Judge Approves Cosmetics Settlement
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OAKLAND, Calif. – A federal judge yesterday approved a massive giveaway of free makeup and perfume at cosmetics counters across the country as part of the settlement of an antitrust lawsuit against cosmetics makers and department stores.
After a two-and-a-half-hour hearing, Judge Saundra Armstrong found that the settlement, which proponents say will provide free products worth $175 million to class members, was fair and reasonable. She also awarded $24 million in attorney’s fees to plaintiffs’ lawyers involved in the case.
Judge Armstrong acknowledged that the first-come, first-serve aspect of the giveaway is unusual because individual cosmetics buyers are not guaranteed to receive anything in the giveaway. “This is unprecedented. This is the first settlement of its kind,” she said.
Objectors to the deal immediately announced plans to appeal. Even if those appeals are unsuccessful, the weeklong cosmetics giveaway is unlikely to take place before January 2008, lawyers said.
The attorneys general of 11 states objected to an earlier version of the settlement, as did more than a dozen attorneys representing cosmetics purchasers. At a hearing in January, the judge rejected that deal.
However, the states and most of the objectors withdrew their challenges after the companies agreed that each consumer would only be able to claim one gift under the revised settlement. The original agreement allowed some consumers to seek gifts worth between $18 and $25 from each of the nine manufacturers involved in the lawsuit.
The change put the objectors in the unusual position of suggesting that they improved the deal by cutting its value to some consumers by up to 89%.
The lead attorney for the objecting states and an assistant attorney general for Pennsylvania, Jennifer Kirk, acknowledged that the revisions to the settlement reduced its value to some class members.
“For an individual, it may not be better,” Ms. Kirk said after the hearing. Under the original settlement, stores would probably have run out of free product quickly, she said. “There simply wasn’t enough.”
One attorney who is continuing to object to the deal, John Pentz, marveled at the states’ decision to support the revised settlement. “Boy, did they do a reversal,” he said in an interview. “They’ve agreed to a settlement now that makes it worse for class members.”
The class-action lawsuit involves claims that department stores and manufacturers conspired to discourage discounting upscale cosmetics products. The companies contested the litigation but said they agreed to settle to avoid the uncertainty of a continuing court battle.
In a declaration filed at yesterday’s hearing, an expert predicted that only 3% to 7% of the 38 million people who bought cosmetics in the past decade will obtain a free product.
During the session, Mr. Pentz argued that the new limit of one free gift for each person was such a significant change that consumers should be notified and allowed another opportunity to object or opt out of the case.
“They could have read the original settlement and said, ‘Great, I’m going to be there first thing Sunday morning and get nine products’ ” worth up to $225, he said.
Judge Armstrong said she saw no such provision for multiple gifts in the original deal. She dismissed arguments that attorneys for the class highlighted the multiple-gift aspect of the earlier settlement in newspaper interviews, including one with The New York Sun.
“Those statements are irrelevant,” the judge said.
Plaintiffs’ attorneys asked the judge to award the requested $24 million in legal fees, which will be paid by the defendant companies and put in an interest-bearing account until the distribution of products is complete.
A lawyer for the class, Francis Scarpulla, said the attorneys who brought the litigation began work on the issue in 1995 and have been financing the case out of their own pockets. “It’s been 10 years since anybody has gotten anything,” he said.
While Judge Armstrong was ultimately persuaded to award the fees and put the funds aside for allocation later, she initially said she was inclined to defer awarding any fees until she knew how many class members actually got a free product.
“What if the distribution is an utter failure? Are you suggesting the court would not need to consider that?” she asked.
One plaintiffs’ lawyer indicated that some of the attorneys who objected to the earlier deal, including those representing the 11 states, are likely to seek part of the $24 million in fees.
Another plaintiffs’ attorney, Guido Saveri, said there was no reason to put off the fee award, which he called “very, very, very reasonable.” He said the court could be sure that $175 million in free products would be distributed, because any cosmetics not given away in stores will be given to charity.
Consumers seeking free gifts will be required to sign statements saying they bought cosmetics from one of the nine manufacturers involved in the settlement and that they have not previously obtained a free item. However, it will be easy for people to make fraudulent claims because there are no plans to cross-check the millions of forms.
“Are they going to indict you over $25? Come on,” Mr. Pentz said.