If you’ve ever been a member of a class action lawsuit, you may have ended up, a few years later, when the case was finally decided, with a few dollars in your pocket--less if claims received exceeded monies set aside to pay them. Have you ever wondered,
though, what would happen if the amount set aside to compensate the class members resulted in more money than claims?
Well, there’s a certain doctrine, the cy pres doctrine, that holds the answer to this question. Rather than distribute the excess monies to the class members, which could be more trouble than it’s worth (except, perhaps, in the opinion of the class
members), the cy pres doctrine allows such funds to be distributed so as to “’indirectly benefit the entire class.’”
How is the distribution decision made, then, to accomplish this end?
Just being a worthy recipient isn’t enough to qualify for a share of the pie. There must be a “driving nexus” between the plaintiff class and the cy pres beneficiaries. And here’s a case that might help explain how this all works--or doesn’t work:
In 2008, two plaintiffs, representative of a class, sued the Kellogg Company, maker of Frosted Mini Wheats, because of its claims that its cereal improved children’s attentiveness in school. The proposed settlement agreed upon by the parties (which
settlement had been negotiated prior even to class certification) included cy pres distributions of any excess settlement funds and $5.5 million worth of Kellogg’s food items to “charities that feed the indigent.”
Worthy beneficiaries indeed, these charities. Who would dispute that?
But there’s that “driving nexus” snag. So although the district court approved the settlement, the appellate court did not. First, the appellate court disputed Kellogg’s argument that donating food to such charities related to the underlying class claims
because “this case is about the ‘nutritional value’ of food.” Rather, that court held, the case was about Kellogg’s having advertised that its cereal did improve attentiveness. Thus, such cy pres distribution, though a “noble” goal, had “little or nothing
to do with the purposes of the underlying lawsuit or the class of plaintiffs involved,” and appropriate cy pres recipients would not be charities that feed the needy, but organizations dedicated to protecting consumers from, or redressing injuries caused by,
false advertising.
The court also considered the settlement document vague and possibly misleading as to how the “$5.5 million worth” of food would be valued. That is, though Kellogg’s attorneys said it would be valued at wholesale, the settlement document said nothing
about the wholesale value. And would the food distribution be tax deductible for Kellogg? Would the charitable distribution be in addition to or offset by the money and food Kellogg already donates to charities every year?
These questions had a direct relationship to the appropriateness of the attorneys’ fees, which could have reached 38.9 percent of the total award, depending upon the answers. Indeed, the class action settlement had set attorneys’ fees at $2 million
while limiting any consumer’s redress to $15.
The court observed that class counsel and Kellogg had asked for a “verdict before the trial.” In other words, it was asked to “uphold the settlement now, and we’ll tell you what it is later.”
The parties may have to go back to court to settle this case. Or, they may just renegotiate--perhaps at the breakfast table over a bowl of frosted mini-wheats.