Gaos v. Holyoak (In re Google Referrer Header Privacy Litig.)

• Decision Date: 22 August 2017
• Docket Number: No. 15–15858,15–15858
• Citation: 869 F.3d 737
• Parties: IN RE GOOGLE REFERRER HEADER PRIVACY LITIGATION, Paloma Gaos; Anthony Italiano ; Gabriel Priyev, individually and on behalf of all others similarly situated, Plaintiffs–Appellees, v. Melissa Ann Holyoak; Theodore H. Frank, Objectors–Appellants, v. Google, Inc., a Delaware corporation, Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

869 F.3d 737

IN RE GOOGLE REFERRER HEADER PRIVACY LITIGATION,

Paloma Gaos; Anthony Italiano ; Gabriel Priyev, individually and on behalf of all others similarly situated, Plaintiffs–Appellees,

v.Melissa Ann Holyoak; Theodore H. Frank, Objectors–Appellants,

v.Google, Inc., a Delaware corporation, Defendant–Appellee.

No. 15–15858

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 13, 2017 San Francisco, California

Filed August 22, 2017

Theodore H. Frank (argued), Melissa A. Holyoak, and Adam Ezra Schulman, Competitive Enterprise Institute, Center for Class Action Fairness, Washington, D.C., for Objectors–Appellants.

Kassra P. Nassiri (argued) and John J. Manier, Nassiri & Jung LLP, San Francisco, California, for Plaintiffs–Appellees.

Donald M. Falk (argued) and Edward D. Johnson, Mayer Brown LLP, Palo Alto, California; Daniel E. Jones, Mayer Brown LLP, Washington, D.C.; Randall W. Edwards, O'Melveny & Myers LLP, San Francisco, California; for Defendant–Appellee.

Before: J. Clifford Wallace, M. Margaret McKeown, and Jay S. Bybee, Circuit Judges.

Partial Concurrence and Partial Dissent by Judge Wallace

OPINION

McKEOWN, Circuit Judge:

Google's free Internet search engine ("Google Search") processes more than one billion user-generated search requests every day. This case arises from class action claims that Google violated users' privacy by disclosing their Internet search terms to owners of third-party websites. We consider whether the district court abused its discretion in approving the $8.5 million cy pres –only settlement and conclude that it did not.

BACKGROUND

In these consolidated class actions, three Google Search users—Paloma Gaos, Anthony Italiano, and Gabriel Priyev (collectively "plaintiffs")—asserted claims for violation of the Stored Communications Act, 18 U.S.C. § 2701 et seq. ; breach of contract; breach of the covenant of good faith and fair dealing; breach of implied contract; and unjust enrichment. The plaintiffs sought statutory and punitive damages and declaratory and injunctive relief for the alleged privacy violations.

The claimed privacy violations are the consequence of the browser architecture. Once users submit search terms to Google Search, it returns a list of relevant websites in a new webpage, the "search results page." Users can then visit any website listed in the search results page by clicking on the provided link.

When a user visits a website via Google Search, that website is allegedly privy to the search terms the user originally submitted to Google Search. This occurs because, for each search results page, Google Search generates a unique "Uniform Resource Locator" ("URL") that includes the user's search terms. In turn, every major desktop and mobile web browser (including Internet Explorer, Firefox, Chrome, and Safari) by default reports the URL of the last webpage that the user viewed before clicking on the link to the current page as part of "referrer header" information. See In re Zynga Privacy Litig. , 750 F.3d 1098, 1102 (9th Cir. 2014) (explaining how "referrer headers" operate).¹

The genesis of the plaintiffs' complaints is the application of the search protocol, coupled with Google's "Web History" service, which tracks and stores account holders' browsing activity on Google's servers. Following mediation, the parties reached a settlement, which they submitted to the district court for preliminary approval in July 2013. The settlement provided that Google would pay a total of $8.5 million and provide information on its website disclosing how users' search terms are shared with third parties, in exchange for a release of the claims of the approximately 129 million people who used Google Search in the United States between October 25, 2006 and April 25, 2014 (the date the class was given notice of the settlement).

Of the $8.5 million settlement fund, approximately $3.2 million was set aside for attorneys' fees, administration costs, and incentive payments to the named plaintiffs. The remaining $5.3 million or so was allocated to six cy pres recipients, each of which would receive anywhere from 15 to 21% of the money, provided that they agreed "to devote the funds to promote public awareness and education, and/or to support research, development, and initiatives, related to protecting privacy on the Internet." The six recipients were AARP, Inc.; the Berkman Center for Internet and Society at Harvard University; Carnegie Mellon University; the Illinois Institute of Technology Chicago–Kent College of Law Center for Information, Society and Policy; the Stanford Center for Internet and Society; and the World Privacy Forum. Each of the recipients submitted a detailed proposal for how the funds would be used to promote Internet privacy.

After a hearing, the district court certified the class for settlement purposes and preliminarily approved the settlement. Notice was given to the class on April 25, 2014, via a website, toll-free telephone number, paid banner ads, and press articles. Thirteen class members opted out of the settlement, and five class members, including Melissa Ann Holyoak and Theodore H. Frank (collectively "Objectors"), filed objections.

Following a final settlement approval hearing at which the district court heard from both the parties and Objectors, the district court granted final approval of the settlement on March 31, 2015. With respect to the objections, the district court found that: (1) a cy pres– only settlement was appropriate because the settlement fund was non-distributable; (2) whether or not the settlement was cy pres– only had no bearing on whether Rule 23(b)(3)'s superiority requirement was met; (3) the cy pres recipients had a substantial nexus to the interests of the class members, and there was no evidence that the parties' preexisting relationships with the recipients factored into the selection process; and (4) the attorneys' fees were commensurate with the benefit to the class. The district court awarded $2.125 million in fees to class counsel and $15,000 in incentive awards to the three named plaintiffs. Objectors appealed.

ANALYSIS

The settlement at issue involves a cy pres– only distribution of the $5.3 million or so that remains in the settlement fund after attorneys' fees, administration costs, and incentive awards for the named plaintiffs are accounted for. Cy pres , which takes its name from the Norman French expression cy pres comme possible (or "as near as possible"), is an equitable doctrine that originated in trusts and estates law as a way to effectuate the testator's intent in making charitable gifts. Nachshin v. AOL, LLC , 663 F.3d 1034, 1038 (9th Cir. 2011). In the class action settlement context, the cy pres doctrine permits a court to distribute unclaimed or non-distributable portions of a class action settlement fund to the "next best" class of beneficiaries for the indirect benefit of the class. Id .

Here, the cy pres recipients were six organizations that have pledged to use the settlement funds to promote the protection of Internet privacy. We review for abuse of discretion the district court's approval of the proposed class action settlement. Id. In addition, because the settlement took place before formal class certification, settlement approval requires a "higher standard of fairness." Lane v. Facebook, Inc. , 696 F.3d 811, 819 (9th Cir. 2012) (quoting Hanlon v. Chrysler Corp. , 150 F.3d 1011, 1026 (9th Cir. 1998) ), cert. denied sub nom. Marek v. Lane , ––– U.S. ––––, 134 S.Ct. 8, 187 L.Ed.2d 392 (2013). Recognizing that, at this early stage of litigation, the district court cannot as effectively monitor for collusion and other abuses, we scrutinize the proceedings to discern whether the court sufficiently "account[ed] for the possibility that class representatives and their counsel have sacrificed the interests of absent class members for their own benefit." Id.

I. Appropriateness of the Cy Pres –Only Settlement

As an initial matter, we quickly dispose of the argument that the district court erred by approving a cy pres –only settlement. Notably, Objectors do not contest the value of the settlement nor do they plead monetary injury. To be sure, cy pres –only settlements are considered the exception, not the rule. See Klier v. Elf Atochem N. Am., Inc. , 658 F.3d 468, 474 (5th Cir. 2011) (explaining that direct distributions to class members are preferable because "[t]he settlement-fund proceeds, having been generated by the value of the class members' claims," are "the property of the class"); accord William B. Rubenstein, Newberg on Class Actions § 12:26 (5th ed. 2017). However, they are appropriate where the settlement fund is "non-distributable" because "the proof of individual claims would be burdensome or distribution of damages costly."

Lane , 696 F.3d at 819 (quoting Nachshin , 663 F.3d at 1038 ). We have never imposed a categorical ban on a settlement that does not include direct payments to class members.

The district court's finding that the settlement fund was non-distributable accords with our precedent. In Lane , we deemed direct monetary payments "infeasible" where each class member's individual recovery would have been "de minimis " because the remaining settlement fund was approximately $6.5 million and there were over 3.6 million class members. Id. at 817–18, 820–21. The gap between the fund and a miniscule award is even more dramatic here. The remaining settlement fund was approximately $5.3 million, but there were an estimated 129 million class members, so each class member was entitled to a paltry 4 cents in recovery—a de minimis amount if ever there was one. The district court found that the cost of verifying and "sending out very small payments to millions of class members would exceed the total monetary benefit obtained by the class."

To begin, the district court found that the amount of the fund was appropriate given the shakiness of the plaintiffs' claims. Objectors do not...