At the conclusion of a class action lawsuit, a settlement fund is often established to compensate individuals, referred to as class members, who were harmed by the product or service that is the subject of the lawsuit. In some lawsuits, class members automatically receive a check in the mail for their portion of the settlement money. In other cases, class members must submit a claims form to a designated claims administrator to receive payment. Either way, it is quite common for the settlement fund to have extra money after each class member has been paid. For instance, sometimes class members cannot be located or a surprisingly low number of people submit claims for compensation, resulting in unclaimed settlement funds.
Because there is usually money left over, the attorneys for both sides may reach an agreement during settlement negotiations regarding who should receive the unclaimed settlement funds.
Because there is usually money left over, the attorneys for both sides may reach an agreement during settlement negotiations regarding who should receive the unclaimed settlement funds. In general, here’s what usually happens to the excess money:
Donated to Charity
The extra money may be donated to a charity or non-profit organization whose mission aligns with the public policy goals of the lawsuit. For example, in a class action lawsuit involving allegations that a food company falsely advertised its products as natural, leftover settlement funds may be donated to a non-profit organization that works to educate people about making healthy food choices.
The legal underpinnings of this approach come from the trust and estate law doctrine of “cy pres.” The term “cy pres” is derived from the Norman French expression “cy pres comme possible,” which means “as near as possible.” Under the cy pres doctrine, after a trust fund’s original purpose fails, the fund is to be distributed to the “next best” use.
Distributed to Known Class Members
In some cases, the settlement agreement provides that any unclaimed funds will be divided evenly among the known class members. Under this approach, class members may receive a second check in the mail representing their pro-rata share of the excess settlement funds.
Returned to the Defendant
The settlement agreement may specify that any unclaimed settlement proceeds will be returned to the corporate defendant.
If you have received a notice in the mail stating that your legal rights may be affected by a class action lawsuit, it is important that you read the document carefully. There may be deadline for you to submit a claim in order to receive your portion of the settlement money. Otherwise, your share will become part of the unclaimed funds.