Skadden attorneys John Beisner, Jessica Miller, and Jordan M. Schwartz have drafted a white paper for the Institute for Legal Reform titled “Cy Pres: A Not So Charitable Contribution to Class Action Practice.” Relying heavily on Martin Redish’s critique of cy pres recovery, they trace cy pres relief from its “pre-Christian” origins as a means of distributing estates to its most recent abuses. Their final recommendation is interesting, and fairly moderate:
in order to mitigate the legal and ethical concerns associated with cy pres awards, any application of the cy pres doctrine—even in the context of settlements—should be subject to two critical limitations. First, whenever a settlement agreement includes a cy pres component, the fees awarded to class counsel should be tied to the value of money and benefits actually redeemed by the injured class members—not the theoretical value of the cy pres remedy. Such a restriction would be consistent with the intent of the Class Action Fairness Act (“CAFA”), which mandates that any portion of plaintiffs’ counsel’s fees that is based on the value of coupons awarded to class members “shall be based on the value to class members of the coupons that are redeemed,” rather than the theoretical value of the coupons available to class members. Extending the CAFA coupon requirement to class action settlement cases involving cy pres would help ensure that plaintiffs’ attorneys vigorously represent and defend the interests of absent class members by maximizing the benefits actually redeemed by the class members.
Second, the parties (rather than the court) should determine whether residual settlement funds should be disposed of through cy pres—and if so, to what charities. Such an approach will minimize the risk that judges will use their influence to steer cy pres funds to their preferred charities.
(Internal footnotes omitted.)
So what can defense lawyers use in this white paper? It provides a cogent summary of the best arguments against cy pres relief. More specifically, it offers an argument against those plaintiffs who seek certification by arguing that using cy pres relief will avoid the need to confront individualized issues in a case:
extending cy pres to litigated class actions would violate the Rules Enabling Act—and threaten the integrity of the judicial process—by using Federal Rule of Civil Procedure 23 to dramatically alter the substantive law. Under the Rules Enabling Act, a rule of procedure or evidence may not “abridge, enlarge or modify any substantive right.” This is so because using a procedural rule to alter the substantive law would interfere with the powers of Congress and state legislatures to decide governing laws. Notably, courts have rejected other efforts to transform substantive law in the context of aggregate litigation in similar contexts; of most relevance here, courts have rejected “fluid recovery” theories—under which plaintiffs seek to prove “class” damages rather than individual damages of each class member—as violating the Rules Enabling Act.
(Emphases added; internal footnotes omitted.) This situation is more than just a hypothetical. Most notably, Judge Jack Weinstein tried to use this tactic to avoid confronting individualized issues when certifying a class tobacco purchasers, a decision that was heavily criticized at the time. (The Second Circuit eventually reversed him.) It’s also a good example of the growing trend of relying on the Rules Enabling Act to argue against sloppy certification analyses that effectively change the fundamental rights of the parties.
(Hat tips to Ted Frank and Jordan LeClerc for spotting.)