Nachshin v. AOL

The principle of cy pres distributions in a class action lawsuit requires a relationship between the recipient of cy pres distribution and the underlying causes of action or the interests of the class; cy pres distributions to a Legal Aid Foundation and local chapters of the Boys and Girls Club of America do not necessarily meet the standards, and geographic representation of the class is part of the interests of the class.

A class action suit filed against America Online, LLC ("AOL") in federal district court alleged that “AOL wrongfully inserted footers containing promotional messages into e-mails sent by AOL subscribers.” It was determined that only about 3 cents would go to each of the over 66 million class members if plaintiffs were awarded maximum damages. The district court gave preliminary approval of a settlement agreement directing cy pres charitable distributions to six selected charitable organizations including the Legal Aid Foundation of Los Angeles, two California chapters of Boys and Girls Club of America, and Oklahoma Indian Legal Services. The district court denied the objection of a silent class member to the selections, citing factors favorable to the selections. The Ninth Circuit examined an increasing trend where many jurisdictions appear to have “abandoned the ‘next best use' principle implicit in the cy pres doctrine.” In Six Mexican Workers, the Court held that a “cy pres distribution must be guided by (1) the objectives of the underlying statute(s) and (2) the interests of the silent class members.” The Court said that none of the charities selected and approved here met that holding, and the selections lacked geographic representation of the class. REVERSED in part, AFFIRMED in part, and REMANDED.