High-profile lawyers are challenging First Alliance Corp.'s record $60-million-plus settlement of "predatory" lending claims, saying the proposal unfairly limits their efforts to recover damages from Wall Street firms that funded the Irvine lender.
The objections, filed this week in federal court in Santa Ana, are being raised by attorneys including Richard Scruggs, who helped win billions of dollars from tobacco firms, and Milberg Weiss Bershad Hynes & Lerach, a firm known for its lawsuits accusing public companies and executives of misleading investors.
The lawyers filed a racketeering lawsuit in February accusing Lehman Bros. Holdings, Prudential Securities and First Union Bank of encouraging First Alliance's illegal practices.
The lawsuit was filed even as lawyers for First Alliance and its founder, Brian Chisick, were working out their landmark deal to settle previous claims filed against them.
It appears unlikely that the objections will derail the settlement. A preliminary hearing on the agreement is set for Monday before U.S. District Judge David O. Carter, who can't rewrite the settlement but could suggest the parties make changes.
Among other things, Scruggs and the other lawyers contend the proposed settlement--announced March 21--is vague and unfairly restricts them from gathering evidence from First Alliance customers that they could use in their suit against the Wall Street firms.
They also complain that part of the settlement hasn't been made public.
The attorneys could not be reached for comment Friday.
Numerous government and private lawsuits accused First Alliance and Chisick of cheating borrowers nationwide by failing to disclose onerous fees and interest rate adjustments.
The proposed settlement, estimated to provide $60 million to $70 million to 18,000 borrowers, would be the largest ever in a home loan case, the Federal Trade Commission said.
The settlement doesn't include the Wall Street firms, which loaned money to First Alliance and bundled its loans for sale as mortgage-backed securities.
David Zlotnick, an attorney in one of the class-action suits, said in a reply to the Scruggs-Milberg filing that the settlement easily meets a "fair and reasonable" test and doesn't unfairly restrict the suit against the Wall Street firms.