How an Army of Lawyers Messed Up a Deal to Compensate Weinstein Victims

Harvey Weinstein Feb 24 - H - 2020
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The news cycle turns pretty swiftly these days. But before everyone moves past the rejection July 14 of a nearly $19 million settlement fund for Harvey Weinstein accusers, it's worth taking a closer look at the remarkable development of a New York federal judge calling the deal "obnoxious."

It's not just that this settlement was supposed to be part of the justice solution for dozens of victims of the biggest sexual abuse scandal in Hollywood history. (Harvey Weinstein likely spending the rest of his life in prison being the other big part.) It's that this settlement took two years to put together and blew up within days upon announcement. And it's even more than that. This was a settlement that involved attorneys at some of the biggest law firms in America, plus sophisticated insurers, plus the top law enforcement official in New York, and it couldn't even get past the preliminary stage of a judge's review. In short, an army of lawyers got together in an effort to achieve resolution, and after dozens of in-person mediation sessions and hundreds of phone calls, they ended up at a place that was completely off track.

So what went wrong? And what does the future hold?

For answers, we must first take a trip back to the months after journalists at The New York Times and New Yorker first detailed Harvey Weinstein's abusive behavior toward many women in the entertainment industry. The exposés led to a trickle of lawsuits, then a flood, then a putative class action in December 2017 against Harvey Weinstein, The Weinstein Co. and its board members. At the time, few asked whether it was feasible to pursue one man's history of sexual abuse in a class action. After all, class actions require a large enough group of individuals with common enough experiences and questions of law. These type of collective court actions most often focus on defective consumer goods like silicone breast implants or emitting "clean diesel" vehicles. If nobody immediately remarked how unusual it was that Harvey Weinstein's abuses had become the subject of a potential class action, perhaps that's understandable given the gravity and depth of the allegations. 

Realize too that this would-be class action was filed before New York's attorney general filed a suit against The Weinstein Co. and its fraternal founders, before The Weinstein Co. filed for Chapter 11 bankruptcy, before Harvey Weinstein was indicted for sex crimes, then convicted, and then sentenced to 23 years in prison.

Those developments added to the complexity of this situation, particularly by increasing the number of stakeholders at the negotiating table (including elected officials, creditors and even more lawyers) while also limiting the amount of money available to disburse. (Weinstein Co. assets sold for a disappointing $289 million in a bankruptcy auction, and Harvey Weinstein's criminal troubles have dissipated his own funds to the extent that he's reportedly having trouble funding an appeal.)

In the midst of all of this came an important development on April 18, 2019.

That was the day that U.S. District Judge Alvin Hellerstein gutted the putative class action by rejecting 17 of 18 claims — all but a sex trafficking count against Harvey Weinstein — and also allowing other corporate entities and individuals to be dismissed from the case because the plaintiffs had insufficiently shown that these co-defendants assisted, supported or facilitated sex trafficking. 

This event may have been more crucial than outsiders initially realized (and it's perhaps telling that after the judge's settlement rejection this week, class co-counsel Elizabeth Fegan and Steve Berman put out a statement noting they'd be appealing the ruling excusing Weinstein Co. board members from the case). That's because, according to one lawyer involved in the negotiations, leverage had suddenly shifted. Insurers always knew they were going to have to put up money to resolve The Weinstein Co.'s many problems. But as always, insurers wanted to get the most for their buck. Given that the suit from a group of Harvey Weinstein accusers was looking less serious, they could demand broad releases and shift who exactly was getting what from the pot of money. A look at the settlement agreement backs up such an assessment. Women who were claiming post-2005 abuse (in other words, the most legally hazardous allegations since they were likely within the statute of limitations) had no right to opt out. And Harvey and Bob Weinstein were getting millions of dollars in legal expenses reimbursed

Oddly, while there may have been plenty of people participating in sessions before a JAMS mediator, there may not have been enough. Zoë Brock, who accuses Weinstein of assault at the 1996 Cannes Film Festival, says she was fired as a client by her lawyers and then not allowed to participate further after she objected to an outline of the proposal in October 2019. Several lawyers representing other Harvey Weinstein accusers say they were also left out in the cold during the two years of negotiations. While it's not unusual to have certain lawyers take the lead — that's the whole reason for class counsel — one attorney who was only involved in the early rounds says a lack of buy-in among all lawyers and their clients helped doom the deal.  

"Despite the fact that we were lead counsel, the class action firm that we had hired then prohibited us from speaking with any of the named plaintiffs," says attorney Cris Armenta. "From reading the objections, it appears that the inclusion philosophy has not been in place, a real disservice to all the women involved."

All that — the shrinking amount of money for victims, what the insurers and dismissed defendants got in the dealmaking, and the opening for attacks from outsiders to the process — may have had an impact. Consider Douglas Wigdor, a prominent lawyer (not to mention someone who was once accused of selling out a client to achieve a wide-ranging settlement with 21st Century Fox over misbehavior by former Fox News chairman Roger Ailes). 

He became a vocal objector to the Weinstein class action settlement and was able to pen this poison arrow:

"Under the proposed settlement, the proposed class is designated to receive compensation from a fund of $18,875,000. To receive this amount, the proposed class representatives, individually and on behalf of the class, are required to disclaim any interest in the $7,295,000 that is being diverted from the settlement to the TWC estate to cover administrative and general unsecured claims. According to publicly available records of TWC's bankruptcy, among those unsecured creditors are Harvey and Robert Weinstein, James Dolan other Former Representatives on TWC's board; major corporations including America Media, the BBC, CBS, Dow Jones & Company, Fox, NBC, the NFL Network, the New York Post, the New York Times, the Screen Actors Guild and The Walt Disney Company; celebrities such as Bradley Cooper, John Cusack and Meryl Streep; and some of the largest law firms in the United States, including Debevoise & Plimpton, Seyfarth Shaw and Boies Schiller Flexner. It is unclear why these persons and entities should be paid a dime while sexual assault survivors are asked to accept modest awards."

In one respect, it makes sense that Judge Hellerstein deemed aspects of the deal as "unconscionable" and "obnoxious."

"These are not words you often hear coming out of a federal judge's mouth," says Rebecca Ricigliano, a partner at Crowell & Moring. "It's a signal to people negotiating settlements that you have to put the victims first."

Then again, it's not altogether obvious what to do in this situation given how the judge previously shredded the lawsuit when ruling on a motion to dismiss and went so far Tuesday as to raise concerns whether the Weinstein accusers' claims were suitable as a class action.

Yes, those involved spent more than two years under the illusion that this case could become a vehicle for compensating victims and giving others with a stake some peace of mind. The lawyers proposed a settlement that included an unusual procedure for administering a victim's fund — a Special Master to be appointed who would assign points to claimants based on what they specifically alleged Harvey Weinstein did. Guidelines doled out points — and ultimately payments ranging from $7,500 to $750,000 — for everything from verbal harassment to unwanted penetration. Brock, one of the named plaintiffs and the one who was allegedly fired by her lawyers after complaining, would go so far as to hire her own trauma expert to argue that some victims wouldn't be likely to feel sufficiently safe to complete 30 pages of questions in order to participate in the settlement fund.

"It's really painful as a woman to hear about the point system," says Megan O'Neill, a litigator at DTO Law. "This deal checked all the boxes on the complexity front."

Hellerstein has rejected the proposed settlement, but he hasn't yet detailed his full reasoning in a written memorandum. Legal observers are eagerly awaiting that forthcoming opinion because it could signal what's ahead.

Is the judge merely attacking the structure of the agreement? If so, while difficult, perhaps it can be renegotiated. Or is the judge going to conclude that these type of claims couldn't ever achieve enough commonality to be certified as a class action? That would doom the possibility of settlement (at least in this forum), and if yes, there will surely be those interested to know ramifications for other sexual abuse controversies. For example, a few months ago, a different federal judge approved a $215 million class action settlement between USC and victims of Dr. George Tyndall, but it's still a relatively new phenomenon to use these kinds of collective court actions to resolve serial exploitation of a sexual nature. Of course, few controversies are ever as entangled as the Weinstein one.