Google Settles a Class Action with No Cash Payment to Absent Class Members
In May 2010, Google revealed that its Street View vehicles had been collecting “payload data” from unencrypted Wi-Fi networks—including emails, passwords, and documents. In re Google Inc. Street View Elec. Commc’ns Litig., 21 F.4th at 1108. This led to a slew of putative class action lawsuits under the Wiretap Act (18 U.S.C. § 2511), many of which ended up in the Northern District of California. Years of litigation ensued, including over three years of discovery, overseen by a special master, into whether data from the named plaintiffs had been intercepted by a Street View vehicle (i.e., whether the plaintiffs had standing). Id. at 1108–9.
The parties reached a $13 million settlement in June 2018. Id. at 1109. The class covered an estimated 60 million individuals; the parties never determined precisely who was in the class, as doing so would have required the same type of forensic analysis that the named plaintiffs underwent. As a result, the agreement did not provide any monetary relief to the absent class members. Instead, after paying attorney fees, expenses, service awards, and taxes, the remainder of the settlement fund was to be divided equally among eight proposed cy pres recipients selected by the plaintiffs, in consultation with Google. Id.
Though the settlement did not provide monetary relief to the class, it did provide injunctive relief. In particular, Google promised to destroy all payload data it acquired, to not collect any additional payload data via Street View vehicles without notice and consent, to comply with the terms of a compliance program reached with several state attorneys general, and to maintain educational websites regarding wireless security and encryption. Id.
The Ninth Circuit Reaffirms the Propriety of Cy Pres–Only Settlements
Following preliminary approval, putative class member David Lowery objected to the settlement, arguing that the funds should either be distributed among the putative class members or, if they could not, that class certification was inappropriate. The district court overruled Lowery’s objection, concluding that the inability to distribute funds to absent class members did not preclude class certification.
Lowery appealed. He made three notable arguments to the Ninth Circuit, all of which the majority rejected on its way to affirming the district court.
First, Lowery asserted that “a district court may not approve a class-action settlement that provides monetary relief only in the form of cy pres payments to third parties.” Id. at 1113. The panel “reject[ed]” this proposition because the court has “repeatedly approved such settlements” and Lowery’s argument was thus “incompatible with [the court’s] precedents in which [the court] ha[s] recognized that cy pres awards are an acceptable solution when settlement funds are not distributable.” Id. Importantly, the court observed that its acceptance of cy pres settlements does “not turn on what portion of the settlement funds—some or all—is not distributable.” Id. Rather, the court simply asks “whether the cy pres disbursements account for the nature of the plaintiffs’ lawsuit, the objectives of the underlying statutes, and the interests of the silent class members.” Id. (internal quotation marks omitted).
Second, Lowery claimed that, “if it was impossible to distribute settlement funds to class members, then class certification was an error of law because the class device was not superior to other available methods for fairly and efficiently adjudicating the controversy, as Rule 23(b)(3) requires.” Id. at 1115. The court interpreted this argument as a “repackag[ing]” of Lowery’s argument against all cy pres–only settlements “in the guise of a Rule 23(b)(3) ‘superiority’ argument” and rejected it to that extent. Id.
The court also assessed Lowery’s point through the lens of ascertainability. It rejected the notion that “administrative feasibility” is an element of Rule 23, pointing out that the rule never mentions this requirement and that construing the rule to require it could render other elements superfluous. Id. at 1116. Lowery further asserted that “‘the superiority requirement of Rule 23(b)(3) demands the possibility of class benefit at the time of certification,’ and that if it is practically impossible to identify absent class members at the time of certification, then a class action ‘cannot be a superior method of adjudicating th[e] controversy’ because there is no possibility of providing meaningful relief.” Id. Here, the court challenged—and rejected—the “critical premise” that “it is impossible to provide meaningful relief to a class when there is no feasible way of identifying class members.” Id. The majority pointed to circuit law “recogniz[ing] that class members do benefit—albeit indirectly—from a defendant’s payment of funds to an appropriate third party.” Id. It stressed the requirement that cy pres awards must “account for the nature of the plaintiffs’ lawsuit, the objectives of the underlying statutes, and the interests of the silent class members,” and must have a “direct and substantial nexus to the interests of absent class members.” Id. (internal quotation marks omitted).
Third, Lowery claimed the district court abused its discretion by “approving cy pres recipients who had a ‘significant prior affiliation’ with defense counsel and class counsel.” Id. at 1119 Pointing to standards promulgated by the American Law Institute and adopted by courts outside the Ninth Circuit, Lowery asserted that the “correct legal standard” for approving of a cy pres recipient is whether “any party has any significant prior affiliation with the intended recipient that would raise substantial questions about whether the award was made on the merits.” Id. at 1120. Under this standard, Lowery asserted that several of the cy pres recipients had prior relationships with the parties and their counsel that should have disqualified them. Id. at 1119–20. The court rejected this argument, noting that it has “never adopted” the “significant prior affiliation” test and that the district court did not abuse its discretion in failing to apply it. Id. at 1119. In the court’s view, the only test a cy pres recipient needed to pass was the “substantial nexus” test, which it agreed was satisfied. Id.
The majority ultimately affirmed the cy pres–only settlement in Google Street View notwithstanding the fact that the injunctive relief granted to the class “largely duplicated” Google’s existing obligations under its settlement agreement with the state attorneys general. Id. at 1117. It concluded that the “modest” additional relief of extending injunctive obligations by two years and requiring “post[ing of] additional education materials online” was sufficient to create a “fair, reasonable, and adequate” settlement under Rule 23(e)(2).
Judge Bade Criticizes the Underpinnings of Her Own Majority Opinion
The majority decision was accompanied by a rare concurrence from the author of the majority decision herself. Judge Bade noted that the district court “correctly applied [the] circuit’s laws,” which she was “constrained to follow” in penning the majority decision. Id. at 1122. She nevertheless wrote separately to “express some general concerns about cy pres awards.” Id. Judge Bade observed that jurists and commentators have long expressed a variety of concerns with cy pres awards. Id. at 1123. She focused on one in particular: “the theory of indirect benefit to the class members.” Id.
On this issue, Judge Bade pointed out that “there is an increasing skepticism about whether cy pres provisions actually provide an indirect benefit to class members,” quoting at length from other judges and academics who have challenged the notion of indirect benefit. Id. at 1124. She added to this criticism her concern that “such settlements provide no unique consideration to class members because they receive the same generalized benefits as non-class-members and opt-outs.” Id. Judge Bade further noted that cy pres–only settlements may actually incentivize opt-outs “because opt-outs reap any positive externalities of the settlement provisions while retaining the value of the claims that the settlement extinguished for class members.” Given this, Judge Bade stated that she is “not convinced that cy pres awards to uninjured third parties should qualify as an indirect benefit to injured class members,” and she expressed concern that such awards are effectively civil penalties paid to class counsel and third parties. Id. at 1125.
Takeaways and Potential SCOTUS Review
So what lessons should class action litigators take from Google Street View?
The first is that the Ninth Circuit’s decision may not have a long shelf life. In June 2022, the objector filed a petition for a writ of certiorari, asking the Supreme Court to review (1) whether, or in what circumstances, a cy pres award that provides no direct relief or benefit to class members comports with the Federal Rule of Civil Procedure 23(e) requirement that a settlement binding class members must be “fair, reasonable, and adequate”; and (2) whether Rule 23(b)(3) permits certification of a class where the district court has found that class members cannot be ascertained or even self-identify without an individualized “difficult and expensive” inquiry. Currently, the oppositions to the writ are due on August 22, 2022, which means briefs should be circulated (and any reply will be due) in early September 2022. The Court has once before deemed the issue of cy pres–only settlements cert-worthy, so the first question seemingly has a decent chance of making it back onto the merits docket. The question regarding ascertainability has been repeatedly presented to—and rejected by—the high court for review. But it is arguably intertwined with the cy pres issue and could potentially make it this time as a tag-along issue.
Second, and to the extent Google Street View survives potential Supreme Court review, the Ninth Circuit will continue to give litigants and district court judges a wide berth in crafting class settlements. As this case aptly shows, appellate review of class action settlements in the Ninth Circuit is exceedingly deferential. Here, a multimillion-dollar settlement was divvied up among class counsel and cy pres recipients with alleged “substantial prior relationships” with the parties, while the absent (and unascertainable) class members received only “modest” and “largely duplicat[ive]” injunctive relief. As Judge Bade laid out in her concurrence, these circumstances are troubling to many. But, absent en banc review or Supreme Court intervention, the Ninth Circuit will defer to district courts to determine whether settlements such as these are “fair, reasonable, and adequate.”