Are Cy Pres Settlements Fair to Class Members?

So, the notion of a class action settlement that results in absolutely no compensation for the plaintiffs seems unfair. Why bother to file a class-action lawsuit if none of the plaintiffs get any money? This is the premise of cy pres settlements. And it applies to more lawsuits than you may think.

Cy Pres is a practice involved in class action settlements. It basically means that, instead of the plaintiffs in the class getting damages, any monies paid by the defendant go to third-party charities.

A lot of people have questioned whether the practice of cy pres is fair. And, the courts have finally started to wonder the same thing.

How Does Cy Pres Work?

Often times, a class action is filed without actually identifying the members of the class. For example, in a recent case, In re: Google, Inc. Cookie Placement Consumer Privacy, the class was defined, but the plaintiffs were not identified.

This case was filed against Google based on allegations that the company invaded their consumers’ privacy. Google had installed cookies on their site that we’re able to bypass regular cookie blockers. Counsel for the class argued that this practice was an invasion of their clients’ privacy.

The Court agreed and the case settled for $5.5 million. The problem was, none of this money was actually going to the people whose privacy was violated. Instead, all of the settlement money was designated to go to a variety of 6 charities. Ironically, 5 of these charities were earmarked by the defendant as their “favorite” charities. This hardly seemed fair.

The reason the settlement monies are going to charities is that the defendant (and the Court) determined that it wasn’t feasible to actually identify all of the injured class members. Furthermore, even if they could identify the potential plaintiffs, there would be no way to determine how much money each would be entitled to. And, finally, there would be no practical way for the defendants to distribute the settlement money to the class members.

Cy Pres Hardly Seems Fair, Does It?

Why would an attorney file a class-action lawsuit if they know the class isn’t actually going to get any money? Sometimes, when a lawsuit is filed, the plaintiffs’ attorneys don’t realize it will result in a cy pres distribution. Other times, the attorneys are looking for justice for their class, no matter what form that justice will take.

For example, in the Google case above, the goal was to stop Google from invading people’s privacy. Most of the people injured weren’t even aware that there was an issue with their cookie blockers. Most had absolutely no idea a lawsuit was even filed. So, it’s hard to argue that these same people are entitled to monetary damages.

The other argument would be that if none of the class members are getting any money, why is there a financial settlement at all? Why not just seek an injunction against certain behavior?

Class action attorneys aren’t merely seeking injunctions. They want to make sure there is some kind of financial penalty to the defendant. Otherwise, there’s nothing to prevent the defendant from behaving in similar ways in the future. The settlement money acts as a deterrent.

The Court in the In re Google Case Did Put Some Limits on Cy Pres

When it became clear that the $5.5 million in the Google case would be going to charities, one of the class members did file an objection. They argued that a total cy pres settlement is unfair to the class members. They also argued that Google should not have been allowed to distribute the money to their favorite charities. At a minimum, the objector stated, the class should be allowed to choose the charities.

While the court did question whether the charity selection in the Google case was suspect, they did hold that total cy pres settlements were valid. They said there is nothing wrong with a class action settlement going to third-party charities, rather than class members. This is especially true when it’s not feasible to identify the class members or distribute monies to them.

The Court did raise a couple of interesting questions about cy pres settlements. First, they said that any settlement release in these cases must be carefully scrutinized. It’s not fair to release the defendant from any future claims when the class members don’t have a chance to review or object to the release. Second, they held that whatever charities are selected must have some actual relationship to the class.

If you’re looking for more information on cy pres or mass tort lawsuits, contact a mass tort lawyer at Rueb Stoller Daniel today.