7th Circuit Rejects "Scandalous" Class Action Settlement

In Eubank v. Pella Corp. (2014 WL 2444388), the 7th circuit rejected a class-action settlement approved by the district court, finding that “almost every danger sign in a class action settlement…present.” The case involved a designed defect claim against window manufacturer Pella that began in 2006. Five years later, the parties negotiated a settlement that was finally approved in 2013. Upon approval, four objectors filed an appeal.

The court called the settlement “inequitable – even scandalous” and concluded that class counsel sold out the interests of the class. It is not difficult to see why, after examining these facts of the case:

  • The original class representative was the father-in-law of the class counsel and his daughter was partner in class counsel’s firm – this created a clear conflict of interest, as class representative acts as a fiduciary for the class.
  • Class counsel’s adverse ethical proceedings and dire financial straits – ending in temporary disbarment, this created strong incentive to quickly settle.
  • Four original class representatives objected to the settlement - they were replaced upon objecting, under the direction of class counsel, with others who approved the settlement.
  • Attorneys' fees in relation to class recovery – although the settlement provided $90 million for recovery, it was more likely to actually be $8.5 million, making attorney’s fees ($11 million), 56% of the settlement.
  • Additionally - class notice was incomplete, objections were ignored, no incentive was provided for those opposing settlement, the claims process was overcomplicated, and adversity existed among subgroups.

The court not only rejected the settlement approval but also ordered the removal of both class counsel and the class representative. The court then reversed the judgment, named the four objectors as class representatives, and remanded the case.