When named plaintiffs and defendants in a class action agree to a settlement, they must obtain the court’s preliminary approval of the proposed class action settlement. Thereafter, class members are notified of the proposed settlement and given an opportunity to file objections, which the court will consider before determining whether finally to approve the proposed settlement. The Second Circuit has stated that class members who object to a proposed settlement serve an important role in “preventing collusive or otherwise unfavorable settlements.” White v. Auerbach, 500 F.2d 822, 828 (2d Cir. 1974).
Nevertheless, in recent years, certain class action objectors have sought to file frivolous objections and appeals concerning proposed settlements to obtain personal payments in exchange for voluntarily dismissing their objections. The Seventh Circuit has recently described this practice, which delays the resolution of class actions and depletes settlement resources, as “objector blackmail.” Pearson v. Target, 893 F.3d 980, 982 (7th Cir. 2018).
Earlier this year, the district court (Rakoff, J.) overseeing the class action against Petroleo Brasileiro S.A. (Petrobras), which concerns the defendants’ alleged violation of federal securities laws by concealing a multi-year, multi-billion dollar bribery and kickback scheme, issued its final approval of a $3 billion class action settlement. In so doing, the court rejected objections filed by class member Spencer Bueno, who was represented by attorney Joseph R. Furman, and which the named plaintiffs had alleged were made solely to extort payments.
After entry of the court’s final judgment, Bueno, still represented by Furman, filed a notice of appeal, and the named plaintiffs moved for sanctions against Furman and other class members. In a decision issued on Sept. 21, 2018, the district court concluded that Furman’s objections and appeal on behalf of Bueno had “lack[ed] any colorable basis,” and that Furman had filed them in bad faith. The court therefore granted the named plaintiffs’ motion for sanctions against him, ordering Furman to pay $10,000, without prejudice to subsequent motions for further sanctions.
This decision is significant because it shows that, while courts recognize the important role that class action objectors can play in safeguarding class interests, when an objector or his counsel acts in bad faith to extort a personal payment, sanctions may be imposed.