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Last Updated Mar. 23, 2000

Page 2: Objectors to class action settlements: Watchdogs or scum of the earth? Once an objector,
always an objector

Objectors come in many stripes. For example, former Sen. Howard Metzenbaum (D-Ohio) objected in Duhaime vs. john hancock mutual life insurance co. on behalf of himself in 1997. Metzenbaum objected that the settlement notices mailed to class members inadequately explained the settlement process and that the court should not approve the plaintiff attorneys' payment of $39 million until the actual value of the settlement was known. (Plaintiff lawyers had valued the settlement between $475 million and $826 million.)

Metzenbaum's objection to the settlement notices was resolved by attorneys for the class and John Hancock, according to David Vladeck, director of Public Citizen's Litigation Group, which represented Metzenbaum in the suit. Metzenbaum's objection to the plaintiff attorneys' fees was also upheld, creating a fee structure that depends on the actual value of the settlement to the class, according to Vladeck. Lawyers for Public Citizen were paid between $30,000 and $40,000, which represents their hourly rate multiplied by the number of hours worked, Vladeck says. Metzenbaum received nothing for his objections.

Other objectors will seek out clients, soliciting business in much the same way a plaintiff attorney seeks out class members: by sending out notices in the mail. The objector needs only one client in order to air concerns before the court but, oftentimes, the objector will represent a group of class members that is interested in enhancing the settlement. Typically, a successful objector will not only enhance the settlement for his clients, but will also get paid for suggesting the enhancements.

"I get requests to object to settlements every week now."

One of the most infamous insurance-settlement objectors in recent memory is Michael Malakoff, a Pittsburgh-based attorney who notes he has objected in only one class action in 30 years — the Prudential case. But he knows he now carries a reputation as a "professional" objector. "I get requests to object to settlements every week now," he says. "I didn't before the Prudential settlement." Malakoff uses terms like "marked man," "pariah," and "leper" to describe how other attorneys view him.

Malakoff's major objections to the Prudential settlement were that the plaintiffs attorneys' fee of $90 million was too high; the settlement did not require Prudential to disclose to the eligible class members that their policies were not performing the way they were described, shutting out more than 8 million people from reimbursement; and the U.S. District Court in New Jersey that heard the case had no jurisdiction. The court agreed with Malakoff's assertion that the plaintiffs attorneys' fees were too high, but his appeals about the settlement being unfair were denied.

In addition, Malakoff was sanctioned by U.S. Magistrate Judge Joel A. Pisano, who said his "incessant struggle with attorneys and the court caused colossal time delays and monumental obstacles to the orderly settlement of this action." Judge Pisano slapped Malakoff with a $100,000 fine to be paid to the plaintiff attorneys, but that was later reduced after Malakoff appealed.

"The sanction I ended up receiving in the Prudential case was a fine of $50,000 and a scarlet letter — that basically says any time I want to practice law in New Jersey, I have to supply the sanction that says I'm a lawyer who breaks the laws. It's doubtful that a court would allow me to practice law in New Jersey ever again," says Malakoff.

Malakoff is rated as having "very high to pre-eminent legal ability and very high ethical standards" by Martindale-Hubbell, a company that maintains a database of legal professionals.

Another Prudential class action settlement objector — Lynde Selden II, a San Diego, Calif.-based attorney — also has the reputation of being a "professional" objector, although he has objected in only four cases. Selden himself recognizes that his reputation is that of a professional objector and, as such, he is not looked upon kindly by other lawyers.

"There's no question that we are unpopular," he says. "We are unpopular with the defendant's lawyers because they're trying to get a settlement for their clients. We're unpopular with the plaintiff lawyers because we're challenging a settlement they've crafted. We're unpopular with the courts because judges begin to identify with the settlements they've preliminarily approved. When I come in and say, 'This settlement stinks,' they all get pissed off."

When I come in and say, 'This settlement stinks,' they all get pissed off."

For the most part, says Selden, he was treated professionally by the other attorneys in the Prudential settlement. However, his objections to the Prudential settlement were overruled by the court, and his objections to the plaintiff attorneys' fees were addressed in Malakoff's objections.

A fair, reasonable, and adequate settlement

"Some situations cry out for objectors because not every settlement is fair, reasonable, and adequate," says Michael Hyman, attorney for Chicago-based Much Shelist Freed Denenberg Ament & Rubenstein P.C. Hyman uses the following questions to determine whether or not a class action settlement is fair:

What is the strength of the plaintiff's case balanced against the amount offered by the defendants? A good rule is: The better the case, the higher the settlement.

What is the defendant's ability to pay balanced against the settlement offered? "If an insurance company is in a weakened financial situation, that might have lots to do with their ability to pay." In such cases, Hyman says alternative settlements, such as offering new policies or policy renewals, should be considered.

What is the complexity, potential length, and further expense of continued litigation? Basically, is it more cost-effective to settle than to continue in court?

there any collusion in the settlement? Have the plaintiff lawyers and defendants struck a "devil's bargain" — a settlement that, in essence, protects the defendant from further litigation and gives the plaintiff attorneys a big payday?

Were the lawyers who negotiated the settlement experienced and did they show competence in the case?

How much discovery was completed by the plaintiff attorneys? The more work done by the lawyers, the more they deserve to get paid.

Bob Cummins, attorney at Chicago-based ummins & Cronin, has objected in 13 cases, including Jordan vs. State Farm, where he objected to the fairness of the settlement. He considers himself a "professional" objector, but he defines a "professional" objector as an attorney who is genuinely interested in enhancing the settlement for consumers, not a "litigation prostitute." "If you're going to come in to the settlement and object, it's put up or shut up," he says. "If you can't persuade the lawyers that what you have to add to the settlement is good, you should get out of town."

Cummins could not specify how much his objections enhanced the Jordan vs. State Farm settlement because that amount is impossible to calculate, even after every class member has received reimbursement. However, his objections, he says, have increased the class size and the user-friendliness of of the claims-making process.

Cummins would not specify what he received as payment for his objecting services in the Jordan vs. State Farm case. However, he gave this hypothetical example of how much an objector should get paid: In a class action that initially settles for $150 million, the objector comes in, suggests changes to the settlement, the changes are approved, and the settlement is enhanced by $50 million or so. The objector spent 100 hours persuading the lawyers and the court that his enhancements are worthwhile. A payment of 3 percent to 5 percent of what the objector contributed — in this case, $1.5 to $2.5 million — is sufficient, he says. That's at least $15,000 per hour!

A necessary evil, but not necessarily evil

One reason class action lawyers might have knee-jerk reactions against objectors is because they challenge the validity of the attorneys' work. David Miller, a Boston-based attorney who objected in the $1.7 billion MetLife class action settlement approved in December 1999, says that objectors protect the plaintiff class from "devil's bargains": When plaintiff and defendant counsel get together and construct a settlement that protects the defendant, pays the plaintiff lawyers, and does not benefit the majority of the class.

In the MetLife case, Miller says the plaintiff lawyers were paid $120 million — a substantial sum of money considering the claims of 270 objectors in the case that their clients' settlements would be worth in the neighborhood of 10 cents for every dollar MetLife allegedly "ripped off" from them. While no objection was successful in reducing the plaintiff attorneys' payments in the MetLife case, objectors' scrutiny of attorneys fees is necessary, given that no independent third party, such as an attorney general, currently reviews class action settlements.

"Objectors are part of the class action system and, though they may be irritating from time to time, the system's been working effectively," says Melvyn Weiss, one of the most well-known class action attorneys in the nation and partner at New York-based Milberg Weiss Bershad Haynes & Lerach LLP.

"If objectors can come in and negotiate a benefit, that's great," he says. Weiss notes, however, that there are objectors who abuse the class action process. "I'm not going to criticize one of the safeguards [of the class action process]. The objectors act as a check and balance to the whole procedure."
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