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A rejected Google settlement is part of a bigger story about class actions in America

Erin Fuchs
Deputy Managing Editor

Back in September 2015, Google was hit with a lawsuit accusing it of secretly “intercepting, reading, and analyzing” emails of non-Gmail users in order to create targeted ads.

Google reached a settlement in the case this past December. That deal hit a snag this week, though: Judge Lucy Koh, who’s known for handling high-profile tech cases, rejected a preliminary motion to approve the settlement — forcing the litigation to drag on.

“Judges frequently grant preliminary approval of class action settlements because judges usually favor settlements over protracted litigation,” Santa Clara Law Professor Eric Goldman told Yahoo Finance. “However, judges are required to review a class action settlement to ensure it’s a good deal for class members.”

$0 in cash damages for consumers

In this particular case, those class members would get exactly $0 in cash damages — while the plaintiffs’ attorneys would pocket $2.2 million. This is hardly unusual, and is at the heart of an ongoing debate over the purpose of class actions that generate little cash for consumers but millions in attorneys’ fees. According to Goldman, judges have increasingly wielded their power to reject proposed settlements when those deals result in no cash for the consumer.

“Increasingly, judges are more carefully scrutinizing settlement deals in privacy class action lawsuits where the class gets no money,” Goldman said. “Judges are concerned that such settlements may be a form of collusion between the defendants, who just want to get a green light to continue their practices, and the class action counsel, who are eager to get paid even if they don’t provide great remedies for the class.”

Congress has also been scrutinizing class actions. Last month, U.S. Rep. Bob Goodlatte (R-Va.) introduced the Class Action Fairness Act of 2017, which would introduce a number of restrictions on class actions including tying attorneys’ fees to the amount of money class members receive.

The bill has sparked a wave of criticism because it would effectively curb the number of class actions in America. Proponents of class actions argue that they are a way to force consumer-facing corporations to comply with the law. Indeed, even when consumers receive no cash, corporations often agree to change their practices as part of class-action settlements.

In this particular case, the “class” (aka, non-Gmail users) would have received an assurance that Google would not scan their incoming email for the sole purpose of collecting advertising data. But the deal kept the door open for Google to scan incoming email for the “dual purpose” of detecting malware and getting information that it would use at a later time for advertising.

Google may still be violating privacy laws: Judge

In rejecting the deal, Koh said it wasn’t clear the settlement put Google into compliance with the laws it was accused of violating, the Wiretap Act and the California Invasion of Privacy Act.

“Plaintiffs’ motion for preliminary approval provides no authority as to whether or why the injunction’s ‘dual purpose’ interception, scanning, and analysis of in transit emails brings Google into compliance with the Wiretap Act or CIPA,” Koh noted.

For his part, Michael Sabol, an attorney for the plaintiffs with Lieff Cabraser Heimann & Bernstein, said, “At this point, we will press on with the litigation while still exploring opportunities for resolution that are consistent with the court’s directions.”

He also pointed out that the plaintiffs only sought injunctive relief in this case (i.e., getting Google to change its practices). “The hopes of getting a class-wide recovery for damages under these circumstances is very remote,” Sabol said.

Still, Jay Edelson, a plaintiffs’ lawyer dubbed “tech’s least friended man” by The New York Times, told Yahoo Finance he’s concerned that so-called injunctive-only class actions are being overused.

“We believe that injunctive-only privacy settlements where significant damages were originally being sought should be the exception, rather than the norm,” Edelson noted. “We remain concerned that they are being over utilized, which will lead to criticism that the settlements benefit the attorneys more than their clients.”

In the case of Google, Koh may end up satisfied if Google reins in its behavior, in which case the plaintiffs’ lawyers will ultimately get their payday.

Google declined to comment on Koh’s motion.

Erin Fuchs is deputy managing editor of Yahoo Finance.