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Wednesday, December 14, 2011

Nachshin v. AOL: Ninth Circuit Reverses Cy Pres Award

In Nachshin v. AOL, LLC (11/21/11) --- F.3d ----, 2011 WL 5839610, plaintiffs brought a class action against AOL on behalf of a putative class of more than 66 million paid AOL subscribers, alleging that AOL wrongfully inserted footers containing promotional messages into e-mails sent by AOL subscribers.

At mediation, the parties agreed that the maximum recovery at trial would have been the unjust enrichment AOL received as a result of its footer advertisement sales, or about $2 million. Divided among the more than 66 million AOL subscribers, each member of the class would receive only about 3 cents. The cost to distribute these payments would far exceed the maximum potential recovery.

In lieu of a cost-prohibitive distribution to the plaintiff class, the parties agreed that AOL would provide certain notices to its subscribers and make a series of donations to Los Angeles area charities.

The district court (C.D.Cal., Judge Christina A. Snyder) granted preliminary and final approval, and an objector appealed. The Ninth Circuit affirmed in part and reversed in part. Noting that "The cy pres doctrine takes its name from the Norman French expression, cy pres comme possible, which means as near as possible," the Court held that the charitable donations here failed to meet the test for cy pres distributions. Six (6) Mexican Workers v. Arizona Citrus Growers (9th Cir. 1990) 904 F.2d 1301. Two thirds of the donations would be made to Los Angeles-area charities. The proposed donation to the Federal Judicial Center Foundation would benefit a national organization, but this organization has no apparent relation to the objectives of the underlying statutes, and it is not clear how this organization would benefit the class. The Court thus concluded that the district court applied the incorrect legal standard and abused its discretion in approving the proposed cy pres distribution. Slip op. at 6. The Court even suggested that the parties find a beneficiary that "works to protect internet users from fraud, predation, and other forms of online malfeasance."  Ibid.  

The Court rejected the contention that Judge Snyder should have recused herself because her husband sat on the board of one of the proposed cy pres beneficiaries, the Legal Aid Foundation of Los Angeles.  Id. at 6-7.

The opinion is available here.

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