Robert Briseno v. Conagra Foods, Inc.

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROBERT BRISEÑO; CHRISTI TOOMER; No. 19-56297
KELLY MCFADDEN; JANETH RUIZ;
BRENDA KREIN; ALEXIS JUSTAK; D.C. No.
LEONORA ULITSKY; ANNE COWAN; 2:11-cv-05379-
JULIE PALMER; PATTY BOYER; CJC-AGR
NECLA MUSAT; PAULINE MICHAEL;
RONA JOHNSTON; CHERI SHAFSTALL;
JILL CROUCH; ERIKA HEINS; OPINION
MAUREEN TOWEY; MICHELE
ANDRADE; ANITA WILLMAN; DEE
HOPPER-KERCHEVAL; LIL MARIE-
BIRR, individually and on behalf of
all others similarly situated,
Plaintiffs-Appellees,
v.
M. TODD HENDERSON,
Objector-Appellant,
v.
CONAGRA FOODS, INC.,
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Cormac J. Carney, District Judge, Presiding
2 BRISEÑO V. HENDERSON
Argued and Submitted December 7, 2020
Pasadena, California
Filed June 1, 2021
Before: John B. Owens and Kenneth K. Lee, Circuit
Judges, and David A. Ezra, * Senior District Judge.
Opinion by Judge Lee
SUMMARY **
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.
**
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
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.
COUNSEL
Theodore H. Frank (argued) and Melissa A. Holyoak, Center
for Class Action Fairness, Hamilton Lincoln Law Institute,
Washington, D.C., for Objector-Appellant.
Samuel Issacharoff (argued), New York, New York; Robert
Klonoff, Portland, Oregon; Ariana J. Tadler, A.J. de
Bartolomeo, and Brian R. Morrison, Tadler Law LLP, New
York, New York; Adam J. Levitt and Amy E. Keller,
DiCello Levitt Gutzler LLC, Chicago, Illinois; David Azar,
Milberg Phillips Grossman LLP, Irvine, California; for
Plaintiffs-Appellees.
Angela M. Spivey (argued), Alston & Bird LLP, Atlanta,
Georgia, for Defendant-Appellee.
BRISEÑO V. HENDERSON 5
Mark Brnovich, Attorney General; Oramel H. Skinner,
Solicitor General; Kate B. Sawyer, Assistant Solicitor
General; Keena Patel, Assistant Attorney General; Office of
the Attorney General, Phoenix, Arizona; Steve Marshall,
Kevin G. Clarkson, Leslie Rutledge, Lawrence G. Wasden,
Curtis T. Hill Jr., Daniel Cameron, Jeff Landry, Eric
Schmitt, Dave Yost, Mike Hunter, Alan Wilson, and Ken
Paxton, Attorneys General; as and for Amici Curiae
Attorneys General of Arizona, Alabama, Alaska, Arkansas,
Idaho, Indiana, Kentucky, Louisiana, Missouri, Ohio,
Oklahoma, South Carolina, and Texas.
OPINION
LEE, Circuit Judge:
We can perhaps sum up this case as “How to Lose a
Class Action Settlement in 10 Ways.” The parties crammed
into their settlement agreement a bevy of questionable
provisions that reeks of collusion at the expense of the class
members: Class counsel will receive seven times more
money than the class members; an injunction touted by an
expert as worth tens of millions of dollars appears worthless;
the defendant agrees not to challenge the plaintiffs’
attorneys’ fees amount; any reduction in those fees by the
court reverts to the defendant; and on and on.
While courts should not casually second-guess class
settlements brokered by the parties, they should not
greenlight them, either, just because the parties profess that
their dubious deal is “all right, all right, all right.” We
reverse the district court’s approval of the class settlement
because the agreement raises a squadron of red flags
billowing in the wind and begging for further review. We
6 BRISEÑO V. HENDERSON
hold that under the newly revised Rule 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.
BACKGROUND
For many years, ConAgra, then-owner of Wesson Oil,
labeled that product as “100% Natural.” In 2011, Robert
Briseño and others sued ConAgra, alleging that “100%
Natural” was misleading because Wesson Oil contains
ingredients made from genetically modified organisms
(“GMOs”).
Three years later, plaintiffs sought class certification.
Relying on the expert report of Colin B. Weir, they argued
that they overpaid for Wesson Oil based on the “100%
Natural” label. ConAgra responded that its market research
showed that less than 3 percent of consumers bought the
product because of that label. Although Weir testified that
hedonic regression could quantify the supposed price
premium charged for that label, he did not try to calculate it
at first.
Unsurprisingly, ConAgra then challenged the
admissibility of Weir’s report. Enlisting its own expert,
ConAgra asserted that historical price data showed that the
label did not affect the price of Wesson Oil. According to
ConAgra, if the public had cared about the “100% Natural”
claim, then the price of Wesson Oil should have declined
after ConAgra removed that claim from the product’s label.
The district court agreed, denying plaintiffs’ first
certification request.
BRISEÑO V. HENDERSON 7
Still hoping to strike oil, plaintiffs filed an amended
motion for class certification. This time, however, they
supplemented Weir’s expert material with a supporting
opinion by Dr. Elizabeth Howlett. Together, plaintiffs’
experts asserted that consumers paid a 2.28% price premium
for the allegedly mislabeled products. Furthermore, Dr.
Howlett suggested that a conjoint analysis could help
determine how consumers value “GMO content.” Plaintiffs,
however, never submitted that conjoint analysis. ConAgra,
again, sought to strike plaintiffs’ experts and opposed class
certification.
This time, the court denied ConAgra’s motions and
certified a Rule 23(b)(3) damage class, though it refused to
certify a 23(b)(2) injunctive class for lack of standing.
ConAgra twice pursued Rule 23(f) interlocutory review of
class certification. It lost both appeals and an attempt to seek
certiorari. The parties began settlement negotiations shortly
after that.
Meanwhile, ConAgra agreed to sell Wesson Oil to The
J.M. Smucker Company in May 2017. About two months
later, ConAgra voluntarily removed the disputed label, and
stopped marketing Wesson products as “natural.” ConAgra
maintains that this litigation played no role in either decision.
In early 2018, the Smucker deal hit an insurmountable
regulatory jam. Undeterred, ConAgra sought a new suitor
for Wesson. At the same time, it engaged in mediation with
the certified class. The district court assigned Magistrate
Judge McCormick to help the parties grease the wheels of
justice, and they emerged with an agreement-in-principle in
November 2018. A month later, ConAgra agreed to sell
Wesson to Richardson International. The deal closed in
February 2019. The next month, the parties proposed a
settlement agreement.
8 BRISEÑO V. HENDERSON
ConAgra agreed to provide, in relevant part:
(a) $0.15 for each unit of Wesson Oils
purchased to households submitting valid
claim forms (to a maximum of thirty units
without proof of purchase, and unlimited
units with proof of purchase) (b) an
additional fund of $575,000 to be
allocated to New York and Oregon class
members submitting valid claim forms,
as compensation for statutory damages
under those states’ consumer protection
laws, and (c) an additional fund of
$10,000 to compensate those in all
classes submitting valid proof of
purchase receipts more than thirty
purchases, at $0.15 for each such
purchase above thirty, with Class
Counsel paying any non-funded claims
(i.e., claims above the $10,000 provided
by ConAgra) from any attorneys’ fees
awarded in this case.
With a class of nearly 15 million consumers, ConAgra
claimed that it theoretically exposed itself to nearly
$67.5 million in claims if every consumer submitted a claim.
(Spoiler alert: that never happens — not even close). The
settlement agreement established a fund on a claims-made
basis — i.e., ConAgra would pay out for only those claims
submitted by consumers. The settlement, however, did not
require ConAgra to identify or provide direct notice to class
members.
The settlement agreement also provided injunctive
relief: Should ConAgra have seller’s remorse and decide to
reacquire the Wesson brand in the future, it agreed not to
BRISEÑO V. HENDERSON 9
advertise or market Wesson Oil as “natural,” unless the FDA
permits the use of the term to describe oil derived from GMO
seeds. Relying on Mr. Weir’s analysis, the parties asserted
that the “the value of the injunctive relief to the Classes” is
$27 million.
Finally, the settlement stated that plaintiffs would
request — and ConAgra would not contest — $6.85 million
in attorneys’ fees and expenses. That amount would come
directly from ConAgra and be separate from the class
settlement fund. If the court, however, sliced the agreed-
upon attorneys’ fees, that reduction would revert to ConAgra
rather than the class.
The parties thus represented that their settlement could
theoretically be worth over $100 million — around
$95 million in value to the class ($67.5 million in potential
payout and $27 million in injunctive relief value), along with
another $6.85 million for the attorneys. Yet, when the dust
settled, ConAgra shelled out less than $8 million, with a
mere $1 million of that going to the class. Class counsel’s
fees swallowed $5.85 million, and expenses devoured
another $978,671. Of the 15 million class members, barely
more than one-half of one percent of them submitted a claim.
Only one class member opted out of the settlement.
M. Todd Henderson, a law professor at the University of
Chicago, objected to the settlement under Rule 23(e),
arguing that attorneys hoarded 88% of the class’s actual
recovery. He asserted that our precedent required the court
to treat the settlement as a constructive common fund (i.e.,
the settlement effectively establishes one common fund to
pay out both the class members and their counsel).
Henderson also contended that the settlement’s “clear
sailing” provision (i.e., ConAgra’s refusal to challenge the
agreed-upon attorney’s fees) and “kicker” clause (i.e., any
10 BRISEÑO V. HENDERSON
reduction in fees reverting to ConAgra, not the class
members) raised the specter of collusion. He also objected
to the stipulated value of the injunctive relief, describing it
as “illusory.” Likewise, Henderson castigated Mr. Weir,
stating that his failure to conduct a price comparison
rendered his opinion unreliable.
Plaintiffs sought final approval of the settlement in July
2019. Based on Mr. Weir’s declaration, they valued
ConAgra’s label change at $19,080,000. They also
contended that, if Wesson’s new owner, Richardson,
continued to refrain from labeling the product as “natural”
for even a year, the value of the injunction would surge to
$30.2 million. And for each year that Richardson did not
label Wesson Oil as “natural,” the class would obtain an
annual benefit of over $11 million, according to Mr. Weir.
Plaintiffs argued that the fee request “represent[ed]
approximately 25.4% of the parties’ estimated value of the
injunctive relief or 23% of Plaintiffs’ conservative
estimate[].” They also calculated their own lodestar fee at
around $11.499 million.
When the claims deadline passed, class members made
97,880 timely claims for $418,919, a shadow of the
$67.5 million potential liability that ConAgra touted in
seeking approval of the settlement. Even with separately
funded pools for New York and Oregon, ConAgra would
pay class members a maximum of $993,919. Out of a class
of 15 million consumers, fewer than 100,000 would receive
a single cent.
The district court held its final fairness hearing in
October 2019. Henderson and class counsel remained
loggerheads on almost every issue. The parties disputed
whether Henderson as an objector, or plaintiffs as
proponents, bore the burden of establishing that the
BRISEÑO V. HENDERSON 11
settlement satisfied Rule 23(e). Henderson argued that the
“kicker” demonstrated ConAgra’s willingness to settle for
roughly $8 million, and that class counsel bargained away
absent class members’ rights in exchange for much of the
settlement. The district court disagreed.
Rejecting Henderson’s motion to strike Mr. Weir’s
expert report, the district court explained that “[h]aving one
expert’s opinion — however purportedly flawed — on the
value of that injunction helps the Court develop its own
view.” Despite recognizing the parties’ “vigorous dispute
over the precise valuation,” it still found that “the injunction
adds at least some value to the amount offered in
settlement.” It continued, “even if there were no injunctive
relief, the [c]ourt would likely find that the amount offered
in settlement was fair and reasonable given the likely
obstacles to Plaintiffs recovering [at trial].”
The district court went on to evaluate the settlement for
fairness under our decision in Staton v. Boeing Co., 327 F.3d
938, 959 (9th Cir. 2003). It explained that the length and
nature of the suit allowed both sides to evaluate the costs and
benefits of protracted litigation, supplemented by the
recommendation of a court-appointed mediator. Again, the
court’s concerns over the merits of the plaintiffs’ suit heavily
influenced its analysis. The court, however, stopped short of
conducting a Rule 23(e) inquiry. Instead, it merely held that
“[t]here is substantial overlap between [Rule 23(e)(2)]
factors and the Staton factors.”
The court, “rel[ying] on the lodestar method,” found
class counsel’s $6.85 million reasonable given the lodestar
amount of “nearly $11.5 million.” Indeed, the court
appeared impressed that “Defendant [was] willing to pay
anything at all given the many liability and damages issues
this case has had from the beginning.” The court also
12 BRISEÑO V. HENDERSON
pointed to “the amount of hours reasonably spent on the
litigation, counsel’s efforts in litigating this years-long
complex action, the results achieved, and the risks inherent
in continued litigation.”
It also emphasized the “substantial” nature of “the
[$0.15] per-unit award,” given that it had restricted relief to
“only the portion of [the] premium attributable to
consumers’ belief that ‘100% natural’ meant that the
products were GMO-free.” It thus concluded that “[t]he
settlement amount offered provide[d] an immediate and
tangible benefit to class members and eliminate[d] the risk
that they could receive less than that amount, or nothing at
all, if litigation continued.”
And while the court “appreciate[d] Objector’s high-level
concerns regarding an apparent trend [sic] toward class
action settlements disproportionately benefitting attorneys,”
it was “not persuaded” that “the disproportionate attorney
fee award under the settlement render[ed] the entire
settlement unfair.” Rather, the court maintained that “the
record in this case sufficiently ‘dispel[s] the possibility that
class counsel bargained away a benefit to the class in
exchange for their own interests.’” Henderson timely
appealed, and we have jurisdiction under 28 U.S.C. § 1291.
STANDARD OF REVIEW
We review for abuse of discretion a district court’s
decision to approve a class action settlement. Roes, 1–2 v.
SFBSC Mgmt., LLC, 944 F.3d 1035, 1043 (9th Cir. 2019).
“A [district] court abuses its discretion when it fails to apply
the correct legal standard or bases its decision on
unreasonable findings of fact.” Nachshin v. AOL, LLC,
663 F.3d 1034, 1038 (9th Cir. 2011). Even so, “[a]ppellate
review of a settlement agreement is generally ‘extremely
BRISEÑO V. HENDERSON 13
limited.’” Dennis v. Kellogg Co., 697 F.3d 858, 864 (9th
Cir. 2012) (citing Hanlon v. Chrysler Corp., 150 F.3d 1011,
1026 (9th Cir. 1988)). We, however, “hold district courts to
a ‘higher procedural standard when making [a]
determination of substantive fairness.’” Roes, 1–2, 944 F.3d
at 1043 (quoting Allen v. Bedolla, 787 F.3d 1218, 1223 (9th
Cir. 2015)). See also Dennis, 697 F.3d at 864 (explaining
that “‘[t]o survive appellate review, the district court must
show it has explored comprehensively all factors,’ and must
give ‘a reasoned response’ to all non-frivolous objections”
(citing Officers for Justice v. Civil Serv. Comm’n, 688 F.2d
615, 624 (9th Cir. 1982))). Thus, this court “will rarely
overturn an approval of a” compromised settlement “unless
the terms of the agreement contain convincing indications
that . . . self-interest rather than the class’s interest in fact
influenced the outcome of the negotiations.” Staton,
327 F.3d at 960; Allen, 787 F.3d at 1223.
“We also review for abuse of discretion a district court’s
award of fees and costs to class counsel, as well as its method
of calculation.” Labatz v. U.S. Cellular of Cal., Inc., 22 F.3d
1142, 1148–49 (9th Cir. 2000).
ANALYSIS
I. The district court erred by failing to apply the new
Rule 23(e)(2), which requires courts to scrutinize
attorneys’ fee arrangements.
A. Under the newly revised Rule 23(e)(2), courts should
apply the Bluetooth factors even for post-class
certification settlements.
Rule 23(e) imposes on district courts an independent
obligation to ensure that any class settlement is “fair,
reasonable, and adequate,” accounting for the interests of
14 BRISEÑO V. HENDERSON
absent class members. Fed. R. Civ. P. 23(e)(2). Likewise,
we recognize “an independent obligation to ensure that [any
attorneys’ fee] award, like the settlement itself, is
reasonable, even if the parties have already agreed to an
amount.” In re Bluetooth Headset Products Liability
Litigation, 654 F.3d 935, 941 (9th Cir. 2020); see also
Staton, 327 F.3d at 960–64. Indeed, settlement agreements
“warrant special attention when the record suggests that
settlement is driven by fees; that is, when counsel receive a
disproportionate distribution of the settlement.” Hanlon,
150 F.3d at 1021. Regardless of “whether the attorneys’ fees
come from a common fund or are otherwise paid, the district
court must exercise its inherent authority to assure that the
amount and mode of payment of attorneys’ fees are fair and
proper.” Zucker v. Occidental Petroleum Corp., 192 F.3d
1323, 1328 (9th Cir. 1999). 1
Before the 2018 amendment, Rule 23 stated that class
settlements should be “fair, reasonable, and adequate” but
did not elaborate. Like our sister circuits, we filled in the
gaps, instructing courts to consider the following factors
(sometimes called “Hanlon factors” or “Staton factors”) in
assessing whether a settlement is “fair, reasonable, and
adequate”:
[T]he strength of the plaintiffs’ case; the risk,
expense, complexity, and likely duration of
1
While we do not address whether the settlement agreement
amounts to a constructive common fund as alleged by Henderson, the
district court on remand should review the settlement structure to
determine whether to apply common fund principles to its 23(e) inquiry.
See Bluetooth, 654 F.3d at 948–49 (explaining that “[e]ven when
technically funded separately, the class recovery and the agreement on
attorneys’ fees [are] a package deal . . . for purposes of analyzing . . . the
settlement’s overall reasonableness”) (internal quotations omitted).
BRISEÑO V. HENDERSON 15
further litigation; the risk of maintaining
class action status throughout the trial; the
amount offered in settlement; the extent of
discovery completed and the stage of the
proceedings; the experience and views of
counsel; the presence of a governmental
participant; and the reaction of the class
members to the proposed settlement.
Hanlon, 150 F.3d at 1026; Staton, 327 F.3d at 959 (internal
citations and quotations omitted). Admittedly, we never
explicitly mandated consideration of the terms of attorneys’
fees in the Hanlon/Staton factors.
On the other hand, we have recognized the risks in
allowing counsel to bargain on behalf of the entire class,
especially pre-class certification when counsel may try to
strike a quick settlement on behalf of the class. See Staton,
327 F.3d at 960. In Bluetooth, we explained that courts
should scrutinize agreements for “subtle signs that class
counsel have allowed pursuit of their own self-interests . . .
to infect the negotiations.” 654 F.3d at 947. We identified
three of those signs: (1) “when counsel receive[s] a
disproportionate distribution of the settlement”; (2) “when
the parties negotiate a ‘clear sailing arrangement,’” under
which the defendant agrees not to challenge a request for an
agreed-upon attorney’s fee; and (3) when the agreement
contains a “kicker” or “reverter” clause that returns
unawarded fees to the defendant, rather than the class. Id.In reviewing settlements struck before class certification,
district courts must apply these so-called Bluetooth factors
to smoke out potential collusion.
Last year, we noted that “Bluetooth therefore left open a
question no subsequent case has answered,” whether its
16 BRISEÑO V. HENDERSON
heightened inquiry applies to post-class certification
settlements. Campbell v. Facebook, Inc., 951 F.3d 1106,
1125–26 (9th Cir. 2020). We now answer that question:
indeed, it does.
That answer flows from the revised Rule 23(e). In
December 2018, Congress and the Supreme Court amended
Rule 23(e) to set forth specific factors to consider in
determining whether a settlement is “fair, reasonable, and
adequate,” including:
23(e)(2)(C): [Considering whether] the
relief provided for the class is adequate,
taking into account:
(i) the costs, risks, and delay of trial
and appeal;
(ii) the effectiveness of any
proposed method of
distributing relief to the class,
including the method of
processing class-member claims;
(iii) the terms of any proposed
award of attorney’s fees,
including timing of payment; and
(iv) any agreement required to be
identified under Rule 23(e)(3).
23(e)(2)(D): the proposal treats class
members equitably relative to each other.
Fed. R. Civ. P 23(e)(2)(C)–(D) (emphasis added).
BRISEÑO V. HENDERSON 17
Under this revised text, district courts must now consider
“the terms of any proposed award of attorney’s fees” when
determining whether “the relief provided for the class is
adequate.” Fed. R. Civ. P. 23(e)(2)(C)(iii). While none of
our sister circuits has yet directly addressed what this
provision specifically requires, 2 the plain language indicates
that a court must examine whether the attorneys’ fees
arrangement shortchanges the class. In other words, the new
Rule 23(e) makes clear that courts must balance the
“proposed award of attorney’s fees” vis-à-vis the “relief
provided for the class” in determining whether the settlement
is “adequate” for class members.
Nothing in the Rule’s text suggests that this requirement
applies only to pre-certification settlements. Congress
required courts to scrutinize attorney’s fees, even if the
settlement occurred after class certification. And for good
reason, too: The specter of collusion still casts a long shadow
2
The Second Circuit provided some guidance in Fresno Cty. Emps.’
Ret. Assoc. v. Isaacson/Weaver Family Trust, 925 F.3d 63, 71–72 (2d
Cir. 2019) (describing 23(e)(2), in a post-certification class settlement
context, as a “backstop that prevents unscrupulous counsel from quickly
settling a class’s claims to cut a check” and involving “judicial review of
class-action settlements with a ‘searching assessment’ of counsel’s fee
award”) (internal citations omitted). But several district courts have
conducted limited Rule 23(e)(2)(C)(iii) analyses, albeit without fulsome
inquiry into its textual requirements. See In re MyFord Touch Consumer
Litig., No. 13-CV-03072-EMC, 2019 WL 1411510 at *8–9 (N.D. Cal.
Mar. 28, 2019) (citing Hanlon, 150 F.3d at 1026); In re GSE Bonds
Antitrust Litig., 414 F. Supp. 3d 686, 693 (S.D.N.Y. Nov. 7, 2019);
Gumm v. Ford, No. 5:15-CV-41-MTT, 2019 WL 479506, at *3 (M.D.
Ga. Jan 17, 2019) (quoting Fed. R. Civ. P. 23 Advisory Comm.’s Note,
2018 amend.); In re J.P. Morgan Stable Value Fund ERISA Litig.,
No. 12-CV-2458 (VSB), 2019 WL 4734396, slip op. at *2–5 (S.D.N.Y.
Sept. 23, 2019).
18 BRISEÑO V. HENDERSON
over post-class certification settlements when they involve
divvying up funds between class members and class counsel.
We have observed that courts should scrutinize pre-class
certification settlements because plaintiffs’ counsel may
collude with the defendant to strike a quick settlement
without devoting substantial resources to the case. See, e.g.,
Hanlon, 150 F.3d at 1026 (adopting other circuits’ “more
probing inquiry” for “settlement approval that takes place
prior to formal class certification”). The potential for
collusion reaches its apex pre-class certification because,
among other things, (1) the court has not yet approved class
counsel, who would owe a fiduciary duty to the class
members; and (2) plaintiffs’ counsel has not yet devoted
substantial time and money to the case, and may be willing
to cut a quick deal at the expense of class members’ interests.
See generally In re General Motors Corp. Pick-Up Truck
Fuel Tank Prods. Liab. Litig., 55 F.3d 768, 788–90 (3d Cir.
1995).
In contrast, by the time a court has certified a class — the
theory goes — the parties have vigorously litigated the
dispute, reducing the chance that class counsel will settle on
the cheap for a quick buck. By devoting substantial time and
resources to the case, class counsel has skin in the game,
guaranteeing his or her interest in maximizing the size of the
settlement fund. Likewise, because a district court has
appointed class counsel who owes a fiduciary duty to the
class members, class counsel would be ethically forbidden
from sacrificing the class members’ interests. See Allen,
787 F.3d at 1223.
All of this is true — but also beside the point. Simply
put, class certification does not cleanse all sins, especially
when it involves potential collusion over divvying up funds
between class counsel and the class (rather than the size of
BRISEÑO V. HENDERSON 19
the settlement fund or relief). See Staton, 327 F.3d at 972
n.22 (recognizing “the inherent tensions among class
representation, defendant’s interests in minimizing the cost
of the total settlement package, and class counsel’s interest
in fees”).
Even after a court has certified a class, class counsel still
has the incentive to conspire with the defendant to reduce
compensation for class members in exchange for a larger fee.
A defendant goes along with this collusion because it cares
only about the total payout, not the division of funds between
class and class counsel. After all, a defendant, no matter if a
class has been certified, has “no reason to care about the
allocation of its cost of settlement between class counsel and
class members.” Pearson v. NBTY, Inc., 772 F.3d 778, 783
(7th Cir. 2014) (Posner, J.). Instead, “all it cares about as a
rational maximizer of its net worth is the bottom line — how
much the settlement is likely to cost it.” Id.Consider this example. What would any rational
defendant do if faced with these two settlement options:
(1) establish a $10 million fund for class members and pay
$3 million in fees to class counsel for a total payout of
$13 million, or (2) set up a $7 million fund and pay
$4 million to class counsel for a total payout of $11 million.
A defendant would choose the second option because it
would save $2 million, even though it shortchanges class
members. Nothing about class certification can make a
defendant care more about its opponents than its own bottom
line.
Put another way, a post-class certification settlement
only ensures that the parties litigated aggressively to arrive
at an adequate total fund size; it does not, however, address
the inherent incentives that tempt class counsel to elevate his
or her own interest over those of the class members. As one
20 BRISEÑO V. HENDERSON
prominent academic who supports class actions put it, “the
profit motive will give class action lawyers incentives to do
sneaky things, just like it gives businesses incentives to do
sneaky things.” Brian T. Fitzpatrick, The Conservative Case
for Class Actions 72 (2019). The potential for this type of
collusion is no hoax — it is real, whether a class has been
certified or not.
Congress sought to end this practice by changing the text
of Rule 23(e)(2)(C). We thus now hold that courts must
apply Bluetooth’s heightened scrutiny to post-class
certification settlements in assessing whether the division of
funds between the class members and their counsel is fair
and “adequate.” Fed. R. Civ. P. 23(e)(2)(C).
B. The settlement had all the hallmarks of a potentially
collusive settlement giving short shrift to the class.
Despite holding its final approval hearing after the new
version of Rule 23(e)(2) took effect, the district court did not
apply it and instead relied on this court’s Staton factors.
True, as the district court recognized, many of the Staton
factors fall within the ambit of the revised Rule 23(e). But
Congress provided district courts with new instructions —
such as analyzing the “terms of the settlement” and “terms
of any proposed award of attorney’s fees” — that require
them to go beyond our precedent. Although we need not
decide whether a district court always abuses its discretion
by applying the judicially manufactured factors in Staton and
Hanlon, we must follow the law that Congress enacted. And
that means scrutinizing the fee arrangement for potential
collusion or unfairness to the class. Fed. R. Civ. P.
23(e)(2)(C)(iii).
Perhaps because our court had not clarified whether the
Bluetooth factors apply to post-class certification
BRISEÑO V. HENDERSON 21
settlements, the district court did not adequately scrutinize
the fee arrangement for collusion. It instead noted that the
fee request amounted to less than half of the lodestar amount.
But the lodestar amount alone cannot tell us if the requested
fees are reasonable. Counsel may have frittered away hours
on pointless motions or unnecessary discovery, padding the
lodestar. See Chambers v. Whirlpool Corp., 980 F.3d 645,
665 (9th Cir. 2020) (“asymmetrical nature of discovery in
class actions . . . can lead to excessive billing”). Or maybe
counsel devoted tremendous hours but achieved very little
for the class. See id. at 667. And in any event, even
attorneys’ fees based on a reasonable percentage of an
unreasonable number of hours are still unreasonable.
We hold that district courts must apply the Bluetooth
factors to scrutinize fee arrangements — even in post-class
certification settlements — to determine if collusion may
have led to class members being shortchanged. The class
settlement here features all three red flags of potential
collusion that we warned about in Bluetooth.
First, plaintiffs’ counsel “receive[d] a disproportionate
distribution of the settlement.” Bluetooth, 654 F.3d at 947.
The lion’s share of the money — almost $7 million — will
end up in the pockets of attorneys, while the class receives
relative scraps, less than a million dollars. So little goes to
the class members in a claims-made settlement, such as this
one, because the redemption rate is notoriously low,
especially when it involves small-ticket items. The
redemption rate shrinks even further if the settlement, as
here, provides for no direct notice to class members. 3
3
Although Henderson did not object to the lack of direct notice, we
have an independent duty to examine the “effectiveness of any proposed
method of distributing relief to the class.” Fed. R. Civ. P. 23(e)(2)(C)(ii).
22 BRISEÑO V. HENDERSON
Despite ConAgra’s claim that it could potentially provide
over $95 million in payments and value to the class
members, they ended up receiving only about 1% of that
touted amount. And that was no surprise, given how the
parties knowingly structured the settlement. This gross
disparity in distribution of funds between class members and
their class counsel raises an urgent red flag demanding more
attention and scrutiny.
Second, the parties agreed to a “clear sailing
arrangement” in which ConAgra agreed not to challenge the
agreed-upon fees for class counsel. This flashes yet another
red flag under Bluetooth. Id. A clear sailing provision
signals the potential that a defendant agreed to pay class
counsel excessive fees in exchange for counsel accepting a
lower amount for the class members. Id. at 949. Indeed, the
“very existence of a clear sailing provision increases the
likelihood that class counsel will have bargained away
something of value to the class.” Id. at 948 (quoting
Weinberger v. Great N. Nekoosa Corp., 925 F.2d 518, 525
(1st Cir. 1991)). When faced with a clear sailing provision,
courts thus have a “heightened duty to peer into the provision
and scrutinize closely the relationship between attorney’s
fees and benefit to the class, being careful to avoid awarding
‘unreasonably high’ fees simply because they are
uncontested.” Id.We, however, do not hold that parties must provide direct notice,
especially for low-cost items bought by millions of consumers. A
contrary ruling would likely not be cost-effective, with administrative
and notice costs devouring most of the settlement fund. But we mention
the lack of direct notice to underscore that the parties here knew that the
redemption rate would be extremely low and that the agreed-upon
attorneys’ fees would swamp the actual recovery for class members.
BRISEÑO V. HENDERSON 23
Finally, the agreement contains a “kicker” or “reverter”
clause in which ConAgra, not the class members, receives
the remaining funds if the court reduces the agreed-upon
attorneys’ fees. Id. We identified this, too, in Bluetooth, as
a warning sign. The reason is obvious: If ConAgra is
content to pay nearly $7 million to class counsel but the court
finds the full amount unreasonable, there is no plausible
reason why the class should not benefit from the spillover of
excessive fees. As we warned in Bluetooth, “[u]nless the
district court is able to conclude that in this particular case,
a kicker provision is in the class’ best interest as part of the
settlement package, the kicker makes it less likely that the
settlement can be approved if the district court determines
the clear sailing provision authorizes unreasonably high
attorneys’ fees.” Id. at 949.
Here, the parties managed to run afoul of all three
Bluetooth factors. That also raises the question of whether
the parties colluded to prevent any direct challenge to
excessive fees. Typically, class members can challenge an
excessive fee award under Rule 23(h). But when parties
agree to a “kicker,” a 23(h) challenge cannot increase class
recovery because the excessive fees wind up back in the
defendant’s pockets. That means that a class member may
not have standing to object to the excessive fees because any
action taken by the court would not redress the class
member’s purported injury. 4 Meanwhile, by agreeing to the
“clear sailing” clause, the defendant has also waived its right
to challenge the attorneys’ fees, foreclosing any action under
Rule 23(h). See Pearson, 772 F.3d at 786 (describing this
combination as “a gimmick for defeating objectors”).
4
Henderson thus could only reach this court by challenging the
totality of the settlement, rather than just attorneys’ fees.
24 BRISEÑO V. HENDERSON
We stress that nothing in this opinion suggests that courts
should unnecessarily meddle in class settlements negotiated
by the parties or that courts have a duty to maximize the
settlement fund for class members. Far from it. We instead
follow the rules of our involvement in the class action
process as set by Congress. Under those rules, the parties
can agree on any “fair, reasonable, and adequate” settlement
amount. Fed. R. Civ. P. 23(e). Nor do we seek to make any
of the identified signs of collusion an independent basis for
withholding settlement approval. Disproportionate fee
awards, clear sailing agreements, and kicker clauses all may
be elements of a good deal. But, as we explained in
Bluetooth, they may also signal a collusive settlement, and
district courts must scrutinize them where they appear. And
here, the parties did more than just check every Bluetooth
box; their settlement presented a Murderers’ Row of
provisions out of left field that seemingly favor class counsel
and the defendant at the expense of the class members. The
district court thus should give a hard look at the settlement
agreement to ensure that the parties have not colluded at
class members’ expense.
II. The district court erred by failing to approximate the
value of the injunction.
Next, we address Henderson’s argument that the district
court erred by failing to recognize the settlement’s injunctive
relief as worthless. Rather than attempt to quantify the value
of the injunctive relief, it instead concluded that it had
“some” value. We agree with Henderson that this constitutes
reversible error. See Roes, 1–2, 944 F.3d at 1055 (explaining
that a district court must either quantify and explain the value
of injunctive relief or exclude it from calculations).
We go further and also hold that the district court erred
by placing even “some value” on the injunction because it
BRISEÑO V. HENDERSON 25
was, and is, virtually worthless. A district court abuses its
discretion when it approves a settlement despite “no
evidence that the relief afforded by [a] settlement has any
value to the class members, yet to obtain it they had to
relinquish their right to seek damages in any other class
action.” Koby v. ARS Nat. Servs., Inc., 846 F.3d 1071, 1079
(9th Cir. 2017).
Certainly, “the relief provided to the class cannot be
assessed in a vacuum.” Campbell, 951 F.3d at 1123. After
all, a “class [does] not need to receive much for [a]
settlement to be fair [when] the class [gives] up very little.”
Id. at 1124. And “[i]n evaluating what class members
relinquished in [a] settlement, [courts] must also consider
whether class members were required to release claims that
were more meritorious than the theories Plaintiffs pursued in
[the present] litigation.” Id. at 1124.
But, critically, we also find illusory any injunction that
“does not obligate [the bound party] to do anything it was
not already doing . . . voluntarily . . . for its own business
reasons . . . not because of any court-or settlement-imposed
obligation. . . [when a defendant] would therefore be
unlikely to revert back to its old ways regardless of whether
the settlement contained the stipulated injunction.” Koby,
846 F.3d at 1080. ConAgra would like us to believe that, by
agreeing to the settlement’s injunctive relief, it bound its
own hands and threw away the key. In reality, it did that
years before reaching an agreement with the class.
Under the settlement, ConAgra agreed to refrain from
marketing Wesson Oil as “100% Natural.” That sounds
great, except that ConAgra already abandoned that strategy
in 2017 — two years before the parties hammered out their
agreement — for reasons it claims were unrelated to this or
any other litigation. Even worse, ConAgra’s promise not to
26 BRISEÑO V. HENDERSON
use the phrase “100% Natural” on Wesson Oil appears
meaningless because ConAgra no longer owns Wesson Oil.
In reality, this promise is about as meaningful and enduring
as a proposal in the Final Rose ceremony on the Bachelor.
Simply put, Richardson — the new owner of Wesson Oil —
can resume using the “100% Natural” label at any time it
wishes, thereby depriving the class of any value theoretically
afforded by the injunction. ConAgra thus essentially agreed
not to do something over which it lacks the power to do.
That is like George Lucas promising no more mediocre and
schlocky Star Wars sequels shortly after selling the franchise
to Disney. Such a promise would be illusory. 5
Granted, ConAgra also promised to abide by the
injunction if it reacquires Wesson. Yet at the fairness
hearing, ConAgra’s counsel emphasized the company’s lack
of interest in buying back the brand. Indeed, ConAgra’s
attempts to sell Wesson predated the parties’ first mediation.
Thus, for the injunction to have any value, ConAgra would
not only need to abandon its long-term corporate strategy,
purchase the brand, possibly at a premium, but then also
redesign and execute a brand-new labeling and marketing
campaign. We find this unlikely and speculative at best.
We do not question the district court’s view of the
plaintiffs’ likelihood of success in future litigation. But even
if the class gave up very little, it has a right to receive
something in exchange. Here, they did not because the
injunctive relief is practically worthless.
Nothing in the testimony of the plaintiffs’ expert, Mr.
Weir, convinces us otherwise. As Professor Fitzpatrick of
5
As evident by Disney’s production of The Last Jedi and The Rise
of Skywalker.
BRISEÑO V. HENDERSON 27
Vanderbilt Law School explained, “[n]onmonetary relief is
much more difficult to put a number on than a pot of cash is,
and lawyers may give the court rosy numbers to justify fee
awards.” Fitzpatrick, The Conservative Case for Class
Actions 71. Here, the lawyers relied on an expert to provide
a rosy number untethered to reality. Courts must “stamp []
out” such attempts. Id. at 72.
Mr. Weir concluded that the annual value of the
injunctive relief is a staggering $11.54 million. In other
words, ConAgra had been charging a price premium — to
the aggregate tune of $11.54 million a year — for the “100%
Natural” label, and, because of the injunction, that full
amount accrues to the class each year. So, according to Mr.
Weir, this settlement is essentially minting money to the tune
of eight figures each year for the class members. Despite
ample opportunity, he never tested his theory. That failure
is more telling because he had a real-life example he could
have examined: ConAgra dropped the “100% Natural” label
years ago, so he could have studied whether that led to the
removal of the price premium. Mr. Weir claims other real-
life market factors made performing a post-labelling price-
check futile. But that admission appears to doom his own
expert conclusion that the label led to a price premium — if
he cannot separate other market factors to figure out a price
premium in real-life, how can he do so in a hypothetical
study that he did not conduct? In short, Mr. Weir effectively
admits that his expert testimony turns on “unverifiable
evidence.” See Domingo ex rel. Domingo v. T.K., 289 F.3d
600, 607 (9th Cir. 2002). Because Mr. Weir’s testimony is
unverifiable, it is ultimately worth as little as the settlement’s
injunctive relief.
28 BRISEÑO V. HENDERSON
III. Erie does not preclude the application of Rule
23(e)(2).
We next address — and reject — appellees’ argument
that the Erie doctrine precludes the application of Rule 23(e)
to a class settlement where state substantive law governs
attorney’s fees in fee-shifting cases.
Every year, tens of thousands of first year law students
learn about Erie R. Co. v. Tompkins, and, soon after that,
they become second-and-third-year law students with poor
understanding of the doctrine. 304 U.S. 64, 58 S. Ct. 817,
82 L.Ed. 1188 (1938). Some of these students take the bar
exam, fail, and try again or do other things. Others pass and
become attorneys who still do not understand Erie. Granted,
the difference between substantive and procedural law is
sometimes fuzzy. While we seek to provide clarity when an
Erie question presents itself to this court, we leave most of
the work to professors like M. Todd Henderson and Samuel
Issacharoff. That said, a “Federal Rule of Procedure is not
valid in some jurisdictions and invalid in others — and valid
in some cases and invalid in others — depending [solely]
upon whether its effect is to frustrate [state law].” Shady
Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S.
393, 409 (2010).
In any event, Henderson challenges 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 has one, is simply not implicated in this appeal.
Instead, this case concerns Congress’s simple command that
all federal district courts must withhold approval of any class
settlement, absent a finding that it is “fair, reasonable, and
adequate.” Fed. R. Civ. P. 23(e)(2).
BRISEÑO V. HENDERSON 29
IV. The district court did not err by determining that
Henderson failed to rebut its own conclusion that
the settlement satisfied Rule 23(e)(2).
Finally, we address Henderson’s argument that the
district court improperly shifted to him the burden of
rebutting the settlement’s fairness, reasonableness, and
adequacy at the fairness hearing. Contrary to his
contentions, however, the district court never required
Henderson to show that the settlement was “clearly
inadequate.”
Rule 23(e)(2) assumes that a class action settlement is
invalid. See Roes, 1–2, 944 F.3d at 1049 n.12 (explaining
that “[a] presumption of fairness . . . is very likely
inappropriate under the standards now codified in Rule
23(e)(2)”). It also instructs that “[i]f the proposal would bind
class members, the court may approve it only after a hearing
and only on finding that it is fair, reasonable, and adequate.”
Fed. R. Civ. P. 23(e)(2). As class counsel points out, this is
exactly what the district court tried to do. The record
demonstrates that the district court conducted its own
independent analysis, and then considered, and dismissed,
Henderson’s objections.
In Roes, 1–2, we reversed a district court that applied a
“‘presumption that [a] settlement is fair and reasonable’” to
a pre-certification class that “is the product of arms-length
negotiations.” 944 F.3d at 1049. Noting that this court has
“never endorsed applying a broad presumption of fairness,
but ha[s] actually required that courts do the opposite . . .
when it comes to settlements negotiated prior to class
certification,” we held that “the district court failed to apply
the correct legal standard and to conduct the searching
inquiry required, thereby abusing its discretion.” Id.
Critically, we explained that our decision turned on the
30 BRISEÑO V. HENDERSON
amended text of Rule 23(e)(2). Id. at 1049 n.12 (“Rule
23(e)(2) now identifies ‘whether . . . the proposal was
negotiated at arm’s length’ as one of four factors that courts
must consider and does not suggest that an affirmative
answer to that one question creates a favorable presumption
on review of the other three”) (citing Fed. R. Civ.
P. 23(e)(2)(B)). In contrast, though the district court did
allude to a presumption of fairness, it confined it to its
analysis of one of the Staton factors. It did not shift the
burden to Henderson. Henderson’s objection stems from the
following textual juxtaposition:
In most situations, unless the settlement is
clearly inadequate, its acceptance and
approval are preferable to lengthy and
expensive litigation with uncertain results.’
Nat’l Rural Telecommunications, 221 F.R.D.
at 526 (quoting 4 A Conte & H. Newberg,
Newberg on Class Actions, § 11:50 at 155
(4th ed. 2002)). The Objection fails to
persuade the Court that this Settlement
Agreement is clearly inadequate.
Were that the crux of the district court’s ruling, Henderson
would have a point. But the district court already concluded,
albeit improperly, that the settlement satisfied Rule 23(e)(2).
Moreover, an assumption of invalidity does not demand
disfavoring settlement. Quite the opposite, “we have
repeatedly noted that ‘there is a strong judicial policy that
favors settlements, particularly where complex class action
litigation is concerned.’” Allen, 787 F.3d at 1223 (quoting
In re Syncor ERISA Litig., 516 F.3d 1095, 1101 (9th Cir.
2008) (citing Class Plaintiffs v. City of Seattle, 955 F.2d
BRISEÑO V. HENDERSON 31
1268, 1276 (9th Cir. 1992))). We do not intend to revisit that
policy. 6
CONCLUSION
“Two Virginians and an immigrant walk into
a room/ diametrically opposed/ foes/ They
emerge with a compromise/ Having opened
doors that were previously closed/ Bros/ . . .
No one else was in the room where it
happened . . . No one really knows how the
game is played/ The art of the trade/ How the
sausage gets made/ We just assume that it
happens/ But no one else is in the room where
it happens.”
Hamilton: An America Musical (2016).
Though that process suffices for political compromise
and even most settlements, it does not for class action
settlements. Because they impose binding judgments on
absent class members, federal courts must approve class
action settlements and ensure that they are fair, reasonable,
and adequate. And under the newly enacted Rule 23(e),
federal courts must scrutinize attorneys’ fees for potential
collusion that shortchanges the class, even in post-class
certification settlements. We REVERSE the district court’s
approval of the settlement, and REMAND this case for
further proceedings consistent with this opinion.
6
Nor do we intend to grant Henderson’s motion for sanctions. (Dkt.
No. 31). That motion is DENIED.