Monthly Archives: March 2014

Controversy over Cy Pres Settlements

View Adam Doerr's Complete Bio at RBH.comFunds from a class action settlement are generally distributed to class members. But in some cases, not all funds are claimed. In others, it may not even be possible or practical to distribute any funds to individual class members. A “cy pres” distribution is one way of dealing with this issue. The concept comes from trust law and means “as near as possible.” The goal of a cy pres settlement is to distribute funds in a way that indirectly benefits the class members.

Supreme Court SmallLast fall, the issue of “cy pres” settlements got some press when Chief Justice Robert issued a warning note about the growing practice, agreeing with the denial of certiorari in Marek v. Lane, but stating that the Court may need to set limits on the practice in a future case.

Such concerns are not new – a 2007 New York Times article by Adam Liptak describes cy pres awards as “an invitation to wild corruption of the judicial process.” Other commenters have argued that the procedure has “vast ethical implications” and even described it as fostering “pathologies” in class action practice. Jennifer Johnston, Cy Pres Comme Possible to Anything is Possible, 9 J.L. Econ. & Pol’y 277 (2013); Martin Redish et al., Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis, 62 Fla. L. Rev. 617 (2010).

In North Carolina, the General Assembly has enacted legislation to “ensure that unpaid residuals in class action litigation are distributed, to the extent possible, in a manner designed either to further the purposes of the underlying causes of action or to promote justice for all citizens of this State.” N.C. Gen.Stat. § 1-267.10. The statute goes on to provide that unpaid funds should be used to fund the state’s Legal Aid system.

Business Court Judge Ben Tennille cited this statute in 2007, when he rejected settlement in Teague v. Bayer AG, a price-fixing case. The cy pres settlement would have distributed millions to the St. Jude Children’s Hospital and other nonprofit organizations. Judge Tennille objected that payments to these charities were “totally unrelated to the alleged victims and without regard to North Carolina public policy,” as expressed in the statute. He also took issue with the fact that most of the cy pres payments went to nonprofits in Tennessee, even though the funds were ostensibly paid to compensate for injuries to class members in North Carolina and other states. Because the Court of Appeals reversed Judge Tennille without discussing the cy pres issue, North Carolina law on these issues remains unresolved.

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Family Dollar Files Petition for Writ of Certiorari

View David Wright's Complete Bio at RBH.comFamily Dollar, a national discount store retailer based in Charlotte, was sued by a putative class of female store managers alleging gender discrimination in pay in the Western District of North Carolina. In January 2012, Judge Cogburn dismissed the class claims, holding that they weren’t viable under Dukes v. Wal-Mart Stores, Inc., 131 S. Ct. 2541 (2011). His ruling was consistent with plaintiffs’ own declaration earlier in the case: they said their claims were “virtually identical” to those in the Wal-Mart case after the Ninth Circuit’s favorable decision (but before the Supreme Court’s unfavorable decision). The plaintiffs appealed Judge Cogburn’s ruling under Rule 23(f), and a panel of the Fourth Circuit upheld the district court’s decision to dismiss the class claims pleaded in the original complaint. But in a 2-1 decision, over a 43-page dissent by Judge Wilkinson, the panel majority remanded for the district court to consider whether class claims might be stated in a proposed amended complaint that that district court had denied leave to file. Judge Wilkinson concluded that the majority had “subverted a Supreme Court decision.” The majority sought to distinguish Wal-Mart on grounds that it purportedly involved “lower-level” decision-makers, but Judge Wilkinson found that distinction untenable and said that “the majority fails to address even the rudimentary managerial realities of modern national corporations.” Family Dollar has filed a petition for writ of certiorari with the Supreme Court, contending that the majority did not follow the Wal-Mart decision, and that it had no jurisdiction to decide the propriety of the amended complaint under the principles of “pendent appellate jurisdiction.” The Supreme Court recently requested a response to the petition, perhaps indicating that at least one justice is interested in hearing the appeal, but the Court has not yet decided whether to grant certiorari. Stay tuned.

(John Wester, David Wright and Adam Doerr serve as co-counsel for Family Dollar in this case).

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W.D.N.C. Denies Certification for Appeal of Interlocutory Class-Action Determinations

View Stuart Pratt’s Complete Bio at RBH.comRule 23(f) provides an avenue for appealing a class-certification decision, and, on occasion, 28 U.S.C. § 1292(b) provides an alternative path for interlocutory appeal. See Stott v. Martin, 783 F. Supp. 970, 973 (E.D.N.C. 1992). In Long v. CPI Security Systems, Inc., No. 3:12–cv–396, 2013 WL 3761078 (W.D.N.C. July 13, 2013), though, Judge Conrad observed that section 1292(b) “should be used sparingly,” and he refused to certify for appeal various determinations made in the course of a Fair Labor Standards Act class action. Noting the conditionality of a preliminary decision concerning collective action status, Judge Conrad sided with other courts, which have found that “the issue of conditional certification is not a controlling question of law.” The Court mounted a spirited defense of the final-judgment rule in this context, noting that “interlocutory appeal creates the potential for a Rorschach-like inkblot of a case history with appellate review of the conditional question occurring at the same time, or after, the inferior court addresses the ultimate question of certification.”

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South Carolina Judge Denies Certification Because Plaintiffs Suffered Individual Tax Injuries

View Amanda Pickens’ Complete Bio at RBH.comThe Supreme Court’s articulation of the “new” commonality standard – that class members must suffer the same injury – in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), doomed plaintiffs attempts to certify a class of South Carolinians challenging the practices of Liberty Tax franchisees with their customers. In Martin v. JTH Tax, Inc. (D.S.C. 2013), Judge Norton denied plaintiffs’ motion for class certification, noting that “the varying factual scenarios between putative class members,” as well as “the requisite inquiries about the alleged injuries” make “class treatment inappropriate.” In Judge Norton’s view, the “scheme” alleged by plaintiffs could not be adjudicated in one fell swoop because it was not “put in action at every office and by every tax preparer in South Carolina in the same or similar fashion.” In the Court’s estimation, neither commonality nor predominance was satisfied because of “the individualized determinations that will be required.”

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