Vanessa Blum covers California litigation for The Recorder, an American Lawyer affiliate.
The U.S. Court of Appeals for the Ninth Circuit is letting stand Facebook Inc.’s $9.5 million settlement resolving privacy claims. But a conservative bloc of judges isn’t happy about it.
The court issued an order Tuesday denying en banc rehearing of last year’s panel decision upholding a settlement in Lane v. Facebook, the suit that targeted the site’s discontinued "Beacon" feature. The settlement directs more than $6 million to a newly created organization for online privacy on top of attorney fees.
Six dissenters warned the settlement does not meet the circuit’s standards and called the refusal of en banc review an "unfortunate failure" that would send mixed messages on the criteria for cy pres settlements that distribute funds to charities rather than class members.
"I regret the muddle this case makes of our cy pres jurisprudence," wrote Judge Milan Smith Jr. in a dissent joined by Chief Judge Alex Kozinski and Judges Diarmuid O’Scannlain, Jay Bybee, Carlos Bea and Sandra Ikuta. The dissenters are all Republican appointees.
In a series of recent rulings, the Ninth Circuit has tightened its scrutiny of cy pres payments demanding they go to causes that benefit class members and advance objectives of the suit.
"By approving a settlement that fails both criteria, however, the majority in this case creates a significant loophole in our case law that will confuse litigants and judges, while endorsing cy pres settlements that in no way benefit class members," Smith wrote.
Beacon was a short-lived Facebook feature that broadcast details of users’ personal lives. Facebook ceased the program as part of the settlement, which was approved in 2009 by U.S. District Judge Richard Seeborg in San Francisco.
The settlement also included about $3 million in legal fees for plaintiffs lawyers, led by Scott Kamber of KamberLaw in New York. Facebook was represented by Cooley partner Michael Rhodes.
Last year, picking up on the increased scrutiny from the Ninth Circuit, Seeborg rejected a proposed settlement in a separate Facebook class action that included $10 million in charitable donations. Seeborg ultimately approved a revised settlement deal that provided for cash payments to class members. In the interim, a Ninth Circuit panel ruled 2-1 to approve the Beacon settlement.
The dissenters faulted the Beacon settlement for providing funds to the Digital Trust Foundation, a newly created organization with no record of service. The organization’s promise to fund and sponsor educational programs related to online privacy isn’t good enough, Smith wrote.
"If fashioning an open-ended, one-sentence mission statement is all it takes to earn cy pres settlement approval in our court, we have completely eviscerated the meaning of our previously controlling case law," he wrote.
His sharp words may be intended for the U.S. Supreme Court, as dissenting and concurring opinions from the denial of en banc review are widely perceived as a call to the justices to review a Ninth Circuit decision.