In resolution of a securities case that at one time had actually been dismissed and that even after being revived was substantially narrowed based on the U.S. Supreme Court’s Morrison decision, the parties to the Credit Suisse subprime-related securities class action lawsuit have reached a settlement by which the company has agreed to pay the plaintiff class $70 million. A copy of the parties’ March 10, 2010 settlement agreement can be found here. The settlement is subject to court approval.
As reported in greater detail here, the plaintiffs filed their initial complaint in this action in April 2008. The plaintiffs alleged that the defendants had made material misrepresentations about the company’s asset valuation system, its internal controls (which allegedly allowed unauthorized placement of high risk mortgage-backed assets in client accounts), and its own exposure to losses related to subprime mortgages. Credit Suisse is domiciled in Switzerland. Its shares trade on several securities exchanges outside the U.S. and its ADRs trade on the NYSE.
In an October 5, 2009 order (here), Southern District of New York Judge Victor Marrero granted the defendants’ motion to dismiss, having concluded based on pre-Morrison standards that the court lacked subject matter jurisdiction over the claims of claimants who reside outside the U.S. and who had purchased their shares on foreign exchanges (so-called f-cubed claimants). The complaint had not identified the domicile of some other named plaintiffs, but Judge Marrero dismissed their claims as well.
Thereafter, the plaintiffs amended their complaint and the defendants renewed their motions to dismiss. As discussed here, on February 11, 2010, Judge Marrero held that the plaintiffs’ amended complaint was sufficient to overcome the initial defects and he allowed the case to go forward as to plaintiff shareholders who had purchased Credit Suisse ADRs on the NYSE and as to U.S.-based shareholders who had purchased Credit Suisse shares on the Swiss Stock Exchange. However, he also ruled that the court lacked jurisdiction over the claims of plaintiffs that resided outside the U.S. and that had purchased their shares outside the U.S.
In June 2010, the U.S. Supreme Court issued its opinion in Morrison v. National Australia Bank case. The defendants in the Credit Suisse case moved to dismiss the claims by Americans who bought their Credit Suisse shares on the Swiss exchange – that is, the so-called "f-squared" claims. In a July 27, 2010 opinion, Judge Marrero ruled that Morrison also precludes the f-squared claims. As discussed here, Judge Marrero was the first to hold that under Morrison applied to preclude f-squared as well as f-cubed claims.
The parties then initiated a mediation process that resulted in the settlement agreement filed with the court on March 10.
The settlement agreement has a number of interesting features. First, the settlement agreement specifies that following the settlement’s preliminary approval Credit Suisse "and/or its insurers" will cause the payment of the $70 million settlement fund to the escrow agent. The settlement agreement itself does not specify how much of the settlement ultimately is to be borne by Credit Suisse’s insurers. The use of the word "or" in the phrase "or its insurers" suggests that the insurers contribution could possibly be as much as the entire $70 million, but there is simply no way to tell for sure from the face of the settlement document. However, the clear suggestion is that at least some portion of the settlement is to be paid by Credit Suisse’s insurers.
Second, even though Judge Marrero dismissed out the Americans who bought their Credit Suisse shares on the Swiss exchange, the proposed settlement class consists not only of all purchasers who acquired Credit Suisse ADRs on the U.S. Exchange, but also "all U.S. Residents who purchased [Credit Suisse] securities on the Swiss Stock Exchange during the class period." Clearly, plaintiffs counsel was not prepared to concede – at least for settlement purposes – that Judge Marrero’s ruling on this issue was correct.
However, it appears that the Judge Marrero’s ruling dismissing out the f-squared claimants was taken into account in the settlement. The Americans who bought Credit Suisse shares on the Swiss exchange will enjoy only a limited recover compared to the ADR purchasers. 90% of the net settlement amount is to go to settlement class members who purchased ADRs on the NYSE, and 10% is to go to the U.S. shareholders who purchased common shares on the Swiss exchange. (ADR holders will receive $1.38 per share and the U.S. shareholders will or 13 cents a share..)
As Alison Frankel points out in her March 11, 2011 Am Law Litigation Daily article about the Credit Suisse settlement (here), the settlement split between the ADR holders and the U.S. common shareholders is similar to the settlement split in the recent $125 million Satyam settlement (about which refer here) in which the ADS holders were to receive $1.38 a share and common shareholders were to receive 6 cents a share.
Third, although the settlement agreement itself does not specify the amount of plaintiffs’ attorneys’ fees, the accompanying settlement papers discloses that the plaintiffs’ counsel intends to move the court and seek attorneys’ fees "not to exceed 27-1/2 percent of the settlement proceeds" plus $350,000 in expenses. If the plaintiffs’ counsel were to receive the full 27.5 percent amount, that would translate into a fee award of $19.25 million.
Beyond its specific features, the settlement is also interesting for what it represents. For starters, it is represents one of the few settlements so far of the more that 230 subprime and credit crisis-related securities class action lawsuits that accumulated during the period 2007 to 2010. By my count, the Credit Suisse settlement represents only the 19th settlement of a credit crisis securities suit overall and only the second such settlement so far in 2011.
As Cornerstone Research discussed in its recently released study of 2010 securities class action lawsuit settlements (refer here), the credit crisis cases have "settled at a slower rate than traditional cases." Though many of these cases have been dismissed, others have survived dismissal motions. (And some, like the Credit Suisse case itself, were initially dismissed but survived renewed dismissal motions.) As I have noted elsewhere there is a backlog of unresolved credit crisis lawsuits. Though these cases are in many instances still working their way through the system, more of these cases will be moving toward settlement in the months ahead.
The size of the Credit Suisse settlement is also noteworthy. The $70 million settlement amount makes the case the fifth largest credit crisis securities suit settlement so far. Many of the credit crisis lawsuit settlements have been large – the Cornerstone study shows that the average and median credit crisis settlements have run substantially higher than the average and median settlements of securities suits generally. The suggestion is that the aggregate costs of all of these settlements could represent a very substantial figure, a possibility that, among other things, could have important implications for the D&O insurance industry.
Break in the Action: The D&O Diary’s publication schedule will be intermittent for the next two weeks. The normal publication schedule will resume on March 28, 2011.