State AGs Fail in Objections to Proposed Settlement in Class Action Challenging Godiva’s Labeling Practices

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The last thing the parties to a class action settlement want to see is an objection from state Attorneys General (AGs).  AG objections to class action settlements are relatively rare and courts tend to give AG objections more weight than objections from private parties.  Not all AG objections are successful, however, and in the recent consumer fraud case of Hesse v. Godiva Chocolatier, Inc., No. 1:19-cv-972-LAP (S.D.N.Y.), a six-state objection filed by the AGs of Florida, Idaho, Maryland, New Jersey, Ohio, and Utah failed to persuade Judge Loretta Preska to reject the proposed settlement.

Hesse concerned Godiva’s use of the word “Belgium” in labeling and promoting its products.  According to the complaint, this practice led consumers to believe, incorrectly, that Godiva’s chocolates are made exclusively in Belgium and to pay higher prices for these products than they otherwise would have.  The parties’ proposed settlement of those claims is fairly standard stuff.  Anyone who purchased Godiva chocolate products between 2015 and last year could file claims to recover $1.25 per purchase.  Class members with proof of purchase could recover up to $25 (for 20 purchases); those without proof were capped at $15 (for 12 purchases).  Plaintiffs claimed actual damages to be $0.46 per purchase, so they characterized this relief as more than full recovery.

Actual notice went to 8.2 million people for whom the company has an e-mail address and who may therefore be class members, which Godiva estimated to be about half the class.  Godiva also agreed, among other measures, to utilize internet banner advertisements and maintain a case-specific website to notify potential class members of the proposed settlement.  For whatever reason, claims submitted in the settlement reached only $7 million, or less than half of the maximum amount Godiva agreed to pay had the take-up rate been higher.

The AGs’ objection focused most intensely on the low claims rate.  See Concerns of State Atty’s Gen. Regarding the Proposed Settlement at 3 n.2, Hesse (Mar. 7, 2022) (ECF No. 98).  “Low” is in the eye of the beholder, however, because Judge Preska agreed with plaintiffs’ counsel that a 2.83% claims rate in a consumer settlement with millions of class members, with some 500,000 people having submitted claims, actually was “commendable.”  The AGs also hurt their own credibility by arguing that they had been unable to find any of the internet banner ads the settlement administrator posted, but they did not begin their searches for those ads until after the ad campaign had ended.  The AGs contended that Godiva should have put notice of the settlement on its website, but the Court agreed with Godiva that this shouldn’t have been necessary in a case where the company sent email notice to over 8 million customers.  Overall, the parties spent nearly $1 million on notice costs, which the Court found sufficient.

The AGs considered the $25 cap on claims, even where class members had proof of larger purchases, to be arbitrary and unnecessary.  The Court disagreed, finding the cap necessary and appropriate to prevent fraudulent claims, and citing authority from around the country approving settlements with similar caps on claims even where class members had proof of purchase.  Further, only 10,000 of the 500,000 people who filed claims submitted proof of purchase.

The AGs also argued that Godiva could have improved the claims rate by obtaining purchase records from third-party retailers and by providing direct purchasers with the information in Godiva’s files about their purchases.  Godiva and plaintiffs’ counsel argued that sending subpoenas would be cumbersome and likely ineffective, and that providing additional information to direct purchasers would advantage them over indirect purchasers.  The Court agreed with the parties on these issues and overruled the AGs’ objections.

Separately, the AGs objected on the ground that the settlement agreement did not include injunctive relief prohibiting Godiva from continuing to use “Belgium” on its product labels and in marketing materials.  If the label was deceptive and caused damages, the AGs argued, the settlement should have precluded the term or required qualifications.  The AGs thought this to be particularly important given the low claims rate.  The Court, in its opinion approving the settlement, did not address this aspect of the AGs’ objection.  In opposition to the AGs’ brief, Godiva argued that injunctive relief was not necessary because the settlement does not purport to bind future purchasers.

Class action defendants contemplating settlements structured like the Hesse deal should take note of the AGs’ objections.  Those objections failed in the Hesse case but may not fail the next time that these or other AGs raise them.  The fact that the objections failed universally in Hesse, however, is quite notable.