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From Products Liability Law Daily, June 29, 2015

$33M deal to settle small fridge defect suit rejected again

By Georgia D. Koutouzos, J.D.

A proposed $33-million agreement to settle class-action claims against the manufacturers of certain small refrigerators with cooling unit tubing corrosion that poses a potential fire hazard was rejected for the second time by a California federal court. Although the revised agreement contained several substantive changes that addressed many of the court’s original concerns, the proposed plan for allocating settlement funds among the owners of the three affected models was not equitable, the court advised, adding that it also was not convinced that $33 million was a reasonable settlement based upon the manufacturers’ purported financial condition (Etter v. Thetford Corp., filed June 25, 2015, Staton, J.).

Background. Purchasers of three models of gas absorption refrigerators used in boats and other recreational vehicles filed a class-action suit against the refrigerators’ manufacturers alleging that the tubing in the items’ cooling units shared a common tendency to corrode, crack, and leak ammonia gas, resulting in fires. The purchasers asserted causes of action for, among other things, strict liability and negligence, also claiming that the manufacturers knew but had concealed or failed to disclose the fact that the refrigerators contained the design defect.

The parties reached a settlement in July 2014 under which the fridge makers agreed to pay $33 million in three installments into a settlement fund for the benefit of the class. From the fund, $2.5 million would be paid to the claims administrator for administration expenses, with any balance to revert to the fund. In addition, the agreement provided that the purchasers’ counsel could apply for an award of attorney fees and costs not to exceed 25 percent of the fund.

The plan for allocation for the distribution of the shares of the settlement fund was structured as follows: (1) current owners of one of the three models—the 1200 Series refrigerator—were to receive 25 shares (approximately 117,343 affected individuals); (2) former owners of the 1200 Series model who had incurred out-of-pocket expenses to repair and/or replace the refrigerator or cooling unit were to receive 25 shares (approximately 24,723 affected individuals); (3) former owners of the 1200 Series model who had not incurred out-of-pocket replacement or repair expenses were to receive one share (approximately 74,170 affected individuals); and (4) current owners of the other two models—the N6 Series and the N8 Series—were to receive three shares in addition to a three-year extended warranty covering the replacement of any cooling unit that failed due to a leak (approximately 359,197 individuals). Among the agreement’s other clauses was one that provided for a warning to be distributed to claimants with a 1200 Series refrigerator.

The settling plaintiffs’ motion for preliminary approval of the settlement agreement was denied in October 2014; the court identified several problems with the agreement and concluded that the settling plaintiffs had failed to demonstrate that the proposed class representatives would fairly and adequately protect the interests of the settlement class. About one month later, the plaintiffs filed a supplemental motion for preliminary approval of the proposed settlement that included a revised agreement. The revised agreement contained the same general class definition, plan of allocation and payment structure, provision regarding payment of administrative expenses, attorney fees, and cost percentage, as well as the three-year extended warranty, warning to be distributed to claimants with a 1200 Series refrigerator, and general release of any claims.

Deficiencies. Although the revised settlement agreement contained several substantive changes that addressed many of the court’s original concerns, deficiencies nevertheless remained. Among them, the proposed plan of allocation for the distribution of shares of the settlement fund was not equitable. Despite the court’s previous conclusion that the settlement agreement did not treat owners of the three models of refrigerators alike and its concern that owners of the 1200 Series would receive monetary relief 8.3 times greater than what would be received by the owners of the N6 and N8 models, the revised agreement set forth the same plan of allocation and payment structure as the original agreement.

Moreover, while the supplemental motion addressed the court’s concern that there were no adequate class representatives who currently own the N6 and N8 models, the revised agreement’s inclusion of the same plan of allocation failed to address the more fundamental concern regarding payments to be received by class members. Given that the cost of replacing a 1200 Series model is approximately $1700 and the cost of replacing the N6 and N8 models is approximately $1129, as currently structured, under no reasonably expected circumstance would the plan of allocation provide the owners of the N6 and N8 models with compensation that would cover even half the cost to replace their refrigerators.

Inasmuch as the lawsuit related to alleged serious defects in all three models and consumers continue to own and use N6 and N8 models that still contain the alleged design defect, without meaningful compensation or action by the manufacturers that allows the class members to replace those refrigerators—or at least to decrease the risk of fire that could arise from their continued use—consumers would continue to be at risk of serious personal injury. Furthermore, even if a lesser amount of compensation to the owners of the N6 and N8 models is warranted, the manufacturers had to ensure that owners of those models receive meaningful compensation for the risks and circumstances of a safety defect to a similar extent as the owners of the 1200 Series. As currently structured, the plan of allocation did not afford such meaningful relief.

In addition, the settling plaintiffs failed to provide any further documentation or argument regarding whether the extended warranty to be provided to owners of the N6 and N8 models rendered the total value of their settlement equivalent to that of the 1200 Series owners. Had such documentation been provided, however, it still would not change the conclusion that the current plan of allocation failed to provide meaningful compensation to absent class members.

Taking into account the allegedly serious risks associated with the manufacturers’ refrigerators, it could not be concluded that class members would be better off participating in the proposed settlement as compared to foregoing the proposed compensation and pursuing their individual claims against the manufacturers. Finally, it could not be concluded that $33 million was a reasonable settlement based upon the manufacturers’ purported financial condition. Accordingly, the settling plaintiffs’ supplemental motion was denied without prejudice.

The case is No. SACV13-00081 JLS (RNBx).

Attorneys: Elaine T. Byszewski (Hagens Berman Sobol Shapiro LLP) for Jeffery Etter. Gregory D. Brown (Burnham Brown), and Bryan A. Merryman (White and Case LLP) for Thetford Corp., Norcold, Inc., and Dyson-Kissner-Moran Corp.

Companies: Thetford Corp.; Norcold, Inc.; Dyson-Kissner-Moran Corp.

MainStory: TopStory DamagesNews DesignManufacturingNews HouseholdProductsNews CaliforniaNews

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