The Southern District of California rejected a pre-certification class settlement because it provided for an inadequate coupon payment and a tenuous cy pres award, and included a clear sailing attorney fee provision. Plaintiff Hofman alleged that Dutch, LLC sells jeans labeled “Made in the USA” that contain foreign-made components (buttons, rivets, zippers, etc.) in violation of the California Business and Professional Code and the California Consumer Legal Remedies Act. The parties sought provisional certification of a class of:

Persons in California who purchased in California or through a website maintained by Dutch, LLC, defendant’s Current/Elliot jeans product that contained any foreign-made component parts that was labeled “MADE IN THE USA” or “MADE IN THE USA” (the “Jeans”), from September 5, 2010 to December 21, 2015, for non-commercial use.

Before class certification, the parties reached a settlement pursuant to which Dutch agreed to distribute $20 gift cards to class members who submit a valid claim, to make a cy pres donation of $250,000 to five separate charities, and to pay attorney fees pursuant to a clear sailing provision up to $175,000 and costs up to $90,000.

The court assessed the proposed class and concluded it met the certification requirements of Rule 23. But it determined the settlement was inadequate across the board.

The court concluded the gift cards were coupons because, to take advantage of them, consumers would first have to pay money out of their own pockets. It explained that the average price of the jeans was $205, and consumers could only use the coupons on a website (not in a store). The least expensive item on the website at the time of the court’s assessment was $58.80, making the highest possible value of the gift cards a 34 percent discount on a future purchase. In addition, the coupons were not transferrable, which further limited their value. The court concluded Dutch stood to experience a net benefit from the coupons, and found the coupon settlement therefore inadequate.

The court then concluded the cy pres award was inadequate because it failed meet the objectives of the applicable California statutes. The missions of the five charities included offering mentorship programs to at-risk teenage girls, supporting breast cancer research, supporting research for juvenile diabetes, offering scholarships to aspiring fashion designers, and offering employment, recreational, and socialization special needs programs. The court concluded none of the charities bore any relation to consumer protection.

Finally, the court concluded the clear sailing provision of the attorney fee payment created a danger of collusion during settlement negotiations which the court determined was unrefuted by the record. The court noted that although the amount of the attorney fee did not seem unreasonably high, class members received almost no benefit from the settlement.

Hofman v. Dutch, LLC, Case No. 3:14-CV-02418-PC-JLB (April 26, 2016).