July 13, 2012
By Malani L. Kotchka, Lionel Sawyer & Collins
On July 13, 2012, the Ninth Circuit set aside a class action settlement in Dennis v. Kellogg Co. Although the case involved a violation of consumer protection laws rather than wage and hour laws, the Court’s decision could apply to class action wage and hour settlements.
The Court held that in a class action, any settlement must be approved by the court to ensure that class counsel and the named plaintiffs do not place their own interests above those of the absent class members. The settlement in that case included $2 million dollars in attorney’s fees which broke down to a $2100 hourly rate while offering class members the sum of, at most, $15.00. The Court set the settlement agreement aside because the settlement did not identify the ultimate recipients of the award and because the negotiated attorney’s fees were excessive.
The Ninth Circuit actually said, “Indeed, because the settlement grants counsel ‘a disproportionate distribution of the settlement’ compared with the benefit to the class, it is possible the settlement was ‘driven by fees.'” Because the class counsel’s financing of the litigation and investment of time were rather limited, the Court held that the district court’s reasonableness finding was implausible. This decision could bode well for class action settlements for wage and hour cases in the Ninth Circuit.