"Fair, Reasonable and Adequate" According to Who? Cy Pres Distributions that Result in Cheap Settlements and Generous Attorney Fees, But No Financial Benefit to Class Members
Abstract
In her recent article, Professor Rhonda Wasserman argues that class action settlements that distribute funds cy pres raise a very serious risk of prejudice to absent class members. The problem, she asserts, is the temptation for class counsel to sell out the interests of absent class members in exchange for a discounted settlement for the defendant and a generous fee for class counsel. To illustrate her concern, she cites the $9.5 million settlement in Lane v. Facebook that directed approximately $6.5 million to a nascent charity that was controlled -- at least partially -- by the defendant, $3 million to class counsel and nothing to the 3 million absent class members. Professor Wasserman argues that courts cannot have a laissez faire attitude toward protecting absent class members and she proposes a number of procedural reforms to ensure that cy pres distributions are only used when absolutely necessary. While her proposals are likely to provoke increased judicial scrutiny of cy pres distributions, the article stops short of addressing the principal question: when, if ever, is a settlement that distributes funds cy pres “fair, reasonable and adequate” to the absent class members? This Response addresses the principal question omitted from Professor Wasserman’s article and asserts that representations of counsel who are aligned in support of a proposed agreement and stand to gain from its approval are insufficient to find a proposed settlement agreement “fair, reasonable, and adequate.” Rather, Rule 23(e) demands that courts base a fairness finding upon objectively reliable evidence and this Response offers a proposal for how district courts may acquire such evidence.