Miller Canfield attorneys spearhead revision of class action residual rule

By Cynthia Price
Legal News

Two Miller Canfield attorneys, acting on a recommendation from the American Bar Association, have shepherded through a change in the disbursement of class action residual funds to allow the money to go to civil legal aid organizations.

The starting point for Miller Canfield Chairman Emeritus Thomas Linn and litigator Larry Saylor was the ABA requesting states and other authorities adopt such rules.

The ABA adopted a resolution in August 2016 as the result of a report from its Standing Committee on Legal Aid & Indigent Defendants stating “the American Bar Association urges state, local, territorial and tribal jurisdictions to adopt court rules or legislation authorizing the award of class action residual funds to non-profit organizations that improve access to civil justice for persons living in poverty.”

“A couple years ago I got recruited to be part of a little committee trying to get an amendment to the Michigan Court Rules based on the ABA’s position,” explains Linn, current chair of Lakeshore Legal Aid, which services Southeast Michigan.

“I sought out Larry Saylor, who’s a very experienced trial lawyer, and together we did a draft of a rule.  The little committee modified it a bit and we submitted it to the Supreme Court. There was public comment – I testified and Miller Canfield submitted a letter – but we didn’t know what was next.

“Then lo and behold last week out popped a rule,” Linn continued, speaking on March 11 about the March 4 Michigan Supreme Court order.

Specifically the statewide Legal Services Association of Michigan and the State Planning Body in Michigan, an unincorporated association of about 35 leaders in the judiciary, the State Bar, and state and regional advocacy programs interested in Michigan's indigent civil legal aid and indigent defense systems, submitted the proposal to the Michigan State Court Administrator.

Others on the small committee were Bob Gillett, retired executive director at Legal Services of South Central Michigan and the Michigan Advocacy Program, and Jennifer Bentley, executive director of the Michigan State Bar Foundation.

To be clear, the money at issue is only what is left over after diligent effort to disburse settlement funds to every member of the class.

The recently-adopted changes to MCR 3.501 (as reflected in the Supreme Court’s ADM File No. 2018-02) defines residual funds as “funds that remain after the payment of approved class member claims, expenses, litigation costs, attorney’s fees, and other court-approved
disbursements...” These result from people who are part of the class not receiving the notifications or not making the claim if they do.

The court order goes on to add: “(b) Nothing in this rule is intended to limit the parties to a class action from proposing a settlement, or the court from entering a judgment approving a settlement, that does not create Residual Funds.”

Even the original ABA?resolution states that before the residual funds are awarded to non-profit or other organizations, “all reasonable efforts should be made to fully compensate members of the class, or a determination should be made that such payments are not feasible.”

After those efforts have been exhausted, the addition to MCR 3.501, as adopted by the Michigan Supreme Court, indicates the 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.”

This is in keeping with ongoing practice, although in his dissent to adoption of the changes, Justice Stephen Markman says,  “...while some may view the instant amendment as generally maintaining the status quo, I do not share this view.”

Justice Markman proceeds to explain that there have been four options for disbursing the residual funds: reversion to the defendant; pro-rating them among class members who have filed for the claims; reversion to the government; and the option under discussion, which is called cy pres—an old Norman-French phrase most often used in trust and estate cases where the originally intended recipient is no longer available, but there is indeed a precedent for class action residual funds going to fund access to civil legal services for those in poverty – as witness the fact that the Michigan State Bar Foundation has already received such funds.

“Last year the [Bar Foundation] got around a half million dollars, but it is a little episodic, because the prior year they got about $18,000,”?says Linn.

The ABA?stated in its report, “The fundamental purpose of every class action is to offer access to justice for a group of people who on their own would not realistically be able to obtain the protections of the justice system,” thereby justifying the notion that “the next best thing” (as cy pres is often referred to) is an organization that helps civil litigants obtain acess.
Justice Markman’s dissent seems to be on at least two fronts.

“His objection is really philosophical,” comments Saylor. “He’s generally opposed to cy pres because he thinks the legislature should be the one to determine how residual funds are disbursed.”

Second, Justice Markman asks, “...will subtle disincentives arise to identifying difficult-to-locate class members by what may be perceived as the ‘greater’ or ‘higher’ charitable or philanthropic interest?”

In an August 2019 comment letter on the proposed amendment, Miller Canfield CEO Michael McGee writes, “...we respectfully note that the proposed amendment deals only with the disposition of residual funds which inevitably will remain in class actions after distributions to class members. We do not believe the amendment would either require or encourage ‘cy pres’ settlements, which can be evaluated in particular cases.”

Linn says he would like to see the legislature adopt something.“It’s worth noting that the rule that’s actually been adopted had some changes that tried to address these objections,” says Saylor.

But Linn says that mission number one now is to get the word out about the MSC-ordered rule change. “Now that it’s come out, I’m interested in publicizing it and making sure judges are aware of it,” he explained.