Court of Appeals Rips “Scandalous” Class Action Settlement

June 5, 2014

The 7th Circuit Court of Appeals recently threw out a settlement agreement between aggrieved consumers and a window manufacturer, finding that “Class counsel sold out the class” and that the settlement was “scandalous.” Kent Eubank et al., v. Pella Corp., et al., Nos. 13-2091, 13-2133, 13-2136, 13-2162 and 13-2202 (7th Cir., June 2, 2014). Judge Richard Posner, writing for a three-judge panel, found a number of inequities in the settlement, including the fact attorneys would receive $11 million in fees whereas the clients would get at most $8.5 million, but likely much less.

Judge Posner was especially critical of the numerous obstacles in the settlement agreement for class members that were seeking damages for defective windows. The settlement forms all class members seeking damages were required to complete were very lengthy and required a “slew of arcane data,” such as the “purchase order number,” “glass etch information,” “product identity stamp,” and “Unit ID Label” for each affected window. Furthermore, a class member could accept $750 as damages under the settlement agreement or proceed to arbitration, where his or her damages would be capped at $6,000. Judge Posner found these obstacles were intended to discourage and prevent class members from obtaining the settlement money.

In addition to rejecting the settlement agreement, Judge Posner found a number of conflicts of interest. First, Judge Posner ousted one of the named plaintiffs in the class action lawsuit, who happened to be the father-in-law of the attorney serving as class counsel. The father-in-law had a conflict of interest in acting as a class representative because a generous fee for class counsel—which could take money away from class members—would benefit his daughter and son-in-law.  Second, Judge Posner ordered that class counsel be removed for naming his father-in-law as a class representative and due to disciplinary charges from another incident, which involved a 30-month suspension of his law license.

Both class members and class counsel should take note of this decision and make certain the proposed settlement agreement adequately protects the interests of class members and no conflicts of interest exist among class counsel and class members. If a class action settlement agreement is not carefully scrutinized, the Court of Appeals may send the parties back to the drawing board after years of expensive litigation.

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For more information about "Court of Appeals Rips “Scandalous” Class Action Settlement," contact Justin H. Lessner at jlessner@axley.com or 608.283.6761.