Following two years of legal wrangling, roughly 1,400 former First Magnus Financial Corp. employees are on the cusp of receiving some kind of payment as part of a key settlement in the mortgage bank's bankruptcy case.
The $5.5 million settlement, which has been tentatively approved, would apply only to those former First Magnus employees who qualify under the federal Worker Adjustment and Retraining Notification Act, commonly known as WARN. To qualify, former employees must have worked in locations with at least 50 people.
More than 5,500 people across the country lost their jobs when Tucson-based First Magnus Financial Corp. abruptly shut down in August 2007. Most of those former employees are still awaiting their final paychecks.
While this settlement doesn't settle those wage claims, it does free up more funds to eventually cover wage claims while also putting an end to what could have been lengthy and costly litigation.
People are also reading…
Shortly after First Magnus' abrupt shutdown, a small group of former employees sued the mortgage lender, saying it violated the WARN Act by not providing advance notice about a mass layoff.
The suit initially sought at least $6.3 million as well as attorneys' fees, but it was dismissed in bankruptcy court in Tucson. It has since been under appeal in the 9th U.S. Circuit Court of Appeals, although it likely would have taken two years to be heard.
That long wait was one reason to settle, said René S. Roupinian, an attorney with New York-based Outten & Golden LLP, which brought the suit.
Payments for employees will vary widely depending on how much a person was earning at the time of closure, but Roupinian said the average payment will be $2,600, which will come over the course of several payments because of the settlement's structure.
If everything goes according to plan the first checks should be going out just after Christmas.
The settlement is fairly complex.
But in a nutshell, about $2.6 million will be paid from the trust of First Magnus Capital Inc., the parent of First Magnus Financial Corp. The remaining $2.9 million will be paid as funds are recovered through a billion-dollar lawsuit that was filed against former First Magnus executives in February.
"They really are only guaranteed $2.6 million," said Jamie Welton, an attorney with the Dallas-based law firm Lackey Hershman, LLP, which is handling the billion-dollar lawsuit.
Welton said the settlement is significant, though, because it doesn't take any money away from the First Magnus Financial Corp. liquidating trust, which is the source of funds that will be used to pay all former employees' wage claims.
It also will free up $1.9 million that First Magnus Financial Corp.'s liquidation trustee, Morris C. Aaron, had to reserve for WARN Act claims.
Welton said final approval of the deal is scheduled for Dec. 17.
The news of the settlement didn't do much for those former employees who will receive some compensation from the deal, though.
"It's so far gone it still doesn't even enter my mind anymore," said Frank Hastings, of Tucson. "I'm pretty much over it. I'm just not expecting it anymore. I guess I'll believe it when I see it."
Hastings said he worked at First Magnus for nearly seven years, handling a number of jobs there. At the time of the closure he was assistant manager of the pricing department. After the shutdown, Hastings, now 25, said he went back to school to finish his degree. Since then he has been freelancing landscape-design jobs.
Jon Bialis, 30, worked at First Magnus in Tucson for six months before it shut down. He was able to find another job, but said among former First Magnus employees the idea of getting any kind of back compensation has "become almost a joke."
"I will believe it when I not only see the check, but also cash the check," he said.