Virtually coinciding with the much-publicized Facebook IPO, the preeminent social networking company has agreed to a settlement “in principle” with Facebook members who alleged that the site used their endorsements of Facebook’s “Sponsored Stories” feature without their consent and without compensating them. Fraley v. Facebook, No. 11-cv-01726 (N.D. Cal. May 22, 2012) (Notice of Execution of Term Sheet) (available here). The settlement’s terms and scope have not yet been announced. However, as the parties must obtain judicial approval of the class action settlement, the papers submitted in support of both preliminary and final approval will indicate how class members are to be compensated, any injunctive remedies, and the attorneys’ fees sought.

The Fraley plaintiffs contend that, in essence, Facebook used them to create endorsements akin to celebrity endorsements, informing members’ “friends” that they “like” certain companies or products. See Fraley v. Facebook, Second Amended Complaint (June 6, 2011) (available here). According to internal valuations that were part of the Facebook IPO, friend-to-friend referrals are potentially more valuable than endorsements from famous people.

The case’s pivotal moment came in December 2011, when Northern District Judge Lucy Koh denied Facebook’s motion to dismiss, chiefly on the basis of evidence put forth by the Fraley plaintiffs confirming that Facebook attaches significant monetary value to the Sponsored Stories endorsements. See Fraley v. Facebook, Order Granting in Part and Denying in Part Defendant’s Motion to Dismiss (Dec. 16, 2011) (available here). Facebook CEO Mark Zuckerberg has stated that friend-to-friend endorsements are the “Holy Grail” of advertising, and COO Sheryl Sandberg estimates that the value of a Sponsored Stories endorsement is as much as 200 to 300 percent greater than a standard advertisement without a friend-to-friend endorsement. Order at 4.

Facebook also faces allegations of uncompensated endorsements in connection with its “Friend Finder” service. See Cohen v. Facebook, No. 10-cv-05282 (N.D. Cal. Nov. 22, 2010) (Class Action Complaint) (available here). In contrast to Judge Koh’s ruling in Fraley, Northern District Judge Richard Seeborg ruled that the Cohen plaintiffs failed to established how they were injured by Facebook’s failure to either obtain their consent for their Friend Finder endorsements or compensate them, despite the fact that California Civil Code § 3344 — the controlling law in both Fraley and Cohen — was enacted precisely to ensure that non-celebrities be paid for endorsements, just as celebrities customarily are. An appeal of Judge Seeborg’s ruling is currently pending before the Ninth Circuit Court of Appeals, with briefing scheduled to begin next month.

In the wake of the filing of the Petition for Review in Duran v. U.S. Bank National Ass’n, No. S200823 (Cal. March 19, 2012), dozens of law firms and pro-worker and consumer organizations have filed amicus curiae briefs with the court in support of review (available below).  Duran has been widely criticized for going too far in demonizing all survey methods used to establish class action prerequisites.  The Order Granting Petition for Review was issued on May 16, 2012, and is considered a victory for employees in the post-Dukes era.  The recent Brinker decision foreshadowed the grant of review by endorsing sampling and statistical methods as a means for showing commonality.  With the grant of review, Duran is rendered depublished.

AMICUS CURIAE LETTERS:

Arias Ozzello & Gignac LLP
Consumer Attorneys of California
California Employment Lawyers Association
California Labor Federation, AFL-CIO
Chavez & Gertler LLP
Daniels, Fine, Israel, Schonbuch & Lebovits LLP
Desai Law Firm, P.C.  
Goldstein, Demchak, Baller, Borgen & Dardarian, A Professional Corporation
Harris & Kaufman, Attorneys at Law  
Initiative Legal Group APC
Impact Fund
Keller Grover LLP
Kershaw Cutter & Ratinoff LLP 
Kingsley & Kingsley, A Professional Corporation  
Law Offices of John M. Kelson   
Law Offices of Kevin T. Barnes
Leonard Carder, LLP
Markun Zusman Compton LLP
National Consumers League
National Employment Law Project
Pope, Berger & Williams, LLP
Ram, Olson, Cereghino & Kopczynski LLP
Righetti Glugoski, P.C.
Rudy, Exelrod, Zieff & Lowe, L.L.P.

The California Court of Appeal has issued a unanimous decision reinforcing that California’s unconscionability doctrine is still substantially intact, notwithstanding the U.S. Supreme Court’s ruling in AT&T Mobility v. Concepcion.  See Samaniego v. Empire Today LLC, ___ Cal. App. 4th ___ (Cal. Ct. App. 2012) (available here).  The Court of Appeal affirmed the trial court’s ruling that the at-issue arbitration clause was “highly unconscionable from a procedural standpoint” and exhibited “strong indicia of substantive unconscionability,” while denying the defendant’s motion for reconsideration in light of Concepcion.  See slip op. at 3-4.

The action arose when plaintiffs, installers for prominent carpet company Empire, brought claims alleging that they had been misclassified as independent contractors, and challenged the mandatory arbitration provision which was part of an agreement that Empire required the plaintiffs to execute both at the inception of their employment and, again, during their employment.  Id. at 2-3.  The court gave particular emphasis to the procedural unconscionability of the agreement, noting that it was presented to plaintiffs only in English, though some had only a rudimentary grasp of the language and others could not read English at all.  Id. at 2.  Additionally, “[t]he contracts were offered on a non-negotiable, take it or leave it basis, with little or no time for review.  The Agreement is 11 single-spaced pages of small-font print riddled with complex legal terminology.  The arbitration provision is set forth in the 36th of 37 sections.”  Id.

The arbitration clause was also deemed substantively unconscionable, as it shortened the statute of limitations to sue under the contract from one year to six months and contained a unilateral fee-shifting provision which required employees to pay Empire’s attorneys’ fees.  Id. at 3.  Similarly, claims to enforce non-compete agreements — which, as a practical matter, are only brought by employers — were excluded from the arbitration clause’s ambit.  Id.

The court found its analysis unaltered by Concepcion, noting that the Supreme Court’s decision “explicitly reaffirmed that the FAA ‘permits agreements to arbitrate to be invalidated by “generally applicable contract defenses, such as fraud, duress, or unconscionability,’” and “arbitration agreements remain subject, post-Concepcion, to the unconscionability analysis employed by the trial court in this case.”  Id. at 11-12 (internal citations omitted).  California federal courts have also stricken unconscionable arbitration clauses.  See, e.g., Chavarria v. Ralphs Grocer Co., No. 11-CV-02109, 2011 U.S. Dist. LEXIS 104694 (C.D. Cal. Sept. 15, 2011).

The Samaniego ruling comes on the heels of the Consumer Financial Protection Bureau’s announcement that it has undertaken a critical examination of the impact of mandatory arbitration agreements on consumers. See http://s559594427.onlinehome.us/impactlitigation/2012/04/27/federal-consumer-protection-agency-to-assess-impact-of-mandatory-arbitration-on-consumers/. In holding that Concepcion does not alter the unconscionability analysis, the Samaniego court’s ruling will likely be influential as other courts, trial and appellate, state and federal, continue to confront the same issue.

The California Supreme Court has granted the Petition for Review in Duran v. U.S. Bank National Ass’n, No. S200823 (Cal. May 16, 2012) (order granting petition for review).  The docket is available here.  All seven Justices voted in favor of review.

Many observers saw the proverbial writing on the wall for Duran with the Supreme Court’s Brinker decision, which endorsed the type of sampling and statistical methods received skeptically in Duran. As the Brinker concurring justices noted, without statistical evidence, many class actions would be, as a practical matter, virtually impossible to pursue. See Brinker Restaurant Corp. v. Super. Ct., No. S166350 (Cal. Apr. 12, 2012) (Werderger, J., concurring).

Duran was widely criticized in the Petition for Review and amicus letters for encroaching on trial courts’ autonomy and was held up as an exemplar of the maxim that “bad facts make bad law,” as even advocates of statistical methods were critical of the particular methods deployed by the Duran plaintiffs. With the grant of review, Duran is rendered “depublished.”