Overlawyered leads us to this line from a Posner opinion in Mirafasihi v. Fleet Mortgage Co., decided December 30, 2008:
It is an example of the typical pathology of class action litigation, which is riven with conflicts of interest …
The case alleged numerous violations of state (every state) consumer protection statutes and the federal Fair Credit Reporting Act. Specifically, Fleet Mortgage Corporation wrongfully used private financial and personal information it had on home mortgages to solicit (with deceptive practices, no less) 1.6 million of its homeowners with offers for financial services. 190,000 of them took the bait and purchased some of these services.
Suit was filed with two proposed classes, one for the 15% who were financial victims and one for the 85% who were ‘merely’ privacy victims. A settlement was eventually negotiated and approved simultaneously with class certification.
It was an awesome deal: the 1.4 million who merely had their privacy illegally violated so that a national bank could attempt to swindle them received nothing. Nothing despite state statutes imposing an average penalty-per-violation of over $1,000.
Wait, that’s not fair, they did get something: they were to be precluded from ever filing suit individually.
Judge Posner was right: the situation presented a huge conflict of interest. Fleet almost certainly exploited the fact that the same lawyers represented both classes, and so likely deliberately negotiated with the intent to split the 190,000 financial victims from the 1.4 million privacy victims. The quote referenced above comes from this passage in Posner’s opinion:
We are disheartened that the litigation by the information-sharing class has been allowed to drag on for eight years, when it had no merit—and that as a matter of law, without need to take evidence. It is an example of the typical pathology of class action litigation, which is riven with conflicts of interest, as we discussed recently in Thorogood v. Sears, Roebuck & Co., supra, 547 F.3d at 744–46. The lawyers for the class could not concede the utter worthlessness of their claim because they wanted an award of attorneys’ fees. The lawyers for Fleet were reluctant to argue the utter worthlessness of the claim because they were able to negotiate a settlement that cost their client virtually nothing—provided they did not take such a strong stand that it jeopardized the class lawyers’ shot at a generous award of attorneys’ fees, and hence the settlement.
That’s all well and good, and it is exactly why we permit members of a proposed class action settlement to file objections to the proposed settlement.
And that is what happened here: some of the 1.4 million homeowners whose privacy was intentionally violated as part of a fraud objected to the settlement on the grounds that they would receive nothing and no steps were going to be taken to ensure that neither Fleet nor anyone else would do this again.
The district court denied the first objection and approved the settlement, so the objectors appealed and won. The district court then approved a newly negotiated settlement with the privacy victims getting nothing, but with a quarter million going to consumer law public interest attorneys.
The objectors appealed again and won again.
The district court then went back, looked at the value of their claims, and concluded it was right the first two times. It also awarded, for the twice-successful appeals, $18,750 to the objectors’ attorneys.
For reference, an appeal in a basic slip-and-fall case will cost at least $15,000 in hourly fees. Most humdrum state tort appeals cost between $20,000 and $50,000.
So what did Posner do on the third appeal? Blamed the objectors and their lawyers, forced them to be part of a settlement that extinguishes their claims for nothing, and affirmed the paltry attorneys’ fee award for two prior successful appeals to the exact same court for which Posner was writing, the Seventh Circuit Court of Appeals. Then he accused the objectors’ attorneys of "chutzpah" for daring to request fees on par with the original attorneys, the one’s Posner accused of representing clients amid a conflict of interest.
Posner continued by blaming the district court for insufficiently analyzing the merits of plaintiff’s claims, apparently missing the irony of his own court waiting for the third appeal to point out that plaintiffs’ federal claims were "waived" before the first appeal and that the objectors’ state claims had been “worthless” on their face the whole time.
And so the “typical pathology of class action litigation, which is riven with conflicts of interest” continued unabated, with the objectors and their attorneys penalized with foreclosed claims and massive losses in fees for only winning two out of three appeals, on grounds that evaded everyone for years except Posner.