CHICAGO — A decision by a federal appeals court to uphold a settlement awarding attorneys more in fees than was paid to class members in total should serve as an "eye-opener" for the public and businesses concerning the nature of class action litigation in U.S. courts, said a local attorney who defends employers against such suits.

Recently, the U.S. Seventh Circuit Court of Appeals in Chicago approved a controversial deal settling a class action against American Express. Filed in 2007, the lawsuit alleged the company’s prepaid gift cards were not “good all over the place” as advertised. The U.S. District Court for the Northern District of Illinois granted final approval of a settlement in 2016, awarding attorneys $1.95 million in fees and costs, while class members received approximately $1.8 million.

Two intervenors subsequently appealed the approval to the Seventh Circuit, which found that although “this settlement is not without issues, we conclude the district court did not abuse its discretion in approving it.”

The settlement’s approval is significant for future class actions suits. 

“A key takeaway for businesses is that even in situations where the parties in a class-action lawsuit settle within the first few years of its filing, they must be cognizant of how the settlement approval process can quickly become expensive, and perhaps even worth more than the actual claims at issue,” said Alex Karasik, an attorney at Seyfarth Shaw in Chicago.

Though controversial, Karasik says the court’s decision to approve the settlement without lowering the attorneys’ fees was not unreasonable. 

“Here, when reviewing the District Court’s decision, the Seventh Circuit explained that the District Court had dealt with the parties and their counsel for nearly seven years, and therefore, the District Court was in the best position to determine which parties (and which attorneys) had contributed to the settlement and in what proportions,” Karasik said. 

Karasik said business owners should take note of the settlement for what it means for potential lawsuits in future. 

“Any class-action settlement approval order where the plaintiffs’ attorneys walk away with more money than their clients is an eye-opener,” he said. “This ruling highlights the plaintiff attorney-driven culture of class-action litigation, putting businesses and employers on notice as to who they are really defending against in these high-stakes lawsuits.”

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Seyfarth Shaw, LLP U.S. Court of Appeals for the Seventh Circuit U.S. District Court for the Northern District of Illinois




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