ADDITIONAL CASES Jeffrey Faris, et al., Individually and on behalf of all others similarly situated, Plaintiffs v. Bactolac Pharmaceutical, Inc., et al., Defendants; 2:20-CV-01338 MEMORANDUM AND ORDER This putative multi-state class action stems from harm allegedly suffered by plaintiffs who purchased and consumed All Day Energy Greens (“ADEG”), a dietary supplement that they claim caused them to become ill. After years of litigation and settlement negotiations aided by a mediator, the parties have reached a proposed class settlement (the “Settlement”). Now, the parties seek the Court’s final approval of that Settlement. For the reasons that follow, plaintiffs’ motion to approve the Settlement is granted in all respects except as to proposed attorneys’ fees. I. OVERVIEW The Court granted preliminary approval of the Settlement on January 10, 2022. The Settlement dictates that eligible class members who opt in may elect to receive either (i) a coupon worth $10 toward the future purchase of any of the Defendants’ products, redeemable for a period of three years, or (ii) a cash payment, which is projected to be approximately $15.85. Separately, the class representatives are to receive service awards of $5,000 each. Class counsel have also moved for a payout of $1,194,657.34 in attorneys’ fees and costs. Through the Department of Justice’s (“DOJ”) Consumer Protection Branch and the United States Attorney’s Office for the Eastern District of New York (E.D.N.Y.), the United States (the “U.S.”) has objected to the Settlement. It argues that it is unfair for two reasons: (i) because it primarily benefits class counsel instead of class members, and (ii) because the representatives of the class will receive disproportionate awards compared to the rest of the class members. In the analysis that follows, the Court lays out its findings that the Settlement, including the service awards, is procedurally and substantively fair and reasonable in accordance with Rule 23(e)(2). However, the Court rejects the proposed attorneys’ fee award. II. FACTS AND PROCEDURAL HISTORY Defendants are NaturMed, Inc. d/b/a Institute for Vibrant Living (“NaturMed”), the company that designed, marketed, distributed and sold ADEG, Independent Vital Life, LLC (“IVL”), the alleged successor-in-interest of NaturMed, and Bactolac Pharmaceutical, Inc. (“Bactolac”), the company that blended and packaged ADEG pursuant to its contract with NaturMed (collectively, the “Defendants”). The class representatives (“Class Representatives”)1 brought suit individually and on behalf of all others similarly situated (collectively, “Plaintiffs”) alleging that Defendants engaged in false, misleading, and deceptive marketing of ADEG. According to Plaintiffs, Defendants’ representations of ADEG as an all-natural product that would naturally increase energy and support digestion were “a sham.” Am. Compl. 2. In addition, Plaintiffs allege that ADEG “consisted of a dangerous mixture that resulted in serious illness and/or death among those who consumed it.” Id. Plaintiffs claim that in 2014, NaturMed became aware that ADEG was making customers sick with gastrointestinal distress. After these reports surfaced, NaturMed inquired with Bactolac about possible contamination of the product. When Bactolac did not cooperate fully with NaturMed’s request for information, NaturMed switched to a new manufacturer in July 2015. In March 2016, Defendants recalled ADEG canisters that were sold during a specified period from 2014 to 2016. Plaintiffs contend that Defendants failed to timely warn consumers of the products’ harmful effects and issue a timely recall. Plaintiffs also find fault with the 2016 recall, alleging that NaturMed attempted to downplay the potential for danger posed by its product, which contained ingredients that were not on the label. The Class Representatives are purchasers of canisters of ADEG from the recalled lot who allegedly became ill after consuming the product, some so seriously that they required hospitalization. The class that they seek to represent is made up of purchasers of ADEG from the 2016 recalled lot. In 2017, IVL purchased NaturMed after the company fell into financial distress, apparently because of the recall and personal injury and wrongful death lawsuits stemming from the contaminated product, as well as a defaulted-upon loan from its secured lender. Plaintiffs allege that IVL is the “same legal person” as NaturMed. Am Compl. 29. On January 26, 2018, Plaintiffs filed this action asserting numerous claims stemming from the aforementioned harm. Roughly six months later, Plaintiffs amended their complaint, and NaturMed answered with crossclaims against Bactolac. In Plaintiffs’ Amended Complaint, they alleged claims on behalf of a nationwide class, which is defined as individuals who purchased canisters of ADEG from July 1, 2014 to the present that were manufactured and/or blended by Bactolac between January 1, 2014 and December 31, 2015. Plaintiffs also have initiated comparable statewide claims in ten states.2 The Court has jurisdiction over those claims under the Class Action Fairness Act (“CAFA”). 28 U.S.C. §1332(d). After discovery, Bactolac moved to dismiss the Plaintiffs’ claims and for judgment on the pleadings with respect to NaturMed’s crossclaims, as well as to strike Plaintiffs’ request for punitive damages. On March 10, 2021, the Court denied Bactolac’s motion to strike, and granted in part and denied in part its motions to dismiss and for judgment on the pleadings. Plaintiffs separately withdrew several claims. Fifteen of Plaintiffs’ claims and four of NaturMed’s crossclaims survived. Shortly thereafter, the Court referred the parties to mediation. With the help of the mediator and after months of negotiations, the parties were able to reach an agreement (the “Settlement Agreement”). On January 10, 2022, the parties filed for preliminary approval of the Settlement Agreement, and the Court granted it. A final fairness hearing was scheduled for May 19, 2022 (the “Fairness Hearing”), and notice was served to potential class members according to the notice plan defined by the Settlement Agreement. On April 29, 2022, Plaintiffs’ counsel notified the Court that they had received only a single objection to the Settlement Agreement. One day before the Fairness Hearing, the U.S. filed a statement of interest (the “Statement of Interest”) objecting to the Settlement. Plaintiffs then moved to strike the Statement of Interest. At the Fairness Hearing, the terms of the Settlement and the two objections were discussed at length. Following the Fairness Hearing, the U.S. moved to supplement its Statement of Interest. The Court must now decide whether to grant final approval of the Settlement Agreement, and in turn resolve the two motions that are incidental to that decision. III. LEGAL STANDARD Claims brought by a proposed class may only be settled with approval from a district court. Fed. R. Civ. P. 23(e)(2). In addition, special consideration is due when reviewing settlements that include coupons to be paid out to class members, as is the case here. In 2005, Congress enacted CAFA to reform how class actions are adjudicated. Specifically, CAFA offers protections to class members from predatory practices that are sometimes engaged in by class counsel and the parties to those actions. Relevant to this case is CAFA’s treatment of coupon settlements. Generally, coupon settlements are disfavored under CAFA. See Berkson v. Gogo LLC, 147 F. Supp. 3d 123, 132 (E.D.N.Y. 2015) (noting that coupon settlements “‘have been severely criticized by commentators in the field…[and] are strongly disfavored by the Attorneys General of most of the states’” (quoting Figueroa v. Sharper Image Corp., 517 F. Supp. 2d, 1292, 1321 (S.D. Fla. 2001))). While drafting CAFA, Congress voiced its disapproval of “[a]busive class action settlements in which plaintiffs receive promotional coupons or other nominal damages while class counsel receive large fees.” S. Rep. No. 109-14, 2005 WL 627977 at 32 (2005). Coupon settlements often fail to provide meaningful benefits to eligible class members, since they require the class members to do future business with a company that ostensibly harmed them. In turn, these settlements grant defendants the benefit of potential future business, while failing to disgorge them of the gains from their harmful actions that gave rise to the suit in the first place. See Berkson, 147 F. Supp. at 132 (noting that coupon settlements “‘may offer scant compensation, [are] unlikely to disgorge or deter, and compel a class to continue its relationship with an alleged wrong-doer’” (quoting 4 William B. Rubenstein, Newberg on Class Actions §12:8 (5th ed. 2015))). As a result, settlements embracing coupons are considered “a warning sign of a questionable settlement” and require courts to apply a greater level of scrutiny. Id. To achieve this greater level of scrutiny, CAFA spelled out a list of factors that courts must consider when assessing the fairness of a coupon settlement, which, as explained below, are now incorporated into Rule 23(e)(2). There is no dispute that this settlement is a coupon settlement under CAFA, since it provides eligible class members with the option to receive a voucher toward the future purchase of an IVL product, or alternatively a cash payment. a. The Fairness Assessment: Federal Rule of Civil Procedure 23(e)(2) provides that to approve a proposed class settlement that would bind potential class members, a Court must (i) conduct a hearing, and (ii) find that the settlement is fair, reasonable and adequate. In determining the second prong, a court may grant approval only after considering whether: (A) the class representatives and class counsel have adequately represented the class; (B) the proposal was negotiated at arm’s length; (C) the relief provided for the class is adequate, taking into account: i. the costs, risks, and delay of trial and appeal; ii. the effectiveness of any proposed method of distributing relief to the class, including the method of processing classmember claims; iii. the terms of any proposed award of attorney’s fees, including the timing of payment; and iv. any agreement required to be identified under Rule 23(e)(3); and (D) the proposal treats class members equitably relative to each other. Fed. R. Civ. P. 23(e)(2). This analysis incorporates the need for district courts to find both procedural and substantive fairness. See McReynolds v. Richards-Cantave, 588 F.3d 790, 803-804 (2d Cir. 2009) (“In determining whether a settlement is fair, reasonable, and adequate, the District court examines the ‘negotiating process leading up to the settlement [, i.e., procedural fairness,] as well as the settlement’s substantive terms [, i.e., substantive fairness.]‘” (quoting D’Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir. 2002) (alterations in original)). Procedural fairness is addressed by the first two prongs of Rule 23(e)(2). In assessing the process in which a settlement was reached, a “‘presumption of fairness, adequacy, and reasonableness may attach to a class settlement reached in arm’s-length negotiations between experienced, capable counsel after meaningful discovery.’” Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 116 (2d Cir. 2005) (quoting Manual for Complex Litig. (Third) §30.42 (1995)). Reaching a settlement with the help of a mediator may also trigger a presumption of procedural fairness. See McLaughlin v. IDT Energy, No. 14-cv4107(ENV)(RML), 2018 WL 3642627, at *9-10 (E.D.N.Y. July 30, 2018). To assess the final two prongs of Rule 23(e)(2), which address the substantive fairness of the settlement, courts in the Second Circuit turn to the Grinnell factors set forth in City of Detroit v. Grinnell Corporation: (1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; [and] (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. 495 F.2d 448, 463 (2d Cir. 1974) (abrogated on other grounds by Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000)). These factors are to be considered under the totality of the circumstances and none alone is dispositive. See Thompson v. Metro. Life Ins. Co., 216 F.R.D. 55, 61 (S.D.N.Y. 2003) (“All nine factors need not be satisfied, rather, the court should consider the totality of these factors in light of the particular circumstances.”). b. Service Awards to Class Representatives Service awards to class representatives are subject to a separate analysis. When considering whether the proposed awards to the Class Representatives are appropriate, as required under Rule 23(e)(2)(D), courts should consider: the existence of special circumstances including the personal risk (if any) incurred by the plaintiff-applicant in becoming and continuing as a litigant, the time and effort expended by that plaintiff in assisting in the prosecution of the litigation or in bringing to bear added value (e.g., factual expertise), any other burdens sustained by that plaintiff in lending himself or herself to the prosecution of the claim, and, of course, the ultimate recovery. Roberts v. Texaco, Inc., 979 F. Supp. 185, 200 (S.D.N.Y. 1997). This analysis may or may not justify an award to class representatives that is greater than that offered to eligible class members. c. Attorneys’ Fee Award: Separately, approval of a class-action settlement requires an assessment of “any proposed award of attorney’s fees.” Fed. R. Civ. P. 23(e)(2)(C)(iii). As explained below, district courts are invariably challenged in determining an appropriate fee award when, as here, the Settlement Award is a mixture of cash and coupons. IV. THE PROPOSED SETTLEMENT The Settlement defines the proposed class as “all Persons in the United States who purchased one or more canisters of ADEG that were manufactured as part of the Recalled Lots, except for Excluded Persons.” Mot. for Prelim. Approval of Class Settlement, at Ex. 1 1(aaa). Plaintiffs estimate that the proposed class consists of approximately 188,897 individuals. In order to satisfy the awards to class members, Defendants have agreed to the following distributions: i) IVL will give a $10 coupon to any class member entitled to one, up to the estimated class size, and ii) Defendants will transfer $1.725 million in cash into a common settlement fund (the “Settlement Fund”). The Settlement Fund consists of: i) $100,000 designated to satisfy the cash payments to class members who selected this option, and ii) $1.625 million designated for attorneys’ fees and costs, service benefit awards of $5,000 for each of the Class Representatives, and additional administrative costs. As of May 18, 2022, which was two days before the final deadline to opt into the Settlement, 10,373 of the 188,897 eligible class members had filed a claim. Of those, 6,136 opted for a cash payment, 1,698 opted for a coupon, and 2,539 failed to make a selection. The terms of the Settlement dictate that those class members who fail to select their preferred compensation method will receive a coupon. Only one eligible class member opted out of the Settlement. The Settlement Agreement dictates that the entire $100,000 portion of the Fund must be distributed pro rata to the claimants who elected cash awards. The award to each claimant was initially estimated to be $5; however, because fewer class members than expected claimed the cash option, each will now receive approximately $15.85. Had more class members claimed a cash award than would have allowed for a $5 payment to each, they would have received pro rata payments of less than $5. To note, one canister of ADEG costs $39.95. According to the Settlement Agreement, class counsel may seek an attorneys’ fee award of up to one-third of the total Settlement value and costs of up to $210,136.30. Plaintiffs calculate one-third of the Settlement value to be $1,207,019. Their calculation assigns $1,888,970 to the coupon portion of the Settlement on the assumption that all 188,897 class members would receive a $10 coupon and redeem that coupon. That assumption has been proven false. Only 4,237 class members will receive coupons. At a face value of $10 per coupon, this portion of the class will receive at most a benefit of $42,370. The value is almost certain to be much lower once the coupons are distributed, since realistically many recipients may not redeem their coupons. In sum, the Settlement contemplates a maximum out-of-pocket cost to Defendants of $1.725 million, with $100,000 in cash, plus the service benefit awards being distributed to class members and the remainder allotted for attorneys’ fees, costs, and administrative expenses. Defendants will also incur an indirect cost associated with redeemed coupons. That cost (and corresponding benefit to the class) is of uncertain value but will be no greater than $42,370. a. Objection to Class Settlement by Individual At the Fairness Hearing, one individual raised an objection to the Settlement. That individual, James Henson (“Henson”), argues that he should be paid from the Settlement Fund the $57,313 he is owed by NaturMed resulting from a default judgment he obtained against the company in the District of Maryland. Henson’s objection is not grounded in applicable law. Instead, he seeks a means of recovery that does not apply and fails to support his argument with any caselaw. His default judgment was awarded as a result of personal injuries sustained, which are not covered by the Settlement nor the surviving claims against the Defendants. Accordingly, this is not the proper avenue for Henson to recover his judgment and his objection is denied. b. Statement of Interest of the United States The “Statement of Interest” objection filed by the U.S. is more substantial. The Attorney General of the U.S. may send any officer of the DOJ to any district or state court to “attend to the interests of the United States” in a pending action. 28 U.S.C. §517. Under CAFA, defendants are required to notify the Attorney General and the appropriate state officials of proposed class action settlements to ensure consumer protection. In this case, the U.S. objected to the Settlement on the basis that it is unfair and unreasonable under Rule 23(e)(2) because (i) it directs most of the benefit to class counsel instead of to class members, and (ii) the Class Representatives will receive a much greater financial benefit than the rest of the class members. V. ANALYSIS Before analyzing the fairness and reasonableness of the Settlement, the Court first addresses the pending motions that are incidental to the disposition of the Plaintiffs’ motion for final approval. a. Plaintiffs’ Motion to Strike Plaintiffs argue that the U.S.’s Statement of Interest, which it filed one day prior to the Fairness Hearing, was untimely. They argue that they were unfairly prejudiced by the late date of the filing, since they were deprived of the opportunity to properly respond, and that as a result the Court should strike the filing. Objections to the Settlement were due on April 11, 2022. There is some discrepancy about when notice of the Settlement Agreement was served on the U.S. However, no reasonable person could disagree that the filing of an objection the day before the Fairness Hearing gave Plaintiffs’ counsel little time to respond. That said, the Court prefers to deal with the merits of the U.S.’s Statement of Interest. Plaintiffs ultimately were able to file a response, which the Court has duly considered. The parties’ positions were also discussed at length at the Fairness Hearing. Therefore, the Court finds that Plaintiffs were not prejudiced by the late hour at which the Statement of Interest was filed. Accordingly, the motion to strike is denied. b. The U.S.’s Motion to Supplement On May 25, 2022, the U.S. followed up its Statement of Interest with a motion to supplement, which Plaintiffs opposed. With this supplemental briefing, the U.S. shed further light on the discussion held at the Fairness Hearing regarding whether reaching a settlement with the assistance of a mediator triggers a presumption of fairness. The Court has considered this briefing and grants the motion to supplement. c. The Plaintiffs’ Motion for Final Approval of the Settlement The Court now turns to the Rule 23(e) fairness analysis, taking each factor in turn. For the reasons that follow, the Court finds that the Settlement is both procedurally and substantively fair. i. Fairness Analysis: Is the Settlement Procedurally Fair? In order to grant approval of a settlement, Rule 23(e)(2) requires district courts to find that it is procedurally fair. To make this finding, the Court must conclude that class counsel and the Class Representatives have adequately represented the class. In making this determination with regard to the Class Representatives, the Court is to consider whether their interests are antagonistic to that of the other potential class members. See In re Barrick Gold Sec. Litig., 314 F.R.D. 91, 99 (S.D.N.Y. 2016) (stating the adequacy requirement for class representatives). Here, the Class Representatives have the same interests and similar injuries to those of the other eligible class members. They are all purchasers of canisters of ADEG from the recalled lots which were misleadingly labeled, possibly resulting in gastrointestinal distress. The Class Representatives all actively participated in discovery and were deposed, as well. See Final Approval Decl. 25. In assessing whether class counsel have adequately represented the class, Courts should consider whether plaintiffs’ attorneys are qualified, experienced and able to conduct the litigation. See In re Barrick, 314 F.R.D. at 99 (stating the adequacy requirement for class counsel). Class counsel in this case, Weitz & Luxenberg, P.C. (“Weitz”), is clearly qualified to represent the eligible class members. Weitz is a law firm that has represented classes in similar actions for more than 35 years, and Weitz’s lead attorney for this case has close to 15 years of relevant experience. See Preliminary Approval Decl.
