## Facts

- Consumers filed twenty-six putative nationwide class actions alleging Bluetooth headset makers failed to disclose risks of noise-induced hearing loss from extended high-volume use.
- Claims were brought under various state consumer-protection and unfair-business-practices statutes, including California and Illinois laws.
- The actions were centralized in an MDL in the Central District of California.
- The parties negotiated a pre-certification class settlement providing:
  - No direct monetary compensation to class members for economic injury.
  - $100,000 in cy pres distributions.
  - Injunctive/educational relief focused on warnings and safe-use information.
  - Up to $800,000 in attorneys’ fees plus costs for class counsel.
  - $12,000 in incentive awards to class representatives.
- The district court approved the settlement and awarded the requested attorneys’ fees and incentive awards, with limited explanation of how the fee amount was calculated or why it was reasonable given the class relief.

## Issues

1. Whether the district court abused its discretion by approving a settlement in which attorneys’ fees were grossly disproportionate to the class’s recovery.
2. Whether the district court satisfied its independent duty under Rule 23(e) and Rule 23(h) to scrutinize settlement fairness and fee reasonableness, particularly in a pre-certification negotiated-fee settlement where collusion risks are heightened.

## Decision

- The Ninth Circuit vacated the order approving the settlement and the order awarding attorneys’ fees and remanded.
- The court held that the disparity between the class’s relief and counsel’s requested compensation raised at least an inference of unfairness not dispelled by the record.
- The court directed the district court to conduct a more searching review of the negotiated distribution of benefits and to reassess the substantive reasonableness of the fee request in light of the results actually obtained for the class.
- The court faulted the district court for insufficiently explaining its fee determination and for not adequately addressing potential structural indicators of self-dealing in the settlement.

## Legal Principles

- Courts have an independent, non-delegable obligation to ensure a class settlement is fair, reasonable, and adequate under Rule 23(e), and that any fee award is reasonable under Rule 23(h), even if the parties negotiated and agreed to a fee amount.
- In class settlements, a “gross disproportion” between attorneys’ fees and the value of relief to the class can support an inference of unfairness and warrants heightened scrutiny.
- Pre-certification settlements that simultaneously negotiate class relief and attorneys’ fees require especially careful judicial review due to increased risk of collusion.
- Structural features that may signal collusion and require closer examination include clear-sailing fee provisions, reverter/kicker arrangements, and fee levels untethered to the class’s actual recovery.
- In assessing fee reasonableness, the court should consider the degree of success achieved for the class and should provide a reasoned explanation for the chosen method and amount (including any benchmark or departure rationale when percentage approaches are used).

## Conclusion

The Ninth Circuit vacated approval of a Bluetooth headset consumer class settlement and an $800,000 fee award because the class received no direct monetary recovery and only limited cy pres and disclosure relief, creating an inference of unfairness that the district court did not adequately analyze; on remand, the district court was required to conduct a more searching Rule 23(e) fairness inquiry and a reasoned Rule 23(h) evaluation of fee reasonableness tied to the class’s actual benefit.


In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir. 2011)