Cy Pres Settlements in the Ninth Circuit – A View From the Street

Cy pres-only class action settlements are alive and well in the Ninth Circuit, where a unanimous panel of the court recently affirmed a settlement that provides no monetary relief whatsoever to the class, but awarded millions of dollars in attorneys’ fees to class counsel and distributed monetary relief to nine, third-party cy pres recipients. The case, In re Google Inc. Street View Electronic Communications Litigation, revolved around the collection of private data by Google’s Street View vehicles — cars deployed for use in Google’s program to collect and display panoramic street-level images around the world. The Street View program launched in 2007, and in May 2010, Google announced that its Street View vehicles were inadvertently collecting personal data such as emails, usernames, passwords, and documents transmitted over unsecured Wi-Fi networks. Regulatory action ensued, and Google agreed to address the problem. As often reported in our Carlton Fields Class Action Survey report, class action litigation predictably followed. Ultimately, several competing consumer class actions were consolidated in the Northern District of California.

The class was not readily or feasibly ascertainable, and it took the district court three years, with the assistance of a special master, custom software, “complex technical searches,” and analysis just to prepare an arguably inconclusive report about whether the 18 named plaintiffs were, themselves, members of the putative class. By June 2018, however, Google was prepared to settle. The parties reached a settlement agreement for a class of all persons who used a wireless network device from which data was obtained. The class was estimated to include 60 million members. The settlement consisted of injunctive relief and a $13 million fund, none of which would be distributed to absent class members. Rather, after payment of a 25% attorney fee award to class counsel, incentive awards to the class representatives, and various expenses, the fund was to be distributed to nine cy pres recipients allegedly committed to promoting the protection of internet privacy. The district court finally approved the settlement over objections that the fund should be distributed to class members and that class certification should be denied for failing to meet Rule 23(b)(3)’s superiority requirement.

The Ninth Circuit affirmed. The court rejected the objectors’ contention that a district court may not approve a class action settlement where cy pres payments comprise the only monetary “relief” and no money is distributed to absent class members. Although technically this was an issue of first impression, the court held that adopting a blanket rule against such cy pres arrangements would be incompatible with existing precedent that generally recognizes cy pres as an acceptable solution for distributing settlement funds that cannot effectively be distributed to the class. The panel also rejected the notion that it was feasible to distribute the settlement fund to class members in the litigation at hand and concluded that, because proof of class membership would have been incredibly burdensome, and any distribution of relief to the class too costly, the district court did not abuse its discretion by approving a cy pres-only 23(b)(3) settlement.

The panel also flatly rejected one objector’s superiority argument, relying on the court’s prior decision in Briseno that administrative feasibility is not an express requirement under Rule 23, and suggesting that the circuit’s consistent approval of cy pres awards is a recognition that cy pres is a valid tool for sending relief to a “next best class” of recipients. The court also rejected the objector’s contention that cy pres did not meaningfully benefit the class, noting prior opinions that describe cy pres as providing “indirect” benefits to class members.

Although Judge Bade joined the majority and authored the opinion, she also drafted a concurrence, reflecting on what Chief Justice John Roberts called “fundamental” questions regarding the use of cy pres payments in class actions. Those questions are by now well-documented and include, among others, whether cy pres is inappropriate in the class action context because it implicates: conflicts of interest between class counsel and absent class members, incentives for collusion, the use of a procedural device to shape substantive rights, punishment of defendants in the name of social policy without conferring a benefit upon any particular wronged person, and more. For all of these reasons, and despite her authorship affirming approval of the settlement, Judge Bade concluded that “it is time we reconsider the practice of cy pres awards.”

It appears this may not be the end of the road for this settlement, as one objector has subsequently filed a petition for rehearing and rehearing en banc, which remains pending before the Ninth Circuit.