Antitrust Law Daily Wrap Up, ADVERTISING—S.D. Cal.: Hydroxycut settlement approval denied due to inadequate cy pres remedy, (Nov 22, 2013)

By Linda O’Brien, J.D., LL.M.

In multi-district litigation against a manufacturer of dietary supplements for false advertising claims, the federal district court in San Diego has denied the plaintiffs’ motion for final approval of the class action settlement finding that the cy pres distribution fund did not provide an indirect benefit to the entire class. (In re Hydroxycut Marketing and Sales Practices Litigation, November 19, 2013, Moskowitz, B.).

Iovate Health Sciences U.S.A., Inc. manufactures the Hydroxycut brand dietary supplement products. A putative class of consumers alleged that Iovate made misrepresentations that the Hydroxycut products were clinically proven to be safe and effective for weight loss and that the products caused certain health problems.

The parties entered into a settlement, consisting of a $10 million cash component and a $10 million product component, under which class members could opt to receive a cash amount or a product bundle for each Hydroxycut product they had purchased. Any amounts remaining the cash or product component would be added to a residual settlement amount pursuant to the cy pres doctrine. Class members who alleged personal injury resulting from ingestion of Hydroxycut products could submit a residual settlement claim form if they were a party to a settlement or final judgment. The claim would be paid from the residual settlement amount fund on a first-come, first-served basis until the amount was exhausted.

The court found that the distribution provisions of the settlement did not satisfy the standards for cy pres relief set forth by the Ninth Circuit and, therefore, the settlement was not fair, adequate, and reasonable. The cy pres doctrine allows the court to distribute unclaimed or undistributed portions of a class action settlement fund to indirectly benefit the entire class. The Ninth Circuit held in Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301 (1990), that a cy pres distribution must be guided by the objectives of the underlying statute and the interests of the silent class.

In this case, the cy pres remedy allowed for a grossly disproportionate distribution of settlement funds to personal injury claimants. The personal injury claimants made up only a small fraction of the overall class, most of which did not suffer any personal injury. Additionally, the nature of the action concerned unfair competition, consumer protection, and product warranty claims - not personal injury liability. The court also rejected the plaintiffs’ argument that the facilitation of the settlement of this action and separate personal injury actions was the type of indirect benefit to the entire class that cy pres remedies were intended to provide. Finally, the parties failed to claim that it would be economically infeasible to make further individual distributions after the cash and product bundle amounts were distributed.

The cases are No. 09md2087 (BTM) (KSC) and 09cv1088 (BTM) (KSC).

Attorneys: Gayle M. Blatt (Casey, Gerry, Schenk, Francavilla, Blatt & Penfield LLP), John C. Thornton (Andrews and Thornton), Patricia N. Syverson (Bonnett, Fairbourn, Friedman & Balint, PC), Roger W. Orlando (The Orlando Firm PC) for Cody Coleman. Alexandria Armida Amezcua (Morrison & Foerster LLP), Beverly Klundt Baudouin (Baldwin, Haspel, Burke & Mayer, LLC), Daniel R. Johnson (Cozen O’Connor) for Iovate Health Sciences U.S.A., Inc.

Companies: Iovate Health Sciences U.S.A., Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews