Introduction
As you have probably heard, our Montana Justice Foundation – the entity charged with providing access to justice for all Montanans – received a cy pres award in excess of $1.47 million last fall as a result of the creative efforts of MTLA members John Heenan and Randy Bishop, working with Montana Commissioner of Securities and Insurance Monica Lindeen and her able lieutenant, Jesse Laslovich. That award, received as we recover from the economic recession, allows us to provide sustainable support for the various programs funded through the Justice Foundation. Literally thousands of Montanans will benefit from this award. To parrot Paul Harvey, this is “the rest of the story.”
In the final analysis, this is a story about how we, as members of the Montana Bar Association, are better able to fulfill our mission and address our obligation to provide equal access to justice to all Montanans. On a more practical level, however, this story describes the success of a partnership between private attorneys and a government agency dedicated to protecting Montana consumers. But it is not a story that will necessarily make you feel better about the legal system; nor does it describe a process where good triumphs over evil, or where truth and justice prevail against overwhelming odds. Perhaps the most that can be said is that our “heroes” were provided lemons; this is how they went about making lemonade.
Background
Fogel v. Farmers Group, Inc., filed in Los Angeles Superior Court, was a class action against the Farmers Group for various bad acts affecting lots of people across the country, including roughly 20% of Montana residents. The case involved big-time lawyers from everywhere: San Francisco, Los Angeles, Palo Alto, New York, Washington, D.C., Santa Monica, Austin, Dallas, Phoenix, and more. A deep-pocket defendant, a huge number of plaintiff insureds, lawyers everywhere; the stage was set for a lovely tussle.
After the usual round of mud wrestling, which need not concern us, a settlement for the incredible sum of $455 million was announced between the insurance group and class counsel. Notifications were sent out to class members, attorneys’ fees and costs were calculated, champagne corks were popped and there was dancing in the streets. And, of course, the parties submitted the settlement to the Court for approval. There was much joy and rejoicing.
The Problem
One of the tens of thousands of Montanans who received notice of the settlement was our own John Heenan. When he pawed through the mail and extracted the Notice he struggled through the legal mumbo jumbo and learned that he might get a few dollars back some day if he filled out the complicated legal forms necessary to verify his entitlement. Unlike the large majority of Montanans, who simply threw the Notice in the trash because whatever they might receive would never justify the aggravation, John went to the website referenced in the Notice to find out exactly what was going on. Obviously, a born trouble-maker.
John learned that despite the fact that during the course of the litigation almost everyone who was entitled to a share of the settlement had been identified, and the amounts those claimants would be entitled to had been calculated, the defendant insurance company and class counsel had agreed upon a settlement in which distributions would be made only to those individuals who actually submitted claims and, incredibly, the balance not claimed would revert to entities controlled by the defendant. To the extent that those entitled to settlement funds did not actually submit a claim, the settlement was illusory. Since everybody involved understood that most people would not fill out the paperwork, the actual cost of the settlement was going to be a small fraction of what was being trumpeted by the parties.
As everyone who knows John Heenan will agree, he is possessed of a keen legal mind, and he concluded something about this whole deal seemed a little fishy. So he called Monica Lindeen, Montana Commissioner of Securities and Insurance, explained the situation, and suggested this proposed class action settlement needed a little close scrutiny. Monica and Jesse Laslovich, also with the Commissioner’s office, investigated the facts and determined there indeed appeared to be a rat in the wood pile, and that Montana, while not a party, nonetheless ought to attempt to take an aggressive position in objecting to the proposed settlement on behalf of affected Montanans. Given the very short window within which to object, and the complicated and prolonged nature of the litigation leading up to it, the Commissioner took the unusual step of associating with a private attorney, John Heenan, to take the lead in advancing the State’s position.
John immediately associated California counsel, appeared in the Los Angeles action and moved to intervene on behalf of the citizens of the State of Montana. The motion was granted and the State filed its “limited” objections. The State took the position that one might argue ought to have been advanced by class counsel, i.e., that the proposed settlement was objectionable because it: 1) unnecessarily contemplated a “claims made” process for distributing settlement funds to policy holders, and 2) provided that any unclaimed funds would revert to entities controlled by the defendant. The State’s position was that all funds allocated to Montana shareholders should be paid to those shareholders: in effect, “send checks to those people who are entitled to the money!”
Of course, from the moment that the fictional $455 million “deal” was struck between the defendant insurance company and the plaintiffs’ lawyers, they were allied in their desire to have the settlement approved; which would result in a fees distribution (about $90 million to the class lawyers), and reversion of the lion’s share of settlement funds not claimed to the entities controlled by the defendant. So when Montana’s Insurance Commissioner appeared through John Heenan and objected to the settlement, throwing the proverbial “wrench” into the works, he was about as popular as a whore in church.
As John describes it, at the time of hearing on Montana’s objections, approximately 30 lawyers were there urging the court approve the settlement. They crowded the jury box, counsel table, the gallery and hung off the light fixtures. When John stepped up to speak for Montana, “hostile” would be the kind way to describe the environment. Shut your eyes for a moment and imagine this: $90 million stacked in neat piles on one side of the courtroom, 30 lawyers packed into the other side – and John Heenan standing in the middle. And our hero, just like David facing Goliath, stood there with his little “objection” wrapped in a sling, smiling and acting like he knew what he was doing. A voice crying – from the (Montana) wilderness.
Some thoughtful, compelling briefs were filed and the appropriate arguments were made by John, Jesse and their associated California counsel. However, as expected, at the end of the day the judge was not impressed, and Montana’s objections were overruled. John appealed to the California Court of Appeals. The parties advancing the settlement then sought to require these upstart Montanans to post an appeal bond of $1 million – but that show-stopper tactic was unsuccessful. And when that tactic failed, time became the ally of the good guys. In addition to the expected courtroom theatrics by those advancing the settlement, John and Jesse advise there was also some extracurricular “pressure” applied from various quarters to both of them directly and to the State of Montana as well. But, as John put it, the Insurance Commissioner’s Office “never flinched” and continued to advance and support the process to the very end.
Of course, the problem with the entire case was that after prolonged, expensive, exhausting litigation, the deal was done and the case settled long before Montana ever appeared to object. There was no way to undo what had been done to that point in time; nor was there any practical or ethical way for the court or plaintiffs’ counsel to treat Montana claimants differently from those in other states. These legal and ethical dilemmas created an apparently insoluble problem from a settlement perspective; it seemed as if there was no way to make a silk purse out of this particular sow’s ear.
The Solution
It was apparent to John and Jesse that the odds of reversal by the appeals court were slim and none. It was equally apparent to class counsel that the delay created by the appeal was unavoidable since the Montana troublemakers wouldn’t be scared off. Since there was no way to modify the settlement to deal with Montana class members differently than those from other states, the challenge became one of identifying an alternative vehicle for insuring that Montanans would benefit from the settlement in some appropriate fashion. It was in this context that our heroes used the currency that had created the objectionable terms of the settlement in the first place – apparent self-interest and the time value of money– to create a solution. And the upshot of that – with a dose of a little creative problem-solving tonic from Randy Bishop – was a distribution to the State of Montana, after payment of all fees and costs, of approximately $1.47 million. This was accomplished as a result of the parties’ appropriate decision to pay Montana something close to what its citizens were entitled, funded by a reduction in attorneys fees payable to the plaintiffs’ class action lawyers. The Commissioner, in turn, with the support of Heenan and Bishop, determined that the highest and best use of the cy pres proceeds would be to assist the Montana Justice Foundation in its mission of providing access to justice to low-income Montanans.
Montana Justice Foundation — Beginnings
The Montana Law Foundation, predecessor to the current Montana Justice Foundation, was established in 1979 on the premise that all people deserve equal access to individual safety, security and opportunity. In 1987, the Foundation made its first grant of $85,000 in “voluntary” IOLTA (interest on lawyers trust accounts) funds to the Montana Legal Services Association. In 1992, per order of the Montana Supreme Court, Montana attorneys were required to establish and participate in the Bar’s IOLTA program, and we – each of us– have been funding these good works from that time to the present.
From the Foundation’s inception to the present, the funds generated by the legal profession through their IOLTA accounts have been allocated by the Foundation to respond to the needs for legal services of low income Montanans. The funds available have never been adequate to address these needs and demands have far outstripped the funds available. Further complicating matters, the amount of money available fluctuates from year to year depending upon the economic environment, from a high of $754,023 to a low of $0. As a consequence, organizations such as the Montana Legal Services Association, which is largely dependent upon the Montana Justice Foundation for its funding, endure substantial differences in support from year to year and, accordingly, the level of the service they can provide. As one would expect, it is extremely difficult to run a legal services organization in such an environment.
Responding to the Demand for Legal Services
To provide greater stability in its efforts to address the unmet need for legal services, the Foundation began to diversify and expand its fundraising activities in recent years. In 2007 it hired its first full-time staff member. At present, it employs a full-time executive director, Amy Sings in the Timber, as well as an executive assistant who administers the IOLTA fund. In addition, the Foundation also hosts an AmeriCorps VISTA volunteer. With this additional firepower, the Foundation board of trustees helped to establish and fund the first ever state-wide pro bono coordinator in 2007 and participated with the Supreme Court’s Equal Justice Task Force, the Montana Legal Services Association, and Disability Rights of Montana in completing their state-wide legal needs study. Most recently, the Foundation adopted “We The People — The Citizen and the Constitution” as part of its law-related education program. In the current year, the Foundation approved grants to Montana Legal Services, CASA programs throughout the state, mediation centers, disability rights projects, and domestic violence education services, among others. As a result of its success over the past 35 years, the Foundation (you, me, every member of the Montana Bar Association) has contributed over $5 million to Montana Access to Justice programs.
Because interest rates on everything plummeted in December of 2008 due to the financial crisis, IOLTA revenue in 2009 was down by more than 60%. However, the Foundation has been able to weather the storm and provide at least nominal funding to the programs it supports throughout the current crisis. In fact, in fiscal year 2013, the Foundation distributed grants of $185,000. As a result of the efforts of the Foundation and its staff, more than 100 percent of funds received through our IOLTA accounts statewide are actually being distributed to programs designed to provide access to justice to all Montanans. This is made possible through the “extracurricular” efforts of the Foundation’s staff and Board of Directors, who work with Bar members and Montana businesses to raise awareness of the mission and the unmet demand for legal services, and the corresponding generous donations from Montana law firms, businesses and corporations, and individuals.
Pennies From Heaven – Sustainable Support
The Foundation received its first-ever cy pres award in 2006, $162,000, as a result of work by Jon Motl and Kim Wilson of Reynolds, Motl & Sherwood. The current award of approximately $1.47 million, the result of the excellent, creative work described above, is by far the largest award received by the Foundation. These awards go far towards allowing the Foundation to provide a sustainable (and hopefully ever-increasing) level of funding so the actual service programs in turn can provide a sustainable (and hopefully ever-increasing) level of service to low income Montanans.
Regardless of what the economic environment might be at any given point in time, the need for legal services continues to increase. The Bar Association enjoys a monopoly in providing legal services, and with that comes a corresponding obligation to assist those less fortunate in making their way through an increasingly complicated world. The Foundation, the organization we created to assist us in fulfilling that mission, has more challenges today than ever before. However, as a consequence of the able and creative work of our “heroes,” our capacity to fulfill that mission now and into the future has been greatly improved.
Conclusion
In Fogel v. Farmers Group, the Commissioner’s Office, Randy Bishop and John Heenan were joined at the hip and committed to doing the right thing – which in this case meant attempting to tip over the applecart in a case that was already settled and, failing that, finding a way to make sure that the benefits of the settlement at least made their way back to Montana to serve Montanans. As Jesse Laslovich noted, “we simply could not have gotten that done without the public – private partnership. What occurred is a testimony to what state agencies, particularly our agency, can do when we use utilize expertise of the private sector to do what is right for Montana consumers.” Bravo and well done!
As noted earlier, this is not a case where good triumphed over evil. Nonetheless, the good guys still won. But only because the lawyers representing Montana recognized that the self-interest of the parties to the settlement, combined with the time value of money during the appeal, presented an opportunity. And because the settlement was a “done deal” before John Hennan ever opened his mail and received the Notice, and there was no way to treat one class of plaintiffs different from another, the need for a “creative solution” gave rise to this cascade of “pennies from heaven.” Once the parties realized that Montana’s intervening lawyers wouldn’t be scared away, the time value of money dictated that peace talks would occur and that they would be successful.
We are blessed to be engaged in a profession where we have the training and ability to recognize when something simply is not right, and the power to do something about it. Sometimes we have to get creative and design a solution that doesn’t cure the disease, but simply makes it more palatable. We are a profession dedicated to doing what we can to improve the human condition. And we should all be proud of the work of the fine Montana lawyers involved in Fogel v. Farmers Group. If you haven’t done so already, thank them for the heavy lifting they did for all of us.
The End. – Mike
Addendum
As I write this, I have sitting on my desk a Notice of Proposed Settlement of Class Action and Proof of Claim and Release Form in a matter currently pending in the United States Court for the District of New Jersey entitled In Re Merck & Co., Inc. Vytorin/Zetia Securities Litigation. Before writing this story I would have simply thrown it out, like the others I have received in the past. However, after a half hour of head scratching I now understand that if I gather all of the information necessary to document my ownership of the shares in this corporation for the relevant time period, that I could very well receive something (say 15 cents a share) at some point in the future (though I defy anyone to make the calculation). Of course, I have no knowledge or recollection of ever have owned any shares, though I assume I did. So, encouraged by Mr. Heenan’s experience, I checked the share value of Merck common stock, then made an assumption about how many shares I might have owned if I ever did. Then I multiplied that number of shares times 15 cents. Then I multiplied that number times five on the assumption that probably 10-20% of potential claimants will actually make a claim. I do this since I understand, with my newfound knowledge of such things, that this is a “claims made” settlement, but lacks a “reversion” provision, and that accordingly, my 15 cents a share might be worth several times that amount.
Unfortunately, even with all these machinations, I can still do that math on my fingers and toes: there could never be enough involved to buy a pizza and a cold beer. I do note, however, that the total settlement is for $215 million, so I assume my N.Y, N.Y. lawyers will do alright. And, as long as somebody is happy, that’s good enough for me. Somebody needs to keep these Merck guys, these Farmers guys, these ___?___ guys honest! On second thought, maybe I will send this on to John and Monica.
