Texas Class Action Aims to Derail Facebook Beacon Settlement–Harris v. Facebook

[Post by Venkat]

In late September, Facebook announced the settlement of a class action challenging its ill-fated “Beacon” program. Facebook set aside $9.5 million to settle the class claims and agreed to set up a privacy foundation. Facebook also agreed to not oppose a request for fees up to $3 million. A group of plaintiffs who filed a separate class action against Blockbuster are trying to object to this settlement.

The California Class Action (Lane v. Facebook): Facebook launched Beacon in late 2007. Consumers were not particularly happy, and in 2008, one set of plaintiffs filed a class action in the Northern District of California. (Lane v. Facebook, Inc.; Justia Page.) After “thorough, extensive, ongoing negotiations,” which started in December 2008, a settlement was finally reached in this lawsuit. (Some details are recounted in the motion to approve settlement: [pdf].)

The Texas Class Action (Harris v. Blockbuster): Meanwhile, a separate set of plaintiffs sued Blockbuster in April 2008 in the Eastern District of Texas, also alleging injuries based on beacon. This lawsuit was filed before the class action in the Northern District of California, and Facebook was not named. Blockbuster argued that the claims were subject to arbitration. In April 2009, Judge Lynn of the Northern District (where the lawsuit was transferred) issued a ruling [pdf] rejecting Blockbuster’s motion to compel arbitration. Judge Lynn found that Blockbuster’s terms of service were “illusory,” because the terms could be unilaterally changed by Blockbuster. See Eric’s post on that ruling. (This ruling raised some eyebrows. See, e.g., BNA’s TechLaw here, and an earlier post from me here.)

The Harris Plaintiffs File Against Facebook in Texas: Apparently the two sets of plaintiffs were not keeping each other apprised of what was going on. The Harris (Blockbuster) plaintiffs recently filed a class action in the Northern District of Texas against Facebook alleging violations of the Video Privacy Protection Act based on Facebook’s implementation of beacon. (Here’s a link to the complaint: [pdf].) The Harris plaintiffs are not too happy about the fact that apparently “[d]espite the requirements of the Local Rules of the Northern District of California, neither Blockbuster nor Facebook informed the District Court in the California Litigation of the pendency of the Texas Litigation.” The Harris plaintiffs allege that Facebook agreed to indemnify Blockbuster of all wrongdoing, including those acts underlying the Harris action, and this agreement was a violation of public policy. They also argue that Facebook “in furtherance of the civil conspiracy outlined [in the complaint], also sought to achieve for Blockbuster what Blockbuster could not achieve for itself – resolution of any [Video Privacy Protection Act] liability through a non-arbitral forum.”

Predictably, the Harris plaintiffs also filed a motion in the Northern District of California seeking leave to intervene and object to the Lane settlement: [pdf]. According to a minute entry, the court heard argument on this motion and will issue a written ruling. The motion to intervene contains one fact which is potentially damning if true. The Harris plaintiffs informed all parties to the Lane action (in April 2008) that the two cases were related and that the parties to the Lane action should bring this to the court’s attention. The parties to the Northern District of California lawsuit apparently declined to do so. On the other hand, I did not come across anything indicating that the Harris plaintiffs informed the court in Texas about the existence of the Lane class action.

What to Make of all This? I don’t have a sense of how viable these arguments are. The dispute smacks of some amount of jockeying between two sets of plaintiffs’ lawyers around the fee award that will be paid out. (Not that there’s anything wrong with this.) My instinct is that the two cases were related enough that it was worth being conservative and informing both judges as to what was going on in the other cases. Blockbuster was named as a party in both cases, although the Northern District of California lawsuit was being defended primarily by Facebook. Also, the proposed settlement in the Northern District of California class action lets Blockbuster off the hook. Since there was a class action going in Texas while the Northern District of California settlement was being negotiated, it strikes me as odd that all of the parties were not folded into one big settlement (particularly since the Texas lawsuit was filed first).

In an earlier post at Circle ID looking at the terms of the Facebook settlement, I mentioned the Blockbuster case, and wondered what would happen if a chunk of plaintiffs opted out and pursued their claims separately. I guess we may have an opportunity to see what happens.

One thing is for sure. Someone could end up getting an earful from one or both of the judges.