## Facts

- Facebook operated a social-network platform where users maintained personal profiles.
- In 2007, Facebook launched “Beacon,” which automatically posted certain users’ off-site commercial transactions (from participating merchants) to their Facebook profiles without users’ knowledge or approval.
- Facebook users brought a putative class action alleging Beacon violated multiple federal and state privacy and consumer-protection laws and seeking damages and equitable relief.
- Before merits rulings, the parties settled: Facebook would permanently terminate Beacon and pay $9.5 million.
- Roughly $3 million was allocated to attorneys’ fees, administrative costs, and incentive awards; the remaining $6.5 million would be distributed as cy pres funds through a newly created nonprofit, the Digital Trust Foundation (DTF), supporting online privacy, safety, and security initiatives.
- The settlement contemplated a three-member DTF board including one Facebook representative.
- The district court certified a Rule 23(b)(3) settlement class, approved notice by email, on-site postings, and national publication, held a fairness hearing, approved the settlement, and awarded attorneys’ fees.
- A small number of class members objected and appealed, challenging the cy pres structure, DTF governance, settlement adequacy, and notice.

## Issues

1. Whether the district court abused its discretion under Rule 23(e) by approving a settlement using a cy pres distribution through a newly created foundation with a Facebook employee on its board.
2. Whether the settlement amount and structure (largely cy pres rather than direct payments) rendered the settlement unfair, unreasonable, or inadequate given alleged statutory-damages exposure.
3. Whether class notice satisfied Rule 23 and due process, and whether the settlement approval process was free from collusion.

## Decision

- The Ninth Circuit affirmed the district court’s order approving the settlement and awarding attorneys’ fees.
- The court held the district court did not abuse its discretion in finding the settlement fair, reasonable, and adequate under Rule 23(e).
- The court upheld the cy pres distribution and the creation of DTF, concluding the arrangement appropriately served class interests where direct distribution was impracticable.
- The court rejected the claim that a single Facebook board seat created an impermissible conflict of interest absent concrete evidence of collusion or domination.
- The court held the settlement amount was within a permissible range in light of substantial litigation and certification risks.
- The court held the notice program satisfied Rule 23’s “best notice practicable” standard and adequately described material settlement terms.

## Legal Principles

- Appellate review of class-action settlement approval is for abuse of discretion; reversal requires a strong showing of clear error in judgment.
- Under Rule 23(e), the district court must determine whether a class settlement is fair, reasonable, and adequate and sufficiently free from collusion.
- Cy pres relief may be approved when direct monetary distribution to a large class is impracticable and the distribution bears a substantial nexus to the class’s interests and the claims asserted.
- A defendant’s limited governance role in a cy pres recipient does not automatically invalidate a settlement; objectors must show concrete indicia of improper influence, collusion, or unfairness.
- Settlement adequacy may account for litigation risks, including uncertainty over statutory coverage, standing, proof, and the ability to certify a litigation class.
- Notice satisfies Rule 23 when it is reasonably calculated to reach class members and communicates material settlement terms using practicable methods under the circumstances.

## Conclusion

The Ninth Circuit upheld a privacy class-action settlement centered on cy pres funding and injunctive relief, concluding the district court reasonably found the settlement fair under Rule 23(e) despite the creation of a new nonprofit to distribute funds and the inclusion of one Facebook representative on its board.


Lane v. Facebook, Inc., 696 F.3d 811 (9th Cir. 2012)