129 Million Class Members $0, Charities $6.5 Million, Attorneys $2 Million: Are Cy Pres-Only Settlements Fair, Adequate and Reasonable?

Abstract

This article discusses the Supreme Court appeal in Frank v. Goas, to be argued before the Court on October 31, 2018. This appeal involves a class action settlement with Google, approved by the Ninth Circuit, where the 129 million class members received no compensation, the class action attorneys received $2.125 million in attorney fees, and Google and the class counsel agreed to contribute $6.5 million to be distributed to seven charitable and non-profit organizations as a cy pres resolution of the litigation. The Court will decide whether such cy pres-only awards in settlement classes comport with the Rule 23(e) requirement that such settlements be “fair, adequate, and reasonable.” Class action attorneys will be closely watching the Court’s attention to the issue of cy pres relief in class action settlements. Cy pres provisions have become increasingly prevalent in settlement agreements, raising heightened judicial concern and academic criticism. Notwithstanding the increasing concern, lower courts continue to approve settlement agreements with cy pres provisions, and class action lawyers continue to expand their use. The Frank appeal embodies both the ideal as well as the imperfect vehicle for the Court to address the issue of cy pres relief. The Frank appeal could hardly have embraced a more extreme exemplar of possible cy pres overreaching: a no-compensation class, cy pres-only settlement, with 25% attorney fee. The Court might adopt one of several approaches to addressing the use of cy pres relief in settlement agreements. Radically, the Court could declare cy pres provisions unconstitutional and not sustainable under Rule 23: issuing a categorical ban urged by objector Frank. This outcome would be possible if the Court’s conservative wing endorsed this result. But at least some conservative Justices will recognize that corporate defendants sometimes desire cy pres provisions – as did Google here – and therefore have little interest in a Court-mandated outright ban. A bright-line prohibition on cy pres awards, however, most certainly would not be joined by the Court’s liberal Justices. More likely, however, given the extreme nature of the Google agreement, the Court will probably choose not to throw the proverbial baby out with the bathwater. Thus, it is possible that the Court may disapprove the cy pres-only settlement in the Google litigation, but nonetheless preserve the possibility of cy pres in more limited circumstances. The Court may set forth parameters and rules governing the permissible scope of cy pres relief that acknowledge the concerns raised by the objector, but nonetheless recognize situations where cy pres relief makes sense, as urged by the Respondents and various amici. This compromise position could conceivably earn the endorsement of both liberal and conservative Justices. The complicated role that cy pres relief plays in the class settlement arena is reflected in the interesting array of amicus briefs. Normally, one would expect that the usual cohort of corporate, anti-class action groups to weigh in opposition to cy pres relief. However, corporate defendants sued in consumer class litigation do not always oppose cy pres remediation and frequently coordinate with class counsel to craft cy pres settlements that are to the defendants’ advantage. Google’s hybrid brief, urging that the Court uphold the cy pres settlement while urging the Court to address various class action abuses, captures the complex position of defendants regarding this appeal. On the contrary, the usual array of plaintiff-minded organizations have aligned to ask the Court to uphold the Ninth Circuit’s decision, and not outright ban or restrict cy pres relief, stressing the constructive benefits to society of various cy pres settlements, including support of legal aid entities otherwise publicly underfunded.