WorldCom Directors Settlement Falls Apart

February 3, 2005 ( - The $54 million settlement with 10 former WorldCom directors that included $18 million out of their own pockets collapsed Wednesday over a provision allowing remaining defendants to limit their potential liability.

According to a New York Law Journal report, the directors deal fell apart when US District Judge Denise Cote of the US District Court for the Southern District of New York rejected the provision allowing the reduction of any jury award against the remaining defendants.

In early January, the former directors agreed to pay $18 million and their insurers agreed to pay another $36 million. The settlement came as the parties were preparing for trial set to begin February 28.

Remaining in the case were underwriters of WorldCom bonds issued before the company failed, which were accused of failing to fulfill their duty to learn of and disclose the problems. WorldCom filed for bankruptcy in 2002 amid news that it had committed an $11 billion accounting fraud. It emerged last year under its former name, MCI, after shedding billions of dollars in debt.

The New York Law Journal report said the problem centered around how much the remaining defendants would be able to reduce a jury award. The disputed settlement provision said that jury award reduction would be $54 million or the total financial net worth of the directors involved in the settlement. The problem, according to the report: such a reduction against a potential multi-billion dollar jury award would be insignificant.

That led to objections by the remaining defendants to the provision on the grounds it violated federal law which set such jury award reductions in cases such as this as the percentage of liability the jury assigned to the defendants. For example, according to the Law Journal, the remaining defendants would pay only half of a jury award if jury members said they were 50% to blame and the settling directors were 50% to blame. That could potentially be a far greater jury award reduction than the $54 million.