A California district court certified a Rule 23(b)(3) food labeling class action against chocolatier Ghirardelli and approved a proposed settlement. The genesis of plaintiffs’ claim is that defendant mislabeled its “White Chips” and other products in a way that would mislead consumers into believing that the products contained white chocolate. Plaintiffs also asserted a claim that the “all natural” label was improper because the products contained “genetically modified, hormone-treated . . . or chemically extracted ingredients.” As part of the settlement, Ghirardelli agreed to pay $5.25 million into a common fund and agreed to effect certain labeling changes to all products at issue for a period of three years. The named plaintiffs would each receive a $5,000 incentive payment. Other class members would receive between $0.75 and $1.50 depending on the products purchased. Class counsel would receive over $1.5 million in attorney’s fees and approximately $87,000 in costs.
The court began its analysis noting that settlement is a “strongly favored” method for resolving disputes, particularly where complex class action litigation is concerned. The court’s focus when evaluating such a settlement is strictly guided by whether the settlement is fair, reasonable, adequate, free of collusion and consistent with the named plaintiffs’ fiduciary obligations to the class. In so determining, courts bound by the Ninth Circuit consider: (1) the strength of the plaintiff’s case; (2) the risk, expense, complexity, and likely duration of further litigation; (3) the risk of maintaining class-action status throughout trial; (4) the amount offered in settlement; (5) the extent of discovery completed and the stage of the proceeding; (6) the experience and views of counsel; (7) the presence of a government participant; and (8) the reaction of class members to the proposed settlement. Moreover, where a settlement is the product of arms-length negotiations conducted by capable and experienced counsel, the court presumes that the settlement is fair and reasonable. In keeping with this framework, the court found the proposed settlement fair, adequate, and reasonable. The court noted that the litigation to date had been “a hard-fought affair.” Considering the strength of the plaintiffs’ case, the risk, expense, complexity, and likely duration of further litigation — including the risk of maintaining class action status throughout the trial and successfully proving liability in the face of Ghirardelli’s strong denial — the court found that these factors all weighed in favor of approving the settlement.
Fees and Costs
The court also awarded class counsel $1,575,000 in attorney’s fees and $87,572.15 in costs. In the Ninth Circuit, the benchmark for an attorney’s-fee award is 25% of the total settlement value. When determining the value of a settlement, courts consider both the monetary and non-monetary benefits. In common-fund cases, such as this one, the Ninth Circuit requires district courts to assess proposed fee awards under either the “lodestar” method or the “percentage of the fund” method. The court found the fee request reasonable under both approaches.
First, with respect to the “percentage of the fund” approach, Plaintiffs presented expert testimony that the changed practices required by the settlement for the next three years can be expected to save class members $13.46 million. When added to the $5.25 million, the requested fee represented 8.9% — significantly below the Ninth Circuit’s 25 percent benchmark. The court found the requested fee appropriate even if the expert’s estimate was deeply discounted.
Second, after applying the percentage method, courts typically calculate the lodestar as a cross-check to assess the reasonableness of the percentage award. Once the court has fixed the lodestar, it may increase or decrease that amount by applying a positive or negative multiplier to take into account a variety of other factors, including the quality of the representation, the novelty and complexity of the issues, the results obtained and the contingent risk presented. Based on the declarations submitted by the plaintiffs’ counsel, the court found that the lodestar was approximately $1,711,710, which exceeded the requested fee award of $1,575,000.
Thus, the court found the fee request reasonable under both the “percentage of the fund” approach and the lodestar cross-check. Finally, based on documentation provided, the court the cost award.
The Ninth Circuit has cautioned that awarding incentives should not become routine practice. However, the court concluded that the incentives proposed here were within the range of such awards that the Ninth Circuit has either affirmed or cited with approval. The court specifically noted that the named plaintiffs merit this incentive, detailing the effort they personally made in pursuing this lawsuit.
Cy Pres Doctrine
The settlement agreement provides that if, after payment of notice, administration, fees, costs, incentives and valid claims, there remains a balance in the common fund, the plaintiffs will ask the court to approve a list of charitable organizations to receive any balance remaining in the settlement fund. The court found that the cy pres doctrine is appropriate for a case like this, where class members who did not make claims cannot be easily located or identified, in order to “put the unclaimed fund to its next best compensation use, e.g., for the aggregate, indirect, prospective benefit of the class.”
Objections to Settlement
The court rejected three objections, finding that all three objectors failed to establish their standing to challenge the settlement because they did not establish they were proper class members. The court also rejected the objections on the merits, dismissing claims of collusion, challenges to the cy pres distribution, and to the attorney’s fees.