Ken Feinberg’s other job

By Felix Salmon
June 22, 2010
this would worry me greatly:

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If anybody other than Ken Feinberg were in charge, this would worry me greatly:

In the end, one aim of the fund—and a prime reason BP agreed to it—will be to minimize lawsuits against the company. To do that, Mr. Feinberg will offer big lump-sum payments to workers and businesses as an enticement to stay out of court.

“At some point, I will have to make an offer—’You take this amount in full satisfaction of your claim, but only if you waive your right to future litigation,’” Mr. Feinberg said.

Funny, the “minimize lawsuits against the company” purpose of the fund was nowhere to be seen in the initial news reports about it, or the BP press release, or the White House fact sheet. It seems that Feinberg has two jobs, not one: he has to pay out legitimate claims and he also has to prevent those claimants from suing BP. Obviously, at the margin, the second job is going to make the first job more difficult: there will always be some settlements that people won’t accept unless they retain the right to sue.

What’s more, there’s an enormous information asymmetry here. Most of the claimants are individuals and small businesses who probably have no idea what their legal rights are or how much they could receive in a court of law. BP and Feinberg, by contrast, are legal sophisticates who are well versed in the arts of persuading people to sign away their right to litigate.

Feinberg is (mostly) beyond reproach and I trust him to do the right thing here. But if he were to fall under a bus tomorrow, I don’t trust his successor similarly. To err is human, and when Feinberg or his successor makes an error, there should be some kind of grounds to appeal, even after the offer has been accepted.

This isn’t the first time that Feinberg has discovered a second, hidden purpose behind his ostensible job. When he was setting bankers’ pay, he eventually came out and said that his “primary objective” was not setting bankers’ pay at all, but rather TARP repayment.

I particularly worry about the status of claimants who put in for one claim and then put in for a second. If they sign away their right to litigate when they receive their first payout, it seems to me that they will have no leverage at all when negotiating with Feinberg for their second. As a result, Feinberg’s going to find it much harder to settle claims quickly: people will want to wait to settle everything at once, if they’re going to waive their litigation rights.

So I hope that Feinberg doesn’t treat this secondary aim too seriously — and I trust that he does treat it as a secondary aim, rather than a primary one. More clarity on this front would be very welcome.

3 comments

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This is the same Feinberg who decided that the 11 Sep 2001 funds would go disproportionately to the already well-paid.

Your faith in his desire to do right to small businesses may be charming, but it’s not based on reality.

Posted by klhoughton | Report as abusive

Ignoblesse s’oblige pas, roughly translated, could mean “Feinberg was here” which denotes the manifest indignity of people having to grovel and supplicate after being royally screwed in broad daylight as destined to persevere.

When the chips are down, what’s so special about Feinberg – that he could be even worse, or that he can be exonerated from knowing any better?

Posted by HBC | Report as abusive

You missed the last part of his sentence, which may add a lot more meaning.

“And if I package it right, people will see that it makes no sense to fight it out in court.”

This is wise, given court costs can eat up the majority of your claim and there is no guarantee of an outcome. Businesses who claim they were ruined, should take a payout to compensate if it means the business is close to being bought out.

He said at one point, and that means once both parties are aware of the damages. If the payout covers your damages, then you would be wise to take the payout. Why would huge lump sums be offered unless there was a waiver? This is not a trough, it is compensation for those who are damaged and everyone who deserves it should get it.

In other words, payouts for damages won’t ask for a waiver, but huge payouts or ‘packages’ he offers in a lump sum will.

After reading about the Exxon Valdez this sounds like a much better plan then promising payout that never came and then having to go to court for damages and still be in litigation 20 years later.

Posted by hsvkitty | Report as abusive