Flush With Success

The United States Court of Appeals for the Second Circuit vacated and remanded an approved class action settlement that had awarded approximately $3.1 million in attorney’s fees

To be clear: we offer no opinion as to whether the settlement in this instant case is fair under Rule 23(e) or not. That decision remains within the district court’s discretion, and we explicitly leave open the possibility that after applying Rule 23(e) and comparing the allocation of attorney’s fees to class recovery, the district court may again conclude that this settlement is fair and approve it. After all, the impact of attorney’s fees on class relief is just one of multiple factors detailed in Rule 23(e). Our holding today that a court must consider this factor does not render it singularly dispositive. Alongside providing a class with compensation, class action lawsuits fulfill significant deterrence functions in service of the public. When properly earned, substantial payments to attorneys  can help serve that function. As a result, even settlements that grant a substantial proportion of monetary recovery to class counsel may ultimately be fair upon consideration of all the requisite factors.

The case

Plaintiffs Gladys Honigman and D. Joseph Kurtz brought two separate class action lawsuits against Defendant Kimberly-Clark Corporation, each alleging that Defendant had falsely advertised their moist bathroom wipes as “flushable.” According to Plaintiffs, this led purchasers to pay an unjustified price premium for the product and to flush the wipes, causing plumbing damage. After years of litigation, Plaintiffs, on behalf of themselves and all class members, entered into a shared Settlement Agreement (“Agreement”) with Defendant in 2022.

Under the Agreement, Defendant agreed to pay up to $20 million in compensation to the class, defined as “all individuals over the age of 18 who purchased the [wipes] not for the purpose of resale” between 2008 and 2022. App’x 355, 356. Class members could claim as much as $50.60 with proof of purchase and as much as $7.00 without a receipt. In exchange, the class would release Defendant from all liability to class members stemming from the wipes aside from any personal injury claims. Defendant also agreed to pay up to $4.1 million in attorney’s fees and expenses, separate from the $20 million set aside for possible class recovery.

Below

Ultimately, the district court found that the settlement was fair under Rule 23(e)(2), Moses, and the Grinnell factors.

…It then proceeded to consider class counsel’s motion for attorney’s fees, and awarded counsel approximately $3.1 million, a reduction from the $3.9 million that had been requested. Id. at *17.2 This portion of the court’s decision, in which it calculated the attorney’s fees under Rule 23(h), is not before us on appeal.

A class member appealed. (Mike Frisch)