Class actions only very loosely resemble the practice of law as most attorneys know it. Yes, they involve plaintiffs suing defendants in court before a judge. But most of the class members don't even know they're in the case, and wouldn't know their attorney if he showed up and their doorstep delivering their settlement check (in this case, a check for about $0.15). Things are much different for their attorneys, however, as was the case in Briseño v. Henderson, --- F.3d ---- (9th Cir. June 1, 2021), who proposed to pocket millions from what the Ninth Circuit held to be a collusive settlement agreement in a false advertising case over cooking oil.
The lesson from Briseño is that courts must closely scrutinize class-action settlements, even after class certification. In fact, the courts will presume they shortchange the class to the benefit of its attorneys. "Rule 23(e)(2) assumes that a class action settlement is invalid." If the trial court presumes otherwise, it abuses its discretion. So “ ‘[t]o survive appellate review, the district court must show it has explored comprehensively all factors.' "
The new clarification Briseño provides is that this rule applies both pre-class certification and post-class certification.
An ancillary lesson from Briseño is, experts will say anything.
And the much less important but more entertaining lesson from Briseño is: Judge Lee really loves puns (such as: the attorneys suing Wesson here were "hoping to strike oil"); and pop-culture references to Star Wars and the Hamilton musical.
Short Summary of the Wesson Oil Class Action:
The basic facts were these: Wesson labeled their cooking oil as "100% Natural." But Wesson uses GMO ingredients, so that label is not quite true. A letter to one of any number of federal agencies might have solved that problem, but not so lucratively as a class action, so an enterprising lawyer got a class together, got it certified, and found an expert to opine that the "100% Natural" label was worth exactly $0.15 per bottle of Wesson, multiplied by 15 million potential class members (who would never all submit claims in any imaginable universe), totaling $67.5 million in liability.
The expert also opined, in a fit of ingenuity, that, by enjoining Wesson's further use of the "100% Natural" label, the class had received a benefit of $27 million. And another $11.5 million per year afterward.
The total value of these claims: over $100 million. For a label on a bottle of frying oil. A label that, in this case at least, was not alleged to have harmed a soul.
The attorneys got Wesson's owner, ConAgra, to agree to pay the 15 cents a bottle, but discounted by the fact that they'd only have to pay those class members who submitted a claim. A claim, mind you, on 15 cents a bottle. In addition to those 15-cent checks, ConAgra would also write a $6.85 million check to the class attorneys, which ConAgra agreed not to challenge in a "clear-sailing" provision of the settlement. ConAgra further agreed to a "kicker" – that if the court did not approve the $6.85 million to the class attorneys, ConAgra would get to keep it: in no event would it flow to the class.
Of the 15 million class members, only one objected. But he happened to be a law professor at the University of Chicago, M. Todd Henderson. Henderson thought this settlement, fattening up the attorneys rather more than Wesson oil had ever allegedly done, smacked of collusion.
The district court rejected Henderson's objections. The district court agreed the expert's opinions were a bit fanciful, but it could "help[] the Court develop its own view." And the injunction "adds at least some value" to the settlement, even if the expert's valuation was ridiculous. The court also thought the $6.85 million to the attorneys was reasonable given it represented a discount from the attorneys' claimed $11.5 million lodestar amount.
In short, the district court ruled the class ought to be happy that "defendant was willing to pay anything at all." And it was "not persuaded" there was collusion that caused the settlement to favor the attorneys over the class members.
The Trial Court Abused Its Discretion by Failing to Apply the Correct Legal Standard Concerning Class Action Settlement Approval, Which the Ninth Circuit Holds Requires the Courts to Scrutinize – Even Post-Class Certification Settlements.
Even though settlements are entitled to limited appellate review, “A [district] court abuses its discretion when it fails to apply the correct legal standard or bases its decision on unreasonable findings of fact.” Nachshin v. AOL, LLC, 663 F.3d 1034, 1038 (9th Cir. 2011). “ ‘To survive appellate review, the district court must show it has explored comprehensively all factors,’ and must give ‘a reasoned response’ to all non-frivolous objections.” Dennis v. Kellogg Co., 697 F.3d 858, 864 (citing Officers for Justice v. Civil Serv. Comm'n, 688 F.2d 615, 624 (9th Cir. 1982)).
Federal Rules of Civil Procedure rule 23(e) imposes on district courts an independent obligation to ensure that any class settlement is “fair, reasonable, and adequate,” accounting for the interests of absent class members. The courts have “an independent obligation to ensure that [any attorneys’ fee] award, like the settlement itself, is reasonable, even if the parties have already agreed to an amount.” In re Bluetooth Headset Products Liability Litigation, 654 F.3d 935, 941 (9th Cir. 2020).
Bluetooth involved a pre-class certification settlement. Cases have noted that the likelihood for collusive agreements by attorneys looking to turn a quick buck on a class action case is much greater pre-certification. But the Ninth Circuit held in Briseño that the courts must also scrutinize settlements after certification. "Nothing in the Rule's text suggests that this requirement applies only to pre-certification settlements," the court held. "And for good reason, too: The specter of collusion still casts a long shadow over post-class certification settlements when they involve divvying up funds between class members and class counsel."
A few choice comments:
In particular, in approving class settlements, courts must consider whether the attorneys receive "a disproportionate distribution of the settlement," whether there is a "clear sailing arrangement" in which the defendants agree not to challenge the fee award, and whether there is a "kicker" or "reverter" that provides that any of the agreed-upon fees that are not awarded by the court would be kept by the defendant, not the class.
As Judge Lee colorfully put it: "here, the parties did more than just check every Bluetooth box; their settlement presented a Murderers’ Row of provisions out of left field that seemingly favor class counsel and the defendant at the expense of the class members." To prevent this, the court held the district court "should give a hard look at the settlement agreement to ensure that the parties have not colluded at class members’ expense." (This commentator would prefer a more lawyerly standard than "give a hard look at," but we must work with what we are given.)
Failure to Quantify the Settlement Was Reversible Error:
The court also held the district court committed reversible error when it failed to attempt to quantify the value of the injunctive relief that was part of the settlement. Instead, the district court had simply concluded that it had "some" value. That does not work. A district court must either quantify and explain the value of injunctive relief or exclude it from calculations. Roes, 1–2 v. SFBSC Mgmt., LLC, 944 F.3d 1035, 1055 (9th Cir. 2019).
The Ninth Circuit here went further to hold that the district court erred by placing even “some value” on the injunction "because it was, and is, virtually worthless." A district court abuses its discretion when it approves a settlement despite “no evidence that the relief afforded by [a] settlement has any value to the class members, yet to obtain it they had to relinquish their right to seek damages in any other class action.” Koby v. ARS Nat. Servs., Inc., 846 F.3d 1071, 1079 (9th Cir. 2017).
Judge Lee compared ConAgra's illusory promise not to put the "100% Natural" label on Wesson oil bottles – despite the fact ConAgra no longer owns Wesson – to "a proposal in the Final Rose ceremony on the Bachelor," or to a promise from George Lucas to make "no more mediocre and schlocky Star Wars sequels shortly after selling the franchise to Disney."
The court also takes a dim view of bright experts. According to the class expert, the settlement the attorneys struck was "is essentially minting money to the tune of eight figures each year." Somewhere along the way, the court held, credulity simply could not be sustained. "Here, the lawyers relied on an expert to provide a rosy number untethered to reality. Courts must “stamp [ ] out” such attempts."
Tim Kowal helps trial attorneys and clients win their cases and avoid error on appeal. He co-hosts the Cal. Appellate Law Podcast at www.CALPodcast.com, and publishes a newsletter of appellate tips for trial attorneys at www.tvalaw.com/articles. His appellate practice covers all of California's appellate districts and throughout the Ninth Circuit, with appellate attorneys in offices in Orange County and Monterey County. Contact Tim at tkowal@tvalaw.com or (714) 641-1232.