State AGs Still Really Don’t Like Cy Pres Class Action Settlements

When class actions have a low settlement value relative to the size of the class, it is normal for defendants to pay out money to non-profit groups that advocate for issues relevant to the case rather than directly to class members. Last July, in Give the Money to One Percenters, Not to Non-Profits,” I reported that 11 state Attorneys General had decided to buck this ongoing trend, asking the Third Circuit to reject a class action settlement in which Google would have paid $3 million to non-profit groups advocating for privacy rights. The Third Circuit has not ruled on that appeal, but with a new brief to the U.S. Supreme Court, the number of state AGs advocating for this change now has grown to a bipartisan group of 20.

Courts approve these cy pres” distributions to non-profits where they find it infeasible” to distribute money directly to class members. The Circuits are slightly split on what it means to be feasible,” however, and in the new brief, the AGs chastise the Ninth Circuit for approving cy pres whenever there is a large class.” The AGs prefer feasible” to be synonymous with possible,” and whenever possible, they want money to be distributed, somehow, at least to a subset of affected class members.

In the new case, In re Google Referrer Header Privacy Litigation (captioned at the Supreme Court as Frank v. Gaos, with Frank” being Ted Frank, head of the Competitive Enterprise Institute’s Center for Class Action Fairness), Google would pay out $8.5 million to settle claims that it inappropriately shared user searches with third party marketers. The Ninth Circuit quickly disposed of the argument that the district court erred by approving a cy pres-only settlement.” Because “[o]bjectors do not contest the value of the settlement” or plead that they suffered any out-of-pocket injury from Google’s conduct, the only question was whether it was feasible” to distribute $8.5 million to a class with 129 million estimated members who performed searches through Google.

The objectors also argued that if a settlement cannot be crafted that gets money to actual class members, then a class action cannot be a superior” method of adjudicating the dispute and class certification should be rejected on that basis. The Ninth Circuit easily reject[ed]” that argument, too, because the relevant question is only whether a class action is superior” to individual litigation.

The Ninth Circuit thought it a much closer question whether class counsel in the case had too-close relationships with any of the non-profits chosen to receive funds, but it ultimately approved the deal.

At the Supreme Court, as before the Third Circuit, the AGs did not get involved in the smaller question of which non-profits should receive money. They reject the very concept of cy pres settlements where, in the AGs’ words, the class languishes with no direct compensation.” In both briefs, the AG coalitions say they prefer a model in which, whether by lottery or based on whoever takes the time to fill out a claim form, members of a small subset of the class receive a few dollars each. They have urged the Supreme Court to take up and decide this question.

In theory, because this debate supposedly impacts only the question of who receives settlement money, the outcome should not affect how much money a class action defendant pays. In practice, however, once courts focus on per-person recovery, settlement amounts tend to increase. The AGs’ Supreme Court brief cited approvingly several settlements where rejection of cy pres proposal[s]” caused exponential increase[s] in class recovery.” This escalating hostility to cy pres settlements by state AGs, therefore, should not be viewed as just a sleepy issue of legal theory.

The AGs of Alaska, Arkansas, Louisiana, Michigan, Nevada, Oklahoma, and Rhode Island signed both the Third Circuit and Supreme Court briefs. The AGs of Missouri, Tennessee, and Wisconsin signed the Third Circuit brief but not this new brief. The AGs of Arizona, Alabama, Colorado, Idaho, Indiana, North Dakota, South Carolina, Texas, and Wyoming, joined the Supreme Court brief. The coalition always has been bipartisan, but the addition of so many more Republican AGs on this issue is notable.

No. 17-961 Amicus Brief