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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