A federal court in California has rendered its reluctant approval of a preliminary settlement in class litigation against Kellogg Co., alleging that the company falsely advertised its cereal product as a food that could help improve children’s attentiveness by 20 percent. Dennis v. Kellogg Co., No. 09-1786 (U.S. Dist. Ct., S.D. Cal., order entered May 3, 2013). The matter had been remanded from the Ninth Circuit, which reversed an earlier settlement approval, finding that the cy pres distribution to organizations helping the indigent of funds remaining after the class claims were paid had not been properly assigned. Additional information about the Ninth Circuit’s decision appears in Issues 447 and 453 of this Update.

The district court observes that the new designated cy pres recipients, the Consumers Union, Consumer Watchdog and Center for Science in the Public Interest, are appropriate as consumer-protection organizations, but expresses its dismay over the decrease in cash value to the class, while attorney’s fees would remain constant. The original settlement had a cash value of some $10.5 million with $2 million set aside for attorney’s fees and claims administration; the revised settlement has a cash value of $4 million with $1.5-2 million “still reserved for attorneys’ fees and claims administration, leaving only $2-2.5 million in value to the class.”

The court asks, “How did mere identification of proper cy pres recipients result in such a severe drop in the value of the class’s claims? How is it that the value to the class dropped approximately 75% while requested attorneys’ fees appear nearly constant?” Still, the court found that the proposed settlement fell “within the range of possible approval” and thus granted preliminary approval. The parties were ordered to “fully address these concerns in their final approval briefing and at the final approval hearing,” which is scheduled for July 30, 2013.