The Courts, Not DOJ, Should Decide If JPMorgan Deal Is Fair
On Nov. 19 last year, the U.S. Department of Justice announced four settlements in the span of one day. In one deal, a Sysco Corp. unit called FreshPoint Inc. agreed to pay $4.2 million to resolve claims that it overcharged the U.S. Department of Defense for fruit and vegetables. News of that agreement, understandably, was eclipsed by JPMorgan Chase & Co.'s $13 billion settlement over allegations that it systematically bundled toxic loans, deceived investors and "helped sow the seeds of the mortgage meltdown," according to U.S. Attorney General Eric Holder.
Can you guess which of these settlements won't get any judicial scrutiny?
If you're cynical, or if you've been following the financial news, then you know it's the $13 billion JPMorgan deal. That's right: The $4.2 million fruit and veggie crackdown, as well as two other DOJ deals announced that day, will be assessed by a federal judge to determine if the public is being served. But the largest single settlement in the DOJ's history, stemming from the near-collapse of our financial system? That one gets a pass.
On Monday, the Wall Street watchdog group Better Markets Inc. filed a bold but probably ill-fated lawsuit in U.S. district court in Washington, D.C., against the DOJ and Holder, asserting that the government's deal with JPMorgan is illegal. Better Markets argues in its 60-page complaint that the DOJ violated the Administrative Procedure Act, as well as the constitutional separation of powers requirement, by failing to subject the deal to judicial scrutiny. The group wants an injunction to stop the DOJ from enforcing its agreement with JPMorgan until a judge reviews it. (A DOJ spokesperson said the agency is "confident" that the settlement is lawful as it stands.)
I expect that the U.S. district judge assigned to the case, Beryl Howell, will quickly agree to dismiss it on the grounds that Better Markets hasn't suffered the sort of harm that would give it standing. Still, Better Markets chief executive Dennis Kelleher insists the lawsuit isn't a publicity stunt, and he predicts it won't get tossed out at the start. "I assure you we wouldn't have filed this case if we didn't have confidence that we not only have standing, but have a reasonable chance of prevailing," Kelleher said in an interview Wednesday.
Despite my skepticism, I do think the complaint raises an important question. Even if the government has the discretion to settle some cases out of court, why choose this one? In other words, just because you can do something doesn't mean you should. As Better Markets aptly puts it: "No one has any ability to determine if the $13 billion agreement is fair, adequate, reasonable and in the public interest or if it is a sweetheart deal entered into behind closed doors that, by design, intent or effect, let the biggest, most powerful and well-connected bank in the U.S. off cheaply and quietly for massive illegal conduct."
William Yeomans is a professor at American University's Washington College of Law and a 26-year veteran of the DOJ who served as acting assistant attorney general for civil rights. He says the government can settle cases in different ways, but the preferred approach is to file a complaint and a consent decree. "The benefit you get is that the court oversees the implementation of the settlement, and it provides an element of public notice," he said, adding: "I think the [Better Markets] lawsuit is close to frivolous, but it is the better practice to file a suit."
Over the past two years, when the DOJ has settled other big cases against financial giants, it typically filed lawsuits. It did so when it joined other agencies in a $1.5 billion settlement with UBS for manipulating LIBOR rates, and when it got HSBC Holdings plc to pay $1.256 billion to settle charges of money laundering.
So why didn't Holder file a case again JPMorgan? The DOJ's press office wouldn't say, but I imagine it's because JPMorgan insisted on an out-of-court deal as a condition for settling the government's claims. And that's not a good enough reason.
Summary Judgment is American Lawyer senior writer Susan Beck's regular opinion column for the Litigation Daily.