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Class Action Defense Cases-In re New Motor Vehicles: Federal Court Lacks Authority To Give “Preliminary Approval” To Proposed Settlement Of Class Action Maine District Court Holds

Maine Federal Court Denies Joint Motion for “Preliminary Approval” of Proposed Settlement of Class Action Finding that it Lacked Authority Under Rule 23 to Grant the Motion or to Make a “Preliminary Fairness Determination”

In connection with class action lawsuits against General Motors, Toyota, and other car companies, transferred to the District of Maine by the Judicial Panel on Multidistrict Litigation for pretrial purposes, the defense and plaintiff attorneys in the Toyota lawsuit requested that the federal court preliminarily approve a proposed settlement of the class action. In re New Motor Vehicles Canadian Export Antitrust Litig., 236 F.R.D. 53, 55 (D. Maine 2006). The district court denied the request, holding that “Rule 23 does not provide for ‘preliminary approval’ or a ‘preliminary fairness determination.’” Id. The court acknowledged that the Complex Litigation Manual uses that phrase to describe “what a court does in deciding to order notice to the class of a settlement,” but explained that while “it makes sense for a judge to say that a particular settlement has no chance of approval . . . there is criticism of calling this ‘preliminary approval.’” Id., at 55-56 (citations omitted).

The reasoning in the cases cited by the federal court is straight-forward: an order giving “preliminary approval” to a proposed settlement “unjustifiably suggests a built-in headwind against objections to the settlement” when in fact the court is “determining simply whether the proposed settlement agreement deserves consideration by the class and whether the notice is appropriate.” Nilsen v. York County, 228 F.R.D. 60, 62 (D. Me. 2005). Or, as the American Law Institute explained, “[e]ven a preliminary decision in favor of the settlement may, as a practical matter, give an unwarranted presumption of correctness to a proposal that the court has not carefully considered,” Principles of the Law of Aggregate Litig., § 3.04 cmt. a, at 156 (Discussion Draft, Apr. 21, 2006). The District Court additionally found that it would “particularly inappropriate” to give preliminary approval to the proposed class action settlement with Toyota because “the parties do not even want me to order notice at this time.” In re New Motor Vehicles, at 56. The court therefore denied the motion.

NOTE: The Order addresses several additional issues as well that we do not here discuss. The author believes that the court’s discussion of the class action “preliminary approval” of settlement request will be of most interest to practicing attorneys.

Download PDF file of In re New Motor Vehicles