(Reuters) - If you’re going to object to a $3 billion class action settlement in the courtroom of U.S. District Judge Jed Rakoff of Manhattan, you’d better be prepared to suffer some dire consequences: equitable sanctions; a hefty fine; and, even if you’re not on the hook for money sanctions, some pretty harsh words and a sizable bond if you insist on appealing. Judge Rakoff, it’s clear from a Sept. 19 opinion in the gigantic Petrobras securities class action, has flat-out had enough of maneuvers he calls “frivolous,” “bad faith” and “extortion.”
When we last visited the Petrobras case in June, Judge Rakoff had just granted final approval to a $3 billion settlement of class claims that the Brazilian energy giant had deceived investors about a corruption scandal that ensnared high-ranking executives and government officials. The judge nevertheless cut class counsels’ fee request by nearly $100 million (gasp!), leaving Pomerantz and its co-counsel with $186.5 million.
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A handful of class members who had filed objections to the settlement suggested that they would appeal approval of the agreement. immediately went on offense, filing a brief before Judge Rakoff that called for sanctions against the lawyer representing one of the objectors. Pomerantz called attorney Joshua Furman “an active member of a cabal of ‘professional’ objectors whose sole goal is to hold up class action settlements in order to earn themselves a nominal fee.”
Furman, the brief said, hadn’t even bothered to maintain most of the spurious arguments he originally asserted against the class deal, maintaining only his claim that the settlement included an improper provision to distribute any leftover money to an as-yet-to-be-determined Brazilian anti-corruption group. The lawyer, according to the Pomerantz group, has previously shown his true colors by working with so-called professional objectors. “Given this pattern of prior misconduct and association with other serial objectors, sanctions are clearly warranted to protect not only this class, but those in future cases where Furman and his ilk might try their luck again,” Pomerantz claimed.
Petrobras class counsel also asked for sanctions against objectors Richard Gielata and his “de facto counsel” (and son) Joseph Gielata, whom Pomerantz accused of filing scattershot arguments in the hope of a payoff to go away. “The Gielatas’ sole goal is to extort payment to line their pockets, not only without benefiting the class, but delaying distribution of the settlement proceeds,” Pomerantz said its sanctions brief.
Furman and the Gielatas both struck back with briefs opposing sanctions against themselves and arguing that if anyone deserved castigation from the court, it was Pomerantz lead counsel Jeremy Lieberman for falsely accusing the objectors of misconduct.
Judge Rakoff clearly sided with Lieberman. He ordered Furman to pay a $10,000 sanction to the class. Furman’s objections, are “frivolous, either on their face or upon inspection,” he wrote. “The only likely motive for this misconduct is Furman’s attempt to extort a payment from the class plaintiffs in that they may avoid delay – in other words, extortion.” Rakoff wasn’t quite as hard on the Gialetas, declining to issue sanctions. But he did order the firm to post a $50,000 bond to pursue an appeal of his decision approving the settlement.
Rakoff left no doubt of his view of class action objectors, describing a “scheme” in which “extortionate objectors” have “no expectations that (their) objections will prevail” but simply want to “create costly delay that leads class plaintiffs to buy (them) off.”
In an email comment, class counsel Lieberman said he hopes the objectors take Judge Rakoff’s bluntness to heart. “All too often, objectors attempt to abuse the appellate process in class action settlements in order extort monies from class counsel while providing no benefit to the class,” he said. “It is our hope that (Furman and the Gielatas) will both take the hint and dismiss their frivolous appeals, which stand in the way of defrauded class members enjoying the fruits of this historic recovery. If not, we intend to take further action in order to protect the class’ interests.”
Joseph Gielata said in an email statement: “Our actions have shown us to be good-faith beneficial objectors, and our sole focus is prosecuting the appeal on behalf of the shareholders.”
Furman was more fulsome in his response. “I am shocked at the court’s order. I would never make a presentation to any court that I knew to be incorrect or misleading, and I have never been found to have done so before now. I respectfully disagree with the court’s findings and will appeal,” he wrote, pointing out that Petrobras and class counsel changed the initial settlement agreement to address some of his concerns.
“I also have deep concerns over the propriety of the court’s order,” Furman continued. “I am troubled by the chilling effect that this ruling will have on class action objectors who raise legitimate problems with class action settlements. Under this order, counsel can be sanctioned solely for filing an objection to a settlement that is later overruled. While there are bad objector lawyers out there who should be stopped, draconian measures taken personally against a lawyer who has no history of making improper class action objections should be a wakeup call that the judiciary may be going too far in its crusade against these so-called professional objectors. I have been caught up in this dragnet unfairly. I did not engage in conduct warranting sanctions.”
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