Tech giants' payouts go to everyone but affected citizens. US Supremes now urged to sort it out

AGs cry foul over Google's $8.5m class-action settlement

Stack of cash

A group of 16 US state attorneys general are urging America's Supreme Court to tear up an $8.5m legal settlement from Google – because none of the cash will go to the folks the class-action lawsuit was brought on behalf of.

Led by the attorney general of Arizona, Mark Brnovich, the legal eagles have taken issue with the fact that $2.125m of the settlement will go in fees to the attorneys that brought the case and the remaining $5.3m will be split between seven organizations, agreed to by the lawyers and Google.

Three of the seven are law schools that the attorneys' attended - Harvard University, Stanford University and the Chicago-Kent College of Law – and the remaining four are among Google's favorite institutions who do work that benefit the tech giant and which the company already supplies millions to - AARP, Carnegie Mellon University, the MacArthur Foundation, and the World Privacy Forum.

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The settlement is opposed by the people who brought the case: a fact noted by the attorneys general who see it as an ideal test case, and want to see the Supreme Court impose a set of rules for future class-action lawsuits that put citizens first and prevent lawyers from diverting payouts to recipients of their choosing.

The class-action lawsuit was filed on behalf of roughly 129 million US Google users who had their privacy violated between 2006 and 2014 when the advertising giant provided their search queries to third-party websites.

Due to the huge number of people affected, the settlement amounts to a paltry amount – roughly four cents – per person. And that led to the promotion of seven "cy pres recipients" to accept the money on consumers' behalf.

Super Cali so realistic

The arrangement has been raising hackles since it was first proposed more than three years ago, with a district judge rejecting it in 2014. That prompted an appeal to California's Ninth Circuit. Last year, the Ninth Circuit was also unhappy with the arrangement but ultimately agreed with the argument that it would "economically infeasible" to provide a huge number of people with tiny amount of cash.

The problem with this arrangement, as the attorneys general point out, is that it sets a dangerous precedent.

For one, it marks out the Ninth Circuit – based in California – as being the best court to go to for both companies and class-action lawyers. Both can expect to benefit directly and indirectly if the case is heard in the golden state rather than in other parts of America that have imposed stronger conditions.

The attorneys' general court filing, submitted today, gives the example of the Third Circuit – which covers Delaware, New Jersey and Pennsylvania – which has repeatedly stressed that a settlement must have "direct benefit" to folks that is "practical and not abstract." It has explicitly stated that "direct distributions to the class are preferred over cy pres" and that "cy pres awards should generally represent a small percentage of total settlement funds."

Interestingly, none of the attorneys general from the states covered by the Third Circuit have signed up the brief, but all of the states in the Fifth Circuit and some in the Eight Circuit – both of which have adopted similar rules about cy pres being a last resort and have reversed rulings that have been overly generous to cy pres recipients – are involved.

Getting worse

The attorneys general brief also points out that the number of cy pres arrangements have rocketed in recent years. Before 2000, there was barely one a year. Shortly after, it jumped to eight a year. And the majority of the 266 such cases since 2000 have happened in the past decade.

It is effectively doubling every ten years – and with technology giants reaching vast numbers of people in a way that was never really possible before the internet, the likelihood of one small corporate decision leading to legal cases that split a large sum of money between an even larger number of people is only increasing.

The problems of the arrangement have not gone unnoticed. The brief cites several examples of where judges have raised their concerns, even noting that Chief Justice Roberts said that there are "important, foundational cy pres settlement questions" back in 2013.

There are basically two big headaches to resolve: when should money not go to actual consumers; and who gets to decide what organizations get the money if it is decided that there should be cy pres recipients?

The brief argues that now is the time for the Supreme Court to weigh in on the matter and set down some fundamentals for how such cases are decided in future. It asks for "definitive guidance on the allowable uses of cy pres settlement arrangements as well as the analysis courts should use in weighing when (if ever) such arrangements should be judicially approved."

In filing the brief, Arizona attorney general Brnovich said: "Consumers should be the first priority in any class action settlement. Class action lawsuits can serve an important role in protecting consumers, but the settlements should be focused on benefiting consumers, and not diverting money to unrelated interests."

He's joined by attorneys general from Alabama, Alaska, Arkansas, Colorado, Idaho, Indiana, Louisiana, Mississippi, Nevada, North Dakota, Oklahoma, Rhode Island, South Carolina, Texas, and Wyoming.

Common sense

In layman's terms, if a bunch of lawyers sue a company on behalf of ripped-off citizens, is it right that those lawyers get to decide with the company what the settlement amount is and who gets all the money?

In theory, it shouldn't be a big problem. But as this case - Melissa Holyoak et al vs Google – makes abundantly clear, when it comes to millions of dollars, theory tends to get thrown out the window.

Let's be honest, it's not a great idea to spend hundreds of thousands of dollars getting a few cents to millions of people. But at the same time, it's hard to imagine that three of the richest universities in the world are really the ideal beneficiaries for such a settlement. Everyone knows the settlement stinks.

It's now up to the Supreme Court decide whether to pinch its nose and pass on the appeal or agree to dig out the rot. ®

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