What Happens to Unused Class Action Settlement Money?

Gavel and scales, by Flickr user "s_falkow", licensed via Creative CommonsWe often hear about bigtime class action settlements, the ones with millions of dollars set up in trusts and application processes to benefit from.  Like the $325 million Apple antenna lawsuit, or the recent $3 million Nutella settlement.  In these types of settlements, the number of people affected by them (the “class”) is unknown, so the settlement money is put into a fund and a time period is given in which class members can sign up to receive some of the money from that fund.  The total settlement award that we read about in the papers, however, is actually an upper bound.  That’s the limit — once it’s reached, it’s hard cheese for any more people who want to benefit.  Very rarely is the full amount given out.  More often, the upper bound is not reached and some money is left sitting in the trust.  What happens to this money?

Usually, the litigants and defends argue a cy-près award, which is a fancy legal term for “as near as possible”.  When the original intent of a settlement is unable to be fulfilled, i.e. when not enough people make a claim or the distribution of the money is more costly than the award itself, a new award is applied cy-près.  So, if Apple is unable to find enough people give its $375 million to, they and the class action lawyers will appear in court and present to a judge some novel idea for the money.  Maybe they’ll set up a charitable research fund in the area of antennas and junk.  Who knows?  The only real limitation is that the new purpose must be in the class members’ interests.  The effect is still punitive in a way, since Apple can’t just take the money back.  But, the money can go to charities and research and other things unrelated to the original lawsuit, so long as it’s proposed by the members of the class and, ultimately, approved by a judge.

Recently, some Courts of Appeals have questioned this practice.  The 1st Circuit Court ruled on Monday that a cancer research center at Harvard can keep the money it received cy-près from an unrelated class action settlement.  The case involved the fraudulent pricing and marketing of a prostate cancer drug produced by TAP Pharmaceuticals and resulted in $40 million for consumer class action claims.  When most of the money went unclaimed, the judge sent the money to Harvard’s cancer research.  This decision was appealed, and upheld, but not without some resignations.  The court questioned the ability of a judge to distribute money at his/her discretion.  Shouldn’t claimants have a say?  Should only the claimants have a say?  Other rulings have brought up questions about cy-près awards.  As recently as November, the 9th Circuit rejected a cy-près award given to charity by AOL because it did not “address the objectives of the underlying statutes”.

A lawyer in the TAP case is bringing this question up to the Supreme Court.  Donald Haviland of the firm Haviland Hughes, a lawyer for the class, petitioned the court for certiorari.  He argues that the members of a class should be fully compensated, and giving money to other organizations goes against the whole point of a class action lawsuit.  So, in like five years I guess we’ll see an answer to this intriguing question — the Supreme Court’s pretty slow with most things.

 

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