Spencer v. Hartford - 2

Spencer v. Hartford is a class action lawsuit currently on appeal to the U.S. Second Circuit Court of Appeals following a decision by the U.S. District Court in Bridgeport, Connecticut granting plaintiffs' Motion for Class Certification and Appointment of Class Counsel on RICO and state-law fraud claims.

A prior S2KM blog post (Spencer v. Hartford - 1) summarized the case to date including chronology, participants, plaintiffs' allegations, District Court decision and defendants' Petition for Appeal. This S2KM post begins S2KM's commentary.

Plaintiffs' Allegations

• Plaintiff allegations are summarized in "Spencer v. Hartford - 1 ".
• The U.S. District Court has neither affirmed nor denied any of the plaintiffs' allegations against Hartford.
• Pending a decision by the U.S. Second Circuit Court of Appeals, the District Court Judge is holding all case deadlines in abeyance.
• Defendants' appeal is limited to the District Court Order granting plaintiffs' Motion for Class Certification and will not address plaintiffs' allegations.
• Even if the Court of Appeals rejects the defendants' appeal, the District Court may never address the plaintiffs' allegations against Hartford.
• As defendants state in their Petition to Appeal: "...putative class actions alleging financial fraud almost always involve extremely large claims for damages, and an order certifying a class therefore exerts pressure to settle whether or not the claims have merit."

Potential Damages

• The civil component of the Federal Racketeer Influenced and Corrupt Organizations Act (RICO) allows for the recovery of damages in triple the amount of actual compensatory damages.
• Plaintiffs contend their two RICO subclasses ("cost" and "value") exceed 9000 persons and their damages total at least 15% of Hartford's applicable structured settlement premium from 1997 to the present.
• Using an assumed industry per case average structured settlement premium of $176,000, plaintiffs' potential RICO damages against Hartford in the Spencer class action case can be estimated as follows: $176,000 x 15% x 9000 cases x 3 = $712,800,000.
• The District Court's Class Certification Order also includes state-law fraud claims.

NSSTA Code of Ethics

• Hartford Life is a member of the National Structured Settlement Trade Association (NSSTA).
• NSSTA's Board of Directors and membership approved the NSSTA Code of Ethics May 9, 1997.
• Plaintiffs' Revised Second Amended Complaint alleges Hartford began a "Broker Assistance Program" (BAP) in 1997 using structured settlement brokers selected by Hartford to further the mission of Hartford's "Secured Benefit Services" (SBS) structured settlement program.
• Selected excerpts from the NSSTA Code of Ethics:
  
  • "This Statement of Ethics and Professional Responsibility (Statement) has been adopted by the Board of Directors and Membership of the National Structured Settlements Trade Association (NSSTA) to provide guiding principles to its members and member organizations."
  • "Implicit in the acceptance of this Statement is an obligation to act in a professionally responsible and ethical manner when providing structured settlement services."
  • "This Statement applies to all NSSTA member companies, their employees and to individual members, regardless of their voting rights and responsibilities."
  • "The NSSTA member must exercise the utmost integrity when providing professional structured settlement services."
  • "The nature and extent of services rendered must be dictated by professionalism, honesty and candor which should not be compromised for personal gain or advantage."
  • "All persons engaged in the provision of any part of a structured settlement shall perform their duties in an honest, ethical and fair manner."
  • "Fairness mandates intellectual honesty and disclosure of relevant conflict(s) of interest."
    
  • "A NSSTA member should comply with all material federal and state laws and regulations applicable to the structured settlement services that are provided." (emphasis added).
    

NSSTA 2009 Winter Meeting

• S2KM's Managing Director, Patrick Hindert, is a member of NSSTA and attended the NSSTA 2009 Winter Meeting.
• Plaintiff and Defense Panel
  • One of the educational programs at the NSSTA 2009 Winter Meeting was titled "Plaintiff and Defense Panel".
  • Program description: "There is a need for brokers on both sides to serve as their client's advocate and there should be mutual respect for what each broker contributes to the resolution of the claim and what they bring to the "settlement table". This session will cover some of those concerns."
  • Selected Hindert notes from the panel discussion:
    • "Most structured settlement brokers are 'Good People'."
    • "Our most important role is taking care of the plaintiff."
    • "IRC 468B is bad because it prevents defendants from initiating structured settlements."
    • "Our clients should have no right to dictate how we earn our living" - responding to a question about the need to disclose commission sharing.
    • "I will fight for my clients' right to spend their money the way they want" - responding to a question about approved lists of annuity providers.
    • "We are part of an adversarial system and must support our clients."
• Ethics Course
  • Father Oliver F. Williams, from the Notre Dame Center for Ethics & Religious Values in Business, taught an ethics course at the NSSTA 2009 Winter Meeting.
  • Selected Hindert notes from Father Williams' ethics course:
    • "NSSTA's Code of Ethics is as good as it gets in the structured settlement industry."
    • "Alan Greenspan (Chairman of the Federal Reserve from 1987 to 2006) expressed 'shocked disbelief' following the September 2008 financial crisis. What causes you (NSSTA members) to feel 'shocked disbelief' about the structured settlement industry?"
    • "The life cycle of social moral issues has six stages:
      • Stage 1 - changes occur;
      • Stage 2 - problems are recognized;
      • Stage 3 - organizations are established;
      • Stage 4 - policy agendas are set;
      • Stage 5 - solutions are formalized;
      • Stage 6 - social control becomes routine.
    • "There are three levels of analysis for social moral issues:
      • Individual;
      • Organizational;
      • Systemic.
    • "There are three types of social moral standards:
      • Utilitarianism - the greatest benefit at lowest cost;
      • Rights - protect entitlements set around individuals pursuit of interests;
      • Justice - distribute benefits and burdens fairly."
• Settlement Consulting
  • Joseph DiGangi spoke about "Comprehensive Settlement Consulting" at the NSSTA 2009 Winter Meeting.
  • In what he termed "a wake up call for the industry", DiGangi criticized the traditional structured settlement business model and knowledge standards.
  • S2KM summarized and analyzed DiGangi's NSSTA presentation in a four-part blog series titled "Settlement Consulting"
    • Settlement Consulting
    • Settlement Consulting - 2
    • Settlement Consulting - 3
    • Settlement Consulting - 4