Briseño v. Henderson, No. 19-56297 (9th Cir. 2021)Annotate this Case
The Ninth Circuit reversed the district court's approval of a class action settlement in an appeal brought by a class member objector in a class action alleging that ConAgra used a misleading "100% Natural" label on Wesson Oil.
The panel held that, under the newly revised Federal Rule of Civil Procedure 23(e)(2) standard, courts must scrutinize settlement agreements — including post-class certification settlements — for potentially unfair collusion in the distribution of funds between the class and their counsel. The panel explained that courts should apply the heightened scrutiny Bluetooth factors even for post-class certification settlements. In this case, the class action settlement had all the hallmarks of a potentially collusive settlement giving short shrift to the class. The panel stated that the class action settlement raises a squadron of red flags billowing in the wind and begging for further review. The panel also concluded that the district court erred by failing to approximate the value of the injunction. Furthermore, the Erie doctrine does not preclude the application of Rule 23(e)(2). Finally, the panel concluded that the district court did not err by determining that the objector failed to rebut the conclusion that the settlement satisfied Rule 23(e)(2). The panel remanded for further proceedings.
Court Description: Class Action Settlements. The panel reversed the district court’s approval of a class action settlement in an appeal brought by a class member Objector in a diversity action where the class alleged that ConAgra Foods, Inc. used a misleading “100% Natural” label on Wesson Oil. The panel held that the class settlement agreement raised a squadron of red flags that required further review. The panel held further that under the newly revised Fed. R. Civ. P. 23(e)(2) standard, courts must scrutinize settlement agreements – including post-class certification settlements – for potentially unfair collusion in the distribution of funds between the class and their counsel. * The Honorable David A. Ezra, Senior United States District Judge for the Western District of Texas, sitting by designation. BRISEÑO V. HENDERSON 3 The panel held that the district court erred by failing to apply the newly revised Fed. R. Civ. P. 23(e)(2). Specifically, the panel held that under the newly revised Rule 23(e)(2), courts must apply the heightened scrutiny in In re Bluetooth Headset Products Liability Litigation, 654 F.3d 935 (9th Cir. 2011), to post-class certification settlements in assessing whether the division of funds between the class members and their counsel was fair and adequate. The panel held further that district courts must apply the Bluetooth factors to scrutinize fee arrangements to determine if collusion may have led to class members being shortchanged. The panel concluded that the class settlement here featured all three red flags of potential collusion that was noted in Bluetooth: plaintiffs’ counsel received a disproportionate distribution of the settlement; the parties agreed to a “clear sailing arrangement” in which ConAgra agreed not to challenge the agreed-upon fees for class counsel; and the agreement contained a “kicker” or “reverter” clause in which ConAgra, not the class members, received the remaining funds if the court reduced the agreed- upon attorneys’ fees. The panel held that the district court erred by failing to approximate the value of the settlement’s injunction. Specifically, the panel held that it was reversible error when the district court, rather than attempting to quantify the value of the injunctive relief, instead concluded that it had “some” value. The panel held further that the district court erred by placing even “some value” on the injunction because it was, and is, virtually worthless. The panel next addressed – and rejected – appellees’ argument that the Erie doctrine precluded the application of Rule 23(e)(2) to a class settlement where state substantive law governed attorney’s fees in fee shifting cases. In any 4 BRISEÑO V. HENDERSON event, the Objector challenged settlement fairness under Rule 23(e), rather than an award of attorney’s fees under Rule 23(h). Thus, Erie’s effect on fee-shifting law, if it even had one, was not implicated in this appeal. The panel held that the district court did not err by determining that the Objector failed to rebut its own conclusion that the settlement satisfied Rule 23(e)(2). The record demonstrated that the district court conducted its own independent analysis, and then considered, and dismissed, the Objector’s objections. The district court never improperly shifted to the Objector the burden of rebutting the settlement’s fairness, reasonableness, and adequacy at the fairness hearing. The panel remanded for further proceedings.