In a 5-4 decision, the Texas Supreme Court held that the cy pres provision of a class action settlement was not subject to the state’s Unclaimed Property Act.  After the trial court  certified a class of subcontractors whose pay allegedly had been improperly docked by the defendant contractor, the parties settled the case on a class-wide basis agreeing that the defendant would issue refund checks to the aggrieved class members.  The settlement contained a cy pres provision whereby the parties would distribute all refund checks that had not been negotiated within 90 days of issuance to the Nature Conservancy.

The lower court approved the settlement.  Before judgment was entered, however, the State of Texas intervened, arguing that the Unclaimed Property Act prohibited the cy pres distribution of “unclaimed funds.”  The court of appeals agreed and instructed the trial court to strike the cy pres provision and order the settlement administrator to hold all the “unclaimed funds” for three years and then distribute them to the Texas Comptroller pursuant to the Texas Unclaimed Property Act.

The Texas Supreme Court reversed the appellate court, holding that the Unclaimed Property Act did not prohibit what the Texas class action rule permits, namely, the disposition of absent class members’ claims by their representatives with court approval.  The court reasoned that absent class members had “claimed” the sums at issue through their class representatives but merely failed to collect the within 90-days as agreed upon by their class representatives in the class action settlement agreement.  The court further reasoned that a property owner did not need to “actually collect his property” to rebut the presumption of abandonment, but he or she only needed to claim it which the class representatives had done on behalf of the class.

Highland Homes Ltd. v. Texas, No. 12-0604 (Tex. Aug. 29, 2014)