In a groundbreaking move, the Washington Supreme Court recently amended the long-standing class action civil rule to provide that unclaimed class action funds will be used to support low-income residents facing urgent legal problems.
Effective January 3, the court added a new section to CR 23 requiring that at least 25 percent of class action residual funds be disbursed to the Legal Founda-tion of Washington (LFW) to promote access to the civil justice system for low-income Washington residents.
Residual funds are those that remain after payment of all approved plaintiff claims, attorneys' fees and costs when a class action is either adjudicated or settled. It is common to have residual funds at the conclusion of class action cases for various reasons: some members of the class cannot be located, some eligible class members fail to submit claims or the amount of recovery due per individual is too small to warrant the cost of disbursement.
Revised Rule Is a First
With the adoption of revised CR 23, Washington became the first state to codify what many courts have done on an ad hoc basis in class action cases for years. Most states have no court rules addressing class action residual funds. California has a rule that permits, but does not require, courts to allocate residual funds to legal aid. And Illinois' legislature is considering a bill that would act similarly to Washington's rule.
"The Washington Supreme Court is a strong partner in the effort to address access to justice issues. This rule is on the forefront of nationwide efforts to find solutions to the crisis facing low-income clients who do not have access to legal aid," said Caitlin Davis Carlson, LFW executive director.
The rule change was supported by a broad range of groups in the state. It was proposed to the Supreme Court by the Washington State Bar Association and endorsed by the Superior Court Judges Association, the Access to Justice Board, the Washington State Trial Lawyers Association, the Washington Defense Trial Lawyers Association and the LFW.
Funding Crisis for Legal Aid
The revised rule comes at a critical time for access to justice funding. The Washington Supreme Court's Civil Legal Needs Study, published in 2003, found that every year in Washington three out of four low-income households face an urgent civil legal problem, most of which affect their basic human needs. But almost 90 percent of low-income people who experience urgent legal problems must face them without any legal help or representation. The Supreme Court task force found in 2004 that an additional $28 million, more than twice the current funding level, is needed annually to adequately address the legal needs for those living in poverty in our state.
The effects of the legal aid funding shortfall are seen in courtrooms every day as increasing numbers of pro se parties attempt to resolve their legal problems without representation.
"There are numerous concerns when people are unable to find help for their legal problems," commented Judge Michael Schwab, president of LFW's Board of Trustees. "There is the compelling concern for those who cannot pursue legal remedies and are denied basic needs such as family safety, housing, health and economic security. There is also an increased burden on courts to administer justice when one or more of the parties does not have the benefit of competent legal counsel."
Application of Rule
The amended rule applies to all class actions filed after January 3 and to all further proceedings in cases that were pending on that date. It applies to all residual funds in state class actions, whether created pursuant to an order of judgment or a court-approved settlement.
Under the revised rule, courts must disburse a minimum of 25 percent of the residual funds to LFW to support access to justice for low-income individuals and families. For the remaining 75 percent, the rule dictates that courts may disburse the funds to LFW or to other entities that promote the objectives of the underlying litigation or the interests of the certified class.
Carlson added that "in cases where there are no existing groups tailored to promote the plaintiffs' interests, it will make sense for the 100 percent of the residual funds to go towards ensuring equal access to justice for all those in need in Washington."
Monetary Effect Uncertain
The access to justice community is cautiously optimistic about the financial impact the rule will have, but the actual revenue stream is hard to predict. Historically, class actions have not been tracked in Washington, so no one knows how many class action suits are currently pending in state court. And the percentage of certified cases that generate residual funds also is unknown. Further, the federal Class Action Fairness Act, adopted last year, may reduce the total number of class actions filed in state court.
Even so, one or two large cases a year could have a significant impact on legal aid funding. Past awards of residual funds to legal aid in Washington and other jurisdictions have ranged from thousands of dollars to millions.
"We will be watching with interest to see what kind of financial impact the rule has on the legal aid funding crisis. It is certainly a step in the right direction to address this critical unmet need," Judge Schwab said.
Andrea Axel is a project manager at the Legal Foundation of Washington. She can be reached at andrea@legalfoundation.org or 206-957-6289. For more than 20 years, the Legal Foundation has managed the interest from the lawyer trust account program for the benefit of low-income people who need civil legal aid.
