Parties Propose to Settle Yogurt Consumer Fraud Action for Serious Dough
In February I wrote about a decision in litigation about Dannon's statements involving the health benefits of its Activia and DanActive lines of yogurt, which the defendant claimed were backed up by numerous scientific studies. The California decision allowed plaintiffs to presume reliance upon alleged misrepresentations without actually pleading it.
Just a little over a week ago Dannon filed in federal court in Ohio a $35 million settlement of the series of putative class actions involving its yogurt brands that it had been defending. See Gelmas v. The Dannon Co., No. 1:08-cv-00236, Stipulation of Settlement, Docket Entry # 38 (N.D. Ohio Sept. 18, 2009). The settlement purports to cover and release all claims -- except personal injury claims -- that were asserted or could have been asserted in the yogurt lawsuits.
The settlement structure and proof of claim process for this proposed settlement is interesting, since the settling parties are dealing with the problem of consumer product purchasers who already consumed the products and, for the most part, cannot be expected to have retained proof of purchase. Class members may recover up to $15 merely by submitting a claim form. To obtain between $15 and $30, they must submit a claim form "signed under penalty of perjury attesting to the amount purchased." Claimants seeking between $30 and the maximum of $100 must not only submit the claim form with the amount sworn to under penalty of perjury, but they also must provide "a register receipt or other sufficient proof of purchase for the amount of Product for which payment is sought." Each claimant's claim must include, "to the extent reasonable," the number and type of products purchased, the amount paid, the approximate dates of purchase, and the name of the retailer from whom purchased. A claims administrator will be charged with whittling out the false claims.
The settlement fund is capped at $35 million, so what individual claimants actually receive will depend on the total amount of claims and whether the fund is fully expended. The settlement fund also covers administration fees and expenses, as well as the fees of class counsel. Class counsel indicate in the agreement that they want "no more than" $10 million plus expenses out of the $35 million fund. The settlement proposes that the named plaintiffs receive incentive payments of up to $5,000 if they were deposed and up to $1,000 if they were not.
If -- as I think is highly likely -- too few claims are made to deplete the settlement fund, Dannon will distribute the value of the remainder in the form of yogurt products to charities to feed the poor, which is highly commendable.
The proposed settlement also contains "equitable relief" in the form of restrictions on advertising and labeling. Reading these so-called restrictions, I am struck by the fact that the statements challenged in these lawsuits clearly were not false. Indeed, if I were still teaching my Product Liability course, I would ask my students to study this settlement and tell me whom they trust the most to issue restrictions on speech based on the results of scientific research: lawyers (as here), judges, juries, or scientists employed by regulatory bodies.
Compare the lawsuits' allegations with the settlement.
In the case I wrote about in January, Wiener v. The Dannon Co., 255 F.R.D. 658 (C.D. Cal. 2009), the complaint had alleged statements about Bifidus Regularis and L. casei Immunitas -- types of patented probiotic bacteria used in the Activia and DanActive products, respectively. These were the alleged misrepresentations:
Throughout its marketing . . . Dannon advertises that Activia is "scientifically proven" to naturally regulate digestion when eaten daily for two weeks. According to Dannon, this claim is supported by approximately twelve clinical studies . . .
. . . In its marketing campaign . . . Dannon claims that DanActive is "clinically proven" to strengthen the immune system. According to Dannon, this claim is supported by approximately twenty-one clinical studies.
. . . These [plaintiffs'] causes of action are based on allegations that Dannon's claims regarding the health benefits of Activia, Activia Light, and DanActive (the "Products") are unsubstantiated and deceptive.
Id. at 663 (citations omitted).
Now, here is what the settlement allows Dannon to say about its products:
First, it may say that its Activia products with Bifidus Regularis are "scientifically proven" or "clinically proven" to help regulate the digestive system, so long as it also says that it "helps with slow intestinal transit when eaten daily for two weeks, as part of a balanced and healthy lifestyle." The settlement also provides that "[i]n existing television commercials where the qualifying language currently exists, the qualifying language shall be made materially more prominent." (Emphasis added.)
Second, for its DanActive products with L. casei Immunitas, the defendant must remove the word "IMMUNITY" from its labeling and packaging, but it may say that the DanActive products are "'clinically proven' or 'scientifically proven' to help strengthen your body's defenses," and that they help "support the structure or function of the digestive tract's immune system." The settlement also requires the defendant to remove the phrase "they have a positive effect on your digestive tract's immune system," which it can replace with "they interact with your digestive tract's immune system."
Third, for both product lines, the defendant is required to place on its websites' FAQs and in any product overwrap packaging the following statement: "[This] is a food product and not a treatment or cure for any medical disorder or disease. If you have any concerns about your digestive system, you should consult a healthcare professional."
Finally, the defendant will place the correct genus, species and strain designation of the bacteria in close proximity to the FDA-required nutritional label and ingredient list. For Activia, that is "Bifidobacteria lactis DN 173-010," and for DanActive it is "Lactobacillus casei DN 114-001."
It's understandable that it could make economic sense for a defendant to settle a series of class actions after years of litigation. But this settlement's so-called "equitable" relief involving the defendant's advertising and labeling makes it crystal clear that these lawsuits were not based on any real fraud at all. The settlement allows Dannon to say practically the same thing it always has said. The lawsuits obviously were lawyer-invented, and although they may have survived some motions to dismiss, the settlement's equitable relief demonstrates that the defendant's statements were backed up by real science.
Is this another instance of regulation by litigation in which the only ones who really benefit are class counsel, who seek to take more than $10 million of the settlement fund in fees and expenses? Submit a comment and let me know what you think.
Hey Russ,
I'm not a lawyer but wouldn't any judge worth his salt be able to see what the bottom line of this suit was really all about?
I think you're analysis has a fundamental flaw. This is a settlement, not a judgment. There is no admission of liability on either side, and both the damage and equitable claims are a compromise. I am not familiar with the particulars of the case that led to settlement, but unless the plaintiffs' case was a slam dunk (which, in the class world simply does not exist), there is no reson to expect that the defendant would capitulate as to the revised disclosures. Instead, there were likely major risks on both sides which could have (a) lead to a judgment against defendants or (b) a judgment against plaintiffs. The fact that Dannon was willing to pay $35 million (more than the cost of continued litigation through trial I assure you) indicates that there was some risk of an adverse judgment leading to stronger injunctive relief, NOT the conclusion that there was no risk of judgment and the scientific claims were not misleading.