Antitrust Law Daily Wrap Up, ADVERTISING—D. Mass.: Shoemaker settles health benefit misrepresentation claims for $3.75M, (Jan 20, 2015)

By Greg Hammond, J.D.

A $3.75 million settlement between consumers and the maker of FiveFingers "barefoot" footwear has been approved by the federal district court in Boston. The settlement—which was found to be fair, reasonable, and adequate—disposes of claims that the shoe maker misrepresented in advertising and marketing that its footwear provides certain health benefits to wearers (Bezdek v.Vibram USA Inc., January 16, 2015, Woodlock, D.).

Background. Vibram USA Inc. and Vibram FiveFingers LLC manufacturer FiveFingers "barefoot" footwear—shoes that allegedly mimic barefoot running while providing some protection against the elements. Consumers filed a putative class action against Vibram, alleging the two companies misrepresented that wearing FiveFingers provides certain health benefits, such as muscle strengthening and more natural movement and alignment, and representing that those health benefits are supported by scientific research. The consumers’ claims were brought under Massachusetts and Florida false advertising and unfair and deceptive practices laws.

Proposed settlement. The parties subsequently reached a settlement agreement that would create a settlement fund of $3.75 million, out of which would be paid all administrative costs, attorney fees and expenses, incentive awards, necessary taxes and fees, and payments to class members. Under the agreement, class members may request a refund for each pair of eligible FiveFingers footwear purchased during the class period. In addition, Vibram agreed to take commercially reasonable efforts to discontinue certain aspects of its advertising and marketing campaign, including not making or assisting others in making, claims that the footwear is effective in strengthening muscles or preventing injury, or that it provides any health benefit, unless based on competent and reliable scientific evidence. Vibram additionally agreed to not misrepresent any contents, results, or conclusions of any study, test, or research regarding its FiveFingers footwear or similar products. The consumers moved for final approval of the proposed class action settlement.

Notice and class certification. As a preliminary matter, the court determined that notice was given to settlement class members by the best means "practicable under the circumstances." The proposed settlement class includes "all individuals who purchased certain FiveFingers footwear in the United States from Vibram and/or its authorized retailers between March 21, 2008, up to and including the date of the first dissemination of the Summary Settlement Notice or Class Notice, whichever is earlier, which has since been defined as May 27, 2014."

In certifying the class, the court found: (1) sufficient numerosity, as consumers claimed that "millions" of pairs of FiveFingers footwear were sold during the relevant period; (2) common issues of fact and law regarding the purchase of FiveFingers footwear during the relevant period, as representations made by Vibram regarding supposed health benefits that are not supported by scientific evidence, and injury; (3) typicality, as the claims of the class members arise from the allegedly false and misleading advertising and marketing materials for Vibram’s FiveFingers footwear; and (4) that the named plaintiffs and lead class counsel are adequate. In addition, the court found that the questions of law or fact common to the class members predominate over any questions affecting individual class members, noting that all class members stand to recover approximately $8.44 per pair of FiveFingers footwear purchased, which is in the range of what any class member could reasonably expect through pursuit of an individual claim. Lastly, the class action was deemed a superior means for adjudicating the consumers’ claims fairly and effectively, given the common interest across class members and the economies of time, effort, and expense that would be achieved.

Fairness. The court next considered a number of factors to determine whether the proposed settlement is fair, reasonable, and adequate. First, the court considered the consumers’ likelihood of success should the case proceed to trial, and noted that there are "two sizable hurdles" that plaintiffs must confront regarding injury and damages: (1) the consumers have the heavy burden of proving the value of the FiveFingers footwear with and without the purported health benefits, and that there is a causal connection between the decision to purchase the shoes and this loss; and (2) it is possible that the defendants could establish that the plaintiffs suffered no compensable loss by arguing that the footwear retains full value as a running shoe, regardless of the health benefits. Consequently, the court found that the consumers had some, but not an entire, likelihood of success on the merits, which favors settlement.

Second, the court found that the value of the settlement, including a refund of approximately $8.44 per pair of shoes and injunctive relief, is reasonable and appropriate in light of the uncertainty of a better outcome at trial. The court also noted that: (1) the reaction of the class settlement was "overwhelmingly positive"; (2) the parties, through meaningful discovery efforts and motion to dismiss practice, were given greater insight into the merits of the litigation for purposes of settlement; and (3) the release provided for in the proposed settlement is appropriately tailored and reasonable in light of the underlying complaints. Weighing all these factors, the court concluded that the proposed settlement is fair, reasonable, and adequate, and it therefore granted the consumers’ motion for final approval.

The court also approved the consumers’ motion for attorney fees, expenses, and service awards. Specifically, it found that the attorney fees of $937,500 were reasonable, because they represent 25 percent of the settlement fund—which falls squarely within the range of reasonable "percentage of the fund" amounts—and represents a substantial discount from the lodestar method of calculating attorney fees. Expenses of $61,674.44 were also deemed reasonable, as well as incentive awards of $2,500 for Valerie Bezdek, $2,500 for Brian DeFalco, and $1,500 for a named plaintiff in a separate, similar action.

The case number is 12-10513-DPW.

Attorneys: Janine L. Pollack (Wolf Haldenstein Adler Freeman & Herz) for Valerie Bezdek. William M. Sweetnam (Sweetnam LLC) for Brian DeFalco. Christopher M. Morrison (Jones Day) for Vibram U.S.A., LLC and Vibram FiveFingers LLC.

Companies: Vibram USA Inc.; Vibram FiveFingers LLC

Cases: Advertising StateUnfairTradePractices MassachusettsNews