Amicus Curiae Brief — Theodore H. Frank, et al., Petitioners v. Paloma Gaos, Individually and on Behalf of All Others Similarly Situated, et al.

No. 17-961

IN THE

Supreme Court of the United States

___________

THEODORE H. FRANK and MELISSA ANN HOLYOAK,

v.

Petitioners,

PALOMA GAOS, on behalf of herself and

all others similarly situated, et al.,

___________

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

___________

BRIEF OF THE NEW JERSEY CIVIL JUSTICE

INSTITUTE AS AMICUS CURIAE IN SUPPORT

OF PETITIONERS

___________

JOSEPH EDWARD FEIBELMAN

Counsel of Record

GARY S. PEEPLES

BURCH, PORTER & JOHNSON,

PLLC

130 North Court Avenue

Memphis, TN 38103

(901) 524-5000

jfeibelman@bpjlaw.com

gpeeples@bpjplaw.com

Counsel for Amicus Curiae

ALIDA KASS

NEW JERSEY CIVIL JUSTICE

INSTITUTE

112 West State Street

Trenton, NJ 08608

(609) 392-6557

akass@civiljusticenj.org

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ..................................... ii

INTEREST OF AMICUS CURIAE ........................... 1

SUMMARY OF ARGUMENT.................................... 2

ARGUMENT .............................................................. 2

I. Rule 23 Cannot Function as a Substantive

Remedial Scheme ............................................... 2

II. The Class Device Is Not Superior if the

Unnamed Plaintiffs Will Receive No Direct

Benefit Under a Proposed Settlement .............. 9

CONCLUSION ......................................................... 17

ii

TABLE OF AUTHORITIES

Page(s)

CASES

Amchem Prods., Inc. v. Windsor,

521 U.S. 591 (1997) ................................................. 4

Carnegie v. Household In’tl, Inc.,

376 F.3d 656 (7th Cir. 2004) ............................... 2, 3

Dennis v. Kellogg Co.,

697 F.3d 858 (9th Cir. 2012) ................................... 8

Deposit Guar. Nat’l Bank v. Roper,

445 U.S. 326 (1980) ............................................. 2, 3

Dukes v. Wal-Mart Stores, Inc.,

603 F.3d 571 (9th Cir. 2010) ................................. 13

In re Dry Max Pampers Litig.,

724 F.3d 778 (6th Cir. 2013) ......................... passim

In re Google Referrer Header Privacy Litig.,

869 F.3d 737 (9th Cir. 2017) ................................. 10

Hoffer v. Landmark Chevrolet Ltd.,

245 F.R.D. 588 (S.D. Tex. 2007) ............................. 3

In re Hotel Tel. Charges,

500 F.2d 86 (9th Cir. 1974) ..................................... 7

Johnson v. Daley,

339 F.3d 582 (7th Cir. 2003) ................................. 15

Klier v. Elf Atochem N. Am., Inc.,

658 F.3d 468 (5th Cir. 2011) ..................... 10, 11, 13

Lane v. Facebook,

709 F.3d 791 (9th Cir. 2013) ................................... 9

iii

Mirfasihi v. Fleet Mortg. Co.,

356 F.3d 781 (7th Cir. 2004) ......................... 5, 7, 15

Molski v. Gleich,

318 F.3d 937 (9th Cir. 2003) ................................. 13

Olim v. Wakinekona,

461 U.S. 238 (1983) ................................................. 4

Pearson v. NBTY, Inc.,

772 F.3d 778 (7th Cir. 2014) ........................... 5, 6, 7

Redman v. RadioShack Corp.,

768 F.3d 622 (7th Cir. 2014) ................................... 6

SEC v. Bear, Stearns & Co.,

626 F. Supp. 2d 402 (S.D.N.Y. 2009) ...................... 8

Spokeo, Inc. Robins,

136 S. Ct. 1540 (2016) ........................................... 13

In re Thornburg Mortg., Inc. Secs. Litig.,

885 F. Supp. 2d 1097 (D.N.M. 2012) .......... 9, 10, 12

STATUTES AND RULES

28 U.S.C. § 2072(b)................................................... 4

28 U.S.C. § 2707 ..................................................... 11

28 U.S.C. § 2707(c) ........................................... 10, 11

Fed. R. Civ. P. 23 ............................................. passim

Fed. R. Civ. P. 23(b)(3) .................................... passim

iv

OTHER AUTHORITIES

Clark, Charles E., History, Systems and

Functions of Pleading,

11 Va. L. Rev. 517 (1925) .................................. 3, 4

Posner, Richard A., Divergent Paths: The

Academy and the Judiciary (2016) ................... 5, 6

Redish, Martin H., Class Action and the

Democratic Difficulty: Rethinking the

Intersection of Private Litigation and Public

Goals,

2003 U. Chi. Legal F. 71 ............................... 11, 14

Redish, Martin H., et al., Cy Pres Relief and the

Pathologies of the Modern Class Action:

A Normative and Empirical Analysis,

62 Fla. L. Rev. 617 (2010) ............................ passim

Tidmarsh, Jay, Cy Pres and the Optimal Class

Action,

82 Geo. Wash. L. Rev. 767 (2013) ................... 9, 10

topdoggjb, Herm Edwards You Play to Win,

YouTube, https://bit.ly/UMCet2 (Jan. 22, 2013) .. 4

Wasserman, Rhonda, Cy Pres in Class Action

Settlements,

88 S. Cal. L. Rev. 97 (2014) ............................ 9, 15

INTEREST OF AMICUS CURIAE1

The New Jersey Civil Justice Institute (“NJCJI”) is

a non-profit, non-partisan group whose members include individuals, small businesses, business associations, and professional organizations that are dedicated to improving the civil justice system in New Jersey. Part of the NJCJI’s mission is to advocate for the

sound development of the law, including federal law,

which is critical to ensuring the fair resolution of conflicts and the fostering of economic growth.

1 No counsel for a party authored this brief in whole or in part,

and no such counsel or party funded this brief in whole or in part.

Sup. Ct. R. 37.6. Counsel for all of the parties were consulted

and have consented to the filing of this brief.

2

SUMMARY OF ARGUMENT

Rule 23 of the Federal Rules of Civil Procedure is a

procedural device that must always remain subordinate to the resolution of whatever the underlying

claims might be. The judicial approval of a cy presonly class action settlement in which class counsel

and the defendant agreed upfront that the unnamed

plaintiffs would get nothing, class counsel would be

entitled to a fee award in the millions of dollars, and

non-party organizations would receive the bulk of the

multi-million-dollar settlement fund has the effect of

elevating Rule 23 into a substantive remedial scheme.

This result cannot be countenanced.

The Court should hold that a proposed class action

settlement fails to satisfy Rule 23(b)(3)’s superiority

requirement if the proposed settlement will provide

no direct benefit to the unnamed plaintiffs. Abusive

cy pres-only settlements like the one in this case will

remain commonplace if the Court does not alter the

incentive structures that make such settlements possible.

ARGUMENT

I.

Rule 23 Cannot Function as a

Substantive Remedial Scheme.

Rule 23 of the Federal Rules of Civil Procedure is a

purely procedural device that is “ancillary to the litigation of substantive claims.” Deposit Guar. Nat’l

Bank v. Roper, 445 U.S. 326, 332 (1980). The rule is

intended to provide an efficient way to litigate alleged

harms involving numerous plaintiffs who cannot or

would not file individual lawsuits. See Carnegie v.

3

Household Int’l, Inc., 376 F.3d 656, 661 (7th Cir. 2004)

(Posner, J.) (“The realistic alternative to a class action

is not 17 million individual suits, but zero individual

suits, as only a lunatic or a fanatic sues for $30.”). For

that reason, the right of a plaintiff “to employ Rule 23

is a procedural right only.” Roper, 445 U.S. at 332.

Rule 23 is not a stand-in for, and should not be used

as, a substantive remedial scheme. This principle

should be top of mind for a district court when the unnamed plaintiffs—who are, after all, the owners of the

substantive claims underlying any Rule 23 class action—get no benefit at all under the terms of a class

action settlement.

The Court should hold in this case that a proposed

class action settlement necessarily flunks Rule

23(b)(3)’s requirement that a “class action [be] superior to other available methods for fairly and efficiently adjudicating the controversy” where class

counsel and the defendant have agreed that the proposed settlement will provide no benefit at all to the

unnamed plaintiffs. Class-action treatment cannot be

a superior method under such circumstances because

the unnamed plaintiffs would necessarily be better off

retaining their individual claims, no matter how large

or small those claims might be. See Hoffer v. Landmark Chevrolet Ltd., 245 F.R.D. 588, 602-05 (S.D.

Tex. 2007) (suggesting that the use of “cy pres as a

substitute for distributing damages to individual

class members” fails to satisfy Rule 23(b)(3)’s superiority requirement).

Procedure has always existed in service of substance. See Charles E. Clark, History, Systems and

Functions of Pleading, 11 Va. L. Rev. 517, 542 (1925)

4

(observing that procedure “is a means to an end, not

an end in itself—the handmaid rather than the mistress of justice”) (cleaned up). No procedural device,

no matter how lucrative it might be to lawyers or how

doctrinally complex the device might become over

time, can be or should be an end in itself. See Olim v.

Wakinekona, 461 U.S. 238, 250 (1983) (“Process is not

an end in itself.”); see also topdoggjb, Herm Edwards

You Play to Win, YouTube (Jan. 22, 2013),

https://bit.ly/UMCet2 (“You play to win the game.

Hello? You play to win the game. You don’t play to

just play it.”). Indeed, although the case law construing Rule 23 spans thousands of pages in the United

States Reporter, the Federal Reporter, and the Federal Supplement, Rule 23 cannot abridge, enlarge, or

modify any substantive right, nor can it override the

requirements of Article III. Amchem Prods., Inc. v.

Windsor, 523 U.S. 591, 613 (1997); 28 U.S.C. §

2072(b).

Here, when the Ninth Circuit affirmed the approval

of a class action settlement in which no compensation

whatsoever was paid to a class consisting of approximately 129 million people, most of the $8.5 million

settlement fund was funneled to organizations handpicked by class counsel and the defendant, and class

counsel were rewarded with millions of dollars’ worth

of attorneys’ fees, the Ninth Circuit encouraged the

filing of class action lawsuits that, from all outward

appearances, exist for the purpose of generating an

award of attorneys’ fees for class counsel.

Blessing a settlement in which only non-party organizations share in the damages award, the tens of

millions of unnamed plaintiffs receive no benefit at

5

all, and class counsel (who bargained away the class

members’ supposedly valuable substantive rights)

reap millions of dollars in fees has the effect of elevating Rule 23 into a substantive remedial scheme intended to compensate class counsel and (maybe) punish wrongdoers, all at the victims’ expense. A mere

procedural device cannot and should not be elevated

in this way.

It cannot be overemphasized that class actions present a heightened risk of collusion, self-dealing, and

similarly nefarious conduct. Mirfasihi v. Fleet Mortg.

Co., 356 F.3d 781, 785 (7th Cir. 2004) (Posner, J.). Defendants, as economically rational actors, have two

goals; they want to obtain a broad release at a bargain

price. See Richard A. Posner, Divergent Paths: The

Academy and the Judiciary 149 (2016) (explaining

that from a class action defendant’s standpoint an

“optimal settlement is one that is modest in overall

amount”) (“Posner Book”). Class counsel, who often

represent thousands or millions of people they will

never meet, have a natural incentive to maximize

their own fees at the expense of obtaining a better recovery for their faceless clients. In re Dry Max Pampers Litig., 724 F.3d 713, 715 (6th Cir. 2013) (Kethledge, J.). Defendants are also typically indifferent as

to the issue of how a settlement fund is divvied up between class members and class counsel. Id. at 717.

All of the above is why district courts are tasked

with probing the terms of proposed class action settlements. Pearson v. NBTY, Inc., 772 F.3d 778, 780 (7th

Cir. 2014) (Posner, J.) (characterizing district judges

as a “fiduciary of the class, who is subject therefore to

6

the high duty of care that the law requires of fiduciaries”) (cleaned up). Yet the rule requiring district

judges to go over proposed class action settlements

with a fine-tooth comb is more often honored in the

breach than in the observance. See Redman v. RadioShack Corp., 768 F.3d 622, 629 (7th Cir. 2014) (Posner, J.) (“A trial judge’s instinct, in our adversarial

system of legal justice, is to approve a settlement,

trusting the parties to have negotiated to a just result

as an alternative to bearing the risks and costs of litigation. But the law quite rightly requires more than

a judicial rubber stamp when the lawsuit that the

parties have agreed to settle is a class action.”). District judges are sometimes too passive when proposed

class action settlements land on their desks. See Posner Book at 137 (“[S]ome judges appear to shirk their

duty to scrutinize settlements in class action cases

carefully.”); see also id. at 149 (emphasizing that “[i]t’s

up to the judge to make sure that the settlement

doesn’t give class counsel an exorbitant share of the

settlement proceeds, thus selling out the class—an

endeavor in which the defendant is happy to join.”).

Cy pres-only class action settlements like the one

approved by the district court and affirmed by the

Ninth Circuit in this case offer a particularly troubling example of procedure rising above, and even displacing, substance. Where a “settlement benefits

class counsel vastly more than it does the consumers

who comprise the class,” then the proposed settlement

should almost always be rejected. In re Dry Max Pampers Litig., 724 F.3d at 721. This rule plainly applies

where the proposed settlement contemplates no direct

payments to any of the absent class members. Id.

7

(concluding that the district court abused its discretion in approving a settlement where the “relief that

[the] settlement provides to unnamed class members

is illusory”); see also In re Hotel Tel. Charges, 500 F.2d

86, 92 (9th Cir. 1974) (“When, as here, there is no realistic possibility that the class members will in fact

receive compensation, then monolithic class actions

raising mind-boggling manageability problems

should be rejected. If, as appellees maintain, the suit

would not be litigated except as a class action which

would provide plaintiffs’ attorneys with lucrative incentives, then that decision of the legal marketplace

may be the best reflection of a public consciousness

that the time of the lawyers and of the court should

best be spent elsewhere.”) (cleaned up). It is a tautology that the unnamed class members derive zero benefit “from the defendant’s giving the [settlement fund]

money to someone else.” Mirfasihi, 356 F.3d at 784.

There are several supposed justifications for cy

pres-only class action settlements, but none of them

are persuasive. One commonly invoked justification

is that a defendant should not be able to get off “scotfree because of the infeasibility of distributing the

proceeds of the settlement” to the unnamed class

members. Id.; accord Pearson, 772 F.3d at 784 (observing that a “cy pres award is supposed to be limited

to money that can’t feasibly be awarded to the intended beneficiaries”). Sometimes that infeasibility

arises from the fact that administrative costs exceed

the value of individual claims; in other instances the

class’s enormous size precludes distributions to each

and every class member.

8

Yet this case shows why that justification must fail.

The class in this case was extremely large; it consisted

of approximately 129 million people. Assuming only

for the sake of argument that the class actually suffered some harm as a result of Google’s use of referral

headers, then class counsel bargained away the rights

of 129 million people in exchange for $0 to the class,

$5.3 million to a handful of organizations that the

vast majority of the class had almost certainly never

heard of (much less supported), and $2.125 million to

class counsel.

Moreover, class counsel in this case were able to

point to the $8.5 million settlement fund as evidence

that they were entitled to a substantial award of attorneys’ fees. This is not an unusual outcome, either.

See SEC v. Bear, Stearns & Co., 626 F. Supp. 2d 402,

415 (S.D.N.Y. 2009) (“To the extent attorney’s fee

awards are determined using percentage of recovery

method, the recovery and, therefore, the attorney’s fee

award is exaggerated by cy pres distributions that do

not truly benefit the plaintiff class.”); accord Dennis

v. Kellogg Co., 697 F.3d 858, 868 (9th Cir. 2012) (observing in a class action settlement involving a cy pres

award that “serious issues [exist] about the alleged

dollar value of the product cy pres award, an important number used to measure the appropriateness

of attorneys’ fees” and opining that the “settlement is

a paper tiger”). That result, however, makes the case

for abolishing cy pres-only class action settlements.

See In re Dry Max Pampers Litig., 724 F.3d at 720 (“To

be clear: The fairness of the settlement must be evaluated primarily based on how it compensates class

members—not on whether it provides relief to other

people. . . .”) (cleaned up).

9

II.

The Class Device Is Not Superior if the

Unnamed Plaintiffs Will Receive No

Direct Benefit Under a Proposed

Settlement.

A class should not be certified and a class action settlement should not be approved if class counsel and

the defendant have agreed on the front end that the

unnamed class members cannot (or will not) be directly compensated at all. Jay Tidmarsh, Cy Pres and

the Optimal Class Action, 82 Geo. Wash. L. Rev. 767,

797 (2013) (“Deterrence of wrongful behavior is an important goal, but not so important as to justify extinguishing a victim’s claim in favor of compensating a

third party.”).

Put another way, a class action settlement should

not be approved if the direct benefit to the absent

class members is nil. See Lane v. Facebook, Inc., 709

F.3d 791, 793 (9th Cir. 2013) (M. Smith, J., dissental)

(explaining that the approval of a cy pres settlement

that was not reasonably certain to benefit the class

“creates a significant loophole in our case law that will

confuse litigants and judges, while endorsing cy pres

settlements that in no way benefit class members”);

accord Rhonda Wasserman, Cy Pres in Class Action

Settlements, 88 S. Cal. L. Rev. 97, 141-42 (2014) (advocating a “no fee approach, which would deny class

counsel any fee on the portion of the fund distributed

cy pres”) (cleaned up).

Tying the recovery of attorneys’ fees to the actual

and direct benefit (if any) received by the class would

help to ensure that class actions will not be brought

by class counsel simply to obtain massive fee awards.

10

To reiterate, Rule 23 “is not a free-standing device to

do justice.” In re Thornburg Mortg., Inc. Secs. Litig.,

885 F. Supp. 2d 1097, 1112 (D.N.M. 2012) (cleaned

up). And the “Federal Rules of Civil Procedure cannot

work as substantive law.” Klier v. Elf Atochem N.

Am., Inc., 658 F.3d 468, 474 (5th Cir. 2011).

The Ninth Circuit’s approval of the cy pres-only settlement in this case incentivizes more class action

lawsuits that would effectively transform a procedural device (i.e., Rule 23) into substantive law. Without a bright-line rule requiring some actual and direct

benefit to the unnamed class members, the Rule 23

procedural tail wags the substantive law dog. Martin

H. Redish et al., Cy Pres Relief and the Pathologies of

the Modern Class Action: A Normative and Empirical

Analysis, 62 Fla. L. Rev. 617, 648 (2010) (“Redish I”);

Tidmarsh at 773-74 (contending that “cy pres often

fails to ensure the creation of optimally structured

class actions and may indeed exacerbate the problem

by creating incentives to create suboptimal class actions”).

Starting with what was ostensibly at stake here, the

named plaintiffs alleged that Google had violated the

Stored Communications Act by communicating

Google users’ search terms to the websites visited by

those users. See In re Google Referrer Header Privacy

Litig., 869 F.3d 737, 740 (9th Cir. 2017) (recounting

the procedural history of the case). The Stored Communications Act establishes a damages floor of

$1,000. See 18 U.S.C. § 2707(c) (“[B]ut in no case shall

a person entitled to recover receive less than the sum

11

of $1,000.”). And in cases involving willful or intentional violations, the Stored Communications Act

makes punitive damages available. Id. Thus, each

class member’s claim was in theory worth at least

$1,000 and possibly more. That is a relatively highvalue individual claim in the context of a consumer

class action.

Nowhere in the Stored Communications Act’s provisions governing civil actions does there exist any

language that permits damages to be awarded to

some non-party to a successful class action lawsuit

brought under the statute, not even to the public fisc.

See generally 18 U.S.C. § 2707. In this respect, the

Stored Communications Act is like most other substantive laws. See Marvin H. Redish, Class Action

and the Democratic Difficulty: Rethinking the Intersection of Private Litigation and Public Goals, 2003 U.

Chi. Legal F. 71, 75 (explaining that substantive laws

typically “enforce their behavioral proscriptions by establishing claims for damages for private victims of

the proscribed behavior”) (“Redish II”); see also Klier,

658 F.3d at 481 (Jones, J., concurring) (“Yet in no instance of which we are aware does the underlying substantive law sought to be enforced in a federal class

action direct a violator to pay damages to an uninjured charity.” (citing Redish I at 623)).

A federal court should be deeply skeptical of a proposed class action settlement that purports to release

the claims of roughly 129 million people in exchange

for $0 to the class, $5.3 million to various organizations, and $2.125 million to class counsel, particularly

12

when the unnamed plaintiffs’ claims have a theoretical floor value of $1000 apiece.

If the underlying problem is that the Stored Communication Act’s damages provisions somehow offer

inadequate compensation to aggrieved plaintiffs, then

that problem is one for Congress to address. See Redish I at 640 (“If existing substantive remedies are

deemed inadequate as a means of enforcing the law’s

behavioral prohibitions, the task of altering the remedial framework is one for the authority that created

the substantive law in the first place.”). The analysis

and the solution are the same if the underlying problem involves the statute’s less-than-optimal level of

deterrence of wrongdoers or the less-than-vigorous

enforcement of the statute by private plaintiffs.

Class counsel in this case received a $2.125 million

fee award while every plaintiff except the named

plaintiffs got zilch. The vast majority of the remainder of $8.5 million settlement fund was routed to nonparty organizations. Rule 23 “is meant to provide a

vehicle to compensate class members and to resolve

disputes.” In re Thornburg Mortg., Inc. Secs. Litig.,

885 F. Supp. 2d at 1105. From the perspective of the

unnamed plaintiffs, the procedural device meant to

enhance efficiency and to promote recovery failed to

do its job. The natural inference is that the class action device should not have been used at all because

it was not a superior method for fairly adjudicating

the unnamed plaintiffs’ claims. See id. at 1107 (“Parties do not initiate class actions so that class action

damages can be distributed to third parties not involved in the litigation and without standing to sue

13

for the damages they receive through the mechanics

of court intervention.”).

And it is not enough to say that the cy pres awards

in this case were a necessary evil. Notably, the use of

the cy pres doctrine cannot (and should not) alter parties’ substantive rights. Molski v. Gleich, 318 F.3d

937, 955 (9th Cir. 2003) (so stating), overruled on

other grounds by Dukes v. Wal-Mart Stores, Inc., 603

F.3d 571 (9th Cir. 2010). The bulk of the $8.5 million

settlement fund in this case went to organizations

that were non-parties. Neither the Stored Communications Act nor most other substantive laws contemplate such a result when private plaintiffs bring lawsuits under those laws. See Klier, 658 F.3d at 481

(Jones, J., concurring) (suggesting that cy pres distributions in the class action context “present an Article

III problem” and “likely violate Article III’s standing

requirements”); accord Spokeo, Inc. v. Robins, 578

U.S. ___, 136 S. Ct. 1540, 1547 (2016) (explaining that

the standing doctrine “developed in our case law to

ensure that federal courts do not exceed their authority as it has traditionally been understood”). Rule 23,

as a purely procedural device, should not permit

(much less compel, as it apparently did in this case) a

different result.

It is likewise insufficient to argue that the cy presonly settlement in this case was permissible under

the class-action-suit-as-private-attorney-general theory. Although this suit—like virtually every other

class action lawsuit—was doubtless the brainchild of

entrepreneurial plaintiffs’ lawyers, this action and

class action lawsuits in general are supposed to be

14

“private compensatory damage suits.” Redish II at

81. When Congress intends to create a bountyhunter-like enforcement scheme, it knows how to do

so. See id. at 81-83 (discussing the history of qui tam

actions); see also Redish I at 649 (explaining that in

an ordinary qui tam action an “uninjured party is incentivized to bring suit by receiving a portion of the

damages for its successful prosecution”). The qui tam

model cannot be shoehorned into Rule 23 or the substantive law that Rule 23 is supposed to serve, nor

should it be. See Redish II at 93 (“The problem is that

the substantive law that the class action purports to

enforce invariably fails to authorize private attorney

general actions of the bounty hunter variety.”).

Further, the presence of injunctive relief in this

case does not make the class device a superior method

of adjudication. Injunctive relief, by definition, does

not provide any direct compensation to the unnamed

plaintiffs. And it is entirely speculative whether class

members will derive any benefit from the injunction

because they may not continue to use the product or

service. Worse, class members do not receive any benefit beyond what is available to society at large. By

giving up their claims to be no better off than any

member of society at large, the class device has failed

the class members. Injunctive relief is often just another mechanism by which plaintiffs’ lawyers and goalong corporate defendants create the illusion of relief

in the context of proposed settlements. Judicial passivity toward injunctive relief incentivizes the filing

of more low-to-no-merit class actions that exist only

for plaintiffs’ lawyers to obtain a fee award.

15

What the Ninth Circuit failed to appreciate is that

its approval of the cy pres-only settlement in this case

creates perverse incentives for more cases and proposed settlements substantially like this one. Plaintiffs’ lawyers, like all rational human beings, respond

to incentives. See Mirfasihi, 356 F.3d at 785 (“Would

it be too cynical to speculate that what may be going

on here is that class counsel wanted a settlement that

would give them a generous fee and Fleet wanted a

settlement that would extinguish 1.4 million claims

against it at no cost to itself?”); cf. Johnson v. Daley,

339 F.3d 582, 595 (7th Cir. 2003) (en banc) (Easterbrook, J.) (observing that the enactment of the Prison

Litigation Reform Act “shows that [prisoners] do respond to incentives” as they relate to behavior in litigation). Specifically, the Ninth Circuit has signaled

that within its district courts class counsel may satisfy their “self-interest in securing a healthy fee . . .

by a cy pres distribution that denie[s] the class sufficient direct benefit.” Wasserman at 134.

An empirical analysis of cy pres awards in federal

class action suits between 1974 and 2008 shows that

federal courts’ approval of cy pres awards increased

significantly beginning in 2001, which is around the

time that coupon settlements began to attract negative attention. See Redish I at 652-61 (discussing the

data). Between 1991 and 2000, federal courts approved cy pres awards in twenty-one class action settlements. Id. at 653. That number more than tripled

(for a total of sixty-five) between 2001 and 2008. Id.

Most of the cy pres awards over that same time period

occurred in the context of settlement (as opposed to

litigation) class actions. Id. at 661.

16

If the Ninth Circuit’s decision survives review, then

plaintiffs’ lawyers will be incentivized to search for

patsies to serve as named plaintiffs and to file putative class actions involving tens (or hundreds) of millions of unnamed plaintiffs who have suffered one or

more alleged injuries (whether statutory or common

law) relating to their online activities. A diffuse community of unnamed plaintiffs helps plaintiffs’ lawyers

in this regard because if the class is so massive that it

appears from the get-go to be infeasible to compensate

each and every class member, then class counsel will

have a superficially appealing argument that a cy

pres-only settlement is appropriate under the circumstances.

And a defendant faced with a class containing tens

or hundreds of millions of plaintiffs will likely think

that creating a settlement fund of (for example) $10

million is a reasonable-enough price to pay for global

peace. Then class counsel—just as they did in this

case—can point to the settlement fund and ask the

district court to award millions of dollars’ worth of attorneys’ fees notwithstanding the fact that the tens or

hundreds of millions of unnamed plaintiffs did not receive a penny. The result is that the merits (whatever

they might be) of the class members’ claims have been

entirely subordinated to the Rule 23 procedural device, which is in fact operating impermissibly as a

substantive remedial scheme. Finally, and most troublingly, Rule 23(b)(3)’s superiority requirement is effectively written out of Rule 23 under such circumstances.

17

CONCLUSION

The Court should reverse the judgment of the Ninth

Circuit and hold that proposed class action settlements in which the unnamed plaintiffs will receive no

direct benefit fail Rule 23(b)(3)’s superiority requirement.

Respectfully submitted,

JOSEPH EDWARD FEIBELMAN

Counsel of Record

GARY S. PEEPLES

BURCH, PORTER & JOHNSON,

PLLC

130 North Court Avenue

Memphis, TN 38103

(901) 524-5000

jfeibelman@bpjlaw.com

gpeeples@bpjlaw.com

ALIDA KASS

NEW JERSEY CIVIL JUSTICE

INSTITUTE

112 West State Street

Trenton, NJ 08608

(609) 392-6557

akass@civiljusticenj.org

Counsel for Amicus Curiae

JULY 16, 2018