9th Circuit gives blessing to controversial cy pres settlement

The 9th U.S. Circuit Court of Appeals gave the green light to a controversial cy pres award in a split decision Tuesday that could lead to a showdown at the U.S. Supreme Court.

Alphabet Inc.-owned Google settled with a class of users for sharing information about their online searches with third parties. The $8.5 million agreement would be allocated entirely to charities and attorney fees.

Critics of these settlements where class members don’t actually receive anything of value have been spoiling for a fight and looking for the right case to convince the high court to take a stance on whether they are inherently bad faith agreements.

Judge M. Margaret McKeown wrote that the agreement was acceptable because distributing the settlement to class members would have netted them a meaningless award of 4 cents each.

“Objectors do not contest the value of the settlement nor do they plead monetary injury,” she wrote. “We have never imposed a categorical ban on a settlement that does not include direct payments to class members.” In re: Google Referrer Header Privacy Litigation, 2017 DJDAR 8031.

Judge J. Clifford Wallace wrote in a partial dissent that he was incensed that 47 percent of the funds would go to colleges previously attended by attorneys involved in the case.

Theodore H. Frank, a senior attorney at the Competitive Enterprise Institute and one of the class members who objected to the settlement, said he was disappointed with the ruling and would request the court consider the case en banc. If that rehearing is denied, the case would head to the U.S. Supreme Court, where Chief Justice John Roberts has taken a strong stance against cy pres deals.

Roberts raised concerns about these donation-based settlements in 2013 while opting not to review a similar deal involving Facebook Inc., a case that also arose in the 9th Circuit.

In that case, Facebook was accused of violating users’ privacy rights through its “Beacon” tracking software that would provide the social networking company with information about their online browsing on other websites.

Roberts and his colleagues chose not to review that case but he made a written statement voicing his concerns about cy pres settlements and vowing that the Supreme Court would take up the issue if the trend continued to grow.

“This court may need to clarify the limits on the use of such remedies,” he wrote.

The chief justice said at the time that the facts of the Facebook case made it a less than ideal candidate for review.

Frank has been looking for a case that could convince the high court to take up the issue and hopes he has finally found it in this Google settlement. He contended that the agreement amounts to a marketing exercise where Google would take money it already earmarked for donation to Stanford and other schools and use it to pay the settlement.

“These are all programs Google regularly gives money to,” he said. “You just take it off one set of books and put it on another set of books and still get the tax benefit.”

Frank said U.S. District Judge Edward J. Davila of San Jose voiced reservations about the settlement before approving it.

Kassra P. Nassiri, a partner at Nassiri & Jung LLP who represents the plaintiffs, said the organizations receiving money in the settlement had to provide detailed plans on how the funds would be used.

“I’m not aware of a case where the cy pres recipient had to submit a detailed proposal including line-by-line budgeting of how they were going to spend the money,” he said.

Nassiri echoed McKeown’s rationale that sending 4 cents to each plaintiff wouldn’t help anyone.

Representatives for Google did not respond to a request for comment.