697 F.3d 858 (9th Cir. 2012), 11-55674, Dennis v. Kellogg Co.

Docket Nº:11-55674, 11-55706.
Citation:697 F.3d 858, 83 Fed.R.Serv.3d 461
Opinion Judge:TROTT, Circuit Judge:
Party Name:Harry DENNIS; Jon Koz, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, v. KELLOGG COMPANY, a Delaware corporation, Defendant-Appellee. Stephanie Berg, Objector-Appellant, Harry Dennis; Jon Koz, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees, Omar Rivero, Objector-Appellant, v. Kellog
Attorney:Joseph Darrell Palmer and Janine R. Menhennet, Law Offices of Darrell Palmer PC, Solana Beach, CA, and Christopher A. Bandas, Bandas Law Firm, P.C., Corpus Christi, TX, for the objectors-appellants. Timothy G. Blood, Blood Hurst & O'Reardon LLP, San Diego, CA, for the plaintiffs-appellees. Kennet...
Judge Panel:Before: Stephen S. Trott and Sidney R. Thomas, Circuit Judges, and Kevin Thomas Duffy, District Judge.[*]
Case Date:September 04, 2012
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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697 F.3d 858 (9th Cir. 2012)

83 Fed.R.Serv.3d 461

Harry DENNIS; Jon Koz, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees,

Stephanie Berg, Objector-Appellant,

v.

KELLOGG COMPANY, a Delaware corporation, Defendant-Appellee.

Harry Dennis; Jon Koz, on behalf of themselves and all others similarly situated, Plaintiffs-Appellees,

Omar Rivero, Objector-Appellant,

v.

Kellogg Company, a Delaware corporation, Defendant-Appellee.

Nos. 11-55674, 11-55706.

United States Court of Appeals, Ninth Circuit.

September 4, 2012

Argued and Submitted June 7, 2012.

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[Copyrighted Material Omitted]

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Joseph Darrell Palmer and Janine R. Menhennet, Law Offices of Darrell Palmer PC, Solana Beach, CA, and Christopher A. Bandas, Bandas Law Firm, P.C., Corpus Christi, TX, for the objectors-appellants.

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Timothy G. Blood, Blood Hurst & O'Reardon LLP, San Diego, CA, for the plaintiffs-appellees.

Kenneth K. Lee, Jenner & Block LLP, Los Angeles, CA, and Richard P. Steinken, Jenner & Block LLP, Chicago, IL, for the defendant-appellee.

Appeal from the United States District Court for the Southern District of California, Irma E. Gonzalez, Chief District Judge, Presiding. D.C. No. 3:09-cv-01786-IEG-WMC.

Before: Stephen S. Trott and Sidney R. Thomas, Circuit Judges, and Kevin Thomas Duffy, District Judge.[*]

ORDER

The Opinion filed July 13, 2012, slip op. 8109, and appearing at 687 F.3d 1149 (9th Cir.2012), is withdrawn. It may not be cited as precedent by or to this court or any district court of the Ninth Circuit.

With the Opinion withdrawn, the Plaintiffs-Appellees' petition for rehearing and petition for rehearing en banc are moot. The parties may file a petition for rehearing or a petition for rehearing en banc regarding the Opinion filed concurrently with this Order.

OPINION

TROTT, Circuit Judge:

Most cases in our judicial system never make it to trial. Litigants often find it advantageous to secure a resolution more quickly by settling the case and negotiating a result the parties can tolerate, even though neither side can call it a total win. Normally, that is the end of the story, and the parties walk away— not entirely happy, but not entirely unhappy either.

In a class action, however, any settlement must be approved by the court to ensure that class counsel and the named plaintiffs do not place their own interests above those of the absent class members. In this false advertising case, we confront a class action settlement, negotiated prior to class certification, that includes cy pres distributions of money and food to unidentified charities. It also includes $2 million in attorneys' fees while offering class members a sum of (at most) $15.

After carefully reviewing the class settlement, we conclude that it must be set aside. The district court did not apply the correct legal standards governing cy pres distributions and thus abused its discretion in approving the settlement. The settlement neither identifies the ultimate recipients of the product and cash cy pres awards nor sets forth any limiting restriction on those recipients, other than characterizing them as charities that feed the indigent. To the extent that we can meaningfully review such distributions where the parties fail to identify the recipients, we hold that both cy pres portions of the settlement are not sufficiently related to the plaintiff class or to the class's underlying false advertising claims. Moreover, the $5.5 million valuation the parties attach to the product cy pres distribution is, at best, questionable. We therefore reverse the district court's approval of the settlement, vacate the judgment and the award of attorneys' fees, and remand for further proceedings consistent with this opinion.

I

BACKGROUND

In January 2008, Kellogg Co., the maker of Frosted Mini-Wheats cereal, began a

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marketing campaign that claimed the cereal was scientifically proven to improve children's cognitive functions for several hours after breakfast. Obviously aimed at parents of school-age children, Kellogg's advertisements allegedly included the following statements:

• " Does your child need to pay more attention in school? ... A recent clinical study showed that a whole grain and fiber-filled breakfast of Frosted Mini-Wheats® helps improve children's attentiveness by nearly 20%."

• " Kellogg recently commissioned research to measure the effect on kids of eating a breakfast of Frosted Mini-Wheats® cereal. An independent research group conducted a series of standardized, cognitive tests on children ages 8 to 12 who ate either a breakfast of Frosted Mini-Wheats® cereal or water. The result? The children who ate a breakfast of Frosted Mini-Wheats® cereal had a nearly 20% improvement in attentiveness."

• " Based upon independent clinical research, kids who ate Kellogg's® Frosted Mini-Wheats® cereal for breakfast had up to 18% better attentiveness three hours after breakfast than kids who ate no breakfast."

According to a declaration submitted by lead counsel for the plaintiff class, counsel began investigating these marketing claims and, in April and May 2009, drafted a class action complaint on behalf of Ohio resident Jon Koz, alleging violations of Ohio consumer protection laws. Around the same time, another law firm was investigating the same marketing claims on behalf of California resident Harry Dennis. Although Mr. Koz never filed his Ohio complaint, Mr. Dennis filed suit in August 2009 against Kellogg in the United States District Court for the Southern District of California, alleging violations of that state's Unfair Competition Law (UCL) and asserting a claim of unjust enrichment.

Sometime prior to January 2010, counsel for Koz and counsel for Dennis discovered they were involved in similar activities and decided to join forces. Because informal settlement attempts were unsuccessful, counsel for the consumers and for Kellogg participated in a day-long mediation session with Martin Quinn of JAMS, a well-established alternative dispute resolution firm. As a result of this mediation session and numerous other settlement discussions, the parties agreed, in principle, to settle the case.

Meanwhile, the Dennis lawsuit had been gathering dust. On June 22, 2010, the district court notified the parties of its intent to dismiss the case for lack of prosecution. Koz and Dennis immediately filed a joint amended class action complaint.

In their amended complaint, the named plaintiffs (" Plaintiffs" ) asserted that Kellogg's marketing claims regarding the effect of Frosted Mini-Wheats on children's attentiveness were false, that the study upon which these results were based did not support the company's claims, and that the study was not scientifically valid. The Plaintiffs asserted unjust enrichment, claims under the UCL and California's Consumer Legal Remedies Act (CLRA), and claims under " similar laws of other states."

Over the next three months, the parties continued to work out the details of their settlement. Ultimately, they agreed to settle the case on the following terms:

• Kellogg agreed to establish a $2.75 million settlement fund for distribution to class members on a claims-made...

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