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Supreme Court to examine how class action settlements are distributed

Awarding money to charities instead of class members is being challenged

Photo (c) simpson33 - Getty Images
The Supreme Court has agreed to hear a case that could decide how money from class action settlements can be distributed.

In a normal settlement, legal expenses are paid off the top, with the remaining funds in the settlement awarded to individual class members. But in recent years, some judges have awarded the money to charities instead of class members harmed by the action in question.

In the 2013 case Marek v. Lane, Chief Justice John Roberts called this practice into question after he noted that Facebook agreed to pay a $9.5 settlement and the judge awarded the funds in what Roberts called "an unusual way."

"Plaintiffs’ counsel were awarded nearly a quarter of the fund in fees and costs, while the named plaintiffs received modest incentive payments," Roberts wrote. "The unnamed class members, by contrast, received no damages from the remaining $6.5 million."

Awarding all class members deemed not practical

The court determined that distributing the remaining money to the large number of individuals in the class would result in awards so small that no class member would bother collecting it. So in this case, the court created a non-profit foundation with the money to educate the public about online privacy.

Since then, other judges have followed that example; but now, someone has challenged that practice in court and the high court has agreed to hear it.

The case in question stems from another online privacy issue. Google agreed to an $8.5 million settlement after it was accused in a class action of violating users’ privacy. The lawyers in the case pocketed $2 million, but members of the class received none of the remaining funds.

The money was instead divided between foundations focused on internet privacy issues, based at Stanford and Harvard universities. Two class members objected to the settlement, arguing the terms of the settlement did not address the real issue in the case -- the harm to the members of the class.

The U.S. Ninth Circuit Court of Appeals upheld the original settlement, pointing out that trying to distribute the money in the settlement to every class member would result in awards of around four cents each.

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