Sarah Mirando  |  February 20, 2013

Category: Legal News

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Toys R Us Receipt SettlementA federal appeals court yesterday nixed a $35 million class action lawsuit settlement resolving claims Toys “R” Us colluded with manufacturers to illegally raise the prices on baby products, ruling it unreasonable that only $3 million of the deal would go to consumers.

The Toys “R” Us antitrust settlement was to resolve two class action lawsuits alleging that Toys “R” Us (d/b/a Babies “R” Us) conspired with the companies BabyBjörn, Britax, Kids Line, Maclaren, Medela, Peg Perego, and Regal Lager to prevent competitors of Babies “R” Us from discounting certain baby products. As a result, Babies “R” Us overcharged consumers for these products, in violation of federal antitrust laws.

Some Class Members objected to the Baby Products Antitrust Settlement, stating the current fund allocation of $14 million for attorneys’ fees and $18.5 million for cy pres distributions to charity – more than six times the size of the direct class payment — was unfair to Class Members.

The Third Circuit agreed with their concerns, saying the payment distribution plan deserved another look by the district court.

“[The objector]’s overarching concern, and ours as well, is that the settlement has resulted in a troubling and, according to counsel for the parties, surprising allocation of the settlement fund,” the appeals court said. “Cy pres distributions, while in our view permissible, are inferior to direct distributions to the class because they only imperfectly serve the purpose of the underlying causes of action — to compensate class members.”

The court said the federal district judge who approved the Baby Products Antitrust Settlement was “apparently unaware” of how large a portion of the fund would go to charities rather than to consumers. The district court estimated Class Members would share in an $8 million payout, but this was based on every Class Member having sufficient proof of purchase. The vast majority of claims, however, ended up falling into the undocumented category, restricting the payout to just $5 per Class Member, or an estimated $3 million total payout.

As a result, many Class Members who didn’t have proof likely chose not to file a claim for $5 due to its insignificant amount, the appeals court said.

“What we are concerned with in this case is that the court approved the settlement without being made aware that almost all claimants would fall into the $5 compensation category, resulting in minimal (and we doubt sufficient) compensation going directly to Class Members,” the appeals court said.

The Third Circuit vacated the district court’s orders approving the Toys “R” Us baby product settlement and the fund allocation plan “because the court did not have the necessary factual information to determine whether the settlement will provide sufficient direct benefit to the Class.” The appeals court also vacated the $14 million in attorneys’ fees since it was based on the now-vacated settlement.

A supplemental class action settlement notice will be sent to Class Members if an amended settlement agreement is reached.

The Toys “R” Us, Babies “R” Us Antitrust Class Action Lawsuit case is In re: Baby Products Antitrust Litigation; Case No. 12-1165, 12-1166 and 12-1167; in the U.S. Court of Appeals for the Third Circuit.

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One thought on Appeals Court Nixes $35M Toys ‘R’ Us Baby Products Settlement

  1. Richard johnson says:

    What needs to be done to join this class action?

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