In Re Google Referrer Header Privacy Litig , 869 F.3d 737 ( 2017 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
IN RE GOOGLE REFERRER HEADER No. 15-15858
PRIVACY LITIGATION,
______________________________ D.C. No.
5:10-cv-04809-
PALOMA GAOS; ANTHONY ITALIANO; EJD
GABRIEL PRIYEV, individually and
on behalf of all others similarly
situated, OPINION
Plaintiffs-Appellees,
v.
MELISSA ANN HOLYOAK; THEODORE
H. FRANK,
Objectors-Appellants,
v.
GOOGLE, INC., a Delaware
corporation,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of California
Edward J. Davila, District Judge, Presiding
2 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
Argued and Submitted March 13, 2017
San Francisco, California
Filed August 22, 2017
Before: J. Clifford Wallace, M. Margaret McKeown,
and Jay S. Bybee, Circuit Judges.
Opinion by Judge McKeown;
Partial Concurrence and Partial Dissent by Judge Wallace
SUMMARY *
Stored Communications Act / Settlement
The panel affirmed the district court’s order approving
the cy pres-only settlement of a class action brought under
the Stored Communications Act and state law by Google
Search users, alleging that Google violated their privacy by
disclosing their Internet search terms to owners of third-
party websites.
The panel held that the district court did not abuse its
discretion in approving the settlement, which 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. Of the $8.5 million
*
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 3
settlement fund, approximately $3.2 million was set aside for
attorneys’ fees, administration costs, and incentive payments
to the named plaintiffs, and the remaining $5.3 million or so
was allocated to six cy pres recipients.
The panel held that the cy pres-only settlement, reached
prior to class certification, was appropriate because the
settlement fund was non-distributable. In addition, the fact
that the settlement fund was non-distributable did not mean
that a class action could not be the superior means of
adjudicating the controversy under Fed. R. Civ. P. 23(b)(3).
The panel held that approval of the settlement was not an
abuse of discretion due to claimed relationships between
counsel or the parties and some of the cy pres recipients. The
panel held that a prior relationship or connection, without
more, is not an absolute disqualifier. Rather, a number of
factors, such as the nature of the relationship, the timing and
recency of the relationship, the significance of dealings
between the recipient and the party or counsel, the
circumstances of the selection process, and the merits of the
recipient play into the analysis. The panel also held that the
district court did not abuse its discretion by approving the
attorneys’ fees and costs.
Concurring in part and dissenting in part, Judge Wallace
agreed that a cy pre-only settlement was appropriate and that
the district court did not abuse its discretion in calculating
class counsel’s fees. Dissenting from Section II of the
majority opinion, Judge Wallace wrote that the fact alone
that 47% of the settlement was being donated to the alma
maters of class counsel raised an issue which, in fairness, the
district court should have pursued further. Judge Wallace
would vacate the district court’s approval of the class
settlement and remand with instructions to hold an
evidentiary hearing, examine class counsel under oath, and
4 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
determine whether class counsel’s prior affiliation with the
cy pres recipients played any role in their selection as
beneficiaries.
COUNSEL
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.
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.
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 5
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
1
For instance, if a user enters “2016 presidential election” into
Google Search and clicks on a link to www.cnn.com/election on the
6 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
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.
search results page, the “referrer header” would tell CNN that the user
found her way there via “http://www.google.com/search?q=2016+presi
dential+election.”
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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
8 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
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, 134 S. Ct. 8
(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
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 9
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 contend that it would have been
feasible to make a 4-cent distribution to every class member.
Instead, they ask us to impose a mechanism that would
permit a miniscule portion of the class to receive direct
payments, eschewing a class settlement that benefits
members through programs on privacy and data protection
instituted by the cy pres recipients. Objectors suggest, for
10 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
example, that “it is possible to compensate an oversized class
with a small settlement fund by random lottery distribution,”
or by offering “$5 to $10 per claimant” on the assumption
that few class members will make claims. Our review of the
district court’s settlement approval is not predicated simply
on whether there may be “possible” alternatives; rather, we
benchmark whether the district court discharged its
obligation to assure that the settlement is “fair, adequate, and
free from collusion.” Lane, 696 F.3d at 819 (quoting
Hanlon, 150 F.3d at 1027). If we took their objections at
face value, Objectors would have us jettison the teachings of
Lane. Objectors would also have us ignore our prior
endorsement of cy pres awards that go to uses consistent
with the nature of the underlying action. Nachshin, 663 F.3d
at 1039–40. 2
Likewise, we easily reject Objectors’ argument that if the
settlement fund was non-distributable, then a class action
cannot be the superior means of adjudicating this
controversy under Rule 23(b)(3). “[T]he purpose of the
superiority requirement is to assure that the class action is
the most efficient and effective means of resolving the
controversy.” Wolin v. Jaguar Land Rover N. Am., LLC,
617 F.3d 1168, 1175 (9th Cir. 2010) (alteration in original)
(quoting 7AA Charles Alan Wright et al., Federal Practice
and Procedure § 1779 (3d ed. 2005)). Not surprisingly, there
2
It bears noting, of course, that district courts are not precluded from
approving other distribution methods that might benefit the class more
directly under certain circumstances. However, the fact that there are
other conceivable methods of distribution does not mean that the district
court abused its discretion by declining to adopt them. See Kode v.
Carlson, 596 F.3d 608, 612 (9th Cir. 2010) (per curiam) (holding that
“[t]he abuse of discretion standard requires us to uphold a district court
determination that falls within a broad range of permissible
conclusions”).
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 11
is a relationship between the superiority requirement and the
appropriateness of a cy pres–only settlement. The two
concepts are not mutually exclusive, since “[w]here recovery
on an individual basis would be dwarfed by the cost of
litigating on an individual basis, this factor weighs in favor
of class certification.” Id. The district court did not abuse
its discretion in finding the superiority requirement was met
because the litigation would otherwise be economically
infeasible. This finding dovetails with the rationale for the
cy pres–only settlement. 3
II. The Cy Pres Recipients
We now turn to the crux of this appeal: whether approval
of the settlement was an abuse of discretion due to claimed
relationships between counsel or the parties and some of the
cy pres recipients. We have long recognized that the cy pres
doctrine, when “unbridled by a driving nexus between the
plaintiff class and the cy pres beneficiaries[,] poses many
nascent dangers to the fairness of the distribution process,”
because the selection process may then “answer to the
whims and self interests of the parties, their counsel, or the
court.” Nachshin, 663 F.3d at 1038–39; see also Dennis v.
Kellogg Co., 697 F.3d 858, 865 (9th Cir. 2012); Six (6)
3
Objectors point to In re Hotel Tel. Charges, 500 F.2d 86, 91 (9th
Cir. 1974), as an example of a case where we found the superiority
requirement not met because “the principal, if not the only, beneficiaries
to the class action are to be the attorneys for the plaintiffs and not the
individual class members.” But In re Hotel did not involve a cy pres
distribution or even a settlement. See id. Instead, we held that a class
action was not the superior means of resolving the controversy because
the class members’ antitrust claims involved a “great variety” of
individualized determinations. Id. at 90–91; see also Six (6) Mexican
Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1305–06 (9th Cir.
1990) (distinguishing In re Hotel on the basis that the case raised
concerns regarding “individual proof of damages”).
12 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301,
1308–39 (9th Cir. 1990). Due to these dangers, we require
cy pres awards to meet a “nexus” requirement by being
tethered to the objectives of the underlying statute and the
interests of the silent class members. Nachshin, 663 F.3d at
1039.
Objectors suggest that the district court rubber-stamped
the settlement, by “simply h[olding] that the Ninth Circuit
and district courts have approved other all–cy–pres
settlements and class members effectively had no right to
complain about the parties’ choice of compromise.” That
characterization is unfair and untrue. And oddly, despite this
claim, Objectors do not dispute that the nexus requirement is
satisfied here.
The district court found that the six cy pres recipients are
“established organizations,” that they were selected because
they are “independent,” have a nationwide reach and “a
record of promoting privacy protection on the Internet,” and
“are capable of using the funds to educate the class about
online privacy risks.” Although the district court expressed
some disappointment that the recipients were the “usual
suspects,” it recognized that “failure to diversify the list of
distributees is not a basis to reject the settlement . . . when
the proposed recipients otherwise qualify under the
applicable standard.” Accordingly, the district court
appropriately found that the cy pres distribution addressed
the objectives of the Stored Communications Act and
furthered the interests of the class members. Previous cy
pres distributions rest on this same understanding of the
nexus requirement. See, e.g., Dennis, 697 F.3d at 866–67
(no nexus between false advertising claims relating to the
nutritional value of Frosted Mini-Wheats® and charities
providing food for the indigent); Lane, 696 F.3d at 817, 820–
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 13
22 (nexus between Facebook privacy claims and charity
giving grants promoting online privacy and security);
Nachshin, 663 F.3d at 1039–41 (no nexus between breach of
privacy, unjust enrichment, and breach of contract claims
relating to AOL’s provision of commercial e-mail services
and the Legal Aid Foundation of Los Angeles, the Boys and
Girls Clubs of Santa Monica and Los Angeles, and the
Federal Judicial Center Foundation); Six (6) Mexican
Workers, 904 F.2d at 1307–09 (no nexus between Farm
Labor Contractor Registration Act claims and foundation
operating human assistance projects in areas where plaintiffs
resided).
Nonetheless, Objectors take issue with the choice of cy
pres recipients because Google has in the past donated to at
least some of the cy pres recipients, three of the cy pres
recipients previously received Google settlement funds, and
three of the cy pres recipients are organizations housed at
class counsel’s alma maters. See In re Google Buzz Privacy
Litig., No. C 10-00672 JW, 2011 WL 7460099, at *3 (N.D.
Cal. Jun. 2, 2011). The Objectors point to a comment from
the American Law Institute’s (“ALI”) Principles of the Law
of Aggregate Litigation which suggests that “[a] cy pres
remedy should not be ordered if the court or any party has
any significant prior affiliation with the intended recipient
that would raise substantial questions about whether the
selection of the recipient was made on the merits.”
Principles of the Law of Aggregate Litig. § 3.07 cmt. b (Am.
Law Inst. 2010) (emphasis added). 4
The benchmark for “significant prior affiliation” is left
undefined. Id. Of course it makes sense that the district
4
This statement is found in a comment that is unsupported by any
illustration, case law, or other authority. Id. § 3.07 cmt. b.
14 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
court should examine any claimed relationship between the
cy pres recipient and the parties or their counsel. But a prior
relationship or connection between the two, without more, is
not an absolute disqualifier. Rather, a number of factors,
such as the nature of the relationship, the timing and recency
of the relationship, the significance of dealings between the
recipient and the party or counsel, the circumstances of the
selection process, and the merits of the recipient play into the
analysis. The district court explicitly or implicitly addressed
this range of considerations.
We do not need to explore the contours of the
“significant prior affiliation” comment because in the
context of this settlement, the claimed relationships do not
“raise substantial questions about whether the selection of
the recipient was made on the merits.” See id. § 3.07 cmt.
b. 5 As a starting premise, Google’s role as a party in
reviewing the cy pres recipients does not cast doubt on the
settlement. In Lane, we approved a cy pres–only settlement
in which the distributor of the settlement fund was a newly-
created entity run by a three-member board of directors, one
of whom was defendant Facebook’s Director of Public
Policy. 696 F.3d at 817. We rejected the claim that this
structure created an “unacceptable conflict of interest,”
explaining that “[w]e do not require . . . that settling parties
select a cy pres recipient that the court or class members
would find ideal” since “such an intrusion into the private
parties’ negotiations would be improper and disruptive to the
5
Other circuits have endorsed § 3.07’s preference for direct
distribution to class members over the use of cy pres awards where
practicable. See In re BankAmerica Corp. Sec. Litig., 775 F.3d 1060,
1064–65 (8th Cir. 2015); Klier, 658 F.3d at 475 n.16. And though we
have not adopted § 3.07, we too have expressed a similar preference. See
Nachshin, 663 F.3d at 1036. However, no circuit has yet adopted § 3.07
comment b’s “significant prior affiliation” reference.
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 15
settlement process.” Id. at 820–21. Instead, we recognized
that, as the “‘offspring of compromise,’” settlement
agreements “necessarily reflect the interests of both parties
to the settlement.” Id. at 821 (quoting Hanlon, 150 F.3d at
1027). Thus, we concluded that Facebook’s ability to have
“its say” in the distribution of cy pres funds was “the
unremarkable result of the parties’ give-and-take
negotiations” and acceptable so long as the nexus
requirement was satisfied. Id. at 821–22.
Given the burgeoning importance of Internet privacy, it
is no surprise that Google has chosen to support the
programs and research of recognized academic institutes and
nonprofit organizations. Google has donated to hundreds of
third-party organizations whose work implicates technology
and Internet policy issues, including university research
centers, think tanks, advocacy groups, and trade
organizations. 6 These earlier donations do not undermine
the selection process employed to vet the cy pres recipients
in this litigation. The district court conducted a “careful[]
review” of the recipient’s “detailed proposals” and found a
“substantial nexus” between the recipients and the interests
of the class members. Notably, some of the recipient
organizations have challenged Google’s Internet privacy
policies in the past.7 Most importantly, there was
6
See Transparency – U.S. Public Policy – Google, Google.com,
https://www.google.com/publicpolicy/transparency.html (last visited
July 21, 2017) (listing third-party organizations Google has supported in
the past).
7
At least one of the recipients, World Privacy Forum, has publicly
criticized Google’s lack of transparency regarding its privacy policies.
See Joseph Menn, Privacy Advocates Target Google, L.A. Times (June
4, 2008), http://articles.latimes.com/2008/jun/04/business/fi-google4.
And a complaint filed by the World Privacy Forum and a Stanford Center
16 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
transparency in this process, with the proposed recipients
disclosing donations received from Google. Each recipient’s
cy pres proposal identified the scope of Google’s previous
contributions to that organization, and, unlike in Lane,
explained how the cy pres funds were distinct from Google’s
general donations. See Dennis, 697 F.3d at 867–68 (casting
doubt on the value of cy pres funds that a defendant “has
already obligated itself to donate”). Citing Lane, the district
court found that “[t]he chosen recipients and their respective
proposals are sufficiently related so as to warrant approval;
they do not have to be the recipients that objectors or the
court consider ideal.”
The objection that three of the cy pres recipients had
previously received cy pres funds from Google does not
impugn the settlement without something more, such as
fraud or collusion. See Rodriguez v. W. Publ’g Corp.,
563 F.3d 948, 965 (9th Cir. 2009). That “something more”
is missing here. Indeed, the proposition that cy pres funds
should not be awarded to previous recipients would be in
some tension with our nexus requirements. As we have
recognized, it is often beneficial for a cy pres recipient to
have a “‘substantial record of service,’” because such a
for Internet and Society study played a key role in the $17 million fine
Google paid to the Federal Trade Commission for circumventing user’s
privacy choices in Apple’s Safari Internet browser. See Kukil Bora, FTC
Appears Ready to Fine Google Millions Over Apple Safari Privacy
Breach, Int’l Bus. Times (May 5, 2012), http://www.ibtimes.com/ftc-
appears-ready-fine-google-millions-over-apple-safari-privacy-breach-
report-696537; Claire Cain Miller, Google to Pay $17 Million to Settle
Privacy Case, N.Y. Times (Nov. 18, 2013), http://www.nytimes.com/2
013/11/19/technology/google-to-pay-17-million-to-settle-privacy-
case.html; Elinor Mills, Privacy Brouhaha Reveals Google’s Split
Personality, CNET (Feb. 17, 2012), http://www.cnet.com/news/privacy-
brouhaha-reveals-googles-split-personality/. Both organizations are cy
pres recipients here.
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 17
record inspires confidence that the recipient will use the
funds to the benefit of class members. See Dennis, 697 F.3d
at 865 (quoting Six (6) Mexican Workers, 904 F.2d at 1308);
Lane, 696 F.3d at 822. But in emerging areas such as
Internet and data privacy, expertise in the subject matter may
limit the universe of qualified organizations that can meet
the strong nexus requirements we impose upon cy pres
recipients. Given that, over time, major players such as
Google may be involved in more than one cy pres settlement,
it is not an abuse of discretion for a court to bless a strong
nexus between the cy pres recipient and the interests of the
class over a desire to diversify the pick via novel
beneficiaries that are less relevant or less qualified. See
Nachshin, 663 F.3d at 1040 (considering whether the cy pres
distribution “provide[s] reasonable certainty that any
member will be benefitted”).
Finally, we reject the proposition that the link between
the cy pres recipients and class counsel’s alma maters raises
a significant question about whether the recipients were
selected on the merits. There may be occasions where the
nature of the alumni connections between the parties and the
recipients could cast doubt on the propriety of the selection
process. But here, we have nothing more than a barebones
allegation that class counsel graduated from schools that
house the Internet research centers that will receive funds.
The claim that counsel’s receipt of a degree from one of
these schools taints the settlement can’t be entertained with
a straight face. Each of these schools graduates thousands
of students each year. Objectors have never disputed that
class counsel have no ongoing or recent relationships with
their alma maters and have no affiliations with the specific
research centers. Nor did the district court simply accept this
concession or put the burden on the Objectors. The district
18 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
court appropriately considered the substance of the
objections and explained why those challenges did not
undermine the overall fairness of the settlement. See In re
Pac. Enters. Sec. Litig., 47 F.3d 373, 377 (9th Cir. 1995).
The court affirmatively analyzed the issue and was cognizant
of the claim of a potential conflict. All class counsel swore
that they have no affiliations with the specific research
centers. Class counsel repeated that attestation at the final
settlement approval hearing and added that they sit on no
boards for any of the proposed recipients. As one class
counsel put it, “I simply got my law degree [at Harvard], and
that’s simply the end of it.” 8 The recipients are well-
recognized centers focusing on the Internet and data privacy,
and the district court conducted a “careful[] review” of the
recipients’ “detailed proposals” and found a “substantial
nexus” between the recipients and the interests of the class
members. 9 No one suggested that any of the centers acted
8
The dissent’s suggestion that what is needed is a hearing with
sworn testimony seems superfluous in view of the extensive hearing held
by the district court, the specific queries to counsel about the cy pres
recipients, and the submission of sworn declarations.
9
The dissent challenges the inclusion of the Chicago-Kent College
of Law Center for Information, Society and Policy (“CISP”) as
a recipient, noting that the center was only inaugurated in 2012.
See CHICAGO-KENT MAG., Summer 2012, at 8, available
at https://issuu.com/chicagokentlaw/docs/chicago-kent-magazine-2012.
This judicial second-guessing does not bear scrutiny, particularly in a
field that is developing quickly and where the record reveals a different
story. CISP’s cy pres proposal, which outlines a “privacy preparedness”
project that would develop interactive materials to educate the public
about ways to protect their Internet and data privacy, notes that the five
faculty involved in the proposed project are respected leaders in the field
of Internet and privacy law, that CISP has received other cy pres awards
and grants, and that CISP has hosted five conferences on Internet and
data privacy issues that have attracted hundreds of attendees and trained
over a hundred journalists on data privacy. In addition, CISP conducts
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 19
with any impropriety, and the Objectors provided no
alternative suggestions for other law schools with more
qualified centers or institutes. The district court found “no
indication that counsel’s allegiance to a particular alma
mater factored into the selection process,” particularly since
the identity of the recipients “was a negotiated term included
in the Settlement Agreement and therefore not chosen solely
by . . . alumni.” Thus, the district court gave a “sufficient[ly]
reasoned” response to the objections as to the claimed
preexisting relationships. In re Pac. Enters. Sec. Litig.,
47 F.3d at 377. We can hardly say that the alumni
connections cloud the fairness of the settlement.
As an overarching matter, nothing in this record “raise[s]
substantial questions about whether the selection of the
recipient was made on the merits.” See Principles of the Law
of Aggregate Litig. § 3.07 cmt. b. We do not suggest,
however, that a party’s prior relationship with a cy pres
recipient could not be a stumbling block to approval of a
settlement. Cf. Marek, 134 S. Ct. at 9 (mem.) (statement of
Roberts, C.J., respecting the denial of certiorari)
(recognizing that given the “fundamental concerns
surrounding” cy pres awards and their increasing prevalence,
the Court “may need to clarify the limits on the use of such
remedies” in the future). We hold merely that, under the
circumstances here, the district court did not abuse its
discretion in approving the cy pres recipients.
research in such areas as data aggregation, social networks and health
information, and children and internet privacy; engages in policy
advocacy, community outreach, and public education; and holds
seminars on Internet and data privacy issues for law students. See
Center for Information, Society and Policy, Kentlaw.iit.edu,
https://www.kentlaw.iit.edu/institutes-centers/center-for-information-
society-and-policy (last visited July 24, 2017).
20 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
III. Attorneys’ Fees
Turning to the issue of attorneys’ fees, the district court
did not abuse its discretion by approving $2.125 million in
fees and $21,643.16 in costs. As an initial matter, there is no
support for Objectors’ view that the settlement should have
been valued at a lower amount for the purposes of
calculating attorneys’ fees simply because it was cy pres–
only. See generally Lane, 696 F.3d at 818 (acknowledging
a 25% fee award that also involved a cy pres–only
settlement). Rather, the question is whether the amount of
attorneys’ fees was reasonable. In re Bluetooth Headset
Prod. Liab. Litig., 654 F.3d 935, 941 (9th Cir. 2011).
In a settlement that produces a common fund for the
benefit of the entire class, a court has discretion to employ
either the “percentage-of-recovery” method or the “lodestar”
method to calculate appropriate attorneys’ fees, so long as
its discretion is exercised so as to achieve a reasonable result.
See id. at 942. Here, the district court found that the
requested fees were appropriate under either metric.
Under the percentage-of-recovery method, the requested
fee was equal to 25% of the settlement fund. According to
the district court, this percentage was commensurate with the
risk posed by the action and the time and skill required to
secure a successful result for the class, given that class
counsel faced three motions to dismiss and participated in
extensive settlement negotiations. The district court also
found that this percentage hewed closely to that awarded in
similar Internet privacy actions. See, e.g., In re Netflix
Privacy Litig., No. 5:11-CV-00379 EJD, 2013 WL 1120801,
at *9–10 (N.D. Cal. Mar. 18, 2013); see also In re Bluetooth,
654 F.3d at 942 (noting that 25% is our “benchmark” for a
reasonable fee award).
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 21
Although not required to do so, the district court took an
extra step, cross-checking this result by using the lodestar
method. See In re Bluetooth, 654 F.3d at 941–44 (checking
the district court’s percentage-of-recovery fees calculation
against the lodestar method, which is “calculated by
multiplying the number of hours the prevailing party
reasonably expended on the litigation . . . by a reasonable
hourly rate for the region and the experience of the lawyer”).
The district court found that class counsel provided
sufficient support for its lodestar calculation that fees totaled
$2,126,517.25.
AFFIRMED.
WALLACE, Circuit Judge, concurring in part and dissenting
in part:
I concur in Sections I and III of the majority opinion. I
agree that a cy pres-only settlement was appropriate in this
case and do not contend that the district court abused its
discretion in calculating class counsel’s fees.
I dissent, however, from Section II of the opinion, in
which the majority blesses the district court’s approval of the
settlement, despite the preexisting relationships between
class counsel and the cy pres recipients. To me, the fact alone
that 47% of the settlement fund is being donated to the alma
maters of class counsel raises an issue which, in fairness, the
district court should have pursued further in a case such as
this. The district court made no serious inquiry to alleviate
that concern. Accordingly, I would vacate the district court’s
approval of the class settlement, and remand with
instructions to hold an evidentiary hearing, examine class
counsel under oath, and determine whether class counsel’s
22 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
prior affiliation with the cy pres recipients played any role in
their selection as beneficiaries.
I.
As the majority opinion outlines, plaintiffs in this case
alleged that Google violated class members’ privacy rights
by disclosing personal information (such as search terms) to
unauthorized third parties. Google’s practice allegedly
violated the federal Stored Communications Act, along with
various state laws. After several rounds at the motion to
dismiss stage, the parties agreed to a class-wide settlement
(before formal class certification by the district court). The
parties estimated the size of the class to be 129 million
people.
The settlement contained the following key terms:
(1) Google agreed to pay $8.5 million into a settlement fund;
(2) Google would provide notice of the settlement on its
website; (3) each class representative would receive $5,000,
claims administration costs would be $1 million, and
attorney’s fees would be $2.125 million (25% of the
settlement fund); and (4) the remainder of the settlement
fund (about $5 million) would go to six cy pres recipients.
The six cy pres recipients were to be Carnegie Mellon
University (21% of the remainder), the World Privacy
Forum (17%), Chicago-Kent College of Law Center for
Information, Society and Policy (16%), the Stanford Center
for Internet and Society (16%), the Berkman Center for
Internet and Society at Harvard University (15%), and that
the AARP Foundation (15%).
II.
We review a district court’s approval of a class action
settlement for an abuse of discretion. Rodriguez v. W. Publ’g
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 23
Corp., 563 F.3d 948, 963 (9th Cir. 2009). Here, however, the
parties reached the settlement before the class certification
stage. “Prior to formal class certification, there is an even
greater potential for a breach of fiduciary duty owed the class
during settlement. Accordingly, such agreements must
withstand an even higher level of scrutiny for evidence of
collusion or other conflicts of interest than is ordinarily
required.” In re Bluetooth Headset Prod. Liab. Litig.,
654 F.3d 935, 946 (9th Cir. 2011).
As stated above, three of the cy pres distribution
payments in our case are to Chicago-Kent College of Law
(16%), Stanford (16%), and Harvard (15%). Attorneys for
the class attended all three of these institutions. We, along
with other courts and observers, have pointed out the
unseemly occurrence of cy pres funds being doled out to
interested parties’ alma maters. See, e.g., Nachshin v. AOL,
LLC, 663 F.3d 1034, 1039 (9th Cir. 2011); Securities &
Exchange Comm’n v. Bear, Stearns & Co., Inc.,
626 F. Supp. 2d 402, 414–16 (S.D.N.Y. 2009); Adam Liptak,
Doling out Other People’s Money, N.Y. Times, Nov. 26,
2007 (“Lawyers and judges have grown used to controlling
these pots of money, and they enjoy distributing them to
favored charities, alma maters and the like”).
In response to this all-too-common development, the
American Law Institute has set forth, in its Principles of the
Law of Aggregate Litigation, that “[a] cy pres remedy should
not be ordered if the court or any party has any significant
prior affiliation with the intended recipient that would raise
substantial questions about whether the selection of the
recipient was made on the merits.” American Law Institute
(ALI), Principles of the Law of Aggregate Litigation § 3.07
comment b (2010) (emphasis added). Although the majority
tells us correctly that no circuit has adopted the specific
24 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
“prior affiliation” language, circuits have endorsed § 3.07’s
guidance regarding scrutinizing cy pres disbursements. See,
e.g., In re BankAmerica Corp. Sec. Litig., 775 F.3d 1060,
1064–65 (8th Cir. 2015) (vacating a cy pres settlement
because “class counsel and the district court entirely ignored
this now-published ALI authority”); In re Baby Prods.
Antitrust Litig., 708 F.3d 163, 172 (3d Cir. 2013) (quoting
ALI § 3.07, comment a (2010)); In re Lupron Marketing and
Sales Practices Litig., 677 F.3d 21, 33 (1st Cir. 2012) (citing
to ALI § 3.07 and asserting that “[c]ourts have generally
agreed with the ALI Principles”).
I conclude that our circuit should adopt the ALI’s
guidance as set forth in § 3.07. District courts should be
required to scrutinize cy pres settlements when the proffered
recipients of the funds have a “prior affiliation” with
counsel, a party, or even the judge, especially when one of
those players is a loyal alumni of a cy pres recipient. I do not
mean to suggest that class counsel’s alma mater can never
be a cy pres beneficiary. Rather, I propose that the burden
should be on class counsel to show through sworn testimony,
in an on-the-record hearing, that the prior affiliation played
no role in the negotiations, that other institutions were
sincerely considered, and that the participant’s alma mater is
the proper cy pres recipient.
The majority responds to this line of argument by
asserting that “here, we have nothing more than a barebones
allegation that class counsel graduated from schools that
house the Internet research centers that will receive funds.”
The majority then salutes the district court’s conclusion that
there is “no indication that counsel’s allegiance to a
particular alma mater factored into the selection process,”
and stresses that the cy pres recipients were a negotiated
term, not chosen solely by alumni. In essence, the majority
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 25
holds that despite the nascent dangers posed by apportioning
cy pres funds to the distributing parties’ alma maters, the
burden is entirely on the objectors to show that the settlement
might be tainted.
I disagree fundamentally with this analysis. Our
precedent requires that district courts “must be particularly
vigilant not only for explicit collusion, but also for more
subtle signs that class counsel have allowed pursuit of their
own self-interests and that of certain class members to infect
the negotiations.” In re Bluetooth, 654 F.3d at 947. In our
case, we have a cy pres-only settlement. That alone raises a
yellow flag. Furthermore, we have a class settlement before
formal class certification. That raises another yellow flag.
Lastly, we have almost half of the settlement fund, several
million dollars, being given to class counsel’s alma maters.
To me, that raises a red flag. I am especially dubious of the
inclusion of the Center for Information, Society and Policy
at Chicago-Kent Law School (a law school attended by class
counsel), which center appears to have inaugurated only a
year before the parties herein agreed to their settlement.
Even with these red and yellow flags, under the majority’s
holding, the burden is still on the objectors to prove more,
despite the objectors’ lack of access to virtually any relevant
evidence that would do so.
I would hold that the combination of a cy pres-only
award, a pre-certification settlement, and the fact that almost
half the cy pres fund is going to class counsel’s alma maters,
is sufficient to shift the burden to the proponents of the
settlement to show, on a sworn record, that nothing in the
acknowledged relationship was a factor in the ultimate
choice. Here, the only sworn-to items in the record on this
issue are boiler plate, one-line declarations from class
counsel stating “I have no affiliation” with the subject
26 IN RE GOOGLE REFERRER HEADER PRIVACY LITIG.
institutions. While the majority asserts that the district court
conducted a “careful review,” these terse declarations are the
only shred of sworn-to evidence in the record. There was
essentially nothing for the district court to review—carefully
or not. Although there was some discussion between counsel
and the district court during the hearings on the settlement,
this was nothing more than unsworn lawyer talk during an
oral argument. 1
I still have many questions surrounding how these
universities were chosen, such as: What other institutions
were considered? Why were the non-alma mater institutions
rejected? What relationship have counsel had with these
universities? Have counsel donated funds to their alma
maters in the past? Do counsel serve on any alma mater
committees or boards? Do counsel’s family members? How
often do counsel visit their alma maters? There are many
questions still lingering that have not been answered under
oath. Here, as we have directed before, “the district court
should have pressed the parties to substantiate their bald
assertions with corroborating evidence.” Id. at 948.
Although I would vacate the parties’ settlement, I
express no opinion on the definitive fairness of the parties’
agreement. It is not the province of appellate judges to
“substitute our notions of fairness for those of the district
judge.” Officers for Justice v. Civ. Serv. Commission of the
City and County of San Francisco, 688 F.2d 615, 626 (9th
1
I disagree with the majority’s assertion that “sworn testimony
seems superfluous” because counsel submitted one-line boilerplate
declarations and the district court heard some unsworn argument from
the lawyers. My experience as a trial judge taught me to be skeptical of
unsworn statements from lawyers, especially when it comes to conflict
of interest issues. To me, there is a significant difference between sworn
and unsworn testimony.
IN RE GOOGLE REFERRER HEADER PRIVACY LITIG. 27
Cir. 1982) (internal citations omitted). Instead, I would
remand the case to the district court for further fact finding
in accordance with the concerns I have expressed.