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What is cy pres?

The cy pres doctrine is a legal doctrine that allows the court to amend the terms of a settlement “as near as possible” to the original intent.  For example, when legal actions filed on behalf of many plaintiffs (class action) or the public result in a settlement with a monetary award, it is sometimes impractical or difficult to distribute these funds.  In some cases, these are residual funds which remain after distributions to class members (because some class members did not make claims or could not be located), and in other instances, these are funds designated for award where no initial direct distribution to the class or public was practical or possible. In both instances, funds may be designated as cy pres and used for purposes other than direct compensation to the injured class.

According to the California Supreme Court, in the precedent setting case which established the California Consumer Protection Foundation (CCPF), State of California v. Levi Strauss & Co., both the settlement fund and any remainder may be subject to fluid recovery, commonly called a cy pres action. Additionally, Section 384 of the California Civil Code of Procedure permits the court to distribute consumer class action cy pres funds to benefit the class or similarly situated consumers or to promote the law consistent with the underlying case.

Are there differing views on the use of cy pres?

There have been many positive benefits to consumers through use of cy pres funds, ranging from education projects on financial literacy to increasing access to the Internet.  Criticism of the cy pres doctrine has arisen from a variety of sources primarily from defendants and others who object to what they consider to be improper distribution. In 2002, the California State legislature amended the California Code of Civil Procedure (C.C.P.) Section 384 to make it more difficult for the courts to approve general charitable contributions with cy pres funds. C.C.P. Section 384 governs distributions of residuals remaining from class action settlements after distributions to class members. It provides general standards, and then enumerates categories of permissible cy pres recipients.  More recently, in 2010, the American Law Institute issued its final official Principles of the Law of Aggregate Litigation.  Section 3.07 deals with cy pres settlement and proposes new criteria.

What is the future of the cy pres doctrine?

Protecting the rights of consumers, particularly those from underserved communities, is becoming increasingly difficult in a bad economy with limited resources.

A goal of CCPF is to preserve, protect and defend the cy pres doctrine and promote the equitable distribution of cy pres funds by educating those who have the power or influence to designate settlement funds to protect consumer interests.

Because cy pres awards for consumer trust funds are not voluntary or charitable contributions, there are fewer legal restrictions on how to use consumer trust funds. This is important because this allows for both consumer education as well as advocacy.  Without these resources, consumer advocacy organizations, such as Consumer Union and TURN - The Utility Reform Network, who work to improve consumer protections on a variety of issues, have fewer options for funding.

CCPF also believes that standard policies (best practices) must be established on how to:

  • Create and distribute cy pres funds in order to ensure benefit to consumers, particularly from underserved communities.
  • Conduct an accountable and transparent process.
Forum on the cy pres doctrine

On June 11, 2010, CCPF convened complex litigation judges, attorneys from both the plaintiff and defense bar, and consumer advocacy organizations at the offices of the Judicial Council, Administrative Office of the Courts in San Francisco.  The purpose of the forum was to discuss the cy pres doctrine and best practices to ensure a transparent and accountable process for settlement distribution.

Click here to read a report about the forum, including a discussion of best practices of cy pres distributions and recommended next steps.

Reports and articles referenced at the forum:

Please note that any views or opinions expressed in these reports are those of the author and do not necessarily represent those of CCPF.