SCOTUS to Evaluate Fairness of Cy Pres and Class Settlement Awards
By Matthew D. Berkowitz & Ryan M. Poteet
On April 30, 2018, the Supreme Court granted certiorari in Frank v. Gaos, No. 17-961 to determine whether 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.”
Cy pres is French for “as near close as possible.” The purpose of the doctrine in class action litigation is to allow unclaimed funds to be distributed to organizations that advance the interests of the litigation, instead of returning remaining funds to the defendant. The parties and counsel generally pick the organization, subject to court approval. However, the application of the doctrine has recently been scrutinized given that, in certain cases, the funds have been diverted from the class to third-parties who have ties to the litigants or counsel. A prime example is Frank v. Gaos.
In Gaos, the Ninth Circuit upheld a cy pres-only settlement in a privacy suit against Google for violations of state and federal privacy laws. Under the terms of the $8.5 million settlement, the three named plaintiffs each received $15,000. The class of approximately 129 million individuals received nothing. Instead, $5.3 million dollars were awarded to privacy-related consumer organizations and research institutions. The remainder of the settlement proceeds went to pay for class counsel and Google’s attorneys’ fees. Various members of the class objected to the settlement on the grounds that the interest of third parties were being advanced over those of the class.
Petitioners requested the U.S. Supreme Court determine whether the cy pres-only award was “fair, reasonable, and adequate” under Rule 23(e)(2) of the Federal Rules of Civil Procedure. In their petition for cert, petitioners argued that the cy pres distribution was improper. The petitioners noted that class counsel’s alma matters received substantial awards under the agreement while the class members themselves received nothing and the alma matters had no relationship or interest to advancing the purpose of the litigation – protecting consumer privacy.
The Supreme Court’s grant of certiorari is significant because this will be the first time the Court evaluates the equity and appropriateness of cy pres awards in class action litigation. In 2013, Justice Roberts previously noted his skepticism of cy press awards because they raise “fundamental concerns” of fairness and he even suggested that the Court may need to clarify the limits on the use of such remedies should a suitable case present itself. Marek v. Lane, 134 S. Ct. 8, 9 (2013) (Roberts, C.J., respecting denial of certiorari).
The settlement in Goas appears to raise the concerns that Justice Roberts referred to in Marek. Cy pres awards play a significant role in helping resolve class action disputes given, for example, the cost of administering and redistributing unclaimed proceeds to the class members. Thus, it is unlikely Supreme Court will strike down all cy pres awards. However, it is expected that the Court will instruct trial courts to further scrutinize cy pres distributions and do more than simply rubber stamp proposed settlement agreements.
PACER Class Action Proceeds with Partial Win for Plaintiffs
By Ryan M. Poteet
On March 31, 2018, the United States District Court for the District of Columbia ruled on cross-motions for summary judgment in the PACER class action litigation that the federal judiciary improperly spent $198 million in fees collected through the courts’ public records platform.
In National Veterans Legal Services v. United States of America, three nonprofits filed a class action in 2016 against the United States alleging that thousands of PACER users were overcharged in accessing court documents and that the class is entitled to a refund under the Little Tucker Act. The named plaintiffs, National Veterans Legal Services Program, the National Consumer Law Center and Alliance for Justice, asserted that the E-Commerce Act of 2002 prohibits federal courts from charging PACER users more than is necessary to recoup the total marginal cost of operating the website. The government countered by arguing that the statute should be broadly interpreted to allow the Judicial Conference to spend user fees on any purpose related to the dissemination of information through electronic means. Thus, expenditures to improve court’s audio-visual systems and the electronic juror management system would be permitted under the Act.
U.S. District Judge Ellen Segal Huvelle rejected both parties’ analysis of the statue. Instead, Judge Huvelle found that the Act’s legislative history demonstrated Congress’ intent for the courts to expand its capability to provide access to court information, including docket information and court filings. The use of PACER fees to offset the cost of the Case Management/Electronic Case Files (CM/ECF) system clearly fell within the scope of permissible expenditures under the Act. Judge Huvelle rejected contentions that $185 million in courthouse improvements were the types of projects Congress authorized when it passed the Act in 2002. Judge Huvelle further reasoned that the government’s reliance on the post-enactment legislative history of unrelated appropriations bills was of little value when analyzing the statute at issue and failed to justify the challenged expenditures. Given that there was a dispute of fact regarding the government’s misappropriation of the remaining funds, the court denied the parties cross-motions for summary judgment.
The important take away from this ruling is that litigants should be weary of overstating their case when interpreting the meaning of a statute in order to claim the maximum amount of statutory damages. This is especially true when litigating in the District of Columbia. Legislative history can be a very useful and persuasive tool, but context matters and statements from a single congressman or even a single committee cannot necessarily be used to establish Congress’ opinion on an issue. Trial and appellate courts in the District routinely hear cases challenging the permissible bounds of government action. Judges in this jurisdiction may be willing, as in this case, to entirely discard litigants’ statutory analysis and embark on a path of their own when a party pushes their argument one step too far.
Ninth Circuit Holds that Choice of Law Inquiry Is Crucial for Nationwide Class Certification
By Aleksandra Rybicki
In a divided opinion (2-1) in Espinosa v. Ahearn (In re Hyundai & Kia Econ. Litig.) 2018 U.S.App.LEXIS 1626 (January 23, 2018), the Ninth Circuit vacated a district court’s order granting class certification of a settlement class and instructed trial courts to engage in a more “rigorous analysis” of the prerequisites of Rule 23 – specifically, a more scrupulous assessment of the predominance requirement under 23(b)(3).
In Ahearn, plaintiff consumers filed a class action lawsuit in the Los Angeles County Superior Court under California’s consumer protection laws and common law, alleging that Hyundai and Kia overestimated the fuel efficiency of their vehicles by misrepresenting the vehicles’ average mileage. After Hyundai removed the 56 actions to the U.S. District Court for the Central District of California – which had jurisdiction under the Class Action Fairness Act – the plaintiffs move for certification of a nationwide class. In opposition to class certification, Hyundai argued that the differences in state consumer protection laws precluded application of California law to consumers who are not Californians and thus defeated predominance.
Nonetheless, the parties reached a $210 million settlement for a single nationwide class and presented it to the district court for approval under rule 23(b)(3), which states that a class action may only be maintained if questions of law or fact predominate over questions affecting only individual members. Notwithstanding a group of objectors who challenged the certification based on differences in the applicable states’ laws, the district court certified the settlement class, holding that even if the difference in state law posed an issue if the case were to go to trial, this analysis is not necessary in the settlement context.
The Ninth Circuit disagreed with the district court and held that trial courts must conduct a choice of law analysis by rigorously analyzing potential differences in state consumer protection laws before certifying a nationwide settlement class. Thus, the district court improperly certified the class. The Ninth Circuit explained that the potential impact of material variations in states’ laws could directly impact the predominance requirement of class certification.
Ahearn may create an additional hurdle for parties that wish to settle a class action since courts may be more likely to analyze choice of law rules and scrutinize the predominance requirement at the class certification stage.