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More on Cy Pres – Rohn v. TAP Pharamceuticals Products, Inc.

Posted in Settlement

Much has been written in the last few years about cy pres relief (relief that goes, not to class members, but to ) in class action settlements. While plaintiffs and defendants still find cy pres to be a valuable for increasing settlement amounts, the practice has come under increasing fire from some scholars and courts who view it more as a way of inflating settlement amounts to justify attorneys fees.

Last week, the First Circuit weighed in on the debate in Rohn v. TAP Pharmaceutical Products, Inc. Its take: while cy pres relief is a valid tool for providing relief to absent class members, courts should not have the discretion to decide where the funds actually go.

The procedural posture of the case is a little complicated. Rohn is one of the constituent cases of the In re Lupron Marketing & Sales Practice Litigation. The appellants are one subclass of plaintiffs, who challenged a cy pres distribution of $11.4 million to the Dana Farber/Harvard Cancer Center and the Prostate Cancer Foundation. (They argued that the money should have gone to them, as consumers.)

The First Circuit took the opportunity to state some of the principles it follows when reviewing cy pres relief. It elected not to follow Judge Jones’s suggestion in her concurrence to Klier v. Elf Atochem (5th Cir. 2011) that courts prefer reversion settlements to cy pres. Instead, it adopted the "reasonable approximation" standard.

Both case law and the ALI Principles support our adoption of the "reasonable approximation" test. As to whether distributions reasonably approximate the interests of the class members, we consider a number of factors, which are not exclusive. These include the purposes of the underlying statutes claimed to have been violated, the nature of the injury to the class members, the characteristics and interests of the class members, the geographical scope of the class, the reasons why the settlement funds have gone unclaimed, and the closeness of the fit between the class and the cy pres recipient.

The First Circuit was also not sympathetic to the plaintiffs’ claim that they deserved the money, since they had already received full relief, and

It is well accepted that protesting class members are not entitled to windfalls in preference to cy pres distributions

However, the First Circuit also expressed one concern about cy pres relief, namely that the court itself should not be the entity deciding where cy pres funds should go.

Distribution of funds at the discretion of the court is not a traditional Article III function, as many courts have recognized …

What’s the takeaway for defense lawyers? Cy pres is still OK, but make sure that the third party receiving the relief is closely related to the gravamen of the lawsuit.