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Nutella Class Action Settlement: Not Part of a Balanced Legal System

Forbes, January 31, 2012

 

Glenn G. Lammi

Washington Legal Foundation (WLF) has commented twice before (here and here) at our Legal Pulseblog on the indigestion-causing class action suits that were filed in New Jersey and California against Ferrero, the maker of Nutella. The gist of the complaints is that Ferrero misled consumers with statements and images on the product label and in ads that Nutella was “healthy” by not being sufficiently transparent about the sugar and fat it contained.

Ferrero has decided to settle both cases. The terms of the now preliminarily approved California settlement and the proposed NJ settlement inspired some reasoned venting at the Consumer Class Actions and Mass Torts blog. Given our coverage of the cases and our larger concerns with food/beverage regulation-through-litigation, we offer below some (reasoned) venting of our own.

The Monetary Awards. Plaintiffs’ class counsels in New Jersey are proposing Ferrerro create a fund of $2.5 million from which anyone who claims they purchased Nutella thinking it was “healthy” can seek reimbursement. In California, the proposed amount is $550,000, and is limited to state residents. Members of the “settlement class” can claim up to $20 each (four bucks for each Nutella jar, up to five jars). If there is cash left over in the funds after a period of time, the claimaints may receive more money and/or money may be ”put to a cy pres use that will benefit the Class.”

If crusading against “disfavored” foods and beverages would “benefit the Class,” we wouldn’t be suprised to see cy pres disbursement applications by the academic and nonprofit institutions on this list from WLF’s Eating Away Our Freedoms project. We hope the presiding judges resist any such entreaties.

 

Class counsels in both cases are also seeking an “Incentive Award” for the “named plaintiffs” (i.e. those who were bold enough to have their names placed on the court documents and claim that all other class members were harmed just like they were). The New Jersey counsels proposed $2,000 for each named plaintiff; no set amount is sought in California. What “time and effort” did the named plaintiffs expend? If they claimed all other plaintiffs were harmed in the same way they were, why should they get more than $20? These types of awards do little more than encourage more class action litigation.

Injunctive Relief. The counsels proposed nearly identical terms in both cases, terms which transform lawyers into labeling, advertisement, and website design consultants. Ferrerro must create a front-of-packaging label; remove the offending phrase “An example of a tasty yet balanced breakfast” from the rear label and replace it with a phrase of completely different meaning – ”Turn a balanced breakfast into a tasty one”; make modifications to their website; and replace current TV ads with new ones. The class counsels in both lawsuits have helpfully provided suggestions on the content and approach of the new ads. And, once the ads are produced, Ferrero must give the counsels one last look at them. “Creative” lawyering indeed!

Attorneys’ Fees. In each case, the lawyers seek fee awards both for the injunctive relief they achieved and from the settlement fund. The New Jersey suit lawyers want $3 million dollars for injunctive relief, and up to 30% of the fund ($750,000), as well as reimbursement for costs from the fund. Ferrerro has agreed to pay the California suit lawyers $900,000 for the injunctive relief, and the lawyers will pursue more fee money from the fund. The respective judges will have the last say on whether these fees are reasonable; let’s hope they closely scrutinize these requests.

Final Thought. We understand that businesses like Ferrerro have to weigh numerous factors when posed with litigation, and that some will decide it makes more financial sense to settle even the most dubious claims. But there’s always the risk that such settlements lead to more lawsuits. No doubt that’s how other food and beverage companies will feel about the outcome of In re Ferrerro Litigation.