Two recent false advertising class action settlements illustrate some of the myriad ways to structure settlements, and also reflect the real risks of these lawsuits when early-stage efforts to dismiss them are unsuccessful.
In Reid et al. v. Unilever United States, Inc., No. 12-C-06058 (E.D. Ill.), plaintiffs sought to recover from economic and personal injuries allegedly caused by defendant’s 30 Day Smoothing Kit. Plaintiffs alleged that the defendant fraudulently marketed the product as a Keratin-based “smoothing conditioner,” that contained no formaldehyde, and provided temporary effects that would only last “up to 30 days,” and thus misled consumers to believe the product was a safe, natural conditioning treatment when, in reality, the product caused plaintiffs to suffer chemical burns and major hair loss. Settling the case without admitting liability, Unilever established two funds: a “Reimbursement Fund” of $250,000 with payouts to individual consumers capped at $10 and an “Injury Fund” of $10,000,000. In addition to the $10 from the Reimbursement Fund, an injured class member who lacks documentary evidence of treatment to redress his or her injuries can claim up to $40 from the Injury Fund – roughly the price of a haircut. However, injured class members who could provide documentation of expenses incurred as a result of any scalp injuries (e.g., medical bills, receipts for hair products or hair treatments) can claim up to $800. Class members who suffered significant personal injuries are eligible to receive up to $25,000, after submitting documentary proof of injury (e.g., photos, medical records), to a Special Master. Unilever also agreed to pay class counsels’ fees, following a hearing on a fee application.
Under the proposed settlement agreement in Chaudhri et al. v. Osram Sylvania, Inc., 2:11-cv-05504 (D. N.J.), which was preliminarily approved by the District Court, the attorneys’ fees will come directly out of the $30,000,000 settlement fund. In Chaudhri, putative class plaintiffs alleged that the packaging of Sylvania’s SilverStar aftermarket headlight and fog light bulbs was misleading in several respects. First, the packaging contained a chart that awarded 3-4 bars to SilverStar headlights while giving standard halogen headlights fewer bars; plaintiffs argued that because Sylvania did not define these bars, the packaging mislead consumers to believe that SilverStar replacement bulbs were several times brighter than halogen bulbs. Plaintiffs also alleged that a disclaimer which stated that “bulbs with greater brightness may require replacement at more frequent intervals” was misleading because SilverStar replacement bulbs always burn out earlier than standard halogen bulbs.
To settle the case, Sylvania agreed to change its packaging to clarify that the SilverStar claims are made in comparison to SilverStar basic headlight bulbs, to specify the expected number of hours each bulb should last, and to eliminate the undefined bars comparing Sylvania’s headlight bulbs to other bulbs. In addition, the settlement sets aside $30 million to pay allegedly deceived consumers without a cap as to any individual class member can recover. Nonetheless, the anticipated payout per class member is $10 with incentive awards of up to $25,000 to the representative plaintiffs coming from the $30 million settlement fund.