In recent years, courts have been more carefully scrutinizing class action settlements. A recent example is Hendricks v. Starkist Co., Case No. 3:13-cv-00729 (N.D. Cal. Feb. 19, 2016), where the U.S. District Court for the Northern District of California denied final approval of a $12 million settlement of a class action filed against StarKist.
The lawsuit claimed that StarKist underfilled its cans of tuna, and alleged claims under California law including false advertising, unfair competition, breach of express and implied warranty, and fraud.
The court had granted preliminary approval of the settlement on May 14, 2015, but has now denied final approval of the settlement, finding that notice to class members was inadequate and the release of future claims against StarKist was too broad.
The court first found the notice inadequate because, after the notice was originally issued, the scope of the release was changed. The original notice informed the class members that they would be releasing StarKist from the same legal claims asserted in the lawsuit. A subsequent amendment to the release, however, expanded the release to also include a release of new claims, including claims under federal and state antitrust laws. The class was not notified of the change to the expanded release. As a result, the court held that the original notice was inadequate and did not satisfy due process.
The court then held that the amended release was overbroad, stating that it did not “track the breadth of allegations in the complaint.” For example, the release sought to include all claims relating in any way to the purchase of StarKist products, issues that were beyond the factual allegations of the case – the alleged underfilling of cans.
Based on these reasons, the court concluded that the settlement was not fair, reasonable, or adequate, and rejected the settlement.
StarKist is a reminder that judges give careful scrutiny to the terms of proposed class action settlements to ensure that the rights of the absent class members are adequately protected. We previously covered issues of class settlement fairness in the context of the Seventh Circuit’s decision in Eubank v. Pella Corp., 753 F.3d 718 (7th Cir. June 2, 2014), which identified “warning signs” of an unfair class settlement.