CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT.

[473] S. Hazard Gillespie argued the cause for petitioner. With him on the briefs were Sheila T. McMeen and Bruce A. Baird.

Norman Winer argued the cause for respondents and filed a brief for certain respondents. Stuart D. Wechsler, Samuel K. Rosen, and Samuel Weinstein filed a brief for other respondents.^[1]

MR. JUSTICE POWELL delivered the opinion of the Court.

The question presented in this class action is whether a proportionate share of the fees awarded to lawyers who represented the successful class may be assessed against the unclaimed portion of the fund created by a judgment.

[474] I

In March 1966, The Boeing Co. called for the redemption of certain convertible debentures. Boeing announced the call through newspaper notices and mailings to investors who had registered their debentures. The notices, given in accordance with the indenture agreement, recited that each $100 amount of principal could be redeemed for $103.25 or converted into two shares of the company's common stock. They set March 29 as the deadline for the exercise of conversion rights. Two shares of the company's common stock on that date were worth $316.25. When the deadline expired, the holders of debentures with a face value of $1,544,300 had not answered the call. These investors were left with the right to redeem their debentures for slightly more than face value.

Van Gemert and several other nonconverting debenture holders brought a class action against Boeing in the United States District Court for the Southern District of New York. They claimed that Boeing had violated federal securities statutes as well as the law of New York by failing to give them reasonably adequate notice of the redemption. As damages, they sought the difference between the amount for which their debentures could be redeemed and the value of the shares into which the debentures could have been converted. The District Court dismissed the action on the ground that Boeing had given its debenture holders the notice required by the indenture agreement. The Court of Appeals for the Second Circuit reversed and remanded. It held that, under the New York law of contracts, the indenture agreement contained an implied obligation to give debenture holders reasonable notice of a redemption. The court concluded that the notice actually given was inadequate. 520 F. 2d 1373, cert. denied, 423 U. S. 947 (1975).

On remand, the District Court awarded as damages the difference between the redemption price of the outstanding debentures and the price at which two shares of Boeing's [475] common stock traded on the last day for exercising conversion rights. The court, however, refused to assess prejudgment interest against Boeing. There followed a second appeal. The class claimed that the stock should have been valued as of a later date and that Boeing was liable for prejudgment interest. Class members who had filed individual claims also contended that they were entitled to receive pro rata shares of any unclaimed damages. At the least, they argued, they should receive enough of the unclaimed money to pay their legal expenses.

The Court of Appeals found the class entitled to prejudgment interest on the award, but it approved the valuation date. The court also concluded that class members who proved their individual claims should not share in the unclaimed portion of the judgment. Allowing these class members to receive a proportionate part of the unclaimed money, the court held, would create the sort of "fluid class" recovery rejected in Eisen v. Carlisle & Jacquelin, 479 F. 2d 1005 (CA2 1973), vacated and remanded on other grounds, 417 U. S. 156 (1974). Such a recovery would expropriate funds belonging to class members who had not asserted their claims and give a windfall to those who had claimed. Finally, the court decided that claiming class members could not use the unclaimed portion of the judgment to defray their legal expenses. Since Boeing could have a right to money that never was claimed, the court thought that awarding attorney's fees from the remaining funds might shift fees to the losing party in violation of the American rule reaffirmed in Alyeska Pipeline Service Co. v. Wilderness Society, 421 U. S. 240 (1975). 553 F. 2d 812 (1977).

On the second remand, the District Court entered the judgment now at issue. The court first established the amount of Boeing's liability to the class as a whole. It provided that respondents, "in behalf of all members of the plaintiff class, . . . shall recover as their damages . . . the principal sum [476] of $3,289,359 together with [prejudgment] interest. . . ." App. 40a.^[2] The court then fixed the amount that each member of the class could recover on a principal amount of $100 in debentures. Each individual recovery was to carry its proportionate share of the total amount allowed for attorney's fees, expenses, and disbursements.^[3] That share, the court declared, "shall bear the same ratio to all such fees, expenses and disbursements as such class member's recovery shall bear to the total recovery" awarded the class. Id., at 40a-41a. Finally, the court ordered Boeing to deposit the amount of the judgment into escrow at a commercial bank,^[4] and it appointed a Special Master to administer the judgment and pass on the validity of individual claims.^[5] The court retained jurisdiction pending implementation of its judgment.

[477] Boeing appealed only one provision of the judgment. It claimed that attorney's fees could not be awarded from the unclaimed portion of the judgment fund for at least two reasons. First, the equitable doctrine that allows the assessment of attorney's fees against a common fund created by the lawyers' efforts was inapposite because the money in the judgment fund would not benefit those class members who failed to claim it. Second, because Boeing had a colorable claim for the return of the unclaimed money, awarding attorney's fees from those funds might violate the American rule against shifting fees to the losing party. Therefore, Boeing contended, the District Court should award attorney's fees from only the portion of the fund actually claimed by class members. A panel of the Court of Appeals agreed with Boeing, 573 F. 2d 733 (1978), but the court en banc affirmed the District Court's judgment, 590 F. 2d 433 (1978).

The Court of Appeals en banc found that each class member had a "present vested interest in the class recovery" and that each could collect his share of the judgment upon request. [478] Thus, the court held, absentee class members had received a benefit within the meaning of the common-fund doctrine. Id., at 439. The court also found its holding consistent with the American rule. It noted that lawyers for the class would receive their fees "from the amount for which Boeing has already been held liable. There is no `surcharge' on the defeated litigant." Id., at 441-442. We granted certiorari, 441 U. S. 942 (1979), and we now affirm.

II

Since the decisions in Trustees v. Greenough, 105 U. S. 527 (1882), and Central Railroad & Banking Co. v. Pettus, 113 U. S. 116 (1885), this Court has recognized consistently that a litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney's fee from the fund as a whole. See Mills v. Electric Auto-Lite Co., 396 U. S. 375 (1970); Sprague v. Ticonic National Bank, 307 U. S. 161 (1939); cf. Hall v. Cole, 412 U. S. 1 (1973). The common-fund doctrine reflects the traditional practice in courts of equity, Trustees v. Greenough, supra, at 532-537, and it stands as a well-recognized exception to the general principle that requires every litigant to bear his own attorney's fees, Alyeska Pipeline Service Co. v. Wilderness Society, 421 U. S., at 257-258. The doctrine rests on the perception that persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant's expense. See, e. g., Mills v. Electric Auto-Lite Co., 396 U. S., at 392. Jurisdiction over the fund involved in the litigation allows a court to prevent this inequity by assessing attorney's fees against the entire fund, thus spreading fees proportionately among those benefited by the suit. See id., at 394.

In Alyeska Pipeline Service Co. v. Wilderness Society, supra, we noted the features that distinguished our common-fund cases from cases where the shifting of fees was inappropriate. First, the classes of persons benefited by the lawsuits "were [479] small in number and easily identifiable." 421 U. S., at 265, n. 39. Second, "[t]he benefits could be traced with some accuracy. . . ." Ibid. Finally, "there was reason for confidence that the costs [of litigation] could indeed be shifted with some exactitude to those benefiting." Ibid. Those characteristics are not present where litigants simply vindicate a general social grievance. Id., at 263-267, and n. 39. On the other hand, the criteria are satisfied when each member of a certified class has an undisputed and mathematically ascertainable claim to part of a lump-sum judgment recovered on his behalf. Once the class representatives have established the defendant's liability and the total amount of damages, members of the class can obtain their share of the recovery simply by proving their individual claims against the judgment fund. This benefit devolves with certainty upon the identifiable persons whom the court has certified as members of the class. Although the full value of the benefit to each absentee member cannot be determined until he presents his claim, a fee awarded against the entire judgment fund will shift the costs of litigation to each absentee in the exact proportion that the value of his claim bears to the total recovery. See generally Dawson, Lawyers and Involuntary Clients in Public Interest Litigation. 88 Harv. L. Rev. 849, 916-922 (1975).

In this case, the named respondents have recovered a determinate fund for the benefit of every member of the class whom they represent. Boeing did not appeal the judgment awarding the class a sum certain.^[6] Nor does Boeing contend [480] that any class member was uninjured by the company's failure adequately to inform him of his conversion rights. Thus, the damage to each class member is simply the difference between the redemption price of his debentures and the value of the common stock into which they could have been converted. To claim their logically ascertainable shares of the judgment fund, absentee class members need prove only their membership in the injured class. Their right to share the harvest of the lawsuit upon proof of their identity, whether or not they exercise it, is a benefit in the fund created by the efforts of the class representatives and their counsel. Unless absentees contribute to the payment of attorney's fees incurred on their behalves, they will pay nothing for the creation of the fund and their representatives may bear additional costs. The judgment entered by the District Court and affirmed by the Court of Appeals rectifies this inequity by requiring every member of the class to share attorney's fees to the same extent that he can share the recovery.^[7] Since the benefits of the class [481] recovery have been "traced with some accuracy" and the costs of recovery have been "shifted with some exactitude to those benefiting," Alyeska Pipeline Service Co. v. Wilderness Society, supra, at 265, n. 39, we conclude that the attorney's fee award in this case is a proper application of the common-fund doctrine.

III

The common-fund doctrine, as applied in this case, is entirely consistent with the American rule against taxing the losing party with the victor's attorney's fees. See Alyeska Pipeline Service Co. v. Wilderness Society, supra, at 247. The District Court's judgment assesses attorney's fees against a fund awarded to the prevailing class. Since there was no appeal from the judgment that quantified Boeing's liability, Boeing presently has no interest in any part of the fund.^[8] The members of the class, whether or not they assert their [482] rights, are at least the equitable owners of their respective shares in the recovery. Any right that Boeing may establish to the return of money eventually unclaimed is contingent on the failure of absentee class members to exercise their present rights of possession.^[9] Although Boeing itself cannot be obliged to pay fees awarded to the class lawyers, its latent claim against unclaimed money in the judgment fund may not defeat each class member's equitable obligation to share the expenses of litigation.

The judgment of the Court of Appeals is

Affirmed.

MR. JUSTICE REHNQUIST, dissenting.

In disposing of this case on the merits, the Court gives short shrift to the question of appealability, a threshold issue by no means free from doubt even under the most generous view of our decided cases. I have concluded from these cases, viewed in light of the longstanding policy of the federal judicial system against piecemeal appeals, that the judgment now before us lacks the finality required by 28 U. S. C. § 1291, and I would therefore remand this case to the Court of Appeals with instructions to dismiss Boeing's appeal. Exhibit "A" of the shortsightedness of the Court's sloughing off the issue of appealability as it does is the fact that the parties are obliged to refer to the present case not merely as "Van Gemert," but as "Van Gemert III." This case, which began in March 1966, has been appealed to the Court of Appeals for the Second Circuit three times, and now, after 14 years of litigation, this Court affirms the third decision of the Court of Appeals.

There is no doubt as to the appealability of the first of the three decisions of the District Court, since it dismissed [483] respondents' complaint with prejudice. The second appeal was also by respondents from a determination by the District Court that respondents were not entitled to any prejudgment interest; this decision was also reversed by the Court of Appeals. Following this second remand, the District Court entered a "Judgment and Order" stating that Boeing was liable to respondent class in the amount of $3,289,359 plus interest, ordering Boeing to pay this amount into escrow, and indicating that respondents' attorneys could recover their fees "out of said total amount of this judgment." At this point, Boeing appealed for the first time, asserting that respondents' attorneys should collect their fees only out of that portion of the fund actually claimed. As noted by the Court, the Court of Appeals en banc affirmed this aspect of the District Court's order.

The novelty of the question posed by Boeing is attributable in large part to the historic prevalence of the "American rule," which generally prevents a court from requiring the losing party to pay the prevailing party's attorney's fees. In recent years, however, the proliferation of class actions and the enactment of various statutes modifying the American rule^[10] have multiplied the opportunities for recovering attorney's fees and have simultaneously spawned a great deal of litigation over assessment of those fees. These developments lend added significance to the procedural implications of our decisions in this area.

In the typical American-rule case, the federal judicial system, by statute and rule, has generally made a final order a prerequisite to appellate review. A judgment is not considered final, and therefore appealable, until the district court has completed all but the most ministerial acts. Arguably, [484] litigation necessitating an award of attorney's fees should be treated no differently. It would be quite reasonable, I believe, to postpone appeal in such cases until the District Court had entered judgment not only on liability and damages, but also on whether and in what amount attorney's fees will be assessed. Cf. Liberty Mutual Ins. Co. v. Wetzel, 424 U. S. 737 (1976) (dismissing appeal from judgment of liability in Title VII action under Civil Rights Act of 1964 where requests for injunction, damages, and attorney's fees remained pending in the District Court).

For better or for worse, the little precedent that exists in this area has tended to deviate from such a sensible approach. This deviation has been particularly noticeable when the right to attorney's fees has been based on the existence of a "common fund" such as that discussed in the opinion of the Court. Beginning with Trustees v. Greenough, 105 U. S. 527 (1882), the Court has evidenced a willingness to treat the division of the common fund as a separate piece of litigation for purposes of appeal. In Greenough, for example, this Court entertained an appeal from an order allowing a successful plaintiff bondholder to recover attorney's fees even though the original action remained pending in the trial court for purposes of administration. The Court stated that the award of fees, "though incidental to the [original] cause," was sufficiently "collateral," "distinct," and "independent," to be appealable in its own right. Id., at 531.

From Greenough it was an analytically short, though temporally long, step to the decision of the Court of Appeals for the Seventh Circuit in Swanson v. American Consumer Industries, Inc., 517 F. 2d 555 (1975). In that shareholders' derivative suit, the District Court entered judgment in favor of plaintiffs and awarded damages. Seven months later it granted attorney's fees to prevailing counsel under an "extension" of Greenough. 517 F. 2d, at 560. Two notices of appeal were filed from this latter order, one on behalf of [485] plaintiffs challenging the amount of damages and the other on behalf of plaintiffs and their attorneys challenging the amount of attorney's fees. The Court of Appeals dismissed the appeal on the question of damages as untimely, reasoning that the District Court's determination of damages was final, and therefore appealable, upon entry of the first order.

Greenough and Swanson represent two sides of the same coin. If an attorney's attempt to secure fees from the common fund is "collateral" enough to support an independent appeal despite the continued pendency of the main litigation,^[11] then the judgment establishing the fact and amount of the defendant's liability in the main litigation should also support a separate appeal despite the continued pendency of a dispute over division of the fund between the beneficiaries and their attorneys.^[12]

[486] Implicit in this bifurcated approach to appealability in common-fund cases is a strict bifurcation of the issues that can be litigated in either appeal. Thus, this Court would not have permitted the trustees in Greenough to contest in their appeal the merits of the dispute that generated the common fund. Nor, I venture, would the Court of Appeals for the Seventh Circuit have allowed a timely appeal on the issue [487] of damages to challenge the amount of attorney's fees assessed, an issue that was the subject of a later, separate appeal. In each case, appellant would be powerless to reach backward or forward from the "collateral" proceeding to the "merits" of the lawsuit.

But this is exactly what the Court permits Boeing to do in this case. Assuming, as seems likely, that the Greenough/ Swanson model of bifurcated appealability will prevail, I have no doubt that Boeing could have appealed, at this stage of the proceedings, from the judgment that it was liable to the plaintiff class in the amount of $3,289,359 plus interest. But as the Court concedes, indeed stresses, Boeing has not challenged either the fact of liability or the amount. See ante, at 479-480, n. 5. Such an appeal must have appeared futile in light of Van Gemert I, 520 F. 2d 1373 (1975), which established liability, and Van Gemert II, 553 F. 2d 812 (1977), which established the precise amount of damages payable to each member of the class. Instead, Boeing relies on the "finality" of the District Court's judgment on the merits, the Swanson side of the coin, to prosecute an appeal on the division of the common fund, the Greenough side of the coin. As noted above, such crisscrossing of contentions is inconsistent with a bifurcated approach to appellate litigation in common-fund cases.

Even if Boeing is to be allowed to appeal under the "collateral order" rubric in this case, the order from which it appealed was not final even under the doctrine. Greenough itself noted that the trustees brought their appeal from "a final determination of the particular matter arising upon the complainant's petition for allowances. . . ." 105 U. S., at 531 (emphasis added). Similarly, Cohen v. Beneficial Industrial Loan Corp., 337 U. S. 541 (1949), which formalized the "collateral order" doctrine presaged in Greenough, requires that the order appealed from be the "final disposition of a claimed right which is not an ingredient of the cause of action and does not require consideration with it." 337 U. S., at 546-547 (emphasis [488] added). In this case, however, that portion of the litigation involving the attorney's fees is still in its most nascent phase. We do not know, for example, when these fees are going to be assessed, how they will be calculated, or what will become of that portion of the fund that is neither claimed nor paid out in fees.

Nowhere does this lack of finality manifest itself more than in the Court's holding that Boeing has standing to litigate over the division of the spoils even though it may not have any continuing interest whatsoever in the money held in escrow.^[13] In allowing Boeing to base its appeal on a "colorable claim for the return of [any] excess," ante, at 481, n. 7, the Court comes dangerously close to assuming in a single phrase that Boeing has standing. At best this analysis is unnecessary, since final settlement of the conflicting claims to the fund would establish Boeing's standing once and for all. At worst it represents a dangerous dilution of the standing requirement. In any event, the anticipatory nature of the analysis necessary to reach the merits of Boeing's appeal buttresses the notion that the Court is using a dubious technique to gloss over a lack of finality.

The procedural implications of our decision today will, I fear, have a more far-reaching effect than the decision on the [489] propriety of the application of the common-fund rule for allowing fees. Were I an attorney representing a party in common-fund litigation at a juncture similar to that encountered by Boeing prior to its appeal, I would be quite confused about the propriety of an immediate appeal, either on the merits of the main cause of action or on the details of an impending assessment of fees. Fearful that, by waiting for a "final order" in the strict sense, I might forfeit my right to appeal certain aspects of the litigation, cf. Swanson v. American Consumer Industries, Inc., I probably would err in favor of filing an immediate appeal on whatever aspects of the case were bothersome at that time.^[14] From the standpoint of the federal appellate courts, such uncertainty can only result in numerous interlocutory, precautionary appeals.

In sum, I believe that the District Court's order on the division of the "common fund" lacks the finality necessary to support Boeing's appeal, and would remand this matter to the Court of Appeals with instructions to dismiss the appeal. I therefore dissent.

[1] George J. Solleder, Jr., Special Master, pro se, filed a brief as amicus curiae.

[2] The relevant paragraph of the District Court's judgment declares in full:

"ORDERED, ADJUDGED AND DECREED that plaintiffs in behalf of all members of the plaintiff class, which consists of all holders on March 29, 1966 of 4 1/2% Convertible Subordinated Debentures of the Boeing Company who failed to exercise their conversion right before it terminated on March 29, 1966, shall recover as their damages herein from the defendants the principal sum of $3,289,359 together with interest thereon at the legal rates fixed by the State of New York, N. Y. C. P. L. R. § 5001 (a) from March 9, 1966 to the date of this judgment, with costs to be taxed. . . ." App. 40a.

[3] The class lawyers have requested fees totaling about $2 million. 573 F. 2d 733, 735, n. 3 (1978) (panel opinion).

[4] Interest on the principal sum of $3,289,359 from the conversion deadline to the date of judgment amounted to $2,459,647, bringing the judgment to $5,749,006. With income earned on investments and other additions, the fund now totals over $7 million. Brief for Special Master as Amicus Curiae 4-6.

[5] The District Court gave the Special Master a broad mandate to "direct the parties in the necessary ministerial steps to effectuate the Judgment, receive all proofs of claim to participate in the Fund established by the Judgment, pass on the validity of same, direct the giving of notices to interested persons of hearings on disputed claims, conduct the necessary hearings, submit reports thereon and in general supervise the administration of the Judgment and decide all disputed questions of law and fact connected therewith subject to confirmation by the Court. . . ." App. 42a.

In the year following his appointment, the Special Master mailed notices to debenture holders who could be identified and published notices in two national newspapers. By July 15, 1978, the Special Master had received claims accounting for $290,000 worth of the $1,544,300 in unconverted debentures. Brief for Special Master as Amicus Curiae 11. The District Court then extended the time for filing proofs of claims, and the Master renewed his efforts to locate holders of the remaining debentures. Further research in files kept by the trustee under the indenture agreement revealed the identity of additional debenture holders. A professional search firm endeavored to trace holders who had relocated. Banks and brokerage houses also were furnished with information that might help them to locate clients who had invested in the debentures. As of July 18, 1979, shortly before he filed his brief with this Court, the Master had received claims accounting for $706,600 worth of debentures or about 47% of the unconverted securities. Id., at 14.

[6] Boeing contends that the judgment in this case was simply a procedural device ordering Boeing to pay into escrow its maximum potential liability to the class. The judgment will not be final, Boeing argues, until absentee class members have presented their individual claims. Thus, Boeing concludes, the judgment fund confers no benefit on class members who fail to claim against it. Brief for Petitioner 25-26, and n. [*].

We think that Boeing misreads the judgment. The District Court explicitly ordered that "plaintiffs in behalf of all members of the plaintiff class . . . shall recover as their damages herein from the defendants the principal sum of $3,289,359 together with interest. . . ." See n. 1, supra. Nothing in the court's order made Boeing's liability for this amount contingent upon the presentation of individual claims. Thus, we need not decide whether a class-action judgment that simply requires the defendant to give security against all potential claims would support a recovery of attorney's fees under the common-fund doctrine.

We also think that Boeing's arguments come too late. Although the District Court did not fix the amount of attorney's fees to be assessed against absentee class members, its judgment terminated the litigation between Boeing and the class concerning the extent of Boeing's liability. See Swanson v. American Consumer Industries, Inc., 517 F. 2d 555, 559-561 (CA7 1975). This is not a case, like Liberty Mutual Ins. Co. v. Wetzel, 424 U. S. 737 (1976), where a prayer for attorney's fees against an opposing party remains unanswered. See Richerson v. Jones, 551 F. 2d 918, 921-922 (CA3 1977). Thus, the judgment awarding the class a fixed recovery was final and appealable. Since Boeing did not appeal it, we cannot now consider whether the judgment was in error.

[7] Since an award of attorney's fees under the common-fund doctrine simply relieves claiming class members of costs incurred for the benefit of others, we see no merit in Boeing's contention that the award amounts to a "fluid class" recovery. See Tr. of Oral Arg. 20. Here, as in Eisen v. Carlisle & Jacquelin, 417 U. S. 156, 172, n. 10 (1974), we express no opinion on the validity of judgments permitting such recoveries.

[8] Although we recognize that this 14-year-old case has had a fractured career in the courts, we do not agree with MR. JUSTICE REHNQUIST'S dissenting view that the judgment before us lacks finality. Post, at 482. The District Court's judgment first ordered Boeing to pay a specified sum to the entire class and then assessed undetermined attorney's fees against the entire fund created by the judgment. The judgment on the merits stripped Boeing of any present interest in the fund. Thus, Boeing had no cognizable interest in further litigation between the class and its lawyers over the amount of the fees ultimately awarded from money belonging to the class. But Boeing did have an interest, arising from its colorable claim for the return of excess money, in whether attorney's fees could be assessed against the entire fund rather than against the portion actually claimed. Since the District Court's order assessed attorney's fees against the entire fund, it was a final judgment on the only issue in which Boeing still had an interest. In the peculiar circumstances of this case, Boeing could secure review of the allocation of fees only by appealing from this adverse judgment.

[9] The Court of Appeals did not consider the ultimate disposition of whatever money may remain in the fund after the District Court enforces a deadline for the presentation of individual claims. 590 F. 2d 433, 440, n. 17 (1978). We likewise express no opinion on that question.

[10] See, e. g., 5 U. S. C. § 552 (a) (4) (E) (permitting award of attorney's fees in actions brought under Freedom of Information Act); 15 U. S. C. § 1691e (d) (suits under Equal Credit Opportunity Act); 42 U. S. C. § 2000e-5 (k) (Title VII suits under Civil Rights Act of 1964); 42 U. S. C. § 1988 (civil-rights suits).

[11] See also Sprague v. Ticonic National Bank, 307 U. S. 161, 169 (1939) (claim for fees out of common fund "sufficiently different" from parent claim to support separate appeal); Preston v. United States, 284 F. 2d 514 (CA9 1960) (attorney's appeal from District Court's refusal to award fees on common-fund theory); Angoff v. Goldfine, 270 F. 2d 185 (CA1 1959) (attorney's appeal from District Court's refusal to grant him fees out of settlement fund).

[12] Outside the common-fund context, the consensus in the lower courts over the permissibility of bifurcated appeals dissolves. Two Courts of Appeals, including the Seventh Circuit, appear to have carried the Greenough/Swanson approach over into cases where one party recovers attorney's fees directly from an opposing party. In Hidell v. International Diversified Investments, 520 F. 2d 529 (CA7 1975), for example, appellee had brought suit under the securities laws. The District Court entered a judgment granting appellee an injunction, damages, and "reasonable" attorney's fees. The Court of Appeals, citing Swanson, allowed the defendant to appeal the merits of the dispute prior to the actual determination of those fees.

In Lowe v. Pate Stevedoring Co., 595 F. 2d 256, 257 (CA5 1979), the plaintiff had prevailed on the merits of an unfair-representation suit against his union. The District Court granted plaintiff's attorney fees as the result of the union's "bad faith," but denied plaintiff's attorney a lien against the union to secure his fee. The Court of Appeals, relying on Swanson, Preston v. United States, supra, and Cohen v. Beneficial Industrial Loan Corp., 337 U. S. 541 (1949), allowed the attorney to prosecute his appeal even though his client's prayer for reinstatement remained pending in the District Court. To the extent that the Fifth Circuit treats such an appeal as severable from the main cause of action, it might also treat an appeal from the main litigation as severable from the attorney's-fees proceeding.

Two other Courts of Appeals have rejected the bifurcated model of appealability in non-common-fund cases. In Richerson v. Jones, 551 F. 2d 918, 922 (1977), the Third Circuit confronted an appeal by the United States from a judgment of liability in a discrimination suit. The District Court's order had awarded plaintiff promotion, backpay, and interest, but had not yet ruled on plaintiff's request for attorney's fees. In holding that the United States had not appealed from a final order, the Court of Appeals relied upon Liberty Mutual Ins. Co. v. Wetzel, 424 U. S. 737 (1976), and distinguished Swanson as a case where plaintiff was not seeking to collect fees from his adversary.

Employing similar analysis, the Second Circuit twice has held that, where the obligation to pay an opposing party's attorney's fees arises out of an agreement that is also the subject of the original litigation, the attorney's-fees issue is not sufficiently collateral to allow appeal from a judgment on the merits prior to a determination of the attorney's fees. See Aetna Casualty & Surety Co. v. Giesow, 412 F. 2d 468 (1969) (suit for breach of subordination agreement); Union Tank Car Co. v. Isbrandtsen, 416 F. 2d 96 (1969) (suit to enforce settlement agreement). Judge Friendly has attempted to reconcile Giesow with the common-fund cases. See Cinerama, Inc. v. Sweet Music, S. A., 482 F. 2d 66, 70, n. 2 (CA2 1973). See also Union Tank Car Co. v. Isbrandtsen, supra, at 97.

This overview is offered only to illustrate the complexity of this issue. Perhaps all these cases can be reconciled in some principled manner; if not, it is only a matter of time before this Court will have to try its hand at an issue that obviously has been perplexing other federal courts. In the meantime, I believe that we should tread quite carefully in this area.

[13] Boeing's only interest in the funds now held in escrow is its assertion that the unclaimed portion of the judgment eventually will revert to it. But respondents have argued with some force that the unclaimed funds will eventually escheat to the State of New York. See N. Y. Aband. Prop. Law § 1200 (McKinney 1944). In fact, the Attorney General of New York already has presented such a claim to the District Court. See Brief for Respondents filed by Stuart D. Wechsler 23. If the Attorney General and respondents are correct, then Boeing has no more standing to press its appeal than would a losing defendant have standing to contest the division of an award between plaintiff and his attorney pursuant to a contingent-fee arrangement.

Although respondents have not challenged Boeing's standing, we are obligated to consider the issue sua sponte, if necessary. See, e. g., Juidice v. Vail, 430 U. S. 327, 331 (1977).

[14] The potential for confusion is even greater outside the context of common-fund litigation. See n. 3, supra.

[940] [941] [942] [943] [944] Alan B. Epstein, Spector Gadon & Rosen, P.C., Philadelphia, PA, for the Plaintiffs-Objectors-Appellants.

Bruce A. Harrell and Oscar E. Desper III, Harrell, Desper, Connell & Roesch, Seattle, Washington, and Charles K. Wiggins, Bainbridge, WA, for the Plaintiffs-Appellees.

C. Geoffrey Weirich and Maureen E. O'Neill, Paul, Hastings, Janofsky & Walker LLP, Atlanta, GA, for the Defendants-Appellees.

Before: LAY,^[1] TROTT and BERZON, Circuit Judges.

Opinion by Circuit Judge BERZON. Dissenting opinion by Circuit Judge TROTT.

BERZON, Circuit Judge.

ORDER

The panel majority opinion filed November 26, 2002, is withdrawn and the attached opinion is ORDERED filed.

With the filing of the attached opinion, a majority of the panel has voted to deny defendants/appellees' petition for rehearing. Judge Berzon has voted to deny the plaintiffs/appellees' and defendants/appellees' petitions for rehearing en banc and Judge Lay has so recommended. Judge Trott has voted to grant the petition for rehearing and to grant the petitions for rehearing en banc.

The full court was advised of the petitions for rehearing en banc. A judge of the court requested a vote on whether to rehear the matter en banc. The en banc request failed to receive a majority of the votes of the nonrecused active judges in favor of en banc consideration. Fed. R.App.P. 35.

The petition for rehearing and the petitions for rehearing en banc are DENIED.

OPINION

This case involves a consent decree in an employment discrimination class lawsuit. The action was brought in 1998 by a class of approximately 15,000 African-American employees of the Boeing Company ("Boeing" or "the Company") against the Company. The decree requires Boeing to pay $7.3 million in monetary relief to the class, less reversions and an opt-out credit,^[2] and releases Boeing from race discrimination-related and other claims. It further provides for certain injunctive relief, although much of this relief appears to be largely precatory in nature. Finally, the decree [945] awards to the lawyers for the class ("class counsel") $4.05 million in attorneys' fees.^[3]

A group of class members objected to the proposed consent decree, arguing that the class fails to meet the certification requirements of Fed.R.Civ.P. 23(a) ("Rule 23(a)") for class actions and that the settlement contained in the decree is unfair, inadequate and unreasonable under Fed. R.Civ.P. 23(e) ("Rule 23(e)"). The district court approved the decree despite the objections, and the objectors appealed to this court. After oral argument, we requested supplemental briefs from the parties concerning the attorneys' fees issues.

We hold that the district court acted within its discretion in certifying the case as a class action pursuant to Rule 23(a). We agree with the objectors, however, that the district court should not have approved the settlement agreement under Rule 23(e), because of several considerations relating to the award of attorneys' fees and because of the structure of the damages payments established by the decree.

The parties negotiated the amount of attorneys' fees as part of the settlement between the class and the Company. They included as a term of the proposed decree the amount of attorneys' fees that class counsel would receive. The action falls under the terms of two fee-shifting statutes. By negotiating fees as an integral part of the settlement rather than applying to the district court to award fees from the fund created, Boeing and class counsel employed a procedure permissible if fees can be justified as statutory fees payable by the defendant.

Boeing and class counsel did not, however, seek to justify the attorneys' fees on this basis but instead made a hybrid argument: They maintained that the award is an appropriate percentage of a putative "common fund" created by the decree even though common funds, as opposed to statutory fee-shifting agreements, usually do not isolate attorneys' fees from the class award before an application is made to the court. The district court approved the fees on that common fund basis.

The incorporation of an amount of fees calculated as if there were a common fund as an integral part of the settlement agreement allows too much leeway for lawyers representing a class to spurn a fair, adequate and reasonable settlement for their clients in favor of inflated attorneys' fees. We hold, therefore, that the parties to a class action may not include in a settlement agreement an amount of attorneys' fees measured as a percentage of an actual or putative common fund created for the benefit of the class. Instead, in order to obtain fees justified on a common fund basis, the class's lawyers must ordinarily petition the court for an award of fees, separate from and subsequent to settlement.

To assess the reasonableness of the attorneys' fees awarded by the decree, the district court compared the amount of the fees to the amount of the putative common fund and determined what percentage of this fund the fee amount constituted. This comparison is a permissible procedure when a court is determining the reasonableness of fees taken from a genuine common fund. In conducting the comparison, however, the district court included in the value of the putative fund the parties' inexact, and quite probably inflated, estimate of the value of the proposed injunctive relief. Such relief should generally be excluded from the value of a common fund [946] when calculating the appropriate attorneys' fees award, as the benefit of that relief to the class members is most often not sufficiently measurable. The fact that counsel obtained injunctive relief in addition to monetary relief for their clients is, however, a relevant circumstance to consider in determining what percentage of the fund is reasonable as fees. We hold further, therefore, that parties ordinarily may not include an estimated value of undifferentiated injunctive relief in the amount of an actual or putative common fund for purposes of determining an award of attorneys' fees.

Finally, the decree sets up a two-tiered structure for the distribution of monetary damages, awarding each class representative and certain other identified class members an amount of damages on average sixteen times greater than the amount each unnamed class member would receive. At least one person not a member of the class was provided a damages award. The record before us does not reveal sufficient justification either for the large differential in the amounts of damage awards or for the payment of damages to a nonmember of the class. On this ground as well, the district court abused its discretion in approving the settlement.

I. BACKGROUND

A. Lawsuit Filed and Settled

In September 1997, a group of African-American employees of the Company who believed that they were victims of race discrimination by Boeing consulted class counsel. Prior to the filing of this lawsuit, forty-three African-American Boeing employees filed a lawsuit in March 1998 in federal court in Seattle, Washington, alleging individual claims of race discrimination in violation of 42 U.S.C. § 1981 and the state anti-discrimination law, Wash. Rev. Code § 49.60 et seq. (the "Seattle individual action"). Several months later, in June 1998, sixteen Boeing employees, including twelve plaintiffs from the Seattle individual action, filed this class action in the same court. The employees again alleged violations of § 1981 and the state anti-discrimination law but sought to represent both themselves and other similarly-situated African-American Boeing employees. The action alleged that Boeing's promotion, compensation, and career development decisions were systematically discriminatory and that Boeing created and permitted a racially hostile work environment.

The plaintiffs amended their complaint on November 4, 1998. In the amended complaint thirty-two named plaintiffs seek to represent all African-American Boeing employees. The amended complaint alleges violations of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq., as well as violations of § 1981; it omits the state anti-discrimination claim but includes other state tort and contract causes of action. The named plaintiffs and over two hundred other Boeing employees each signed retainer agreements with class counsel. They agreed to pay class counsel an initial fee of $300 and to follow that payment with monthly payments of $200 each; the record contains several letters from class counsel to these individuals urging that the payments be brought up to date. Approximately $150,000 was raised in this manner.

Meanwhile, in July 1998, seven named plaintiffs filed a similar class action against Boeing in Philadelphia (the "Philadelphia class action"). The plaintiffs in this case moved in October 1998 to consolidate the two actions.

Soon thereafter, in early November, Boeing filed a motion to dismiss plaintiffs' class claims. Also in November, class [947] counsel and Boeing began settlement negotiations. Class counsel had met with numerous African-American Boeing employees before filing suit but almost no formal discovery had taken place by November. At the beginning of December, class counsel indicated frustration to their clients about the Company's lack of responsiveness, characterizing "much of what Boeing has provided thus far as `junk,'" and adding that "Boeing has been unwilling to provide us with numerous documents we believe are pertinent to proving Boeing's unlawful treatment of African-Americans." The negotiations nonetheless proceeded rapidly for such a large class action at this early stage of litigation, with the result that, in January 1999, Boeing and class counsel announced that they had agreed to settle the lawsuit. The parties filed motions in district court for class certification and for preliminary approval of a consent decree.

On January 25, 1999, the district court provisionally certified the class and preliminarily approved the consent decree. The preliminary approval order required the Company to provide approved notice of the proposed decree to class members through newspaper publication, distribution using the Company's payroll system for present employees, and first-class mailings to former employees. Two distributions of the notices were ultimately required because the first notices published and mailed were improper and had to be corrected. The notices explained that Boeing would pay the attorneys' fees and costs and reported the total sum of money Boeing would pay under the decree, the amount to be paid for monetary awards to members of the class, and the amount ascribed to injunctive relief. Neither version expressly identified the amount of attorneys' fees provided in the proposed decree.

B. Proposed Consent Decree

The proposed consent decree purports to resolve this case, the Seattle individual action, and the Philadelphia class action. The decree releases Boeing from liability for claims brought by any of the Company's African-American employees in exchange for certain monetary and injunctive relief. In particular, Boeing is released by all class members from all existing claims for race discrimination (under any of the various discrimination laws) and for "negligent misrepresentation, fraud, detrimental reliance, promissory estoppel, or breach of contract," without regard to whether such claims are in any way related to the alleged race discrimination. The period covered by the release is set according to the statute of limitations period of the state in which a class member resides and extends until the preliminary approval date of the decree. As a result, any claims arising before January 25, 1999 (the preliminary approval date) of the types covered by the decree and timely under the relevant state statute of limitations are barred.

The decree goes on to certify a settlement class pursuant to Fed.R.Civ.P. 23(b)(2) for purposes of equitable relief. That class consists of all African-Americans employed by Boeing from the beginning of the applicable limitations periods until the expiration of the decree (including new employees hired after the preliminary approval date of the decree). No opt-outs are allowed from the equitable relief class. The effect of this provision may be that no African-American employed by Boeing during the pertinent period, including new hires, can obtain any injunctive relief — reinstatement, promotion, or change in working conditions, for example — even if he or she opts out of the class for purposes of monetary relief and proves race discrimination in a separate [948] action.^[4]

For purposes of monetary relief, the decree approves a Settlement Class pursuant to Fed.R.Civ.P. 23(b)(3), consisting of African-American Boeing employees employed from the beginning of the applicable limitations periods until the preliminary approval date of the decree, and allows members of that class to opt out of the monetary relief provisions. By the cut-off date of April 30, 1999, about 500 class members had opted out, including six named plaintiffs.

The class receives a total monetary award of $7.3 million. Out of the approximately 15,000-member class, a group of 264 individuals^[5] — less than two percent of the class — made up of the named plaintiffs and other class members identified by class counsel as having actively participated in the litigation (together, the "individually identified recipients" or "IIRs") is to receive $3.77 million, more than half the monetary award. The $3.77 million will be distributed among the IIRs in amounts established by class counsel, who credit the assistance of an independent claims adjuster for consultation on many, but not all, of the claims. There is ample evidence in the record that before retaining this claims adjuster class counsel extensively discussed specific award amounts with some IIRs. Moreover, the record indicates that class counsel made the final decisions concerning many of these designated payments.

The individual awards for the IIRs range from $5,000 to $50,000, with most of the class representatives receiving higher awards than the other IIRs, and average approximately $16,500. Based on our examination of records relating to the Wichita-based IIRs, the individuals singled out for IIR settlement payments are for the most part the same people who signed individual retainers with class counsel that obligated them to pay monthly fees.

The remaining $3.53 million of monetary relief is to be distributed to the rest of the class (the "unnamed class members"). To receive an award, unnamed class members must submit a claim form to an independent claims arbitrator (hired by class counsel and approved by the district court), who will verify the validity of the claims against Boeing's records and designate awards according to a detailed point system laid out in the decree and applicable only to the unnamed class members. Some 3,400 class members filed claims, so the average payment each unnamed class member would receive is approximately $1,000.

Boeing also agreed to pay $3.75 million to $3.85 million to class counsel for fees and expenses, as follow:

— $3 million for attorneys' fees and costs (the parties agreed that class counsel had incurred approximately $126,000 in costs as of the preliminary approval date);

— up to $100,000 for explaining the decree to class members;^[6] and

— $750,000 for monitoring, administering, implementing, and defending the decree.

The decree also grants $200,000 to objectors' counsel for their role in representing [949] the putative class in the Philadelphia class action.

Finally, within three years of receiving final judicial approval of the decree, Boeing must spend an additional $3.65 million on expenses related to the approval and implementation of the decree. This $3.65 million would go toward the cost of providing notice to class members of the proposed settlement and toward the injunctive relief provided for in the decree, discussed below. The decree further provides that:

Such credited expenditures shall also include money spent by Boeing on diversity training and other programs designed to improve the cooperation between members of Boeing's diverse workforce, to facilitate the advancement of African-Americans into first-level and higher-level management positions at Boeing, to prevent and/or resolve racial harassment concerns among the workforce, and/or to otherwise advance equal employment opportunity for African-American employees of Boeing.

Nothing in the decree requires that the credited amount be in addition to any amount of money Boeing was already planning to spend on such matters. The timing of such expenditures is within Boeing's discretion, although the parties expressed the expectation that half the funds would be spent between the preliminary approval date and the first anniversary of the final approval.

The decree's injunctive provisions are to be in effect for the three years following final judicial approval of the decree. The injunctive relief provided for in the decree is as follows:

(1) Boeing will not discriminate based on race or retaliate against employees for opposing race discrimination or participating in efforts to eradicate it. These general provisions mirror statutory prohibitions. However, "Court enforcement of this Decree shall not be utilized as a method for class members to litigate entitlement to individual relief for claims of alleged Race Discrimination," and individual complaints of race discrimination "shall not be considered to raise an issue of compliance or non-compliance with this decree."

(2) Boeing will meet annually with a three-person advisory committee chosen from among the class members to discuss "Settlement Class members' viewpoints and concerns." The members of the committee will bear their own expenses for attending the meetings.

(3) Boeing will hire one or more consultants "to assist it in developing and assessing the success of alternative and/or supplemental human resources systems designed to accomplish the objectives in this Section [describing the injunctive relief] of the Decree." The consultant is to be chosen by Boeing and class counsel.^[7] The consultant is to investigate the degree to which the decree successfully addresses various of the class members' concerns and to report back to Boeing and class counsel. Nothing in the decree requires Boeing to take any action in response to these reports or otherwise to take any action suggested by the consultant.

(4) Boeing — unilaterally — will develop and implement systems for providing information to hourly employees [950] about the Company's promotion systems and will develop and "pilot" a program designed to enable hourly employees to learn who received a particular promotion. Boeing is required to meet and confer with class counsel about the effectiveness of these programs once implemented but is not required to adopt any suggestions class counsel make or, with regard to the "pilot" promotion information program, to do anything more than "determine the feasibility of implementing that program, or comparable programs" throughout the Company.^[8]

(5) Similarly, Boeing will develop a system whereby qualified but unsuccessful candidates for discretionary promotions will receive feedback and be directed to training or other steps that would make the candidates more competitive. Class counsel are to "monitor" this process, with no provision for any dispute resolution mechanism should class counsel conclude that the system is inadequate or ineffective.

(6) With regard to filling opportunities for temporary promotions (useful in providing experience relevant to desirable positions), Boeing "shall identify informal systems" to permit candidates to know about and be considered for such opportunities, and shall "meet and confer" with class counsel regarding such informal systems and related complaints. There is no requirement that Boeing change its behavior in response to any suggestions or objections by class counsel or any class member.

(7) Boeing "presently plans" to expand its First Level Management Selection Process (FLMSP) to all its operations over the first two years of the decree. The FLMSP, thus far a pilot program at Heritage Boeing^[9] locations, attempts to create a standardized, fair process for selecting first-level managers. If "Boeing decides not to implement FLMSP in certain portions of the Company's operations, Boeing will advise Class Counsel of the alternative selection methods which will be utilized in such operations, and Class Counsel will provide feedback to Boeing regarding any systemic concerns about such alternative methods which they believe may impact upon the Settlement Class members." Boeing can modify the FLMSP or eliminate it altogether; if it does so, Boeing must advise class counsel "and consider feedback provided by Class Counsel regarding such changes."

(8) In 1998, in part in response to this litigation, Boeing developed new "Company-wide EEO Investigation Guidelines," which, among other things, improve the time period for addressing internal discrimination complaints. Boeing will accept "feedback" from class counsel on the guidelines generally and on any modifications the company makes and "may" use the consultant's services to refine these procedures.

[951] (9) Boeing will continue the provisions of its existing harassment policy concerning race, or implement amended policies "reasonably designed to achieve the same effect" as the existing policy. Class counsel will have the opportunity to provide "feedback" on any modifications to that policy. However, "[i]ndividual [harassment] complaints shall not be considered to raise an issue of compliance or noncompliance with this Decree."

C. Objections and Their Resolution

In April 1999, some members of the class filed objections to the proposed consent decree. The district court allowed limited discovery by the objectors, reviewed motions by all parties, and held two fairness hearings (but did not take any evidence at those hearings).

Among other matters, the objectors complained that class counsel could not have meaningfully assessed the value of class claims because of insufficient discovery; that the monetary relief was inadequate and unfairly distributed; that the injunctive relief would not result in concrete benefits to the class; that the court should not approve a single broad class, since the members of the putative class have divergent interests; that plaintiffs' counsel are not fairly representing the plaintiffs because, inter alia, individual class members were promised monetary relief in order to secure their support of the decree; that the notice provided to class members was deficient; and that the fees awarded to class counsel are too high.

In partial response, most of the named plaintiffs and Boeing submitted summaries of allegedly comparable average monetary awards in other employment class actions; declarations of several experts, including the Reverend Jesse Jackson, praising the proposed decree (largely on the understanding that the decree would provide individual class members with free legal representation with regard to their employment issues at Boeing);^[10] and evidence that Boeing had vigorously contested race discrimination cases brought to trial against the Company, with victorious results that led class counsel, as stated in a declaration to the district court, to be "hard pressed to find anything that would support a nationwide victory over Boeing."

In September 1999, the district court certified a settlement class and approved the decree. In its order approving the decree, the district court concluded that "there are important advantages to class-wide resolution in this type of dispute." The court cited Boeing's past success in defending against individual claims of race discrimination; the court's assessment of the effectiveness of the injunctive relief; and the cooperative nature of the settlement. It found no merit to the objectors' qualms over the class's certification. Plaintiffs' "allegations clearly raise class-wide legal and factual issues sufficient to satisfy the [commonality] requirement." Moreover, typicality was assured by the "broadly selected cross-section ... of Boeing employees" serving as named plaintiffs. The court proceeded to certify the class.

Concerning the fairness of the decree, the district court emphasized "a strong [952] judicial policy favoring settlement of class actions," noting the conservation of resources for all concerned that leaves "more to devote to the problems raised by the claim." The court approved the notice procedure followed by the parties and then conducted an analysis of the fairness, adequacy and reasonableness of the decree.

The "heart of the matter" according to the district court was the amount of the settlement; it reviewed the decree's components and found that the objectors "have not presented any evidence to suggest that the amount of payments appear [sic] inadequate or unfair when compared with the other cases [cited by Boeing]." Further, the court decided that "the awards to the named parties are not excessive." Without reviewing the proposed decree in any detail in its order, the district court concluded that the injunctive provisions are not "toothless," but "present a novel and potentially effective response to the problem of race discrimination." After rejecting categorically allegations of collusion between class counsel and Boeing, the court concluded, citing this court's precedent, that "the mere possibility of a better settlement is not sufficient grounds for finding the agreement unfair." As a final matter, the district court found the award of attorneys' fees "to be reasonable given the nature of the case, the risks to the plaintiffs' counsel's firm, and the amount of pre-filing and post-settlement work performed."

II. DISCUSSION

This case presents difficult questions regarding the appropriate role of the courts in approving class action settlement decrees. The governing principles are clear, but their application is painstakingly fact-specific and hampered by the much greater knowledge of the parties as to the give-and-take of the bargaining process. Judicial review also takes place in the shadow of the reality that rejection of a settlement creates not only delay but also a state of uncertainty on all sides, with whatever gains were potentially achieved for the putative class put at risk. We are mindful of the value dialogue and cooperation have played in attempting to resolve this litigation and in aspiring to foster a spirit of future goodwill in the wake of an alleged systemic pattern of race discrimination.

To vindicate the settlement of such serious claims, however, judges have the responsibility of ensuring fairness to all members of the class presented for certification. Especially in the context of a case in which the parties reach a settlement agreement prior to class certification, courts must peruse the proposed compromise to ratify both the propriety of the certification and the fairness of the settlement. First, the district court must assess whether a class exists; "[s]uch attention is of vital importance, for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold." Amchem Prods. Inc. v. Windsor, 521 U.S. 591, 620, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). Second, the district court must carefully consider "whether a proposed settlement is fundamentally fair, adequate, and reasonable," recognizing that "[i]t is the settlement taken as a whole, rather than the individual component parts, that must be examined for overall fairness...." Hanlon v. Chrysler Corp. 150 F.3d 1011, 1026 (9th Cir.1998) (citations omitted). When, as here, the parties have entered into a settlement agreement before the district court certifies the class, reviewing courts "must pay `undiluted, even heightened, attention' to class certification requirements...." Id. at 1019 (quoting Amchem, 521 U.S. at 620, 117 [953] S.Ct. 2231). Moreover, concerns about the fairness of settlement agreements "warrant special attention when the record suggests that settlement is driven by fees; that is, when counsel receive a disproportionate distribution of the settlement...." Id. at 1021.

In this case, the objectors contend that the lawsuit does not qualify for class action status under Rule 23(a). We review under the abuse of discretion standard a district court's decision to certify a case as a class action. Armstrong v. Davis, 275 F.3d 849, 867 (9th Cir.2001). Although we have some concerns, largely relating to litigation management, as to whether the case could be maintained as a class action if the litigation continues, the district court did not abuse its discretion in certifying the case for settlement purposes pursuant to Rule 23.

The objectors argue in the alternative that the district court should not have approved the settlement agreement under Rule 23(e). "We have repeatedly stated that the decision to approve or reject a settlement is committed to the sound discretion of the trial judge because he is exposed to the litigants, and their strategies, positions and proof." Hanlon, 150 F.3d at 1026 (citation and internal quotation marks omitted). Nonetheless, the district court did in this case abuse that discretion. To repeat what this court had reason recently to state: "Although we are always cautious to reverse the ... approval of a settlement agreement because of the time and effort dedicated by the parties and the district court, we are compelled to do so in this case because of the unjust terms of the decree." Molski v. Gleich, 318 F.3d 937, 956 (9th Cir.2003).

We address first the propriety of the class certification and then examine the district court's decision to approve the settlement agreement.

A. Class Certification

Rule 23(a) establishes four prerequisites for class action litigation, which are: (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation. We examine each of these requirements in turn.

1. Numerosity

Rule 23(a)(1) requires that "the class is so numerous that joinder of all members is impracticable." There is no dispute that the numerosity requirement is met in this case. The plaintiff class before us is approximately 15,000 in number.

2. Commonality

Rule 23(a)(2) requires that "there are questions of law or fact common to the class." We stated in Hanlon that

Rule 23(a)(2) has been construed permissively. All questions of fact and law need not be common to satisfy the rule. The existence of shared legal issues with divergent factual predicates is sufficient, as is a common core of salient facts coupled with disparate legal remedies within the class.

150 F.3d at 1019.

The class in this case is broad and diverse. It encompasses some 15,000 employees, from a wide range of positions both salaried and hourly, who are employed at Boeing facilities located in 27 different states. Class counsel argue, and the district court found, that the large class is united by a complex of company-wide discriminatory practices against African-Americans.

Gen. Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 157, 159, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982), emphasizes that the fact "that racial discrimination is by definition class discrimination," cannot automatically [954] convert a single allegation of race discrimination into "an across-the-board attack." Though the commonality claim in this case is ambitious and therefore especially worthy of scrutiny, it is far from the theoretical extrapolation sought in Falcon. That case concerned only one named plaintiff who did not identify any other plaintiffs subjected to the treatment he claimed to have experienced.

By contrast, the record indicates that class counsel interviewed more than 1,300 Boeing employees from facilities across the country. Counsel have produced detailed documentation of discrimination experienced by more than 200 of these employees. Those named employees include salaried managers and hourly line-workers, union members and non-union members, employees from all of Boeing's major locations, and employees from two firms that Boeing recently acquired. Appellees also point to the results of an internal "survey of Boeing's affirmative action issues," distributed in an e-mail to Boeing senior management. The e-mail identified "racial bias" in the categories of hiring practices and promotion practices and "race issues" in the category of peer working environment as issues of concern at the Company.

In fact, the named plaintiffs and objectors share the contention that discriminatory practices at Boeing are widespread and entrenched. According to the district court, "both the supporters of the consent decree and the objectors spoke forcefully of institutional problems with race discrimination." The court may not go so far, of course, as to judge the validity of these claims. "Although some inquiry into the substance of a case may be necessary to ascertain satisfaction of the commonality and typicality requirements of Rule 23(a), it is improper to advance a decision on the merits to the class certification stage." Moore v. Hughes Helicopters, Inc., 708 F.2d 475, 480 (9th Cir.1983), citing Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). But the breadth and consistency of class counsel's initial evidence places the district court's finding of commonality well within that court's discretion.

Objectors also dispute the finding of commonality on three more specific grounds. First, objectors claim that common issues cannot link all African-American Boeing employees when two of Boeing's subsidiaries are recent acquisitions. Boeing acquired the defense and space operations of Rockwell International in December 1996 (renaming them Boeing North America, hereinafter "BNA"), and the McDonnell Douglas Corporation ("MDC") in August 1997. Employees from both these subsidiaries are among the class representatives. Their reported experiences are similar to the others'.

Boeing is responsible for the employment practices of all its sub-parts. The Company, for example, issued an "Equal Employment Opportunity" policy in July 1998, applicable to all Boeing organizations. This document stated that the "primary responsibility for implementing this policy rests with the senior management of the company." Some of the class's historical evidence from BNA and MDC employees may extend to before the mergers, but the kernel of the class complaint is that a complex of discriminatory practices pervades Boeing today and in the recent past. The fact of the mergers does not bar a finding of commonality.

Objectors also contest commonality on the ground that some class members were subject to collective bargaining agreements that laid out objective criteria for promotions. Objectors point to a comment in a footnote from the Falcon opinion:

[955] Significant proof that an employer operated under a general policy of discrimination conceivably could justify a class of both applicants and employees if the discrimination manifested itself in hiring and promotion practices in the same general fashion, such as through entirely subjective decisionmaking processes. In this regard it is noteworthy that Title VII prohibits discriminatory employment practices, not an abstract policy of discrimination.

Falcon, 457 U.S. at 159 n. 15, 102 S.Ct. 2364. This hypothetical class in Falcon's footnote fifteen is both broader and narrower than the class before us. It is broader because the class here does not combine employees with applicants and does not allege discriminatory hiring. It is narrower because the class here complains of a complex of discriminatory practices that includes compensation, training, and work environment in addition to promotions. Union employees under objective promotion systems may have been immune to discrimination in promotion, but they could still have been affected by other alleged axes of discrimination.

We understand footnote fifteen of Falcon to present a demonstrative example rather than a limited exception to the overall skepticism toward broad discrimination class actions.^[11] That is, as we read Falcon, it does not generally ban all broad classes but rather precludes a class action that, on the basis of one form of discrimination against one or a handful of plaintiffs, seeks to adjudicate all forms of discrimination against all members of a group protected by Title VII, § 1981, or a similar statute.

Bouman v. Block, 940 F.2d 1211 (9th Cir.1991), confirms our reading of Falcon. Bouman was a post-Falcon case in which we upheld the certification of a class of female applicants for a sergeant's position. Defendant Los Angeles County objected to the lack of an evidentiary hearing on the commonality question, citing Falcon. We noted that the district court had concluded "that there were common questions in that `plaintiff is attacking defendants' discriminatory practices against females, and this is not just as it applied to plaintiff only.' This statement identifies a common legal issue, discrimination against women, and a common factual problem, discrimination as applied in the Sheriff's Department." Id. at 1232. We found the Falcon concern inapplicable because class status was not sought on the basis of a single discriminatory practice "as it applied to plaintiff only." Id. For similar reasons, Falcon does not bar a commonality finding in this case.

Third, objectors contend that decision-making at Boeing is too decentralized to permit a class that combines plaintiffs from disparate locales. Objectors rely for this argument on Doninger v. Pac. Northwest Bell, 564 F.2d 1304 (9th Cir.1977), in which we upheld a district court's denial of certification to an attempted class of female employees and applicants.

The primary reason class certification was inappropriate in Doninger was that the putative class would in large part have [956] overlapped with the terms of a consent decree entered into by American Telephone and Telegraph and already applicable to Pacific Northwest Bell employees. "Substantial numbers" of the individuals who would have been class members had waived their claims and accepted relief under the preexisting decree. Id. at 1309.

Additionally, plaintiffs in Doninger wanted to rely, in the style that Falcon later rejected, on the experiences of a few individuals. Ruling on the commonality question, we found it significant that Pacific Northwest Bell was divided into six "establishments," each with its own affirmative action program, while "[a]ll of the named plaintiffs are employed in one of three establishments...." Id. at 1310. We reasoned that "[s]ince different affirmative action programs, and thus possibly different patterns and practices, exist in each establishment, appellants would have considerable difficulty in adequately representing class members from the other three PNB establishments." Id. at 1311 (footnote omitted).

The case before us does not present the problem of a preexisting consent decree. Moreover, its named plaintiffs come from a wide array of Boeing's divisions.

As noted above, Boeing is responsible for the employment practices of all its units. Class counsel introduced evidence of centralized decisionmaking. The unsurprising fact that some employment decisions are made locally does not allow a company to evade responsibility for its policies. See, e.g., Bates v. United Parcel Serv., 204 F.R.D. 440, 446 (N.D.Cal.2001); Morgan v. United Parcel Serv. of Am., 169 F.R.D. 349, 356 (E.D.Mo.1996).

We conclude that the district court was within its discretion to find the commonality requirement of Rule 23(a)(2) met in this case. In so holding, we stress that we are applying an abuse of discretion standard. The district court in all likelihood could, also without abusing its discretion, have declined to certify the overall class in favor of certifying discrete sub-classes, so as to assure commonality. As the district court noted, however, the objectors in this case, while pointing to many aspects of the consent decree with which they disagree, did not demonstrate that the certification of a broad class rather than subclasses compromised the interests of one or more of the groups of employees that might have had sufficiently cohesive interests to have been certified as a subclass. We later conclude that the consent decree did unfairly distribute the available funds among the members of the plaintiff class. But that unfair distribution did not reflect the same fault lines of potential conflict that the objectors maintain undermined the class action determination, namely the potential conflict among employees who work at different levels in the corporate hierarchy, among employees who work in different locations, and among employees who work for Heritage Boeing as opposed to those who work for the recently-merged units.

Although for the most part the same standards apply under Rule 23 in judging the propriety of a settlement class as apply in determining whether a class for trial purposes is appropriate, Amchem, 521 U.S. at 620-21, 117 S.Ct. 2231, in judging the propriety of a settlement class, "close inspection of the settlement in that regard [is] altogether proper." Id. at 620, 117 S.Ct. 2231. The presence or absence of settlement terms that differentially affect the sub-groups which objectors contend have potentially diverging interests is indicative of whether these alleged conflicts are in fact pertinent to the issues in the lawsuit. Cf. id. at 626-27, 117 S.Ct. 2231 (noting that in the asbestos products liability case at issue "the terms of the settlement reflect essential allocation decisions" [957] regarding the distribution of funds, terms that did not take into account "[t]he disparity between the currently injured and exposure-only categories of plaintiffs" regarding the relative desirability of immediate payments versus "an ample, inflation-protected fund for the future"); see also Molski, 318 F.3d at 955-56 (looking at the consent decree to determine likelihood of collusiveness). Consequently, the district court acted within its discretion in declining to insist on subclasses and thereby potentially undo the settlement for reasons unlikely to have affected it.

3. Typicality

Rule 23(a)(3) requires that "the claims or defenses of the representative parties are typical of the claims or defenses of the class." Falcon noted that "[t]he commonality and typicality requirements of Rule 23(a) tend to merge." 457 U.S. at 157 n. 13, 102 S.Ct. 2364. In this case, the district court explained that:

The named plaintiffs ... include a very broadly selected cross-section of the different categories of Boeing employees. Salaried and hourly, management and line-worker, union and non-union are all represented, as are each of the major geographic hubs of Boeing's operations and each of the pre-merger companies. Particularly in a case in which the requested relief applies evenly to the various sub-groups, this cross-section of Boeing employees suffices to insure that the interests of these sub-groups have been adequately represented, and meets the typicality requirement of Rule 23(a).

Objectors do not dispute the breadth of representation, but complain that class counsel did not provide clear documentation that each job category had a class representative for each type of discrimination claim alleged.

That level of specificity is not necessary for class representatives to satisfy the typicality requirement. In Hanlon, we stated that "[u]nder the rule's permissive standards, representative claims are `typical' if they are reasonably coextensive with those of absent class members; they need not be substantially identical." 150 F.3d at 1020. Typicality "does not mean that the claims of the class representative[s] must be identical or substantially identical to those of the absent class members." 5 Herbert B. Newberg & Alba Conte, Newberg on Class Actions, § 24.25 at 24-105 (3d ed.1992); see also Armstrong, 275 F.3d at 869. The district court here was within its discretion to find that the representatives' claims are "reasonably coextensive with those of absent class members." Hanlon, 150 F.3d at 1020.

4. Adequacy of Representation

Rule 23(a)(4) permits the certification of a class action only if "the representative parties will fairly and adequately protect the interests of the class." To determine whether the representation meets this standard, we ask two questions: (1) Do the representative plaintiffs and their counsel have any conflicts of interest with other class members, and (2) will the representative plaintiffs and their counsel prosecute the action vigorously on behalf of the class? Hanlon, 150 F.3d at 1020; see also Molski, 318 F.3d at 955 (quoting Crawford v. Honig, 37 F.3d 485, 487 (9th Cir.1995), and stating a similar standard).

Counsel conducted broad research, assertedly interviewed some 1,300 employees, held many meetings with class members at various Boeing sites, and achieved some relief from a company that has historically been successful in defending against discrimination claims. See, e.g., Croker v. Boeing Co., 662 F.2d 975 (3d Cir.1981) (court found against class on all [958] issues of liability; nominal damages granted to individual plaintiffs; decision overruled on other, procedural grounds). Although we later question whether the settlement agreement, as opposed to class counsel's pre-settlement activity, was the result of disinterested representation, that question is better dealt with as part of the substantive review of the settlement than under the Rule 23(a) inquiry. Otherwise, the preliminary class certification issue can subsume the substantive review of the class action settlement.^[12] The district court also permitted discovery on the allegations of outright collusion between class counsel and Boeing and concluded that there was no proof that collusion had occurred.^[13] The district court neither abused its discretion in finding that counsel's representation was appropriately vigorous for purposes of class certification nor clearly erred in finding that there was no overt collusion.

With regard to the first of the two adequacy questions, objectors contend that a conflict arises from the facts that the class cuts across the levels of authority of Boeing employees and that, in particular, some class members supervise some of their fellow class members. This concern about classes that involve both supervisors and rank-and-file workers can be a valid one in some circumstances. In Wagner v. Taylor, 836 F.2d 578 (D.C.Cir.1987), for example, the court affirmed a district court's finding of inadequate representation because a representative plaintiff in a Title VII case purported to represent a broad class that included non-supervisory employees. Wagner was both a senior executive and the only representative of an attempted class of all grade GS-9 and above African-American employees of, and applicants to, the Interstate Commerce Commission. The court worried that "[s]upervisory employees are often inappropriate representatives of nonsupervisory employees because the structure of the workplace tends to cultivate distinctly different interests between the two groups. Although each group shares the interest in freedom from discrimination, potential conflicts may and do arise within a class including both." Id. at 595 (footnotes omitted).

Wagner did not, however, adopt any per se rule concerning adequacy of representation where the class includes employees at different levels of an employment hierarchy. We decline to do so as well. The question whether employees at different levels of the internal hierarchy have potentially conflicting interests is context-specific and depends upon the particular claims alleged in a case.

Here, we do not find these workforce structure concerns to be dispositive. The named plaintiffs who are class representatives in this case include both supervisors and non-supervisory employees. The district court found that objectors fail

[959] to identify a substantive issue for which there is a conflict of interest between two or more sets of employees. Given that the named plaintiffs include representatives of each major employee sub-group, and that the requested relief applies equally throughout the class, the Court finds that there are no conflicts between class members sufficient to defeat certification.

"Plaintiffs attempting representation of nonsupervisory employees by supervisory employees ... must offer evidence of coextensive interests or at least allege the existence of a general discriminatory policy." Newberg and Conte, supra, § 24.42 at 24-170-71. Class counsel have met this burden here. The finding of adequacy was within the district court's discretion.

B. The Settlement

1. General Principles

"Fed.R.Civ.P. 23(e) requires the district court to determine whether a proposed settlement is fundamentally fair, adequate, and reasonable." Hanlon, 150 F.3d at 1026 (citation omitted). The objectors contend that the settlement agreement fails to meet Rule 23(e)'s standards.

To determine whether a settlement agreement meets these standards, a district court must consider a number of factors, including: "the strength of plaintiffs' case; the risk, expense, complexity, and likely duration of further litigation; the risk of maintaining class action status throughout the trial; the amount offered in settlement; the extent of discovery completed, and the stage of the proceedings; the experience and views of counsel; the presence of a governmental participant; and the reaction of the class members to the proposed settlement." Molski, 318 F.3d at 953 (citation omitted); see also Officers for Justice v. Civil Serv. Comm'n of San Francisco, 688 F.2d 615, 625 (9th Cir.1982) (noting that the list of factors is "by no means an exhaustive list of relevant considerations, nor have we attempted to identify the most significant factors").

Despite this guidance, assessing the fairness, adequacy and reasonableness of the substantive terms of a settlement agreement can be challenging. As "the very essence of a settlement is compromise, `a yielding of absolutes and an abandoning of highest hopes,'" id. at 624 (citation omitted), review of the substantive terms of a consent decree — the total amount of damages awarded for example, or the precise terms of injunctive provisions — is often not productive. Courts cannot know the strength of ex ante legal claims and so are not privy to the relative strengths of the parties at the bargaining table. Nor can courts judge with confidence the value of the terms of a settlement agreement, especially one in which, as here, the settlement provides for injunctive relief.

At the same time, and critically for present purposes, there are real dangers in the negotiation of class action settlements of compromising the interests of class members for reasons other than a realistic assessment of usual settlement considerations such as the strength of their legal claims, the desire for immediate rather than delayed relief, and the costs of litigation. Incentives inhere in class-action settlement negotiations that can, unless checked through careful district court review of the resulting settlement, result in a decree in which "the rights of [class members, including the named plaintiffs] may not [be] given due regard by the negotiating parties." Id. The class members are not at the table; class counsel and counsel for the defendants are. Unlike in the non-class action context, most of class counsel's clients cannot be consulted individually about the terms of the settlement, nor is the resulting decree submitted to the class [960] members for approval (although there is an opportunity to object).

That the class representatives are available for consultation and approval is no solution, for two reasons: First, the class representatives have their own incentives to advance their interests at the expense of the class. Second, class counsel ultimately owe their fiduciary responsibility to the class as a whole and are therefore not bound by the views of the named plaintiffs regarding any settlement. See In re GMC Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 801 (3d Cir.1995) ("Beyond their ethical obligations to their clients, class attorneys, purporting to represent a class, also owe the entire class a fiduciary duty once the class complaint is filed.").

We have characterized these inherent dangers of class settlements as encompassing the possibility that "the agreement ... is the product of fraud or overreaching by, or collusion between, the negotiating parties. ..." Officers for Justice, 688 F.2d at 625; see also Hanlon, 150 F.3d at 1027. By so stating, we do not mean to indicate concern only with overt misconduct by the negotiators. The incentives for the negotiators to pursue their own self-interest and that of certain class members are implicit in the circumstances and can influence the result of the negotiations without any explicit expression or secret cabals. That is why district court review of class action settlements includes not only consideration of whether there was actual fraud, overreaching or collusion but, as well, substantive consideration of whether the terms of the decree are "fair, reasonable and adequate to all concerned." Officers for Justice, 688 F.2d at 625.

Still, both the difficulties of judicial assessment of a compromise settlement, discussed above, and the rule that "[t]he district court's final determination to approve the settlement should be reversed `only upon a strong showing that the district court's decision was a clear abuse of discretion,'" Hanlon, 150 F.3d at 1027 (quoting In re Pac. Enters. Sec. Litig., 47 F.3d 373, 377 (9th Cir.1995)), circumscribe our inquiry on appeal into the fairness question. As a practical matter we will rarely overturn an approval of a class action consent decree on appellate review for substantive reasons unless the terms of the agreement contain convincing indications that the incentives favoring pursuit of self-interest rather than the class's interests in fact influenced the outcome of the negotiations and that the district court was wrong in concluding otherwise. See Molski, 318 F.3d at 953-54.

Our inquiry therefore most usefully focuses primarily upon whether the particular aspects of the decree that directly lend themselves to pursuit of self-interest by class counsel and certain members of the class — namely, attorneys' fees and the distribution of any relief, particularly monetary relief, among class members — strictly comport with substantive and procedural standards designed to protect the interests of class members. This is not to say that we do not consider the remaining terms of the settlement agreement as well. "It is the settlement taken as a whole, rather than the individual component parts, that must be examined for overall fairness," and "[t]he settlement must stand or fall in its entirety." Hanlon, 150 F.3d at 1026; see also Strong v. BellSouth Telecomms., 137 F.3d 844, 848 (5th Cir.1998) ("To be enforceable, the Agreement require[s] the final approval of each federal court, pursuant to [Rule] 23(e). Any modification to the Agreement, whether by a party or a court, would render the Agreement void.").

Where the other terms of a settlement raise questions not recognized by the district [961] court concerning fairness and adequacy — as we conclude they do here — our scrutiny of the fees and damages distribution provisions should be all the more rigorous. But absent some glaring inequity in the remaining terms of the agreement missed in the district court's inquiry, it will be rare that we will reverse a district court's approval of a class action consent decree unless the fees and relief provisions clearly suggest the possibility that class interests gave way to self-interest.

2. The Settlement as a Whole

In this case, we are somewhat uneasy, reading the settlement as a whole, about whether in reaching the settlement, class counsel adequately pursued the interests of the class as a whole. Provisions giving rise to this unease include the extent of Boeing's release from liability, which includes any breach of contract action by any class member; the stipulation that the prohibition on race discrimination cannot be enforced in individual cases; the numerous instances in which Boeing is permitted to develop its own remedial schemes (and, in some instances, unilaterally to abandon such schemes as infeasible), with an obligation only to consult with class counsel but with no obligation to submit to any enforcement or dispute resolution mechanism if the schemes are unsatisfactory; the limited role for the consultant Boeing is required to hire; and the incorporation in the agreement of promotion and complaint programs Boeing had already developed and implemented, with no obligation on the part of the Company to continue those programs in their present form or alternatively to substitute programs of the same efficacy.^[14]

Further, the district court did not entirely appreciate the limited scope of many of the injunctive provisions of the decree. For example, the court opined that "changes will be made in the procedure for resolving discrimination related complaints." (Emphasis added.) In fact, the changes in the complaint procedure had already been implemented, and, while the agreement indicates that the implementation appeared adequate, Boeing made no commitment in the decree to continue the same process in effect during the term of the agreement (or even to assure that any replacement process would be as effective as the present one).

We also note that, unlike the district court, we decline to rely in our assessment of the injunctive provisions upon "the approval of several disinterested experts in race discrimination, the Reverend Jesse Jackson first among them." The experts' positive assessments all rely heavily on the assertion that the decree provides all members of the class with three years of free legal assistance to, as one declaration put it, "review their employment history, review proposed or actual job opportunities, ... assist them with job applications, and ... challenge the selection of someone else for the jobs." As noted above, Boeing has expressed its skepticism that the decree embodies any obligation on the part of class counsel to provide such free individualized [962] legal assistance or on the part of Boeing to respond to such individualized representation by attorneys. Reading the decree carefully, we share that skepticism.

The attorneys' fees provision provides $750,000 to class counsel for "monitoring, administration, implementation and defense of the Decree," including, in particular, "Class Counsel's time and expenses involved in the processing of claims under Section XI(c)(4) and the distribution of all monetary awards ... including expenditures by Class Counsel in regard to compensating the Claims Arbitrator...." That language hardly encompasses the individualized representation for future claims of discrimination the experts' declarations assume. Nor does any provision in the decree specifically require Boeing to confer with class counsel about individuals' promotion applications. It may be that class counsel, commendably, intend to attempt to provide such individual representation, although nothing in the factual record indicates a commitment to do so. If so, $750,000 is unlikely to go very far in compensating class counsel for such representation, given the size of the class and the other representational duties for which the decree specifically earmarks the money. Since the experts' understanding of the proposed settlement appears less than precise, the district court should not have relied so heavily upon those assessments, and we do not do so.

Despite all of the foregoing concerns, we would not overturn the district court's determination to approve the settlement as fair were the release and injunctive provisions the only aspects of the decree that are troublesome. As the district court noted, plaintiffs' risk of losing the case on the merits was quite high; Boeing had an unbroken history of prevailing in discrimination cases; maintaining the class action was not a foregone conclusion; promotion decisions, a primary focus of the litigation, are largely discretionary; and discovery was likely to be extremely expensive for the plaintiffs and class counsel, whose resources are undoubtedly more limited than those of Boeing. The total monetary relief provided in the proposed settlement agreement is not insubstantial, either in total or on a pro rata basis given the number of claimants, and the balance between retrospective and prospective relief is usually one for the litigants to determine. Nor do the injunctive provisions themselves raise any flags regarding favoritism for some members of the class over others. No class member is assured a promotion or any other future privilege not accorded to others, nor are certain groups of class members treated more favorably than others for purposes of future relief.

Additionally, we cannot say with the requisite certainty that the district court erred in concluding that "the cooperative process which led to the agreement, and the provisions for oversight of the decree by independent observers ... will lead to genuine improvements in Boeing's internal race relations." The district court was in a position to assess the level of good-will between the parties at the point of settlement, as we are not.^[15]

Furthermore, we are told that the decree in large part incorporates already-existing Boeing programs rather than creating new ones because Boeing determined once the lawsuit was filed to devise new, more effective promotion and complaint policies so as to avoid similar charges in the future. Although the failure of the consent decree to assure continuation of these same or equally effective programs [963] in the future remains troubling, we cannot reject out of hand this explanation for crediting existent programs as part of the prospective relief attained by the proposed decree.

In short, the injunctive aspects of the proposed settlement neither directly reflect pursuit of self-interest by favored members of the class nor, standing alone, strike us as being so beyond the pale as a compromise of claims to merit reversal of the district court's fairness assessment. At the same time, the questionable factors we have noted do suggest the possibility that class counsel and the IIRs could have agreed to relatively weak prospective relief because of other inducements offered to them in the course of the negotiations. We therefore scrutinize with particular care the aspects of the proposed settlement that provide monetary benefits directly to class counsel and to the IIRs: the attorneys' fees and damages distribution provisions.^[16]

3. Attorneys' Fees

a. Necessity of Scrutiny: Attorneys' fees provisions included in proposed class action settlement agreements are, like every other aspect of such agreements, subject to the determination whether the settlement is "fundamentally fair, adequate, and reasonable." Fed.R.Civ.P. 23(e). There is no exception in Rule 23(e) for fees provisions contained in proposed class action settlement agreements. Thus, to avoid abdicating its responsibility to review the agreement for the protection of the class, a district court must carefully assess the reasonableness of a fee amount spelled out in a class action settlement agreement. See, e.g., Piambino v. Bailey, 610 F.2d 1306, 1328 (5th Cir.1980) ("the District Court abdicated its responsibility to assess the reasonableness of attorneys' fees proposed under a settlement of a class action, and its approval of the settlement must be reversed on this ground alone"); Strong, 137 F.3d at 848-50; In re GMC, 55 F.3d at 819-20; Jones v. Amalgamated Warbasse Houses, Inc., 721 F.2d 881, 884 (2d Cir.1983) (holding with regard to attorneys' fees that "[t]he presence of an arms' length negotiated agreement among the parties weighs strongly in favor of approval, but such an agreement is not binding on the court.").^[17]

[964] That the defendant in form agrees to pay the fees independently of any monetary award or injunctive relief provided to the class in the agreement does not detract from the need carefully to scrutinize the fee award. Ordinarily, "a defendant is interested only in disposing of the total claim asserted against it ... the allocation between the class payment and the attorneys' fees is of little or no interest to the defense...." In re GMC, 55 F.3d at 819-20 (internal quotation marks and citation omitted); see also Evans v. Jeff D., 475 U.S. 717, 732, 734, 106 S.Ct. 1531, 89 L.Ed.2d 747 (1986) (recognizing that "the possibility of a tradeoff between merits relief and attorney's fees" is often implicit in class action settlement negotiations, because "[m]ost defendants are unlikely to settle unless the cost of the predicted judgment, discounted by its probability, plus the transaction costs of further litigation, are greater than the cost of the settlement package.") (Emphasis added).

Given these economic realities, the assumption in scrutinizing a class action settlement agreement must be, and has always been, that the members of the class retain an interest in assuring that the fees to be paid class counsel are not unreasonably high. If fees are unreasonably high, the likelihood is that the defendant obtained an economically beneficial concession with regard to the merits provisions, in the form of lower monetary payments to class members or less injunctive relief for the class than could otherwise have obtained. See Court Awarded Attorney Fees, Report of the Third Circuit Task Force, 108 F.R.D. 237, 266 (1985) ("When a large attorney's fee means a smaller recovery to plaintiff, a significant conflict of interest between client and attorney is created. 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."). In other words, the negotiation of class counsel's attorneys' fees is not exempt from the truism that there is no such thing as a free lunch.

We have, in closely analogous contexts, recently so recognized. See Zucker v. Occidental Petroleum Corp., 192 F.3d 1323 (9th Cir.1999); Lobatz v. U.S. West Cellular, 222 F.3d 1142 (9th Cir.2000). In Zucker, for example, we stated that "[i]n a class action, whether the attorneys' fees come from a common fund or are otherwise paid, the district court must exercise its inherent authority to assure that the amount and mode of payment of attorneys' fees are fair and proper," 192 F.3d at 1328 (emphasis added); see also id. at 1327 ("In a class action ... [t]he absence of individual clients controlling the litigation for their own benefit creates opportunities for collusive arrangements in which defendants can pay the attorneys for the plaintiff class enough money to induce them to settle the class action for too little benefit to the class (or too much benefit to the attorneys, if the claim is weak but the risks to the defendants high)."). Similarly, in Lobatz, where the defendant had agreed that it [965] would not contest a fee request of $1 million that was apart from the settlement fund, we noted that "[s]uch an agreement has the potential of enabling a defendant to pay class counsel excessive fees and costs in exchange for counsel accepting an unfair settlement on behalf of the class." 222 F.3d at 1148.

The district court was therefore obligated to assure itself that the fees awarded in the agreement were not unreasonably high, so as to ensure that the class members' interests were not compromised in favor of those of class counsel.

b. Substantive Scrutiny of Statutory Fees: Generally, litigants in the United States pay their own attorneys' fees, regardless of the outcome of the proceedings. In order to encourage private enforcement of the law, however, Congress has legislated that in certain cases prevailing parties may recover their attorneys' fees from the opposing side. When a statute provides for such fees, it is termed a "fee-shifting" statute. Under a fee-shifting statute, the court "must calculate awards for attorneys' fees using the `lodestar' method," Ferland v. Conrad Credit Corp., 244 F.3d 1145, 1149 n. 4 (9th Cir. 2001), which involves "multiplying the number of hours the prevailing party reasonably expended on the litigation by a reasonably hourly rate," Morales v. City of San Rafael, 96 F.3d 359, 363 (9th Cir. 1996) and, "if circumstances warrant, adjust[ing] the lodestar to account for other factors which are not subsumed within it," Ferland, 244 F.3d at 1149 n. 4; see also Caudle v. Bristow Optical Co., 224 F.3d 1014, 1029 (9th Cir.2000). The rules governing both reduction and enhancement have become increasingly refined over time, and we have therefore required careful explanations by district courts of statutory fee determinations.^[18]

Both Title VII, § 2000e, et seq., and § 1981 — the two federal statutes under which this suit was brought — have fee-shifting provisions. See § 2000e-5 (k) ("In any action or proceeding under this subchapter the court, in its discretion, may allow the prevailing party ... a reasonable [966] attorney's fee ...."); 42 U.S.C. § 1988 ("In any action or proceeding to enforce a provision of section[ ] 1981 ... the court, in its discretion, may allow the prevailing party ... a reasonable attorney's fee...."). The parties therefore could have negotiated an award of fees under § 2000e-5(k) and § 1988. Had they done so, the district court's review would have focused on the reasonableness of the fee request under the lodestar calculation method. Were the amount of fees Boeing agreed to pay in the settlement agreement distinctly higher than the fees class counsel could have been awarded by the district court using the lodestar method, the court would almost surely have had to find the fees unreasonable. Absent some unusual explanation, a defendant would not agree in a class action settlement to pay out of its own pocket fees measurably higher than it could conceivably have to pay were the fee amount litigated, unless there was some non-fee benefit the defendant received thereby.

In fact, no lodestar-based scrutiny of the fees awarded class counsel in the settlement agreement ever took place. Boeing and class counsel did not attempt to explain the award of fees provided in the consent decree as negotiated under the applicable fee-shifting statutes. Further, the record as it stands would not have been sufficient for such an inquiry, as it contains only the barest estimate of hours expended, with no detail. Not even a summary of the billing records was submitted.

Of course, in the context of a settlement, the fees provided for in the agreement are as subject to compromise as are the merits provisions. Consequently, as Evans, 475 U.S. at 734-35, 106 S.Ct. 1531, made clear, the fee amount in a class action settlement agreement can be less than would be awarded by a court. And, since the proper amount of fees is often open to dispute and the parties are compromising precisely to avoid litigation, the court need not inquire into the reasonableness of the fees even at the high end with precisely the same level of scrutiny as when the fee amount is litigated. But here, there was no such inquiry at all. Nor is the record adequate for an inquiry, even one employing a less-than-stringent standard that recognizes the settlement context.

We are therefore in no position to determine whether the fees Boeing agreed to pay are reasonable lodestar fees under the applicable fee-shifting statutes and do not do so. On remand, the parties are free to attempt such justification, based on the principles outlined in this opinion and in the extensive lodestar fees case law.

c. The Common Fund Justification: Rather than justifying the attorneys' fees provisions of the settlement agreement on the statutory fee-shifting basis that would properly have applied, the parties sought to justify the fee amount according to the principles applicable to common funds. They did so by constructing a hypothetical "fund" by adding together the amount of money Boeing would pay in damages to members of the class under the agreement, the amount of fees provided to various counsel, the cost of the class action notices paid for by Boeing, and a gross amount of money ascribed to all the injunctive relief contained in the agreement. For clarity, we will call the total of all those monetary amounts the "putative fund," for, as we shall see, it is not properly viewed as a common fund as that term is used in attorneys' fees law. (We will continue, also for clarity, to call the doctrine by its usual name, "common fund.") The parties portrayed the total fee award as 28% of the putative fund, and maintained that such a percentage is well within the percentage permitted under our common fund fee cases. The district court [967] viewed the fee award as the parties requested and approved it, and the consent decree as a whole, on that basis. For several reasons, that approval was not appropriate.

i. Availability of common fund fees

Before we can decide whether the attempted common fund justification in this case was adequate, we must resolve whether the existence of potentially applicable fee-shifting statutory provisions precludes class counsel from recovering attorneys' fees under the common fund doctrine. We conclude, as have the two other circuits that have addressed the issue,^[19] that there is no preclusion on recovery of common fund fees where a fee-shifting statute applies.

Under the "common fund" doctrine, "a litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney's fee from the fund as a whole." Boeing Co. v. Van Gemert, 444 U.S. 472, 478, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980). The Supreme Court explained:

The doctrine rests on the perception that persons who obtain the benefit of a lawsuit without contributing to its cost are unjustly enriched at the successful litigant's expense. Jurisdiction over the fund involved in the litigation allows a court to prevent this inequity by assessing attorney's fees against the entire fund, thus spreading fees proportionately among those benefited by the suit.

Id. (citation omitted). Thus, the common fund doctrine ensures that each member of the winning party contributes proportionately to the payment of attorneys' fees. In contrast to fee-shifting statutes, which enable a prevailing party to recover attorneys' fees from the vanquished party, the common fund doctrine permits the court to award attorneys' fees from monetary payments that the prevailing party recovered in the lawsuit. Put another way, in common fund cases, a variant of the usual rule applies and the winning party pays his or her own attorneys' fees; in fee-shifting cases, the usual rule is rejected and the losing party covers the bill. See generally Wininger v. SI Mgmt. L.P., 301 F.3d 1115 (9th Cir.2002).

The procedures used to determine the amount of reasonable attorneys' fees differ concomitantly in cases involving a common fund from those in which attorneys' fees are sought under a fee-shifting statute. As in a statutory fee-shifting case, a district court in a common fund case can apply the lodestar method to determine the amount of attorneys' fees. In common fund cases, however, the court can apply a risk multiplier when using the lodestar approach. See In re Wash. Pub. [968] Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1299 (9th Cir.1994) ("WPPSS") ("[The City of Burlington v. Dague, 505 U.S. 557, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992)] rationale for barring risk multipliers in statutory fee cases does not operate to bar risk multipliers in common fund cases."). A "multiplier" is a number, such as 1.5 or 2, by which the base lodestar figure is multiplied in order to increase (or decrease) the award of attorneys' fees on the basis of such factors as the risk involved and the length of the proceedings.

Alternatively, in a common fund case, the district court can determine the amount of attorneys' fees to be drawn from the fund by employing a "percentage" method. See Hanlon, 150 F.3d at 1029 ("In `common fund' cases where the settlement or award creates a large fund for distribution to the class, the district court has discretion to use either a percentage or lodestar method."). As its name suggests, under the percentage method, "the court simply awards the attorneys a percentage of the fund...." Id. "This circuit has established 25% of the common fund as a benchmark award for attorney fees." Id.

That common fund fees can be awarded where statutory fees are available follows from the equitable nature of common fund fees. In Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975), the Court explained that 28 U.S.C. § 1923, a version of which was first enacted in 1853, limits the amount of attorneys' fees that a prevailing party may recover from the loser, but does not prohibit the award of fees under the common fund doctrine. The Court stated:

In Trustees v. Greenough, 105 U.S. 527, 26 L.Ed. 1157 (1882), the 1853 Act was read as not interfering with the historic power of equity to permit the trustee of a fund or property, or a party preserving or recovering a fund for the benefit of others in addition to himself, to recover his costs, including his attorneys' fees, from the fund or property itself or directly from the other parties enjoying the benefit. That rule has been consistently followed.... These exceptions are unquestionably assertions of inherent power in the courts to allow attorneys' fees in particular situations, unless forbidden by Congress....

Alyeska Pipeline, 421 U.S. at 257-59, 95 S.Ct. 1612. Thus, unless Congress has forbidden the application of the common fund doctrine in cases in which attorneys could potentially recover fees under the type of fee-shifting statutes at issue here, the courts retain their equitable power to award common fund attorneys' fees.

Congress did not explicitly forbid the use of the common fund doctrine in cases potentially involving § 2000e-5 and § 1988, and we see no reason to infer that it did so implicitly. The intent of the fee-shifting provisions at issue here is not countered by the application of common fund principles.

The fees available under a fee-shifting statute are part of the plaintiff's recovery and are not dependent upon any explicit fee arrangements between the plaintiffs and their counsel. For that reason, contingent fee agreements between counsel and client are valid in cases where statutory fees are available. See Venegas v. Mitchell, 495 U.S. 82, 86-89, 110 S.Ct. 1679, 109 L.Ed.2d 74 (1990). Common fund fees are essentially an equitable substitute for private fee agreements where a class benefits from an attorney's work, so the same general principles outlined in Venegas should apply.

Application of the common fund doctrine to class action settlements does not compromise [969] the purposes underlying fee-shifting statutes. In settlement negotiations, the defendant's determination of the amount it will pay into a common fund will necessarily be informed by the magnitude of its potential liability for fees under the fee-shifting statute, as those fees will have to be paid after successful litigation and could be treated at that point as part of a common fund against which the attorneys' fees are measured. Conversely, the prevailing party will expect that part of any aggregate fund will go toward attorneys' fees and so can insist as a condition of settlement that the defendants contribute a higher amount to the settlement than if the defendants were to pay the fees separately under a fee-shifting statute.^[20]

The district court did not, therefore, err in treating this case as one that could fall under the common fund doctrine rather than under the potentially applicable fee-shifting provisions, if the parties properly so agreed, the resulting fee was reasonable, and other requisites applicable to common fund fees were met.

The possibility that a prevailing party could recover fees either under the court's equitable powers or under its statutory authority does not, however, give the parties or the court free rein once either the common fund or the statutory rubric is selected. Fees sought or awarded under a fee-shifting statute require the application of the standards and procedures crafted for such statutes, discussed above. Similarly, if the parties invoke common fund principles, they must follow common fund procedures and standards, designed to protect class members when common fund fees are awarded. We turn next to the specific procedure employed in the negotiation and award of the attorneys' fees in this case.

ii. Inclusion in the settlement of the attorneys' fees

The parties negotiated the amount of attorneys' fees awarded class counsel as a term of the settlement agreement and thus conditioned the merits settlement upon judicial approval of the agreed-upon fees. See Hanlon, 150 F.3d at 1026 ("Neither the district court nor this court ha[s] the ability to `delete, modify or substitute certain provisions.' The settlement must stand or fall in its entirety.") (citations omitted). By proceeding in this fashion with respect to attorneys' fees and then attempting to justify the fees not as statutory fees but as common fund fees, the parties followed an irregular and, as we hold below, improper procedure.

Under regular common fund procedure, the parties settle for the total amount of the common fund and shift the fund to the court's supervision. The plaintiffs' lawyers then apply to the court for a fee award from the fund. See Paul, Johnson, Alston [970] & Hunt v. Graulty, 886 F.2d 268, 271 (9th Cir.1989) (in a common fund case, "a court has control over the fund — even one created pursuant to a settlement, as here ... and assesses the litigation expenses against the entire fund so that the burden is spread proportionally among those who have benefited.") (citing Van Gemert, 444 U.S. at 478, 100 S.Ct. 745); see also Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1046 (9th Cir.2002) (after approval of the settlement, class counsel applied to the district court for an award of attorneys' fees); Cook, 142 F.3d at 1011 ("In common fund cases, after attorneys obtain a settlement for the class, they petition the court for compensation from the fund...."); Florin, 34 F.3d at 563 (in a common fund case, "the defendant typically pays a specific sum into the court, in exchange for a release of its liability. The court then determines the amount of attorney's fees that plaintiffs' counsel may recover from this fund, thereby diminishing the amount of money that ultimately will be distributed to the plaintiff class.").^[21]

In setting the amount of common fund fees, the district court has a special duty to protect the interests of the class. On this issue, the class's lawyers occupy a position adversarial to the interests of their clients. The reason for the usual insistence upon judge-conferred common fund fees is that, as we have explained,

"Because in common fund cases the relationship between plaintiffs and their attorneys turns adversarial at the fee-setting stage, courts have stressed that when awarding attorneys' fees from a common fund, the district court must assume the role of fiduciary for the class plaintiffs." WPPSS, 19 F.3d at 1302. Accordingly, fee applications must be closely scrutinized. Rubber-stamp approval, even in the absence of objections, is improper.

Vizcaino, 290 F.3d at 1052. See also In re Coordinated Pre-trial Proceedings in Petroleum Prods. Antitrust Litig., 109 F.3d 602, 608 (9th Cir.1997) ("In a common fund case, the judge must look out for the interests of the beneficiaries, to make sure that they obtain sufficient financial benefit after the lawyers are paid. Their interests are not represented in the fee award proceedings by the lawyers seeking fees from the common fund").

When the ordinary procedure is not followed and instead the parties explicitly condition the merits settlement on a fee award justified on a common fund basis, the obvious risk arises that plaintiffs' lawyers will be induced to forego a fair settlement for their clients in order to gain a higher award of attorneys' fees. That risk is, if anything, exacerbated where, as here, the agreement provides for payment of fees by the defendant, as in a statutory fee-shifting situation, but the parties choose to justify the fee as coming from a putative common fund. Where that is the case, courts have to be alert to the possibility that the parties have adopted this hybrid course precisely because the fee award is in fact higher than could be supported on a statutory fee-shifting basis, yet the deal is so dependent upon class counsel receiving a greater-than-lodestar amount of fees that the parties were not willing to give the court supervisory discretion to [971] determine the distribution of the total settlement package between counsel and the class.

We recognize that in Evans, 475 U.S. at 720, 106 S.Ct. 1531, the Court held that the parties to a class action may simultaneously negotiate merits relief and an award of attorneys' fees under a fee-shifting statute, and may condition the entire settlement upon a waiver of fees. The Court explained:

[A] general proscription against negotiated waiver of attorney's fees in exchange for a settlement on the merits would itself impede vindication of civil rights, at least in some cases, by reducing the attractiveness of settlement.

Id. at 732, 106 S.Ct. 1531; see also id. at 733, 106 S.Ct. 1531 ("If defendants are not allowed to make lump-sum offers that would, if accepted, represent their total liability, they would understandably be reluctant to make settlement offers.") (quoting Marek v. Chesny, 473 U.S. 1, 6-7, 105 S.Ct. 3012, 87 L.Ed.2d 1 (1985)). Thus, to facilitate settlement by providing defendants with assurances as to the limits of their liability exposure, the parties to a lawsuit may, in conjunction with their merits negotiation, properly negotiate statutory fees to be paid by the defendant.

The concern motivating the decision in Evans — that prohibiting simultaneous negotiations and agreements as to merits and fees will discourage settlements — simply does not exist, however, in a case, such as this one, in which the parties to the negotiations seek to justify attorneys' fees as coming from a putative fund and to apply common fund principles. Usually, an agreement that provides lawyers fees on a common fund basis constitutes a "lump-sum" agreement, Evans, 475 U.S. at 733, 106 S.Ct. 1531, one that enables defendants to know the precise extent of their liability regardless of the amount of attorneys' fees eventually awarded from the fund. Thus, the parties could have simply agreed upon the total amount of the putative fund, as well as the damages and injunctive relief, and left the division of that fund as between the class and counsel to the district court, as is usual in common fund cases.^[22] Requiring the parties to so proceed or, in the alternative, to agree to a fee award as part of the settlement agreement in an amount no higher than could be justified by statutory fee-shifting principles, fully serves the defendant's only legitimate interest in class counsel's fee award. See In Re GMC, 55 F.3d at 819-20 ("[A] defendant is interested only in disposing of the total claim asserted against it ... the allocation between the class payment and the attorneys' fees is of little or no interest to the defense." (internal quotation marks and citations omitted)); Florin, 34 F.3d at 562 n. 1 ("The parties agreed that attorney's fees were to come out of the settlement fund. Defendants have satisfied their obligation to pay into the settlement fund, and thus have no interest in the amount of fees class counsel want to extract from the fund."). That requirement thereby provides the requisite impetus to settlement on the defendant's part while protecting against a maldistribution of the total settlement package between the class and its counsel.

Further, the effect of conditioning the settlement on a set amount of attorneys' fees based on an actual or putative common fund can be to inhibit district courts from engaging in independent determinations of reasonable fees, as required by law. The parties' all-or-nothing approach imposes pressure to approve otherwise acceptable [972] and desirable settlements in spite of built-in attorneys' fees provisions. While this same dynamic may exist where fees can be justified on a statutory fee basis, the more precise lodestar standards for adjudging the reasonableness of such fees, summarized above, make the influence of such pressure much less forceful.

We hold, therefore, that in a class action involving both a statutory fee-shifting provision and an actual or putative common fund, the parties may negotiate and settle the amount of statutory fees along with the merits of the case, as permitted by Evans. In the course of judicial review, the amount of such attorneys' fees can be approved if they meet the reasonableness standard when measured against statutory fee principles. Alternatively, the parties may negotiate and agree to the value of a common fund (which will ordinarily include an amount representing an estimated hypothetical award of statutory fees) and provide that, subsequently, class counsel will apply to the court for an award from the fund, using common fund fee principles. In those circumstances, the agreement as a whole does not stand or fall on the amount of fees. Instead, after the court determines the reasonable amount of attorneys' fees, all the remaining value of the fund belongs to the class rather than reverting to the defendant.

The parties in this case did not follow either of these procedures, or any other that adequately protected the class from the possibility that class counsel were accepting an excessive fee at the expense of the class.^[23] The district court therefore erred in approving the consent decree.

iii. Injunctive relief as part of the district court's putative fund

Even if the fee award had been determined in a procedurally proper way, approval of the amount of the attorneys' fees on common fund principles would still have been mistaken as a matter of law, because the actual percentage award was much higher than the 28% the district court recognized.

In order for attorneys to obtain an award of fees from a common fund, the court must be able to: (1) sufficiently identify the class of beneficiaries; (2) accurately trace the benefits; and (3) shift the fee to those benefiting with some exactitude. Van Gemert, 444 U.S. at 478-79, 100 S.Ct. 745. "[T]he criteria are satisfied when each member of a certified class has an undisputed and mathematically ascertainable claim to part of a lump-sum judgment recovered on his behalf," whereas they are not satisfied when "litigants simply vindicate a general social grievance." Id. at 479, 100 S.Ct. 745.

Under these requirements, the monetary relief for the plaintiff class (including attorneys' fees) provided for in the consent decree could be converted as described above so as to qualify as a common fund from which class counsel could obtain an award of attorneys' fees. The class consists of the approximately 15,000 African-American Boeing employees and so is sufficiently identifiable. The benefits from the monetary relief provided for in the decree would be distributed according to [973] its terms and so can be accurately traced. Finally, the fees could be shifted with ex-actitude to the benefiting class if taken properly from the fund.

In approving the award of attorneys' fees provided for in the consent decree, the district court employed the percentage method to determine that the award was fair. The court found that the fees constituted 28% of the putative fund, just above the 25% benchmark. To make this calculation, however, the court included in the amount of the putative fund an estimated value of $3.65 million for injunctive relief, the amount that the decree required Boeing to spend on approval and implementation of this component.

Although the injunctive relief falls somewhere between the permissible and the prohibited bases for fees set forth in Van Gemert — the relief neither produces "an undisputed and mathematically ascertainable" amount for each class member, nor merely "vindicate [s]" a general social grievance" — we have no difficulty here deciding that the district court abused its discretion in counting the parties' estimated value of that relief towards the putative fund.

The injunctive relief included in the consent decree requires Boeing only to "meet and confer" with class counsel or to discuss certain issues. Although Boeing must participate in such conferences and discussions, there is no requirement that Boeing take any action with respect to what the Company learns. The conferences and discussions may not result in tangible relief to class members. Moreover, a diversity consultant may not benefit the class to a degree commensurate with his or her cost.

Additionally, while the injunctive relief (along with the cost of obtaining approval of the decree) is to cost Boeing a fixed minimum amount, $3.65 million, some of the injunctive relief described in the consent decree consists of steps Boeing had apparently decided to take on its own, even before it entered the settlement. The decree also permits Boeing to credit expenditures towards the injunctive relief amount without regard to whether such expenditures are in addition to the cost of Boeing's prior outlays for administering similar programs. Thus, the true cost of the injunction to the defendant — and the true benefit to the plaintiff class — is a matter of speculation and may be far less than $3.65 million. That amount of money cannot be accurately traced to the decree, let alone to the beneficiaries making up the class. Without the estimated value of the injunctive relief, the fund is reduced to only $10.55 million, and the fee award of $4.05 million constitutes 38% — well above the 25% benchmark — of the putative fund.

We do not hold that a district court can never consider the value of injunctive relief in determining the reasonableness of a common fund fee. For instance, in Hanlon, 150 F.3d at 1029, we upheld the use of the common fund doctrine to award attorneys' fees after the parties reached a settlement agreement under which Chrysler would replace defective latches on minivans that it had manufactured. Although the replacement of latches is injunctive in nature, the agreement bestowed upon each beneficiary a clearly measurable benefit: one replacement latch for each minivan owned. The court could therefore, with some degree of accuracy, value the benefits conferred. Even so, in Hanlon the district court used its valuation of the fund only as a cross-check of the lodestar amount, "reject[ing] the idea of a straight percentage recovery because of its uncertainty as to the valuation of the settlement," id., and it was on that basis that we affirmed the fee award.

[974] Precisely because the value of injunctive relief is difficult to quantify, its value is also easily manipulable by overreaching lawyers seeking to increase the value assigned to a common fund. We hold, therefore, that only in the unusual instance where the value to individual class members of benefits deriving from injunctive relief can be accurately ascertained may courts include such relief as part of the value of a common fund for purposes of applying the percentage method of determining fees.^[24]See Van Gemert, 444 U.S. at 478-79, 100 S.Ct. 745. When this is not the case, courts should consider the value of the injunctive relief obtained as a "relevant circumstance" in determining what percentage of the common fund class counsel should receive as attorneys' fees, rather than as part of the fund itself. See Vizcaino, 290 F.3d at 1049. Alternatively, particularly where obtaining injunctive relief likely accounted for a significant part of the fees expended, courts can use the common fund version of the lodestar method either to set the fee award or as a cross-check to assist in the determination of how the "relevant circumstance" of the injunctive relief should affect a percentage award. See id. at 1050 ("Calculation of the lodestar, which measures the lawyers' investment of time in the litigation, provides a check on the reasonableness of the percentage award.").^[25]

The district court did not employ either of these procedures here. Nor can we determine on the record before us that considering the injunctive relief as a "relevant circumstance" or employing the common fund lodestar method would have justified the award of $4.05 million as a reasonable fee. On this ground, also, the district court erred in approving the proposed attorneys' fees award.

iv. Treatment of Costs of Litigation

In assessing the reasonableness of the fee award, the parties and the district court (1) included the pre-settlement costs of litigation — fairly low in this case, as the settlement occurred early in the lawsuit — as part of the fees awarded; but (2) included the cost incurred by Boeing for providing notices to the class of the settlement in the value of the injunctive relief, and therefore as part of the putative fund against which the reasonableness of the fees was measured.

The parties to the proposed settlement agreed to the inclusion of costs in the amount attributed to fees and the objectors, understandably, have not protested that inclusion. As all of those affected are content with that method of calculation and no class member's interests are adversely affected, the district court had no cause to disapprove the attribution, nor do we.

The district court also did not abuse its discretion by including the cost of providing [975] notice to the class of the proposed consent decree as part of its putative fund valuation, although the cost of providing two notices rather than one should not have been included. We have said that "the choice of whether to base an attorneys' fee award on either net or gross recovery should not make a difference so long as the end result is reasonable. Our case law teaches that the reasonableness of attorneys' fees is not measured by the choice of the denominator." Powers v. Eichen, 229 F.3d 1249, 1258 (9th Cir.2000). The post-settlement cost of providing notice to the class can reasonably be considered a benefit to the class. Also, where, as here, it is the defendant who pays for the notice, we may assume that the inherent incentives to minimize the cost involved are sufficient. Additionally, the court's supervision of the form of notice and the method of communication assures that the costs expended are contained. We conclude 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 benefiting the plaintiffs for all purposes, including the calculation of attorneys' fees.

4. Awards to Named and Unnamed Class Members

One other aspect of the settlement agreement also raises serious concerns as to its fairness, adequacy and reasonableness. The 237 people who are IIRs (and have not opted out) would each receive, on average, sixteen times greater damages than each of the unnamed class members; the subgroup of IIRs who are class representatives would receive even more relative to the class as a whole. While a point-based formula is used to distribute the damages fund among the rest of the class members who make claims, no such objective standards were applied in determining who would be paid as an IIR or in what amount. We find no sufficient justification in the record for this differential in the amount of damage awards and the process for awarding them.

The district court "considered this disparity carefully because excessive payments to named class members can be an indication that the agreement was reached through fraud or collusion." Indeed, "[i]f class representatives expect routinely to receive special awards in addition to their share of the recovery, they may be tempted to accept suboptimal settlements at the expense of the class members whose interests they are appointed to guard." Weseley v. Spear, Leeds & Kellogg, 711 F.Supp. 713, 720 (E.D.N.Y.1989); see also Women's Comm. for Equal Employment Opportunity v. Nat'l Broad. Co., 76 F.R.D. 173, 180 (S.D.N.Y.1977) ("[W]hen representative plaintiffs make what amounts to a separate peace with defendants, grave problems of collusion are raised.").

Although the district court expressed concern about the differential in damage awards, the court ultimately concluded that the settlement was reasonable, explaining that the named plaintiffs are "the group of class members identified by plaintiffs' counsel as having the strongest claims and thus as providing the strongest foundation for the lawsuit. Because they have the strongest claims it is fair that they would receive the largest awards." The record does not, however, support this explanation.

Class counsel represent that an individual became an IIR due to his or her willingness to step forward, risk retaliation, contribute to the attorneys' costs, and assist [976] in coordination of the lawsuit.^[26] The contention is that the individuals with the strongest claims were the most likely to participate in this manner. But that generalization greatly oversimplifies. Some further, considerably more direct evidence regarding the strength of the IIRs' claims is necessary to justify the large disparities in damages.

The need for direct evidence supporting the representation that the IIRs had particularly strong claims is heightened because the record suggests an alternative explanation for the selection of particular individuals as IIRs — their presettlement retention of class counsel and promise to contribute to counsel's costs. Without contrary proof, the possibility that class counsel were simply rewarding with higher damages amounts those class members who had promised to contribute toward their costs during the pendency of the suit gains considerable plausibility.

Such special rewards for counsel's individual clients are not permissible when the case is pursued as a class action. Generally, when a person "join[s] in bringing [an] action as a class action ... he has disclaimed any right to a preferred position in the settlement." Officers for Justice, 688 F.2d at 632. Were that not the case, there would be considerable danger of individuals bringing cases as class actions principally to increase their own leverage to attain a remunerative settlement for themselves and then trading on that leverage in the course of negotiations.

In In re Cont'l Ill. Sec. Litig., 962 F.2d 566, 571 (7th Cir.1992) (hereinafter "Continental Illinois"), the Seventh Circuit approved of "incentive fees" to compensate named plaintiffs for the risks they take and their vanguard role in the class action. See id. ("Since without a named plaintiff there can be no class action, such compensation as may be necessary to induce him to participate in the suit could be thought the equivalent of the lawyers' nonlegal but essential case-specific expenses, such as long-distance phone calls, which are reimbursable."). Continental Illinois would not justify the damages distribution in this case, as the much higher awards in the consent decree went to a large group of class members, not only to the class representatives. The two hundred-odd IIRs who were not class representatives were not essential to the litigation, although they may have been helpful to it.

We have, however, approved incentive awards of $5,000 each to the two class representatives of 5,400 potential class members in a settlement of $1.725 million. See In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 463 (9th Cir.2000); see also In re U.S. Bancorp Litig., 291 F.3d 1035, 1038 (8th Cir.2002) (approving $2,000 incentive awards to five named plaintiffs out of a class potentially numbering more then 4 million in a settlement of $3 million); Cook, 142 F.3d at 1016 (approving, in the context of a recovery of more than $14 million, an incentive payment of $25,000 to one named plaintiff who "spent hundreds of hours with his attorneys and provided them with `an abundance of information' "); Continental Illinois, 962 F.2d at [977] 571-72 (upholding a district court's rejection of a proposed $10,000 award to a named plaintiff "for his admittedly modest services"); In re SmithKline Beckman Corp. Sec. Litig., 751 F.Supp. 525, 535 (E.D.Pa.1990) (approving $5,000 awards for one named representative of each of nine plaintiff classes involving more than 22,000 claimants in a settlement of $22 million). In the proposed consent decree in this case, 29 named class representatives are designated to receive payments totaling $890,000. Compared to the three cases just mentioned, the different orders of magnitude in the present case concerning the number of named plaintiffs receiving incentive payments, the proportion of the payments relative to the settlement amount, and the size of each payment — here up to $50,000, with an average of more than $30,000 — are obvious. Nevertheless, named plaintiffs, as opposed to designated class members who are not named plaintiffs, are eligible for reasonable incentive payments. The district court must evaluate their awards individually, using "relevant factors includ[ing] the actions the plaintiff has taken to protect the interests of the class, the degree to which the class has benefitted from those actions, ... the amount of time and effort the plaintiff expended in pursuing the litigation ... and reasonabl[e] fear[s of] workplace retaliation." Cook, 142 F.3d at 1016.

Additionally, class members can certainly be repaid from any cost allotment for their substantiated litigation expenses, and identifiable services rendered to the class directly under the supervision of class counsel can be reimbursed as well from the fees awarded to the attorneys.^[27]See Missouri v. Jenkins, 491 U.S. 274, 285, 109 S.Ct. 2463, 105 L.Ed.2d 229 (1989). Similarly, if class members other than the named plaintiffs demonstrate that they were in fact retaliated against — or at least make some credible allegation of past or possible future retaliation — based on their role in the lawsuit, higher damages awards for such individuals than for other members of the class would be justified. But any plaintiff assumes the risk of retaliation, and we hesitate to single out non-named plaintiff IIRs as entitled to special payments simply for undertaking such risk.

Further, singling out a large group of non-named plaintiff class members for higher payments without regard to the strength of their claims eliminates a critical check on the fairness of the settlement for the class as a whole. Such individual class members who have actively participated in the litigation are the ones likely to be most aware of the dynamic at the negotiating table, the strength of the class claims, and the costs of pursuing the litigation. If they support the settlement agreement and are treated equally in that agreement with other class members making similarly strong claims, the likelihood that the settlement is forwarding the class's interests to the maximum degree practically possible increases. If, on the other hand, such members of the class are provided with special "incentives" in the settlement agreement, they may be more concerned with maximizing those incentives than with judging the adequacy of the settlement as it applies to class members at large.

All these concerns about incentive or risk payments to certain class members are exacerbated in this case by the allegation, and in one case (that of Cordell Bolder) the apparent reality, that IIR awards went to individuals who were not proper [978] members of the class.^[28] Again, if those individuals rendered compensable services to the lawyers, then the lawyers should pay for those services from the amount of the fund properly awarded for costs or fees, as appropriate. But if one or more of these individuals is clearly not a member of the class and therefore not entitled to any damages award, any proposed decree should be approved only if the provision awarding that person or those persons damages is deleted. If, alternatively, an individual's class membership is debatable, then the award to him or her can be considered an element of the compromise.

We conclude that the aspects of the settlement agreement pertaining to the distribution of the damages fund cannot stand on the present record. Because the very large differential in the amount of damage awards between the named and unnamed class members is not justified on this record, the district court abused its discretion in finding the settlement agreement to be fair, adequate and reasonable under Rule 23(e). We therefore reverse the judgment on this ground as well.

III. CONCLUSION

Having determined that reversal is appropriate on several grounds, we need not consider the other arguments of the objectors.

On remand, the parties will have a choice concerning whether to attempt to justify the present proposed agreement under the principles outlined above or, instead, to renegotiate the aspects of the agreement we have indicated are questionable. If they choose the former course and are able to justify the damages distribution (which on the present record appears quite unlikely), they will then also have to substantiate the fee award using a lodestar calculation under the applicable fee-shifting statutes rather than on a common fund basis.^[29] For the reasons stated, the fee as it stands cannot be justified on a common fund basis, and the court can only approve or disapprove the present agreement in its entirety. Thus, if the fee cannot be justified on the fee-shifting statutory basis, the entire agreement will have to be renegotiated.

If, alternatively (and more likely, given the seeming difficulty of justifying the current proposed decree), the parties decide to renegotiate and are able to present a revised settlement agreement to the district court, the court will of course need to reassess carefully the fairness of the settlement in accord with the standards we have explicated. If the parties negotiate a settlement fund and leave the attorneys' fees to be determined by the court on a common fund basis, then the district court, upon petition by class counsel, will determine these fees under the common fund principles discussed above.

The decision of the district court approving the proposed consent decree is REVERSED and REMANDED for proceedings consistent with this opinion.

[979] TROTT, Circuit Judge, Dissenting.

As they always do, my conscientious colleagues display a thorough and scholarly grasp of the issues that arise in the settlement of class lawsuits. With all respect, however, I see this settlement and the district court's approval of it in a different light. Thus, I respectfully dissent.

Three main worries, each of which in my view is just an illusion, appear to be driving the majority's decision to reverse the district court's approval of this consent decree: (1) the "possibility" that class counsel could have betrayed their clients in favor of their own fees; (2) that the "large differential" in the distribution of monetary awards between class representatives and certain identified class members, on one hand, and unnamed class members on the other, indicates something rotten in Denmark; and (3) that the district court inflated the $3.65 million value attached to the "largely precatory" injunctive relief. As I read this record, and as I shall attempt to demonstrate, these concerns have no foundation in fact or law.

Collusion

The Objectors correctly direct our attention to the rule that we have an obligation to police the settlement of class actions for evidence of collusion. See Fed.R.Civ.P. 23(e) ("A class action shall not be dismissed or compromised without the approval of the court....") "The purpose of this salutary requirement is to protect the nonparty members of the class from unjust or unfair settlements affecting their rights" as well as to minimize conflicts that "may arise between the attorney and the class, between the named plaintiffs and the absentees, and between various subclasses." Piambino v. Bailey, 610 F.2d 1306, 1327-28 (5th Cir.1980). We are to be cognizant 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.'" In re General Motors Corp. Pick-Up Truck Fuel Products Liab. Litig., 55 F.3d 768, 819 (3d Cir.1995) (quoting Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518, 524 (1st Cir.1991)). In fact, this is the precise rationale fueling the Objectors' challenge to the attorneys' fees agreement: it suggests (1) that the attorneys "exploited the class action device to obtain large fees at the expense of the class," and (2) that the representation was deficient.

Given the purpose of this rule, it occurs to me that if a class action merits settlement is not the product of collusion, the class et cetera has not been sold down the river in exchange for fees, and if the representation of the plaintiffs has been adequate, then the reasonableness of the fees presents itself in a different light, especially if the award is separate from the merits settlement of the case, as it is here. Thus, the first question for us is whether a showing has been made that the merits settlement suffers from some infirmity, suggesting in turn that the fees demonstrate a quid pro quo red carpet treatment in return for a betrayal of the client. I answer this question "no."

The "possibility" of collusion in this case turns out under scrutiny to be a classic red herring. The district court carefully looked into this "possibility" and found nothing of the sort. The court allowed the Objectors to depose five individuals the Objectors claimed were participants in an alleged secret deal. These depositions uncovered no evidence of collusion, and they supported the proponent's contention that there was no such evidence. At the end of the day on this important issue, the district court said:

Settlement agreements that are presented prior to class certification are to be [980] considered with particular care because they are more likely to be a product of collusion and because they have not been negotiated by court-approved representatives. The Court has exercised this scrutiny and finds no evidence of collusion. In addition, the Court notes that unlike many other class actions, the plaintiffs here did not file a complaint having already agreed to a settlement. On the contrary, this case was contentiously litigated for a substantial period prior to the settlement negotiations. And the plaintiffs' counsel spent a great amount of time preparing the case before it was filed. The nature and quality of this work gives every indication that plaintiffs' counsel intended to pursue these claims vigorously until they reached a satisfactory result; and is wholly inconsistent with the suggestion that the attorneys planned to sacrifice the plaintiffs' claims in exchange for a large fee award. It also indicates that the plaintiffs' counsel had obtained sufficient evidence to understand the strength of the claims despite the lack of formal discovery.

The majority is certainly correct when they conclude that "[t]he district court neither abused its discretion in finding that counsel's representation was appropriately vigorous for purposes of class certification nor clearly erred in finding that there was no overt collusion"; but then my colleagues erroneously decide this case on mere fears of the possibility of collusion — for which the district court specifically looked and found to be non-existent. What does collusion or the possibility of collusion have to do with this case and this settlement? Nothing. But, the mere specter of collusion in cases like this ends up almost as a neurosis undoing this settlement — even though villainy is manifestly non-existent.

Furthermore, this case, like all such cases, is unique in its facts and circumstances, and the district court's clear understanding of all of its aspects, as expressed in the court's Order of approval, dated September 30, 1999, explain away the "troublesome" dimensions of the settlement over which my colleagues — and the Objectors — fret. Three of these circumstances are covered by the first three Hanlon factors the district court must — and did — independently verify to determine that the consent decree is fair, adequate, and reasonable: (1) the strength of the plaintiffs' case; (2) the risk, expense, complexity, and likely duration of further litigation; and (3) the risk of maintaining class action status throughout the trial. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir.1998). The district court made the following findings and conclusions about these factors:

The Court reviews the first three factors together. The strengths of the plaintiffs' claims and the risks of future litigation are clearly related questions. Boeing has faced a series of individual race discrimination law suits in recent years and has won every one. Although the number of named plaintiffs in this case and the descriptions of their experiences lend credence to their allegations, discrimination cases are notoriously difficult to prove, particularly when they are based on failures to promote or other discretionary decisions. There is also some risk that the class certified by the Court would not survive a challenge by Boeing, which might, for example, be able to demonstrate after more extensive discovery that the class claims are too individual to meet the commonality and typicality requirements. Finally, there is no doubt that continued litigation would be enormously burdensome and expensive for the plaintiffs as well as for Boeing. The price of discovery [981] alone in a nationwide class action such as this one is almost always measured in millions of dollars. The objectors raise no serious challenges to these points, and the Court finds that these factors all strongly favor adopting the consent decree.

The record provides ample support for the district court's understanding of these aspects of this complex litigation.

Accordingly, I conclude that there was no chicanery in this case, and the aspects of the consent decree to which the Objectors point as telltales of trouble are clearly dealt with and adequately explained by counsel and the district court. Judge Berzon's scholarly opinion is an excellent discussion of that for which we must always be vigilantly on the lookout in these cases, but in the end, none of it applies to this settlement. My conclusion in this regard drives my analysis of the reasonableness of the attorneys' fees, as I later explain.

The Differences in Damage Awards

Next, there is my colleagues' problem with the distribution of monetary awards. This, too, was addressed, explained, and adequately handled by the district court:

More problematic is the disparity between the awards to the named plaintiffs and individually identified recipients and the awards to absent class members. The Court has considered this disparity carefully because excessive payments to named class members can be an indication that the agreement was reached through fraud or collusion. After reviewing the record, however, the Court concludes that there is nothing improper about the damages awards under the decree in this case. There are 264 named members of the class and individually identified recipients who will receive the larger awards. This is a very large group to have been brought in-line behind an allegedly collusive agreement. More importantly, this is the group of class members identified by plaintiffs' counsel as having the strongest claims and thus as providing the strongest foundation for the lawsuit. Because they have the strongest claims it is fair that they would receive the largest awards. Also awards to named class members and others assisting in the prosecution of a class action are generally significantly larger than awards to unnamed class members to compensate the first group for the time and risks taken by involving themselves in the litigation. For these reasons, the Court concludes that the awards to the named parties are not excessive.

* * *

As a final factor supporting the damages provision of the consent decree, the Court notes that the opt-out provision allowed any member of the class to preserve an individual claim. Notice was provided to all class members by mail and by publication of the effects of the suit, and information about the claims process was readily available from the Clerk of the Court and from other sources. Any individual who believed that the damages he or she is likely to receive under the decree are inadequate could opt-out and file an individual suit. The decree provides that the statute of limitations period for such claims would be tolled during the pendency of the class action suit. This protection, as well as the other factors described above, leads the Court to conclude that the provisions for monetary relief in the decree are adequate, fair, and reasonable.

The Value of the Injunction

With all respect, my colleagues inappropriately brush off a highly significant aspect [982] of the record on which the district court explicitly relied in evaluating the value of this settlement, starting with the informed Declaration of Jesse Jackson who vouched in strong terms for its benefit to the affected employees. Here verbatim is what Reverend Jackson offered the district court in this regard:

In June 1998, I was asked if I would review the racial issues pertaining to The Boeing Company ("Boeing") and, if I felt there was a problem, if I could offer some assistance. Before agreeing to do so, I reviewed a substantial number of documents regarding promotional opportunities for African-Americans at Boeing. I met many of the named plaintiffs in the class action to hear, first hand, what they perceive to be the roadblocks to equal opportunity at Boeing. I was impressed by the named plaintiffs, their candor, and their ability to articulate what they perceive to be the hurdles to equal opportunity. In conversations with them it was clear they were pursuing this litigation not for monetary gain for themselves or to receive a substantial monetary award for the class or particular individuals with grievous discriminatory claims but, instead, they were committed to trying to find a mechanism which would over time permit qualified minorities to have the jobs they deserved but only after full and fair competition with non-minorities. They were not looking for freebies but simply a fair opportunity to be considered and to be promoted on their own merits. After listening to these named plaintiffs, and after discussing the matter with McKAY HUFFINGTON HARRELL & DESPER ("Plaintiffs' Class Counsel"), I agreed to participate in the process. I contacted senior management at Boeing and scheduled several meetings with them. I personally met with Phil Condit and other senior management officials. We openly and candidly discussed the racial issues at Boeing and they provided materials that I requested so that I could review the significance and magnitude of the issues at Boeing. After these meetings, I met with and worked with Plaintiffs' Class Counsel and the named plaintiffs in defining the goals of this litigation, what could be achieved and how to achieve it. I have not been paid any compensation [for] my services and advice, nor have the organizations with which I am affiliated been paid anything for my services, and there have been no promises of nor is there an expectation of payment in the future either for past or future services regarding this litigation or Boeing.

The proposed settlement in the Boeing litigation is, in my view, one that should make Boeing and its African-American workers proud. It not only provides significant monetary relief, relative to the potential recovery for the class in this case, but advances the equal opportunity cause to a new and somewhat novel level. One might say that the proposed consent decree is even bold. To my knowledge no other employer has agreed to provide to its African-American employees, free of charge for three years, an outside, unaffiliated law firm with African-American partners to review, assist, and advocate employment opportunities for African Americans. I know from my personal experience that there is no language in a policy, no committee, or any other of the traditional kinds of equitable relief in employment consent decrees that can even remotely come close to the efficacy of direct involvement by an independent advocate on behalf of a disenfranchised worker. Having a lawyer available to assist an African-American worker to understand the employment process, the [983] complaint process, and to challenge a failed promotional bid will, in my opinion, significantly increase the chances that that African-American worker, and others like him or her, will be fairly promoted in the future. This consent decree may well become the model or template for future consent decrees. Providing a truly independent advocate to champion the cause for African-American minority workers — as this consent decree does — may become the benchmark by which future employment class settlements are measured. I applaud Boeing for having the courage to provide such an advocate for its workers and Plaintiffs' Class Counsel for taking on the obligation and the significant financial risks that it entails.

As I said before, I've been involved in several race-related lawsuits including, but not limited to Texaco. In those, I worked with the African American workers, management teams, and the lawyers to resolve equal opportunity issues. There, as in this case, I facilitated the negotiation process and the settlements. From that experience, and my general experience in working with businesses on racial issues, I can say without qualification that the proposed settlement for the Boeing litigation is good for minority workers and I urge the Court to approve it.

(Emphasis added).

The Reverend Jackson's opinion is just the beginning. An impressive array of experts also submitted declarations in favor of this settlement, experts simply unnamed and ignored by the majority.

Dr. Larry Davis, Ph.D., a chaired professor of racial and ethnic diversity at Washington University in St. Louis, Missouri, said about the proposed consent decree, and its forward-looking aspects:

This is truly a bold approach and, in my experience, would do more in the long run to advance the career opportunities of individual African-Americans at Boeing than any added verbiage to existing programs, than simply increasing their existing wages or salaries, or even giving them an automatic one-time promotion now. It provides a powerful enforcement device and information resource that is critically absent in most corporate environments. I would not be surprised if this aspect of the Boeing Consent Decree — that provides for a disinterested outside law firm to assist the employer's workers at no charge — becomes the role model or template for further employment discrimination cases. I encourage the Court to give favorable consideration to this component of the Proposed Consent Decree.

(Emphasis added)

Dr. Al Black, Ph.D., a senior lecturer of sociology at the University of Washington agreed:

This seems to be a novel approach to a historical problem — affirmative plans designed to defeat discrimination without an active enforcement division or monitoring group giving it real teeth. If such "monitor" provides free legal service to its constituents, reviews their employment history and applications for job opportunities, assists them with job applications, and investigates problems should opportunities become unlawfully denied, then tremendous results can occur. This can be a powerful enforcement vehicle and a tremendous opportunity for African-American employees at Boeing. Such approach can have the effect of establishing real meaning to the affirmative action rhetoric commonly regurgitated by large corporations and not monitored or enforced.

[984] Traditional affirmative action programs have established the right framework with which to begin building processes that equalize employment conditions. The success of these programs is largely dependent upon how they are implemented and monitored. I believe that a dedicated outside monitoring source would further tremendously the success of these types of programs.

Gary Smith, a senior partner with the Ivy Planning Group, a management consulting firm serving such clients as IBM, Morgan Stanley, Zerox, the U.S. Postal Service, and Chase Manhattan Bank saw this settlement as did his professional counterparts:

Based on my professional judgement, there is incredible value in the creation of a system whereby employees have access to independent counsel, willing to devote their time and resources to measuring and monitoring the success of the employers' commitment to diversity issues, and who are available to gather career related information for the worker, to assist in the maze of varying application or promotion criteria, and to confront the employer if the worker's job/promotion application is wrongly rejected.

The success of any diversity initiative is dependent on how much the employer polices itself. In today's corporate environment, effective diversity efforts are being moved beyond H.R. organizations and made the responsibility of line managers. Human Resources and EEO resources are never sufficient. The management team will always choose to devote its limited resources and money to activities that more directly generate income. Putting these two phenomenon [sic] together means that even the best affirmative action plan cannot achieve optimal results. However, if an organization is willing to allow an outside firm to assist in these efforts, incredible value is bestowed upon the employee, with bottom line improvements being passed on to the organization.

Kerby Collins, the Internal Civil Rights Manager for the Washington State Department of Transportation was of a similar mind:

When and where internal complaint procedures and adequate monitoring responsibilities fail, as claimed by the African American employees at The Boeing Company, I believe the most productive and powerful tool available to complainants, would be access to independent legal counsel charged with the responsibility of monitoring the organization's compliance with the law, or in this case, a Consent Decree. While many organizations may not welcome this type of "policing" function, if organizations are willing to demonstrate this commitment, in the long run it will result in improved organizational behavior and in turn, profitability.

How my colleagues can choose to dismiss the evidence regarding the importance and real value of the injunctive relief against future job discrimination is beyond me. The majority seems simply — and inappropriately — to disbelieve class counsel when they say that "Boeing will also pay $750,000 to retain class counsel for three years after the settlement becomes final to provide free legal assistance to African-American employees seeking career advancement at Boeing." There is absolutely nothing in this record, I repeat, nothing to suggest that we should not take class counsel at their word about their promises of free legal assistance to these employees, assistance paid for by Boeing.

My colleagues express similar concern about attaching value to what they dismiss [985] as "changes already ... implemented," as though matters in the works somehow do not count, or have no value. Yet, they overlook why the changes which they discount came to pass. To quote Boeing in its brief to this court:

Objectors also attack certain elements of the equitable relief as "illusory" because they allegedly were not brought about through the class action litigation. This statement, however, is factually unfounded. The equitable relief provided by the Consent Decree was carefully tailored to address the concerns raised by plaintiffs in the two Seattle lawsuits, which also were raised by many African-American employees during the period of threatened litigation that led up to those lawsuits. Thus, while some of the equitable relief may have been "in the works" prior to the effective date of the Consent Decree, that relief was clearly the result of the pressure brought to bear on Boeing by the lawsuits. Some background of the events leading up to the litigations helps illustrate this point.

In late 1996 and early 1997, two groups of African-American employees from Boeing's Everett, Washington and Auburn, Washington facilities came forward and expressed concerns regarding alleged race discrimination. Boeing agreed to interview each employee who raised a complaint, consider common issues raised, and take appropriate action to address the concerns. These two groups grew to approximately 165 employees, and a number of those employees are now included in the Seattle Class Action as IIR's.

The concerns — and litigation threats — expressed by the two groups centered around perceived unfairness in promotions, especially: (1) the ERT ("Employee Request for Transfer") system used by Boeing as an element of selecting persons for promotions within the hourly ranks; (2) perceived unfairness in the selection of entry-level managers; and (3) perceived ineffectiveness of the EEO investigation and corrective action function. While Boeing did not believe that these systems were discriminatory, the company nevertheless began to develop improved processes in response to these concerns and threats of litigation. Equitable relief to address these concerns — as well as additional relief addressing other issues — is now found in the Consent Decree. When a defendant takes voluntary action to address claims raised by plaintiffs in litigation, its actions are hardly considered "illusory" — under appropriate circumstances plaintiffs in such cases may be considered "prevailing parties" entitled to recover attorneys' fees. See, e.g., Stivers v. Pierce, 71 F.3d 732, 751 (9th Cir.1995) (citing Farrar v. Hobby, 506 U.S. 103, 113 S.Ct. 566, 121 L.Ed.2d 494 (1992)).

Attorneys' Fees

My colleagues' problems with the attorneys' fees stem from getting lost in unfamiliar trees and a consequent failure to see the forest for what it is. This settlement promises clear future value to African-Americans working for one of our nation's largest and most important employers. Measured against this value, much of which is intangible, the modest attorneys' fees agreement appears to me on the record to be quite appropriate. As I have pointed out, it is a stand alone aspect of the settlement. In dollar terms, it does not subtract from the value of the settlement, which is only a small part of what the settlement accomplishes. The merits settlement itself was (1) free of collusion and chicanery, (2) generous in its opt-out provisions, (3) fair in its monetary provisions, [986] (4) forthcoming in its look to the future, and (5) vigorously litigated. Nevertheless, the attorneys' fees issue ends up as the proverbial tail wagging the dog to death, even though the dog is not a dog at all, but a viable solution to a serious problem demanding prompt resolution. If the settlement itself were truly suspicious and indicative of a betrayal, then a different approach might be in order; but if the settlement stands, in my view, so do these fees. It may not match up perfectly with other methods of measuring whether fees are appropriate, but no matter whether fees here are low or high, they do not subtract from the relief obtained by the plaintiffs. My colleagues say that the method used in this case to determine attorneys' fees "allows too much leeway for lawyers representing a class to spurn a fair, adequate and reasonable settlement for their clients in favor of inflated attorneys' fees." This problem is not part of this case, and I do not see how something that might have happened but did not must torpedo this hard-bargained positive outcome. In the end, this case has been decided based on possibilities, not realities.

Conclusion

The standard of review we are bound to employ is highly deferential, as it should be. As the majority admits, "We have repeatedly stated that the decision to approve or reject a settlement is committed to the sound discretion of the trial judge because he is exposed to the litigants, and their strategies, positions, and proof. Hanlon, 150 F.3d at 1026 (citation and internal quotation marks omitted). Accordingly, a district court's final determination to approve the settlement should be reversed `only upon a strong showing that the district court's decision was a clear abuse of discretion' ..." Hanlon, 150 F.3d at 1026 (quoting In re Pac. Enters. Sec. Lit., 47 F.3d 373, 377 (9th Cir.1995)). Here, not only do the majority fail to adhere to this deferential standard, adopting instead a standard of "somewhat uneasy with the settlement as a whole"; but in my view, they do so in a case where the district court's approval of the settlement and of the attorneys' fees was clearly an appropriate exercise of discretion. The district court judge responsible for this case is highly experienced, capable, and astute, one over whose eyes no one pulls the wool. It is a rare settlement that will delight all parties, but this settlement has much to say for it. Accordingly, I dissent from a decision that will have the effect of unnecessarily delaying full implementation of this efficacious solution for four years — if not more — from the date the district court found it to be appropriate.

[1] The Honorable Donald P. Lay, Senior Circuit Judge for the Eighth Circuit, sitting by designation.

[2] After applying the reversion and opt-out provisions, the damages awarded by the decree amount to approximately $6.5 million.

[3] This amount includes $3.85 million in fees and costs to class counsel and $200,000 to objectors' counsel.

[4] It is possible that new hires are not so barred. The decree provides, in a separate provision, that nothing in the decree "bars any claims of members of the Settlement Class ... based on or arising out of events occurring after the Preliminary Approval date."

[5] After opt-outs this group was reduced to 237 persons.

[6] The full $100,000 has already been paid to class counsel, by order of the district court.

[7] The decree appears to provide — but is not lucid in this respect — that Boeing is to designate a group of three nominees from which the consultant will be selected, taking into consideration nominees proposed by plaintiffs.

[8] If Boeing decides that there are "significant impediments to implementing ... programs" providing information about who received a particular promotion, Boeing is to "meet and confer with Class Counsel regarding alternative approaches." Again, there is no requirement that Boeing actually implement any such alternative approaches.

[9] "Heritage Boeing" refers to the portion of the Company that existed before its purchase of the McDonnell Douglas Corporation and parts of Rockwell International.

[10] Similarly, the district court read the decree as providing that "free legal advice will be available to assist class members who feel that they have been discriminated against by the company." In its memorandum in support of class certification, Boeing wrote that it "does not subscribe to as expansive an interpretation of Class Counsel's post-decree monitoring responsibilities."

[11] One Fifth Circuit opinion may reflect the latter approach. In Vuyanich v. Republic Nat'l Bank, 723 F.2d 1195 (5th Cir.1984), that court over-turned the certification of a class of women and African-American employees and applicants (which was divided into five subclasses). The decision relied in part on the existence of objective factors in the hiring process, referring to the comment in footnote fifteen as a "`general policy of discrimination' exception." "The district court's finding that the Bank relied on two objective inputs — education and experience — in its necessarily subjective hiring process ... precludes reliance on this `general policy of discrimination' exception." Id. at 1199-1200.

[12] In Molski, we found inadequate representation under Rule 23(a)(4) primarily because of the different circumstances of the named plaintiff and some members of the class. We did look to the terms and circumstances of the ultimate agreement as confirmation of inadequate representation, but did not base the finding of inadequacy of representation on the substance of the agreement alone. 318 F.3d at 955-56.

[13] Even when there is no direct proof of explicit collusion, there is always the possibility in class action settlements that the defendant, class counsel, and class representatives will all pursue their own interests at the expense of the class. For that reason, the absence of direct proof of collusion does not reduce the need for careful review of the fairness of the settlement, particularly those aspects of the settlement that could constitute inducements to the participants in the negotiation to forego pursuit of class interests. See p. 960, infra.

[14] The racial harassment provisions of the proposed consent decree illuminate the defects in many of the other remedial sections: Unlike the promotion and complaint provisions, the section covering the harassment policy does contain some enforceable standards should Boeing choose to change its policy — "the amended policy [must have] the same import as the [present] Harassment Policy and [be] reasonably designed to achieve the same effect as the Harassment Policy in respect to preventing and remedying racial harassment." Similar language is noticeably absent from all the other sections concerning the programs Boeing is to develop or has developed to remedy discrimination against the class.

[15] We stress once again that, as this case has not been litigated, we have no way of knowing whether there was in fact race discrimination in employment at Boeing.

[16] Also contributing to our determination to scrutinize the attorneys' fees provisions with special care is the nature of the notice to the class with respect to fees. The class notice did not break out the amount of attorneys' fees provided for in the settlement agreement, although an alert class member could have calculated those fees from the information provided.

Appellees admit that "with benefit of hindsight it would have been preferable if the formal notice to [the] class had included more specificity with respect to the fee award." They have not explained, however, why the decision was made to leave out that particular figure from the class notice while spelling out the total fund available to the class, the amount of monetary relief, and the value assigned to the injunctive relief.

Notice of the amount of fees serves as "adequate notice of class counsel's interest in the settlement." Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir.1993); see also Goldenberg v. Marriott PLP Corp., 33 F.Supp.2d 434, 441 (D.Md.1998) ("Notice of the potential extent of attorneys fee awards is deemed essential because it allows class members to determine the possible influence of the fees on the settlement and to make informed decisions about their right to challenge the fee award."). Where the class was informed of the amount of fees only indirectly and where the failure to give more explicit notice could itself be the result of counsel's self-interest, the courts must be all the more vigilant in protecting the interests of class members with regard to the fee award.

[17] Jones held that a district court could, after reviewing the attorneys' fees awarded as part of a class action settlement, reduce the amount of fees, apparently while retaining the binding nature of the remainder of the agreement. Such a procedure is not consistent with Evans v. Jeff D., 475 U.S. 717, 726-27, 106 S.Ct. 1531, 89 L.Ed.2d 747 (1986), decided after Jones. Evans held that, with respect to attorneys' fees provisions as with respect to any other provision, "the power to approve or reject a settlement negotiated by the parties before trial does not authorize the court to require the parties to accept a settlement to which they have not agreed.... Rule 23(e) does not give the court the power, in advance of trial, to modify a proposed consent decree and order its acceptance over either party's objection." (Footnote omitted). See also Hanlon, 150 F.3d at 1026 (stating, without exception, that "[t]he settlement must stand or fall in its entirety").

[18] See, e.g., City of Burlington v. Dague, 505 U.S. 557, 112 S.Ct. 2638, 120 L.Ed.2d 449 (1992) (prohibiting pure contingency enhancements of the lodestar under fee-shifting statutes); Ferland, 244 F.3d at 1149, 1151 (holding that where the district court cuts substantially the number of hours compensated because of perceived inefficiency, the court must either "calibrate the number [of hours] chosen to demonstrable inefficiency in carrying out particular tasks" or provide an explanation of the level of reduction chosen); Caudle, 224 F.3d at 1029, 1029 n. 11 (finding an abuse of discretion where the district court did not "explicitly follow [lodestar] procedures" and noting that a modest amount of recovery cannot be used to reduce a fee award below the lodestar); Van Gerwen v. Guar. Mut. Life Co., 214 F.3d 1041, 1049 (9th Cir.2000) (concluding that the district court did not abuse its discretion in refusing to award fees for hours spent on discovery unrelated to the record); Guam Soc'y of Obstetricians & Gynecologists v. Ada, 100 F.3d 691, 697 (9th Cir.1996) ("Dague left undisturbed earlier Supreme Court case law allowing a fee applicant to recover more than the lodestar figure where the applicant has met the burden of showing that such an adjustment is necessary to the determination of a reasonable fee." (internal quotation marks and citations omitted)); Morales, 96 F.3d at 365 (vacating attorneys' fee award because the exception to lodestar calculation for nominal damages cases in which the plaintiff's success is de minimis did not apply); Gates v. Deukmejian, 987 F.2d 1392, 1398, 1400 (9th Cir.1992) (rejecting the district court's reduction of the lodestar based on the absence of "concise but clear" explanatory language to show that it did not "uncritically accept[ ] plaintiffs' suggested reductions and fail[ ] independently to review the record"); Cunningham v. County of Los Angeles, 879 F.2d 481, 487, 489 (9th Cir.1988) (holding four justifications for adjusting the lodestar improper because they are subsumed in the lodestar determination itself).

[19] See Brytus v. Spang & Co., 203 F.3d 238, 246-247 (3d Cir.2000) (holding that common fund fees can be appropriate in both settled and litigated cases where statutory fees are available); Cook v. Niedert, 142 F.3d 1004 (7th Cir.1998) (approving fees measured by common fund rather than statutory principles where statutory fees were available); Florin v. Nationsbank, 34 F.3d 560, 564 (7th Cir.1994) (common fund principles "properly control a case which is initiated under a statute with a fee shifting provision, but is settled with the creation of a common fund."); Skelton v. General Motors Corp., 860 F.2d 250, 256 (7th Cir.1988) ("[W]hen a settlement fund is created in exchange for release of the defendant's liability both for damages and for statutory attorneys' fees, equitable fund principles must govern the court's award of the attorneys' fees."); 1 Mary Francis Derfner and Arthur D. Wolf, Court Awarded Attorney Fees, ¶ 2.05[7] at 2-81 (2001) ("[T]he mere fact that a fee-shifting statute is implicated in the action does not ensure that fees will be awarded under that statute.... [F]ees may be taxed against the [settlement] fund under the common fund doctrine." (citing Skelton and Florin)).

[20] The Seventh Circuit reasoned similarly in Florin:

The settlement agreement approved by the court provides that the defendants are released from potential liability for statutory attorney's fees and that class counsel may instead petition the court for an award of fees from the settlement fund. Thus, the settlement agreement seems to anticipate that the amount paid by the defendants into the fund includes an unspecified sum for class counsel's fees. An award of attorney's fees from the fund would therefore be consistent with the goal of the fee-shifting provision to allow the offending party [to] bear the costs of the award ... Furthermore, an award of fees from the settlement fund comports with the fee-shifting policy of enabling meritorious plaintiffs who would not otherwise be able to afford to bring a lawsuit ... to pursue their claims.

34 F.3d at 564. See also Brytus, 203 F.3d at 246 (where there is a settlement in a case in which statutory fees are available, "consideration of the attorney's fees was likely factored into the amount of settlement").

[21] On one occasion, we permitted a carefully conceived procedure to substitute for completely independent judicial determination of lodestar-based common fund fees. Hanlon, 150 F.3d at 1029 (fees were negotiated only after the merits agreement was concluded and a mediator present at the negotiations provided assurance to the court "that the fee was not the result of collusion or a sacrifice of the interests of the class" before the district judge reviewed the award using the lodestar, not percentage, method, "requiring class counsel to submit detailed evidence of their work on behalf of the class").

[22] The description of the total amount of the fund need not take any particular form and could result from adding up separately-enumerated amounts in the agreement.

[23] By spelling out these alternatives, we do not mean to preclude all others. Rather, the parties have flexibility in negotiating class action settlement agreements, including the attorneys' fee provisions. The alternatives outlined in the text are paradigms. Any variants, to be reasonable, would have to provide equivalent assurance that the inherent tensions among class representation, defendant's interests in minimizing the cost of the total settlement package, and class counsel's interest in fees are being adequately policed by the court.

[24] Appellees cite cases in which fees have been awarded as a percentage of what they refer to as "non-monetary" benefits. But there is no appellate case cited that supports the fee award here. Two of the cases cited concerned not a common fund but the inapplicable common benefit doctrine. Mills v. Electric Auto-Lite Co., 396 U.S. 375, 392, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Loring v. City of Scottsdale, 721 F.2d 274, 275 (9th Cir.1983). And in Hanlon, supra, and Wing v. Asarco Inc., 114 F.3d 986, 990 (9th Cir.1997), attorneys' fees were calculated (as opposed to cross-checked) not by a common fund percentage approach but using the lodestar method.

[25] As Vizcaino notes, where attorneys' fees are awarded on a common fund basis, "[t]he bar against risk multipliers ... does not apply," so the lodestar approach can include a risk multiplier. 290 F.3d at 1051; see also Florin, 34 F.3d at 564; WPPSS, 19 F.3d at 1299-1300.

[26] For instance, a declaration by one of the class lawyers states that the named plaintiffs were those who were willing to take the risk of appearing as named plaintiffs; being team leaders; assisting the regional groups in gathering documents, evidence, and identifying other witnesses; coordinating the information flow to and from class counsel; assisting in efforts to raise sums to pay for the cost of this litigation; and/or agreeing to come forward with their claims and be witnesses. In our minds, each of these people was in effect a class representative or at least prepared to be a class representative.

[27] According to class counsel, counsel will return to the IIRs the monies they paid under retainer agreements, so the damages awards do not cover those funds.

[28] Cordell Bolder is the son of a class representative whose support of the decree was important. Objectors also allege irregularities with respect to another IIR, Mr. Bolder's stepfather, Jimmy Dean, as well as a class representative, Charles Jones. The district court had a responsibility to address each of these individuals' proposed payments. Instead, its analysis did not go beyond stating that the "award to Mr. Bolder [was] unfortunate," but not fraudulent. Having found that "the parties now admit that he is not a member of the class," the court should have made approval of the decree contingent on its amendment to eliminate "this single error."

[29] In that case, the limitation on risk multipliers announced in Dague, supra, would apply.

[954] N. Albert Bacharach, Jr., N. Albert Bacharach, Jr., P.A., Gainesville, FL, on behalf of objector-appellant Pamela Collins.

J. Garrett Kendrick and C. Benjamin Nutley, Kendrick & Nutley, Pasadena, CA, on behalf of objectors-appellants George Schneider, Jonathan M. Slomba, James Puntumapanitch, Justin Head, and Ryan Helfrich.

Charles A. Sturm, Steele Sturm PLLC, Houston, TX, on behalf of objectors-appellants James Juranek, Audrey Juranek, and Richard P. LeBlanc.

Scott L. Nelson, Public Citizen Litigation Group, Washington, D.C., on behalf of objectors-appellants Robert Gaudet, Jr., Andrea Boggio, Sandeep Gopalan, Elizabeth De Long.

Steven F. Helfand, Helfand Law Offices, San Francisco, CA, on behalf of objectors-appellants David Feldman, Cameron Gharabiklou, Emily Grant, Jeff Lang, Sarah McDonald, Cara Patton, Rachel Schwartz, and Greg Thomas.

J. Darrell Palmer, Law Offices of Darrell Palmer, Solana Beach, CA, on behalf of objectors-appellants Evans & Mullinix, P.A., Sarah Siegel, Jennifer Brown McElroy, Daniel Schafer, David Oriol, and Jason Tingle.

Sidney K. Kanazawa, McGuireWoods LLP, Los Angeles, CA; Dan Drachler, Zwerling, Schachter & Zwerling, LLP, Seattle, WA, on behalf of plaintiffs-appellees Ryan Rodriguez, et al.

Stuart N. Senator, Munger, Tolles & Olson LLP, Los Angeles, CA, on behalf of defendant-appellee Kaplan, Inc.

James P. Tallon, Shearman & Sterling LLP, New York, NY, on behalf of defendant-appellee West Publishing Corporation.

Before DIARMUID F. O'SCANNLAIN, PAMELA ANN RYMER and KIM McLANE WARDLAW, Circuit Judges.

OPINION

RYMER, Circuit Judge:

West Publishing Corp. and Kaplan, Inc. entered a settlement agreement in an antitrust class action brought by those who purchased a BAR/BRI course between August 1, 1997 and July 31, 2006. (BAR/BRI is a subsidiary of West that provides preparation courses for state bar exams.) The district court approved the settlement, and several class members who object (Objectors) appeal. Their principal objection relates to incentive agreements that were entered into at the onset of litigation between class counsel and five named plaintiffs [955] who became class representatives. They also contend that the district court improperly failed to compare the amount of the settlement to the likely recovery of treble, as well as single, damages.

We agree that the ex ante incentive agreements created conflicts among the five contracting class representatives, their counsel, and the rest of the class. We disapprove of them. Nevertheless, there were two other class representatives who had no incentive agreements and whose separate counsel were not conflicted. They provided adequate representation and the court was not required to reject the settlement on this account.

We conclude that the district court did not clearly abuse its discretion in finding that the $49 million settlement was fair, adequate, and reasonable even though it evaluated the monetary portion of the settlement based only on an estimate of single damages. Courts are not precluded from comparing the monetary component of a settlement to the estimated treble damages if, in their informed judgment, the strength of the particular case warrants it; but they are not obliged to do so in every antitrust class action. In this case, the settlement is substantial and meets the standard for approval by any measure.

Finally, we believe that the incentive agreements may have an effect on attorney's fees that the district court did not acknowledge. It gave no weight to the Objectors' role in securing denial of incentive awards, nor did the court take into account ethics concerns arising out of the incentive agreements when it awarded attorney's fees to class counsel. Both issues need to be revisited.

The Objectors' remaining arguments lack force. Accordingly, we affirm approval of the settlement. We reverse the orders denying any fee award to Objectors and granting the fee award to class counsel, and remand.

I

Ryan Rodriguez and Reena B. Frailich brought this action on behalf of themselves and "[a]ll persons who purchased a bar review course from BAR/BRI in the United States from August 1997 to the present" against West and Kaplan. They filed a first amended complaint in May 2005 joined by Loredana Nesci, Jennifer Brazeal, and Lisa Gintz. Kari Brewer and Lorraine Rimson were named plaintiffs in a related action (Brewer v. West Publishing Corp.) that was consolidated with Rodriguez. All were eventually designated as class representatives. McGuireWoods LLP was appointed class counsel.

The operative complaint alleges that BAR/BRI has been the major provider of bar preparation courses throughout the United States for decades. In 1995, West started a business called West Bar Review that competed with BAR/BRI in the market for state bar preparation courses. Thomson Company acquired West in 1996 and sought to divest itself of West Bar Review. Kaplan entered into a letter of intent to acquire West Bar Review by early August 1997. BAR/BRI, unaffiliated with West or Kaplan at that time, allegedly sought to thwart the sale of West Bar Review to Kaplan by entering a market division agreement with Kaplan whereby BAR/BRI agreed to pay Kaplan and to withdraw from markets for other test preparation courses, while Kaplan agreed not to enter BAR/BRI's primary market through acquisition of West Bar Review. BAR/BRI then acquired West Bar Review in the fall of 1997. A few years later, in 2001, West bought BAR/BRI.

The pleading also alleges that BAR/BRI erected and maintained various entry barriers to the market for bar preparation [956] courses that included targeting first-year law students with a non-refundable option for BAR/BRI's course when they graduate; offering free access to its Westlaw service to students enrolled in a BAR/BRI course; and advertising constantly on Westlaw, which often has a captive audience of law students required to use the service. It avers that BAR/BRI engaged in numerous other acts of anticompetitive conduct such as entering into an agreement that eliminated a competitor in New York (Marino Bar Review); including non-compete clauses in contracts with law school faculty and other staff to prevent them from working for competitors; destroying competitors' advertising; paying fees to law schools for preferable access; offering a purported scholarship program that actually subsidized students considering a competitor's course; and paying Louisiana State University, a BAR/BRI competitor for preparation courses for the Louisiana bar, to discontinue its course.

Claims are stated for violation of section 7 of the Clayton Act, 15 U.S.C. § 18, by West for the acquisition of West Bar Review by BAR/BRI; violation of section 1 of the Sherman Act, 15 U.S.C. § 1, by West and Kaplan for their market division agreement; and violation of section 2 of the Sherman Act, 15 U.S.C. § 2, by West for BAR/BRI's anticompetitive conduct. The class seeks recovery of actual damages of at least $300 million ($1,000 for each of the estimated 300,000 members) for each claim, treble damages, and injunctive relief.

On May 15, 2006, the district court certified a Fed.R.Civ.P. 23(b)(3) class^[1] consisting of all persons who purchased a bar review course from BAR/BRI in the United States from August 1997 to the present. West and Kaplan sought interlocutory review of the certification order, which we declined to allow. A notice of class certification was sent to putative class members in the summer of 2006, informing them of their right to opt-out of the class before August 13, 2006.

During discovery, class counsel reviewed more than 400,000 pages of documents, deposed fourteen fact witnesses, and took one deposition pursuant to Fed.R.Civ.P. 30(b)(6). West and Kaplan deposed the seven class representatives and three non-party witnesses. The parties also conducted depositions of five expert witnesses.

Kaplan moved for summary judgment, which the district court denied. West had yet to file a motion for summary judgment when a settlement was reached.

Settlement negotiations began in November 2006. The sessions were mediated by the Honorable Daniel Weinstein (Ret. Superior Court of California, San Francisco County) of JAMS, a provider of ADR services, who had extensive experience in this type of case. An agreement was executed on February 2, 2007, though class representatives Rodriguez, Nesci, and Gintz objected and refused to authorize [957] execution on their behalf. Under the agreement, West and Kaplan agreed to pay $49 million into a settlement fund. The fund is to be allocated pro rata to class members based on the amount each paid for BAR/BRI courses relative to the amounts paid by all other class members who file an allowable claim. Each class member's allocation from the settlement fund is capped at thirty percent of the amount that member paid to BAR/BRI. Any remaining funds are to be distributed by the district court through application of the cy pres doctrine. West and Kaplan also agreed to terminate their marketing agreement; West agreed to include on the form used to enroll law students a statement that an initial payment to BAR/BRI is not a commitment to full payment; and West agreed "that it is committed to accurate advertising as required by the Lanham Act, the Federal Trade Commission Act and similar laws, regulations and rules." In exchange, class members agreed to release all claims against West and Kaplan related to the conduct alleged in the complaint. In Judge Weinstein's opinion, the settlement "was arrived at through arm's length negotiations by counsel who were skilled and knowledgeable about the facts and law of this case," and it was "fair, reasonable and adequate in light of the strengths and weaknesses of the claims and defenses and the risks of establishing liability and damages."

On March 26, 2007, over the objections of Rodriguez, Nesci, and Gintz, the district court granted preliminary approval of the settlement and directed that notice of the settlement be sent to the class, defined as all persons who purchased a bar review course from BAR/BRI anywhere in the United States anytime from August 1, 1997 through July 31, 2006. The Settlement Notice informed class members of the $49 million settlement fund, the methodology for allocating the fund, the non-monetary relief, class counsel's intent to seek twenty-five percent of the settlement fund for attorney's fees and expenses, and counsel's plan to request incentive awards of $25,000 for class representatives Brazeal, Brewer, Frailich, and Rimson, and $75,000 for class representatives Gintz, Nesci, and Rodriguez. It indicated that a final settlement hearing would be held on June 18, 2007, and that the deadline for filing objections was May 21, 2007. The Settlement Notice was mailed to 376,301 people and published in several national periodicals. Fifty-four objections were filed.

Class counsel filed a motion seeking incentive awards for the class representatives after preliminary approval of the settlement and dissemination of the Settlement Notice, but before the final fairness hearing. It turns out that, as part of their retainer agreement, the named plaintiffs in Rodriguez (Rodriguez, Frailich, Nesci, Brazeal, and Gintz) had entered into an incentive arrangement with Van Etten Suzumoto & Becker, which preceded McGuireWoods LLP. The incentive agreements obligated class counsel to seek payment for each of these five in an amount that slid with the end settlement or verdict amount: if the amount were greater than or equal to $500,000, class counsel would seek a $10,000 award for each of them; if it were $1.5 million or more, counsel would seek a $25,000 award; if it were $5 million or more, counsel would seek $50,000; and if it were $10 million or more, counsel would seek $75,000. Neither Brewer nor Rimson, the other two class representatives, was party to an incentive agreement. They were separately represented, by Finkelstein Thompson LLP, and Zwerling, Shachter & Zwerling, LLP. By the time the motion was filed, Brazeal and Frailich had agreed to lower their request to $25,000 from the $75,000 promised in the incentive agreement, but Gintz, Nesci, and Rodriguez, [958] who objected to the settlement, did not. Incentive awards in the amount of $25,000 were also sought for Brewer and Rimson.

A final hearing on the fairness, reasonableness, and adequacy of the settlement was held on June 18 and July 9, 2007. Twelve groups of Objectors questioned the failure to bifurcate the section 7 claim, adequacy of the monetary portion of the settlement, not providing for the break-up of BAR/BRI, the cy pres award, and sealing of documents pursuant to a protective order. On September 10, 2007, the district court gave final approval to the settlement agreement in a thirty-seven page Settlement Order and fifty pages of Findings of Fact and Conclusions of Law. It found that the Settlement Notice and dissemination were adequate, and that the settlement was fair, adequate, and reasonable despite the conflict of interest between class representatives and class members. The court denied the motion for incentive awards to all seven class representatives, finding that the amount was unreasonable in light of the work and risk undertaken, and that the incentive agreements created actual conflicts of interest in violation of public policy. It denied fees to Objectors' counsel because they "did not add anything to the court's order denying" the motion for incentive awards, but awarded class counsel its lodestar, enhanced by a 1.75 multiplier, up to a limit of twenty-five percent of the settlement fund.

Six groups of Objectors have timely appealed.^[2]

II

Much of the appeal turns on the presence — and nondisclosure to the class — of the incentive agreements. In particular, Objectors assert that the Settlement Notice offends due process because it omitted material information about the agreements, and that the settlement itself should have been rejected because the incentive agreements prevented the class representatives from providing adequate representation. Relatedly, Objectors contend that they benefitted the class by successfully opposing the incentive awards and should be allowed attorney's fees for the effort. Conversely, they question the attorney's fee award to class counsel as California law precludes the recovery of fees for conflicting representation.

A

Incentive awards are fairly typical in class action cases. See 4 William B. Rubenstein et al., Newberg on Class Actions § 11:38 (4th ed.2008); Theodore Eisenberg & Geoffrey P. Miller, Incentive Awards to Class Action Plaintiffs: An Empirical Study, 53 U.C.L.A. L.Rev. 1303 (2006) (finding twenty-eight percent of settled class actions between 1993 and 2002 included an incentive award to class representatives). Such awards are discretionary, see In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 463 (9th Cir.2000), and are intended to compensate class representatives for work done on behalf of the class, to make up for financial or reputational risk undertaken in bringing the action, [959] and, sometimes, to recognize their willingness to act as a private attorney general. Awards are generally sought after a settlement or verdict has been achieved.

The incentive agreements entered into as part of the initial retention of counsel in this case, however, are quite different. Although they only bound counsel to apply for an award, thus leaving the decision whether actually to make one to the district judge, these agreements tied the promised request to the ultimate recovery and in so doing, put class counsel and the contracting class representatives into a conflict position from day one.

The arrangement was not disclosed when it should have been and where it was plainly relevant, at the class certification stage. Had it been, the district court would certainly have considered its effect in determining whether the conflicted plaintiffs — Rodriguez, Frailich, Nesci, Brazeal, and Gintz — could adequately represent the class. The conflict might have been waived, or otherwise contained, but the point is that uncovering conflicts of interest between the named parties and the class they seek to represent is a critical purpose of the adequacy inquiry. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 625, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). "[A] class representative must be part of the class and `possess the same interest and suffer the same injury' as the class members." E. Tex. Motor Freight Sys. Inc. v. Rodriguez, 431 U.S. 395, 403, 97 S.Ct. 1891, 52 L.Ed.2d 453 (1977) (quoting Schlesinger v. Reservists Comm. to Stop the War, 418 U.S. 208, 216, 94 S.Ct. 2925, 41 L.Ed.2d 706 (1974)); see also Amchem Prods., 521 U.S. at 625-26, 117 S.Ct. 2231. An absence of material conflicts of interest between the named plaintiffs and their counsel with other class members is central to adequacy and, in turn, to due process for absent members of the class. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1020 (9th Cir.1998).

In fact, the incentive agreements came to the fore when Objectors pounced on them in opposing class counsel's motion for incentive awards to the class representatives. This happened after preliminary approval of the settlement. In that context the district court held that the agreements were inappropriate and contrary to public policy for a number of reasons: they obligate class counsel to request an arbitrary award not reflective of the amount of work done, or the risks undertaken, or the time spent on the litigation; they create at least the appearance of impropriety; they violate the California Rules of Professional Conduct prohibiting fee-sharing with clients and among lawyers; and they encourage figurehead cases and bounty payments by potential class counsel. The court found it particularly problematic that the incentive agreements correlated the incentive request solely to the settlement or litigated recovery, as the effect was to make the contracting class representatives' interests actually different from the class's interests in settling a case instead of trying it to verdict, seeking injunctive relief, and insisting on compensation greater than $10 million. It further observed that the parties' failure to disclose their agreement to the court, and to the class, violated the contracting representatives' fiduciary duties to the class and duty of candor to the court.

We agree. By tying their compensation — in advance — to a sliding scale based on the amount recovered, the incentive agreements disjoined the contingency financial interests of the contracting representatives from the class. As the district court observed, once the threshold cash settlement was met, the agreements created a disincentive to go to trial; going to trial would put their $75,000 at risk in return for only a marginal individual gain [960] even if the verdict were significantly greater than the settlement. The agreements also gave the contracting representatives an interest in a monetary settlement, as distinguished from other remedies, that set them apart from other members of the class. Further, agreements of this sort infect the class action environment with the troubling appearance of shopping plaintiffships. If allowed, ex ante incentive agreements could tempt potential plaintiffs to sell their lawsuits to attorneys who are the highest bidders, and vice-versa. In addition, these agreements implicate California ethics rules that prohibit representation of clients with conflicting interests.^[3]See Image Tech. Serv., Inc. v. Eastman Kodak Co., 136 F.3d 1354, 1358 (9th Cir.1998) (noting that "[s]imultaneous representation of clients with conflicting interests (and without informed written consent) is an automatic ethics violation in California"); Flatt v. Superior Court, 9 Cal.4th 275, 36 Cal.Rptr.2d 537, 885 P.2d 950, 955 (1994).

Although we have not previously encountered incentive agreements, we expressed concern about similar problems with incentive awards in Staton v. Boeing Co., 327 F.3d 938 (9th Cir.2003). There, we declined to approve a settlement agreement where the awards request indicated that the class representatives were "more concerned with maximizing [their own] incentives than with judging the adequacy of the settlement as it applies to class members at large." See Staton, 327 F.3d at 977-78. We explained that excess incentive awards may put the class representative in a conflict with the class and present a "considerable danger of individuals bringing cases as class actions principally to increase their own leverage to attain a remunerative settlement for themselves and then trading on that leverage in the course of negotiations." Id. at 976-77.^[4] The danger is exacerbated if the named plaintiffs have an advance guarantee that a request for a relatively large incentive award will be made that is untethered to any service or value they will provide to the class.

In sum, we disapprove of the incentive agreements entered into between the named plaintiffs and class counsel in this case. They created an unacceptable disconnect between the interests of the contracting representatives and class counsel, on the one hand, and members of the class on the other. We expect those interests to be congruent. See Molski v. Gleich, 318 F.3d 937, 955 (9th Cir.2003) (noting that adequate representation consists of an "absence of antagonism" and a "sharing of interests between representatives and absentees") (internal quotation marks and citation omitted). They also gave rise to a disturbing appearance of impropriety. And failing to disclose the incentive arrangements in connection with class certification compounded these problems by depriving the court, and the class, of the safeguard of informed judicial consideration of the adequacy of class representation.

[961] This said, we do not believe the district court was required to reject the settlement for inadequate representation. Only five of the seven class representatives had an incentive agreement. Brewer and Rimson did not. "[T]he adequacy-of-representation requirement is satisfied as long as one of the class representatives is an adequate class representative." Local Joint Executive Bd. of Culinary/Bartender Trust Fund v. Las Vegas Sands, Inc., 244 F.3d 1152, 1162 n. 2 (9th Cir.2001); 7A Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1765, at 326 (2005) ("[I]f there is more than one named representative, it is not necessary that all the representatives meet the Rule 23(a)(4) standard; as long as one of the representatives is adequate, the requirement will be met."). Brewer and Rimson were also separately represented. There is no evidence or contention that these two had any other conflict with the class.

Objectors submit only that Brewer and Rimson should have told the district court about the incentive agreements. Even assuming these two knew about the incentive agreements and understood the implications, this did not create a conflict of interest or otherwise interfere with their ability or motivation to represent the class. Other factors indicate that the class was adequately represented: Judge Weinstein, who mediated the settlement, attested that the negotiations were conducted at arm's length; there was no evidence of collusion;^[5] and the settlement fund far exceeded the ten million dollar trigger for the contracting class representatives' incentive agreements.

Accordingly, we conclude that the presence of conflicted representatives was harmless. Similarly, the adequacy requirement for class counsel is satisfied. Fed.R.Civ.P. 23(a)(4), (g)(4). Class counsel vigorously prosecuted the case through to a fair settlement with the participation of two nonconflicted law firms that represented class representatives Brewer and Rimson. See Hanlon, 150 F.3d at 1020. The court found their representation was adequate; and Judge Weinstein, who oversaw the settlement negotiations, believed that "[e]ach side aggressively advocated their positions," class counsel "ha[d] as their primary goal achieving the maximum substantive relief that they could," and agreement "was arrived at through arm's length negotiations by counsel who were skilled and knowledgeable about the facts and law of this case." Moreover, the participation of two firms that did not enter incentive agreements, Finkelstein Thompson and Zwerling, Shachter & Zwerling, assuages any additional concerns that a conflict created by the incentive agreements may have adversely affected the adequacy of representation. See Linney v. Cellular Alaska P'ship, 151 F.3d 1234, 1239 (9th Cir.1998) ("[T]he addition of new and impartial counsel can cure a conflict of interest even where previous counsel continues to be involved in the case.").^[6]

[962] B

It follows that the Settlement Notice was not fatally defective for failing to disclose the actual or potential conflict arising out of the existence of incentive agreements.

"The court must direct notice in a reasonable manner to all class members who would be bound by the proposal." Fed. R.Civ.P. 23(e)(1). "Notice is satisfactory if it `generally describes the terms of the settlement in sufficient detail to alert those with adverse viewpoints to investigate and to come forward and be heard.'" Churchill Vill., LLC v. Gen. Elec., 361 F.3d 566, 575 (9th Cir.2004) (quoting Mendoza v. Tucson Sch. Dist. No. 1, 623 F.2d 1338, 1352 (9th Cir.1980)).

The Settlement Notice advised absent class members that an application would be made to the court for an incentive award of $25,000 for Frailich, Brazeal, Brewer, and Rimson, and $75,000 for Rodriguez, Nesci, and Gintz to compensate them for their participation in, and prosecution of, this case on behalf of the class, and that the petition for incentive awards, which would be filed before May 7, 2007, would be available for inspection at the clerk's office. Rodriguez, Nesci, and Gintz disclosed the existence of the incentive agreements in a document filed with the court on March 6, 2007. The Notice also indicated that the settlement agreement and related documents were posted at www.barbri-classaction.com, and provided class counsel's phone number and an email address to which inquires could be sent. The settlement agreement itself states that whether incentive awards should be awarded to class representatives, as well as attorney's fees, will be determined at the final settlement hearing. It also provides that class counsel will submit an application for an incentive award to each class representative to be paid from the gross settlement fund, and that West and Kaplan agree not to oppose any application for an incentive award seeking no more than $25,000.

While neither the Settlement Notice nor the settlement agreement discloses the incentive agreements, both show that incentive awards will be sought. In the circumstances this was sufficient to alert class members to follow-up if they had concerns. See id.

Objectors contend that the Settlement Notice also failed to provide a meaningful description of the terms of the settlement, including the content of objections and the expected value of fully litigating the case. In our view, the Notice contains adequate information, presented in a neutral manner, to apprise class members of the essential terms and conditions of the settlement. The Notice advises class members that a majority (hence, not all) of the class representatives approve the settlement. It describes the aggregate amount of the settlement fund and the plan for allocation, thereby complying with what we require. See Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1373-74 (9th Cir.1993); Marshall v. Holiday Magic, Inc., 550 F.2d 1173, 1177-78 (9th Cir.1977). While the Notice does not detail the content of objections, or analyze the expected value, we do not see why it should. Settlement notices are supposed to present information about a proposed settlement neutrally, simply, and understandably^[7] — [963] objectives not likely served by including the adversarial positions of objectors. We therefore conclude that the Notice communicated the essentials of the proposed settlement in a sufficiently balanced, accurate, and informative way to satisfy due process concerns.

C

Objectors who challenged the incentive awards argue that the district court improperly denied fees attributable to that work. The court rejected their request for fees on the footing that Objectors' counsel "did not add anything" to its decision to deny incentive awards. This seems clearly erroneous to us. The court was not focused on the incentive agreements before Objectors took exception to them after the motion to award payments to the class representatives was filed. In the wake of that objection, the court denied the motion for incentive awards in its entirety because the amounts requested were unreasonable and the incentive agreements were inappropriate and contrary to public policy. The net effect was to leave $325,000 in the settlement fund — for distribution to the class as a whole — that otherwise would have gone to the class representatives. Given this, we cannot let stand a ruling that Objectors did nothing that increased the fund or substantially benefitted the class members. See Vizcaino v. Microsoft Corp., 290 F.3d 1043, 1051 (9th Cir.2002). Therefore, we remand for the district court to reconsider the extent to which Objectors added value that increased the fund or substantially benefitted the class members, and to award attorney's fees accordingly.

III

Objectors press a number of issues apart from the effect of the incentive agreements that bear on whether the settlement was fair, adequate, and reasonable. The most serious have to do with the district court's evaluation of the amount offered in settlement, in particular, its failure to estimate the range of possible outcomes and ascribe a probability to those outcomes, and to consider treble damages.

Fed.R.Civ.P. 23(e) requires judicial approval of any settlement by a certified class. The settlement must be "fair, reasonable, and adequate." Fed.R.Civ.P. 23(e)(2). A district court "may consider some or all of the following factors" when assessing whether a class action settlement agreement meets this standard:

[1] the strength of plaintiffs' case; [2] the risk, expense, complexity, and likely duration of further litigation; [3] the risk of maintaining class action status throughout the trial; [4] the amount offered in settlement; [5] the extent of discovery completed, and the stage of the proceedings; [6] the experience and views of counsel; [7] the presence of a governmental participant; and [8] the reaction of the class members to the proposed settlement.

Molski, 318 F.3d at 953; accord Staton, 327 F.3d at 959.

We review approval of a class action settlement for a "clear abuse of discretion." Molski, 318 F.3d at 953. This court "`will affirm if the district judge applies the proper legal standard and his or her findings of fact are not clearly erroneous.'" Id. (quoting In re Mego Fin. [964] Corp. Sec. Litig., 213 F.3d at 458). "Our review of the district court's decision to approve a class action settlement is extremely limited. It is the settlement taken as a whole, rather than the individual component parts, that must be examined for overall fairness." Hanlon, 150 F.3d at 1026 (internal citation omitted). "To survive appellate review, the district court must show it has explored comprehensively all factors," id., but a court is not required to "reach any ultimate conclusions on the contested issues of fact and law which underlie the merits of the dispute, for it is the very uncertainty of outcome in litigation and avoidance of wasteful and expensive litigation that induce consensual settlements," Officers for Justice v. Civil Serv. Comm'n of San Francisco, 688 F.2d 615, 625 (9th Cir.1982).

Here, the court balanced each of the relevant factors in approving the settlement.

Strength of the plaintiffs' case. The court noted that successfully opposing Kaplan's motion for summary judgment did not mean that the class had established liability or would obtain a favorable, unanimous jury verdict. This is, of course, correct. It noted the difficulty of proving an antitrust case, and that Kaplan and West had substantive and procedural defenses to all three of the class's claims (including a potential statute of limitations defense that could decrease the size of the class). Also, there were no government coattails for the class to ride. Counting this factor in favor of settlement was not a clear abuse of discretion.

Amount offered in settlement. Objectors claim it was legal error for the court to consider only estimates of single damages without considering the treble damages that are an automatic component of the recovery of antitrust damages. 15 U.S.C. § 15(a). The district court found that the $49 million settlement represented thirty percent of the damages estimated by the class expert — $158 million to $168 million. This analysis compared the settlement amount to the best possible outcome for the class, without taking into account the significant difference between the class's estimate and the defense's. The defense expert had opined that there likely would be no damages but if there were any, they would not exceed $7 million. In any event, the court declined to accept Objectors' argument that the monetary portion of the settlement was inadequate because the section 7 claim was worth treble the class expert's single damages estimate — or $360 million. It reasoned that doing so would presuppose that plaintiffs prevail at the end of trial (thus undercutting the point of a negotiated resolution where defendants do not admit liability); it would be speculative; and, as the Second Circuit indicated in City of Detroit v. Grinnell Corp., 495 F.2d 448, 458 (2d Cir.1974), 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), courts do not traditionally factor treble damages into the calculus for determining a reasonable settlement value.

It is our impression that 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.^[8] At the same time, treble damages are a fact of life in antitrust litigation. In some cases a court, asked to approve a settlement, may believe the class's claim is so strong that the merits of the amount [965] negotiated cannot reasonably be evaluated without measuring it against the likelihood of a treble as well as a single damages recovery. 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.

This circuit has long deferred to the private consensual decision of the parties. See Hanlon, 150 F.3d at 1027. Experienced counsel such as those representing all the parties in this case will certainly be aware of exposure to treble damages in an antitrust action. Likewise, the mediator in this case. As we have emphasized,

`the court's 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, and that the settlement, taken as a whole, is fair, reasonable and adequate to all concerned.'

Id. (quoting Officers for Justice, 688 F.2d at 625).

In this case, the negotiated amount is fair and reasonable no matter how you slice it. There is no evidence of fraud, overreaching, or collusion. Even considering the trebling effect, the settlement amount represents approximately ten percent of the class's estimate of its own trebled damages and more than twice that estimated by West and Kaplan. The $49 million is in cash, not in kind, which is a good indicator of a beneficial settlement. All things considered, the district court neither committed legal error, nor aside from that, clearly abused its discretion in weighing the amount offered in settlement in favor of approving the settlement.

We are not persuaded otherwise by Objectors' further submission that the court should have specifically weighed the merits of the class's case against the settlement amount and quantified the expected value of fully litigating the matter. For this they rely on the Seventh Circuit's opinion in Synfuel Tech., Inc. v. DHL Express (USA), Inc., 463 F.3d 646 (7th Cir. 2006), which follows that circuit's precedent requiring district courts to determine the strength of the plaintiff's case on the merits balanced against the amount offered in settlement by "`quantifying the net expected value of continued litigation to the class.'" Id. at 653 (quoting Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 284-85 (7th Cir.2002)). To do this, the Seventh Circuit directs courts to "`estimate the range of possible outcomes and ascrib[e] a probability to each point on the range.'" Id. However, our approach, and the factors we identify, are somewhat different. We put a good deal of stock in the product of an arms-length, non-collusive, negotiated resolution, Hanlon, 150 F.3d at 1027; Officers for Justice, 688 F.2d at 625, and have never prescribed a particular formula by which that outcome must be tested. As we explained in Officers for Justice, "[u]ltimately, the district court's determination is nothing more than an amalgam of delicate balancing, gross approximations and rough justice." 688 F.2d at 625 (internal quotation marks and citation omitted). The Seventh Circuit also recognizes that precision is impossible, and that even its more structured approach is apt to produce only a "ballpark valuation." Synfuel, 463 F.3d at 653.

In reality, 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. See Federal Judicial Center, Manual for Complex Litigation § 21.62, at 316 (4th ed.2004) (one factor "that may bear on review of a settlement" [966] is "the advantages of the proposed settlement versus the probable outcome of a trial on the merits of liability and damages as to the claims, issues, or defenses of the class and individual class members"); In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 806 (3d Cir.1995).

Although the district court did not put it this way, the amount of the alleged overcharge, the estimated recovery ranges by both parties and their experts, and the results of a mediated resolution, were before it. Objectors do not explain how reversing the math on the record would have yielded a meaningfully different result. Accordingly, the court did not clearly abuse its discretion in concluding that this factor weighs in favor of approving the settlement.

In an argument related to their position on treble damages, Objectors also challenge the cy pres provision, which they point out is a disfavored substitute for distribution of benefits directly to class members. See Molski, 318 F.3d at 954-55. Here, their argument goes, the settlement agreement distributes funds to class members up to thirty percent of the amount each paid to BAR/BRI; this is based on an estimate of single damages; thus, the cy pres provision effectively substitutes for treble damages that should also be distributed to class members. However, this issue becomes ripe only if the entire settlement fund is not distributed to class members. See Six (6) Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1313 (9th Cir.1990) (Fernandez, J., concurring). That trigger point has not been reached; no cy pres disbursement is imminent; and the fund in this case may well be depleted before cy pres kicks in. We therefore decline to consider the propriety of cy pres at this time.

Risk, expense, complexity, and likely duration of further litigation. The court found, with substantial support in the record, that the case is complex and likely to be expensive and lengthy to try. The class in this case does not have the benefit, like some other antitrust classes, of previous litigation between the defendants and the government. While Objectors point out that much heavy-lifting had already been done, a number of serious hurdles remained — Daubert motions,^[9] West's anticipated motion for summary judgment, and a motion to bifurcate. Inevitable appeals would likely prolong the litigation, and any recovery by class members, for years. This factor, too, favors the settlement.

Risk of maintaining class action status. The court did not have to analyze the probabilities that West and Kaplan would seek decertification of the nationwide class and succeed in the endeavor, as Objectors suggest, to weigh this factor in favor of the settlement. A district court may decertify a class at any time. See Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982). West and Kaplan vigorously opposed certification of a nationwide class, sought (albeit unsuccessfully) to take an interlocutory appeal from that order, and would undoubtedly have appealed certification if there were a final, adverse judgment. At the time of settlement, the risk remained that the nationwide class might be decertified; it was not so minimal that this factor could not weigh in favor of the settlement. Bar review courses are given on a state-by-state basis; states are distinct markets geographically, and possibly in other respects. This could call the nationwide class into question.

[967] Discovery completed; state of proceedings. Extensive discovery had been conducted, and the parties had gone through one round of summary judgment proceedings. From this the district court could find that counsel had a good grasp on the merits of their case before settlement talks began. Nor is there any dispute that counsel had considerable experience in litigating antitrust matters, class actions, and other complex litigation. As we have held that "[p]arties represented by competent counsel are better positioned than courts to produce a settlement that fairly reflects each party's expected outcome in litigation," In re Pac. Enters. Sec. Litig., 47 F.3d 373, 378 (9th Cir.1995), the court could weigh this factor in favor of approval.

Reaction to proposed settlement. The court had discretion to find a favorable reaction to the settlement among class members given that, of 376,301 putative class members to whom notice of the settlement had been sent, 52,000 submitted claims forms and only fifty-four submitted objections. See, e.g., Churchill Village, 361 F.3d at 577 (affirming approval of a class action settlement where forty-five objections were received out of 90,000 notices).^[10]

For these reasons, we cannot say that the district court clearly abused its discretion in approving the settlement.

IV

Having upheld approval of the settlement agreement, we must consider the award of attorney's fees to class counsel. This brings us back to the incentive agreements.

We require only that fee awards be reasonable in the circumstances, In re Wash. Pub. Power Supply Sys. Sec. Litig., 19 F.3d 1291, 1294 n. 2 (9th Cir.1994), and our review is for abuse of discretion, Powers v. Eichen, 229 F.3d 1249, 1256 (9th Cir.2000). The district court may award fees pursuant to either a lodestar or a straight percentage of the settlement fund. Id. (quoting In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 109 F.3d 602, 607 (9th Cir.1997)). Here it adopted the lodestar. A court may also apply a multiplier to the lodestar calculation, which the district court did. Wash. Pub. Power Supply Sys. Sec. Litig., 19 F.3d at 1299-1301. In doing so it found that counsel faced substantial risk in prosecuting this action; did not have the benefit of fruits from underlying government actions; there were no controlling precedents, especially with regard to the section 7 claim; defense counsel were skilled and formidable; and there were a number of hurdles in proving both damages and liability. The problem is that the district court nowhere appears to have considered the effect on the award of attorney's fees of the conflict of interest that resulted from the incentive agreements.

By virtue of the district court's local rules, California law controls whether an ethical violation occurred. C.D. Cal. L.R. 83-3.1.2. "Simultaneous representation of clients with conflicting interests (and without written informed consent) is an automatic ethics violation in California and grounds for disqualification." Image Tech. Serv., 136 F.3d at 1358; Flatt, 36 Cal. Rptr.2d 537, 885 P.2d at 955. Under California [968] law, "[a]n attorney cannot recover fees for such conflicting representation." Image Tech. Serv., 136 F.3d at 1358. "An attorney may claim fees only for services provided before the conflict arose and the ethical breach occurred." Id.

We express no opinion on the impact of these principles on the fees request in this case, but it is apparent that they are, at least, implicated. We realize that conflicts of interest among class members are not uncommon and arise for many different reasons. However, the conflict of interest inhering in the incentive agreements did not just happen, nor was it a conflict that developed beyond the control or perception of class counsel. It was inserted into the retainer agreement. "`The responsibility of class counsel to absent class members whose control over their attorneys is limited does not permit even the appearance of divided loyalties of counsel.'" Kayes v. Pac. Lumber Co., 51 F.3d 1449, 1465 (9th Cir.1995) (quoting Sullivan v. Chase Inv. Servs. of Boston, Inc., 79 F.R.D. 246, 258 (N.D.Cal.1978)). In addition, class counsel's fiduciary duty is to the class as a whole and it includes reporting potential conflict issues. Neither the incentive agreements nor the possibility of conflict was disclosed to the court so that it could take steps to protect the interests of absentee class members. We think it appropriate for the district court to consider whether counsel could represent both the class representatives with whom there was an incentive agreement, and absentee class members, without affecting the entitlement to fees.

At the fee-setting stage when fees are to come out of the settlement fund, the district court has a fiduciary role for the class. See Wash. Pub. Power Supply Sys. Sec. Litig., 19 F.3d at 1302. It may be that the record is insufficient for the court to make a reasoned judgment; if so, an opportunity should be afforded for the parties to develop the record. Accordingly, we remand for the district court to consider in the first instance the effect, if any, of the conflict arising out of the incentive agreements on the request by class counsel for an attorney's fee award.

Objectors argue the amount of the fee award to class counsel, including the 1.75 multiplier and the cap at twenty-five percent of the settlement fund, is grossly excessive. We decline to address this argument at this time. On remand, we expect the district court to revisit all aspects of the award to class counsel.

V

We conclude that incentive agreements, entered into as part of five named plaintiffs' retainer agreement with counsel, created conflicts among them (later certified as class representatives), their counsel (later certified as class counsel), and the rest of the class. It was inappropriate not to disclose these agreements at the class certification stage, because an ex ante incentive agreement is relevant to whether a named plaintiff who is party to one can adequately represent the class. However, this impropriety did not require the district court to reject the settlement negotiated in this case because two nonconflicted class representatives with non-conflicted counsel participated. Nor did the district court clearly abuse its discretion in determining that the amount of the settlement favored approval, whether compared to the likely recovery of single, or treble, damages. By any measure, this settlement is fair, adequate, and reasonable.

The district court should have recognized that Objectors' position on the impropriety of incentive agreements had some effect on its decision to deny the request for incentive awards; and it should have considered what effect, if any, the ethics implications of a conflict of interest [969] created by the incentive agreements had on class counsel's request for an award of attorney's fees.

Therefore, we affirm approval of the settlement. We reverse and remand the award of attorney's fees to class counsel for consideration of the effect, if any, of the incentive agreements on entitlement to fees. We also reverse and remand the denial of fees to Objectors' counsel for a determination of a reasonable amount given their contribution to the denial of the requests for incentive awards.

AFFIRMED IN PART; REVERSED AND REMANDED IN PART.

Each party shall bear its own costs on appeal.

[1] Rule 23(b) provides that a class "may be maintained if Rule 23(a) is satisfied and if:

...

(3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include:

(A) the class members' interests 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

(D) the likely difficulties in managing a class action."

[2] James Juranek, Audrey Juranek, Richard P. Leblanc; Robert Gaudet, Andrea Boggio, Sandeep Gopalan, Elizabeth DeLong; Pamela Collins; David Feldman, Cameron Gharabiklou, Emily Grant, Jeff Lang, Sarah McDonald, Cara Patton, Rachel Schwartz, Greg Thomas; Sarah Siegel, Evans & Mullinix, P.A., Jennifer Brown McElroy, Daniel Schafer, Jason Tingle, David Oriol; and George Schneider, Jonathan M. Slomba, James Puntumapanitch, Justice Head, Ryan Helfrich. We refer to these groups collectively as "Objectors" and treat the issues as if raised by all of them. Each group does, however, make discrete arguments. We have considered all of the arguments even though we may not discuss them specifically. To the extent not addressed, we are not persuaded of their merit.

[3] The Central District of California has adopted the State Bar Act, the Rules of Professional Conduct of the State Bar of California, and the decisions applicable to the Act and Rules. C.D. Cal. L.R. 83-3.1.2.

[4] Congress has also expressed concern with the potential abuses of incentive awards. The Private Securities Litigation Reform Act of 1995 (PSLRA) prohibits granting incentive awards to class representatives in securities class actions. See 15 U.S.C. § 78u-4(a)(2)(A)(vi). More recently, in the Class Action Fairness Act of 2005 (CAFA), Congress made the following finding: "Class members often receive little or no benefit from class actions, and are sometimes harmed, such as where ... (B) unjustified awards are made to certain plaintiffs at the expense of other class members." Pub.L. No. 109-2, § 2(a)(3), 119 Stat. 4.

[5] Objectors suggest that the "clear sailing" provision by which West and Kaplan agreed not to contest attorney's fees or incentive awards of no more than $25,000 evinces collusion. However, both payments were to be made from the settlement fund, capped at $49 million. This scenario does not signal the possibility of collusion because, by agreeing to a sum certain, West and Kaplan were acting consistently with their own interests in minimizing liability. Cf. Weinberger v. Great N. Nekoosa Corp., 925 F.2d 518, 524 (1st Cir. 1991) (inferring collusion from a "clear sailing" provision when the attorney's fees were to be paid on top of the settlement fund as this is counterintuitive defense behavior).

[6] No other adequacy-based ground for rejecting the settlement appears. Objectors suggest that an intra-class conflict exists based on speculation that the statute of limitations and tolling principles would allow only a subclass to pursue the section 7 claim, but whether a subclass actually exists has not been adjudicated. The first amended complaint alleges the section 7 claim on behalf of the entire class, and the settlement provides compensation to the entire class for this claim. Thus, any potential conflict did not materialize and there is no cognizable prejudice. See generally Amchem Prods., 521 U.S. at 627, 117 S.Ct. 2231.

[7] Int'l Union, United Auto., Aerospace, & Agric. Implement Workers of Am. v. Gen. Motors Corp., 497 F.3d 615, 630 (6th Cir.2007) ("Rule 23(e) does not require the notice to set forth every ground on which class members might object to the settlement."); In re Traffic Executive Ass'n Eastern R.R., 627 F.2d 631, 634 (2d Cir.1980) (requiring the class notice to be "scrupulously neutral"); Grunin v. Int'l House of Pancakes, 513 F.2d 114, 122 (8th Cir.1975) (same).

[8] But see In re Compact Disc Minimum Advertised Price Antitrust Litig., 216 F.R.D. 197, 210 n. 30 (D.Me.2003); In re Auction Houses Antitrust Litig., No., 00 Civ. 0648(LAK), 2001 WL 170792, at **7-10 (S.D.N.Y. Feb. 22, 2001).

[9] Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993) (establishing threshold standards for admissibility of expert scientific testimony).

[10] To the extent one group of objectors claims this is misleading because class members lacked access to records that were sealed pursuant to a protective order, that group did not take advantage of access which was provided and sought to unseal those records more than three weeks after the deadline for filing objections. The district court denied that motion as untimely, which it had discretion to do. See United States v. W.R. Grace, 526 F.3d 499, 508-09 (9th Cir.2008) (en banc).

[582] [583] Joseph E. Altomare (Argued), Titusville, PA, for Appellants.

George A. Patterson, III, Brian A. Glasser, Bowles, Rice, McDavid, Graff & Love, PLLC, Charleston, WV, for Appellees Waco Oil & Gas Co., Interstate Drilling, Inc., Alamco, Inc., R.H. Adkins Companies, Gassearch Corporation.

Arthur M. Kaplan, Fine, Kaplan & Black, Philadelphia, PA, Howard J. Sedran (Argued), Levin, Fishbein, Sedran & Berman, Philadelphia, PA, Samuel D. Heins, Daniel E. Gustafson, Heins, Mills & Olson, P.L.C., Minneapolis, MN, Roberta D. Liebenberg, Liebenberg & White, Jenkintown, PA, for Appellee Wynnewood Drilling, Plaintiff Class.

Ronald S. Rolfe (Argued), Cravath, Swaine & Moore, New York, N.Y., David L. McClenahan, Kirkpatrick & Lockhart, LLP, Pittsburgh, PA, for Appellee Witco Corp.

Rufus W. Oliver, III, G. Irvin Terrell (Argued), Baker & Botts, L.L.P., Houston, TX, William M. Wycoff, Thorp, Reed & Armstrong, Pittsburgh, PA, for Appellees Pennzoil Company and Pennzoil Products Company.

Before: BECKER, Chief Judge, STAPLETON, Circuit Judge and HARRIS, District Judge.^[1]

OPINION OF THE COURT

BECKER, Chief Judge.

This is an appeal from an order of the District Court approving a class action settlement of an antitrust case. Ironically, the lead objector, Lazy Oil Co., is also the lead plaintiff, whose principal, Bennie G. Landers, conceived the suit but later became disaffected with its management and direction and ultimately with its fruits—the settlement. All the objectors are producers of Penn Grade Crude Oil, i.e., crude oil drawn from the western side of the Appalachian Basin within the states of New York, Pennsylvania, Ohio, and West Virginia.^[2] The objectors contend that the settlement is not fair, at least to the producer plaintiffs in contrast to the investor plaintiffs. The objectors distinguish between these two types of class members in making their objections to the settlement, alleging that producer plaintiffs, as full-time oil-producing enterprises, have distinct interests and, particularly, unique losses, as compared to investor plaintiffs, who simply invest funds in oil-producing businesses.

The objectors maintain that producer plaintiffs lost not only revenues from the lower prices paid for their oil (a loss they share with investor plaintiffs), but also suffered the compounded losses from their inability to invest these lost funds in drilling new oil wells or upgrading their existing ones—losses allegedly not applicable to investor plaintiffs. This alleged distinction is also at the heart of the other two issues raised by objectors in this appeal. They contend that the District Court erred in not certifying a subclass of producer plaintiffs to ensure that their unique interests were adequately represented. Finally, they contend that the Class Counsel—originally hired to bring this suit by the lead plaintiffs, who are now objectors—should have been disqualified from representing the remaining class representatives and the entire class once the objectors chose to attack the settlement.

The District Court conducted three days of hearings regarding, inter alia, the objectors' [584] claims that the settlement was not fair, that a subclass of producer plaintiffs should be certified, and that Class Counsel should be disqualified from representing the class. On December 31, 1997, the District Court filed an omnibus order overruling objections to the settlement, approving the terms of the settlement, denying objectors' motion to remove or disqualify Class Counsel, denying objectors' motion for certification of a subclass, and denying approval of the plan for allocating the settlement proceeds.

From the objectors' point of view, our opinion should be devoted largely to a merits analysis of their objections to the settlement, measured by the standards outlined in Girsh v. Jepson, 521 F.2d 153 (3d Cir.1975). However, we dispose of that aspect of the case summarily, concluding that the Girsh factors are easily met and that the District Court did not abuse its discretion in approving the settlement. Neither do we have difficulty with the District Court's order refusing to remove or disqualify Class Counsel, which we also affirm. We do, however, expound on this point to clarify the standard for adjudicating such claims in the class action context. More specifically, drawing on the concurring opinion in In re Corn Derivatives Antitrust Litigation, 748 F.2d 157, 162 (3d Cir.1984) (Adams, J., concurring), we adopt a balancing approach to motions to remove or disqualify class counsel on conflict-of-interest grounds once former class representatives, i.e., former clients of class counsel, become objectors and therefore adversaries to class counsel's remaining clients.

One other point requires discussion—our appellate jurisdiction. The District Court, in its December 31, 1997, order from which this appeal was taken, did not dispose of all outstanding issues related to the settlement (i.e., it denied a motion to approve the allocation plan that was part of the settlement). Therefore, we must determine whether the rule of Cape May Greene, Inc. v. Warren, 698 F.2d 179 (3d Cir.1983), that in certain circumstances a premature appeal may ripen once collateral issues are disposed of by the district court, confers on us appellate jurisdiction because an allocation plan has since been approved by the District Court. We decide that Cape May Greene is both intact and applicable, and that we therefore have jurisdiction to hear this appeal from the order of the District Court, which we, in all respects, affirm.

I. Background

The subject of this appeal began as two separate class actions, each brought in the District Court for the Western District of Pennsylvania, by sellers of Penn Grade crude against three purchasers and refiners of this crude, Quaker State, Pennzoil, and Witco. The plaintiffs in both actions alleged that the defendants conspired to depress the price of Penn Grade Crude, in violation of the Sherman Antitrust Act. The cases were consolidated and, in June 1995, the District Court certified the consolidated case as a class action under Rule 23(b)(3), with the class comprising all "direct sellers of Penn Grade Crude" who sold oil to the defendants between January 1, 1981, and June 30, 1995. Shortly thereafter, the plaintiffs settled with Quaker State for $4.4 million. This settlement was approved by the District Court, and no issues relating to it are before us.

In early 1997, after several months of negotiations, plaintiffs reached a settlement with the remaining defendants, under which Pennzoil would pay approximately $9.7 million and Witco would pay approximately $4.8 million, with neither defendant admitting any liability or wrongdoing. Upon presentation of the settlement to the class representatives, two of them, Lazy Oil Co. and Thomas A. Miller Oil Co., objected to the settlement.^[3] At least 384 class members joined Lazy Oil et al. in objecting to the terms of the settlement after receiving notice of its terms.^[4] [585] Class Counsel thereafter moved to withdraw from representing the objectors.

In February 1997, the District Court directed that notice of the proposed settlement be sent to all class members and published in local and national newspapers. The objectors filed motions, inter alia, requesting that the Court disapprove the settlement, for establishment of a producer subclass, and for disqualification of Class Counsel. As noted above, the District Court conducted three days of evidentiary hearings in April and May 1997. On December 31, 1997, the Court approved the settlement and denied the objectors' motions. With extensive findings of fact, the Court found that plaintiffs faced substantial obstacles to proving that defendants had violated the antitrust laws, as well as serious problems with their theory of damages. The Court also found that the notice to class members had been adequate, and that relatively few class members objected to the settlement. After evaluating these and the other Girsh factors, it concluded that the settlement was fair and reasonable, and that the objectors' primary concern, i.e., that producer plaintiffs were not adequately represented or compensated by the settlement, was based on a speculative and unsupported argument (that had been raised very late in the litigation). Therefore, it overruled all of the relevant objections and approved the settlement. This appeal followed.

II. Appellate Jurisdiction

As noted above, we must first address the matter of our appellate jurisdiction, which is, of course, limited to those cases for which Congress has provided. In general, we may only hear appeals from final judgments and from certain prescribed interlocutory orders of the district courts. See 28 U.S.C. §§ 1291-1292; Behrens v. Pelletier, 516 U.S. 299, 305, 116 S.Ct. 834, 133 L.Ed.2d 773 (1996) ("The requirement of finality precludes consideration of decisions that are subject to revision, and even of fully consummated decisions that are but steps towards final judgment in which they will merge." (internal quotations and brackets omitted)). In this case, the District Court filed its order approving the settlement and denying the objectors' motions, on December 31, 1997, but in that same order, denied a motion to approve an allocation plan for the settlement proceeds. The objectors filed a notice of appeal within 30 days of this order, on January 29, 1998. See Fed. R.App. P. 4(a)(1). Following further negotiations pursuant to an order of the District Court, the parties submitted a revised allocation plan, which was approved on April 13, 1998, more than two months after the notice of appeal had been filed. Final judgment was then entered and the case closed.

While none of the parties (plaintiffs, defendants, or objectors) contests our jurisdiction to hear this appeal, we have an inherent obligation to ensure that we only decide those cases for which there is a proper ground for appellate jurisdiction. See Collinsgru v. Palmyra Bd. of Educ., 161 F.3d 225, 229 (3d Cir.1998). The question we have raised sua sponte and which we must answer is whether a notice of appeal, filed within 30 days after a district court's order approving a class action settlement but before the court enters a final judgment approving all aspects (including the allocation) of the settlement, ripens upon the district court's entry of final judgment or is premature and void.

Our leading case in this area is Cape May Greene, Inc. v. Warren, 698 F.2d 179 (3d Cir.1983). In Cape May Greene, we held that a premature notice of appeal, filed after disposition of some of the claims before a district court, but before entry of final judgment, will ripen upon the court's disposal of the remaining claims. See id. at 184-85. In that case, the defendants had filed a cross-claim that was not actually litigated either before or after the entry of the order from which the appeal was taken. When the district court entered an order dismissing this claim—after the notice of appeal had been filed—we held that appellate jurisdiction existed, as the appellee did not allege any prejudice and "we had [not yet] taken any action on the merits." Id. at 184. We believe that exercising jurisdiction in the present case, in which the District Court disposed of the remaining issue and entered a final judgment prior to our consideration of the case, and in which no prejudice is alleged by [586] any party, is consistent with our decision in Cape May Greene. See also Welch v. Cadre Capital, 923 F.2d 989, 992 (2d Cir.) ("[A] premature notice of appeal from a nonfinal order may ripen into a valid notice of appeal if a final judgment has been entered by the time the appeal is heard and the appellee suffers no prejudice."), vacated on other grounds sub nom. Northwest Sav. Bank v. Welch, 501 U.S. 1247, 111 S.Ct. 2882, 115 L.Ed.2d 1048 (1991).

Some courts that have followed a rule similar to ours have revisited this doctrine in light of the Supreme Court's 1991 decision in FirsTier Mortgage Co. v. Investors Mortgage Insurance Co., 498 U.S. 269, 111 S.Ct. 648, 112 L.Ed.2d 743 (1991).^[5] In FirsTier, the Supreme Court stated that Federal Rule of Appellate Procedure 4(a)(2) "permits a notice of appeal from a nonfinal decision to operate as a notice of appeal from the final judgment only when a district court announces a decision that would be appealable if immediately followed by the entry of judgment." Id. at 276, 111 S.Ct. 648 (first emphasis added).^[6] Therefore, Rule 4(a)(2) does not support the Cape May Greene doctrine when the order from which a notice of appeal is filed is not one that would be final if followed immediately by entry of judgment.^[7] Relying on this distinction, the Fifth Circuit has recently abrogated its own version of the Cape May Greene doctrine. See United States v. Cooper, 135 F.3d 960, 963 (5th Cir.1998) ("FirsTier allows premature appeals only where there has been a final decision, rendered without a formal judgment.").^[8]

[587] We do not believe that Cape May Greene has been overruled by FirsTier. FirsTier simply limited the reach of Rule 4(a)(2)'s proviso. It did not hold that the Rule 4(a)(2) situation—announcement of a final decision followed by notice of appeal and then entry of the judgment—is the only situation in which a premature notice of appeal will ripen at a later date. In fact, Rule 4(a)(4) was amended in 1993 to provide that a premature notice of appeal would later ripen if it was filed after entry of a judgment, but while post-trial motions were pending. Such a premature notice of appeal ripens upon "entry of the order disposing of the last such motion outstanding." Fed. R.App. P. 4(a)(4).^[9] Thus, in a number of factual situations, a premature notice of appeal will become effective at a later date.

Finally, Rule 2 of the Federal Rules of Appellate Procedure permits a court of appeals to "suspend the requirements or provisions" of any rule of appellate procedure. See Fed. R.App. P. 2. The purpose of the Rule is to ensure that justice is not denied on the basis of a mere technicality. See id. advisory committee's note ("The rule also contains a general authorization to the courts to relieve litigants of the consequences of default where manifest injustice would otherwise result."). For us to decline jurisdiction in this appeal would elevate a mere technicality above the important substantive issues here involved, as well as the right of the parties in this case to have their dispute resolved on its merits.^[10]

In this case, a notice of appeal was filed following final disposition of the key elements of the dispute: liability and the amount of damages. The appellees, both plaintiffs and defendants, were on notice that the objectors would be appealing the approval of the settlement and the denial of their motions by the District Court. No prejudice is claimed or apparent. Long before we considered any aspect of this case, the outstanding issue of allocation was resolved, a final judgment was entered, and the case was closed. Compare Praxis Properties, Inc. v. Colonial Sav. Bank, S.L.A., 947 F.2d 49, 54 n. 5 (3d Cir. 1991) ("Arguably RTC's appeal, even if it was filed prematurely, ripened once the remaining claims in this case (the impediments to finality) were settled and dismissed." (citing, inter alia, Cape May Greene and FirsTier)), with United States v. Davis, 924 F.2d 501 (3d Cir.1991) (dismissing appeal when notice of appeal was filed prematurely and appellants' allegations of error remained before the district court). Finding our precedent in Cape May Greene both intact and applicable to this case, we hold that we have jurisdiction to hear this appeal.

III. Standard of Review

Our scope of review of a challenge to the district court approval of a class action settlement is limited. We will reverse a settlement approval only when the district court has committed a "clear abuse of discretion." In re Prudential Ins. Co. of Am. Sales Practices Litig., 148 F.3d 283, 299 (3d Cir.1998) (internal quotations omitted), cert. denied, ___ U.S. ___, 119 S.Ct. 890, ___ L.Ed.2d ___ (1999), and cert. denied, ___ U.S. ___, 119 S.Ct. 890. ___ L.Ed.2d ___ (1999). We review a district court's decision not to certify a subclass for abuse of discretion. See Pennsylvania Dental Ass'n v. [588] Medical Serv. Ass'n, 745 F.2d 248, 255 (3d Cir.1984). A district court's denial of a motion to disqualify counsel is also reviewed for abuse of discretion. See Kroungold v. Triester, 521 F.2d 763, 765 & n. 2 (3d Cir.1975). However, to the extent that the questions underlying the disqualification motion are purely legal (e.g., whether class counsel who represented objectors when the latter were class representatives can continue to represent the class), our review is plenary. See Kramer v. Scientific Control Corp., 534 F.2d 1085, 1088 (3d Cir.1976).

IV. Settlement of the Class Action

The leading case establishing the requirements for evaluating a class action settlement is Girsh v. Jepson, 521 F.2d 153 (3d Cir.1975). Here, the District Court appropriately analyzed the settlement under the nine Girsh factors, issuing a 113-page opinion with 74 pages of lucid factual findings and a thorough analysis of each aspect of the settlement and of the appellants' objections. We find the District Court's opinion to be persuasive and its factual findings to be fully supported by the record. They are certainly not clearly erroneous. The Court's work product easily meets the standard of In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768 (3d Cir.1995): "In order for the determination that the settlement is fair, reasonable, and adequate to survive appellate review, the district court must show it has explored comprehensively all relevant factors." Id. at 805 (internal quotations omitted).

We note specifically that the plaintiffs faced a not insignificant risk of losing a summary judgment motion if this case was not settled; of the possible exclusion of their damages experts following a Daubert^[11] hearing; and of an adverse verdict if the case reached trial.^[12] We also note that the settlement followed over two years of extensive discovery, including more than eighty depositions, substantial document review, and the production of expert reports. We agree with the District Court that the stage of proceedings indicates that both sides were adequately informed of the strengths and weaknesses of the case, and strongly favors approval of the settlement. See Bell Atl. Corp. v. Bolger, 2 F.3d 1304, 1314 (3d Cir.1993) ("[P]ost discovery settlements are more likely to reflect the true value of the claim and be fair."). Given the risks of establishing liability and damages, the complexity of the case, the stage of the proceedings, and the lack of substantial opposition to the settlement, we find no abuse of discretion in the District Court's approval of the settlement.

We likewise find no abuse of discretion in the District Court's denial of the objectors' motion for certification of a subclass. This issue arises from the objectors' claim that producer plaintiffs suffered distinct and greater damages than those endured by so-called investor plaintiffs. The District Court found that this purported distinction was unsupported by the facts of the case, was not relevant to the class claims (which were brought on behalf of "sellers," not producers or investors), and was raised at an extremely late point in the litigation. We agree.

V. Disqualification of Class Counsel

The objectors contend that Class Counsel should be disqualified because they are now representing a party (i.e., the plaintiffs) adverse to one they previously represented (i.e., the objectors), creating an impermissible conflict of interest. This contention raises an interesting threshold question as to the standard a district court should apply to the conflict determination.

The most extensive discussion of the conflict-of-interest issue within our jurisprudence is found in In re Corn Derivatives Antitrust Litigation, 748 F.2d 157 (3d Cir. 1984). In Corn Derivatives, we granted a [589] motion to disqualify an attorney who had formerly represented several class representatives; some of the class representatives approved of a proposed settlement and others did not. Unlike the present case, in Corn Derivatives counsel had withdrawn from representing the parties approving of the settlement and sought only to represent one objector on appeal. After consulting the relevant portions of the ABA's Model Rules of Professional Conduct and Model Code of Professional Responsibility,^[13] we concluded that the prejudice to the former clients would be too great to justify counsel's continued representation of the objector. See id. at 162. We focused on the policies underlying the rules against an attorney representing a party in a matter in which a former client is now an adversary, including preventing "even the potential that a former client's confidences and secrets may be used against him"; maintaining "public confidence in the integrity of the bar"; and upholding the duty of loyalty that a client has the right to expect. Id.

Our opinion also discussed countervailing considerations, such as whether the counsel at issue represented the entire class (which was not the case in Corn Derivatives, but is true here), and the interest of the party who wishes to retain the counsel in avoiding increased costs and keeping "counsel who has extensive familiarity with the factual and legal issues involved." Id. Overall, however, we analyzed the situation no differently than we would have a non-class action case in which "two clients retained the same law firm to file suit, and where, later, that law firm chose to represent one of those clients against the other in the course of the same litigation." Id. at 161.

In his concurring opinion, Judge Adams more explicitly endorsed a balancing approach to attorney-disqualification motions in the class action context. Judge Adams argued that the rules for attorney disqualification could not be "mechanically transpose[d]" to the class action context and that the more appropriate means of addressing such issues was through "a balancing process." Id. at 163 (Adams, J., concurring). After discussing the rationale behind these points, he noted that, "[i]f a class attorney is automatically prevented from continuing to represent the named parties or a majority of a class which supports a settlement, the minority dissenting class members might obtain considerable leverage in the litigation by being able to force the majority to seek new counsel." Id. at 164 (Adams, J., concurring).

We agree with Judge Adams's concerns. In many class actions, one or more class representatives will object to a settlement and become adverse parties to the remaining class representatives (and the rest of the class). If, by applying the usual rules on attorney-client relations, class counsel could easily be disqualified in these cases, not only would the objectors enjoy great "leverage," but many fair and reasonable settlements would be undermined by the need to find substitute counsel after months or even years of fruitful settlement negotiations. "Moreover, the conflict rules do not appear to be drafted with class action procedures in mind and may be at odds with the policies underlying the class action rules." Bruce A. Green, Conflicts of Interest in Litigation: The Judicial Role, 65 Fordham L.Rev. 71, 127 (1996).

As the Second Circuit noted, in a case factually similar to Corn Derivatives:

Automatic application of the traditional principles governing disqualification of attorneys on grounds of conflict of interest would seemingly dictate that whenever a rift arises in the class, with one branch favoring a settlement or a course of action that another branch resists, the attorney who has represented the class should withdraw entirely and take no position. Were he to take a position, either favoring or opposing the proposed course of action, he would be opposing the interests of some of [590] his former clients in the very matter in which he has represented them.

.... [W]hen an action has continued over the course of many years, the prospect of having those most familiar with its course and status be automatically disqualified whenever class members have conflicting interests would substantially diminish the efficacy of class actions as a method of dispute resolution.

In re "Agent Orange" Prod. Liab. Litig., 800 F.2d 14, 18-19 (2d Cir.1986) (citations omitted). The court then concluded "that the traditional rules that have been developed in the course of attorneys' representation of the interests of clients outside of the class action context should not be mechanically applied to the problems that arise in the settlement of class action litigation." Id. at 19. Rather, it held, a balancing approach like that advocated by Judge Adams in Corn Derivatives was more appropriate in the class action context.

The Agent Orange court listed a number of relevant factors in this balancing inquiry, including some from Judge Adams's opinion: the information in the attorney's possession, the availability of the information elsewhere, the importance of this information to the disputed issues, actual prejudice that could flow from the attorney's possession of the information, the costs to class members of obtaining new counsel and the ease with which they might do so, the complexity of the litigation, and the time needed for new counsel to familiarize himself with the case. See Agent Orange, 800 F.2d at 19.

We are persuaded by the well-reasoned opinions in Agent Orange and Corn Derivatives. We therefore hold that, in the class action context, once some class representatives object to a settlement negotiated on their behalf, class counsel may continue to represent the remaining class representatives and the class, as long as the interest of the class in continued representation by experienced counsel is not outweighed by the actual prejudice to the objectors of being opposed by their former counsel. In making this determination, the district court may consider the factors discussed in Agent Orange and in both the majority and concurring opinions in Corn Derivatives.

Turning to the present case, we note that the situation here differs from that in Corn Derivatives in that counsel there sought to represent only one party, an objector, and not the remaining class members. In a case such as the present one, the balance weighs heavily in favor of denying a motion for disqualification of class counsel that is made on the basis of nothing more than the fact that the objectors include former clients (in the same case) of class counsel, without any showing of impropriety or prejudice. See also Bash v. Firstmark Standard Life Ins. Co., 861 F.2d 159, 161 (7th Cir.1988) ("Recognizing that strict application of rules on attorney conduct that were designed with simpler litigation in mind might make the class-action device unworkable in many cases, the courts insist that a serious conflict be shown before they will take remedial or disciplinary action."); cf. Saylor v. Lindsley, 456 F.2d 896, 900 (2d Cir.1972) (noting that plaintiff's counsel in a derivative action "remains bound ..., if the client has objected [to a settlement], to inform the court of this when presenting the settlement, so that it may devise procedures whereby the plaintiff, with a new attorney, may himself conduct further inquiry if so advised").

Objectors contend that Class Counsel in this case did not adequately represent all of the class members because they failed to consider the unique interests and damages of the producer plaintiffs.^[14] Given our agreement with the District Court that the objectors' distinction between producer and investor plaintiffs is not supported by the record in this case, we find no clear error in the District Court's finding that Class Counsel adequately represented the interests of all class members, even if some class members [591] and some of the class representatives are unsatisfied with the results of Class Counsel's efforts. See Walsh v. Great Atl. & Pac. Tea Co., 726 F.2d 956, 964 (3d Cir.1983) ("Class counsel's duty to the class as a whole frequently diverges from the opinion of either the named plaintiff or other objectors.").^[15]

Applying the standard we have outlined above, we are satisfied that the District Court weighed the competing interests appropriately and did not abuse its discretion in denying the motion for disqualification of Class Counsel.

VI. Conclusion

For the foregoing reasons, the District Court's order approving of the settlement in this class action and denying objectors' motions for subclass certification and disqualification of Class Counsel will be affirmed.

[1] Honorable Stanley S. Harris, United States District Judge for the District of Columbia, sitting by designation.

[2] Titusville, Pennsylvania, home of objectors' counsel, is the situs of the Drake Oil Well, the first oil-producing well in the world—drilled in 1859.

[3] A third class representative, John B. Andreassi, later joined Lazy Oil and Thomas A. Miller in objecting to the proposed settlement. Andreassi informed Class Counsel of his objections shortly after the settlement notices had been sent to class members.

[4] Other groups of class members objected as well, but did not appeal from the District Court's orders approving the settlement or the allocation of the proceeds. Therefore, only the objections of the Lazy Oil group are before us, and it is to that group we refer when using the term "objectors."

[5] We also acknowledge that some courts refused, even before FirsTier, to adhere to a rule such as ours. See, e.g., United States v. Hansen, 795 F.2d 35, 37-38 (7th Cir.1986) (discussing circuit split on the issue, rejecting Cape May Greene rule, and noting that the appellants, "anticipating defeat, might as well have filed the notice of appeal simultaneously with the filing of their counterclaims or their answer to the [plaintiff's] complaint"). In such cases, these courts of appeals dismiss the premature appeal, presumably leaving the appellant either without recourse to challenge the actual final order in the case or forced to file its notice of appeal again, if a timely one can still be filed after the appeal is dismissed.

[6] Rule 4(a)(2) provides that "[a] notice of appeal filed after the court announces a decision or order but before the entry of the judgment or order is treated as filed on the date of and after the entry."

[7] When asked by us to comment on the jurisdictional issue, the parties argued that the order of December 31, 1997, was a final order from which an appeal could be taken under 28 U.S.C. § 1291, because (they argued) the allocation issue was simply a separate, ministerial matter over which the District Court retained jurisdiction after entering a final order approving the settlement. See Polychrome Int'l Corp. v. Krigger, 5 F.3d 1522, 1544 n. 52 (3d Cir.1993) (holding that jurisdiction exists when an "order sufficiently disposes of the factual and legal issues and ... any unresolved issues are sufficiently `ministerial' that there would be no likelihood of further appeal"). While we need not resolve this issue in light of our invocation of the rule from Cape May Greene, we question whether the District Court's order approving the settlement was a "final order." See In re Chicken Antitrust Litig., 669 F.2d 228, 235 (5th Cir. Unit B 1982) ("As long as a matter such as [allocation of settlement proceeds] remains open, unfinished, or inconclusive, an order will not be considered final regardless of its characterization, and there may be no intrusion by appeal."); see also Hoots v. Com. of Pennsylvania, 587 F.2d 1340, 1346-48 & n. 42 (3d Cir.1978) (holding that an "order [that] expressly invited `any party to submit further plans or proposals and evidence in support thereof'" in a desegregation case was considered nonfinal and nonappealable); Fireman's Fund Ins. Co. v. Joseph J. Biafore, Inc., 526 F.2d 170, 173 (3d Cir.1975) (holding that an order granting plaintiff's motion for summary judgment, with only the computation of interest remaining to be done, was not a final order).

The District Court, in its opinion and order, addressed the merits of the allocation plan and specifically refused to grant a motion to approve this aspect of the settlement. The plan that was eventually approved differed from that included in the settlement approved on December 31. Before this Court, the objectors in their brief specifically refer to (and criticize) "the allocation plan submitted by Class Counsel." Appellants' Br. at 30. Therefore, we question the characterization of this issue as simply "ministerial" and separate from the primary issues of liability and damages. As noted, however, we need not decide this question.

[8] Cooper was actually a criminal case, in which Rule 4(b), the counterpart to Rule 4(a)(2), was involved. Yet, the court in Cooper noted that the language of the two provisions is "almost identical" and should "be given the same meaning." 135 F.3d at 962. We have likewise read these provisions consistently, and found jurisdiction when a premature notice of appeal is filed in certain criminal cases. See United States v. Hashagen, 816 F.2d 899, 906 (3d Cir.1987) (en banc).

[9] Prior to the amendment, the Rule had provided that "[a] notice of appeal filed before the disposition of any of the [post-trial] motions shall have no effect." Fed. R.App. P. 4(a)(4) (1979). The Supreme Court had interpreted this provision as making such a notice of appeal a "nullity, ... as if no notice of appeal were filed at all." Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 61, 103 S.Ct. 400, 74 L.Ed.2d 225 (1982). No similar provision of Rule 4 currently provides an explicit command that a notice of appeal filed under the circumstances here "shall have no effect." To the contrary, we find that our rule from Cape May Greene is fully consistent with the principles embodied in current Rules 4(a)(2) and 4(a)(4), which essentially hold a premature notice of appeal in abeyance until such time as it would be appropriately filed and effective.

[10] We are, of course, mindful of the fact that the authority of Rule 2 cannot be utilized to expand the jurisdiction of the Court. See, e.g., Torres v. Oakland Scavenger Co., 487 U.S. 312, 315, 108 S.Ct. 2405, 101 L.Ed.2d 285 (1988) (noting that Rule 2 authority does not permit "a court to `enlarge' the time limits for filing a notice of appeal"). Giving effect to a previously filed notice of appeal upon the district court's disposition of outstanding claims does not extend the time limits imposed on our jurisdiction.

[11] Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579, 592-93, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993).

[12] The objectors concede that there is no direct evidence of a price-fixing conspiracy, and that, therefore, they must present evidence both of conscious parallelism and of "plus factors" to make out a price-fixing case. They present only "three evidentiary artifacts" to meet the plus-factor requirement; all three are weak at best.

[13] Currently, the ABA's Model Rules of Professional Conduct provide that "[a] lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former client consents after consultation." Model Rules of Professional Conduct Rule 1.9(a) (1983); see also id. cmt. ("The underlying question is whether the lawyer was so involved in the matter that the subsequent representation can be justly regarded as a changing of sides in the matter in question.").

[14] We also note that the objectors' brief discusses not the ethical problems involved in the events that transpired, but the alleged shortcomings of Class Counsel while they represented the objectors. See Appellants' Br. at 38-41. Their claims sound less like an ethical breach requiring disqualification than like a hint of possible malpractice. See also id. at 42-45 (blaming Class Counsel for objectors' failure to raise their damages theory until late in the litigation and labeling this "an actionable breach of the professional standard of care under extant Pennsylvania law").

[15] See also Laskey v. International Union, UAW, 638 F.2d 954, 957 (6th Cir.1981) ("That the class counsel proposed a settlement which the named representatives opposed does not prove that the interests of the class were not protected."); Kincade v. General Tire & Rubber Co., 635 F.2d 501, 508 (5th Cir. Jan.1981) ("Because the `client' in a class action consists of numerous unnamed class members as well as the class representatives, and because `[t]he class itself often speaks in several voices ..., it may be impossible for the class attorney to do more than act in what he believes to be the best interests of the class as a whole ....'" (citation omitted) (alteration and omissions in original)); Maywalt v. Parker & Parsley Petroleum Co., 155 F.R.D. 494, 497 (S.D.N.Y. 1994) ("In the absence of concretely alleged acts of impropriety by the duly certified Class Counsel, or a showing abridgment of a significant minority of the Class' rights, this Court will not grant the hasty application of the Moving Representative Plaintiffs to replace Class Counsel on the eve of the Settlement Hearing."), aff'd, 67 F.3d 1072, 1079 (2d Cir.1995).