WASHINGTON — What’s the best way to divvy up an $8.5 million lawsuit settlement in which 129 million people have a claim?
Cut small checks to 129 million people? Or give large payouts to a handful of charities and nonprofits that work to prevent the same misconduct that led to the lawsuit?
Distributing funds of a class-action settlement to third parties is known as “cy pres” — Latin for “as close as possible.” In other words, the next best thing: It’s a way of providing an indirect benefit to plaintiffs when the administrative cost of providing direct compensation outweigh whatever small sum they would receive.
On Wednesday, the Supreme Court heard oral arguments in Frank v. Gaos, a case involving a class-action lawsuit against Google in which the company settled for alleged privacy invasion.
The origins of the lawsuit, which was brought against Google for sharing user search terms with third-party companies, is less important than how it ended: Google paid $8.5 million into a settlement fund. Of that, $2.1 million went to the attorneys who arranged the settlement with Google, $1 million went toward administrative costs and the remainder was distributed to six colleges and nonprofits.
The recipients included the attorneys’ alma maters and several organizations where Google had previously donated money. In effect, the lawyers got paid, their alma maters received funding and Google donated to its charities. Google’s users got nothing.
On behalf of the petitioners, attorney Ted Frank of the Competitive Enterprise Institute asked the court to void the settlement as well as restrict future cy pres-only settlements, which he considered “abusive” as the arrangement fails to provide significant compensation to those harmed.
Associate Justice Sonia Sotomayor was skeptical that such abuse existed, noting lower courts have approved only a handful of cy pres settlements and settlements that were deemed abusive on appeal have been overturned by courts.
“It seems like the system is working, not not working,” Sotomayor said.
Chief Justice John Roberts, however, appeared uncomfortable that class members in the Google case had received nothing while the company was able to donate to preferred organizations. AARP was one of the six recipients of the funds set aside solely for entities working to protect internet privacy.
“(D)o you think that problem is going to be meaningfully redressed by giving money to AARP?” Roberts asked Google attorney Andrew Pincus.
Newly minted Associate Justice Brett Kavanaugh favored one of Frank’s alternatives to cy pres: a lottery system in which at least some of the class members are compensated.
A lottery system is not ideal, he said, but eliminating payouts to hand-picked third parties using the cy pres process would at least reduce the appearance of impropriety or favoritism.
“Imperfect or strange as that may be,” Kavanaugh said, “it seems to me potentially less strange.”
But Pincus argued that the administrative costs of a lottery system would not only eat up a settlement fund but also prevent an indirect benefit for those not selected for compensation.