Less than a month after it was announced, the tentative settlement by 10 of 12 WorldCom Inc. directors to pay $54 million (including $18 million out of their own pockets) to settle the class-action claims against them has collapsed after U.S. District Judge Denise Cote rejected a key provision of the deal.
The agreement unraveled as the plaintiffs withdrew from the settlement after Judge Cote rejected the provision in the deal that would have prevented the remaining defendants in the lawsuit to reduce their liability on a judgment by assessing a portion of the responsibility for that judgment to the settling defendants. As noted in this earlier post, a similar tentative settlement early in the Enron case that would have resolved civil and criminal charges against Arthur Andersen was also scuttled by a dispute over a similar provision.
Consequently, unless the plaintiffs and the directors revise the deal to delete the above-described provision, the 10 directors will have to stand trial starting Feb. 28 along with the other defendants in the case.
My sense is that cooler heads on the plaintiffs side will prevail and the settlement will eventually get done. However, stranger things have happened in such a high profile case than leaving $54 million on the table. The plaintiffs may figure that its worth it to go for the gusto against the financial institutions because they can always settle with the directors on similar economic grounds after obtaining a big judgment against, or settlement with, the remaining banks.