Oregon has enacted controversial legislation affecting damages in class actions in the state. House Bill 2700 was recently signed into law by Gov. Brown, following passage on largely party lines.
The law addresses the not uncommon situation of leftover class action funds. Sometimes unclaimed funds will revert to the defendant, which makes sense given the purpose of compensatory damages is to compensate persons injured by wrongful conduct. Sometimes the unclaimed funds are allocated in a form of “cy pres,” which we have posted about before.
Oregon’s new plan is for half of unclaimed or unpaid damages in Oregon class actions to be paid to the state bar’s Legal Services Program and the other half to a court-determined entity that benefits the “interests” of class members — so partly a tax, and partly a cy pres distribution.
The law says it is effective immediately, including for pending actions. Any amount awarded as damages or to be paid in settlement that the court finds either hasn’t been timely claimed by class members, or when it is simply “not practicable” to pay the full amount to class members, must be distributed in the following fashion: “At least 50 percent of the amount not paid to class members” must be paid “to the Oregon State Bar for the funding of legal services provided through the Legal Services Program.” The “remainder of the amount not paid to class members” must be handed over to an entity chosen by the court for purposes that are “directly related to the class action or directly beneficial to the interests of class members.”
Class action observers have noted that cy pres awards are often used by class counsel to enhance the appearance of benefit recovered in the case in order to justify a higher fee award. Another huge problem is that use of cy pres can eliminate the incentive for class counsel to ensure that all absent class members, the allegedly injured parties, get the compensation they have been awarded or earned in settlement. Trying to enhance funding for Legal Services programs seems like a great goal, but this does not seem like a wise way to do it.