The term “cy pres” is derived from the French expression cy pres comme possible (or “as near as possible”). Historically used to alter charitable trusts to align with testator intent, the practice has made its way into federal class action litigation.
Pursuant to Federal Rule of Civil Procedure 23(e), courts allow cy pres in two circumstances: 1) when class members fail to claim their share of the settlement proceeds and 2) when it would be impractical to distribute the settlement. Once a rare practice, cy pres is now a common feature of class action litigation and has strayed from its etymology. In other words, many cy pres awards seem unrelated to the plight of the class or the injury at issue. For example, in Fairchild v. AOL, the Central District of California awarded a settlement for violations of the Electronic Communications Privacy Act to charities such as the Boys and Girls Club with no connection to the class or alleged injuries one of which had the judge’s husband as a board member. And in Pearson v. NBTY Inc., Judge Posner observed that “[t]he $1.13 million cy pres award to [an] orthopedic foundation [in a consumer class action involving joint-health supplements] did not benefit the class, except insofar as armed with this additional money the foundation may contribute to the discovery of new treatments for joint problems-a hopelessly speculative proposition.” Critics argue this system results in excessive fees for class counsel while class members receive little to no damages, and that it may prompt class counsel to settle with defendants in a way that is not in the best interest of the class. There are also questions as to whether allocation of funds in this manner violates the First Amendment rights of the class should the money go to an organization members disagree with.
But are cy pres settlements a necessary evil? If we must choose between returning settlement funds to the defendant, giving them to the government, allocating them to one lucky class member, or donating the funds to a charity, doesn’t the last option seem like the best one? Supporters argue cy pres preserves the purpose of class action lawsuits—deterrence—in a socially desirable and efficient way. Perhaps the answer lies somewhere in between.
The Supreme Court seemed ready to address the permissibility and parameters of the practice in 2019 in Frank v. Goas, but it instead remanded the case on the question of Article III standing. Dissenting, Justice Thomas argued that the Court should have decided the case on the merits. In 2013, Chief Justice Roberts said in a statement respecting denial of certiorari in Marek v. Lane, “Granting review of this case might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies in class action litigation, including when, if ever, such relief should be considered.” Taken together, these statements signal the Court may take up the issue despite the remand in Goas.
The Court could clarify the legality and parameters of cy pres settlements by granting the cert petitions in two recent cases on the issue. In St. John v. Jones, the Eighth Circuit recently declined en banc review of a $16 million cy pres settlement that left 98% of the class uncompensated. Similarly, in Yeatman v. Hyland, the Second Circuit recently affirmed a cy pres settlement that left student debtors with no compensation and instead allocated the settlement to a new nonprofit affiliated with the teacher’s union funding the class action.
In an upcoming debate on January 25th, Ted Frank, who argued Frank v. Gaos and is counsel of record in both St. John v. Jones and Yeatman v. Hyland, and Brian Fitzpatrick, author of The Conservative Case for Class Actions, will debate the pros and cons and legality of cy pres and discuss possible Supreme Court review.
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