The opinion of the court was delivered by: Janis Graham Jack United States District Judge
On this day came on to be considered Class Plaintiffs' Motion for Summary Judgment (D.E. 1090) and Intervenor State of Texas's Motion for Final Summary Judgment (D.E. 1091). For the reasons stated herein, the Court GRANTS Class Plaintiffs' Motion for Summary Judgment and DENIES Intervenor State of Texas's Motion for Final Summary Judgment.
This Court has jurisdiction to consider the issues raised in the motions for summary judgment and to issue the order contained herein, pursuant to the explicit retention of jurisdiction provision in the final judgments issued in this litigation. The provision states: "This Court shall retain continuing jurisdiction over the Settlement Amount (including the Interim Unclaimed Fund and the Final Unclaimed Fund), the Settling Parties and the Settlement Class Members. This continuing jurisdiction shall include jurisdiction to order injunctive relief for the purposes of enforcing, implementing, administering, construing and interpreting this Settlement Agreement." (D.E. 595-601, 607.) See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 381-82 (1984) (stating that a court may retain continuing jurisdiction over a settlement agreement if such intention is written into the court order); Hospitality House, Inc. v. Gilbert, 298 F.3d 424, 430 (5th Cir. 2002) (citing Kokkonen).
This litigation began in July 1995, when the state of Texas filed a suit in state court, State of Texas et al. v. Amoco Production Company, et al., pursuing claims for a putative class of Texas royalty payees against eight major oil companies, alleging that the oil companies had breached an implied duty under their leases to pay royalty owners the fair market value of their oil at the well. (D.E. 967 at 1.) In April 1996, a class action lawsuit was filed against 39 oil companies in federal court on behalf of a putative nationwide class of royalty and working interest owners, in McMahon Foundation et al v. Amerada Hess Corp., et al., alleging that those companies had violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by conspiring for over a decade to artificially depress payments made for lease oil to putative class members. In November 1997, McMahon presented to the court a settlement agreement with 24 defendants. Before any ruling could be made on the settlement, however, the Judicial Panel on Multidistrict Litigation transferred McMahon and several later federal actions to this Court pursuant to 28 U.S.C. § 1407 as In re Lease Oil Antitrust Litigation, MDL-1206. (D.E. 967 at 1-2; D.E. 1091-2 ¶ 4.)
Following consolidation, the Court held a preliminary fairness hearing at which it heard testimony about a proposed Global Settlement. The Court granted preliminary approval to the Global Settlement on October 28, 1998. Final settlements with seven other defendants were presented to the Court in December 1998 and were granted preliminary approval. (D.E. 1091-2 ¶¶ 5-7.) After the December 1998 hearing, the parties sent notice to the class members notifying them of the terms of the settlement and of the fairness hearing set for April 5, 1999. The Court held final fairness hearings, and on May 12, 1999, the Court approved the settlements as "fair, adequate, and reasonable" based on the record at the two fairness hearings and submissions to the Court, and gave the settlements "final approval." (D.E. 1091-2 ¶¶ 8-9.)
During the settlement administration process, over 446,000 checks were issued to Class Members. (D.E. 1091-2 ¶ 10.) The Settlement Administrator first distributed 432,852 checks between November 15, 2001 and February 28, 2002. The Administrator then distributed 18,917 checks between March 1, 2002 and September 30, 2002, as well as a second distribution of 7,815 checks. After making these distributions, the Administrator began to reissue checks issued in earlier distributions that were uncashed or returned as undeliverable. The Administrator reissued 1,418 checks between October 1, 2002 and November 15, 2004. After these distributions, approximately $11,000,000 remained in the Settlement Fund. The Administrator then made one final distribution, consisting entirely of checks reissued because the original check from an earlier distribution had not been cashed or had been returned as undeliverable. During this final distribution, the Settlement Administrator sent out approximately 3,535 checks. (D.E. 1091-2 ¶¶ 11-16.)
Although some checks were eventually delivered and cashed, $10,167,980 remained in unclaimed funds. (D.E. 1091-2 ¶ 17.)*fn1 The $10,167,980 remaining after distribution was allocated to Class Members with last-known addresses in forty-six states and the District of Columbia. (D.E. 1091-2 ¶ 18.) The Court determined that, of this total amount, $4,638,283 of those funds was allocated to Class Members with last-known addresses in Texas. (D.E. 980 at 2 & n.1; D.E. 967 at 8; D.E. 1091-2 ¶ 19.)) These funds came from three sources: checks that were mailed to Class Members but not cashed; checks that were mailed to Class Members but were returned as undeliverable; and settlement awards to Class Members that were below the de minimis amount. (D.E. 1091-2 ¶ 20.)
The approved settlement agreement included a provision directing the parties to apply to the Court for direction as to the disposition of any unclaimed funds. (D.E. 1091-2 ¶ 2-3; D.E. 136 ¶ 1.56 ("If any such Final Unclaimed Fund exists, the Settling Parties shall apply to the District Court for directions as to its disposition, within 115 days after the Second Distribution Date.").) In its December 12, 2007 Order, the Court decided that the disposition of unclaimed funds in the case, including unclaimed funds attributable to persons with last-known addresses in Texas, was properly left to its discretion as a matter of federal law. (D.E. 967 at 32.) The Court, however, ordered that the Settlement Administrator set aside a portion of the funds pending the settlement of certain disputes, including the dispute currently before this Court. Included in the amount set aside was the $4,638,283 belonging to Class Members with last known addresses in Texas, pending a possible appeal by the State of Texas. (D.E. 967 at 32-33.)
Recognizing the various alternatives available for distribution of the unclaimed settlement funds, the Court decided to order a cy pres remedy and, except for the funds set aside, the Court ordered that the funds be distributed to the Center for Energy and Environmental Resources at the University of Texas to implement the "Neighborhood Air Toxics Modeling Project for Houston and Corpus Christi." (D.E. 967 at 46.)*fn2 The $4,638,283 belonging to Class Members with last known addresses in Texas remained in a separate interest-earning account, and the Garden City Group, a Settlement Administrator, is currently in possession of these funds. (D.E. 1091-2 ¶¶ 22-23.)
III. Procedural Background
On January 11, 2008, the State of Texas moved to intervene in this litigation to seek delivery of all unclaimed settlement funds belonging to class members whose last known address was in Texas. (D.E. 975.) The Court denied the State's motion. (D.E. 979.) On May 28, 2009, the Fifth Circuit reversed this Court's decision, holding that the State had timely moved to intervene and had an interest in the litigation because any unclaimed property deposited with the State would generate investment income for the State. In re Lease Oil Antitrust Litig., 570 F.3d 244, 250-51 (5th Cir. 2009).*fn3
On July 22, 2009, the State of Texas filed a Complaint in Intervention in this litigation. (D.E. 1075.) In its Complaint, the State argues that the $4,638,286 in unclaimed funds belonging to Class Members with last known addresses in Texas constitute property that is "presumed abandoned" under the Texas Property Code, Section 72.101. The State argues that, pursuant to the Texas Unclaimed Property Act, Tex. Prop. Code Ann. § 74.301 (the "Texas Act"), the unclaimed property must be delivered to the Texas Comptroller. (D.E. 1075 ¶¶ 2-5.) The State requests that the Settlement Administrator pay the abandoned property at issue, plus interest, to the Texas Comptroller, and provide the Comptroller "with documentation showing the name, social security number, drivers license number or state identification number, email address, and last known-address of every class member whose settlement proceeds are included in the abandoned property at issue, along with the amount of settlement proceeds allocated to each class member." (D.E. 1075 ¶ 6.)
On August 20, 2009, Class Plaintiffs filed a Motion for Summary Judgment with respect to the State's Complaint in Intervention. (D.E. 1090.) On August 21, 2009, the State of Texas filed its Motion for Summary Judgment. (D.E. 1091.) The Court held oral arguments on November 20, 2009. At issue on summary judgment is whether the disposition of the settlement proceeds belonging to Class Members with last known addresses in Texas is governed by the Texas Act or is instead committed to the Court's discretion under Federal Rule of Civil Procedure 23, unconstrained by state unclaimed property laws. The Fifth Circuit in Paterson v. Texas specifically declined to resolve this issue, instead ruling on procedural grounds. 308 F.3d 448, 450-51 (5th Cir. 2002) ("We do not decide the issue of whether, in this federal class action suit, the reach of Texas substantive law governs that portion of the nationwide settlement which settles claims of Texas citizens.").
Class Plaintiffs divide their summary judgment argument into three parts. First, they contend that the Court's authority to approve distribution of unclaimed settlement funds is governed by Federal Rule of Civil Procedure 23, which grants the Court broad discretion in approving a class action settlement. Under the analysis developed in Hanna v. Plumer, they argue that there is a "direct collision" between Rule 23(e) and the Texas Act. As there is a "direct collision" and Rule 23(e) is consistent with the Constitution and the Rules Enabling Act, Class Plaintiffs conclude that Rule 23(e) must control. (D.E. 1090 at 5-16.) Second, they argue that even if there is no "direct collision" between the Federal Rule and state law, and rather the discretionary control over distribution of unclaimed settlement funds is a federal practice inconsistent with state law, application of Erie principles necessarily leads to the conclusion that federal law controls. (D.E. 1090 at 16-22.) Finally, Class Plaintiffs contend that, even if the Texas Act applies, it does not necessarily require the Court to turn the unclaimed funds over to the State Comptroller; rather, one state appeals court recently approved a cy pres remedy to dispose of unclaimed state class action settlement funds, and the Texas Supreme Court has not yet addressed how the Texas Act operates in the context of class action settlements. (D.E. 1090 at 22-24.)
For its part, the State of Texas argues that the Court must apply the Texas Act and order that the unclaimed funds be transferred to the State Comptroller. The State contends that there is no "direct collision" between Rule 23 and the Texas Act, as Rule 23 does not discuss unclaimed funds or authorize cy pres distributions. (D.E. 1091 at 4.) Because the Texas Act is substantive under Erie, the State argues, it must be applied. (D.E. 1091 at 5-11.) Concluding that the Texas Act is applicable, the State then argues that the statute requires that unclaimed settlement funds belonging to class members with last known addresses in Texas be turned over to the Texas Comptroller. (D.E. 1091 at 11-17.)
A.Summary Judgment Standard
Summary judgment is appropriate in a case where "there is no genuine issue as to any material fact and . . . the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); Scott v. Harris, 550 U.S. 372, 380 (2007). Here, the Parties do not dispute the material facts; rather, a purely legal issue is in dispute.
B. Applicable Framework for Analysis
The lawsuits comprising this multidistrict litigation predominately arose under federal antitrust laws. The McMahon Foundation case, for example, was brought under Sections 4 and 6 of the Clayton Act, 15 U.S.C. §§ 15, 26, to recover treble damages and obtain injunctive relief for the defendant oil companies' alleged violations of Section 1 of the Sherman Act, 15 U.S.C. § 1. McMahon Found., et al v. Amerada Hess, et al., 4:96-cv-1155. In addition, certain cases were based upon state law, such as for breach of contract. Regardless of the underlying basis of the claims and the basis of this Court's subject matter jurisdiction, the principles first established in Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) and developed in subsequent cases are applicable here. As the Fifth Circuit has explained, "[u]nder Erie, federal courts apply state substantive law 'to any issue or claim which has its source in state law.' Yet, federal law, rather than state law, invariably governs procedural matters in federal courts." Camacho v. Texas Workforce Comm'n, 445 F.3d 407, 409 (5th Cir. 2006) (citing 19 Charles A. Wright, Arthur A. Miller, & Edward H. Cooper, Federal Prac. & Proc. § 4520 (2d ed. 2002)). While state law issues most frequently arise in diversity cases, it is a "frequently assumed, but erroneous, proposition that Erie applies only in diversity cases. The Erie case and the Supreme Court decisions following it apply in federal question cases as well." Id. at 409 n.1 (citing Wright, Miller & Cooper, 19 Fed. Prac. & Proc. § 4520); First S. Fed. Sav. & Loan Assoc. of Mobile, Ala. v. First S. Sav. and Loan Assoc. of Jackson County, Miss., 614 F.2d 71, 73 (5th Cir. 1980) ("The doctrine advanced in Erie . . . often is spoken of as automatically applying in cases in which jurisdiction is based on diversity of citizenship. This view is erroneous, however. The Erie result applies to any issue 'governed by state law operating of its own force,' regardless of the jurisdictional basis."); see also, e.g., Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1102 (9th Cir. 2003) ("Erie applies irrespective of whether the source of subject matter jurisdiction is diversity or federal question."); Wright, Miller & Cooper 19 Fed. Prac. & Proc. § 4520 ("It frequently is said that the doctrine of Erie . . . applies only in diversity of citizenship cases; this statement simply is wrong. The Erie case and the Supreme Court decisions following it apply in federal question cases as well."). However, "the Federal Rules of Civil Procedure apply irrespective of the source of subject matter jurisdiction, and irrespective of whether the substantive law at issue is state or federal." Vess, 317 F.3d at 1102 (citing Hanna v. Plumer, 380 U.S. 460, (1965)).
Since the Federal Rules of Civil Procedure apply regardless of the basis of subject matter jurisdiction or the substantive law at issue, the Court first considers whether Federal Rule of Civil Procedure 23(e) controls. Because Erie principles are also applicable, the Court then considers the State's argument that, in the absence of a direct collision between Rule 23(e) and Texas law, the Texas Act is substantive and must be applied.
C. The Distribution of Unclaimed Settlement Funds is Governed by Federal Rule of Civil Procedure 23
To resolve a conflict between state law and a Federal Rule of Civil Procedure, "[t]he initial step is to determine whether, when fairly construed, the scope of [the] Federal Rule . . . is 'sufficiently broad' to cause a 'direct collision' with the state law or, implicitly, to 'control the issue' before the court, thereby leaving no room for the operation of that law." Burlington N. R. Co. v. Woods, 480 U.S. 1, 4-5 (1987) (citing Hanna v. Plumer, 380 U.S. 460 (1965)). This analysis, first developed in Hanna v. Plumer, "involves a straightforward exercise in statutory interpretation to determine if the statute covers the point in dispute." Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 26 (1988). If there is a "direct collision," "[t]he Rule must then be applied if it represents a valid exercise of Congress' rulemaking authority, which originates in the Constitution and has been bestowed on th[e] [Supreme] Court by the Rules Enabling Act, 28 U.S.C. § 2072." 480 U.S. at 5. Thus, "a district court . . . must apply a federal statute that controls the issue before the court and that represents a valid exercise of Congress' constitutional powers." Stewart Org., Inc., 487 U.S. at 27; Exxon Corp. v. Burglin, 42 F.3d 948, 950 (5th Cir. 1995) (citing Wright, Miller & Cooper, 19 Fed. Prac. & Proc. § 4508 (1982)) ("If the [federal] Rule speaks to the point in dispute and is valid, it is controlling, and no regard need be paid to contrary state provisions.").
In determining whether a "direct collision" exists, "the Federal Rules of Civil Procedure are [not] to be narrowly construed in order to avoid a 'direct collision' with state law. The Federal Rules should be given their plain meaning. If a direct collision with state law arises from that plain meaning, then the analysis developed in Hanna v. Plumer applies." Walker v. Armco Steel Corp., 446 U.S. 740, 750 n.9 (1980). The "'direct collision' language . . . expresses the requirement that the federal statute be sufficiently broad to cover the point in dispute." Stewart Org., 487 U.S. at 26 n.4.
The constitutional and statutory analysis of a federal rule is fairly straightforward. "The constitutional constraints on the exercise of th[e] rulemaking authority define a test of reasonableness. Rules regulating matters indisputably procedural are a priori constitutional. Rules regulating matters 'which, though falling within the uncertain area between substance and procedure, are rationally capable of classification as either,' also satisfy this constitutional standard." Burlington N., 480 U.S. at 5. Under the Rules Enabling Act, however, "[t]he Federal Rule must not 'abridge, enlarge or modify any substantive right. . . . .' U.S.C. § 2072. The cardinal purpose of Congress in authorizing the development of a uniform and consistent system of rules governing federal practice and procedure suggests that Rules which incidentally affect litigants' substantive rights do not violate this provision if reasonably necessary to maintain the integrity of that system of rules. Moreover, the study and approval given each proposed Rule by the Advisory Committee, the Judicial Conference, and th[e] [Supreme] Court, and the statutory requirement that the Rule be reported to Congress for a period of review before taking effect give the Rules presumptive validity under both the constitutional and statutory constraints." 480 U.S. at 5-6 (internal citations omitted); Hanna, 380 U.S. at 471 ("When a situation is covered by one of the Federal Rules . . . the court has been instructed to apply the Federal Rule, and can refuse to do so only if the Advisory Committee, this Court, and Congress erred in their prima facie judgment that the Rule in question transgresses neither the terms of the Enabling Act nor constitutional restrictions."). The burden of "establishing the invalidity of a federal rule is heavy because all federal rules of court enjoy presumptive validity." Exxon Corp., 42 F.3d at 950.
Consistent with the Hanna analysis, the Court must first determine whether there is a "direct collision" between Rule 23(e) and the Texas Act. If so, it must then apply Rule 23(e) as long as it is consistent with the Constitution and the Rules Enabling Act. To clarify the legal issue in dispute, the relevant comparison is not between cy pres distributions specifically and the Texas Act, but rather between a court's responsibility under Rule 23(e) to review and approve a proposed settlement agreement (including provisions governing unclaimed settlement funds) and the Texas Act, which directs a holder to deliver unclaimed property to the Texas Comptroller. If Rule 23(e) controls this initial matter, and provides the court with discretion to approve a plan for the distribution of unclaimed settlement funds that differs from that provided under Texas law, that is the end of the inquiry -- the unclaimed funds ...