The First Circuit And Cy Pres

In 2009, the First Circuit held, as a matter of first impression, that class action settlement agreements may, in appropriate circumstances, include provisions for cy pres distributions. In re Pharmaceutical Industry Average Wholesale Price Litigation, 588 F.3d 24 (2009). On April 24, 2012, the court "address[ed] for the first time the procedural and substantive standards for distribution of cy pres funds" and, "in doing so, . . . express[ed its] unease with federal judges being put in the role of distributing cy pres funds at their discretion." In re: Lupron Marketing and Sales Practices Litigation ("Lupron"), Nos. 10-2494 and 11-1329 (1st Cir., April 24, 2012).

Plaintiffs in Lupron included patients who alleged fraud in being overcharged for Lupron, a medication often prescribed by physicians for the treatment of certain forms of cancer. The parties agreed to a settlement in the amount of $150 million, of which $40 million was allocated to the consumer class. The agreement further provided that all unclaimed funds from the consumers' allocation would go into a cy pres fund to be distributed at the discretion of the trial judge. At the conclusion of the claims process, approximately $11.4 million remained unclaimed.

Plaintiffs then requested that the district court determine a plan for the distribution of the unclaimed funds. After hearing, the court declared its intention to make a cy pres award and distribute the residual funds for the purpose of funding research into the causes and treatments of Lupron-related conditions. Certain objectors appealed, arguing that the entire amount should be distributed to members of the plaintiff class through a supplemental claims process. The First Circuit rejected the objectors' arguments, and affirmed the district court's distribution plan. Its decision marks the first time the court has addressed questions about the distributions of cy pres funds.

The court first ruled that the district court did not abuse its discretion in rejecting a supplemental claims process that would distribute the remaining funds to class members, because the "process would be prohibitively expensive, time-consuming, and, given the high mortality rate among members of the class, would likely recruit few new claimants."

Next, the court began its review of the substance of the distribution order by turning for guidance to the American Law Institute's Principles of the Law of Aggregate Litigation ("ALI Principles"). The ALI...