Facebook's Cy Pres Privacy Settlement Avoids Ninth Circuit En Banc Review

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The en banc U.S. Court of Appeals for the Ninth Circuit Feb. 26 declined to rehear a panel decision upholding a $9.5 million settlement of claims that Facebook Inc. infringed users' statutory privacy rights by tracking and publishing their activities on third-party websites without consent (Lane v. Facebook Inc., 9th Cir., No. 10-16380, 2/26/13).

In dissent, Judge Milan D. Smith Jr. argued that the court should have granted an en banc rehearing to resolve complaints about the adequacy of the recipient of cy pres funds in this case--a newly minted privacy organization with connections to the defendant, and no privacy rights advocacy to its credit.

Privacy Class Action Brought

The plaintiffs in the class action alleged that Facebook and a number of advertisers violated the federal Electronic Communications Privacy Act, 18 U.S.C. § 2510, the Computer Fraud and Abuse Act, 18 U.S.C. § 1030, the Video Privacy Protection Act, 18 U.S.C. § 2710, and California state law when Facebook tracked users' activities on third-party websites and published that information on their Facebook pages (7 PVLR 1226, 8/18/08).

The parties entered into a settlement under which the settlement funds would be used to promote the interests of class members, in this case using the services of a newly formed organization, the Digital Trust Foundation.

Class objectors took issue with the settlement, citing the presence of a Facebook employee on the three-member board of the new foundation. They also argued that the settlement amount was too low because Facebook could have been liable for far more substantial damages under the VPPA.

Cy Pres Settlement Approved

Nonetheless, the district court approved the settlement (9 PVLR 432, 3/22/10), and a three-judge panel of the Ninth Circuit upheld that decision (11 PVLR 1440, 9/24/12).

The panel said that Fed. R. Civ. P. 23(e) simply required that class action settlements be “fair, reasonable, and adequate.” It said predicting what the VPPA damages might be was speculative and contingent and that nothing in the record indicated that the district court judge abused his discretion in approving the settlement.

In the current ruling, the circuit court refused to rehear the matter en banc.

In dissent, Smith wrote that circuit case law places a heavy emphasis on the designated charity's record of service.

Here, he said, the Digital Trust Foundation was new, with no record of service and only a nonspecific mission statement in its favor. “If fashioning an open-ended, one sentence mission statement is all it takes to earn cy pres settlement approval in our court, we have completely eviscerated the meaning of our previously controlling case law.”

Smith was joined in dissent by Chief Judge Alex Kozinski, and by Judges Diarmuid F. O'Scannlain, Jay S. Bybee, Carlos T. Bea and Sandra S. Ikuta.

Michael H. Page, of Public Citizen Litigation Group, in Washington, and Steven F. Helfand, of Helfand Law Offices, in San Francisco, argued for the class objectors. Scott A. Kamber, of KamberLaw LLC, in New York City, argued for the plaintiffs. Michael G. Rhodes, of Cooley LLP, in San Francisco, argued for the defendants.

Full text of the court's opinion is available at http://www.bloomberglaw.com/public/document/Ginger_McCall_et_al_v_Facebook_Inc_et_al_Docket_No_1016380_9th_Ci.