Legal Aid Groups Reap Tobacco Settlement Windfall

Christmas has come early for California’s legal aid organizations.

This month, $40 million is going out to more than 100 nonprofits and charities across the state from money left over in a class action settlement with makers of chewing tobacco.

The money — in some cases hundreds of thousands of dollars — will help local legal groups avoid cutting services and jobs as they struggle through the recession.

A check for $800,000 arrived at the San Francisco office of California Rural Legal Assistance about a week ago. Jose Padilla, its executive director, said CRLA was bracing for a shortage of about half a million dollars next year in its $13 million program, thanks to uncertainty about federal and state funding. The cy pres money will save the organization from having to cut pay by 7 percent through furloughs, or laying off six to eight of its 60 lawyers. “This is a godsend,” Padilla said.

The Asian Law Caucus ran at a surplus last year, but this year fundraising for its $2 million budget is below expectations, said Executive Director Mina Liu. The $400,000 it received Tuesday “will change the conversation” at its board meeting in November. Liu said that, had the money not come in, the legal aid organization would have been discussing cutting services in some harder-to-reach parts of California, including several hundred underserved clients in the Central Valley. The money gives her confidence to go ahead with the two hires, including an attorney, to deal with increased demand for housing and elder law services. “A lot of the issue is cash flow, as opposed to where we are in terms of income and expenses,” Liu said. “Cy pres boosts the cash reserves so that we know we can be a little bit more aggressive in terms of program development.”

The Legal Aid Foundation of Los Angeles ended last year in a deficit, according to Executive Director Silvia Argueta. After cuts in travel and training and a hiring freeze, the organization is close to its $15 million budget this year. Argueta said the $700,000 in cy pres money received last week will allow the nonprofit to consider hiring a lawyer for housing work and an intake screener for domestic violence complaints. “We were going to reduce some services, including foreclosure counseling,” Argueta said. “Some of our grants are ending for that work.”

The Bar Association of San Francisco’s Volunteer Legal Services Program received its check for $500,000 last week. The organization is planning furloughs that will cost staff between 5 and 10 percent of their salaries in 2010. “Thanks to this money, we will be able to forestall anything more drastic than that,” VLSP Executive Director Tiela Chalmers said.

As uplifting as the cash injection is, many nonprofits say the pain is not nearly over. Chalmers said VLSP won’t do away with its planned furloughs because she believes 2011 will be an even tougher year than 2010. “Private foundations tend to give their money based on a rolling average of the last three or four years,” she said. “The more bad quarters we have under our belt, the worse it’s going to look for them, so the less money they will have to give away.” On the government side, Chalmers said, she isn’t counting on stimulus money to continue to keep aid organizations afloat and the state budget looks to be a mess for years. “We’ll all be reaching out to individual donors, because that’s a much more diversified source of funding.”

For S.F.’s AIDS Legal Referral Panel, the cy pres check of $400,000 represents half its annual budget. Executive Director Bill Hirsh said the extra money will help cover deficits, including $120,000 this year, and cushion its reserve fund.

The windfall comes from a 2002 antitrust and unfair competition case filed against U.S. Tobacco, the maker of Skoal and other brands of chewing tobacco. Under the terms of a $96 million settlement approved last year, money that went unclaimed by consumers would be distributed to various charities.

Saveri & Saveri’s Richard Saveri, who served as plaintiffs’ co-liaison counsel, said he worked with defense lawyers at Latham & Watkins to determine which charities would receive the funds, based upon submissions of their work and their needs.

Judge Richard Kramer approved distribution of the funds last month. He previously awarded the plaintiffs’ lawyers $32 million in fees.

The cy pres doctrine — which translates roughly to “as near as possible” — is sometimes controversial. It’s designed to keep defendants from recouping money set aside but not claimed.

Paul Karlsgodt, a Denver partner at Baker & Hostetler who writes a blog about class actions, says the approach is problematic in the context of a settlement, where the defendant has been accused of misconduct but not found liable. “The purpose of the civil justice system is to remedy actual harms,” Karlsgodt said, “not to simply punish wrongdoers.”

But for the nonprofits and legal aid organizations receiving a check, it is a much-needed shot in the arm.

Bay Area Legal Aid’s Ramon Arias says a $600,000 check arrived, but he isn’t rushing to spend it. “A mistake a lot of legal aid programs sometimes make is to use one-time money to support ongoing expenses,” he said. Right now, Arias says he’s more focused on the annual donor campaign. “It is the support that is far more important. I’m hoping our supporters know that.”

Petra Pasternak
October 28, 2009 Lay

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