7th Circuit Green-Lights Class Action Critic’s Challenge to Payments for Objectors

Class action critic Ted Frank scored a big win on Tuesday in an appeals court ruling that allowed him to challenge potential payments to three other objectors in the case.

The ruling by the U.S. Court of Appeals for the Seventh Circuit came in Pearson v. NBTY, a case in which retired Judge Richard Posner famously criticized the original settlement as a “selfish deal” between class counsel and the defendants.

Frank, of the Competitive Enterprise Institute’s Center for Class Action Fairness, wasn’t challenging the new settlement this time. Instead, acting as an objector himself, he sought to reopen the case to address what he called “objector blackmail”—when an objector agrees to drop his appeal for a payout. Although he insisted he didn’t do this, he suspected that three other objectors did.

U.S. District Judge John Blakey of the Northern District of Illinois’ ruling last year striking Frank’s request was wrong, wrote Chief Judge Diane Wood.

“Objectors voluntarily dismissed their appeals. At this stage we do not know why, but there is a real risk that they did so at the expense of the class,” Wood wrote.

The ruling comes as the U.S. Judicial Conference’s Committee on Rules of Practice and Procedure published proposed amendments to Federal Rule 23 of Civil Procedure that would force court approval of such objector payouts. If Congress approves them, the rules could come into effect this year. The Seventh Circuit, in Tuesday’s ruling, acknowledged the upcoming amendments and its own role in failing to adequately review such objector appeals.

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