CHICAGO – Two men who took $60,000 each to dismiss objections to a class action settlement must disgorge it, Seventh Circuit appellate judges ruled on Aug. 6.
They reversed District Judge John Blakey of Chicago, who ruled that Randy Nunez and Steven Buckley didn’t harm the class by taking the money.
“It has long been axiomatic that no person shall profit by his own wrong,” Circuit Judge David Hamilton wrote.
The decision applies to a third man, Patrick Sweeney, who abandoned his objection for $10,000 and didn’t participate in the appeal.
“The objectors’ conduct testifies that, whatever the merits their objections might have had, the objectors themselves did not believe them or take them seriously from the day they were filed to the day they were settled.”
Circuit Judges Diane Wood and Ilana Rovner concurred.
The case began in 2011, when plaintiffs claimed Target Corporation made false claims about dietary supplements.
In 2013, Target and Rexall jointly reached a settlement of actions nationwide.
Class member Theodore Frank of the Center for Class Action Fairness objected, but former district judge James Zabel overruled him.
Frank appealed and the Seventh Circuit reversed Zabel in 2014, finding Frank flagged fatal weaknesses in the settlement.
Target and Rexall achieved a second settlement in 2015, and objections followed from Nunez, Buckley, and Sweeney.
Todd Carpenter and James Patterson of San Diego represented Nunez, Arthur Howe of Chicago represented Buckley, and Sweeney represented himself.
Zabel overruled them in 2016.
They appealed but soon withdrew the appeals.
In 2017, Frank moved to reopen the case so he could seek disgorgement from Nunez, Buckley, and Sweeney.
Zabekl had retired, and Blakey took up the motion.
He ruled that he lacked jurisdiction because the objectors didn’t intend to commit an illegal act and didn’t take money out of the common fund of the class.
Frank appealed and Seventh Circuit judges reversed Blakey in 2018, finding he must let Frank pursue his theory.
On remand, Frank discovered the payments but Blakey denied disgorgement.
Frank appealed and prevailed yet again.
“Objectors who settle their objections for amounts in excess of their shares as class members are in essence not paid for anything they own,” Hamilton wrote.
He wrote that an objector temporarily takes control of the common rights of all class members and assumes a duty to represent them fairly.
“Either those objections had enough merit to stand a genuine chance of improving the entire class’s recovery, or they did not,” he wrote.
“If they did, the objectors sold off that genuine chance, which was the property of the entire class, for their own strictly private advantage.
“If they did not, the objectors’ settlements of meritless claims traded only on the strength of the underlying litigation, also the property of the entire class, to leverage defendants’ and class counsel’s desire to bring it to a close.”
He found administration costs for a $130,000 distribution to the class would swallow the benefits.
He proposed to set up a trust which under terms of the second settlement would direct the money to the Orthopedic Research and Education Foundation.