Finally, the end is in sight. After motions to dismiss, discovery, hearings, a highly contested motion for class certification and mediation, the parties have reached a class settlement. The parties are relieved to end the uncertainty and burdens of a class action, and now turn their attention to obtaining court approval. But suddenly the settlement faces another obstacle – the serial objector.
Because class action settlements bind absent class members, due process requires that class members be given the opportunity to object to a proposed settlement. Rule 23(e)(5). This is a sensible rule, but it can be abused by “serial objectors.” While class counsel and defense counsel work to negotiate a settlement in good faith, the serial objector threatens to delay or even derail settlement via (often last-minute) objections that are usually frivolous and overruled. But the serial objector is not actually interested in winning in court. Instead, the serial objector’s purpose is to extract money from class counsel in exchange for withdrawing the objection, which otherwise could take years to resolve. Often class counsel is forced to agree to settle (i.e., pay) the objector to avoid lengthy delays. Serial objectors have been described by one court as “remoras.” A remora is a small fish with a sucker-like organ that attaches itself to larger fish. In re UnitedHealth Group Inc. PSLRA Litigation, 643 F. Supp. 2d 1107, 1108 (D. Minn. 2009).
One firm is fighting back against alleged serial objectors. This past December, Edelson PC filed a class action complaint in the Northern District of Illinois against three lawyers accused of being serial objectors, their law firms and one individual objector. Edelson PC v. The Bandas Law Firm PC, et al., Case No. 1:16-cv-11057 (N.D. Ill. 2016). Edelson alleges that the defendants recruited an associate to file a frivolous objection in a class action where Edelson served as class counsel. That objection was overruled, but according to the complaint, defendants threatened to file an appeal unless Edelson paid them $225,000. Faced with this scenario, Edelson allegedly agreed to pay the defendants $225,000.
The question facing Judge Pallmeyer in the Edelson matter is whether filing repeated, allegedly frivolous objections gives rise to a civil claim for class counsel. Edelson’s complaint alleges the following causes of action: RICO, the Hobbs Act, All Writs Act, Wire Fraud, Illinois Attorney Act and Illinois abuse of process. Five of the seven defendants have filed motions to dismiss. Some defendants argued that filing an objection, even if baseless, does not implicate the causes of action alleged by Edelson. Edelson has moved for extension to file an amended complaint to address some of the issues raised by the defendants’ motions to dismiss. It will be interesting to see how this case develops, and its impact, if any, on serial objectors.
The Rule 23 Subcommittee to the Advisory Committee on Civil Rules has proposed amending Rule 23 to address serial objectors, including requiring any objection to be stated with specificity and to state whether it applies only to the objector, to a specific subset of the class or to the entire class. The proposed amendment also requires disclosure and court approval of any financial consideration paid in exchange for withdrawal of an objection.
With or without the amendment, courts face a balancing issue in handling serial objectors. While serial objectors have been around for years, class members are becoming more involved in the litigation process. With the amount of information publicly available, class members are more knowledgeable and raise more questions to the court and class counsel than in years past. Thus, there may be a rise in legitimate objections at the same time that the Advisory Committee is considering amendments to deal with objectors. Until any amendments, it will be up to the courts to decide whether objections are legitimate under the existing rules.