Despite Absence of Settlement, Unclaimed Funds To Be Distributed To Government Or Charity Rather Than Revert To Dish Network

Last week, the federal judge presiding over a class action against Dish Network (“Dish”) denied a request for reversion of $11 million in unclaimed funds, deciding instead that the funds—which were the product of a trial rather than a settlement—should escheat to the government or be donated to a charity.  See Krakauer v. Dish Network, LLC, No. 14-0333 (M.D.N.C. Oct. 27, 2020).

In denying Dish’s request for reversion, the court explained that “[t]he TCPA is a deterrence statute, and reversion does not support th[at] statutory goal.”  Id. at 10.  It then cited cases for the proposition that unclaimed funds should not revert to a defendant if doing so would undermine the deterrence function of damages.  Id. at 5 (citing In re Lupron Mktg. & Sales Practices Litig., 677 F.3d 21, 32-33 (1st Cir. 2012); Six Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1307 (9th Cir. 1990)).

Notably, the court rejected Dish’s argument that requiring it to pay uninjured parties would violate due process, holding instead that a defendant has “no interest in any part of the fund” remaining after judgment.  Id. at 13-14 (quoting Boeing Co. v. Van Gemert, 444 U.S. 472, 481 (1980)).  It concluded by appointing a special master to determine whether a suitable cy pres recipient exists or whether the funds should instead escheat to the government.  Id. at 15.

The Dish court’s refusal to allow unclaimed funds to revert to the defendant puts it at odds with a long line of cases holding that cy pres distributions are appropriate only if the parties have agreed to such a distribution in the terms of a settlement.  See, e.g., In re Motorsports Merchandise Antitrust Litig., 160 F. Supp. 2d 1392, 1395 (N.D. Ga. 2001) (noting that courts are “typically reluctant to authorize cy pres distributions in a litigated class action context”); Allapattah Servs., Inc. v. Exxon Corp., 157 F. Supp. 2d 1291, 1305-06 (S.D. Fla. 2001) (noting that a cy pres distribution in the absence of a settlement would “violate [the defendant’s] substantive rights”), aff’d, 333 F.3d 1248 (11th Cir. 2003); see also Eisen v. Carlisle & Jacquelin, 479 F.2d 1005, 1012, 1018 (2d Cir. 1973) (explaining that settled class actions are a “consensual affair made possible by the agreement of the parties,” and that cy pres distribution without the defendant’s consent is “illegal” and “wholly improper”).  Indeed, the Van Gemert decision cited by the Dish court actually found that defendants in class actions that are litigated rather than settled do have “a colorable claim for the return of excess money.”  See Van Gemert, 444 U.S. at 481-82 & n.7.  That strongly suggests that cy pres awards—which, it should be said, are controversial even in settled cases—are indeed unlawful if the defendant did not agree to such a distribution.

Whether the court ultimately orders a cy pres distribution will likely turn on the special master’s ability to identify an appropriate recipient.  We will continue to monitor the discussion of cy pres in this case as it develops.

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