Class Actions – Unused Proceeds

The case of Klier v. Elf Atochem presented this challenge: “When modern, large-scale class actions are resolved via settlement, money often remains in the settlement fund even after initial distributions to class members have been made because some class members either cannot be located or decline to file a claim.”  Op. at 6.  The Court reviewed the district court’s decision to make a cy pres distribution of unclaimed funds from a tort settlement to various charities.  The Court began its analysis by reminding that the Rules Enabling Act and Fed. R. Civ. P. 23 “define the first –and often the last–arena of analysis,” Op. at 8, limiting cy pres distributions “only to rescue the objectives of the settlement when the agreement fails to do so.”  Op. at 10.  Noting that the parties’ settlement did not provide for a cy pres distribution, and that it had a clause allowing the district court to change the distribution protocol “for the benefit of the Settlement Class Members,” Op. at 11-12, the Court concluded that the unused funds were to be used for the benefit of another settlement subclass rather than as the district court had ordered.  The Court went on to review several features of the parties’ agreement, reminding that the cases in this area “have necessarily taken case-specific approaches . . . .”  Op. at 14.  Chief Judge Jones wrote a concurrence that focused on situations when it would be appropriate to return unused funds to the settling defendant.