Monday, August 22, 2016

If You Don't Actually Try to Find Them, They Tend Not to Come

Duran v. Obesity Research Inst., LLC, No. D067917 (D4d1 Jul. 15, 2016)

Plaintiff in this class action alleged false marketing claims by the makers and sellers of some weight loss pills. The case settled for a “claims made” agreement with small per-plaintiff recoveries—a double refund for claim-filing customers with a receipt and $15 for those without. There’s also a $100,000 clear-sailing attorney fees clause. Although the class had a about half a million members, 895 claims were submitted, for a total of $31,800 in refunds.

The settlement draws some objectors—who happen to be the named plaintiffs in an overlapping class action. The objectors suggest the fix was in on this settlement. The complaint in the case was cribbed word for word from the objectors’ CLRA demand letter—a non-public document that objectors claim could only have come from a Defendant. Plaintiffs, in turn, accuse the objectors counsel of copying their complaint from an earlier action. And they claim that the objectors offered to settle for $750k in fees with basically no benefit to the class. As the court sees it, “[t]he lawyers on both sides accuse each other of greed and disregarding the class interests.” But it doesn’t need to get to the bottom of the mudslinging to resolve the appeal.


Objectors key claim is that the notice given to the class was shoddy. And it was. It misstated the settlement consideration, named an entirely different product that wasn’t even in the litigation, and explained the release included a Civil Code § 1542 waiver of unknown claims, even though the trial court had already said it would not approve a release that broad.  


It doesn’t take Carnac to guess this is a reversal. The claim form contained several material misstatements about the terms of the settlement. So even if the settlement itself were reasonable, the lack of proper notice rendered it invalid. Indeed, the notice was particularly key here because this is a “claims made” settlement—the defendant only pays those class members who submit a claim form. There’s no fund that gets distributed if there are no claims. So if the bad notice detrimentally affected the claims rate, it can have a significant impact on the benefit of the overall settlement to the class.


The court goes on to give some advice on two issues for remand. The first is the method of notice. Generally, notice must be given by “the best practicable [method], reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” (quotation omitted). The notice here was given by (1) a blast email to email addresses associated with about half of the class members; (2) a website setup by the settlement administrator; and (3) an ad in USA Today. But objectors submitted evidence that actual mailing addresses were available through various retailers, such that a legit direct notice was possible. Plaintiffs argument to the contrary was notably unsupported by any sworn evidence.


The court finds that Plaintiffs didn’t give enough foundation to show that they should have been let off the hook of giving direct mailed notice. Although the court doesn’t rule it’s required, it explains that Plaintiffs will need to make a much better showing. Nor did it find the USA Today ad adequate. Notably, objectors’ media expert testified that the publication would reach, at best, about 1 percent of the class. No effort was made to find a publication that the members of the plaintiff class were particularly likely to actually read. 


Second, the court takes a dig at the value of the injunctive relief secured in the settlement. At best, the relief included minor changes in the Defendants’ wording of ads, advertising methods and refund policy. The court finds these changes don’t offer any material benefit to consumers. It finds it “difficult to conceive how this injunctive relief adds value.”


Reversed.

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