Can a winner of a group lawsuit agree to forgo a portion of their recovery in return for a personal payment?

Question

The story that I am imagining is as such;

Alex Jones was fined $1.5 billion. That is more money than he has, or will reasonably ever have. During Alex Jones's bankruptcy, The Onion bought Alex Jones's website. As per the article,

The Connecticut families agreed to forgo a portion of their recovery to increase the overall value of The Onion's bid, enabling its success.

This got me thinking, the families probably realize that they have a small chance of ever collecting all of their money. Let's say that one of the things up for the bankruptcy auction is Alex Jones's house, and let's say that it was worth $1 million. If I was a claimant, could I offer to buy the house in return for forgoing $2 million of my winning? The logic behind that being that is that if the house gets sold, I will receive a portion of the value ($1 million minus fees divided by the number of claimants). If I buy the house for a portion of my next to worthless "recovery", I now have the entire house to myself.

Of course, if that is possible, I would expect this to start a bidding war between all of the claimants.

Answer 1

Your $2m claim is not worth $2m

A legally enforceable debt is personal property that can be bought, sold, or transferred just like your second-hand car. However, just like your second-hand car, it is only worth what someone is willing to pay for it.

The debt has a face value of $2m but its realisable value is considerably less, perhaps zero. While you can offer that debt in return for something (a house for example), it’s up to the vendor of the house (the liquidator in this case) to decide what, if anything, your offer is worth and whether to accept it over say, a hard offer of cash or a lesser face value but possibly greater actual value.

In the circumstances you are suggesting, surrendering a claim to a particular sum of money won’t increase the value of the estate, but it will increase the potential dividend to the creditors. That’s of quantifiable value and can be directly compared with the increase in dividend that a cash offer would give.

Answer 2

In your comment, you ask:

What is the goal of the liquidator?

The goal is something along the lines of "maximize the creditors' value". Remember, the overwhelming majority of "creditors" in this case were the victims of defamation committed by Alex Jones and the money they were getting was the damages the court had awarded them – this wasn't about some unpaid phone bills, but about a court judgment. So, the "value" that is to be maximized is not necessarily just the money, but also other benefits the victims might get, such as preventing Alex Jones from hurting other people in the future.

In particular, there were two judgements against Alex Jones:

• Some victims sued him in Texas and won $50 million.
• Some victims sued him in Connecticut and won $1.4 billion.

This means, the Connecticut victims would have gotten roughly 97% of the proceeds, whereas the Texas victims would have gotten practically nothing, not even enough to cover their legal fees. As mentioned above, there were some other creditors as well, but none of them had claims even remotely approaching those of the Sandy Hook victims.

Since there were only two bidders, the liquidator decided to forego an open auction and negotiate with the two bidders directly. The two bidders were The Onion's parent company, and some kind of consortium (called FUAC) that nobody really fully knows who is behind it, but is generally assumed to be a front for some of Alex Jones' right-wing supporters.

Here's the interesting thing: The Onion's bid was actually lower. But, they had an additional agreement with the Connecticut victims: IF The Onion won the bid, the Connecticut victims the Texas victims as much from their own money as is needed to ensure that the Texas victims get $100000 more than they would have gotten from FUAC's bid. Not only that, but they upgraded the Texas victims' share to 25%. In return, the Connecticut victims would get a share of future ad revenue of the site, until they have the same amount of money they would have gotten if they had not given it to the Texas victims. But crucially, they would only do this if The Onion won the bid.

So, here's the situation the liquidator faced:

• If he takes the other guys' bid, the Connecticut victims get more money, but the Texas victims get practically nothing – even though the bid is higher, they can't even pay their legal bills and will actually come out of this with a loss.
• If he takes The Onion's bid, the Texas victims get a lot more money. The Connecticut victims get less money, but they gave that money away of their own free will.
• In both cases, the other creditors get practically nothing, because their claims are just too small compared to the Sandy Hook victims' claims.

So, from a perspective of "maximizing value for the victims", The Onion's bid is superior:

• The Texas victims get a sizable chunk of money, whereas with the other bid, they would have actually lost money.
• The Connecticut victims get less money than they would have gotten otherwise, but they didn't want that money in the first place – they chose to give money away to the Texas victims. Also, they'll get parts of it back in the future from potential ad revenue.
• Both sets of victims get the satisfaction of making sure Alex Jones cannot continue spreading lies about them on his website, whereas there is a real concern that the other bidder would have allowed him to continue operating his website.
• The other creditors would have only gotten pennies either way, so they're not that much worse off.

So, really, it all boils down to the fact that different people value different things differently, and "maximum value" does not necessarily mean "maximum amount of money". It can also mean "maximum justice", and that is clearly what the victims here wanted.

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Full disclosure: my only source for this is a YouTube video by LegalEagle:

https://youtu.be/GmDNz7irGgw

Which I have interpreted and paraphrased based on my own very limited knowledge of US Law.

While you should not trust anything you see on the Internet (heck, that's what started this whole sad story to begin with), I did spot-check some of the legal documents presented in the video, and they seem to check out. So, even though the hosts of the video are obviously partisan, and are obviously making money off this video, I have no reason to distrust the general gist of the information presented in the video.

Make of that what you will.