Massachusetts' highest court said Tuesday that a committee overseeing lawyers' trust accounts should have been given a chance to request potential leftover funds prior to a judge's approval of a class action settlement, but saw no reason to unwind the deal.

In what it called a "narrow but important" case, the Supreme Judicial Court found that the Massachusetts IOLTA Committee does not have standing to contest the overall fairness of a settlement.

The justices said there was nothing in the record to suggest that the now-retired lower court justice who approved the settlement would have reached a different outcome based on the committee's input, and that the IOLTA Committee was later given a chance to argue for a portion of residual funds, though its request was denied.

The Supreme Judicial Court, however, took the opportunity to remind attorneys and trial court judges of their obligation under the state's Rules of Civil Procedure to notify the committee, which oversees interest on lawyers' trust accounts, of proposed class action settlements prior to approval.

"Our decision should not be read to suggest that delayed notice to the committee is never prejudicial, particularly where the absence of timely participation prevents the court from addressing the treatment of potential residual funds at the settlement-approval stage," Justice Serge Georges Jr. wrote in the opinion. "Nor does our conclusion that no prejudice occurred here dilute the rule's requirements or permit disregard of its notice provisions. Compliance with [RCP] Rule 23(e)(3) is mandatory."

Watching the case was a coalition of legal advocacy groups that, in a friend of the court brief, pointed to the value of residual settlement funds, which the IOLTA Committee distributes to legal aid programs. 

The original complaint was brought by tenants of a Salem, Massachusetts, apartment complex, Salem Station LLC, against the property owner and Lincoln Apartment Management LP over alleged violations of the state's security deposit law.

Under the settlement, a pool of up to $4.16 million would be available to pay class members through a series of insurer-funded distributions based on claims made, and to cover plaintiff awards and counsel fees.

Essex County Superior Court Justice John Lu approved the agreement in 2021 after the parties addressed several of his concerns by agreeing to distribute a portion of unclaimed funds to two housing advocacy groups and to set a cap of $500,000 on any reversion of funds to the defendants.

Two years after the agreement was approved, counsel for the parties sought to distribute available unclaimed funds from the settlement.

In between the settlement and the motion to dispose of residual funds, the rule requiring notice to the IOLTA Committee had been amended to include a 30-day deadline.

Though it was provided notice of the distribution request in 2023, the committee argued the entire settlement should be vacated based on its inability to have input on the prior settlement approval.

Justice Janice Howe, who took over the case after Justice Lu's retirement, denied the request, leading to the IOLTA Committee's appeal.

After taking up the case, the Supreme Judicial Court granted an exception to the IOLTA Committee allowing it to appeal, saying that Rule 23(e)(3) created a procedural entitlement to notice and hearing that gives it standing.

"The scope of that standing, however, is cabined by the right conferred by the rule," Justice Georges said Tuesday. "It does not transform the committee into a surrogate for absent class members. Nor does it authorize the committee to challenge, on behalf of those absent class members, the settlement's terms directly or claim that they are unfair, unreasonable or inadequate."

Those calls are still left up to the judge approving the settlement to decide, the justices said, noting that the IOLTA Committee's role is "advisory rather than supervisory."

The court also said Justice Lu's earlier inquiry into the proposed disposition of unclaimed funds, his discussion of the cy pres awards to the housing organizations, and the cap on reversion show that he considered public policy concerns.

"Where, as here, the settlement judge engaged in that inquiry, earlier participation by the committee would not have meaningfully altered the informational landscape before the settlement judge," Justice Georges said. "Accordingly, on this record, the violation did not prejudice the committee's limited procedural interest."

Orestes "Rus" Brown of Metaxas Brown Pidgeon LLP, who represented the class members, told Law360 that "the decision makes important clarifications limiting the role of the IOLTA Committee."

"The IOLTA Committee's attempt to insert itself into the court's evaluation of settlement fairness would have needlessly increased the burdens of class action litigation," Brown said.

Boston Bar Association Vice President Christopher Escobedo Hart of Foley Hoag LLP, who wrote the friend of the court brief submitted on behalf of the advocacy groups, said while the decision didn't go as far as vacating the settlement, "I am optimistic that the end result will encourage greater compliance with Rule 23, to the benefit of access to justice across the commonwealth."

A message seeking comment from counsel for property owner and management company did not immediately receive a response on Tuesday.

The Massachusetts IOLTA Committee is represented by Douglas W. Salvesen of Salvesen Law PLLC and its own Jenna Miara.

The class is represented by Orestes G. Brown and Bailey Buchanan Nowak of Metaxas Brown Pidgeon LLP.

Lincoln Property Co., Salem Station LLC and Lincoln Apartment Management LP are represented by Jeffrey C. Turk of Turk & Milone LLP and Christelle Jihanne Jean-Felix of Casey Lundregan Burns PC.

The case is Ortins et al. v. Lincoln Property Co. et al., case number SJC-13777, in the Supreme Judicial Court of Massachusetts.

--Editing by Melissa Treolo.

Update: This article has been updated to include a comment from counsel for the class members.