Supreme Court Justices Weigh Limits on Settlements in Google Case

(Bloomberg) -- U.S. Supreme Court justices questioned an $8.5 million Google settlement in a case that could make it harder for companies to resolve class-action lawsuits without providing direct compensation to those affected.

The court's conservative members signaled skepticism toward those types of accords in an hour-long argument Wednesday that veered into debates over Internet privacy and a senior-citizen interest group. New Justice Brett Kavanaugh said such agreements raised the "appearance of favoritism and collusion" by funneling money to attorneys and outside privacy advocates instead of the people who were harmed.

"The attorneys get money, and a lot of it," Justice Samuel Alito said. "The class members get no money whatsoever. And money is given to organizations that they may or may not like and that may or may not ever do anything that is of even indirect benefit to them. So how can such a system be regarded as a sensible system?"

But justices from across the ideological spectrum also questioned whether the suit against Google, a unit of Alphabet Inc., ever should have been in court in the first place. Those questions raised doubts about whether the Supreme Court will reach the core questions about the settlement, known as a "cy pres" accord.

The case involves Google's settlement of claims that it improperly disclosed users' internet search terms to the owners of outside websites. None of the money went directly to Google users.

‘Very Large Class'

Google says it would have been infeasible to distribute a little more than $5 million to an estimated 129 million class members. Google's lawyer, Andrew Pincus, said such settlements can be an appropriate tool to resolve cases with a "very large class and a very small settlement."

Justice Ruth Bader Ginsburg suggested she wasn't bothered by the absence of any direct payments to those people.

"Practically, the class members would get nothing, nothing at all, and here at least they get an indirect benefit," she said.

Ted Frank, the lawyer challenging the accord, said it was feasible to distribute the money. Given how few people generally claim shares of settlements, he said individuals could have received between $5 and $10 each.

"We would like to give everybody in the class the opportunity to make a claim," he said.

Critics say such settlements are an increasingly common litigation tactic, used by Facebook Inc. as well as Google. But a brief filed by Harvard law professor William Rubenstein said that in the past two decades federal judges have approved only 18 cy pres settlements in which all the money went to lawyers and outside groups.

‘As Near As Possible'

The cy pres doctrine takes its name from a longer Norman French expression "cy pres comme possible," or "as near as possible." Judges have long used cy pres in other contexts, including trusts and estates.

The lawsuit focused on the design of Google's search engine, which creates a unique web address for each search, with the terms typed by the user included as part of it. The address then becomes part of the information transmitted by the web browser as part of the "referral header" they routinely send to the destination website.

Google was sued in 2010 and later agreed to pay $8.5 million to settle the case, with a quarter of the sum going to attorney fees. Most of the rest went to six organizations, including four universities and the senior-citizen advocacy group AARP, for use in promoting the protection of internet privacy. A federal appeals court upheld the settlement.

Chief Justice John Roberts questioned the logic -- and propriety -- of allocating settlement dollars to AARP, a group that engages in political activity.

"Do you think that problem is going to be meaningfully redressed by giving money to AARP?" he asked Pincus. "As if this is only a problem for elderly people?"

Pincus responded that "elderly people are less knowledgeable about privacy and their vulnerability on the internet than other people."

Questions by other justices, however, raised doubts about whether the court ultimately will address those issues. Justices Neil Gorsuch, Elena Kagan and Stephen Breyer questioned whether the plaintiffs had shown they suffered the type of harm required to file a suit in federal court.

"I don't quite see how this is some kind of secret or private information," Breyer said.

Kavanaugh, who won Senate confirmation this month despite allegations he committed sexual assault decades ago, said he saw clear privacy implications.

"I don't think anyone would want the disclosure of everything they searched for disclosed to other people," he said. "That seems a harm."

The case is Frank v. Gaos, 17-961.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo, Alexis Leondis

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