Objector Blackmail Casts Shadow Over Settlement Process

“Bad-faith” objectors to class action settlements are reportedly causing problems by lodging vexatious complaints and extracting payoffs from lawyers eager to make them go away.

These “professional objectors” seem to be using the perfectly legal process of objecting to a settlement to get the settling law firm to pay them rather than face the hassle of continuing the case. Settlements – especially in more complex cases – can take years to reach, and these last-minute hurdles can cause huge headaches. It’s no surprise that firms may choose to pay, despite legal or professional qualms, but there have been attempts to tackle this increasing problem – especially since consumers may be taking the financial hit when false objections complicate their lawsuits.

Recently, a law firm in Illinois got hit by a lawsuitafter allegedly serially objecting to class action settlements in a deliberate attempt to extort payments from the law firms already involved. According to the lawsuit (bolding our own):

“Defendants file last-minute, frivolous objections to class action settlements, have their objections overruled due to their frivolity, and then threaten to or actually appeal the overruling to a higher court unless counsel for the class pays them to go away. Defendants do all of this with no intention of improving the terms of the class action settlement for the betterment of the class members; their only interest is exerting pressure so they can extort a payment for themselves for minimal work. Defendants know that with their appeal filed, the resolution of the underlying class action is held up until the appeal is decided or withdrawn, which in many instances can be years down the road. Defendants’ goal [...] is to offer to forego or withdraw their appeal at a price. For a fee—sometimes as high as $500,000 in attorneys’ fees—Defendants will withdraw their appeal and go away, at least until the next class action settlement.”

To be clear, these cases by their nature involve three (or more) different law firms: the defendant and prosecutor of the class action case (for example, Firm A on behalf the company facing the lawsuit, and Firm B on behalf of consumers) and the objecting firm (Firm C) which, in many ways, is butting in at the end when the hard work is mostly done. For Firms A and B, it’s a huge inconvenience – but for Firm C, that’s where the opportunity lies.

By finding consumers to represent, giving them a seat at the table, and then flooding the case with objections, Firm C positions itself to take advantage of Firms A and B. Since many final deals to remove the annoying objections take place unofficially, there’s no solid record of what went on – or that being forced to pay to get rid of time-consuming objections is, essentially, blackmail.

Where does that leave the consumer?

Firm C – the bad-faith objector – isn’t acting entirely on their own. To lodge a complaint to a settlement, they must represent a qualifying claimant – somebody who was affected by the issues at the heart of the lawsuit. That’s because being able to object to a settlement is actually a vitally important part of the whole process.

It might sound counterintuitive for consumers to object to receiving compensation, but there are plenty of cases where objections make perfect sense. Some objections say that the attorneys are getting paid too much and class members are getting too little. Some objectors in wage and hour suits (current or former employees, in these cases) object to settlements because they say it’s not enough to cover the amount of wages they’re actually owed. The right to object is important – and when it’s used for an actual purpose, benefits consumers by ensuring the legal system compensates them properly, and that the process is robust and transparent.

When it’s used frivolously, though, it may be consumers themselves who feel the bite. While these professional objectors are not interested in dragging out the process for long, they are interested in the money earmarked for the settlements. When the law firms choose to pay to make the objections go away, that money – often taken from their fees – may mean the sum allocated to be split between consumers and law firms is also reduced. Payoffs are typically said to be between 1 and 3% of the fees – meaning that, in major cases, there’s serious money on the table.

It’s not all doom and gloom, though. Following increases in the number of complaints (which has also prompted the creation of a soon-to-be-launched website tracking serial objectors), and a general acceptance that the present system is open to abuse, the U.S. Judicial Conference’s Committee on Rules of Practice and Procedure proposed a rule change forcing objectors and their lawyers to receive court approval for any fees, rather than allowing negotiations to take place behind closed doors.

Although the rule, if adopted, may not take effect for years, it’s a step in the right direction and, crucially, an open acknowledgment that serial objectors are out there, abusing the right to object despite its valued place in the class action process. As the case in Illinois also shows, these professional objector law firms are also beginning to feel the heat, facing lawsuits of their own when companies refuse to play ball. It might all sound somewhat technical and obtuse, but protecting the validity of objecting to class action settlements is important, and for consumers, anything that reduces the effectiveness of objecting should be cause for concern.

So, what do we take away from this? Well, it’s worth noting again that most objectors are acting in good faith and doing so because they have a valid reason for questioning a settlement agreement. When settlements are between two law firms, consumers can sometimes get left behind. Being able to object acts as a good counterbalance to this. It’s sad to see that some firms have seen an opportunity to make a quick buck, and taken it, but they are – for now, at least – in the minority.