A federal appeals court Friday rejected a class-action settlement involving allegations that Kellogg Co. made false health claims about cereal because the pact gave $2 million to the lawyers who sued and, at most, $15 for each consumer.
A three-judge panel of the U.S. 9th Circuit Court of Appeals said the lawyers' fees — $2,100 an hour— were too high, while those who bought Kellogg's Frosted Mini-Wheats got a "paltry" $5 a box for up to three boxes.
"Not even the most highly sought after attorneys charge such rates to their clients," Judge Stephen S. Trott wrote for the unanimous panel.
The suit was brought by San Diego lawyer Tim G. Blood, who was sharing the award with five law firms. Blood said the hourly fees cited by the court were inaccurate and did not include two years of work by five law firms.
The suit accused Kellogg of falsely advertising that its Frosted Mini-Wheats cereal was scientifically proven to improve children's cognitive functions.
The settlement required Kellogg to drop a claim that eating Mini-Wheats would improve attentiveness by 20% but permitted the company to advertise that children who ate the cereal did better in school than those who skipped breakfast.
In addition to citing excessive attorney fees, the court said the "defective" settlement was exceptionally vague. Southern District Chief Judge Irma E. Gonzalez, appointed by former President George H.W. Bush, had approved the agreement. It called for Kellogg to establish a $2.75-million fund for consumers who filed claims for reimbursement of the cost of as many as three boxes. Leftover money would go to charities to be determined and approved by the court.
Kellogg also agreed to distribute $5.5 million worth of Kellogg food products to unspecified charities that help the poor. Attorneys in the case valued the entire settlement at $10.6 million. But the court said the terms were too vague to validate that number, and even if true, the attorneys' fees were too high. The settlement will return to district court for rewriting.
"If and when the issue of fees is again before the district court," Trott wrote, "the court shall consider … time wasted in preparing a stillborn settlement."