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Ninth Circuit Rejects AOL Class Action Settlement Based on Objections by Class Member

In November 2011, the Ninth Circuit rejected a nationwide class action settlement freely negotiated between the parties to the suit, on the basis of objections to the settlement raised by one of the class members.

In August 2009, four AOL subscribers filed a class action lawsuit alleging that AOL unlawfully inserted footer advertisements into e-mails sent by AOL subscribers. The parties mediated their differences and arrived at a settlement. Because distribution of the damages (roughly $2 million) among the 66 million putative class members -- or 3 cents per class member -- was cost-prohibitive, the parties, invoking the cy-pres doctrine, under which a court distributes the non-distributable portions of a class action settlement fund to the "next best" class of beneficiaries, agreed that AOL would make a series of charitable donations totaling $110,000.

In December 2009, Darren McKinney filed a formal Objection to the Proposed Settlement arguing, among other things, that the charitable award did not meet the standard for cy-pres, because the charities selected by the parties did not relate to the issue in the case -- AOL's allegedly unjust enrichment as a result of a purportedly unlawful advertising campaign exploiting users' outgoing e-mail messages -- and were not geographically diverse. The district court denied McKinney's objections.

On appeal, the Ninth Circuit rejected the parties' claims that the size and geographic diversity of the plaintiff class made it "impossible" to select an adequate charity. It held that the parties "should not have trouble selecting beneficiaries from any number of non-profit organizations that work to protect internet users from fraud, predation, and other forms of online malfeasance." See: Nachshin v. AOL, 663 F. 3d 1034 (9th Cir. 2011).

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Related legal case

Nachshin v. AOL