Chemerinsky: SCOTUS case on cy pres awards could have enormous impact on class actions
One of the most important cases on this week’s oral argument calendar in the Supreme Court is Frank v. Gaos, which concerns the future of cy pres awards. Although cy pres is hardly a phrase that has made it to the public lexicon, or even to the vocabulary of most lawyers, it is enormously important in class action litigation and to nonprofit institutions (including mine) that benefit from these awards.
Often when there is a class action suit, it is not possible to disperse all of the funds resulting from a judgment or settlement. Courts then make a cy pres award—usually an award to a nonprofit institution—that furthers the purpose of the lawsuit. Cy pres is a shorthand from the French phrase “cy pres comme possible”—to come as close as possible to fulfilling the purpose of the class action suit. For example, a consumer class action suit might lead to cy pres awards to consumer protection organizations or to law school consumer clinics. When I was the dean of the University of California at Irvine School of Law, we received a $3 million cy pres award from the Ticketmaster settlement to create a consumer law clinic.
Frank v. Gaos arises from the settlement of a class action suit against Google for sharing information with businesses about the search terms people used in their Google browser. The case settled with Google agreeing to pay damages of $8.5 million, some of which was to go to attorneys fees. Each of the class members was entitled to receive 4 cents. But it would cost more than that to distribute this money, so providing the proceeds to the plaintiffs was not practical. Instead, the district court approved a cy pres award that distributed the funds to institutions studying internet privacy, including law schools at Harvard, Stanford and Chicago-Kent. The 9th U.S. Circuit Court of Appeals at San Francisco found that the awards fulfilled the purpose of the class action suit and upheld the settlement and the cy pres award.
The petitioners, led by Theodore Frank, are class members who object to the settlement. They urge the high court to bar cy pres-only settlements that do not directly benefit the class members. The respondents are the plaintiffs and the defendants in the original suit who are defending their settlement and the cy pres award that resulted from it.
From November’s ABA Journal: Court to consider challenge to cy pres remedies to settle class actions.
The case is primarily about Rule 23 of the Federal Rules of Civil Procedure, which governs class action suits in federal court. The rule does not speak directly about cy pres awards. In fact, no federal law or rule does so. Rule 23 allows district courts to approve settlements that are “fair, reasonable and adequate.” The issue before the court is whether settlements that are distributed only to cy pres recipients is within the scope of the permissible discretion of district courts under Rule 23. The petitioners argue that there are inherent conflicts of interest with settlement-only cy pres awards, especially in choosing the recipients. The petitioners argue under Rule 23 that a “court cannot certify a settlement class if the settlement cannot provide any direct benefit to class members.”
Respondents, by contrast, argue that there is nothing in Rule 23 or federal law that prohibits such cy pres awards, and that they are part of the equitable powers of the federal courts to fashion remedies. Respondents argue that courts have developed rules to ensure that cy pres awards further the interests of the class action and to prevent conflicts of interest. The solicitor general’s office filed a brief strongly opposing cy pres awards. Although designated as being a brief in support of neither party, the solicitor general’s brief is very much against cy pres awards. It goes beyond opposing settlement of cy pres awards and argues that cy pres awards are unjustified. The solicitor general argues that “the history and logic of cy pres do not support its use in class action settlements.”
An underlying question is what will be done with the funds if the Supreme Court were to disapprove such settlements? Would they go back to the defendants? That would be a windfall for defendants and undermine the function of class actions in enforcing the law and deterring wrongdoing. Would the money go to the government? But if so, on what basis and for what purposes? Or might the court go even further and accept the petitioner’s argument that cy pres-only class actions cannot be certified at all, providing a great benefit to defendants and making it much harder to enforce the law where the class members will not directly benefit for the settlement.
In recent years, in a number of different cases, the conservative majority on the Supreme Court has expressed hostility to class action suits. Will the conservatives on the court further limit class actions by restricting cy pres awards? Or will the court recognize their necessity in situations like Frank v. Gaos, where paying the class members is not practical?
This is a case that will matter greatly to nonprofit organizations and educational institutions that have benefited from cy pres awards. Ultimately, the issue before the court is whether these awards will continue in the future and, if so, with what limits.
Erwin Chemerinsky is dean of the University of California at Berkeley School of Law. He is an expert in constitutional law, federal practice, civil rights and civil liberties, and appellate litigation. He’s the author of seven books, including The Case Against the Supreme Court (Viking, 2014).