Too Much Money and No One to Give it to- The Cy Pres Doctrine

What happens when someone leaves money in a will to a charity that has closed its doors by the time the will is probated? In this strange circumstance, a court may apply the “cy pres doctrine” to answer this question. Cy pres is a French term which loosely translates to mean “as near as possible.” In modern litigation, cy pres is not only used to distribute charitable donations, but also to distribute millions of dollars left over in class action settlements.

In the example above, a court may use cy pres to transfer the donated money to a charity similar to the one that had shut down. In class actions, there are often funds left over when not enough people register to receive money under a settlement. In this situation, the court will use cy pres to decide where this money goes; but that decision is a tricky one. Courts will sometimes direct these funds to a governmental entity loosely related to what the lawsuit was about. Other times these funds will go to a charity. Whatever the choice, there are usually complaints.

In one case, a nationwide class of AOL customers agreed to a settlement in a class action filed in California. Even though class members lived all over the country, the cy pres funds went to a legal aid office in Los Angeles, where the judge’s husband served as a director. This raised some eyebrows.

In another case, Kellogg’s settled a class action filed because its advertisements claimed that frosted mini-wheats improved kids’ brain power, which -sadly- turned out not to be true. Those cy pres funds initially went to a charity designed to feed the poor. However, the court later ruled that the funds should have gone to a group that protected the public from false advertising.

As more and more cases like these garnered attention, rules were passed as to how to distribute these funds. Generally, these rules require some connection between the issues in the lawsuit and the mission of the group that gets the funds. While the United States Supreme Court has yet to address these issues, Chief Justice Roberts recently indicated that the Court may be ready to put its stamp on cy pres.

We may be “as near as possible” to some clarity in the murky law of cy pres.

They make movies about “class actions” exactly because they can involve high stakes, with millions, even billions of dollars on the line. The class action procedure can create exposure at this level because of the large numbers of potential claims involved. Class actions are used to address losses experienced from unfair or fraudulent business practices, natural disasters, industrial explosions, or any event or action which is alleged to have damaged a large group in a similar way.

As a procedural device, the class action combines several claims (often hundreds or thousands) into a single action. A key battle in most Louisiana class actions is whether the proposed claim can properly be “certified” as a class action under Louisiana procedure. The recent Fourth Circuit decision in Duhon v. Harbor Homeowners’ Ass’n., Inc., 2016 WL 3551620 (La. App. 4 Cir. 6/30/16) addressed whether the lower court’s class “certification” was proper under Louisiana Code of Civil Procedure Article 591.

Duhon involved damages experienced following hurricanes Katrina and Rita. In particular, the class representatives sought damages against the Harbor View Condominium Association and its insurers claiming that the association was guilty of faulty repairs following these two hurricanes. In deciding whether certification was proper, the Duhon court considered the following elements, all of which must be present to certify a proper class action:

Numerosity- the class must be so numerous that joinder of all involved persons would prove impractical;

Commonality- the case must present questions of law and fact that are common to the class;

Typicality- the claims and defenses of the representative parties must be typical of the claims or defenses of the class; and,

Adequacy of representation- the representative parties must be positioned to fairly and adequately protect the interest of the class.

After analyzing each of these “elements,” the Duhon court upheld the Trial Court’s certification of the claim as a class action. Further, the court concluded that the questions of law and fact common to the members of the class predominated over any questions affecting only individual members such that a class action was superior to other available methods to fairly and efficiently adjudicate the controversy.

While the class action procedure has its detractors, it is sometimes the only real option to address a harm to a large group. Now that the class in Duhon has been certified, the case will proceed through discovery and towards trial on the merits. Who knows, they may make a movie about it someday.

On April 20, 2010, BP's Deepwater Horizon rig exploded at a cost of eleven lives. What followed was the largest accidental marine oil spill in history. In the aftermath, BP looked for a solution, ostensibly to cap its exposure and address a swirling PR disaster. BP began to actively negotiate a settlement.

On March 2, 2012, BP agreed to a detailed settlement which set forth specific criteria for recovery under the Fund created by the Agreement. In August of that year, BP asked U.S. District Judge Carl Barbier to approve the settlement. The Agreement was approved.

Despite championing the settlement, BP later filed a lawsuit seeking to set aside the settlement, unless it was interpreted as suggested by BP. BP's challenges were rejected by the Federal District Court. Thereafter, the New Orleans-based Fifth Circuit Court of Appeals affirmed that ruling in a 2-to-1 decision. BP then applied for a Petition of Writ for Certiorari with the United States Supreme Court in a final challenge to the settlement.

About BP's legal maneuvers, Samuel Issacharoff, a New York University Law Professor, said the following: "This case is about a contract that BP signed that it now wishes it hadn't."

One of BP's primary complaints was that, in effect, the settlement could be interpreted to provide recovery for individuals or businesses who could not show a direct link between a financial downturn and the spill. In response, it was stated that the settlement was crafted to use objective measures to gauge whether losses are recoverable.

On December 8, 2014, the U.S. Supreme Court rejected BP's Petition for Writ of Certiorari. As such, the settlement agreement first proposed by BP will remain in place. No higher court remains.

Under the Agreement, potential claimants have 6 months from the Supreme Court's Petition denial to file claims.