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The End of Objector Blackmail?

PDF · Brian T. Fitzpatrick · Nov-30-2009 · 62 Vand. L. Rev. 1623 (2009)

Courts and commentators have long been concerned with holdout problems in the law. This Article focuses on a holdout problem in class action litigation known as objector “blackmail.” Objector blackmail occurs when individual class members delay the final resolution of class action settlements by filing meritless appeals in the hope of inducing class counsel to pay them a side settlement to drop their appeals. It is thought that class counsel pay these side settlements because they cannot receive their fee awards until all appeals from the settlement are resolved. Although several solutions to the blackmail problem have been proposed, both courts and commentators appear unaware that class counsel have quietly devised their own solution: class action settlement provisions (known as “quick-pay” provisions) that permit them to receive their fees even before appeals from the settlements are resolved. Drawing on an original data set of all class action settlements approved by federal judges in 2006, I show that over one-third of all settlements already have quick-pay provisions, including the vast majority of securities settlements. This Article both brings to light quick-pay provisions and evaluates whether they are a better solution to the blackmail problem than those proposed by courts and commentators. Although quick-pay provisions can mitigate much of the blackmail threat without the collateral damage caused by other proposed solutions, the provisions have several serious limitations. Instead, I propose a new solution to the blackmail problem: an inalienability rule that prohibits objectors from settling appeals unless their settlements include a modification of the underlying class action settlement agreements.



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