Posts belonging to Category Settlements

The Federal National Mortgage Association, better known as Fannie Mae, and Big Four accounting firm KPMG have agreed to pay $153 million to settle a securities class action that has been litigated over the past eight years. The class members are Fannie Mae shareholders, chiefly large institutional investors and pension plans. The complaint alleges that Fannie Mae, in concert with its auditor, KMPG, violated established accounting principles and published misleading financial reports, which caused Fannie Mae’s stock price to be artificially inflated. The settlement (available here) now awaits a preliminary approval ruling from U.S. District Judge Richard Leon.

No word on why Fannie Mae and other lenders have opted for cheerful nicknames rather than simple, staid acronyms.

In a ruling likely to be as unpopular with defendants wishing to settle class actions as with the plaintiffs’ bar, the Ninth Circuit has found fault with modest $5,000 incentive payments to the four named plaintiffs/class representatives in a class action alleging that credit agencies erroneously included debts discharged through bankruptcy in the settling class members’ credit reports. See Radcliffe v. Experian Info. Solutions, Inc., No. 11-56376 (9th Cir. Apr. 22, 2013) (slip opinion available here). Despite the common and widely-approved practice of providing service payments to class representatives beyond what they are entitled to as class members (in recognition of their time and effort spent being deposed, assisting with written discovery, etc.), the Ninth Circuit reasoned that the $5,000 payments created a conflict of interest because they “significantly exceeded in amount what absent class members could expect to get upon settlement approval.” Slip op. at 9. Consequently, after nearly eight years of litigation, the three-judge panel altogether threw out a $45 million settlement among the three major credit-reporting agencies and class members whose credit reports contained discharged debts.

The parties negotiated a settlement that reflected the various circumstances of the 15,000 class members and the different damages resulting therefrom. Specifically, class members denied employment as a result of the erroneous credit reports would receive $750; those denied a mortgage or housing rental would receive $500; and those denied an auto loan, $150. Slip op. at 11. Even those class members who suffered no adverse consequences at all would receive a nominal $26 payment. Slip op. at 11-12. The settlement further provided that the class representatives, like the settling defendants, would not object to the negotiated payment schedule. Slip op. at 18. It was the provision whereby the class representatives would not object to the payments that the Ninth Circuit took issue with, as the panel reasoned that the class representatives would have a financial disincentive to push their lawyers to attempt to negotiate greater payments to the settling class members. See slip op. at 18-19.

Seemingly lost on the panel was the fact that the class representatives had already championed their fellow class members’ interests in negotiations that resulted in payments tailored to the consequences resulting from the defective credit reports. See slip op. at 11-12. Indeed, even those class members who suffered no adverse consequences at all (more than 750,000 of them) would receive $26 “convenience payments.” Slip op. at 12. The panel’s reliance on Staton v. Boeing Co. to support the result is also puzzling. In that case, the 29 class representatives were set to receive a whopping $50,000 each, ten times more than the payments to the Radcliffe class reps.  See Staton v. Boeing Co., 327 F.3d 938, 975 (9th Cir. 2003).

The Supreme Court has issued the most recent installment in its serial neutering of class and representative actions. See Genesis HealthCare Corp. v. Symczyk, 569 U.S ___ (2013) (slip opinion available here). Justice Clarence Thomas wrote the 5-4 majority opinion that staked out a holding contrary to longstanding authority prohibiting class and collective action defendants from “picking off” named plaintiffs.

The Symczyk plaintiffs had alleged that their employer arbitrarily subtracted 30 minutes from employees’ daily aggregate clocked-in time to account for meal breaks, irrespective of whether any breaks were actually taken, which resulted in employees not receiving overtime pay they were entitled to. The employer/defendant offered the named plaintiff $7500 to abandon the suit. When the plaintiff didn’t respond to the offer, the defendant asked the federal trial court to dismiss the case as moot, since the settlement offer met or exceeded any amount that the plaintiff would be able to recover in an individual lawsuit. Slip op. at 1-2.

The majority opinion first acknowledges (and declines to resolve) a Circuit split before concluding that the Supreme Court was simply without the power to address the issue: “The Third Circuit clearly held in this case that respondent’s individual claim was moot. 656 F. 3d, at 201. Acceptance of respondent’s argument to the contrary now would alter the Court of Appeals’ judgment, which is impermissible in the absence of a cross-petition from respondent.” Slip op. at 5. The immovable constraint of the mootness issue not being properly before the court thus had the fortuitous consequence of allowing the Third Circuit’s ruling to stand, to the effect that the $7500 offer had in fact mooted the case. By contrast, the Third Circuit had also ruled that, even though the plaintiff’s personal claim was moot, the case could nonetheless go forward if other employees opted into the FLSA collection action. On this point, the majority found itself fully empowered to overrule the Third Circuit, and did so. See slip op. at 10-11.

The dissent took the position long-codified in class and representative action case law that a mere offer to pay off a named plaintiff does not suffice to “moot” a case, the essence of which concerns the numerous other employees who are not the named plaintiff. The dissent presented a lengthy and pragmatic hypothetical, where fictional plaintiff Ms. Smith is presented with a settlement offer, which she declines in favor of moving forward with a representative action. After stating unequivocally that such a scenario could not serve to moot Smith’s claims, Justice Kagan added a twist to the hypo to highlight the absurdity of the result in this case:

[S]uppose the defendant additionally requests that the court enter judgment in Smith’s favor—though over her objection—for the amount offered to satisfy her individual claim. Could a court approve that motion and then declare the case over on the ground that Smith has no further stake in it? That course would be less preposterous than what the court did here; at least Smith, unlike Symczyk, would get some money. But it would be impermissible as well.

Slip op. dissent at 6-7 (Kagan, J.).

Although the underlying legal analysis is entirely unrelated to doctrines applicable to the Federal Arbitration Act (FAA) or satisfaction of Federal Rule 23’s predominance requirement, the Symczyk majority is composed of precisely the same justices as AT&T Mobility v. Concepcion and Wal-Mart v. Dukes.

Last Friday, Orange County (California) District Attorney Tony Rackauckas announced that a $16 million settlement had been reached with Toyota concerning sudden acceleration defects. This settlement is entirely separate from last December’s widely-publicized $1.3 billion settlement compensating consumers for economic damages in connection with the same defects. Numerous cases also remain pending in federal multidistrict litigation on behalf of those who died or were injured as a result of sudden acceleration.

Using a procedural device whereby a DA may file an action on the public’s behalf, Tony Rackauckas stood in the role usually occupied by class representatives. While just a modest proportion of the total damages Toyota will ultimately pay as a result of the sudden acceleration defect, the Orange County DA’s $16 million settlement is significant in that it is precisely the kind that, if brought by individual consumers instead of a public official, could be blocked by the increasingly broad interpretation of the Federal Arbitration Act (FAA) that expounds on the five-member majority’s anti-class action doctrine in AT&T Mobility v. Concepcion.

California’s Unfair Competition Law (UCL) empowers district attorneys and other specified public officials to enforce important public rights or seek broad remedies for stark, unitary wrongs (like the sudden acceleration defect) that are suitable for class treatment. Even the most ardently hostile reading of the FAA does not support forcing a public prosecution into private arbitration, or finding that a prosecutor tacitly waived class or representative procedures. Thus, the device employed by District Attorney Rackauckas may stand as an impregnable bulwark against the continuing attack on consumers and workers seeking rational, efficient adjudication of claims in a single class or representative proceeding.

Of the $16 million paid by Toyota, $4 million is designated to pay costs and fees (including payment to outside counsel hired to prosecute the case), $4 million will go into a fund to help combat economic crime, and the remaining $8 million will be paid to a local gang prevention program. While fighting economic crime and gang activity has no obvious connection to automobile defects, at least one can argue that these programs are beneficial to the public at large.