As a class action lawyer, I spend most of my time trying to get money back for consumers and businesses that have been victims of a scam or unfair practice or event. One little-known benefit of the job though is that sometimes I also get to use a class action to help fund a charity or cause, through what is known in legal terms as the cy pres doctrine. The Indianapolis Star recently ran a pair of stories (1 and 2) about how one of Cohen & Malad’s class action cases is helping fund a free consumer lawyer for the poor, and I think it is worth sharing how the cy pres doctrine works in class actions and how it worked in that case.
So How Does Cy Pres Work?
When a class action case is settled or won in court, it usually means the defendant pays money for the benefit of the victims. That payment (called a settlement fund) is held in an account, and we divide up and distribute the money to the hundreds or thousands of victims for whom the case was brought, in the manner approved by the court. Usually, checks get sent out to the last-known addresses of the victims. While most checks get cashed, inevitably, some victims cannot be found or for whatever reason do not cash their checks.
After trying to track down all of the people who did not cash their check, there usually are still some folks who are impossible to find. That means uncollected money remains in the settlement fund. This is where the cy pres doctrine comes in to provide that the leftover money can be used for a charitable purpose.
“Cy pres” is an abbreviation of “cy pres comme possible,” and, if you’ll excuse my French (not Latin), means roughly “as near as possible.” The phrase comes from trust law, but in the class action context it is the doctrine that allows the leftover settlement money to be used “as near as possible” for the purpose for which the lawsuit was brought. Usually, this means giving the money to a charity that shares in the cause of the lawsuit or that benefits the same type of people for whom the lawsuit was brought. Most sources trace the use of the cy presdoctrine in class actions to the 1974 case of Miller v. Steinbach, No. 66 Civ. 356, 1974 WL 350 (S.D.N.Y. Jan. 3, 1974), and it has been used thousands of times since.
A Cy Pres Success
Recently, we sued an online payday lender for charging hundreds of Indiana consumers interest rates that were much higher than allowed under Indiana’s payday lending laws (yes, 1,000% APR is too high). After years of litigation, the case settled for a cash payment, and, after distribution to the victims, there were $98,509.37 in unclaimed funds. Indiana has a special rule for cy pres funds, Indiana Trial Rule 23(F), which requires that 25% of leftover funds go to the Indiana Bar Foundation to support its pro bono activities, which assist the poor with legal issues, so 25% went to that organization. The remaining 75% of any leftover funds are left to the court to distribute under the cy pres doctrine in the manner it deems best.
In this particular case, we recommended to the judge a number of different consumer legal services organizations, which would use the money to provide legal help and access to low-income consumers, many of whom are payday loan victims like the people on whose behalf we brought the lawsuit. The judge asked these organizations to submit proposals for what they would do if they were awarded the money, and the winning proposal came jointly from Indiana Legal Services, Inc. and Heartland Pro Bono Council, Inc. They proposed creating “The Consumer Advocacy Project” to provide a free consumer lawyer to assist and educate low income consumers.
In May of this year, the groups reported to the court on the accomplishments of The Consumer Advocacy Project in its short existence so far. Already the Project has provided legal assistance to over 50 low income clients and education to more than 250. As The Indianapolis Star reported, the program is “changing lives.” “I don’t know what I would have done without that [legal] help,” one client said. “I wouldn’t have been able to pay a lawyer.”
So, in addition to deterring large corporations from bad practices and giving consumers an avenue to recover, class actions can provide meaningful charitable contributions for the public good. And that’s an aspect of our legal system that everyone should be proud of.