Supreme Court Punts on Ending Lawyers’ Abuses in Class Actions

March 22, 2019 Updated: March 25, 2019

WASHINGTON—In a case involving $8.5 million that Google had agreed to pay class-action plaintiffs for alleged privacy violations, the Supreme Court this week punted on the question of whether to abolish an increasingly controversial practice in which lawyers in class-action lawsuits funnel settlement money to charities they favor but which the plaintiffs may not.

Google agreed to pay plaintiffs for allegedly violating privacy provisions of the Stored Communications Act, which regulates voluntary and compelled disclosure of “stored wire and electronic communications and transactional records” held by third-party internet service providers, commonly known as ISPs.

Of the $8.5 million, $2.1 million went to lawyers, $1 million went to administrative expenses, and $5.3 million went to unaffiliated third-party groups with which Google and some of the attorneys in the proceeding were friendly.

The lead plaintiffs received a few thousand dollars each, but the bulk of those who participated in the lawsuit received nothing.

The $5.3 million went to the Center for Information, Society, and Policy at Chicago-Kent College of Law; the Berkman Center for Internet and Society at Harvard University; the Stanford Center for Internet and Society; the World Privacy Forum; Carnegie Mellon University; and the AARP Foundation.

After agreeing to hear arguments about the practice known as “cy pres,” the Supreme Court instead followed the recommendation of the Trump administration and opted not to address the issue at the time, sending the case back to the often-reversed 9th Circuit Court of Appeals to consider the question of legal standing or whether or not the individuals who brought the case were legally entitled to do so.

The case deals with the application of the legal doctrine of “cy pres” in class-action lawsuits. Cy pres—a truncation of “cy pres comme possible,” French for “as near as possible”—is a rule used when a testator or donor’s intent cannot be carried out. For example, under cy pres, a charity like the March of Dimes, which took in donations aimed at eradicating polio, could focus on other diseases once polio was vanquished.

But in class-action lawsuits, cy pres means some of the settlement funds end up being distributed to the pet causes of the lawyers in a case, according to critics.

After the decision was published March 20, petitioner Theodore H. Frank was optimistic about his chances when the litigation is eventually completed.

“Seriously, not unhappy or even especially disappointed,” he wrote on Twitter. “It’s like when a coach calls timeout right as the field goal kicker lines up. Shrug, line it up, and do it again, except better. Ninth [Circuit] will find standing, given its precedents, and we will get the just result eventually.”

Frank is director of litigation and director of the Center for Class Action Fairness at the Competitive Enterprise Institute. He represented himself in the case and participated in oral arguments before the Supreme Court on Oct. 31, 2018.

In the course of the litigation, Google moved to dismiss for lack of standing three times, succeeding just once. The U.S. District Court approved the settlement after Google allegedly violated its users’ privacy by disclosing their search terms to other websites. Frank challenged the settlement but, before the 9th Circuit Court of Appeals could rule, the Supreme Court handed down its decision in Spokeo Inc. v. Robins (2016).

The Supreme Court acknowledged in its March 20 decision in Frank v. Gaos, that it had agreed in 2018 to hear Frank’s case “to decide whether a class action settlement that provides a cy pres award but no direct relief to class members satisfies the requirement that a settlement binding class members be ‘fair, reasonable, and adequate,’” as required by Federal Rules of Civil Procedure.

In Spokeo, the court held that a plaintiff in federal court cannot prove standing to sue by merely alleging that a federal statute was violated; the plaintiff has to demonstrate “a concrete injury even in the context of a statutory violation,” in the words the court used this week.

The litigation continues.

Correction: This article originally named AARP as a recipient of class-action funds. The funds went to the AARP Foundation The Epoch Times regrets the error.