District Court in Kansas Rejects Class-Action Cy Pres Because It Doesn’t Identify Recipients

In this decision issued on September 28, 2012, U.S. district judge Kathryn Vratil gave preliminary approval to most aspects of a complex class-action settlement but rejected a settlement provision that would have granted leftover settlement funds to unnamed governments or charities. By refusing to name the potential cy pres recipients, the court held, there was no way to tell whether the recipients would be tethered to the class members' interests or, rather, would be tied to the "whims" of counsel, the parties, or the court. Judge Vratil also noted that "the failure to designate a proposed cy pres recipient deprives class members of notice and the ability to object thereto." The relevant portion of Judge Vratil's opinion is reproduced after the jump. Her decision follows a spate of recent decisions on the class-action cy pres doctrine. To read about those rulings, go herehere, and here.

Finally, the parties have not shown how class members will benefit from the cy pres clause,
i.e. the provision which provides that after six years any remaining net settlement sums will be given to a governmental or charitable purpose which the parties decide and the Court approves. [footnote in opinion omitted] Seeid. ¶ 14(k). Under the cy pres doctrine, some courts have allowed class action settlements to distribute unclaimed or non-distributable portions of a class action settlement fund to the “next best” class of beneficiaries. Nachshin v. AOL, LLC, 663 F.3d 1034, 1036 (9th Cir. 2011). To the extent cy pres distributions are allowed, they must be carefully chosen to account for the nature of the lawsuit, the objectives of underlying statutes and the interests of silent class members, including their geographic diversity. Nachshin, 663 F.3d at 1039; see also In re Lupron Mktg. & Sales Pract. Litig., 677 F.3d 21, 33 (1st Cir. 2012) (when feasible, interests of cy pres recipients should reasonably approximate those being pursued by class); In re Airline Ticket Comm’n Antitrust Litig., 307 F.3d 679, 682 (8th Cir. 2002). Here, the proposed settlement provides no information regarding the proposed cy pres recipient. It provides only that plaintiffs and BP will choose the beneficiary, subject to Court approval. When the selection of cy pres beneficiaries is not tethered to the nature of the lawsuit and the interests of silent class members, the selection process may answer to the whims and self-interests of the parties, counsel or the Court. See Nachshin, 663 F.3d at 1039. By not identifying the proposed cy pres recipient, the parties have restricted the Court’s ability to conduct the searching inquiry required to approve such a distribution. See Dennis, — F.3d —, 2012 WL 3800230 at *7. In addition, the failure to designate a proposed cy pres recipient deprives class members of notice and the ability to object thereto. Accordingly, the Court will not preliminarily approve the proposed cy pres clause.

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