The Supreme Court has agreed to review an important case concerning fairness in class action settlements in consumer privacy cases. The case raises the question of whether a settlement involving a monetary award distributed to non-profits, without any meaningful change in business practices, is “fair, reasonable, and adequate” as required under Federal Rule of Civil Procedure 23. The lower court approved the proposed settlement, finding that the distribution of funds to groups (via cy-pres) in the settlement was appropriate because it was not feasible to distribute funds to the (potentially more than 100 Million) class members and because the cy pres recipients had a substantial nexus to the interests of class members. The Ninth Circuit, in a closely divided decision, found that the district court did not abuse its discretion in granting the settlement.
This case arises from class members’ claim that Google violated users’ privacy by disclosing their internet search terms to owners of third-party websites. The Google search engine processes more than a billion user-generated search requests every day. When users search queries, information that often contains highly-sensitive and personally-identifiable information (“PII”), are routinely transferred to marketers, data brokers, and sold and resold to countless other third parties. The information transferred can include: real names, street addresses, phone numbers, credit card numbers, social security numbers, financial account numbers and more. Search queries can also include more sensitive information such as confidential medical information, racial or ethnic origins, political or religious beliefs or sexuality.
U.S. District Court for the Northern District of California
The plaintiffs – three individuals, Paloma Gaos, Anthony Italiano, and Gabriel Privery – alleged that Google’s actions violated the Stored Communications Act, constituted a breach of contract, breach of the covenant of good faith and fair dealing, breach of implied contract, and unjust enrichment.
The parties went into mediation and reached a settlement that provided that Google would pay a total of $8.5 million and provide notice on its website disclosing how users’ search terms were disseminated to third parties. In return, all claims would be released by the approximately 129 million people who used Google Search within the U.S. between a given date of 8 years. Of the total payout, $3.2 million would be set aside for attorneys’ fees, administration costs, and incentive payments to the named plaintiffs. The remaining $5.3 million would be distributed between six cy pres recipients, including: AARP, Inc.; The Berkman Center for Internet and Society at Harvard University; Carnegie Mellon University; The Illinois Institute of Technology Chicago-Kent College of Law Center for Information, Society and Policy; The Stanford Center for Internet and Society; and the World Privacy Forum.
The district court certified the class action for settlement purposes and preliminarily approved the settlement. The court held oral argument from both parties and objectors to the settlement and ultimately found that (1) a cy pres-only settlement was appropriate because the settlement fund was non-distributable; (2) the disposition of the settlement as cy pres-only has no bearing on whether Rule 23(b)(3)’s superiority requirement for class action certification is met; (3) the cy pres recipients had a substantial nexus to the interests of class members; and (4) the fees granted to attorneys’ was reasonable.
Objectors appealed to the Ninth Circuit.
U.S. Court of Appeals for the Ninth Circuit
The Ninth Circuit reviewed the district court’s approval of the class action settlement and held: (1) the cy pres-only settlement was appropriate; (2) the recipients receiving the cy pres funds were appropriate; and (3) the district court did not abuse its discretion in awarding $2.125 million in attorney fees.
The Court emphasized that cy pres-only settlements are the “exception, not the rule.” But these settlements are appropriate when the fund is non-distributable. Citing Ninth Circuit precedent Facebook v. Lane, the court found that dividing the funds between class members would result in roughly 4 cents per person and was therefore non-distributable.
Turning to the cy pres recipients, the Court determined that the awards met the “nexus” requirement that satisfied the objectives of the underlying statute (Stored Communications Act) and promotes the interests of the silent class members. Objectors took issue, however, with the fact that Google had in the past donated to some of these cy pres recipients, three of which previously received settlement funds and another three serving as class counsel’s alma maters. The Court, however, found that there was transparency in the process and Google considered the interest of the class members in choosing the recipients. To impugn the settlement, the Court found that there would need to be something more, such as fraud or collusion.
Judge Wallace disagreed with the Court and wrote separately, taking concern with the fact that 47% of the settlement fund was being donated to the alma maters of class counsel. He believed the district court should have taken a more serious inquiry upon discovering this information. Because the settlement was cy pres-only, was reached prior to class certification, and almost half of the settlement funds are going to the alma maters of class counsel, Judge Wallace found that the settlement raised a red flag. This should be enough to shift the burden to proponents of the settlement show that the settlement is fair.
Supreme Court of the United States
Objectors to the class action settlement filed a petition for a writ of certiorari on February 7, 2018. Objectors argued that the settlement was not “fair, reasonable, and adequate.” Objectors further emphasized that there was a deep Circuit split on the issue. The Supreme Court granted the petition on April 30, 2018. On November 7, 2018, the Court ordered the parties to brief the issue of whether class plaintiffs have standing to sue in federal court.
EPIC’s Objections to the Settlement
EPIC twice set letters to Judge Davila in the District Court opposing the proposed class action settlement. EPIC first urged the Judge to reject the settlement because it (1) “fails to require Google to make any substantive changes to its business practices,” (2) “it provides no monetary relief to the class,” and (3) “the proposed cy pres allocations do not meet the Ninth Circuit’s requirements for alignment with the interests of class members.”
As to the second deficiency, EPIC highlighted that plaintiffs brought suit under several statutes, including the Stored Communications Act, which provides for a minimum of $F1,0000 per violation. EPIC asserted that “[g]iven the potential statutory damages at stake, the omission of any monetary relief to class members is a glaring deficiency.”
As to the third deficiency, EPIC argued that the proposed cy pres allocations does not meet clear Ninth Circuit standards for distribution. In Nachshin v. AOL, LLC, the Ninth Circuit determined that (1) the objectives of the underlying statute and (2) the interests of the class members must be taking into consideration when selecting cy pres recipients. With regard to the first prong, EPIC found that “furthering the objectives of the privacy statutes requires, at a minimum, that the proposed cy pres recipients be organizations that seek to protect privacy.” EPIC, however, found that only one of the seven recipients – the Wild Privacy Forum – maintained the protection of privacy as its mission. As to the second prong, EPIC found that the proposed settlement is not the “next best” to promote the interest of class members, noting “a disturbing amount of overlap between the proposed cy pres recipients and the alma maters of the counsel in this matter…”
Under the Federal Rule of Civil Procedure 23(e)(2), a proposed settlement may be approved “only after a hearing and on finding that it is fair, reasonable, and adequate.
The Supreme Court has recently expressed an interest in the fairness of class settlements. In Marek v. Lane, Chief Justice Roberts expressed “fundamental concerns” over a settlement that allowed Facebook to continue its “Beacon” program and provided no monetary relief to the class:
“In the end, the vast majority of Beacon’s victims got neither remedy. The named plaintiffs reached a settlement agreement with the defendants before class certification. Although Facebook promised to discontinue the “Beacon” program itself, plaintiffs’ counsel conceded at the fairness hearing in the District Court that nothing in the settlement would preclude Facebook from reinstituting the same program with a new name.”
EPIC is dedicated to class action fairness in privacy cases and has objected to many similar settlements that failed to provide actual benefits to internet users. EPIC has also proposed objective criteria for courts to follow in class action cases. EPIC has routinely advised courts in consumer privacy class actions to ensure that settlements are aligned with the purpose of the litigation and that the cy pres allocations advance the interests of the class members.
In Campbell v. Facebook, EPIC urged the court to reject a proposed class action settlement over Facebook’s practice of scanning private messages. EPIC challenged the settlement because it did not require Facebook to stop scanning private messages. In fact, the company can continue scanning messages by simply burying a notice on its website. Also, there was no compensation to internet users for the prior violation of federal and state laws. In an amicus brief, EPIC stated:
“A class action settlement should result in substantial change in business practice. A class action settlement should not permit the continuation of the business practice that provided that basis for the lawsuit. A class action settlement should provide monetary relief to class members. If it is not possible to provide monetary relief to class members, then a cy pres award may be appropriate if the award advances the aims of the underlying investigation and is provided to organizations aligned with the interest of the class members.”
In In Re Google Cookie Placement Litigation, EPIC urged the Third Circuit to reject a settlement that allowed Google to continue tracking Internet users across the web and failed to provide any monetary relief to the class members. The only relief in the settlement were cy pres funds dedicated to organizations to which Google already contributed. The case involved practices by Google which EPIC had challenged in the past. EPIC, the Center for Digital Democracy, and US PIRG were the groups that warned the FTC in 2007 that the Google-DoubleClick merger would lead to the internet tracking practices at issue in the settlement. EPIC’s 2010 FTC complaint regarding Google Buzz also led to the FTC’s Consent Order with Google that enabled the Commission to pursue related charges against Google.
In In Re Google Referrer Header Privacy Litigation, EPIC twice urged the lower court to reject the settlement, arguing that it did nothing for class members and would allow Google to “continue to engage in the privacy-invading practice.” A divided federal appeals court ultimately upheld a decision that allows Google to continue consumer privacy violations by means of the collusive settlement. The case concerned Google’s illegal disclosure of personal data from 129 million consumers; however, the settlement failed to compensate those consumers, did nothing to change Google’s business practices, and diverts funds to organizations that do not protect consumer privacy. The dissenting judge wrote that the settlement “raises a red flag” because “47% of the settlement fund is being donated to the alma maters of class counsel.”
In Fraley v. Facebook, EPIC opposed a settlement allowing Facebook to continue its practice of scanning private messages. The settlement also did not compensate internet users for the prior violation of federal and state laws and it misallocated cy pres funds to organizations that were not aligned with the interests of class members.
EPIC has taken a particular interest in the use of cy pres as a remedy in class action settlements. “Cy pres” is the Latin term for “as near as.” In the legal context, it refers to settlement funds that are distributed to organizations in lieu of direct payments to the class members. Although EPIC has been the beneficiary of cy pres funds in consumer privacy class actions, EPIC has raised serious concerns regarding its use. In particular, EPIC opposed settlements in In re Google Referrer Header and Lane v. Facebook because the cy pres funds would not be awarded to organizations whose main focus was protecting consumer privacy. Chief Justice John Roberts echoed the concerns of EPIC in Marek v. Lane; although the Court declined to review the Lane v. Facebook settlement, Roberts opined that the Supreme Court would eventually need to address “fundamental concerns surrounding the use of such remedies in class action litigation.” EPIC has proposed an objective basis for courts to make determinations in consumer privacy cases that protect the interests of class members and avoid the risk of collusion between the parties in settlement.
United States Supreme Court, No. 16-402
- Opinion (Mar. 20, 2019)
- Oral Argument Transcript (Oct. 31, 2018)
- Brief of Petitioner Theodore H. Frank, et al.
- Joint Appendix
- Brief of respondents Paloma Gaos, et al. filed.
- Brief of respondent Google LLC filed.
- Reply of petitioners Theodore H. Frank, et al. filed. (Distributed)
- Supplemental brief of petitioners Theodore H. Frank, et al. filed. (Distributed)
- Supplemental brief of respondents Paloma Gaos, et al. filed. (Distributed)
- Briefs of Amici Curiae in Support of Petitioner
- EPIC Amicus Brief
- CATO Institute and Americans for Prosperity Amicus Brief
- Center for Constitutional Jurisprudence and Atlantic Legal Foundation Amicus Brief
- Lawyers for Civil Justice Amicus Brief
- Center for Individual Rights Amicus Brief
- Manhattan Institute for Policy Research Amicus Brief
- New Jersey Civil Justice Institute Amicus Brief
- David Lowrey, Raymond J. Pepperell, Blake Morgan, and Guy Forsyth Amicus Brief
- Attorney General of Arizona, et al. Amicus Brief
- Briefs of Amici Curiae in Support of Neither Party
- Briefs of Amici Curiae in Support of Respondent
- Brief amicus curiae of Professor William B. Rubenstein filed.
- Brief amicus curiae of Spectrum Settlement Recovery, LLC filed.
- Brief amicus curiae of Center for Workplace Compliance filed.
- Brief amici curiae of The Center for Democracy and Technology, et al. filed.
- Brief amici curiae of Law Professors filed.
- Brief amici curiae of Public Citizen, Inc. and Public Citizen Foundation filed.
- Brief amici curiae of States of Oregon, et al. filed.
- Brief amicus curiae of American Association for Justice filed.
- Brief amici curiae of Legal Aid Organizations filed.
- Brief amici curiae of Computer & Communications Industry Association and TechNet filed.
- Brief amicus curiae of Civil Justice Research Initiative filed.
- Brief amici curiae of The New York Bar Foundation and The New York State Bar Association filed.
- Brief amici curiae of National Consumer Law Center, et al. filed. (Distributed)
- Supplemental Briefing on Standing of Class Plaintiffs
- Petition for a Writ of Certiorari
- Brief of Respondent Google LLC in Opposition
- Brief of Respondents Paloma Gaos, et al. in Opposition
- Reply Brief of Petitioner
- Center for Constitutional Jurisprudence Amicus Brief
- Cato Institute Amicus Brief
- Center for Individual Rights Amicus Brief
- Attorney General of Arizona, et al. Amicus Brief
U.S. Court of Appeals for the Ninth Circuit, No. 15-15858
- In re Google Referrer Header Privacy Litigation, 869 F.3d 737 (9th Cir. Aug. 22, 2017)
U.S. District Court for the Northern District of California, No. 10-4809
- In re Google Referrer Header Privacy Litigation, 87 F.Supp.3d 1122 (N.D. Cal. Mar. 31, 2015)
- EPIC Amicus: Campbell v. Facebook
- EPIC Amicus: In Re Google Placement Litigation
- EPIC Amicus: Fraley v. Facebook
- EPIC Letter 1: In Re Google Referrer Header Privacy Litigation
- EPIC Letter 2: In Re Google Referrer Header Privacy Litigation
- Steve Carey, Which Class Action Question Will Justices Decide? Law360 (Dec. 12, 2018)
- Allison Grande, Google Says Users Lack Standing In High Court Privacy Row, Law360 (Dec. 3, 2018)
- Mark Walsh, Court to consider challenge to cy pres remedies to settle class actions, ABA Journal (Nov. 2018)
- Mark Brnovich, Court to consider challenge to cy pres remedies to settle class actions, The Hill (Oct. 30, 2018)
- Editorial Board, Class-Action ‘Charity’ Racket, Wall Street Journal (Oct. 30, 2018)
- Richard Wolf, Google it: Supreme Court tackles class action settlement that left nothing for millions of online customers, USA Today (Oct. 29, 2018)
- Shayna Posses, Google Privacy Deal Is ‘Clear Abuse,’ High Court Told, Law 360 (Jul. 10, 2018)
- Joseph M. McLaughlin and Shannon K. McGovern, The Future of Cy Pres Class Settlements, The New York Journal (June 14, 2018)
- Adam Liptak, Supreme Court to Hear Cases on Death Penalty and Class Actions, The New York Times (April 30, 2018)
- Perry Cooper, Privacy cases show SCOTUS’s renewed interest in class actions, Bloomberg News (April 30, 2018)
- Alison Frankel, Should SCOTUS review cy pres-only settlements? Google says no need, Reuters (Mar. 12, 2018)