Publication Details

Special Alert: Supreme Court Punts On Reasonableness of Cy Pres Class Settlements, Reinforces Importance of Injury-in-Fact For Named Plaintiffs

Mar 25, 2019 | Related Attorneys Katherine M. McCray, Meryl C. Maneker | Topic: Class Actions

On March 20, 2019, the U.S. Supreme Court declined to address the question whether cy pres settlements satisfy the requirement that class action settlements be “fair, reasonable, and adequate,” pursuant to Federal Rule of Civil Procedure 23(e)(2), and instead remanded the case to the Ninth Circuit for consideration of whether any named plaintiff had suffered an injury-in-fact sufficient to establish standing to sue.   Frank v. Gaos, No. 17-961, 2019 WL 1264582, ___ S. Ct. ___ (2019).  The decision reinforces the Court’s 2016 holding that a plaintiff does not have standing simply based on a statutory violation, but must suffer a concrete injury.  Furthermore, Justice Clarence Thomas’s dissent signals that at least one justice will disallow cy pres class settlements if and when the issue returns to the Court.

In the underlying case, the named plaintiffs claimed Google violated the Stored Communications Act when it shared a user’s search term with the host of a website the user clicked on after running a search.  In so doing, Plaintiffs asserted, Google violated the statute’s prohibition on divulging the contents of an electronic communication.  The parties eventually agreed to an $8.5 million settlement that would not have distributed any money directly to class members; instead, it provided for more than $5 million in payments to cy pres recipients -- nonprofit organizations whose work is deemed to indirectly benefit class members -- and more than $2 million to class counsel.  The Supreme Court granted certiorari to determine whether such cy pres settlements satisfy Rule 23’s requirement that class settlements be “fair, reasonable, and adequate.”

However, the Court never reached that question, and instead remanded the case to the Ninth Circuit, directing the court to determine whether any of the named plaintiffs actually had standing to sue.  The Court instructed the Ninth Circuit to follow its 2016 decision in Spokeo, Inc. v. Robins, 578 U.S. __, 136 S.Ct. 1540 (2016), which held a plaintiff must suffer a concrete injury to satisfy the Constitution’s standing requirements, thus abrogating prior Ninth Circuit authority which held violation of a statutory right automatically satisfied the injury-in-fact requirement to establish standing to sue.  Neither the District Court nor the Ninth Circuit in Frank had established that any named plaintiff had suffered a concrete injury, as required by Spokeo.

Justice Thomas dissented (as he had in Spokeo), stating he would have held the plaintiffs had established standing, and opining that the cy pres settlement was unfair and unreasonable under Rule 23(e)(2) because it did not provide meaningful relief to the class.

The Court’s decision is a strong reminder that federal plaintiffs (including named plaintiffs in class actions) must prove an actual, concrete injury to have standing to sue, even where a federal statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.  Furthermore, Justice Thomas’s dissent clarifies that at least one justice is prepared to disallow cy pres settlements if the issue returns to the Court.

Do you have questions about how this update may affect you?  For further information contact:

Katie M. McCray (kmccray@wilsonturnerkosmo.com)

Meryl C. Maneker (mmaneker@wilsonturnerkosmo.com)

Wilson Turner Kosmo’s Special Alerts are intended to update our valued clients on significant developments in the law as they occur. This should not be considered legal advice.