IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

In Re: FAO INC. Securities Litigation

STEPHEN HILL, et al.

 v.

JERRY R. WELCH, et al.

CIVIL ACTION

NO. 03-6596

MEMORANDUM RE LEAD PLAINTIFF’S MOTION FOR AN ORDER 

DIRECTING CY PRES DISTRIBUTION OF RESIDUAL SETTLEMENT FUNDS

Baylson, J. October 23, 2015

Presently before the Court is Lead Plaintiff’s Motion for an Order Directing Cy Pres

Distribution of Residual Settlement Funds in this securities fraud class action case. ECF 30. For 

the reasons that follow, Lead Plaintiff’s Motion shall be granted.

I. Facts and Procedural History

This case commenced in December 2003 as a nationwide class action alleging that 

Defendants violated the Securities Exchange Act of 1934. See ECF 1. It settled in 2005. See

ECF 24-29.

As of July 31, 2015, approximately $2,305.45 remains in the settlement fund out of the 

original amount of $1,120,000. ECF 30-1 at 1. The majority of the residual amount is 

attributable to uncashed checks. Id. Lead Plaintiff seeks an order directing distribution of these 

funds to Community Legal Services of Philadelphia (“CLS”) under the doctrine of cy pres.

II. Analysis

“The term ‘cy pres’ is derived from the Norman French expression cy pres comme 

possible, which means ‘as near as possible.’” In re Baby Prods. Antitrust Litig. (“Baby 

Products”), 708 F.3d 163, 168 (3d Cir. 2013) (citations omitted). “The cy pres doctrine 

originated in trusts-and-estates law as a rule of construction used to preserve testamentary 

charitable gifts that otherwise would fail. When it becomes impossible to carry out the charitable 

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gift as the testator intended, the doctrine allows the ‘next best’ use of the funds to satisfy the 

testator’s intent ‘as near as possible.’” Id. at 169 n.2 (citations omitted).

In Baby Products, the Third Circuit endorsed the use of cy pres to distribute excess funds 

remaining from a class action settlement to a third party “to be used for a purpose related to the 

class injury.” 708 F.3d at 172. Baby Products noted that “cy pres distributions are most 

appropriate where further individual distributions are economically infeasible . . . .” Id. at 173. 

A. Cy Pres Is Appropriate in This Case

In this case, Lead Plaintiff notes that distributing the remaining settlement funds to 

members of the class “is not practicable, including given the costs associated with additional 

notice and claims procedures.” ECF 30-1 at 1. Under Baby Products, this case is an ideal 

candidate for cy pres.

B. Community Legal Services of Philadelphia is an Appropriate Recipient

The question of whether CLS should receive the funds is closer. Cases in the Eastern 

District have rejected cy pres requests when the proposed recipient had no connection to the 

subject matter of the underlying litigation. See Schwartz v. Dallas Cowboys Football Club, Ltd., 

362 F. Supp. 2d 574, 577 (E.D. Pa. 2005) (rejecting cy pres distribution to a student legal clinic 

and a high school scholarship program because the proposal did not touch upon the subject 

matter of the law suit). Cases from other jurisdictions have also expressed concern about a 

mismatch between the geographic scope of a class and the scope of a cy pres recipient. Nachshin 

v. AOL, LLC, 663 F.3d 1034, 1040 (9th Cir. 2011) (“The cy pres distribution also fails to target 

the plaintiff class, because it does not account for the broad geographic distribution of the 

class.”)

Nevertheless, the Court concludes that CLS is an appropriate beneficiary. As to CLS’s 

connection to the underlying litigation, the Southern District of New York has endorsed Lead 

Plaintiff’s cy pres request on a comparable fact pattern. Jones v. Nat’l Distillers, 56 F. Supp. 2d 

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355, 359 (S.D.N.Y. 1999) (granting cy pres to Legal Aid Society in civil securities case). As 

Jones held, “[t]he intent of the settlement fund was to help those claiming injury by civil 

securities fraud. The Legal Aid Society Civil Division exists for the at least somewhat analogous 

purpose of helping those needing legal assistance for various civil matters. The tie to the intent 

of the fund is thin, but not as thin as it would be if the donation served an entirely unconnected 

cause such as a dance performance or a zoo.” Id.

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As to geographic concerns, Eastern District cases have also approved cy pres

distributions to Philadelphia-serving institutions in national multidistrict litigation. See In re 

Linerboard Antitrust Litig., MDL No. 1261, 2008 WL 4542669, at *4 (E.D. Pa. Oct. 3, 2008) 

(approving cy pres in a multidistrict antitrust litigation to the Philadelphia Bar Foundation). 

Given that Lead Plaintiff’s Motion is unopposed, and that “[t]he judicial role is better 

limited to approving cy pres recipients selected by the parties” rather than selecting one, Baby 

Products, 708 F.3d at 180 n.16, the Court concludes that cy pres in favor of CLS is advisable in 

this case.

III. Conclusion

Because the residual settlement funds in this case cannot feasibly be distributed to class 

members, the Court will redirect them to CLS via cy pres. An appropriate Order follows.

O:\Steve.2015\03-cv-6596 Hill v. Welch (Cy Pres)\03cv6596.2015.10.23.memo.docx

1 The Court also notes that Baby Products endorsed the American Law Institute’s Principles of the Law of 

Aggregate Litigation § 3.07. 708 F.3d at 172. As the First Circuit noted, the Principles do not always require a cy 

pres recipient to reasonably approximate the interests of a plaintiff class: “ALI Principles § 3.07(c) sets up an order 

of preference: when feasible, the recipients should be those ‘whose interests reasonably approximate those being 

pursued by the class.’ Id. If no recipients ‘whose interests reasonably approximate those being pursued by the class 

can be identified after thorough investigation and analysis, a court may approve a recipient that does not reasonably 

approximate the interests being pursued by the class.’ Id.” In re Lupron Mktg. & Sales Practices Litig., 677 F.3d 

21, 33 (1st Cir. 2012).

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