Last week you may have received an email (and you may have thought it was spam) titled “Legal Notice of Settlement of Class Action.” It warns you in incomprehensible jargon that you have a bunch of “legal rights and options.” So what, exactly, are you supposed to do with this, and what does it mean?
What Lawsuit?
The settlement stems from a lawsuit claiming that Facebook unlawfully used people’s information in advertisements. You’ve seen these “sponsored stories” before on your news feed–suddenly it says “Joe Schmoe likes Nordstrom!” Maybe you think, “Really? I mean, I guess he wears clothes, but is he such a huge Nordstrom fan?” And the answer is probably no, he “liked” a given product because it got him a discount or signed him up for a raffle. But that innocuous action–hitting the “like” button–not only added Nordstrom to the ten million other things Joe has “liked” but also made him a Nordstrom spokesman on the news feeds of all his friends. That can be awkward–especially when it’s for a more bizarre item (a diet protein shake, say, or lingerie). The lawsuit is a class action brought on behalf of everyone affected by the “sponsored story” campaign. Facebook and Fraley (who started the suit) have agreed on a settlement (explained below).
Why Me?
You received the notice because something you liked or interacted with (by, say, “checking in” at a certain business) showed up in a “sponsored story” ad on your friends’ news feeds. So if you’ve been checking in at strip clubs or liking controversial pages, your friends probably all know about it. Sorry!
What is a Class Action?
A class action lawsuit is one where a single individual, or maybe a handful of individuals, can bring a lawsuit trying to represent all people who are in a similar position, so long as the court approves it. People can join a class action in two ways: for an “opt out” class action, they’re automatically in unless they say otherwise. For an “opt in” class action, it’s the opposite — someone has to take steps to join, otherwise they’re out.
Being part of a class action comes with significant upsides but also serious downsides. If the individual bringing the suit (the “named plaintiff”) wins, everyone they’re representing also wins. If the individual loses, everyone loses–and cannot then decide to bring their own suits. If the individual settles–as happened here–and the court approves that settlement, then everyone in the class is bound by the terms of the settlement.
Why Do We Allow Class Actions?
Some kinds of wrongs affect a large number of people but only have a minor effect on each individual. Let’s take consumer fraud as an example. Everyone has a credit card, but let’s say a credit card company was secretly charging everyone 0.01% more each month than it said it would. This would certainly be illegal and may result in the credit card company stealing millions of dollars from customers. But each customer probably only lost a small amount of money. Even if someone lost $100 in this scam, no lawyer is going to take on a case for ⅓ of $100–that wouldn’t even cover the lawyer’s filing fees. But someone needs to take the case, because credit card companies can’t just go around stealing $1 million. That’s where class actions come in–they allow the law firm taking the case to get paid based on how much everyone makes, and give the law firm an incentive to recover everyone’s money. You may not want to sue over $100, but it’s your $100 and you should get it back.
What is Opting Out?
But what if the lawyer does a terrible job? Or what if you think you could do better–maybe the class action will get everyone $100, but you’ve lost $10,000, or the credit card company’s wrongdoing somehow affected you more? It doesn’t seem fair that one individual and her lawyer should be able to settle your claim for you without your consent.
That’s where class action law becomes tricky. Some kinds of class actions, known as “opt in” class actions, require everyone’s consent to be a party. So if I’m suing on behalf of all McWendy’s workers for some unpaid wages or overtime, my lawsuit wouldn’t affect you unless you actually signed a piece of paper saying, “Yes, I want this person to represent me and I understand that I’m bound by the outcome of this lawsuit.” If you don’t sign the piece of paper, then when I win my lawsuit for a billion dollars, you don’t get a cent of it–but if I lose, you can still sue on your own. When I start an opt in lawsuit, I have to send everyone a notice and opt in form. If you throw the form out, you’ve lost your chance to cash in with me, but you haven’t lost your right to bring your own lawsuit.
Most class actions, like the Facebook suit, are “opt out” class actions, meaning that everyone is automatically a part of the suit unless they actively state otherwise–i.e., “opt out.” This means that if you received the Facebook notice and thought it was spam, you’re automatically part of the suit, bound by the suit’s outcome, and have waived your right to bring your own lawsuit. This is why you should always read class action notices. Most of the time you’re probably fine with the outcome of a suit–you may know literally nothing about it and have no real stake in the outcome. Sure, I’d love $1, but if I lose it, I don’t really care. I’m not going to hire my own lawyer to bring my own suit anyways, so I have nothing to lose. But in those rare instances in which you do care, you need to preserve your rights.
Remember, though: opting out means that you don’t get the benefit of the current lawsuit. It’s only worth preserving your claim if you actually plan on getting your own lawyer, bringing your own suit, and winning more than the class action settlement would get you.
What if I Don’t Opt Out?
Not opting out means you’ve lost your right to sue for the same thing. The law will treat you just like the guy bringing the suit–whatever the outcome is for him, that’s the outcome for you. But that doesn’t mean there’s nothing you can do.
You generally retain some rights to participate actively in the suit. For example, in the Facebook class action notice, members of the class (i.e., those who haven’t opted out) have the right to write a letter to the court objecting to the settlement. You can also show up at a hearing to tell the court your objections in person. Oddly, the notice doesn’t tell you where the hearing is or how to contact the court. If you really want to be involved, you can write the court at:
Hon. Richard Seeborg
San Francisco Courthouse,
Courtroom 3
17th Floor
450 Golden Gate Avenue
San Francisco, CA 94102
You have until May 2, 2013 to write the court a letter, and the hearing will be held at the same address on June 28, 2013 at 10:00 a.m.
What’s the Claim Form About?
You may have read in the Facebook notice about a “claim form.” The notice states that it’s “the only way to be eligible to receive a payment,” and hey, who doesn’t love a payment? You may also have skimmed the notice and seen an enormous figure right at the beginning of the fourth paragraph: “Facebook will pay $20 million.” Seriously, who wouldn’t love $20 million?
A closer reading, however, shows that submitting a claim form will entitle you to only “up to $10.” You might submit a claim form and receive nothing. That’s not to say you shouldn’t submit a claim (which you can do here), but you’re not guaranteed a penny (and definitely won’t get more than $10).
Why Settle for $0-$10 Per Person?
Now you might be kind of annoyed–here this Angel Fraley person is trying to represent you in a lawsuit and bind you to this agreement whereby you might get $0. Where the hell does the $20 million go? And what’s the point of letting him settle my case for me for no money? I thought a judge had to approve this settlement–why is he allowing Facebook to get away with this?
The first answer is that, of course, money isn’t everything. The settlement agreement includes a lot of provisions requiring Facebook to be better in the future–revise its terms of service to be clearer, give people access to their own sponsored stories (so you can see what everyone else has been reading about you), add some control to help minors avoid advertising everything they do, and offer users (slightly) more control over what kinds of ads they appear in. It’s not the most groundbreaking stuff, and it won’t allay many people’s fears about Facebook privacy, but it’s certainly a step in the right direction.
Facebook would never have agreed to something like this unless it got something in return. What they get in return is the promise that no one who’s been affected by sponsored stories– except those rare few who will opt out–will ever be able to sue on the matter ever again. They’re settling literally millions of potential lawsuits at once.
This is an aspect of class actions that is rarely discussed. Not only do class actions give lawyers an incentive to bring important lawsuits that would otherwise be ignored (because the winnings on any individual case wouldn’t be worth it), it also gives them leverage that would never exist with only one plaintiff. Let’s say I’ve been so harmed by sponsored stories that Facebook owes me $50,000. (I cannot image how this could be possible, but let’s just pretend.) One third of that amount might be sufficient to tempt a lawyer into taking the case, and Facebook might be willing to settle it. But $50,000 is nothing to Facebook. There is no way Facebook would ever be willing to make any sweeping changes to its privacy policy just to get rid of a $50,000 case. But if the case is a class action–representing potentially 70 million users–then a settlement wipes out all of those cases. Even if those cases were worth almost nothing, Facebook would still have to defend against them. That’s a big enough benefit to entice Facebook to make changes like the kind described above.
This is why a judge would allow the case to settle, even though under its terms most people get very little–there’s a public good that the settlement provides, which helps class members and society at large. (In fact, the judge disallowed an earlier draft of the settlement agreement that didn’t include the “up to $10” part, precisely because he didn’t think it was fair that no one was going to get anything.)
Where Does the Rest of the Money Go?
There is an interesting legal doctrine called “cy pres,” which means, essentially, “good enough.” So, let’s say I start a charitable trust to “give $10 million per year to graduates of XYZ high school.” But then XYZ high school is shut down. The trust still exists, but it can’t perform its stated function anymore. The doctrine of cy pres would probably allow the money to go to graduates of some other high school that is similar to XYZ school. If you can’t get exactly what you want, a judge can decide what’s second best.
Here, the court (and the parties) agreed that it would be unlikely that all members of the class (i.e., every single person who’s ever appeared in a sponsored story) would realistically be able to recover whatever money was owed them. In this instance, the doctrine of cy pres dictates that the leftover money be given to charities that work for the interest of class members.
Facebook has agreed to donate $20 million to a fund to pay attorneys’ fees and also the “up to $10” claims stated above. Whatever is left over will be donated to the following charities:
Center for Democracy and Technology
Electronic Frontier Foundation
Joan Ganz Institute (NYU Law School)
Campaign for Commercial-Free Childhood
Consumer Federation of America
Consumer Privacy Rights Foundation
People who don’t submit a claim form are essentially donating between $0-$10 to these foundations. It’s considered “close enough” because those organizations are looking out for the greater interests that are represented in the suit–your right to internet privacy and to control how your information is used in advertising.
Moreover, if no claims are deemed worth more than $4.99, the whole amount (minus attorneys’ fees) will be given to the foundations. If so many people make claims that it ends up costing more to give them all their $10 than the actual money they’re receiving (making it “economically infeasible” to make the payout), again, the money would go to those foundations.
How Much, Exactly, Are the Lawyers Getting?
The remaining money will be given to the attorneys who brought the case and the entity administering the settlements (and to cover costs and fees).
The actual amount of attorneys’ fees will be decided between the court and the lawyers. The lawyers must submit an application to the court justifying the amount of fees they want. They need to persuade the court that they’ve done good work for the class that’s worthy of the sum they want. Because their fees get deducted first–with the rest going to the foundations or people who submit claims–they need to also convince the court that they’re taking a reasonable amount.
The lawyers have already made their application for fees (which you can read here) and are requesting $7.5 million. That may sound like an awful lot, but two separate law firms put a lot of work into the case and arguably got a pretty solid result.
That amount is also a reasonable percentage by current standards. Most people can’t afford to pay lawyers by the hour to start a lawsuit. (Some lawyers charge literally $1,800 per hour, though that’s pretty unusual). That means most plaintiffs’ lawyers work on contingency–they’ll bring your case in exchange for a percentage of the winnings. The customary contingency fee is a third–which is essentially how much the lawyers here are asking for.
The lawyers are also trying to get $12,500 for each “named plaintiff”–i.e., each person whose name is in the caption (like Angel Fraley). These payments act as an incentive for people to bring class actions. After all, if you were only going to get between $0-$10, why would you bother contacting a lawyer in the first place, let alone signing declarations and possibly testifying under oath?
For more information about the settlement, visit the settlement website.
Christine Clarke is a regular contributor to the blog and an employment lawyer at Beranbaum Menken LLP in New York City. She writes on employment law at Wage Against the Machine.
