U.S. Supreme Court questions cy pres awards

Posted on: December 16th, 2013 by Steve Larson
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LikeOn Nov. 4, 2013, the U.S. Supreme Court denied a petition for a writ of certiorari in Marek v. Lane. The petition involved objections to the settlement of a class action involving Facebook.  Rather than paying money or other benefits to any class member, the settlement involved a cy pres remedy — that is, a benefit given to a third party that theoretically provides some benefit “as near as possible” to the individual members of the class.

Denials of certiorari are not usually noteworthy. But here, Chief Justice John Roberts — while voting to deny the petition — issued a four-page summary of the issues and then concluded by stating that “[i]n a suitable case, this Court may need to clarify the limits of the use of such remedies.”

The Marek case concerned Facebook’s “Beacon” programming, which automatically reported Facebook user activity. This included, for example, online purchases from a participating company’s website or comments about such companies. Data collected included the user’s personally identifiable information (PII), even if the user was not a Facebook member. The online activities of Facebook members were automatically posted to their profiles absent an affirmative “opt out.”

The launch of Beacon resulted in a significant public outcry against Facebook. One month after the launch, Facebook ended up changing the default settings for the programming from an “opt in” result to an “opt out” result. In other words, user information would not be collected and reported unless the user affirmatively agreed.

Despite the quick change by Facebook, several individuals brought a putative class action in the Northern District of California against Facebook and companies that had participated in the Beacon program. The putative class, made up of only those individuals whose PII was disclosed during the one-month window where Beacon’s default setting was “opt in,” alleged violations of several federal and state privacy laws and sought damages and equitable relief, including enjoining Facebook from continuing to use Beacon.

Before a decision on class certification for purposes of litigation, the individual plaintiffs settled with these defendants for Facebook’s promise to discontinue the Beacon program (but with no guaranty that prevented Facebook from commencing another similar program) and $9.5 million. Plaintiffs’ counsel took nearly one-quarter of the settlement and the named plaintiffs were awarded small “incentive payments.” The remaining unnamed class members received nothing. Instead, the settling parties designated the remaining $6.5 million a cy pres remedy that would fund the creation of a new foundation designed to help fund organizations to educate the public about online privacy. The settlement barred subsequent claims from individuals injured both before and after Facebook changed Beacon’s default setting.

The district court approved the settlement over the objections of Megan Marek and three other unnamed class members who had raised concerns about what they considered the low amount of the settlement and questions as to whether the new foundation would really serve the interests of the class. (Among other things, the foundation was brand new, had no track record of success, and might be influenced by a Facebook executive designated to sit on its board of directors.) Both the district court and a divided Ninth Circuit panel rejected these objections. The Ninth Circuit also denied a petition for rehearing en banc over the dissent of six judges.

In his statement, the chief justice agreed that the Supreme Court should deny the petition for a writ of certiorari because the petitioners’ objections focused on the peculiarity of the specific settlement. These peculiarities “might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies.”