Most Ridiculous Lawsuits USA: Court Rejects AOL Settlement Over Questionable Charity Awards

A federal appeals court in California rejected a settlement of AOL e-mail privacy claims that would have distributed nothing to the 66 million plaintiffs but $110,000 to a collection of charities including one affiliated with the trial judge’s husband.

The Ninth Circuit Court of Appeals, saying the “specter of judges” distributing the spoils from a lawsuit “may create the appearance of impropriety,” threw out the settlement negotiated by Richard Kellner of Kabatack Brown Kellner and several other firms. Among other problems, the settlement gave two-thirds of the money to charities in Kellner’s hometown of Los Angeles and $25,000 of it was targeted for the Legal Aid Foundation of Los Angeles, whose directors included the husband of U.S. District Judge Christina Snyder, who approved the settlement. AmLaw reported the decision here.

The ruling is a powerful rebuke of the so-called cy pres doctrine, a legal theory that has sprung up, despite dubious academic credentials, to deal with an intractable problem with class actions: Unclaimed funds. Since lawyers typically negotiate a settlement that returns highly meaningful amounts of money for themselves but vanishingly small amounts for their individual “clients,” most class actions are left with large amounts of undistributed funds. (How much, plaintiff lawyers and compliant judges keep a closely guarded secret.)

Rather than admit the legal procedure is deeply flawed and riddled with nearly unsolvable conflicts of interest, class-action lawyers and judges dusted off an ancient concept from trust law — roughly translated, cy pres means “as good as” — and adapted it to giving away money they negotiated, but nobody wants.

Unfortunately, when people are given sole discretion to give away other people’s money they are tempted to give it to causes that might benefit them: Schools they want to get their children into, or charities whose balls they wish to attend ...

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