The Ninth Circuit’s June 2021 decision in Briseño v. Henderson, which reversed and remanded a claims-made settlement involving the ConAgra-owned Wesson Oil’s use of a “100% natural” label, attracted attention for its colorful language, including pop culture references to Star Wars, Matthew McConaughey, and The Bachelor (among others). But its import for the class action bar had more to do with its holding: that district courts must apply Bluetooth’s heightened scrutiny to post-class certification settlements in assessing whether the division of funds between class members and their counsel is fair and adequate.
Under Bluetooth, courts are directed to analyze three factors, each of which can signal the possibility of a collusive settlement: (1) when counsel receives a disproportionate distribution of the settlement; (2) when the parties negotiate a “clear sailing arrangement;” and (3) when the agreement contains a “kicker” or “reverter” clause that returns unawarded fees to the defendant rather than the class. The Ninth Circuit found that the Briseño settlement “presented a Murderers’ Row of provisions out of left field that seemingly favor class counsel and the defendant at the expense of the class members.”
Specifically, these provisions included:
- The class ultimately receiving approximately $1 million in benefits while class counsel received approximately $7 million in attorneys’ fees and expenses;
- Both a clear sailing provision and a “kicker” clause; and
- Injunctive relief that amounted to the sleeves off ConAgra’s vest, with ConAgra promising not to use the “100% natural” label on its Wesson Oil products even though ConAgra had actually sold the Wesson brand.
Notwithstanding the foregoing, the Ninth Circuit stated that any and/or all the Bluetooth factors may, depending on the circumstances, “be elements of a good deal,” noting that it does not “seek to make any of the identified signs of collusion an independent basis for withholding settlement approval.” Accordingly, the Ninth Circuit ordered the district court to “give a hard look at the settlement agreement to ensure that the parties have not colluded.”
And yet, a funny thing happened on the way back to the district court. Rather than scrapping the settlement, the parties appear to be fighting to save it, warts and all. On September 8, 2021, at the request of the parties, Magistrate Judge Douglas McCormick, who served as a settlement judge in Briseño, filed a declaration with the trial court highlighting his work in helping the parties reach a negotiated agreement, including a few candid observations on the litigation:
- He spent approximately 100 hours on the case;
- Class counsel believed that the litigation was the impetus for ConAgra removing the 100% natural label from the product, and Judge McCormick thought “this would be a vigorously contested issue of fact” for either the judge or jury to resolve;
- Judge Morrow’s 140-page class certification order, which certified 11 statewide classes with several different class periods, would pose significant problems for Judge Carney (who took over the case after Judge Morrow’s retirement) and might be considered “impractical,”
- He viewed plaintiffs’ mislabeling claims “skeptically,” and
- He concluded that the parties were far apart on the amount of attorneys’ fees, so he made a “court proposal” that (i) set attorneys’ fees and expenses of $6.85 million; and (ii) valued injunctive relief at $27 million, to which both parties agreed.
Also of note, Judge McCormick conceded that he “did not at the time of the negotiations view [his] role as a settlement judge as reaching the issue of whether the settlement should be approved by the Court as fair, reasonable, and adequate,” stating that those questions “are properly resolved by the assigned district judge and they are not within my purview as the settlement judge.” And with respect to possible collusion, while Judge McCormick acknowledged that parties “should not be permitted to use the involvement of a sitting judicial officer to insulate a settlement” from review, he stated that he “saw nothing in the parties’ conduct…to indicate that they were colluding at the class members’ expense,” noting that the parties negotiated their positions “vigorously,” with nearly every settlement term being “the result of several rounds of proposals and counter-proposals.”
Where this case goes from here is anyone’s guess. Will Judge Carney find Magistrate Judge McCormick’s diligence sufficient to cleanse the settlement from charges of collusion? Or will Judge Carney find the “squadron of red flags billowing in the wind,” as the Ninth Circuit put it, too much to overcome and send the parties back to the drawing board? One thing is certain: Risk Settlements will continue to monitor the developments on these important issues.
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