In Defense of Cy Pres Distributions

The doctrine of “cy pres,” a term that derives from the Norman French expression “cy pres comme possible,” or “as near as possible,” is an equitable doctrine that allows money damages in class actions to be used for charitable purposes when distribution to individual class members is infeasible or impossible.  This may be the case where, for example, class members cannot be located, where class claimants fail to deposit their settlement checks, or where the amount of each class member’s monetary claims is de minimis, such that the transaction cost of mailing the settlement checks is greater than the amount that each member would receive.  Accordingly, cy pres settlements aim to provide the “next best” form of relief when individual class members cannot receive direct compensation.

Settlements involving cy pres relief, and the plaintiffs’ attorneys that fight for such relief, are increasingly under attack by those that would prefer either that class certification be denied in actions where direct compensation is not possible or that the unclaimed or residual funds revert to the wrongdoer corporate defendants.  On June 1, 2012, for example, the Subcommittee on the Constitution of the Committee on the Judiciary of the House of Representatives heard testimony about the alleged failings of cy pres relief.  John Beisner, who testified on behalf of the U.S. Chamber Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce, called for cy pres reform, indicating that he found “the practice . . . troubling when there is no effort to compensate the actual class members because in such cases, the supposed ‘relief’ fails to provide any real benefit to the purportedly injured class members.”  He questioned whether most cy pres distributions “‘effectuate . . . the interests of [the] silent class members,’” as ‘“[t]here is no indirect benefit to the class from the defendant’s giving the money to someone else.’”  He argued that cy pres relief instead “provides class counsel with an easy mechanism to generate high legal fees without having to devise settlements that confer actual benefits on the absent class members,” as the size of the settlement fund (often used to calculate attorneys’ fees) includes any cy pres distribution.

In reality, cy pres awards are sometimes necessary in order to ensure that wrongdoers are not given de facto immunity from liability by virtue of inflicting a small amount of harm on a large number of individuals.  This may often be the case when injunctive relief—relief that prevents the wrongdoer from continuing its unlawful practices—is the primary relief sought in a class action lawsuit.  And although critics claim that cy pres relief does not confer any real benefit on the class, courts approving cy pres settlements routinely ensure that there is an adequate nexus between the cy pres distribution and the injured class.[1]  By way of example, in a generic suppression case involving Paxil, a drug used to treat depression and anxiety, residual funds were given to the Anxiety and Depression Association of America (ADAA).  Since the ADAA is an organization “dedicated to the prevention, treatment, and cure of anxiety, depression, and related disorders and to improving the lives of all people who suffer from them,” the cy pres award was an effective vehicle for providing the “next best” form of relief to the injured class.

Thus, although it is possible that the individual class members may not benefit directly from the distribution, courts can—and should—ensure that cy pres awards align with the interests being pursued in the lawsuit.  In some instances, courts may even institute audit procedures to ensure that the funds are distributed in a manner that comports with the class interests.  Arguments that attempt to vilify plaintiffs’ counsel who seek to hold wrongdoers accountable implicitly ignore the important deterrent function that such awards serve and the limits that can be (and often are) imposed to ensure that the doctrine is not abused.

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