The U.S. Justice Department is taking another bite into the terms of a class action settlement, insisting that a deal over Lenny & Larry’s cookies would leave class members with nothing but crumbs.
The Department of Justice—which announced a year ago that it would challenge more class action settlements under the Class Action Fairness Act of 2005—filed a statement of interest Feb. 15 in a class action alleging that packaging mislabeled the protein content for all 11 flavors of Lenny & Larry’s The Complete Cookie. The DOJ criticized the purported $3.5 million settlement, preliminarily approved Nov. 1, for giving $1.1 million in legal fees to plaintiffs attorneys, while class members received up to $50 in cash or $30 worth of cookies.
Another provision of the settlement left a bad taste in the government’s mouth: Retailers such as General Nutrition Centers Inc. and The Vitamin Shoppe would receive potentially $3.15 million in free cookies should not enough class members make claims. That portion of the settlement, according to the DOJ’s filing, was akin to a cy pres award.
“The proposed settlement is fatally lopsided,” wrote Kendrack Lewis, a trial attorney at the Consumer Protection Branch of the DOJ’s civil division in Washington, D.C. “Indeed, it is difficult to imagine a less balanced settlement than one where most of the money goes to class counsel and administrative costs, while class members get far less than their counsel and the general public gets over $3 million in free cookies.”
Robert Wallan, of Pillsbury Winthrop Shaw Pittman’s Los Angeles office, who is representing Lenny & Larry’s, called the DOJ’s filing “moot” because both sides already were re-crafting the settlement to address some of its concerns. He said an unusually high claims rate, and not the DOJ’s involvement, prompted the changes.
“The claims rate ended up being very high on cash, but also very high on cookies, so the result is in order to get the cash amount to be approximately or in the range of what the settlement agreement provided for, the parties are working on essentially shifting cookies to cash,” he said.
Lead plaintiffs’ attorney Edward Wallace of Wexler Wallace in Chicago did not respond to a request for comment. Nick Suciu of BMST Law Firm in Bloomfield Hills, Michigan, and Steve Wasserman of Wasserman Law Group in Tarzana, California, joined him on the case.
A final settlement hearing is set for March 19.
The DOJ’s filing came one day after Attorney General Bill Barr’s confirmation. Department of Justice spokeswoman Kelly Laco declined to comment.
Traditionally, the DOJ has rarely gotten involved in class action settlements but, last year, Associate Attorney General Rachel Brand suggested in a speech that the Justice Department would be more aggressive in reviewing their fairness of such deals. Soon afterward, government lawyers filed a statement of interest urging a federal judge in New Jersey to reject a settlement that would have given nearly $2 million in fees to plaintiffs’ lawyers and vouchers to class members in a case alleging false pricing advertisements on the website Wines Til Sold Out. U.S. District Judge Renée Bumb of the District of New Jersey rejected the deal, but after the DOJ withdrew its objection.
Originally filed in 2017, the lawsuit against Lenny & Larry’s, based in Panorama City, California, brought fraud claims on behalf of a nationwide class and subclasses in Illinois, Michigan and, later, Pennsylvania. Both sides reached a settlement after U.S. District Judge Robert Gettleman of the Northern District of Illinois dismissed a large chunk of the case in 2017, and plaintiffs ended up limiting their case to an Illinois subclass of consumers.
The settlement, however, was for a nationwide class. It provided $1.85 million in cash, of which plaintiffs’ lawyers would get up to $1.2 million in fees and expenses.
After subtracting administrative costs and incentive awards to named plaintiffs, that left $350,000 in cash for class members. Class members could make claims for cash or cookies: up to $50 cash or $30 in free cookies, if they had proof of purchase, and $10 in cash or $15 in cookies if they did not.
The claims deadline was Jan. 29. Ted Frank, a class action critic who argued against a cy pres award last fall in a case against Google before the U.S. Supreme Court, filed an objection to the Lenny & Larry’s deal. He said he was “encouraged” by the DOJ’s filing, which raised many of the same concerns he had in his Jan. 28 filing.
According to the DOJ’s filing, only 10 percent of the 90,566 claimants wanted cookies over cash, which meant class members would each end up getting less money while most of the cookies would end up as free giveaways to retailers.
“This cookie giveaway does not benefit class members at all; instead, it is effectively a promotional opportunity for Lenny & Larry’s and their longstanding health food retailers to draw in consumers with free samples,” he wrote. “Rather than convey the bulk of its benefit to class members, the proposed settlement appears to be a marketing campaign to distribute defendant’s cookies to the public.”
Further, the plaintiffs’ fee request is “outlandish,” Lewis wrote, and should be somewhere between $228,000 and $463,000.
Wallan predicted that the fee request would change after the parties redraft the settlement. He also criticized the DOJ’s “gross misconstruction of the term of cy pres,” which are leftover funds that normally go to charities.
He expected to file the new settlement “within days.”
“We’re still going to give away a lot of cookies, but it will be cookie giveaway to people who make claims,” he said.