In a twist that clogged the legal pipeline of a high-profile class action, the Second Circuit Court of Appeals on Tuesday vacated a $4 million attorney fee settlement tied to claims that Kimberly-Clark Corp.’s wet wipes were falsely marketed as flushable. The court found that the district court failed to adequately weigh how the payout to lawyers compared to the relief actually received by consumers.

The three-judge panel emphasized that while successful class attorneys should be paid, the disproportion between a $3.1 million attorney payout and only $1 million claimed by class members raised red flags. The remainder of the settlement, $19 million, reverted to Kimberly-Clark.

“The share of recovery that class counsel takes as compensation sheds light on how much is left for the class — or how much was negotiated for the class in the first place,” the panel wrote in its published opinion.

Legal Wipeout: The Fight Over “Flushable” Claims

The class action originated from claims brought by D. Joseph Kurtz, alleging that wipes sold by Costco and Kimberly-Clark do not disintegrate properly, damaging plumbing systems and misleading consumers who paid a premium for “flushable” products. The case was later joined by plaintiff Gladys Honigman and certified in 2017 by U.S. District Judge Jack B. Weinstein for damages and injunctive relief—though the Second Circuit later stripped the injunctive class, citing a lack of standing.

By June 2023, Judge Pamela K. Chen granted final approval to a settlement deal offering up to $20 million in class payments and $4 million in legal fees. But when only $1 million was ultimately claimed by class members, Chen adjusted the attorney award downward to approximately $3.1 million.

Still, that didn’t sit well with objector Theodore H. Frank, whose challenge sparked the appeal that led to Tuesday’s ruling.

Panel: Settlement Funds and Fees Are Symbiotic

Kimberly-Clark defended the deal by asserting that attorney fees were negotiated separately from the class fund. But the panel rejected that rationale, stating that courts must view attorney compensation and class recovery as interconnected parts of the same settlement structure—especially since most parties negotiate them as a total package.

“The rules of fairness do not hinge on whether the funds come from the same pot,” the judges wrote. “Fees and settlement are symbiotic.”

The panel further ruled that the district court must compare attorney fees with both projected and actual recovery, depending on the structure and outcome of the settlement—a factual determination best left for the lower court.

No Final Verdict—Yet

Importantly, the appeals court did not rule on the fairness of the settlement itself, leaving that question in the hands of the district court. The decision sends the case back to Judge Chen for further scrutiny on whether the settlement’s fee structure unjustly benefited the attorneys at the expense of the class.

The panel included Senior Circuit Judges Guido Calabresi, Susan L. Carney, and Judge Maria Araújo Kahn.

Behind the Battle: Legal Teams on All Sides

• Objector Theodore H. Frank is represented by Anna St. John of the Hamilton Lincoln Law Institute Center for Class Action Fairness.

• Class plaintiffs are represented by Douglas Wilens, Samuel H. Rudman, Vincent M. Serra, and Francis P. Karam of Robbins Geller Rudman & Dowd LLP.

• Kimberly-Clark Corp. is represented by a powerhouse legal team from Gibson Dunn & Crutcher LLP and Sidley Austin LLP, including Theodore J. Boutrous Jr., Timothy W. Loose, Kara L. McCall, and others.