Mary Patricia Zaber, as Successor in Interest to J. Thomas Zaber, on Behalf of Herself and All Others Similarly Situated v. City of Dubuque, Iowa, 902 N.W.2d 282

Background

In 2003–2004 Dubuque imposed 2% (later 3%) franchise fees on gas/electric utilities; customers paid the fees and later a class action alleged the fees exceeded reasonable regulatory costs and thus were illegal.
The Iowa Supreme Court in Zaber litigation affirmed limited dismissal and remanded utility-fee claims; parties later settled, with Dubuque funding a $2.6 million escrow to compensate class members who paid fees from Sept. 5, 2001 to May 25, 2009.
The settlement required claimants to submit claim forms; after distributions, $601,985.46 remained unclaimed in escrow.
The settlement agreement expressly allowed the court, after hearing, to award remaining funds as cy pres to charitable recipients, to the City, or to the State.
The class moved to distribute the residual funds equally to four local charities; the City sought return of the funds to reduce its settlement debt (or argued it should be the cy pres recipient).
The district court awarded the unclaimed funds equally to the four charities as cy pres; the City appealed.

Issues

Issue	Plaintiff's Argument (Zaber)	Defendant's Argument (City)	Held
Whether the settlement agreement permits cy pres instead of Rule 1.274(3) reversion/escheat	Settlement language gives court discretion to award remaining funds to cy pres, the City, or State	Rule 1.274(3) mandates distribution to defendant or state; settlement cannot supplant rule	Court: Settlement is a contract; parties’ agreed term controlled and court correctly applied cy pres discretion
Whether cy pres distribution is permissible here	Cy pres is appropriate where further direct distributions are not sought and recipients reasonably approximate class interests	Cy pres is inappropriate; returning funds to City best serves class because City (and taxpayers) ultimately bear settlement cost; City is best cy pres recipient if cy pres allowed	Court: Cy pres permissible; district court did not abuse discretion in ordering cy pres to charities
Whether reversion to City or escheat to State is preferable	Class: cy pres better approximates class interests than reversion/escheat	City: Reversion does not undermine deterrence here; fees were authorized by residents and later ratified	Court: Reversion to City would not reasonably approximate interests pursued by class; state also inappropriate; cy pres preferred
Whether the chosen charities reasonably approximate class interests	The proposed charities serve Dubuque residents and provide utility-related and legal/ community assistance aligning with class interests	Charities focus on low-income residents; no evidence class predominately low-income; City argues that makes them poor proxies	Court: Selected charities reasonably approximate the class’s interests; court’s selection was not an abuse of discretion

Key Cases Cited

Zaber v. City of Dubuque, 789 N.W.2d 634 (Iowa 2010) (prior interlocutory appellate decision in the underlying litigation)
Kragnes v. City of Des Moines, 714 N.W.2d 632 (Iowa 2006) (franchise fees unlawful when exceeding reasonable regulatory costs)
Kragnes v. City of Des Moines, 810 N.W.2d 492 (Iowa 2012) (procedural guidance cited by parties)
City of Dubuque v. Iowa Trust, 587 N.W.2d 216 (Iowa 1998) (standards for court review of class settlement approval)
In re BankAmerica Corp. Sec. Litig., 775 F.3d 1060 (8th Cir. 2015) (federal authority on cy pres review standard and practice)
Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468 (5th Cir. 2011) (cy pres permitted where further pro rata distributions are infeasible)
Nachshin v. AOL, LLC, 663 F.3d 1034 (9th Cir. 2011) (cy pres must approximate class interests and provide reasonable certainty of benefit)
In re Baby Prods. Antitrust Litig., 708 F.3d 163 (3d Cir. 2013) (options for residual funds: reversion, escheat, or cy pres)
In re Lupron Mktg. & Sales Practices Litig., 677 F.3d 21 (1st Cir. 2012) (expressed concerns about party-directed cy pres provisions)
Six Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301 (9th Cir. 1990) (cy pres rejected if not the ‘next best’ distribution)
Marek v. Lane, 134 S. Ct. 8 (2013) (Supreme Court noting controversy over cy pres use and possible need for clarification)