Cy Pres Distributions in Federal Class Actions
The cy pres doctrine can serve a valuable role in class action settlements: it allows funds
that cannot be given to class members to go to charitable organizations, provides an indirect
benefit to the class, prevents funds from reverting to defendants, and avoids overcompensating
certain class members. But courts have reviewed cy pres distributions with increasing scrutiny.
In particular, courts have compared cy pres awards with direct compensation to class members,
and, in some instances, with attorneys’ fees. They have also scrutinized the relation between the
cy pres recipient and the nature of the class’s claims. In structuring settlements with cy pres
distributions, counsel should be aware of the general requirements and courts’ concerns, as well
as particular views of each circuit.1
What Is a Cy Pres Distribution?
Cy pres is short for an old equitable doctrine, cy près comme possible—“as near as
possible”—that originated in wills-and-trust law to carry out testators’ intentions where
charitable trusts would otherwise fail. Dennis v. Kellogg Co., 697 F.3d 858, 865 (9th Cir. 2012).
The doctrine is now frequently applied in class action litigation in two circumstances, the
first of which is most common: (1) settlement funds are unclaimed by some class members; or
(2) settlement funds are “non-distributable” (for example, the individual damages are too small
to justify the cost of distributing any funds to the class). Lane v. Facebook, Inc., 696 F.3d 811,
819 (9th Cir. 2012); see also In re Pharm. Indus. Average Wholesale Price Litig., 588 F.3d 24,
34 (1st Cir. 2009); Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 436 (2d Cir. 2007);
In re Baby Prods., 708 F.3d at 168-69.
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Counsel should also be aware that cy pres distributions may affect the amount of
attorneys’ fee awards. See, e.g., In re Baby Prods. Antitrust Litig., 708 F.3d 163, 176-80 (3d Cir.
2013) (adopting a case-by-case approach to whether fee awards should be reduced where
settlement funds are given to cy pres recipients, and discussing law in other circuits).
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What Are the General Requirements?
A cy pres remedy must be tailored to the class’s claims, with settlement funds going to
the “next best” beneficiary and indirectly benefiting the class. Masters, 473 F.3d at 436; In re
Baby Prods., 708 F.3d at 169, 173; Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468, 475 (5th Cir.
2011); Powell v. Georgia-Pacific Corp., 119 F.3d 703, 706 (8th Cir. 1997); Lane, 696 F.3d at
819. But see Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 784 (7th Cir. 2004) (cy pres
distributions do not indirectly benefit class members; they are “purely punitive”).
In determining whether a cy pres remedy is tailored to the class, most circuits consider
the following factors, with some variation: (1) the nature of the lawsuit; (2) the goals of the
underlying statute(s) allegedly violated; (3) the class members’ injuries; (4) the class members’
interests; and (5) the geographic scope of the class. In re Lupron Marketing & Sales Practices
Litig., 677 F.3d 21, 33 (1st Cir. 2012), cert. denied, 133 S. Ct. 338 (2012); Klier, 658 F.3d at 474;
In re Airline Ticket Comm’n Antitrust Litig., 307 F.3d 679, 682 (8th Cir. 2002); Lane, 696 F.3d
at 819-20. The cy pres recipient thus should be chosen carefully; not just any charitable
organization can qualify as a recipient. Dennis, 697 F.3d at 865; In re Lupron, 677 F.3d at 34.
Benefits and Concerns of Cy Pres Distributions
As noted, many courts see cy pres distributions as providing indirect benefits to class
members. Additionally, by preventing funds from reverting to defendants, cy pres distributions
serve the deterrent function of the underlying statutes. In re Lupron, 677 F.3d at 32-33; In re
Baby Prods., 708 F.3d at 172; compare Six (6) Mexican Workers v. Ariz. Citrus Growers, 904
F.2d 1301, 1308 (9th Cir. 1990) (“[R]eversion to the defendant may be appropriate when
deterrence is not a goal of the statute or is not required by the circumstances.”) Cy pres
distributions are also used to prevent a windfall to class members who have submitted claims and
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have been fully compensated. In re Lupron, 677 F.3d at 35; Klier, 658 F.3d at 475. And, some
defendants see an opportunity to treat cy pres distributions as tax deductible. See In re Lupron,
677 F.3d at 31 (noting that the settlement agreement provided for tax deductions if funds went to
charities); Dennis, 697 F.3d at 867 (after rejecting the parties’ settlement agreement, questioning
whether the defendant might claim tax deductions in any future settlement with a cy pres award).
Despite the benefits of cy pres distributions, settlement agreements containing such
distributions are closely scrutinized in the face of objections by class members, particularly
where there is little or no distribution to the class, attorneys’ fees are high, and unawarded fees
revert to defendants. See In re Baby Prods., 708 F.3d at 175; In re Bluetooth Headset Prods.
Liab. Litig., 654 F.3d 935, 947 (9th Cir. 2011); Mirfasihi, 356 F.3d at 785. Courts express
concern about potential conflicts of interest between class counsel and class members, and
potential collusion between counsel and defendants.
Identifying the Cy Pres Recipient
The settling parties, rather than the district court, should chose the cy pres recipient(s),
because “the specter of judges and outside entities dealing in the distribution and solicitation of
settlement money may create the appearance of impropriety.” Nachshin v. AOL, LLC, 663 F.3d
1034, 1039 (9th Cir. 2011); see also In re Lupron, 677 F.3d at 38 (affirming, but expressing
concern, where the district court, not the parties, chose the cy pres recipient); In re Baby Prods.,
708 F.3d at 180 n.16 (not reaching the issue, but stating: “we join other courts and commentators
in expressing our concern with district courts selecting cy pres recipients”).
It is best if the parties identify the cy pres recipient(s) in the settlement agreement itself.
Dennis, 697 F.3d at 867 (reversing where, among other deficiencies, the parties failed to identify
the cy pres recipient in the settlement agreement); compare In re Pharm. Indus. Average
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Wholesale Price Litig., 588 F.3d at 34 (affirming where the agreement identified the general
category of charities, but did not name specific ones).
Questions to Consider in Structuring a Settlement
In light of increased court scrutiny, parties must explain the reasons for cy pres
distributions to the district court, and show the appellate court that the district court has
considered the potential conflicts of interest and made findings necessary to support the cy pres
distribution.
The following are key questions to ask in structuring a settlement with a cy pres
distribution:

Will there be any distribution to the class? If so, will class members be fully
compensated for their damages? Will class members who submit claims be
overcompensated and thus receive a windfall? If there is little or no distribution to the
class, why? Are individual damages too small to justify the cost of distributing funds to
the class?

What is the ratio between funds for the class and funds for the cy pres recipient? What
about the ratio to attorneys’ fees?

Is the cy pres remedy tailored to the class’s claims?

Does the settlement agreement identify the cy pres recipient?
Cy Pres Doctrine by Circuit
While many circuits take a similar approach to the cy pres doctrine, there are, as always,
some variations by circuit. Keep in mind, of course, that some differences are simply because of
the unique facts presented in each case.
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First Circuit
The First Circuit favors cy pres distributions after class members have been fully
compensated, because it prevents “overcompensating claimant class members at the expense of
absent class members.” In re Lupron, 677 F.3d at 35. It is not clear how the First Circuit will
treat a cy pres distribution if class members are not fully compensated for their losses. Id. at 32
(not reaching whether to adopt a presumption that class members should be fully compensated
before a cy pres remedy).
The court upheld the following cy pres distributions:

In re Lupron: The plaintiffs alleged that they were overcharged for Lupron, a cancer
drug. The class members who submitted claims received more than 100% of their actual
damages. 677 F.3d at 34. The designated cy pres recipient was a program that
researched cures and treatment of Lupron-related conditions, which could benefit all class
members, including the absent ones. Id. at 34-35. There was no geographic-scope
concern even though the recipient was located in one city, because the recipient’s work
would have nationwide benefits. Id. at 36.

In re Pharmaceutical Industry Average Wholesale Price Litigation: The plaintiffs
alleged overcharges for a drug used to treat cancer and other diseases. The class
members who submitted claims would receive treble damages before there would be any
cy pres distribution. 588 F.3d at 34-35. The cy pres recipients were not identified in the
agreement, but the parties agreed that they would be cancer or patient-related charities.
Id.
Second Circuit
Masters v. Wilhelmina Model Agency, Inc. shows the need for findings to support a cy
pres distribution. 473 F.3d at 434-36. In Masters, an antitrust action involving price-fixing by
modeling agencies, the Second Circuit vacated in part and remanded for the district court to
further consider its decision to allocate any excess class funds to cy pres recipients after the
plaintiffs were compensated. The court was “not yet prepared” to determine that the district
court had abused its discretion, but noted that it appeared that the district court was not aware
that it could allocate excess funds as treble damages. Id. at 435. Further, the court explained,
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neither side had argued that it would be difficult to locate class members or that their recovery
would be so small as to make distribution economically impracticable. Id. at 436.
Third Circuit
The Third Circuit recently approved the use of cy pres distributions “for a purpose related
to the class injury” when there are excess settlement funds. In re Baby Prods., 708 F.3d at 172.
The court cautioned, though, that “direct distributions to the class are preferred over cy pres
distributions,” id. at 173, because cy pres distributions “only imperfectly serve the purpose of the
underlying causes of action—to compensate class members,” id. at 169.
Cy pres distributions are “most appropriate” where additional distributions to class
members are infeasible. Id. at 173. The court cautioned that, “[b]arring sufficient justification,
cy pres awards should generally represent a small percentage of total settlement funds.” Id. at
174. But the court has refused to limit to cy pres distributions to cases where claimants have
been fully compensated for their losses. Id. at 176.
The court rejected the following cy pres distributions:

In re Baby Products: Plaintiffs alleged price-fixing conspiracy among manufacturers of
baby products. The settlement was for $35.5 million, but only $3 million was expected to
go to class members, in contrast to $18.5 million (minus administrative expenses) to cy
pres recipients. 708 F.3d at 175. The district court was not aware of how little money
would go to the class: most class members would receive only $5, but estimated damages
were $50, with possible treble damages as well. Id. at 176.
Fifth Circuit
The Fifth Circuit has confirmed that cy pres awards are permissible when it is either (1)
infeasible to distribute additional settlement funds to class members; or (2) claimants have been
fully compensated and thus further distribution to those class members would be a windfall.
Klier, 658 F.3d at 475 & n. 17.
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The court has reserved the question of whether a cy pres distribution would be
permissible without any distribution to the class. In re Katrina Canal Breaches Litig., 628 F.3d
185, 196 (5th Cir. 2010).
The court rejected the following cy pres distributions:

Klier v. Elf Atochem North America: The plaintiffs were allegedly injured by toxic
emissions from an industrial plant. There were unused funds in one subclass, and another
subclass had not been fully compensated. The district court ordered a cy pres
distribution, but the settlement agreement required that excess funds be distributed to
class members. 658 F.3d at 471, 476.

All Plaintiffs v. All Defendants, 645 F.3d 329 (5th Cir. 2011): Plaintiffs sued oil
companies for antitrust violations. The district court ordered a cy pres distribution from
the unclaimed funds. However, under Texas law, the State of Texas had a right to invest
the money, because it had a property interest in income generated by the unclaimed
funds. Id. at 337.

Wilson v. Southwest Airlines, Inc., 880 F.2d 807 (5th Cir. 1989): Male plaintiffs alleged
discrimination in hiring. The class had no right to the unclaimed funds because class
members who filed claims were fully compensated for backpay, and those who did not
file claims had no legal or equitable rights to the money. Id. at 811-13. The cy pres
distribution was inappropriate because the settlement had achieved its remedial goals,
defendant and class counsel had equitable rights to the unclaimed funds, and nonclaiming
class members had no equitable rights. Id. at 816.
Seventh Circuit
Like other circuits, the Seventh Circuit has emphasized the importance of the district
court estimating the value of the class’s claims when there is no distribution to the class.
Mirfasihi, 356 F.3d at 782-83, 785-86. There were several warning signs in Mirfasihi, including
that one subclass would receive no distribution, and unclaimed funds (for another subclass)
reverted to the defendant. But the settlement could have been acceptable if the district court had
recognized the potential conflicts and had “considered, not assumed” the issues, including the
value of the class’s claims. Id. at 785-86.
The court rejected the following cy pres distributions:
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
Mirfasihi v. Fleet Mortgage: Homeowners alleged that, without their permission, their
mortgage company transmitted their financial information to telemarketers. The subclass
of 1.4 million class members who did not purchase anything from the telemarketers did
not receive any compensation. The district court never found that their claims were
worth too little to justify a distribution. 356 F.3d at 782-83, 785-86.

In re Folding Carton Antitrust Litigation, 744 F.2d 1252 (7th Cir. 1984) (“Folding
Carton I”): Plaintiffs alleged a nationwide price-fixing conspiracy among manufacturers
of folding cartons. The $200 million settlement generated approximately $6 million in
interest, and neither the class nor the settling defendants had any right to the excess
funds. Id. at 1254. The district court ordered that the exceed funds be used to create a
foundation for research on antitrust law, but the Seventh Circuit held that such a
foundation was unnecessary because many organizations were doing the same research.
Id. at 1254-55. The court ordered that the money escheat to the United States. Id. at
1255.

Houck v. Folding Carton Administration Committee, 881 F.2d 494 (7th Cir. 1989):
While petitions for certiorari were pending in the Supreme Court in Folding Carton I, the
parties entered a new settlement providing that the $6 million in excess funds would be
distributed in part to class members and in part to law schools for antitrust research. The
court held that there could be no more distributions to the class or settling defendants
beyond those already made, because neither had any interest in the funds. Id. at 496, 503.
The cy pres distributions were set aside because they violated the court’s mandate in
Folding Carton I, but a cy pres distribution could be an “appropriate solution” as long as
the district court complied with Folding Carton I’s mandate not to use the funds for
antitrust purposes. Id. at 502. Because there was a nationwide class, “it may be
appropriate for the district court on remand to consider to some degree a broader
nationwide use” of the funds. Id. at 502. The court suggested the Federal Judiciary
Center Foundation, id. at 502 n.8, even though it did not target antitrust law.
Eighth Circuit
In re Airline Ticket Commission Antitrust Litigation (“Airline II”) shows the need to
tailor a cy pres remedy to the class’s claims. 307 F.3d at 683-84. Travel agencies in the United
States alleged that airlines violated antitrust laws by placing caps on commissions paid travel
agents. The Eighth Circuit rejected cy pres distributions of the unclaimed funds to Minnesota
law schools and charities, because they “had no relationship to the class action suit,” including
that they failed to reflect the geographic scope of the class. In re Airline Ticket Comm’n
Antitrust Litig., 268 F.3d 619, 626 (8th Cir. 2001) (“Airline I”); Airline II, 307 F.3d at 683.
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Distribution to a public interest law organization doing nationwide work was also improper, as
there was no “relation to the substantive issues in th[e] case.” Airline I, 307 F.3d at 683. Proper
cy pres recipients were travel agencies in Puerto Rico and the U.S. Virgin Islands, which were
not members of the class but were subject to the same allegedly unlawful commission caps. Id.
at 683-84.
In contrast, the court approved a cy pres distribution from excess settlement funds in a
race discrimination class action to fund a scholarship program for minority students in areas
where most class members lived. The district court had found a cy pres distribution was
appropriate because it would be very difficult to distribute the excess funds, and its finding was
not clearly erroneous. Powell, 119 F.3d at 706-07. As to the cy pres remedy, the district court
“carefully weighed all of the considerations and tailored its remedy to reflect the parties' original
intention regarding unclaimed funds.” Id. at 707.
Ninth Circuit
Cy pres distributions are generally less common and more controversial where the
settlement provides no distribution to the class, but the Ninth Circuit recently upheld such a
settlement where payment to the class “would be infeasible given that each class member’s direct
recovery would be de minimis.” Lane, 696 F.3d at 821; see also Nachshin, 663 F.3d at 1037,
1040 (recognizing that damages were small and hard to ascertain, and that the cost to distribute
damages would far exceed the maximum potential recovery, but rejecting the settlement because
the cy pres remedy was not tailored to the class). Without a class distribution, however, there is
a higher level of scrutiny because of concerns about conflicts of interest, particularly if the
settlement is before class certification. In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d at
947.
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The Ninth Circuit also closely scrutinizes whether cy pres distributions are tailored to the
class’ claims.
The court upheld the following cy pres distribution:

Lane v. Facebook: The defendant internet company allegedly violated the plaintiffs’
privacy rights by gathering and disseminating information about the plaintiffs’ online
activity without their permission. Under the settlement, there was no distribution to the
class (more than 3 million members); a cy pres distribution of approximately $6.5
million; and approximately $3 million for attorneys’ fees, administrative costs, and
incentive payments to class representatives. The designated cy pres recipient would use
the funds to promote the interests of online privacy and security. 696 F.3d at 821. The
fact that the recipient was a new organization without a “substantial record of service”
was of no concern because it was clear how the funds would be used. Id. at 822.
The court rejected the following cy pres distributions:

Six (6) Mexican Workers v. Arizona Citrus Growers: Undocumented Mexican
farmworkers sued for violation of the Farm Labor Contractor Registration Act. The
designated cy pres recipient was an organization that provides humanitarian aid in
Mexico. This plan not target the class because the funds were not earmarked for a
specific project related to the class’s claims of illegal employment practices. 904 F.2d at
1038-09.

Nachshin v. AOL: Internet subscribers alleged that the company wrongfully inserted
advertisements in subscribers’ email messages. The designated cy pres recipients were
several local nonprofit organizations, but nothing in the record indicated that these
organizations had “anything to do the objectives of the underlying statutes on which
Plaintiffs base their claims.” 663 F.3d at 1040. Proper cy pres recipients would be
“organizations that work to protect internet users from fraud, predation, and other forms
of online malfeasance.” Id. at 1041.

Dennis v. Kellogg: Consumers alleged that cereal company falsely advertising that its
cereal improved children’s attentiveness. The designated cy pres recipients were
organizations that feed the poor. “[A]ppropriate cy pres recipients are not charities that
feed the needy, but organizations dedicated to protecting consumers from, or redressing
injuries caused by, false advertising.” 697 F.3d at 867.

In re Bluetooth Headset Products Liability Litigation: The defendants allegedly
knowingly failed to warn of the potential risk of hearing loss from using defendants’
headsets at high volumes. The settlement contained “multiple indicia of possible implicit
collusion”: no distribution to the class, a cy pres distribution of $100,000, unopposed
fees up to $800,000, and unawarded fees reverted to the defendants. 654 F.3d at 938,
947.
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Eleventh Circuit
In a recent unpublished decision, the Eleventh Circuit affirmed a settlement with a cy
pres distribution if class members received “full compensation” under the terms of the
settlement. Nelson v. Mead Johnson & Johnson Co., 484 Fed. Appx. 429, 435, 2012 WL
2947212 (11th Cir. July 20, 2012) (unpublished disposition). The objecting class member
argued that a cy pres distribution was inappropriate unless class members were fully
compensated for defendant’s allegedly false representations, but failed to show what full
compensation would be. Nelson affirmed even though the cy pres recipients were not identified
in the settlement; if excess funds remained, the recipients would be agreed upon by the parties
and subject to court approval. Although Nelson is unpublished and not binding precedent, it
“may be cited as persuasive authority.” 11th Cir. Rule 36-2.
Nelson cited an Eleventh Circuit case from early on in the class-action cy pres doctrine,
where there was a cy pres remedy but funds were not given to a third party. Nelson v. Greater
Gadsden Housing Auth., 802 F.2d 405 (11th Cir. 1986). The plaintiffs, tenants in a public
housing complex, alleged that a local housing authority failed to pay utility allowances. The
Eleventh Circuit approved an order requiring the defendant to use unclaimed funds to increase
the energy efficiency of the apartments or appliances. Id. at 409.
Conclusion
Courts often reject cy pres distributions in class actions because the parties fail to present
sufficient facts—or, on appeal, there are insufficient district court findings—to support this “next
best” remedy. But cy pres remedies are likely to withstand scrutiny if parties explain why there
is a cy pres remedy rather than a distribution to the class, and tailor the remedy to the class’s
claims.
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