September 28, 2019
Sheilla Dingus
On Friday, Judge Anita B. Brody of the Eastern District of Pennsylvania entered a brief that could be described as a “tap dance” as she seeks to avoid Third Circuit scrutiny following a petition for writ of mandamus directed at her handling of settlement advances.
Funding advances have become a hot topic in the settlement, unfortunately distracting from the difficulty of navigating the process and collecting an award for players suffering from dementia, but nonetheless, if funder Thrivest’s petition for mandamus is successful in drawing the appellate court’s attention to what many attorneys feel is her “fast and loose” approach to handling settlement issues small and large, then perhaps it will be a silver lining to a gray storm cloud.
Summary of Events
Since I’ve written extensively on funder issues in the settlement, I’ll try to summarize as succinctly as possible. In December 2017 Judge Brody declared (almost) all settlement advances void and players were told they didn’t have to repay their advances on settlement awards. While this looked good for the players initially, the move was unprecedented and made without any supporting legal authority outside the power of an MDL judge. While some funders accepted Brody’s offer of rescission in which in return for signing a waiver, their principal would be returned without interest, most refused. Later Locks Law Firm negotiated a similar deal offering rescission in exchange for a return of the principal and 10% interest, and some funders agreed to the deal but other funders, including Thrivest, who probably did more advances than any other lender, decided to challenge.
The Third Circuit vacated most of the order, concluding Judge Brody had overstepped her authority and the only loans that she had the jurisdiction to nullify were “true assignments” in which loan agreement permitted the funder to step into the shoes of the player and collect directly from the settlement program. Most loans, including those made by Thrivest only sought to collect after a player receives his award, and the appeals court concluded she had no authority over agreements of this nature.
Despite the Third Circuit opinion and mandate, the concussion settlement claims administrator, under the direction of Judge Brody, continued to void loans which the appeals court had found to be valid. Thrivest requested a hearing on the matter. Claims administrator Orran Brown responded to the request, claimed to be in compliance, and then elaborated on his reliance on the December 2017 order as guidance. Judge Brody denied Thrivest’s request for a hearing leaving the lender no further options at the district court level.
Thrivest returned to the Third Circuit to petition for writ of mandamus, which is viewed as an extraordinary remedy, which in this case, is meant to call upon the appeals court to twist the arm of the district judge and force her to comply with their direction. Rarely do trial court judges resist circuit mandates, and the need for Thrivest to seek such a forceful remedy merely underscores the strangeness of the first two and a half years of the settlement.
This Week
Because mandamus is such an extraordinary remedy an appellate court has the option of ignoring if they should feel the writ has been frivolously sought. Earlier this week the same panel of judges that issued the mandate, ordered Judge Brody to respond by October 4. In comments to Reuters’ Alison Frankel, Fox Rothschild attorney Peter Buckley, who represents Thrivest indicated, “[I]t’s significant that the Third Circuit has ordered a response from Judge Brody.” He said this seems like an indication that the judges “are taking the matter seriously.”
Apparently Judge Brody is as well. Since the September 23 order was issued, the Third Circuit docket has seen a flurry of activity.
Claims Administrator Orran Brown, Seeger-Weiss attorneys Chris Seeger, Scott George, and Diogenes P. Kekatos have filed notices of appearance in support of Brody, as well as Harvard Law Professor Samuel Issacharoff, who argued before the appellate panel.
Chief Judge D. Brooks Smith responded to the appearances ordering responses from the Claims Administrator and Class Counsel by October 4, however, they motioned for an extension of the deadline, which was granted and extended to October 11.
On Friday Judge Brody issued a notice on the main concussion settlement docket that’s likely a preview of the responses that will soon be presented to the Third Circuit.
The Dance
While there is a framework of respectability in some of Brody’s notice, it mostly appears to be a tap dance around the issues actually argued before the Third Circuit and clarified in their subsequent opinion, and these are the central issues that Thrivest has petitioned the appellate court to examine.
In reading the Third Circuit’s carefully crafted precedential opinion there is only one question that has to be answered in order to determine if Brody has jurisdiction.
That question is: “Does the contract allow the funder to step into the shoes of the player and present a claim directly to the claims administrator?” If the answer to the question is “yes,” then the district court is within its authority to void the advance. If the answer is “no” and the contract with the funder stipulates recovery after the player has received his award, then the Third Circuit ruled that Judge Brody cannot interfere.
Brody’s notice begins with:
So far, so good, but merely a recitation of historical fact.
This is also a statement of fact, however, the highlighted text should nullify the remainder of Brody’s arguments. The appellate court clearly stated the matter must be determined outside the NFL claims administration context, which would infer arbitration since most if not all advances come with arbitration agreements in the contracts.
If the player wishes to challenge the arbitration decision then he has the right to challenge it in a trial court, but the arguments would be based primarily, if not exclusively on state law usury or fraud statutes.
Paragraph 4 is a stretch, as Thrivest’s filings indicate that the district court is still voiding non-prohibited assignments (appellate definition), informing players that the assignments are void, and attempting to strong-arm the lenders into rescission in line with Judge Brody’s prior order.
Technically, Brody may have grounds to present an appearance of compliance in that if the funder refuses rescission the claims administrator eventually releases the money to the player, but the obstacle course and delays the courts procedures entail, including bypassing the player’s attorney who has likely signed off on the funding contract, place true compliance in question. The claims administrator begins by examining the player’s contract with the funder and in most instances seems to declare it to be a prohibited assignment. He then prompts the funder to accept rescission per Judge Brody’s order and if the funder refuses, eventually releases the award directly to the player. According to Thrivest, the claims administrator is also telling players that their loans are void, which encourages them to arbitrate rather than paying the debt while interest continues to mount.
Normally when a claim is approved, if a player is represented by independent counsel then the funds are sent to the attorney’s escrow account from which he will deduct his fee and send the balance to the player, less the loan payoff when one is involved.
The biggest issues with this process are threefold. First, and most importantly, while all this is taking place, typically over several months, tens of thousands of dollars in interest accrues, leaving the player liable for more money than he would have owed without the district court’s interference, should he eventually wind up in arbitration or federal court and receive an unfavorable verdict.
Second, in bypassing the player’s attorney, the attorney would be forced to file a lien against the player’s claim for his fees. It’s unclear at this point if there is any language in the contracts that could possibly leave the attorney liable to the funder for failure to render payment. While an attorney would likely prevail on having his fees upheld and paid, it seems unlikely that if he tried to file a lien that included not only his fees but the loan payoff, that portion of the lien would be denied.
Finally, in disbursing the money directly to the player there’s a chance that by the time the funder files a lawsuit against a player, and it winds its way through the court system, that much of the money would have been spent. Should a court find the player liable for repayment of the advance, this could result in garnishment of his bank account, and possibly the forced sale of some of his personal property in order to satisfy the judgment.
The existing Rules are quite understandable, and should there be any question regarding how they’re applied, the claims administrator’s brief in response to Thrivest would seem to alleviate any ambiguity, therefore streamlining and making the rules more concise and user-friendly as Brody suggests, doesn’t banish the elephant from the room.
While quite clear on every procedure except for one, the Rules appear to be purposefully ambiguous in demonstrating how the claims administrator determines whether the advance is a prohibited assignment or collateralized loan. Rule 6 would seem to confirm Thrivest’s allegations.
When the Third Circuit issued its opinion, it asked the court to determine if an advance constituted a “true assignment” based on only one factor: Can the lender step into the player’s shoes and seek to collect directly from the claims process?
The Third Circuit rejected the district court’s authority to void a contract based on “the fairness and commercial reasonableness” of the loan. These are state law claims that would likely be decided in a federal court due to diversity and the fact that the money in question is more than $75,000.
Brody should direct the claims administrator to obey the mandate using only the appellate opinion as guidance. While Class Counsel argued in support of Judge Brody’s December 2017 order, and in fact, urged it, the arguments didn’t pass muster with the Third Circuit previously and there’s no reason to believe they will this time.
Following the appellate decision, in comments to Law360, Chris Seeger stated, “The Third Circuit’s ruling is a significant win for former NFL players who were targeted by predatory funding companies.” Thrivest’s lawyer also declared a win, “Peter C. Buckley of Fox Rothschild LLP, representing Thrivest, said they are pleased with the result and feel vindicated,” but last time I checked we weren’t talking about the Oprah Winfrey show, where everyone’s a winner. The Third Circuit panel clearly drew a line in the sand regarding the limit of Judge Brody’s authority.
According to Max Mitchell of The Legal Intelligencer, “Co-lead counsel for the class, Seeger Weiss attorney Christopher Seeger, however, said that, although the lending companies ‘live to fight another day,’ the ruling was also a win for the plaintiff, and that language in the opinion bolsters arguments the ex-players may have in fighting enforcement of these loan agreements.”
The last statement by Seeger is correct. Hopefully Class Counsel will discontinue the arguments that failed at the Third Circuit, and in concert with players’ independent counsel, aid those who’ve been disadvantaged by predatory interest rates, and possible misunderstanding of the terms due to cognitive impairment, to pursue their state law usury claims and potential fraud claims one by one outside the settlement framework. To do so, would be of immense benefit to the players who’ve been impacted. To squander time and money to beat a dead horse would not seem to benefit anyone but the lenders whose interest continues to mount with each delay caused by relitigating what appears to be a settled matter.
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Sheilla Dingus founded Advocacy for Fairness in Sports in October 2016, after a stint with Defenders of the Wall, a New England Patriots based blog where she dived deep into the legal aspects of Deflategate. Along the way, she observed many inequities in sports and felt a need to address some of the under-reported stories in sports law. She draws from her background as a former professional dancer, who like many of the athletes she writes about, took an early retirement due to orthopedic injuries. After a return trip to college she worked for a legal software company, with seven years as a Project Manager and Analyst. She brings her analytical skills to the table in breaking down complex lawsuits, and enjoys pursuing her longtime interest in journalism.
