Applying Spokeo to class action settlements, the Supreme Court does not answer the cy pres question in Frank v. Gaos

March 20, 2019

Arbitration Alert

Author(s): Christopher M. Mason, Carolyn G. Nussbaum, Karl D. Belgum

In a per curiam decision yesterday, the Supreme Court vacated and remanded the Ninth Circuit’s affirmance of a proposed settlement of a privacy class action involving claims of improper use of information about internet searches. Agreeing with the United States Solicitor General (who had argued for this result in a brief amicus curiae), the majority held that, because the courts below had not addressed whether any named plaintiff in the case properly had standing to sue following the Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the Court should not decide the question on which it had originally granted review. The Court’s decision is a reminder that, even in settlement, standing matters. In a separate dissent, Justice Thomas indicated what his answer would have been to the underlying question his fellow Justices decided not to decide—the validity or not of certifying a class when cy pres is the primary relief in a case. His view? If a settlement involves certification of a class and primarily cy pres relief (payments not to the class members, but to charitable institutions in lieu of class members), certification would not be proper.

In Frank v. Gaos, No. 17-961, 2019 U.S. LEXIS 2089 (Mar. 20, 2019), the United States Supreme Court vacated a judgment of the United States Court of Appeals for the Ninth Circuit, see In re Google Referrer Header Privacy Litig., 869 F.3d 737 (9th Cir. 2017), that had upheld a proposed settlement of a privacy class action. The relief proposed in that settlement was payments not to individual class members, but (using the doctrine of cy pres) payments to selected not-for-profit privacy organizations approved by the litigants and the District Court, along with some injunctive relief in the form of additional disclosures. But rather than deciding whether such a cy pres settlement was proper, the Supreme Court returned the case to the lower courts. Despite having ordered additional briefing on the issue, eight Justices decided that “there remain substantial questions about whether any of the named plaintiffs has standing to sue in light of our decision in Spokeo, Inc. v. Robins . . . .” Frank, 2019 U.S. LEXIS 2089, at *1.


As explained in the Court’s per curiam decision, the underlying dispute in the Frank case involved Google’s sharing of information about what search terms prompted a particular internet user to click on a particular link that was returned to the user as a result in a Google search. See id. at *1–2. An initial plaintiff sued Google principally on the theory that transmitting such information “violated the Stored Communications Act [the ‘SCA’], 18 U. S. C. § 2701 et seq.,” 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.’” Id. at *2 (quoting 18 U. S. C. § 2702(a)(1) (2019)). Google disputed the standing of that plaintiff, but the District Court disagreed on the basis of Ninth Circuit precedent. Google continued to press its point when the Supreme Court decided to review that Ninth Circuit precedent. But then the Supreme Court dropped that review. See id. at *4 (citing First American Fin. Corp.v. Edwards, 567 U. S. 756 (2012) (dismissing certiorari as improvidently granted)).

So, after consolidation of the initial case with another similar complaint, the parties reached a proposed class settlement. See id. at *4. The settlement involved some injunctive relief, in the form of additional disclosures, and payment of $8.5 million, but not to any class members. Id. at *4-5. Instead, after payment of the attorneys’ fees and expenses of class counsel, the majority of the remainder “would be distributed to six cy pres recipients,” that is, “nonprofit organizations whose work is determined to indirectly benefit class members”—in this particular instance, ones selected to “promote public awareness and education, and/or to support research, development, and initiatives, related to protecting privacy on the Internet,” id. at *5 (citation and internal quotation marks omitted). See also id. at *10 (Thomas, J., dissenting).

The District Court approved this settlement and rejected objections by certain class members, including those who would eventually petition successfully for certiorari to the Supreme Court. See id. at *5-6. Before the Ninth Circuit could decide an appeal from that approval, the Supreme Court issued its ruling in Spokeo. See id. at *6. The Ninth Circuit, however, did not request additional briefing or address Spokeo before reaching a decision. See id. It simply upheld the settlement. See id. The defeated objectors then sought certiorari. See id. at *6-7.

The Supreme Court’s decision

After the Supreme Court granted certiorari, the Frank case attracted substantial attention, including numerous amicus briefs.[1] Importantly, the Solicitor General of the United States, in his amicus brief, argued that the issue of standing had not been properly addressed below. After the novelty of an oral argument in which the lead objector represented himself, the Supreme Court agreed with the Solicitor General’s position and did not reach the merits of the appeal.

The Court carefully described the question it would otherwise have decided as “whether a class action settlement that provides a cy pres award but no direct relief to class members satisfies the requirement that a settlement binding class members be ‘fair, reasonable, and adequate.’” Id. at *6-7 (quoting Fed. R. Civ. P. 23(e)(2)). The Court’s description of what it would have addressed had it reached the merits tends to indicate that it likely would not have eliminated discretion by lower courts to use cy pres to resolve the question of what to do with residual funds from class action settlements in certain circumstances. Instead, it would have focused only on the issue of cy pres as a substantive basis for a class action settlement in the first instance. The majority did not indicate how they would have decided that issue, or state their views of cy pres generally.

In his dissent, Justice Thomas also distinguished between the use of cy pres initially to support a settlement, and any subsequent use afterwards, by separately referring to “[w]hatever role cy pres may permissibly play in disposing of unclaimed or undistributable class funds.” Id. at *10-11 (Thomas, J. dissenting). But perhaps indicating some divergence from the potential views of his colleagues, he also cited Klier v. Elf Atochem N. Am., Inc., 658 F. 3d 468 (5th Cir. 2011), in which a Fifth Circuit panel reversed a cy pres distribution of unclaimed funds in a settlement that expressly required distribution of any residual amount to the class members, id. at 480, and in which one of its members argued that

In the ordinary case, to the extent that something must be done with unclaimed funds, the superior approach is to return leftover settlement funds to the defendant. . . . Other uses of the funds— . . . [including] a cy pres distribution—all result in charging the defendant an amount greater than the harm it bargained to settle. Our adversarial system should not effectuate transfers of funds from defendants beyond what they owe to the parties in judgments or settlements.

Id. at 482 (Jones, C.J., concurring). Yet even Justice Thomas did not appear to imply that cy pres is not an appropriate procedure to deal with leftover settlement funds where, for example, neither the defendant nor the class members can later be found. Compare, e.g., City of Detroit v. Grinnell Corp., 356 F. Supp. 1380, 1390 (S.D.N.Y. 1972) (approving settlement distribution) with Order Approving Distribution of Residual Settlement Funds, City of Detroit v. Grinnell Corp., Nos. 68-cv-4026, 4027, & 4028 (LAP) (S.D.N.Y. Dec. 14, 2010).

But all of this is what the Court did not decide. As to what it did decide, the majority re-emphasized the application of Spokeo as part of the federal courts’ independent obligation “to assure ourselves of litigants’ standing under Article III” of the United States Constitution. Frank, 2019 U.S. LEXIS 2089, at *7 (quoting DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 340 (2006)) (internal quotation marks omitted). In the context of settlements, this obligation applies to class action settlements differently than individual cases because of Federal Rule of Civil Procedure 23(e). See id. at *7-8. As the majority put it, “[a] court is powerless to approve a proposed class settlement if it lacks jurisdiction over the dispute, and federal courts lack jurisdiction if no named plaintiff has standing.” Id. (citing Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 40, n.20 (1976)). And, even though the Court had sought additional briefing on the issues raised by Spokeo (which requires proof that any claimed injuries are sufficiently “concrete and particularized” to support standing, see Spokeo, 136 S. Ct. at 1548), it concluded the Frank case should be remanded because “[t]he supplemental briefs filed in response to our order raise a wide variety of legal and factual issues not addressed in the merits briefing before us or at oral argument,” Frank,2019 U.S. LEXIS 2089, at *8-9.

Only Justice Thomas wanted to reach the merits under these circumstances. He was unequivocal: the settlement class should not have been certified and the settlement should not have been approved. See id., at *12 (Thomas, J., dissenting). He would have reversed for three independent reasons. First, he disagreed with the lower court’s conclusions that the cy pres arrangements at issue provided an “indirect” benefit to class members, and so the willingness of the named plaintiffs to settle while securing benefits only for themselves “strongly suggests that the interests of the class were not adequately represented” for purposes of Federal Rule of Civil Procedure 23(a)(4). Id. at *11. Second, in his view, the absence of any direct benefit to the class rendered the settlement unfair and unreasonable under Rule 23(e)(2). Id. Finally, given the extinguishment of class members’ claims without any payment to them, he questioned whether a class action was “superior to other available methods for fairly and efficiently adjudicating the controversy” at issue under Rule 23(b)(3). Id.


The Supreme Court’s decision is a significant reminder that, even in settling a class action, the standing of the named plaintiff will matter. The affirmative grant of a private right of action by Congress for violation of a statute promising privacy (as in the SCA) may not be enough by itself to guarantee standing. In the meantime, the Court’s fairly narrow characterization of the cy pres question originally presented to it, even with the comments in Justice Thomas’s dissent, offers some comfort that the majority was not ready to reject all discretion of lower courts to employ cy pres in appropriate circumstances in class actions.

  1. Nixon Peabody LLP filed such a brief on behalf of the New York State Bar Foundation and the New York State Bar Association. See Brief of the New York Bar Foundation and the New York State Bar Association as Amici Curiae, Frank v. Gaos, 2019 U.S. LEXIS 2089 (Mar. 20, 2019) (No. 17-961), 2018 U.S. S. Ct. Briefs LEXIS 3289.
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