December 02, 2013 Top Story

Class Settlement Rejected Due to "Worthless Injunctive Relief"

Appeals court says Pampers' class action settlement stinks

Joseph Callanan

Finding that 90 percent of the settlement value of a diaper-rash class action would go to the plaintiffs’ lawyers, a federal appeals court threw out the settlement agreement. Greenberg v. Procter & Gamble Co. (In Re: Dry Max Pampers Litigation) [PDF]. According to the  U.S. Court of Appeals for the Sixth Circuit, reversal of the district court’s approval of the agreement was warranted because the benefits for class counsel far outweighed those provided for the class. The decision represents a further step by appellate courts toward more critical review of class action settlements.

Meager Benefits to Class Members; Fees for Lawyers

In 2011, Procter & Gamble agreed to pay roughly $3 million to settle the Dry Max Pampers diaper-rash suit. About $2.73 million of the settlement was to go to the lawyers who brought the case. A few dozen representative plaintiffs were to receive $1,000 for each allegedly harmed infant. The settlement agreement required Procter & Gamble to reinstate, for one year, a refund program that Procter & Gamble had already made available but had discontinued a few months before the agreement.

The terms of the settlement agreement limited the refund program to one box per household and required affected consumers to provide an original receipt and Pampers UPC code. Procter & Gamble also agreed, for a period of two years, to add to its Pampers box-label a single sentence suggesting that consumers contact Pampers for “more information on common diapering questions.”

Under the terms of the agreement, Procter & Gamble added to its Pampers website some basic information about diaper rash and a suggestion to “[s]ee your child’s doctor” if severe symptoms occur. The agreement also required Procter & Gamble to contribute $300,000 to an unidentified pediatric resident training and $100,000 to the American Academy of Pediatrics to fund a program “in the area of skin health.”

A class member objected to the agreement on the ground that the allocation of attorney fees was excessive. The U.S. District Court for the Southern District of Ohio, found, however, that the settlement was fair, reasonable, and adequate. The objecting class member appealed the decision approving the settlement agreement.

Majority Looks to Unjust Fee While Dissent Sees Worthless Claim

The appeals court found that the objections raised “were numerous, detailed, and substantive,” while the district court held a hearing on the settlement terms with “little interruption” and “virtually no questions or comment from the district court.” The district court also entered a nearly “verbatim copy of a proposed order that the parties had submitted.”

The majority then looked to the substance of the agreement and criticized the terms of the settlement, finding that the attorneys fell far short of their fiduciary obligations to all class members. “The reality is that this settlement benefits class counsel vastly more than it does the consumers who comprise the class,” wrote the court. While the proposed settlement “provides the unnamed class members with nothing but nearly worthless injunctive relief,” according to the appeals court.

The dissent offered a contrasting view of the terms, noting that no party “disputes that the class’s claims in this case had little to no merit,” as Canadian and American government investigations had found no connection between Dry Max diapers and diaper rash. The dissent found that “the relief offered to the unnamed class members may not be worth much [but] their claims appear to be worth even less.”

“[T]he dissent surprisingly did not address expressly the class counsel fees issue and seemed to suggest that because the class claims were so obviously devoid of merit, the little bit the class got was better than nothing,” states D. Alan Rudlin, Richmond, VA, former cochair of the ABA Section of Litigation’s Products Liability Committee and the present cochair of the Hot Topics Subcommittee of the Section of Litigation’s Mass Torts Committee.

Plaintiff and Defense Bar Leaders Praise Decision and Criticize Settlement

This type of settlement “gives the law profession a bad name to create classes like this where the benefits are minimal to non-existent for the plaintiffs, whether they are named or unnamed class members, and the attorneys get a big fee,” says Paul D. Rheingold, New York, NY, cochair of the Hot Topics Subcommittee of the Section’s Mass Torts Committee. “Attorney fees matter, and if you are going to have an agreement in your settlement agreement about attorney fees, you have to justify them,” states Lori B. Leskin, New York, NY, former cochair of the Products Liability Committee.

The decision reminds litigators that courts are “going to be willing to take the time to review the fairness hearing to see if it was a meaningful proceeding, as distinguished from a rote exercise,” adds Rudlin. “[T]his decision as much as any in the past is a warning to the defendants’ and plaintiffs’ class counsel that you cannot do one of these rapid settlements and avoid scrutiny by a judge,” concludes Rheingold, who represents plaintiffs in mass tort actions.

Procter & Gamble filed for a petition for rehearing en banc, which the appeals court denied on October 2, 2013. Plaintiffs’ counsel notified the district court on November 15, 2013, that they would no longer assert class claims, but counsel would instead pursue individual actions.

Joseph Callanan is an associate editor for Litigation News.

Keywords: class actions, attorney fees, excessive fees, settlement

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