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When Charles Schwab agreed to settle claims over its YieldPlus investment accounts for a combined $235 million earlier this year, it stood out as a bright spot for plaintiffs in mortgage-backed securities class actions. Schwab couldn’t catch a break: San Francisco federal district court judge William Alsup shot down the company’s motion for summary judgment in April, and the Securities and Exchange Commission even weighed in for the plaintiffs. Alsup granted preliminary approval to the two settlements that resolved the plaintiffs’ claims in May, at the same time approving about $20 million in class counsel fees. We hope the plaintiffs and their lawyers at Hagens Berman Sobol Shapiro haven’t started spending their money yet. On Monday, Schwab brought in new lead counsel from Quinn Emanuel Urquhart & Sullivan (which previously represented Schwab in a related Securities and Exchange Commission investigation), and they promptly tore into the plaintiffs’ lawyers for allegedly reneging on their side of the deal. On Monday, Quinn Emanuel partners Richard Schirtzer and Faith Gay filed a motion to withdraw from the parties’ joint request for final approval of the settlements, asserting that Hagens Berman triggered a termination provision in the proposed deal by proceeding with claims against Schwab under California law by non-California residents. (Here’s the letter Quinn sent Hagens Berman about the termination.) “Essentially it’s a simple dispute,” Gay of Quinn Emanuel told us. “They believe there’s a carve-out to the settlement agreement that allows them to bring a new case on the same facts, and we think there is none….We believe that the settlement clearly requires release of all claims. Plaintiffs, by advocating for a substantial carve-out in order to pursue a new suit based on the same set of core factual allegations, have breached their duty of good faith to do their best to have the current proposed judgment entered as written.” Plaintiffs in the class action alleged that they lost about $800 million in YieldPlus investments after Schwab changed the fund’s policy in 2006, without shareholder approval, to invest in uninsured mortgage-backed securities beyond a previously set 25 percent limit. Three classes were certified: two nationwide classes and one California class. (The proposed settlements included $200 million for the nationwide classes and $35 million for the California class.) The settlements were due to be confirmed at a final fairness hearing scheduled for Dec. 15. Judge Alsup responded to Quinn Emanuel’s withdrawal motion in a one-page order Monday. He ordered Hagens Berman to respond by Nov. 15, with Schwab’s reply due two days later and a hearing to be held on Nov. 18. The judge specified that “all steps that would normally be taken to consummate the settlement must continue to be observed.” If Judge Alsup’s order seems a bit terse, it may because he appears to have already ruled on the very issue Quinn Emanuel cites as grounds for terminating the settlement. In an Oct. 14 opinion, he specifically rejected Schwab’s objections to the plaintiffs’ announced plans to appeal the scope of certification in order to allow the nationwide class to assert a California state law claim. “Federal securities class members resident outside of California are free to sue under [California] Section 17200,” Judge Alsup concluded. Gay told us Judge Alsup’s Oct. 14 ruling gave Schwab grounds to terminate the settlement because it alters the terms of the proposed judgment. “The termination provisions allow for termination by a party if a court changes what the agreed judgment would be,” she said. A spokesman for Hagens Berman told us that lead plaintiffs lawyer Steve Berman was tied up at a hearing in the Toyota MDL. In a statement, Berman called Schwab’s logic for moving to terminate the settlement “curious at best” and said the settlement documents clearly stated that claims outside of the class action were not released. “We do not intend to give back a dime of the settlement money Schwab has deposited on behalf of the class members, and we intend to ask the court to hold Schwab in contempt for their effort to rewrite a deal they negotiated and signed,” Berman said in the statement. Absent from the Schwab filings on Monday was any sign of the company’s lead counsel in the underlying class action: Morrison & Foerster. Faith Gay of Quinn Emanuel told us Quinn has replaced MoFo as lead counsel, but MoFo will remain in the case. (We left a message with MoFo’s Darryl Rains but he didn’t respond.)

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