The End of Objector Blackmail?

Abstract

For many years, courts and commentators have been concerned about a phenomenon in class action litigation referred to as objector "blackmail." The term "blackmail" is used figuratively rather than literally; so-called objector "blackmail" is simply a specific application of the general concern with legal regimes that permit one or more individuals to "hold out" and disrupt collective action. The holdout problem in class action litigation stems from the following series of events: When a class action is settled, class members who do not like the proposed settlement are permitted to file objections with the federal district court that must approve it. If the district court nonetheless approves the settlement, the class members who filed objections have the right to appeal the district court's approval. If objectors appeal the settlement, however, the final resolution of the settlement will be delayed during the time it takes the court of appeals to decide the appeal, which can be years. Not only does the appeal delay final resolution of the settlement, but, more importantly for the blackmail problem, it also delays the point at which class counsel can receive their fee awards, which are contingent upon the settlement. As class counsel are eager to receive these fees, they are willing to pay objectors out of their own pockets to drop the appeals. This, it is thought, has led class members to file wholly frivolous objections and appeals for no other reason than to induce these side payments from class counsel. These appeals are what courts and commentators refer to as objector "blackmail."