Salvo 03.21.2023 5 minutes

Abusing the Class

Miniature business people on stacks of coins

The plaintiffs’ bar ignores its clients to fund left-wing activism.

Twice in the last decade, Supreme Court justices have written decisions criticizing “cy pres,” a legal dodge that enables trial lawyers to divert hundreds of millions of dollars of class-action settlement money from consumers to nonprofit advocacy groups, frequently in favor of leftist causes. This mechanism permits lawyers to hijack valid class actions, leave the actual class members with nothing, while providing a funding stream for the Left.

But so far, the Court as a whole has yet to decide the issue, waiting for the right case. My firm has two such cases, St. John v. Jones and Yeatman v. Hyland; this spring, the Court will decide whether to hear our cases, which the SCOTUSblog website called “Petitions of the Week.”

In “Law French,” cy pres (pronounced sigh-PRAY in America) means, roughly, “as near as possible.” As a legal doctrine it typically applies to charitable trusts that have outlived the cause for which they were established. For instance, cy pres permitted the March of Dimes to continue operating, after the invention of the polio vaccine, with a change in institutional focus to other childhood diseases. While sometimes appropriate in the trust context, cy pres’s application to class-action suits enables attorneys to bilk their clients by claiming it would be too difficult to distribute the money to class members.

Cy pres offers a conflict of interest that attorneys find too tasty to resist. Attorneys can choose between sending out a million checks for piddling amounts to clients they’ve never met, or distributing multi-million dollar payouts to their favorite nonprofits—and get a full fee either way. That’s a strong incentive to leave many clients with nothing, especially if a corporate defendant would prefer to avoid taking a reputational hit by sending checks to the customers they have harmed. That’s exactly what happened in one of the cases we’re asking the justices to take up.

In St. John, Monsanto settled a $35 million claim that the chemical giant had mislabeled its Roundup weedkiller. But 98 percent of Roundup purchasers will get nothing, while Berkeley Law’s Center for Consumer Law & Economic Justice and two other nonprofits will get $16 million, more than class members. The federal Eighth Circuit Court of Appeals once rejected $2.4 million of cy pres in a shareholder settlement ten times as large as the Monsanto case. But this time the court wouldn’t require the attorneys to take the steps that other settlements regularly use to get far less money to consumers, reasoning that it would be “infeasible” to take those empirically feasible steps. The full Eighth Circuit rejected further review by a 6-5 vote.

In Yeatman, Randi Weingarten’s American Federation of Teachers union funded a class action suit over student loan servicing—and settled it for $0 for the class, but millions to a new advocacy nonprofit supporting the union’s causes. Cy pres can lead to many conflicts of interest, but the federal district and circuit courts signed off on this especially blatant instance of self-dealing.

In both cases, our clients objected on First Amendment grounds that their legal claims were being used to spend money on left-wing causes they disagreed with. The Supreme Court has consistently held that government cannot compel spending on speech, but the appeals courts refused to apply these precedents.

Such decisions have consequences. As more courts approve cy pres, class attorneys have become more aggressive about the diversion of settlement money from the rightful claimants. In May of last year, plaintiffs’ law firm Lieff Cabraser diverted $70 million from its Volkswagen-owning class clients. Instead of mailing checks directly to consumers, they made class members jump through unnecessary hoops to claim their money and got to steer most of a settlement to pet nonprofits. A federal court in Virginia approved a settlement of a shareholder derivative suit in which Altria shareholders get nothing but are instead made worse off: the company will pay $100 million to the class counsel’s preferred activist cause—and another $30 million to attorneys.

When appellate courts require that clients get paid in order for attorneys to get their fees, lawyers miraculously discover ways to get money to class members, even when the size of the fund per class member is smaller than it is in our current cases. Incentives work.

Tech companies that settle class actions often tacitly collude with plaintiffs’ attorneys to funnel money to the defendants’ preferred nonprofits. In such cases the “relief” to the class can be entirely illusory, because the same money would likely have gone to those nonprofits even without a settlement. Google alone has done this several times, including another case, Frank v. Gaos, that I argued in the Supreme Court in 2018. Over Justice Thomas’s dissent, the Court didn’t reach the cy pres question. They can fix that this term.

Sixteen state attorneys general are also urging the Supreme Court to hear St. John and Yeatman. They agree that the Second and Eighth Circuits have made it far too easy for attorneys to siphon millions of dollars consumers’ money into their own slush funds. Chief Justice John Roberts has gone on the record questioning cy pres abuses. We hope the Supreme Court will protect consumers in class actions and rule that class members are not a sluice to divert corporate money to left-wing activist groups and the plaintiffs’ bar.

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