Ninth Circuit Confirms That A Cy Pres Only Settlement Can Work In Privacy Class Action

In the past few years, class action lawsuits challenging privacy practices, particularly internet privacy practices, have expanded. But, these lawsuits often challenge practices that do not cause any actual damage, which can make it difficult to reach a settlement, particularly of a Rule 23(b)(3) class. So, how can parties wanting to settle proceed?

In a recent opinion, the Ninth Circuit upheld a district court's approval of a class action settlement in a privacy litigation where the class received no damages, and the settlement funds went to cy pres recipients instead. In In re Google Referrer Header Privacy Litigation, No. 15-15858 (9th Cir. Aug. 22, 2017), the plaintiffs challenged Google's practice of providing websites with the search terms that individuals used in Google's search engine to reach the website. The plaintiffs claimed this violated their privacy.

The parties reached a settlement with an $8.5 million fund. Of that, $3.2 million was set aside for attorneys' fees, administration costs, and incentive payments, the remaining $5.3 million was allocated to six cy pres recipients, and class members received nothing. The Ninth Circuit affirmed the district court's approval of the settlement, holding that a cy pres only settlement was appropriate where the settlement fund was "non-distributable." In the case, there were 129 million class members. If the $5.3 million settlement had been distributed, each class member would have received "a paltry 4 cents." The court held that, because each class member's recovery would have been de minimis, a cy pres only settlement was appropriate.

The Ninth Circuit went on to hold that the cy pres recipients were appropriate. The recipients included organizations to which Google had previously donated, organizations that had previously received settlement funds from Google, and organizations housed at plaintiffs' counsels' alma maters. The Ninth Circuit held that these connections did not raise any conflicts. For example, the Ninth Circuit stated: "Given the burgeoning importance of Internet privacy, it is no surprise that Google has chosen to support the programs and research of recognized academic institutes and nonprofit organizations. Google has donated to hundreds of third-party organizations whose work implicates technology and Internet policy issues, including university research centers, think tanks, advocacy groups, and trade organizations. These earlier donations do not undermine the selection process employed to vet the cy pres recipients in this litigation."

Going forward, we might see more cy pres only settlements in cases alleging violations of privacy, particularly where the alleged violations cause no actual (or very little actual) damage to the class.

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