Sunday, April 13, 2014

Wasserman on cy pres

University of Pittsburgh Law Professor Rhonda Wasserman has a paper on cy pres forthcoming in the USC Law Review, "Cy Pres in Class Action Settlements." The paper discusses in detail two CCAF cases, In re Baby Products Antitrust Litig., and Marek v. Lane.
Monies reserved to settle class action lawsuits often go unclaimed because absent class members cannot be identified or notified or because the paperwork required is too onerous. Rather than allow the unclaimed funds to revert to the defendant or escheat to the state, courts are experimenting with cy pres distributions – they award the funds to charities whose work ostensibly serves the interests of the class “as nearly as possible.” 
Although laudable in theory, cy pres distributions raise a host of problems in practice. They often stray far from the “next best use,” sometimes benefitting the defendant more than the class. Class counsel often lacks a personal financial interest in maximizing direct payments to class members because its fee is just as large if the money is paid cy pres to charity. And if the judge has discretion to select the charitable recipient of the unclaimed funds, she may select her alma mater or another favored charity, thereby creating an appearance of impropriety.
To minimize over-reliance on cy pres distributions and to tailor them to serve the best interests of the class, the Article makes four pragmatic recommendations. First, to align the interests of class counsel and the class, courts should presumptively reduce attorneys’ fees in cases in which cy pres distributions are made. Second, to ensure that class members and courts have the information they need to assess the fairness of a settlement that contemplates a cy pres distribution, class counsel should be required to make a series of disclosures when it presents the settlement for judicial approval. Third, to inject an element of adversarial conflict into the fairness hearing and to ensure that the court receives the information needed to scrutinize the proposed cy pres distribution, the court should appoint a devil’s advocate to oppose it. Finally, the court should be required to make written findings in connection with its review of any class action settlement that contemplates a cy pres distribution.
The first two proposals are arguments we make regularly; the second two are matters for a rule-making body or legislature, but are not going to be enforced in the absence of class action objectors; similar protections for class members in coupon settlements are routinely ignored.

6 comments:

  1. How many times has a judge given a cy pres award to their alma mater?

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    2. In the Google Buzz settlement, the judge sua sponte redistributed cy pres to the university he was moonlighting at. There have been lots of cases where judges order cy pres to local charities though the class is nationwide, including two we have on appeal now. The alma mater conflict of interest is more often seen with plaintiffs' attorneys, including in one of the cases we have on appeal now. (Spelling error corrected.)

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  2. So it's only happened once...not really a problem is it?

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    1. Professor Wasserman's chosen example of judicial abuse of cy pres in her abstract has not happened frequently. Other judicial abuse of cy pres happens quite frequently. Abuse of cy pres by class counsel happens even more frequently. Feel free to look at CCAF's briefs on the subject, or my multiple publications on the subject, or even at more than just Wasserman's abstract.

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    2. In case readers are wondering who Terry Jesse is, and why he is being so disingenuous, this post provides some details: http://www.pointoflaw.com/archives/2013/08/the-dishonesty-of-nalfa-and-terry-jesse.php

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