On August 15, 2018, plaintiffs filed a putative class action on behalf of advertisers who get less than they pay for when Facebook allegedly overstates its user numbers.

Facebook provides its advertisers with an approximate “Potential Reach,” an “estimation of how many people are in an ad set’s target audience.”  The lawsuit alleges that Facebook fudges the numbers.

The complaint alleges that the “purported Potential Reach among the key 18-34 year-old demographic in every state exceeds the actual population of 18-34 year olds.”  The lawsuit further alleges that Facebook also vastly overstates the number of total users.  For example, the lawsuit alleges that “Facebook asserted its Potential Reach was approximately 4 times (400%) higher than the number of real 18-34 year-olds with Facebook accounts in Chicago.”

Plaintiff Danielle Singer owns an online business that sells aromatherapy fashionwear and accessories, including scarfs, jewelry and essential oils.  She spent more than $14,000 on Facebook ads.  Her suit asserts claims on behalf of any person or entity who advertised on Facebook.com from January 1, 2013 to the present.

The complaint quotes three former Facebook employees (Confidential Witnesses 1-3) who allege that Facebook “did not give a sh—“ about the accuracy of its actual numbers, that it is only concerned that “advertising revenue not be negatively affected,” and that it had no interest in “stopping duplicate or fake accounts in calculating Potential Reach.”

The lawsuit admits Facebook’s “Potential Reach” includes a disclaimer that:

Estimates are based on the placements and targeted criteria you select and include factors like Facebook user behaviors, user demographics and location data.  They’re designed to estimate how many people in a given area could see an ad a business might run.  They’re not designed to match population or census estimates.  Numbers may vary due to performance reasons. (Emphasis in Pleading).

Citing data from the Pew Research Center, the plaintiff alleges that even this disclaimer is false, since Facebook claims to be estimating how many people “could see an ad,” but there simply aren’t that many people, much less that many Facebook users.

The lawsuit, filed in Federal Court in the Northern District of California, alleges Facebook violated California’s Unfair Competition Law and quasi contract claims, seeking restitution or disgorgement of profit.

It will be interesting to see what happens next;  whether: (a) this lawsuit quietly vanishes, with Facebook and Plaintiff/Plaintiff’s counsel reaching quick confidential resolution; (b) Facebook changes its posting regarding its Potential Reach, and/or (c) Facebook stands tall and defends its Potential Reach.

There’s been plenty of news regarding a recent trend that contract provisions precluding class actions and mandating arbitration may have hit their high water mark and appear to be receding. I recently wrote about this in an article entitled “Does the Ninth Circuit’s Ernst & Young Ruling Signal a Tipping Point; Is the Tide Turning Against Class-Action Waivers?“

In further news of this trend, the U.S. Department of Education just issued final regulations prohibiting participating schools “from using certain contractual provisions regarding dispute resolution processes, such as predispute arbitration agreements or class action waivers.”

A student/borrower seeking to avoid repaying his or her student loan “has a defense to repayment on a loan based on an act or omission of a school.” Prior to the Department of Education’s rule, such students were subject to contract provisions requiring that, even if there were thousands of similarly situated student/borrowers, each student/borrower had to arbitrate his or her dispute singly against his or her school, rather than in court or as a member of a larger class action.

College Student Class-Actions

There have been numerous student class-actions claiming that, particularly with for-profit schools, the schools have misrepresented their post-graduate placement rates ,  overcharged students for fees, and in one noted case involving one Donald J. Trump, overpromised but under delivered on revealing Mr. Trump’s secret real estate techniques as taught by Mr. Trump’s “hand picked” professors.

Affected Federal Loan Programs

The Department of Education’s rule applies to colleges or universities that participate in the Federal Perkins Loan Program, the Federal Family Educational Loan Program, the William D. Ford Federal Direct Loan Program, and the Teacher Education Assistance for College and Higher Education Grant program.

Department of Education Following in Consumer Financial Protection Bureau’s Footsteps

The Department of Education indicated that it was following the same logic as the Consumer Financial Protection Bureau’s recent decision to preclude similar provisions in consumer financial agreements. “The CFPB identified several features of class actions in the consumer financial services markets that we consider applicable to the postsecondary education market.”  (at pg. 54).

The Department of Education determined that its new rule was not preempted by the Federal Arbitration Act, (at pg. 57) finding that it “has clear authority to regulate the conduct of institutions that wish to participate in the Direct Loan Program. https://ifap.ed.gov/fregisters/attachments/FR061616BorrowerDefenseRepayment.pdf at 57.

It’s Anybody’s Guess Where the Next Assault on Class-Action Waivers/Mandatory Arbitrations Will Come From

So add student loan contracts to consumer financial contracts and employment contracts (at least in the Seventh and Ninth Circuits) to the list of contracts where class-action waivers/mandatory arbitration provisions may not be enforceable.

I previously wrote about two wage-fixing class actions, where some of the largest high-tech and Hollywood companies conspired not to hire one another’s employees to keep wages low.  Google, Apple, Intel and Adobe attempted to settle the high-tech class action for $324 million, but the Court found the amount too low.  They ultimately settled for $415 million.

Meanwhile, the Hollywood wage-fixing case against Pixar, Dreamworks, Disney, LucasFilm and other studios continued to move towards trial when the Court denied the studios’ motion to dismiss.

Initial evidence indicated that Sony was clean; it had rebuffed the other studios’ efforts to recruit Sony into the “gentlemen’s agreement” not to hire one another’s employees. But apparently there was sufficient evidence against Sony that it decided to settle. Sony, which has given us such animated classics as the Smurf franchise, Cloudy with a Chance of Meatballs, and Hotel Transylvania, agreed to pay $13 million to settle its portion of the wage-fixing claims and further agreed to cooperate with Plaintiffs in their action against the other studios.

It will be interesting to see whether Sony’s settlement will inspire the other studio defendants to cut their losses and settle or fight on.

Moving from the celebratory to the spiritual, the lawyers who (literally) brought you “Happy Birthday” once again find themselves looking to overcome entrenched copyright interests related to one of the country’s most well-known anthems.  Attorneys Mark C. Rifkin and Randall Scott Newman, who recently succeeded in bringing “Happy Birthday” into the public domain, are aiming for a follow-up hit, filing suit against The Richmond Organization (TRO) and Ludlow Music over the copyright to the Civil Rights anthem “We Shall Overcome.”

TRO has held copyrights for “We Shall Overcome” since the early 1960s and has collected millions of dollars in fees for its use since then.  “We Shall Overcome” was popularized by folk singer Pete Seeger in the late 1940s and returned to prominence during the Civil Rights Movement in the 1960s.

Seeger Did Not Write “Overcome”

Rifkin and Newman, as they did in the “Happy Birthday” case, assert on plaintiffs’ behalf that the song is derived from works pre-dating the copyrighted versions.  “We Shall Overcome,” they say, is virtually identical in its musical and lyrical composition to “We Will Overcome,” which Mr. Seeger published and copyrighted in 1948.  Thus, say Rifkin and Newman, “[b]ecause the copyright to the 1948 publication of People’s Songs, Reg. No. B184728, was never renewed and thus expired  in September 1976, … We Shall Overcome entered the public domain no later than that date.”

Origins of the Song Date Back to Early 1900s

The attorneys actually believe that the song entered the public domain far earlier.  Indeed, “We Will Overcome” is a turn-of-the-20th-Century African-American spiritual that Mr. Seeger freely admits learning from a friend.  According to a Library of Congress blog post from 2014, the song appears to have roots in two different songs from that period, one from which its lyrics are derived, and the other from which it draws its melody.  The individual(s) who combined the two, however, is not currently known.

Only time will tell whether Rifkin and Newman turn out to be one hit wonders, or whether they can “Overcome” once again.  If only there were a song they could use to motivate themselves…

[This post was written by Jason Horst.]

SNAP QUIZ-Which type of lawsuit would divide the Supreme Court Justices along the following lines?

Justices Breyer, Roberts, Scalia, Kennedy, Alito and Kagan vs. Justice Thomas, Ginsburg and Sotomayor?

If you guessed federal arbitration preemption you are a winner.

Yesterday, the Supreme Court smacked down another rogue California Court for allowing consumers to circumvent DirecTV’s service agreement.  The agreement included a black hole of an arbitration provision, specifically drafted to suck all life from any court litigation claim that ever was, is, or could be.

In DirecTV v. Imburgia the consumers’ service contract provided that “any Claim either of us asserts will be resolved only by binding arbitration” and “neither of us [most specifically you-Mr. or Ms. Consumer] shall be entitled to join or consolidate claims in arbitration.”  However, the contract provided that “if the law of your state” makes the waiver of class arbitration unenforceable, then the entire arbitration provision “is unenforceable.”  But, and it’s a really big but, “the arbitration provision shall be governed by the Federal Arbitration Act.”

The consumers filed a putative class action in California state court, DirecTV sought to enforce the arbitration provision, the trial court refused, DirecTV appealed and the Court of Appeal affirmed, mis-remembering that, while in olden times [pre 2011] California law forbade class-action waivers like the one at issue, the US Supreme Court gutted that law in AT&T v. Concepcion, holding that the Federal Arbitration Act preempts and invalidates such laws.

The California Court of Appeal decided that by including the “if the law of your state” provision, DirecTV and the consumers [really just DirecTV, the consumers had nothing to do with drafting the contract] intended the specific language to trump the general provision, i.e. “the arbitration provision shall be governed by the Federal Arbitration Act. Following the canons of contract interpretation, the Court also found an ambiguity and interpreted it against the drafter, DirecTV.

Justice Breyer, writing for the majority, basically wrote what part of ‘NO’ don’t you understand?: “The Federal Arbitration Act is a law of the United States, and Concepcion is an authoritative interpretation of that Act.  Consequently, the judges of every State must follow it.”

In a bit of snark, Justice Breyer wrote that the parties to the contract could have decided to “have portions of their contract governed by the law of Tibet, the law of pre-revolutionary Russia or (as is relevant here) the law of California including the [prior anti-class action waiver law]….”  But the contract’s reference to “the law of your state” can only mean the valid law of your state and not the law of your state before the US Supreme Court trumped California’s quaint and antiquated laws that allowed consumers to band together in class-actions.

Justice Thomas dissented that the Federal Arbitration Act does not apply to state court proceedings. Justice Ginsburg, joined by Justice Sotomayor dissented, attempting to give the “customer, not the drafter [DirecTV], the benefit of the doubt.”  She noted that the DirecTV litigation was three years old when the US Supreme Court issued the Concepcion decision, and thus when the contract was formed “the law of your state,” at least in California, rendered DirecTV’s arbitration provision unenforceable.  Calling DirecTV’s service contract a “take-it-or-leave-it contract,” Justice Ginsburg bemoaned the societal costs of decisions like Concepcion which, she noted, “predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer protection laws.”

As discussed in my prior blog post, Google, Apple, Intel and Adobe stand accused of conspiring not to poach one another’s employees in order to keep wages down. 

Attorneys representing the class-action employees agreed to settle the case for $324 million, but one of the employees objected that the settlement was too low, essentially accusing the plaintiff attorneys of selling out the class. The judge agreed and rejected the settlement.

Defendants have now increased the settlement offer to $451 million, but they will need to wait and see if any of the plaintiffs object or if the Court determines the offer is still insufficient. After all, plaintiffs claim defendants’ anti-poaching scheme cost the 64,000 class members a total of $3 billion in reduced wages, and a jury could treble that amount to $9 billion. The evidence, damning email and memos describing the anti-poaching conspiracy and a need to cover up the conspiracy, dictate that defendants must settle. The only question is how much they must pay for the court to determine the settlement is fair.

When you think of a monopoly you probably think of Rich Uncle Pennybags or oil tycoon John D. Rockefeller, but maybe you should think of Princess Elsa from Frozen or the iPhone 6 instead.  The largest Hollywood animation studios and leading Silicon Valley giants stand accused of wage-fixing in violation of the Sherman Antitrust Act. While nobody has proven he was the primary architect of these schemes, Steve Jobs of Pixar/Apple appears to be the common denominator between these two industries.

The Sherman Antitrust Act prohibits business activities that are deemed anti-competitive, including agreements that unreasonably restrain competition affecting interstate commerce. The prototypical case involves price fixing, where various competitors conspire not to compete so they can keep their prices high. In a 2012 case where LCD screen manufacturers conspired to fix prices world-wide, Hitachi, Sharp, Samsung, Toshiba, LG and AU Optronics collectively agreed to pay more than $1.1 billion to settle antitrust claims.

Unlike the typical restraint of trade cases, these Hollywood and Silicon Valley cases involve wage-fixing, not price-fixing. These two industries stand accused of colluding with their competitors not to hire each other’s employees, thereby driving down wages.

The Hollywood class action lawsuit, amended last week, alleges that most of the major animation studios entered secret agreements not to hire one another’s employees. The lawsuit alleges that Pixar, Lucasfilm, DreamWorks Animation, The Walt Disney Company, Sony Pictures, Blue Sky Studios [maker of Rio and Ice Age films], and ImageMovers, LLC, entered into agreements, some of which date back to the 1980’s, “not to actively recruit employees from each other…” While allegations in a complaint should generally be taken with a grain of salt, the studios’ own written documents may prove impossible to explain away. For example in 2005, Pixar’s VP of Human Resources wrote: “With regards to ILM, Sony, Blue Sky, etc., …we have a gentlemen’s agreement not to directly solicit/poach from their employee pool.” In 2007, after Disney acquired Pixar, a Pixar executive wrote a memo to his Disney colleague about “a serious problem brewing” in that Robert Zemeckis [director and creator of Back to the Future and Polar Express] “has hired several people away from Dreamworks at a substantial salary increase” and that the Northern California studios has “avoided wars” by “conscientiously avoiding raiding each other.” Steve Jobs owned the majority share of Pixar prior to the merger.

Meanwhile, in Silicon Valley there are two class actions alleging that Apple, Google, Dell, IBM, eBay, Microsoft, Comcast, Clear Channel, DreamWorks, Oracle, Sun Microsystems and others conspired not to recruit each other’s employees to keep wages down. Similar to the Hollywood case, defendants may find it difficult to overcome their own damning documents. In a Google memo titled “Special Agreement Hiring Policy,” the Google executive listed four Google competitors and explains that they will not “pursue manager level and above candidates for Product, Sales or G&A [General and Administrative] roles –even if they have applied to Google.” Steve Jobs was running Apple during the wage-fixing scheme. The parties in the larger Silicon Valley case reached a settlement of $324 million, but one of the plaintiffs objected that the amount was too low, given that the estimated lost wages was $3 billion and if defendants lose, those damages could be trebled to $9 billion. The Federal District judge agreed and rejected the settlement. The defendants asked the Ninth Circuit to reverse the judge’s decision and have her removed from the case. The parties have filed their initial briefs with the Ninth Circuit

The laws are clear: 1) you cannot conspire with a competitor to fix prices; 2) you cannot conspire with a competitor to fix wages, and 3) you cannot conspire with a competitor not to solicit/hire each other’s workers. These are obvious restraints of trade. But the shocking thing is how arrogant or just plain dumb the defendants were in memorializing their conspiracy in writing. With all the smoking guns, it’s clear the defendants failed to heed Google’s Eric Schmidt’s request that “I would prefer that [Google] do it verbally since I don’t want to create a paper trail over which we can be sued later?” These sophisticated companies committed the same sort of rookie mistake as the Billionaire Boys Club members, who mistakenly left a detailed “to do” list for committing the murder (“tape mouth, handcuff …kill dog”) at the murder site. That smoking gun helped secure their convictions. Similarly, in the wage-fixing class actions, the defendants’ smoking guns are likely to prove insurmountable. Having been caught red handed, the only likely remaining question is how much money the defendants will ultimately have to pay to their employees and the employees’ attorneys. Unfortunately for defendants, it won’t be Monopoly money.