On April 30, the Supreme Court granted certiorari in Frank v. Gaos, No. 17-961 to review the fairness of the ever-increasing use of cy pres remedies in class action settlements. Cy pres remedies are often used to fund charitable or educational organizations when it would be infeasible to provide monetary relief directly to class members.
In Frank v. Gaos, No. 15-15858 (9th Cir. 2017), the Ninth Circuit affirmed the district court's approval of a cy pres-only settlement in a lawsuit alleging that Google violated users' privacy rights by disclosing search terms to third parties. As part of the settlement, Google agreed to pay $8.5 million, the majority of which was allocated for six cy pres recipients who would use the funds for programs related to internet privacy, with the remainder going toward attorneys' fees, costs, and incentive payments for the named plaintiffs. The Ninth Circuit explained that such a remedy is appropriate where the settlement fund is non-distributable due to the large burden inherent in receiving proof of individual claims or the costliness of attempting to distribute the funds to class members. It further held that the district court had not abused its discretion in approving the settlement despite relationships between the parties and the cy pres recipients, which included class counsel's alma maters and organizations that had previously received funding from Google. The circuit court found that, under the circumstances, the claimed relationships did not impugn the settlement.
The settlement objectors then petitioned the Supreme Court for a writ of certiorari to determine whether and when a cy pres settlement is fair, reasonable, and adequate despite not providing any direct relief to class members. Petitioners argued that, unlike the Ninth Circuit, other appellate courts have found that cy pres awards require extra scrutiny, as they fail to directly compensate class members for their injuries and may lead to collusion between class counsel and defendants seeking to promote their own interests. This, in turn, could lead to forum shopping and might expand the use of cy pres remedies in nearly all circumstances.
The Supreme Court granted cert to address the circumstances under which cy pres remedies are permissible in class action settlements. The issue has been on the Court's radar for years. Indeed, in a memorandum opinion accompanying the Court's denial of certiorari in Marek v. Lane, No. 13-136 (U.S. 2013), Chief Justice Roberts wrote that that, although cy pres remedies are increasingly used in class settlements, the Court had not yet had occasion to address "fundamental concerns . . . including when, if ever, such relief should be considered," "how to assess its fairness as a general matter," and "the respective roles of the judge and parties in shaping a cy pres remedy." Because the petitioner in Marek challenged particular aspects of the Facebook privacy settlement, the case would not enable the Court to opine on these larger issues. However, the Chief Justice cautioned that, in a future case, "this Court may need to clarify the limits on the use of such remedies." Until the Supreme Court weighs in on the use of cy pres settlements in class cases, litigants would be wise to use caution in crafting such remedies, as their future is now uncertain.
Frank v. Gaos, No. 17-961 (U.S. Apr. 30, 2018).
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