7:32am PT by Eriq Gardner
Facebook Suffers Setback in Fraud Lawsuit Over Data Harvesting for Trump Election
In the face of the Cambridge Analytica scandal, one where a political firm exfiltrated data from tens of millions of Facebook users in the interest of psychologically profiling American voters and swinging the 2016 presidential election in favor of Donald Trump, Facebook confronted a wrath of litigation alleging privacy violations and fraud. On Tuesday, Facebook learned that the legal fallout wouldn't be so easily managed.
As previously discussed, Facebook consolidated all of the class actions brought over the Cambridge Analytica affair into one giant case in San Francisco and then attacked the claims for insufficiently alleging harm to users. But one lawsuit was potentially a different breed — an action handled by Jay Edelson, a private attorney representing the people of Illinois through the office of Kimberly Foxx, a state's attorney, the top prosecutor in Cook County. Facebook removed this case from Illinois state court to federal court and tagged it to the multidistrict litigation taking place in San Francisco. That set off a consequential fight about the maneuvering. At stake was the claim that Facebook violated The Illinois Consumer Fraud and Deceptive Business Practices Act, which carries massive repercussions including $50,000 in civil penalties per violation (adding up to potentially billions), injunctive relief and even a lost business license to operate in the state.
In a new decision that represents both a setback for Facebook and a boost of power to subordinate state officials aiming to get corporations in state court to answer allegations of fraud, California federal judge Vince Chhabria has rejected the social media giant's arguments and has directed this experimental lawsuit back to state court.
The opinion (read here) sets up the reasons why certain plaintiffs might not want to be part of any consolidated action.
"When a case is folded into multidistrict litigation, it will almost inevitably be delayed," he writes. "Its fate will be bound up in the fates of many others. The transferee judge may decide that certain claims should be prioritized or addressed first. The plaintiff may thus lose control over the direction of the lawsuit. And this is a serious concern if the plaintiff is a government entity or official — the multidistrict litigation process would intrude on state or local sovereignty."
The question posed by the Foxx case was whether someone lower on the food chain than a State Attorney General could really be the state in prosecuting this type of case. Since the rules for the removal of cases to federal jurisdiction don't apply to states, or those bringing suits on behalf of states, Chhabria had to decide who was the "real party in interest."
Facebook had several arguments why Illinois wasn't the real party of interest in the Foxx lawsuit. The company pointed to how Edelson was due to collect a 20 percent contingency fee from the winnings and addressed a 1901 Supreme Court case that it argued stood for the proposition that a state cannot be the real party in interest unless the relief sought in the lawsuit would benefit only the state without any benefit going to private parties. Facebook contended that as a matter of Illinois law, a subordinate state official wasn't authorized to bring actions for statewide relief. Facebook also asserted that civil penalties would go to the Cook County treasury instead of Illinois' coffers.
One by one, Judge Chhabria rejects the reasoning.
For instance, after writing that the question of who has the authority to represent the state’s interests in a lawsuit is a question of state law, he concludes that both the plain meaning of the Illinois Consumer Fraud Act as well as its legislative history strongly suggest that a State's Attorney like Foxx has sufficient authority.
"Facebook asserts it would be absurd to allow multiple public prosecutors to enforce the State’s consumer fraud laws on a statewide basis, and so the Illinois Consumer Fraud Act should be construed more narrowly than its plain language suggests," states the opinion. "To the contrary, it makes perfect sense for the Legislature to have conferred this authority on multiple prosecutors."
Later, the judge addresses the idea that this would somehow be unfair to Facebook.
"Facebook raises the specter of a company defeating one statewide consumer fraud action by a county prosecutor, only to be forced to defend subsequent statewide actions based on the same conduct by the Attorney General," writes the judge. "But the company likely wouldn’t face that scenario because of claim preclusion. If a State’s Attorney brought a civil consumer fraud action on behalf of the State, a judgment on the merits in that action would very likely preclude the Attorney General or other State’s Attorneys from bringing a similar statewide action in the future."
Ultimately, Chhabria concludes that "it’s clear that Foxx’s lawsuit serves primarily the interests of the State of Illinois" and "this is the embodiment of a state enforcement action brought in the public interest."
So the case may now proceed in Illinois state court, which doesn't necessarily mean Facebook will lose on the merits. But the company certainly finds itself in a much more precarious position.
In the consolidated multidistrict litigation, Facebook has been arguing that plaintiffs lack standing to pursue claims because of the absence of alleged harm. The company has ridiculed suggestions of drained cellphone batteries and the election of President Trump as being enough and added that plaintiffs in that case hadn't described any specific content shared or illicitly obtained by third parties.
Illinois state court may be a more inhospitable forum for Facebook on the privacy front. For instance, just last week, in a case brought by a teenager who alleged that Six Flags amusement park collected his thumbprint without his informed consent and violated the state's law on the collection of biometric information, the Illinois Supreme Court ruled that plaintiffs don't need to show actual injury beyond rights under the statute.
Accordingly, the nightmarish prospect of fighting a case over the Cambridge Analytica scandal in Illinois state court could give Facebook enough of an incentive to appeal yesterday's ruling. If that happens, the stakes may even grow as prosecutors around the nation look to bring their own actions in local courts over everything from net neutrality to climate change. Stay tuned.