September 23, 2019

September 20, 2019

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State AGs urge SCOTUS to review Ninth Circuit cy pres class action settlement decision; DOJ to step up CAFA class action settlement review

A bipartisan group of 16 state attorneys general has filed an amicus brief in support of a petition for certiorari asking the U.S. Supreme Court to review a Ninth Circuit decision upholding the district court’s approval of a class action cy pres settlement.  The petition was filed by objectors to the settlement.

Cy pres typically refers to the distribution of residual funds to one or more nonprofit organizations where the settlement proceeds are not completely distributed to class members.  However, the $8.5 million settlement reviewed by the Ninth Circuit (which resolved privacy claims against Google) was a “cy pres-only arrangement” in which no funds were paid to the 129 million class members.  Instead, in addition to the $3.2 million paid to attorneys, the named plaintiffs, and the settlement administrator, $5.3 million was paid to several universities, a law school, a foundation, and a public interest research group.  In their amicus brief, the AGs argue that Supreme Court guidance is necessary to resolve a circuit split on the allowable uses of cy pres settlement arrangements and the analysis courts should use in weighing when (if ever) such arrangements should be judicially approved.

The use of cy pres arrangements in DOJ settlements was the subject of recent remarks by Associate U.S. Attorney General Rachel Brand.  Ms. Brand noted that the DOJ has included cy pres clauses in some settlements under which Treasury funds were paid to third parties instead of being returned to taxpayers.  As “one of the worst examples,” she described a case in which the DOJ had settled claims against the government by creating a $680 million fund to pay individual claimants.  Under the settlement’s cy pres clause, about 90% of the $300 million that remained after all individual claims were paid was to be distributed to nonprofit groups identified by a trust controlled by the plaintiffs’ attorneys.  Ms. Brand indicated that this “means that hundreds of millions of dollars of the taxpayer’s money will be spent in ways never appropriated by Congress, with virtually no oversight.”

Ms. Brand suggested that cy pres arrangements are now barred by the memorandum issued in June 2017 by Attorney General Jeff Sessions that prohibits DOJ attorneys in cases involving the federal government from entering into settlement agreements on behalf of the United States that require payments or loans to any non-governmental person or entity that is not a party to the dispute.  The DOJ and CFPB have frequently included such provisions in consent orders settling fair lending claims.

In her remarks, Ms. Brand also indicated that the DOJ intends to take a more vigorous approach to the review of proposed class action settlements under the Class Action Fairness Act (CAFA).  CAFA provides that notice of such settlements must be served on the DOJ at least 90 days before a final approval hearing.  The DOJ can then weigh in with the court if it concludes that a proposed settlement is not fair or reasonable.

According to Ms. Brand, the DOJ’s failure to be more proactive in its review of proposed settlements “wasn’t for a lack of worthy cases” but was instead caused by “an almost comical story of government bureaucracy” that often resulted in CAFA notices not being reviewed by a DOJ lawyer “until after the fairness hearing or even after the settlement had been finalized.”  Ms. Brand told audience members that the DOJ has “begun to fix that process” and that they should “[b]e on the lookout in the coming days for the first example [of DOJ review].”

Copyright © by Ballard Spahr LLP

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About this Author

Barbara S. Mishkin, Ballard Spahr, Philadelphia, Deceptive Practices Lawyer, Fair Debt Collection Practices Act, Gramm Leach Bliley
Of Counsel

Barbara Mishkin focuses on consumer compliance and banking law. The federal laws with which Ms. Mishkin has dealt extensively include the Truth in Lending Act, Equal Credit Opportunity Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, and Gramm-Leach-Bliley Act. She also has significant experience with state usury and lender licensing laws, as well as state laws prohibiting unfair and deceptive acts and practices.

American Bar Association, member, Consumer Financial Services Committee;...

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