Ted Frank, Center for Class Action Fairness (Courtesy photo)

The U.S. Supreme Court on Wednesday stopped short of prohibiting a form of class action settlements in which funds awarded go to unrelated third parties and lawyers but not to the parties making claims.

The justices in Frank v. Gaos, which involved an $8.5 million internet privacy settlement with Google, did not address the legality of class settlements featuring only “cy pres” funds going to third-party groups and organizations and not to plaintiffs.

Instead, the high court, in an unsigned per curiam opinion, vacated and remanded the case to the U.S. Court of Appeals for the Ninth Circuit to consider whether the plaintiffs had “standing” to assert their claim in light of the justices' 2016 decision in Spokeo v. Robins.

In Spokeo, the high court held that standing requires a concrete injury even in the context of a statutory violation. In Gaos, the alleged statutory violation involved the Stored Communications Act.

After arguments in October, during which the standing issue dominated the justices' questions, the court ordered both sides to file briefs on that issue. U.S. Solicitor General Noel Francisco originally raised the question in the government's amicus brief. He also charged that “cy pres relief has little basis in history, creates incentives for collusion, and raises serious questions under Article III.”

The high court said the supplemental briefs raised “a wide variety of legal and factual issues” which were not addressed in the briefing on the merits or at oral argument.

“We 'are a court of review, not of first review,'” the high court said. “Nothing in our opinion should be interpreted as expressing a view on any particular resolution of the standing question.”

Justice Clarence Thomas, voting in dissent, would have reversed the settlement.

Justice Clarence Thomas, U.S. Supreme Court. (Phoro: Diego M. Radzinschi / ALM)

“Because the class members here received no settlement fund, no meaningful injunctive relief, and no other benefit whatsoever in exchange for the settlement of their claims, I would hold that the class action should not have been certified, and the settlement should not have been approved,” Thomas wrote.

Google was sued in 2010 for allegedly violating the federal act by sharing the search queries of its users with third parties for commercial purposes. Google settled the suit with the bulk of the money going to six organizations. Attorneys for the class received $2.1 million of the $8.5 million total.

The Ninth Circuit in August 2017 affirmed the district court's approval of the  settlement and the trial judge's finding that the settlement fund was not distributable to a class of an estimated 129 million Google users.

The Ninth Circuit panel said distributing the settlement money would result in each class member receiving about 4 cents, “a de minimus amount if ever there was one.”

The settlement directed the funds to be distributed proportionally to six recipients that are devoted to web privacy: Carnegie-Mellon University; World Privacy Forum; Chicago Kent College of Law Center for Information, Society, and Policy; Stanford Law School Center for Internet and Society; Berkman Center for Internet & Society at Harvard University; and AARP Foundation.

Ted Frank, director of litigation for the Center for Class Action Fairness at the Hamilton Lincoln Law Institute, and Melissa Ann Holyoak, the institute's president and general counsel, were objectors to the settlement in the district court and in the Ninth Circuit.

In October, Frank, arguing pro se for the first time in the high court, found several justices sympathetic to his arguments that the cy pres-only settlement was unfair and inadequate.

“How can you say this makes any sense?” Justice Samuel Alito Jr. asked at one point. “At the end of the day, what happens? The attorneys get money, and a lot of it. The class members get no money whatsoever.”

Justice Brett Kavanaugh said those settlements raise “the appearance of favoritism and collusion.”

But Justice Ruth Bader Ginsburg said, “Practically, the class members would get nothing, nothing at all, and here at least they get an indirect benefit.”

Cy pres critics claim it has become a common litigation tactic, but an amicus brief by Harvard Law's William Rubenstein said only 18 cy pres-only settlements have been approved by federal courts in the last 20 years.

Mayer Brown partner Andrew Pincus argued on behalf of Google. MoloLamken partner Jeffrey Lamken argued for Paloma Gaos.

 

Read the opinion in Frank v. Gaos:

 

Read more:

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US Supreme Court Finally Takes a 'Cy Pres' Case, and This One Involves Google