Legal Newsline reports on a House subcommittee hearing on litigation abuses and Ted Frank's witness on the problem of cy pres.
Frank talked about the legal concept of cy pres, which is when money in class action cases are given to third-party charities and not the individual class members themselves.
In his testimony, Frank stated that cy pres is problematic because it "exacerbates existing conflicts of interest in the class action settlement context."
"When a class attorney settles a class action, he or she is not only negotiating class recovery, but is also negotiating his or her own fee," Frank said. "A defendant may be willing to spend a certain amount of money to settle a class action to avoid the expense and risk of litigation, but that money must be divided between the class and their attorneys. Every dollar going to the attorneys does not go to the class, and vice versa."
Frank further stated that a class action settlement must also be approved by the courts, and attorneys who do not adhere to their fiduciary responsibility to the class have an "incentive to exaggerate class recovery to a court to maximize their fees."
"If courts permit unfettered cy pres, then attorneys have an incentive to make it difficult for their own putative clients to recover, because then they can maximize the amount of money that goes to charity in the attorneys' names," Frank said in his testimony.
Read the full article at Legal Newsline.