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University of South Carolina Law School cy pres

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A South Carolina class action settlement brought in$16 million for class members and $13.5 million for the attorneys. Bad enough. But the attorneys got another benefit: direction of cy pres of $3.5 million, $2 million of which is going to the alma mater of lead class counsel as a gift in his prominent wife's name. Witness how the press coverage lionizes the husband and wife. Why the attorneys get to benefit from unclaimed class-action funds rather than class members is a huge mystery to me; why this isn't so obviously a conflict-of-interest offense meriting disbarment demonstrates how little legal ethics intervenes when it interferes with the profits of well-to-do attorneys. Needless to say, the donation doesn't comply with other basic principles of cy pres. (As it is it's unclear whether the $3.5 million comes from the $16 million or from a separate fund, and another news story suggests that $10 million of the $16 million went uncollected.)

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Cy pres is by nature a ripoff of the class and should always be viewed with a jaundiced eye. It is a theft from the class, a perversion of the purported goals of the whole class action concept. And sometimes, as described here, a monumental conflict of interest.

Unclaimed funds should be distributed pro rata to claimants. Any deviation from that obvious solution should be severely questioned. There should also be a reluctance to base attorney's fees on cy pres distributions since the fees are supposed to be based on the benefits created for the class, not for politically-connected unrelated third parties.

Cy pres arrangements are traditionally rife with conflict of interest, and by nature unfair to the real victims. For example, the notorious case of Bank of America colluding with telemarketing crooks, to whom BofA illegally supplied confidential customer data. After splitting the take with the 3rd party crooks, BofA eventually got sued in a class action. Outrageously, the victims got not a penny, and in an outrageous settlement including cy pres, BofA merely gave a pittance to some privacy advocacy organization. Such settlements should never be allowed.

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Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.