TRUCKEE, Calif. - "There's a sucker born every minute" as P. T. Barnum used to say It has always seemed a stretch to claim Wheaties as the "Breakfast of Champions," or that Wonder Bread "helps builds strong bodies twelve ways." If you think those are bad, try Kellogg's ads for Frosted Mini-Wheats.
Frosted Mini-Wheats are Brain Food
In January of 2008, Kellogg Co., the maker of Frosted Mini-Wheats cereal, began a marketing campaign that claimed the cereal was "scientifically proven to improve children's cognitive functions for several hours after breakfast."
"Does your child need to pay more attention in school? ... a recent clinical study showed that a whole grain and fiberfilled breakfast of Frosted Mini-Wheats® helps improve children's attentiveness by nearly 20%."
"An independent research group conducted a series of standardized, cognitive tests on children ages 8 to 12 who ate either a breakfast of Frosted Mini-Wheats® cereal or water (That's a breakfast? asks JP). The result? The children who ate a breakfast of Frosted Mini-Wheats® cereal had a nearly 20% improvement in attentiveness."
"Based upon independent clinical research, kids who ate Kellogg's Frosted Mini-Wheats® cereal for breakfast had up to 18% better attentiveness three hours after breakfast than kids who ate no breakfast."
A hearty breakfast of sugar-spiked dog food would make you attentive. Turns out I am not the only Doubting Thomas.
Class Action Suit
Two groups of plaintiffs joined together challenging Kellogg's marketing claims under California's Unfair Competition Law and California's Consumer Legal Remedies Act. Before the class was even certified, the plaintiffs reached a settlement with Kellogg. By itself, that makes any settlement suspect.
The settlement called for Kellogg to establish a $2.75 million fund for distributions to class members submitting claims who would receive $5 per box of cereal purchased up to a maximum of $15, with unclaimed funds to go to unnamed charities who feed the indigent.
Plus, Kellogg agreed to distribute $5.5 million "worth" of Kellogg food items to charities that feed the indigent.
Kellogg agreed that for three years it would stop advertising that Frosted Mini-Wheats cereal is clinically shown to improve attentiveness by nearly 20%, although Kellogg could still claim that studies have shown that kids who eat Mini-Wheats have an 11% better attentiveness in school than kids who skip breakfast.
I'm no nutritionist, but I bet kids who eat a bowl of sugar would have at least 11% better attentiveness in school. Same claim can probably be made for kids who drink a bowl of milk without Frosted Mini-Wheats.
Oh, let's not forget the attorneys. Class counsel got $2 million The total value of the Settlement was more than $10 million.
Class Action Challenged
Two class members objected to the Settlement claiming that although Kellogg and the lawyers did just fine, the cereal-eating class members got almost nothing and have no idea how the fund would be used and food distributed to the poor.
The federal trial court approved the class Settlement, and the Objectors appealed.
The federal Court of Appeals examined the cy-pres distributions of unclaimed cash and $5.5 million worth of food products. In case you don't speak French, cy-pres is shorthand for the old equitable doctrine "cy-pres comme possible," French for "as near as possible." In other words, in a class action you can't realistically pay the cereal-eating class members or distribute Kellogg's products to the cereal eating class members, so you do "the next best distribution" - you give the money and food to a worthy cy-pres beneficiary
The Objectors argued that feeding the indigent had nothing to do with Kellogg's misrepresentations and violation of California's Unfair Competition Law and Consumer Legal Remedies Act.
Kellogg's attorneys argued that the case was about "the nutritional value of food." The federal Court of Appeals disagreed, concluding that the appropriate cy-pres recipients are not charities who feed the needy, but organizations dedicated to protecting consumers from false advertising: "Charities that provide food for the indigent may not serve a single person within the plaintiff class of purchasers of Frosted Mini-Wheats."
$5.5 Million Worth of Food
The Court continued to take apart the Settlement, pointing out the ambiguity in calculating $5.5 million worth of food. Is that calculated at wholesale or retail, or is it valued at Kellogg's cost? Where is the accounting of the cy-pres distributions? As the Court noted, Kellogg generously donates its food products. Can it use previously budgeted foods or surplus production to meet its Settlement obligations?
Pre-class certification of class Settlements require a higher standard of fairness and a more probing inquiry than normal class action Settlements. Too many unanswered questions, according to the Court of Appeals
Settlement out the door Remember kids - pay attention - eat breakfast.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. He was the Governor's appointee to the California Fair Political Practices Commission and McPherson Commission, both involving election law and the Political Reform Act. Jim's practice areas include: real estate, development, construction, business, HOAs, contracts, foreclosures, mediation and other transactional matters. He may be reached at email@example.com or at the firm's website www.portersimon.com.