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The Cy Pres Racket

By KAREN LEE TORRE

The cy pres doctrine sorely needs reform. Hopefully, the U.S. Supreme Court will take the first opportunity to rein it in, or Congress should do it. (Don’t count on the Democrats).

A common law doctrine, it originated in the area of charitable trusts where its application is justifiable — and least susceptible to abuse. A typical example is a trust established by a now deceased grantor to benefit a local library that no longer exists. What does the trustee do with the money? A court can order the funds rededicated to one or more nearby libraries, thus respecting the decedent’s evident purpose cy pres comme possible (“as near as possible”). Sensible enough. But like everything else that had a legitimate original purpose, sharks got hold of the doctrine, took it where it doesn’t belong (with the aid of liberal judges) and are engaging in feeding frenzies.

Cy pres crept into that most pernicious of bench-bar collusions: class action settlements. In large part, class action litigation is a judicially sanctioned shakedown industry. We’ve heard the countless stories of clever hustlers with J.D. degrees raking in millions putting together an arrangement whereby a mass of strangers is invited to consider drowning in paperwork for an award of $10. And the deal usually involves giving others room at the trough — class and fund administrators, special masters and other court-appointed parasites. Class action consent decrees are too frequently entered into by corporations for reasons wholly unrelated to the merits of the suit. Government defendants are worse offenders. Particularly in race discrimination class actions, politicians can easily collude with plaintiffs to produce consent decrees to get around laws they don’t like and gain what a jury would never give them.

Since many such decrees involve imaginary victims, there is often a pot of gold left over after all “claimants” are paid their pittance. And then the fun begins for the activist (or just the power-lusting) judge and the class counsel. They get to act like Bill and Melinda handing out Gates Foundation grants to their pet charities and political causes. But unlike the Gateses, they aren’t spending their own money. Instead, they are wrongfully taking and spending other people’s money, which is a liberal pastime.

Unchecked, cy pres can easily become a form of court-sponsored money-laundering.

These cases are not tried. Counsel are relieved from proving even that their nominal client is a real victim, never mind those in the amorphous “class,” or the fact and extent of the alleged injuries. The amount of the settlement fund is simply the largest that can be extorted out of the corporation (or the most a politician is willing to steal from taxpayers) and bears little relationship to the number of “victims” or their “injuries” for the simple reason that they are entirely unknown or non-existent.

The frequency and size of cy pres leftovers in some cases yields the suspicion, if not a conclusion, that it was orchestrated to allow for just the kind of grant-giving that goes on. It has become a means for judicial redistribution of wealth. Some of these lawyers take hideously excessive fees, sometimes millions for work that would net them a fraction of that at hourly rates. It puts judges in a grossly unseemly position of being directly and indirectly lobbied for grants by groups and institutions, often with ties to the lawyers. Judicial discretion permits something even more intolerable — judges using the kitty to fund their pet political causes. You’ll see every left wing “public interest” outfit and racial lobby on the judicial nipple. Of course, forum selection helps. Bring your action on the West or the left coast (that is, in the Ninth or Second circuits).

If the claim period closes with leftover millions, the overpaying company or government entity should get it back. Stockholders and taxpayers have rights. It’s their money and it shouldn’t be stolen, laundered and then redistributed by a judge. What’s the difference between a class action cy pres and a RICO violation? Good question for Congress, if we ever get a decent one.•

Karen Lee Torre, a New Haven trial lawyer, litigates civil rights issues in the federal courts. Her e-mail address is thimbleislands@sbcglobal.net