Today, the Competitive Enterprise Institute’s Center for Class Action Fairness (CCAF) filed a reply brief in the Gaos v. Google settlement appeal to the Ninth Circuit.
In the original case plaintiffs’ lawyers sued Google for statutory damages for alleged federal privacy violations by their search engine. The settlement established an $8.5 million fund, none of which went to the class members affected by the privacy violations. Instead, the settlement fees were split between the plaintiffs’ lawyers – who received $1000/hour on this case – and cy pres recipients. These recipients were third party charities that “agree[d] to devote the funds to promote public awareness and education… related to protecting privacy on the Internet.” This included the class counsel’s alma maters and several charities which Google already supported through donations.
Ted Frank, senior attorney and founder of CCAF, says that “Court endorsements of such rulings encourage settlements that are of no real cost to defendants and are directly beneficial to the class counsel. Therefore, the parties will always agree to the cy pres arrangement. Meanwhile, unnamed class members are left out in the cold, without any compensation."
The class counsel used the class action mechanism to give money to third party charities related to their own interests. This, in effect, paid the class counsel twice, once with the attorney fee and once with a payment to their alma maters. Meanwhile, the defendant, Google, was ordered to give money to charities they already donated to. This settlement gave the company the ability to claim credit for donations they would have, for marketing reasons, made otherwise. The settlement effectively created the illusion of relief, but at the expense of class members.
CCAF objected to the settlement, but the district court approved the original settlement. CCAF is now appealing a decision by the U.S. District Court for the Northern District of California. The Ninth Circuit court’s decision on this case could affect future class-action settlements, especially the use of cy pres awards.
CCAF has been a pioneer of protecting consumers and shareholders from the abusive practice of cy pres, winning landmark appellate decisions on the question in 2011, 2013, 2014, and 2015. In December, CEI filed a petition for certiorari to the Supreme Court of the United States asking them to examine the question of cy pres in Frank v. Poertner.