Supreme Court remands cy pres settlement case for further exploration of standing News
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Supreme Court remands cy pres settlement case for further exploration of standing

In a per curiam decision Wednesday, the US Supreme Court remanded, for further review of standing, a case concerning whether cy pres settlements satisfy Federal Rule of Civil Procedure 23(e)(2).

The class action case, Frank v. Gaos, originated with an alleged violation of the Stored Communications Act (SCA) by Google. Plaintiffs claimed that Google’s use of referrer headers breached the SCA by divulging communication information to other websites. After searching a term on Google and clicking a link, a referrer header passes information to the new website about the users original search. The website gains valuable information from the referrer header like user location and other data points for analytics.

Gaos and Google reached a settlement in which Google agreed to disclose the referrer header practice on three of its webpages and pay $8.5 million. A majority of the $8.5 million would go to six cy pres recipients, or nonprofits whose work benefits the members of the class. Under the agreement, Google could continue to use referrer headers. Five class members, including Frank, contested the settlement, arguing that cy pres settlements violated Rule 23(e)(2)’s requirement that a settlement be “fair, reasonable, and adequate.”

After the settlement, the Supreme Court decided Spokeo, Inc. v. Robins which changed the standing analysis to require “concrete injury” for statutory violations. Spokeo overturned the precedent, First American Financial v. Edwards, that the lower courts had used to determine Gaos did have standing.

When the District Court ruled on Google’s second motion to dismiss, it relied on Edwards to hold that Gaos had standing to assert a claim under the SCA. Our decision in Spokeo abrogated the ruling in Edwards that the violation of a statutory right automatically satisfies the injury-in-fact requirement whenever a statute authorizes a person to sue to vindicate that right.

Therefore, instead of ruling on the issue of cy pres settlements on which the Supreme Court had originally granted certiorari, the Supreme Court vacated and remanded the case to the Ninth Circuit or District Court to examine the standing issue under the guidance of Spokeo.

Justice Clarence Thomas authored a dissent in which he argued the plaintiffs did have standing and that cy pres settlements violated Rule 23(e)(2).

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