IntegrityMessageBoards.com v. Facebook, Inc.

Background

IntegrityMessageBoards.com, or IMB, operated an online forum called Investor Village. It alleged that Facebook made misleading statements through public remarks, its website, and its Ads Manager website interface about Facebook’s ability to display advertisements to users matching advertisers’ selected criteria. IMB asserted claims under California Business and Professions Code section 17200 and for common-law fraud.

IMB paid Facebook $1,409.68 for one advertising campaign and $242.17 for another. It alleged that users who interacted with its Facebook pages did not have some of the characteristics IMB had selected, including investment interests, education, income, home ownership, and age. IMB relied in part on a 2016 internal Facebook report stating that the precision of interest-based targeting in the United States was 41 percent.

IMB moved to certify a class of United States advertisers who, during the proposed class period, used Facebook’s self-serve targeting interface and paid for advertisements without opting into certain exceptions. During the litigation, IMB clarified that the proposed class should be limited to advertisers using the Ads Manager website interface, and the court adopted that construction for these motions.

Motion to Strike

Facebook submitted declarations from ten additional witnesses, including advertisers, advertising agencies, consultants, and marketing partners. IMB sought to strike those declarations under Rule 37(c), arguing that Facebook had disclosed the witnesses too late. The court denied the motion. It found that the declarations qualified as rebuttal evidence covered by the parties’ agreed extension of class-certification deadlines, particularly because IMB had changed its liability theory and proposed class definition during the litigation.

Class-Certification Analysis

Rule 23 requires a proposed class to satisfy four requirements: sufficiently many members, common legal or factual questions, claims typical of the class, and adequate representation. It must also fit one of Rule 23(b)’s permitted class-action categories.

The court found that IMB satisfied numerosity because the proposed class could include millions of advertisers, and commonality because the evidence could support a common question about whether Facebook knew that its interest-targeting ability had significant limits. The court noted that the internal report could help answer, on a classwide basis, whether Facebook knew a representation was false if Facebook had represented that its targeting accuracy exceeded the reported 41 percent.

The court nevertheless found that IMB failed to establish typicality. First, IMB did not show that all proposed class members saw materially similar statements or developed the same understanding of Facebook’s targeting abilities. Some advertisers used third-party agencies or consultants, and many had substantial prior marketing experience. Second, IMB used only a limited number of interest and partner-category criteria and did not use behavior criteria, so its exposure to the interface was not shown to be materially similar to that of other advertisers. Third, IMB’s managing member, Ralph Kidd, faced unique issues concerning his testimony that he would not advertise on Facebook at that time and his efforts to profit from allegations about Facebook’s targeting accuracy. The court found that these issues could distract from the class’s claims.

The court also found IMB inadequate as a class representative. Kidd testified that he primarily viewed the proposed class as consisting of small businesses, while the proposed class was not limited by business size. The court further found that the disparity between Kidd’s testimony and the proposed class suggested that counsel, rather than IMB, was making key strategic decisions, indicating insufficient involvement by IMB in monitoring the case.

The court independently denied certification under Rule 23(b)(3), which permits a damages class only when common questions predominate over individual ones and a class action is superior to other methods. The court found individualized issues concerning which targeting criteria and descriptions each advertiser saw, whether particular descriptions were actionable statements or merely opinions, whether advertisers reviewed Facebook’s disclaimer, what each advertiser understood before purchasing services, whether Facebook intended to induce reliance, and whether each advertiser relied on any particular statement.

The court also rejected IMB’s proposed damages models. IMB did not explain how Facebook’s conduct caused each proposed class member’s injury without a presumption of reliance, and the court had found no basis for that presumption. The court further found that the proposed damages calculations would need to account for each advertiser’s expectations, motivations, and willingness to pay. A model based on average accuracy rates could overcompensate some advertisers and undercompensate others because the accuracy of the specific criteria varied.

The court denied certification under Rule 23(b)(2), which concerns classwide injunctive or declaratory relief. It rejected Facebook’s argument that Kidd lacked standing to seek forward-looking relief because Kidd later declared that IMB would resume advertising if it could rely on Facebook’s representations about targeting accuracy. However, the court concluded that IMB still failed to show that the court could issue uniform relief because advertisers saw different targeting descriptions, some of which included qualifying language that might not be actionable.

Motions to Seal

Facebook sought to seal information concerning its internal advertising-targeting tests and assessments, revenue streams, refunds and refund reasons, business-partner identities, and technical systems and processes. The court applied the standard requiring compelling reasons to seal records connected to a motion related to the merits.

For the first sealing motion, the court denied sealing for internal testing and assessments because Facebook did not provide a specific factual basis for claimed competitive harm, some material appeared merely embarrassing, and the public had a significant interest in understanding Facebook’s advertising-targeting abilities. The court granted sealing for certain nonpublic revenue information because Facebook adequately explained the competitive harm and the information was not necessary for public understanding of the case. It denied sealing for refund information and business-partner identities because Facebook did not show sufficiently specific harm. It granted sealing for technical processes and system functions because the information was technical and the declarations supported a risk of competitive harm.

For Facebook’s second and third sealing motions, the court granted sealing for information in the revenue and technical-process categories and otherwise denied the requests. The court terminated IMB’s motions to keep its own materials provisionally sealed. Facebook was ordered to file publicly, within ten days, materials that did not qualify for continued sealing. The court stated that it would not reconsider its sealing decisions.

Disposition

The court denied IMB’s motion to strike and denied its motion for class certification. It granted in part and denied in part Facebook’s motions to seal. The order addressed class certification and related evidence and access to court records; it did not decide the ultimate merits of IMB’s underlying statutory and fraud claims.