Settlement Hearing on Malpractice Lawsuit Against SDCERS Fiduciary Counsel Discussed on March 24, Continued to May.

Submitted by Advocacy Committee Chairperson Virginia Silverman with Patricia Karnes contributing

The proposed Settlement Hearing on the malpractice lawsuit(s) against defendants Robert Blum and Constance Hiatt was held in Superior Court on March 24th, with Judge William C. Pate presiding. However, after more than an hour of comments by the judge and attorneys, the hearing was continued to May 31, 2005.

Background

The proposed Settlement Agreement consolidated two separate lawsuits. The first was a class action lawsuit filed by retiree David Wood (via Attorney Michael Conger). A second lawsuit was later filed by the SDCERS Board of Administration (via Attorney Cornelius Bahan).

Both defendants, Blum and Hiatt, are attorneys with the firm of Hanson Bridgett Marcus Vlahos & Rudy LLP. In 2000, Blum was hired by the SDCERS board as fiduciary counsel. The lawsuit claims that Blum gave the SDCERS Board bad advice on the City's underfunding proposal (MPII) [Manager's Proposal 2] in 2002. Although Mr. Blum had earlier in 2002 recommended against MPII, he later reversed his opinion and recommended that the Board approve MPII. The SDCERS Board then approved MPII, with two votes dissenting (Shipione, Rhodes).

The Hearing

Judge Pate began the hearing with remarks on two areas of concern B >bumps in the road= - he had about the proposed settlement agreement:

Attorney Fees for Plaintiffs
Judge Pate said that it was inappropriate to submit predetermined attorney fees as part of the Settlement Agreement. (The amount requested in the proposed Agreement is $950,000 for Mr.Conger, Counsel for the Class; and $2,750,000 for Mr. Bahan, Counsel for SDCERS.)
He said that it created a zero sum game, since the amount requested for attorney fees directly reduced the amount for pension fund. The total settlement amount is $15.5 million in malpractice insurance carried by the defendant.
The judge also said that the amount asked for attorney fees was 'off the charts,' and that there was no detailed information on hours billed from the SDCERS attorney. He will determine attorney fees after reviewing billing information from the attorneys.

Approval by New SDCERS Board
Judge Pate said that he was uncomfortable with the status of the SDCERS Board which approved the Settlement Agreement, because there are 'indications that that Board may not have complied with the law in all of its activities.'
He said that with all of the problems of the old Board, there could be a challenge to the Settlement Agreement. Since there is a new Board coming on in April, the Judge said it was in the best interests to let the new Board approve the settlement. After discussions with the attorneys, a new hearing date for May 31, 2005. (This will give the new Board two meetings to discuss and vote on the Settlement Agreement.)

Before court adjourned, brief comments were made by the SDCERS Board attorney, the MEA attorney, and a representative from the Airport Authority.