Court Opinion

ID: 821334
Source: CourtListenerOpinion
Date Created: 2013-02-26 18:27:33.443531+00
Date Added: 2024-06-11T12:39:11.947138
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

SEAN LANE; MOHANNAED                       No. 10-16380
SHEIKHA ; SEAN MARTIN ; ALI
SAMMOUR ; MOHAMMAED ZIDAN ;                  D.C. No.
SARA KARROW ; COLBY HENSON ;             5:08-cv-03845-RS
DENTON HUNKER; FIRAS SHEIKHA ;            Northern District
HASSEN SHEIKHA ; LINDA STEWART ;         of California, San
TINA TRAN ; MATTHEW SMITH ;                     Jose
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 situated,
                 Plaintiffs-Appellees,

                  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
2              MCCALL V . FACEBOOK, INC.

Delaware corporation; GAMEFLY ,
INC., a Delaware corporation,
             Defendants-Appellees,

GINGER MCCALL, Class Member,
            Objector-Appellant.

SEAN LANE; MOHANNAED                       No. 10-16398
SHEIKHA ; SEAN MARTIN ,
individually, and on behalf of               D.C. No.
themselves and all others similarly      5:08-cv-03845-RS
situated; ALI SAMMOUR ;                   Northern District
MOHAMMAED ZIDAN ; SARA                   of California, San
KARROW ; COLBY HENSON ; DENTON                  Jose
HUNKER; FIRAS SHEIKHA ; HASSEN
SHEIKHA ; LINDA STEWART ; TINA
TRAN ; MATTHEW SMITH ; ERICA                 ORDER
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 situated,
                 Plaintiffs-Appellees,

                  v.

FACEBOOK, INC., a Delaware
corporation; BLOCKBUSTER , INC., a
              MCCALL V . FACEBOOK, INC.               3

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; 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 February 26, 2013

     Before: Proctor Hug, Jr., Andrew J. Kleinfeld,
       and William A. Fletcher, Circuit Judges.

                        Order;
     Dissent to Order by Judge Milan D. Smith, Jr.
4                 MCCALL V . FACEBOOK, INC.

                           SUMMARY*

                    Class Action / Settlement

    The panel denied the petitions for rehearing and for
rehearing en banc with Judge Kleinfeld voting to grant the
petitions in this appeal in which the panel affirmed the district
court’s certification of a settlement class of certain Facebook
members, and its approval of a $9.5 million settlement
agreement.

    Dissenting from the denial of rehearing en banc, Judge M.
Smith, joined by Judges Kozinski, O’Scannlain, Bybee, Bea
and Ikuta, stated that by approving a settlement that failed to
be reasonably certain to benefit the class or advance the
objectives of the statute relied upon in bringing suit, the
majority in this case created a significant loophole in this
Circuit’s case law that will confuse litigants and judges, while
endorsing cy pres settlements that in no way benefit class
members.

                            COUNSEL

Michael H. Page, Public Citizen Litigation Group,
Washington, D.C.; Steven F. Helfand, Helfand Law Offices,
San Francisco, California, for Objectors-Appellants.

  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                MCCALL V . FACEBOOK, INC.                    5

Scott A. Kamber, Kamber Law, LLC, New York, New York,
for Plaintiffs-Appellees.

Michael G. Rhodes, Cooley LLP, San Francisco, California,
for Defendants-Appellees.

                          ORDER

    Judges Hug and W. Fletcher have voted to deny
appellants’ petitions for rehearing. Judge Kleinfeld has voted
to grant the petitions for rehearing. Judge W. Fletcher has
voted to deny the petitions for rehearing en banc and Judge
Hug has so recommended. Judge Kleinfeld would grant the
petitions for rehearing en banc.

    The full court was advised of the petitions for rehearing
en banc. A judge of the court requested a vote on en banc
rehearing. The matter failed to receive a majority of the votes
of the nonrecused active judges in favor of en banc
consideration. Fed. R. App. P. 35.

   The petitions for rehearing and the petitions for rehearing
en banc are DENIED. Judge M. Smith’s dissent from the
denial of en banc rehearing is filed concurrently herewith.
6                  MCCALL V . FACEBOOK, INC.

M. SMITH, Circuit Judge, with whom KOZINSKI, Chief
Judge, and O’SCANNLAIN, BYBEE, BEA, and IKUTA,
Circuit Judges, join, dissenting from the denial of rehearing
en banc:

    Class action litigants are increasingly likely to employ the
doctrine of cy pres to settle complex class actions.1 Until
recently, courts in our circuit were well-positioned to address
the issues associated with this trend because our cy pres
jurisprudence was clear. Under a line of cases beginning with
Six (6) Mexican Workers v. Arizona Citrus Growers, 904 F.2d
1301 (9th Cir. 1990), we required that a cy pres award (1) be
reasonably certain to benefit the class, and (2) advance the
objectives of the statutes relied upon in bringing suit. See
also Nachshin v. AOL, LLC, 663 F.3d 1034 (9th Cir. 2011);
Dennis v. Kellogg Co., 697 F.3d 858 (9th Cir. 2012). By
approving a settlement that fails both criteria, however, the
majority in this case creates a significant loophole in our case
law that will confuse litigants and judges, while endorsing cy
pres settlements that in no way benefit class members. I
therefore respectfully dissent from our unfortunate failure to
rehear this case en banc.

                                    I.

    We require district judges to be reasonably certain that
class members will benefit before approving a cy pres
settlement. Six (6) Mexican Workers, 904 F.2d at 1308. We
have counseled that the “choice of charity and its relation to

    1
    See, e.g., Martin H. Redish et al., Cy Pres Relief and the Pathologies
of the Modern Class Action: A Normative and Empirical Analysis, 62 Fla.
L. Rev. 617, 620 (2010) (discussing the “dramatic turn in modern class
actions toward the use of cy pres relief”).
                 MCCALL V . FACEBOOK, INC.                      7

the class members and class claims—or lack
thereof—figure[s] heavily in our analysis.” Dennis, 697 F.3d
at 865 (emphasis added). Thus, we have rejected settlements
where the selected charity lacks “a substantial record of
service” in remedying the types of wrongs alleged, or where
the selected charity is not sufficiently “limited in its choice of
projects” to ensure that class members will truly be benefitted
by its works. Id. (quoting Six (6) Mexican Workers, 904 F.2d
at 1308). The majority, however, failed to apply these
safeguards.

    First, the selected cy pres beneficiary, the Digital Trust
Foundation (DTF), has no record of service. Lane v.
Facebook, Inc., 696 F.3d 811, 817 (9th Cir. 2012). The
“charity” is simply a bespoke creation of this settlement. The
majority is apparently untroubled by this. It attempts to
distinguish our case law emphasizing the importance of a
charity’s record of service by noting that in those cases “there
was no way of knowing whether the organization would use
the funds to the benefit of class members,” while here “the
settlement agreement and DTF’s Articles of Incorporation tell
us exactly how funds will be used.” Lane, 696 F.3d at 822.
Respectfully, they do no such thing.

    The DTF has made a written commitment 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.” Id. However
one might describe this mission statement, “limited” is not
the word that comes to mind. See, e.g., Dennis, 697 F.3d at
865. DTF promises to fund and sponsor “programs” that
address “critical issues” relating to Internet privacy. But
neither the “programs” nor the “issues” are defined with any
8               MCCALL V . FACEBOOK, INC.

specificity, and certainly not the specificity necessary to be
reasonably certain that class members will actually benefit
from these activities.

    Frequent NPR listeners know that the MacArthur
Foundation’s open-ended mission statement indicates that it
is “committed to building a more just, verdant, and
peaceful world.” MacArthur Foundation,
http://www.macfound.org/about (last visited February 18,
2013). But that is no guarantee that a donation to the
MacArthur Foundation will actually result in, or advance,
justice, verdancy, or peace. Rather, a potential donor must
look to other factors, such as the MacArthur Foundation’s
past record of service or its specific list of projects, to
determine whether it is reasonably certain that a donation will
truly bring about the promised effects. That the DTF is
committed to funding “programs” regarding “critical issues”
says absolutely nothing about whether class members will
truly benefit from this settlement; it simply promises that
DTF will do some “stuff” regarding some more “critical
stuff.” If fashioning an open-ended, one-sentence mission
statement is all it takes to earn cy pres settlement approval in
our court, we have completely eviscerated the meaning of our
previously controlling case law.

                              II.

    The majority also undercuts our precedent requiring cy
pres money to be spent in a manner that advances the
“objectives of the underlying statutes.” Nachshin, 663 F.3d at
1036. But DTF’s receipt of these settlement funds, even if
unobjectionable in all other respects, simply does not advance
the objectives of the statutes upon which plaintiffs relied in
their suit.
                MCCALL V . FACEBOOK, INC.                   9

    Here, the plaintiffs brought claims under the Electronic
Communications Privacy Act, 18 U.S.C. § 2510; the
Computer Fraud and Abuse Act, 18 U.S.C. § 1030; the Video
Privacy Protection Act, 18 U.S.C. § 2710; the California
Consumer Legal Remedies Act, Cal. Civ. Code § 1750; and
the California Computer Crime Law, Cal. Penal Code § 502.
With the exception of the California Consumer Legal
Remedies Act, these statutes all share a common
purpose—preventing the unauthorized access or disclosure of
private information. Yet the DTF’s sole stated purpose is to
“educate users, regulators[,] and enterprises” on how to
protect Internet privacy “through user control.” Lane,
696 F.3d at 822 (emphasis added). Plaintiffs’ claims,
however, have nothing to do with users’ lack of “education”
or “control.” Instead, they relate to misconduct by Internet
companies that wrongfully exposes private information in
ways that even educated users cannot anticipate, prevent, or
direct.

    Our precedent holds that it is not enough simply to
identify any link between the class claims and a cy pres
distribution, such as whether both concern food (Dennis) or
the Internet (Lane). Instead, an appropriate cy pres recipient
must be dedicated to protecting consumers from the precise
wrongful conduct about which plaintiffs complain. See
Dennis, 697 F.3d at 867. But an organization that focuses on
protecting privacy solely through “user control” can never
prevent unauthorized access or disclosure of private
information where the alleged wrongdoer already has
unfettered access to a user’s records. The DTF can teach
Facebook users how to create strong passwords, tinker with
their privacy settings, and generally be more cautious online,
but it can’t teach users how to protect themselves from
Facebook’s deliberate misconduct. Unless of course the DTF
10              MCCALL V . FACEBOOK, INC.

teaches Facebook users not to use Facebook. That seems
unlikely.

    I regret the muddle this case makes of our cy pres
jurisprudence, and I respectfully dissent from our failure to
rehear this case en banc.