When the plaintiffs’ lawyers and defense counsel agree to settle a federal class action, subject to approval of the district court, any member of the class may object. If the district court approves the settlement the objector may appeal. Appeals take time, and time is money — class counsel and, often, nonobjecting class members incur costs during the pendency of the appeal because attorneys’ fees typically are not payable and settlements are not implemented until the legal process has run its course. The prospect of financial loss caused by delay in implementation of a class settlement has given rise to a cottage industry of so-called professional objectors: attorneys who oppose settlements on behalf of nonnamed class members and threaten to file meritless appeals of the final judgment merely to extract a payoff. Class counsel have a strong incentive to pay them to withdraw their appeal and thereby avoid the cost of delay. That payment represents a kind of tax on class action settlements. In a nutshell, professional objectors profit by extorting payments from class counsel.

I will start with a quote from a recent Florida State University (Law division) paper by John E. Lopatka — “ Class action professional objectors: what to do about them? ” — that explains an increasingly popular way to parasitize on nearly settled class action lawsuits (emphasis supplied):

What does it have to do with copyright trolls? Nothing directly, but it seems that some painfully familiar lawyers have recently tried to utilize the scheme described above. With the help of the community, I found three cases that I want to briefly review.

Groupon, Inc., marketing and sales practices litigation

This lawsuit, 11-md-02238, was filed in CASD on 6/2/2011. On 7/6/2012 Brett Gibbs filed an objection on behalf of Padraigin Browne, who quite coincidentally happened to be Paul Hansmeier’s wife. Paul Hansmeier himself appeared later, on 9/5/2012. After some back-and-forth arguments (which I did not recap), Judge Sabraw denied the proposed settlement based on two (out of 18) objections on 9/28/2012. Ms. Browne’s objection was not among those two, and the judge specifically called some of Browne’s objections “meritless” (p. 10 of the Order).

I’m not aware of any extrajudicial negotiations in this particular lawsuit.

Shames et al v. Hertz Corporation et al

This lawsuit, 07-cv-02174, was filed in CASD back in 2007. This time the objector was Paul Hansmeier’s father, a Minnesota lawyer Gordon Hansmeier. The objection was filed by Brett Gibbs on 10/1/2012, which was the last day of the allowed period. Two days prior to that, Paul Hansmeier sent a letter to the class counsel, Denis Stewart, particularly saying that

This letter is to advise you that an objection will be filed to your proposed settlement. I am enclosing a draft of the objection to be filed, which you have previously had an opportunity to review. This (or a similar version) will be filed if you do not attempt to resolve this matter. We find that settlements like this are likely to be rejected following our participation, as was the result today in In re Groupon, No. 11-md- 02238 (S.D. Cal.) (Dkt. No. 97). I will extend to you an offer to settle this matter with my client for $30,000.00 if the settlement terms are reached by 5:00 PM CST on Monday, Oct. 1, 2012. If you reject this settlement and the objection is filed, the offer to o settle is revoked and will not be extended at the pre-filing settlement amount. Govern yourself accordingly.

Mr. Stewart was not amused (his profile suggests that that he is an experienced class litigator and he is wary of professional objectors). His reply was firm:

In our view, if you present this objection, it is clear that it will have been presented for an “improper purpose” under Fed R. Civ. P. Rule 11(b)(1). Our view is further informed by the fact that the practice of contacting class counsel with draft objections and inviting them to “discuss them” (i.e. resolve them by making an unjustified payment to the objectors’ lawyers) in advance of filing in the hope of gaining an unjustified payment beyond any legitimate class member’s claim appears from the Record in Groupon to be a pattern of conduct. Please be advised that we consider this conduct to be improper and sanctionable under 28 U.S.C.A. § 1927 and Rule 11.

That same day, Paul Hansmeier took umbrage at class counsel’s response and replied, in part:

The idea that you would respond to a demand letter which you requested by threatening sanctions is unconscionable and wholly beyond the pale. It has become abundantly clear that you are not interested in good-faith discussion, but only in hardball tactics designed to intimidate my client and to protect this unfair settlement from legitimate challenge. Regarding your threatened motion for sanctions, please be advised that my client’s objection has a solid basis in both law and fact. You have had ample time to review a draft of my client’s objection, and you have failed to offer a substantive counter-argument at any point. Although you may disagree with our analysis you should certainly be aware that our arguments are well-founded, and that our client has a right to make them under Fed. R. Civ. P. 23(e).

After a while, Paul Hansmeier filed an ex parte motion to file a motion to intervene, which Judge Anello denied on 10/15. This document, embedded below, includes some strong opinions regarding Paul Hansmeier’s conduct:

Milans v. Netflix, Inc.

The last of three lawsuits, discussed here — 11-cv-00379 — was filed on 1/26/2011. Brett Gibbs filed an objection on behalf of Paul Hansmeier’s wife, Padraigin Browne, on 10/31/2012. Plaintiff’s memorandum dated 12/5/2012 is worth reading. In addition to discussing merits (or the lack thereof) of all the objections, the plaintiff’s counsel apparently conducted some investigation and discovered Gibbs’s and Hansmeier’s involvement in copyright trolling (p. 41 of this memorandum).

One of the exhibits to this memorandum, the declaration of Jay Edelson, is especially interesting, as it describes in detail shady dealings of the objectors’ attorneys (pages 5-7). Don’t forget to scroll down to exhibits 4-7, you won’t regret it:

Conclusion

First, the topic of this post is obviously a deviation from this blog’s theme, yet I thought that the facts presented here can help attorneys draw a holistic picture of Prenda Law and its seniors in light of the April 2 hearing. Otherwise, diving into class action specifics is the latest of my priorities.

Second, I have only scratched the surface here, and naturally missed interesting documents (and maybe more similar lawsuits), but this is what the community is for: I hope these deficiencies will be quickly compensated by insightful and informative comments.

Third, due to my peculiar situation, I must strongly stress that all the above (except the quotations from publicly accessible documents) is merely my opinion. That opinion can be miles off, and despite judges’ and class attorneys’ harsh words, it is possible that Mr. Hansmeier’s close relatives are, in fact, model citizens, who lost their sleep and appetite when they saw that certain class action lawsuits were about to settle unfairly.

Coverage