Supreme Court Should Police Class Action Settlements

In 2009, Duracell, a subsidiary of Proctor & Gamble, began selling “Duracell Ultra” batteries, marketing them as their longest-lasting variety. A class action was filed in 2012, arguing that the “longest-lasting” claim was fraudulent. The case was removed to federal court, where the parties reached a global settlement purporting to represent 7.26 million class members.

Attorneys for the class are to receive an award of $5.68 million, based on what the district court deemed to be an “illusory” valuation of the settlement at $50 million. In reality, the class received $344,850. Additionally, defendants agreed to make a donation of $6 million worth of batteries over the course of five years to various charities.

This redistribution of settlement money from the victims to other uses is referred to as cy pres. “Cy pres” means “as near as possible,” and courts have typically used the cy pres doctrine to reform the terms of a charitable trust when the stated objective of the trust is impractical or unworkable. The use of cy pres in class action settlements—particularly those that enable the defendant to control the funds—is an emerging trend that violates the due process and free speech rights of class members.

Accordingly, class members objected to the settlement, arguing that the district court abused its discretion in approving the agreement and failed to engage in the required rigorous analysis to determine whether the settlement was “fair, reasonable, and adequate.” The U.S. Court of Appeals for the Eleventh Circuit affirmed the settlement, however, noting the lack of “precedent prohibiting this type of cy pres award.”

Now an objecting class member has asked the Supreme Court to review the case, and Cato filed an amicus brief arguing that the use of cy pres awards in this manner violates the Fifth Amendment’s Due Process Clause and the First Amendment’s Free Speech Clause.

Specifically, due process requires—at a minimum—an opportunity for an absent plaintiff to remove himself, or “opt out,” from the class. Class members have little incentive or opportunity to learn of the existence of a class action in which they may have a legal interest, while class counsel is able to make settlement agreements that are unencumbered by an informed and participating class.

In addition, when a court approves a cy pres award as part of a class action settlement, it forces class members to endorse certain ideas, which constitutes a speech compulsion. When defendants receive money—essentially from themselves—to donate to a charity, the victim class members surrender the value of their legal claims. Class members are left uncompensated, while defendants are shielded from any future claims of liability and even look better than they did before the lawsuit given their display of “corporate social responsibility.”

The Supreme Court will consider whether to take up Frank v. Poertner later this winter.