A challenge to the use of a cy pres charitable donations to settle privacy claims against Google will be heard by the Supreme Court. In Frank v. Gaos, petitioners seek reversal of lower court decisions rejecting their objection to an $8.5 million settlement of claims arising from Google’s transmission of users’ search terms to third-party websites. Because the proposed settlement amount could not feasibly be distributed to the estimated 129 million class members, the settlement called for Google to pay the settlement proceeds, less class counsel fees, to certain privacy-related charities. The trial court awarded 25% of the settlement — or $2.125 million – to class counsel; the balance went to the charities. The petitioner’s objections to the settlement were overruled.
Cy pres is an ancient trust doctrine applied to charitable bequests that no longer serve their purpose (e.g., a trust to fund treatment of a disease that has been eradicated). This is a popular mechanism for distributing settlement proceeds where class members are hard to locate or the amounts awarded would be too small to be reasonably administered. Depending on one’s point of view, the use of cy pres either ensures that defendants’ bad behavior does not go without sanction, or provides a vehicle that justifies paying a huge fee to class counsel despite offering zero compensation to the individuals whom class counsel supposedly represents.
The petitioner here plainly holds the latter view. The issue presented to the Court is “Whether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class members must be ‘fair, reasonable, and adequate.’” This is the first Supreme Court case to address the use of cy pres settlements. The Court’s resolution of whether and under what circumstances the use of cy pres settlements is “fair, reasonable, and adequate” will have a substantial impact on privacy class actions, where cy pres may offer the only feasible means to pay settlement consideration on behalf of large classes whose members are difficult to identify or locate, and the theories of damages are highly amorphous.