• by Wendy Davis , Staff Writer @wendyndavis, July 16, 2012

Last week, some consumer advocacy groups weighed in against Facebook's tentative settlement of a lawsuit about the sponsored stories program.

Now, a new ruling in a separate class-action lawsuit is giving those groups additional ammunition. In that case -- a false advertising lawsuit against Kellogg -- the 9th Circuit Court of Appeals scuttled a settlement agreement that called for charities to receive up to $5.5 million worth of food, and for attorneys to receive $2 million.

The appeals court nixed that settlement for several reasons. One was that giving money to charities that run food banks won't compensate consumers who said they were victimized by false advertising. (The Kellogg case stemmed from claims that the company wrongly asserted that eating Frosted Mini-Wheats was shown to improve attentiveness by nearly 20%.)

The other major reason why the judges put the kibosh on the deal was that they found $2 million in attorneys' fees unreasonable. "The $2 million fee award breaks out to just over $2,100 per hour. Not even the most highly sought after attorneys charge such rates to their clients," the judges wrote.

While the details of the Kellogg case obviously differ from the sponsored-stories lawsuit, the structure of the agreements are similar. The sponsored-stories lawsuit stems from allegations that Facebook violated a California law giving consumers the right to control the use of their names and images in endorsements. That law also says that minors' images can't be used in endorsements without their parents' permission.

The tentative deal calls for Facebook to pay $10 million to advocacy organizations and law schools and $10 million to lawyers who brought the class-action lawsuit.

The sponsored-stories agreement also requires Facebook to give users more control over sponsored stories -- which publicize users' likes to their friends. But details on that point are fuzzy. Court papers filed last month say only that Facebook will create "a mechanism that will allow users to see and control which actions they have taken that have led to their being featured in sponsored stories ads."

Some opponents to the deal have argued that a $10 million payday for the lawyers raises concerns about whether the deal is really in users' best interests -- especially because it leaves Facebook with a good bit of wiggle room.

Last week, U.S. District Court Judge Richard Seeborg took over the sponsored stories case. He will hold a hearing on Aug. 2 about the matter.