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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

For those interested in charting the effects of AT&T Mobility LLC v. Concepcion, 131 S, Ct. 1740 (2011), see the new opinion by U.S. District Judge William Alsup in Arellano v. T-Mobile USA, Inc., 2011 WL 1842712 (N.D. Cal. May 16, 2011).

In Arellano, the plaintiffs had sued the defendants for injunctive relief under, inter alia, California's Unfair Competition Law, the Consumer Legal Remedies Act, and the False Advertising Act.  California's Supreme Court previously had held that suits for injunctive relief under those statutes were not subject to arbitration as a matter of public policy.

The defendant moved to compel arbitration, and the plaintiffs resisted, citing the California precedents.  The court held that Concepcion compels a finding that the Federal Arbitration Act preempts the state court decisions because it "decided that states cannot refuse to enforce arbitration agreements based on public policy."  Id. at *2.  Thus, "despite public policy arguments thought to be persuasive in California, Concepcion has trumped these considerations, at least for cases in federal court."

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

My friends in the plaintiffs' bar are extraordinarily creative individuals.  I think this is great, as it makes my job much more interesting and has the added benefit of keeping me employed.  One of the creative trends that I have seen from my friends in the plaintiffs' bar in recent years is the attempt to alternatively plead damages claims as claims for injunctive relief.  Indeed, as it becomes obvious that a claim for breach of warranty or contract cannot be certified as a Rule 23(b)(3) class because of individual issues involving breach, one can expect to see an alternative "declaratory and injunctive relief" count in the complaint asking for a class to be certified under Rule 23(b)(2) for a classwide declaration that the contract has been breached and an injunction directing the defendant to perform what it purportedly is contractually obligated to do.

Plaintiffs do this, of course, because there is no "predominance" and "superiority" requirement explicitly written into Rule 23(b)(2).  But courts have seen through this ruse, holding that 23(b)(2) has an inherent "cohesiveness" requirement that serves the same function as predominance and superiority.  See, e.g., Compaq Computer Corporation v. LaPray, 135 S.W.3d 657 (Tex. 2004).

Of course the irony of plaintiffs' ruse is that it would allow a court that could not certify an opt-out class for damages to instead certify a mandatory class that would bind all class members.

The Seventh Circuit recently gave State Farm a Valentine, flatly rejecting the 23(b)(2) dodge and providing important guidance on why courts must not let a claim for damages be recast as one for equitable relief.  See Kartman v. State farm Mutual Auto. Ins. Co., 2011 WL 488879 (7th Cir. Feb. 14, 2011).  In Kartman, plaintiffs brought a putative class action of roughly 7,000 policyholders against State Farm for failing to adequately compensate them for hail damage to their homes.  The trial court refused to certify a Rule 23(b)(3) class, recognizing that individual issues predominated over any common ones.  But it certified a Rule 23(b)(2) class of "all State Farm policyholders who filed insurance claims for damage resulting from the April 2006 hailstorm and did not receive 'an entirely new roof.'"  Id. at *7.  The theory was that by inspecting roofs on an ad hoc basis, State Farm had somehow breached an obligation to apply a uniform and objective standard in assessing roof damage.

The Seventh Circuit flatly rejected plaintiffs' argument and the trial court's theory.  To begin with, the court recognized that this was merely a claim for damages -- nothing more.  The "injunctive relief" theory was merely a set up to a claim for damages; even if State Farm reevaluated everyone's roof according to a uniform standard, it would only be laying a foundation for some class members to argue that they had been undercompensated under their policies -- which is a claim for damages:

[C]ertification under Rule 23(b)(2) is permissible only when class plaintiffs seek 'final injunctive relief' that is 'appropriate respecting the class as a whole.'  Here, the requested injunction is neither 'appropriate' nor 'final.'  The relief is not appropriate for several reasons, not hte least of which is that the normal remedy for wrongful denial of insurance benefits is damages, not equitable relief.  Moreover, the injunction envisioned by plaintiffs would in no sense be a final remedy.  A class-wide roof reinspection would only lay the evidentiary foundation for subsequent individual determinations of liability and damages.

Id. at *1 (citation omitted).

The court admonished that:

This technique of recasting a straightforward claim for damages as a claim for damages and injunctive relief runs into trouble on some basic principles of common law -- most fundamentally that a claim of injury is not cognizable unless it results from the breach of a recognized legal duty owed to the plaintiff.  Simply put, State Farm has no independent duty -- whether sounding in contract or tort -- to use a particular method to evaluate hail damage claims. . . .  [T]he method it uses to adjust claims is not independently actionable.

Id. at *5 (citations omitted).

The court noted that the basic elements of an injunctive relief class could not be met here.  First, there was no irreparable injury -- plaintiffs could be fully compensated by money damages for any alleged underpayment of their insurance claims.  Id. at *7.  The court also noted that the injunctive relief, as described by the plaintiffs, would be impractical and overly burdensome on State Farm, and -- importantly -- would simply amount to shifting the burden to State Farm to prove the elements of the plaintiffs' claims.  Id. at *8-*9.

Notably, in deciding the class certification question, the court was unafraid to look to the merits of the claims.  Indeed, it even recognized that there could be no unjust enrichment claim as a matter of law because there was an underlying contract.  Id. at *6.

Kartman is a strong opinion recognizing that where damages will remedy the plaintiffs' claimed injury, one cannot plead around the claim's Rule 23(b)(3) problems by recasting the relief sought as equitable in nature. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link