The first bill signed by Oregon Governor Kate Brown—H.B. 2700 (pdf)—changes the rules for handling payment of damages awards in class actions in Oregon state courts. Effective immediately, including for pending actions, the new law attempts to redirect unclaimed damages under class-action settlements or judgments to the state bar’s legal aid program and to charities picked by the judge presiding over each case. In other words, Oregon has effectively mandated cy pres in every class action. (We’ve repeatedly covered—and criticized—the use of cy pres awards in class actions.)
Among other things, the new law amends Oregon Rule of Civil Procedure 32, which governs class actions in state court, to add a new subsection addressing the payment of damages in accordance with “the settlement or judgment in a class action.” The court is authorized to approve a “process” for making payments that “may include the use of claim forms.” But “any amount awarded as damages” that the court finds either hasn’t been timely claimed by class members or simply “is not practicable” to pay to class members must be distributed in the following fashion:“At least 50 percent of the amount not paid to class members” must be given “to the Oregon State Bar for the funding of legal services provided through the Legal Services Program.” “The remainder of the amount not paid to class members” must be given to “any entity” chosen by the court “for purposes” that are “directly related to the class action or directly beneficial to the interests of class members.”
Before enactment of this law, damages in class actions that could not be paid to class members either reverted to the defendant or—in the context of some class-action settlements—were given to a charity picked by the parties and approved by the court.
Proponents of cy pres awards often contend that class members who can’t be paid their damages are better served by a donation to a charity whose mission is related in some fashion to the goals of the class-action lawsuit. Proponents also contend that forcing defendants to pay the full amount of damages they theoretically would owe if liability were established as to all class members—and then all class members actually claimed payments—would better deter future wrongdoing.
More cynical observers of class actions note that cy pres awards are often used by class counsel to puff up the amount of money purportedly recovered in the case in order to justify a higher fee award. Sometimes the recipient of cy pres largesse is picked simply to curry favor with a judge being asked to approve the settlement—for example, a donation to the law school clinic at the judge’s alma mater. And in every case, the use of cy pres eliminates the incentive for class counsel to ensure that class members—the ostensibly injured parties—get the individualized compensation they have been awarded. And while some federal courts have begun to pay closer attention to whether class members actually recover under class settlements, this law encourages Oregon state court judges to ignore that question.
Even worse, the potential of a cy pres award sometimes is used to justify the certification of particularly dubious class actions. For example, take a putative class whose members can’t be identified. Class certification should be denied because the class isn’t ascertainable. But if cy pres were mandatory, the would-be class counsel can always say “so what—let’s just figure out the defendant’s aggregate liability, pay the handful of class members we can identify, and then give the rest away in cy pres in order to punish the defendant.” And never mind, of course, that this procedure would deprive the defendant of the right to cross-examine absent class members or assert individualized defenses. Indeed, there are strong arguments that the use of cy pres—particularly in a litigated case where the defendant has not agreed to it—is unconstitutional (pdf).
Chief Justice Roberts has said that the U.S. Supreme Court might be interested in hearing a case that presents appropriate questions about the use of cy pres awards in class-action settlements in federal court. Of course, if the case arises in federal court, those questions might be framed in terms of Federal Rule of Civil Procedure 23(e), which tasks federal judges with assessing the fairness of class settlements. If the case arises from the Oregon courts—which may be a possibility thanks to H.B. 2700—more fundamental questions of due process would be raised, with potentially much larger ramifications for class-action litigation.