Facebook Inc.’s $20 million class settlement offer has been rejected by U.S. District Judge Richard Seeborg  due to concerns over the amount allocated to attorneys’ fees and the proposed “cy pres” payment.  The offer was made to settle a lawsuit alleging that the social media magnate improperly used subscriber’s profile pictures in connection with its “Sponsored Stories” advertising feature.  More details on the lawsuit here.

Judge Seeborg sent the settlement back requesting more information on the logical underpinnings of the offer and the way in which the parties arrived at the proposed settlement amount.  Judge Seeborg noted that “[a]lthough it is not a precise science, plaintiffs must show that the cy pres payment represents a reasonable settlement of past damages claims, and that it was not merely plucked from thin air.”  Judge Seeborg also questioned the use of a cy pres payment generally, stating that “[m]erely pointing to the infeasibility of dividing up the agreed-to $10 million recovery, or the relatively small per-use revenue Facebook derived, is insufficient, standing alone, to justify resort to purely cy pres payments.” 

Moving onto the attorneys’ fees component of the proposed settlement, Judge Seeborg expressed “serious concerns with the provision of the settlement agreement permitting plaintiffs to apply for up to $10 million in attorney fees without objection by Facebook.” 

The way in which the proposed settlement offer might affect the class was also raised.  Judge Seeborg stated, “The fact that the parties negotiated that ‘clear sailing’ provision separately from the cy pres payment does not wholly eliminate the concern that class counsel may have ‘bargained away something of value to the class.’”  Towards this end, Judge Seeborg requested an estimate of the potential class size and how many class participants could be made whole through a settlement fund.  Although the class size has been estimated to include close to one in every three Americans, Judge Seeborg is requesting a more precise approximation from the parties.

This leaves Facebook and the class with two options— either renegotiate the terms of the proposed settlement or submit another motion with more detail on how the original settlement offer was reached. 

The case is Angel Fraley et al. v. Facebook, Inc., 11-cv-1726, filed in the Northern District of California