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, INDIVIDUALLY AND ON BEHALF

OF ALL OTHERS SIMILARLY SITUATED, ET AL.,

Respondents.

-----------------------------------------------------------------On Writ Of Certiorari To The

United States Court Of Appeals

For The Ninth Circuit

-----------------------------------------------------------------BRIEF OF THE CIVIL JUSTICE

RESEARCH INITIATIVE AS AMICUS CURIAE

IN SUPPORT OF RESPONDENTS

-----------------------------------------------------------------ERWIN CHEMERINSKY

GERSON H. SMOGER

ANNE BLOOM

Counsel of Record

CIVIL JUSTICE RESEARCH

SMOGER & ASSOCIATES

INITIATIVE

13250 Branch View Lane

UNIVERSITY OF CALIFORNIA

Dallas, TX 75234

BERKELEY SCHOOL OF LAW

(972) 243-5297

459 Boalt Hall

gerson@texasinjurylaw.com

Berkeley, CA 94720

DAVID M. ARBOGAST

(510) 642-2029

ARBOGAST LAW

echemerinsky@law.berkeley.edu

933 Woodland Avenue

annebloom@law.berkeley.edu

San Carlos, CA 94070

(650) 587-3006

david@arbogastlaw.com

================================================================

COCKLE LEGAL BRIEFS (800) 225-6964

WWW.COCKLELEGALBRIEFS.COM

i

QUESTION PRESENTED

Whether, or in what circumstances, a cy pres award

of class action proceeds that provides no direct relief

to class members supports class certification and

comports with the requirement that a settlement

binding class members must be “fair, reasonable, and

adequate.”

ii

TABLE OF CONTENTS

Page

QUESTION PRESENTED...................................

i

TABLE OF CONTENTS ......................................

ii

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

iv

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

1

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

2

ARGUMENT ........................................................

4

I.

II.

The Concept of Cy Pres Is Ensconced in

American Jurisprudence ...........................

4

Cy Pres Awards Are Legal and Constitutional ..........................................................

8

A. The Challenge to Cy Pres Based upon

Article III Misapprehends the Requirements of Standing .......................

9

B. The Rules Enabling Act Does Not Prevent Cy Pres Distributions .................. 12

C. Any First Amendment Concern Lacks

Merit .................................................... 13

D. The Existing Rules Are Sufficient to

Address Petitioner’s Concern About

Conflicts of Interest and Scandalous

Behavior .............................................. 17

III.

Guidance to Consider in Evaluating the

Distribution of Cy Pres .............................. 22

A. Distributing Settlement Funds to

Class Members Should Always Be the

First Priority ....................................... 22

iii

TABLE OF CONTENTS—Continued

Page

B. Factors to Be Considered in the Selection of Cy Pres Recipients .................... 24

C. Making the Initial Selection of Cy Pres

Recipients ............................................ 27

1. The Defendant Should Not Select

Cy Pres Recipients .......................... 27

2. The Court Should Not Have a Role

in the Initial Selection of Cy Pres

Recipients; Its Role Should Be the

Close, Independent Scrutiny of Proposed Recipients ............................. 29

3. The Initial Selection of Cy Pres Recipients Should Be Undertaken by

the Class Representative and Class

Counsel ........................................... 30

D. Proper Beneficiaries for the Distribution of Cy Pres Funds .......................... 32

E. There Is a Need for “Cy Pres Only” Settlements ............................................... 34

CONCLUSION..................................................... 37

APPENDIX

Cy Pres Jurisdiction, Including Statutes, Supreme Court Rules, or Cases if Neither .......... App. 1

iv

TABLE OF AUTHORITIES

Page

CASES

Amchem Prods. v. Windsor, 521 U.S. 591 (1997) ........32

American Pipe & Constr. Co. v. Utah, 414 U.S.

538 (1974) ................................................................31

Briseno v. ConAgra Foods, Inc., 844 F.3d 1121

(9th Cir.2017) ............................................................6

Califano v. Yamasaki, 442 U.S. 682 (1979).................31

Carson v. American Brands, Inc., 450 U.S. 78

(1981) .......................................................................21

China Agritech, Inc. v. Resh, 138 S. Ct. 1800

(2018) .......................................................................31

Comcast Corp. v. Behrend, 133 S. Ct. 1426

(2013) .......................................................................27

Denney v. Deutsche Bank AG, 443 F.3d 253 (2d

Cir.2006) ..................................................................16

Dennis v. Kellogg Co., 697 F.3d 858 (9th

Cir.2012) ............................................................ 25, 28

Deposit Guar. Nat. Bank, Jackson, Miss. v.

Roper, 445 U.S. 326 (1980) ......................................36

Eubank v. Pella Corp., 753 F.3d 718 (7th

Cir.2014) ..................................................................31

Fairchild v. AOL, LLC, No. CV09-03568 CAS

(PLAx) (C.D. Cal. 2009) ...........................................32

Houck v. Folding Carton Admin. Comm., 881

F.2d 494 (7th Cir.1989)..............................................6

v

TABLE OF AUTHORITIES—Continued

Page

In re Airline Ticket Comm’n, 268 F.3d 619 (8th

Cir.2001) ............................................................ 24, 26

In re Airline Ticket Comm’n, 307 F.3d 679 (8th

Cir.2002) ..................................................................24

In re Baby Prods. Antitrust Litig., 708 F.3d 163

(3d Cir.2013) ........................................ 6, 9, 13, 24, 29

In re BankAmerica Corp. Securities Litigation,

775 F.3d 1060 (8th Cir.2015)...................................26

In re Bluetooth Headset Prods. Liab. Litig., 654

F.3d 935 (9th Cir.2011)............................................22

In re Checking Account Overdraft Litig., 830

F. Supp. 2d 1330 (S.D. Fla.2011) ............................24

In re Google Referrer Header Privacy Litig., 87

F. Supp. 3d 1122 (N.D. Cal.2015) ............................14

In re Holocaust Victim Assets Litigation, 424

F.3d 132 (2d Cir.2005) ......................................... 6, 26

In re Jiffy Lube Sec. Litig., 927 F.2d 155 (4th

Cir.1991) ..................................................................21

In re Lupron, 677 F.3d 21 (1st Cir.2012) ... 23, 24, 27, 29

In re Pharm. Indus. Average Wholesale Price

Litig., 588 F.3d 24 (1st Cir.2009) ........................ 6, 24

In re Polyurethane Foam Antitrust Litig., 178

F. Supp. 3d 621 (N.D. Ohio 2016)........................ 6, 27

In re Trustco Bank, 929 N.Y.S.2d 707 (N.Y.

Sup.Ct. 2011) ...........................................................10

vi

TABLE OF AUTHORITIES—Continued

Page

In re Volkswagen “Clean Diesel” Marketing,

Sales Practices & Prods. Liab. Litig., No. MDL

2672, 2016 WL 6248426 (N.D. Cal. Oct. 25,

2016) ........................................................................36

Ira Holtzman, C.P.A. v. Turza, 728 F.3d 682 (7th

Cir.2013) ..................................................................10

Janus v. Am. Fed’n of State, County, & Mun. Employees Council 31, 138 S. Ct. 2448 (2018).... 14, 15, 16

Jones v. Dancel, 792 F.3d 395 (4th Cir.2015) ...............6

Jones v. Nat’l Distillers, 56 F. Supp. 2d 355

(S.D.N.Y.1999) .........................................................31

Keepseagle v. Perdue, 856 F.3d 1039 (D.C.

Cir.2017) ....................................................................7

Klier v. Elf Atochem North America, Inc., 658

F.3d 468 (5th Cir.2011).................................... 6, 9, 23

Knox v. SEIU, 567 U.S. 298 (2012) ................. 14, 15, 16

Lane v. Facebook, Inc., 696 F.3d 811 (9th

Cir.2012) ..................................................................27

Lessard v. City of Allen Park, 470 F. Supp. 2d

781 (E.D. Mich. 2007) ..............................................33

Low v. Trump Univ., LLC, 881 F.3d 1111 (9th

Cir.2018) ..................................................................16

Marek v. Lane, 571 U.S. 1003 (2013) ..........................22

Masters v. Wilhelmina Model Agency, Inc., 473

F.3d 423 (2d Cir.2007) .............................................23

Miller v. Steinbach, No. 66 Civ. 356, 1974 WL 350

(S.D.N.Y. Jan. 3, 1974) .............................................35

vii

TABLE OF AUTHORITIES—Continued

Page

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

Cir.2004) .............................................................. 9, 36

Nachshin v. AOL, LLC, 663 F.3d 1034 (9th

Cir.2011) ...................................................... 25, 27, 29

Nelson v. Mead Johnson & Johnson Co., 484 Fed.

Appx. 429, 2012 WL 2947212 (11th Cir. July

20, 2012) ....................................................................7

Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340

(1978) .......................................................................19

Pearson v. NBTY, No.11-07972, Dkt. 213-1 (N.D.

Ill. May 14, 2015) ....................................................23

Perkins v. Am. Nat’l Ins. Co., No. 3:05-CV-100

(CDL), 2012 WL 2839788 (M.D. Ga. July 10,

2012) ........................................................................29

Phillips Petroleum Co. v. Shutts, 472 U.S. 797

(1985) .......................................................................14

Powell v. Ga. Pac. Corp., 119 F.3d 703 (8th

Cir.1997) ....................................................................6

Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277

(7th Cir.2002) .................................................... 20, 21

S.E.C. v. Bear, Stearns & Co., Inc., 626 F. Supp.

2d 402 (S.D.N.Y.2009) .............................................28

Six (6) Mexican Workers v. Ariz. Citrus Growers,

904 F.2d 1301 (9th Cir.1990)...................................25

Tennille v. W. Union Co., 809 F.3d 555 (10th

Cir.2015) ....................................................................7

viii

TABLE OF AUTHORITIES—Continued

Page

Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396

F.3d 96 (2d Cir.2005) ...............................................21

Wilson v. Southwest Airlines, Inc., 880 F.2d 807

(5th Cir.1989) ..........................................................13

CONSTITUTIONAL PROVISIONS

U. S. Constitution, Article III, §2 ............................ 9, 11

STATUTES

Public Law 109–2, §1712—Feb. 18, 2005 ........... 2, 7, 13

RULES

11th Cir. Rule 36-2 ........................................................7

F.R.C.P. 23 ........................................................... passim

F.R.C.P. 23(a)(1)-(a)(4) ................................................11

F.R.C.P. 23(a)(1) ..........................................................19

F.R.C.P. 23(a)(3) ..........................................................27

F.R.C.P. 23(a)(4) ..........................................................17

F.R.C.P. 23(b)(3) ..........................................................16

F.R.C.P. 23(c)(2)(B) ................................................ 14, 15

F.R.C.P. 23(e) ......................................................... 20, 21

F.R.C.P. 23(e)(1)(B) ......................................................17

F.R.C.P. 23(e)(1)(C) ......................................................21

F.R.C.P. 23(e)(2)...........................................................17

ix

TABLE OF AUTHORITIES—Continued

Page

F.R.C.P. 23(e)(2)(C)(ii) ............................................. 3, 22

F.R.C.P. 23(e)(4)...........................................................16

F.R.C.P. 23(e)(5)...........................................................17

F.R.C.P. 23(f ) ...............................................................19

OTHER AUTHORITIES

7A Charles A. Wright, Arthur R. Miller & Mary

K. Kane, Federal Practice & Procedure §1768

(3d ed. 2005) ............................................................15

Alba Conte & Herbert B. Newberg, Newberg on

Class Actions §11:20 (4th ed. 2012) ........ 5, 10, 15, 22

Arthur H. Bryant, “Cy Pres Awards Don’t Have

to Be Complicated,” The National Law Journal, February 9, 2015 ..............................................33

Calvin C. Fayard, Jr. & Charles S. McCowan, Jr.,

The Cy Pres Doctrine: “A Settling Concept,” 58

La. B.J. 248 (2011) ...................................................33

Danny Van Horn & Daniel Clayton, It Adds Up:

Class Action Residual Funds Support Pro

Bono Efforts, 45 Tenn. B.J. 12 (2009)......................33

Manual for Complex Litigation, Fourth ........ 10, 18, 21

Principles of the Law of Aggregate Litigation

§3.07 cmt. a (2010) ........................................ 5, 13, 26

Redish, Julian & Zyontz, Cy Pres Relief and the

Pathologies of the Modern Class Action: A Normative and Empirical Analysis, 62 Fla. L. Rev.

617 (2010) ..................................................................8

x

TABLE OF AUTHORITIES—Continued

Page

Susan Beth Farmer, More Lessons from the Laboratories: Cy Pres Distributions in Parens Patriae Antitrust Actions Brought by State

Attorneys General, 68 Fordham L. Rev. 361

(1999) .......................................................................23

Thomas A. Doyle, Residual Funds in Class Action

Settlements: Using “Cy Pres” Awards to Promote Access to Justice, Fed. Law, July 2010.............33

Wilber H. Boies & Latonia Haney Keith, Class

Action Settlement Residue and Cy Pres

Awards: Emerging Problems and Practical

Solutions, 21 Va. J. Soc. Pol’y & L. 267 (2014) ........33

1

INTEREST OF AMICUS CURIAE1

The Civil Justice Research Initiative (CJRI)

is a joint think tank of Berkeley Law School and the

UC Irvine School of Law. CJRI’s mission is to systematically identify and produce highly credible, unbiased

research on critical issues concerning the civil justice

system, including expanding access to justice. Research of CJRI focuses on the growing limits on access

to the courts, including inadequate funding of state

and federal courts, increased use of compulsory arbitration clauses, and restrictions on class-action lawsuits. The Initiative also examines potential remedies

to help level the playing field between well-funded and

poorer litigants. The ultimate aim of CJRI is to help

ensure that leaders, legislators and courts have the research and data they need to set policy that will ensure

continued access to the courts.

CJRI appears before the court as an amicus curiae

in support of Respondents. Given that the institution

of cy pres has become critical for the ability of those

separated from the legal system to gain access to

justice through non-profits and legal service organizations, CJRI believes that it has an obligation to highlight the benefits of cy pres, while correcting inaccurate

statements about cy pres that have unfortunately

emerged as a part of current legal discourse.

-----------------------------------------------------------------1

No counsel for a party authored this brief in whole or in

part and no person other than amicus and their counsel made a

monetary contribution to its preparation or submission. The parties have consented to the filing of this amicus curiae brief.

2

SUMMARY OF ARGUMENT

When class actions resolve, it is common for

some or even all funds paid to the class to remain

undistributed. This is generally due to an inability to

locate all class members, class members failing to do

what is necessary to receive the funds owed to them,

or, less frequently, the economic infeasibility of class

distribution. Over time, the distribution of these funds

through the mechanism of cy pres has become thoroughly enmeshed in the fabric of American jurisprudence. The American Law Institute has published

guidelines for such distribution, cy pres has been used

within all federal circuits, 23 states and Puerto Rico

either have Supreme Court rules or legislative enactments authorizing cy pres, another 17 states have

judicially approved of its use, and the U.S. Congress

has provided for cy pres as part of the Class Action

Fairness Act. Thus, throughout American jurisprudence, cy pres is now acknowledged as a proper tool to

further the goal of class actions in advancing justice,

while being consistent with state, federal, and Constitutional law.

Yet, despite this now four decades-old use of cy

pres, and its endorsement by every circuit and virtually every state to consider the doctrine, Petitioners

and several amici raise certain constitutional, legislative, and administrative challenges to its very existence in the class action context. Generally, these

challenges ignore the fact that Congress has enacted

Rule 23, approving of the aggregation of private causes

of action in class actions and allowing plaintiffs to

3

recover damages on a collective basis. Many of the provisions of Rule 23, such as notice, the right to opt out

and not become a member of the class, and the necessity of a fairness hearing for any settlement to be approved, are safeguards that vitiate the constitutional

and other concerns raised. Structural and legislative

concerns, such as those regarding the Rules Enabling

Act and numerous alleged conflicts, are already addressed through the extensive administrative requirements Congress has enacted as part of Rule 23.

For the most part, the complaints ignore the vital

role of the courts in evaluating all aspects of a settlement, including cy pres, which requires judicial approval before any proposed distribution can occur.

While there are, as always, a few outliers, overall,

courts throughout the judiciary closely scrutinize class

action settlements along with the distribution of cy

pres pursuant to their Congressionally-mandated administrative function of evaluating and approving all

aspects of class settlements. Indeed, through amended

Rule 23(e)(2)(C)(ii) (effective Dec. 1, 2018), Congress

will soon be requiring that courts expressly consider

the “effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims.”

To the extent that this Court believes that courts

below need further guidance, CJRI suggests certain

guidelines. First, cy pres awards should not be used

when the settlement funds can be effectively and fairly

distributed to class members. Second, settlement

money should not revert to a defendant, because that

would undermine the deterrent function of class

4

actions. Third, instead, residual settlement money

should be distributed in a way that would indirectly

benefit the class, furthering the purpose of the lawsuit

“as nearly as possible” through judicial consideration

of the following factors: (1) what the lawsuit is about

and the interests of the absent class members; (2)

when it is alleged that a statute was violated, the objectives of the statute; (3) the loss suffered by the class

members; and (4) the geographic breadth of the class.

Fourth, as the custodians of the class settlement, it

should be the class representatives and class counsel

who select proposed cy pres recipients, subject to review and approval by the court. Fifth, organizations

with broad access to justice missions and those that

help legally underserved populations are appropriate

cy pres recipients, because the underlying purpose of

class actions is to provide access to justice for class

members who otherwise would have no recourse

against those who have wronged them. Finally, if settlement funds cannot be economically distributed, “cy

pres only” settlements should be allowed. From the

perspective of the aggrieved there is no worse result

than the wrongdoer getting off “scot-free.”

------------------------------------------------------------------

ARGUMENT

I.

The Concept of Cy Pres Is Ensconced in

American Jurisprudence

The cy pres doctrine has its roots in the laws of

trusts and estates, operating to modify charitable

5

trusts when a gift is specified to go to a charitable entity that either no longer exists at the time of the bequest, has become infeasible to distribute to, or whose

receipt of funds would be in contravention of public policy. Over time, most courts and now 48 states have institutionalized this elegant solution of transferring

these funds to the next best charitable or public interest use in a way that would satisfy “as nearly as possible” the trust settlor’s original beneficent intent.

With the advent of class actions, another source of

funds has emerged whose allocation has at times

proven to be infeasible to distribute. It is universally

recognized that there are times when class action settlements cannot be fully distributed due to an inability

to locate absent class members, class members failing

to do what is necessary to receive the funds owed to

them, or, less frequently, when it is “economically or

administratively infeasible to distribute funds to class

members if, for example, the cost of distributing individually to all class members exceeds the amount to be

distributed.” Principles of the Law of Aggregate Litigation §3.07 cmt. a (2010) (“ALI Principles”); Alba Conte

& Herbert B. Newberg, Newberg on Class Actions

§11:20 (4th ed. 2012) (“Newberg”). See Brief of Petitioner (“Pet.”) 6.

As procedures involved in class action litigation

have matured, it has come to be accepted in federal

courts that when cases are resolved and excess funds

remain, those funds will be distributed in the form of

cy pres. Examples within every Circuit can be found

where a cy pres distribution has been approved: 1) the

6

First Circuit’s In re Pharm. Indus. Average Wholesale

Price Litig., 588 F.3d 24,33-36 (1st Cir.2009) (holding

trial court didn’t abuse discretion in approving settlement that distributed excess funds for cancer research

or patient care); 2) the Second Circuit’s In re Holocaust

Victim Assets Litig., 424 F.3d 132,146 (2d Cir.2005)

(distribution to the neediest class members); 3) the

Third Circuit’s In re Baby Prods. Antitrust Litig., 708

F.3d 163,172-175 (3d Cir.2013) (approved “for a purpose related to the class injury”); 4) the Fourth Circuit’s Jones v. Dancel, 792 F.3d 395,406, n.6 (4th

Cir.2015) (because it was not practical to distribute de

minimis amounts to the class, the arbitrator ruled that

those damages be distributed in equal portions to two

cy pres recipients, the National Consumer Law Center

and the National Association of Consumer Advocates);

5) the Fifth Circuit’s Klier v. Elf Atochem North America, Inc., 658 F.3d 468,475 (5th Cir.2011) (permissible

when either: (1) infeasible to distribute additional settlement funds to class members; or (2) claimants have

been fully compensated and further distribution would

be a windfall); 6) the Sixth Circuit’s In re Polyurethane

Foam Antitrust Litig., 178 F. Supp. 3d 621,625 (N.D.

Ohio 2016) (approving award to the Family House Toledo); 7) the Seventh Circuit’s Houck v. Folding Carton

Admin. Comm., 881 F.2d 494,502 (7th Cir.1989) (recognizing the court’s broad discretion); 8) the Eighth Circuit’s Powell v. Ga. Pac. Corp., 119 F.3d 703,706-707

(8th Cir.1997) (approval of minority student scholarship program where most class members lived); 9) the

Ninth Circuit’s Briseno v. ConAgra Foods, Inc., 844 F.3d

1121,1129 (9th Cir.2017) (recognizing “courts have

7

long employed cy pres remedies when some or even all

potential claimants cannot be identified”); 10) the

Tenth Circuit’s Tennille v. W. Union Co., 809 F.3d

555,563 (10th Cir.2015); 11) the Eleventh Circuit’s Nelson v. Mead Johnson & Johnson Co., 484 Fed. Appx.

429,435, 2012 WL 2947212 (11th Cir. July 20, 2012) (an

unpublished decision,2 affirming a settlement with cy

pres distribution when class members received “full

compensation” under the terms of the settlement); and

12) the D.C. Circuit’s Keepseagle v. Perdue, 856 F.3d

1039,1043 (D.C. Cir.2017).

Cy pres distributions are widely used after the settlement of state court class actions. In fact, in 23 states

(and Puerto Rico), state supreme courts or legislatures

have adopted specific rules or statutes that authorize

cy pres, including to charitable entities that promote

access to legal services for low-income individuals.

Meanwhile, cy pres distributions have also been approved by courts in at least 17 other states where state

Supreme Court rules or statutes have not been set

forth. (See Appendix “A” for a list of state statutes and

Supreme Court rules, as well as examples of court decisions in states absent either.)

The U.S. Congress has also expressly authorized

the use of cy pres. In Public Law 109–2, §1712—Feb.

18, 2005 (“The Class Action Fairness Act” (“CAFA”))

Congress included the following language as part of

§1712(e): “The court, in its discretion, may also require

2

Although Nelson is unpublished and not binding precedent,

it “may be cited as persuasive authority.” 11th Cir. Rule 36-2.

8

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.”

Thus, whether promoted by statute, court rules, or

court precedent, the use of cy pres has become well-established throughout American jurisprudence. The

reason is simple. It allows for an effective distribution

of residual funds to non-profit entities that when distributed appropriately represent people who are similarly-situated on the whole to the members of the class.

This serves to preserve the deterrent effect of class actions, while allowing courts to authorize the distribution of residual funds.

II.

Cy Pres Awards Are Legal and Constitutional

Petitioners and certain amici offer a panoply of

reasons, both constitutional and otherwise, as to why

this Court should eliminate cy pres distributions. For

the most part, the intellectual underpinning for these

challenges is a law review article written by Professor

Martin H. Redish: Redish, Julian & Zyontz, Cy Pres Relief and the Pathologies of the Modern Class Action: A

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

(2010). See Pet. passim; Brief of CATO Institute and

Americans for Prosperity (“CATO”) 12; Brief of Center

for Constitutional Jurisprudence and the Atlantic Legal Foundation (“CCJ”) 6; Brief of Chamber of Commerce of the United States of America (“Chamber”)

5,13,20; Brief of Lawyers for Civil Justice (“LCJ”)

9

13,16,20; Brief of United States (“SG”) 16-17,20; Brief

of the Attorneys General (“AG”) 10-11; Brief of Manhattan Institute for Policy Research (“Manhattan”)

14,17; Brief of New Jersey Civil Justice Institute

(“NJCJI”) passim. Meanwhile, for case support, heavy

reliance is placed upon dicta in 3 cases where the

courts actually approved the use of cy pres: the concurrence in Klier, 658 F.3d at 474,480-481, cited by Pet.

17,33,37,50, LCJ 13,16,19, SG 17,18,26,27,32, AG passim, Manhattan 14, NJCJI 10,11,13; In re Baby Prods.,

708 F.3d 163, cited by Pet. 37,51, Chamber 20, LCJ 21,

SG 18,19,28,30, AG 5,7,14; and Mirfasihi v. Fleet

Mortg. Corp., 356 F.3d 781 (7th Cir.2004), cited by Pet.

33, CATO 12-13,22, Chamber 25, AG 14, NJCJI 5,7,15,

LCJ 13,16,21, SG 17,19,20,24.

A. The Challenge to Cy Pres Based upon

Article III Misapprehends the Requirements of Standing

One argument advanced is that cy pres is really a

court-imposed payment of unclaimed class funds from

private litigants to a party whose rights are not at issue in the lawsuit. The redistribution of unclaimed

funds to charities allegedly then transforms the adversarial two-party judicial process into an unconstitutional trilateral process. CCJ 6; LCJ 14-18. In essence,

the position is that cy pres recipients have no standing

and therefore the requirements of U. S. Constitution,

Article III, §2 cannot be met.

10

However, this ignores the fact that cy pres, as will

be discussed below, does constitute relief to the class,

making it incorrect to say that there is no redressability due to an alleged absence of relief. Moreover, arguing that cy pres distributions impermissibly forge a

trilateral relationship mischaracterizes what actually

happens in class action settlements. In order to resolve

class action litigation, district courts must first approve any proposed settlement as well as any distribution proposed by class counsel on behalf of the class

representative(s). Thus, a court tasked with approving

the distribution of any residual funds must first evaluate the settlement proposal that resolves the dispute.3 Until that approval occurs, the only parties with

standing before the court are the adversarial parties,

i.e., the class representative(s) and settling defendant(s).

Although a court may be free to elicit information

from a prospective recipient, only after this approval

does a cy pres recipient obtain any interest in any

funds, the same way proposed recipients are treated

under charitable trust law.4 Once this interest is

3

See generally F.R.C.P. 23; Manual for Complex Litigation,

Fourth §13.1 at 167–182 (“Manual”); Newberg §10:16; Ira Holtzman, C.P.A. v. Turza, 728 F.3d 682,689 (7th Cir.2013) (remanding

district court’s order of cy pres award as premature, but stating

“[o]nce the court knows what funds are available for distribution,

it should (if necessary) reconsider how any remainder will be applied,” including potentially ordering a cy pres distribution).

4

In the charitable trust arena, courts acknowledge the

standing of potential beneficiaries when they must determine

whether to exercise their cy pres power. See, e.g., In re Trustco

Bank, 929 N.Y.S.2d 707,711 (N.Y. Sup.Ct. 2011) (“[T]he issue of

11

established, cy pres recipients may then participate in

court actions as of right. At this point, cy pres recipients have standing to assert or defend their claims to

the funds which in turn satisfies Article III’s case-orcontroversy requirement. Afterwards, just as in the

charitable trust setting, once the cy pres recipient accepts the funds, the recipient comes under the court’s

jurisdiction.

The other case-or-controversy argument raised is

an attack on the underlying “standing” of the class itself to have brought the action in the event that there

is a “cy pres only” settlement. See CCJ 3. The assertion

is that if the class members receive no direct relief, the

lawsuit could not have had standing, because there

could not have been a “case or controversy.” However,

this analysis is based upon fallacious post hoc ergo

propter hoc reasoning. Under Rule 23, the party seeking certification must have first satisfied Rule 23(a)(1)(a)(4), which requires the putative class to meet numerosity, commonality, typicality, and adequacy of

representation criteria and, as all other litigants,

standing.5 Whether or not class members actually

standing and who has the right to appear and participate as a

party in any given case is commonly addressed at the outset of

the litigation . . . to protect the interests of all parties, [and] to

avoid prejudice. . . . This approach is all the more appropriate in

cy pres proceedings, where the issues of whether to apply cy pres

and how to apply it are interrelated.”).

5

S.G. at 23 conditions standing on whether cy pres distributions demonstrate “redressability,” advancing a rule requiring the

remediation of a “continuing violation” that caused the injury or

“the imminence of a future violation” that would inflict the same

injury. However, this has nothing to do with Article III standing

12

succeed in recovering monetary damages has nothing

to do with standing or one could argue that every

plaintiff who brings a lawsuit unsuccessfully did not

have standing ab initio.

B. The Rules Enabling Act Does Not Prevent Cy Pres Distributions

Another contention is that a court imposed payment of unclaimed settlement funds from a defendant

to a third party cy pres recipient transforms the class

members’ private cause of action into a civil fine. As a

result, a class is ostensibly granted more rights than

its members would have had if they had filed individual lawsuits. This is because, under substantive laws

that only permit recovery of compensatory damages for

the class, a civil fine cannot be authorized. AG 10; LCJ

6,19; Manhattan 16-17.

Courts have uniformly rejected this argument.

In enacting Rule 23, it was Congress that approved of

the aggregation of private causes of action in class actions to allow plaintiffs to recover compensatory damages on a collective basis. A class action lawsuit,

therefore, does not abridge, enlarge, or modify the substantive right to bring such a collective action nor afterwards to settle the lawsuit. The cy pres distribution

itself becomes only one part of the administrative

but really is only an argument regarding what factors should be

considered by the court in approving cy pres recipients.

13

function of distributing the settlement proceeds.6 As

the Third Circuit noted:

Because “a district court’s certification of a

settlement simply recognizes the parties’ deliberate decision to bind themselves according

to mutually agreed-upon terms without engaging in any substantive adjudication of the

underlying causes of action,” we do not believe

the inclusion of a cy pres provision in a settlement runs counter to the Rules Enabling Act.

In re Baby Prods., 708 F.3d at 173 n.8 (citation and quotations omitted). This is in accord with ALI Principles

§3.07 cmt. a, which both respect the Rules Enabling

Act and conclude that cy pres distributions are permissible when it is not feasible to make distributions to

the class.

C. Any First Amendment Concern Lacks

Merit

Petitioners argue that when class representatives agree to give cy pres funds to charitable entities,

individual absent class members have no control

over which charitable organization will receive the

funds. Therefore, when settlement funds are directed

6

This administrative function is one basis for the court’s

power to approve cy pres. A second basis is the court’s general

equitable powers. Wilson v. Southwest Airlines, Inc., 880 F.2d 807

(5th Cir.1989) (treating cy pres distribution as a matter of the federal court’s inherent equitable discretion). Finally, there are statutory powers, granted by 23 states and the U.S. Congress as part

of CAFA.

14

to non-profit entities, absent class members may be

forced to support organizations with which they may

not agree in violation of the First Amendment’s prohibition on compelled speech. In essence, they argue this

would implicate the Court’s proscription against compelled speech, as articulated in Janus v. Am. Fed’n of

State, County, & Mun. Employees Council 31, 138 S. Ct.

2448,2464 (2018) and Knox v. SEIU, 567 U.S. 298,309

(2012) (“Closely related to compelled speech . . . is compelled funding of other private speakers or groups.”).

Pet. 12,17; CCJ 3; LCJ 7,22; CATO 29-31; Center for

Individual Rights (“CIR”) 3.

The advocates of this argument skirt over the fact

that absent class members would already have been

given notice of their right not to participate in the case

at all, and, therefore, ultimately its settlement, by opting out of the class action. See Phillips Petroleum Co. v.

Shutts, 472 U.S. 797,812 (1985) (“[D]ue process requires at a minimum that an absent plaintiff be provided with an opportunity to remove himself from the

class by executing and returning an ‘opt out’ or ‘request

for exclusion’ form to the court. . . .”). As was correctly

recognized by the district court below, Rule 23(c)(2)(B)

requires “the best notice that is practicable under the

circumstances, including individual notice to all members who can be identified through reasonable effort.”

In re Google Referrer Header Privacy Litig., 87 F. Supp.

3d 1122,1128 (N.D. Cal.2015). Class notice must state:

the nature of the action; the definition of the class; the

claims, issues, or defenses asserted; the right of a class

member to enter an appearance through an attorney;

15

and the right to have the court exclude the individual

from the class, as well as the time and manner for requesting that exclusion. The notice must also inform

class members that they will be subject to “the binding

effect of a class judgment” and, if they do not exercise

their opt-out right, they will be bound by the judgment.

F.R.C.P. 23(c)(2)(B).

In failing to opt out, absent class members consent

to the representative plaintiff(s) approved by the court

acting on behalf of their interests. This includes entering into a settlement and subsequently, if necessary,

the designation of cy pres recipients. It is settled law

that “not every potential disagreement between a class

representative and the class members will stand in the

way of a class suit.” 1 Newberg §3:26. Rather, “only a

conflict that goes to the very subject matter of the litigation will defeat a party’s claim of representative status. . . .” 7A Charles A. Wright, Arthur R. Miller &

Mary K. Kane, Federal Practice & Procedure §1768 (3d

ed. 2005).

Petitioners challenge this single “opt-out” right as

insufficient. Pet. 36-37; see CIR 6-7. They argue that

the single opt-out right is akin to the illusory rights

articulated in Janus and Knox where this Court found

that the funding of political activities was forced in violation of the First Amendment. However, those who

fail to opt out of a class action are specifically given

notice that they will become members of the class. This

is not illusory but rather the result of a Congressional

mandate that absent class members be given a right to

opt out after receiving the required notice and that, if

16

they don’t, they will become actual “members” of the

class represented by the designated class representative. Thus, Janus and Knox are inapplicable.

Nevertheless, CATO 31 argues that “an opt-in

mechanism is needed because courts can no longer presume acquiescence by class members in the loss of

their First Amendment rights.” However, if Congress

wished to require an opt-in requirement as part of Rule

23(b)(3), it would have done so. Instead, it was the

judgment of Congress that only a single opt-out right

is necessary before one becomes a class member. To be

sure, Congress has given the courts a discretionary

right to order a second notice and opportunity to opt

out. F.R.C.P. 23(e)(4). Even here, though, Congress

elected to leave this up to the discretion of the trial

court and not make it mandatory. And courts have consistently ruled that the lack of a second right to opt out

does not violate due process. Low v. Trump Univ., LLC,

881 F.3d 1111,1121 (9th Cir.2018); see also Denney v.

Deutsche Bank AG, 443 F.3d 253,271 (2d Cir.2006). In

essence, in demanding mandatory opt-in or second optout rights, amici are requesting a reversal of seventy

years of this Court’s precedents regarding “notice” and

the right to opt out, as well as a finding that Congress

has violated the Constitution in enacting Rule 23.

This is not to say that absent class members lose

their ability to further challenge the designation of a

cy pres recipient with which they do not agree. Absent

class members have the remaining safeguard that a

class action can only be maintained if, among other

things, “the representative parties will fairly and

17

adequately protect the interests of the class” as a

whole. F.R.C.P. 23(a)(4). If absent class members believe this has not occurred, they may still object as part

of the proceedings required by F.R.C.P. 23(e)(5). Indeed, no class settlement may be approved by the court

unless notice of the proposed settlement was provided

to the members of the class to be bound by the settlement. F.R.C.P. 23(e)(1)(B). Then, a court may approve a

settlement that “would bind class members” only “after

a hearing and on finding that it is fair, reasonable, and

adequate.” F.R.C.P. 23(e)(2).

D. The Existing Rules Are Sufficient to

Address Petitioner’s Concern About

Conflicts of Interest and Scandalous

Behavior

Inherent in any action, including class actions, is

the potential for conflicts of interest and less than ethical behavior by litigants, counsel, or even the courts.

In a final attack on the concept of cy pres, Petitioner

and certain amici conjecture about a litany of alleged

problems, spinning a lurid tale of ubiquitous corruption on the part of both class counsel and defendants,

along with defense counsel.

The most common allegation is that class action

litigation is rife with unscrupulous class counsel who

have “commandeered” the claims of class members,

CATO 16, and are notoriously only concerned about

their fees while disregarding the interests of the class.

Pet. 7,16, AG 5, CATO 11-12. According to this

18

argument, to maximize their fees, counsel “game” settlements, Pet. 20-21, in several ways, including: 1) lowering the settlement value by “accept[ing] bargains

that are worse for the class if their [fee] share is sufficiently increased,” Pet. 22; or 2) inflating the settlement through the use of cy pres in order to get

defendants to pay more money and hence increase

their fees when awarded on a percentage basis. S.G. 19;

A.G. 5; Chamber 16. Yet, Petitioner acknowledges that

“both class counsel and a defendant have an incentive

to bargain fairly over the size of a settlement.” Pet. 22.

And no examples are provided where a defendant was

incentivized to pay more money than it had to.

These allegations also tend to ignore the way fees

are generally requested. As a rule, fees are either based

upon hours worked, a percentage of the total payment

made by the defendant, or both. Manual §14.121-122.

Often these are negotiated separately with the defendant and presented to the court as a separate request

for approval. Id., 14.22. At times, fees are contested by

defendants, even though the underlying settlement is

agreed to. Id., 14.23. While, as in any contingent matter, a total fee earned might be higher as the recovery

goes up, the final percentage paid or hours accepted always rests with the discretion of the court. Id. As a result, whether based upon hours worked or contingency,

there is never a fee-driven incentive to get less money

in settlement.

There are four other reasons Petitioner gives to

demonstrate that cy pres is problematic: 1) cy pres

leads cases to be brought that have little or no merit

19

for the single goal of forcing litigation-based costdriven settlements, Pet. 20-21; 2) class counsel intentionally define classes to have a vast membership in

order to achieve a “cy pres only” settlement, Pet. 49; 3)

cy pres recipients are selected in order to force judicial

recusal, Pet. 38; and 4) defendants use cy pres to hide

their misconduct from their customers, because customers will not notice cy pres distributions, Pet. 32.

Petitioner’s musings are not in accord with actual

practice. First, there are significant expenses and high

transaction costs for any counsel bringing a class action, engaging in discovery, moving for class certification, or facing an F.R.C.P. 23(f ) appeal; given this,

betting on a de minimus and possibly ephemeral settlement rarely, if ever, justifies advancing the necessary labor and costs. See, e.g., Oppenheimer Fund, Inc.

v. Sanders, 437 U.S. 340,341 (1978) (General rule is

representative plaintiff should bear costs relating to

sending notice). Second, at the time of settlement it is

much too late to artificially inflate the size of a class in

order to foster a “cy pres only” distribution, because

“numerosity” has to be made clear at the time of class

certification in order to comply with F.R.C.P. 23(a)(1)

and informed notice must already have been given to

all putative class members. Third, by the time cy pres

is considered, the parties generally have had long experience with the trial court and, as a rule, the court

has approved the basic settlement; at this point, hoping for a rare discretionary Federal judge recusal

makes little sense. As to Petitioners’ fourth alleged

conflict, defendant’s conduct would already have been

20

subject to a widespread opt-out notice, often attendant

media coverage, and then widespread notice of a settlement; after these, there is little left to hide from

class members.

Perhaps without intending to, Pet. 20 intimates

correctly that the existing rules are sufficient to

address self-dealing concerns: “But in the absence of

sufficient judicial scrutiny under Rule 23(e). . . .”

(emphasis supplied). Or, as is echoed by AG 3: “This

type of arrangement is precisely why courts are tasked

with policing the ‘inherent tensions among class representation, defendant’s interests in minimizing the cost

of the total settlement package, and class counsel’s interest in fees[.](Citation omitted).’ ” Thus, tacitly

acknowledged but lost in all of the hyperbole is the fact

that Congress has put in place several safeguards for

absent class members. In evaluating the settlement of

a class action, the district court has akin to a fiduciary

duty to absent class members who were not party to

the settlement agreement. See F.R.C.P. 23(e); Reynolds

v. Beneficial Nat’l Bank, 288 F.3d 277,279–80 (7th

Cir.2002) (district judges must “exercise the highest

degree of vigilance in scrutinizing proposed settlements of class actions”). This is why settlements of

class actions in all jurisdictions require judicial approval before they can become effective. The issue then

is not the rules themselves, but rather the consistency

and vigilance of judicial oversight in scrutinizing and,

as required, preventing abuses.

Most other settlements of civil cases involving

adults do not require judicial review before approval.

21

The task of a district court under Rule 23(e) is to assess

whether the proposed settlement is “fair, reasonable

and adequate.” F.R.C.P. 23(e)(1)(C). “Reasonable” implies that the settlement should be a product of considered judgment and not arbitrary. “Adequate” implies

that the settlement should provide relief to the class

sufficient in magnitude and rationally related to the

harm alleged. “Fair” implies that the settlement should

not discriminate between similarly situated class

members, and also suggests that the bargaining process must be at arm’s length. See In re Jiffy Lube

Sec. Litig., 927 F.2d 155 (4th Cir.1991); Wal-Mart

Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96,116 (2d

Cir.2005); Reynolds v. Beneficial Nat’l Bank, 288 F.3d

277,279 (7th Cir.2002) (that the settlement not be the

“product of collusion”); see also Carson v. American

Brands, Inc., 450 U.S. 78,88 n.14 (1981) (“judge the fairness of a proposed compromise by weighing the plaintiff ’s likelihood of success on the merits against the

amount and form of the relief offered in the settlement”). The Manual §21.62 contains a 13-part list of

items to consider.

Moreover, in undertaking this review, even greater

scrutiny tends to be given under certain circumstances. These include where there is little or no distribution to the class, Manual §21.61, at 309-310,

attorneys’ fees are high, or when unclaimed funds revert to the defendant whose conduct resulted in the

settlement. In fact, in the Ninth Circuit, class action

settlements in which the settlement agreement is negotiated prior to formal class certification require “an

22

even higher level of scrutiny.” In re Bluetooth Headset

Prods. Liab. Litig., 654 F.3d 935,946 (9th Cir.2011);

Newberg §11:27.

Finally, it is likely that before the Court generates an opinion in this case, the amended Rule

23(e)(2)(C)(ii) (effective Dec. 1, 2018) will be law. Recently approved, it adds language specifically requiring the trial court to evaluate the “effectiveness of any

proposed method of distributing relief to the class, including the method of processing class-member

claims.”

III. Guidance to Consider in Evaluating the

Distribution of Cy Pres

In Marek v. Lane, 571 U.S. 1003 (2013), Chief

Justice Roberts’ concurring opinion listed a number of

questions related to the use of cy pres that the Court

has never addressed. CJRI believes that the rules, as

now amended, are sufficient to address many of these

concerns when courts diligently review cy pres proposals. However, if this court is intending to provide

guidance to the courts below, CJRI makes the following

suggestions.

A. Distributing Settlement Funds to Class

Members Should Always Be the First

Priority

Cy pres awards should not be used when the funds

recovered from the defendants can be effectively delivered to class members. Courts should scrutinize these

23

closely, which indeed numerous federal courts have

done. Examples include: the Second Circuit in Masters

v. Wilhelmina Model Agency, Inc., 473 F.3d 423,434-436

(2d Cir.2007) (noting it appeared the district court was

not aware that it could allocate excess funds to class

members as treble damages); and the Seventh Circuit

in Pearson v. NBTY, No.11-07972, Dkt. 213-1 ¶¶7-8

(N.D. Ill. May 14, 2015) (renegotiated cy pres to give

class members $4 million more).

These examples are the exception rather than the

rule. Still, consistent with these, CJRI believes that

when money from a settlement can be economically

and reasonably distributed to class members, that

should always be the first priority. If this can be done

by crediting a class member’s credit card, bank account, cell phone or other accounts, it should be. If this

is not possible, but class members can be sent checks,

this should constitute an acceptable method of distribution provided the transaction costs are not greater

than the settlement.

On the other hand, virtually all Circuits have correctly recognized that distribution to class members

should not result in a windfall to members who have

submitted claims and already been fully compensated.

In re Lupron, 677 F.3d 21,35 (1st Cir.2012); Klier, 658

F.3d at 475. See Susan Beth Farmer, More Lessons from

the Laboratories: Cy Pres Distributions in Parens Patriae Antitrust Actions Brought by State Attorneys General, 68 Fordham L. Rev. 361,393 (1999).

24

B. Factors to Be Considered in the Selection of Cy Pres Recipients

Despite the fact that class members should always

be the primary recipients of settlements, at times settlements will inevitably result in funds that cannot be

reasonably distributed. It is for this reason that all Circuits and the vast majority of state court systems have

concluded that cy pres distributions are necessary.

While reversion to the defendant has been suggested as an alternative to cy pres, this has been

roundly rejected. Such reversions play havoc with the

deterrent function of class action settlements. In re Lupron, 677 F.3d at 32-33; In re Baby Prods., 708 F.3d at

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

588 F.3d 24,35 (1st Cir.2009); In re Checking Account

Overdraft Litig., 830 F. Supp. 2d 1330,1355 (S.D.

Fla.2011) (one of the most important functions of the

class action device in small-stakes cases is the “deterrence of wrongdoing”). See Pet. 6.

The question then is what should be considered by

the court in approving cy pres. After finding that cy

pres is necessary, most courts have concluded that cy

pres should be distributed so that it indirectly benefits

the class, consistent with the goals of the underlying

case. To this end, courts have rejected proposed cy pres

distributions which have had no relationship to the underlying case. In re Airline Ticket Comm’n, 268 F.3d

619,626 (8th Cir.2001) and In re Airline Ticket

Comm’n, 307 F.3d 679,683-684 (8th Cir.2002) (cy pres

recipients should have as close as possible relationship

25

to the class action suit and reflect the geographic scope

of the class).

The Ninth Circuit similarly rejected a number of

proposed cy pres distributions. See Six (6) Mexican

Workers v. Ariz. Citrus Growers, 904 F.2d 1301,1307–

09 (9th Cir.1990) (rejection of non-earmarked cy pres

to humanitarian organization in Mexico where Mexican farm workers sued for violation of Farm Labor

Contractor Registration Act); Nachshin v. AOL, LLC,

663 F.3d 1034,1040-1041 (9th Cir.2011) (rejection of

award to local non-profits with “no apparent relation

to the objectives of the underlying statutes, and it is

not clear how this organization would benefit the

plaintiff class” in case involving internet subscribers

receiving wrongfully inserted advertisements in email

messages where the court noted that proper cy pres recipients would be “organizations that work to protect

internet users from fraud, predation, and other forms

of online malfeasance”); Dennis v. Kellogg Co., 697 F.3d

858,867 (9th Cir.2012) (rejection of cy pres to organizations that feed the poor where allegation was that Kellogg falsely advertised that its cereal improved

children’s attentiveness with Ninth Circuit holding

that “appropriate cy pres recipients are not charities

that feed the needy, but organizations dedicated to protecting consumers from, or redressing injuries caused

by, false advertising”).

The S.G. at 24-25 seemingly requests an affirmative requirement that the distribution must specifically either encourage the recipient to discontinue the

current problematic practices of the defendant or deter

26

the defendant from committing similar future ones.

CJRI agrees that recipients who in no way address the

practices of concern or deter such practices in the future are generally inappropriate for cy pres distribution. However, it would be difficult to parse out at

exactly which point the fit between the mission of the

cy pres entity and the conduct at issue would be sufficient for the S.G.’s proposed standard. Indeed, ALI

Principles, supra note 3, §3.07(c) appropriately cautions that while cy pres recipients should be those

“whose interests reasonably approximate those being

pursued by the class,” there are times when no such

recipients exist and still “a court may approve a recipient that does not reasonably approximate the interests of the class.” The reason for this is that if too

narrowly limited, the scope of the appropriate cy pres

recipients to the precise claims in the class action may

not always be possible or practical and this may unnecessarily complicate the socially desirable settlement of

large class action disputes.

In determining whether a cy pres remedy is appropriately tailored to the class, CJRI believes that courts

should consider the following factors: (1) what the lawsuit is about and the interests of the absent class members; (2) when it is alleged that a statute was violated,

the objectives of the statute; (3) the loss suffered by the

class members; and (4) the geographic breadth of the

class. See, e.g., In re Holocaust Victim Assets Litigation,

424 F.3d 132,147 (2d Cir.2005); In re BankAmerica

Corp. Securities Litigation, 775 F.3d 1060,1067 (8th

Cir.2015), quoting ALI Principles §3.07 cmt. b; In re

27

Airline Ticket Commission, 268 F.3d at 626; Lane v. Facebook, Inc., 696 F.3d 811,819-820 (9th Cir.2012);

Nachshin, 663 F.3d at 1038; In re Polyurethane Foam,

178 F. Supp. 3d at 625; In re Lupron, 677 F.3d at 33. Of

course, some of these factors may not apply in all cases.

However, in their review, courts should always be cognizant of the need to find a cy pres recipient that will

advance the overall purpose of the class action.

C. Making the Initial Selection of Cy Pres

Recipients

1. The Defendant Should Not Select Cy

Pres Recipients

As a rule, defendants should not make the selection of cy pres recipients. There are several reasons for

this. First, one thing that class members must have in

common is an injury caused by the defendant. F.R.C. P.

23(a)(3); Comcast Corp. v. Behrend, 133 S. Ct.

1426,1432 (2013). Indeed, implied in any settlement is

that a defendant admits that the victims have some legal right to restitution. The result of a successful trial

or settlement should be a transfer of wealth from perpetrator to victim, not one that circles the money back

to the defendant. See CATO 32-33.

Just as a reversion to a defendant is inappropriate,

class members should not be compelled to return hard

won compensation to the surrogates for the party that

injured them or to beneficiaries of their selection. Certainly, the money paid due to a defendant’s misconduct

should not be used to burnish the public-relations

28

image of a defendant that inflicted the damage giving

rise to the lawsuit. S.E.C. v. Bear, Stearns & Co., Inc.,

626 F. Supp. 2d 402,415 (S.D.N.Y.2009) (cy pres may

“actually benefit[ ] the defendant rather than the

plaintiffs” when “defendants reap goodwill from the donation of monies”). If cy pres funds are at all controlled

by defendants, the improper result would be that class

members will be forced to indirectly support those who

caused their injuries, substantially diminishing any

deterrent effect of the case’s resolution. See CATO 19;

S.G. 19-20.

CJRI believes that cy pres awards designated for

organizations that have previously received substantial payments from a named defendant should be

looked at closely by the reviewing court. This would be

particularly true where the cy pres award does not increase the overall contribution by the defendant to the

entity in question. Dennis, 697 F.3d at 867-68 (raising

concerns about a cy pres award that allows the defendant to use “previously budgeted funds” to make the

same contribution it would have made anyway). While

in some cases the selected entities might be the most

appropriate recipients, the cy pres distribution may

also appear to be nothing more than part of the continuous funding by the defendant of the entity in question

which makes the court’s careful review necessary.

29

2. The Court Should Not Have a Role in

the Initial Selection of Cy Pres Recipients; Its Role Should Be the Close,

Independent Scrutiny of Proposed

Recipients

While there is a strong impetus for courts to select

cy pres recipients, doing so is problematic because even

when the motives underlying the selection are proper,

it nevertheless creates the appearance of impropriety.

See Nachshin v. AOL, LLC, 663 F.3d 1034,1041 (9th

Cir.2011) (providing money to a legal aid foundation

that though normally a proper choice for cy pres was

heavily criticized, because the judge’s husband sat on

the board); Perkins v. Am. Nat’l Ins. Co., No. 3:05-CV100 (CDL), 2012 WL 2839788, at *1 (M.D. Ga. July 10,

2012) (approving cy pres award to the presiding judge’s

alma mater).

Therefore, CJRI believes that it is best if the court

does not involve itself in the initial process of selecting

cy pres recipients. “The specter of judges and outside

entities dealing in the distribution and solicitation of

settlement money may create the appearance of impropriety.” Nachshin, 663 F.3d at 1039; see also In re Lupron, 677 F.3d at 38 (affirming, but expressing concern,

where the district court, not the parties, chose the cy

pres recipient); In re Baby Prods., 708 F.3d at 180 n.16

(not reaching the issue, but stating: “we join other

courts and commentators in expressing our concern

with district courts selecting cy pres recipients”). See

Pet. 37.

30

Not only does permitting courts to choose the cy

pres recipient create an appearance of (or actual) impropriety, more importantly it inevitably makes it difficult for the court to properly perform its critical

review function over the appropriateness of the distribution. Courts need to make a completely independent

determination that is not only based on objective criteria but is without any stigma. Afterwards, a court has

a continuing obligation to monitor the disbursal of the

class’s funds. It is incumbent upon courts to take a

hard look at cy pres beneficiaries, as well as whether

any of the parties involved in the litigation has significant affiliations with or would personally benefit from

the distribution to proposed cy pres recipients. Such an

analysis is not unduly burdensome or challenging for

the court, but a court may be compromised (or appear

to be compromised) when the court itself is making the

selection.

3. The Initial Selection of Cy Pres Recipients Should Be Undertaken by

the Class Representative and Class

Counsel

CATO argues that upon judgment or settlement

each member of the class is vested with an individual

property right. CATO 6. This is incorrect. To give each

member an individually vested right would make settlements impossible to administer, as every settlement

would have to be immediately apportioned and the individual’s allocated funds placed into escrow. It also

would play havoc with the fundamental purpose of the

31

class action device. Califano v. Yamasaki, 442 U.S.

682,700-701 (1979) (“[T]he Rule 23 class-action device

was designated to allow an exception to the usual rule

that litigation is conducted by and on behalf of the individual named parties only.”). Instead, it is “efficiency

and economy of litigation [that] . . . is a principal purpose of the [Rule 23] procedure.” American Pipe & Constr. Co. v. Utah, 414 U.S. 538,553 (1974); accord China

Agritech, Inc. v. Resh, 138 S. Ct. 1800,1806 (2018). As

such, the property obtained immediately upon settlement is not vested individually but rather vested with

the class as a whole.

As the settlement property belongs to the class, it

should be the role of the class representative along

with counsel to suggest the proper distribution of the

class’s funds. Class counsel has represented the class

members throughout the litigation, and has an independent duty to ensure that any distribution, including that of cy pres, is proper. Jones v. Nat’l Distillers, 56

F. Supp. 2d 355,359 (S.D.N.Y.1999) (“Additionally, the

distribution preference of class counsel is entitled to

deference because class counsel are the only entities

with a meaningful equitable stake in the remaining

class funds.”). Class representatives generally share

this responsibility. Eubank v. Pella Corp., 753 F.3d

718,723–24 (7th Cir.2014) (named plaintiffs have ethical obligations as fiduciaries to the class). Once selected by the class counsel and class representative, it

becomes the court’s obligation to subject the selection

to close review. Ultimately, then, it is the court that has

the duty to ensure that class counsel and the class

32

representative(s) have diligently and fairly assessed

the need for cy pres and then properly chosen the cy

pres recipient(s).7

D. Proper Beneficiaries for the Distribution of Cy Pres Funds

“Class actions play a vital role in the judicial system. Often, they are the only way plaintiffs can be compensated and defendants held to account for serious

misdeeds with widely diffuse harms.” Pet. 20, citing

Amchem Prods. v. Windsor, 521 U.S. 591,617 (1997).

This is particularly true when claims involve only

small individual recoveries where the transaction

costs for individual litigants are too high to pursue the

claim or for counsel to take on the representation.

Thus, at their core, the fundamental purpose of every

class action is to provide access to justice for people

who on their own would not realistically be able to obtain the protections of the judicial system.

Given that the class action device provides litigants access to justice that they would not otherwise

have, the use of cy pres awards to organizations that

make as their mission providing such access has been

7

CATO 20 argues that counsel may subvert the process, citing a single case where it contends a cy pres recipient was chosen

to influence the court. Fairchild v. AOL, LLC, No. CV09-03568

CAS (PLAx) (C.D. Cal. 2009). Yet, this possibility occurs in all litigation, and it becomes, here as elsewhere, the responsibility of

appellate courts to ferret out.

33

viewed as a perfect fit.8 See, e.g., Lessard v. City of Allen

Park, 470 F. Supp. 2d 781,783-84 (E.D. Mich. 2007)

(“The Access to Justice fund is the ‘next best’ use of the

remaining settlement monies in this case, because

both class actions and Access to Justice programs facilitate the supply of legal services to those who cannot

otherwise obtain or afford representation in legal matters.” (Citation omitted)). Legal aid and access to justice organizations with objectives directly related to

the underlying statutes or claims at issue in relevant

class actions are, therefore, very appropriate cy pres recipients.

This is not to say that cy pres even to such organizations should be haphazardly given. In national class

actions, cy pres recipients should have a nationwide

scope. Cy pres from settlements related to consumer

fraud, securities violations, or discrimination, for example, should go to organizations that assist similarlysituated individuals who have been subjected to such

fraud, violations, or discrimination or may be in the future. Finally, cy pres should generally not go to newly

8

Thomas A. Doyle, Residual Funds in Class Action Settlements: Using “Cy Pres” Awards to Promote Access to Justice, Fed.

Law, July 2010, at 26,27; Danny Van Horn & Daniel Clayton, It

Adds Up: Class Action Residual Funds Support Pro Bono Efforts,

45 Tenn. B.J. 12 (2009); Arthur H. Bryant, “Cy Pres Awards Don’t

Have to Be Complicated,” The National Law Journal, February 9,

2015; Calvin C. Fayard, Jr. & Charles S. McCowan, Jr., The Cy

Pres Doctrine: “A Settling Concept,” 58 La. B.J. 248,251 (2011);

Wilber H. Boies & Latonia Haney Keith, Class Action Settlement

Residue and Cy Pres Awards: Emerging Problems and Practical

Solutions, 21 Va. J. Soc. Pol’y & L. 267,291 (2014).

34

created organizations—even if there is a “fit”—absent

a compelling reason, because such organizations will

not have the necessary track record of performance the

court needs to evaluate before approving the cy pres

distribution.

But on the whole, federal and state courts

throughout the country have appropriately recognized

organizations that provide access to justice for underserved and disadvantaged populations as proper beneficiaries of cy pres. This need is widespread. As local,

state, federal, and private funding dries up, cy pres has

become the lifeblood for many organizations that provide many individuals vehicles for any access to justice.

E. There Is a Need for “Cy Pres Only” Settlements

Beyond cy pres generally, Petitioner and a number

of amici take particular umbrage with the concept of

what they describe as “cy pres only” settlements. These

are described as unprofitable “strike suits” only

brought in order to shake down a settlement with no

intention of ever disbursing money to class members.

Pet. 35. Any time that it is viewed as not feasible to

provide monetary compensation to class members,

they assert that one can conclude the lawsuit’s only

goal was to provide fees for attorneys. Pet. 53-54. CATO

even suggests class counsel may agree to a de minimus

recovery for the purpose of requiring a cy pres settlement. CATO 23.

35

Petitioner and certain amici’s argument make the

flawed assumption that at the time of the initiation of

lawsuits that result in “cy pres only” settlements,

plaintiffs are sufficiently perspicacious to know that

the eventual settlement of the litigation will make it

infeasible to distribute it to class members. While invariably defendants must argue that they have no liability and will never enter into a settlement, most

settlements fall somewhere on a continuum. Settlements as a rule come after a significant amount of

information about the action is discovered, either formally or informally. At times, even with ardent discovery the result is a settlement where the costs of

distribution to the class do not warrant individual recoveries. Under these circumstances it would be foolish

to require the parties to continue to litigate or try the

case until the defendant wins or the class gains a recovery sufficient for individual distribution. This

would impede the strong public policy of resolving litigation.9

Moreover, it is wrong to conclude that “cy pres

only” settlements provide no benefit to class members.

When companies or institutions cheat, harm, take advantage of or discriminate against large numbers of

people, class actions are often the only way that those

aggrieved can hold the responsible party accountable

9

What is often described as the very first cy pres settlement

was a “cy pres only” settlement, Miller v. Steinbach, No. 66 Civ.

356, 1974 WL 350 (S.D.N.Y. Jan. 3, 1974) (concluding that the

modest size of the settlement fund and the large number of outstanding shares rendered payment unviable).

36

or lessen the benefits received from its bad conduct.

Deposit Guar. Nat. Bank, Jackson, Miss. v. Roper, 445

U.S. 326,339 (1980) (“[A]ggrieved persons may be without any effective redress unless they may employ the

class-action device.”). This does not always require a

tangible monetary award. Injunctive relief alone at

times can provide an actual benefit to class members.

See In re Volkswagen “Clean Diesel” Marketing, Sales

Practices & Prods. Liab. Litig., No. MDL 2672, 2016

WL 6248426 (N.D. Cal. Oct. 25, 2016) (replacement or

repair for class member vehicles). Even absent effective injunctive relief and a pure “cy pres only” settlement, Petitioners’ proposed remedy of essentially a

dismissal of the action without any payment is the

worst of all possible worlds for aggrieved class members. See Mirfasihi, 356 F.3d at 784 (cy pres awards

prevent defendants “from walking away from the litigation scot-free because of the infeasibility of distributing the proceeds of the settlement [or] judgment”).

------------------------------------------------------------------

37

CONCLUSION

For the foregoing reasons, amicus curiae Civil Justice Research Initiative supports Respondents in their

request that this Court approve of both cy pres awards

generally and “cy pres only” settlements specifically.

Respectfully submitted,

GERSON H. SMOGER

Counsel of Record

SMOGER & ASSOCIATES

13250 Branch View Lane

Dallas, TX 75234

(972) 243-5297

gerson@texasinjurylaw.com

DAVID M. ARBOGAST

ARBOGAST LAW

933 Woodland Avenue

San Carlos, CA 94070

(650) 587-3006

david@arbogastlaw.com

ERWIN CHEMERINSKY

ANNE BLOOM

CIVIL JUSTICE RESEARCH INITIATIVE

UNIVERSITY OF CALIFORNIA

BERKELEY SCHOOL OF LAW

459 Boalt Hall

Berkeley, CA 94720

(510) 642-2029

echemerinsky@law.berkeley.edu

annebloom@law.berkeley.edu

Counsel for Amicus Curiae

Civil Justice Research Initiative