Class action settlements, which have to be approved by the
court, 1 usually include a monetary payment to the class
of plaintiffs, along with a payment of attorneys' fees. The funds
are typically distributed through each class member submitting a
claim, which is reviewed to determine that it meets the conditions
of the settlement, and the proper claimed amount is disbursed to
After the claims have been administered, there is often a
significant amount of money left in the settlement fund. The
parties and the court then face the question of what to do with
these residual funds. There are no more plaintiffs to whom the
funds can be distributed; however, to leave the funds undistributed
defeats the purposes of the class action and its settlement, namely
to remedy a claimed wrong done to a large group of
Access to justice is vital for low-income people. They cannot
afford lawyers to vindicate their rights under housing, benefits,
consumer and family law. Thus, it is critically important that
there be legal services programs, staffed with full-time attorneys
and paralegals, dedicated full time to serving the legal needs of
These programs are funded by a combination of state
appropriations, federal funding, grants, contributions and the
Interest on Lawyers Trust Accounts, or IOLTA, program. As
practicing attorneys know, funds from a closing or settlement are
often held by attorneys for a very short time -- a day or
two -- and then distributed. The accounts into which these
funds are deposited do not pay any interest that can be credited to
the clients or ultimate recipients of the funds -because of
the short-term nature of the deposit, the administrative cost to
the bank of calculating and allocating the interest outweighs the
SJC established the IOLTA program to use these accounts as an
additional funding source for legal services.2 IOLTA
provides that these short-term funds be deposited into a single
account, with the interest paid on the floating balance in that
account to be distributed to support legal services. By rule, the
interest from IOLTA accounts is conveyed to the IOLTA Committee.
The IOLTA Committee distributes two-third of the funds to the
Massachusetts Legal Assistance Corporation to be distributed to
legal services programs, and one-third to the Massachusetts Bar
Foundation and the Boston Bar Foundation.3
IOLTA funds depend on the amount of money in IOLTA accounts and
the interest rates paid on those accounts. In 2008, when balances
were high and interest rates strong, IOLTA received and distributed
$24 million from IOLTA accounts. When the recession began, however,
the real estate transactions that provided the bulk of the balances
in IOLTA accounts decreased dramatically and interest rates fell.
As a result, in 2009, IOLTA received $9 million - a one-year
drop of 62 percent. 2010 was hardly better, as IOLTA accounts
generated approximately $9.3 million.
The effect of this severe drop in IOLTA revenue on legal services
programs has been nothing short of devastating. Many legal services
programs have seen their funding reduced by 50 percent or more in
the last two years, leading to layoffs of attorneys, paralegals and
staff. The remaining staff cannot begin to serve the needs of a
low-income client population that has only grown because of the
same economic forces that have led to reduced funding.
Courts are flooded with litigants with no representation -
such as low-income people facing eviction or seeking to obtain
benefits they were wrongfully denied, or victims of domestic
violence seeking protective orders. Simply put, without more
funding for legal services programs, more and more low-income
people are without legal recourse just at the time they need help
A single solution
Can class action residuals be used to support civil legal
services? Yes, through application of the doctrine of "cy
pres." Cy pres, from the Norman French expression
"cy pres comme possible," meaning "as close as possible,"
has long been used in charitable trusts when the settlor's wishes
can no longer be carried out exactly. In such a situation, the
court looks to find a use that is next best and most closely fits
the intent of the trust.4
The cy pres doctrine can be used to distribute residual
class action funds. Judges and counsel can recommend as part of a
settlement that residual funds be put to their "next best" use for
the aggregate, indirect or prospective benefit of the class
members. The cy pres remedy can also be used for the
entirety of a statutory damage award when the amount of damages to
each class member is too small to warrant distribution.
The SJC has formally recognized that just such a next best use of
residual funds is to benefit legal services and IOLTA. In January
2009, Rule 23 was amended to provide that payments of residual
funds in class actions can be directed to either one or more
nonprofit organizations (including legal services programs) that
benefit the class, or to the IOLTA Committee.5 While
there is no equivalent federal rule, federal courts have the same
authority to direct residual class action funds.
Legal services programs are the next best use of unclaimed funds
because of their ability to directly benefit the members of a class
for whom funds have been set aside and then not distributed.
Moreover, the underlying mission of these programs is consistent
with the purpose of Rule 23, which recognizes the need to protect
the legal rights of those who, because of their economic position,
would otherwise be unrepresented.
Class action residuals thus can be used to fund operational costs
for legal aid organizations, allowing them to provide desperately
needed basic civil legal services in their communities, while
serving the purposes of the class action settlement -- an
elegant "two birds with one stone" solution to two separate
Robert Foster is counsel with Rackemann, Sawyer &
Brewster. He is a member of the Massachusetts IOLTA Committee and
the SJC's Access to Justice Commission, and has served on the Board
of the Massachusetts Legal Assistance Corp.
1Fed. R. Civ. P. 23(e); Mass. R. Civ. P. 23(c).
2Supreme Judicial Court R. 3:07; Rules of Prof. Conduct
3Id. at 1.15(g)(5).
4Austin Wakeman Scott & William Franklin
Fratcher, The Law of Trusts § 399 (4th ed. 1989).
5Mass. R. Civ. P. 23(e).