The recent filing of an amicus brief by advertising watchdog Truth in Advertising Inc. (TINA) is a good reminder that, even where there are no objectors, class action settlements are subject to attack by third parties.  The proposed settlement would dispose of a class action against Philips Oral Health Care, Inc. (Philips) for allegedly deceptively marketing its Sonicare AirFloss plaque removal product. 

On July 11, 2013, U.S. District Judge Marilyn Huff in the Southern District of California preliminarily approved a class action settlement under which class members would receive vouchers in the amount of $33, $23, or $7, depending on whether the class members could submit proof of purchase of a two-pack of AirFloss, a single pack, or attest to having purchased AirFloss, respectively.  In preliminarily approving the settlement, Judge Huff found that the proposed settlement appeared to be the result of “serious, informed, and non-collusive negotiations.”

Though there have been no objectors (and the deadline to object has passed), the Court has granted TINA leave to file an amicus brief in opposition to the proposed class action settlement.  TINA takes issue with the settlement for two reasons.  First, TINA contends that the settlement does not provide any “meaningful benefit” to class members because the vouchers require the class members to purchase another product from Philips and that it expires in one year.  Second, TINA contends that the “true beneficiary” of the settlement is defendant Philips because (i) the settlement does not require disgorgement of profits, (ii) Philips is not enjoined from making the allegedly false marketing claims, and (iii) Philips will benefit from the vouchers by getting more business. 

Similar settlements awarding coupons or vouchers instead of cash—so called “coupon settlements”—have been the subject of scrutiny over the years.  The Class Action Fairness Act (CAFA), enacted in 2005, was intended to address the perceived abuse of coupon settlements, among other perceived abuses relating to class action settlements.  Under CAFA, a court must hold a hearing and make written findings that a coupon settlement is fair, reasonable, and adequate to class members before approving a coupon settlement.  28 U.S.C. § 1712(e).  CAFA also imposes limits on attorneys’ fees in coupon settlements.  28 U.S.C. § 1712(a)-(c). 

The enactment of CAFA, however, was not the death-knell of coupon settlements.  Coupon settlements remain a viable and useful tool for settling class action lawsuits, so long as the proposed settlement is “fair, reasonable, and adequate” to class members under the circumstances.  Indeed, the Ninth Circuit recently explained:

Although we recognize that coupon settlements are generally disfavored, we do not mean to cast aspersions on all coupon settlements.  The legislative history of CAFA makes clear that Congress did “not intend to forbid all non-cash settlements.”  Indeed, coupon or other in-kind settlements may be particularly appropriate in situations “where they provide real benefits to consumer class members.”  For instance, coupon settlements may be appropriate where a defendant is in financial distress or where class members have repeat-business relationships with the defendant.

In re: HP Inkjet Printer Litigation, 716 F.3d 1173, 1178 n.4 (9th Cir. 2013). 

The final approval hearing is set for November 4, 2013.