The former directors and officers of Washington Mutual Inc., the bankrupt former parent of the WaMu Saving Bank, are paying the biggest share of the just-announced $205 million securities class action settlement with investors in three WMI offerings. Or, we should say, WMI’s insurers are paying the biggest share: All of the $105 million D&O portion of the settlement is coming from insurance proceeds. That’s according to the motion for preliminary approval of the settlement filed by plaintiffs lawyers from Bernstein Litowitz Berger & Grossmann. WMI’s auditor, Deloitte, is kicking in another $18.5 million.
But the most newsworthy portion of the settlement is the $85 million that a group of WMI underwriters have agreed to pay. According to the plaintiffs’ filing, that is the most underwriters accused of violating Section 11 of the Securities Act have agreed to pay since the $6 billion WorldCom securities class action settlement. Moreover, the WMI settlement comes after counsel for the underwriter defendants, Gibson, Dunn & Crutcher, led a high-stakes, last-ditch defense attempt to get most of the case tossed. That attempt not only failed, but also left Seattle federal district court judge Marsha Pechman seriously irritated, judging by her January 28 opinion. Within weeks of the opinion, the underwriters began joint mediation sessions with the plaintiffs, en route to Thursday night’s settlement.
Before we get to the defense’s failed Hail Mary, class counsel from Bernstein Litowitz, led by Hannah Ross, deserve a shout-out. As Ross and partner Katherine Sinderson describe in their motion for preliminary approval of the settlement, Bernstein Litowitz conducted such an extensive investigation in this case that federal prosecutors, the Federal Depositors Insurance Corporation, and the U.S. Senate relied partly on Bernstein Litowitz evidence in their own investigations of WMI. The firm ushered the consolidated class action complaint through two rounds of dismissal motions and prevailed in certifying a class despite three petitions for interlocutory review to the U.S. Court of Appeals for the Ninth Circuit. By the time of Thursday’s settlement, Bernstein Litowitz had secured testimony from 89 confidential WMI witnesses, reviewed 23 million pages of documents, and taken or defended 38 depositions. This case, in other words, was no cake walk.
The last showdown between Bernstein Litowitz and the defense was the underwriters’ surprise attempt this winter to get the case tossed. In December, after the Ninth Circuit declined to review Judge Pechman’s class certification ruling, Jonathan Dickey of Gibson Dunn filed a motion for judgment on the pleadings on behalf of the underwriter defendants. In the motion, which was eventually joined by Deloitte and the D&O defendants, Dickey argued that the bulk of the class action should be dismissed on statute of limitations grounds. Dickey asserted that the name plaintiffs who’d invested in two of the three offerings at issue in the case, hadn’t joined the class action within the one-year statute of limitations for securities claims. Under that theory, the underwriters said, the class had no standing to sue over those two offerings.
It was a bold argument, but the standing question had already been litigated back in 2009, when the defense brought its first motion to dismiss the class action. And unfortunately for Dickey, his own words from that earlier phase of the case returned to doom his argument this time around.
As Judge Pechman recounted in her seven-page order denying the defense motion for judgment, the WMI defendants had specifically cited the plaintiffs’ lack of standing to bring claims on two of the offerings in their first motion to dismiss in early 2009. In a February 23, 2009, response, class counsel from Bernstein Litowitz asked for permission to amend their complaint to include two additional name plaintiffs who had purchased securities in those two offerings. At the May 1, 2009, hearing on the dismissal motion, according to Judge Pechman, Bernstein Litowitz renewed the request. Dickey, she wrote, agreed that the class should be permitted to amend its complaint.
“I heard [plaintiffs counsel] say he’s happy to amend,” Dickey said, according to Judge Pechman’s ruling. “We think the court should accept that invitation. And joining with others I think the right result here is an amended complaint.”
Bernstein Litowitz filed the amended complaint on June 15, 2009, adding the two additional plaintiffs to address the standing problem. Dickey then waited a year and a half, until his December 2010 motion for judgment on the pleadings, to assert that the statute of limitations on claims by those two additional plaintiffs expired on May 13, 2009—a month before Bernstein Litowitz’s amended complaint.
Twice in her seven-page opinion, Judge Pechman called Dickey’s May 13, 2009, expiration date “self serving.” But she ruled that even if she accepted that the statute of limitations expired when Dickey said it did, the class had asserted its claims in time. She pointed out that Bernstein Litowitz had asked for leave to add the two new plaintiffs back in its February 23, 2009, response to the first defense motion to dismiss and again at the May 1, 2009, oral argument.
Quoting for the second time Dickey’s remark that the amended complaint was “the right result,” the judge wrote: “Plaintiffs’ oral request to amend satisfies all of the formality requirements…and it was made twelve days before the statute of limitations purportedly expired. [The new plaintiffs] timely filed their claims. Defendants’ motion for judgment on the pleadings is DENIED.”
OTC called Dickey to request comment but didn’t hear back. A spokesman for Bernstein Litowitz said the firm was unable to comment.
(Reporting by Alison Frankel)