Corporate settlements deny accountability

An oil-covered brown pelican sits in a pool of oil northeast of Grand Isle, La. after the BP oil spill.
An oil-covered brown pelican sits in a pool of oil northeast of Grand Isle, La. after the BP oil spill.

Anyone who has served on a jury is familiar with the long waits while attorneys for both sides huddle to reach a last-minute settlement and avoid a trial. It’s a roll of the dice for everyone, balancing the risks of a jury verdict and the costs of the trial itself against the certainty of a payout that doesn’t apportion blame. Settlements can bring closure to the victims, relief to an overburdened court system, and big fees for the lawyers. But do they provide any justice?

Consider the recent spate of billion-dollar settlements designed to close sordid chapters in mortgage lending, environmental disasters, and pharmaceutical misconduct. Earlier this month, 10 of the nation’s largest banks agreed to pay $8.5 billion to settle claims by the US Justice Department that they wrongly foreclosed on millions of homeowners in 2009 and 2010. It sounds like a lot of money, but remember that 3.8 million bank customers were slapped with foreclosure orders during this period. That’s about $2,200 a claim.

The settlement will stop the foreclosure reviews required by federal regulators that were supposed to reveal how banks abused their customers. Now the public will never know exactly how the banks ruined the lives of so many Americans with unverified foreclosure claims, excessive fees, and wrongful evictions. We’ll also never know how badly the consultants conducting the reviews — hired by the banks themselves — were biased toward those who paid their fees. The deal is a massive exercise in damage control all around.


In December, meanwhile, the international bank HSBC agreed to pay $1.9 billion to settle Justice Department allegations of money-laundering and illicit loans to Iran, Cuba, and Mexican drug cartels. It was a record-breaking fine, but since the settlement allows HSBC to keep operating in the United States, its stock price rose on the news.

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Also in December, BP agreed to pay out $7.8 billion to families and businesses injured when its Deepwater Horizon rig exploded in 2010. Many additional suits are outstanding, including the US government’s own claim that BP violated the Clean Water Act with its 200-million-gallon oil spill. But after a year-long moratorium, BP and other oil companies are moving ahead with oil production in the Gulf of Mexico, which industry analysts say will soon surpass levels of operation before the accident.

Last year, the pharmaceutical giant GlaxoSmithKline agreed to pay $3 billion to settle civil and criminal charges that it falsified data and failed to report known safety problems with its diabetes drug, Avandia, among other violations. It was the largest settlement ever involving a pharmaceutical company, but the $3 billion is about equal to Glaxo’s profits in a single quarter; oh well, just the cost of doing business. Other drug giants such as Johnson & Johnson have reached large settlements over off-label promotions or questionable marketing practices. It’s not enough of a deterrence to prevent these firms from engaging in wrongful — albeit profitable — behaviors in the future.

Because there won’t be a trial, there won’t be discovery or testimony in open court. The public will never know the true extent of the harm to consumers, or the extent of collusion or cover-up. Accountability, fair compensation, and deterrence — the three primary goals of the country’s tort system — all are shortchanged.

The drive to settle is accelerated by an overburdened court system that can’t absorb long, complicated legal proceedings: The Exxon Valdez oil spill litigation has lasted 20 years (though so have the environmental ill effects). But the large contingency fees paid to plaintiff’s attorneys are also a factor. Many class-action lawsuits award 30 percent of the settlement or judgment to the lawyers who take the cases on a contingency basis. The lawyers often are the biggest beneficiaries of settled lawsuits — closely followed by the corporations that can move on without ever admitting wrongdoing.


Rather than society learning from these systemic frauds, the incentives clearly tilt toward “making the case go away.” When mercenary corporations break the law, only much steeper fines, whistleblower protections, and criminal convictions of individual executives will right the scales of justice.

Renée Loth’s column appears regularly in the Globe.