Antitrust Law Daily Wrap Up, ADVERTISING—D. Minn.: Settlement of action against “natural” claims of Truvia sweetener denied, (Oct 31, 2013)

By John W. Arden, J.D., LL.M.

The federal district court in St. Paul, Minnesota has refused to give preliminary approval to a nationwide settlement in a consumer protection action, charging Cargill Incorporated with making false advertising and marketing claims about its “natural,” calorie-free sweetener, Truvia (Martin v. Cargill, Incorporated, October 29, 2013, Kyle, R.). The district court found that the record was insufficient to allow settlement approval and questioned the extent to which the settlement would benefit class members.

Background. Cargill developed Truvia to satisfy a large consumer demand for low calorie sweeteners that are “natural,” rather than artificial. In its advertising, labeling, and promotional materials, Cargill claims that Truvia is “born from the sweet leaf of the stevia plant,” which is native to South America, and is a “natural” product. However, consumers have charged that Truvia is manufactured using “a multi-step process involving the use of toxic chemicals.” Thus, the product is neither “natural” nor “born” from the stevia plant.

On February 12, 2013, Molly Martin brought an action in Minnesota state court, alleging that Cargill misrepresented the true nature of Truvia in violation of several Minnesota consumer protection statutes. She purported to represent a class of all consumers in the State of Minnesota who purchased Truvia for household use. Shortly thereafter, she voluntarily dismissed the action to allow the parties to attempt to resolve the matter through mediation. During this process, Martin’s counsel advised Cargill that it also represented a California-based plaintiff, Lauren Barry, who alleged similar claims on behalf of a nationwide class.

On July 8, 2013, a putative class action on Cargill’s labeling, marketing, and sale of Truvia was filed in the federal district court in Honolulu. Two additional nationwide class actions were filed in federal court in California and Florida.

Meanwhile, Cargill reached a settlement with the Minnesota plaintiffs, which included (1) a payment of $5.3 million to be divided pro rata by all class members and from which $1.59 million would be deducted for attorney fees and expenses; (2) an agreement to make certain changes to Cargill’s labeling and marketing of Truvia products; and (3) a release of all claims against Cargill for its advertising, marketing, or labeling of Truvia by any class member, meaning anyone who purchased Truvia products nationwide since July 2008. There was no indication in the record that the Hawaii court, the Hawaii plaintiff, or her counsel was advised of this settlement.

On September 18, 2013, Martin and others commenced this action in federal district court and, on the very next day, filed the motion to preliminarily approve the settlement and certify a settlement class. Cargill filed a motion to enjoin all pending and future cases brought by settlement class members concerning the Truvia product. Only then were the Hawaii court and plaintiff notified of the settlement. The federal district court in St. Paul required the parties to the settlement to notify the parties in other actions about the pendency of the motions, in order to allow them the opportunity to object. The court received one objection, from the Hawaii plaintiff.

Under Federal Rule of Civil Procedure 23(e), the settlement of a class action requires court approval, which may issue only after a hearing and a finding that the settlement is fair, reasonable, and adequate. At the first stage, parties must submit the proposed settlement, and the court must make a preliminary fairness evaluation. If the proposed settlement is preliminarily acceptable, the court then directs that a notice be sent to absent class members to afford them the opportunity to object or opt out of the settlement.

Sufficiency of the record. Although the district court recognized the strong public policy in favor of encouraging settlements, it nevertheless found that the present record was insufficient to allow preliminary approval of the settlement.

“The primary problem with the parties’ submissions is that they provide almost no information enabling the Court to gauge the value of the proposed class’s claims and, hence, the fairness and adequacy of the settlement,” the court noted. There was little evidence from which the court could make a “ballpark valuation” of the strength of the case on the merits and the probability of a favorable outcome. While the plaintiffs estimated the national class of purchasers of Truvia at 5 million people, there was no indication about the number of purchases and the amount allegedly “overpaid” based on Cargill’s representations.

Plaintiffs’ counsel argued that the “premium” paid by consumers, based on the misrepresentations, amounted to a dollar or two per purchase. If each of the 5 million class members purchased only one Truvia product, the total damages would be between $5 million and $10 million, the court reasoned. Plaintiffs had further argued that the class members would not have purchased the product at all, but for the false claims. This argument suggested damages closer to $30 million for the class, assuming that each class member made only one purchase. Plaintiffs, however, alleged that some class members bought 12 or more packages of Truvia.

“The possible universe of damages, therefore, is quite broad, ranging from $5 million on the low end to well over $100 million on the high end (assuming multiple purchases by many class members at $6 each),” the court observed.

Furthermore, the parties provided nothing but generalities about the relative strengths and weaknesses of the class claims against Cargill’s potential defenses. Thus, the record made it nearly impossible for the court to compare the value of the proposed settlement with a reasonable estimate of the class’s likely recovery. “The Court cannot approve a settlement on such a rocky foundation.”

Benefit to class members. The fact that the proposed settlement contemplated a $5 million payout, to be reduced by up to $1.59 million in attorney fees and costs, made the court question whether it was sufficient to actually benefit the up to 5 million class members. If the settlement fund did not contain enough to pay class members the $10 to $72 contemplated by the settlement, each class member’s claim would be reduced on a pro rata basis.

Overlapping cases. The overlapping nature of the classes in this litigation and the Hawaii action suggested that the district court should apply the “first-filed” rule and dismiss, stay, or transfer the action to the federal district court in Hawaii.

Thus, the court denied the motions for preliminary approval of the settlement and for a stay of litigation in all other courts. It further ordered the parties to show cause in writing, on or before November 13, 2013, why this action should not be dismissed, stayed, or transferred to Hawaii.

The case is Civ. No. 13-2563 (RHK/JJG).

Attorneys: Melissa W. Wolchansky (Halunen & Associates) and Michael R. Reese (Reese Richman, LLP) for Molly Martin and Lauren Barry. Jan M. Conlin (Robins Kaplan Miller & Ciresi LLP) for Cargill, Incorporated.

Companies: Cargill, Incorporated

Cases: Advertising MinnesotaNews