2nd Settlement in Glucosamine Chondroitin Lawsuit

On February 1, 2017, Federal District Judge James B. Zagel of the Northern District of Illinois approved a preliminary settlement to resolve pending lawsuits against The Nature’s Bounty Co. (NBTY), their subsidiary group Rexall Sundown, Inc., and numerous retailers including Target Corp., Costco Wholesale Inc., and CVS Pharmacy Inc.

Putative class action lawsuits filed by six named plaintiffs (Nick Pearson, Francisco Padilla, Cecilia Linares, Augustina Blanco, Abel Gonzales, and Richard Jennings) claimed on behalf of themselves and 30,245 class action lawsuit members that a plethora of glucosamine supplements and joint health supplements exaggerated the claimed benefits.

The brands and supplements specifically listed in the court documents include Osteo Bi-Flex Triple Strength, Flex-a-Min Triple Strength, Kirkland Glucosamine Chondroiton, and CVS Triple Strength Glucosamine Chondroiton with MSM (methylsulfonylmethane). However, should the settlement move forward, several dozen related brands and supplements will be affected. The plaintiffs are represented by Bonnett, Fairbourn, Friedman & Balint, P.C., Boodell & Domanskis, LLC, and Denlea & Carton LLP. This settlement agreement was filed April 10, 2015.

This is the second proposed settlement.

History in the Making

Rexall is the manufacturer of various glucosamine joint health supplements which are sold under many names including the popular Osteo Bi-Flex. The manufacturer also creates a number of private-label brands of chondroitin joint health and glucosamine supplements for big name retailers named in the lawsuit.

The original putative class action lawsuits were filed June 14, 2011 in Illinois. Later, California and Massachusetts were part of the suit. The plaintiffs claimed that NBTY made exaggerated statements regarding cartilage repair and rebuilding that were misleading and/or false. Since the claims were made in three states, they fall under a myriad of consumer protection laws which aren’t connected to physical injuries or safety.

The first agreement required Rexall to pay a total of $5.36 million. This included $1.93 million to the class counsel, $1.5 million in administrative fees and notices, $865,284 to the class members, $179,676 in attorney fees, and $30,000 to the six plaintiffs. It also included a likely “cy–près” payment of $1.13 million to the Orthopedic Research and Education Foundation (OREF). Cy–près is relatively popular in class action lawsuits in the U.S. and literally translates to “so close.” Although it originated in England, it’s often a means of providing extra class action lawsuit settlement funds to non-profit organizations.

The Seventh Circuit Court called the first agreement a “selfish deal between class counsel and the defendant” and that it “disserves the class.” Plus, the appeals court balked at the claim and notice forms, saying that the original award of $3 per bottle with a maximum of four bottles per household, or $5 per bottle with a 10 bottle maximum with proof of purchase, was too conservative. The new settlement requires no proof of purchase.

Circuit Judge Richard Posner penned the opinion which reversed the judgement on November 19, 2014 as part of a three-judge collaboration.

“Class counsel shed crocodile tears over Rexall’s misrepresentations, describing them as ‘demonstrably false,’ ‘consumer fraud,’ ‘false representations,’ and so on, and pointed out that most of the consumers of Rexall’s glucosamine pills are elderly, bought the product in containers the labels of which recite the misrepresentations—and number some 12 million. Yet only one-fourth of one percent of these fraud victims will receive even modest compensation, and for a limited period the labels will be changed, in trivial respects unlikely to influence or inform consumers. And for conferring these meager benefits class counsel should receive almost $2 million?”

Round Two (And Prepping for a Possible Round Three)

NBTY has maintained through both settlement proposals that the allegations aren’t true. However, as detailed in the new, second memorandum filed by plaintiffs on May 14, 2015, the defendants agreed to remove key statements on scores of brands and products. This memo was seeking preliminary approval of the second settlement.

As part of the new agreement, the group of defendants will stop stating that certain brands and supplements help to repair and/or build cartilage. Specifically, according to court documents, Rexall is barred from using the phrases “fixing, mending, reconditioning, rehabilitating, increasing, developing, building, repairing, rebuilding, renewing, regrowing, adding, regenerating, or rejuvenating cartilage” as detailed in the plaintiff’s memorandum. Rexall is also prohibited from “other claims regarding the effect of the covered products on cartilage … or other types of structure/function claims, such as claims that the covered products support, protect, or promote joint comfort, mobility, or health.”

Defendants are now required, in the second settlement, to pay out a total of $9 million with $7.5 million earmarked for cash awards to the 30,245 class action members and $5,000 each in incentive awards to class representatives and attorneys’ fees. An additional $1.5 million will be set aside for administrative fees and costs of notice. The memorandum notes that it’s unlikely there will be any leftover monies for any cy–près payment to the Orthopedic Research and Education Foundation in the new settlement.

The settlement includes 15 million households, and plaintiffs have reported that about 74% of the class will be reached through the notice. In the first settlement agreement, 76% of the class was slated to be reached. Notices will be sent via direct mail to 4.8 – 5.55 million households along with “robust publication notice” according to court documents.

Each member of the class action lawsuit will be eligible for $8 per bottle with a maximum of $104 per household (totaling 13 bottles). This second agreement was mediated by a now-retired United States District Court Judge, Wayne R. Andersen.

According to Judge Zagel, the new agreement “appears to be a fair, reasonable, and adequate settlement for the litigation, and is in the best interests of the class in light of the factual, legal, practical, and procedural considerations raised by the litigation.” Judge Zagel’s decision was revealed in a Securities and Exchange Commission filing. The fairness of the settlement hearing is scheduled June 30, 2017 and the deadline for filing claims is September 28, 2017.

Big Names, Big Claims

Should the cases move to trial, the attorneys for the plaintiffs stated in the memorandum that “The efficacy of the products has been the subject of scientific and medical debate over the last decade, and while Plaintiffs believe that the weight of the scientific evidence is in their favor, as with any other trial there is the risk that a jury would side with the Defendants.”

This second agreement is in hopes of appeasing the issues raised by Judge Posner and the Seventh Circuit. In addition to the new $104 maximum instead of the original $50, the process for claims is now easier. The addition of new prohibitive statements on the various brands and supplements is also new to the second settlement. However, Rexall’s potential total liability isn’t dictated by how many claims are filed.

According to the plaintiff’s attorneys, “The only way that Rexall may again be allowed to make these claims is if it becomes aware of the scientific support for any of the prohibited representations and obtains permission from the court, after notice to the class counsel, that it may again make the prohibited representations.”

The Orthopedic Research and Education Foundation: “So Close,” Yet So Far

Few unfamiliar with class action lawsuits (or charitable law in England) are familiar with the “cy–près” doctrine. It was born in the English Courts of Equity and the law of charitable trusts. Although it literally translates at “so close,” it’s usually meant as “as near as possible” when used in court systems. Today in the United States, it’s almost exclusively found in class action lawsuit settlements.

Originally, it was designed for use when the goal of the settlement was impossible, illegal, or impractical. Cy–près lets the court amend certain terms to make it “as near as possible” to the original intention of the “testator” (plaintiff in U.S. courts).

The most famous cy–près case in the U.S. was in the 1867 case of Jackson vs. Phillips. When he was living, Francis Jackson bequeathed $1,049 (about $29,000 in 2017) to a trustee’s fund to “create a public sentiment that will put an end to Negro slavery in this country.” Jackson himself died in 1861 when slavery was still legal. However, by 1865, the Thirteenth Amendment abolished it. Jackson’s family tried to dissolve his trust—otherwise, his bequest would be lost to them in the name of charity and his wishes. The court rejected the Jackson family attempts to dissolve the trust, saying it should be used cy–près “to promote the education, support, and interests of the freedmen, lately slaves, in those states in which slavery had been so abolished.”

In an effort to find the next best use of funds for this particular class action lawsuit, the Orthopedic Research and Education Foundation was selected. After all, the brands and supplements included in the lawsuit were to treat orthopedic issues. Cy–près payouts are practical, but always a last resort in class action lawsuits. In this case, with the new settlement, the 30,000+ class members are facing a much higher payout, which the court deems a more appropriate use of the potential funds.

OREF’s mission is to “improve lives by supporting excellence in orthopedic research.” As a non-profit, “OREF is dedicated to being the leader in supporting research that improves function, eliminates pain, and restores mobility, and is the premier orthopedic organization funding research across all specialties.” OREF is also the top grant making resource for new investigators and for established clinicians who may not secure funding elsewhere due to their area of research. In 61 years, OREF has funded over $143 million including $2.5 million in research grants and $97,000 to support research programs in 2015 (the most recent report available). While the $1.3 million in cy–près from the settlement would have made an impressive impact on OREF’s giving capacity, it’s clear that this organization is well rooted and capable of continuing its operation when a miss is as good as a mile.