Does The SCOTUS "Like" Cy Pres Distributions In Class Action Settlements?


On November 4, 2013, the Supreme Court of the United States declined to review the Ninth Circuit’s approval of Facebook’s $9.5 million privacy class action settlement, which, with the exception of attorneys’ fees and “modest incentive payments” to the named plaintiffs, provided for only a cy pres remedy, which entailed establishing a “new charitable foundation that would help fund organizations dedicated to educating the public about online privacy.” Marek v. Lane, et al., No. 13-136, 571 U.S. --- (2013).

The underlying action arose from Facebook’s “Beacon” program, which published Facebook users’ activity to their Facebook friends, resulting in dissemination of information that they allegedly did not intend to share.  Nineteen Facebook users brought a putative class action against Facebook in the Northern District of California alleging violations of federal and state privacy laws.  They sought damages and equitable relief, including an injunction barring continuation of the Beacon program, but the settlement provided neither for most.  Facebook agreed to pay $9.5 million to settle the case, but those funds were allocated to attorneys’ fees, “modest incentive payments” to the named plaintiffs only, and the remainder was earmarked as a cy pres distribution and used to set up a “new charitable foundation that would help fund organizations dedicated to educating the public about online privacy.”  Id.  Facebook was not precluded from reinstituting the Beacon program under a new name, and the unnamed class members did not recover damages.

Four unnamed class members objected to the settlement, in part, because a senior Facebook employee was to serve on the charitable foundation’s board, the board would have nearly unfettered discretion in selecting fund recipients, and the charitable foundation, because it was new, lacked a proven track record of promoting the objectives behind the lawsuit.  Id.  The District Court overruled the objections, the Ninth Circuit agreed, and one of the objectors filed a petition for writ of certiorari.

Although the Court denied the petition, Chief Justice John Roberts noted that the objector’s challenge – the one before the Court – was “[f]ocused on the particular features of the specific cy pres settlement at issue.  Granting review of this case might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies in class action litigation, including when, if ever, such relief should be considered; how to assess its fairness as a general matter; whether new entities may be established as part of such relief; if not, how existing entities should be selected; what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on.  This Court has not previously addressed any of these issues.  Cy pres remedies, however, are a growing feature of class action settlements…In a suitable case, this Court may need to clarify the limits on the use of such remedies.”  Id.

Justice Roberts has signaled at least some concern with the growing development of cy pres distributions in class action settlements.  We’ll have to wait for a suitable case to better understand the Court’s concerns.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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