By Daniel O’Leary

In today’s high-tech economy, the class-action lawsuit is one of the few tools available to consumers to force a large company to pay for particular harms that result from their otherwise productive economic activity.  For example, in data breach litigation, enormous class-action lawsuits are standard following the infiltration of a company’s stores of consumer data by an unauthorized party.  But what kind of compensation does each plaintiff in these types of cases get exactly?

Not much if recent history is any indication.  In March 2017, Target Corp. agreed to an $18.5 million settlement following a data breach in which hackers reportedly stole credit and debit cards of nearly 40 million shoppers in 47 states during the 2013 holiday season.  In June 2017, Anthem Inc., agreed to a $115 million settlement following a data breach that compromised 80 million customers’ private data.  The anticipated ligation resulting from the Equifax hack in 2017, involved the theft of 143 million consumers’ personal data, including their birthdates and Social Security numbers, could pay out more than $1 billion in damages.  On November 30, 2018, Marriot Hotels disclosed that is was the victim of a data breach that potentially exposed 500 million guests.  Even if every victim receives a payout in these cases, it will still likely qualify as only a nominal sum.

Observers may reasonably wonder if damages awarded in these cases would be better off being donated to an organization or cause conferring indirect benefits on the plaintiff class.  On October 18, 2018, the Supreme Court of the United States heard oral arguments in a case involving a byzantine legal concept related to this very question.  In Frank v. Gaos, 138 S. Ct. 1697 (2018), one of the many issues presented by this case is the proper application of cy pres settlements in class-action lawsuits.  But larger issues may loom, as well.

The term “cy pres” is late Anglo-Norman French incorporated into English by way of William the Conqueror.  William was a French nobleman and his conquest of England imposed French royal society onto the English people.  For centuries after his successful invasion in 1066, jurists and barristers who appeared in the English Courts of Chancery practiced law in French (referred to as law French).  Not surprisingly, English jurists imported French concepts into the court’s equitable doctrine, one of which was cy pres, which translates to “as near as” (“cy près comme possible”).  The doctrine survives today in American courts in the context of charitable trusts.  Most recently, courts have used cy pres doctrine “to distribute class-action settlement funds not amenable to individual claims or to a meaningful pro rata distribution to a nonprofit charitable organization whose work indirectly benefits the class members and advances the public interest.”

In Gaos, the facts of the case expose the problems with cy pres settlements.  In Gaos, the plaintiffs are a class of 100 million consumers who alleged that the “headers” that Google transmits when a user clicks on a link in search results generated by Google disseminate the user’s private information in violation of the Stored Communications Act, 18 U.S.C.A. §§ 2701-2713 (1986).  As part of the settlement, Google will now disclose some of the information included in the relevant headers and agreed to pay $8.5 million in damages.

While most cy pres settlements distribute a portion of the unclaimed damage award, the Gaos settlement is unique because it is a “full” cy pres case, meaning the entire settlement was distributed on a cy pres basis.  The district court approved the settlement, including $2.1 million in attorney’s fees to plaintiffs’ counsel.  The remaining $6.5 million would have provided about 6.5¢ to each of the 100 million class members.  The court concluded that it was not feasible to distribute the funds to the class members because the cost to distribute the settlement award is more than the per plaintiff award.  Instead, the court distributed the settlement fund to initiatives studying internet privacy and involuntary information-sharing at institutions, including Carnegie Mellon University, Harvard Law School, and Stanford Law School.

Issues abound in these unusual settlements.  The most troubling issue with cy pres settlements is that the attorneys are compensated but not the plaintiffs, whose claims are discharged by the settlement.  What’s more, a judge or attorney with little guidance, may lavish large-dollar donations on their alma maters or favorite institutions.  These issues, which raise basic questions about the principles at the heart of the federal court system, plus the fact that the award in Gaos is a full cy pres settlement, presents the Court with an opportunity to limit cy pres settlements in the future.

A common hurdle to plaintiffs in these cases reared its head at oral argument: article III, § 2 standing.  The timeline in Gaos is peculiar in that the district court case was awaiting appeal in 2016 when the Supreme Court handed down Spokeo v. Robins, 136 S. Ct. 1540, 1548 (2016), a controversial case critical the standing doctrine in cases where the harm at issue is “intangible.”  But District Court Judge Edward J. Davila did not have the opportunity to apply Spokeo to the facts in Gaos.  If the Court remands the Gaos case, and Spokeo is applied, and the lower court finds the plaintiffs lack a sufficiently “concrete” harm for standing purposes, then the settlement may be invalidated, and the plaintiff’s case would be dismissed.  Accordingly, within days of the oral argument, the Justices called for additional briefs on the standing issue.

The Gaos case presents the Supreme Court with a myriad of possibilities.  The Court could issue a narrow holding restricting the authorization of cy pres settlements or it could even provide some much-needed clarity to its opinion in Spokeo.  The resolution of both of these issues will have a direct impact on future data breach litigants, and more generally, federal class-action law.

Student Bio: Dan is the Chief Content Editor on the Journal of High Technology Law. He is a third-year day student at Suffolk University Law School. He graduated from the University of Massachusetts Amherst with a B.A. in History and a minor in Political Science.

Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.

 

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