Supreme Court Boots Cy Pres Settlement for Lack of Standing Analysis Under Spokeo: Four Things to Know

March 26, 2019

In a recent per curiam decision, the US Supreme Court forcefully held that even where parties agree to settle a putative class action seeking statutory penalties, the named plaintiff must satisfy Spokeo’s injury-in-fact requirement for standing under Article III. The opinion will likely affect future federal class action litigation in four meaningful ways.

When the US Supreme Court granted certiorari in Frank v. Gaos, the class action community expected that the Court would shed light on the propriety of a cy pres–only settlement that did not provide direct relief to absent class members. That will have to wait another day. On March 20, the Supreme Court issued a per curiam opinion finding that the cy pres issue could not be addressed because no lower court in this case had analyzed whether any named plaintiff satisfied Article III’s standing requirement as articulated in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). There are four key takeaways from the Court’s opinion, which will likely influence future federal class action litigation.

  1. To Approve a Settlement, Federal Courts Must Have Standing Under Article III

If there were any doubt about whether federal courts may apply a relaxed analysis of Article III standing (or not consider it at all) in the context of approving a class settlement, the Supreme Court eliminated it. The Supreme Court unequivocally held that “[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.” Frank v. Gaos, No. 17-961, 2019 WL 1264582, at *3 (U.S. Mar. 20, 2019). This emphasizes the importance of addressing the standing issue at the outset of the litigation, even if the parties are in agreement about resolving the action by settlement.

  1. An Alleged Injury Based on a Statutory Violation Must Be Assessed Under Spokeo’s Test for Article III Standing

The quirky procedural history of this case caused the issue about the appropriate test for Article III standing to be buried until the case reached the Supreme Court. The US solicitor general unearthed the issue in an amicus brief, noting that no court in this case had analyzed whether a named plaintiff had alleged statutory violations sufficiently “concrete and particularized” to support standing. In other words, no court had evaluated whether an injury in fact existed to satisfy Spokeo’s test for Article III standing.

The issue of Article III standing had not been entirely glossed over by the parties or the lower courts during the litigation of this case. Here’s what happened: Plaintiff Paloma Gaos filed a complaint in the Northern District of California, alleging that the defendant’s use of referrer headers violated the Stored Communications Act (SCA) as well as several state laws. The defendant moved to dismiss for lack of standing. Initially, the district court granted the motion without prejudice, due to a failure to adequately plead standing. Gaos filed an amended complaint, and the defendant again moved to dismiss. In 2012, the district court denied the defendant’s motion, reasoning that the prevailing Ninth Circuit precedent, Edwards v. First American Corp., 610 F.3d 514 (2010), instructed that an Article III injury exists when a statute provides for a cause of action and the plaintiff alleges that the defendant violated the statute. After the district court’s decision was issued, the Supreme Court granted certiorari in Edwards. Thus, when Gaos subsequently filed a second amended complaint, the defendant moved to dismiss and argued that the Supreme Court’s pending review of Edwards provided an opening to challenge that standing existed simply because of an alleged violation of a statutory right. However, in 2012, the Supreme Court dismissed Edwards as improvidently granted, and the defendant withdrew its argument that Gaos lacked standing for the SCA claims. The parties negotiated a settlement agreement, providing for cy pres relief without any direct relief to absent class members, and the district court approved the settlement. Although Spokeo was decided shortly before the Ninth Circuit affirmed the district court’s judgment and raised the case to the Ninth Circuit, Spokeo was not addressed in the Ninth Circuit’s opinion.

As noted above, the solicitor general filed a brief as amicus curiae, pointing out that the test in Edwards—not Spokeo—was used to determine the existence of Article III standing. As such, the federal courts’ jurisdiction over this dispute was based merely on allegations that the defendant violated the SCA. The Supreme Court noted that courts “have an obligation to assure ourselves of litigants’ standing under Article III,” which extends to court approval of proposed class action settlements. Frank, 2019 WL 1264582, at *3. The Supreme Court vacated the judgment of the lower courts and remanded with instructions to “address the plaintiffs’ standing in light of Spokeo.” In doing so, the Court essentially reaffirmed that Article III standing “requires a concrete injury even in the context of a statutory violation,” and that a plaintiff cannot “allege a bare procedural violation, divorced from any concrete harm and satisfy the injury in fact requirement of Article III.” Spokeo, 136 S. Ct. at 1549.

  1. Frank v. Gaos Will Impact Class Certification for Claims Arising Under the Stored Communications Act and Similar Statutory Claims

The Court added an important qualifier to its decision to vacate the judgment of the lower courts and to remand the case: “Nothing in our opinion should be interpreted as expressing a view on any particular resolution of the standing question.” Frank, 2019 WL 1264582, at *3. The absence of guidance for prospective plaintiffs about how to meet the strictures of Spokeo will impact future litigation related to the SCA, particularly at the class certification stage, unless it is resolved by further airing in this or other cases.

In briefing before the Court, both the defendant and the United States took the position that Congress did not elevate a formerly nonactionable harm to the status of an injury in fact in the SCA. If the compelling arguments in support of that stance carry the day in future SCA litigation, plaintiffs advancing claims under the SCA will need to plead specific allegations about the harm suffered to identify a “concrete and particularized” injury that satisfies Spokeo. Plaintiffs who bear that burden by advancing allegations about specific harm will put themselves in a position to succeed at the Rule 12(b)(1) motion stage. The more specific the harm, the greater the likelihood that a court will find a concrete injury that satisfies Spokeo. However, the specific allegations needed to satisfy Spokeo may prove to be a double-edged sword. As allegations become increasingly specific, it will become all the more difficult for plaintiffs to establish that class members “have suffered the same injury,” as required to establish class certification under Rule 23(a)(2). Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011).

Frank’s holding applies with equal force to other broad-based statutes that the Supreme Court has not yet analyzed under Spokeo. There was nothing in the Court’s decision limiting Frank’s impact to the SCA.

  1. Uncertainty About the Viability of Cy Pres–Only Settlements Remains

Because the case was remanded to address the question of Article III standing under Spokeo, the Court did not reach the issue of whether the cy pres–only settlement satisfied Rule 23(e). That said, practitioners should not take comfort that cy pres–only settlements will be approved.

During merits briefing, the United States cautioned that cy pres relief is rife with issues, and argued that settlements including cy pres distributions should be approved “only in rare circumstances after careful examination to determine whether several important limitations are satisfied.” Brief for the United States as Amicus Curiae Supporting Neither Party, Frank v. Gaos, 2018 WL 3456069, at *10 (U.S. July 16, 2018). And Justice Clarence Thomas penned a dissenting opinion in which he concluded that this cy pres–only settlement should not have been approved because absent class members did not receive any funds, injunctive relief, or “other benefit whatsoever.” Frank, 2019 WL 1264582, at *4 (Thomas, J. dissenting).

Final Thoughts

When certiorari was granted in Frank v. Gaos, the case presented the possibility that the Supreme Court would strike down the use of cy pres–only settlements. But without an analysis by the lower courts of Article III standing under Spokeo, the cy pres issue was relegated to the proverbial backseat. And while the main utility of this case is to emphasize the importance of Spokeo, continued uncertainty of the viability of cy pres–only settlements likely means that they will be a tool used sparingly from class action practitioners’ settlement toolbox.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Los Angeles
J. Warren Rissier

San Francisco
Molly Moriarty Lane

Scott T. Schutte

Ezra D. Church