Antitrust Law Daily Wrap Up, ADVERTISING—D.D.C.: Class settlement approval denied in action over hair product labeling, (Nov 8, 2013)

By Linda O’Brien, J.D., LL.M.

In a class action against a beauty product manufacturer for allegedly falsely and deceptively labeling their hair products, the plaintiffs did not meet the prerequisites of class cohesivness or show that the proposed settlement was fair, reasonable, and adequate, the federal district court in Washington, D.C. has ruled (Richardson v. L’Oreal USA, Inc., November 6, 2013, Bates, J.). Thus, the plaintiffs’ motion for conditional class certification and final approval of the settlement was denied.

Consumers filed an action seeking injunctive relief against beauty product manufacturer L’Oreal USA, Inc. (L’Oreal), alleging that the manufacturer falsely and deceptively labeled its Matrix, Biolage, Redken, Keratase, and Pureology products as available only in salons when the products could be purchased in non-salon retail businesses. The advertising of the products as such was deceptive and misleading. The plaintiffs also claimed that the salon-only label implied superior quality products and built a cachet that allowed L’Oreal to set a premium price for the products. L’Oreal responded that the products were sold outside of salons without its permission and a campaign was developed to fight the diversion. Shortly after filing the suit, the parties filed a motion for preliminary approval of their proposed settlement.

Pursuant the agreement, L’Oreal would remove the terms “salon only” from the labels of certain brands for a minimum of five years. A release contained in the agreement provided that the company would be released from all class actions arising from the conduct at issue but not be released from such individual actions. The agreement also provided for the payment of attorney fees and incentive awards for each class representative. A class member represented by the Center for Class Action Fairness (CCAF) timely filed an objection to the class certification and settlement approval.

Standing for injunctive relief. The plaintiffs had standing to seek injunctive relief as they established the required likelihood of a particular future injury, according to the court. Although the plaintiffs did not specifically state in their complaint that they would purchase L’Oreal products in the future, they did include allegations of continuing and future harm based on the defendant’s representations. The court, in rejecting CCAF’s argument that the plaintiffs’ knowledge of the alleged deception precluded future injury, found that consumers would be harmed without an injunction by an inability to rely with confidence on the “salon-only” label.

Conditional class certification. It was undisputed that L’Oreal sold the products at issue to thousands of members of the putative settlement class. The plaintiffs demonstrated that (1) their claims were based on the common contention that L’Oreal sold each class member products with false or misleading labels, (2) the claims of the named plaintiffs and each class member was based on the same core set of facts and underlying legal theories, and (3) the class representatives could fairly and adequately protect the interests of the class, according to the court. However, the court concluded that the proposed class did not meet the requirements of Federal Rule of Civil Procedure 23(b)(2) because the release in the settlement agreement for class-wide damages effectively precluded individual damages claims due to the low dollar amounts of consumer purchases. Although the named plaintiffs did not seek damages, the class action claim was essentially the only way absent class members could recover any damages in these circumstances. Additionally, since the court could not determine that the class damages claims released in the settlement agreement were meritless, preventing absent class members from asserting damage claims without their knowledge or consent was improper. Further, the intra-class conflict between the interests of mass-market purchasers from salon purchasers demonstrated a lack of class cohesiveness.

Fairness of the settlement. The plaintiffs also failed to demonstrate that the proposed settlement was fair, reasonable, and adequate. The allocation of the benefits of the settlement were disproportionate in that the class members received injunctive relief while surrendering any class-wide damages claims and the plaintiffs’ counsel received a large amount of attorney fees when the class representatives received $1,000 each. The small number of objections to the settlement and low value of the class-wide damages claim were insufficient to show that the settlement was fair, according to the court.

The case is No. 13-508.

Attorneys: Michael D. Lieder (Mehri & Skalet, PLLC) for Alexis Richardson. Daniel Seth Ruzumna (Patterson Belknap Webb & Tyler, LLP) for L’Oreal USA, Inc.

Companies: L’Oreal USA, Inc.

Cases: Advertising DistrictofColumbiaNews