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Supreme Court to Decide Permissibility of Cy Pres Awards in Class Action Settlements

The U.S. Supreme Court has agreed to decide whether parties to a class action may agree to a settlement that confers cy pres awards upon various nonprofit institutions and organizations, but provides no monetary relief for class members.

In Frank v. Gaos, plaintiff Paloma Gaos filed a class action against Google, alleging that the company violated her privacy rights when it allowed third-party websites to see her search queries. She sought monetary damages and certification of a nationwide class of all U.S.-based Google users. The parties entered into a class settlement that extinguished the privacy claims of the estimated 129 million people who used Google's search engine in the United States between 2006 and 2014.

In exchange, Google created an $8.5 million settlement fund that was used to pay plaintiffs' attorneys' fees (25% of the fund), "incentive awards" of $5,000 to each of the named plaintiffs, and cy pres awards to six educational institutions and other organizations to promote research, education, and initiatives relating to protecting privacy on the Internet. None of the settlement fund was disbursed to class members. Although the settlement required Google to disclose on its website how users' search terms are shared, Google was not otherwise required to make any changes to its practices.

The cy pres-only settlement was approved by the district court despite objections by certiorari petitioner Ted Frank, Director of Litigation for the Competitive Enterprise Institute and a frequent objector to class action settlements. The U.S. Court of Appeals for the Ninth Circuit affirmed the order approving the settlement. The Court of Appeals agreed with the district court that dividing the $5.3 million in net settlement proceeds remaining after payment of the attorneys' fees among 129 million class members would be "infeasible" because they would each receive "a paltry 4 cents in recovery," which is "a de minimus amount if ever there was one."

The Google case is significant because it represents the first time the Supreme Court has agreed to decide the parameters of cy pres relief in class action settlements. When certiorari was denied in a different case raising this issue in 2013, Chief Justice John Roberts noted the "fundamental concerns" raised by cy pres relief, including "when, if ever, such relief should be considered" and "how to assess its fairness as a general matter." He suggested that, "in a suitable case, this Court may need to clarify the limits on the use of such remedies." The Court has now decided that the Google case represents its opportunity to provide such clarification.

It is unclear whether the Court will confine its focus to cy pres-only settlements or will more broadly address class settlements that include cy pres distributions of settlement funds unclaimed by class members.

It also is worth noting that last June, the Department of Justice announced a new policy prohibiting DOJ attorneys from entering into settlements on behalf of the federal government that provide for cy pres payments to any non-governmental entity or person that is not a party to the lawsuit.

The Google case will be decided sometime next term. In the meantime, parties in class actions would be well advised to exercise caution in structuring settlements with cy pres relief.

Copyright © by Ballard Spahr LLP

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About this Author

Burt M. Rublin, Philadelphia, Pennsylvania, Ballard Spahr, litigation, appellate, antitrust, class action, consumer financial services
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Burt M. Rublin is the Practice Leader of the firm's Appellate Group. Mr. Rublin has a diverse practice, and for more than 35 years, he has successfully handled numerous significant appellate matters, as well as complex commercial litigation and class actions in state and federal courts around the country. He has substantial experience in defending consumer class actions brought against banks and credit card issuers involving a wide array of state and federal statutes. He also has considerable experience with the enforcement of arbitration clauses in consumer contracts and has prevailed on...

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Kaplinksy, partner, New York, finance
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Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

Mr. Kaplinsky is heavily involved in counseling and representing clients in a wide variety of matters (regulatory, supervisory and enforcement) involving the Consumer Financial Protection Bureau. He was instrumental in launching a blog, CFPBMonitor.com, focused on the Consumer Financial Protection Bureau.

Mr. Kaplinsky pioneered the use of pre-dispute arbitration provisions in consumer contracts, has counseled numerous consumer financial services companies on this subject, and has defended in court numerous companies that have sought to enforce consumer arbitration agreements.

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