Overview
In an order dated Thursday, Judge Kaplan required, as a condition of approving a $90 million settlement covered entirely by D&O insurance, that five former Lehman officers (including former CEO Richard Fuld) disclose in camera certain financial information about their net worth. The information had already been compiled and disclosed to former Southern District Judge John Martin, who assisted with the settlement. Judge Kaplan began his order by quoting Kenny Rogers:
As Kenny Rogers taught at least one generation with his hit song, The Gambler, in both life and in poker “You got to know when to hold ‘em, know when to fold ‘em, Know when to walk away and know when to run.” His advice applies also to litigation -- you “got to know when to hold ‘em” by pressing on with a lawsuit, “know when to fold ‘em” by taking the best settlement you think you can get, and know “when to walk away” by dropping an unpromising case.Judge Kaplan then explained that the fairness of the settlement depended on the extent to which the officers could withstand a judgment in excess of their insurance coverage:
The argument for approval of the D&O Settlement is very straightforward, a variation on the old axiom that “a bird in the hand is worth two in the bush.” There is $90 million of insurance money on the table. If the settlement were not approved, that $90 million likely would erode rapidly through payment of defense costs in this and other cases as well as settlements and judgments in other matters. It could be consumed entirely. Once it is gone, the directors and officers would be thrown back on their own resources, whatever they are, to defend themselves, buy peace, and/or pay judgments. Other material litigation risks would lie ahead if the class were to proceed to judgment. It ultimately may recover nothing on its claims against the individual defendants. So the best course, Lead Counsel argues, is to take the $90 million -- this despite the fact that Lead Counsel estimates the potential liability of the officers and directors if plaintiffs prevail at “many billions of dollars.” Lead Counsel are able and distinguished. Their judgment may prove to be within the range of reasonableness despite the modest amount of the settlement when considered against these defendants’ potential exposure . . . Without knowing whether and to what extent these defendants could withstand a judgment in excess of the insurance money now on the table, the Court would be severely handicapped in coming to an informed view on the question before it.
