Ninth Circuit Approves $9.5 Million Cy Pres Settlement in Facebook Lawsuit

Friday, March 1, 2013, by Anne Marie Tosco

In December of 2009, Facebook settled a class action lawsuit aimed at its Beacon program. Beacon launched in November of 2007 and published Facebook users’ activity on third-party websites, including Blockbuster, Fandango, Gameday, Hotwire, Overstock.com, STA Travel, and Zappos.com. Plaintiffs alleged, “Facebook and its affiliates did not give users adequate notice and choice about Beacon and the collection and use of users’ personal information.” Facebook agreed to shut down the Beacon program and to donate $9.5 million to the Digital Trust Foundation, a nonprofit created by Facebook itself that supports online privacy.

This cy pres award to a charity related to the issue in the case rather than to the 3.6 million class members themselves sparked further controversy that might have finally come to an end on February 27, 2013, when a majority of the United States Court of Appeals for the Ninth Circuit voted not to re-hear the case. Plaintiffs objected to the settlement on grounds that the class would receive no monetary compensation, that the class would receive no other relief as the Beacon program had already nearly been eliminated at the time of settlement, and that Facebook’s creation of a privacy foundation was of no value to the class because Facebook would retain influence over the foundation, which the plaintiffs believed was unneeded. After an appeals court approved the settlement 2-1, plaintiffs asked for their case to be reheard by a larger appeals panel, and took the case to the Ninth Circuit.

A majority of Ninth Circuit judges voted not to re-hear the case, but six judges who did vote to have the care re-heard wrote a dissent vilifying the settlement. The judges dissented on grounds that:

[B]y approving a settlement that failed to be reasonably certain to benefit the class or advance the objectives of the statute relied upon in bringing suit, the majority in this case created a significant loophole in this Circuit’s case law that will confuse litigants and judges, while endorsing cy pres settlements that in no way benefit class members.

The dissenting judges pointed out that Ninth Circuit case law required cy pres settlements to “1) be reasonably certain to benefit the class, and 2) advance the objectives of the statutes relied upon in bringing suit,” and felt Facebook’s cy pres settlement was neither. The fact that the Digital Trust Foundation was begot of the settlement and had “no record of service,” along with the fact that the charity’s mission statement was so open-ended as to leave class members wanting with regard to the requisite reasonable certainty that they would benefit from the Digital Trust Foundation’s activities, drove the dissenting judges to lament, “we have completely eviscerated the meaning of our previously controlling case law.” Also, because the Digital Trust Foundation is a Facebook creation, Facebook users can’t expect to protect their privacy, which is the issue linking the class claims and the cy pres distribution, as Facebook already has “unfettered access” to their records. The judges note that the charity teaching Facebook users not to use Facebook seems unlikely.

It remains to be seen whether the Digital Trust Foundation will be effective at “protecting consumers from the precise wrongful conduct about which plaintiffs complain,” and if other courts will follow the Ninth Circuit’s lead in permitting cy pres settlements in similar online privacy litigation.