Supreme Court to address cy pres only class action settlements
Cy pres is short for the French term “cy pres comme possible,” or “as near as possible.” It is an equitable doctrine that generally has been applied in U.S. class actions when a portion of settlement funds remain unclaimed, particularly because class member claims fell short of the available funds or the claims process is unduly burdensome or costly. In such situations, the cy pres doctrine has been adopted by the circuit courts to approve the distribution of unclaimed settlement funds to charities and foundations in order to achieve the “next best” result.
Background: the Google privacy class action settlement
On April 30th, in Frank v. Gaos, the Supreme Court accepted a certiorari petition challenging a Ninth Circuit decision that approved a cy pres only settlement of a privacy class action, In re Google Referrer Header Privacy Litig. The case involves claims that Google, through its Google Search process, violated users’ privacy by disclosing their Internet search terms to owners of third-party websites. Suit was brought on behalf of 129 million users of Google Search for violation of the Stored Communications Act, which provides for statutory damages of $1,000, and various common law claims. Of significance, plaintiffs did not allege any actual harm from the challenged practice.
Prior to a class certification hearing, the parties settled on the basis of a payment by Google of $8.5 million, and its agreement to provide information on its website disclosing how users’ search terms are shared with third parties, in exchange for a release of the claims of the 129 million people who used Google Search in the U.S. after October 2006. $3.2 million of the settlement fund was set aside for attorneys’ fees of $2.1 million, administrative costs, and incentive payments to the named plaintiffs. The remaining $5.3 million was allocated to six cy pres recipients, requiring each to agree “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.” Each of the recipients submitted a detailed proposal for how the funds would be used to promote Internet privacy. Various forms of notice were sent to the class, and out of 129 million putative class members, only 13 opted out of the settlement and five-- the Supreme Court Petitioners—filed objections.
The Ninth Circuit decision
The Ninth Circuit affirmed the settlement in August 2017. It stressed at the outset that “cy-pres only settlements are considered the exception, not the rule,” and that such settlements are appropriate only when the settlement fund is “non-distributable” because “the proof of individual claims would be burdensome or distribution of damages costly.” In support, it declared: (i) the district court correctly found that the amount of the fund was appropriate, “given the shakiness of the plaintiffs’ claims”; (ii) the distribution of the remaining $5.3 million in the settlement fund would have given each class member 4 cents in recovery—“a de minimis amount if there ever was one,”; (iii) the cost of sending out such payments would exceed the monetary benefit to the class; and (iv) the cy pres only settlement met the superiority requirement of Rule 23 (b)(3), because it was the most efficient and effective means of resolving the suit when “recovery on an individual basis would be dwarfed by the cost of litigating on an individual basis.”
The Supreme Court’s interest in cy pres settlements
In 2013, Chief Justice Roberts declared, in the context of a denial of certiorari, that here were important foundational cy pres settlement questions that could use Supreme Court guidance, “including when, if ever, such relief should be considered; how to assess its fairness as a general matter; whether new entities may be established as part of such relief; if not, how existing entities should be selected; what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on.”
Apparently, the Google settlement presented the Supreme Court with that opportunity, and certiorari was granted on April 30th. The question presented by the Petitioners was stated to be: “Whether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class members must be fair, reasonable, and adequate.” The permissibility of the use of cy pres relief with respect to unclaimed funds after payment of the claims of class members is not at issue.
Analysis of the issues
There may not be a split among the circuits
Of interest with respect to the Supreme Court’s acceptance of the Google case, is the fact that there may actually not be a conflict among the circuits. As noted earlier, the Ninth Circuit declared in this case that although such settlements are permissible, “cy-pres only settlements are considered the exception, not the rule.” The Second, Third, Fifth, Seventh, and Eighth Circuits may agree, all indicating that such a remedy is available when a settlement fund would not be “feasible” because class members cannot be identified, the settlement amount would result in negligible payments to class members, or would be entirely consumed in the costs of distribution. Decisions from the other circuits rejecting the concept were not uncovered.
Cy pres only settlements are a rarity
Moreover, since Chief Justice Roberts’ stated concern in 2013, it has been reported that only 3 percent of cy pres settlements have been cy pres only, with all others authorizing cy pres relief only with respect to funds not claimed by class members, or involving uncashed checks sent to class members. Indeed, the number of cy pres only settlements should continue their downward spiral as a result of the Supreme Court’s 2016 Spokeo decision denying Article III standing for automatic statutory damages without a showing of actual harm. The Stored Communications Act, which is involved in the Google case, provides for statutory damages, and the plaintiffs failed to allege any actual, concrete harm that they or any class members suffered as a result of the challenged practice. Indeed, that may be a reason only 13 putative class members out of 129 million opted out of the class, which further supports the adequacy of both the $8.5 million settlement and award of only cy pres relief.
The Cy pres recipient choices appear merited
The Petitioners had strongly objected to the choice of the six cy press recipients because Google had in the past donated to some of them, and three were organizations within class counsel’s alma maters.
The Ninth Circuit responded that a prior relationship or connection between a cy pres recipient and a party or its counsel, without more, does not disqualify the recipient. Instead, a number of factors are to be considered, including the nature of the relationship, the significance of dealings between the recipient and the party or counsel, the circumstances of the selection process, and the merits of the recipient.
The appellate court concluded that the district court in fact had addressed each of these considerations, and properly had rejected the objections based on a review of all the facts, concluding that the prior affiliations did not raise substantial questions on whether the selection of the recipients was made on the merits. 
Petitioners’ alternative settlement proposals would provide relief only to a partial group of class members
Finally, Petitioners had asked the Ninth Circuit to adopt a mechanism that would provide monetary relief to a small portion of the class, e.g., a settlement fund by random lottery distribution, or the offering of $5 to $10 per claimant, on the assumption that few class members would make claims for negligible amounts. The Ninth Circuit rejected payment to only a small portion of the class on the ground that the interests of the class are served better by payments to the cy pres recipients to fund research, analysis, education, and advocacy on Internet privacy issues that will possibly benefit the class as a whole. Accordingly, It concluded that the district court had discharged its obligation to assure the settlement was “fair, adequate, and free from collusion” by accepting the cy pres remedy. The Ninth Circuit added that the district court did not abuse its discretion by finding that the settlement met the superiority requirement of Rule 23, stressing once more that the litigation otherwise would have been economically infeasible.
The Supreme Court has never addressed the permissibility of cy pres relief in class action settlements, or the limitations, if any, that should apply to such relief because there appears to be no circuit split as to the permissibility of such relief—even with respect to cy pres only settlements-- and the narrow question before the Court, that is itself limited to such settlements, it is likely that the Court will limit its decision to such rare situations.
 See In re Baby Products Antitrust Litig., 708 F. 3d 163, 172 (3d Cir. 3013) (noting it “join[ed] other courts of appeals” in holding that a class action settlement may include a cy pres component).
 No. 17-961, Apr. 30, 2018
 869 F.3d 737 (9th Cir. 2017).
 15 U.S.C. § 2701 et seq.
 869 F.3d at 740.
 The six recipients were: AARP, Inc; 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.
 869 F.3d at 740
 Id. at 741.
 Id. at 742-43, quoting 7AA Charles Alan Wright et al., Federal Practice and Procedure §1779 (3d ed. 2005).
 Marek v. Lane, 134 S. Ct. 8, 9 (2013) (Roberts, C.J., respecting the denial of certiorari).
 Frank v. Gaos, No. 17-961 (S. Ct. April 30, 2018), Petition for Certiorari, at (i) (Jan. 2018).
 869 F.3d at 741.
 See, e.g., Pearson v. NBTY, Inc., 772 F.3d 778, 784(7th Cir. 2014) (cy pres permissible if parties can demonstrate that it is “infeasible to provide that compensation to the victims”); In re Baby Prods. Antitrust Litig., 708 F.3d 163, 173 (3d Cir. 2013) (“cy pres distributions are most appropriate where further individual distributions are economically infeasible”); Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468, 475(5th Cir. 2011) (cy pres awards to third parties are appropriate “when direct distribution to class members are not feasible”); Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 436 (2d Cir. 2007) (cy pres remedy available in “circumstances when direct distribution to individual class members is not economically feasible”); Powell v. Georgia-Pacific Corp., 119 F.3d 703, 706 (8th Cir. 1996) (“cy pres distribution is potentially appropriate “ when “it would be extremely difficult to distribute the funds pro rata”).
 Natalie Rodriguez, Era of Mammoth Cases Tests Remedy of Last Resort, Law360 (May 2, 2017).
 Spokeo, Inc. v. Robbins, 136 S. Ct., 1540 (2016).
 869 F.3d at 743-47.
 Id. at 742.
*Irving Scher is Senior Counsel in the New York office.