We've all been there. Your client is sued on a weak or silly claim. But you can't seem to get the court to dismiss the darn thing on the pleadings, as it should. And so, you consider settling. Discovery, after all, is expensive, as are class certification briefing, experts, and hearing. Because the claim is bullfeathers, there can't be that many class members who will actually bother to collect under a settlement, so it should be relatively cheap.
But although Plaintiffs' counsel know the claim is weak, they insist on their payday. And so the challenge becomes constructing a settlement that can somehow justify the sack of money that plaintiffs' counsel demand to drop this stinker of a claim.
Exhibit # 1: Wrigley's Eclipse settlement, which was preliminarily approved on June 15, 2010. Wrigley was sued by a putative nationwide class of consumers for alleged violation of the Florida Unfair and Deceptive Trade Practices Act and breach of express warranty. Why? Because it advertised that its Eclipse gum was the first to include Magnolia Bark extract, which is "scientifically proven to help kill the germs that cause bad breath." These statements, plaintiffs alleged, were false and deceptive and allowed Wrigley to sell the gum at a premium price.
One key problem with plaintiffs' claim, however, is that credible scientific literature actually exists to support the claim that Magnolia Bark extract kills the type of germs that cause oral malodor. See, e.g., Michael Greenberg, Philip Urnezis, & Minmin Tian, Compressed Mints and Chewing Gum Containing Magnolia Bark Extract Are Effective against Bacteria Responsible for Oral Malodor, J. Agric. Food Chem 2007, 55, 9456-9469; Michael Greenberg, Michael Dodds & Minmin Tian, Naturally Occurring Phenolic Antibacterial Compounds Show Effectiveness against Oral Bacteria by a Quantitative Structure--Activity Relationship Study, J. Agric. Food Chem. 2008, 56 (23) 11151-11156.
The defendant moved on various grounds to dismiss the case on the pleadings, but the motion was denied by the Southern District of Florida. See Smith v. Wm. Wrigley Jr. Co., Case No. 09-60646-CIV-COHN/SELTZER, slip op. (S.D. Fla. June 15, 2010) (preliminarily approving settlement and recounting case history).
In June, the parties announced a settlement. See www.eclipsesettlement.com. Individual claimants can get up to $5 just for submitting a claim form, and up to $10 if they submit a claim form with an affirmation under penalty of perjury that they bought the packs, listed by approximate dates, places, and amounts of purchase.
The class counsel, however, secured for themselves the right to file an unopposed fee application for $2 million, plus "actual out-of-pocket expenses not to exceed $75,000."
One might think that the class counsel fee should be based, at least in part, on the total amount of claims ultimately made by class members. Indeed, if this were a coupon settlement under CAFA, it would be. But under this cash-in-the-pocket settlement, the $2+ million fee award seems a foregone conclusion. So how is it justified?
The settlement obligates the defendant to establish a settlement fund of $6 million that will pay for the attorneys' fees, expenses, and class members' claims. Any remainder -- and you can bet there will be a substantial one -- will be paid to a charity to be named later, invoking the "cy pres doctrine." (In the extraordinarily unlikely event that there are more claims than the fund can pay, the defendant has obligated itself to pay up to an additional $1 million.) Thus, class counsel's fee superficially appears to be roughly one third of the settlement, if not the class members' actual recovery.
Eclipse is a tasty gum with exceptionally long-lasting flavor. But its settlement provisions on class counsel fees have a certain halitosis about them. Let's hope the court takes a closer look at them at the fairness hearing.