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Class Action Defense Cases-Lessard v. City of Allen Park: Michigan Federal Court Rules In Favor Of Cy Pres Distribution of Unclaimed Class Action Settlement Funds

Cy Pres Distribution of Unclaimed Class Action Settlement Funds Appropriate Michigan District Court Holds

Following settlement of a class action, there remained approximately $45,000 in unclaimed funds. The federal court had ordered the settlement funds disbursed in March 2006, and further efforts had been made to contact the individual class members who had not claimed their share of the class action settlement proceeds. Lessard v. City of Allen Park, 470 F.Supp.2d 781, 782 (E.D. Mich. 2007). The terms of the class action settlement agreement failed to provide for distribution of unclaimed funds, as did the court order for distribution of the settlement proceeds; however, the settlement agreement expressly provided that the federal court would retain jurisdiction over “any dispute regarding the distribution.” Id. Based on the general rule that “if the unclaimed funds [from a class action settlement] are not directed to one party or another, they are distributed ‘cy pres’ – i.e., to whatever would be the next best use of the money to carry out the intent of the fund, which in class actions usually means for the indirect benefit of the class,” id., at 783 (citation omitted), and the fact that “[f]ederal courts have broad discretionary powers in shaping equitable decrees for distributing unclaimed class action funds,” id., at 782 (citations omitted), the district court decided that the funds should be disbursed to the Michigan Bar Association’s Access to Justice Fund, id., at 784.

In reaching its conclusion, the court concluded that “there would be little benefit to the Plaintiff class of attempting a second distribution of the unclaimed funds” to the members of the class action, and, further, that it would be inappropriate in this particular case to return the unclaimed settlement proceeds to the defendants because the funds represented remuneration for actual damages suffered by members of the class. Lessard, at 783. The district court selected the Access to Justice Fund because courts favor “distributions to charities that offer services that are related to the plaintiffs of a class action,” id. (citation omitted), and held that “[t]he Access to Justice fund is the ‘next best’ use of the remaining settlement monies in this case, because both class actions and Access to Justice programs facilitate the supply of legal services to those who cannot otherwise obtain or afford representation in legal matters,” id., at 783-84 (citation omitted). Accordingly, the district court issued an order to show cause why the unclaimed class action settlement funds should not be disbursed to the Michigan Bar’s Access for Justice Fund. Id., at 784.

NOTE: The district court noted that the United States Supreme Court “has specifically declined to rule on the question of what happens to unclaimed funds in a class action.” Lessard, at 783 n.3 (citing Boeing Co. v. Van Gemert, 444 U.S. 472, 482 (1980)).

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