Opinion
Civil File No. 3-94-359 MJD
March 9, 2001
Phillip A. Cole and Mary I. King, Lommen, Nelson, Cole Stageberg, P.A. for and on behalf of the Plaintiff Class.
Janice M. Symchych, Peter W. Carter, Dorsey Whitney LLP for and on behalf of the Defendants.
MEMORANDUM OPINION AND ORDER
Background
This case is a class action that was brought on behalf of approximately 23,000 class members who had entered into rent-to-own contracts with Rent-A-Center ("RAC"). RAC stores are owned and operated by Defendant Thorn Americas, Inc. and Thorn EMI North America Holdings, Inc. . The complaint alleged that Defendants, through RAC, had engaged in usury and deceptive and unlawful business practices through its rent-to-own contracts and that such practices violated Minnesota and federal law. After hearing the parties' arguments at summary judgment, this Court found that Defendants' rent-to-own contracts were usurious and enjoined Defendants from entering into rent-to-own contracts with interest rates exceeding the usury statute's limits, voided the existent rent-to-own contracts with the Plaintiff Class abs initial, ordered rescission of all payments made by the Plaintiff Class to Defendants and enjoined Defendants from collecting any further payments under any such contracts. The injunction was later modified to allow Defendants to collect payments to prevent customer confusion, but that such funds had to be deposited in an interest bearing escrow account ("Escrow Fund"), to be returned to the appropriate customer ("Escrow Refund Member") at a later date.
Judgment was entered on April 15, 1998, which was later affirmed on appeal with the exception of the creation of a Cy Pres Fund. Fogie v. Thorn Americas, Inc. et al., 190 F.3d 889 (8th Cir. 1999). Pursuant to the Judgment of this Court, Defendants were ordered to pay damages to the Plaintiff Class, and return to the monies held in the Escrow Fund to the Escrow Refund Members. With regard to the Cy Pres Fund, the Eighth Circuit held that creation of such a fund at a time when it was not known whether any undistributed monies would remain, without designating the recipient of such a fund, was premature. Id. at 904.
According to the Defendants, as of January 10, 2001, 1,813 checks have been issued and cashed from the escrow account, totaling $1,327,401.30. Defendants have taken steps to reissue 53 checks, after receiving updated addresses from class counsel and the plan administrator. Defendants have identified 300 checks that are undeliverable, totaling $148,584.21. Defendants now move the Court for the return of the undeliverable portion of the Escrow Fund. The Plaintiff Class opposes this Motion, and moves for an order establishing a Cy Pres Fund, and that three charitable organizations receive these funds as follows: 75% to the Mid-Minnesota Legal Assistance; 15% to the National Law Consumer Center; and 10% to the Minnesota Justice Foundation.
Argument Standard
The Eighth Circuit has recognized that there are four ways in which courts have distributed unclaimed funds remaining from a class judgment: pro rata distribution to class members; reversion to the defendant; escheat to the government and cy pres distribution. Powell v. Georgia-Pacific Corporation, 119 F.3d 703, 706 (8th Cir. 1997). Defendants have asked that it be allowed to retain the remaining unclaimed funds.
Reversion
The Plaintiff Class opposes Defendants' request because the Defendants have no legal or equitable claim to the funds at issue, as that money was never in the Defendants' possession and it was never intended to pass to the Defendants. Instead, the Plaintiff Class requests that the unclaimed Escrow Funds be placed in a Cy Pres fund for distribution to charity.
The Court agrees that reversion to the Defendants is not appropriate. As noted above, the Defendants were ordered to place monies received from illegal usurious rent-to-own contracts in an escrow account because it would be inappropriate to allow Defendants to benefit from its illegal conduct. Under these circumstances, allowing Defendants to retain such ill-gotten gains is completely contrary to the final judgment of this Court, and the goals of Minnesota's Usury Statute, which is to deter business entities from charging excessive interest rates to consumers. See Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1308 (9th Cir. 1990) (where statute's objectives include deterrence or disgorgement, reversion to defendant is inappropriate as it would contradict statute's goals).
Cy Pres Fund
Typically, Cy Pres distribution has been used in cases in which class members are hard to identify or where class members change constantly. Powell, 119 F.3d at 706. "In these cases, the court, guided by the parties' original purpose, directs that the unclaimed funds be distributed `for the indirect prospective benefit of the class.'" Id. (citing New and Conte, Newberg on Class Actions § 10.17 at 10-41.)
Factors the Court may consider in determining the appropriateness of the creation of a Cy Pres Fund include: 1) to whom does the residue belong; 2) would it be practicable to distribute the residue to its owners and; 3) if not, who is an appropriate alternate recipient. Wells Fargo Securities Litigation, 991 F. Supp. 1193, 1195 (N.D. CA. 1998). In considering these factors, the Court finds that creation of a Cy Pres Fund is appropriate in this case.
The funds at issue here belong to class members that have not been located. Defendants have submitted affidavits from Ms. Renae Hughes, detailing the extensive efforts used to locate all class members entitled to refunds from the Escrow Account. Second and Third Affidavits of Renae Hughes. Given the extensive efforts expended in trying to locate these class members, it will be impracticable to distribute these funds to its owners.
In determining whether an appropriate alternate recipient exists for the remaining funds, the Court must keep in mind why the escrow fund was created in the first place. The Plaintiff Class in this case consisted of a disproportionate number of persons who were of lower incomes, persons of color, persons with little or no education, with disabilities or unemployed. Jerry Lane Aff., ¶ 2. These are the weak and necessitous consumers that the Minnesota usury statute was designed to protect. Fogie, 190 F.3d at 903 (quoting Trapp v. Hancuh, 530 N.W.2d 879, 884 (Minn.Ct.App. 1995)). The Plaintiff Class, therefore, asks that the Cy Pres Fund be distributed to three charitable organizations that serve and educate Minnesota consumers in similar demographics to the Plaintiff Class; namely Mid-Minnesota Legal Assistance ("MMLA"), National Consumer Law Center ("NCLC") and the Minnesota Justice Foundation ("MJF").
Defendants object to the funds being distributed to the MMLA and the NCLC because they are, in effect, the same organization, and the MMLA was the attorney of record in this case and as such, received a portion of the $8,200,000 attorney's fee that was awarded.
Defendants have not objected to MJF as being the recipient of a Cy Pres Fund. MJF is designed to provide law student clerk assistance to legal advocates that represent lower income consumers in Minnesota. MJF enables non-profit organizations to help more low-income consumers in consumer protection and other related areas. For these reasons, the Court finds that distribution of the Cy Pres Fund to MJF would further the goals of the damage award in this case.
IT IS HEREBY ORDERED that:
1. The Motion of Defendant Thorn Americas, Inc., now known as Rent-A-Center, for Return of Remaining Escrow to Defendant Rent-A-Center, Inc. is DENIED.
2. Plaintiff's Motion for Creation of a Cy Pres Fund is GRANTED.
3. All funds remaining in the Escrow Fund following the expiration of the ninety-day negotiable period for the outstanding 53 reissued Escrow Refund Member checks are hereby designated as a Cy Pres Fund, with such funds to be distributed to the Minnesota Justice Foundation.
4. Within five (5) days of this Order, Defendants shall disburse the remaining Escrow Account funds as directed herein by issuing appropriate certified funds made payable to the Minnesota Justice Foundation. The certified funds shall be tendered to class counsel who shall distribute the funds to the Minnesota Justice Foundation.
5. Escrow Refund Members who were not located by the Plan Administrator by September 3, 2000 are deemed to have forfeited their claims for a refund from the Escrow Account.
6. This Court shall have and retain jurisdiction to implement and enforce its orders here made upon application of the parties to the Court upon such occasions as the orders provide for applications or accounting to the Court.
LET JUDGMENT BE ENTERED ACCORDINGLY.