The Fifth Circuit Court of Appeals has overturned a trial court’s order distributing funds remaining from the settlement of medical monitoring claims to four charities under the cy pres doctrine. Klier v. Elf Atochem N. Am., Inc., No. 10-20305 (5th Cir., revised September 27, 2011). The issue arose in a case involving exposure to chemicals emitted by an agrochemical plant in Texas. Three subclasses were ultimately certified, and funds were distributed according to the terms of the settlement agreement.  

According to the court, approximately $830,000 remained from the money allocated to one of the subclasses whose members were permitted to forego a small cash payment and “instead enroll in a program through which they would receive regular checkups and physician visits over a five-year period.” The parties agreed that additional distribution to members of this subclass was not economically feasible, so, 18 years after the litigation was filed, the court ordered the funds to be distributed to three charities proposed by the defendant and to a local history and genealogy library proposed by the court. A member of a different subclass opposed the proposal, arguing that the funds should be distributed pro rata to his class. He also contended that the defendant’s proposed charities, a scholarship program and two museums, were not proper recipients.  

Overturning the district court’s order as an abuse of discretion, the appeals court began its analysis with the premise that “settlement funds are the property of the class, [and] a cy pres distribution to a third party of unclaimed settlement funds is permissible ‘only when it is not feasible to make further distributions to class members.’” Carefully examining the settlement agreement, the court noted that one of its provisions allowed the settlement administrator to “petition the District Court for reallocation of available funds among the [subclasses] on a showing of good cause if … he determines that considerations of equity and fairness require reallocation.”  

The administrator did so about a year after medical monitoring began, but the district court refused the request, stating that it would decide later what to do with the remainder of the medical-monitoring fund. According to the appeals court, “The Protocol did more than merely empower the district court to allocate medical-monitoring funds unused by members of Subclass B to members of other subclasses—it required the court to do so as long as further distributions were feasible and equitable.” Agreeing with other courts that require a case-specific approach “to the role of the federal district judge in the distribution of monies left unclaimed after administration of a class settlement,” the court ruled that the failure of one subclass to draw down all available funds “did not constitute an abandonment or relinquishment by the class of its property interest in the settlement.”  

A concurring judge questioned the continuing viability of the cy pres doctrine, contending that the preferable alternative is “to return any excess funds to the defendant,” claiming that this “corrects the parties’ mutual mistake as to the amount required to satisfy class members’ claims.”