The Seventh Circuit Court of Appeals has rejected the settlement of design-defect claims involving a line of Pella casement windows, finding that it should have been disapproved on multiple grounds including that the lead class counsel was the son-in-law of the lead class representative. Eubank v. Pella Corp., Nos. 13-2091, -2133, -2136, -2162, -2202 (7th Cir., decided June 2, 2014).
According to Judge Richard Posner, writing for the court, this family relationship created a grave conflict of interest, which only “a tiny number of class members would have known about,” particularly given the proposed fee award of $11 million. He also discussed the legal, ethical and financial problems facing class counsel at the time, finding that the larger the fee award, the better off the lead plaintiff’s “daughter and son-in-law would be financially—and (which sharpened the conflict of interest) by a lot.” While the settlement agreement apparently valued the claims of class members at some $90 million, the complexity of filing a claim for a capped payment or the possible recovery of more through arbitration resulted in “claims sought in the aggregate [of] less than $1.5 million [that] were likely to be worth even less because Pella would be almost certain to prevail in some, maybe most, of the arbitration proceedings.” Concluding that the settlement “flunked the ‘fairness’ standard by the one-sidedness of its terms and the fatal conflicts of interest on the part of [the lead plaintiff] and [lead counsel],” the court reversed and remanded for further proceedings.