Opinion analysis: Justices sidestep decision on propriety of “cy pres” class-action settlements

This morning the justices issued a per curiam opinion vacating the decision of the lower court in Frank v. Gaos. They had granted review in that case to consider the propriety of so-called “cy pres” settlements – settlements of class actions that distribute all or a part of the monetary relief to public-interest or charitable recipients instead of the named plaintiffs. In this case, for example, the lower courts awarded $8.5 million in monetary relief in a suit brought by plaintiffs alleging that Google’s privacy practices violated the Stored Communications Act. Because the amount of the settlement per plaintiff was quite small (less than a dime), the district court concluded that it was impracticable to distribute funds to the plaintiffs and instead ordered that the funds be paid to several initiatives studying internet privacy and information sharing. Many have challenged cy pres settlements as an inappropriate exercise of the judicial power, reasoning that an award that does not provide redress to the injured parties is not proper, and the justices granted review here to assess that practice.

What we learned this morning is that the justices will not answer that question this spring. Instead, they vacated the decision of the U.S. Court of Appeals for the 9th Circuit and sent the case back for further consideration in light of the Supreme Court’s 2016 decision in Spokeo v. Robins. The Spokeo court held that a plaintiff in federal court cannot establish standing to sue simply by alleging a violation of a federal statute; the plaintiff must identify some cognizable real-world harm. Because the lower courts considered the standing question before the Supreme Court’s decision in Spokeo, they approved standing without considering the Spokeo standard. Indeed, the lower courts relied on an earlier 9th Circuit decision that was disapproved in Spokeo. Today’s opinion instructs the lower courts to consider the standing question anew, applying the standard that Spokeo articulated.

The decision is not surprising. The U.S. solicitor general filed an amicus brief urging the court to take just this approach, and promptly after oral argument the justices called for additional briefing on the possibility of reconciling the decision below with Spokeo.

Those who are opposed to cy pres settlements will have to wait for another case to arise in which the court can consider them. The good news for opponents is that now they have an opinion from Justice Clarence Thomas (dissenting from the per curiam) arguing that cy pres payments do not conform to Federal Rule of Civil Procedure 23, which governs class actions, because they “are not a form of relief to the absent class members and should not be treated as such.”

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Past case linked to in this post:

Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016)