High court to review cy pres settlements in Google privacy class action

The U.S. Supreme Court announced Monday that it will review a multi-million dollar settlement between Alphabet Inc.-owned Google and plaintiffs who sued the company over privacy violations but got none of the money from the case, while the attorneys' alma maters got a windfall.

The justices agreed to review the law behind cy pres settlements, in which money is distributed to charities or other organizations charged with helping the general interests of the class, rather than the plaintiffs themselves.

The case now before the high court started in California, where Google users sued the company for alleged privacy violations after learning that the search engine informed website owners about search terms that landed users on their websites. Frank v. Gaos, 17-961.

The case settled for $8.5 million, $3.2 million of which covered attorney fees, administrative costs, and incentive payments. The remaining $5.3 million went to universities and other organizations that advocate for and study online privacy, including the alma maters of the class counsel.

The 9th U.S. Circuit Court of Appeals affirmed the settlement last year, after regular class objector Theodore H. Frank, the litigation director of the Competitive Enterprise Institute, and four others sought review.

In an opinion written by Judge M. Margaret McKeown, the circuit said that distributing the settlement to Google's approximate 129 million users was not feasible, noting that before factoring in administrative costs, class members would each receive 4 cents.

Judge J. Clifford Wallace issued a partial dissent, objecting to the fact that 47 percent of the settlement went to the class attorneys' alma maters.

The question certified by the justices to consider is broad. They will determine whether settlements like the one at the heart of the case, that do not provide monetary relief to class members, are "fair, reasonable, and adequate," a requirement under Federal Rule of Civil Procedure 23(b)(3).

The Supreme Court has not issued opinions on the limits of cy pres settlements.

In 2013, though, Chief Justice John G. Roberts Jr. expressed interest in reviewing the practice. That year, the court declined to review a case including a cy pres settlement, a decision with which Roberts agreed in light of the facts it presented, but he wrote specifically to note that the Supreme Court had not yet addressed the scope of acceptable settlement recipients. Marek v. Lane, 2013 DJDAR 14712.

He suggested that questions remained about whether new entities could be established to receive the funds and how existing organizations should be selected.

"In a suitable case, this court may need to clarify the limits on the use of such remedies," Roberts wrote.

None of the other justices weighed in on the issue.

Andrew M. Grossman, a partner at Baker & Hostetler LLP's Washington, D.C. office, represents Frank and the other objectors.

"The court's decision to hear the case obviously reflects growing unease with the abuse of cy pres settlements," he said, repeating Wallace's concern about the class counsel's universities getting a substantial portion of the settlement.

Kassra P. Nassiri, a partner at Nassiri & Jung LLP in San Francisco, represents the class. He did not respond to a request for comment. Donald M. Falk, a partner at Mayer Brown in Palo Alto represents Google. He referred a request for comment to his client, which did not respond.

What the court will do with the case remains to be seen.

"They can go as far as they want with it," said professor Martin H. Redish, a critic of cy pres settlements who teaches at Northwestern University Pritzker School of Law.

Roberts cited a 2010 law review article Redish wrote on cy pres settlements in his 2013 Marek statement. The court can address cy pres-only settlements, like the one in this case, where no money goes to the plaintiffs, or it can address the cy pres practice broadly, he said.

Why the justices decided to take this case as opposed to others involving cy pres settlements is not clear. In March, the court declined a certiorari petition involving a $380 million cy pres settlement. Roberts did not take any part in the consideration of that case, the court said in its order.

Unlike the court's earlier opportunity to review these settlements in 2013, the Google case involves already existing organizations. The Marek case involved a charity established for the purpose of using settlement proceeds.