Thursday, January 8, 2015

Big cy pres victory in 8th Circuit: Oetting v. Green Jacobson

For years, parties have used cy pres—the practice of giving settlement money to charity instead of the class—in abusive ways. When proposed by defendants, cy pres can be used to create the illusion of relief to justify greater attorneys' fees at the expense of the class when in fact all that is happening is that the defendant is changing accounting entries on charitable donations it would have made anyway. When cy pres is used to justify attorneys' fees, it takes away the incentive of class counsel to prioritize direct recovery to the class: after all, it's much more satisfying to hold a ceremony giving away an oversized $3 million check to a local charity run by a friend than to issue a million $3 checks to ungrateful class members. And I've discussed other problems with cy pres in Congressional testimony and an article for the Federalist Society.

So cy pres was one of the issues that provoked the founding of the Center for Class Action Fairness. The Center has won a number of victories on the cy pres issue over the years, most notably in the Third and Ninth Circuits. A cert petition we filed in a case we didn't handle below got some attention. Though it was ultimately denied, a separate statement by Justice Roberts sent a strong message. And the Rules Committee is considering the issue.

In 2013, a class representative in securities litigation in St. Louis complained that class counsel was planning to give away $2.7M of the class's money to local charities instead of to class members in a nationwide class. The district court signed off on the distribution, and the Center agreed to assist the class representative, David Oetting, on the appeal to the Eighth Circuit. The argument resulted in an entertaining column by Bill McClellan. And today, we won a landmark victory where a divided panel adopted our arguments in full. (That's eight straight CCAF intermediate appellate wins since the begining of 2013.) The precedent will do much to protect class members against abusive cy pres in the future—and, if adopted by other courts, may well moot the need for the Rules Committee to opine on the issue. We have a Ninth Circuit appeal on the cy pres problem scheduled for argument in Pasadena February 2.

The case is David Oetting v. Green Jacobson, P.C., No. 13-2620 (8th Cir. Jan. 8, 2015).

Press coverage: Reuters, Litigation Daily, Alison Frankel @ Reuters.

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