Plaintiffs in Kurtz v. Kimberly-Clark Corporation, — F.4th —-, 2025 WL 1802667 (2d. Cir. 2025), asserted false advertising claims against a manufacturer of flushable wipes, alleging that they paid a price premium based on the representation that the wipes were “flushable” when they in fact allegedly caused plumbing damage. 

The district court granted preliminary approval for a “claims made” settlement for up to $20 million in compensation to the class.  At the claim filing deadline, only $1 million had been claimed.  After fairness hearings, the district court approved the class settlement and later approved $3.1 million in attorneys’ fees for class counsel.  A class member objected to the settlement, arguing that a disproportionate amount of the total recovery went to class counsel instead of the class.

The Second Circuit vacated and remanded the district court’s approval order.  The Court held that under Rule 23(e)(2)(C), courts must “directly compar[e] the allocation of the total recovery between the class and class counsel” even if the awards are separate funds.  The Second Circuit found that the trial court had failed to perform that comparison, although it offered no view on what the outcome should be.  The Court chose not to dictate a fixed rule on whether courts need to base the comparison on the hypothetical maximum recovery for the class or the actual recovery of those who made claims, finding that to be a “fact-bound question” that may depend on the structure of the settlement, among other factors.  This is likely to be an ongoing area of dispute for claims-made settlements in which the actual recovery to the class is significantly below the maximum possible amount.