Posts belonging to Category Settlements

Despite the trial court’s denial of class certification, the threat of a successful appeal and a string of victories by individual plaintiffs have resulted in a comprehensive $750 million settlement in the massive In re Genetically Modified Rice Litigation, No. 06-md-1811 (E.D. Mo., consolidated Dec. 19, 2006).  The plaintiffs principally alleged that Bayer Cropscience (a subsidiary of the aspirin maker) contaminated regular rice crops with genetically modified rice.  The settlement amount excludes potentially substantial administrative costs.

The multidistrict litigation comprised nearly 300 cases filed by rice farmers and arose from the discovery in 2006 of genetically modified rice strains (indisputably linked to Bayer Cropscience) within non-modified rice supplies in Arkansas, Louisiana, Mississippi, Missouri, and Texas.  The contaminated rice supplies were destined for distribution throughout the country and world.  Discovery of the contamination led to a dramatic drop in U.S. rice prices, as the European Union stopped buying U.S. rice altogether.  Even now, rice prices remain substantially below their pre-contamination discovery level.  The plaintiffs sought to recover as damages the market losses and expenses that they experienced as a result of the contamination.

The cases were consolidated by the Judicial Panel on Multidistrict Litigation in December of 2006, but the presiding court denied the plaintiffs’ class certification motion in January of 2009.  However, despite there being no certified class, the court moved forward with what it referred to as “bellwether trials.”  Though formally individual trials, verdicts favorable to plaintiffs from Missouri, Arkansas, Mississippi, and Louisiana seemingly induced the $750 million settlement—one of the largest in the past year—which still must receive judicial approval.

The settlement covers all U.S. long-grain rice producers (essentially the class as to which certification was denied) and includes a complex allocation formula.  Settlement funds will be divided among three settlement “pots” keyed to total rice acreage and the year in which rice was planted to determine market loss damages.  Additionally, the settlement agreement includes a provision requiring that 85% of the settling rice farmers expressly approve of the settlement agreement; otherwise, it will be automatically voided.

Earlier this year, Bank of America agreed to pay $410 million to settle sprawling litigation stemming from allegations that consumers were charged unlawful overdraft fees. The cases were consolidated into an MDL action in the Southern District of Florida as In re Checking Account Overdraft Litig., No. 09-MD-02036-JLK (S.D. Fla. filed June 10, 2009). Bank of America was the first of the more than 30 bank defendants to settle—other defendants include JPMorgan Chase, Wells Fargo, U.S. Bank, and Citibank—and preliminary approval of the settlement is expected to signal the parameters of acceptable settlement terms to other defendants. The larger banks’ total exposure is estimated to be in the billions of dollars. Given that, and coupled with the fact that legislative and administrative reforms enacted since the cases were filed effectively outlaw the complained-of practices, it is unlikely that the banks, already financially challenged, will take their chances at trial. By settling first, Bank of America might well have worked that dynamic to its advantage, as the plaintiffs in the remaining actions communicate a willingness to go to trial and hold out for better settlements.

Further complicating the settlement calculus: Some of the defendants, led by JP Morgan Chase, are asking that the district court reconsider its earlier denial of a Rule 12 motion to dismiss in light of new authority concerning federal preemption—not AT&T v. Concepcion, but the considerably more arcane Baptista v. JP Morgan Chase Bank, No. 10-13105, 2011 U.S. App. LEXIS 9568 (11th Cir. May 11, 2011). Baptista, available here, concerns the preemptive effect of the National Bank Act (12 U.S.C. § 21 et seq.) and the complex interplay between federal and state regulation of banks.

In a settlement that illuminates the connection between major events that capture society-wide attention and the infusion of substantial value into class action settlements, Bank of America has agreed to pay $410 million to settle sprawling litigation stemming from allegations that consumers were charged unlawful overdraft fees. The numerous cases were consolidated into an MDL action in a Florida district court as In re Checking Account Overdraft Litig., No. 09-MD-02036-JLK (S.D. Fla. filed June 10, 2009).

The plaintiffs alleged that Bank of America processed transactions in a way that maximized the assessment of overdraft fees, which until recently had been a significant source of revenue for commercial banks. Specifically, the class alleged that, instead of declining debit card transactions when customers’ accounts had insufficient funds to cover a purchase, Bank of America would authorize the charges. Moreover, it was alleged that charges were posted out of chronological order, and in order of largest transaction to smallest, thereby maximizing overdraft-fee revenue.

If the settlement is approved, the average class member’s recovery will be a non-trivial $78 — a piece of evidence to counter the notion that class members only receive pennies while lawyers significantly benefit from class action settlements. While overdraft fees have long been the focus of consumer complaints, it is only now, in the wake of abuses in the financial industry attendant to the “Great Recession,” that the claims have acquired substantial settlement value. Indeed, overdraft litigation is also pending against U.S. Bank, Key Bank, and HSBC. Now that the Bank of America settlement has set a rough market price of approximately $78 per customer, it is unlikely that other banks will be able to negotiate a smaller settlement or be willing to face jurors who have been inundated with adverse news stories about banking practices and no doubt influenced by their own experiences with excessive overdraft fees.

Now, nearly two-and-a-half years after the September 2008 collapse of Lehman Brothers (the emotional, if not technical, start of the “Great Recession”), we are seeing the resolution of litigation related to the phenomenon that most agree was the tripwire to the economy’s sudden fall: sub-prime mortgages and their too-good-to-be true consumer inducements.

One notable settlement was recently reached in the case of In re: Wachovia Corp. “Pick-a-Payment” Mortgage Marketing and Sales Practices Litigation, No. 5:09-md-02015-JF (C.D. Cal. filed Feb. 13, 2009). A copy of the Settlement Agreement is available here. The Wachovia Corp. “Pick-a-Payment” class had alleged that Wachovia (itself a casualty of the economic crisis and now owned by Wells Fargo) deceived customers by failing to disclose that borrowers could face negative amortization of their payment option mortgages by choosing to make minimum payments in amounts less than the interest accrued during the payment period. The remaining interest would then be capitalized, or added to the loan principle, which would itself accrue interest. The tantalizingly low payments of these “Pick-a-Payment” loans were a common feature of home mortgage loans that, in the expectation of a perpetual refinancing market, eventually entailed enormous balloon payments once the early-phase, unnaturally low payments expired. Apart from deceiving consumers, this and other negative amortization schemes directly contributed to the mortgage defaults that triggered the collapse of mortgage-backed securities, a wholly separate source of litigation. In a related matter, Wells Fargo entered into individual settlement agreements with the Attorneys General of at least ten states, including California, to provide mortgage modification and restitution to customers who obtained Pick-a-Payment loans from Wachovia and World Savings Bank.

The immediate significance of the Pick-a-Payment settlements is three-fold. First, the settlements are notable in their magnitude: the In re: Wachovia Corp. settlement pool is over $50 million, exclusive of attorneys’ fees and administrative costs, and the Wells Fargo settlement with the State of California includes over $2 billion in loan modifications. In addition, the California settlement obligates Wells Fargo to make direct restitutionary cash payments totaling $32 million to over 12,000 California borrowers who lost their homes through foreclosure on Pick-a-Payment loans. Second, the Pick-a-Payment settlements underscore the continuing relevance of government entities’ prosecution of consumer-based civil claims. Then-Attorney General, now governor, Jerry Brown is understood to have been personally invested in the litigation, a pro-consumer zeal that will likely carry over into his newest gubernatorial administration. (Similarly, in the wage-and-hour realm, President Barack Obama has substantially expanded the federal Department of Labor’s enforcement of misclassification violations, in which employers attempt to elude overtime obligations by titling employees as “managers” or “administrative” but without satisfying the requisite criteria for an overtime exemption.) Finally, with the term “class action” having unfortunately acquired an unearned negative connotation among some due to ongoing corporate campaigns, the Pick-a-Payment settlements serve as a reminder that only class actions are capable of the sort of massive remedial action that was called for here, which directly benefited victims of deceptive loan practices who had been put out of their homes.