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Facebook to defend $20 Million ‘Sponsored Stories’ settlement

Facebook's campus at 1601 Willow Road in Menlo Park, CA
Facebook’s campus at 1601 Willow Road in Menlo Park, CA

By Ross Todd, From The Recorder

SAN FRANCISCO — Facebook Inc. has already faced a lot of flack over the settlement it reached in the privacy class action over a short-lived advertising feature that promoted brands with user photos.

It took two attempts—and an extra $10 million—to get signoff from U.S. District Judge Richard Seeborg, who once mused the case might be “too big to settle.”

On Thursday morning, lawyers for Facebook will defend the $20 million “Sponsored Stories” settlement yet again, this time before a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit.

Taking up a hot issue in the class-action and public-interest bars, some objectors complain the settlement inadequately compensates class members while steering millions in cy pres donations to nonprofit organizations. Others claim the deal improperly lumps in teenage Facebook users, who are due more protections under certain state privacy laws than provided for under the settlement.

Both the Federal Trade Commission and California Attorney General Kamala Harris have weighed in to argue that the federal Children’s Online Privacy Protection Act does not preempt more stringent state laws. Scott Michelman of the Public Citizen Litigation Group in Washington, D.C., who represents parents of teenage class members, said that his clients are concerned that the deal will continue to allow Facebook to publicize when their children “like” something posted by an advertiser on the social networking site.

“Kids can click ‘like’ on something that they may later regret—something that may later show up in front of a college admission board, in front of an employer, or a love interest,” said Michelman, who maintains the settlement authorizes Facebook to violate seven states’ parental consent laws.

Michelman is set to handle oral arguments for objectors alongside Robert Fellmeth of the Children’s Advocacy Institute at the University of San Diego School of Law, and Aaron Zigler of Korein Tillery in St. Louis.

Robert Arns of the Arns Law Firm is handling the case on behalf of settling plaintiffs. He didn’t respond to a phone message left at his office Friday morning. Kristin Myles of Munger, Tolles & Olson, who is set to argue on behalf of Facebook, referred messages to a company spokesperson who didn’t immediately respond.

This won’t be the first time that a privacy settlement over a Facebook advertising program has come before the Ninth Circuit. The court previously upheld a $9.5 million settlement agreement, which distributed millions to privacy groups but no money to class members.

When the U.S. Supreme Court declined take up the case, Chief Justice John Roberts issued a statement noting the high court had not weighed in on cy pres settlements, but that “in a suitable case, the court may need to clarify the limits on the use of such remedies.”

In the “Sponsored Stories” case, Massachusetts lawyer John Pentz represents class members who object to settlement largely on the grounds that a portion of the settlement funds—about $2 million—are set to be paid out as cy pres, a phrase adopted from a French expression meaning “as near as possible.” Pentz said that, if the Ninth Circuit were to approve the settlement, it could set up a circuit split since the Fifth, Seventh, and Eighth Circuits have all held that class members must be made whole before funds can be diverted to charity.

While Seeborg approved the “Sponsored Stories” deal in 2013, the judge didn’t ignore ongoing debate about the value of cy pres settlements. In August 2012, he rejected an initial settlement proposal which provided for $10 million in charitable donations and up to $10 million in attorney fees, but no cash for class members.

The following year, Seeborg approved the parties’ revised settlement which, after all the claims were tallied, distributed $15 to individual claimants, leaving about $2 million in funds to be split among about a dozen nonprofit groups and academic institutions.

Pentz maintains that nothing is preventing the settling parties from raising the payout to $19 per class member and “exhausting the entire fund.”

IMAGE: Facebook’s campus at 1601 Willow Rd., Menlo Park, Calif.

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