In re Citigroup Inc. Securities Litigation
199 F. Supp. 3d 845
S.D.N.Y.2016Background
- Securities-fraud class action against Citigroup and officers consolidated; settlement created a $590 million fund to compensate class and pay fees.
- Administrator (GCG) distributed essentially all funds to claimants in multiple rounds; only $374,820 (0.064% of the fund) remained undistributed after further distributions and administrative costs.
- Settlement agreement required residual funds, if redistribution to class was infeasible, be donated to nonsectarian 501(c)(3) organizations designated by Lead Counsel and approved by the Court (cy pres).
- Lead plaintiffs proposed three cy pres recipients: South Brooklyn Legal Services (SBLS), National Consumers League (NCL), and Consumer Federation of America (CFA); the Court initially approved the distribution.
- Class member Theodore H. Frank (Center for Class Action Fairness) moved for reconsideration, arguing the proposed designees lack the necessary nexus to the class and that a stricter “next-best” beneficiary standard should apply.
- Court stayed distribution pending reconsideration and ultimately granted reconsideration but reaffirmed its approval of the three cy pres designees.
Issues
| Issue | Plaintiff's Argument (Frank) | Defendant's Argument (Lead Plaintiffs) | Held |
|---|---|---|---|
| Standard for approving cy pres designees | Cy pres funds must go to the “next-best” beneficiaries closely tied to class — a stringent test | Courts should apply the ALI/“reasonable-approximation” standard; deference to lead counsel’s choices | Court adopts the reasonable-approximation standard for class cy pres awards |
| Whether remaining funds may be distributed cy pres | Agrees cy pres is permissible only when redistribution is infeasible (not disputed) | Same (cy pres appropriate as last resort) | Court: undisputed infeasibility satisfied; cy pres appropriate |
| Whether proposed designees have adequate nexus to class | Proposed designees are too remote, geographically limited, or potentially adverse; potential conflicts (donations) create appearance of impropriety | Designees’ missions target the market failures/investor protection issues underlying the litigation; no evidence of improper influence | Court finds each designee reasonably approximates class interests and is appropriate |
| Whether counsel’s prior donations create disqualifying conflict | Donation to NCL indicates an affiliation that disqualifies NCL | Donation reflects counsel’s view of NCL’s worth; no evidence of benefit or intermingling | Court: no actual or apparent conflict; donation alone insufficient to disqualify designee |
Key Cases Cited
- Nachshin v. AOL, LLC, 663 F.3d 1034 (9th Cir. 2011) (discusses cy pres and the nexus requirement)
- In re BankAmerica Corp. Sec. Litig., 775 F.3d 1060 (8th Cir. 2015) (requires cy pres only when further distributions are infeasible)
- Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468 (5th Cir. 2011) (addresses feasibility requirement for cy pres)
- In re Lupron Mktg. & Sales Practices Litig., 677 F.3d 21 (1st Cir. 2012) (endorses reasonable-approximation nexus test)
- Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781 (7th Cir. 2004) (analyzes class-action cy pres appropriateness)
- Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423 (2d Cir. 2007) (discusses cy pres purpose to approximate class benefit)
- S.E.C. v. Bear, Stearns & Co. Inc., 626 F.Supp.2d 402 (S.D.N.Y. 2009) (cy pres in trust/class-action context; caution on designee selection)
- In re Holocaust Victim Assets Litig., 424 F.3d 132 (2d Cir. 2005) (court’s supervisory authority over settlement fund administration)
- Lane v. Facebook, Inc., 696 F.3d 811 (9th Cir. 2012) (cautions courts about substituting policy judgments for parties’ choices)
- In re Baby Prods. Antitrust Litig., 708 F.3d 163 (3d Cir. 2013) (describes flexibility of Rule 23 settlement approval standard)