Let's say you have a class action lawsuit. You reach a settlement. But then, you realize that a substantial chunk of the settlement funds will go unclaimed. The plaintiffs' collective take will be $3 million. The attorneys' fees total $14 million. There's still $18.5 million looming in legal limbo.
Simple solution? Give the plaintiffs' shares to charity!
Except the Third Circuit Court of Appeals is not so comfortable with that solution, known as cy pres.
The Center for Class Action Fairness won a major victory before the Third Circuit on Tuesday when the Philadelphia-based court decided that including gifts to charities unrelated to the litigation "may increase a settlement fund, and with it attorneys' fees, without increasing the direct benefit to the class," Forbes reports.
The case involved a lawsuit against Babies 'R' Us and Baby Bjorn AB for allegedly setting price floors on certain products. The defendants agreed to pay refunds to customers, and a judge approved a $35.5 million settlement, as well as $14 million in attorneys' fees based on the settlement sum, according to Forbes.
When it became clear that only $3 million in claims would be paid, the lawyers proposed that the settlement amount go to charity instead.
While the Third Circuit's ruling doesn't bar cy pres awards, the panel noted that such awards "should generally represent a small percentage of total settlement funds," Thomson Reuters News & Insight reports. The appeals court also said that courts should consider the total cy pres awards compared to recoveries for class members when determining the amount of attorneys' fees awarded to class counsel.
Now, it's back to the settlement table for the litigants. The appellate panel vacated the district court's orders approving the settlement and the fund allocation plan because the court lacked the necessary factual information to determine whether the settlement would provide sufficient direct benefit to the class. The panel also vacated the attorneys' fees and costs award because it was based on the now-vacated settlement. The district court will have discretion in recalculating the fees.
- In Re Baby Products Antitrust Litigation (Third Circuit Court of Appeals)
- Judges Express Unease in Distributing Cy Pres Award (FindLaw's First Circuit Blog)
- Judge Approves Facebook's Sponsored Stories Settlement (FindLaw's California Case Law Blog)
- Ninth Circuit Overturns AOL Privacy Settlement (FindLaw's Decided)