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

with new opinion from 8th Circ, @tedfrank continues to reshape fed. judicial policy on giving class money to charity http://t.co/D1Yy3BgJu9
— Alison Frankel (@AlisonFrankel) January 8, 2015

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.

Oetting v. Green Jacobson / Oral argument September 10 in 8th Circuit on cy pres

Bank of America settled a nationwide securities class action in the E.D. Mo. for hundreds of millions of dollars. For some reason, the district court judge ordered that $2 million or so of the settlement fund not be distributed immediately. By a few years later in 2013 (after interest and restitution from a settlement administrator employee that had embezzled from the settlement fund), there's $2.7 million left over. At the behest of St. Louis class counsel, but over the objection of the class representative, the district court distributes that money not to the class, but to a local St. Louis charity. Class counsel rushes to hold a ceremony delivering the check notwithstanding the automatic stay on such things.

The class representative, David Oetting, retained us to take the lead on the appeal to the Eighth Circuit in a fascinating case where just about everything we complain about in the world of cy pres abuse took place. Oral argument is scheduled for the morning of September 10, and will be available at this link that afternoon or the next day. Law360 ($) coverage.

• Opening brief
• Appellee brief
• Reply brief

Letter to Chicago Lawyer Magazine

To the editor:

Your June 2014 article "Cy pres success" contains a material misstatement of the law, when it implies that giving the class's money to legal services organizations is invariably a "recognized approach to avoid granting awards to dubious organizations." A number of decisions, including Ira Holtzman, CPA v. Turza, 728 F.3d 682 (7th Cir. 2013), have held such cy pres recipients to be inappropriate, rejecting the reasoning of the article for such distributions. 

One might overlook this statement as an excusable oversimplification of a complex area of the law, except that the author's firm, McDermott Will & Emery, currently represents the National Legal Aid and Defender Association in at least two pending appeals (including one adverse to one of my clients, Oetting v. Green Jacobson, No. 13-2620 (8th Cir.)) where it is arguing for affirmance of cy pres awards against existing precedent. This conflict is nowhere disclosed in the article.

Very truly yours,

Theodore H. Frank

Center for Class Action Fairness

Washington, DC