Since the Third Circuit’s opinion in Carrera v. Bayer Corp., courts have been battling with the approach to consumer classes for small-ticket items because consumers often do not retain receipts or proofs of purchase (think consumer products like OTC drugs, food items, beverages, etc.). The challenge is that without receipts or proofs of purchase, a court cannot definitively ascertain the class. Although courts have been all over the map when it comes to certifying classes based on ascertainability (particularly the Ninth Circuit), the recent settlement in a class action over Red Bull products provides a good example of the unintended consequences of certifying an unascertainable class, especially to class members themselves.
The Class Settlement
On September 3, 2014, a court in the Southern District of New York preliminarily approved a settlement in the class action lawsuit filed against Red Bull on January 16, 2013. Plaintiff Benjamin Careathers brought claims against the energy drink company based on the implication that the well-known advertising phrase “Red Bull Gives You Wings” suggests the product improves consumer’s physiological and mental performance over and above a cup of coffee or a caffeine pill.
The settlement provides that each consumer purchasing Red Bull products between January 1, 2002 and October 3, 2014 (a span of more than 12 years) would receive a $10 check or a voucher for $15 worth of Red Bull products. The problem is that Red Bull’s maximum payout is $13 million in either cash or vouchers, regardless of the number of class members. In other words, the more claim forms filed, the less money received by individual class members.
A settlement website was established to notify the public about the settlement terms, giving class members until March 2, 2015 to submit their claims. A consumer need only state that he or she purchased a Red Bull product with a mouse click to be eligible for payment; no proof of purchase necessary.
Is It Worth It?
Not surprisingly, millions of consumers got wind of the settlement due to coverage on media outlets like Buzzfeed and ABC News, quickly crashing the settlement website. Clearly, there are going to be a lot of claimants, probably well over the 1.3 million limit that ensures each claimant receives at least $10.
This situation squarely demonstrates a Carrera ascertainability problem. In Carrera, the Third Circuit shot down a putative class of purchasers of multi-vitamins because, other than requiring an affidavit that the products had been purchased, class counsel did not propose any other way to ensure that class claimants had actually purchased the vitamins. Noting the due process concerns inherent in requiring a defendant to pay claims without a demonstrated purchase, the Third Circuit opined that claimants will either “(1) lie, (2) attempt to fill out the claim form as best they can but be unable to do so accurately, or, most likely, (3) not bother.” At least in this latest settlement, it is clear that folks are bothering, turning out in droves to file their claims. This begs the question, of course, how many of these claims are actually legitimate – and how would anyone ever know?
Red Bull at least is protected by its $13 million cap, but one could argue that actual purchasers of Red Bull are the hapless victims of likely fraudulent claimants. If there had been some insistence on a more “ascertainable” class, or at least a claims process requiring more than a mouse click, the likelihood of fraudulent claims might be decreased, lessening the chance of significantly reduced settlement payments.
This likely dilution of the settlement award could mean trouble for final approval of the settlement, currently scheduled for hearing May 1, 2015. Class members who anticipate a significant reduction of their payment may opt to object in writing to the settlement. We expect to see at least some objections based on the reduction of the award and, if the court takes them seriously, this could make the lack of ascertainability and the settlement “cap” cautionary tales for both sides in class action settlements going forward.
Our civil system is premised on encouraging settlements, and without plaintiffs ceding ground on ascertainability or defendants backing off of settlement caps – both of which seems unlikely – the future of class action settlements for these inexpensive consumer items seems murky. Courts that are reticent to consider Carrera’s lessons should think hard about the situation. As this case shows, both plaintiffs and defendants stand to lose when “unascertainable” classes are certified.