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In re Pet Food Products Liability Litigation

November 18, 2008

IN RE: PET FOOD PRODUCTS LIABILITY LITIGATION


The opinion of the court was delivered by: Noel L. Hillman, U.S.D.J.

OPINION

I. INTRODUCTION

The Pet Food Products Liability Litigation involves litigation brought on behalf of consumers in the United States and Canada who purchased, or whose pets consumed, pet food and/or treat products that were recalled (the "Recall") because they allegedly contained contaminated wheat gluten and/or rice protein concentrate ("Recalled Pet Food Products"). The parties entered into a settlement agreement ("Settlement") that was preliminarily approved by this Court on May 30, 2008. On October 14, 2008, the Court held a fairness hearing and heard argument on plaintiffs' motion to approve the Settlement and co-lead plaintiffs' counsels' motion for attorneys' fees. The Court also heard argument on a motion to intervene in the Settlement and a separate motion for attorneys' fees filed by Newman, Creed & Associates. For the reasons expressed below, the motion for Settlement and for attorneys' fees is granted, the motion to intervene is denied, and co-lead counsels' motion to strike the separate motion for attorneys' fees filed by Newman, Creed & Associates is granted.

II. FACTUAL AND PROCEDURAL BACKGROUND

As described in the motion for Settlement, in March 2007, Menu Foods announced a recall of more than 50 brands of dog food and over 40 brands of cat food manufactured between November 8, 2006 and March 6, 2007. Shortly thereafter, Hill's Pet Nutrition, Del Monte Pet Products, Nestlé Purina PetCare Co. and Sunshine Mills, Inc. also initiated recalls of their own pet food and treat products that may have been contaminated. The Recall expanded and eventually covered approximately 180 brands of pet food and pet treats produced by twelve different manufacturers that were distributed, marketed and sold by dozens of retailers. The cause of the Recall was that wheat gluten and rice protein concentrate imported from China and supplied to multiple pet food manufacturers by ChemNutra, Inc. and Wilbur Ellis, appeared to have been contaminated. It was discovered that these pet food ingredients were adulterated with both melamine and cyanuric acid, the combination of which can lead to acute renal failure in small animals if ingested. The two Chinese supply companies - Xuzhou Anying Biologic Technology Development Co., Ltd. ("XAC") and Binzhou Futian Biological Technology - inserted melamine into wheat gluten and rice protein to boost their protein content to meet the protein levels required under industry standards.

On February 6, 2008, two Chinese companies - XAC and Suzhou Textiles, Silk, Light Industrial Products, Arts and Crafts - were indicted on "charges of intentionally defrauding and misleading American manufacturers about poisonous ingredients used in pet foods." According to the indictment against XAC and its owner, "[w]hen the XAC-manufactured wheat gluten was exported to the United States it was deliberately labeled and coded so that the product would not be subject to" compulsory and mandatory inspection by Chinese food authorities. Altogether, defendants recalled over 60 million containers of pet food products.

Pet owners commenced over 100 class actions against pet food manufacturers, ingredient suppliers, distributors, repackagers and retailers. Plaintiffs brought claims on behalf of all persons who purchased, used or obtained, or whose pets consumed, any cat or dog food or treats that allegedly contained contaminated wheat gluten and/or rice protein concentrate. Each complaint alleged violations of state consumer protection and deceptive trade practice statutes, product liability, warranty and negligence claims. These class action cases were consolidated by the Judicial Panel on Multidistrict Litigation (the "Panel") and transferred to this Court.

Counsel then engaged in motion practice regarding communications with potential class members and also began negotiations on preserving evidence and spoilage issues, including consultation with and deposition of experts regarding the contaminated pet food. In September 2007, the parties commenced settlement negotiations, both independently and with Professor Eric D. Green of the dispute resolution firm Resolutions, LLC. Settlement negotiations continued for seven months involving cross-country and cross-border negotiations between the parties, including Canadian plaintiffs and their counsel. Negotiations included more than ten days of formal mediation facilitated by Professor Green and many additional hours of in-person and telephonic negotiations with representatives of plaintiffs and over twenty defendants.

A. The Proposed Settlement

As stated in the motion to approve the Settlement, the Settlement provides for a $24 million cash fund in addition to the approximately $8 million in payments already paid to pet owners by certain defendants or their insurers as a result of reimbursement claims programs ("Historic Payments"). The proposed Settlement provides reimbursement for reasonable economic damages incurred. The determination of what costs will be reimbursed will be decided by a claims administrator who shall consider various documentation to determine reimbursement amounts.*fn1 The Settlement contemplates economic damages that could potentially be covered such as necropsy/autopsy, euthanasia, cremation, burial/specialty services, costs of new pets,*fn2 and healthy pet screenings.*fn3

For economic expense claims that are unsupported by documentation, class members remain eligible for payment up to a maximum of $900 for the undocumented part of the claim. Plaintiffs' co-lead counsel maintain that some of the potentially recoverable claims under the Settlement may not have been recoverable had this case gone to trial.

The payments described above will be subject to pro rata reduction if the total amount of valid claims exceeds the Settlement Fund, which sets aside certain amounts for product reimbursements and health screenings. Of the $24 million, $250,000 is available for reimbursement of product purchases, and $400,000 is available for health screenings. If the total value of claims for all other types of economic damages exceeds the amount of the Settlement Fund, the claims will be pro-rated based on the ratio of the claim to the total amount of claims for these other damages. Also, a charitable distribution comprised of any funds remaining after the administration of the Settlement and payment of all valid claims will be timely made to animal welfare-related organizations in both the United States and Canada.

The Settlement also includes an agreement for the further testing of pet food ingredients. Defendants that manufactured the Recalled Pet Food Products agreed to continue to administer their internal quality assurance programs to regularly test shipments of raw wheat gluten and rice protein concentrate imported from China for the presence of melamine and cyanuric acid until May 30, 2009.

B. Notice of Settlement

After joint motion by the parties and after hearing on the motion on May 22, 2008, the Court preliminarily approved the Settlement by Order entered May 30, 2008. The Court found that the "proposed settlement is fair, reasonable and adequate and that the proposed Settlement Class meets all of the applicable requirements under Rule 23(a) and 23(b)(3) of the Federal Rules of Civil Procedure." The Order also approved the Notice Plan for publishing class notice. As stated in the motion for settlement, notice was published extensively in newspapers, magazines and periodicals throughout the United States and Canada. Pet owners who were paid as part of the Historic Payment programs received direct individual notice, and long form notice was sent to the American Veterinarian Medical Association. As of September 30, 2008, a total of 28,955 notices were directly mailed to potential class members, the Settlement website had received over 38,039 visits, and over 8,150 calls were placed to the toll-free telephone number, of which over 4,607 callers received live assistance. In addition, the Settlement has been reported nationally in print, television and internet media.

The class members are now before the Court and move to have the class certified for purposes of settlement and to have the settlement approved. We first address whether the plaintiffs have met their burden under Rule 23 for class certification. Finding that class certification for settlement purposes is proper in this case, we then address the motion to intervene and the various objections to the settlement by class members. Concluding that the grounds for intervention and for objection lack merit, we then address whether the settlement should be approved by the Court pursuant to Rule 23(e). Approving the settlement, we then turn to the motions to approve attorneys' fees and determine that plaintiffs' co-lead counsels' motion will be granted and the separate motion for attorney fees' filed by Newman, Creed & Associates will be stricken.

III. CLASS CERTIFICATION

Federal Rule of Civil Procedure 23 governs the certification of class actions. A party seeking class certification bears the burden of proving that each of the requirements under Rule 23 has been met. See, e.g., Baby Neal v. Casey, 43 F.3d 48, 55 (3d Cir. 1994). The legal requisites for class certification are: (1) under Rule 23(a), to satisfy all four requisites of numerosity, commonality, typicality, and appropriateness of class relief; (2) to fulfill at least one part of Rule 23(b); and (3) provide the Court with adequate information so that it can enter an Order defining the class and listing the claims, issues, or defenses subject to class treatment pursuant to Rule 23(c)(1)(B).*fn4 Id.; Watchel v. Guardian Life Ins. Co., 453 F.3d 179, 184 (3d Cir. 2005). Class actions certified for the purposes of settlement are well recognized under Rule 23. See In re Prudential Ins. Co. of Am. Sales Practices Litig., 962 F. Supp. 450, 508 (D.N.J. 1997) (stating that Rule 23 allows Court to certify class for settlement purposes only) (citing In re General Motors Corp. Pick-Up Truck Fuel Tank, 55 F.3d 768, 778 (3d Cir. 1995). "A settlement class is 'a device whereby the court postpones the formal certification procedure until the parties have successfully negotiated a settlement, thus allowing a defendant to explore settlement without conceding any of its arguments against certification.'" Id. (finding that a settlement class to be "an 'extremely valuable' device to dispose of major and complex class actions.").

The parties filed their joint motion for approval of the Settlement on May 22, 2008, and the Settlement was preliminarily approved by this Court by Order entered May 30, 2008. This Court preliminarily certified the following class for settlement purposes pursuant to Rules 23(a) and 23(b)(3) ("Settlement Class"):

All persons and entities who purchased, used or obtained, or whose pets used or consumed Recalled Pet Foods Product(s), and excluding Defendants, Released Entities and the Lum Class.

The Settlement Class excludes those members who properly opted out of the Settlement Class. To determine whether this Class should be certified for settlement purposes, we address whether each element under Rule 23(a) and the requirements under Rule 23(b)(3) have been met.

A. Rule 23(a)

Under Rule 23(a), one or more of the plaintiffs may sue on behalf of all the members of the proposed class only if: "(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class." Baby Neal, 43 F.3d at 55.

1. Numerosity

Rule 23(a)(1) requires that the class be so numerous that joinder of all class members is impracticable. The Third Circuit has ruled that the numerosity requirement is satisfied where the proposed class consists of "more than 90 geographically dispersed plaintiffs." Eisenberg v. Gagnon, 766 F.2d 770, 785-86 (3d Cir. 1985); see also Welch v. Bd. of Dirs. of Wildwood Golf Club, 146 F.R.D. 131, 135 (W.D. Pa. 1993) (finding numerosity met where proposed class exceeds 100 members).

Here, the proposed Settlement Class includes thousands of consumers that are geographically dispersed throughout the United States and Canada. As of the end of September 2008, approximately 9,357 class members have submitted claim forms to the Claims Administrator in this case. Thus, a class of this size makes joinder of all members impracticable and Rule 23(a)(1) is met.

2. Commonality

The commonality prong of Rule 23(a) requires "questions of law or fact common to the class." Fed.R.Civ.P. 23(a)(2). This requirement is met if plaintiffs share "at least one question of fact or law with the grievances of the prospective class." Baby Neal, 43 F.3d at 56. This commonality requirement has been recognized as one that is easily met. Id. Also, class members can assert such a single common complaint if they demonstrate that all class members are subject to the same harm. Id. (citing to Hassine v. Jeffes, 846 F.2d 169, 177-78 (3d Cir. 1988)). The commonality prerequisite does not require that all members of the prospective class share identical claims. Hassine, 846 F.2d at 176-77 (relying on Eisenberg, 766 F.2d at 786). It requires only that the harm complained of be common to the class, not that plaintiffs are affected by the harm in the same way. Id. at 177; Baby Neal, 43 F.3d at 56 (rejecting the argument that the commonality requirement cannot be met because of individualized circumstances).

The particular questions of law and fact common to the Class are:

(i) Whether defendants intentionally, recklessly or negligently authorized injurious pet food to enter the market;

(ii) Whether defendants failed to properly test their "cuts and gravy" style dog and cat food before market entry of such food;

(iii) Whether defendants intentionally, recklessly or negligently delayed instituting a recall of its "cuts and gravy" style dog and cat food;

(iv) Whether defendants' recall was adequate and properly notified potentially affected consumers;

(v) Whether defendants' conduct constituted unlawful, unfair, or fraudulent business practices in violation of state consumer protection laws;

(vi) Whether defendants have been unjustly enriched as a result of their conduct;

(vii) Whether members of the Class have sustained damages as a result of defendants' conduct, and, if so, the appropriate measure of damages; and

(viii) Whether the contaminated pet food injured dogs and cats.

Based on the above claims which arise from the same nucleus of operative facts and involve the same legal theories, the Court finds that the commonality prong under Rule 23(a)(2) is met.

3. Typicality

It has been recognized that the requirements for commonality and typicality are broadly defined and tend to merge. See Baby Neal, 43 F.3d at 56. Nevertheless, they are distinct requirements and we scrutinize them individually. "The typicality inquiry is intended to assess whether the action can be efficiently maintained as a class and whether the named plaintiffs have incentives that align with those of absent class members so as to assure that the absentees' interests will be fairly represented." Id. "Commentators have noted that cases challenging the same unlawful conduct which affects both the named plaintiffs and the putative class usually satisfy the typicality requirement irrespective of the varying fact patterns underlying the individual claims." Id. Factual differences do not defeat typicality if "... the claim arises from the same event or practice or course of conduct that gives rise to the claims of the class members, and if it is based on the same legal theory." Id., at 58.

In this case, the claims of the class representatives are aligned with those of the class members since the claims of the representatives arise out of the same conduct and core facts surrounding the Recall. As such, the action can be efficiently maintained as a class and the named plaintiffs have incentives that align with those of absent class members so as to assure that the absentees' interests will be fairly represented. Therefore, the plaintiffs' claims are typical of the Class's claims and Rule 23(b)(3) is met.

4. Adequacy of Representation

The final prerequisite under Rule 23(a) is a determination whether "the putative named plaintiff has the ability and the incentive to represent the claims of the class vigorously, that he or she has obtained adequate counsel, and that there is no conflict between the individual's claims and those asserted on behalf of the class." Hassine, 846 F.2d 169 at 179 (citations omitted). The two purposes for making such inquiry are: (1) the adequacy of representation inquiry "serves to uncover conflicts of interest between named parties and the class they seek to represent," Amchem Products, Inc. v. Windsor, 521 U.S. 591, 625 (1997); and (2) the adequacy of representation inquiry "tests the qualifications of the counsel to represent the class." In re General Motors Corp. Pick-Up Truck Fuel Tank, 55 F.3d 768, 800 (3d Cir. 1995).

Here, the representative plaintiffs were damaged as a result of defendants' allegedly unlawful conduct, and the plaintiffs would have had to prove the same wrongdoing as the absent Class members to establish defendants' liability. Thus, the representative plaintiffs' interests are directly aligned with those of other members of the Class. In addition, plaintiffs have retained attorneys who are highly qualified, experienced and able to conduct this litigation.*fn5 Thus, the Court finds that the requirements under Rule 23(a) have been met.

B. Rule 23(b)(3)

Plaintiffs state that they meet the requirements under Rule 23(b)(3) for class certification. Under Rule 23(b)(3), the Court must determine whether questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is the superior method of adjudication. See Rule 23(b)(3); Prudential, 962 F. Supp. at 510-11. To make this determination, the following factors are addressed:

(A) the class members' interests in individually controlling the prosecution or defense of separate actions;

(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;

(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and

(D) the likely difficulties in managing a class action.

Rule 23(b)(3); see also In re Mercedes Benz Antitrust Litig., 213 F.R.D 180, 186 (D.N.J. 2003) (stating that "[t]he Rule sets forth a non-exhaustive list of factors to be weighed."). Where, as in this case, the class certification is for purposes of settlement, "... the Court need not inquire into whether a class action would be manageable at trial." In re AremisSoft Corp. Sec. Litig., 210 F.R.D. 109, 122 (D.N.J. 2002) (citing In re Ikon Office Solutions, Inc., Sec. Litig., 194 F.R.D. 166, 178 n.14 (E.D.Pa. 2000); Amchem Prods., 521 U.S. at 620.

For the purpose of certification of the Class for settlement, the same set of core operative facts and theory of proximate cause apply to each member of the class. The actions in this litigation concern consumers who purchased, used or obtained, or whose pets used or consumed, Recalled Pet Food Products. If plaintiffs and potential class members were to bring individual actions, they would each be required to prove the same wrongdoing by defendants in order to establish liability. Thus, common questions of law and fact predominate.

Also, a class action in this MDL is superior to other available methods for the fair and efficient adjudication of this litigation because absent class action certification, the Court may be faced with litigating over 100 individual lawsuits all of which would arise out of the same set of operative facts. By proceeding in a class action, the resolution of common issues alleged in one action will result in more efficient use of judicial resources and bring about a single outcome that is binding on all Class Members. Also, a class action might allow certain individuals to participate who would otherwise be prevented from pursuing their claims because of the expense of maintaining individual actions. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 809 (1985) (concluding that it may be uneconomical to litigate class action plaintiffs' claims individually).

With regard to the four actors under Rule 23(b)(3), for those potential class members who were interested in individually controlling the prosecution or defense in a separate actions, they had the option to opt-out of this litigation and pursue their own claims individually. With regard to the extent and nature of any litigation concerning the controversy already begun by or against class members, cases involving allegations of contaminated pet food or recalled pet food merchandise were transferred as quickly as possible to this MDL last year before any substantive proceedings had occurred. It is desirable to concentrate the litigation in this MDL and to have the plaintiffs operate as a class because of the common set of facts and claims that dominate this litigation for purposes of settlement. And, finally, it would be administratively difficult to manage this litigation as individual claims rather than a class action due to the enormous number of plaintiffs.

Thus, the Court finds that Rule 23(b)(3) is satisfied in this action because questions of law or fact common to the class members predominate over any questions affecting only individual Class members, and a class action is superior to other available methods for the fair and efficient adjudication of this controversy. See In re Honeywell Intl Inc. Sec. Litig., 211 F. R. D. 255, 267 (D.N.J. 2002) (finding that class action to be fairest and most efficient means of resolving dispute given the size and geographical dispersion of the proposed class and likelihood that many purchasers sustained comparatively small losses and individual adjudication class members would place unnecessary burden on parties and courts).

IV. MOTION TO INTERVENE/OBJECT

Margaret Picus and Daniel Kaffer (collectively "Proposed Intervenors")*fn6 filed a motion seeking leave to intervene on the ground that their interests were not adequately represented by the existing plaintiffs. Proposed Intervenors allege that they purchased pet food that was falsely labeled as "Made in the United States" and have brought separate actions based on such mislabeling in California and Nevada state court. Proposed Intervenors' claims involve the mislabeling of pet food that was not contaminated and which was not recalled by defendants. Proposed Intervenors argue that the Settlement is overly broad and purports to release their claims. Proposed Intervenors also criticize the Settlement because only $250,000 out of the $24 million to be paid is allocated to pay product purchase claims. Proposed Intervenors seek intervention to limit the scope of the Release to only the contaminated pet food products for ...


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