WASHINGTON (CN) - Probing a class action settlement that would pay only pennies to 129 million affected consumers, the Supreme Court appeared hesitant Wednesday to rewrite the rules on so-called cy pres awards.
"I understand your fear, but as I look at the full cy pres awards, they're rare," Justice Sonia Sotomayor said. "The list that I've looked at is, what, five in how many years? It's not as if it's occurring routinely, number one. Number two, you do point to some potentially abusive situations, but in all those situations, it's the cases where the circuit court rejected a cy pres award. It seems like the system is working, not not working."
The idea of cy pres settlements is to make it easier to disburse money in cases that settle for a relatively small amount but have a large class. Instead of sending out tiny sums to millions of people, cy pres settlements give money to groups that will theoretically provide at least an indirect benefit to the class. A portion of the money also goes to class counsel.
Such was the case in a 2013 settlement agreement between Google and a class of people who objected to information the tech giant provides to websites after a user clicks a link on a page of search results. Google agreed to pay $8.5 million, with $2.125 million going to the attorneys and the remainder to organizations devoted to internet privacy education.
Some of the class members objected, saying the agreement primarily benefitted groups that either had a relationship with the attorneys or that would have received financial support from Google anyway.
Arguing before the Supreme Court on Wednesday, Theodore Frank, an attorney with the Competitive Enterprise Institute who is challenging the award, told the justices it would not have been difficult to distribute the money among people who made claims. He said approval of the cy pres settlement deprived people of the chance to file a claim for their share of the settlement.
"How can it be fair and reasonable for a court to endorse such an abuse?" Frank asked.
Frank said cy pres settlements create "perverse incentives" for attorneys handling class actions to funnel settlement funds to their preferred causes instead of to members of the class they represent.
But the justices seemed skeptical, especially given the small number of class actions that end with a full cy pres settlement and the minuscule award each class member would stand to gain from a traditional settlement.
"Why is it an abuse?" Justice Ruth Bader Ginsburg asked. "Because, practically, the class members would get nothing, nothing at all, and, here, at least they get an indirect benefit."
Meanwhile, attorneys for Google and the class defended the settlement by saying there is no procedural rule that prohibits cy pres settlements and that any such prohibition should go through the federal rulemaking procedures or through Congress.
"This case undoubtedly implicates interesting policy and empirical questions, but those are the types of questions that the Administrative Office, the Judicial Conference, the Advisory Committee, Congress can investigate and answer," said Jeffrey Lamken, an attorney with the Washington, D.C., firm MoloLamken.
Andrew Pincus, who argued for Google, told the justices class members still benefit from cy pres settlements, even if they don't get money directly, because the settlements must go to groups that support their cause.
Along with Justices Samuel Alito and Brett Kavanaugh, Chief Justice John Roberts appeared to be the most troubled with the settlement arrangement, questioning how an award to a third-party is a good enough benefit to class members.
"But do you think this problem is going to be meaningfully redressed by giving money to AARP?" Roberts asked, referencing one of the groups selected for an award from the Google settlement.
The justices also spent a significant amount of Wednesday's arguments probing the question of whether the people who brought the Google suit even had standing to do so.
In an amicus brief supporting neither party, the federal government suggested the named plaintiffs had not shown Google's disclosures injured them sufficiently to give them standing in the case. Principal Deputy Solicitor General Jeffrey Wall told the justices Wednesday the court should at least consider remanding the case so a lower court could develop a record and definitively answer the standing question.
Some of the justices appeared to share these concerns about standing, especially Justices Stephen Breyer and Neil Gorsuch, who struggled with what actual harm Google's delivery of search terms caused.
Breyer read off a list of terms one of the named plaintiffs searched, including the plaintiff's name and home address, and questioned why it would be a problem if that information were tied back to him through the information Google discloses.
"Now if those are all the things that he looked up, what concrete injury was there because somebody might discover through Google that he made those searches?" Breyer asked. "I don't quite see how this is some kind of secret or private information and I don't see alleged anywhere how those things were hurt."
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