Supreme Court raises eyebrows at Google's cozy $8.5m legal deal

Justices question whether money should go to lawyers and their old universities

The US Supreme Court is distinctly unimpressed with a cozy deal cooked up by Google's lawyers after the ad giant lost an $8.5m class action lawsuit for violating user privacy.

On Wednesday, the nation's top court was asked to tighten up rules over so-called "cy pres" settlements where most, or sometimes all, of a settlement doesn't go to the people affected but instead to the lawyers who argued the case and organizations that they themselves chose.

"What's happening in reality is the lawyers are getting paid and they're making sometimes quite a lot of money for really transferring money from the defendant to people who have nothing to do with it," said Justice Stephen Breyer, challenging Google's lawyer to explain the deal.

Chief Justice Roberts also repeatedly questioned the settlement and the claim that everything was above board: "The allegation is that counsel for the class and the defendant are working together because no money is going to anybody else, it's just going to counsel for the class, and that Google for its part as part of the deal… they get to give money to their favorite charity."

He later interjected: "Don't you think it's just a little bit fishy that the money goes to a charity or a 501(c)(3) organization that Google had contributed to in the past?"

Newly seated Justice Brett Kavanaugh – who has been credibly accused of sexual assault and lied repeatedly during his confirmation hearing – was also critical of the arrangement. He repeatedly called it "strange", suggested there were other better options and warned that it had the "appearance of favoritism and collusion."

The details of the settlement are particularly egregious, which in all likelihood is why it ended up in front of the Supreme Court.

And you get... nothing

Having agreed to an $8.5m settlement way back in 2010 for "leaking" personal information about users' search terms (Google included search terms in the referrer header to sites listed in Google search results whenever a user clicked on a link), Google revealed that exactly zero dollars of that settlement would go to the people affected – Google users – because there were simply too many of them.

The lawyers for both sides argued that the settlement applied to 129 million Google users - a figure that is highly questionable – and that would result in a payout of just four cents per person.

Even if just five per cent of those people claimed their reward – again, a highly questionable figure because the real claim rate in other cases has been far lower – it would amount to a little over a dollar. Then, they claimed, given the huge expense of distributing that money to so many people, it would result in people receiving just 67 cents a piece.

Far better, they argued, to pay the money to "cy pres" recipients who could use the money in ways that would benefit those users.

And the court agreed. But then came the list of recipients and the lawyer's own claim. Of the $8.5m, the lawyers decided they should get $2.1m of it. The Supreme Court heard today that that figure came from a "$950,000 in fees that were bumped up to $2.1 million through a 2.2 multiplier that was essentially plucked out of the air."

The remaining $6.4m of the settlement would go to seven organizations. Of those seven, three are the alma maters of the attorneys themselves – cash-strapped Harvard University, Stanford University and the Chicago-Kent College of Law – and the other four are all frequent recipients of Google's corporate largesse: AARP Inc, Carnegie Mellon University, the MacArthur Foundation and the World Privacy Forum.

Not happy

The announcement caused howls of complaints. And three years later, a district judge rejected it for providing money to the "usual suspects." So the lawyers appealed and three years later, the Ninth Circuit unhappily approved the deal, voting 2-1.

But by this point, several people – notably Ted Frank of the Competitive Enterprise Institute – saw a perfect test case for dealing with growing abuses of the cy pres system that have been increasingly appearing in front of appeals courts across the nations, with varying degrees of agreement.

Frank basic argument is that that there is a clear conflict of interest in attorneys listing their alma maters as recipients. The money should be given to charities rather than extremely wealthy universities, he argued. And even then only after every effort had been made to give the money to those actually impacted.

By his estimate, given real world figures of claim percentage, the payments would amount to between $5 and $10 per claimant, rather than the 67 cents that the lawyers claimed. It was Frank that argued his case to the Supreme Court [PDF] on Wednesday morning.

There was a lot of discussion of previous legal cases and precedents, as you would expect at the Supreme Court, but Frank's argument boiled down to a simple point: "In this case, class counsel and Google negotiated and agreed to a set of six beneficiaries. That process was opaque, and we don't understand which beneficiaries didn't make the cut and why they didn't make the cut, but they - they chose these particular beneficiaries."

The end result of this system, he argued, is that it "creates perverse incentives for class counsel to divert money away from their clients and to third parties."

Here comes Google

By contrast, Google's lawyer Andrew Pincus made several assertions that raised eyebrows. One key argument was that such cy pres agreement are "very, very rare" : as assertion that is not true.

They are in fact becoming increasingly common thanks to the size of modern internet companies and their user base. Frank noted that "there are two all-pres [SIC*] settlements with just Google alone that are pending, waiting for resolution of this decision."

Pincus then made the argument that the entire case should be thrown out anyway because the person that had brought it – eight years earlier – never really proved that he had been harmed by the disclosure of his personal information because – so the logic goes – that information could have been found elsewhere on the internet anyway.

As amazing as it may seem for a case being heard at the Supreme Court, that question over whether it should have been decided against Google in the first place, took up most time than any other single topic.

It did however lead to the novel situation where a Supreme Court Justice asked Google what it does disclose about the millions of people that use its services to third parties. This is Pincus' verbatim response:

"Well, the issue here is - is there were - there are - there are lots of cookies and other things that – that generate the - the serving up of ads to your particular computer. The question here is the referrer header, which is that the search terms, when you - when you conduct a search, you get a list of websites. When you click on one of those sites, that site gets your search. That's the issue here."

Pincus was also in hot water when he was asked how a million-dollar donation to the AARP – that's the American Association of Retired Persons – was expected to have any impact on Google's corporate policies.

Getting old

"Do you think that problem is going to be meaningfully redressed by giving money to AARP?," asked Justice Roberts.

Pincus: "Well, I -- I -- I think the question is…"

At which point, the court broke out into laughter.

"I think -- I think it is because I…"

Roberts: "As if this is only a problem for elderly people?"

More laughter.

Pincus: "No, but AARP is not the only recipient and elderly people are particularly…"

Roberts: "Well, you're changing the subject, Mr. Pincus. AARP is one of the recipients."

It's safe to say that none of the Justices were impressed with the main contentious aspect of the whole case, and the detail that has led to it to being repeatedly delayed and appealed: namely, that the lawyers got to decide where the money went and chose the "usual suspects", as the district court judge put it.

Justice Kavanaugh argued that almost any other system would be preferable, asking why a lottery system would be better. "Then one of the plaintiffs, one of the injured parties gets [the money], rather than someone who's not injured? Why isn't that always more reasonable?" he asked.

Sensible

Justice Samuel Alito was also fiercely critical: "How can you say that it makes any sense? The purpose [is] asking for compensation… for the class members. And at the end of the day, what happens? The attorneys get money, and a lot of it. The class members get no money whatsoever."

He went on: "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 such a system be regarded as a sensible system?"

Google's Pincus's argument to that multi-sided assault was that the court has already dug in any issues with the recipients and potential conflicts of interests with the lawyers and decided that everything was above board.

It was an argument he repeated no less than three times. But it simply isn't true. In the Ninth Circuit hearing of the case, dissenting judge Clifford Wallace specifically called out this argument, noting that the apparent investigation into the lawyers' conflict of interests was "nothing more than unsworn lawyer talk during an oral argument."

He added: "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."

And another No

And Frank used his very limited rebuttal time to address this point as well: "My friend is alleging that the district court made factual findings that it simply did not reach because it believed its hands were tied by the Ninth Circuit precedent," he noted.

"It did not look at the potential conflicts between Google and the recipients, because in Lane versus Facebook, the Ninth Circuit approved a settlement where Facebook gave to a charity created by Facebook," he noted, continuing: "It did not look at the difficulty of distributing to some class members, because the Ninth Circuit has a de minimis standard. And as we discuss at page 22 of our reply brief, what the district court found was that it would be too hard to distribute to over 100 million class members. We don't contest that, but that's not the standard under any other court."

All of which, you would imagine, would lead to an almost certain decision by the Supreme Court to make sure this kind of dodgy deal is never entered into again, where lawyers get to pay themselves inflated fees and divide up the rest between the favorite causes.

But that’s not how the law works. The Justices repeatedly asked why this was not a topic for Congress to address in legislation (quick answer: Congress keeps passing on the issue and said it is happy for the courts to decide).

The lawyers against the settlement also asked the Supreme Court to remand it down to the lower courts, presumably with some instructions to tighten it up: so when the court does decide sometime next year, it's not going to be some movie moment on the courthouse steps.

But, based on the oral arguments this morning in Washington DC, there is a strong likelihood that a third, very unsatisfying decision will be reached: that the case itself is sent back down to a lower court to be reargued for lack of standing.

But today at least, the highest court of the land agreed with everyone else that has taken a look at this process and decided that, yes, it stinks. ®

*The transcript reads "all-pres" but may have meant "cy pres".