If a suitable cy pres beneficiary cannot be located, the district court should consider escheating the funds to the United States Treasury.

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According to an attorney present at the September 12 hearing, Judge Hamilton stated that she had incomplete information on how the cy pres funds would be rewarded.

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If fashioning an open-ended, one-sentence mission statement is all it takes top earn cy pres settlement approval in our court, we have completely eviscerated the meaning of our previously controlling case law.

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The ruling is a powerful rebuke of the so-called cy pres doctrine, a legal theory that has sprung up, despite dubious academic credentials, to deal with an intractable problem with class actions: Unclaimed funds.

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Cy pres is an acceptable alternative to paying money to people actually involved in the case, the court said, but the amount given to unrelated charities should serve to reduce the pot used to calculate fees.

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Their argument, the court said, conflated two basic legal principles, first that the court must approve a settlement for fairness, and second that cy pres awards, must be given to groups that offer a reasonable substitute for the absent plaintiffs.

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The plaintiffs devoted a lengthy footnote (n. 6) in their proposed settlement explaining why their cy pres proposal was not disconnected from the misleading advertising claims, as the appeals court found in Kellogg (there, Kellogg products were to be donated to a food bank).

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It also raises serious questions about conflicts of interest, as judges have approved cy pres donations to charities they may have connections to, and plaintiff lawyers may have an incentive to steer money to groups that can deliver them favors, such as prestigious universities they just might want their children to attend.

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The Ninth Circuit has been taking a more vigilant stance toward class actions in recent years, especially where lawyers try to steer money toward unrelated charities in so-called cy pres distributions or where there are questions about whether plaintiff lawyers colluded with the defense to negotiate a fee at the expense of their clients.

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