Has Cy Pres Gone Too Far: U.S. Supreme Court to Consider When Class Action Plaintiffs Get Nothing, but Their Lawyers and Charities Cash-In Via Plaintiffs’ Settlement

by Moore & Van Allen PLLC

Moore & Van Allen PLLC

There has been a lot of discussion surrounding class action litigation over the course of the last several years. The U.S. Supreme Court has tackled a variety of issues ranging from the use of class action waivers in arbitration agreements to whether class action plaintiffs can base claims solely on statutory damages when they have suffered no concrete injury themselves. The use of class waivers in arbitration agreements, in particular, has been front and center with the Consumer Financial Protection Bureau’s (CFPB) arbitration study declaring that class waivers were detrimental to plaintiffs and the National Labor Relations Board (NLRB) asserting that class waivers in employment agreements violated the National Labor Relations Act (NLRA) by depriving employees of the right to act in concert to seek redress related to their employment. At the heart of many of the arguments against allowing agreements in which plaintiffs give up access to class action litigation in court in favor of individual arbitration was the notion that the class action mechanism is necessary for plaintiffs to be able to seek redress, especially those with small individual claims, due to the costs and difficulties of pursing their claims on an individual basis. Indeed, the CFPB’s arbitration study declared that “these arbitration clauses restrict consumer relief in disputes with financial companies by limiting class actions that provide millions of dollars in redress each year.” But, what is the value of the class action mechanism if no redress is provided to plaintiffs at all? Is the class action about providing a remedy to plaintiffs or is it just about getting the defendant company to pay something to someone…or has it evolved simply into a mechanism for plaintiffs’ attorneys to collect fees?

These are questions facing the U.S. Supreme Court since it recently granted the petition for certiorari review in Frank v. Gaos, (No. 17-961), which probes the limits on the use of the cy pres doctrine in the context of class action settlements to distribute damages paid by a defendant company to entities other than the plaintiff class. The use of cy pres in class action settlements was the subject of potential changes to the federal rule of civil procedure that governs class actions, but ultimately the issue was put on hold for the current round of proposed amendments under consideration. In Gaos, the High Court will tackle cy pres in the extreme case – a cy pres-only settlement in which the terms of the agreement called for distribution of all funds paid by the defendant directly to charitable organizations and plaintiffs’ attorneys (in the form of attorneys’ fees) and there was no attempt at all to distribute any funds to the plaintiff class.

What becomes of the arguments proclaiming the paramount importance of preserving plaintiffs’ access to the class action mechanism in a case like Gaos? These arguments have failed to take root in the context of cases where class action plaintiffs actually would recover damages. Notably, the U.S. Congress swiftly nullified the CFPB’s rule that banned class action waivers and the Supreme Court just overruled the NLRB and held that class waivers in employment agreements must be enforced. For defendant companies, the reality is that settling a class action for a “reasonable” sum, even if it is meritless, often makes sense given the risks of proceeding with costly litigation and high potential exposure. The outcome of Gaos may help or hurt companies in this regard. So, it will be interesting to see what the Supreme Court will do with the opportunity to draw boundaries for the use of cy pres and to curb class actions further via Gaos.

Straight to Cy Pres, Do Not Pass Go: Plaintiffs vs. Class Counsel

The idea behind applying the cy pres doctrine in the context of class actions was that in circumstances where funds paid by a defendant remained unclaimed by the plaintiff class, the funds could be redistributed to other organizations whose purpose or mission was closely aligned with the issues raised by the case instead of them being returned to the defendant. In so doing, the notion was that the plaintiffs were being indirectly compensated and defendants were still properly incentivized or deterred by their standing liability. In Gaos, however, the settlement was drafted to award the funds paid by defendant directly to class counsel in the form of a fee award and to six organizations, not to the plaintiff class members.

Named plaintiffs filed a class action on behalf of Google internet search users due to the company disclosing their search terms to third-party websites through a particular mechanism known as referral headers. Plaintiffs made several claims, including for fraud and violation of the federal Stored Communications Act, 18 U.S.C. § 2707(c), which allows statutory damages of at least $1,000 per violation. The putative class consisted of nearly 129 million individuals who had used the search engine over an eight-year period. Google reached a settlement with plaintiffs under the terms of which the company would pay $8.5 million into a fund and revise its Frequently Asked Questions online to explain the company’s use of referral headers. The company explicitly was not required to change its practices and it would obtain a release of privacy-related claims from the class members. Class counsels’ attorneys’ fee award, which ultimately amounted to $2.125 million, was to be paid out of the settlement fund. The remaining approximate $5.3 million in the fund was to be paid directly to six organizations that “agree 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,” several of which were the alma maters of class counsel and/or organizations that the defendant already provided with charitable donations. No funds were to be distributed to the putative class members, other than small incentive awards to named plaintiffs.

The petitioners were members of the putative class who objected to the cy pres-only settlement, which the trial court and Ninth Circuit Court of Appeals ultimately approved and upheld. Petitioners argued that the settlement could not be “fair, reasonable, or adequate” when there was no attempt to even compensate the class members and cy pres was used to compensate class counsel and other conflicted entities at the expense of class members. The lower courts, however, rejected their arguments and found that the infeasibility of compensating the class due to the low value of individual claims justified the cy pres settlement. Chief Justice Roberts in a case several years ago identified several concerns raised by the use of cy pres for class action settlements, including:

  • when, if ever, such relief should be considered;
  • how to assess its fairness as a general matter;
  • whether new entities may be established as part of such relief;
  • if not, how existing entities should be selected;
  • what the respective roles of the judge and parties are in shaping a cy pres remedy; and
  • how closely the goals of any enlisted organization must correspond to the interests of the class.

Petitioners in Gaos urge that “[w]here cy pres can be used to facilitate an early settlement, with a full fee award, class counsel have every incentive to sell their putative clients down the river. And Defendants, facing no resistance from class counsel, use cy pres awards to structure settlements to minimize costs or even benefit themselves.” The Supreme Court granted cert. to consider the following question presented: “Whether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class members must be ‘fair, reasonable, and adequate.’”

The Defendant Company Perspective

The settlement in Gaos was limited to $8.5 million, which ultimately amounted to an estimated $0.04 per plaintiff due to class counsels’ fee being paid from the fund and the enormous size of the defined class. Having the opportunity to dispose of this case with such limited exposure was certainly beneficial to the defendant company, which is why it is a respondent seeking to uphold the settlement in this case. However, if the Supreme Court were to declare that the factors presented in Gaos that made it “infeasible” to compensate plaintiffs and arguably justified the cy pres-only arrangement actually are justification for denying the viability of a class action lawsuit in the first instance, then defendant companies would be sitting in an even stronger position at the pre-class certification negotiating table.

Indeed, Respondent Google proffered an alternative question presented to the High Court that raised not only the propriety of approving cy pres-only settlements, but also the propriety of granting certification to a class who can allege no concrete injury at all and where providing relief to the purported class of plaintiffs isn’t even possible:

Whether this Court should review the determination of the two courts below that it was infeasible to distribute $5.3 million in settlement funds to 129 million class members who had been unable to plead any concrete injury resulting from the challenged feature of Internet searches, so that the district court acted within its discretion in approving the settlement’s cy pres awards to six organizations with established Internet privacy programs.

This question highlighted the pressure that defendant companies facing large class actions are under to settle even meritless claims early in litigation. And Google delved deeper into this issue in its brief opposing the petition for certiorari:

This case is unusually well-suited to a cy pres remedy because no class member appears to have been actually harmed by the challenged practices—as two district judges concluded in dismissing most of plaintiffs’ claims. The case would have gone forward, if at all, based on the remote (and now-obsolete) prospect of obtaining a statutory damages award despite the absence of concrete injury. When this case settled, Ninth Circuit law permitted uninjured plaintiffs to pursue statutory damages, but this Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), has since eliminated that risk. It is telling that neither petitioners, nor the usual suspects joining them as amici, engage with the obscure and hypertechnical claims, and lack of injury, in this case.

As the standards of the courts of appeals reflect, parties should have the flexibility to compromise cases like this one that limp past the pleadings stage yet still pose a risk of huge liability based on uncertain substantive law at the time of settlement….both courts below found that it would be infeasible to pay directly a “unique[ly]” enormous class that “potentially covers all internet users in the United States”….given a class size of 129 million individuals and statutory damages of $1,000 (18 U.S.C. § 2707(c)), even the highly remote possibility of class-wide liability in a litigated class action at the time of settlement justified a compromise resolution of the case.

Cy pres does not mean “where the case is meritless,” but should it be available as a release valve to protect defendant companies against the risk of significant liability in large, meritless class actions? Query how or whether the High Court will directly address this issue in its consideration of Gaos. Petitioner’s brief on the merits was to be filed by July 9th and Respondents’ briefs on the merits are to be filed by August 29th. We will keep you posted on developments.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Moore & Van Allen PLLC | Attorney Advertising

Written by:

Moore & Van Allen PLLC

Moore & Van Allen PLLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.