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Pressing on Cy Pres

What to do with leftover class action money?

The current system doesn’t provide an answer.  Federal judges have attempted to be charitable, according to a New York Times column by Adam Liptak that kicked off the debate late last year.

In June’s Alternatives, Linda Stamato and Sanford M. Jaffe, of Rutgers University’s Center for Negotiation and Conflict Resolution, proposed a solution: set up independent panels in each federal circuit court, drawing from the public and the bar, to advise judges on distributing unclaimed settlement funds. 

Last week, Philadelphia-based Blank Rome partners  George Krueger and Judd Serotta added their views to the cy pres debate on the Wall Street Journal Opinion page.  They’re not happy with judges’ choices.  At all.  “[O]ften these windfalls go to charities with little or no relationship to what was at issue in the original dispute,” noting what they say is a “good example,” excess California settlement sums in a debt-collection practices case that went to a legal aid society that educates consumers.

Cy pres refers to a legal construction rule that attempts to put a solution as close as possible to the original intention–“as near as may be”--when it is impossible to give literal effect to the remedy.  In class actions, victims entitled to a piece of the settlement pool may not come forward, and the court is left with often-substantial amounts of settlement money, even after attorneys fees are paid.

Suggesting questionable–more like bad--motives on the part of plaintiffs lawyers’ proposals for excess funds as well as the judges’ awards, Krueger and Serotta make the case that the current ad hoc distribution system is unconstitutional. 

Instead, they write, the uncollected class action money should be
ù    given back to the defendants;
ù    given to class members “who already collected their initial portions, or
ù    turned over to the government for deterrent effect.

“Another solution,” they add, “would be to come up with a less arbitrary–and more objective and disinterested–mechanism for finding an appropriate beneficiary organization that shares the plaintiffs’ common interest.”

That part seems reasonable, and could lead to a Stamato-Jaffe-style court committee, among other things.  Krueger and Serotta use the rest of the piece to advocate for what might be their real passion: more class action reform, to follow the 2005 overhaul.

WSJ online readers have been discussing the piece here.

Feel free to add your own thoughts below.  Leave it to the judges?  Federal court oversight committees?  Congress’s help in limiting class actions? 

Aug. 12, 2008