Facebook Settlement Criticized as ‘Overly Charitable’ & Unfair to Plaintiffs

 By Sarah Pierce

You don’t hear this very often: A proposed class action settlement by Facebook has come under fire for being “overly charitable.” It’s also being criticized as a way for Facebook to “pay itself” instead of its users.

If you remember, Facebook was sued in 2008 for allegedly violating privacy rights by improperly sharing information about its users’ online activities. Facebook denied any wrongdoing, but offered $9.5 million to settle the case last year. As part of the settlement, 30% would go to the plaintiffs’ lawyers and the remainder would be donated to a foundation that promotes privacy rights.

Awarding part or all of a settlement to charity has become an increasingly common practice when it’s difficult to distribute to class members or when the cost of distributing exceeds the settlement. Some legal experts, however, criticize this practice for several reasons, saying that judges shouldn’t certify such cases as class actions in the first place if the plaintiffs won’t get anything in return, and that the donations are sometimes pointless because judges often pick unworthy or unrelated charities to donate to.

In this particular case, the donation is under even more criticism because the charity being awarded the money will be established in part by Facebook, which will have a role in choosing one of its board members and drawing up the foundations bylaws. According to an objection filed by Public Citizen, a Washington, D.C.-based consumer-rights organization, “Facebook is, in essence, paying itself” to establish the charity and release the legal claims of its users.

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Updated March 17th, 2010

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