May 31 (Reuters) - A federal appeals court on Thursday refused to approve a class-action settlement over alleged defective sunroofs on several Volkswagen and Audi models but proposed a fix that could revive the nationwide accord.

Owners claimed that sunroofs on roughly 3 million vehicles from the 1997 to 2009 model years could allow rainwater to leak inside when they were clogged by plant debris and pollen.

They also said Volkswagen AG failed to disclose that regular cleaning and maintenance could avert the problem because doing so would acknowledge a design defect.

Among the vehicles affected were Volkswagen's Golf, Jetta, New Beetle, Passat and Touareg, and Audi's A4, A6 and A8.

In August 2010, U.S. Magistrate Judge Patty Shwartz in Newark, New Jersey, certified the owner class and approved the settlement, which provided for repairs and improved disclosures.

She also created an $8 million fund that would have reimbursed one owner subgroup for repairs but required another subgroup to wait. Shwartz valued the accord at $69.3 million and awarded the plaintiffs' lawyers $9.2 million in fees.

But the 3rd U.S. Circuit Court of Appeals in Philadelphia said class certification, allowing the plaintiffs to sue together, was improper because the accord treated the second owner subgroup differently from the first subgroup. It noted that the class representatives came from the first subgroup.

"There is a fundamental intra-class conflict," Judge D. Brooks Smith wrote for a three-judge panel of the 3rd Circuit. "Representative plaintiffs simply cannot adequately represent the interests of the entire class."

Smith proposed allowing all plaintiffs to submit claims for reimbursement, or dividing the plaintiffs into two subclasses that could be certified separately, to address the problem.

"It's an easy fix," Adam Slater, a lawyer for the plaintiffs, said in an interview. "The issue in all likelihood will be addressed promptly, and we expect a settlement to go forward."

He also said the decision is important "because it explains to attorneys the nuances in how to settle these cases."

Ted Frank, a lawyer who often challenges class-action settlements and argued on behalf of some of the owners, said: "There are shortcuts being taken in class-action settlements where attorneys are shortchanging some clients to expedite a settlement. This ruling says they cannot."

Jeffrey Chase, a lawyer for Volkswagen, declined to comment. Volkswagen did not immediately respond to a request for comment.

President Barack Obama nominated Shwartz for the 3rd Circuit in October.

The case is Dewey et al v. Volkswagen AG et al, 3rd U.S. Circuit Court of Appeals, Nos. 10-3618, 10-3651, 10-3652 and 10-3798.

(Reporting By Jonathan Stempel)

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