Duran v. Obesity Research Institute

Filed 6/23/16; pub. order 7/15/16 (see end of opn.)

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

FRED DURAN, D067917

Plaintiff and Respondent,

v. (Super. Ct. No.
37-2013-00048664-CU-BT-CTL)
OBESITY RESEARCH INSTITUTE, LLC et
al.,

Defendants and Respondents;

DEMARIE FERNANDEZ et al.,

Objectors and Appellants.

APPEAL from a judgment and order of the Superior Court of San Diego County,

John S. Meyer, Judge. Judgment and order reversed.

Bursor & Fisher, Scott A. Bursor, L. Timothy Fisher, Annick M. Persinger and

Neal J. Deckant for Objectors and Appellants.

Nicholas & Tomasevic, Alex Tomasevic and Craig M. Nicholas for Plaintiff and

Respondent.
 Newport Trial Group, Scott J. Ferrell, David W. Reid; Gordon & Rees and

Richard P. Sybert for Defendant and Respondent Obesity Research Institute, LLC.

Shook, Hardy & Bacon, Frank C. Rothrock, D. Susan Wiens and Paul B. La Scala

for Defendant and Respondent Wal-Mart Stores, Inc.

Fred Duran filed a putative class action complaint against Obesity Research

Institute, LLC (ORI) and Wal-Mart Stores, Inc. (Wal-Mart) (collectively, defendants).

Duran alleges defendants falsely claimed that ORI's products, Lipozene and MetaboUp,

have weight loss benefits. The court approved a claims-made settlement providing that

class members submitting a claim without proof of purchase would receive $15, and

those submitting receipt(s) would receive one refund of double the unit price paid. The

settlement also provided that ORI would cease making certain assertions in product

advertising. Defendants also agreed to not oppose a motion seeking $100,000 in attorney

fees to class counsel.

In a class estimated to consist of between 400,000 and 600,000 consumers, 895

claims were submitted, in the total amount of $31,800. Assuming there were 500,000

class members, less than two-tenths of 1 percent (0.179 percent) submitted claims. Thus,

the proposed settlement buys a nationwide release for the price of about six cents

($0.064) per class member. And for achieving this result, class counsel receive $100,000

in attorney fees—about 75 percent of the total amount paid.

Objectors, class members DeMarie Fernandez, Alfonso Mendoza, and Brian

Horowitz (collectively, objectors) appeal, contending the settlement is the product of

collusion. Objectors assert the class did not receive sufficient notice of settlement, and

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the settlement is unreasonable and inadequate. They also contend the attorney fee award

is excessive.

As we explain, the downloadable online claim form, a part of the class notice of

settlement, misrepresents three material terms of the settlement: (1) the amount of

payment to class members is misstated; (2) the claim form refers to Hydroxycut products,

which are not involved in this case; and (3) a Civil Code section 1542 release was

included in the claim form, although at the preliminary approval hearing the court stated

it would not approve such a release.

After we called these errors in the claim form to counsels' attention (no one raised

this issue in the trial court) and requested supplemental briefing, class counsel and

defendants candidly conceded, "[T]he class members were not clearly informed of what

the terms of the settlement were, and what benefits they would receive and what claims

they would release if they submitted a claim." Nevertheless, class counsel and

defendants contend the trial court's determination that the settlement is fair and

reasonable should be affirmed, and the case should be remanded only to decide the

"details and logistics" of giving corrected class notice.

Remand cannot be limited to giving a corrected class notice. The judgment must

be reversed because the class notice failed in its fundamental purpose—to apprise class

members of the terms of the proposed settlement. The erroneous notice injected a fatal

flaw into the entire settlement process and undermines the court's analysis of the

settlement's fairness. (See Petrone v. Veritas Software Corp. (In re Veritas Software

Corp. Sec. Lit.) (9th Cir. 2007) 496 F.3d 962, 972 (Veritas).)

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 Although reversal on this ground makes it unnecessary to consider other issues

objectors raise, in the interests of judicial economy, we also discuss two issues that will

likely arise on remand: (1) the manner of giving class notice of settlement, and (2)

whether the trial court properly considered the injunctive relief portion of the settlement

as "the most important part" in determining its reasonableness.

FACTUAL AND PROCEDURAL BACKGROUND

A. Duran's Putative Class Action Complaint

In May 2013 Duran filed a putative class action complaint against ORI and Wal-

Mart for alleged violations of the Consumers Legal Remedies Act (CLRA) (Civ. Code,

§ 1750 et seq.), Unfair Competition Law (Bus. & Prof. Code, § 17200 et seq.), False

Advertising Law (Bus. & Prof. Code, § 17500 et seq.) and other state law claims. Duran

filed the action on behalf of himself and "[a]ll persons, nationwide" who purchased ORI

diet products for personal use "after August 10, 2012 until the date notice is

disseminated."

Duran's complaint identifies ORI's products as Lipozene and MetaboUp. He

alleged ORI "markets and sells" these products as a "'weight-loss breakthrough'" that is

"'clinically proven to help you lose weight and pure body fat'" and represents these

products "'can help you lose weight without a change in lifestyle.'" Duran alleged these

representations were false and misleading and that "Lipozene is not, in fact, effective for

weight control." He alleged that ORI's promises and representations that its diet products

are "clinically proven and guaranteed weight loss miracle are false and have been used to

unfairly deceive millions of consumers into buying" ORI's products. Duran alleged that

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Wal-Mart "promotes and disseminates" ORI's "deceptive advertising claims by carrying

and distributing the Lipozene and/or MetaboUp products."

B. Motion for Class Certification

In July 2013 Duran filed a motion for class certification, set for hearing in

December 2013. In seeking class certification, class counsel stated, "Lipozene and

MetaboUp are not, in fact, 'clinically proven' to be weight-loss miracle pills and

Defendants have simply swindled consumers out of millions of dollars based on a

uniform set of misrepresentations that make up a marketing story."

C. The First Motion for Preliminary Approval

In November 2013—before the class certification motion was heard—Duran and

ORI jointly moved for preliminary approval of settlement. The settlement included

certification of a settlement class defined as "all persons in the United States who

purchased ORI's products during the Class Period for personal or household use . . . ."

The settlement provided that class members submitting a valid claim without

proof of purchase would receive $15, and those submitting proof of purchase would

receive double the unit price paid (between $28 and $68), limited to one such refund.

The settlement agreement provides that claims will be paid from a "Non-Reversionary

Fund."1

1 A "claims-made" settlement, as here, is one that does not have a fixed settlement
fund, but rather provides the defendant will pay claims of class members who file them.
(Rubenstein, Newberg on Class Actions (5th ed. 2014) § 13:7, p. 287 (Newberg).) Such
settlements may promise far more than they deliver because the claiming rate is
notoriously low. (See Sullivan v. DB Invs., Inc. (3d Cir. 2011) 667 F.3d 273, 329, fn. 60
5
 The settlement also provided that ORI will establish a "Reserved Fund" of

$500,000 to pay the costs of administration, notice, incentive awards and attorney fees.

This fund would be retained "internally" by ORI. Any reserved amounts not used to pay

these expenses would "cease to be internally reserved by ORI" when the judgment is

final.

At the time of this first motion for preliminary approval, the settlement agreement

also included a waiver by class members of unknown claims and a waiver of their rights

under Civil Code section 1542.2

Additionally, defendants agreed to not oppose a request by class counsel for up to

$100,000 in attorney fees and costs. Class counsel would seek a $2,500 "incentive

award" for Duran as class representative.

[claims rates in consumer class settlements "rarely" exceed 7 percent]; Sylvester v.
CIGNA Corp. (D.Maine 2005) 369 F.Supp.2d 34, 52 [claims-made settlements regularly
yield response rates of 10 percent or less].)
In contrast, in a "common fund" settlement, the defendant contributes a fixed
settlement amount, which is then distributed to settlement class members directly or
through a claims process. (Newberg, supra, § 13:7, pp. 287-288.) Depending on the
terms of the settlement agreement, if the class does not claim the full amount, unclaimed
funds may be distributed pro rata to the claimants, or instead may revert to the defendant,
or be distributed to some other person or entity.
The claims-made settlement here is the functional equivalent of a common fund
settlement where the unclaimed funds revert to the defendant. (See Newberg, supra,
§ 13:7, p. 288.) Accordingly, calling the fund a "Non-Reversionary" fund, as the parties
do here, can make the settlement appear to be more beneficial to the class than it really is.

2 Civil Code section 1542 provides: "A general release does not extend to claims
which the creditor does not know or suspect to exist in his or her favor at the time of
executing the release, which if known by him or her must have materially affected his or
her settlement with the debtor."
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 The court declined to rule on the motion for preliminary approval, instead raising

"several concerns regarding the proposed settlement." The court's concerns included: (1)

"Is publication on the internet and in one newspaper sufficient?"; (2) "Counsel has not

submitted a copy of the claim form"; (3) "[T]he court will not approve a [Civil Code]

section 1542 waiver."

D. The Second Motion for Preliminary Approval

After revising the settlement agreement in an attempt to address the court's

concerns, Duran and ORI filed a second motion for preliminary approval. Class counsel

stated the settlement was the result of "arms-length settlement negotiations during a

mediation" conducted by a retired superior court judge, Herbert B. Hoffman. Judge

Hoffman submitted a declaration stating he "supervised the mediation between the parties

in this case" and that "[a]fter many hours of negotiations, the parties were able to reach a

resolution that [he] believe[s] is reasonable . . . ."

The monetary recovery for class members and structure of the settlement remained

the same as the parties presented in the first motion for preliminary approval: Class

members submitting a valid claim form with no proof of purchase would receive $15.

Those submitting a valid claim form with proof(s) of purchase would receive one refund

of double the unit price paid.

Claims forms could be obtained by calling a toll-free number established for that

purpose, by requesting one by mail, or by downloading the form from a Web site

established by the settlement administrator. Completed claim forms could be submitted

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online or by mail. The parties provided the court with an exemplar claim form, which

correctly reflected the settlement payouts.

The parties proposed to give class notice of the settlement in three ways: (1)

publication in USA Today; (2) e-mail notice to class members "with known electronic

mail addresses";3 and (3) a settlement Web site.

As revised, the settlement agreement did not require claimants to waive rights

under Civil Code section 1542.

E. Class Notice of Settlement

The court granted this (second) motion for preliminary approval. In August 2014

notice of settlement was published in a Monday edition of USA Today. The published

notice directed readers to a Web site, www.oriclassactionlawsuit.com, for additional

information on submitting a claim. The settlement Web site contained downloadable

versions of the notice of settlement, settlement agreement, and claim form.

ORI sent e-mail notice to 237,334 class members who purchased the products

online directly from ORI. The e-mail notice stated, "Lipozene has recently reached a

nationwide settlement," and invited the e-mail recipient to click a link to the settlement

Web site for more information.

3 Later, in the motion for final approval, it became clear that "with known electronic
mail addresses" meant class members who purchased Lipozene only from ORI's Web
site, and not those who purchased from Wal-Mart's online store.
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 F. The Downloadable Claim Form

Section V of the downloadable claim form is entitled "Proof of Purchase." The

form states, "Do you still have the original Purchase Receipt(s) for the ORI Product(s)

identified above?" Immediately below an area for a "yes" or a "no" answer, the following

instruction appears in uppercase:

"IF YOU ANSWERED 'YES', YOU ARE ENTITLED TO A FULL
REFUND OF ALL PRODUCTS PURCHASED DURING THE
CLASS PERIOD IF YOU SEND IN YOUR PURCHASE
RECEIPT(S). IF YOU ANSWERED 'NO', YOU ARE ENTITLED
TO A MAXIMUM REIMBURSEMENT OF $15.00."

Section VI of the downloadable claim form is entitled "Instructions For Making a

Claim." The instructions state, "Make sure this form is filled out completely" and "Sign

and date the verification below (Section VII)." The instructions also state:

"You may submit a claim for full monetary payment for each
Hydroxycut product you purchased and for which you have an
original proof of purchase, up to no limit." (Italics added).

Section VII of the downloadable claim form is entitled "Release and Sworn

Verification Statement." It states in part:

"I submit this Claim Form to participate in the settlement reached in
this Lawsuit, and submit to the jurisdiction of the San Diego County
Superior Court with respect to my claim asserted herein, and for
purposes of enforcing the release of claims stated in this Claim
Form . . . . [¶] . . . [¶] I hereby relinquish any and all rights and
benefits that we may have under California Civil Code § 1542 . . . ."
(Italics added.)

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 G. Claims Submitted

At the end of the claims-filing period, 895 claim forms were submitted, claiming a

total of $31,800. The claims administrator received only two requests for exclusion from

the settlement.

H. Objections to Settlement

Objectors are plaintiffs in a competing putative class action against ORI, which

was filed on May 16, 2013, three days after Duran filed the instant case. The district

court stayed that action to avoid "duplicat[ing] the San Diego superior court's effort [in

Duran] and possibly issu[ing] a conflicting decision." (Fernandez v. Obesity Research

Institute, LLC (E.D.Cal. Aug. 28, 2013, No. 2:13-cv-00975-MCE-KJN) 2013 U.S.Dist.

Lexis 122986.)

Objectors filed a formal objection to class action settlement. They asserted the

settlement was the result of collusion between class counsel and ORI and a reverse

auction.4 As evidence of the alleged collusion, objectors prepared a chart comparing

allegations in Duran's complaint with a presuit CLRA letter objectors' lawyers sent to

ORI in March 2013. Because class counsel could have obtained the objectors' CLRA

letter only from ORI, objectors assert the "plagiarism in the Duran complaint . . . is a

smoking gun of collusion between purported adversaries." Objectors also noted that class

4 By reverse auction, Objectors refer to a situation "when 'the defendant in a series
of class actions picks the most ineffectual class lawyers to negotiate a settlement with in
the hope that the [trial court] will approve a weak settlement that will preclude other
claims against the defendant.'" (Negrete v. Allianz Life Ins. Co. (9th Cir. 2008) 523 F.3d
1091, 1099.)

10
counsel had previously litigated a case against ORI, which settled for $90,000 in attorney

fees and zero monetary relief to the class.5

Objectors argued the court should not approve the settlement because: (1) direct

notice should have been given to online purchasers of ORI's products from Wal-

Mart.com and other retailers, (2) the publication notice was inadequate because it had an

estimated "reach" of only 1.06 percent of class members, (3) the settlement is

substantively unfair and unreasonable, (4) the parties failed to provide evidence

establishing the settlement is reasonable, (5) Duran lacks standing to settle claims

involving MetaboUp because he did not purchase that product, and (6) the attorney fees

are excessive.

I. Motion for Final Approval

In January 2015 Class counsel and ORI's attorneys filed a joint motion for final

approval. The motion was supported, in part, by a declaration from Dan Reeves, vice

president of Innotrac Corporation, the claims administrator. Reeves's declaration

authenticated and attached a "[t]rue and correct cop[y]" of the downloadable claim form

on the settlement Web site. This is the claim form, discussed ante, that misstates several

5 Class counsel and ORI deny there was any collusion. Class counsel contend
objectors plagiarized their complaint in a case that settled against ORI in 2011.
Moreover, ORI asserts it tried to settle this lawsuit with objectors' counsel, but
negotiations ended when objectors' lawyer demanded $750,000 in attorney fees for doing
essentially nothing to benefit the class. The lawyers on both sides accuse each other of
greed and disregarding the class interests. To resolve this appeal, we need not and do not
resolve these accusations.

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terms of the settlement. However, neither the parties nor objectors raised this issue in the

trial court.

Objectors opposed the motion for final approval, making the same arguments as

asserted in their objections to the proposed settlement.

At the hearing, the court expressed "concern" about "the notice," as indicated by

the low response rate. Stating, "I am not particularly happy with it," the court

nevertheless approved the settlement. On March 24, 2015, the court entered a final

approval order stating, "This Court hereby approves the Settlement set forth in this

Judgment . . . ." On April 10, 2015, the court entered a separate order awarding class

counsel $100,000 in attorney fees and awarding Duran, as class representative, $2,500 as

an incentive fee. Objectors timely appealed.

DISCUSSION

I. THE JUDGMENT MUST BE REVERSED BECAUSE THE ONLINE CLAIM
FORM MISSTATED MATERIAL SETTLEMENT TERMS

"'The principal purpose of notice to the class is the protection of the integrity of

the class action process . . . ." (Cho v. Seagate Technology Holdings, Inc. (2009) 177

Cal.App.4th 734, 745.) "The notice '"must fairly apprise the class members of the terms

of the proposed compromise and of the options open to the dissenting class members."'"

(Id. at p. 746.) A class action settlement notice should present information neutrally,

simply, and understandably. The notice should allow class members to evaluate a

proposed settlement. Notice should describe the formula or plan for computing

individual settlement class member recoveries. (See Cellphone Fee Termination Cases

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(2010) 186 Cal.App.4th 1380, 1393 ["'The aggregate amount available to all claimants

was specified and the formula for determining one's recovery was given. Nothing more

specific is needed.'"].)

The notice given here was substantially dependent upon information conveyed to

class members through the settlement Web site. For example, e-mail notice, sent to

237,334 class members, did not itself contain the settlement's terms, but instead

instructed recipients to click on a link to the settlement Web site to obtain the long form

notice and settlement agreement. The notice published in USA Today explained the

method of calculating settlement payments and generally described the injunctive relief,

but also referred readers to the settlement Web site "[f]or additional information on

submitting a claim . . . ." The settlement Web site states that submitting a valid claim

form is the only way to get a cash payment and contains a link to a downloadable claim

form. Thus, the downloadable claim form is an integrated part of the settlement notice

given to class members and submitting a valid claim form was essential to receiving

settlement money.

The parties and objectors now agree that the downloadable claim form is

inconsistent with material settlement terms approved by the court. First and foremost,

there is a discrepancy in the settlement amount. The downloadable claim form states

class members submitting receipts would receive "a full refund of all products purchased

during the class period." However, under the settlement agreement, class members

submitting receipts would receive one refund of double the purchase price.

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 This discrepancy could overvalue or undervalue a claim, depending on the number

of purchases and price paid by the claimant. For example, a class member who made six

purchases at $30 each would be entitled to $180 as provided in the downloadable claim

form, but only $60 under the settlement agreement. Conversely, a class member who

made one purchase for $20 would receive $20 under the payout formula in the claim

form, but $40 under the settlement agreement.

Second, the downloadable claim form states class members would also receive a

"full monetary payment for each Hydroxycut product you purchased and for which you

have an original proof of purchase, up to no limit." This is also inconsistent with the

court-approved settlement agreement. The settlement class consists of persons who

purchased Lipozene, MetaboUp, and MetaboUp Plus during the class period for personal

or household use, with some limited exceptions. Duran's lawsuit does not involve the

distinct product, Hydroxycut.

Third, the downloadable claim form contains a waiver of rights under Civil Code

section 1542. This apparently is a remnant from an early (November 2013) draft of the

settlement agreement, which at that time included such a waiver. However, at the

December 2013 hearing on the first motion for preliminary approval, the court stated it

would not approve a Civil Code section 1542 waiver. Subsequently, the parties revised

the settlement agreement to delete that waiver. Apparently, the downloadable claim form

was not revised accordingly.

Although neither objectors nor the parties raised this issue in the trial court, prior

to oral argument we notified objectors and the parties that the downloadable claim form

14
appeared to be inconsistent with the settlement and final approval order, and we asked

them to submit additional briefing on the point. We have received and considered their

letter briefs.

Class counsel and defendants contend that because objectors did not challenge the

contents of the claim form in the trial court or in their appellate briefs, the discrepancies

between the claim form and the settlement terms are waived or forfeited, and should not

be addressed in this appeal.

Class counsel and defendants are correct that, in general, an appellate court will

not review an issue that was not raised by some proper method in the trial court. (See

Brandwein v. Butler (2013) 218 Cal.App.4th 1485, 1519.) However, "[i]t is important to

remember . . . that the purpose of this general rule is to give the trial court and parties an

opportunity to correct an error that could be corrected by some means short of an

opposite outcome in the trial court." (Woodward Park Homeowners Assn., Inc. v. City of

Fresno (2007) 150 Cal.App.4th 683, 712.)

As an exception to the general rule, the appellate court has discretion to consider

issues raised for the first time on appeal where the relevant facts are undisputed and could

not have been altered by the presentation of additional evidence. (Tsemetzin v. Coast

Federal Savings & Loan Assn. (1997) 57 Cal.App.4th 1334, 1341, fn. 6.) "It makes no

difference that the issue was first raised on appeal by the court rather than the parties, as

long as the parties have been given a reasonable opportunity to address it"—which they

have, in their supplemental briefs. (Ibid.)

15
 The issue involving the inconsistencies between the online claim form and the

settlement terms agreed to by the parties (and approved by the court) may be considered

on appeal because it involves applying law to undisputed facts. The operative facts—the

terms of the court-approved settlement and the content of the online claim form—are

undisputed and are fixed. There is nothing the parties could have done in the trial court

to alter or vary these facts.

This is also an error the trial court could not have cured, even if the issue had been

raised at the final approval hearing. The claims process was over. If objectors had raised

this issue below, the trial court could have responded only by requiring class notice of

settlement to be redone correctly, and by deferring any ruling on the settlement's fairness

until after notice was given again and the claims process was completed. (Veritas, supra,

496 F.3d at p. 968 ["the adequacy of the notice is antecedent to the merits of the

settlement"].)6

Moreover, appellate courts are most likely to consider an issue involving

undisputed facts for the first time on appeal where the issue involves important questions

of public policy or public concern. (Eisenberg el al., Cal. Practice Guide: Civil Appeals

and Writs (The Rutter Group 2015) ¶ 8:239, p. 8-170.) In the context of a class action

6 The parties have not cited any factually similar California case; that is, a case
where class notice of settlement materially misrepresents the court-approved settlement
payout. Where there is no relevant California precedent on point, "'"California courts
may look to federal authority for guidance on matters involving class action
procedures."'" (Cellphone Fee Termination Cases, supra, 186 Cal.App.4th at p. 1392,
fn. 18.)

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settlement, "'"'The [trial] court has a fiduciary responsibility as guardians of the rights of

the absentee class members when deciding whether to approve a settlement agreement.'"'"

(Luckey v. Superior Court (2014) 228 Cal.App.4th 81, 95.) "This reflects concerns that

the absent class members, whose rights may not have been considered by the negotiating

parties, be adequately protected against fraud and collusion." (Wershba v. Apple

Computer, Inc. (2001) 91 Cal.App.4th 224, 240 (Wershba).) The court's responsibility to

protect absent class members further warrants our consideration of this issue.

Turning to the merits, class counsel and defendants concede the notice was

defective and "defendants need to provide the class members with notice of the actual

settlement terms and a proper claim form . . . and the class members need to be provided

with another opportunity to submit a claim . . . ." However, class counsel and defendants

argue the court's ruling that the settlement is reasonable, fair and adequate should not be

reversed. They argue, "[t]he fact that the claim form that was published on the web site

does not reflect the terms of the settlement is not relevant to the issue of whether those

terms were fair and reasonable in the first place."

We disagree because the adequacy of class notice of settlement is intertwined with

the court's assessment of the reasonableness of the settlement. In assessing whether a

settlement is fair, reasonable, and adequate, the court should consider, among other

things, "the amount offered in settlement" and "the reaction of the class members to the

proposed settlement." (Dunk v. Ford Motor Co. (1996) 48 Cal.App.4th 1794, 1801.)

Given the defective notice previously given and the claims-made nature of this

settlement, it is impossible to know now what "the amount offered in settlement" will be

17
after proper notice is given. It is also impossible to determine "the reaction of the class

members to the proposed settlement"—i.e., whether class members will participate in the

settlement, object, or opt out—before proper notice is even given.

Accordingly, the material inconsistencies between the downloadable claim form

and the approved settlement undermines the court's analysis of the fairness of the

settlement and requires the judgment to be reversed. (Veritas, supra, 496 F.3d at pp. 971-

972 [vacating judgment approving class settlement where notice to the class was

misleading].)

For the benefit of the parties on remand, we now address other issues likely to

arise on remand.

II. DIRECT NOTICE, PUBLICATION NOTICE, AND INJUNCTIVE RELIEF

A. Notice Issues

To satisfy due process, notice to class members must be "'the best practicable,

"reasonably calculated, under all the circumstances, to apprise interested parties of the

pendency of the action and afford them an opportunity to present their objections."'"

(Consumer Cause, Inc. v. Mrs. Gooch's Natural Food Markets, Inc. (2005) 127

Cal.App.4th 387, 399, fn. 9.) In determining how to disseminate class notice of

settlement—whether by direct mail, e-mail, publication, or something else—the standard

"is whether the notice has 'a reasonable chance of reaching a substantial percentage of the

class members.'" (Wershba, supra, 91 Cal.App.4th at p. 251.) The trial court has

"'virtually complete discretion'" in determining how that can most practicably be

accomplished. (7-Eleven Owners for Fair Franchising v. Southland Corp. (2000) 85

18
Cal.App.4th 1135, 1164.) However, "when notice is a person's due, process which is a

mere gesture is not due process. The means employed must be such as one desirous of

actually informing the absentee might reasonably adopt to accomplish it." (Mullane v.

Cent. Hanover Bank & Trust Co. (1950) 339 U.S. 306, 315.)

ORI sent notice by e-mail to 237,334 of its customers who purchased Lipozene

products from ORI's Web site. However, by ORI's own estimate, there are somewhere

between another 162,666 to 362,666 class members.7 The parties chose to notify these

class members by publishing notice of the settlement in USA Today and by establishing a

settlement Web site.

Objectors presented evidence showing that online purchasers of Lipozene from

Wal-Mart.com must provide a mailing address. Objectors contend direct notice should

have been sent to such class members. Objectors also contend the parties should have

subpoenaed records from other retailers, such as Amazon, CVS, and Walgreens, to obtain

addresses of class members who purchased ORI's products from those stores.

However, Wal-Mart contends it cannot obtain consumer addresses for those who

purchased from its online store because the entity operating Wal-Mart.com—Wal-

Mart.com USA, LLC—is not the entity Duran sued, which is Wal-Mart Stores, Inc.

Moreover, ORI's attorney filed a declaration stating he "reached out" to "several

retailers" to obtain customer contact information, but was told that "obtaining such

information is illegal, unavailable or improper."

7 ORI estimated the class was between 400,000 to 600,000 members.
19
 On remand, class counsel and defendants will have to provide a better foundation

to support a ruling that direct notice need not be given. Regarding class members who

purchased online from Wal-Mart, there is no evidence that anyone associated with Wal-

Mart Stores, Inc., a defendant in this case, even tried to obtain class members' mailing or

e-mail addresses from Wal-Mart.com USA, LLC. The fact that the brick and mortar

store is owned by one entity, and the online Wal-Mart store by another, does not by itself

establish the requested information is not reasonably obtainable.

Moreover, assertions that direct notice should not be ordered because the cost is

unreasonable under the circumstances should be supported by declaration based on

personal knowledge, not unsworn statements of counsel.8 The standard is a notice plan

that one would implement if one genuinely wanted to inform someone, all relevant

factors considered.9

8 At the hearing, one of ORI's lawyers told the court the cost of direct mail is about
one dollar per class member. There was no other evidence on cost.

9 Guidance in selecting the appropriate manner of giving notice is provided by
California Rules of Court, rule 3.766, which provides in part:

"(e) Manner of giving notice In determining the manner of the
notice, the court must consider: [¶] (1) The interests of the class; [¶]
(2) The type of relief requested; [¶] (3) The stake of the individual
class members; [¶] (4) The cost of notifying class members; [¶] (5)
The resources of the parties; [¶] (6) The possible prejudice to class
members who do not receive notice; and [¶] (7) The res judicata
effect on class members.

"(f) Court may order means of notice [¶] If personal notification
is unreasonably expensive or the stake of individual class members
is insubstantial, or if it appears that all members of the class cannot
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 The record made to support not giving direct notice to class members who

purchased from Amazon, CVS, Walgreens is also very thin. ORI's counsel filed a

declaration stating he "reached out to several retailers" who told him "obtaining such

information is illegal, unavailable, or improper." The court could only guess what

"reached out to several retailers" really means and what retailers counsel contacted.

We are not suggesting that direct notice must be given to class members who only

purchased ORI products on Walmart.com, or to class members who purchased the subject

products from retailers other than ORI. However, to properly exercise its discretion, the

court must be provided evidence addressing factors stated in California Rules of Court,

rule 3.766.

B. Publication Notice in USA Today

The parties published notice of class settlement in a USA Today. According to

class counsel, USA Today was selected because it is "the number one newspaper in daily

circulation in the United States, with a daily weekday circulation of nearly 3.3 million."

Objectors contend this is an insufficient basis upon which the trial court could

properly conclude the notice had "'a reasonable chance of reaching a substantial

percentage of the class members.'" (Wershba, supra, 91 Cal.App.4th at p. 251.) As

explained post, on this record, we agree with Objectors.

be notified personally, the court may order a means of notice
reasonably calculated to apprise the class members of the pendency
of the action—for example, publication in a newspaper or magazine;
broadcasting on television, radio, or the Internet; or posting or
distribution through a trade or professional association, union, or
public interest group."

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 Objectors submitted a declaration from a media expert, Mary Tyrrell, asserting the

USA Today notice reached only approximately 1.06 percent of class members. In

reaching her conclusion, Tyrrell used "industry-standard research data" of "demographic,

lifestyle, product usage and exposure" that is "widely used by companies as the basis for

the majority of the media and marketing plans that are written for advertised brands in the

U.S." She calculated the reach of the USA Today notice by using data for audiences

targeted with a definition of "Meal/Dietary/Weight Loss Supplements Used For Weight

Loss in Last 6 Months."

The parties offered no evidence disputing Tyrell's opinion or its foundation. There

was also no evidence Lipozene products are even advertised in USA Today. Nor was

there evidence the parties made any effort to demographically target print notice to an

audience interested in diet, weight loss supplements, or anything else. From what the

record shows, the parties chose to print notice in USA Today because approximately three

million people nationwide will read it. However, in light of Tyrell's declaration, about 99

percent of the settlement class members will never even glance at USA Today.

On appeal, ORI contends Tyrell's opinion is flawed because it fails to consider the

reach of e-mail notice to 237,334 class members who purchased from ORI's Web site,

and the reach of the settlement Web site. This argument misses the target entirely.

Publication notice is not directed at those who received direct e-mail notice. Rather,

publication notice is for the estimated 162,666 to 362,666 class members who were not

sent e-mail notice. Moreover, providing settlement notice on a Web site is not helpful

unless settlement class members are informed to go to the Web site. ORI does not

22
explain how a potential settlement class member who did not receive e-mail notice and

who did not read the notice in USA Today would even know to look for a Lipozene

settlement Web site.

According to Tyrell's undisputed and unopposed declaration, USA Today is ill-

suited, demographically, to reach the class members here. Yet, the parties concede that

class members are supposed to receive the best notice practicable under the

circumstances. In the context of publication notice here, this requires a reasonable effort

to select publication(s) that class members are likely to read. For example, in Wershba,

supra, 91 Cal.App.4th at page 251, a class action involving support for Apple computers,

notice was published not only in USA Today, but also in MacWorld.

In many cases, courts have approved publication notice based on evidence that the

publications chosen target class members—evidence that is completely lacking in this

case. (See, e.g., Gallucci v. Gonzales (9th Cir. 2015) 603 Fed.Appx. 533, 535-536

[upholding publication notice based on "reliable expert testimony" that notice was

"specifically tailored to reach [defendant's] customer base"]; In re Motorsports

Merchandise Antitrust Lit. (N.D.Ga. 2000) 112 F.Supp.2d 1329, 1332 [noting an expert

"designed a profile of class-member demographics and media consumption habits so that

dissemination of the Summary Notice would target the largest number of class

members"]; Carlough v. Amchem Products, Inc. (E.D.Pa. 1993) 158 F.R.D. 314, 321-322

["Before deciding where to advertise, the settling parties determined that, based on

various factors, the primary target group for the notice plan would likely be males age 45

or older. Thus the paid advertising plan is weighted towards this group."]; In re Domestic

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Air Transp. Antitrust Litigation (N.D.Ga. 1992) 141 F.R.D. 534, 551 ["the publication

program . . . is geographically broad and designed to reach the maximum number of class

members"].)

There was simply no evidence presented to the trial court here to support its

implied determination that publishing settlement notice in USA Today had a "reasonable

chance of reaching a substantial percentage of the class members . . . ." (Cartt v.

Superior Court (1975) 50 Cal.App.3d 960, 974.)

C. Injunctive Relief

In addition to providing money, the settlement also requires ORI to change its

advertising and some other business practices. The advertising and packaging changes

are as follows:

Existing Advertising Under the Settlement, Is Changed
To. . . .
"What's even more amazing is that "'What's even more amazing is that study
participants were not asked to change their participants were not asked to change their
lifestyle. Just take Lipozene." lifestyle. Just take Lipozene." (Italics
added.)
"Lipozene has effectively helped millions "Lipozene has effectively helped countless
of people meet their weight loss goals, and people meet their weight loss goals, and it
it can help you too!" can help you too!" (Italics added.)
"Lipozene has helped millions of people "Lipozene has helped countless people
successfully meet their weight loss goals successfully meet their weight loss goals
and lose pure body fat" and lose pure body fat." (Italics added.)

Additionally, ORI agreed to add a disclaimer regarding Lipozene's effectiveness,

including links to studies about Glucomannan, an ingredient contained in Lipozene. A

statement would also be added stating, "For best results, use in conjunction with

reasonable diet and exercise." ORI also agreed to terminate its "Pay-Per-Click" Internet
24
advertising, increase its return policy from 30 to 45 days to claim refund, and use "best

efforts" to "eliminate all testimonials created prior to January 1, 2010."

In approving this settlement, the court remarked at the hearing, "The injunctive

relief has already been done and that's the most important part of this. The money is,

frankly, not." Objectors contend the injunctive relief is illusory and should not have been

a factor in determining the settlement's reasonableness. As the record now exists, we

agree with objectors on this point.

We fail to see any material difference by adding the word "study" before

"participants." Similarly, there is no material difference between stating Lipozene has

"effectively helped millions of people" and stating Lipozene has "effectively helped

countless people." ORI also agreed to extend its money-back refund from 30 to 45 days.

But there is no evidence the extra 15 days offers any material benefit to consumers.

As noted, as part of the injunctive relief, ORI is required to state in its advertising,

"For best results, use in conjunction with reasonable diet and exercise." In its brief, ORI

states this is the most significant aspect of injunctive relief afforded consumers under the

settlement. However, according to class counsel, ORI was already prohibited from

making misrepresentations about Lipozene and its relationship to diet and exercise. In

Duran's motion for class certification, class counsel told the court that in June 2005, ORI

entered into a stipulated judgment with the Federal Trade Commission that prohibits ORI

from representing that Lipozene or MetaboUp products "[c]auses rapid or substantial

weight loss without the need to reduce caloric intake or increase physical activity." Thus,

25
at least in this respect, the injunctive relief simply requires ORI to obey an existing

judgment. As such, it is difficult to conceive how this injunctive relief adds value.

III. THE POSTJUDGMENT AWARD OF ATTORNEY FEES AND AWARD
TO THE CLASS REPRESENTATIVE IS REVERSED

After entering judgment granting final approval of the settlement, the court entered

a separate order awarding class counsel $100,000 in attorney fees and $2,500 to Duran as

an incentive payment as class representative. Because the judgment granting final

approval of the settlement is reversed, the related order awarding attorney fees and

$2,500 incentive to Duran is also reversed.

IV. THE REQUEST FOR JUDICIAL NOTICE IS DENIED

Objectors request this Court take judicial notice of: (1) a complaint filed on

December 7, 2015, in the Central District of California court against the law firm

representing ORI in the trial court, entitled Natural Immunogenics Corp. v. Newport Trial

Group (No. 8:15-cv-02034); and (2) a complaint the law firm of Nicholas & Tomasevic,

LLP filed on December 31, 2015, in the Superior Court of San Diego County on behalf of

Joshua A. Weiss against ORI and others (No. 37-2015-00043385-CU-OE-CTL).

Objectors contend each of these lawsuits supports their assertion that the proposed

settlement is the product of "collusion between the parties."

The request for judicial notice is denied. The requested matters are not relevant to

the disposition of any issue on appeal. (See fn. 5, ante.)

26
 DISPOSITION

The judgment is reversed. The order awarding attorney fees and an incentive

payment to Duran is reversed. The request for judicial notice is denied. Objectors

DeMarie Fernandez, Alfonso Mendoza, and Brian Horowitz shall recover costs on

appeal.

NARES, J.

WE CONCUR:

McCONNELL, P. J.

IRION, J.

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Filed 7/15/16

CERTIFIED FOR PUBLICATION

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

FRED DURAN, D067917

Plaintiff and Respondent,

v. (Super. Ct. No.
37-2013-00048664-CU-BT-CTL)
OBESITY RESEARCH INSTITUTE, LLC et
al.,

Defendants and Respondents; ORDER GRANTING PUBLICATION

DEMARIE FERNANDEZ et al.,

Objectors and Appellants.

THE COURT:

The opinion in this case filed June 23, 2016, was not certified for publication. It

appearing the opinion meets the standards for publication specified in California Rules of

Court, rule 8.1105(c), the request pursuant to California Rules of Court, rule 8.1120(a)

for publication is GRANTED.

IT IS HEREBY CERTIFIED that the opinion meets the standards for publication

specified in California Rules of Court, rule 8.1105(c) and

28
 ORDERED that the words "Not to Be Published in the Official Reports" appearing

on page 1 of said opinion be deleted and the opinion herein be published in the Official

Reports.

McCONNELL, P. J.

Copies to: All parties

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