Charities Could Be Out $5.3M if SCOTUS Rejects Google Deal

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By Perry Cooper

Google wants to give $5.3 million to charity to settle a consumer privacy class action. The U.S. Supreme Court will consider Oct. 31 whether that is fair to class members.

None of the $8.5 million total settlement, which resolved claims that Alphabet Inc. subsidiary Google shared user search terms with third parties, would go to the 129 million Google users.

Instead of giving each class member a few cents, the bulk of the settlement would go to consumer privacy education and research programs as cy pres. The term refers to distributing settlement funds in a way that indirectly benefits class members because it isn’t feasible to compensate them directly.

The outcome of the case could fall anywhere along the spectrum from a “fundamental shakeup of the class-action industry” to a “quiet dismissal of the case,” defense attorney Jonah Knobler told Bloomberg Law.

The court could categorically prohibit cy pres, prohibit cy pres-only settlements like this one, or dismiss the case for lack of standing, Knobler, partner at Patterson Belknap Webb & Tyler LLP in New York, said.

Or if class members who asked the high court to review the case have their way, the court would create a different rule for settlements involving cy pres.

Attorneys’ fees should be proportional to the actual value of the deal to class members, petitioner Melissa Holyoak told Bloomberg Law.

That could deter class counsel from entering cy pres settlements—or from bringing class suits with small potential individual payouts altogether.

Holyoak and fellow petitioner Ted Frank are class members who objected to the settlement, which included $2.1 million for class counsel. They are also attorneys at the Competitive Enterprise Institute’s Center for Class Action Fairness in Washington, which frequently objects to class settlements it views as problematic.

Cy pres raises a red flag that the parties to the settlement may “bargain away the rights of the class members on terms that minimize payoff by the defendant, maximize benefit to class counsel, and leave injured class members out in the cold,” Holyoak and Frank told the court in their opening brief.

‘Anything Goes’

There is broad disagreement among class action watchers about whether cy pres is being abused in class settlements.

Holyoak said it shows up frequently in settlements. But it has been less common since Chief Justice John G. Roberts Jr . hinted in 2013 that he was interested in getting the cy pres issue before the court, she said.

“In a suitable case, this court may need to clarify the limits on the use of such remedies,” Roberts wrote in a statement accompanying denial of review in a Facebook privacy case, Marek v. Lane, another case brought by CCAF.

Without such clarification on when cy pres is appropriate, “anything goes,” Holyoak said.

But plaintiffs’ advocate Jocelyn Larkin said the lower courts have really upped the quality of their analyses of cy pres awards since Marek.

“Roberts’s Marek statement had exactly the effect that he would have hoped, which was to focus people’s attention on how to do it in a way that protects the due process rights of unnamed class members and avoids conflicts of interest of any kind,” Larkin said. She is the executive director of the pro-consumer group the Impact Fund in Berkeley, Calif.

Cy pres-only settlements are rare, Professor Alexandra D. Lahav said recently at an American Bar Institute conference on class actions.

“Is this really something the court should focus on when it takes so few cases?” Lahav, a civil procedure professor at the University of Connecticut School of Law in Hartford, Conn., asked.

Research by Harvard Law professor William B. Rubenstein identified only 18 cases ever where federal courts have approved cy pres-only settlements. Rubenstein shared his data in an amicus brief on behalf of respondents.

Deterrent Effect

The possibility of using cy pres in settlements creates perverse incentives for parties, Frank and Holyoak argue. The company can agree to give money to a charity it may already support, and class counsel will get a cut of the award in fees.

Holyoak said she always gets the question, what’s wrong with giving money to legal aid and charities?

That’s not what class actions are for, she said.

“We can’t let the idea of giving to charities overrun the legal system and the rules that protect class members,” she said. “The money is supposed to go to them.”

But the alternatives to cy pres could be awarding no damages at all or returning undistributed funds to the defendant, Allison Zieve told Bloomberg Law.

“Either one would undermine the deterrence function of class actions and allow a defendant to escape liability and maintain the profits of its wrongdoing when it harms a large number of people in a small way,” Zieve said. She is director of Public Citizen’s Litigation Group, which filed an amicus brief on behalf of the respondents.

Standing Issue

The court may never get to the issue of cy pres if it accepts an argument made by the Justice Department.

The government argues in an amicus brief in support of neither party that the consumers don’t have standing to challenge Google’s disclosure practice.

This “surprise development” led Lahav to change her prediction of the outcome in this case.

Originally she thought the court would adopt some limits on the use of cy pres. But now she thinks the court could remand the case on the standing issue, even thought it means Roberts wouldn’t get to rule on cy pres.

That would be a “big disappointment to those looking for clarity in this area,” Knobler said.

But there are other cy pres cases in the pipeline, alleging more conventional economic injuries. One of those cases could give the court another opportunity to consider the question, he said.

Holyoak said she doesn’t see standing as a problem in this case. “We don’t want to spend too much time on it at oral argument!” she said.

Ted Frank of the Competitive Enterprise Institute’s Center for Class Action Fairness in Washington will argue on his own behalf. Jeffrey B. Wall of the U.S. Department of Justice will argue for the government.

Andrew J. Pincus of Mayer Brown LLP in Washington will argue for Google. Jeffrey A. Lamken of MoloLamken LLP in Washington will argue for the class.

The case is Frank v. Gaos, U.S., No. 17-961, argument 10/31/18.

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