Dawn Fairchild, et al v. AOL, LLC
FILED OPINION (BETTY BINNS FLETCHER, N. RANDY SMITH and JAMES S. GWIN) tion (ECF Filing) We DENY AOL s motion to take judicial notice of the amended class notice posted online. ; REVERSED IN PART; AFFIRMED IN PART; REMANDED.The parties bear their own costs.. Judge: BBF , Judge: NRS Authoring, Judge: JSG . FILED AND ENTERED JUDGMENT. 
Page: 1 of 14
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROBERT NACHSHIN; DAWN
FAIRCHILD; BRIAN GEERS; LAURENCE
GERARD, on behalf of themselves
and all others similarly situated,
AOL, LLC, a Delaware Limited
Appeal from the United States District Court
for the Central District of California
Christina A. Snyder, District Judge, Presiding
Argued and Submitted
June 7, 2011—Pasadena, California
Filed November 21, 2011
Page: 2 of 14
NACHSHIN v. AOL
Before: Betty B. Fletcher and N. Randy Smith,
Circuit Judges, and James S. Gwin, District Judge.*
Opinion by Judge N.R. Smith
*The Honorable James S. Gwin, District Judge for the U.S. District
Court for Northern Ohio, Cleveland, sitting by designation.
Page: 3 of 14
NACHSHIN v. AOL
Richard L. Kellner, Kabeteck Brown & Kellner LLP, Los
Angeles, California, for the plaintiffs-appellees.
Mark D. Litvack, Pillsbury Winthrop Shaw Pittman, LLP, Los
Angeles, California, for the defendants-appellees.
Theodore H. Frank, Center for Class Action Fairness, Washington, D.C., for the objector-appellant.
N.R. SMITH, Circuit Judge:
The cy pres doctrine allows a court to distribute unclaimed
or non-distributable portions of a class action settlement fund
to the “next best” class of beneficiaries. See Six (6) Mexican
Workers v. Ariz. Citrus Growers, 904 F.2d 1301, 1307-08 (9th
Cir. 1990). Cy pres distributions must account for the nature
NACHSHIN v. AOL
Page: 4 of 14
of the plaintiffs’ lawsuit, the objectives of the underlying statutes, and the interests of the silent class members, including
their geographic diversity. See id. The cy pres distributions
here do not comport with our cy pres standards. While the
donations were made on behalf of a nationwide plaintiff class,
they were distributed to geographically isolated and substantively unrelated charities.
In August 2009, four named plaintiffs—Dawn Fairchild,
Brian Geers, Laurence Gerard, and Robert Nachshin
(Plaintiffs)—brought a class action lawsuit against America
Online, LLC (AOL) on behalf of a putative class consisting
of more than 66 million paid AOL subscribers. Plaintiffs
alleged that AOL wrongfully inserted footers containing promotional messages into e-mails sent by AOL subscribers. The
amended complaint asserted six causes of action: (1) violation
of the Electronic Communications Privacy Act, 18 U.S.C.
§ 2510 et seq.; (2) unjust enrichment; (3) violation of California Business and Professions Code § 17200 et seq.; (4) breach
of contract; (5) violations of the Consumer Legal Remedies
Act, California Civil Code § 1750 et seq.; and (6) violation of
California Business and Professions Code § 17529 et seq.
The parties entered into voluntary mediation to settle their
dispute. Working with retired U.S. District Court Judge Dickran Tevrizian, AOL and Plaintiffs eventually reached a class
settlement (the Settlement). The Settlement calls for the certification of a settlement class consisting of “all current AOL
members,” or about 66 million subscribers. It further provides
that (1) AOL will notify its members of the existence of the
e-mail footer advertisements and their ability to opt out of the
footers; (2) if AOL continues to append footer advertisements
to members’ outgoing e-mails, AOL will re-send the same email notification to members every six months for a period of
two years; and (3) AOL will inform future members of the e-
Page: 5 of 14
NACHSHIN v. AOL
mail footers and provide a link enabling members to opt out
of the footer advertisements.
The Settlement also addressed Plaintiffs’ claims for monetary damages. All parties agreed monetary damages were
small and difficult to ascertain. 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
and at Judge Tevrizian’s suggestion, the parties agreed that
AOL would make a series of charitable donations. Because
the 66,069,441 plaintiffs were geographically and demographically diverse, the parties claimed they could not identify any
charitable organization that would benefit the class or be specifically germane to the issues in the case. At the parties’
request, Judge Tevrizian suggested and the parties agreed that
AOL would donate $25,000 to three charitable beneficiaries:
(1) the Legal Aid Foundation of Los Angeles, (2) the Federal
Judicial Center Foundation, and (3) the Boys and Girls Club
of America (shared between the chapters in Los Angeles and
In addition and at the suggestion of Judge Tevrizian, the
parties agreed to compensate the named class representatives
(for bringing the action) by awarding $35,000 to four charities
of the class representatives’ choice (rather than providing
direct financial compensation). The Settlement provides that
AOL will donate $8,750 to a charity designated by each
named representative. These designated charities include the
(1) New Roads School of Santa Monica, designated by Ms.
Fairchild and Mr. Nachshin; (2) Oklahoma Indian Legal Services, designated by Mr. Geers; and (3) the Friars Foundation,
NACHSHIN v. AOL
Page: 6 of 14
designated by Mr. Gerard. Each entity is a non-profit organization with tax deductible status under 26 U.S.C. § 501(c)(3).
The district court granted preliminary approval of the Settlement and provisionally certified the settlement class.
Shortly thereafter, AOL sent an e-mail to over 60 million
members of the class notifying them of the Settlement (the
Notice). The Notice (1) explained that AOL will make donations to several charities totaling $110,000; (2) notified class
members that the full settlement agreement is available at the
district court or online at the internet addresses provided in
the Notice; and (3) provided contact information, including
phone numbers and an e-mail address, where inquiries could
be sent. Two members of the class objected to the Settlement:
Darren McKinney and Janel Buycks.1 An additional 4,525
AOL subscribers opted out of the Settlement, but 1,037 failed
to provide their names for the opt-out as required by the district court’s instructions, and seven failed to submit opt-out
requests before the opt-out deadline.
On December 7, 2009, McKinney filed a formal Objection
to the Proposed Settlement pending before the district court.
In his briefs and at oral argument, McKinney argued, among
other things, that: (1) the charitable award does not meet the
standard for cy pres, because the charities selected by the parties do not relate to the issue in the case and are not geographically diverse; (2) the district court judge should have recused
herself given her husband’s position as a director on the board
of one of the charity beneficiaries, the Legal Aid Foundation
of Los Angeles; and (3) AOL’s Notice to the class was defective, because it did not specify that Ms. Fairchild worked for
the charity she selected to receive a charitable donation.
Ms. Buycks, who objected on the basis that she preferred the charitable
donation be made to her own charitable foundation, the Imitators of God
Foundation, Inc., was apparently the daughter of an official AOL subscriber. The district court allowed Ms. Buyck’s mother to opt out of the
Page: 7 of 14
NACHSHIN v. AOL
The district court denied McKinney’s objections, finding
that (1) Judge Tevrizian’s involvement in the negotiations was
a significant indicator of the agreement’s fairness, (2) the
class was receiving significant prospective relief in addition
to the cy pres awards, and (3) “the charities that have been
chosen are [not] inappropriate or out of line with other class
actions settlements that I have seen approved in this court and
in other courts.” Judge Snyder also declined to recuse herself,
explaining “I have considered [the motion], but I do not think
it is a basis for recusing myself in this matter. I certainly had
no involvement in picking the charities. The parties picked the
charities and I was asked to approve the settlement.” On
December 31, 2009, the district court issued a Final Order Re
Approval of Class Action Settlement and Final Judgment
Thereon, noting that the court “has considered and denied all
objections filed in this action.” On appeal, McKinney raises
the same three objections he made before the district court.
We review a district court’s approval of a proposed class
action settlement, including a proposed cy pres settlement distribution, for abuse of discretion. Rodriguez v. W. Publ’g
Corp., 563 F.3d 948, 963 (9th Cir. 2009). A court abuses its
discretion when it fails to apply the correct legal standard or
bases its decision on unreasonable findings of fact. Las Vegas
Sands, LLC v. Nehme, 632 F.3d 526, 532 (9th Cir. 2011).
 We have recognized that federal courts frequently use
the cy pres doctrine “in the settlement of class actions where
the proof of individual claims would be burdensome or distribution of damages costly.” Six Mexican Workers, 904 F.2d at
1305. The cy pres doctrine “takes its name from the Norman
French expression, cy pres comme possible, which means ‘as
near as possible.’ ” In re Airline Ticket Comm’n Antitrust
Litig., 307 F.3d 679, 682 (8th Cir. 2002) (citation omitted).
The doctrine originated to save testamentary charitable gifts
that would otherwise default. The cy pres doctrine allows a
NACHSHIN v. AOL
Page: 8 of 14
court to modify a trust to best carry out the testator’s intent—
that is, to effectuate the “next best” use of the gift. Id. In the
context of class action settlements, a court may employ the cy
pres doctrine to “put the unclaimed fund to its next best compensation use, e.g., for the aggregate, indirect, prospective
benefit of the class.” Masters v. Wilhelmina Model Agency,
Inc., 473 F.3d 423, 436 (2d Cir. 2007) (quoting 2 Herbert B.
Newberg & Alba Conte, Newberg on Class Actions § 10:17
(4th ed. 2002)).
However, as a growing number of scholars and courts have
observed, the cy pres doctrine—unbridled by a driving nexus
between the plaintiff class and the cy pres beneficiaries—
poses many nascent dangers to the fairness of the distribution
process. See, e.g., S.E.C. v. Bear, Stearns & Co., 626 F. Supp.
2d 402, 414-17 (S.D.N.Y. 2009); Martin H. Redish et al., Cy
Pres Relief and the Pathologies of the Modern Class Action:
A Normative and Empirical Analysis, 62 Fla. L. Rev. 617
(2010). Some courts appear to have abandoned the “next best
use” principle implicit in the cy pres doctrine. These courts
have awarded cy pres distributions to myriad charities which,
though no doubt pursuing virtuous goals, have little or nothing to do with the purposes of the underlying lawsuit or the
class of plaintiffs involved. See, e.g., In re Motorsports
Merch. Antitrust Litig., 160 F. Supp. 2d 1392, 1396-99 (N.D.
Ga. 2001) (distributing $1.85 million remaining from a price
fixing class action settlement relating to merchandise sold at
professional stock car races to ten organizations including the
Duke Children’s Hospital and Health Center, the
Make-a-Wish Foundation, the American Red Cross, and the
Susan G. Komen Breast Cancer Foundation); Superior Beverage Co., Inc. v. Owens-Illinois, Inc., 827 F. Supp. 477, 480
(N.D. Ill. 1993) (awarding $2 million from an antitrust class
action settlement to fifteen applicants, including the San Jose
Museum of Art, the American Jewish Congress, a public television station, and the Roger Baldwin Foundation of the
American Civil Liberties Union of Illinois).
Page: 9 of 14
NACHSHIN v. AOL
When selection of cy pres beneficiaries is not tethered to
the nature of the lawsuit and the interests of the silent class
members, the selection process may answer to the whims and
self interests of the parties, their counsel, or the court. Moreover, the specter of judges and outside entities dealing in the
distribution and solicitation of settlement money may create
the appearance of impropriety. Bear Stearns, 626 F. Supp. 2d
at 415; see George Krueger & Judd Serotta, Op-Ed., Our
Class-Action System is Unconstitutional, Wall St. J., Aug. 6,
2008 (“Judges, in their unlimited discretion, have occasionally been known to order a distribution to some place like
their own alma mater or a public interest organization that
they happen to favor.”); Editorial, When Judges Get Generous, Wash. Post, Dec. 17, 2007, at A20 (“Federal judges are
permitted to find other uses for excess funds, . . . giving the
money away to favorite charities with little or no relation to
the underlying litigation is inappropriate and borders on distasteful.”); Adam Liptak, Doling out Other People’s Money,
N.Y. Times, Nov. 26, 2007 (“Lawyers and judges have grown
used to controlling these pots of money, and they enjoy distributing them to favored charities, alma maters and the
 To remedy some of these concerns, we held in Six
Mexican Workers that cy pres distribution must be guided by
(1) the objectives of the underlying statute(s) and (2) the interests of the silent class members.2 Six Mexican Workers, 904
F.2d at 1307. The proposed cy pres distribution in Six Mexican Workers failed to meet this standard. In that case, the district court awarded a class of 1,349 undocumented Mexican
workers $1,846,500 for their Fair Labor Contractor Registration Act claims against a conglomerate of fruit farmers. Id. at
1303-04. The district court ordered that any unclaimed funds
We also note that the American Law Institute has adopted a rule for cy
pres awards requiring parties “to identify a recipient whose interests reasonably approximate those being pursued by the class.” Principles of the
Law of Aggregate Litigation § 3.07(c) (Am. L. Inst. 2010).
NACHSHIN v. AOL
Page: 10 of 14
be distributed through a cy pres award to the Inter-American
Fund (IAF) for indirect humanitarian assistance in Mexico. Id.
at 1304. We rejected this award, explaining that (1) the “proposal benefits a group far too remote from the plaintiff class,”
(2) “[t]he plan . . . fails to provide adequate supervision over
distribution,” and (3) although “the plan permits distribution
to areas where the class members may live, . . . there is no
reasonable certainty that any member will be benefited.” Id.
at 1308-09. We directed the district court on remand to consider escheating the funds pursuant to 28 U.S.C. § 2042 if the
court could not develop an appropriate cy pres distribution.
Id. at 1309.
 The cy pres distribution in this case fails to meet any
of the guiding standards in Six Mexican Workers. The proposed awards fail to (1) address the objectives of the underlying statutes, (2) target the plaintiff class, or (3) provide
reasonable certainty that any member will be benefitted.
Plaintiffs in this case brought claims against AOL for breach
of electronic communications privacy, unjust enrichment, and
breach of contract, among others, relating to AOL’s provision
of commercial e-mail services. Yet none of the cy pres
donations—$25,000 each to the Legal Aid Foundation of Los
Angeles, the Boys and Girls Clubs of Santa Monica and Los
Angeles, and the Federal Judicial Center Foundation—have
anything to do with the objectives of the underlying statutes
on which Plaintiffs base their claims.
 The cy pres distribution also fails to target the plaintiff
class, because it does not account for the broad geographic
distribution of the class. See In re Airline Ticket Comm’n
Antitrust Litig., 307 F.3d 679, 683 (8th Cir. 2002) (reversing
a district court’s cy pres distribution because it “failed to consider the full geographic scope of the case”); Houck on Behalf
of U.S. v. Folding Carton Admin. Comm., 881 F.2d 494, 502
(7th Cir. 1989) (remanding a proposed cy pres award in a
nationwide class action so the district court could consider “a
broader nationwide use of its cy pres discretion”). Although
Page: 11 of 14
NACHSHIN v. AOL
the class includes more than 66 million AOL subscribers
throughout the United States, two-thirds of the donations will
be made to local charities in Los Angeles, California. Even
among the small percentage of plaintiffs located in Los Angeles, there is also no indication that any would benefit from
donations to the Boys and Girls Clubs of Los Angeles and
Santa Monica or Los Angeles Legal Aid. The proposed donation to the Federal Judicial Center Foundation at least conceivably benefits 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 plaintiff class. We therefore conclude that the district
court applied the incorrect legal standard in approving the
proposed cy pres distribution and, therefore, abused its discretion.
We are not persuaded by AOL’s argument that courts must
defer to the parties’ freely-negotiated settlement, or AOL’s
reliance on the statement from Rodriguez that judicial review
“must be limited to the extent necessary to reach a reasoned
judgment that the agreement is not the product of fraud or
overreaching by, or collusion between, the negotiating parties,
and that the settlement, taken as a whole, is fair, reasonable
and adequate to all concerned.” Rodriguez, 563 F.3d at 965
(internal quotation marks and citation omitted). This argument
conflates two separate inquiries relating to class settlements:
(1) whether the class settlement, “taken as a whole, is fair,
reasonable, and adequate to all concerned,” id.; and (2)
whether the distribution of the approved class settlement complies with our standards governing cy pres awards. McKinney
does not argue that the Settlement fails to adequately compensate Plaintiffs’ injuries; instead, he argues that the (presumptively adequate) Settlement fails to comport with our
established standards for cy pres distribution in Six Mexican
Workers. A proposed cy pres distribution must meet these
standards regardless of whether the award was fashioned by
the settling parties or the trial court.
NACHSHIN v. AOL
Page: 12 of 14
We are also not persuaded by the parties’ claims that the
size and geographic diversity of the plaintiff class make it
“impossible” to select an adequate charity. It is clear that all
members of the class share two things in common: (1) they
use the internet, and (2) their claims against AOL arise from
a purportedly unlawful advertising campaign that exploited
users’ outgoing email messages. The parties should not have
trouble selecting beneficiaries from any number of non-profit
organizations that work to protect internet users from fraud,
predation, and other forms of online malfeasance. If a suitable
cy pres beneficiary cannot be located, the district court should
consider escheating the funds to the United States Treasury.
See Six Mexican Workers, 904 F.2d at 1309.
 McKinney argues Judge Snyder should have recused
herself from the hearing adjudicating the fairness and propriety of the proposed cy pres distribution in this case. We
review the district court’s decision whether to grant a motion
for recusal for an abuse of discretion. United States v. Wilkerson, 208 F.3d 794, 797 (9th Cir. 2000).
Recusal under 28 U.S.C. § 455(a)
McKinney first argues that 28 U.S.C. § 455(a) requires
Judge Snyder to 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 (LAFLA). Though
McKinney claims that the somewhat attenuated connections
between the Settlement and Mr. Snyder’s board service
should raise questions about Judge Snyder’s impartiality,
McKinney has not shown that Judge Snyder abused her discretion in denying the motion for recusal. The test for recusal
under § 455(a) is “whether a reasonable person with knowledge of all the facts would conclude that the judge’s impartiality might reasonably be questioned.” Wilkerson, 208 F.3d
at 797 (internal quotation marks and citation omitted).
Page: 13 of 14
NACHSHIN v. AOL
Although McKinney correctly points out that Judge Snyder’s
husband served on LAFLA’s board, this board includes
roughly 50 attorneys representing local law firms, corporations, and community organizations. See Board of Directors,
LAFLA, http://www.lafla.org/board.php (last visited Aug. 22,
2011). LAFLA is a non-profit organization that provides
access to legal services for low-income individuals in the Los
Angeles area. There is no indication in the record that board
members receive financial compensation, development commissions, or any other remuneration for their service.
Although the proposed cy pres donation of $25,000 to
LAFLA is a significant sum of money, McKinney has not
shown that the donation would benefit Mr. Snyder in any way
other than to enable LAFLA to continue providing legal services to the indigent.
Recusal under 28 U.S.C. § 455(b)(4), (5)(iii)
 McKinney also argues Judge Snyder should have
recused herself, because her husband either (1) had a “financial interest in the subject matter in controversy or in a party
to the proceeding,” 28 U.S.C. § 455(b)(4) (2006); or (2) had
an “interest that could be substantially affected by the outcome of the proceeding,” id. § 455(b)(5)(iii). We disagree.
The record gives no indication that Mr. Snyder had a financial
interest in the subject matter in controversy. The statute
defines financial interest as, among other things, “a relationship as director . . . in the affairs of a party.” 28 U.S.C.
§ 455(d)(4) (emphasis added). Mr. Snyder had no interest in
a “party” to the proceeding. LAFLA was not a “party” to the
proceeding. LAFLA was neither named as a party nor represented by counsel. Its status as one of three proposed cy pres
beneficiaries was the result of a fortuitous recommendation by
the mediator—not by a decision made by Judge Snyder or at
the encouragement of Mr. Snyder or any LAFLA representative. McKinney fails to cite precedent supporting the proposition that someone or something fortuitously impacted by a
NACHSHIN v. AOL
Page: 14 of 14
proceeding should be treated as a “party” to the proceeding
under § 455(b).
Mr. Snyder did not have an interest that could be “substantially affected” by the outcome of the proceeding. Although
LAFLA would no doubt consider the $25,000 cy pres donation significant, there is no reason to believe Mr. Snyder (as
one of 50 volunteer board members) would himself realize a
significant benefit. See Sensley v. Albritton, 385 F.3d 591, 600
(5th Cir. 2004) (holding that, in the context of recusal under
28 U.S.C. § 455(b)(4) or (b)(5)(iii), “where an interest is not
direct, but is remote, contingent or speculative, it is not the
kind of interest which reasonably brings into question a
judge’s partiality” (internal quotation marks omitted)).
 We conclude that she did not abuse her discretion
under § 455 in denying McKinney’s motion to recuse.
Lastly, McKinney argues that the class notice was not sufficient. We decline to address the issue, because we have
already held that the proper legal standard was not applied to
approve the cy pres distribution. Therefore, it is unnecessary
to decide whether the Notice was legally significant.
We DENY AOL’s motion to take judicial notice of the
amended class notice posted online.
The parties bear their own costs.
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?