Archive for the ‘Class action’ Category
Gulf Coast Oil Spill Update
Separating fact from rumor can be challenging, particularly when there are complex competing issues that cloud the media. Even the Court’s own website disclaims any final details, and notes that further information will be available as the settlement progresses.
First, a few confirmed “facts” as we know them. On March 8, the Federal Court in New Orleans overseeing the mass tort issued an Order affirming that the Plaintiffs’ counsel and BP had reached a broad agreement on the terms of a proposed class settlement for remaining claimants. Notably, this does not affect all claimants against BP, but apparently creates a mechanism to settle the remaining private claims.
For those who haven’t been following the saga, about four months after the Gulf Coast Oil Spill, BP set up a fund (the “Gulf Coast Claims Facility”, or GCCF for short) to be administered by Washington, DC, attorney Ken Feinberg. BP agreed to provide up to $20 Billion, although only about $6.1 Billion has been distributed to date. Many claimants applied to the fund, were turned down, and pursued legal action. Other claimants elected to pursue legal action without applying to the fund at all.
Under the terms of the new settlement, the Court has appointed a new claims administrator, Patrick Juneau, an attorney from Lafayette, LA. A new claims center will soon replace the Gulf Coast Claims Facility. During the transition period, the GCCF will continue to pay out claims, and in fact has paid out about $26 million so far in March.
The new facility will settle with about 100,000 lawsuits which have been filed. The rough estimate is that a total of about $7.8 Billion will be paid on all of these claims. Two separate settlement processes will be followed — an economic damages fund and a medical fund. Currently pending claimants can get a “quick payment” of 60% of their claim without signing a release (less legal fees of about 6%). They may then wait for final adjucation to receive either the remaining 40% or, potentially, a higher figure in a later “settlement class”.
If that sounds complicated, note that the final terms of the settlement are still up in the air, but essentially, it’s recognized that there may be further appeals or claims to be adjudicated. This settlement covers property damages, economic losses, and medical claims, and also provides for BP funding $100 million in enhanced health care throughout the region. Included within the estimated $7.8 Billion is a $2.3 Billion “seafood fund”. Other than the seafood fund, the actual maximum settlement isn’t capped, so $7.8 Billion is simply a best-estimate going forward.
Of course, BP still has various state and Federal claims to face. The U.S. Government has yet to start proceedings under the Clean Water Act or the Migratory Bird Act, and some estimates put BP’s exposure under that alone at potentially $20 Billion. BP also faces exposure on state and local government claims, which could prove significant.
Attorneys for both sides are expected to propose final terms to the Court on April 16. One interesting squabble which has emerged is over fees. As noted, many claimants filed suit while others filed with the GCCF. Of the latter group, many were represented by counsel and many others weren’t. The current settlement plan calls for a 6% set-aside to reimburse plaintiff attorneys who have funded and managed the litigation. Since 6% of $7.8 Billion is nearly a half billion dollars in legal fees, there is naturally some push-back from attorneys who were not part of the litigation group but have been representing claimants through the fund. This promises to be an interesting fireworks show as Spring turns into Summer in New Orleans.
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Allison versus Exxon
If you follow the litigation news, you’re probably aware that this past week, a state-court jury in Towson, MD, awarded a group of plaintiffs $495 million in actual damages plus about $1 Billion in punitives in the mass-tort matter of Allison v. Exxon. The facts of the case are pretty straight-forward: Exxon leaked a significant amount of MTBE-laden gasoline into the drinking water aquifer of an unincorporated suburban Baltimore community known as Jacksonville.
I was the sole damages expert testifying for the plaintiffs, and methodologically, this was one of the more intriguing cases in my career. We utilized a mass-appraisal hedonic model for my determination of the unimpaired value of the properties as of February, 2006 (the date of the spill) and then amended this model to add factors for the impact of the contamination on these property values (using contingent valuation, meta-analysis, and case studies in the absense of a well-functioning transactional market). We also developed business loss determinations, loss of use-and-enjoyment measures, and present value calculations for medical monitoring costs.
Exxon literally threw everything they had into the damages aspect of the case — they knew this case had the potential to be both big as well as precedent-setting. They hired a veritable battalion of big-named appraisers, professors, modeling experts, and consultants, and one of their two damages testifying experts was a hold-over from the Exxon Valdez case. The multiple days of deposition, motions-in-limine hearings, and trial testimomy (and cross examination) were among the toughest I’ve ever seen.
Naturally, I’m always pleased when my clients win, but not for the reasons people tend to think. I’m not in this for the “win or lose” part of it, but it is intellectually challenging to climb these sorts of mountains, and when a court agrees with me, I’d be disingenuous to say it’s not intellectually affirming.
I’ll be developing a white-paper on this case very soon, and by some coincidence, I’m slated to speak in Manhattan at the semi-annual meeting of the American Academy of Justice next Monday on the topic of “Use and Enjoyment Damages”. As you might guess, this case will be featured in that talk — and probably plenty of subsequent ones.
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JPMorgan-Chase settles military class action
This is a little bit off-topic (just a little), but the case of Marine Corps Capt. Jonathon Rowles, and the class-action suit which he began, has been a particular burr under my saddle since I first heard of it. Apparently, JPM-C has finally done the right thing and offerred to settle, but the fact that they got into this mess in the first place says a lot about their practices.
In short, the Servicemens Civil Relief Act provides for certain protections against overcharging, fraud, and egregious foreclosure during periods when the servicemember is fighting overseas and unable to defend him or herself in the normal due process. Note that debts aren’t forgiven, but mortgage loan interest cannot exceed 6% during such time of service, and certain collection and foreclosure actions are prohibited.
To say that JPM-C ignored the SCRA is apparently an understatment. Capt. Rowles repeatedly informed the bank of his active duty status, and made timely payments based on JPM-C’s own 6% calculations. Nonetheless, they apparently failed to credit him with the proper payments he made, and initiated collection and foreclosure actions against him and his family. For more details on the issue, read the court filings here.
Fortunately, Marines don’t scare easily, and Capt. Rowles and his attorney filed a class action suit on behalf of all service members similarly treated by JPM-C. Seeing the handwriting on the wall (the suit was filed in South Carolina — one of the most pro-military states imaginable), a settlement was forthcoming. For details on the settlement, click here.
Sadly, this class action ONLY covers servicemembers. One has to wonder how many similar stories come from the civilian population?
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Zicklin School of Business
I’m in Manhattan today, getting ready to deliver a pair of lectures at the Zicklin School of Business, Baruch College. For those of you not familiar, Baruch is one of ten “senior college” units within the City U. of NY system, and contains CUNY’s business school (Zicklin), the Weissman School of the Arts and Sciences, and the School of Public Affairs, along with a number of important centers and institutes. A few years ago, with a gift from alumni William Newman (founder of the REIT New Plan Excel Realty Trust), the Zichlin school embarked on developing a top-tier program in Real Estate. I was honored to be asked to serve as one of their Visiting Scholars, and every now and then I drop in to deliver a lecture or two.
In keeping with my general light-hearted tone on the podium, the title of my talk is “Cool Things I Get to Do” (although, in deference to SOME level of decorum, Baruch has titled the talk “A Conversation with Dr. John Kilpatrick”).
In general, I want to walk students (and whomever else wanders in the door) through a panoply of complex valuation challenges, ranging from Hurricane Katrina to some of the “Yucca Mountain” push-back, to the current Gulf Oil Spill mess.
I’m actually presenting two talks — today (Wednesday) I’m presenting a somewhat lighter version of the talk, limited to just the “cool” stuff. Tomorrow evening, with a talk focused more to graduate students, I’m adding some material on expert systems and some of the ways non-parametric techniques can be added to the valuation process to measure accuracy and consistency.
For more information on the talk, click here.
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October 10 — Update #1
It’s a rainy Sunday here in the ‘burbs of the Emerald City, and I have a LITTLE bit of time to catch up on things. First thingie on my mind is the somewhat back-page article in many newspapers recently about Bank of America forstalling the foreclosure process until they get the legality of certain title problems straightened out. The Washington Post syndicate had a pretty good article by Brady Dennis and Ariana Eunjung Cha on Thursday that was carried widely, including by our local Seattle Times and the Mortgage Bankers Association.
Recall that home ownership and mortgage lending (or specifically, the act of pledging a home as collateral in a lending transaction) is LEGALLY a state-governed issues. The Federal government regulates banking and the lending process, but the actual pledging of a home (or any real estate, for that matter) is strictly a state issue (subject, of course, to certain Federal oversight.) Thus, if a nationwide lender like Bank of America (or Countrywide, which it bought) wants to make loans across the U.S., it still has to get permission in each and every state in which it does business, and the lending process needs to be tailored to each state’s peculiar laws.
As it happens, property ownership had a somewhat different emphasis from one state to the next. In South Carolina, where I used to live (and for that matter, in about half the states), foreclosing on a home is a very difficult process. The lender has to go to court and prove that the mortgage is in default, and further prove that the lender has the right to foreclose. In those states, the foreclosure process simply cannot proceed without a judge’s orders. In other states (my current home of Washington, for example), the process is much easier and does not require a judge.
The distinction is less important than the fact that there is a variance in processes among the states. When you are BofA (or Wells, or Chase, or any big lender), you want to bundle the loans together and sell them as pools. The pool actually WANTS loans from different parts of the country, to benefit from diversification. To facilitate this, and to make mortgage pools fungible and tradeable, the various lenders started subscribing to a service about 10 years ago called the Mortgage Electronic Registry Service (MERS), in Reston, VA. MERS separates the “real estate pledge” (that’s what the mortgage actually is) from the promissory note (which is what investors actually want to buy). In theory, MERS wouldn’t be an issue in an individual loan unless that loan went into foreclosure.
Now, in any given mortgage pool, even in GOOD years, a few of the loans will go into foreclosure. Fortunately enough, in “good” years, there are enough foreclosure buyers out there to keep the mortgage pool solvent, and no one really cares if every “i” wasn’t dotted and every “t” wasn’t crossed in the process.
But… sigh… these are anything but normal or GOOD times, and apparently bankers are churning ou the foreclosure doc’s so fast they’re getting carpel-tunnel from filling out paperwork. Guess what? If the mortgages were made slopily in the first place (as many were), and if the mortgage-note bifurcation was handled too rapidly (as most apparently were) and if the foreclosure applications are coming out of the bank like a firehose, then… well, remember that about half of the states require a judge to sign off on each and every foreclosure, right? And judges just HATE sloppy paperwork, right?
With THAT in mind, the foreclosure process is quickly grinding to a halt. In some states, the courts have ruled that MERS does not have a valid standing to initiate foreclosure proceedings. Class action suits have been filed in California and Nevada, no doubt with more to follow. The nightmare scenario for banks is that not only are foreclosures invalid because of sloppy paperwork (let’s don’t forget the sloppy underwriting that got us in this mess in the first place) but also one might argue that any foreclosure initiated in the past 10 years is also invalid. Thus, if you lost your house at the leading edge of this mess, two years ago, assuming the statute of limitations is still in effect, you may have a case.
Sadly, the vast majority of these foreclosurse are probably valid, albeit that may be difficult to substantiate with the sloppy paperwork. Homeowners who can’t make their payments anymore need closure so they can move on with their lives. Lenders (and mortgage pool investors) need to get assets redeployed. Neighborhoods with boarded up homes need families living in those homes again, whether they are homeowners (who frequently buy “fixer-upper” foreclosures) or renters. The system is not served at all by dragging this process out.
On the other hand, we constantly teach students that one of the strengths of the western economy is the rule of law. Contracts mean something, and badly drawn or poorly executed contracts cannot have the same legal standing as good ones. To allow such in the name of expediency puts us pretty far down the slippery slope.
I’ll be following this story. This is a complicated story, and newspapers, sadly, end up putting complex stuff on the back pages. This issue, however, deserves some front page attention.
EDIT #1 —
Since I wrote this, Foxnews.com published a very good synopsis of the problem.
From a small northwestern observatory... 