• by Wendy Davis , Staff Writer @wendyndavis, October 27, 2009

In what could be a bad omen for Facebook's Beacon settlement, a federal judge in San Francisco has rejected a class-action settlement in a data breach lawsuit against TD Ameritrade. The judge found that the settlement wouldn't adequately compensate consumers.

"In light of the court's reservations about the purported benefits of the proposed settlement, the court cannot find that the proposed settlement is fair, reasonable or adequate," U.S. District Court Judge Vaughn Walker wrote in an order denying settlement approval.

The settlement would have resolved litigation stemming from the breach of a database with information about more than 6.2 million customers. The rejected deal would have given customers a one-year subscription to anti-virus or anti-spam software. The law firm that negotiated the deal -- the same law firm that negotiated the Beacon settlement -- would have received around $1.9 million.

In the Beacon case, Facebook agreed to pay $9.5 million, but most of that would go toward creating a privacy foundation. Only the 19 individual plaintiffs would get any cash, with amounts ranging from $1,000 to $15,000. The plaintiffs' law firm, KamberEdelson, would pocket around $3 million.

The Beacon program told users about their friends' e-commerce activity at sites like Zappos, Blockbuster and Overstock. The platform initially operated by default, spreading news about members' purchases unless they affirmatively opted out.

Last week, U.S. Magistrate Judge Richard Seeborg in San Jose granted the deal preliminary approval. But that doesn't mean it will ultimately go forward. In fact, the Ameritrade settlement also received preliminary approval before its rejection last week.

The Facebook settlement in San Jose is already meeting with fierce resistance by some unhappy consumers in Texas who have been pursuing their own case against Blockbuster for participating in the program.

Blockbuster's involvement with Beacon was especially problematic because a 21-year-old federal law says that companies can't release movie rental records without users' written consent. That law also provides for up to $2,500 in damages -- a big boost to plaintiffs because proving damages in privacy cases tends to be very difficult.

But if the California settlement goes through, the people suing Blockbuster in Texas won't receive a dime. That's because a successful settlement would end all other class-actions stemming from the Beacon fiasco, including the litigation against Blockbuster.

A lot could happen between now and Feb. 1, the deadline set by Seeborg for objections to the settlement. Meantime, some disgruntled Facebook members in Texas have reason to be happy about the recent developments in TD Ameritrade.