What Is a Cy Pres Award?
A cy pres award is the distribution of money from a class action settlement to a charitable organization.
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When Would a Cy Pres Award Be Given?
When a class action lawsuit settles, it's possible that not all of the money will be claimed by class members. Cy pres awards are a way for this extra money to be put to good use.
Generally speaking, cy pres awards are given in cases in which:
There is still money remaining in the settlement fund – even after all class members have been paid. This might happen, for example, when class members fail to cash their settlement checks.
The amount of the fund is too small to justify a distribution directly to class members. This often happens when the main goal of the settlement is to require the defendant to stop illegal practices. In a false labeling case, for example, each class member may only be entitled to a miniscule amount in damages – an amount that would make it impractical to send out checks. The settlement in a case like this may instead require labeling changes and the payment of an amount to a cy pres recipient. These payments can be substantial—in the millions of dollars—but still impractical to distribute to class members, who may also number in the millions.
What Does Cy Pres Mean – and How Did It Originate?
The term "cy pres" comes from the French phrase cy pres comme possible, which translates to "as close as possible." The cy pres doctrine originates from sixth-century Rome when the term applied to wills and estates. Back then, the doctrine was used in regard to charitable trusts. If someone's will designated money to a charity that no longer existed or was otherwise ineligible, the courts would move the funds to another organization whose mission was "as close as possible" to the donor's original intent.
In a case involving people who were cheated out of money by a bank, the court might approve a charity that supports consumer rights as an appropriate cy pres recipient to receive money that was sent to class members who never cashed their settlement checks.
In 1986, the California Supreme Court endorsed the use of cy pres awards in class action lawsuits to distribute settlement money to the "next best" group of consumers whose interests may coincide with class members. Over the years, the idea of "next best use" evolved to allow courts to award leftover settlement money to a charity whose mission aligns with the issue at the center of the lawsuit (e.g., workers' rights, false advertising, etc.).
Examples of Cy Pres Awards
- All of the money went to the cy pres recipient:
In Lane v. Facebook, a $9.5 million settlement agreement resolved allegations that the social media giant's new advertisement system "Beacon" allowed users' private information to be posted on the site without their consent. While this case involved an important privacy violation, the judge found that any monetary damages that could be owed to the class members was "speculative, at best."
So, rather than provide money to Facebook users, the primary goal of the settlement was to make the defendant stop its illegal practices, which it did. Both sides decided that the money should be used to set up a new charity, which was dubbed the Digital Trust Foundation. The foundation is run by three prominent and respected privacy advocates and aims to "fund projects and initiatives that promote the cause of online privacy, safety and security." So, in the end, the settlement money went to an organization whose goals aligned with the claims brought in the case – violations of the Video Privacy Protection Act, the Computer Fraud and Abuse Act and other online and computer privacy laws.
- Part of the money went to the cy pres recipient:
In re Lupron Marketing and Sales Practices, TAP Pharmaceutical Products, Inc. and co-defendants Takeda Pharmaceutical Company and Abbott Laboratories were sued over an alleged scheme to artificially inflate the price of prostate cancer drug Lupron. A $40 million settlement fund was set aside for consumers, with all of the money that could not be sent directly to class members required to be distributed to a cy pres recipient. In this case, the cy pres recipients were the Dana Farber/Harvard Cancer Center and the Prostate Cancer Foundation. These organizations were deemed appropriate cy pres recipients because the drug at issue in the case was used to treat prostate cancer.
- The judge rejected the cy pres recipient:
In Nashin v. AOL, three proposed cy pres recipients – local chapters of the Legal Aid Foundation and the Boys and Girls Club, as well as the Federal Judicial Center Foundation – were rejected. The court found that the local branches of the Boys and Girls Club and Legal Aid didn't adequately represent the interests of the class because they were based out of Southern California whereas class members were located across the country. Furthermore, because the case dealt with AOL's alleged practice of inserting promotional messages in users' email footers, the judge found that the proposed cy pres recipients had nothing to do with "the objectives of the underlying statutes on which plaintiffs based their claims." In a case like this, a better cy pres recipient would have been an organization that focused on consumer privacy.
Who Decides on Cy Pres Recipients?
Any party involved in the case can propose a cy pres recipient; however, the court has final approval.
The party proposing the cy pres recipient will have to explain to the court why the organization is a good fit for the particular case, and show how the activities of the recipient will promote the interests asserted in the case.
A judge has the discretion to reject a cy pres recipient if he or she believes it does not align with the goal of the litigation.
What Are the Alternatives to Cy Pres Awards?
In the event a cy pres recipient is not established, it's possible that the money could end up back in the hands of the defendant – the person(s) or company(ies) accused of wrongdoing. By giving money back to the defendant, the deterrent effect of class action lawsuits – to serve as a warning to the defendant and similar companies – is essentially lost.
In another option, the leftover money could be given to the state. This presents another problem. The leftover money is often given to a local government, even though the lawsuit could have affected people from many states.
What Are the Benefits of Cy Pres Awards?
The main benefit of cy pres awards is that settlement funds can be distributed to an organization that helps to further class members' – that is, consumers' and workers' – rights. As charitable organizations, cy pres recipients often play a role in advocating against the kinds of policies that lead to lawsuits in the first place.
In addition, cy pres awards provide a reason for a judge to allow a case to move forward as a class action even if the potential award to each proposed class member is minimal. In these instances, the plaintiffs' attorneys may move to donate the entire settlement as a cy pres award rather than mailing out checks for miniscule amounts.
In essence, cy pres awards serve as a rebuttal to defense attorneys who argue that their clients' cases should be dismissed because it would be economically infeasible to compensate class members, even though their client may have done wrong. Without cy pres as an option, companies can steal small amounts from everyone, or violate peoples' rights (to privacy or truthful product information, for instance) without ever fearing that it will cost them any money.
What Criteria Are Used in Selecting Cy Pres Recipients?
The American Law Institutes' Principles of Law of Aggregate Litigation (ALI Principles) establish the best practices for distributing cy pres awards.
The principles include:
- Class Members Come First
Before distributing leftover settlement money via a cy pres award, the ALI Principles ask that any residual funds be distributed among the class members until they are fully compensated for their losses. For instance, if a lawsuit is filed over allegedly misleading claims on a cereal marketed as "natural" when it contained synthetic ingredients, the settlement may only allow class members to claim up to five boxes per household, regardless of how many boxes they actually purchased. If only 30% of class members actually claim part of the settlement – and there is money leftover in the settlement fund – class members may be able to submit claims for any additional boxes of cereal they purchased.
- Cy Pres Recipients Should Align with the Interests of the Class
All non-profit public and legal services organizations – particularly those that provide legal assistance to low-income and disadvantaged groups – are generally acceptable to be chosen as cy pres recipients.
Attorneys and judges, however, aim to make sure cy pres recipients align with the interests of the class by considering factors such as:
The type of wrongdoing the class members suffered (false labeling, product defect, etc.)
The nature of class members' injuries (physical harm, harm to vehicle or property, statutory violations, etc.)
The reason why there is money left over
- Cy Pres Awards Should Take into Account Where Class Members Live
To help ensure all class members benefit indirectly from a cy pres award, ALI principles suggest that a national organization be chosen in a case that affects consumers in all 50 states or identifies a multi-state class. For instance, a court rejected two cy pres recipients in Nashin v. AOL because 66 million AOL subscribers were affected by the lawsuit's allegations – but the proposed cy pres recipients served only certain areas of California. As a general guideline, a portion of a cy pres distribution should be given to a national non-profit, with any remaining money assigned to an organization in the local jurisdiction.