by Brian Wolfman
Today, in Greenberg v. Proctor & Gamble, by a 2-1 vote, the 6th circuit threw out a class-action settlement on the ground that (1) it provided virtually nothing of value to the class members while the named representatives got significant "incentive" payments ($1,000 times the number of their diaper-using kids), and the class lawyers received a large fee, and (2) the named representatives were inadequate representatives of the class. The class alleged that certain diapers sold by the defendant caused severe diaper rash.
The majority opinion discusses a number of issues. I'll deal with some highlights here and try to post again on the case in the near future.
The majority opinion's opening two paragraphs give you an overview:
Class-action settlements are different from other settlements. The parties to an ordinary settlement bargain away only their own rights—which is why ordinary settlements do not require court approval. In contrast, class-action settlements affect not only the interests of the parties and counsel who negotiate them, but also the interests of unnamed class members who by definition are not present during the negotiations. And thus there is always the danger that the parties and counsel will bargain away the interests of unnamed class members in order to maximize their own.
This case illustrates these dangers. The class is made up of consumers who purchased certain kinds of Pampers diapers between August 2008 and October 2011. The parties and their counsel negotiated a settlement that awards each of the named plaintiffs $1000 per “affected child,” awards class counsel $2.73 million, and provides the unnamed class members with nothing but nearly worthless injunctive relief. The district court found that the settlement was fair and certified the settlement class. We disagree on both points, and reverse.
Here's the gist of the dissent's rebuttal:
Although the relief offered to the unnamed class members may not be worth much, their claims appear to be worth even less. Nobody disputes that the class’s claims in this case had little to no merit. In the absence of this settlement, class members would almost certainly have gotten nothing. And even with the settlement, unnamed class members remain free to try their luck, as the settlement preserves their right to sue for personal injury and actual damages caused by Dry Max diapers. Thus, the concern that plaintiffs’ counsel “bargained away” some valuable “interest” is misplaced. A very different settlement would likely be before us if the [Consumer Product Safety] Commission’s investigation had not exculpated Dry Max diapers.
One of the forms of "injunctive relief" that class counsel claimed benefitted the class was a program that would allow a refund on one box of diapers. Here's what the court said about that:
We begin with the one-box refund program. Consumers cannot benefit from the program unless they have retained their original receipt and Pampers-box UPC code, in some instances for diapers purchased as long ago as August 2008. [Objector] Greenberg sensibly asks who does this sort of thing. We have no answer. Neither do the parties—or more precisely they have offered none. The omission is conspicuous, for the refund program here is merely a rerun of the very same program that P&G had already offered to its customers from July 2010 to December 2010. P&G surely has data as to the numbers of consumers who obtained refunds during that time; P&G’s counsel conceded as much at oral argument on appeal. And yet—even after Greenberg called out the parties on this very point in his objections to the district court—P&G chose not to provide that data in arguing that the settlement is fair.
