Facebook and class action lawyers work out sweet deal for themselves. Judge isn’t buying it.



Facebook and the lawyers suing them over their “Sponsored Stories” advertising platform worked out a pretty sweet deal whereby the lawyers would get a nice payout and the social networking giant would get by with paying pennies on the dollar of the revenue they generated from advertising. “And they would have gotten away with it too if it weren’t for that pesky judge and his meddling mutt.”

Whether US District Judge Richard Seeborg of San Francisco has a dog or not is unknown, but what is known is that he rejected the motion to allow a proposed settlement between Facebook and the team of lawyers who initiated a class-action lawsuit against them in April, 2011. In it, the lawyers would get $10 million, the users would get nothing, and charities would get $10 million.

The numbers didn’t jive.

It is assumed that a cy pres form of restitution will eventually be allowed as between 70-100 million users were affected by Sponsored Stories. The judge may allow it eventually, but questions whether sheer size of the class is enough to warrant an automatic cy pres waiver. The arguments will make it happen that way but the initial motion did not compel him enough to allow it.

The main sticking point in the motion is in the numbers and the judge went into great detail about it in section 2 of his ruling (PDF). Had they come to the table with a more modest proposal for the lawyers and a more abundant proposal for the charities, there’s a chance it could have gone through.

“Assuming that is may be appropriate to approve a settlement that provides no cash distribution to class members in the case, the question will remain as to whether $10 million in cy pres recovery is fair, adequate, and reasonable,” he said in his brief. Later, he notes, “The fact that the parties negotiated that ‘clear sailing’ provision separately from the cy pres payment does not wholly eliminate the concern that class counsel may ‘have bargained away something of value to the class.'”

Greed lost on this one. Facebook saw a chance to buy off the lawyers by making their piece of the pie so large (50%) even though the whole pie itself was relatively small ($20,000,000). Instead, the judge is dangling the potential under California law of paying out the maximum of $750 per member of the class. That would put it at $52.5 billion.

That won’t happen, of course, but hanging it over the company and the lawyers will prompt them to get more serious in their negotiations. Less money for the lawyers, much more money in the cy pres payments to charities – that’s what the judge wants. The specifics of how Facebook will move forward with notifying and allowing for opting out of Sponsored Stories by users doesn’t seem to be much of an issue. If the motion had been approved or if it stays in its current form but with different dollar amounts, Facebook would allow adult users to limit their participation in Sponsored Stories and would give minors the ability to opt out altogether.

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“Judgement” image courtesy of Shutterstock.

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