Cy Pres Settlement: How It Works, Alternatives, and Supreme Court Status

A cy pres settlement is a class action resolution in which some or all of the settlement money goes to a nonprofit or charity instead of to the people in the class. Courts approve this arrangement when paying individual class members is impractical, too expensive, or impossible because they cannot be identified. The term comes from the French cy près comme possible, meaning “as near as possible,” and the idea is that the money should be put to the “next best use” when direct compensation cannot work. It is one of the most contested features of modern class action law.

When Cy Pres Gets Used

Cy pres typically comes into play in one of a few situations. Class members may be impossible to locate. The class may be so large that each person’s share works out to pennies. Or the claims period may close with substantial money still unclaimed. In some settlements — most often in data privacy and consumer cases — no direct distribution is even attempted, and the entire fund goes to third parties. Those are known as “cy pres-only” settlements.¹

The Google Street View litigation is a clean example of the economics at work. A court found that each of the estimated 60 million class members would have received roughly 22 cents from a direct payout. About $10 million was split among nine nonprofits instead, including the ACLU Foundation, Consumer Reports, and EPIC.²

Federal Rule of Civil Procedure 23(e) requires any class settlement to be “fair, reasonable, and adequate,” but says nothing specific about cy pres. A proposal by the Rule 23 Subcommittee on Civil Rules to formally codify the practice was withdrawn, so it remains largely a matter of judicial discretion.¹ At least six states — California, Illinois, Massachusetts, North Carolina, South Dakota, and Washington — have codified rules for distributing residual class action funds.³ California’s Code of Civil Procedure § 384 permits residual funds to go to nonprofits providing civil legal services to indigent people.⁴ Washington State went further in 2006, requiring at least 25 percent of residual class action funds to go to the Legal Foundation of Washington for legal aid services.⁵ By 2017, 21 states had statutes or court rules identifying legal aid organizations as appropriate recipients.⁶

How Courts Choose the Recipient

Selecting where the money goes is one of the most contentious parts of the process, and the federal circuits do not agree on the standard. The American Law Institute’s Principles of the Law of Aggregate Litigation, frequently cited by courts, recommends that recipients “reasonably approximate” the interests of the class.⁷ What that means in practice varies by circuit.⁸

Five approaches are currently in use:

The First Circuit and the ALI apply a reasonable approximation test. If no entity fits, any organization other than the defendant may qualify.
The Third Circuit requires that the recipient provide a direct benefit to class members, not just a general public good.
The Eighth Circuit requires courts to conduct a rigorous search for the “next best recipient” compared to alternatives.
The Ninth Circuit requires a “substantial nexus” between the recipient and the purpose of the litigation.
The Seventh Circuit applies no formal test and has held that a cy pres distribution may be proper even if it serves a purely punitive function, so long as the recipient is not the defendant.

The ALI’s guidelines also warn against judicial conflicts, stating that a court should not order a cy pres award if the judge has “any significant prior affiliation with the intended recipient.”⁹

What Class Members Actually Get

The most fundamental criticism of cy pres is straightforward: it does not pay the people who were harmed. Settlement money goes to charities rather than to the injured plaintiffs, which some argue turns the class action mechanism into a vehicle for wealth transfer to third parties rather than a tool for compensating victims.¹⁰ In the most extreme deals, class members receive nothing at all while attorneys collect millions in fees and nonprofits receive the balance.

Selection of the recipients is also ripe for conflicts. Class counsel sometimes direct funds to organizations where they have alumni ties or board memberships. Judges have approved awards to charities with which they or their family members have personal affiliations. In one widely cited example from the Kentucky fen-phen litigation, tens of millions of dollars were diverted to an organization where the presiding judge served as a trustee.⁹ Defendants can benefit too: a charitable donation can generate favorable publicity while simultaneously extinguishing the claims of an entire class.¹⁰

Critics also point to cases where the chosen recipient bore little relationship to the underlying lawsuit. In Nachshin v. AOL, the Ninth Circuit rejected a proposed distribution to the Legal Aid Foundation of Los Angeles, the Boys and Girls Clubs, and the Federal Judicial Center Foundation, finding that none of those organizations accounted for the class’s broad geographic scope or the objectives of the underlying statutes.¹¹ Empirical research has found that cy pres funds tend to go disproportionately to nonprofits located near the district court, such as local law schools or legal aid groups, regardless of the national scope of the class.⁸

Attorney fees add another wrinkle. Because fees in class actions are often calculated as a percentage of the total fund, including the cy pres portion, lawyers may have a financial incentive to push for a larger settlement with third-party distributions rather than invest the effort needed to locate and pay individual class members.⁹

A separate line of criticism argues that cy pres awards can violate the First Amendment by effectively compelling class members to fund advocacy organizations they may disagree with. No court has ruled on the merits of that theory. In the Google Street View litigation, the Ninth Circuit sidestepped the constitutional question, holding that class members who disagreed with the recipients could opt out.¹² The Second Circuit similarly dismissed a First Amendment objection in the Hyland v. Navient settlement.¹³

Alternatives Courts Consider First

Cy pres is not the only option for leftover settlement money, and courts weigh several alternatives before approving a third-party distribution.

The ALI recommends a further pro-rata distribution to class members who filed claims. Because few settlements provide full recovery, an additional payment to those claimants is unlikely to produce a windfall. Unclaimed funds can also be turned over to the state under unclaimed-property statutes, or deposited with the U.S. Treasury under federal law if they remain unclaimed for five years, in which case the money may still be recoverable by entitled claimants.¹⁴ Reversion to the defendant is the least favored option, because returning leftover money to the party that caused the harm undermines the deterrent purpose of class actions.¹⁵

The main driver for choosing cy pres over these alternatives is economic feasibility. When the cost of locating class members or processing additional payments exceeds the value of the distribution itself, courts turn to cy pres as a practical compromise.¹⁴

The Supreme Court’s Unresolved Position

The Supreme Court has flirted with the cy pres question for more than a decade without deciding it.

Lane v. Facebook

The case that put cy pres on the Court’s radar involved Facebook’s “Beacon” program, which automatically broadcast users’ activity on third-party websites. A settlement required Facebook to pay $9.5 million, but no money went to class members. Roughly $3 million covered attorney fees and incentive payments, and the remaining $6.5 million was earmarked for a new charitable foundation focused on online privacy, with a Facebook representative sitting on its three-member board.¹⁶

When an objector petitioned the Court in Marek v. Lane, the justices denied certiorari on November 4, 2013. Chief Justice Roberts issued a statement flagging “fundamental concerns surrounding the use of such remedies in class action litigation,” listing unresolved questions about when cy pres relief is appropriate, how to assess its fairness, whether new entities should be created for this purpose, and how closely a recipient’s goals must align with the class’s interests.¹⁶

Frank v. Gaos

The most anticipated cy pres case at the Supreme Court involved Google’s transmission of “referrer headers,” which allegedly violated the Stored Communications Act. The original settlement required Google to pay $8.5 million, with none of it going to the roughly 129 million class members. Most of the money went to six cy pres recipients chosen by class counsel and Google to support internet privacy research.¹⁷

Observers expected a ruling that would set national ground rules. Instead, in March 2019, the Court’s per curiam opinion vacated the settlement and sent the case back to the lower courts to determine whether the plaintiffs had standing under Spokeo v. Robins. Justice Thomas dissented, writing that cy pres payments “should not be treated as relief to absent class members” and that the arrangement suggested inadequate representation of the class.¹⁷

The case produced a different ending on remand. The parties negotiated a substantially larger settlement of $23 million, with over $16 million designated for direct distribution to class members. The district court granted final approval on October 16, 2023, noting that the objectors’ litigation “ultimately led to a substantial increased benefit for the Settlement Class as a whole.”¹⁸

Petitions Since Frank v. Gaos

The Court has twice declined to revisit the issue since. In St. John v. Jones (Docket No. 22-554), an objector challenged a Roundup weed killer settlement that diverted $16 million to third-party organizations while leaving 98 percent of the class uncompensated. The Eighth Circuit affirmed and the Supreme Court denied certiorari on May 15, 2023.¹⁹ In Yeatman v. Hyland (Docket No. 22-566), an objector challenged a Navient student loan settlement that sent $1.75 million in cy pres funds to a newly created nonprofit while providing zero cash to the class. The Court denied that petition on April 17, 2023.²⁰

Lower courts have grown more willing to scrutinize recipient selection. In December 2023, a federal court in Ohio rejected a $10.5 million class action settlement against Macy’s solely because of the chosen cy pres recipient. The court found that the Public Interest Research Group had no history of working on false advertising or consumer protection issues related to the case, and that class members had not been informed about the cy pres award in the settlement notice.²¹

Where the Doctrine Stands and What Reformers Want

Cy pres use has grown steadily since the 1980s, with a sharp acceleration after 2000, particularly in litigation categories where individual damages are hard to calculate, such as data privacy and environmental claims.⁸ A 2024 study of 373 federal securities class action settlements from 2010 to 2018 found that more than 57 percent contained no public record identifying the cy pres recipients or documenting court approval of the distribution. Among the recipients that could be identified, most had “little or no relationship” to the interests of the class.²²

Reform ideas have accumulated, though none has yet gained universal traction:

Allowing class members to vote on or ratify the choice of cy pres recipients, giving them a voice in a process they currently have no role in.¹⁰
Holding funds in trust and letting independent trustees distribute them, with the court’s role limited to monitoring compliance with fiduciary duties.⁸
Creating pre-approved lists of cy pres recipients organized by type of legal claim, reducing discretion and the potential for favoritism.²³
Calculating attorney fees based solely on the benefits actually received by class members, removing the incentive to inflate settlement values through cy pres distributions.⁹
Amending Rule 23 to require a formal nexus between recipient and class, and treating cy pres-only settlements as a form of injunctive relief subject to heightened scrutiny.¹³

For now, the questions Chief Justice Roberts flagged in 2013 remain open. The Supreme Court has not ruled on when cy pres relief is appropriate, how fairness should be measured, or what connection must exist between a recipient organization and the interests of the class. Federal circuits continue to apply different and sometimes contradictory standards, and the Advisory Committee on Civil Rules has shown no appetite to step in.

1
Northwestern University Law Review. Cy Pres Awards in Federal Class Action Settlements
2
Harvard JOLT. In Re Google LLC Street View: Are Cy Pres Settlements Fair to Class Members
3
Federal Bar Association. Focus on Awards
4
Legal Aid at Work. Cy Pres
5
University of Washington Law Review. Cy Pres Distribution of Class Action Residual Funds
6
American Bar Association. Cy Pres Awards, Legal Aid, and Access to Justice
7
American Law Institute. Court Adopts Aggregate Litigation Principles for Cy Pres Distribution
8
Boston University Law Review. Cy Pres in Federal Class Action Settlements
9
U.S. Chamber Institute for Legal Reform. Cy Pres in Class Action Litigation
10
NYU Journal of Legislation and Public Policy. A Better Way to Cy Pres
11
Arizona Law Review. Cy Pres Awards and the Next Best Distribution Standard
12
U.S. Court of Appeals for the Ninth Circuit. In Re Google Inc. Street View Electronic Communications Litigation
13
Annual Survey of American Law. Cy Pres Awards in Class Action Settlements
14
Duke University Judicial Studies Center. Cy Pres in Class Action Settlements
15
California Law Review. Unclaimed Property and Class Action Settlements
16
SCOTUSblog. Marek v. Lane
17
Supreme Court of the United States. Frank v. Gaos
18
HLLI. In Re Google Referrer Header Privacy Litigation
19
SCOTUSblog. St. John v. Jones
20
SCOTUSblog. Yeatman v. Hyland
21
Inside Class Actions. Federal Court Rejects Class Action Settlement Over Cy Pres Provision
22
Emory Law Journal. The Missing Millions: Cy Pres in Federal Securities Class Actions
23
Washington University Law Review. Confounding Interests: Next Best Alternatives in Cy Pres Only Class Action Settlements