Civil Procedure — Class actions

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U.S. Court of Appeals
For the Seventh Circuit

Civil

Civil Procedure — Class actions

A class action settlement that provides no benefit to plaintiffs is reversed, and a “kicker clause,” providing that any reductions in the proposed settlement inure to the defendant, is presumptively invalid.

“Our final concern is the reversion, or kicker, clause in the settlement agreement. This is the clause that provides that if the judge reduces the amount of fees that the proposed settlement awards to class counsel, the savings shall enure not to the class but to the defendant. This is a gimmick for defeating objectors. If the class cannot benefit from the reduction in the award of attorneys’ fees, then the objector, as a member of the class, would not have standing to object, for he would have no stake in the outcome of the dispute. The simple and obvious way for the judge to correct an excessive attorney’s fee for a class action lawyer is ‘to increase the share of the settlement received by the class, at the expense of class counsel.’ Redman v. RadioShack Corp., supra, 768 F.3d at 632. This route is barred unless the judge invalidates the kicker clause.”

“Class counsel claim that often they negotiate for the benefits to the members of the class first, selflessly leaving for later any consideration of or negotiation for their award of attorneys’ fees. That claim is not realistic. For we know that an economically rational defendant will be indifferent to the allocation of dollars between class members and class counsel. Caring only about his total liability, the defendant will not agree to class benefits so generous that when added to a reasonable attorneys’ fee award for class counsel they will render the total cost of settlement unacceptable to the defendant. We invited class counsel to explain how, therefore, negotiating first for class benefits could actually benefit a class, and were left without an answer. Neither can we think of a justification for a kicker clause; at the very least there should be a strong presumption of its invalidity.”

Reversed and Remanded.

14-1198, 14-1227, 14-1245 & 14-1389 Pearson v. NBTY, Inc.

Appeals from the United States District Court for the Northern District of Illinois, Zagel, J., Posner, J.

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