Page 17 - Ohio Vol 4 No 5
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PATRICK PEROTTI | CLASS ACTIONS
Left-Over Monies in Class Action Settlements: Where Do They Go, And Why?
A er class action claims are resolved, sometimes there are remaining funds because some class members can’t be found, died, moved, etc.  e class members who did re- ceive their full share are not entitled to a windfall in the form of an additional distribution. Similarly, the defen- dant is not entitled to keep money it agreed to forfeit in a settlement or was ordered to surrender by the court as part of a judgment. While courts have several options in distributing those funds, the most common approach is for the court to order a cy pres distribution to charitable organizations. Cy pres means as nearly as possible and the practice of distributing to charities in the area where the class members are located is to indirectly bene t the class members who did not receive their payment.
“ e class bene ts from a cy pres distribution as it real- izes the gains that its charitable contributions can accom- plish.” William B. Rubenstein, 4 Newberg on Class Actions § 12:32 (5th ed.).
Some courts have taken the view that cy pres distri- butions should be only to organizations that re ect the nature of the claim (subject identity). So, for example, if the claim involved internet privacy, the cy pres distribu- tion must be made to an organization that studies internet privacy issues. Such an approach to cy pres distributions is neither required nor e ective. Cy pres distributions in- stead focus on geographic identity: being made in a way so the bene ts of the charitable contributions are reaped by the class members or their families in the community harmed by the defendant’s conduct.
No requirement exists that cy pres distributions be made to an organization that addresses issues relating to the nature of the claim.  e Second Circuit held that it was “aware of no authority ... that compels a court to make a cy pres allocation to organizations combating harms similar to those that injured the class members[.]” (Emphasis sic.) In re Holocaust Victim Assets Litig., 424 F.3d 158, 166 (2d Cir.2005). And, in fact, courts are not limited to making cy pres contributions only to organizations with a nexus to the underlying cause of action. Instead, the “doctrine of cy pres and courts’ broad equitable powers now permit use of funds for other public interest purposes by educational, charitable, and other public service organizations[.]” Su- perior Beverage Co., Inc. v. Owens-Illinois, Inc., 827 F. Supp. 477, 479 (N.D. Ill. 1993).
 is of course is because cy pres is not to advance the underlying lawsuit, but to indirectly bene t those class members who did not get their payment.
In In re Motorsports Merchandise Antitrust Litigation, 160 F. Supp.2d 1392 (N.D. Ga. 2001), the complaint alleged price  xing by vendors of merchandise sold at profession-
al stock car races. In identifying
charities to receive cy pres distri-
butions, the court “attempted to
identify charitable organizations
that may at least indirectly ben-
e t the members of the class of NASCAR racing fans,” by looking for groups in the same community where the un- paid class members were located. Id. at 1395.  e district court selected 10 charities to receive a cy pres distribution, including  e Make-a-Wish Foundation,  e American Red Cross, Children’s Healthcare of Atlanta, Duke Chil- dren’s Hospital and Health Center, and Susan G. Komen Breast Cancer Foundation. Id. at 1396-98.
 e main requirement in making a cy pres distribution is geographic location. For example, in Rosser v. A & S Constracting, Inc., No. 2:15-cv-00711, 2017 WL 666121, at *2 (S.D. Ohio Feb. 17, 2017), the court ordered a cy pres distribution to Southeastern Ohio Legal Services, a er noting that the plainti s all resided in the southeastern re- gion of Ohio and that “geographic scope should be a con- sideration in the selection of a cy pres recipient.” Id.
 e other main requirement, perhaps the most critical, is purpose of the class action itself – not simply to com- pensate the victims, but to disgorge from a wrongdoer all monies obtained by the wrongful practice. Deterrence. “ e fundamental purpose of disgorgement is not to com- pensate securities fraud victims but to deny the violator his ill-gotten gains.” SEC v. Lange, No. 97-6018, 2002 WL 475130, at *1 (E.D. Penn. Mar. 28, 2002).
So when you think of class actions, don’t think of re- turning one $4 overcharge to a single customer.  ink of the $4 million collected by the defendant in cheating one million customers.  ink disgorgement, which is not punishment, or even damages, since ordering someone to return money they obtained improperly is not to harm or punish, but only to return the business and the cus- tomer to status quo. To deter future wrongdoing. When that money is to be disgorged by a business in a settlement but some class members cannot be found, cy pres insures the money is still disgorged, to the same geographic com- munity where the class members are located to indirectly bene t them and their family.
PATRICK J. PEROTTI IS AN AWARD-WINNING NATIONAL LEADER IN THE FIELDS OF CONSUMER CLASS ACTIONS, EMPLOYMENT DISCRIMINATION, AND WAGE AND HOUR LITIGATION. WITH VERDICTS AND SETTLEMENTS EXCEEDING $600 MILLION, PATRICK IS REGULARLY SELECTED TO LEAD CLASS SUITS IN OHIO AND AROUND THE COUNTRY. HIS REPUTATION DEVELOPED FROM A DEMAND FOR OUTCOMES, WHICH NOT ONLY OFFERED COMPENSATION TO CLASS MEMBERS BUT ALSO STOPPED UNLAWFUL GOVERNMENT AND CORPORATE PRACTICES. USING THE CLASS ACTION DEVICE TO ACHIEVE DETERRENCE, HE HAS DIRECTED MORE THAN $30 MILLION IN UNCLAIMED CLASS FUNDS FROM HIS SETTLEMENTS TO CHARITIES AND NONPROFITS AROUND THE COUNTRY.
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