Judge Seeborg Rejects Sponsored Stories Settlement For Now — Fraley v. Facebook

[Post by Venkat Balasubramani]

Fraley v. Facebook, C 11-1726 RS (N.D. Cal.; Aug 17, 2012)

We’ve covered the Facebook Sponsored Stories litigation before. It’s a putative class action arguing that Facebook improperly used the likeness and personality rights of its users to promote products and services. After extensive negotiations, the parties came to a deal, including (1) injunctive relief in the form of some changes to Facebook’s Sponsored Stories program; and (2) cy pres payment of $10 million. And of course, attorneys’ fees up to a certain amount (Facebook said it wouldn’t object to any request up to $10 million). The users did not get any monetary recovery. In considering a motion for preliminary approval for the settlement, Judge Seeborg says no.

He identifies the following issues with the proposed settlement:

– It’s unclear that cy pres is appropriate because it’s not clear it would be impractical to distribute the potential settlement payment. The parties argued that it would be impractical to divvy up $10 million among 70 million individuals. The court says this alone is not enough to justify a payout of zero dollars to the class. The outer range of possible class recovery is also something that should be considered, according to the court. If each plaintiff is entitled to $750 in statutory damages, the amount of available damages if the case went to trial may be much greater than the $10 million estimated by the parties.

– The court also questions whether the amount of the cy pres payment is appropriate. The court acknowledges that it’s appropriate to estimate damages and apply a discount, but the number shouldn’t be just “plucked from thin air.” A related problem is that Facebook’s estimate assumes a discount based on the small number of plaintiffs who actually file claims. The court says that this gives Facebook a double discount.

– The court balks at the fees – up to $10 million.

– It’s unclear what exactly Facebook is signing up for in terms of injunctive relief. The court wants more information on this.

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You don’t get the sense from the order that the settlement is dead. This is basically a warning shot from the court; maybe another way of saying that the parties should come back and dress up their settlement a little more nicely. While courts have scrutinized settlements more closely, cy press settlements are still an acceptable way of handling class action payments.

The court’s statement that the lawsuit is “too big to settle” is an interesting one. It’s tough to square this conclusion with the settlement number. If the possible range of damages is really that big, does it make sense for plaintiffs to agree to such a discounted amount in settlement? This brings one back to the issue of whether the settlement is in the class’ interest. Because the money isn’t even going to the class, that’s sort of a moot point. (The number that’s most important is probably the attorneys’ fees figure, which makes the whole thing look like a toll that Facebook pays to plaintiffs’ lawyers. Judge Seeeborg doesn’t say this explicitly but he hints at it.)

There’s a side-dispute about the identity of the cy pres fund recipients, and someone asked the court to expand the circle of entities who would be getting payouts but the court refused. On a related note, Eriq Gardner suggests that rejection of the proposed settlement is a victory for Hollywood because the cy pres recipient organizations are firmly in the anti-content camp: “Why Hollywood Wins in Judge’s Rejection of Facebook Privacy Settlement.” I think this reads a bit too much into the motivations and pliability of the cy pres recipients.

Most important I think is the scope of the injunctive relief, and this is where the settlement arguably falls short for users. As a previous post on Fraley mentioned, this lawsuit did not put a stop to Facebook’s Sponsored Stories initiative. In fact, Facebook is expanding its love affair with Sponsored Stories. You would think any negotiated injunctive relief that addressed changes to this program would allow users to quickly and easily opt-out, but I don’t think that’s the case. Marc Rotenberg from EPIC made this point in a letter to the court–the letter is well worth reading: Fraley v. Facebook proposed settlement, No. 11-01726 (letter dated July 12, 2012).

There’s a final aspect of the settlement that is worth noting: the push for confidentiality around Facebook’s revenue figures. While the parties are still wrangling with the court over what exactly can be sealed (Judge Seeborg told the parties to go back to the drawing board on their initial request to seal), the revenue figures for Sponsored Stories should be made available, at least to potential class members. Of course, given the size of the potential class, that’s pretty much the same as making it publicly available. It’s interesting (and understandable) for Facebook to claim that it shouldn’t have to disclose specifics, but people need enough information to meaningfully evaluate the settlement. It would be nice for the court to take a hard look at the parties’ request to seal the financial figures.

[A final procedural note, plaintiffs in a separate class action that involved minors moved to intervene in order to object to the settlement. The court said that intervention is moot because the other plaintiffs could file an objection regardless of whether they are parties to the suit. The motion for intervention makes a few points that are worth considering but they didn’t get much play in the overall discussion.]

Other coverage:

Eriq Gardner: Why Hollywood Wins in Judge’s Rejection of Facebook Privacy Settlement

David Kravets: Judge Rejects Facebook ‘Sponsored Stories’ Lawsuit Settlement

Kash Hill: Judge Kicks Facebook’s ‘Sponsored Stories’ Settlement To The Curb

Jeff John Roberts: “Judge rejects Facebook ad settlement, cites 10 million dollar payout”

Previous posts:

Facebook “Sponsored Stories” Publicity Rights Lawsuit Survives Motion to Dismiss–Fraley v. Facebook