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Toys ‘R’ Us $35 Million Antitrust Accord Overturned

Toys “R” Us Inc.’s $35 million settlement of an antitrust group lawsuit over inflated prices was thrown out by an appeals court that questioned the distribution of the funds and rejected the fees awarded lawyers.

The U.S Court of Appeals in Philadelphia said in a ruling today that the distribution may be unfair to consumers who would see $3 million under the accord while the attorneys would get $14 million in fees. The remaining $18.5 million would go to charities.

“The settlement has resulted in a troubling, and, according to counsel for the parties, surprising allocation of the settlement fund,” the judges said. “Though the parties contemplated that excess funds would be distributed to charity after the bulk of the settlement fund was distributed to class members through an exhaustive claims process, it appears the actual allocation will be just the opposite.”

The settlement stems from antitrust lawsuits filed in 2005 and 2006 by consumers and Internet retailers, including Inc., claiming that Babies “R” Us conspired with baby-product manufacturers to limit discount pricing on certain items. The retailers claimed Toys “R” Us threatened to cut off supplies if they charged less than agreed upon minimum prices. Consumers said the company’s actions caused them to pay inflated prices.

Compensation Levels

Under the settlement, consumers were entitled to varying levels of compensation depending on the proof of purchase they submitted.

The lower court judge who approved the settlement wasn’t told by the lawyers that many class members were forced into a lower level by the “restrictive claims process,” the appeals court said.

Many fewer claims for the higher payouts resulted in excess money to be distributed to a nonparty for a charitable purpose, according to the decision.

The court also tossed the lower court’s order awarding attorneys fees and costs.

“In this case, class counsel, and not their client, may be the foremost beneficiaries of the settlement,” the judges said. “The current distribution of settlement funds arguably overcompensates class counsel at the expense of the class.”

Ivy Tabarra, an attorney for the plaintiffs at Hagens Berman Sobol Shapiro in Seattle, didn’t immediately respond to a voice-mail message seeking comment on the ruling.

Kathleen Waugh, a spokeswoman for Wayne, New Jersey-based Toy “R” Us, declined to comment on the decision.

The case is In Re Baby Products Antitrust Litigation, 12-1165, U.S. Court of Appeals for the Third Circuit (Philadelphia).

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