Judge Questions Kellogg’s Revised $4M Settlement

(CN) - A federal judge wants to know why a revised $4 million class-action settlement over claims that Kellogg falsely advertised its Frosted Mini-Wheats slashed the cash value to consumers but not to attorneys.

U.S. District Judge Irma Gonzalez in San Diego granted preliminary approval to the new $4 million settlement on May 3, saying it "appears to fall within the range of possible approval."

However, she expressed concern that the cash value to consumers dropped by about $6 million -- from $8.5 million to around $2.5 million -- since the 9th Circuit remanded the settlement.

The district court originally approved the $10.5 million settlement of a 2009 class action accusing Kellogg of falsely advertising its Frosted Mini-Wheats as boosting kids' memory and attentiveness by 20 percent.

After subtracting approximately $2 million in attorneys' fees and administration costs, the cash value to consumers was about $8.5 million. Of that amount, $5.5 million would go to charities under the cy pres doctrine, which allows unclaimed settlement funds to be distributed to organizations most likely to benefit class members.

The 9th Circuit reversed the settlement, saying the cy pres award "failed to target the plaintiff class" because it was slated for charities that feed the needy instead of consumer protection agencies. The federal appeals court remanded with instructions to identify a proper recipient for the $5.5 million.

The revised settlement calls for a $4 million cash fund to be distributed to class members, with any extra money to be distributed to Consumers Union, Consumer Watchdog and the Center for Science in the Public Interest.

About half of the new settlement will still go toward attorneys' fees and costs, according to the ruling.

Gonzalez granted preliminary approval, but questioned why the cash value to consumers took a 75 percent hit "while requested attorneys' fees appear nearly constant."

"How did mere identification of proper cy pres recipients result in such a severe drop in the value of the class's claims?" she asked.

Gonzalez said that if these concerns are left unresolved, they "could result in a finding of inadequacy" at the final approval stage.

"These concerns are especially troubling given the 9th Circuit previous admonishments to the parties over both illusory dollar values and excessive attorneys' fees," Gonzalez wrote.

Finding the original settlement amount "unacceptably vague and possibly misleading," the 9th Circuit had cautioned that the valuation "must be examined with great care to eliminate the possibility that it serves only the 'self-interests' of the attorneys and the parties, and not the class."

Gonzalez ordered the parties to address her concerns during the final approval hearing scheduled for July 30.

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