November 07, 2018

Supreme Court to Review Cy Pres-Only Settlement in Google Privacy Case

Simon Grille – July 6, 2018

On April 30, 2018, the Supreme Court granted certiorari to review the Ninth Circuit’s decision in In re Google Referrer Header Privacy Litig., 869 F.3d 737, 739 (9th Cir. 2017), cert. granted sub nom. Frank v. Gaos, No. 17-961, 2018 WL 324121 (U.S. Apr. 30, 2018). The case arises from allegations that Google violated its users’ privacy rights by disclosing their search terms to other websites. The parties reached an $8.5 million settlement, of which $5.3 million was to be allocated among six cy pres recipients. All of these recipients are independent organizations with a record of promoting privacy protections on the Internet. The remaining $3.2 million was set aside for attorney fees, settlement administration costs, and incentive award payments.

The Ninth Circuit held that the district court did not abuse its discretion in approving this cy pres-only settlement. The Ninth Circuit explained that there were an estimated 129 million class members, so pro rata distribution of the $5.3 million fund would have given each class member “a paltry 4 cents in recovery.” 869 F.3d at 742. The court concluded that although cy pres-only settlements are disfavored, “they are appropriate where the settlement fund is non-distributable because the proof of individual claims would be burdensome or distribution of damages costly.” Id. at 741. Judge Wallace dissented in part, noting that “47% of the settlement fund is being donated to the alma maters of class counsel” and no litigation class had been certified. Id. at 748‒51.

Settlement objectors asserted a circuit split in seeking certiorari. They argued that alternative means for providing settlement funds to class members, such as a random lottery distribution, existed. Given these proposed alternatives, the objectors argued, the Ninth Circuit’s decision conflicts with decisions from several other circuits prioritizing direct distributions to class members. The objectors also highlighted Chief Justice Roberts’s 2013 remark that the Supreme Court “may need to clarify the limits on the use of [cy pres] remedies.” Marek v. Lane, 134 S. Ct. 8, 9 (2013) (statement).

In their responsive briefs, class counsel and Google disputed the existence of a circuit split. They maintained that the Ninth Circuit’s decision reflects the same approach taken by other circuits, and that different outcomes have resulted from application of accepted settlement approval standards to the particular facts of each case. Google further contended that direct payment to class members would represent a windfall because they did not suffer any actual harm. Class counsel questioned why the interests of the class as a whole would be better served by paying a subset of class members instead of providing an indirect benefit to the class through charitable donations.

As Judge Wallace’s separate opinion intimates, the settling parties’ choice of cy pres recipients promises to figure heavily in the Supreme Court. Although the objectors do not dispute that the chosen organizations’ goals align with the class members’ interests, the objectors protest that class counsel went to school at three of the designated recipients and Google previously donated to others. The Ninth Circuit rejected the objectors’ complaint of conflicts of interest, affirming a finding that these relationships did not “raise substantial questions about whether the selection of the recipient was made on the merits.” Google Referrer, 869 F.3d at 744 (quoting Principles of the Law of Aggregate Litig. § 3.07 cmt. b (Am. Law Inst. 2010)).

The objectors’ opening brief in the Supreme Court is due on July 9, 2018. The Court’s decision next term in this Frank v. Gaos case should provide guidance to class action practitioners faced with structuring settlements where distributions to class members would consume the fund or result in de minimis individual payments.

 

Simon Grille is an associate with Girard Gibbs in San Francisco, California.

Simon Grille – July 6, 2018