Poor SC plaintiffs get payout

jmonk@thestate.comFebruary 17, 2013 

  • Where the money’s going The lawsuit’s settlement included $3.5 million earmarked for various charities and a school: •  $2 million to USC School of Law building fund •  $600,000 to the Central Carolina Community Foundation •  $300,000 to the Indian Waters Council of the Boy Scouts’ Camp Barstow •  $300,000 to Boys and Girls Club of Southern Carolina •  $150,000 to the Water Missions International •  $50,000 to the Middleton Place Foundation •  $50,000 Sophia Institute, a Charleston education foundation •  $50,000 to the Conference of Medicine and Ministry

One of South Carolina’s longest-running civil lawsuits has drawn to a close with some $16 million in payouts to more than 3,000 mostly low-income people and $13.5 million in legal fees and expenses to their six lawyers for 16 years of work.

“I only wish my husband had lived long enough to see this,” said Lois King, 65, an Orangeburg resident who recently received a $5,000 check related to a loan she and her late husband, Ralph, took out more than 20 years ago. The money came in handy because she lives mostly on Social Security and some part-time cleaning work, King said.

In addition to the plaintiffs’ payouts and their lawyers’ fees, the settlement is also bringing $3.5 million to various S.C. charities and the law school at the University of South Carolina. The law school is getting the largest share: $2 million to help build its new campus on Gervais Street. That money comes from leftover funds in a $35 million pot of money set aside for potential plaintiffs, many of whom, it turned out, had died or couldn’t be located.

The class action case, titled Lois King and Deloris Sims vs. American General Finance, concerned the right of people who take out a mortgage for their homes to be able to choose their own lawyer – and not blindly accept the bank’s lawyer – according to legal filings in the case.

It’s a tale of David and Goliath – sort of. Mostly, it’s a tale of legal perseverance, along with several thousand people collecting an unexpected payout.

In settling the case, American General, which now does business as Springleaf Financial Services, admitted no fault. The Evansville, Ind.-based company has more than 500,000 loan clients in 25 states, according to its website. In 2005, the company’s assets hit $25 billion, and in 2010, Fortress Investment Group acquired 80 percent of the company and changed its name the next year to Springleaf Financial Services.

Plaintiffs came from all over the state, including Columbia, Lexington, Rock Hill, Sumter, Spartanburg and Orangeburg.

Plaintiffs’ lawyers said the legal foundation for the case had its origins in the state’s Consumer Protection Code, passed in 1982, during a period of soaring interest rates. It was aimed at protecting unsophisticated borrowers who were taking out perhaps the biggest loans in their lives and contained a provision that mortgage applicants had the right to independent advice from a lawyer not associated with the lender.

“It’s very rare for a case to go this long,” said USC Law School ethics professor emeritus John Freeman, who served as an expert witness for the plaintiffs’ lawyers on the issue of their $13.5 million payment. Freeman said he knows critics may take issue with that much money going to lawyers.

“But there will be federal and state taxes on those fees, and it’s for 16 years of work during which the six lawyers did thousands of hours of until-now uncompensated work on a case that was very risky,” Freeman said. “They never knew if they were going to win.”

During the 16 years, the case went through four judges, to the S.C. Court of Appeals once and to the S.C. Supreme Court twice.

In 2003, one plaintiff had a heart attack, delaying the first trial. In 2005, that trial was delayed again when one of the plaintiffs’ lawyers, Steve Hamm of Columbia, was diagnosed with cancer.

In 2007, after Hamm recovered, the plaintiffs lost a jury trial in a case that was to be a bellwether to determine if the class of plaintiffs was viable. The plaintiffs appealed their loss to the S.C. Supreme Court. In 2009, the high court overturned the jury verdict and recertified the class status. That gave the plaintiffs their shot to eventual victory.

But new legal wrangles then broke out over who could be a plaintiff and the size of individual awards. Finally, last year, Judge Perry Buckner ordered American General to pay $39 million in compensation. He later upped that to $59 million. American General objected. Again, the case looked like it could go on for years.

Late last fall, lawyers on both sides agreed on a final top payout of $35 million, with $13.5 million going to plaintiffs’ lawyers and $3.5 million to charities and USC’s law school.

“We didn’t feel that litigating for years and years longer would bring an increased benefit, and we wanted to get the benefits to people while they were still alive,” plaintiffs’ lawyer Hamm said. “We took a look at actuarial tables – we were losing people due to the passage of time.”

The class of plaintiffs had taken out mortgages roughly from 1982 to 1996, and many were in their 50s and 60s. In the end, after payouts to plaintiffs and charities, some $10 million is going unclaimed.

Checks began to be mailed to plaintiffs in late December, and nearly all of them have been cashed.

The hard-fought case had other complexities:

•  In 1997, a year after the lawsuit was filed, the General Assembly – at the urging of the mortgage and finance interests – passed a law banning class action status in lawsuits involving loan clients’ right to choose their own lawyer.

“This is the last one of its kind,” said Sen. Brad Hutto, D-Orangeburg, one of the six successful plaintiffs’ lawyers.

•  Plaintiffs’ lawyers had to hunt for years to come up with a figure of some 6,500 potentially eligible plaintiffs. In the end, only 3,000 could be located. They were mailed checks ranging from $5,000 to $8,000.

•  It was a battle of lawyers, for certain.

American General was not only represented by James Becker, of Columbia’s Haynsworth Sinkler Boyd law firm, but the Chicago-based international firm of Winston & Strawn, which – with nearly 1,000 lawyers in offices from Beijing to Paris to New York – represents clients such as Wells Fargo, Microsoft and Verizon.

Besides Hamm – who for 18 years was head of the S.C. Department of Consumer Affairs and who is one of the state’s top experts on consumer law – and Hutto, a fierce trial lawyer, plaintiffs’ lawyers included Charles Dibble of Columbia, who had experience in numerous similar cases and kept track of thousands of legal documents during the case’s 16 years.

“Dibble is like a dog with a snake – once he gets hold, he keeps shaking it and won’t let go,” Freeman said.

Defense lawyer Becker declined comment on the case except to say a few details remain “to be attended to, but otherwise the case is over.”

Hamm said: “It’s not often you work on a case 16 years – I hope I don’t do it again. There were times I didn’t think I’d live to see the end of this case.”

Reach Monk at (803) 771-8344.

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