Storm Clouds Falling Into Line. Photo Copyright Dennis J. Wall. All rights reserved.
CONTINUE. THIS TIME: THE SECRECY OF MAKING AND SELLING CREDIT DEFAULT SWAPS.
I spent hours this week looking for the electronic Court file to update an article I posted on September 14, 2015, titled "BANKS CDS INSURANCE POLICIES IN SETTLEMENT -- WHAT'S THE DEAL?"
My September article was based on reporting in The New York Times that a huge class action involving credit default swaps was about to settle. Alone among the major news organizations, The Times does not publish the name, number, or Court information when they report about a lawsuit. I do not know why. Maybe they have a policy against it for some reason.
So, in the course of updating my September, 2015 article I had to find out all that information first. I found the name, number, and Court of the case pretty quickly: In re Credit Default Swaps Antitrust Litigation, Case No. 1:13-md-02476 or 13 MD 2476 (DLC) [take your pick] (Southern District of New York). Yet, after hours of investigation and research I still could not find an electronic Court file. Making a long story short so to speak, I found it but it was not easy. The obstacles I faced in finding this case were a portent of things to come.
The Court in that case has not yet entered a final Order approving the class action settlement of litigation over the alleged secrecy of the defendant investment banks and others in making and selling credit default swaps. However, the Court in that case has entered a Preliminary Order.
The District Judge used the proposed order submitted by the lawyers (Docket No. 464-1 in that case) and crossed off the word "proposed" in the title:
PROPOSED ORDER PRELIMINARILY APPROVING SETTLEMENTS AND PROVIDING FOR NOTICE TO THE SETTLEMENT CLASS, now listed by the Clerk as Docket No. 465 in Case No. 13 MD 2476 (DLC) (S.D.N.Y., October 29, 2015). Download Order.Preliminary Settlement Approval.102915.Dkt No. 465. In re Credit Default Swaps Antitrust Lit. (SDNY Case No 13 MD 2476).
To her credit, the District Judge entered several lines of handwritten edits and additions to the lawyers' proposed order. However, the District Court's certification of a "Settlement Class" was not among her edits. Using the lawyers' proposed language, the Court certified a Settlement Class in that case pursuant to Rule 23 of the Federal Rules of Civil Procedure "solely for purposes of effectuating the Settlements". (Preliminary Order, Docket No. 465, ¶ 3, p. 3.)
The proposed Order of Court went on to enter an injunction against anyone who wants to pursue "Released Claims" against the released entities including the defendants of course. The injunction barred "any Settlement Class Member" from filing or maintaining "any action alleging any of the Released Claims against any of the Released Parties." (Preliminary Order, Docket No. 465, ¶ 22, pp. 9-10.) Download Order.Preliminary Settlement Approval.102915.Dkt No. 465. In re Credit Default Swaps Antitrust Lit. (SDNY Case No 13 MD 2476).
Do you notice any problems with this concept?
Well, for one, determining who is a "Settlement Class Member" is something of a farce. Trying to advise anyone who is a "Settlement Class Member," and thus subject to this injunction, requires a determination of who is a settlement class member of course. In one sense, a Settlement Class Member theoretically includes anyone who falls within the lawyers' stipulated settlement class whether or not the Court has jurisdiction over them or their claims. That view includes anyone who might fall within the Settlement Class definition even before they have been given notice and an opportunity to be heard.
That may be good for the Released Parties, but it is not a valid interpretation for a Court. Due process, the right to be heard, in person jurisdiction concepts and objections like that absolutely bar a Court from making such an interpretation.
No, in law as in reality the question of who is a "Settlement Class Member" depends on who files the appropriate paperwork by the appropriate deadlines decreed by this Order requiring that notice must be given and that an opportunity to be heard must be provided. Depending on whether a person demands exclusion from the settlement class or files an objection to being included in the settlement class in this case, the deadline decreed for filing the appropriate paperwork is February 29, 2016. But since February 29, 2016 has not come no-one knows who "any Settlement Class Member" is yet.
Another problem concerns the identity of what the "Released Claims" against any of the "Released Parties" are, exactly. The Court apparently does not know.
The purported ruling written in the "Proposed Preliminary Order" that no-one can "commence or prosecute" the "Released Claims" does not say what the "Released Claims" are.
Perhaps there is a definition of "Released Claims" in the Settlement Agreements on file in this Court file. There are some 700+ pages of settlement agreements on file in this Court file.
To know what are "Released Claims" which cannot be prosecuted or maintained until this Court gives its final approval to this settlement, we must wade through those settlement papers. Just as soon as I finish wading, I will let you know what if anything I can find. In the meantime, the Court in this case has set a so-called "Fairness" hearing in this Preliminary Order for Income Tax Day next year, or April 15, 2016. Maybe by then we will know something more than the little we know now.
Please Read The Disclaimer. ©2015 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with 2015 Supplements). See in addition the article about this case which was posted on Insurance Claims and Bad Faith Law Blog on December 10, 2015. All rights reserved.
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