Once parties reach a settlement agreement in a class action or consolidated litigation, the primary focus often shifts to launching the settlement program and swiftly distributing funds to eligible claimants. However, during this initial phase, the fate of unclaimed funds in the later stages of the program tends to receive less attention. To ensure a successful conclusion to the program, it is essential to incorporate strategies and processes for managing unclaimed funds into the early planning phase.
In managing settlement funds, there are several payment distribution options available, each with its own set of advantages. Digital payments — including direct deposits and electronic transfers — are increasingly popular due to their numerous benefits. They provide enhanced efficiency by reducing the time it takes to process transactions, offer better fraud protection through secure, traceable transactions and encryption technologies, and can significantly reduce costs when compared to printing and mailing checks. Despite this ongoing shift towards digital payment methods driven by these advantages, physical checks remain the predominant method of distributing settlement funds in the U.S. paper check distributions can still be suitable in scenarios where reaching the class population is difficult due to limited or outdated contact information or when class members prefer to maintain privacy by avoiding digital traceability or sharing personal banking information with third parties. To determine the most effective payment distribution method(s), the demographics of the class could be examined, and providing multiple options can also offer flexibility and optionality to satisfy all preferences. While certain sections of this article specifically explore physical check distribution, much of the advice offered can be applied regardless of the distribution method.
Anticipating leftover settlement funds is critical during the early stages of engagement due to the challenges in reaching all class members, especially in direct payment settlements where class members are not required to file a claim or provide payment details. To effectively manage the surplus funds, the initial strategy should involve enhancing efforts to contact class members and arranging additional distributions to the class. Subsequently, the focus should transition to the final disposition of any remaining funds, either through escheatment, returning funds, or applying the cy-pres doctrine. Lastly, it is important to concentrate on document retention and ensure thorough final accounting and reporting.
Additional Efforts to Enhance Payment
Extending the Check Validity Period
Extending the validity of checks in settlement programs is an effective strategy to increase the check clearance rate. Class members often face challenges in cashing or depositing settlement checks within the standard timeframe. If the standard check validity period is 90 days, extending it to 180 days — or even one year — can increase the likelihood of a successful payout. Providing more time for class members to cash their checks reduces the number of uncashed checks and improves the overall efficiency of the settlement distribution process.
Reissuance of Checks
By leveraging VeriMove — an advanced technology for updating customer address information before printing and mailing — Settlement Administrators can improve the accuracy of the delivery, minimize undeliverable mail, and reduce both related expenses and rework costs associated with returned items. VeriMove is integrated with the United States Postal Service (USPS) National Change of Address (NCOA) database, which offers up to 48 months of data on address changes and relocations. This feature is effective for managing mail directed to individuals who have relocated.
Even if checks reach the intended recipients, they can be misplaced, lost, or never cashed for various reasons. The reissuance process offers an opportunity to address these issues and identify any errors in the original check (e.g., incorrect payee name, address issues), reducing the risk of payments being unclaimed, rejected, or returned. For larger settlement programs, utilizing a customer relationship management (CRM) or ticketing system can enhance efficiency in processing requests and communicating with the class, especially with recent integrations of artificial intelligence (AI) capabilities. AI features like chatbots for answering common questions, virtual assistants for live calls, automated email responses, and knowledge-based suggestions not only reduce the workload of human agents but can also enhance the user experience and streamline support operations, ultimately lowering the costs of the settlement administration process. These CRM systems typically offer multiple contact and information-sharing methods, including phone and chat support, email, and ticket submission forms accessible through a settlement website.
Sending Additional Notice to the Class
Sending additional notices via mail (physical letters, if paper checks were mailed earlier), email, or text message (if other contact details are available), and placing public notices (e.g., in newspapers or on the settlement website) encourages class members to cash their settlement checks, preventing uncashed funds from becoming a future liability for the settlement administrator (holder). These efforts show that the holder is taking reasonable steps to return the funds to their rightful owners, ensuring compliance with legal requirements related to the unclaimed funds.
Subsequent Distributions / Additional Payments
Subsequent distributions may occur when funds from the initial payout remain unclaimed, often due to class members failing to cash their checks or not responding to notifications within the designated timeframe. When such unclaimed funds exist, the court may authorize a second round of payments in an effort to provide a full allocation of the settlement funds.
One common approach is to redistribute these leftover funds to eligible class members who have already cashed their original checks. In this method, unclaimed funds are distributed on a pro rata basis among these members based on the amounts they initially received. This aligns the distribution with each member's original settlement share, minimizing the risk of funds remaining unclaimed or being misallocated.
Alternatively, the court may sanction additional payments to all class members regardless of whether they cashed their initial checks, aiming to maximize the dispersion of settlement funds. In this scenario, the remaining funds are divided proportionally based on the original amounts received by each member and distributed accordingly. This method ensures the maximum possible amount of the settlement is distributed among the class members.
Final Disposition of Funds
Handling and Returning Unclaimed Funds
When the prescribed fund distribution deadline has arrived and a portion of the settlement fund remains unclaimed after all reasonable efforts to locate class members have been unsuccessful, the funds may be transferred to the state or another designated entity.
Escheating to the State
Unclaimed property law varies by jurisdiction and often requires businesses to turn over unclaimed funds to the state after a certain period, typically between one and five years. Preparation of the relevant data for the state unclaimed property departments requires categorizing (uncashed checks, refunds, rebates, other court deposits, drafts, and more) and accurately reporting various property types according to legal requirements set by state or jurisdiction regulations.
Each type of property has a dormancy period — the length of time with no activity or owner-initiated action. The dormancy period varies by state and jurisdiction, with the requirement to report usually triggered once the period expires. Once the due diligence period ends, which includes a final effort to contact the owner of the funds, the holder must prepare a report detailing all unclaimed property ready to be transferred to the state. This report usually includes:
- The names and last-known addresses of the claimants
- The amount of unclaimed funds
- Efforts made to contact the rightful owner(s)
In cases of numerous small unclaimed property items, submitting an aggregate report is more practical. Most states accept electronic reports in the standardized National Association of Unclaimed Property Administrators (NAUPA) or NAUPA II formats, though some jurisdictions may require paper filings if the items reported are very limited. Some jurisdictions accept unclaimed property files generated as Human Resource Information System (HRIS) or fixed-length files, where each record has a predefined length in characters. After the report is submitted, the unclaimed funds must be transferred to the state’s unclaimed property department, typically via check or wire transfer from the settlement fund account to the designated state account.
Once the funds are remitted to the state, claimants can still recover their property by filing a claim with valid proof of ownership with the state’s unclaimed property department. States act as custodians, holding the funds in trust for the rightful owner, and there is generally no expiration date for making a claim.
Cy-Pres Distribution
Another widely used method of distributing unclaimed funds is through the doctrine of cy-pres (pronounced sigh-pray) within the Federal Judicial Circuits. When done in alignment with the specific circuit’s standards, this method adds value by avoiding unnecessary protraction of litigation related to unclaimed property. The doctrine of cy-pres originated from a trust law recognizing the court’s authority to amend the enforcement of a charitable trust to “as near as possible” the intent of the originating document to avoid frustration of, or nullification of, the charitable trust. This doctrine of cy-pres has since seen its adaptation within class action litigation to resolve questions regarding distributions of unclaimed settlement funds.
While the adaptation of the cy-pres doctrine within class action litigation by federal circuit courts has evolved, the current legal landscape is increasingly more uniform and predictable, with guidelines or standards for the review of the proposed cy-pres distribution and/or its recipients for appropriateness. The various circuit courts have categorized their respective standards as either:
- Next Best Use: seeking, at minimum, an indirect benefit to the class that serves the interest of the class;
- Reasonable Approximation Test: if feasible, the recipients should be as close as possible to the interests of the class;
- Nexus Standard: requiring — among other factors — the recipient be directly related to the alleged injuries of the class members;
- Nexus Standard and Reasonable Approximation Test: alignment of the underlying statute at issue and the benefit to be realized by those with similar characteristics and interests of the class members; and
- Fair, Reasonable, Adequate and Prudential: focused on the degree of direct benefit to the class, understanding that the cy-pres distribution should be a small percentage of the total settlement funds.
By initially modeling estimated clearance rates and tracking payment success post-distribution, Settlement Administrators can keep key stakeholders apprised of the potential appropriateness of a cy-pres distribution.
Final Accounting and Reporting
Settlement funds are commonly held in segregated accounts known as Qualified Settlement Funds (QSFs), which can offer tax advantages, flexibility in fund distribution, and centralized management of the complex settlement process. The account should be closed after all distributions and obligations have been fulfilled. A detailed report should be prepared accounting for all funds received, distributions made, administrative costs, investment proceeds, and any remaining balances. All outstanding invoices to vendors or service providers involved in administering the fund (settlement administrator, escrow agents, accountants, tax advisors, class counsel, etc.) should be settled before closing. Coordinating with tax advisors will ensure proper reporting for tax purposes, including the settlement fund’s closure. Submitting the final accounting to the court or any regulatory bodies overseeing the settlement provides an official record of how the fund was managed and distributed.
Document Retention and Records
When managing or overseeing a settlement fund, it is critical to preserve key documents — such as claim records, distributions, communications, settlement agreements, financial reports, and legal filings — to ensure proper compliance, transparency, and accountability. The document retention period typically ranges from three to seven years, depending on the jurisdiction, settlement type, and specific terms in the settlement agreement. In some cases, documents may need to be retained indefinitely. Developing a document retention policy and using electronic document management systems ensures compliance and facilitates efficient record organization.
Conclusion
Managing leftover settlement funds requires careful consideration of legal requirements, fairness to class members, and transparency throughout the process. Depending on the amount of unclaimed funds, the size of the class, and the terms of the settlement, administrators may choose one or more of the strategies outlined above to ensure proper distribution or use of the remaining funds. In all cases, adherence to the original settlement agreement and judicial oversight are crucial to a successful settlement program.
How Ankura Can Help
Ankura provides a comprehensive range of settlement administration services, including pre-settlement advisory, class identification and notification, claims processing and eligibility determination, conventional and digital payment distribution, class correspondence and support, as well as escheatment services. For more information on how we can assist, please contact any of these experts for additional details: Fred Pape, Managing Director, Muthu Chockalingam, Senior Director, and Sean Skinner, Director.
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© Copyright 2025. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
