Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

Last Thursday I had a post about the Nutella settlement in New Jersey.  In the post, I explained that there had been competing class actions, that the California action had been certified as a statewide (California) class, and that the New Jersey plaintiffs and the defendant had jointly moved for a settlement of the New Jersey putative nationwide class action.

Apparently as I was drafting that post, a second settlement was being announced.  Who knew?  Last Thursday the parties in the California statewide class action filed a joint motion for preliminary approval of a settlement of that action:  In re Ferrero Litig., Case No. 11-cv-00205 H CAB (S.D. Cal.).  The California settlement looks a lot like the New Jersey settlement, except the numbers are smaller.

In addition to the monetary relief described below, there is the so-called injunctive "relief."  First, the front panel of the Nutella label will have "nutrition keys" indicating the calories, saturated fat, sodium and sugar in a single serving of the product.  (Sounds an awful lot like the Nutrition Facts on the back of the label, to me.)

Second, the following phrase will be removed from the back label:  "An example of a tasty yet balanced breakfast."  It may be replaced with "Turn a balanced breakfast into a tasty one."  According to class counsel's brief, this second phrase is "no longer making a direct claim that use of Nutella is consistent with a balanced and healthy breakfast."  ARE YOU KIDDING ME?!!!!!

Third, plaintiffs' counsel get to have "non-binding" input on new television advertising.

And fourth, the defendant will make modifications to its website.

For this vital "injunctive relief," class counsel claim entitlement to a fee award of $900,000.  Hey, according to class counsel, "the parties vigorously litigated the action for more than ten months."

There is a monetary relief component to the settlement as well.  Like the New Jersey settlement, it, too, allows claimants to claim $4 per jar of Nutella up to 5 jars (or $20) total.  The entire settlement fund in the California settlement is to be $550,000.  Once again, claims administration and notice expenses are to be drawn from the fund.  And once again, the class counsel retain the right to make an application to be paid from the fund as well.  If not enough money is in the fund to pay all claims, the claimants' claims will be reduced pro rata.

So as I had said before, the fund is the best evidence of the fact that no one was really deceived by the conduct alleged here.  Out of the entire state of California, class counsel clearly expect that there will be less than $550,000 in claims.  Indeed, they've even made a provision for possible cy pres distribution if, after dipping into the fund for attorneys' fees, claims administration, and what claims actually roll in, there still is a positive balance in the fund.

I'll keep you posted on this bi-coastal breakfast bonanza.

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I'll admit to being a bit of an idealist.  (You're shocked, SHOCKED, at that admission, no doubt.) 

I understand that one often may not be able to win in a particular trial court, regardless of how right one is on the law or the facts.  But I generally believe in the power of a well-written appeal to right such wrongs.  And personally, I'd rather spend my money establishing that I am right on the law than spend the same amount settling and sweeping a bad decision under the rug.  In my experience, hard-fought appellate victories pay future dividends as opponents (and potential opponents) understand your values and level of commitment.

And yet, when confronted with a completely BS case that no real human being cares about, and a bad decision that -- while clearly contrary to governing law -- could be effectively erased for not a lot of money, it's understandable that many corporate defendants would elect to quickly end the litigation and return to the business of selling their product.

Except that that rewards those who file BS cases, which really sticks in my craw. 

Like I said, I'm an idealist.

Regular readers of my blog know that I think the Nutella litigation is just that:  nuts.  The ingredients for the delicious product are disclosed right on the label.  The stuff even tastes cloyingly sweet, for Pete's sake!  The idea that a parent could say with a straight face -- let alone under oath -- that she did not know the product contained lots of sugar and oils and Nutella's manufacturer somehow hid that fact from her is patently ridiculous.  Read the Nutrition Facts on the label!  And frankly, anything that a parent can use to get a kid to sit down and actually have breakfast in the morning is a good thing.

Different law firms had filed competing Nutella class actions in New Jersey and California.  The Judicial Panel on Multidistrict Litigation refused to consolidate them into an MDL, which I posted about.  I even noted that the California federal court refused to dismiss the complaint.  The legal competition in the competing cases was fierce; the plaintiffs from California unsuccessfully sought to intervene in the New Jersey action -- twice -- for the sole purpose of moving to dismiss it.  I was especially unhappy to report that the California court had seen fit to certify a class around Thanksgiving, as I knew that the handwriting probably was on the wall.  The defendant subsequently agreed to a nationwide settlement of the New Jersey actions.

On January 10, class counsel in the New Jersey action moved for preliminary approval of a nationwide class action settlement that would enjoin the defendant from describing Nutella as part of a nutritious breakfast, require the defendant to make certain "disclosures" on its label and website, and establish a settlement fund of $2.5 million that would not revert to the defendant.

This is how you know that no one really believes there was mass deception involving Nutella:  claimants can submit claims for cash reimbursements for up to 5 jars of Nutella at $4 per jar (or a total of $20), and yet they clearly don't expect even $2.5 million in claims.  Indeed, the settlement fund is supposed to pay for claim administration and part of the attorneys' fees!  And if the claims exceed the fund, they will be reduced on a pro rata basis.

And let's look at the attorneys' fees, shall we?  According to class counsel's brief, while the class gets only part of the $2.5 million settlement fund and some meaningless injunctive relief ("meaningless" because no one was ever really deceived in the first place), the attorneys get two things:  (1) up to $3,000,000 from the defendant and its insurers, and (2) up to 30% of the settlement fund (or $750,000) as attorneys' fees plus reimbursement of expenses from the settlement fund.  That's not bad compensation for the attorneys, when you consider that the "case has been pending for approximately one year" and "is in an early stage of the litigation," according to class counsel's brief.  Apparently class counsel has reviewed 53,000 pages of documents produced by the defendant and taken 2 depositions.  At nearly $4 million, that's nice work, if you can get it -- particularly where the class itself actually stands to gain less than $2 million.

As I said before, I fully understand why one might agree to settle a truly BS claim like the ones in Nutella with just such a settlement.  In many respects, it makes a whole lot of sense.

But it still sticks in my craw.

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Sometimes it makes financial sense to settle meritless class actions, even when you know you could win if you pressed on through discovery, trial and appeal.  But how you do so -- and precisely what peace you are buying -- often can be tricky subjects.  Procter & Gamble recently proposed an interesting settlement of a BS class action in In re Dry Max Pampers Litig., Case No. 1:10-cv-00301 TSB (S.D. Ohio).

In the Spring of 2010, a number of class actions and individual actions were filed by parents who used Pampers' "Dry Max" diapers on their infants.  These diapers had a super-absorbent gel core.  The parents claimed that the gel caused severe diaper rash and burns on their infants.  Bloggers, Facebook pages, and other social media whipped parents into a frenzy.  The CPSC and Health Canada started an investigation.  A multi-district litigation was formed in the Southern District of Ohio before Judge Timothy Black, a recent Obama appointee.  A public relations storm ensued.

But in September, both the CPSC and Health Canada announced that they could find no connection between Dry Max diapers and infants' development of diaper rash, giving Pampers a clean bill of health.

But what to do with the lawsuits?  P&G moved to dismiss and, at the same time, moved to strike the class allegations.  Diaper rash, of course, is a common malady with many known causes, and the facts surrounding individual infants' diaper rash will differ substantially.

Plaintiffs' counsel waived the white flag.  They clearly had no case -- and no class action -- but presumably wanted to preserve their ability to obtain some sort of fee.  The court stayed the calendar so the parties could mediate with former federal judge Layn Phillips.  And a unique settlement was born.

To begin with, the proposed settlement is a 23(b)(2) settlement with no opt out rights.  All people who used Dry Max diapers on their children will be bound by the settlement.

What would they get?

1.  For 2 years, P&G will put on its Pampers labels a sentence referring customers to its website or an 800 number for information on "choosing the right Pampers product for your baby, preventing diaper leaks, diaper rash, and potty training."  Settlement Agreement at 18.

2.  For 2 years, P&G will include on its website two paragraphs of instructions to see a doctor if diaper rash persists or is accompanied by fever, pus, or boils, along with a link to the Mayo Clinic's website and the American Academy of Pediatrics' website.  Id. at 19.

3.  Cy pres relief -- P&G will spend a total of $300,000 over two years funding programs for medical schools related to infant skin health, and will spend a total of $100,000 over two years on an infant skin health program with the American Academy of Pediatrics.

4.  Money-back guarantee -- P&G will reinstate its money-back guarantee program for one year.  The program can have the same proof of purchase requirements that it had prior to its discontinuance.

And what would they give up?

1.  All equitable claims -- Class members release all equitable claims, known or unknown, including "all equitable claims for any damages or injuries."  They are barred from using a class action device in asserting any claim for relief that could have been brought in the lawsuits prior to settlement.  (Given that the lawsuits broadly alleged claims for personal injury, consumer fraud, violation of consumer protection statutes, etc., absent class members effectively are barred from using a class action device on any claim.)  Class members would preserve the right to file individual lawsuits for personal injury or actual damages caused by Dry Max diapers, however.

In sum, for releasing equitable claims and giving up the right to a class action, class members would receive the right to make unlimited claims against a money-back guarantee during one year and obtain information on diaper rash.

In this respect, the settlement is an ingenious post-transaction way to prevent class actions without the use of a pre-transaction arbitration agreement such as the one used in AT&T Mobility v. Concepcion.  It remains to be seen whether the Supreme Court's anticipated decision in Smith v. Bayer Corp. will impose constitutional limits on barring absent class members from filing other class actions in a way that might impact this Pampers settlement.

Interestingly, P&G's participation in the settlement appears to be based on an issue that may (or may not) be decided by the Supreme Court in Wal-Mart v. Dukes:  when damages are incidental to monetary relief in a Rule 23(b)(2) class action.  The settlement agreement states:

Procter & Gamble's agreement to seek a Settlement Class under Federal Rule of Civil Procedure 23(b)(2) is based on the belief that any monetary damages sought by Plaintiffs (other than individual claims as a result of personal injury or actual damage), which are not released claims pursuant to Section VIII(D), are properly viewed as merely incidental to the Injunctive Relief.

Settlement Agreement at 12.  It remains to be seen whether the opinion in Dukes may alter that fundamental assumption.

Four other aspects of this proposed settlement bear noting.  First, this is an all-Internet notice plan.  The parties correctly note that, because this is an injunctive relief class, individual notice is not constitutionally required.  So they have proposed a notice plan that relies on a press release, hyperlinks on the parties' websites, and a settlement website that would carry the long- and short-form notices.  See Settlement Agreement at 13-14.

Second, P&G agrees to pay up to $2.73 million in attorneys' fees, costs, and expenses, to be divvied up among the plaintiffs' firms by Lead Class Counsel.

Third, the representative plaintiffs would receive $1,000 "per affected child for each Plaintiff."  (It eludes me how this is compensation for time and effort spent as litigants, rather than a per-child compensation.)

Fourth, rather than having the court retain jurisdiction to enforce the agreement, the Settlement Agreement provides that all disputes are to be handled by mediation and, if that doesn't work, by final, binding, non-appealable arbitration.  Settlement Agreement at 28.  The parties' independent mediator, Layn Phillips, is selected as their first choice.  The backup approach is to agree on another neutral or, if the parties cannot agree, they will approach Layn Phillips or the court and ask for the appointment of one.

The proposed Dry Max Diaper Settlement is a creative approach to the age-old problem of how to settle meritless class actions.  Stay tuned for developments in the preliminary approval and fairness hearing processes regarding this settlement.

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Last week District Judge Jeremy Fogel approved the combined settlement of three class actions involving Hewlett Packard printers.  See In re HP Inkjet Printer Litigation, 2011 WL 1158635 (N.D. Cal. Mar. 29, 2011).  All three of them were bull$h#& cases.  The first challenged HP's practice of having "low on ink" warnings and graphics appear on the printer's screen before the ink cartridge had completely run dry.  The second challenged the printers' use of "more expensive" color ink under black ink to improve the print quality of black type and images.  And the third challenged HP's use of an expiration date on certain printer cartridges.

The court consistently referred to the cases as "weak" throughout its settlement opinion.  See, e.g., id. at *1 (the court had denied summary judgment, describing the evidence of injury as "weak," and had denied certification of a litigation class), *1 (it had granted a motion to dismiss most claims in the second action), *2 (it had granted a motion to dismiss a number of claims in the third action).

The cases also had dragged on for years.  Indeed, class counsel claimed to have incurred more than $7 million in fees for some 17,000 hours' work on the cases, including 12 depositions, review of hundreds of thousands of pages of documents, more than 100 written discovery requests, and extensive expert work, inter alia.  Id. at *9.

Despite what class counsel had sunk into the case, they proposed a settlement in which the defendant agreed not to challenge a fee award of only $2.9 million, which included some $600,000 in costs.  This is perhaps the best evidence that even class counsel believed these cases were crap.

The problem facing the district court was that the settlement itself did not provide much value to the class, which was estimated to have more than 13 million members.  The settlement set up a mechanism for class members to register online for e-credits at HP's website of up to $2, $5, or $6, depending on which class they belonged to.  These credits would be capped at $5 million if there were too many claimants.  (There weren't.)

The settlement also provided certain "injunctive" relief.  HP would stop using pop-up images to remind people cartridges are low on ink, and would put disclosures on its website.  The company also would include on its website disclosures about "underprinting" with color ink and have instructions for how to turn that feature off.  And it would explain on its website the intricacies of ink cartridge expiration.

The court had preliminarily approved the settlement, and the notice and opt out period ran prior to the fairness hearing.  Roughly 122,000 of the 13 million class members registered for e-credits by the deadline.  Their e-credits totalled almost $1.5 million -- substantially less than the $5 million cap.  Eight hundred opted out.  And five filed formal objections, including Ted Frank at the Center for Class Action Fairness.

The court acknowledged that most of the criticisms of the e-credits were legitimate.  They were non-transferrable, couldn't be combined with other discounts, and were redeemable only at HP.com.  These facts made the e-credits of less value than cash of the same face amount.  Id. at *6.  The court also was dubious of the claim that the value of the injunctive relief was anywhere near the range of $16 million to $41 million posited by class counsel.  Id. at *6-*7.

Nevertheless, the court approved the settlement because the value of the underlying class claims was so very low.  In citing the standards by which the settlement should be evaluated, the district court cited the Seventh Circuit's opinion in In re Mexico Money Transfer Litig., 267 F.3d 743 (7th Cir. 2001) with the following description:  "approving a coupon settlement, even though it found the relief offered was 'more in the nature of a PR gesture . . . than an exchange of money (or coupons) for the release of valuable legal rights,' because the underlying 'claims had only nuisance value.'"  Id. at *6.

The district court had harsh words for the underlying claims in the cases before it:

Despite these evident problems with the proposed settlement, the limited value of the relief obtained must be considered in relation to the strength of Plaintiffs' claims in the first instance. . . .  As the Court has observed repeatedly over the course of the litigation, even assuming Plaintiffs could prove that HP's "low on ink" warnings were inaccurate or misleading, the task of determining whether the warnings actually confused consumers or resulted in the unwarranted disposal of a significant amount of ink necessarily involves a great deal of speculation.  The underprinting at issue in Rich and the expiration date at issue in Blennis involve similar challenges with respect to proof. . . .  [T]here is no reason to believe that the posture of any of the cases would improve through further litigation.

Moreover, even if the Plaintiffs could prove their claims at trial, the damages recoverable by each class member still would be very modest.  According to Plaintiffs' own analysis, only about two percent of HP inkjet printer owners replace their ink cartridges prematurely due to low on ink warnings.  Among those consumers, the amount of ink that otherwise would be used before print quality was affected appears virtually impossible to determine.

Id. at *7-*8.

The district court ultimately approved the settlement because it was negotiated at arm's length and "the value of the settlement is reasonable in light of the evident weakness of the case and the modest value of Plaintiff's claims."  Id. at *8.

But the court could not grant class counsel's unopposed fee petition.  The court estimated the total value of the injunctive relief and e-credits to the class as $1.5 million.  Thus, it reduced class counsel's fee award to $1.5 million in fees and roughly $600,000 in costs, reasoning:

[W]hile this case was extensively litigated over several years, the Court still has serious questions as to whether consumers actually incurred significant injury from HP's actions.  To allow an award of attorneys' fees to outstrip the benefit to consumers in such cases would undermine the importance of focusing the efforts of class action counsel on issues that most affect consumers.

Id. at *10.

Judge Fogel's opinion is a clear reminder that sometimes even the worst class actions should settle, but when they do, class counsel should not be rewarded with fees out of proportion to what the class receives, regardless of what they may have expended on the case.

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Continuing with our settlement theme, this post discusses True v. American Honda Motor Co., 2010 WL 707338 (C.D. Cal. Feb. 26, 2010), in which U.S. District Judge Virginia A. Phillip ultimately rejected as unfair a class action settlement that she had preliminarily approved last August.  What changed in 6 months' time?  And can the settlement be salvaged?

Plaintiffs in True had sued Honda under California's Unfair Competition Law, the False Advertising Act, and unjust enrichment, alleging that Honda had falsely advertised the fuel economy of its Honda Civic Hybrid vehicles between 2003 and 2008 and claiming that the class had relied on these misrepresentations in paying a premium price for the vehicles.

It would appear that this is yet another one of those lawsuits that claims that the federal fuel efficiency standards that are required to be posted on new vehicles require certain kinds of driving for hybrid vehicles that some people may not understand actually promotes fuel efficiency, so that when they buy the car and drive it as they would other non-hybrid vehicles, they do not achieve the same fuel efficiency as the advertised performance using the federal standard.

After 11 months of discovery, the parties engaged in mediation and negotiated a nationwide class action settlement that the District Court preliminarily approved.  Notice went out to the class.  Ultimately, there were a number of objectors and a coalition of 25 state Attorneys General that filed oppositions to the initial proposed settlement.  The parties modified the settlement to meet many of the objections, and then moved for final approval by the District Court.

The proposed settlement did not create a settlement fund, but instead created certain categories of relief for class members.  Every class member would receive a DVD that Honda would produce that would demonstrate how to maximize the fuel efficiency of their hybrid vehicles.  Class members also could receive one of two rebates.  Option A gave a $1,000 cash rebate to those who sell their Civic Hybrid and trade it in on an eligible Honda vehicle.  Option B gave a $500 cash rebate to those who kept their Civic Hybrid and bought another eligible Honda vehicle.  In addition, a small subset of class members could receive a $100 cash payment, but only if they complained to their dealer or Honda and the dealer or Honda kept a written record of it. Finally, there was "injunctive" relief requiring Honda to change the advertising phrase "actual mileage may vary" to "actual mileage will vary."

The proposed settlement provided a full release to Honda of all claims relating to the fuel economy of the Civic Hybrid, and it allowed for incentive payments of $10,000 and $12,500 to the named plaintiffs, respectively.  Plaintiffs' counsel sought an award of $2,950,000, which Honda did not oppose.

Judge Phillip held that the class met the numerosity, commonality, and typicality requirements of Rule 23, but it failed the adequacy of representation requirement because the two named plaintiffs were part of the small subset of class members who would receive an actual $100 cash payment.  This presented an inherent conflict with the other class members, the court explained.  The court also held that the predominance and superiority requirements of Rule 23(b)(3) were met.

In assessing the fairness and adequacy of the settlement, the court challenged whether the sub-class of people who received a cash payment was fair at all.  They had no stronger or weaker legal claims than anyone else in the class.  And whether the defendants kept a record of their complaints was not in their control.  The court concluded that "the settlement here draws an arbitrary distinction among class members with identical claims and injuries, and allows some to receive a cash award, and others only a DVD and a limited rebate.  This is patently unfair, and counsels against approval of the proposed settlement."  Id. at *11.

The court also assessed the value of the rebates, noting that this is a coupon settlement that is generally disfavored.  The court analyzed whether the value of the settlement was reasonable in relation to the value of the class claims.

The court determined that the plaintiffs had reasonably strong claims.  It rejected the defendant's preemption defense, discounted the issue of whether California law could apply to a nationwide class, and then proceeded to discuss how strong the California Supreme Court's decision in In re Tobacco II, 46 Cal. 4th 298 (2009) was for the class.  The court did acknowledge, however, that a number of class members had objected to the settlement, indicating that they were pleased with their Honda Civic Hybrids and had achieved the mileage that Honda had advertised.  Id. at *15.  Indeed, the "majority of class members who opted-out . . . cited their satisfaction with the gas mileage they were receiving from their HCHs, or otherwise opposed the merits of the suit."  Id. at *23.

The court rejected the conclusions of plaintiffs' expert, which had assigned monetary values to the rebates and the DVD.

The court also expressed great concern about class counsel's requested fee, noting that a "lodestar amount is particularly inappropriate where, as here, the benefit achieved for the class is small and the lodestar award is large."  Id. at 20.  The court also expressed concern about the procedures used to negotiate the fee:

The size of the fee request also raises concerns in light of the fact that it was negotiated at the same time as the substantive relief to the class.  "Ordinarily, 'a defendant is interested only in disposing of the total claim asserted against it . . . the allocation between the class payment and the attorneys' fees is of little or no interest to the defense.'" . . .

Here, of all of the components of the settlement, the only components with any determinative value are the attorneys' fees and incentive payments.  Under the terms of the settlement, there is no certainty that class members will receive any cash payments or rebates at all, but class counsel will receive a three million dollar payment regardless of whether one or 10,000 class members file valid claims.  Since there is no guarantee that [Honda] will pay any money out of the settlement to either class members or a cy pres beneficiary, to award three million dollars to class counsel who may have achieved no financial recovery for the class would be unconscionable.

Id. at *21 (citations omitted).

As a result of its analysis, the court concluded that the value of the settlement weighed against approval.

The decision in True demonstrates the continuing difficulty of obtaining approval of coupon settlements, even for weak claims that have little, if any, merit.

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How many times have you said "I told you so" to an adversary who refused to listen to you when you explained that his case could not possibly proceed as a class action?  Sometimes my adversaries listen and drop their class claims.  Invariably, however, that is only after my client has spent large sums of money in class discovery and defending against the class certification arguments.

Recently I came across Johnson v. Microsoft Corp., Case No. C06-900RAJ, slip op. (W.D. Wash.  Jan. 15, 2010), in which the plaintiffs waited until the class certification motion was fully briefed and noticed for hearing before agreeing to drop most -- but not all -- of their class allegations from the complaint.  I waited too long to inform you of the opinion, however.  The folks at the Class Action Defense Blog described the case yesterday and included a downloadable pdf. 

Nevertheless, I highlight it here as encouragement for you defense counsel who want to file fee petitions in such situations:

If Plaintiffs had withdrawn their class-certification motion before Microsoft had prepared its Opposition, that could be a "no harm, no foul" situation.  But here, the "harm" was irreversibly inflicted when Plaintiff's' motion required Microsoft to prepare a defense, and it is not mollified by Plaintiffs' willingness to eliminate some of the additions to the Proposed TACC.  Under these circumstances, the court finds that it is appropriate for Plaintiffs to reimburse Microsoft for costs related to defending against the class certification motion.

Slip op. at 5.

Microsoft's fee petition is due February 12, and the issue should be fully briefed by March 5.  I'll keep an eye on it and let you know what happens.

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