U.S. Supreme Court Declines to Hear Appeal over Facebook Beacon Privacy Settlement

U.S. Supreme Court Declines to Hear Appeal over Facebook Beacon Privacy Settlement

 WASHINGTON, D.C. — (Mealey’s) In its Nov. 4 order list, the U.S. Supreme Court denied certiorari in a petition regarding the settlement of a privacy class action over Facebook Inc.’s short-lived “Beacon” program, with Chief Justice John Roberts noting that although there are “fundamental concerns” regarding the growing trend of cy pres remedies in class actions, the issues presented in the current case are too narrowly focused to provide an opportunity for the high court to address those issues (Megan Marek v. Sean Lane, et al., No. 13-136, U.S. Sup.; See March 2013, Page 11).

Sharing Data

A group of consumers led by lead plaintiff Sean Lane sued Facebook and several companies that participated in its Beacon advertising service in the U.S. District Court for the Northern District of California in August 2008. 

For about a month, beginning in November 2007, the Beacon program would collect information on the actions of Facebook users on the websites of participating advertisers.  When a user performed a particular “trigger” activity, such as making a purchase or posting a comment, Beacon would report the activity to Facebook.  This would automatically generate a posting on the user’s Facebook profile reporting, for example, that this person had rented a particular movie.  After Beacon was widely criticized, Facebook changed its default settings from “opt out” to “opt in,” requiring a user to affirmatively choose to have this information collected and shared.

The plaintiffs claimed that Facebook shared information about users’ activities with advertisers without their permission.  Facebook was accused of collecting and sharing personal data about its users without their permission to enhance the company’s profitability and revenue through advertising.  Also named in the lawsuit were some of the partner advertisers in the Beacon program.

The plaintiffs sought damages for violations of the Electronic Communications Privacy Act, the Video Privacy Protection Act and the Computer Fraud and Abuse Act, as well as related California state law claims.  In September 2009, the plaintiffs moved for approval of a $9.5 million settlement agreement with Facebook.  Final approval was granted by the District Court in March 2010.

Settlement Terms

Under the terms of the settlement, Facebook would permanently terminate the Beacon program and pay a total of $9.5 million in exchange for the release of the plaintiffs’ class claims.  Of the $9.5 million payout, approximately $3 million would be used to pay attorney fees, administrative costs and incentive payments to the class representatives.  Facebook would use the remaining $6.5 million or so in settlement funds to set up a new charity organization called the Digital Trust Foundation (DTF), which would be dedicated to educating the public about online privacy.  The DTF would be run by a three-member board of directors, one of which would be a representative of Facebook.

Settlement Upheld

Objectors to the settlement, led by Megan Marek, claimed that the settlement agreement’s cy pres structure was impermissible because the parties elected to create a new grant-making entity rather than give the cy pres funds to an already-existing online privacy organization.  She also objected to the inclusion of a senior Facebook employee on the DTF’s board and to the board’s “nearly unfettered discretion in selecting fund recipients.”  Marek also contended that the overall settlement amount was too low.  The objectors said the settlement essentially insulated itself from any class claims arising from the Beacon program.  The District Court rejected the objections and approved the settlement in March 2012.  The objectors appealed.

On appeal, the Ninth Circuit U.S. Court of Appeals upheld the settlement in a split February 2013 ruling, with the majority finding that the opposition amounted to “general dissatisfaction with the outcome” of the settlement.  Six of the judges dissented, taking issue with the growing practice of cy pres settlements that they said “creates a significant loophole” in class action case law by promoting settlements that do not benefit the majority of class members.

Petition For Certiorari

Marek filed her petition for a writ of certiorari in May.  She said the Ninth Circuit’s approval of the settlement represented a split with several other circuit courts.  She presented the question of “[w]hether, or in what circumstances, a cy pres remedy provides no direct relief to class members that comports with the requirements of [Federal] Rule {of Civil Procedure] 23(e)(2) that a settlement that binds class members must be ‘fair, reasonable, and adequate.’”

Justice Roberts stated that Marek’s petition “is focused on the particular features of the specific cy pres settlement at issue” and, as such, granting certiorari “might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies in class action litigation.” 

These concerns, Justice Roberts said, include “when, if ever, such relief should be considered,” assessing a settlement’s fairness, how “existing entities should be selected,” the roles of judges and parties in shaping settlements and “how closely the goals of any enlisted organization must correspond to the interests of the class.”

Justice Roberts said that the high court “has not previously addressed any of these issues” and that because cy pres remedies are increasingly used in class actions, the high court “may need to clarify the limits on the use of such remedies” in a future suitable case.

Marek is represented by Theodore H. Frank and Adam Ezra Schulman of the Center for Class Action Fairness in Washington.  Scott A. Kamber of KamberLaw in New York represents Lane and the class.  Facebook is represented by Kristin Linsley Myles, Rosemarie T. Ring, Jonathan H. Blavin and Michael J. Mongan of Munger, Tolles & Olson in San Francisco.

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