For Immediate Release: May 21, 1997
For More Information Contact: TLPJ, 202-797-8600
TLPJ Challenges Second Mortgage Company Settlement for Unnecessary Secrecy and Potentially Worthless Coupons
Proposed Deal is One of Series with Similar Defects and Same Class Counsel
Trial Lawyers for Public Justice (TLPJ) challenged a proposed nationwide class action settlement of consumer fraud claims against Marine Midland Mortgage Corporation yesterday because it requires extraordinary secrecy and provides class members with potentially worthless coupons. The proposed deal is one of at least eight similar national class action settlements involving mortgage escrow account overcharges reached by the same class counsel.
The proposed settlement in Robinson v. Marine Midland Mortgage Corporation, now pending before U.S. District Court Judge James B. Zagel in Chicago, would settle all claims that Marine Midland cheated its mortgage customers through excessive escrow charges. Former mortgage holders would receive a refund of up to $10, but only if they actually saw the notice published in The New York Times or USA Today and then filed a claim form. Current mortgage holders would receive a coupon redeemable for either $175 or $250 only if they refinance with or obtain a new mortgage from Marine Midland.
The settlement also contains an extraordinary one-way gag order, barring the attorneys for all class members and class counsel -- but not Marine Midland or its attorneys -- from "refer[ring] to, reveal[ing], or characteriz[ing] the settlement agreement or any of its terms." And it would provide class counsel with attorneys' fees up to $650,000.
"This is a blatant example of class action abuse," said TLPJ Foundation President Fred Baron of Baron & Budd in Dallas. "Under the terms of the proposed settlement, the entire class will probably receive less than the class counsel. No wonder the agreement tries to stop objecting class members' attorneys from talking about the deal."
The case against Marine Midland was filed in 1995, after the federal government issued new regulations requiring banks to change their accounting practices to eliminate escrow overcharges. After the regulation was issued, the bank changed its practices and issued refunds of the money held – but not the interest on that money. In March 1998, a proposed settlement was reached.
TLPJ's objections, filed yesterday, maintain that the settlement should be rejected because the one-way gag order is an unconstitutional prior restraint on speech and the settling parties have submitted no proof that the settlement will actually provide any value to the class. Counsel for the class have negotiated similar coupon deals in other mortgage cases but have made no information public on how many people actually redeemed their coupons.
"This class action abuse has to stop," said TLPJ Staff Attorney F. Paul Bland, Jr., the primary author of the objections. "Instead of providing automatic credits to current mortgage holders and sending checks to former mortgage holders, this settlement provides potentially worthless coupons and requires unnecessary claim forms to be filed. It virtually ensures that the vast majority of class members won't receive a penny."
This is the second case of this type to which TLPJ has objected. In February of this year, TLPJ objected to nearly identical proposed settlement terms in Cusack v. Bank United of Texas, by the same class counsel, before the same judge. The one-way gag order was stricken, but Judge Zagel otherwise approved the settlement over TLPJ's objections. And, in a stunning development, Judge Zagel ordered that the number of class members redeeming coupons in Cusack would be filed under seal. TLPJ's appeal is pending.
A fairness hearing on the proposed settlement with Marine Midland has been scheduled for June 10, 1998. TLPJ counsel intend to appear at the hearing.
TLPJ's challenge to the proposed settlements in both Robinson
and Cusack were filed as part of its Class Action Abuse
Prevention Project, dedicated to protecting and enhancing class
members' rights nationwide. In addition to Bland, TLPJ's legal
team in this case includes Joseph A. Power, Jr. of Chicago's Power,
Rogers & Smith, and TLPJ's Arthur Bryant and Adele Kimmel.