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LACHMAN GUPTA v. PENN JERSEY CORP.

February 16, 1984

Lachman D. GUPTA
v.
PENN JERSEY CORPORATION and Penn Jersey Auto Stores Associates, Inc.



The opinion of the court was delivered by: KELLY

 KELLY, District Judge.

 Plaintiff, a former franchisee of Penn Jersey, filed this antitrust action on his own behalf and as a representative of all similarly situated past and present franchisees of Penn Jersey. Defendants are franchisors of small auto parts and accessories stores located in a four state area encompassing Pennsylvania, New Jersey, Maryland and Delaware.

 In addition to a franchise fee, which is in consideration of the franchisee's use of the Penn Jersey trade name, defendants' franchise agreement required the franchisees to purchase inventory from defendant as a condition to purchasing the right to use the Penn Jersey name. Plaintiff contends that this constitutes an illegal tie-in of merchandise to the franchise under the Sherman Act, 15 U.S.C. ยง 1 (1982).

 Plaintiff's complaint was filed on February 9, 1983. On November 15, 1983, prior to class certification, the parties agreed to a stipulation and proposed Order dismissing the class action allegations of the Complaint pursuant to a proposed settlement between the parties, subject to the approval of the Court. The terms of the settlement provided as follows:

 
(a) Penn Jersey and Mr. Gupta agree to voluntarily dismiss their respective claims with prejudice against each other in certain prior-filed litigation in the Delaware state court, each party to bear its own costs; *fn1"
 
(b) In light of the conclusion of plaintiff's counsel that this action is not properly maintainable as a class action, the parties will stipulate to striking the class action allegations; *fn2"
 
(c) Mr. Gupta will dismiss his individual claims with prejudice, and
 
(d) Penn Jersey will pay counsel's reasonable costs and attorneys' fees in the amount of $16,004.35.

 Joint Memorandum of Law in Support of Striking Class Action Allegations ("Joint Memo") at 6. Effectuation of the proposed settlement is contingent on the Court's approval of the dismissal of the class allegations and its determination that no notice need be given to the class of the proposed settlement.

 DISCUSSION

 Rule 23(e) of the Federal Rules of Civil Procedure provides that "[a] class action shall not be dismissed or compromised without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs." Fed.R.Civ.P. 23(e). Although not specifically encompassed by the terms of Rule 23(e), it is now settled that "a suit brought as a class action should be treated as such for purposes of dismissal or compromise, until there is a full determination the class action is not proper." Kahan v. Rosenstiel, 424 F.2d 161, 169 (3d Cir.1970), cert. denied sub nom. Glen Alden Corp. v. Kahan, 398 U.S. 950, 90 S. Ct. 1870, 26 L. Ed. 2d 290 (1970). Since Rule 23(e) applies, two further inquiries are required; first, whether approval of the settlement should be granted and second, whether putative class members should be notified.

 The standards which have emerged in determining whether a settlement should be approved or notice given "focus primarily on the possibility that the pre-certification compromise is the product of collusion." Magana v. Platzer Shipyard, Inc., 74 F.R.D. 61, 67 (S.D.Tex.1977). In addition consideration must be given to the possibility of prejudice to absent putative class members. See Larkin Gen. Hosp., Ltd. v. American Tel. & Tel. Co., 93 F.R.D. 497, 501-502 (E.D.Pa.1982). Finally, the reliance interest of putative class members, which will vary according to the facts of each case, must be taken into account. Id.

 Applying these criteria, I find that on its face the settlement does not appear collusive. Both parties apparently had substantial claims against each other which they have agreed to withdraw. The only person receiving direct monetary payment is plaintiff's counsel. The pendency of this class action has tolled the applicable statute of limitations and preserved the rights of all putative class members as they existed on the day of the filing of the complaint. American Pipe & Construction Co. v. Utah, 414 U.S. 538, 554, 94 S. Ct. 756, 766, 38 L. Ed. 2d 713 (1974). The settlement itself will not ...


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