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Could legal technicality derail Trump U settlement?
March 7, 2017 / 9:08 PM / in 8 months

Could legal technicality derail Trump U settlement?

(Reuters) - The private lawyers who reached a proposed $25 million settlement last November with then President-elect Donald Trump, resolving class action claims that Trump University real estate seminars were a fraud, did an objectively fantastic job for their clients. Over the course of seven years, Robbins Geller Rudman & Dowd won key procedural rulings that left the previously intractable Trump with no good option but to resolve the case before his presidential inauguration. The settlement, according to Robbins Geller’s Feb. 17 motion for final approval of the deal, will allow some 6,000 Trump University students to recover at least half of what they paid to attend the seminars – an unusually robust recovery for a fraud class action.

Robbins Geller even agreed to waive its litigation fees and costs in order to assure the judge overseeing the case, U.S. District Judge Gonzalo Curiel of San Diego, that the firm’s only interest was getting the best possible deal for Trump University students.

At the time Robbins Geller filed the motion for final approval last month, more than 2,000 Trump U students had already submitted paperwork to get money back from the $25 million settlement fund. No students had objected to the deal.

That changed Monday. A Florida bankruptcy lawyer and former Trump University student named Sherri Simpson filed an objection to the proposed settlement, arguing that a critical provision in the deal violates her constitutional due process rights and runs afoul of class action rules. If Simpson turns out to be right – and one leading class action scholar said she may be – President Trump’s entire $25 million agreement with Trump University students could blow up.

Simpson’s objection is based on settlement language barring class members from choosing not to accept the class deal and instead litigate against Trump on their own. The Trump side insisted on the provision, called a no opt-out clause, to assure the $25 million settlement would buy the president a final, global resolution of Trump University allegations.

Trump University students had a chance to opt out of the class action back in 2015, after Judge Curiel certified them to litigate as a group. (The judge later clarified that the class action could establish Trump University’s liability but that damages would have to be calculated on a case-by-case basis.) But class members received the 2015 notice before Trump agreed to settlement terms. The notice said in a parenthetical that Trump University students would get another chance to opt out when and if the case settled.

Simpson’s lawyer, Gary Friedman, contends the settlement breached her constitutional due process rights because she never got that second chance to opt out once she knew the actual terms of the deal with Trump. Friedman and Simpson also contend that the federal rules of civil procedure call for judge to provide class action plaintiffs an opportunity to opt out of settlements for money damages even if they have previously declined a chance to litigate outside of the class.

“Nobody in this class got constitutionally adequate notice of their right to opt out,” Friedman said. “End of story.”

Friedman said his client, who paid $19,000 to attend a three-day Trump University seminar and receive a year of mentoring, will not be satisfied unless the defendants admit they were wrong and pay triple damages: “She’s very angry. She felt humiliated,” he said. “She wants a public trial for the purposes of vindication.”

The law on class members’ due process and procedural opt-out rights is unsettled, said law professor Elizabeth Burch of the University of Georgia, who said there’s surprisingly little precedent to guide Judge Curiel. The facts of this case, in which class members had an opportunity to opt out before the two sides reached a settlement, are particularly unusual, Burch said, because most class actions for money damages are certified only at the time of settlement, so class members receive notice of their opt-out rights at the same time they are informed of settlement terms.

Burch said Simpson and her lawyer, Friedman, have raised “not frivolous” concerns about an “open question” of law.

The lawyers who negotiated the Trump University settlement disagreed. Trump counsel Daniel Petrocelli of O’Melveny & Myers told me Simpson’s objection is a political dig. Last February, during the Republican primaries, Simpson was featured in an anti-Trump ad by the American Future Fund political action committee. During the presidential campaign, she appeared in a second ad, this one produced by the Not Who We Are PAC. “She’s obviously politically motivated,” Petrocelli said. “The objection has no merit.”

Class lawyer Patrick Coughlin of Robbins Geller said Simpson had a chance to bail out of the class in 2015 and didn’t take it. “A technical legal argument can always be made that people should get a second opt-out,” he said. But in this case, he said, the argument makes no sense. Class members understood their right to opt out when they received notice in 2015, as evidenced by the dozen or so Trump University students who said at that time that they didn’t want to be part of the class. Depending on how many class members file claims, Coughlin said, students could end up getting all of their money back – and that’s without a certified damages class.

For Simpson to pop up now and put the entire settlement at risk, Coughlin said, “is frivolous.”

If Judge Curiel agrees with Simpson’s constitutional argument, he must allow her – and presumably, other class members – to opt out of the settlement. If he finds no due process violation, he has discretion under the rules of civil procedure to deny class members a second chance to opt out. Judge Curiel strongly urged the class and the defendants to reach a settlement after the presidential election and before President Trump was inaugurated.

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