Settlement in misleading label action unfair to class members, says DOJ

Dapibus Populo

Lenny & Larry’s is a fun brand – bold, colorful packaging with a distinctly ’80s palette, goofy brand icon featuring the woofed-out hair of the founders, and lots of exclamation points in the copy.

Is all this zip deployed because it’s selling a product that is so relentlessly healthy? As the company website puts it: “Lenny & Larry’s The Complete Cookie® forms the foundation of a whole new category of food: Baked Nutrition®. Vegan, Kosher, and Non-GMO … .”

In addition to its Complete Cookies, the company also hawks a “Muscle Muffin” and a “Muscle Brownie.” Its entire line is pitched as “a better way to get more protein in your diet while enjoying something tasty.”

Just the Snacks, Ma’am

But when a pair of consumers from Michigan and Illinois sued Lenny & Larry’s in 2017, their accusations struck at the heart of the company’s identity. Over the course of three amended complaints (the final landed in March 2018), the evolving group of class plaintiffs accused the company of mislabeling its products so that they appeared healthier than they are, such as by allegedly misrepresenting the number of calories and amount of fat and protein the products contained. The plaintiffs also alleged that Lenny & Larry’s testing methodology was flawed and not in compliance with various federal and state testing regulations. “Based on Plaintiffs’ testing,” the final complaint claimed, “the Product generally contain [sic] 40%-50% less protein than stated on the label. Defendant has also misrepresented other key nutrients in the Product, including the total calories, carbohydrates, fats and sugars.”

The parties wrangled for a few more months in the Northern District of Illinois and reached a $5 million settlement in October 2018.

And then the feds showed up.

The Department of Justice (DOJ or Department) filed a statement of interest with the court in February 2019 alleging that the settlement was unfair to class members. The DOJ claimed that the majority of the cash settlement funds were set to go to the class counsel and amounted, in the final analysis, to a marketing opportunity for the cookie makers. Specifically, the DOJ took issue with the fact that the bulk of the nonmonetary award would “consist of free cookies the defendant plans to send to vendors across the country … .”

For the record, the DOJ is notified about all proposed class action settlements – a requirement of the Class Action Fairness Act of 2005 (CAFA). “While the CAFA notice provision does not expressly grant specific authority or impose explicit obligations upon federal or state officials,” the Department wrote in the statement, “the Act’s legislative history shows that Congress intended the notice provision to enable public officials to ‘voice concerns if they believe that the class action settlement is not in the best interest of their citizens.’”

The Takeaway

And voice them it did. The Department claimed that the settlement, which involved 90,000 class members, was divided in such a way as to leave the 70,000 members who opted for cash payments out in the cold. Of the original $5 million, $3.15 million had been set aside as a “large cy pres distribution of free cookies to vendors who already sell defendant’s products … .” That left about $1.85 million on the table.

But class counsel was asking for $1.1 million in fees. After other costs, only $350,000 remained for the class members who wanted cash. “A class member who submitted a claim with proof of purchase for $50 likely would receive roughly $25,” the department claimed. “A class member without proof of purchase seeking the standard $10 claim would instead receive about $5. This pro rata reduction ‘dramatically reduce[s]’ the settlement’s ‘apparent value.’”

Lawyers for Lenny & Larry’s told the press that the issues raised by the feds were already being addressed by the company and the plaintiffs before the statement was issued. Pursuit of a settlement restructuring is in the hands of the district court; we’ll watch with interest for its response.