The Supreme Court in Frank v. Gaos declined to say whether a cy-pres-only class settlement satisfies Rule 23(e) — but the path the case traveled, and what the Court said along the way, leaves little doubt about the institutional skepticism directed at settlements that route money to third-party charities instead of class members.
Doctrinal Framing
The cy pres doctrine in class action law refers to the distribution of settlement funds — particularly residual or unclaimed amounts — to charitable organizations whose work is deemed to indirectly benefit the class, when distributing the funds to individual class members is impractical or not cost-effective. The doctrine has its roots in charitable trust law, where cy pres means "as near as possible" — the idea being that when a gift's original purpose fails, courts may redirect the funds to a purpose that approximates the donor's intent as closely as possible.
Applied to class action settlements, cy pres has migrated far from those roots. In modern practice, defendants sometimes propose distributing the entirety of a settlement fund to cy pres recipients — bypassing class members entirely — often because per-member recovery would be negligible, or because the parties' records cannot identify individual class members. This practice has generated significant controversy, and Frank v. Gaos crystallized that controversy before the Supreme Court.
Frank v. Gaos, 586 U.S. ___ (2019): The Remand Without Merits Resolution
Frank v. Gaos, 586 U.S. ___ (2019) (per curiam), arose out of In re Google Referrer Header Privacy Litigation, a class action alleging that Google violated the Stored Communications Act by transmitting users' search terms to third-party websites through referrer headers. After Google moved to dismiss on standing grounds three times — and ultimately withdrew its standing objection — the parties settled. The settlement required Google to make disclosure changes on certain web pages, distributed more than $5 million to six cy pres recipients (including universities associated with class counsel and organizations Google itself already supported through donations), paid more than $2 million in attorneys' fees, and distributed nothing directly to the 129 million absent class members, whose per-member share would have been approximately four cents.
Theodore Frank and Melissa Holyoak, two class members, objected to the settlement on several grounds: (1) cy-pres-only settlements do not satisfy Rule 23(e)(2)'s requirement that a settlement be "fair, reasonable, and adequate"; (2) cy pres was not justified on the facts; and (3) conflicts of interest tainted the selection of cy pres recipients, given the overlap between class counsel's academic affiliations and the chosen charities.
The Ninth Circuit affirmed the district court's approval of the settlement. The Supreme Court granted certiorari to decide whether a cy-pres-only class settlement satisfies Rule 23(e)(2). Before addressing that question on the merits, however, the Court asked the parties for supplemental briefing on whether any named plaintiff had Article III standing to sue in light of Spokeo, Inc. v. Robins, 578 U.S. 330 (2016), which had clarified that statutory violations without concrete injury cannot establish injury-in-fact.
The Court vacated and remanded per curiam, holding that "[a] court is powerless to approve a proposed class settlement if it lacks jurisdiction over the dispute." Because the lower courts had never addressed whether the named plaintiffs had concrete, particularized injury under Spokeo, the Court declined to reach the cy pres question on the merits. "Nothing in our opinion should be interpreted as expressing a view on any particular resolution of the standing question."
The case was eventually settled on remand in 2022 with a revised $23 million fund, of which approximately $16 million was distributed directly to class members — a result the district court credited to the objectors' litigation.
What Frank v. Gaos Actually Signals
Although the majority opinion expressed no view on cy pres, the case generated a pointed dissent from Justice Thomas that reads more like a majority merits opinion on cy pres practice. Justice Thomas would have found that the named plaintiffs had standing and would have reversed approval of the cy pres settlement on multiple grounds:
- Cy pres payments are not a form of relief to absent class members and should not be treated as such, including when calculating attorney's fees.
- The fact that class counsel and named plaintiffs received compensation while the class received nothing strongly suggests that the class was not adequately represented under Rule 23(a)(4) and (g)(4).
- The settlement was not "fair, reasonable, and adequate" under Rule 23(e)(2) when absent class members received no benefit.
- A cy-pres-only settlement may fail the superiority requirement of Rule 23(b)(3) when it "extinguishes the absent class members' claims without providing them any relief."
Justice Thomas's dissent built on Chief Justice Roberts's earlier statement in Marek v. Lane, 571 U.S. 1003 (2013), expressing "fundamental concerns" about cy pres — a statement in a denial of certiorari that nevertheless put the bar on notice that multiple justices were skeptical of cy pres settlements. Neither the majority of the Court nor Justice Thomas's dissent provides a holding on cy pres after Frank v. Gaos, but the institutional temperature is unmistakably cold.
The Remaining Circuit Framework
Because the Supreme Court did not resolve the cy pres question, the circuit courts' varying approaches remain in effect. Most circuits permit cy pres distributions under multi-factor tests that examine:
- Whether cy pres is necessary (i.e., whether direct distribution is truly infeasible or impractical);
- Whether the cy pres recipients are connected to the subject matter of the litigation and the interests of the class;
- Whether conflicts of interest infect the selection of recipients;
- Whether the cy pres allocation is proportionate to the direct-distribution alternatives.
The Ninth Circuit's standard, applied in the Google Referrer Header case, required only that the settlement be "fair, adequate, and free from collusion" — a lower bar than what several other circuits require. The Third, Fifth, Seventh, and Eighth Circuits have imposed stricter requirements, including that direct compensation to class members must be exhausted before cy pres is appropriate.
Practice Notes: Cy Pres Allocation and Beneficiary Selection
Counsel negotiating class settlements that include cy pres components — whether because direct distribution is genuinely impractical, or because residual funds remain after a claims process — must address the following considerations to minimize objection and survive appellate review:
Exhaust direct distribution first. The most defensible cy pres provision is one that allocates residual funds — amounts that remain unclaimed or cannot cost-effectively be distributed after individual class member payments. A cy pres-only settlement, where zero direct relief flows to the class, faces the severest scrutiny and, after Frank v. Gaos, may be effectively untenable in any circuit where the Spokeo standing analysis is applied to named plaintiffs.
Nexus between recipient and class. Cy pres recipients must be selected based on a demonstrable connection to the subject matter of the litigation and the interests of the class members. In a data privacy case, appropriate recipients might include digital-rights or privacy-advocacy organizations. In a consumer products case, consumer protection nonprofits or legal aid organizations serving the affected demographic are defensible choices. Recipients should not be selected based on counsel's personal, academic, or institutional affiliations.
Avoid conflicts of interest in selection. Frank v. Gaos itself illustrated the problem: when class counsel's law school alumni organizations or defendants' existing charitable partners are chosen as cy pres recipients, the selection process is compromised. Courts, professional ethics bodies, and objectors will scrutinize these connections. Document the selection process and consider involving the court in an open solicitation process.
Proportionality review. Cy pres allocations should be evaluated relative to the total fund. A settlement in which cy pres absorbs a materially larger share than direct class relief — or in which cy pres and attorneys' fees together eclipse what the class receives — invites Thomas-style analysis about whether class counsel's interests were adequately aligned with those of absent members.
Build a standing record for named plaintiffs. The lesson of Frank v. Gaos's procedural outcome is that named plaintiffs in statutory violation cases must specifically allege, and be prepared to demonstrate, a concrete, particularized injury — not merely a statutory violation. In data privacy cases after Spokeo and TransUnion LLC v. Ramirez, 594 U.S. 413 (2021), this means identifying real-world harms: unauthorized disclosure to specific third parties, reputational or financial harm, or other injury with a common-law analog. If named plaintiffs cannot establish standing, the settlement falls regardless of cy pres's merits.
Settlement approval briefing. The preliminary and final approval briefs for any settlement with a cy pres component should address: (1) why direct distribution is infeasible, or why residual amounts cannot be distributed; (2) the nexus between each recipient and the class; (3) the process by which recipients were identified and conflicts were screened; and (4) the comparative dollar value to the class versus cy pres. Proactive disclosure is better than reactive response to an objector's brief.
Open Questions
Frank v. Gaos's procedural dismissal means the circuits remain divided on the conditions under which cy-pres-only settlements satisfy Rule 23(e). A decision on the merits — if and when the Court grants certiorari on a clean record — would likely track the skepticism expressed by Justices Thomas and Roberts, potentially requiring some minimal direct relief before cy pres becomes appropriate. Practitioners advising defendant-side clients in negotiations should factor in this institutional risk: a cy-pres-only settlement that avoids individual payments may create greater appellate exposure than one that includes even nominal direct relief.
Closing
Cy pres is not prohibited, but it is under sustained institutional suspicion. The most durable settlements are those in which cy pres plays its historical role — redirecting genuinely unclaimed residual funds after every practicable effort to compensate class members directly. Counsel who treat cy pres as a mechanism to avoid the administrative cost of direct distribution, or as a vehicle to route funds to preferred organizations, create the conditions for objector leverage, appellate reversal, and the kind of reputational scrutiny that followed the Google Referrer Header litigation all the way to the Supreme Court and back.
Talk to Yates Anderson
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Informational only. Not legal advice. No attorney-client relationship is created by reading this post. Consult a licensed attorney in your jurisdiction.