In the business of law there is little business bigger than the business of class action litigation. Class action settlements routinely distribute tens — and even hundreds — of million dollars to class members and their lawyers.
However, a Google data privacy class action settlement approved Friday in San Francisco follows a different model: after the lawyers are paid, the money being distributed will go to nonprofit organizations that work in the general area of data privacy; virtually none of the money will go to members of the plaintiff class.
Two French words explain the different approach: “cy pres.”
Cy pres — pronounced “sigh-pray” — means “as near as possible” and is used in the world of charitable trusts when it has become impracticable to fulfill a donor’s original charitable intent and the court must approve a substitute use of the gift. For example, a charitable fund originally set up for the treatment of a disease that is later eradicated, can be approved to treat a different disease.
Cy pres also has an important application in the settlement of class action litigation, as apparent in the case before U.S. District Judge Edward Davila of the U.S. District Court for the Northern District of California.
The case began in 2018 when plaintiffs sued Google saying that the company had collected and stored location data from consumers’ mobile devices even when their “location history” was turned off. Plaintiffs alleged this practice violated a variety of federal and state laws. They proposed a class that would include approximately 250 million individuals.
Google denied liability and opposed certification of the class. (While plaintiffs may propose a class; it isn’t official unless the judge approves or “certifies” the class.)
After litigating for five years, but before a decision on class certification, the parties reached a settlement.
Under the settlement, Google agreed to make a payment of $62 million that would be used to pay plaintiffs’ legal fees and litigation costs in an amount determined by the court. The remaining amounts — in this case roughly $43 million — was available as the settlement fund.
However, instead of splitting up the proceeds among the class members, all of the money will be paid to 21 nonprofit organizations that have done work in the general area of data privacy. The individual grant amounts will run from $350,000 to $6 million.
The recipients include many familiar names.
The primary reason for giving the settlement funds to third party nonprofits rather than class members is a numbers problem. According to the plaintiffs, a pro-rata distribution among a class of 250 million people would be about 25 cents per person, less than half the cost of a stamp.
There are educational institutions (Harvard, MIT, Yale, Georgetown, UCLA and NYU) as well as privacy advocates and others in the technology watchdog space (e.g., Electronic Frontier Foundation; and Electronic Privacy Information Center).
The ACLU has two spots on the list. One is for its “Speech Privacy and Technology Project” ($6 million); the other, its Northern California chapter’s “Tech & Civil liberties Program” ($1.5 million.)
The primary reason for giving the settlement funds to third party nonprofits rather than class members is a numbers problem. According to the plaintiffs, a pro-rata distribution among a class of 250 million people would be about 25 cents per person, less than half the cost of a stamp.
Given the alleged impracticability of a making minuscule distributions, plaintiffs lawyers and Google asked the court to approve a cy pres alternative designed to get class members an indirect benefit — that is, the expected public benefits from the work of the data privacy organizations — as a suitable substitute.
The ‘absurdity’ of cy pres arrangements
Not everyone agreed that was a good idea.
Theodore Frank, a lawyer with a Washington D.C. organization called the Hamilton Lincoln Law Institute Center for Class Action Fairness, saw the whole thing as a hustle.
On behalf of three individual class members, he objected to approval of the settlement. There were many things about the deal that he did not like, but the cy pres arrangements were at the top of the list.
He argued that judges shouldn’t be diverting money from class members to third parties. He said that under the settlement, class members were giving up their individual claims to fund organizations they had no connection to.
The absurdity of that structure, he argued, was that a class member who “opted out” — that is, declined to participate in the class action — got a better deal than one who stayed in: the one opting out got all the same indirect “benefits” of the settlement, but did not have to give up his or her claim.
He said, cy pres — never desirable — was at least more sensible where it was used to distribute remaining funds that were not claimed by class members. But he sharply challenged the practice of designing a “no distribution” settlement in which all the funds went elsewhere via the sleight of hand of cy pres.
Among the problems he identified was the possibility that the cy pres recipients had prior relationships with the defendant or the lawyers. He saw potential for conflicts of interest or improper incentives. Everything about a court-designated group of beneficiaries, seemed to him to be fraught with difficulties.
Among the problems he feared: “defendant could steer distributions to a favored nonprofit with which it already does business or use the cy pres distribution to achieve business ends.”
In fact, in this case he noted that “multiple attorneys from the litigating parties and Google employees have attended the universities slated to receive millions of dollars in funds,” and “multiple attorneys from the law firms litigating the case sit on the boards of the proposed recipients.”
He said, cy pres — never desirable — was at least more sensible where it was used to distribute remaining funds that were not claimed by class members. But he sharply challenged the practice of designing a ‘no distribution’ settlement in which all the funds went elsewhere via the sleight of hand of cy pres.
He had special ire for the monies going to the ACLU, with which he alleged class counsel had a “cozy relationship” because they had co-litigated cases in the past.
In his mind, the advocacy work of some of the recipients raised an issue of constitutional import: it put objectors in the position of being forced to support ideological work they opposed, in violation of their First Amendment rights.
Frank noted that Google provides charitable support to some of the recipients. That meant, he argued, that by accounting entries Google could simply allocate funding it would have given anyway to the funding of this settlement, making it look like it was a bigger settlement than it really was.
Frank said he was on a mission to call out settlements of this type.
He told the court that he was working pro bono, as his organization does “where class counsel employs unfair procedures, including the misuse of cy pres, to benefit themselves at the expense of the class.”
Despite his forceful opinions and his well-researched 49-page brief in opposition to the settlement, he faced two difficult and ultimately insurmountable challenges.
First, his three clients were the only objectors (out of a potential 250 million) and while that didn’t deprive them of the right to object, it made it hard to persuade U.S. District Judge Edward Davila that there was a groundswell of class members opposition.
But much more importantly, as a federal judge in San Francisco, Davila is bound by precedent from the U.S. Court of Appeals for the 9th Circuit.
A sigh and a prayer
In 2021, in another Google class action settlement, the appeals court considered a no distribution cy pres settlement. As it happens, Frank opposed that settlement and asserted many of the same grounds he asserted in the case before Davila.
He lost.
Given the 9th Circuit’s prior rejection of his position, Frank could not have been surprised that Davila approved the settlement.
In fact, in his filings, Frank said that he was making a record so he could take another shot at the 9th Circuit on appeal and, if unsuccessful, try to get the Supreme Court to take a hard look at the issue.
Frank did not immediately respond to a request for comment, but it must have seemed to him that there was a cosmic coincidence between Davila’s ruling and the pronunciation of “cy pres.”
Frank must have read Davila’s opinion with a sigh, knowing that on appeal to the 9th Circuit he would need to pray.
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