Docket number: 22-566 (Supreme Court); 20-3765 (2d Cir.); 18-cv-9031 (S.D.N.Y.)
The Hamilton Lincoln Law Institute represented William Yeatman, who objects to a class action settlement that provides no direct benefit to class members but instead pays $1.75 million as “cy pres” to fund the creation of a new non-profit staffed by individuals from the American Federation of Teachers (AFT)—a union with unusual involvement in the case.
Yeatman appealed denial of his objection to the Supreme Court, which denied his cert petition to hear his case on April 27, 2023.
Background
The practice of diverting class recovery to third parties, called cy pres, was the subject of HLLI’s Supreme Court argument in Frank v. Gaos, which was remanded without substantive decision due to jurisdictional questions. If Yeatman prevails, it might curtail cy pres, or at least disallow attorney’s fees for money diverted to organizations handpicked by settling attorneys.
The settlement resolves claims that Navient misled borrowers in public service professions when they tried to access Public Service Loan Forgiveness (PSLF). Plaintiffs pleaded that Navient attempts to steer borrowers away from transferring their loans to FedLoan Servicing (the exclusive servicer for PSLF) in order to avoid losing the associated fees—a form of unjust enrichment.
Plaintiffs had sought monetary damages for these claims in their complaint, but the settlement waives all claims for monetary damages brought as a class action. Borrowers who allegedly received inaccurate information about their loans will receive nothing from the settlement. Instead, the settlement provides an “injunction” for Navient to update its employee training and communications for a period of three years and “cy pres” to divert $1.75 million to a new charity.
The injunction cannot possibly benefit the large portion of the class (including objector Yeatman), who have transferred their loans to other servicers, left the public service sector, or paid off their loans. For this reason, Yeatman argues class certification is inappropriate.
And as for cy pres, plaintiffs cannot rationalize the diversion of money to third parties. Class members could easily be directly compensated. The involvement of AFT in the case raises further red flags about the cy pres arrangement. All of the class representatives are AFT members and were largely located by AFT. Class counsel and the two individuals have an ongoing client relationship with AFT. And, the settlement class is comprised of student borrowers, while AFT has long been criticized for favoring teachers at the expense of students. The new non-profit will perform some of the work AFT already undertakes, in addition to lobbying and advocacy work, suggesting a complimentary mission that will expand the work of AFT or at least free up resources.
Finally, Yeatman argued that sharing the fees with AFT direction—which the settlement proposed to do—violates New York’s rules for attorney conduct.
A fairness hearing occurred on October 2, 2020, and the district court granted final approval of the settlement over Yeatman’s objection.
Yeatman appealed the district court’s approval of the settlement. He argued: (1) the district court erred by certifying a class under Rule 23(b)(2) when the injunctive relief will not benefit all class members; (2) the district court erred by approving a settlement negotiated by conflicted representatives that favored third parties over the class without considering whether it was feasible to benefit the class directly; (3) the abusive cy pres selection, combined with other settlement terms, demonstrate that the class was not adequate represented; and (4) the settlement was unfair under Rule 23(e). The Second Circuit held oral argument and affirmed the district court’s approval in an opinion released September 7, 2022.
On September 21, 2022, Appellant Richard Estle Carson, III, requested the Second Circuit rehear the case en banc, arguing that the panel’s decision allowing for $15,000 incentive awards to the named plaintiffs conflicted with Supreme Court precedent. The request was denied in an order from the Court issued October 7.
On December 16, Yeatman filed a petition for certiorari with the U.S. Supreme Court. Attorneys representing Montana and 15 other states filed an amicus brief in support of the cert petition, as did the Manhattan Institute. The amici agree that the Supreme Court should hear the case.
HLLI’s Cert Petition in St. John
HLLI simultaneously petitioned the Supreme Court to review approval of another cy pres settlement from the Eighth Circuit, St. John v. Jones. As in this case, the amount of money diverted to third-parties hand-picked by the settling parties dwarfs actual class recovery. Both cases followed up on HLLI attorneys’ Supreme Court argument in Frank v. Gaos, which vacated approval of a cy pres settlement, but did not reach the merits of the practice because of jurisdictional questions about the underlying litigation. The two petitions together show that cy pres settlements are not an endangered species like the Frank v. Gaos plaintiffs argued. Without clarity in this area, plaintiffs’ attorneys will continue to seek approval for the dubious “benefit” of diverting money to organizations that the settling parties select—often winning accolades for essentially giving away client money.
On April 17, 2023 the Supreme Court denied cert for Yeatman, and on May 15 denied cert in St. John.
HLLI hopes that the Supreme Court someday review of cy pres settlements, which Justice Roberts noted ten years ago raise “fundamental concerns.” Marek v. Lane, 571 U.S. 1003, 1006 (2013). The Supreme Court should decide “when, if ever, such relief should be considered; how to assess its fairness as a general matter; whether new entities may be established as part of such relief; if not, how existing entities should be selected; what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on.” Id.
Case Documents
| Description | |
| Mar 28, 2023 | REPLY BRIEF for Yeatman in Support of Petition |
| Jan 17, 2023 | AMICUS BRIEF of Sixteen Attorneys General in Support of Certiorari |
| Jan 17, 2023 | AMICUS BRIEF of Manhattan Institute in Support of Certiorari |
| Dec 16, 2022 | PETITION FOR WRIT OF CERTIORARI filed by Yeatman with the Supreme Court |
| Oct 07, 2022 | ORDER Denying Petition for Rehearing En Banc |
| Sep 07, 2022 | OPINION Affirming Final Approval |
| June 3, 2021 | RELPY BRIEF of William Yeatman |
| Feb 11, 2021 | OPENING BRIEF of William Yeatman |
| Oct 09, 2020 | FINAL APPROVAL ORDER |
| Sep 11, 2020 | OBJECTION of William Yeatman |
| Sep 11, 2020 | DECLARATION of Anna St. John in Support of Objection |