The Latest on Cy Pres: As Gorilla Monsoon Said... Close Only Counts in Horseshoes and Hand Grenades

The term cy pres comes from the Norman French expression "cy près comme possible," which means "as near as possible." As part of a class action settlement, parties frequently establish a cy pres fund as a method of dealing with unclaimed settlement funds. Some believe that doing so is more palatable to district courts than an agreement that calls for a reversion of unclaimed funds to the defendant. A recent decision by Judge Kathryn Kimball Mizelle of the Middle District of Florida recently provided a helpful roadmap for defendants seeking reverter instead of a cy pres provision in class action settlement negotiations. Specifically, in Benitez v. FGO Delivers LLC, the district court struck a cy pres provision from a class action settlement agreement and ordered that any unclaimed funds be returned to the defendant.

In Benitez, the plaintiff filed a class action lawsuit alleging that the defendant "willfully violated the disclosure and authorization provisions of the Fair Credit Reporting Act." The defendant allegedly obtained consumer reports for employment purposes and failed to give notice before taking adverse action against applicants based on the content of those reports. Following discovery, the parties attended a formal mediation and ultimately reached a settlement. The district court issued an order preliminarily approving the settlement agreement and certifying two classes for the purposes of settlement. The two classes consisted of (i) all individuals who were the subject of a consumer report that was procured by the defendant within a specified time; and (ii) all individuals who were not approved by the defendant to work based on information contained in a consumer report within a specified time. At the conclusion of the notice period, the parties moved for final approval of the settlement agreement and the district court held a fairness hearing. Following the fairness hearing, the district court granted in part the motion for final approval of the class settlement.

What stands out about this recent case is that the district court struck the cy pres provision in the settlement agreement. The court explained that it did so based on "the abiding debate over the propriety of Article III courts to permit cy pres distributions in the class action context." In reaching its decision, the court took into consideration the parties' positions at the fairness hearing that "the cy pres fund was not essential to the settlement and that they did not object to a reversion of unclaimed funds" to the defendant. The court also noted that the administrator had "unfettered control" of the settlement funds without any interference by the defendant in their disbursement. The defendant in Benitez did not select the settlement administrator, had no relationship with the administrator, and had no control over the administrator's efforts to distribute the settlement funds to the class members. Accordingly, the district court struck the cy pres provision from the settlement agreement and ordered that any unclaimed funds be returned to the defendant.

Again, while some believe that district courts prefer cy pres provisions in class action settlement agreements over a reversion provision for residual funds, Judge Mizelle's order in Benitez suggests otherwise and takes to heart Judge Jones' suggestion in Klier v. Elf Atochem North America Inc. that district courts "avoid the legal complications that assuredly arise when judges award surplus settlement funds to charities and civic organizations."