District Court Issues Preliminary Denial of Proposed Settlement in One Facebook Class Action

August 17, 2012. The U.S. District District Court (NDCal) issued an order [8 pages in PDF] in Fraley v. Facebook that denies preliminary approval of a proposed settlement of a putative class action arising out of Facebook's use of users' names and likenesses in paid advertisements.

The lawyers who filed the complaint, and who stand to benefit from the settlement, allege violation of California Civil Code 3344, which provides for a right of publicity.

Under the proposed settlement, the members of the class whose names and likenesses Facebook used, would receive nothing, while the lawyers who brought the case would receive up to $10 Million. It also provides for cy pres payments of $10 Million to organizations involved in internet privacy issues.

The Court noted that the class size court be around 100 Million people, making individual payments logistically difficult, and payment amounts very small.

Under Section 3344, the minimum award is $750 per violation. Hence, hypothetically, a jury award could run into the billions.

Section 3344 provides that "Any person who knowingly uses another's name, voice, signature, photograph, or likeness, in any manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of, products, merchandise, goods or services, without such person's prior consent, or, in the case of a minor, the prior consent of his parent or legal guardian, shall be liable for any damages sustained by the person or persons injured as a result thereof. In addition, in any action brought under this section, the person who violated the section shall be liable to the injured party or parties in an amount equal to the greater of seven hundred fifty dollars ($750) or the actual damages suffered by him or her as a result of the unauthorized use, and any profits from the unauthorized use that are attributable to the use and are not taken into account in computing the actual damages. In establishing such profits, the injured party or parties are required to present proof only of the gross revenue attributable to such use, and the person who violated this section is required to prove his or her deductible expenses. Punitive damages may also be awarded to the injured party or parties. The prevailing party in any action under this section shall also be entitled to attorney's fees and costs."

The Court wrote that "The issue this presents appears to be a novel one: Can a cy pres-only settlement be justified on the basis that the class size is simply too large for direct monetary relief? Or, notwithstanding the strong policy favoring settlements, are some class actions simply too big to settle?"

Then, the Court provided no holding or answer. It discussed issues, denied the motion, without prejudice, instructed the lawyers to refile with more information, and set the date of December 6 for a case management conference.

Nominally, the plaintiffs are Angel Fraley and Facebook subscribers whose likenesses and names were used by Facebook. Theoretically, class representatives, such as Angel Fraley, sue on behalf of, and for the benefit of the similarly situated, but unnamed plaintiffs.

However, as with most class actions, the real party in interest is the plaintiffs class action law firm. The class action lawyers have little incentive to settle cases in a manner that compensates the class members, except to the extent that it increases their attorneys fees. The incentive of class action lawyers is their monetary recovery. Hence, some class action cases are settled with class members receiving little if any compensation, but with bounteous compensation to the class action lawyers.

And consequently, the Federal Rules of Civil Procedure (FRCP) require court certification of the class, and court approval of any settlement. See, FRCP Rule 23.

The Arns Law Firm, which focuses on class actions, filed its original complaint in state court in California on March 18, 2011. Facebook, which is represented by the Cooley law firm, removed the action to the U.S. District Court. See, amended complaint.

Facebook brought and lost frivolous motions to dismiss, in which it asserted Section 230 immunity, and the Section 3344 exception for "use of a name, voice, signature, photograph, or likeness in connection with any news, public affairs, or sports broadcast or account, or any political campaign". See, December 16, 2011 order.

On August 2, 2012, the Electronic Privacy Information Center (EPIC), Center for Democracy and Technology (CDT), Privacy Rights Clearinghouse and Georgetown University Law Center's Institute for Public Representation submitted to the District Court an opposition to the proposed settlement, on the grounds that none of the cy pres payments would go to them.

They wrote that "A cy pres distribution may be appropriate here because the class is large and because there is only potential of a small individual recovery."

This case is Angel Fraley v. Facebook, Inc., U.S. District Court for the Northern District of California, San Francisco Division, D.C. No. C 11-1726 RS, Judge Richard Seeborg presiding.