In Re: Google Inc. Cookie Plac v. , 934 F.3d 316 ( 2019 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 17-1480
________________
IN RE: GOOGLE INC. COOKIE PLACEMENT
CONSUMER PRIVACY
LITIGATION
Theodore H. Frank,
Appellant
________________
Appeal from the United States District Court
for the District of Delaware
(D.C. Civil Action No. 1-12-md-02358)
District Judge: Honorable Sue L. Robinson
________________
Argued November 14, 2017
Before: AMBRO, KRAUSE, and RENDELL, Circuit Judges
(Opinion filed: August 6, 2019)
Theodore H. Frank (Argued)
Adam E. Schulman
Competitive Enterprise Institute
Center for Class Action Fairness
1310 L Street, N.W., 7th Floor
Washington, DC 20005
Counsel for Appellant
James P. Frickleton
Bartimus Frickleton Robertson & Gorny
11150 Overbrook Road, Suite 250
Leawood, KS 66211
Stephen G. Grygiel
Silverman Thompson Slutkin & White
201 North Charles Street, Suite 2600
Baltimore, MD 21201
Brian R. Strange (Argued)
Strange & Butler
12100 Wilshire Boulevard, Suite 1900
Los Angeles, CA 90025
Counsel for Appellees:
Jose M. Bermudez;
Nicholas Todd Heinrich;
Lynne Krause.
Anthony J. Weibell (Argued)
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Michael H. Rubin
Wilson Sonsini Goodrich & Rosati
2
One Market Street
Spear Tower, Suite 3300
San Francisco, CA 94105
Counsel for Appellee,
Google Inc.
M. Duncan Grant
Pepper Hamilton
1313 Market Street
Hercules Plaza, Suite 5100
P.O. Box 1709
Wilmington, DE 19899
Joseph A. Sullivan
Pepper Hamilton
3000 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
Counsel for Amicus Curiae:
Association of Pro Bono Counsel;
Community Legal Aid Society Inc.;
Community Legal Services;
Legal Services of New Jersey;
National Legal Aid & Defender Association;
Pennsylvania Legal Aid Network;
Philadelphia Bar Foundation.
Oramel H. Skinner, III (Argued)
Office of Attorney General of Arizona
1275 West Washington Street
Phoenix, AZ 85007
3
Counsel for Amicus Appellant:
Attorneys General for the States of Alaska,
Arizona, Arkansas, Kansas, Louisiana,
Mississippi, Missouri, Nevada, North Dakota,
Oklahoma, Rhode Island, Tennessee, Wisconsin.
________________
OPINION OF THE COURT
________________
AMBRO, Circuit Judge
Cases with many plaintiffs, few to none of whom will
sue solely for themselves because the costs far outweigh the
benefits, frequently result in class actions under Federal Rule
of Civil Procedure 23. Prerequisites are having (1) so many
class members that joinder is impractical, (2) questions of law
or fact that are common to the class, (3) one or more
representatives whose claims or defenses are typical of those
in the class, and (4) representatives who will fairly and
adequately protect the interests of the class. Fed. R. Civ. P.
23(a). Besides these prerequisites, a class action must satisfy
one of the subsections (1) through (3) in Rule 23(b). As
pertinent here, Rule 23(b)(2) provides that a class action may
be maintained if the requirements of Rule 23(a) are met and
“the party opposing the class has acted or refused to act on
grounds that apply generally to the class, so that final
injunctive relief or corresponding declaratory relief is
appropriate respecting the class as a whole.”
For the first time we review an order approving the
settlement of a class action certified under Rule 23(b)(2) where
the only benefit received by the class was the defendant’s
4
payment of a cy pres award to organizations the defendant
approved.1
The defendant, Google Inc., created a web browser
“cookie” that tracks an internet user’s data (think following the
trail of cookie crumbs). For some Safari or Internet Explorer
browser users, the cookie may have operated even if the user
configured privacy settings to prevent it from tracking data.
The class plaintiffs claim Google invaded users’ privacy under
the California constitution and the state tort of intrusion upon
seclusion (meaning the intrusion into a private place,
conversation, or matter in a highly offensive manner). In a
disputed Rule 23(b)(2) class settlement, Google has agreed to
stop using the cookies for Safari browsers and to pay $5.5
million to cover class counsel’s fees and costs, incentive
awards for the named class representatives, and cy pres
distributions, without directly compensating any class
members. The six cy pres recipients are primarily data privacy
organizations, and all must agree to use the funds to research
and promote browser privacy. In addition, Google would
obtain, among other things, a class-wide release of all class-
1
“The term ‘cy pres’ is derived from the Norman French
expression cy pres comme possible, which means ‘as near as
possible.’” In re Baby Prods. Antitrust Litig., 708 F.3d 163,
168 n.1 (3d Cir. 2013) (quoting Democratic Cent. Comm. v.
Washington Metro. Area Transit Comm’n, 84 F.3d 451, 455
(D.C. Cir. 1996)). The doctrine “originated in trusts-and-
estates law as a rule of construction used to preserve
testamentary charitable gifts that otherwise would fail.” Id. at
168 n.2. “When it becomes impossible to carry out the
charitable gift as the testator intended, the doctrine allows the
next best use of the funds to satisfy the testator’s intent as near
as possible.” Id. (quotation omitted).
5
member claims, including for money damages that did or could
stem from the subject matter of the litigation.
The lone objector, Theodore H. Frank, challenges the
District Court’s certification of a settlement class and the terms
of the approved settlement. He argues that the cy pres money
properly belongs to the class as compensation. He asks us to
vacate the settlement as unfair and require direct distributions
to class members before resorting to cy pres awards. In the
alternative, if direct distributions are truly infeasible, he asserts
the class should not have been certified due to inadequate
representation. Frank also challenges the parties’ choice of cy
pres recipients because of their pre-existing relationships with
Google and class counsel.
We believe that, in some Rule 23(b)(2) class actions, a
cy pres-only settlement may properly be approved. But here
the District Court’s cursory certification and fairness analysis
were insufficient for us to review its order certifying the class
and approving the settlement. The settlement agreement’s
broad release of claims for money damages and its designation
of cy pres recipients are particularly concerning. We thus
vacate the order approving the settlement and remand for
further proceedings consistent with this opinion.
I. Background
A. Prior Litigation
We outlined the facts underlying the class’s claims in In
re Google Inc. Cookie Placement Consumer Privacy
Litigation, 806 F.3d 125, 130–34 (3d Cir. 2015). In brief, news
broke in early 2012 that a Stanford graduate student had
discovered Google’s Doubleclick.net cookies were bypassing
Safari and Internet Explorer privacy settings and tracking
internet-user information. Google settled the resulting Federal
6
Trade Commission and state attorneys general lawsuits,
agreeing to cease the practice and to pay a combined $39.5
million in fines, though admitting no past acts or wrongdoing.
Plaintiff internet users also filed claims against Google that
were later consolidated into a putative class action. The class
complaint alleged violations of federal privacy and fraud
statutes, California unfair competition and privacy statutes, the
California constitution’s right to privacy, and that state’s
privacy tort law. It sought injunctive and monetary relief.
Google moved to dismiss, and the District Court granted the
motion in full. On appeal we affirmed the dismissal of all but
the California constitutional and tort claims. See id. at 153.
B. Proposed Settlement
On remand, the parties began discovery. They then
sought to avoid further litigation and began mediation before a
former federal judge. With the help of the mediator, the parties
agreed to a settlement (the “Settlement Agreement”) and
simultaneously moved for certification of a Federal Rule of
Civil Procedure 23(b)(2) class and approval of the settlement
under Federal Rule of Civil Procedure 23(e). The latter states
that “claims, issues, or defenses of a certified class . . . may be
settled, voluntarily dismissed, or compromised only with the
court’s approval.” Fed. R. Civ. P. 23(e). It also lays out the
procedures that apply to any such settlement, dismissal, or
compromise. Id.
The proposed settlement defines the class as all persons
in America who used Safari or Internet Explorer web browsers
and “who visited a website from which Doubleclick.net . . .
cookies were placed by the means alleged in the Complaint,”
excluding individuals who had already obtained relief from
Google or submitted “a valid and timely Request for
Exclusion.” Settlement Agreement §§ 2.3, 2.5 (defining
“Class” and “Class Member”). In sweeping language, the
7
settlement would release all class member claims, including for
damages, that did or could stem from, or relate to, the subject
matter of the litigation. Settlement Agreement § 2.25
(“Released Claims”).
In exchange, Google would be required to assure it had
“implemented systems configured to” abate or delete all third-
party Google cookies that exist in Safari browsers. Settlement
Agreement § 5.1 (“Assurance of Remediation”). And as noted,
it would also pay $5.5 million, to be divided among the
settlement administrator, class counsel, the named class
representatives, and cy pres recipients. Settlement Agreement
§ 5.2 (“Settlement Fund”).
The Settlement Agreement requires both parties to
agree to the cy pres recipients. The class must propose up to
ten options, and Google may strike any for a non-arbitrary
reason and request a replacement. Settlement Agreement § 5.3
(“Cy Pres Recipients”). The chosen recipients must agree “to
devote the funds to promote public awareness and education,
and/or to support research, development, and initiatives,
related to the security and/or privacy of Internet browsers.” Id.
The parties ultimately agreed on six recipients: (1) the
Berkeley Center for Law & Technology; (2) the Berkman
Center for Internet & Society at Harvard University; (3) the
Center for Democracy & Technology (Privacy & Data
Project); (4) Public Counsel; (5) the Privacy Rights
Clearinghouse; and (6) the Center for Internet & Society at
Stanford University. Neither Frank nor the District Court were
privy to the selection process.
C. Class Action Settlements
The settlement of a putative class action requires the
approval of a district court, both for certifying the class and for
determining whether the settlement is “fair, reasonable and
8
adequate.” Halley v. Honeywell Int’l, Inc., 861 F.3d 481, 488
(3d Cir. 2017). We have provided guidance on the factors a
court should consider in deciding whether to approve class
action settlements, most notably the Girsh factors2 and the
Prudential factors.3 Where, as here, the parties seek
2
The Girsh factors, which a court must apply, are: “(1) the
complexity, expense and likely duration of the litigation; (2)
the reaction of the class to the settlement; (3) the stage of the
proceedings and the amount of discovery completed; (4) the
risks of establishing liability; (5) the risks of establishing
damages; (6) the risks of maintaining the class action through
trial; (7) the ability of the defendants to withstand a greater
judgment; (8) the range of reasonableness of the settlement
fund in light of the best possible recovery; [and] (9) the range
of reasonableness of the settlement fund to a possible recovery
in light of all the attendant risks of litigation.” Girsh v. Jepson,
521 F.2d 153, 157 (3d Cir.1975) (quoting City of Detroit v.
Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974)) (internal
ellipses omitted).
3
The Prudential factors, which a court may apply if relevant,
are: (1) “the maturity of the underlying substantive issues . . .
the development of scientific knowledge, the extent of
discovery on the merits, and other factors that bear on the
ability to assess the probable outcome of a trial on the merits
of liability and individual damages”; (2) the “existence and
probable outcome of claims by other classes and subclasses”;
(3) “the comparison between the results achieved by the
settlement for individual class or subclass members and the
results achieved—or likely to be achieved—for other
claimants”; (4) “whether class or subclass members are
accorded the right to opt out of the settlement”; (5) “whether
any provisions for attorneys’ fees are reasonable”; and (6)
9
simultaneous class certification and settlement approval, courts
should be “even more scrupulous than usual when they
examine the fairness of the proposed settlement.” Prudential,
148 F.3d at 317 (quotation omitted). This heightened standard
is designed to protect the interests of all class members. Id.
Some class action settlements also require the sending
of notice to members of the putative class. Before approving
the settlement of a class action certified under Rule 23(b)(3),
which is primarily used to pursue money-damages class
actions,4 a court “must direct to class members the best notice
that is practicable under the circumstances, including
individual notice to all members who can be identified through
reasonable effort.” Fed. R. Civ. P. 23(c)(2)(B). For class
actions certified under Rule 23(b)(1), which is often used to
pursue class actions involving a common fund for injured
stakeholders,5 or Rule 23(b)(2), which is used to pursue
“whether the procedure for processing individual claims under
the settlement is fair and reasonable.” In re Prudential Ins. Co.
Am. Sales Practice Litig., 148 F.3d 283, 323 (3d Cir. 1998).
4
Rule 23(b)(3) provides that a class action may be maintained
if the requirements of Rule 23(a) are met and “the court finds
that the questions of law or fact common to class members
predominate over any questions affecting only individual
members, and that a class action is superior to other available
methods for fairly and efficiently adjudicating the
controversy.”
5
Rule 23(b)(1) provides that a class action may be maintained
if the requirements of Rule 23(a) are met and prosecuting
separate actions would create a risk of (1) “inconsistent or
varying adjudications with respect to individual class members
that would establish incompatible standards of conduct for the
party opposing the class,” or (2) “adjudications with respect to
10
injunctions in class actions, the Rules do not impose the same
mandate of notice; rather, they state the court “may direct
appropriate notice to the class.” Fed. R. Civ. P. 23(c)(2)(A);
see also Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 363
(2011). Of course, regardless what these rules say, the
procedures for class action settlement—including the notice
procedures—must also comply with due process requirements.
See In re Nat’l Football League Players Concussion Injury
Litig., 821 F.3d 410, 435 (3d Cir. 2016); see also Dukes, 564
U.S. at 362.
C. District Court Proceedings
The District Court preliminarily certified the class for
settlement under Rule 23(b)(2). Following a notice period, the
Court received fifty exclusion requests and one timely
objection. Frank, the sole objector, asserted that either the
settlement was unfair because it improperly preferred cy pres
over direct compensation to class members, or, in the
alternative, the class could not be certified if direct
compensation was impossible. He further argued that the cy
pres recipients raised a conflict-of-interest concern because
class counsel was on one recipient’s board and Google was a
regular donor to four others. Finally, Frank challenged the
attorneys’ fees—an issue he does not raise on appeal.
To determine whether the settlement class could be
certified, the District Court conducted a hearing as required by
Fed. R. Civ. P. 23(e)(2) and heard arguments from the parties
and Frank. Following the hearing, it issued a short opinion and
individual class members that, as a practical matter, would be
dispositive of the interests of the other members not parties to
the individual adjudications or would substantially impair or
impede their ability to protect their interests.”
11
final order approving class certification and the settlement. In
its opinion the Court correctly noted it could certify a class only
if the requirements of Rule 23(a) and one of the prongs of Rule
23(b) were satisfied. It stated that “no objections had been
filed” challenging class certification, then in three sentences
explained why all the requisite factors were met—without
stating what type of Rule 23(b) class was certified.
The Court then reviewed the proposed settlement for
fairness, reasonableness, and adequacy, as required by Rule
23(e)(2). That Rule provides that if a class action settlement
“would bind class members, the court may approve it only after
a hearing and only on finding that it is fair, reasonable, and
adequate.” Fed. R. Civ. P. 23(e)(2). The Court here noted that
a presumption of fairness applies to class settlements that meet
certain criteria established in our case law, but it did not make
factual findings relating to those factors or hold whether the
presumption applied in this case. It then applied the Girsh
factors in determining whether the settlement was fair,
reasonable, and adequate. Though it spent only four sentences
analyzing the entirety of Girsh’s nine factors, the Court
concluded that “the record adequately establishes” they had
been satisfied. It acknowledged additional factors to consider
under Prudential, 148 F.3d at 323, and In re Baby Prods.
Antitrust Litig., 708 F.3d 163 (3d Cir. 2013), but did not
expressly apply them.6
6
Baby Products instructed courts to consider further “the
degree of direct benefit provided to the class” from the
settlement, potentially including “the number of individual
awards compared to both the number of claims and the
estimated number of class members, the size of the individual
awards compared to claimants’ estimated damages, and the
12
Ultimately, the Court rejected Frank’s arguments and
approved the settlement. It found that “the nature of the likely
compensation to the class members has always been
complicated by the substantial problems of identifying the
millions of potential class members[7] and then of translating
their alleged loss of privacy into individual cash amounts.” It
further found that “payments to absent class members would
be logistically burdensome, impractical, and economically
infeasible, resulting (at best) with direct compensation of a de
minim[i]s amount.” Because the cy pres money would be used
by “preeminent institutions for researching and advocating for
online privacy” to promote Internet browser privacy, it held
that the cy pres awards “bear a direct and substantial nexus to
the interests of absent class members.” In one sentence, the
Court noted Frank’s objections to the pre-existing relationships
between Google, class counsel, and the cy pres recipients, but
held “no conflict of interest” had “undermine[d] the selected
cy pres recipients.”
Frank timely appealed.
claims process used to determine individual awards.” 708 F.3d
at 174.
7
In its brief, Google asserts that because many people
download Doubleclick.net cookies while browsing the internet
and there is no meaningful way to distinguish cookies
downloaded “by the means alleged in the Complaint” rather
than by other, unobjectionable means, it would be
exceptionally difficult, and perhaps impossible, for anyone to
determine who is a class member. Google Br. at 19. At the
fairness hearing, Judge Robinson also stated she “believe[d]
this has always been a case in which the facts preclude direct
individual compensation.”
13
II. Discussion
A. Article III Standing
After oral argument, we held this appeal in abeyance
pending the Supreme Court’s resolution of Frank v. Gaos,
which also involved a cy pres-only class action settlement
involving alleged privacy violations by Google. 139 S. Ct.
1041, 1043–44 (2019). But the Gaos Court did not review the
class action settlement in that case. Instead, in a per curiam
opinion it vacated the settlement and remanded under its
decision in Spokeo, Inc v. Robins, in which it clarified the
“concreteness” requirement of the injury-in-fact prong of
Article III standing, holding that a “bare procedural violation”
of the Fair Credit Reporting Act was not sufficiently
“concrete” to establish standing. 136 S. Ct. 1540, 1549–50
(2016); Frank, 139 S. Ct. at 1046.
After Gaos was issued, we requested supplemental
briefing from the parties on whether plaintiffs adequately
alleged a “concrete injury” for purposes of Article III standing.
They here adequately did so, following our decision in In re
Nickelodeon Consumer Privacy Litigation, 827 F.3d 262, 273–
74 (3d Cir. 2016). There, in the wake of Spokeo, we considered
whether a concrete injury occurred when a website operator
stated it would not track the browser history and video-viewing
of children who visited Nick.com but then did so anyway. Id.
at 269. We held the website operator’s intrusion on the
children’s personal browsing and viewing activities was
sufficiently injurious for purposes of Article III standing. Id.at 273–74. The allegations of standing here are
indistinguishable from those in Nickelodeon: in both cases, the
plaintiffs alleged that a third party (Viacom there, Google here)
tracked their personal internet browsing information in
violation of the third party’s own promises not to do so. Id.The Nickelodeon decision, which considered and distinguished
14
the Supreme Court’s analysis in Spokeo, dictates that we
recognize standing here.
More than precedent supports our conclusion. History
and tradition reinforce that a concrete injury for Article III
standing purposes occurs when Google, or any other third
party, tracks a person’s internet browser activity without
authorization. Privacy torts have become “well-ensconced in
the fabric of American law.” In re Horizon Healthcare Servs.
Inc. Data Breach Litig., 846 F.3d 625, 638 (3d Cir. 2017).
Indeed, as Justice Thomas has explained, private actions to
remedy intrusions on the private sphere trace back to England,
where a property owner needed only to show that another
person placed a foot on his property to establish a traditional
case or controversy. See Spokeo, 136 S. Ct. at 1551 (Thomas,
J., concurring) (citing Entick v. Carrington, 2 Wils. K.B. 275,
291 (1765)). Likewise, “Congress has long provided plaintiffs
with the right to seek redress for unauthorized disclosures of
information that, in Congress’s judgment, ought to remain
private.” Nickelodeon, 827 F.3d at 274. In an era when
millions of Americans conduct their affairs increasingly
through electronic devices, the assertion Google makes—that
federal courts are powerless to provide a remedy when an
internet company surreptitiously collects private data—is
untenable. Nothing in Spokeo or any other Supreme Court
decision suggests otherwise.
B. Jurisdiction and Standards of Review
The District Court had jurisdiction under 28 U.S.C.
§ 1332(d), and we have appellate jurisdiction under 28 U.S.C.
§ 1291. We review a district court’s decision to approve a
settlement and to certify a class for abuse of discretion. See
Baby Prods., 708 F.3d at 175. “An appellate court may find an
abuse of discretion where the district court’s decision rests
upon a clearly erroneous finding of fact, an errant conclusion
15
of law or an improper application of law to fact.” Id. (citing
Prudential, 148 F.3d at 299). However, a district court must
“make its reasoning and application of the [law] clear, so that
we, as a reviewing court, have a sufficient basis to review for
abuse of discretion.” Gunter v. Ridgewood Energy Corp., 223
F.3d 190, 196 (3d Cir. 2000); see also In re Cendant Corp.
PRIDES Litig., 234 F.3d 166, 168 (3d Cir. 2000).
C. Class Settlement Fairness
Frank raises two challenges to the proposed settlement’s
fairness, reasonableness, and adequacy under Rule 23(e)(2).
First, he argues the settlement, whose main monetary
component is a cy pres award, provides no marginal benefit to
the class and therefore cannot satisfy that Rule. Indeed, he
asserts a cy pres award is always inappropriate if some
individual class members could be compensated through a
claims or lottery process. Second, Frank challenges the
selection of the cy pres recipients due to their pre-existing
associations with either class counsel or Google.
We have identified two opposing interests a district
court must weigh when reviewing motions for settlement-only
class certification and approval of the settlement. First, we
favor the parties reaching an amicable agreement and avoiding
protracted litigation. See, e.g., In re Warfarin Sodium Antitrust
Litig., 391 F.3d 516, 535 (3d Cir. 2004). We do not wish to
intrude overly on the parties’ hard-fought bargain. See
Ehrheart v. Verizon Wireless, 609 F.3d 590, 593–95 (3d Cir.
2010). A district court thus is to presume a settlement is fair if
“(1) the negotiations occurred at arms length; (2) there was
sufficient discovery; (3) the proponents of the settlement are
experienced in similar litigation; and (4) only a small fraction
16
of the class objected.”8 NFL Concussion Litig., 821 F.3d at
436.
At the same time, a district court has an obligation as a
fiduciary for absent class members to examine the proposed
settlement with care. See, e.g., Warfarin Sodium, 391 F.3d at
535. This duty is heightened in settlement-only class cases:
“[W]here settlement negotiations precede class certification,
and approval for settlement and certification are sought
simultaneously, we require district courts to be even ‘more
scrupulous than usual’ when examining the fairness of the
proposed settlement.” Id.; see also Amchem Prods., Inc. v.
Windsor, 521 U.S. 591, 619–20 (1997) (viewing as “altogether
proper” the Third Circuit’s careful review of a settlement
class’s certification to ensure absent class members were
adequately represented). In settlement negotiations, the
interests of class representatives or class counsel do not always
align with the interests of absent class members, and prior to
certification class members may not know their claims are in
litigation or that settlement negotiations are taking place. See
In re Gen. Motors Corp. Pick-Up Truck Fuel Tank Prods. Liab.
Litig., 55 F.3d 768, 788 (3d Cir. 1995). Thus a district court’s
“scrupulous” review of the settlement terms is “designed to
ensure that class counsel has demonstrated ‘sustained
advocacy’ throughout the course of the proceedings and has
8
In its opinion the District Court recognized the fairness
presumption’s existence in the case law, but did not tie any
factual findings to the test’s factors or expressly hold whether
the presumption applied. Its preliminary order certifying the
class similarly suggested, but did not expressly hold, that the
presumption applies. Frank does not challenge the application
or misapplication of the fairness presumption, however. Given
the case’s facts and procedural posture, we assume the
presumption applies.
17
protected the interests of all class members.” Prudential, 148
F.3d at 317 (quoting GM Trucks, 55 F.3d at 805–06).
These principles, combined with the legal analyses
further described below, lead us to disagree with Frank that cy
pres-only settlements are unfair per se under Rule 23(e)(2). In
some cases a cy pres-only settlement may be proper. But we
are troubled by the District Court’s cursory certification and
fairness analysis in this case, and two features of the settlement,
discussed below, compel us to vacate and remand.
1. Cy Pres-Only Class Settlements
We have never addressed whether a class action
settlement’s monetary award may be given solely to cy pres
recipients. In the usual cy pres case, money from a class
settlement fund remains after distributions to class members,
perhaps because “class members cannot be located, decline to
file claims, have died, or the parties have overestimated the
amount projected for distribution.” Baby Prods., 708 F.3d at
169. In those cases, parties may seek to “distribute to a
nonparty (or nonparties) the excess settlement funds for their
next best use—a charitable purpose reasonably approximating
the interests pursued by the class.” Id. Cy pres is generally
preferable to escheating funds to the state or reverting them to
the defendant because it “preserve[s] the [class action’s]
deterrent effect . . . [and] (at least theoretically) more closely
tailor[s] the distribution to the interests of class members.” Id.
at 172.
Still, many federal courts, the media, academia, and
even the Chief Justice of the United States view cy pres awards
with skepticism.9 Among other things, they “present a
9
Chief Justice Roberts has voiced concerns regarding cy pres,
particularly where it constitutes a class’s only monetary relief.
18
potential conflict of interest between class counsel and their
clients” because they “may increase a settlement fund, and
with it attorneys’ fees, without increasing the direct benefit to
the class.” Baby Prods., 708 F.3d at 173. A settlement whose
only monetary distributions are to class counsel, class
representatives, and cy pres recipients, as in this case, presents
the risk of a still greater misalignment of interests: the
settlement clearly benefits the defendant (who obtains peace at
a potentially reduced cost), class counsel (who are guaranteed
payment in the settlement), and the named representatives
(who are given an incentive award in the settlement), while any
benefit to other class members is indirect and inconsequential
monetarily.
Despite cy pres’ flaws, we held in Baby Products that
“a district court does not abuse its discretion by approving a
class action settlement agreement that includes a cy pres
component directing distribution of excess settlement funds to
a third party to be used for a purpose related to the class injury.”
Id. at 172. Favorably citing the American Law Institute’s
(“ALI”) guidelines, we held that cy pres was appropriate where
some class members were compensated directly and “further
individual distributions are economically infeasible.” Id. at
173 (citing ALI, Principles of the Law of Aggregate Litigation
§ 3.07(b) (2010)). We left the door open for other permissible
forms of cy pres, id., and nowhere addressed it in the context
of a Rule 23(b)(2) class.
With this background, we now consider whether a cy
pres-only settlement in a Rule 23(b)(2) class can ever satisfy
the fairness requirements of Rule 23(e)(2), and, if so, whether
See Marek v. Lane, 134 S. Ct. 8, 9 (2013) (Roberts, C.J.,
statement respecting denial of certiorari).
19
the District Court abused its discretion in approving this
particular settlement as fair, reasonable, and adequate.
Frank’s central argument on appeal is that cy pres
awards should never be preferred over direct distributions to
class members because the settlement fund properly “belongs”
to individual class members as monetary compensation for
their injuries. He proposes that the $5.5 million settlement
fund is “sufficient to fund either a claims process or a lottery
distribution for the class,” even though he acknowledges it
would be “impossible to pay every class member.” Obj. Br.
at 9. He criticizes the District Court’s weighing of the
settlement fund against the size of the entire class because
“[e]ven in billion-dollar securities settlements where class
members have suffered substantial losses, the parties do not
know who each and every class member is and must rely upon
class members to identify themselves and the size of their loss
in a claims process.” Id. at 27–28.
We know no ruling that requires district courts to
approve only settlements that provide for direct class
distributions on these facts. Indeed, Baby Products suggested
the opposite. We reasoned that “cy pres distributions are most
appropriate where further individual distributions are
economically infeasible” and declined to prohibit cy pres
distributions in other situations, including where even an initial
distribution to some class members would be infeasible. 708
F.3d at 173. We also reaffirmed that settlement approval
should be a practical inquiry rooted in the particular case’s
facts and procedural posture—as the Girsh and Prudential
factors reflect. Id. at 173–74. Ultimately “[t]he role of a
district court is not to determine whether the settlement is the
fairest possible resolution . . . [, but rather to] determine
whether the compromises reflected in the settlement . . . are
fair, reasonable, and adequate when considered from the
perspective of the class as a whole.” Id.
20
Google further argues that this settlement fund was
never intended to compensate class members monetarily.
Rather, it claims the fund enhances the settlement’s deterrent
effect by funding data privacy institutions that will work to
prevent similar potential privacy invasions from occurring in
the future. The class representatives similarly point out that a
claims-made process or lottery geared toward individual
distributions would “not come close to addressing the Internet
privacy concerns of all class members in this case.” Class Br.
at 23.
This rationale accords with the purpose of the Rule
23(b)(2) class structure. The Supreme Court has described this
as a more “traditional” collective action because it assumes a
single, “indivisible” injunctive or declaratory remedy against
the defendant will provide relief to all class members equally.
Dukes, 564 U.S. at 361–63. A (b)(2) class therefore does not
involve individualized determinations of liability or damages,
id.,10 or even require that individual class members be
ascertainable, Shelton v. Bledsoe, 775 F.3d 554, 563 (3d Cir.
2015). Nor does certification require the “greater procedural
protections” of (b)(3) classes, such as the opportunity for
individual class members to receive notice of the action or the
opportunity to opt out. See Dukes, 564 U.S. at 362. To certify
a (b)(2) class, a court must simply find that “the party opposing
the class has acted or refused to act on grounds that apply
generally to the class, so that final injunctive relief or
corresponding declaratory relief is appropriate respecting the
class as a whole.” Fed. R. Civ. P. 23(b)(2). In other words, the
class must be “cohesive” such that the members “have strong
10
In fact, a non-settlement (b)(2) class cannot be certified if it
brings claims for monetary relief that are more than
“incidental.” Dukes, 564 U.S. at 360.
21
commonality of interests.” Gates v. Rohm & Haas Co., 655
F.3d 255, 263–64 (3d Cir. 2011).
Contrary to Frank’s arguments, then, we see no reason
why a cy pres-only (b)(2) settlement that satisfies Rule 23’s
certification and fairness requirements could not “belong” to
the class as a whole, and not to individual class members as
monetary compensation. Direct monetary distributions
typically would not accomplish the purpose of a (b)(2) class.
It is not an inherent abuse of discretion for a district court to
allow a cy pres-only settlement rather than random
compensation, and possibly even overcompensation through a
lottery, of some (b)(2) class members to the exclusion of
others.
2. Review of the District Court’s Settlement
Approval
This brings us to the Settlement Agreement. District
courts are to assess the fairness, reasonableness, and adequacy
of a cy pres award under Rule 23(e)(2) using “the same
framework developed for assessing other aspects of class
action settlements”: namely, applying the Girsh factors;
applying the Prudential factors where applicable; and also
considering “the degree of direct benefit provided to the class,”
which may include “the number of individual awards
compared to both the number of claims and the estimated
number of class members, the size of the individual awards
compared to claimants’ estimated damages, and the claims
process used to determine individual awards.” Baby Prods.,
708 F.3d at 174. “[C]y pres awards should generally represent
a small percentage of total settlement funds” unless a district
court finds “sufficient justification.” Id.
In its opinion approving the Settlement Agreement, the
District Court ran through the Girsh factors and held that all
22
nine were satisfied, but in a more perfunctory fashion than we
are accustomed to reviewing on appeal. It also acknowledged
the additional factors we suggested district courts consider in
Prudential, 148 F.3d at 323, and Baby Products, 708 F.3d at
174, but did not explicitly apply them.
In this context, we are not persuaded the Court
sufficiently assessed the fairness, reasonableness, and
adequacy of the settlement. In particular, two features of the
settlement present concerns that were not adequately
considered by it: the broad class-wide release of claims for
money damages, and selection of the specific cy pres
recipients.
a. Class-wide Release
The Settlement Agreement purports to release all class
member claims, including for damages, that did or could stem
from, or relate to, the subject matter of the litigation. This
raises a red flag. Before the District Court, class counsel
acknowledged that the dismissal of all claims providing for
statutory damages made class certification more difficult. See
District Court Docket, ECF No. 163 (Motion for Preliminary
Approval of Class Action Settlement) at 15. That premise, in
turn, shaped the structure of both class certification and class
notice: the parties sought to certify an injunction class under
Rule 23(b)(2), not a damages class under Rule 23(b)(3), see
District Court Docket, ECF No. 163, and thus avoided the
heightened certification and notice requirements that apply to
the latter. See Fed. R. Civ. P. 23(b)(3) (requiring
predominance and superiority); Fed. R. Civ. P. 23(c)(2)(B)
(requiring “the best notice that is practicable under the
circumstances” for 23(b)(3) settlements).
Yet having sidestepped these requirements, Google and
class counsel nonetheless obtained—for themselves anyway—
23
the precise benefits that a Rule 23(b)(3) class gives to the
defendant and class counsel: namely, a broad class-wide
release of claims for money damages for the defendant, and a
percentage-of-fund calculation of attorneys’ fees for class
counsel. The District Court’s failure to scrutinize this
troubling aspect of the Settlement Agreement prevents us from
reviewing its fairness, reasonableness, and adequacy. See
Gunter, 223 F.3d at 196 (district court’s reasoning and
application of the law must be clear enough to provide basis
for review). We also question, and leave to the District Court
on remand, whether a defendant can ever obtain a class-wide
release of claims for money damages in a Rule 23(b)(2)
settlement, and if so, whether a release of that kind requires a
heightened form of notice either under Rule 23(c)(2)(B) or due
process tenets. Cf. NFL Concussion Litig., 821 F.3d at 435
(noting that class action notice must comply with due process);
see also In re Payment Card Interchange Fee & Merchant
Discount Antitrust Litig., 827 F.3d 223, 236 (2d Cir. 2016)
(reversing district court’s approval of Rule 23(b)(2) settlement
with broad release); Koby v. ARS Nat’l Servs., 846 F.3d 1071,
1079 (9th Cir. 2017) (same).
b. Cy Pres Recipients
The District Court held that “the proposed cy pres
distributions are appropriately tailored and focused.” It found
the selected cy pres recipients to be “among the preeminent
institutions for researching and advocating for online privacy,”
and that they would properly be required to use the funds for
internet browser privacy initiatives. Id. Because “this case is
about Google’s alleged circumvention of Internet browser
privacy settings,” it concluded, the proposed cy pres
distributions thus “bear a direct and substantial nexus to the
interests of absent class members.” The Court made no finding
that the class’s nationwide nature was reflected in the
geographical scope of cy pres recipients’ work. See, e.g.,
24
Schwartz v. Dallas Cowboys Football Club, Ltd., 362 F. Supp.
2d 574, 576 (E.D. Pa. 2005) (“In [reviewing cy pres awards],
the court should consider . . . the geographic scope of the
case.”). However, the record shows they overlap; the
promotion of better online privacy inherently has nationwide
effects.
In sum, on the District Court’s review of the record, the
proposed cy pres awards would be used for a purpose directly
and substantially related to the class’s interests. The record
also reflects that the geographic scope of the class corresponds
to that of the cy pres recipients. The Court held the proposed
cy pres awards were fair, reasonable, and adequate when
viewed “from the perspective of the Settlement Class as a
whole.” Although other aspects of its analysis were unusually
brief, the Court did not abuse its discretion by approving this
(b)(2) class settlement’s cy pres structure.
Yet we are troubled here by the selection of the specific
cy pres recipients. Frank challenges the selection of those
recipients as unfair under Rule 23(e)(2) due to pre-existing
associations between them and class counsel or Google. He
asserts that Google has long ties to Stanford and is a regular
donor and cy pres payor to the Berkeley Center for Law &
Technology, the Berkman Center for Internet & Society at
Harvard University, the Center for Internet & Society at
Stanford University, and the Center for Democracy &
Technology. One of the lawyers representing the class is also
a board member of Public Counsel.
We have not previously addressed when a prior
relationship between a cy pres recipient and one of the litigants
in a class action undermines the proposed settlement’s fairness.
Regardless of the relevant standard, however, the District
Court’s treatment of the question warrants remand. It
conducted no fact finding, either through additional filings or
25
an evidentiary hearing, to determine the nature of the
relationships between the cy pres recipients and Google or
class counsel. In its opinion, the Court misstated the nature of
Frank’s objections, stating he “takes the position that any
relationship between a party (and its counsel) and a proposed
cy pres recipient automatically disqualifies the proposed cy
pres recipient.” It then dismissed the issue in a single sentence
with no analysis, holding that “no conflict of interest” had
“undermine[d] the selected cy pres recipients.” This is not the
“scrupulous” examination required of a court acting as a
fiduciary for absent class members. See Warfarin Sodium, 391
F.3d at 534; see also Gunter, 223 F.3d at 196.
We further hold that, if challenged by an objector, a
district court must review the selected cy pres recipients to
determine whether they have a significant prior affiliation with
any party, counsel, or the court. A settlement should not be
approved if such a prior affiliation “would raise substantial
questions . . . whether the selection of the recipient was made
on the merits.” ALI, Principles of the Law of Aggregate
Litigation § 3.07 cmt. b. The parties seeking settlement
approval bear the burden of explaining to a court why the cy
pres selection was fair, which may include describing the
nature of any prior affiliations; what role, if any, each
affiliation played in the cy pres selection process; whether
other recipients were sincerely considered; and why these
recipients are the proper choice. As always, “[w]here a court
fears counsel is conflicted, it should subject the settlement to
increased scrutiny.” Baby Prods., 708 F.3d at 173.
On remand, the District Court should consider whether
these cy pres recipients have significant prior affiliations with
Google, class counsel, or the Court, and, if so, whether the
selection process failed to satisfy Rule 23(e)(2) by raising
substantial questions whether the recipients were chosen on the
merits. Where, as here, the only benefit to class members is a
26
cy pres award, parties may also want to involve class members
or a neutral participant in the selection of recipients to ward off
any appearance of impropriety.
D. Class Certification
Frank asserts that, even if his settlement fairness
challenge fails, reversal is still appropriate on class-
certification grounds. If a settlement will not confer a
meaningful benefit to absent class members, he argues it must
fail to satisfy Rule 23(a)(4) and (g)(4). Those Rules provide
that a class’s representative plaintiffs and counsel,
respectively, must “fairly and adequately” represent the
interests of the class. Frank contends that a cy pres-only
settlement in these circumstances confers no benefit on the
class, which inherently shows that the class representative and
counsel failed to represent the class fairly and adequately. For
this reason, he claims a cy pres-only settlement class cannot be
certified due to inadequate representation.
Frank’s class certification challenge is not really an
alternative ground for reversal. It is predicated on his
challenge to the settlement. In light of our decision to remand,
we leave to the District Court whether to reconsider Frank’s
contentions concerning the propriety of class certification in
light of its further consideration and potential factfinding.
* * * * *
The vista view of this case is not pretty. According to
the complaint, an internet behemoth with unprecedented tools
for monitoring private conduct told millions of Americans it
would not track their personal browser history, and then it did
so anyway to profit from the data. Through the proposed class-
action settlement, the purported wrongdoer promises to pay a
couple million dollars to class counsel and make a cy pres
27
contribution to organizations it was already donating to
otherwise (at least one of which has an affiliation with class
counsel). By seeking certification under Rule 23(b)(2), the
defendant and class counsel avoid the additional safeguards
that apply to Rule 23(b)(3) actions. One might think this would
leave room for class members to pursue damages individually;
yet that relief is foreclosed as well, as the settlement contains a
nationwide release of claims for money damages that arose or
could arise were there unauthorized snooping, presumably
covering tens if not hundreds of millions of Americans. In this
context, we believe the District Court’s factfinding and legal
analysis were insufficient for us to review its order certifying
the class and approving the fairness, reasonableness, and
adequacy of the settlement. We thus vacate and remand for
further proceedings in accord with this opinion.
28