Supreme Court Urged to End Lawyers’ Abuses in Class-Action Lawsuits

November 1, 2018 Updated: November 1, 2018

Lawyers in class-action lawsuits shouldn’t be allowed to short-change class-action plaintiffs and funnel their settlement money to charities they favor but which the plaintiffs may not, attorney and think-tank official Theodore H. Frank told the Supreme Court during oral arguments on Oct. 31.

The interest group AARP (formerly the American Association of Retired Persons) came under fire in oral arguments as the Trump administration told justices the well-heeled group had no reason to be awarded settlement funds in a lawsuit it had nothing to do with.

The case, cited as Frank v. Gaos, is an appeal of a decision rendered by the oft-overturned U.S. Court of Appeals for the Ninth Circuit.

It arises from an $8.5 million fund created as part of a settlement with Google over privacy abuses committed by the Silicon Valley giant. The search engine giant allegedly violated its users’ privacy by disclosing their search terms to other websites.

Out of that $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 whom 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 participating 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 AARP.

Frank and Competitive Enterprise Institute (CEI) lawyer Melissa Holyoak participated as members of the court-designated class of plaintiffs in the lawsuit against Google.

On Halloween, Frank argued his own case in person before the Supreme Court, something that rarely happens. He is director of litigation and director of the Center for Class Action Fairness (CCAF) at the CEI. Frank founded CCAF as a nonprofit public-interest law firm in 2009. It merged with CEI in 2015.

‘Slush Funds’

Epoch Times Photo
Theodore H. Frank , who served as plaintiff and lawyer in the case Frank v. Gaos, on the steps of the Supreme Court building in Washington on Oct. 31, 2018. (Competitive Enterprise Institute)

In an interview with The Epoch Times on the courthouse steps after oral arguments, Frank summarized the case: “I want them to put a stop to the practice of lawyers using class-action settlements to create slush funds for themselves at the expense of their putative clients.”

Such funds often find their way to left-wing causes.

“Certainly because lawyers are dictating where the money goes to and most lawyers are on the left, this is money that tends to go to left-wing causes,” he said.

“While we didn’t raise it in this case, we have raised it in other cases, and if the court doesn’t shut down the corrupt practice and just wants to nibble on the edges, we’ll certainly attack that abuse if someone tries to send my settlement money to a cause I disagree with.”

In response to a question from Justice Ruth Bader Ginsburg during oral arguments, Frank said the ruling by the Ninth Circuit needs to be overturned because it “creates perverse incentives for class counsel to divert money away from their clients and to third parties.”

“When courts have insisted that attorneys don’t get paid unless their clients get paid, the attorneys find a way to improve the claims process and make money get to the class,” Frank said.

‘As Near as Possible’

The case deals with the use 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, the doctrine is often abused, Frank argued in a Wall Street Journal op-ed. Attorneys too often “bilk their clients by claiming it would be too difficult to distribute the money to class members.”

“Right away, there is a conflict of interest,” Frank wrote. “Any attorney with a choice between sending out a million $5 checks to clients he’s never met or being part of a ceremony to hand over oversize $1 million novelty checks to five of his favorite charities—and receiving a full fee either way—will have a strong incentive to leave the clients with nothing.”

Chief Justice John Roberts seems sympathetic to this view. He said in 2013 that using cy pres to dole out money presents conflicts of interest for the lawyers and judges who choose the recipients of the funds. The Supreme Court “may need to clarify the limits of the use of” cy pres remedies, he said.

Roberts presented particularly pointed questions to the lawyers arguing the case.

Attorney Andrew J. Pincus, representing Google LLC, stumbled under questioning, leading to an eruption of laughter in the courtroom. “But do you think that problem is going to be meaningfully redressed by giving money to AARP?” Roberts said. Roberts described AARP as “a group that … engages in political activity.”

“Well, I—I—I think the question is …” Pincus said. “I think—I think it is because I …”

Roberts pounced: “As if this is only a problem for elderly people?”

“No, but AARP is not the only recipient and elderly people are particularly …” Pincus said as he was interrupted.

“Well, you’re changing the subject, Mr. Pincus. AARP is one of the recipients,” Roberts said.

Pincus justified handing over the money to AARP, an advocacy group allied with Google that lobbies for bigger government.

“It is a fact that elderly people are less knowledgeable about privacy and their vulnerability on the internet than other people,” the lawyer said. “And so having part of the award be designated … for that group, we think, meets that fit test.”

On behalf of the Trump administration, Principal Deputy Solicitor General Jeffrey B. Wall told the justices that reform was needed. “Meaningful limits are necessary to align incentives and deter abuse of the class action device,” he said in response to a question from Roberts.

AARP received a payment it did not deserve, Wall said. Even though the group’s proposal dealt with online fraud, “this wasn’t even a fraud case. All the fraud claims were dismissed.”