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June 2009Pennies from Heaven?Cy pres can provide urgently needed support for legal aid by Matt Geyman If there were a simple and nearly effortless way that you could help hundreds or even thousands of families facing foreclosure and eviction and other urgent civil legal troubles, would you do it? Of course. And what if at the same time you could facilitate the resolution of one of your cases? If you are involved in class action litigation, this win-win result not only can, but should, be one that you achieve. We've all read about the growing number of foreclosure "rescue" scams that prey on the most vulnerable, or elderly renters facing eviction and homelessness as landlords increasingly cannot keep up with mortgage payments, or the "newly low-income" who have lost their jobs and are having difficulty getting the unemployment benefits to which they're entitled. These are just a few examples of the urgent civil legal problems now on the rise and of the unprecedented demand for civil legal aid services in our current economy. A "Perfect Storm" — the Funding Crisis for Legal Aid Services Chances are you've also read about how legal aid funding in Washington is now facing a "perfect storm" of funding shortfalls, due to state and local budget deficits; plummeting IOLTA revenues; reduced corporate, law firm, and foundation support; and investment losses in reserve funds. The WSBA and its members are working hard to devise new and better ways to generate revenue for legal aid to make up for the millions of dollars being lost as the economy worsens. There are a number of ways that each of us can help bridge this enormous funding gap — and justice gap — for legal aid to our state's most vulnerable, including: • Increasing our charitable giving to the Campaign for Equal Justice (see information at the end of this article). Cy Pres — Another Funding Source for Legal Services In these hard times, there is also another way that lawyers involved in class-action litigation can make a major impact on the availability of civil legal aid for those who have nowhere else to turn: Cy pres. When class actions are settled, it is common, for any number of reasons, to have residual funds that cannot be distributed. In some cases, class members fail to make claims or they cannot be located, despite the best efforts of class counsel. In other cases, the amount of the recovery per class member is so small that the cost of disbursing the funds, including the costs of notice and administration, may exceed the value of the claim. In these situations, courts must determine how to dispose of the residual funds that cannot otherwise be distributed. Courts solve this problem by making cy pres awards that distribute the funds to their next best use ("cy pres" is from the French "cy pres comme possible," meaning "as close as possible"). Civil legal aid is often an ideal "next best use" of these residual or unclaimed funds in a class settlement. Since the early 1990s, civil legal aid providers around the country have been promoting the use of cy pres awards to benefit access to justice for low-income people. In Minnesota, Illinois, and Ohio, for example, several multi-million dollar cy pres awards have greatly benefited legal aid in those states in recent years. Here in Washington, more than a million dollars in cy pres awards have been distributed through LAW Fund and its Campaign for Equal Justice since 1995 to provide statewide civil legal aid with much-needed funding. This provides free legal aid services for low-income families and individuals with urgent legal problems, helping return people to safe, productive lives and avoiding a costly spiral of social problems by reducing homelessness, unemployment, deficient healthcare, domestic violence, and loss of livelihood. Civil Rule 23(f) Now Requires that at Least 25 Percent of Residual Funds in State Class Actions Be Directed to the Legal Foundation of Washington There was a major boost for cy pres funding for legal aid in Washington in 2006, when the Washington State Supreme Court codified the common law cy pres practice by amending Civil Rule 23 to require that at least 25 percent of the residual funds in any state class action be directed to the Legal Foundation of Washington (which administers the state IOLTA program and is the "sister" organization to LAW Fund/Campaign for Equal Justice) to support activities and programs that promote access to the civil justice system for low-income residents of Washington. The Legal Foundation and LAW Fund have been working closely together to educate the legal community about this new provision in CR 23 requiring cy pres awards whenever possible in state class actions. They have also sought to encourage cy pres awards to benefit civil legal services in Washington in federal class actions as well. Encouraging cy pres awards to benefit civil legal services in federal class actions is particularly important now in light of the Class Action Fairness Act, which has reduced the number of class actions litigated in state court. Advantages of Directing Cy Pres Awards to Legal Aid Services One obvious advantage of directing cy pres awards to civil legal services is that it supports legal aid offices and programs that are desperately low on funds. Another, less obvious, advantage is that it provides the attorneys in the class action who must devise and recommend to the court an appropriate way to handle residual funds with a neutral organization free from potential conflicts to which cy pres funds can be directed. Designation to legal aid avoids potential tension with the court or opposing counsel, because neither LAW Fund nor the Legal Foundation directly provides legal services, appears in court, or litigates cases. Designating cy pres awards to legal aid is also a safe and reliable designation, since both LAW Fund/Campaign for Equal Justice and the Legal Foundation have a solid track record of approval by state and federal judges as cy pres recipients, and the legal aid programs that they support are carefully monitored and evaluated by a statewide board of judges and lawyers appointed by the Washington State Supreme Court, the WSBA, and the Governor. Finally, the broad and beneficial purposes of LAW Fund/Campaign for Equal Justice and the Legal Foundation of promoting civil legal aid and access to justice for the poorest and most vulnerable families and individuals in our state are generally consistent with the more specific purposes of the underlying class action in the particular case, thus making cy pres awards to LAW Fund/Campaign for Equal Justice and the Legal Foundation an appropriate "next best use." Cy Pres Awards Should Be Expressly Addressed in Class-Action Settlement Agreements Class counsel should make sure that they do not inadvertently give the defendant a reversion of the residual funds in the event that the class recovery cannot be fully distributed under a class action settlement. Settlement agreements should explicitly contemplate and reach agreement regarding what should occur with residual funds. If, in fashioning a class-action settlement, the parties fail to anticipate the cy pres issue and there are residual funds, the responsibility falls on the court to resolve any ensuing dispute about what should be done. The defendant may then argue that the remainder (either 100 percent in a federal class action or the 75 percent not covered by CR 23(f) in a state class action) should revert to the defendant, which could result in an unintended windfall to the defendant and reduce the deterrent effect of the action. To avoid that result, class counsel should expressly provide in the settlement agreement that any residual funds do not revert to the defendant, and should designate an appropriate cy pres award recipient, such as the Legal Foundation, in the settlement agreement. Personal Rewards of Designating Cy Pres Awards to Legal Services My partner, John Phillips, and I have litigated a number of class actions representing vulnerable low-income clients, including uninsured patients, subprime borrowers, and other low-income consumers. In several of these cases, we have specifically negotiated and agreed with defense counsel in the settlement agreements that the defendant had no right to recover residual funds and that any residual would be distributed through cy pres awards to LAW Fund, Campaign for Equal Justice, and other deserving organizations that support or provide legal services. On the three occasions in the last year when we were able to direct cy pres awards under such agreements, we distributed, with the courts' approval, a total of $41,446 in cy pres awards to LAW Fund/Campaign for Equal Justice, and to the Ronald A. Peterson Law Clinic at Seattle University School of Law, to fund legal aid for low-income people in our state. While we individually and as a firm make our own contributions to LAW Fund and its Campaign for Equal Justice each year, I can tell you that being able to direct this higher level of support to civil legal aid through cy pres awards is a great feeling. If you or your firm have a practice that involves class-action litigation, whether in state or federal court, I would strongly encourage you to consider directing as much cy pres funding to civil legal aid as possible at this crucial time to help the most vulnerable among us who have urgent civil legal needs and nowhere else to turn. Matt Geyman is an attorney with Phillips Law Group, PLLC, in Seattle. He serves on the Legal Aid for Washington Fund (LAW Fund) Board, and chairs the Laurel Rubin Farm Worker Justice Project. Please note: For class actions litigated in Washington state courts, CR 23(f) requires that no less than 25 percent of any residual funds be directed to support activities or programs that support access to the civil justice system for low-income residents of Washington. For further guidance, please refer to CR 23 or contact the Campaign for Equal Justice staff at justice@c4ej.org or 206-623-5261.
The Campaign for Equal Justice is the Washington legal community's collaborative annual fundraising drive to benefit our state's more than 20 civil legal aid programs. The Campaign gives every lawyer in our state the opportunity to help bridge the justice gap. Every attorney throughout the state is encouraged to contribute the equivalent of just one billable hour to the Campaign — a simple way each of us can make an enormous impact on the availability of civil legal aid services to our state's most vulnerable. In 2009–2010, Paula E. Boggs and William H. Neukom are co-chairing the Campaign for Equal Justice and are encouraging lawyers and judges to make the Campaign an annual tradition. May marked the official kick-off of the Campaign's 2009 efforts, so please make your tax-deductible annual donation today. To learn more about the Campaign for Equal Justice, or to make a secure online donation, please visit www.c4ej.org. To mail contributions, make check payable and send to the Campaign for Equal Justice, 1325 Fourth Ave., Ste. 1335, Seattle, WA 98101.
In 2008, LAW Fund and the Legal Foundation of Washington received 13 cy pres awards totaling $348,661 as a result of the new CR 23(f) and attorney-directed awards. The following firms and attorneys were responsible for directing these cy pres awards to benefit more than 25 civil legal aid programs throughout the state: Beckett Law Offices PLLC |
