Court Rejects AOL Deal That Aided Lawyers Only

(CN) - AOL should not have to make $100,000 in charitable donations to settle class claims over allegedly surreptitious email advertising, the 9th Circuit ruled Monday, rejecting an agreement that objectors have called "a veritable poster-child for class action abuse."

Plaintiffs representing a class of more than 66 million AOL subscribers sued the company two years ago in California for inserting footers containing promotional messages into their emails.

The parties eventually settled, and agreed to a cy-près (as near as possible) payout. AOL claimed that it had made only about $2 million from the offending advertising, the division of which would have awarded each class member about 3 cents. Instead, the finished settlement called on AOL to donate $75,000 to each of three charities chosen by a federal mediator, and $8,750 to each of the charities designated by four named plaintiffs. The nonprofits poised to benefit included the Boys and Girls Clubs of Los Angeles and Santa Monica, Los Angeles Legal Aid, the Federal Judicial Center Foundation, New Roads School of Santa Monica, Oklahoma Indian Legal Services and the Friars Foundation.

Backed by the Washington, D.C.-based public-interest law firm Center for Class Action Fairness, class member Darren McKinney objected to the settlement.

"Three law firms, representing plaintiffs in a putative class action over the presence of advertising in footers of AOL members' emails, have negotiated an extraordinary settlement that will pay zero to the millions of class members for extinguishing their claims, yet over $300,000 to the attorneys," McKinney's objection states. "The non-economic benefit to the class - a $75,000 payment to charities that are neither class members nor have suffered any injury and an additional email to AOL members regarding policies predating the lawsuit - is illusory. Moreover, the representative plaintiffs will get to direct $35,000 to the charities of their choice, hundreds of times more than any conceivable injury they have suffered. The case is a veritable poster-child for class action abuse."

U.S. District Judge Christina Snyder disagreed and certified the settlement in late 2009. But a three-judge panel of the 9th Circuit reversed that decision on Monday, finding the agreement part of a growing tendency among federal judges to "abandon[ ] the 'next best use' principle implicit in the cy pres doctrine."

"When selection of cy pres beneficiaries is not tethered to the nature of the lawsuit and the interests of the silent class members, the selection process may answer to the whims and self interests of the parties, their counsel, or the court," Judge N. Randy Smith wrote for the federal appeals panel in Pasadena. "Moreover, the specter of judges and outside entities dealing in the distribution and solicitation of settlement money may create the appearance of impropriety."

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