Attorneys Brawl Over Spoils of Overdraft Settlements — Again

Money can complicate relationships. Several hundred million dollars can ruin them.

Plaintiffs' attorneys behind a group of wildly successful overdraft class action cases have been feuding over how to distribute hundreds of millions of dollars of court-approved legal fees, their share of more than $1 billion of settlements with banks. Now the federal judge overseeing the litigation has called a timeout.

Judge Lawrence King has issued an emergency injunction to stop a firm headed by Richard McCune from taking the dispute public in California state court. According to the order, McCune had threatened to file a lawsuit divulging details of the feud unless the lawyers coordinating the case paid his firm $19.25 million. The attorneys coordinating the overdraft litigation asked to Judge King to stop him.

The McCuneWright law firm's "threat to disclose … settlement and strategy discussions with co-Lead Counsel violates the privilege and confidentiality accorded such conversations," King wrote in the order. "There can be no question that this constitutes irreparable injury to both the members of the classes and to Class Counsel."

The judge wrote that McCune's unfiled suit relates to statements allegedly made to the lawyer about the division of attorneys' fees. At the end of the order, King added a handwritten note stating that "the court is available … for an immediate hearing" if requested by McCune's firm.

At the heart of the underlying litigation is banks' past practice of "resequencing" its customers' debit card payments. By subtracting a customer's largest daily charges first, banks increased the speed at which customer accounts went into the red and began incurring overdraft fees. The practice earned the banking industry billions of dollars over a decade.

Faced with a flurry of cases alleging bank misconduct, senior judges in the federal court system consolidated dozens in the courtroom of Judge King beginning in 2009. As is standard practice in such cases, King appointed an executive committee and co-lead counsels to coordinate the cases and the scores of trial attorneys.

Firms frequently jockey for such positions, which bring both strategic control of cases and influence over the proceeds of settlements or victories.

"The allocation of attorney assignments and the compensation of counsel for their efforts to advance the interests of all plaintiffs is a central aspect of multi-district litigation, and cannot be separated from the overall management and organization of the MDL," King wrote in the order.

Throughout the process, King has emphasized the need to keep the case moving in an orderly fashion, looking askance at efforts by banks to cut deals in other jurisdictions. In the order he cited concern that litigation over attorneys' fees in California would distract from the interest of the plaintiffs.

The dispute involving McCune is at least the second between attorneys angling for proceeds. A South American firm previously filed papers demanding to be paid for an early role in the case.

McCune did not immediately return a call seeking comment. Nor did the two lead counsels for the Plaintiffs' executive committee.