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Ninth Circuit:
Settlement of Class Action Over Wesson Oil Claim Invalid
District Court Wasn’t Vigilant in Scrutinizing Accord Which Gives Lion’s Share of Funds to Lawyers, Lee Says
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals yesterday invalidated the settlement of a class action against ConAgra over its allegedly false claim that Wesson Oil was “100% Natural,” finding that the District Court inadequately securitized the accord for possible collusion between class members and their counsel as to fees.
Class counsel were to receive $5.8 million in fees (plus $978,671 in costs) while claims filed by consumers amounted to only $993,919.
The opinion by Circuit Court Judge Kenneth K. Lee faults U.S. District Judge Cormac J. Carney of the Central District of California for approving the settlement without applying Rule 23(e)(2) of the Federal Rules of Civil Procedure which requires that a hearing be held to determine, based on enumerated factors, whether the proposed settlement is “fair, reasonable, and adequate.” That determination must be made, Lee said, where a settlement is made after class certification, as well as before.
In lively prose, he derided the representation by the parties that the value of the injunctive relief that the lawyers obtained was $27 million, saying it was actually nil.
The litigation started in 2011. Putative class actions were filed in 11 states claiming that the “100% Natural” label on bottles of Wesson Oil misrepresented the content because genetically modified ingredients were used.
The Ninth Circuit in 2017 affirmed class certification in the consolidated actions; ConAgra removed the disputed claim from labels that year; in 2018, a settlement was reached; in 2019, that settlement received judicial approval; and ConAgra sold Wesson to Richardson International in 2019.
Lee’s Opinion
In his opinion reversing the approval, Lee wrote:
“We can perhaps sum up this case as ‘How to Lose a Class Action Settlement in 10 Ways.’ The parties crammed into their settlement agreement a bevy of questionable provisions that reeks of collusion at the expense of the class members: Class counsel will receive seven times more money than the class members; an injunction touted by an expert as worth tens of millions of dollars appears worthless: the defendant agrees not to challenge the plaintiffs’ attorneys’ fees amount: any reduction in those fees by the court reverts to the defendant; and on and on.
“While courts should not casually second-guess class settlements brokered by the parties, they should not greenlight them, either, just because the parties profess that their dubious deal is ‘all right, all right, all right.’ We reverse the district court’s approval of the class settlement because the agreement raises a squadron of red flags billowing in the wind and begging for further review. We hold that under the newly revised Rule 23(e)(2) standard—courts must scrutinize settlement agreements—including post-class certification settlements—for potentially unfair collusion in the distribution of funds between the class and their counsel.”
Post-Certification Settlements
Lee noted that traditionally, settlements that come after a class is certified receive less scrutiny than pre-certification resolutions because there is less of a chance that the lawyers were simply out to get “a quick buck” to the detriment of the interests of class members. But, he said, “class certification does not cleanse all sins, especially when it involves potential collusion over divvying up funds between class counsel and the class (rather than the size of the settlement fund or relief),” adding:
“Even after a court has certified a class, class counsel still has the incentive to conspire with the defendant to reduce compensation for class members in exchange for a larger fee. A defendant goes along with this collusion because it cares only about the total payout, not the division of funds between class and class counsel.”
He declared that a district court must apply “heightened scrutiny to post-class certification settlements in assessing whether the division of funds between the class members and their counsel is fair and ‘adequate,’ ” under Rule 23(e)(2).
Value of Injunction
Scoffing at the parties’ representation that the injunctive relief had a value of $27 million, Lee said:
“Under the settlement, ConAgra agreed to refrain from marketing Wesson Oil as ‘100% Natural.’ That sounds great, except that ConAgra already abandoned that strategy in 2017—two years before the parties hammered out their agreement—for reasons it claims were unrelated to this or any other litigation. Even worse, ConAgra’s promise not to use the phrase ‘100% Natural’ on Wesson Oil appears meaningless because ConAgra no longer owns Wesson Oil. In reality, this promise is about as meaningful and enduring as a proposal in the Final Rose ceremony on the Bachelor.”
(“The Bachelor” is an ABC-TV dating show in which a man, after dating several women, chooses the one with whom he desires a relationship with, by presenting her with a rose.)
Lee continued:
“Simply put, Richardson—the new owner of Wesson Oil—can resume using the ‘100% Natural’ label at any time it wishes, thereby depriving the class of any value theoretically afforded by the injunction. ConAgra thus essentially agreed not to do something over which it lacks the power to do. That is like George Lucas promising no more mediocre and schlocky Star Wars sequels shortly after selling the franchise to Disney. Such a promise would be illusory.”
‘Red Flags’
The judge said that three “red flags”—which the Ninth Circuit counseled in its 2011 opinion in In re Bluetooth Headset Products Liability Litigation that District Court judges should be on the look-out for in deciding whether to approve the settlement of a class action—are all present in the proposed settlement with ConAgra.
He pointed out that under the agreement, the lawyers would receive “[t]he lion’s share of the money—almost $7 million…while the class receives relative scraps, less than a million dollars”; there is a “clear sailing arrangement” under which ConAgra would not contest the attorney fees sought; and ConAgra would retain, rather than class members receiving, any sums earmarked for attorney fees which the court found excessive.
The settlement was opposed by M. Todd Henderson, a law professor at the University of Chicago, the only class member who opted out of the settlement.
The case is Briseño v. Henderson, 19-56297.
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