Further, the court noted, the settlement granted the attorneys a “disproportionate distribution of the settlement” compared to the benefits provided to the class of plaintiffs. The$2 million to $15 ratio made that a pretty easy decision. The ruling is sure to improve the attentiveness of plaintiffs’ lawyers.
The fact that a lower court approved this lopsided settlement illustrates the problems that exist with federal judges who will rubber-stamp almost any settlement to get rid of a case on their docket, no matter how unfair and harebrained it is. This settlement in particular resulted in a “vaporous benefit” to consumers and was “flawed at its core,” according to the Ninth Circuit.
The court also found that the cy pres award violated Ninth Circuit rules. Cy press awards are made “where the proof of individual claims would be burdensome or distribution of damages costly.” However, it must qualify as “the next best distribution” to giving the funds directly to class members. So there must be a “driving nexus between the plaintiff class and the cy pres beneficiaries.” This proposed award to unnamed charities had nothing to do with the underlying lawsuit even though the plaintiffs’ lawyers amusingly claimed that donating food to charities related to the underlying class claims because the case was about “the nutritional value of food.” As the court concluded, that was “simply not true,” since the case against Kellogg made no claims that Frosted Mini-Wheats were “unhealthy or lacked nutritional value.” It was about supposed misrepresentation on just how much the cereal improved attentiveness.
These types of cy press awards have become a favorite vehicle for the tort bar to finance and award their favorite charities and advocacy groups. Cy press awards should be eliminated almost entirely. If the members of a class of plaintiffs who have supposedly been injured cannot be identified or their damages are so slight that the cost of notifying them of a settlement or providing them with damages far outweighs the injury, the courts should not approve a settlement of funds to organizations unrelated to the lawsuit. They should dismiss the case. Cy pres awards are constantly abused and should be very rarely, if ever, approved.
Dennis v. Kellogg Company exemplifies the type of wasteful class action lawsuits that are continually being filed against American businesses in what amounts to legally sanctioned extortion. No wonder we have the most expensive and wasteful tort system in the industrialized world. It imposes huge and unnecessary costs on the entrepreneurs both large and small (not to mention their shareholders) who are the backbone of our economy.