Second Circuit (Connecticut, New York, Vermont)
In Hyland v. Navient Corp., 48 F.4th 110 (2d Cir. 2022), the Second Circuit approved a cy pres settlement with no distribution to class members over multiple objections—and the Supreme Court denied certiorari in April 2023.
In Hyland, a class action brought by student loan borrowers, the district court approved a settlement agreement providing no class member distributions and a cy pres award to establish a nonprofit organization to provide borrower counseling. Two objectors appealed.
The Second Circuit affirmed. The circuit rejected the objectors’ argument that cy pres awards are never appropriate in a class settlement because they purportedly provide no direct benefit to class members, reasoning that class members indirectly benefit from an award to an appropriate third party. The Second Circuit also rejected the objectors’ argument that the cy pres award was supposedly inappropriate because it was feasible to distribute funds directly to the class. Finally, the Second Circuit rejected the objectors’ argument that the cy pres award violated the First Amendment rights of class members by “compelled speech,” i.e., awarding money to an organization that the objecting class members opposed, holding that “mere approval of or acquiescence in the initiatives of a private party is not sufficient to constitute state action.”
Objector petitions for a writ of certiorari were denied by the Supreme Court in April 2023, including the second of three petitions filed by Center/Hamilton in the Court’s 2022–2023 term.
Third Circuit (Delaware, New Jersey, Pennsylvania, U.S. Virgin Islands)
In In re Baby Products Antitrust Litigation, 708 F.3d 172 (3d Cir. 2013), the Third Circuit rejected broad objections to the use of cy pres awards. The court held that cy pres settlements are permissible to distribute unclaimed settlement funds so long as the district court directs the distribution to a third party that will use the award for “a purpose related to the class injury.”
In In re Google Inc. Cookie Placement Consumer Privacy Litigation, 934 F.3d 316 (3d Cir. 2019), the Third Circuit reversed and remanded the district court’s decision approving a settlement, criticizing the insufficient analysis that led to the district court’s certification of the class and approval of a cy pres–only settlement. The Third Circuit, however, disagreed with the broader arguments by objectors/appellants (represented by Center/Hamilton) that cy pres–only settlements are inherently unfair. The Third Circuit favorably cited the American Law Institute’s Principles of Aggregate Litigation, concluding that “cy pres was appropriate where some class members were compensated directly” and “further individual distributions are economically infeasible” and adding that “in some cases a cy pres-only settlement may be proper.”
Fourth Circuit (Maryland, North Carolina, South Carolina, Virginia, West Virginia)
The Fourth Circuit has yet to issue an opinion concerning the use of cy pres awards, but a recent district court decision approved the use of cy pres awards after a trial judgment.
In Krakauer v. Dish Network L.L.C., 2021 WL 2037967 (M.D.N.C. May 21, 2021), following a consumer class action trial and jury verdict, the district court entered a judgment requiring distributions to class members. After an appeal and considerable distribution efforts, the district court determined that a cy pres award of the unclaimed funds was proper. The court rejected several broad arguments against cy pres awards, including that cy pres awards purportedly violate Article III, the Rules Enabling Act, and the Telephone Consumer Protection Act; the unclaimed funds were being awarded to uninjured parties; and such awards in Rule 23 class actions violate the separation of powers and due process doctrines.
While that decision was on appeal, the parties filed joint motion papers requesting approval of a settlement with $16 million in cy pres awards and a $6 million reversion of undistributed funds to the defendant, which the district recently approved.
Fifth Circuit (Louisiana, Mississippi, Texas)
The Fifth Circuit, in Klier v. Elf Atochem North America, Inc., 658 F.3d 468 (5th Cir. 2011), issued an opinion that supports cy pres awards in appropriate situations.
In Elf Atochem, the parties’ settlement agreement created three subclasses. When a portion of the settlement funds allocated to one subclass remained unused, the district court determined that the remaining funds should be distributed as a cy pres award to five local charities and municipalities. Objectors in the other subclasses appealed.
The Fifth Circuit held that the district court abused its discretion by ordering a cy pres distribution instead of distributing the funds to another subclass, finding that (1) the district court moved too quickly from the terms of the settlement agreement to a cy pres distribution and (2) the district court failed to select charities with a sufficient nexus to the objectives of the class suit.
A concurring opinion by Judge Edith Jones criticized all cy pres awards (and is often quoted by objectors). The majority opinion, however, recognized and approved cy pres awards more generally, explaining that “[i]n the class-action context, a cy pres distribution is designed to be a way for a court to put any unclaimed settlement funds to their ‘next best compensation use.’”
Sixth Circuit (Kentucky, Michigan, Ohio, Tennessee)
There are no Sixth Circuit opinions about cy pres awards. Two Ohio district court decisions (one recently issued) approved the use of cy pres awards over objections.
In In re Polyurethane Foam Antitrust Litigation, 178 F. Supp. 3d 621 (N.D. Ohio 2016), the district court rejected objector arguments by Center/Hamilton, holding that a settlement agreement that included a cy pres distribution was appropriate. The court recognized that the Sixth Circuit had yet to meaningfully address class action cy pres awards, but it also recognized that most circuits approve of them.
Likewise, in Hawes v. Macy’s Inc., No. 1:17-cv-754, 2023 WL 8811499 (S.D. Ohio Dec. 20, 2023), a consumer class action about bedsheets, class counsel and Macy’s submitted a settlement agreement providing $10.5 million for class members and proposed a cy pres award of undistributed residual funds. There were no class member objections, but Center/Hamilton filed an amicus brief arguing that cy pres awards are not provided by Rule 23 and violate due process rights and First Amendment rights of class members (among other arguments). The district court carefully reviewed the case law on cy pres awards and rejected all the amicus brief arguments against using cy pres awards. The district court nevertheless rejected the proposed settlement, but only because the proposed cy pres recipient was not related to the issues presented in the case.
Seventh Circuit (Illinois, Indiana, Wisconsin)
In Hughes v. Kore of Indiana Enterprise, Inc., 731 F.3d 672 (7th Cir. 2013), the Seventh Circuit endorsed the use of cy pres awards over objections. In reversing the district court, the Seventh Circuit explained that distribution of small amounts to class members would provide no meaningful relief and would do less for consumer protection than if the money were awarded to an organization with interests aligned with class member interests, which would also serve a “purely punitive” function.
Eighth Circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, South Dakota)
In In re BankAmerica Corp. Securities Litigation, 775 F.3d 1060 (8th Cir. 2015), the Eighth Circuit held that cy pres settlements are permissible when further individual distributions are not feasible. The feasibility inquiry “must be based primarily on whether ‘the amounts involved are too small to make individual distributions economically viable.’”
In Jones v. Monsanto Co., 38 F.4th 693 (8th Cir. 2022), the Eighth Circuit affirmed, over an objection by Center/Hamilton, the district court’s order approving a proposal for cy pres awards aggregating $14 million after an extensive distribution to pesticide class members. In its order, the appellate court explained that “unclaimed funds may only be distributed cy pres where existing class-member claimants have been fully compensated [such that further payments to claimants would effect a windfall] and further distribution to remaining class members is not feasible.” The Eighth Circuit held that there is no First Amendment injury to class members because there is no compelled speech. After review en banc was denied, the Supreme Court denied certiorari in May 2023. This was the third certiorari petition about cy pres awards filed by Center/Hamilton and denied during the last Court term.
Ninth Circuit (Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Oregon, Washington)
In Nachshin v. AOL, LLC, 663 F.3d 1034, 1039 (9th Cir. 2011), the Ninth Circuit held that cy pres awards are a permissible means of disposing of “unclaimed or non-distributable” funds. The Ninth Circuit considers settlement funds “non-distributable” when “the proof of individual claims would be burdensome or distribution of damages costly.” Lane v. Facebook, Inc., 696 F.3d 811, 819 (9th Cir. 2011). The Ninth Circuit requires cy pres distributions to constitute the “next best distribution,” meaning the distribution “bears a substantial nexus to the interests of the class members.”
In In re Google Referrer Header Privacy Litigation, 869 F.3d 737 (9th Cir. 2017), the Ninth Circuit held that cy pres awards provide a permissible means for disposing of “unclaimed or non-distributable” funds. In Google, a settlement agreement provided for no class member distributions and allocated $5.3 million to six cy pres recipients. Five class members, including Ted Frank, objected, arguing that providing only cy pres relief does not comply with Rule 23, among other arguments. The district court approved the settlement. Frank appealed. The Ninth Circuit held that the cy pres–only settlement and the cy pres recipients were appropriate, rejecting all the broad objections to cy pres awards. The Supreme Court granted certiorari in 2018. After oral argument, the Supreme Court vacated the circuit court’s judgment and remanded the case because of questions regarding the plaintiffs’ standing, with no decision about the cy pres objections. Frank v. Gaos, 139 S. Ct. 1041 (2019).
In In re Google Inc. Street View Electronic Communications Litigation, 21 F.4th 1102 (9th Cir. 2021), after nearly a decade of litigation, the parties reached a settlement agreement that granted cy pres awards of $13 million to nine recipients but no recovery to class members. Two objectors, including Ted Frank, appealed. The Ninth Circuit held there was no abuse of discretion in approving the settlement, rejecting the objectors’ arguments that (i) it is improper for a court to approve a class action settlement that grants only cy pres awards and (ii) a cy pres distribution is contrary to Federal Rule 23(b) because there is no possibility of providing meaningful relief to class members. The Ninth Circuit held that that class members do benefit from a cy pres distribution, and the court also rejected the objectors’ First Amendment argument, concluding that the settlement agreement did not compel class members to subsidize third-party speech.
Judge Bridget Bade wrote both the majority opinion and an unusual “concurring” opinion that questioned any use of cy pres awards and supported the objectors’ ethical, procedural, and constitutional arguments (the same broad arguments made by a group of Republican attorneys general in several recent amicus briefs). There were no votes for rehearing en banc. The Supreme Court denied a Center/Hamilton certiorari petition in October 2022; this was the first of three Center/Hamilton certiorari petitions about the use of cy pres awards denied during the Court’s 2022–2023 term.
Tenth Circuit (Colorado, Kansas, New Mexico, Oklahoma, Utah, Wyoming)
In In re Motor Fuel Temperature Sales Practices Litigation, 872 F.3d 1094 (10th Cir. 2017), plaintiffs brought several suits against different fuel retailers that were consolidated by the Judicial Panel on Multidistrict Litigation and settled. Five class members, including Ted Frank, objected to the settlement agreements, claiming violations of the First Amendment, separation-of-powers principles, and the Rule 23(b)(3) superiority requirement. The district court approved the settlement agreements. The objectors appealed.
The Tenth Circuit affirmed, explaining that the First Amendment limits only state action and holding that approval and potential enforcement of private settlement agreements do not constitute a state action. The Tenth Circuit concluded that the settlement agreements benefited the class members, and the court rejected the objectors’ argument that the district court violated the Rules Enabling Act, holding that the act has no application in the settlement context. The Supreme Court denied certiorari in 2018.
Eleventh Circuit (Alabama, Florida, Georgia)
In Poertner v. Gillette Co., 618 F. App’x 624 (11th Cir. 2015), the Eleventh Circuit affirmed a district court order approving a $6 million cy pres settlement over numerous objections, including objections by Ted Frank. The Eleventh Circuit concluded that including cy pres awards and nonmonetary relief “as part of the settlement pie” was not an abuse of discretion. The circuit pointed out that the objectors failed to cite any binding precedent that prohibits cy pres awards in a settlement agreement. Ted Frank filed a certiorari petition, which the Supreme Court denied in 2016.
District of Columbia Circuit (Washington, D.C.)
In Keepseagle v. Perdue, 856 F.3d 1039 (D.C. Cir. 2017), the D.C. Circuit affirmed approval of a settlement providing for hundreds of millions of dollars in cy pres awards. Appellants’ briefs made multiple arguments against the use of cy pres awards, including that such awards purportedly are inappropriate when class members are ascertainable, are improper distributions to third parties, violate the Judgment Fund Act and Appropriations Clause, and are based on an erroneous interpretation of Rule 23. Over a dissenting opinion, the majority found that these arguments were all waived because they were never asserted in the district court. A motion to rehear the case en banc was denied, and the Supreme Court denied certiorari in 2018.
Conclusion
The objections to and arguments against cy pres awards from undistributed residual funds in class action settlements recur, evolve, and never go away. But court decisions approving cy pres awards and rejecting these objections are clear and consistent across all federal circuits.