As Close As Possible: The Cy Pres Doctrine in the Class Action Context

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If you’ve received an email or postcard saying you were a part of a class action settlement and you forgot to put in a claim, you may be part of millions distribution to charity.

When a class action settles, a large percentage of people do exactly what you’ve done in the past – forget about the notice and don’t make a claim. What happens with the money you could have received? I know often it’s not much – $5, $25, $45 – but when a large group of claimants don’t throw their hat in the ring, this amount adds up very quickly. You wouldn’t think it could go back to the entity who did the wrong, could it? Sometimes it does.

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The Cy Pres Doctrine

But, there is an ancient doctrine of trust law that re-emerged as a means to do good with that money. It’s called cy pres.

Cy pres comes from an old French term, which roughly translates to “as close as possible.” Historically, when a someone passed away and left a trust to benefit an organization, that specific purpose was written into the trust. But, what happens if that organization changes form? Or goes belly up? What do you do with that pot of money that was left to that organization and its specific purpose? Well, through the doctrine of cy pres, the court was able to accomplish something “as close as possible” to the original intent of the trust. So, if that beneficiary organization was a treatment center for alcoholism, maybe the court would re-direct the money to another treatment center or some other addiction recovery service.

Cy Pres in Class Actions

In the class action context, when there is a pot of money left over that was supposed to go to, for example, the direct consumers who were duped into buying something that didn’t work, what do you then do with the money if some is left over? Often, it reverts right back to the wrongdoer. The consumers didn’t put in a claim, tough on them. In fact, many lawyers and companies are making legal challenges to the cy pres doctrine seeking to accomplish exactly that outcome – when a claim is waived, the money reverts back.

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However, many attorneys, both in the plaintiff’s bar and, surprisingly, the defense bar, recognize the good the money can do and, if we’re being a little cynical, the budding PR problem taking this money back could cause.

The reality is that, far more often than not, companies that are sued in class actions are not deviously hand-wringing in smoky conference rooms, dreaming up schemes to rip off consumers. It is significantly more likely that a company innocently misinterpreted a law or regulation, committed a clerical error, or accidentally crossed a line as they made incremental policy changes over years. Plaintiff’s lawyers are not in the business of ruining corporate America, just making sure things are fair.

This potentially thorny circumstance – one where a relatively innocent company has accidentally done something wrong and wants to make it right – has led to cy pres being an option that both the defendants and plaintiffs are willing to entertain as part of class action settlements. Do right by the customers, and then just do right.

Choosing the Nonprofit

Often, this money goes to charities, mutually agreed upon by both parties, that serve functions the case served – if it’s a deceptive sales practices case, maybe the cy pres distribution goes to the attorney general’s consumer protection operation; if the case related to health insurance premiums or charges, maybe the beneficiaries would be health-related nonprofits. From the Boys and Girls Club of America to the Cystic Fibrosis Foundation, from the Rotary Gift of Life the United Way, millions of dollars have been directed to organizations serving our community.

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The cy pres doctrine has been a great tool to show lawyers that it really is possible to do good even under less than ideal circumstances. There are very few situations in our coarse and complicated world where we know we are doing the right thing. But, when in doubt, maybe we can just get “as close as possible.”

Patrick Perotti

Patrick J. Perotti is an award-winning national leader in the fields of consumer class actions, employment discrimination, and wage and hour litigation. With verdicts and settlements exceeding $600 million, Patrick is regularly selected to lead class suits in Ohio and around the country. His reputation developed from a demand for outcomes, which not only offered compensation to class members but also stopped unlawful government and corporate practices. Using the class action device to achieve deterrence, he has directed more than $30 million in unclaimed class funds from his settlements to charities and nonprofits around the country.

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