Space Coast Ordered to Mediation in CDO Case
In a $100 million lawsuit from Space Coast Credit Union against several Wall Street banks and credit rating agencies, a federal judge has ordered the parties to get together at a nonbinding mediation session.
The $3 billion Space Coast and the five banks and two rating agencies must agree to a confidential mediation session within 14 days. If an agreement is not met the clerk of the court will appoint a mediator, according to U.S. Magistrate Judge Barry S. Seltzer in the U.S. District Court for the Southern District of Florida.
The case could be removed from the trial calendar and both parties may face sanctions if the mediation session is not held, according to the judge’s order.
Space Coast in Melbourne, Fla., recently filed suit against Merrill Lynch, Wachovia Capital, Barclays Capital, Lehman Brothers’ former CEO Richard Fuld, and credit rating agencies Standard & Poor’s and Moody’s alleging that the defendants caused more than $100 million in losses to Eastern Financial Florida Credit Union.
Space Coast acquired Eastern Financial in 2009, which sustained financial losses from 2008 to 2010. In large part, those losses resulted in the collapse of Eastern Financial and the loss of its independent strength thereby creating the need for a merger partner, Space Coast said.
Space Coast said it identified several ways that the defendants allegedly manipulated the credit ratings including making out-of-model or manual adjustments to the rating agencies’ credit rating models to obtain better ratings for the mortgage-related securities at issue in the case.
Meredith Gibson, senior vice president of marketing at Space Coast, told Credit Union Times this latest development is just the case taking its course. The credit union’s attorney did not have any additional comments at this time, she added.
What typically happens in mediation varies based on the details of the case, attorneys say. However, the discussions are almost always confidential and privileged unless there are certain exceptions such as when the mediation is required by law to be open to the public or if the mediation was intentionally used to plan or attempt to conceal a crime.
According to John Hachmeister, an attorney with Mediate.com, mediation is often used as a tool to settle a dispute and can potentially save in costs and fees if the case were to go to trial.
“Mediation is a good tool at least to determine where you are vis-à-vis the opposition at this point in the litigation,” Hachmeister wrote on the site. “You are able to show the strengths of your case and, based upon those strengths and the strengths of the other party's case, accurately assess the case with your client.”
In the Space Coast case, the judge said at least 14 days before the mediation date, the credit unions and the defendants, whose representatives must have full authority to enter into a compromise and settlement, must present their confidential briefs identifying the issues to be resolved.
Both parties are required to equally share the cost of mediation unless otherwise ordered by the court. Upon completion of the session, the mediator has seven days to submit a report.
Meanwhile, a separate order has set a pre-trial time line with pretrial motions for May 24, 2013. A date for a two-week trial to is also scheduled to start Sept. 9, 2013.