Frank v. Target Corp., No. 19-3095 (7th Cir. 2020)
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Named plaintiffs filed a putative class action in Illinois, alleging that defendants made false claims about dietary supplements. The parties negotiated a settlement. Over the objection of class member Frank, the district court approved it. The Seventh Circuit reversed. In 2015, the parties submitted “the Pearson II settlement.” Three class members objected to the Pearson II settlement.
Nunez had filed his own putative class action against the defendants in California. After the Seventh Circuit vacated the first Pearson settlement, Nunez wanted to represent a Pearson subclass. The Pearson parties refused to include Nunez’s counsel in their negotiations. Nunez objected to the Pearson II settlement. The district court approved it. All three objectors appealed, then dismissed their appeals. Frank moved for disgorgement of any payments made to objectors in exchange for those dismissals. Discovery showed that the objectors had received side payments in exchange for dismissing their appeals. The district court denied disgorgement.
The Seventh Circuit reversed. The district court had the equitable power to order the settling objectors to disgorge for the benefit of the class the proceeds of their private settlements. “Falsely flying the class’s colors, these three objectors extracted $130,000 in what economists would call rents from the litigation process simply by showing up and objecting" to the settlement.” Settling an objection that asserts the class’s rights in return for a private payment to the objector is inequitable and disgorgement is the most appropriate remedy. Those objectors are, in essence, “not paid for anything they owned.”
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