Lawyers cite Knox News report in fighting settlement funds going to University of Tennessee

A law firm that prevailed in a class action lawsuit against an accounting company is fighting a prominent Tennessee attorney who worked on the case and is seeking to divert money from a Pennsylvania nonprofit consumer advocacy group to the University of Tennessee at Knoxville.

Attorney Gordon Ball, who has a long history of directing money awarded in class action lawsuits to Tennessee universities, asked a federal court in late June to send unclaimed dollars from a fraud lawsuit against KPMG, a national accounting firm, to UT's Neel Corporate Governance Center.

Ball is trying to send the money to UT through a legal procedure called cy pres, which allows plaintiffs’ attorneys to ask a judge to OK donations of unclaimed money from class action lawsuits to nonprofits and charitable causes.

Ball has repeatedly and successfully petitioned judges to award those leftover dollars to universities he is connected to, such as UT, Eastern Tennessee State University and the Memphis School of Law. Those schools have named facilities after him.

This time, the lawyers at Cohen, Milstein, Sellers and Toll, a national law firm, have pushed back, and have cited Knox News' extensive reporting about Ball's pattern of directing cy pres money to charities or organizations that are completely unrelated to those harmed in the suit.

“Just last month, detailed investigative news reports from the Knoxville News Sentinel reported on Gordon Ball’s repeated use of cy pres distributions in unrelated class actions ‘to make some $3 million in donations to universities and charities’ for the benefit of himself in Tennessee with absolutely ‘no connection to the class action lawsuits that secured the cash,’ including the University of Tennessee,” attorney Laura Posner wrote in a motion filed in federal court.

“These reports detail how, following the cy pres donations, the universities named rooms, spaces and buildings after Mr. Ball, and personally credited and honored Mr. Ball for the donations, rather than the cases from which they came,” she continued.

Attorneys for Cohen, Milstein, Sellers and Toll suggested the leftover money be given to the Institute for Law & Economic Policy, a public policy research and educational foundation that works to preserve, study and enhance investor and consumer access to the civil justice system.

In her filing with U.S. District Judge Thomas Varlan, Posner wrote she serves as a voluntary and unpaid officer for the organization. “Neither Ms. Posner nor Cohen Milstein gets any personal or financial benefit from their involvement with ILEP,” she wrote.

In July 2022, KPMG settled the fraud case for $35 million, with $11.6 million of the money being split between Ball and attorneys from Cohen, Milstein, Sellers and Toll. The two sides then fought bitterly over the allocation of that $11.6 million settlement, with Ball petitioning the court to split it down the middle. Knox News could not confirm how the final award was split and neither side would say.

Once the the amount of unclaimed money from the suit is settled – plaintiffs are still being identified – Varlan will decide who receives the cy pres awards.

What is cy pres and what’s the problem?

Ball's client, UT alum Lewis Cosby, asked the judge to send the money to his alma mater, saying “It would be my hope that these funds benefit the geographical area of many of the shareholders that were affected by this fraud.”

Class action rewards often include a pool of money that is not paid out to defendants because many plaintiffs in the suits never claim it. Cy pres provides a process to donate the leftover dollars to appropriate organizations that theoretically should be connected to the basis of the lawsuit. If there’s no obvious connection, a court often will award the money to a local charity or hospital, such as St. Jude’s Children’s Research Hospital.

Ball, however, has a history of successfully petitioning judges to award those leftover dollars to universities he is connected to. Those schools have named facilities after him, including UT’s Gordon Ball Family Athletics Board Room, the Gordon Ball Scenic Reading Room at Memphis School of Law and the Gordon Ball Court at ETSU.

In 2007, for instance, after Ball won a rubber compound price-fixing case, he petitioned the judge in that case to give millions to the Lady Vols basketball program, but the judge declined. Instead, the judge directed nearly $5 million in leftover dollars to children’s hospitals and other charities.

One Tennessee circuit court judge called the cy pres system "a racket."

Cy pres reformer sees problems with both suggestions

Adam Schulman is a senior attorney at the Hamilton Lincoln Law Institute, formerly the Center for Class Action Fairness, which advocates for appropriate distribution of settlements. In an email to Knox News, he said this latest case is emblematic of the issues with cy pres awards.

On one hand, he said, Ball and his client are "fighting to donate to a local alma mater." On the other hand, Cohen, Milstein, Sellers and Toll are pushing to donate to the Institute for Law & Economic Policy. “ILEP is run by a bunch of plaintiffs' lawyers who have a vested stake in one pro-attorney view of securities litigation," Schulman said. "So, in one sense a cy pres distribution to them would be an indirect increase to class counsel's fee.”

For those reasons, Schulman suggested the money go to an unconnected third party, someplace like the Securities and Exchange Commission’s Fair Funds or Stanford Law’s School’s Securities Class Action Clearinghouse, a neutral entity that conducts nationwide research.

Neither Ball nor Cosby replied when asked by Knox News whether they agreed with Schulman’s suggestions. Posner said neither organization would be appropriate. The SEC never forced KPMG to pay out money to investors in decisions against KPMG, she said, and the Stanford clearinghouse is not focused on investor protection or investor interests.

Cosby said the decision on where the money ends up is the judge’s to make. Once that decision is made, checks can be sent to class members.

How we got here

The class action lawsuit against the now defunct Miller Energy Resources was filed in March 2016 by victims – mostly stockholders – when the company collapsed. Audit failures by KPMG were discovered after the collapse, and the SEC found fraud had been committed by the company, including overvaluing Alaskan oil properties by hundreds of millions of dollars.

At one point, company shares sold for pennies apiece but the price skyrocketed as high as $9 a share on the strength of the overpriced audits and it was listed on the New York Stock Exchange, according to Knox News archives.

Over the years the defendants were all removed except for KPMG, which has since been docked $6.2 million in federal fines for rubber stamping the faulty evaluations.

In his letter to the court June 29, Ball's client Cosby alluded to the “animosity” between Ball and Cohen, Milstein, Sellers and Toll, which likely extends to their combined work in the Gatlinburg wildfire case that is on life support before the Sixth Circuit Court of Appeals because of improper filings (Cohen, Milstein, Sellers and Toll joined after the original filing).

The Gatlinburg case was originally overseen by Varlan before it was reassigned to Judge Ronnie Greer, who ruled last year it should be tossed. That decision has been appealed and will be decided by a panel of federal judges.

Correction: The original version of this story misstated Varlan's role with the Gatlinburg wildfire lawsuit.

Tyler Whetstone is a Knox News investigative reporter focused on accountability journalism. Email tyler.whetstone@knoxnews.com. Twitter @tyler_whetstone.

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This article originally appeared on Knoxville News Sentinel: Lawyers cite Knox News report in fighting funds going to University of Tennessee