Opinion ID: 181231
Heading Depth: 2
Heading Rank: 2

Heading: The $250,000 Cap on Purchase Claims

Text: 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.