## Facts

- Borrowers whose loan rates were pegged to a bank’s prime rate alleged the bank misrepresented or manipulated the “prime rate” used in their contracts.
- A state-court class action filed first obtained certification of a nationwide class, but class notice was not sent and class counsel conducted minimal discovery.
- A later federal class action defined the class identically and asserted a RICO theory seeking treble damages based on the same prime-rate conduct.
- In the federal case, class counsel pursued merits discovery; the bank used a computerized search to identify loans that appeared below prime, but further analysis indicated the loans were not actually offered below prime.
- The federal parties negotiated a settlement providing class members the right to obtain new loans up to $100,000 at 0.5% below their prior rate; the relief was estimated to be worth $11.5 million if rates remained stable.
- The settlement also contemplated a request for $305,000 in attorney’s fees, which the bank agreed not to oppose.
- The district court approved the settlement as fair and entered final judgment.
- The representative plaintiff in the earlier state-court action appealed, arguing the settlement was unfair and that approval without an evidentiary hearing was improper.

## Issues

1. Whether the district court abused its discretion in approving the class settlement as fair, reasonable, and adequate under Rule 23.
2. Whether Rule 23 required the district court to conduct a formal evidentiary hearing before approving the settlement.
3. How the court should assess settlement approval when competing class actions and rival counsel raise concerns about lawyer-driven settlements, including the possibility of a “reverse auction.”

## Decision

- The Seventh Circuit affirmed the district court’s approval of the settlement.
- The court held the settlement fell within a range of reasonableness given the apparent weakness of the underlying prime-rate claim after discovery.
- The court held an evidentiary hearing is not categorically required; the question is whether the record provided sufficient information for an informed fairness determination.
- The court rejected the challenger’s objections as insufficient to show the settlement was substantively deficient or that the district court’s review process was inadequate.

## Legal Principles

- Approval of a class action settlement is reviewed for abuse of discretion; the district court must determine whether the compromise is fair, reasonable, and adequate in light of litigation risks and available information.
- Settlement fairness is assessed pragmatically, considering factors such as merits strength, litigation expense and delay, and the extent of informed opposition from class members.
- Rule 23 does not impose a per se evidentiary-hearing requirement; approval may rest on submissions and argument if the record supports a reasoned judgment.
- Competing class actions and potential conflicts of interest heighten the need for judicial scrutiny, but the decisive inquiry remains whether the settlement adequately protects absent class members.

## Conclusion

The Seventh Circuit upheld the settlement because merits discovery materially undercut the plaintiffs’ core theory, making the compromise a reasonable outcome, and because the district court had an adequate record to approve the settlement without an evidentiary hearing despite the existence of a competing, earlier-filed state class action.


Mars Steel Corp. v. Cont’l Ill. Nat’l Bank & Tr. Co. of Chi., 834 F.2d 677 (7th Cir. 1987)