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Third Circuit Rejects Class Settlement Because Class Fund Went to Class Counsel and Cy Pres Rather than Class Members

Posted in Class Action Settlements

We’ve blogged before about federal courts’ increasing reluctance to approve class settlements that involve a significant cy pres component. The Third Circuit’s recent decision in In re Baby Products Litigation (pdf) is the latest example of this trend.

Class counsel often use the distribution of funds to handpicked charities in order to disguise the percentage of the class recovery that’s actually going right into class counsel’s pocket. That may have been what was going on in In re Baby Products Litigation. In that case, class counsel got almost five times as much money ($14 million in fees and expenses) as the members of the class ($3 million). But because $18.5 million (minus administrative costs of settlement) was to be distributed in cy pres, creating a total “class fund” of $35.5 million, class counsel appeared to be getting only one-third of the settlement in fees. Put another way, the use of cy pres made the benefits of the settlement to class members (as compared to their attorneys) to appear to be over seven times what it actually was. 

The Third Circuit decision represents a victory for Ted Frank of the Center for Class Action Fairness, who argued the appeal on behalf of an objector. His summary of the decision on Point of Law is worth a read.