To the long list of dire consequences if the United States defaults on debt obligations, here’s an addition you probably haven’t considered: litigation against the U.S. government for missed payments.
In all my long years of reporting on class actions, I can’t remember ever writing a story about one of the handful of U.S. companies in the business of administering settlements. Sure, I’ve covered BP’s recent feud with court-appointed claims administrator Patrick Juneau and the alleged misconduct of some of Juneau’s staff. But not about Garden City Group, PricewaterhouseCoopers or Brown Greer, the companies that are actually processing claims from the Deepwater Horizon oil spill litigation, under both Juneau and his predecessor at the Gulf Coast Claims Facility, Kenneth Feinberg of Feinberg Rozen. I’ve written about U.S. District Judge William Pauley chastising the Securities and Exchange Commission for failing to exercise strict supervision over the investors’ compensation fund established in the SEC’s 2009 settlement with Zurich Financial, but not about the fees Garden City Group charged to administer the investor fund. Claims administrators are an essential part of the class action mechanism. They’re the businesses that help lawyers figure out how to inform potential class members that they may have claims and subsequently evaluate the claims that are submitted. Yet there’s scant scrutiny of the claims administration business by journalists, or, for that matter, judges.
In an order issued late Friday, Judge Elizabeth Gonzalez of Nevada state court in Las Vegas effectively informed Dish Network Chairman Charles Ergen and his fellow board members that Dish’s peculiar corporate governance practices pose real risks to them and the company.
In a post earlier this week, I wrote about whistleblower lawyers’ concerns that unsuspecting tipsters will be misled into signing up with one of the many non-lawyer groups advertising on the Internet for Dodd-Frank whistleblowers. Unlike lawyers’ websites, ads by non-lawyers aren’t subject to state bar regulations. Nor are fee agreements between whistleblowers and non-lawyer agents. Lawyers who regularly represent tipsters told me that a proliferation of supposedly deceptive ads after the Securities and Exchange Commission implemented its whistleblower bounty program is one of the biggest problems in their business.
Can a defendant buy global peace in sprawling litigation through a class action settlement that benefits people who haven’t suffered any harm? Should courts permit class settlements that might sweep in uninjured claimants? And if not, what obligation do judges have to assure that settlements compensate only class members who meet the constitutional threshold to assert a claim?
At around the time on Tuesday that the Securities Exchange Commission announced its latest award to a whistleblower – at $14 million, it’s by far the largest of the handful of tipster payments the SEC has made since implementing its Dodd-Frank whistleblower program in 2011 – Andrew Calamari of the SEC’s New York regional office was fielding questions about the program from Susan Brune of Brune & Richard. Brune, who was moderating a panel at the Practising Law Institute’s White Collar Crime conference, asked Calamari whether the commission has any policy on fee agreements between whistleblowers and the lawyers who represent them. Calamari, who had previously said that the tipsters his office sees are typically accompanied by lawyers who’ve whipped up nifty presentations on their clients’ allegations, said the SEC “hasn’t publicly announced a position.”
Wachtell, Lipton, Rosen & Katz put out a plaintive client alert last week, responding to SEC Chair Mary Jo White‘s speech to the Council of Institutional Investors. White, who is, as you know, a former U.S. Attorney, emphasized the agency’s enforcement power and obligations. “The more successful we are at being – and being perceived as – the tough cop that everyone rightfully expects, the more confidence in the markets investors will have, the more level the playing field and the more wrongdoing that will be deterred,” she said in her speech on Sept. 26. Wachtell’s response questioned whether the SEC ought to be playing cops.
There’s an ideological battle under way in the federal courts of America that will determine the future viability of class actions.
U.S. District Judge William Alsup of San Francisco has the instincts of a really great reporter. He is a skeptic who pushes for answers, even if that means hauling the CEOs of Google and Oracle into settlement talks or demanding that state pension funds disclose their lead counsel selection process. So when shareholders proposed an unusual settlement of their securities class action against Diamond Foods, in which nearly 90 percent of the class recovery would come in the form of new stock in the company, I was really curious to see what Alsup would make of the deal. If the judge thought class members were being rooked in this peculiarly structured settlement, he’d say so.
In a board meeting on July 21, the satellite television company Dish Network disbanded a two-member independent committee that had been established in May to vet Dish’s $2.2 billion bid for the spectrum licenses of the bankrupt company LightSquared. A few days later, one of the directors on the committee, Gary Howard, resigned from the board in what The Wall Street Journal has reported to be a protest over the abrupt end of the special committee, whose members expected to have an ongoing role in the bidding process for LightSquared’s licenses. Dish’s directors – including majority shareholder Charles Ergen – have said that the independent committee’s work ended when the company finalized its stalking-horse offer in LightSquared’s Chapter 11. But shareholders in a derivative suit in state court in Las Vegas say that’s not why Ergen and his allies on Dish’s board ditched the independent committee. They claim that Ergen was looking out for his own conflicting interest as the holder of $1 billion in LightSquared debt. According to the shareholders, Dish’s “fundamental corporate governance breakdown” has endangered the company’s bid for LightSquared’s licenses and exposed Dish to liability for interfering with LightSquared bankruptcy.