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Ninth Circuit Overturns AOL Privacy Settlement

By Stephanie Rabiner, Esq. on November 28, 2011 3:02 PM

Have you heard about the AOL privacy settlement? Probably not. A group of attorneys--with a few named plaintiffs--sued the company after it began placing banner ads in the bottom of emails.

How that violates user privacy, we may never know. The two sides settled for $250,000 in legal fees and $110,000 in damages. And the 66 million AOL users represented in the class action?

Before Monday, they were set to get absolutely nothing.

Unfortunately, they'll still get nothing once the AOL privacy settlement is reworked and approved. They can blame the cy pres doctrine for that.

When class action awards are unclaimed or non-distributable, courts are tasked with finding the next best beneficiary. Under the cy pres doctrine, judges must locate charities that serve as a reasonable substitute for class members.

Here, the parties and judge failed to do this.

AOL only made about $2 million off of the email ads. With 66 million class members, that's about 3 cents a piece. Distributing the settlement was thus cost-prohibitive. Enter cy pres.

The judge agreed to distribute the $110,000 between the Legal Aid Foundation of Los Angeles, the Federal Judicial Center Foundation, the Boys and Girls Club, New Roads School of Santa Monica, Oklahoma Indian Legal Services, and the Friars Foundation.

The 9th Circuit was none too pleased. These organizations do not represent the interests of class members. The class was nationwide, but most of these organizations are in Los Angeles. And none of them focus on privacy or Internet law.

So thanks to the AOL privacy settlement, similar agreements will get a bit more judicial scrutiny and be better tailored to fit class objectives. And those of you who still use AOL email won't be bombarded with pesky banner ads.

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