The Buzz

Why Bank of America, Cleaver reached car wash settlement

Updated: 2013-04-18T17:04:26Z


Lawyers will tell you their most important work often takes place outside the courtroom. Wednesday’s settlement of the Bank of America lawsuit against Rep. Emanuel Cleaver, his wife, and their company seems an almost perfect example of the claim.

The case was likely settled because all sides had much more to gain from an agreement than from a trial.

Let’s examine how.

Bank of America: Had the bank lost at trial, it would have obviously forfeited the $1.6 million it is owed from the Cleavers, and it’s possible the SBA loan guarantee might gone away, too. That’s a bad outcome for the bank.

It’s much more likely, of course, that the bank would have won the case. But winning would mean the Cleavers would have to pay the $1.6 million loan immediately, something they almost certainly would have been unable to do.

Either way, the bank risked some or all of its money if the case had gone to trial.

The best outcome for the bank would be to maintain the entire car wash debt on the books, with at least some promise to repay, with recourse to other remedies in the future.

That’s exactly what the settlement provided.

Cleavers: Had the Cleavers lost, it’s possible they would have had to declare bankruptcy to avoid the immediate $1.6 million judgment. Or, the court might have started to attach some of the Cleavers’ investments and assets to satisfy the judgment. That’s a bad outcome for them.

The SBA may have had to satisfy its 75 percent guarantee, of course. But it’s SBA practice to pursue borrowers for repayment, which means the Cleavers would have traded Bank of America’s phone calls for the SBA’s.

Either way, the family faced a nightmare scenario, had the court sought to collect the $1.6 million overnight.

Had the Cleavers won at trial, they would have eliminated the debt. But the bad publicity for a congressman avoiding a $1.6 million liability might have been too much for even Emanuel Cleaver to overcome.

Additionally, it’s almost certain Cleaver’s lawyer told him he would not win at trial.

So both sides had strong incentives to settle: the bank, which is still in line to get the money it is owed, and the Cleavers, who needed an orderly process to pay the obligation over time without major damage to his political prospects.

The story isn’t finished. But Wednesday’s agreement, at least for now, appears to make everyone in the case happier than they would have been otherwise.

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