Lieff: Professional objectors are a scourge but settling isn’t unethical

June 26, 2015

(Reuters) – On Friday, the 7th U.S. Circuit Court of Appeals ended a drama that has roiled the class action bar this month. A 7th Circuit motions panel agreed to dismiss appeals by objectors in a $75.5 million class action settlement with Capital One over debt collection robocalls. That sounds like a pro forma docket entry, since all of the objectors at the 7th Circuit moved to drop their cases. But there was a chance the appeals court might have taken bait dangled by Ted Frank at the nonprofit Center for Class Action Fairness and insisted on investigating settlements between the objectors and class counsel at Lieff Cabraser Heimann & Bernstein.

The 7th Circuit did wait to toss the case until Lieff had a chance to offer its side of the story in a 72-page brief and attached declarations filed Thursday night. In his sworn statement, Lieff partner Jonathan Selbin said he deplores professional objectors “who advance baseless, often irrelevant and sometimes cut-and-paste objections, and notice appeals solely for purposes of extorting money from class counsel.” But sometimes, Selbin’s declaration said, it’s in the interests of class members to pay objectors to go away, as Lieff Cabraser reluctantly agreed to do in the Capital One appeal. And according to two legal ethics professors Lieff Cabraser hired to review the Capital One case, there was nothing improper or unethical about the firm’s conduct, despite allegations to the contrary by Ted Frank.

In case you’ve somehow missed the story to date, Frank represented one of three objectors who filed appeals of Lieff Cabraser’s $16 million fee award in the Capital One case. (A couple other objectors protested the entire settlement.) Though Lieff Cabraser initially refused mediation with the objectors, it eventually reached a deal with Christopher Bandas, a plaintiffs’ lawyer and frequent objector who had signed onto Frank’s brief appealing Lieff’s fees. Through Bandas, Lieff also offered a $25,000 settlement to Frank’s client. That offer led to a split between Frank and his client, who opted to accept the settlement – and to a split between Frank and Bandas, with whom Frank turned out to have had a years-long business relationship.

In a June 10 motion at the 7th Circuit in which he asked to be named a guardian for the Capital One class, Frank described Lieff’s “unethical” settlement offers to his client and Bandas. He also disclosed that Bandas had paid him about $250,000 in consulting fees since 2013. Bandas then sued Frank in Texas state court for revealing confidential information, winning a restraining order last week. This week, according to Frank, he and Bandas reached a settlement in which Bandas dropped the state court suit and Frank withdrew his motion at the 7th Circuit to be appointed a steward for the class. But Frank refused a request from Lieff Cabraser specifically to repudiate his assertions that the firm’s settlement with his now-former objector client was unethical.

The firm’s filings on Thursday responded to those allegations. Lieff has added details to Frank’s account, disclosing, for instance, that when the firm was discussing a settlement with Bandas, Bandas told Lieff lawyers that Frank’s client, Jeffrey Collins, had already fired the Center for Class Action Fairness. Selbin’s declaration also said that when Frank first contacted him about the settlement offer to Collins, Frank agreed Selbin had done nothing wrong in offering a settlement through Bandas. In addition, Selbin said he told Frank he was ethically prohibited from talking about settlement offers to other objectors. (Selbin said his notes and emails back his account of his dealings with Frank and that he disagrees “with much of what Mr. Frank says in his declaration about what was said and done.”)

More broadly, Lieff Cabraser argued, its settlements with Capital One objectors were in class members’ interests. All of the money it paid came from the firm, not from the class fund, it said, and the settlements will expedite payments to the class. “Any suggestion of wrongdoing is as meritless as it is reckless,” the firm’s brief said. “Class counsel only agreed to settle after considering the costs of pursuing the appeal and the inevitable delay in payment to the class  Class counsel’s decision was reasonable and in line with their fiduciary duties.” (Lieff attached declarations from University of Connecticut law professor Alexandra Lahav and Northwestern law prof Robert Burns to buttress its ethics arguments.)

The 7th Circuit’s order Friday closes discussion of paying objectors to go away in the Capital One appeal but I hope it doesn’t end examination of the issue. If you believe in class actions you should too. Lieff Cabraser and Ted Frank didn’t agree on much in this case, but they both said there’s a flaw in a system that rewards lawyers who file unwarranted objections merely to extract settlements from class counsel. Frank and Lieff Cabraser are compromised as messengers, Frank as the former beneficiary of a prolific for-profit objector and Lieff as a firm that has paid objectors. But don’t ignore their message of reform.

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