Trial Magazine

David Sugerman

David Sugerman is the principal of Sugerman Law Office, a small firm in Portland, Ore., that focuses on complex injury and consumer class actions. He also advocates for consumer protection in the Oregon Legislature.

You recently handled a case involving illegal debit card fees in which unclaimed class action funds prompted changes to Oregon’s cy pres law. Tell me about that case and the legislation.

The case involved undisclosed overcharges at gas pumps in Oregon.¹ Thirteen thousand times per day, Oregon ARCO stations were overcharging consumers by adding a 35-cent debit card fee—an illegal transaction under Oregon’s Unlawful Trade Practices Act. In a class action under that law, if you can prove that the seller acted either recklessly or knowingly, each consumer who was overcharged would be entitled to $200.

We tried the case, and the jury sided with us. After trial, when we recovered all the transaction data, we found that more than 2 million unique consumers had been ­overcharged—so the judgment amount was more than $400 million. The Oregon Court of Appeals affirmed,² and the defendant wanted to discuss settlement.

Data destruction made it hard for us to locate many class members. Of the $400 million, about $66 million went unclaimed. Under the cy pres doctrine, the court allocates unclaimed class damages to the next-best use to provide indirect benefits to class members who cannot be located. Previously, we had a very aggressive rule that in class actions, unclaimed funds were returned to the defendant.

In part because of this case, Oregon’s legislature passed a new law requiring at least half of the unclaimed funds from a class action to pass by cy pres to Oregon Legal Aid and half to another entity or entities that could provide indirect payment to the class.³ This new cy pres law now applies to all class actions in Oregon.

It was a law that many people, including myself, had been working on for more than 12 years, but this case circled in red why we need cy pres. Because of this legislative change, half of that unclaimed $66 million ultimately went to Oregon Legal Aid and half to an Oregon consumer protection center that was formed as a result of the case.

How did you get involved with this cy pres legislation?

I had handled many consumer protection class actions in which the claim rates were very low. I saw that these cases were not actually doing what they were supposed to do. Both the American Bar Association and an Oregon Supreme Court task force had identified cy pres funds as a legitimate and appropriate way to fund legal aid. This attracted a lot of institutional supporters—the Oregon Judicial Department, a number of progressive politicians, and legal aid advocates—who all began to realize this was an untapped funding source. When we won the ARCO case, it all coalesced. And during the advocacy fight in the legislature that resulted in passage of the cy press law, I served as a technical adviser, answering questions and supplying information.

Why do some people oppose cy pres? Why is it an appropriate remedy in class actions?

One of the big arguments against cy pres is that none of the money goes back to the class. Well, funding legal aid and consumer protection in Oregon is the perfect indirect benefit to deliver to those we couldn’t find. A lot of those people are legal aid eligible, and the consumer protection center will work to stop this kind of practice in Oregon in the future.

Another argument is that the money belongs to the class, not to a third party. But that misconstrues what cy pres is about: It is about delivering the benefit to the class members as best you can when you can’t get them the money directly. To the extent that cy pres funds are used for legal aid, what you are really doing is providing access to justice. You’re ultimately doing things for the structure of the civil justice system that benefit the class, as well as everyone who lives in the state.

Paul Bland

Paul Bland is the executive director of Public Justice in Washington, D.C., and guides the organization’s litigation docket and advocacy. He has argued and won several appeals that have benefited consumers, employees, and whistleblowers.

Could you tell me about an important settlement you were involved in that had a broad positive impact?

We were cocounsel in a case against Utah State University on behalf of a rape survivor—the victim was assaulted at a fraternity party by a student who had a history of sexual violence. University officials knew about this history; it had been reported to them. He pleaded guilty to criminal charges, but our client sued the university, and that led to this remarkable settlement.⁴

The settlement significantly revamped Utah State’s fraternity and sorority systems. Early in the litigation, the university took the position that fraternities and sororities are separate organizations and that the university is not responsible for them. As part of the settlement, Utah State University fraternities and sororities now must apply for recognition as official student organizations and meet university standards of conduct.

The settlement also called for training for students on sexual harassment prevention, trauma-related training for employees most likely to encounter survivors of assault, and a full-time coordinator to monitor fraternities and sororities. The university also increased its advertising budget for support services for people who have been survivors of assault.

Our client got a financial settlement from the university, but what was most meaningful to her was that she could play a role in how the university addresses the underlying issues. The university’s president and our client coauthored an op-ed piece in the Salt Lake Tribune that described the case and the university’s response.⁵ I think that was a really unusual and powerful moment for the survivor but also for the university, which took ownership of the problem and its response.

What advice do you have for negotiating settlement terms that benefit both clients and society?

It’s important to look for things that can be somewhat win-win. Be in a position to say that this company had a problem or was making a mistake, but once the issue was drawn to its attention, the company fixed it. Particularly if the problem is widespread in an industry and multiple corporations have the same bad practice, explain to the defendant that if it fixes this, it will get a lot of credit because it will be handling things better than a lot of its competitors.

And if you’re mediating with a former judge, particularly if the defendant played a big role in picking the mediator, remember that when the mediator starts to see that what the company was doing was really wrong, he or she can become a very strong advocate for change. These mediators are conscious of money and the size of a settlement, but they frequently help advocate for and push defendants to agree to a bigger structural change. I’ve seen many mediators signal to the parties that they are really unhappy with a practice of an institution or corporation and that they think it should stop.

Elizabeth Cabraser

Elizabeth Cabraser is a partner at Lieff Cabraser Heimann & Bernstein in San Francisco and has served as court-appointed lead or class counsel in several high-profile civil cases involving consumer fraud, anti-competitive practices, and harmful drugs and products.

What’s one particularly meaningful settlement that had a broad positive impact?

I was fortunate enough to be a member of the team of negotiators for the class settlement in the wake of the explosion and oil spill on the Deepwater Horizon oil rig. Judge Carl Barbier in the Eastern District of Louisiana oversaw the settlement. There were actually two class settlements—one for those who were exposed to contaminants as they were working on the beach on cleanup efforts and one for the residents and the businesses of the Gulf Coast states that were economically impacted by the spill.⁶

It was an unusual scenario in that the same area had been devastated by Hurricanes Katrina and Rita only five years before. The area was struggling to come back from the economic effects of those natural disasters, and then it was hit with a preventable, man-made disaster that had a huge economic toll far beyond the area that was physically impacted by the spill.

I had some experience with a similar incident many years before, the Exxon Valdez oil spill off the coast of Alaska. That litigation took more than 20 years to resolve in the courts, and one of the things that struck me at the first hearing Judge Barbier held in the Deepwater Horizon case was that he was aware of what happened in Exxon Valdez and was determined that the courts were not going to take 20 years this time to resolve the claims. Based largely on Judge ­Barbier’s case management efforts, it took us less than two years from the date of the oil spill to presenting a classwide resolution of the claims to the court.

The class itself was geographically defined—it included anyone in the five Gulf Coast states who could demonstrate an economic impact on their property, on their business, or on their employment from the spill itself. There were hundreds of thousands of claimants, and the settlement generated more than $12 billion in recovery to class members. That reinfusion of funds to class members (both businesses and individuals) jumpstarted the economy—everyone in the area, whether class members or not, benefited directly or indirectly.

What settlement terms should be used more often to benefit both clients and the larger community affected by a defendant’s actions?

I believe that injunctive relief has been chronically undervalued by the courts because it isn’t always easy to express in monetary terms. Particularly in class action settlements, cash enables courts to readily value a settlement and deal with issues such as attorney fees. An undesirable side effect of that emphasis has been that the impact and importance of injunctive relief is undervalued. This is where, in the context of a group settlement, mass settlement, or class settlement, lawyers can really add value that’s societally important.

There’s an opportunity when you have a large settlement to say, “Now’s the time to prevent this from happening again, at least at this institution or company. Let’s change the practices.” And I have found that companies are not resistant to this because they see it as a benefit to them in terms of their image.

More often than not, if you talk to plaintiffs and ask what they really want to accomplish, it’s not simply compensation individually or for the group, it’s also a change. Plaintiffs are motivated to come forward because they don’t like what happened to them, they don’t want it to happen to anyone else, and they want to do what they can to change the system or corporate culture for the better. What these clients really want—not only for themselves or their class but for everyone who interacts with the defendant—is a change for the better.

Maureen Leddy is an associate editor for Trial.

Notes

1. Scharfstein v. BP West Coast Prods., LLC, 2016 WL 9735514 (Or. Cir. Ct. May 25, 2016).
2. Scharfstein v. BP West Coast Prods., LLC, 423 P.3d 757 (Or. Ct. App. 2018).
3. H.B. 2700, 78th Legis. Assemb., 1st Sess. (Or. 2015); see also Or. R. Civ. P. 32(O) (2019). 
4. Settlement Agreement and Release of All Claims, Hewlett v. Utah State Univ., No. 16-CV-01141-DN (D. Utah June 29, 2018), https://tinyurl.com/r7dl8bn.
5. Victoria Hewlett & Noelle E. Cockett, From Crisis to Opportunity at Utah State University: A Model for Schools in the #MeToo Age, Salt Lake Tribune (July 5, 2018), https://www.sltrib.com/opinion/commentary/2018/07/05/commentary-crisis/.
6. Order and Judgment Granting Final Approval of Economic and Property Damages Settlement, In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on Apr. 20, 2010, MDL No. 2179 (E.D. La. Dec. 21, 2012), https://tinyurl.com/ty7m3vh; Order and Judgment Granting Final Approval of Medical Benefits Class Action Settlement, In re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico, on Apr. 20, 2010, MDL No. 2179 (E.D. La. Jan. 11, 2013), https://tinyurl.com/tebn49k. For more on the Deepwater Horizon settlements, visit www.deepwaterhorizoneconomicsettlement.com/index.php.