Pa. starting new procedures for 'cy pres' funds

HARRISBURG, Pa. (Legal Newsline) -- New rules announced May 11 by the Supreme Court of Pennsylvania direct unclaimed money from class-action lawsuits be mandated to provide legal services for low-income Pennsylvanians.

Prior to this, the disposition of residual funds was left to the discretion of the trial judge.

The new civil procedure rules take effect July 1. The money is what remains after the plaintiffs, attorney fees and expenses have been paid. This includes money for plaintiffs who cannot be located or who don't file claims.

The Interest on Lawyers Trust Account (IOLTA) Board is to receive the newly court-ordered allocation of funding.

"The legal needs of many Pennsylvanians have risen with the level of uncertainty in the nation's economy," Chief Justice of Pennsylvania Ronald D. Castille said. "But many legal aid organizations can only do so much. These new rules will provide underlying support for a new revenue stream while also standardizing the practice of disposing of leftover funds rather than the current discretionary practice."

According to the Supreme Court announcement, the rules require that 50 percent of the funds be designated to the IOLTA Board. The remaining 50 percent may also be designated to the IOLTA Board or to another organization that has a relationship with, or promotes the interests of, the class-action lawsuit's objectives.

Unclaimed funds remaining from class-action lawsuits are called "cy pres" funds. According to the Supreme Court communique these funds are common because many times affected parties cannot be located or identified. Also, sometimes parties may be unable or unwilling to claim their shares of a settlement. The states of Illinois, Massachusetts, North Carolina, Tennessee and Washington have similar laws requiring these funds to go to charities, legal aid providers or other nonprofit organizations.

However, the defendants, and defense lawyers, in class-action lawsuits maintain that this procedure is unjust and unethical. They have stated that the money should be returned to them since the funds are for the plaintiffs in the litigation and should not be used as a slush fund for lawyers or the courts.