Is $550 Million Enough to Settle Facebook Suit?

of dollars in damages. My guest is Mark Rifkin, a partner Wolf Hallden. Steam start by explaining the lawsuit and what was at stake for Facebook. So, this is a class action that has been brought by consumers under the Illinois Biometric Information Privacy Act. And the plaintiffs complain that Facebook used servers in California that captured biometric information from

consumers in Illinois without their knowledge or consent. And that's a violation of this Illinois statute that imposes pretty substantial penalties on companies like Facebook. But do that under this settlement, the class members would get a hundred and fifty to three hundred dollars or between of a possible recovery. Does

that sound low to you? Well, I hate to sound like a lawyer when I answer that question, but it's hard to answer because there are some issues that at least the plaintiffs have raised in their brief and support of the settlement that raise some questions about how successful they might be. And part of that has to do with the extent to which Illinois law can be applied

to a company that operates primarily outside of Illinois. For example, this case is pending in the Northern District of California because that's where Facebook is and its servers are not located in Illinois. So the machines that are capturing the biometrics are not located in the state. That makes at

conduct unlawful. That's one big question. The other question is when you have a company as big as Facebook and as many consumers are affected as are affected here, the statutory penalty under the Illinois Statute becomes so large that the court needs to exercise some discretion to keep the case proportionate. And so, even though the statute allows for a recovery of a thousand dollars for violation or as much as five thousand dollars for for knowing and intentional violations.

It's not clear that that would be the recoverable amount. So it's hard to say whether this is an adequate settlement or not an adequate settlement because there's just too many facts that that you need to know in order to be able to make that determination. So the federal Judge James Donato said at a hearing last week, that's not an issue here. Five million dollars is a lot, but the question is is it really a lot? Yeah? I think what Judge Denato meant to say was it's

a lot of money, but is it enough money? And and that depends upon how convinced you are that number one, Illinois would be able to apply its laws to Facebook when Facebook is acting outside of Illinois. And then number two, when you aggregate all the damages of all the consumers in Illinois who are affected, is the number that would be imposed on on Facebook by way of statutory damages? Is that just too big a number to be disproportionate? And I think that those are questions that really need

to be explored. The one thing that I think everybody is looking at as a sort of a game changer. Here is the five billion dollar settlement that Facebook entered into the two thousand nineteen with the FTC. And I think that has gotten Judge Donato's attention, and he wants to compare this settlement with the FTC settlement. The judges asking the attorneys to address those concerns of his. But weren't the issues different in the FTC case. Well, there

are different issues, but they're not unrelated issues. Look for years, for for almost a decade already, Facebook has been under intense scrutiny because of the way it treats consumer data. And in two thousand twelve, Facebook entered into a settlement order with the FTC that supposedly restricted its right to control user data. Facebook has always said that if you put something on Facebook, Facebook owns the data, and there's

been lots of pushback against that. Then in two thousand nineteen, the FTC announces this enormous settlement, five billion dollars dwarfs any kind of privacy settlement that's ever been ever been inteviewed to. And they say, you ignored the restrictions that we put on you into thousand twelve, and you've done so, not just for users data, but also for the data of the frames of users. And and part of this is because Facebook creates such a web of connections between users.

It's it's just a monstrously big problem. And Judge Donato, I think rightly said, look, does that conduct take us out of the realm of a negligent violation of the Illinois Biometric Privacy Statute? Or does it put Facebook in the realm of being knowing an intentional and willful violator, in which case the potential statutory damages under the Illinois statute are not a thousand dollars per violations, but five

thousand dollars per violation. And that obviously changes the risk to Facebook and the size of the case, and all of those things I think need to be looked at together to understand the way the court will view the settlement that is being proposed to it. Do judges just often rubber stay settlements like this? Is this unusual for a judge or is it typical? Well, it's it's unusual,

but it's not unprecedented. Sometimes when a settlement is presented to the court, the court will look at it and realize very quickly that it falls within the range of reasonableness and will preliminarily approve a settlement so that the class members who are affected by a settlement can be told about the proposed settlement and their views are solicited.

Occasionally a case like this, it looks to a judge like, maybe we need some more explanation before I'm even prepared to send notice of the proposed settlement to the class members. And I think one of the things that changed the way Judge Donato has looked at this case is the FTC settlement that happened in two thousand nineteen, because it stands out as a as a bell weather event, and it may have changed the way he looked at the case.

It may have changed the way he looked at the merits of the case, and he said, no, I need some information, I need some explanation. Yes, fifty million dollars is a big number, but how does it stack up against what Facebook's real exposure is in this case? And so it happens from time to time that a judge will ask those questions. Sometimes the parties proceed with a settlement the way it's proposed, and on occasion the parties will modify a settlement to reflect what they think the

court's concerns are. It happens from time to time, not often, but it does happen from time to time. So how does it play into this that Facebook failed to get a federal appeals court to reverse and also failed to get us to the Supreme Court to take the case. Well, obviously that that takes some of the risk from the

plaintiffs and puts it onto Facebook. And and that's part of the calculus that the parties have to make when they when they look at whether to try a case, whether to settle a case, whatever it may be, and and when when Facebook tried to appeal, when Facebook tried to get the Supreme Court to take the appeal and lost those those efforts, then now they have to recalculate what they think their exposure is. And and obviously that changes what they think the the value of the cases

um for them. And I and I think also again I hate to keep coming back to this, but you know, Facebook just settled a claim with the FTC for five billion dollars. They don't really need any more scrutiny. And I think that gives them even more impetus to try to settle the case. And Judge Donato is mindful of that, and I think he looks at it it says we

need to take a harder look at this settlement. Is it is it fair to the to the individuals who have this right under Illinois law that we are asking them to take such a discount on what their statutory claim might be. And Facebook does have a history of settling privacy claims on the cheap, so to speak. They

make good deals. Well, you know, I think that when you're when you're dealing with a company as large as Facebook and as many users as Facebook has, the numbers get very big, very fast, and so the exposure gets very big, very fast. And and Facebook is, if nothing else, they are incredibly efficient at analyzing data and calculating risk

and reward. They've they've settled cases that you know, maybe look like their reasonable bargains, but I keep you know that that five billion dollar FTC settlement, even for Facebook,

that's an eye popping number. And and now they have this large liability under the Illinois Biometric Privacy Act, and and they're going to have to deal with it in a way that is going to satisfy not just the court, but ultimately the class members who are going to be asked whether they support the settlement, and and they're going to have to put together a presentation that is going to have to make sense to the constituents who are involved.

So whether they're going to be able to sell this case on the cheap or not, I think that their ability to do that is probably a little bit less today than it was last week, because Judge Donato says, not quite yet. Let's take a harder and look at this. We'll see what happens. Judge Donato also said a trial is not out of the question yet nothing has been approved.

Would he really force them to trial when a settlement is agreed to by the parties, Well, in a case like this, where you have tens of thousands, or hundreds of thousands, or millions of users in the state of Illinois, the answer is the court has a um it has a duty to protect the absent class members, and it's

going to take that duty seriously. And and right now, Judge Donato says, I'm not convinced yet that this settlement is within the range that I could approve, And and so I think it's going to be incumbent on the parties to do one or two things. They're either going to have to show Judge Donato why this five million dollar settlement is worthy of preliminary approval, and they may need to do a little bit more work to explain why they think the risk justifies the settlement, or they're

going to have to modify the settlement. I would expect that Judge Donato would rather see a settlement than a trial, but it has to be a fair settlement. And and right now he is at least skeptical based on the presentation that has been made to him. And so the options that the parties have is either to improve the settlement if if that's in the cards, or to make a later showing why this settlement and this discount, if you will, from the statutory damages that could be recovered

is warranted. Mark. If the judge refuses, let's just say the judge refuses to approve the settlement, can the parties appeal that If they would have no right to appeal it, they could they could seek permission to appeal it. I think it would be unlikely that an appeal would be taken by the by the Ninth Circuit, I think here it's the decision whether to approve or reject a proposed preliminary settlement that falls squarely within the District Court's discretion.

And and I think Judge donato Is is just simply doing what is appropriate for him under these circumstances. He's asking questions that need to be answered, and the answer has two different paths. It could take. One path is we have reasons that we haven't explained for wing to why this is a good settlement, and then they choose that path. Or the other path is Judge, we've heard you, We've gone back, we've taken a harder look at what the risks are, and we've decided to raise the settlement

consideration to X dollars. And either one of those paths could lead to a preliminary approval, but I think that the path to an appellent review is incredibly steep. Thanks Mark. That's Mark riskin a partner We'll call and seen. For months, federal courts across the country have been shuttered due to the pandemic, but the doors of federal court houses are slowly starting to swing open with the convening of socially

distanced grand juries. These are the jurist task with deciding whether to issue criminal indictments, joining me as Madison Alder Bloomberg Law reporter. So, Maddie, is it just the grand juries that are going to be brought back in and if so, how many? So it's for now, it's just grand juries, and in a few of these places. But you know, we've seen dates projected for jury trials in

courts um all across the nation. I mean, we saw that the Northern District of California was projecting jury trials to take place in the fall, Western District of Washington is protecting that they might take place at the end of the year to early next year. And those are two extreme examples, but in a lot of areas, grand juries or the precursor to jury trials eventually taking place. So grand juries are are now can happen in ten of the ninety four federal district courts, at least ten

of the ninety four federal district courts. Uh, And you know, I'm sure it'll only go up from there before we get into specifics about them coming back explain the role of the grand jury in our legal system. So the grand jury is typically made up of sixteen to twenty three people normal jury is six to twelve repetite jury should say, uh. In a grand jury, their role is to review the evidence in the case, review the fact of the case, uh, and come to a determination on

an indictment. UM. It is very easy to get an indictment through a grand jury. UH. You know, there's there's a joke in the legal space that you could indicte a ham sandwich. Um. And so it's it's one of those things that uh, it often gets I think a connotation that it's just another step in the process. UM. But you know, I did have sources tell me that it is. It is an important part of community involvement in these cases, and it is important in cases where

evidence might be lacking. And speaking of community involvement, how do they intend to get a fair cross section of the community in these times? So that was one of the concerns that defenders brought up to me, criminal defense attorneys excuse me, brought up to me when I was talking to them. You know, if if you are a healthcare worker, or you're in a high risk uh you're you're at high risk for the coronavirus um or you know a number of different factors, you might be easily

excused from a grand jury. Uh. And that means that you're you're limiting a certain section of the community from being involved. So that is a concern for defense attorneys. But the courts I talked to you that are doing this, Uh, you know, I talked to the Middle District of Georgia. I talked to the District of Montana. Both of them

have reached out to jurors. They've engaged with them, uh, and and try to figure out you know, at least from Montana's sake, they were trying to get jurors back who were entangled before everything happened in March, So they were trying to get them back to the court and they were you know, contacting them, making sure that that the proceedings that they decided on could benefit those those jurors when they came back in. So courts are really

you know, making the effort. But it is definitely a concern for defense journeys to So, now, how will the grand jurors be seated? How will they listen to the recedings. So, like everything with a pandemic, it's different from court to court. But some of the creative ways that we're seeing courts to do this are splitting up stars into different rooms, different courthouses. Even that's what Montana did when they did

their grand jury at the beginning of May. They split up members of this jury into three different courthouses, three different cities, and they connected them via video. Now, not every courthouse is doing things that are that extreme. Uh. Their district Middle District of Georgia, uh is planning to just spread people out among different rooms of the same courthouse and similarly do that video connection. Um. But you know, I've seen other courts mentioned that they're going to be

using larger rooms, separating people out through a larger ceremonial courtroom. Uh. So there are a number of different ways courts are approaching this. The over watching element of importance to a grand jury is grand jury secrecy. So we hear this time and time again. How do they maintain secrecy if it's on video or they concerned that there might be

hacking or someone else might be in a room? That is definitely I mean, there are concerns with grand jury's secrecy, with some of these procedures that they're they're adopting during this time. One of the ones that I've heard from defense attorneys, is potentially having a larger room you just have, you know, more likelihood that these proceedings might be more out front in the courtroom than they'd like. Doom has has had issues with its secrecy, so that that could

definitely be a concern. But I know that at least for the Middle District of Georgia, the U S Attorney there told me that they're going to be stationing marshals outside each one of these individual courtrooms to make sure that grandjury secrecy is protected. So, Maddie, are these grand jury is going to be able to ask questions and

deliberate in the way they normally do. So each one of these grand juries will have be able to do each one of their requirements through through the video proceedings, I know in a few of these cases. So that's asking questions, that's deliberating, that's coming to a determination in the in the case. So um, you know, for the courts that are starting these juries back up, they say that you can do every single part of grand jury remotely that you could when you're you're doing it all

in person. It may be a substitute for the grand jury process, but there might be constraints on some of the jurors because they're on video, or some of the witnesses because they're on video, and it sounds like there's a lot of details that might make it a stilted kind of process. That's a concern for defense attorneys for sure.

I spoke with with one defense attorney who told me that just the sheer fact of something being on video and a juror potentially not being able to see the face of a witness or you know, someone's reaction to a question or um, just that disconnect I mean, she says, that disconnects you from the gravity of the situation. And that's a that's a big concern for defense attorneys, even when it comes to potential use of video and jury trials.

Um that's being talked about, and that's another thing that they're concerned about, is having this disconnect of the people who are supposed to be, you know, judging the facts of the case and coming to their own conclusion, distances them from the material that they're listening to. Are any of the judges concerned that after a grand jury returns an indictment that a defense attorney will challenge because of the way the grand jury process was structured. So the

courts I talked to are not really concerned. But as they say that, there's a big amount of flexibility that is afforded to grand juries and how they proceed. Uh, so they're confident that these procedures are legally found or reasonably comp that these procedures are legally sound. Um, you know, but that doesn't mean some creative lawyer can come along and and and challenge and challenge one of these indictments. UM. I haven't heard anything to that effect, but you know, UM,

I'm sure it's not out of the question. Did any of the judges tell you the reason they were starting the grand juries up again was a fear that statute of limitations would run out. That is a major consideration to statutes of limitation, and with the Speedy Trial Act. You know, I heard from one federal judge who told me that this is not something that they know that they they're not sure how long that this could they can keep issuing these orders that suspend statutes of limitation

and to spend the Speedy Trial Act. Um, A lot of courts, right after the pandemic happened, started suspensions of the Speedy Trial Act, and you know, there's a question out there as to whether or not those proceedings are legally sound. UH. I talked to a lot professor who told me that there is a good chance that those could be challenged, those kind of orders that are suspending

of those really important deadlines. Were all the federal courts basically closed for the last few months during the pandemic? In other words, were there any grand juries that were operating at all? The short answers? It's very hard to tell. Um. You know, when we're looking at federal courts, we're looking at UH court orders that come out, but grand juries are secretive, and if it's not reflected in a general order, UM,

we might not see it. So from what we know, there has been at least one jury trial that that happened during the pandemic, and then there was the grand jury in Montana that happened at the beginning of May. UM. But you know, other than that, it is very hard to tell what's happening in in all ninety four federal district courts because they are so independent from one another, and it is very different when it comes to how they update their procedures and what's going on on their calendar,

on their website. You know, I'm also wondering are they fitted to do this video conferencing basically video conferencing, I mean, have they had to install equipment? And are some courts ahead of other courts on that. Some courts in the beginning mentioned adopting new video procedures, and you know, I know a lot of courts have mentioned that they're using

things like Zoom. But I I'm sure that this is prompting a lot of courts to take another look at their their video equipment and try to to revamp it to make sure that they can still do these kind of proceedings. This is part of a four phased approach. Tell us about that approach. So the Administrative Office of the Court, they're released a guidance from the Judicial Conference that basically said, you know, here's how you can start reopening uh, and that was you know, it's got four

different phases. In the first two phases, grand juries are included in both of those, so courts have the option to start grand juries. Um. And and it really is each of these phases is uh, it's determinative on what the health situation is in the community that that court is located in so there's a lot of public health factors that come into play when when courts are looking at if they're going to enter phase one or two. Uh So, I mean it's kind of the way that

we saw the pandemic effect. The courts really did correlate with those, uh those health factors. You know, we saw the Western District of Washington was the first court to respond to this when they had a large outbreak in near Seattle. And then we saw California, New York, West Virginia courts where some of last to respond, and that's where one of the last states to have their first

case of coronavirus. But now as as we're reopening, we're seeing, you know, areas like Montana, which had among the least coronavirus cases in the US, they're starting to to pick up back up with some of these in person procedures. So I think as we go forward, local health factors are going to be a huge, huge indicator of whether or not the court in your area, in the photo court in your area is starting back up with normal procedures.

So New York was the hardest hit state, and New York has the largest docket among federal courts in the country, and I've heard from lawyers that things are really backing up and they were behind before. Are they one of the courts that are going to start with grand juries. They are not courts that we have heard of with regards to starting up grand juries. But you know that that's probably because of a health situation in their area.

You know, a lot of the courts that we've seen starting gradualis of are in more rural areas where coronavirus just has not cred its tentacles. But you know, the courts that are still in impacted areas, it doesn't mean they're not doing any work. They're still going forward with what they can um. There are certain types of remote proceedings that were allowed by the Judicial Conference after the Cares Act was passed, So there are courts that are

using those kinds of mechanisms to keep things going. But you're you're right, there is a backlogs if it is going to come. And you know, I've heard the same lawyers are worried about the judges are worried about this. Uh, it's it's only a matter of time before that that

becomes a bit your issue. I imagine that in places like New York, they're going to have a lot of people, a lot more people than in rural areas who just don't want to come in and sit because when you're grand jury, it's not just a question of coming in,

you know, for one trial. Right. Yeah. I think that some of the larger cities are going to have a tougher time getting these these kinds of getting both grand juries and juries restarted, because it's going to be harder to convene a group of people who are ready and willing to serve in a time of crisis like this. You know, and as we've heard with the health guidelines, it's not really it's not really your health you're putting on the line. It could be your family member's health.

So maybe you have someone who's you know, at risk family member that you're living with. It really does restrict the jury pool quite a bit when you're starting to get into some of those larger areas. Did any defense lawyers just tell you flat out that if they have a grand jury who indicts a client of mind and these circumstances, I'm going to challenge that indictment. No, I I haven't heard that from criminal defense lawyers. But you know,

I will say that they're they're probably we waiting and watching. Um, these are definitely concerning to criminal defense attorneys. Uh. So you know, it's not to say it can't happen, but you know, I think it is maybe a little too early to tell. Finally, are the judges that you spoke to, are they basically figuring this out on their own or are they having a lot of input from other judges, other court systems, from the the administrative branch at the

federal judiciary or they basically on their own? Uh. Well, it's not just the courts that that are deciding when especially when it comes to grand juries Schedual prosecutors are part of this conversation. So the Middle District of Georgia, for example, when I talked to their the US prosecutor, there was um, you know, instrumental in shaping this system.

And you know, due to the decentralized nature of the U. S courts, Uh, the U S courts can kind of do what they want to do when it comes to developing their own response and how they might go about this, of course within limitations, but they do have a lot of freedom to be able to decide to do these kinds of proceedings in the way that they want. So, you know, I know that that there are courts that are seeking juror's opinions. They're they're trying to figure out

what would make them feel the most comfortable. But yeah, it's it's kind of a collaborative effort. It seems like between the court, the photo prosecutor's office, the court staff, and then of course with the jurors and put in minds. Thanks Maddie, that's Medicine Alder, Bloomberg Law Reporter, and that's up for the edition of Bloomberg Law. I'm June Brasso. Thanks for listening, and don't forget to tune into the Bloomberg Law Show weeknights. Attend them east right or on Bloomberg Radio.