Jan 3, 2010

Settlement of USCF Lawsuits

There's some concern on the USCF Issues Forum regarding the prospects and terms of the settlement between essentially the USCF, on the one hand, and Polgar and Truong, on the other hand. The issues being raised include:
1) Should we at least wait for summary judgment before agreeing to settle?
2) Should we call for an emergency delegate vote to approve the settlement and avoid future conflict concerning the terms of the settlement? and
3) Is the current EB conflicted because three of the five members have been sued personally and may simply be too interested in resolving the litigation on less than the best terms for the USCF?

Please sign in and read all of the posts (if you're interested at all). I've posted the below today in response to the above issues.

I see nothing to suggest that the current EB does not have authority to settle these lawsuits. Of course, it is possible that the EB could enter into an agreement that contained a provision exceeding its power. I think returning the ousted members to the board would be such a decision. That would be a problem. Such an outcome seems so remote, that I'm already done being concerned about it.

Brian Mottershead has done a good job of explaining the ratification process. Many seem to think that ratification is necessary to give force to the EB's decisions. It is not. The ratification process only pertains to actions that are ultra vires. Unless there's a real question of authority, ratification is not an issue. Of course someone somewhere could raise such an authority issue. I'm going to trust that the collective wisdom of the delegates will not allow the issue of authority to rise to a critical level. In other words, the EB will act competently, and the delegates will, too. If one or the other doesn't, we have larger problems.

It is not necessary to ask the delegates to approve any settlement in advance. It's debilitating and it's not their role. The delegates should expect the EB to act within its authority, just like they do every day.

To answer a question above, summary judgment is possible before trial. In fact, summary judgment decisions are made in the vast majority of cases, and when they are, those decisions are invariably prior to trial. That's the point of the word "summary." Generally, the only exception to summary judgment decisions is when the case is so laden with disputed facts (and which must be decided by a factfinder--jury or judge in a bench trial) that there's no hope of a summary decision. Judges will often tell the parties when he or she won't entertain summary judgment motions because of disputed facts. I'm not aware of that in these cases. Please keep in mind that for a party to prevail on summary judgment, the judge must conclude that there are no material facts in dispute. All that said, settlement always takes into account the hazards of summary judgment. In other words, the parties estimate their chances and the dynamic of their competing views enters into the negotiating process. No one ever says "let's put aside our respective chances on summary judgment" before negotiating. If either of the parties' estimate of their chances is unrealistic, settlement is usually undermined.

As for the conflict of interest, the unstated assertion is that the EB members who have been personally sued will potentially do what's good for themselves over the interests of the Federation. Or perhaps better, the mere possibility of them doing so will taint the decision to settle and leave it open to attack. I'm aware of no law that prevents the EB members from voting on settlement where their interests are aligned with the corporation. I'll leave that to the USCF's lawyers. The lawyers initially concluded there was no conflict between the EB members and the Federation or else they wouldn't have taken on the representation of both. As for the idea that the board members may be overly interested in settlement because of their own involvement, first, I'd say there's no indication that any EB member's assets are at stake, and no reason to believe that they would not fulfill their fiduciary obligations to the Federation. Finally and again, this is an issue for the USCF's lawyers to guide the EB through and should they advise a contortion like asking the delegates to cast an emergency vote, then it would be worth considering. Sometimes, though, the cure is worse than the disease.

Finally, regarding the delegates' knowledge of the settlement agreement, I believe they likely should know the details in due course. They can hear about them at their next meeting, and they can be bound to any confidentiality provisions contained in the settlement. I disagree with Sam above regarding whether any future delegates or EB members can be bound to confidentiality. To the extent that any future delegate or EB member learns of the settlement's content, in fact, they will be bound by its confidentiality provision.

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