There is a growing trend of class action settlements that include cy pres awards, in which part of the settlement funds go to a charitable organization. The issue of whether these distributions are fair to absent class members has increasingly come before the courts. For example, in Lane v. Facebook, Inc., the US Court of Appeals for the Ninth Circuit affirmed approval of a class action settlement agreement even though absent class members received no direct monetary award and a newly established charity dedicated to online privacy received the lion's share of settlements funds (696 F.3d 811 (9th Cir. 2012), cert. denied, No. 13-136, (Nov. 4, 2013)). Although the US Supreme Court denied the petition for certiorari, Chief Justice Roberts took the unusual step of issuing a separate statement to highlight concerns surrounding the use of cy pres remedies.

Cy pres awards address leftover class action settlement funds that are not distributed directly to class members for a variety of reasons, including because class members cannot be located, decline to file claims or have died (see, for example, In re Baby Prods. Antitrust Litig., 708 F.3d 163, 168-69 (3d Cir. 2013); In re Lupron Mktg. and Sales Practices Litig., 677 F.3d 21, 30 (1st Cir. 2012)). Distribution of direct settlement payments to class members may also be infeasible where the class is so large that each individual's recovery would be too small to be meaningful (see Facebook, 696 F.3d at 821).

Cy pres originates from the French expression cy pres comme possible, meaning "as near as possible," and the intent is to use these excess funds to indirectly benefit class members. A cy pres award generally earmarks part of the settlement funds for a charitable organization that has a nexus to the class action dispute and the interests of class members. This is viewed as preferable to alternatives for these funds such as reversion to the defendant or escheat to the state (In re Baby Prods. Antitrust Litig., 708 F.3d at 172). Cy pres provisions in class action settlement agreements allow the court to direct the proceeds to the "next best" class of beneficiaries (Nachshin v. AOL, LLC, 663 F.3d 1034, 1038 (9th Cir. 2011)).

There has been a growing trend of using cy pres awards to effectuate class action settlements. As a result, courts and critics have raised concerns that under certain circumstances this indirect benefit to class members may be "at best attenuated and at worse illusory" (In re Baby Prods. Antitrust Litig., 708 F.3d at 173).

A recent Ninth Circuit decision highlights some of the issues raised by the creative use of cy pres awards. In Lane v. Facebook, a group of plaintiffs filed a putative class action against Facebook and several other entities, alleging that defendants violated various privacy statutes by using a program to gather and publicly disseminate information about online activity without permission (696 F.3d at 816-17).

Before class certification, the parties entered into a settlement agreement in which Facebook agreed to terminate the objectionable program and pay $9.5 million for a release of plaintiffs' class claims. The agreement included a significant cy pres distribution in which, among other things:

(Facebook, 696 F.3d at 817-18.)

The remaining $3 million of settlement funds would be used to pay attorneys' fees, administrative costs and incentive payments to the class representatives. The unnamed class members received no direct monetary relief.

The US District Court for the Northern District of California approved the settlement over the objections of four class members. The Ninth Circuit affirmed and specifically addressed objections directed at the cy pres distribution, finding:

(Facebook, 696 F.3d at 821-22.)

The court found the opposition to be little more than "general dissatisfaction with the outcome" and affirmed that the settlement was fair, reasonable and adequate (Facebook, 696 F.3d at 826.).

One of the objectors to the Facebook settlement agreement filed a petition for certiorari with the US Supreme Court, seeking once again to overturn the settlement. On November 4, 2013, the Court denied the request. Chief Justice Roberts, however, issued a separate statement "respecting the denial of certiorari" (Marek v. Lane, No. 13-136, , at *1 (Nov. 4, 2013)).

Justice Roberts described the terms of the Facebook settlement generally and noted that the unnamed class members received no award of damages. He further emphasized some of the "disconcerting features" of the new foundation set up to receive the cy pres distribution, including that:

(, at *2.)

Justice Roberts agreed that the specific objections to the Facebook settlement made it an unsuitable case for the Court to use to address the more "fundamental concerns" surrounding cy pres relief in general. However, he nonetheless highlighted these concerns, including:

(, at *2.) Justice Roberts concluded by noting that cy pres awards are a growing feature of class action settlements and signaling that the Court should, in the future, clarify the limits on the use of these remedies.

For more on class action settlements in general, see Practice Note, Settling Class Actions: Process and Procedure and Class Actions: Overview: Settlement.