Case Spotlight: Wells Fargo – The Importance of Case Pace on Settlements
On May 16, 2023, the court granted preliminary approval for a $1B settlement of the securities class action against Wells Fargo. If approved, it will be the 17th largest to date.
Besides the settlement size, this outcome is notable for the speed with which it was achieved. The initial complaint was filed June 11, 2020, less than 3 years ago. That’s about a year earlier than the average for suits against large issuers. For example, the $450M Kraft Heinz settlement announced earlier this month came 4 years and 2 months after the first complaint. Much credit for this faster pace should be given to the judge, who kept proceedings moving.
Securities class actions have predictable resolution points. Virtually all cases conclude before trial. They rarely settle before courts rule on motions to dismiss, which eliminates about half of all cases. For those surviving, nearly all settlements occur between the motion to dismiss rulings and start of trial, typically 3-5 years after the initial complaints.
Within this time window, resolutions are motivated most by court decisions on class certification and impending trial dates. So, the sooner judges get the parties into this “settlement zone” and the narrower they make the zone, the more they incentivize parties to resolve things.
Here, the court helped the parties quickly reach their settlement zone with active case management and prompt rulings. The lead plaintiff process was unusually brief, about 2 weeks. Several institutional investors applied jointly, prompting others to step back, enabling the judge to approve an unopposed lead plaintiff motion one day after oppositions were due and just 2-1/2 months into the proceedings.
Lead counsel promptly filed the amended class action complaint about two months later. Once briefed, the court ruled on the motion to dismiss within 6 months, partially sustaining claims. This put the parties in their settlement zone. Once in, the countdown started. The parties reached agreement while briefing class certification which, statistically speaking, was likely to be granted and presumably quickly given the court’s promptitude with earlier rulings. During this time, the court encouraged settlement efforts by the parties.
Other factors boosted the recovery size. Wells Fargo had significant means. While $1B is a lot of money, it’s dwarfed by the bank’s $1.8T+ in assets and the billions it has already spent resolving regulatory and other claims from the scandals. The settlement stipulation does not disclose contributions from D&O insurance, but we can assume the bank had significant policies in place.
In short, while the parties deserve accolades for this very successful outcome, the unsung hero of this case is the judge, who kept proceedings moving with prompt rulings and docket discipline, enabling the parties to get into their settlement zone more quickly.
Whatever a court’s decision – for or against plaintiffs – docket discipline and pace of proceedings are key drivers for resolving securities class actions. We encourage other courts to follow this judge’s example and cases into their settlement zones as quickly as reasonably possible.
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