March 16, 2021 Practice Points

A Class Action Trial and $61 Million Judgment

A claims process with $11 million left over. Who gets the $11 million?

By Bill Boies

The distribution of a class action settlement fund to class members usually ends up with undistributed residual funds because of missing class members, unfiled claims, and uncashed checks. Experienced class action lawyers know the simple solution to this practical problem: A settlement agreement provision that any undistributed residue will go to designated organizations as cy pres awards. But what happens when there is a trial, a judgment awarding damages to the plaintiff class, a distribution process leaving undistributed funds—and no settlement agreement saying who gets the money?

Krakauer vs. Dish Network L.L.C. No. 1:14-cv-00333, 2020 WL 6292991 (M.D.N.C. Oct. 27, 2020) provides an answer. The case went to trial on Telephone Consumer Protection Act (TCPA) claims about 50,000 unwelcome calls to 18,000 class members. The plaintiff won a judgment for statutory damages of $400 per call—trebled for willful violations to a total of $61 million. After a claims process and an award of counsel fees, it appeared that there would be more than $11 million in unclaimed funds. Not surprisingly, defendant Dish argued that all undistributed funds should revert to Dish. Class counsel argued that most of the unclaimed funds (for identified class members who did not submit claims) should escheat to state unclaimed property funds, while other unclaimed funds (from uncashed checks, missing contact information, denied claims) should be distributed in cy pres awards. The district judge, in a carefully organized opinion, rejected both arguments, holding that there would be no reversion to the defendant and no escheat to state governments. Instead, the court appointed a special master to recommend possible cy pres recipients before a further decision on cy pres awards or escheat to the federal government.

The defendant’s arguments for reversion, aside from attacks on the telephone call evidence, were familiar procedural arguments often made by class action settlement objectors (and repeatedly rejected by district judges and appellate courts): (1) cy pres distributions are barred as a fluid recovery; (2) cy pres awards are prohibited because cy pres recipients are not parties with Article III standing; and (3) cy pres awards deny due process because they are not provided in the Rules Enabling Act or Rule 23. While rejecting each of these procedural arguments, the court focused on the public policy reasons why reversion was not appropriate: (1) the TCPA is a deterrence statute; (2) the statutory violations were willful; and (3) Dish increased the unclaimed funds problem by obstructing the distribution process.

Arguing for escheat to the states, class counsel pointed to unclaimed property laws requiring holders of unclaimed funds to remit the funds to the states to be held for some specified period. Class counsel suggested that those statutes apply to funds related to identified class members who did not submit claims (some $10 million of the undistributed funds). The court rejected that proposal as too cumbersome and costly to be feasible, because of complications including the different escheat statues of 50 different states. Instead, the court said that escheat to the federal government would be easy to administer and more appropriate, since the funds come from a judgment for violation of a federal statute. The court’s opinion did not discuss whether or not individual class members actually have a statutory property interest in any unclaimed funds floating in a distribution process (or discuss the many decisions finding or assuming that escheat laws do not apply to the undistributed residue of class action settlements).

Turning to cy pres awards, the court recognized that there is almost no case law guidance on what to do with undistributed funds after a class action judgment. It then discussed the considerable case law approving cy pres awards after settlements as a class action remedy and concluded that both cy pres awards and escheat to the federal government would be consistent with the deterrent purpose of the TCPA and would be feasible for administration. However, because the parties had not suggested specific cy pres recipients, the court has appointed a special master to recommend cy pres recipients before a further court decision about any cy pres awards or any federal escheat distribution.

The case is not over. Defendant Dish has lost one appeal on the merits and has filed a second appeal to argue for reversion instead of cy pres awards or federal escheat. As things stand, however, the District Court opinion provides a thoughtful answer to an unusual question in class action administration, with a firm rejection of reversions to losing defendants in consumer class actions and an expansion of the use of cy pres awards to deal with undistributed judgment funds.

Bill Boies is a senior counsel at McDermott Will & Emery LLP in Chicago, Illinois.

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