Access for Justice Commissions and civil legal aid organizations have long argued that the cy pres doctrine can be used to direct class action residual funds to chronically under-resourced civil legal aid organizations that provide free legal services to the poor. Since over 80% of Marylanders do not receive the civil legal services they need, every viable funding stream for civil legal aid organizations is important. In 2019, this lesser known funding source could be slashed due to a Google case before the U.S. Supreme Court.
In Frank v. Gaos, which was argued before the U.S. Supreme Court in October, 2018, petitioners Theodore Frank and Melissa Ann Holyoak challenged an unusual $8.5 million privacy settlement in the underlying case of Gaos v. Google that resulted in Google LLC paying almost the entire amount of the settlement to attorneys and third party charities, but nothing to the members of the class. Attorneys from the Google case argued that it would be infeasible to mete out the approximately 4 cent award to a prospective 130 million-person size class, so it earmarked the money for six separate charities instead.
You can read more about Class Action Residual funds in the MD A2JC Report: CLASS ACTION RESIDUAL FUNDS – Enhancing Access to Justice
The Maryland Access to Justice Commission and local civil legal aid organizations have worked to have unclaimed funds from class action lawsuits that could not be distributed to the designated class – named “class action residual funds” – to be directed to Maryland’s many civil legal aid organizations.
Courts rely on their general equity power, or the doctrine of cy pres to justify the distribution of class action residual funds. The cy pres doctrine, borrowed from the estates and trust context, refers to the French phrase, “cy pres comme possible,” which means “as near as possible.” Under this equitable doctrine, funds can be redirected to another beneficiary to fulfill, “as nearly as possible,” the donor’s original intent. In the class action context, the doctrine is used to distribute unclaimed portions of a class action judgment or settlement fund to a charitable entity that will advance the interests of the class.
Class action lawsuits are often brought on behalf of consumers, low‐income individuals and others with small claims who, acting on their own, would be unable to assert a claim effectively against large, institutional defendants. When those class actions are successful, the benefit to each individual may be small, although the benefit to the public at large is significant.
Civil legal aid organizations fulfill a purpose close to the goal of most class action lawsuits – to assert claims and provide a voice for low‐ and moderate‐income Marylanders who would otherwise be unrepresented in dealing with large, institutional defendants. Maryland’s civil legal aid organizations represent aggrieved individuals, and work for systemic change to support vulnerable individuals, families and communities. They are experts on the types of issues facing low‐income people, including consumer issues, public benefits, institutionalized persons, elder law, housing, protection from violence, child welfare, and family law.
In the past, courts have found civil legal aid organizations to be appropriate recipients of class action residual funds for two basic reasons: civil legal aid programs commonly represent the “next best use” of unclaimed funds to indirectly benefit members of a class under the cy pres doctrine. The underlying mission of civil legal aid organizations for the poor is consistent with the purpose of class action lawsuits and Rule 23 of the Federal Rules of Civil Procedure. Rule 23 recognizes the need to protect the legal rights of those who, because of their economic position, would otherwise be unrepresented.
Threat to the Cy Pres Funding Stream
While the exact amount of funds going to civil legal aid organizations in unknown, according to the American Bar Association, about $15.5 million is funneled annually to civil legal aid organizations nationwide via cy pres.
There is fear that this funding stream may be threatened. During oral argument in the Frank v. Gaos case, justices debated whether the indirect benefits of cy pres settlements ran afoul of Rule 23(e) of the Federal Rules of Civil Procedure, which required class action settlements be “fair, reasonable, and adequate.”
The National Legal Aid & Defender Association, together with the Association of Pro Bono Counsel and six other legal aid groups filed an amicus brief in the case, arguing that federal courts have developed appropriate limits to the use of cy pres awards. Their brief also made the case that awarding cy pres sums to legal aid groups is in keeping with the very practice of class actions.
“Class actions exist to provide access to the courts for those who could not otherwise afford to litigate a legitimate claim; legal aid organizations serve the same purpose, because legal aid organizations exist to help those who would otherwise not be able to obtain the protections of the justice system,” the brief stated.