NEW YORK (Legal Newsline) - The law firm that negotiated a settlement of student-loan claims against Navient that pays class members nothing but yields lawyers $500,000 in fees defended the deal as providing non-monetary benefits for borrowers in a case that stood almost no chance of success.
Lawyers at Selendy & Gay and Phillips, Richard & Rind described the settlement as “a leap forward for student borrowers facing tremendous debt burdens” because it would require certain “business enhancements” making it easier for borrowers to learn about a government program providing loan forgiveness. Navient would also pay $1.75 million in what lawyers call cy pres relief to establish an independent non-profit to provide education and counseling services.
The settlement drew more than 100 objections including one from a class member represented by the Hamilton Lincoln Law Institute Center for Class Action Fairness, led by Ted Frank, which called the contribution to a completely unrelated charity instead of paying class members directly “the worst form of cy pres relief.”
Hamilton Lincoln frequently intervenes in settlements it believes reflect collusion between plaintiff lawyers and the companies they sue. Class action lawyers technically represent injured plaintiffs but also have a financial incentive to negotiate a deal that rewards them with fees even if that means, as in the Navient case, their clients get nothing. In this case representative plaintiffs would get $15,000 apiece in “service awards,” which objectors also criticized as giving them an incentive to approve an agreement that pays them money but leaves their fellow class members with nothing.
In a response filed Sept. 25, the plaintiff lawyers say the 0.0229% objection rate suggests the “vast majority” of the 325,000-member class “supports the agreement.” It described Hamilton Lincoln as “professional objectors with an apparent ideological agenda.”
“Adopting the objections would harm the class by dismantling the promised relief, including the valuable enhancements to Navient’s business practices that will further its delivery of accurate information, and the new non-profit dedicated to helping borrowers in public service understand their options for loan forgiveness,” the law firms say. There was little point in pressing for more money for individual claimants, the lawyers say, since “class-wide monetary relief had no reasonable prospect of success.”
“We’re confident that the court will understand that parties with settlements that comply with the law don’t feel the need to engage in name-calling, much less the dishonesty shown here,” Frank said in an e-mailed response. He said neither Hamilton Lincoln nor the objector it represents have “ever settled an objection for payment.”
The lawsuit was the brainchild of the American Federation of Teachers and private law firms, as well as the Student Borrower Protection Network – a group started by former federal officials who helped the Consumer Financial Protection Bureau bring litigation against Navient a year earlier (it is still pending).
The case claimed Navient gave the teacher-plaintiffs bad advice regarding the Public Service Loan Forgiveness program. The law firms have also sued the Department of Education.
After 120 qualifying payments, student debt is forgiven for public service workers like teachers who are working full-time under the PSLF.
Less than a year after the case was filed, Judge Denise Cote pared all of that down to only the proposed New York class. Out of 15 causes of action, just one based on New York law survived Navient’s motion to dismiss.
Hamilton Lincoln criticized the involvement of AFT, which agreed to pay legal fees on the front end and now stands to recover some of that obligation through the settlement. The involvement of the AFT allowed plaintiffs “to litigate this action with gusto and achieve real results for student loan borrowers across the United States,” the plaintiff lawyers said, however.
Objectors also said the cy pres money should be paid to class members instead. But that would amount to $5.39 apiece and would require class members to release potentially valuable individual damage claims, the plaintiff lawyers said.
“This is not a typical consumer class action in which an individual suit to recoup a few dollars overpaid for shampoo is unimaginable. Here, where borrowers may allege tens of thousands of dollars in damages as a result of their high loan balances, it may well be economical to retain counsel on a traditional or contingency fee basis,” they wrote.
Finally, Hamilton Lincoln cited a recent ruling by the 11th Circuit Court of Appeals rejecting incentive fees to named plaintiffs like the $15,000 promised to the representatives in the Navient case. That ruling relied upon a pair of U.S. Supreme Court decisions dating to the 1880s, before the modern class action was invented, barring representative plaintiffs from receiving certain kinds of payments from a common fund.
The cases cited in the 11th circuit ruling only mention “personal expenses” that might give a representative the incentive to “intermeddle in the management” of funds belonging to the class, Selendy & Gay and Phillips Richard said.
“Service awards serve an entirely different purpose,” the lawyers say, which is to encourage individuals to “litigate a common wrong.”