Knoll Pharmaceutical

Knoll Pharmaceutical Co. has agreed to settle a class action lawsuit that charged the company with trying to suppress research showing its prescription drug Synthroid was no better than cheaper nonprescription thyroid drugs. Knoll said it would pay $135 million to patients who file claims under the procedure.

What if there are millions of dollars left over that are not provably claimed by these consumers? Where can the money go to do the most good?

A similar question was asked of the California Supreme Court in 1986 after Levi Strauss — the jeans manufacturer — agreed to pay a $12.5 million settlement in a class action claiming retail price fixing by the state Attorney General. Ads were placed in newspapers informing anyone who bought Levi jeans within a certain time period that they could receive a small refund. Several millions of dollars were so distributed.

The Attorney General argued that the remaining unclaimed funds should escheat to the state treasury. But the Court, under the leadership of Chief Justice Rose Bird, recommended to the intervening parties that the remaining monies should go, under the doctrine of cy pres (meaning as near as possible), to a new consumer trust fund to further similar programs to protect consumers.

Further discussions between the parties concluded in 1988 with a government trust fund under the Attorney General and a consumer protection trust fund administered by a newly created California Consumer Protection Foundation (CCPF).

Two successes, with consequence nationwide, mark the way CCPF has been distributing its $4 million to numerous effective non­profit consumer groups in California. One is its demonstration that there is a great deal of money from legally mandated refunds that are unclaimed and could be assigned to other kinds of consumer trust funds. We all know of refunds for overcharging ordered by regulatory agencies in the areas of energy, telephone, drugs, insurance and many other product and service areas. Often the number of valid claims does not exhaust the available funds or the sheer administrative costs of finding the defrauded and mailing checks as small as $5 or $8 outweigh the benefits.

The CCPF has developed procedures and criteria to guide judges who apply the cy press doctrine to these unclaimed funds to assure no conflicts of interest and effective systemic use of the funds to protect the class of consumers in the future that relate to the subject matter of the enforcement action. These guidelines can also help judges in private class action settlements.

As a 501(c)(4) foundation, CCPF has tried to operate as it would like hundreds of future consumer trust funds around the country receiving cy pres funds to perform. Its statement of purpose, goals, priorities and the types of grants it awards are models of clarity and should appeal to judges to use the cy pres doctrine more often rather than let the wrongdoer keep the remaining monies or assign them to the general treasury of various governments where there is no assurance they will be used for consumer protection.

The second success comes from the thoughtful, leveraged small grants that CCPF makes. For example, a $40,000 grant to Consumers Union helped lead to the creation of a $3.2 billion health care endowment arising out of the conversion of non-profit health insurance institutions to profit-making firms. What was salvaged in this endowment was part of the value of the taxpayer assets implicit in these conversions of non-profits to commercial HMOs.

Another matching grant of $20,000 made to the Center for Health Care Rights led to the creation of a $4 million, four year pilot ombudsman program serving public and private managed care patients in Sacramento County.

Similar grants in the areas of housing, electric industry deregulation, mass transit, telecommunications have had these leveraged effects well beyond the size of the Foundation’s specific donation.

With governments cutting back on tiny consumer protection budgets (Clinton let lapse a 1-800 consumer complaint hot line recently) but not on massive corporate welfare budgets, these consumer trust funds can help fill the gap and add private sector consumer initiatives that reluctant government bureaucrats unfortunately cannot match.

With corporations trying to block law enforcement against their violations and place more obstacles against consumers who take these corporate culprits to court, consumer trust funds and a more demanding public opinion for activating the venerable cy pres doctrine regarding unclaimed or unclaimable funds (due to administrative costs in finding the actual cheated consumers) are “just what the doctor ordered.”

For the stimulating 1997 Funding Guidelines that describe the work of the California Consumer Protection Foundation, write them for a copy at 2213 Sixth Street, Berkeley, CA 94710 or call at 510­704-8013.

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