SACRAMENTO — The U.S. Court of Appeals for the Ninth Circuit on Wednesday upheld a $20 million class action settlement that resolved privacy claims against Facebook Inc. over a feature that posted users names and images along with advertising promotions.
The so-called “sponsored stories” settlement, approved in 2013 by U.S. District Judge Richard Seeborg of the Northern District of California, allotted $15 to each claimant and reserved roughly $2 million for cy pres recipients.
Objectors had hoped the case would be a vehicle to limit the use of charitable donations as part of class action settlements. But Circuit Judges William Fletcher and Marsha Berzon sanctioned the deal’s cy pres component, finding no fault in Seeborg’s conclusion that the nonprofits selected to receive donations were suitable and worked to advance causes closely tied to the case.
The objectors, led by Massachusetts lawyer John Pentz, landed their argument with Judge Carlos Bea, who authored a seven-page dissent calling the cy pres award arbitrary. Bea said the district court could have increased the payout to claimants instead of providing “a huge windfall” to the designated nonprofits.
“I would not undo the entire agreement, he wrote. “Instead I would vacate the district court’s decision and remand with instructions to set a per-claimant distribution that would exhaust the net settlement fund.”
Bea also wrote that he would have granted legal fees to objector Sam Kazman, general counsel of the Competitive Enterprise Institute, who successfully petitioned to reduce the fees awarded to class counsel. Seeborg should have considered objector Kazman’s billing records, Bea asserted, before dismissing his fee request as de minimis.
Facebook was represented by attorneys from Cooley and Munger, Tolles & Olson in the appellate litigation. Counsel referred requests for comment to Facebook, which issued a one-sentence response: “We are pleased with the court’s ruling.”
In 2011, plaintiffs challenged Facebook’s Sponsored Stories feature for publicizing users’ “likes” of advertisers without any compensation or method to opt out.
Ruling on a set of objections raised by attorneys for underage Facebook users, the panel concluded that the settlement “does not clearly authorize continued violations of” privacy laws by allowing the site to continue using kids’ names and images in advertising.
Under the 2013 agreement, Facebook made changes to its terms and conditions that, despite the elimination of Sponsored Stories in 2014, still allow the company to use kids’ actions on the social network in advertising unless a parent objects.
“It is not clear whether Facebook’s use of minors’ names and likenesses in Sponsored Stories violated California law,” the panel wrote. “It is also not clear whether the settlement at issue—which provides more protection for minors from Facebook’s advertising practices than existed before—violates state law. The district court did not abuse its discretion in approving the settlement in the face of this uncertainty.”
Scott Michaelman, an attorney with the Public Citizen Litigation Group in Washington, D.C., who represents parents of teenage class members, said his group was dismayed.
“We’re disappointed that the court approved the settlement that allows Facebook to continue violating the laws in seven states that require parental consent,” Michaelman said.
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