Supreme Court Will Consider Viability of Cy Pres Awards Where Class Members Receive No Money
A previous article addressed cy pres awards given to charitable organizations where money remaining in the settlement fund after all class members have been paid. But what about cases in which there is a cy pres award where class members receive no money? Earlier this year, the Supreme Court decided
The Case Before the Court and the Settlement TermsThe class action case before the court was against Google and alleged web browsers disclosed Google searches to third-party websites. The parties reached a settlement that created a $8.5 million settlement fund. However, $5.3 million of the $8.5 million settlement fund was given to outside groups and $2.125 million went to attorney fees. According to the Petition for Writ of Certiorari ("cert. petition") field by objectors to the settlement, the cy pres award was directed to groups pledging to use the money to protect internet privacy, and included the alma maters of class counsel. The groups receiving the cy pres awards were the World Privacy Forum; Carnegie Mellon University; 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; and AARP.
According to the cert petition, absent class members got "no relief at all in exchange for their claims - no money, no alteration of the defendant's allegedly injurious conduct, not even coupons[.]"
The Objectors Arguments that the Settlement Was not Fair, Adequate and ReasonableThe issue to be decided by the Supreme Court is whether the settlement met the requirement of Rule 23(e)(2) of the Federal Rules of Civil Procedure requiring proposed class action settlements to be "fair, reasonable and adequate." In their cert. petition, the objectors recognized general propositions on cy pres awards in class actions. They note that the cy pres doctrine originated in trust law, and it allowed courts to change a trust or charitable gift that became impossible to administer by its terms. Further, that in class actions, funds sometimes remain unclaimed where individual member claims are small or the claims process is burdensome. Finally, that to keep unclaimed settlement funds from reverting to the defendant, with a cy pres award the money is directed to other causes that have included charities and foundations.
However, the objectors argue that such awards can create a potential for conflicts of interest because they allow class counsel to reap exorbitant fees regardless of whether class members were adequately compensated, according to the cert petition. They further point out that while the Court has not addressed the propriety of cy pres relief, Chief Justice Roberts has recognized that it is "a growing feature of class action settlements" that raises "fundamental concerns." Finally, they argue the Court's intervention is necessary to establish a nationwide standard for the use of cy pres awards in class action settlements given that the Ninth Circuit's decision conflicts with holdings from several other Circuits on the basic question of when it is "fair, reasonable, and adequate" for a class action settlement invoking the cy pres doctrine to award to award money not to class members but to third parties unconnected to the litigation.
The Supreme Court's holding could have a rippling effect on recipients of cy pres awards in class actions, particularly if the Court decides to address the legality of the doctrine in general, rather than limited to situations in which absent class members receive no money.