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Media Alerts - In re Baby Products Antitrust Litigation - Third Circuit
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February 20, 2013
  In re Baby Products Antitrust Litigation - Third Circuit
Headline: Class Action Settlements and cy pres

Area of Law: cy pres and class action settlements

Issues Presented: Did class action settlement provide sufficient notice and direct benefit to class members?

Brief Summary: The Third Circuit addressed cy pres, a term that means "as near as possible" in French. This case was a class action claim brought against several baby manufacturers for fixing their prices on baby products. As a result, consumers paid increased prices on baby products. The parties settled and the baby manufacturers set up a $35 million settlement account. Unnamed plaintiff Kevin Young objected to the settlement order. He argued that the District Court erred in approving the settlement, that it should have discounted the fees paid to class attorneys because of the cy pres fund, and that the notice was deficient because it did not identify who the cy pres recipients were. The Third Circuit vacated the settlement order because it found that the District Court did not have sufficient information to determine whether the settlement conferred adequate direct benefit to the class claimants. It vacated the attorneys' fees because of the vacated settlement but it did not find that notice was deficient.

Significance (if any):

Extended Summary: The Third Court addressed the operation of cy pres (derived from a Norman French term for as near as possible) in this class action settlement case. In class action settlement cases, sometimes funds remain after class members' claims have been compensated. When this happens, the court may allow parties to distribute the funds to a charity. In this case, several baby manufacturers ("defendants") allegedly set a price floor for the sale of certain baby products. As a result, consumers were paying higher prices for baby products. The District Court approved a settlement in January 2011 and sent out a notice informing class members of their right to submit a claim, opt out or object. A few months later, the District Court granted the class attorney fees. The defendants deposited $35,500,000 into a fund. The class claimants who submitted documentary or other proof of purchase were paid 20% of the value based on the evidence they submitted. If the claimants submitted no proof of purchase, then they would receive $5 per item. Kevin Young objected to the settlement.

The Third Circuit first noted that cy pres serves valid functions in a class settlement, because it deters allegedly wrongful conduct by the defendants and tailors to the interests of class members. The court then held that the district court was allowed to approve a class action settlement that included cy pres; permitting the excess funds to be donated to a charitable third party was not unfair. It noted however that direct payments to the class were preferred over cy pres, because providing compensation directly benefits class members while cy pres allocations provide only indirect benefit. The Third Circuit then proceeded to explain that cy pres was not the only option available when distributions to class claimants were not economically feasible. In order to determine whether a settlement was fair, reasonable, and adequate, the Third Circuit noted that the District Court should consider the nine factors set out in Gersh v. Jepson, along with additional prudential inquiries set out in In re Prudential. To these factors the Third Circuit then added that an additional inquiry was to determine "the degree of direct benefit provided to the class." It added that this inquiry needed to be practical in nature.

In this case, one of the class claimants, Young, argued that cy pres was inappropriate because if the claimants did not submit proof of purchase, they would only receive $5, regardless of how much they paid for the item. Because most claimants fell into this category, the total amount of compensation paid to plaintiffs fell substantially below the District Court's initial elements. In light of this disparity, the Third Circuit vacated the District Court's approval of the settlement order. Out of the $21.5 million designated to the class, only approximately $3 million would be distributed to the class members with the remainder going to the cy pres recipients. Whether this amounted to sufficient direct benefit to the class was a matter the District Court should consider on remand.

Since the settlement was vacated, the Third Circuit also vacated the order awarding fees and costs to the class attorneys. The Third Circuit did not address whether these amounts were reasonable. Instead, it directed the District Court to consider whether or not the fees should be discounted based on the portion of the settlement that would be included in cy pres distribution. It adopted a case by a case approach on that issue, giving district courts the discretion to determine whether to decrease attorneys' fees when a portion of the fund was cy pres. The Third Circuit allowed the courts to take into consideration the experience of the attorney, nature of the lawsuit and whether the class was provided a direct benefit.

The Third Circuit lastly addressed the notice given to all class members. Young argued that the settlement notice was not sufficient because it did not state who would receive the cy pres distribution. However, the Third Circuit noted that failing to disclose the cy pres recipients was not by itself enough to render the notice to class members deficient.

To read the full opinion, please visit http://www.ca3.uscourts.gov/op...ch/121165p.pdf.


Panel (if known): Ambro, Greenaway, Jr., O'Malley*, Circuit Judges
*Honorable Kathleen O'Malley, United States Court of Appeals for the Federal Circuit, sitting by designation.

Argument Date: September 19, 2012

Argument Location:

Date of Issued Opinion: February 19, 2013

Docket Number: No. 12-1165; No. 12-1166; & No. 12-1167

Decided: vacate and remand

Case Alert Author: Kathleen D. Tran

Counsel: Christopher M. Arfaa, Esq., Theodore H. Frank, Esq., and Daniel Greenberg, Esq., for Appellant Kevin Young; Christopher A. Bandas, Esq., for Appellant Clark Hampe; James H. Price, Esq., for Appellant Allison Lederer

Theodore B. Bell, Esq., Mary Jane E. Fait, Esq., Steve W. Berman, Esq., George W. Sampson, Esq., Anthony D. Shapiro, Esq., Ivy A. Tabbara, Esq., Thomas H. Burt, Esq., Fred T. Isquith, Esq., William G. Caldes, Esq., Eugene A. Spector, Esq., Jeffrey L. Spector, Esq., and Elizabeth A. Fegan, Esq., for Appellee Carol M. McDonough;

Harry H. Rimm, Esq., Mark L. Weyman, Esq., and Melissa I. Rubenstein, Esq., for Appellees Toys R Us Inc., Babies R Us Inc., Toys R Us Delaware, Inc.

Neil E. McDonnell, Esq. for Appellee Baby Bjorn AB

Alexander Maltas, Esq., Marguerite M. Sullivan, Esq., Edward M. Williamson, Esq., Margaret M. Zwisler, Esq., and Samuel W. Silver, Esq., for Appellee Britax Child Safety Inc.

Michael J. Hahn, Esq. for Appellee Kids Line Inc.

Carolyn H. Feeney, Esq., George G. Gordon, Esq., and Joseph A. Tate, Esq. for Appellee Medela Inc.

Kendall Millard, Esq. for Appellee Peg Perego USA Inc.

David R. Martin, Esq. and Isaac J. Mitrani, Esq., for Appellee Regal Lager Inc.

Author of Opinion: Judge Ambro

Circuit: 3rd Circuit

Case Alert Circuit Supervisor: Mark Rahdert

Edited: 02/25/2013 at 09:50 AM by Media Alerts Moderator

    Posted By: Susan DeJarnatt @ 02/20/2013 03:52 PM     3rd Circuit  

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