Friday, October 17, 2008
C.A. Rejects Attempt to Retain Unclaimed Settlement Funds
By STEVEN M. ELLIS, Staff Writer
Class action settlements providing for payment of specific amounts on timely-filed claims are subject to state law requiring that any unpaid residue go to non-profit organizations to benefit class members or those similarly situated, this district’s Court of Appeal held yesterday.
Rejecting an attempt by telecommunication services provider Verizon California Inc. to keep over $414,000 from settlement checks sent to claimants that were either not cashed or returned by the post office as undeliverable, Div. Three ruled that funds remaining under such “claims-made” settlements constitute “unpaid residue” subject to the provisions of Code of Civil Procedure Sec. 384.
Verizon sent the checks in 2004 under an agreement settling a class action brought in 2000 on behalf of 170,000 customers of what was then GTE California Inc., who alleged that the provider engaged in unfair business practices by improperly billing residential customers for rented telephone equipment.
Terms of Agreement
Under the settlement, Verizon agreed to make cash payments to customers who filed claims in which they averred they had been unaware of the rental charges, but the settlement agreement omitted any discussion of what would happen to any funds claimed but not actually paid.
Two years after the trial court entered a judgment approving the settlement, and after the claims of eligible customers were administered and settlement checks mailed, 778 checks were either uncashed or had been returned, and the plaintiffs sought to amend the judgment to distribute the funds pursuant to Code of Civil Procedure Sec. 384.
The section requires that “unpaid residuals in class action litigation” be paid to “nonprofit organizations or foundations to support projects that will benefit the class or similarly situated persons,” and states that the intent of the Legislature in enacting the section was to ensure that such residuals “are distributed, to the extent possible, in a manner designed either to further the purposes of the underlying causes of action, or to promote justice for all Californians.”
Los Angeles Superior Court Judge Peter D. Lichtman found that Sec. 384 did not apply to the “claims-made” settlement the parties had negotiated because no common fund had been created, and that the plaintiffs had waited too long to seek the modification, and that the funds reverted to Verizon.
However, Presiding Justice Joan Dempsey Klein concluded on appeal that the plain language of Sec. 384, as well as its legislative history, demonstrated that the statute had eliminated the prospect of reversion of unpaid residue to a defendant, and required payment of the funds to nonprofit organizations.
“In resolving the issue presented, we look to the words of Sec. 384(b), which define ‘unpaid residue’ as the difference between the ‘total amount that will be payable to all class members, if all class members are paid the amount to which they are entitled pursuant to the judgment’ and ‘the total amount that was actually paid to the class members…,’” she wrote.
“[N]otwithstanding the ‘claims-made’ nature of the settlement, the definition of ‘unpaid residue’ accurately describes the unclaimed funds at issue in this case.”
In arriving at her conclusion, Klein rejected Verizon’s assertion that the legislative history of Sec. 384 suggested it should be applied only in fluid recovery cases in which a common fund is created. “Fluid recovery” refers to the application of the equitable doctrine of cy pres—deriving from a Norman French phrase meaning “as near as possible”—to distribute unclaimed class funds to their next best use.
Although no fund was established at the time judgment was entered, Klein remarked, “after the claims were administered and Verizon deposited the money necessary to pay the claims, a fund was created. The unclaimed funds at issue are the ‘unpaid residue’ of that fund.”
Klein similarly rejected Verizon’s claims that the plaintiffs’ attempt to amend the judgment two years after its entry was time barred under Sec. 473(b), which sets a six-month deadline to seek general relief from default.
“This argument fails because the plaintiffs’ motion to amend the judgment did not rely on Sec. 473(b)…. Rather, the plaintiffs expressly relied on Sec. 384, which does not include any time limit within which relief must be sought. The specific directive to amend the judgment in appropriate class action cases must be seen as taking precedence over the general relief provisions of Sec. 473(b).”
Justices Patti S. Kitching and Richard D. Aldrich joined Klein in her opinion.
The case is Cundiff v. Verizon California, Inc., B199511.
Copyright 2008, Metropolitan News Company