How Class-Action Lawyers Help Their Alma Maters
(Bloomberg Opinion) -- In recent weeks, allegations of an audacious college-bribery scheme have made headlines, implicating 50 well-heeled individuals and celebrities in corruptly arranging school admissions for their children.
But another college-related scheme has gotten much less attention, and there’s nothing illegal about it.
On March 20, the U.S. Supreme Court sent Frank v. Gaos back to lower courts. In that case, lawyers had settled a class-action lawsuit with Google. The settlement had paid the absent class-action plaintiffs nothing, but funneled millions of dollars to the lawyers and their designated charities — including three universities two of the three lawyers for the case had attended.
Lawyers representing Pamela Gaos, two other named individuals and a “class” of other individuals alleged that Google had violated federal law by sharing users’ search terms with other websites without the users’ explicit consent. The class as defined includes essentially everyone in the U.S. who has used Google for an Internet search.
Therein lies the rub. Class-action lawsuits — which target a majority of large corporations each year, according to a 2015 survey — add together hundreds, thousands or even millions of individual claims in a single legal action. They include absent plaintiffs, and extinguish their legal claims, unless the plaintiffs affirmatively “opt out” of the litigation.
But in a class-action suit as large as this case against Google, it is next to impossible to notify absent class members about the lawsuit, to process claims and to distribute settlement proceeds.
So the lawyers suing Google relied on a solution that has become all too common in resolving lawsuits of this type: the so-called cy pres class settlement. Borrowed from trust law, using a term that means “as near as possible,” cy pres settlements enable lawyers to dole out their clients’ money to nonprofits rather than to the clients themselves.
Some plaintiffs’ firms have specialized in this class-action-for-charity practice, styling themselves as disinterested humanitarians. The Ohio plaintiffs’ firm Dworken and Bernstein boasts that it “has been responsible for the distribution of over $37 million to many deserving communal organizations since 2003.”
Giving class-action settlement money to charities chosen by attorneys, and affirmed by judges, creates at least the appearance that lawyers are favoring their own rather than their clients’ interests. Why should lawyers be able to claim philanthropic credit for giving away their clients’ money, without their clients’ consent?
David Levi, a former federal judge and former dean of the Duke University School of Law, has observed that the practice of judges signing off on charitable gifts potentially compromises judges’ perceived impartiality. The risks are particularly acute, as Levi claims was often the case, when charities solicited judges to be considered for cy pres award dollars. Levi said the practice made him “more than a little uncomfortable.”
At least in cases like Gaos, it’s also hard to see how this practice benefits the clients the lawyers are supposed to represent. Some $8.5 million in settlement proceeds from Google were to be divvied up among the lawyers, a claims administrator and various charities chosen by the lawyers. The charitable awards include $2.5 million set to be given to three law school centers at two of the three class lawyers’ alma maters: Harvard’s Berkman Klein Center for Internet and Society, Stanford’s Center for Internet and Society, and Chicago-Kent’s Center for Information, Society and Policy.
Yet the absent plaintiffs got nothing. And the settlement did not require Google to change its practices; it actually specified that the company “will not be required or requested to make any changes to … the practices or functionality of Google Search.”
Although class members lost their right to sue Google individually, they were not contacted directly. Instead, these millions of plaintiffs would have known about the settlement only if they saw a website created for the case or read a press article about it.
Neither Congress nor the Supreme Court has ever approved the practice of giving class-action settlement dollars to charities instead of victims. The idea was conceived in 1972 by a student writing a note in a student-edited law review. Since then, it has been used in more than 1,000 published federal court opinions.
Justice Clarence Thomas, writing for himself, argued that the court should throw out the Gaos settlement: “the fact that class counsel and the named plaintiffs were willing to settle the class claims without obtaining any relief for the class — while securing significant benefits for themselves — strongly suggests that the interests of the class were not adequately represented.”
But the other members of the court wanted lower courts to think about a jurisdictional issue first, before they decided the case. So, for now, expect lawyers to keep negotiating cy pres class settlements that give their favorite charities money.
In the Gaos settlement, the amount of money the lawyers directed to their alma maters would make even Lori Loughlin blush. Unfortunately, this practice, as of now, remains legally sanctioned. Let’s hope that either the Supreme Court or Congress steps in to put an end to it, sooner rather than later.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
James R. Copland is the director of legal policy for and a senior fellow with the Manhattan Institute.
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