Vitamin Price-Fixing $242 Mil. Class Settlement Fund Approved

A Washington, D.C. federal judge on March 28 gave final approval to a vitamin price-fixing class action settlement that is less than one-quarter the amount and scope originally announced due to the number of large companies opting out.

The settlement agreement publicized in November called for $1.05 bil. in cash payments to a class of approximately 4,000 direct purchasers of bulk vitamins and premixes from seven international corporate defendants and their affiliates.

However, 224 class members, representing approximately 75% of the vitamin purchases at issue, opted out of the settlement, reducing the fund to $242 mil. for the remaining class members.

In addition, class counsel said approximately 35 opt-out companies representing more than $700 mil. in purchases have independently settled their claims for payments at or just below class settlement levels, for an additional $129 mil. When combined with the class fund, these additional settlements bring total payouts to $371 mil., accounting for about 35% of the total vitamin product purchasers, according to class counsel.

The companies that opted out but settled at class-level rates "implicitly supported the recovery obtained in this settlement, but do not wish to wait for their money during the settlement approval stage," class counsel say in court filings supporting the settlement.

Settling defendants are Hoffmann-La Roche, BASF, Rhone-Poulenc Animal Nutrition, Hoechst Marion Roussel, Takeda Vitamin & Food USA, Daiichi Pharmaceutical and Eisai.

The settlement agreement contained a "step down" provision allowing for reduction of the settlement fund in proportion to the percentage of vitamin purchases of opt-out companies. This provision does not affect the percentage of purchases recovered by class members under the agreement. "Every class member will receive a recovery based on at least 18%-20% of the value of the affected vitamin products it purchased," class counsel say in court documents.

"We knew there would be substantial opt outs because of the size of the companies involved," co-lead class counsel David Boies of Boies, Schiller & Flexner (Washington, D.C.) told Judge Thomas Hogan during the March 28 hearing on the settlement's fairness.

The firms that opted out include a number of leaders in the dietary supplement industry, including Leiner, NBTY, Perrigo, Rexall Sundown, Twinlab, Weider, General Nutrition, SmithKline Beecham, Bayer, American Home Products and its Solgar Vitamin division, and Bristol-Myers Squibb. Some companies opted out as part of settlement agreements, while others are pursuing individual lawsuits (¹ (Also see "Vitamin Price-Fixing Settlement Opt-Outs Include Supplement Leaders" - Pink Sheet, 6 Mar, 2000.)).

The settlement's "most favored nations" clause will benefit class members in the event larger settlements are reached by opt-out companies, Boies said.

Under the clause, defendants must increase settlement payments to the class to meet any higher percentage of recovery they agree to pay independent plaintiffs by November 2001. Numerous companies that opted out of the class settlement nevertheless opposed the inclusion of the clause, arguing it would hinder their ability to quickly pursue independent settlements.

In determining the settlement's fairness, the court "should only consider whether it benefits the class, not whether it causes practical problems for the settling defendants or the opt outs," co-lead class counsel Stephen Susman of Susman Godfrey (Dallas) argued. The MFN clause did not coerce firms to stay in the class, the attorney added.

In his oral ruling finding the settlement to be fair and reasonable, Judge Hogan noted the "substantial value" of the opt outs but also cited the lack of objections filed by remaining class members. Settlement payments ranging from 18%-20% of vitamin purchases are "in the highest range of recoveries" compared to other antitrust cases, he said.

While noting the two-year duration of the MFN clause was unusual, Hogan said he did not find the clause to be unreasonable or unfair.

The judge also denied, for a second time, a motion by several opt-out companies to intervene in the action to protest the MFN clause. A D.C. federal appeals court will hear an appeal of Hogan's earlier denial of intervention on April 3.

Judge Hogan deferred ruling on class counsel's request for $122 mil. in attorneys' fees. The amount sought - representing approximately 10.4% of the initial $1.05 bil. settlement fund, including the fee amount - remains unchanged despite the "step-down" in the final settlement fund amount.