Supreme Court case to decide issue of class action funds directed to 'pet causes'

By John Sammon | Oct 26, 2018

U.S. Supreme Court  

WASHINGTON (Legal Newsline) – The U.S. Supreme Court on Oct. 31 will hear arguments in what could become a landmark case to decide whether attorneys in class action lawsuits can send class funds under the cy pres doctrine to the causes of their choosing.

Attorneys for the Competitive Enterprise Institute (CEI) and its Center for Class Action Fairness (CCAF) called for reform of cy pres settlements in the Frank v. Gaos case on appeal before the Supreme Court.

“The settlement at issue in Frank vs. Gaos epitomizes cy pres abuse in class actions, where money is funneled to a slush fund for lawyers to send to their alma maters and pet causes rather than their clients,” CEI Senior Attorney Melissa Holyoak told Legal Newsline. 

“CEI is asking the Supreme Court to set a standard that aligns class counsel’s incentives with the class they have a responsibility to represent. Lawyers have a duty to act in the best interest of their clients, and a new standard ensuring they do so would stop consumers from being preyed upon by their own attorneys.”    

Cy pres translated from the original French means “as close as possible,” and originated in trust law. The principal allows courts to distribute dollars in class action suits to third-party organizations rather than defendants when it’s determined the money cannot be easily distributed to members of the class.

Critics of the current system said it amounts to a deep pocket in which attorneys make millions and donate millions to uninvolved organizations while injured class members get nothing.

The CEI is a nonprofit Libertarian think-tank organization based in Washington D.C. The CCAF was founded in 2009 by Ted Frank and is tasked with representing class members against unfair class action procedures and settlements.  

Frank has been a leading proponent of cy pres reform and a critic of abuse in class action settlements. He said in a July CEI update if he wins the case asking the Supreme Court to hold that class actions can’t be certified unless there’s a way to pay class members directly, it will shift the current incentive for plaintiff lawyers.

“When courts treat a dollar of cy pres as equivalent to a dollar of direct class recovery, class attorneys’ natural preference will be to favor their favorite charities over thousands or millions of anonymous class members,” Frank said in the update. “There should be strict restrictions against the payment of money to recipients with any current or prior relationship with the parties, attorneys or judges. At the very least the Supreme Court should require trial judges to discount the value of cy pres settlements when they’re awarding fees to class counsel.”     

The case began in 2010 when plaintiffs including Paloma Gaos brought suit against Google for allegedly leaking information about web searches made by private citizens to third parties. After four days of negotiations both sides agreed to a settlement.

Money was awarded to attorneys in the case and cy pres beneficiaries but none to the class defendants.

Frank and Holyoak, two of the 129 million members of the class being represented in the case, challenged the settlement on the grounds it violated the requirement of a cy pres case to be “fair, reasonable and adequate.”

The U.S. Court of Appeals for the Ninth Circuit upheld the Google settlement and the use of cy pres based on the alternative; if it awarded damages to the 129 million defendants in the class action each defendant would receive only 4 cents in recovery.     

 “The CCAF objected to the settlement negotiated by the plaintiffs’ lawyers and Google because it provided zero dollars to class members, but divided $8.5 million between the plaintiff’s lawyers and cy pres recipients,” a news release from the CEI read. “Under the settlement the class members who claim harm are entirely ignored, while the class attorneys collect more than $2 million and a handful of third party organizations receive over $5 million.”

The end result would be that organizations including colleges the attorneys in the case attended would receive money from the lawsuit even though Google was already making donations to the same colleges.

“Google was able to get rid of a lawsuit brought by class members by making no material changes to its practices and simply donating to many of the same groups it supports anyway,” the CEI release stated. “This unfair settlement is a textbook example of cy pres abuse and should be struck down by the Court.”


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Organizations in this Story

Center for Class Action Fairness Competitive Enterprise Institute

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