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Marek v. Lane
Factual and Procedural Background
In November 2007, Facebook, Inc. launched a program called "Beacon," which automatically reported certain user activities on participating third-party websites to Facebook, including personally identifiable information. This occurred regardless of whether the user was a Facebook member. For Facebook members, these activities were published on their profiles and broadcast to their friends. Initially, the program operated under an opt-out default, requiring users to actively prevent disclosure by clicking an icon in a pop-up window.
Beacon's operation led to widespread dissemination of users' personal information without their explicit consent, resulting in public backlash. Facebook responded by changing Beacon's default to opt-in and allowing members to disable the program entirely.
In August 2008, nineteen individuals filed a putative class action lawsuit in the Northern District of California against Facebook and participating companies, alleging violations of federal and state privacy laws. The class included only those individuals whose information had been disclosed during the brief opt-out period. The complaint sought damages and injunctive relief.
Before class certification, the named plaintiffs settled with Facebook. The settlement included Facebook discontinuing the Beacon program, a $9.5 million fund, and the creation of a "cy pres" remedy through a new charitable foundation aimed at online privacy education. Plaintiffs' counsel received nearly one-quarter of the fund in fees and costs, named plaintiffs received modest incentives, and the remaining $6.5 million was allocated to the foundation rather than distributed to class members.
The settlement class was broadened beyond the original opt-out period to include individuals affected after Facebook switched to opt-in, effectively barring future litigation on Beacon-related claims. The District Court approved the settlement as fair, reasonable, and adequate.
Petitioner Megan Marek, an unnamed class member, objected to the settlement, focusing on concerns about the foundation’s governance—specifically, Facebook's involvement in its board, the board’s broad discretion in fund distribution, and the lack of a proven track record. She also criticized the settlement amount as insufficient. The District Court and a divided Ninth Circuit panel rejected her objections. A petition for rehearing en banc was denied, with six judges dissenting.
Legal Issues Presented
- Whether the settlement’s use of a cy pres remedy, involving the creation of a new charitable foundation with Facebook representation on its board, was fair and adequate under Rule 23(e)(2).
- Whether the expansion of the settlement class to include individuals affected after the opt-out period was appropriate.
- Whether the objections raised by unnamed class members regarding the settlement’s structure and amount warranted judicial intervention.
Arguments of the Parties
Petitioner Megan Marek's Arguments
- The new foundation established as a cy pres remedy was problematic because a senior Facebook employee would serve on its board, raising concerns about impartiality.
- The foundation’s board would have nearly unfettered discretion in selecting recipients of the funds, creating uncertainty about the use of the settlement money.
- The foundation lacked a proven track record in promoting online privacy, undermining the effectiveness and appropriateness of the remedy.
- The overall settlement amount was too low to adequately compensate the class members.
Respondents' Arguments
The opinion does not contain a detailed account of the respondents’ legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Lane v. Facebook, Inc., 696 F.3d 811 (9th Cir. 2012) | Review of the District Court’s approval of the settlement and rejection of objections. | The Ninth Circuit affirmed the District Court’s approval of the settlement despite objections. |
| Lane v. Facebook, Inc., 709 F.3d 791 (9th Cir. 2013) | Denial of petition for rehearing en banc. | The en banc panel denied rehearing, with six judges dissenting, leaving the panel decision intact. |
| Federal Rule of Civil Procedure 23(e)(2) | Standard for approval of class action settlements as fair, reasonable, and adequate. | The District Court applied this standard in approving the settlement. |
Court's Reasoning and Analysis
The Supreme Court denied the petition for a writ of certiorari, implicitly upholding the lower courts’ rulings. Chief Justice Roberts, in a statement respecting the denial, acknowledged the complexity and novelty of issues surrounding cy pres remedies in class action settlements. He noted that the case focused on particular features of the specific settlement rather than addressing broader questions about the appropriateness, fairness, and limits of cy pres relief. The Court recognized that these issues are increasingly relevant in modern class actions but concluded that this case was not the appropriate vehicle to resolve them. The Court left open the possibility of addressing these fundamental questions in a future case better suited for such analysis.
Holding and Implications
The petition for a writ of certiorari was denied.
The direct effect of this decision is the affirmation of the lower courts’ approval of the settlement, including its use of a cy pres remedy and the expansion of the settlement class. The denial leaves intact the settlement’s structure and the allocation of funds as determined by the parties and approved by the District Court. The Court did not establish new precedent on the broader issues related to cy pres remedies in class actions, signaling that such matters remain open for future consideration.
The petition for a writ of certiorari is denied. Statement of Chief Justice ROBERTS respecting the denial of certiorari.
In November 2007, respondent Facebook, Inc., released a program called “Beacon.” It worked like this: Whenever someone visited the Web site of a participating company and performed a “trigger” activity, such as posting a comment or buying a product, the program would automatically report the activity and the user's personally identifiable information to Facebook—regardless of whether the user was a Facebook member. If the user was a Facebook member, Facebook would publish the activity on his member profile and broadcast it to everyone in his “friends” network. So rent a movie from Blockbuster.com, and all your friends would know the title. Or plan a vacation on Hotwire.com, and all your friends would know the destination. To prevent Facebook from posting a particular trigger activity, a member had to affirmatively opt out by clicking an icon in a pop-up window that appeared for about ten seconds after he performed the activity.
Beacon resulted in the dissemination of large amounts of information Facebook members allegedly did not intend to share, provoking a public outcry against Beacon and Facebook. Facebook responded about a month after Beacon's launch by changing the program's default setting from opt out to opt in, so that any given trigger activity would not appear on a member's profile unless the member explicitly consented. Facebook also allowed its members to disable Beacon altogether.
In August 2008, 19 individuals brought a putative class action lawsuit in the U.S. District Court for the Northern District of California against Facebook and the companies that had participated in Beacon, alleging violations of various federal and state privacy laws. The putative class comprised only those individuals whose personal information had been obtained and disclosed by Beacon during the approximately one-month period in which the program's default setting was opt out rather than opt in. The complaint sought damages and various forms of equitable relief, including an injunction barring the defendants from continuing the program.
In the end, the vast majority of Beacon's victims got neither remedy. The named plaintiffs reached a settlement agreement with the defendants before class certification. Although Facebook promised to discontinue the “Beacon” program itself, plaintiffs' counsel conceded at the fairness hearing in the District Court that nothing in the settlement would preclude Facebook from reinstituting the same program with a new name. See Tr. 18 (Feb. 26, 2010) (counsel for named plaintiffs) (“At the end of the day, we could not reach agreement with defendants regarding limiting their future actions as a corporation”).
And while Facebook also agreed to pay $9.5 million, the parties allocated that fund in an unusual way. Plaintiffs' counsel were awarded nearly a quarter of the fund in fees and costs, while the named plaintiffs received modest incentive payments. The unnamed class members, by contrast, received no damages from the remaining $6.5 million. Instead, the parties earmarked that sum for a “ cy pres ” remedy —an “as near as” form of relief—because distributing the $6.5 million among the large number of class members would result in too small an award per person to bother. The cy pres remedy agreed to by the parties entailed the establishment of a new charitable foundation that would help fund organizations dedicated to educating the public about online privacy. A Facebook representative would be one of the three members of the new foundation's board.
To top it off, the parties agreed to expand the settlement class barred from future litigation to include not just those individuals injured by Beacon during the brief period in which it was an opt-out program—the class proposed in the original complaint—but also those injured after Facebook had changed the program's default setting to opt in. Facebook thus insulated itself from all class claims arising from the Beacon episode by paying plaintiffs' counsel and the named plaintiffs some $3 million and spending $6.5 million to set up a foundation in which it would play a major role. The District Court approved the settlement as “fair, reasonable, and adequate.” Fed. Rule Civ. Proc. 23(e)(2); see Lane v. Facebook, Inc., Civ. No. C 08–3845, 2010 WL 9013059 (N.D.Cal., Mar. 17, 2010).
Petitioner Megan Marek was one of four unnamed class members who objected to the settlement. Her challenge focused on a number of disconcerting features of the new Foundation: the facts that a senior Facebook employee would serve on its board, that the board would enjoy nearly unfettered discretion in selecting fund recipients, and that the Foundation—as a new entity—necessarily lacked a proven track record of promoting the objectives behind the lawsuit. She also criticized the overall settlement amount as too low. The District Court rebuffed these objections, as did a divided panel of the Ninth Circuit on appeal. Lane v. Facebook, Inc., 696 F.3d 811 (2012). A petition for rehearing en banc was denied, over the dissent of six judges. Lane v. Facebook, Inc., 709 F.3d 791 (2013).
I agree with this Court's decision to deny the petition for certiorari. Marek's challenge is focused on the particular features of the specific cy pres settlement at issue. Granting review of this case might not have afforded the Court an opportunity to address more fundamental concerns surrounding the use of such remedies in class action litigation, including when, if ever, such relief should be considered; how to assess its fairness as a general matter; whether new entities may be established as part of such relief; if not, how existing entities should be selected; what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on. This Court has not previously addressed any of these issues. Cy pres remedies, however, are a growing feature of class action settlements. See Redish, Julian, & Zyontz, Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis, 62 Fla. L.Rev. 617, 653–656 (2010). In a suitable case, this Court may need to clarify the limits on the use of such remedies.
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