Vanderbilt law professor Brian Fitzpatrick’s year-old paper The End of Objector Blackmail has received a fair amount of attention from various lawyer-bloggers and lawyer-tweeters in the last week.  The chatter stems from the attention he draws to a practice known as quick-pay provisions – provisions to pay plaintiffs’ counsel immediately when settling a case, even before the class has received any relief.

The logic behind these provisions is that, if plaintiffs’ counsel were paid up front, they wouldn’t have to bribe objectors to drop their objections to the proposed settlement, which would reduce the amount of litigation over the “fairness, reasonableness, and adequacy” of the settlement. The paper is an interesting read: it exposes a little-discussed tactic already in use by a number of lawyers, and mounts a compelling defense of the quick-pay provision (even though Fitzpatrick ultimately suggests a more sweeping reform to “fix” the professional objector problem). But Fitzpatrick’s paean to quick-pay glosses over a number of its drawbacks for lawyers in the trenches:

  1. Quick-pay provisions will be a tough sell for some defendants. This will come as no shock, but many defendants will hesitate to pay plaintiff’s counsel early in the settlement process. Even though a plaintiff’s and defendant’s incentives align for much of the class settlement process, each party retains a healthy skepticism of the other side. Obviously, this skepticism can be overcome, or Fitzpatrick would have no paper. But the success of these provisions in securities-fraud class actions does not guarantee their acceptance elsewhere.
     
  2. Quick-pay provisions do not insulate against “principled” objectors. Some objectors – like state attorneys-general or advocacy groups do not object for the money. Instead, they represent the public interest, specific ideological agendas, or even both. These objectors will proceed whether or not they can hold up the settlement, because delaying settlement until they’re paid is not their goal.
     
  3. Quick-pay provisions may themselves become the basis for objections. Observers tend to be very suspicious of settlements in which plaintiff’s lawyers make out significantly better than class members. That’s one of the reasons for the strong opposition to coupon settlements.  A provision where plaintiff’s counsel gets paid long before (and likely far more than) the class – as Fitzpatrick concedes – smells strongly of self-dealing. Since the provision has yet to be tested in an adversarial process, it’s very possible that courts could find that quick-pay provisions render the settlement unfair to the absent class members.

Am I saying that quick-pay provisions are never useful? Not at all. There are professional objectors (or, as one court called them “remoras”) who object only for the fees, and quick-pay provisions may very well deter them. However, indiscriminate use of quick-pay provisions (and when have lawyers in the aggregate not employed new tactics indiscriminately?) could throw the tactic into disrepute, which would blunt their effectiveness just when the parties need them most.

  • Ahh I must have fallen out of the loop – I hadn’t heard about this paper! Thanks for providing the link and also the interesting commentary. I’ll be looking into it further.