What Is Cy Pres? -or- Why Big Business Wants Their Illicitly-Obtained Money Back

The University of Maryland School of Law's Consumer Protection Clinic received a check for $395,000 in cy pres funds from a class action lawsuit.

One of the difficulties with meritorious class action lawsuits is identifying the actual members of the class so they can get paid. Note that I used the word “meritorious.” Let’s start this off with a digression:

We all have a favorite story about that class action where regular “injured” folks received a coupon for another television from a bad company that they wouldn’t buy, anyway, and the lawyers got rich with a gajillion dollars in attorneys’ fees.  Or maybe, like me, you opened your mail one day and discovered that you were included in a class action lawsuit that settled and received a check in the amount of <gasp!> $0.04 (finally!  my prayers of paying off those student loans have been answered!).  Cases like this make it seem like class action lawsuits are just legal wrangling that accomplish no useful purpose.  Truthfully, class action lawsuits are not perfect. But you know what?  I deposited that $0.04 check into my account. You know why? Because if I didn’t, the company that did the bad thing would further get away with whatever bad thing they did.  They should have to pay for what they’ve done wrong, and if they have to pay me four cents, I should take it.  Otherwise, they might reap the “windfall” of that four cents.  When every member of the class decides that it’s too much trouble to go down to the bank, then the company really gets off scot-free.  Remember–in a meritorious class action case, the company has had a chance to get the case dismissed, but they failed.  As a result, the case either settled, or went to trial and they lost.  A judge has decided that the case has merit according to the applicable laws.

In some class action cases, though, if I don’t cash that check, my $0.04 goes into a special cy pres fund.  That means that all of the unclaimed money that is owed–the money that the lawyers cannot trace to me because I moved, because the company kept shoddy records, or because I put the check straight into the recycling bin, gets put into a fund.  It would be a windfall to a negligent or bad-acting company to give the money back to them.  The lawyers shouldn’t get it–they didn’t earn it.  What to do with the money?

Under cy pres, the money is given to an organization that can use it.  What usually happens is that the lawyers agree on an organization or two to receive the money, and they ask the judge to approve it.  If the lawyers can’t agree, they will submit it to the judge to decide. These organizations are usually charitable, and usually have something to do with the nature of the litigation.  In Maryland, for example, past cy pres funds have been given to Maryland Legal Aid Bureau, the National Association for Consumer Advocates, Public Citizen, and the Public Justice Center, among  any others.

The Blog of Legal Times reports that big businesses don’t like the practice of cy pres awards being used for charitable causes, because they don’t benefit the class members.  Missing from the article is what detractors would have done with the “extra” money.  Inquiring minds want to know…