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Nov. 4 --The U.S. Supreme Court Nov. 4 decided not to hear a petition challenging a $9.5 million class action settlement that resolved claims that Facebook Inc.'s Beacon program violated users' privacy, but Chief Justice John G. Roberts Jr. wrote a statement indicating his interest in the “fundamental concerns” surrounding cy pres settlements (Marek v. Lane, 2013 BL 304474, U.S., No. 13-136, certiorari denied 11/4/13).
Roberts said that cy pres remedies are a “growing feature of class action settlements,” and he noted that the court has not addressed any of the issues implicated by these remedies.
A cy pres recovery describes class action settlement funds that are distributed in a way that indirectly benefits class members because it is not feasible to compensate the class members directly.
“In a suitable case, this court may need to clarify the limits on the use of such remedies,” Roberts said.
Scott Nelson, an attorney at the Public Citizen Litigation Group in Washington, who represented class member and objector Ginger McCall, told Bloomberg BNA Nov. 4 that Roberts's statement may serve the “salutary purpose” of reminding lower courts that the Supreme Court has its eye on this issue. That may prevent future bad decisions and obviate the need for Supreme Court review, he said.
“One thing about the Chief Justice's statement struck me as particularly refreshing,” Nelson said. “It appears to recognize that this was a case where a class action could have served a valuable function in addressing a real wrong suffered by many people, had it not been for the unfortunate way it was settled.”
Nelson said Roberts also noted “with apparent disapproval” that the scope of the settlement release was broader than the claims originally asserted in the suit.
“That is often a problem we see in settlements, and maybe the Chief Justice's having shone a light on it may lead some lower courts to look at such releases more closely,” he said.
Facebook spokesperson Jodi Seth told Bloomberg BNA Nov. 4, “We are pleased that the case is resolved and look forward to establishing the Digital Trust Foundation, which will fund worthy projects that will help protect and improve Internet users' privacy, safety and security.”
The suit, brought by 19 plaintiffs in August 2008, alleged that Facebook's Beacon program tracked users' activities on third-party websites and published that information on their Facebook pages unless the users opted out .
The plaintiffs sought damages and equitable relief, alleging violations of: 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.
Negative publicity over the Beacon program resulted in a public outcry, and Facebook changed the Beacon program a month after its launch so that the program's default setting was opt-in, rather than opt-out.
The suit's proposed class included those Facebook users whose information had been obtained by Beacon during the month when the program required users to opt out.
In September 2009, the parties reached a settlement that provided no monetary damages to the class but set up a $6.5 million cy pres fund that would establish a grant-making organization, the Digital Trust Foundation, with a mission to educate the public about online privacy.
The foundation would be run by a three-member board of directors, including Facebook's public policy director.
The class, which agreed in the settlement to release its claims against Facebook, was expanded for settlement purposes to include those whose information had been disseminated when Beacon became an opt-in program.
The settlement provided that Facebook would end the Beacon program, but counsel acknowledged at the fairness hearing that Facebook could revive the program so long as it changed the name.
The district court awarded the plaintiffs' counsel nearly $2.5 million in fees. The remainder of the settlement went to expenses and incentive awards for the class representatives.
Class members McCall, Megan Marek, Benjamin Trotter and Patricia Burleson objected to the settlement, saying that the presence of a Facebook employee on the three-member board of the new foundation created an unacceptable conflict of interest.
They also argued that the settlement amount was too low because Facebook potentially could have been liable for more substantial damages under the VPPA.
The district court approved the settlement , and a split panel of the U.S. Court of Appeals for the Ninth Circuit affirmed (Lane v. Facebook Inc., 696 F.3d 811 (9th Cir. 2012) ).
The Ninth Circuit majority said that Federal Rule of Civil Procedure 23(e) simply required that class action settlements be “fair, reasonable, and adequate.” The court said that predictions about potential VPPA damages were speculative and that the presence of a Facebook employee on the board of the cy pres recipient did not preclude settlement approval.
In February 2013, the Ninth Circuit declined to rehear the case en banc, but six judges joined in a dissenting opinion stating that the cy pres recipient selection in this case undermined the circuit's case law . The Ninth Circuit's precedents require a showing that the class members will be benefited by the recipient's works, and the recipient must have a record of service, the dissent said.
The dissent said that here, the Digital Trust Foundation had no record of service, and only an open-ended mission statement.
Marek petitioned the Supreme Court to consider the question, “whether, or in what circumstances, a cy pres remedy that provides no direct relief to class members comports with the requirements of Rule 23(e)(2) that a settlement that binds class members must be 'fair, reasonable and adequate' ” .
Roberts's statement outlined the history of the case and said that he agreed with the court's decision to deny the petition for certiorari.
This petition was focused on the features of this particular settlement, and it may not have afforded the court the opportunity to address more “fundamental concerns” about cy pres recoveries, Roberts said. Those concerns, he said, included:
• when, if ever, such relief should be considered;
• how to assess its fairness as a general matter;
• whether new entities may be established as part of such relief;
• if not, how existing entities should be selected;
• what the respective roles of the judge and parties are in shaping a cy pres remedy; and
• how closely the goals of any enlisted organization must correspond to the interests of the class.
Theodore H. Frank, of the Center for Class Action Fairness in Washington, who represented petitioner and objector Marek, did not respond to Bloomberg BNA's request for comment. Nelson was counsel of record for objector McCall. Scott A. Kamber, of KamberLaw LLC in New York, who was counsel of record for the plaintiff, also didn't respond to Bloomberg BNA's request for comment. Kristin Linsley Myles, of Munger Tolles & Olson LLP in San Francisco, was counsel of record for Facebook.
To contact the reporter on this story: Jessie Kokrda Kamens in Washington at email@example.com.
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Full text of Justice Roberts's statement is available at http://www.bloomberglaw.com/public/document/Marek_v_Lane_No_13136_2013_BL_304474_US_Nov_04_2013_Court_Opinion.
Full text of the Ninth Circuit's September 2012 opinion is available at http://pub.bna.com/eclr/10cv16380_92012.pdf.
Full text of the Ninth Circuit's February 2013 opinion is available at http://www.bloomberglaw.com/public/document/Ginger_McCall_et_al_v_Facebook_Inc_et_al_Docket_No_1016380_9th_Ci.
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