We’ve always hated the concept of cy pres class action settlements. A cy pres distribution is an admission that, even without opposition, the plaintiffs cannot prove who was injured and by how much. Cy pres also takes money supposedly belonging to the injured class and give it to charities not injured by anyone, so the
Nothing emphasizes the impermanence of just about everything as Hawaii – where Bexis is right now on vacation. On Kauai, Bexis had a boat drop scheduled to Kalalalu Beach, for three days on the Kalalau Trail, all permits obtained. But several months ago, the heavens opened, and the Na Pali Coast received…
Last September, we criticized a 2-1 decision out of the Ninth Circuit, In re Google Referrer Header Privacy Litigation, 869 F.3d 737 (9th Cir. 2017), calling it a “poster child” for cy pres abuse in class actions. Read the entire post for all the gory details, but briefly, the class action settlement in Google …
We’ve never liked the “cy pres” concept in the context of class actions. We opposed it (not terribly successfully) when the ALI was considering it. We believe that taking money supposedly representing “damages” owed to class members and giving it to strangers is inherently substantive and thus not allowed by Fed. R. Civ. P.…
Regular blog readers may recall that, every year, we eagerly await a Monday and Tuesday right around February 14th. This has nothing to do with Valentine’s Day (though we like a dozen roses and a box of chocolates as much as the next person.) No, at this time every year (for the past…
We can’t stand “cy pres” distributions of class action settlement funds to non-litigants. We’ve blogged about this benighted doctrine many times. We fought against cy pres at in the ALI, and we’ve been fighting against it through Lawyers for Civil Justice in the context of federal rules amendments.
Sure, cy pres can be useful in resolving this or that class action once our clients are unfortunate enough to have become embroiled. But we firmly believe in the “build it and they will come” theory – that making class actions easier to settle make them easier to bring, because 99% of all class actions (at least those seeking $$$) are brought as strike suits to settle, rather than to litigate. A cy pres award is a sure-fire indicator of litigation that should never have been brought – because even after settlement, without any opposition from the defendant(s), a cy pres request is an admission that the plaintiffs still can’t prove damages and causation with respect to the absent class members. They can’t even win a walkover. Outside the class action area, that would mean “case dismissed” (and maybe sanctions). As a class action, it means “write a check.”
There is no basis for cy pres in substantive law (outside of a couple oddball statutes), and there’s nothing more “substantive” than taking money supposedly owed to absent class members and giving it to non-litigant charities. Since it’s substantive, there’s also no possible basis for it in Fed. R. Civ. P. 23, since court rules can’t change substantive law. Cy pres a racket – designed primarily to inflate attorney fee awards − and while the charities might do good work, call us the Grinch, because we don’t think the litigation industry should be funding charities with other people’s money extorted through litigation threats.
Here’s the latest example of cy pres abuse occurring in the context of bogus litigation that should never have been brought, Koby v. ARS National Services, Inc., ___ F.3d ___, 2017 WL 359670 (9th Cir. Jan. 25, 2017). This isn’t a drug/device case. Thankfully, between the FDCA no private right of action rule (which, regrettably has a food loophole) and the rejection of personal injury class actions, we don’t encounter all that many of them anymore against drug/device clients. Instead, Koby is a Fair Debt Collection Practices (“FDCP”) action, and as you might expect from the introduction, a bottom-feeding FDCP action at that.
Supposedly the defendant violated the FDCP at some point a decade or so ago when its employees left messages that did not fully identify themselves. This issue was later fixed, but the class action supposedly includes “some four million people nationwide.” Koby, 2017 WL 359670, at *1. Predictably, nobody in the class was actually harmed by what appears to have been a technical FDCP violation (quickly fixed), so only statutory damages were sought. Theoretically that could have been a lot (4M x $1000), but because ARS was a small company, the 1% of net worth statutory cap limited recovery to $35,000. Id. at *1-2.
You do the math.
In addition to being on the warpath about cy pres class action settlements, we try to keep an eye on various other issues related to the much-abused Fed. R. Civ. P. 23. First, we’re pleased as punch to let you know that all the really awful things that the Federal Judicial Conference’s Rule 23 Subcommittee was contemplating doing (rejecting/watering down ascertainability, recognizing issue classes, writing cy pres into Rule 23, and eliminating offers of judgment) have all been dropped. You can read about it here. Only comparatively minor settlement-related issues (opt-outs, notice, objectors, approval) remain on the Subcommittee’s agenda.
There are also two recent, and pending, petitions for certiorari of note raising class action-related issues. One of them, Wal-Mart Stores, Inc. v. Phipps, No. 15-597 (U.S., filed Nov. 6, 2015), is a spin-off of the employment-related litigation that produced Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). Having lost Dukes, plaintiffs have tried to regroup by filing separate, smaller class actions. Given how long the Dukes litigation was pending, the statute of limitations becomes a serious problem for these newer, still quite large class actions. Hence the issue of “stacking” the tolling effect of successive class actions under American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), is a major issue. We’ve been aware of stacking attempts for some time, but the courts had largely gotten it right – until now. The Phipps petition is from the first court of appeals decision ever to allow stacking as a general rule. Hence, the question presented is:
Whether the Sixth Circuit erred in concluding, in conflict with the decisions of seven other Circuits, that statutory limitations periods applicable to the claims of absent and unknown persons can be extended indefinitely by filing successive (or “stacked”) class actions.
More information, including links to all filed documents, is available on SCOTUSBlog, here. Full disclosure – Bexis and his firm are filing an amicus brief for the Product Liability Advisory Council (“PLAC”) in the Phipps matter.
This is a guest post prepared by Rachel Weil of Reed Smith, who has graced us with guest posts before and, we hope, will do so again. This post concerns the latest of several recent appellate decisions that have imposed limits on the questionable practice of cy pres distributions in class action settlements. As always, Rachel deserves all the credit, and whatever blame accrues from her post.
Readers of this blog are familiar with our antipathy toward the remedy – or non-remedy – known as cy pres. If not, recollections can be refreshed here. “Cy pres” is a French term that roughly translates to “next best” or “as near as possible.” When class counsel can’t or won’t identify all class members to whom damages are owed, cy pres purports to allow the court to award remaining settlement funds to third parties – usually charities. These funds are commonly included in the “lodestar” used in the calculation of class counsel’s fee. “Next best” means, in theory, that non-class member recipients of settlement funds have some logical nexus to the litigation. In practice, nothing in Rule 23 governs cy pres distributions and there is no institutional mechanism for vetting proposed recipients or ferreting out conflicts of interest. As a result, class counsel and judges have been known to steer cy pres funds to charities they support or that provide benefits to them (or bestow honors on them), notwithstanding the charities’ lack of any relationship to the settled litigation.
In recent years, real pundits – actual judges − have chimed in to question cy pres awards and related practices. See Marek v. Lane , 134 S. Ct. 8 (2013) (Justice Roberts, in a concurrence in a denial of certiorari, commenting that a differently-postured petition might have afforded the Court the opportunity to address “fundamental concerns” about the use of cy pres remedies in class action litigation); Holtzman v. Turza, 728 F.3d 682 (7th Cir. 2013) (Judge Easterbrook rejecting trial judge’s unilateral decision to seize residue of a settlement and award it to Legal Aid as “cy pres”); Cf Redman v. Radio Shack, 768 F.3d 622 (7th Cir. 2014) (non-“cy pres” decision condemning inflation of denominator used in calculation of attorneys’ fees by including funds not actually received by class members) (Judge Posner, this time).
We posted not too long ago about a Seventh Circuit decision by Chief Judge Posner that we thought had favorable implications for reining in the steadily metastasizing concept of “cy pres” in class action litigation. That opinion, Redman v. RadioShack Corp., 768 F.3d 622 (7th Cir. 2014), prohibited any sum that did not “benefit the class” from being included in the calculation of attorneys’ fees in a class action settlement. Although a cy pres award was not at issue in Redman, the implications (to us at least) seemed obvious. Funds not paid to class members do not benefit the class.
Judge Posner made that explicit last week in Pearson v. NBTY, Inc., ___ F.3d ___, 2014 WL 6466128 (7th Cir. Nov. 19, 2014). Indeed, he thought it was “obvious,” just like we did:
The [trial] judge excluded, however, both the cy pres award of $1.13 million in calculating the benefit to the class, for the obvious reason that the recipient of that award was not a member of the class, and the injunction, which he valued at zero, which was proper too.
Id. at *2. So, in the Seventh Circuit at least, it’s improper to use funds paid to non-class members via cy pres to calculate the fee that class action plaintiff lawyers are allowed to receive under the “common fund” doctrine.
And there’s more.