Proposed rule change targets unclaimed class-action funds

By Lee Dryden
BridgeTower Media Newswires
 
DETROIT, MI -- A Michigan Supreme Court justice has raised numerous questions about a proposed court rule amendment regarding disbursement of unclaimed class-action funds.

The Proposed Amendment of Rule 3.501 of the Michigan Court Rules (MiLW No. 06-100230, 4 pages) in ADM File No. 2018-02 states: “In matters where the claims process has been exhausted and residual funds remain, not less than fifty percent (50%) of the residual funds shall be disbursed to the Michigan State Bar Foundation to support activities and programs that promote access to the civil justice system for low income residents of Michigan.

“Notwithstanding this requirement, the court may order the disbursement of all residual funds to a foundation or for any other purpose that has a direct or indirect relationship to the underlying litigation or otherwise promotes the interests of the members of the certified class.”

This proposal is a slightly modified version of a proposal submitted to the court by the Michigan State Planning Body and Legal Services Association of Michigan, according to a staff comment on the high order regarding the proposed amendment.

Justice Stephen J. Markman concurred with the court’s decision to invite public comment on the proposed amendment. He specifically invited comments on many related issues “against the backdrop of what I view as a reasonable and responsible class action system in Michigan.”

Some of the questions raised by Markman are listed below. The full list is included in the order.

Markman first asked “whether it constitutes an appropriate exercise of this Court’s rulemaking authority to expand the purpose of the class action process from the compensation of specific victims of misconduct to the funding of public and charitable programs and activities that may have no relationship to the parties or the issue in the case, however worthy and meritorious those programs and activities might be.”

He also sought comment on if it is an appropriate exercise of judicial power for the court to select which programs will receive such funds.

The justice asked whether “there is a basis for concern that the process of identifying the recipients of such funds may become an increasingly politicized exercise, one in which the personal perspectives, loyalties, and interests of the judge or attorney become determinative and in which various forms of lobbying activities come to be undertaken by interested groups and organizations.”

Another matter raised by Markman is whether the proposal may “disincentivize judges or lawyers from undertaking what might be more diligent, time-consuming, and costly efforts to identify unidentified claimants for class action awards.”

Markman asked whether there is an “effective reordering of the attorney’s relationship with his or her clients, beyond what is already inherent in the class action process, if substantial class action awards go not to these clients but to the funding needs of specific public and charitable programs and activities, the determination of which may have been made by the trial court with the assistance of such attorney.”

He also asked if additional procedures are needed to ensure claimants’ interests are protected “rather than placed in competition with the interests of nonclaimants seeking to use the proposed rule to fund public and charitable programs and activities.”

Markman also raised the issue of “whatever the disposition of unclaimed funds in a class action, if claimants cannot be identified, whether that fact should have any effect on the calculation of attorney’s fees.”

The justice asked “whether there is cause for concern that some losing class action defendants will view awards made to public and charitable programs and activities as a preferable ‘public relations’ alternative to these same funds being paid to private claimants and therefore make it more likely that such defendants will prefer to negotiate in favor of these types of dispositions rather than identifying actual claimants.”

He also asked “to what extent, if any, the proposed rule will affect the prevalence or the breadth of class actions brought in Michigan, including but not limited to the incentivization of so-called ‘noninjury’ lawsuits in which the administrative costs of identifying large numbers of small claimants may outweigh the benefits of relatively small class action recoveries.”

Markman’s final question is “whether the disposition of unclaimed class action awards should be a matter determined, as here, by the court rule process — in which public comment comes largely from the bench and bar — or by the legislative process, in which public comment derives more broadly from its representative nature.”

The public comment period ends Sept. 1. Comments can be submitted to ADMcomment@courts.mi.gov or the Office of Administrative Counsel, PO Box 30052, Lansing, MI 48909. The matter also will be considered at a public hearing.