LOS ANGELES - Syd Whalley, executive director of the Western Center on Law and Poverty, was out of town when an attorney from a small firm in Monrovia called to tell her about the check.
Whalley had never met Jules Sandford or anyone from Patten, Faith & Sandford and was surprised to hear the firm had a "substantial" amount of money to give to the Western Center.
"My initial thought was, substantial could be $1,000, it could be $5,000. When I talked to him and he told me it was $190,000, I was shocked," she said. "I asked him what we could do for him, and he said, 'We don't want anything. Just come pick up your check.'"
The check Whalley picked up the following week, a significant portion of the organization's annual $3 million budget, was an unpaid residual from a landlord/tenant class action.
In almost all class actions, money is left over from class members who cannot be located, choose not to make claims or do not cash settlement checks.
As part of the settlement, the counsel and court must agree on what to do with the leftover funds. Sometimes those funds go back to the defendant, and sometimes they are distributed among the available class members.
But lawyers also can distribute the leftover funds, in what is called a "cy pres" award, to a nonprofit that somehow furthers the cause of the plaintiffs. Many legal services attorneys in California and nationwide argue the awards should go to legal nonprofits. In fact, some states have passed legislation requiring the money to go to legal services organizations. California has no similar law on the books, and the matter is left to the discretion of private attorneys.
Lawyers at Patten, Faith & Sandford said the Western Center was a good choice for their money because it advocates on behalf of renters and tenants.
"We knew the good work the Western Center had done for years," Sandford said.
The money that Western Center received was from a class action brought on behalf of tenants in 20 apartment buildings in Rancho Cucamunga, in San Bernardino County, who were charged a variety of unlawful fees by landlords.
"They routinely gave three-day notices to get people to move out, then charged them for breaking the lease and for attorney fees for filing unlawful detainers without a court order," said Lorraine Grindstaff, co-counsel with Sandford on the case.
Grindstaff said the case had a potential class of 5,000 people.
"The case went back to 1997," she said. "It was very difficult to find all those people."
Only 157 people made claims, but the settlement was based on how much money the landlords realized through unlawful practices.
The plaintiffs were paid between $35 and $4,000, based on how much they paid in unlawful fees. The rest of the money went to the Western Center.
"It is always a battle between the plaintiff class and the defense as to what happens to the balance," Sandford said. "Many times, a defendant insists that the funds be returned to them."
But giving the money back to defendants, Grindstaff said, would lessen the effect of the judgment made against them.
"You're not just doing this on behalf of the class. You're doing it on behalf of the state to prevent this kind of conduct," she said.
Grindstaff said the abuses alleged in this case are not uncommon. Giving the money to an organization that advocates on behalf of tenants made sense to the attorneys.
"We believe in tenants' rights," Sandford said. "We believe landlords should treat tenants fairly."
The cy pres doctrine stems from the Latin phrase cy pres comme possible, or "as near as possible." It was first used to distribute charitable trusts when the original purpose of the trust could not be fulfilled. The doctrine allows the court to amend the terms of the trust so that it could be distributed in a manner as close as possible to the trust's original intention.
In class actions, when the money can't be distributed to members of the class, it is to be used to benefit the class in some way.
But defendants do not always want the money to go to a legal nonprofit that potentially could sue them.
Grindstaff said her firm is finishing a case in Northern California against a grocery store chain that refused to donate the money to a legal nonprofit.
"They were authorized to distribute the money to nonreligious, nonpolitical charities," she said. "They did not want the money to go to an advocacy group or a legal group that would advocate against their interests."
Gary Smith, executive director of Legal Services of Northern California, said the main obstacle for legal nonprofits receiving cy pres awards is lack of awareness among attorneys.
"Often, it's largely left to plaintiffs' counsel," he said. "I don't think it's on many attorneys minds."
Smith, who heads the newly formed cy pres subcommittee for the Legal Aid Association of California, said cy pres awards are "not the kind of thing that gets much publicity or scrutiny whatsoever."
"It all happens within the confine of a particular case," he said, "and it's not generally subject to public attention."
Legal Services of Northern California has received $300,000 in cy pres awards in the last three years, Smith said.
"If you're a nonprofit, it's sort of like lightning striking," he said. "But wouldn't it be better to regulate that in some way so that, if you're a smaller nonprofit who doesn't have much contact with large firms who represent plaintiffs in class actions, you can benefit from this?"
Both Sandford and Grindstaff happened to be familiar with the work of the Western Center. But many small firms might not be. This is even more problematic, Smith said, for nonprofits that are smaller and less-known.
"Isn't there some way to regulate this on a statewide level," he asked, "a way to channel what is undoubtedly a huge amount of money across the state of California in cy pres awards?"
Other states have done just that.
This year, North Carolina passed legislation that regulates all cy pres awards in the state.
"It was actually something that was brought to the attention of the Legislature by a business-court judge who was seeing class actions and thought we ought to have a way of dealing with cy pres awards," said Evelyn Pursley, executive director of the North Carolina Bar's Interest on Lawyers' Trust Accounts program.
"Half of the money will go to our indigent defense services and half to the State Bar for legal aid," she said.
The Washington State Supreme Court also adopted a rule that mandates 25 percent of all cy pres awards go to legal aid organizations.
"It was a way to give some direction," said Andrea Axel, special projects coordinator at the Legal Aid Foundation of Washington, "to weigh in and say, 'This portion should go to legal aid.'"
Decades of funding cuts and restrictions placed on federal money have limited the work of legal aid organizations across the nation.
A recent study by Legal Services Corp., the federal entity that funds legal aid, showed only 20 percent of the legal needs of the nation's poor are being met.
Many in the nonprofit legal community believe cy pres awards, while not a permanent solution, could ease their funding gap.
Some states have pursued this goal through education rather than legislation. In Minnessota, a coalition of legal services programs developed a cy pres manual to educate attorneys and judges. That same year, these organization received $2.5 million in cy pres awards.
The California Bar is considering both legislative and educational options.
"We're looking at whether it would be appropriate in California to try to pursue some rule that would regulate a percentage of the cy pres award, and we're also looking at an orchestrated campaign to educate judges and lawyers," said Mary Lavery Flynn, director of Legal Services Outreach for the State Bar.
"It's something we're considering right now but there's no action on the table," she said.
Flynn said it's difficult to know just how much money legal nonprofits would get if the state enacted legislation.
"It is very hard to measure because nobody tracks these numbers," she said. "It's more anecdotal than scientific."
But Smith believes the sum would be substantial.
"I see references from time to time about a court distributing 5 or 6 million in cy pres funds," he said. "The whole IOLTA pot [in California] is $13 million or $14 million. If some rule were put into place to regulate this, it might be an incredible amount of money that could support some really great work."