'Scrooge' Lawyers Say 'Bah, Humbug' to Charities, Saying Unclaimed Funds from Class Action Suits Should Go to the U.S. Government Instead of Charities

The headlines across America -- Cry for Food Overwhelms Charities, Nonprofits in a Faltering Economy, Charities Struggling with Their Own Needs -- say it all. Charities across the country are hurting, facing unprecedented demand while experiencing cuts in funding.

One American Lawyer, Patrick Perotti, a partner at the Cleveland law firm of Dworken & Bernstein Co., L.P.A., is giving the gift of hope and cash -- more than $18 million this year alone -- to struggling charities thanks to a legal doctrine known as cy pres.

Cy pres allows the court or the parties involved in a class action to direct any unclaimed funds to charity instead of returning them to the defendant. Because class actions take years to resolve, when it is time to give back the wrongfully taken monies, many class members cannot be found. Some have passed-away. Others have moved or remarried, or simply did not wish to participate. The result: unclaimed funds sitting in a bank.

"There are hundreds of millions of dollars going unclaimed every year in the United States," said Perotti, founder of Ohio Lawyers Give Back, an organization dedicated to raising awareness and use of cy pres. "This money can easily be directed to charities."

Unfortunately for charities, cy pres is not a standard course of action in the American legal system. First, it has proved difficult to get defendants to agree on using cy pres awards when the unclaimed money can be returned to themselves rather than directed toward charity. Second, most lawyers are unaware of the doctrine or just do not want the substantial additional work of reaching a cy pres agreement.

"There is no financial incentive for plaintiff lawyers who argue for cy pres," said Perotti. "But there are some of us who will not settle unless there is a provision for cy pres -- because that is just the right thing to do."

The alternative is giving hundreds of thousands of dollars or even millions back to a wrongdoing defendant. "It's wrong and it's unfair," said Perotti.

Perotti and his partners at Dworken & Bernstein insist on using the cy pres doctrine when settling all of its class action suits. That policy has led to the distribution of more than $18 million to dozens of charities in 2008.

America's current economic crisis has sent shockwaves through the nonprofit world. On December 11, 2008, The Chronicle of Philanthropy cited a new national survey on how the financial crisis is affecting charities. The article stated: "more than half of the charities in a new national survey say the country's economic woes have led to cuts in money." Meanwhile, the demand for services at these agencies continues to rise.

"Cy pres has been a lifeline for charities," said Nate Cross, Executive Director of Northeast Ohio Chapter of Cystic Fibrosis. "Dworken & Bernstein gave us a gift of $180,000 in early 2008. At first, I did not believe it. I thought it was a hoax."

It was no hoax. Dworken & Bernstein made history on July 18, 2008 awarding over 30 Ohio charities a pool of nearly $14 million through cy pres from a single lawsuit. The money has helped dozens of charities, including Cystic Fibrosis Foundation, Coats for Kids, The Salvation Army and other local and national causes dedicated to serving the most vulnerable in our society.

"I cannot express my joy knowing that our efforts are having a life-changing impact on charities and the people they serve," said Perotti.

"But no good deed goes unpunished," said Cystic Fibrosis Director Nate Cross after reading an op-ed in the Wall Street Journal which viciously criticized cy pres and argued that it should be banned. Authored by lawyers from the firm, Blank Rome LLP, the opinion essay said that the leftover funds should go back to the defendant or to the government.

Standing with an 11-year-old who lives day-to-day because of treatments made possible by CF research dollars, Cross said: "Big business and huge defense law firms actually believe the class action settlement money should go back to the defendant or worse yet, to the government? Isn't that the same government who took $700 billion of our taxpayer money to save the life of banks? What's wrong with using the cy pres money to save a child's life?"

Perotti said the Wall Street Journal piece contributes to the negative perception of lawyers. He said: "Instead, let's do the right thing. Let's make cy pres the standard practice in class action settlements across the United States."

Patrick Perotti, an advocate of cy pres awards, versus lawyers and big business who oppose the use of cy pres: who do you suppose will win in the court of public opinion? Who will win the favor of Lady Justice, the personification of reason and fairness in the American legal system?