Lane v. Facebook, Inc.
| Decision Date | 20 September 2012 |
| Docket Number | Nos. 10–16380,10–16398.,s. 10–16380 |
| Citation | 696 F.3d 811 |
| Court | U.S. Court of Appeals — Ninth Circuit |
| Parties | Sean LANE; Mohannaed Sheikha; Sean Martin; Ali Sammour; Mohammaed Zidan; Sara Karrow; Colby Henson; Denton Hunker; Firas Sheikha; Hassen Sheikha; Linda Stewart; Tina Tran; Matthew Smith; Erica Parnell; John Conway; Phillip Huerta; Alicia Hunker; Megan Lynn Hancock, a minor, by and through her parent Rebecca Holey; Austin Muhs; Catherine Harris; Mario Herrera; Maryam Hosseiny, individually and on behalf of themselves and all others similarly situated, Plaintiffs–Appellees, v. FACEBOOK, INC., a Delaware corporation; Blockbuster, Inc., a Delaware corporation; Fandango, Inc., a Delaware corporation; Hotwire, Inc., a Delaware corporation; Sta Travel, Inc., a Delaware corporation; Overstock.com, Inc., a Delaware corporation; Zappos.com, Inc., a Delaware corporation; Gamefly, Inc., a Delaware corporation, Defendants–Appellees, Ginger McCall, Class Member, Objector–Appellant. Sean Lane; Mohannaed Sheikha; Sean Martin, individually, and on behalf of themselves and all others similarly situated; Ali Sammour; Mohammaed Zidan; Sara Karrow; Colby Henson; Denton Hunker; Firas Sheikha; Hassen Sheikha; Linda Stewart; Tina Tran; Matthew Smith; Erica Parnell; John Conway; Phillip Huerta; Alicia Hunker; Megan Lynn Hancock, a minor, by and through her parent Rebecca Holey; Austin Muhs; Catherine Harris; Mario Herrera; Maryam Hosseiny, individually and on behalf of themselves and all others similarly situated, Plaintiffs–Appellees, v. Facebook, Inc., a Delaware corporation; Blockbuster, Inc., a Delaware corporation; Hotwire, Inc., a Delaware corporation; Fandango, Inc., a Delaware corporation; Sta Travel, Inc., a Delaware corporation; Overstock.com, Inc., a Delaware corporation; Zappos.com, Inc., a Delaware corporation; Gamefly, Inc., a Delaware corporation, Defendants–Appellees, Megan Marek; Benjamin Trotter, Class Members, Objectors–Appellants. |
OPINION TEXT STARTS HERE
Michael H. Page, Public Citizen Litigation Group, Washington, D.C.; Steven F. Helfand, Helfand Law Offices, San Francisco, CA, for the objectors-appellants.
Scott A. Kamber, Kamber Law, LLC, New York, NY, for the plaintiffs-appellees.
Michael G. Rhodes, Cooley LLP, San Francisco, CA, for the defendants-appellees.
Appeal from the United States District Court for the Northern District of California,Richard Seeborg, District Judge, Presiding. D.C. No. 5:08–cv–03845–RS.
Before: PROCTER HUG, JR., ANDREW J. KLEINFELD, and WILLIAM A. FLETCHER, Circuit Judges.
Opinion by Judge HUG; Dissent by Judge KLEINFELD.
The question presented is whether the district court abused its discretion in approving the parties' $9.5 million settlement agreement as “fair, reasonable, and adequate,” either because a Facebook employee sits on the board of the organization distributing cy pres funds or because the settlement amount was too low. We hold that it did not.
Facebook is an online social network where members develop personalized web profiles to interact and share information with other members. The type of information members share varies considerably, and it can include news headlines, photographs, videos, personal stories, and activity updates. Members generally publish information they want to share to their personal profile, and the information is thereby broadcasted to the members' online “friends” (i.e., other members in their online network).
In November of 2007, Facebook launched a new program called “Beacon.” Facebook described the purpose of the Beacon program as allowing its members to share with friends information about what they do elsewhere on the Internet. The program operated by updating a member's personal profile to reflect certain actions the member had taken on websites belonging to companies that had contracted with Facebook to participate in the Beacon program. Thus, for example, if a member rented a movie through the participating website Blockbuster.com, Blockbuster would transmit information about the rental to Facebook, and Facebook in turn would broadcast that information to everyone in the member's online network by publishing to his or her personal profile.
Although Facebook initially designed the Beacon program to give members opportunities to prevent the broadcast of any private information, it never required members' affirmative consent. As a result, many members complained that Beacon was causing publication of otherwise private information about their outside web activities to their personal profiles without their knowledge or approval. Facebook responded to these complaints (and accompanying negative media coverage) first by releasing a privacy control intended to allow its members to opt out of the Beacon program fully, and then ultimately by discontinuing operation of the program altogether.
Unsatisfied with these responses, a group of nineteen plaintiffs filed a putative class action in federal district court against Facebook and a number of other entities that operated websites participating in the Beacon program. The class-action complaint alleged that the defendants had violated various state and federal privacy statutes.1 Each of the plaintiffs' claims centered on the general allegation that Beacon participants had violated Facebook members' privacy rights by gathering and publicly disseminating information about their online activities without permission. The plaintiffs sought damages and a variety of equitable remedies for the alleged privacy violations.
Facebook denied liability and filed a motion to dismiss the plaintiffs' claims. Before the district court ruled on Facebook's motion, the parties elected to attempt settling their case through private mediation. The parties' initial settlement talks reached an impasse over whether Facebook should terminate the Beacon program permanently, but after two mediation sessions and several months of negotiations, Facebook and the plaintiffs arrived at a settlement agreement. In September of 2009, plaintiff Sean Lane submitted the parties' finalized settlement agreement to the district court for preliminary approval.
The terms of the settlement agreement provided that Facebook would permanently terminate the Beacon program and pay a total of $9.5 million in exchange for a release of all the plaintiffs' class claims. Of the $9.5 million pay-out, approximately $3 million would be used to pay attorneys' fees, administrative costs, and incentive payments to the class representatives. Facebook would use the remaining $6.5 million or so in settlement funds to set up a new charity organization called the Digital Trust Foundation (“DTF”). The stated purpose of DTF would be to “fund and sponsor programs designed to educate users, regulators[,] and enterprises regarding critical issues relating to protection of identity and personal information online through user control, and the protection of users from online threats.” The parties' respective counsel arrived at the decision to distribute settlement funds through a new grant-making organization, rather than simply give the funds to an existing organization, at the suggestion of the private mediator overseeing their negotiations. Neither Facebook's nor the plaintiffs' class counsel was comfortable with selecting in advance any particular non-profit or non-profits to receive the entirety of the settlement fund, so they acceded to the mediator's suggestion that Facebook set up a new entity whose sole purpose was to designate fund recipients consistent with DTF's mission to promote the interests of online privacy and security.
According to DTF's Articles of Incorporation, DTF would be run by a three-member board of directors. The initial three directors were Larry Magrid, a member of the federal government's Online Safety and Technology Working Group and several other online safety organizations; Chris Hoofnagle, director of the Information Privacy Programs at the Berkeley Center for Law and Technology and former director for an office of the Electronic Privacy Information Center; and most relevant here, Timothy Sparapani, Facebook's Director of Public Policy and former counsel for the American Civil Liberties Union. The Articles of Incorporation further provided that all of DTF's funding decisions had to be supported by at least two members of the three-member board of directors but that the plan for succession of directors required unanimous approval. Finally, the Articles of Incorporation provided that DTF would be strictly a grant-making organization and could not engage in lobbying or litigation.
The settlement agreement also provided for the creation of a Board of Legal Advisors within DTF, which would consist of counsel for both the plaintiff class and Facebook. The purpose of the Board of Legal Advisors would be to advise and monitor DTF to ensure that it acted consistently with its mission as articulated in the settlement agreement.
After a hearing, the district court certified the plaintiff class for settlement purposes and preliminarily approved the parties' proposed settlement. The settlement class consisted of all Facebook members who had visited the website of a Beacon participant that transmitted information about the members' activity to Facebook during the relevant period. The district court ordered Facebook to identify all class members and to send the class notification of the settlement. Following that order, Facebook identified 3,663,651 class members, to whom it provided notice of the settlement in several ways. The principal method was to send an e-mail to the class members. Facebook also posted a notice of the settlement in the “Updates” section of members' personal Facebook accounts and published a separate notice in the national edition of the newspaper USA Today. All forms of notice directed class members to a website...
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