Ninth Circuit Denies Rehearing in Facebook Settlement Case

The U.S. Court of Appeals for the Ninth Circuit today refused to reconsider its opinion last fall upholding the settlement of a class action asserting claims based on Facebook's "Beacon" program, under which Facebook posted information about purchases and video rentals Facebook users made from companies that participated in the program. The settlement provides for no payments to members of the class other than “incentive” payments to the class representatives. Instead, it provides for a so-called "cy pres" payment of several million dollars to a newly created foundation that supposedly will be dedicated to educating internet users about protecting their privacy. The court of appeals upheld the settlement in an opinion issued last September, rejecting objecting class members' claims that the cy pres payment to the new foundation would not benefit them.

 Today's decision denies a request that the court rehear the case "en banc"—that is, with the participation of many more of the court’s judges than the three-judge panel that originally decided the case by a 2-1 vote. Six active judges of the court filed a dissent from the denial of rehearing; Senior Judge Andrew Kleinfeld, the dissenter on the original panel, also supported granting rehearing. However, because there are 28 active judges on the Ninth Circuit, 15 votes are normally needed to obtain rehearing.

The dissent from the denial of rehearing was written by Judge Milan Smith and joined by the court’s Chief Judge, Alex Kozinski, as well as Judges O’Scannlain, Bybee, Bea, and Ikuta. Although short, it is punchy and to the point. It observes that the decision to uphold the settlement is inconsistent with previous decisions of the court requiring that organizations receiving cy pres distributions have a track record of service supporting interests of the class. The newly formed foundation in this case, by contrast, “has no record of service,” but is “simply a bespoke creation of this settlement” with an extremely vague mission statement that “says absolutely nothing” about whether class members will truly benefit from this settlement; it simply promises that [the foundation] will do some ‘stuff’ regarding some more ‘critical stuff.’”

The dissent also points out that the foundation’s claimed mission is unrelated to the purposes of the laws on which the claims in the case were based. The lawsuit claimed that Facebook had violated its users’ privacy rights by providing unauthorized access to information about them, but the foundation’s stated purpose is to provide education about how privacy can be protected through “user control.” As the dissent points out, the claims in the case “have nothing to do with users’ lack of ‘education’ or ‘control,’” but “relate to misconduct by Internet companies that wrongfully exposes private information in ways that even educated users cannot anticipate, prevent, or direct.”

The court’s denial of rehearing reflects a significant retreat from the Ninth Circuit’s commitment to protecting class members against cy pres settlements that fail to offer them meaningful relief. The judges who would have rejected the settlement come exclusively from relatively conservative Republican appointees on a court that now has a majority of Democratic appointees. That lineup suggests that protection of class members has become something of a partisan issue on the court—ironically, one where protection of consumers is of more concern to the right than to the left.
Perhaps there is a perception that to oppose these settlements is to oppose class actions—which would be an unfortunate idea, to say the least.




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