Frank Cruz-Alvarez is a Partner with Shook, Hardy & Bacon L.L.P. in the firm’s Miami, FL office, and Britta Stamps Todd is an Associate in the firm’s Kansas City, Mo office. Mr. Cruz-Alvarez is the WLF Legal Pulse’s Featured Expert Contributor on Civil Justice/Class Actions.
While most cy pres awards result from unclaimed or non-distributable funds from class action settlements, some cases resolve through so-called “cy pres only” settlements, in which the entire settlement fund (except for attorneys’ fees and certain costs) is paid to third-party organizations, and class members receive no monetary damages. Such a settlement sparked an objector’s appeal of In re Google Inc. Street View Litigation in the Ninth Circuit.
Google Street View allows anyone to type in an address and view the home, building, or land as seen from the nearest public street—a utility than can be beneficial but also poses potential problems. In this case, the problem arose from the data collected by the Google vehicle that drives street by street across the country capturing the images that comprise Google Street View. It turns out that WiFi antennas and software in the Google vehicles collected, decoded, and analyzed various kinds of data transmitted over unencrypted WiFi networks as the vehicles drove around. Specifically, the vehicles collected “payload data,” which includes substantive information like emails, usernames, passwords, videos, and documents. Google publicly apologized for collecting such data and rendered it inaccessible. Unsurprisingly, over a dozen putative class actions were filed based on the Street View Vehicles’ collection of payload data, many of which were consolidated into one case in the Northern District of California. The Consolidated Class Action Complaint asserted various state and federal law claims and sought statutory damages, punitive damages, and injunctive relief.
Google disputed the named plaintiffs’ standing, leading to a three-year investigation with a special master to determine whether the data contained any transmissions intercepted from the eighteen named plaintiffs, which resulted in inconclusive findings. Shortly thereafter, the parties reached a settlement agreement for a class comprised of “all persons who used a wireless network device from which Acquired Payload Data was obtained” within a certain timeframe, and estimated that the class included sixty million members. Under the settlement agreement, Google would establish a $13 million settlement fund, from which attorneys’ fees and other costs would be deducted, with the remainder of the settlement fund to be divided equally among cy pres recipients. The cy pres recipients would be required to “commit to use the funds to promote the protection of Internet privacy.” Finally, the settlement agreement provided for injunctive relief for five years after final approval, requiring Google to destroy the payload data, refrain from collecting or storing payload data without notice and consent in the future, comply with agreements made in other litigation regarding the Street View Vehicles, and host educational websites. The district court certified the class, and an objector appealed.
On appeal, the Ninth Circuit panel recognized that “cy pres-only” settlements are not new, citing numerous other cases approving such settlement funds, and noted that the settlement included injunctive relief provisions above and beyond anything Google was required to do under privacy laws or other litigation agreements.
In what is a relatively novel argument, the objector also argued that the settlement violated the First Amendment’s prohibition on compelled speech by distributing the settlement funds to organizations that lobby for positions adverse to the objector’s own interests and beliefs. The Ninth Circuit sidestepped the question of whether a district court’s approval of a settlement constitutes state action, and instead concluded that a class member who does not wish to subsidize speech they do not support could simply opt out of the class, disclaiming any interest they had in the settlement funds. Nor was the Ninth Circuit persuaded that relationships between the cy pres recipients and class counsel or the parties constituted an abuse of discretion on behalf of the district court. Having addressed these and other routine arguments by the objector, the panel affirmed the district court’s order certifying the class, approving the settlement agreement, and awarding attorneys’ fees.
But there’s a plot twist: Judge Bade, who authored the majority panel opinion, also filed a separate concurring opinion questioning the theory of indirect benefits to class members under cy pres settlement agreements. While not unheard of, it is certainly rare for the same judge to author a separate concurrence that challenges the conclusions of their own majority opinion. In her concurrence, Judge Bade hints that the majority opinion is a result of the panel’s hands being tied by precedent, but expresses serious concerns about cy pres awards. After listing numerous concerns raised in other cases—conflicts of interest between class counsel and absent class members, incentives for collusion between defendants and class counsel, the appearance of impropriety, whether a class action is the superior method of adjudication if cy pres relief is the resolution, and more—Judge Bade focuses on the theory of indirect benefit to the class members.
Citing to several cases revealing “an increasing skepticism about whether cy pres provisions actually provide an indirect benefit to class members,” Judge Bade emphasized the existence of a compelling argument that class members actually receive no benefit from “cy pres-only” settlements. In such settlements, class members see their claims extinguished but receive no monetary damages in exchange. Class members may have never even heard of the organizations that receive the cy pres funds. And, even accepting the notion that the organizations use the cy pres funds to provide value to the public at large, this raises another problem: opt-outs from the class arguably receive a greater benefit than the class members bound by the settlement. That is, if the organizations provide generalized benefits to the public (here, promoting protection of Internet privacy), then opt-outs and non-class members receive the same benefit as the class members themselves. But the class members gave up their claims to receive that benefit, while opt-outs and non-class members theoretically retain the value of their potential claims. Consequently, Judge Bade remains unconvinced that cy pres awards to uninjured third parties constitute an indirect benefit to injured class members. To the contrary, she is concerned that cy pres awards may be purely punitive, amounting to civil fines paid by defendants to class counsel and third parties but failing to provide any compensation to the injured class members. Closing with a suggested invitation to other courts, Judge Bade submits that “it is time we reconsider the practice of cy pres awards.”
In practice, parties seeking to settle class actions—as well as potential objectors—are bound by precedent approving the practice of awarding “cy pres-only” settlements. But as Judge Bade’s concurrence highlights, growing skepticism toward such settlements is showing up across many jurisdictions. With so many judges expressing concerns similar to that of Judge Bade’s concurrence, it seems only a matter of time before a court rejects the theory of indirect benefits to class members via a cy pres settlement like that of In re Google Street View Litigation.