U.S. Supreme Court

Supreme Court to consider cy pres awards that give no money to class-action plaintiffs

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The U.S. Supreme Court on Monday agreed to decide whether a class-action settlement in a suit against Google met requirements of federal law when $5.3 million of the $8.5 million settlement fund was given to outside groups and $2.125 million went to attorney fees.

The cy pres award was directed to groups pledging to use the money to protect internet privacy, including the alma maters of class counsel, according to the cert petition filed by objectors to the settlement. Absent class members got “no relief at all in exchange for their claims—no money, no alteration of the defendant’s allegedly injurious conduct, not even coupons,” according to the cert petition.

At issue was whether the settlement met the requirement of Rule 23(e)(2) of the Federal Rules of Civil Procedure requiring proposed class action settlements to be “fair, reasonable and adequate.”

The cert petition notes that the cy pres doctrine originated in trust law, and it allowed courts to change a trust or charitable gift that became impossible to administer by its terms. In class actions, funds sometimes remain unclaimed where individual member claims are small or the claims process is burdensome. To keep unclaimed settlement funds from reverting to the defendant, the money is directed to other causes that have included charities and foundations.

However, such awards can create a potential for conflicts of interest because they allow class counsel to reap large fees regardless of whether class members were adequately compensated, according to the cert petition.

The class action before the court had alleged web browsers disclosed Google searches to third-party websites. The $8.5 million settlement included an agreement by Google to revise its FAQ page to explain how its referral headers disclose the information, but Google did not agree make any changes to its practices. Three name plaintiffs got $15,000 in incentive awards, while the rest of the class got no money.

The groups receiving the cy pres awards were the World Privacy Forum; Carnegie Mellon University; the Center for Information, Society and Policy at Chicago-Kent College of Law; the Berkman Center for Internet and Society at Harvard University; the Stanford Center for Internet and Society; and AARP.

The class members objecting to the settlement are Melissa Ann Holyoak and Ted Frank, a lawyer with the Competitive Enterprise Institute.

The case is Frank v. Gaos. The SCOTUSblog case page is here. Reuters, Bloomberg News, Courthouse News Service and the National Law Journal have coverage.

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