Friday, August 27, 2010

Not a close shave: Gillette class action settlement wins preliminary approval

In re M3 Power Razor System Marketing & Sales Practice Litigation, 2010 WL 3082198 (D. Mass.)

This is a consolidated class action over alleged misrepresentation by Gilette in marketing its M3P razors. The court allowed notice of a proposed settlement to go out to a North American class (including Canada). The only objector was a California plaintiff. The court found a sufficient basis to hold that: (1) questions of law and fact common to the class members predominate; (2) the class representatives align generally with the class as a whole and its constituent parts; (3) there is no unfairness in treating similarly class settlement members drawn from multiple jurisdictions with diverse legal regimes; and (4) the settlement resolution is adequate.

Given the common claim based on uniform marketing representations, the court concluded that class certification was appropriate in the absence of "variations in state laws ... so significant as to defeat commonality and predominance, even in a settlement class." Sullivan v. DB Invs., Inc., --- F.3d ----, 2010 WL 2736947, at *14 n. 15 (3d Cir. July 13, 2010). Here, all class members asserted a claim under Massachusett’s Unfair and Deceptive Practices Act, ch. 93A, on the ground that the allegedly deceptive communications originated from Gillette's Massachusetts-based headquarters.

Gillette advertised the M3P battery-powered oscillating head as "revolutionary" in its ability to raise hair up and away from the skin. All the representative plaintiffs claimed to rely on this, bu the M3P didn’t actually raise hair up and away from the skin. Gillette’s primary competitor Schick sued for false advertising around the world. Courts in France, Belgium, and the Netherlands refused to enjoin the disputed advertising, but courts in the U.S. (D. Conn.), Germany and Australia issued preliminary injunctions. After extensive U.S. discovery, with Gillette and Schick reached a worldwide settlement. But class action litigation followed in several states and Canadian jurisdictions; all the state cases were removed and all the federal cases were transferred to the Massachusetts district court and consolidated.

The proposed settlement would establish a $7.5 million settlement fund, up to $2.45 million of which could be used to provide notice. Any notice costs over this amount would be borne by Gillette. Participating class members could get a refund if they returned the razor (not the blade or batteries) and certify that it was purchased or acquired during the class period; they’d get $15, unless they could document a higher actual purchase price (with $2 for postage). Class members who keep or don’t have the razor any more can get up to 2 $5 rebates for any purchase of M3P blades purchased after May 2004, and/or a Gillette Fusion razor or a Fusion ProGlide razor purchased after January 2006, by submitting relevant documentation. If refunds and rebates exceed the allocated settlement fund, each class member gets a pro rata share. If the settlement fund isn’t exhausted after the initial claim period, class members who submitted an approved claim will also get a new Fusion razor (or a statistically random sample if mailing a razor to everyone, at a $7 credit per razor, would exceed the fund).

If that doesn’t do it, Gillette will add a link to the M3P razor webpage inviting class members who haven’t previously submitted a claim to do so. The documentation requirements will be relaxed; after certifying that he or she purchased or got an M3P razor during the class period, the class member will get a free Fusion razor, debiting the settlement fund $7. This will last 90 days or until all funds are distributed, whichever comes first. If that doesn’t exhaust the fund, then Gillette will distribute free Fusion razors to a group selected by the parties until the fund is gone.

In addition to the settlement fund, Gillette agreed to pay up to $1.85 million, subject to court approval, for attorneys’ fees, as well as $500-$1000 incentive awards to the representative and named plaintiffs.

The court found that Rule 23(a)’s requirements of numerosity, commonality, typicality, and adequacy of representation were satisfied, even under the heightened scrutiny required to protect absent class members. Gillette sold over 10 million razors in the relevant period, and didn’t maintain purchaser records, and the individual claims were relatively small. Common core questions were at the heart of the litigation: whether Gillette misrepresented the razors, whether this caused damage, and how much damage was at issue. The class representatives’ claims arose from the same ads and were based on the same legal theory as those of the class. Most counts were based on common law causes of action (negligent misrepresentation, intentional misrepresentation, breach of express warranty, breach of implied warranty of fitness of purpose, and unjust enrichment), which would be substantially uniform across the class. Though the representative plaintiffs weren’t residents of each covered state, the consumer protection statutes in their states of residence (Florida, New York, California, Massachusetts, Illinois, Georgia and Canada) “appeared to be typical of, and generally even more consumer-friendly than, consumer protection laws in the range of jurisdictions that they represent.” Finally, the representative plaintiffs’ interests aligned with the class as a whole, and appointed counsel had “performed in a highly competent and professional manner.”

The next issue was Rule 23(b); the court found that Rule 23(b)(3) applied, which allows class certification if “the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Superiority was easy, given the large numbers and small individual claims and that the forum jurisdiction was familiar with Chapter 93A, which applied to the Massachusetts corporate defendant.

Predominance overlaps with commonality and tests whether proposed classes are sufficiently cohesive to justify class representation. The court found predominance clear: the dominant common questions included whether Gillette's advertising was false or misleading, whether the company's conduct violated the statutory and/or common law causes of action at issue, and whether the class members suffered damages as a result of this conduct. “Even if state consumer statutes or other state causes of action differ in arguably material ways, common questions, not individual issues, predominate among and within each state's legal regimes.”

The objecting plaintiff argued that the proposed settlement was insufficiently generous to potential California class members, because California’s laws are more stringent. The court considered subclassing as a response, though subclassing shouldn’t be done lightly because it inherently reduces efficiency and increases transaction costs, particularly for notice. The court considered (1) the significance of variations in state law; (2) the differences between California and Massachusetts/other laws; and (3) the magnitude of such differences.

Legal variations can sometimes require individualized factual determinations and undermine the class’s ability to show commonality. They can also create conflicts of interest and allocation dilemmas. Thus, courts have required rigorous analysis of state law variations, but must also remain sensitive to the common core of issues.

Taking California first: the evidentiary standard for awarding restitution and actual damages is demanding. The Gillette case has valuation difficulties because Gillette produced evidence that consumers preferred the M3P razor, even if it did not perform exactly as advertised, and because the precise value of having one's hair raised "up and away" during a shave is inherently speculative. As a result, it was unlikely that a court applying California law in a California state class action would award restitution here. Likewise, punitive damages were unlikely even in a clear-cut liability case, and here courts around the world divided, at least initially, over whether Gillette’s conduct was even actionable. Moreover, since 2004’s referendum, California’s procedural and substantive consumer protection law became less consumer-friendly. Its class action law is currently very similar to Massachusetts law, as indicated by similar treatment of a putative class of Listerine purchasers suing over the same alleged misrepresentations.

Indeed, Chapter 93A is quite robust and arguably more consumer friendly than California law. Unlike the UCL, Chapter 93A does not require reliance, only a tendency to deceive. Materiality and causation can be established by showing that the deceptive representation "could reasonably be found to have caused a person to act differently from the way he [or she] otherwise would have acted." Compensatory damages are available even without intentional misrepresentation, which in a class action provides restitution, and exemplary damages from two to three times actual damages can also be awarded.

As for other jurisdictions, “[a]fter extended review of the various legal regimes,” the court found that the plaintiffs “have demonstrated that, although variations in state law exist, they do not overcome the common factual and legal issues shared by the potential class members. The only purported distinctions actually argued by an objector--those presented by California consumer protection law--are, to the extent they are significant at all, differences of degree, not of kind, and are not substantial and clear-cut enough to require a subclass.”

Objecting plaintiff Corrales argued that California consumers paid more for their M3P razors and that differences between California law and that of other jurisdictions created conflicts of interest requiring separate treatment. On the first point, Corrales had no reliable evidence, and anyway the settlement allowed class members to recover more if they had receipts. Nor did California law introduce significant difficulties for the international class. All the plaintiffs had the motivation to establish the same legal and factual elements. The available remedies were similar for everyone. The possible conflict was minimal and speculative because of the relatively small differences in damages/potential remedies.

“Especially given the commonality of the Chapter 93A claim for all class members, there are no particular advantages or disadvantages applicable to class members in any of the several jurisdictions and consequently no potential for conflicts of interest.” Inclusion of a Canadian class was somewhat unusual, but still didn’t produce conflicts, as Canada would recognize the court’s judgment.

The court then preliminarily approved the settlement, which requires a finding that it is fair, reasonable, and adequate. Factors for assessing reasonableness when the settlement occurred in lieu of litigation include whether "(1) the negotiations occurred at arm's length; (2) there was sufficient discovery; (3) the proponents of the settlement are experienced in similar litigation; and (4) only a small fraction of the class objected." The court was satisfied that these factors favored approval. The revised proposed settlement was more favorable to class members than Gillette’s initial response to pre-suit demand letters, which among other things didn’t require Gillette to provide a floor for the recovery and required consumers to return the razor to obtain a benefit. This was important because everyone agreed that redemption rates are likely to be low. Gillette produced over 100,000 pages from the litigation against Schick, “allowing the parties to acquire enough information rapidly to make serious settlement negotiations feasible.”

The court did require that the website providing notice to class members had to contain the proponents’ joint submission comparing the relevant state laws, along with the court’s memorandum and order, thus “alerting class members to the issues presented by the varying state law causes of action and remedies available to the class members. In this way, class members who may wish to learn more about those alternatives and consider their implications will have a foundation for doing so.” With that, notice could proceed.

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