Settlement class can’t stand where settlement notice gave mistaken info

Duran v. Obesity Research Institute, LLC, No. D067917, 2016
WL 3913205 (Cal. Ct. App. Jun. 23, 2016)
Duran sued ORI and Wal-Mart for allegedly falsely
advertising the weight loss benefits of Lipozene and MetaboUp. The court
approved a claims-made settlement providing that class members submitting a
claim without proof of purchase would receive $15, and those submitting
receipt(s) would receive one refund of double the unit price paid. (A
claims-made settlement isn’t a fixed fund but depends on the number of claims
submitted; “[s]uch settlements may promise far more than they deliver because
the claiming rate is notoriously low.”) The settlement also provided that ORI
would cease making certain advertising claims, and that defendants wouldn’t
oppose a motion seeking $100,000 in attorney fees to class counsel.  The class is estimated at between 400,000 and
600,000 consumers.  In total, 895 claims
were submitted, in the total amount of $31,800, or 0.179% of the class
(assuming 500,000 class members)—about six cents per class member.  Objectors appealed, and the court ruled that
the notice, which was emailed to consumers who bought online directly from ORA
and also appeared in USA Today, was
insufficient.
The notice here depended on the settlement website.  The email, which went to 237,334 class
members, didn’t include the terms, but just told recipients to click on a link
to the settlement website.  The USA Today notice explained the method of
calculating settlement payments and generally described the injunctive relief,
but also referred readers to the settlement Web site “[f]or additional
information on submitting a claim ….“ The settlement Web site said that
submitting a valid claim form was the only way to get a cash payment.  But the downloadable claim form, integral to
the settlement, was wrong.  Instead of
stating that class members who submitted receipts would get one refund of
double the purchase price, it said they’d get a refund of all products bought
during the class period, resulting in overvaluing or undervaluing claims.
The online claim form also misstated the product involved—it
referred to Hydroxycut products, not involved here—and the scope of the release
involved in taking the settlement (the trial court had rejected a release of
unknown claims, but the claim form included it).  These issues weren’t raised in the trial
court, even by objectors, but class counsel and defendants argued that the
settlement was fine and a remand was necessary only to decide the “details and
logistics“ of giving corrected class notice. 
The court disagreed.  “The judgment
must be reversed because the class notice failed in its fundamental purpose—to
apprise class members of the terms of the proposed settlement.”
The court found that the problems its independent review of
the claim form revealed weren’t waived.  The
relevant facts were undisputed and couldn’t have been changed by presenting
addditional evidence.  And the trial
court couldn’t have cured the error at the final approval hearing because the claims
process was over.  Further, “[t]he
court’s responsibility to protect absent class members” justified an exception
to waiver or forfeiture.
Defendants and class counsel argued that, even though the
notice was bad, the finding that the settlement was reasonable, fair, and
adequate should be left untouched.  But the
adequacy of class notice of settlement was too intertwined with the
reasonableness of the settlement to accept that argument, since, among other
things, “the amount offered in settlement“ and “the reaction of the class
members to the proposed settlement” are relevant to the court’s assessment.
As for notice to class members, “process which is a mere
gesture is not due process. The means employed must be such as one desirous of
actually informing the absentee might reasonably adopt to accomplish it.”  ORI sent notice by email to its direct
website customers.  Objectors argued that
Wal-Mart.com purchasers could have been given email notice too, and that the
parties should have subpoenaed records from other retailers, such as Amazon,
CVS, and Walgreens, to obtain addresses of other class members.  Wal-Mart argued that it couldn’t get
addresses for those who purchased from its online store because the entity
operating Wal-Mart.com—Wal-Mart.com USA, LLC—wasn’t the entity Duran sued,
which was Wal-Mart Stores, Inc.  ORI’s
attorney filed a declaration stating he “reached out“ to “several retailers“ to
obtain customer contact information, but was told that “obtaining such
information is illegal, unavailable or improper.”
“On remand, class counsel and defendants will have to provide
a better foundation to support a ruling that direct notice need not be given.”  Among other things, the fact that the brick
and mortar store was owned by one entity, and the online store by another, didn’t
by itself establish the requested information wasn’t reasonably obtainable.  What’s required is “a notice plan that one
would implement if one genuinely wanted to inform someone, all relevant factors
considered.”  It wasn’t enough to say,
vaguely, that counsel “reached out to several retailers.”  Direct notice might not be required for
online purchasers other than those who used ORI’s website, but the court needed
more information.
Objectors also submitted a declaration from a media expert asserting
the USA Today notice reached only approximately 1.06% of class members. She
used “industry-standard research data” about “demographic, lifestyle, product
usage and exposure,” using data for audiences targeted with a definition of
“Meal/Dietary/Weight Loss Supplements Used For Weight Loss in Last 6 Months.”  There was no evidence disputing her opinion
or even evidence that Lipozene was advertised in USA Today.  ORI didn’t
explain how a settlement class member who didn’t receive e-mail notice and who didn’t
read the notice in USA Today would even know to look for a Lipozene settlement
Web site.  The idea of using publications
targeting class members needed to be explored.
As for injunctive relief, the settlement required ORI to
change its advertising and some other business practices.  Among other things, ORI agreed to add a
disclaimer regarding Lipozene’s effectiveness, including links to studies about
Glucomannan, an ingredient contained in Lipozene. It would also add, “For best
results, use in conjunction with reasonable diet and exercise.“ ORI also agreed
to end its pay-per-click Internet advertising, increase its return policy from
30 to 45 days to claim a refund, and use “best efforts“ to “eliminate all
testimonials created prior to January 1, 2010.”
Objectors argued that the injunctive relief was illusory; on
this record, the court of appeals agreed. 
Adding language about how “study participants” had been helped by
Lipozene wasn’t helpful in correcting the allegedly false claims.  Nor was changing that  Lipozene has “effectively helped millions of
people”  to Lipozene has “effectively
helped countless people.”  There was no
evidence that the extra 15 days in the return period offered any material
benefit to consumers.  As for the
diet/exercise statement, ORI was already working under a stipulated judgment
with the FTC prohibiting ORI from representing that Lipozene or MetaboUp
products “[c]auses rapid or substantial weight loss without the need to reduce
caloric intake or increase physical activity.” Requiring ORI to obey an
existing judgment didn’t add value.

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