Antitrust Law Daily Wrap Up, PRIVACY NEWS – High court denies review in Facebook class action settlement dispute, (Nov 6, 2013)

By Edward L. Puzzo, J.D.

The U.S. Supreme Court has denied a petition for certiorari by class members objecting to the provisions of a $9.5 million settlement reached between Facebook and class members to resolve litigation over Facebook’s Beacon program, which revealed information to a Facebook member’s “friends” when they took certain actions (Marek v. Lane, Dkt. 13-136, November 4, 2013).

The litigation arose after social networking site Facebook instituted its Beacon program in 2007. Under this program, when Facebook members took certain actions, such as ordering products from online retailers affiliated with the program, their activities were communicated to all their Facebook “friends” unless they acted to opt out. In many cases, the purchasing information, such as which movies the member had rented, was information the member did not intend to have publicly disseminated.

A class action was instituted against Facebook on the basis of the Beacon program. A settlement was reached which, under the cy pres doctrine, awarded approximately three-quarters of the $9.5 million settlement amount to a newly-formed grant-making privacy advocacy organization rather than to the unnamed class members, and the remainder in fees to class counsel. Objections to the proposed settlement were rejected by the district court and the Ninth Circuit Court of Appeals.

Certain class members affected by the settlement then petitioned the U.S. Supreme Court for certiorari, alleging that the settlement was not “fair, reasonable and adequate” as required by Federal Rule of Civil Procedure 23(e)(2). Cy pres awards, the petitioners argued, deserved special scrutiny because they could give rise to tacit collusion between defendants looking for expeditious settlements and class counsel seeking attorneys’ fees without objection, resulting in the interests of class members becoming secondary. Petitioners also objected because the settlement did not limit Facebook’s ability to reinstitute a program similar to Beacon in the future, and because one of the three directors of the privacy advocacy organization that received the settlement funds was a director at defendant Facebook. Petitioners also claimed that the Ninth Circuit’s acceptance of cy pres awards as equivalent to direct monetary recovery by class members was in conflict with other circuits, who found no such equivalency, which could give rise to forum-shopping in other nationwide class action litigation.

In his discussion of the Supreme Court’s denial of certiorari, Chief Justice John Roberts agreed with the petitioners that the increased use of cy pres settlements in class action cases was worthy of Supreme Court review. The issues in this particular case, however, would not provide the court with the opportunity to address more fundamental concerns, such as when the cy pres remedy in class action litigation should be considered, how to assess its fairness, and whether new entities can be established as part of the remedy. Therefore, certiorari was denied.

Companies: Facebook, Inc.

News: Privacy CaliforniaNews