Pella Window Settlement Tossed Out as Unfair
CHICAGO (CN) - "Class counsel sold out the class," the 7th Circuit said, overturning a settlement agreement that enriched the attorneys at the expense of a class suing over defective windows.
The Monday ruling from a three-judge panel opens with an applause for the institution of the class action, described as "an ingenious procedural innovation that enables persons who have suffered a wrongful injury, but are too numerous for joinder of their claims alleging the same wrong committed by the same defendant or defendants to be feasible, to obtain relief as a group, a class as it is called."
Class actions are also the "brainchild of lawyers," however, and the named plaintiffs rarely have any control over the litigation, Judge Richard Posner wrote for the court.
In fact, "in picking class representatives [lawyers] have no incentive to select persons capable or desirous of monitoring the lawyers' conduct of the litigation," the 23-page opinion states.
A very high percentage of class action lawsuits are settled, partly because the potential liability for the defendant may be very great - but also because class counsel may choose to maximize their attorneys' fees at the expense of the class.
"From the selfish standpoint of class counsel and the defendant, therefore, the optimal settlement is one modest in overall amount but heavily tilted toward attorneys' fees," Posner said.
In this case, a class sued windowmaker Pella Corp. over alleged defects that let water enter behind "ProLine Series" casement windows and rot the wooden frames, as well as the houses themselves.
The settlement agreement, approved by a federal judge last year, bound a nationwide class of window owners, regardless of whether they had already replaced or repaired their defective windows.
It granted class counsel $11 million in attorneys' fees, and purported to give $90 million to the class.
But Posner said "the claim forms are so complicated that Pella could reject many of them on the ground that the claimant had not filled out the form completely and correctly." The settlement also entitles half of class members only to a coupon on future window purchases, which might be of little value to them.
As of February 2013, only 1276 claims had been filed, out of more than 225,000 class members, which totaled just more than $1 million.
Although 9,500 more claims were filed after the court approved the settlement, "there is no evidence that Pella would pay the maximum benefits on all, or indeed on any, of the claims," Posner wrote.
"We don't understand the judge's valuing the settlement at $90 million or thinking the feeble efforts of class counsel led by [Paul] Weiss to obtain benefits for the class (as distinct from benefits for themselves in the form of generous attorneys' fees) worth $11 million," he continued (parentheses in original). "The restrictions that Pella was allowed to place on the settlement would, if upheld, enormously reduce the class members' recovery of their losses, and the residue is to be returned to Pella. Class counsel sold out the class."
Lead counsel Weiss moreover is the son-in-law of the lead plaintiff, Leonard Saltzman, and was recently suspended from the Illinois bar for 30 months because of repeated misconduct, the court noted.
"To begin with, it was improper for the lead class counsel to be the son-in-law of the lead class representative," Posner wrote, as this family relationship caused a "grave conflict of interest."
And when the other four class representatives opposed the settlement, they were promptly replaced by others, selected by class counsel, according to the ruling.
Weiss' pending ethical investigation also gave him a clear motive to negotiate a quick settlement before he might miss out on his share of the fees, the court said.
"In sum, almost every danger sign in a class action settlement that our court and other courts have warned district judges to be on the lookout for was present in this case," Posner wrote. "Most were not even mentioned by the district judge, and those that were received a brush-off. The settlement flunked the 'fairness' standard by the one-sidedness of its terms and the fatal conflicts of interest on the part of Saltzman and Weiss. This is a case in which 'the lawyers support the settlement to get fees; the defend-ants support it to evade liability; the court can't vindicate the class's rights because the friendly presentation means that it lacks essential information.'"
The court ordered new class counsel be appointed, and reinstated the four "defrocked" plaintiffs as class representatives.