Lorenzo F. Garcia, United States Magistrate Judge
THIS MATTER is before the Court on the direction of Chief Judge James A Parker.
Following a review of the petition for the establishment of the Velasco Qualified Settlement Fund, which petition was granted by order on December 22, 2000, and the parties motion for disbursement of funds, the Court wishes further information, and to have the parties show cause why the December 22, 2001 order establishing the Velasco Qualified Settlement Fund should not be set aside. These are the Courts concerns: Court approval of a settlement is generally not necessary where, in a case such as this, parties are represented by highly skilled, competent attorneys. It is presumed that counsel are best situate to represent their respective clients best interests. Court approval of a settlement is necessary only where one of the parties is a minor, is suffering from a legal disability, or if a fairness hearing is required under provisions of the federal rules applicable to class actions. None of those factors is apparent from the pleadings.
While Plaintiffs complaint refers to a physical incapacity, quadriplegia, there is no mention of any legal incapacity or disability. Nothing in the complaint indicates that a guardian or conservator was necessary or that any was appointed by a state court of general jurisdiction.
Nothing in the petition indicates why there is a need to have a qualified settlement fund established or why the Court should be involved in this matter once the parties settled their dispute.
Indeed, if there was a need to have someone oversee the expenditure of settlement funds, it would be appropriate for the parties to petition a state court of general jurisdiction for the appointment of a conservator, and allow a state court to properly oversee the disbursement of funds as part of that courts routine practice.
Accordingly, the parties are first directed to show cause, if any they have, why the order establishing the Velasco Qualified Settlement Fund should not be set aside. In the parties response, please address the issues raised by the Court.
Secondly, the Court requests the parties to show cause why there is any need for continuing supervision. Under the provisions of the qualified settlement agreement, it appears that the Court would have ongoing responsibilities to supervise this fund, in some fashion, for a unknown period of time, quite possibly many decades. This appears contrary to the two-pronged goals of the Civil Justice Reform Act, 28 U.S.C. § 471 et seq., which requires courts to expedite the ultimate disposition of litigation and to reduce the costs of lawsuits.
Under the parties petition, there appears to be no ultimate disposition of this litigation in that the Court is required to maintain some type of ongoing supervision.
The Court recognizes that from time to time there are extraordinary circumstances that require it to maintain continuing jurisdiction. For example, when a court issues injunctive relief, it maintains authority to enforce its orders even after a case is closed. Similarly, when a court has approved a consent decree, it maintains ongoing jurisdiction for a period of years to ensure compliance with a negotiated resolution.
Here, however, no injunctive relief has been granted, and, indeed, save for routine scheduling orders or the Courts Initial Pretrial Report, no orders have been issued which require the Courts enforcement. No jury has returned a verdict; no court has issued a judgment. The settlement comes about as a result of the parties good-faith negotiations, and is a voluntary settlement. Thus, there appears no order that the Court needs to enforce. If issues arise concerning the enforcement of a settlement, there is no federal nexus and the parties recourse would be a simple contract action in state court.
The parties continuing supervision requirements seem to contravene general principles of law indicating that a court loses jurisdiction to act on a matter sixty days from the date it issues a judgment or final order. While a court may enter an order retaining jurisdiction for enforcing its prior orders, nothing in the petition for the establishment of the Velasco Qualified Settlement Fund demonstrates any need that warrants the unusual act of maintaining continuing jurisdiction.
Accordingly, the parties are directed to show cause why the order should not be set aside providing continuing supervision of this settlement. As in the Courts first area of concern, the parties are directed to address why, if at all, continuing supervision of this fund by the federal court is necessary.
The third area of the Courts concern is that the Velasco Qualified Settlement Fund gives an illusion of court supervision. Under the parties petition, the Court has no say so in selecting the fund administrator, and no information whatsoever is provided concerning the fund administrator or the business that will oversee the handling of the settlement funds. While there is no reason to presume any impropriety, the Court was presented no information to assess the fund administrators qualifications. No information is provided on the fund administrators background, education, business experience, etc. This problem is compounded by the fact that the parties petition indicates that no bond is required by the fund administrator (¶ 8.1), and that the fund administrator appears excused from compliance with the prudent investor standard (¶ 5.2). Indeed, specific language in the document allows the fund administrator to take certain investment action even if the administrators actions are not authorized by state law or even court order (¶ 5.2).
There appears very little to supervise. There is no status report filing requirement. Nothing in the plan requires the fund administrator to submit an accounting, and, thus, there is a question as to how the Court would supervise the administration of the settlement funds. It would have no basis to ever learn if anything was amiss.
The Courts authority under the qualified settlement fund appears limited to various ministerial or administrative matters. It can appoint a successor administrator, approve the fund administrators decision to retain and pay advisors, accountants, agents, managers or other consultants and disburse attorney fees. The petition is silent on any other oversight responsibility.
Even the provision concerning payment of attorney fees seems to conflict with other portions of the agreement. For example, the administrator is obligated to pay all claims and fees in accord with the attorney retention agreement (¶ 3.5). It appears that the administrator has no discretion in this area, and whatever fee agreement the Plaintiffs negotiated with their attorneys would have to be paid by the administrator. So, too, the Court approval of disbursement is vague. It is unclear whether the parties are asking the Court to pass on the fairness or reasonableness of the fees and costs incurred, or simply authorize the administrators disbursement. While the Court is required to approve the fund administrators decisions to retain advisors, accountants, agents and other consultants, no Court approval is necessary for the fund administrators own charges and expenses (see ¶¶ 5.1 and 5.7). This is especially troubling given the fact that the fund administrator posts no bond and because the qualified settlement agreement specifically exculpates the fund administrator from any personal or corporate liability. Paragraph 9 of the agreement states that the only source of money to recover for errors or omissions is the fund itself.
Thus, it would be possible for a fund administrator to deplete the bulk of the fund as administration expenses and fees without Court approval, and if a party brings an action for errors or omissions, the fund administrator appears exempt from liability and the only source of money to collect from would be the fund itself.
The foregoing indemnification provision is especially troubling given the elimination of the prudent investor standard, the statement that neither state laws nor court rules concerning various investments are applicable, that no bond is placed, and that the source of money to recover for errors or omissions is the fund itself.
Another area of Court concern is the provision requiring that the Court approve decisions to institute and defend litigation in the name of the QSF. This provision is troublesome in that it requires a court to approve the commencement of a lawsuit or the defense of litigation. This provision may run the risk of an appearance of impropriety, especially if the proposed litigation is filed in federal court. The Courts approval to institute or defend litigation may be viewed as a tacit comment by the Court on the merits of the litigation.
Due to the Courts concerns about the establishment of the Velasco Qualified Settlement Fund, the need for continuing supervision, and the fact that if ongoing supervision is necessary, it would appear that the parties should seek the appointment of a guardian or conservator and have the fund administered under applicable provisions of state law.
There may be many reasons, not apparent of record, why the parties proposed the settlement in the fashion they have. The Court wishes to extend the parties an opportunity to show cause why the order should not be set aside. In the interim, the parties request for disbursement of fees will be held in abeyance.
The parties are required to respond, by written response and supporting affidavits, if necessary, within ten days of entry of this order.