In a May 16, 2018 press release (here), Michigan State University announced that its board of trustees has approved a settlement in which the university agreed to pay MSU doctor Larry Nassar’s sexual assault victims a total of $500 million. There are a number of noteworthy features to this settlement agreement, beyond just its sheer size. Among other things, the school does not yet know for sure how it is going to fund the settlement.
Larry Nassar served as athletic trainer and later team doctor for USA Gymnastics from 1986 through 2015. Nassar was also an osteopathic physician at Michigan State University. Starting in 2015, a number of athletes came forward to claim that they Nassar had sexually assaulted them. Some of the alleged misconduct went back as far as 1992. USA Gymnastics cut ties with Nassar in 2015. Many of the athletes filed lawsuits against Nassar and a variety of other organizations seeking damages for the harm they had suffered. As the stories surfaced and the lawsuits came in, other athletes came forward to state that they too had been assaulted. Many of the victims alleged that the sexual assaults took place on the Michigan State campus.
For example, in April 2018, Olympic Gold Medal gymnast Jordan Wieber filed a lawsuit in California state court against Nassar, the United States Olympic Committee, and Michigan State University, as well as numerous other defendants. Wieber’s complaint (a copy of which can be found here) sought damages for sexual harassment; violation of Masha’s law (a federal statute protecting children from sexual exploitation and violent crime); intentional infliction of emotional distress; unfair business practices; breach of fiduciary duty; constructive fraud; negligence; negligent supervision and retention; negligent failure to warn; sexual battery; and gender violence. Among other things, Wieber alleged that Michigan State was aware as early as the late ’90s of sexual misconduct allegations against Nassar.
In December 2017, Nassar was sentenced to 60 years in federal prison after pleading guilty to child pornography charges. On January 24, 2018, Nassar was sentenced to 40 to 175 years in Ingham County Michigan after pleading guilty to seven counts of sexual assault of minors. On February 5, 2018, he was sentenced in Eaton County, Michigan to an additional 40 to 125 years in prison after pleading guilty to an additional three counts of sexual assault. Nassar is currently incarcerated in a federal prison in Tucson, Arizona. Nassar will not serve his state sentences until he has completed his federal sentence. Nassar is currently 54 years old.
In April 2018, representatives for all 332 of Nassar’s victims that have come forward met with representatives of the university in a mediation in New York City.
According to the school’s press release, the settlement, which the press release calls “global,” covers all 332 current claimants, with the $500 million total settlement amount to be divided between two funds: $425 million will be paid to the current claimants, and $75 million will be set aside in a trust fund to protect any claimants that come forward in the future. The press release also states that there are “no confidentiality agreements or non-disclosure agreements attached to the settlement.” The press release also states that the parties must act to address various remaining items in order to finalize the agreement.
The school’s press release includes a statement from the victims’ attorney saying in part “This historic settlement came about through the bravery of more than 300 women and girls who had the courage to stand up and refuse to be silenced.… It is the sincere hope of all of the survivors that the legacy of this settlement will be far reaching institutional reform that will end the threat of sexual assault in sports, schools and throughout our society.”
The settlement agreement applies only to Michigan State University and to the MSU-related individuals named as defendants in the litigation. The settlement does not apply to claims against USA Gymnastics, the United States Olympic Committee, Bela and Martha Karolyi, or any other parties.
A May 16, 2018 Detroit Free Press article (here) attributes a statement to an MSU spokesperson as saying that “MSU will now work on how it will pay the settlement.” The article goes on to say that the question of how the school will fund the settlement “is under careful scrutiny by parents, students, alumni, and financial rating agencies.”
Interim MSU President (and former Michigan governor) John Engler is quoted in the article as having “long said the costs will be covered by tuition and state aid, “ although the article states that lawmakers have said no tuition money or state aid should be used. The school had tuition revenue of $859 million in 2016-17, as part of total revenue of $2.9 billion.
The Free Press article also notes that the school has $1.1 billion of unrestricted net assets on its balance sheet, in effect a savings account for funds not yet contracted to a particular project. Of this amount, $557 has been set aside for infrastructure and $400 million has been set aside for programs. The school also currently has outstanding debt of $1.1 billion; the Free Press article quote a credit analyst as suggesting the school could carry additional debt if needed. Of course, if the school borrows to pay the settlement, the school would have to pay interest and eventually repay the amount borrowed, which brings the question back to student tuition.
An earlier Free Press article about how the school might fund a settlement states that the school has an insurance policy “with about $39 million in coverage.” The article does not state what kind of insurance this statement refers to, nor does it state whether or not the insurer has accepted coverage. The school’s May 16 press release does not say anything about whether or to what extent insurance will be funding the settlement. The MSU spokesperson quoted in the Free Press article about the settlement made no reference to any insurance contribution to the settlement.
The size of this settlement is undoubtedly massive, but that is not the number that caught my attention. What caught my attention about this settlement was the number of victims – 332, with the recognition that more victims could come forward in the future. This is a truly horrible story, a terrible tragedy.
The massive settlement size does command attention as well. The only comparable settlement that comes to mind is the $109 million that Penn State University paid to 35 victims in connection with the Sandusky sexual abuse scandal. The total amount of the MSU settlement is significantly higher than the total amount Penn State paid, albeit for a significantly higher number of claimants. The Penn State settlement averages to about $3.1 million per claimant (before subtraction of fees and costs), while the MSU settlement averages to about $1.28 million per claimant (before fees and costs). On the other hand, the Nassar victims still have claims pending against a variety of other defendants; the claimants’ recoveries eventually could grow.
Among the other noteworthy features of the settlement is the agreement that that as part of the settlement the claimants were not required to undertake any confidentiality or non-disclosure commitments. As these kinds of undertakings have come under fire as part of the current #MeToo revelations, pressure has built for these kinds of undertakings to be omitted from settlement agreements. It may be that the exclusion of these kinds of undertaking from this agreement may presage the eventual disappearance of these kinds of agreements.
The magnitude of this settlement also represents a significant message to other organizations that have been targeted with lawsuits following revelations of sexual misconduct by its officials and employees. The settlement presents a powerful statement that organizations whose employees engage in sexual misconduct could face dramatic financial consequences. There is also a powerful message about accountability here as well, an important message for every organization everywhere.
I will say one remarkable feature to this settlement agreement is that the University agreed to pay this massive amount without having first definitively figured out how it is going to pay for it. The school clearly can afford to pay the settlement amount (and hope that the payment and the related negative publicity does not damage the school’s reputation too badly). But most litigants nail down how they are going to foot the bill before they agree to a litigation settlement.
From the Annals of Democracy: Wikipedia contains the following detail in its biographical article about Nassar: “Despite the charges of sex crimes that had been made public against him, Nassar still decided to run for Holt (Michigan) School Board in 2016; he received 21% of the votes.”