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John M. Dewey; Patrick Demartino; Patricia Romeo; Lynda Gallo; Ronald v. Volkswagen Aktiengesellschaft; Volkswagen Beteiligungs Gesellschaft

May 31, 2012

JOHN M. DEWEY; PATRICK DEMARTINO; PATRICIA ROMEO; LYNDA GALLO; RONALD B. MARRANS; EDWARD O. GRIFFIN, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED
v.
VOLKSWAGEN AKTIENGESELLSCHAFT; VOLKSWAGEN BETEILIGUNGS GESELLSCHAFT M.B.H.; VOLKSWAGEN GROUP OF AMERICA, INC. (FORMERLY KNOWN AS VOLKSWAGEN OF AMERICA, INC.); AUDI AG; VOLKSWAGEN GROUP OF AMERICA, INC., D/B/A AUDI OF AMERICA, INC.; AUDI OF AMERICA, LLC; VOLKSWAGEN DE MEXICO, S.A. DE C.V. (D.N.J. 07-CV-02249)
JACQUELINE DELGUERCIO; LYNDA GALLO; FRANCIS NOWICKI; KENNETH BAYER, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED
v.
VOLKSWAGEN AMERICA, INC.; VOLKSWAGEN GROUP OF AMERICA, INC.; VOLKSWAGEN OF AMERICA, INC., D/B/A AUDI OF AMERICA, INC.; VOLKSWAGEN AG; AUDI AG; VOLKSWAGEN DE MEXICO, S.A. DE C.V.; ABC ENTITIES 1-20 (D.N.J. 07-CV-02361)
LESTER BRICKMAN, DARREN MCKINNEY, MICHAEL SULLIVAN, JOSHUA WEST, APPELLANTS IN 10-3618 VOLKSWAGEN GROUP OF AMERICA, INC. S/H/A VOLKSWAGEN OF AMERICA, INC., VOLKSWAGEN AG, VOLKSWAGEN DE MEXICO, S.A. DE C.V., AUDI OF AMERICA, LLC, AUDI AG, AND VOLKSWAGEN BETEILIGUNGS GESELLSCHAFT M.B.H., APPELLANTS AT 10-3651 JOHN M. DEWEY, PATRICK DEMARTINO, PATRICIA ROMEO, RONALD B. MARRANS, EDWARD O. GRIFFIN, JACQUELINE DELGUERICIO, LYNDA GALLO, FRANCIS NOWICKI, KENNETH BAYER, APPELLANTS IN 10-3652 DANIEL SIBLEY, DAVID STEVENS, APPELLANTS IN 10-3798



On Appeal from the United States District Court for the District of New Jersey District Court Nos. 2-07-cv-02249 & 07-cv-02361 Magistrate Judge: The Honorable Patty Shwartz

The opinion of the court was delivered by: Smith, Circuit Judge.

PRECEDENTIAL

Argued March 27, 2012

Before: FUENTES, SMITH, and JORDAN, Circuit Judges

OPINION

This appeal arises from the certification of a class, the approval of a settlement, and the award of attorneys' fees in a products liability suit concerning defective cars manufactured by Volkswagen of America, Inc., Audi of America, Inc., and related entities (collectively, "Volkswagen").*fn1 As part of the settlement, one group of class members (the "reimbursement group") received the right to reimbursement for certain qualifying damages, paid from an $8 million fund. The remaining class members (the "residual group") were required to wait until the reimbursement group made its claims. The residual group could then make "goodwill" claims on the remaining money in the fund. Those monies were to be distributed pro rata amongst the residual claimants. The District Court certified a single class containing both the reimbursement group and the residual group. On appeal, objectors Joshua West, Lester Brickman, Darren McKinney, and Michael Sullivan (collectively the "West Objectors") argue that the representative plaintiffs in this suit, all members of the reimbursement group, cannot adequately represent the interests of the class members in the residual group. We agree. We conclude that the interests of the representative plaintiffs do not sufficiently align with those of the unnamed plaintiffs in the residual group, and that the class thus fails to satisfy Federal Rule of Civil Procedure 23(a)(4). We will reverse the District Court's order certifying the class and remand for further proceedings.

I.

A.

In May 2007, two groups of plaintiffs (the "Dewey plaintiffs" and the "Delguercio plaintiffs") filed separate class action suits against Volkswagen. On June 22, 2007, the cases were consolidated for pre-trial purposes because they raised substantially similar allegations: that several models of Volkswagen and Audi automobiles had defectively designed sunroofs that, when clogged by plant debris and pollen, allowed water to leak into the vehicle. While leakage could be prevented through regular cleaning and maintenance, Volkswagen allegedly failed to inform car owners of these preventive measures because such a disclosure would acknowledge a design defect, and would likely obligate Volkswagen to cover any resulting damage under their warranty program.

The Dewey plaintiffs allege: (1) violations of New Jersey's Consumer Fraud Act ("NJCFA"); (2) violations of the Uniform Commercial Code ("UCC"); (3) common law fraud; (4) negligent misrepresentation; and (5) breach of the duty of good faith and fair dealing. The Delguercio plaintiffs allege: (1) breaches of express and implied warranties; (2) improper repairs of vehicles; (3) breach of the covenant of good faith and fair dealing; (4) negligent misrepresentations; (5) violations of the NJCFA; (6) unjust enrichment; and (7) fraud.

After two years of discovery, the parties notified the Court that they were entering into settlement negotiations. The Court suspended pretrial deadlines and set a deadline for a joint motion for preliminary settlement approval. On November 10, 2009, the District Court approved the parties' request to refer the case to a magistrate judge "to conduct all settlement proceedings and enter final judgment." The case was referred to Magistrate Judge Patty Shwartz.

B.

On January 29, 2010, the parties filed a joint motion for preliminary approval of a settlement, preliminary certification of a class, and appointment of class counsel. The parties requested certification of the following class:

(a) all Persons, other than officers, directors, or employees of the defendants, who purchased or leased, new or used, the following settlement class vehicles:

* 2001-2007 Volkswagen New Beetle vehicles with Vehicle Identification Numbers (VINs) below 3VW---1C-7M514779, equipped with sunroof;

* 2001-2005 Jetta A4 Sedan with VINs with "9M" in position 7 and 8, and 2001-2005 Volkswagen Jetta Wagon A4 vehicles with VINs with "1J" in position 7 and 8, equipped with sunroof;

* 2001-2006 Volkswagen Golf A4, Volkswagen GTI A4 vehicles with VINs with "1J" in position 7 and 8, equipped with sunroof;

* 2005-2007 Volkswagen Jetta A5 vehicles with VINs with "1K" in position 7 and 8, equipped with sunroof;

* 2006-2007 Volkswagen Golf/GTI A5 vehicles with VINs with "1K" in position 7 and 8, equipped with sunroof;

* 1999-2005 Volkswagen Passat B5 vehicles;

* 1997-2006 Audi A4 vehicles, B5 and B6 Platforms in MY2005, with VINs with "8E" in position 7 and 8 with also "J" or "L" or "V" or "P" or "X" in position 4, and MY2005 and MY2006, with VINs with "8H" in position 7 and 8 (including Cabrio, S, and RS versions);

* 1998-2005 Audi A6 C5 vehicles with VINs with "4B" in position 7 and 8 (including Allroad, S, and RS versions); [the "reimbursement group"] and

(b) all persons, other than officers, directors, or employees of the defendants, who currently own or lease the following settlement class vehicles:

* 1998-2000 and 2007-2009 Volkswagen New Beetle with VINs 3VW---1C-7M514779 or higher, equipped with sunroof;

* 1997-1999 Volkswagen Jetta A3 with VINs with "1H" in position 7 and 8, 1999-2000 Volkswagen Jetta A4s with VINs with "9M" in position 7 and 8, and 2008-2009 Volkswagen Jetta A5 vehicles with VINs with "1K" in position 7 and 8, equipped with sunroof;

* 1997-1999 Volkswagen Golf/GTI A3 with VINs with "1H" in position 7 and 8, 1999-2000 Volkswagen Golf/GTI A4 with VINs with "1J" in position 7 and 8, and 2008-2009 Volkswagen Golf/GTI A5 vehicles with VINs with "1K" in position 7 and 8, equipped with sunroof;

* 1998 Volkswagen Passat B5 vehicles;

* 1997 Volkswagen Passat B4 and 2006-2009 Volkswagen Passat B6 vehicles equipped with sunroof;

* 2004-2009 Volkswagen Touareg vehicles;

* 2005-2008 Audi A4 B7 Platform vehicles equipped with sunroof, in MY2005, with VINs with "8E" in position 7 and 8 and also "A" or "D" or "K" or "G" or "U" in position 4 (including S and RS versions);

* 1997 Audi A6 C4 vehicles;

* 2005-2009 Audi A6 C6 vehicles equipped with sunroof with VINs with "4A" or "4F" in position 7 and 8 (including S and RS versions);

* 1997-2009 Audi A8 vehicles (including S versions) [the "residual group"]

App'x A13-14. All of the representative plaintiffs in the case are members of the reimbursement group.

The settlement agreement made three types of relief available to the class. First, the settlement agreement provided that all class members would receive "[e]ducational preventative maintenance information." App'x A317. This information instructed class ...


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