Courts scrutinize class action settlements to ensure they result from arms-length negotiations and are fair and reasonable to absent class members. Applying that standard to a nationwide settlement of a privacy lawsuit against Facebook, on March 3, 2020, the Ninth Circuit provided a helpful roadmap for parties seeking approval of class action settlements where the primary benefit afforded to the class is injunctive relief, not money damages. See Campbell v. Facebook, Inc., No. 17-16873 (9th Cir. Mar. 3, 2020). The Court also held that a violation of the Electronic Communications Privacy Act (“ECPA”), 18 U.S.C. § 2510 et seq., and California Invasion of Privacy Act (“CIPA”), Cal. Penal Code § 630 et seq., may be sufficient to confer Article III standing without further allegations of harm.
In December 2013, two Facebook users filed a class action alleging that the company captured, read, and used website links (URLs) in users’ private messages without consent in violation of the ECPA and CIPA, among other laws. The plaintiffs moved for certification of both a damages class under FRCP 23(b)(3) and an injunctive relief class under FRCP 23(b)(2). The district court certified an injunctive relief class but refused to certify a damages class. Thereafter, the parties reached a classwide settlement through mediation.
In the settlement agreement, Facebook acknowledged that it had already made several changes to its practices and agreed for one year to add a 22-word disclosure regarding its collection and use of URLs to a Help Center page on its website. The agreement provided no monetary benefit to absent class members. Class counsel was permitted to seek an award of $3.89 million in fees and costs, which Facebook agreed not to oppose.
Over an objector’s challenge, the district court found the settlement to be fair and reasonable and awarded class counsel the full $3.89 million in fees and costs requested. The objector appealed the decision to the Ninth Circuit. The appeal raised primarily two issues: (1) whether the plaintiffs had standing; and (2) whether the district court abused its discretion in approving the settlement.
Violation of ECPA and CIPA Is a “Concrete” Injury
The Ninth Circuit held that the plaintiffs had Article III standing to assert claims under the ECPA and CIPA based on the allegedly unconsented to interception, cataloguing, and use of URLs the plaintiffs had shared in private messages.
First, the Court concluded that the plaintiffs’ alleged injury – an intangible harm linked to a statutory violation – was sufficiently “concrete” to confer standing. It reasoned that the ECPA and CIPA expressly provide a private right of action and protect against the viewing or using of private communications, which are analogous to harms traditionally covered by the tort of intrusion upon seclusion. It further reasoned that the plaintiffs need not allege any further harm to have standing because, historically, under common law privacy torts, the intrusion itself was sufficient to render the defendant liable. And by creating private rights of action, the legislatures indicated that the ECPA and CIPA are modernizations of the privacy protections available at common law. Joining the Third Circuit, the Ninth Circuit held that those statutes codify a substantive extension of the right to privacy and the alleged violations constitute a “concrete” injury.
Second, the Court concluded the plaintiffs had standing to seek injunctive relief and post-filing developments did not moot the case. At the time the plaintiffs filed their complaint, the company had ended some, but not all, of the challenged uses of private message URL data. In addition, the company continued to retain the data collected and thus could have resumed the discontinued uses of the data. That “combination of continuing harm plus likelihood of future harm” conferred standing upon the plaintiffs to seek injunctive relief. The case was not moot for similar reasons, since it was not absolutely clear the allegedly wrongful practices would not recur. The Court thus had jurisdiction and moved on to the merits.
Ninth Circuit Affirms the Approval of Injunctive Relief-Only Settlement
The Ninth Circuit affirmed the district court’s approval of the settlement as “fair, reasonable, and adequate” under FRCP 23(e)(2), but along the way articulated useful guidance regarding several factors that impact the approval of classwide settlements that provide only injunctive relief.
First, the Court rejected the contention that the settlement provided only “worthless” injunctive relief. It found that the year-long disclosure Facebook agreed to add to its website provided real value to class members in the form of “information to users about Facebook’s message monitoring practices, making it less likely that users will unwittingly divulge private information to Facebook or third parties in the course of using Facebook’s messaging platform.” The Court balanced the value of that relief against the likelihood plaintiffs may have obtained no benefit for the class had the case proceeded because the district court had refused to certify a damages class and plaintiffs faced numerous “doctrinal hurdles” to obtaining any other classwide relief. Accordingly, “[g]iven how little the class could have expected to obtain if it had pursued claims further . . . (and, correspondingly, how little it gave up in the release),” the “modest value” of the settlement was not “unreasonable.”
Second, the Ninth Circuit rejected the objector’s argument, based on In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir. 2011), that the settlement unfairly prioritized class counsel’s interests over those of the class. In so doing, the Court addressed the “warning signs” that allegedly may indicate class counsel colluded with defense counsel to settle a case improperly and dismissed each of them. It first rejected the notion that class counsel received a disproportionate share of the settlement. Although absent class members received no monetary relief, the Court explained that that was a function of the district court’s certification of an injunctive relief only class and affirmed the finding that the class’s interests were vindicated by the non-monetary relief obtained through the settlement. The Court emphasized that “[t]here is no blanket rule foreclosing parties from agreeing that the class will receive only injunctive relief.”
Next, the Court explained that where the benefits to the class are difficult to quantify (e.g., in an injunctive-relief only settlement), “district courts have discretion to award fees based on how much time counsel spent and the value of that time” without needing to estimate how the amount compares to the value of the recovery for the class. The Court found that the district court reasonably exercised that discretion because class counsel received a fee award of just over half of what would have fully compensated them for their time on the case; the district court had already declined to certify a damages class; the settlement agreement did not release the absent class members’ potential rights to damages; and the district court had an understanding of the injunctive relief’s value as a result of the hard-fought litigation prior to settlement. On that basis, “the district court did not abuse its discretion by concluding that the value of what the class received was reasonable not only in proportion to what the class gave up . . . but also in proportion to what class counsel received.”
Finally, the Ninth Circuit rejected the contention that the fact the settlement agreement did not contemplate any formal notice to the class proved the settlement was unfair, noting that the district court required the parties to provide notice by posting information about the settlement on class counsel’s websites before final approval.
Although the Ninth Circuit ultimately gave the stamp of approval to the settlement at issue in Campbell, it provided several warnings that parties should keep in mind in the course of negotiating and seeking approval of class settlements that confer primarily injunctive relief:
The benefit obtained for absent class members should be commensurate with the release of claims by which absent class members will be bound. Settlements where class members receive no or very little monetary relief but release all money damages claims are subject to the highest scrutiny.
Injunctive relief value should be proportional to the fee award. “[I]n a case where the class primarily receives non-monetary relief, but class counsel obtain millions of dollars, it may be an abuse of discretion not to at least attempt to approximate the value of injunctive relief and use that valuation in an assessment of disproportionality.”
Consider some form of class notice for a Rule 23(b)(2) class settlement. Although the settlement in Campbell provided only injunctive relief and did not release claims for damages, the Court found it “odd that the parties repeatedly emphasized the informational value of the settlement while simultaneously arguing that it was unnecessary to provide class members formal notice that this information exists.”
Settlements reached before a class is certified are subject to a higher standard of fairness. Campbell involved a post-certification settlement. As the Ninth Circuit reaffirmed, a “higher standard of fairness” applies when parties settle a case before certification, which places a premium on the proportionality of the fees requested by plaintiffs’ counsel to the benefit conferred on the class.
Parties settling class actions affording primarily injunctive relief should take heed of the Ninth Circuit’s guidance in Campbell. It could mean the difference between a district court approving a classwide settlement or rejecting it and sending the parties back to the drawing board.