Yesterday, Judge Rakoff sanctioned an attorney for an objector to the $3 billion Petrobras securities litigation settlement (see our full coverage of the Petrobras litigation here). Judge Rakoff had approved the settlement over the objections, after which the objectors filed an appeal. According to the class plaintiff, the appeals were part of an “extortionist agenda” to extract a monetary settlement in exchange for dismissing their appeals.
Judge Rakoff warned against the rise of frivolous objections to class settlements:
Those who file objections to class action settlements may themselves be pursuing widely varying objectives, ranging from the useful to the self-serving. On the positive side, class action “objectors” – i.e., members of the class who file objections to proposed class action settlements prior to the Court’s determination of whether or not to finally approve the settlement to which it has previously given preliminary approval – may serve an important role in protecting class interests . . .
In recent years, however, it has become obvious that some objectors seek to pervert the process by filing frivolous objections and appeals, not for the purpose of improving the settlement for the class, but of extorting personal payments in exchange for voluntarily dismissing their appeals. These extortionate efforts, which the Seventh Circuit recently termed “objector blackmail,” have increasingly interfered with the prompt and fair resolution of class litigation at a direct cost to class members, who may thereby be prevented from collecting the settlement funds owed to them for months and even years unless they succumb to the blackmail . . . . An amendment to Rule 23, Fed. R. Civ. P., requiring judicial approval of any monetary settlements to objectors, is scheduled to go into effect at the end of this year absent Congressional veto. The amendment may help to curb these abusive side deals in the future. But in the meantime individual courts bear responsibility for striking a balance between facilitating legitimate objections and protecting class members from objector extortion.
Judge Rakoff then found that the objector’s counsel had filed a “kitchen sink brief” containing arguments not supported by either facts or case law. A $10,000 sanction was applied, without prejudice for the class plaintiffs to seek additional sanctions for any further delays.