Pardon Your French: The Supreme Court Considers Cy Pres in Class Action Settlements

10.19.2018

Elizabeth A. Kramer— October 19, 2018

The term cy pres is from the French phrase “cy pres comme possible,” which means “as near as possible.”  In the class action context, it refers to distributing settlement funds to third-party organizations when those funds can’t be paid out class members. Why does that happen? 

Distributing a Class Action Settlement Fund

Consider a class action settlement that provides $100 to each of 10,000 class members. Everybody is sent a check for $100, right? Yes. But for various reasons, not every single check will actually get cashed. Sometimes there is money left over, and the amount may be so small that it doesn’t make sense to divvy it up among class members. Under the cy pres doctrine, courts allow funds that can’t feasibly be distributed to class members to go to third parties, often non-profits, on the theory that it’s “nearer” to the purpose of the settlement than giving those funds back to the defendant. 

Supreme Court to Rule On Cy-Pres Class Action Settlements

On October 31, the Supreme Court will hear argument in a cy-pres-only class action settlement, meaning none of the funds went directly to class members. The case, Gaos v. Frank, No. 17-961, arises from class members’ claim that Google violated users’ privacy by disclosing their internet search terms to other website owners. The plaintiffs alleged that when the Google search engine processes search requests, users’ information, including sensitive and personally-identifiable information, is transferred to marketers and data brokers.

The parties eventually reached a settlement: Google would pay $8.5 million and provide notice on its website disclosing how users’ search terms were disseminated to third parties.  But because the class was so large (including almost 130 million people who had used Google Search), direct payments would be pennies. Instead, the parties agreed to give the money to six cy pres recipients (instead of class members), including various universities’ information security programs and the World Privacy Forum.

The district court approved the settlement. But objectors to the settlement challenged the use of cy pres. The Ninth Circuit upheld it, and the Supreme Court granted review.  The future of cy pres settlements hangs in the balance.

Read more about the case here: http://www.scotusblog.com/case-files/cases/frank-v-gaos/.

Please see part II of this article here

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