Judges Take Note: MacArthur Foundation Declines Facebook Loophole Settlment

As Judge Jon Tigar recently held in another Northern District of California case, 9th Circuit judges must follow precedent on class action settlements (even in San Jose).  When it comes to the shady business of using class actions to funnel money to the defendant’s favorite charity/lobbying group/alumni organization (aka the cy pres loophole), the rule is as cited by Judge Tigar in rejecting the proposed cy pres payouts (at page 12):

“A cy pres award must be guided by (1) the objectives of the underlying statute(s) and (2) the interests of the silent class members, and must not benefit a group too remote from the plaintiff class.” Dennis v. Kellogg Co. 697 F.3d 858, 865 (9th Cir. 2012) (citation and internal quotation marks omitted). “To ensure that the settlement retains some connection to the plaintiff class and the underlying claims . . . a cy pres award must qualify as the next best distribution to giving the funds directly to class members.” Id. (citation and internal quotation marks omitted).

Another step that 9th Circuit judges (really all judges) ruling on these sketchy class action loophole settlements may want to take is to be sure that even if they think the cy pres award is proper that the recipient thinks so, too.  And even if the Court doesn’t feel it appropriate to reach out to make that confirmation, it certainly would be appropriate for the Court to require counsel to do so–and you have to ask yourself what in the world counsel was thinking to present a cy pres loophole award to an entity that wanted no part of it.

MTP readers will recall that in the controversial Facebook “Sponsored Stories” class action (Fraley v. Facebook) the “usual suspects” got most of the money: Electronic Frontier Foundation, Berkman Center, Stanford Center for Internet and Society, Center for Democracy and Technology, etc., etc.

And the MacArthur Foundation.  I have to admit I was somewhat surprised to find that name listed there.  And sure enough, that name shouldn’t have been there.  Which presumably anyone who bothered to check could have found out before putting the Court in the embarrassing position of having a cy pres loophole award rejected. 

When we contacted the MacArthur Foundation’s very courteous press office, this is the comment we got about the $500,000 cy pres loophole payment tagged to the Foundation in the settlement:

September 10, 2013

“The John D. and Catherine T. MacArthur Foundation is identified in the settlement of the lawsuit related to Facebook’s ‘sponsored stories’ advertising program as one of several organizations that might receive distributions from the settlement fund. MacArthur did not ask to participate. The Foundation has informed lawyers representing both parties in the settlement that we respectfully decline to accept any settlement funds.  Instead, in this case, we have suggested those funds be redirected to other non-profit organizations engaged in the underlying issues and identified in the settlement as possible recipients. These non-profit organizations can apply the funds directly toward their missions, whereas MacArthur is a grantmaking institution and does not ordinarily make grants directly related to consumer privacy.”

But even if the the cy pres recipients otherwise complied with the rule, if they don’t want the money, they are not required to take it.  Which is the kind of thing you might want to know in advance.  Unless maybe you needed some window dressing and you thought that if you offered anyone $500,000, they’d just play ball and take it.

So now–all eyes on the court to see how that $500,000 that was to go to the MacArthur Foundation will be allocated.  One way might be to distribute it out to the class members.  Oh, no, wait–can’t do that.

Here’s a tip for the class counsel–when did Noah build the Ark?

Before the rain.