Almost 10 years ago, Paloma Gaos stumbled onto something hinky. Her web browser was sharing her Google searches with third parties. In October 2010, she filed suit against Google alleging privacy violations under state and federal law. She was joined by a second Californian, and they absorbed a second suit brought by an Illinois man. The trio, representing all users affected by Google’s policy, reached a settlement agreement with the company in mediation, one that permitted Google to deny any and all wrongdoing. The award included a cash component of $8.5 million.
Given the estimated size of the class affected—100 million people or more—and the minimal yield any one individual would get from such an award, the parties agreed to send whatever funds were left over after paying case-related fees—a whopping $5.3 million—to six organizations working on internet privacy issues, including Harvard’s Berkman Center and the World Privacy Forum. Each of the organizations submitted a detailed proposal.
Sounds good, right? Two of the 100 million-plus class members, Melissa Holyoak and Ted Frank, disagreed. They just happen to be affiliated with Competitive Enterprise Institute’s Center for Class Action Fairness, which aims to tank settlements as a general matter. Ted Frank, by the way, vetted former governor Sarah Palin for John McCain’s 2008 campaign.
The duo challenged the distribution of funds to third parties—called a cy pres award. They lost on appeal in the Ninth Circuit, which agreed with the district court judge that the award was “non-distributable” given its size relative to the class size. So Holyoak and Frank headed to the Supreme Court.
Holyoak and Frank’s petition for certiorari, or their request for the Supreme Court to hear the appeal, frames the question this way:
Whether, or in what circumstances, a cy pres award of class action proceeds that provides no direct relief to class members supports class certification and comports with the requirement that a settlement binding class members must be “fair, reasonable, and adequate.”
Divorced from context, this also sounds reasonable. Who thinks it’s fair to bring a class action against, say, a company for ill deeds against customers then send the settlement funds not to the people affected but to lawyers and third parties? Well, me, for one.
Cy pres awards are critical to legal aid
Holyoak and Frank want to eliminate cy pres awards. But they’re a vital source of legal aid funding. As a legal concept, “cy pres” roughly translates to “as near as possible.” (That’s not the French exactly, but it’s what the term means in law in the United States.) The idea is, when there’s cash left over that can’t reach class members it should be put to the closest alternative purpose instead of reverting to the defendant. That’s why judges often direct cy pres awards to legal aid groups.
What’s the connection? Class actions are critical to access to justice: They make sure that people who’re part of a group that’s been harmed by a bad actor but don’t have the time or money to bring suit receive justice along with the ones who do.
In addition to allowing us to hold employers and corporations accountable, class actions have been instrumental to advancing civil rights and enforcing laws, especially those meant to ensure accessibility for people living with disabilities. Directing funds to legal aid groups doing access to justice work, including bringing class actions, is indeed the most appropriate use of funds that can’t be distributed to class members.
On average, cy pres awards provide $15.5 million in legal aid funding per year. If Holyoak and Frank succeed in convincing the Supreme Court that settlements that don’t provide “direct relief,” i.e., don’t make sure each class member gets five cents in this case, it’ll be a huge blow to people seeking access to justice around the country.
The Legal Services Corporation, the largest source of funding for legal aid nationwide, is struggling. From its 2018 budget request:
Currently, 60.6 million Americans, or almost 20% of the U.S. population, are eligible for LSC-funded legal aid services nationwide. The income eligibility requirement—125% of the federal poverty guideline—is $15,075 for an individual and $30,750 for a family of four in 2017. LSC’s current funding of $385 million enabled our grantees to assist only 1.8 million people in all households served in 2016. The gap between the number of people who need legal services and the resources available to meet their needs is enormous.
LSC can’t help the folks currently eligible for their help. Not only that, Donald Trump wants to defund LSC altogether. That’s been Mike Pence’s goal for a while.
The second-biggest source of legal aid funding, Interest on Lawyer Trust Account programs, began drying up about 10 years ago. These programs direct interest earned on client funds—funds that lawyers deposit temporarily—to legal aid. Problem is, as the name suggests, they rely on interest. Falling interest rates mean IOLTA-generated contributions to legal aid dropped from $370 million in 2007 to $92 million in 2009.
This case is a big deal. A big enough deal that, without taking a side, the American Bar Association has filed a brief arguing for the preservation of cy pres awards. With two Trump justices on the Supreme Court, though, there’s little doubt that cy pres awards are in jeopardy—pro-corporate jurists like Neil Gorsuch and Supreme Court nominee Brett Kavanaugh aren’t in the business of promoting access to justice. Quite the opposite. Just check out Gorsuch’s record on arbitration.