On October 31, the Supreme Court heard oral argument in Frank v. Gaos (No. 17-961), a case challenging the use and limits of cy pres deals in class action lawsuits.
Cy pres disbursements, which distribute unclaimed settlement proceeds to certain designated organizations when such funds cannot be feasibly distributed to class members, have been a staple of class action lawsuits since 2005, when Congress limited the use of “coupons” in settlements with the Class Action Fairness Act of 2005. Although cy pres deals have historically been small residual payments composed of funds left unclaimed by class members, recent years have seen an increase in multi-million dollar cy pres awards, such as the $8.5 million deal at issue in Frank v. Gaos.
The issue before the Court in Frank v. Gaos, however, is not the size of the award, but the fact that it involves a “cy pres only” settlement—the result of $8.5 million being divided among 130 million potential class members, yielding only $0.04 per member. The unfeasibility of distributing such an award led the Ninth Circuit Court of Appeals to uphold the distribution of the settlement to various nonprofits and legal aid organizations, without any payments made directly to class members.
Critics of cy pres deals claim that they can be abused by parties to funnel money to specific organizations. Although cy pres funds do not often make up a significant portion of an organization’s budget, legal aid organizations in particular have used significant cy pres awards to fund specific projects, such as Equal Justice Work’s 1992 launch of the Equal Justice Works Fellowship. Supporters of cy pres deals argue that legal aid organizations and other nonprofits are more appropriate benefactors of unclaimed settlement funds than the defendants, because of the monetary support such funds provide to these often struggling organizations. For instance, the American Bar Association estimates that roughly $15.5 million in cy pres funds are distributed to legal aid organizations every year.
We will continue to monitor this case and its outcome.