Opinion ID: 3060228
Heading Depth: 3
Heading Rank: 1

Heading: The Litigation Process and Settlement

Text: The case against Security Finance began in 1994, when Security Finance was sued not only for violations of TILA and the Racketeer Influence and Corrupt Organizations Act (RICO), but also for fraud and breach of contract. The litigation was long, extensive and hard fought. In August 1995, Plaintiffs moved to certify the class of consumer borrowers as either an injunctive class or as a hybrid class because they were seeking damages as well as injunctive relief. Other cases involving Security Finances’ competitors were added to the MDL and consolidated for all pretrial proceedings. In December 1997, Plaintiffs filed a Consolidated Amended and Recast Class Action Complaint. 3 Non-filing insurance is insurance that a lender buys to save the cost of filing a UCC-1, under Article 9 of the Uniform Commercial Code. It is not general default insurance, which is insurance that protects the lender against the borrower’s default or other credit loss. 3 The following May, Plaintiffs moved for partial summary judgment. Security Finance opposed the motion. Accompanying Plaintiffs’ motion were a comprehensive supporting memorandum of law and evidentiary submissions that detailed the evidentiary bases for their claims. Specifically, Plaintiffs proffered that in at least fifteen states Security Finance used two schemes, one through a captive corporation and the other a reinsurance program using the captive corporation and an independent insurer, to violate TILA by charging blanket premium rates for non-filing insurance when the fee charged was not to buy nonfiling insurance but merely to create a pool against bad debts. In addition to charging the fee, Plaintiffs submitted that Security Finance also charged interest on the fee. While the summary judgment motion was pending, settlements began to occur. On June 12, 1998, the district court approved the settlement with the first group of defendants. Thereafter, on March 12, 1999, the court approved settlements with two more groups of defendants. All three of these settlements resulted in entry of consent judgments that contained six-year injunctions limiting these defendants’ ability to charge customers for non-filing insurance.4 4 The injunctions included specific parameters relating to the settling defendants’ nonfiling insurance programs. 4 After nearly five years of litigation and extensive settlement negotiations, Security Finance and Plaintiffs also reached a settlement agreement. Security Finance agreed to settle “for business reasons, to avoid the risk and continuing expense of litigation.” Unlike the earlier settlements involving six-year injunctions, the settlement between Plaintiffs and Security Finance included an injunction to “permanently prevent” Security Finance from charging any fees or premiums for non-filing insurance in the future. It is noteworthy that two years earlier Security Finance made the business decision to discontinue all of its nonfiling insurance programs. In addition to the injunction and the explicit recognition of no admission of liability, the settlement also required certification of a damage class under Federal Rule of Civil Procedure 23(b)(3), the payment of $7.7 million in damages to the class, and dismissal of the conspiracy claims upon the court’s approval of the settlement. Because the claims against Security Finance were class action claims, the district court was required to approve the parties’ settlement. See Fed. R. Civ. P. 23(e). On February 9, 1999, the district court gave preliminary approval to the settlement. On July 15, 1999, the court entered its Final Judgment, Approval of Class Action Settlement and Dismissal with Prejudice of the Security Finance Entities. The district court found the settlement agreement was “fair, adequate and 5 reasonable,” the result of adversarial and hard-fought negotiations by the parties, and would “avoid[] complex, expensive and prolonged litigation which could have inured to the disadvantage of all parties and the Court.”