Lovate Health Sciences USA Inc. agreed to settle a class action lawsuit alleging it made false and misleading statements in its labeling and advertising regarding the effectiveness of its Hydroxycut dietary supplement products. The proposed settlement relief consisted of a $10 million dollar cash component and a $10 million dollar product component. Class members who opt to receive cash will receive $25 for each bottle of Hydroxycut purchased. Class members who opt to receive a new product will receive re-formulated Hydroxycut.

 After the notice period closed for all potential class members, it was proposed that any amount remaining in the cash component and product component would go to help fund the settlement of various personal injury lawsuits across the country. These personal injury suits essentially comprise 550 individual lawsuits across the country, resting in four separate jurisdictions, including Philadelphia, Atlantic City, New Jersey, and federal and state court in California. This mass tort settled for $14 million. The class action and personal injury mass tort are separate and distinct causes of action.

 As is required, the parties filed a motion to approve the above class action settlement terms. The court denied the motion and held the terms of the settlement were improper.

 The court initially held that it will only approve a class action settlement if it finds the settlement is “fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e). The cy pres doctrine allows a court to distribute unclaimed portions of a class action settlement fund to indirectly benefit the entire class. Six Mexican Workers v. Ariz. Citrus Growers, 904 F.2d 1301 (9th Cir. 1990). A proposed cy pres distribution must be guided by the interests of the silent class members. Id. A cy pres distribution is an abuse of discretion if there is “no reasonable certainty” that any class member would benefit from it. Id.

 Counsel argued that the proposed cy pres remedy (using the unclaimed funds from the class action settlement to fund the personal injury settlement) does in fact provide a benefit to the class members because, without it, class action settlement negotiations would have fallen apart.

 The court disagreed. The court held that “the biggest problem with the proposed cy pres distribution in this settlement is that it simply does not benefit the class.” The court held the remaining class action settlement money only “reduce(s) the amount that Iovate must pay into the personal injury fund while providing no additional benefit to the personal injury claimants and no benefit at all to the class members who suffered no personal injury.” The court noted the proposed “cy pres remedy fails to take into account the interests of the silent class members, most of whom did not suffer any personal injury, and the nature of this action, which concerns unfair competition, consumer protection, and product warranty claims, not personal injury liability.”

What It Means to You

The decision is instructive and can be used as a lesson that the proper application of the cy pres doctrine in a class action settlement must directly take into account the interest of the silent class members. The cy pres doctrine cannot, on the other hand, be utilized as a vehicle to help resolve separate issues that do not directly benefit silent members of the class