Objector lawyers committed 'fraud on the court'; says Illinois appeals court
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Updated: A law firm that claimed professional objectors were extorting fees in class action lawsuits will be able to introduce evidence supporting the allegation as a result of an Illinois appeals court decision.
The First District Appellate Court of Illinois ruled for the Edelson law firm and also sent a copy of its Nov. 20 opinion to Illinois ethics regulators to determine whether disciplinary action should be taken against the objectors, Law.com reports.
The disciplinary authorities should consider whether one of the lawyers engaged in unauthorized practice of law by hiring another lawyer to file his pleadings and whether the other lawyer assisted unauthorized practice, the appeals court said.
The court began its opinion this way: “The relationship between class counsel and objector’s counsel can be a tense and combative one. And when objector’s counsel happens to be professional objectors, who impose objections for personal financial gain without little or no regard for the interests of the class members, open hostility often ensues. Objector’s counsel here, Christopher A. Bandas, of Corpus Christi, Texas, and C. Jeffrey Thut, of Chicago, have provoked more than the ire of class counsel, earning condemnation for their antics from courts around the country. Yet, their obstructionism continues.”
The appeals court said that at the new sanctions hearing, the court should hear evidence on whether the objection to the class action settlement was filed for an improper purpose.
The Illinois appeals court ruled in a suit alleging the Gannett Co. had promoted the sale of its newspapers through unsolicited marketing calls to cellphones in violation of the Telephone Consumer Protection Act. The Edelson law firm had obtained a $13.8 million settlement that included a provision for attorney fees of up to 39 percent.
Just one person, Gary Stewart of Cardiff California, objected to the settlement. Stewart was represented by Bandas, who hired Thut as local counsel.
A judge overruled Stewart’s objection and approved the settlement and attorney fees. Edelman sought sanctions against the objectors. During the sanctions hearing, a lawyer for Edelson said the firm had agreed to pay Bandas $225,000 in exchange for an agreement not to appeal, but Bandas said he didn’t want to reveal the agreement to the court.
A trial judge denied the motion for sanctions, but the Illinois appeals court remanded the case for a hearing with additional evidence that the trial judge had excluded.
“Essentially,” the appeals court said, “Edelson PC depicts Bandas-Thut as holdup artists deliberately manipulating the legal system to collect an unearned bonanza at Edelson PC’s expense. This is self-serving because here every dollar for fees reduces what is available to class members and, accordingly, is at the class members’ expense.”
Bandas had argued he couldn’t be sanctioned because he didn’t sign any of the court documents. But the Illinois appeals court said Bandas “unquestionably provided Stewart legal services that constitute the practice of law in Illinois” because he had agreed to represent Stewart, had drafted the objection, had represented Stewart in discussions with Edelson, and Thut had repeatedly informed class counsel that Bandas called the shots.
“Thut was merely the frontman for the objection so that Bandas did not have to sign any pleadings or appear in court,” the appeals court said.
In addition, the appeals court said, Thut did not adequately investigate the objections to the proposed settlement before filing legal papers. “Both attorneys have engaged in a fraud on the court,” the appeals court asserted.
A concurring judge raised questions about what she called “the exorbitant fees awarded to class counsel and the lack of any meaningful examination by the trial court of the justification for those fees.”
Thut told Law.com that the appellate court had wrongly stated that he had teamed up with Bandas to file objections to class action settlements in multiple states. “That’s absolutely untrue. I have never done anything outside the state of Illinois,” he said.
He also said Edelson already had filed a complaint with the Illinois Attorney Registration & Disciplinary Commission, and the ethics authorities “found no reason to discipline me.”
Edelson name partner Jay Edelson told Law.com that his firm took the concurrence seriously. “While we appreciate the sentiment that class counsel fees should be carefully scrutinized, that is precisely what happened in this case,” he said.
The countersuit said Bandas was fraudulently induced to participate in a “bogus” and “sham” mediation by Edelson, supposedly to negotiate a settlement of its objections to the class action settlement in the Gannett case. In reality, the countersuit says, the mediation was a fraudulent scheme to obtain information for Edelson’s claims that Bandas and Thut were part of a RICO enterprise and they should be sanctioned.
The countersuit alleged that Edelson one of “the most notorious and prolific serial class action litigators” in the country, and the firm uses the class action system in a “grotesque money grab.”
Bandas filed the countersuit in a separate federal class action filed by Edelson that had alleged Bandas and Thut’s serial objections to class action settlements were a racketeering enterprise.
U.S. District Judge Rebecca Pallmeyer had dismissed the racketeering claims in February, leaving only state law claims to decide, the American Lawyer previously reported. Pallmeyer nonetheless said the alleged serial objections appear “to be in bad faith, to have no genuine social value, and to be inconsistent with the ethical standards of the legal profession.”
In July, Pallmeyer said she would hear the state law claims against Bandas but dismissed Thut from the suit.
Updated on Dec. 5 to include information on Bandas’ countersuit.