Our system of law is designed to handle most situations. A great deal of situations can be dealt with under the doctrines of law. Our system also has a failsafe of to ensure basic fairness when law provides no satisfying result. Equitable doctrines fill in the gaps in law. Historically a separate system of courts would dispense equitable remedies. In most modern American jurisdictions, though, equitable relief is granted by courts of law. In the case of Klier v. Elf Atochem North America, Inc. the district court employed an equitable doctrine incorrectly. That court used a doctrine called cy pres.
The doctrine of cy pres comes the French “cy pres comme possible” which literally translated means “as close as possible.” It is an equitable doctrine that allows a court to look for the second best way in which to use undistributed funds. This doctrine was first used in the area of testamentary charitable contributions. If a person’s will left a sum of money with general charitable intent but he gift somehow failed, a court would look for something else to do with the money that would serve the same or a similar purpose. The doctrine was later adapted to the area of class actions.
In Klier v. Elf Atochem North America, Inc. a class action was filed against the owner of a factory that had allegedly caused damage through toxic emissions near Bryan, Texas. The court found that there were three classes of people harmed and divided the money accordingly. Subclass B members were presented with two options for compensation. Members of this subclass could opt to receive a one-time payment or continuous medical monitoring over time. The rate of participation in the medical monitoring program was incredibly low. This led to money being left at the end of the medical monitoring program. The parties had to return to court to figure out what to do with the leftover money.
The court received suggestions from both parties about solutions to the leftover money issue. At least one member of the plaintiff class suggested giving the remainder of the funds to Subclass A, the most seriously injured members of the class. The district court did not address this proposal before opting to apply cy pres. The United States Court of Appeals for the Fifth Circuit thought that the lower court abused its discretion when applying cy pres to this case.
Cy pres is only supposed to apply in a class action when the settlement agreement is ambiguous. Cy pres was not appropriate at all in this case because the settlement agreement made disbursement of funds to Subclass A an acceptable course of action. Furthermore, the court misused cy pres by selecting charities that lacked a sufficient nexus to the underlying harm that gave rise to the plaintiffs’ cause of action. The plaintiffs sued because of toxic damage caused by arsenic. The district court decided that the remainder of the money should go to four charities: a scholarship program, two museums and a local history and genealogy museum. The Court of Appeals determined that these charities were not related closely enough to the actual harm in this case.
There are two main lessons of this case. The first is that equitable doctrines are only useful when other areas of law have failed to provide an adequate remedy. This was not the case here. The settlement agreement provided for the allocation of funds to all three Subclasses. The appellate court saw no reason to move so quickly from the terms of this agreement. The second lesson is that the doctrine of cy pres requires a court to get fairly close to the original intent of a body of money in order to declare it “close enough.”
If you have a potential class action or any other type of potential claim contact the lawyers at the Berniard Law Firm, toll-free, at 1-866-574-8005.