Dennis v. Kellogg Company

A district court abuses its discretion when cy pres distributions in a pre-certified class settlement for false advertisement claims are not upheld when the award is not related to the plaintiffs class’s underlying assertions, does not clearly identify the beneficiaries of the cy pres award, and is not “guided by the objectives of the underlying statute”.

Two members of a class action appealed the district courts approval of a pre-certified class settlement award and attorney fees arguing that the cy pres distributions were not related to the plaintiff class’s claims and that the distributions would benefit class counsel, not class plaintiffs. The plaintiff class asserted false advertising claims against Kellogg Co. for their marketing campaign of Frosted Mini Wheats. Kellogg claimed that eating the cereal-improved children’s cognitive functions after breakfast. The plaintiff class asserted that Kellogg’s claims were not scientifically valid and claimed unjust enrichment under California’s Unfair Competition Law and Consumer Legal Remedies Act. Under the settlement Kellogg agreed to distribute 5.5 million “worth of specific Kellogg food items to charities that feed the indigent” and agreed to pay up to $2 million for class counsels attorney fees. The Ninth Circuit held that the class settlement award was not valid because the settlement did not clearly identify the beneficiaries of the cy pres award and that cy pres awards must serve as the “next best distribution” to distributing the funds straight to the class members. The Ninth Circuit held that a cy pres award must (1) “be guided the objectives of the underlying statute”, (2) serve interests of the “silent class members”, (3) and must not benefit “a group to remote from the plaintiff class”. The Ninth Circuit held that the cy pres award was removed from the concerns underlying the UCL and CLRA and the distribution to the charities had little to do with the plaintiff class and their claims. The Ninth Circuit held that district courts approval of the settlement “was an abuse of discretion”. Further, the Ninth Circuit held that the award of attorney fees was unreasonable because it was uncertain that the class would benefit from the cy pres distributions. REVERSED, JUDGMENT VACATED and CASE REMANDED.