Thursday, May 09, 2013

Revised, lower Kellogg settlement receives preliminary approval

Dennis v. Kellogg Co., 2013 WL 1883071 (S.D. Cal.)

Previously, the 9th Circuit rejected a settlement of claims about Kellogg's alleged misrepresentations of the benefits of its sugary breakfast cereals for kids because the settlement had the wrong cy pres beneficiaries and suggested the fees were excessive.  Dennis v. Kellogg Company, 697 F.3d 858, 869 (9th Cir. 2012).  Here, the court preliminarily approved a renegotiated settlement, while expressing some concerns about it.  The original settlement had a $2.75 million cash fund for distribution to class members on a claims-made basis; Kellogg distributing $5.5 million of food products to charities to feed the indigent; Kellogg refraining from using the challenged representations in ads for three years; and approximately $2 million in attorneys' fees and costs, for about $10-10.5 million total.  The 9th Circuit reversed the final settlement approval order because benefiting the indigent, as the cy pres award would do, “has little or nothing to do with the purposes of the underlying lawsuit or the class of plaintiffs involved.”

The revised settlement had a $4 million cash fund for distribution to class members on a claims-made basis, any remaining balance of which will be distributed equally among Consumers Union, Consumer Watchdog, and the Center for Science in the Public Interest.  Kellogg would also refrain from using the challenged representations in ads for three years.  “Minus attorneys' fees of up to 25% plus costs as well as approximately $550,000 in claims notice and administration costs, the cash value to the class totals approximately $2-2.5 million.”

Preliminary approval is nonfinal, but not a rubber stamp: a judge must ratify both the propriety of certification and the fairness of the settlement.  As before, certification was proper given that the elements were reasonably shown to be satisfied.  The one hesitation was the dramatic decrease in value to absent class members “while the requested attorneys' fees and incentive awards appear unaffected.”  If not further addressed at final approval, these concerns could result in a finding of inadequate representation.

Because the court can’t fully assess many fairness factors before notice and an opportunity for objection, it doesn’t have to conduct a full fairness appraisal before preliminary approval.  It only needs to look whether the settlement itself discloses grounds to doubt its fairness or other obvious deficiencies.  The proposed settlement here “appears to fall within the range of possible approval, as it appears to be the product of arms-length negotiations by experienced counsel, was reached after considerable litigation and discovery into the asserted claims, and provides considerable cash recovery and injunctive relief.”  Moreover, the court was satisfied that the cy pres recipients, “each a well-established and well-regarded consumer protection organization,” satisfied the 9th Circuit’s rule that appropriate cy pres recipients in this false advertising case should be “organizations dedicated to protecting consumers from, or redressing injuries caused by, false advertising.”

However, the original settlement had about $8.5 million in value to the class, while the cash value here dropped to $2-2.5 million.  The court wanted answers to its questions: “How did mere identification of proper cy pres recipients result in such a severe drop in the value of the class's claims? How is it that the value to the class dropped approximately 75%, while requested attorneys' fees appear nearly constant? These concerns are especially troubling given the Ninth Circuit previous admonishments to the parties over both illusory dollar values and excessive attorneys' fees.”  This was not enough to defeat preliminary approval, but the court ordered the parties to fully address those concerns in the final approval briefing and hearing.  (I suspect the real answer involves Kellogg’s increased willingness to litigate to prevent money from going to CSPI etc., but it will be interesting to see what the briefs say.)

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