By Nate Raymond
The U.S. 9th Circuit Court of Appeals hasn't been much of a fan
of class action settlements that deliver money to charities
rather than to actual class members. In the last year, the court
has rejected two so-called cy pres settlements, including one in
a cyber privacy case. But it's an appellate court's prerogative
to change its mind.
On Thursday, a divided panel upheld a lower court's approval
of a $9.5 million privacy class action settlement with Facebook
that gives no money to Facebook users and $6 million to a newly
established charity promoting online privacy. Another $2.36
million is earmarked for plaintiffs' lawyers.
Now the question is whether the 9th Circuit's stamp of
approval in this case can save yet another Facebook cy pres
class action settlement -- this one a $20 million deal resolving
claims related to Facebook's "Sponsored Stories" feature -- that
was resoundingly rejected by U.S. District Judge Richard
Seeborg of San Francisco in August.
Michael Rhodes of Cooley, who represents Facebook in both
class actions, hinted Friday that the new 9th Circuit opinion
might come into play in reviving the Sponsored Stories
settlement. "We are digesting the opinion, as well as Judge
Seeborg's order (in the other case), and are deciding what that
means in the Sponsored Stories litigation," Rhodes said.
The settlement addressed in Thursday's appellate opinion
arose from a class action accusing Facebook of violating users'
privacy when it launched "Beacon," a defunct 2007 program that
broadcast users' website history with their friends. Objectors
to the settlement had challenged the assignment of $6 million to
a newly created charity, the Digital Trust Foundation, whose
three-member board would include a Facebook-employed designee.
But Judge Procter Hug, writing for the 9th Circuit majority,
said parties aren't required to pick charities based on what the
court or class members might want. "On the contrary, such an
intrusion into the private parties' negotiations would be
improper and disruptive to the settlement process," Hug wrote.
As you might expect, that sat better with some of the
parties in the case than others. Plaintiffs' counsel Scott
Kamber of Kamber Law said in a statement that he was "gratified
that the 9th Circuit saw the fairness of this settlement,"
noting that the ruling means the appeals court still considers
cy pres relief to be a benefit to class members.
But Allison Zieve, director of the Public Citizen Litigation
Group, which represented the objectors, said that the ruling
didn't acknowledge legitimate problems with the designated
charity. "To give the defendant in a case about invading users'
privacy a primary role in spending class funds to protect users'
privacy seems counter-intuitive, to put it mildly," Zieve said
in a statement. "We are surprised and disappointed that the
court considered the settlement to be fair and adequate."
Interestingly, the same district court judge oversaw both
the Beacon and Sponsored Stories settlements, approving one and
rejecting the other. The rejected Sponsored Stories deal, which
purported to resolve claims that Facebook violated users'
privacy by publicizing their "likes" of advertisements, would
have sent $10 million to various charities while allowing the
plaintiffs' lawyers to apply for up to $10 million in fees.
In refusing to approve the settlement, Seeborg didn't rule
out all cy pres class actions. Instead, the judge asked the
class and Facebook to submit a revised motion for approval of
the settlement that addresses their justification for a deal
that delivers no money to the millions of potential class
members in the case. He also asked for briefing on whether some
cases are just too big to ever settle.
The Beacon settlement could provide a roadmap for a renewed
Sponsored Stories deal, although there's a significant
difference between fees for plaintiffs' lawyers in the two
cases. In Beacon, Seeborg awarded attorneys fees of just 25
percent of the final settlement fund; the Sponsored Stories
settlement that he rejected called for plaintiffs' lawyers to
potentially receive as much as the designated cy pres charities.
Seeborg has said he has "serious concerns" with that math.
(Robert Arns of The Arns Law Firm, a lawyer for the plaintiffs
in the Sponsored Stories litigation, didn't respond to a request
And if there are objectors to the revised Sponsored Stories
settlement, Facebook may still have to contend with 9th Circuit
judges who have previously rejected cy pres deals. Five judges
on the court are on the record as expressing their concerns at
least once, including Judge Andrew Kleinfeld, who dissented in
Thursday's ruling. "This settlement perverts the class action
into a device for depriving victims of remedies for wrongs,
while enriching both the wrongdoers and the lawyers purporting
to represent the class," he wrote.
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