U.S. Supreme Court Refuses to Search Google Settlement Agreement for Fairness

The U.S. Supreme Court on Wednesday remanded a class action against Google so that the lower courts could determine whether any of the named plaintiffs have standing under Spokeo, Inc. v. Robbins.

The underlying suit alleged violations of the Stored Communications Act (“SCA”).  The SCA prohibits “a person or entity providing an electronic communications service to the public” from “knowingly divulge[ing] to any person or entity the contents of a communication while in electronic storage by that service.”  The plaintiffs alleged that Google violated this provision by sending users’ search terms to the server hosting the webpage that users clicked on from the search results page.

Google eventually negotiated a settlement with the class for $8.5 million.  Absent class members, however, were to receive no payment from the settlement fund.  Rather, over $2 million was to go to class counsel.  More than $5 million was to be donated to a number of cy pres recipients, nonprofit organizations whose work would indirectly benefit the class members.

The District Court approved the proposed settlement agreement over the objection of two named plaintiffs, who contended that the settlement was not “fair, reasonable, and adequate” as required under the Federal Rules of Civil Procedure.  After the Ninth Circuit affirmed the District Court’s approval, the Supreme Court granted certiorari on the question of whether the proposed settlement agreement was fair, reasonable, and adequate.

The Court, however, deferred on the question, stating that it could not rule on the propriety of the proposed settlement agreement because, “there remain substantial questions about whether any of the named plaintiffs has standing to sue in light of our decision” in Spokeo.

The Court noted that the District Court had previously rejected Google’s standing argument, relying on the Ninth Circuit case Edwards v. First American Corp.  In Edwards, the Ninth Circuit ruled that the violation of a statutory right automatically satisfies the injury-in-fact element of standing when an individual sues to vindicate that right.

After the District Court’s ruling, however, the Supreme Court handed down the Spokeo decision.  Spokeo abrogated Edwards, holding that “Article III standing requires a concrete injury even in the context of a statutory violation.”  Neither the District Court nor the Ninth Circuit re-examined the standing question in light of Spokeo.

Indeed, Google apparently never re-raised the standing issue after the Spokeo ruling.  Nevertheless, the Court noted that it had an independent “obligation to assure ourselves of litigants’ standing under Article III.”  It also stated, “A court is powerless to approve a proposed class settlement if it lacks jurisdiction over the dispute, and federal courts lack jurisdiction if no named plaintiff has standing.”  The Court therefore vacated the approval of the proposed settlement agreement and remanded for further proceedings on the standing question.

The Court’s ruling serves as a strong reminder of just how powerful a standing defense Spokeo can provide in suits alleging a violation of a privacy statute.

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In the new digital world, individuals and businesses are almost entirely dependent on computer technology and electronic communications to function on a daily basis. Although the power of modern technology is a source of opportunity and inspiration—it also poses huge challenges, from protecting privacy and securing proprietary data to adhering to fast-changing statutory and regulatory requirements. The Cyber Law Monitor blog covers privacy, data security, technology, and cyber space. It tracks major legal and policy developments and provides analysis of current events.
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