Cy Pres – When Close Enough Isn’t Good Enough or “What Do We Do With All This Extra Cash?”
Cy pres – A French term for “ok, close enough” – can be tricky. The wrong has been righted, but either the class has been fully compensated, or the compensation is too de minimis or impractical to allocate and distribute. What to do? Give it away to charity, but not just any charity. This issue confronted the Court in In re Bank of America Corp. Sec. Litig., 2013 WL 3212514 (E.D. Mo., June 24, 2013). In that securities fraud MDL, the global settlement of $490,000,000.00 had been approved, and all class members had been paid. Yet, due to problems locating class members, duplicate payments, restitution, and interest, class counsel found themselves with $2,734,136.69 remaining in the kitty. This was even after the claim administrator had been caught embezzling $5,000,000.00 from the fund. Not a bad problem to have, but a problem nonetheless. After rejecting the motion of the claims administrator to intervene (it had hoped to use certain of the excess funds to pay back what it had stolen), Judge Jackson struggled with where to send the largesse.
The parties had proposed three worthy charities: Legal Services of Eastern Missouri, Mathew Dickey Boys and Girls Club, and Backstoppers (an organization dedicated to support of families of police officers and firefighters killed in the line of duty). The Court found that all three charities satisfied the requisite geographic scope requirement, as the brunt of the securities fraud upon which the MDL was based had taken place in and around the St. Louis region. But the Court found that only the proposed donation to the Legal Services of Eastern Missouri bore any relation to the purpose of the underlying action – stopping fraud – and declined to approve cy pres distribution to the other two organizations, worthy as their causes are, because those causes were “completely unconnected to that of the litigation.” While there is some authority that cy pres distribution to an unrelated charity can be permissible under certain circumstances, such a distribution won’t suffice where distribution to a different organization “presents a closer fit.” The Court was silent as to whether cy pres distribution to class action blogs is permissible.