Posts belonging to Category Settlements

Wachovia Bank (now a part of Wells Fargo Bank) will pay $148 million to federal and state agencies and municipalities after admitting to anticompetitive activity in the municipal bonds market.  State and federal authorities charged the bank with entering into illegal agreements to manipulate the bidding process and rig bids on bond reinvestment transactions from 1997 through 2005.  As part of a non-prosecution agreement with the SEC, Wells Fargo admitted that former employees of Wachovia engaged in this illegal conduct.  The Justice Department has already obtained $525 million in settlements with Bank of America, UBS AG and JP Morgan over allegations of corruption in the municipal bond market.

The Southern District of New York has approved a $90 million cash settlement that confirms the distinctive role of class actions in compensating victims of the recent financial crisis.  See Rubin v. MF Global, No. 1:08-cv-02233 (S.D.N.Y. Nov. 18, 2011) (final order and judgment) (available here).  The settlement resolves claims against defendants, including MF Global, in connection with the company’s initial public offering.  The plaintiffs alleged that defendants erroneously assured investors that MF Global’s system of risk controls would be capable of monitoring risk on a continuous, “real time” basis.  See First Amended Class Action Complaint at ¶ 77, Rubin v. MF Global, No. 1:08-cv-02233 (S.D.N.Y. Nov. 5, 2010).  In fact, MF Global had deactivated trading and margin controls on brokers’ computers to speed up transaction times.  Id. at ¶¶ 14, 93.  When a single trader subsequently lost $141 million speculating in wheat futures in overnight trading, MF Global was forced to absorb those losses, sending MF Global’s stock into a tailspin.  Id. at ¶¶ 13-17. As a result, the company lost $1.1 billion in market capitalization over a two-day period.  Id. at ¶¶ 114-115.

Owing to the unusually large settlement fund of $90 million, class counsel was awarded 18 percent of the settlement fund in fees, rather than the usual 33 percent.  See Rubin v. MF Global, No. 1:08-cv-02233 (S.D.N.Y. Nov. 18, 2011) (order granting plaintiffs’ counsel’s petition for an award of attorneys’ fees).  The settlement follows on the heels of MF Global’s October 31 bankruptcy filing, which was directly tied to an additional scandal in which MF Global failed to segregate its own funds from customer funds as required by the rules of the Chicago Mercantile Exchange and was unable to satisfy customer redemptions. 

A Massachusetts district court judge has granted preliminary approval of a $28.5 million class action settlement against Reebok.  See In re Reebok Easytone Litig., No. 4:10-cv-11977-FDS (D. Mass. Oct. 6, 2011) (order preliminarily approving class settlement) (available here).  The settlement resolves five separate but related consumer class actions against Reebok for deceptive advertisements that suggest the company’s Easytone shoes “tone” muscles.  The settlement provides for cash payments to class members as well as injunctive relief in the form of changes to Reebok’s advertising and marketing practices for its shoes and apparel. 

The settlement bars Reebok from making claims that its Easytone line is effective in toning or strengthening without supporting scientific evidence.  As of November 2, 2011, Reebok’s website—http://www.reebok.com/US/search?t=easytone—still advertises Easytone products.  But, per the settlement, Reebok has disposed of advertisements stating that wearing the shoes will result in “28% more muscle activation in the gluteus maximus, 11% more muscle activation in the hamstrings and 11% more muscle activation in the calves” as compared to regular athletic shoes.  Complaint at ¶ 27, In re Reebok Easytone Litig., No. 4:10-cv-11977-FDS (D. Mass. Filed November 16, 2010).

 This settlement comes as the result of extensive negotiations involving the ten private law firms representing the named plaintiffs and attorneys from the Federal Trade Commission (FTC).  After the five class actions had been filed, the FTC filed an additional complaint against Reebok alleging that the dubious toning claims were violations of federal laws that prohibit “unfair or deceptive” practices and false advertising.  Settlement Agreement at 7, In re Reebok Easytone Litig., No. 4:10-cv-11977-FDS (September 28, 2011) (citing 15 U.S.C. § 45(a)) (available here).

 The FTC’s participation in this action underscores a trend in which the Obama Administration’s FTC and Labor Department have been markedly more aggressive in prosecuting consumer and workplace violations than previous administrations.  Here, the settlement agreement recites that the cooperation of the FTC with private counsel “maximize[d] the settlement consideration . . . including the money to be paid to Class Members.”  Id.  For example, rather than reverting to Reebok, any unclaimed settlement proceeds are paid to the FTC.  Id. at 16.

 The Final Fairness Hearing is set for January 17, 2012.

The widely-covered $2 billion settlement in In re Wachovia Corp. “Pick-A-Payment” Mortgage Marketing and Sales Practices Litigation, No. M:09-MD-02015-JF, has recently been finalized following the resolution of three appeals; the Effective Date of Settlement is September 7, 2011.  Of note is the relatively modest $25 million in fees sought by and awarded to class counsel, to be divided among the seven firms appointed as such.  The reality of the fee award stands in marked contrast to public misperceptions concerning attorney fees with regard to class actions, exemplified by this comment, posted by “The Attorney” at www.topclassactions.com:

Let me explain how it really works. They plan to settle for 50 million and the lawyers are wanting 25 million. The lawyers will then sue the plaintiff for the 25 million. (They will not get it from the settlement nor from the people who are receiving the settlement.) There are 26 people [referring to the named plaintiffs] who will receive 125,000 each. This money is taken out of the settlement.  Leaving 46,750,000. . . . [T]here are 517,000 people who take part of this Class action lawsuit. So when you divide the money by 517,000 . . . each person will get 90.425 (90.43 if you round up).

http://www.topclassactions.com/lawsuit-settlements/lawsuit-news/964-wachovia-qpick-a-paymentq-mortgage-loan-class-action-settlement-#comment-587.  

Apart from getting the settlement amount wrong (by $1.95 billion) this seemingly informed commentator massively overestimates a 50% fee request, and imagines a process whereby class counsel sues for fees.  In fact, the fees awarded in this case are just 1.25% of the $2 billion total settlement value.  Further, the attorney fees are not part of the $2 billion settlement fund, which is not denominated as a “common fund.”  Rather, the fees are to be paid separately, and thereby do not diminish the money going to class members.  Moreover, the fee award is to be divided among the seven firms appointed as class counsel, just as the $125,000 enhancement payment is to be divided among the 26 named plaintiffs.