Q. Unclaimed Balances

• Library: South Carolina Damages (SCBar) (2009 Ed.)

Q. Unclaimed Balances

Unclaimed fund issues may occur in any case which creates a "common fund" wherein money paid for the benefit of the class is not ultimately distributed to the class in its entirety. Cases where unclaimed funds have been discussed include antitrust cases, mass tort cases, environmental cases, and consumer class actions.⁴⁹ After a judgment is collected to create a fund, or a settlement fund is established, unclaimed funds arise when individual recovery distributions to class members is not possible because not all class members can be identified, cannot be found because of address changes, or simply fail to file claim forms to obtain funds to which they are entitled.⁵⁰ Unclaimed funds may also result from interest created by settlements that create qualified settlement funds under IRS regulations.

There are four procedures courts have approved for the distribution of unclaimed funds: (1) cy pres distributions, (2) pro rata distributions to class members, (3) escheat of funds to government body, or (4) return to defendant.⁵¹

1. Cy Pres Distributions

The cy pres doctrine⁵² has been used in class actions where the "class members are difficult to identify, where they change constantly, or where there are unclaimed damage or settlement funds."⁵³ The cy pres doctrine is a type of "fluid recovery" that permits funds from class actions to be distributed to recipients in an effort to benefit the class indirectly and the class plaintiffs cannot be compensated individually.⁵⁴ In such circumstances, the application of the doctrine allows a court to distribute the funds "either through a market system (e.g., by reducing charges that were previously excessive), or through project funding (the project being designed to benefit the members of the class)."⁵⁵

Cy pres distribution has also been used in cases where residual funds remain after distribution of money for the class has been completed, giving due consideration to the amount of money remaining and the size of the class intended to receive the benefit of the recovery in the litigation. In the context of class actions, the cy pres doctrine permits undistributed damage or settlement funds to be distributed to the next best class of plaintiffs when the actual class members cannot be compensated individually.⁵⁶ Factors the court may consider in determining the appropriateness of the creation of a Cy Pres Fund include: (1) to whom does the residue belong; (2) would it be practicable to distribute the residue to its owners and; (3) if not, who is an appropriate alternate recipient.⁵⁷

2. Pro Rata Distributions to Class Members

In the event sufficient funds remain in a settlement fund or in a fund created as the result of a judgment after distributions have been made of a damage award according to a court approved process, it may be appropriate to make a second payment to each class member. Generally, secondary distributions become...