Supreme Court Sidesteps “Cy Pres” Challenge

This past month, the Supreme Court avoided providing guidance on “cy pres” class-action settlements—instead, it reaffirmed the importance of its Spokeo decision (Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016)) in class action jurisprudence and deferred the complicated cy pres issues for another day.  See Frank v. Gaos, 139 S. Ct. 1041 (2019).[1]

The Court had granted review in Frank to review whether so-called “cy pres” class-action settlements—settlements that distribute monetary relief to public interest organizations instead of the plaintiffs—are proper under Fed.R.Civ.P. 23(e).[2] The district court approved an $8.5 million settlement to the plaintiffs for claims against Google for alleged violations of the Stored Communications Act (“SCA”).[3] However, with more than 129 million settlement class members, the possible distribution to individual plaintiffs was less than a dime.[4] Because the per-plaintiff settlement was so small, the district court considered distribution impractical and ordered that the settlement funds be paid to law schools and organizations with internet privacy initiatives—even though the law school beneficiaries were the alma maters of Class Counsel.[5] The district court also agreed to award Class Counsel more than 20% of settlement in fees and costs even though the settlement class members received nothing.[6] The Ninth Circuit, while raising concerns about the appearance of the attorneys’ fee award and the distribution of settlement funds, nevertheless affirmed the district court’s approval of the settlement.[7]

Rather than determine the propriety of the settlement, the Supreme Court remanded the case back to the Ninth Circuit to consider if the plaintiffs have standing in accordance with the Court’s decision in Spokeo.[8] In Spokeo, the Court held that plaintiffs cannot establish standing in federal court by merely alleging a federal statutory violation.[9] Instead, plaintiffs must additionally show that they have suffered some actual, real-world harm.[10] In Frank, the Court found that the lower courts in the case had not determined whether the plaintiffs had “alleged SCA violations that are sufficiently concrete and particularized to support standing” under the Spokeo standard.[11] Therefore, the Court remanded to the Ninth Circuit to reconsider the case.[12]

In dissent from the per curium opinion, Justice Thomas asserted that he would rule on the merits and reverse the Ninth Circuit’s decision.[13] Justice Thomas argued that although the plaintiffs had standing for the SCA violations, the cy pres settlement did not conform to Rule 23(e) because it was “not a form of relief to the absent class members and should not be treated as such.”[14] Further, Justice Thomas found that such settlements render class plaintiffs’ representation inadequate: “the fact that class counsel . . . were willing to settle the class claims without obtaining any relief for the class—while securing significant benefits for themselves—strongly suggests that the interests of the class were not adequately represented.”[15]

The Frank opinion exemplifies the importance of the Spokeo standing analysis in most statutory violations/alphabet class action litigation and reflects the Court’s ongoing skepticism of using class actions generally to resolve consumer disputes. The intriguing questions regarding the propriety of cy pres settlements remain unresolved but may return to the Court in the near future.

[1] The Frank appeal was one of the cases discussed during Joe’s “10 Cases Every In House Counsel Should Know” Presentation at the December 12, 2018 KMK Legal Update Seminar.

[2] Frank v. Gaos, 139 S. Ct. 1041, 1043 (2019).

[3] Id. at 1044.

[4] Gaos v. Holyoak (In re Google Referrer Header Privacy Litig.), 869 F.3d 737, 742 (9th Cir. 2017) (“The remaining settlement fund was approximately $5.3 million, but there were an estimated 129 million class members, so each class member was entitled to a paltry 4 cents in recovery—a de minimis amount if ever there was one.”).

[5] Id. at 743-44.

[6] See id. at 747-48.

[7] Id.

[8] Frank, 139 S. Ct. at 1046.

[9] Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548 (2016).

[10] Id.

[11] Frank, 139 S. Ct. at 1046.

[12] Id.

[13] Id. at 1046-47 (Thomas, J., dissenting).

[14] Id. at 1047.

[15] Id. (citing Amchem Prod., Inc. v. Windsor, 521 U. S. 591, 619-620 (1997)).

Blog Contact:  Joseph Callow, Litigation Partner
jcallow@kmklaw.com or 513.579.6419

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