A Bell and Howell ultrasonic pest repeller. Photo: Bell and Howell

A federal judge has refused to approve a class action settlement, saying that he could not sign off on the proposed attorney fee arrangement, which allowed lawyers to be paid before the class members.

U.S. District Judge William Pauley of the Southern District of New York denied preliminary approval of the proposed class settlement in Hart v. BHH LLC. Pauley made the ruling Jan. 17, but his eight-page opinion was not made public on the court's website until Wednesday.

According to Pauley, the settlement included reimbursements for people who purchased ultrasonic pest repellers made and sold by BHH, but the deal also included a so-called "quick-pay" fee provision that allowed lawyers to be paid before the class members, and would have an arbitrator determine the ultimate amount of attorney fees.

Although the "quick-pay" provision was included in a supposed effort to cut down on frivolous challenges to the class action settlement, Pauley said sanctions would be a better way to deal with those issues, and that paying lawyers before the parties conflicted with the court's mandate of "fairness, reasonableness and adequacy" to claimants under the class action rules.

"If there are objectors and appeals, counsel would be paid in full while the class waits. Notably, plaintiffs' proposal provides that counsel be paid before class members even if there are no objectors," Pauley said. "How this would serve plaintiffs' purported goal to deter baseless objections strains credulity. Indeed, the entire purpose of the lawsuit is to compensate the class—not the lawyers."

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Plaintiffs counsel Scott Bursor of Bursor & Fisher in New York and defense counsel Scott Wing of Leahy, Eisenberg & Fraenkel each did not return a call seeking comment. Quinn Emanuel Urquhart & Sullivan attorney Robert Raskopf, who also represented the defendant, declined to comment.

According to Pauley, the claims stemmed from the 2.48 million repeller devices that BHH sold between 2011 and 2016, which the plaintiffs Joanne Hart and Sandra Bueno argued were ineffective. The settlement, Pauley said, included the company reimbursing the claimants $15 per unit for up to six units if they could provide a receipt, or up to two units if the person was unable to provide a receipt.

Pauley's order did not wade into the substance of the compensation, but rather focused on the attorney fee provision of the proposal, which he said contained "two unique features."

Pauley first addressed the "quick-pay" provision, which said that, if there were no objections, attorneys would be paid five days before claimants, and that, if there were challenges, class members would be paid "an indeterminate period after counsel," according to Pauley.

Plaintiffs counsel cited rulings from the U.S. Court of Appeals for the Sixth Circuit and the Northern District of Ohio, which held that paying lawyers before class members did not harm the claimants. Counsel also cited seven cases from the Southern District of New York where judges have signed off on quick-pay provisions.

Pauley, however, said he did not agree that the provisions did not harm the class, and that none of the Southern District cases were persuasive, since they all appeared to be orders written by attorneys that the judges later simply signed off on.

"Unsurprisingly, the law in this district has skewed towards preliminary settlement approval since these ready-made orders—which are drafted by the plaintiffs' bar—masquerade as judicial opinions," Pauley said. "This court is not swayed by plaintiffs' string cite of stock decisions."

Further, Pauley said it was clear counsel wanted to be paid sooner, because of how long the litigation has lasted already, but that "cynically, money is the best way to keep lawyers engaged."

Regarding the arbitration issue, Pauley said attorney fees are awarded at the court's discretion, and that fee awards are typically based in part on the total recovery of the class, which would not be determined until after the arbitration took place.

"Thus, it makes little sense to engage an arbitrator to render a decision that will carry no weight," he said.

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