Supreme Court Hears Arguments in Class Actions Case

On October 31st, The Supreme Court heard oral arguments in Frank v. Gaos, a case in which CIR filed a supporting (amicus) brief. At issue in Gaos is the abusive  use of a feature of some class action settlements, known as cy pres awards, in which lower courts award funds to third party charities. Thanks to cy pres, plaintiffs in these class actions sometimes never see a dime of recovery.

CIR’s brief in the case argued that the Court should end cy pres awards because they violate the First Amendment. At oral argument, Justice Alito seemed to be concerned with this very issue. He repeatedly questioned attorneys about who decides where the money is finally awarded and if there is ever any attempt made to “determine whether every absent class member or even most of the absent class members regard the beneficiaries of the cy pres award as entities to which they would like to make a contribution.”

Frank was quick to reply that “if class members want to send their money to charity, they can do it without the intermediary of class counsel.” If the rules are reformed, plaintiffs will have the power to decide for themselves how to spend their money.

A decision in the case is expected sometime next year.

The rules governing class action litigation are often fundamentally unfair to the plaintiffs. The rules tend to favor awarding settlement funds to attorneys and third parties at the expense of the actual plaintiffs who were injured in the case. A prime example of this is the recent settlement in Gaos v. Google.

In that case, 129 million people accused Google of violating their privacy. A lower court approved an $8.5 million dollar settlement, but the plaintiffs in the case never saw a dime of the money. Thanks to a legal doctrine known as cy pres, the money was split between the attorneys and third party charities that promised to use the money advocating for privacy on the internet.

Cy pres awards are problematic because they are easily abused. In this case, for instance, the charities selected had ties to both sides of the case. According to the Wall Street Journal, Google already supported the charities chosen, and several were housed at the alma maters of the plaintiff’s attorneys.

With Frank v. Gaos before the Supreme Court, the justices will have the opportunity to end this unfair practice of giving plaintiff’s money away to third party groups. And in the process, the Court will have the chance to protect important First Amendment rights. CIR’s amicus brief urging the Supreme Court to review the case argued that cy pres awards violate the First Amendment by compelling plaintiffs to support third party charities without their consent. CIR’s position in this case is similar to its position in Friedrichs v. CTA and Yohn v. CTA. Just as public sector workers shouldn’t be compelled to support third party unions, class action plaintiffs should not be required to fund third party charities without their consent.

The case will likely be argued this fall and will give the Supreme Court an important opportunity to reign in class action abuse and protect the First Amendment rights of class action plaintiffs.

You can read our full brief here.

And you can read more about the case from the Competitive Enterprise Institute here.

Case Status: Pending.

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