Imagine that you get a congratulatory note in the mail because you won a multimillion-dollar settlement in a class-action lawsuit. Only problem is, you didn’t even know you were involved in the case, so what does “your” victory mean for you? You get nothing, but the lawyers who brought the lawsuit will be paid handsomely, and some obscure charities also get big financial windfalls. This is precisely what happened not long ago to 66 million plaintiffs covered by a 2009 class-action lawsuit against America Online. The good news, however, is that the 9th U.S. Circuit Court of Appeals threw out this settlement and in the process placed some much-needed curbs on the use of class-action settlements as vehicles to create charitable slush funds. This practice of giving undistributed settlement money to third parties (often charities) is known as “cy-pres” (pronounced “see-pray”), which alludes to a French expression for “next best” or “as close as possible.” The idea is that in some cases, it is simply impossible or impractical to compensate members of a wronged class, usually because they either cannot be located or don’t respond when informed of their status.

In this case, AOL had earned only $2 million on the actions that sparked the lawsuit, which was unilaterally placing ads in the email footers of its 66 million customers. Even a settlement worth 10 times that amount, at 30 cents per plaintiff, would cost more to distribute than it would be worth. In such cases, courts will often allow a cy-pres settlement in which proceeds go to a charity suggested by the plaintiffs or selected by the judge that will at least theoretically benefit the class.