Courthouse Steps: Frank v. Gaos Oral Arguments

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The case of Frank v. Gaos presents the question of whether and in what circumstances courts can approve class action settlements that send all or part of the settlement to charity rather than to class members. The payments to charity are known as “cy pres” payments—French for “next best.” The idea is that, if, for some reason, it is not practical to send the money to class members—usually because the money is not sufficient to send more than a few cents or dollars to each class member—the next best thing is to send it to a charity that can serve class members indirectly.

Ted Frank runs an organization that objects to class action settlements he deems problematic. He objected to a settlement in a privacy lawsuit against Google on the ground that all the money that did not go to attorneys’ fees and other transaction costs (some several million dollars) was going to charity. Class members got nothing besides changes to Google’s privacy disclosures. Frank says that cy pres should never be counted when the court assesses whether a settlement is fair. But, if it is counted, courts should always try to distribute money to class members before ever resorting to cy pres. Mr. Frank also takes issues with the charities that received the money in the Google case.

The class action lawyers and Google say cy pres has been used for decades and there is nothing wrong with it when it is impractical to distribute the money (the class here comprises 140 million people); the charity will indirectly serve the class’s interests, and there is no conflict of interest on the part of the judge or lawyers in selecting the charities. The issues of Frank v. Gaos as related in oral arguments are further discussed in this teleforum.


Prof. Brian T. Fitzpatrick, Professor of Law, Vanderbilt University Law School


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Event Transcript

Operator:  Welcome to The Federalist Society's Practice Group Podcast. The following podcast, hosted by The Federalist Society's Litigation Practice Group, was recorded on Wednesday, October 31, 2018 during a live teleforum conference call held exclusively for Federalist Society members.


Wesley Hodges:  Welcome to The Federalist Society's teleforum conference call. This afternoon's topic is a Courthouse Steps for the Frank v. Gaos oral argument held at the Supreme Court earlier today. My name is Wesley Hodges, and I'm the Associate Director of Practice Groups at The Federalist Society.


      As always, please note that all expressions of opinion are those of the experts on today's call.


      Today we are very fortunate to have with us Professor Brian T. Fitzpatrick, who is a Professor of Law at Vanderbilt University Law School and a Visiting Professor at the Harvard Law School. Also with us today is Ted Frank, who is the petitioner who argued the case at the Supreme Court today.


      After our speakers give their remarks today, we will move to an audience Q&A, so please keep in mind what questions you have for our speakers today. The structure today will be Brian Fitzpatrick giving his remarks for most of the time today and then Ted will step in with whatever comments he has, and then we'll move to the audience Q&A like I said. So thank you very much for speaking with us. Professor Fitzpatrick, the floor is yours.


Prof. Brian T. Fitzpatrick:  Thank you very much, Wes, and thanks to Ted for being here with us today. I was not at the oral argument, but I have read the argument transcript, and I'm going to spend a couple minutes just to set up what the case is about and to give you a bit of flavor of what the argument entailed.


      So this case involves a class action lawsuit brought by a class of internet users against Google, and the allegation is that Google violated federal law by disclosing our search terms when we use the Google Search website. And the way, as I understand, that it worked was that if we do a search in Google and then we click on one of the sites that the search returned to us, these search terms that we used for the search are given to the website that we click on. So the website that we click on knows what search terms we used to get to that website. And a federal law, allegedly, makes disclosing such information illegal without our consent, and the federal law provides for statutory damages of several hundred dollars every time Google does something like that.


      The lawsuit settled for $8 million, and $2 million of that went to attorney's fees, and a little bit more money went to administrative expenses, and the rest of the money—over $5 million—went to charity. The class members got no money. None of the $8 million went to class members except for the representative plaintiffs, I believe, got what we sometimes call service or incentive payments.


      An objection to this settlement was filed by our friend, Ted Frank, who's a long-time Federalist Society member. He has an organization under the AEI that -- or the CEI, Competitive Enterprise Institute, that objects to class action settlements that he thinks are inappropriate. And he filed an objection here, and he appealed the overruling of his objection when the settlement was approved by the district court, and he appealed it from the Ninth Circuit's affirmance of the settlement approval all the way to the U.S. Supreme Court.


      And the question before the Court is about this money that went to charity, what we sometimes call in the class action world cy pres. C-Y P-R-E-S. It's a French term for 'next best.' And the idea behind cy pres has been if you cannot give the money to class members, then do the next best thing with it. And in class actions that has meant find a charity or charities that will indirectly serve the interests of class members.


      In this case, the class counsel selected six charities to receive the money. One or more of the charities was an institute that was at one of the lawyer's law school alma maters – Harvard. Another charity was one that Google had contributed to in the past. And the district court expressed some concerns about these charities but ultimately found that they were worthy recipients of this money.


      In the argument today, there were basically two positions that were taken on these cy pres, or charity payments, that are used in class action settlements. One position, which was the position, I think it's fair to say of Google and the class action lawyers, was the American Law Institute's position. The American Law Institute published a Principles of Aggregate Litigation several years ago. And in it they saw the following: "Courts should not use cy pres. Courts should not send money to charity, unless a few conditions are met." And the conditions are things like number one: it has to be infeasible to give the money to the class members. Number two: the charity that's selected for the money has to have a connection to the class members and what the lawsuit is about. It has to indirectly serve the class members vis-à-vis what the lawsuit was about. And number three: there can't be a conflict of interest between the lawyers, the court, and the charity. There've been some examples in the past where courts have approved settlements that gave money to charities on which the district court judge approving the settlement sat on the board of directors. So things like that is what we mean by conflicts of interest, and perhaps things like giving money to your alma mater. So that was the ALI view, which was embraced by the parties to the settlement. They believed that the cy pres award in the settlement compiled with the ALI standards.


      The opposing view is Ted's view. And Ted's view, as I understand it,—and he's here to speak for himself later—is it's never really infeasible to give money to the class members. That even when it seems like it might be infeasible, it's really not. So in this case the class had 139 million members, 139 million people. And there's only $8 million, and less than $8 million once you take out the attorney's fees. But, as Ted notes, it's very rare that people file claim forms when there's not a whole lot of money that they might be able to receive from a settlement.


      And so if only one percent of people were to file claim forms, there would be $4 or $5 dollars per class members that filed a claim form available, and that is enough money to actually distribute money to the class members. It's not infeasible at that point. And if there were even few people to file claim forms, the amount of money that class members would receive when they filed a claim for it would be even higher, and that's not infeasible. And Ted says that even if a lot of class members end up filing claim forms, so many that it was going to cost more money in postage than it was in the check that they would get, there's always the option to distribute the money by some kind of lottery. We don’t have to give everyone who filed a claim form the money. We could give only some people who filed a claim form the money. We could randomly choose among the claimants who gets the money. And that this would be better than giving the money to third-party charities.


      And so Ted's view is it's really never infeasible. And he says, "I don’t want to have the courts trying to figure out this infeasibility question. I don't want the courts to figure out whether the charities are worthwhile. I don’t want the courts to be policing conflicts of interest because sometimes they'll have their own conflict of interest and we're asking them to police their own conflict."


      And so, "In my view," Ted says, "what we ought to do is we ought to exclude the cy pres payments from the calculation of attorney's fees." This is his approach. His approach is to say let's just, when we calculate attorney's fees as a percentage of what the settlement is, let's exclude the cy pres payments all together and that'll always give the lawyers an incentive to try to find a way to get the money to class members. They will work really, really hard on a claims process that invites claims. They'll work hard on a lottery. They'll work hard on whatever they have to do to get the money out the door because they can only get a percentage of what goes to class. They can't get a percentage of what goes to charity.


      So he says forget the ALI approach. Let's just say lawyers can't get a percentage of cy pres, and if we do that, they'll find a way to get money to class members. And he notes that in several settlements that he's objected to in the past and courts have agreed with him, the lawyers have found a way to get the money to class members when they had previously told the court that there was no feasible way to get the money to class members.


      So those are the two positions that are before the court: exclude cy pres entirely from the fee award and things will take care of themselves, and then the ALI approach is the one that should be adopted, and it was followed here.


      So what happened at the oral argument? Well, basically there were three main discussions at the argument. Number one: there was a long discussion about standing. The Solicitor General's Office filed an amicus brief in this case arguing there was not Article III case or controversy for lack of standing. And they were given time to argue today to reiterate those points. The government's view is that under Spokeo—this is a statutory damages case; a case heard a couple of years ago—none of the representative plaintiffs here have standing and the case ought to be -- the approval of the settlement ought to be vacated and the case dismissed on those grounds, or at the very least, the case ought to be remanded for further consideration in light of the standing points.    


      And the basic arguments here is that it's not clear that any representative plaintiff was actually injured by the disclosure of the search terms to the websites that we click on. And the reason that it's not clear is because when the website gets our search terms, it does not also get our name. So if we—and this was one of these examples that Justice Alito raised in the argument—if we search for men's shoes and then we click on Adidas, Adidas gets the words "men's shoes;" Adidas does not get "Justice Alito" along with the men's shoes. And so it's not clear that anyone of the representative plaintiffs was actually injured by their search terms being disclosed because if their name was not determinable from the search terms, then how were they harmed?


      So there was a lot of discussion at the argument about this point. The Justices seemed a little confused about what exactly Google gives to the websites. I think a lot of the Justices seemed to assume their name was disclosed along with the search terms. The government and to some extent, Google, tried to show the Justices that, no, in fact the only thing that went was the search terms, and for a website to know it was you, they'd have to reverse engineer the search terms to get to your name. So you would have to send several searches to Google and then click on the same website from those various searches for the website to be able to figure out it was you that was searching those terms, and therefore cause you some harm.


      One of the representative plaintiffs had apparently searched for himself and his wife with whom he was going through a divorce at the time. And so there was some discussion about whether by searching his name and his wife's name while they were going through a divorce that that -- disclosing that to a website would've caused them some harm. The government's view is it seemed very speculative that any harm was caused and there should be a determination there was no standing here.


      Like I said, a lot of the argument was spent on this issue. I'd say probably about 25 percent, and it's not clear to me what the Court ultimately is going to think about it because as I said, the Court seemed a little confused about exactly what Google was sharing with third parties.


      The second big discussion at the argument was about the merits of the question of should we follow the ALI approach or Ted's approach. And Ted's approach is very much I would say in the spirit of a Chicago School Law and Economics analysis. That kind of analysis is done by --


Ted Frank:  -- That's the nicest you've ever said about me.


Prof. Brian T. Fitzpatrick:  [Laughter]. That kind of analysis is done by a lot of scholars of class actions. It's sometimes harder to get courts to take that kind of incentive-based approach to things because it's a bit academic. And I didn't sense that the Court fully was willing to embrace that kind of analysis by the questions that they asked.


      I will say this, though, that there was a surprising amount of time, in my view, spent in questions about the lottery idea – Ted's idea that it's never infeasible because you can always hold a lottery. Justice Kavanaugh asked a number of questions about that, and he kept asking people why isn't that better, or the way he put it, "less strange" than just giving the money to some random charity?


      And I will say for those who are interested in kind of gaging what Justice Kavanaugh's time on the Court will be like, the way that I interpreted his various questions at the argument—and he may have been the most active questioner—is that he seemed to be pretty skeptical of class action lawyers in his questions. I'd say he was the most skeptical of the class action bar in his questions today, so that may portend something for his tenure on the Court.


      In addition to questions about the lottery, there was also a lot of questions about these particular charities. So the Court, in my opinion, seemed a little more interested in what the ALI approach rigorously followed here than the incentive-based argument that we ought to just exclude cy pres from attorney's fees altogether and not have to worry about this anymore. And there was a lot of questions about the organizations that were selected, and whether there was an appearance of impropriety involving the charities from which some of the lawyers had gone to law school and the one that Google had given to in the past. There was some skepticism by the Court that these charities were really ones that did not pose a problem from a conflict of interest, or at least an appearance of a conflict perspective.


      There was a little bit of a side bar on the ALI versus the exclude cy pres from the attorney fee question; a little bit of a side bar on, well, if we're not going to exclude the cy pres entirely, might we at least discount the cy pres money when we do the attorney's fees? This was the government's position is that the cy pres should be discounted when we do the attorney's fees, and I must say, I didn't see a lot of people opposing this idea. Even the class action lawyers said that was an option that district courts had at their disposal was they didn't have to give dollar-for-dollar credit for cy pres, even though they did do that in this case. That was not required, and that in an appropriate case if a judge didn't think the cy pres was that valuable, the judge could discount the cy pres dollars a bit when doing the fee awards.


      So there seemed be consensus that it'd be okay for a district court, if not to fully exclude as Ted wants, at least to discount cy pres dollars. So at least to that extent people seemed to, I think, buy in to at least a version of Ted's argument.


      So one other theme, and the last theme that arose during the argument, was a question of whether it was appropriate for the Court to make big changes in this area, and I think adopting Ted's argument would be something of a big change. Although as he noted, the Seventh Circuit has already adopted his argument. Is it appropriate for the Court to make big changes here or should the Court wait for the Rules Committee process to study and recommend changes? I noticed there was some confusion at the argument about who exactly the Rules Committee is. Some of the Justices referred to the Rules Committee in Congress. As we know, the Rules Committee is really a committee that is formed under the auspices of the judicial branch. But still, there is a tradition of letting the Rules Committee make changes as opposed to reaching out and making changes from the case-by-case common law approach when it comes to interpretation of the federal rules. On the other hand, Justice Alito made a great point which was that cy pres to begin with was not created by the Rules Committee; it was created by the common law case-by-case approach, and so why shouldn't the Court be able to un-create it, or at least modify it significantly using a case-by-case common law approach. So should we wait for the Rules Committee or for Congress or should we act on our own was another theme that came up during the argument.


      So those are the three themes that I saw. I'm going to just give my own prognostication here at the end and then we can turn it over to Ted for his thoughts. My suspicion is that the Court will probably adopt, formally, the ALI approach. And they will either affirm what this settlement has done on an abusive discretion standard of review, or they will remand the case and say, "You need to take a closer look, given that we've now adopted the ALI standard." And if they do remand the case, they might very well ask for another look also to be taken on the standing question. Thank you very much. I turn it over to Ted.


Ted Frank:  Thanks, Brian, and thanks to The Federalist Society for all their support over the years. I just want to talk a little bit about feasibility because what I'm saying here isn't completely out of left field.


      There're, regularly, all of the time settlements that settle for pennies per class member and then distributed to the class. So, for example, in Fraley v. Facebook, which was the only evidence of feasibility actually in the record, our argument was this settlement isn't any different than Fraley v. Facebook. In fact, you're likely to have a lower claims rate than Fraley v. Facebook because Fraley v. Facebook gave direct notice to the class and this settlement is only giving publication notice. And that settlement had a class of 150 million class members, and quite simply, over 99 percent of the class was indifferent to the offer to claim $10 of Facebook's money for the alleged privacy violations. And they were able to distribute $15 per class member to 600,000 class members. And so you take that $9 million and divide it by 150 million class members, that's 6 cents a class member. And it only cost that settlement $1 million in administrative costs to get that done.


      So the idea that it's infeasible to distribute a small sum of money to a large number of people, it's just not true. There is a settlement we didn't object to called Koller. It involved an allegation that 150 million bottles of olive oil were mislabeled, entitling class members to perhaps as much as 33 cents a bottle because of the higher price they paid because of the labeling, according to the economist involved. And you talk about numbers like that and that seems just completely impossible to distribute. How do you distribute what's a $7 million settlement fund, less than that after attorney's fees? You're only talking about $4.5 million or so to 150 million purchasers of olive oil. And the answer is the claims rate is very small and they were able to do a prorated distribution without any trouble.


      So these settlements happen all the time, and while the respondents spoke a lot of about the ALI standard and seem to endorse it, they did so by pretending that that's what the Ninth Circuit did. And it's very clear that that's not what the Ninth Circuit did. The Ninth Circuit does not have a feasibility standard; it has a de minimis standard. And what it does is it takes the amount of money in the settlement, and it divides it by the number of class members and says, "Is that number large or is it de minimis?" And you would be surprised what they consider de minimis because we just had a case that was decided October 3rd that we briefed in a supplemental brief October 23rd, where the Ninth Circuit said a residual of $3 - 9 million divided upon 1.3 million known class members is de minimis, and that's $7 a class member.


      So the Ninth Circuit's standard would actually take just about every single consumer class action settlement that happens today, and indeed, many securities class action settlements, and say all of that money can go to cy pres so long as the parties agree and so long as the district court exercises its discretion to approve the settlement. And that would be a wealth transfer of billions of dollars over the years. So there's a lot at stake here.


      And the other thing that the Ninth Circuit does not do on the ALI standards is it does not analyze for conflicts of interest. It defers to the settling parties, and it's very proud of that, that who are we to interfere with the compromise the parties reach. And so if Lane v. Facebook and Lane and Facebook negotiate a settlement so that all of the cy pres money will go to a brand new charity established by Facebook and run by Facebook that will then issue grants at some indeterminate time in the future, that's perfectly okay. That's a compromise. And that's fair, reasonable, and adequate because the district judge said so. So the Ninth Circuit is not even paying lip service to the ALI standards, and I think that makes a difference.


      Now, whether there are five votes to find standing here is a different question. The settlement occurred before Spokeo came down, so the district court never performed a Spokeo analysis and analyze standing over what was then the Ninth Circuit standard at the time, which the Supreme Court has since rejected 7-2. In practice, Spokeo is not actually excluded very many claims. But you have a complaint here that was drafted pre-Spokeo, so it's an interesting question whether on the face of the complaint you can find standing that's outside Spokeo. I think Jeffery Lamken arguing for plaintiff respondents made a fairly persuasive argument once his red light was on why this satisfied Spokeo. We can see what the Court does with that, but it certainly is of some concern that they might decide the Ninth Circuit needs to take a first cut at this. But even in Spokeo, the Ninth Circuit found standing and the Supreme Court didn't grant cert on this, so all that might happen with that is I might get a second oral argument. And with that, I'm happy to take questions from Brian and from the audience.


Wesley Hodges:  Thank you, Ted. And thank you for your remarks, Professor Fitzpatrick. Professor, do you have any questions for Ted before we move onto audience Q&A?


Prof. Brian T. Fitzpatrick:  I'm kind of curious, Ted, were you surprised that so much time was spent at the argument on standing?


Ted Frank:  Yes.


Prof. Brian T. Fitzpatrick:  Yeah, that's done too.


Ted Frank:  I mean, clearly the plaintiffs made a strategic choice to argue, "Oh, if there's standing problems, you should dismiss this improvidently granted, and go with that." And I think they were hoping to force me to spend my limited 6,000, expanded 7,000 words by the Court, based on standing issues rather than on cy pres issues. We briefed it in a couple of pages using just basically the fact that lower courts have found very similar entries to be within common law understandings of public disclosure of private facts, and a remand would not be especially useful here because the Court would never grant cert on this if the Ninth Circuit had found standing. So the Court can just simply say that standing is here.


      Clearly, that was not sufficiently persuasive, and whether that was a strategic view of Breyer and Kagan and perhaps a genuine concern of Gorsuch -- I mean, it might be a genuine concern for all of them because Spokeo was a 7-2 decision, and clearly, what the district court did was not Spokeo compliant. But I did not want to get into the morass of discussing Spokeo and a lot of my time was spent discussing Spokeo, which I'm sure the other side was happy with. I don't think the Court is going to adopt the plaintiff's suggestion that this get DIGged, and they'll either take the path of announcing that plaintiffs did not satisfy standing in their complaint or they will remand for that determination. So --


Prof. Brian T. Fitzpatrick:  Yeah, and just on that -- on this point. You know, in Spokeo, I think Alito's opinion, but at the very least Thomas's concurring opinion, there is discussion about invasion of privacy, that this is the kind of harm that has traditionally been cognizable and should be cognizable in an Article III court, and this particular cause of action fits within the invasion of privacy rubric, except that if the website does not know who you are and only knows what you searched for, have you really had your privacy invaded? It's its anonymous and they get your search terms, has your privacy really been invaded? It is kind of a tricky point. If the Justices understand what's going on, and, again, it wasn’t clear to me that they did, I could see them having some pause over the standing here.


Ted Frank:  So an interesting strategy that Google took with their 12 minutes of oral argument time, Andy Pincus, who was not on the briefs and not on the case at all below, was announced as the attorney arguing the case for Mayer Brown and Google. It was Mayer Brown's case all along. And, of course, he argued Spokeo and as an experienced Supreme Court practitioner, though so was his second chair, and sure enough, I thought well, that's a tell that Google's strategy at oral argument is going to be to try to raise the standing issue. And that, indeed, was the approach taken.


      And fascinatingly, Kavanaugh was the Justice most skeptical of Google's argument there. It's interesting that if the search terms are out there, surely this is something where that that is a sufficient invasion of privacy to be a concrete injury. And I think part of the problem is the Justices are confused or the parties did not spend a lot of time discussing the difference between referral headers and cookies and all of the ways in which privacy is compromised at the internet. And while these sorts of Stored Communications Act claims are, I think, long-shot claims and certainly the plaintiff's did too given that they settled claims that have $1,000 statutory damages value for less than 4 cents a class member, or 6 cents a class member or whatever the number was, that merits question, I think, is separate from is this an allegation that creates standing. And the reality is is that lower courts have simply not dismissed these things on Spokeo grounds. And we cited the unanimous approach of the courts of appeals on this, but that was not enough to persuade the Court that standing had been adequately addressed. And I guess another possibility is that they ask us to file briefs on that.


Prof. Brian T. Fitzpatrick:  That's interesting. That fact that this complaint was written before Spokeo suggests to me that maybe the proper course if they are concerned about it is to remand it and give the plaintiffs another chance to file an amended complaint. It would be kind of odd because there's already a settlement. But I could see some equitable argument for another chance given that there was an intervening Supreme Court precedent.


      Wes, do you want to open it up to any audience questions?


Wesley Hodges:  Absolutely. Thank you, both. Looks like we do have one question out of the gate, so let's go ahead and turn to our first caller.


Michael Rosman:  Hi, this is Michael Rosman with the Center for Individual Rights. Excellent argument. I enjoyed hearing it. Brian, I have a few questions for you, and I'm going to blurt them out one right after another. First, what in your view is the level of proof that the Court should require for standing at the class settlement phase? Should it be the motion to dismiss standard? Should it be the summary judgment standard? Something in between?


      And related to that, there seemed to be some dispute, as I understood it from listening to the argument, as to whether the Court should decide the standing question itself or whether it should send it back down. There were, it seemed to me, at least one or two Justices who thought, well, if there's a standing issue, we can just determine that for ourselves, which would suggest that perhaps the motion to dismiss standard was the appropriate one, at least in their eyes.


      The other question I have for you is a few things you said during your presentation. You said you thought it was likely that the Court would adopt the ALI principles, which sounds right to me. You said that there seemed to be a consensus towards perhaps discounting cy pres awards in determining attorney's fees – also sounds right. But my question is this: the ALI principles don’t say anything about attorney's fees. So if they send it back down without saying anything but, "We're adopting the ALI principles; Ninth Circuit, go figure out what to do," the Ninth Circuit wouldn't have any guidance to change anything about the attorney's fees part of the settlement award. Anyway, those are my questions.


Prof. Brian T. Fitzpatrick:  So just to take them in order, so what is the standard to show standing when it comes to the approval of a class action settlement? This is a good question because normally, we don't care about standing after we have passed the complaint stage and the parties have agreed to settle. We no longer really care about standing anymore. The class action context is a bit different, and it raises some complications because this is not just a settlement that’s a private pact between the litigants and the district court doesn't have to know what it says and doesn't have to get involved in it. The district court has to issue an order that approves the settlement. So the question is what do we need to show in order to assure ourselves that the district court still has case or controversy authority to issue that order that says, "This settlement is fair." And so I think it's a bit complicated.


      On the other hand, because these settlements can occur so early in a case where we haven't really had much discovery, we haven't had much fact development, I think it would really be a mistake to say we require more in a class action settlement than we do in a regular case because the judge has to approve the settlement. Because I just think we're just going to have to then have some kind of evidentiary hearing or some kind of showing in addition to our fairness hearing that goes to the plaintiff's standing. And so I think it would probably be a mistake to try to adopt a higher standard, but I do understand why people have greater concerns because this is a decision by a judge to approve the settlement. And that decision has to come with it case or controversy authority. And we can't just forget about it, now that we're past the complaint stage and the parties have agreed to settle.


      The question of whether the Court will take the standing issue and decide it for itself or remand it did come up quite a bit at the argument. In light of what Ted's said, that this complaint was written before Spokeo, I think it would be awfully unfair for the Court to hold there was no standing on the basis of the allegations in the complaint. And so I suspect the Court will probably remand for some kind of additional information to be submitted by the parties if the majority of the Court has doubts that there's actually standing here. I think it would be very difficult to hold the plaintiffs to the complaint before the Spokeo case was decided.


      On the question of the discounts, and Ted can correct me if I'm wrong about this, I believe there is a section in the ALI that says Courts may want to treat cy pres monies differently than they treat compensation that goes directly to the class members. I believe the ALI says that that is an okay thing if courts want to discount the cy pres money. And the consensus, I just want to be clear that I read in the transcript at the Court was not that this should be required; that we should always want to discount cy pres money. But it seemed like everyone basically conceded or agreed that courts already can and should be able to discount the cy pres money when the court thinks it's just not that valuable. And, again, Ted can correct me, but I think the ALI in a different section says that's okay.


Ted Frank:  And, I mean, I would be very wary of saying there was a consensus for anything just because so many Justices just simply did not speak on the fundamental cy pres issues. Kagan's and Gorsuch's questions were limited to standing, and Alito, Roberts, and Kavanaugh were very skeptical about just anything cy pres related. So while Breyer was certainly searching for something ALI related -- you know, we discuss in our brief just the incentive problems you create if you treat cy pres as the equivalent to cash relief because then the incentives of the parties are this: the plaintiffs are trying to maximize their attorney's fees, the defendants are trying to minimize the amount they actually pay.


      And if you say so long as you made an attempt to distribute the money and any residual going to cy pres and the attorneys get 25 percent of the total settlement fund whether it goes to the class or goes to cy pres, you get cases like the EasySaver decision that you had in the Ninth Circuit this October 3, where there is this $12.5 million fund and though they knew who every class member was and they knew what every class member's damages was, they set up this claims process and then shrugged when over 99 percent of the class did not make a claim and they were only going to distribute $225,000 to the class, a big chunk of money to attorney's fees, and $3-9 million now are going to go to cy pres. And the cy pres is a set of local schools in the defendant's hometown, and the defendant is going to endow a chair in its own name at these schools, so that this is the very definition of a change in accounting entries. And, of course the defendant prefers to give a million dollars to endow a chair on its name than a million dollars to class members. And it can exaggerate and create the illusion of relief. And at the same time increase the attorney's fees, but give less money than would get if the parities sat and faithfully negotiated a maximum actual payout to the class. And you'll see a lot of settlements structured like this, and if this gets remanded, Perryman v. Romero might be the case that the Supreme Court actually addresses the problem of cy pres. And that might even be a better vehicle than what we have here.


Prof. Brian T. Fitzpatrick:  And, Wes, if I could just add that I agree with Ted that there's no visible consensus at the Court for anything. When I said consensus on discounting, I just meant the consensus of the advocates, that even the plaintiff class action lawyers said it was okay if courts had the discretion to discount cy pres money for attorney's fees. What the Court thinks is hard to tell, as Ted notes, because many of them said nothing and many of them said things only about standing.


Wesley Hodges:  Thank you, both. Caller, did we answer your questions to your satisfaction?


Michael Rosman:  You did. They were great.


Wesley Hodges:  Excellent. Well, we appreciate your questions. Looks like we do have another question in the queue. Let's go ahead and move to our second caller.


Caller 2:  I'm sorry, maybe you answered this early in the call, but what exactly is this Spokeo case, and how does it apply to this present case?


Ted Frank:  Spokeo is a recent decision about Article III standing, and is it enough to create a case or controversy just because there is a violation of a federal statute creating a cause of action. Or does the plaintiff have to show a concrete injury beyond the bare statutory violation? And Spokeo said that the bare statutory violation was not enough to create Article III standing by itself. And then, well, what does create a concrete injury? And that's just a fascinating question to me. It's just a mystery to me why Congress can't create causes of actions; that's the kind of statement that's going to get me kicked out of The Federalist Society.




      But if, you know, in 1954 if I owned a Woolworth's Five & Dime, I could kick out anybody that I wanted, and in 1964 Congress made that illegal for certainly circumstances and created a cause of action for it. And I think everybody agrees that there's Article III standing to decide 1964 civil rights cases and why does that count under Spokeo because that's exactly the sort of right that Congress created that didn't have any basis in the common law.


      So this is a confusing issue for me. I don’t have Brian's big brain on this, but certainly lower courts have been grappling with this also and generally they haven't been throwing out many cases for a lack of jurisdiction under Spokeo. But as mentioned, the complaint does not jump through the magical word incantations that Spokeo does seem to require or at least not as cleanly as more recent federal complaints do that have survived scrutiny at the appellate level even though they're on very similar issues. So that it might not be enough for the Court. Or it might be that the Court is waiting for another case to take on these questions of Article III jurisdiction and is going to reverse what seems to be the consensus of appellate courts on when Congress can create a cause of action. But even in Spokeo, which was another internet privacy case, on remand the Ninth Circuit found standing and the same parties took it back up on a petition for certiorari and the Court denied cert. So your guess is as good as mine where the Court is going to come out on that.


Prof. Brian T. Fitzpatrick:  And what happened in Spokeo was Spokeo is a website that aggregates information about us, and it pulls information from various sources and then creates profiles about us without our permission. And the Spokeo website had some false information about the representative plaintiff in the Spokeo case; I think it said he was married when he was single and maybe it gave him more education than he actually had or something like this, if I remember correctly. And he thought that just because the information was wrong that it violated one of these credit reporting acts that Congress has created. And the court said it's not enough that Congress said the company can't do this. You also have to show that you've been injured by what the company has done. And so that's where we are here. If the plaintiff's allegations are correct, Google cannot send over your search headers without your consent. But the question is has it actually done you any harm? That's the question.


Caller 2:  All right. Thank you.


Wesley Hodges:  Thank you very much, caller. Seeing no more audience questions, I turn the mic back to Professor Fitzpatrick and Ted. Do you have any questions for each other or closing thoughts for the conversation?


Prof. Brian T. Fitzpatrick:  I don't think so. I just wish Ted the best of luck, and I think congratulations to him for his first argument in the U.S. Supreme Court.


Ted Frank:  Thank you, Brian. And this is, I think, certainly an important issue, especially with what is just a remarkably lenient Ninth Circuit standard that creates just some tremendously perverse incentives for class action lawyers to self-deal at the expense of their clients. And I hope the Court in this case, or in another case, deals with it soon.


      And then I guess my second point was, boy, that whole arguing in the Supreme Court thing is fun, and I'd like to do it again, so if somebody wants to get me a small suitcase of money to do that for them, I'd be happy to do that.


Wesley Hodges:  Excellent. Well, Professor, Ted, we're very grateful that you were here today to tell us about the case. On behalf of The Federalist Society, I'd like to thank you for the benefit of your valuable time and expertise. We welcome all listener feedback by email at Thank you all for joining. This call is now adjourned.          


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