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November 5, 2013

Justices Pass On Cy Pres Review – For Now

On Monday, the Supreme Court refused to review a $9.5 million class action settlement, rejecting objections that a majority of class members would receive no money. Facebook agreed to the settlement to resolve privacy complaints.

According to the Wall Street Journal:

The bulk of the $9.5 million settlement was used to establish a nonprofit organization called the Digital Trust Foundation, to fund projects aimed at promoting digital privacy. A Facebook employee was designated to serve on the foundation’s board. Plaintiffs’ attorneys collected more than $2.3 million.

The court let the settlement stand in a brief written order.

However, the issue could be ripe for review, according to a four-page statement from Chief Justice Roberts. While agreeing that the court should have stayed out of this particular case, Roberts wrote “in a suitable case, this court may need to clarify the limits on the use of such remedies.”

The use of cy pres – sending unclaimed settlement money to third parties – raises a host of ethical questions. A New York court warned “the specter of judges and outside entities dealing in the distribution and solicitation of large sums of money creates an appearance of impropriety,” and an ILR paper says the practice could “undermine core constitutional principles of separation of powers and due process.”

Increased scrutiny of cy pres would be a welcome step towards ensuring fairness in class action settlements.

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