A federal appeals court that struck down a consumer class action settlement based in part on “impermissibly high” attorney fees has withdrawn its opinion, issuing a revised version that nevertheless denied the fees request.
The settlement, reached last year, resolved claims that Kellogg Co. misled a nationwide class of consumers into believing that children who ate its Frosted Mini-Wheats cereal for breakfast improved their attentiveness by 20 percent. The settlement, valued by the parties at $10.64 million, included a $2.75 million fund to provide class members with $5 to $15 off future cereal purchases. It provided at least another $5.5 million in donations under the cy pres doctrine, which allows donations to charities of money unclaimed from legal settlements.
The U.S. Court of Appeals for the Ninth Circuit initially rejected the deal on July 13 and didn’t like it any better after a second look, concluding on September 4 that the $2 million in attorney fees and costs requested was “clearly excessive” for a settlement whose purported value in cy pres donations the court deemed ambiguous. In its initial opinion, the court took pains to calculate the reasonableness of the fee request and concluded that they were “impermissibly high.” The new version lacked that language. Both versions remanded the case to U.S. District Judge Irma Gonzalez in San Diego.
Timothy Blood of Blood, Hurst & O’Reardon in San Diego, the lead plaintiffs’ attorney who had filed a petition for rehearing of the original opinion on July 27, praised the court for withdrawing its attorney fees analysis.
“We’re obviously pleased that what we believe was incorrect approach to the fee issue has been de-published,” he said. “Essentially, what the Ninth Circuit did the first time around is find the substantive aspects of this settlement to be wanting. And then it said, based on the fact that the substantive aspects of the settlement are wanting, we’re going to now do a fee analysis. But that’s improper, because if the settlement is not approved, then there are no fees. So there’s no reason to look at what the fees should be in a settlement that’s not approved.”
He remained concerned, however, about the revised language about the cy pres award, which besides the food assistance included an undetermined sum for charities yet to be named. In both opinions, the Ninth Circuit concluded that the settlement’s chosen charity — food for the indigent — bore no relation to the case, which was about misleading consumers.
Blood said that in both rulings, the court focused largely on the appropriateness of the food donation portion of the settlement, rather than the cy pres cash. The approach “significantly narrows the cy pres doctrine well beyond where the circuit or any other circuit has been in the past,” he said. He also disagreed with the court’s assessment that cy pres recipients had to be identified up front rather than after the amount of leftover funds is determined.
He could not say whether he would petition the court to rehear the issue again.
Kellogg’s attorney Kenneth Lee, a partner at Jenner & Block in Los Angeles, did not return a call for comment.
Darrell Palmer of the Law Offices of Darrell Palmer in Solana Beach, Calif., who represents the objectors who petitioned the Ninth Circuit to reject the settlement, praised the new ruling.
“We think it’s even better,” he said. “Unless you define the benefit to the class, you haven’t earned any attorney fees.”
According to the original opinion, the company launched an advertising campaign in 2008 touting scientific studies about Frosted Mini-Wheats cereal. The suit, originally filed in 2009, brought false advertising claims under California’s Unfair Competition Law and Consumer Legal Remedies Act. The class comprises consumers nationwide who purchased Frosted Mini-Wheats between January 28, 2008, and October 1, 2009.
In both opinions, the Ninth Circuit questioned the $5.5 million figure given for the cy press, since it was unclear how the food donation was being valued. Senior Judge Stephen Trott wrote: “Not only does the settlement fail to identify the cy pres recipients of the unclaimed money and food, but it is unacceptably vague and possibly misleading in other areas as well.”
In the revised opinion, he added: “This deficiency raises in turn serious issues about the alleged dollar value of the product cy pres award, an important number used to measure the appropriateness of attorneys’ fees.”
Subtracting the $5.5 million in food donations from the total settlement, the court concluded that the $2 million fee award would represent 38.9 percent of the settlement fund.
In its original opinion, the Ninth Circuit called such an award “extremely generous” given the number of hours and amount of money spent by plaintiffs’ counsel — going as far as to calculate a billing rate of $2,100 per hour.
In his petition for rehearing, Blood disputed the $2,100 figure, which he said was an average that excluded additional billings for work spent seeking final approval of the settlement, the appeal and hours spent handling the claims process.
He also argued that the Ninth Circuit did not have to analyze law firm billings to determine whether the attorney fee request was reasonable, particularly when basing it on a settlement amount different from the one that was approved.
“Attorneys’ fees in a class action suit cannot be evaluated in a vacuum, but the panel nonetheless did so,” wrote Blood. “Having vacated and remanded, the panel should have left it to the parties to litigate or renegotiate a settlement, including attorneys’ fee provisions.”
In its revised opinion, the Ninth Circuit dropped much of its analysis of the fees but found that the “questionable” value of the cy pres provision in the settlement warranted rejection straight out.
“This possibility gives us an additional reason to be vigilant regarding the particulars of this class action settlement: is it all that it appears to be?” Trott wrote. “Are the assigned numbers real, or not? This issue is particularly critical with a cy pres product settlement that has a tenuous relationship to the class allegedly damaged by the conduct in question. The issue of the valuation of this aspect of a settlement must be examined with great care to eliminate the possibility that it serves only the ‘self-interests’ of the attorneys and the parties, and not the class, by assigning a dollar number to the fund that is fictitious.”
In addition to Blood Hurst, plaintiffs firms that sought a share of the fees in the case included Phoenix-based Bonnett, Fairbourn, Friedman & Balint; Whatley Drake & Kallas in New York; and Ohio’s Piscitelli Law Firm and Climaco, Wilcox, Peca, Tarantino & Garofoli Co.
Contact Amanda Bronstad at email@example.com.