(Reuters) - In 2002, a federal judge in St. Louis approved what was at the time one of the biggest-ever securities class action settlements in history. Shareholders of NationsBank and BankAmerica, who alleged they were deceived about the 1998 merger that created Bank of America, received a total of $490 million, of which about $330 million was allocated to former NationsBank investors.
The settlement did not come easily. A splinter group of lead plaintiffs from the NationsBank class opposed the agreement, asserting that class counsel made a deal after class representatives walked out of a mediation session. But in 2003, over the objection of two renegade class reps, including St. Louis lawyer David Oetting, the 8th U.S. Circuit Court of Appeals affirmed approval of the settlement. Plaintiffs lawyers, led by class counsel from Green Schaaf & Jacobson, were awarded nearly $59 million in fees, about 18% of the recovery for NationsBank shareholders.
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In August – 17 years after the settlement was approved – renegade class representative Oetting filed a motion demanding the return of the $59 million and requesting a recalculation of class counsel fees. Oetting’s motion asserted that at most, plaintiffs lawyers were entitled to $20 million, their lodestar billings in the litigation.
I’ll end the suspense right now: On Tuesday, U.S. District Judge Catherine Perry of St. Louis denied Oetting’s motion, holding that he waited too long to ask for the fees to be recalculated. That’s undoubtedly true about Oetting’s demand for the return of fees paid to co-counsel of the Green firm, most recently known as Green Jacobson. Before his motion in August, Oetting had never challenged the fees paid to Entwistle & Cappucci, Wolf Haldenstein Adler Freeman & Herz, Chitwood & Harley Harnes and Stull, Stull & Brody. Nor had he previously challenged their administration of the class settlement.
But the background of Oetting’s demand from Green Jacobson, as Judge Perry recounted, is rather more complicated. Oetting has spent years demanding that Green Jacobson, which entered bankruptcy in 2017 after losing a $10.5 million malpractice judgment in an unrelated case, return money to the class and take responsibility for mismanaging settlement funds. Green Jacobson and, since 2015, its bankruptcy trustee, have spent just as long arguing that the firm been honorable and ethical and has fulfilled its duties to the NationsBank class.
The story of the war between this erstwhile securities class rep and his ex-lawyers is one of the strangest I’ve seen in securities litigation. And I doubt it’s over with Judge Perry’s ruling this week. Oetting counsel Frank Tomlinson told me he and Oetting are weighing an appeal to the 8th Circuit – which has already issued a half-dozen opinions in the course of this litigation. Joe Jacobson, once a name partner at Green Jacobson, told me by email that his only comment, aside from an observation that Judge Perry’s ruling was straightforward, was, “I hope someday this saga ends.”
Martin Green did not respond to my email. Nor did counsel for the bankruptcy trustee, who filed a brief opposing disgorgement.
When class counsel in the NationsBank litigation made the initial fee request in 2002, Oetting oddly enough did not oppose it. He told the first judge on the case, U.S. District Judge John Nangle, that he had no objection to a 25% payout to the class lawyers, though he soon thereafter sued class lawyers for breaching their fiduciary duties. (The case was dismissed.)
Disaster struck the NationsBank settlement fund in 2004, when money was first disbursed to class members. The fund paid nearly $6 million in fake claims in a scheme orchestrated by an employee of the settlement administrator, Heffler, Radetich & Saitta. The ex-employee and co-conspirators from outside of Heffler Radetich were eventually found out and indicted in November 2008.
In 2009, Green Jacobson called for a second disbursement, though the administrator retained nearly $3 million. Then in 2012, Green Jacobson proposed that the remaining money in the settlement fund be distributed as cy pres to a Missouri legal aid group, as specified in the original settlement agreement. The firm also asked for an additional $98,000 in fees to reflect its post-settlement work on the case. Oetting objected to the cy pres distribution and the additional fees. He ultimately persuaded the 8th Circuit in 2015 to vacate the cy pres payout and the extra fees.
Oetting was meanwhile litigating on other fronts on behalf of the NationsBank class. He sued the claims administrator over its employee’s fraudulent claims but the case was dismissed on timeliness grounds. Oetting also brought a malpractice class action against Green Jacobson, arguing that the firm failed to supervise the claims administrator and abandoned the class by proposing a cy pres payout. In that case – which was, significantly, filed outside of the securities class action – Oetting called for Green Jacobson to cough up all of the nearly $60 million in fees awarded to class counsel. The case was tossed because Oetting lacked standing, a decision the 8th Circuit affirmed in 2015.
When Green Jacobson went into bankruptcy, Oetting filed a claim for more than $10.5 million, attempting, among other things, to recoup the $6 million lost to fraudulent claims and about $2 million in fee disgorgement. Last December, the 8th Circuit ruled that time had run out for any claim based on the 2004 looting of the settlement fund. It also told Oetting that his disgorgement claim didn't belong in the bankruptcy.
Oetting filed his latest disgorgement motion last August, calling for class counsel to give back a total of about $40 million, the difference between their $20 million lodestar and $59 million fee award back in 2002.
The former name partners of Green Jacobson, now practicing elsewhere, filed a response to the disgorgement motion, noting that Oetting learned 10 years ago that the NationsBank settlement fund had been defrauded – and has never said what Green Jacobson lawyers could or should have done to avert the criminal conspiracy. Yet to remedy harm that class counsel didn’t cause, the brief said, Oetting wants to penalize lawyers who, in some instances, were in high school when fees were awarded in this case nearly two decades ago.
In Tuesday’s ruling, Judge Perry acknowledged that Oetting has been demanding total disgorgement from Green Jacobson since at least 2013, when he first filed malpractice claims in a suit outside of the securities class action. Yes, the judge said, Green Jacobson’s 2015 bankruptcy complicated things. But Judge Perry faulted Oetting for bringing that 2013 malpractice and disgorgement case outside of the securities class action.
As a lawyer, she said, he should have known it was “improvident” to file a separate cause of action and should have been aware that the filing of the separate case did not toll timeliness requirements in the securities class action.
All of the conduct for which Oetting sought disgorgement, Judge Perry said, happened at least seven years ago. In that context, she said, “I find Oetting’s delay in bringing this motion seeking complete disgorgement of the 2002 fee award inexcusable.”
The case is a rat’s nest, for sure. It’s certainly understandable for a judge to want to dispose of a 20-year-old case that has worn a path between her courthouse and the 8th Circuit. And it would be, as Green and Jacobson explained in their brief, unprecedented to order class counsel to pay back fees awarded nearly two decades ago – based on a criminal fraud they had nothing to do with.
Will the equitable ends justify Judge Perry’s means? I suspect that will be up to the 8th Circuit to decide.
The views expressed in this article are not those of Reuters News.