Wednesday, January 23, 2013

Class Action Settlements and Charities

One little known source of funds for a variety of charities is in the form of unclaimed class action settlement funds.  Such funds are awarded to charities under the "cy pres" doctrine.  The idea is that if a class of individuals is subject to receive funds as part of a class-action settlement, often many class members fail to claim their funds (due to relocation, inconvenience, etc.).  While the default outcome in such cases is that unclaimed funds revert to the defendant, there has been an increasing interest for unclaimed funds to go to a charity or charities related to the plaintiffs interests (or even just in the interests of society).  The thinking is that such outcomes are more in line with the intent of class participants than returning funds to the defendant would be.

One can readily guess the concerns here: which charities does the court deem worthy? Is there a conflict of interest in choosing charities? Will defendants be less willing to settle if they are not entitled to unclaimed funds? Does permitting cy pres awards encourage frivolous lawsuits? etc.  Despite the concerns, the practice appears to be on the rise.  The best evidence of its increasing prominence is that opposition groups have begun lobbying congress to stop the practice.  On the other side, though, some have advocated passing laws making cy pres awards the default by statute.  It remains to be seen what will become of the practice, but if it expands further, it may represent an important source of funds for cash-strapped charities.

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