The federal appeals courts haven't been kind recently to U.S.
district judges dolling out class action settlement funds to
charities when payments to some or all of the plaintiffs aren't
feasible. In the last seven months, both the 5th and 9th Circuit
Courts of Appeals have taken issue with distributing funds to
libraries, bar organizations, or other charities not related to
the underlying case.
But in the case of an $11.4 million award to a Harvard
cancer research center, a three-judge panel of the 1st Circuit
Court of Appeals ruled Monday that Harvard can keep the money
left over from TAP Pharmaceutical's $150 million class action
settlement. TAP was targeted after pleading guilty in connection
with fraudulently pricing and marketing the prostate cancer drug
Lupron. The settlement had called for $40 million to go to
consumers, yet millions went unclaimed by Lupron users.
The appeals court found U.S. District Judge Richard Stearns
of Boston did not abuse his discretion in directing the money to
Harvard. But the appellate court expressed "concerns" about the
idea of giving trial judges discretion by litigants to decide
how to distribute unclaimed funds.
"It is true that the court attempted to compensate for the
parties' failure to designate recipients in the agreement by
taking proposals from the parties and fully involving them in
the selection process," wrote Chief Judge Sandra Lynch for a
panel that also included Judge Kermit Lipez and former U.S.
Supreme Court Justice David Souter sitting by designation. "But
the choice would have been better made by the parties initially
and then tested by the court, against the principles we have
The decision was the latest to look at how so-called cy pres
awards are distributed. In September, the 5th Circuit nixed an $830,000 cy pres award of funds left over from a $41 million
settlement with the chemical company Elf Atochem. The 9th
Circuit followed the trend in November by rejecting a settlement
with AOL that included $110,000 in cy pres awards to charities
that the appeals court said did not "address the objectives of
the underlying statutes."
Lawyers for both the AOL and Elf Atochem objectors said the
1st Circuit's opinion is actually consistent with the logic in
their cases, even though the court upheld the cy pres award. Ted
Frank of the Center for Class Action Fairness, who represented
the AOL objector, called the 1st Circuit decision a "landmark"
on his blog, and said in an email to On The Case that he plans
to cite it in an upcoming 3rd Circuit cy pres challenge. Brian
Wolfman, a professor at Georgetown University Law Center who
represented the Elf Atochem objector, said the 1st Circuit
ruling is a "solid opinion that sets out basic principles and
applies them in a factual context that's not terribly
Why do Frank and Wolfman like the ruling? For one thing,
class members won almost twice their damages in the settlement,
so distributing leftover funds wouldn't preclude the class from
full recovery. (That wasn't true in their cases, Wolfman said.)
Judge Lynch wrote that allowing for a windfall for the 11,000
claimants in the TAP Pharmaceutical litigation could also create
a bad incentive for victims to sue in cases where the odds are
high that many plaintiffs' wouldn't make claims. (In the case of
Lupron, many class members died of prostate cancer.)
Wolfman also noted the TAP cy pres award was going to an
appropriate charity, unlike the awards in the AOL and Elf
Atochem cases. The 5th and 9th Circuits said the cy pres funds
shouldn't go to charities with little relevance to the classes,
such as a bar organization or a scholarship fund. By contrast,
the Dana-Farber/Harvard Cancer Center said it intended to use
the award to fund "the treatment of prostate cancer and other
Lupron-treatable diseases and conditions."
"I think what the court had here was an excellent example
where a cy pres award can be used for a truly laudable goal for
funding fundamental research that is in the interest of Lupron
victims," said TAP Pharmaceutical class counsel Thomas Sobol of
Hagens Berman Sobol Shapiro.
Objectors counsel Donald Haviland of Haviland Hughes said
his clients plan to petition the U.S. Supreme Court for
certiorari. Unlike Wolfman and Frank, Haviland contended the
decision "goes against the 5th Circuit and 9th Circuit (rulings)
that class members should be fully compensated."
Neither Dana-Farber counsel Martin Fantozzi of Goulston &
Storrs or spokespeople for the center responded to requests for
(Reporting by Nate Raymond)
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