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

No. 17-961

IN THE

SUPREME COURT OF THE UNITED STATES

THEODORE H. FRANK and MELISSA ANN HOLYOAK,

Petitioners,

v.

PALOMA GAOS, on behalf of herself and all others

similarly situated, et al.,

Respondents.

On Writ of Certiorari to the United States Court of

Appeals for the Ninth Circuit

BRIEF FOR THE STATES OF OREGON, CALIFORNIA,

CONNECTICUT, HAWAII, ILLINOIS, MARYLAND,

MASSACHUSETTS, MINNESOTA, NEW YORK, NORTH

CAROLINA, VERMONT, AND WASHINGTON AS AMICI

CURIAE IN SUPPORT OF RESPONDENTS

ELLEN F. ROSENBLUM

Attorney General of Oregon

BENJAMIN GUTMAN*

Solicitor General

HENRY KANTOR

Special Counsel

CARSON WHITEHEAD

Assistant Attorney General

1162 Court Street

Salem, Oregon 97301-4096

Phone: (503) 378-4402

benjamin.gutman@doj.state.or.us

*Counsel of Record

(Additional counsel listed on signature page)

QUESTION PRESENTED

In a class action where distributing funds to the

class is not feasible, can a settlement that distributes

those funds on a cy pres theory to third-party organizations working on issues that benefit the class be

“fair, reasonable, and adequate” under Federal Rule

of Civil Procedure 23(e)(2)?

i

TABLE OF CONTENTS

Page

QUESTION PRESENTED ........................................... i

INTEREST OF THE AMICI STATES ........................ 1

SUMMARY OF ARGUMENT ..................................... 2

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

A. Cy pres disbursements are authorized under

state and federal law as a way to afford relief to

class members when direct compensation is

infeasible..................................................................5

1. State legislatures and state courts recognize

the validity of cy pres remedies in appropriate

circumstances. ................................................... 6

2. In federal class actions, the states play a role in

ensuring the adequacy of settlements,

including those providing cy pres relief.......... 14

3. The Court of Appeals correctly affirmed the

district court’s ruling approving the cy pres

relief in this case. ............................................ 16

B. Cy pres disbursements do not violate the Due

Process Clause or the First Amendment. .............17

1. Cy pres relief does not violate the Due Process

Clause. ............................................................. 18

2. Cy pres relief does not violate the First

Amendment. .................................................... 19

a.

Cy pres relief does not compel speech.... 21

b.

Even if cy pres-only relief compelled

speech, it would survive First Amendment

scrutiny............................................................ 24

CONCLUSION........................................................... 27

ii

TABLE OF AUTHORITIES

Cases

Adickes v. S.H. Kress & Co.,

398 U.S. 144 (1970) ................................................ 17

Amchem Products, Inc. v. Windsor,

521 U.S. 591 (1997) ............................................ 6, 18

Atl. Marine Constr. Co. v. Dist. Ct. for the Western

Dist. of Texas,

571 U.S. 49 (2013) .................................................. 16

Baby Products Antitrust Litigation,

708 F.3d 163 (3d Cir. 2013).......................... 5, 14, 15

Boyle v. Giral,

820 A.2d 561 (D.C. Ct. App. 2003)........................... 8

Cavalier v. Mobil Oil Corp.,

898 So.2d 584 (La. Ct. App. 2005) ......................... 13

Charles I. Friedman, P.C. v. Microsoft Corporation,

141 P.3d 824 (Ariz. Ct. App. 2006) .......................... 8

Cicelski v. Sears, Roebuck & Co.,

348 N.W.2d 685 (Mich. Ct. App. 1984),

rev den, 369 N.W.2d 194 (Mich. 1985)..................... 9

Columbia Cas. Co. v. HIAR Holding, L.L.C.,

411 S.W.3d 258 (Mo. 2013) ...................................... 9

iii

Hansberry v. Lee,

311 U.S. 32 (1940) ............................................ 17, 23

Janus v. Am. Fed’n of State, Cty., & Mun. Employees,

Council 31,

138 S. Ct. 2448 (2018) .....................................passim

Kansas Ass’n of Private Investigators v. Mulvihill,

159 S.W.3d 857 (Mo. Ct. App. 2005)...................... 12

Klein v. Robert’s Am. Food,

28 A.D.3d 63 (N.Y. App. Div. 2006) ......................... 9

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

658 F.3d 468 (5th Cir. 2011) .................................. 22

Knox v. Serv. Employees Int’l Union, Local 1000,

567 U.S. 298 (2012) .............................. 20, 21, 22, 24

Masters v. Wilhelmina Model Agency, Inc.,

473 F.3d 423 (2d Cir. 2007).................................... 14

Microsoft I-V Cases,

37 Cal. Rptr. 3d 660 (Cal. Ct. App. 2006)............. 12

Mirfasihi v. Fleet Mortg. Corp.,

356 F.3d 781 (7th Cir. 2004) .................................. 14

Motor Fuel Temperature Sales Practices Litig.,

872 F.3d 1094 (10th Cir. 2017),

cert. denied sub nom Speedway LLC v. Wilson,

138 S. Ct. 1299 (2018) ............................................ 19

Muise v. GPU, Inc.,

851 A.2d 799 (N.J. Super. Ct. App. Div. 2004)........ 9

iv

Northrup v. Sw. Bell Tel. Co.,

72 S.W.3d 16 (Tex. Ct. App. 2002)........................... 9

Ousmane v. City of New York,

22 Misc. 3d 1136(A), 880 N.Y.S.2d 874 (N.Y. Sup.

Ct. 2009) ................................................................. 12

Pharm. Indus. Average Wholesale Price Litig.,

588 F.3d 24 (1st Cir. 2009) ..................................... 14

Phillips Petroleum Co. v. Shutts,

472 U.S. 797 (1985) .......................................... 17, 22

Powell v. Georgia-Pacific Corp.,

119 F.3d 703 (8th Cir. 1997) .................................. 14

Premier Pork, Inc. v. Rhone-Poulenc, S.A.,

No. CV2000-3, 2006 WL 1388464, at *4 (Kan. Dist.

Ct. Jan. 31, 2006) ..................................................... 9

Radosti v. Envison EMI, LLC,

717 F. Supp. 2d 37 (D. D.C. 2010) ......................... 15

Reed v. Town of Gilbert, Ariz.,

135 S. Ct. 2218 (2015) ............................................ 23

Scharfstein v. BP West Coast Products, LLC,

2016 WL 9735513 (Or. Cir. May 9, 2016),

aff’d, 292 Or. App. 69 (2018) ............................ 10, 12

United States v. United Foods, Inc.,

533 U.S. 405 (2001) .............................. 19, 20, 21, 24

Wal-Mart Stores, Inc. v. Dukes,

564 U.S. 338 (2011) ................................................ 17

v

Zaber v. City of Dubuque,

902 N.W.2d 282 (Iowa Ct. App. 2017) ............... 8, 10

Constitutional Provision, Statutes, and Rules

28 U.S.C. §1712(e)...................................................... 15

28 U.S.C. §1715.......................................................... 15

735 Ill. Comp. Stat. 5/2-807(a) .................................. 10

Cal. Civ. Proc. Code § 384............................................ 6

Cal. Code Civ. P. § 384(a) .......................................... 10

Colo. R. Civ. P. 23(g) .................................................... 7

Conn. Super. Ct. R. § 9-9(g)......................................... 7

Fed. R. Civ. P. 23(c)(2)(B)(v)...................................... 22

Fed. R. Civ. P. 23(e)(2)........................................passim

Fed. R. Civ. P. 23(e)(4)............................................... 22

Fed. R. Civ. R. 23(b)(3) .............................................. 22

Haw. R. Civ. P. 23(f) .................................................... 7

Ill. Code Civ. P. § 2-807 ............................................... 7

Ind. R. Trial P. 23(f)..................................................... 7

Ky. R. Civ. P. 23.05(6).................................................. 7

La. Sup. Ct. R. XLIII ................................................... 7

Mass. R. Civ. P. 23(e)................................................... 7

Me. R. Civ. P. 23(f)....................................................... 7

Minn. R. Civ. P. 23.05(e).............................................. 7

Mont. R. Civ. P. 23(i)(3) ......................................... 7, 10

N. C. Gen. Stat. § 1-267.10 (a)..................................... 7

vi

N.M. R. Civ. P. 1-023(G) .......................................... 7, 8

Neb. Rev. Sta. § 30-3839.............................................. 7

Or. R. Civ. P. 32 O ....................................... 7, 8, 10, 11

Pa. R. Civ. P. 1716 ....................................................... 8

S. C. R. Civ. P. 23(e)..................................................... 8

S. D. Codified Laws 16-2-57 ........................................ 8

Tenn. R. Civ. P. 23.08 ............................................ 8, 10

US Const., Amend. 1...........................................passim

W. V. R. Civ. P. 23(f) .................................................... 8

Wash. R. Civ. P. 23(f)................................................... 8

Wisc. Stat. § 803.08(10) ............................................... 8

Other Authorities

S. Rep. No. 109-14, at 35 (2005) ................................ 15

vii

INTEREST OF THE AMICI STATES

This case concerns whether a settlement

agreement in a class action is “fair, reasonable, and

adequate” under Federal Rule of Civil Procedure

23(e)(2) where the settlement provides cy pres funds

to third-party organizations that indirectly benefit

the class when direct distribution to class members is

not feasible. The states have a strong interest in protecting their residents from tortious or illegal conduct, including through cy pres relief when warranted. In appropriate circumstances, cy pres-only relief

protects the interests of class members because it allows a remedy for the injuries class members have

suffered when the available funds are too small for

individual distribution. Cy pres distribution of residual funds vindicates the interest of the class by directing those amounts to entities that will indirectly

benefit the class instead of returning the funds to the

defendant. By providing a remedy to injured class

members, cy pres relief also holds defendants accountable for their wrongdoing. Moreover, the Class

Action Fairness Act provides an express role for the

states in evaluating class action settlements in federal court. Under CAFA, the states have frequently

alerted courts to class action settlements that are inadequate, including those that misuse cy pres relief.

The courts, with help from the states, can ensure that

class action settlements that provide for cy pres relief

are fair, reasonable, and adequate under Rule 23.

The states also have a strong interest in protecting state laws governing cy pres relief from unfounded constitutional challenges. Although the question

2

presented here concerns only the proper interpretation of a federal rule, some of the arguments made by

petitioners and their amici go beyond the question

presented and address the constitutionality of cy pres

relief in class actions generally. Those arguments, if

accepted, could affect the law in the majority of states

that have made a policy decision to recognize cy pres

relief in class actions in certain circumstances.

Twenty-three states expressly authorize the distribution of residual class action funds to cy pres recipients. In a substantial number of other states, state

courts have approved class action settlements containing cy pres relief under the applicable statutes

and rules even where those states do not have an express cy pres statute. Those state laws and court rulings are constitutional, and the states have an interest in explaining why.

The states provide this brief to explain the importance of cy pres relief as a tool for disbursing residual class-action funds and as an appropriate substitute remedy when it is not feasible to distribute

funds to class members. Beyond the merits of the

particular cy pres provision at issue in this case, the

states have a compelling interest in supporting the

availability of cy pres relief under their own laws and

as approved by their own courts.

SUMMARY OF ARGUMENT

Cy pres relief is a vital tool for providing a

remedy that benefits class members when a direct

disbursement is not feasible and for distributing re-

3

sidual class action proceeds. State legislatures, state

courts, Congress, and the federal courts have all recognized that cy pres relief has a role to play in class

actions. Many states expressly authorize cy pres disbursements of residual class action funds, and Oregon

and New Mexico expressly authorize cy pres-only disbursements. In other states, the courts have permitted—under more general state laws—cy pres-only settlements and cy pres disbursement of remainder

funds when appropriate. In CAFA, Congress expressly authorized cy pres disbursements in coupon settlements. And the federal courts have long recognized

that cy pres relief is consistent with Rule 23 when it

provides a fair, reasonable, and adequate remedy for

class members. In those federal class actions, the

states have served as a check against improper cy

pres awards by alerting the courts to inappropriate or

inadequate settlements.

The lesson from the experience of the states is

that cy pres relief is an important remedy in class actions when employed in the appropriate circumstances and under close supervision by the courts. Cy pres

relief prevents defendants from retaining damages or

restitution amounts that were properly awarded but

not claimed or not amenable to distribution, affords

an adequate remedy to injured class members when

direct compensation is impractical or impossible, and

helps the parties craft efficient settlement agreements. This Court should affirm because cy pres relief can be a legitimate and appropriate remedy in

class actions under state and federal law, and be-

4

cause the lower courts correctly held that the settlement here was fair, reasonable, and adequate.

In addition to petitioners’ challenge under Rule

23, petitioners and several amici argue that cy pres

distributions violate the Due Process Clause and the

First Amendment. But those arguments were not

raised in the courts below, and this Court should decline to address them in the first instance. In any

event, the constitutional objections are misplaced.

First, cy pres distributions do not pose any inherent due process problems. Rather, such distributions merely require courts to evaluate the same considerations that apply to class actions generally to

protect the rights of absent class members.

Second, cy pres distributions do not violate the

First Amendment by compelling speech. The concerns that animate the Court’s compelled speech jurisprudence are wholly absent from the cy pres context, both generally and on the facts of this case. A cy

pres distribution in a federal class action cannot be a

compelled subsidy for speech because class members

have the opportunity to opt out of the class. Moreover, for cy pres distribution of remainder funds, those

funds could have been claimed by class members but

were not. Class members are not compelled to subsidize anyone’s speech when those residual funds are

directed to cy pres recipients. But even if the compelled speech doctrine were applicable, cy pres relief

is permissible under that doctrine because it is a narrowly tailored remedy that vindicates the states’ and

5

class members’ interests in obtaining redress, albeit

indirectly, for injuries caused by a defendant and in

holding such a defendant accountable.

ARGUMENT

A. Cy pres disbursements are authorized under state and federal law as a way to afford relief to class members when direct

compensation is infeasible.

Cy pres relief originated as a common law doctrine

for distributing funds from a charitable trust to a

substitute beneficiary when the original intent of the

testator could not be fulfilled. In the 1970s, courts

began to apply the doctrine in class actions as a way

of distributing funds that are left over after class

claims have been fulfilled or when distribution to the

class would not be feasible. In re Baby Products Antitrust Litigation, 708 F.3d 163, 171-73 (3d Cir. 2013)

(discussing development of cy pres distributions in

class actions). As detailed below, the majority of

states have expressly authorized cy pres disbursements in class actions either through legislative act

or court decision. Under CAFA, federal law expressly

authorizes cy pres distributions for funds remaining

in coupon settlements. The states also receive notice

when their residents will be subject to a class action

settlement in federal court and have the opportunity

to inform the court when the settlement is inadequate, an opportunity that states have frequently

used.

6

Cy pres relief plays an important role in vindicating the rights of injured class members. One purpose

of class action litigation is to provide a remedy to the

class when it would be impossible or impracticable for

an individual litigant to pursue a claim. See Amchem

Products, Inc. v. Windsor, 521 U.S. 591, 617 (1997).

Class actions augment and amplify the ability of the

states to enforce substantive law by providing an avenue for private enforcement. Cy pres relief is an important component of that private enforcement because it provides a remedy when individual recovery

would be impossible. Without the option of cy pres

relief, particularly cy pres-only distributions, meritorious cases would not be brought and class members

would have no recourse, simply because the size of

their injury was small relative to the costs of disbursing an award. By providing a remedy for class members with a small individual injury, cy pres relief furthers the core function of class actions. This Court

should affirm that cy pres remedies, including cy presonly settlements, are permissible under Rule 23.

1. State legislatures and state courts recognize the validity of cy pres remedies

in appropriate circumstances.

Twenty-three states have statutes or court rules

that authorize, and in some cases require, cy pres distributions of residual funds that result from a class

action settlement or judgment:

•

California: California Code of Civil Procedure

§ 384

7

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

Colorado: Colorado Rule of Civil Procedure

23(g)

Connecticut:

Connecticut Superior Court

Rules § 9-9(g)

Hawaii: Hawaii Rule of Civil Procedure 23(f)

Illinois: Illinois Code of Civil Procedure § 2807

Indiana: Indiana Rules of Trial Procedure

23(f)

Kentucky: Kentucky Rules of Civil Procedure

23.05(6)

Louisiana: Louisiana Supreme Court Rule

XLIII

Maine: Maine Rule of Civil Procedure 23(f)

Massachusetts: Massachusetts Rule of Civil

Procedure 23(e)

Minnesota: Minnesota Rule of Civil Procedure 23.05(e)

Montana: Montana Rule of Civil Procedure

23(i)(3)

Nebraska: Nebraska Revised Statutes 303839

New Mexico: New Mexico Rule of Civil Procedure 1-023(G)

North Carolina: North Carolina General

Statute § 1-267.10 (a)

Oregon: Oregon Rule of Civil Procedure 32 O

8

•

•

•

•

•

•

•

Pennsylvania: Pennsylvania Rule of Civil

Procedure 1716

South Carolina: South Carolina Rule of Civil

Procedure 23(e)

South Dakota: South Dakota Codified Law

16-2-57

Tennessee: Tennessee Rule of Civil Procedure

23.08

Washington: Washington Rule of Civil Procedure 23(f)

West Virginia: West Virginia Rules of Civil

Procedure 23(f)

Wisconsin: Wisconsin Statute 803.08(10)

Some states also have statutes that authorize

cy pres-only remedies in particular circumstances.

For example, Oregon and New Mexico expressly authorize cy pres-only relief when it would be impracticable to distribute damages to the class directly. Or.

R. Civ. P. 32 O (“If any amount awarded as damages

is not claimed within the time specified by the court,

or if the court finds that payment of all or part of the

damages to class members is not practicable” the

court shall order cy pres disbursements); N.M. R. Civ.

P 1-023(G) (authorizing cy pres disbursement “if it is

impossible or economically impractical to distribute

the common fund to the class at all”).

In other states and the District of Columbia,

courts have approved the use of cy pres distribution of

residual funds or cy pres-only settlements:

9

•

Arizona: Charles I. Friedman, P.C. v. Microsoft Corporation, 141 P.3d 824, 828 (Ariz.

Ct. App. 2006) (describing settlement containing cy pres distribution of residual funds).

•

District of Columbia: Boyle v. Giral, 820

A.2d 561, 570 (D.C. 2003) (approving cy presonly settlement)

•

Iowa: Zaber v. City of Dubuque, 902 N.W.2d

282, 292 (Iowa Ct. App. 2017) (approving cy

pres distribution of residual funds)

•

Kansas: Premier Pork, Inc. v. Rhone-Poulenc,

S.A., No. CV2000-3, 2006 WL 1388464, at *4

(Kan. Dist. Ct. Jan. 31, 2006) (approving cy

pres distribution of residual funds)

•

Michigan: Cicelski v. Sears, Roebuck & Co.,

348 N.W.2d 685, 690-91 (Mich. Ct. App. 1984),

rev den, 369 N.W.2d 194 (Mich. 1985) (concluding that cy pres relief is permissible in appropriate circumstances)

•

Missouri: Columbia Cas. Co. v. HIAR Holding, L.L.C., 411 S.W.3d 258, 262 (Mo. 2013)

(approving cy pres distribution of residual

funds)

•

New Jersey: Muise v. GPU, Inc., 851 A.2d

799, 823–24 (N.J. Super. Ct. App. Div. 2004)

(noting availability of cy pres relief, but reject-

10

ing argument that possibility of such relief

warranted certification of the class)

•

New York: Klein v. Robert’s Am. Food, 28

A.D.3d 63, 74 (N.Y. App. Div. 2006) (rejecting

coupon settlement when court did not consider

availability of cy pres distribution)

•

Texas: Northrup v. Sw. Bell Tel. Co., 72

S.W.3d 16, 22 (Tex. Ct. App. 2002) (approving

cy pres-only settlement)

We are unaware of any state court or state legislature

that has categorically rejected cy pres disbursements

as an available tool in class actions.

Some states have adopted detailed criteria for

selecting cy pres recipients. See, e.g., 735 Ill. Comp.

Stat. 5/2-807(a) (defining organizations eligible to receive distributions of residual funds). Some states

require a minimum percentage of the cy pres funds to

be distributed to legal aid organizations. See, e.g., Or.

R. Civ. P. 32 O; Mont. R. Civ. P. 23(i)(3). Other states

give the trial court discretion in selecting cy pres recipients, but acknowledge that legal aid organizations

are an appropriate recipient. See Tenn. R. Civ. P.

23.08. Uniformly, the state laws, court rules, and

court decisions limit cy pres disbursements to organizations that would further the interests of the class or

further the state’s interest in justice. See, e.g., Cal.

Civ. P. Code § 384(a); Zaber, 902 N.W.2d at 291-92.

11

Additionally, state courts have effectively supervised cy pres relief in class actions. State laws

governing class actions impose similar requirements

to federal law concerning court approval of settlements and class awards, and the due process requirements that animate the federal rules extend to

state law as well. Like the federal courts, the state

courts scrutinize proposed cy pres relief to ensure that

class interests are protected and adequately remedied.

A recent Oregon class action, Scharfstein v. BP

West Coast Products, LLC, 2016 WL 9735513 (Or.

Cir. May 9, 2016), aff’d, 292 Or. App. 69 (2018), provides an example of how a trial court can effectively

monitor the creation and distribution of a cy pres

fund. In that consumer protection case, following a

jury verdict and claims process, the trial court conducted several days of hearings and received extensive testimony to determine the appropriate cy pres

recipients of approximately $66 million in residual

funds. Id. at *1. Under Oregon Rule of Civil Procedure 32 O, the court was required to distribute at

least half of the remainder fund to the Oregon Legal

Services Program. The other half could be distributed to that same program or to a third-party organization for purposes “directly related to the class action

or directly beneficial to the interests of class members.” Or. R. Civ. P. 32 O.

After hearing from the parties and an array of expert witnesses in the relevant areas—including testimony on cy pres awards generally, the provision of

12

legal services for low income clients, consumer protection, and non-profit management—the court entered

a detailed order adopting a cy pres plan to distribute

the funds. 2016 WL 9735513 at *2. The court first

determined that half of the funds should go to consumer protection, because that was the basis of the

class action. Id. at *3 Because no entity existed in

Oregon that could serve class interests and make

good use of the large award, the court authorized use

of the majority of the cy pres funds to create a consumer protection nonprofit that would serve the interests of the class. Id. at *4-5. The court included a

detailed process for establishing the Oregon Consumer Protection Center, including an appointment of the

Oregon Community Foundation, a nonprofit organization with extensive experience in asset management, to manage the cy pres funds. Id. at *5-6. The

court also authorized a distribution to the University

of Oregon School of Law for research into consumer

issues. Id. at *6. The court issued a detailed cy pres

plan to guide the formation of the new nonprofit and

to guide use of the cy pres funds. Id. at *6-7.

The process followed in Scharfstein shows that the

state courts, with the involvement of the parties, can

effectively and fairly manage the distribution of cy

pres funds to serve the interests of class members

even in unusually large or complex cases. Courts in

other states have engaged in similar processes in

granting cy pres relief. See, e.g., In re Microsoft I-V

Cases, 37 Cal. Rptr. 3d 660, 676-77 (Cal. Ct. App.

2006) (holding that the trial court did not abuse its

discretion in approving a settlement agreement con-

13

taining a provision for cy pres distribution of residual

funds when the trial court found—based on extensive

testimony—that the distribution would provide a

benefit to class members).

By contrast, state courts have not hesitated to

rejected cy pres distributions proposed by the parties

when they were inappropriate. See, e.g., Kansas

Ass’n of Private Investigators v. Mulvihill, 159 S.W.3d

857, 862 (Mo. Ct. App. 2005) (holding that the trial

court abused its discretion when, among other things,

it distributed cy pres funds to charities unrelated to

the activities of the parties in the suit and in a county

where none of the class members lived); Ousmane v.

City of New York, 22 Misc. 3d 1136(A), 880 N.Y.S.2d

874 (N.Y. Sup. Ct. 2009) (rejecting a motion for cy

pres distribution of residual funds where the defendant was a government entity and the residual funds

belonged to “a relatively small number of readily

identifiable” plaintiffs); Cavalier v. Mobil Oil Corp.,

898 So.2d 584 (La. Ct. App. 2005) (holding that the

trial court erred by disbursing twenty percent of remainder funds to a nonprofit that did not serve the

area where class members lived).

The states allow cy pres disbursements in appropriate circumstances because they provide a benefit to class members by directing funds to groups that

have similar interests to the class or to legal aid organizations that promote access to justice. A majority

of states have determined that cy pres relief is preferable to other methods of distributing remainder

funds, such as returning undistributed funds to the

14

defendant, increasing the pro rata share to class

members who make claims, or giving those funds arbitrarily to some portion of the class. The states’ experience shows that cy pres relief can be administered

in a fair manner that adequately protects the rights

of the class. We do not suggest that cy pres relief is

always appropriate or that the doctrine cannot be

misapplied. But the potential problems that can accompany cy pres relief are largely the same problems

that relate to all mass litigation. The courts—with

the help of the states—can ensure that the interests

of class members are adequately represented and

that settlement agreements, whether they include cy

pres relief or not, are “fair, reasonable, and adequate.”

2. In federal class actions, the states play

a role in ensuring the adequacy of settlements, including those providing cy

pres relief.

Like the state legislatures and state courts,

every circuit court to address cy pres relief in class

actions has concluded that such relief may be appropriate in the right case.1 And in the Class Action

Fairness Act, Congress expressly authorized federal

courts to require cy pres distributions in class action

See, e.g., In re Pharm. Indus. Average Wholesale Price Litig.,

588 F.3d 24, 34 (1st Cir. 2009); Masters v. Wilhelmina Model

Agency, Inc., 473 F.3d 423, 436 (2d Cir. 2007); In re Baby

Products, 708 F.3d at 173; Klier v. Elf Autochem N. Am., Inc.,

658 F.3d 468, 475 & n.15 (5th Cir. 2011); Mirfasihi v. Fleet

Mortg. Corp., 356 F.3d 781, 784 (7th Cir. 2004); Powell v.

Georgia-Pacific Corp., 119 F.3d 703, 706 (8th Cir. 1997).

1

15

settlements that provide coupon remedies. 28 U.S.C.

§ 1712(e).2 Although that provision is limited in

scope, it shows that Congress has recognized that cy

pres is a needed tool for distributing class action proceeds in some circumstances.

When a federal class action settles, the states can

help the courts apply Rule 23 to ensure that the settlement is a good deal for their respective citizens.

Under CAFA, 28 U.S.C. § 1715, the states receive notice of proposed class action settlements, which allows

the states to “provide a check against inequitable settlements.” S. Rep. No. 109-14, at 35 (2005), reprinted

in 2005 U.S.C.C.A.N. 3, 34. The notice provision also

serves to “deter collusion between class counsel and

defendants to craft settlements that do not benefit

the injured parties.” Id. The states have been actively involved in monitoring class action settlements and

notifying the district courts when those settlements

are improper. See, e.g., Radosti v. Envison EMI, LLC,

717 F. Supp. 2d 37, 49-50 (D. D.C. 2010) (discussing

opposition to cy pres award raised by Attorneys General).

28 U.S.C. § 1712(e) provides, in relevant part: “The court, in

its discretion, may also require that a proposed settlement

agreement provide for the distribution of a portion of the value

of unclaimed coupons to 1 or more charitable or governmental

organizations, as agreed to by the parties.”

2

16

3. The Court of Appeals correctly affirmed the district court’s ruling approving the cy pres relief in this case.

With respect to the cy pres relief in this case, the

district court and the Court of Appeals were correct to

approve the settlement. Determining whether a settlement agreement is “fair, reasonable, and adequate”

under Rule 23 is entrusted to the discretion of the trial court. In re Baby Products, 708 F.3d at 175. There

is nothing in Rule 23 to suggest that a cy pres-only

settlement cannot satisfy that standard so long as the

district court meets its duties to scrutinize the settlement and ensure that class members’ interests are

protected. For the reasons explained by respondents,

the trial court did not abuse its discretion by concluding that (1) the settlement fund was the appropriate

size in view of the harms to class members and

strength of the legal claims; (2) distribution to the

class was not practicable; (3) this cy pres distribution

would provide meaningful, if indirect, benefit to the

class as a whole; and (4) the recipients of the cy pres

funds were appropriate.3 See Class Res. Br. 48-53;

Google Br. 29-56. Accordingly, this Court should affirm the Ninth Circuit’s decision.

A group of states filed an amicus brief in support of petitioner. That brief, however, objects only to cy pres relief or cy

pres-only settlements in general; it does not argue that there

was anything wrong in particular with the settlement in this

case. As explained above, neither Rule 23’s fairness requirement nor CAFA categorically prohibits cy pres-only settlements.

3

17

B. Cy pres disbursements do not violate the

Due Process Clause or the First Amendment.

Although the validity of state law is not before the

Court, several amici (and petitioners very briefly) assert that cy pres relief has constitutional flaws that

could, if their arguments were accepted, impact the

states’ authorization of cy pres relief. Specifically,

amici argue that cy pres distributions raise concerns

under the Due Process Clause and that such distributions violate the First Amendment by compelling the

speech of absent class members. Those arguments

are without merit and should not affect this Court’s

analysis of the Rule 23 issue.

To begin, amici’s due process and First

Amendment arguments were not raised in the courts

below and thus are not properly presented for the

first time here. See Atl. Marine Constr. Co. v. Dist.

Ct. for the Western Dist. of Texas, 571 U.S. 49, 61

(2013) (declining to address argument by amicus that

had not been raised by the parties “at any stage of

this litigation”); Adickes v. S.H. Kress & Co., 398 U.S.

144, 147 n.2 (1970) (“Where issues are neither raised

before nor considered by the Court of Appeals, this

Court will not ordinarily consider them.”). Amici do

not explain why it would be appropriate for this Court

to address the constitutional questions in the first instance, when their arguments were not developed

previously. In any event, if the Court were to consider the constitutional challenges, it should reject them.

18

1. Cy pres relief does not violate the Due

Process Clause.

The Court has long held that aggregate litigation—when properly supervised by the trial court—

can provide adequate representation and protection

for the rights of absent class members. See, e.g., Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985);

Hansberry v. Lee, 311 U.S. 32, 43-44 (1940). In light

of the duty to protect absent class members and the

burdens of aggregate litigation, class actions require

“rigorous analysis” by the trial court to ensure compliance with the rules and with due process. WalMart Stores, Inc. v. Dukes, 564 U.S. 338, 351-52

(2011). In considering a cy pres distribution, state

and federal courts can and do engage in that same

rigorous analysis to ensure that the distribution is

appropriate under state or federal law.

Amici assert that cy pres relief raises a host of

due process problems. Cato Br. 4-24; Lawyers for

Civil J. Br. 20-21. But most of the concerns they raise

actually go to whether class treatment was appropriate, whether the representation was adequate, and

whether counsel and the court behaved ethically.

None of those issues concern whether there are inherent due process problems with cy pres relief.

Moreover, on appeal, no one challenged the district

court’s decision on class certification, the adequacy of

representation, or the adequacy of class notice. See

Pet. App. 17-21, 59-60.

19

Amici also assert that cy pres-only settlements

violate due process because they provide no direct

benefit to the class, and so a class member has given

up a meaningful property interest in the form of a

claim against the defendant and gotten nothing in return. Cato Br. 21-22. But that argument disregards

the foundational principles underlying both class actions and cy pres relief. As noted earlier, one purpose

of class action litigation is to allow aggregate claims

to be brought when individual claims would be impossible to litigate. Amchem, 521 U.S. at 617. Relatedly, cy pres relief serves as a way to afford relief to

the class when direct disbursement to class members

is impossible or impracticable. When many plaintiffs

have suffered a small harm and distribution to the

class would be impossible, cy pres relief may be the

only realistic remedial option, aside from leaving the

plaintiffs with no remedy whatsoever. Cy pres relief

also makes it possible to hold defendants accountable

for inflicting small injuries on millions of people.

Stated simply, cy pres relief does not raise any

intractable due process concerns. Rather, cy pres relief requires only that the trial court consider the

same procedural issues and perform the same rigorous analysis as in any class action settlement.

2. Cy pres relief does not violate the First

Amendment.

Several amici, and petitioners very briefly, also

assert that cy pres relief in any form violates the First

Amendment because that relief compels absent class

20

members to subsidize the speech of groups—the cy

pres recipients—with whom class members may not

agree. See Cato Br. 29-34; Center for Ind. Rights Br.

3-10; Center for Const. Juris. Br. 6-8; Lawyers for

Civil J. Br. 21-22; Pet. Br. 36-37. The Court should

reject that argument.

As a threshold matter, court approval of a settlement agreement is not state action that implicates

the First Amendment. Here, the cy pres-only settlement is an agreement between private parties to resolve their dispute. Although the court is required to

ensure that the interests of absent class members

have been protected, court approval of the agreement

does not transform the actions of private parties into

state action for First Amendment purposes. See In re

Motor Fuel Temperature Sales Practices Litig., 872

F.3d 1094, 1113-14 (10th Cir. 2017), cert. denied sub

nom. Speedway LLC v. Wilson, 138 S. Ct. 1299 (2018)

(rejecting a compelled-speech challenge to the distribution of settlement funds to state regulators on that

basis).

Beyond that, cy pres relief does not involve

compelled speech. The First Amendment generally

prevents the government “from compelling certain individuals to pay subsidies for speech to which they

object.” United States v. United Foods, Inc., 533 U.S.

405 (2001) (citations omitted). But cy pres distributions do not compel absent class members to subsidize the speech of recipients of the funds even though

class members may not agree with that speech. Cy

pres distributions are not analogous to a compelled

21

subsidy, because class members in a federal class actions are free to opt out of class at the outset or at the

time of settlement. But even if cy pres-only relief

could compel speech, it would survive First Amendment scrutiny.

a. Cy pres relief does not compel speech.

Amici rely on United Foods as well as recent cases

concerning union fees charged to nonmembers, Knox

v. Serv. Employees Int’l Union, Local 1000, 567 U.S.

298 (2012), and Janus v. Am. Fed’n of State, Cty., &

Mun. Employees, Council 31, 138 S. Ct. 2448 (2018).

But those cases do not suggest that cy pres relief is a

form of compelled speech.

In United Foods, the Court addressed whether

a mandatory assessment for mushroom advertising

violated the First Amendment when the assessment

was used for generic advertising to which a producer

objected. The Court concluded that compelling an

unwilling producer to subsidize advertisements with

which it disagreed violated the First Amendment.

521 U.S. at 413. In reaching that conclusion, the

Court emphasized that the producer had no choice

but to subsidize the advertisements and noted that

the producer had to remain a member of the group

engaging in the offensive speech. Id.

Similarly, in Knox and Janus, public employees

who had declined to join the union were required by

state law to pay union fees, which were then used by

the unions to engage in speech that the nonmembers

did not support. In both of those cases, the Court re-

22

lied on the premise that nonmembers of unions had

made their unwillingness to support union activities

clear—by declining to join—but were nevertheless

compelled to support union activities, which necessarily involved political advocacy and other speech.

Knox, 567 U.S. at 312; Janus, 138 S. Ct. at 2460.

Unlike the producer in United Foods or the

employees forced to pay agency fees in Knox and Janus, class members here were free to leave the class.

In a class action under Rule 23(b)(3), class members

have the right to opt out at the time of class certification, Fed. R. Civ. P. 23(c)(2)(B)(v), and the district

court can require an additional opportunity to opt out

at the time of settlement, Fed. R. Civ. P. 23(e)(4).

The ability to opt out of a federal class action—which

affords sufficient protection for members’ rights under the Due Process Clause—necessarily means that

a cy pres disbursement is not “compelled” in any

meaningful sense.

Amici assert that the opt-out process in federal

class actions is inadequate in light of the infringement on class members’ First Amendment rights,

again relying on Knox and Janus. Center for Ind.

Rights Br. 6-10; Cato Br. 31. That argument is based

on a misreading of Knox. That case does not stand for

the proposition that opt-out notices are per se impermissible if a constitutional right is implicated. Rather, in Knox, the nonmembers had already declined

to join the public employee unions and thus had made

clear that they did not wish to support union activities. Knox, 567 U.S. at 312. In that context, requir-

23

ing nonmembers to opt out of a fee that would be used

for political purposes to which nonmembers had already objected violated the First Amendment. Id. at

313-14. The Court in Janus began from a similar position: state employees who had already rejected the

union could not be compelled nevertheless to support

union speech by default. The opt-out process for class

actions is different. In contrast to Knox and Janus,

the class members in this case had multiple opportunities to opt out, and a class member needed to make

that decision only once to be removed from the class.

That opt-out process is not analogous to compelling a

nonmember to pay union fees unless the nonmember

affirmatively opts out a second time.

Again, this Court has expressly approved the optout process in class actions. Phillips Petroleum, 472

U.S. at 814. Moreover, a class member who wants to

remain in the class but objects to a specific cy pres recipient can raise those concerns before the trial court.

By providing class members the ability to opt out and

to object, class members’ First Amendment rights—to

the extent they are implicated at all—are sufficiently

protected.

Amici’s argument that cy pres relief compels

speech also fails because cy pres distributions necessarily involve funds that were not or could not be disbursed to class members, who had the opportunity to

opt out of the class. Amici’s argument is premised on

the notion that cy pres relief takes funds from class

members and gives those funds to third parties. To

be sure, class members have a property interest in

24

their claims that extends to funds resulting from a

settlement or judgment. Klier v. Elf Autochem N.

Amer., Inc., 658 F.3d 468, 475 (2011). But the property interest in a class member’s claim can only be reduced to actual funds through the class action process. When a court authorizes a cy pres distribution,

the court necessarily determines that the funds are

either unclaimed or cannot practicably be distributed.

See id. Cy pres distribution of those funds does not

compel an absent class member to transfer any property interest to a third party.

b. Even if cy pres-only relief compelled speech,

it would survive First Amendment scrutiny.

In Janus, the Court applied “exacting scrutiny” in

concluding that mandatory agency fees violated the

First Amendment and declined to address whether

strict scrutiny may be a more appropriate standard.

Janus, 138 S. Ct. at 2465. But even if this Court

were to apply strict scrutiny, cy pres relief does not

violate the First Amendment. To survive strict scrutiny, the regulation of speech must be narrowly tailored to serve a compelling government interest.

Reed v. Town of Gilbert, Ariz., 135 S. Ct. 2218, 2231

(2015).

To the extent that a cy pres-only distribution could

impact speech, it is narrowly tailored relief that

serves a compelling government interest. In keeping

with the purpose of mass litigation, the states (and

the federal government) have a compelling interest in

ensuring that injured class members can litigate their

25

claims and receive an adequate remedy, even when

the value of a claim may be small, and in ensuring

that wrongdoers are held accountable. See Hansberry, 311 U.S. at 41-42 (class actions are an “an invention of equity” that enables a suit to proceed to a

judgment despite procedural barriers); Amchem, 521

U.S. at 617 (noting the importance of class actions in

obtaining relief when individual recovery is small).

That interest in ensuring the availability of an adequate remedy is no less compelling when direct disbursement of settlement funds is not feasible. Cy

pres-only relief can provide an adequate remedy for

injuries to class members who would otherwise have

no recourse, and, in so doing, hold defendants accountable for conduct that causes widespread injury.

The states have a compelling interest in both of those

results. And because cy pres-only relief is appropriate

in very limited factual circumstances—when funds

cannot be feasibly distributed—and with court oversight, it is by definition a narrowly tailored remedy.

Nor does the record in this case support an argument that any cy pres funds in fact subsidized speech

with which class members disagreed. Amici’s argument is entirely speculative, based on assumptions

that members of a large class must have divergent

political views and that those class members would

not exercise their right to opt out or object. This

Court has never applied the compelled speech doctrine as abstractly as amici suggest—nor could it,

consistent with Article III’s requirement that this

Court adjudicate only cases and controversies. And

the notion that the Court can assume that members

26

of any given class have speech-based objections to a cy

pres distribution finds no support in this Court’s cases. This case does not present a situation like United

Foods, Knox, or Janus, where the record showed both

that the challengers objected to the subsidy supporting speech and that the subsidy would, in fact, be

used for objectionable speech. To the extent that a

particular proposed cy pres distribution in a particular case raised concerns about the uses to which a recipient would put the funds, trial courts are capable

of dealing with those situations as they arise.

27

CONCLUSION

The Court should affirm the decision below.

Respectfully submitted,

ELLEN F. ROSENBLUM

Attorney General of Oregon

BENJAMIN GUTMAN

Solicitor General

Counsel of Record

HENRY KANTOR

Special Counsel

CARSON WHITEHEAD

Assistant Attorney General

1162 Court Street

Salem, Oregon 97301-4096

Phone: (503) 378-4402

benjamin.gutman@doj.state.or.us

September 5, 2018

(Counsel listing continues on the next page)

28

XAVIER BECERRA

Attorney General

of California

1300 I Street

Sacramento, CA 95814

GEORGE JEPSEN

Attorney General

of Connecticut

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RUSSELL A. SUZUKI

Attorney General

of Hawaii

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Honolulu, HI 96813

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Attorney General

of Illinois

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Street, 12th Floor

Chicago, IL 60601

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Attorney General

of Maryland

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Baltimore, MD 21202

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Attorney General

of Massachusetts

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Boston, MA 02108

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Attorney General

of Minnesota

102 State Capitol

75 Rev. Dr. Martin Luther King Jr. Blvd.

St. Paul, MN 55155

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Attorney General

of New York

28 Liberty Street

New York, NY 10005

29

JOSHUA H. STEIN

Attorney General

of North Carolina

Post Office Box 629

Raleigh, NC 27602

ROBERT W. FERGUSON

Attorney General

of Washington

Post Office Box 40100

Olympia, WA 98504

THOMAS J. DONOVAN, JR.

Attorney General

of Vermont

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Montpelier, VT 05609