McCall v. Facebook, Inc.

Under FRCP 23(e), a cy pres class action settlement is fair where individual recovery would be de minimus , and the funds go to create an advocacy group whose articles of incorporation demonstrate an adequate nexus to the plaintiffs’ interests, even if an employee of the defendant is a member of the advocacy group’s board of directors.

McCall and other members of a previous class action (Objectors) objected to the settlement agreement reached in a suit against Facebook, Inc. The district court approved the settlement, and Objectors appealed. The class action suit alleged that Facebook’s Beacon program violated class members’ privacy rights by broadcasting other transactions they had made on the Internet, on Facebook. The suit settled for $9.6 million of which two-thirds went to creating an online privacy advocacy group called the “Digital Trust Foundation” (DTF). The Ninth Circuit noted that, under FRCP 23(e), a class action settlement must be “fair, reasonable, and adequate,” and that fairness is determined by factors established in Hanlon v. Chrysler Corp. The Court reasoned that a cy pres remedy was appropriate in the current case because “direct monetary payments to the class ... would be unfeasible given that each class member’s direct recovery would be de minimus.” Additionally, DTF’s articles of incorporation demonstrated that it would provide a benefit sufficiently related to the harm suffered by the class members, regardless of the presence of a Facebook employee on its board of directors. Furthermore, the Court also reasoned that $9.6 million was a financially adequate settlement because (1) the district court properly considered the strength of the case “in its entirety,” including members who may have been eligible to claim statutory liquidated damages, and (2) class members could opt out of the settlement. The Ninth Circuit held that the district court did not abuse its discretion in approving the settlement agreement. AFFIRMED.