Seyfarth Synopsis: Of the five major class action developments in 2018, the decline in class action settlement numbers may have been most the striking shift.  In fact, when compared to the 2017 numbers, the value of the top class action settlements in 2018 decreased by over $1 billion.  In today’s blog, our readers can see and hear Workplace Class Action Report (“WCAR”) author Jerry Maatman outline what he called “a very significant marker of class action litigation in 2018.”  Click the link below to watch and hear Jerry’s presentation from Seyfarth Shaw’s “Top Trends In Workplace Class Action Litigation” book launch event!

By: Gerald L. Maatman, Jr., Julie G. Yap, and Phillip J. Ebsworth

Seyfarth Synopsis: On January 18, 2019, in Porath v. Logitech, Case No. 18-CV-3091 (N.D. Cal. Jan. 18, 2019), Judge William Alsup of the U.S. District Court for the Northern District of California rejected, for the second time, Defendant’s attempts to allow pre-certification discussions relating to a class-wide settlement. Specifically, the Court upheld its prior order, prohibiting such discussions and denying the appointment of interim counsel to represent the class.  The end result for the parties is that they must spend more time and money litigating this case despite readiness to engage in settlement negotiations. The ruling is an important read for all corporate counsel involved in class action litigation.

Case Background

In May 2018, Plaintiff filed a putative class action alleging that the Defendant falsely and deceptively advertised its Z200 speakers as containing four speakers when two of the speakers did not independently produce sound. On June 13, 2018, Judge Alsup issued an order entitled “Notice and Order Re Putative Class Actions and Factors To Be Evaluated For Any Proposed Class Settlement”— an order Judge Alsup typically issues at the outset of any proposed class action pending before him. That order prohibits any settlement discussions of any class claims prior to class certification. Alternatively, the order provides that if counsel believe settlement discussion should precede class certification, interim class counsel must first be appointed.

In August 2018, counsel for Plaintiff and Defendant moved to appoint interim class counsel and enumerated four reasons why they believed pre-class certification settlement discussions were appropriate, including: (i) Defendant agreed not to seek a discount based on the risk a class would not be certified, (ii) Defendant had already begun revising the advertising at issue, (iii) Defendant was prepared to make purchasers of the product whole, and (iv) the parties were prepared to engage in reasonable and appropriate discovery necessary to resolve the case.

The Court denied the motion. Judge Alsup took issue not only with the limited discovery conducted to ascertain the viability of class claims at that point, but also with what he termed “the clever wording” of the motion, which “offered little of substance” in regards to remedies that would be on the table for the absent class members in any pre-certification settlement discussions. Id. at 5.

After the Ninth Circuit denied Defendant’s request for review, Defendant moved for reconsideration of the order prohibiting discussion of class-wide settlement issues, as well as the order denying appointment of interim class counsel. Specifically, Defendant asserted that Judge Alsup’s order prohibiting pre-certification class-wide settlement violated the parties’ First Amendment rights.

The Decision

Judge Alsup denied Defendant’s motion.  Specifically, Judge Alsup explained that his prohibition on any class-wide settlement discussions protects absent class members because (i) it prevents the imposition of overbroad releases on claims that cannot meet Rule 23 class certification standards; and (ii) it guards against settlements inappropriately discounted based on the risk that a claim will not be certified for class treatment. Citing scholarly commentaries, Judge Alsup opined that procedural hurdles should not require absent class members to accept a “lowball offer to salvage a class recovery.” Id. at 3.

Turning to Defendant’s free speech argument, Judge Alsup noted that his order was viewpoint neutral and simply regulated the time, place and manner of class-wide settlement discussions.  Judge Alsup also emphasized that his order only restrained such discussions until counsel is authorized under Rule 23 to negotiate on behalf of a class; as a result, he explained that no permanent or overly broad ban exists. Additionally, even if a limited restriction existed, Judge Alsup concluded that the interests of the parties are “overwhelmingly outweighed” by the interest of the Court in implementing orderly case management and the interests of absent class members and their rights. Id. at 5-6. As a result, Judge Alsup noted that Defendant had no First Amendment right to obtain a class-wide release from an attorney with no authority to act for the class.

Conclusion

While such limitations on pre-certification settlement discussions are not currently widespread, parties seeking to resolve such disputes without engaging in costly class discovery may find themselves in a difficult situation if other courts adopt Judge Alsup’s approach.  Given that the recent proposed amendments to Rule 23 did not adopt proposals to provide a different standard for settlement classes, parties may see vastly different approaches to class action settlements throughout the federal system.

By: Gerald L. Maatman, Jr. 

Seyfarth Synopsis: Yesterday’s blog posting gave our readers an in-depth look at class action settlement developments in 2018, the fourth trend of this year’s Workplace Class Action Report (“WCAR”).  In terms of the top ten largest settlement among substantive areas of class action litigation, the monetary value of major case resolutions plummeted in 2018.  In fact, as compared to 2017, top settlement numbers declined by more than a billion dollars.  Today, author Jerry Maatman explains the factors influencing this dramatic change, as well as what employers can expect regarding class action settlements in 2019.  Watch Jerry’s analysis in the video below!

By: Gerald L. Maatman, Jr.

Seyfarth Synopsis: As measured by the top ten largest case resolutions in various workplace class action categories, overall settlement numbers decreased significantly in 2018 as compared to 2017. After settlement numbers were at an all-time high in 2017, those numbers fell dramatically over the past year. In sum, the ability of the plaintiffs’ bar to monetize their class action filings hit a significant wall.

This trend harkened back to the U.S. Supreme Court’s decision in Wal-Mart, Inc. v. Dukes in 2011. By tightening Rule 23 standards and raising the bar for class certification, Wal-Mart made it more difficult for plaintiffs to certify class actions, and to convert their class action filings into substantial settlements. These barriers became more formidable in 2018 with the Supreme Court’s ruling in Epic Systems v. Lewis, which upheld the validity of class action waivers in mandatory workplace arbitration agreements.

The “Wal-Mart/Epic Systems” phenomenon is still being played out, as well as manifesting itself in settlement dynamics. It is expected that the force of this barrier will be felt more profoundly in 2019.

Considering all types of workplace class actions, settlement numbers in 2018 totaled $1.32 billion, which decreased significantly from 2017 when such settlements totaled $2.72 billion and in 2016 when such settlements totaled $1.75 billion.

The following graphic shows this trend:

In terms of the story behind the numbers, the breakouts by types of workplace class action settlements are instructive.

In 2018, there was a significant downward trend for the value of settlement of ERISA and wage & hour class action settlements, as well as for government enforcement lawsuits. In addition, there were significant decreases across-the-board for resolutions of class actions involving employment discrimination claims and statutory workplace laws. By any measure, class action recoveries were down.

This phenomenon is shown by the following chart for 2018 settlement numbers:

By type of case, settlements values in ERISA class actions, wage & hour class actions, and government enforcement cases experienced the most significant decreases.

The top ten settlements in the private plaintiff statutory class action category (e.g., cases brought for breach of contract for employee benefits, and workplace anti-trust laws and statutes such as the Fair Credit Reporting Act or the Worker Adjustment and Retraining Notification Act) totaled $411.15 million, which represented a slight decrease from $487.28 million in 2017 (but an increase from $114.7 million in 2016.)

The following chart tracks these figures:

The pattern for employment discrimination class action settlements likewise followed a slight downward trend in 2018. The top ten settlements totaled $216.09 million as compared to $293.5 million in 2017. The comparison of the settlement figures with previous settlement activity over the last decade is illustrated in the following chart:

In 2018, the value of the top ten largest employment discrimination class action settlements of $216.09 million was the fourth lowest figure since 2010, and largely aligned with the trend that started in 2011 (after Wal-Mart was decided) that showed decreases in settlement amounts over three years of that four-year period.

This trend also held for wage & hour class action settlements. In 2018, the value of the top ten wage & hour settlements was $253.18 million. This was a significant decrease from 2017, when the value of the top ten settlements spiked at $574.49 million, which was the second highest annual total in wage & hour class actions ever. When coupled together, the two-year period of 2016 and 2017 saw over $1.2 billion in the top wage & hour settlements. Further, this is most telling in examining the last four years, for 2016 represented almost a quadrupling (after two years of declining numbers in 2013 and 2014) in the value of the top wage & hour settlements as compared to 2014. Given the ruling in Epic Systems this past year, settlement numbers are apt to remain on a downward trajectory in 2019.

This trend is illustrated by the following chart:

Relatedly, the top ten settlements in government enforcement litigation experienced a downward arc, as they decreased nearly four-fold to $126.7 million. This compared to the figure of $485.2 million in 2017. That being said, these numbers were slightly above the three year trend from 2014 to 2016 when governmental enforcement litigation settlements trended under $100 million for three years running. This trend is illustrated by the following chart of settlements from 2010 to 2018:

ERISA class action settlements fell precipitously in 2018. The top ten settlements fell nearly three-fold to $313.4 million, which were down from $927 million in 2017 and $807.4 million in 2016. Further, given that ERISA class action settlements for the two-year period of 2016 and 2018 were a combined $1.73 billion, the figure for 2018 represents a clear reversal for the plaintiffs’ bar. This trend is illustrated by the following chart of settlements from 2010 to 2018:

Implications For Employers:

Settlement trends in workplace class action litigation are impacted by many factors. In the coming year, settlement activity is apt to be influenced by developing case law interpreting U.S. Supreme Court rulings such as Epic Systems, the Trump Administration’s labor and employment enforcement policies, case filing trends of the plaintiffs’ class action bar, and class certification rulings.

By Gerald L. Maatman, Jr.

Seyfarth Synopsis: At 852 pages, Seyfarth’s 15th Annual Workplace Class Action Litigation Report analyzes 1,453 rulings and is our most comprehensive Report ever.

Click here to access the microsite featuring all the Report highlights. You can read about the five major trends of the past year, order your copy of the eBook, and download Chapters 1 and 2 on the 2019 Executive Summary and key class action settlements.

The Report was featured today in an exclusive article in MarketWatch. Click here to read the coverage!

The Report is the sole compendium in the U.S. dedicated exclusively to workplace class action litigation, and has become the “go to” research and resource guide for businesses and their corporate counsel facing complex litigation. We were again honored this year with a review of our Report by Employment Practices Liability Consultant Magazine (“EPLiC”). Here is what EPLiC said: “The Report is a must-have resource for legal research and in-depth analysis of employment-related class action litigation. Anyone who practices in this area, whether as a corporate counsel, a private attorney, a business execu­tive, a risk manager, an underwriter, a consul­tant, or a broker, cannot afford to be without it. Importantly, the Report is the only publica­tion of its kind in the United States. It is the sole compendium that analyzes workplace class actions from ‘A to Z.’” Furthermore, EPLiC recognized our Report as the “state-of-the-art word” on workplace class action litigation.

The 2019 Report analyzes rulings from all state and federal courts – including private plaintiff class actions and collective actions, and government enforcement actions –  in the substantive areas of Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Fair Labor Standards Act, the Employee Retirement Income Security Act, and the Class Action Fairness Act of 2005. It also features chapters on EEOC pattern or practice rulings, state law class certification decisions, and non-workplace class action rulings that impact employers. The Report also analyzes the leading class action settlements for 2018 for employment discrimination, wage & hour, ERISA class actions, and statutory workplace laws, as well as settlements of government enforcement actions, both with respect to monetary values and injunctive relief provisions.

We hope our loyal blog readers will enjoy it!

Executive Summary

The prosecution of workplace class action litigation by the plaintiffs’ bar has continued to escalate over the past decade. Class actions often pose unique “bet-the-company” risks for employers. As has become readily apparent in the #MeToo era, an adverse judgment in a class action has the potential to bankrupt a business and adverse publicity can eviscerate its market share. Likewise, the on-going defense of a class action can drain corporate resources long before the case even reaches a decision point. Companies that do business in multiple states are also susceptible to “copy-cat” class actions, whereby plaintiffs’ lawyers create a domino effect of litigation filings that challenge corporate policies and practices in numerous jurisdictions at the same time. Hence, workplace class actions can impair a corporation’s business operations, jeopardize or cut short the careers of senior management, and cost millions of dollars to defend. For these reasons, workplace class actions remain at the top of the list of challenges that keep business leaders up late at night with worries about compliance and litigation. Skilled plaintiffs’ class action lawyers and governmental enforcement litigators are not making this challenge any easier for companies. They are continuing to develop new theories and approaches to the successful prosecution of complex employment litigation and government-backed lawsuits.

New rulings by federal and state courts have added to this patchwork quilt of compliance problems and risk management issues. In turn, the events of the past year in the workplace class action world demonstrate that the array of litigation issues facing businesses are continuing to accelerate at a rapid pace while also undergoing significant change. Notwithstanding the transition to new leadership in the White House with the Trump Administration, governmental enforcement litigation pursued by the U.S. Equal Employment Commission (“EEOC”) and other federal agencies continued to manifest an aggressive agenda, with regulatory oversight of workplace issues continuing as a high priority. Conversely, litigation issues stemming from the U.S. Department of Labor (“DOL”) reflected a slight pull-back from previous efforts to push a pronounced pro-worker/anti-business agenda. The combination of these factors are challenging businesses to integrate their litigation and risk mitigation strategies to navigate these exposures. These challenges are especially acute for businesses in the context of complex workplace litigation. Adding to this mosaic of challenges in 2019 is the continuing evolution in federal policies emanating from the Trump White House, the recent appointments of new Supreme Court Justices, and mid-term elections placing the Senate in control of Republicans and the House in control of Democrats. Furthermore, while changes to government priorities started on the previous Inauguration Day and are on-going, others are being carried out by new leadership at the agency level who were appointed over this past year. As expected, many changes represent stark reversals in policy that are sure to have a cascading impact on private class action litigation.

While predictions about the future of workplace class action litigation may cover a wide array of potential outcomes, the one sure bet is that change is inevitable and corporate America will continue to face new litigation challenges.

Key Trends Of 2018

An overview of workplace class action litigation developments in 2018 reveals five key trends. First, class action litigation has been shaped and influenced to a large degree by recent rulings of the U.S. Supreme Court. Over the past several years, the U.S. Supreme Court has accepted more cases for review than in previous years – and as a result, has issued more rulings that have impacted the prosecution and defense of class actions and government enforcement litigation. The past year continued that trend, with several key decisions on complex employment litigation and class action issues that were arguably more pro-business than decisions in past terms. Among those rulings, Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) – which upheld the legality of class action waivers in mandatory arbitration agreements – is a transformative decision that is one of the most important workplace class action rulings in the last two decades. It is already having a profound impact on the prosecution and defense of workplace class action litigation, and in the long run, Epic Systems may well shift class action litigation dynamics in critical ways. Coupled with the appointments of Justices Neil Gorsuch and Brett Kavanaugh to the Supreme Court in 2018, litigation may well be reshaped in ways that change the playbook for prosecuting and defending class actions.

Second, the plaintiffs’ bar was successful in prosecuting class certification motions at the highest rates ever as compared to previous years in the areas of ERISA and wage & hour litigation, while suffering significant defeats in employment discrimination litigation. While evolving case law precedents and new defense approaches resulted in good outcomes for employers in opposing class certification requests, federal and state courts issued many favorable class certification rulings for the plaintiffs’ bar in 2018. Plaintiffs’ lawyers continued to craft refined class certification theories to counter the more stringent Rule 23 certification requirements established in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011). As a result, in the areas of wage & hour and ERISA class actions, the plaintiffs’ bar scored exceedingly well in securing class certification rulings in federal courts in 2018 (over comparative figures for 2017). Class actions were certified in significantly higher numbers in “magnet” jurisdictions that continued to issue decisions that encourage or, in effect, force the resolution of large numbers of claims through class-wide mechanisms. Furthermore, the sheer volume of wage & hour certification decisions in 2018 increased as compared to last year, and plaintiffs fared better in litigating those class certification motions in federal court than in the prior year. Of the 273 wage & hour certification decisions in 2018, plaintiffs won 196 of 248 conditional certification rulings (approximately 79%), and lost only 13 of 25 decertification rulings (approximately 52%). By comparison, there were 257 wage & hour certification decisions in 2017, where plaintiffs won 170 of 233 conditional certification rulings (approximately 73%) and lost 15 of 24 decertification rulings (approximately 63%). In sum, employers lost more first stage conditional certification motions in 2018, and saw a reduction of their odds – a decrease of 11% – of fracturing cases with successful decertification motions.

Third, filings and settlements of government enforcement litigation in 2018 did not reflect a head-snapping pivot from the ideological pro-worker outlook of the Obama Administration to a pro-business, less regulation/litigation viewpoint of the Trump Administration. Instead, as compared to 2016 (the last year of the Obama Administration), government enforcement litigation actually increased in 2018. As an example, the EEOC alone brought 199 lawsuits in 2018 as compared to 184 lawsuits in 2017 and 86 lawsuits in 2016. However, the settlement value of the top ten settlements in government enforcement cases decreased dramatically – from $485.25 million in 2017 to $126.7 million in 2018. The explanations for this phenomenon are varied, and include the time-lag between Obama-appointed enforcement personnel vacating their offices and Trump-appointed personnel taking charge of agency decision-making power; the number of lawsuits “in the pipeline” that were filed during the Obama Administration that came to conclusion in the past year; and the “hold-over” effect whereby Obama-appointed policy-makers remained in their positions long enough to continue their enforcement efforts before being replaced in the last half of 2018. This is especially true at the EEOC, where the Trump nominations for the Commission’s Chair, two Commissioners, and its general counsel were stalled in the Senate waiting for votes of approval (or rejection), and one of the two nominees withdrew at year-end due to the delay. These factors are critical to employers, as both the DOL and the EEOC have had a focus on “big impact” lawsuits against companies and “lead by example” in terms of areas that the private plaintiffs’ bar aims to pursue. As 2019 opens, it appears that the content and scope of enforcement litigation undertaken by the DOL and the EEOC in the Trump Administration will continue to tilt away from the pro-employee/anti-big business mindset of the previous Administration. Trump appointees at the EEOC and the DOL are slowly but surely “peeling back” on positions previously advocated under the Obama Administration. As a result, it appears inevitable that the volume of government enforcement litigation and value of settlement numbers from those cases will decrease in 2019.

Fourth, the monetary value of the top workplace class action settlements decreased dramatically in 2018. These settlement numbers had been increasing on an annual basis over the past decade, and reached all-time highs in 2017. While the plaintiffs’ employment class action bar and governmental enforcement litigators were exceedingly successful in monetizing their case filings into large class-wide settlements this past year, they did so at decidedly lower values in 2018 than in previous years. The top ten settlements in various employment-related class action categories totaled $1.32 billion in 2018, a decrease of over $1.4 billion from $2.72 billion in 2017 and a decrease of $430 million from $1.75 billion in 2016. Furthermore, settlements of wage & hour class actions experienced over a 50% decrease in value (from $525 million in 2017 down to $253 million in 2018); ERISA class actions saw nearly a three-fold decrease (from $927 million in 2017 down to $313.4 million in 2018); and government enforcement litigation registered nearly a fourfold decrease (from $485.2 million in 2017 down to $126.7 million in 2018). Whether this is the beginning of a long-range trend or a short-term aberration remains to be seen as 2019 unfolds.

Fifth, as it continues to gain momentum on a worldwide basis, the #MeToo movement is fueling employment litigation issues in general and workplace class action litigation in particular. On account of new reports and social media, it has raised the level of awareness of workplace rights and emboldened many to utilize the judicial system to vindicate those rights. Several large sex harassment class-based settlements were effectuated in 2018 that stemmed at least in part from #MeToo initiatives. Likewise, the EEOC’s enforcement litigation activity in 2018 focused on the filing of #MeToo lawsuits while riding the wave of social media attention to such workplace issues; in fact, fully 74% of the EEOC’s Title VII filings this past year targeted sex-based discrimination (compared to 2017, where sex based-discrimination claims accounted for 65% of Title VII filings). Of the EEOC’s 2018 sex discrimination lawsuit filings, 41 filings included claims of sexual harassment. The total number of sexual harassment filings increased notably as compared to 2017, where sexual harassment claims accounted for 33 filings. Employers can expect more of the same in the coming year.

Implications For Employers

The one constant in workplace class action litigation is change. More than any other year in recent memory, 2018 was a year of great change in the landscape of Rule 23. As these issues play out in 2019, additional chapters in the class action playbook will be written.

The lesson to draw from 2018 is that the private plaintiffs’ bar and government enforcement attorneys at the state level are apt to be equally, if not more, aggressive in 2019 in bringing class action and collective action litigation against employers.

These novel challenges demand a shift of thinking in the way companies formulate their strategies. As class actions and collective actions are a pervasive aspect of litigation in Corporate America, defending and defeating this type of litigation is a top priority for corporate counsel. Identifying, addressing, and remediating class action vulnerabilities, therefore, deserves a place at the top of corporate counsel’s priorities list for 2019.

 

By Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis: Professional class settlement objectors can be a thorn-in-the-side for employers and class counsel attempting to settle class actions. Their M.O. is often the same — frivolously object, appeal its denial, settle out of court, and withdraw. It is already hard enough to obtain court approval of a class-based settlement without adding into the mix such tactics taken by objectors. But the good news for employers is that courts are closely reviewing conduct of objectors to determine if sanctions are appropriate.

That is exactly what happened in Clark v. Gannett Co., No. 1-17-2041 (Ill. App. Nov. 20, 2018). Clark is a good reminder for employers who are seeking class settlement approval to not lie down for serial objectors. Rather, employers should take the fight to objectors, who are increasingly being met with skepticism and ire from courts around the country,

Background

In Clark v. Gannett Co., No. 1-17-2041 (Ill. App. Nov. 20, 2018), the plaintiff alleged that Gannett Co. violated the Telephone Consumer Protection Act by making unsolicited phone calls. The parties reached a $13.8 million settlement, of which $5.4 million went to class counsel. Before final approval, however, Gary Stewart (the sole objector) filed an objection to the settlement, claiming that class counsel’s fees were excessive. The trial court overruled Stewart’s objections.

A month later, class counsel moved for sanctions against Stewart’s counsel, arguing that they filed Stewart’s objection for improper reasons — namely, to elicit attorneys’ fees. The trial court declined to grant class counsel’s motion for sanctions and found that the objection was not filed for an improper purpose. In the course of that ruling, the trial court excluded evidence of counsel’s pattern of conduct in representing objectors in other class action lawsuits. Class counsel appealed the trial court’s denial of sanctions to the Illinois Appellate Court.

The Decision Of The Illinois Appellate Court

On appeal, the Illinois Appellate Court reversed the trial court’s decision to exclude the pattern of conduct of Stewart’s counsel. The Illinois Appellate Court explained, “[t]he pattern of conduct engaged in by [Stewart’s counsel] is relevant to the objection’s possible improper purpose of seeking attorneys’ fees with the bare minimum of effort, expense, and time.” Id. at 17. In reaching that decision, the Illinois Appellate Court noted that Stewart’s counsel has used this strategy in multiple cases in different states and that various courts had admonished counsel’s conduct. In fact, as the Illinois Appellate Court emphasized, one federal judge described one of Stewart’s attorneys as ‘“a known vexatious appellant.’” Id. at 18. Based on these facts, the Illinois Appellate Court vacated the order denying sanctions and directed the trial court to conduct a new hearing with evidence of similar conduct in other cases to determine whether the objection was filed for an improper purpose.

But the Illinois Appellate Court did not stop there. Because one of Stewart’s attorney’s was an out-of-state attorney who used a local attorney for filing the objection, it considered whether the duo engaged in the unauthorized practice of law. There was evidence that Stewart’s local attorney did not review any of the objection papers, all of which were prepared solely by Stewart’s out-of-state counsel. The Illinois Appellate Court explained that by “not applying and appearing pro hac vice” Stewart’s out-of-state counsel sought to “escape responsibility by appearing not to practice law in this jurisdiction.” Id. at 21. “Both attorneys,” the Illinois Appellate Court concluded, “have engaged in fraud on the court.” Id. at 25. As a result, it then directed the clerk to forward a copy of the order to the ARDC to determine whether disciplinary action should be taken.

Implication For Employers:

This ruling in Clark demonstrates that now, more than ever, courts are scrutinizing the purpose behind an objection to a class-based settlement, particularly when the objector is represented by counsel with history of hijacking class settlements. Employers confronted with a hold-up by a professional objector should work with class counsel to aggressively oppose the objector’s extortionist bid for fees. This might mean some short term pain and associated costs, but in the long run hopefully objectors will get the message that gone are the days where parties will roll over and pay their fees.

 

 

 

By Gerald L. Maatman, Jr. and Michael L. DeMarino

Seyfarth Synopsis In an opinion laced with frustration over a third appeal in a class action involving attorneys’ fees, the Seventh Circuit ruled that an objector was entitled to recover attorneys’ fees from class counsel’s fee award. “Unless the parties expressly agree otherwise,” the Seventh Circuit explained, “settlement agreements should not be read to bar attorney fees for objectors who have added genuine value.” The Seventh Circuit’s recent ruling in In Re Southwest Airlines Voucher Litigation is a good reminder for companies negotiating class settlements to account for objector fees in settlement agreements up front, or run the risk that an objector will sandbag the settlement by requesting fees later.

The Background Of The Decision

In In Re Southwest Airlines Voucher Litigation, No. 17-3541, 2018 WL 3651028, at *1 (7th Cir. Aug. 2, 2018), the Seventh Circuit addressed the third appeal relating to attorneys’ fees in the settlement of a class action involving Southwest Airline’s cancelled drink vouchers.  In the first appeal, the Seventh Circuit modified class counsel’s fee award because class counsel had failed to disclose a potential conflict of interest. After the appeal, however, class counsel sought a supplemental fee award, along with a 1/5 multiplier, for his time spent appealing – a maneuver the Seventh Circuit called “astonishing.” Id. The district court declined to award the multiplier, but nonetheless awarded class counsel one-third of the requested amount, or roughly $455,294.

Subsequently, an objector, Gregory Markow, sought to vacate the settlement agreement and the supplemental fee award. Markow eventually appealed but then dismissed his appeal in exchange for class counsel’s agreement to take half of the supplemental fee award. The district court approved the new settlement, and Southwest distributed the vouchers and paid class counsel.

Then, in what must have come as a complete surprise to class counsel (and the corporate defendant), Markow sought to recover $80,000 in attorneys’ fees, which were to come out of class counsel’s fee award. The district court denied Markow’s fee request, and Markow appealed that denial.

The Seventh Circuit’s Ruling

In this third appeal, the Seventh Circuit reversed and remanded. The Seventh Circuit noted that the underlying settlement agreements were silent on issue of objector’s fees. In the absence of a settlement agreement that addresses objector fees, the Seventh Circuit explained that it looks to the law. “Objectors who add value to a class settlement may be compensated for their efforts,” explained Circuit Judge David Hamilton, writing for the unanimous panel. Id. at 2. “Unless the parties expressly agree otherwise, settlement agreements should not be read to bar attorney fees for objectors who have added genuine value.” Id.

Relying on the common fund doctrine to fill in the gap left by the parties’ agreements, the Seventh Circuit ultimately concluded that it would be inequitable for Markow’s lawyer to receive nothing despite negotiating, in exchange for dropping the second appeal, a tripling of relief to the class and a significant cut to class counsel’s fees.

Despite its remand, the Seventh Circuit expressed frustration over resolving yet another appeal involving attorneys’ fees. “[W]e expect this case to end, ‘so that the tail can stop wagging the dog,’” it warned. Id. at *4. (citation omitted). The Seventh Circuit determined that it was “difficult to reconcile [class counsel’s] rapacious requests for fees in the district court with our decision in the prior appeal that reduced its already generous fee award as a modest penalty for failing to disclose a potential conflict of interest.” Id.

Implication For Employers

Although objectors are often labeled extortionists by virtue of opportunistic obstacles  they create to securing approval of class-wide settlements, the ruling in In Re Southwest Airlines Voucher Litigation is clear that objectors are entitled to attorneys’ fees when they add value to the class settlement.  Employers navigating class settlements, therefore, should account for objector fees in the settlement agreement. Failure to do so could result in an objector sandbagging the settlement by requesting fees later.

By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: In a lawsuit brought by a plaintiff class action firm alleging that objectors to class action settlements violated both RICO and Illinois state law by filing frivolous objections in order to seek payouts, an Illinois federal court denied in part the Defendant objectors’ motion to dismiss, holding it had subject-matter jurisdiction to hear the dispute and that a claim seeking injunctive relief for the objectors’ unauthorized practice of law could proceed.

In the class action landscape, where serial objectors frequently frustrate the settlement process by requesting payouts in order to withdraw objections, this case is a must-read for employers and class action defense attorneys.

***

Case Background

In Edelson PC v. The Bandas Law Firm PC, No. 16-CV-11057, 2018 U.S. Dist. LEXIS 119305 (N.D. Ill. July 20, 2018), Plaintiff – a well-known class action plaintiffs’ law firm – alleged that Defendants regularly filed frivolous objections to class action settlements in order to leverage lucrative payoffs, and that as class action attorneys, they were forced to agree to the payoffs or else encounter significant delays in securing relief for class members. Plaintiff sued Defendants (who also included non-attorneys that allegedly aided the objector law firms by serving as class objectors) for violations of RICO and Illinois state law claims for abuse of process and the unauthorized practice of law, and further sought a permanent injunction under the All Writs Act. Id. at 2.

To say the least, Plaintiffs’ lawsuit is novel and a broadside attack on objectors.

Previously, on February 6, 2018, the Court granted Defendants’ motion to dismiss in part, and dismissed Plaintiff’s federal RICO claims for failing to allege predicate acts of racketeering. Id. The Court reserved judgment on Plaintiff’s state law claims, however, pending further briefing on whether it had subject-matter jurisdiction to hear them. In response to the Court’s order to show cause, Plaintiff argued that its state law claims were properly before the Court under either supplemental jurisdiction, 28 U.S.C. § 1367, or traditional diversity jurisdiction, 28 U.S.C. § 1332(a). In response, Defendant argued that supplemental jurisdiction was improper because Illinois courts remained open to Plaintiff and the putative class, and, further, that Plaintiff could not meet the $75,000 amount in controversy threshold required to bring the suit in diversity.

The Court’s Decision

The Court held that it had subject-matter jurisdiction to hear Plaintiff’s state-law claims, and granted in part and denied in part Plaintiff’s state law claims. First, the Court addressed Plaintiff’s argument that Illinois state courts were closed to many putative class members, and the Court therefore should retain supplemental jurisdiction to avoid unfair prejudice to the putative class as a whole. Id. at 10. The Court rejected this argument, noting that the Illinois Code of Civil Procedure provides that any plaintiff whose case is dismissed by a federal district court for lack of jurisdiction may refile his case in state court within one year, “whether or not the time limitation for bringing such action expires during the pendency of [the federal case].” Id. at 11. Accordingly, the Court held that the supplemental jurisdiction statute did not support continuing jurisdiction over Plaintiff’s remaining state-law claims.

Next, the Court addressed Plaintiff’s argument that the Court could hear its state-law claims under traditional rules of diversity jurisdiction, which require complete diversity of citizenship and an amount in controversy of more than $75,000. After dismissing several individual Defendants as dispensable parties, Defendants argued that in order for the Court to establish complete diversity, it must dismiss also dismiss any putative class members who are citizens of California or Texas — the states in which remaining the Defendants reside. The Court rejected this argument, noting it was “poorly founded” and that it “is black-letter law that the citizenship of putative class members is irrelevant for diversity purposes.” Id. at 13. After further finding that “there is no serious case to be made that Plaintiff has not put more than $75,000 in dispute,” the Court held that it had subject-matter jurisdiction to hear the merits of Plaintiff’s state law claims.

Turning to the merits of the state law claims, Plaintiff alleged that Defendants committed the common law tort of abuse of process by manipulating the class-action objection process to serve their own ends. Id. Noting that the tort abuse of process is narrow and disfavored by Illinois law, the Court explained that Plaintiff’s alleged injury — having to pay off Defendants to avoid litigating their objection — was insufficient to establish such a claim. As such, the Court dismissed Plaintiff’s abuse of process claim.

Plaintiff’s final claim sought an injunction against two of the Defendant attorneys for the unauthorized practice of law pursuant to the Illinois Attorney Act, alleging that the attorneys were ghostwriting the objections and coordinating sham mediation sessions despite not moving for pro hac vice admission or filing appearances in the case involving Plaintiff’s counsel where Defendants had objected. The Court explained that under the Illinois Attorney Act, other attorneys and law firms have standing to sue for such an injunction “[b]ecause the practice of law by an entity not licensed constitutes an infringement upon the rights of those who are properly licensed.” Id. at 18 (citation omitted). Defendants argued that this claim should have been brought in state court, and additionally argued that Plaintiff’s complaint technically did not argue that one Defendant was an unlicensed attorney. Id. at 18-20. The Court rejected these arguments, holding that federal courts could hear such claims, and that Defendants’ “clumsy attempt at linguistic gymnastics ignores the text of the . . . Illinois Attorney Act.” Id. at 21. Accordingly, the Court held that Plaintiff sufficiently stated a plausible claim for the unauthorized practice of law, and denied Defendants’ motion to dismiss this claim.

The Court concluded its opinion by opining it was “troubled by the fact that until now its decisions appear to leave Plaintiff and those similarly affected without an adequate remedy — and may fail to deter the Defendants from further rent-seeking [, and] that class counsel facing similar demands may be best served by calling the professional objector’s bluff and seeing the objector’s appeal through to its conclusion.” Id. at 22. But leaving a ray of optimism, the Court noted that the U.S. Supreme Court has recently transmitted an amendment of Rule 23 to Congress that, if effectuated, would require district court approval before any objector can withdraw an objection or appeal in exchange for money or other consideration.

Implications For Employers

Serial objectors to class action settlements have long frustrated employers and class action litigators by delaying the settlement certification process, and have especially enraged plaintiff-side class action attorneys who must decide whether to pay off the objectors or incur additional time and costs in fighting the objection. While Plaintiff’s RICO and abuse of process claims have now been dismissed in this case, the survival of the unauthorized practice of law clam is significant in that it could result in the Defendant serial objectors from being enjoined to engage in this practice in Illinois. It may also serve as a deterrent to other “professional objectors.”

As such, employers and class action attorneys should pay close attention to developments in this context, as this case and the U.S. Supreme Court’s potential amendment of Rule 23 will undoubtedly have an impact on the class action settlement objection practice that routinely impacts the cost of litigation.  

By Christopher M. Cascino and Gerald L. Maatman, Jr.

Seyfarth Synopsis: In Pearson v. Target Corp., No. 17-2275, 2018 U.S. App. LEXIS 17337 (7th Cir. June 26, 2018), the U.S. Court of Appeals for the Seventh Circuit took aim at self-serving class settlement objectors and ordered the district court to review whether certain objectors received compensation in exchange for withdrawing objections. While not an employment case, the decision has significant implications for employers involved in class action litigation because it should discourage objectors from delaying class settlement approval by bringing meritless objections solely to receive payment in exchange for withdrawing objections.

Case Background

Nick Pearson brought a consumer protection class action suit in November 2011. Pearson, No. 17-2275, 2018 U.S. App. LEXIS 17337, at *3. The case settled, and the district court approved the settlement on January 22, 2014.  Id. at *3-4.

Theodore Frank, a regular objector to class action settlements that contain “substantial attorneys’ fees but meager benefits for the class,” objected to the settlement on these grounds. Id. at *2. The Seventh Circuit agreed with Frank’s objection and reversed the district court’s decision. Id.

After the case was remanded, the district court approved a new class-wide settlement on August 25, 2016, and dismissed the action without prejudice. Id. at *4. Three objectors subsequently filed objections. Id. All three dismissed their objections before briefing on their objections began. Id. On November 18, 2016, pursuant to a stipulation agreed to by the parties, the district court entered a new order dismissing the class action with prejudice. Id.

Frank who suspected that the three objectors who withdrew their objections received side settlements in exchange for withdrawing their objectionsmoved to intervene and disgorge any side settlements paid to the objectors. Id. at *4-5. The district court struck the motion on the grounds that it lacked jurisdiction because the action had been dismissed with prejudice. Id

Frank then moved to vacate the order dismissing the action with prejudice under Rule 60(b) of the Federal Rules of Civil Procedure.  Id.  The district court denied the motion, and Frank appealed. Id. at *5.

Seventh Circuit’s Decision

The Seventh Circuit began by considering whether Frank was “a party” who could file a Rule 60(b) motion. Id. at *6. It concluded that Frank was a party within the meaning of the rule because he objected to the initial settlement. Id.

The Seventh Circuit next considered whether Frank met his burden under Rule 60(b). Frank argued that the district court should have vacated the dismissal with prejudice and restated the dismissal without prejudice based on Rule 60(b)(1), which allows a judgment to be vacated based on “errors by judicial officers as well as parties,” and Rule 60(b)(6), which allows a judgment to be vacated in “extraordinary circumstances.” Id. at *6.

The Seventh Circuit found that Frank had not met his burden under Rule 60(b)(1) because the dismissal with prejudice was made subject to a stipulation, finding that agreeing to the stipulation was “a strategic decision” that “is enough to support the denial of a Rule 60(b)(1) motion.” Id. at *6-7.

The Seventh Circuit also determined that the district court should have vacated the dismissal with prejudice under Rule 60(b)(6) for two reasons.  First, the Seventh Circuit held that, if a “settlement disappoint[s] expectations,”  especially where there is nothing suggesting that an aspect of a class settlement is fair, courts should vacate under Rule 60(b)(6).  Id. at *9-10.  The Seventh Circuit found those factors present.  Id.

Second, the Seventh Circuit opined that dismissal of a settled class action with prejudice is “inherently problematic” when settlement agreements, like the one at issue, provide that a court will have jurisdiction to determine all matters relating to the settlement agreement. Id. at *11. It found that, by dismissing the action with prejudice, the district court materially altered the settlement agreement, which would have required a new round of notice to absent class members. Id. at *11-12.

Accordingly, the Seventh Circuit reversed the district court’s decision denying Frank’s Rule 60(b) motion and ordered the district court to consider Frank’s disgorgement motion. Id. at *13.

After rendering its decision, the Seventh Circuit noted its concern that “selfish settlements by objectors are a serious concern.” Id. It noted that concern might be alleviated if Congress approves an amendment to Rule 23 that would require district court approval for “any ‘payment or other consideration’ provided for ‘foregoing or withdrawing an objection’ or ‘foregoing, dismissing, or abandoning an appeal.’” Id. at *13-14.

Implications For Employers

Employers who settle class action lawsuits do so in large part to have certainty and finality. Objectors can stand in the way of that certainty in certain circumstances. While this decision will not end intervention by objectors to class action settlements, it is a shot across the bow of self-serving objectors who bring meritless objections solely in order to extract a payout. Accordingly, it should discourage such meritless objections that can stand in the way of certainty and finality. 

 

Seyfarth Synopsis:  In yesterday’s blog, readers were given an extensive overview of the historically high numbers regarding class action settlements in 2017.  Today, author Jerry Maatman provides his own analysis of these class action settlement numbers in our video blog series.  Jerry highlights the most important markers of 2017, and previews the class action landscape employers may have to adjust to in 2018.  Watch in the link below!