Serial class action objector smacked with serious sanctions

November 23, 2015

(Reuters) – Pro tip for class action objectors hoping to extract six-figure payoffs in exchange for dropping protests to big-ticket settlements: Make sure you are actually a member of the class whose settlement you are trying to hold up.

Michael Narkin, a onetime California lawyer turned serial class action objector, learned the unhappy consequences of defying that basic rule on Friday, when U.S. District Judge Jack Zouhary of Cleveland hit him with $10,000 in sanctions for filing a frivolous objection to an antitrust settlement with two manufacturers of polyurethane foam. Judge Zouhary found that Narkin not only falsely claimed to be a member of the class but also “sought to extort money” from class counsel with an offer to drop his appeal of the judge’s approval of a $150 million settlement.

Dropping appeals in exchange for payments from class counsel is, as you probably recall, a common tactic of “serial objectors,” whose business model is to stand in the way of big class action settlements until plaintiffs’ lawyers get sick of waiting for their fees and pay the objector to go away. Class counsel in the polyurethane foam case – William Isaacson of Boies Schiller & Flexner and Stephen Neuwirth of Quinn Emanuel Urquhart & Sullivan – argued in their motion for sanctions last June that Narkin deserves that dubious distinction.

The motion pointed out that he had cut and pasted big chunks of his filings in the foam case from allegations he previously raised in four different class actions. His objection to the foam settlement accused class counsel of misconduct in a case they weren’t involved in, presumably because Narkin mistakenly copied material from a filing in a previous class action. He also referred to subclasses, although there aren’t any in the foam litigation, and asserted legal fees were part of the settlement agreement when they were separately negotiated. “Narkin’s objections are remarkable in that they reflect a complete ignorance about (or purposeful disregard of) the most basic facts related to this action and have no foundation in the law,” the class counsel brief said.

Narkin himself is remarkable, according to the brief. He resigned from the California bar in the 1980s, facing possible disbarment, and proceeded to open an Internet-based law school in 1996. By 2004, according to an article in the San Jose Mercury News, California regulators were investigating complaints from Narkin’s students that he had taken their money and disappeared.

Narkin brought his objection in the foam case without counsel, and, after Judge Zouhary approved the $150 million settlement despite Narkin’s filings, asked the 6th U.S. Circuit Court of Appeals to allow him to appeal without paying a filing fee. (Narkin actually brought his appeal at the Federal Circuit, which referred him to the 6th Circuit.) Judge Zouhary, who had previously raised doubts about Narkin’s standing, ordered him to provide evidence that he had purchased polyurethane foam directly from manufacturers.

Narkin eventually submitted a 2008 contract for carpet installation at his home in Eugene, Oregon. But as class counsel pointed out in a sanctions reply brief in July, Narkin’s carpet suppliers are not defendants in the antitrust litigation so, if that’s his only proof, he is not a class member.

Moreover, according to the class counsel brief, when plaintiffs lawyers called Narkin to inform him he was not in the class, he revealed the motive for his objection. Narkin allegedly said he would drop his objection for “something additional,” the brief said. Plaintiffs’ lawyer Adam Wolfson of Quinn Emanuel asked what he meant. “Narkin refused to provide details, stating that he had been ‘nailed down in previous situations,'” class counsel’s brief said. “Narkin did say that in exchange for a generous ‘contribution’ to his charity, he would withdraw his objections and the related appeal.”

Narkin serves on the board of the charity but refused to say whether he controls the group’s disbursements, according to a declaration by Wolfson. In a previous case in which Narkin requested a contribution to an animal-welfare charity in exchange for dropping an appeal, a judge concluded that his family apparently owned the charity.

In his two responses to accusations by class counsel, Narkin did not attempt to justify his class membership or to deny he offered to drop his objection if class counsel contributed to his charity. He insisted that class counsel had inflated their hourly billings on the case and said he had standing to object as an indirect purchaser of foam products. Narkin claimed that because the direct purchasers passed overcharges on to consumers, he has a cause of action.

In Friday’s sanctions opinion, Judge Zouhary said that was absurd as a matter of longstanding U.S. Supreme Court precedent. Narkin’s “shift in standing theory – from his baseless sworn statement that he bought flexible foam from a defendant to his absurd theory of a 46,000-member price-fixing conspiracy – is further proof of Narkin’s improper purpose,” he wrote. “Having had one theory exposed as meritless, Narkin simply fabricates a different theory so that he can further delay disbursement of the settlement funds.”

Narkin and his “meritless” objections have singlehandedly delayed a nearly $150 million settlement for 8 months, the judge said. But perhaps, he said, a $10,000 sanction will “deter Narkin’s repeat frivolous conduct.”

Or perhaps not: According to the declaration from class counsel Wolfson, Narkin said he wasn’t worried about sanctions because he is “judgment proof.”

In addition to objecting to the two-defendant foam settlement, Narkin objected to subsequent settlement with four other defendants that brings the total class recovery to $433.1 million. Judge Zouhary granted final approval to the settlements on Friday and authorized a fee of $102.4 million, or 23 percent of the recovery, for class counsel, in addition to $9.3 million in expenses. (Plaintiffs’ lawyers had asked for a 30 percent fee, or $130.6 million.)

Judge Zouhary brushed off Narkin’s objection to the second settlement in his approval opinion, reiterating that Narkin is not a class member – and adding that he filed his second objection too late, in any event. I suppose Narkin, who did not respond to my email request for comment, could appeal this approval ruling. But I think it is safe to say that if he doesn’t have much of a shot.

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