Vanderbilt Lawyer - Volume 35, Number 2

Following Suit

Vanderbilt's Litigation Program Receives a $2.9 Million Endowment

by Grace Renshaw
Gerard Stranch, James G. Stranch, and Dewey Branstetter of Nashville-based Branstetter Stranch & Jennings, who filed Lankford v. Dow Chemical.

Gerard Stranch, James G. Stranch, and Dewey Branstetter of Nashville-based Branstetter Stranch & Jennings, who filed Lankford v. Dow Chemical.

Richard Nagareda on Cy Pres Settlements

Sports enthusiasts purchasing neoprene ski socks, wet suits or hip waders may not have detected the impact of an alleged price-fixing scheme on the price of their purchase. But, between 1999 and 2003, anyone who bought an item containing neoprene—a form of synthetic rubber—may have paid a premium.

That's because the three companies that produced neoprene conspired to fix the price, according to Gerard Stranch, '03, of Nashville-based Branstetter Stranch & Jennings.

Stranch, his father, James G. Stranch, and Dewey Branstetter, '81 (vu '78), represented consumers in 29 states and the District of Columbia who purchased products containing neoprene between 1999 and 2003, when the alleged price-fixing occurred, in Lankford v. Dow Chemical. George Barrett, '57, and Ted Carey, '86, of Barrett, Johnston & Parsley were also involved in the case.

The Lankford litigation ultimately resulted in a settlement agreement. The defendants continue to deny liability, but they agreed to pay $4.2 million to resolve the claims of the plaintiff class. The size of the settlement relative to number of plaintiffs, most of whose losses ranged from less than a dollar to a few hundred dollars, presented a challenge common to indirect purchaser suits, such as Lankford. "There was a very real possibility that the cost of distributing individual shares of the settlement to all of those affected would cost more than the settlement," Gerard Stranch says simply.

To avoid a logistical quagmire while ensuring constructive use of the settlement dollars, James Stranch proposed a cy pres settlement in the form of a distribution to Vanderbilt Law School. In October, Judge Marietta Shipley of the Second Circuit Court of Davidson County approved a settlement that—after deduction of expenses and a fee award to class counsel and a court consultant—provides an endowment of more than $2.9 million to support the law school's litigation and dispute resolution program.

"One requirement of a cy pres distribution is that it be related in some way to the alleged misconduct," explains Gerard Stranch. "Jim [Stranch] suggested Vanderbilt Law School because we brought the suit in Tennessee, but it was national in scope—we represented a class of plaintiffs in 29 states and D.C. While Vanderbilt is located in Tennessee, it's a national law school, and many of the states from which Vanderbilt draws students were represented in the plaintiff class."

The Stranches approached Dean Ed Rubin to discuss the settlement proposal at a serendipitous time. Having joined the law school as dean in July, Rubin was working with several members of his faculty—including Richard Nagareda, an expert on complex litigation—to implement a number of academic centers with funding from Vanderbilt University's academic venture capital fund and other sources. "The academic venture fund provides initial 'seed money' for new initiatives," says Rubin. "It's a central component of Vanderbilt's success in encouraging innovative interdisciplinary programs. One of the many reasons I was enthusiastic about coming to Vanderbilt was the assurance that the law school could draw on this fund to develop academic centers to enhance our upper-level curricular offerings."

Soon after his arrival, Rubin asked Nagareda to serve as the faculty "convener" for a litigation and dispute resolution program. "The faculty 'convener' convenes discussions among the faculty members interested in research and teaching on the subjects of litigation and dispute resolution," Nagareda says.

Because the university required solid proposals before granting "venture capital" funding, Rubin and Nagareda had a head start in preparing a proposal outlining how the Lankford settlement will be used to support the litigation and dispute resolution program. "The $2.9 million endowment we received will enable our program in litigation and dispute resolution to be self-sustaining in its very first year—indeed, in its very first semester," Nagareda says. "As far as I'm aware, this is the fastest transition any Vanderbilt program has made to self-sustaining status after initial funding from the academic venture capital fund."

Nagareda and Rubin both emphasize that a program in litigation and dispute resolution is a natural complement to the law school's successful Law & Business Program. "Most full-service law firms divide their practice into two basic areas: corporate and litigation," Nagareda says. "Our program will enable students to step immediately into sophisticated litigation practice anywhere in the country and enjoy a substantial advantage from the get-go over students from other elite law schools."

Nagareda finds it particularly appropriate that Vanderbilt's litigation program received a major endowment through a cy pres settlement. "The vast majority of litigation in this country results in settlements, not trials," he says. "This is true whether you're talking about civil litigation or, for that matter, criminal litigation resolved through plea bargaining. And it's true whether you're talking about private law firms, public interest organizations, or government agencies."

Today's litigators manage litigation "with an eye toward innovative and, often, complex settlements," Nagareda says. "And a growing segment of litigation involves some form of aggregation."

The Lankford settlement will enable the law school to build on a litigation program that already does "an excellent job of teaching students about the structure of the court system, the theory and practice of negotiation, the consequences of aggregating multiple claims, and the workings of conventional trials" Nagareda says.

"Vanderbilt has trained outstanding litigators for decades," he says. "But the hardest thing that any organization ever does is to go from good to great. We'll accomplish that by adding traditional upper-class courses and hands-on clinical offerings to address such subjects as pre-trial practice, including motions practice and discovery, and the array of alternatives to traditional litigation."

Arriving at a Cy Pres Settlement

Professor Richard Nagareda provides an overview of the process by which the Lankford cy pres settlement was considered.

The idea of a cy pres distribution is most familiar to lawyers from a long-established feature of the law governing charitable trusts. The classic scenario for such a distribution arises when it is not possible to achieve the purposes originally specified by the charitable donor. The cy pres doctrine recognizes the authority of the court to identify an alternative distribution that will best achieve the overall intentions of the donor. Translated from French, the term cy pres literally means "so close" or—in the context of class settlements—roughly "next best."

In class action litigation, cy pres distributions have been made in several prior cases involving unclaimed class settlement funds. Where it is not realistically possible to distribute the settlement funds to the class members themselves, the court may authorize a distribution to other recipients–typically, charitable organizations–for use in a manner that will indirectly benefit the class. The cy pres distribution is thus the "next best" thing to actual payment to the class members individually.

In "indirect purchaser" suits, such as Lankford, members of the plaintiff class did not purchase Neoprene as such but, rather, as incorporated into various industrial products. Neoprene is used in such products as cables, transmission belts and conveyor belts, and as a raw material for solvent- and water-based adhesives. The important practical point is that, as indirect purchasers rather than direct ones, the members of the Lankford plaintiff class were numerous but would be extremely difficult to identify. And, as is often the case in price fixing cases, the amount of the alleged overcharge passed along to a given plaintiff is likely to be quite small.

In Lankford, Judge Marietta Shipley used a careful, deliberate process to consider the proposed cy pres distribution to Vanderbilt Law School. This process entailed the submission of an affidavit under oath by Dean Rubin, setting forth the nature of the Law School's program on litigation and dispute resolution and a detailed explanation of how it would benefit the members of the Lankford class. Vanderbilt Law School meets the criteria for a cy pres settlement because it is a charitable organization under federal law, including § 501(c)(3) of the tax code.

In his affidavit, Dean Rubin explained that the Law School is "uniquely situated" to make use of the class settlement funds by virtue of its stature as a nationally recognized research institution that sends lawyers to practice in locations throughout the country, including all of the states in which the Lankford class members are located. The Law School's program for the study of litigation and dispute resolution, in particular, is positioned to use the settlement funds to address issues of complex litigation and settlement design, especially as they intersect with allegations of corporate wrongdoing.

Judge Shipley also appointed a distinguished lawyer, Kathryn Reed Edge, to report to the court on the merits of the proposed distribution. In her report to the court, Special Master Edge, a partner in the Nashville law firm of Miller & Martin and a former president of the Tennessee Bar Association, recommended in favor of the proposed cy pres distribution to the law school for the litigation and dispute resolution program. In Edge's report, she observed that no objections had been made to the proposed distribution, found that "[t]he proposed settlement meets cy pres guidelines in that the cost of distribution to individual class members would be overly burdensome and the class member recovery insignificant," and concluded that the law school "has proposed a viable plan to use the funds for a program that may be as closely associated with the lawsuit as a university curriculum will allow" and that "the settlement award will benefit each of the Jurisdictions by producing well-educated attorneys in matters concerning settlement agreements." Neither Edge nor Judge Shipley has any affiliation with Vanderbilt.

Judge Shipley accepted Edge's findings and ordered the cy pres distribution to the Law School. By the terms of Judge Shipley's order, the law school will report annually to the court regarding the use of these funds.

—Professor Richard Nagareda's recent scholarship explores the impact of class action lawsuits on the pursuit of legal rights.