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Profitable Attorney's Fees for an Injunctive Only Class?

On June 27, 2013, a federal district court judge from the influential D.C. Circuit granted preliminary approval of a class settlement between L'Oreal and consumers of L’Oreal hair care products. Richardson v. L'Oreal, 2013 WL 3216061 (D.C.C. 2013). Plaintiffs allege that L'Oreal hair products are deceptively labeled as "Available Exclusively in Salons" despite being available at discount retailers such as Kmart, Target and Walgreens. Such deceptive labeling allegedly allowed L’Oreal to demand a higher price for their products by implying they were of superior quality. Remarkably, the settlement provides no monetary damages to plaintiffs. Instead, the settlement only requires L’Oreal to stop using the deceptive labeling. Yet, it still allows $950,000 in plaintiffs' attorney fees-of which Defendant has agreed not to contest.

Plaintiffs first filed for claims in the Northern District of California on August 30, 2012. For almost a year, parties engaged in discovery, negotiations and mediation before reaching a proposed settlement. As a condition of the agreed upon settlement, Plaintiffs dismissed the California state claims and filed in the D.C. Circuit. If the settlement receives final approval, L'Oreal will receive a global release from liability from all consumers in the United States affected by the deceptive labeling. Whike consumers who wish to bring monetary claims against L'Oreal are exempted from the settlement release, it is unlikely such consumers would file individual claims, given the very small monetary damages. In addition, though L’Oreal will have to remove the deceptive labeling from products for five years, after this time it may resume using the labeling in markets that experience a 60 percent reduction of non-salon sales.

Interestingly, the D.C. Circuit’s opinion predicts several potential criticisms stemming from its approval of this settlement. The court acknowledged the short time span for negotiations, but found that "the litigation history between these parties as to these claims is substantial, and has allowed time for meaningful arm's length negotiations." Id. at *2. In addition, signaling perhaps sympathy in finding a workaround to the recent U.S. Supreme Court opinion in Behrend v. Comcast, the court held that an injunctive only settlement was appropriate given plaintiffs’ claim that it would be difficult to assess class-wide damages. Though acknowledging the heightened scrutiny standard reserved for settlement only classes, the court then weakly cited to deference to counsel’s assessment regarding damages, the retained right of class members to bring individual claims against L’Oreal for monetary relief, the injunctive relief’s ability to resolve plaintiffs harm, and the ability of the court to reduce attorney’s fees while still binding the parties to the settlement, as reasons supporting its preliminary approval of the settlement.

If the court grants final settlement without major modification of the attorney’s fees, the D.C. Circuit will certainly see a significant increase in (b)(2) injunctive relief classes seeking certification and settlement. Defendants will be quick to settle such classes because such relief creates little cost to them. Plaintiffs’ counsel will certainly be attracted to settlements that retain the potential for high attorney’s fees without the increasingly difficulties accompanying certification and settlement of (b)(3) damages classes. Given the stakes, this case is certainly one to watch. A fairness hearing is set for October 11, 2013.

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