Amicus Curiae Brief — Theodore H. Frank, et al., Petitioners v. Paloma Gaos, Individually and on Behalf of All Others Similarly Situated, et al.

Supreme Court briefJul 16, 2018

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NO. 17-961

In the

Supreme Court of the United States

________________

THEODORE H. FRANK and MELISSA ANN HOLYOAK,

Petitioners,

PALOMAS GAOS, on behalf of herself and

all others similarly situated, et al.,

Respondents.

________________

On Writ of Certiorari to the

Court of Appeals for the Ninth Circuit

_________________

BRIEF OF CHAMBER OF COMMERCE OF

THE UNITED STATES OF AMERICA AS

AMICUS CURIAE IN SUPPORT OF

NEITHER PARTY

Steven P. Lehotsky

U.S. CHAMBER

LITIGATION CENTER

1615 H Street, NW

Washington, DC 20062

(202) 463-5685

Ashley C. Parrish

Counsel of Record

Justin A. Torres

KING & SPALDING LLP

1700 Pennsylvania Ave., NW

Washington, DC 20006

(202) 737-0500

aparrish@kslaw.com

Counsel for Chamber of Commerce

of the United States of America

July 16, 2018

TABLE OF CONTENTS

TABLE OF AUTHORITIES ....................................... ii

INTEREST OF AMICUS CURIAE............................ 1

INTRODUCTION

AND

SUMMARY

ARGUMENT ........................................................ 2

ARGUMENT ............................................................... 5

The Best Way To Police Cy Pres Settlements

Is At The Front End, By Denying

Certification Of Unmanageable Classes. ........... 5

A. Lower Courts Continue To Certify

Classes Where Some Or All Of The

Absent Class Members Suffered No

Actual Injury. ............................................... 6

B. Lower Courts Continue To Circumvent

The Commonality And Predominance

Requirements. ............................................ 11

C. Lower Courts Increasingly Permit The

Use Of Unrebuttable Presumptions Of

Injury. ......................................................... 14

II. Cy Pres Settlements Should Be Subject To

Close Scrutiny.................................................... 15

A. Cy Pres Settlements Are A Response To

Meritless But Costly Class Actions. .......... 16

B. Conflicts Between Class Counsel And

The Absent Class Are Inherent In Cy

Pres Settlements. ....................................... 18

C. Cy Pres Settlements Should Be Subject

To Strict Standards. ................................... 22

CONCLUSION ......................................................... 26

TABLE OF AUTHORITIES

Cases

Amchem Prods., Inc. v. Windsor,

521 U.S. 591 (1997) .................................. 7, 18, 22

AT&T Mobility LLC v. Concepcion,

563 U.S. 333 (2011) ............................................ 17

Basic Inc. v. Levinson,

485 U.S. 224 (1988) ............................................ 14

Butler v. Sears, Roebuck & Co.,

702 F.3d 359 (7th Cir. 2012) ........................ 12, 13

City of Los Angeles v. Lyons,

461 U.S. 95 (1983) ................................................ 8

Comcast Corp. v. Behrend,

569 U.S. 27 (2013) ........................................ 11, 14

Coopers & Lybrand v. Livesay,

437 U.S. 463 (1978) ............................................ 18

Cottrell v. Alcon Labs.,

874 F.3d 154 (3d Cir. 2017) .................................. 9

Davidson v. Kimberly-Clark Corp.,

889 F.3d 956 (9th Cir. 2018) ................................ 8

Eisen v. Carlisle & Jacquelin,

479 F.2d 1005 (2d Cir. 1973) ................................ 5

Eubank v. Pella Corp.,

753 F.3d 718 (7th Cir. 2014) .............................. 19

Fears v. Wilhelmina Model Agency, Inc.,

No. 02 Civ. 4911(HB), 2007 WL 1944343,

(S.D.N.Y. July 5, 2007) ....................................... 21

iii

Friends of the Earth, Inc. v.

Laidlaw Envtl. Servs. (TOC), Inc.,

528 U.S. 167 (2000) .............................................. 9

Gen. Tel. Co. of S.W. v. Falcon,

457 U.S. 147 (1982) ............................................ 14

Hansberry v. Lee,

311 U.S. 32 (1940) .......................................... 6, 19

In re Agent Orange Prod. Liab. Litig.,

818 F.2d 179 (2d Cir. 1987) .................................. 5

In re Airline Ticket Comm’n Antitrust Litig.,

307 F.3d 679 (8th Cir. 2002) .............................. 24

In re Baby Prods. Antitrust Litig.,

708 F.3d 163 (3d Cir. 2013) ................................ 20

In re BankAmerica Corp. Sec. Litig.,

775 F.3d 1060 (8th Cir. 2015) ............................ 23

In re Dry Max Pampers Litig.,

724 F.3d 713, 715 (6th Cir. 2013) ...................... 19

In re Google Buzz Privacy Litig.,

No. C 10-00672 JW, 2011 WL 7460099

(N.D. Cal. June 2, 2011) ..................................... 22

In re Subway Footlong Sandwich

Mktg. & Sales Practices Litig.,

869 F.3d 551 (7th Cir. 2017) .............................. 10

In re Whirlpool Corp. Front-Loading

Washer Prods. Liab. Litig.,

678 F.3d 409 (6th Cir. 2012) ........................ 12, 13

Kleen Prods. LLC v. Int’l Paper Co.,

831 F.3d 919 (7th Cir. 2016) ........................ 14, 15

Klier v. Elf Atochem N. Am., Inc.,

658 F.3d 468 (5th Cir. 2011) ........................ 23, 24

Mars Steel Corp. v. Cont’l Ill.

Nat’l Bank & Tr. Co. of Chi.,

834 F.2d 677 (7th Cir. 1987) ................................ 7

Mirfasihi v. Fleet Mortg. Corp.,

356 F.3d 781 (7th Cir. 2004) .............................. 25

Pearson v. NBTY, Inc.,

772 F.3d 778 (7th Cir. 2014) ........................ 23, 25

Perkins v. Am. Nat’l Ins. Co.,

No. 3:05-CV-100 (CDL), 2012 WL 2839788

(M.D. Ga. July 10, 2012) .................................... 22

Phillips Petrol. Co. v. Shutts,

472 U.S. 797 (1985) .............................................. 7

Rodriguez v. Disner,

688 F.3d 645 (9th Cir. 2012) .............................. 19

Sears, Roebuck & Co. v. Butler,

569 U.S. 1015 (2013) .......................................... 13

SEC v. Bear, Stearns & Co. Inc.,

626 F. Supp. 2d 402 (S.D.N.Y. 2009) ................. 21

Spokeo, Inc. v. Robins,

136 S. Ct. 1540 (2016) .......................................... 7

Taylor v. Sturgell,

553 U.S. 880 (2008) ............................................ 18

Tyson Foods, Inc. v. Bouaphakeo,

136 S. Ct. 1036 (2016) .......................................... 6

Waggoner v. Barclays PLC,

875 F.3d 79 (2d Cir. 2017) ............................ 14, 15

Wal-Mart Stores, Inc. v. Dukes,

564 U.S. 338 (2011) ...................................... 11, 14

Whirlpool Corp. v. Glazer,

569 U.S. 901 (2013) ............................................ 13

Rules

Fed. R. Civ. P. 23(b)(3) .............................................. 11

Fed. R. Civ. P. 23(b)(3)(D) ......................................... 13

Other Authorities

2 McLaughlin on Class Actions (14th ed. 2017) ....... 22

Adeola Adele, Dukes v. Wal-Mart: Implications

for Employment Practices Liability Insurance

(July 2011) .......................................................... 17

Jennifer Johnston, Cy Pres Comme Possible to

Anything is Possible: How Cy Pres Creates

Improper Incentives in Class Action Settlements,

9 J. L. Econ. & Pol’y 277 (2013) ......................... 21

Jeremy Gaston, Standing on Its Head: The Problem

of Future Claimants in Mass Tort Class Actions,

77 Tex. L. Rev. 215 (1998) .................................... 7

John Beisner et al., Cy Pres: A Not So Charitable

Contribution to Class Action Practice (2010).... 25

John C. Coffee, Jr., Class Wars:

The Dilemma of the Mass Tort Class Action,

95 Colum. L. Rev. 1343 (1995) ........................... 20

Martin H. Redish et al., Cy Pres Relief and the

Pathologies of the Modern Class Action:

A Normative and Empirical Analysis,

62 Fla. L. Rev. 617 (2010) ........................ 5, 13, 20

Richard A. Nagareda, The Preexistence Principle

and the Structure of the Class Action,

103 Colum. L. Rev. 149 (2003) ............................. 7

Rule 23(h) Advisory Committee Comments to 2003

Amendments ....................................................... 24

Sam Yospe, Cy Pres Distributions in

Class Action Settlements,

2009 Colum. Bus. L. Rev. 1014 (2009)............... 20

The 2018 Carlton Fields

Class Action Survey (2018)........................... 17, 18

U.S. Chamber Institute for Legal Reform,

Do Class Actions Benefit Class Members? An

Empirical Analysis of Class Actions (Dec. 2013)

............................................................................. 17

INTEREST OF AMICUS CURIAE 1

The Chamber of Commerce of the United States

of America is the world’s largest business federation.

It represents 300,000 direct members and indirectly

represents the interests of more than three million

companies and professional organizations of every

size, in every industry, from every region of the

country. An important function of the Chamber is to

represent the interests of its members in matters

before Congress, the Executive Branch, and the

courts.

The Chamber regularly files amicus curiae briefs

in cases raising issues of concern to the Nation’s

business community, including cases involving

important issues of class-action practice and

procedure. Businesses are frequent targets of classaction lawsuits, including abusive suits where cy pres

settlements are often used. The Chamber’s Institute

for Legal Reform has published a white paper that

discusses in detail the practical and constitutional

concerns raised by the increasing use of cy pres

settlements in the class action context. See John

Beisner et al., Cy Pres: A Not So Charitable

Contribution to Class Action Practice (2010)

(“Beisner”), available at http://bit.ly/2zJEFWO. The

All parties have consented to the filing of this amicus brief. No

party’s counsel authored this brief in whole or in part; no party

or party’s counsel contributed money that was intended to fund

the preparation or submission of this brief; and no person other

than amicus, its members, and its counsel contributed money

that was intended to fund the preparation or submission of this

brief.

Chamber’s interest in these issues reflects its broader

interest in ensuring that courts rigorously and

properly enforce the requirements of Rule 23 and

Article III of the Constitution of the United States.

INTRODUCTION AND

SUMMARY OF ARGUMENT

Both the petitioners and the defendant below

recognize that cy pres settlements in the class-action

context raise serious concerns and require close

judicial scrutiny. The parties dispute whether the

particular cy pres settlement reached in this case is

appropriate notwithstanding those concerns. But on

that issue the Chamber takes no position.

Instead, the Chamber is submitting this brief in

support of neither party to urge the Court that the

first solution to the concerns raised by cy pres

settlements is to police rigorously the requirements

for class certification at the front end.

fundamentally, the Chamber seeks to highlight that

the explosion of cy pres settlements in class-action

litigation is symptomatic of a much deeper problem—

the failure of lower courts to comply with this Court’s

precedents and rigorously police the requirements of

Rule 23.

In a line of important decisions, this Court has

emphasized that class actions are supposed to be the

exception to the general rule that litigation should be

pursued on an individual basis. It has held that a

class should not be certified if absent class members

have not suffered a concrete injury-in-fact. It has

rejected class actions that would strip defendants of

their rights to litigate every available defense. And it

has recognized the extraordinary settlement

pressures that defendants face even in meritless

cases when confronted with potentially massive

class-action liability, emphasizing that courts must

perform a rigorous analysis at the outset of a case to

determine whether Rule 23’s exacting requirements

are satisfied.

But there is a yawning gap between this Court’s

class-action precedents and how the lower courts

have applied those precedents in practice. The

unfortunate reality is that lower courts in plaintifffriendly venues are routinely failing to apply the law.

Many courts view the class-action device as an

expedient for clearing cases from their dockets,

recognizing that placing a heavy thumb on the scale

in favor of class certification will often prompt

settlement. As a result, courts often certify a class no

matter how negligible class members’ alleged injuries

may be and with no concern for defendants’

individualized defenses.

Outside of the most

egregious cases, courts are unwilling to discipline

class-action abuse and, as a result, every potential

misstep or regulatory violation, no matter how

insignificant or how inventive a theory of liability

may be required to plead a claim, becomes another

opening for enterprising class counsel.

Even

defendants who are inclined to vigorously defend

these cases are placed in an untenable position.

Because courts that take a lenient approach to class

actions rarely impose reasonable limits on the award

of class counsel fees, the harder a defendant fights in

its defense, the more it can ultimately expect to pay

out in settlement. The result is that every year

American business are forced to defend and settle

thousands of meritless class actions that benefit no

one except class counsel.

In light of these trends, it may be unsurprising

that defendants have more frequently resorted to cy

pres settlements. Whatever one thinks of cy pres

settlements as a matter of first principle, they have

become an unfortunate safety valve—a way for

defendants to manage their exposure to meritless

cases filed in venues where courts are unwilling to

enforce Rule 23. Indeed, the resort to a cy pres

settlement is almost inevitably a sign that the

underlying class claims are of dubious merit. Here,

for instance, the defendant reasonably elected to

negotiate an early end to weak and meritless claims

brought by class counsel given the notorious

challenges and expense of defending against class

actions in courts within the Ninth Circuit.

However this Court views the appropriateness of

the settlement negotiated in this case, there is an

urgent need for it to take this opportunity to

reiterate—clearly, forcefully, and unequivocally—the

essential principles of class-action law that it has

previously articulated and signal to the lower courts

its commitment to ensuring that they are properly

enforced. Unless the Court takes this crucial step,

any guidance it provides on the use of cy pres

settlements may be of only limited value—a

temporary balm that may ameliorate a troubling

symptom, but does little to address the underlying

cause of the serious and growing class-action abuse

that infects our nation’s legal system.

ARGUMENT

The Best Way To Police Cy Pres

Settlements Is At The Front End, By

Denying Certification Of Unmanageable

Classes.

Cy pres settlements of class action lawsuits have

significantly increased in the past two decades. See

Martin H. Redish et al., Cy Pres Relief and the

Pathologies of the Modern Class Action: A Normative

and Empirical Analysis, 62 Fla. L. Rev. 617, 653

(2010) (“Redish”).

This growth is a direct

consequence of lower courts’ refusal to police

compliance with Rule 23’s essential requirements.

See In re Agent Orange Prod. Liab. Litig., 818 F.2d

179, 185 (2d Cir. 1987) (“[U]nwarranted relaxation of

the manageability requirements [of Rule 23] . . .

induce[s] plaintiffs to pursue ‘doubtful’ class claims

for ‘astronomical amounts’ and thereby ‘generate . . .

leverage and pressure on defendants to settle.’”) (last

alteration in original) (quoting Eisen v. Carlisle &

Jacquelin, 479 F.2d 1005, 1019 (2d Cir. 1973),

vacated on other grounds, 417 U.S. 156 (1974)).

The most powerful tool for limiting the growth of

cy pres settlements is strict adherence to Rule 23 and

this Court’s class-action precedents. Unfortunately,

many lower courts continue to disregard this Court’s

instructions, treating them as at best hortatory—

principles to be dutifully recited but rarely applied to

curtail class-action abuse in any meaningful fashion.

Because the Court has granted certiorari to address

the problems of cy pres settlements, it should take

this opportunity to reiterate the basic principles that

are supposed to govern the lower courts’

consideration of class certifications motions under

Rule 23.

A. Lower Courts Continue To Certify

Classes Where Some Or All Of The

Absent Class Members Suffered No

Actual Injury.

Emblematic of lower courts’ refusal to apply Rule

23 correctly is the growing prevalence of “no-injury”

class action settlements, circumventing the bedrock

requirements of Article III and Rule 23. That noinjury class actions run counter to Article III

standing should be obvious: A Rule 23 class action is

nothing more than the sum of the individual class

members’ claims. Packaging claims in a class vehicle

does not enlarge the power of federal courts to hear

claims they would not otherwise have jurisdiction to

hear. As the Chief Justice recently noted, “Article III

does not give federal courts the power to order relief

to any uninjured plaintiff, class action or not.” Tyson

Foods, Inc. v. Bouaphakeo, 136 S. Ct. 1036, 1053

(2016) (Roberts, C.J., concurring) (emphases added).

These lawsuits also raise serious due process

concerns, because there is little incentive for

unnamed class members to monitor and participate

in litigation where they have sustained or will

sustain no actual damages. Due process requires

that the class representative “fairly insures the

protection of the interests of absent parties who are

to be bound by” the outcome of the litigation.

Hansberry v. Lee, 311 U.S. 32, 42 (1940). In turn,

absent class members must receive adequate notice

and an opportunity to be heard and participate in the

class proceedings. See Phillips Petrol. Co. v. Shutts,

472 U.S. 797, 811-12 (1985).

The adequate

representation requirement “serves to uncover

conflicts of interest between named parties and the

class they seek to represent.” Amchem Prods., Inc. v.

Windsor, 521 U.S. 591, 625 (1997).

In a no-injury class action, however, the class

representatives—to say nothing of absent class

members—have little incentive to monitor the

litigation and hold their class counsel accountable,

since they “have individually too little at stake to

spend time monitoring the lawyer—and their only

coordination is through” counsel. Mars Steel Corp. v.

Cont’l Ill. Nat’l Bank & Tr. Co. of Chi., 834 F.2d 677,

681 (7th Cir. 1987). The practical result is that “class

counsel effectively appoint themselves as agents for

the class, wielding a power to transact in class

members’ rights.”

Richard A. Nagareda, The

Preexistence Principle and the Structure of the Class

Action, 103 Colum. L. Rev. 149, 150-51 (2003). And

class members can have “their future claims

devalued and decided before they even accrue,” long

before it is “obvious that the settling of future

plaintiffs’

claims—essentially

without

their

knowledge—is desirable, necessary, or worthwhile.”

Jeremy Gaston, Standing on Its Head: The Problem

of Future Claimants in Mass Tort Class Actions, 77

Tex. L. Rev. 215, 237-38 (1998).

Despite these fundamental due process concerns,

lower courts have disregarded this Court’s directive

that a class plaintiff must suffer harm that “actually

exist[s]” and is not “‘abstract.’” Spokeo, Inc. v.

Robins, 136 S. Ct. 1540, 1548 (2016). For example,

the Ninth Circuit recently held that a class

representative had standing to seek injunctive relief

under California consumer protection law because

she had purchased flushable wipes with an allegedly

false or misleading label, since they were not

“flushable” according to her standards.

The

disgruntled consumer threw the wipes away and

vowed never to purchase them again. See Davidson

v. Kimberly-Clark Corp., 889 F.3d 956, 966-67 (9th

Cir. 2018). Although there was no possibility that

the plaintiff would ever be injured by the allegedly

false label because by her own admission she would

never purchase the product again, the Ninth Circuit

found that she had standing to pursue injunctive

relief for the class. Rather than dismissing the case

for lack of jurisdiction, the Ninth Circuit concluded

that the class claims could be litigated because the

plaintiff “will be unable to rely on the product’s

advertising or labeling in the future, and so will not

purchase the product although she would like to,” or

“might purchase the product in the future, despite

the fact it was once marred by false advertising or

labeling, as she may reasonably, but incorrectly,

assume the product was improved.” Id. at 969-70.

This holding—replete with “mights” and “mays”—

runs directly contrary to this Court’s express

statement that mere “‘[p]ast exposure to illegal

conduct does not in itself show a present case or

controversy regarding injunctive relief,’” City of Los

Angeles v. Lyons, 461 U.S. 95, 102 (1983) (alteration

in original) (citation omitted), and that to

demonstrate standing a plaintiff must show that she

is “realistically threatened by a repetition” of past

wrongful conduct, id. at 109; see also Friends of the

Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528

U.S. 167, 180-81 (2000) (to maintain a claim for

forward-looking relief, plaintiff must show that she

faces an “actual or imminent,” not “conjectural or

hypothetical” harms).

Davidson is a recent example of lower courts

bending the rules of standing and Rule 23 to save

specious class allegations in no-injury cases. But it is

not the only one. The Third Circuit recently held

that a class had Article III standing to bring suit

against an eye-drop manufacturer because the

dropper dispensed the fluid in a way that caused

some of it to roll out of the user’s eye. See Cottrell v.

Alcon Labs., 874 F.3d 154, 159 (3d Cir. 2017), cert.

denied, 138 S. Ct. 2029 (2018). Plaintiffs alleged they

were injured financially because manufacturers did

not use alternative, supposedly more efficient

product packaging that would have enabled them to

get more doses from the same volume of medicine.

The district court denied certification, holding that

the putative class did not meet the rigorous

requirements of Rule 23, because there was no

concrete allegation that the product packaging

change would have resulted in lower prices. Id. at

161, 168. The Third Circuit reversed, holding that

plaintiffs had shown a concrete and particularized

injury by alleging that they “would have paid less for

their course of medication if they were able to extract

more doses of medication . . . out of the same bottle.”

Id. at 168. But plaintiffs presented no concrete

allegation that the manufacturers priced their

medicine based on the volume of fluid in the bottle

and not the number of doses the bottle contained, or

that manufacturers would have passed marginal cost

savings on to consumers instead of pocketing them.

Similarly, a district court in Wisconsin certified a

class and approved a settlement where plaintiffs

alleged that the fast food restaurant Subway was

defrauding consumers by selling “Footlong”

sandwiches that were sometimes slightly shorter

than twelve inches. See In re Subway Footlong

Sandwich Mktg. & Sales Practices Litig., 869 F.3d

551, 553 (7th Cir. 2017). There, the district court

found that the plaintiff class had standing to pursue

injunctive relief, despite it being undisputed that the

sandwiches rarely fell short of twelve inches, and

even when they did, the variations were due to

natural variability in the baking process—the

unbaked bread sticks were uniform, so all customers

received the same amount of food. Id. at 554. The

settlement provided no monetary recovery, only

injunctive relief by which Subway bound itself to

implement new measuring tools and a beefed-up

inspection regime, but the settlement also explicitly

acknowledged that Subway “‘will never be able to

guarantee that each loaf of bread will always be

exactly 12 inches or greater in length after baking.’”

Id. at 556-57 (quoting the settlement). After hearing

from the same settlement objector that is petitioner

in this case, the Seventh Circuit reversed, calling the

injunctive relief “‘worthless’” and holding that the

district court improperly certified a “‘settlement that

yields zero benefits for the class’” in a case where

“[p]roof of injury was nigh impossible.” Id. at 554,

556 (citation omitted). “The settlement enriches only

class counsel and, to a lesser degree, the class

representatives.” Id. at 557.

What is troubling about these examples is that

the Seventh Circuit’s decision appears to be a rare

outlier in a much broader trend of abusive classaction litigation that courts are unwilling to police.

Lower courts all too often treat class certification as

an easy threshold to satisfy in any litigation

involving businesses and consumers, leaving

business defendants with no reasonable option except

to seek settlement or else find themselves

confronting large legal bills and facing potential

disastrous liability for even the most meritless

claims.

B. Lower Courts Continue To Circumvent

The Commonality And Predominance

Requirements.

Courts also promote cy pres settlements by

certifying classes that do not satisfy the threshold

requirement that “questions of law or fact common to

class members predominate over any questions

affecting only individual members.” Fed. R. Civ. P.

23(b)(3). This inquiry requires courts to “conduct a

‘rigorous analysis’ to determine whether” plaintiffs

have carried that burden, “even when that requires

inquiry into the merits of the claim.” Comcast Corp.

v. Behrend, 569 U.S. 27, 35 (2013) (quoting Wal-Mart

Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011)).

Class-action plaintiffs must offer “a theory of liability

that is . . . capable of classwide proof.” Id. at 37-38.

It is not enough that a class propose “any

method[ology] . . . so long as it can be applied

classwide.” Id. at 35-36. Nor can the answers

generated by that methodology be “arbitrary” or

“‘speculative.’” Id.

Despite this Court’s clear admonitions, courts

continue to certify classes even though “the validity

of each one of the claims” cannot be resolved “in one

stroke.” Dukes, 564 U.S. at 350. For example, the

Sixth and Seventh Circuits allowed plaintiffs to

circumvent the strict commonality requirement set

forth in Dukes by certifying classes of consumers who

bought certain washing machines, even though it

was admitted that very few of the purchasers

experienced any actual problems. See Butler v.

Sears, Roebuck & Co., 702 F.3d 359, 362 (7th Cir.

2012), judgment vacated, 569 U.S. 1015 (2013), on

remand, reinstated, 727 F.3d 796, 802 (7th Cir. 2013);

In re Whirlpool Corp. Front-Loading Washer Prods.

Liab. Litig., 678 F.3d 409, 414 (6th Cir. 2012), cert.

granted, judgment vacated, sub nom, Whirlpool Corp.

v. Glazer, 569 U.S. 901 (2013), aff’d, 722 F.3d 838

(6th Cir. 2013). In those cases, consumers sued

washing machine manufacturers based on an alleged

design defect that resulted in mold. When both

classes were certified, the manufacturers appealed,

arguing that the classes were overbroad as it was

undisputed that most of the consumers experienced

no problems with their washing machines and the

consumers had all purchased different models and

configurations. See Butler, 702 F.3d at 361-62;

Whirlpool, 678 F.3d at 418, 420. Both circuits

affirmed. The Sixth Circuit held that certification is

appropriate “‘if class members complain of a pattern

or practice that is generally applicable to the class as

a whole,’” even if application of this theory means

that the class would include many uninjured

plaintiffs.

Whirlpool, 678 F.3d at 420 (citation

omitted).

This Court remanded the decisions to the Sixth

and Seven Circuits to consider in light of Comcast

and Dukes. See Sears, Roebuck & Co. v. Butler, 569

U.S. 1015 (2013); Whirlpool Corp. v. Glazer, 569 U.S.

901 (2013). Both the Sixth and Seventh Circuits

affirmed their earlier rulings, based on a supposedly

common question of whether the machines had a

propensity to cause mold, even though, as the Sixth

Circuit noted, it was undisputed that the machines

“were built over a period of years on two different

platforms, resulting in the production of twenty-one

different models during the relevant time frame.”

Whirlpool, 722 F.3d at 854; see also Butler, 727 F.3d

at 798 (approving class certification even though the

manufacturer

“made

number

design

modifications, and as a result different models are

differently defective”).

The failure to adequately police the commonality

requirement has a direct connection to the rise of cy

pres settlements. One of the factors courts are

supposed to consider in determining whether

commonality exists is “the likely difficulties in

managing a class action.” Fed. R. Civ. P. 23(b)(3)(D).

Cy pres settlements are often resorted to when the

normal means of providing “compensation of

individual victims . . . through use of the class action

device is [thought] infeasible,” because directly

compensating the class is not manageable. Redish,

supra, 62 Fla. L. Rev. at 639-40. But the proper

course for a district court confronted by an

unmanageable class is not to find some “next best”

alternative. Instead, it should decline to certify the

class on the ground that “resort to the class action

procedure is improper.” Id. at 640.

C. Lower Courts Increasingly Permit The

Use Of Unrebuttable Presumptions Of

Injury.

The requisite “rigorous analysis” of putative

classes has also been frustrated by the lower courts’

practice of employing presumptions that class

members have been injured.

See Waggoner v.

Barclays PLC, 875 F.3d 79, 106 (2d Cir. 2017), cert.

denied, 138 S. Ct. 1702 (2018); Kleen Prods. LLC v.

Int’l Paper Co., 831 F.3d 919, 931 (7th Cir. 2016),

cert. denied, 137 S. Ct. 1582 (2017).

Because “actual, not presumed, conformance”

with Rule 23’s requirements is “indispensable,” Gen.

Tel. Co. of S.W. v. Falcon, 457 U.S. 147, 160 (1982)

(emphasis added), plaintiffs are supposed to have the

burden to “‘affirmatively demonstrate’” their

compliance with Rule 23. Comcast, 569 U.S. at 33

(quoting Dukes, 564 U.S. at 350). In light of these

stringent requirements, this Court has applied

presumptions in the class action context only in very

limited circumstances, where the market to which

the presumption is applied is one that is “impersonal,

well-developed,” and “information-hungry,” meaning

that the presumption is “supported by common sense

and probability.” Basic Inc. v. Levinson, 485 U.S.

224, 245-47, 249 n.29 (1988).

Lower courts have nonetheless expanded the use

of these presumptions of injury to markets that are

not impersonal, well-developed, and informationhungry. For example, in Waggoner, the Second

Circuit allowed a class suing under Rule 10b-5 to rely

on a presumption of injury to establish an element of

its claim, despite the fact that the econometric model

used could not disaggregate whether declines in stock

prices were caused by defendant’s alleged conduct or

state regulatory action. 875 F.3d at 106. The court

also disregarded evidence that the defendant put

forth to rebut the showing of market efficiency,

holding that defendants must meet a burden of

persuasion rebutting the presumption even though

the burden on class certification rests with plaintiffs.

Id. at 101-03.

Similarly, in Kleen Products, the Seventh Circuit

approved a presumption of class-wide injury based on

price increases in an unrepresentative price index.

831 F.3d at 927.

The court ignored evidence

demonstrating that the index price did not reflect the

prices that individual plaintiffs actually paid, which

were driven by a variety of non-price inputs and were

often individually negotiated. Id. at 927-29. The

presumption was thus treated as essentially

irrebuttable, further lowering the threshold of what

putative classes need to prove to meet the

requirements of Rule 23.

Lower courts’ increased willingness to depart

from this Court’s statements about care in the use of

presumptions to demonstrate injury threatens to

invite even more meritless class actions, which, in

turn, will inevitably yield more cy pres settlements.

II. Cy Pres Settlements Should Be Subject To

Close Scrutiny.

The best solution to the problems presented by cy

pres settlements is for lower courts to enforce the

requirements of Rule 23 at the front end—and thus

to relieve the pressure for opportunistic cy pres

settlements at the back end. But where plaintiffs

establish Article III standing and a class is properly

certified, cy pres settlements may serve as a safety

valve for defendants facing costly and burdensome

class-action litigation and, thus, tremendous

pressures to settle, even where they have meritorious

defenses and the class allegations are specious. Cy

pres settlements may enable defendants to end

meritless class actions quickly and allow defendants

to avoid the risks and burdens of abusive litigation.

Nonetheless, cy pres settlements may present

serious ethical quandaries.

For example, class

counsel often prefer cy pres settlements, as they

allow counsel to puff up their overall “recovery” in

cases where class members have suffered at best only

nominal injuries. Similarly, both class counsel and

the court may value the reputational benefits that

arise when cy pres settlements shower favored

schools and charities with windfall distributions.

Given these conflicting incentives, there is a serious

risk that cy pres settlements may prejudice the

rights of absent class members. That risk can be

managed only by ensuring that certain features of cy

pres settlements are subject to exacting scrutiny.

Cy Pres Settlements Are A Response

To Meritless But Costly Class Actions.

Even apart from the risks of potential massive

damages liability, the cost of defending class actions

can be substantial, putting enormous pressures on

defendants to settle even specious class actions.

These cases can drag on for years even before the

court takes up the question of class certification. See

U.S. Chamber Institute for Legal Reform, Do Class

Actions Benefit Class Members? An Empirical

Analysis of Class Actions, at 1, 5 (Dec. 2013),

available at http://bit.ly/2upAR80. (“Approximately

14% of all class action cases remained pending four

years after they were filed, without resolution or

even a determination of whether the case could go

forward on a class-wide basis.”). Indeed, the cost to

defend a single large class action can run as much as

$100 million. See Adeola Adele, Dukes v. Wal-Mart:

Implications for Employment Practices Liability

Insurance 1 (July 2011). Class-action litigation costs

in the United States totaled a staggering $2.24

billion in 2017, continuing a rising trend that started

in 2015. See The 2018 Carlton Fields Class Action

Survey, at 2 (2018) (“Class Action Survey”), available

at http://bit.ly/2upBY7G.

Given the potentially enormous costs of

defending against even a meritless class action, a

business defendant will often choose to settle instead

of rolling the dice on further litigation, even if it

expects to (and under the law should) prevail on

summary judgment or at trial. This Court has long

recognized the power of class-action lawsuits to

induce settlement.

See AT&T Mobility LLC v.

Concepcion, 563 U.S. 333, 350 (2011) (noting “the

risk of ‘in terrorem’ settlements that class actions

entail”); Shady Grove Orthopedic Assocs., P.A. v.

Allstate Ins. Co., 559 U.S. 393, 445 n.3 (2010)

(Ginsburg, J., dissenting) (quoting Advisory

Committee’s Notes on Fed. R. Civ. P. 23) (“[A] class

action can result in ‘potentially ruinous liability.”‘)).

As the Court noted 40 years ago, “[c]ertification of a

large class may so increase the defendant’s potential

damages liability and litigation costs that he may

find it economically prudent to settle and to abandon

a meritorious defense.”

Coopers & Lybrand v.

Livesay, 437 U.S. 463, 476 (1978).

The pressures today are even greater than they

were then. In 2017, companies reported settling 71

percent of class actions, up from 63 percent the year

before. See Class Action Survey, supra, at 26. Just 4

percent of class actions go to trial, and most cases

settle before a class is even certified—a reflection of

the power of certification to extract settlement. Id.

In this litigation environment, the benefits of

settling class-action lawsuits has given rise to an

increased use of cy pres settlements. They have

become one of the only ways for defendants to

compromise and escape the burdens of meritless and

costly class-action litigation, especially in venues

where courts have been unwilling to apply the

rigorous scrutiny to class certification that Rule 23

requires.

B. Conflicts Between Class Counsel And

The Absent Class Are Inherent In Cy

Pres Settlements.

This Court has long recognized that Rule 23’s

requirements protect the rights of both defendants

and absent class members, by ensuring that the

procedures for aggregating claims and streamlining

litigation are employed only in appropriate

circumstances. See Taylor v. Sturgell, 553 U.S. 880,

900–01 (2008). One of those procedural protections is

Rule 23(e)’s fairness inquiry, which “protects

unnamed class members ‘from unjust or unfair

settlements affecting their rights.’” Amchem, 521

U.S. at 623 (quoting 7B Wright, Miller, & Kane §

1797, at 340–41); see also Hansberry, 311 U.S. at 42

(courts must “fairly insure[] the protection of the

interests of absent parties”).

Any class action settlement may present ethical

quandaries, as class counsel have an incentive to

negotiate a recovery that prompts settlement while

maximizing their fee award. See Eubank v. Pella

Corp., 753 F.3d 718, 720 (7th Cir. 2014) (“From the

selfish standpoint of class counsel and the defendant,

. . . the optimal settlement is one modest in overall

amount but heavily tilted toward attorneys’ fees.”); In

re Dry Max Pampers Litig., 724 F.3d 713, 715 (6th

Cir. 2013) (“there is always the danger that the

parties and counsel will bargain away the interests of

unnamed class members in order to maximize their

own”). One structural safeguard that is supposed to

counteract that incentive is class counsel’s duty of

loyalty “‘to absent class members whose control over

their attorneys is limited.’” Rodriguez v. Disner, 688

F.3d 645, 655 (9th Cir. 2012) (citation omitted). With

their individual claim turned over to the class

representative, absent class members must rely on

the good faith of class counsel to obtain fair

recompense for their injuries. In short, “the law

relies upon the ‘fiduciary obligation[s]’ of the class

representatives and, especially, class counsel, to

protect those interests.” Dry Max Pampers Litig.,

724 F.3d at 718 (alteration in original) (citation

omitted).

Class counsel have struggled to toe this line in

many settlement contexts. See John C. Coffee, Jr.,

Class Wars: The Dilemma of the Mass Tort Class

Action, 95 Colum. L. Rev. 1343, 1347-48 (1995)

(noting that “non-adversarial settlements have all too

frequently advanced only the interests of plaintiffs’

attorneys, not those of the class members”). But cy

pres settlements in particular can strain the duty of

loyalty to a breaking point. “By disincentivizing class

attorneys from vigorously pursuing individualized

compensation for absent class members, cy pres

threatens the due process rights of those class

members.” Redish, supra, 62 Fla. L. Rev. at 650. Cy

pres awards drive a wedge between class counsels’

interest in a generous fee award and the amount

recovered by individual class members.

Class

counsel are thus able to “reap exorbitant fees

regardless of whether the absent class members are

adequately compensated.” Beisner, supra, at 13. As

courts have noted, decoupling the financial incentives

of class counsel and absent class members creates

potential conflicts of interest, for “[c]lass members

are not indifferent to whether funds are distributed

to them or to cy pres recipients, and class counsel

should not be either.” In re Baby Prods. Antitrust

Litig., 708 F.3d 163, 178 (3d Cir. 2013).

The result of this inherent conflict has been the

creation of what one commentator has called the “cy

pres industry,” an unseemly scramble to be first in

line when cy pres funds are disbursed. Sam Yospe,

Cy Pres Distributions in Class Action Settlements,

2009 Colum. Bus. L. Rev. 1014, 1035 (2009). State

and local bar associations, for example, have

published manuals encouraging members to steer cy

pres funds to their legal services departments. Id. at

1035-36.

Law school clinics have appeared at

settlement hearings and “requested that a portion of

the unexpended funds be set aside to fund their

clinics.” SEC v. Bear, Stearns & Co. Inc., 626 F.

Supp. 2d 402, 409 (S.D.N.Y. 2009). And class counsel

have not neglected the opportunity to use cy pres

settlement

funds—supposedly

provided

recompense injured class members—as pots of money

for dispensing gifts to favored causes. See Pet. Br. at

29-30 (recounting instances where cy pres funds went

to non-profit and educational organizations affiliated

with class counsel); see also Bear Stearns, 626 F.

Supp. 2d at 414–15 (collecting cases where cy pres

awards in class action settlements “stray[ed] far from

the ‘next best use’”).

Unfortunately, some courts have embraced their

newfound role as public charities, taking on duties

normally associated with foundation grant officers.

See Fears v. Wilhelmina Model Agency, Inc., No. 02

Civ. 4911(HB), 2007 WL 1944343, at *11 (S.D.N.Y.

July 5, 2007) (“After the initial distribution,

additional distributions will be contingent upon

achievement. Each entity will provide the Court in

an annual report with information detailing what the

project has accomplished.”), vacated, 315 F. App’x

333 (2d Cir. 2009).

While oversight of the

distribution of cy pres funds is necessary, this

grantmaking role can place “judges in ethically

compromising situations . . . [i]ntroducing cy pres

into the adjudicatory process transforms supposedly

impartial decision makers into grant supervisors.”

Jennifer Johnston, Cy Pres Comme Possible to

Anything is Possible: How Cy Pres Creates Improper

Incentives in Class Action Settlements, 9 J. L. Econ. &

Pol’y 277, 287–88 (2013). In fact, in some cases,

courts have used cy pres funds to benefit their own

preferred charities. See In re Google Buzz Privacy

Litig., No. C 10-00672 JW, 2011 WL 7460099, at *1

(N.D. Cal. June 2, 2011) (district court sua sponte

“nominat[ing] the Markkula Center for Applied

Ethics at Santa Clara University,” where the district

judge taught, for a cy pres distribution); Perkins v.

Am. Nat’l Ins. Co., No. 3:05-CV-100 (CDL), 2012 WL

2839788, at *1 (M.D. Ga. July 10, 2012) (approving cy

pres award to the presiding judge’s alma mater).

C. Cy Pres Settlements Should Be Subject

To Strict Standards.

Federal court reviews of proposed class

settlements for fairness under Rule 23(e) are not

intended to be “appraisals of the chancellor’s foot

kind—class certifications dependent upon the court’s

gestalt judgment or overarching impression of the

settlement’s fairness.” Amchem, 521 U.S. at 621.

The Chamber therefore urges the Court to

impose strict standards on the use of cy pres

settlements. These standards are consistent with

Rule 23(e) and a district court’s “special duty to act

as guardian for the interests of absent class

members,” which arises because “they are not

present but will be bound by the disposition of the

case.” 2 McLaughlin on Class Actions § 6:4 (14th ed.

2017).

Cy pres distributions should not be

approved if it is feasible to reliably identify and

then distribute funds to absent class members.

The Seventh Circuit has held that cy pres

distributions should not be approved if economically

feasible means of identifying class members and

compensating them remain. See Pearson v. NBTY,

Inc., 772 F.3d 778, 784 (7th Cir. 2014). The Court

should adopt this rule. In Pearson, the court noted

that “the claims process could have been simplified”

to increase the response rate, or the defendant could

“have mailed [settlement fund distributions] to all”

consumers that it knew had purchased its product.

Id.

Cy pres distributions of the unexpended

settlement funds should be considered only when

those funds “can’t feasibly be awarded to the

intended beneficiaries,” because the administrative

or other costs of finding class members and making

distributions to them are disproportionately high. Id.

Where absent class members can be identified,

the simplest solution to the problem of undistributed

settlement funds—the one adopted by the Eighth and

Fifth Circuits—is to make additional distributions to

identified class members, unless the court

determines that their claims have been fully

satisfied. “Because the settlement funds are the

property of the class, a cy pres distribution to a third

party of unclaimed settlement funds is permissible

‘only when it is not feasible to make further

distributions to class members.’” Klier v. Elf Atochem

N. Am., Inc., 658 F.3d 468, 475 (5th Cir. 2011)

(citation omitted).

Where class members have

already been identified and fully compensated, there

is no need to divert settlement funds to third parties;

the court should order the funds returned to the

defendant. Id. at 482. (“The preferable alternative

. . . is to return any excess funds to the defendant.”);

see also In re BankAmerica Corp. Sec. Litig., 775 F.3d

1060, 1064 (8th Cir. 2015) (where “class members

who received and cashed prior distribution checks

exist and would form the basis of a further

distribution to the classes,” it was an abuse of

discretion to order cy pres distribution to third

party).

If cy pres distributions are warranted,

courts must carefully scrutinize conflicts of

interest and “next best use.”

In limited

circumstances, cy pres distributions may be

warranted, but only when it is not “logistically

feasible and economically viable” to make further

distributions because the amounts to be distributed

are too small. Klier, 658 F.3d at 475. But in that

instance, the court must ensure that the settlement

funds have been put “to their next-best use by

providing an indirect benefit to the class.” Id. Cy

pres distributions should be made “for a purpose as

near as possible to the legitimate objectives

underlying the lawsuit, the interests of class

members, and the interests of those similarly

situated.” In re Airline Ticket Comm’n Antitrust

Litig., 307 F.3d 679, 682 (8th Cir. 2002). And the

court must be especially vigilant to surface conflicts

of interest that might raise a reasonable inference

that third parties have been selected for improper

reasons.

Cy pres distributions should not be

considered in determining fee awards.

determining a fee award for class counsel, “[o]ne

fundamental focus is the result actually achieved for

class members . . . [even for] a percentage approach

to fee measurement.”

Rule 23(h) Advisory

Committee Comments to 2003 Amendments

(emphasis added). Through cy pres awards, class

counsel are able to inflate the “recovery” to the class

and “reap exorbitant fees regardless of whether the

absent class members are adequately compensated.”

Beisner, supra, at 13.

But a distribution of

settlement funds to third parties is not a result

“actually achieved” for class members. See Mirfasihi

v. Fleet Mortg. Corp., 356 F.3d 781, 784 (7th Cir.

2004) (“There is no indirect benefit to the class from

the defendant’s giving the money to someone else.”).

There is no justification for awarding fees to class

counsel on the basis of cy pres distributions that

achieve no more than an indirect benefit for the class

members whose claims, in the aggregate, created the

settlement fund in the first place. As a result,

disregarding cy pres distributions when considering

fee awards is the only way to align class counsel’s

financial incentives with its duty of loyalty to the

absent class.

See Pearson, 772 F.3d at 781

(disapproving fee award based on $20.2 million

settlement fund where actual distributions to the

class totaled “a meager $865,284”).

* * *

No matter what the Court decides with respect

to this particular settlement, the overall significance

of this case will depend on whether the Court is

willing to exercise its authority to discipline the

lower courts and require compliance with its

precedents on class certification. At a minimum, the

Court should make clear that district courts are

required to scrutinize proposed cy pres settlements at

the front end by rigorously applying this Court’s

decisions to deny certification of specious class

actions. And for those class actions that do make it

through that initial screen, district courts should

police the distribution of class-settlement amounts at

the back end to ensure that payments are fair and

free of conflicts of interest. Above all, the Court

should emphasize the importance of lower courts’

abiding by this Court’s precedents on class action

certification.

CONCLUSION

The Chamber takes no position on whether the

judgment below should be affirmed, but urges the

Court to reaffirm the important procedural

protections that are essential to preventing abuse of

the class-action device by the plaintiffs’ bar.

Respectfully submitted,