Should Courts Approve Settlements Proposed By Government Regulators In Which The Alleged Wrongdoer Does Not Admit Liability?

As this New York Times article explains, a couple federal judges recently rejected settlements struck by the Securities and Exchange Commission containing clauses in which the alleged wrongdoer refused to admit liability or to agree to facts on which the enforcement action was based. The judges reasoned that when those clauses are present no basis exists for finding that a settlement is worthy of approval.

Another federal judge considering approving of a settlement struck by the Federal Trade Commission has delayed approval on similar grounds. The Times says that Judge Renee Bumb of the U.S. District Court in Camden, New Jersey, ordered the FTC and a company accused of deceptively marketing weight-loss products to come up with more evidence for approval. She was concerned because, the Times said, "the  lack of an admission ... left her with no facts with which to judge whether the negotiated deal was fair, adequate and in the public interest."

We know why a for-profit company does not want to admit wrongdoing. It's bad for the company's reputation, could undermine the value of its shares, and, perhaps above all, could harm the company in private civil litigation.

And we can see why the government might want to settle without an admission of liability: The government might not get any settlement, including important injunctions against future harmful conduct. The article quotes FTC official David Vladeck as saying that the agency's “settlements serve the public interest and meet any applicable standard of judicial review.”

But we can also see why judges don't want to be rubber stamps. An appeal pending in the U.S. Court of Appeals for the Second Circuit from a controversial ruling last November by U.S. District Judge Jed Rakoff may tell us a lot about whether and to what extent judges may take into account the presence of a "no admission" clause in considering settlement approval (or rejection). Judge Rakoff rejected a $285 million settlement with a "no admission" clause.

Comments

[Consumer Litigation Group]

Yes, where the value of the settlements exceeds $100,000, the federal government should prosecute until a civil verdict or an admission of liability. We wouldn't be in the financial mess we're in now if regulators obtained liability-admitted settlements following financial deregulation.