Cy pres and class action settlements: Giving away other people’s money

It was recently reported that a charitable foundation received a generous gift out of the blue — from lawyers. A performing arts center in Ohio received $50,000 from a local law firm, which came from “cy pres money.” Publications covering the story reported that “Cy pres is an ancient legal doctrine that allows law firms to distribute the unclaimed money from class action legal settlements to charities or nonprofit organizations.”

Really? There is nothing “ancient” about law firms or class action lawsuits. Nor are law firms permitted to “distribute unclaimed money” to charities or to anyone else. Nor, indeed, did the doctrine of cy pres evolve as a way to distribute unclaimed funds from class settlements. So where would reporters get the idea that an “ancient doctrine” was responsible for a charity’s receipt of money that was actually intended to benefit plaintiffs in a class action suit? From the courts, that's where.

Since the promulgation of Federal Rule 23 in 1966, courts have struggled with the persistent problem of unclaimed funds in class action settlements. Individual awards are often small, class members can be hard to find, and the claims processes are often cumbersome. With increasing frequency, courts solve the unclaimed funds problem by applying a judicial variation of the doctrine of cy pres, which permits them to give the unclaimed portions of class settlements to charities and other causes they deem to be worthy. Yet the application of cy pres — which is borrowed from the law of trusts — is hardly the answer to managing unclaimed funds.

For more, read the full article.

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