Products Liability Law Daily Class settlement of hair-loss claims preliminarily approved
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Monday, October 31, 2016

Class settlement of hair-loss claims preliminarily approved

By Mark Engstrom, J.D.

A class-action settlement of multiple claims—including products liability, false advertising, and unfair competition claims—involving haircare products that allegedly caused scalp irritation and abnormal hair loss has been preliminarily approved by a federal district court in Los Angeles. According to the court, the certification of a settlement-only class was appropriate under Rule 23 of the Federal Rules of Civil Procedure; the settlement terms, including a $26.25 million settlement fund, were reasonable under the circumstances; and the settlement itself was the product of serious, informed, and non-collusive negotiations (Friedman v. Guthy-Renker, LLC, October 28, 2016, Wright II, O.).

Products. Wen By Chaz Dean Inc. created a line of “WEN” haircare products and licensed those products to Guthy-Renker, which manufactured, marketed, and sold them in the U.S. According to two consumer-plaintiffs, a WEN Cleansing Conditioner product caused hair loss and scalp irritation. More specifically, the WEN Sweet Almond Mint kit allegedly caused one of the consumers to lose up to one-third of the hair on her head, and two kits—the Sweet Almond Mint kit and a Pomegranate kit—caused the other consumer to lose abnormal amounts of hair. The consumers also proffered online complaints of hair loss from WEN Cleansing Conditioner products.

Lawsuit. The two consumers alleged that Guthy-Renker had falsely advertised the WEN products as safe, failed to warn consumers about the potential loss of hair, and erroneously instructed consumers to use excessive amounts of the products. The two consumers asserted multiple claims, including common law claims for negligent failure to warn and negligent failure to test, strict products liability claims, and violations of California’s unfair competition and false advertising laws. The parties settled all of the claims and filed a motion for class certification and preliminary approval of the settlement. The court granted both.

Settlement. The $26 million settlement fund included $5 million for small “Tier 1” claims, nearly $14 million for larger “Tier 2” claims, $6.5 million for attorney fees, $825,000 for administrative costs, and $57,500 for incentive awards. In addition, the defendants agreed to place a warning label on their WEN products.

Rule 23 analysis. The court found that the settlement satisfied: (1) the numerosity, commonality, typicality, and adequacy requirements of Rule 23(a); (2) the predominance and superiority requirements of Rule 23(b); and (3) the notice requirements of Rule 23(c)(2)(B) and Rule 23e(1).

Tier 1 claims. Any class member could claim a one-time payment of $25, and that payment would compensate the class member for all claims of misrepresentation and bodily injury. The court noted that a $25 claim for false advertising would likely provide a fair compensation for consumers who had purchased WEN Hair Care Products only a few times, but it was not sure that $25 would adequately compensate consumers who had purchased WEN products over the course of several years. Moreover, if significantly more than 3.3 percent of the claimants filed a Tier 1 claim, the court would likely revisit the fairness of the $5 million Tier 1 pool during the approval hearing for the final settlement. Ultimately, however, the court could not say that a $25 payout for Tier 1 claims was unfair or unreasonable, given the risks that were inherent in further litigation.

Tier 2 claims. Recoveries of more than $25—and up to a maximum of $20,000—would be claimed under the $13.9 million Tier 2 pool, but would require supporting documentation such as photographs, videos, declarations, and medical records. The court concluded that the estimated payouts for Tier 2 claimants were generally fair and reasonable in light of the risks of continued litigation. However, the parties appeared to assume that relatively few persons would submit Tier 2 claims, and that the value of those claims would be minimal. Therefore, if the Tier 2 claims were substantially more than anticipated, the court would revisit the Tier 2 amount during the final approval hearing.

Incentive awards. The court concluded that $57,000 in incentive awards, divided among four named plaintiffs, was permissible. According to the court, that award—0.22 percent of the total award—was well within the range of incentive awards that the Ninth Circuit had previously approved. Although the awards to the two consumers ($25,000 each) came close to the threshold of disapproval, the court found that the participation of the two consumers, which included responses to depositions and “substantial discovery,” justified their award.

Attorney fees. The court found that $6.5 million—24.78 percent of the total settlement fund—was presumptively reasonable under the percentage-of-recovery calculation. Nevertheless, the court was concerned that the award might have been inflated, given the pre-certification settlement of the matter. The court, therefore, informed class counsel that they would need to be prepared to submit information to support the percentage-of-recovery calculation against a lodestar calculation.

Product warning. The defendants agreed to place the following warning on their product label: “If you experience any adverse reaction after using this product, immediately cease use and consult a physician.” Although the warning added little value to the settlement, it did not detract from the settlement, according to the court.

The case is No. 2:14-cv-06009-ODW(AGRx).

Attorneys: Brian W. Warwick (Varnell and Warwick, PA) for Amy Friedman. David J. Schindler (Latham and Watkins, LLP) for Guthy-Renker, LLC. Barry R. Schirm (Hawkins, Parnell, Thackston and Young, LLP) for Wen By Chaz Dean, Inc.

Companies: Guthy-Renker, LLC; Wen By Chaz Dean, Inc.

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