SAN DIEGO (Legal Newsline) - This week, a California federal court rejected a settlement in a class action brought over the marketing of homeopathic products, saying the proposed deal would have given class attorneys more than half a million dollars while class members would have been left with nothing.
Judge Cynthia Bashant, for the U.S. District Court for the Southern District of California, rejected the settlement in Allen v. Similasan. The underlying lawsuit alleges that Similasan, with an office in Colorado, falsely marketed its homeopathic products -- ear drops, eye drops and cough remedies -- as “naturally effective and safe” and violated Food and Drug Administration regulations, among other claims.
The rejected settlement purported to require Similasan to make label changes and maintain a website concerning homeopathic “dilution principles.” No unnamed class members would have received any compensation under the rejected agreement.
“The Court recognizes that this Settlement is the culmination of a hard-fought battle over four years resulting in extensive attorney hours and costs. The Court further recognizes that Plaintiffs were facing a Motion for Class Decertification and a Motion for Summary Judgment, and that Plaintiffs were aware of a recent spate of defense verdicts on similar claims relating to homeopathic products,” Bashant wrote in the 10-page order. “The Court understands that this case was settled on the eve of trial after parties and counsel fully understood the strengths and weaknesses of their case. And the Court concedes that the extensive experience of Plaintiffs’ counsel militates in favor of approving the Settlement.
“However, when assessing the Settlement Agreement as a whole, the Court has several concerns.”
As pointed out by the attorneys general of Arizona, Arkansas, Louisiana, Michigan, Nebraska, Nevada, Texas and Wyoming in a July 28 brief filed with the federal court, urging the court to reject the settlement, only the named plaintiffs and their attorneys would get any money out of the deal.
“The named Plaintiffs will receive $2,500, well more than they spent on the offending products,” Bashant wrote. “Additionally, the proposed injunctive relief may only benefit a small number of the class members and instead seems to be more tailored to future purchasers.”
The judge noted that the court already has dismissed injunctive relief claims on behalf of the named plaintiffs, since it was “highly unlikely” they would buy the offending products in the future, given their allegations that the products were not and could not ever be effective.
“Ultimately, however, these factors are not what the Court finds dispositive,” Bashant wrote. “Attorneys may, after all receive fees and costs for obtaining injunctive relief using a lodestar method even if there is no financial recovery for the class.
“Although the Court has not thoroughly scrutinized the attorneys’ fees request in this case, the overall amount does not appear unreasonable given the amount of time and effort put into the litigation thus far.”
The judge said she recognized that one of the goals of the litigation was to force Similasan to change its labels and join other homeopathic drug manufacturers who had voluntarily agreed to include an FDA disclaimer on their labels.
But Bashant said what “tipped the balance” for the court and ultimately forced her to conclude the settlement is not fair are the broad release provisions in the settlement agreement.
“When the broad release provisions in this Settlement Agreement are coupled with a large broadening of the class description so that now a nationwide class of users is releasing its claims instead of a California-only class, it appears that this Settlement is crafted to provide protection to Similasan and not to benefit the unnamed Plaintiffs,” she wrote.
“As explained in the Opposition filed by the Attorneys General, ‘all class members are giving up all of their non-personal injury monetary claims against Defendant without receiving any compensation different from the public at large.’”
The court’s concerns about the release provision are compounded, Bashant said, by the limited notice provided to the class members in this case.
“Counsel provides no evidence of how many class members who had actually purchased a Similasan product are likely to have received notice,” the judge wrote. “The Court sincerely doubts that the vast majority of these class members know they are giving up rights by remaining in the class.”
The Competitive Enterprise Institute, a non-profit public policy organization, led the objection battle over the settlement.
CEI objected to the settlement on behalf of a class member on July 1, taking issue with the $545,00 payday for class attorneys and no compensation for class members.
“Only the defendant and the class attorneys would have benefited under the proposed settlement,” Ted Frank, director of CEI’s Center for Class Action Fairness, said in a statement. “That’s why we objected, and it’s why eight state AGs supported our objection.”
The federal court agreed with CEI’s objection that unnamed class members “would be better off opting out” of the rejected settlement because they would receive exactly the same alleged benefit either way.
The court denied both the settlement and the motion for attorneys’ fees.
Unless they appeal, the parties will resume preparation for trial in the underlying case.
“The parties might settle again,” Frank said, “but hopefully they will not again bargain away the rights of absent class members.”
From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.