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Cy Pres-ing for Funding

November 21, 2018

Cy Pres-ing for Funding: How Frank v. Gaos May Affect the Funding of Minnesota’s Legal Services

By: Lucas Curtis, Volume 103 Staff Member

Legal Aid organizations provide free, essential legal services to low-income clients;[1] however, free services come at a price. Due to diminished resources and a high demand for their services, Legal Aid organizations frequently have to turn away many potential clients.[2]Currently, the free Legal Service provider in Minneapolis must turn away two of every three potential clients.[3] Free Legal Service providers are always looking for sources of funding.[4] Minnesota prides itself in finding innovative ways to fund Legal Services in order to serve low-income and underrepresented populations within the state.[5]Minnesota’s most recent innovation in funding Legal Services comes in the form of cy pres and newly enacted Minnesota Rule of Civil Procedure 23.05(e).[6] Cy pres is an equitable doctrine that distributes unclaimed portions of class action settlement funds to charitable third parties who advance the class’s actions.[7]

On July 1, 2018, Minnesota Rule of Civil Procedure 23.05(e) went into effect.[8] The rule requires notice to Legal Services Advisory Committee when residual funds, or unclaimed funds, from a state class action payment are available.[9] The Legal Services Advisory Committee may claim the residual funds to support legal service programs if the district court, in consideration of the listed relevant factors of the rule, approves the distribution.[10] However, this provision of the Minnesota Rules of Civil Procedure has yet to be applied by the Minnesota judiciary during litigation. With the jurisprudence undeveloped, the question remains: how will Minnesota courts use Minnesota Rule of Civil Procedure 23.05(e) to fund Minnesota’s legal services? The answer may become clearer as the Supreme Court of the United States addresses the standards of cy pres standards in Frank v. Gaos during its current session.[11]

MINN. R. CIV. P. 23.05(e) AND THE NEED FOR CLARIFICATION

Minnesota’s use of the cy pres doctrine to fund legal services providers has been reflective of a larger trend among states.[12] Specifically, Minnesota became the 23rd state to make unclaimed class action settlements available to civil legal assistance providers.[13] Before the enactment of state statutes and Rules of Civil Procedure, federal and state courts alike have long held that awarding civil legal aid residual funds from class actions is an appropriate use of the cy pres doctrine.[14] The rationale behind awarding legal aid services under cy pres is two-fold; (1) courts awarding to potential cy pres recipients “should require the parties to identify a recipient whose interests reasonably approximate those being pursued by the class”;[15] and (2) legal service providers expand access to justice, and “the common underlying premise for all class actions is to make access to justice a reality for people who otherwise would not . . . obtain the protections of the judicial system.”[16] In order to approve legal services as cy pres recipients in Minnesota, Minnesota Rule of Civil Procedure 23.05(e) requires courts to consider “all relevant factors”, which include “(1) the recommendations of the parties, (2) the nexus between the nature, purpose, and objectives of the class action and the interests of the class members, and (3) the interests of potential recipients of the residual funds.”[17] Unfortunately, Minnesota case law is sparse[18]and provides little substantive instruction on how to apply Minnesota Rule of Civil Procedure 23.05(e).

Other jurisdictions lend little persuasive clarification to Minnesota’s factor test determining the appropriateness of cy pres recipients[19] Other state provisions allocating residual funds to Legal Aid are not comparable to Minnesota’s notice requirement and factor evaluation; most other states either make allocation of residual funds to legal services mandatory[20] or allocate a percentage of residual funds automatically to legal aid.[21] The Eighth Circuit has offered some persuasive federal guidance in the evaluation of cy pres recipients.[22] In In re BankAmerica Corp. Sec. Litig., the Eighth Circuit held that a Missouri Legal Services Organization was not a proper cy pres recipient because it did not devote itself to aiding victims in securities litigation, which was the underlying cause of litigation in the case.[23] All in all, Minnesota courts are left with little mandatory or persuasive authority for help.

FRANK V. GAOS

The need for instruction regarding the application of cy pres is not just unique to Minnesota; federal courts find themselves grappling with the same problem. In Frank v. Gaos dispute requires the Supreme Court to analyze the application of cy pres by the 9th circuit.[24] In this case, Google users filed a class action law suit against Google for violating users’ privacy by disclosing search-terms to third party websites.[25] The class of plaintiffs and Google settled during mediation for a total of $8.5 million, with $3.2 million paying for attorneys’ fees, administrative costs, and incentives for named plaintiffs.[26] The Plaintiffs, after notifying class members through a public campaign, submitted a settlement proposal to have the remaining $5.3 million allocated to six cy pres recipients dedicated to promoting public awareness and education to protecting internet privacy, rather than distribute the settlement to the class of 129 million members.[27] The District Court approved the settlement, and the Ninth Circuit affirmed the District Court’s ruling.[28]

A few members of the class now contest the Ninth Circuit’s decision on the grounds that it is not compliant with Fed. R. Civ. P. 23(e)(2), [29] which requires that a settlement proposal needs to be “fair, reasonable, and adequate.”[30]First, they argue that cy pres-only awards disproportionately reward third parties and not direct members of the class, which makes the settlement not “reasonable and fair.”[31] Second, the Supreme Court should reject the Ninth Circuit’s rationale that if it is not feasible to allocate settlement funds to all class members, then allocation of funds is infeasible, and a court may allow third-party cy pres recipients.[32] Third, the Supreme Court should require stricter cy pres review standards to eliminate the appearance of impropriety and must disclose conflicts of interest.[33] Finally, the Petitioners raise 1st Amendment concerns, arguing that cy pres awards could allow for subsidization of political organizations without explicit consent from all class members.[34]

POTENTIAL IMPACT OF FRANK V. GAOS ON MINN. R. CIV. P 23.05(e)

The potential impact of Frank v. Gaos will turn on if the Court either decides: (1) to use a narrow interpretation of the Ninth Circuit’s application; or (2) implications broad constitutional concerns with the practice of cy pres itself. The Court could decide Frank v. Gaos narrowly, focusing only on the Ninth Circuit’s interpretation and federal applicability of the cy pres doctrine. If the Court either endorses or rejects the practice of approving cy pres settlements that provide no direct relief to class members when direct distribution is merely not feasible, it would be mandatory instruction on how to apply the Federal Rule of Civil Procedure 23(e).[35] The decision on the Federal Rules of Civil Procedure would only be persuasive in Minnesota jurisprudence and not challenge the validity of Minnesota Rule of Civil Procedure 23.05(e).[36]Additionally, this is the first time the Supreme Court is considering the standards of cy pres;[37] its instruction could clarify other circuit decisions, such as the Eighth Circuit’s In re BankAmerica Corp. Sec. Litig. Finally, the opinion’s summation of relevant cy pres case law gives the Court an opportunity to cite favorably to the practice of cy pres to fund legal services via dicta, which optimistic Amicus Briefs strongly encourage.[38]

Alternatively, the Supreme Court could decide Frank v. Gaos broadly, implicating constitutional considerations that could render the practice of cy pres invalid. Although Petitioners briefly raise First Amendment concerns, other Amicus Briefs argue that cy pres could violate due process, free speech, and Article III.[39] If the Court chooses to invalidate the settlement upon constitutional grounds, the decision would have catastrophic ramifications on the constitutionality of Minnesota Rule of Civil Procedure 23.05(e). Due to the binding nature of constitutional decisions on states, if the Supreme Court declares the general practice of cy pres to be unconstitutional, it would close permanently cy pres funding of Legal Service providers in Minnesota.[40] Consequently, Minnesota legal service providers should hope for persuasive instruction on cy pres application from Frank v. Gaos rather than a binding end to cy pres funding practices. In the end, allies of Minnesota Legal Aid should watch Frank v. Gaos with interest, hoping that the Supreme Court endorses the practice of cy pres for the sake of free Legal Service providers in Minnesota and around the country.

  1. See e.g., About: Our Work, Mid-Minnesota Legal Aid, http://mylegalaid.org/about/our-work/ (last visited Nov. 15, 2018); Justice Matters, Southern Minnesota Regional Legal Services, http://www.smrls.org/# (last visited Nov. 15, 2018).
  2. See e.g., About Legal Aid: The Fund, Mid-Minnesota Legal Aid, http://mylegalaid.org/about/the-fund/ (last visited Nov. 15, 2018) (discussing the importance of donations for funding free legal services).
  3. Id.
  4. See Legal Services Corporation, Donate Now, https://www.lsc.gov/support-lsc/donate-now (last visited Nov. 4, 2018) (“As funding for legal aid programs decreases and the need for civil legal aid increases, access to free legal assistance is becoming increasingly scarce.”).
  5. For a list of funding sources provided to Minnesota Legal Services, see Minnesota Judicial Branch, Legal Services Advisory Committee (LSAC), http://www.mncourts.gov/SupremeCourt/Legal-Services-Advisory-Committee.aspx (last visited Nov. 4, 2018).
  6. Minn. Civ. R. P. 23.05(e).
  7. See Cy Pres, Black’s Law Dictionary (10th ed. 2014).
  8. Minn. Civ. R. P. 23.05(e).
  9. Id.
  10. Id.
  11. Frank v. Gaos, 138 S. Ct. 1697 (2018).
  12. For a compilation of enacted state statutes and state Rules of Civil Procedure regarding cy pres, see ABA Resource Center for Access to Justice Initiatives, Legislation and Court Rules Providing for Legal Aid to Receive Class Action Residuals, American Bar Association, https://www.americanbar.org/content/dam/aba/administrative/legal_aid_indigent_defendants/ATJReports/ls_cypres.authcheckdam.pdf (last visited Nov. 4, 2018).
  13. See Nancy Crotti, Cy Pres Funds May Now Go to Legal Aid, Minnesota Lawyer (Mar. 22, 2018), https://minnlawyer.com/2018/03/22/cy-pres-funds-now-may-go-to-legal-aid/.
  14. See Bob Glaves & Meredith McBurney, Cy Pres Awards, Legal Aid and Access to Justice, American Bar Association (May 19, 2017), https://www.americanbar.org/groups/legal_services/publications/dialogue/volume/20/spring-2017/cy-pres-awards–legal-aid-and-access-to-justice/. See, e.g., Hawkins v. Thorp Loan & Thrift Co., No. 85-6074, 1992 WL 589727, at *3 (Minn. Dist. Ct. Feb. 21, 1992) (“[T]he settlement in this litigation provides that any undelivered or uncashed checks will be placed in a Cy-Pres fund which will be used to fund programs (scholarship and legal aid funding) aimed at further aiding the plaintiff class”).
  15. Principles of the Law of Aggregate Litigation § 3.07(c) (Am. Law Inst. 2018).
  16. Glaves & McBurney, supra note 14.
  17. Minn. R. Civ. P. 23.05(e) (numbers added).
  18. Most Minnesota cases regarding cy pres apply the doctrine in the context of property and trust law rather than class action litigation. For a brief recognition that Minnesota courts recognize legal aid providers as cy pres recipients in class action suits, see Hawkins v. Thorp Loan & Thrift Co., No. 85-6074, 1992 WL 589727, at *3 (Minn. Dist. Ct. Feb. 21, 1992).
  19. Id.
  20. See e.g., Class Actions—Procedure for Class Certification and Management of Class, 1 Conn. Prac., Super. Ct. Civ. Rules § 9-9(g)(2) (2017 ed.) (“[T]he residual funds shall be disbursed to the organization administering the program for the use of interest on lawyers’ client funds pursuant to General Statutes § 51-81c for the purpose of funding those organizations that provide legal services for the poor in Connecticut”).
  21. See e.g., Colo. R. Civ. P. 23(g)(2) (“In matters where the claims process has been exhausted and residual funds remain, not less than fifty percent (50%) of the residual funds shall be disbursed to the Colorado Lawyer Trust Account Foundation (COLTAF) to support activities and programs that promote access to the civil justice system for low-income residents of Colorado.”); W. Va. R. Civ. P. 23(f) (“When the claims process has been exhausted in class actions and residual funds remain, then fifty percent (50%) of the amount of the residual funds shall be disbursed to Legal Aid of West Virginia.”).
  22. In re BankAmerica Corp. Sec. Litig., 775 F.3d 1060, 1067 (8th Cir. 2015).
  23. Id.
  24. In re Google Referrer Header Privacy Litig., 869 F.3d 737 (9th Cir. 2017), cert. granted sub nom. Frank v. Gaos, 138 S. Ct. 1697 (2018).
  25. Id. at 739‒40.
  26. Id. at 740.
  27. Id.
  28. Id. at 741, 748.
  29. Petition for Writ of Certiorari, Frank v. Gaos, 2018 WL 347810, at *1 (U.S.) (No. 17-961).
  30. Fed. R. Civ. P. 23(e)(2).
  31. Brief for the Petitioner, Frank v. Gaos, 2018 WL 347810, at *15 (U.S.) (No. 17-961).
  32. Id. at *49.
  33. Id. at *54.
  34. Id. at *17.
  35. Id. at *2 (asking for the Court to reverse by deciding that the Ninth Circuit misapplied Federal Rule of Civil Procedure 23(e)).
  36. See Brief of the American Bar Association as Amicus Curiae in Support of Neither Party, Frank v. Gaos, 2018 WL 3456068, at *4‒6 (U.S.) (No. 17-961) (encouraging the Court to decide the case on narrow grounds).
  37. Id.
  38. See e.g. Brief of Legal Aid Organizations as Amici Curiae in Support of Respondents, Frank v. Gaos, 2018 WL 4293385, at *31‒32 (U.S.) (No. 17-961); Brief of the American Bar Association as Amicus Curiae in Support of Neither Party, Frank v. Gaos, 2018 WL 3456068, at *20 (U.S.) (No. 17-961).
  39. See, e.g., Brief of the Cato Institute and Americans for Prosperity as Amici Curiae in Support of Petitioners, Frank v. Gaos, 2018 WL 3455704, at *11‒19 (U.S.) (implicating due process concerns); Brief of Amicus Curiae Center for Constitutional Jurisprudence in Support of Petitioners, Frank v. Gaos, 2018 WL 817302, at *7‒10 (U.S.) (implicating due process, free speech, and Article III concerns).
  40. See Brief of the American Bar Association as Amicus Curiae in Support of Neither Party, Frank v. Gaos, 2018 WL 3456068, at *15‒16 (U.S.) (No. 17-961).
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