An appeals court has thrown out a massive class action settlement that aimed to resolve antitrust claims involving Toys “R” Us Inc. and baby-product manufacturers.
In 2005 and 2006, consumers and online retailers sued Babies “R” Us, claiming the retailer conspired with baby-product manufacturers to set a price floor for certain items.
Toys “R” Us opted to settle. Under the terms of the $35.5 million settlement, only $3 million would have been distributed among class plaintiffs; $14 million would have gone to attorneys’ fees and expenses. The remaining $18.5 million was supposed to go to one or more charities that the parties designated.
A district court approved the settlement, but the 3rd Circuit reversed the decision yesterday, saying the distribution of funds may be unfair to consumers and that the attorneys’ fees were excessive.
“In this case, class counsel, and not their client, may be the foremost beneficiaries of the settlement,” the court said. “The current distribution of settlement funds arguably overcompensates class counsel at the expense of the class.”
The court also noted that cy pres awards—through which parties can designate settlement funds to charities—“should generally represent a small percentage of total settlement funds.”
The case now heads back to the district court where a judge will reevaluate the settlement’s fairness and the attorneys’ fees.
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