In April 2012, a California shampoo purchaser named Nancie Ligon filed a class action in federal court in San Francisco on behalf of all buyers of certain L’Oreal products that are labeled “salon-only.” Ligon’s counsel at The Mehdi Firm and Halunen & Associates claimed that L’Oreal products’ labels were misleading because they were actually sold not just at salons but also at mass-market retailers such as Target and K-Mart.
Early meetings between Ligon’s lawyers and L’Oreal’s defense counsel at Patterson Belknap Webb & Tyler revealed some big problems with the theory of the class action. L’Oreal, for one thing, doesn’t actually sell any of the supposedly offending products directly to mass market retailers. In fact, it doesn’t want anyone except for salons to sell its pricey lines, and it has an entire corporate division dedicated to stopping distributors from diverting salon-only products to other sorts of stores. And though L’Oreal suggests retail prices for its hair-care products, stores are free to set their own prices. It turned out that prices for the “salon-only” shampoos and conditioners ranged all over the place, without a clear pattern distinguishing salon prices from mass-market prices. That meant class counsel couldn’t come up with a legitimate formula for evaluating the harm to consumers from the supposedly misleading labeling. By their own admission, class lawyers determined after their meetings with L’Oreal that “it would be challenging, if not impossible, to determine classwide monetary damages.”
So did Ligon’s lawyers dismiss the case and write off their time and expenses as a lesson learned? They did not. Instead, with their classwide monetary damages theory demolished, they engaged in mediation with L’Oreal last December. In just one day, they and L’Oreal reached an agreement to settle the case as an injunction-only class. L’Oreal said it would remove the supposedly misleading “salon-only” language from product labels in exchange for a release of all classwide monetary damages claims. It took the plaintiffs’ lawyers and L’Oreal longer to negotiate fees, but eventually L’Oreal agreed that if the class counsel requested $950,000 in fees and expenses, it would not oppose the request.
Mehdi and Halunen refiled the nationwide class action with five additional name plaintiffs in federal court in Washington last April. A couple of weeks later, they moved for approval of the injunction-only settlement. After the deal received preliminary approval from U.S. District Judge John Bates, they filed a motion for $950,000 in fees and expenses, emphasizing the value of the injunction they obtained for class members. “There need not be class-wide monetary damage for there to be harm to consumers,” the motion said. “There was significant harm alleged here in the deception perpetrated by the salon-only language. That harm has been eliminated.” As promised, L’Oreal did not oppose the fee request.
The Center for Class Action Fairness did object, however, both to the fees and to the classwide settlement. On Wednesday, Bates sided with the objectors. He denied approval of the settlement, finding that it unfairly released class claims for monetary damages. There’s some interesting discussion in the opinion about public policy and standing for name plaintiffs in injunction-only cases and about the consequences of no opt-out injunction settlements. Bates also pointed out an obvious intra-class conflict between consumers who bought the L’Oreal hair products in a salon and those who made purchases from mass-market retailers. (“Whether mass-market purchasers were harmed at all is questionable, considering the self-evident nature of the ‘salon-only’ misrepresentation when the products were purchased outside of salons,” Bates wrote.)