998 F.3d 1014
9th Cir.2021Background:
- Plaintiffs sued ConAgra over Wesson Oil labeled "100% Natural," alleging it was misleading because of GMO-derived ingredients; a (b)(3) damages class was ultimately certified.
- ConAgra removed the label years before settlement and sold Wesson; parties negotiated a claims-made settlement paying $0.15 per unit (capped without proof), limited state statutory pools, and separate $6.85 million attorneys’ fee payment from the defendant.
- The settlement included an injunction barring future use of "natural" on Wesson unless FDA permits it; plaintiffs’ expert valued the injunction at tens of millions of dollars despite ConAgra having already stopped the labeling and later selling the brand.
- The agreement contained a clear-sailing clause (defendant would not oppose the agreed fees) and a kicker/reverter clause (any court-reduced fees would revert to ConAgra, not the class).
- Fewer than 100,000 class members submitted claims (≈0.5% of ~15 million), yielding about $1 million to the class while counsel received ≈$5.85 million; objector Henderson argued collusion and that the injunction valuation was illusory.
- The district court approved the settlement under Staton/Hanlon factors and lodestar reasoning; the Ninth Circuit reversed, holding the court failed to apply amended Rule 23(e)(2) and Bluetooth scrutiny to fee arrangements and misvalued the injunction.
Issues:
| Issue | Plaintiff's Argument (Henderson) | Defendant's Argument (ConAgra / Class Counsel) | Held |
|---|---|---|---|
| Applicability of Bluetooth scrutiny and Rule 23(e)(2) to post-certification settlements | Rule 23(e)(2) requires courts to scrutinize attorney-fee arrangements for collusion even after certification | Parties and district court relied on Staton/Hanlon; argued heightened pre-certification scrutiny not required post-certification | Court: Rule 23(e)(2)(C)(iii) requires examining fee terms; Bluetooth factors apply to post-certification settlements to detect collusion |
| Whether settlement showed collusion (disproportionate fees, clear sailing, kicker) | Settlement structure (large separate fee, clear sailing, kicker, low claims rate) indicates counsel favored fees over class recovery | Fee award supported by lodestar and settlement negotiations; injunctive relief has value | Court: Settlement triggered all three Bluetooth red flags; district court erred by not scrutinizing fee arrangement—reversed and remanded |
| Valuation and adequacy of injunctive relief | Injunction is illusory/worthless because ConAgra already stopped the labeling and no longer owns Wesson; expert valuation unreliable | Plaintiffs’ expert assigned large monetary value; injunction adds settlement value | Court: District court erred; injunction essentially worthless and expert’s valuation unverifiable—court must quantify or exclude injunctive value |
| Erie/doctrine and burden-shifting objections | Rule 23(e) governs federal approval of class settlements; Erie does not bar application here | Appellees argued Erie could limit federal review of state-law fee rules | Court: Erie does not bar application of Rule 23(e); district court did not impermissibly shift burden to objector |
Key Cases Cited
- In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir. 2011) (identifies red flags—disproportionate fees, clear-sailing, kicker—that suggest fee-related collusion)
- Staton v. Boeing Co., 327 F.3d 938 (9th Cir. 2003) (sets factors for evaluating class settlement fairness)
- Hanlon v. Chrysler Corp., 150 F.3d 1011 (9th Cir. 1998) (establishes settlement-approval considerations used with Staton)
- Roes, 1–2 v. SFBSC Mgmt., LLC, 944 F.3d 1035 (9th Cir. 2019) (interpreting Rule 23(e)(2)—presumption of fairness inappropriate for certain settlements)
- Campbell v. Facebook, Inc., 951 F.3d 1106 (9th Cir. 2020) (discusses Bluetooth’s application and post-certification questions)
- Koby v. ARS Nat. Servs., Inc., 846 F.3d 1071 (9th Cir. 2017) (district court must quantify or exclude injunctive relief value; relief without value is reversible error)
- Pearson v. NBTY, Inc., 772 F.3d 778 (7th Cir. 2014) (explains defendant’s indifference to allocation between class and counsel)
- Zucker v. Occidental Petroleum Corp., 192 F.3d 1323 (9th Cir. 1999) (district court must assure reasonableness of fee awards even when fees are separately paid)
- Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 559 U.S. 393 (2010) (addresses limits on invalidating federal rules under Erie)