When a class action settles, a potential “cy pres” distribution may come into play where direct distribution of all or part of the settlement consideration to class members is infeasible. For decades, district courts have exercised discretion to determine that direct distribution is infeasible either because class members cannot be identified, or because the settlement fund would yield a negligible payment to individual class members (or be consumed by the administrative costs of distribution). Cy pres settlements have grown into a limited but important feature of the class action settlement landscape without Supreme Court guidance. The high court recently granted certiorari, however, to decide the propriety and potential limits of cy pres settlements. Frank v. Gaos, 2018 WL 324121 (U.S. April 30, 2018).

Background

The cy pres (“as near as”) doctrine is an equitable rule of construction with roots in the Middle Ages. Historically, the doctrine applied where a settlor’s original purpose for a trust cannot be implemented because, for instance, the intended recipient no longer exists or the purpose of the trust has been accomplished. A balance of a settlement fund often remains unclaimed after distributions to identifiable class members are complete and it is not feasible or cost-effective to make further distributions to the class. Since the 1970s, courts have used a variant of the cy pres doctrine to distribute a portion of class action settlement funds to third party charitable organizations, often selected by or in consultation with the parties’ counsel. More rarely (and recently), courts have approved “cy-pres only” settlements in which no class members receive any compensation: The sole recipients of net settlement funds, after deduction of attorney fees, are third-party nonprofits that seek to promote the same interests as those underlying those of the proposed settlement class. The federal circuits currently require that district court approval of a cy pres distribution include a specific finding that a close nexus exists between the work of any cy pres recipient and the interests pursued by the class in the relevant action. See Dennis v. Kellogg Co., 697 F.3d 858, 865 (9th Cir. 2012); In re Airline Ticket Com’n Antitrust Litig., 307 F.3d 679, 683 (8th Cir. 2002).

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