Amicus Curiae Brief — Speedway LLC, et al., Petitioners v. Zachary Wilson, et al.

Supreme Court briefFeb 23, 2018

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No. 17-1030

In the

Supreme Court of the United States

SPEEDWAY, LLC, et al.,

Petitioners,

ZACHARY WILSON, et al.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

MOTION FOR LEAVE TO FILE AMICUS CURIAE

BRIEF AND BRIEF OF AMICUS CURIAE CENTER

FOR CONSTITUTIONAL JURISPRUDENCE

IN SUPPORT OF PETITIONERS

JOHN C. EASTMAN

Counsel of Record

ANTHONY T. CASO

Center for Constitutional

Jurisprudence

c/o Dale E. Fowler School of Law

Chapman University

One University Drive

Orange, CA 92866

(877) 855-3330

jeastman@chapman.edu

Counsel for Amicus Curiae for

Center for Constitutional Jurisprudence

MOTION FOR LEAVE TO FILE

AMICUS CURIAE BRIEF

The Center for Constitutional Jurisprudence

hereby respectfully moves for leave to file the attached

amicus curiae brief in this case. Petitioners and all but

one group of the respondents have given their consent

to the filing of amicus briefs globally or to the filing of

this amicus brief in particular, and that one group—

Motiva Enterprises, LLC and Equilon Enterprises,

LLC dba Shell Oil Products Company, LLC—indicated that they “neither consent or oppose amici submissions.”

The Center for Constitutional Jurisprudence is the

public interest law arm of the Claremont Institute,

whose stated mission is to restore the principles of the

American founding to their rightful and preeminent

authority in our national life, including the fundamental First Amendment and separation of powers

principles implicated by this case. The Center has previously appeared before this Court as party counsel or

as amicus curiae in several cases addressing compelled speech issues similar to those at issue here, including Frank v. Gaos, No. 17-961 (cert. petition filed

Jan. 8, 2018, pending); National Institute of Family

and Life Advocates, et al. v. Becerra, No. 16-1140 (cert.

granted, Nov. 13, 1017); Janus v. Am. Fed. of State,

Cnty, and Mun. Emp., No. 16-1466 (cert. granted

Sept. 28, 2017); Friedrichs v. California Teachers Association, 136 S. Ct. 1038 (2016); Harris v. Quinn, 134

S. Ct. 2618 (2014); and Knox v. Service Employees International Union Local 1000, 567 U.S. 298 (2012). It

is also previously appeared before this Court as amicus curiae in several cases addressing core separation

of powers issues, including United States v. Texas, 136

S.Ct. 2271 (2016); Zubik v. Burwell, 136 S.Ct. 1557

(2016); Perez v. Mortgage Bankers Ass’n, 135 S.Ct.

1199 (2015); and National Labor Relations Board v.

Noel Canning, 134 S.Ct. 2550 (2014).

The Center believes that its expertise on constitutional issues involving the First Amendment and the

separation of powers will assist the Court in its determination of the issue raised in the petition, particularly because this Court has yet to determine the constitutionality of cy pres class-action settlements that

deny compensation to class members, while benefitting non-parties.

QUESTIONS PRESENTED

1. Whether the Rules Enabling Act limits an Article

III court’s authority to approve and enforce a class

settlement under Fed. R. Civ. P. 23(e) if its terms

would “abridge, enlarge, or modify any substantive

right,” as held by the Fifth and Seventh Circuits,

or whether class settlements are instead private

agreements outside the scope of the Rules Enabling Act, as held by the Third, Sixth, and Eighth

Circuits, and the Tenth Circuit below?

2. Whether Article III, the Rules Enabling Act,

and/or Fed. R. Civ. P. 23(e) permit a federal court

to approve a class settlement where the settlement

creates a third party (cy pres) fund to be distributed exclusively to state government regulators,

not to any class members, and even then only if the

regulators change the law prospectively?

3. Whether the state action holding in Shelley v. Kraemer, 334 U.S. 1 (1948), is limited to the racial discrimination context, or instead applies generally to

court action, including judicial approval and enforcement of class settlements violating the First

Amendment?

4. Whether anti-competitive injury and/or speech injury constitute injury-in-fact to confer standing on

objectors to class settlements when the terms seek

to change the regulations governing the objectors’

business?

TABLE OF CONTENTS

MOTION FOR LEAVE TO FILE................................1

QUESTIONS PRESENTED ....................................... i

TABLE OF AUTHORITIES.......................................iv

IDENTITY & INTEREST OF AMICUS CURIAE ....1

INTRODUCTION ........................................................2

SUMMARY OF ARGUMENT .....................................6

REASONS FOR GRANTING THE WRIT ..................8

I. By Diverting Funds from Allegedly Injured Class

Members to Non-Parties Who Suffered No

Injuries, the Settlements Approved by the Courts

Below Are Hard to Square with Rule 23(e) and

Raise Serious Article III “Case or Controversy”

Concerns. ................................................................ 8

A. The lower court’s use of Rule 23(e) to

approve the “fund” settlements quite likely

abridges substantive rights of class

members in violation of the Rules

Enabling Act. ................................................... 8

B. There are serious Article III concerns

when settlement funds are given to third

parties who had no injury, and were not

even parties to the case. ................................ 13

II. Diverting Funds From Allegedly Injured Class

Members to Government Regulators Who Adopt a

Regulatory Policy Favored by Class Counsel,

Amounts to Compelled Political Lobbying that

Raises Serious First Amendment Concerns. ...... 15

iii

A. The Fund Settlements implicate First

Amendment compelled-speech concerns. ..... 15

B. Shelley is not limited to the race

discrimination context and should include

discrimination under the First

Amendment. .................................................. 18

III. Allowing the District Court to Direct Class

Settlement Funds to Aid Lobbying Efforts Also

Violates the Separation of Powers Doctrine. ...... 20

A. The court-approved “fund” settlements

incentivize legislative action that is not

appropriate for the judicial branch............... 20

B. The lower courts’ ratification of quid pro

quo arrangements “impermissibly

threatens the institutional integrity of the

Judicial Branch.” ........................................... 22

CONCLUSION .......................................................... 23

TABLE OF AUTHORITIES

Cases

Abood v Detroit Board of Education,

431 U.S.209 (1977)................................................. 15

Allen v. Wright,

468 U.S. 737 (1984)................................................ 11

Amchem Products, Inc., v. Windsor,

521 U.S. 591 (1997).................................................. 7

Baker v. Carr,

369 U.S. 186 (1962)................................................ 12

Chicago Teachers Union v. Hudson,

475 U.S. 292 (1986)................................................ 15

Commodity Futures Trading Comm'n v. Schor,

478 U.S. 833 (1986)................................................ 17

Everson v. Board of Education,

330 U.S. 1 (1947).................................................... 15

Frank v. Gaos,

No. 17-961 .......................................................i, 1, 14

Friedrichs v. California Teachers Association,

136 S. Ct. 1038 (2016)...........................................i, 1

Harris v. Quinn,

134 S. Ct. 2618 (2014)...........................................i, 2

In re Baby Prods. Antitrust Litig.,

708 F.3d 163 (3rd Cir. 2013); .................................. 3

In re BankAmerica Corp. Securities Litig.,

775 F.3d 1060 (8th Cir. 2015) ................................. 4

In re Deepwater Horizon,

739 F.3d 790 (5th Cir. 2016) ................................. 10

In re Lupron Marketing and Sales Practices Litig.,

295 F.Supp.2d 148 (D. Mass. 2003) ........................ 2

In re Pharm. Indus. Average Wholesale Price Litig.,

230 F.R.D. 61 (D. Mass. 2005)................................. 3

INS v. Chadha,

462 U.S. 919 (1983)................................................ 19

Janus v. Am. Fed. of State, Cnty, and Mun. Emp.,

No. 16-1466 (cert. granted Sept. 28, 2017) ....i, 1, 14

Keller v. State Bar,

496 U.S. 1 (1990).................................................... 15

Klier v. Elf Atochem North America, Inc.,

658 F.3d 468 (5th Cir. 2011) ............................. 3, 13

Knox v. Service Emp. Internat'l Union Local 1000,

567 U.S. 298 (2012)...............................................i, 2

Lane v. Facebook, Inc.,

696 F.3d 811 (9th Cir.2012) .................................... 2

Marek v. Lane,

134 S. Ct. 8 (2013).................................................... 8

Miller v. Steinbach,

268 F.Supp. 255 (S.D.N.Y 1974) ............................ 2

Mistretta v. United States,

488 U.S. 361 (1989)................................................ 17

Morrison v. Olson,

487 U.S. 654 (1988)................................................ 17

National Inst. of Family & Life Adv., et al. v. Becerra,

No. 16-1140 (cert. granted, Nov. 13, 1017) ..........i, 1

National Labor Relations Board v. Noel Canning,

134 S.Ct. 2550 (2014).......................................... ii, 2

Pearson v. NBTY, Inc.,

F.3d 778 (7th Cir. 2014) .......................................... 4

Perez v. Mortgage Bankers Ass’n,

135 S.Ct. 1199 (2015).......................................... ii, 2

Shady Grove Orth. Assocs., P.A. v. Allstate Ins. Co.,

559 U.S. 393, (2010)................................................. 7

Shelley v. Kraemer,

334 U.S. 1 (1948).............................................. iii, 16

Sierra Club v. Morton,

405 U.S. 727 (1972)................................................ 12

Sullivan v. DB Invs., Inc.,

667 F.3d 273, (3rd Cir. 2011) ................................ 10

Torrisi v. Tucson Elec. Power Co.,

8 F.3d 1370, (9th Circ. 1993) ................................... 9

United States ex rel. Houck v. Folding Carton

Admin. Comm.,

881 F.2d 494 (7th Cir. 1989) ................................... 3

vii

United States v. Texas,

136 S.Ct. 2271 (2016)............................................i, 2

Valley Forge Christian College v. Americans United

for Separation of Church and State, Inc.,

454 U.S. 464 (1982)................................................ 12

Wal-Mart Stores, Inc. v. Visa U.S.A., Inc.,

396, F.3d 96, (2nd Cir. 2005) ................................... 9

Warth v. Seldin,

422 U.S. 490 (1975)............................................... 12

Whitlock v. FSL Mgmt. LLC,

843 F.3d 1084, (6th Cir. 2016)............................... 10

Zubik v. Burwell,

136 S.Ct. 1557 (2016).......................................... ii, 2

Statutes and Constitutional Provisions

Rules Enabling Act,

28 U.S.C. § 2072(b) ............................ iii, 3, 7, 10, 11

U.S. Const. Art. III ............................................ passim

U.S. Const., Amend. I ........................................ passim

Other Authorities

Baker, John S., Jr., PhD., The BP Gulf Oil Spill

Class Settlement: Distributive “Justice”,

19 Tex. Rev. L.& Pol. 287, (2015) ............................ 7

viii

Blackstone, William, 1 COMMENTARIES ON THE LAWS

OF ENGLAND (William S. Hein & Co. ed., 1992) ... 18

Boies, Wilber H., and Keither, Latonia Haney, Class

Action Settlement Residue and Cy Pres Awards:

Emerging Problems and Practical Solutions, 21

Va. J. Soc. Pol’y & L. 267 (2014) ............................. 2

Federalist No. 9 (Hamilton), THE FEDERALIST PAPERS

(Charles R. Kesler and Clinton Rossiter, eds.,

2003) ....................................................................... 18

Federalist No. 47 (Madison)...................................... 18

Federalist No. 51 (Madison)...................................... 18

Federalist No. 78 (Hamilton) .................................... 19

Jefferson, Thomas, A Bill for Establishing Religious

Freedom (1779) ...................................................... 15

Jefferson, Thomas, Letter to John Adams (Oct. 28,

1787), reprinted in THE ADAMS-JEFFERSON

LETTERS 199 (Lester J. Cappon ed., 1959)............ 19

Locke, John, THE SECOND TREATISE ON GOVERNMENT

(Thomas P. Peardon, ed.,1997).............................. 18

Montesquieu, THE SPIRIT OF THE LAWS 152 (Franz

Neumann ed. & Thomas Nugent trans., 1949) .... 18

Redish, Martin H. et al., Cy Pres & the

Pathologies of the Modern Class Action:

A Normative and Empirical Analysis,

62 Fla. L.Rev. 617 (2010)....................................... 13

Redish, Martin H., WHOLESALE JUSTICE:

CONSTITUTIONAL DEMOCRACY AND THE PROBLEM OF

THE CLASS ACTION LAWSUIT (2009) ....................... 11

Rules

28 U.S.C. §2072 ......................................................... 10

Fed. R. Civ. P. 23(e) ........................................... iii, 6, 7

Rule 23(b)(1) .............................................................. 14

Rule 23(b)(2) .............................................................. 14

Rule 23(e)(2) ...................................................... passim

S. Ct. Rule 10(a) ........................................................ 20

S. Ct. Rule 37.2 ............................................................ 1

S. Ct. Rule 37.6 ............................................................ 1

IDENTITY AND INTEREST

OF AMICUS CURIAE1

The Center for Constitutional Jurisprudence is the

public interest law arm of the Claremont Institute,

whose stated mission is to restore the principles of the

American founding to their rightful and preeminent

authority in our national life, including the fundamental First Amendment and separation of powers

principles implicated by this case. The Center has previously appeared before this Court as party counsel or

as amicus curiae in several cases addressing compelled speech issues similar to those at issue here, including Frank v. Gaos, No. 17-961 (cert. petition filed

Jan. 8, 2018, pending); National Institute of Family

1 Pursuant to Rule 37.2, Amicus Curiae gave notice to petitioners and respondents more than 10 days prior to the filing of

this brief. Counsel for petitioners filed a blanket consent to amicus participation. With one exception, counsel for respondents

have either filed blanket consents or consented specifically to

this amicus curiae brief. Counsel for one group of respondents—

Motiva Enterprises, LLC and Equilon Enterprises, LLC dba

Shell Oil Products Company, LLC—indicated that their clients

“neither consent or oppose amici submissions”; a motion for leave

to file therefore accompanies this brief.

Pursuant to Rule 37.6, Amicus Curiae affirms that no counsel for any party authored this brief in whole or in part, and no

counsel or party made a monetary contribution intended to fund

the preparation or submission of this brief. No person other than

Amicus Curiae, its members, or its counsel made a monetary contribution to its preparation or submission.

and Life Advocates, et al. v. Becerra, No. 16-1140 (cert.

granted, Nov. 13, 1017); Janus v. Am. Fed. of State,

Cnty, and Mun. Emp., No. 16-1466 (cert. granted

Sept. 28, 2017); Friedrichs v. California Teachers Association, 136 S. Ct. 1038 (2016); Harris v. Quinn, 134

S. Ct. 2618 (2014); and Knox v. Service Employees International Union Local 1000, 567 U.S. 298 (2012). It

is also previously appeared before this Court as amicus curiae in several cases addressing core separation

of powers issues, including United States v. Texas, 136

S.Ct. 2271 (2016); Zubik v. Burwell, 136 S.Ct. 1557

(2016); Perez v. Mortgage Bankers Ass’n, 135 S.Ct.

1199 (2015); and National Labor Relations Board v.

Noel Canning, 134 S.Ct. 2550 (2014).

INTRODUCTION

The cy pres doctrine originated in estate law and

trusts, but in 1974, the U.S. District Court for the

Southern District of New York applied the cy pres doctrine in a class action settlement setting. Wilber H.

Boies and Latonia Haney Keither, Class Action Settlement Residue and Cy Pres Awards: Emerging Problems and Practical Solutions, 21 Va. J. Soc. Pol’y & L.

267, 270 (2014). In Miller v. Steinbach, the district

court noted that, in implementing a settlement agreement between the parties, it “appli[ed] a variant of the

cy pres doctrine at common law.” Miller v. Steinbach,

268 F.Supp. 255 at 3-4 (S.D.N.Y 1974). Since then, cy

pres awards have been used as a form of remedy in

class actions. See Lane v. Facebook, Inc., 696 F.3d 811

(9th Cir. 2012); In re Lupron Marketing and Sales

Practices Litig., 295 F.Supp.2d 148 (D. Mass. 2003).

There are three categories of class action settlements in which cy pres awards might be applied. First

is the situation, at issue in Miller, in which all of the

plaintiffs who have submitted claims have been fully

compensated for their injuries, but excess funds remain because the size of the settlement fund (or, more

precisely, the number of people who would file claims

against the fund) was overestimated. Several lower

courts have held that a federal district court “does not

abuse its discretion by approving a class action settlement agreement that includes a cy pres component directing the distribution of excess settlement funds to a

third party to be used for a purpose related to the class

injury.” In re Baby Prods. Antitrust Litig., 708 F.3d

163, 172 (3rd Cir. 2013) (emphasis added); see also In

re Pharm. Indus. Average Wholesale Price Litig., 230

F.R.D. 61 (D. Mass. 2005); United States ex rel. Houck

v. Folding Carton Admin. Comm., 881 F.2d 494, 502

(7th Cir. 1989) (recognizing that the court has broad

discretion in identifying appropriate uses of cy pres

distribution of residual settlement funds); but see

Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468, 482

(5th Cir. 2011) (Jones, J., concurring) (noting that

whether such awards would “violate the Constitution

or Rules Enabling Act,” 28 U.S.C. § 2072(b), had not

been fully litigated in any court). Faced with excess

funds, the courts in this situation have utilized the cy

pres award as an alternative to providing a windfall

to the already-compensated class plaintiffs or a refund

to the tortfeasor defendant that could undermine the

deterrent effect of the settlement (assuming that is

even an appropriate purpose in ordinary tort litigation).

The second situation arises when the settlement

did not fully compensate class plaintiffs for their injuries, and because of a lower-than-expected rate of

claims against the fund, there is an excess. As in category one, refunding the excess to the tortfeasing defendant could undermine the deterrent effect of the

settlement. But the question remains: Should the excess funds at least be distributed first to the class

plaintiffs who had filed claims up to the point where

they are fully compensated, with any remaining excess distributed via a cy pres award, or should all of

the excess funds be distributed via a cy pres award?

Problems of proof (i.e., is “full compensation” what is

alleged in the complaint, or something else?) and benefit of the bargain concerns (i.e., the claim-submitting

class plaintiffs already got what they agreed to by way

of the settlement) regarding what constitutes full

compensation could arguably tilt the balance toward

the latter, but either way, the cy pres award is only

made once class plaintiffs have received some measure of compensation for their injuries. See Pearson v.

NBTY, Inc., 772 F.3d 778, 781 (7th Cir. 2014); In re

BankAmerica Corp. Securities Litig., 775 F.3d 1060,

1064 (8th Cir. 2015).

The third situation is where the cy pres award—or,

as here, something quite like it—is made in lieu of

compensation to the class plaintiffs. This third category fails to provide plaintiffs with any monetary relief, much less adequate relief, and instead rewards

nonparties who admittedly suffered no harm from defendant’s conduct, raising serious constitutional concerns. The “fund” settlements2 at issue here totaled

about $24 million, but of that, only a few thousand

dollars was provided to the named plaintiffs as “incentive awards.” Pet.App. 96a n.26. Over $7 million was

awarded to class counsel,3 and the remainder—more

than $16 million—was designated for a fund that,

similar to a cy pres award, is to be provided to entities

that are not parties to the litigation. Pet.App.29a.

Roughly two-thirds of that fund (Pet.App.96a), or

about $10 million, is made available to retailers for

costs associated with converting their own gasoline

2 This brief focusses on the fund settlements, not the “ATC Con-

version” settlements by defendants Costco, Valero, Casey’s,

Dansk, and Sam’s—retail sellers of gasoline that agreed to implement ATC methodology themselves without contributing to a

settlement fund, but amicus agrees that those settlements are

also highly problematic, for the reasons set out in the petition,

and warrant this Court’s review.

3 Class counsel also received an additional $11.758 million in at-

torneys fees from the “ATC conversion” settlement defendants,

bringing their total payout to nearly $19 million for settlements

that provided zero in compensatory relief to class member.

Pet.App. 64a.

pumps to automatic temperature compensation

(“ATC”) systems (assuming the regulators change the

law to permit ATC), while roughly one-third (Pet.App.

97a), about $6 million, is made available to state government regulatory entities that “provide a written

statement that (1) explains that the state has adopted

ATC at retail and (2) describes how the state would

use a portion of the settlement fund to assist in that

implementation.” Pet.App. 97a n.28. No compensation whatsoever—not damages, or nominal damages,

or even coupons—was provided to any of the more

than 100 million unnamed members of the class. See

Pet.App. 29a (“Neither the conversion settlements nor

the fund settlements provide any money to class members”); Pet.App. 109a (recognizing class size of over

100 million). Even more egregiously, as the courts below recognized, the transition to ATC incentivized by

the settlements could well harm class members because of “the possibility that retailers might pass the

additional expenses associated with conversion [to

ATC] along to their customers.” Pet.App. 60a.

SUMMARY OF ARGUMENT

The premise of the underlying complaints in this

litigation is that class members “allegedly suffered injury on account of the sale of motor fuel for specified

prices per gallon without disclosing or adjusting for

temperature expansion.” Pet.App. 110a. But far from

compensating class members for those alleged inju-

ries, the settlements concocted by class counsel mandate or encourage implementation of ATC methodology that is quite likely going to increase the cost of

gasoline, to the detriment of class members. Such a

settlement violates Rule 23(e)’s requirement that a

court can only approve class settlements that are

“fair, reasonable, and adequate.” Fed.R.Civ.P. 23(e).

Worse, by providing significant benefits to non-parties

who suffered no injury—the retailers entitled to payouts from the settlement fund to facilitate their conversion to ATC—it raises serious Article III case or

controversy concerns that warrant this Court’s review.

Moreover, by diverting funds to government regulators that should have been used to compensate to

injured class members—that is, if the allegations in

the complaints proved to be true—on the condition

that the regulators adopt changes in the law favored

by class counsel, unnamed class members are effectively forced to participate in overtly political efforts

in violation of their First Amendment rights.

Finally, the ratification of a settlement that incentivizes government regulators to change the law

places the court itself in the position of encouraging or

at least facilitating a political lobbying effort aimed at

altering existing (and perfectly constitutional) law, in

contravention of basic separation of powers principles.

Each of these issues is significant enough to warrant this Court’s review. Combined, the case for granting the petition for writ of certiorari is compelling.

REASONS FOR GRANTING THE WRIT

By Diverting Funds from Allegedly Injured

Class Members to Non-Parties Who Suffered No Injuries, the Settlements Approved by the Courts Below Are Hard to

Square with Rule 23(e) and Raise Serious

Article III “Case or Controversy” Concerns.

A. The lower court’s use of Rule 23(e) to approve the “fund” settlements quite likely

abridges substantive rights of class members in violation of the Rules Enabling

Act.

This Court has held that “Rule 23’s requirements

must be interpreted in keeping with Article III constraints, and with the Rules Enabling Act’s instruction that procedural rules not abridge, enlarge, or

modify any substantive right.” Amchem Products,

Inc., v. Windsor, 521 U.S. 591, 592 (1997) see also

Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins.

Co., 559 U.S. 393, 406-07 (2010) (holding that, “In the

Rules Enabling Act, Congress Authorized this Court

to promulgate rules of procedures subject to its review, but with the limitation that those rules ‘shall

not abridge, enlarge or modify any substantive

right’”). Rule 23, therefore, may not “alter substantive

rights.” John S. Baker Jr. PhD., The BP Gulf Oil Spill

Class Settlement: Distributive “Justice”, 19 Tex. Rev.

L.& Pol. 287, 299 (2015).

The lower courts’ approval of the settlements at issue here is contrary to what this Court has held is required by Rule 23. The settlements diverted funds

from class members to nonparties, and thereby

“abridged” the class members’ rights to a remedy in

the form of settlement funds that properly should

have been applied to their compensable injuries.

Moreover, the funds diverted from class members are

made available to nonparties for the conversion to

ATC systems that, as the lower courts themselves recognized, could well harm class members because of

“the possibility that retailers might pass the additional expenses associated with conversion [to ATC]

along to their customers.” Pet.App. 60a. Although the

lower courts discounted such increased costs as a

mere “possibility,” basic laws of economics make that

“possibility” almost certain to become reality. The

only countervailing “benefit” provided to class members? They will at least have the solace of “knowing

that they can get accuracy and consistency of fuel

measurement for their fuel dollar, regardless of fuel

temperature at the time of pumping.” Pet.App. 61a.

That is small comfort for class members in a massive

class action lawsuit premised on claims of injuries allegedly caused by retailers who sold gasoline by volume.

This Court already has on its radar the “fundamental concerns surrounding the use of [cy pres] remedies in class action litigation.” Marek v. Lane, 134 S.

Ct. 8, 9 (2013) (Roberts, C.J., statement respecting denial of cert.). Addressing whether a cy pres settlement

that has the very real prospect of actually harming rather than benefiting class members can ever meet the

requirements of Rule 23(e)(2) would be a good place to

begin consideration of those “fundamental concerns.”

There is, moreover, a split among the lower courts

on this issue. Various courts have established factors

to consider Rule 23(e)(2). See Wal-Mart Stores, Inc. v.

Visa U.S.A., Inc., 396, F.3d 96, 117 (2nd Cir. 2005) (using factors such as “(1) the complexity, expense and

likely duration of the litigation; (2) the reaction of the

class to the settlement; (3) the stage of proceedings

and the amount of discovery completed; (4) the risks

of establishing liability; (5) the risks of establishing

damages; (6) the risks of maintaining the class action

through the trial; (7) the ability of the defendants to

withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; (9) the range of reasonableness of the

settlement fund to a possible recovery in light of all

the attendant risks of litigation.”) see also Torrisi v.

Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Circ.

1993) (holding that the court will look to the following

factors: “the strength of the plaintiff’s case; the risk,

expense, complexity, and likely duration of further litigation; the risk of maintaining class action status

throughout the trial; the amount offered in settlement; the extent of discovery completed, and the state

of the proceedings; the experience and views of counsel; the presence of a governmental participant and

the reaction of the class members to the proposed settlement”). Most of the factors listed favor the injured

party’s interest and demonstrate the importance of

those interests to the court’s determination whether a

proposed settlement is “fair, reasonable and adequate.” The lower courts here instead approved settlements that actually have the possibility of harming

rather than benefitting class members.

The Tenth Circuit’s holding is unfortunately not

an anomaly. A Third Circuit case held that the “district court’s certification of a settlement simply recognizes the parties’ deliberate decision to bind themselves according to mutually agreed-upon terms without engaging in any substantive adjudication of the

underlying causes of action.” Sullivan v. DB Invs.,

Inc., 667 F.3d 273, 312 (3rd Cir. 2011). Similarly, The

Sixth Circuit held the “Rules Enabling Act is not fatal

to class certification where, as here, class certification

is sought to enforce a settlement agreement.” Whitlock v. FSL Mgmt. LLC, 843 F.3d 1084, 1092 (6th Cir.

2016). Furthermore, the Sixth Circuit relied on the

Third Circuit’s holding that “‘a district court’s certification of a settlement simply recognizes the parties’

deliberate decision to bind themselves according to

mutually agreed-upon terms without engaging in any

substantive adjudication of the underlying causes of

action.’” Whitlock, 843 F.3d at 1092-93 (quoting Sullivan 667 F.3d at 312. The Tenth, Third, and the Sixth

Circuit insist that class settlements are private agreements outside the scope of the Rules Enabling Act.

In contrast, the Seventh Circuit held that “dismissal of nonconsenting subclass members’ claims would

serve only to benefit GM [defendant] or those subclass

members who accept the settlement” and “to permit

the trial court to exercise its power to approve class

action settlements in this manner would contravene

the Rules Enabling Act, 28 U.S.C. §2072, by abridging

the substantive rights of those who did not accept the

settlement offer.” In re General Motors Corp., Engine

Interchange Litig., 594 F.2d 1106, 1135-36 (7th Circ.

1979); see also In re Deepwater Horizon, 739 F.3d 790,

828 (5th Cir. 2016) (Garza, J., dissenting) (“by bringing claimants without causally related injuries into

the class, Rule 23’s aggregation function has been improperly used to expand substantive rights” and

therefore violates the Rules Enabling Act). The Seventh and Judge Garza’s persuasive Fifth Circuit dissent address the limit of judicial authority to approve

a class settlement if it would “abridge, enlarge, or

modify any substantive right.”

Not only does the Seventh Circuit’s holding and

Judge Garza’s persuasive dissent align with Rules Enabling Act and Rule 23, but they are consistent with

this Court’s holding in Amchem Products, Inc., v.

Windsor. The Tenth Circuit’s approval of the settlement funds abridges on the substantive rights of the

class and do not fall squarely under Rule 23. As

Northwestern University Law Professor Martin Redish has noted, “Under the guise of procedure, class

action often effect dramatic alterations in the DNA of

the underlying substantive law.” Martin H. Redish,

WHOLESALE JUSTICE: CONSTITUTIONAL DEMOCRACY

AND THE PROBLEM OF THE CLASS ACTION LAWSUIT 178,

note 13 (2009). And that “Substantive law is altered,

not through resort to traditionally recognized democratic procedures but rather by what is effective procedural shell game.” Id. The contrary holdings among

the various circuits warrants review by this Court.

B. There are serious Article III concerns

when settlement funds are given to third

parties who had no injury, and were not

even parties to the case.

Article III “confines the federal courts to adjudicating actual ‘cases’ and ‘controversies.’” Allen v. Wright,

468 U.S. 737, 750 (1984) (citing Valley Forge Christian

College v. Americans United for Separation of Church

and State, Inc., 454 U.S. 464, 471-76 (1982)). To determine whether there is actual case or controversy,

courts look to standing doctrine to determine

“whether the plaintiff has ‘alleged such a personal

stake in the outcome of the controversy’ “as to warrant

his invocation of federal-court jurisdiction to justify

exercise of the court’s remedial power on his behalf.”

Warth v. Seldin, 422 U.S. 490, 498-99 (1975) (emphasis added, citing Baker v. Carr, 369 U.S. 186, 204

(1962)). Furthermore, standing will only be found if

“[plaintiff] can show that he himself has suffered or

will suffer injury whether economic or otherwise.” Sierra Club v. Morton, 405 U.S. 727, 728 (1972).

The class action settlement approved by the Tenth

Circuit below does not involve the exercise of the

court’s remedial power on “behalf” of the class members, because it provided no relief to them. Nor did

the cy pres recipients of the settlement funds have a

“personal stake in the outcome” of the litigation, because they were not even parties to it and had alleged

no injury. The Tenth Circuit’s use of Rule 23(e)(2) to

allow such a settlement therefore raises serious questions about whether Article III’s “case or controversy”

requirement was met at every stage of the litigation,

including specifically the final resolution obtained via

approval of the settlements.

As Judge Edith Jones has noted, because cy pres

award distributions “likely violate Article III’s standing requirements,” the courts “should be troubled that

cy pres distribution to an outsider uninvolved in the

original litigation may confer standing to intervene in

the subsequent proceedings should distribution somehow go awry.” Klier, 658 F.3d at 480 (Jones, J., concurring). In other words, these cy pres award settlements violate the adversarial model of adjudication

and the requirements of Article III by granting relief

to nonparties who have suffered no injury. As Professor Redish has correctly observed, the distribution of

cy pres awards to nonparties transforms the “judicial

process from a bilateral private rights adjudicatory

model into a trilateral process.” Martin H. Redish, et

al., Cy Pres & the Pathologies of the Modern Class Action: A Normative and Empirical Analysis, 62 Fla.

L.Rev., 617, 641 (2010).

The modern trend toward cy-pres-only awards,

based on the dubious authority of a federal rule of civil

procedure, thus raises serious questions about the federal court’s constitutional authority to approve, much

less participate in, such settlements. The issue warrants this Court’s attention now, before the trend gets

even further out of control.

II.

Diverting Funds From Allegedly Injured

Class Members to Government Regulators

Who Adopt a Regulatory Policy Favored by

Class Counsel, Amounts to Compelled Political Lobbying that Raises Serious First

Amendment Concerns.

A. The Fund Settlements implicate First

Amendment compelled-speech concerns.

The “fund” settlements at issue in this case divert

settlement funds away from class members who were

allegedly injured by the settling defendants’ conduct.

They then offer a significant portion of those funds to

government regulatory agencies that admittedly were

not so injured, on the express condition that the regulatory agencies “adop[t] ATC at retail”—that is,

change the law in the manner favored by class counsel.

The “fund” settlements therefore cause class members to support political advocacy with funds that, if

the allegations of the complaints were proved to be

true, should have been distributed to them by way of

compensation for the injuries they alleged.

To be sure, the class at issue here is not a mandatory class under Rule 23(b)(1) or (b)(2), but because

the only damages alleged in the case are those that

result from injuries allegedly incurred by class members, the fund settlements necessarily utilize the compensable damages of class members for overt political

purposes. And given the complexity of this case, the

fact that class notice was effected only by publication,

and the active effort necessary to opt out of the class,

it would be naïve to think that class members who

failed to opt out had voluntarily chosen to engage in

such political advocacy with the funds attributed to

their own alleged injuries. This case therefore involves compelled speech not unlike that at issue in Janus v. Am. Fed’n, 138 S. Ct. 54 (cert. granted Sept. 28,

2017), currently pending before this Court. And it

raises the same First Amendment concerns that are

at issue in the parallel cy pres case of Frank v. Gaos,

No. 17-961, currently pending on petition for writ of

certiorari. Indeed, by diverting class funds to government regulators, this case presents a particularly

egregious First Amendment compelled political

speech violation.

Such compelled speech is contrary to the original

understanding of the First Amendment. The founding

generation voiced its concerns through debates over

compelled financial support of churches in Massachusetts and Virginia, the Virginia debate being the most

famous. And this Court has often quoted Jefferson’s

argument that “to compel a man to furnish contributions of money for the propagation of opinions which

he disbelieves and abhors is sinful and tyrannical.”

Thomas Jefferson, A Bill for Establishing Religious

Freedom (1779), in 5 The Founders Constitution, University of Chicago Press (1987) at 77 (quoted in, e.g.,

Keller v. State Bar, 496 U.S. 1, 10 (1990); Chicago

Teachers Union v. Hudson, 475 U.S. 292, 305, n.15

(1986); Abood v Detroit Board of Education, 431

U.S.209, 234-35 n.31 (1977); Everson v. Board of Education, 330 U.S. 1, 13 (1947)). Jefferson went on to

note “[t]hat even forcing him to support this or that

teacher of his own religious persuasion, is depriving

him of the comfortable liberty of giving his contributions to the particular pastor whose morals he would

make his pattern.” Jefferson, Religious Freedom, supra at 77.

Although these statements were made in the context of compelled religious assessments, these same

principles can be applied to the financial support that

class counsel has managed to direct to government

regulators who implement their preferred regulatory

policies. Directly compelling class members to contribute their own funds to advance a change-in-law political agenda would surely violate the proscription

against compelled political speech. Diverting funds

derived from a settlement of their class action claims

for damages arising out of injuries allegedly caused by

defendants is no different, and review by this Court is

warranted to consider whether such a settlement is

ever permissible under the First Amendment.

B. Shelley is not limited to the race discrimination context and should include discrimination under the First Amendment.

The Tenth Circuit did not reach the serious First

Amendment concerns raised by the “fund” settlements, holding instead that the district court’s ratification of a settlement that offered funds to government regulators to change the law did not amount to

state action, and therefore did not implicate the First

Amendment at all. Shelley v. Kramer’s holding to the

contrary is limited to the race discrimination context,

it held. Pet.App. 51a (citing Shelley v. Kramer, 334

U.S. 1 (1948)).

Class action settlements that bind absent members of the class can exist “only with the court’s approval.” Fed. R. Civ. P. 23(e). This is therefore not

mere enforcement of a private contract, such as was

at issue in Shelley v. Kramer. The settlement “contacts” at issue here only exist because of the court’s

approval. Thus, even were Shelley v. Kramer limited

to the racial discrimination context, as the Tenth Circuit held, any such limitation on the holding that judicial “enforcement” of private contracts is state action is irrelevant here. The Tenth Circuit’s holding to

the contrary, which threatens to remove court-sanctioned class action settlements entirely from constitutional review, is such a departure “from the accepted

and usual course of judicial proceedings” that review

by this Court is warranted. As this Court recognized

in Shelley itself, “it has never been suggested that

state court action is immunized from the operation of

those [prohibitory] provisions simply because the act

is that of a judicial branch of the state government.”

Shelley v. Kraemer, 334 U.S. 1, 18 (1948).

State action, implicating First Amendment and

other constitutional rights, therefore exists merely by

virtue of the lower court’s ratification of the “fund” settlement agreements. That these settlement agreements also direct funds to government agencies for the

express purpose of encourage a change in state law

makes the state action here even more clear, and the

violation of petitioners First Amendment rights deserving of the judicial protection that, at this stage,

only this Court can provide.

III.

Allowing the District Court to Direct Class

Settlement Funds to Aid Lobbying Efforts

Also Violates the Separation of Powers Doctrine.

The Tenth Circuit’s use of Rule 23(e)(2) to permit

the type of cy-pres settlements at issue here raises significant separation of powers concerns as well. This

Court has expressed its “vigilance against two dangers” in separation of powers cases involving the Judicial Branch: “first, that the Judicial Branch neither

be assigned nor allowed tasks that are more properly

accomplished by [other] branches, …. and, second,

that no provision of law ‘impermissibly threatens the

institutional integrity of the Judicial Branch.’” Mistretta v. United States, 488 U.S. 361, 383 (1989) (quoting Morrison v. Olson, 487 U.S. 654, 680-81 (1988),

and Commodity Futures Trading Comm'n v. Schor,

478 U.S. 833, 851 (1986)). Both concerns are implicated here.

A. The court-approved “fund” settlements

incentivize legislative action that is not

appropriate for the judicial branch.

First, the lower courts approved the distribution of

class action settlement funds to incentivize governmental officials to enact changes in their state’s statutory and regulatory policy. That is fundamentally a

lawmaking function vested in the legislative branches

of government, not in the judicial branch. Cf. U.S.

Const., Art. I, § 1 (“All legislative Powers herein

granted shall be vested in a Congress of the United

States….”).

The Framers of the Constitution understood that

separation of powers was necessary to protect individual liberty. In this, the founding generation relied on

the works of Montesquieu, Blackstone, and Locke for

the proposition that institutional separation of powers

was an essential protection against arbitrary government. See e.g. Montesquieu, THE SPIRIT OF THE LAWS

152 (Franz Neumann ed. & Thomas Nugent trans.,

1949); 1 William Blackstone, COMMENTARIES ON THE

LAWS OF ENGLAND 58 (William S. Hein & Co. ed., 1992);

John Locke, THE SECOND TREATISE ON GOVERNMENT 82

(Thomas P. Peardon, ed.,1997).

These warnings against the consolidation of power

in a single branch of government resulted in structural separation of power protections in the design of

the federal government. Federalist No. 51 (Madison),

THE FEDERALIST PAPERS 318 (Charles R. Kesler and

Clinton Rossiter, eds., 2003; Federalist No. 47 (Madison), THE FEDERALIST PAPERS, supra at 298-99; Federalist No. 9 (Hamilton), THE FEDERALIST PAPERS, supra

at 67 ; see also Thomas Jefferson, Letter to John Adams (Oct. 28, 1787, reprinted in THE ADAMS-JEFFERSON LETTERS 199 (Lester J. Cappon ed., 1959). That design divided the power of the national government

into three distinct branches, vesting the legislative

authority in Congress, the executive power in the

President, and the judicial responsibilities in this Supreme Court. INS v. Chadha, 462 U.S. 919, 951

(1983).

Although the judiciary, like any other branch,

must jealously guard its rightful authority to interpret the law, it must not use that authority to remake

the law to its own liking. See Federalist No. 78 (Hamilton) (“The legislature . . . prescribes the rules by

which the duties and rights of every citizen are to be

regulated. The judiciary, on the contrary, . . . may

truly be said to have neither FORCE nor WILL, but

merely judgment”).

The lower courts’ approval of the “fund” settlements at issue here run afoul of these fundamental

separation of powers principles, because the settlements push for a legislative change to be accomplished with funds directed to legislative or regulatory

bodies by a court-approved settlement.

B. The lower courts’ ratification of quid pro

quo arrangements “impermissibly threatens the institutional integrity of the Judicial Branch.”

Second, and more troubling, the funds are only

made available if the legislative change is adopted.

This is a quid pro quo arrangement that would rightly

be deemed an illegal bribe had the settling defendants

or class counsel made a $6 million payment directly to

regulators to change their votes on a matter of public

policy. Cloaking the quid pro quo arrangement behind

the veil of a class action settlement makes it no less

so.

The damage to the institutional integrity of the judiciary that arise from its participation in such a

scheme should be manifest. And it cries out “for an

exercise of this Court’s supervisory power” over the

lower courts. S. Ct. Rule 10(a).

CONCLUSION

The petition for writ of certiorari should be

granted, and the decision of the Tenth Circuit below

should be reversed.

February 2018

Respectfully submitted,