Opinions of the United
2005 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-11-2005

In Re: Comm Bank
Precedential or Non-Precedential: Precedential

Docket No. 03-4220




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"In Re: Comm Bank " (2005). 2005 Decisions. Paper 617.
http://digitalcommons.law.villanova.edu/thirdcircuit_2005/617


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                                            PRECEDENTIAL

         UNITED STATES COURT OF APPEALS
              FOR THE THIRD CIRCUIT
                       ____

     Nos. 03-4220, 03-4221, 03-4275, 03-4294, 03-4316,
   03-4319, 03-4504, 03-4732, 03-4837, 04-4838, 03-4862,
                    04-1002, and 04-1039
                         ________

 IN RE: COMMUNITY BANK OF NORTHERN VIRGINIA
AND GUARANTY NATIONAL BANK OF TALLAHASSEE
       SECOND MORTGAGE LOAN LITIGATION


Stephanie Spann; Leonila T. Nini; Eufronio Nini; John Hardt;
 Robbin Verbeck; Stephanie Hafford; Charles B. Poindexter;
Maureen F. Poindexter; David B. Walker; Shundra R. Walker;
  Jessie Dodd; James Beckius; Linda Whitehead; Lynell B.
   Wingfield; Jario Ivan Sarrie; Beatriz Sarrie; Michelle K.
Morgan; Sharon Finnerty; Donald Appleton; Jeanette Appleton;
            Edelman, Combs & Latturner, LLC;
                  Appellants in No. 03-4220

        Walters, Bender, Strohbehn & Vaughan, P.C.,
                  Appellant in No. 03-4221

                    Scott C. Borison,
                 Appellant in No. 03-4294

            Badeaux Class Member Opt-Outs,
          Appellants in Nos. 03-4316 and 03-4838

             Alabama Class Member Opt-Outs,
                Appellants in No. 03-4319

Dickey, McCamey & Chilcote, P.C., David J. Armstrong, Esq.,
      Douglas C. LaSota, Esq., Franklin R. Nix, Esq.,
            Georgia Class Member Opt-Outs,
          Appellants in Nos. 03-4275 and 03-4504
 Ronald D. Gray; Ozy T. McDaniel; Jerline McDaniel; Tammy
and David Wasem; Richard and Margaret Harlin; Sylvester and
Patricia Watkins; Stephen D. Jensen; Joseph E. and Cynthia A.
        Brownfield; Missouri Class Member Opt-Outs;
               Illinois Class Member Opt-Outs,
                   Appellants in No. 03-4732

    Michael Lane; Marcos Escalante; Cheryl White-Berry;
             William P. Gorny; Rinaldo Swayne,
                 Appellants in No. 03-4837

        Franklin R. Nix, Esq.; Georgia Class Member
                  Opt-Outs and Objectors,
                 Appellants in No. 03-4862

                   Marion Deloy Smith,
                  Appellant in No. 04-1002

  John W. Sharbrough, III, Esq.; The Sharbrough Law Firm;
             Alabama Class Member Opt-Outs
                 Appellants in No. 04-1039

                         ________

       On Appeal from the United States District Court
           for the Western District of Pennsylvania
    (D.C. Nos. 03-cv-00425, 02-cv-01201, 02-cv-01563,
          02-cv-01616, 02-cv-01999, 02-cv-02000)
        District Judge: Honorable Gary L. Lancaster




                 Argued February 17, 2005

Before: SLOVITER, AMBRO, and ALDISERT, Circuit Judges

                  (Filed: August 11, 2005)

Daniel A. Edelman
Cathleen M. Combs (Argued)

                             2
James O. Latturner
Edelman, Combs & Latturner
Chicago, IL 60603

      Attorneys for Appellants Stephanie Spann, et al., in No.
      03-4220

J. Michael Vaughan (Argued)
David M. Skeens (Argued)
R. Frederick Walters
Walters, Bender, Strohbehn & Vaughan
Kansas City, MO 64105

      Attorneys for Appellants Ronald D. Gray, et al., in Nos.
      03-4732, et al.

Franklin R. Nix (Argued)
Law Offices of Franklin R. Nix
Atlanta, GA 30327

      Attorney for Appellants Georgia Member Opt-Outs &
      Objectors, et al., in Nos. 03-4862, et al.

John W. Sharbrough, III
The Sharbrough Law Firm
Mobile, AL 36601

      Attorney for Appellants Alabama Class Member Opt-
      Outs, et al., in Nos. 03-4319, et al.

Brian S. Wolfman (Argued)
Charlotte Garden
Public Citizen Litigation Group
Washington, D.C. 20009

Scott C. Borison
Legg Law Firm
Frederick, MD 21703

      Attorneys for Appellants Badeaux Class Member Opt-

                                  3
      Outs, et al., in Nos. 03-4316, et al.

David G. Oberdick
Meyer, Unkovic & Scott
Pittsburgh, PA l5222

F. Douglas Ross
Odin Felman & Pittleman
Fairfax, VA 22031

      Attorneys for Appellee Community Bank of Northern
      Virginia, in Nos. 03-4220, et al.

Gary P. Hunt
Richard B. Tucker, III
Tucker Arensberg
Pittsburgh, PA l5222

      Attorneys for Appellee Guaranty National Bank of
      Tallahassee, in Nos. 03-4220, et al.

R. Bruce Carlson (Argued)
Carlson Lynch
Sewickley, PA l5l43

Eric G. Calhoun
Lawson, Fields & Calhoun
Addison, TX 75001

A. Hoyt Rowell, III
Daniel Myers
Richardson, Patrick, Westbrook & Brickman
Mt. Pleasant, SC 29464

      Attorneys for Appellees Class Members in Nos. 03-4220,
      et al.

Thomas L. Allen (Argued)
Roy W. Arnold
James C. Martin

                                 4
Donna M. Doblick
Reed Smith
Pittsburgh, PA l5219

       Attorneys for Appellee GMAC Residential Funding
       Corporation, in Nos. 03-4220, et al.

Lawrence H. Richmond
Federal Deposit Insurance Corp.
Washington, D.C. 20434

       Attorney for Intervenor Federal Deposit Insurance
       Corporation in Nos. 03-4220, et al.


Table of Contents

I. Facts and Procedural History
       A. The Alleged Illegal Lending Scheme
       B. The Separate Class Actions
       C. Consolidation of the Class Actions
       D. The Opt-Out Solicitations
       E. The Joint Motion to Invalidate Opt-Outs
       F. The October 31, 2003 Conference Call
       G. Appellants’ Motion to Intervene
       H. Appellants’ Request for Discovery
       I. The Fairness Hearing
       J. The FDIC as Receiver for GNBT

II. Jurisdiction

III. Analysis
       A. Class Certification
              1. Certification Process Followed by the District
              Court
              2. The Appropriateness of Class Certification
                    i. The Rule 23(a) Criteria
                    ii. The Rule 23(b)(3) Criteria
                    iii. Summary of Rule 23 Analysis
       B. The District Court’s October 14th and 17th Order

                                5
Invalidating Opt-Outs
       C. The Motions to Intervene
       D. Appellants’ Request for Discovery
       E. The Fairness of the Settlement
       F. The Petition for Mandamus

IV. Conclusion
                         ____________

                  OPINION OF THE COURT
                      ______________


SLOVITER, Circuit Judge.

        This consolidated appeal arises from a “settlement only”
class action in the District Court for the Western District of
Pennsylvania that had consolidated six separate actions alleging
an illegal home equity lending scheme against two banks and a
company that acquired second mortgage loans from those banks
in the secondary market. Plaintiffs are persons who borrowed
from the two banks and signed second mortgages. On December
4, 2003, the District Court issued a Final Order approving a
proposed settlement, which awarded $33 million to a class of
44,000 borrowers and $8.1 million in attorney fees. Appellees in
this case are the settling parties. Appellants are a number of law
firms and plaintiff class members who challenge the District
Court’s jurisdiction, nearly every aspect of the settlement
process, and the fairness of the settlement itself.

                        I.
          FACTS AND PROCEDURAL HISTORY

A. The Alleged Illegal Lending Scheme
       This action alleges a pervasive predatory and illegal
lending scheme affecting borrowers nationwide. The alleged
mastermind of the scheme was the Shumway Organization
(“Shumway”), a residential mortgage loan business operating out
of Chantilly, Virginia. Through its several business forms,
including EquityPlus Financial, Inc. (“Equity Plus”), Equity

                                6
Guaranty, LLC (“Equity Guaranty”), and various title
companies, Shumway offered high-interest mortgage-backed
loans to debt-laden homeowners.

       Shumway was subject to fee caps and interest ceilings
imposed by various state mortgage lending laws because it was a
non-depository lender. State and nationally chartered banks, by
contrast, are arguably not subject to the same restrictions.
Plaintiffs allege that in an effort to circumvent the relevant state
fee and interest ceilings, Shumway formed associations with
several financially distressed banks, including two banks named
as defendants, the Community Bank of Northern Virginia
(“CBNV”) (a state chartered bank) and the Guaranty National
Bank of Tallahassee (“GNBT”) (a nationally chartered bank).

        CBNV and GNBT were allegedly paid for nothing more
than permitting Shumway to disguise the origin of their loans,
thus creating the appearance that fees and interest were paid
solely to a depository institution. In reality, the overwhelming
majority of fees and other charges associated with the loans were
funneled through the two banks to Shumway via Equity Plus (in
the case of loans purportedly made by CBNV) and Equity
Guaranty (in the case of loans purportedly made by GNBT).
Plaintiffs further allege that both CBNV and GNBT uniformly
misrepresented the apportionment and distribution of settlement
and title fees in their HUD-1 Settlement Statement forms, issued
by the United States Department of Housing and Urban
Development,1 and that the stated fees in the HUD-1 Settlement
Statements included illegal kickbacks to Shumway that did not
reflect the value of any services actually performed.

       GMAC Residential Funding Corporation (“RFC”), a
division of GMAC Financial Services (part of the General
Motors Corporation family), was alleged to be an essential co-
conspirator in the Shumway scheme. In the late 1990s, RFC
derived a substantial portion of its business by purchasing



       1
       These misstatements were allegedly found in Sections 800
and 1100 of the banks’ HUD-1 Settlement Statements.

                                 7
“jumbo” mortgages (mortgages with loan balances above the
purchasing authority of Freddie Mac and Fannie Mae) and
especially High-LTV (loan-to-value) loans (loans where the
amount financed represented up to 125% of the value of the
securitized collateral) in the secondary market. By 1999,
Shumway, acting through CBNV and GNBT, had become the
largest producer of High-LTV loans in the country. Plaintiffs
allege that RFC purchased a majority and perhaps all of the
CBNV and GNBT originated loans, despite knowing that CBNV
and GNBT were mere “straw-parties” used to funnel origination
and title services fees to Shumway. The high origination fees on
the purchased loans generated profit not only for Shumway but
also for RFC; in most cases, fees were rolled into the principal
balance of the loans, thereby generating substantial interest
income.

        In 2001, the United States Office of the Comptroller of
the Currency conducted an investigation and audit of GNBT,
resulting in the Comptroller’s imposition of tight restrictions on
the bank. Shortly thereafter, Shumway’s relationship with RFC
began to deteriorate. In a press release dated March 28, 2002,
RFC announced that it was no longer willing to purchase high
interest mortgage loans like the ones sold by Shumway. Without
a purchaser for its loan product and without adequate reserves to
maintain the loans in its own portfolio, the Shumway scheme
essentially shut down by early 2003.

B. Separate Class Actions
       The Community Bank class action began as the following
six separate actions:

        Kessler v. GMAC-RFC, No. 03-0425 (W.D. Pa.) was
originally filed in the Court of Common Pleas of Allegheny
County, Pennsylvania on February 26, 2003. Plaintiffs, a class
of Pennsylvania borrowers, charged that RFC had assignee
liability under Pennsylvania state law for the “bogus” loan
origination and title service fees charged ostensibly by CBNV
and GNBT. On March 26, 2003, RFC removed the case to the
United States District Court for the Western District of
Pennsylvania, asserting that Sections 85 and 86 of the National

                                8
Banking Act (“NBA”), 12 U.S.C. §§ 85-86, and Section 521 of
the Depository Institutions Deregulation and Monetary Control
Act (“DIDA”), 12 U.S.C. § 1831d, completely preempt any state
law attempting to limit the amount of interest and fees a national
or federally insured state-chartered bank could charge. Plaintiffs
did not challenge removal.

        Before the Kessler action was filed there were five other
related actions pending in the same District Court premised on
the same Shumway lending scheme. In Davis v. CBNV, No. 02-
1201, initially filed on May 1, 2001, different plaintiffs sought to
represent both a class of Pennsylvania borrowers and a class of
nationwide borrowers. They asserted claims against CBNV,
RFC, and Sovereign Bank (a purchaser of CBNV loans on the
secondary market). On behalf of the Pennsylvania class,
plaintiffs asserted that defendants violated Pennsylvania’s
mortgage lending usury statute, 41 Pa. Cons. Stat. §§ 101 et seq.,
and the Pennsylvania Unfair Trade Practices and Consumer
Protection Law, 73 Pa. Cons. Stat. §§ 201-1, et seq. On behalf
of the nationwide class, the Davis plaintiffs asserted a violation
of the fee split and disclosure provisions of the Real Estate
Settlement Procedures Act (“RESPA”), 12 U.S.C. § 2607(b).
The case, originally filed in a Pennsylvania state court, was later
removed by defendants to the federal court based on the
existence of federal question jurisdiction.

       In Sabo v. CBNV, No. 02-1563, filed on September 11,
2002, in the United States District Court for the Western District
of Pennsylvania, plaintiffs commenced a putative nationwide
class action suit against CBNV and RFC asserting claims under
RESPA. In Ulrich v. GNBT, No. 02-1616, filed on September
19, 2002, in the same federal court, plaintiffs filed a similar
putative nationwide class action suit asserting claims under
RESPA, but this one named as defendants GNBT and RFC.

       One month later, on November 16, 2002, plaintiffs filed
Mathis v. GNBT, No. 02-1999, in the Court of Common Pleas of
Allegheny County asserting various state law mortgage lending
claims against GNBT and RFC, including violations of
Pennsylvania’s mortgage lending usury statute, 41 Pa. Cons.

                                 9
Stat. §§ 101 et seq., and the Unfair Trade Practices and
Consumer Protection Law, 73 Pa. Cons. Stat. §§ 201-1, et seq.
On November 19, 2002, Defendants removed the Mathis case to
the federal court based on the doctrine of complete preemption.
As in Kessler, these plaintiffs did not challenge removal.

       Finally, on October 23, 2002, plaintiffs filed Picard v.
CBNV, 02-2000, in the Court of Common Pleas of Allegheny
County against CBNV, GNBT, and RFC. On November 19,
2002, Defendants removed the case to the federal court based on
the doctrine of complete preemption. Plaintiffs initially filed a
motion to remand, but on February 27, 2003, they filed an
amended class action complaint asserting claims under RESPA
and the Racketeer Influenced and Corrupt Organizations Act
(“RICO”), 18 U.S.C. § 1962, in addition to the various state law
mortgage claims asserted in the original state complaint.

      R. Bruce Carlson of the Pittsburgh, Pennsylvania law firm
Specter, Specter, Evans, & Manogue, P.C. (now with Carlson
Lynch), was the principal plaintiffs’ class attorney in each of the
above actions, including Kessler.

C. Consolidation of the Class Actions
        On July 11, 2003, and prior to any discovery, the named
plaintiffs in all six actions, together with defendants CBNV,
GNBT and RFC, filed a joint motion for preliminary approval of
a proposed nationwide class action settlement. Under the terms
of the settlement, the maximum total payout to the
approximately 44,000 member plaintiff class was $33 million,
and the agreed-upon attorney fees were $8.1 million. The
settlement payouts ranged from $250 to $925 per borrower
depending on the borrower’s residence and the date on which the
loan was entered. In exchange, the borrowers were to release
any and all state or federal claims that they might have relating
to their second mortgage loan, including the right to use a
violation of federal or state law as a defense to foreclosure or
any other action. See, e.g.,15 U.S.C. § 1641(d)(1); 815 Ill.
Comp. Stat. § 205/6; Kan. Stat. Ann. § 16a-5-202. The proposed
settlement states that if more that .5% of the class members opt
out of the settlement class, the settling defendants may terminate

                                10
the settlement.2

        On July 17, 2003, less than a week after the motion was
filed seeking approval of the settlement, the District Court, in an
Order that in all material respects was a verbatim copy of the
proposed Order offered by the settling parties in their July 11,
2003 joint motion, preliminarily approved the proposed
settlement and consolidated all six actions listed above into the
Kessler action. The case was thus consolidated at No. 03-cv-
00425.

       The plaintiff class was “conditionally certified” for
settlement purposes only. The Order defined the class as:

       all persons . . . who (a) entered into a loan agreement with
       Community Bank of Northern Virginia . . . and/or Guaranty
       National Bank of Tallahassee . . .; (b) whose loan was secured
       by a second mortgage or deed of trust on property located in the
       United States; (c) whose loan was purchased by Residential
       Funding Corporation . . . and, (d) who [were] not . . .
       member[s] of the class certified in the action captioned Baxter
       v. Guaranty National Bank, et al., Case No 01-CVS-009168, in
       the General Court of Justice, Superior Court Division of Wake
       County, North Carolina.

JA at 132.

        Significantly, before issuing the July 17, 2003 Order, the
District Court did not analyze whether the proposed class
satisfied the prerequisites for a class action set forth in Fed. R.
Civ. P. 23 (a), (b)(3), or (c)(2), as the Court explicitly reserved
such analysis for a settlement hearing to be held on November



       2
        Plaintiffs also agreed to dismiss Terry v. CBNV, 02-2534
GV (W.D. Tenn.), and Caton v. CBNV, CV 02 479286 (Court of
Common Pleas Cuyahogo County, Ohio), two cases alleging the
same fraudulent lending scheme as the current action. Plaintiffs in
Terry and Caton were represented by the same counsel as plaintiffs
in the consolidated action.

                                 11
14, 2003.

        The July 17, 2003 Order also provided for the mailing and
publication of the class notice. The class notice directed by the
District Court was verbatim the proposed class notice offered by
the settling parties; it described the action as:

       A group of CBNV and GNB[T] borrowers, who are referred to
       as the “Named Plaintiffs” in this Notice, claim in the Litigation
       that CBNV and GNB[T] violated certain federal and state laws
       in connection with the fees and interest charged on second
       mortgage loans. These claims are asserted against the
       Defendants CBNV, GNB[T] and RFC.

JA 137. The notice also provided that all opt-outs must be
received by the Settlement Administrator by October 1, 2003.
Finally, class members were specifically instructed that they may
discuss the settlement with their own attorneys.

D. The Opt-Out Solicitations
        In September 2003, after the class notice was mailed,
several law firms mailed letters to members of the plaintiff class
urging them to contact the law firms regarding the above
settlement, and in some cases urging them to opt out of the class.
These law firms and the members of the class whom they
solicited and who opted-out are the Appellants before us
(“Appellants”). The Appellant law firms are as follows:

        Walters Bender, Strohbehn & Vaughan (“Walters”) ,
Nos. 03-4221, 03-4504, 03-4732, 04-1002 -
        Walters has represented two plaintiff classes in class
action suits related to the Shumway scheme. In June 2001, it
filed a class action suit in Jackson County, Missouri against
CBNV and assignees, alleging violation of the Missouri Second
Mortgage Loans Act (“MSMLA”), Mo. Rev. Stat. §§ 408.231, et
seq. The Circuit Court of Jackson County granted defendants’
motion to dismiss for failure to state a claim on the ground that
their MSMLA claim failed as a matter of law. The Missouri
Court of Appeals affirmed. Avila v. Community Bank of N.
Va., 143 S.N.3d 1 (Mo. Ct. App. 2003).

                                12
       On April 3, 2003, Walters filed a putative class action in
Clay County, Missouri against GNBT for violations of the
MSMLA, asserting the same claim that it had asserted against
CBNV. After GNBT removed that case to the United States
District Court for the Western District of Missouri, that court
held that plaintiffs’ MSMLA claims are preempted under
Sections 85 and 86 of the National Banking Act. See Phipps v.
GNBT, No. 03-420-CV-W-GAF, 

(W.D.
Mo. Sept. 17, 2003). The Eighth Circuit affirmed. Phipps v.
FDIC, __ F.3d __, 

(8th Cir. 2005).

        On September 18 and 19, 2003, the Walters firm mailed
solicitation letters to borrowers in Missouri and Illinois urging
them to object to the fairness of the settlement in the present
action but did not urge them to opt out. In an affidavit to the
District Court, Attorney J. Michael Vaughan of the Walters firm
declared that prior to the September 18, 2003 letter, Walters was
asked to advise and represent several Missouri borrowers (aside
from those in either of the two Missouri class actions) who had
obtained loans from GNBT. According to Walters, a total of
nineteen Missouri borrowers filed opt-outs. Following the
September 18 letter, thirty-five Missouri borrowers and eighty-
nine Illinois borrowers filed objections to the settlement with the
District Court.

        Attorney Franklin Nix and The Sharbrough Law
Firm (“Nix”), Nos. 03-4725, 03-4319, 03-4862, 04-1039 -
        On September 17, 2003, Attorney Nix mailed a
solicitation letter to hundreds of Georgia class members setting
forth defendants’ potential liability under the Home Ownership
and Equity Protection Act (“HOEPA”), 15 U.S.C. §§ 1601, et
seq., and urging class members to opt-out or contact him
regarding their settlement claims. Included in the solicitation
was a Notice of Opt-Out form letter and a Representation & Fee
Agreement contract. The Sharbrough Law Firm sent
solicitations to Alabama class members.3




       3
           The actual solicitation is not in the appendix.

                                   13
        Legg Law Firm (“Legg”), Nos.03-4294, 03-4316, 03-
4837, 04-4838 -
        Maryland and Florida borrowers received solicitation
letters from Legg urging class members to contact the firm to
discuss the settlement. The original letter misstated the opt-out
date as October 15, 2003. A subsequent letter corrected the
mistake. In a Declaration to the District Court, Attorney Scott C.
Borison of the Legg firm declared that prior to sending out the
solicitation letters he had existing clients who had claims against
CBNV. Borison also declared that after he sent the solicitation
letters approximately 100 people asked him to assess their cases.
After he reviewed their documents, he recommended that only
forty-four class members (collectively known as the Badeaux
opt-outs) opt out of the settlement and retain Borison as their
counsel against CBNV.

        Edelman, Combs & Latturner, LLC (“Edelman”),
Nos. 03-4220 -
        Edelman sent solicitation letters to borrowers in Illinois
urging class members to contact them to assess their claims, and
to opt-out of the settlement. Edelman claims to have received
fifteen responses to its solicitations; thirteen of which it believed
had merit. On October 3, 2003, Edelman filed a suit on behalf of
these opt-outs in the Northern District of Illinois in a case
captioned Spann v. CBNV, No. 03 C 7022.

        By the October 1, 2003 deadline, 435 people had opted
out of the class action settlement. Stephen Tilghman, the
settlement administrator, declared that 419 of those opt-outs
were a result of the solicitation letters by the above law firms.
Of those 419 opt-outs, 326 were submitted by Georgia class
members on opt-out forms provided by Nix. The 435 total opt-
outs amounted to nearly 1% of the total class; nearly double the
.5% trigger that would allow defendants to terminate the
settlement.

E. The Joint Motion to Invalidate Opt Outs
       Fearing that their settlement was in jeopardy, on October
6, 2003, class counsel and defendants’ counsel (the “settling
parties”) filed a Joint Motion to Invalidate Solicited Opt-Outs

                                 14
and for Court Approved Notice to Address False, Misleading
and Deceptive Solicitations of Opt-Outs. The Joint Motion
asserted that the above law firms had improperly solicited and
misled class members, thus inducing them to opt out of the class
settlement. The settling parties asked the Court to invalidate all
prior opt-out decisions, send a curative notice to those class
members who had opted out, and prevent any communication
between Appellants and class members, except for written
communications pre-approved by the Court. The settling
parties’ brief in support of the Joint Motion, as expected,
targeted the Nix’s solicitations.

       The District Court granted the settling parties’ joint
motion on October 14, 2003. It did so without conducting a
hearing, setting a briefing schedule or otherwise allowing
Appellants any practical opportunity to be heard. The Order the
District Court entered on October 14, 2003 followed verbatim
the Order proposed by the settling parties, except that the District
Court extended the second opt-out deadline from the October 24,
2003 date proposed by the settling parties, to November 3,
2003.4

       On October 15, 2003, one day after entry of the Order
invalidating the opt-outs, Appellants Walters, Nix, and Edelman
filed emergency motions asking the District Court to stay its
October 14 Order and to reconsider its decision. On October 16,
Legg submitted a proposed communication to its opt-out clients
to the District Court for approval.

       On October 17, 2003, two days after the motion to
reconsider was filed, the District Court denied the motions. The
brief Order stated in full:

       Before the court are several motions to reconsider
       our Order of October 14, 2003 [doc. Nos. 30, 31,



       4
          We note that the second opt-out period ended only two
weeks after the Joint Motion was granted, leaving class members
little time to file their second opt-outs.

                                15
       32, and 33]. The motions are DENIED.
       The letters mailed by each of the firms named in
       the October 14, 2003 Order of Court to plaintiff
       class members in this case were direct solicitations
       for prospective clients whom they knew to be
       represented by another lawyer. If there is not a
       rule of professional conduct that prohibits such
       activity in the jurisdictions where these lawyers
       practice, there should be. See generally, Georgine
       v. Amchem Products, 

[, 495 n.26]
       (E.D. Pa. 1995). . . .

JA at 145.

       The District Court apparently treated the Legg proposed
communication as a motion to reconsider, and denied it in the
same October 17, 2003 Order. The Court thereafter did not
specifically address why it would not permit Legg to send out its
proposed communications.

        Pursuant to the October 14, 2003 Order, “curative
notices” were sent to all class members who had opted out
during the first opt-out period. These notices, which were
tailored to the communications sent by each Appellant law firm,
were verbatim copies of the proposed curative notices submitted
by the settling parties. Each notice stated that the Court has
concluded that the “[Appellant law firms’ solicitations]
contained a number of misleading and inaccurate statements”
and therefore that the “exclusion requests received after the date
of the letter are all void.” See, e.g., App. at 2062. The curative
notices also contained a number of detailed bases for the finding
that the Appellant law firms’ solicitations were misleading.
Finally, the curative notices urged the recipients to reconsider
their decisions to opt out. The notice made clear that failure to
submit a second opt-out by November 3, 2003 would waive the
class member’s rights to opt out of the settlement.

       The provision of the October 14, 2003 Order that
precluded the Appellant law firms from communicating with any
members of the class, except for written communications pre-

                                16
approved by the District Court, included a bar on communication
with class members who had retained the Appellant law firms
either before or during the first opt-out period. Several
Appellants declared in affidavits provided thereafter that when
their retained clients attempted to contact them for advice or for
explanation of the curative notice, they were compelled to reject
their clients’ attempts at communication. See, e.g. JA 2056-57
(declaration of Borison). In the particular cases of Walters and
Edelman, the October 14, 2003 Order prevented them from
communicating with class members whom they represented in
pending litigation. See Phipps v. GNBT, No. 03-420-CV-W-
GAF (W.D. Mo.); Spann, et al. v. CNBV, No. 03 C 7022 (N.D.
Ill).

        On October 21, 2003, Walters sought permission to
submit a proposed communication in camera to avoid waiver of
the attorney-client privilege. On October 22, 2003, the District
Court entered an Order granting Walters’ request to submit
the proposed communication to the Court but directed that it also
must be served on all counsel. Thereafter, Walters did not submit
the proposed communication for the Court’s approval.

       All Appellant law firms except Walters complied with the
bar on communications. Walters sent letters by overnight
delivery to the nineteen Missouri opt-outs on October 30, 2003,
and informed the District Court of this action on October 31,
2003. There was no sanction by the Court. The record does not
show whether the letters Walters sent were the same as the
proposed communication referred to above.

       By November 3, 2003, the end of the second opt-out
period, only 110 class members had opted-out a second time.

F. The October 31, 2003 Conference Call
       On October 31, 2003, the District Court sua sponte
convened a conference call among plaintiffs’ class counsel,
counsel for RFC, CBNV, GNBT, and the Court (but not
including Appellants’ counsel) to address the issue of whether
the District Court had subject matter jurisdiction over the
settlement proceedings.

                               17
       The Kessler action had been removed to federal court on
the ground that Sections 85 and 86 of the NBA and Section 521
of the DIDA completely preempted Pennsylvania state law usury
claims. See Beneficial Nat’l Bank v. Anderson, 

(2003). Under settled precedent, where there is complete
preemption of a state law claim the result is “to convert
complaints purportedly based on the preempted state law into
complaints stating federal claims from their inception.” Krispin
v. May Dep’t Stores Co., 

, 922 (8th Cir. 2000).

        The District Court informed the parties to the phone
conversation that he had examined the original complaint in the
Kessler action and concluded that plaintiffs had not asserted any
state law usury claims. Rather, the only claims asserted were
state law charges of “bogus” loan origination and title services
fees, which under the Court’s reasoning do not constitute interest
and therefore are not preempted by federal statute. See, e.g.,
Hancock v. Bank of Am., 

, 610 (W.D. Ky.
2003) (noting that preemptive force of NBA §§ 85 and 86 does
not exist with respect to claims based on unlawful assessment of
non-interest service fee). In the phone conference the District
Court stated:

       I have serious reservations as to whether or not I have subject
       matter jurisdiction over that claim, for the simple reason is this.
       My understanding of that bank act is that it regulates the
       amount of interest that a bank can charge for a mortgage loan.
       However, the claims here have nothing to do with interest.
       They are with these bogus filing fees. Those claims are not
       interest. And the cases I have reviewed said that the National
       Banking Act does not preempt those types of claims.

App. at 127.

        Counsel for RFC responded that the “underlying claims
in the State court were attacking the fees and interests and,
therefore, [they] would give rise to subject matter jurisdiction
under the complete preemption doctrine.” App 127. When the
Court rejected this argument, counsel then suggested that
perhaps the Court had jurisdiction because the Kessler action

                                18
had been consolidated with several other actions which explicitly
asserted federal claims. The Court responded that “the Court of
Appeals from [sic] the Third Circuit has said pretty clearly that
simply consolidating claims where there’s proper federal
jurisdiction with one that there is not does not get us there.” App.
128; see, e.g., Brown v. Francis, 

, 866 (3d Cir.
1996).

        Faced with this perceived jurisdictional hurdle, the
District Court then suggested to the parties that, as he saw it, the
jurisdictional problem in the Kessler action could be remedied if
plaintiffs’ counsel filed an amended complaint under Fed. R.
Civ. P. 15(c)(2), which “[could] be deemed related back to [the]
original filing.” App. at 128. In other words, the District Court
suggested to the settling parties that plaintiffs file an amended
complaint explicitly asserting a federal claim.

      On November 10, 2003, just four days prior to the date
scheduled for the fairness hearing, plaintiffs’ class counsel
heeded the District Court’s advice and filed a Consolidated
Amended Class Action Complaint asserting violations of
RESPA at Counts I and II, and violations of RICO at Count III.

G. Appellants’ Motion to Intervene
        Meanwhile, on October 1, 2003, certain Missouri and
Illinois objectors represented by Appellant Walters had moved to
intervene as a matter of right under Fed. R. Civ. P. 24(a)(2) and
permissively under Fed. R. Civ. P. 24(b) for the purpose of
seeking a six-month stay of the fairness hearing in order to
conduct discovery into the adequacy and fairness of the
underlying settlement. Appellant Walters also filed a Complaint
in Intervention against CBNV, GNBT, and RFC asserting claims
under HOEPA and TILA on behalf of the nationwide class,
claims under MSMLA for the subclass of Missouri borrowers,
and claims under the Illinois Interest Act for the subclass of
Illinois borrowers.

       The settling parties filed an opposition to the intervention
on October 17, 2003. On October 21, 2003, the District Court
denied the motion to intervene under Fed. R. Civ. P. 24(a) and

                                 19
24(b) “without prejudice to its renewal following the submission
of evidence from objectors at the Fairness Hearing.” JA at 146-
47. At the November 14, 2003 fairness hearing, the proposed
intervenors orally renewed their motion to intervene and on
December 3, 2003 they renewed that motion by filing a written
motion to intervene. The District Court denied the renewed
motion on the same day without explanation.5

H. Appellants’ Request for Discovery
        In early November 2003, Appellant Walters served
several deposition requests directed to some of the named
plaintiffs and class counsel and subpoenaed the same parties to
appear at the November 14, 2003 fairness hearing in an effort to
establish the inadequacy of the settlement. On November 5 and
then on November 10, 2003, the settling parties moved to quash
the deposition requests and witness subpoenas, and requested
that the District Court order that no other subpoenas be allowed
nor discovery taken. On November 10, 2003 (the day the second
motion was filed), the District Court granted these motions in an
Order which, with the exception of a redacted portion regarding
attorney sanctions, was verbatim the Order proposed by the
settling parties. Specifically, the November 10 Order provided
that “[t]he Missouri and Illinois Objectors, their attorneys, and
any person acting on their behalf [could] not issue any further
discovery requests or subpoenas” without prior approval of the



       5
        The appeal by the proposed intervenors from the District
Court’s October 21 Order, docketed at No. 03-4504 which remains
pending, is dismissed because the Order was not a final
adjudication of the issues involving intervention and was therefore
not appealable. See Carlough v. Amchem Prods., Inc., 

,
712-14 (3d Cir. 1993).

       The renewed motion to intervene was filed after the appeal
was taken from the Final Order in this matter. We now have
jurisdiction to address the issue of whether the District Court’s
denial of intervention was proper. Stringfellow v. Concerned
Neighbors in Action, 

, 380 (1987).


                                20
Court; that Appellants could not present testimony of any
witness at the final fairness hearing without prior approval of the
Court; and that all prior subpoenas purporting to require a
witness or party to attend and testify at the final fairness hearing
were thereby void. JA 150-51.

I. The Fairness Hearing
        On October 1, 2003, the original deadline for opt-outs,
several Appellants filed Notices of Objections to the Settlement
Agreement claiming that the conditionally certified class failed
to meet the requirements of Fed. R. Civ. P. 23 and that the
settlement was neither fair nor reasonable. On November 14,
Appellant Walters filed a supplement to and amendment of its
objections to the settlement agreement, arguing, inter alia, that
the average RESPA claim being released was worth $14,042.95
and that the average HOEPA claim being released was worth
$20,108.76. On the same day, it submitted an “Offer of Proof,”
detailing the Missouri and Illinois objections to the proposed
settlement. In a declaration dated November 12, Attorney Nix
claimed that the settlement was releasing “over a BILLION
DOLLARS of strict liability Truth-in-Lending damages owed to
44,000 Class members, who are all victims of predatory lending
subject to the federal Home Ownership and Equity Protection
Act (“HOEPA”) (15 U.S.C. §1639, et seq.).” JA at 1909.
Attached to the Nix declaration was a spreadsheet detailing his
estimated TILA damages calculations for the class.

       The District Court held a fairness hearing on November
14, 2003, and heard oral arguments from both class counsel and
objectors. Immediately prior to the fairness hearing, there was a
discussion in the District Court’s chambers between class
counsel and the Court. Appellants’ counsel were not invited.
The following colloquy at that chambers meeting is in the
record:

       Carlson [counsel for settling class]: We are in the process
                    of preparing proposed findings of fact and
                    conclusions of law which we would submit
                    to Your Honor with the Court’s approval.



                                 21
Court:     Yes.

Carlson:   That’s the primary —

Court:     I have to write an opinion anyway —

Carlson:   Right.

Court:     —on this. But you want to submit
           some findings of fact that I would
           adopt basically?

Carlson:   That would be our preference, Your
           Honor.

Court:     Have you prepared a final order?

Carlson:   We included a final order in our
           motion for preliminary approval.

Court:     Okay. Are you satisfied it will meet
           everything we need even after today?

Carlson:   With the addition of the findings and
           conclusions that we contemplate, we
           believe that it’s perfectly adequate.

Court:     How long do you need to have these
           conclusions and findings submitted?

***

Court:     We will go through the hearing, and
           you have a week to ten days to get
           the rest of this stuff in.

Carlson:   I think we can have it in by next
           Friday, Your Honor.

Court:     Okay. Then I will, assuming they

                     22
                     are fine, I will go ahead and adopt
                     them and put my reasons for
                     approving the settlement in a written
                     memorandum.

JA 1973-74, 1976.

        The District Court did indeed approve the proposed
settlement in a Final Order dated December 4, 2003. Filed with
the Order was a Memorandum prepared by the District Court
and Findings of Fact and Conclusions of Law prepared by the
settling parties. Although the Findings of Fact and Conclusions
of Law were not signed by the District Court, the Court’s
memorandum stated in a footnote that “[u]pon independent
review of the record in this case, the court finds that the
proposed findings and conclusions are fully supported by the
record adopted by the court and incorporated into this
memorandum by reference as if fully set forth.” JA at 176.

J. The FDIC as Receiver for GNBT
       On March 12, 2004, after the events set forth above, the
Comptroller of the Currency declared GNBT to be unsafe and
unsound, and appointed the Federal Deposit Insurance
Corporation (“FDIC”) as receiver. The FDIC, on March 29,
2004, asked to be substituted for GNBT as the true party in
interest. This court gave the FDIC leave to intervene in this
appeal and granted the FDIC’s request for a ninety day stay from
the date of its appointment as receiver. See 12 U.S.C. §
1821(d)(12)(A)(ii).6



       6
         Appellants contend that FDIC should not be substituted for
GNBT as the true party in interest because GNBT was never a
named defendant in the Kessler action, No 03-0425. They are
correct that the District Court’s July 17, 2003 consolidation of the
five other class actions, where GNBT was a named defendant, into
the Kessler action does not make GNBT a party to the consolidated
action. See Cella v. Togum Constructeur Ensemleier En Industrie
Alimientaire, 

, 912 (3d Cir. 1999) (noting that case
consolidation “does not merge the suits into a single cause, or

                                23
                            II.
                       JURISDICTION

       We must consider at the outset Appellants’ argument that
the District Court lacked subject matter jurisdiction over the
original Kessler action, and that as a result we must vacate the
settlement and direct remand to the Pennsylvania state court.

       As the District Court recognized, there was no diversity in
the original Kessler action and no federal question was pled on
the face of the complaint. It is well settled that “[o]nly state-
court actions that originally could have been filed in federal
court may be removed to federal court by the defendant.”
Caterpillar Inc. v. Williams, 

, 392 (1987). Under
the well-pleaded complaint rule, there can be no removal on the
basis of a federal question unless the federal law under which the
claim arises is a direct and essential element of the plaintiff’s
case. See Franchise Tax Bd. of Cal. v. Constr. Laborers
Vacation Trust for S. Cal., 

, 10-12 (1983); Louisville
& Nashville R.R. Co. v. Mottley, 

(1908).
However, the complete preemption doctrine is an “independent
corollary” to the well-pleaded complaint rule. Caterpillar 

. In Caterpillar, the Supreme Court stated:

       On occasion, the Court has concluded that the pre-
       emptive force of a statute is so extraordinary that it
       converts an ordinary state common-law complaint into
       one stating a federal claim for purposes of the well-
       pleaded complaint rule. . . . Once an area of state law



change the rights of the parties, or make those who are parties in
one suit parties in another”) (emphasis added) (internal citations
and quotations omitted). However, on November 10, 2003,
plaintiffs’ class counsel filed an amended consolidated complaint
listing GNBT as a defendant. Thus, pursuant to 16 U.S.C. §
1821(d)(2), the FDIC succeeded to all “rights, titles, powers, and
privileges of [GNBT,] the insured depository institution,” and we
grant the FDIC’s motion to be substituted for GNBT as the true
party in interest.

                                  24
       has been completely pre-empted, any claim purportedly
       based on that pre-empted state law is considered, from
       its inception, a federal claim, and therefore arises under
       federal law.

and citations omitted); see also In re U.S.
Healthcare, Inc., 

, 161 (3d Cir. 1999); Schmeling v.
NORDAM, 

, 1342 (10th Cir. 1996) (stating that
complete preemption is “not as a crude measure of the breadth of
the preemption (in the ordinary sense) of a state law by a federal
law, but rather as a description of the specific situation in which
a federal law not only preempts a state law to some degree but
also substitutes a federal cause of action for the state cause of
action, thereby manifesting Congress’s intent to permit
removal”).

        RFC removed the Kessler action on the ground that
plaintiffs’ charges of “blatantly fraudulent” origination and title
services fees,7 are completely preempted by §§ 85 and 86 of the



       7
           The Kessler complaint charged, in essence:

Count I - Breach of Contract: the fraudulent origination fees
resulted in a contractual breach of the loan agreement

Count II - Breach of Contract: the fraudulent fees for title services
resulted in a contractual breach of the loan agreements

Count III - Contract Void: that the “subterfuge was to circumvent
the Pennsylvania Secondary Mortgage Loan Act (and other
analogous state laws),” making the agreements void against public
policy. Plaintiffs do not allege a violation of the Pennsylvania
Secondary Mortgage Loan Act itself

Count IV - Conversion- that the payment of the above mentioned
fees “deprived Plaintiffs and the Class of a right in property”
resulting in a common law conversion claim

Count V - Unjust Enrichment - that RFC, the purchaser of the

                                 25
NBA and by § 521 of the DIDA.

       In Beneficial Nat’l Bank v. Anderson, 

(2003),
the Supreme Court definitively held that §§ 85 8 and 86 9 of the


loans, was unjustly enriched by knowingly accepting and retaining
the monetary benefits of the unlawful conduct

Count VI - Money Had and Received - that the fraudulent conduct
prohibited RFC in equity and good conscience from keeping these
ill-gotten gains of the loans

Count VII - Fraud - that the scheme to extract unlawful settlement
fees was predicated on false representations upon which the
plaintiffs and class members presumptively relied

Count VIII - Pennsylvania’s Unfair Trade Practices and Consumer
Protection Law - that the conduct violated state consumer
protection statute

Count IX - Conspiracy - the conduct constituted a common law
conspiracy.

App. at 622-33.
       8
           Section 85 provides:

               Rate of interest on loans, discounts and purchase
               Any association may take, receive, reserve, and
       charge on any loan or discount made, or upon any notes,
       bills of exchange, or other evidences of debt, interest at the
       rate allowed by the laws of the State, Territory, or District
       where the bank is located, or at a rate of 1 per centum in
       excess of the discount rate on ninety-day commercial paper
       in effect at the Federal reserve bank in the Federal reserve
       district where the bank is located, whichever may be the
       greater, and no more, except that where by the laws of any
       State a different rate is limited for banks organized under
       state laws, the rate so limited shall be allowed for
       associations organized or existing in any such State under

                                  26
      this chapter. When no rate is fixed by the laws of the State,
      or Territory, or District, the bank may take, receive, reserve,
      or charge a rate not exceeding 7 per centum, or 1 per
      centum in excess of the discount rate on ninety-day
      commercial paper in effect at the Federal reserve bank in
      the Federal reserve district where the bank is located,
      whichever may be the greater, and such interest may be
      taken in advance, reckoning the days for which the note,
      bill, or other evidence of debt has to run. The maximum
      amount of interest or discount to be charged at a branch of
      an association located outside of the States of the United
      States and the District of Columbia shall be at the rate
      allowed by the laws of the country, territory, dependency,
      province, dominion, insular possession, or other political
      subdivision where the branch is located. And the purchase,
      discount, or sale of a bona fide bill of exchange, payable at
      another place than the place of such purchase, discount, or
      sale, at not more than the current rate of exchange for sight
      drafts in addition to the interest, shall not be considered as
      taking or receiving a greater rate of interest.

12 U.S.C. § 85.
      9
          Section 86 provides:

      Usurious interest; penalty for taking; limitations
              The taking, receiving, reserving, or charging a rate of
      interest greater than is allowed by section 85 of this title,
      when knowingly done, shall be deemed a forfeiture of the
      entire interest which the note, bill, or other evidence of debt
      carries with it, or which has been agreed to be paid thereon.
      In the case the greater rate of interest has been paid, the
      person by whom it has been paid, or his legal
      representatives, may recover back, in an action in the nature
      of action of debt, twice the amount of the interest thus paid
      from the association taking or receiving the same: Provided,
      That such action is commenced within two years from the
      time the usurious transaction occurred.


                                 27
NBA completely preempt state law usury claims against national
banks. The Court stated:

      Because §§ 85 and 86 provide the exclusive cause of action for
      [usury] . . . claims, there is, in short, no such thing as a state-
      law claim of usury against a national bank. Even though the
      complaint makes no mention of federal law, it unquestionably
      and unambiguously claims that petitioners violate usury laws.
      This cause of action against national banks only arises under
      federal law and could, therefore, be removed under § 

. In other words, a claim of usury against a
national bank such as GNBT purporting to be grounded in state
law is in reality a federal claim.

       Likewise, § 521 of DIDA 10 completely preempts any state
law attempting to limit the amount of interest and fees a
federally insured-state chartered bank can charge. See


12 U.S.C. § 86.
      10
           Section 521 provides:

      (a) Interest rates
      In order to prevent discrimination against State-chartered
      insured depository institutions, including insured savings
      banks, . . . with respect to interests rates, . . . such State
      bank[s] . . . may, notwithstanding any State constitution or
      statute which is hereby preempted for the purposes of this
      section, take, receive, reserve, and charge on any loan or
      discount made, or upon any note, bill of exchange, or other
      evidence of debt, interest at a rate of not more than 1 per
      centum in excess of the discount rate on ninety-day
      commercial paper in effect at the Federal Reserve bank in
      the Federal Reserve district where such State bank . . . is
      located or at the rate allowed by the laws of the State,
      territory, or district where the bank is located whichever
      may be greater.

12 U.S.C. § 1831d(a) (emphasis added).

                                   28
Greenwood Trust Co. v. Mass., 

, 826-28 (1st Cir.
1992). Not only does § 521 contains an express preemption
clause, “notwithstanding any State constitution or statute which
is hereby preempted for the purposes of this section,” 12 U.S.C.
§ 1831d(a), but the statute also incorporates verbatim the
language of § 85 of the NBA. When Congress borrows
language from one statute and incorporates it into a second
statute, the language of the two acts ordinarily should be
interpreted the same way. See Morales v. Trans World Airlines,
Inc., 

, 383-84 (1992); Ingersoll-Rand Co. v.
McClendon, 

, 144-45 (1990); Oscar Mayer & Co.
v. Evans, 

, 756 (1979).

        In light of this precedent, we must examine the Kessler
complaint to determine if it alleged state law claims of unlawful
interest by a nationally or state chartered bank. We can set aside
the issue raised by the District Court during the October 31,
2003 conference call (whether the fraudulent origination and
title service fees alleged by plaintiffs constitute “interest” under
the NBA or the DIDA) and focus instead on two more
substantial, and ultimately determinative, issues. First, the
Kessler complaint asserted no claims against a national or state
chartered federally insured bank. Rather, only RFC (and not
CBNV or GNBT) was named as a defendant in the original
action. See, e.g., Colorado ex rel. Salzar v. Ace Cash Express,
Inc., 

, 1285 (D. Colo. 2002) (“The
Complaint strictly is about a non-bank’s violation of state law. It
alleges no claims against a national bank under the NBA.”).
Second, the complaint asserted no usury claims against any party
under Pennsylvania state law.

       Sections 85 and 86 of the NBA and Section 521 of the
DIDA apply only to national and state chartered banks, not to
non-bank purchasers of second mortgage loans such as RFC.
See, e.g., Weiner v. Bank of King of Prussia, 

,
687 (E. D. Pa. 1973) (stating that NBA “regulates national banks
and only national banks, which can be identified by the word
‘national’ in their name”). Several courts have explored the
issue of removal in cases involving complaints very similar to
that found in the present case and found removal improper.

                                29
        In Flowers v. EZPawn Oklahoma, Inc., 

(N.D. Okla. 2004), plaintiffs brought Oklahoma state-law
claims of usury and fraud against two defendants, alleging that
those defendants had “[entered] into a ‘sham’ relationship with
County Bank of Rehoboth Beach, Delaware . . . for the purpose
of claiming federal preemption and evading state usury, fraud
and consumer protection laws.” 

County Bank itself
was not named as a defendant in the state court action. The
district court denied removal, stating that “[n]o claims have been
brought against County Bank in this lawsuit. The state action
claims are asserted against EZPawn and EZCorp, neither of
which is a state-chartered, federally insured (or national) bank.”

       Likewise, in Colorado v. Ace Cash Express, Inc., 188 F.
Supp. 2d 1282 (D. Colo. 2002), plaintiffs asserted state law
claims against a non-bank check cashing business, which offered
ancillary loans made by a national bank. The national bank was
not named as a defendant in the complaint. The district court
denied defendants’ attempt at removal, stating that “in this case
Defendant and the national bank are separate entities and their
relationship does not give rise to complete preemption under the
NBA. . . . The Complaint strictly is about a non-bank’s
violations of state law. It alleges no claims against a national
bank under the NBA.” 

       The facts in the Kessler action are distinguishable from
Krispin v. May Dep’t Stores Co., 

(8th Cir. 2000),
where the holders of a department store’s credit cards brought a
class action alleging violation of Missouri state usury laws.
Although there were no claims against a national or state-
chartered bank, the loans were issued by a national bank, which
was a wholly owned subsidiary of the department store.
Therefore, the Eighth Circuit held that removal was proper,
noting that although the credit agreement existed between
customers and the department store, it was the national bank that
“process[ed] and servic[ed] customer accounts, and set[] terms
[such] as interest and late fees.” 

       Krispin is inapplicable to Kessler where, despite the

                                30
provision in the loan agreement that loans were made through a
national or state-chartered bank (CBNV or GNBT), the loans
were, in fact, made and serviced by Shumway, a non-depository
institution. These loans were then bought by RFC (the named
defendant), also a non-bank, in the secondary market. Because
RFC, CBNV, and GNBT are entirely separate entities, plaintiffs’
state law claims against RFC could not be preempted by the
NBA or by the DIDA.

       Moreover, the original Kessler complaint failed to plead
any state law usury claims, alleging only a series of other state
law claims that are not preempted by the NBA, DIDA, or any
other federal law. See Appendix of Exhibits, Ex. 1 at 33
(Kessler complaint) (“The claim that Plaintiff and the Class are
asserting in this Count [Count III] is predicated upon state
common law and this claim is expressly not seeking to assert a
private right of action under the Pennsylvania Secondary
Mortgage Loan Act or any other statutory law.”). It follows that
removal was improper.

       This does not end our inquiry. The Supreme Court has
held that

       where after removal a case is tried on the merits without
       objection and the federal court enters judgment, the issue in
       subsequent proceedings on appeal is not whether the case was
       properly removed, but whether the federal district court would
       have had original jurisdiction of the case had it been filed in
       that court.

Grubbs v. Gen. Elec. Credit Corp., 

, 702 (1972);
see also Knop v. McMahan, 

, 1138 (3d Cir. 1989).

       The same result may obtain where a case has been
improperly removed but the original complaint is subsequently
amended to state a well-pleaded federal question. See Pegram v.
Herdrich, 

, 215 n.2 (2000) (stating that plaintiff’s
amended complaint “alleged ERISA violations, over which the
federal courts have jurisdiction, and we therefore have
jurisdiction regardless of the correctness of the removal”);

                               31
Cotton v. Mass. Mut. Life Ins. Co., 

, 1280 (11th
Cir. 2005) (same); Barbara v. N.Y. Stock Exch., Inc., 

, 56 (2d Cir. 1996) (“[I]f a district court erroneously exercises
removal jurisdiction . . ., and the plaintiff voluntarily amends the
complaint to allege federal claims, we will not remand for want
of jurisdiction.”); Kidd v. Southwest Airlines, Co., 

,
547 (5th Cir. 1990) (same); Bernstein v. Lind-Waldock & Co.,

, 185 (7th Cir. 1984) (holding that although
plaintiff’s original complaint was not removable, his decision to
“throw in the towel” and amend his complaint to state “an
unmistakable federal cause of action” conferred original
jurisdiction on the federal court”).11



       11
          We recognize that the rule employed in Pegram and the
other above cited cases is only analogous to our present issue.
Indeed, in each of the cited cases, the parties were adverse, and
plaintiffs, at some point, actively challenged removal. As reasoned
by Judge Posner in Bernstein:

       If [Bernstein] was convinced that the original action
       was not removable[,] he could have stuck by his
       guns and we would have vindicated his position on
       appeal. But once he decided to take advantage of his
       involuntary presence in federal court to add a federal
       claim to his complaint[,] he was bound to remain
       there. Otherwise[,] he would be in a position where
       if he won his case on the merits in federal court[,] he
       could claim to have raised the federal question in his
       amended complaint voluntarily, and if he lost he
       could claim to have raised it involuntarily and to be
       entitled to start over in state 

. Arguably, there is tension between the rule of
Grubbs and Pegram, and the general doctrine of Newman-Green,
Inc. v. Alfonzo-Larrain, 

(1989), and Grupo Dataflux
v. Atlas Global Group, 

(2004), that “the jurisdiction
of the Court depends upon the state of things at the time of the
action brought,” 

We believe that Grubbs and Pegram
are controlling here.

                                 32
       The amended complaint submitted by the settling parties
on November 10, 2004, not only added CBNV and GNBT as
defendants, but also explicitly asserted federal claims,
specifically, violations of RESPA at Counts I and II, and RICO
at Count III. We are persuaded that under the Supreme Court’s
holdings in Grubbs and Pegram, the District Court properly
acquired subject matter jurisdiction by virtue of the amended
complaint.12

                              II.
                           ANALYSIS

      Appellants challenge nearly every aspect of the
proceedings in the District Court. We examine each challenge in
turn.
                               A.
                       Class Certification




       12
          We note that the mere act of consolidating the five related
cases (Davis, Sabo, Ulrich, Mathis, and Picard) into the Kessler
action on July 17, 2003, could not, by itself, cure the original
jurisdictional defect in Kessler. As stated by the Supreme Court,
“consolidation is permitted as a matter of convenience and
economy in administration, but does not merge the suits into a
single cause, or change the rights of the parties, or make those who
are parties in one suit parties in another.” Johnson v. Manhattan
Ry. Co., 

, 496-97 (1933) (interpreting the predecessor
rule to Rule 42(a); see also Newfound Management Corp. v.
Lewis, 

, 116 (3d Cir. 1997) (stating that “Johnson
remains the ‘authoritative’ statement on the law of consolidation”).
Thus, we held in Cella v. Togum Constructeur Ensemleier En
Industrie Alimentaire, 

, 912 (3d Cir. 1999), that
“while a consolidation order may result in a single unit of
litigation, such an order does not create a single case for
jurisdiction purposes.” See also Bradgate Assoc., Inc. v. Fellows,
Read & Assoc., Inc., 

, 750 (3d Cir. 1993). In other
words, each consolidated case must support an independent basis
for subject matter jurisdiction.

                                 33
        An appellate court reviews the initial certification of the
class and the decision whether to approve the proposed
settlement for abuse of discretion. In re Prudential Ins. Co. of
Am. Sales Practices Litig., 

, 299 (3d Cir. 1998); In
re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab.
Litig., 

, 782 (3d Cir. 1995) (“G.M. Trucks”); Girsh
v. Jepson, 

, 156 (3d Cir. 1975).

       We must decide whether a district court’s failure to
follow the procedures required before approving a settlement-
only class action was an abuse of discretion.

        As we stated above, on July 17, 2003, the District Court,
acting on the settling parties’ motion, consolidated five separate
class actions into the Kessler action, conditionally certified the
class for “settlement purposes” only, and preliminarily approved
the settling parties’ proposed settlement. JA at 132. The Order
explicitly left the issue of whether “the Class meets the
requirements for final certification under Fed. R. Civ. P. 23(a),
(b)(3), (c)(2) and the United States Constitution” until the final
fairness hearing. JA at 133.

        The settlement class action device offers defendants the
opportunity to engage in settlement negotiations without
conceding any of the arguments they may have against class
certification. See G.M. 

. Often, as in this
case, the parties never intend to litigate the claims; rather, from
the time the plaintiffs file the complaint, the goal on both sides is
to reach a nationwide settlement. See, e.g., Amchem Prods. Inc.
v. Windsor, 

, 601-02 (1997) (discussing case where
complaint, answer, proposed settlement agreement, and joint
motion for conditional certification of settlement class were all
filed on same day). “By specifying certification for settlement
purposes only . . . the court preserves the defendant’s ability to
contest certification should the settlement fall apart.” G.M.

.

        As stated in Amchem, “all Federal Circuits recognize the
utility of Rule 23(b)(3) settlement classes” as a means to
facilitate the settlement of complex nationwide class actions.

                                 

(stating also that “[a]mong current applications
of Rule 23(b)(3), the ‘settlement only’ class has become a stock
device”). However, drawing, inter alia, on Judge Becker’s
comprehensive opinions in G.M. Trucks and Georgine v.
Amchem Prods., Inc., 

(3d Cir. 1996), the Supreme
Court noted the special problems encountered with settlement
classes. See 

; see also,

(stating that “collusion, inadequate
prosecution, and attorney inexperience are the paramount
concerns in precertification settlements”). Nonetheless, the
Amchem Court held that certification of classes for settlement
purposes only was consistent with Fed. R. Civ. P. 23, provided
that the district court engages in a Rule 23(a) and (b) inquiry:

       Confronted with a request for settlement-only class
       certification, a district court need not inquire
       whether the case, if tried, would present intractable
       management problems, see Fed. Rule Civ. Proc.
       23(b)(3)(D), for the -- proposal is that there be no
       trial. But other specifications of the Rule those
       designed to protect absentees by blocking
       unwarranted or overbroad class definitions --
       demand undiluted, even heightened, attention in
       the settlement context. Such 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 

.

       The Court made clear that the ultimate inquiry into the
fairness of the settlement under Fed. R. Civ. P. 23(e) does not
relieve the court of its responsibility to evaluate Rule 23(a) and
(b) considerations. “Federal courts . . . lack authority to
substitute for Rule 23's certification criteria a standard never
adopted--that if a settlement is ‘fair,’ then certification is

. Indeed,

              [t]he safeguards provided by the Rule 23(a)

                                35
       and (b) class-qualifying criteria, we emphasize, are
       not impractical impediments -- checks shorn of
       utility -- in the settlement-class context. First, the
       standards set for the protection of absent class
       members serve to inhibit appraisals of the
       chancellor’s foot kind -- class certifications
       dependent upon the court’s gestalt judgment or
       overarching impression of the settlement’s
       fairness.

              Second, if a fairness inquiry under Rule
       23(e) controlled certification, eclipsing Rule 23(a)
       and (b), and permitting class designation despite
       the impossibility of litigation, both class counsel
       and court would be disarmed. Class counsel
       confined to settlement negotiations could not use
       the threat of litigation to press for a better offer. . .
       .

Thus, regardless of whether a district court certifies a
class for trial or for settlement, it must first find that the class
satisfies all the requirements of Rule 23. Id.; G.M. 

(“In sum, ‘a class is a class is a class,’ and a
settlement class, if it is to qualify under Rule 23, must meet all of
its requirements.”).

       In making this analysis, the district court may take the
terms of the proposed settlement into consideration. The central
inquiry, however, is the adequacy of representation. In re

. Thus, “[s]ubdivisions (a) and (b)
[of Rule 23] focus court attention on whether a proposed class
has sufficient unity so that absent members can fairly be bound
by decisions of class representatives. That dominant concern
persists when settlement, rather than trial, is proposed.”

.

1. Certification Process Followed by the District Court
       Our review of the record makes plain that the District
Court did not engage in the Rule 23(a) and (b) inquiry required
by Amchem. The July 17, 2003 Order, which conditionally

                                  36
certified the class for settlement purposes, explicitly left the Rule
23 analysis for the November 14, 2003 fairness hearing. Review
of the transcript of the fairness hearing reveals no instance where
the District Court discussed the issue of certification. Finally,
the District Court’s December 4, 2003 Final Order Approving
Class Action Settlement states only that “[t]he Class this court
preliminarily certified is finally certified for settlement purposes
under Fed. R. Civ. P. 23(a), (b)(3), and (c)(2) because the court
finds that the Class fully satisfies all the applicable requirements
of Fed. R. Civ. P. 23 and due process.” JA 159. The Court’s
ipse dixit statement was not accompanied by any discernable
analysis.

        Appellees direct us to the Proposed Findings of Fact and
Conclusions of Law submitted by the settling parties, which do
provide a detailed Rule 23 analysis. Although the District Court
did not sign them, it adopted them wholesale by way of a
footnote in its December 4, 2003 Memorandum accompanying
the Final Order approving settlement. In this footnote, the Court
stated that

       Subsequent to the hearing, class counsel submitted proposed
       findings of fact and conclusions [of law]. . . . Upon
       independent review of the record in this case, the court finds
       that the proposed findings and conclusions are fully supported
       by the record adopted by the court and incorporated into this
       memorandum by reference as if fully set forth.

JA at 176.

        We are bound by the Supreme Court’s decision in
Anderson v. Bessemer City, 

, 572 (1985), holding
that a district court’s verbatim adoption of a party’s proposed
findings of fact and conclusions of law, although highly
disapproved of, is not per se grounds for reversal. Lansford-
Coaldale Joint Water Auth. v. Tonolli Corp., 

, 1215-
16 (3d Cir. 1993). However, there must be evidence in the
record demonstrating that the district court exercised
“independent judgment” in adopting a party’s proposed findings.
Bright v. Westmoreland County, 

, 731-32 (3d Cir.

                                 37
2004); see also Pa. Envtl. Def. Found. v. Canon-McMillan Sch.
Dist., 

, 233 (3d Cir. 1998) (“The central issue is
whether the district court has made an independent judgment.”).

        In the present case, the only evidence we find in the
record that the District Court exercised independent judgment is
the fact that it said it did. JA at 176 (“Upon independent review
of the record in this case. . . .”). Indeed, when questioned at oral
argument, Appellees were unable to point to any additional
record evidence to support a finding of independent judgment.

        By contrast, there is substantial basis in the record to
question whether “independent judgment” was exercised. As
detailed above, see JA at 1973-74, during a closed door session
held before the November 14, 2003 fairness hearing, the District
Court asked the settling parties to submit the proposed findings
of fact and conclusions of law, which it “would adopt basically.”
Cf. 

(holding that district court’s
findings should receive no less deferential review when district
court announced its decision to parties first and then asked
prevailing party to prepare findings of fact, many of which it
ultimately adopted verbatim). At the actual fairness hearing,
class certification itself was never discussed.

        We also note that nearly every order issued by the District
Court in this case was a verbatim copy of a proposed order
offered by the settling parties. See, e.g., July 17, 2003 Order
conditionally certifying class for settlement purposes; October
14, 2003 Order invalidating class opt-outs and restricting
communications between Appellants and class; November 10,
2003 Order quashing Appellants request for discovery;
December 4, 2003 Proposed Findings of Fact and Conclusions
of Law. We are therefore concerned that the District Court may
have abdicated its role as a neutral and independent adjudicator
or, at the very least, sacrificed independent judgment for
administrative efficiency.

      We are confident that the district judge sincerely
concluded that he had exercised the required “independent
judgment.” Statements of subjective conclusions, however, are

                                 38
insufficient when adopting verbatim suggested findings of fact
and conclusions of law to meet the strict requirements of Rule
23. What is required at a minimum is a statement of reasons,
expressed in objective form, how the court exercised
independent judgment in evaluating the submissions of counsel.

        In the context of meeting the requirements of Rule 23 (a)
and (b), we are not satisfied that the bare statement that the
“proposed findings and conclusions are fully supported in the
record” meets the minimum standard of accepting verbatim
adoption as contemplated in the teachings of 

. We believe that a court must set forth persuasive reasons,
stated with objectivity, why the submissions of counsel totally
reflect the independent judgment of the court. The act of
accepting as its own these critical suggestions is an important
judicial conclusion whose acceptability is merited only to the
extent that sound reason stated publicly supports the
acceptance.13

        Because we are not convinced that the District Court
exercised “independent judgment” in adopting the proposed
findings of the settling parties, we conclude that the settlement-
only class was never properly certified in accordance with
Amchem. “[W]ithout certification there is no class action, and
in a settlement entered without class certification the judgment
will not have res judicata effect on the claims of absent class
members.” G.M. 

(internal citation,
quotations, and alterations omitted). We will therefore vacate
the settlement Order and remand to the District Court.

2. The Appropriateness of Class Certification



       13
           Judge Aldisert notes that we find instruction in the words
of Justice Felix Frankfurter: “[F]ragile as reason is and limited as
law is as the expression of the institutionalized medium of reason,
that’s all we have standing between us and the tyranny of mere will
and the cruelty of unbridled, undisciplined feeling.” Remarks on
his retirement after 23 years on the Supreme Court, as quoted in
Time Magazine, Sept. 7, 1962 at 15.

                                 39
        Our conclusion that the settlement class was not properly
certified does not mean that the class could not be certified on
remand. Because we believe certification may indeed be
appropriate, we examine some of the relevant factors to be
considered on remand.

        We have stated that “Rule 23 is designed to assure that
courts will identify the common interests of class members and
evaluate the named plaintiffs’ and counsel’s ability to fairly and
adequately protect class interests.” G.M. 

.
To be certified, a class must satisfy the four requirements of
Rule 23(a): (1) numerosity; (2) commonality; (3) typicality; and
(4) adequacy of representation. Fed. R. Civ. P. 23(a). If the
Rule 23(a) requirements are met, the court must then find that
the class fits within one of the three categories of class actions
set forth in Fed. R. Civ. P. 23(b).14 In the present case, the
parties chose to pursue a class action under Rule 23(b)(3), the
customary vehicle for damage actions.15 Thus, the District Court


       14
           Rule 23(b)(1) authorizes certification in cases where
separate actions by or against individual class members would risk
establishing “incompatible standards of conduct for the party
opposing the class,” Rule 23(b)(1)(A), or would “as a practical
matter be dispositive of the interest” of nonparty class members “or
substantially impair or impede their ability to protect their
interests.” Rule 23(b)(1)(B). Rule 23(b)(2) authorizes class actions
seeking declaratory or injunctive relief, and is used, for example,
in civil rights cases alleging class-based discrimination.
       15
            Rule 23(b)(3) provides:

       (b) An action may be maintained as a class action if the
       prerequisites of subdivision (a) are satisfied, and in
       addition:
                                  ...
       (3) the court finds that the questions of law or fact
       common to the members of the class predominate over
       any questions affecting only individual members, and that
       a class action is superior to other available methods for
       the fair and efficient adjudication of the controversy. The

                                 40
must determine that common questions of law or fact
predominate and that the class action mechanism is the superior
method for adjudicating the case. “The requirements of
subsections (a) and (b) are designed to insure that a proposed
class has ‘sufficient unity so that absent class members can fairly
be bound by decisions of class representatives.’” In re

(quoting 

);
see also Hassine v. Jeffes, 

, 176 n.4 (3d Cir. 1988)
(“‘[C]ommonality, like ‘numerosity’ evaluates the sufficiency of
the class itself, and ‘typicality’ like ‘adequacy of representation’
evaluates the sufficiency of the named plaintiff. . . .”) (citation
omitted). A court must determine class certification
independently from its Rule 23(e) inquiry into the fairness of the
proposed settlement.16 

.

i. The Rule 23(a) Criteria
       There is no dispute that the conditionally certified class
meets the numerosity and commonality prongs of Rule 23(a).
See generally In re 

. The class
consists of approximately 44,000 members and “the named


       matters pertinent to the findings include: (A) the interest
       of members of the class in individually controlling the
       prosecution or defense of separate actions; (B) the extent
       and nature of any litigation concerning the controversy
       already commenced by or against members of the class;
       (C) the desirability or undesirability of concentrating the
       litigation of the claims in the particular forum; [and] (D)
       the difficulties likely to be encountered in the
       management of a class action.
       16
            Rule 23(e) provides:

       The court must approve any settlement, voluntary dismissal,
       or compromise of the claims, issues, or defenses of a
       certified class . . . [and] must direct notice in a reasonable
       manner to all class members who would be bound by a
       proposed settlement, voluntary dismissal, or compromise.

Fed. R. Civ. P. 23(e)(1)(A), (B).

                                   41
plaintiffs share at least one question of fact or law with the
grievances of the prospective class.” Baby Neal by Kanter v.
Casey, 

, 56 (3d Cir. 1994).

       We likewise find that the requirements of typicality are
met. “The concepts of commonality and typicality are broadly
defined and tend to merge.” Baby 

. Both
concepts seek to ensure that the interests of the absentees will be
adequately represented by the named plaintiffs. Gen. Tel. Co. of
the S.W. v. Falcon, 

, 157 n.13 (1982). However,
“neither of these requirements mandates that all putative class
members share identical claims.” Baby 

; see
also 

; Weiss v. York Hosp., 

, 809 (3d Cir. 1984). “[C]ases challenging the same
unlawful conduct which affects both the named plaintiffs and the
putative class usually satisfy the typicality requirement
irrespective of the varying fact patterns underlying the individual
claims.” Baby 

.

        The mere fact that some members of the class may have
additional state or federal law claims, not asserted by the named
plaintiffs, does not preclude a finding of typicality. Because the
claims of all class members here depend upon the existence of
the Shumway scheme, “their interests are sufficiently aligned
[such] that the class representatives can be expected to
adequately pursue the interests of the absentee class members.”
In re 

(citing 

); see also Baby 

(“Where an action
challenges a policy or practice, the named plaintiffs suffering
one specific injury from the practice can represent a class
suffering other injuries, so long as all the injuries are shown to
result from the practice.”).

       Having determined that the numerosity, typically, and
commonality prongs are met, we turn to the issue of the
adequacy of class representation. See generally 

. This requirement encompasses two distinct
inquiries designed to protect the interests of absentee class
members: “it considers whether the named plaintiffs’ interests
are sufficiently aligned with the absentees’, and it tests the

                                42
qualifications of the counsel to represent the class.” G. M.

.

        In considering the first inquiry, we must examine
Appellants’ allegations that many members of the class,
including some named plaintiffs, have colorable claims under,
inter alia, TILA and HOEPA 17 that were not asserted by class
counsel either in the complaint or during negotiations of
settlement.

       TILA is a federal consumer protection statute, intended to
promote the informed use of credit by requiring certain uniform
disclosures from creditors. The statute is implemented by
Regulation Z, 12 C.F.R. §§ 226.1 et seq., which was
promulgated by the Board of Governors of the Federal Reserve
System under the mandate of 15 U.S.C. § 1607. Among other
things, creditors who make loans secured by a borrower’s
principal dwelling are required to provide all borrowers with
“material disclosures,” including “the annual percentage rate, the
finance charge, the amount financed, the total payments, [and]
the payment schedule.” 12 C.F.R. § 226.23. If “material
disclosures” are not provided or inaccurately provided,18 the
creditor is strictly liable and a borrower has the right to rescind
the loan up to “3 years after consummation, upon transfer of all
of the consumer’s interest in the property, [or] upon sale of the
property, whichever occurs first.” Id.19 In addition to the right


       17
         Appellants also allege that members of the class have
claims under various state law consumer protection statutes. For
purposes of our Rule 23(a) analysis, it is not necessary to delve into
the viability of such claims.
       18
         15 U.S.C. § 1606(c) provides a safe harbor for APR
overstatements of .125%.
       19
          Consumers also have the unqualified right to rescind a
credit transaction (in which a security interest is retained in their
principal dwelling) within three business days following the
consummation of the transaction or the delivery of the information
about the right to rescind and rescission forms required by TILA

                                 43
of rescission, an aggrieved borrower may, within one year of the
date of the violation, seek “actual damage[s] sustained . . . as a
result of the failure,” 20 and statutory damages, which cannot
exceed $500,000 or one percent of the creditor’s net worth
(whichever is less) in the case of a class action. 15 U.S.C. §§
1640(a)(1), (2)(B).21

       HOEPA, enacted as an amendment to TILA, creates a
special class of regulated loans that are made at higher interest
rates or with excessive costs and fees.22 These loans are not only



together with a statement containing the material disclosures
required by TILA, whichever is later.
        20
             The TILA provision governing actual damages reads, in
part:

        Except as otherwise provided in this section, any
        creditor who fails to comply with any requirement
        imposed under this part . . . with respect to any
        person is liable to such person in an amount equal to
        ...
        (1) any actual damage sustained by such person as a
        result of the failure; . . . .

15 U.S.C. § 1640(a)(1). Several courts have held that detrimental
reliance is an element of establishing actual damages under TILA.
See, e.g., Turner v. Beneficial Corp., 

, 1028 (11th
Cir. 2001) (en banc); Perrone v. Gen. Motors Acceptance Corp.,

, 436-40 (5th Cir. 2000). We have not had the
opportunity to examine this issue.
        21
         TILA also provides for attorney’s fees and costs. 15
U.S.C. § 1640(a)(3).
        22
         Specifically, HOEPA protections apply if a loan meets
one of two high-cost loan triggers: (1) the annual percentage rate
(“APR”) exceeds by eight percent the yield on Treasury securities
of comparable maturity for first-lien loans, or above ten percent for
subordinate-lien loans; or (2) the total of all the loan’s points and

                                  44
subject to the restriction on terms commonly used by predatory
lenders to manipulate the cost of the loans, but are also subject to
special disclosure requirements. See 15 U.S.C. § 1639. Within
three business days prior to the consummation of a loan, a
creditor is required to disclose to the borrower, inter alia, the
APR of the loan and the amount of regular monthly payments.
15 U.S.C. §§ 1639 (a)(2), (b)(1). Failure to materially comply
with such requirements entitles a borrower to “an amount equal
to the sum of all finance charges and fees paid by the consumer.
. . .” 

1640(a)(4). Voluntary assignees of a credit
obligation are liable for TILA or HOEPA violations by the
original creditor where the violation is apparent on the face of
the disclosure statement. 

1641(a).

        An affirmative action under HOEPA must be brought
within one year of the violation, 

1640(e), and an action
for rescission must be brought within three years, 12 C.F.R. §
226.23. However, these provisions are subject to equitable
tolling. See Ramadan v. Chase Manhattan Corp., 

,
504 (3d Cir. 1998); cf. Mullinax v. Radian Guar. Inc., 199 F.
Supp. 2d 311, 328 (M.D.N.C. 2002). No statute of limitations
applies to a borrower asserting a violation of TILA or HOEPA
as a defense (by recoupment or set-off) in a foreclosure action.

1640(e).

       Appellants contend that many class members have
colorable HOEPA and TILA claims because defendants
materially understated the APR in many of the class members’
TILA disclosures. More particularly, the Appellants note that
the calculation of APR must incorporate “finance charges,” as
defined in Regulation Z, 12 C.F.R. § 226.4. Although title fees
are ordinarily excluded from the definition of “finance charges,”
12 C.F.R. § 226.4(c)(7), and therefore not incorporated into the
APR, Appellants contend that the title fees in the present case
are bogus because they were directly passed to the Shumway



fees exceed eight percent of the loan total or $400 (adjusted for
inflation), whichever is greater. 15 U.S.C. §§ 1602(aa)(1), (3); 12
C.F.R. §§ 226.32(a)(1)(i), (ii).

                                45
Organization. They contend that failure to incorporate these title
fees into the APR calculation resulted in materially understated
APR disclosures. Appellants thus urge that defendants’ potential
TILA and HOEPA liability averages $20,108.76 per borrower
for the nationwide class, an amount far greater than the $250 to
$925 that each class member would receive pursuant to the
settlement.

       Although class counsel do not challenge the substance of
Appellants’ above arguments, they do assert that the decision not
to pursue TILA and HOEPA claims was reasonable because (1)
most members of the putative class had executed HOEPA
disclosure forms; (2) many class members’ claims have lapsed
due to HOEPA’s one-year statute of limitations on affirmative
claims; (3) TILA or HOEPA claims could not be certified as a
class action because prosecution would involve substantial
individual inquiries; and (4) establishing actual damages would
be difficult because several courts have held that detrimental
reliance is an element in a TILA claim for actual damages.

        The District Court, on analysis, may find that these ex
post rationales are not compelling. First, the TILA provisions
make plain that regardless of whether a signed HOEPA
acknowledgment is provided, strict liability is imposed on
lenders and on their assignees if the APR of a loan is materially
misstated in the TILA disclosure forms. 15 U.S.C. §§
1639(a)(2)(A), 1641(d). Second, although it may be true that the
one-year statute of limitations on affirmative TILA and HOEPA
claims has lapsed for an appreciable number of class members,
the relevant statutory period for claims of rescission is three
years, and no limitations period applies for defensive claims for
recoupment or setoff in a foreclosure action. Moreover,
Appellees themselves submit that approximately 14,000
members of the class have loans that have closed “within one
year of the date of filing of the relevant complaint,” see JA 1984.
Thus, it appears that one-third of the class may have affirmative
TILA and HOEPA claims that are not time barred.

      Third, class counsel provide no persuasive support for the
proposition that TILA and HOEPA claims cannot be asserted as

                                46
part of a class action, or at the very least incorporated into the
negotiations of a settlement. Indeed, 15 U.S.C. § 1640(a)(2)(B)
explicitly contemplates the possibility of a class action suit. 

calculation of individual damages is necessarily an
individual inquiry, the courts have consistently held that the
necessity of this inquiry does not preclude class action treatment
where class issues predominate. See, e.g., In re Visa Check /
MasterMoney Antitrust Litig., 

, 139 (2d Cir. 2001)
(“Common issues may predominate when liability can be
determined on a class-wide basis, even when there are some
individualized damage issues.”); Bertulli v. Indep. Ass’n of
Cont’l Pilots, 

, 298 (5th Cir. 2001) (affirming
district court’s determination that common issues predominated
because “[a]lthough calculating damages will require some
individualized determinations, it appears that virtually every
issue prior to damages is a common issue”). This is especially
true where “the fact of injury and damage break down in what
may be characterized as virtually a mechanical task, capable of
mathematical or formula calculation. . . .” Windham v. Am.
Brands, Inc., 

, 68 (4th Cir. 1977) (en banc) (internal
citations and quotations omitted). Whether an individual
borrower has a viable TILA or HOEPA claim may be
determinable by conducting simple arithmetic computations on
certain figures obtained from the face of each loan’s TILA
Disclosure Statement.

           Finally, class counsel’s argument that assessing actual
damages would be difficult in the class action context, because
several courts have held that detrimental reliance is an element
of establishing such damages under TILA, see, e.g., Turner v.
Beneficial Corp., 

, 1028 (11th Cir. 2001) (en
banc); Perrone v. Gen. Motors Acceptance Corp., 

,
436-40 (5th Cir. 2000), is not persuasive. As stated above, it is
undisputed that TILA subjects creditors to strict liability for
claims of rescission. See, e.g., Schnall v. Amboy Nat’l Bank,

, 217 (3d Cir. 2002) (“This Court has squarely held
that reliance is not an element of a cause of action [for reasons]
under TILA.”); In re Porter, 

, 1078 (3d Cir. 1992)
(“TILA achieves its remedial goals by a system of strict liability
. . . .”).

                                47
        Even if this court were to adopt the holdings of Turner
and Perrone in actual damages cases (an issue we need not
decide here), it does not necessarily follow that this “highly
individualized inquiry . . . likely would have precluded . . . class
certification” under Rule 23(b)(3). Appellees’ Br. at 31-32. The
existence of an individual inquiry does not preclude class action
treatment where all class members face the necessity of proving
the same fraudulent scheme. See, e.g., 

(stating that even though mass accident cases are likely to
present significant individual questions of liability and damages,
such cases “may, depending upon the circumstances, satisfy the
predominance requirement”). In re Sch. Asbestos Litig., 

, 1010 (3d Cir. 1986). This is even more true in a
settlement-only class action, where the court certifying the class
need not examine issues of manageability. Amchem , 520 U.S.
at 620.

       All of the above, of course, are issues to be considered by
the District Court in its independent analysis. Because we do not
have before us its analysis of the viability of the TILA and
HOEPA claims, we will not pretermit its decision. We merely
conclude that Appellants’ arguments merit more attention than
they were given by the District Court as reflected in the record.

        If the Court determines that the TILA and HOEPA claims
are viable, there may be serious questions whether the named
plaintiffs’ interests are sufficiently aligned with those of absent
class members as required by Rule 23(a). The age of the named
plaintiffs’ loans when the relevant complaints were filed ranged
from twenty-eight months (in the case of Mathis) to fifty-six
months (in the case of Davis).23 JA at 497. Because the one-year
statutory period for filing an affirmative TILA or HOEPA claim
has lapsed for all named plaintiffs, the named plaintiffs appear to
have no incentive to maximize such claims for the approximately
14,000 class members who may still retain this valuable cause of



       23
         The average age of the named parties’ loans at the time
the relevant complaint was filed was forty-nine and one-half
months. JA at 497.

                                 48
action. Furthermore, we also note that of the named plaintiffs,
only Mathis’ loan was made within the three-year period for
TILA rescission claims. Our concern that the value of potential
TILA and HOEPA rescission claims is not adequately
represented by the named plaintiffs is heightened by the fact that
the settlement only differentiates between class members who
have loans that are less than one-year old and class members
who have loans that are older than one year.24 See generally
G.M. 

(providing that intra-class conflict
can sometimes be discerned from “the very terms of the
settlement”).

       Although we recognize that “adequate representation of a
particular claim is determined by the alignment of interests of
class members, not proof of vigorous pursuit of the claim,” Wal-
Mart Stores, Inc. v. Visa U.S.A. Inc., 

, 113 (2d Cir.
2005), we are not convinced based on the present record that the
named plaintiffs adequately represent the interests of the entire
class. At the very least, consideration should have been given to
the feasibility of dividing the class into sub-classes so that a
court examining the proposed settlement could have judged the
fairness of the settlement as it applied to similarly situated class
members. See G.M. 

.

        Our concern with class counsel’s representation extends
to their negotiation of the settlement. “Courts examining
settlement classes have emphasized the special need to assure
that class counsel: (1) possessed adequate experience; (2)
vigorously prosecuted the action; and (3) acted at arm’s length
from the defendant.” G.M. 

. We find no
reason to doubt that class counsel are sufficiently experienced to
represent the class, but we are stymied in analyzing the second
and third prongs of the criteria. In G.M. Trucks, we stated that
these “points require attention in view of the lack of significant
discovery and the extremely expedited settlement of
questionable value accompanied by an enormous legal fee.” 

members who have loans less than one-year old are
given a higher settlement amount.

                                 49
       Class counsel admitted during oral argument that no
formal discovery was conducted whatsoever—either in Kessler
or in any of the five consolidated actions. While Appellees
submit that formal discovery was not necessary because of the
sufficiency of “informal discovery obtained by Class Counsel
from witnesses and former employees,” Appellees’ Br. at 27,
“we are loathe to place . . . dispositive weight on the parties’
self-serving remarks.” G.M. 

. Without
adequate exploration of the absent class members’ potential
claims, it is questionable whether class counsel could have
negotiated in their best interests.

       There is also some question whether the absent class
members’ interests were sufficiently pursued by class counsel.
We have already noted that class counsel never asserted
colorable TILA and HOEPA claims. However, those claims
were part of the settlement release. Failure to pursue such
claims may suggest that class counsel subrogated their duty to
the class in favor of the enormous class-action fee offered by
defendants.

       Finally, we cannot avoid consideration of the issue of
potential collusion. This court, as well as others, have
commented extensively on the collusive dangers inherent in a
settlement-only class action. See, e.g., G.M. 

; John C. Coffee, Jr., Class Wars: The Dilemma of the Mass
Tort Class Action, 95 Colum. L. Rev. 1343, 1370-73 (1995);
Samuel Issacharoff, Governance and Legitimacy in the Law of
Class Action, 1999 Sup. Ct. Rev. 337, 388 (1999). The United
States Court of Appeals for the Seventh Circuit has noted the
possibility that

       the settlement agreement is the product of a “reverse auction,”
       the practice whereby the defendant in a series of class actions
       picks the most ineffectual class lawyers to negotiate a
       settlement within the hope that the district court will approve a
       weak settlement that will preclude other claims against the
       defendant.

Reynolds v. Beneficial Nat’l Bank, 

, 282-83 (7th

                                50
Cir. 2002); see also Blyden v. Mancusi, 

, 270 n.9
(2d Cir. 1999). Yet another court of appeals has noted that in a
settlement-only action, class counsel “might urge a class
settlement at a low figure or on a less-than-optimal basis in
exchange for red-carpet treatment on fees.” Weinberger v. Great
N. Nekoosa Corp., 

, 524 (1st Cir. 1991); see also
Mars Steel Corp. v. Con’l Ill. Nat’l Bank and Trust Co., 

, 680-81 (7th Cir. 1987).

       As we recognized in Prandini v. Nat’l Tea Co., 

, 1021 (3d Cir. 1977), there exists a special danger of
collusiveness when the attorney fees, ostensibly stemming from
a separate agreement, were negotiated simultaneously with the
settlement. See also G.M. 

; Court
Awarded Attorney Fees, Report of the Third Circuit Task Force,

, 266 (1985). Aside from class counsels’ own
assertions that fees were discussed after negotiations of the
settlement had concluded, JA at 1383 (Declaration of Carlson),
no other record evidence supports such an assertion.
Furthermore, “even if counsel did not discuss fees until after
they reached a settlement agreement, [such a fact] would not
allay our concern since the Task Force recommended that fee
negotiations be postponed until the settlement was judicially
approved, not merely until the date the parties allege to have
reached an agreement.” G.M. Trucks, 

.25

       We emphasize, as we stated above, that we do not
preclude the possibility that the adequacy of class representation
can be established on a more developed record. The District
Court is instructed to examine carefully this matter on remand.



       25
         We recognize that Evans v. Jeff D., 

, 734-38
(1986), overruled Prandini’s strict rule prohibiting simultaneous
negotiations, but as stated in G.M. Trucks, “many of the concerns
that motivated the Prandini rule remain, and we see no reason why
Jeff D. or its underlying policy of avoiding rules that impede
settlement preclude us from considering the timing of fee
negotiations as a factor in our review of the adequacy of the class’s

.

                                 51
ii. The Rule 23(b)(3) Criteria
        To meet the requirements of Fed. R. Civ. P. 23(b)(3), the
District Court must find that “questions of law or fact common
to the members of the class predominate over any questions
affecting only individual members, and that a class action is
superior to other available methods for the fair and efficient
adjudication of the controversy.” The predominance inquiry
tests whether the proposed class is sufficiently cohesive to
warrant adjudication by representation. 

. A proper predominance inquiry “trains on the legal or
factual questions that qualify each member’s case as a genuine
controversy, questions that preexist any 

. In this vein, a predominance analysis “is similar to the
requirement of Rule 23(a)(3) that claims or defenses of the
named representatives must be ‘typical of the claims of defenses
of the class.’” 

n.18 (quoting Diamond v. Charles, 

, 76-77 (1986) (O’Connor, J., concurring in part and
concurring in judgment)). Just as the record below supports a
finding of typicality, it also supports a finding of predominance.
All plaintiffs’ claims arise from the same alleged fraudulent
scheme. The presence of potential state law or federal claims
that were not asserted by the named plaintiffs does not defeat a
finding of predominance. See In re Sch. Asbestos Litig., 

, 1010 (3d Cir. 1986) (affirming class certification
based on credible “showing, which apparently satisfied the
district court, that class certification [did] not present insuperable
obstacles” relating to variances in state law).

       The superiority requirement asks a district court “to
balance, in terms of fairness and efficiency, the merits of a class
action against those of ‘alternative available methods’ of
adjudication.” Georgine v. Amchem Prods., Inc., 

,
632 (3d Cir. 1996), aff’d, 

(1997). Fed. R. Civ. P.
23(b)(3) instructs that the matters pertinent to this inquiry
include:

       (A) the interest of members of the class in individually
       controlling the prosecution or defense of separate actions; (B)
       the extent and nature of any litigation concerning the
       controversy already commenced by or against members of the

                                    52
       class; (C) the desirability or undesirability of concentrating the
       litigation of the claims in the particular forum; [and] (D) the
       difficulties likely to be encountered in the management of a
       class action.

no reason, and Appellants fail to offer any, why a
Rule 23(b)(3) class action is not the superior means to adjudicate
this matter.

       The record before us reflects a small number of individual
suits against defendants arising from the Shumway scheme,
indicating a lack of interest in individual prosecution. In re

. The presence of certain class
members with significant individual HOEPA claims may
counsel against a finding of superiority, but these individuals can
opt-out and pursue their claims individually. In re Warfarin
Sodium Antitrust Litig., 

, 534 (3d Cir. 2004). If a
substantial number of such individuals remain in the class, the
use of subclasses may be appropriate. See generally In re

n.58. Finally, the fact that certain
class members may have separate claims resulting in
manageability problems does not change the result. “Confronted
with a request for settlement-only class certification, a district
court need not inquire whether the case, if tried, would present
intractable management problems . . . for the proposal is that
there be no trial.” 

(internal citations
and quotations omitted).

iii. Summary of Rule 23 Analysis
        We therefore conclude preliminarily based on the record
before us that all of the requirements of Fed. R. Civ. P. 23(a) can
be met with the exception of the adequacy of representation,
which requires additional analysis. On remand, the District
Court should pay particular attention to the prevalence of
colorable TILA, HOEPA, and other claims that the individual
class members may have which were not asserted by class
counsel in the consolidated complaint (or presumably in
settlement negotiations). Finally, if the District Court were to
find that class certification is appropriate, the Court should
determine whether subclasses are necessary or appropriate based

                                53
on the above findings.

B. The District Court’s Orders Invalidating Opt-Outs
        Appellants challenge the District Court’s October 14,
2003 Order invalidating all solicitated opt-out requests, directing
the Settlement Administrator to mail curative notices to
members of the class who opted-out, and barring Appellant law
firms from communicating with members of the class unless
they first submitted their proposed communications to the Court
for approval. We review this Order for an abuse of discretion.
Gulf Oil Co. v. Bernard, 

, 100 (1981).

       Because the advantage of class action litigation comes at
the cost of binding absent class members through the res judicata
effect of litigation over which they lack control, the district
courts must closely monitor the notice process and take steps to
safeguard class members from “unauthorized [and] misleading
communications from the parties or their counsel.” Erhardt v.
Prudential Group, Inc., 

, 846 (2d Cir. 1980).
District courts have “both the duty and the broad authority to
exercise control over a class action and to enter appropriate
orders governing the conduct of counsel and parties.” Gulf 

. Rule 23(d) provides: “In the conduct of actions
to which this rule applied, the court may make appropriate
orders: . . . (3) imposing conditions on the representative parties
or on intervenors . . . [and] (5) dealing with similar procedural
matters.” Fed. R. Civ. P. 23(d).

      However, a remedy should be restricted to the minimum
necessary to correct the effects of improper conduct under Rule
23. Coles v. Marsh, 

, 189 (3d Cir. 1977). The
Supreme Court made clear in Gulf Oil that:

       [A]n order limiting communications between parties and
       potential class members should be based on a clear
       record and specific findings that reflect a weighing of
       the need for a limitation and the potential interference
       with the rights of the parties . . . . Only such a
       determination can ensure that the court is furthering,
       rather than hindering, the policies embodied in the

                                   54
       Federal Rules of Civil Procedure, especially Rule 23 . . .
       . In addition, such a weighing -- identifying the
       potential abuses being addressed -- should result in a
       carefully drawn order that limits speech as little as
       possible, consistent with the rights of the parties under
       the 

; see also 

(“[T]o the
extent that the district court is empowered . . . to restrict certain
communications in order to prevent frustration of the policies of
Rule 23, it may not exercise the power without a specific record
showing by the moving party of the particular abuses by which it
is threatened. Moreover, the district court must find that the
showing provides a satisfactory basis for relief and that the relief
sought would be consistent with the policies of Rule 23 giving
explicit consideration to the narrowest possible relief which
would protect the respective parties.”).

        The district court in Georgine v. Amchem Prods., Inc.,

(E.D. Pa. 1995), faced a factual situation similar
to the one that faces us. Several law firms sent misleading
solicitations to members of the potential settlement class, urging
them to opt-out or to object to the fairness of a proposed
settlement. By the opt-out date, approximately 201,654
exclusion requests were filed. After extensive factual findings,
the court determined that the solicitations by outside counsel
contained misstatements, “likely confused and misled class
members, caused a high number of opt-outs, and therefore, had
an adverse effect on the administration of 

. The court’s fashioned remedy was to invalidate all opt-out
requests, provide curative notice to those who had opted-out, and
establish a second opt-out period. 

It reasoned that
such action was justified under both the court’s authority to
govern class action proceedings under Fed. R. Civ. P. 23(d) and
the requirement that it ensure that all class members receive the
“best notice practicable” under Fed. R. Civ. P. 23(c).

      Similar action has been taken by other courts. See In re
Fed. Skywalk Cases, 

, 374 (W.D. Mo. 1983);
Impervious Paint Indus., Inc. v. Ashland Oil, 

,

                                 55
722 (D. Ky. 1981); see also David F. Herr, Manual for Complex
Litigation § 21.33 (4th ed.) (“Objectors to a class settlement or
their attorneys may not communicate misleading or inaccurate
statements to class members about the terms of a settlement to
induce them to file objections or to opt out. If improper
communications occur, curative action might be necessary, such
as extending deadlines for opting out . . . or voiding improperly
solicited opt outs and providing a new opportunity to opt out.”).

         The District Court in this case had similar authority over
the class action settlement process. Misleading communications
by soliciting counsel have a detrimental effect on the class notice
procedure and, therefore, on the fair administration of justice.
See generally Greenfield v. Villager Indus., Inc., 

,
831-32 (3d Cir. 1973) (stating that class action procedure “which
has a formidable, if not irretrievable, effect on substantive rights,
can comport with constitutional standards of due process only if
. . . the ‘best notice practicable under the circumstances
including individual notice. . . ’” is given); Impervious Paint

(“It is essential that the class members’
decision to participate or to withdraw be made on the basis of
independent analysis of [their] own self-interest.”).26



       26
           While it may be true that outside counsel play an
important role in helping absent class members evaluate the
decision of whether to opt-out of the settlement class, see, e.g.,
David F. Herr, Manual for Complex Litigation § 21.311 (4th ed.)
(providing in standard notice form that class members could either
retain their own lawyers or contact class counsel for advice); Fed.
R. Civ. P. 23(c)(2)(B) (stating that “[f]or any class certified under
Rule 23(b)(3), the court must direct to class member the best notice
practicable under the circumstances, including . . . notice . . . that
a class member may enter an appearance through counsel if the
member so desires”), it would be disingenuous to suggest that
outside counsel act solely from a desire to serve class members’
interests. Simply put, those law firms have a pecuniary interest in
soliciting opt-outs or objectors; the greater number of opt-outs or
objectors, the less likely the proposed settlement will survive, and
the more likely that the law firms will have the opportunity to bring

                                 56
       However, the District Court never specified which
portions of the solicitation letters were objectionable. Gulf 

. It conducted no evidentiary hearing, set no
briefing schedule, and gave Appellants no practicable
opportunity to be heard.27 The October 14, 2003 Order provided
only that: “[f]or good cause, the Court invalidates and declares
void all solicited opt-outs by class members from Georgia,
Missouri, Illinois, Maryland, Florida and Alabama.” JA at 143.
The District Court did not state what such “good cause” was.

        As noted earlier, the District Court simply used verbatim
the proposed Order provided by the settling parties. This ran
afoul of the Gulf Oil holding requiring specification and
articulated weighing of the relevant factors to ensure that the
chosen remedy be restricted to the minimum necessary to correct
the alleged misconduct. Because the District Court did not
follow the requirements of Gulf Oil, we cannot sustain the
portions of the October 14, 2003 Order invalidating the opt-outs
or the October 17, 2003 Order declining to revisit the earlier
Order. On remand, the District Court should reexamine the
solicitation letters, specify the misleading statements (if any)
makes specific findings of fact with respect thereto and, after
hearing from both class counsel and Appellants’ counsel, fashion
a new notice to the class members whose opt-outs were
cancelled, explaining the situation and giving them a new
opportunity to opt-out.

       Furthermore, it is imperative that we comment on the
broad and sweeping nature of the District Court’s ban on
communications from Appellants’ counsel.28 As noted in Gulf


their own suits in search of lucrative attorney fees.
       27
        Appellees filed their joint motion with the District Court
on October 6, 2003. The Court granted the joint motion on October
14, 2003 (the day following the Columbus Day holiday).
       28
         Because of the broad scope of the Order, some of the
Appellant law firms were precluded from communicating with
clients who had retained them before the first opt-out period and

                                 57
Oil, such restrictions involve “serious restraints on expression”
and therefore, “at [a] minimum, counsels caution on the part of a
district court in drafting such an order, and attention to whether
the restraint is justified by a likelihood of serious 

. Even in Georgine, where the district court made
detailed findings of misleading statements and particularly
disruptive behavior by outside counsel, the court’s imposed
remedy was merely the invalidation of the first set of opt-outs,
the establishment of a second opt-out period, and the mailing of
a curative notice. No communication restrictions were imposed,
and the court expressly rejected defendants’ request for an order
requiring future communications between outside counsel and
class members to include a statement disclosing the lawyers’
financial interest in convincing the class members to 

. Notwithstanding our comment in note 

, that the pecuniary interests of outside counsel warrant
special review of their communications to members of the class,
we do not suggest that a prior restraint on communications is at
all proper. Indeed, the “best notice” provision in Rule
23(c)(2)(B) 29 affords class members the right to contact their
own attorneys to determine whether joining a proposed class-


whom they represented in pending litigation. Also pertinent is the
fact that Legg submitted a proposed communication to the District
Court on October 16, 2003. The Court, apparently grouping it
together with the other Appellant law firms’ motions to reconsider,
denied it without discussion or reference in its October 17, 2003
Order.


       29
            Rule 23(c)(2)(B) states that:

       For any class certified under Rule 23(b)(3), the court must
       direct to class members the best notice practicable under the
       circumstances. . . . The notice must concisely and clearly
       state in plain, easily understood language . . . that a class
       member may enter an appearance through counsel if the
       member so desires [and] . . . that the court will exclude from
       the class any member who requests exclusion, stating when
       and how members may elect to be excluded.

                                   58
wide settlement is in their best interests. Cf. Phillips Petroleum
Co. v. Shutts, 

, 811 (1985).

      Further, the District Court’s October 17, 2003 Order
which denied the Appellant law firms’ motion to reconsider the
October 14, 2003 Order stated:

       The letters mailed by each of the firms named in the October
       14, 2003 Order of Court to plaintiff class members in this case
       were direct solicitations for prospective clients whom they
       knew to be represented by another lawyer. If there is not a rule
       of professional conduct that prohibits such activity in the
       jurisdictions where these lawyers practice, there should be. See
       generally Georgine v. Amchem Products, 

[,
       495 n.26] (E.D. Pa. 1995). . . .

JA at 145.

        The district court in Georgine suggested, without holding,
that outside counsel who had communicated with class members
who were not their clients “may have violated their ethical duty
to refrain from communicating about the substance of the
settlement with class members represented by another 

n.26. However, courts have recognized that
class counsel do not possess a traditional attorney-client
relationship with absent class members. See Cobell v. Norton,

, 17 (D. D.C. 2002); cf. 

(providing that class counsel has “fiduciary” relationship
with absent class members); In re Shell Oil Refinery, 

, 528 (E.D. La. 1989) (stating that “constructive” attorney-
client relationship exists once opt-out period has closed). As
stated in In re McKesson HBOC, Inc. Sec. Litig., 

1239 (N.D. Cal. 2000),

       While lead counsel owes a generalized duty to unnamed class
       members, the existence of such a fiduciary duty does not create
       an inviolate attorney-client relationship with each and every
       member of the putative class. Taken to an extreme, lead
       plaintiff’s logic suggests that putative class members are
       forever walled off from any effort at solicitation, a proposition

                                   59
       that seems unsupportable.

see also Morisky v. Pub. Serv. Elec. & Gas Co. 

, 424 (D. N.J. 2000) (providing that class counsel
could not assert attorney-client privilege over questionnaires
completed by putative class members); 5 Alba Conte & Herbert
B. Newberg, Newberg on Class Actions § 15:16 (4th ed. 2002)
(stating that once opt-out period ends “[t]he attorneys for the
class have assumed fiduciary obligations or constructive
attorney-client status with respect to the class”).

       We have already noted that Fed. R. Civ. P. 23(c)(2)(B)
explicitly provides “that a class member may enter an
appearance through counsel if the member so desires.” Indeed,
the original notice to the class informed class members that they
could “discuss [the proposed settlement] with your own attorney
or appear through your own attorney.” JA at 360 (emphasis
omitted). To accept the District Court’s determination that a
communication between outside counsel and an absent class
member would be a violation of an attorney’s ethical duty would
essentially eviscerate this right.30



       30
          To be sure, there is a distinction between the unilateral
action of a class member who seeks the advice of outside counsel,
often his or her prior counsel, and the unsolicited communications
from outside counsel designed to disrupt a proposed settlement.
However, the Supreme Court, as well as this court, has commented
on the importance of ensuring that class members make an
informed decision whether to remain in a prospective class. See
generally Am. Pipe & Constr. Co. v. Utah, 

, 549
(1974); In re Cendant Corp. Litig., 

, 252 (3d Cir.
2001).

        We also emphasize that we do not condone misleading
solicitation letters. We are not free to bar wholesale solicitation
letters in light of the Supreme Court’s decisions. See Fla. Bar v.
Went For It, Inc., 

(1995); Bates v. State Bar of Ariz.,

(1977). However, if the District Court finds that all
or some of the letters sent in this case were materially misleading,

                                60
C. The Motions to Intervene
       Appellants contend that the District Court erred by
denying their motions to intervene as matter of right under Fed.
R. Civ. Pr. 24(a)(2) or, in the alternative, permissibly under Fed.
R. Civ. P. 24(b)(2). 2 Herbert B. Newberg, Newberg on Class
Actions § 11:56 (2d ed. 1985).

        It is axiomatic that to intervene as a matter right under
Rule 24(a)(2) the prospective intervenor must establish that: “(1)
the application for intervention is timely; (2) the applicant has a
sufficient interest in the litigation; (3) the interest may be
affected or impaired, as a practical matter by the disposition of
the action; and (4) the interest is not adequately represented by
an existing party in the litigation.” Harris v. Pernsley, 

, 596 (3d Cir. 1987). In the class action context, the second
and third prongs of the Rule 24(a)(2) inquiry are satisfied by the
very nature of Rule 23 representative litigation. Therefore, when
absent class members seek intervention as a matter of right, the
gravamen of a court’s analysis must be on the timeliness of the
motion to intervene and on the adequacy of representation.

        Timeliness of an intervention request “is determined by
the totality of the circumstances.” United States v. Alcan
Aluminum, Inc., 

, 1181 (3d Cir. 1994). Among the
factors to be considered are: (1) the stage of the proceeding; (2)
the prejudice that delay may cause the parties; and (3) the reason
for the delay. Mountain Top Condo. Ass’n v. Dave Stabbert
Master Builder, Inc., 

, 369 (3d Cir. 1995). In the
present case, members of the nationwide class first learned of the
proposed settlement in early August 2003 when they received
the Notice of Class Action Settlement. Although silent on the
issue of intervention, the Notice provided that all opt-out
elections must be received by October 1, 2003. The time frame
in which a class member may file a motion to intervene
challenging the adequacy of class representation must be at least
as long as the time in which s/he may opt-out of the class. We



it is free to so hold and, among other things, censure those
responsible.

                                61
recognized in McKowan Lowe & Co. v. Jasmine, Ltd., 

(3d Cir. 2002), that:

       Not until the existence and limits of the class have
       been established and notice of membership has
       been sent does a class member have any duty to
       take note of the suit or to exercise any
       responsibility with respect to it in order to profit
       from the eventual outcome of the 

(internal citation and quotations omitted); cf.
Graham C. Lilly, Modeling Class Actions: The Representative
Suit as an Analytic Tool, 

. Rev. 1008, 1035 (2003).
We therefore conclude that because Appellants’ motion to
intervene filed on October 1, 2003 was within the opt-out period,
it was presumptively timely. Although the District Court
concluded that granting the motion to intervene would “likely
delay the proceeding to the prejudice of the Class,” JA at 146,
this conclusion was unaccompanied by any reasoning or
discussion. The motion to intervene was filed six weeks before
the date scheduled for the fairness hearing and the District Court
did not explain why permitting intervention at that juncture of
the proceedings would have resulted in prejudice.

        In Virginia v. Westinghouse Elec. Corp., 

(4th Cir. 1976), the court stated that, “[w]hen the party seeking
intervention has the same ultimate objective as a party to the
suit, a presumption arises that its interests are adequately
represented . . . 

. To overcome the
presumption of adequate representation, the proposed intervenor
must ordinarily demonstrate adversity of interest, collusion, or
nonfeasance on the part of a party to the suit. See, e.g., Int’l
Tank Terminals, Ltd. v. M/V Acadia Forest, 

, 967
(5th Cir. 1978).

        Unlike the situation of an ordinary class action where the
district court, as part of the class certification procedure, will
have undertaken an independent inquiry into the adequacy of the
named parties’ and class counsel’s representation, Fed. R. Civ.
P. 23(a)(4); 

, in a settlement-only class

                                62
action the district court will often merely “conditionally” certify
the class. Thus, when Appellants here filed their first motion to
intervene on October 1, 2003, the District Court was faced with
the issue of class counsel’s adequacy of representation and
possible collusion as matters of first impression. The October
21, 2003 Order denying intervention merely stated without any
accompanying reasoning that “the proposed
intervenors/objectors have not presented any evidence to support
their contention that the Settlement at issue is collusive or that
Class Counsel are inadequate . . . .” JA at 146. We are certainly
not in a position to characterize the settlement as collusive, but
for the reasons set forth above, the circumstances of the present
case require closer scrutiny by the District Court than it appears
to have given. Class counsel failed to assert, inter alia, what
appear to be facially viable TILA and HOEPA claims, conducted
no formal discovery, and negotiated an extremely generous fee.
On remand the District Court should consider, based on a full
record, whether Appellants have met their burden of showing
collusion warranting granting of Appellants’ motion to
intervene.31

        To be clear, we are in no way suggesting that absent class
members who merely express dissatisfaction with specific
aspects of the proposed settlement or that attorneys (who, after
finding one or more class members as clients, and wish to share
in the forthcoming fee), have the right to intervene. The goals of
Rule 23 would be seriously hampered if that were permitted.
See Am. Pipe and Constr. Co. v. Utah, 

, 551 (1974)
(stating that filing of individual motions to join or to intervene
was “precisely the multiplicity of activity which Rule 23 was
designed to avoid”); In re 

.

D. Appellants’ Request for Discovery
     Appellant Walters challenges the District Court’s



       31
          In light of our above decision to remand on the question
of intervention as a matter of right, we need not discuss the
alternative argument regarding permissive intervention.


                                63
November 10, 2003 Order limiting discovery as an abuse of
discretion. Specifically, this Order provided that “the Missouri
and Illinois Objectors, their attorneys, and any person acting on
their behalf may not issue any further discovery requests or
subpoenas” without prior approval of the Court; that Appellants
may not present testimony of any witness at the final fairness
hearing without prior approval of the Court; and that all prior
subpoenas purporting to require a witness or party to attend and
testify at the final fairness hearing were void. JA at 151.

        We consider Walters’ challenge in light of our precedent
that holds objectors are “entitled to an opportunity to develop a
record in support of [their] contentions by means of cross
examination and argument to the court.” Greenfield v. Villager
Indus., Inc., 

, 833 (3d Cir. 1973); see also Grimes v.
Vitalink Communications Corp., 

, 1558 (3d Cir.
1994) (“[T]he objecting class members must be given an
opportunity to address the court as to the reasons the proposed
settlement is unfair or inadequate.”); Fed. R. Civ. P. 23(c)(2)(B)
(“[A] class member may enter an appearance through counsel if
the member so desires.”). In Girsh v. Jepson, 

(3d
Cir. 1975), we reversed the district court’s final approval of a
class action settlement and remanded for clarification of the
record, noting, inter alia, that the “objector . . . was not afforded
an adequate opportunity to test by discovery the strengths and
weaknesses of the proposed settlement.” 

Although
we found that the objector was “entitled to at least a reasonable
opportunity to discovery” against the plaintiffs and defendants,
that finding was predicated on the total inadequacy of the record
upon which the settlement was approved and the “totality of the
circumstances surrounding the settlement hearing” in which the
objector was denied meaningful participation. 

conclude that Girsh cannot stand for the proposition that, as a
general matter, objectors have an absolute right to discovery.
See, e.g., In re Lorazepam & Clorazepate Antitrust Litig., 

(D. D.C. 2001).

        On the other hand, we recognized that discovery may be
appropriate if lead counsel has not conducted adequate discovery
or if the discovery conducted by lead counsel is not made

                                 64
available to objectors. See 

; see also In re

(holding that district court acted
within its discretion by limiting discovery requests of objectors
because objectors had ample opportunity to avail themselves of
substantial discovery provided to lead counsel but failed to do
so).

       The District Court has discretion to “employ the
procedures that it perceives will best permit it to evaluate the
fairness of the settlement.” In re Prudential Ins. Co. of Am. Sales
Practices Litig., 

, 563 (D. N.J. 1997), aff’d, 

(3d Cir. 1998); 2 Herbert B. Newberg, Newberg on
Class Actions § 11:56 (2d ed. 1985) (“The criteria relevant to the
court’s decision of whether or not to permit discovery are the
nature and amount of previous discovery, reasonable basis for
the evidentiary requests, and number and interests of
objectors.”).

       In the present case, it is undisputed that no formal
discovery was undertaken by class counsel. However, Appellant
Walters has litigated, albeit unsuccessfully, two suits involving
the same fraudulent scheme in the state courts of Missouri. 

at Part I.D. It is likely that Walters has developed
sufficient facts regarding this matter and its prospective
settlement value such that it would be able to present a cogent
and supportable objection at the fairness hearing. See Bell Atl.
Corp. v. Bolger, 

, 1314-15 (3d Cir. 1993).

        Walters asserts that the District Court hampered its
attempts at seeking discovery related to a settlement in a related
case, Dundon v. FirstPlus Bank, No. 01-408-GPM (S.D. Ill.),
which would have demonstrated that the settlement in the
present case was inadequate. The settling parties contend that
although the Dundon suit was brought by two of the attorneys
who represent plaintiffs in the present case, the case is irrelevant
to the fairness of the present settlement because it involved
different parties, claims, and a different procedural posture.

       We are inclined to agree with the settling parties that the
District Court’s Order limiting discovery was not an abuse of

                                 65
discretion, but we are unable to conclusively so hold. The record
before us contains no details of the Dundon matter, aside from
the parties’ unsupported assertions.32
       Finally, we note that the District Court’s November 10,
2003 Order was issued only four days prior to the fairness
hearing. The Order, albeit purporting to permit discovery
requests, in all practical respects barred discovery altogether
because those requests were to have been submitted first to the
Court for approval. On remand, the District Court is instructed
to develop fully the record and reevaluate whether an order
limiting discovery is appropriate in light of its duty to “employ



       32
          Appellant Walters has filed a motion to supplement the
record, pursuant to Rule 10(e) of the Federal Rules of Appellate
Procedure, to include pleadings, legal memoranda, and testimony
from Dundon, and other proceedings wholly separate from the
present litigation. We will deny this motion.

       This court has made clear that the “[t]he only proper
function of a court of appeals is to review the decision below on
the basis of the record that was before the district court.” Fasset v.
Delta Kappa Epsilon, 

, 1165 (3d Cir. 1986); see also
Sewak v. Immigration & Naturalization Serv., 

, 673
(3d Cir.1990) (“As an appellate court we do not take testimony,
hear evidence or determine disputed facts in the first instance.
Instead, we rely upon a record developed in those fora that do take
evidence and find facts.”). Although we have acknowledged that
in exceptional cases, the court may have inherent power to allow
a party to supplement the record on appeal, see In re Capital
Cities/ABC Inc.’s Application for Access to Sealed Transcripts,

, 97 (3d Cir. 1990) (listing number of factors court
should consider: “(1) whether the proffered addition would
establish beyond any doubt the proper resolution of the pending
issue; (2) whether remanding the case to the district court for
consideration of the additional material would be contrary to the
interests of justice and the efficient use of judicial resources; and
(3) whether the appeal arose in the context of a habeas corpus
action”), such circumstances are absent from the present case.


                                 66
the procedures that it perceives will best permit it to evaluate the
fairness of the settlement.” In re 

.

E. The Fairness of the Settlement
        We restate for purposes of this section the terms of the
settlement, approved by the District Court in its December 4,
2003 Final Order Approving the Class Action Settlement. Under
the settlement, the defendants are to pay up to $33 million to the
44,535 member class, with awards to the class members ranging
from $250.00 to $925.00, contingent on when the loan closed,
and the borrower’s state of residence when the loan closed. The
first factor reflects the RESPA one-year statute of limitations;
class members who closed their loans within one year of the
earliest-filed relevant complaint33 are entitled to higher payments
than class members whose loans closed before that date. The
second factor provides higher payments to class members who
reside in one of twenty-one “qualifying states,” where class
counsel determined that class members theoretically could have
pursued state-law claims against defendants.34 The settlement
also would award approximately $ 8.1 million in fees to class
counsel, with defendants bearing the costs of settlement
administration. JA 322, 321.

       In exchange, participating class members were to release
any and all claims against defendants which were, or could have
been, asserted in the litigation. These include potential TILA,
HOEPA, and various state law claims that were never pled in
any of the six original complaints or in the consolidated
complaint.


       33
         The relevant complaint is Davis for the CBNV borrowers
and Ulrich for the GNBT borrowers.


       34
          The “qualifying states” are: Colorado, Idaho, Illinois,
Indiana, Iowa, Kansas, Maine, Maryland, Missouri, New Jersey,
North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina,
Tennessee, Utah, Washington, Wisconsin, and Wyoming. Virginia
is a “qualifying state” with respect to GNBT borrowers.


                                 67
        Appellants urge us to find that the District Court abused
its discretion when it approved the settlement as fair, reasonable,
and adequate.35 See Girsh v. Jepson, 

, 157 (3d Cir.
1975). Given our disposition of the various issues explored
above, we find it unnecessary and imprudent to address
definitively the substantive nature of the settlement.

        In Part III.A, we determined that the District Court failed
to certify properly the settlement-only class, as required by
Amchem, and we noted that the current record is inadequate to
support the District Court’s finding as to the adequacy of class
counsel’s representation of all members of the class. We remand
so that the District Court can make adequate findings under Rule
23(a) and (b)(3), supplementing the record if necessary.

        We further determined in Part III.B that the District
Court’s Order (which invalidated the first set of opt-outs,
directed curative notices, and restricted Appellant law firms’
communications with absent class members) ran afoul of the
Supreme Court’s holding in Gulf Oil. As a result, we directed
the District Court on remand to make specific factual findings
justifying the need for remedial action, which may include
invalidation of the first set of opt-outs. If a remedy is deemed
necessary, the District Court must carefully tailor the remedy to
Appellants’ specific misconduct. Significantly, the 435 class
members who will be given the opportunity to reinstate their
initial opt-out decisions comprise nearly 1% of the total class—a
figure nearly double the .5% trigger that would allow defendants
to rescind the settlement offer. Thus, a significant possibility
exists, on remand, that if class members choose to re-opt-out in
the same numbers, defendants may terminate the settlement offer
or materially alter its terms.



       35
          To support this contention, Appellant Nix has filed a
motion to supplement the record on appeal with two exhibits
consisting of a spreadsheet and graph depicting all Georgia loans
originated and recorded monthly by CBNV and GNBT during the
period from September 1, 1997 to July 31, 2004. For the reasons
given in note 

, we will deny this motion.

                                68
        We do feel obliged, however, to comment on the
procedural posture surrounding the settlement proceedings. In
class actions, particularly settlement-only suits, the district court
has a duty “to protect the members of a class . . . from lawyers
for the class who may, in derogation of their professional and
fiduciary obligations, place their pecuniary self-interest ahead of
that of the class.” Reynolds v. Beneficial Nat’l Bank, 

, 279 (7th Cir. 2002). We have gone so far as to deem the
district judge a “fiduciary” of the class. In re Cendant Corp.
Litig., 

, 231 (3d Cir. 2001); see also Culver v. City
of Milwaukee, 

, 915 (7th Cir. 2002); G.M. 

(providing that district courts have “heightened
duty to scrutinize [a] pre-certification settlement”); Grant v.
Bethlehem Steel Corp., 

, 22 (2d Cir. 1987). We have
declined to explore whether the settlement is substantively fair
(for the reasons enunciated above), leaving that to the District
Court in the first instance, but there is little in the record to give
us confidence that the District Court exercised its fiduciary duty
to assure that the settlement process was procedurally fair.

       We find very little, if any, evidence in the record that the
District Court gave the settlement and its unique characteristics
the careful and comprehensive scrutiny required under the
circumstances. First, virtually every order issued by the District
Court was a verbatim or near verbatim copy of a proposed order
offered by the settling parties.36 Particularly troubling are the
circumstances surrounding the District Court’s verbatim
adoption of the settling parties’ proposed Findings of Fact and
Conclusions of Law into the December 4, 2003 Final Order
Approving the Class Action Settlement. The District Court
entrusted class counsel to prepare these findings in an ex parte



       36
          See, e.g., July 17, 2003 Order conditionally certifying the
class for settlement purposes; October 14, 2003 Order invalidating
class opt-outs and restricting communications between Appellant’s
and the class; November 10, 2003 Order quashing Appellant’s
request for discovery; December 4, 2003 Proposed Findings of Fact
and Conclusions of Law.


                                 69
closed door session held before the settlement hearing, when
counsel for Appellants were not present. The colloquy between
class counsel and the Court, block quoted in Part I, not only
reflects the District Court’s failure to inquire into any
substantive aspect of the settlement, but also suggests that the
fairness hearing was a mere formality. It suggests that the
District Court had pre-determined its approval of the settlement
before hearing the arguments of any of the five objectors.

        Further, we find that the District Court’s own
Memorandum accompanying the December 4, 2003 Order
(among the few documents drafted by the Court itself), reflects
poorly on the Court’s familiarity with the facts and substantive
nature of the case before it. The first two sentences of the
Memorandum state that: “This is a complex commercial fraud
case. Plaintiffs, on behalf of themselves and all others similarly
situated, allege in their consolidated amended complaint that
defendants . . . acted in violation of . . . [HOEPA, RESPA, and
RICO] . . . , as well as related state laws.” JA at 174. Not only is
this consumer fraud case (not a commercial case), but more
importantly, the gravamen of the Appellants’ objections to the
fairness of the settlement, and an undisputed fact reflected in the
Consolidated Amended Complaint, see App at 637-711, is that
class counsel did not assert or seek remuneration for potentially
valuable HOEPA and TILA claims. This is the lynchpin of
Appellants’ arguments that class counsel was not adequately
representing the interests of absent class members. With this
misunderstanding of the case before it, it is difficult to ascertain
how the Court was able to fulfill its duty to scrutinize rigorously
the fairness of the settlement. See G.M. 

(“We affirm the need for courts to be even more scrupulous than
usual in approving settlements where no class has yet been
formally certified.”).

F. The Petition for Mandamus
        On May 10, 2005 Appellants filed a motion, pursuant to
28 U.S.C. § 2106, for reassignment to a different district court
judge, any matters remanded to the district court as part of the
relief awarded in the present appeal. Due to the nature of the
motion, it has been docketed and will be construed as a petition

                                 70
for mandamus.

       28 U.S.C. § 455 provides that:

       (a) Any justice, judge, or magistrate of the United States
       shall disqualify himself in any proceeding in which his
       impartiality might reasonably be questioned.
       (b) [The judge] shall also disqualify himself in the
       following circumstances:
       (1) Where he has a personal bias or prejudice
       concerning a party, or personal knowledge of disputed
       evidentiary facts concerning the proceedings. . . .

opinions which merit recusal generally must
stem from an extrajudicial source. Liteky v. United States, 

, 554 (1994). Because the focus is on the source of the
judge’s views and actions, “judicial rulings alone almost never
constitute a valid basis for bias or partiality motion.” 

(citing United States v. Grinnell Corp., 

, 583
(1966)). Similarly, “judicial remarks during the course of a trial
that are critical or disapproving of, or even hostile to, counsel,
the parties, or their cases, ordinarily do not support a bias or
partiality challenge.” 

mandates an objective rather than a
subjective inquiry. See United States v. Bertoli, 

,
1412 (3d Cir. 1994) (“‘The judge does not have to be
subjectively biased or prejudiced, so long as he appears to be
so.’”) (quoting 

n.2); Alexander v.
Primerica Holdings, Inc., 

, 162 (3d Cir. 1993)
(“‘[T]he public's confidence in the judiciary, which may be
irreparably harmed if a case is allowed to proceed before a judge
who appears to be tainted’, requires that ‘justice must satisfy the
appearance of justice.’”) (quoting In re Sch. Asbestos Litig., 

, 776 (3d Cir. 1992)). Therefore, “if a ‘reasonable man,
were he to know all the circumstances, would harbor doubts
about the judge’s impartiality’ under the applicable standard,
then the judge must recuse.” United States v. Antar, 

,

                                71
574 (3d Cir. 1995) (quoting In re Larson, 

, 415 (8th
Cir. 1994)).

       Appellants make no allegation that the District Court
derived its alleged bias from an extrajudicial source; rather all
incidents cited in Appellants’ motion refer to rulings or
statements made by the District Court during the course of the
proceedings. We find that, notwithstanding our ruling that the
District Court abused its discretion in various aspects of its
management of this class action, Appellants have not
demonstrated that the Court exercised “such a high degree of
favoritism or antagonism as to make fair judgment impossible.”

. We will therefore deny Appellants’
petition for a writ of mandamus.37

                            IV.
                         CONCLUSION

       For the reasons set forth above, we will remand the case
to the District Court for further proceedings consistent with this
opinion.
___________________________



       37
           We note as well that the District Court was besieged by
opposing groups of lawyers who flooded it with numerous motions,
arguments, and counter-arguments, which undoubtedly made it
difficult for the Court to engage in the reflection needed to exercise
its fiduciary duty to assure that the settlement process was
procedurally fair. We have seen with dismay that some, if not
many, of the attorneys on both sides of what has become the class
action industry have, “in derogation of their professional and
fiduciary obligations, placed their pecuniary self-interest ahead of
that of the class.” 

. We believe it is the
responsibility of counsel, consistent with their obligations to their
clients, to assist the district courts in their difficult tasks of
managing often unwielding class actions by eliminating
unnecessary motions, exercising restraint in filing objections, and
treating opposing counsel with the civility that should characterize
attorney relations.

                                 72
73