Antitrust Law Daily Wrap Up, ADVERTISING—E.D. Ill.: Final settlement approval and attorneys’ fees award granted in action over joint health dietary supplement labeling, (Jan 6, 2014)

By Linda O’Brien, J.D., LL.M.

In a class action against three marketing and distributing companies for allegedly falsely labeling their joint health dietary supplements, the plaintiffs established that the proposed settlement was fair, reasonable, and adequate and that they were entitled to an award of attorneys’ fees, the federal district court in Chicago has ruled. (Pearson v. NBTY, Inc., January 3, 2014, Zagel, J.).

NBTY, Inc., Rexall Sundown, Inc. and Target Corp. are in the business of marketing, selling and distributing numerous products, including the “Up and Up” brand of joint health dietary supplements with the active ingredients of glucosamine and chondroitin. Consumers filed an action against the defendants alleging that the labeling of the products made representations of its beneficial effects on joint health. The plaintiffs claimed to have purchased the products based on the representations and did not experience any of the beneficial effects. A preliminary approval order of the proposed class action settlement was entered in May 2013. Objections to the proposed settlement were subsequently filed.

Pursuant to the agreement, the defendants would create a constructive fund for the class who will receive notice either by publication or by direct, individual notice. The settlement guarantees $2 million to the fund, with any unclaimed funds remitting to a cy pres fund, and includes funds for incentive awards, and costs for notices and attorneys’ fees. The injunctive relief would be provided in the form of labeling changes on the defendants’ products.

Reasonableness of the settlement. The settlement was fair, adequate, and reasonable, and the result of protracted, arm’s length negotiations, according to the court. The class action litigation involved numerous complex legal, factual, and scientific issues, including disputed scientific literature and medical studies regarding the benefits of glucosamine and chondroitin. In the absence of settlement, the plaintiffs would be required to pursue extensive litigation to secure a finding of liability, causation, and damages. Extensive discovery had been completed and provided the plaintiffs a thorough record upon which to evaluate the case and determine that the settlement was in the best interests of the class.

The court also found that, although the actual benefit to the class was a fraction of the available constructive fund, the settlement provided adequate economic recovery by the claimants in light of the costs, likelihood of additional relief, and uncertainty of continued litigation.

Attorneys’ fees and costs. An award of attorneys’ fees is generally based on the value of the settlement as a whole and not only on the portion of the fund actually claimed by class members. Since the primary benefit to the class was the creation of a constructive common fund, an initial calculation of attorneys’ fees based on a percentage-of-recovery method was appropriate. In this case, the attorneys’ fees constituted approximately 22% of the total direct monetary benefit to the class. The court also utilized the “lodestar” method and multiplied the number of hours the plaintiffs’ counsel reasonably expended on the litigation by a reasonable hourly rate for region and the experience of the attorneys. Due to the low actual relief secured by the class members and lack of other meaningful benefit to compensate the class for past injuries, the court compared the percentage-of -recovery and lodestar methods and awarded attorneys’ fees exclusively for securing the common fund. Although the cy pres fund and injunctive relief created a benefit to the general public and future glucosamine consumers, it did not directly benefit class members and was not a key factor in determining the fairness of the settlement or the calculation of the attorneys’ fee award, the court concluded.

The case is No. 11 CV 7972.

Attorneys: Stewart M. Weltman (Stewart M. Weltman, LLC) for Nick Pearson. Bradley Joseph Andreozzi (Drinker Biddle & Reath LLP) for Target Corp., NBTY, Inc. and Rexall Sundown, Inc.

Companies: Target Corp.; NBTY, Inc.; Rexall Sundown, Inc.

Cases: Advertising IllinoisNews