The U.S. Court of Appeals for the Ninth Circuit recently held that the trial court had Article III jurisdiction and did not abuse its discretion in approving a settlement between a social media company and a nationwide class of its users who alleged that the social media company routinely scanned and collected their private information without their consent.
A copy of the opinion is available at: Link to Opinion
Two individual Plaintiffs filed a class action suit against the social media company alleging that it scanned and collected information in their private messages to use it in a variety of ways without the user's consent. Plaintiffs alleges that the social media company's actions amounted to interception and use of electronic communications in violation of Title I of the Electronic Communications Privacy Act ("ECPA"), 18 U.S.C. § 2510 et seq.,2 and the California Invasion of Privacy Act ("CIPA"), Cal. Penal Code § 630 et seq.
The parties engaged in extensive discovery, lasting over two years, and included production of tens of thousands of pages of documents, eighteen fact and expert witness depositions, hundreds of hours of analysis of Facebook's source code, and significant briefing of discovery disputes.
The trial court denied certification of a damages class, but granted certification of an injunctive and declaratory relief class. After four mediation sessions the parties submitted a written settlement agreement to the trial court for approval, and the trial court granted preliminary approval of the settlement.
An objecting class member ("Objector"), filed an objection to the settlement. The trial court approved the settlement following a final fairness hearing reasoning that "[t]he settlement offers immediate, tangible benefits directed to the three uses of URLs challenged by Plaintiffs, without requiring class members to release any claims for monetary damages that they may have against Facebook."
Objector timely appealed the trial court's approval of the settlement.
On appeal, the Ninth Circuit first turned to whether the plaintiff had Article III standing. As you may recall, to establish Article III standing, a plaintiff must show it: (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) is likely to be redressed by a favorable judicial decision.
The Ninth Circuit determined the ECPA and CIPA are "targeted at the substantive intrusion that occurs when private communications are intercepted by someone who does not have the right to access them, rather than merely setting out a procedure for handling data."
The Court noted that every violation of the provisions of ECPA and CIPA at issue in this case "'present[s] the precise harm and infringe[s] the same privacy interests Congress [and the California legislature] sought to protect' by enacting" ECPA and CIPA, and thus concluded "that Plaintiffs identified a concrete injury by claiming that Facebook violated ECPA and CIPA when it intercepted, catalogued, and used without consent URLs they had shared in private messages."
The social media company did not initially contest standing, but now argued on appeal that the settlement should be vacated and the case dismissed because Plaintiffs suffered no harm from the "use of anonymized and aggregated data from website links" and thus lacked standing.
The Ninth Circuit disagreed, holding that regardless of how the collected data was used, it was done without consent which is a claimed violation of the that ECPA and CIPA.
Next, Plaintiffs were required to show "either 'continuing, present adverse effects' due to [their] exposure to [the social media company's] past illegal conduct or 'a sufficient likelihood that [they] will again be wronged in a similar way." This aspect must "focus on whether the party invoking jurisdiction had the requisite stake in the outcome when the suit was filed."
The Ninth Circuit reason that even though the social media company ended some of the alleged conduct prior to suit, it never claimed to have ceased all the alleged conduct. "This combination of continuing harm plus likelihood of future harm was sufficient for Plaintiffs to have standing to seek injunctive relief" and the Ninth Circuit concluded that the trial court "had jurisdiction to approve the settlement, and that we therefore have jurisdiction to review the merits of that decision."
As you may recall, under Federal Rule of Civil Procedure 23(e)(2), a trial court may approve a class action settlement only after finding that the settlement is "fair, reasonable, and adequate."
The Ninth Circuit listed eight factors to consider whether a settlement is fair, reasonable, and adequate: "[1] the strength of the plaintiffs' case; [2] the risk, expense, complexity, and likely duration of further litigation; [3] the risk of maintaining class action status throughout the trial; [4] the amount offered in settlement; [5] the extent of discovery completed and the stage of the proceedings; [6] the experience and views of counsel; [7] the presence of a governmental participant; and [8] the reaction of the class members to the proposed settlement."
The Ninth Circuit noted its review of a trial court's decision to approve a class action settlement is "extremely limited" and "parties seeking to overturn the settlement approval must make a 'strong showing' that the district court clearly abused its discretion."
The Ninth Circuit disagreed with Objector's argument that the settlement was invalid because the class received only "worthless injunctive relief." Several factors weighed in favor of approving this settlement, most notably the extensive discovery completed prior to settling, with the Court further noting "the class did not need to receive much for the settlement to be fair because the class gave up very little."
Finally, the Court examined whether the settlement was invalid under its prior ruling in In re Bluetooth Headset Products Liability Litigation, 654 F.3d 935 (9th Cir. 2010), based on Objectors contention that the settlement prioritizes class counsel's interests over those of their clients.
The Ninth Circuit identified three warning signs developed in Bluetooth to determine whether a settlement is "fair, reasonable, and adequate" under Rule 23(e)(2): "(1) when counsel receive a disproportionate distribution of the settlement, or the class gets no monetary distribution but class counsel are well compensated; (2) when the parties negotiate "clear sailing" arrangements for the payment of attorney's fees wherein the defendant agrees not to object to the fee application presented to the court; and (3) when the agreement includes a "reversion" or "kicker" provision under which any reduction in attorney's fees reverts to the defendant rather than being added to the class fund."
The trial court looked for each of these warning signs and concluded that none weighed against approval of the settlement.
First, the trial court declined to certify a damages class.
"Second, damages were also not part of the class release, so to the extent further litigation might yield damages, absent class members were not prohibited from trying again to obtain such damages—further reducing the likelihood that class counsel bargained away any potentially valuable relief."
Third, the Ninth Circuit noted, the trial court was "well-positioned to recognize… the value of the injunctive relief that was made available to the class through the settlement."
The Ninth Circuit concluded "that the evidence is insufficient to prove that the class would have gotten meaningfully more injunctive or declaratory relief if [the social media company] had merely been permitted to oppose class counsel's fee application".
Therefore, the trial court's approval of the settlement was affirmed.
Ralph T. Wutscher
Maurice Wutscher LLP
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