Remember the dispute last year between U.S. Senior District
Judge Jed Rakoff and the Securities and Exchange Commission over
who is responsible for protecting the public's interest in SEC
settlements? When he rejected the SEC's $285 million settlement with Citigroup last November, Rakoff said that part of his
mandate as a federal judge is to consider the public benefit of
enforcement deals. At least three other federal judges,
including a New Jersey judge overseeing a Federal Trade Commission case against a company called Circa Direct,
subsequently questioned the adequacy of settlements proposed by
federal agencies, citing Rakoff.
But last March, the 2nd Circuit Court of Appeals sharply rebuked Rakoff in a procedural ruling in the Citi case. The
appeals court said judges are "bound in such matters to give
deference to an executive agency's assessment of the public
interest." Rakoff, according to the 2nd Circuit, had exceeded
his judicial authority when he ruled otherwise. "The
responsibilities for assessing the wisdom of such policy choices
and resolving the struggle between competing views of the public
interest are not judicial ones," the court said. (The 2nd
Circuit still hasn't heard the merits of a joint appeal by Citi
and the SEC of Rakoff's rejection of the settlement.)
Despite the 2nd Circuit's powerful affirmation that federal
agencies -- and not judges -- bear the burden of assessing the
public's interest in their settlements, a California non-profit
called Consumer Watchdog wasn't convinced. In September, the
group intervened in an FTC case that involved Google's alleged
violation of the terms of its 2011 Buzzfeed user privacy
settlement (and not the FTC's long-rumored but still unfiled
search result manipulation or patent misuse cases). The
settlement challenged by Consumer Watchdog resolved FTC
allegations that despite the previous consent decree, Google was
still inserting tracking software on some users' computers
without their knowledge. Google denied liability but
nevertheless agreed to pay $22.5 million and delete the
offending programs.
Consumer Watchdog, in an amicus brief, argued that the
settlement was merely the latest of the FTC's ineffectual
attempts to protect the public's privacy. The group asked U.S.
District Judge Susan Illston of San Francisco to reject the
settlement in the name of the public interest, claiming that
$22.5 million wasn't enough money and Google should be forced to
admit liability. The group's lawyers at Carr & Ferrell cited the
New Jersey ruling in the FTC's Circa Direct case, arguing that
it stands for the proposition that judges must weigh the public
interest in FTC settlements.
At oral argument, according to Consumer Watchdog counsel
Gary Reback, the FTC asserted that the agency needn't consider
the public interest. "I said, 'Are you really taking that
position?'" Reback said. "'How do the five FTC commissioners
feel about that?'" (I left a phone message for both Google's
counsel at Wilson Sonsini Goodrich & Rosati and the FTC's
Justice Department lawyer but didn't hear back.)
Illston, however, ruled Friday that there's no need, under
9th Circuit law, for her to conduct an inquiry into the public
interest. She discounted Consumer Watchdog's citation of the
Circa Direct case, noting that after the 2nd Circuit's
procedural ruling in the Citi case, that court's standard on the
public interest in an agency settlement is in flux. Illston said
her job is to determine that the proposed settlement is fair and
adequate, paying deference to the judgment of the federal agency
that reached it. Under that standard, Illston said, the Google
settlement passes muster.
Reback told me he believes the legal standard Illston
articulated is "problematic," but Consumer Watchdog hasn't
decided whether to appeal.
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