Apparently, Chief Justice Roberts has added to the United States Supreme Court’s wish list: a case that would allow the Court to address the “fundamental concerns” surrounding the use of cy pres remedies in class action settlements.
What is Cy Pres?
A cy pres remedy provides indirect benefits to class members (usually through defendant donations to a third party) in lieu of a direct monetary payment. This remedy is normally utilized to distribute settlement funds that are unclaimed or incapable of individual distribution because the proof of individual claims would be burdensome or individual distribution of funds would be too costly.
The Lower Court Opinions
The Supreme Court’s public statement of its desire to review the propriety and limits of cy pres settlement agreements arises from the Ninth Circuit’s approval of a settlement in a putative class action relating to Facebook’s “Beacon” program. Marek v. Lane, No. 13-136 (Nov. 4, 2013). Beacon was a short-lived program instituted by Facebook in November 2007, that allowed Facebook to publish its members’ activities on participating companies’ websites (such as renting movies from Blockbuster.com or booking flights on Hotwire.com) to the member’s profile and the member’s friends network. Initially, Beacon was an “opt out” program but, after public opposition, was changed to an “opt in” program where a member’s activity would not be broadcast unless the member expressly agreed to its dissemination. We previously sent notification to our clients, http://www.seyfarth.com/publications/OMM092512b, of the Ninth Circuit’s opinion affirming the district court’s approval of a $9.5 million settlement between Facebook and putative class members who alleged violations of state and federal privacy laws. Lane v. Facebook, Inc., 696 F.3d 911 (2012). Approximately $3 million of the settlement amount was allocated for plaintiffs’ attorneys’ fees and incentive payments for the named plaintiffs. The remaining $6.5 million was earmarked for distribution to a newly formed charitable foundation whose purpose is to fund other organizations dedicated to educating the public about online privacy. Class members who objected to approval of the settlement filed a petition for writ of certiorari to the United States Supreme Court.
Justice Roberts’ Warning Shot
Ultimately, the Court denied the petition because appellants’ challenge was focused on the particular terms of the specific cy pres settlement agreement at issue. Chief Justice Roberts stated that review of this case may not afford the Court an opportunity to address more fundamental concerns surrounding the use of cy pres remedies in class action litigation, stating:
Marek’s challenge is focused on the particular features of the specific cy pres settlement at issue. Granting review of this case might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies in class action litigation, including when, if ever, such relief should be considered; how to assess its fairness as a general matter; whether new entities may be established as part of such relief; if not, how existing entities should be selected; what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on. This Court has not previously addressed any of these issues. Cy Pres remedies, however, are a growing feature of class action settlements. In a suitable case, this Court may need to clarify the limits on the use of such remedies.
What This Means
Chief Justice Roberts’ statement reflects the increasing scrutiny courts have of the use of cy pres awards in class settlements, and loudly signals that continued scrutiny of these awards will intensify. It thus becomes paramount for counsel, during settlement negotiations for class resolution, to give careful consideration to Justice Roberts’ warning shot in Marek.