Former Overlawyered contributor Ted Frank, in his more recent capacity as class-action objector, has done much to direct judicial attention to the abuses and problems of cy pres settlement provisions that channel supposedly leftover settlement moneys to third parties, often nonprofits to which the parties, their lawyers, or the judge is sympathetic. Last month a split Eighth Circuit panel, agreeing with his arguments, disallowed a deal by which money from the settlement of a class action over the NationsBank/BankAmerica merger would be sent to Legal Services of Eastern Missouri [Ted Frank/CCAF; Alison Frankel/Reuters; David Oetting v. Green Jacobson, ruling in PDF; Bill McClellan, St. Louis Post-Dispatch in September (“Why should money belonging to the class members be given to a charity — no matter how much the judge and the class-action lawyers like the charity?”); Sean Wajert] Per James Beck:

The Court explained, “Because the settlement funds are the property of the class, a cy pres distribution to a third party of unclaimed settlement funds is permissible only when it is not feasible to make further distributions to class members, except where an additional distribution would provide a windfall to class members with liquidated-damages claims that were 100 percent satisfied by the initial distribution.” … The Court disagreed with the district court’s finding that further distributions (including the search for class members whose checks had been unreturned) would be too “costly and difficult”, emphasizing that “that inquiry must be based primarily on whether the amounts involved are too small to make individual distributions economically viable.” …

The Court also “flatly rejected” class counsel’s argument that further distribution would be inappropriate because “it would primarily benefit large institutional investors, who are less worthy than charities such as LSEM,” … In other words, class counsel can’t use legal French to take a class’ money.

Meanwhile, “despite the growing controversy, the Rules Advisory Committee is considering formalizing the use of cy pres” in Rule 23 class actions, a step that not all will welcome [Andrew Trask]

Filed under: cy pres