Uncollected Settlement Proceeds in Class Actions Not Subject to the Texas Unclaimed Property Act

by | Oct 5, 2014 | Litigation & Local Counsel

On August 29, 2014, the Texas Supreme Court issued a 5-4 opinion holding that uncollected settlement proceeds in a class action settlement are not subject to the Texas Unclaimed Property Act because such proceeds are not abandoned property. Thus, in a class action settlement, so long as the requirements of Texas Rule of Civil Procedure 42 have been met for certification and settlement, class representatives may determine how uncollected settlement amounts should be disposed. Texas Rule of Civil Procedure 42 provides that “[o]ne or more members of a class may sue or be sued as representative parties on behalf of all” if certain requirements are met. Thus, in a class action, if a class is certified, the class representatives act as just that—a representative for all members of the class. In Highland Homes Ltd. v. State, the trial court certified a class action under Rule 42(b)(3) and approved a settlement. After notice of the settlement and issuance of settlement checks to class members, $465,557 in settlement proceeds remained uncollected. As part of the settlement agreement—that the trial court approved—those uncollected funds, after 90 days, would be deposited with the Nature Conservancy as a cy pres award. The issue before the Texas Supreme Court was whether this cy pres award of uncollected settlement funds violated the Texas Unclaimed Property Act. The court held it did not. The court recognized that under Rule 42, the class representative acts on behalf of all class members. As a result, the class representative may claim ownership of the settlement proceeds on behalf of the class through the class representatives’ claims for refunds, prosecution of those claims, negotiating the terms of settling the claims, and then releasing settlement proceeds. And because the Unclaimed Property Act addresses only abandoned, unclaimed property—as opposed to uncollected property—the Act did not apply. The Texas Supreme Court (in a narrow majority) therefore affirmed the trial court’s approval of the settlement, including the cy pres award to the Nature Conservancy. Under this precedent, in a class action settlement, if the class has met the strict requirements of Rule 42, the settlement may provide how uncollected settlement proceeds will be disposed without regard to the Texas Unclaimed Property Act.

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