The opinion of the court was delivered by: HUBERT L. WILL
It appearing that a substantial balance would be available after all such distributions and payments had been made, the court invited applications for cy pres grants and for suggestions as to how such cy pres distributions should be made while expressly indicating that no applicants or persons making suggestions would become parties to the case by virtue of their applications or suggestions. Notice was given in various ways including published notice in the Wall Street Journal. A copy of that notice, which included the court's order, is attached hereto as Appendix A.
As a result of the foregoing, the court received fifteen (15) applications for grants and a number of letters supporting various grant applications or making suggestions as to the distribution of the funds. Thereafter, on April 14, 1993, commencing at 10:00 a.m. and continuing through the day, the court held hearings at which representatives of each of the applicants and any others who desired to do so were given an opportunity to be heard.
At those hearings, the court asked questions as to the application of cy pres principles to the various grant applications, the objectives each applicant sought to achieve with a grant, the basis for determining the amount sought, the necessity of various anticipated expenditures, and other relevant matters. Thereafter, most of the applicants filed supplemental statements and other material in support of their applications and in response to the court's questions.
A threshold question is necessarily the scope of and the limits imposed by the cy pres doctrine. Historically, the cy pres concept was fairly limited and restricted to the closest comparable alternative to the original purpose for which the funds in question had been designated. The trust would fail unless the dominant purpose could be carried out, but incidental requirements that became impossible or impracticable could be avoided through the application of cy pres. See, e.g., Noel v. Olds, 78 U.S. App. D.C. 155, 138 F.2d 581 (D.C. Cir. 1943) (allowing art gallery to be built at a different university when the named university declined the gift); Shoemaker v. American Security & Trust, 82 U.S. App. D.C. 270, 163 F.2d 585 (D.C. Cir. 1947) (allowing home for the aged to be built on a different lot than that named in will); Fay v. Hunster, 86 U.S. App. D.C. 224, 181 F.2d 289 (D.C. Cir. 1950) (allowing funds to be given to an existing home for the aged where the money was insufficient to build and maintain an entirely new institution). However, where the testator's dominant intent was that a separate building be built, using the funds to construct an addition to an existing building would not be allowable under cy pres, at least not where construction of a separate building was not actually impossible. Connecticut College v. United States, 107 U.S. App. D.C. 245, 276 F.2d 491 (D.C. Cir. 1960).
In recent years, the doctrine appears to have become more flexible. Funds remaining in antitrust cases have been awarded to law schools to support programs having little or no relationship to antitrust law, competition, or the operation of our economy. In In re Corrugated Container Antitrust Litigation, MDL #310, 53 Antitrust & Trade Regulation Reports 711 (S.D.Tex. Oct. 6, 1987) over $ 1 million was divided among six law schools, the National Association of Attorneys General and two packaging industry foundations. The Attorneys General were to use the funds for state level, antitrust enforcement and education, but the law schools were not so restricted. The law schools were to use the funds to teach advocacy skills, principles, and ethics. Some law schools would use the funds to support teaching of antitrust and business law, but others were going to use the funds primarily for advocacy training. See also Lindy Bros. Builders v. American Radiator & Standard Sanitary Corp., CA No. 41774 SC (E.D.Pa. Feb. 28, 1978) (approximately $ 25,000 to two law schools to establish loan funds for needy students at those institutions).
In this court and circuit, distribution has been made and approved of more than 2.3 million dollars of remaining antitrust funds to the National Association for Public Interest Law (NAPIL) which has also applied for some or all of the funds here involved. In re Folding Carton Litigation, 934 F.2d 323 (7th Cir. 1991). NAPIL conducts an Equal Justice Fellowship program which selects fellows from recent law school graduates for assignment to public interest organizations and pays part or all of their salaries for two years plus giving loan payment assistance to fellows having student loan obligations. At least one of the grant applicants here has had a NAPIL fellow assigned to it.
The remaining funds, over $ 800,000, from In re Ocean Shipping Antitrust Litigation, MDL No. 395, (S.D.N.Y. July 29, 1991), were later added to the NAPIL fellowship program described above. Other cy pres awards include State of Illinois v. J.W. Petersen Coal & Oil Co., No. 71 C 2548 (N.D.Ill. March 15, 1976) (distribution of one-half of the unclaimed residue to the Chicago Bar Foundation and one-half to the Chicago Lawyers Committee for Civil Rights). In West Virginia v. Chas. Pfizer & Co., 314 F. Supp. 710 (S.D.N.Y. 1970), aff'd 440 F.2d 1079 (2d Cir.), cert. den. 404 U.S. 871, 30 L. Ed. 2d 115, 92 S. Ct. 81 (1971), 66 antitrust class actions against makers of anti-biotics were settled. The portion of the settlement fund allotted to individual consumers was mostly unclaimed. The remaining funds were divided among the states to be used for public health programs that would benefit the unfound class members and the general public, although the term "cy pres" was not used. Similarly, in United States v. Exxon Corp., 561 F. Supp. 816 (D.D.C. 1983), aff'd 773 F.2d 1240 (Temp. Emer. Ct. App. 1985), the Department of Energy sued for violation of oil price regulations. The court found that it would be impossible to trace the overcharges paid by individual consumers, although they were found to be harmed by the defendant's actions. Therefore, the court ordered that the money be given to an escrow account in the U.S. Treasury, and then divided among the states to be used in one of five federal energy conservation programs. The decision was easier in this case because Congress had passed a law setting up such an escrow account to receive funds from settlement of petroleum violation cases, but the court did state:
In formulating its order, the court in no way relies on section 155 as an express statutory grant of authority to the court, but acts instead in the exercise of its broad equitable powers to order restitution.
Exxon, 561 F. Supp. at 856. The court in Pray v. Lockheed Aircraft Corp., 644 F. Supp. 1289, 1302 (D.D.C. 1986) also held that cy pres would allow it to award to a charitable organization part of the settlement fund that it had discretion to distribute. However, due to threatened appeals that would destroy the peace the settlement sought to create, the court chose not to do so.
California state courts have been particularly supportive of cy pres distributions in cases involving consumers where some of the fund goes unclaimed by individual class members. In State v. Levi Strauss & Co., 41 Cal. 3d 460, 715 P.2d 564, 570, 576, 224 Cal. Rptr. 605 the court, in dicta, stated that a consumer trust fund would be an appropriate way to dispose of any excess funds, although the case was not at that stage yet. The Levi court spoke approvingly of a trust fund that had been established in Vasquez v. Avco Financial Services, No. NCC 11933 B (Los Angeles Super.Ct. April 24, 1984). The fund was given over to the Consumers Union to "be used in California for a purpose that is reasonably designed to benefit those persons who would otherwise have received the fund."
In the foregoing cases, the courts approved not only grants to be expended for current activities, but also grants to serve as endowments, the future income from which will be used to support ongoing, long-range projects.
A number of the applicants here have sought endowments in substantial amounts. Unfortunately, the available funds are insufficient to enable the court to satisfy all of them. Similarly, a number of applicants have sought amounts sufficient to fund in their entirety programs anticipated to run from one to seven years. Again, the available funds are insufficient to permit the complete funding of such programs. Specifically, the applications are for grants aggregating approximately $ 5,000,000 while there is only slightly more than $ 2,000,000 available for distribution.
Further, based on its experience, the court believes that the best cy pres use that can be made of the available funds is to distribute them to qualifying applicants in amounts sufficient to constitute significant "seed money" but requiring the recipients to raise the balance of the funds necessary to establish the desired endowments or to carry out the desired programs. Applying these principles, we approve the following grants.
1. Public Interest Law Initiative (PILI)
PILI operates a summer internship program under which law students come to Chicago to work for one of 30 public interest law agencies. The program is supported in funds or services by a large number of Chicago law firms, banks, law schools, and other community organizations. The desirability of the program and its benefits both to the interns and the organizations they serve is widely recognized. Last year PILI received 434 applications from students in 81 law schools nationwide. Thirty-eight interns from 20 law schools were selected. In 1993, PILI received a record 468 applications from 90 different law schools.
In addition to its internship program, PILI has been a leader in the efforts to induce more Chicago and Illinois law firms to perform more pro bono legal services and has developed and circulated a Model Law Firm Pro Bono Policy which has been accepted and adopted by many firms.
Each PILI intern receives $ 3,500 for ten weeks work. PILI has requested $ 14,000 which will enable it to add four more interns to next years program. Its request is approved in that amount.
2. University of Chicago Law School/Mandel Legal Aid Clinic
The law school through its Mandel Legal Aid Clinic proposes to develop and implement a Criminal Justice Project to be headed by Randolph N. Stone, Clinical Professor of Law and Director of the Clinic, who is a former Cook County Public Defender. The Clinic will seek to participate and play a leading role in the development of a plan to improve criminal justice for juveniles, while recognizing (1) that juvenile crime is a matter of serious community concern, (2) that social, psychological, medical and educational deficits are frequently involved, and (3) that intermediate sanctions such as community corrections, mental health and drug treatment, community service, intensive probation and other sanctions may be superior to incarceration. It will seek to insure quality legal representation to juveniles as well as attending to any of the foregoing defects.
The Clinic's efforts will be coordinated with the Children and Family Justice Center of Northwestern University Law School, the Cook County Public Defender's office, the Chicago Bar Association's Justice for Youth Campaign, the Citizens Committee on the Juvenile Court, the Chicago Lawyers' Committee for Civil Rights and other agencies seeking to improve juvenile and criminal justice.
In the past, the Clinic has been almost entirely engaged in providing needy individuals with legal services in civil matters. This represents its first significant expansion into the criminal justice field.
The University has requested a grant of $ 300,000 to help operate the project for three years. Its budget calls for two attorneys in the first two years, three in the third and a supporting staff of legal secretaries, a paralegal/investigator, a social service coordinator, four summer fellows during the first year and six in the second and third years. It also includes amounts for maintenance and operation of word processing equipment, malpractice insurance, court reporters, court transcripts, psychological and educational testing, travel including out-of-town transportation, and parking. The law school contemplates contributing $ 650,000 to the project's budget over the three year period.
The court requested the law school's representatives to recognize the limited funds available and to recalculate the amount requested. In a supplemental submission they reiterated the need for a minimum of $ 300,000 ($ 100,000 per year) but, recognizing the limited funds available, said that, if the court could not fund the entire amount, "we will do our best to secure alternative funding to make up the difference.
The court does not intend to second-guess the proposed budget, but it seems obvious that a project starting from scratch will not require, or be able to utilize for some period of time all of the personnel, equipment, services, etc. contemplated for the first year in the projected budget. As to the second and third years, only time will tell what is necessary. Given the several other agencies with which project personnel will be cooperating, it may well be that savings can he achieved.
The court is confident that with "seed" money of $ 200,000, the law school and the clinic will be able to proceed with this desirable project. A grant in that amount is approved with the condition that not to exceed $ 50,000 be disbursed in the first year and the balance be invested in U.S. Government bonds or securities of comparable quality which should provide substantial additional funds for the operation of the project in the later years.
3. The Legal Aid Bureau of United Charities (LAB)
This is the oldest of the applicants, having been established in 1886 for the purpose of protecting the rights of the poor by providing them with counsel and, therefore, equal access to the law.
In addition to its full-time paid staff of 17 lawyers, 6 paralegals and supporting personnel, the LAB enjoys the services of volunteer lawyers and students at John Marshall Law School which does not have an in-house legal clinic. LAB and the University of Chicago Law School Mandel Legal Clinic also work jointly.
There is no question that LAB is a recognized and well-respected provider of legal services to the poor. It largely depends on voluntary contributions to meet its $ 1.6 million annual budget. Because of reductions in private giving both to the United Way and by many law firms, LAB faces a financial problem. It requests that up to $ 100,000 be granted to it. Recognizing the importance of its work and its needs, a grant of $ 50,000 is approved.
4. University of Illinois College of Law
The University of Illinois Law School has in operation a Minority Access Program through which, starting with college juniors, the program seeks to increase both the number of highly qualified minority law students and the number of minorities in large firm practice. The law school seeks to identify University of Illinois promising minority undergraduates, expose them to four weeks of academic courses in legal analysis, research and writing and four weeks as unpaid interns in law firms or public agencies in the hope that they will decide to attend law school and will ultimately find employment in some of the larger firms. Each participant receives $ 1,500 to defray in part the loss in summer employment earnings. In addition, the University pays for four weeks housing, books and supplies, which aggregate an additional $ 1,000. Other expenses bring the current annual cost for 10 participating students to $ 45,000. Private firms contribute substantially to that cost and it is anticipated will continue to do so.
The original grant request was for $ 750,000 which, it was believed, with annual contributions, would endow the program indefinitely for an annual group of 25 students. The court questioned the necessity for a permanent endowment. Whether or not the program will achieve its objectives remains to be seen since it has not been in operation long enough to evaluate its success.
As a result of the colloquy in court, the representatives of the law school have submitted a revised request for $ 262,500 which would permit 15 more participants each year for seven years at $ 2,500 per year. Given the fact that 10 per year is the maximum number who have participated in the program to date and that its efficacy has not yet been demonstrated, doubling the program for five years should be sufficient to determine its value. If it is successful, which the court hopes it will be, substantial financial support for its continuation should be available. Ten additional participants for each of the next five years at $ 2,500 per participant will require $ 125,000. That amount is awarded with the condition that it be invested at interest in U.S. government bonds or securities of comparable quality and expended at not to exceed $ 25,000 per year. That should enable an additional group of 7 to 10 participants in the sixth year.
5. Loyola University of Chicago College of Law
The Loyola University Law School proposes to establish an Institute for Consumer Antitrust Studies with initial emphasis on the antitrust implications and impact of anticipated industry, state, and federal proposals for national health care reform.
It has presented a comprehensive proposal which outlines the need for such an institute, the importance of the initial inquiry, and the special qualifications of the law school, which include: (1) that it is the home of the Institute for Health Law (IHL) a nationally recognized and respected institution dedicated to studies concerning quality improvement and cost effectiveness in the delivery of medical, pharmaceutical and other health services, which also publishes the journal Annals of Health Law; (2) the fact that Loyola publishes the Consumer Law Reporter which covers current developments in consumer law by reviewing recent cases and legislation, with emphasis on their impact on consumers, a special annual issue of which is planned to report on the possible antitrust impact of health care reform proposals; and (3) the quality of the members of the faculty who will be involved in the Institute.
The application also includes the extensive curriculum vitae and impressive qualifications of the faculty members and staff who will participate in the activities of the Institute. They include Dean Nina S. Appel, former Dean and currently Professor Charles D. Murdock, Professor John D. Blum, Director of the IHL, Visiting Professor Frank M. Covey, Jr., Professor Jeffry L. Kwall, Assistant Professor Simonetti Samuels, Assistant Professor Lawrence Singer, and Marilyn E. Hanzal, Associate Director of the IHL.
Enthusiastic letters of approval of and support for the Institute have been received by the court from a number of individuals familiar with the antitrust and health fields including the Executive Vice-President of the American Medical Association, the Executive Director of Blue Cross Blue Shield Center for Health Economics and Policy Research, prominent attorneys with expertise in antitrust or health care law and others.
The grant application also spells out the program and procedures to be implemented by the Institute, the responsibilities of the various faculty members and other individuals who will be involved, the substantial contributions which Loyola University and the Law School will make annually in money, services, and facilities to the Institute's operations, and the role which a contemplated Board of Advisors will play. Overall, it is the most comprehensive and detailed grant application received by the court.
The initial request was for a grant of $ 1,250,000 to provide a minimum endowment for the Institute. At the hearing, the court pointed out the limited funds available to it and the requests of other worthy applicants some of which the Loyola representatives had heard. It also pointed out that it was aware that a number of Loyola Law School graduates had done well financially in the antitrust field and that it believed they, along with others, alumni and non, should be willing to make significant special contributions to enable the ...