# Amicus Curiae Brief — Frank v. Gaos, 138 S. Ct. 1697 (2018) (No. 17-961)

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0805%3A43

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2018

## Text

No. 17-961

IN THE

Supreme Court of the United States

THEODORE H. FRANK, ET AL.,
Petitioners,

Vv.

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
Se
AMICUS CURIAE BRIEF FOR THE NATIONAL
CONSUMER LAW CENTER AnD U.S. PUBLIC
INTEREST RESEARCH GROUP EDUCATION
FUND, INC. IN SUPPORT OF RESPONDENTS

Stuart Rossman

Counsel of Record
National Consumer Law Center
7 Winthrop Square, Fourth Floor
Boston, MA 02110
P: (617) 542-8010
F: (617) 542-8028
srossman@nclc.org

Michael Landis

U.S. Public Interest Research
Group Education Fund, Inc.
1543 Wazee Street, Suite 400
Denver, Colorado 80202

P: (303) 573-5995
mlandis@pirg.org

Dated: September 5. 2018

DATEMAN & GLADE, (NC ORTON, MAMACH MEET TR

TABLE OF CONTENTS

TABLE OF AUTHORITIES. .0..000:c0cccccccsccsccccccescesesses iii
INTEREST OF AMICT CURTAE ..0.....00.00c00cc0cc00e00eee0es l
SUMMARY OF ARGUMENT. ............00ccccccccccccccsseeceeeee 2
fe! SERUM SS AO ON 3
A. Class Actions—Including Those
Involving Cy Pres Awards—
Often Are Superior to Alternative
Methods of Litigation for
Protecting the Rights of Low-
I sii cinicerietnenemenstnesoned 5
1. Often, the “Alternative” to
Class Treatment for Smal!
Consumer Claims Is No
Litigation at Alll................00000++++ 6
2 Class Treatment Is Also
Superior to Individual
Consumers Pursuing
Claims in Small-Claims
i iicesbibiniadasstnatbientassdeimnitabemeiicd fal
3. Class Actions Are Superior
to Punitive Damage
Awards in Small-Claims
Consumer Protection
Pi eanutacehnsdscnsniianacipanbinsiipibibimsiadenses 9

B. Cy Pres Distribution of Residual
Class Action Funds Best
Effectuates the Purposes of

Consumer Protection Statutes............ 10

1. Escheat Falls Short by
Failing to Serve the
Consumers Harmed by the
Consumer Statute

ES 1]

2. Reverting Funds to the
Defendant Frustrates

Rather Than Serves
Consumer Protection

ETE AE ene 12

ee ickiisinininticsencenssiietiuniistiinpimsinnnaiantintiieeininti

u

TABLE OF AUTHORITIES
CASES:

Amchem Prods. v. Windsor,
RE ee eee 4,6

Carnegie v. Household Int'l, Inc.,
376 F.3d 656 (7th Cir. 2004) ..............cccccceceeeeee 7

Carr v. Trans Union Corp.,
1995 U.S. Dist. LEXIS 567
Ree 5-6

/n re Motorsports Merch. Antitrust Litig.,
160 F. Supp. 2d 1392 (N.D. Ga. 2001)........... 12

In re Wells Fargo Secs. Litig.,
991 F. Supp. 1193 (N.D. Cal. 1998)............... 12

Market St. Ry. Co. v. Railroad Commission,
28 Cal.2d 363 (Cal. 1946) .0.........ccccceceeseeceeseees 11

Mirfasihi v. Fleet Mortgage Corp.,
356 F.3d 781 (7th Cir. 2004) 200000000 14

Olson, et al. v. Citibank, N.A.,
10-cv-2992, 2012 WL 1231787

rs Cy NG i i ccccncnssennentinseoenenninnss x
State of California v. Levi Strauss & Co.,

41 Cal. 3d 460 (Cal. 1086)................22............. 1]
Wilson v. Southwest Airlines, Inc.,

880 F.2d 807 (5th Cir. 1989)... 12

il

OTHER AUTHORITIES:

Am. Law. Inst., Principles of the Law of
Aggregate Litigation § 3.07 ....0.........06..0.. 12, 14

N. Averitt & R. Lande, Consumer Sovereignty:
A Unified Theory of Antitrust and
Consumer Protection Law, 65 Antitrust
Eadie FED CEI acnisnoneedatenteuvidaniiiambisivadnpacsnanbiniies 10

McCall, Sturdevant, Kaplan and Hillebrand,
Greater Representation for California
Consumers: Fluid Recovery, Consumer
Trust Funds, and Representative
Actions, 46 Hastings L.J. 797 (1995)............. 12

Nat'l Ass’n of Consumer Advocates, Standards
and Guidelines for Litigating and
Settling Consumer Class Actions, 299
AiR 0 8 4 ee 9,14

H. Newburg, 2 Newberg on Class Actions
§§ 10.13-10.26 (3d ed. 1992).............cccccccceceees 10

iv

INTEREST OF AMICT CURIAE'

The National Consumer Law Center is a non-
profit research and advocacy organization that
focuses on the legal needs of low-income, financially
distressed, and elderly consumers. Founded at
Boston College Law School in 1969, NCLC is a
501(c)(3) and legal aid organization that employs
many attorneys and advocates with twenty or more
years of specialized consumer law expertise.

NCLC has been a leading source of legal and
public policy expertise om consumer issues for
Congress, state legislatures, agencies, courts,
consumer advocates, journalists, and social service
providers for nearly fifty years. NCLC is the author
of a twenty-volume Consumer Credit and Sales
Legal Practice Series. NCLC has been a recipient of
court-awarded cy pres funds as part of residual class
action funds and uses these awards to protect the
rights of economically vulnerable consumers through
education, publications, policy analysis, and
advocacy.

United States Public Interest Research Group
Education Fund, Inc. “U.S. PIRG Education Fund”)
is a 501(c)(3) independent, non-partisan organization
that works on behalf of consumers and the public
interest. Through research, public education,
outreach, and litigation, it serves as a counterweight
to the influence of powerful special interests that

' Pursuant to Rule 37.3, all parties have consented to
the filing of this brief. In accordance with Rule 37.6, counsel
affirms that no counsel for any party authored this brief in
whole or in part and that no person or entity other than amuic:
made a monetary contribution to fund the preparation and
submission of this bref.

threaten the public's health, safety, or well-being.
U.S. PIRG Education Fund regularly participates as
amicus curiae in cases that will have a substantial
impact on consumers and the public interest, such as
this one. U.S. PIRG Education Fund has been a
recipient of court-awarded cy pres funds as part of
residual class action funds, and it uses these awards
to protect the interests of the public and consumers
through research, policy analysis, education, and
advocacy.

SUMMARY OF ARGUMENT

Amici submit this brief to provide their
perspective on the importance of class actions and
the cy pres doctrine for the effective enforcement of
consumer protection statutes, and their importance
to low-income consumers, in particular.

In our society, consumers engage in far more
economic transactions than previously and do so
with nationwide or regional companies using
standardized forms, sales methods, and contracts of
adhesion. To combat abuses in these practices and
others, class actions continue to be essential.

The cy pres remedy serves an important role
in consumer protection class actions. When direct

distribution of all or part of a monetary recovery to
class members is infeasible, the cy pres doctrine
provides courts with an indispensable framework for
distributing these funds in a way that benefits
absent class members and consumers as a whole
while also effectively serving the disgorgement and
deterrence goals of consumer protection statutes. To
prevent possible abuse, comprehensive and effective
guidelines have been emplaced—chief among them

the American Law Institute’s Principles of the Law
of Aggregate Litigation—to govern the use of cy pres
awards, thereby allowing them to prove a workable
and advantageous distribution option for over a half-
century.

In deciding this case, the Court should be
mindful of the implications for low-income
consumers of unduly hampering class actions, which
constitute the most effective—and very often the
sole—means of vindicating their rights as enshrined
in consumer protection statutes. And the Court
should be wary of unduly circumscribing the use of
cy pres distribution because it is the next-best use of
the funds recovered from such lawsuits, when direct
distribution to class members is infeasible.

ARGUMENT

Class actions remain an_ indispensable
mechanism for the effective enforcement of consumer
protection statutes, and are of particular import for
safeguarding the rights of low-income consumers.
When the funds recovered from such lawsuits cannot
be directly distributed to class members, the cy pres
doctrine, in turn, provides courts with a framework
for distributing them in a way that benefits absent
class members and consumers as a whole while also
serving the goals of the consumer protection statutes
underlying the litigation.

In assessing the value of a given class action
lawsuit, Petitioners focus almost exclusively on one
criterion: monetary relief awarded directly to class
members. They open their brief by asserting that
they are challenging a settlement that “pays the
class no money but instead directs millions to class

counsel and funnels the remainder to third parties.”
Pet’'rs’ Br. 1. They argue that a class action cannot
be a worthwhile—let alone the superior—method of
litigation unless monetary benefits will inure
directly to class members. /d. 15; see also id. 52-54.
Accordingly, rather than permit a next-best use of
funds, they argue that if a court were to find that
direct distribution to class members is infeasible,
class certification is improper. /d. 10-11.

If restitution were class actions’ sole purpose,
Petitioners’ arguments might be availing. But it is
not. On the contrary, Petitioners ignore the “policy
at the very core of the class action mechanism,”
which is to “overcome the problem that small
recoveries do not provide the incentive for any
individual to bring a solo action prosecuting his or
her rights.” Amchem Prods. v. Windsor, 521 US.
591, 617 (1997) (internal quotations and citations
omitted). “A class action solves this problem by
aggregating the relatively paltry potential recoveries
into something worth someone's (usually an
attorney's) labor.” /d.

In other words, Petitioners’ approach would
prohibit class action lawsuits in precisely those cases
where they have been deemed essential: cases
involving very small claims for individuals that, in
the aggregate, involve substantial sums that will
otherwise remain in the hands of the wrongdoers.
Class actions— including those that involve cy pres
awards—are thus the superior method of litigation
for the enforcement of consumer protection statutes
involving small individual damages. See Part A,
infra.

Petitioners’ myopic focus on _ individual
recovery also overlooks—or perhaps’ willfully
ignores-the other well-established policy purposes
of consumer protection statutes that often form the
basis of these suits: enhancing the fundamental
fairness of the marketplace, deterring illegal
conduct, and disgorging ill-gotten gains. When direct
distribution to class members is_ infeasible,
distributing cy pres awards to organizations working
in the field of consumer protection indirectly benefits
class members and better effectuates these purposes
than do other options for the distribution of residual
funds. See Part B, infra.

In short, prohibiting class actions simply
because direct distribution is infeasible would
disserve the very purposes of consumer protection
statutes upon which these suits often are premised.

Class actions are critical in labor, civil rights,
and many other contexts, but consumer claims
provide perhaps the quintessential example of large-
scale illegal profit-seeking behavior by companies
that nevertheless does not financially harm any
individual enough to induce litigation in the absence
of the class action device. As one federal court put it,
“[cjlass actions are often the most suitable method
for resolving suits to enforce compliance with
consumer protection laws because the awards in an
individual case are usually too small to encourage
the lone consumer to file suit.” Carr v. Trans Union

Corp., 1995 U.S. Dist. LEXIS 567 (E.D. Pa. 1995)
(class certified based on ailegation of misleading
debt collection notices). See also Amchem Prods., 521
U.S. at 617 (discussing “negative value” suits).

Compounding the necessity of class actions to
enforce many violations of these acts is the fact that
low-income consumers, who are disproportionately
their victims, are less able to bring suits on their
own behalves. Class action lawsuits are thus vital
tools for protecting the interests of these consumers.
And indeed, they are the superior method of
litigation in many cases.

When individual awards for consumer
protection violations are not only so small that they
do not provide an incentive for individual action, but
are so small that they would be swallowed by the
costs of distributing them—in other words, in those
circumstances in which cy pres recovery may be
triggered—the need for class actions to protect
consumers’ rights only is heightened.

1. Often, the “Alternative” to Class
Treatment for Small Consumer Claims
Is No Enforcement at All.

In theory, one benefit of the class procedure is
its efficiency: adjudication of a properly constituted
class action saves the resources of courts and parties
by permitting an issue affecting mumerous
individuals to be litigated at once. In reality, a
consumer class action rarely is filed to supplant
numerous individual lawsuits. Rather, class actions
are often the only economically viable way to provide
legal representation for clients—particularly
economically disadvantaged clients—with relatively

small claims. As Judge Posner succinctly, and
colorfully, put it:

The realistic alternative to a class
action is not 17 million individual suits,
but zero individual suits, as only a
lunatic or a fanatic sues for $30. But a
class action has to be unwieldy indeed
before it can be pronounced an inferior
alternative—no matter how massive
the fraud or other wrongdoing that will
go unpunished if class treatment is
denied—to no litigation at all.

Carnegie v. Household Int’, Inc., 376 ¥ .3d 656, 661
(7th Cir. 2004).

Indeed, for many consumers, entry into court
itself proves an insurmountable barrier to
vindication of their rights. For members of the
armed service, for example, the realities of
deployments, transfers out of the state where the
courts have jurisdiction, and restrictions on their
time often render the doors of small-claims courts
(where these suits would likely be filed) effectively
closed to them. And many low-income individuals
cannot afford to forgo a day's wages to recover a
lesser sum taken from them.

A class action—including one involving the
prospect of a cy pres award because settlement funds
cannot otherwise be economically distributed—is
therefore the only realistic alternative, and it will
nearly always be superior to no litigation at all.
Consumer class actions for violations of the
Servicemember’s Civil Relief Act (SCRA), for
example, have proved an important tool for enforcing

the economic rights of military servicemembers. See,
e.g., Olson, et al. v. Citibank, N_A., 10-cv-2992, 2012
WL 1231787 (D. Minn. Apr. 12, 2012) (preliminarily
approving settlement agreement for monetary and
injunctive relief in a class action alleging illegal
mandatory forbearance on servicemember student
loans under the SCRA). More broadly, without the
legal restraint imposed by a lawsuit, a defendant
that has acquired a sizeable windfall wrongly by
illegally obtaining small sums of money from a large
group of people will continue doing business in the
future as in the past.

2. Class Treatment Is Also Superior to
in Small-Claims Court.

Even if some individual claims are filed in
small-claims court—which will often be without the
assistance of counsel—companies are apt to simply
treat these small individual judgments as a cost of
doing business. Companies may well continue to
engage in the same illegal conduct with their other
customers because there is no economic incentive to
do otherwise.

On the other hand, class-wide judgment
disgorges these unlawful gains, eliminating the
profit-motive for Uhe misconduct. Moreover, even the
mere possibility of class-wide judgment can deter
defendants from transgressing legal boundaries,
before their doing so can harm consumers.

3. Class Actions Are Superior to Punitive
Damage Awards in Small-Claims
Consumer Protection Cases.

If small compensation class actions are
discouraged, the only realistic alternative for
achieving the deterrence goals of consumer
protection statutes will be to seek large punitive
damages awards on behalf of a few consumers who,
while litigating relatively small individual claims,
can prove willful, widespread misconduct by
defendants. Nat'l Ass’n of Consumer Advocates,
Standards and Guidelines for Litigating and Settling
Consumer Class Actions, 299 F.R.D. 160, 167 (3d ed.
2014).

This alternative is second-rate. First, the
heightened “willful” standard is a more difficult and
costly one to prove. More important, it frequently
fails to capture injuries businesses cause through
recklessness or negligence. Finally, even in those
cases where punitive damages successfully extract
large payments from defendants, using class actions
to distribute cy pres awards is a better societal
outcome. By distributing funds to appropriate
charitable or public service organizations serving
consumers in ways that are closely related to the
underlying claims of the case, cy pres awards go one
step further than punitive damages awards. They
help to fund efforts to prevent the same harms from
being perpetrated on future, similarly situated
consumers, instead of providing relief merely to the
few consumers who prevailed in their individual
punitive damages claims.

B. Cy Pres Distribution of Residual Class Action
Funds Best Effectuates the Purposes of
Consumer Protection Statutes.

Consumer protection laws are meant to ensure
that the choices given to consumers in the
marketplace are unimpaired by fraud or withholding
of material information, and that the power
differential between consumers and commercial
enterprises is equalized. See N. Averitt & R. Lande,
Consumer Sovereignty: A Unified Theory of
Antitrust and Consumer Protection Law, 65
Antitrust L.J. 713 (1997). They seek to improve the
functioning of the marketplace by making it
unprofitable to operate dishonestly. /d And, of
course, they seek to compensate consumers for the
wrongs inflicted upon them.

Making all class members whole is the optimal
outcome of any class action. Period. This case,
however, concerns circumstances in which
distribution to class members would not be possible.
The three third-party options usually considered are:
(1) escheat to the state, (2) reversion to the
defendant, and (3) cy pres distribution. See H.
Newberg, 2 Newberg on Class Actions §§ 10.13-10.25
(3d ed. 1992).

In consumer protection class actions, the
underlying statutes’ aims of promoting fundamental
fairness in the marketplace, deterrence of fraud, and
disgorgement of illegally obtained profits must be
weighted heavily in making this determination. Cy
pres awards, when the doctrine is applied as
directed, are that next-best option. They benefit
absent class members and consumers as a whole

10

while also fully effectuating consumer protection
statutes’ deterrence and disgorgement goals.

3. Escheat Falls Short by Failing to Serve
the Consumers Harmed by the
Consumer Statute Violation.

The escheat option (i.e., transfer of abandoned
property to the state) generally fails to serve
consumer protection statutes’ goals to the fullest
extent possible. Escheat can be broken into two
categories: general and earmarked.

General escheat has been appropriately
deemed “the least focused compensation to the
class.” State of California v. Levi Strauss & Co., 41
Cal.3d 460, 475 (Cal. 1986). This option holds little
promise of benefiting absent class members or those
similarly situated, as the funds may be used for
virtually any governmental purpose, with no
attempt to realize the objectives of the underlying
substantive law. /d Moreover, it is lacking in
deterrent power because it does nothing to support
the efforts of those working to prevent similar
conduct.

Earmarked escheat refers to an award of the
funds toward a specific government agency in a
position to assist citizens similar to the injured class.
If used properly, this option can benefit consumers
greatly and satisfy the deterrence and disgorgement
goals with low administrative costs. It has been
looked on favorably, but has rarely been applied.
See, e.g., Market St. Ry. Co. v. Railroad Commission,
28 Cal.2d 363 (Cal. 1946). The reluctance of courts to
rely upon earmarked escheats stems from concerns
that the funds will be used for agency purposes

11

unrelated to the subject of the lawsuit and,
therefore, not benefit class members or members of
the public similar to them at all. See McCall,
Sturdevant, Kaplan and Hillebrand, Greater
Representation for California Consumers: Fluid
Recovery, Consumer Trust Funds, and
Representative Actions, 46 Hastings L.J. 797, 809
(1995).

2. Reverting Funds to the Defendant
Frustrates Rather Than Serves
Consumer Protection Goals.

Reversion of residual funds to the defendant
is, of course, rarely an appropriate option, and
Petitioners do not propose it—at least not directly.
Reversion is inappropriate because it neither
compensates class members nor satisfies consumer
protection goals. Rather it allows the defendant, the
alleged wrongdoer, to keep the fruits of its
wrongdoing. See /n re Motorsports Merch. Antitrust
Litig., 160 F. Supp. 2d 1392, 1394 (N.D. Ga. 2001).
See also In re Wells Fargo Secs. Litig., 991 F. Supp.
1193, 1196 (N.D. Cal. 1998); Am. Law. Inst.,
Principles of the Law of Aggregate Litigation § 3.07
cmt. B (2010) (rejecting reversion because it would
“undermine the deterrence function of class
actions”). Reversion is only appropriate in limited
cases where the defendant acted in good faith, and/or
when punitive damages are disallowed pursuant to
statute. See, e.g., Wilson v. Southwest Airlines, Inc.,
880 F.2d 807 (5th Cir. 1989) (an example of
appropriate reversion in a Title VII action).

Curtailment of class action certification along
the lines Petitioners propose would not be reverting
funds to defendants but rather never requiring

12

defendants to hand over their ill-gotten gains in the
first place. This is because the likely consequence of
discouraging these actions, as discussed in I[.A.1,
supra, is to discourage the only realistic form of
litigation for challenging this misconduct when it
inflicts injuries to individuals too small to rationalize
non-collective action.

3. Cy Pres Distribution Often Best
Effectuates Purposes of Consumer
Protection Statutes.

The final option is cy pres distribution, the
primary purpose of which is to serve as a deterrent
to would-be wrongdoers and to enable the effective
enforcement of the policies underlying the cause of
action. It does so by helping to fund organizations
that work to prevent the same wrongs from being
perpetrated on future consumers, and redressing
those wrongs when they do, inevitably, recur.

Petitioners discount—nay vilify—this option.
Rather than permit funds to be distributed to
entities serving the relevant interests of class
members, they argue that if a court were to find that
distribution to class members is infeasible, then no
class should be certified in the first instance. Pet’rs’
Br. 10-11. But, as discussed throughout this brief,
restitution is not the sole aim of class actions or
consumer protection statutes, and cy pres awards
can help realize and amplify the various other
benefits that consumer protection class actions
achieve.

By providing a mechanism through which to
furnish an indirect benefit to non-claiming class
members, as well as deter misconduct and disgorge

13

wrongful gains, cy pres distribution often provides
the ideal solution for distribution of residual funds.
See Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781,
784 (7th Cir. 2004) (noting that the cy pres doctrine
is utilized to prevent defendants “from walking away
from the litigation scot-free because of the
infeasibility of distributing the proceeds of the
settlement . . . to the class members”).

Moreover, to prevent possible abuse,
appropriate guidelines have been put in place to
govern the use of cy pres awards, allowing these
awards to prove a workable and advantageous
distribution option for over a half-century. Appellate
courts overwhelmingly have adopted the American
Law Institute’s Principles of the Law of Aggregate
Litigation, supra § 3.07,2 which provides guidelines
on the limited circumstances where cy pres
distribution is appropriate, including standards
regarding appropriate recipients, and neither
Congress nor the Rules Advisory Committee have
found reason to diverge from these well-functioning
principles. See Class Resp’ts’ Br. 9-11, 31-35. In
consumer protection class actions, in particular,
finding a worthy cy pres recipient—namely, one who
will promote the interests of the class of consumers
and the purposes of the statutory prohibitions
underlying the litigation—is made easier by the
array of reputable organizations working in the
consumer protection sphere.

2 NCLC participated in the drafting of—and adheres
to—the National Association of Consumer Advocates (NACA)
Standards and (Guidelines for Litigating and Settling
Consumer Class Actions, supra. Guideline 7 of these guidelines
closely follows § 3.07 of the American Law Institute's Principles
of the Law of Aggregate Litigation.

14

For all of these reasons, allowing residual
funds to be distributed via cy pres awards fulfills
these funds’ next-best use, when direct distribution

is not possible. ome -_

The National Consumer Law Center, on
behalf of the low-income consumers who are its
clients, and U.S. PIRG Education Fund urge the
Court to be mindful of the effects its decision in this
case will have on enforcement of consumer
protection statutes, and the consequent impact on
the low-income consumers who are too often the
victims of transgressions of these laws.

Respectfully submitted,
VA Auart Reobsman

Stuart Rossman

Counsel of Record
National Consumer Law Center
7 Winthrop Square, Fourth Floor
Boston, MA 02110
P: (617) 542-8010
F: (617) 542-8028
srossman@nclc.org

4/ Mbchad Landis
Michael Landis
U.S. Public Interest Research
Group Education Fund, Inc.
1543 Wazee Street, Suite 400
Denver, Colorado 80202
P: (303) 573-5995

Dated: September 5, 2018

15

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0805%3A43. Public record. Not legal advice.