Kurtz v. Kimberly-Clark Corp.: Second Circuit Requires Proportionality Review of Attorney’s Fees and Class Relief Under Rule 23(e)

Introduction

In Kurtz v. Kimberly-Clark Corp., Nos. 24-425 & 24-454 (2d Cir. July 1, 2025), the United States Court of Appeals for the Second Circuit clarified the post-2018 Rule 23(e) landscape by declaring that district courts must explicitly compare the share of total recovery going to class members with the share earmarked for class counsel when deciding whether a class action settlement is “fair, reasonable, and adequate.” The ruling arose out of a long-running consumer-fraud litigation accusing Kimberly-Clark of falsely advertising moist bathroom wipes as “flushable.”

Objector-Appellant Theodore H. Frank contended that the settlement—$20 million theoretically available to the class versus up to $4.1 million in fees, with only about $1 million actually claimed—unduly favored counsel. The Second Circuit vacated the district court’s approval and remanded, holding that the lower court applied the wrong legal standard by failing to conduct a proportionality analysis of fees to class relief.

Summary of the Judgment

Judge Calabresi, writing for a unanimous panel that included Judges Carney and Kahn, held:

The 2018 amendments to Fed. R. Civ. P. 23(e) require a “symbiotic” and proportional review of attorney’s fees vis-à-vis class relief.
This duty exists regardless of settlement structure; even when fees are paid from a segregated fund, courts must still compare the relative allocations.
The district court’s analysis—which emphasized that fees came from a separate pot and therefore did not “affect” class relief—was insufficient.
The panel vacated the approval order and remanded for further proceedings without deciding whether the settlement is ultimately fair.

Analysis

A. Precedents Cited and Their Influence

City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir. 1974) – Established nine “Grinnell factors” for assessing settlement fairness before 2018.
Fed. R. Civ. P. 23(e) (2018 Amendments) – Added four enumerated factors, most importantly 23(e)(2)(C)(iii) mandating consideration of “the terms of any proposed award of attorney’s fees.”
Moses v. New York Times Co., 79 F.4th 235 (2d Cir. 2023) – First Second Circuit decision interpreting revised Rule 23(e); rejected automatic presumption of fairness and emphasized “symbiotic review” of fees and relief.
Briseño v. Henderson, 998 F.3d 1014 (9th Cir. 2021) – Ninth Circuit precedent requiring proportionality analysis; cited approvingly.
In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir. 2011) and Johnston v. Comerica Mortg. Corp., 83 F.3d 241 (8th Cir. 1996) – Earlier cases treating fees and class payments as a single “package deal.”

The court wove these authorities together to reinforce that Rule 23(e) now demands more than the historic Grinnell checklist: it requires a quantitative comparison of percentages.

B. Court’s Legal Reasoning

Textual Analysis – Rule 23(e)(2)(C) instructs courts to consider adequacy of relief “taking into account … attorney’s fees.” The panel construed this language to presume that fees can affect relief and that a court must determine whether the allocation is fair.
Policy Justification – Without a proportionality check, “unscrupulous counsel” might trade class recovery for higher fees. Monitoring fee-to-relief ratios guards against this conflict of interest and protects absent class members.
Rejection of “Separate-Pot” Safe Harbor – The district court’s reliance on the existence of two funds (one for fees, one for class payments) conflated form with substance. Because defendants typically look at their global payout when bargaining, separate pots do not eliminate the economic trade-off.
Relationship to Rule 23(h) – Although Rule 23(h) also addresses attorney’s fees, it asks whether the amount is reasonable compensation for counsel’s work. Rule 23(e) focuses on fairness to the class. The two inquiries overlap but remain distinct; fulfilling one does not supplant the other.
Choice of Benchmark – The panel deliberately left it to district courts to decide whether to compare fees to actual, hypothetical, or predicted class recovery, recognizing that circumstances vary (e.g., reversionary settlements, cy-près distributions, claims-made rates).

C. Potential Impact

The decision will have immediate and far-reaching consequences for class action practice in the Second Circuit and likely beyond:

Heightened Scrutiny of Settlements – Parties will need to present detailed data showing estimated claim rates and justify fee percentages in relation to class benefit, not merely absolute dollar figures.
Decrease in “Reversionary” Structures – Settlements where unclaimed funds revert to defendants (as here) will face closer questioning; counsel may opt for non-reversionary common funds or cy-près arrangements to maintain proportionality.
Influence on Other Circuits – Aligns the Second Circuit with the Ninth and Eleventh Circuits, promoting a de facto national standard and increasing persuasive authority for proportionality review.
Strategic Negotiations – Defendants and plaintiffs may negotiate global caps encompassing both fees and class payments, or adopt sliding scales whereby fees rise with claimants’ take-up rates.
Judicial Workload – District courts must engage in a more data-driven analysis, potentially requiring expert declarations on expected recovery or actuarial modeling.

Complex Concepts Simplified

Claims-Made Settlement: A settlement where class members must file claims to receive money, as opposed to an automatic distribution. The total “face value” often exceeds what is actually paid because many class members never claim.
Reversionary Funds: Money set aside for the class that reverts (returns) to the defendant if unclaimed. This structure can reduce defendant’s ultimate liability and skew the fee-to-relief ratio.
Proportionality Analysis: A comparison, usually expressed as percentages, between attorney’s fees and the benefit realized (or realistically expected) by the class.
Rule 23(h) vs. Rule 23(e): Rule 23(h) governs how courts award attorney’s fees; Rule 23(e) governs whether the entire settlement is fair to the class. The same numbers are evaluated from different vantage points.
Cy-près Distribution: A method of distributing unclaimed settlement funds to charities or other indirect beneficiaries when direct distribution is impracticable.

Conclusion

Kurtz v. Kimberly-Clark Corp. cements a crucial post-2018 principle: district courts must not only calculate whether attorney’s fees are reasonable but also evaluate whether their proportion of the total recovery undermines the adequacy of class relief. Segregated fee funds no longer shield settlements from proportionality scrutiny. Going forward, counsel will need to anticipate detailed questions about claim rates, unclaimed funds, and fee structures, while courts must articulate how the chosen benchmark (actual, hypothetical, or predicted recovery) justifies the fee-to-relief balance. The ruling amplifies the judiciary’s fiduciary role toward absent class members and harmonizes Second Circuit jurisprudence with emerging national trends, ensuring that class actions serve both compensatory and deterrent goals without disproportionately enriching counsel.