Antitrust Law Daily Wrap Up, ADVERTISING—WDKy: $40 Million Settlement Approved in Litigation Against Skechers over Shoe Advertising, (May 14, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Louisville, Kentucky has approved a $40 million settlement of multidistrict litigation alleging that Skechers U.S.A., Inc. deceptively advertised certain shoes it sold as providing fitness benefits they were not proven to have (In Re: Skechers Toning Shoe Products Liability Litigation, May 10, 2013, Russell, T.).

On June 18, 2010, a putative class action complaint was filed in the federal district court in San Diego, alleging that Skechers promoted its Shape-ups, tone-ups, Skechers Resistance Runner, and Shape-ups Toners shoes as providing a variety of health benefits, including improving posture, promoting weight loss, strengthening the back, improving blood circulation, promoting sleep, reducing stress, reducing physical stress on joints, and burning calories. Skechers also allegedly advertised that clinical studies had proven that the shoes had certain of those benefits. The complaint asserted claims for violation of California’s Consumers Legal Remedies Act, violation of California’s Unfair Competition Law, and breach of express warranty.

The case was later consolidated in the federal district court in Louisville with other lawsuits asserting claims over Skechers’ advertising and product liability claims alleging injuries sustained from wearing the shoes. On May 16, 2012, the court granted the motion of the plaintiffs in the advertising litigation to preliminarily certify a nationwide class and to preliminarily approve a settlement agreement. In the present decision, the court addressed the plaintiffs’ motion for final approval of the class action settlement and for attorneys’ fees and expenses.

Final approval of settlement. The settlement establishes a $40 million fund to resolve the class claims, with any balance that may remain to be paid to the Federal Trade Commission. The settlement also enjoins Skechers from "mak[ing] any claim that the toning shoes provide certain health benefits unless supported by scientific evidence substantiating those claims," among other changes to its advertising.

The plaintiffs sent class notice to more than 250,000 potential class members through direct mail, and provided notice though a variety of media, resulting in over 520,000 claims submitted by class members, a notice program the court considered adequate. The court rejected objections by individuals to the settlement, noting that reimbursing the full purchase price would consume the settlement fund too quickly and overcompensate class members, that claims that Skechers’ shoes performed as promised did not constitute objections to the settlement, and that the settlement here did not affect the ability of class members to pursue personal injury claims against Skechers.

The court proceeded to address the fairness, reasonableness, and adequacy of the settlement, noting that the Sixth Circuit employs seven factors for making that determination, including "(1) the risk of fraud or collusion; (2) the complexity, expense and likely duration of the litigation; (3) the amount of discovery engaged in by the parties; (4) the likelihood of success on the merits; (5) the opinions of class counsel and class representatives; (6) the reaction of absent class members; and (7) the public interest."

The court found "the settlement was the product of arm’s-length, good-faith negotiations" and was not "tainted by fraud or collusion." The court observed that Skechers had not admitted to any wrongdoing, and therefore the class plaintiffs would have to pursue complex and expensive litigation to resolve their claims, face a substantial risk of not being able to prove the claims. The court found the discovery, which included production by Skechers of approximately 6,574 documents, had "allowed both sides to reasonably and clearly evaluate the risks and merits of their cases and to produce a settlement that appropriately valued the class’s claims."

The likelihood of success on the merits also weighed in favor of settlement. The court would have to prove causation, including "that the shoes did not and could not confer the benefits as marketed by Skechers," and prove "that Skechers intended to defraud consumers." Proving these elements would require extensive discovery and expert witnesses, and success would not be guaranteed.

In addition, the class counsel, who were experienced class action attorneys, and the class representatives endorsed the settlement. The court had received only eleven written objections to the settlement and, although 1,072 potential class members had opted out of the settlement, that number represented less than one percent of the claims already made. Finally, the court determined that "the proposed settlement serves the public interest by resolving potentially complex legal proceedings and preserving significant judicial resources." Therefore, the court found that the settlement was "fair, reasonable, and adequate," satisfying Federal Rule of Civil Procedure 23(e)(2).

Attorneys’ fees, costs, expenses, and incentive awards. The court moved on to tackle the issue of attorneys’ fees, costs, expenses, and incentive awards. Skechers had agreed to establish a separate $5 million fund for payment of attorneys’ fees, costs, and expenses, which the court had to apportion among attorneys for plaintiffs in four consolidated actions against Skechers, the Grabowski, Hochberg, Loss, and Stalker plaintiffs. The court applied six Sixth Circuit factors in reaching its conclusions, including "(1) the value of the benefit rendered to the plaintiff class; (2) the value of the services on an hourly basis; (3) whether the services were undertaken on a contingent fee basis; (4) society's stake in rewarding attorneys who produce such benefits in order to maintain an incentive to others; (5) the complexity of the litigation; and (6) the professional skill and standing of counsel involved on both sides."

The court found that all counsel had undertaken their cases on a contingent fee basis, that society had a stake in rewarding attorneys who "bring inherently difficult and risky but beneficial class actions," that the action was complex and challenging, and that all counsel involved were skilled attorneys, particularly the court-appointed Class Counsel from the Grabowski action.

The court then considered the value of the benefit rendered to the plaintiffs by each set of attorneys. As Class Counsel who successfully pursued the multi-year class action litigation, and as counsel in the first nationwide class action filed against Skechers alleging consumer fraud, the Grabowski counsel deserved the bulk of the attorneys’ fees, in the amount of $4,278,883.74. The Loss case was the first filed in the Western District of Kentucky, and the Loss counsel provided guidance and assistance to the court in resolving the consumer fraud claims separate from the personal injury claims, and therefore the Loss counsel received $75,037.05. Counsel in the Hochberg case filed their case to protect New York consumers in the event that the Grabowski plaintiffs could not represent New York class members, successfully opposed Skechers’ motion to dismiss, and "likely influenced Skechers to push ahead on the global settlement," and therefore received $333,708.03. Finally, although counsel in the Stalker case asserted that they had first discovered the cause of action against Skechers, the court noted that "counsel for Stalker has done little to prove that its actions provided substantial benefits to the class," and therefore the counsel for Stalker received $266,629.

The court also determined that the attorney fee awards for all of the counsel were reasonable under lodestar cross-checks. The court also awarded expenses of $42,826.26 to the Grabowski counsel, $462.95 to the Loss counsel, $1,291.97 to the Hochberg counsel, and $1,161.00 to the Stalker counsel, resulting in total awards of $4,321,710 to the Grabowski counsel, $75,500 to the Loss counsel, $335,000 to the Hochberg counsel, and $267,790 to the Stalker counsel. The court also approved incentive awards of $2,500 apiece to two representative plaintiffs.

The administrator for the settlement has established a website to provide information about the settlement.

FTC action.The FTC entered into a stipulated final order and injunction against Skechers on May 16, 2012 in coordination with the class counsel in the present case, resolving the claims of the FTC and the attorneys general of 42 states and the District of Columbia (Federal Trade Commission v. Skechers U.S.A., Inc., FTC File No. 102 3069, Case No. 1:12-cv-01214-JG). The stipulated final order provided for the $40 million fund approved in the present order; enjoined Skechers from making a variety of weight loss, strengthening, and health and fitness claims; and provided for compliance monitoring; compliance reporting, and recordkeeping by Skechers.

The case is No. 3:11-MD-2308-TBR, MDL No. 2308.

Companies: Skechers U.S.A., Inc.

Attorneys: Joshua Cash (Wilson, Elser, Moskowitz, Edelman & Dicker LLP) for Plaintiffs. Dennis M. O'Hara (Wicker Smith Tutan O'Hara McCoy Graham & Ford, P.A.) for Skechers U.S.A., Inc.

Cases: StateUnfairTradePractices Advertising KentuckyNews