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Private Surgeon General Class Action Defender

Round 2 in Dennis v. Kellogg: Class Action Settlements with Cy Pres Relief

Posted in False Advertising Claims

The district court in Dennis v. Kellogg recently granted preliminary approval of a revised class action settlement. Kellogg is a class action alleging unjust enrichment, as well as violation of California’s Unfair Competition Law and Consumer Legal Remedies Act and similar laws of other states.

First, a bit of history. In September 2012, the Ninth Circuit reversed final settlement approval in the case. Dennis v. Kellogg, 697 F.3d 858, 862, 869 (9th Cir. 2012). The final settlement called for a cash fund that would be distributed to class members on a claims-made basis; attorneys’ fees and costs; an agreement for Kellogg to refrain from using the challenged representations for a specific period of time; and—the fly in the ointment—cy pres distribution of Kellogg food product to “charities to feed the indigent.” Id. at 866. Kellogg represented that the value of the food product distributed cy pres would be $5.5 million, and included that amount as part of the total settlement value from which attorneys’ fees would be calculated. Id. at 863.

The Ninth Circuit was skeptical—both of the purported value of the food product, and the settlement’s failure to target cy pres recipients that redressed the type of false advertising alleged in the complaint. Id. at 866-67. Noting that feeding the indigent, while a “noble goal[,] has little or nothing to do with the purposes of the underlying lawsuit or the class of plaintiffs involved.” The Ninth Circuit held:

Thus, appropriate cy pres recipients are not charities that feed the needy, but organizations dedicated to protecting consumers from, or redressing injuries caused by, false advertising.

Id. at 867 (citation omitted). Calling the settlement a “paper tiger,” the Ninth Circuit stated that there were “serious issues about the alleged dollar value of the product cy pres award, an important number used to measure the appropriateness of attorneys’ fees.” Id. at 868.

On May 3, 2013, Judge Irma Gonzalez in the Southern District of California preliminarily approved a revised class action settlement. This time, the parties removed any distribution of food product, or value of such product, from the proposed settlement. Instead, they increased the cash fund distribution to class members and agreed that any remaining balance of the cash would be distributed equally to Consumers Union, Consumer Watchdog and the Center for Science in the Public Interest. (Docket Entry 95 at 2.) Judge Gonzalez approved the settlement, finding that each of the proposed cy pres recipients is a “well-established and well-regarded consumer protection organization,” and therefore “suffice[s] under the Ninth Circuit’s prescriptions.” (Id. at 8.) She noted, however, that the latest proposed settlement reduced the overall settlement value by approximately 75%, without also significantly reducing the requested attorneys’ fees. (Id.) Finding that “these concerns are especially troubling given the Ninth Circuit [sic] previous admonishments to the parties over both illusory dollar values and excessive attorneys’ fees,” the Court requested that the parties address these concerns in their final approval briefing. (Id. at 8‑9.) The total value of the original settlement was greater because it included the cash value of the proposed product distribution. However, the common fund that will go directly to the class in the revised settlement has nearly doubled. Time will tell whether Judge Gonzalez is satisfied that the increase in cash value to the class will merit the same award of attorneys’ fees this time around.