Prior to approval of the agreement Judge O'Connell had to weigh whether or not the class could be certified under Rule 23. Under Rule 23(a), the party seeking certification must establish all four of the following: (1) numerosity, (2) commonality, (3) typicality, and (4) adequacy of representation.
Additionally, under Rule 23(b)(3), class certification is appropriate where (1) common questions “predominate over any questions affecting only individual members,” and (2) class resolution is “superior to other available methods for the fair and efficient adjudication of the controversy.”
Lastly, under Rule 23(e), a district court may not finally approve a class settlement unless the court determines that the “proposed settlement is fundamentally fair, adequate, and reasonable.”
Needless to say, if she approved the settlement you don't have to guess that she found the settlement fully agreed with the provisions of Rule 23 outlined above. I suggest you read the settlement order yourself (linked above and embedded at bottom), but my top line summary is as follows:
- Plaintiffs satisfied requirements for certification under Rule 23
- the proposed class met the four threshold requirements for certification under Rule 23(a) and sufficient common questions predominated, which warranted class treatment as it ensure that class action settlement was the superior method of adjudication under Rule 23(b)
- After considering papers filed, as well as arguments advanced at the final fairness hearing the the Court also found the settlement comported with Rule 23(e)
- settlement was fair, adequate and reasonable
- their objections on packaging and handling were misguided because claimants could have recouped the allegedly misleading P&H charges through the claims process"
- the objectors overestimate the potential liability under an endless chain scheme, because they rely on two unreliable surveys(one is industry wide across all direct sellers, and the other was limited to forty eight Herbalife supervisors, and thus likely to have invested for business purposes).
- the objectors contention that the settlement unfairly deprives class members of compensation is "speculative and does not accord with a plain reading of the "Settlement Agreement."
- the objectors contention that the 13 corporate reforms in the settlement were inadequate was "far from certain" and that "a fair and reasonable settlement agreement need not require Herbalife to entirely upend its business model"
- the objectors contention that the settlement lacked an enforcement mechanism to monitor compliance was inadequate and unpersuasive because the the settlement agreement vests the Court with continuing jurisdiction to enforce it's terms and Plaintiffs' counsel will oversee the reforms.
- the objectors attack on the substance of the proposed reforms was unwarranted, illogical and "internally inconsistent" and the Court "finds them to be fair and reasonable" as the reforms "go to the core of Plaintiffs’ endless chain scheme claim and help ensure that current members do not take advantage of other members or new recruits."
- the objectors, although they disagree with the class counsel's ultimate evaluation of the strength of the Plaintiffs' case, "they do not appear to attack class counsel’s knowledge of the facts and legal issues presented. This factor thus strongly favors final approval."
- the objectors argument that the class notification process was faulty lacked merit because the class notice fully detailed the terms and potential settlement available, as well as notifies claimants of the actual value of their claims through the claims administrator. Furthermore the Court noted that because the notification process reached 92.91% of the class in both English and Spanish, the process was sufficient and comported with due process and Rule 23.
Another really interesting tidbit culled from the 60 page ruling was with respect to the concept of consequential damages. Much of the figures the Ackman camp have thrown around cite support costs associated with running their business. Although the largest claim in the Bostick settlement was ~$98,000, Ackman has often paraded former distributors that cited loss figures well above $100,000. Setting aside the consequential damage Ackman will likely endure as a result of his Herbalife short, Judge O'Connell scrutinizes the consequential damages figures often cited against Herbalife. Although the Bostick settlement in and of itself can be viewed as a huge win for the company, a potentially much bigger win is gleaned from Judge O'Connell's approval order where she notes:
"The Court is not aware of any binding authority discussing whether the statute permits the recovery of consequential damages. Assuming Plaintiffs prevailed on their endless chain scheme claim, the Court would have to consider whether they are entitled to consequential damages under section 1689.2."Effectively what O'Connell said in her order was that although Herbalife does not appear to be a pyramid scheme, that hypothetically even if Herbalife were determined to be pyramidal in substance, she doesn't believe the endless chain law has authority to award consequential damages. In light of the fact that Judge O'Connell resoundingly favored the settlement agreement with her final approval, and that her approval eliminates potential claims (for both purchases, and consequential damages) from more than 1.5 million former distributor members spanning almost six years, I can't possibly imagine how Ackman (or Tilson, or Richards etc. ad nauseam)will spin this as a win for his short position, although I'm almost certain he'll cry, I mean try. He did ignore the Belgium ruling after all. Hey, maybe we'll get lucky and Tilson will send everyone an email about it!