Toshiba settlement foundation funds $40 million in social services; $20 million in tech grants

Kelly Holleran Nov. 11, 2009, 12:43pm



BEAUMONT, Texas (Legalnewsline) -- Ten years ago, Toshiba made headlines across the country when it reached a shocking $2.1 billion settlement in a class action lawsuit filed against it in 1999.

"Toshiba faces $1 billion bill over a lawsuit," the New York Times proclaimed in a headline published on Oct. 30, 1999.

Buried deep in the New York Times' article and mentioned only briefly were plans lead class plaintiff Wayne A. Reaud had for any remaining unclaimed funds.

Instead of allowing Toshiba to retain the uncollected funds, Reaud wanted the money to be used to form a charitable foundation that would distribute computer technology among underprivileged Americans.

And in 2001, The Beaumont Foundation of America was born, with one of Reaud's local attorney friends as executive director.

The foundation would never have seen the light of day if not for a complaint young Beaumont attorney Ethan Shaw and retiree Clive Moon filed March 5, 1999, in U.S. District Court for the Eastern District of Texas.

In the complaint, Shaw and Moon accused Toshiba of selling five million notebook computers that would destroy or lose information without their users' knowledge.

After months of litigation, Shaw and Moon reached a settlement with Toshiba on Oct. 28, 1999 - possibly the largest settlement for economic damages ever obtained.

"I haven't seen anything else on this scale," said Michael Greve, a John G. Searle scholar, an American Enterprise Institute scholar and Boston College professor.

The plaintiffs' attorney, Reaud, the founder of the law firm Reaud, Morgan and Quinn - a firm known for its previous work on asbestos claims and on a tobacco-Medicaid suit on behalf of Texas -- and his fellow lawyers Gilbert I. Low and Hubert Oxford appealed to U.S. District Judge Thad Heartfield to use the unclaimed portion of the funds toward the Beaumont Foundation of America.

Their plan was a popular one with Heartfield, who wrote the foundation would not only help children, but would also have a positive impact on businesses that were class members.

"Children growing up in homes without computers or attending schools without computers and computer training are substantially disadvantaged with respect to education and future employment," Heartfield wrote. "This imbalance, referred to as the 'digital divide,' has received nationwide attention and study. The goal of eradicating it is an important public priority."

However, not everyone was so quick to extol the foundation, and such charitable foundations have become the subject of some controversy.
Critics say the money occasionally goes to charities with ties to the plaintiffs' lawyers or presiding judges.

"I'm a big fan of saying, 'If there's some damage done, at least get the money to the plaintiffs," Greve said. "I look at those (the foundations) with a very jaundiced eye."

The Beaumont Foundation of America saw its share of scrutiny, and Texas Attorney General Greg Abbott filed a lawsuit against it for breach of fiduciary duty. Included in his complaint against the foundation, Abbott claimed the foundation paid its president, W. Frank Newton, $560,000 in 2004.

Newton said he became president of the Beaumont Foundation of America after being approached by some attorneys who were serving as members of the foundation's board of directors.

Originally, the foundation began a pilot project in Illinois, New Mexico, New York, North Dakota, South Dakota and Texas. About 128 schools and community-based programs received $6.2 million worth of 3,200 computers and relevant equipment.

In 2003, an additional 15 states plus the District of Columbia received technology grants worth more than $27 million. In addition, the foundation was able to distribute 1,000 computers to individuals, plus to deliver additional information technology to nearly 500 Boys and Girls Clubs of America's Operation Connect and Salvation Army's eQuip for Success sites.

It didn't take the foundation long to reach its goal of distributing technology in all 50 states. By 2004, it funded $20 million worth of grants in the remaining 29 states.

Expanding its horizons, in 2005, the Beaumont Foundation of America began distributing laptops to the dependent children and spouses of military personnel who have died in the Iraq and Afghanistan wars since Sept. 11, 2001.

Since then, the foundation has shifted its goals and is now using money to provide clothing for children in foster care, to offer medical care for the underprivileged and to provide scholarships for first generation college students.

Today, only a small portion of the grants are used to provide technology to the family members of those who lost their lives while fighting in Iraq.

The change came about after the foundation began analyzing the needs of the people it was serving.

"It (providing the technology) was not really lowering the digital divide," Newton said.

Instead of needing access to computers, students and the underprivileged required more basic needs, like clothing and food.

Since shifting its focus, the Beaumont Foundation of America has spent about $40 million on social services, Newton said.

But that leaves the foundation $250 million that has not been spent. Newton said the remaining money will be used to continue to provide grants every year for the underprivileged.

Part of that money has also gone to pay salaries, related taxes and employee benefit programs, which cost the foundation $1,521,841 in 2007 alone, according to the foundation's annual report.

However, none of that money goes toward Reaud or Gilbert I. Low, said Newton. Both men sit on the Beaumont Foundation of America's board of directors and were also the plaintiffs' lawyers in the Toshiba case.

"The attorneys do not receive any money that is going to the foundation," Newton said. "None of the attorneys that were involved in the Toshiba case received any money from the foundation."

Keeping track of where money is spent for any charitable foundation formed under similar circumstances is a difficult task because nobody keeps tabs on them.

"You're staring at a black hole in class action litigation," Greve said. "Nobody knows exactly what these class actions do. Nobody knows."

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