There were something like 100 million potential class members in
the Facebook privacy class action whose terms were announced
this weekend. The $10 million Facebook agreed to pay to resolve
claims that it violated users' privacy by rebroadcasting their
"likes" of certain advertisements would have meant just 10 cents
per class member, not even enough to pay for the postage on a
But Facebook users won't even see that much money. Instead,
the entire $10 million will go to charity -- assuming that the
so-called cy pres award withstands the scrutiny of U.S. District
Judge Lucy Koh, the San Jose judge overseeing the case.
Cy pres awards have come under increasing attention at the
federal appellate level in recent months. As we've reported,
courts in the 1st, 5th and 9th Circuits have all questioned the
distribution of class funds to charity, both in cases in which
the money was left over after class members made claims or those
in which the settlement always envisioned a charitable
contribution. Appeals courts have, in the main, looked askance
at donations to charities that aren't associated with the issues
in the underlying class action but are more closely tied to the
lawyers or trial judges involved in the litigation.
Facebook and plaintiffs' lawyers at The Arns Law Firm and
Jonathan Jaffe Law have not said which charities will receive a
cut of the $10 million settlement. But Facebook's lawyers at
Cooley (who settled the class action on the eve of a class
certification hearing) are likely to pay close attention to a
9th Circuit decision in November that rejected a settlement with
AOL that called for $110,000 to go to charities unrelated to the
concerns of its customers, who had sued over promotional
messages included in their emails.
The AOL objector was represented by Ted Frank, the class
action gadfly who most recently won a 7th Circuit ruling that
tossed a derivative suit against Sears. Frank, a frequent critic
of the cy pres process, told On the Case by email that there are
"rare occasions" when a settlement designed entirely as a cy
pres award -- like the proposed Facebook deal -- is appropriate.
But in his view, the Facebook settlement includes insufficient
protections to prevent the class's money going to charities
associated with the lawyers in the case.
Class members, Frank noted, were presumably entitled to
statutory damages of $750 each under California's consumer laws.
"I would be very concerned if the attorneys settled a $750/class
member claim for $0.10 of cy pres per class member (paid over
several years) yet got a full fee," his email said. "I'd also be
concerned if there was clear sailing and a reversion to Facebook
rather than to the cy pres fund."
But Brian Fitzpatrick, a law professor at Vanderbilt
University who studies class actions, said the cy pres
settlement is likely the best outcome for the class. In a
declaration supporting the accord, a mediator overseeing
settlement talks said class members' prospects were "uncertain,"
given the "untested theory of liability." Plaintiffs' lawyers
might not have been able to overcome Facebook's arguments that
its user agreements implied consent to appear in sponsored
stories and that the California state law at issue was not
intended to be used in class actions. Facebook would also have cited the U.S. Supreme Court's 2011 ruling in Wal-Mart v. Dukes,
which, according to a Facebook motion, made class certification
in this case "clearly untenable."
Given those obstacles, Fitzpatrick said, the settlement will
likely be approved as long as the money is going to a charity
that will address issues related to the lawsuit. "The important
thing is the defendant is forced to pay someone," Fitzpatrick
said. "That creates the deterrence to prevent a company from
doing something like this in the first place."
A hearing on preliminary approval of the settlement is
scheduled for July 12. Facebook, represented by Michael Rhodes
of Cooley, declined to comment. Plaintiffs' counsel Jonathan
Davis of The Arns Law Firm also declined to comment.
(Reporting by Nate Raymond)
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