In a victory for class action fairness, Citigroup Inc. shareholders will now receive an additional $405,000 in settlement funds thanks to an objection by the Competitive Enterprise Institute (CEI) to the class lawyers’ plans to distribute settlement funds to third-party groups.
“In a class action settlement with Citigroup shareholders, lawyers tried to direct a leftover balance from the settlement fund to advocacy groups that clash with the interests of class members,” said Ted Frank, director of CEI’s Center for Class Action Fairness. “But now, after CEI objected to that unfair outcome, class attorneys have discovered a way to send those remaining settlement dollars to class members.”
The class lawyers originally planned to distribute the remaining settlement funds through cy pres distributions to groups with interests often contrary to those of the shareholder class. Cy pres distributions are an avenue of last resort when settlement money remains unclaimed or cannot readily be distributed to individual class members. Because such distributions do not compensate class members but instead are sent to third parties, the recipients must closely serve the interests of the class.
In the Citigroup settlement, the advocacy groups selected by the class attorneys either litigate against shareholder interests, serve a localized community when the class is national in scope, or take controversial political stands opposed by many class members. Moreover, class counsel failed to disclose a preexisting relationship of their firm as a donor to one of the groups. After CEI objected, the class lawyers found a way to distribute the funds and asked the court to authorize the settlement money be sent to class members, instead.
The original class action lawsuit was brought in 2010 on behalf of a nationwide class of Citigroup shareholders concerning investment losses. CEI subsequently challenged the excessive attorney fees sought by class counsel, and the district court in August 2013 ruled in favor of CEI, criticizing and reducing the fee request, which resulted in $26.7 million being returned to the class. But the settlement landed back in court several years later, when the settlement fund had a remaining balance that class lawyers believed would be economically unfeasible to send to class members. Now, the remaining balance of approximately $405,000 will distributed to class members by the U.S. Securities and Exchange Commission.
See more information on this case here: Citigroup Inc. Securities Litigation.
The Competitive Enterprise Institute’s Center for Class Action Fairness represents class members against unfair class action procedures and settlements. Originally founded by Ted Frank in 2009, the center has won millions of dollars for consumers and shareholders and won landmark precedents that safeguard consumers, investors, courts, and the general public.
Unfair settlements generally serve self-interested lawyers and third parties at the expense of absent class members, the group of people whose rights are traded away to settle a class action. Lawyers have an interest in their fees, defendants have an interest in cheaply disposing of a lawsuit, and the class’s interests can take a back seat in the process. CEI seeks to solve these problems by representing such class members pro bono and presenting judges with the other side of the argument.