WSR 17-01-027

RULES OF COURT

[December 7, 2016]

The Legal Foundation of Washington, having recommended the proposed amendment to CR 23—Class Actions, and the Court having considered the amendments thereto;

Now, therefore, it is hereby

(a) That pursuant to the provisions of GR 9(g), the proposed amendment as shown below are [is] to be published for comment January 2017, in the Washington Reports, Washington Register, Washington State Bar Association and Administrative Office of the Court's websites.

(b) The purpose statement as required by GR 9(e), is published solely for the information of the Bench, Bar and other interested parties.

(c) Comments are to be submitted to the Clerk of the Supreme Court by either U.S. Mail or Internet Email by no later than April 30, 2017. Comments may be sent to the following addresses: P.O. Box 40929, Olympia, Washington 98504-0929, or supreme@courts.wa.gov. Comments submitted by email message must be limited to 1500 words.

DATED at Olympia, Washington this 7th day of December, 2016.

(a) – (e) [Unchanged]

(f) Disposition of Residual Funds.

(1) "Residual Funds" are funds that remain after the payment of all approved class member claims, expenses, litigation costs, attorneys' fees, and other court-approved disbursements to implement the relief granted. Nothing in this rule is intended to limit the parties to a class action from suggesting, or the trial court from approving, a settlement that does not create residual funds.

(2) Any order entering a judgment or approving a proposed compromise of a class action certified under this rule that establishes a process for identifying and compensating members of the class shall provide for the disbursement of residual funds. In matters where the claims process has been exhausted and residual funds remain, not less than twenty-five percent (25%) fifty percent (50%) of the residual funds shall be disbursed to the Legal Foundation of Washington to support activities and programs that promote access to the civil justice system for low income residents of Washington State. The court may disburse the balance of any residual funds beyond the minimum percentage to the Legal Foundation of Washington or to any other entity for purposes that have a direct or indirect relationship to the objectives of the underlying litigation or otherwise promote the substantive or procedural interests of members of the certified class.

The Legal Foundation of Washington (LFW) is a not-for-profit 501 (c)(3) corporation established by the Supreme Court in 1984 to collect and distribute interest on attorneys' pooled trust accounts pursuant to DR 9-102 (recodified as RPC 1.15) - the IOLTA rule See In re Adoption of an IOLTA Program, 102 Wn.2d 1101, 1115 (1984). Since 1985, the LFW has received interest income from attorneys' pooled trust accounts and, since 1997, from similar accounts held by Limited Practice Officers authorized to close real and personal property transactions pursuant to APR 12.1. These funds have been used primarily to support the delivery of civil legal aid services to low income people in Washington State.

In addition to its authority and responsibility to collect, administer and disburse IOLTA funds, the LFW is also authorized to work to expand funding for civil legal aid services under its Supreme Court-approved charter. See ARTICLES OF INCORPORATION OF THE LEGAL FOUNDATION OF WASHINGTON, Article IV. In recent years, the LFW has actively exercised this authority by hosting and staffing the Washington State Equal Justice Coalition (EJC),1 which educates public and governmental leaders about and promotes efforts to expand public funding for civil legal aid. The LFW provides the fundamental operating infrastructure for the Endowment for Equal Justice (EEJ), which builds support for legal aid in perpetuity. In 2015, the LFW merged with the LAW Fund, which housed the Campaign for Equal Justice, Washington's unified statewide fundraising campaign for civil legal aid. The LFW now actively engages in fundraising efforts in the legal and statewide communities, including the annual Goldmark Award's Luncheon and the annual Campaign for Equal Justice, to provide further support for civil legal aid in Washington.

1 Established in 1995, the EJC is a standing committee of the Access to Justice Board.

Legal Foundation of Washington

M. Laurie Flinn Connelly, Chair

1325 Fourth Avenue #1335

Seattle, WA 98101

Staff Contact: Caitlin W. Davis, Executive Director

(206) 957-6288

Recognizing that access to the civil justice system was a chronic problem, in 2006 the Washington Supreme Court amended CR 23 to allow not less than 25% of residual funds in class action cases (Class Action Residual Funds) be disbursed to LFW to support legal aid programs. While the Class Action Residual Funds have been a valuable source of support for civil legal aid, they have not been sufficient to fully address the civil legal needs of the most vulnerable Washington residents. The challenge to funding civil legal needs was exacerbated by the recession in 2008. Between 2008 and 2009, the Federal Reserve Board cut key interest rates to near zero, which caused the revenue stream from the interest on lawyers trust accounts to drop by 80%.2 Since that time, LFW and its partner organizations LAW Fund (now incorporated into LFW) and the Endowment for Equal Justice have received over $40 million dollars for the benefit of civil legal aid, both directly and indirectly, as a result of the initial Class Action Residual Funds amendment to CR 23. While LFW has done its best to find additional funding sources, it is the Class Action Residual funding from CR 23 that has allowed LFW to stabilize Washington's Alliance for Equal Justice, to prevent the deep funding cuts to individual legal aid programs that would have been necessary after IOLTA revenue dropped, as well as to provide significant funding in targeted areas of need, including prisoners, their families, and those individuals recently released from prison.

In spite of these efforts, the need for civil legal aid has been compounded by the rapid growth in the number of Washingtonians living in poverty. Since 2000, the total number of Washingtonians living at or below 125% of the Federal Poverty Level has increased by nearly 40% – from 815,000 individuals in 2000 to 1,250,000 in 2013. This number represents approximately 18% of our state's total population.

In conjunction with the growing number of Washingtonians who are eligible for civil legal aid, recent research shows that the actual need for civil legal aid is immense. In 2015, the Washington Supreme Court reexamined the civil legal needs of low income people in our state. The 2015 Washington State Civil Legal Needs Study Update documents the immense scope of this need:

The current level of services provided to those with documented need fails to meet the national standard for the "minimum access to services" threshold of at least one civil legal aid attorney for every 5,000 eligible people, which was established in 1976 by the Legal Services Corporation – the grantor and administrator of the federal legal aid appropriations. In fact, Washington's current ratio of legal aid attorneys to eligible low-income people is approximately 1: 11,000. With help from our state's legal aid and pro bono programs, the Office of Civil Legal Aid estimates that Washington needs to more than double its yearly funding for civil legal aid in order to reach minimum access to services. The suggested amendment would help meet the objective of providing a more meaningful level of access for low-income Washingtonians in need of legal services.

Moreover, there is precedent for the proposed increase in the percentage of residual funds allocable to the LFW to not less than 50%, as that level of funding has been adopted by court rule in at least 8 other states: Colorado, Illinois, Montana, Oregon, Pennsylvania and South Carolina, as a means of increasing funding for civil legal aid. In addition, in August 2016, the ABA House of Delegates issued a resolution and report, encouraging states to use class action residual funds to "improve access to civil justice for persons living in poverty." A copy of that resolution and report is attached and incorporated herein.

In sum, the LFW believes that the proposed amendment would serve to address the ongoing void in civil legal aid funding caused by the drop in IOLTA interest rates triggered by the 2008 recession, as well as to address the growing need for civil legal services that the 2015 Study has documented.

No public hearing is requested.

The proponent requests expedited consideration pursuant to Rule GR(f), following a period of public comment so that the rule, if adopted, may be implemented as soon as possible to improve access to the justice system for low-income Washingtonians.