A Chicago federal appeals court is giving a lawsuit watchdog group, a chance to show whether attorneys for three objectors to a $9 million class action settlement allegedly tried to squeeze extra money for themselves from the settlement by lodging objections on behalf of their clients.
The June 26 ruling was issued by Chief Judge Diane Wood and Circuit Judges Ilana Rovner and David Hamilton, of the U.S. Court of Appeals for the Seventh Circuit. The decision favored Ted Frank, director of litigation and senior lawyer with Competitive Enterprise Institute. Specifically, Frank leads the Institute's Center for Class Action Fairness.
The CEI, which is based in Washington, D.C., is a non-profit public policy group that says it's dedicated to “limited government, free enterprise and individual liberty.”
In 2011, five plaintiffs brought a class action in Chicago federal court against the drug manufacturer Rexall and the Target retail store chain. The suit alleged defendants breached consumer protection laws by making false claims about the usefulness of the dietary supplement glucosamine, which Rexall made and Target sold.
Ted Frank CEI
A settlement with Rexall was approved in 2014, but Frank entered the case and objected, claiming plaintiffs’ attorneys received too big a cut. The Seventh Circuit backed Frank. Another settlement, for $9 million, was ratified in 2016, with $5,000 going to each of the five plaintiffs and as much as $2.5 million going to their attorneys. The millions of potential class members would receive no more than $200 a piece.
Three members of the class action objected to the settlement, then withdrew their objections. Frank alleged these objectors were engaging in “objector blackmail,” in which a member contests a settlement, not to improve settlement terms, but to pocket a payment in exchange for dropping the objection.
As a consequence, Frank asked District Judge John Blakey to let him explore whether the three objections were in bad faith. Blakey refused, leading Frank to appeal.
Frank's contention he should be allowed to investigate the objections found favor with the Seventh Circuit.
“Objectors voluntarily dismissed their appeals. At this stage we do not know why, but there is a real risk that they did so at the expense of the class. He (Frank) does not seek to unwind the class settlement or to relitigate the case,” said Chief Judge Wood, adding Frank should be allowed to “ensure that no class sellout had occurred.”
Class members deserve a look at the dismissals, in Wood's view.
“We do not know whether class counsel intended to bargain away rights with the stipulated dismissal, or merely did so accidentally. But whatever the reason, the class was disadvantaged by the Post Appeal Judgment and received no offsetting benefit,” Wood observed.
Wood further said District Judge Blakey should have “pursued these lines of analysis.”
The appeals judge closed by pointing out:“Selfish settlements by objectors are a serious problem.” However, Wood added, “We have nothing to say about the merits of Frank’s challenge. Indeed, we do not even know if there was anything amiss about these objector appeals.”
Frank has been represented by M. Frank Bednarz, of Chicago and Melissa Holyoak, of Washington, D.C., who are lawyers with the Competitive Enterprise Institute.
Plaintiffs have been represented by the following: Siprut PC, Chicago; Levin, Fishbein, Sedran & Berman, Philadelphia; Bonnett, Fairbourn, Friedman & Balint, Phoenix; Cohen, Milstein, Sellers & Toll, Chicago; Denlea & Carton, White Plains, N.Y.; and Boodell & Domanskis, Chicago.
Defendants have been represented by the Chicago firms of Drinker, Biddle & Reath and Sidley Austin LLP.