Before the end of the current term, the U.S. Supreme Court will get another chance to consider class action settlements in which all or nearly all the funds are paid to unrelated third parties and lawyers instead of to class members.
The justices last week avoided ruling on the merits of the controversial practice, known as “cy pres,” in the case Frank v. Gaos. The high court, in an unsigned opinion, sent that case, which involved an $8.5 settlement with Google, back to the U.S. Court of Appeals for the Ninth Circuit to determine whether the plaintiffs had suffered the required harm necessary to have standing to sue.
Ted Frank, director of litigation at the Hamilton Lincoln Law Institute, who argued pro se in Frank, has another cy pres petition teed up for the justices—one that he says lacks the problem that triggered the justices’ decision last week to punt on the merits.
“There are no technical trip ups,” Frank said. “There will not be an Article III standing problem, a Spokeo (v. Robins) problem. This is a claim for money, a claim for fraud.”
The Google settlement was known as a cy pres-only agreement, where more than $5 million would be paid to six entities that are focused on internet privacy research, more than $2 million to class counsel, and no money to absent class members. With an estimated 129 million class members, the trial court found the settlement money was not distributable. A federal appeals court upheld that conclusion.
Justice Clarence Thomas last week dissented from the high court’s opinion, writing: “Because the class members here received no settlement fund, no meaningful injunctive relief, and no other benefit whatsoever in exchange for the settlement of their claims, I would hold that the class action should not have been certified, and the settlement should not have been approved.”
There is some appetite at the court for reviewing cy pres cases. In 2013, Chief Justice John Roberts Jr. expressed his “fundamental concerns” with such settlements. The justices “may need to clarify the limits on the use of [cy pres],” which he said “are a growing feature” of class action settlements.
Frank’s new challenge does not involve a cy pres-only settlement but, he said, “it’s just as abusive.”
The case, Perryman v. Romero, stems from a lawsuit alleging Provide Commerce Inc. and Regent Group Inc. unlawfully enrolled 1.3 million online consumers in a rewards program without their consent and then charged them a monthly membership fee after they accepted a $15 “thank you” gift.
The settlement created a $12.5 million cash fund. Class counsel sought $8.65 million in fees and $200,000 in costs from the fund. Class representatives would receive $80,000 in awards from the fund. Each class member would received a $20 “e-credit” for use on Provide Commerce’s websites. The remaining funds would be used for refunds.
Only 3,000 class members sought refunds for total of $225,000, leaving about $3 million for cy pres awards to three San Diego-area universities, including the University of San Diego School of Law, alma mater to several of the attorneys in the case.
Washington attorney Brian Perryman, a class member, objected to the settlement, which called for a cy pres award even though every class member was known and would receive the e-credit. He also challenged the award to the three San Diego schools, which were local even though, he argued, the class was nationwide.
The Ninth Circuit affirmed the cy pres award, acknowledging “it might be technically feasible” to distribute the amount to the non-claimant class members, but such a distribution would be “de minimis” because there were more than a million members. The awards would run from between $2.50 and $7. The court vacated the attorney fee award, which is being recalculated in the district court.
In the Google high court case, Frank had urged the justices to hear Perryman if they failed to reach the merits of the settlement involving Google.
“The circuit split is still there,” Frank said. “They granted cert on it before and the Ninth Circuit is still signing off on some really appalling cy pres settlements.”
Jennie Anderson of San Francisco’s Andrus Anderson, represents Josue Romero and other class members. She did not respond to a request for comment. The high court has given her until April 17 to file a brief in opposition. Provide Commerce was represented in the Ninth Circuit by Leo Norton of Cooley.
Sixteen state attorneys general, led by Arizona solicitor general Oramel Skinner, have filed an amicus brief supporting Frank’s petition.
The Center for Individual Rights, with Michael Rosman as counsel, also is a supporting amicus. Rosman raises a First Amendment issue with cy pres awards. Relying on the high court’s union fee decision—Janus v. AFSCME, Rosman tells the court that cy pres funds “may then be used to engage in speech or political activity with which class members may very well disagree, in violation of their First Amendment rights.”
Jonah Knobler, partner in Patterson Belknap Webb & Tyler, said the oral arguments in Frank’s Google case suggested that cy pres-only settlements were not likely to survive.
“We could only guess how Justice Thomas felt about them, however, since he did not speak,” Knobler said. “With Thomas’ dissent, it is even more likely that, once the court finally reaches the issue, it will significantly limit the use of cy pres.”