The Supreme Court has granted a writ of certiorari to two petitioners represented by the Competitive Enterprise Institute (CEI) in an appeal from a lower court decision. CEI’s Center for Class Action Fairness (CCAF) filed the petition for the Supreme Court to hear the case of Frank v. Gaos to shed light on the class-action settlement abuse by the attorneys of the original class-action lawsuit.
The case stems from a class-action suit filed in 2010 in the Northern District of California called Gaos v. Google, in which the named plaintiff, Paloma Gaos, sued Google for divulging the information of millions of customers to third-party websites. The attorneys for the class settled with Google, agreeing to a final sum of only $8.5 million. This settlement, however, would never be payed out to the class: the settlement claimed that mailing out the settlement to a million plaintiffs would take too much effort, and instead agreed to pay out the settlement partially to the attorneys (to the tune of $1,000 per hour of work), and partially to a selection of non-profit organizations chosen by the attorneys (including the attorneys’ alma maters), not their clients. The legal precedent for this is referred to as cy pres (pronounced see-PRAY), which allows the solution to a settlement or suit to be given to a party other than the plaintiff. The plaintiffs did not receive any compensation.
"We are hopeful that the Supreme Court’s review will result in a standard forbidding attorneys from misusing class action settlements to selfishly put themselves and third parties ahead of their clients," said Ted Frank, CEI’s director of litigation and petitioner in the Supreme Court case.
Following the cy pres settlement, the CEI attorneys appealed to the U.S. Ninth Circuit court, which found that the settlement did not violate any prior cy pres standards. CEI petitioned successfully for a writ of certiorari, granted by the Supreme Court when a case is chosen for review. In prior cases involving cy pres law, Chief Justice John Roberts has expressed concern about the potential precedent set by such settlements.
Cy pres is typically used when a portion of a class cannot be reached for compensation or fails to cash the compensation checks, leading to leftover money. The leftover funds are then donated to a mutually agreed upon charity. The precedent set by this case, however, is entirely different: the settlement from Gaos v. Google skips over the class recipients entirely, without effort to reach the affected individuals.
“The Google settlement epitomizes cy pres abuse in class actions where the money is being funneled to class counsel’s alma maters and to entities that Google already supports,” said CEI Senior Attorney Melissa Holyoak. “Class counsel chose their favorite charities over their clients while Google is getting credit for donations they are already making.”
The Supreme Court will hear Frank v. Gaos in the upcoming fall term.