Tuesday, November 22, 2011

Ninth Circuit cy pres victory in Nachshin v. AOL

We've been at the forefront of noting the problem of abusive cy pres; originally intended as a last resort "second-best" way to benefit the class after resolution of a case where there is leftover money, too many class actions use cy pres as a first resort to exaggerate the class benefits, or to siphon some of those benefits to the class attorneys or the defendants or, shockingly, the judge. A couple of recent decisions speak out against free-flowing cy pres. In Klier v. Elf Atochem, the Fifth Circuit struck down cy pres given to local charities instead of to undercompensated class members; Alison Frankel has good coverage.

And yesterday, in a case I argued, Nachshin v. AOL, Inc., the Ninth Circuit adopted much of the reasoning of our briefs in striking down cy pres to local Los Angeles charities unrelated to the class or the claims of the lawsuit:
When selection of cy pres beneficiaries is not tethered to the nature of the lawsuit and the interests of the silent class members, the selection process may answer to the whims and self interests of the parties, their counsel, or the court. Moreover, the specter of judges and outside entities dealing in the distribution and solicitation of settlement money may create the appearance of impropriety.
Thanks to Darren McKinney for being willing to stand up to abusive class action settlements, even it meant publicly admitting that he had an AOL account. Additional coverage at law.com.

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