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March 24 — Greed is undermining class actions, according to Ted Frank, founder and director of the Center for Class Action Fairness in Washington.
Consumer and other class settlements often pay more to trial lawyers than to their clients, Frank says, and he's devoted his professional life to fighting that trend.
Frank is an objector—a lawyer for class members who claim excess attorneys' fees or other settlement terms siphon benefits from consumers—and he says he fills a void.
“We continue to see the vast majority of settlements being abusive,” Frank told Bloomberg BNA recently. But in class actions, “nobody has the incentive to bring the individual case unless it’s aggregated, and nobody has the incentive to object,” he said.
Nobody, it seems, but Frank and a handful of lawyers like him.
Frank and other objectors perform a valuable role in exposing settlement flaws, lawyers familiar with class action litigation told Bloomberg BNA. And his arguments have gained traction, evidenced in 13 federal appellate victories in cases brought by his group, known as CCAF.
Those appeals victories, and others in federal district courts, have resulted in reductions of more than $300 million in attorneys' fees for plaintiffs' counsel, and $100 million in recoveries for class members, according to Frank.
CCAF, founded by Frank in 2009, is an arm of the Washington-based Competitive Enterprise Institute, described on its website as “a non-profit public policy organization dedicated to advancing the principles of limited government, free enterprise, and individual liberty.”
Objectors bring advocacy into an inherently non-adversarial setting, Jeff Sovern, a professor at St. John's University School of Law, in Jamaica, N.Y., told Bloomberg BNA.
“When parties settle, both sides have a stake in making arguments for approval of the settlement, which means that unless a class member or ‘watchdog' criticizes a class action settlement, the court may not hear the arguments against it, and the adversary system may not function as it is normally does,” Sovern said in an e-mail.
Andrew Pincus, a defense attorney with Mayer Brown in Washington who has argued class action cases before the U.S. Supreme Court, concurs.
“I think objectors provide a huge service in giving courts a different perspective,” said Pincus, who frequently represents the Chamber of Commerce and other business interests, and is a former assistant to the Solicitor General.
“They can win or they can lose, but at least it gives the court some information and another point of view in order to make the determination,” Pincus told Bloomberg BNA.
Frank relishes his role in probing the interstices of settlements, invoking a theme usually claimed by the attorneys who file class actions.
“There is a watchdog aspect to it, a traffic cop aspect,” said Frank. “It’s a public service. We view ourselves as consumer attorneys. We’re out there fighting for consumers and shareholders against a system that doesn’t always work for them.”
Frank and his group's efforts have exposed class settlement flaws in appeals before the Third, Sixth, Seventh and Ninth circuits.
Among those was a 2014 deal the Seventh Circuit referred to as “inequitable—even scandalous” in an opinion authored by Judge Richard Posner, who has issued a number of scathing rulings criticizing so-called collusive class deals. That case was Eubank v. Pella Corp., 753 F.3d 718 (7th Cir. 2014) (15 CLASS 617, 6/13/14).
In Eubank v. Pella, lead plaintiffs' counsel—the son-in-law of the lead class representative—proposed to allocate 73 percent of attorney fees to his firm, the court said in noting a series of “red flags” in the settlement.
Frank said it “sort of follows” that some of his notable wins came in the Seventh Circuit.
“I turned down Yale and Harvard because I wanted to study at Judge Posner’s law school,” he said, referring to the University of Chicago School of Law, Chicago. Frank graduated with high honors after receiving an economics degree (also with high honors) from Brandeis University in Waltham, Mass.
A clerkship followed with Judge Frank H. Easterbrook—also of the U.S. Court of Appeals for the Seventh Circuit, and another noted jurist who has scrutinized class settlements recently—allowing Frank's legal philosophy to coalesce.
“I became a Frank Easterbrook clerk, and I was reading the Posner and Easterbrook decisions on class actions, which pervade everything I do,” Frank said. “If you look at my first brief, it’s pretty much quoting Posner and Easterbrook because there wasn’t any other good precedent.”
Frank's acumen grew in litigation stints at Kirkland & Ellis in Washington and Irell & Manella in Los Angeles, and then as resident fellow at the American Enterprise Institute for Public Policy Research in Washington.
Some attorneys question how much weight some of Frank's objections should be given, despite the praise conferred by Sovern, Pincus and Frank himself on the significant role that objectors fill in policing settlements.
Brian Kabateck, a class action plaintiffs' lawyer with Kabateck Brown Kellner in Los Angeles, told Bloomberg BNA that objectors like Frank serve an important—but not always a helpful—role.
“Do I think that objecting to class action cases, in concept, is a good idea? Of course I do,” Kabateck said. “I think it’s appropriate and I think it’s absolutely necessary.”
“I’ve been on both sides of cases with Ted Frank where he successfully objected to our settlements, and there’s been changes made,” said Kabateck.
“I’ve also been on the other side where his objections have been dismissed,” Kabateck said. “He has delayed otherwise good settlements for, in some cases, years.”
But Pincus, of Mayer Brown, points to Frank's successes as the best barometer of his work.
“The fact that Ted has been successful in such a large number of cases in which he’s been involved does seem to indicate” that unfair settlements for class members are “a pretty widespread problem,” Pincus said.
“I think the reality is Ted has shined a spotlight on some quite unsavory practices in the class action context, and that’s an important public service,” said Pincus.
He added that the unnecessary legal costs of bad settlements include not just high fees for class counsel, but also payments to those on his side of the bar: defense lawyers.
Kabateck also questions the forces that drive Frank—and presumably other objectors—in challenging settlements.
“Is this done for a political agenda? Is this done to advance something? Is this done because there is a genuine feel that bad class actions have to be objected to? Or is it done for some other purpose? I don’t know the answer to those questions,” Kabateck said.
Frank, an attorney not afraid to take on criticisms of his work, provides his own answer.
“The motivation is I want to make the system better, and in fact [that was] one of the reasons I started this in 2009,” Frank said. However, he acknowledged that he has also long advocated for such pro-business goals as overhaul of the civil tort process.
But that shouldn't take anything away from his credibility in pressing for settlement fairness, Frank said.
“My contacts are on the right side of the aisle, and that’s where my funding came from initially, but I don’t see any reason why the left would oppose what we’re doing,” said Frank.
He adds that CCAF doesn't accept “green mail” payments, which are sometimes demanded by, and made to, an objector to drop an objection to a settlement (16 CLASS 1044, 9/25/15).
“That’s always been the position of the Center for Class Action Fairness,” Frank said. “Not only is that the position, but we’re looking for opportunities for courts to order divestments of green mail payments.”
In 2015, Frank addressed questions in a Seventh Circuit appeal about an offer by plaintiffs' class counsel to pay Frank's then-client, Jeffrey Collins, $25,000 to drop his objection to a class settlement, in In re Capital One Telephone, 7th Cir., No. 15-01400.
Frank said in a declaration he filed in the case that ethical rules required that he communicate the offer to Collins despite his “fundamental disagreement” with his client's decision to accept it.
Frank also said in his declaration that he formerly accepted payments from a for-profit objector, attorney Christopher Bandas, under an arrangement for legal services approved by CCAF's board of directors.
Frank withdrew from counsel in the Capital One case and advised the Seventh Circuit of the circumstances in a motion.
“Because its retainer agreement complies with conservative interpretations of federal guidelines for non-profit public-interest law firms, the Center for Class Action Fairness has no rights to any of the $25,000 Mr. Collins has received for settling his appeal,” Frank said in the motion.
“We lose money on every objection,” Frank told Bloomberg BNA. “If we weren’t doing it as a non-profit, we couldn’t do it. And if we didn’t have generous donors, and attorneys taking 50-, 60- and 70-percent pay cuts, we couldn’t do what we do.”
As the chief of CCAF, Frank received $199,200 in compensation from the organization for the fiscal year ending June 30, 2014, according to Internal Revenue Services records.
The records are available through GuideStar, an online repository of information on nonprofits.
Frank said in his declaration in the Capital One case that, under the arrangement with Bandas, Frank grossed about $33,000 in 2013, $125,000 in 2014, and $95,000 in 2015. He said he incurred about $32,000 of expenses in contract attorneys assisting him with the work.
His arrangement with Bandas, which Frank said he terminated in June 2015, allowed him to take “a pay cut from the Center and the Center used the savings to hire expert witnesses and attorneys to bring more ambitious objections,” according to the declaration.
Class actions occupy the majority of Frank's attention. But he also has other varied interests, including those related to big time politics and controversial social issues.
Frank served as a consultant to the Republican National Committee in 2008, vetting vice-presidential candidates for the unsuccessful presidential campaign of Sen. John McCain (R-Ariz.)
He also says he “won some money at the World Series of Poker,” and created a “Chicken Offset” program in 2012 for consumers who oppose Chick-fil-A's stance funding anti-gay rights efforts.
Frank's program seeks to offset the portion of the retailer's sandwich purchases that go to those efforts by donations to LGBT organizations.
“They’re both a little bit mischievous,” said Frank, referring to similarities between his class action efforts and the offset program.
“They’re both about providing avenues that didn’t exist.”
Frank said much of his recent attention was focused on a Supreme Court petition he filed over the need for a consistent mechanism for setting attorneys' fees for class counsel in low-value consumer settlements.
The top court denied Frank's petition March 21, in Frank v. Poertner, U.S., No. 15-765, review denied 3/21/16 (17 CLASS ???, 3/25/16).
Despite that recent setback, one thing is clear: future class settlements will continue to come under his scrutiny.
“If not me, who?” Frank asked. “The answer is no one. These things aren’t going to get done if I don’t spend the time doing them.”
To contact the reporter on this story: Steven M. Sellers in Washington at firstname.lastname@example.org.
To contact the editor responsible for this story: Steven V. Patrick at email@example.com.
[CLARIFICATION: This version of the story reflects additional information from the declaration Ted Frank filed in 2015 in the Capital One case. It also removes a reference, in a quote by attorney Kabateck, to appeals filed by Frank being dismissed.]
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