Cy pres (or “next best”) provisions are a relatively common provision of class action settlements.  The cy pres doctrine permits funds from a cash settlement in a class action to be sent to a third party, usually a charitable organization with a mission related to the claims in the lawsuit, rather than to class members.  Cy pres provisions are typically used for residual funds in a settlement pool or, less commonly, when class members are hard to identify.  But cy pres provisions have come under increasing scrutiny, as evidenced by an Ohio federal court’s recent rejection of a class action settlement based solely on its cy pres provision.  Hawes v. Macy’s Inc., No. 1:17-CV-754, 2023 WL 8811499 (S.D. Ohio Dec. 20, 2023). 

The plaintiff in Hawes alleged that Macy’s overstated the thread count in some of its bed sheets in violation of consumer protection laws.  After several years of litigation, the parties agreed to a $10.5 million common settlement fund.  The settlement agreement provided that, if funds remained after a second distribution to class members or if a second distribution was infeasible, the Public Interest Research Group (“PIRG”) would receive the remainder. 

Despite finding that the settlement provided fair and equitable relief to the class, the court rejected the settlement because it found that PIRG was an inappropriate cy pres recipient.  Relying on the Eighth Circuit’s decision in Jones v. Monsanto Co, 38 F.4th 693 (8th Cir. 2022), the court stated that a cy pres recipient must “be one that relates directly to the injury alleged in the lawsuit and settled by the parties.’” Hawes, 2023 WL 8811499, at * 15 (quotation and alteration omitted).  The court found that PIRG did not satisfy this requirement.

The court found that PIRG had no history of work addressing false advertising claims, let alone textiles or bed sheets.  Id. at *16.  Furthermore, PIRG has a history of donating to various progressive political groups and causes such as socializing medicine and promoting climate justice, issues which have no connection to consumer protection.  The court rejected the parties’ representations to the court that PIRG would use any award to fund false advertising awareness on the ground that the court could not ensure that the funds would be used in that manner.  As a result, finding that an award to PIRG would not benefit the class even indirectly, the court rejected the settlement.  However, the court made clear that if a more appropriate cy pres recipient were identified, it would be inclined to approve the settlement.  Id. at *18.

The court also noted that the notices the parties had sent to class members did not include notice of the cy pres award.  Because a notice must apprise class members of the terms of the settlement, the court had “concerns that the notice here may not have ‘fairly appraised’ the class of the terms of the settlement.”  Id.

The decision again confirms that courts will take a hard look at cy pres provisions and that parties including such a provision in a settlement should exercise diligence in selecting the cy pres recipient and, if feasible, ensure that class members are notified of any potential cy pres award.