Frank v. Gaos: Is the Cy Pres Legal Doctrine Appropriate in Class Action Lawsuits?

Photo Credit: https://mashable.com/2012/12/09/apple-google-kodak-patents/#CB0topbhtuqV

By: Ellen Larson

Associate of Product Development and Marketing, American Journal of Trial Advocacy

          A case on the United States Supreme Court docket this fall is Frank v. Gaos.[1] Frank will address the appropriateness of a district court’s approval of settlement funds in a class action lawsuit against Google to go to non-party charitable institutions, rather than class members, under the cy pres legal doctrine.[2] The cy pres legal doctrine originates from a French phrase that means “as near as possible.”[3] Since the 19th Century, U.S. courts have used the doctrine when it has become impossible to distribute the funds of a trust to an intended beneficiary.[4] Under the doctrine, courts substitute a new beneficiary “as near as possible” to the original one.[5] Additionally, in recent years, courts have also used the cy pres doctrine in class action lawsuits to distribute the proceeds of a settlement to a charity whose mission relates to the subject matter of the lawsuit, rather than to class members.[6] Courts have reasoned that distributing the funds to a charity and not class members prevents defendants from keeping unclaimed settlement funds while also preserving the deterrent effect of a lawsuit.[7] However, others have objected to this use of the cy pres doctrine for class actions, arguing that settlements should not go to charities and nonprofits that have not been injured by conduct that brought about the lawsuit and that there are potential conflicts of interest for both the lawyers and judges who select the organizations receiving the funds.[8] Acknowledging this split in the Court’s opinion on the matter in 2013, Chief Justice John Roberts of the U.S. Supreme Court suggested that, “[i]n a suitable case, this Court may need to clarify the limits on the use of [cy pres] remedies.”[9] It appears the time to clarify has come.

Facts

In three consolidated class action lawsuits, three Google search users, Paloma Gaos, Anthony Italiano, and Gabriel Priyev (“plaintiffs”), asserted claims against Google’s free Internet search engine (“Google Search”) for violating users’ privacy by disclosing users’ Internet search terms to owners of third-party websites.[10] The plaintiffs alleged that when a user visited a website via Google Search, that website was privy to the search terms the user originally submitted to Google Search.[11] The settlement provided that Google would pay a total of $8.5 million and provide information on its website disclosing how users’ search terms are shared with third parties in exchange for a release of the claims of the approximately 129 million people who used Google Search between October 25, 2006 and April 25, 2014.[12] Out of the settlement fund, $3.2 million was set aside for attorneys’ fees, administration costs, and incentive payments to the named plaintiffs, and the remaining $5.3 million was allocated to six cy pres recipients, provided they agreed “to devote the funds to promote public awareness and education, and/or to support research, development, and initiatives, related to protecting privacy on the Internet.”[13] The recipients included “AARP, Inc.; the Berkman Center for Internet and Society at Harvard University; Carnegie Mellon University; the Illinois Institute of Technology, Information, Society and Policy; the Stanford Center for Internet and Society; and the World Policy Forum.”[14]

The district court preliminarily approved the settlement, and notice was given to the class on April 25, 2014, via a website, toll-free phone number, paid banner ads, and press articles.[15] Thirteen class members opted out of the settlement and five class members filed objections.[16] Following a settlement approval hearing at which time the district court heard from the parties and objectors, the district court granted final approval of the settlement on March 31, 2015.[17] In response to the objections, the district court found that “a cy pres-only settlement was appropriate because the settlement fund was non-distributable . . . and there was no evidence that the parties’ preexisting relationships with the recipients factored into the selection process . . . .”[18]

Appeal to the Ninth Circuit

On appeal, the Ninth Circuit Court of Appeals affirmed the district court’s decision.[19] Like the district court, the Ninth Circuit found that the settlement fund was non-distributable.[20] The Court reasoned that each class member was entitled to “a paltry 4 cents in recovery” which was a “de minimis amount if ever there was one.”[21] Furthermore, the Ninth Circuit clarified that its review of the district court’s settlement approval was not, as the Objectors suggested, whether there were “possible” alternatives to the cy pres recipients, but was whether the district court discharged its obligation to assure that the settlement was “fair, adequate, and free from collusion,” which the court found it was.[22] The Ninth Circuit then addressed whether the settlement was an abuse of discretion due to alleged relationships between counsel or the parties and some of the cy pres recipients.[23] The Objectors alleged the chosen recipients were improper because Google had previously donated to some of the recipients, three recipients had received Google settlement funds, and three recipients were organizations housed at class counsel’s alma maters.[24] The Ninth Circuit determined that “a prior relationship or connection . . . is not an absolute disqualifier” but instead, a number of factors play into the analysis.[25] For this reason, the court held that the district court had addressed the appropriate range of considerations in its decision.[26]

Appeal to the United States Supreme Court and the Circuit Split

On appeal to the United States Supreme Court, Theodore Frank and Melissa Holyoak, who objected to the $8.5 million settlement in district court, alleged the settlement did not comport with Federal Rule of Civil Procedure 23(b)(3), which permits representatives to maintain a class action where doing so “is superior to other available methods for fairly and efficiently adjudicating the controversy,” and Federal Rule of Civil Procedure 23(e)(2) which requires that a settlement binding class members be “fair, reasonable, and adequate.”[27] In their Petition for Writ of Certiorari, Frank and Holyoak noted the circuit split among the U.S. Court of Appeals as to cy pres only settlements that give nothing to class members when it had been possible to distribute payments to class members.[28] The Ninth Circuit’s decision in this case conflicts with the Second, Third, Fifth, Seventh, and Eighth Circuits on the issue of whether it is appropriate to allow settlement awards from class actions to go to third parties rather than class members.[29]

Amicus Briefs

More than a dozen organizations and charities filed amicus briefs to the U.S. Supreme Court in Frank v. Gaos, including the Center for Individual Rights, the Cato Institute, Americans for Prosperity, Electronic Privacy Information Center, the United States, the American Bar Association, and the Attorneys General of Arizona, Alabama, Alaska, Arkansas, Colorado, Georgia, Idaho, Indiana, Louisiana, Michigan, Missouri, Nevada, North Dakota, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, and Wyoming.[30] In support of the Petitioners, the Center for Individual Rights asserted that the use of cy pres awards in class action lawsuits are inappropriate because they violate the First Amendment rights of class action plaintiffs by requiring them to fund third-party charities without their consent.[31] On the other hand, in support of neither party, the American Bar Association (ABA) urged the U.S. Supreme Court in its Amicus Brief to “avoid broad pronouncements about the constitutionality of cy pres remedies in class action settlements.”[32] The ABA argued class action cy pres awards are appropriate when paid to legal service groups that provide legal services to low-income residents because legal service organizations and class action lawsuits have a similar purpose in seeking to improve access to justice for people.[33] Either way, the United States Supreme Court will soon issue clarity on the use of cy pres awards in class action lawsuits. Frank v. Gaos is set for argument on October 31, 2018.[34]


[1]138 S.Ct. 1697 (2018).

[2]Jonah M. Knobler & Sam A. Yospe, Frank v. Gaos: Cy Pres Gets Its Day at the Supreme Court, Bloomberg Law (June 7, 2018), https://biglawbusiness.com/frank-v-gaos-cy-pres-gets-its-day-at-the-supreme-court.

[3]Id.

[4]Id.

[5]Id.

[6]Id.

[7]Amy Howe, Justices Add Three New Cases to Next Term’s Docket, SCOTUSblog (Apr. 30, 2018), http://www.scotusblog.com/2018/04/justices-add-three-new-cases-to-next-terms-docket.

[8]Id.

[9]Marek v. Lane, 134 S. Ct. 8, 9 (2013).

[10]In re Google Referrer Header Privacy Litigation, 869 F.3d 737, 739 (9th Cir. 2017).

[11]Id. at 740.

[12]Id.

[13]Id.

[14]Id.

[15]Id.

[16]In re Google, 869 F.3d at 740.

[17]Id. at 741.

[18]Id.

[19]Id. at 748.

[20]Id. at 742.

[21]Id.

[22]In re Google, 869 F.3d at 742 (quoting Lane v. Facebook, Inc., 696 F.3d 811, 819 (9th Cir. 2012)).

[23]Id. at 743.

[24]Id. at 744.

[25] Id.

[26]Id. at 744-45.

[27]Petition for Writ of Certiorari at 4, 11, Frank v. Gaos, 138 S. Ct. 1697 (2018) No. 17-961, https://www.supremecourt.gov/DocketPDF/17/17-961/26575/20180103095144639_USSC%20Petition%20for%20Writ%20of%20Certiorari.pdf.

[28]Id. at 1-2.

[29]Id. at 16.

[30]Frank v. Gaos, 869 F.3d 737 (2018) No. 17-961, SCOTUSblog (July 16, 2018), http://www.scotusblog.com/case-files/cases/frank-v-gaos.

[31]In Supreme Court Class Action Case, Free Speech Hangs in the Balance, The Center for Individual Rights (April 30, 2018), https://www.cir-usa.org/cases/frank-v-gaos.

[32]Brief of the American Bar Association as Amicus Curiae in Support of Neither Party at 6, Frank v. Gaos, 869 F.3d 737 (2018) No. 17-961, https://www.supremecourt.gov/DocketPDF/17/17-961/54485/20180717134817362_No.%2017-961acAmericanBarAssociation%20-%20Corrected.pdf (emphasis added).

[33]Id. at 9.

[34]Frank v. Gaos, supra note 30.

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