Kent Eubank v. Pella Corporation
753 F.3d 718
| 7th Cir. | 2014Background
- Class action alleging design defect in Pella ProLine casement windows (1991–2006) causing water damage; district court certified classes and later approved a nationwide settlement.
- Lead class counsel Paul M. Weiss (founder of Complex Litigation Group) negotiated the settlement; the lead class representative was Leonard Saltzman (Weiss’s father-in-law). Allegations of Weiss’s ethical and financial troubles were pending.
- The settlement (approved 2013) awarded $11 million in attorneys’ fees up front, left class members to file claims under a claims/arbitration scheme, and did not specify a lump-sum payment to class members. Many restrictive claim caps, defenses, and procedural hurdles applied.
- Objectors challenged the fairness of the settlement and conflicts of interest; the district court approved the settlement and fee award in brief orders. Objectors appealed.
- The Seventh Circuit found pervasive conflicts, inadequate notice and valuation, and one-sided terms that favored counsel and defendant, reversed the approval, removed Saltzman and Weiss as representative/counsel, and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Conflict of interest between lead counsel and lead representative | Saltzman defended settlement despite familial tie to Weiss; claimed adequacy | Pella relied on counsel’s negotiation and court approval | Court: Family relationship + Weiss’s ethical/financial problems created a disabling conflict; settlement approval improper |
| Adequacy of class counsel (Weiss) | Counsel asserted settlement value and fitness to represent class | Pella urged approval and emphasized mediated process | Court: Weiss’s integrity issues and financial motives rendered him inadequate under Rule 23(g) |
| Fairness/valuation of settlement (attorneys’ fees vs. class recovery) | Plaintiffs claimed settlement worth $90M; $11M fee reasonable | Pella estimated ~$22.5M value; urged approval | Court: Valuation unsupported; likely class recovery far below fees; settlement was one-sided and not fair |
| Notice, claims process, and opt-out viability | Plaintiffs argued notice and claims procedures adequate | Pella argued low objection/opt-out rates support fairness | Court: Notice was misleading/complex; claim forms and caps would suppress recovery; opt-out rates not probative |
| Procedural substitutions of class representatives | Plaintiffs maintained replacements were proper | Pella supported court-appointed lead counsel structure | Court: Original representatives who opposed settlement were improperly replaced by counsel-selected plaintiffs; reinstatement required |
| Standing/sanctions motions by Saltzman | Saltzman moved to dismiss appeals for lack of standing and sought sanctions | Objectors argued appeals proper; sought sanctions for frivolous motions | Court: Denied standing dismissal and sanctions motions (except ordered removal/replacement as remedies) |
Key Cases Cited
- Smith v. Bayer Corp., 131 S. Ct. 2368 (Sup. Ct.) (class members may appeal adverse judgments)
- Devlin v. Scardelletti, 536 U.S. 1 (Sup. Ct.) (absent class members have standing to appeal)
- Creative Montessori Learning Ctrs. v. Ashford Gear LLC, 662 F.3d 913 (7th Cir.) (courts should scrutinize fee-driven class settlements)
- Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277 (7th Cir.) (warning about counsel-defendant incentives to favor fees over class recovery)
- In re Trans Union Corp. Privacy Litig., 629 F.3d 741 (7th Cir.) (objectors can help produce better settlements)
- Pella Corp. v. Saltzman, 606 F.3d 391 (7th Cir.) (prior opinion addressing certification in this litigation)
- Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646 (7th Cir.) (coupon settlements are suspect)
- Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781 (7th Cir.) (district courts must carefully scrutinize class settlements)
- In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir.) (heightened scrutiny where settlement includes clear conflict of interest)
- Weinberger v. Great Northern Nekoosa Corp., 925 F.2d 518 (1st Cir.) (standards for fairness review of class settlements)