Shari Claire Lewis Shari Claire Lewis

Several weeks ago, in Frank v. Gaos, No. 17-961 (U.S. March 20, 2019), the U.S. Supreme Court vacated a decision by the U.S. Court of Appeals for the Ninth Circuit that upheld a settlement of class action claims against Google for alleged violations of the Stored Communications Act (SCA). The Supreme Court initially had agreed to hear the case to address the question of whether the proposed settlement, which provided for cy press payments but no individual recovery to absent class members, was “fair, reasonable, and adequate” as required for court approval of the settlement pursuant to Federal Rule of Civil Procedure 23(e)(2). However, after oral argument, the Supreme Court turned its attention to an entirely different issue—whether the plaintiffs had standing to pursue recovery under the SCA in the first instance—and remanded for further proceedings on that issue. In doing so, the Supreme Court applied its recent ruling in Spokeo v. Robins, 578 U. S. ___, 136 S. Ct. 1540, 194 L. Ed. 2d 635 (2016) to Internet and technology claims. It concluded that, to have standing, plaintiffs must demonstrate actual and concrete harm that is not established by mere violation of a statutory right, such as under the SCA or other privacy statutes.

The Supreme Court’s ruling, therefore, did not determine the original issue concerning approval of class action settlements. Instead, it may be interpreted to substantially limit the ability of consumers to sue Internet companies and other technology businesses for what often are only technical violations of the law, because any individual plaintiff may find it difficult to demonstrate actual and quantifiable harm as a result of such alleged violations for purposes of standing.

The Complaints Against Google

The Frank case arose when an individual filed a class action complaint against Google for alleged violations of the SCA, which prohibits “a person or entity providing an electronic communication service to the public” from “knowingly divulg[ing] to any person or entity the contents of a communication while in electronic storage by that service.” 18 U. S. C. §2702(a)(1). The SCA also creates a private right of action that entitles any “person aggrieved by any violation” to “recover from the person or entity, other than the United States, which engaged in that violation such relief as may be appropriate.” 18 U. S. C. §2707(a).

The complaint alleged that when an Internet user conducted a Google search and clicked on a hyperlink to open one of the webpages listed on the search results page, Google transmitted information including the terms of the search to the server that hosted the selected webpage. This so-called “referrer header” told the server that the user arrived at the webpage by searching for particular terms on Google’s website. For instance, if a user entered “2016 presidential election” into Google’s search box and clicked on a link to www.cnn.com/election on the search results page, the “referrer header” would tell CNN that the user found his or her way there via http://www.google.com/search?q=2016+presidential+election. Notably, the referrer header did not provide identifying information regarding the user performing the search. The complaint alleged that Google’s transmission of users’ search terms in referrer headers violated the SCA.

Google moved to dismiss for lack of standing three times. Its first attempt was successful. The district court reasoned that although “a plaintiff may establish standing through allegations of violation of a statutory right,” the plaintiff had “failed to plead facts sufficient to support a claim for violation of her statutory rights.” That is, the district court decided, she had failed to plead that she actually had clicked on a link provided through a Google search that resulted in referrer header information being sent about the search.

After the plaintiff filed an amended complaint, Google again moved to dismiss. That second attempt was partially successful. The district court dismissed the plaintiff’s state law claims, but denied the motion as to the plaintiff’s SCA claims. The district court reasoned that because the SCA created a right to be free from the unlawful disclosure of certain communications, and because the plaintiff alleged a violation of the SCA that was specific to her (that is, it was based on a search she had conducted), the plaintiff alleged a concrete and particularized injury.

The district court rested that conclusion on Edwards v. First American, 610 F.3d 514 (9th Cir. 2010)—a Ninth Circuit decision reasoning that an Article III injury existed whenever a statute gave an individual a statutory cause of action and the plaintiff claimed that the defendant violated the statute.

After the district court ruled on Google’s second motion to dismiss, the Supreme Court granted certiorari in Edwards to address whether an alleged statutory violation alone could support standing.

In the meantime, the plaintiff and a second individual filed a second amended complaint against Google. Google once again moved to dismiss. Google argued that the named plaintiffs did not have standing to bring their SCA claims because they had failed to allege facts establishing a cognizable injury. Google recognized that the district court had previously relied on Edwards to find standing based on the alleged violation of a statutory right but said that because the Supreme Court had agreed to review Edwards, it would continue to challenge the district court’s conclusion.

The Supreme Court eventually dismissed Edwards, concluding that certiorari had been improvidently granted. As a result, Google withdrew its argument in Frank that the plaintiffs lacked standing for the SCA claims and the issue was never reached.

The plaintiffs’ putative class action was consolidated with a similar complaint, and the parties negotiated a settlement that required Google to include certain disclosures on some of its webpages about referrer headers and to pay $8.5 million.

Of the $8.5 million settlement fund, approximately $3.2 million was set aside for attorneys’ fees, administration costs, and incentive payments to the named plaintiffs. None of the approximately $5.3 million remaining was allocated to any of the 129 million class members; if it had been allocated on a pro rata basis, each class member would have received four cents from the fund.

Instead, the funds were allocated to six cy pres recipients, each of which was to receive anywhere from 15 percent to 21 percent of the money provided that they 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].” The six recipients were AARP; the Berkman Center for Internet and Society at Harvard University; Carnegie Mellon University; the Illinois Institute of Technology Chicago-Kent College of Law Center for Information, Society and Policy; the Stanford Center for Internet and Society; and the World Privacy Forum. Each of the recipients had submitted a detailed proposal for how the funds would be used to promote Internet privacy.

The district court granted preliminary certification of the class and preliminary approval of the settlement. Five class members objected to the settlement, complaining among other things that providing only cy pres relief did not comport with the requirements of Fed. R. Civ. P. 23(e). After a hearing, the district court granted final approval of the settlement.

After two of the class members appealed, the Supreme Court issued it decision in Spokeo v. Robins, 578 U. S. __ , 136 S. Ct. 1540, 194 L. Ed. 2d 635 (2016), concerning a claim brought under the Fair Credit Reporting Act of 1970 that Spokeo’s search engine resulted in dissemination of inaccurate information concerning Robins. The court concluded that, “Article III standing requires a concrete injury even in the context of a statutory violation.” Spokeo rejected the premise that “a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.”

Despite the intervening Spokeo decision, in Frank, a divided panel of the Ninth Circuit affirmed the district court, without addressing Spokeo. The Supreme Court granted certiorari to decide whether a class action settlement that provided a cy pres award but no direct relief to class members satisfied the Rule 23(e)(2) requirement that a settlement binding class members be “fair, reasonable, and adequate.” The standing issue was not part of that order.

Standing

After oral argument on the cy press settlement question, the court ordered supplemental briefing from the parties and from the Solicitor General to address whether any named plaintiff had alleged SCA violations sufficiently concrete and particularized to support standing under Spokeo.

The Solicitor General’s supplemental brief, which declared in its opening paragraph that, “[i]n the government’s view, none of the named plaintiffs has Article III standing,” is worth reading. The brief explained that, in contending that they had standing, the named plaintiffs appeared to allege two distinct injuries arising from alleged violations of the SCA: First, that the disclosure of their search terms itself inflicted a harm, even though the disclosures did not identify them as the individuals who performed the searches, and, second, that the disclosures created a risk of harm by enabling third parties to “reidentify” them and connect them to particular searches.

In the government’s view, neither of those alleged harms constituted an injury in fact sufficient for Article III standing after Spokeo. Even the allegations of potential “reidentification” were too speculative to satisfy the standing requirement, the government asserted.

The government suggested, therefore, that the court should vacate the judgment in Frank and remand for the Ninth Circuit and district court to address whether the plaintiffs had standing.

The Court’s Decision

The court did just that. In its brief per curiam decision, the court said that it concluded, after reviewing the supplemental briefs, that the case should be remanded for the Ninth Circuit and district court “to address the plaintiffs’ standing in light of Spokeo.”

The court declared that nothing in its per curiam opinion “should be interpreted as expressing a view on any particular resolution of the standing question.” (Justice Thomas, dissenting, concluded that the plaintiffs had standing, but no other Justice joined in his opinion.)

However, given Spokeo and the court’s apparent reliance on the Solicitor General’s supplemental brief, there appears to be a good likelihood that, if the case reaches the court again, it would hold that the plaintiffs did not have standing.

The Upshot

Whereas the Frank case was expected to be a referendum on the ability of district courts to approve cy pres class action settlements, that discussion was “sidelined.” Instead, it morphed into something with potentially broader implications: consumer standing in lawsuits against Internet businesses. If the district court and the Ninth Circuit—and perhaps the Supreme Court—decide in Frank that the named plaintiffs do not have standing to assert SCA claims against Google, consumers may be limited in their ability to bring class actions against Internet service providers and other Internet and technology companies for technical violations of the SCA and under a host of other federal statutes—such as the Telephone Consumer Protection Act and the Video Privacy Protection Act—that plaintiffs have been relying on for years to sue these kinds of defendants.

By the same token, if consumer class action standing is limited, then the cy pres question may simply disappear, because defendants would not have to agree to settlement lawsuits to avoid the possibility—however small it may be—of large statutory damage awards. Stay tuned.

Shari Claire Lewis, a partner in the Long Island office of Rivkin Radler, can be reached at shari.lewis@rivkin.com.