Can Google Settle Privacy Class Action by Paying Third Parties Not Involved in the Lawsuit?

On Wednesday, the United States Supreme Court will hear oral arguments in Frank v. Gaos.  The topic before the Court involves a “cy pres” settlement.  In the class action context, a cy pres settlement occurs when all or part of the settlement money is distributed to a public interest organization serving an interest similar to those sought to be protected in the lawsuit.  Cy pres distributions may be used to ensure that money paid by the defendant, but not claimed by class members, does not revert to the defendant.  Alternatively, parties utilize cy pres distributions when a class is large and the cost of identifying class members and distributing the settlement money makes it impractical to distribute the award to all class members.  These arrangements are called “cy pres” settlements based on the idea that they come “as near as possible” to awarding damages to the class members.  In all class action settlements, a court must approve the settlement after examining its terms and finding they are “fair, reasonable, and adequate.”

The Frank case involves an objection to a cy pres award in a class action settlement between the plaintiff, Paloma Gaos and Google.  Gaos filed a class action against Google alleging that Google violated users’ privacy by sharing their search terms with third party websites without consent.

According to Google and the plaintiff, the parties made several attempts to resolve the matter without success.  While Google’s third motion to dismiss the complaint was pending, the parties mediated the case before an experienced and well-respected mediator of class action disputes.  After a full day of negotiations, the mediator made a “mediator’s proposal” for settlement based upon his review of the facts and applicable law.  All parties accepted this proposal and used it to form the material terms of a settlement agreement, which was further negotiated for nearly two months before being fully executed.

As part of the settlement, Google agreed—for the first time—to disclose to users the ways in which it treats search queries entered in Google.com, so that users can make informed choices about whether and how to use Google search.

Google also agreed to make a total cash payment of $8.5 million, which was to be used for payment of settlement notice and administration expenses, cy pres distributions, any court-approved attorney fee or cost award to class counsel, and any court-approved incentive awards to the class representatives.  The district court approved the settlement, finding that a cy pres distribution was appropriate because it was not feasible to distribute the fund to the class members, and distributing the money to over 100 million class members would cost more than each person would receive.  The court, therefore, approved the distribution of the settlement fund to various institutions focused on privacy issues.  Google did not have any say in which institutions received the funds, and none of the settlement funds would revert to Google under any circumstances.

A group of class members objected to the settlement.  The objectors did not challenge the settlement’s size or amount, and did not contest the award of attorneys’ fees.  Instead, they challenged the court’s factual findings that: (a) distributing the roughly $5.3 million net settlement fund to a class consisting of approximately 129 million people was not feasible, and (b) that the cy pres recipients’ use of funds was tethered to the alleged injury and interests of the class.  The objectors argue that the Court should adopt a bright-line rule that no settlement should ever be approved if the settlement does not provide direct monetary relief to the class members.

The parties to the settlement argue that the objectors ignore the change to Google’s practices brought about by the lawsuit and, further, that the court correctly analyzed the three factors for approving a cy pres distribution: distribution of proceeds must be infeasible; the cy pres recipients must provide indirect benefits to the class member interests addressed in the lawsuit; and the recipients must be selected by merit rather than affiliation.

If the Court sides with Google and the class members, then the status quo will remain and district courts will retain their discretion to approve cy pres distributions—perhaps with more limitations or guidance by the Supreme Court.  If the Court sides with the objectors, however, it could create a rule that bars cy pres awards entirely, making it more difficult to prevent settlement money from reverting to the defendant and prolonging complex litigation by removing a tool for settling class actions with large numbers of class members who cannot be identified or receive compensation without a huge expenditure of money by the defendant.

With the new makeup of the Court, Chief Justice John Roberts will likely provide a critical vote.  In 2013, the Chief Justice utilized a denial of a writ of certiorari to explain his view that the Court should address “fundamental concerns” with cy pres awards, “including when, if ever, such relief should be considered.”  Departing from the typical one-sentence denial of a party’s request for review, the Chief Justice provided an eight paragraph statement along with the denial, which concluded that the Court “may need to clarify the limits” of cy pres awards in a future case.

Frank appears to be that case.

References:

Brief for the Petitioners, Frank v. Gaos, No. 17-961 (Jan. 3, 2018), available at https://www.supremecourt.gov/DocketPDF/17/17-961/26575/20180103095144639_USSC%20Petition%20for%20Writ%20of%20Certiorari.pdf.

Brief for the Respondents, Frank v. Gaos, No. 17-961 (Mar. 9, 2018), available at https://www.supremecourt.gov/DocketPDF/17/17-961/38328/20180309124415022_USSC%2017-961%20Brief%20in%20Opposition.pdf.

Marek v. Lane, 571 U.S. 1003 (2013).

Kevin Green represents plaintiffs and defendants in complex class action litigation across the country. Feel free to contact Kevin today at (800) 782-8492.