Class-action lawsuits can serve justice and streamline the process by allowing a large number of litigants to combine their claims against a lone defendant. Sometimes, however, such arrangements turn out to be little more than thinly veiled shakedowns that pad the pockets of the lawyers who bring them rather than those who have supposedly been wronged.
But perhaps reform is on the horizon. Last week, the U.S. Supreme Court announced it will take a closer look at class-action scams.
The case in question involves Frank v. Gaos, regarding Google and privacy complaints. In 2015, lower courts approved an $8.5 million settlement for a class of 129 million litigants. Attorneys brought the case amid allegations that the privacy of users had been compromised during internet searches that occurred between 2006 and 2014.
But because it would have been difficult to distribute the money to so many people, the parties agreed to award $5.3 million of the settlement to six outside organizations that would promote “public awareness and education” of internet privacy or support research into privacy protection. The plaintiff attorneys — who received a rate of $1,000 an hour on the case — pocketed the other $3.2 million.
Members of the “class” got nothing.
In January, the Competitive Enterprise Institute petitioned the Supreme Court to overturn the award. The group noted that the third-party organizations which benefited from the settlement included the alma maters of the attorneys involved and charities favored by Google.
The decision to cut checks to outside groups as part of the settlement was made under a principle known as “cy-pres,” a French term under which a court, when the original intentions of a will become impossible to fulfill, attempts to honor a settlor’s intentions to the greatest extent possible.
CEI’s petition, which the justices accepted last week, asks the court to rein in the ability of judges to divert settlement money under the doctrine of cy-pres to groups unrelated to the lawsuit.
“We are hopeful,” said Ted Frank, CEI’s director of litigation, “that the Supreme Court’s review will result in a standard forbidding attorneys from misusing class-action settlements to selfishly put themselves and third parties ahead of their clients.”
According to the Federal Rules of Civil Procedure, class-action settlements must be “fair, reasonable and adequate.” In Frank v. Gaos, the plaintiffs were left with nothing, while the attorneys and a handful of favored institutions went to the bank. Hardly “fair” or “reasonable.” It’s a classic example of why trial lawyers have a bad name.
Let’s hope the high court imposes additional limits on these types of settlements. These awards cry out for increased judicial scrutiny.