Ginger McCall v. Facebook, Inc. , 696 F.3d 811 ( 2012 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SEAN LANE; MOHANNAED SHEIKHA; 
SEAN MARTIN; ALI SAMMOUR;
MOHAMMAED ZIDAN; SARA KARROW;
COLBY HENSON; DENTON HUNKER;
FIRAS SHEIKHA; HASSEN SHEIKHA;
LINDA STEWART; TINA TRAN;
MATTHEW SMITH; ERICA PARNELL;
JOHN CONWAY; PHILLIP HUERTA;
ALICIA HUNKER; MEGAN LYNN
HANCOCK, a minor, by and through
her parent Rebecca Holey; AUSTIN
MUHS; CATHERINE HARRIS; MARIO
HERRERA; MARYAM HOSSEINY,
individually and on behalf of
themselves and all others similarly No. 10-16380
situated,  D.C. No.
Plaintiffs-Appellees, 5:08-cv-03845-RS
v.
FACEBOOK, INC., a Delaware
corporation; BLOCKBUSTER, INC., a
Delaware corporation; FANDANGO,
INC., a Delaware corporation;
HOTWIRE, INC., a Delaware
corporation; STA TRAVEL, INC., a
Delaware corporation;
OVERSTOCK.COM, INC., a Delaware
corporation; ZAPPOS.COM, INC., a
Delaware corporation; GAMEFLY,
INC., a Delaware corporation,
Defendants-Appellees, 
11531
11532 MCCALL v. FACEBOOK, INC.
GINGER MCCALL, Class Member, 

Objector-Appellant. 
SEAN LANE; MOHANNAED SHEIKHA; 
SEAN MARTIN, individually, and on
behalf of themselves and all others
similarly situated; ALI SAMMOUR;
MOHAMMAED ZIDAN; SARA KARROW;
COLBY HENSON; DENTON HUNKER;
FIRAS SHEIKHA; HASSEN SHEIKHA;
LINDA STEWART; TINA TRAN;
MATTHEW SMITH; ERICA PARNELL;
JOHN CONWAY; PHILLIP HUERTA;
ALICIA HUNKER; MEGAN LYNN
HANCOCK, a minor, by and through
her parent Rebecca Holey; AUSTIN
No. 10-16398
MUHS; CATHERINE HARRIS; MARIO
HERRERA; MARYAM HOSSEINY,
individually and on behalf of
 D.C. No.
5:08-cv-03845-RS
themselves and all others similarly OPINION
situated,
Plaintiffs-Appellees,
v.
FACEBOOK, INC., a Delaware
corporation; BLOCKBUSTER, INC., a
Delaware corporation; HOTWIRE, INC.,
a Delaware corporation; FANDANGO,
INC., a Delaware corporation; STA
TRAVEL, INC., a Delaware
corporation; OVERSTOCK.COM, INC., a
Delaware corporation; ZAPPOS.COM,
INC., a Delaware corporation; 
MCCALL v. FACEBOOK, INC. 11533
GAMEFLY, INC., a Delaware 
corporation,

Defendants-Appellees,
MEGAN MAREK; BENJAMIN TROTTER,
Class Members,
Objectors-Appellants. 
Appeal from the United States District Court
for the Northern District of California
Richard Seeborg, District Judge, Presiding
Argued and Submitted
October 12, 2011—San Francisco, California
Filed September 20, 2012
Before: Procter Hug, Jr., Andrew J. Kleinfeld, and
William A. Fletcher, Circuit Judges.
Opinion by Judge Hug;
Dissent by Judge Kleinfeld
11536 MCCALL v. FACEBOOK, INC.
COUNSEL
Michael H. Page, Public Citizen Litigation Group, Washing-
ton, D.C.; Steven F. Helfand, Helfand Law Offices, San Fran-
cisco, California, for the objectors-appellants.
Scott A. Kamber, Kamber Law, LLC, New York, New York,
for the plaintiffs-appellees.
Michael G. Rhodes, Cooley LLP, San Francisco, California,
for the defendants-appellees.
MCCALL v. FACEBOOK, INC. 11537
OPINION
HUG, Circuit Judge:
The question presented is whether the district court abused
its discretion in approving the parties’ $9.5 million settlement
agreement as “fair, reasonable, and adequate,” either because
a Facebook employee sits on the board of the organization
distributing cy pres funds or because the settlement amount
was too low. We hold that it did not.
I
Facebook is an online social network where members
develop personalized web profiles to interact and share infor-
mation with other members. The type of information mem-
bers share varies considerably, and it can include news
headlines, photographs, videos, personal stories, and activity
updates. Members generally publish information they want to
share to their personal profile, and the information is thereby
broadcasted to the members’ online “friends” (i.e., other
members in their online network).
In November of 2007, Facebook launched a new program
called “Beacon.” Facebook described the purpose of the Bea-
con program as allowing its members to share with friends
information about what they do elsewhere on the Internet. The
program operated by updating a member’s personal profile to
reflect certain actions the member had taken on websites
belonging to companies that had contracted with Facebook to
participate in the Beacon program. Thus, for example, if a
member rented a movie through the participating website
Blockbuster.com, Blockbuster would transmit information
about the rental to Facebook, and Facebook in turn would
broadcast that information to everyone in the member’s online
network by publishing to his or her personal profile.
Although Facebook initially designed the Beacon program
to give members opportunities to prevent the broadcast of any
11538 MCCALL v. FACEBOOK, INC.
private information, it never required members’ affirmative
consent. As a result, many members complained that Beacon
was causing publication of otherwise private information
about their outside web activities to their personal profiles
without their knowledge or approval. Facebook responded to
these complaints (and accompanying negative media cover-
age) first by releasing a privacy control intended to allow its
members to opt out of the Beacon program fully, and then
ultimately by discontinuing operation of the program alto-
gether.
Unsatisfied with these responses, a group of nineteen plain-
tiffs filed a putative class action in federal district court
against Facebook and a number of other entities that operated
websites participating in the Beacon program. The class-
action complaint alleged that the defendants had violated vari-
ous state and federal privacy statutes.1 Each of the plaintiffs’
claims centered on the general allegation that Beacon partici-
pants had violated Facebook members’ privacy rights by gath-
ering and publicly disseminating information about their
online activities without permission. The plaintiffs sought
damages and a variety of equitable remedies for the alleged
privacy violations.
Facebook denied liability and filed a motion to dismiss the
plaintiffs’ claims. Before the district court ruled on Face-
book’s motion, the parties elected to attempt settling their
case through private mediation. The parties’ initial settlement
talks reached an impasse over whether Facebook should ter-
minate the Beacon program permanently, but after two media-
tion sessions and several months of negotiations, Facebook
1
Specifically, the plaintiffs alleged violations of the Electronic Commu-
nications Privacy Act, 18 U.S.C. § 2510 (1986); the Computer Fraud and
Abuse Act, 18 U.S.C. § 1030 (1986); the Video Privacy Protection Act,
18 U.S.C. § 2710 (1988); California’s Consumer Legal Remedies Act,
Cal. Civ. Code § 1750; and California’s Computer Crime Law, Cal. Pen.
Code § 502.
MCCALL v. FACEBOOK, INC. 11539
and the plaintiffs arrived at a settlement agreement. In Sep-
tember of 2009, plaintiff Sean Lane submitted the parties’
finalized settlement agreement to the district court for prelimi-
nary approval.
The terms of the settlement agreement provided that Face-
book would permanently terminate the Beacon program and
pay a total of $9.5 million in exchange for a release of all the
plaintiffs’ class claims. Of the $9.5 million pay-out, approxi-
mately $3 million would be used to pay attorneys’ fees,
administrative costs, and incentive payments to the class rep-
resentatives. Facebook would use the remaining $6.5 million
or so in settlement funds to set up a new charity organization
called the Digital Trust Foundation (“DTF”). The stated pur-
pose of DTF would be to “fund and sponsor programs
designed to educate users, regulators[,] and enterprises
regarding critical issues relating to protection of identity and
personal information online through user control, and the pro-
tection of users from online threats.” The parties’ respective
counsel arrived at the decision to distribute settlement funds
through a new grant-making organization, rather than simply
give the funds to an existing organization, at the suggestion
of the private mediator overseeing their negotiations. Neither
Facebook’s nor the plaintiffs’ class counsel was comfortable
with selecting in advance any particular non-profit or non-
profits to receive the entirety of the settlement fund, so they
acceded to the mediator’s suggestion that Facebook set up a
new entity whose sole purpose was to designate fund recipi-
ents consistent with DTF’s mission to promote the interests of
online privacy and security.
According to DTF’s Articles of Incorporation, DTF would
be run by a three-member board of directors. The initial three
directors were Larry Magrid, a member of the federal govern-
ment’s Online Safety and Technology Working Group and
several other online safety organizations; Chris Hoofnagle,
director of the Information Privacy Programs at the Berkeley
Center for Law and Technology and former director for an
11540 MCCALL v. FACEBOOK, INC.
office of the Electronic Privacy Information Center; and most
relevant here, Timothy Sparapani, Facebook’s Director of
Public Policy and former counsel for the American Civil Lib-
erties Union. The Articles of Incorporation further provided
that all of DTF’s funding decisions had to be supported by at
least two members of the three-member board of directors but
that the plan for succession of directors required unanimous
approval. Finally, the Articles of Incorporation provided that
DTF would be strictly a grant-making organization and could
not engage in lobbying or litigation.
The settlement agreement also provided for the creation of
a Board of Legal Advisors within DTF, which would consist
of counsel for both the plaintiff class and Facebook. The pur-
pose of the Board of Legal Advisors would be to advise and
monitor DTF to ensure that it acted consistently with its mis-
sion as articulated in the settlement agreement.
After a hearing, the district court certified the plaintiff class
for settlement purposes and preliminarily approved the par-
ties’ proposed settlement. The settlement class consisted of all
Facebook members who had visited the website of a Beacon
participant that transmitted information about the members’
activity to Facebook during the relevant period. The district
court ordered Facebook to identify all class members and to
send the class notification of the settlement. Following that
order, Facebook identified 3,663,651 class members, to whom
it provided notice of the settlement in several ways. The prin-
cipal method was to send an e-mail to the class members.
Facebook also posted a notice of the settlement in the “Up-
dates” section of members’ personal Facebook accounts and
published a separate notice in the national edition of the news-
paper USA Today. All forms of notice directed class members
to a website and toll-free number that contained information
about the settlement.
Also pursuant to the district court’s order, notice to class
members informed them of their right to opt out of the lawsuit
MCCALL v. FACEBOOK, INC. 11541
and settlement, and to file any written comments or objections
with the district court before final approval. At the conclusion
of the notice period, 108 class members had opted out of the
settlement, and four had filed written objections. The four
class members who decided to remain in the lawsuit but file
objections to the settlement were Ginger McCall, Megan
Marek, Benjamin Trotter, and Patricia Burleson (collectively
“Objectors”).
Following a final settlement approval hearing in which the
district court heard from both the parties and Objectors, the
district court entered an order certifying the settlement class
and approving the class settlement. The district court dis-
missed the plaintiffs’ class action consistent with the settle-
ment agreement, and it maintained jurisdiction over
implementation of the settlement. The district court also
awarded class counsel attorneys’ fees in a separate order. The
amount of the attorneys’ fees was calculated at $2,322,763
under the “lodestar” method, meaning that the court multi-
plied the number of hours class counsel reasonably spent on
the case by a reasonable hourly rate. That amount was com-
bined with costs for a total attorneys’ fees award of
$2,364,973, which represented less than one-third of the full
$9.5 million settlement amount.
Objectors now appeal, contending that the district court
abused its discretion in approving the parties’ settlement. We
have jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm.
II
A district court’s approval of a class-action settlement must
be accompanied by a finding that the settlement is “fair, rea-
sonable, and adequate.” Fed. R. Civ. P. 23(e). Appellate
review of the district court’s fairness determination is “ex-
tremely limited,” and we will set aside that determination only
upon a “strong showing that the district court’s decision was
a clear abuse of discretion.” See Hanlon v. Chrysler Corp.,
11542 MCCALL v. FACEBOOK, INC.
150 F.3d 1011, 1026-27 (9th Cir. 1998) (holding that district
court should have broad discretion because it “is exposed to
the litigants, and their strategies, positions and proof”) (inter-
nal quotations omitted).
Both the district court and this court must evaluate the fair-
ness of a settlement as a whole, rather than assessing its indi-
vidual components. See id. at 1026. As our precedents have
made clear, the question whether a settlement is fundamen-
tally fair within the meaning of Rule 23(e) is different from
the question whether the settlement is perfect in the estima-
tion of the reviewing court. See id. at 1027. Although Rule 23
imposes strict procedural requirements on the approval of a
class settlement, a district court’s only role in reviewing the
substance of that settlement is to ensure that it is “fair, ade-
quate, and free from collusion.” See id.
A number of factors guide the district court in making that
determination, including:
the strength of the plaintiffs’ case; the risk, expense,
complexity, and likely duration of further litigation;
the risk of maintaining class action status throughout
the trial; the amount offered in settlement; the extent
of discovery completed and the stage of the proceed-
ings; the experience and views of counsel; the pres-
ence of a governmental participant; and the reaction
of the class members to the proposed settlement.
Id. at 1026 (hereinafter the “Hanlon factors”). Additionally,
when (as here) the settlement takes place before formal class
certification, settlement approval requires a “higher standard
of fairness.” See id. The reason for more exacting review of
class settlements reached before formal class certification is
to ensure that class representatives and their counsel do not
secure a disproportionate benefit “at the expense of the
unnamed plaintiffs who class counsel had a duty to repre-
sent.” See id. at 1027; see also In re Gen. Motors Corp. Pick-
MCCALL v. FACEBOOK, INC. 11543
Up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 787 (3d
Cir. 1995) (explaining that “[w]ith less information about the
class” at the early stage before formal class certification, the
court “cannot as effectively monitor for collusion, individual
settlements, buy-offs (where some individuals use the class
action device to benefit themselves at the expense of absen-
tees), and other abuses”). Accordingly, when reviewing a dis-
trict court’s approval of a class settlement reached before
formal class certification, we will not affirm if it appears that
the district court did not evaluate the settlement sufficiently to
account for the possibility that class representatives and their
counsel have sacrificed the interests of absent class members
for their own benefit.
[1] The settlement in this case provides for a cy pres rem-
edy. A cy pres remedy, sometimes called “fluid recovery,”
Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 784 (7th Cir.
2004), is a settlement structure wherein class members
receive an indirect benefit (usually through defendant dona-
tions to a third party) rather than a direct monetary payment.
As we recently recognized, the “cy pres doctrine allows a
court to distribute unclaimed or non-distributable portions of
a class action settlement fund to the ‘next best’ class of bene-
ficiaries.” Nachshin v. AOL, LLC, 663 F.3d 1034, 1036 (9th
Cir. 2011). For purposes of the cy pres doctrine, a class-action
settlement fund is “non-distributable” when “the proof of
individual claims would be burdensome or distribution of
damages costly.” See id. at 1038 (quoting Six Mexican Work-
ers v. Ariz. Citrus Growers, 904 F.2d 1301, 1305 (9th Cir.
1990)). The district court’s review of a class-action settlement
that calls for a cy pres remedy is not substantively different
from that of any other class-action settlement except that the
court should not find the settlement fair, adequate, and rea-
sonable unless the cy pres remedy “account[s] for the nature
of the plaintiffs’ lawsuit, the objectives of the underlying stat-
utes, and the interests of the silent class members . . . .” Nach-
shin, 663 F.3d at 1036.
11544 MCCALL v. FACEBOOK, INC.
III
Objectors challenge the district court’s conclusion that the
settlement in this case was “fair, reasonable, and adequate”
within the meaning of Rule 23(e). The district court arrived
at that determination after considering Objectors’ written
statements and holding a fairness hearing where it provided
Objectors an opportunity to be heard. The district court
accompanied its fairness conclusion with findings of fact,
which included the court’s application of the eight Hanlon
factors to the parties’ settlement agreement.
Weighing those factors, the district court found that the set-
tlement should be approved on the basis of the following: (1)
reliance on novel legal theories and unclear factual issues
undermined the strength of the plaintiffs’ case; (2) the com-
plex nature of the plaintiffs’ claims increased the risk and
expense of further litigation; (3) the class action could be
decertified at any time, which “generally weighs in favor of
approving a settlement”; (4) “[i]n light of [the] litigation risks
and in the context of settlement claims involving infringment
of consumers’ privacy rights,” the class’s $9.5 million recov-
ery was “substantial” and “directed toward a purpose closely
related to Class Members’ interests in this litigation”; (5) the
parties had engaged in significant investigation and informal
discovery and research, which in addition to information
about Beacon that was already publicly known enabled the
plaintiff class to “make an informed decision with respect to
settlement, even though formal discovery” had not yet been
completed; (6) the settlement was “only achieved after intense
and protracted arm’s-length negotiations conducted in good
faith and free from collusion,” and that class counsel had
“reasonably concluded that the immediate benefits repre-
sented by the Settlement outweighed the possibility—perhaps
remote—of obtaining a better result at trial”; (7) no govern-
ment agencies voiced objections or otherwise announced
actions arising out of Facebook’s Beacon program; and (8)
only four class members objected and “slightly more than
MCCALL v. FACEBOOK, INC. 11545
100” from a class of over 3.6 million opted out of the settle-
ment.
Objectors raise two issues in opposition to the district
court’s fairness findings. The first relates to the settlement
agreement’s provision for a cy pres remedy. The second
relates to the overall amount of the settlement. Objectors also
raise the ancillary argument that notice to class members con-
cerning the settlement was inadequate. We address each of
these issues in turn.
1
Objectors’ first and strongest objection to the settlement
goes to the structure of DTF, the organization that would dis-
tribute cy pres funds under the settlement agreement. Objec-
tors contend that the presence of Tim Sparapani, Facebook’s
Director of Public Policy, on DTF’s board of directors creates
an unacceptable conflict of interest that will prevent DTF
from acting in the interests of the class. Citing Six Mexican
Workers, Objectors claim that the settling parties’ decision to
disburse settlement funds through an organization with such
structural conflicts does not provide the “next best distribu-
tion” of those funds and thus is categorically an improper use
of the cy pres remedy.
[2] We disagree. Objectors’ argument misunderstands the
cy pres doctrine and the principle from our case law that a cy
pres remedy must provide the “next best distribution” absent
a direct monetary payment to absent class members. We do
not require as part of that doctrine that settling parties select
a cy pres recipient that the court or class members would find
ideal. On the contrary, such an intrusion into the private par-
ties’ negotiations would be improper and disruptive to the set-
tlement process. See Hanlon, 150 F.3d at 1027. The statement
in Six Mexican Workers and elsewhere in our case law that a
cy pres remedy must be the “next best distribution” of settle-
ment funds means only that a district court should not approve
11546 MCCALL v. FACEBOOK, INC.
a cy pres distribution unless it bears a substantial nexus to the
interests of the class members—that, as we stated in Nach-
shin, the cy pres remedy “must account for the nature of the
plaintiffs’ lawsuit, the objectives of the underlying statutes,
and the interests of the silent class members. . . .” 663 F.3d
at 1036.2
[3] The cy pres remedy in this case properly accounts for
the factors outlined in Nachshin. Objectors concede that direct
monetary payments to the class of remaining settlement funds
would be infeasible given that each class member’s direct
recovery would be de minimus. Objectors also do not dispute
that DTF’s distribution of settlement funds to entities that pro-
mote the causes of online privacy and security will benefit
absent class members and further the purposes of the privacy
statutes that form the basis for the class-plaintiffs’ lawsuit.
Unlike the cy pres remedies we disapproved in Nachshin and
Six Mexican Workers, there is no issue in this case about
whether the connection between the cy pres recipients and the
absent class members is too tenuous, either because the cy
pres entities’ missions are unrelated to the class’s interests or
because their geographic scope is too limited. See Six Mexi-
can Workers, 904 F.2d at 1308; Nachshin, 663 F.3d at 1040.
The cy pres remedy the settling parties here have devised
bears a direct and substantial nexus to the interests of absent
class members and thus properly provides for the “next best
distribution” to the class.
[4] We find no substance in Objectors’ claim that the pres-
ence of a Facebook employee on DTF’s board of directors
categorically precludes DTF from serving as the entity that
will distribute cy pres funds. As the “offspring of compro-
mise,” Hanlon, 150 F.3d at 1027, settlement agreements will
2
Our decision in Nachshin was not published at the time of argument
in this case, but the principles we announced there were well established.
We discuss Nachshin here because it provides a helpful summary of exist-
ing case law on the cy pres doctrine.
MCCALL v. FACEBOOK, INC. 11547
necessarily reflect the interests of both parties to the settle-
ment, including those of the defendant. Defendants often
insist on certain concessions in exchange for monetary pay-
ments or other demands plaintiffs make, and defendants can
certainly be expected to structure a settlement in a way that
does the least harm to their interests. Here, in exchange for its
promise to pay the plaintiff class approximately $9.5 million,
Facebook insisted on preserving its role in the process of
selecting the organizations that would receive a share of that
substantial settlement fund by providing that one of its repre-
sentatives would sit on DTF’s initial board of directors, and
the plaintiffs readily agreed to this condition. That Facebook
retained and will use its say in how cy pres funds will be dis-
tributed so as to ensure that the funds will not be used in a
way that harms Facebook is the unremarkable result of the
parties’ give-and-take negotiations,3 and the district court
properly declined to undermine those negotiations by second-
guessing the parties’ decision as part of its fairness review
over the settlement agreement.
[5] We also reject Objectors’ claim that the settlement
agreement’s cy pres structure is impermissible because the
parties elected to create a new grant-making entity, DTF,
rather than give cy pres funds to an already-existing online
privacy organization. Again citing Six Mexican Workers,
Objectors argue that DTF has “no substantial record of ser-
vice” and is therefore inherently disfavored as a cy pres recip-
ient. But we have never held that cy pres funds must go to
extant charities in order to survive fairness review, and a set-
tlement agreement that provides for the formation of a new
grant-making organization is not subject to a more stringent
3
Objectors argue that Facebook’s desire to protect its interest in the cy
pres distribution process is tantamount to Facebook preserving its right to
cause harm to the class. But Objectors’ argument assumes a false dichot-
omy. It is perfectly consistent to say that DTF can be structured both to
ensure Facebook’s interests are not harmed and to promote the plaintiffs’
general interests in the causes of online privacy and security.
11548 MCCALL v. FACEBOOK, INC.
fairness standard. The reason we found it relevant in Six Mex-
ican Workers that the charity organization designated to
receive cy pres funds had no “substantial record of service”
was that there was no way of knowing whether the organiza-
tion would use the funds to the benefit of class members. See
Six Mexican Workers, 904 F.2d at 1308. Here, there is no
such worry, because the settlement agreement and DTF’s
Articles of Incorporation tell us exactly how funds will be
used—to “fund and sponsor programs designed to educate
users, regulators[,] and enterprises regarding critical issues
relating to protection of identity and personal information
online through user control, and the protection of users from
online threats.”4 As we have explained, that mission statement
provides the requisite nexus between the cy pres remedy and
the interests furthered by the plaintiffs’ lawsuit consistent
with the principles we announced in Nachshin.
[6] Objectors’ contention that the settling parties were pro-
hibited from creating DTF to disburse cy pres funds is without
merit, and the district court did not abuse its discretion in so
concluding.
2
[7] Objectors’ second argument on appeal is that the dis-
trict court did not sufficiently evaluate the plaintiffs’ claims
and compare the value of those claims with the class’s $9.5
million recovery in the settlement agreement. Objectors con-
tend that the value of the plaintiffs’ claims was in fact greater
than the $9.5 million the plaintiffs settled for, in large part
because some unidentified number of the class members may
4
Objectors suggest that there is no assurance that DTF would perform
in accordance with the strictures of its charter document, but that is unsup-
ported speculation. There is no reason to suppose that both the Board of
Legal Advisors (consisting of both the settling parties’ counsel) and the
district court (which retained jurisdiction over implementation of the set-
tlement) would abdicate their responsibility to ensure that DTF performs
according to the settlement agreement.
MCCALL v. FACEBOOK, INC. 11549
have a claim under the Video Privacy Protection Act
(“VPPA”). The VPPA prohibits any “video tape service pro-
vider” from disclosing “personally identifiable information”
about one of its consumers, and it provides for liquidated
damages in the amount of $2,500 for violation of its provi-
sions. 18 U.S.C. §§ 2710(b) and 2710(c)(2). Objectors con-
tend that the district court was not sufficiently mindful of the
possibility that the class’s VPPA claims would yield a high
recovery at trial, and that the court would not have approved
a settlement of $9.5 million if it had paid the proper attention
to that possibility.
[8] As an initial matter, we reject Objectors’ argument
insofar as it stands for the proposition that the district court
was required to find a specific monetary value corresponding
to each of the plaintiff class’s statutory claims and compare
the value of those claims to the proffered settlement award.
While a district court must of course assess the plaintiffs’
claims in determining the strength of their case relative to the
risks of continued litigation, see Hanlon, 150 F.3d at 1026, it
need not include in its approval order a specific finding of fact
as to the potential recovery for each of the plaintiffs’ causes
of action. Not only would such a requirement be onerous, it
would often be impossible—statutory or liquidated damages
aside, the amount of damages a given plaintiff (or class of
plaintiffs) has suffered is a question of fact that must be
proved at trial. Even as to statutory damages, questions of fact
pertaining to which class members have claims under the var-
ious causes of action would affect the amount of recovery at
trial, thus making any prediction about that recovery specula-
tive and contingent.
[9] Relatedly, the district court was not required to include
among its findings specific commentary on each of the plain-
tiffs’ five statutory claims. All of the plaintiffs’ claims arise
under similar privacy statutes, and as Facebook correctly
points out, the plaintiffs’ likelihood of success with regard to
each of those claims depends on the same basic legal theories
11550 MCCALL v. FACEBOOK, INC.
and factual issues. The district court acted properly in evaluat-
ing the strength of the plaintiffs’ case in its entirety rather
than on a claim-by-claim basis. See Hanlon, 150 F.3d at 1026.
Moreover, the record contradicts Objectors’ general argu-
ment that the district court did not meaningfully account for
the potential value of the plaintiffs’ claims, including any
claims under the VPPA. Both before and after the final settle-
ment approval hearing, the district court specifically
addressed the possibility that the presence of VPPA claims
among some class members might affect the class settlement.
In its order preliminarily approving the settlement, the district
court notified the parties that “final approval will require a
sufficient showing that terms of the settlement are reasonable,
specifically in light of the claims under the VPPA, and the
apparent availability of statutory penalties thereunder”
(emphasis added). Following the district court’s instructions,
the parties did address the VPPA issue in their briefing and
arguments at the final approval hearing. The district court also
heard from Objectors at that hearing, who again argued that
the settlement was too low in light of the possibility of recov-
ery under the VPPA.
The district court rejected that argument. It first observed
that Objectors had not “brought to the Court’s attention any
cases in which plaintiffs have been awarded multiple liqui-
dated damages,” which if available would likely increase the
class’s potential recovery under the VPPA substantially (even
if only a small number of class members had VPPA claims).
The district court further noted that bringing the VPPA claims
to trial would involve significant risk for the class given that
the plaintiffs’ claims relied on “novel legal theories” and
“vigorously disputed” factual issues concerning the Beacon
program. And although the district court did not mention it in
its approval order, the parties had presented evidence to the
court that Blockbuster, one of the only defendants that might
qualify as a “video tape service provider” and therefore be
subject to liability under the VPPA, was on the verge of bank-
MCCALL v. FACEBOOK, INC. 11551
ruptcy, likely making any substantial damages against it anni-
hilative. Based on its consideration of these factors, the
district court concluded that the “$9.5 million offered in set-
tlement is substantial.”
[10] That conclusion was not an abuse of the district
court’s broad discretion. A $9.5 million class recovery would
be substantial under most circumstances, and we see nothing
about this particular settlement that undermines the district
court’s conclusion that it was substantial in this case. Objec-
tors are no doubt correct that the VPPA claims of some class
members might prove valuable if successful at trial, but that
does not cast doubt on the district court’s conclusion as to the
fairness and adequacy of the overall settlement amount to the
class as a whole. It is an inherent feature of the class-action
device that individual class members will often claim differ-
ing amounts of damages—that is why due process requires
that individual members of a class certified under Rule
23(b)(3) be given an opportunity to opt out of the settlement
class to pursue their claims separately, as were the class mem-
bers in this case. See Hanlon, 150 F.3d at 1024. But a class-
action settlement necessarily reflects the parties’ pre-trial
assessment as to the potential recovery of the entire class,
with all of its class members’ varying claims. So even if some
of the class members in this case would have successful
claims for $2,500 in statutory damages under the VPPA, those
individuals represent, to use the candid phrasing of Objectors,
“only a fraction of the 3.6 million-person class.” Their pres-
ence does not in itself render the settlement unfair or the $9.5
million recovery among all class members too low.5
5
Although a settlement is not categorically unfair for certain class mem-
bers simply because they might recover higher damages than other class
members were they to prosecute their claims individually, significant vari-
ation in claimed damages among class members is relevant to the Rule
23(b)(3) “predominance” analysis during class certification. See Amchem
Prods., Inc. v. Windsor, 521 U.S. 591, 624-25 (1997). However, Objectors
do not challenge the district court’s class certification or its decision to
include individuals with VPPA claims in the settlement class, so we
express no opinion on that issue here.
11552 MCCALL v. FACEBOOK, INC.
Objectors rely significantly on Molski v. Gleich, 318 F.3d
937, 949 (9th Cir. 2003) overruled on other grounds by Dukes
v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010), in
claiming that the cy pres remedy here “did not adequately
protect the interests of the class,” but that case does not sup-
port Objectors’ argument. Molski involved a settlement that
required the defendant to pay $195,000 in cy pres funds in
exchange for a release of all the disability-related claims of a
large class. 318 F.3d at 943-44. The district court in Molski
had certified a mandatory settlement class under Rule
23(b)(2) without providing class members an opportunity to
opt out of the settlement. Id. at 947. In addition to holding that
the inability to opt out of the settlement violated class mem-
bers’ due process rights, we held that “use of the cy pres
award was inappropriate” under the circumstances because
the parties had not made any showing that direct distribution
of settlement funds to the class would be burdensome or
costly. Id. at 954-55. We also found “troubling” that the
class’s recovery under the settlement was so low relative to
the high number of potential class members. See id.
Unlike the $195,000 cy pres fund in Molski, the settlement
in this case provides for a substantial $9.5 million pay-out by
Facebook for the benefit of the class and thus does not present
a situation in which class representatives and counsel
accepted their respective fees as a quid pro quo for quietly
going away while the class receives virtually nothing. See id.
at 953-54. Also fundamentally different is that class members
here received notice and were given the opportunity to opt out
of the settlement. And, most essentially, there is no dispute
that it would be “burdensome” and inefficient to pay the $6.5
million in cy pres funds that remain after costs directly to the
class because each class member’s recovery under a direct
disbribution would be de minimus. See id. at 955. These fea-
tures distinguish the present case from Molski and help to
account for why the latter was one of the “rare” cases where
we have intruded into the discretion of the district court by
setting aside its determination that a settlement agreement is
MCCALL v. FACEBOOK, INC. 11553
fundamentally fair. See Staton v. Boeing Co., 327 F.3d 938,
960-61 (9th Cir. 2003).
[11] The record here convincingly establishes that the dis-
trict court accounted for the potential value of the VPPA
claims of some class members, and the district court’s review
of the circumstances surrounding the settlement was suffi-
ciently comprehensive to ensure that class representatives and
their counsel did not throw absent class members under the
proverbial bus to secure a disproportionate benefit for them-
selves. See Hanlon, 150 F.3d at 1027. That review was
accordingly compliant with this circuit’s requirement that the
district court apply heightened review to a class-action settle-
ment reached before formal certification. See id. at 1026. This
is particularly manifest in that the district court’s detailed
approval order included the specific factual finding that the
settlement agreement “was only achieved after intense and
protracted arm’s-length negotiations conducted in good faith
and free from collusion.” Objectors have not made any show-
ing, let alone a “strong” one, that this or any of the district
court’s other findings was erroneous or amounted to a “clear
abuse of discretion.” See id. at 1027.
Finally, the litigants devote several pages of briefing to a
dispute over whether the settlement agreement’s provision
mandating the permanent termination of the Beacon program
provided any meaningful relief to the plaintiff class. Specifi-
cally, Objectors argue that Facebook’s promise to terminate
Beacon is “illusory” because the original program was non-
operational at the time of the settlement agreement and thus
already “effectively terminated.” In light of our holding
affirming the district court’s conclusion that the $9.5 settle-
ment award substantially furthers the interests of the class,
Objectors’ argument that Facebook’s promise to terminate
Beacon provides no meaningful relief is of little moment, and
in any event we find that it is without merit. Even assuming
Objectors’ premise that Beacon was already effectively termi-
nated, absent a judicially-enforceable agreement, Facebook
11554 MCCALL v. FACEBOOK, INC.
would be free to revive the program whenever it wanted. It is
thus false to say that Facebook’s promise never to do so was
illusory.
[12] We affirm the district court’s holding that the settle-
ment was fundamentally fair.
IV
Objectors argue additionally that the notice provided to
class members during the opt-out period was insufficient
because it did not describe the value of the plaintiffs’ statutory
claims and “did not accurately describe what the class mem-
bers would receive in exchange for the release” of those
claims. Objectors argue in particular that the notice should
have included a description of the VPPA statute, that it should
have alerted class members that a Facebook employee would
be on the board of the organization distributing cy pres funds,
and that its reference to Facebook’s promise to terminate Bea-
con was misleading because Beacon was already dormant.
[13] We disagree. Notice provided pursuant to Rule 23(e)
must “generally describe[ ] the terms of the settlement in suf-
ficient detail to alert those with adverse viewpoints to investi-
gate and to come forward and be heard.” Rodriguez v. West
Publ’g Corp., 563 F.3d 948, 962 (9th Cir. 2009) (internal
quotations omitted). That standard does not require detailed
analysis of the statutes or causes of action forming the basis
for the plaintiff class’s claims, and it does not require an esti-
mate of the potential value of those claims. See id. (notice
need not include “expected value of fully litigating the case”).
Nor is there any particular requirement that notice in a class-
action settlement involving a cy pres remedy name the indi-
viduals sitting on the cy pres recipient’s board of directors,
even if one of those individuals has some association with the
defendants in the case. Finally, for the same reasons we reject
Objectors’ argument that Facebook’s promise to terminate
MCCALL v. FACEBOOK, INC. 11555
Beacon was illusory, there was nothing misleading about ref-
erencing that promise in the class notice.
[14] We agree with the district court that the notice in this
case adequately apprised class members of all material ele-
ments of the settlement agreement and therefore complied
with the requirements of Rule 23(e).
V
Ultimately, we find little in Objectors’ opposition to the
settlement agreement beyond general dissatisfaction with the
outcome. That dissatisfaction may very well be legitimate
insofar as Objectors would have acted differently had they
assumed the role of class representatives. But while Objectors
may vigorously disagree with the class representatives’ deci-
sion not to hold out for more than $9.5 million or insist on a
particular recipient of cy pres funds, that disagreement does
not require a reviewing court to undo the settling parties’ pri-
vate agreement. The district court properly limited its substan-
tive review of that agreement as necessary to determine that
it was “fair, adequate, and free from collusion.” See id.
AFFIRMED.
KLEINFELD, Senior Circuit Judge, dissenting:
I respectfully dissent. This settlement perverts the class
action into a device for depriving victims of remedies for
wrongs, while enriching both the wrongdoers and the lawyers
purporting to represent the class.
A. The Facts.
1. “Beacon.”
Millions of people connect themselves to their “friends” on
Facebook. Some Facebook “friends” are friends in the tradi-
11556 MCCALL v. FACEBOOK, INC.
tional sense, people we know and like. Some are more in the
nature of contacts, or acquaintances, or people we think may
want to see what we post. For people who regularly use Face-
book to communicate, “friends” may merely be their address
book. The lead plaintiff in this case, Sean Lane, had over 700
Facebook “friends.” Facebook operates like a bulletin board,
so that “friends” can see whatever a user chooses to post and
not make private.
Facebook is “free,” furnished without a subscription price.
The company makes money by selling advertising. To make
such sales more lucrative, Facebook started a program called
“Beacon” in November 2007. Like an actual beacon, the pro-
gram shone light to make something easier to see: in this case,
a user’s “friends” could see whatever he had bought from
companies that paid Facebook to participate in Beacon. Over
forty companies signed up for Beacon, including Blockbuster,
a movie retailer, Zappos, a shoe and clothing retailer, and
Overstock.com, a discounter. If a Facebook user rented a
movie from Blockbuster, for example, Facebook told all his
friends what movie he had rented. Facebook told retailers,
“Facebook Beacon enables your brand or business to gain
access to viral distribution within Facebook. Stories of a
user’s engagement with your site . . . . will act as word-of-
mouth promotion for your business and may be seen by
friends who are also likely to be interested in your product.”
Many Facebook users strongly objected to losing the pri-
vacy of their purchases. After all, people ordinarily post on
their Facebook page only what they want to post, and they
had not elected to tell all their “friends” what they had just
bought. Some people buy things on the internet precisely
because they want more privacy than they would have at a
local store. Beacon took away their privacy, and broadcast
their purchases to people who users wanted to remain in the
dark.
Worse, Facebook made it very hard for users to avoid these
broadcasts. The user had to actively opt out. And opting out
MCCALL v. FACEBOOK, INC. 11557
required video game skills. The user would get a pop-up on
his screen asking whether he wanted to opt out, but the pop-
up would disappear in about ten seconds. Too slow reading
the pop-up or clicking the mouse, and all a user’s “friends”
would know exactly what he had bought. Since the pop-up
disappeared so quickly, someone looking at another window,
or answering the phone, or just not paying attention, would
likely not even be aware of the opt-out option before it disap-
peared.
Plaintiff Sean Lane alleges in the complaint that he bought
a ring from Overstock.com as a surprise for his wife, but
before he gave it to her, Facebook ruined the surprise by
spreading the news to his over 700 “friends,” including many
alumni in his college class. Ginger McCall states that her
video rentals at Blockbuster were disclosed to all her
“friends.” Of the vast number of people whose purchases
were broadcast, no doubt some suffered embarrassment, and
some suffered damage to employment, business, or personal
relationships. Some Blockbuster rentals doubtless included
erotica, some Overstock.com purchases probably included
gifts meant to look more expensive than they were, and some
Zappos purchases were probably more extravagant than pur-
chasers’ spouses were aware. Someone who had told her col-
lege classmate that she could not attend her wedding because
she could not afford the plane fare could lose a friend when
Facebook told her classmate that she’d bought $400 shoes.
Mr. Lane complains that his wife asked him about his ring
purchase before he gave it to her, ruining his Christmas gift
to her. His wife might also have been less impressed by the
ring than he had hoped, since she and all his other friends
could click a link and see that he had bought it cheaply —
good for advertising Overstock.com, bad for advertising Mr.
Lane’s generosity.
Many users’ private purchases were exposed, and over
50,000 complained. Within a few weeks (long before this
lawsuit was filed), Facebook eliminated the opt-out Beacon
11558 MCCALL v. FACEBOOK, INC.
program. Facebook changed it to an opt-in program, so that
users did not need to maintain video game alertness to avoid
disclosure to all their friends. In the opt-in version of Beacon,
purchases made in private stayed private unless the user
expressly allowed Facebook to publicize them. One of the
objectors to the settlement, Ginger McCall, says her movie
rentals were disclosed even after Beacon had supposedly
changed to an opt-in, and no findings have been made on
whether the opt-in worked or was tricky to operate.
2. The Settlement.
This lawsuit was filed in August 2008, about eight months
after the opt-out version of Beacon had ended. The complaint
challenged only the opt-out program that had lasted for a few
weeks, not the opt-in version that had been in place since
then. The parties mediated and settled, all before any class
was certified. They agreed to end Beacon, both opt-in as it
then was, and opt-out as it had been originally.
The settlement agreement approved by the district court
(mistakenly, in my view) greatly changed the class aspect of
the case. First, the parties agreed to certify the class for pur-
poses of settlement. Second, they agreed to expand it far
beyond what the complaint had sought. The complaint sought
damages only for users affected during the few weeks when
they had to opt out, but the settlement expanded the class to
include everyone affected during the much longer opt-in
period. Since the members of the class got no money from the
settlement, the effect of certification and expansion was to bar
any claims the expanded class might have, not to provide
more people with recompense. In exchange for nothing, class
members were barred from suing Facebook, Blockbuster,
Overstock.com, or any of the other defendants for any claims
arising from or relating to Beacon, “including, without limita-
tion, arising from or related to data gathered from Beacon.”
The majority states that Facebook promised never to revive
the Beacon program, but this is not quite right. Facebook
MCCALL v. FACEBOOK, INC. 11559
remained free to revive the program, even the cancelled ver-
sion under which the subscriber had only a few seconds to opt
out. The only limitation the settlement imposed was that Face-
book had to call the Beacon program by some other name.
The agreement said that Facebook would terminate “the Bea-
con Program,” and defined “Beacon” to mean “the program
launched by Facebook on November 6, 2007 and all iterations
thereof bearing the ‘Beacon’ name” (emphasis added). The
district judge asked about this term, and plaintiffs’ attorney
expressly conceded that Facebook was free to reinstitute the
same program under a different name. “[T]he problem was
when you tried to describe the functionality and you preclude
Facebook from using that functionality going forward, it
becomes truly problematic and becomes impossible to reach
an agreement because you’re limiting their ability to run their
business. . . . At the end of the day, we could not reach agree-
ment with defendants regarding limiting their future actions as
a corporation.” That was an on the record concession that the
injunction meant as little as it said, and Facebook remained
free to do what it had done before, under a different name.
The injunctive relief the class received was no relief at all, not
even a restriction on future identical conduct.
Facebook users who had suffered damages from past expo-
sure of their purchases got no money, not a nickel, from the
defendants. Even those who had rented videos, and were
arguably entitled to statutory damages of $2,500 for each disclo-
sure,1 got nothing. Class counsel, on the other had, got mil-
lions. Plaintiffs’ lawyers and Facebook agreed that Facebook
1
18 U.S.C. § 2710(b)(1), (c)(2)-(2) (“A video tape service provider who
knowingly discloses, to any person, personally identifiable information
concerning any consumer of such provider shall be liable . . . . Any person
aggrieved by any act of a person in violation of this section may bring a
civil action in a United States district court. The court may award — (A)
actual damages but not less than liquidated damage in an amount of
$2500; (B) punitive damages; (C) reasonable attorneys’ fees and other liti-
gation costs reasonably incurred; and (D) such other preliminary and equi-
table relief as the court determines to be appropriate.”).
11560 MCCALL v. FACEBOOK, INC.
would not object to attorneys’ fees up to one third of what
they called the “settlement fund.” One third would be a fee of
$3,166,667. The fee would come out of the “settlement fund”
and would not be in addition to it, so Facebook had no eco-
nomic interest in reducing the amount. The fee actually
approved by the district court was $2,322,763 plus costs of
$42,210.58, 25% of the “settlement fund.” That $2.3 million
payment was for getting their clients nothing and barring all
the claims of a vastly broadened class.
Not a cent of the remaining “settlement fund” money
would go to the Facebook users on whose behalf class counsel
purportedly settled. The only exceptions were $10,000 to Mr.
Lane, $5,000 each to two others, and $1,000 each to the other
19 named plaintiffs, amounting to $39,000 for the few people
in the class who presumably had personally agreed to have
class counsel represent them.
The remaining millions were to go to a new “privacy foun-
dation” that did not yet exist. The board of the new foundation
would be three directors to be agreed upon by Facebook and
class counsel, or if they disagreed one chosen by each and the
third chosen by those two. Under the agreement, all three
directors could come from the Facebook advertising and sales
staff if class counsel and Facebook so chose. The board of
directors of this “privacy foundation” was to be advised by
Facebook’s own lawyer and class counsel. The agreement
provided that the “privacy foundation” was to use its millions
to “fund projects and initiatives that promote the cause of
online privacy, safety, and security” however its Facebook-
friendly board chose.
B. Analysis.
The class action rule2 was designed to facilitate lawsuits
where individuals’ or small groups’ judgments would not add
2
Fed. R. Civ. P. 23.
MCCALL v. FACEBOOK, INC. 11561
up to enough money to justify hiring lawyers, but judgments
for large numbers of similarly situated victims of misconduct
would. “The policy at the very core of the class action mecha-
nism is to overcome the problem that small recoveries do not
provide the incentive for any individual to bring a solo action
prosecuting his or her rights. A class action solves this prob-
lem by aggregating the relatively paltry potential recoveries
into something worth someone’s (usually an attorney’s) labor.”3
This procedural device has obvious attendant risks, because
class counsel’s “clients” are not clients at all in the traditional
sense; they do not hire the lawyer, they do not agree on a fee
with him, and they do not control whether he settles their
case. They are in no position to prevent class counsel from
pursuing his own interests at their expense.4 The named plain-
tiffs, those who actually have some chance of directing their
lawyers, typically get amounts of cash without much relation
to their individual damages, so their incentives align more
with class counsel than with their fellow class members.
Defendant and class counsel, in any class action, have
incentives to collude in an agreement to bar victims’ claims
for little or no compensation to the victims, in exchange for
a big enough attorneys’ fee to induce betrayal of the interests
of the purported “clients.” The defendant’s agreement not to
oppose some amount for the fee creates the same incentive as
a payment to a prizefighter to throw a fight. A real client may
refuse a settlement that is bad for him but benefits his lawyer,
but a large class of unknown individuals lacks the knowledge
or authority to say no. It is hard to imagine a real client saying
to his lawyer, “I have no objection to the defendant paying
you a lot of money in exchange for agreement to seek nothing
for me.” “The absence of individual clients controlling the lit-
igation for their own benefit creates opportunities for collu-
3
Amchem Products, Inc. v. Windsor, 521 U.S. 591, 617 (1997) (quoting
Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997)).
4
See, e.g., Staton v. Boeing Co., 327 F.3d 938, 959-60 (9th Cir. 2003).
11562 MCCALL v. FACEBOOK, INC.
sive arrangements in which defendants can pay the attorneys
for the plaintiff class enough money to induce them to settle
the class action for too little benefit to the class (or too much
benefit to the attorneys, if the claim is weak but the risks to
the defendants high).”5
Rule 23 protects against these risks much as the courts have
traditionally protected against similar risks when attorneys
represent children, estates of deceased persons, and unknown
persons, by requiring judicial approval of settlements.
Approval and review, though, are a weak substitute for real
clients, because judges know little about the case beyond what
the lawyers tell them. That works much better when the law-
yers are on different sides than when they are on the same
side. Judges also may face an incentive problem, where a
heavy docket cannot easily withstand the additional weight of
a huge lawsuit that does not settle. Objectors provide a criti-
cally valuable service of providing knowledge from a differ-
ent point of view, but one that is too often not used
effectively. Our review process is supposed to assure that set-
tlement of a class action, despite the risk of perverse incen-
tives, is “fair, reasonable, and adequate”6 and that notice is
given “in a reasonable manner”7 so that those bound by the
settlement have an opportunity to be heard.
In this case, the process has failed. The attorneys for the
class have obtained a judgment for millions of dollars in fees.
The defendant, Facebook, has obtained a judgment that bars
claims by millions of people victimized by its conduct. So
have the other companies involved in Beacon. The victims, on
the other hand, have obtained nothing. Under the settlement,
Facebook even preserved the right to do the same thing to
them again.
5
Zucker v. Occidental Petroleum Corp., 192 F.3d 1323, 1327 (9th Cir.
1999).
6
Fed. R. Civ. P. 23(e)(2).
7
Fed. R. Civ. P. 23(e)(1).
MCCALL v. FACEBOOK, INC. 11563
1. The Settlement is Unfair, Unreasonable, and
Inadequate.
The factors for evaluating class action settlements8 are mul-
tifarious and indeterminate, but the cases have become less
tolerant of settlements not beneficial to class members. We
used to be extremely deferential when district courts approved
settlements, as in Hanlon v. Chrysler Corp.,9 the 1998 case on
which the majority relies. We have in the last few years
become much less so, as in our recent decisions In re Bluetooth,10
Nachshin v. AOL, LLC,11 and Dennis v. Kellogg Co.12 We still
exercise deferential review for abuse of discretion, but do so
in light of what we rejected in Bluetooth, Nachsin, and Den-
nis. Review for abuse of discretion has never meant that we
will affirm whatever a district court does.13
8
See, e.g., Hanlon v. Chrysler Corp., 150 F.3d 1011, 1026 (9th Cir.
1998) (“Assessing a settlement proposal requires the district court to bal-
ance a number of factors: the strength of the plaintiffs’ case; the risk,
expense, complexity, and likely duration of further litigation; the risk of
maintaining class action status throughout the trial; the amount offered in
settlement; the extent of discovery completed and the stage of the proceed-
ings; the experience and views of counsel; the presence of a governmental
participant; and the reaction of the class members to the proposed settle-
ment.”) (citation omitted); Officers for Justice v. Civil Serv. Comm’n of
San Francisco, 688 F.2d 615, 625 (9th Cir. 1982) (noting that such factors
are “by no means an exhaustive list of relevant considerations . . . . The
relative degree of importance to be attached to any particular factor will
depend upon and be dictated by the nature of the claim(s) advanced, the
type(s) of relief sought, and the unique facts and circumstances presented
by each individual case.”).
9
Hanlon, 150 F.3d 1011.
10
In re Bluetooth Headset Products Liab. Litig., 654 F.3d 935, 946 (9th
Cir. 2011).
11
Nachshin v. AOL, LLC, 663 F.3d 1034, 1040 (9th Cir. 2011).
12
Dennis v. Kellogg Co., No. 11-55674, 2012 WL 2870128 (9th Cir.
July 13, 2012).
13
Cf. Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301,
1307-09 (9th Cir. 1990) (finding that a district court’s use of cy pres to
distribute unclaimed settlement funds was an abuse of discretion because
it did not “adequately target the plaintiff class and fail[ed] to provide ade-
quate supervision over distribution”).
11564 MCCALL v. FACEBOOK, INC.
An extremely important qualification even in Hanlon was
a “higher standard of fairness”14 when settlement is reached
before a class is certified. In this case, not only was settlement
reached before class certification, but the class certified for
settlement purposes was far broader than the one sought when
the case was filed. The Hanlon “higher standard of fairness”
matters because of “the dangers of collusion between class
counsel and the defendant.”15 Bluetooth emphasizes the need
for greater scrutiny of precertification settlement on behalf of
a class.16 “Collusion may not always be evident on the face of
a settlement, and courts therefore must be particularly vigilant
not only for explicit collusion, but also for more subtle signs
that class counsel have allowed pursuit of their own self-
interests and that of certain class members to infect the negotia-
tions.”17
Collusion is far more likely before certification, and expo-
nentially higher if the class is expanded as part of the settle-
ment. Here is why. If a lawsuit is only on behalf of named
plaintiffs, damages are limited to what they may properly
receive, so if a case is reasonably defensible, a defendant may
make a sound financial decision to defend. But if a vast class
is certified, then even a meritless case may require a defen-
dant to settle or bet all the money it has or can borrow for
attorneys’ fees, because even a very small chance of a very
large verdict is too much to risk. Plaintiffs’ counsel want cer-
tification, to make the damages enough to be worth the time
and expense of the litigation. Defense counsel oppose it, to
keep the risk down to a level where they can afford the risk
of litigation. Because certification of a class may turn even a
meritless plaintiff’s case into a bet-the-company defendant’s
14
Hanlon, 150 F.3d at 1026; see also Molski v. Gleich, 318 F.3d 937,
953 (9th Cir. 2003), overruled on other grounds by Dukes v. Walmart
Stores, Inc., 603 F.3d 571 (9th Cir. 2010).
15
Hanlon, 150 F.3d at 1026.
16
In re Bluetooth, 654 F.3d 935, 946-47 (9th Cir. 2011).
17
Id. at 947.
MCCALL v. FACEBOOK, INC. 11565
case, defendants usually vigorously oppose class certification,
giving courts the benefit of adversarial presentations.
Once the parties agree to settle, and agree to certify a class,
defendant’s interests are reversed. Plaintiffs’ counsel still
have an interest in keeping a large class certified, because the
larger the class, the higher the attorneys’ fees are likely to be.
But if the defendant will get a bar against claims, almost
always a term of any settlement, the more people whose
claims are barred the better. The risk of having to pay out a
huge amount of money gets converted, by class certification,
into a certainty that vast numbers of people will be unable to
sue the defendant. So when settling before class certification,
and agreeing upon class certification as part of the settlement,
both sides have the same incentive, to certify the class and
make it as vast and all-encompassing as possible. It is a
bonanza for the defendant if it can bar the claims not only of
everyone in the class described in the complaint, but also of
a much larger class on whose behalf more and different
claims might have been asserted.
And that is just what happened here. The complaint claims
wrongdoing against and damages to Facebook users during
the few weeks of the opt-out period of “Beacon.” The settle-
ment bars claims of all the users during that period and during
the much longer opt-in period. When they settled, Facebook
and class counsel shared the same interest, as broad a class
certification as possible. Ideally, from both the point of view
of both sides’ interests (attorneys’ fees for one side, protection
from claims for the other) the class would include everyone
in the world, and bar all claims of any kind from the begin-
ning of time to the present day. They came about as close to
that as they plausibly could.
Bluetooth emphasizes that “clear sailing” agreements on
attorneys’ fees are important warning signs of collusion.18 We
18
In re Bluetooth, 654 F.3d at 947 (“[A] ‘clear sailing’ arrangement pro-
viding for the payment of attorneys’ fees separate and apart from class
11566 MCCALL v. FACEBOOK, INC.
have a version of a clear sailing agreement here: Facebook’s
agreement not to oppose an attorneys’ fees claim of up to
$3,166,667. If, as here, the defendant agrees not to oppose an
attorneys’ fees claim, and defendants payout will be the same
no matter how high the fee is, then both sides have an incen-
tive to make the fee large enough to induce plaintiffs’ counsel
to sacrifice class interests to plaintiffs’ attorneys’ interests.
Bluetooth holds that caution is especially necessary when, as
here, members of the class receive no money, but class coun-
sel receive a great deal of it.19 As the amount of the fee to
which no objection will be made grows, especially if the fee
will not affect the cost to the defendant, it makes economic
sense (though not ethical sense) for plaintiffs’ counsel to
throw the fight for the money.
Strikingly, the settlement here goes even further than cou-
pon settlements, where class members get only discounts if
they buy again from the defendant claimed to have wronged
them before, while their purported lawyers get huge amounts
of money. Here the Facebook users get nothing at all, not
even coupons. Every nickel of the remainder of the
$9,500,000 after class counsel’s cut, administrative costs, and
incentive payments to the named plaintiffs, goes not to the
victims, but to an entity partially controlled by Facebook and
class counsel. The new entity, dressed to look good in old law
French with its “cy pres” award and “non-profit” status, can
spend the money to “educate” people about privacy on the
internet, perhaps via some instructional videos on how to use
all the privacy features available in Facebook.
Arguably, no harm would be done if all claims of wrongdo-
ing to Facebook users from the Beacon program were frivo-
funds . . . carries the potential of enabling a defendant to pay class counsel
excessive fees and costs in exchange for counsel accepting an unfair set-
tlement on behalf of the class.”) (citation and quotation omitted).
19
Id. at 947.
MCCALL v. FACEBOOK, INC. 11567
lous. If their claims were worthless, then no wrong is done to
them when those claims are barred and $9.5 million gets
transferred to some lawyers they never met and a new entity
not likely to benefit them. But that would denigrate the claims
too far. There is reason to believe that Facebook needed the
shield its $9.5 million bought. Facebook got customer com-
plaints and bad publicity from the opt-out Beacon program.
The class had colorable claims. Facebook had a good argu-
ment that it was not itself a “video tape service provider”
under the federal statute entitling a customer to liquidated
damages of $2,500 for disclosure of what videotape someone
had rented from Blockbuster,20 but still had a risk of some sort
of vicarious, joint, or “civil conspiracy” liability.21 If found
liable, it was a deep pocket target for the punitive damages for
which the statute expressly provides.22 And at least one fed-
eral district court has taken an expansive view of who is a
“video tape service provider” prohibited from making disclo-
sures.23 The facts alleged in the complaint stimulate a concern
about the privacy of people’s purchases on the internet and
the use of customer information by Facebook.
Tort law tends to evolve to make actionable conduct widely
seen as harmful, especially when the conduct is willful, as it
was here. The plaintiffs’ claims and the risk of that evolution
of tort law were worth money to avoid, for Facebook. We
cannot reasonably say that a risk worth $9.5 million to Face-
book to avoid nevertheless had no value whatsoever to the
potential claimants whose claims presented that risk. If Face-
book users had no colorable claims, why would Facebook
have paid $9.5 million to bar them?
20
18 U.S.C. § 2710(a)(4), (c)(2).
21
In their complaint, Plaintiffs claimed that Facebook was engaged in a
civil conspiracy to violate the Video Privacy Protection Act. See Applied
Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454, 457 (Cal. 1994)
(giving an overview of the California law of civil conspiracy).
22
18 U.S.C. § 2710(c)(2)(B).
23
Amazon.com LLC v. Lay, 758 F. Supp. 2d 1154, 1167 (W.D. Wash.,
2010).
11568 MCCALL v. FACEBOOK, INC.
2. The Settlement does not Meet our Standards for Cy
Pres Awards.
Even if the $9.5 million number, the attorneys’ fees, and
the absence of any relief whatsoever to class members all
were “fair, reasonable and adequate,” the new foundation
would still not satisfy the standards for cy pres awards. We
held in Dennis v. Kellogg Co.24 quoting Staton v. Boeing Co.,25
that cy pres distributions present “a particular danger” that
“incentives favoring pursuit of self-interest rather than the
class’s interests in fact influenced the outcome of negotia-
tions.”26
Cy pres traditionally was a means by which, say, a bequest
to a charity no longer existing when a testator died might be
given instead to a similar charity doing similar work. Thus a
bequest to the Boys’ Club might go to its replacement, the
Boys’ and Girls’ Club. The doctrine has never meant simply
that money for harm to someone would be given to someone
else preferred by the defendant and plaintiff’s attorney and
perhaps by the court. We cautioned in Nachshin v. AOL that
“When selection of cy pres beneficiaries is not tethered to the
nature of the lawsuit and the interests of the silent class mem-
bers, the selection process may answer to the whims and self
interests of the parties, their counsel, or the court.”27
The rules of judicial ethics have in many forms for over a
hundred years prohibited judges from endorsing charities,
because of the risk that lawyers and litigants will feel com-
pelled to contribute to them.28 Too liberal an approach to cy
24
Dennis v. Kellogg Co., No. 11-55674, 2012 WL 2870128 (9th Cir.
July 13, 2012).
25
Staton v. Boeing Co., 327 F.3d 938 (9th Cir. 2003).
26
Dennis v. Kellogg Co., 2012 WL 2870128, at *6.
27
Nachshin v. AOL, LLC, 663 F.3d 1034, 1039 (9th Cir. 2011).
28
Canon 25 of the Canons of Judicial Ethics, first adopted by the ABA
in 1924, states that a judge “should not solicit for charities, nor should he
MCCALL v. FACEBOOK, INC. 11569
pres means that a court may simply order, and not merely
encourage, someone subject to its jurisdiction to give to a pre-
ferred charity. A defendant may prefer a cy pres award to a
damages award, for the public relations benefit. And the
larger the cy pres award, the easier it is to justify a larger
attorneys’ fees award. The incentive for collusion may be
even greater where, as here, there is nothing to stop Facebook
and class counsel from managing the charity to serve their
interests and pay salaries and consulting fees to persons they
choose.
Nachshin holds that the district court must ensure that a cy
pres award targets the plaintiff class.29 Here it does not. Six
Mexican Workers v. Arizona Citrus Growers30 holds that a
district court must reject awards that provide “no reasonable
certainty that any member will be benefitted.”31 This one does
not. We require an established record of performance by the
charity of acts beneficial to people in the wronged class.32 The
cy pres award in this case goes to a new entity with no past
performance at all. For all we know it will fund nothing but
an “educational program” amounting to an advertising cam-
paign for Facebook. That would appear to satisfy the articles
and bylaws, and Facebook, after all, together with class coun-
sel and their nominees, will run it.
enter into any business relation which . . . might bring his personal interest
into conflict with the impartial performance of his official duties.” Henry
S. Drinker, Legal Ethics 274, 333 (1965). The current ABA Model Rules
have similar language. Model Code of Judicial Conduct R. 3.7 (2007).
Something akin to this was an issue in Nachshin, where the judge’s hus-
band sat on the board of a legal aid foundation that was to receive a dona-
tion as part of the settlement. Nachshin, 663 F.3d at 1041.
29
Nachshin, 663 F.3d at 1039-40.
30
Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301(9th
Cir. 1990).
31
Id. at 1308.
32
Id.
11570 MCCALL v. FACEBOOK, INC.
3. Notice.
We review adequacy of notice de novo, not deferentially.33
This is because notice is a matter of due process of law.34 If
a person owns a claim, it is property, and the owner of the
claim is constitutionally entitled not to have it taken from him
except with reasonable notice and an opportunity to be heard.
Notice in this case was inadequate, most obviously because
the class was not sufficiently informed that Facebook itself
might be in control of the money purportedly awarded on
account of wrongs it committed against class members. The
articles of incorporation and bylaws of the purportedly chari-
table foundation were posted online for the class to see only
a week before the deadline to opt out of the settlement. Those
documents said that “Tim Sparapani” would be on the three-
person board, but failed to mention who he was, Facebook’s
own Director of Public Policy. Nor did the notice say that
Facebook’s counsel, Michael Rhodes, would sit on the foun-
dation’s legal advisory board. Class members would have had
to look carefully at the settlement agreement and figure out
that Mr. Rhodes, the man designated as a legal advisor on
page twelve of the settlement agreement, was the same man
listed as Facebook’s attorney on page five. Class members
dependant on the notice would have no idea that the money
supposedly paid for wrongs to them was to be spent by agents
of the purported wrongdoer.
Conclusion
The majority approves ratification of a class action settle-
ment in which class members get no compensation at all.
They do not get one cent. They do not get even an injunction
against Facebook doing exactly the same thing to them again.
Their purported lawyers get millions of dollars. Facebook gets
a bar against any claims any of them might make for breach
33
Silber v. Mabon, 18 F.3d 1449, 1453 (9th Cir. 1994).
34
Hanlon v. Chrysler Corp., 150 F.3d 1011, 1024 (9th Cir. 1998).
MCCALL v. FACEBOOK, INC. 11571
of their privacy rights. The most we could say for the cy pres
award is that in exchange for giving up any claims they may
have, the exposed Facebook users get the satisfaction of con-
tributing to a charity to be funded by Facebook, partially con-
trolled by Facebook, and advised by a legal team consisting
of Facebook’s counsel and their own purported counsel whom
they did not hire and have never met.
Facebook deprived its users of their privacy. And now they
are deprived of a remedy.