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Court Refuses Antitrust Settlement Where Plaintiffs Get $3 Million and Attorneys Get $14 Million

On Tuesday, a federal appeals court blocked a consumer class action settlement of $35.5 million with baby product companies citing concerns that left otherwise happy companies and class attorneys extremely unhappy.

In reversing a district court’s judgment, the 3rd U.S. Circuit Court of Appeals in Philadelphia found that the settlement to the class action was questionable, and it seemed the settlement was for the benefit of the companies and attorneys, rather than being made for the victims.

For instance, the court found that it was grossly disproportionate that out of the $35.5 million settlement sum, only $3 million would barely make it to the class plaintiffs, while close to five times the amount – $14 million would be going to pay attorneys’ fees and expenses.

This, the court found objectionable.

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The court also questioned the fact that more than half of the settlement amount, about $18.5 million was designated for charities decided by the parties. In this case the companies so sorely affected by the class action – namely Toys R US inc and other baby product manufacturers accused of conspiring to set a price floor for selling products meant for babies – were also left dejected.

However, the appeals court did not find that the U.S. District Judge was in cahoots with the manufacturers for passing such a grossly disproportionate settlement, but held that the lower court judge must have been unaware that so much money would be going to charities instead of going to the class members.

Writing for the appeals court, Judge Thomas Ambro observed, “We vacate the District Court’s orders approving the settlement and the fund allocation plan because it did not have the factual basis necessary to determine whether the settlement was fair to the entire class.”

Attorney Theodore Frank pushed his objections to the settlement and his views on the abuse of class action settlements, compelling the appeals court to recognize the disparity. And, the appeals court observed in writing, “the current distribution of settlement funds arguably overcompensates class counsel at the expense of the class.”

Theodore Frank, who leads the Center for Class Action Fairness, also commented that the decision will make attorneys “think twice when settling” a class action in this fashion.

The 3rd Circuit case is In Re Baby Products Antitrust Litigation, 3rd U.S. Circuit Court of Appeals, No. 12-1165.

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