We’ve said before (in commenting on the ALI’s aggregate litigation principles) that we don’t like the “cy pres” concept. For one thing, it makes us look dumb. We’re not even sure how the blasted term’s supposed to be pronounced. If you ask three lawyers, you’re likely to get four possible pronunciations, from “sigh pray” to “see press.”
We’ve been goaded into action, mostly, by a brand new article out of the Northwestern Law School: Redish, Julian & Zyontz, “Cy Pres Relief And The Pathologies Of The Modern Class Action: A Normative And Empirical Analysis,” that you can find here. This article articulates in academic terms a lot of our own gut reactions to the use – and we’d say misuse – of cy pres in the modern legal system.
First of all, there’s probably quite a few of our readers still scratching their heads about what we’re talking about. A little primer: “Cy pres” is legal French (only a little more modern than legal Latin) standing for “as close as possible” (in full: “cy pres comme possible”). It started out in the estates and trusts area as a solution for what to do about an old bequest that no longer corresponded to changed circumstances – such as a donation to something that no longer exists (some wills can sit around for a long time) – that a court had to make sense of. See here and here.
So far so good. One of the many things we’re not is T&E lawyers. It may well be that, dealing with limited funds in estates, some sort of quick and dirty way of getting things done is preferable (at least for everyone but the lawyers) to spending all of the money in the estate on legal proceedings purporting to psychoanalyze a deceased donor to figure out what s/he’d want to do in a situation that s/he never thought about.
The shenanigans started when this concept was exported to the class action field in the 1970s. The Redish Article (at pp.10-23) describes this history in detail, so we won’t. Suffice it to say that the analogy is about as close as apples and moonrocks, but that hasn’t stopped it from being accepted by courts that start out favorably inclined towards class action litigation. For their part, plaintiffs’ class action lawyers always want to cut corners on their way to a juicy fee award, so they helped twist the meaning of cy pres into a justification for taking defendants’ money without knowing – or caring – to whom (other than to themselves in fees) it goes, or who else might actually have a claim to the money, and giving the money to entities that didn’t even purport to be members of the relevant classes.
Thus the modern meaning of cy pres: the defendant was (allegedly) a bad person in some way, but it’s too hard – that usually means “too expensive” – to figure out who if anyone was actually hurt by the defendant’s depredations, so let’s take the defendant’s money anyway, but instead of giving it to anyone actually hurt, let’s give it to some deserving charity.
A clarification. In this post, we’re talking only about cy pres in situations where there’s no extant statutory or regulatory authority for such disgorgement. As products lawyers, we’re not aware of any statute that authorizes a civil remedy that takes a defendant’s money and gives it to a charitable entity that wasn’t injured by the claimed wrongdoing, but we can’t rule it out.
The cy pres we know and definitely don’t love is a naked exercise of judicial power in the absence of any writ to do so from one of the co-equal branches of government.
So why don’t we like it? Let us count the ways.
Any time that a court resorts to cy pres, it constitutes an admission that the suit – at least in class form – cannot be proven, and thus should be dismissed. Causation and damages are essential elements for every cause of action that we know of (since California changed its bizarre consumer fraud laws, anyway).
But the whole justification for cy pres is that proof of causation and damages is either outright impossible or just too darned expensive, given the overall stakes of the litigation. In both cases, that’s an admission that the plaintiffs can’t prove the essential elements of their cases. In the settlement context, it’s even worse. Resort to cy pres is an admission that, even with no opposition, plaintiffs can’t prove their cases.
When plaintiffs admit that they can’t prove their cases, they should have their cases dismissed. They should not be rewarded with the defendant’s money to hand out, essentially, to whomever they can get away with giving it to. Nor should attorneys who admit that they can’t prove their clients’ cases be awarded with fees despite that admitted failure.
For a class action that seeks to take the defendant’s money to proceed, common issues must “predominate” over case-specific ones. Fed. R. Civ. P. 23(b)(3). Resort to cy pres is inherently inconsistent with any notion that common issues can predominate. Putting liability issues entirely to one side, the excuse for cy pres is – once again – that it’s impossible or unduly expensive to prove causation and damages as to the class members. By definition, then, causation and damages can’t be proven on a class-wide basis with proof as to the class representatives serving as proof as to all. If that were possible, then there’d be no need for cy pres in the first place. Thus, any case given cy pres treatment, due to the expense or impossibility of proving causation and damages individually, necessarily can’t qualify as a class action for money damages under Rule 23(b)(3) because the individual issues of causation and damages “predominate.” They have to, if just to prove them renders the entire litigation uneconomic.
Under our tripartite system of government, the legislature is supposed to make the laws and the executive to enforce them. Where is the law or regulation allowing, as a consequence of some legal violation, one private person’s money to be taken away and given to some other private person(s) whom the violator didn’t injure? There isn’t any. If there were, there’d be no need to resort to cy pres, because the statute or rule (assuming it were constitutional – which is a stretch) itself would provide the distribution scheme, not some vague notion of “equity.” The government can impose civil or criminal fines for conduct that’s illegal, without regard to causation or damages, but the money in those situations goes to the government as the sovereign enforcer of the laws.
Courts by themselves have no power to redistribute money between private persons in the absence of causation and damages. At least at the beginning, courts resorting to cy pres were forthright enough to admit that what they were doing was without precedential or statutory support:
As to any legal prohibition, while neither counsel nor the Court has discovered precedent for the proposal – at least in a case such as this where distribution to the class of plaintiffs was theoretically possible if not in a practical sense feasible – nor have we been made aware of any precedent that would prohibit it . . . . The Court is troubled by the prospect of either conclusion to what has been a protracted and undoubtedly expensive lawsuit. But in view of the fact that plaintiff’s chance of prevailing at trial became less and less likely as the defense pressed on, no alternative is realistically possible.
Miller v. Steinbach, 1974 WL 350, at *2 (S.D.N.Y. Jan. 3, 1974) (giving residual funds to a non-plaintiff retirement plan).
Basically, the first case allowing cy pres did so on the rationale, “if nobody says I can’t, I can.” We have a fundamental problem with that, in that we have a system of limited government. Thus, the reverse should be true – of judges, as well as presidents and legislators: unless there’s a basis for an exercise of power, that power should not exist.
The effects of cy pres on the litigation system itself are pernicious. One of the fundamental constraints upon litigation is that some supposed violations just aren’t worth the candle to sue over. In those situations, the system wisely leaves enforcement to the state as sovereign. Class actions under Rule 23 were intended to encourage aggregation as one way of addressing small-claims litigation. But class actions were intended only to make additional litigation cost effective – not to encourage lawsuits that, given their elements of proof, weren’t economical to bring even when aggregated. Cy pres allows plaintiff lawyers essentially to generate fees out of nothing, that being causes of action they can’t prove, encouraging litigation that has no business ever being brought.
Conversely, cy pres has pernicious effects on the judiciary. It encourages courts to think they can “fix” things that they have no business fixing. Again, inherent in our system of checks and balances is the notion of limited government. By allowing courts to give away money on a standardless basis in uneconomic litigation, cy pres facilitates judges becoming what Justice Cardozo once called “knights errants,” believing that through litigation they can solve all of society’s problems:
A judge, even when he is free, is still not wholly free. He is not to innovate at pleasure. He is not a knight-errant roaming at will in pursuit of his own ideal of beauty or of goodness. He is to draw his inspiration from consecrated principles. He is not to yield to spasmodic sentiment, to vague and unregulated benevolence.
Benjamin N. Cardozo, Nature of the Judicial Process, at 141 (1921). Or to put it more bluntly – cy pres allows judges to see litigation as a hammer and the rest of the world as a nail.
Most civil litigation is based upon the notion of compensation for injury suffered. Some statutory claims add a punitive element to the mix, say, by awarding treble damages, but they’re still tied to the concept that the plaintiff has been damaged in some way.
The primary justification for cy pres, however, is not compensation but punishment – that the defendant allegedly did something bad and shouldn’t be allowed to profit from the wrongdoing, or some variant of that argument.
The causes of action under which private litigation is brought, however, don’t work that way. There’s no such thing as a qui tam actions for damages suffered solely by private parties. Moreover, pure punishment is a creature of the criminal law or less frequently of administrative oversight. There, we’re talking fines, not compensation. Fines, however, go to the government.
Thus, in cy pres situations, there’s a total disconnect between the claims being made and the relief being requested. The only way, in civil litigation, to receive an award under a purely punitive rationale is to meet the very onerous standards for proof of punitive damages. And as we’ve gone into at length elsewhere, even punitive damages are constrained (both constitutionally and as a matter of the substantive law) by the requirement of a ratio between compensatory and punitive damages.
But cy pres plaintiffs by definition aren’t able to prove any actual damages, let alone punitive damages. Thus, there can’t be any ratio. Thus, such plaintiffs hardly in a position – legally, anyway – to argue that because the defendant is somehow evil, it should have to give up money to somebody who, under the causes of action that have been asserted, hasn’t proven that it belongs to them.
Class counsel are no different from the rest of us. They want to get paid, and they want to make a profit. That also means that they want to get the largest possible recovery/paycheck with the least amount of work. Cy pres, however, divorces the “recovery” to the clients from the “paycheck” that the clients’ lawyer receives. For that reason, such distributions create inherent conflicts of interest. Why would class counsel want to spend a huge amount of time, effort and expense to figure out exactly which class members lost how much in the defendant’s alleged nefarious scheme when s/he can get paid the same amount by collecting a cy pres settlement and not having to bother with all of that? Or, as an appellate court put it:
Would it be too cynical to speculate that what may be going on here is that class counsel wanted a settlement that would give them a generous fee and [defendant] wanted a settlement that would extinguish 1.4 million claims against it at no cost to itself? The settlement that the district judge approved sold these 1.4 million claimants down the river. Only if they had no claim – more precisely no claim large enough to justify a distribution to them – did they lose nothing by the settlement, and the judge made no finding that they had no such claim.
Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 785 (7th Cir. 2004) (rejecting cy pres award because it took the class’ recovery and gave it to other people).
When viewed unsentimentally, the conflict of interest in cy pres distributions is quite blatant. Cy pres creates significant financial incentives for class counsel not to spend money on proving causation and damages, but rather to claim that it’s too hard to prove these elements. Thus, cy pres amounts to counsel’s taking money that ostensibly “belongs” to his/her clients and giving it to third-party charities (or “selling the clients down the river,” as the case may be) – that aren’t clients at all.
One popular use of cy pres is as a means of distributing money left over (“residual” or “reserve” funds) after all individual claims in a settlement have been dealt with. It’s either that, or give it back to the “evil” defendant, we hear. Trouble it, it’s also less expensive to dole out large blocks of cash to charities than to run a claims program. The availability of cy pres thus creates financial incentives for class counsel to make the proof required in claims programs as onerous as possible so that very few supposedly “injured” persons will submit claims. That way, the claim program is cheaper to run, since it won’t have to hire as many referees, doctors, etc. Mirfasihi, 356 F.3d at 783 (recognizing that “many people won’t bother to do the paperwork necessary”).
It’s an increasing problem, too. According to data in the Redish Article (Fig. 2 at p. 50), since 2000, there have been more cy pres distributions just in purely settlement classes than there were total cy pres distributions of any sort in the prior quarter century since the notion of cy pres was first imported into the class action context.
Trouble is, if there’s left over money because nobody cares enough (or has enough evidence) to submit claims, than it’s not really different than the would-be plaintiffs never suing at all. When a defendant isn’t sued, it doesn’t have to pay money to anybody. That means that the money belongs to the defendant. In our system, a defendant is entitled to keep its own property until a plaintiff in a private action proves a cause of action that supports a judgment against the defendant. Cy pres takes that money anyway, without the required proof, simply because the default by the purported plaintiffs occurs at a later stage in the litigation. In this way, as well, cy pres improperly crosses the divide between private damages awards and governmental fines.
One perennial recipient of cy pres is so-called “public interest” law. In this way, non-economic litigation is able to finance still more non-economic litigation. Litigation-related “charities” can pass around cy pres distributions from their own litigation to others of the same ilk, thus financing still more attempts to spawn additional non-economic litigation. See In re Agent Orange Product Liability Litigation, 818 F.2d 179, 186 (2d Cir. 1987) (vacating cy pres arrangement that would have allowed a “foundation” run by plaintiffs and their counsel to use funds for “political advocacy”); Jones v. National Distillers, 56 F. Supp.2d 355, 359 (S.D.N.Y. 1999) (donating cy pres funds to legal aid to “help those needing legal assistance”); In re Wells Fargo Securities Litigation, 991 F. Supp. 1193, 1198 (N.D. Cal. 1998) (distributing cy pres funds to a “clearinghouse” for publicizing securities litigation run by a law school).
Similarly, there’s nothing to stop cy pres distributions from being funnelled into “charitable” organizations that are dedicated to “studying” such things as toxic exposure solely to produce plaintiff-side junk science – which, in turn, gets used in the next round of litigation in which somebody might have been injured (if the junk science is credited), but nobody can say who or by how much.
There’s nothing about cy pres that limits it to cases in which all possible defendants are sued. Where joint tortfeasorship (where several defendants are all liable for the same injury) is alleged, cy pres settlements with some but not all defendants, lead to insuperable problems with contribution, indemnity, and claim splitting. If there’s a cy pres settlement with one alleged polluter, and one of the members of the supposed class sues a different defendant individually down the road, is a cy pres settlement that didn’t benefit that plaintiff still a satisfaction that forbids a second suit for the same injury? If it doesn’t, do funds that the plaintiff himself never saw – but which were distributed through cy pres – count as an offset in subsequent litigation? Even in the same litigation, does a cy pres settlement create a windfall for non-settling joint tortfeasors?
Cy Pres Allows Courts To Play Santa Claus With Other People’s Money
There being no legal basis for cy pres, there are no standards for it either – beyond whatever a court creates for itself with in any given case. There’s no rule of civil procedure or canon of judicial ethics covering cy pres distributions. Private persons can give their own money to whatever person or charity they want, but they have to respect the various tax implications (gift, income tax deductions, etc.). Courts get to give away other people’s money, cy pres style, free of any of these constraints. Judicial gifts of other people’s money thus pack more oomph and come with fewer strings that what we’re allowed to do ourselves.
Since there are no standards for cy pres, other than a court’s self-restraint, cy pres has the risk of devolving into judicial – and class counsel – patronage. It creates a group of sycophantic “charities”, dependent upon the largesse of the court and class counsel, who can be expected to do their bidding in the hope of handouts. There’s nothing to prevent gifts to the judge’s law school, or to some charity run by some pal or relative of class counsel. Completing the circle, such charities could be expected to give “person of the year” awards or other similar perks and recognition to those who give them all this money. They won’t bite the hand that feeds them.
Finally, there’s a lot of fancy arguments that we could make (and we have, in litigation) that, by dispensing with proof of causation and/or damages, cy pres distributions violate a defendant’s (or even a non-participating plaintiff’s) right not to have property taken without due process of law. There’s another equally arcane (but valid) argument that we could make that eliminating the elements of damage and causation in order to facilitate class actions under Rule 23 (or other forms of aggregated litigation) amounts to allowing procedure to change the substantive law in violation of the Rules Enabling Act (28 U.S.C. §2072). We agree with all that stuff, but we’ll leave you hard core types that are interested in that to read the Redish Article (especially pp. 32 to end), which provides quite a thorough rundown of these arguments. We can’t claim to be that sophisticated. Our dissent from the doctrine of cy pres is bottomed on more visceral and philosophical reactions.
So, for all of these reasons, we don’t like cy pres very much. It cuts too many corners, creates too many conflicts, and above all facilitates too much litigation for us ever to be comfortable with it. If it’s going to be used at all, at a minimum no award of counsel fees should be based on any cy pres distribution, since inherently such distributions don’t result in the members of the class getting anything.
But we don’t think cy pres should be used at all. The bottom line is simple: if a plaintiff can’t prove his case, that plaintiff doesn’t deserve anything. Conversely, if a person hasn’t been injured and hasn’t brought suit, that person doesn’t deserve anything either – even if it’s a charity.
Cy pres has developed as a way of punishing “negligence in the air,” that is, some alleged wrongdoing that nobody can prove has hurt anyone. Maybe it has; maybe it hasn’t. But as a legal matter, we have the spectacle of a suit being brought by plaintiffs who can’t prove their causes of action, and funds being distributed to a different entity that never even filed suit. Without proof of causation and damages for the original plaintiffs – or proof of any cause of action at all on behalf of the latecomer – such claims of wrongdoing shouldn’t be the stuff of private litigation.
To be sure, wrongdoing without injury may well warrant criminal punishment or administrative sanctions by the state, but unless and until the legislature or the executive acts, negligence in the air doesn’t belong in court. It’s simply not up to courts to create new remedies that the legislature or the relevant common law has not seen fit to impose as a matter of substantive law.