In Cundiff v. Verizon California, Inc., ___ Cal.App.4th ___ (Oct. 16, 2008), the Court of Appeal (Second Appellate District, Division Three) construed Code of Civil Procedure section 384, which addresses "unpaid residuals in class action litigation." In Cundiff, the parties agreed to a "claims-made" settlement, but some of the checks were returned as undeliverable and some were never cashed. As a result, the settlement administrator held over $400,000 in unpaid settlement proceeds. The defendant argued that this sum should revert to it, but the plaintiffs argued that, under section 384, the fund should be paid to "nonprofit organizations or foundations to support projects that will benefit the class or similarly situated persons." Slip op. at 2, 6-7.
The Court of Appeal held that "in the absence of a reversion provision in the settlement agreement, section 384 has eliminated the prospect of reversion of unpaid residue to a defendant in that it requires payment of such residue to nonprofit organizations." Id. at 11. The Court rejected the defendant's argument that section 384 applies only in cases involving "fluid recovery," and not to claims-made settlements, finding no "legislative intent to limit application of that provision to fluid recovery cases or cases in which the defendant has paid into a common fund for the benefit of a class. Indeed, the legislative history suggests the enactors intended a broad application. [¶] Here, no fund was established at the time final judgment was entered. However, after the claims were administered and Verizon deposited the money necessary to pay the claims, a fund was created. The unclaimed funds at issue are the 'unpaid residue' of that fund" for purposes of section 384. Id. at 14.