On Appeal from the United States District Court for the District of New Jersey D.C. Civil Action No. 07-cv-2867 (Honorable Noel L. Hillman)
The opinion of the court was delivered by: Scirica, Circuit Judge.
Before: SCIRICA, CHAGARES and WEIS, Circuit Judges.
This is an appeal from the approval of the settlement of a class action lawsuit stemming from the largest pet food recall to date. The class action was brought on behalf of consumers in the United States and Canada who purchased, used or obtained, or whose pets consumed, wet pet food that was allegedly contaminated with melamine and cyanuric acid. Plaintiffs alleged violations of state consumer protection and deceptive trade practices statutes, as well as state law claims for product liability, breach of warranty, and negligence. The District Court certified a settlement-only class and granted approval of a $24 million settlement. Appellants are members of the settlement class who objected to various aspects of class certification and the settlement.
We conclude that the class certification requirements of Federal Rule of Civil Procedure 23(a) and (b) are satisfied with respect to the settlement class and that the District Court's analysis of whether the settlement is fair, reasonable, and adequate under Federal Rule of Civil Procedure 23(e) was proper in all respects but one. Accordingly, we will vacate the court's order granting final approval of the settlement and remand for proceedings consistent with this opinion.
I. BACKGROUND AND PROCEDURAL HISTORY
In March 2007, defendant Menu Foods, an Ontario-based pet food manufacturer, announced a recall of dozens of brands of wet pet food after the food was linked to the deaths of several cats and dogs. The recall involved only wet pet food in cans and foil pouches manufactured between November 8, 2006, and March 6, 2007. Shortly thereafter, four other defendant pet food manufacturers initiated recalls of their pet food and treat products: Hill's Pet Nutrition and Nestle Purina Pet Care Company on March 30, 2007; Del Monte Pet Products on April 2, 2007; and Sunshine Mills, Inc., on April 5, 2007. The recall expanded through 2007, eventually covering approximately 180 brands of pet food and treats produced by twelve different manufacturers.
After the recall was initiated, it was discovered that wheat gluten and rice protein concentrate imported from China and supplied to multiple pet food manufacturers by defendants ChemNutra, Inc., and Wilbur Ellis appeared to have been contaminated. 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.*fn1
Altogether, defendants recalled over 60 million cans and pouches of pet food products. The recall drew substantial media attention, as well as FDA review, congressional inquiry, and United States Attorney investigations.
B. The Class Actions and Consolidation
Pet owners soon commenced over 100 putative class actions against Menu Foods and other pet food manufacturers, ingredient suppliers, distributors, repackagers, and retailers.*fn2 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 practices statutes, product liability, breach of warranty, and negligence.
The cases were consolidated by the Judicial Panel on Multidistrict Litigation and transferred to the United States District Court for the District of New Jersey. In re Pet Food Prods. Liab. Litig., 499 F. Supp. 2d 1346 (J.P.M.L. 2007). Counsel then engaged in motion practice involving notice to potential class members, negotiated to preserve evidence, and consulted with and deposed experts regarding the contaminated pet food. In early September 2007, the parties commenced settlement negotiations, both independently and with a mediator. On September 26, 2007, the court stayed the litigation to facilitate formal mediation. Settlement negotiations continued for seven months, involving cross-country and cross-border negotiations between the parties, including Canadian plaintiffs and their counsel. There were more than ten days of formal mediation and many additional hours of in-person and telephonic negotiations with representatives of plaintiffs and over twenty defendants.
C. The Proposed Settlement
The proposed settlement agreement reached by the parties provides for a $24 million cash fund.*fn3 The settlement class includes "all persons and entities who purchased, used or obtained, or whose pets used or consumed Recalled Pet Foods Product(s)." "Recalled Pet Foods Products" is defined as any pet food product that was recalled on or after March 16, 2007, "because of allegedly contaminated wheat gluten and/or rice protein concentrate." The settlement provides recovery for class members of up to 100% of reasonable economic damages incurred. Reasonable economic damages supported by documentation will be paid in full, so long as all accepted claims do not exceed the available funds; if the total claims exceed the fund, distribution will be made on a pro rata basis.*fn4 In addition to or in lieu of payment for documented claims, class members may receive up to $900 for reasonable claims submitted without documentation.*fn5
The settlement describes several, non-exclusive categories of economic damages that may be reimbursed, including Healthy Screening Claims,*fn6 Injury Claims,*fn7 Deceased
Animal Claims,*fn8 Consumer Food Purchase Claims ("Purchase Claims"),*fn9 and claims for other economic damage (e.g., travel and transportation expenses, property damage -- such as damage to carpets -- and lost wages). The settlement caps payments for Healthy Screening Claims and Purchase Claims, as well as payments for all types of undocumented claims (which are capped at $900 per claimant, as described above). Payments for Healthy Screening Claims are limited to an aggregate maximum of $400,000 out of the $24 million fund, and payments for Purchase Claims are limited to an aggregate maximum of $250,000. To the extent that any of the amounts available to pay Healthy Screening Claims, Injury Claims, Deceased Animal Claims, Purchase Claims, or claims for other economic damage would be exhausted by payment of 100% of the claims made in that category, distribution to pet owners will be adjusted and paid on a pro rata basis. Any funds remaining after settlement administration and payment of all valid claims will be donated to animal welfare-related organizations in both the United States and Canada.
The settlement also includes an agreement for the future 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.
The $24 million cash fund is over and above the approximately $8 million already paid to pet owners by certain defendants or their insurers as a result of reimbursement claims programs ("Historic Payments"). "Historic Payments" are "those amounts already paid by certain of the Defendants, Released Entities and/or their insurers in settlement or reimbursement of claims for certain injury, death or screening expenses associated with a pet's consumption of Recalled Pet Food Products."
The settlement includes a release of claims. Class members agreed to release:
all claims, demands, actions, suits, and/or causes of action that have been brought or could have been brought, are currently pending or were pending, or are ever brought in the future, by any Settlement Class Member against any Defendant or Released Entity, in any forum in Canada or the United States . . . whether known or unknown, asserted or unasserted, under or pursuant to any statute, regulation, common law or equity, that relate in any way, directly or indirectly, to facts, acts, events, transactions, occurrences, courses of conduct, representations, omissions, circumstances or other matters referenced in any claim raised (including, but not limited to, any claim that was raised against any Released Entity) in the Pet Food Recall Litigation.
In addition, the settlement provides for attorneys' fees. It allows plaintiffs' lead counsel to apply to the court for reimbursement of attorneys' fees in a total amount not to exceed 25% of the settlement fund ($6 million), plus reimbursement of expenses incurred in the course of the litigation. Similarly, counsel for Canadian plaintiffs are permitted to apply to the Canadian Courts for attorneys' fees in a total amount not to exceed 6% of the settlement fund ($1.44 million), plus reimbursement of expenses. Any award of attorneys' fees and litigation expenses is to be paid out of the settlement fund.
The settlement included an opt-out provision; class members could opt out within 60 days from the date notice of the settlement was disseminated. Class members who chose to make a claim for benefits were given 160 days from the date of notice to file their claim forms.
Under the settlement's claims process, the Claims Administrator reviews the claim form, any accompanying documentation, and any explanations for damages that are not supported by documentation. After evaluation, the Claims Administrator determines any amounts to be paid. The Claims Administrator has authority to contact the claimant and the claimant's veterinarian to confirm information provided in the claim form and to seek additional information, if necessary. The Claims Administrator may deny a claim based on fraud, bad faith, unreasonable conduct or demand, or intentional or willful misconduct by a class member. The Claims Administrator has complete and final authority to determine the amount to be paid on each claim and its decision is final, binding, and not subject to appeal.
On May 22, 2008, the settling parties filed a joint motion for preliminary certification of the settlement class, preliminary approval of the class action settlement, and approval of the proposed form of notice. A hearing on the motion was held on the same day. On May 30, 2008, the District Court entered an order preliminarily approving the proposed settlement class and the settlement. 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 plan for publishing class notice. Notice
was published extensively in newspapers, magazines, and other
periodicals throughout the United States and Canada.*fn10
In addition, a toll-free number and a settlement website were
established, through which class members could
obtain additional information and copies of settlement documents,
including claim forms and a list of all recalled pet food products. As
of September 30, 2008, a total of 28,955 notices were sent by direct
mail to potential class members who had submitted claims or were paid
as part of the Historic Payment programs. Notice also was sent to the
American Veterinarian Medical Association and the Canadian Veterinary
Medical Association for further dissemination to their members and
On September 2, 2008, Jim Johnson and Dustin Turner filed objections to the proposed settlement. On September 12, Margaret Picus and Daniel Kaffer filed objections, a motion to intervene, and a request for limited discovery. On October 3, plaintiffs and defendants filed a motion for final approval and an opposition to the motion to intervene. On October 14, the court held a fairness hearing and heard argument on the motion to approve the settlement, the motion to intervene, and co-lead plaintiffs' counsels' motion for attorneys' fees.*fn11 The court heard oral argument from all parties who requested the opportunity to speak, including objectors.
In an order entered on November 17, 2008, and an accompanying 65-page opinion filed the following day, the court certified plaintiffs' class for settlement purposes under Rule 23(a) and (b)(3), granted the motion for approval of settlement under Rule 23(e), granted plaintiffs' motion for attorneys' fees, denied the motion to intervene, and overruled the various objections to the settlement. In re Pet Food Prods.
Liab. Litig., MDL No. 1850, 2008 WL 4937632 (D.N.J. Nov. 18, 2008) ("Fairness Opinion"). On November 19, 2008, the court entered judgment, dismissing the case with prejudice. The Johnson/Turner objectors and the Picus/Kaffer objectors filed timely notices of appeal.*fn12
Objectors challenge both the class certification and the approval of
the settlement. Objectors assert an intra-class conflict between class
members whose damages are limited to Purchase Claims*fn13
and those who assert claims for other economic damages for
pets that became ill or died post consumption. Additionally, the
Johnson/Turner objectors contend differences in state laws create
conflicts between class members. Objectors contend both alleged
conflicts preclude a finding of adequate representation and
necessitate the creation of subclasses. With regard to fairness, both
objectors challenge the $250,000 allocation for Purchase Claims.
Finally, the Picus/Kaffer objectors challenge the denial of their
motion for leave to intervene and motion for discovery, and the
approval of the release.
"We review the decision of the District Court to certify [a] class and approve [a] settlement under an abuse of discretion standard." In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 527 (3d Cir. 2004). "An abuse of discretion may be found where the district court's decision rests upon a clearly erroneous finding of fact, an errant conclusion of law or an improper application of law to fact." Id. (internal quotation marks omitted).
In order to approve a class settlement agreement, a district court first must determine that the requirements for class certification under Rule 23(a) and (b) are met.*fn14 The Supreme Court has made clear that "[s]ettlement is relevant to a class certification." Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 619 (1997). Consequently, a district court "may take the proposed settlement into consideration when examining the question of certification." In re Prudential Ins. Co., 148 F.3d 283, 308 (3d Cir. 1998). In Amchem, the Supreme Court explained:
Confronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems, for the proposal is that there be no trial. But other specifications of [Rule 23]-those designed to protect absentees by blocking unwarranted or overbroad class definitions-demand undiluted, even heightened, attention in the settlement context. Such attention is of vital importance, for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold.
Amchem, 521 U.S. at 620 (citations omitted). In Prudential, we noted Amchem's particular emphasis on the Rule 23(a)(4) requirement that "'the representative parties will fairly and adequately protect the interests of the class.'" Prudential,148 F.3d at 308 (quoting Fed. R. Civ. P. 23(a)(4)). "Indeed, the key to Amchem appears to be the careful inquiry into adequacy of representation." Id.; see Amchem, 521 U.S. at 621 ("Subdivisions (a) and (b) [of Rule 23] focus court attention on whether a proposed class has sufficient unity so that absent class members can fairly be bound by decisions of class representatives. That dominant concern persists when settlement, rather than trial, is proposed.").
A. The District Court's Opinion
The District Court determined that the settlement class should be certified for settlement purposes after concluding that the Rule 23 requirements were satisfied. The court found that the class, which includes "thousands of consumers that are geographically dispersed throughout the United States and Canada," met Rule 23(a)(1)'s numerosity requirement because "a class of this size makes joinder of all members impracticable." Fairness Opinion, 2008 WL 4937632, at *4. Second, the court found that Rule 23(a)(2)'s commonality prong was satisfied based on its finding that eight questions of law and fact were common to the class, including "[w]hether defendants intentionally, recklessly or negligently authorized injurious pet food to enter the market." Id. at *5. Third, the court determined the class met Rule 23(a)(3)'s typicality requirement because "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." Id. Fourth, the court determined the dual components of the adequacy of representation requirement of Rule 23(a)(4) were satisfied because (1) the named plaintiffs' interests were "directly aligned with those of other members of the Class" as "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;" and (2) "plaintiffs have retained attorneys who are highly qualified, experienced and able to conduct this litigation." Id. at *6.
The District Court also concluded that the standards of Rule 23(b)(3) were met, finding the predominance requirement was satisfied because the "same set of core operative facts and theory of proximate cause apply to each member of the class." Id. The class actions concern consumers who purchased, used, or obtained recalled pet food products, and 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." Id. The superiority requirement was satisfied because "absent class 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" and "the resolution of common issues alleged in one action will result in more efficient use of judicial resources and bring about a single outcome." Id.
No one has challenged the District Court's findings that the proposed class satisfied the numerosity, commonality, typicality, predominance, and superiority requirements, and we believe these findings were well within the court's sound discretion. Objectors argued below that the class does not satisfy the Rule 23(a) requirement of adequacy of representation because of intra-class conflicts of interest. The District Court noted the objection to the settlement "on the ground that [objectors'] interests as 'mere purchasers,' [were] not adequately represented by the Class representatives," but rejected their argument because both groups shared the common interest of maximizing recovery for Purchase Claims:
The Class representatives in this case were purchasers of pet food whose pets consumed the contaminated pet food. Co-lead counsel asserts that they were designated to represent the entire Settlement Class, including "mere purchasers." The Court does not find any conflict between the interests of the Proposed Intervenors and the Class representatives who purchased the Recalled Pet Food Products, as their interests in maximizing recovery of such damages for the purchase of such products are aligned with the interests of "mere purchasers" in maximizing recovery for such product purchase claims. Id. at *8.
After reviewing objectors' arguments, and for the reasons we discuss, we hold that the District Court exercised sound discretion in certifying the settlement class.
B. Challenges to Adequacy of Representation
A class may not be certified unless the representative class members "will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a)(4). Rule 23(a)'s adequacy of representation requirement "serves to uncover conflicts of interest between named parties and the class they seek to represent." Amchem, 521 U.S. at 625.*fn15 Class representatives "must be part of the class and possess the same interest and ...