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Sometimes, The Objectors Just Cost Everyone Everything

Objectors sometimes fail to recognize that there are often very good reasons why class action settlements are lower than the amount each class member would receive in an individual trial with a favorable result. The risks are many: that the class would not be certified, or would be decertified after the initial certification; that the defendant could win on liability at trial, or before; that the defendant would go broke; that the damages would come in lower than expected; that the law will change while the case is pending. Sometimes, a bird in the hand is worth two a flock in the bush. There were a couple of interesting objection cases that came down recently, and we'll have a post on those soon, but first, we'd like to share this cautionary tale, as set forth in the very specialized blog Freelance Rights, published by one of the objectors in a case entitled Reed Elsevier Inc. v. Muchnick, which was known in the trial court as In re Freelance Literary Works in Electronic Databases Copyright Litigation.

This is a case that settled in 2005 for $11.8 million, and was approved in district court, but thrown out by the Second Circuit Court of Appeals last November. The objectors, led by Mr. Muchnick, challenged the terms of a global settlement of publishers’ alleged infringement of the works of freelance writers. The objectors appealed the trial court's approval of the settlement, and the Second Circuit invalidated the settlement, not on the basis of the merit arguments, but on the ground that a class action copyright settlement could not include the claims of copyright holders whose works were not formally registered with the Copyright Office. Thus, no one gets anything.

The U.S. Supreme Court is now considering a petition for writ of certioriari, and it was on the agenda on September 29, 2008, November 14, 2008, November 25, 2008, December 5, 2008, and again December 12, 2008. So far, no order has been entered.

One anonymous class member had this reaction:

The bottom line is that if Mr. Muchnick and the other objectors had not filed an appeal, the settlement would have been final and the claims paid. With the additional attorneys fees incurred through appeals the settlement now, as Mr. Muchnick phrased it, would indeed be worth "crumbs" even if the court grants Cert and the appeal is eventually denied. The objectors will tell you that they were against the settlement on principle. The truth is that they were greedy and felt the settlement was not enough. They envisioned the Second Circuit ruling in their favor and sending the case back to District Court for more negotiations and eventually more cash. Well it backfired. The court threw the entire case out on jurisdictional grounds, which could easily have been predicted by reading the federal code concerning copyright registration. Because of their greed, thousands of freelance writers will get zero for past works.

In full disclosure, I am a freelance newspaper writer who submitted thousands of columns over the years. If the Supreme Court does not overturn the Circuit Court's ruling, I stand to lose a great deal of money.

If the SCOTUS denies certiorari, as they usually do, the class member will be right. That'll be $11.8 million down the drain for the class members, the attorneys, and everyone except, of course, the defendants.

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