Thursday, August 24, 2017

cy pres-only settlement ok'd in Google privacy case

In re Google Referrer Header Privacy Litigation, --- F.3d ----, 2017 WL 3601250, No. 15–15858 (9th Cir. Aug. 22, 2017)

The underlying class action claimed that Google violated users’ privacy by disclosing their internet search terms to owners of third-party websites. The court of appeals, over a partial dissent, finds that the district court didn’t abuse its discretion in approving the $8.5 million cy pres–only settlement.  The settlement provided that Google would provide information on its website disclosing how users’ search terms are shared with third parties.

About $3.2 million was set aside for attorneys’ fees, administration costs, and incentive payments to the named plaintiffs, and the remaining $5.3 million or so was allocated to six cy pres recipients who agreed “to devote the funds to promote public awareness and education, and/or to support research, development, and initiatives, related to protecting privacy on the Internet”: AARP, Inc.; the Berkman Center for Internet and Society at Harvard University (disclosure: I am affiliated with the center, now the Berkman-Klein Center); Carnegie Mellon University; the IIT Chicago–Kent College of Law Center for Information, Society and Policy; the Stanford Center for Internet and Society; and the World Privacy Forum. Each recipient submitted a detailed proposal for how the funds would be used to promote Internet privacy; the dissent criticized the inclusion of the relatively new Chicago-Kent program, and the majority opinion touts its accomplishments.

Because this settlement took place before formal class certification, settlement approval requires a “higher standard of fairness.” Cy pres-only settlements are the exception, not the rule.  They are appropriate where the settlement fund is “non-distributable” because “the proof of individual claims would be burdensome or distribution of damages costly.” The district court reasonably found the settlement here non-distributable; “each class member was entitled to a paltry 4 cents in recovery—a de minimis amount if ever there was one,” and the cost of finding and verifying them would far exceed that.

Objectors sought a requirement that some non-named class members be compensated, perhaps by lottery.  But that’s not required for fairness.  Further, the fact that the settlement fund was non-distributable doesn’t disprove superiority under Rule 23(b)(3). “[T]he purpose of the superiority requirement is to assure that the class action is the most efficient and effective means of resolving the controversy.” Small individual recoveries are a hallmark of situations where class actions are superior, so that’s consistent with a cy pres-only settlement. 

The majority also rejected objectors’ challenges to the recipients due to claimed relationships between counsel or the parties and some of the cy pres recipients. To avoid unfairness and abuse, cy pres awards must meet a “nexus” requirement by being tethered to the objectives of the underlying statute and the interests of the silent class members. But objectors didn’t argue that the nexus requirement had been violated; the recipients were independent, established national organizations with “a record of promoting privacy protection on the Internet.” “Although the district court expressed some disappointment that the recipients were the ‘usual suspects,” it recognized that “failure to diversify the list of distributees is not a basis to reject the settlement ... when the proposed recipients otherwise qualify under the applicable standard.’”  

However, the objectors argued, Google had in the past donated to some of the cy pres recipients, three of the cy pres recipients previously received Google settlement funds, and three of the cy pres recipients were organizations housed at class counsel’s alma maters. The ALI says, “[a] cy pres remedy should not be ordered if the court or any party has any significant prior affiliation with the intended recipient that would raise substantial questions about whether the selection of the recipient was made on the merits.” But not every prior relationship is disqualifying. The fact that Google had a role in reviewing the recipients wasn’t disqualifying, as long as the nexus requirement was satisfied, because Google was entitled to bargain in its own interests.  Moreover, Google’s earlier donations were unsurprising, given “the burgeoning importance of Internet privacy” and the breadth of its donations; the district court conducted its own review of the recipients’ proposals and found them appropriate.  “Notably, some of the recipient organizations have challenged Google’s Internet privacy policies in the past,” but more importantly, the process was transparent and the proposed recipients disclosed previous Google donations and explained how the cy pres funds were distinct from Google’s general donations.

Previous receipt of cy pres funds from Google wasn’t disqualifying “without something more, such as fraud or collusion,” and a ‘new recipient every time’ rule would be in tension with the nexus requirements, which prefer a cy pres recipient with a “ ‘substantial record of service.’ ” “But in emerging areas such as Internet and data privacy, expertise in the subject matter may limit the universe of qualified organizations that can meet the strong nexus requirements we impose upon cy pres recipients.”

Finally, class counsel’s alma maters didn’t matter.  There might be a case where alumni connections could cast doubt on the propriety of the selection process, but this wasn’t it. “[C]lass counsel have no ongoing or recent relationships with their alma maters and have no affiliations with the specific research centers,” which were well-recognized in the relevant field; the objectors didn’t suggest more qualified alternatives.

Judge Wallace agreed that a cy pres-only settlement was appropriate in this case and agreed that the fee award was fine, but was troubled that “47% of the settlement fund is being donated to the alma maters of class counsel” and wanted an evidentiary hearing at which class counsel would be examined under oath about the role of their prior affiliations in the selection.  Given the connection, Judge Wallace wouldn’t put the burden on the objectors to show that the settlement might be tainted; district courts “must be particularly vigilant not only for explicit collusion, but also for more subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations.” A cy pres-only settlement was a yellow flag, as was a settlement before class certification; adding several million dollars being given to class counsel’s alma maters raised a red flag, especially to the newborn Chicago-Kent center.  The burden should be on class counsel to show appropriateness, and one-line declarations of a lack of present affiliation with the relevant institutions weren’t sufficient.  Unsworn statements in court weren’t enough: “My experience as a trial judge taught me to be skeptical of unsworn statements from lawyers, especially when it comes to conflict of interest issues.” Judge Wallace wanted to know, among other things, what other institutions were considered, whether counsel donated funds in the past, whether their family members served on any alma mater committees or boards, and how often counsel visited.

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