In Re Lupron Marketing and Sales Practices Litig.

United States Court of Appeals
For the First Circuit

Nos. 10-2494; 11-1329

IN RE: LUPRON MARKETING AND
SALES PRACTICES LITIGATION

-----------------------------------------------------------

AUDREY ROHN, individually and as executrix of the estate of
Dennis Rohn; BARBARA SENSING; VALERIE SAMSELL,

Plaintiffs, Appellants,

MILTON GREENE; CROSSROADS ACQUISITION CORP.; WILLIAM M. PORTER;
LIBERTY NATIONAL LIFE INSURANCE COMPANY; UNITED AMERICAN
INSURANCE COMPANY; COBALT CORPORATION; AETNA, INC.,

Plaintiffs,

WILLIAM M. PORTER,

Plaintiff, Appellee,

v.

TAP PHARMACEUTICAL PRODUCTS, INC.; ABBOTT LABORATORIES; TAKEDA
PHARMACEUTICAL COMPANY, LIMITED,

Defendants,

DANA FARBER/HARVARD CANCER CENTER,

Interested Party, Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Richard G. Stearns, U.S. District Judge]
 Before

Lynch, Chief Judge,
Souter, Associate Justice,*
and Lipez, Circuit Judge.

Donald E. Haviland, Jr., with whom Michael J. Lorusso and
Haviland Hughes, LLC were on brief, for appellants.
Thomas M. Sobol, with whom Edward Notargiacomo, Hagens
Berman Sobol Shaprio LLP, Jeffrey L. Kodroff, John A. Macoretta,
Specter Roseman & Kodroff, P.C., David S. Stellings, Daniel R.
Leathers, Lieff Cabraser Heimann & Bernstein, LLP, Lisa M.
Mezzetti, and Cohen Milstein Sellers & Toll PLLC were on brief, for
appellee William M. Porter.
Martin M. Fantozzi, with whom Mariana Korsunsky and
Goulston & Storrs, P.C. were on brief, for appellee Dana
Farber/Harvard Cancer Center.

April 24, 2012

*
The Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
 LYNCH, Chief Judge. Appellants, a small dissident group

("the Samsell plaintiffs"), are within a larger class of medical

patient consumers in a case alleging fraud in overcharging for the

medication Lupron. These plaintiffs, along with insurers and

private health care providers, have achieved a major settlement

agreement which was approved by the district court. The total

amount of the settlement was $150 million, of which $40 million was

allocated to consumers. That agreement provided that if there were

unclaimed monies from the $40 million consumer settlement pool even

after full recovery to consumer plaintiffs, all unclaimed funds

would go into a cy pres fund to be distributed at the discretion of

the trial judge.

The Samsell plaintiffs appeal from the district court's

distribution of the $11.4 million cy pres fund to the Dana

Farber/Harvard Cancer Center and the Prostate Cancer Foundation

("DF/HCC") for work on the treatment of the diseases for which

Lupron is prescribed. The Samsell plaintiffs make a series of

subordinate attacks, all designed to increase the sums paid to

them, though they have already recovered more than 100% of their

actual damages. The award is defended by the plaintiff class and,

naturally, by the recipient DF/HCC. The defendant manufacturer of

Lupron, having settled the case, has not filed a brief with us.

We address for the first time the procedural and

substantive standards for distribution of cy pres funds; in doing

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so, we express our unease with federal judges being put in the role

of distributing cy pres funds at their discretion.

Finding no error, we affirm.

I.

In 2001, the Department of Justice initiated criminal

proceedings against TAP Pharmaceutical Products, Inc., ("TAP")1 for

violation of the Prescription Drug Marketing Act of 1987, Pub. L.

No. 100-293, 102 Stat. 95. TAP admitted that from 1991 to 2001 it

had encouraged doctors to improperly bill Medicare for free samples

of its cancer drug Lupron so that they would continue to prescribe

Lupron instead of less expensive, similarly effective drugs.

Lupron is prescribed for prostate cancer in men, endometriosis and

infertility in women, central precocious puberty in children, and

preoperative treatment of patients with anemia caused by uterine

fibroids. TAP encouraged physicians to bill Medicare for Lupron at

an inflated Average Wholesale Price ("AWP") that TAP provided to an

industry publication used by Medicare and insurance plans to

establish reimbursement schedules for prescription drugs including

Lupron. TAP pled guilty and paid a criminal fine of $290 million

as well as civil restitution of nearly $600 million to Medicare and

Medicaid and $25.5 million to the fifty states and the District of

Columbia.

1
TAP is a wholly owned joint venture of defendants Abbott
Laboratories and Takeda Pharmaceutical Company, Ltd.

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 On the heels of TAP's guilty plea, three groups --

individual consumer purchasers of Lupron, private health care

plans, and insurers -- brought nine putative class action lawsuits

against TAP to recover overpayment incurred as a result of TAP's

practices. See In re: Lupron Mktg. & Sales Practices Litig., 245

F. Supp. 2d 280, 285 (D. Mass. 2003). Private insurers and health

care plans had used the inflated AWP, as had Medicare and Medicaid,

to determine their reimbursement payments to doctors for Lupron.

The inflated AWP also resulted in higher out-of-pocket payments for

patients on any portions of Lupron payments that were not covered

by their insurance.

The Multi-District Litigation Panel consolidated all nine

actions in the District of Massachusetts for pretrial proceedings.

Id. The consolidated class action was brought under the civil

provisions of the Racketeer Influenced and Corrupt Organizations

Act ("RICO"), 18 U.S.C. § 1962, as well as under state consumer

protection statutes and theories of common-law fraud and unjust

enrichment.

The district court dismissed the conspiracy claims

involving physicians under RICO because the complaint neither named

a single doctor as a defendant nor alleged that the doctors who

benefitted from the discounted purchases or free samples of Lupron

were even aware of one another's existence as participants in a

purported scheme to defraud. That dismissal is important for

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reasons stated later. The district court allowed the remaining

conspiracy claims under RICO to proceed.

On October 11, 2004, the MDL parties informed the

district court that they had reached a settlement as to all groups

of plaintiffs and moved for preliminary approval of the negotiated

agreement. On November 4, 2004, appellant Valerie Samsell, a

consumer, filed a motion to intervene. The district court allowed

Samsell to intervene "for the purpose of participating in the

process established by the court for the evaluation of the proposed

settlement." In re: Lupron Mktg. & Sales Practices Litig., No. 01-

CV-10861 (D. Mass. Nov. 17, 2004). On November 24, 2004, the

district court issued an order preliminarily approving the proposed

settlement and settlement class. In re: Lupron Mktg. & Sales

Practices Litig., 345 F. Supp. 2d 135, 138-39 (D. Mass. 2004).

In April 2005, the district court held a three-day

fairness hearing on the proposed settlement. See In re Lupron

Mktg. & Sales Practices Litig., 228 F.R.D. 75, 78 (D. Mass. 2005).

Samsell called witnesses to testify, submitted seven depositions of

additional witnesses, and presented twenty-three exhibits. Id. at

83-84. In addition, Samsell filed several objections to the

settlement, including an objection that the amount of the

settlement allocated to the class of consumer purchasers of Lupron

was inadequate. On May 12, 2005, having found that the settlement

was fair, reasonable and adequate, the district court issued a

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memorandum and order approving the settlement and certifying the

class. Id. at 78, 98.

The approved settlement agreement allocated $40 million

of the $150 million total settlement to consumer purchasers of

Lupron. Id. at 86. It allowed these consumers to recover 30% of

their total out-of-pocket payments for Lupron, or $100, whichever

sum was greater. Id. at 87. Although the district court could not

determine the size of the consumer class with certainty, given the

high mortality rate associated with prostate cancer and the

extended class period of more than twenty years, the district court

found that the class likely included tens if not hundreds of

thousands of consumer purchasers of Lupron or their estates. Id.

at 88.

The district court's decision to approve the settlement

agreement rested in part on an analysis of the likely damages

suffered by the class plaintiffs, as presented by expert witnesses.

Plaintiffs' two experts, Dr. Hartman and Dr. Rosenthal, testified

that the allocation of the settlement funds was deliberately

weighted to favor the consumer members of the class. Id. at 87 &

n.26. Consumers were allocated approximately 27% of the total

settlement, even though the consumer claims most likely accounted

for 9% to 13% of the total overcharges. Id. at 87 n.26. The

experts also testified that approximately 30% of the consumers'

out-of-pocket expenses for Lupron represented a reasonable estimate

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of the actual overcharge that consumers suffered as a result of the

inflated AWP. Id. at 87 & n.26. The settlement agreement was

designed to pay consumers 100% of this estimated overcharge.

Significantly, the settlement agreement expressly

anticipated the possibility of either a shortage or a surplus in

the portion of the settlement funds allocated to consumers. In the

case of a shortage, the settlement agreement provided that payments

to consumers would be reduced on a pro rata basis. In the case of

a surplus, the agreement provided:

All unclaimed funds remaining in the Net
Consumer Settlement Pool shall be distributed
in the discretion of the Settlement Court as
it deems appropriate. If all or part of any
unclaimed funds is distributed to one or more
charitable organizations, TAP reserves
whatever right it may have to claim any
appropriate tax deductions for any such
charitable donation(s), and no member of the
Consumer Class or the TPP [Third Party Payers]
Class or the SHP [Settling Health Plans] Group
shall have a claim to any such deductions.

Following the district court's approval of the settlement

agreement, the Samsell plaintiffs said they would pursue appeals of

the settlement agreement unless they received more. As a result,

all of the parties, including the Samsell plaintiffs, negotiated

and executed an "implementation agreement." The implementation

agreement provided an increase in the payments to the consumer

class from 30% to 50% of their out-of-pocket expenses for Lupron.

This meant that consumers would receive 167% of the damages the

district court had found they had suffered. In return, the Samsell

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plaintiffs and other objectors agreed to withdraw their pending

appeals and other objections to the settlement, to rescind their

opt-out requests, to participate in the claims process, and to

waive their right to appeal from the final judgment approving the

settlement. The implementation agreement also awarded incentive

payments to certain objectors, including Samsell, and permitted her

attorneys to seek an award of their fees. On August 26, 2005, the

district court entered its final order approving the settlement

agreement as modified by the implementation agreement. In re:

Lupron Mktg. & Sales Practices Litig., No. 01-CV-10861 (D. Mass.

Aug. 26, 2005).

The parties initiated a national notice campaign designed

to expose 80% of the members of the consumer class on three or more

occasions to notice of the proposed settlement and the procedure

for submitting claims. Notice was published in 947 newspapers, as

well as through public service announcements, Lupron-related

websites, and media coverage of the settlement. An interactive

claims information website and a toll-free telephone number to take

questions from class members were established. Consumer Notice

Packets were mailed to the attorneys general of the fifty states,

Puerto Rico, and the Virgin Islands. Direct mail was not used

because of privacy and practicality concerns.

Consumers were allowed more than four years to file their

claims. Despite these efforts, only about 11,000 individuals -- a

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fraction of the estimated tens or hundreds of thousands of members

of the consumer class -- filed claims, given the high mortality

rate among members of the class. At the conclusion of the claims

administration process, approximately $11.4 million remained

unclaimed.

The plaintiffs requested that the district court

determine a plan for distribution of the $11.4 million in unclaimed

funds. On January 13, 2009, during a hearing regarding the

proposed disposition of the unclaimed funds, the district court

stated its intention to "ensure that any distribution, whatever is

done, is done both with the highest benefit of the class, present

and absent in mind; that the money is distributed and spent

responsibly; and, that it serves the highest purpose that was

intended by the litigation and the ultimate settlement." After

hearing the plaintiffs' alternative proposals, the district court

narrowed its choice to three options: (1) awarding the unclaimed

funds as additional compensation to the members of the consumer

class who had already made claims and been paid in full under the

settlement agreement; (2) conducting a supplemental claims process

with a goal of identifying absent class members; and (3) making a

cy pres award of the unclaimed funds for research addressing the

medical conditions treated by Lupron for the benefit of the present

and future patients suffering from these afflictions.

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 In response to a proposal to distribute some of the

residual funds to a program created by a group of four doctors

affiliated with Brigham and Women's Hospital ("the Loughlin

Group"), the district judge disclosed that for nearly twelve years

he had served as an uncompensated trustee on the board of Vincent

Memorial Hospital, which is affiliated with the Massachusetts

General Hospital. The judge said he was considering whether this

posed any issues. The Samsell plaintiffs, who were present at the

hearing, did not, either then or later, raise any objection

regarding the judge's position on the board at Vincent or his

continued involvement in the proceedings.

On May 19, 2009, the district court issued a memorandum

and order stating its intention to make a cy pres award and

distribute the residual funds for the purpose of funding research

into the causes and treatments of Lupron-related conditions. In

re: Lupron Mktg. & Sales Practices Litig., No. 01-CV-10861, 2009 WL

1395411 (D. Mass. May 19, 2009). The district court stated that it

was inclined to distribute the funds to the Loughlin Group and

invited the Loughlin Group to submit a formal proposal for the

court's review. Id. at *2. The Samsell plaintiffs appealed this

order to this court; we concluded that we lacked jurisdiction to

review a non-final order and dismissed the appeal. See Samsell v.

TAP Pharm. Prods., No. 09-1887 (1st Cir. Jan. 7, 2010).

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 Having learned about the residual funds from the May 19,

2009 order, a different group, DF/HCC, petitioned the district

court to consider its proposal with respect to the unclaimed funds.

The district court granted the request. On May 25, 2010, the

district court invited the public to comment on the proposals

advanced both by the Loughlin Group and by DF/HCC.

On August 6, 2010, the court issued a memorandum and

order stating that it had decided to make a cy pres award of all of

the unclaimed settlement funds to DF/HCC, to be made in three

installments. In re: Lupron Mktg. & Sales Practices Litig., 729 F.

Supp. 2d 492 (D. Mass. 2010). The court explained that it had

rejected the option of a supplemental claims process because it

would be "exorbitantly expensive (estimated at upwards of $1.74

million), time-consuming, and would likely recruit few new

claimants given the high mortality rate among members of the

class." Id. at 494 n.4. No attack is made on that finding in this

appeal. The court further explained that its decision to award the

funds to DF/HCC was influenced by four principal considerations.

First, DF/HCC is an established organization "with experience in

managing grant programs." Id. at 497. Second, its proposal

"leverage[d] existing institutional infrastructure, funding

mechanisms, and . . . relationships," which would reduce start-up

and administrative costs. Id. Third, the proposal was designed to

have "a broad national outreach to attract large-scale research

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collaborations, innovative pilot projects, promising young

investigators, and talented graduate students." Id. Finally,

DF/HCC "propose[d] to dedicate an appropriate portion of the funds

to research involving cures for . . . Lupron-treated diseases and

conditions" other than prostate cancer. Id.

The district court also crafted an oversight plan which

required DF/HCC to submit regular reports to account for the grant

awards and expenditures. Id. at 497-98. The award would be paid

to DF/HCC in three installments as explicitly authorized by the

district court. Id. at 498. The first installment was ordered

disbursed to DF/HCC on November 16, 2010. The Samsell plaintiffs

have not sought a stay of the disbursements.

On December 16, 2010, Valerie Samsell and Audrey Rohn

filed a Notice of Appeal from the November 16, 2010 Order. On

January 5, 2011, Samsell filed an Amended Notice of Appeal to add

Barbara Sensing as an appellant.

II.

Procedural Objections

Appellees attempt to short stop this appeal on several

procedural grounds. We dispose of these procedural objections

quickly.

First, appellee William Porter, who represents the

certified consumer class, argues that the appeals are untimely

because they were not filed within 30 days of the August 6, 2010

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order, which he asserts was a final decision. Appellee DF/HCC

argues that appellants Rohn and Samsell timely filed their appeals

within 30 days of the November 16, 2010 order disbursing initial

payment to DF/HCC, which they consider the pertinent order. But

they say that appellant Sensing's appeal is still untimely because

it was not filed within 30 days of any order.

The relevant "order" which starts our analysis is the

August 6, 2010 order awarding the cy pres distribution to DF/HCC.

The later November 16, 2010 disbursement order was a mere

ministerial order. See, e.g., Am. Ironworks & Erectors Inc. v. N.

Am. Constr. Corp., 248 F.3d 892, 898 (9th Cir. 2001) ("A mere

ministerial order, such as . . . an order to disburse funds from

the court registry, is not a final appealable order.").

Not all orders qualify as appealable orders. A notice of

appeal in a civil case "must be filed with the district clerk

within 30 days after entry of the judgment or order appealed from."

Fed. R. App. P. 4(a)(1)(A). A judgment or order is "entered" for

Rule 4(a) purposes "when the judgment or order is entered in the

civil docket . . . [and] set forth on a separate document, or 150

days have run from entry of the judgment or order in the civil

docket." Fed. R. App. P. 4(a)(7)(A)(ii). If an order is not set

forth on a separate document, it is not considered "entered" and is

not itself appealable until 150 days after entry in the civil

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docket. Colón-Santiago v. Rosario, 438 F.3d 101, 108 (1st Cir.

2006).

Here, the August 6, 2010 order was not set forth on a

separate document, but set forth on pages seven through nine of a

nine-page memorandum containing the court's reasoning. It fails

the "separate document" requirement. See Nunez-Soto v. Alvarado,

956 F.2d 1, 2 (1st Cir. 1992) (explaining that the Federal Rules of

Civil Procedure require "that a judgment be set forth on a separate

document and not simply tacked on to a memorandum or opinion").

The order was not "entered" for purposes of appeal until

January 3, 2011, 150 days after August 6, 2010. The 30-day period

for appealing from that order expired 30 days later, on February 2,

2011. Because all of the appellants filed before February 2, 2011,

their appeals are timely.

Next, appellees argue that the Samsell plaintiffs lack

standing because they are unnamed, nonparty class members who have

never objected to the settlement agreement under which they have

accepted full payment for their losses.2 Only parties to a civil

action may appeal from a final judgment. Devlin v. Scardelletti,

2
This issue does not implicate the jurisdiction of the
courts under Article III of the Constitution. The Samsell
plaintiffs clearly have an interest in the residual funds that
creates a "case or controversy" sufficient to satisfy the
constitutional requirements of injury, causation, and
redressability. See Lujan v. Defenders of Wildlife, 504 U.S. 555
(1992). Rather, the question is whether the Samsell plaintiffs
should be considered "parties" for the purposes of appealing the cy
pres distribution.

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536 U.S. 1, 7 (2002). The Supreme Court has applied this rule

strictly, and has generally rejected attempts to craft exceptions

to the rule. Microsystems Software, Inc. v. Scandinavia Online AB,

226 F.3d 35, 39-40 (1st Cir. 2000).

Those who intervene in the district court properly become

parties and may appeal a final judgment. Id. at 39. Of course, a

nonparty may appeal from the denial of a motion to intervene. Id.

at 40. However, courts are generally "powerless to extend a right

of appeal to a nonparty who abjures intervention." Id. The

Supreme Court has recognized only one exception to this rule: that

"nonnamed class members . . . who have objected in a timely manner

to approval of the settlement at the fairness hearing have the

power to bring an appeal without first intervening." Devlin, 536

U.S. at 14.

Appellant Valerie Samsell clearly has standing to appeal

because she was allowed to intervene in the trial court.3 See

3
Appellees argue that Valerie Samsell's intervenor status
has expired. Samsell was granted intervenor status in 2004 "for
the purpose of participating in the process established by the
court for the evaluation of the proposed settlement." In re:
Lupron Mktg. & Sales Practices Litig., No. 01-CV-10861 (D. Mass.
Nov. 17, 2004). However, the court continued to treat Samsell as
an intervenor well after the settlement was approved, conferring
her continued intervenor status. See Microsystems Software, Inc.
v. Scandinavia Online AB, 226 F.3d 35, 39 (1st Cir. 2000); accord
In re E. Sugar Antitrust Litig., 697 F.2d 524, 527-28 (3d Cir.
1982). The district court referred to Samsell as an intervenor
during the cy pres selection process, and most recently, did so
again in its August 6, 2010 order.

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Stringfellow v. Concerned Neighbors in Action, 480 U.S. 370, 375-76

(1987).

The status of appellants Audrey Rohn and Barbara Sensing

is less clear. Neither Rohn nor Sensing were named parties in the

district court proceedings and neither moved to intervene. Nor did

either object to the final settlement agreement. See Devlin, 536

U.S. at 14. Both, however, appear to have objected to the court's

cy pres distribution of unclaimed monies without first distributing

additional funds to class claimants. Dennis Rohn, Audrey Rohn's

deceased husband, appears to have advocated from the outset of the

cy pres selection process that the court give any extra unclaimed

funds to consumers who made claims. Barbara Sensing appears to

have joined Samsell and Rohn in echoing that argument later on,

when the court requested public comment on the proposal submitted

by DF/HCC. The question then becomes whether Devlin, which created

an exception for unnamed class members who have objected to

settlement agreements, extends to this situation in which unnamed

class members have objected to a cy pres distribution. For present

purposes, we need not decide this question because Rohn's and

Sensing's interests are represented on appeal by Samsell, who

clearly has standing to appeal.

III.

Challenge to the Cy Pres Distribution

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 When class actions are resolved by settlement, unclaimed

money may remain in the settlement fund after initial distributions

to class members because some class members cannot be located, some

decline to file a claim, or some have died. Settlement agreements

often dispose of these unclaimed monies by providing for "cy pres"

distributions. Cy pres is an equitable doctrine that has been

imported into the very different class-action context from the

field of trusts and estates law:

In trusts and estates law, cy pres, taken from
the Norman French expression cy pres comme
possible ("as near as possible"), "save[s]
testamentary gifts that otherwise would fail"
because their intended use is no longer
possible. Courts permit the gift to be used
for another purpose as close as possible to
the gift's intended purpose . . . . In class
actions, courts have approved creating cy pres
funds, to be used for a charitable purpose
related to the class plaintiffs' injury, when
it is difficult for all class members to
receive individual shares of the recovery and,
as a result, some or all of the recovery
remains.

In re Pharm. Indus. Average Wholesale Price Litig., 588 F.3d 24,

33 (1st Cir. 2009) (citations omitted) (quoting In re: Airline

Ticket Comm'n Antitrust Litig., 307 F.3d 679, 682 (8th Cir. 2002)).

In In re Pharmaceutical Industry Average Wholesale Price

Litigation, we recognized for the first time in this circuit that

settlement agreements may establish cy pres funds for the

distribution of residual unclaimed funds. Id. at 33-36. There,

this court affirmed the approval of a cy pres fund where it was

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part of a settlement agreement that was negotiated at arm's length

by the parties; was not court mandated; some class members would

not otherwise receive recovery; more than actual damages were paid

out to class members; the creation of the cy pres fund facilitated

the settlement of a hard-fought complex action; and the cy pres

fund was meant to benefit absent and non-claimant class members.

We rejected the argument that claimants are entitled to receive any

unclaimed residual money, in preference to a cy pres distribution,

regardless of whether they have already been compensated for their

losses. Id. at 35. We held that the district court did not abuse

its discretion in approving the cy pres part of the settlement

because the settlement agreement met the American Law Institute's

benchmark of "100 percent recovery" for all class members before

any money would be distributed through cy pres. Id. at 35-36

(citing Am. Law Inst., Principles of the Law of Aggregate

Litigation § 3.07 cmt. b (Apr. 1, 2009) (proposed final draft)).

This case involves an agreement with these same characteristics.

In our earlier case we did not address questions concerning the

distributions from cy pres funds. We do so for the first time

here.

We review a district court's approval of a proposed class

action settlement for abuse of discretion. Id. at 32-33. The

abuse of discretion standard is highly deferential and "not

appellant-friendly." Texaco P.R., Inc. v. Dep't of Consumer

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Affairs, 60 F.3d 867, 875 (1st Cir. 1995) (quoting Lussier v.

Runyon, 50 F.3d 1103, 1111 (1st Cir. 1995)) (internal quotation

marks omitted). Of course, a material error of law is an abuse of

discretion. Spooner v. EEN, Inc., 644 F.3d 62, 66 (1st Cir. 2011).

Ordinarily, however, an abuse of discretion will not be found

unless "the record provides strong evidence that the trial judge

indulged a serious lapse in judgment," Texaco P.R., 60 F.3d at 875,

such as if the decision "ignores a material factor deserving

significant weight, relies upon an improper factor, or assesses

only the proper mix of factors but makes a serious mistake in

evaluating them," Downey v. Bob's Disc. Furniture Holdings, Inc.,

633 F.3d 1, 5 (1st Cir. 2011) (quoting Gomez v. Rivera Rodriguez,

344 F.3d 103, 112 (1st Cir. 2003)) (internal quotation mark

omitted). We apply the same abuse of discretion standard to

questions regarding a court's approval of distribution from a cy

pres fund as part of a settlement agreement.

The Samsell plaintiffs frame some of their challenges as

attacks on the underlying consent decree, but they gave up that

challenge to the agreement when they executed the implementation

agreement. They have waived any right to object to the agreement

on appeal; indeed they received consideration for that waiver.

After extended negotiations resulting in a 67% increase in their

full damages awards, the Samsell plaintiffs entered into the

implementation agreement in which they agreed to be bound by all

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terms and provisions of the settlement agreement and agreed not to

appeal from a final judgment. They also agreed to accept the

roughly 167% of their damages as "fair and reasonable"

compensation.4

The settlement agreement, which appellants are not free

to attack, explicitly anticipated that there could be unclaimed

funds after the distribution to claimants, and expressly granted

the district court broad discretion to make awards from the cy pres

fund.5 The agreement anticipated that a distribution might be made

to appropriate charitable institutions. It granted TAP tax

deduction rights if "all or part of any unclaimed funds is

distributed to one or more charitable organizations."

We turn to the issue of whether the district court abused

its discretion, under the evolving law of cy pres distributions in

class action settlement agreements, in either the process utilized

4
Those who sought treble damages were given an opportunity
to opt out of the settlement. Many plaintiffs did opt out and
filed their own individual claims in state court. See, e.g.,
Walker v. TAP Pharm. Prods., Inc., No. CPM-L-682-01 (N.J. Super.
Ct.); Stetser v. TAP Pharm. Prods., Inc., No. 01-CVS-5268 (N.C.
Super. Ct.).
5
This is not a situation in which the primary purpose of the
cy pres fund is to assure a settlement fund large enough to
guarantee substantial attorney's fees or to make the bringing of
the class action worthwhile, a danger pointed out by commentators.
See Martin H. Redish, Peter Julian, & Samantha Zyontz, Cy Pres
Relief and the Pathologies of the Modern Class Action: A Normative
and Empirical Analysis, 62 Fla. L. Rev. 617 (2010).

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or in the decision to make a cy pres award of the unclaimed

consumer settlement proceeds to DF/HCC.

Here, the district court considered a supplemental

consumer claims process designed to reach more consumers using

previously unavailable patient data from the Centers for Medicare

and Medicaid Services. The district court was concerned, however,

that only 11,000 individuals out of the estimated tens or hundreds

of thousands of class consumers filed claims despite extensive

notice procedures. The district court appropriately decided that

a supplemental consumer claims process would be prohibitively

expensive, time-consuming, and, given the high mortality rate among

members of the class, would likely recruit few new claimants.

The Samsell plaintiffs clarified at oral argument that

they are no longer appealing the district court's choice to arrange

a cy pres distribution rather than to recruit more claims by absent

class members. In any event, there was no abuse of discretion in

the district court's choice to forego a direct notice mailing given

that the administrative burden of doing so appeared to outweigh the

small potential for increased claims.

Instead, the Samsell plaintiffs make several categories

of arguments, which are essentially these:

1. That they were entitled to greater distributions in preference

to distributions for the benefit of absent class members because

they have not received treble damages.

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2. That the process used was flawed, including on the grounds that

the judge should have recused himself.

3. That no award can be made to DF/HCC because:

a) its doctors are precluded from being recipients of awards

by the terms of the agreement; and

b) the principles of cy pres are violated in that this is not

a "next best" award to absent national class members because

DF/HCC is located in Massachusetts and the research will be

primarily focused on prostate cancer.

Many of these assertions are factually untrue.

We turn to the law on distribution of cy pres funds. To

the extent the American Law Institute's Principles of the Law of

Aggregate Litigation ("ALI Principles") provides guidance, it does

not support a claim of abuse of discretion. The ALI Principles set

forth proposed rules for the use of a cy pres distribution in class

action settlements. See Am. Law Inst., Principles of the Law of

Aggregate Litigation § 3.07 (2010) [hereinafter "ALI Principles"].

The ALI Principles express a policy preference6 that unclaimed

funds be redistributed to ensure class members recover their full

6
The ALI Principles state: "If the settlement involves
individual distributions to class members and funds remain after
distributions (because some class members could not be identified
or chose not to participate), the settlement should presumptively
provide for further distributions to participating class members
unless the amounts involved are too small to make individual
distributions economically viable or other specific reasons exist
that would make such further distributions impossible or unfair."
Am. Law Inst., Principles of the Law of Aggregate Litigation
§ 3.07(b) (2010) [hereinafter "ALI Principles"].

-23-
losses. This policy preference was motivated by a concern that

"few settlements award 100 percent of a class member's losses, and

thus it is unlikely in most cases that further distributions to

class members would result in more than 100 percent recovery." In

re Pharm. Indus., 588 F.3d at 24 (quoting Am. Law Inst., Principles

of the Law of Aggregate Litigation § 3.07 cmt. b (Apr. 1, 2009)

(proposed final draft)). Where class members have been fully

compensated for their losses, this presumption does not apply.

The ALI Principles also reject the presumption, suggested

by a concurring opinion in Klier v. Elf Atochem North America,

Inc., 658 F.3d 468 (5th Cir. 2011), that any residual funds must be

returned to the defendant. Id. at 482 (Jones, J., concurring).

The ALI Principles explain that returning unclaimed funds to the

defendant "would undermine the deterrence function of class actions

and the underlying substantive-law basis of the recovery by

rewarding the alleged wrongdoer simply because distribution to the

class would not be viable." ALI Principles, § 3.07 cmt. b. Courts

have generally agreed with the ALI Principles. See 3 Newberg on

Class Actions § 10:17 (4th ed. 2011). The ALI Principles also

reject escheat to the state as a more preferable option. See ALI

Principles, § 3.07 cmt. b.

Instead, ALI Principles § 3.07(c) sets up an order of

preference: when feasible, the recipients should be those "whose

interests reasonably approximate those being pursued by the class."

-24-
Id. If no recipients "whose interests reasonably approximate those

being pursued by the class can be identified after thorough

investigation and analysis, a court may approve a recipient that

does not reasonably approximate the interests being pursued by the

class." Id.

Both case law and the ALI Principles support our adoption

of the "reasonable approximation" test. As to whether

distributions reasonably approximate the interests of the class

members, we consider a number of factors, which are not exclusive.

These include the purposes of the underlying statutes claimed to

have been violated, the nature of the injury to the class members,

the characteristics and interests of the class members, the

geographical scope of the class, the reasons why the settlement

funds have gone unclaimed, and the closeness of the fit between the

-25-
class and the cy pres recipient.7 Failure to meet the reasonable

approximation test can lead to reversal.8

For example, in In re Airline Ticket Commission Antitrust

Litigation, 268 F.3d 619 (8th Cir. 2001), a national antitrust

class action against airlines concerning caps on ticket commissions

earned by travel agencies, the Eighth Circuit held that a cy pres

distribution of unclaimed funds to Minnesota law schools and

charities was invalid. Id. at 625-26. On remand, the district

court ordered the funds distributed to the National Association for

Public Interest Law, "to support attorneys providing legal services

to low income clients by paying the interest on grant recipients'

7
As Judge Posner has pointed out, the cy pres doctrine under
the trust law "is based on the idea that the settlor would have
preferred a modest alteration in the terms of the trust to having
the corpus revert to his residuary legatees. So there is an
indirect benefit to the settlor." Mirfasihi v. Fleet Mortg. Corp.
356 F.3d 781, 784 (7th Cir. 2004). He contrasts this with a
different rationale in the class action context:

[T]he reason for appealing to cy pres is to
prevent the defendant from walking away from
the litigation scot-free because of the
infeasibility of distributing the proceeds of
the settlement . . . to the class members.
There is no indirect benefit to the class from
the defendant's giving the money to someone
else. In such a case the 'cy pres' remedy
[is] . . . badly misnamed.

Id. That is another reason to require the cy pres fund to provide
some benefit to class members, even if indirect.
8
One commentary has suggested that abandonment of "next
best" relief intended to be an alternate means of indirectly
compensating victims who could not feasibly be compensated directly
would create issues of constitutional dimension. See Redish at
641-51.

-26-
outstanding student loans." In re: Airline Ticket Comm'n, 307 F.3d

at 682. The Eighth Circuit reversed again, explaining that the

"next best" recipients were not public interest organizations, but

rather the travel agencies in Puerto Rico and the U.S. Virgin

Islands who suffered from the same allegedly unlawful caps. Id. at

683-84. The court remanded the case, ordering that the cy pres

fund be distributed on a proportional basis to those travel

agencies. Id. at 684.

Other courts have similarly applied the reasonable

approximation test. See, e.g., Nachshin v. AOL, LLC, 663 F.3d

1034, 1040 (9th Cir. 2011) (rejecting, in a nationwide privacy

class action, a cy pres distribution to local Los Angeles charities

because it did not "account for the broad geographic distribution

of the class," did not "have anything to do with the objectives of

the underlying statutes," and would not clearly "benefit the

plaintiff class"); Six Mexican Workers v. Ariz. Citrus Growers, 904

F.2d 1301, 1311-12 (9th Cir. 1990) (invalidating a cy pres

distribution to the Inter-American Fund for "indirect distribution

in Mexico," id. at 1304, in a class action brought by undocumented

Mexican workers regarding violations of the Farm Labor Contractor

Registration Act, because the distribution was "inadequate to serve

the goals of the statute and protect the interests of the silent

class members," id. at 1312); Houck v. Folding Carton Admin. Comm.,

881 F.2d 494, 502 (7th Cir. 1989) (invalidating settlement

-27-
agreement, in a national antitrust class action, that made a cy

pres distribution to local law schools, and directing the district

court to "consider to some degree a broader nationwide use of its

cy pres discretion"); In re Folding Carton Antitrust Litig., 744

F.2d 1252, 1253-54 (7th Cir. 1984) (invalidating, in a national

antitrust class action, a cy pres distribution that would establish

a private antitrust research foundation on the basis that "[t]here

has already been voluminous research" on the subject). As these

cases make clear, the mere fact that a recipient is a charitable or

public interest organization does not itself justify its receipt of

a cy pres award.

Against these criteria we turn to the Samsell plaintiffs'

arguments. They first argue that the residual funds should have

been used first to pay the claimants their "full out-of-pocket

expenses." That is not the measure of their damages. Only a

portion of the sum charged for Lupron was an overcharge. The

Samsell plaintiffs have already received their full damages, and

more. Their damages are not the full price they paid for Lupron;

rather, their damages are the money they paid above the market

value of the drug as a result of the inflated price. The district

court found that 30% of the price the class paid for Lupron was a

reasonable estimate of the class's full damages. The

implementation agreement paid the class 50% of the price they paid

for Lupron, which amounts to 167% of their damages.

-28-
 The Samsell plaintiffs argue that even though they have

received their full damages, the district court abused its

discretion by choosing to make a cy pres distribution instead of

using the residual funds to award treble damages to the claimants.9

We disagree. The 11,000 claimants have already received an

enhanced payment beyond single damages. Because the consumer fund

was established for the benefit of all consumer purchasers of

Lupron, not just the 11,000 who filed claims, the court

appropriately determined that the "next best" relief would be a cy

pres distribution which would benefit the potentially large number

of absent class members.10 Such relief may yield tangible benefits

for class members in the form of lower prices for existing drugs,

more effective or more cost-efficient versions of current drugs, or

even new cures altogether. Such benefits would accrue both to the

claimant class members and to the living absent class members, most

of whom would enjoy the advantages of less expensive or more

9
At oral argument, the Samsell plaintiffs also argued that
because this is a consumer fraud case, the cy pres funds should go
to entities that would combat consumer fraud. This argument, made
for the first time at oral argument, is waived. In any event, we
reject the argument. RICO and the state consumer fraud statutes at
issue in this case were meant to protect vulnerable consumers like
the victims in this case. The cy pres distribution in this case
honors that objective by distributing funds to benefit the absent
class members who have not yet been compensated.
10
This is not a "fluid class recovery" case in which the
court attempts to direct residual funds "to those who will be
impacted by the defendant in the future, in an effort to roughly
approximate the category of those who were injured in the past."
See Redish at 620.

-29-
effective drugs that combat the multitude of conditions the class

faces, which this research may produce. Moreover, the parties

themselves contemplated such use of any unclaimed funds: the tax

provisions of the settlement agreement clearly provided for the

possibility that unclaimed funds would go to a charity to benefit

silent class members.

In In re Pharmaceutical Industry Average Wholesale Price

Litigation, we voiced a concern about overcompensating claimant

class members at the expense of absent class members. 588 F.3d at

34-36. There, we rejected the argument that claimants are entitled

to receive a windfall of any unclaimed residual money regardless of

whether they have already been compensated for their losses. Id.

at 35. It is well accepted that protesting class members are not

entitled to windfalls in preference to cy pres distributions. The

Fifth Circuit, for example, has recently stated that "[w]here it is

still logistically feasible and economically viable to make

additional pro rata distributions to class members, the district

court should do so, except where an additional distribution would

provide a windfall to class members with liquidated-damages claims

that were 100 percent satisfied by the initial distribution."

Klier, 658 F.3d at 475 (footnote omitted).11

11
In Klier v. Elf Atochem North America, Inc., the court
reversed a district court order imposing a cy pres fund for
residual unspent monies which had not been provided for in the
settlement agreement. 658 F.3d 468, 480 (5th Cir. 2011). While
the defendant had proposed seven cy pres beneficiaries, the
plaintiff opposed and sought additional distributions to a subclass

-30-
 Commentators have agreed that distributing residual funds

to claimants who have already recovered their losses "necessarily

results in an undeserved windfall for those plaintiffs, who have

already been compensated for the harm they have suffered." Martin

H. Redish, Peter Julian, & Samantha Zyontz, Cy Pres Relief and the

Pathologies of the Modern Class Action: A Normative and Empirical

Analysis, 62 Fla. L. Rev. 617, 639 (2010); see also 2 McLaughlin on

Class Actions § 8:15 (8th ed. 2011); Susan Beth Farmer, More

Lessons From The Laboratories: Cy Pres Distributions in Parens

Patriae Antitrust Actions Brought By State Attorneys General, 68

Fordham L. Rev. 361, 393 (1999).

We agree that allowance of such windfalls "could create

a perverse incentive among victims to bring suits where large

numbers of absent class members were unlikely to make claims. It

might also create an incentive for the represented class members to

keep information from the absent class members." Redish at 632;

see also Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 785 (7th

Cir. 2004); Van Gemert v. Boeing Co., 553 F.2d 812, 816 (2d Cir.

1977) (explaining that such windfalls may "encourage the bringing

of class actions likely to result in large uncollected damage

pools").

or alternatively to a different cy pres recipient. Id. at 473.
The court found no support in the settlement documents for the
creation of a cy pres fund, in contrast to our case. Id. at 476-
78. It ordered the district court to reallocate the funds among
the subclasses of the class that generated the settlement. Id. at
480.

-31-
 The Samsell plaintiffs argue next that in any event

DF/HCC is not a proper recipient for several reasons. The initial

argument is that DF/HCC "profited from the fraudulent scheme and

conspiracy alleged in this case" through its for-profit members.

This claim has no basis in the record. DF/HCC is a not-for-profit

corporation organized under Massachusetts law; it is not a

defendant and the conspiracy claims under RICO against doctors were

dismissed early on. Nor do the Samsell plaintiffs point to any

DF/HCC employee or affiliate who participated in the fraudulent

Lupron scheme. Further, during the cy pres selection process,

Samsell herself recommended that half of the cy pres funds go to

DF/HCC.12

The Samsell plaintiffs lodge several attacks against the

cy pres selection process itself. First, the Samsell plaintiffs

argue that the "next best" requirement is not met because the cy

pres recipient, DF/HCC, is in Boston while the injuries are to a

national class. This objection fails. It is not the location of

the recipient which is key; it is whether the projects funded will

provide "next best" relief to the class. DF/HCC is required to do

work which will have benefits well beyond Boston. The DF/HCC

proposal uses a venture capital model to invest in high-impact,

12
Dennis Rohn joined Samsell in asking the court to give the
other half of the cy pres funds, or at least some portion, to
claimant consumers. Barbara Sensing was not yet involved in the cy
pres selection process.

-32-
high-risk research projects across the globe, with the expectation

that promising results will attract grants from more traditional

funding sources. DF/HCC says it intends to be a catalyst for

large-scale research collaboration by providing incentives to teams

of researchers to join forces at the national and international

levels. Moreover, the grants will be awarded by an Oversight Board

composed of nationwide leaders in prostate cancer research.

Additionally, the claim that only prostate cancer

research is being funded is false. The DF/HCC proposal is specific

that "[t]he central and overarching goal of [the DF/HCC] program is

to directly impact the treatment of prostate cancer and other

Lupron-treatable diseases and conditions" including "endometriosis,

uterine fibroids, and/or central precocious puberty." Indeed,

Samsell recommended to the district court that half of the cy pres

funds be distributed to DF/HCC precisely because it would

"support[] research in the treatment of infertility, endometriosis,

ovarian and breast cancer, and precocious puberty," unlike the

alternative Loughlin proposal which focused only on prostate

cancer.

The Samsell plaintiffs also argue that the district court

judge erred by failing to recuse himself from participation in the

cy pres distribution on account of his service as an uncompensated

trustee on the board of the Vincent Memorial Hospital, which is

affiliated with the Massachusetts General Hospital (MGH). MGH, in

-33-
turn, is affiliated with both Brigham & Women's Hospital and

Harvard Medical School. MGH, Brigham & Women's, and Harvard

Medical School are all member institutions of DF/HCC.

This recusal claim is without merit. Recusal is only

required by a state of mind "so resistant to fair and dispassionate

inquiry as to cause a party, the public, or a reviewing court to

have reasonable grounds to question the neutral and objective

character of a judge's rulings or findings." In re United States,

158 F.3d 26, 34 (1st Cir. 1998). That test is not met here. More

than that, no question is raised here that the selection of the

recipients was made on any basis other than the merits. See ALI

Principles § 3.07.

This recusal claim has also been waived by being raised

only on appeal, which is another indication of its invalidity.

Litigants must raise a claim for disqualification of a district

court judge after learning of the grounds for disqualification, and

certainly may not wait and see how the court rules before acting.

Giannetta v. Boucher, No. 92-1488, 1992 WL 379416, at *6 (1st Cir.

Dec. 22, 1992) (per curiam) (holding that the appellant waived his

claim of recusal under 28 U.S.C. § 455(a) because he failed to

raise it in the district court); In re Abijoe Realty Corp., 943

F.2d 121, 126 (1st Cir. 1991) (holding that a party knowing of a

ground for requesting disqualification may not wait to raise the

-34-
issue until after the judge issues a ruling that the party

dislikes).

Samsell was aware of the judge's service on the board of

Vincent; was aware of the indirect affiliation of Vincent through

MGH to DF/HCC; was aware DF/HCC was a potential recipient; and yet

never raised a word of concern. The district court judge disclosed

his affiliation with Vincent Memorial Hospital at the January 13,

2009 hearing to discuss cy pres award proposals.13 The Samsell

plaintiffs were present at the hearing and did not object upon

hearing the disclosure to the judge's continued participation in

the case.

There is a double waiver. In 2010, when the judge

submitted the final candidate proposals for public comment, Samsell

expressly acknowledged the judge's participation on the Vincent

board, and yet nonetheless recommended that half of the funds be

distributed to DF/HCC. It is only now, for the first time on

13
The judge stated:

I am on the board at Vincent Memorial
Hospital, which is a board at Mass. General
Hospital. We are part of the Partners system.
So the question is whether that is a conflict
of interest . . . . I want everyone to
understand that I am not, obviously, a
compensated trustee, but I have been
affiliated through Vincent with Mass. General
for almost 12 years now and would not want
anyone to think that I have favored, if this
was the direction I would choose to go, a
Mass. General or, for that matter, a
Brigham-affiliated group because of my own
personal involvement at the hospital.

-35-
appeal, that the Samsell plaintiffs have raised an objection to the

judge's participation in the cy pres selection process.

In a related attack, the Samsell plaintiffs argue that

the district court improperly appointed Dr. Jonathan L. Tilly, a

Harvard Medical School professor, as the court's representative to

a committee overseeing DF/HCC's use of the cy pres funds. As the

district court disclosed in its August 6, 2010 order, Dr. Tilly

"has served as a special law clerk to the court," and is Chief of

the Division of Research at the Vincent Center for Reproductive

Biology at MGH. Dr. Tilly is also Chair of the Trustee Committee

at the Vincent Memorial Hospital. We reject this argument for the

same reasons articulated above.

The Samsell plaintiffs also argue that the cy pres

selection process was tainted because class counsel simultaneously

represented one of the proposed, but not successful, cy pres

recipients, Community Catalyst/PAL. This is a nonissue since class

counsel's proposed cy pres recipient was not chosen by the district

court. Nor was DF/HCC on the list of candidates selected by class

counsel (in fact, class counsel objected to the court's

consideration of DF/HCC).

There was no abuse of discretion in the process used or

as to selection of the recipient.

Although we find no abuse of discretion in this case, and

indeed the process followed was admirable, we express our concerns

-36-
that district courts are given discretion by parties to decide on

the distribution of cy pres funds. Our concerns are also stated in

the ALI Principles, which stress in § 3.07(c) that "the court, when

feasible, should require the parties to identify a recipient whose

interests reasonably approximate those being pursued by the class."

(emphasis added). In the commentary, the ALI Principles also note

that the court should give weight to the parties' choice of

recipient as demonstrated by the settlement agreement. ALI

Principles § 3.07 cmt. b.

It is true that the court attempted to compensate for the

parties' failure to designate recipients in the agreement by taking

proposals from the parties and fully involving them in the

selection process. But the choice would have been better made by

the parties initially and then tested by the court, against the

principles we have identified.

It is one thing for the district court to exercise its

traditional judicial function to approve class action settlement

agreements. See Fed. R. Civ. P. 23(e). It is quite another for

the parties to abandon the task of agreement over the assignment of

residual funds and just hand that task to the court. The parties

expressly contemplated that significant sums might remain here, and

indeed $11.4 million out of $40 million remained. The amounts

involved also raise concerns. We recognize, as class counsel

candidly articulated, that there are imperfections in all methods

-37-
of handling the issue of disposition of residual funds. But the

adversary process is better suited to the parties making the

decisions and leaving less to the discretion of the judges.

Distribution of funds at the discretion of the court is

not a traditional Article III function, as many courts have

recognized:

Federal judges are not generally equipped to
be charitable foundations: we are not
accountable to boards or members for funding
decisions we make; we are not accustomed to
deciding whether certain nonprofit entities
are more "deserving" of limited funds than
others; and we do not have the institutional
resources and competencies to monitor that
"grantees" abide by the conditions we or the
settlement agreements set.

In re Compact Disc Minimum Advertised Price Antitrust Litig., 236

F.R.D. 48, 53 (D. Me. 2006); see also Redish at 642.

Moreover, having judges decide how to distribute cy pres

awards both taxes judicial resources and risks creating the

appearance of judicial impropriety. A growing number of scholars

and courts have observed that "the specter of judges and outside

entities dealing in the distribution and solicitation of settlement

money may create the appearance of impropriety." Nachshin, 663

F.3d at 1039; see also SEC v. Bear, Stearns & Co., 626 F. Supp. 2d

402, 415 (S.D.N.Y. 2009). These concerns have been noted in the

media. See George Krueger & Judd Serotta, Op-Ed., Our Class-Action

System is Unconstitutional, Wall St. J., Aug. 6, 2008, at A13;

Editorial, When Judges Get Generous, Wash. Post, Dec. 17, 2007, at

-38-
A20; Adam Liptak, Doling out Other People's Money, N.Y. Times, Nov.

26, 2007, at A14.

With that cautionary note, we affirm the cy pres

distribution, with one adjustment to the August 6, 2010 order. We

add an explicit requirement that the district court must receive an

annual audit at the expense of DF/HCC, in addition to the annual

and semi-annual accountings to be submitted by DF/HCC to the court.

This will ensure that the cy pres fund is distributed in a way that

is both financially sound and comports with the interests of the

class and that the auditing function will not fall on the district

court. We believe that was intended by the court and is implicit

in its orders. The district court's November 16, 2010 order, in

which it references a "required accounting of accrued

expenditures," suggests it intended to include such an audit

requirement in the August 6, 2010 order.

So ordered.

-39-