In an August 2, 2013 opinion in Greenberg v. Procter & Gamble Co., the United States Court of Appeals for the Sixth Circuit held that a settlement agreement in a class action lawsuit awarding $2.7 million to class counsel, $1,000 to each named plaintiff and nothing to the unnamed class plaintiffs was unfair. The court outlined the factors it would consider when deciding the fairness of class actions.

The plaintiffs brought a proposed class action under FRCP 23(b)(1) and 23(b)(3), alleging that the defendant's product, Pampers Dry Max diapers, caused their infants to suffer extreme diaper rash. The Consumer Product Safety Commission launched an investigation, concluding that the diapers in question had no connection to diaper rash. Procter & Gamble (P&G) filed a motion to dismiss. Before plaintiffs responded, and before any discovery in the matter, the parties entered into settlement discussions and reached an agreement. Named plaintiffs agreed to seek class certification under FRCP 23(b)(2), which prevents absent class members from opting out of a settlement deal. The settlement awarded named plaintiffs $1,000 per affected child, awarded class counsel $2.7 million in fees and contained provisions in which all class members released their equitable claims against P&G (while retaining claims related to personal injury or damages). P&G also agreed to place rudimentary information about diaper rash on its boxes and website for two years and revive a program that allowed purchasers limited ability to return the product: purchasers would have to provide the original purchase receipt and UPC label from the box and were limited to returning one box per household.

Greenberg, a class member, opposed this settlement, arguing in part that:

The district court did not address these objections, and approved the settlement. Greenberg appealed.

The Sixth Circuit reversed the district court's decision and remanded for further consideration. The court indicated that when evaluating the fairness of a settlement agreement, it would examine:

The court examined the injunctive relief offered to the unnamed plaintiffs in light of the $2.7 million awarded to class counsel. It found the refund program dubious on its face, and its value negligible. It also determined that the language that P&G posted on its boxes and website was mostly an advertisement for Pampers, and of little value. Therefore, the court found that the named plaintiffs did not adequately represent the unnamed members and they did not vigorously prosecute the interests of the entire class, so it vacated the district court's decision.

This decision reminds litigants that settlement agreements in class actions containing high attorneys' fees and treating named and unnamed class members differently may draw scrutiny from the court. Practitioners in the Sixth Circuit are reminded that an award of attorneys fees in a class action will be examined based on the relief given to the class members who did not receive preferential treatment.