The federal judge overseeing the $760 million settlement in a Native American class action expressed concern Tuesday over the selection of four banks in which the plaintiffs' lawyers want to invest money before checks are cut to potentially thousands of beneficiaries.
The plaintiffs’ lawyers in Keepseagle v. Vilsack, a suit over discrimination in the government's loan processing for Native American farmers and ranchers, proposed splitting and investing about $600 million in Bank of America Corporation, Wells Fargo & Company, Citigroup, Inc. and PNC Financial Services. A fifth bank, owned by a Native American tribe in Oklahoma, would receive about $18 million.
At a hearing in the case yesterday in Washington federal district court, U.S. District Judge Emmet Sullivan criticized the selection of the four major banks, saying the plaintiffs’ team failed to fully examine the use of Native American or minority-owned banks.
The plaintiffs’ lawyers, he said, should have sent proposal requests to more banks outside of the major national institutions. The judge called the selection of the big four banks “suspect” and asked whether their designation marked “business as usual."
Joseph Sellers of Washington’s Cohen Milstein Sellers & Toll and Patton Boggs tax partner Sean Clancy said the safe-keeping of the settlement funds was the driving force behind the selection of the four banks. Sellers and Clancy said the plaintiffs’ team sought a balance between protecting the money while simultaneously generating modest interest. The lawyers anticipate the settlement money would sit for a year to 18 months before class members receive money.
The settlement does not require judicial approval of the banks. Sellers pitched the plaintiffs’ proposal to the judge not to ask him to evaluate the merits of the selection but to apprise him on the designation process. That Sullivan cannot control the banks that are chosen did not stop him from weighing in.
Sullivan said he was expressly concerned with whether the money is safe in the hands of the four major financial institutions. The selection of the four banks, he said, “troubled” him and he asked the lawyers to come back to him with a proposal to include more Native American or minority-owned banks. "I would think that's what the plaintiffs' class would want," he said.
The judge also asked the plaintiffs’ lawyers whether a grand jury is investigating any of the four banks or whether any has received a Justice Department target letter notifying the bank of a government investigation.
Clancy said he raised those questions with bank officials, but he expressed doubt that the bank employees with whom he spoke would have knowledge of a pending grand jury investigation or inquiry. Sullivan expressed interest in having the lawyers make follow-up questions to higher-ups at the four banks.
The Justice Department sat on the sidelines in the bank selection process, and the government has no liability once the money is transferred to the designated banks. If anything happens to the settlement funds, the plaintiffs’ lawyers are on the hook, not the government. The plaintiffs, not the government, are responsible for getting class members their money.
In court yesterday, Sullivan insisted several times he was not “casting aspersions” but raising legitimate questions that any judge should ask. He said he planned to share his observations with colleagues who may, in the future, have to deal with a similar issue.
Clancy and Sellers said in court that the mechanism the plaintiffs proposed does not put the settlement funds at risk. The money, the attorneys said, would be intentionally divided among four major banks to protect against the failure of any one financial institution. The plaintiffs’ lawyers said the money would remain largely outside the banks’ creditors in segregated accounts.
The plaintiffs’ lawyers, Clancy said, did not send formal requests for proposals to more Native American banks because the bulk of them are what he called “local” banks that are not large enough to handle multi-million dollar transactions. Sullivan said the plaintiffs’ lawyers don’t know that is true unless they inquire of the smaller banks.
Clancy said the plaintiffs’ team did not anticipate dividing the settlement money into smaller portions to make 100 or more deposits in banks around the country. The potential loss of funds is greater in a small bank than in a larger institution, he said.
“We could have a loss of funds with the big four banks,” Sullivan said in response. “Recent history has demonstrated that quite clearly.”
The lawyers in the case are due back in court tomorrow for a fairness hearing over the settlement. Class members will be allowed to voice objections to the settlement. Sullivan said he will rule after the hearing on how much the plaintiffs' lawyers should receive for their work in the case.