Cy Pres Settlements: Problems Associated with the Judiciary's Role and Suggested Solutions

INTRODUCTIONClass action lawsuits are a common means of resolving a large number of claims in a single proceeding.1 Issues relating to settling class action lawsuits are frequently litigated due to the high stakes nature of class action litigation and the complexity of many class action settlements.2Recently, courts have grappled with issues surrounding the distribution of unclaimed settlement funds in class action suits.3 Sometimes excess funds re main in a settlement pool after class members have been compensated.4 Other times, distribution to class members is economically infeasible because transaction costs associated with distribution substantially outweigh the compensation individual class members are entitled to receive.5 In these situations, the parties and courts must determine how to distribute the settlement funds that remain uncollected.6To resolve these problems, parties to class action lawsuits and courts have begun distributing uncollected settlement funds to charitable organizations.7 This action is commonly referred to as a "cy pres" distribution.8 The idea is that when direct distribution is impossible or infeasible because class members cannot be located or transaction costs outweigh potential recovery, distribution to charitable organizations provides the next best benefit to class members.9Recently, courts and commentators have raised questions about the use of cy pres distributions in class action settlements.10 Courts and commentators have suggested that the practice raises serious constitutional concerns.11 Further, circuit courts are not in total agreement about the standards surrounding the use of cy pres distributions in the class action context.12 Finally, U.S. Supreme Court Chief Justice John Roberts has indicated that there are "fundamental concerns" surrounding the use of cy pres remedies in class action litigation.13This Note addresses problems relating to the proper role of the judiciary in shaping cy pres settlements and suggests solutions to these problems.14 Part I provides general background on class action litigation and the development of cy pres remedies in this context.15 Part II introduces and explains two major concerns about the proper role of judges in shaping a cy pres remedy, and examines how courts and commentators have responded to these concerns.16 Finally, Part III argues that these problems are best solved by removing judges from the process of allocating unclaimed settlement funds to charitable organizations.17I. CLASS ACTION SETTLEMENTS AND CY PRES DISTRIBUTIONSUnderstanding the problem of cy pres distributions requires some background into class action lawsuits and the mechanism for distributions generally.18 Section A examines class action lawsuits generally and the role of judges in approving class action settlements.19 Section B then explains cy pres settlements as a means of accounting for excess settlement funds that are unclaimed by class members.20A. Class Action Settlement GenerallyBroadly speaking, Rule 23 of the Federal Rules of Civil Procedure is a procedural mechanism allowing for the aggregation of claims. 21 Under this Rule, individual plaintiffs can bring claims on behalf on themselves and all other individuals who have similar claims based on common questions of law or fact.22 The individuals for whom claims are brought ("class members") are not actively involved in the litigation.23 Class members may be bound by a judgment or a settlement unless they affirmatively opt-out at the certification or settlement stage.24Since judgments and settlements may be binding on non-named class members, there are strict requirements for when a class action may be maintained.25 As an initial matter, the named plaintiff must show that: (1) the putative class is so numerous that a joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims of the named plaintiffs are representative of the claims of all class members; and (4) the named plaintiffs will fairly and adequately protect the interests of the unnamed class members. …