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Cy Pres Distributions in Class Action Settlements Addressed By Eighth Circuit

By Wystan Ackerman & Wystan Ackerman on January 19, 2015
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Over the last several years, federal courts of appeals have been closely scrutinizing cy pres distributions to charitable organizations in class action settlements. This includes opinions by the First Circuit, Third Circuit and Ninth Circuit. The general thrust of these decisions is that cy pres should be used sparingly, and the charitable organization should be closely tied to the objective of the lawsuit. The Eighth Circuit recently weighed in and largely joined its sister circuits, with one judge dissenting.

In re BankAmerica Corporation Securities Litigation, No. 13-2620, 2015 U.S. App. LEXIS 306 (8th Cir. Jan. 8, 2015) involved a $490 million securities class action settlement . After two distributions to class members, $2.4 million remained. The district court ordered a cy pres distribution to the Legal Services of Eastern Missouri, Inc., and also awarded a supplemental attorneys’ fee of approximately $98,000 for work done after the initial distribution. An objecting class representative represented by Ted Frank of the Center for Class Action Fairness appealed, and the Eighth Circuit vacated the order and remanded.

 Key points made in the opinion include:

  • “Because the settlement funds are the property of the class, 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’ . . . . except where an additional distribution would provide a windfall to class members with liquidated-damages claims that were 100 percent satisfied by the initial distribution.” Id. at *7 (citation omitted).
  • Simply because class members submitting claims have received the amounts they are due under the terms of the settlement does not mean they have been “fully compensated,” and thus does not necessarily justify a cy pres award. Id. at *11.
  • A settlement agreement and settlement approval order providing for a cy pres distribution of unclaimed funds is not binding on the court with respect to disposing of unclaimed funds. Id. at *12-13.
  • “[U]nless the amount of funds to be distributed cy pres is de minimus, the district court should makea cy pres proposal publicly available and allow class members to object or suggest alternative recipients before the court selects a cy pres recipient.” Id. at *14.
  • A cy pres “distribution must be ‘for the next best use . . for indirect class benefit,’ and ‘for uses consistent with the nature of the underlying action and with the judicial function.” Id. at *15 (citation omitted). In this case, the Missouri nonprofit, which served victims of fraud, was likely not appropriate for a nationwide securities class action. The court suggested that perhaps the SEC Fair Funds would be appropriate.

Judge Murphy dissented, concluding that the district court did not abuse its discretion because the settlement agreement provided for the cy pres distribution, a further distribution was unlikely to be feasible (particularly where many shareholders held shares through a mutual fund and many would have sold those shares over the years), and the Missouri organization was sufficiently tied to the nature of the suit.

Based on the recent appellate decisions, cy pres distributions are likely to be used less frequently, but there is still a place for them. In some cases, for example, the transaction cost of making a supplemental distribution to class members will make such a distribution not practical. Where cy pres is used, giving some type of notice to the class (although individual notice might be cost prohibitive) and selecting an appropriate recipient are important. Another potential way to avoid this problem entirely is to do a “claims made” settlement where only those class members making claims receive payment, although that structure can raise other concerns.   

 

Photo of Wystan Ackerman Wystan Ackerman

Wystan Ackerman is a partner in Robinson+Cole’s Insurance + Reinsurance Group and handles a diverse range of property insurance litigation, including large business interruption cases, class actions, other complex litigation, and appeals. He also has substantial experience representing insurance companies in putative class…

Wystan Ackerman is a partner in Robinson+Cole’s Insurance + Reinsurance Group and handles a diverse range of property insurance litigation, including large business interruption cases, class actions, other complex litigation, and appeals. He also has substantial experience representing insurance companies in putative class actions involving homeowners’ insurance coverage and market conduct/claim-handling practices. He has been prominently involved in high-profile property insurance litigation concerning the September 11th catastrophe and Hurricane Katrina, and Chinese-made drywall. Based in the insurance capital of Hartford, Connecticut, Wystan writes the blog Insurance Class Actions Insider, which was selected by Lexis Nexis as a top insurance blog for 2011.

Wystan grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state. He always had strong interests in history, politics and baseball and his heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox). Wystan says it was his early fascination with Lincoln that drove him to practice law. As a high school senior, he was one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified his interest in law and government. He went on to Bowdoin College, where he wrote for the Bowdoin Orient and majored in government. After Bowdoin, he went on to Columbia Law School. He also interned in the chambers of then-Judge Sonia Sotomayor on the Second Circuit. Wystan graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole.

When Wystan’s not at his desk, flying around the country trying to save insurance companies from the plaintiffs’ bar, or attending a conference on class actions or insurance litigation he often can be found watching “Dora the Explorer” or reading or playing whiffleball with his young daughter, helping his wife with her business, Option Realty, reading a book about history or politics, or watching the Boston Red Sox.

Read Wystan’s rc.com bio.

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Photo of Wystan Ackerman Wystan Ackerman

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you…

I am a partner at the law firm of Robinson+Cole in Hartford, Connecticut, USA.  My contact information is on the contact page of my blog.  I really enjoy receiving questions, comments, suggestions and even criticism from readers.  So please e-mail me if you have something to say.  For those looking for my detailed law firm bio, click here.  If you want a more light-hearted and hopefully more interesting summary, read on:

People often ask about my unusual first name, Wystan.  It’s pronounced WISS-ten.  It’s not Winston.  There is no “n” in the middle.  It comes from my father’s favorite poet, W.H. (Wystan Hugh) Auden.  I’ve grown to like the fact that because my name is unusual people tend to remember it better, even if they don’t pronounce it right (and there is no need for anyone to use my last name because I’m always the only Wystan).

I grew up in Deep River, Connecticut, a small town on the west side of the Connecticut River in the south central part of the state.  I’ve always had strong interests in history, politics and baseball.  My heroes growing up were Abraham Lincoln and Wade Boggs (at that time the third baseman for the Boston Red Sox).  I think it was my early fascination with Lincoln that drove me to practice law.  I went to high school at The Williams School in New London, Connecticut, where I edited the school newspaper, played baseball, and was primarily responsible for the installation of a flag pole near the school entrance (it seemed like every other school had one but until my class raised the money and bought one at my urging, Williams had no flag pole).  As a high school senior, my interest in history and politics led me to score high enough on a test of those subjects to be chosen as one of Connecticut’s two delegates to the U.S. Senate Youth Program, which further solidified my interest in law and government.  One of my mentors at Williams was of the view that there were far too many lawyers and I should find something more useful to do, but if I really had to be a lawyer there was always room for one more.  I eventually decided to be that “one more.”  I went on to Bowdoin College, where I wrote for the Bowdoin Orient and majored in government, but took a lot of math classes because I found college math interesting and challenging.  I then went to Columbia Law School, where I was lucky enough to be selected as one of the minions who spent their time fastidiously cite-checking and Blue booking hundred-plus-page articles in the Columbia Law Review.  I also interned in the chambers of then-Judge Sonia Sotomayor when she was a relatively new judge on the Second Circuit, my only connection to someone who now has one-ninth of the last word on what constitutes the law of our land.  I graduated from Columbia in 2001, then worked at Skadden Arps in Boston before returning to Connecticut and joining Robinson+Cole, one of the largest Connecticut-based law firms.  At the end of 2008, I was elected a partner at Robinson+Cole.

I’ve worked on class actions since the start of my career.  Being in the insurance capital of Hartford, we have a national insurance litigation practice and most of the class actions I’ve defended have been brought against insurance companies. I’ve also handled some involving products liability, managed care, health care, utilities, financial services, higher education and environmental issues.

My insurance class action practice usually takes me outside of Connecticut.  I’ve had the pleasure of working on cases in various federal and state courts and collaborating with great lawyers across the country.  While class actions are an increasingly large part of my practice, I don’t do exclusively class action work.  The rest of my practice involves litigating insurance coverage cases, often at the appellate level.  That also frequently takes me outside of Connecticut.  A highlight of my career thus far was working on Standard Fire Ins. Co. v. Knowles, the U.S. Supreme Court’s first Class Action Fairness Act case.  I was Counsel of Record for Standard Fire on the cert petition, and had the pleasure of working with Ted Boutrous on the merits briefing and oral argument.

I started this blog because writing is one of my favorite things to do and I enjoy following developments in class action law, writing about them and engaging in discussion with others who have an in interest in this area.  It’s a welcome break from day-to-day practice, keeps me current, broadens my network and results in some new business.

When I’m not at work, you might find me running lines or watching a musical with my teenage daughter who hopes to be a Broadway star (or taking her to voice or dance lessons) or reading a good book.

Read more about Wystan AckermanEmail
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  • Posted in:
    Class Action & Mass Torts, Insurance
  • Blog:
    Class Actions Insider
  • Organization:
    Robinson & Cole LLP
  • Article: View Original Source

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