Social media giant Meta can't delete a class action accusing them of allegedly misleading advertisers on Facebook by overstating the number of human eyes that may see their ads when boosted on Facebook, a divided appeals panel has ruled.
However, the ability to move forward with the case could still hang in the balance, as the panel has directed a lower court to take another look to determine if one of the businesses that served as a lead plaintiff on the suit should be allowed to continue suing.
On March 21, a panel of judges from the U.S. Ninth Circuit Court of Appeals in San Francisco split 2-1 on the question of whether Meta's estimates of "Potential Reach" for boosted posts and ads on Facebook should expose them to potentially big money class action fraud claims.
The majority decision was authored by Ninth Circuit Judge Sidney R. Thomas, with concurrence from Circuit Judge J. Clifford Wallace.
Circuit Judge Danielle J. Forrest dissented, saying the majority got the case wrong.
The majority opinion upheld a decision from U.S. District Judge James Donato, of the Northern District of California.
The case has been pending in San Francisco federal court since 2018, when attorneys from the firms of Cohen Milstein Sellers & Toll, of Washington, D.C. and New York, and the Law Offices of Charles Reichmann, of Kensington, California, filed the lawsuit against Facebook.
The lawsuit was filed on behalf of named plaintiffs, business DZ Reserve and individual Cain Maxwell. According to court documents, DZ Reserve is a now-closed e-commerce business that allegedly spent over $1 million on 740 advertising campaigns on Facebook. Maxwell allegedly sold firearm mounts online and allegedly spent $379 on 11 Facebook advertisements.
The appellate decision notes the court is unsure if Maxwell remains in operation.
The lawsuit specifically claims that Meta greatly overstated the "potential reach" of Facebook ads when estimating "reach" to potential advertisers at the time they "boosted" their posts or created an ad to post on Facebook.
The plaintiffs asserted that Facebook would inflate their "reach" estimates by measuring "reach" by number of Facebook accounts on the social media platform to which the ad might be pushed. However, the complaint said those Facebook accounts perhaps greatly exceed the number of actual humans who might see the ad, allegedly misleading advertisers into paying more than they otherwise would have to post their ads on Facebook.
They claim Meta's alleged "Reach" inflation amounted to fraud and violations of California's unfair competition law.
The appellate decision notes that Meta "has taken steps to increase the accuracy of Potential Reach by working to remove fake and duplicate accounts, as well as by updating the calculation of Potential Reach to include only accounts that were shown an advertisement in the last 30 days."
However, the judges noted that the changes weren't enough to bring into balance the number of accounts and the number of "living humans" to which the ads might be shown. They noted "non-human entities like businesses and clubs have accounts, some people have multiple accounts, and some people and bots create fake accounts."
Meta fought back against the lawsuit by asserting the claims can't be allowed to proceed as a class action.
While they did not dispute the "Potential Reach" estimates did not match actual humans seeing the ads, Meta asserted the actual experience of advertisers varied too greatly to make all the claims similar enough to lump together into one case.
They further argued that since at least one of the named plaintiffs is out of business, and the other's status is unclear, the class action also should end because the case no longer has actual plaintiffs with standing to sue.
The majority partially sided with Meta on the question of standing, ruling that DZ Reserve no longer exists as a viable business, and can't have standing to sue. They, however, returned the case to Judge Donato to determine if Maxwell can continue to sue.
But the majority sided with the plaintiffs on the broader question of whether they can demand Meta pay for allegedly committing fraud.
The majority said Meta "misstates the misrepresentation at issue, insisting that the misrepresentation is the numerical discrepancy between people and accounts, rather than the face that Meta substituted people for accounts."
"It is undisputed that Potential Reach was shown to every advertiser on Meta’s Ads Manager, Potential Reach was always expressed as a number of people, and Potential Reach always estimated a number of accounts," the majority said. "Class members were thus exposed to uniform misrepresentations about the potential reach of their advertisements."
In dissent, Judge Forrest said the panel should have sided with Meta on all counts. Forrest said too many questions still remain about the degree to which advertisers did rely - or should have relief - on Facebook's "Potential Reach" estimates.
"In the cases where we have upheld certification of a fraud class based on misrepresentation of an estimate, the class members were given the same estimate," Forrest wrote. "That is not what happened here, and the evidence does not establish that the millions of unique Potential Reach calculations that Meta provided to the class had the same degree of inflation."
Forrest noted that judges "could conclude that some, but not all, Potential Reach calculations presented to the class members were fraudulently misleading."
The judge said these questions should have persuaded the court to pull the plug on the class action.
The case has been remanded to Judge Donato at the Northern District of California for further proceedings.
Plaintiffs have been represented by attorneys Geoffrey Graber, Andrew N. Friedman, Karina G. Puttieva, Madelyn Petersen and Eric Kafka, of Cohen Milstein Sellers & Toll.
Meta was represented by attorneys Andrew B. Clubok, Susan E. Engel, Margaret A. Upshaw, Elizabeth L. Deeley, Melanie M. Blunschi, Nicholas Rosellini, Nicole Valco and Samir Deger-Sen, of Latham & Watkins LLP, of Washington, D.C., San Francisco and New York.