Facebook Sponsored Stories Settlement Rejected

Facebook failed to persuade a judge on Friday to approve a $20 million class action lawsuit settlement over “Sponsored Stories” that would have provided $10 million in cash for advocacy groups, $10 million for attorneys, but nothing to users.

Earlier this month, U.S. District Judge Richard Seeborg expressed “significant concern” and confusion over the proposed Sponsored Stories settlement, and asked the parties to explain how they reached the amount, which seemed to be “merely plucked from thin air,” before he made his final decision. The explanation obviously did not pass muster, because Judge Seeborg refused to grant preliminary approval of the settlement on August 17, 2012. Seeborg said while it isn’t feasible to divide $10 million among as many as 70 million affected Class Members, that’s not enough to justify giving the money only to advocacy groups. Seeborg also expressed concern over the $10 million payout to the Plaintiffs’ attorneys.

“[T]here are serious concerns with the provision of the settlement agreement permitting Plaintiffs to apply for up to $10 million in attorney fees without objection by Facebook,” Seeborg said in an order late Friday. “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.’”

The Facebook Sponsored Stories class action lawsuit accused Facebook of inappropriately using the names, photos and identities of users to advertise products without their permission, in violation of California laws that carry a $750 penalty per violation. Lawyers for both sides argued that paying users cash for these violations wouldn’t be practical because even a $10 payout to each Class Member could mean a $1 billion class action settlement, assuming 100 million users were affected.

Judge Seeborg allowed Facebook and the Plaintiffs’ counsel to modify the Sponsored Stores class action settlement or renew their request for approval of the existing accord with more legal arguments addressing his comments.

The case is Fraley v. Facebook, Inc., Case No. 11-cv-01726, U.S. District Court, Northern District of California, San Jose.

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