The Cy Près Doctrine: Why Should I Care Where the Money Goes?

Have you ever asked yourself where does the money leftover from a class action settlement fund go? A recent decision has offered some guidance.

The cy près doctrine is one solution to those situations where it is not possible to give the money directly to class members or where funds are left unclaimed. In these cases, courts may consider whether distribution of some of the settlement fund may be made to a “next best” alternative.

Ideally, this alternative should be aligned with or similar to the needs of injured class members.  Recipients of cy près awards tend to be charities or organizations associated with the class members or their interests. For instance, in Alfresh Beverages Canada Corp v. Hoechst AG, a case related to price-fixing and breaches of competition law in the sorbate sector, the court approved distributions to the Canadian Council of Grocery Distributors, an organization that was perceived to represent wholesalers of sorbate products.

Certain cy près recipients, however, have also shown links to the defendants. For instance, in Currie v. McDonald’s Restaurants, the court approved a proposed distribution to the Ronald McDonald House Charities Foundation, a charity founded and supported by McDonald’s .

Nevertheless, parties and their counsel may wish to be careful that a cy près recipient not be tied too closely to their perceived interests. In the Ontario Court of Justice’s recent decision in Sorenson v. easyhome Ltd., Justice Perell refused to accept the Canadian Foundation for Advancement of Investor Rights (“FAIR Canada”) as the proposed cy près beneficiary. The proposed recipient was an investors-rights charity whose work could indirectly benefit the class members. However, the court also found that FAIR Canada had been a pro bono client of class counsel. The court therefore did not approve FAIR Canada as the cy près recipient, stating: “[H]owever well meaning, it is inappropriate for Class Counsel to indirectly benefit from a cy près distribution and it is inappropriate for Class Counsel to have any direct connection with a recipient of a cy près distribution.”

Sorenson v. easyhome Ltd. reminds us that the parties must carefully consider potential cy près beneficiaries as, at the end of the day, the goal of the cy près doctrine is to benefit the class members.