Press Release

Date: February 23, 1998

Class members James B. Ragan and Timothy W. Monsees (the "Ragan Objectors"), by and through their counsel Trial Lawyers for Public Justice ("TLPJ"), hereby object to the proposed settlement of this action. These objections shall also serve as the Ragan Objectors' notice that they intend to participate in this Court's fairness hearing through counsel.

This class action was filed in 1994 on behalf of a nationwide class of current and former mortgagors of Bank United of Texas ("Bank United"). In the course of servicing its customers' residential mortgages, Bank United required homeowners to maintain excess "cushions" in their escrow accounts. Complaint ¶ 13. This practice allegedly deprived homeowners of millions of dollars, in violation of the Real Estate Settlement Procedures Act, various state laws, and the class members' contracts with Bank United. Id. ¶¶ 20, 26-34.
In December 1997, the parties filed a proposed settlement agreement that would give each class member a "discount certificate" worth $175 off the closing costs of any new or refinanced mortgage with Bank United. Agreement ¶ 10. The certificates are only redeemable on Bank United loans; expire after five years; are nontransferable; and may not be redeemed for cash. Id. Any class member who was more than 30 days late in making any mortgage payment, or whose loans were in foreclosure or bankruptcy, is ineligible for the relief. Id. Class members who do not qualify for a loan cannot use the certificates (Settlement Notice at ¶ b.4), and the certificates may not be used in conjunction with any other discount offers made by Bank United. Id. ¶ b.1. In exchange for this relief, class members would release every conceivable claim they might have against Bank United (and its affiliates and successors) relating to Bank United's escrow practices and, in addition, "all claims and causes of action that have been or that could have been brought in this Litigation." Agreement ¶ 24. Class counsel, meanwhile, would receive up to $400,000 in attorneys' fees. Id. ¶ 13.

Notice of the proposed settlement was given via direct mail to the approximately 150,000 existing mortgagors in the class, and via a one-time notice published in the New York Times for the 200,000 former mortgagors in the class. Agreement ¶¶ 15, 16. No additional notice is contemplated by the Agreement, and class members will not receive any actual "discount certificates" in the mail. Instead, class members must present the front page of the actual mailed notice (or the New York Times notice) at closing to get any value from the settlement. Id. ¶ 16.
The Agreement provides that class counsel "shall have the right" to monitor the redemption process and that they "may," at their "own expense," use the services of an expert for this purpose. Agreement ¶ 12. As to the results of that process, the Agreement provides that:

Class counsel and the expert agree that information obtained pursuant to their review will be treated as confidential and will sign all necessary documents to protect their confidentiality. Any monitoring will be based on a reasonable plan developed by both Class counsel and Defendant, and Defendant agrees to reasonably cooperate with Class counsel's efforts to monitor the implementation of the Settlement Agreement and the redemption of discount certificates.

Id. Thus, any information related to class counsel's monitoring efforts including, apparently, the number of certificates that are actually redeemed will remain secret.
The Agreement also contains a "one-way gag order" that forbids class counsel and any objecting class members but not Bank United from saying anything to the media about the case. See Agreement ¶ 26. The one-way gag order is reinforced by another provision of the settlement that forbids all class members not just objectors and their lawyers from "refer[ring] to, reveal[ing], or characteriz[ing] the Settlement Agreement or any of its terms . . . " Id. ¶ 32.

It appears that class counsel have entered into at least two other settlements with mortgage banks that contain similar relief to the coupons provided in this case. See Bell, et al., v. Prudential Home Mortgage Company, Inc., Case No. GV 94-2717-G (Ala., Montgomery Cty. Circuit Ct., 15th Judicial District) (providing for seven-year, nontransferable coupons worth $125 off closing costs of new or refinanced mortgages) (Exhibit 1); Bay, et al., v. Citicorp. Mortgage, Nos. 90 C 5357, 91 C 3137, and 91 C 7020 (N.D. Ill.) (providing for $150,000 settlement fund to be distributed among former mortgagors and seven-year, nontransferable coupons worth $125 and $50 off closing costs of new or refinanced mortgages) (Exhibit 2). Both the Citicorp and Prudential settlements also contain one-way gag orders that closely resemble the one at issue in this case. See Exhibit 1 at ¶ 29; Exhibit 2 at ¶¶ 35-36.

I. The "One-Way Gag Order" is an Unconstitutional Prior Restraint on Speech.

Generally speaking, any order that prohibits the utterance or publication of particular information or commentary imposes a "prior restraint" on speech. See United States v. Salameh, 992 F.2d 445, 447 (2d Cir. 1993). A prior restraint on constitutionally protected expression carries a heavy presumption against its constitutional validity. See, e.g., New York Times Co. v. United States, 403 U.S. 713, 714 (1971). Although the speech of a litigant participating in judicial proceedings may be subjected to greater limitations than could constitutionally be imposed on the press, see Gentile v. State Bar of Nevada, 501 U.S. 1030, 1074 (1991), the limitations on litigant/attorney speech may be "no broader than necessary to protect the integrity of the judicial system . . .." Salameh, 992 F.2d at 447. Thus, gag orders on litigants in pending cases violate the First Amendment unless they are narrowly tailored to prohibit only statements posing a "substantial likelihood of material prejudice" to an ongoing adjudicative proceeding. Gentile, 501 U.S. at 1074-75. See also Bernard v. Gulf Oil, Co., 619 F.2d 459, 475 (5th Cir. 1980) (validity of prior restraint entered in Rule 23 class action "must be tested by the same standard utilized in other contexts"), aff'd sub nom. Gulf Oil Co. v. Bernard, 452 U.S. 89 (1981).
In the Seventh Circuit, the seminal case is Chicago Council of Lawyers v. Bauer, 522 F.2d 242, 249 (1975), cert. denied, 427 U.S. 912 (1976), which considered whether a set of "no-comment" rules of the Northern District of Illinois that barred lawyers from making public comments about ongoing civil and criminal cases deprived litigants of their free speech rights under the First Amendment. The Court rejected the rules as unconstitutional, holding that they were unsupported by any showing that the broad range of proscribed speech would pose any sort of "imminent and serious" threat to the administration of justice. In so holding, the Court noted that there is even less justification for court-imposed gag orders in civil cases than in criminal matters:

Civil litigation in general often exposes the need for governmental action or correction. Such revelations should not be kept from the public. Yet it is normally only the attorney who will have this knowledge or realize its significance. Sometimes a class of poor or powerless citizens challenges, by way of a civil suit, actions taken by our established private or semi-private institutions or governmental entities. Often nonlawyers can adequately comment publicly on behalf of these institutions or governmental entities. The lawyer representing the class plaintiffs may be the only articulate voice for that side of the case. Therefore, we should be extremely skeptical about any rule that silences that voice.

522 F.2d at 258 (emphasis added).
A similar conclusion was reached in Smith v. MCI Telecommunications Corp., 1993 WL 142006 (D. Kan. April 23, 1993) (Exhibit 5), a class action brought on behalf of a class of former MCI telemarketers. A proposed settlement was reached, but the parties reached an impasse over MCI's desire for a confidentiality provision that would bar disclosure of the settlement's terms. The court rejected MCI's request for secrecy, holding that any governmental interest in settlement of class action disputes "does not warrant imposition of confidentiality in this case, particularly in light of the strong presumption of constitutional invalidity that applies to prior restraints." Id. at *4.

In light of these authorities, the one-way gag order at issue in this case is plainly unconstitutional. Technically speaking, the First Amendment does not bar class counsel from agreeing not to speak to the press about the case (although, in our view, their willingness to do so is harmful to the class' interests). However, the gag order in this case applies by its terms not just to class counsel but to all objecting class members and their attorneys potentially thousands of individuals, none of whom had any role in negotiating the settlement or any opportunity to oppose the proposed gag order.

This scenario directly implicates the concerns that were at the core of Chicago Council's admonition that, in the class action context, the lawyer representing the class "may be the only articulate voice for that side of the case." 522 F.2d at 258. In this case, because class counsel have agreed to gag themselves as a condition of settlement, the only "articulate voice" for an objecting class member may be his or her own attorney. If such voices are silenced, then the only public pronouncements about the value of this settlement will come from Bank United a scenario that flies in the face of Chicago Council.

In addition, the public value of "lawyer speech" is particularly and increasingly important in the class action context, where so-called "abusive" settlements are a subject of increasing concern. See "Class Action Abuse: Plaintiff Bar Divided by Settlements," The National Law Journal, February 23, 1998 (Exhibit 6). The media has been instrumental in focusing national attention on this problem. If objecting class members and their lawyers are barred from talking to the press, however, there will undoubtedly be less scrutiny of class action settlements and, possibly, more rampant abuse of the class device. See Affidavit of Beverly Moore, Editor of Class Action Reports (Exhibit 7), at ¶¶ 8-9.

Against this backdrop, it becomes even clearer that the one-way gag order does not pass constitutional muster. Under Chicago Council, the restraint is unconstitutional unless the settling parties can demonstrate that the gag order is narrowly tailored to proscribe only those comments that pose a "serious and imminent threat" of interference with the fair administration of justice. 522 F.2d at 249. No such demonstration could ever be made here, as permitting objectors to talk to the press would pose no threat to the administration of justice in this case. There is no pending trial of this matter, there is no potential jury pool that could be influenced by extrajudicial statements by objectors and their counsel, and there are no impressionable witnesses to taint. The decision whether to approve the settlement will be made by this Court, presumably without regard to what, if anything, appears in the media about the case. Under these circumstances, no justification could ever be asserted for a broad gag order blocking all objectors from saying anything to the media about this settlement.

II. The Agreement Improperly Seeks to Prevent Public Disclosure of the Discount Certificate Redemption Rates.

In addition to the one-way gag order, the Agreement also improperly seeks to prevent any public disclosure of the redemption rates of the discount certificates. See Agreement ¶ 12. If enforced, this provision would ensure that no one will ever be able to meaningfully evaluate the relief in this case, and that the actual value of the Agreement will never be made public. This provision flies in the face of the considerable public interest in full disclosure of redemption rates in class action "coupon" settlements.

A. There is a Strong Public Interest in Disclosure of Redemption Rates in Coupon Settlements.

There is a growing concern among courts, policy makers, and the public that many class action settlements are abusive and improper. First, a number of courts have begun to take a hard look at coupon settlements, focusing on the redemption rates of the coupons to determine whether the settlements were fair and reasonable. See Moore Affidavit (Exhibit 7), at ¶¶ 12-16. Thus, for example, in Buchet v. ITT Consumer Fin. Corp., 845 F. Supp. 684 (D. Minn. 1994), amended, 858 F. Supp. 944, the court rejected a proposed coupon settlement after finding that the coupon redemption rates in other, similar cases were so low that the certificates in the Buchet settlement offered no real value to the class.

Second, a number of policymakers have taken a hard look at coupon settlements. For example, the Judicial Conference's Advisory Committee on Civil Rules has been considering changes to Rule 23, in part out of concern that coupon settlements rarely provide genuine benefits to class members. Exhibit 7 at ¶ 18. In addition, the United States Senate Judiciary Committee recently held a hearing on class action abuse where witnesses debated whether coupon settlements provide genuine benefits to class members.

Finally, a number of newspapers and legal periodicals have focused national attention on the question of whether coupon settlements are abusive. See Moore Affidavit, Exhibit 7 at ¶ 17. See also Barry Meier, "Fistfuls of Coupons: Millions for Class-Action Lawyers, Scrip for Plaintiffs," The New York Times, p. C1 at C-5 (May 26, 1995) (Exhibit 8).

In short, secrecy in this matter has ramifications that go far beyond the parties to this case. The question of how many coupons are actually redeemed in class action settlements and thus whether those settlements actually confer meaningful value on class members is an issue of national concern. Secrecy about these matters denies information to interested courts, policymakers, legal scholars, and the media.

B. The Settling Parties' Attempt to Prevent Public Disclosure of the Redemption Rates in this Case is Part of a Nationwide Pattern of Improper Secrecy, and Should be Rejected.

This is not the first class action settlement where counsel for the settling parties have sought to keep secret information about the actual benefits conferred by coupons. As explained in the Moore Affidavit, Class Action Reports has often reported news about coupon class actions. Exhibit 7 at ¶¶ 2-3. In his investigations of various class action settlements, it has frequently been impossible for Mr. Moore to learn the redemption rates for coupons because the parties refuse to make that information available. Id. ¶ 6. .

In addition, counsel for the settling parties in similar cases have a track record of keeping secret information about the number of class members who redeem and use the coupons provided to them. As explained in the Bland Affidavit (Exhibit 4), defense counsel in the Prudential and Citicorp cases have refused to provide any information about the coupon redemption rates in those cases. Id. at ¶¶ 2-7.

This Court should not tolerate this practice. Instead, the Court should require the settling parties to adopt the approach endorsed in a recent set of guidelines issued by the National Association of Consumer Advocates ("NACA"), a nationwide association of plaintiffs' class action practitioners dedicated to promoting justice for consumers. See Exhibit 9. According to Stephen H. Gardner, one of the lawyers who helped draft the NACA guidelines, they are "at least the low bar . . .. They're intended to say, `If you don't do this, Lord help you.'" See Exhibit 6.

Regarding coupon settlements, the NACA guidelines specifically recommend that, at the very least, courts should require settling parties to make public information about coupon redemption rates in class action litigation:

Class counsel and defendants should submit to the court and all counsel of record detailed information about redemption rates and coupon transfers during the entire life of the coupon. By doing so, a public record will be made of what works and what does not work in non-cash settlement cases.

Exhibit 9 at 18. In accordance with this recommendation, the Court should reject the secrecy provision in this case and require the settling parties: (1) to keep precise records of the number of class members who actually redeem their discount certificates; and (2) to file publicly with the Court both those records and a report summarizing their contents.

III. The Settling Parties Have Failed to Meet Their Burden of Establishing that the Discount Certificates Have Any Value to the Class.

The settlement is also defective insofar as the settling parties have failed to meet their burden of demonstrating that the discount certificates will provide any meaningful relief to the class. See Newberg & Conte, 1 Newberg on Class Actions § 11.42, at 11-94 (3d ed. 1993) (citing, inter alia, In re General Motors Corp. Engine Interchange Litig., 594 F.2d 1106 (7th Cir.), cert. denied, 444 U.S. 870 (1979)). As explained in the attached affidavit of Elizabeth Renuart (Exhibit 11), a public-interest attorney with substantial expertise in the mortgage lending industry, the combined effect of low redemption rates and the ready potential for manipulation of the certificates' value by Bank United could result in class members' receiving nothing from this deal. If this is true, then all class members would be better off opting out of the deal than remaining members of the class an outcome that cannot be deemed fair, adequate, and reasonable within the meaning of Rule 23.

A. The Settlement Could Yield Extremely Low Redemption Rates.

The first question is whether any class members will actually try to use the discount certificates at all. First, of course, only class members who are actually aware of the settlement will try to use the certificates at all. Of the 150,000 current mortgagors who received direct mail notice of the deal, many may simply disregard the document. The 200,000 former mortgagors in the class are even less likely to know of the relief provided in the settlement, since their only access to information about the deal is the one-time-only notice published in The New York Times. Thus, the vast majority of the class members are unlikely to know of the settlement's relief.
Another factor likely to dramatically reduce redemption rates is the fact that the Agreement eliminates any class member who at any time between January 1, 1984, and October 1, 1997, was behind on a payment for 30 or more days, was in foreclosure, or filed bankruptcy. Agreement ¶ 10. The actual number of class members excluded by this provision is difficult to say (Bank United would, of course, know). But assuming an average default rate of 3.22 percent per year for 13 years (and assuming that there are no repeated defaults), about 146,500 or 42 percent of the class would be automatically excluded from eligibility. Renuart Affidavit, Exhibit 11, at ¶ 14.

Low redemption rates are also likely to result from the high proportion over 57 percent of former mortgagors in the class. Of the 200,000 former mortgagors, it is likely that many ended their relationship with Bank United because they sold their homes and prepaid their mortgages or refinanced their Bank United mortgage with another lender. For these individuals, it is unlikely that they would use their certificates at all because they have no present relationship with Bank United and, in some cases, may no longer own property. Other members of this group lost their homes through foreclosure and would be not even be eligible to use their discount certificates. Id. ¶ 7. Thus, for the former mortgagors that make up the majority of the class, the certificates are likely to be virtually useless.

Redemption rates for all class members will also be affected by another unknown variable: whether Bank United's loans are competitive with those offered by the hundreds of other mortgage lenders in the United States. Id. ¶¶ 8,9. Without any evidence that Bank United offers competitive terms, it is impossible to determine whether any class member would have any incentive to use their certificates at all.

Finally, redemption rates are likely to be affected by the fact that, for many current mortgagors, it is not economically advisable to refinance at this time. The primary reason that many homebuyers pay off their mortgages between five and seven years after consummation is because they sell their home and purchase another or refinance. Those mortgagors who bought their homes before 1990 probably refinanced in the early 1990s, when low interest rates caused a refinancing boom. As a result, the 150,000 existing mortgagors in the class likely consist primarily of either recent (i.e., since 1990) homebuyers who obtained mortgages with competitive interest rates or mortgagors who refinanced during the early 1990s and obtained a competitive rate at that time. It is unlikely that either of these two groups of current Bank United customers would jump to refinance again on the basis of the discount certificates alone. Thus, even for current Bank United customers, there are likely to be very low redemption rates for the discount certificates. Id. at ¶¶ 5, 10.

B. Bank United Could Easily Strip the Certificates of Any Value to Those Class Members Who Actually Attempt to Redeem Them.

Redemption rates aside, the certificates could have little or no value even to class members who do succeed in using them. Bluntly put, Bank United is in the very unusual position in this case of having complete control over whether it will pay out any value to class members through the discount certificates.

First, the Agreement imposes no obligation on Bank United to treat class members like all other applicants for Bank United loans. Thus, Bank United could easily inflate a number of the costs charged to class members to offset the discount offered by the certificates. Id. ¶ 11. Different underwriting criteria could also be employed by Bank United to either deny class members with coupons refinancing altogether or to charge class members with coupons higher points and fees. Id. ¶ 13.

Even if Bank United tries to implement the settlement in an even-handed way, the value of the certificates would further be diminished for class members who, because Bank United does not have an office in their area, are forced to incur broker fees that could outstrip the face value of the certificates. Id. ¶ 12. Finally, because the certificates cannot be used in conjunction with any other discounts offered by Bank United, see Settlement Notice ¶ b.1, class members who do choose to refinance might actually be better off not using their certificates at all.

Thus, it is quite possible that the certificates provided by the Agreement will have no value to the class. If true, then the sole beneficiary of this deal will be Bank United, which will obtain a complete release from liability in exchange for an Agreement that could yield additional customers for the bank at no additional cost. Viewed this way, class members would be better off with a settlement that provided an actual refund of the interest earned on the inflated escrow accounts earned by Bank United, rather than a deal that entices them into a refinancing that costs more than the face value of the certificate itself. Id. ¶ 16.

C. This Court Should Reject the Proposed Settlement Unless the Settling Parties Disclose the Redemption Rates in Similar Cases, Provide Other Information Sufficient to Prove the Value of the Certificates to the Class, and Amend the Agreement to Preclude Bank United from Rendering the Certificates Worthless.

In light of the foregoing, the Court should reject the Agreement unless the settling parties demonstrate that the certificates will be redeemed by class members and will provide meaningful relief to the class.

First, class counsel should be required to disclose the redemption rates in both the Citicorp and Prudential settlements. Although those settlements have only been in place for a few years, the redemption rates in those cases could shed additional light on the value of the Agreement in this case.

Second, the settling parties should be required to provide information regarding:
· the number of class members that would disqualified by the provision denying relief to any class member who, between January 1, 1984, and October 1, 1997, was behind on a payment for 30 or more days, was in foreclosure, or filed bankruptcy (see Agreement ¶ 10)F;
· the attractiveness of Bank United's loans relative to other lenders, including information regarding Bank United's interest rates, fees and closing costs, and the substantive terms of Bank United loans; and
· whether class members in states other than Texas will be able to use the certificates without incurring additional costs (such as brokers' fees) that would make it economically unwise to refinance with Bank United.
Finally, this Court should not approve the settlement unless the Agreement is amended to
provide that:
· class members' loans will not be subject to any different terms, conditions, costs, and/or underwriting criteria than loans sought by other Bank United customers;
· class members will be permitted to use the discount certificates in conjunction with other discounts offered by Bank United; and
· class counsel will ensure that the certificate redemption process is fairly administered to prevent attempts by Bank United to strip the Agreement of any value to the class.

For the foregoing reasons, the Court should reject the proposed settlement.

_________________________

Joseph A. Power, Jr., Power, Rogers & Smith, P.C., 35 West Wacker Drive, Suite 3700Chicago, IL 60601(312) 236-9381 FAX: (312) 236-0920.

F. Paul Bland, Jr., Leslie A. Brueckner, Arthur H. Bryant, Trial Lawyer for Public Justice, P.C.,
1717 Massachusetts Ave., N.W., Suite 800, Washington, D.C. 20036, Local Counsel (202) 797-8600, FAX: (202) 232-7203.

Fed. Ct. No. 02244276
Date: February 23, 1998