For Immediate Release: Monday, February 23, 1998
For More Information Contact: TLPJ, 202-797-8600

TLPJ Challenges Extraordinary Secrecy and Potentially Worthless Coupons in Bank United Class Action Settlement

Proposed Settlement Places Gag Order on Objectors and Keeps Coupon Redemption Rates Secret

Trial Lawyers for Public Justice (TLPJ) today challenged a proposed nationwide class action settlement of consumer fraud claims against Bank United because it requires extraordinary secrecy and provides class members with potentially worthless coupons. The proposed settlement in Cusack v. Bank United of Texas, now pending before U.S. District Court Judge James B. Zagel in Chicago, would settle all claims that Bank United cheated its mortgage customers through excessive escrow charges by providing those customers with coupons redeemable for a $175 discount only if they refinance or obtain a new mortgage from Bank United. It would also bar public disclosure of the number of coupons actually redeemed and create a one-way gag order barring all class members and class counsel -- but not Bank United or its counsel -- from talking to the press about the deal.

"This is a blatant example of class action abuse," said TLPJ Foundation President Fred Baron of Baron & Budd in Dallas. "The proposed settlement bars everyone except Bank United from disclosing anything to the media about the case. It also allows Bank United to manipulate the deal to ensure that the coupons have no real value. Unless the secrecy is eliminated and the class members provided with compensation of value, the settlement ought to be rejected out of hand."

The class action alleges that Bank United overcharged homeowners by maintaining excess "cushions" in their escrow accounts. In December 1997, the parties filed a proposed settlement that would release all class members' claims against the bank in exchange for the $175 coupons, which may not be used in conjunction with any other discount offers made by Bank United. The settlement also bars all class members and class counsel but not Bank United or its counsel from speaking to the media about the proposed settlement, and says that "neither counsel for the Class nor any Class member may, under any circumstances, refer to, reveal, or characterize the Settlement Agreement or any of its terms."

TLPJ's objections, which were filed today on behalf of two class members, maintain that the settlement should be rejected because the one-way gag order is an unconstitutional prior restraint on speech, and the secrecy provision regarding redemption rates violates the strong public policy favoring access to information regarding coupon settlements. TLPJ's objections also contend that the settlement should be rejected because of insufficient proof that the coupons will provide any real value to the class. While counsel for the settling parties have both negotiated similar coupon deals in other mortgage cases, they have made no information publicly available about how many people actually redeemed those coupons. In addition, the settlement makes it easy for Bank United to manipulate its closing costs and other discounts to strip the coupons of any value. If this happens, then the sole beneficiary of the deal will be Bank United, which will obtain a complete release from liability at no additional cost.

"Neither courts nor the public can protect against abusive class action settlements if they take place in an atmosphere of secrecy and concealment," said TLPJ Staff Attorney F. Paul Bland, Jr., who co-authored the objections along with Staff Attorney Leslie Brueckner. "Moreover, if parties are going to insist upon settling class actions for coupons, they must at least make sure that the coupons have real value and cannot be readily rendered worthless."

A hearing on the fairness of the proposed settlement has been scheduled for 11:00 a.m. on March 4, 1998.

In addition to Bland and Brueckner, TLPJ's legal team in the case includes Arthur Bryant of TLPJ and TLPJ Foundation President-Elect Joseph A. Power, Jr. of Chicago's Power, Rogers & Smith.