BancorpSouth Tries End Run around Costly Overdraft Case

Article excerpt

Byline: Jackie Stewart

As many of the nation's largest banks write big checks to settle a massive federal class action involving overdraft fees, BancorpSouth (BXS) has instead opted for the controversial legal strategy of trying to duck out of the proceedings.

The case is currently under appeal. It's possible, if a longshot, that the little ($13 billion assets) Tupelo, Miss., bank could succeed in short-circuiting a legal machine that got the better of its far larger peers. If it fails, however, it will have racked up expenses in two jurisdictions.

The federal case involves allegations that BancorpSouth and dozens of banks wrongfully reordered debit card transactions to maximize overdraft fees charges to retail customers.

Because of the large volume of cases involving similar overdraft claims, a judicial panel was formed to route the legal traffic. Most of the cases have been made part of a multi-jurisdiction litigation in the U.S. District Court in the Southern District of Florida under the oversight of District Judge Lawrence King.

More than a dozen banks have already settled or are seeking court approval of settlement proposals so far. In one of the most recent such moves, Citizens Financial Group's agreed in late April to pay $137 million.

Initially, BancorpSouth appeared to be on the same track as many of its peers. The bank was sued in May, 2010, and five months later the judicial panel folded the case to it to the multi-district litigation. BancorpSouth and its legal adversaries then spent 18 months in discovery, in the hope of pursuing mediation and a settlement.

An expert retined by the plaintiffs estimated that class damages were in excess of $42 million. The figure prompted BancorpSouth's counsel to declare that it would go to trial rather than agree to such a figure.

Meanwhile, the bank was putting a Plan B into action. Even as its lawyers explored the possibility settling with the Florida plaintiffs, they were talking with an unrelated plaintiffs' team in Arkansas. That class action in was initially filed in state court in August, 2011 and then voluntarily dismissed one month later when the parties agreed to pursue settlement negotiations.

BancorpSouth and its outside counsel both declined to comment. Plaintiffs' attorneys on the Arkansas case did not respond to requests for comment. The plaintiffs' attorneys in the Florida case also declined to speak for this story.

The Arkansas plaintiffs were less demanding than their Florida counterparts. In Arkansas, BancorpSouth cut a deal in which it would settle all claims for $1.75 million a about 4% what was being demanded in Florida. The Arkansas settlement also required BancorpSouth to cap the number of overdraft fees a customer could incur in a day and to declared transactions below a minimum amount exempt from overdraft fees.

BancorpSouth and the Arkansas plaintiffs refilled the class action in U.S. District Court for the Western District of Arkansas in February of this year and signed a settlement one day later. For BancorpSouth, the most notable piece of the deal may be the fact that it proposed to exempt it from liability elsewhere a including in the Florida multi-district litigation.

During a hearing over preliminary approval of the Arkansas settlement, U.S. District Judge Robert T. Dawson expressed surprise at the urgency with which the settlement was being pursued.

"I am a little concerned with the speed with which we are moving," he told the lawyers, according to a court transcript filed in the Florida case. Dawson asked the parties to be "as deliberate and as thoughtful" as they could in the proceedings to avoid any missteps, since "we are apparently in a hurry," according to the transcript.

Despite these concerns, Dawson gave the settlement preliminary approval on March 26. Notice of the agreement was sent out about a week later to more than 400,000 class members. …