"Cy Pres" Award to Charity From Class Action Settlement Was Improper

In Dennis v. Kellogg Co., 2012 U.S. App. LEXIS 18576 (9th Cir. Sept. 4, 2012), the Ninth Circuit Court of Appeals decided an interesting class action case. The case involved a class action relating to alleged deceptive advertising claims concerning the marketing of children’s cereal products.

A large manufacturer of children’s cereal products prepared an advertising campaign that claimed its breakfast cereal was scientifically proven to improve children’s cognitive functions subsequent to a morning breakfast.

A class representative filed suit against the cereal manufacturer, alleging violations of California’s Unfair Competition Law (UCL) (Business and Professional Code 17200). and asserting a claim of unjust enrichment. The plaintiff alleged that the marketing claims were false. Subsequently, the parties agreed to settle the case.

As part of the settlement, any funds that were not distributed to class members were designated as donations to selected charities pursuant to the well known “cy pres” doctrine. Two class members objected to that approach, arguing that the use of “cy pres” relief was improper, as applied in the case. The district court approved the class settlement over objections of the class members.

The Ninth Circuit reversed the trial court’s decision. The Ninth Circuit noted that the “cy pres” doctrine is a method of distributing damages to silent members of a class action. The Ninth Circuit explained that use of the “cy pres” doctrine allows courts to distribute funds causing indirect benefits. The Ninth Circuit cautioned, however, that a “cy pres” award must be guided by the objectives of the underlying statutes and the interests of the class members not actively involved in the case.

The Ninth Circuit concluded that the “cy pres” award here was too disconnected from the underlying California consumer statutes. Although feeding the poor is an important public policy concern, the court concluded that goal had little or nothing to do with the purposes of the underlying lawsuit.