Oftentimes in class action cases, and occasionally in other types of proceedings, such as probate matters, not all of the funds can be distributed to the class members or beneficiaries who were the intended recipients. This can occur for any number of reasons. It might be that an intended recipient has passed away, can’t be found, or simply has chosen not to respond to a notice that he or she is or might be entitled to funds. The amount of these unclaimed funds can be quite significant, in some cases totaling millions of dollars.
Whatever the amount, the court must determine how to distribute these leftover funds. In these instances, courts have the discretion to distribute the remaining funds to charitable organizations such as bar foundations under the cy pres doctrine, which comes from a French phrase that loosely translates to “next best use” or “nearest use.” For a detailed look at cy pres awards and how they can be used, see In re Holocaust Victim Assets Litig., 424 F.3d 158, 165 (2d Cir. 2005); Superior Beverage Co. v Owens-Illinois, Inc., 827 F. Supp. 477 (N.D. Ill. 1993); and Kevin M. Forde, What Can a Court Do with Leftover Class Action Funds? Almost Anything!, 35 JUDGES’ JOURNAL 19 (Summer 1996).
Cy pres awards can be a significant source of revenue for your bar foundation because most bar foundations can make a solid case for being a “next best use” in any type of class action case. While these awards are episodic, and it often takes some luck, there are concrete steps you can take to put your foundation in position to be considered for these awards.
So, what would you do with a million dollars?
What would your bar foundation do if it were to receive a lump sum gift of $50,000? How about $200,000? What if it were $1 million or more? While that may sound like a commercial for the lottery, it is a question that every bar foundation board should periodically consider as part of its regular strategic planning. In thinking about a cy pres program for your bar foundation, it’s the first question you’ll need to answer.
This does not mean that every cy pres award will be in this range; in fact, most of these awards are for much more modest amounts. But like other major gifts, for larger cy pres awards, the court and the parties involved in the case are going to want to know what your foundation would do with the funds and why it is a good fit for their needs.
If your foundation already has strategically considered the types of projects or initiatives it could carry out with a larger infusion of funds, you will be well positioned if and when the opportunity arises to receive a major cy pres award. In this context, it’s best to consider projects that would further the “enlightened self-interest” for those involved in the case (i.e., plaintiff and defense counsel in the case, one or more corporate defendants, and the court), keeping in mind that the great majority of these awards are distributed as part of a settlement.
Examples include projects that directly assist the courts, such as court-based pro bono projects or pro se assistance projects and other law-related “feel good” projects that everyone in the case can feel positive about helping to establish. (For examples of some of the innovative projects that the Chicago Bar Foundation has launched and funded with cy pres awards in recent years, see “The impact of cy pres awards to the Chicago Bar Foundation,” page 26).
Now that you’ve thought about what you would do with a large infusion of funds that could come from a cy pres award, let’s look at the steps your bar foundation can take to start a cy pres program.
Your bar association as a partner
The first step is to determine who your strategic partners are, and the first place to look is your bar association. Many bar associations have a class action litigation committee that includes members of the plaintiff and defense bar as well as judges who routinely handle class actions. If your bar has such a committee, it can be one of your best assets. If your bar does not have a committee devoted to class litigation, you should check whether another bar committee has class actions as part of its jurisdiction. Another bar committee to consider reaching out to is your probate committee, as cy pres awards often arise in those types of cases as well.
Market research: Who are the major class action players, and who else is seeking these awards?
Next, you’ll want to do some “market research” to determine who the major players are in class action litigation in your area. Who are the judges who typically handle these cases in the state and federal courts in your area, including bankruptcy court? (Note that as the federal Class Action Fairness Act of 2005 fully takes effect, more class actions will be heard in federal court than in the past.) Who are the major class action counsel in your area, both plaintiff and defense?
Next, you should do some research to learn what is currently happening with cy pres awards in your jurisdiction. What organizations are getting these awards? Are any other law-related organizations making a concerted effort to obtain them? If so, establishing your unique niche in this area will be crucial.
Finally, is there any legislation or Supreme Court rule in your state that limits the type of organizations that can receive these awards? For example, North Carolina and Illinois have adopted legislation, and the State of Washington a Supreme Court rule, requiring that all or part of the residual funds in class action cases go toward legal aid or related access to justice initiatives. Depending on your foundation’s mission, these statutes and rules can be very helpful or very limiting, so it’s important to know this landscape in your state.
Setting up a cy pres committee
Now that you’ve done your background research, you should consider setting up a special committee of your bar foundation to oversee your cy pres award program. If possible, that committee should include representatives of the bar association class litigation and probate committees, plaintiff and defendant class counsel, one or more probate attorneys, and judges from the class action and probate divisions. This committee can help to set strategy for your cy pres program, develop and promote the program, and provide ongoing oversight and assistance.
A key feature of an effective cy pres program is to ensure that the executive director or another representative of your foundation has the flexibility within the larger mission and strategic plan of the foundation to negotiate more specific terms for an award on short notice if the situation calls for it. Many times, these situations arise very quickly, and you may need to negotiate the terms of the award without having time for a meeting of the full board. This is yet another reason it’s a good idea to have thought in advance about what you would do with the award money.
Developing your messages
The next step is to develop the core messages to promote your bar foundation as a recipient for cy pres awards. There are several key messages that are appropriate for almost any bar foundation and that underscore that the foundation and its mission are a good fit for cy pres awards:
- The bar foundation is free of potential conflicts with the defendant in the case. Bar foundations generally do not file lawsuits or represent parties in court, which alleviates a potential concern on the defendant’s part that funds would just pay for more lawsuits. Courts also sometimes are reluctant to approve cy pres awards for organizations that appear in front of them.
- Bar foundations with missions related to access to justice are a perfect fit for a cy pres award because class actions fundamentally are about access for those who otherwise would not be able to obtain the protections of our justice system.
- If the bar foundation is a grantmaking organization, its program ensures accountability for the expenditure of the cy pres funds.
In addition to those “macro” messages, develop more tailored messages about your bar foundation and why it’s a good fit for cy pres awards. Most important, answer how and why your particular bar foundation makes sense for these awards (e.g., the foundation improves the administration of justice, benefiting everyone in the justice system and in the community). In addition, think about how the bar foundation fits in with the goals and interests of the various stakeholders involved in the case (i.e., plaintiff and defense counsel, the court, and corporate defendants). Finally, clearly articulate what it is that distinguishes your bar foundation from other causes, including other law-related causes.
Getting the word out
Once you have developed your messages, it’s a good idea to create a brochure or fact sheet about your bar foundation and cy pres awards. This piece should let people know what your bar foundation does, why it’s a good fit for cy pres awards, and whom they should contact if they have a potential cy pres award. The National Conference of Bar Foundations is working on a brochure template for NCBF members that easily can be adapted to your particular foundation.
You should also do outreach to the key stakeholders to let them know your bar foundation should be considered for cy pres awards. This outreach might take several forms, such as a letter from the bar president, meetings with key lawyers and judges, and consistent mention in bar publications.
When you succeed in obtaining a sizeable award, it is important to publicize your success and thank those who helped you get the award. An article in the bar association magazine highlighting what your bar foundation is doing with the funds from the award, with a picture of the lawyers involved—and perhaps the judge in the case, too—is a good way to do this. For larger awards and resulting projects, a press release should be considered as well. This publicity serves two purposes: It thanks those who made the award possible, and it also illustrates to others the impact they can have by directing cy pres awards to the foundation.
It’s a marathon, not a sprint
The last key point to remember is to be patient with your program and stick with it. As with planned giving, even if you don’t feel like you’ve got the staff and volunteer resources to spend a lot of time on your program, you should make sure to have a basic brochure or fact sheet so people know you are there in case one of your supporters is in a position to direct a cy pres award to your bar foundation.
It generally takes time for a cy pres program to bear fruit, but it can have a big payoff. None of the Chicago Bar Foundation projects mentioned in “The impact of cy pres awards to the Chicago Bar Foundation,” page 26, existed four years ago. Once the CBF had received a few larger cy pres awards and proved it could put the funds to effective use in a way that directly helps the court system, the program really took off.
As noted at the outset of this article, most cy pres awards aren’t what would be classified as “major gifts,” but even smaller awards can help advance your overall mission. And if your bar foundation manages to receive a larger cy pres award—maybe even $1 million or more—it can literally be a transformative event for the foundation.
THE IMPACT OF CY PRES AWARDS TO THE CHICAGO BAR FOUNDATION
The Chicago Bar Foundation has been fortunate to receive a number of generous cy pres awards over the past several years, totaling well over $3 million. Cy pres awards have helped the CBF more than quadruple its overall grants to more than 40 legal aid organizations and related initiatives. In addition, these awards have made possible a number of groundbreaking special projects and initiatives that have made lasting improvements to our justice system, including:
Self-help legal assistance programs in the state and federal courts
A first-of-its-kind self-help assistance desk for the federal court for the Northern District of Illinois in Chicago and a similar program for the federal bankruptcy court here in Chicago are both up and running. These programs help pro se litigants by providing them with information about their legal rights and responsibilities and applicable court procedures, legal advice about their cases, assistance in preparing simple pleadings, and referrals to legal, social, and government services.
There are also several help desks in the Circuit Court of Cook County, including an advice desk for low-income people facing mortgage foreclosures and other issues in the Chancery Division, and a help desk that assists people with consumer debt collection issues in the Municipal Division.
Pro bono programs in partnership with the courts
A pro bono program for the Chancery Division of the Circuit Court of Cook County matches volunteer lawyers with unrepresented litigants who have been victimized by mortgage fraud, predatory lending, and other types of consumer fraud, as well as those who have other types of cases.
The Guardian Ad Litem for Disabled Adults Pro Bono Program, developed in partnership with the Circuit Court, recruits, trains, and supports volunteer lawyers to serve the court as GALs.
Critical legal information and resources for the public
One project was to create comprehensive and user-friendly brochures and online resources for people with consumer debt concerns (including bankruptcy issues), which consistently are among the largest areas of demand for legal aid programs serving the Chicago area.
In a similar vein, “Buying and Keeping a Used Car” is a comprehensive guide that covers the various legal issues that arise when buying and owning a used car, a very common area for exploitation of low-income consumers.
Fellowships for legal aid and public interest attorneys
A major new fellowship program will provide significant loan repayment assistance to at least 50 outstanding young lawyers who have chosen to pursue careers in legal aid, thereby helping to make these careers financially viable in the face of the daunting educational debts that face most young lawyers today.
Other innovative projects that improve access to justice in the Chicago area
Another project established with cy pres award funds assists low-income children facing critical special education issues by providing advice and referral services, training materials, and legal representation.
There’s also a project that helps build the capacity of area nonprofit organizations by improving their organizational effectiveness and strengthening their governance. This project matches these organizations with teams of pro bono lawyers who conduct a legal assessment of their practices and assist them in drafting or updating policies, bylaws, and other legal documents.