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I was having lunch with a lawyer friend (yes, it is possible for certain lawyers to be a friend!) when I had a “parallel universe” type of revelation. He was telling me about how a big law firm was suing California governmental entities on a specific issue relating to rights of “a given class of workers” under Workers Compensation laws. The law firm did not target multiple entities at the same time even though the legal issue tended to be identical. The strategy of the law firm was “one lawsuit and one governmental entity at a time.” A divide and conquer strategy, so to speak.
In the pension world, class action attorneys have been successfully employing the same approach. Consider the landmark 1997 “Ventura” decision -- so named because Steve Silver filed a suit on behalf of the Ventura County Deputy Sheriffs Association against the County. In Ventura, the class of employees alleged that Ventura County had improperly omitted certain types of pay in calculations of pension compensation. The case was defended by competent, in-house Ventura County counsel. For the unwary, this had all the trappings of a local issue.
Guess again! The legal point was appealed to Californias Supreme Court. When the Supreme Court overturned the long-standing “Guelphi” decision to add various pays into the definition of pensionable earnings, their decision had a major impact not just on Ventura County but on 19 other Counties that were also subject to the “1937 Act.” There was also a major indirect impact on other systems in the state (ie, the Cities of San Diego, San Francisco and Fresno) as “copy cat” law suits resulted.
Bottom line: A lawsuit that cast huge reverberations around the state was not defended with such potential reverberations in mind. Ventura County was alone in defending the status quo. Also, there was next to no activity in terms of showing a united front in the initial proceedings to the court in terms of “friends of the court” briefs and the like.
The point I am trying to make is independent of the competence of the Ventura County counsel (who was reasonably well regarded) or the actual outcome of Ventura. I have no layperson opinion on the legal merits of Ventura. I have strong opinions on the legitimacy of some of the myriad of class action lawsuits that ensued in Venturas wake. There was a decided mismatch between the number of entities trying the case, one, and the number of entities ultimately affected -- many.
Ventura was an excellent result for members – increased pensionable earnings that became part of a 1-2 benefit increase cha-cha-cha when combined with major benefit formula increases that were granted around the state between 1999-2002. Those benefit increases have been a major factor in Californias current financial meltdown. In addition to increased pension contributions, Ventura was also a drain on many Retirement Systems in terms of staff time, member communication issues and other compliance issues. Settlements paid to lawyers in Ventura and copy cat cases amounted to millions. Systems retained lawyers and actuaries to deal with Ventura fallout – yet more expense.
Plaintiffs lawyers noted, with great interest, the monies made available to lawyers by Ventura. Further, the attorneys receiving Ventura-related legal settlements had plenty of cash that could have been used as seed money for future law suits – some whose substance could generously be deemed as speculative. Californias post-Ventura legal carousel encompassed areas such as funding, treatment of “excess” earnings and contingent benefits.
It can be problematic when a retirement board elects to deal with a plaintiffs issue on a solo basis. Even though a trust may have “deep pockets”, there can be an understandable lack of will by trustees to maintain a legal battle that can cost at least six figures –in addition to potential fees to the class action attorneys. Also, many trustees get gun shy if any possibility of personal liability exists. Such realities make it quite tempting to settle lawsuits. However, the ending of a legal headache for one entity can represent the start of a battle for other entities.
In recent years, I have grappled with the pros and cons of an idea that is commonly used by a number of industries, notably the insurance business: global defense funds. The industry recognizes that strong common interests favors a larger pool of money, people and resources to do battle with the increased proliferation of lawsuits during the past decade. The state of Oregon PERS used this tactic in the wake of 2003 benefit changes that triggered a spate of lawsuits.
I have asked several pension administrators about this concept and there is a mixed reaction –some like the idea while others think the concept is entirely unworkable. I believe that the concept of global defense funds is about as impractical as socialism in situations where there are benefit design differences among potential “pooled” entities. Nonetheless, I think the concept should be explored because of todays litigious world.
Some daunting hurdles exist for Retirement Boards to employ this strategy:
Such downsides are formidable. But no less formidable than the time, cost, nuisance and stress spent in the legal morass.
A rational middle ground could be to employ an expanded role for “volunteerism” in terms of aggressively offering resources to other entities being sued. This seems to be a reasonable minimum response that offers mutual benefit. Most certainly, there should be a greater resolve in pursuing recovery of legal fees in situations where the judge may view a suit as having limited legal merit.
John Grisham fans can recall several books which portray the pooled legal interests of large industries as the devil (ie, “The Runaway Jury”). How true. Yet sometimes it takes a devil to fight a devil.
Matthew 5.5 states “Blessed are the gentle, for they shall inherit the earth.” That may be true, but, in todays legal world, they might do so broke.
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