Although I never actually checked, my guess is that the great majority of lawsuits that are filed seeking money damages never go to trial. Instead, they are settled between the parties out of court.
This act of settlement has recently become a topic of conversation due to the many actions filed by federal regulators against banks, underwriters, mortgage lenders and credit rating agencies. All of these filings have resulted from the alleged failure of these parties to properly do their jobs, thereby creating the sizable financial problems this county has faced over the last five years.
Whenever an event occurs where someone could be shown to be at fault, the situation is ripe for a lawsuit. There have been many events over the last five years that have resulted in federal regulators beginning the process of bringing those responsible to court for the damages they caused in order to hold them accountable. Regulators want everyone to know they are doing their jobs by pointing out the wrongdoers, showing them the errors of their ways, getting them to admit their failures and making them pay large sums of money as retribution for the damages they caused.
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Sounds good, right? The only problem is that rarely, if ever, do we publicly hear the facts, allow both sides to tell their stories, ponder what witnesses will say and hear the judge announce his or the jury's decision. That is because the parties almost always settle behind closed doors. It is over before any real evidence is presented to the public or any arguments are made in a courtroom. And the reasons why it works this way are numerous.
Trials are very costly and lawsuits could go on for years. One side believes their case is weak and they could settle for a lot less than a potential verdict. The judge may not be friendly to one side or the other. A settlement quickly becomes yesterday's news and people will forget about it. One side, sometimes the regulator, takes what it can get now so it looks like it is achieving results.
The problem is that for each of the reasons listed above there is an equal argument against taking those actions.
So what if a lawsuit takes a long time. At least we will hear the whole story and can judge for ourselves who is right or wrong. If you believe in your case and feel it is strong, go the distance, the reward could be greater. Mr. Rogers is friendly, judges are not supposed to be. Let's not forget, to make the wrongs right, the wrongdoer needs to put in place whatever is necessary so the wrong does not happen again. Do not settle for cheap. If the process takes longer, the rewards could be much greater.
Sen. Elizabeth Warren recently asked a panel of regulators how many cases they have filed against banks have gone to trial. Not one could say that any case had gone that far.
Surprised? I'm not. It's our legal system. It's how we do business. It's the art of settlement. I personally believe that regulators should at times chose to go the distance, let all the facts come out, let each side tell its story and let the trier of facts decide the case.
Which approach is right? I will leave that up to you, the jury, to decide.
Michael Fryzel is a member of the NCUA Board.
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