Opinion ID: 181231
Heading Depth: 1
Heading Rank: 3

Heading: fairness of the proposed settlement

Text: Even if it has satisfied the requirements for certification under Rule 23, a class action cannot be settled without the approval of the court and a determination that the proposed settlement is fair, reasonable and adequate. Prudential, 148 F.3d at 316 (internal quotation marks omitted) (citing Gen. Motors Corp., 55 F.3d at 785); see also Fed.R.Civ.P. 23(e)(2). Under Rule 23(e), trial judges bear the important responsibility of protecting absent class members, which is executed by the court's assuring that the settlement represents adequate compensation for the release of the class claims. Gen. Motors Corp., 55 F.3d at 805; see also Ehrheart v. Verizon Wireless, 609 F.3d 590, 593 (3d Cir.2010) (The purpose of Rule 23(e) is to protect the unnamed members of the class.) (citing Warfarin, 391 F.3d at 534). We have stressed the importance of Rule 23(e), noting that a district court acts as a fiduciary, guarding the claims and rights of the absent class members. Ehrheart, 609 F.3d at 593; accord Warfarin, 391 F.3d at 534; Gen. Motors Corp., 55 F.3d at 785; see also Amchem, 521 U.S. at 623, 117 S.Ct. 2231 (noting that the Rule 23(e) inquiry protects unnamed class members from unjust or unfair settlements affecting their rights when the representatives become fainthearted before the action is adjudicated or are able to secure satisfaction of their individual claims by a compromise (internal quotation marks omitted)). We ask district courts to apply an even more rigorous, heightened standard in cases where settlement negotiations precede class certification, and approval for settlement and certification are sought simultaneously. Warfarin, 391 F.3d at 534. We have explained that this heightened standard is designed to ensure that class counsel has demonstrated sustained advocacy throughout the course of the proceedings and has protected the interests of all class members. Prudential, 148 F.3d at 317 (internal quotation marks omitted). In Girsh v. Jepson, we articulated nine factors to be considered when determining the fairness of a proposed settlement: (1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; [and] (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. 521 F.2d 153, 157 (3d Cir.1975) (internal quotation marks and alterations omitted). The settling parties bear the burden of proving that the Girsh factors weigh in favor of approval of the settlement. Gen. Motors Corp., 55 F.3d at 785. The district court's findings under the Girsh test are factual, and will be upheld unless they are clearly erroneous. Id. at 786. In Prudential, we held because of a sea-change in the nature of class actions after Girsh was decided thirty-five years ago, it may be helpful to expand the Girsh factors to include, when appropriate, the following non-exclusive factors: [T]he maturity of the underlying substantive issues, as measured by experience in adjudicating individual actions, the development of scientific knowledge, the extent of discovery on the merits, and other factors that bear on the ability to assess the probable outcome of a trial on the merits of liability and individual damages; the existence and probable outcome of claims by other classes and subclasses; the comparison between the results achieved by the settlement for individual class or subclass members and the results achievedor likely to be achievedfor other claimants; whether class or subclass members are accorded the right to opt out of the settlement; whether any provisions for attorneys' fees are reasonable; and whether the procedure for processing individual claims under the settlement is fair and reasonable. 148 F.3d at 323. The district court must make findings as to each of the nine Girsh factors in order to approve a settlement as fair, reasonable, and adequate, as required by Rule 23(e). The factors we identified in Prudential are illustrative of additional inquiries that in many instances will be useful for a thoroughgoing analysis of a settlement's terms. Because district courts must make findings as to each of the Girsh factors, and the Prudential factors where appropriate, the court cannot substitute the parties' assurances or conclusory statements for its independent analysis of the settlement terms. Cf. Reynolds v. Beneficial Nat'l Bank, 288 F.3d 277, 283 (7th Cir. 2002) (cautioning against paint[ing] with too broad a brush [and] substituting intuition for ... evidence and careful analysis). When the parties have not supplied the information needed for the court to determine whether the settlement is fair, reasonable, and adequate, the court may affirmatively seek out such information. See id. at 285 (noting that courts may require the parties to present evidence to enable the court to make findings regarding the strength of the plaintiffs' case, the range of possible damages, and the likely duration of the litigation if not presently settled). We reaffirm the overriding public interest in settling class action litigation. Warfarin, 391 F.3d at 535; see also Ehrheart, 609 F.3d at 595 (noting the especially strong presumption in favor of voluntary settlements in `class actions ... where substantial judicial resources can be conserved by avoiding formal litigation' (quoting Gen. Motors Corp., 55 F.3d at 784)). But cognizant that Rule 23(e) places a duty on district courts to safeguard the interests of class members, we believe courts may find it necessary to drill down into the case and into the agreement to make an independent, scrupulous analysis of the settlement terms. Prudential, 148 F.3d at 317.
The District Court determined that the settlement was fair, reasonable, and adequate under Rule 23(e) after considering the nine Girsh factors. The court's analysis focused primarily on the Injury Claims and did not specifically reference the Purchase Claims. With regard to the complexity, expense, and likely duration of the litigation, the court focused on (1) the scope and breadth of the litigation, which stemmed from a massive pet food recall, involved over 60 million containers of more than 90 brands of pet food, and resulted in approximately 115 nationwide class action lawsuits; (2) the complex medical and toxicological issues involving the combined impact of melamine and cyanuric acid on small animal renal systems, which likely would have required multiple experts, at an enormous cost, who would be delving into somewhat new territory involving the effects of these toxins on cats and dogs; (3) the likelihood that discovery would be extensive and require significant resources; and (4) counsels' representation that pursuing the actions through pretrial motion practice, formal discovery and trial would involve potentially several additional years to this litigation and could deprive pet owners of relief. Fairness Opinion, 2008 WL 4937632, at -13. The court determined that the reaction of the overwhelming majority of the class had been positive, thereby satisfying the second Girsh factor (as of the date of the fairness hearing, over 9,357 claims had been received, with 89 exclusion requests from U.S. residents, 25 from Canadian residents, and 28 objections). Id. at . With regard to the third factor, the court found that adequate informal discovery was conducted as well as some formal discovery, such that counsel were able to gain an appreciation of the merits of the case as well as the legal theories and risks. Id. at . The court determined the fourth and fifth Girsh factors were satisfied, as there was risk to plaintiffs in establishing causation, liability, and damages if the case proceeded to trial. Id. at . With regard to causation, the court focused first on plaintiffs' representations of toxicity. Plaintiffs stated that although research on the toxicity of melamine and cyanuric acid demonstrated a strong relationship to acute renal failure, few studies had been conducted, and the studies that were conducted were inconclusive with respect to how many pets became ill or died as a result of eating recalled pet food. Id. The court also credited plaintiffs' representations that causation would be a major battleground between experts, and would involve issues individual to each pet, such as age and health at the time allegedly contaminated food was consumed. Id. Liability would be hotly contested because the adulteration of wheat gluten and rice protein concentrate ... was a criminal act by Chinese companies. Id. Further, as the product moved through the manufacturing and distribution process ... varying degrees of liability would exist between manufacturers, private labelers and entities that were strictly retailers. Id. With regard to damages, the court cited plaintiffs' admission they did not know how many pets became ill or died as a result of consuming recalled pet food, thus creating uncertainty on the possible ultimate damages. Id. The sixth factor, the risks of maintaining a class through trial, weighed in favor of settlement, because given the potential differences as to the health of the pet and the size of the pet, there exist[ed] more than a slight risk of modification or decertification if the case proceeded to trial. Id. at . With regard to defendants' ability to withstand greater judgment and enforceability of judgment, the court acknowledg[ed] the fact that Menu Foods [the major defendant in this litigation] ha[d] incurred substantial cost in recalling the contaminated pet food, costs incurred outside of th[e] litigation yet nonetheless factored into the financial viability of Menu Foods' ability to pay the settlement. The amount of settlement, coupled with the expectation that some pet owners w[ould] be able to recover most if not all of their costs, weigh[ed] in favor of settlement. Id. (citing McCoy v. Health Net, Inc., 569 F.Supp.2d 448, 462-63 (D.N.J.2008)). Finally, the court determined the eighth and ninth Girsh factors, the range of reasonableness of the settlement fund in light of the best possible recovery and the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation, weighed in favor of settlement: In this case, plaintiffs state that the Settlement allows Class Members to have the potential to obtain up to 100% of their economic damages after submitting a valid claim while avoiding the risk of litigation. Plaintiffs argue that since the Class Members could potentially recover up to 100% of their economic damages, it is preferable to the very real possibility of a smaller recovery or no recovery at all. Plaintiffs also state that the proposed Settlement represents a significant recovery in light of the attendant risks of litigation of proving causation, damages and liability. The Court finds that the range of reasonableness under the eighth and ninth Girsh factors weigh[s] in favor of settlement. Although some Class Members may not be reimbursed fully for their economic damages depending upon whether the fund can support the number of claims ultimately submitted, it does have the potential to allow most Class Members to be reimbursed fully. The Court also notes that by settling, the Class Members will receive money now at present value, rather than later, assuming they would be successful in litigation. Id. at  (citing Gen. Motors Corp., 55 F.3d at 806). Objectors contend the District Court erred in finding the settlement fair, reasonable, and adequate. After reviewing the parties' arguments and conducting our own review of the record, we find the District Court lacked the information necessary to evaluate the value and allocation of the Purchase Claims and so we will vacate and remand on this one issue. In all other respects we will affirm.
At the final fairness hearing, objectors argued that the $250,000 allocated for Purchase Claims was inadequate and rendered the settlement unfair and unreasonable. Objectors pointed out that no sales information for the recalled food had been presented to the court and that there was no information in the record that would allow the court to evaluate whether $250,000 was a reasonable settlement for the Purchase Claims. Faced with objections to the allocation, the settling parties explained to the court how they arrived at the $250,000 allocation. [27] First, counsel contended that everyone at the negotiating table believed the vast majority of people who wanted refunds for the purchase of recalled pet food had already returned the food to retailers or called the toll-free numbers of manufacturers and received a refund. [28] Second, counsel believed that the vast majority of the 60 million units of recalled pet food was never sold to consumers. It was on the retail shelves at the time the recall was announced and then was removed from the shelves and put into storage. In response to the court's inquiry into whether the settling parties knew what percentage of the recalled pet food was actually sold at retail, counsel explained that the parties had not been able to get [their] hands around that because of the unorganized way in which some of the recalled food was returned. [29] The court also inquired into whether any of the $8 million in Historic Payments had gone to claimants seeking a refund for recalled pet food. Counsel explained that some portion, but not very much, of the $8 million was compensation for recalled food. Counsel for Petco, Wal-Mart, and PetSmart explained that when a consumer submitted a veterinary claim, a refund for recalled food, if due, would also be paid to resolve the claim on a global basis. But, according to counsel, the $8 million excludes any refunds paid to consumers who simply brought recalled products back to the store from which they made their purchase. These amounts have not been calculated as part of this proceeding. The District Court determined that because the recall involved a defined number of products manufactured over only a short time period (approximately four months) and because many purchasers of Recalled Pet Food Products ha[d] already [been] compensated outside of the Settlement, the $250,000 allocation was fair and adequate: The Recall involves a defined number of products manufactured over only a few months [between November 8, 2006, and March 6, 2007]. The Settlement Agreement applies only to products recalled in or after March 2007. More importantly, it was represented to the Court during the fairness hearing by co-lead counsel and defense counseland it makes common sensethat manufacturers and retailers have already provided compensation to purchasers of recalled products through the Historical Payments or through point of sale refunds or [as] a result of the Recall. Therefore, many purchasers of Recalled Pet Food Products have already [been] compensated outside of the Settlement. Therefore, the $250,000 amount allocated is adequate for payment for Consumer Food Purchase Claims defined as claims solely for reimbursement of the costs associated with the purchase of a Recalled Pet Food Product by a Settlement Class Member who has not been reimbursed for such costs to date, including through return or exchange of the Recalled Pet Food Products. Fairness Opinion, 2008 WL 4937632, at . We see no error in the District Court's common sense finding that many purchasers of recalled pet food were compensated for refunds outside of the settlement. But the fact that many consumers had already received refunds did not necessarily answer whether the $250,000 allocation was a fair and adequate settlement of the Purchase Claims. No one has challenged the adequacy of the $24 million settlement fund, and we do not doubt the able District Court properly determined that the fund was a fair and adequate settlement of all the claims advanced by plaintiffs in this case. The District Court carefully examined each of the Girsh factors. But the parties did not focus on the Purchase Claims. We are unable to determine whether the $250,000 allocation was a fair and adequate settlement of the Purchase Claims given the risks of establishing liability and damages and the likely return to the class of continued litigation. Under this set of facts where funds available for some claims are capped while others are notthe settling parties should have provided the court with more detailed information about why they settled on the $250,000 cap. The settling parties also should have provided information to determine the range of reasonableness of the $250,000 allocation in light of the best possible recovery, Prudential, 148 F.3d at 322, and in light of all the attendant risks of litigation, Girsh, 521 F.2d at 157 (quoting City of Detroit v. Grinnell Corp., 495 F.2d 448, 463 (2d Cir. 1974)). We have explained that in cases primarily seeking monetary relief, district courts should compare the present value of the damages plaintiffs would likely recover if successful, appropriately discounted for the risk of not prevailing ... with the amount of the proposed settlement. Gen. Motors Corp., 55 F.3d at 806 (quoting Manual for Complex Litigation (Second) § 30.44, at 252 (1985)); Prudential, 148 F.3d at 322. This figure should generate a range of reasonableness (based on size of the proposed award and the uncertainty inherent in these estimates) within which a district court approving (or rejecting) a settlement will not be set aside. Gen. Motors Corp., 55 F.3d at 806. Precise value determinations are not required. Cf. Warfarin, 391 F.3d at 538 (finding no error in the district court's analysis of the final two Girsh factors where the plaintiffs' expert estimated recoverable damages to be as low as $7.1 million and as high as $133.8 million, and the district court described the methodology utilized by the expert to arrive at the figures and concluded the estimate was reasonable). [30] Here, the settling parties failed to provide the District Court with estimations of recoverable damages for the Purchase Claims including sales information quantifying the amount of recalled pet food sold to consumers and the amount of refunds already paid to consumers. [31] If available, this information would have enabled the court to make the required value comparisons and generate a range of reasonableness to determine the adequacy of the settlement amount. Cf. Warfarin, 391 F.3d at 538 (settlement fund represented 33% of available damages); Cendant, 264 F.3d at 241 (settlement represented 36-37% of damages). The settling parties contend they provided substantial support for the adequacy of the $250,000 allocation by citing the limited time period of the recallNovember 8, 2006, through March 6, 2007and the significant refunds and compensation provided for the purchase of recalled pet food outside of the settlement through point-of-sale refunds, refunds offered by manufacturers, and the Historic Payments. As noted, however, this information was insufficient. In sum, we find the District Court lacked the information necessary to determine whether the $250,000 allocated to Purchase Claims was fair, reasonable, and adequate. Accordingly, we will remand for further Rule 23(e) proceedings only on the allocation for Purchase Claims. On remand, the settling parties should either produce the relevant information or demonstrate that it is unavailable or that producing it would be unfeasible.
The Picus/Kaffer objectors challenge the District Court's order approving the settlement's release. Under the terms of the release, Settlement Class Members release all claims that have been brought or could have been brought against defendants that relate in any way to matters referenced in any claim raised ... in the Pet Food Recall Litigation. Settlement Class Member[s] are all individuals who purchased, used or obtained, or whose pets used or consumed Recalled Pet Food Product(s) who have not opted out. Recalled Pet Food Products are defined as any pet food product that was recalled on or after March 16, 2007, because of allegedly contaminated wheat gluten and/or rice protein concentrate. Thus, by its terms, the release does not apply to claims relating to pet food that was not recalled after March 16, 2007, because of allegedly contaminated wheat gluten and/or rice protein concentrate. In other words, the release does not apply to non-contaminated pet food, whether or not recalled by defendants or others. The Picus/Kaffer objectors have asserted claims in non-MDL pet food lawsuits alleging that they purchased pet food that was falsely labeled as Made in the USA. [32] Objectors argued below that the release was overbroad because it improperly released their mislabeling claims without consideration. After questioning the parties at the fairness hearing, the District Court disagreed. The court determined that to the extent individuals purchased Recalled Pet Food Products, their Made in the USA claims for those specific purchases would be released by the proposed settlement. See Fairness Opinion, 2008 WL 4937632, at . But claims for purchases of pet food that was not recalled after March 16, 2007, because of allegedly contaminated wheat gluten and/or rice protein concentrate were outside the scope of the Settlement Agreement. Id. The court explained that Picus's and Kaffer's claims were based on their alleged purchase of mislabeled products over a period of more than four years, beginning in April 2003, and their lawsuits asserted claims for various pet food products and varieties that were outside the scope of the pet food recalls. The court found that [t]o the extent these claims relate to products other than the Recalled Pet Food Products, they are not the subject of this Pet Food Recall MDL. Therefore, [Picus's and Kaffer's] claims in the state actions are not released by the Settlement.... Id. Objectors contend the release should not have been approved because: (1) the Kennedy court construed the release as barring claims for non-contaminated pet food purchases; (2) defendant Natural Balance argued before the Kennedy court that the release barred claims for non-contaminated pet food purchases; and (3) the list of recalled pet food products attached to the Final Approval Order includes a few non-contaminated Natural Balance dog food products. Objectors' arguments lack merit. The settling parties agree that the release does not encompass claims relating to non-contaminated pet food products, including any mislabeling claims asserted in the Picus and Kennedy actions that are based on non-contaminated pet food. The fact that the district court in the Kennedy action may have misconstrued the release as barring claims for non-contaminated pet food purchases is not a reason to invalidate the release. The Kennedy court interpreted the release before the final fairness hearing in this case and before the District Court determined the scope of the release in its opinion. More importantly, the Ninth Circuit affirmed the decision to deny class certification in Kennedy without reference to this case. See Kennedy, 361 Fed.Appx. at 785. Additionally, the fact thatprior to the fairness hearing and final approval of the settlementone defendant argued for a different interpretation of the release does not render the release invalid. There presently is no dispute between objectors and the settling parties regarding the scope of the release. All parties agree that the District Court properly determined that to the extent the Made in the USA claims relate to products other than Recalled Pet Food Products, they are not the subject of this action and are therefore not released. Finally, the fact that the list of Recalled Pet Food Products attached to the Final Approval Order inadvertently includes a few non-contaminated Natural Balance dog food products does not invalidate the release. As defendants note, the list of recalled pet foods is not determinative and has no independent significanceit must be read in conjunction with the terms of the release, which does not apply to claims relating to non-contaminated pet food. [33]
Appellants do not challenge the award of attorneys' fees. Because no one (no class member as objector) raised this issue on appeal, there has been no briefing on the matter. In its Note to the 2003 amendments to Rule 23, the Advisory Committee on Civil Rules directed the district courts to rigorously scrutinize the award of attorneys' fees. See Fed.R.Civ.P. 23(h)(4) advisory committee's note (Whether or not there are formal objections, the court must determine whether a fee award is justified....). In this respect we do not disagree with the concurrence. Nor do we conclude the question of attorneys' fees cannot be considered on appeal sua sponte, depending on the facts and circumstances of each case. Nevertheless, in this case, we believe the district court made an extensive inquiry into and discharged adequately its responsibility to assess the reasonableness of attorneys' fees.