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Judge Cites New Ninth Circuit Ruling When Considering Fee Calculation

November 12, 2020 | Posted in : Fee Calculation Method, Fee Issues on Appeal, Fee Jurisprudence, Judicial Discretion, Lawyering / Litigation Tactics, Lodestar, Practice Area: Class Action / Mass Tort / MDL, Settlement Amount / Data

A recent Law 360 story by Dorothy Atkins, “Koh Rips Kellogg Attys ‘Kitchen Sink’ Litigation Tactics,” reports that U.S. District Judge Lucy Koh rejected a revised $20 million deal to resolve claims Kellogg falsely labeled its sugar-loaded cereals and slammed class counsel for their "kitchen sink" approach to litigation, saying "the way you've litigated this case throughout has been overly burdensome on the court."  At the start of a hearing held via Zoom, Judge Koh took issue with a lengthy, now-mooted motion to enforce the settlement that class counsel filed after Kellogg purportedly threatened not to cooperate with a renewed bid for preliminary approval.

If approved, the proposed deal would resolve lead plaintiff Stephen Hadley's August 2016 lawsuit that alleges Kellogg Sales Co. falsely advertises its sugar-loaded Raisin Bran, Frosted Mini-Wheats and Smart Start cereals and Nutri-Grain breakfast bars as healthy.  Judge Koh told class counsel, Jack Fitzgerald, that she spent considerable time deciding the motion to enforce the settlement, which had 64 exhibits attached and included confidential information from the settlement negotiations, which Judge Koh repeatedly said isn't allowed.

But Kellogg ultimately did not oppose the class's renewed motion for preliminary settlement approval, so now the motion to enforce is moot, Judge Koh said, and the work and time she spent deciding it was a waste.  She added that she would have denied the motion.  Judge Koh noted that the motions to dismiss in the case were over 65 pages long "each time" and the lengthy motions practice is "a constant problem."  She also warned repeatedly that she'll remember how the attorneys overburdened the court if she decides to award attorney fees.

The discussion came during an hours-long hearing on the second attempt by the parties to get the deal preliminarily approved in hotly contested litigation over Kellogg's labels. For example, the Frosted Mini-Wheats and Smart Start labels say "lightly sweetened" and the Nutri-Grain bars say "wholesome goodness," which Hadley said implies those products are low in sugar, even though they contain 18% to 40% added sugars.

In February, Judge Koh rejected an initial $31.5 million class action settlement, finding the deal contained several troubling provisions and outright legal errors.  The parties went back to the negotiating table, but in July, class counsel filed a renewed motion for preliminary approval along with a motion to enforce the settlement, which Kellogg opposed.  But during the lengthy hearing on the motions, Judge Koh pointed out that the motion to enforce attached privileged mediation communication between defense counsel, class counsel and the mediator.

Judge Koh also took issue with the "mechanics" of how the proposed deal calculates attorney fees. The judge pointed out that as it is proposed, fees would need to be approved before a cash settlement is distributed, but the fees depend on how many class members choose to redeem coupons compared to those who choose cash payments, and class members need to know how much they would receive in a cash payment in order to decide whether to opt for a coupon or cash.

"It seems a bit circular," she said.  Judge Koh added that in light of the Ninth Circuit's ruling earlier this week in Chambers et al. v. Whirlpool Corp. et al., she is "more confident" that this deal qualifies as a coupon settlement for the purposes of determining attorney fees.  But Fitzgerald argued that even under Chambers, the court has the discretion to award fees and he proposed to base the fee award on using a lodestar that's calculated after they determine how many class members will redeem a coupon versus cash payment.