Monday, July 18, 2016
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C.A. Overturns Approval of Weight-Loss Class Settlement
By KENNETH OFGANG, Staff Writer
The Fourth District Court of Appeal has reversed a San Diego Superior Court judge’s order approving a settlement of a class action concerning two weight loss products.
Div. One ruled that errors in a notice to class members required that the settlement approval be thrown out and the case sent back to the trial court to reconsider its endorsement of the agreement. A proposal by counsel that the case be remanded solely for the purpose of drafting a new notice would not the problem, Justice Gilbert Nares wrote, because the failure to give notice of what the agreement actually provided for “injected a fatal flaw into the entire settlement process and undermines the court’s analysis of the settlement’s fairness.”
Nares’ June 23 opinion was certified Friday for publication.
False Marketing Claim
The action was brought by a consumer, Fred Duran, against Obesity Research Institute, LLC and Wal-Mart Stores, Inc, alleging that they falsely marketed Lipozene and MetaboUp as aiding in weight loss. Under the settlement approved by John S. Meyer, persons who claimed to have bought the products but who could not produce receipts would receive $15, and those submitting receipts would receive a refund of twice the amount paid on a single occasion, not exceeding $68.
In addition, Obesity Research agreed to revise its advertising. The parties agreed that class counsel would receive $100,000 in fees.
Of between 400,000 and 600,000 class members, 895 made claims, for a total of less than $32,000. This would have allowed the defendants to obtain a nationwide release for about six cents per class member, with about 75 percent of the total settlement going to the lawyers, Nares noted.
Three class members objected to the settlement, calling it collusive and questioning the sufficiency of the notice and the adequacy of the relief.
Claim Form Problems
On appeal, the court noted that the downloadable claim form that was made part of the class notice contained defects that had not brought to the attention of the trial judge. The amount that class members would be paid if they produced receipts was misstated as “a full refund;” the notice said refunds would be paid to purchasers of Hydroxycut, a product not involved in the lawsuit; and the form included a waiver of unknown claims under Civil Code §1542, which was part of a previous agreement but was deleted after Meyer said he would not approve it.
The attorneys submitted letter briefs at the Court of Appeal’s request after the errors were discovered. They argued that any defects had been waived or forfeited, since they were not addressed in the trial court or the initial briefing.
Nares, however, said the general rule on waiver or forfeiture was subject to an exception, at the court’s discretion, where the relevant facts are undisputed and the ruling could not be impacted by new evidence.
Such is the case with the defective class notice, the justice said.
Addressing the merits, the jurist said the court could not have fairly determined the reasonableness of the settlement in the absence of adequate notice to the class.
“Given the defective notice previously given and the claims-made nature of this settlement, it is impossible to know now what ‘the amount offered in settlement’ will be after proper notice is given,” he wrote. “It is also impossible to determine ‘the reaction of the class members to the proposed settlement’—i.e., whether class members will participate in the settlement, object, or opt out—before proper notice is even given.”
The case is Duran v. Obesity Research Institute, LLC, 16 S.O.S. 3582.
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