In re Baby Prods. Antitrust Litig.

• Decision Date: 19 February 2013
• Docket Number: 12–1166,Nos. 12–1165,12–1167.,s. 12–1165
• Citation: 708 F.3d 163
• Parties: In re BABY PRODUCTS ANTITRUST LITIGATION. Kevin Young, Appellant (No. 12–1165) Clark Hampe, Appellant (No. 12–1166) Allison Lederer, Appellant (No. 12–1167).
• Court: U.S. Court of Appeals — Third Circuit

708 F.3d 163

In re BABY PRODUCTS ANTITRUST LITIGATION. Kevin Young, Appellant (No. 12–1165) Clark Hampe, Appellant (No. 12–1166) Allison Lederer, Appellant (No. 12–1167).

Nos. 12–1165, 12–1166, 12–1167.

United States Court of Appeals, Third Circuit.

Argued Sept. 19, 2012.

Opinion filed: Feb. 19, 2013.

Christopher M. Arfaa, Esquire, Littleton Joyce Ughetta Park & Kelly, Radnor, PA, Theodore H. Frank, Esquire, (Argued), Center for Class Action Fairness, Washington, DC, Daniel Greenberg, Esquire, Little Rock, AK, for Appellant Kevin Young.

Christopher A. Bandas, Esquire, Bandas Law Firm, Corpus Christie, TX, for Appellant Clark Hampe.

James H. Price, Esquire, Lacy, Price & Wagner, Knoxville, TN, for Appellant Allison Lederer.

Theodore B. Bell, Esquire, Mary Jane E. Fait, Esquire, Wolf, Haldenstein, Adler, Freeman & Herz, Chicago, IL, Steve W. Berman, Esquire, George W. Sampson, Esquire, Anthony D. Shapiro, Esquire, Ivy A. Tabbara, Esquire, Hagens Berman Sobol Shapiro, Seattle, WA, Thomas H. Burt, Esquire, Fred T. Isquith, Esquire, Wolf, Haldenstein, Adler, Freeman & Herz, New York, NY, William G. Caldes, Esquire, Eugene A. Spector, Esquire, (Argued), Jeffrey L. Spector, Esquire, Spector, Roseman, Kodroff & Willis, Philadelphia, PA, Elizabeth A. Fegan, Esquire, Hagens Berman Sobol Shapiro, Oak Park, IL, for Appellee Carol M. McDonough.

Harry H. Rimm, Esquire, Mark L. Weyman, Esquire, (Argued), Reed Smith, New York, NY, Melissa I. Rubenstein, Esquire, Reed Smith, Philadelphia, PA, for Appellees Toys R Us Inc., Babies R Us Inc., Toys R Us Delaware Inc.

Neil E. McDonell, Esquire, Dorsey & Whitney, New York, NY, for Appellee Baby Bjorn AB.

Alexander Maltas, Esquire, Marguerite M. Sullivan, Esquire, Edward M. Williamson, Esquire, Margaret M. Zwisler, Esquire, Latham & Watkins, Washington, DC, Samuel W. Silver, Esquire, Schnader Harrison Segal & Lewis, Philadelphia, PA, for Appellee Britax Child Safety Inc.

Michael J. Hahn, Esquire, Lowenstein Sandler, Roseland, NJ, for Appellee Kids Line Inc.

Carolyn H. Feeney, Esquire, George G. Gordon, Esquire, Joseph A. Tate, Esquire, Dechert, Philadelphia, PA, for Appellee Medela Inc.

Kendall Millard, Esquire, Barnes & Thornburg, Indianapolis, IN, for Appellee Peg Perego USA Inc.

David R. Martin, Esquire, Atlanta, GA, Isaac J. Mitrani, Esquire, Mitrani Rynor & Adamsky, Miami, FL, for Appellee Regal Lager Inc.

Before AMBRO, GREENAWAY, JR., and O'MALLEY,^* Circuit Judges.

OPINION OF THE COURT

AMBRO, Circuit Judge.

We address for the first time the use of cy pres distributions in class action settlements.¹ “The term ‘cy pres' is derived from the Norman French expression cy pres comme possible, which means ‘as near as possible.’ ” Democratic Cent. Comm. v. Washington Metro. Area Transit Comm'n, 84 F.3d 451, 455 n. 1 (D.C.Cir.1996).² When class actions are resolved through settlement, it may be difficult to distribute the entire settlement fund, after paying attorneys' fees and costs along with fund administration expenses, directly to its intended beneficiaries—the class members. Money may remain unclaimed if class members cannot be located, decline to file claims, have died, or the parties have overestimated the amount projected for distribution for some other reason. It may also be economically or administratively infeasible to distribute funds to class members if, for example, the cost of distributing individually to all class members exceeds the amount to be distributed. In these circumstances, courts have permitted the parties to distribute to a nonparty (or nonparties) the excess settlement funds for their next best use—a charitable purpose reasonably approximating the interests pursued by the class.

The cy pres award in this case was part of a settlement of consolidated antitrust class actions brought by several named plaintiffs (collectively, the “Plaintiffs”) on behalf of consumers against retailers Toys “R” Us, Inc. and Babies “R” Us, Inc. along with several baby product manufacturers (the retailers and manufacturers are collectively referred to as the “Defendants”). Pursuant to that settlement, which was approved by the District Court, all settlement funds remaining after attorneys' fees and costs are paid, and individual distributions are made to claimants, would go to one or more charitable organizations proposed by the parties and selected by the Court. The Court indicated it would ensure the funds are used for a purpose underlying the interests of the class.

Kevin Young, an unnamed class member who objected to the settlement before the District Court, raises the following three issues relating to the cy pres provision on appeal.³

(1) The District Court erred in approving a settlement that would result in funds being distributed to one or more cy pres recipients in lieu of fully compensating class members for their losses.

(2) The Court should have discounted the value of the cy pres distribution for purposes of calculating attorneys' fees, which were awarded on a percentage-of-recovery basis.

(3) The class notice was deficient because it did not identify the recipients that would receive the cy pres distributions.

Young's overarching concern, and ours as well, is that the settlement has resulted in a troubling and, according to counsel for the parties, surprising allocation of the settlement fund. Cy pres distributions, while in our view permissible, are inferior to direct distributions to the class because they only imperfectly serve the purpose of the underlying causes of action—to compensate class members. Though the parties contemplated that excess funds would be distributed to charity after the bulk of the settlement fund was distributed to class members through an exhaustive claims process, it appears the actual allocation will be just the opposite. Defendants paid $35,500,000 into a settlement fund. About $14,000,000 will go to class counsel in attorneys' fees and expenses. Of the remainder, it is expected that roughly $3,000,000 will be distributed to class members, while the rest—approximately $18,500,000 less administrative expenses—will be distributed to one or more cy pres recipients.

We vacate the District Court's approval of the settlement because the Court was apparently unaware of the amount of the fund that would be distributed to cy pres beneficiaries rather than being distributed directly to the class. On remand, the Court should consider whether this or any alternative settlement provides sufficient direct benefit to the class before giving its approval. We also vacate the attorneys' fees award because its approval was based on the terms of a settlement that are no longer in effect and may be altered on remand. Addressing Young's argument that attorneys' fees should be reduced, we confirm that courts need to consider the level of direct benefit provided to the class in calculating attorneys' fees. We leave it to the District Court's discretion to assess what effect, if any, that consideration should have on any future fee award in this case. As there was no error in the notice provided to the class, we do not reverse on that basis.

I. Background

This appeal follows from two antitrust class actions consolidated for settlement purposes. In 2006, Carol McDonough and other named plaintiffs filed a suit in the United States District Court for the Eastern District of Pennsylvania alleging that Defendants conspired to set a price floor for the sale of certain baby products, causing consumers to pay increased prices for these products. In 2009, class certification of that resale-price-maintenance suit was granted and several subclasses were created based on the products purchased and the timeframe of those purchases. Because the District Court did not permit the subclass periods to extend beyond the date when the case was filed, Ariel Elliott and other named plaintiffs subsequently filed a related putative class action. In 2011, the parties in those actions signed an agreement consolidating and settling their lawsuits.

The Court initially approved the settlement in January 2011. Notice was sent to putative class members informing them of their right to submit a claim, opt out, or object. In July 2011, the Court held a fairness hearing to consider any objections made by class members. The deadline for submitting claims expired in August 2011. Approximately four months later, the Court approved the settlement and a fund allocation plan proposed by the parties. It also granted class counsel's fee request for $11,833,333.33, representing one-third of the gross settlement amount, and $2,229,775.60 for out-of-pocket litigation expenses.

Per the settlement, Defendants deposited $35,500,000 into a settlement fund. After payment of attorneys' fees and expenses, the remainder of the fund was slated for distribution to the settlement class.⁴ In order to receive a cash distribution, a claimant must demonstrate that he or she is a member of a settlement subclass by submitting a valid, sworn, and timely claim form.

Claimants are entitled to different levels of compensation based on the evidence submitted. Those who submit valid documentary proof of purchase and of the actual price paid for a product are eligible to receive 20% of the actual purchase price of each product purchased. Those who do not submit documentary proof of the actualpurchase price but submit a valid proof of purchase are eligible to receive 20% of the estimated retail price, as calculated by class counsel, of each product purchased.⁵ (The 20% figure slightly exceeds the 18% average overcharge an independent economics expert hired by class counsel estimated class members would have paid for a baby product covered by the settlement.) Those who do not submit any proof of purchase are eligible to receive a payment of $5.

Claims in the first two categories of compensation—those receiving 20% of the actual or estimated purchase price—are subject to pro rata enhancements. The settlement class is...