the named plaintiffs become moot before class certification, dismissal of the action is required.") (quoting Lusardi v. Xerox Corp., 975 F.2d 964, 974 (3d Cir.1992)). Defendants argue this action is moot because they submitted the Fed.R.Civ.P. 68 offer for complete individual relief before Weiss filed a motion for class certification.

The question of mootness in the class action context is not a simple one. See Lusardi, 975 F.2d at 974 ("[S]pecial mootness rules apply in the class action context, where the named plaintiff purports to represent an interest that extends beyond his own."). Nonetheless, it appears to be settled that once a class has been certified, mooting a class representative's claim does not moot the entire action because the class "acquire[s] a legal status separate from the interest asserted by [the named plaintiff]." Sosna v. Iowa, 419 U.S. 393, 399, 95 S.Ct. 553, 42 L.Ed.2d 532 (1975).

In two decisions in 1980, United States Parole Comm'n v. Geraghty, 445 U.S. 388, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980) and Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980), the Supreme Court provided some guidance in this area. These cases permitted a named plaintiff whose individual claims were mooted to appeal a denial of class certification.

In Geraghty, the question presented was "whether a trial court's denial of a motion for certification of a class may be reviewed [343] on appeal after the named plaintiff's personal claim has become `moot.'" 445 U.S. at 390, 100 S.Ct. 1202. The Court looked beyond the mootness of Geraghty's substantive claims and focused on his distinct "procedural ... right to represent a class." Id. at 402, 100 S.Ct. 1202. The Court held the action was not moot upon the expiration of the substantive claim, because the plaintiff retained a "personal stake" in the class certification decision. Id. at 404, 100 S.Ct. 1202.

Of special significance to this appeal, in Roper, the Supreme Court expressed concern at a defendant's ability to "pick off" named plaintiffs by mooting their private individual claims. 445 U.S. at 339, 100 S.Ct. 1166. Credit card holders brought a class action challenging finance charges levied on their accounts and those of similarly situated card holders. Id. at 328-29, 100 S.Ct. 1166. After the district court denied their motion for class certification, the bank tendered to each named plaintiff the maximum amount he would have received individually. Id. at 329, 100 S.Ct. 1166. The named plaintiffs refused the offer, but the district court, over their objections, entered judgment in their favor and dismissed the action as moot. Id. at 330, 100 S.Ct. 1166. The Court of Appeals for the Fifth Circuit reversed, noting: "The notion that a defendant may short-circuit a class action by paying off the class representatives either with their acquiescence or, as here, against their will, deserves short shrift. Indeed, were it so easy to end class actions, few would survive." Roper v. Consurve, Inc., 578 F.2d 1106, 1110 (5th Cir.1978).

Granting certiorari, the Supreme Court considered whether putative class representatives retained a private interest in appealing the denial of class certification subsequent to the entry of judgment in their favor, over their objections. The bank argued the entire case had been mooted by the individual offers. The Supreme Court disagreed, stating:

Requiring multiple plaintiffs to bring separate actions, which effectively could be `picked off' by a defendant's tender of judgment before an affirmative ruling on class certification could be obtained, obviously would frustrate the objectives of class actions; moreover it would invite waste of judicial resources by stimulating successive suits brought by others claiming aggrievement.

445 U.S. at 339, 100 S.Ct. 1166.

Then-Associate Justice Rehnquist concurred in the judgment, but wrote separately, commenting:

The distinguishing feature here is that the defendant has made an unaccepted offer of tender in settlement of the individual putative representative's claim. The action is moot in the Art. III sense only if this Court adopts a rule that an individual seeking to proceed as a class representative is required to accept a tender of only his individual claims. So long as the court does not require such acceptance, the individual is required to prove his case and the requisite Art. III adversity continues. Acceptance [of defendant's offer] need not be mandated under our precedent since the defendant has not offered all that has been requested in the complaint (i.e. relief for the class)....

Id. at 341, 100 S.Ct. 1166 (Rehnquist, J., concurring).

We recognize Roper addressed a different issue, whether a putative class representative retains an individual interest in appealing the denial of class certification subsequent to an entry of judgment in his [344] favor, to which he objected.^[11] But the matters addressed in Roper — particularly a defendant's ability to "pick off" representative plaintiffs and thwart a class action-have direct application to the issue presented by this appeal.^[12] Of course, plaintiff here was only a putative class representative. Although Weiss filed a class complaint, he had not yet moved for class certification.

As sound as is Rule 68 when applied to individual plaintiffs, its application is strained when an offer of judgment is made to a class representative.^[13] As in Roper, allowing the defendants here to "pick off" a representative plaintiff with an offer of judgment less than two months after the complaint is filed may undercut the viability of the class action procedure, and frustrate the objectives of this procedural mechanism for aggregating small claims, like those brought under the FDCPA.

The purposes behind Fed.R.Civ.P. 23 are well-recognized. "A significant benefit to claimants who choose to litigate their individual claims in a class-action context [345] is the prospect of reducing their costs of litigation, particularly attorney's fees, by allocating such costs among all members of the class who benefit from the recovery." Roper, 445 U.S. at 338 n. 9, 100 S.Ct. 1166. The Supreme Court also commented that "[c]lass actions ... may permit the plaintiffs to pool claims which would be uneconomical to litigate individually. For example, this lawsuit involves claims averaging about $100 per plaintiff; most of the plaintiffs would have no realistic day in Court if a class action were not available." Phillips Petroleum v. Shutts, 472 U.S. 797, 809, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985). This "[c]ost-spreading can also enhance the means for private attorney general enforcement and the resulting deterrence of wrongdoing." In re Gen'l Motors Corp., Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 784 (3d Cir.1995). Allowing defendants to "pick off" putative lead plaintiffs contravenes one of the primary purposes of class actions-the aggregation of numerous similar (especially small) claims in a single action.

Moreover, a rule allowing plaintiffs to be "picked off" at an early stage in a putative class action may waste judicial resources by "stimulating successive suits brought by others claiming aggrievement." Roper, 445 U.S. at 339, 100 S.Ct. 1166. This result is contrary to the purpose of Fed.R.Civ.P. 68 as well. See 13 Moore's Federal Practice § 68.02[2], at 68-7 (3d ed. 2004) ("The primary purpose of Rule 68 is to promote settlements and avoid protracted litigation.").

There is another significant consideration. Congress explicitly provided for class damages in the FDCPA. See 15 U.S.C. § 1692k(a)(2)(B) (establishing maximum damages in class actions under the FDCPA). Congress also intended the FDCPA to be self-enforcing by private attorney generals. See S.Rep. No. 95-382 p.5 (describing FDCPA as "self-enforcing"); see also Graziano v. Harrison, 950 F.2d 107, 113 (3d Cir.1991) ("[FDCPA] mandates an award of attorney's fees as a means of fulfilling Congress's intent that the Act should be enforced by debtors acting as private attorneys general."). Representative actions, therefore, appear to be fundamental to the statutory structure of the FDCPA. Lacking this procedural mechanism, meritorious FDCPA claims might go unredressed because the awards in an individual case might be too small to prosecute an individual action. For this reason, defendants' view of the interplay between Fed.R.Civ.P. 23 and Fed.R.Civ.P. 68 would frustrate Congress's explicit directive that the FDCPA be enforced by private attorney generals acting in a representative capacity. Alleged violators of federal law would be allowed to tender the statutory amount of damages to a named plaintiff, derailing a putative class action and frustrating, the goals and enforcement mechanism of the FDCPA.^[14]

2.

As the Court in Geraghty stated, "mootness ... can be avoided through certification of a class prior to expiration of the named plaintiff's personal claim." 445 U.S. at 398, 100 S.Ct. 1202; see also Holstein v. City of Chi., 29 F.3d 1145, 1147-48 (7th Cir.1994) (finding case moot where [346] plaintiff did not move for class certification before "evaporation of his personal stake"). Some appellate courts have extended Geraghty and declined to dismiss on mootness grounds while class certification was pending. See Susman v. Lincoln Am. Corp., 587 F.2d 866, 869-71 (7th Cir.1978) (holding case not moot when class certification motion was pending before district court at the time named plaintiffs were tendered damages); Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030, 1051 (5th Cir. July 1981) ("conclud[ing] that a suit brought as a class action should not be dismissed for mootness upon tender to the named plaintiffs of their personal claims, at least when, as here, there is pending before the district court a timely filed and diligently pursued motion for class certification."); see also Lusardi, 975 F.2d 964, 975 (3d Cir.1992) (noting the exception to the general mootness rule where a certification motion which district court did not have a reasonable opportunity to decide was filed before plaintiff's claim expired). As noted, although plaintiff here filed a class complaint, he never filed a motion for class certification. His individual claim was allegedly "mooted" by the Rule 68 offer before the court had a reasonable opportunity to consider class certification under Fed.R.Civ.P. 23. This situation is not uncommon in FDCPA cases and has created an unsettled area of law.^[15]

3.

There appears to be considerable authority that once a motion for class certification has been filed, the "relation back" doctrine explained by the Supreme Court in Sosna v. Iowa, 419 U.S. 393, 399, 95 S.Ct. 553, 42 L.Ed.2d 532 (1975) comes into play. In Sosna, the Court recognized:

There may be cases in which the controversy involving the named plaintiffs is such that it becomes moot as to them before the district court can reasonably be expected to rule on a certification motion. In such instances, whether the certification can be said to `relate back' to the filing of the complaint may depend upon the circumstances of the particular case and especially the reality of the claim that otherwise the issue would evade review.

Id. at 402 n. 11, 95 S.Ct. 553. Furthermore, in Geraghty the Court held class certification may relate back to the filing of the complaint where claims are "so inherently transitory that the trial court will not have even enough time to rule on a motion for class certification before the proposed representative's individual interest expires." 445 U.S. at 399, 100 S.Ct. 1202 (1980). [347] The mootness exception recognizes that, in certain circumstances, to give effect to the purposes of Rule 23, it is necessary to conceive of the named plaintiff as a part of an indivisible class and not merely a single adverse party even before the class certification question has been decided. By relating class certification back to the filing of a class complaint, the class representative would retain standing to litigate class certification though his individual claim is moot. But the question in this case is whether the "relation back" doctrine should apply only after the filing of a motion for class certification or whether it may also be employed after the filing of a class complaint.

The "relation back" doctrine generally has been used for "inherently transitory" claims. See County of Riverside v. McLaughlin, 500 U.S. 44, 52, 111 S.Ct. 1661, 114 L.Ed.2d 49 (1991) (quoting Geraghty, 445 U.S. at 399, 100 S.Ct. 1202). Although Weiss's claims here are not "inherently transitory" as a result of being time sensitive, they are "acutely susceptible to mootness," Comer v. Cisneros, 37 F.3d 775, 797 (2d Cir.1994), in light of defendants' tactic of "picking off" lead plaintiffs with a Rule 68 offer to avoid a class action. As noted, this tactic may deprive a representative plaintiff the opportunity to timely bring a class certification motion, and also may deny the court a reasonable opportunity to rule on the motion.^[16]

It bears noting that most of the cases applying the relation back doctrine have done so after a motion to certify the class has been filed. See Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030, 1048-49 (5th Cir. July 1981); Susman v. Lincoln Am. Corp., 587 F.2d 866, 869-71 (7th Cir., 1978).^[17] Nonetheless, reference to the bright line event of the filing of the class certification motion may not always be well-founded. Representative actions vary according to the substantive claims and the courses of action. There are at least three distinct events on the path to a certified class: filing the class complaint, filing the motion for class certification, and a decision on the motion. Yet plaintiffs may file the class certification motion with the class complaint, and in some cases, include a motion for approval of an already negotiated settlement. Of course, the federal rules do not require certification motions to be filed with the class complaint, nor do they require or encourage premature certification determinations.^[18] It seems appropriate, [348] therefore, that the class action process should be able to "play out" according to the directives of Rule 23 and should permit due deliberation by the parties and the court on the class certification issues.

That said, the proper procedure is for the named representative to file a motion for class certification. That did not occur here. But neither was there undue delay.^[19] In circumstances like these, we believe the relation back doctrine should apply. Absent undue delay in filing a motion for class certification, therefore, where a defendant makes a Rule 68 offer to an individual claim that has the effect of mooting possible class relief asserted in the complaint, the appropriate course is to relate the certification motion back to the filing of the class complaint.^[20] Because in this case, no motion for class certification was made, we will direct the trial court to allow Weiss to file the appropriate motion.

4.

We recognize our decision creates some tension with our opinion in Lusardi v. Xerox Corp., 975 F.2d 964 (3d Cir.1992), but we believe the cases can be reconciled.^[21] In Lusardi, the named plaintiffs, following two orders decertifying a class, agreed to a full and unconditional release of their individual age discrimination claims, and the court dismissed their individual [349] claims. Id. at 968-69. Nonetheless, the named plaintiffs filed a de novo motion for class certification. After the trial court dismissed the class claims as moot, we affirmed, noting that after the named plaintiff's claims had been voluntarily settled, they no longer had justiciable claims when they moved for class certification. Id. at 979-80.

Unlike the case here, Lusardi did not involve an offer of judgment made in response to the filing of a complaint. The named plaintiffs voluntarily entered into individual settlements subsequent to class decertification. See id. at 979 ("Here, there is no dispute that plaintiffs voluntarily settled their individual claims."). In this appeal, the "picking off" scenarios described by the Supreme Court in Roper are directly implicated. In Lusardi they were not. The Roper Court stressed that "at no time did the named plaintiffs accept the tender in settlement of the case; instead, judgment was entered in their favor by the court without their consent." 445 U.S. at 332, 100 S.Ct. 1166. Similarly, in Zeidman, the Court of Appeals for the Fifth Circuit wrote:

[P]laintiffs claims have been rendered moot by purposive action of the defendants.... By tendering to the named plaintiffs the full amount of their personal claims each time suit is brought as a class action, the defendants can in each successive case moot the named plaintiffs' claims before a decision on certification is reached.

651 F.2d 1030, 1049-50. The tactic at play here, similar to those described in Roper and Zeidman, contrasts with the voluntary settlement in Lusardi where the plaintiffs agreed to settle with the defendants after two motions for class certification had been denied. Indeed, even Lusardi noted, in a somewhat different context, that it "simply was not a case where ... the class-action defendant successfully prevented effective resolution of a class certification issue." Lusardi, 975 F.2d at 983. In Lusardi, no unilateral action by the Defendant rendered the plaintiffs' claims "inherently transitory." Defendants here used the Rule 68 offer to thwart the putative class action before the certification question could be decided.

Under this set of circumstances, we believe the tension between Fed.R.Civ.P. 23 and Fed.R.Civ.P. 68 should be addressed through the "relation back" analysis.^[22]

[350] III.

For the foregoing reasons, the judgment of the District Court will be reversed and the matter will be remanded for proceedings consistent with our opinion.

[1] The Honorable Arthur L. Alarcon, United States Circuit Judge for the Ninth Judicial Circuit, sitting by designation.

[2] Our Court addressed a similar issue in Colbert v. Dymacol., Inc., 302 F.3d 155 (3d Cir.2002). That case was vacated and reheard by the Court en banc, 305 F.3d 1256 (3d Cir.2002), which then dismissed the appeal as improvidently granted. 344 F.3d 334 (3d Cir.2003).

[3]Fed.R.Civ.P. 68 provides:

At any time more than 10 days before the trial begins, a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money or property or to the effect specified in the offer, with costs then accrued. If within 10 days after the service of the offer the adverse party serves written notice that the offer is accepted, either party may then file the offer and notice of acceptance together with proof of service thereof and thereupon the clerk shall enter judgment. An offer not accepted shall be deemed withdrawn and evidence thereof is not admissible except in a proceeding to determine costs. If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.

[4] The FDCPA sets a $1000 statutory limit on damages awarded in a private actions. 15 U.S.C. § 1692k(a). The statute also limits the amount of damages recoverable in a class action to the "lesser of $500,000 or 1 per centum of the net worth of the debt collector." § 1692k(a)(2)(B).

[5] We exercise plenary review over the District Court's dismissal of a complaint. Oran v. Stafford, 226 F.3d 275, 281 n. 2 (3d Cir.2000).

[6] Weiss does not allege any actual damages. Cf. Colbert, 344 F.3d 334 (3d Cir.2003) (en banc) (reversing order of dismissal because all relief requested in complaint not included in Fed.R.Civ.P. 68 offer).

[7] The language of the FDCPA provides that a debt collector who fails to comply with the Act shall be liable for an "amount." 15 U.S.C. § 1692k(a).

[8] As noted, most courts have found declaratory or equitable relief is not available to private litigants under the FDCPA. See, e.g., In re Risk Mgmt. Alternatives, Inc. Fair Debt Collection Practices Litig., 208 F.R.D. 493, 503 (S.D.N.Y.2002); Goldberg v. Winston & Morrone, 1997 WL 139526 (S.D.N.Y. Mar. 26, 1997), 1997 U.S. Dist. LEXIS 3521. Some courts have found declaratory relief is available to a certified class. See, e.g., Ballard v. Equifax Check Servs., 158 F.Supp.2d 1163, 1177 (E.D.Cal.2001) (allowing declaratory relief in a class action); Woodard v. Online Info. Servs., 191 F.R.D. 502, 507 (E.D.N.C.2000) (same); Gammon v. GC Servs. Ltd. P'ship, 162 F.R.D. 313, 319-20 (N.D.Ill.1995) (same).

[9] The legislative history of the Act also suggests two categories of penalties depending on who brings the action. See 95 S. Rep. 382, at 5 (discussing "civil liability" and "administrative enforcement" under separate subheadings); see also Zanni v. Lippold, 119 F.R.D. 32, 34 (C.D.Ill.1988) (relying on dual penalty schemes in legislative history of FDCPA to support conclusion that equitable relief is unavailable to private litigants).

[10]Section 16921 provides, in part:

Administrative enforcement (a) Federal Trade Commission. Compliance with this title shall be enforced by the Commission, except to the extent that enforcement of the requirements imposed under this title is specifically committed to another agency under subsection (b).... All of the functions and powers of the Commission under the Federal Trade Commission Act [15 USCS §§ 41 et seq.] are available to the Commission to enforce compliance by any person with this title....

[11] We also acknowledge Roper specifically limited its holding, stating: "Difficult questions arise as to what, if any, are the named plaintiffs' responsibilities to the putative class prior to certification; this case does not require us to reach these questions." 445 U.S. at 340 n. 12, 100 S.Ct. 1166 (emphasis in original).

[12] One court considering the identical issue to ours in a FDCPA class action commented: "The rationale animating the Court's determination [in Roper] ... speaks directly to the concerns present here." White v. OSI Collection Servs., Inc., 2001 WL 1590518 (E.D.N.Y. Nov. 5, 2001), 2001 U.S. Dist. LEXIS 19879, at *12.

[13] Courts have wrestled with the application of Rule 68 in the class action context, noting Rule 68 offers to individual named plaintiffs undercut close court supervision of class action settlements, create conflicts of interests for named plaintiffs, and encourage premature class certification motions. See Gibson v. Aman Collection Serv. Inc., 2001 WL 849525 (S.D.Ind. July 23, 2001), 2001 U.S. Dist. LEXIS 10669, at * 8 (recognizing conflict of interest posed by Rule 68 offer to lead plaintiff); Gay v. Waiters' and Dairy Lunchmen's Union, 86 F.R.D. 500, 502-03 (N.D.Cal.1980). Justice Brennan also discussed the conflict of interests facing named representatives presented with a Rule 68 offer in Marek v. Chesny,473 U.S. 1, 35 n. 49, 105 S.Ct. 3012, 87 L.Ed.2d 1 (1985) (Brennan, J., dissenting).

No express statement limits the application of Fed.R.Civ.P. 68 in class actions. Proposed amendments to make Rule 68 inapplicable to class actions were suggested in 1983 and 1984, and they were rejected both times. The proposals read in part: "[t]his rule shall not apply to class or derivative actions under Rules 23, 23.1, and 23.2." See 98 F.R.D. at 363, 102 F.R.D. at 433. In support of the proposals, the Advisory Committee wrote: "An offeree's rejection would burden a named representative-offeree with the risk of exposure to heavy liability [for costs and expenses] that could not be recouped from unnamed class members.... [This] could lead to a conflict of interest between the named representatives and other members of the class." Advisory Committee's Note to Proposed Amendment to Rule 68, 102 F.R.D. at 436. See also Roy D. Simon, Jr., The Riddle of Rule 68, 54 Geo. Wash. L.Rev. 1, 52 (1985) (discussing rule changes and rationale for rejecting changes).

The leading treatises recognize the tension between these two procedural rules. See, e.g., 12 Charles Alan Wright & Arthur R. Miller, Fed. Practice and Procedure § 3001.1, at 76 (2d ed. 1997) ("There is much force to the contention that, as a matter of policy [Rule 68] should not be employed in class actions."); 13 James William Moore et. al., Moore's Federal Practice ¶ 68.03[3], at 68-15 (3d ed.2004) ("policy and practicality considerations make application of the offer of judgment rule to class and derivative actions questionable."); 5 Newberg on Class Actions § 15.36, at 115 (4th ed.) ("[B]y denying the mandatory imposition of Rule 68 in class actions, class representatives will not be forced to abandon their litigation posture each time they are threatened with the possibility of incurring substantial costs for the sake of absent class members.").

[14]Class actions may be well-suited to the FDCPA, where an individual claimant's damages are capped at $1,000.

As one trial court commented: "The FDCPA caps individual statutory damages at $1,000, so no individual statutory damages claim is very large. Thus, it may be financially feasible for the defendant to buy off successive plaintiffs in the hopes of preventing class certification." White v. OSI Collection Servs. (E.D.N.Y. Nov. 5, 2001), 2001 U.S. Dist. LEXIS 19879, at *16 n. 7.

[15] Several courts have found that when a Fed.R.Civ.P. 68 offer of judgment for the entire individual claim follows closely on the heels of the filing of an FDCPA class complaint, the case should not be dismissed. See Nasca v. GC Servs., 2002 WL 31040647 (S.D.N.Y.2002), 2002 U.S. Dist. LEXIS 16992, at *9 ("To allow a Rule 68 offer to moot a named plaintiff's claim in these circumstances would encourage defendants to pick off named plaintiffs in the earliest stage of the case."); Schaake v. Risk Mgmt. Alternatives, Inc., 203 F.R.D. 108, 112 (S.D.N.Y.2001) ("Here, it is true no motion for class certification was pending at the time defendant made its Rule 68 Offer of Judgment. However, the complaint was filed on May 23 ... and the Rule 68 offer was made a mere 32 days later, well before plaintiff could be reasonably expected to file its class certification motion."); Liles v. Am. Corrective Counseling Servs., Inc.,201 F.R.D. 452, 455 (S.D.Iowa 2001).

As another approach, some courts have held a motion to certify the class filed within the Rule 68 ten-day offer period will avoid mootness. See Parker v. Risk Mgmt. Alternatives, Inc., 204 F.R.D. 113, 115 (N.D.Ill.2001) (claim not mooted where class certification motion filed before expiration of ten day period); Kremnitzer v. Cabrera & Rephen, P.C., 202 F.R.D. 239, 244 (N.D.Ill.2001) (same).

[16] One commentator addressed the problems encountered in Riverside, which are similar to those presented here. David Hill Koysza, Note, Preventing Defendants from Mooting Class Actions By Picking off Named Plaintiffs, 53 Duke L.J. 781, 804-805 (2003); see also 13 James William Moore, et al., Moore's Federal Practice § 68.03[3] (3d ed.2004) (advocating application of the relation back doctrine to problem of claims being "picked off").

[17] At least one case has explicitly applied the relation back doctrine to Rule 68 offers made before a class certification motion is filed. See White, 2001 U.S. Dist. LEXIS 19879, at *16 n. 7 ("[I]t may be financially feasible for the defendant to buy off successive plaintiffs in the hopes of preventing class certification. It is in this sense that plaintiff's claim is acutely susceptible to mootness, and thereby fairly characterized as transitory."); see also McDowall, 216 F.R.D. 46, 50 n. 4 (discussing relation back doctrine in reaching conclusion that FDCPA case not moot). As noted in footnote 12, several cases have declined to dismiss the class claims on mootness grounds even when the Rule 68 offer came before the filing of a motion for class certification, but these cases have not explicitly relied on the relation back doctrine.

[18] Fed.R.Civ.P. 23 directs that certification decisions be made "at an early practicable time." Fed.R.Civ.P. 23(c)(1)(a). This recent amendment replaced the language of the old rule: The former "`as soon as practicable' exaction neither reflect[ed] prevailing practice nor capture[ed] the many valid reasons that may justify deferring the initial certification decision." See Fed.R.Civ.P. 23(c)(1)(a) Advisory Committee Notes. Nor do local rules require or envision expedited certification decisions. SeeE. Dist. Pa. L.R.C.P. 23.1(c) (requiring the filing of the certification motion within 90 days after filing the complaint).

Allowing time for limited discovery supporting certification motions may also be necessary for sound judicial administration. See Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 166 (3d Cir.2001) ("[I]t may be necessary for the Court to probe behind the pleadings before coming to rest on the certification question.") (quoting Gen. Tel. Co. v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982)); 7B Wright and Miller, Fed. Practice and Procedure § 1785, at 107 ("The [certification] determination usually should be predicated on more information than the complaint itself affords.").

[19] Defendants made their Rule 68 offer six weeks after plaintiff filed his amended complaint.

[20] To hold otherwise would predictably result in a plaintiff who seeks class relief in a consumer representative action filing a motion for class certification at the time of filing the class complaint. As one trial court noted: "Hinging the outcome of this motion [to dismiss] on whether or not class certification has been filed is not well-supported in the law nor sound judicial practice; it would encourage a `race to pay off' named plaintiffs very early in the litigation, before they file motions for class certification." Liles v. Am. Corrective Counseling Servs., 201 F.R.D. 452, 455 (S.D.Iowa 2001).

[21] Our decision may also appear to create tension with Brown v. Phila. Hous. Auth., 350 F.3d 338 (3d Cir.2003), where we noted that "when claims of the named plaintiffs become moot before class certification, dismissal of the action is required." Id. at 343 (quoting Lusardi, 975 F.2d at 974). But, Brownis distinguishable on its facts.

In Brown, the housing authority and certain tenants entered into a consent decree in 1974. Id. No class was ever certified. Upon discovering that the named plaintiffs had not been tenants in 1974 nor in 2002, the housing authority moved in 2002 to vacate the original 1974 consent decree. The district court rejected this motion and the housing authority appealed to this court. We held that the consent decree should be vacated because appellees were not housing authority tenants at the entry of the consent decree in 1974 nor in 2002. In so doing, we rejected the appellees argument for "implied class certification." Id. at 343, 346. Therefore, lacking representative and individual interests, their claims were clearly moot. Furthermore, the tenants' claims in Brown were not mooted by purposive action of the housing authority but rather because they were not public housing tenants at the relevant times.

[22] Weiss also argues Fed.R.Civ.P. 23(e) requires court approval of the Rule 68 offer of judgment before dismissing the class complaint. Several courts, including our own, had concluded the supervisory guarantees of the former Rule 23(e) applied in the pre-certification context. See Kahan v. Rosenstiel,424 F.2d 161, 169 (3d Cir.1970) ("a suit brought as a class action should be treated as such for purposes of dismissal or compromise, until there is a full determination that the class action is not proper").

These holdings arguably have been superseded by the 2003 Amendments to the Federal Rules of Civil Procedure which provide that Fed.R.Civ.P. 23(e) approval is required only after a class has been certified. The rule was revised in 2003, to provide: "The court must approve any settlement, voluntary dismissal, or compromise of the claims, issues, or defenses of a certified class." Fed.R.Civ.P. 23(e)(1)(a) (emphasis added). The Advisory Committee Notes state the amendment was designed to remove ambiguity regarding the application of Rule 23(e) approvals at the pre-certification stage:

Rule 23(e)(1)(A) resolves the ambiguity in former Rule 23(e)'s reference to dismissal or compromise of a "class action." That language could be — and at times was — read to require court approval of settlements with putative class representatives that resolved only individual claims. The new rule requires approval only if the claims, issues, or defenses of a certified class are resolved by settlement, voluntary dismissal, or compromise.

2003 Advisory Committee Notes (emphasis added). Nevertheless, given our holding here, we need not address this argument.

Peter McCauley, New York, NY, Plaintiff-Appellant Pro Se.

Mark E. Kogan, Philadelphia, PA (Timothy P. Creech, Satzberg, Trichon, Kogan & Wertheimer, P.C., of counsel), for Defendant-Appellee.

Before OAKES, RAGGI and WESLEY, Circuit Judges.

OAKES, Senior Circuit Judge.

This pro se appeal raises the question whether a plaintiff's rejection of an offer of judgment under Fed.R.Civ.P. 68 moots the case so that entry of judgment in favor of the defendant is appropriate. The United State District Court for the Southern District of New York, Victor Marrero, Judge, dismissed this case as moot and entered judgment in favor of the defendant when the defendant's offer of judgment was refused. Because we find that the plaintiff's refusal did not, in and of itself, moot the case, we vacate the judgment and remand for entry of a default judgment in favor of the plaintiff.

The facts behind this appeal can be quickly summarized. In May 2002, Peter McCauley filed a complaint against Trans Union, a consumer reporting agency, alleging that Trans Union had negligently indicated on McCauley's credit report that he had two outstanding tax liens, thus temporarily preventing McCauley from securing a student loan with Sallie Mae Servicing Corporation ("Sallie Mae"). McCauley demanded damages in the amount of $240, which was the fee he incurred when, after he was refused a loan by Sallie Mae, he [341] charged over $8,000 in tuition to his credit card.

In June 2002, Trans Union filed an answer to McCauley's complaint, which denied all allegations and requested that the court dismiss McCauley's complaint with prejudice. In October 2002, Trans Union made an offer of judgment pursuant to Fed.R.Civ.P. 68^[1] for $240, plus costs to be determined by the court. The offer of judgment specified that it not be construed as an admission of liability and that it remain confidential and filed under seal.

In September 2003, Trans Union moved for summary judgment, arguing that it had offered McCauley the entire amount of compensatory damages he had sought, eliminating any "case or controversy" with respect to McCauley's claims. The district court granted the motion in part, and denied in part, finding that because there remained a possibility that McCauley could recover punitive damages at the time of the settlement offer, Trans Union's offer did not encompass everything McCauley could possibly have been entitled to recover from his claims. The court acknowledged, however, that punitive damages were no longer available to McCauley and concluded that "the only possible damages McCauley may still recover ... would be $240 along with the costs of the action. Were Trans Union now to make an identical Rule 68 offer of judgment that it made prior to filing this motion ... the Court would be compelled to dismiss the action if McCauley were to reject the offer."

Thereafter, Trans Union renewed its offer of $240 plus court costs to McCauley. Because McCauley refused to accept the offer, the court dismissed the case in December 2003, holding that the offer constituted everything McCauley would potentially recover through successful litigation. Judgment was entered in favor of Trans Union.

On appeal, McCauley argues that he is seeking not just his actual damages of $240 but, more importantly, the precedential value of a judgment against Trans Union, which is frustrated by the language in Trans Union's settlement offer requiring that the settlement be confidential and filed under seal. McCauley contends that he has a legal and cognizable interest in obtaining a judgment that is not confidential and sealed, and thus can be used as precedent in future matters. He also asserts that, even if the district court properly dismissed his claim, it erred in failing to enter a judgment of $240 plus costs against Trans Union.

We have held that the federal courts lack jurisdiction in a case because of mootness "when the parties lack a legally cognizable interest in the outcome." Fox v. Bd. of Trustees of State Univ. of New York, 42 F.3d 135, 140 (2d Cir.1994) (internal quotation omitted). It is clear that Trans Union's unwillingness to admit liability is insufficient, standing alone, to make this case a live controversy. See Abrams v. Interco, Inc., 719 F.2d 23, 33 n. 9 (2d Cir.1983) (plaintiff is not entitled to "pursue litigation in which he no longer has an interest merely because this could benefit others"). As explained by a sister circuit in discussing disclaimers of liability in Rule 68 settlement offers, "a party [cannot] force his opponent to confess to having violated the law, as it is always open to a defendant to default and suffer judgment to be entered against him without his admitting anything." Chathas v. Local 134 IBEW, 233 F.3d 508, 512 (7th Cir.2000). [342] The Chathas court went on to say, "if the defendant has thus thrown in the towel there is nothing left for the district court to do except enter judgment. The absence of a controversy in the constitutional sense precludes the court from issuing an opinion on whether the defendant actually violated the law." Id.

Although McCauley is not entitled to keep litigating his claim simply because Trans Union has not admitted liability, Chathas's language suggests that the district court's entry of judgment for Trans Union did not moot this case. In the absence of an obligation to pay McCauley the $240 in claimed damages, the controversy between McCauley and Trans Union is still alive. When Trans Union acknowledged that it owes McCauley $240, but offered the money with the requirement that the settlement be confidential, Trans Union made a conditional offer that McCauley was not obliged to take. Because judgment was then entered in Trans Union's favor, Trans Union was relieved of the obligation to pay the $240 it admittedly owes, and McCauley, by his refusal of a conditional settlement offer, wound up with nothing. We therefore cannot conclude that the rejected settlement offer, by itself, moots the case so as to warrant entry of judgment in favor of Trans Union.

Chathas points the way to a better resolution: entry of a default judgment against Trans Union for $240 plus reasonable costs. Such a judgment would remove any live controversy from this case and render it moot. Moreover, a default judgment would serve Trans Union's desire to end the case, would award McCauley his damages and, like the Rule 68 settlement offer, would have no preclusive effect in other litigation. Unlike the settlement offer, however, the default judgment would be a matter of public record, satisfying McCauley's desire that the case's disposition not be confidential. Although Trans Union sought to avoid this last result, a party engaged in litigation is not entitled to insist on confidentiality. See Gambale v. Deutsche Bank AG, 377 F.3d 133, 140 (2d Cir.2004) ("The public's stake in the propriety and particulars of the court's adjudication does not evaporate upon the parties' subsequent decision to settle.").

At oral argument, both parties agreed that entry of a default judgment would satisfactorily resolve this case. We have considered McCauley's arguments with respect to attorney's fees and find them to be without merit. We therefore vacate the judgment entered in favor of Trans Union and remand the case to the district court for the limited purpose of entering a default judgment in favor of McCauley for $240 plus such costs as the district court deems reasonable.

[1] Fed.R.Civ.P. 68 (2004) states that "a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against the defending party for the money ..., with costs then accrued."

[1047] MEMORANDUM AND ORDER

LEE H. ROSENTHAL, District Judge.

This is a consumer class action certified under Federal Rule of Civil Procedure 23(b)(3) for settlement. The class is large — over one hundred million payment-card^[1] holders — and dispersed across the country. Despite a vigorous notice campaign, only eleven valid claims have been filed. Damages are almost entirely in the form of cy pres payments to third-party nonprofit organizations whose work is related to class interests. This opinion addresses settlement-class certification, settlement approval, and attorneys' fees. As part of determining a reasonable fee award, the court discounts the value of the cy pres payments to reflect the fact that the benefit to the class is indirect.

In January 2009, Heartland Payment Systems, Inc. ("Heartland") publicly disclosed that hackers had breached its computer systems and obtained confidential payment-card information for over one hundred million consumers.^[2] Lawsuits were filed in state and federal courts across the country. The Judicial Panel on Multidistrict Litigation transferred the federal cases to this court under 28 U.S.C. § 1407. (Docket Entry No. 1). Payment-card holders filed individual lawsuits and class actions, claiming that Heartland had negligently failed to protect their personal financial information from disclosure. Financial institutions that issued cards also sued Heartland, claiming that the data breach caused them to incur damages, including the costs of canceling and replacing payment cards.^[3] The cases proceeded on two tracks, one for the "Financial Institution Plaintiffs" and one for the "Consumer Plaintiffs."

In December 2009, the Consumer Plaintiffs and Heartland reached a settlement agreement ("Agreement"). (Docket Entry No. 57). After a hearing, (Docket Entry No. 82), the court in April 2010 certified a nationwide settlement class and approved notice of the Agreement, (Docket Entry No. 85). After an extensive notice campaign, eleven valid claims for losses and one objection have been filed. The Consumer Plaintiffs have moved for final approval of the Agreement, for an award of attorneys' fees, and for incentive awards for certain plaintiffs. (Docket Entry No. [1048] 107). The Consumer Plaintiffs filed a supporting memorandum. (Docket Entry No. 108). Heartland filed a memorandum supporting the settlement but taking no position on the fees or incentive awards. (Docket Entry No. 109). The court held a final fairness hearing. (Docket Entry No. 110).

Based on the memoranda in support of the proposed Agreement, the one objection, the parties' arguments at the preliminary and final fairness hearings, the remainder of the record, and the relevant law, this court: (1) reviews its preliminary certification of the settlement class; (2) approves the proposed settlement; (3) approves attorneys' fees in the amount of $606,192.50; (4) approves costs in the amount of $35,000; and (5) denies the proposed incentive awards. The reasons are explained in detail below.

I. The Litigation and Proposed Settlement Agreement

A. Background

Heartland is a payment-card processor. It contracts with businesses to process their Visa and MasterCard transactions. The Consumer Plaintiffs are payment-card holders. The factual background can be briefly summarized:

Beginning at least as early as December 2007, three hackers — an American, Albert Gonzalez, and two unknown Russians — infiltrated Heartland's computer systems. The hackers installed programs that allowed them to capture some of the payment-card information stored on the Heartland computer systems. In late October 2008, Visa alerted Heartland to suspicious account activity. Heartland, with Visa and MasterCard and others, investigated. Heartland discovered suspicious files in its systems on January 12, 2009. A day later, Heartland uncovered the program creating those files. That program provided the hackers with access to data on the systems. On January 20, Heartland publicly announced the data breach. The hackers obtained payment-card numbers and expiration dates for approximately 130 million accounts. For some of these accounts, the hackers also obtained cardholder names. They did not obtain any cardholder addresses, however, which meant that the stolen card information generally could be used only for in-person transactions.

Heartland II, 834 F.Supp.2d at 575, 2011 WL 6012598, at *2 (internal citations omitted).

The Consumer Plaintiffs' suits assert claims for negligence, breach of contract, various state statutory violations, and violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (Docket Entry No. 3). Aside from motions relating to appointing class counsel, the only motions filed in the Consumer Plaintiffs track were unopposed motions for extensions of time to file the master complaint. (Docket Entry Nos. 31, 53). The master complaint was to be filed by December 18, 2009. (Docket Entry No. 55). On that date, and before the Consumer Plaintiffs had filed a master complaint, the parties submitted the proposed settlement. (Docket Entry No. 57). No formal discovery occurred. Instead, the parties engaged in what Heartland's counsel termed "confirmatory discovery." Heartland gave counsel for the Consumer Plaintiffs over 4,000 pages relating to the data breach and allowed counsel to interview Heartland's Chief Technology Officer. (Docket Entry No. 111, at 9-10).

B. The Proposed Settlement Agreement

The proposed settlement binds "all Persons in the United States who had or have a payment card that was used in the United [1049] States between and including December 26, 2007 and December 31, 2008 (the `Settlement Class Period'), and who allege or may allege that they have suffered and of the Losses defined herein." (Docket Entry No. 57, ¶ 1.20). The settlement excludes "Heartland and its officers and directors, and those Persons who timely and validly request exclusion from the Settlement Class." (Id.) By remaining in the class, each member gives up the right to bring any action "stemming from the Heartland Intrusion" against Heartland, KeyBank National Association, Heartland Bank, and any "Related Parties"^[4] of those three entities. (See id., ¶¶ 1.16-.18).

Within ten days after preliminary court approval, Heartland had to deposit $1 million into an interest-bearing escrow account. That sum was to "be used to reimburse Settlement Class Members who are determined to have submitted Valid Claims[.]" (Id., ¶ 2.1). If the valid claims exceeded $1 million, Heartland had to deposit into the account an additional $500,000; if that was exhausted, another $500,000; and finally an additional $400,000. (Id., ¶ 2. 1(a)). Heartland had to deposit at least $1 million and at most $2.4 million to fund the settlement. If any unpaid balance remained on the initial $1 million (and interest) after all valid claims were paid, that balance was to "be transferred to a non-profit organization(s) dedicated to the protection of consumers' privacy rights, with emphasis on advancing the implementation of end-to-end encryption of payment card authorization transactions or similar security enhancements." (Id., ¶ 2. 1(b)).^[5]

Under the Agreement, "[a] Valid Claim shall consist of only those `Losses' ... that a Settlement Class Member ... proves by a preponderance of the evidence (i.e., more likely than not to be true), to have directly and proximately resulted from information relative to an Eligible Payment Card Account of such Settlement Class Member having been stolen or placed at risk as a result of the Heartland Intrusion[.]" (Id., ¶ 2.2). The Agreement defines four categories of "Losses": (1) out-of-pocket expenses from card cancellations or replacements; (2) out-of-pocket expenses from unauthorized and unreimbursed account charges; (3) out-of-pocket expenses from identity theft; and (4) "a reasonable amount for time (calculated at $10 per hour up to five (5) hours)" spent on these three types of losses. (Id., ¶ 2.2(b)). "Losses" specifically exclude "credit monitoring or insurance costs incurred by Settlement Class Members, attorneys' fees, attorneys' costs or attorneys' expenses incurred by Settlement Class Members, or losses resulting from any information having been stolen or placed at risk of being stolen from an entity other than from Heartland." (Id.).

The Agreement also creates a claims process. (Id., ¶¶ 2.2(c)-(d)). Any claim must be submitted by August 1, 2011. (Id., ¶ 2.2(c)). Reimbursement is capped at $175 for any valid claim not involving identity theft and at $10,000 for any valid identity-theft claims. Each household is limited to two valid claims. (Id., ¶ 2.2(b)).

The Agreement requires Heartland to pay, "subject to Court approval," up to $725,000 for attorneys' fees and up to [1050] $35,000 for attorneys' costs and expenses. (Id., ¶ 7.2). It also requires Heartland to pay, again "subject to Court approval," incentive awards of $200 to each Representative Consumer Plaintiff and $100 to all other Named Plaintiffs. The Agreement includes the following disclaimer:

The Settling Parties did not discuss attorneys' fees, costs, and expenses, or incentive awards to Representative Consumer Plaintiffs and Named Plaintiffs, as provided for in ¶¶ 7.2 and 7.3, until after the substantive terms of the settlement had been agreed upon, other than that Heartland would pay reasonable attorneys' fees, costs, and expenses, and incentive awards to Representative Consumer Plaintiffs and named Plaintiffs as may be agreed to by Heartland and Co-Lead Settlement Class Counsel, and/or as ordered by the Court, or, in the event of no Agreement, then as ordered by the Court. Heartland and Co-Lead Settlement Class Counsel then negotiated and agreed [to these provisions.]

(Id., ¶ 7.1).

The Agreement explains how class members may object, (id., ¶ 5.1), and how they may opt out of the class, (id., ¶¶ 4.1-.2).

C. The Record

After the first fairness hearing, (Docket Entry No. 82), the court preliminarily certified the settlement class and approved class notice. (Docket Entry No. 85). According to Cameron Anzari, the Director of Notice for Hilsoft Notifications, the court-appointed company tasked with helping write the notices and designing and carrying out the notice campaign, the notices "reached at least 81.4% of potential Settlement Class Members an estimated 2.5 times through a combination of notice placements in newspaper supplements, consumer magazines and on selected websites." (Docket Entry No. 106, ¶ 6(a)).

One class member, Michael Kostka, filed a pro se objection. He appears to suggest that the data breach did not actually harm most consumers in the class, making the settlement unfair to Heartland. (Docket Entry No. 100).

The Consumer Plaintiffs moved for final court approval of the settlement, fees, costs and expenses, and incentive awards. (Docket Entry No. 107). Under Federal Rule of Civil Procedure 23(e), this court held a final fairness hearing on the Agreement on December 13, 2010. (Docket Entry No. 110). Heartland advised that as of December 9, class members had filed 290 claims. Heartland estimated that perhaps 11 of those claims were valid. (Docket Entry No. 111, at 6). Counsel for the Consumer Plaintiffs did not disagree with this estimate.^[6] Almost all of the $1 million Heartland committed to deposit in the settlement fund would be transferred to the designated nonprofit organizations under the Agreement's cy pres provision. (Id., at 4-5, 17). The parties had agreed to divide the cy pres funds evenly among three nonprofit organizations: Smart Card Alliance, which promotes the use of chip-and-pin technology^[7] in payment cards; the Secure POS Vendor Alliance, which promotes the implementation of end-to-end encryption and other security measures for payment cards; and the Financial Services Information Sharing Analysis Center, which notifies financial institutions [1051] about data intrusions and how to prevent them. (Id., at 17-22).

After the final fairness hearing, the Consumer Plaintiffs filed detailed reports showing their attorneys' time, costs, and expenses for this case. (Docket Entry No. 113). Heartland filed an affidavit explaining its previous contributions to the three organizations proposed as recipients of the cy pres payments. (Docket Entry No. 114). This affidavit also explained that any cy pres funds paid to these organizations would be in addition to Heartland's normal annual contributions to them. (Id., ¶ 4).

Class certification, settlement approval, and the fee and incentive awards are each analyzed below.

II. Class Certification

The Consumer Plaintiffs previously moved to certify a settlement class. (Docket Entry No. 75). The proposed class consisted of:

all persons in the United States who had or have a payment card that was used in the United States between and including December 26, 2007 and December 31, 2008 (the "Settlement Class Period"), and who allege or may allege that they have suffered any of the Losses defined herein. Excluded from the definition of Settlement Class are Heartland and its officers and directors, and those Persons who timely and validly request exclusion from the Settlement Class.

(Docket Entry No. 75, ¶ 7 (quoting Docket Entry No. 57, ¶ 1.20)). After the preliminary fairness hearing, this court certified the class, noting that the evidence received at the final fairness hearing still had to be considered. (Docket Entry No. 85, ¶ 4). Reviewing the certification on the basis of all the parties' submissions and the final fairness hearing is appropriate.

Class certification requires a "rigorous analysis of Rule 23 prerequisites." Madison v. Chalmette Ref., L.L.C., 637 F.3d 551, 554 (5th Cir.2011) (internal quotation marks omitted) (citing Gen. Tel. Co. v. Falcon, 457 U.S. 147, 161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982)). The rigor required does not diminish in the settlement-class context. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). A district court may not "substitut[e] the fairness inquiry of Rule 23(e) for the certification requirements of Rule 23(a) and (b)." Thomas v. Albright, 139 F.3d 227, 235 (D.C.Cir.1998) (discussing Amchem). "[T]he party seeking certification [] bears the burden of establishing that the requirements of Rule 23 have been met." Madison, 637 F.3d at 554-55 (internal quotation marks omitted). But "[t]he fact that a settlement has been reached is, of course, relevant." Smith v. Sprint Commc'ns. Co., 387 F.3d 612, 614 (7th Cir.2004). A court need not determine under Rule 23(b)(3)(D) whether the proposed settlement class action would be manageable for trial. Amchem, 521 U.S. at 620, 117 S.Ct. 2231.

The class-certification analysis may require consideration of the suit's underlying merits. Wal-Mart Stores, Inc. v. Dukes, ___ U.S. ___, 131 S.Ct. 2541, 2551-52, 180 L.Ed.2d 374 (2011).^[8] A merits inquiry must be "limited to those aspects relevant to making the certification decision on an informed basis." Sullivan v. DB Invs., Inc., 667 F.3d 273, 305 (3d Cir.2011) (en banc) (quoting FED. R. CIV. P. 23 Committee Notes (2003)); see also Taylor v. United [1052] Parcel Serv., Inc., 554 F.3d 510, 520 (5th Cir.2008) (discussing the "limited inquiry" into the merits).

The Fifth Circuit has indicated that the preponderance standard applies to the Rule 23 determination. See Alaska Elec. Pension Fund v. Flowserve Corp., 572 F.3d 221, 228-29 (5th Cir.2009) (per curiam). The Second and Third Circuits require the party seeking class certification to satisfy each Rule 23 requirement by a preponderance of the evidence. See Novella v. Westchester Cnty., 661 F.3d 128, 148-49 (2d Cir.2011) (citing In re Initial Pub. Offerings Securities Litig., 471 F.3d 24, 41 (2d Cir.2006)); Gates v. Rohm & Haas Co., 655 F.3d 255, 262 (3d Cir.2011) (citing In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 320 (3d Cir.2008)). Other circuits state the standard less clearly. See, e.g., DG ex rel. Stricklin v. Devaughn, 594 F.3d 1188, 1194 (10th Cir. 2010) ("The party seeking class certification bears the burden of proving Rule 23's requirements are satisfied."). In this case, the Consumer Plaintiffs have met their burden of establishing the Rule 23 requirements by a preponderance of the evidence.

A. Rule 23(a)

Any proposed class must meet four requirements:

(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.

FED. R. CIV. P. 23(a). These requirements "effectively limit the class claims to those fairly encompassed by the named plaintiff's claims." Dukes, 131 S.Ct. at 2550 (internal quotation marks omitted).

1. Numerosity

The proposed class encompasses at least one hundred million individuals, spread throughout the United States. The numerosity requirement is satisfied.

2. Commonality

Under previous Fifth Circuit precedent, commonality required "one common question of law or fact" to the class. James v. City of Dallas, Tex., 254 F.3d 551, 570 (5th Cir.2001). In Wal-Mart Stores v. Dukes, the Supreme Court held that the mere "raising of common `questions' of law or fact" is no longer sufficient. 131 S.Ct. at 2551 (quoting Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. REV. 97, 132 (2009)). The Dukes Court explained that commonality requires classwide proceedings to have the ability "to generate common answers apt to drive the resolution of the litigation." Id. (quoting Nagareda, Class Certification, 84 N.Y.U. L. REV. 97, 132 (emphasis in original)); see also AMERICAN LAW INSTITUTE, PRINCIPLES OF THE LAW OF AGGREGATE LITIGATION § 2.02 cmt. a (2010) ["AGGREGATE LITIGATION"] (stating that "courts should consider whether aggregate treatment of a common issue by way of a class action will materially advance the resolution of multiple civil claims by addressing the core of the dispute in a manner superior to other realistic procedural alternatives such that aggregate treatment would generate significant judicial efficiencies").

Dukes does not require that all questions of law and fact be common, Ellis, 657 F.3d at 981, or that each class member have "suffered a violation of the same provision of law," Dukes, 131 S.Ct. at 2551. Instead, "[t]heir claims must depend upon a common contention .... That common contention, moreover, must be of such a nature that it is capable of classwide resolution — which means that determination of [1053] its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." Id. Commonality "is informed by the defendant's conduct as to all class members and any resulting injuries common to all class members[.]" Sullivan, 667 F.3d at 297. "The focus in the settlement context should be on the conduct (or misconduct) of the defendant and the injury suffered as a consequence." Id. at 335 (Scirica, J., concurring).

Applying Dukes, two recent circuit cases have found commonality satisfied. In Sullivan v. DB Investments, plaintiffs filed class actions alleging that De Beers, "the dominant participant in the wholesale market for gem-quality diamonds throughout much of the twentieth century," had "exploited its market dominance to artificially inflate the prices of rough diamonds." Id. at 286 (majority opinion). These class-action lawsuits alleged that De Beers's conduct violated state and federal antitrust law and state consumer-protection statutes, and constituted unjust enrichment, unfair business practices, and false advertising under state law. The suits were transferred under MDL for pretrial management. The plaintiffs fell into two categories: those who bought directly from De Beers or a De Beers competitor, and those who purchased diamonds from a direct purchaser (such as consumers). De Beers reached settlements with both the direct- and indirect-purchasers classes. Id. at 286-88. The district court, over substantial objections, certified the nationwide classes for settlement and approved the settlement. Id. at 290-91. On appeal, the Third Circuit reversed based on the fact that some of the states precluded any recovery for indirect purchasers, who nonetheless would recover under the settlement. The class successfully sought en banc rehearing. The main question before the en banc court was whether these state-law variations precluded finding predominance. A subsidiary issue was whether the proposed classes could demonstrate commonality. The en banc court addressed commonality and predominance together because, under Third Circuit precedent, "the Rule 23(a) commonality requirement [is] incorporated into the more stringent Rule 23(b)(3) predominance requirement[.]" Id. at 297 (internal quotation marks omitted). The court found both. The classes shared common questions of fact: whether De Beers engaged in anticompetitive activity, and whether that activity resulted in artificially inflated diamond prices. "These allegations are unaffected by the particularized conduct of individual class members, as proof of liability and liability itself would depend entirely upon De Beers's allegedly anticompetitive activities." Id. at 300. The classes also shared common questions of law: whether De Beers's anticompetitive activity violated federal and state antitrust law. Id. at 300 & n. 23. "Evidence for this legal question would entail generalized common proof as to the implementation of De Beers's conspiracy, the form of the conspiracy, and the duration and extent of the conspiracy." Id. at 300 (internal quotation marks and alteration omitted). These questions, according to the en banc court, satisfied the Dukes mandate that the common questions result in common answers. "[T]he answers to questions about De Beers's alleged misconduct and the harm it caused would be common as to all of the class members, and would thus inform the resolution of the litigation if it were not being settled." Id. at 299-300.

In Ross v. RBS Citizens, N.A., 667 F.3d 900 (7th Cir.2012), a proposed class of over 1,000 current and former employees of Charter One, which operated over 100 banks in Illinois, alleged that the bank maintained an unofficial policy of denying overtime pay to its employees. The class asserted violations of the Fair Labor Standards Act and the Illinois Minimum Wage Law. Id. at 902-03. The district court [1054] certified the class for trial. Id. at 903. In finding that the class had demonstrated commonality, the Seventh Circuit distinguished Dukes because Ross involved a central, if unofficial, policy of denying employees' overtime pay. "This unofficial policy is the common answer that potentially drives the resolution of this litigation." Id. (citing Dukes, 131 S.Ct. at 2551); see also McReynolds v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 672 F.3d 482, 489-91 (7th Cir.2012) (holding that commonality was satisfied by the questions of whether Merrill Lynch's companywide "teaming" and account-distribution policies violated Title VII's prohibition on disparate-impact employment discrimination and distinguishing these policies from the policy of conferring discretion on each store's manager at issue in Dukes).

This case is more similar to Sullivan, Ross, and McReynolds than to Dukes. The common factual question in this case is what actions Heartland took before, during, and after the data breach to safeguard the Consumer Plaintiffs' financial information. As in Sullivan, "the answers to questions about [Heartland]'s alleged misconduct and the harm it caused would be common as to all of the class members, and would thus inform the resolution of the litigation if it were not being settled." 667 F.3d at 299-300; see also Ross, 667 F.3d at 908 ("To satisfy the commonality element, it is enough for plaintiffs to present just one common claim."). Questions of law common to all class members include whether Heartland's actions violated the Fair Credit Reporting Act.^[9] Answering the factual and legal questions about Heartland's conduct will assist in reaching classwide resolution. Commonality is satisfied under the Dukes standard.

3. Typicality

This element of Rule 23(a) "requires that the named representatives' claims be typical of those of the class." Langbecker v. Elec. Data Sys. Corp., 476 F.3d 299, 314 (5th Cir.2007). Typicality, according to the Fifth Circuit,

does not require a complete identity of claims. Rather, the critical inquiry is whether the class representative's claims have the same essential characteristics of those of the putative class. If the claims arise from a similar course of conduct and share the same legal theory, factual differences will not defeat typicality.

James, 254 F.3d at 571 (quoting 5 JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE ¶ 23.24[4] (3d ed. 2000)).

The representative plaintiffs' Fair Credit Reporting Act claim is typical of the class claim. Whether Heartland's conduct violated the Act is common throughout the class. Because this claim revolves around Heartland's conduct, as opposed to the characteristics of a particular class member's claim, no individualized proof will be necessary to determine Heartland's liability under the Act.

The state-law claims also meet the typicality requirement. Although the parties did not present information about the applicable laws of the fifty states and the District of Columbia, presumably variations exist among them. District courts are divided as to when variations in state law in a multistate class action defeat typicality.^[10] In Stirman, the Fifth Circuit [1055] held that significant variations in state law may preclude a finding of typicality. "Given the differences among the state laws, it cannot be said that [the class representative]'s claims are `typical' of the [multistate] class as it is currently defined[.]" Stirman v. Exxon Corp., 280 F.3d at 554, 562 (5th Cir.2002). The variations in Stirman were similar to those in Sullivan: certain states did not recognize the claim that the class representatives asserted. See id. Such claim-dispositive variations are readily distinguishable from such differences as dissimilarities in specific claim elements that must be proven at trial, or differences in burdens of proof. As in Overka, the state-law claims that the Consumer Plaintiffs assert in this case — negligence, breach of contract, and violations of state consumer-protection laws — "are recognized in some form in all jurisdictions and therefore available for all [class members.]" 265 F.R.D. at 18-19. Despite possible state-by-state variations in the elements of these claims, they arise from a single course of conduct by Heartland and a single set of legal theories. James, 254 F.3d at 571; see also Norwood v. Raytheon Co., 237 F.R.D. 581, 588 (W.D.Tex. 2006) (finding typicality met because "general causation and general negligence do not depend on the nature of individual class members' claims").

The typicality requirement of Rule 23(a) is satisfied.

4. Adequate Representation

"To meet Rule 23 requirements [for adequate representation], the court must find that class representatives, their counsel, and the relationship between the two are adequate to protect the interests of absent class members." linger v. Amedisys Inc., 401 F.3d 316, 321 (5th Cir. 2005). Counsel must be both competent and zealous in representing class interests. See, e.g., Feder v. Elec. Data Sys. Corp., 429 F.3d 125, 130 (5th Cir.2005). Class representatives "must satisfy the court that they, and not counsel, are directing the litigation. To do this, class representatives must show themselves sufficiently informed about the litigation to manage the litigation effort." Unger, 401 F.3d at 321. Finally, "the Rule 23 adequacy inquiry also uncovers conflicts of interest between the named plaintiffs and the class they seek to represent." Langbecker, 476 F.3d at 314 (internal quotation marks omitted); accord Amchem, 521 U.S. at 625, 117 S.Ct. 2231. "[I]ntraclass conflicts may negate adequacy under Rule 23(a)(4)." Langbecker, 476 F.3d at 315. According to the Third Circuit, adequacy of representation is the most important single factor in determining whether to certify a settlement class. See In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions, 148 F.3d 283, 308 (3d Cir.1998) ("Indeed, the key to Amchem appears to be the careful inquiry into adequacy of representatives.").

The dual requirements of class counsel's competence and zeal are satisfied here. The three co-lead class counsel — Ben Barnow, Lance Harke, and Burton Finkelstein — each have extensive experience representing consumers, and other plaintiff classes, in class-action litigation. (See Docket Entry No. 9, Ex. A). Barnow and Finkelstein, in particular, also have [1056] experience representing consumer classes in similar data-breach cases. (See id.) The liaison counsel for the class, Harold Gold, also has significant experience serving as plaintiffs' counsel in class-action and multidistrict litigation. (See id., Ex. B). Class counsel have been vigorous in representing the class, as demonstrated by their successful negotiation of a settlement with Heartland, which initially was reluctant to settle. (See Docket Entry No. 87, at 27-28).

Analyzing adequacy of the class representatives focuses on whether there are intraclass conflicts between the class representatives and those they seek to represent. See Langbecker, 476 F.3d at 314. A class representative must "possess the same interest and suffer the same injury as the class members." Amchem, 521 U.S. at 625-26, 117 S.Ct. 2231 (internal quotation marks omitted). The class representatives have the same interests, and assert the same type of injury, as the members they seek to represent. Neither Heartland nor any objector has raised any fundamental intraclass conflict, and the record discloses none. The definition of compensable "Losses" in the Agreement reduces differences in damages among class members and between the representatives and absent members.

Adequacy also implicates the class representatives' involvement in the litigation. In Unger, a securities class action, the Fifth Circuit stated that adequate representation requires the class representatives to "show themselves sufficiently informed about the litigation to manage the effort," given that they — not class counsel — must "direct[] the litigation." 401 F.3d at 321. The Unger court cited Berger v. Compaq Computer Corp., 257 F.3d 475, 482 (5th Cir.2001), another securities class action. The Ninth Circuit has limited the so-called Berger requirement to securities cases. See In re Cavanaugh, 306 F.3d 726, 736-37 (9th Cir.2002); see also 1 WILLIAM B. RUBENSTEIN ET AL., NEWBERG ON CLASS ACTIONS § 3.52 & n. 15 (5th ed. 2011); 29A EDWARD K. ESPING ET AL., FEDERAL PROCEDURE, LAWYERS' EDITION § 70:374 (2012). The Fifth Circuit has not similarly limited Berger.^[11] In another securities case, the Fifth Circuit interpreted Berger as "identif[ying] a generic standard for the adequacy requirement[.]" Feder, 429 F.3d at 129 (internal quotation marks omitted). The Eleventh Circuit agrees that this is a "generic standard." See London v. Wal-Mart Stores, Inc., 340 F.3d 1246, 1254 n. 3 (11th Cir.2003).

Nonetheless, Berger's "generic standard" has not been applied in the Fifth Circuit outside the securities context. Although some district courts in the circuit have extended it beyond the securities cases, see Ogden v. AmeriCredit Corp., 225 F.R.D. 529, 532 n. 2 (N.D.Tex.2005) (discussing the Berger requirement's applicability outside the securities context and citing cases), courts have not extended the Berger requirement to a negative-value consumer class action such as this case.^[12] [1057] Courts outside this circuit do not demand Berger's knowledge-and-direction requirement for consumer class actions such as this suit, instead focusing on the more traditional aspects of adequacy: ensuring no intraclass conflicts and class counsel's adequacy.^[13] "Class counsel owe a fiduciary obligation of particular significance to their clients when the class members are consumers, who ordinarily lack both the monetary stake and the sophistication in legal and commercial matters that would motivate and enable them to monitor the efforts of class counsel on their behalf." Creative Montessori Learning Ctrs. v. Ashford Gear LLC, 662 F.3d 913, 917 (7th Cir.2011) (Posner, J.); see also generally In re Cmty. Bank of N. Va., 622 F.3d 275, 292 (3d Cir.2010); Pelt v. Utah, 539 F.3d 1271, 1288 (10th Cir.2008).

As is true in many consumer-class actions comprised of negative-value individual claims, no single class member here has a sufficient stake to be closely involved in the litigation. See Creative Montessori, 662 F.3d at 917. Given the minimal individual stakes, Heartland's general denial of wrongdoing, and the complexities of crafting a class-action settlement, individual class members cannot plausibly be expected to have significant involvement. Far more important to the determination of adequacy than the submission of perfunctory declarations or brief deposition testimony are whether class counsel can adequately represent the class (yes), and whether any intraclass conflicts make the class representatives inadequate representatives of the class (no). Given the nature of this case, the record as to class counsel, and the absence of intraclass conflicts, there is no basis to find inadequate representation merely because the Consumer Plaintiffs have not submitted evidence on the class representatives' involvement in the litigation and the settlement.

B. Rule 23(b)(3)

In addition to satisfying the Rule 23(a) requirements, "[t]he proposed class must also satisfy the requirements of Rule 23(b)(1), (2), or (3)." In re Wilborn, 609 F.3d 748, 755 (5th Cir.2010). Under (b)(3), the Consumer Plaintiffs must establish that "questions of law or fact common to class members predominate over any questions [1058] affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." FED. R. CIV. P. 23(b)(3).

1. Predominance

"The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Amchem, 521 U.S. at 623, 117 S.Ct. 2231; cf. AGGREGATE LITIGATION § 3.06 cmt. a ("So long as there is sufficient commonality to establish that the class is generally cohesive, the propriety of a settlement need not depend on satisfaction of a `predominance' requirement."). The Fifth Circuit recently compared this inquiry to the commonality question;

The question of predominance is more demanding than the Rule 23(a) requirement of commonality. It requires the court to assess how the matter will be tried on the merits, which entails identifying the substantive issues that will control the outcome, assessing which issues will predominate, and then determining whether the issues are common to the class.

Wilborn, 609 F.3d at 755 (internal quotation marks, footnotes, and citation omitted).

A threshold issue is whether variations in state law "swamp any common issues and defeat predominance." Cole v. Gen. Motors Corp., 484 F.3d 717, 724 (5th Cir.2007) (internal quotation marks omitted). A district court's "[f]ailure to engage in an analysis of state law variations is grounds for decertification." Id.; cf. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir.1998) ("Variations in state law do not necessarily preclude a 23(b)(3) action, but class counsel should be prepared to demonstrate the commonality of substantive law applicable to all class members." (citing Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 821-23, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985))). "[V]ariations in state law do not necessarily defeat predominance[.]" Sullivan, 667 F.3d at 297. In Sullivan, the question before the en banc Third Circuit was whether variations in state law that kept class members in certain states from recovering on the class claims defeated predominance. The original panel held that the case could not be certified for settlement because such variations in the applicable law meant that the claim did "not give rise to a legal right to recovery in all of the jurisdictions implicated by a nationwide class." Sullivan v. DB Invs., Inc., 613 F.3d 134, 151 (3d Cir.2010). On rehearing, the en banc court explained that predominance was nonetheless satisfied. The fact that the Sullivan class was certified for settlement, rather than litigation, was "a particularly important point[.]" 667 F.3d at 303. The en banc majority found that those objecting to the predominance conclusion "seem to conflate the predicate predominance analysis for certification of a settlement class with that required for certification of a litigation class, relying exclusively upon cases implicating the manageability obstacles inherent in class litigation." Id.

One of the cases cited was the Fifth Circuit's decision in Cole, a nationwide class action arising from General Motors's voluntary recall of certain models due to airbag defects. Three affected owners sued the auto manufacturer for breach of express and implied warranties and sought to represent everyone in the nation who owned a recalled model. 484 F.3d at 718-20. General Motors argued that the state-law variations on reliance and recovery for a latent defect defeated predominance. Id. at 725. The Fifth Circuit agreed that the class could not be certified for the purpose of litigation:

[M]any of the variations in state law raise the potential for the application of multiple and diverse legal standards and [1059] a related need for multiple jury instructions. For some issues, variations in state law also multiply the individualized factual determinations that the court would be required to undertake in individualized hearings.

Id. at 726. The Fifth Circuit decertified the class. The en banc court in Sullivan emphasized that because the certification was for settlement only, unlike in Cole, "the concern for manageability that is a central tenet of a litigation class is removed from the equation." 667 F.3d at 302. The Sullivan court continued:

Because we are presented with a settlement class certification, "we are not as concerned with formulating some prediction as to how [variances in state law] would play out at trial, for the proposal is that there be no trial." [In re] Ins. Broker. [Antitrust Litig.], 579 F.3d [241] at 269 [(3d Cir.2009)] (internal citations & quotations omitted).... Accordingly,... state law variations are largely "irrelevant to certification of a settlement class," [In re] Warfarin [Sodium Antitrust Litig.], 391 F.3d [516] at 529 [(3d Cir.2004)].

Id. at 303-04 (internal footnotes omitted). The court conceded that there may be some cases in which "variations in state laws are so significant so as to defeat commonality and predominance even in a settlement class action[.]" Id. at 304 n. 30 (internal quotation marks omitted). But when "the several common questions of law or fact aris[e] from a single central issue — namely, De Beers's alleged anticompetitive conduct and the resulting injury caused to each class member" — common issues clearly predominated over individual issues. Id. (internal quotation marks omitted).

The present case is more like Sullivan than Cole, but the certification issue is much easier here than it was in Sullivan. Like Sullivan, this class is certified for settlement. Unlike Sullivan, in which numerous members objected, this proposed settlement drew only one objector. Also unlike Sullivan, any state-law variations here do not approach the level of precluding the ability of class members in certain states even to state a claim. Instead, any variations that might be present are well within the range of those affecting only trial manageability. When "[c]onfronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems" — such as the need to present differing proof state-by-state or for the court to formulate differing jury instructions state-by-state — "for the proposal is that there be no trial." Amchem, 521 U.S. at 620, 117 S.Ct. 2231.

As in Sullivan, this case presents several common questions of law and fact arising from a central issue: Heartland's conduct before, during, and following the data breach, and the resulting injury to each class member from that conduct. Given the settlement posture of this case and the Fair Credit Reporting Act claim, the common questions predominate over individual issues.

2. Superiority

Superiority examines whether a class action is a better vehicle for resolving a case than other possible methods, such as individual litigation or consolidation. The Rule lists four nonexhaustive factors relevant to superiority:

(A) the class members' interest in individually controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;

(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and

[1060] (D) the likely difficulties in managing a class action.

FED. R. CIV. P. 23(b)(3). Under Amchem, this fourth factor may be disregarded in a proposed settlement-only class. 521 U.S. at 620, 117 S.Ct. 2231.

The predominance and superiority inquiries are closely related. See Sacred Heart Health Sys., Inc. v. Humana Military Healthcare Servs., Inc., 601 F.3d 1159, 1184 (11th Cir.2010). "The most compelling rationale for finding superiority in a class action" is "the existence of a negative value suit[.]" Castano v. Am. Tobacco Co., 84 F.3d 734, 748 (5th Cir. 1996). The finding that common issues of law and fact predominate over individual issues, and the fact that this suit is a consumer class action comprised of negative-value suits, are important. Superiority is satisfied.

C. Conclusion as to Rule 23 Requirements

The proposed class meets the Rule 23 requirements for certification as a settlement-only class action. The motion for class certification, for the purpose of settlement, is granted.

III. Settlement Review

Federal Rule of Civil Procedure 23(e) requires court approval of a class settlement and establishes certain procedures:

(1) The court must direct notice in a reasonable manner to all class members who would be bound by the proposal.

(2) If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate.

(3) The parties seeking approval must file a statement identifying any agreement made in connection with the proposal.

(4) If the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so.

(5) Any class member may object to the proposal if it requires court approval under this subdivision (e); the objection may be withdrawn only with the court's approval.

FED. R. CIV. P. 23(e). The court addresses each of these five requirements, with the (e)(2) fairness requirement discussed last.

A. Notice

"There are no rigid rules to determine whether a settlement notice satisfies constitutional or Rule 23(e) requirements[.]" Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 114 (2d Cir.2005). Instead, "a settlement notice need only satisfy the broad reasonableness standards imposed by due process." In re Katrina Canal Breaches Litig., 628 F.3d 185, 197 (5th Cir.2010) (internal quotation marks omitted). Due process is satisfied if the notice provides class members with the "information reasonably necessary for them to make a decision whether to object to the settlement." Id.; see also Wal-Mart Stores, 396 F.3d at 114 (explaining that "the settlement notice must fairly apprise the prospective members of the class of the terms of the proposed settlement and of the options that are open to them in connection with the proceedings" (internal quotation marks omitted)); AGGREGATE LITIGATION § 3.04(a) ("The purpose of a notice of a proposed class settlement is to set forth the major contours of the proposal and to inform class members of their right to attend the fairness hearing and to lodge written objections by a prescribed date should they so desire.").

In moving for preliminary approval of the settlement, the Consumer Plaintiffs submitted proposed summary and detailed notices. (Docket Entry No. 76, Ex. 4). [1061] They also submitted the affidavit of Cameron Azari, the Director of Noticing for Hilsoft Notifications, a company that specializes in class-action notices with extensive experience in court-directed notice plans, (Docket Entry No. 76, Azari Aff.); Hilsoft's curriculum vitae, (Docket Entry No. 76, Ex. 1); Hilsoft's summary of the notice plan, (Docket Entry No. 76, Ex. 2); and a list of newspapers in which the notice would appear, (id., Attach. B). After a preliminary fairness hearing, (Docket Entry No. 82), the court approved the proposed notice and notice plan as "the best notice practicable under the circumstances[.]" (Docket Entry No. 85, ¶ 12). Individual notice could not be provided through reasonable efforts. Heartland did not have the names and addresses of those affected by the data breach and could not reasonably request this information for 130 million accounts from the issuer banks. (Docket Entry No. 87, at 31-32). Consistent with prevailing standards, the court ordered the "Summary Notice" form to reach a minimum of 80 percent of the proposed class. (Docket Entry No. 85, ¶ 11).

The notice that has been given clearly complies with Rule 23(e)(1)'s reasonableness requirement. The plan proposed by Hilsoft Notifications, (see Docket Entry No. 76, Ex. 2), included summary notices placed in the two most popular Sunday newspaper supplements, Parade and USA Weekend, as well as in four popular national magazines; Internet advertisements on 24/7 Real Media, Yahoo.com, and MSN.com; and a press release submitted to nearly 4,500 major U.S. press outlets. (Id., at 6).^[14] Each of these published notices directed potential class members to "an easy to remember domain name (www.hpscardholdersettlement.com) where Settlement Class Members can obtain information and documents about the settlement, including the Detailed Notice, Claim Forms, and Settlement Agreement, as well as other documents and information deemed necessary." (Id.). Hilsoft Notifications analyzed the notice plan after its implementation and conservatively estimated that notice reached 81.4 percent of the class members. (Docket Entry No. 106, ¶ 32).

Both the summary notice and the detailed notice provided the information reasonably necessary for the presumptive class members to determine whether to object to the proposed settlement. See Katrina Canal Breaches, 628 F.3d at 197. Both the summary notice and the detailed notice "were written in easy-to-understand plain English." In re Black Farmers Discrimination Litig., ___ F.Supp.2d ___, ___, 2011 WL 5117058, at *23 (D.D.C. 2011); accord AGGREGATE LITIGATION § 3.04(c).^[15] The notice provided "satisf[ies] [1062] the broad reasonableness standards imposed by due process" and Rule 23. Katrina Canal Breaches, 628 F.3d at 197 (internal quotation marks omitted).

B. Side Agreements

Rule 23(e) requires "[t]he parties seeking approval [to] file a statement identifying any Agreement made in connection with the proposal." FED. R. CIV. P. 23(e)(3). This requirement does not concern disclosure of the basic settlement terms; "[i]t aims instead at related undertakings that, although seemingly separate, may have influenced the terms of the settlement by trading away possible advantages for the class in return for advantages for others." Id. Committee Notes (2003). "The spirit of [formerly numbered] Rule 23(e)(2) is to compel identification of any agreement or understanding," written or oral, "that might have affected the interests of class members by altering what they may be receiving or foregoing." MANUAL FOR COMPLEX LITIGATION (FOURTH) § 21.631 (2004) ["MANUAL"].

Aside from the general settlement terms, Heartland has agreed to pay class counsel up to $725,000 and $35,000 in attorneys' fees and costs, respectively; and to pay $200 and $100 to each representative plaintiff and named plaintiff, respectively, in incentive awards. (Docket Entry No. 57, ¶¶ 7.2-.3). The parties have stated that they did not discuss the specific amounts of attorneys' fees and costs and incentive awards "until after the substantive terms of the settlement had been agreed upon, other than that Heartland would pay" such reasonable fees, costs, and awards. (Id., ¶ 7.1). All the amounts are subject to court review and approval. (See id., ¶¶ 7.1-.3).

C. An Additional Opt-Out Opportunity

A certifying court may refuse to approve a settlement unless it provides an additional opportunity for class members to opt out. See FED. R. CIV. P. 23(e)(4); Tardiff v. Knox Cnty., 567 F.Supp.2d 201, 209 (D.Me.2008). The 2003 amendments to the Federal Rules explain:

Rule 23(e)(3) [now (e)(4)] authorizes the court to refuse to approve a settlement unless the settlement affords a new opportunity to elect exclusion in a case that settles after a certification decision if the earlier opportunity to elect exclusion provided with the certification notice has expired by the time of the settlement notice. A decision to remain in the class is likely to be more carefully considered and is better informed when settlement terms are known.

FED. R. CIV. P. 23(e)(4) Committee Notes (2003). Rule 23(e)(4) comes into play when the opt-out opportunity expired before the members received notice of a proposed settlement. It is inapplicable here.

D. Objections

Class members must be provided an opportunity to object to the proposed settlement. FED. R. CIV. P. 23(e)(5). The order preliminarily approving the settlement outlined the process for objecting. (Docket Entry No. 85, ¶ 19). Both the summary notice and detailed notice informed class members of their right to object. (Docket Entry No. 76, Ex. 2). Only one person objected. It appears that he believes that [1063] the settlement is unfair to Heartland because the breach actually did not harm most of the class members. (Docket Entry No. 100). The fact that only one objection was filed is itself significant.

E. Fair, Reasonable, and Adequate

Finally, "the court may approve [the proposed settlement] only after a hearing and on finding that it is fair, reasonable, and adequate." FED. R. CIV. P. 23(e)(2). This court held a final fairness hearing on December 13, 2010. (Docket Entry No. 110). The lone objector informed the court that he did not intend to appear. (Docket Entry No. 100, at 2).

The Fifth Circuit lists six factors that a district court must consider in determining the fairness, reasonableness, and adequacy of a proposed settlement:

(1) evidence that the settlement was obtained by fraud or collusion; (2) the complexity, expense, and likely duration of the litigation; (3) the stage of the litigation and available discovery; (4) the probability of plaintiffs' prevailing on the merits; (5) the range of possible recovery and certainty of damages; and (6) the opinions of class counsel, class representatives, and absent class members.

All Plaintiffs v. All Defendants, 645 F.3d 329, 334 (5th Cir.2011) (internal quotation marks omitted).^[16] These six factors are known as the "Reed factors," after Reed v. General Motors Corp., 703 F.2d 170 (5th Cir.1983). See id. at 172. "A `presumption of fairness, adequacy, and reasonableness may attach to a class settlement reached in arm's-length negotiations between experienced, capable counsel after meaningful discovery.'" Wal-Mart Stores, 396 F.3d at 116 (quoting MANUAL FOR COMPLEX LITIGATION, THIRD § 30.42 (1995)); accord Nat'l Ass'n of Chain Drug Stores v. New England Carpenters Health Benefits Fund, 582 F.3d 30, 44 (1st Cir. 2009); Klein v. O'Neal, Inc., 705 F.Supp.2d 632, 650 (N.D.Tex.2010) ("When considering the Reed factors, the court should keep in mind the strong presumption in favor of finding a settlement fair." (internal quotation marks and alteration omitted)). This presumption notwithstanding, the settlement proponents bear the burden of demonstrating the settlement's fairness. See Katrina Canal Breaches, 628 F.3d at 196.

"A proposed settlement need not obtain the largest conceivable recovery for the class to be worthy of approval; it must simply be fair and adequate considering all the relevant circumstances." Klein, 705 F.Supp.2d at 649. At the same time, "a proposed settlement in which the class receives an insubstantial payment while the fees requested by counsel are substantial could raise fairness concerns." AGGREGATE LITIGATION § 3.05 cmt. b.

The Reed factors are examined below.

1. Evidence of Fraud or Collusion

"The Court may presume that no fraud or collusion occurred between counsel, in the absence of any evidence to the contrary." Klein, 705 F.Supp.2d at 651 (quoting Liger v. New Orleans Hornets NBA Ltd. P'ship, Civ. A. No. 05-1969, 2009 WL 2856246, at *3 (E.D.La. Aug. 28, 2009)). There has been no suggestion of any fraud or collusion. Nor does the record support such a finding. See DeHoyos v. Allstate Corp., 240 F.R.D. 269, 287 (W.D.Tex.2007) ("[T]here are no allegations or indications of fraud or collusion."). Counsel for Heartland has described the arm's-length negotiations that resulted in [1064] this settlement. (See Docket Entry No. 87, at 22, 27-28; Docket Entry No. 111, at 6). The initial negotiations occurred over approximately one-and-a-half months, resulting in a memorandum of understanding outlining the proposed settlement. (Docket Entry No. 87, at 27-28). Negotiations continued for another two months. (Docket Entry No. 111, at 9). Given these representations, the lack of evidence showing any fraud or collusion, and Heartland's initial position that it would not settle, this factor supports a finding that the settlement is fair, reasonable, and adequate.

"It is common practice today for class counsel to negotiate a specific fee award after they have successfully negotiated the class's recovery." Turner v. Murphy Oil USA, Inc., 472 F.Supp.2d 830, 844 (E.D.La.2007) (citing cases). "Because the parties have not agreed to an amount or even a range of attorneys' fees, there is no threat of the issue explicitly tainting the fairness of settlement bargaining." Id. at 845; see also In re Combustion, Inc., 968 F.Supp. 1116, 1127 (W.D.La.1997) ("Further, testimony was presented that the matter of attorneys' fees was not negotiated in conjunction with the settlement agreements but left for separate determination by the Court.").

Here, as in Turner, the parties negotiated and agreed to the proposed settlement before reaching the issue of attorneys' fees. Their agreement on attorneys' fees is subject to court review and approval. This factor supports approval of the settlement.

2. Complexity, Expense, and Duration of Litigation

"When the prospect of ongoing litigation threatens to impose high costs of time and money on the parties, the reasonableness of approving a mutually-agreeable settlement is strengthened." Klein, 705 F.Supp.2d at 651 (citing Ayers v. Thompson, 358 F.3d 356, 369 (5th Cir. 2004)). Although this case was settled less than four months after this court ordered a master complaint filed, (Docket Entry No. 21), and before dispositive motions, Heartland repeatedly denied its liability and planned to file a motion to dismiss. Likely motions would have raised choice-of-law issues and required resolving somewhat novel questions of state law. Litigating this case to trial would be time consuming, and "[i]nevitable appeals would likely prolong the litigation, and any recovery by class members, for years." Rodriguez v. West Pub'g Corp., 563 F.3d 948, 966 (9th Cir.2009); see also Wal-Mart Stores, 396 F.3d at 118. This second factor supports approving the settlement.

3. The Stage of Litigation and the Available Discovery

Under the third Reed factor, the key issue is whether "the parties and the district court possess ample information with which to evaluate the merits of the competing positions." Ayers, 358 F.3d at 369. "A settlement can be approved under this factor even if the parties have not conducted much formal discovery." Klein, 705 F.Supp.2d at 653 (citing, for example, Cotton v. Hinton, 559 F.2d 1326, 1332 (5th Cir.1977)); see also Union Asset Mgmt. Holding A.G. v. Dell, Inc., 669 F.3d 632, 639 (5th Cir.2012) (agreeing with district court's conclusion that "formal discovery is not a prerequisite to approving a settlement as reasonable"). The "[s]ufficiency of information does not depend on the amount of formal discovery which has been taken because other sources of information may be available to show the settlement may be approved even when little or no formal discovery has been completed." San Antonio Hispanic Police Officers' Org., Inc. v. City of San Antonio, 188 F.R.D. 433, 459 (W.D.Tex.1999). "The Court should consider all information which has been available to all parties." DeHoyos, 240 F.R.D. at 292.

[1065] The parties engaged in what Heartland's counsel termed "confirmatory discovery": Heartland shared with counsel for the Consumer Plaintiffs over 4,000 pages about the breach and allowed an interview of its Chief Technology Officer. (Docket Entry No. 111, at 9-10). Class counsel drew on their previous experience in similar data-breach class-action litigation. (Docket Entry No. 87, at 44). The parties have shown that they possessed sufficient information to gauge the strengths and weaknesses of the claims and defenses. Class counsel were able to determine the settlement's adequacy in relation to the probability of success on the merits were this litigation to continue. The court is well aware of the parties' positions in this case, the legal issues, and the risks to the Consumer Plaintiffs should litigation continue. See Stott v. Capital Fin. Servs., Inc., 277 F.R.D. 316, 344 (N.D.Tex.2011). This factor favors approval of the proposed settlement.

4. The Probability of Success on the Merits

The probability of success on the merits is the most important Reed factor. Smith v. Crystian, 91 Fed.Appx. 952, 954 n. 3 (5th Cir.2004) (per curiam) (citing Parker v. Anderson, 667 F.2d 1204, 1209 (5th Cir.1982)); accord, e.g., Poplar Creek Dev. Co. v. Chesapeake Appalachia, L.L.C., 636 F.3d 235, 245 (6th Cir.2011). "In evaluating the likelihood of success, the Court must compare the terms of the settlement with the rewards the class would have been likely to receive following a successful trial." DeHoyos, 240 F.R.D. at 287 (citing Reed, 703 F.2d at 172); see also Poplar Creek, 636 F.3d at 245 ("The likelihood of success, in turn, provides a gauge from which the benefits of the settlement must be measured." (internal quotation marks omitted)). At the same time, a district court "must not try the case in the settlement hearings because the very purpose of the compromise is to avoid the delay and expense of such a trial." Reed, 703 F.2d at 172 (internal quotation marks and alteration omitted). This factor favors approval of the settlement when the class's likelihood of success on the merits is questionable. See In re Corrugated Container Antitrust Litig., 659 F.2d 1322, 1326-27 (5th Cir.1981) (affirming district court's finding that this factor favored approving the settlement when the class faced major obstacles in establishing proof of liability and damages); DeHoyos, 240 F.R.D. at 290 ("Because the laws of numerous states may be relevant to individual class member claims, plaintiffs would apparently face a further significant challenge to certifying the class outside the settlement context."); Combustion, 968 F.Supp. at 1128 ("On the other hand, Plaintiffs will have very serious legal and evidentiary hurdles to meet in order to get their case to the jury.").

In this case, it is uncertain whether the Consumer Plaintiffs could succeed at trial, let alone reach it. Heartland's counsel explained that they were planning to move to dismiss or, failing that, for summary judgment when counsel for the Consumer Plaintiffs "dragged us, perhaps kicking and screaming, to a settlement[.]" (Docket Entry No. 87, at 46). Heartland's dispositive motions would have raised legal issues difficult for the Consumer Plaintiffs to overcome. For example, the Consumer Plaintiffs assert a cause of action for breach of contract, but they were not parties to those contracts. These allegedly breached contracts were between Heartland and merchants whose goods and services the consumers bought using payment cards. The Consumer Plaintiffs would have to show that they were third-party beneficiaries to those contracts. See generally Heartland II, 834 F.Supp.2d at 577-81, 2011 WL 6012598, at *5-8 (dismissing the Financial Institution Plaintiffs' similar breach-of-contract claim). The Consumer [1066] Plaintiffs also allege negligence. The Consumer Plaintiffs would have to establish that Heartland owed them a duty of care that it breached by failing to exercise reasonable care in protecting its data from a determined and sophisticated hacker. Even assuming a duty of care, a factfinder could have determined that Heartland's security measures were reasonable, given current technology and industry standards.

A similar problem arises with respect to the Consumer Plaintiffs' Fair Credit Reporting Act claim. One of the Act's requirements is that "[a]ny person who maintains or otherwise possesses consumer information for a business purpose must properly dispose of such information by taking reasonable measures to protect against unauthorized access to or use of the information in connection with its disposal." 16 C.F.R. § 682.3(a) (emphasis added). This regulation provides examples of "reasonable measures," including "[i]mplementing and monitoring compliance with policies and procedures that protect against unauthorized or unintentional disposal of consumer information." Id. § 682.3(b)(4). A factfinder could conclude that Heartland had implemented reasonable policies and procedures to protect against data breaches. In sum, the Consumer Plaintiffs face numerous legal obstacles in establishing liability on the merits of their claims.

Class certification for litigation also presented uncertainties. The Consumer Plaintiffs asserted claims under the laws of the fifty states and the District of Columbia. Absent settlement, the state-law variations would have to be analyzed carefully to be sure they did not make trial unmanageable. This would present "a further significant challenge to certifying the class." DeHoyos, 240 F.R.D. at 290 (citing Castano, 84 F.3d at 741).

Against these risks are the concrete benefits that the proposed settlement provides the Consumer Plaintiffs. For those class members with valid claims — whether for fraudulent charges, identity theft, or lost time — this settlement allows them to recover without the risks or delays of continued litigation. The amounts likely will not be significantly less than the amounts they would recover were this case to proceed to trial. Because of the class's sheer size, a claims process similar to the one called for in the proposed settlement would be required. That process would result in class members with valid claims recovering either the same or slightly more than the amount they would get under the settlement. But the settlement provides an efficient and certain result that outweighs slightly higher recovery, accompanied by significant risks of no recovery whatsoever and a certainty of delay.^[17] The proposed settlement's cy pres provision confers an indirect benefit on the vast majority of the class members — those who have suffered no personal damages from the data breach or who simply did not file any claim and thus would otherwise recover nothing. In sum, this factor strongly supports settlement approval.

[1067] 5. The Range of Possible Recovery and Certainty of Damages

This factor requires the district court to "establish the range of possible damages that could be recovered at trial and, then, by evaluating the likelihood of prevailing at trial and other relevant factors, determine whether the settlement is pegged at a point in the range that is fair to the plaintiff settlors." Maher v. Zapata Corp., 714 F.2d 436, 460 (5th Cir. 1983) (internal quotation marks omitted) (quoting In re Corrugated Container Antitrust Litig., 643 F.2d 195, 213 (5th Cir. 1981)). The district court's consideration of this factor "can take into account the challenges to recovery at trial that could preclude the class from collecting altogether, or from only obtaining a small amount." Klein, 705 F.Supp.2d at 656. The question is not whether the parties have reached "exactly the remedy they would have asked the Court to enter absent the settlement," but instead "whether the settlement's terms fall within a reasonable range of recovery, given the likelihood of the plaintiffs' success on the merits." Id. (internal quotation marks omitted).

A district court's failure or inability to establish the range of possible recovery is not necessarily error. In Maher, the parties did not "provide the court with an express estimate of the range of monetary recovery should plaintiffs prevail at trial." 714 F.2d at 460. Instead, the parties "provided the district court with their arguments and positions respecting the merits of the claims being asserted and compromised, the risks of litigation, and the benefits of the compromise." Id. Under such circumstances, and given the district court's otherwise "sufficient" analysis of the proposed settlement's fairness, the Fifth Circuit refused to overturn the settlement because the district court had not given an estimate. Id. at 461; accord San Antonio Hispanic Police Officers' Org., 188 F.R.D. at 460.

In this case, estimating the range of possible recovery — in particular, the upper band of recovery — is difficult. As the analysis of the fourth Reed factor (probability of success on the merits) demonstrates, the lower band of the Consumer Plaintiffs' range of recovery is zero: a nationwide or multistate class perhaps could not be certified under Rule 23, or a judge or jury could conclude that Heartland was not liable. Although neither the Consumer Plaintiffs nor Heartland provided this court with an estimate of the maximum amount of class recovery, the upper band is likely to be far less than what the proposed settlement provides. As of the final fairness hearing, fewer than 300 class members had filed a claim. Only 11 were valid. (Docket Entry No. 111, at 6). Given that the Consumer Plaintiffs' claims require each class member to prove individual damages, even if a trial resulted in a liability finding, the damages exposure is not properly measured by taking some number and multiplying it by the number of class members because there were so few claims filed, even after the extensive notice campaign.

The cy pres provision is essentially the damage award. Because no cy pres payments are to be made until class members had ample opportunity to file claims, the cy pres provision did not divert funds that class members otherwise were entitled to recover. The cy pres provision will indirectly benefit not just the class members, but all payment-card holders. See DeHoyos, 240 F.R.D. at 290 ("The undisputed record reveals the settlement will not only provide significant benefits to members of the plaintiffs' class, but to policyholders throughout the country as well.").^[18] Based [1068] on the very small number of claims filed after an extensive settlement notice campaign, the upper band of recovery after trial likely would be much smaller, and almost certainly no higher, than the upper amount offered in the settlement. This factor favors approving the settlement.

6. The Opinions of Class Counsel, Class Representatives, and Absent Class Members about the Settlement

"The endorsement of class counsel is entitled to deference, especially in light of class counsel's significant experience in complex civil litigation and their lengthy opportunity to evaluate the merits of the claims." DeHoyos, 240 F.R.D. at 292; see also Stott, 277 F.R.D. at 346 ("As class counsel tends to be the most familiar with the intricacies of a class action lawsuit and settlement, `the trial court is entitled to rely upon the judgment of experienced counsel for the parties.'" (quoting Cotton, 559 F.2d at 1330)). But a court should not blindly defer to class counsel's opinion. "Rather, the Court must give class counsel's recommendations appropriate weight in light of all the factors surrounding the settlement." Turner, 472 F.Supp.2d at 852.

Class counsel have enthusiastically endorsed the settlement. One of the co-lead class counsel has called the settlement "excellent" because "it maximizes what could have been obtained for the consumers, and it delivers a real remedy." (Docket Entry No. 111, at 42). Class counsel are experienced not just in class-action litigation generally but in data-breach class-action litigation specifically. Their opinion is consistent with the results of analyzing the proposed settlement's fairness under the other Reed factors.

Class counsel have not provided separate evidence on the opinions of the class representatives or members, but of the millions of absent class members, only one has objected. "Receipt of few or no objections `can be viewed as indicative of the adequacy of the settlement.'" Enron I, 228 F.R.D. at 567 (quoting 4 HERBERT B. NEWBERG, NEWBERG ON CLASS ACTIONS § 1141 (4th ed. 2002)); accord, e.g., Sullivan, 667 F.3d at 321. This is particularly true when there has been an energetic notice campaign. DeHoyos, 240 F.R.D. at 293 (citing cases). Heartland does not dispute the estimate that approximately 81 % of the class received notice of the proposed settlement. (See Docket Entry No. 106, ¶ 6(a)). Only one class member objected and did so not on the basis that the settlement is unfair to the class members, but instead on the basis that the settlement is unfair to Heartland because the data breach did not cause consumers harm. [1069] (Docket Entry No. 100). This last Reed factor also favors approving the proposed settlement.

7. Result of the Reed Analysis

All six Reed factors favor approving the proposed settlement. The court concludes that the proposed settlement is fair, reasonable, and adequate under Rule 23(e). The terms are approved.

IV. Attorneys' Fees, Costs, and Incentive Payments

Rule 23(h) authorizes a district court to "award reasonable attorney's fees and nontaxable costs that are authorized by law or by the parties' agreement." FED. R. CIV. P. 23(h). Courts, including in the Fifth Circuit, "have encouraged litigants to resolve fee issues by agreement, if possible." DeHoyos, 240 F.R.D. at 322 (citing cases, including Johnson v. Ga. Highway Express, Inc., 488 F.2d 714, 720 (5th Cir.1974)). But "a district court is not bound by the agreement of the parties as to the amount of attorneys' fees." Strong v. BellSouth Telecomms., Inc., 137 F.3d 844, 849 (5th Cir.1998) (internal quotation marks omitted). A court must carefully review a proposed fee award to ensure reasonableness. See id. Such scrutiny is necessary to "guard[] against the public perception that attorneys exploit the class action device to obtain large fees at the expense of the class." In re High Sulfur Content Gasoline Prods. Liab. Litig., 517 F.3d 220, 228 (5th Cir.2008) (internal quotation marks omitted).

One district court in this circuit has suggested that a presumption of reasonableness applies when a requested fee award is independent from the class-recovery fund and the parties did not negotiate the fee until after they agreed on other terms. See DeHoyos, 240 F.R.D. at 322-23. For this proposition, DeHoyos cited two cases: McBean v. City of New York, 233 F.R.D. 377, 392 (S.D.N.Y.2006), and In re First Capital Holdings Corp. Fin. Prods. Securities Litig., MDL No. 901, 1992 WL 226321, at *4 (C.D.Cal. June 10, 1992). No Fifth Circuit case, however, supports a presumption of reasonableness for a fee award, even if the award was agreed to after the settlement terms were negotiated and is to be paid separate from the class recovery. In Strong v. BellSouth Telecommunications, the Fifth Circuit expressly rejected class counsel's contention "that the district court's responsibility to address attorneys' fees is circumscribed when the parties agree to the amount of fees[.]" 137 F.3d at 849. BellSouth had agreed to a settlement in which it would deposit up to $64 million into a common fund and agreed to pay $6 million to class counsel for fees and costs. The district court, however, awarded $4.5 million in fees. Id. at 847-48. On appeal, the Fifth Circuit stated that

a "district court is not bound by the Agreement of the parties as to the amount of attorney' fees." Piambino [v. Bailey], 610 F.2d [1306] at 1328 [ (5th Cir.1980) ]; Foster v. Boise-Cascade, Inc., 577 F.2d 335, 336 (5th Cir.1978). The court must scrutinize the agreed-to fees under the standards set forth in Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir.1974), and not merely "ratify a pre-arranged compact." Piambino, 610 F.2d at 1328 (holding that by summarily approving attorneys' fees presented in an unopposed settlement agreement, the district court "abdicated its responsibility to assess the reasonableness of the attorneys' fees proposed under a settlement of a class action, and its approval of the settlement must be reversed on this ground alone"). That the defendant will pay the attorneys' fees from its own funds likewise does not limit the court's obligation to review the reasonableness of the agreed-to fees. Restricting the court's [1070] discretion to a perfunctory review in such a circumstance would disregard the economic reality that a settling defendant is concerned only with its total liability. See In re GM Trucks, 55 F.3d at 819-20 (requiring "a thorough judicial review of fee applications ... in all class action settlements" because "`a defendant is interested only in disposing of the total claim asserted against it'" and "`the allocation between the class payment and the attorneys' fees is of little or no interest to the defense'") (quoting Prandini v. National Tea Co., 557 F.2d 1015, 1020 (3rd Cir.1977)). Because the defendant's adversarial role with regard to the attorneys' fees is thus diminished, the court must strive to minimize the conflict of interest between the class and its attorney inherent in such an arrangement. See Foster [v. Boise-Cascade, Inc.], 420 F.Supp. [674] at 687-88 [(S.D.Tex.1976) ]; see also Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 524 (1st Cir.1991) (explaining that when fees are paid from the defendant's own funds, a conflict results from "the danger that the lawyers might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment on fees"); Court Awarded Attorney Fees, Report of the Third Circuit Task Force, 108 F.R.D. 237, 266 (1985) ("Even if the plaintiff's attorney does not consciously or explicitly bargain for a higher fee at the expense of the beneficiaries, it is very likely that this situation has indirect or subliminal effects on the negotiations. And, in any event, there is an appearance of a conflict of interest.") The court's review of the attorneys' fees component of a settlement agreement is thus an essential part of its role as guardian of the interests of class members. To properly fulfill its Rule 23(e) duty, the district court must not cursorily approve the attorney's fees provision of a class settlement or delegate that duty to the parties. Even when the district court finds the settlement agreement to be untainted by collusion, fraud, and other irregularities, the court must thoroughly review the attorneys' fees agreed to by the parties in the proposed settlement agreement.

Id. at 849-50.

In this case, class counsel have moved for $725,000 in fees and $35,000 in costs. (Docket Entry No. 107, ¶ 6). Heartland agreed to pay up to these amounts. (Docket Entry No. 57, ¶ 7.2). Class counsel has explained that they arrived at these amounts using a lodestar analysis, cross-checked by the Johnson factors. (Docket Entry No. 107, ¶ 6). According to the most recent fees-and-costs reports, class counsel billed over 1,960 hours on this case. Multiplied by the various hourly rates charged by class counsel, their lodestar fees exceeded $866,000 and actual costs totaled over $43,000. (Docket Entry No. 113, Ex. 2). The requested award of $725,000 results from a 0.837 negative multiplier. (Docket Entry No. 108, at 20).^[19] Class counsel's analysis of the Johnson factors, however, is inconsistent with any negative adjustment. In any event, class counsel's fee request assumes that the value of the settlement to the Consumer Plaintiffs exceeds $4.85 million. (Docket Entry No. 107, ¶ 5). The value was discussed at length during the final fairness hearing. (See generally Docket Entry No. 111).

[1071] With this background, this court carefully reviews the proposed fee award for reasonableness.

A. Methodology

In common-fund cases-in which class counsel is compensated from the general fund used to pay class members' damages and claims^[20] -district courts generally award attorneys' fees using one of two methods:

(1) the percentage method, in which the court awards fees as a reasonable percentage of the common fund; or (2) the lodestar method, in which the court computes fees by multiplying the number of hours reasonably expended on the litigation by a reasonable hourly rate and, in its discretion, applying an upward or downward multiplier.

Dell, 669 F.3d at 642-43. Under the lodestar method as applied in this circuit, the upward or downward adjustment is based on the court's review of the factors set out in Johnson v. Georgia Highway Express, 488 F.2d at 717-19. The twelve Johnson factors are:

(1) the time and labor required; (2) the novelty and difficulty of the issues; (3) the skill required to perform the legal service adequately; (4) the preclusion of other employment by the attorney because he accepted the case; (5) the customary fee for similar work in the community; (6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation, and ability of the attorneys; (10) the undesirability of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.

Dell, 669 F.3d at 642 n. 25. "The Johnson factors are intended to ensure `a reasonable fee.'" Id. (quoting Johnson).^[21] In Dell, the Fifth Circuit confirmed that district [1072] courts have discretion to determine the proper fee award in common-fund cases by using either the percentage or lodestar methods, cross-checked with the Johnson factors. Id. at 642-44.

Having two funds — one for the claimants, one for the attorneys — is a well-recognized variant of a common-fund arrangement. "A variant on the traditional common-fund case occurs frequently in mass tort litigation — in both class actions and large consolidations — where a separate fund to pay attorney fees is created as a part of the settlement." MANUAL § 14.11. Such an arrangement is sometimes called a "constructive common fund."^[22] "Several courts have embraced the constructive common fund approach, warning that `private arrangements to structure artificially separate fee and settlement arrangements' should not enable parties to circumvent the 25% benchmark requirement on `what is in economic reality a common fund situation.'" Bluetooth Headset, 654 F.3d at 943 (quoting In re Gen. Motors, 55 F.3d at 821). Courts recognize this approach even if they do not use the common-fund label. For example, in Johnston v. Comerica Mortgage Corp., 83 F.3d 241, 246 (8th Cir.1996), the Eighth Circuit stated:

The district court concluded that because the attorney fees were to be paid by the defendants separate and apart from the settlement funds, the fees did not come from a "common fund" belonging to the plaintiffs, and thus the percentage of the benefit approach was inappropriate. We disagree. Although under the terms of each settlement agreement, attorney fees technically derive from the defendant rather than out of the class' recovery, in essence the entire settlement amount comes from the same source. The award to the class and the agreement on attorney fees represent a package deal. Even if the fees are paid directly to the attorneys, those fees are still best viewed as an aspect of the class' recovery.

Johnston, 83 F.3d at 245-46 (citing In re Gen. Motors).^[23] "If an agreement is reached on the amount of a settlement fund and a separate amount for attorney fees and expenses, .... the sum of the two amounts ordinarily should be treated as a settlement fund for the benefit of the class, with the agreed-on fee amount constituting the upper limit on the fees that can be awarded to counsel." MANUAL § 21.7.^[24]

Many courts and commentators have concluded that the best approach is to use [1073] the percentage method in a common-fund or variant case with the lodestar method as a cross-check. This approach is particularly appropriate when the value of the judgment or settlement is uncertain.^[25] In this case, the percentage method, cross-checked by the lodestar method, is the appropriate method for scrutinizing the proposed attorneys' fees award under Rule 23(h). The fact that a minuscule amount of the settlement fund was actually distributed to class members, and the vast majority instead paid to three nonprofit organizations for efforts to improve data security and privacy protection, makes the value of the benefit the class received uncertain. That uncertainty makes it appropriate to use the lodestar method as a cross-check. Using the percentage method, cross-checked by the lodestar method, reduces the risk that the amount of the fee award either overcompensates counsel in relation to the class benefits obtained or undercompensates counsel for their work. Under either method, a fee award is reasonable only if it is proportionate to the actual value created for, and received by, the class. See FED. R. CIV. P. 23(h) Committee Notes (2003) ("One fundamental focus is the result actually achieved for class members, a basic consideration in any case in which fees are sought on the basis of a benefit achieved for class members.").^[26]

[1074] This approach is consistent with the statements in another federal district court's opinion in a similar case. In In re TJX Companies Retail Security Breach Litigation, 584 F.Supp.2d 395 (D.Mass. 2008), consumers filed a nationwide class action after the same hackers in this case breached TJX Companies's computer systems and obtained access to 45 million payment-card accounts' information.^[27] Some of the class counsel in that litigation were the same as the co-lead class counsel in this case. The parties reached a settlement agreement, under which TJX Companies agreed to reimburse consumers for valid claims. Although caps were placed on certain categories of claims, the parties did not place an overall cap on the settlement. Id. at 400-01. Class counsel used the lodestar method to reach their proposed fee award of $6.5 million. The district court was greatly troubled by this award because it was disproportionately large in relation to the very small "value actually transferred to class members[.]" Id. at 409. Calling "the class action vehicle [] broken[,]" the court emphasized that "tying the award of attorneys' fees to claims made by class members is one step that judges can take toward repair." Id. at 406. The court nevertheless approved the fee request for two main reasons: first, the court valued the potential benefits of the settlement at $177 million, which could be used as a guidepost for measuring attorneys' fees; and second, the court "did not give class counsel any indication prior to the Fairness Hearing that its award of attorneys' fees might be made with reference to this criterion." Id. at 409. The court concluded with a cautionary note to class counsel: "In the future, however, plaintiffs' counsel can expect that this Court, when confronted with reversionary common fund or claims-made settlements, will award attorneys' fees by reference to the value of benefits actually put in the hands of the class members." Id. at 410 (emphasis in original).

In this case, class counsel had the benefit of the warning issued in the TJX Companies settlement. Counsel also had the benefit of the guidance provided by the cases and authorities cited above. In this case, unlike TJX Companies, class counsel were put on notice at the preliminary fairness hearing that the court was very concerned about the lack of "direct benefits" to class members under the proposed settlement. (Docket Entry No. 87, at 56). This court also noted that "the amount of fees ... does not depend for its justification as reasonable entirely on the amount of money made either available or distributed directly, but also on the amount of [1075] work that the lawyers actually did and the reasonableness of those hours and hourly charges as well." (Id.) These statements are consistent with using the percentage-of-fund approach, with a lodestar cross-check, to determine the reasonableness of the fee award sought, tied appropriately to the value of the benefits actually provided to the class.

B. The Percentage Method

"The first step under the [percentage] method requires determining the actual monetary value conferred to the class members by the settlement." Bussie v. Allamerica Fin. Corp., No. Civ. A. 97-40204-NMG, 1999 WL 342042, at *2 (D.Mass. May 19, 1999). The court then sets the benchmark percentage to be applied to this value. After setting the benchmark, the district court in In re Dell Inc., No. A-06-CA-726-SS, 2010 WL 2371834 (W.D.Tex. June 11, 2010), applied the Johnson factors to determine whether a positive or negative adjustment of the benchmark was warranted. Id. at *13. Affirming Dell, the Fifth Circuit approved of the district court's application of this "blended percentage method" or "hybrid percentage method."^[28] 669 F.3d at 642-44.

1. Valuing the Settlement

"In cases involving a claims procedure or a distribution of benefits over time, the court should not base the attorney fee award on the amount of money set aside to satisfy potential claims. Rather, the fee awards should be based only on the benefits actually delivered." MANUAL § 21.71. Class counsel's valuation of the benefits as exceeding $4.85 million includes:

the reimbursement of Losses suffered by Settlement Class Members in connection with the Heartland Intrusion [$2.4 million], the anticipated costs of notice [$1.5 million], the anticipated costs of the dispute resolution process provided for resolving contested Settlement Class Member claims [$270,000], and the attorneys' fees [$725,000], costs[] and expenses [$35,000], and incentive awards being paid for by Heartland [$200 and $100 per qualified class representative].

(Docket Entry No. 107, ¶ 5). The court discusses each component below.

a. Reimbursement of Losses

Class counsel values this component at $2.4 million. Heartland deposited $1 million in escrow for reimbursing claimants. Although Heartland agreed that it would deposit up to an additional $1.4 million into the fund (for a total of $2.4 million) if needed to pay the class claims, that proved wholly unnecessary. (Docket Entry No. 57, ¶ 2.1(a)). As of December 2010, class members had filed 11 valid claims for out-of-pocket expenses resulting from the breach. (Docket Entry No. 111, at 6). Neither counsel indicated that any of these claims were identity-theft-related. Assuming that each of these claims received the maximum amount for out-of-pocket expenses ($175), that would amount to a total cash payment to class members of $1,925. (See Docket Entry No. 57, ¶ 2.2(b)).

The deadline for filing claims, August 2011, has long passed. (See id., ¶ 2.2(c)). Since the final fairness hearing held in December 2010, neither party has submitted information about any other valid [1076] claims submitted or paid. Although $2.4 million was the maximum amount of direct benefits that the class could receive, the class received a negligible fraction of that amount in direct benefits. Heartland will pay approximately $998,075 — $1 million less the amount paid directly to class members who submitted valid claims, conservatively estimated to be $1,925 — to the three organizations under cy pres. (See Docket Entry No. 111, at 16-17).

The record is clear that $2.4 million was never distributed to the class, directly or indirectly. Heartland deposited $1 million, and the Agreement capped its liability at that amount if the claims did not exceed it. That distinguishes this case from TJX Companies, in which the parties agreed to no cap on the possible settlement amount.

The answer to the first step is clear: the total amount Heartland made available to the class is $1 million. It is also clear that only $1,925 of the $1 million has gone directly to the class members. The issue is the value of the benefit conferred by the cy pres award of $998,075 paid to third-party organizations.

b. The Propriety and Value of the Cy Pres Payment

The cy pres payment is proper because the recipients "reasonably approximate [the interests] being pursued by the class." AGGREGATE LITIGATION § 3.07(c); see also, e.g., Nachshin v. AOL, LLC, 663 F.3d 1034, 1036 (9th Cir.2011) ("Cy pres distributions must account for the nature of the plaintiffs' lawsuit, the objectives of the underlying statutes, and the interests of the silent class members, including their geographic diversity."); Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468, 474-75 (5th Cir.2011) (explaining that "a cy pres distribution is designed to be a way for the court to put any unclaimed settlement funds to their next best compensation use, e.g., for the aggregate, indirect, prospective benefit of the class" in the class-action context only when it is infeasible to make further distributions to the class (internal quotation marks omitted)). Cy pres distributions have been criticized for "violating the ideal that litigation is meant to compensate individuals who were harmed."^[29] Judge Posner, writing for a panel of the Seventh Circuit, has questioned whether such payments in fact benefit class members: "There is no indirect benefit to the class from the defendants giving the money to someone else. In such a case the `cy pres' remedy ... is purely punitive." Mirfasihi, 356 F.3d at 784.

Despite these criticisms, there is ample precedent for cy pres relief here. Under Klier, the Fifth Circuit confirmed that cy pres awards in class actions might be appropriate under two circumstances: first, it must be infeasible to distribute further proceeds from the settlement fund directly to class members; and second, "the unclaimed funds should be distributed for a purpose as near as possible to the legitimate objectives underlying the lawsuit, the interests of class members, and the interests of those similarly situated." 658 F.3d at 474-75 (quoting In re Airline Ticket Comm'n Antitrust Litig., 307 F.3d 679, 682 (8th Cir.2002)). Both circumstances are present here. First, "it is not possible to put those funds to their very best use: benefitting the class members directly," id. at 475, because the vast majority of class members did not file claims, whether from lack of interest or the absence of losses. The Agreement is organized so cy pres relief is triggered only [1077] after class members have ample opportunity to file claims. Cy pres is the only way to avoid having the unclaimed funds — $998,075 — revert to Heartland, escheat to the government, or provide a huge windfall to the few who filed valid claims. Second, the organizations class counsel selected to receive the cy pres distribution reasonably approximate the interests pursued by the class. These organizations work to create more secure payment-card technology that will help prevent data breaches, and work to help financial institutions minimize the consequences if such breaches occur. The underlying basis of this class action is that Heartland should have had better policies, procedures, and technological measures to prevent this data breach. The interests of class members, and other similarly situated payment-card holders, are served by distributing the unclaimed funds to these organizations.

Finding the cy pres provision appropriate does not determine its value for the purpose of calculating attorneys' fees. The class benefit conferred by cy pres payments is indirect and attenuated. That makes it inappropriate to value cy pres on a dollar-for-dollar basis. "[B]ecause cy pres payments ... only indirectly benefit the class, the court need not give such payments the same full value for purposes of setting attorneys' fees as would be given to direct recoveries by the class." AGGREGATE LITIGATION § 3.13 cmt. a; see also FED. R. CIV. P. 23(h) Committee Notes ("Settlements involving nonmonetary provisions for class members also deserve careful scrutiny to ensure that these provisions have actual value to the class."). Even when, as here, there is a valid relationship between the class interests and the recipients of cy pres funds, those funds do not provide a direct benefit to class members and should not be valued as equal to direct payments to the class members. Discounting the amount of the cy pres payment in determining its value to the class is consistent with the nature of the indirect benefit cy pres provides to the class.^[30]

The question is how much to discount the $998,075 cy pres payment for the purpose of determining attorneys' fees. After careful consideration, the court has concluded that discounting the payment by 50% best values the benefit conferred on the class. Although the cy pres award will assist the three organizations in working on improved payment-card security, whether, when, and how much improvement will result are all speculative. Although the cy pres award is appropriate, the indirect, speculative, and deferred nature of the benefit strongly support valuing that benefit at one-half of the payment amount.

The benefit conferred on the class by the cy pres payment is valued at $499,037.50. Added to the $1,925 paid directly to class members for valid claims, the value conferred on class members by the $1 million fund the Agreement creates amounts to $500,962.50.

c. Notice Costs

Class counsel includes the approximately $1.5 million cost of implementing the notice program in valuing the settlement. When a(b)(3) class action is certified for trial rather than settlement, the plaintiffs normally bear the notice costs. See Eisen v. Carlisle & Jacquelin, 417 [1078] U.S. 156, 178-79, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974).^[31] When a(b)(3) class action is certified for settlement, "[t]he defendant, as the party with the greatest interest in obtaining a res judicata effect for the settlement decree, should normally bear the costs of settlement notice." 4 RUBENSTEIN ET AL., NEWBERG ON CLASS ACTIONS § 11:53; see also AGGREGATE LITIGATION § 3.04 cmt. a (reporters' notes) ("defendants typically pay for the cost of notice as part of a class settlement"). Courts often include the costs of notice in valuing a class-action settlement.^[32]

The cost of notice here is $1.5 million. A nationwide notice campaign intended to reach 80% of a class of over 100 million individuals is expensive. (See Docket Entry No. 85, ¶ 11). Including the notice costs in the value helps ensure that counsel work to make the notice effective and that such settlements are public and that damages are pursued. On the present record and under current law, it is appropriate to include the $1.5 million figure in valuing the settlement.

d. Claims-Processing Costs

Class counsel includes the approximate cost of administering the claims process — $270,000 — in valuing the settlement. District courts routinely include such administrative costs in calculating attorneys' fees awards. See, e.g., Amunrud v. Sprint Commc'ns Co., No. CV 10-57-BLG-CSO, 2012 WL 443751, at *2 (D.Mont. Feb. 10, 2012); Gomez v. H & R Gunlund Ranches, Inc., No. CV F 10-1163 LJO MJS, 2011 WL 5884224, at *5 (E.D.Cal. Nov. 23, 2011); Ky. Grilled Chicken, 280 F.R.D. at 385-86, 2011 WL 5599129, at *18; Serrano v. Sterling Testing Sys., Inc., 711 F.Supp.2d 402, 419 (E.D.Pa.2010). The $270,000 cost is properly included in valuing the settlement.

e. Attorneys' Fees and Costs

Class counsel asks for attorneys' fees and costs of $760,000 — the maximum amount of attorneys' fees and costs Heartland agreed to pay. Because this settlement is a variation on a common fund, the fees and costs are properly included in the settlement valuation. See, e.g., Johnston, 83 F.3d at 245-46; MANUAL § 21.7. "The award to the class and the agreement on attorney fees [and costs] represent a package deal. Even if the fees are paid directly to the attorneys, those fees are still best viewed as an aspect of the class' recovery." Johnston, 83 F.3d at 246 (citing Gen. Motors, 55 F.3d at 821); see also, e.g., Vista Healthplan, Inc. v. Warner Holdings Co. [1079] III, 246 F.R.D. 349, 364 (D.D.C.2007) (explaining that "because the attorneys' fees are borne by defendants and not plaintiffs, they represent a valuable part of the settlement").^[33] Although only part of the fees and costs sought are approved, to be conservative, the requested figures are included in valuing the settlement.

f. Incentive Awards

Class counsel also includes the $200 and $100 incentive awards to the representative and named plaintiffs in calculating the settlement benefits. As set out in more detail below, the record does not provide a basis for incentive awards. Despite Heartland's agreement, the proposed incentive payments are not included in valuing the benefits the class received from the settlement because there is no basis in the record for approving those payments.

g. The Benefit Provided by a "Sense of Security"

During the final fairness hearing, class counsel argued that the settlement value should be enhanced to reflect a "sense of security" provided to the Consumer Plaintiffs.^[34] Counsel also characterized the settlement as providing what was in effect free credit monitoring for three-and-a-half years. (Docket Entry No. 111, at 41-42). Counsel, however, cited neither the "sense of security" value nor effective credit monitoring in calculating the $4.85 million settlement value. (See Docket Entry No. 107, ¶ 5). Even had counsel done so, the record lacks any basis to increase the settlement's value based for either of these factors.

The settlement provided no credit-monitoring services. The Agreement expressly excludes the costs of credit monitoring from what a class member may claim as a "Loss." (Docket Entry No. 57, ¶ 2.2(b)). The Consumer Plaintiffs received an opportunity to make valid claims for defined losses resulting from stolen payment-card information. That is far different from credit monitoring that would include alerts notifying the Consumer Plaintiffs of any problem, to minimize the potential harm caused by the data breach. Heartland did not agree to provide three-and-a-half years of free credit monitoring to the roughly one hundred million consumers in this class. That would have cost Heartland approximately $62.79 billion.^[35]

There is no indication in the record that class members in fact received any "sense of security." The evidence is that the extensive nationwide notice campaign provided class members an opportunity to file claims for defined "Losses." Only 11 valid claims resulted. This paltry result suggests that the breach had a scant impact on the consumers whose data was compromised. [1080] The limited information the hackers obtained did not result in claims by those consumers in this case of identity theft or even of fraudulent payment-card transactions in any significant number. Neither a "sense of security" nor the value of credit monitoring is included in valuing the settlement.

h. Conclusion as to Valuation

The court values the settlement as follows:

• Direct Relief to Claimants: $1,925.00

• Indirect Relief to Class through Cy Pres: $499,037.50

• {Total Relief to Class: $500,962.50}

• Notice: $1,500,000.00

• Administrative Costs for Claims Process: $270,000.00

• Requested Attorneys' Fees and Costs: $760,000.00

• Total Value of Settlement: $3,030,962.50

2. Calculating the Benchmark

The next step is to determine the appropriate percentage benchmark. "The `majority of common fund fee awards fall between 20% and 30% of the fund.'" Gooch v. Life Invs. Co. of Am., 672 F.3d 402, 426 (6th Cir.2012) (quoting Waters v. Int'l Precious Metals Corp., 190 F.3d 1291, 1294 (11th Cir.1999)); see also MANUAL § 14.121 ("Attorney fees awarded under the percentage method are often between 25% and 30% of the fund."). The Ninth and Eleventh Circuit generally use a 25% benchmark for common-fund cases. E.g., Faught, 668 F.3d at 1243 (citing Camden I Condominium Ass'n, Inc. v. Dunkle, 946 F.2d 768, 774-75 (11th Cir.1991); In re Mercury Interactive Corp. Securities Litig., 618 F.3d 988, 992 n. 1 (9th Cir.2010)). The Second and Third Circuits caution district courts not to use a rigid benchmark but instead to consider the particular circumstances of each case based on factors similar to this circuit's Johnson factors. See Sullivan, 667 F.3d at 333; Goldberger, 209 F.3d at 51-52. A benchmark may be used as a starting point and then adjusted up or down under the Johnson factors, or those factors can be applied as part of deciding the benchmark.

District courts increasingly consider empirical studies analyzing class-action-settlement fee awards^[36] to set the appropriate percentage benchmark^[37] or to test the reasonableness [1081] of a given benchmark.^[38] "The tables included in the [Eisenberg and Miller] study are good indicators of what the market would pay for class counsel's services because the tables show what attorneys have been paid in similar cases, and thus what class counsel could have expected when they decided to invest their resources in this case." Lawnmower Engine Horsepower, 733 F.Supp.2d at 1014 (citing Taubenfeld v. Aon Corp., 415 F.3d 597, 600 (7th Cir.2005) and Turner, 472 F.Supp.2d at 864 n. 30). Using these studies alleviates the concern that the number selected is arbitrary.

The most recent empirical study by Professors Eisenberg and Miller examined data from nearly 700 common-fund settlements between 1993 and 2008.^[39] A study by Professor Fitzpatrick sampled data from nearly 700 common-fund settlements in 2006 and 2007.^[40] As in Turner, the "class recovery" is this court's previous valuation of the settlement: $3,200,635.25. See 472 F.Supp.2d at 864. This value falls into the third decile on the Eisenberg and Miller tables. For this decile, the mean fee percentage is 26.4%, with a standard-deviation percentage of 9.8%.^[41] Eisenberg and Miller propose that

fee requests falling within one standard deviation above or below the mean should be viewed as generally reasonable and approved by the court unless reasons are shown to question the fee. Fee requests falling within one and two standard deviations above or below the mean should be viewed as potentially reasonable but in need of affirmative justification. Fee requests falling more than two standard deviations above or below the mean should be viewed as presumptively unreasonable; attorneys seeking fees above this amount should be required to come forward with compelling reasons to support their request.^[42]

The $3.2 million value in this case falls into the fourth decile in the Fitzpatrick table — which correlates with a mean percentage of 26.0% and a standard-deviation percentage of 6.3%.^[43]

Both these studies also examined benchmarks for different types of class actions. For consumer class actions such as this case, Eisenberg and Miller found the mean percentage to be 25%^[44]; Fitzpatrick found it to be 23.5%.^[45] Fitzpatrick also organized the data by circuit. The mean for the Fifth Circuit was 26.4%.^[46]

Data from the Eisenberg and Miller as well as the Fitzpatrick studies allow this court to set a more accurate benchmark by averaging their tables. See In re Educ. Testing Serv. Praxis Principles of Learning & Teaching: Grades 7-12 Litig., 447 F.Supp.2d 612, 630 (E.D.La.2006) (setting the benchmark by averaging the mean fee percentages from two tables reported in Eisenberg & Miller I). Using the settlement value as the baseline, an average of the means from the second Eisenberg and Miller study and from the Fitzpatrick study results in a fee percentage of 26.2%. Averaging the means from the two studies [1082] for consumer class actions results in a fee percentage of 24.3%. Averaging those two fee percentages (26.2% and 24.3%) results in a fee percentage of 25.3%. That percentage approximately reflects the prevailing market rate that both class members and class counsel could have expected when initiating the litigation. See Lawnmower Engine Horsepower, 733 F.Supp.2d at 1014. It also is consistent with the mean fee percentage in the Fifth Circuit.

Using 25.3% as the benchmark, and before any positive or negative adjustment, the result is a fee award of $766,833.51. This award is approximately $30,000 greater than that requested by class counsel. Class counsel properly recognizes that a negative adjustment, using the Johnson factors, is appropriate to avoid a fee award that is disproportionately high in relation to the benefit the class received.

3. Applying the Johnson Factors to the Benchmark

a. The Time and Labor Required

Examining this factor under the lodestar method requires the court to determine the reasonableness of the hours billed by class counsel. As the Fifth Circuit has explained:

[P]laintiffs seeking attorney's fees are charged with the burden of showing the reasonableness of the hours billed and, therefore, are also charged with proving that they exercised billing judgment. Billing judgment requires documentation of the hours charged and of the hours written off as unproductive, excessive, or redundant. The proper remedy for omitting evidence of billing judgment does not include a denial of fees but, rather, a reduction of the award by a percentage intended to substitute for the exercise of billing judgment.

Saizan v. Delta Concrete Prods. Co., 448 F.3d 795, 799 (5th Cir.2006) (per curiam) (internal footnotes omitted). The lodestar calculation, before the Johnson cross-check, accounts for billing judgment. The percentage method, by contrast, does not account for billing judgment. Billing judgment is appropriately considered in the cross-check, looking at whether the time and labor spent were required. See Dell, 2010 WL 2371834, at *15 (considering "all time that is excessive, duplicative, or inadequately documented" with respect to this factor (internal quotation marks omitted)).

According to the most recent fees-and-costs report submitted to this court, class counsel spent over 1,960 hours on this case — which, at each attorney's and staff member's billing rate, equals approximately $866,000 in attorneys' fees. (Docket Entry No. 111, Ex. 2, at 5). Counsel state that they "have devoted a significant portion of their available time to the investigation, prosecution, and settlement of this case on behalf of the Settlement class[.]" (Docket Entry No. 108, at 20).

The fees-and-costs reports do not show that counsel "wrote off" time in a way that shows billing judgment.^[47] For example, one day's entry for one co-lead counsel shows billed time for a call from one attorney about an expert's review, followed by billed time for a call to another attorney about the same review, followed by billed time for a call to those two attorneys about the same review. (Docket Entry No. 113, Barnow & Assocs. Ex., at 24). Each lawyer billed all the time spent for each call. On the current record, the court cannot conclude that the time spent by multiple lawyers on multiple calls on the same subject — calls that at a minimum appear to be duplicative — was reasonably spent or that [1083] billing judgment was used. The billing summary is full of similar instances of time spent by multiple lawyers on the same subject, for vaguely summarized phone calls, emails, or "reviews." (Compare, e.g., Docket Entry No. 113, Finkelstein Thompson Ex., at 3; with Docket Entry No. 113, Barnow & Assocs. Ex., at 6-8). Billing judgment requires adequate documentation of the hours spent and work done. See, e.g., Walker v. U.S. Dep't of Hous. & Urban Dev., 99 F.3d 761, 769 (5th Cir. 1996). The fees-and-costs reports provide no basis for this court to discern billing judgment. (See, e.g., Docket Entry No. 113, Barnow & Assocs. Ex., at 6 ("Calls and emails re: status of litigation"); Finkelstein Thompson Ex., at 3, 5 ("Telecon w/co-counsel/FTL attys Barnow re review"; "Research class definition and notice issues"); Sheller Ex., at 1 ("E-mails and blogs re clients and phone call")).

The court does not question the number of hours that class counsel spent. The issue is whether the time and labor were reasonable. Even recognizing that this case required confirmatory discovery, settlement negotiations, and class-action administration, the number of entries for similar work by different attorneys and the absence of any evidence of the exercise of billing judgment support a negative adjustment.

b. The Novelty and Difficulty of the Issues

Class counsel state that "[t]he issues presented by this litigation are novel and difficult" and that "liability, negligence, actual damages, and punitive damages created complex issues[.]" (Docket Entry No. 108, at 20). The case clearly presented risks of not succeeding. But none of these issues can be described as particularly novel for class counsel. Although data-breach litigation is itself relatively new, see generally Timothy H. Madden, Data Breach Class Action Litigation — A Tough Road for Plaintiffs, BOSTON BAR J., Fall 2011, at 27 (generally discussing data-breach litigation), class counsel previously litigated two very similar data-breach class actions: In re Countrywide Financial Corp. Customer Data Security Breach Litigation, No. 3:08-MD-01998, 2010 WL 3341200 (W.D.Ky. Aug. 23, 2010), and In re TJX Companies Retail Security Breach Litigation, 246 F.R.D. 389 (D.Mass.2007). And, most important, the early settlement in this case meant that counsel did not have to wrestle with the difficult issues that likely would have been presented had the litigation reached the dispositive-motions stage. This factor is at best neutral or supports some negative adjustment.

c. The Skill Required

"This factor is evidenced where `counsel performed diligently and skillfully, achieving a speedy and fair settlement, distinguished by the use of informal discovery and cooperative investigation to provide the information necessary to analyze the case and reach a resolution.'" King v. United SA Fed. Credit Union, 744 F.Supp.2d 607, 614 (W.D.Tex.2010) (quoting Di Giacomo v. Plains All Am. Pipeline, No. Civ. A. H-99-4137, H-99-4212, 2001 WL 34633373, at *12 (S.D.Tex. Dec. 19, 2001)). Another "highly important" aspect is "[t]he trial judge's expertise gained from past experience as a lawyer and [her] observation from the bench of lawyers at work[.]" In re Enron Corp. Securities, Derivative & "ERISA" Litig. ("Enron II"), 586 F.Supp.2d 732, 789 (S.D.Tex. 2008) (quoting Johnson, 488 F.2d at 718).

In certifying the class and approving the settlement, the court has discussed the numerous obstacles facing this class action in litigation. Class counsel's skill and experience with prior similar litigation clearly helped achieve an earlier resolution of this case. But this case never proceeded to formal discovery, dispositive motions, or [1084] opposed class-certification motions. This factor is neutral.

d. Preclusion of Other Legal Employment

Class counsel explain at greater length how this factor favors approval of its fee request:

The efforts of Co-Lead Settlement Class Counsel in the management of this class action necessarily infringed upon the time and opportunity they would have had available to accept other employment. The reality of complex cases is that work is not easily shifted to other attorneys in a firm not familiar with the matter, with the result that substantially less time becomes available to Co-Lead Settlement Class Counsel to attend to other matters. Time devoted to this litigation and its resolution necessarily limited the time available for other litigation.

(Docket Entry No. 108, at 21). This statement, though logically true, is incomplete, for there is no information about the "other employment." As the district judge noted in Dell, "[T]here is no evidence, such as an affidavit, cited to support this claim. There is no doubt that the attorneys did pass up other work in order to prosecute this case, but the Court cannot assume that legal work would have been more lucrative than this case without any evidence so indicating." 2010 WL 2371834, at *17. The same is true here. Moreover, much of the work in this case took place during relatively short periods. This factor is neutral.

e. Customary Fees for Similar Work in The Community

In setting the 25.3% benchmark, the court already has discussed at length the empirical data supporting the reasonableness of that percentage. The court also has noted the Fitzpatrick study, which shows the mean fee percentage award in the Fifth Circuit to be 26.4%.^[48] According to class counsel, "[t]he customary contingency fee for representation of many contingency cases within the same geographic area, in much less complex cases than this class action, often ranges from 33 1/3% to 40% of the gross award plus costs[.]" (Docket Entry No. 108, at 21). Class counsel cite a 1995 study on attorney compensation by the State Bar of Texas and a 1992 Seventh Circuit opinion, In re Continental Illinois Securities Litigation, 962 F.2d 566. The empirical studies to which this court refers are much more recent; both were published in 2010. And these empirical studies are more focused on the type of fee and fee analysis at issue here. This factor supports the benchmark set by the court, not the higher benchmark that class counsel advocate.

f. Counsels' Preexisting Fee Agreement

"The fee quoted to the client or the percentage of the recovery agreed to is helpful in demonstrating the attorney's fee expectations when he accepted the case." Forbush v. J.C. Penney Co., 98 F.3d 817, 824 (5th Cir.1996) (internal quotation marks omitted). District courts within this circuit have found upward adjustments appropriate if counsel took the case on a contingency basis. See, e.g., Klein, 705 F.Supp.2d at 678 (percentage); DeHoyos, 240 F.R.D. at 330 (lodestar). But merely taking a case on a contingency basis does not merit an upward adjustment if the benchmark reflects the market rate. See Dell, 2010 WL 2371834, at *17. Although class counsel took this case on a contingency-fee basis, (Docket Entry No. 108, at 22), the benchmark reflects the market rate. This factor is neutral.

[1085] g. Time Limitations Imposed by the Client or by Circumstances

According to class counsel, "[t]his case has required significant attention by Co-Lead Settlement Class Counsel. Frequently, issues requiring immediate attention arose, and such matters were attended to expeditiously and properly." (Docket Entry No. 108, at 22). This statement is unsupported by record evidence. The record discloses no external time limitations or pressures outside of the complaint filing deadline, which was extended twice without Heartland's opposition. This factor supports a slight negative adjustment.

h. The Amount Involved and the Results Obtained

"The United States Supreme Court and the Fifth Circuit have held that the most critical factor in determining the reasonableness of a fee award is the degree of success obtained." Enron II, 586 F.Supp.2d at 796 (internal quotation marks omitted) (citing Farrar v. Hobby, 506 U.S. 103, 114, 113 S.Ct. 566, 121 L.Ed.2d 494 (1992); Migis v. Pearle Vision, Inc., 135 F.3d 1041, 1047 (5th Cir.1998)). Class counsel contend that they "negotiated a monetary settlement that represents an excellent result for the Settlement Class," listing the components to the settlement that class counsel valued at $4.85 million. (Docket Entry No. 108, at 21-22). This court has valued the settlement as worth over $3 million, but that includes $2 million in indirect and attenuated benefits to individual class members: $500,000 through the cy pres distribution and $1.5 million in notice costs. On the other hand, the settlement is a good result for the Consumer Plaintiffs given the legal and evidentiary hurdles litigation would have presented and given class members' lack of interest or losses. Through the settlement and its claims-administration process, those class members who legitimately suffered losses as a result of the data breach, whether due to fraudulent charges or identity theft, were provided with an efficient avenue for compensation. The cy pres payments will fund efforts toward better data protection, though the ultimate results are speculative. The results obtained are a neutral factor.

i. The Experience, Reputation, and Ability of the Attorneys

The extensive experience and fine reputation and ability of class counsel are clear and unquestioned. See, e.g., Dell, 2010 WL 2371834, at *18; Enron II, 586 F.Supp.2d at 797; DeHoyos, 240 F.R.D. at 331. At the same time, these attributes are to be expected: Rule 23(g) requires them of lawyers appointed as class counsel. See FED. R. CIV. P. 23(g)(1)(A); MANUAL § 21.271; see also AGGREGATE LITIGATION § 1.05 cmt. g. This factor is neutral.

j. Undesirability of the Case

Class counsel explains at length why taking on this case was undesirable. The reasons are typical of consumer class-action lawsuits: the defendant is a large corporation with substantial resources, financial and otherwise, for a vigorous defense; and the legal and factual issues presented risks to recovery absent settlement. (See Docket Entry No. 108, at 23). But there were a large number of lawyers who believed the case was attractive. Many lawyers filed numerous class-action and individual suits based on the data breach. (See Docket Entry No. 3). This case was desirable from the standpoint of many plaintiffs' lawyers. See Dell, 2010 WL 2371834, at *19; Di Giacomo, 2001 WL 34633373, at *12. This factor is neutral.

k. The Relationship with the Clients

According to class counsel, all class members "were kept abreast of the developments in this litigation throughout its [1086] pendency and by way of the notice program, all as applicable and appropriate." (Docket Entry No. 108, at 22). This factor, however, appears to address factors other than notice to absent class members. Given the absence of any record evidence showing other communications between class counsel and representative or named plaintiffs, or any class members, this factor supports a slight negative adjustment.

l. Awards in Similar Cases

"Courts often look at fees awarded in comparable cases to determine if the fee requested is reasonable." DeHoyos, 240 F.R.D. at 333 (citing Johnson, 488 F.2d at 719 & n. 5). The empirical studies cited by the court provide helpful information. Specific cases also can be examined. Because class-action litigation involving data breaches is relatively new, there are few settlements to examine: three, to be precise. In one case, the court calculated fees using the percentage method, approving a requested fee award amounting to 7.7% of the fund. In re TD Ameritrade Account Holder Litig., Nos. C 07-2858 SBA, C 07-4903 SBA, 2011 WL 4079226, at *16 (N.D.Cal. Sep. 13, 2011). In the two other settlements, the courts calculated fees using the lodestar method. See Countrywide Fin. Corp., 2010 WL 3341200, at *9; TJX Cos., 584 F.Supp.2d at 408. Had these cases used the percentage method, the percentage would be lower than in this case. See Countrywide Fin. Corp., 2010 WL 3341200, at *9 (approving lodestar award of $3.5 million, but noting that had the court used the percentage method, the $3.5 million fee award would be 20% of the settlement's value); TJX Cos., 584 F.Supp.2d at 409-10 ($6.5 million (attorneys' fees awarded using lodestar) / $177 million (value of settlement) = 3.7%). The present benchmark of 25.3%, if unadjusted, would stand as the highest percentage recovery of any of the data-breach settlements to date. This factor supports a negative adjustment.

4. Adjustment of the Benchmark in Light of the Johnson Factors

The final step in applying the percentage method is to determine whether the benchmark — 25.3% — should be adjusted in light of the Johnson factors. Four of the factors support a negative adjustment. Six support no adjustment. One supports either a negative adjustment or no adjustment. No factor favors a positive adjustment. After careful consideration, the court concludes that a negative adjustment of the benchmark, to 20%, is appropriate. A 5.3% negative adjustment accurately reflects the balance of the Johnson factors and results in a reasonable fee award to class counsel. The resulting fee award under the percentage method, with the Johnson-factors adjustment, is $606,192.50.^[49]

C. The Lodestar Cross-Check

The lodestar cross-check is usually applied "to avoid windfall fees, i.e., to `ensure that the percentage approach does not lead to a fee that represents an extraordinary lodestar multiple.'" Enron II, 586 F.Supp.2d at 751 (quoting Cendant II, 404 F.3d at 188); accord, e.g., Eisenberg & Miller I, supra, at 39 ("The idea is that if the percentage fee grossly exceeds the lodestar amount, the attorney would be receiving a windfall, and the courts should adjust the fee downward to a more reasonable range."). The purpose of the lodestar cross-check, however, is to verify the reasonableness of the award calculated under the percentage method, to avoid both over- and under-compensation.

[1087] Applying the lodestar method can be an extraordinarily time-consuming process for a district court tasked with carefully reviewing counsel's billing records. Those circuits approving the lodestar cross-check have made it clear that district courts need not scrutinize counsel's billing records with the thoroughness required were the lodestar method applied by itself. See In re Rite Aid Corp. Securities Litig., 396 F.3d 294, 306-07 (3d Cir.2005); Goldberger, 209 F.3d at 50.^[50] Before Dell was decided, one district court within this circuit conducted what perhaps can be called a detailed spot check of class counsel's billing records, in addition to relying on the summaries provided by class counsel. See Enron II, 586 F.Supp.2d at 753 ("The Fifth Circuit has never indicated that it would relax a lodestar calculation, so this Court has performed a detailed examination in spot checks of the records, though not exhaustive examination of each entry, relying also on the affidavits and declarations submitted by Class Counsel, and has used the Johnson factors endorsed by the Fifth Circuit."). In this case, the court has reviewed the fees-and-costs reports that counsel submitted and has examined many of the pages thoroughly. It has not taken the extraordinary amount of time needed, however, for a thorough examination of all the time and billing records that counsel generated for purposes of a standalone lodestar analysis.

The lodestar method requires the court to multiply the number of hours reasonably expended on the litigation by a reasonable hourly rate and to apply an upward or downward multiplier if necessary. Dell, 669 F.3d at 642-44. Under the most recent billing summary submitted, class counsel spent 1,963.60 hours on this action. (Docket Entry No. 113, Ex. 2, at 5). If this court had applied the lodestar as the primary method, as opposed to a cross-check, the number of hours reasonably spent would be reduced because the record does not adequately show billing judgment. Under Fifth Circuit precedent, "plaintiffs seeking attorney's fees are charged with the burden of showing the reasonableness of the hours billed and, therefore, are also charged with proving that they exercised billing judgment." Saizan, 448 F.3d at 799. The lack of such evidence supports a 10% reduction in the number of hours used in a lodestar cross-check.

The hourly rates used are reasonable. "An attorney's requested hourly rate is prima facie reasonable when he requests that the lodestar be computed at his or her customary billing rate, the rate is within the range of prevailing market rates[,] and the rate is not contested." Altier, 2012 WL 161824, at *22 (citing La. Power & Light Co. v. Kellstrom, 50 F.3d 319, 328 (5th Cir.1995)); see also High Sulfur Content, 517 F.3d at 228 ("The district court must first determine the reasonable number of hours expended on the litigation and the reasonable hourly rate for the participating attorney." (emphasis added)). In this case, the rates ranged from as high as $825 per hour for one the colead class counsel to as low as $90 per hour for a paralegal. (Docket Entry No. 113, Ex. 2, at 1, 5). The mean hourly rate [1088] was $400.81.^[51] The hourly rates are within the "prevailing market rates for lawyers with comparable experience and expertise" in complex class-action litigation and thus are reasonable. Altier, 2012 WL 161824, at *22 (citing cases).

Multiplying the hours expended by class counsel (1,963.60) by each attorney's hourly rate results in total fees of $866,412.50. (Docket Entry No. 113, Ex. 2, at 5). Of course, the lodestar method does not take into account the settlement value to the class. Attorneys' fees of $866,412.50 would equal 28.9% of the settlement's approximately $3 million value. At face value, that figure does not appear unreasonable; in addition, it is within the standard deviation of both the Eisenberg and Miller and Fitzpatrick tables. But when the 28.9% percentage is compared to the value of the $1 million fund made available to the claimants — whether directly or through cy pres — attorneys' fees of $866,412.50 would far exceed that fund's value of $500,962.30. Class counsel, indeed, recognizes the unreasonable nature of this relationship in reducing the requested fee award in the settlement below the lodestar.

The $725,000 requested results from applying a 16.3% negative adjustment to the lodestar that counsel submitted. Two things stand out. First, most applications of the lodestar method result in a positive, not a negative, adjustment.^[52] Second, an adjustment is supposed to occur if the Johnson factors, on balance, support that result.^[53] Class counsel's approach — asking for a negative adjustment, but implicitly arguing for a positive adjustment under the Johnson factors — is inconsistent logically, with the record, and with the applicable law.

This court applied the Johnson factors as part of the percentage method and concluded that the balance supports a negative adjustment. Although the analysis would differ slightly had the court applied the lodestar method and then the Johnson cross-check, see, e.g., Migis, 135 F.3d at 1047 ("Some of these [Johnson] factors are subsumed in the initial lodestar calculation and should not be double counted."), the result would not be significantly different.

The record and law support reducing the lodestar by a negative multiplier to avoid a windfall to class counsel, given the value of the settlement obtained. The issue is the amount of the multiplier. Class counsel's requested award of $725,000, which amounts to 28.9% of the settlement value, is disproportionately high. Under the lodestar cross-check, reducing the number of hours reasonably expended and applying a negative multiplier of 0.95 to account for the Johnson factors results in a fee award of $635,527.14.^[54] That is reasonably [1089] close to the $606,192.50 figure calculated under the percentage method.

The lodestar cross-check, in this case, has confirmed the reasonableness of the fee award using the percentage method. Class counsel is entitled to be compensated for its successful efforts in representing the Consumer Plaintiffs and in negotiating a settlement. That compensation, however, must be reasonable based on the value of that settlement to the class. Awarding fees of $606,192.50, calculated and adjusted under the percentage method and Johnson factors, and through the lodestar cross-check, is reasonable.

D. Costs

Class counsel request an award of $35,000 for the costs expended in this action. (Docket Entry No. 107, ¶ 6). "In addition to being entitled to reasonable attorneys' fees, class counsel in common fund cases are also entitled to reasonable litigation expenses from that fund." Radosti, 760 F.Supp.2d at 79 (quoting Wells v. Allstate Ins. Co., 557 F.Supp.2d 1, 8 (D.D.C.2008)) (internal alteration omitted). In Radosti, the district court approved the costs requested because (1) class counsel provided the court documents showing the costs, (2) the court found the costs to be typical expenses, (3) no class member objected to the costs, and (4) the defendant did not object. Id. All four circumstances are present here. Class counsel have provided this court with documentation supporting the costs. The court has carefully reviewed those costs and finds them appropriate for a case of this nature. There are no objections. The costs requested are reasonable.

E. Incentive Awards

Finally, class counsel seek approval of incentive awards of $200 to the representative plaintiffs and $100 to the named plaintiffs. (Docket Entry No. 107, ¶ 6). During the preliminary fairness hearing, class counsel explained the rationale behind seeking these awards: "I am a believer in having people to come forward because they have time and expense and that there should be some reasonable incentive because they advanced society's interest in the truth of the matter in solving problems." (Docket Entry No. 87, at 8).

"Courts `commonly permit payments to class representatives above those received in settlement by class members generally.'" Turner, 472 F.Supp.2d at 870 (quoting Smith v. Tower Loan of Miss., Inc., 216 F.R.D. 338, 367-68 (S.D.Miss. 2003)). That does not mean, however, that incentive awards are always merited. "In deciding whether an incentive award is warranted, courts look to: (1) `the actions the plaintiff has taken to protect the interests of the class'; (2) `the degree to which the class has benefitted from those actions'; and (3) `the amount of time and effort the plaintiff expended in pursuing the litigation.'" Ky. Grilled Chicken, 280 F.R.D. at 382-83, 2011 WL 5599129, at *15 (quoting Cook v. Niedert, 142 F.3d 1004, 1016 (7th Cir.1998)).^[55]

[1090] The court agrees with class counsel's statement at the preliminary-fairness hearing about the purpose of incentive awards. They reward representative plaintiffs (and named plaintiffs) for their time and expenses spent advocating on behalf of the class. In this case, however, there is no evidence of such involvement, time, or expenses. For the court to approve the incentive awards — even if they are nominal, and even if the defendant does not object — there must be some evidence in the record demonstrating that the representative plaintiffs were involved. Absent such evidence, the court lacks an adequate basis to approve the incentive awards.

V. Conclusion

The Consumer Plaintiffs' motion for final approval of the settlement, for an award of attorneys' fees and costs, and for incentive awards, (Docket Entry No. 107), is granted in part and denied in part. The settlement class is certified. The proposed settlement is approved as fair, reasonable, and adequate. Attorneys' fees are awarded in the amount of $606,192.50. Costs are awarded in the amount of $35,000.00. Incentive awards to named and representative plaintiffs are denied.

[1] "Payment cards" refers to both credit and debit cards issued by issuer banks. See In re Heartland Payment Sys., Inc. Customer Data Security Breach Litig. ("Heartland II"), 834 F.Supp.2d 566, 574 & n. 4, 2011 WL 6012598, at *1 & n. 4 (S.D.Tex.2011).

[2] The parties estimate that the data breach affected 130 million payment-card accounts.

[3] Some of these financial institutions also filed a class-action lawsuit against two acquirer banks, Heartland Bank (unrelated to Heartland) and KeyBank, that had hired Heartland to process their merchants' payment-card transactions. See In re Heartland Payment Sys., Inc. Customer Data Security Breach Litig. ("Heartland I"), MDL No. 2046, 2011 WL 1232352 (S.D.Tex. Mar. 31, 2011). That case recently was dismissed with prejudice. See In re Heartland Payment Sys., Inc. Customer Data Security Breach Litig. ("Heartland III"), MDL No. 2046, 2012 WL 896256, 2012 U.S. Dist. LEXIS 34067 (S.D.Tex. Mar. 14, 2012).

[4] The Agreement defines "Related Parties" as "an entity's past or present directors, officers, employees, principals, agents, attorneys, predecessors, successors, parents, subsidiaries, divisions and related or affiliated entities, and includes, without limitation, any Person related to such entity who is, was or could have been named as a defendant in any of the actions in the litigation." (Docket Entry No. 57, ¶ 1.15).

[5] The Agreement provides that if all valid claims exceed $2.4 million, then each claim will be reduced proportionally. (Id., ¶ 2.2(c)).

[6] Neither Heartland nor the Consumer Plaintiffs have updated the court on any additional claims, valid or otherwise, filed since the final fairness hearing.

[7] According to Heartland, chip-and-pin technology is "used in every country in the world except for the United States, China and India" and "has been shown to dramatically decrease credit card fraud." (Docket Entry No. 111, at 18).

[8] See also Ellis v. Costco Wholesale Corp., 657 F.3d 970, 981 (9th Cir.2011) ("More importantly, it is not correct to say that a district court may consider the merits to the extent that they overlap with class certification; rather, a district court must consider the merits if they overlap with the Rule 23(a) requirements.").

[9] Whether this claim, or any of the others, has any merit is not the question at this stage of the litigation. See Sullivan, 667 F.3d at 308 ("[T]he Rule 23 inquiry does not, and should not, involve a Rule 12(b)(6) inquiry.").

[10] Compare, e.g., In re Panacryl Sutures Prods. Liab. Cases, 263 F.R.D. 312, 322 (E.D.N.C. 2009) (concluding that typicality was not satisfied when the "Plaintiffs have not shown that the prospective class representatives' claims will take into account the substantive laws [of multiple states] governing every class members"); In re Vioxx Prods. Liab. Litig., 239 F.R.D. 450, 460 (E.D.La.2006) ("The applicability of multiple substantive laws also precludes a finding of typicality."); with, e.g., Overka v. Am. Airlines, Inc., 265 F.R.D. 14, 18-19 (D.Mass.2010) (finding typicality despite variations in state law because the state-law claims "are recognized in some form in all jurisdictions and therefore available for all [class members]"); Chemi v. Champion Mortg., No. 2:05-cv-1238 (WHW), 2009 WL 1470429, at *7 (D.N.J. May 26, 2009) (similar).

[11] In Berger, the plaintiffs petitioned for rehearing, arguing that Berger had "created an additional, independent requirement for the adequacy standard for class certification under Federal Rule of Civil Procedure 23 by reading the provisions of the Private Securities Litigation Reform Act of 1995 (`PSLRA') into rule 23(a)(4)." Berger v. Compaq Computer Corp., 279 F.3d 313, 313 (5th Cir.2002) (per curiam). In denying the petition, the panel responded: "This we have not done, nor have we changed the law of this circuit for conducting a rule 23(a)(4) adequacy inquiry." Id.

[12] See generally Jay Tidmarsh, Rethinking Adequacy of Representation,87 TEX. L. REV. 1137, 1167-68 (2009) (defining negative-value suits).

There are recent district-court cases in the Fifth Circuit that have applied Berger outside of the securities context. See Braud v. Transp. Servs. of Ill., Civ. A. Nos. 05-1898, 06-891, 05-1977, 05-5557, 2009 WL 2208524, at *10 (E.D.La. July 23, 2009) (environmental-torts class action); In re FEMA Trailer Formaldehyde Prods. Liab. Litig., No. MDL 071873, 2008 WL 5423488, at *11 (E.D.La. Dec. 29, 2008) (mass-torts class action). None is a negative-value consumer class action.

[13] See, e.g., In re Pet Food Prods. Liab. Litig., 629 F.3d 333, 343-48 (3d Cir.2010) (appeal of adequacy determination focusing on intraclass conflicts); In re Pharm. Indus. Average Wholesale Price Litig., 588 F.3d 24, 36-37 & n. 12 (1st Cir.2009) (appeal focusing on class counsel's alleged conflict of interest); In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 800-01 (3d Cir.1995) (looking only to intraclass conflicts and adequacy of class counsel to determine whether adequacy requirement met); In re M3 Power Razor Sys. Mktg. & Sales Practice Litig.,270 F.R.D. 45, 55 (D.Mass.2010) (adequacy satisfied because no intraclass conflicts existed and class counsel could adequately represent the class). One treatise explains the basis for this approach in small-claim consumer cases:

[I]n small claims cases [class representatives] have so little at stake that it would be irrational for them to take more than a tangential interest, while in all cases, including larger claim cases, class representatives generally lack the legal acumen to make key decisions about complex class action litigation, much less to monitor savvy class counsel. It has long been understood that class counsel control class actions, perhaps even selecting the class representatives themselves, thereby reversing, not inscribing, the standard attorney/client relationship. Put simply, class action attorneys are the real principals and the class representative/clients their agents.

1 RUBENSTEIN ET AL., NEWBERG ON CLASS ACTIONS § 3.52 (Internal footnotes omitted).

[14] See Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 786 (7th Cir.2004) (Posner, J.) (explaining that, "[w]hen individual notice is infeasible, notice by publication in a newspaper of national circulation (here USA Weekend, a magazine that is included in hundreds of Sunday newspapers) is an acceptable substitute," but also noting that, in this age of digital communications, newspaper notice should be supplemented by Internet notice).

[15] The summary notice defined the class; explained what constituted "qualifying losses" and "identity-theft-related charges"; explained how to make a valid claim for such losses and charges; explained the recovery limits for such losses and charges; disclosed the requests for attorneys' fees and incentive awards; discussed when a hearing on approving the settlement would be, in which any class member could speak; and directed class members to the website (or to a toll-free phone number) where they could obtain or request further information about the settlement, including how to opt out or object. See AGGREGATE LITIGATION § 3.04(c). The detailed notice provided the same categories of information in a way that was more specific but still understandable. The detailed notice was subdivided and formatted to make it easy for a class member to get more information on a desired topic. The sections are: Basic Information, Who Is in the Settlement, The Settlement Benefits — What You Get If You Qualify, How to Get Benefits — Submitting a Claim Form If You Qualify, Excluding Yourself from the Settlement, The Lawyers Representing You, Objecting to the Settlement, The Court's Fairness Hearing, If You Do Nothing, and Getting More Information. (Docket Entry No. 76, Ex. 2, Attach. A).

[16] Other circuits use similar multifactor tests in determining a proposed settlement's fairness. See, e.g., Sullivan, 667 F.3d at 319-20 (nine-factor test); In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 946 (9th Cir.2011) (eight-factor test).

[17] See, e.g., Stott, 277 F.R.D. at 345 (explaining that approval of the proposed settlement "would avoid those costs and difficulties" and risks associated with motions practice, trial, and appeal and that "approving the settlement at this stage would provide an immediate and automatic benefit to the class" (internal quotation marks omitted)); Vaughn v. Am. Honda Motor Co., 627 F.Supp.2d 738, 746 (E.D.Tex.2007) ("Review of the circumstances in this case demonstrates that the monetary benefit and the extensions of the warranty and lease periods far outweigh the plaintiffs' uncertain prospects of success were the case fully litigated."); In re Enron Corp. Securities, Derivative & "ERISA" Litig. ("Enron I"), 228 F.R.D. 541, 566 (S.D.Tex.2005) ("The settlement at this point would save great expense and would give the Plaintiffs hard cash, a bird in the hand.").

[18] The American Law Institute's Principles of Aggregate Litigationsummarizes the law on cy pres provisions:

[M]any courts allow a settlement that directs funds to a third party when funds are left over after all individual claims have been satisfied. Subject to a narrow exception in subsection (c), this Section approves of that type of cy pres only when it is not feasible to make further distributions to class members and the third party's interests approximate those of the class members.

AGGREGATE LITIGATION § 3.07 cmt. a. Subsection (c) states that the court should consider "the criteria set forth in subsections (a) and (b)." Id. § 3.07(c). One criteria listed in subsection (b) that the court can consider is whether "other specific reasons exist that would make such further distributions [to participating class members] impossible or unfair." Id. § 3.07(b). In this case, it clearly is impractical to distribute the $1 million to absent class members not filing claims. It also is clearly inappropriate to divide $1 million equally among the very few class members — as few as 11 — who have filed valid claims. That would provide them a huge windfall. Allowing those class members with valid claims to receive the amount of their valid claim and then spreading any remaining unclaimed funds between the three nonprofit organizations that focus on improving payment-card security seems a reasonable, and fair, approach.

[19] The court has slightly modified class counsel's calculation to account for the most recent fees-and-costs report, which postdated its motion for a fee award and supporting memorandum by one month.

[20] See, e.g., Victor v. Argent Classic Convertible Arbitrage Fund L.P., 623 F.3d 82, 86 (2d Cir. 2010) ("It is well established that the common fund doctrine permits attorneys whose work created a common fund for the benefit of a group of plaintiffs to receive reasonable attorneys' fees from the fund."); In re Cendant Corp. Securities Litig. ("Cendant II"), 404 F.3d 173, 187 (3d Cir.2005) ("The [commonfund] doctrine provides that a private plaintiff, or plaintiff's attorney, whose efforts create, discover, increase, or preserve a fund to which others also have a claim, is entitled to recover from the fund the costs of his litigation, including attorneys' fees." (internal quotation marks omitted)); Brian T. Fitzpatrick, Do Class Action Lawyers Make Too Little?, 158 U. PA. L. REV. 2043, 2051 (2010) ("In most cases, [class counsel's] fee awards came from proceeds that would otherwise go to class members. These cases are often called `common fund' cases, and class counsel are compensated from the fund on the theory that it would be unjust to enrich the class without also rewarding the counsel that created the class's enrichment."). As with any fee award under Rule 23(h), class counsel must petition the court to receive a fee award directly from that fund.

[21] The Johnson multifactor test and its variations in other circuits, see, e.g., Goldberger v. Integrated Res., Inc., 209 F.3d 43, 50 (2d Cir.2000) (six factors), have been criticized as "highly indeterminate." Fitzpatrick, Do Class Action Lawyers Make Too Little?, supra, at 2046. The Tenth Circuit reads the Supreme Court's recent decision in Perdue v. Kenny A. ex rel. Winn, ___ U.S. ___, 130 S.Ct. 1662, 176 L.Ed.2d 494 (2010), as "appear[ing] to significantly marginalize the twelve-factor Johnson analysis, which it discount[ed] as just `[o]ne possible method' that `gave very little actual guidance' and, due to its `series of sometimes subjective factors[,]... produced disparate results.'" Anchondo v. Anderson, Crenshaw & Assocs., L.L.C., 616 F.3d 1098, 1104 (10th Cir.2010) (quoting Perdue, 130 S.Ct. at 1671-72). Notwithstanding these criticisms, however, this court is bound by Fifth Circuit precedent to apply the twelve Johnson factors, whether the lodestar or percentage method is employed. See Dell, 669 F.3d at 642-44.

[22] See, e.g., Bluetooth Headset, 654 F.3d at 943; Gen. Motors, 55 F.3d at 820; Radosti v. Envision EMI, LLC, 760 F.Supp.2d 73, 77 (D.D.C.2011); In re Excess Value Ins. Coverage Litig., 598 F.Supp.2d 380, 382 n. 2 (S.D.N.Y.2005); Tiana S. Mykkeltvedt, Note, Common Benefit and Class Actions: Eliminating Artificial Barriers to Attorney Fee Awards, 36 GA. L. REV. 1149, 1170 (2002).

[23] See also Brian Wolfman & Alan B. Morrison, Representing the Unrepresented in Class Actions Seeking Monetary Relief, 71 N.Y. U. L. REV. 439, 504 (1996) (noting that even when fees are negotiated after agreement is reached on payment to the class and that negotiation results in the defendant paying fees separately from the fund created for class recovery, the defendant "has made at least a mental calculation of the total amount to be paid and then simply allocated a portion to the class and the rest to the plaintiff's attorneys' fees," and similarly arguing in favor of viewing "direct payments of fees from the defendant to the plaintiffs' lawyers as payments into the common fund").

[24] See also Gen. Motors, 55 F.3d at 820 (noting that "the potential for conflict between the class and its counsel is not limited to situations meeting the strict definitions of a common fund," and that courts must continue to ensure that the fees are reasonable, in part to avoid the risk that class counsel may agree to a class settlement "in exchange for red-carpet treatment for fees[.]") (quoting Weinberger v. Great N. Nekoosa Corp., 925 F.2d 518, 524 (1st Cir.1991)).

[25] See AGGREGATE LITIGATION § 3.13(b); see also Victor, 623 F.3d at 88 (2d Cir.); In re AT & T Corp., 455 F.3d 160, 164 (3d Cir.2006); Staton v. Boeing Co., 327 F.3d 938, 974 (9th Cir.2003); Physicians of Winter Haven LLC v. Steris Corp., No. 1:10 CV 264, 2012 WL 406966, at *3 (N.D.Ohio Feb. 6, 2012) (explaining that "the best approach would be to employ both the lodestar and percentage of the fund methodologies so as to cross-check the results obtained by each and thereby ensure a more accurate and well-reasoned award"); Altier v. Worley Catastrophe Response, LLC, Civ. A. Nos. 11-241, 11-242, 2012 WL 161824, at *21 (E.D.La. Jan. 18, 2012) (using percentage method to cross-check "the Fifth Circuit's apparently preferred lodestar method"); In re Wachovia Corp. ERISA Litig., Civ. No. 3:09cv262, 2011 WL 5037183, at *3 (W.D.N.C. Oct. 24, 2011) ("Even where the percentage method is used, however, the lodestar calculation may still be applied as a `cross-check' in the determination of a reasonable percentage." (citing MANUAL § 14.121)); Eisenberg & Miller I, supra,at 32 (explaining courts' adoption of cross-checking the percentage method against the lodestar method).

There are cases in which courts should use the lodestar method rather than the percentage-of-fund approach. The lodestar is most appropriate in cases with a statutory provision for fee-shifting. In Perdue v. Kenny A. ex rel. Winn, ___ U.S. ___, 130 S.Ct. 1662, 176 L.Ed.2d 494 (2010), "the Supreme Court recently extolled [the lodestar method's] virtues and reaffirmed its dominant role in federal fee-shifting cases." Pickett v. Sheridan Health Care Ctr., 664 F.3d 632, 641 (7th Cir.2011) (citing Perdue, 130 S.Ct. at 1672); see also, e.g., Sullivan, 667 F.3d at 330; Bluetooth Headset, 654 F.3d at 941; Spooner v. EEN, Inc., 644 F.3d 62, 67 n. 3 (1st Cir.2011); AGGREGATE LITIGATION § 3.13(c). And if a court specifically concludes that the percentage method would be unfair or inapplicable based on the specific facts and circumstances, such as when the percentage method would significantly undercompensate class counsel, the lodestar method may be appropriate. See Sullivan, 667 F.3d at 330; see also Jeter v. Astrue, 622 F.3d 371, 378-79 (5th Cir.2010) (recognizing, in the social-security context, that using the lodestar method may undercompensate counsel); AGGREGATE LITIGATION § 3.13(c).

[26] See MANUAL § 21.71 ("Compensating counsel for the actual benefits conferred on the class members is the basis for awarding attorney fees."); AGGREGATE LITIGATION § 3.13(a) ("Attorneys' fees in class actions, whether by litigated judgment or by settlement, should be based on both the actual value of the judgment or settlement to the class and the value of cy pres awards[.]"); see also Keene v. Coldwater Creek, Inc., No. C 07-05324 WHA, 2009 WL 1833992, at *2, *3 (N.D.Cal. June 23, 2009) (rejecting requested fee award as "far out of proportion to the actual benefit conferred on the class" and explaining that "[a] key consideration should be reasonableness in light of the benefits actually conferred"); Sloop v. Ameritech Corp., No. EV 95-128-C H/L, 2003 WL 21989997, at *4 (S.D.Ind. Aug. 23, 2003) (stating the court's "concern[] with the proportion between the net benefits to the class and the fee for class counsel as an important factor in considering the reasonableness of any fee award, especially where class counsel have attempted to support their fee request based on the benefits to the class"); Duhaime v. John Hancock Mut. Life Ins. Co., 989 F.Supp. 375, 380 (D.Mass. 1997) (approving fee award in a manner that "will help ensure that the fee award is proportionate to the actual value created for the class"). Cf. In re Philip Servs. Corp. Securities Litig., No. 98 Civ. 835(AKH), 2007 WL 959299, at *3 (S.D.N.Y. Mar. 28, 2007) (explaining that a lodestar positive multiplier is appropriate "as long as it does not exceed a proper proportion in relation to the total benefit produced to the class for whose benefits the services were rendered"); cf. also Int'l Precious Metals Corp. v. Waters, 530 U.S. 1223, 120 S.Ct. 2237, 147 L.Ed.2d 265 (2000) (O'Connor, J., concurring in denial of certiorari) (noting "several troubling consequences" in cases approving attorneys' fees where there lacks "some rational connection between the fee award and the amount of the actual distribution to the class").

[27] See generally James Verini, The Great Cyberheist, N.Y. TIMES (Magazine), Nov. 14, 2010, at MM44.

[28] Other courts also use the blended method. See Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1048 (9th Cir.2002); In re Vioxx Prods. Liab. Litig., 760 F.Supp.2d 640, 651-52 (E.D.La.2010) (citing cases within Fifth Circuit applying blended percentage method); Klein, 705 F.Supp.2d at 674-75 (N.D.Tex.); Ramah Navajo Chapter v. Norton, 250 F.Supp.2d 1303, 1316 (D.N.M.2002); cf. Faught v. Am. Home Shield Corp., 668 F.3d 1233, 1242 (11th Cir.2011) (explaining that the Johnson factors must be applied "[w]here the requested fee exceeds 25%").

[29] Alexandra D. Lahav, Two Views of the Class Action, 79 FORDHAM L. REV. 1939, 1957 (2011); Martin H. Redish, Peter Julian, & Samantha Zyontz, Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis, 62 FLA. L. REV. 617, 620-21 (2010).

[30] Some courts appear to have valued cy pres payments the same way as money paid directly to class members, on a dollar-for-dollar basis. See Harris v. Vector Mktg. Corp., No. C-08-5198 EMC, 2012 WL 381202, at *5 (N.D.Cal. Feb. 6, 2012); McKinnie v. JP Morgan Chase Bank, N.A., 678 F.Supp.2d 806, 816 (E.D.Wis.2009); Parker v. Time Warner Entm't Co., 631 F.Supp.2d 242, 269 (E.D.N.Y. 2009). None of these courts, however, explained the reason for that valuation.

[31] See also In re Mexico Money Transfer Litig., 267 F.3d 743, 746 (7th Cir.2001); Jones v. Diamond, 594 F.2d 997, 1022-23 (5th Cir. 1979); 7AA WRIGHT ET AL., FEDERAL PRACTICE AND PROCEDURE § 1788 ("it now is clear that all notice costs must be borne by the plaintiffs").

[32] See In re Ky. Grilled Chicken Coupon Mktg. & Sales Practices Litig., 280 F.R.D. 364, 385-86, 2011 WL 5599129, at *18 (N.D.Ill.2011); Schulte v. Fifth Third Bank, 805 F.Supp.2d 560, 569 & n. 8, 597 (N.D.Ill.2011); Hartless v. Clorox Co., 273 F.R.D. 630, 645 (S.D.Cal. 2011); Sauby v. City of Fargo, No. 3:07-cv-10, 2009 WL 2168942, at *3 (D.N.D. July 16, 2009); see also Sobel v. Hertz Corp., No. 3:06-CV-00545-LRH-RAM, 2011 WL 2559565, at *13 (D.Nev. June 27, 2011) (stating that "the only components with any determinate ... value are the attorneys' fees, incentive payments and to some extent the costs of notice and administration"); Theodore Eisenberg & Geoffrey Miller, The Role of Opt-Outs and Objects in Class Action Litigation: Theoretical and Empirical Issues, 57 VAND. L. REV. 1529, 1544-45 (2004) (including "costs of notice or settlement administration paid by the defendant" in valuing the relief provided by a class-action settlement). The Ninth Circuit has held that "where the defendant pays the justifiable cost of notice to the class — but not, as here, an excessive cost — it is reasonable (although certainly not required) to include that cost in a putative common fund benefitting the plaintiffs for all purposes, including the calculation of attorneys' fees." Staton, 327 F.3d at 975.

[33] "In those cases where the defendant makes the direct payment" of attorneys' fees as a part of the settlement, separate from the fund to be distributed to the class, the defendant "has made at least a mental calculation of the total amount to be paid and then simply allocated a portion to the class and the rest to the plaintiff's attorneys' fees." Wolfman & Morrison, Representing the Unrepresented in Class Actions Seeking Monetary Relief, supra, at 504.

[34] (Docket Entry No. 111, at 28; see also id., at 30 (the settlement provides "peace of mind"), 31 (the settlement "provide[s] comfort to people that may otherwise be restless"); id., at 41 (the settlement remedies a "feeling of insecurity")).

[35] An example of credit monitoring is Experian's Credit Tracker Credit Monitoring Service, which costs $14.95 per month per individual. See Credit Monitoring, EXPERIAN, http://www.experian.com/consumer-products/creditmonitoring.html/(last visited Mar. 15, 2012). Even assuming a volume discount, actual credit monitoring for one hundred million people would be far more costly and a far different settlement than was achieved here. Moreover, the facts do not present any need for such monitoring.

[36] See Brian T. Fitzpatrick, An Empirical Study of Class Action Settlements and Their Fee Awards, 7 J. EMPIRICAL LEGAL STUDIES 811 (2010) ["Fitzpatrick"]; Theodore Eisenberg & Geoffrey Miller, Attorney Fees and Expenses in Class Action Settlements: 1993-2008, 7 J. EMPIRICAL LEGAL STUDIES 248 (2010) ["Eisenberg & Miller II"]; Theodore Eisenberg & Geoffrey P. Miller, Attorney Fees in Class Action Settlements: An Empirical Study, 1 J. EMPIRICAL LEGAL STUDIES 27 (2004) ["Eisenberg & Miller I"].

[37] See Pavlik v. FDIC, No. 10 C 816, 2011 WL 5184445, at *4 (N.D.Ill. Nov. 1, 2011); In re AT & T Mobility Wireless Data Servs. Sales Tax Litig., 792 F.Supp.2d 1028, 1033 (N.D.Ill. 2011); In re Lawnmower Engine Horsepower Mktg. & Sales Practices Litig., 733 F.Supp.2d 997, 1013-14 (E.D.Wis.2010); In re OCA, Inc. Securities & Derivative Litig., Civ. A. No. 05-2165, 2009 WL 512081, at *20 (E.D.La. Mar. 2, 2009); Turner, 472 F.Supp.2d at 862-63 & n. 28 (citing cases). Cf. In re Vioxx Prods. Liab. Litig., 760 F.Supp.2d 640, 652-53 (E.D.La.2010) (recognizing the usefulness of the empirical studies but determining that they were not helpful in that case given the unique nature of the Vioxx settlement). But cf. McDonough v. Toys "R" Us, Inc., 834 F.Supp.2d 329, 344, 2011 WL 6425116, at *12 (E.D.Pa.2011) ("The academy, however, is only one source of data, and lower medians do not preclude higher percentage awards for attorneys' fees."); In re Cabletron Sys., Inc. Securities Litig., 239 F.R.D. 30, 37 n. 12 (D.N.H.2006) (explaining how uncritical reliance on the Eisenberg and Miller study can "lend itself to manipulation by counsel" because counsel can use the study's approach to request a fee award near the high end of one standard deviation above the mean).

[38] See, e.g., In re MetLife Demutualization Litig., 689 F.Supp.2d 297, 359 (E.D.N.Y.2010); Loudermilk Servs., Inc. v. Marathon Petroleum Co., 623 F.Supp.2d 713, 723-24 (S.D.W.Va. 2009).

[39] Eisenberg & Miller II, supra, at 251.

[40] Fitzpatrick, supra, at 817.

[41] Eisenberg & Miller II, supra, at 265.

[42] Eisenberg & Miller I, supra, at 74.

[43] Fitzpatrick, supra, at 839.

[44] Eisenberg & Miller II, supra, at 262

[45] Fitzpatrick, supra, at 835.

[46] Id. at 836.

[47] There is one exception, which is negligible: 11.2 hours spent by one attorney with Barnow and Associates. (Docket Entry No. 113, Ex. 2, at 1). Otherwise, all the time spent appears to have been included in the fee-award submission.

[48] Fitzpatrick, supra, at 836.

[49] This award reflects a 16.4% negative adjustment from class counsel's $725,000 fee request.

[50] District courts following this approach in other circuits agree. See Kay Co. v. Equitable Prod. Co., 749 F.Supp.2d 455, 469-70 (S.D.W.Va.2010); Fernandez v. Victoria Secret Stores, LLC, No. CV 06-04149 MMM (SHx), 2008 WL 8150856, at *9 n. 35 (C.D.Cal. July 21, 2008); In re Tyco Int'l, Ltd. Multidistrict Litig., 535 F.Supp.2d 249, 270 (D.N.H.2007); Young v. Polo Retail, LLC, No. C-02-4546 VRW, 2007 WL 951821, at *6 (N.D.Cal. Mar. 28, 2007); Turner, 472 F.Supp.2d at 867; In re Royal Ahold N.V. Securities & ERISA Litig., 461 F.Supp.2d 383, 385 (D.Md.2006); In re Xcel Energy, Inc., Securities, Derivative & "ERISA" Litig., 364 F.Supp.2d 980, 999 (D.Minn.2005).

[51] This figure excludes the entry for the Barnow and Associates attorney who was not charged for 11.2 hours of work. Were that entry to be added, the mean hourly rate would decrease to $395.86.

[52] See Prudential Ins. Co., 148 F.3d at 341 (recognizing that "[m]ultiples ranging from one to four are frequently awarded in common fund cases when the lodestar method is applied" (quoting 4 RUBENSTEIN ET AL., NEWBERG ON CLASS ACTIONS § 14:6)); Vaughn R. Walker & Ben Horwich, The Ethical Imperative of a Lodestar Cross-Check: Judicial Misgivings about "Reasonable Percentage" Fees in Common Fund Cases, 18 GEO. J. LEGAL ETHICS 1453, 1472 (2005) ("In our informal review [of opinions evaluating a lodestar cross-check], the multipliers ranged from about 1.0 to over 5.0, with a substantial number of multipliers in the 3.0 to 4.0 range.").

[53] Cf. High Sulfur Content, 517 F.3d at 228 ("The district court may adjust the lodestar upward or downward after a review of the twelve factors set forth in Johnson."); Saizan, 448 F.3d at 800 ("After calculating the lodestar, the court may decrease or enhance the amount based on the relative weights of the twelve factors set forth in Johnson.").

[54] The record supports reducing the number of hours expended by 15% across the board to account for the absence of billing judgment and the lack of information provided, resulting in an approximate lodestar of $668,975.94. That amount is further reduced by the Johnson factors not subsumed within the lodestar analysis that support a negative adjustment: the absence of evidence of time limitations and relationship with clients, and, to some extent, the novelty and difficulty of the issues presented. Applying a 5% negative adjustment to that lodestar results in a fee award of $635,527.14.

[55] Cf. Theodore Eisenberg & Geoffrey P. Miller, Incentive Awards to Class Action Plaintiffs: An Empirical Study, 53 UCLA L. REV. 1303, 1310 (2006) (arguing that "incentive awards serve multiple goals": compensating representative plaintiffs for costs and superior service to the class).