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Krell v. Prudential Ins. Co. of Am. (in Re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions) - 148 F.3d 283 (3d Cir. 1998)

Rule:

The decision of whether to approve a proposed settlement of a class action is left to the sound discretion of the district court. Consequently, an appellate court will reverse the district court for a clear abuse of discretion. In addition, the certification of a class and the award of reasonable attorneys' fees are also subject to an abuse of discretion standard. An appellate court may find an abuse of discretion where the district court's decision rests upon a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact. 

Facts:

Plaintiff insureds brought a class action lawsuit against Prudential Life Insurance Company, the largest life insurer in the U.S. The challenged sales practices consisted primarily of churning, vanishing premiums and fraudulent investment plans, and each cause of action is based on fraud or deceptive conduct. The trial court approved a settlement of the action. The settlement created an alternative dispute resolution mechanism and established protocols to determine the kind and amount of relief to be granted. The relief awarded includes full compensatory damages consisting of what plaintiffs thought they were purchasing from the insurance agent. There was no cap on the amount of compensatory damages for those who qualified, and although punitive damages were not included in the settlement, Prudential agreed to pay an additional remediation amount in addition to the payments made through dispute resolution process. Thereafter, the plaintiffs appealed, arguing that the trial court did not have jurisdiction over the settlement of the class action. 

Issue:

Did the trial court have jurisdiction over the settlement of the class action, and did it properly approve the settlement?

Answer:

Yes.

Conclusion:

The appellate court ruled that the decision of whether to approve a proposed settlement of a class action was left to the sound discretion of the trial court, and that the court would reverse the trial court only for a clear abuse of discretion. Further, the appellate court held that the certification of a class and the award of reasonable attorneys' fees were also subject to an abuse of discretion standard, and that an appellate court could find an abuse of discretion where the trial court's decision rested upon a clearly erroneous finding of fact, an errant conclusion of law, or an improper application of law to fact. The appellate court affirmed the judgment, concluding that the trial court properly exercised supplemental jurisdiction over plaintiff insureds' state claims based on its federal question jurisdiction.

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