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Banks have long argued that processing debit card transactions by starting with the largest dollar balances and working their way to the smallest benefited customers. Here's an alternate explanation of what might have motivated them: "Multiple Millions $$$$$$$$$$$$$$$$$$$$."
September 26 -
BancorpSouth (BXS) has reached a settlement in principle for a class-action lawsuit alleging that the Tupelo, Miss., company violated federal securities law.
June 1
As many of the nation's largest banks write big checks to settle a massive federal class action involving overdraft fees, BancorpSouth (BXS) has instead opted for the controversial legal strategy of trying to duck out of the proceedings.
The case is currently under appeal. It's possible, if a longshot, that the little ($13 billion assets) Tupelo, Miss., bank could succeed in short-circuiting a legal machine that got the better of its far larger peers. If it fails, however, it will have racked up expenses in two jurisdictions.
The federal case involves allegations that BancorpSouth and dozens of banks
Because of the large volume of cases involving similar overdraft claims, a judicial panel was formed to route the legal traffic. Most of the cases have been made part of a multi-jurisdiction litigation in the U.S. District Court in the Southern District of Florida under the oversight of District Judge Lawrence King.
More than a dozen banks have already settled or are seeking court approval of settlement proposals so far. In one of the most recent such moves, Citizens Financial Group's
Initially, BancorpSouth appeared to be on the same track as many of its peers. The bank was sued in May, 2010, and five months later the judicial panel folded the case to it to the multi-district litigation. BancorpSouth and its legal adversaries then spent 18 months in discovery, in the hope of pursuing mediation and a settlement.
An expert retined by the plaintiffs estimated that class damages were in excess of $42 million. The figure prompted BancorpSouth's counsel to declare that it would go to trial rather than agree to such a figure.
Meanwhile, the bank was putting a Plan B into action. Even as its lawyers explored the possibility settling with the Florida plaintiffs, they were talking with an unrelated plaintiffs' team in Arkansas. That class action in was initially filed in state court in August, 2011 and then voluntarily dismissed one month later when the parties agreed to pursue settlement negotiations.
BancorpSouth said in a written statement that it was "disappointed" in the Florida court's decision. The bank called the Arkansas settlement "fair," saying that it has "utmost respect for the courts, and we are confident that the Court of Appeals will reach a fair conclusion." The statement wasn't received before American Banker's June 7 print deadline.
BancorpSouth's outside counsel declined to comment. Plaintiffs' attorneys on the Arkansas case did not respond to requests for comment. The plaintiffs' attorneys in the Florida case also declined to speak for this story.
The Arkansas plaintiffs were less demanding than their Florida counterparts. In Arkansas, BancorpSouth cut a deal in which it would settle all claims for $1.75 million — about 4% what was being demanded in Florida. The Arkansas settlement also required BancorpSouth to cap the number of overdraft fees a customer could incur in a day and to declared transactions below a minimum amount exempt from overdraft fees.
BancorpSouth and the Arkansas plaintiffs refilled the class action in U.S. District Court for the Western District of Arkansas in February of this year and signed a settlement one day later. For BancorpSouth, the most notable piece of the deal may be the fact that it proposed to exempt it from liability elsewhere — including in the Florida multi-district litigation.
During a hearing over preliminary approval of the Arkansas settlement, U.S. District Judge Robert T. Dawson expressed surprise at the urgency with which the settlement was being pursued.
"I am a little concerned with the speed with which we are moving," he told the lawyers, according to a court transcript filed in the Florida case. Dawson asked the parties to be "as deliberate and as thoughtful" as they could in the proceedings to avoid any missteps, since "we are apparently in a hurry," according to the transcript.
Despite these concerns, Dawson gave the settlement preliminary approval on March 26. Notice of the agreement was sent out about a week later to more than 400,000 class members. The speed with which the notices were distributed raised eyebrows in a subsequent Florida hearing; it usually takes about two months to send out such class notifications.
Judge King and the Florida plaintiffs' attorneys say they were unaware of the negotiations and settlement in Arkansas until March 27. That's when BancorpSouth's lawyers filed notice of the deal and a motion to halt the Florida proceedings.
Counsel for the Florida plaintiffs argued that the Arkansas settlement's "insufficient consideration and unfavorable terms" suggest that the bank and the Arkansas plaintiffs conspired to negotiate a settlement before the Florida court found out about it.
"While we were, in good faith, doing what we were told to do by this court, prepare, discover, and move this case forward as fast as we can, they were colluding with some plaintiff having dismissed the state court action…" said Aaron Podhurst, a plaintiff's attorney in the Florida case, during a hearing over whether to stay that case, according to a court transcript.
Judge King wrote in an April 30 ruling, in which he decided to allow the Florida case to continue, that he would not delve into the question of whether "BancorpSouth engaged in a "reverse auction." The judge further stated that he would likewise defer passing judgment on whether the Arkansas parties "colluded" in reaching a settlement.
A reverse auction settlement sometimes occurs in cases involving similar claims in multiple jurisdictions. Defense attorneys typically seek to settle with the plaintiffs furthest from trial and most likely to settle for the lowest amount. The case that settles then bars other plaintiffs from proceeding.
"A plaintiff's law firm may not be deliberately underbidding, but they are quite conscious of the fact that they are in competition for the settlement," says John C. Coffee Jr., a law professor at Columbia University who is not involved in the BancorpSouth litigation.
In a hearing before Judge King, BancorpSouth sought to portray the settlement as independent and sufficient, noting that the number of people included in the Arkansas class is larger than that in the Florida case.
BancorpSouth further argued that it would be the sixth bank to reach a settlement outside the multi-district litigation, which did not "make the settlement good or bad, or the place where they are settling good or bad."
BancorpSouth's defense counsel argued that it was under no obligation to inform the Florida district court of the existence of the Arkansas suit. Judge King didn't buy the argument.
Instead, he ruled that staying the case in his court would "create a dangerous precedent" and encourage other defendants to follow BancorpSouth's lead "by cooperating with counsel who file substantially similar cases outside" of the Florida court "with the intent of settling those cases" and "thereby undermining the ongoing litigation against such bank(s)."
King noted to BancorpSouth's counsel during oral arguments that "if you can get a better settlement in Arkansas than you can get here, I don't fault you for a heartbeat in trying to do that."
In an attempt to prevent a similar situation from arising again as he oversees the overdraft case, King issued an order requiring the parties involved to notify the court of any cases pending in other courts. SunTrust Banks (STI) has disclosed one such case, though it does not appear to have the history of the BancorpSouth Arkansas suit. Lawyers in Tennessee brought the case in April, shortly before Judge King's order.
For its part, BancorpSouth is still hoping to stay out of Judge King's court. The bank's attorneys are now seeking to convince the 11th circuit U.S. Court of Appeals, which oversees the Southern District of Florida, to sign off on the appropriateness of its Arkansas settlement.
