Facebook’s Class Act

My buddy Ted Frank founded and runs the Center for Class Action Fairness. (Disclosure: I am a member of CCAF’s Board of Directors.) CCAF’s mission is to blow up collusive class actions and settlements—you know, actions where the class members get worthless coupons or nothing at all, while the lawyers walk away with millions in fees. When CCAF learns of impending agreements of this, sort it objects on behalf of class members. There’s a cottage industry of professional objectors, but they’re interested in money and so are usually cut into the deal. CCAF is a non-profit firm, and Ted can’t be bought off: he insists on settlements that actually benefit the class, and on lawyers’ fees that bear some rational relation to those benefits.

CCAF has racked up an impressive record of accomplishments (some listed on the website), and the trial lawyers don’t like Ted. Many corporations don’t like him, either. (Whaddaya mean, we’re supposed to fight nuisance suits and/or compensate actual victims, as opposed to conniving with their class counsel?) Among those companies is Facebook.

Some years ago, Facebook had the brilliant idea of collecting data on members’ on-line purchases and sending the results to “friends.” (Facebook made money on the vendors’ advertising fees.) Lots of people had their surprise presents to friends ruined that way; others gained an unwanted reputation as cheapskates, spendthrifts, whatever. After numerous consumer complaints, Facebook added an opt-out feature, which only video game experts could navigate. After yet more complaints, the company eventually bagged the entire program.

Predictably, Facebook also became the target of a class action. The settlement is something to behold. The class members received nothing—no money, no coupons, not even an injunction that would bar Facebook from doing the very same thing again. The lawyers obtained over $2.3 million in attorneys’ fees. And, oh: they obtained cy prez relief. (The French term stands for the doctrine that in cases where it’s impossible or highly impractical to award relief to the actual victims or intended beneficiaries, courts may permit relief that as closely as possible approximates the result that would obtain if a distribution could be made.) Here, the cy prez relief takes the form of the Facebook-funded Digital Trust Foundation, a newly formed non-profit that’s supposed to “educate” consumers about internet privacy. Class members will be pleased to learn that DTF ‘s three-person Board includes Facebook’s chief lobbyist, who has a veto right over anything the outfit might do.

Nothing in this settlement benefits the class members. (Not that it couldn’t have been done: for good or ill there are statutory penalties for what Facebook did, and those at least could have been calculated and distributed.) On the other hand, if DTF runs an ad campaign for Facebook, that would be okay: nothing in the settlement prevents it. Let’s hear it for the American tort system!

Incredibly, a district court in California waved this garbage through. The Ninth Circuit sustained the ruling—but not without stern, forcefully worded dissents both from the panel and a subsequent en banc ruling. Recently, the objectors have petitioned for cert. The brief is here.

Read it and weep (or laugh): the petitioners’ inventory of cy prez awards is amazing. Money has ended up with the Brookings Institution, Beltway bandits and, with distressing frequency, with law schools—often, apparently, the plaintiffs’ lawyers’ alma mater. (They’re philanthropists, you know.) When plaintiffs’ lawyers don’t like a particular judge, they structure a cy prez award that would create a conflict for the judge—who will then have to recuse himself and make room for a (hopefully, more pliable) colleague. And so on: you’re looking at a veritable cottage industry.

All cert petitions are crapshoot, but this one may have a decent shot at being granted. The petitioners make a good case that federal circuits have differed widely in the standards they apply to cy prez awards. The practice has drawn harsh condemnation from left, right, and professional organizations (including the American Law Institute). And the Supreme Court has in recent years paid a great deal of attention to class actions, seeking to curtail some of the wilder abuses. Good luck, CCAF!