SCOTUS Denies Cert in Challenge to Facebook's "Beacon" Class Action Settlement

by Davis Wright Tremaine LLP

Chief Justice hints that cy pres as a class action settlement procedure should be reviewed.

The U.S. Supreme Court has declined to review a case challenging the fairness of a cy pres settlement of a class action against Facebook related to Facebook’s “Beacon” program that was launched in late 2007. Although the Court declined review, Chief Justice Roberts, in a 4-page statement accompanying the denial, acknowledged that cy pres remedies “are a growing feature of class action settlements” and indicated that the Court might review the fairness and adequacy of such awards “in a suitable case.”

Facebook launched its “Beacon” program, which provided for affiliated sites to send to Facebook the details of a user’s purchases or other actions, which were then posted to the user’s Facebook profile and broadcast to the user’s friends. Facebook originally required users to expressly “opt-out” of Beacon during the purchase process to keep the posting and notices from happening. About a month after the program started, and in response to “public outcry,” Facebook changed the default settings to require users to affirmatively “opt-in” for Beacon to operate. Facebook later discontinued the Beacon program entirely.

In August 2008, a class action was filed on behalf of users whose information was posted during the period when Facebook’s Beacon program was designed to automatically “opt-in” users. Facebook agreed to settle the case for $9.5 million, with “nearly a quarter of the fund” covering “fees and costs” (including plaintiffs’ attorneys fees) and “modest incentive payments” to the named plaintiffs. The remainder of the settlement ($6.5 million) was assigned to fund a new charitable foundation dedicated to educating the public about online privacy, and whose board included a Facebook-designated representative. Unnamed plaintiffs received no compensation as part of the settlement and the settlement class was expanded to bar future litigation by any Beacon user, including all those who were subject to it during the opt-in as well as the opt-out phases of the program.

Some of the unnamed class members who received nothing under this settlement and thought the foundation would be unfairly influenced by Facebook, objected to the settlement terms, but the district court and then a divided panel of the Ninth Circuit upheld it. The objectors then sought certiorari in the Supreme Court. Although the Supreme Court denied review on Monday, Chief Justice Roberts suggested that review here would have been too narrow because it would have left unaddressed the “more fundamental concerns surrounding the use of such remedies in class action litigation.” The Chief Justice provided a non-exhaustive list of those concerns, including when, if ever, cy pres relief should be considered and what the respective roles of the judge and parties are in shaping a cy pres remedy.

So for now the Beacon settlement stands and there is no bar to using cy pres. Privacy class action defendants facing speculative awards and uncertain standing issues may now feel encouraged to use cy pres more often. But beware: a disappointed unnamed class member might employ the Center for Class Action Fairness (which handled the cert petition challenging the Beacon settlement) and try to get the Supreme Court to look closely at cy pres as a class action settlement procedure because, “in a suitable case,” the Chief Justice warned, “this Court may need to clarify the limits on the use of such remedies.”

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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