ORDER DENYING FINAL APPROVAL OF CLASS ACTION SETTLEMENT
BARRY TED MOSKOWITZ, , Chief District Judge.
Co-Lead Class Counsel (and Proposed Class Counsel for the Settlement Class) have filed a Motion for Final Approval of Class Action Settlement. The Court held a hearing on the motion on October 22, 2013. For the reasons set forth below, the Court DENIES the motion for final approval of the settlement.
I. SETTLEMENT TERMS
The terms of the Settlement Agreement are set forth in the Amended Stipulation of Settlement ("Am. Stip."). (09cv1088 - Doc. 238.)
The "Settlement Class" is defined as including those persons who purchased in the United States any of the Hydroxycut Products (specific products set forth in § II.A.23 of the Am. Stip.) between May 9, 2006 and May 1, 2009, inclusive. (Am. Stip. § II.A.46.) Excluded from the Settlement Class are (1) persons who purchased Hydroxycut Products for the purpose of resale; (2) Iovate and its officers, directors, and employees; (3) any person who filed a valid and timely Request for Exclusion; and (4) the Judges to whom this action is assigned and any members of their immediate families.
The settlement relief consists of a $10 million Cash Component and a $10 million Product Component. Settlement Class Members who opt to receive cash will receive $25 for each Hydroxycut Product they purchased. (Am. Stip. § IV.A.2.) No proof of purchase is required to receive $25. Requests for payment for more than one unit of Hydroxycut Product require proof of purchase. In lieu of cash, Settlement Class Members can elect to receive a Product Bundle for each purchase of a Hydroxycut Product. (Am. Stip. § IV.A.3.) Each Product Bundle shall have an aggregate retail price of not less than $50. Authorized claimants requesting one Product Bundle will be provided with the Product Bundle without proof of purchase. A request for more than one Product Bundle requires proof of purchase.
Any amount remaining in the Cash Component after payment of Notice and Claim Administration Expenses, necessary taxes and tax expenses, and Eligible Cash Claims constitutes the "Residual Settlement Amount." (Am. Stip. § IV.C.1.a.) Any amount remaining in the Product Component after payment of Eligible Product Claims, Product Bundle Shipping Expenses, and any amounts needed to pay Eligible Cash Claims,  shall, at Iovate's option, either (1) be provided by Iovate to the general public pursuant to the cy pres doctrine in the form of Additional Product; or (2) be added to the Residual Settlement Amount. (Am. Stip. § IV.C.2.a.)
The Residual Settlement Amount shall be held in trust by an Escrow Agent. (Am. Stip. § IV.C.1.b.) A Personal Injury Claimant - defined as persons who have lawsuits pending in federal or state courts, or who have executed tolling agreements as of September 1, 2012, and allege personal injury resulting from the ingestion of one or more Hydroxycut Products (Am. Stip. § II.A.33) - may submit a Residual Settlement Claim Form to the Escrow Agent if the claimant is a party to a settlement or final judgment. Upon receipt of the Residual Settlement Amount Claim Form, the Escrow Agent shall be authorized to pay the amount of such judgments or settlements, on a first-come, first-served basis, without any pro rata or per capita adjustment, until the Residual Settlement Amount is exhausted. (Am. Stip. § IV.C.1.b.)
If any funds remain after six years from the Effective Date (date of entry of final judgment or the date after an appeal has been concluded and is no longer subject to review), the remaining funds shall be paid to ChangeLab Solutions or some other similar organization pursuant to the cy pres doctrine. (Am. Stip. § IV.C.1.d.)
Iovate agrees not to oppose an application for an award of attorney's fees not to exceed $5, 000, 000, and for an award of out-of-pocket expenses not to exceed $300, 000. (Am. Stip. § X.A.) Class Counsel seeks fees in the amount of $5, 000, 000 and expenses in the amount of $193, 656.64. According to Class Counsel, the combined fee and expense award amounts to 21% of the settlement value created by plaintiffs' counsel's efforts ($20 million Settlement Fund, plus $5 million in attorneys' fees, and up to $300, 000 in expenses).
A district court can approve a class action settlement if the court finds that the settlement is "fair, reasonable, and adequate." Fed.R.Civ.P. 23(e). When the settlement is reached before formal class certification, settlement requires a "higher standard of fairness" and "a more probing inquiry than may normally be required under Rule 23(e)." Hanlon v. Chrysler Corp. , 150 F.3d 1011, 1026 (9th Cir. 1998). The reason for the higher level of scrutiny is that there is "greater potential for a breach of fiduciary duty owed the class during settlement." In re Bluetooth Headset Prods. Liab. Litig. , 654 F.3d 935, 946 (9th Cir. 2011). "Collusion may not always be evident on the face of a settlement, and courts therefore must be particularly vigilant not only for explicit collusion, but also for more subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations." Id. at 947.
At the final approval hearing, the Court questioned Class Counsel and Iovate's attorney about the cy pres distribution provisions of the settlement. Based on the information obtained at the hearing, the Court finds that the cy pres remedy does not satisfy the standards for cy pres relief set forth by the Ninth Circuit. Therefore, the Court cannot find that the settlement is ...