Ted Frank
Ted Frank ()

After five objectors appealed the approval of $151 million in class action settlements over alleged price-fixing of polyurethane foam, a federal judge in Ohio slapped them with a $145,463 bond – then he hit them where it hurt.

“Their conduct here resembles scavenger ants on a jelly roll, scrambling to extort money from the approved settlements,” wrote U.S. District Judge Jack Zouhary in April. “To now have objectors file frivolous appeals in pursuit of a payoff is not simply a detriment to the settling parties — it is an insult to the judicial system.”

Recognizing such mounting criticism of so-called “professional objectors,” a civil rules committee of the U.S. Judicial Conference’s Committee on Rules of Practice and Procedure introduced a new proposed rule that would force objectors and their lawyers to get court approval for fees, rather than negotiate them behind closed doors, in exchange for withdrawing their objection. The proposal, introduced on Aug. 12, is the most aggressive in a package of potential changes to class actions, or Rule 23, which hasn’t been amended since 2003. Many practitioners say they see the rules change as a means of curbing what they consider to be an abuse of the class action settlement process.

“What’s new about that proposal is it basically says that an objector can’t be paid off to drop their objection without approval by the district court,” said Leslie Brueckner, senior attorney at Public Justice. “That could have a big impact because it could effectively halt the problem of so-called ‘professional objectors,’ who basically hold up class action settlements for their own pecuniary gain, by basically exposing that kind of practice to the light of day.”

The proposal, if approved, could take years to become effective. The proposals are open for public comment until Feb. 15, after which the committee must adopt the changes, which then go to the U.S. Supreme Court and Congress for approval.

In deciding what to change, the committee skirted more controversial topics in favor of focusing on how much information a judge needs to have in order to preliminarily approve a class action settlement. The objector fee proposal “solidified relatively recently,” said Richard Marcus, associate professor at University of California, Hastings College of the Law, who is associate reporter of the Rule 23 subcommittee.

“The concern we heard was almost universal about bad objectors being bad news,” he said. “And so that’s the focus of this amendment.”

“The role of objectors has gotten a lot of attention,” Andrew McGuinness, a defense attorney in Ann Arbor, Michigan, and author of the blog www.topclasslaw.com. “Even though this is just two sentences of proposed changes in the rule, it’s probably the most significant in terms of the amount of attention it got and the scope.”

And it’s not just lawyers involved in the settlement. “Bad faith” objectors also hurt attorneys who have legitimate gripes about a settlement, said noted class action critic Ted Frank of the Center for Class Action Fairness. He said judges have compared him to other objector counsel, even though he’s never taken fees in exchange for dropping his objection.

Still, he said the proposal doesn’t go far enough: It fails to address the financial burdens entailed in objecting to a class action settlement.

“The problem we have under the current system is there aren’t enough objections, not that there are too many,” he said. “We need to incentivize more people to bring good objections. Right now, you can either be a bad faith objector or a nonprofit objector, but there’s really not a way to do this.”

Brian Fitzgerald, a law professor at Vanderbilt University Law School, Nashville, Tennessee, and author of a 2009 law review article called “The End of Objector Blackmail?” said the proposal doesn’t go far enough to curb abuse. He said judges could approve the fees in hopes of clearing their dockets.

“Why even open the door to these side payments?” he said.

In the polyurethane settlements, Zouhary ordered the objectors to seek court approval for any payments they got in exchange for dropping their appeals. All but one of the objectors voluntarily dismissed their appeals a month after being required to post a bond.

The remaining objector, Christopher Andrews, disputed that he was a “bad faith” objector who had filed a frivolous appeal.

“A lot of these cases are filed by serial class action filers, but we don’t hear about the easiest way to resolve this issue of their fees,” he said. “The whole thing seems backward. They’re focusing on objectors, and half the time there’s no objection filed.”

Contact Amanda Bronstad at abronstad@alm.com. On Twitter: @abronstadnlj.