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

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## Record

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

## Text

No. 17-961
—_—_—_—_—_—_—_—_—_—_—_—_—_—X—X—s-__—_—_——————
IN THE

SUPREME COURT OF THE UNITED STATES

THEODORE H. FRANK and MELISSA ANN HOLYOAK,
Potiti

Vv.

PALOMA GAOS, on behalf of herself and all others
similarly situated, et al.,
Respondents.

On Writ of Certiorari to the United States Court of
Appeals for the Ninth Circuit

BRIEF FOR THE STATES OF OREGON, CALIFORNIA,
CONNECTICUT, HAWAII, ILLINOIS, MARYLAND,
MASSACHUSETTS, MINNESOTA, NEW YORK, NORTH
CAROLINA, VERMONT, AND WASHINGTON AS AMICI
CURIAE IN SUPPORT OF RESPONDENTS

ELLEN F. ROSENBLUM
Attorney General of Oregon
BENJAMIN GUTMAN*

*Counsel of Record
(Additional counsel listed on signature page)
_——

QUESTION PRESENTED

In a class action where distributing funds to the
class is not feasible, can a settlement that distributes
those funds on a cy pres theory to third-party organi-
zations working on issues that benefit the class be
“fair, reasonable, and adequate” under Federal Rule
of Civil Procedure 23(e)(2)?

TABLE OF CONTENTS

Page
hg By | SEE i
INTEREST OF THE AMICI STATES. ........................ l
SUMMARY OF ARGUMENT ......000.. 0.0... 2
EES A ee Te 5

A. Cy pres disbursements are authorized under
state and federal law as a way to afford relief to
class members when direct compensation is
I sictiessastrinssivnstitieninineeieneeiinatasbatainaianiabiiiiniiatipidememeres 5
1. State legislatures and state courts recognize

the validity of cy pres remedies in appropriate

2. In federal class actions, the states play a role in
ensuring the adequacy of settlements,
including those providing cy pres relief.......... 14

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

EE 16
B. Cy pres disbursements do not violate the Due
Process Clause or the First Amendment. ............. 17
1. Cy pres relief does not violate the Due Process
EE TE EE eee nen ee ee Oe 18
2. Cy pres relief does not violate the First
I sitiiiiaiciataciintnntiitstiatiiibiniandinannmiiancesens 19

a. Cy pres relief does not compel speech.... 21
b. Even if cy pres-only relief compelled
speech, it would survive First Amendment
ETERS Aa Ra nO 24
SII i o:stniscclncninpadienisentaiceshclineeidanisinianiiaiatudssianiinnsiadl 27

TABLE OF AUTHORITIES

Cases

Adickes v. S.H. Kress & Co.,
EELS SEE ee Bear elas Ser C aE et 17

Amchem Products, Inc. v. Windsor,
gS AE ee 6, 18

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

Dist. of Texas,

I a eelaertaeliliaie 16
Baby Products Antitrust Litigation,

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

820 A.2d 561 (D.C. Ct. App. 2003)........................... 8
Cavalier v. Mobil Oil Corp.,

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

Charles I. Friedman, P.C. v. Microsoft Corporation,
141 P.3d 824 (Ariz. Ct. App. 2006) .......................... 8

Cicelski v. Sears, Roebuck & Co.,
348 N.W.2d 685 (Mich. Ct. App. 1984),
rev den, 369 N.W.2d 194 (Mich. 1985)..................... 9

Columbia Cas. Co. v. HIAR Holding, L.L.C.,
411 S.W.3d 258 (Mo. 2013) ...............c.ccccccceeeeeeeeeneees 9

ill

Hansberry v. Lee,
I 17, 23

Janus v. Am. Fed’n of State, Cty., & Mun. Employees,
Council 31,

138 S. Ct. 2448 (BO1B) ...........ccccerecccseccssccessceees passim
Kansas Ass'n of Private Investigators v. Mulvihill,

159 S.W.3d 857 (Mo. Ct. App. 2005)...................... 12
Klein v. Robert’s Am. Food,

28 A.D.3d 63 (N.Y. App. Div. 2006) ......................... 9
Klier v. Elf Autochem N. Am., Inc.,

658 F.3d 468 (5th Cir. 2011) ...000...000.... cc ececeeeceeee 22
Knox v. Serv. Employees Int'l Union, Local 1000,

567 U.S. 298 (2012) ...................ccc0ee0eee- 20, 21, 22, 24
Masters v. Wilhelmina Model Agency, Inc.,

473 F.3d 423 (2d Cir. 2007)..................ccccccccceccceeees 14
Microsoft I-V Cases,

37 Cal. Rptr. 3d 660 (Cal. Ct. App. 2006)............. 12
Mirfasihi v. Fleet Mortg. Corp.,

356 F.3d 781 (7th Cir. 2004) ....00..... occ eee eeee ees 14

Motor Fuel Temperature Sales Practices Litig.,
872 F.3d 1094 (10th Cir. 2017),
cert. denied sub nom Speedway LLC v. Wilson,

os ceidneaeiaebeiinminion’ 19
Muise v. GPU, Inc.,
851 A.2d 799 (N.J. Super. Ct. App. Div. 2004)........ 9

lV

Northrup v. Sw. Bell Tel. Co.,
72 S.W.3d 16 (Tex. Ct. App. 2002).......0.....ccccccceeeeees 9

Ousmane v. City of New York,
22 Misc. 3d 1136(A), 880 N.Y.S.2d 874 (N.Y. Sup.

GR, BED cxcnnntnsdannntnsccsncntssecdindzecssnensesecevempansencceniaane 12
Pharm. Indus. Average Wholesale Price Litig.,

ken 14
Phillips Petroleum Co. v. Shutts,

FO EE re 17, 22
Powell v. Georgia-Pacific Corp.,

119 F.3d 703 (8th Cir. 1997) .......20cccccccccceeeeeeeeenenees 14

Premier Pork, Inc. v. Rhone-Poulenc, S.A.,
No. CV2000-3, 2006 WL, 1388464, at *4 (Kan. Dist.

i te lt ierininniechrigntcmescecsissenepeuntetonsensnanen 9
Radosti v. Envison EMI, LLC,

717 F. Supp. 2d 37 (D. D.C. 2010) «0000000 15
Reed v. Town of Gilbert, Ariz.,

135 S. Ct. 2218 (2015)............ Piss nat Re Eee ARN 23

Scharfstein v. BP West Coast Products, LLC,
2016 WL, 9735513 (Or. Cir. May 9, 201%),

aff'd, 292 Or. App. 69 (2018) .0....c.ccccccccccceeeeeeee 10, 12
United States v. United Foods, Inc.,

Cg nee 19, 20, 21, 24
Wal-Mart Stores, Inc. v. Dukes,

Ey ree CE CITE cxctcinconesindenindesensctnestenssssceseinieneens 17

Zaber v. City of Dubuque,
902 N.W.2d 282 (lowa Ct. App. 2017) ............. 8,10

Constitutional Provision, Statutes, and Rules

2B U.S.C. G1 71DC)..0-ccccccerccrreerserssseessensrsssrenrnsenseensees 15
2B U.G.C. §171B.....--cccccrservseresersserssssnssensssesssnssenssenssees 15
735 UL. Comp. Stat. 5/2-B07(A) ............ccccceecereeeeeeeees 10
Cal. Civ. Proc. Code § 384...........-:-ccccceccceeeeeenennennnnnennne 6
Cal. Code Civ. P. § B84(a) ........:0cccccccceeeeeeeeennenennnnnenens 10
Colo. BR. Civ. P. 28(@) ....cccccccscccessrrressesseerecsssnssnsnessenenees 7
Conn. Super. Ct. R. § 9-9(g) .....-..-..-.cecceeeereeceeeenennnnnnne 7
Fed. R. Civ. P. 23(cMZ)(BYW) «.......0ccccceceeeeeeeeeeneenennnnee 22
Ped. BR. Civ. P. BBG )CB) ..cccccccercerccccsssessesseesoosesseees passim
Fed. BR. Civ. P. SB6@ MA) .ncccccccesccrercccsssssesenrerencsssesssssenes 22
Ped. RB. Civ. BR. SBMS) .....ccccceercesrcorccrorerssseeeseeessssoees 22
Oe me SS 7
Ill. Code Civ. P. § 2-807 ......:cccccccccecesseseeessnnnessnnnsesennenns 7
Head, BR. Trial P. BBG .0cccccccccccccescescocccssccscccvcvssvcosecooese 7
Ky. R. Civ. P. 23.06 (6).......2..0.--cecsneeeerererssrnensrnenssnannnes 7
La. Sup. Ct. BR. XLIATD ......2.0ccccccesceserseeesenserenesensnensnnsenes 7
Maas. BR. Civ. P. B86@)....00.cccccccessscosssossssessssesssserecsossseses 7
Blo. BR. Cle. P. BBD .nccccccccoscssessessescscosccssscevessescovssssescees 7
Minn. R. Civ. P. 33.0GG6).....--cccccccccseccccesesseseeeeessesesoseres 7
Mont. R. Civ. P. 28GB) .....cccccevercccrrrssssesseeenerecseees 7,10
N. C. Gen. Stat. § 1-267.10 (A).....2....-ccececseceesecsseneeneenes 7

vi

ee: Sy i ccnsecccansnsecenntaninednenespenenennseents 7
RSS BF rene 7, 8, 10, 11
ee 8
as ts ts ii coecinstiterenenceseteneenencnccesammencsemennaiens 4
S. D. Codified Laws 16-23-67 ......:ccccccccoscccccererecceeeessseees 4
pO Ee eee 8, 10
RR ee passim
Se ls NG Be i siinisctiindiecpsessineareninnantinncesapeenttinlipias 8
Ss Be I, Beton arestinniccanmnnnibiieenaiaeuanatinannh 4
es Hey SII ccrinccnencscnsennebassitentnntieeeemnndes 4
Other Authorities

S. Rep. No. 109-14, at 36 (2005) .00........2cccccc-ceceseeeeeees 15

vil

INTEREST OF THE AMICI STATES

This case concerns whether a settlement
agreement in a class action is “fair, reasonable, and
adequate” under Federal Rule of Civil Procedure
23(e)(2) where the settlement provides cy pres funds
to third-party organizations that indirectly benefit
the class when direct distribution to class members is
not feasible. The states have a strong interest in pro-
tecting their residents from tortious or illegal con-
duct, including through cy pres relief when warrant-
ed. In appropriate circumstances, cy pres-only relief
protects the interests of class members because it al-
lows a remedy for the injuries class members have
suffered when the available funds are too small for
individual distribution. Cy pres distribution of resid-
ual funds vindicates the interest of the class by di-
recting those amounts to entities that will indirectly
benefit the class instead of returning the funds to the
defendant. By providing a remedy to injured class
members, cy pres relief also holds defendants ac-
countable for their wrongdoing. Moreover, the Class
Action Fairness Act provides an express role for the
states in evaluating class action settlements in feder-
al court. Under CAFA, the states have frequently
alerted courts to class action settlements that are in-
adequate, including those that misuse cy pres relief.
The courts, with help from the states, can ensure that
class action settlements that provide for cy pres relief
are fair, reasonable, and adequate under Rule 23.

The states also have a strong interest in protect-
ing state laws governing cy pres relief from unfound-
ed constitutional challenges. Although the question

2

presented here concerns only the proper interpreta-
tion of a federal rule, some of the arguments made by
petitioners and their amici go beyond the question
presented and address the constitutionality of cy pres
relief in class actions generally. Those arguments, if
accepted, could affect the law in the majority of states
that have made a policy decision to recognize cy pres
relief in class actions in certain circumstances.
Twenty-three states expressly authorize the distribu-
tion of residual clase action funds to cy pres recipi-
ents. In a substantial number of other states, state
courts have approved class action settlements con-
taining cy pres relief under the applicable statutes
and rules even where those states do not have an ex-
press cy pres statute. Those state laws and court rul-
ings are constitutional, and the states have an inter-
est in explaining why.

The states provide this brief to explain the im-
portance of cy pres relief as a tool for disbursing re-
sidual class-action funds and as an appropriate sub-
stitute remedy when it is not feasible to distribute
funds to class members. Beyond the merits of the
particular cy pres provision at issue in this case, the
states have a compelling interest in supporting the
availability of cy pres relief under their own laws and
as approved by their own courts.

SUMMARY OF ARGUMENT
Cy pres relief is a vital tool for providing a

remedy that benefits class members when a direct
disbursement is not feasible and for distributing re-

5]

sidual class action proceeds. State legislatures, state
courts, Congress, and the federal courts have all rec-
ognized that cy pres relief has a role to play in clase
actions. Many states expressly authorize cy pres dis-
bursements of residual clase action funds, and Oregon
and New Mexico expressly authorize cy pres-only dis-
bursements. In other states, the courts have permit-
ted-—under more general state laws —cy pres-only set-
tlements and cy pres disbursement of remainder
funds when appropriate. In CAFA, Congress express-
ly authorized cy pres disbursements in coupon settle-
ments. And the federal courts have long recognized
that cy pres relief is consistent with Rule 23 when it
provides a fair, reasonable, and adequate remedy for
class members. In those federal class actions, the
states have served as a check against improper cy
pres awards by alerting the courts to inappropriate or
inadequate settlements.

The lesson from the experience of the states is
that cy pres relief is an important remedy in clase ac-
tions when employed in the appropriate circumstanc-
es and under close supervision by the courts. Cy pres
relief prevents defendants from retaining damages or
restitution amounts that were properly awarded but
not claimed or not amenable to distribution, affords
an adequate remedy to injured class members when
direct compensation is impractical or impossible, and
helps the parties craft efficient settlement agree-
ments. This Court should affirm because cy pres re-
lief can be a legitimate and appropriate remedy in
class actions under state and federal law, and be-

A

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

In addition to petitioners’ challenge under Rule
24, petitioners and several amici argue that cy pres
distributions violate the Due Process Clause and the
First Amendment. but those arguments were not
raised in the courts below, and this Court should de-
cline to address them in the first instance. In any
event, the constitutional objections are misplaced.

First, cy pres distributions do not pose any in-
herent due process problems. Rather, such distribu-
tions merely require courts to evaluate the same con-
siderations that apply to class actions generally to
protect the rights of absent class members.

Second, cy pres distributions do not violate the
First Amendment by compelling speech. The con-
cerns that animate the Court's compelled speech ju-
risprudence are wholly absent from the cy pres con-
text, both generally and on the facts of this case. A cy
pres distribution in a federal class action cannot be a
compelled subsidy for speech because class members
have the opportunity to opt out of the class. Moreo-
ver, for cy pres distribution of remainder funds, those
funds could have been claimed by class members but
were not. Class members are not compelled to subsi-
dize anyone’s speech when those residual funds are
directed to cy pres recipients. But even if the com-
pelled speech doctrine were applicable, cy pres relief
is permissible under that doctrine because it is a nar-
rowly tailored remedy that vindicates the states’ and

5

class members’ interests in obtaining redress, albeit
indirectly, for injuries caused by a defendant and in
holding such a defendant accountable.

ARGUMENT

A. Cy pres disbursements are authorized un-
der state and federal law as a way to af-
ford relief to class members when direct
compensation is infeasible.

Cy pres relief originated as a common law doctrine
for distributing funds from a charitable trust to a
substitute beneficiary when the original intent of the
testator could not be fulfilled. In the 1970s, courts
began to apply the doctrine in class actions as a way
of distributing funds that are left over after class
claims have been fulfilled or when distribution to the
class would not be feasible. Jn re Baby Products Anti-
trust Litigation, 708 F.3d 163, 171-73 (3d Cir. 2013)
(discussing development of cy pres distributions in
class actions). As detailed below, the majority of
states have expressly authorized cy pres disburse-
ments in class actions either through legislative act
or court decision. Under CAFA, federal law expressly
authorizes cy pres distributions for funds remaining
in coupon settlements. The states also receive notice
when their residents will be subject to a class action
settlement in federal court and have the opportunity
to inform the court when the settlement is inade-
quate, an opportunity that states have frequently
used.

6

Cy pres relief plays an importani »*l« |. vindicat-
ing the rights of injured class memb**» Une purpose
of class action litigation is to provide a remedy to the
class when it would be impossible or impracticable for
an individual litigant to pursue a claim. See Amchem
Products, Inc. v. Windsor, 521 U.S. 591, 617 (1997).
Class actions augment and amplify the ability of the
states to enforce substantive law by providing an av-
enue for private enforcement. Cy pres relief is an im-
portant component of that private enforcement be-
cause it provides a remedy when individual recovery
would be impossible. Without the option of cy pres
relief, particularly cy pres-only distributions, merito-
rious cases would not be brought and class members
would have no recourse, simply because the size of
their injury was small relative to the costs of disburs-
ing an award. By providing a remedy for class mem-
bers with a small individual injury, cy pres relief fur-
thers the core function of class actions. This Court
should affirm that cy pres remedies, including cy pres-
only settlements, are permissible under Rule 23.

1. State legislatures and state courts rec-
ognize the validity of cy pres remedies
in appropriate circumstances.

Twenty-three states have statutes or court rules
that authorize, and in some cases require, cy pres dis-
tributions of residual funds that result from a class
action settlement or judgment:

e California: California Code of Civil Procedure
§ 384

7

Colorado: Colorado Rule of Civil Procedure
23(g)

Connecticut: Connecticut Superior Court
Rules § 9-9(g)

Hawaii: Hawaii Rule of Civil Procedure 23(f)
Illinois: Illinois Code of Civil Procedure § 2-

807

Indiana: Indiana Rules of Trial Procedure
23(f)

Kentucky: Kentucky Rules of Civil Procedure
23.05(6)

Louisiana: Louisiana Supreme Court Rule
XLII

Maine: Maine Rule of Civil Procedure 23(f)
Massachusetts: Massachusetts Rule of Civil
Procedure 23(e)

Minnesota: Minnesota Rule of Civil Proce-
dure 23.05(e)

Montana: Montana Rule of Civil Procedure
23(i)(3)

Nebraska: Nebraska Revised Statutes 30-
3839

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

North Carolina: North Carolina General
Statute § 1-267.10 (a)

Oregon: Oregon Rule of Civil Procedure 32 O

8

¢ Pennsylvania: Pennsylvania Rule of Civil

Procedure 1716

« South Carolina: South Carolina Rule of Civil
Procedure 23(e)

« South Dakota: South Dakota Codified Law
16-2-57

¢ Tennessee: Tennessee Rule of Civil Procedure
23.08

« Washington: Washington Rule of Civil Proce-
dure 23(f)

« West Virginia: West Virginia Rules of Civil
Procedure 23(f)

« Wisconsin: Wisconsin Statute 803.08(10)

Some states also have statutes that authorize
cy pres-only remedies in particular circumstances.
For example, Oregon and New Mexico expressly au-
thorize cy pres-only relief when it would be impracti-
cable to distribute damages to the class directly. Or.
R. Civ. P. 32 O (If any amount awarded as damages
is not claimed within the time specified by the court,
or if the court finds that payment of all or part of the
damages to class members is not practicable” the
court shall order cy pres disbursements); N.M. R. Civ.
P 1-023(G) (authorizing cy pres disbursement “if it is
impossible or economically impractical to distribute
the common fund to the class a, all”).

In other states and the District of Columbia,

courts have approved the use of cy pres distribution of
residual funds or cy pres-only settlements:

Arizona: Charles 1. Friedman, P.C. v. Mi-
crosoft Corporation, 141 P.3d 824, 828 (Ariz.
Ct. App. 2006) (describing settlement contain-
ing cy pres distribution of residual funds).

District of Columbia: Boyle v. Giral, 820
A.2d 561, 570 (D.C. 2003) (approving cy pres-
only settlement)

lowa: Zaber v. City of Dubuque, 902 N.W.2d
282, 292 (lowa Ct. App. 2017) (approving cy
pres distribution of residual funds)

Kansas: Premier Pork, Inc. v. Rhone-Poulenc,
S.A., No. CV2000-3, 2006 WL 1388464, at *4
(Kan. Dist. Ct. Jan. 31, 2006) (approving cy
pres distribution of residual funds)

Michigan: Cicelski v. Sears, Roebuck & Co.,
348 N.W.2d 685, 690-91 (Mich. Ct. App. 1984),
rev den, 369 N.W.2d 194 (Mich. 1985) (conclud-
ing that cy pres relief is permissible in appro-
priate circumstances)

Missouri: Columbia Cas. Co. v. HIAR Hold-
ing, L.L.C., 411 S.W.3d 258, 262 (Mo. 2013)
(approving cy pres distribution of residual
funds)

New Jersey: Muise v. GPU, Inc., 851 A.2d
799, 823-24 (N.J. Super. Ct. App. Div. 2004)
(noting availability of cy pres relief, but reject-

10

ing argument that possibility of such relief
warranted certification of the class)

« New York: Klein v. Robert’s Am. Food, 28
A.D.3d 63, 74 (N.Y. App. Div. 2006) (rejecting
coupon settlement when court did not consider
availability of cy pres distribution)

¢« Texas: Northrup v. Sw. Bell Tel. Co., 72
S.W.3d 16, 22 (Tex. Ct. App. 2002) (approving
cy pres-only settlement)

We are unaware of any state court or state legislature
that has categorically rejected cy pres disbursements
as an available tool in class actions.

Some states have adopted detailed criteria for
selecting cy pres recipients. See, e.g., 735 Ill. Comp.
Stat. 5/2-807(a) (defining organizations eligible to re-
ceive distributions of residual funds). Some states
require a minimum percentage of the cy pres funds to
be distributed to legal aid organizations. See, e.g., Or.
R. Civ. P. 32 O; Mont. R. Civ. P. 23()(3). Other states
give the trial court discretion in selecting cy pres re-
cipients, but acknowledge that legal aid organizations
are an appropriate recipient. See Tenn. R. Civ. P.
23.08. Uniformly, the state laws, court rules, and
court decisions limit cy pres disbursements to organi-
zations that would further the interests of the class or
further the state’s interest in justice. See, e.g., Cal.
Civ. P. Code § 384(a); Zaber, 902 N.W.2d at 291-92.

11

Additionally, state courts have effectively su-
pervised cy pres relief in class actions. State laws
governing class actions impose similar requirements
to federal law concerning court approval of settle-
ments and class awards, and the due process re-
quirements that animate the federal rules extend to
state law as well. Like the federal courts, the state
courts scrutinize proposed cy pres relief to ensure that
class interests are protected and adequately reme-
died.

A recent Oregon class action, Scharfstein v. BP
West Coast Products, LLC, 2016 WL 9735513 (Or.
Cir. May 9, 2016), affd, 292 Or. App. 69 (2018), pro-
vides an example of how a trial court can effectively
monitor the creation and distribution of a cy pres
fund. In that consumer protection case, following a
jury verdict and claims process, the trial court con-
ducted several days of hearings and received exten-
sive testimony to determine the appropriate cy pres
recipients of approximately $66 million in residual
funds. Jd. at *1. Under Oregon Rule of Civil Proce-
dure 32 O, the court was required to distribute at
least half of the remainder fund to the Oregon Legal
Services Program. The other half could be distribut-
ed to that same program or to a third-party organiza-
tion for purposes “directly related to the class action
or directly beneficial to the interests of class mem-
bers.” Or. R. Civ. P. 32 O.

After hearing from the parties and an array of ex-
pert witnesses in the relevant areas— including tes-
timony on cy pres awards generally, the provision of

12

legal services for low income clients, consumer protec-
tion, and non-profit management—the court entered
a detailed order adopting a cy pres plan to distribute
the funds. 2016 WL 9735513 at *2. The court first
determined that half of the funds should go to con-
sumer protection, because that was the basis of the
class action. Jd. at *3 Because no entity existed in
Oregon that could serve class interests and make
good use of the large award, the court authorized use
of the majority of the cy pres funds to create a con-
sumer protection nonprofit that would serve the in-
terests of the class. Id. at *4-5. The court included a
detailed process for establishing the Oregon Consum-
er Protection Center, including an appointment of the
Oregon Community Foundation, a nonprofit organi-
zation with extensive experience in asset manage-
ment, to manage the cy pres funds. /d. at *5-6. The
court also authorized a distribution to the University
of Oregon School of Law for research into consumer
issues. Jd. at *6. The court issued a detailed cy pres
plan to guide the formation of the new nonprofit and
to guide use of the cy pres funds. /d. at *6-7.

The process followed in Scharfstein shows that the
state courts, with the involvement of the parties, can
effectively and fairly manage the distribution of cy
pres funds to serve the interests of class members
even in unusually large or complex cases. Courts in
other states have engaged in similar processes in
granting cy pres relief. See, eg., In re Microsoft 1-V
Cases, 37 Cal. Rptr. 3d 660, 676-77 (Cal. Ct. App.
2006) (holding that the trial court did not abuse its
discretion in approving a settlement agreement con-

13

taining a provision for cy pres distribution of residual
funds when the trial court found—based on extensive
testimony—that the distribution would provide a
benefit to class members).

By contrast, state courts have not hesitated to
rejected cy pres distributions proposed by the parties
when they were inappropriate. See, ¢g., Kansas
Ass'n of Private Investigators v. Mulvihill, 159 8.W.3d
857, 862 (Mo. Ct. App. 2005) (holding that the trial
court abused its discretion when, among other things,
it distributed cy pres funds to charities unrelated to
the activities of the parties in the suit and in a county
where none of the class members lived); Ousmane v.
City of New York, 22 Misc. 3d 1136(A), 880 N.Y.S.2d
874 (N.Y. Sup. Ct. 2009) (rejecting a motion for cy
pres distribution of residual funds where the defend-
ant was a government entity and the residual funds
belonged to “a relatively small number of readily
identifiable” plaintiffs); Cavalier v. Mobil Oil Corp.,
898 So.2d 584 (La. Ct. App. 2005) (holding that the
trial court erred by disbursing twenty percent of re-
mainder funds to a nonprofit that did not serve the
area where class members lived).

The states allow cy pres disbursements in ap-
propriate circumstances because they provide a bene-
fit to class members by directing funds to groups that
have similar interests to the class or to legal aid or-
ganizations that promote access to justice. A majority
of states have determined that cy pres relief is prefer-
able to other methods of distributing remainder
funds, such as returning undistributed funds to the

14

defendant, increasing the pro rata share to class
members who make claims, or giving those funds ar-
bitrarily to some portion of the class. The states’ ex-
perience shows that cy pres relief can be administered
in a fair manner that adequately protects the rights
of the class. We do not suggest that cy pres relief is
always appropriate or that the doctrine cannot be
misapplied. But the potential problems that can ac-
company cy pres relief are largely the same problems
that relate to all mass litigation. The courte—with
the help of the states—can ensure that the interests
of class members are adequately represented and
that settlement agreements, whether they include cy
pres relief or not, are “fair, reasonable, and adequate.”

2. In federal class actions, the states play
a role in ensuring the adequacy of set-
tlements, including those providing cy
pres relief.

Like the state legislatures and state courts,
every circuit court to address cy pres relief in clase
actions has concluded that such relief may be appro-
priate in the right case.’ And in the Class Action
Fairness Act, Congress expressly authorized federal!
courts to require cy pres distributions in class action

' See, eg., In re Pharm. Indus. Average Wholesale Price Litig.,
588 F.3d 24, 34 (let Cir. 2009); Masters v. Wilhelmina Model
Agency, Inc., 473 F.3d 423, 436 (2d Cir. 2007); In re Baby
Products, 708 F.3d at 173; Klier v. Elf Autochem N. Am., Inc.,
658 F.3d 468, 475 & 0.15 (5th Cir. 2011); Mirfasihi v. Fleet
Mortg. Corp., 356 F.3d 781, 784 (7th Cir. 2004); Powell v.
Georgia-Pacific Corp., 119 F.3d 703, 706 (8th Cir. 1997).

15

When a federal class action settles, the states can
help the courts apply Rule 23 to ensure that the set-
tlement is a good deal for their respective citizens.
Under CAFA, 28 U.S.C. § 1715, the states receive no-
tice of proposed class action action settlements, which allows
the states to “provide a check against inequitable set-
tlements.” S. Rep. No. 109-14, at 35 (2005), reprinted

defendants to craft settlements that do not benefit
the injured parties.” /d. The states have been active-
ly involved in monitoring class action settlements and

717 F. Supp. 24 37, 49-50 (D. D.C. 2010) (discussing
opposition to cy pres award raised by Attorneys Gen-
eral).

2 28U.SC. § 1712(¢) provides, in relevant part: “The court, in
ite discretion, may also require that a proposed settlement
agreement provide for the distribution of a portion of the value
of unclaimed coupons to 1 or more charitable or
organizations, as agreed to by the parties.”

16

3. The Court of Appeals correctly af-
firmed the district court's ruling ap-
proving the cy pres relief in this case.

With respect to the cy pres relief in this case, the
district court and the Court of Appeals were correct to
approve the settlement. Determining whether a set-
tlement agreement is “fair, reasonable, and adequate”
under Rule 23 is entrusted to the discretion of the tri-
al court. In re Buby Products, 708 F.3d at 175. There
is nothing in Rule 23 to suggest that a cy pres-only
settlement cannot satisfy that standard so long as the
district court meets its duties to scrutinize the set-
tlement and ensure that class members’ interests are
protected. For the reasons explained by respondents,
the trial court did not abuse its discretion by conclud-
ing that (1) the settlement fund was the appropriate
size in view of the harms to class members and
strength of the legal claims; (2) distribution to the
class was not practicable; (3) this cy pres distribution
would provide meaningful, if indirect, benefit to the
class as a whole; and (4) the recipients of the cy pres
funds were appropriate.” See Class Res. Br. 48-53;
Google Br. 29-56. Accordingly, this Court should af-
firm the Ninth Circuit's decision.

* A group of states filed an amicus brief in support of peti-
tioner. That brief, however, objects only to cy pres relief or cy
pres-only settlements in general; it does not argue that there
was anything wrong in particular with the settlement in this
ment nor CAFA categorically prohibits cy pres-only settlements.

17

B. Cy prea disbursements do not violate the
Due Process Clause or the First Amend-
ment.

Although the validity of state law is not before the
Court, several amici (and petitioners very briefly) as-
sert that cy pres relief has constitutional flaws that
could, if their arguments were accepted, impact the
states’ authorization of cy pres relief. Specifically,
amici argue that cy pres distributions raise concerns
under the Due Process Clause and that such distribu-
tions violate the First Amendment by compelling te
speech of absent class members. Those arguments
are without merit and should not affect this Court's
analysis of the Rule 23 issue.

To begin, amicis due process and First
Amendment arguments were not raised in the courts
below and thus are not properly presented for the
first time here. See Atl. Marine Constr. Co. v. Dist.
Ct. for the Western Dist. of Texas, 571 U.S. 49, 61
(2013) (declining to address argument by amicus that
had not been raised by the parties “at any stage of
this litigation”); Adickes v. S.H. Kress & Co., 398 U.S.
144, 147 n.2 (1970) (‘Where issues are neither raised
before nor considered by the Court of Appeals, this
Court will not ordinarily consider them.”). Amici do
not explain why it would be appropriate for this Court
to address the constitutional questions in the first in-
stance, when their arguments were not developed
previously. In any event, if the Court were to consid-
er the constitutional challenges, it should reject them.

18

1. Cy pres relief does not violate the Due
Process Clause.

The Court has long held that aggregate litiga-
tion when properly supervised by the trial court —
can provide adequate representation and protection
for the rights of absent clase members. See, e.g., Phil-
lips Petroleum Co. v. Shutts, 472 U.S. 797, 812 (1985);
Hansaberry v. Lee, 311 U.S. 32, 43-44 (1940). In light
of the duty to protect absent class members and the
burdens of aggregate litigation, class actions require
“rigorous analysis” by the trial court to ensure com-
pliance with the rules and with due process. Wal-
Mart Stores, Inc. v. Dukes, 564 US. 338, 351-52
(2011). In considering a cy pres distribution, state
and federal courts can and do engage in that same
rigorous analysis to ensure that the distribution is
appropriate under state or federal law.

Amici assert that cy pres relief raises a host of
due process problems. Cato Br. 4-24; Lawyers for
Civil J. Br. 20-21. But most of the concerns they raise
actually go to whether class treatment was appropri-
ate, whether the representation was adequate, and
whether counsel and the court behaved ethically.
None of those issues concern whether there are in-
herent due process problems with cy pres relief.
Moreover, on appeal, no one challenged the district
court's decision on class certification, the adequacy of
representation, or the adequacy of class notice. See
Pet. App. 17-21, 59-60.

19

Amici also assert that cy pres-only settlements
violate due process because they provide no direct
benefit to the class, and so a class member has given
up a meaningful property interest in the form of a
claim against the defendant and gotten nothing in re-
turn. Cato Br. 21-22. But that argument disregards
the foundational principles underlying both class ac-
tions and cy pres relief. As noted earlier, one purpose
of class action litigation is to allow aggregate claims
to be brought when individual claims would be im-
possible to litigate. Amchem, 521 U.S. at 617. Relat-
edly, cy pres relief serves as a way to afford relief to
the class when direct disbursement to class members
is impossible or impracticable. When many plaintiffs
have suffered a small harm and distribution to the
class would be impossible, cy pres relief may be the
only realistic remedial option, aside from leaving the
plaintiffs with no remedy whatsoever. Cy pres relief
also makes it possible to hold defendants accountable
for inflicting small injuries on millions of people.

Stated simply, cy pres relief does not raise any
intractable due process concerns. Rather, cy pres re-
lief requires only that the trial court consider the
same procedural issues and perform the same rigor-
ous analysis as in any class action settlement.

2. Cy pres relief does not violate the First
Amendment.

Several amici, and petitioners very briefly, also
assert that cy pres relief in any form violates the First
Amendment because that relief compels absent class

20

members to subsidize the speech of groups—the cy
pres recipients—with whom class members may not
agree. See Cato Br. 29-34; Center for Ind. Rights Br.
3-10; Center for Const. Juris. Br. 6-8; Lawyers for
Civil J. Br. 21-22; Pet. Br. 36-37. The Court should
reject that argument.

As a threshold matter, court approval of a settle-
ment agreement is not state action that implicates
the First Amendment. Here, the cy pres-only settle-
ment is an agreement between private parties to re-
solve their dispute. Although the court is required to
ensure that the interests of absent class members
have been protected, court approval of the agreement
does not transform the actions of private parties into
state action for First Amendment purposes. See In re
Motor Fuel Temperature Sales Practices Litig., 872
F.3d 1094, 1113-14 (10th Cir. 2017), cert. denied sub
nom. Speedway LLC v. Wilson, 138 S. Ct. 1299 (2018)
(rejecting a compelled-speech challenge to the distri-
bution of settlement funds to state regulators on that
basis).

Beyond that, cy pres relief does not involve
compelled speech. The First Amendment generally
prevents the government “from compelling certain in-
dividuals to pay subsidies for speech to which they
object.” United States v. United Foods, Inc., 533 U.S.
405 (2001) (citations omitted). But cy pres distribu-
tions do not compel absent class members to subsi-
dize the speech of recipients of the funds even though
class members may not agree with that speech. Cy
pres distributions are not analogous to a compelled

21

subsidy, because class members in a federal class ac-

tions are free to opt out of class at the outset or at the
time of settlement. But even if cy pres-only relief
could compel speech, it would survive First Amend-
ment scrutiny.

a. Cy pres relief does not compel speech.

Amici rely on United Foods as well as recent cases
concerning union fees charged to nonmembers, Knox
v. Serv. Employees Intl Union, Local 1000, 567 U.S.
298 (2012), and Janus v. Am. Fed’n of State, Cty., &
Mun. Employees, Council 31, 138 S. Ct. 2448 (2018).
But those cases do not suggest that cy pres relief is a
form of compelled speech.

In United Foods, the Court addressed whether
a mandatory assessment for mushroom advertising
violated the First Amendment when the assessment
was used for generic advertising to which a producer
objected. The Court concluded that compelling an
unwilling producer to subsidize advertisements with
which it disagreed violated the First Amendment.
521 U.S. at 413. In reaching that conclusion, the
Court emphasized that the producer had no choice
but to subsidize the advertisements and noted that
the producer had to remain a member of the group
engaging in the offensive speech. /d.

Similarly, in Knox and Janus, public employees
who had declined to join the union were required by
state law to pay union fees, which were then used by
the unions to engage in speech that the nonmembers
did not support. In both of those cases, the Court re-

22

lied on the premise that nonmembers of unions had
made their unwillingness to support union activities
clear—by declining to join—but were nevertheless
compelled to support union activities, which neces-
sarily involved political advocacy and other speech.
Knox, 567 U.S. at 312; Janus, 138 S. Ct. at 2460.

Unlike the producer in United Foods or the
employees forced to pay agency fees in Knox and Ja-
nus, class members here were free to leave the class.
In a class action under Rule 23(b)(3), class members
have the right to opt out at the time of class certifica-
tion, Fed. R. Civ. P. 23(c)(2)(B)(v), and the district
court can require an additional opportunity to opt out
at the time of settlement, Fed. R. Civ. P. 23(e)(4).
The ability to opt out of a federal class action——-which
affords sufficient protection for members’ rights un-
der the Due Process Clause—necessarily means that
a cy pres disbursement is not “compelled” in any
meaningful sense.

Amici assert that the opt-out process in federal
class actions is inadequate in light of the infringe-
ment on class members’ First Amendment rights,
again relying on Knox and Janus. Center for Ind.
Rights Br. 6-10; Cato Br. 31. That argument is based
on a misreading of Knox. That case does not stand for
the proposition that opt-out notices are per se imper-
missible if a constitutional right is implicated. Ra-
ther, in Knox, the nonmembers had already declined
to join the public employee unions and thus had made
clear that they did not wish to support union activi-
ties. Knox, 567 U.S. at 312. In that context, requir-

23

ing nonmembers to opt out of a fee that would be used
for political purposes to which nonmembers had al-
ready objected violated the First Amendment. /d. at
313-14. The Court in Janus began from a similar po-
sition: state employees who had already rejected the
union could not be compelled nevertheless to support
union speech by default. The opt-out process for class
actions is different. In contrast to Knox and Janus,
the class members in this case had multiple opportu-
nities to opt out, and a class member needed to make
that decision only once to be removed from the class.
That opt-out process is not analogous to compelling a
nonmember to pay union fees unless the nonmember
affirmatively opts out a second time.

Again, this Court has expressly approved the opt-
out process in class actions. Phillips Petroleum, 472
U.S. at 814. Moreover, a class member who wants to
remain in the class but objects to a specific cy pres re-
cipient can raise those concerns before the trial court.
By providing class members the ability to opt out and
to object, class members’ First Amendment rights—to
the extent they are implicated at all—are sufficiently
protected.

Amicis argument that cy pres relief compels
speech also fails because cy pres distributions neces-
sarily involve funds that were not or could not be dis-
bursed to class members, who had the opportunity to
opt out of the class. Amici’s argument is premised on
the notion that cy pres relief takes funds from class
members and gives those funds to third parties. To
be sure, class members have a property interest in

24

their claims that extends to funds resulting from a
settlement or judgment. Alier v. Elf Autochem N.
Amer., Inc., 658 F.3d 468, 475 (2011). But the proper-
ty interest in a class member's claim can only be re-
duced to actual funds through the class action pro-
cess. When a court authorizes a cy pres distribution,
the court necessarily determines that the funds are
either unclaimed or cannot practicably be distributed.
See id. Cy pres distribution of those funds does not
compel an absent class member to transfer any prop-
erty interest to a third party.

b. Even if cy pres-only relief compelled speech,
it would survive First Amendment scrutiny.

In Janus, the Court applied “exacting scrutiny” in
concluding that mandatory agency fees violated the
First Amendment and declined to address whether
strict scrutiny may be a more appropriate standard.
Janus, 138 S. Ct. at 2465. But even if this Court
were to apply strict scrutiny, cy pres relief does not
violate the First Amendment. To survive strict scru-
tiny, the regulation of speech must be narrowly tai-
lored to serve a compelling government interest.
Reed v. Town of Gilbert, Ariz., 135 S. Ct. 2218, 2231
(2015).

To the extent that a cy pres-only distribution could
impact speech, it is narrowly tailored relief that
serves a compelling government interest. In keeping
with the purpose of mass litigation, the states (and
the federal government) have a compelling interest in
ensuring that injured class members can litigate their

25

claims and receive an adequate remedy, even when
the value of a claim may be smal!, and in ensuring
that wrongdoers are held accountable. See Hansber-
ry, 311 U.S. at 41-42 (class actions are an “an inven-
tion of equity” that enables a suit to proceed to a
judgment despite procedural barriers); Amchem, 521
U.S. at 617 (noting the importance of class actions in
obtaining relief when individual recovery is small).
That interest in ensuring the availability of an ade-
quate remedy is no less compelling when direct dis-
bursement of settlement funds is not feasible. Cy
pres-only relief can provide an adequate remedy for
injuries to class members who would otherwise have
no recourse, and, in so doing, hold defendants ac-
countable for conduct that causes widespread injury.
The states have a compelling interest in both of those
results. And because cy pres-only relief is appropriate
in very limited factual circumstances—when funds
cannot be feasibly distributed—and with court over-
sight, it is by definition a narrowly tailored remedy.

Nor does the record in this case support an argu-
ment that any cy pres funds in fact subsidized speech
with which class members disagreed. Amicis argu-
ment is entirely speculative, based on assumptions
that members of a large class must have divergent
political views and that those class members would
not exercise their right to opt out or object. This
Court has never applied the compelled speech doc-
trine as abstractly as amici suggest—nor could it,
consistent with Article III’s requirement that this
Court adjudicate only cases and controversies. And
the notion that the Court can assume that members

26

of any given class have speech-based objections to a cy
pres distribution finds no support in this Court’s cas-
es. This case does not present a situation like United
Foods, Knox, or Janus, where the record showed both
that the challengers objected to the subsidy support-
ing speech and that the subsidy would, in fact, be
used for objectionable speech. To the extent that a
particular proposed cy pres distribution in a particu-
lar case raised concerns about the uses to which a re-
cipient would put the funds, trial courts are capable
of dealing with those situations as they arise.

27
CONCLUSION

The Court should affirm the decision below.
Respectfully submitted,

ELLEN F. ROSENBLUM
Attorney General of Oregon
BENJAMIN GUTMAN
Solicitor General
Counsel of Record
HENRY KANTOR
Special Counsel
CARSON WHITEHEAD
Assistant Attorney General
1162 Court Street
Salem, Oregon 97301-4096
Phone: (503) 378-4402
benjamin.gutman@doj.state.or.us

September 5, 2018

(Counsel listing continues on the next page)

XAVIER BECERRA
Attorney General

of California
1300 I Street
Sacramento, CA 95814

RUSSELL A. SUZUKI
Attorney General
of Hawati

425 Queen Street

Honolulu, HI 96813

BRIAN E. FROSH
Attorney General
of Maryland
200 Saint Paul Place
Baltimore, MD 21202

LORI SWANSON
Attorney General
of Minnesota
102 State Capitol
75 Rev. Dr. Martin Lu-
ther King Jr. Blvd.
St. Paul, MN 55155

28

GEORGE JEPSEN
Attorney General
of Connecticut

55 Elm Street

Hartford, CT 06106

LISA MADIGAN
Attorney General
of Illinois

100 West Randolph

Street, 12th Floor

Chicago, IL 60601

MAURA HEALEY
Attorney General
of Massachusetts
One Ashburton Place
Boston, MA 02108

BARBARA D. UNDERWOOD
Attorney General
of New York

28 Liberty Street

New York, NY 10005

29

JOSHUA H. STEIN THOMAS J. DONOVAN, JR.
Attorney General Attorney General
of North Carolina of Vermont
Post Office Box 629 109 State Street
Raleigh, NC 27602 Montpelier, VT 05609
ROBERT W. FERGUSON
Attorney General
of Washington
Post Office Box 40100

Olympia, WA 98504

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0805%3A46. Public record. Not legal advice.