Distributing “cy pres” Funds

In recent class action cases that we have filed in Humboldt County and in other counties we’ve had occasion where all the funds have not been claimed after the claim process was finished.  We’ve been asked what is done with those remaining funds.

When a balance of class recovery remains after distribution to the individual class members, the court is faced with the issue of how to dispose of the remaining balance of the common fund.

The courts have broad discretionary powers in shaping equitable decrees for the disposal of unclaimed class action funds.  The “cy pres doctrine” (from the French meaning “as close as possible”) is an equitable doctrine that allows the court to distribute the funds in a manner that will best benefit class members.     Cy pres is often referred to as a “fluid recovery.”  The legislature specifically authorized fluid recovery in class actions in Code of Civil Procedure §384, providing that the residue be paid to “nonprofit organizations or foundations to support projects that will benefit the class or similarly situated persons, or that promote the law consistent with the objectives and purposes of the underlying cause of action.”  For example, in In re Consumer Privacy Case, 175 Cal.App.4th 545 plaintiffs brought a class action against a bank, alleging that it had disclosed personal and confidential information to third party telemarketers.  The court ordered $1.75 million  be paid to nonprofit entities that specialized in privacy related research, education, or policy development.  The court also awarded $1.5 million to entities that it believed would help in the protection of privacy, including the Electronic Privacy Information Center, the American Civil Liberties Union, and Consumer Action.

In determining who should be the recipient of the cy pres funds there is no specific requirement that there be a direct link to the core purpose of the litigation.  Rather, the question is whether the settlement taken as a whole is fair, reasonable and adequate. For example, see Dunk v. Ford Motor Company (1996) 48 Cal.App.4th 1794.  Another example of cy pres distribution is In re Microsoft I-IV Cases, 135 Cal.App.4th 706 (2006).  That case concerned a claimed overcharge of components to the Microsoft operating system software.   As part of the settlement, the parties agreed to cy pres  substantial funds to benefit public schools in low income areas by the issuance of vouchers for obtaining computer hardware, software and services related thereto.

There is no need that a trial court initiate an investigation to determine all possible cy pres distributions as long as the cy pres distribution proposed is reasonable.  In re Microsoft I-IV Cases (2006) 135 Cal.App.4th 706, 725.