Richard Posner. ()
A class action settlement before the U.S. Court of Appeals for the Seventh Circuit appeals panel was a “scandalous” assemblage of conflicts of interest, cozy relationships, dubious calculations, ethical wrongdoing and judicial inattention, that, in the end, amounted to a decidedly raw deal for the consumers suing Pella Corp. over alleged window defects.
That was what Seventh Circuit Judge Richard Posner concluded about the proposed settlement in Eubank v. Pella Corp., an 8-year-old dispute, that Posner and two fellow judges threw out on Monday.
“The district court approved a class action settlement that is inequitable—even scandalous,” Posner wrote on behalf of the three-judge panel, referring to U.S. District Court for the Northern District of Illinois. “Class counsel sold out the class.”
The tangle of problems began, according to the opinion, with the selection of dentist Leonard Saltzman as the sole named plaintiff in the suit, which claimed Pella’s ProLine casement windows had a design defect that allowed water to penetrate and damage the windows’ frames.
The case, Posner wrote, dripped impropriety and conflict of interest. The lead class counsel was Saltzman’s son-in-law, Paul M. Weiss of Chicago’s Complex Litigation Group, the opinion says. Saltzman’s daughter, Jamie Weiss, also a lawyer, is a partner in her husband’s firm. The couple are defendants in a lawsuit charging them with misappropriation of assets from their former firm, Freed & Weiss, which had served as class co-counsel in the Pella case. Illinois’ attorney discipline commission has recommended Paul Weiss’ suspension for 30 months for alleged sexual harassment and indecent behavior involving seven women.
Posner found a financial motive in the haste to reach a settlement. “Weiss may have been desperate to obtain a large attorney’s fee in this case before his financial roof fell in on him,” Posner wrote.
Four other named plaintiffs were added to the case, joining Saltzman. But when the proposed settlement was presented to the district court, those four opposed it, while Saltzman embraced it. Paul Weiss replaced the objectors with four new plaintiffs, who supported the deal.
That deal was stacked in favor of the plaintiffs’ attorneys and Pella, with the class members an afterthought, Posner wrote. The settlement called for the attorneys to receive $11 million up front, while the class members were to file complicated, 12-page claim forms and wait. Pella also agreed to pay immediately a $2 million advance to the lead class counsel—money that Paul Weiss, embroiled in legal trouble, could well use, Posner wrote.
An estimate by the class counsel put the total available to the class members at $90 million, which U.S. District Judge James Zagel signed off on. Posner did his own calculations and came up with a sum, at the very most, of $22.5 million, but more likely $8.5 million. If correct, that would mean the attorneys would pocket at least half of the class’ total settlement award, or far more, he wrote.
Posner faulted Zagel for, among other things, signing off on the settlement before the deadline for submitting claims had expired; for not kicking Saltzman and Paul Weiss off the case; for not disapproving whole sections of the proposed settlement; and for not demanding a fair and accurate accounting of the total award and its distribution.
“[A]lmost every danger sign in a class action settlement that our court and other courts have warned district judges to be on the lookout for was present in this case,” Posner wrote. “Most were not even mentioned by the district judge and those that were received a brushoff.”
The panel, which included circuit judges Ann Williams and John Tinder, reversed and remanded the case, and called for Weiss, Saltzman and Complex Litigation Group to be replaced, and the four original named plaintiffs reinstated.
Lisa Hoffman contributes to law.com.