Facebook’s $9.5 million class action settlement confirmed

In a ruling delivered Thursday the judges, with one dissenting voice, declared, “A $9.5 million class recovery would be substantial under most circumstances, and we see nothing about this particular settlement that undermines the district court's conclusion that it was substantial in this case.”

Beacon, launched in 2007, allowed Facebook users to broadcast their internet activity to friends, but did so without their affirmative consent. Sean Lane, for example, bought a ring from Overstock.com as a surprise for his wife – but before he gave it to her Facebook informed his 700 friends about the gift. His wife then asked him about the ring before she should have known about it – and could have found out how much it cost by visiting Overstock.com. The potential for embarrassment, or worse, was huge.

Lane and 18 other users filed a class action complaint against Facebook and other participating businesses, and Facebook quickly agreed to pay a $9.5 million settlement. This settlement was approved by a San Jose federal judge in March 2010.

It was the terms of the settlement that led to the appeal. Of the $9.5 million dollars, $3 million goes to the plaintiffs’ attorneys, $10,000 goes to the lead plaintiff Sean Lean, and the other 18 named representatives collect between $1,000 to $5,000 each. The bulk of the money, some $6.5 million, is set aside to establish a charitable foundation (the Digital Trust Foundation) with Facebook on the board. The remaining 3.5 million class members get nothing.

Now, however, the Court of Appeals has ruled that the settlement must stand; but with one scathing dissent. Judge Andrew Kleinfeld wrote, “I respectfully dissent. This settlement perverts the class action into a device for depriving victims of remedies for wrongs, while enriching both the wrongdoers and the lawyers purporting to represent the class.” He is worried both by the terms for the plaintiffs and the class action process itself. “Facebook users who had suffered damages from past exposure of their purchases got no money, not a nickel, from the defendants. Even those who had rented videos, and were arguably entitled to statutory damages of $2,500 for each disclosure, got nothing. Class counsel, on the other had, got millions.”

Of the class action device, he added, “Defendant and class counsel, in any class action, have incentives to collude in an agreement to bar victims’ claims for little or no compensation to the victims, in exchange for a big enough attorneys’ fee to induce betrayal of the interests of the purported ‘clients’.”

Nevertheless, the initial settlement stands.

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