One of the prominent cases in which a products liability class action has been certified in recent years is Pella Corp. v. Saltzman, 606 F.3d 391 (7th Cir. 2010), involving windows that allegedly contained a design defect that allowed water infiltration.  After the class was certified, a settlement was reached and approved by the federal district court, over objections by some of the named plaintiffs.  The Seventh Circuit recently reversed approval of the settlement, in an at times vituperative opinion by Judge Posner in which he refers to the settlement as “scandalous.”  Eubank v. Pella Corp., Nos. 13-2091 et al., slip op. (7th Cir. June 2, 2014).  This opinion has gotten a fair amount of attention in the legal media.

One of the reasons for disapproval of the settlement is hardly surprising, and unremarkable.  The lead named plaintiff was the father-in-law of the lead class counsel, whose wife (the daughter of the lead named plaintiff) was also a lawyer in the same law firm.  There were four other class representatives.  Until all of them objected to the settlement.  This kind of thing has long been disapproved in class actions.  As the court explained, a named plaintiff is supposed to be a fiduciary for the class, and to direct and supervise class counsel, and cannot have this type of conflict of interest.

The Seventh Circuit also found the settlement terms unfair because, among other reasons: the claim forms were unduly long (12 and 13 pages) and required data that would be difficult to locate (it appears that the class member would have to tear out their window and look for ID numbers on it); some claimants would get only coupons; in order to recover more than $750 and up to $6,000, claimants would have to participate in arbitration likely without counsel or expert witnesses; and the aggregate value of the settlement to the class, for those who had made claims, would be less than the attorneys’ fees.  The court concluded that “[c]lass counsel sold out the class.”  (Slip op. at 17.) The settlement notice was also found to be misleading because it implied that the $750 and $6,000 figures were guarantees rather than ceilings on potential payments.

The opinion has a lot of dicta.  There are a couple of areas where even the best intentioned parties seeking approval of a class action settlement, and district judges inclined to approve them, could run into problems, depending on how much other courts follow some of what Judge Posner has to say.  First, at one point, the opinion states:

Not only did the settlement agreement not quantify the benefits to the class members, but the judge approved it before the deadline for filing claims.  He made no attempt to estimate how many claims were likely to be filed, though without such an estimate no responsible prediction of the value of the settlement to the members of the class could be made.  (Slip op. at 10-11.)

Claims-made settlements, where only those class members who submit claim forms receive relief, are very common.  Does this mean that claims-made settlements should not be approved without expert testimony as to what the potential “take rate” (percentage of class members responding with valid claims)  might be?  Where is that information going to come from given that it is not infrequently treated as confidential?  Or does this mean that the parties should go through the entire, often quite expensive, process of giving notice and receiving claim forms back before the settlement approval hearing is held?  There is some potential benefit here — most defendants would probably be happy to have attorneys’ fees awards to class counsel be based only on what class members actually receive in benefits.  But perhaps not if this makes it too difficult to reach a resolution because class counsel does not have a sufficient financial incentive to settle.

Second, Judge Posner writes that the district court judge “didn’t estimate the likely outcome of a trial, as he should have done in order to evaluate the adequacy of the settlement.”  (Slip op. at 19.)  How deep does such an evaluation need to go?  Class action trials are extremely rare, so verdict data is almost always not available and essentially useless.  Unless perhaps there are very similar individual cases that have been tried, but again that would be rare.  In most class action settlements the case has not been fully developed in discovery.  What evidence would be presented at trial and which side would be likely to prevail and by how much may be very difficult to predict.  It seems to me that the best that a district court could be expected to do in most class action settlements would be to estimate a reasonable range of possible outcomes at trial.