Lawyers reaped millions. They got cents.
High court tackles Google class action
WASHINGTON – The Supreme Court faces a difficult question: What happens when there are 129 million winners in a class action lawsuit, each of whom stands to receive 4 cents?
Federal judges in California thought they had an answer. Faced with a priva- cy invasion suit first filed against Google in 2010, they approved an $8.5 million settlement that split most of the proceeds among six universities and nonprofit groups researching internet privacy.
The plaintiffs’ lawyers got more than $2 million.
Google users got nothing.
Enter Ted Frank, who directs the Center for Class Action Fairness at the Competitive Enterprise Institute, a freemarket advocacy group. He objected to the settlement, as he has to numerous others. This time, he made it to the Su- preme Court.
Frank’s beef is simple: The deal approved by federal district and circuit court judges benefited the lawyers and recipients, including programs at universities the lawyers attended. Google was not required to change its search function practices despite the privacy intrusion. And the 129-million-member class re-
mained largely clueless.
“This whole system is ripe for corruption,” Frank says. “The money belongs to class members.”
But rather than protecting class action lawsuits from ripoffs or collusion, the Supreme Court’s conservative majority – already opposed to such lawsuits in many instances – could set a rigid standard that would result in fewer settlements being certified.
Federal rules require that class action settlements must be “fair, reasonable and adequate” in the eyes of the court. When it isn’t reasonable to spread the proceeds across millions of users – or, as is more common, when money goes unclaimed – “cy pres” settlements benefiting third-party groups are judged to be “as near as possible” to the desired goal.
The high court passed on an opportunity to address such settlements in 2013, but Chief Justice John Roberts was enticed. He cited “fundamental concerns” about their propriety, including the role of the judge and lawyers, as well as how recipients should be chosen.
“In a suitable case, this court may need to clarify the limits on the use of such remedies,” Roberts said. Frank v. Gaos may be that case.
Paloma Gaos went to court in 2010 af- ter Google search terms she used were disclosed to third-party websites, a common practice. In the settlement, she and other class representatives got
$5,000 each, but the broader group of
129 million people who used Google’s search engine in the U.S. from 2006 to
2014 proved an impractical number for notification, processing and mailing.
Frank and a variety of opponents argued that in addition to that exclusion, attorneys were overpaid, favored recipients were chosen improperly, and Google was not required to change its business practice.
“This was a bad settlement,” says Marc Rotenberg, president of the Electronic Privacy Information Center, which works to protect free expression in the information age. “Cy pres is not a slush fund.”
But it has its proponents. Many see it as a pragmatic way to fund groups that have the same interests as class action plaintiffs, particularly in cases where class members are offered payouts but money is left unclaimed. Settlements in cases like Frank’s, where class members get nothing, occur only about once a year, said Harvard Law School Professor William Rubenstein.
Google argued that an effort to identify and compensate even a significant proportion of class members would consume the settlement fund. It said the six recipients – AARP, World Privacy Forum, and programs at Harvard, Stanford, Carnegie Mellon and Chicago-Kent College of Law – “submitted detailed, grant-like proposals for projects closely targeted to the Internet privacy issues raised by plaintiffs’ claims.”
Lawyers for Gaos and other plaintiffs told the court they sought out groups that would use the money to educate consumers, inform policymakers and “develop tools to address exploitation of personal data.” The American Bar Association went further, defending settlements that send money to legal aid organizations serving low-income people who otherwise could not get into court.
“Cy pres seems the best answer, which is ‘Let’s find another way to use this money to benefit the class,’” says Allison Zieve, director of Public Citizen Litigation Group. “The standards the courts are applying are good ones.”
Since Frank founded his center in
2009, it has won more than $100 million for class members by objecting to what it considers abusive class-action settlements. His most recent example: a $12.5 million settlement approved this month by the U.S. Court of Appeals for the 9th Circuit, which to date has resulted in
$225,000 for class members and as much as $8.9 million for lawyers’ fees and costs.
If the justices don’t find a way to block such settlements, Frank says, “We’ll see billions of dollars that go to consumers and shareholders in litigation now are going to be diverted to lawyers’ favorite charities.”
But the court may be wary about being too prescriptive. The justices aren’t likely to go beyond setting broad standards for lower court judges to follow.
“The Supreme Court has the opportunity to encourage or discourage the use of this kind of remedy,” says Howard Erichson, a professor at Fordham University School of Law. “Whatever it says will be the go-to language for every district judge.”