UPDATE: Judge Nixes Facebook 'Sponsored Stories' Suit Settlement Deal

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Earlier this month, United States District Court for the Northern District of California Judge Richard Seeborg withheld his blessings from the proposed $20 million settlement in Fraley v. Facebook (Case No. 5:11-cv-01726), a putative class action suit arising from Facebook's Sponsored Stories ads.

Under the proposed settlement, Facebook would revise its Statement of Rights & Responsibilities to give members more of a voice in how their personal information is used and agree to dispense $10 million in cy pres payments among various children's, electronic privacy and consumer advocacy groups. Judge Seeborg caught the case after presiding Judge Lucy H. Koh recused herself the day before the settlement hearing (see "TUOL" post 7/12/12). Plaintiffs contend that the Sponsored Stories ads violate California's Right to Publicity ("ROP") statute [Calif. Civ. Code sec. 3344] (see "TUOL" post 12/22/11).

Judge Seeborg refused to sign off on the settlement agreed-to by the parties in part, because it allows for $10 million in legal fees, but nary a penny for the Facebook users purportedly harmed by the Sponsored Stories ads. The $10 million that would be distributed to the various nonprofit advocacy groups is based on ROP, which assesses $750 in statutory damages per infraction. Judge Seeborg said the parties failed to justify the cy pres payments to the groups merely on the argument that it would be unfeasible to divvy up the amount among the "injured" Facebook users.

The court invited the parties either to modify the proposed settlement or to resubmit the resolution with further legal arguments about why it should be approved. Stay tuned.