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Posner tosses 'scandalous' settlement, says judge didn't heed danger signs

Updated: A federal appeals court has rejected an “inequitable—even scandalous” class-action settlement, removed the lead lawyer and reinstated “defrocked” lead plaintiffs who had objected to the deal.

Judge Richard Posner wrote the June 2 opinion (PDF) for a panel of the Chicago-based 7th U.S. Circuit Court of Appeals. “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.

The settlement in a class-action over allegedly defective Pella casement windows would have paid $11 million in attorney fees; the lead lawyer, Paul M. Weiss of the Complex Litigation Group in Highland Park, Illinois, proposed that 73 percent of that amount go to his firm. Pella had also agreed to advance $2 million in attorney fees to lead class counsel before notice of the settlement was sent to class members.

Though the settlement was valued at $90 million, the class “could not expect to receive more than $8.5 million from the settlement, given all the obstacles that the terms of the settlement strewed in the path of the class members,” Posner said.

The appeals court removed Weiss as lead counsel and also tossed the lead class representative, who was Weiss’ father-in-law. The relationship, the opinion said, “created a grave conflict of interest; for the larger the fee award to class counsel, the better off [the class representative’s] daughter and son-in-law would be financially.” Forbes and Legal Newsline have coverage.

Posner pointed out that Weiss is a defendant in two lawsuits accusing him of misappropriating assets from his former firm, Freed & Weiss. Posner also cited a recommendation by the Hearing Board of the Illinois Attorney Registration and Disciplinary Commission that Weiss be suspended for 30 months for alleged sexual harassment. Ethical proceedings against Weiss were already under way during settlement negotiations, and Weiss had an incentive to get a quick settlement before a possible sanction barred him from receiving attorney fees, the opinion said. (A lawyer for Weiss has said he will appeals the IARDC findings and proposed suspension.)

Posner rejected arguments that few class members had objected to the settlement notice. “Of course not; it was not intended to; it was incomplete and misleading,” Posner wrote.

“It failed to mention that four of the five original class representatives had opposed the settlement and been promptly replaced by other persons, selected by class counsel; that the only original representative who had supported the settlement was the father-in-law of the lead class counsel who was both in financial trouble and ethically challenged; that up to half the recipients of the notice would if they filed a claim and it was accepted receive only a coupon discount on a future purchase of a Pella window; and that four of the original class representatives believed the notice of the settlement misleading.”

The opinion also criticized U.S. District Judge James Zagel for approving the settlement. Though danger signs were present, Posner wrote, “Most were not even mentioned by the district judge, and those that were received a brush-off.”

A spokesperson for the Complex Litigation Group issued this statement: “We obviously disagree with the opinion in every respect. It simply ignores the facts. In fact it makes no reference to the extensive record on appeal that was provided to the court which establishes the fairness of the settlement compared to other windows class-action settlements. Nor does the opinion acknowledge Judge Zagel held a day-long evidentiary hearing on the allegations concerning Mr. Weiss and rejected a motion to replace Mr. Weiss as lead counsel after hearing all the evidence. Judge Posner’s opinion does not acknowledge the fact that such a hearing was conducted, let alone the evidence that came out as a result of that hearing.

“In addition, the opinion makes numerous objectively verifiable factual errors,” the statement continues. One error, the statement says, is the claim that class counsel reached an agreement to be paid $2 million in legal fees before preliminary approval of the agreement. “In fact no payment of attorneys’ fees could have occurred under the agreements until after final approval,” the statement says.

Name of publication with news coverage corrected at 10 a.m. Story updated at 12:50 a.m. to include a statement by the Complex Litigation Group.