A California federal judge recently refused to approve a class action settlement jointly recommended by the parties upon a finding that the proposed settlement was not fair, adequate, or reasonable for unnamed class members.

In 2012, consumers filed suit in a California federal court against homeopathic remedy manufacturer Similasan, alleging the company’s packaging and advertising of products to treat anxiety, earwax and sinus issues, and pinkeye deceived them about the effectiveness of Similasan’s products. After United States District Judge Cynthia Bashant certified two classes, Similasan filed a motion for decertification. In early 2016, the parties notified the district court that they reached a settlement, and jointly moved for preliminary approval of the settlement. The district court preliminarily approved the settlement, ordered notice to class members, and scheduled a final approval hearing.

However, at the final approval hearing in August, Judge Bashant refused to approve the proposed settlement and expressed concerns over the terms of the agreement and inadequate notice to class members. Key features of the failed settlement included broad release provisions and the absence of monetary relief to unnamed class members. In rejecting the proposed settlement, Judge Bashant noted that the settlement “greatly expand[ed] the class beyond what was alleged in the [Third Amended Complaint] and beyond what was certified by this Court to include a nationwide class involving many more Similasan products.” The settlement also gave no monetary relief to unnamed class members nationwide, identified by the parties as “tens of thousands of claimants” who purchased Similasan’s over-the-counter products. The district court also found the proposed settlement agreement’s “broad release provisions” troubling. According to the district court, “the broad release provisions … coupled with a large broadening of the class description so that now a nationwide class of users is releasing its claims instead of a California-only class” suggested “that this Settlement is crafted to provide protection to Similasan and not to benefit the unnamed Plaintiffs.”

Attorneys general from Arizona, Arkansas, Louisiana, Michigan, Nebraska, Nevada, Texas, and Wyoming urged the district court to reject the settlement, explaining that “all class members are giving up all of their non-personal injury monetary claims against [Similasan] without receiving any compensation different from the public at large.”

The district court also questioned the efficacy of the notice, chiding counsel for “provid[ing] no evidence of how many class members who had actually purchased a Similasan product [were] likely to have received notice.” Importantly, only one class member objected to the proposed settlement, which the district court viewed as further evidence of a lack of adequate notice.

“The website to provide notice only received 136 unique visitors, and the telephone number activated to do the same only received 21 unique calls, out of the potentially ‘tens of thousands’ of class members,” Judge Bashant explained.

The district court has ordered the parties to contact the court to set further scheduling dates.

The court’s rejection of the settlement highlights important considerations for companies negotiating class action settlements with consumers and seeking court approval of those settlements, including the importance of adequate notice designed to reach class members and fair and reasonable settlement terms. Special attention should be paid to proposed agreements with possible nationwide reach and broad release provisions, especially when unnamed settlement class members receive no monetary benefits from the settlement.