69 Pages Posted: 26 Mar 2014 Last revised: 21 Jan 2015
Date Written: March 24, 2014
Monies reserved to settle class action lawsuits often go unclaimed because absent class members cannot be identified or notified or because the paperwork required is too onerous. Rather than allow the unclaimed funds to revert to the defendant or escheat to the state, courts are experimenting with cy pres distributions – they award the funds to charities whose work ostensibly serves the interests of the class “as nearly as possible.”
Although laudable in theory, cy pres distributions raise a host of problems in practice. They often stray far from the “next best use,” sometimes benefitting the defendant more than the class. Class counsel often lacks a personal financial interest in maximizing direct payments to class members because its fee is just as large if the money is paid cy pres to charity. And if the judge has discretion to select the charitable recipient of the unclaimed funds, she may select her alma mater or another favored charity, thereby creating an appearance of impropriety.
To minimize over-reliance on cy pres distributions and to tailor them to serve the best interests of the class, the Article makes four pragmatic recommendations. First, to align the interests of class counsel and the class, courts should presumptively reduce attorneys’ fees in cases in which cy pres distributions are made. Second, to ensure that class members, potential objectors, and courts have the information they need to assess the fairness of a settlement that contemplates a cy pres distribution, class counsel should be required to make a series of disclosures when it presents the settlement for judicial approval. Third, to inject an element of adversarial conflict into the fairness hearing and to ensure that the court receives the information needed to scrutinize the proposed cy pres distribution, the court should appoint a devil’s advocate to oppose the settlement in general and the cy pres distribution in particular. Finally, the court should be required to make written findings in connection with its review of any class action settlement that contemplates a cy pres distribution.
Keywords: class action, aggregate litigation, attorneys’ fees, cy pres, settlement, remedies, Facebook, American Law Institute
JEL Classification: K40, K41
Suggested Citation: Suggested Citation
Wasserman, Rhonda, Cy Pres in Class Action Settlements (March 24, 2014). Southern California Law Review, Vol. 88, p. 97, 2014; U. of Pittsburgh Legal Studies Research Paper No. 2014-14. Available at SSRN: https://ssrn.com/abstract=2413951