WASHINGTON (Legal Newsline) – Petitioners opposing Google's settlement of a class action lawsuit are asking the U.S. Supreme Court to provide greater clarity on the use of the doctrine of “cy pres” after a federal appeals court approved the agreement, sending millions of dollars to nonprofit organizations that are not plaintiffs in the case.
“It (cy pres) skips over class members completely,” Melissa A. Holyoak, senior attorney with the Competitive Enterprise Institute's Center for Class Action Fairness and a class member in the suit, told Legal Newsline. “The Google settlement epitomizes cy pres abuse in class actions.”
Holyoak petitioned for review of the U.S. Court of Appeals for the Ninth Circuit's decision along with Ted Frank, founder of CCAF.
Cy pres, a French expression that means “as close as possible,” is a doctrine in which a settlement steers funds not to the plaintiff or members of the class but instead to a selected non-plaintiff, an organization related to an issue in the case chosen as a beneficiary.
The U.S. Supreme Court on April 30 agreed to review the settlement in the case against Google, in which an estimated 129 million members were involved in a class action suit accusing the internet company of sharing their search information with unauthorized third parties.
The case originated in 2010 when California resident Paloma Gaos filed a class action suit in a federal court in San Jose, Calif., claiming Google’s search methods violated federal privacy laws. In 2013, Google agreed to pay $8.5 million to settle. Gaos and two other plaintiffs received $5,000 each for representing the class and their attorneys received approximately $2.1 million.
However, doling out the $8.5 million to all the plaintiffs in the class was found to be unfeasible because after the money was distributed, each of the class members would only receive 4 cents each. Instead, the court decided to give the money to non-plaintiff organizations related to internet privacy and research, including Stanford and Harvard universities and the World Privacy Forum of Oregon.
“Cy pres is used sometimes when there is leftover money,” she explained. “For example, when class members don’t cash their settlement checks, then the leftover dollars are given to a cy pres recipient, a charity with a connection as near as possible to the harmed class members.”
She said attorneys in the Google case picked “favorites” for the cy pres award, like their own alma maters: the Chicago-Kent College of Law, Stanford and Harvard.
“While attorneys have an obligation to zealously advocate for their clients, in the Google case the lawyers representing the class favored their schools over me and other class members,” Holyoak said.
James M. Beck, a Philadelphia attorney with Reed Smith, said giving money to a charity without opposition from defendants because specifics about who class members are and how they were harmed amounts to a judicial patronage system.
“There is no explicit basis for cy pres in any general federal statute, nor is it provided for by federal rule (Rule 23) governing class actions,” Beck told Legal Newsline.
“Cy pres awards have been awarded to questionable recipients, such as schools the judge or counsel attended. Cy pres awards have even been used to encourage litigation, where recipient charities engage in ‘public awareness’ campaigns concerning allegedly wrongful conduct to be remedied in turn by more class action lawsuits.”
Beck predicted the Supreme Court would determine whether such practices could be fair, reasonable and adequate as required by Rule 23.
Anna St. John, also of CCAF, said cy pres awards require special scrutiny. She said they can result in collusion between defendants eager to settle at the lowest price and class counsel seeking to maximize fees.
In addition, she noted attorneys in a case might be willing to accommodate the interest of the defendant in exchange for a "clear sailing" agreement not to challenge a fee request.
“In this way, cy pres awards present a heightened risk of conflict between class counsel and their clients, the members of the class,” St. John told Legal Newsline.
“Cy pres awards may provide little or no benefit to class members and above all, cy pres awards to third parties are not appropriate when any reasonable opportunity exists to compensate class members directly for their injuries - always the first-best use of settlement funds that are the property of the class.”
St. John said petitioners are asking the Supreme Court for guidance to lower courts to determine when, if ever, cy pres awards are permissible.
“This will correct a serious abuse of the class action mechanism that puts the interest of those it is intended to protect - class members - dead last,” she said.