By Andrew Longstreth
Feb 19 (Reuters) - A federal appeals court held up on
Tuesday a $35.5 million consumers' class action settlement with
baby product companies, citing concerns about the distribution
of funds and attorneys' fees.
The 3rd U.S. Circuit Court of Appeals in Philadelphia
reversed a district court judge's approval of a settlement to
resolve claims that retailer Toys R Us Inc, along with baby
product manufacturers, conspired to set a price floor for
certain products, hurting consumers.
A three-judge panel of the appeals court found that of the
$35.5 million, only $3 million was expected to make it to class
plaintiffs while $14 million would go to pay attorneys' fees and
expenses. The rest of the fund - roughly $18.5 million minus
administrative expenses - would be reserved for one or more
charities designated by the parties.
The appeals court found that when U.S. District Judge Anita
Brody in Philadelphia approved the settlement, she was unaware
that so much money would be going to charities instead of to
"We vacate the District Court's orders approving the
settlement and the fund allocation plan because it did not have
the factual basis necessary to determine whether the settlement
was fair to the entire class," Judge Thomas Ambro wrote for the
The ruling was a big win for attorney Theodore Frank, who
represents an objector to the settlement and who is a frequent
critic of what he views as abuses in class action lawsuits.
CY PRES DOCTRINE
The appeals court's decision focused on a doctrine known as
cy pres, which derives from a French expression meaning "as near
as possible." Under the doctrine, parties can designate funds
that are not claimed in a settlement to charities that promote
the interests of the class members. The money distributed to
those charities can also sometimes benefit the defendants.
In its decision, the Third Circuit panel did not adopt a
bright line rule prohibiting cy pres awards in class action
settlements. But it noted they "should generally represent a
small percentage of total settlement funds."
The appeals court also ruled that courts should consider the
total cy pres awards compared to recoveries for class members
when determining the amount of attorneys' fees awarded to class
In the baby products case, the court wrote, "the current
distribution of settlement funds arguably overcompensates class
counsel at the expense of the class."
The court remanded the case to the district court judge to
reevaluate the fairness of the settlement and the attorneys'
Eugene Spector of Spector Roseman Kodroff & Willis, an
attorney for the plaintiffs, said he was disappointed with the
court's ruling. He said that the ruling could give future
defendants a another weapon in keeping settlements lower than
they otherwise might have been.
Mark Weyman of Reed Smith, who represents Toys R Us,
declined to comment.
Frank, who leads the Center for Class Action Fairness and
who has long been a thorn in the side of plaintiffs' lawyers,
said that although the decision did not adopt bright lines about
the use of cy pres awards, it will encourage attorneys to "think
twice when settling a case like this."
Frank won a similar victory in 2011 from the 9th U.S.
Circuit Court of Appeals, which vacated approval of a settlement
in a case over the safety of wireless Bluetooth headsets. The
settlement had provided for $100,000 in cy pres awards, $12,000
for class representatives and up to $800,000 in attorneys' fees.
The 3rd Circuit case is In Re Baby Products Antitrust
Litigation, 3rd U.S. Circuit Court of Appeals, No. 12-1165.
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