Class Action

Ponzi Schemes

Latest News


Should Aggregate Settlements Be Subject To Judicial Review?

Should Aggregate Settlements Be Subject To Judicial Review?

An aggregate settlement and a class action settlement are often mistaken for the same thing in non-legal circles, since they both involve settling the claims of multiple plaintiffs all at once. However, a large distinction between aggregate and class action settlements is the requirement that class action settlements must be subjected to judicial scrutiny, while aggregate settlements do not.

The underlying facts from the recent case of Johnson v. Nextel Communications, Inc., 660 F.3d 113 (2d Cir. 2011) questions the wisdom of this distinction, and begs the question, should aggregate settlements be subjected to judicial review too?

An aggregate settlement is one in which individual plaintiffs, not a part of a class, all have their claims settled at the same time. These types of situations often occur when there has been a mass tort, or a putative defendant has allegedly wronged a large group of individuals in a similar way. Often these cases have lots of similarities, both factually and legally, which may mean bulking them together can increase efficiencies. However, these cases, for one reason or another, don’t meet the strict legal criteria to be certified as a class action, and therefore must proceed as individual actions.

An example of such an aggregate case included the almost 600 individuals who met with a law firm to represent them in employment discrimination claims against Nextel. This meeting, and the egregious actions of the plaintiff’s law firm and Nextel that followed, are what gave rise to the allegations in the Johnson lawsuit. Basically, as alleged in the complaint, the lawyers the plaintiffs hired to represent their interests instead took millions of dollars from Nextel to persuade their clients not to pursue claims against the company.

Further, to accomplish this goal and to try to insulate itself from liability the plaintiff’s law firm had their clients sign only the signature page of a “secret” agreement laying out what was really agreed to between the parties, and waiving all conflicts of interest such agreement most certainly created. At the end of the day this collusion between plaintiff’s counsel and Nextel left all these individuals without any remedy against Nextel for the employment discrimination claims, and rewarded plaintiff’s counsel for screwing over their clients.

After the former plaintiffs finally figured out how badly they had been wronged they brought a claim, as a class action, against the law firm and several of the attorneys from the firm alleging breach of fiduciary duty, breach of contract, malpractice and fraud. Further, they also added Nextel itself to the lawsuit, alleging that the company aided and abetted each of the wrongs of the plaintiff’s law firm. The district court dismissed the complaint, but on appeal the Second Circuit reversed, and rightly so.

The defendants in the Johnson case heavily relied upon the waiver of conflicts of interest provisions in the document, and the fact that each client agreed they were given the chance to confer with independent counsel first. As many people know, this is often common boilerplate in such aggregate settlement agreements and is meant as a “get out of jail free card” in a sense from an ethics perspective for the attorneys involved. In this case the court ignored such clauses within the signed agreements, instead holding that these conflicts were not waivable, and remanding the case back to the district court to resume litigation.

To a certain extent the Johnson case is just an extreme example of some bad behavior on the part of lawyers. However, it really begs a bigger question — why are aggregate settlements, such as this, allowed to be concluded with no judicial scrutiny? In the case of class actions Federal Rule 23 is very specific about the judicial oversight required over class action settlements. This judicial scrutiny is another way for the courts to make sure class members are getting a fair shake with the settlement itself. In addition, in such settlements the court also must scrutinize and approve class counsel’s attorney’s fees and costs, making sure they are fair and reasonable.

If judicial scrutiny had been required in this case Nextel’s lawyers most likely would never have proposed such a corrupt scheme, and plaintiffs counsel would not have tried to pull the wool over their clients eyes. Although the Model Rules of Professional Ethics allows aggregate settlements, with special rules and procedures put in place, perhaps it is time to realize these rules may not be enough. Instead, perhaps this incident shows us that it is time to require judicial approval of aggregate settlements, just like with class action settlements, to make sure everyone is adequately protected in the future.