Expert Panel Confirms Safety of BPA Use

We have posted before about the BPA "controversy" egged on by lawyers seeking their next mass tort.  Now comes yet another report on BPA, from the European Food Safety Authority, confirming that the current uses of BPA, including food related uses, pose no significant health risks to consumers of any age.

BPA is a chemical compound used in the manufacture of polycarbonate plastic food contact materials such as re-usable plastic tableware and can coatings (mainly as protective linings). Another widespread application of BPA is in thermal paper commonly used for till/cash register receipts.

EFSA’s expert Panel on Food Contact Materials, Enzymes, Flavourings and Processing Aids (CEF) decided that the publication of a variety of new scientific research on BPA in recent years meant a full re-evaluation of the chemical was timely.

EFSA’s experts estimated the exposure to BPA from dietary and non-dietary sources, and assessed the human health risks posed by exposure to BPA. The resulting risk assessment was just published in the CEF Panel’s “Scientific Opinion on the risks to public health related to the presence of bisphenol A (BPA) in foodstuffs”.

Exposure was assessed for various groups of the human population in three different ways: (1) external (by diet, drinking water, inhalation, and dermal contact to cosmetics and thermal paper); (2) internal exposure to total BPA (absorbed dose of BPA, sum of conjugated and unconjugated BPA); and (3) aggregated (from diet, dust, cosmetics and thermal paper).   BPA toxicity was evaluated by a weight of evidence approach. The CEF Panel established a temporary Tolerable Daily Intake (t-TDI) of 4 μg/kg bw per day. By comparing this t-TDI with the exposure estimates, the CEF Panel concluded that there is no health concern for any age group from dietary exposure or from aggregated exposure. The opinion echoes a similar pronouncement last year by the Food and Drug Administration. 

Expert Engineering Testimony Improperly Admitted

A case from last week reminds us of the importance of appellate review of expert witness admissibility decisions, and the potential impact of junk science on a jury. See Hyundai Motor Co. v. Duncan, No. 140216 (Va. 1/8/15).

Defendant appealed from a judgment entered on a jury verdict in favor of plaintiffs, and argued that the trial court erred in admitting the opinion testimony of the plaintiffs' designated expert witness. The expert testified that the location of the side airbag sensor in the 2008 Hyundai Tiburon being driven by plaintiff in a single-vehicle accident rendered the Tiburon unreasonably dangerous. The state supreme court agreed and reversed the judgment of the circuit court.

Plaintiffs alleged a design defect. and to support their claim, they designated one Geoffrey Mahon, a mechanical engineer, as an expert in airbag design. Mahon expressed the opinion (just a few details) that if the defendant had located the sensor for the side airbag system on the B-pillar of the vehicle (the pillar where the front door closes), approximately 4 to 6 inches from the floor, instead of on the cross-member underneath the driver's seat, the side airbag would have deployed in this accident. Therefore, according to Mahon, the location of the side airbag sensor on the cross-member allegedly rendered the 2008 Tiburon unreasonably dangerous,

Prior to trial, Hyundai moved to exclude Mahon's opinions as having an insufficient foundation because the witness did not conduct any analysis to determine whether the side airbag truly would have deployed if the sensor had been located where Mahon proposed. When deposed, Mahon had testified that in reaching his opinion, he relied upon a computer-aided engineering study conducted by Hyundai which had analyzed 14 potential locations for the side airbag sensor, but he did not adopt any of the 14 locations analyzed by Hyundai for his placement of the side airbag sensor. He admitted he would have to run more tests to verify his location.  And while Mahon believed the best location for the sensor was at the B-pillar, he testified he did no such testing of his own to determine if the side airbag would have actually deployed in the accident had the sensor been placed at any other location. He was nonetheless permitted to express his opinions at trial, over Hyundai's objections.

The court noted that Mahon's initial impression of the airbag system was that “the airbag should have gone off,” but upon further investigation, he concluded that the system was acting as designed -- a design he said was defective. At trial, Mahon agreed that the 2008 Tiburon, with the existing side airbag system, complied with the federal regulatory standard specifically related to side impact protection. He further acknowledged that the 2008 Tiburon “did reasonably well” when Hyundai conducted 22 crash tests in which it ran the vehicle into different types of barriers, at different speeds and angles. As noted, in Mahon's view, the 2008 Tiburon was nevertheless defectively designed and unreasonably dangerous because the sensor for the side airbag system was not located on the B-pillar. 

Consistent with his deposition testimony, Mahon testified at trial that he did not perform an analysis to determine whether the side airbag in the vehicle would actually have deployed if the sensor was in a different location. Mahon conceded that he had no real data demonstrating the real-world performance of a sensor located on the B-pillar that certain distance from the floor. He further agreed that because the airbag system must work quickly, that is the sensor system must decide within 15 milliseconds of a crash event whether an airbag is required and then inflate the airbag in 15 to 50 milliseconds, the location of the sensor is important to the overall crash sensing system such that inches, and even increments smaller than inches, really matter in the determination of the location of the sensor.

The state Supreme Court noted that expert opinion must be premised upon assumptions that have a sufficient factual basis and take into account all relevant variables. Expert testimony founded upon assumptions that have no basis in fact is not merely subject to refutation by cross-examination or by counter-experts; it is inadmissible. Failure of the trial court to strike such testimony upon a motion timely made is error subject to reversal on appeal. Furthermore, expert testimony is inadmissible if the expert fails to consider all the variables that bear upon the inferences to be deduced from the facts observed. See CNH America LLC v. Smith, 281 Va. 60, 67, 704 S.E.2d 372, 375 (2011).

In short, concluded the court, Mahon's opinion that the 2008 Tiburon was unreasonably dangerous was without sufficient evidentiary support because it was premised upon his mere assumption that the side airbag would have deployed here if the sensor was at his proposed location—an assumption that clearly lacked a sufficient factual basis and disregarded the variables he himself acknowledged as bearing upon the sensor location determination. Although experts may extrapolate opinions from existing data, a trial court should not admit expert opinion which is connected to existing data only by the ipse dixit of the expert. General Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997) (decided under the version of Fed.R.Evid. 702 which the General Assembly adopted, verbatim, in current Va. Code § 8.01–401.3(A)). The expert's opinion that the vehicle was unreasonably dangerous was based on his ipse dixit assumption that the side airbag would have deployed in the crash if the sensor had been located on the B-pillar. But the “analytical gap” between the data Mahon relied upon from Hyundai's location study and the opinion he proffered at trail was simply too great. Therefore, Mahon's opinion was inadmissible, and the trial court abused its discretion in admitting it.

The plaintiffs relied upon Mahon's opinion that the 2008 Tiburon was unreasonably dangerous to satisfy their burden of proving that Hyundai breached its implied warranty of merchantability. Because Mahon's opinion supplied the only support for the claim that the vehicle was unreasonably dangerous, the inadmissibility of Mahon's opinion was as a matter of law fatal to the claim and entitled Hyundai to judgment as a matter of law.

 

Eighth Circuit Clarifies Cy Pres Rules for Settlements

The  Eighth Circuit last week issued an opinion with a set of new guidelines regarding "cy pres' disbursements in settlements. See In re BankAmerica Corp. Sec. Litig. (Oetting v. Green Jacobsen P.C.),  No. 13-2620 (8th Cir., 1/8/15).

Following the 1998 merger of NationsBank and BankAmerica to form Bank of America Corporation, shareholders filed multiple class actions around the country alleging violations of federal and state securities laws. The cases were transferred by the Judicial Panel on Multidistrict Litigation to the Eastern District of Missouri.  The transferred cases were resolved when the court approved a $490 million global settlement.  See In re BankAmerica Corp. Sec. Litig., 210 F.R.D. 694, 704-05, 714 (E.D. Mo. 2002), and 227 F. Supp. 2d 1103 (E.D. Mo. 2002). After an initial and then a second distribution, motion was made to distribute cy pres the remainder of the “surplus settlement funds” to three St. Louis area charities suggested by class counsel. The district court granted the motion over various objections. Objectors appealed the cy pres distribution, and the court of appeals reversed in the opinion for today's post.

In recent years, some federal district courts have approved disposed of unclaimed class action settlement funds after distributions to the class by making “cy pres distributions.” The term cy  pres is derived from the Norman French expression "cy pres comme possible," which means "as near as possible." The cy pres doctrine originated as a rule of construction to save a testamentary charitable gift that would otherwise fail, allowing ‘the next best use of the funds to satisfy the testator’s intent as near as possible.’” In re Airline Ticket Comm’n Antitrust Litig., 268 F.3d 619, 625 (8th Cir.2001).

Such distributions “have been controversial in the courts of appeals.” Powell v. Ga. Pac. Corp., 119 F.3d 703, 706 (8th Cir. 1997). Indeed, some courts have criticized or restricted the practice. See, e.g., Ira Holtzman, C.P.A. v. Turza, 728 F.3d 682, 689-90 (7th Cir. 2013); In re Baby Prods. Antitrust Litig., 708 F.3d 163, 172-73 (3d Cir. 2013); In re Lupron, 677 F.3d at 29-33; Nachshin, 663 F.3d at 1038-40; Klier v. Elf Atochem N. Am., Inc., 658 F.3d 468, 473-82 (5th Cir. 2011); In re Katrina Canal Breaches Litig., 628 F.3d 185, 196 (5th Cir. 2010); Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 434-36 (2d Cir. 2007); Wilson v. Sw.Airlines, Inc., 880 F.2d 807, 816 (5th Cir. 1989).  Recently, echoing these views, Chief Justice Roberts noted “fundamental concerns surrounding the use of such remedies in class action litigation” while nonetheless agreeing with the denial of certiorari in Marek v. Lane, 134 S. Ct. 8, 9 (2013).

The American Law Institute addressed the issue of Cy Pres Settlements in § 3.07 of its published Principles of the Law of Aggregate Litigation (2010). The ALI has recommended:

A court may approve a settlement that proposes a cy pres remedy . . . .The court must apply the following criteria in determining whether a cy pres award is appropriate:

(a) If individual class members can be identified through reasonable effort, and the distributions are sufficiently large to make individual distributions economically viable, settlement proceeds should be
distributed directly to individual class members.
(b) If the settlement involves individual distributions to class members and funds remain after distributions (because some class members could not be identified or chose not to participate), the settlement should presumptively provide for further distributions to participating class members unless the amounts involved are too small to make individual distributions economically viable or other specific reasons exist that would make such further distributions impossible or unfair.
(c) If the court finds that individual distributions are not viable based upon the criteria set forth in subsections (a) and (b), the settlement may utilize a cy pres approach. The court, when feasible, should require the parties to identify a recipient whose interests reasonably approximate those being pursued by the class. If, and only if, no recipient whose interest reasonably approximate those being pursued by the class can be identified after thorough investigation and analysis, a court may approve
a recipient that does not reasonably approximate the interests being pursued by the class.

Given what it saw as a substantial history of district courts ignoring and resisting circuit court cy pres concerns and rulings in class action cases, the 8th Circuit then concluded it was time to clarify the legal principles for the doctrine, relying in great measure on the ALI principles.

First, said the court, because the settlement funds are the property of the class, a cy pres distribution to a third party of unclaimed settlement funds is permissible only when it is not feasible to make further distributions to class members, except where an additional distribution would provide a windfall to class members with liquidated-damages claims that were 100 percent satisfied by the initial distribution. Here, said the court, from the perspective of administrative cost, a further distribution to the class was in fact feasible. The district court thus erred in finding that further distributions would be so “costly and difficult” as to preclude a further distribution; that type of inquiry must be based primarily on whether “the amounts involved are too small to make individual distributions economically viable.” ALI § 3.07(a).

Second, a cy pres distribution is not authorized by declaring, as class counsel did in this case, that all class members submitting claims have been satisfied in full. It is not true that class members with unliquidated damage claims in the underlying litigation are “fully compensated” by payment of the amounts allocated to their claims in the settlement. In this case, the district court approved (not atypically) a global settlement in which plaintiffs would recover only a percentage of the damages that they sought.  The settlement notice to the class stated: “the settling parties disagree as to both liability and damages, and do not agree on the average amount of damages per share that would be recoverable by any of the Classes.” Thus, the notion that class members were fully compensated by the settlement  was speculative, at best, said the court of appeals.

Third, the court rejected any contention that the cy pres distribution must be affirmed because the district court is bound by language in the settlement agreement, such as a clause stating that the balance in the settlement fund “shall be contributed” to non-profit organizations “determined by the court in its sole discretion.” Distribution of funds at the discretion of the court is not a traditional Article III function. More importantly, a proposed cy pres distribution must meet the standards governing cy pres awards regardless of whether the award was fashioned by the settling parties or the trial court.

Fourth, the court held that, unless the amount of funds to be distributed cy pres is de minimis, a district court should make a cy pres proposal publicly available and allow class members to object or suggest alternative recipients before the court selects a cy pres recipient. This gives class members a voice in choosing a “next best” third party and minimizes any appearance of judicial overreaching. See In re Baby Prods., 708 F.3d at 180; ALI § 3.07(c), cmt b (encouraging courts to “solicit input from the parties” regarding cy pres recipients).

Fifth, when a district court concludes that a cy pres distribution is appropriate after applying the foregoing rigorous standards, such a distribution must be for the next best use, for indirect class benefit, and for uses consistent with the nature of the underlying action and with the judicial function. Any unclaimed funds should be distributed for a purpose as near as possible to the legitimate objectives underlying the lawsuit, the interests of class members, and the interests of those similarly situated. Applying this standard here, the court of appeals concluded that while the recipient here was unquestionably a worthy charity, it was not necessarily the “next best” recipient of unclaimed settlement funds in this nationwide class action. A district court must carefully weigh all considerations, including the geographic scope of the underlying litigation, and make a thorough investigation to determine whether a recipient can be found that most closely approximates the interests of the class.

The order was thus vacated. On remand, if any settlement funds remain after an additional distribution to the class, and if the district court concludes after proper inquiry that a cy pres award is still appropriate, the district court was directed to select next best cy pres recipient(s) more closely tailored to the interests of the class and the purposes of the underlying litigation.

 

Design Defect Claim Rejected for Lack of Cost Estimate on Alternative Design

A federal court in Texas recently rejected design defect claims in a product liability case when plaintiff failed to offer a required cost estimate for the proposed alternative design. See Flynn, et al v. American Honda Motor Co. Inc., et al, No. 4:11-cv-3908 (S.D. Tex. 2015).

Plaintiff was involved in a fatal a collision with a Chevrolet truck. Ms. Flynn’s airbags deployed but, as alleged in the complaint, supposedly only after a delay.  Her parents brought this suit to recover damages resulting from the allegedly defective airbag system.  In the three years since this suit was filed, the parties had engaged in extensive discovery, including investigations by and depositions of numerous expert witnesses. Honda moved for summary judgment on Plaintiffs’ claims of a design defect under theories of strict liability, breach of warranty, and negligence.

Under Federal Rule of Civil Procedure 56, summary judgment is warranted if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). Importantly, “the mere existence of some factual dispute will not defeat a motion for summary judgment; Rule 56 requires that the fact dispute be genuine and material.” Willis v. Roche Biomed. Lab., 61 F.3d 313, 315 (5th Cir.1995). Material facts are those whose resolution “might affect the outcome of the suit under the governing law.” Id. (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A dispute is genuine “if the evidence is such that a reasonable jury could return a verdict for the non-moving party.” Id. A court may consider any evidence in the record, “including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials.” Fed. R. Civ. P. 56(c)(1)(A). “However, neither conclusory allegations nor hearsay, unsubstantiated assertions, or unsupported speculation will suffice to create or negate a genuine issue of fact.” Neal v. City of Hempstead, Tex., No. 4:12-CV-1733, 2014 WL 3907770, at *1 (S.D. Tex. Aug. 11, 2014).

Texas products liability law recognizes three kinds of product defects that will give rise to an actionable claim: manufacturing defects, design defects, and marketing defects. Temple EasTex, Inc. v. Old Orchard Creek Partners, Ltd., 848 S.W.2d 724, 732 (Tex. App. 1992), writ denied, (Sept. 29, 1993). Liability for personal injuries caused by a product's defective design can be imposed under several underlying legal theories, among them negligence, breach of warranty, and strict products liability. The requisite proof for recovery on a design defect claim was prescribed by statute in 1993 and made the same for any legal theory asserted.” Hyundai Motor Co. v. Rodriguez ex rel. Rodriguez, 995 S.W.2d 661, 664 (Tex. 1999). To prevail on his design defect claim, a plaintiff must prove that “(1) the product was defectively designed so as to render it unreasonably dangerous; (2) a safer alternative design
existed; and (3) the defect was a producing cause of the injury for which the plaintiff seeks
recovery.” Casey v. Toyota Motor Eng'g & Mfg. N. Am., Inc., 770 F.3d 322, 330 (5th Cir. 2014).

Texas law defines “safer alternate design” as a product design other than the one actually used, that in reasonable probability:

(1) would have prevented or significantly reduced the risk of the plaintiff's personal injury, property damage, or death without substantially impairing the product's utility; and
(2) was economically and technologically feasible at the time the product left the control of the manufacturer or seller by the application of existing or reasonably achievable scientific knowledge.
TEX. CIV. PRAC. & REM. CODE § 82.005(b). See also Casey, 770 F.3d at 331; Hodges v. Mack
Trucks, Inc., 474 F.3d 188, 196 (5th Cir. 2006).

Honda argued that summary judgment was appropriate because plaintiffs did not present such evidence of a safer alternative design -- instead offering an algorithm that was a generalized concept for a design, which is insufficient under Texas law. Honda used one algorithm and Plaintiffs proposed that a different one – an algorithm patented by Plaintiffs’ expert – should have been used instead. The question of whether an algorithm and its alleged fit to a particular vehicle can constitute a safer alternative design was, the court said, one it need not consider here because, in an event, of Plaintiffs’ failure to provide evidence of economic feasibility. By definition, a safer alternative design must be reasonably probable to be economically feasible at the time the product left control of the manufacturer. See TEX. CIV. PRAC. & REM. CODE § 82.005(b)(2). “To establish economic feasibility, the plaintiff must introduce proof of the ‘cost of incorporating [the] technology.’” Casey, 770 F.3d at 334 (citing Honda of Am. Mfg., Inc. v. Norman, 104 S.W.3d 600, 607 (Tex.Ct.App.2003)). “To prove economic feasibility where the product is not yet in use, courts generally require a party to present evidence of either an estimate or range of the cost of the alternative design.” Casey, 770 F.3d at 335 (citing Brochtrup v. Mercury Marine, 426 Fed.Appx. 335, 339 (5th Cir.2011) (concluding that testimony from builder of alternative design that building cost was $400 was sufficient evidence of economic feasibility to avoid judgment as a matter of law); A.O. Smith Corp. v. Settlement Inv. Mgmt., No. 2–04–270–CV, 2006 WL 176815, at *3–4 (Tex. Ct. App. Jan. 26, 2006) (concluding that detailed testimony about how proposed alternative design would add between $5 and $200 per unit was some evidence of economic feasibility). 

In this case, Plaintiffs presented no evidence of either an estimate or a range of the cost of implementing their expert's alternative algorithm. Specifically, the expert report and deposition transcript offered no such calculation, and thus the court found summary judgment appropriate for Honda on Plaintiff’s design defect claim.

 

 

Each and Every Exposure Opinion Rejected

A federal court recently excluded the specific causation opinions of a plaintiff's expert who asserted the defendant was liable in an asbestos case under a version of the “each and every exposure” theory. See Comardelle v. Pennsylvania General Ins. Co., No. 13-6555 (E.D. La., 1/05/15).

Plaintiffs alleged that decedent was exposed to asbestos and asbestos-containing products manufactured, distributed, and sold by defendants during the course of his employment from 1963 through 1979.  As a result of these exposures, the decedent allegedly contracted mesothelioma, which was first diagnosed in approximately September, 2013.

Among a myriad of other claims, plaintiffs alleged that he was exposed to asbestos-containing coatings, sealants, and mastics manufactured, distributed, and sold by Amchem, including an adhesive called Benjamin Foster.  Plaintiffs proposed to call Dr. Samuel P. Hammar as an expert witness to opine that Benjamin Foster was a substantial contributing factor to the development of the mesothelioma. Amchem moved to exclude or limit this specific causation opinion. Specifically, Amchem argued that Hammar's testimony was a version of the “every exposure” theory opinion, not allowable under Fed. R. Evid. 702 and Daubert v. Merrell Dow Pharms, Inc., 509 U.S. 579 (U.S. 1993).  Rule 702 of the Federal Rules of Evidence governs the admissibility of expert witness testimony. As readers know, Rule 702 provides:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.


To qualify as an expert, the witness must have such knowledge or experience in the field or calling as to make it appear that his opinion or inference will probably aid the trier in his search for truth. See United States v. Hicks, 389 F.3d 514, 524 (5th Cir. 2004). Additionally, Rule 702 states that an expert may be qualified based on "knowledge, skill, experience, training, or education." Hicks, 389 F.3d at 524; see also Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147 (1999) (discussing witnesses whose expertise is based purely on experience).  A district court should refuse to allow an expert witness to testify if it finds that the witness is not qualified to testify in a particular field or on a given subject. Huss v. Gayden, 571 F.3d 442, 452 (5th Cir. 2009).

The U.S. Supreme Court's decision in Daubert provides the basic analytical framework for determining whether expert testimony is admissible under Rule 702.  See Pipitone v. Biomatrix, Inc., 288 F.3d 239, 243 (5th Cir. 2002). A number of nonexclusive factors may be relevant to the reliability inquiry, including: (1) whether the technique has been tested, (2) whether the technique has been subjected to peer review and publication, (3) the potential error rate, (4) the existence and maintenance of standards controlling the technique's operation, and (5) whether the technique is generally accepted in the relevant scientific community. Burleson, 393 F.3d at 584. The reliability inquiry must remain flexible, however, as "not every Daubert factor will be applicable in every situation; and a court has discretion to consider other factors it deems relevant." Guy v. Crown Equip. Corp., 394 F.3d 320, 325 (5th Cir. 2004); see Runnels v. Tex. Children's Hosp. Select Plan, 167 F. App'x 377, 381 (5th Cir. 2006). 

In a number of cases, plaintiffs and their experts have advanced the argument that every exposure to asbestos is a factor in producing their illness. See Joseph Sanders, The "Every Exposure" Cases and the Beginning of the Asbestos Endgame, 88 Tul. L. Rev. 1153, 1157 (2014). As summarized by the courts addressing the admissibility of such opinions, the "every exposure" theory "posits that any exposure to asbestos fibers whatsoever constitutes an underlying cause of injury to the individual exposed." Krik v. Crane Co., No. 10-7435, 2014 WL 7330901, at *2 (N.D. Ill. Dec. 22, 2014); see also Davidson v. Ga. Pac. LLC, No. 12-1463, 2014 WL 3510268, at *2 (W.D. La. July 14, 2014).

Dr. Hammar's proposed specific causation testimony here was an example of this "every exposure" theory. In his expert report, Dr. Hammar opined that "all asbestos fibers inhaled by an individual that reach the target organ have the potential to contribute to the development of lung cancer, mesothelioma, and other asbestos-related diseases." At his deposition, he went further and opined that "all of the exposures that that individual had who developed mesothelioma, all of those would have contributed to cause his mesothelioma." Accordingly, Dr. Hammar opined based on this "every exposure" theory that if Comardelle was exposed to asbestos released from Amchem or Benjamin Foster adhesives, those exposures would have been a substantial contributing cause of his disease.

Amchem then moved to exclude Dr. Hammar's testimony that exposure to its product was a substantial factor in causing Comardelle's mesothelioma. According to Amchem, this "every exposure" theory opinion did not pass muster under Rule 702. Amchem criticized as wholly unsupported Dr. Hammar's leap from the general causation premise that every asbestos exposure increases the risk of mesothelioma, to the specific causation opinion that Comardelle's exposure to this product necessarily caused or contributed to his mesothelioma. Amchem also faulted Dr. Hammar for failing to consider any facts or data specific to Comardelle's exposure to this particular product.

The court noted several recent "every exposure" decisions in other courts.  In Smith v. Ford Motor Co., the district court excluded Dr. Hammar's opinion that a plaintiff's exposure to brake dust caused his mesothelioma because "each and every exposure to asbestos by a human being who is later afflicted with mesothelioma, contributed to the formation of the disease." No. 08-630, 2013 WL 214378, at *1 (D. Utah Jan. 18, 2013). The Smith court held that opinion to be inadmissible and agreed with the growing number of published opinions from other courts that have reached a similar result: that the every exposure theory as offered as a basis for legal liability is inadmissible speculation that is devoid of responsible scientific support. Accord Anderson v. Ford Motor Co., 950 F. Supp. 2d 1217 (D. Utah 2013).

In Davidson v. Georgia Pacific LLC, the district court likewise rejected a causation opinion based on the "every exposure" theory, concluding that the theory is not testable and consequently cannot have an error rate, thus failing to satisfy two Daubert factors. 2014 WL 3510268, at *5. The court also faulted the expert for failing to rely on any data that would show that any particular defendant's product actually caused plaintiff to develop mesothelioma.

The court agreed with Amchem that Dr. Hammar's proposed specific causation opinions in this case were unreliable and inadmissible. Although there may be no known safe level of asbestos exposure, this does not support Dr. Hammar's leap to the conclusion that therefore every exposure a plaintiff had to asbestos must have been a substantial contributing cause of his mesothelioma. This kind of blanket specific causation opinion was not based on or tied to the specific facts and circumstances of any of Comardelle's exposures to asbestos and it ignored any differences or nuances of duration, concentration, exposure, and the properties of the fibers to which he may have been exposed.

Instead of explaining how Dr. Hammar could reliably opine that Benjamin Foster was a cause of Comardelle's mesothelioma, plaintiffs referred cursorily to a broad array of cases, studies, and regulatory materials. But none of those citations plugged the impermissible gap in Dr. Hammar's reasoning from the general causation proposition that exposure to asbestos increases the risk of mesothelioma, to the specific causation opinion that in this case Comardelle's exposure to Benjamin Foster  was a cause of his mesothelioma giving rise to liability. See, e.g., Anderson, 950 F. Supp. 2d at 1225 (excluding testimony despite plaintiff's citation to numerous scholarly articles and scientific studies because those materials were not specific to the type of exposure).

Accordingly, the court concluded that Dr. Hammar's specific causation opinions as to Benjamin Foster (and all other exposures at issue in this case), were an unreliable product of the "every exposure theory" and must be excluded.

 

New Year's Fitness Resolution- Drop the Fitness Tracker Class Action

Surveys show that getting fit is one of the top 5 New Year's resolutions.  So perhaps timely that a federal court recently dismissed a proposed nationwide class concerning fitness-tracker wristbands. See Frenzel v. Aliphcom, No. 14-cv-03587-WHO (N.D. Cal., 12/29/14). While there also was discussion in the opinion of the motion to dismiss various counts of the complaint under California law, let's focus on the class allegations.

Defendant markets and sells a fitness-tracker wristband that contains an accelerometer designed to track the user's daily movements and sleep patterns. Users can connect, or "sync," their device to a mobile application that helps them set personal exercise and diet goals, monitor their progress, and collaborate with other users. The product box states: "Battery life up to 10 days."   It is available in major retail stores across the country and online. Defendant has distributed three generations of the device.

Frenzel alleged that each generation has been plagued with power problems, including significant delay in charging, syncing problems, flashing lights indicating low charge, extremely short battery life, and failure to charge at all. Even with later generations, plaintiff alleged, consumers continued to complain about the device's performance, and multiple articles appeared online describing the ongoing power problems. 

Frenzel resides in Kansas City, Missouri and is a Missouri citizen. In November 2012, Frenzel purchased a second generation device, and before purchasing the device, Frenzel  allegedly reviewed defendant's marketing materials and representations, including that the battery is expected to last for 10 days when fully charged.  Within a few months, Frenzel's device allegedly stopped maintaining its charge. Frenzel contacted defendant and was issued a replacement second generation version.  The replacement also allegedly experienced power problems as well. On the basis of these allegations, Frenzel sought to represent a national class defined as all persons who purchased any of the three generations for personal use, excluding those who purchased the product for resale.

Defendant moved to dismiss.  A motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) tests the legal sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is facially plausible when it allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. In considering whether the complaint is sufficient to state a claim, the court need not accept as true allegations that contradict matters properly subject to judicial notice. In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). Nor is the court required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences. Id. It is within the district court's purview to reject, as implausible, allegations that are too speculative to warrant further factual development.  See Dahlia v. Rodriguez, 735 F.3d 1060, 1076 (9th Cir. 2013). 

A threshold issue was choice of law. Defendant contended that under Mazza v. Am. Honda Motor Co., 666 F.3d 581 (9th Cir. 2012), Frenzel's claims should be governed by the law of the state in which he purchased his device (which Frenzel conceded was not California). Defendant argued that plaintiff's claims under California law (the CLRA, UCL, and FAL) must therefore be dismissed. Also, defendant made the separate argument that under Mazza, Frenzel cannot maintain a national class action that would apply California law to nonresident class members who purchased their devices in other states. 

In Mazza, a putative class sued Honda for violations of the CLRA, UCL, and FAL. Honda was headquartered in California, and the alleged misrepresentations emanated from California, but the transaction that caused the alleged injury (i.e., the lease or purchase of a Honda automobile), had occurred in other states for the majority of class members. The Ninth Circuit reversed the district court's certification of a national class after concluding that, under California's choice of law rules, each class member's consumer protection claim should be governed by the consumer protection laws of the jurisdiction in which the transaction took place. The Ninth Circuit found that there were material differences between the consumer protection regimes of California and a number of other states, and that each state's interest in deciding for itself how to balance the range of products and prices offered to consumers with the legal protections afforded to them outweighed California's attenuated interest in applying its law to residents of foreign states. Id. at 590-94.

Importantly, since Mazza, a number of courts have dismissed CLRA, UCL, and/or FAL claims asserted by named plaintiffs (or on behalf of unnamed class members) who did not purchase the defendant's product in California. See, e.g., Frezza v. Google Inc., No. 12-cv-00237-RMW, 2013 WL 1736788, at *5-6 (N.D. Cal. Apr. 22, 2013); Granfield v. NVIDIA Corp., No. 11-cv-05403-JW, 2012 WL 2847575, at *3 (N.D. Cal. July 11, 2012); Littlehale v. Hain Celestial Grp., Inc., No. 11-cv-06342-PJH, 2012 WL 5458400, at *1-2 (N.D. Cal. July 2, 2012).

Notwithstanding the argument that discovery might be needed to make a choice of law decision, the court here found that in the circumstances of this case, it was not appropriate to delay until class certification to consider the choice of law issue. First, although Mazza was decided at class certification, the principle articulated in Mazza applies generally and is instructive even when addressing a motion to dismiss.  In factually analogous cases, Mazza  was not only relevant but controlling, even at the pleading phase.  Second, while choice of law analysis is often a fact-specific inquiry, this does not necessarily mean that it can never be conducted on a motion to dismiss. There are cases in which further development of the factual record is not reasonably likely to materially impact the choice of law determination. In such cases, there is no benefit to deferring the choice of law analysis until class certification.

The court pointed out  that in Werdebaugh v. Blue Diamond Growers, the court applied the governmental interest test to CLRA, UCL, and FAL claims asserted on behalf of a national class, 2013 WL 5487236, at *15-16, at the class certification but with only minimal fact-specific analysis. That court concluded that a national class could not be certified in light of Mazza. 2014 WL 2191901, at *18-21. Likewise, in Brazil v. Dole Food Co., Inc., the court deferred until class certification to consider whether California state-law claims could be asserted on behalf of nonresident class members, but then held that Mazza precluded certification of a national class. 2014 WL 2466559, at *12-14. As in Blue Diamond, the court was able to reach this conclusion with minimal fact-specific analysis. See id. The court concluded that here it was highly unlikely that discovery would uncover information relevant to whether Frenzel could maintain a national class action asserting claims under California law.

Thus, under California's choice of law rules, Frenzel's claims (both individual and class) had to be dismissed. Frenzel's individual claims were dismissed because he had not identified the state in which he purchased his device, but admitted it was not California. Defendant had the burden to demonstrate the material differences in the relevant law of California and the other state or states with regard to the particular claims and facts of the case, and a plaintiff may not preclude a defendant from making it by obfuscating the state in which he purchased his product. As to Frenzel's class claims, the court found that defendant adequately demonstrated that this was a case, like Mazza, where "each class member's consumer protection claim[s] should be governed by the consumer protection laws of the jurisdiction in which the transaction took place." 666 F.3d at 594. The CLRA, UCL, and FAL claims on behalf of the putative class were subject to dismissal for this reason as well.

Plaintiff sought to rely on a choice of law provision allegedly in the terms and conditions of sale of the product, although he never pleaded such terms in his complaint.  Moreover, the plain language of the terms limited their application to on-line purchases, and plaintiff alleged he purchased his in a store. Also, the allegations of defect did not claim that the product violated the terms and conditions. See Nikolin v. Samsung Electronics Am., Inc., No. 10-cv-01456, 2010 WL 4116997, at *4 (D.N.J. Oct. 18, 2010); see also, In re Sony Gaming Networks & Customer Data Sec. Breach Litig., 903 F. Supp. 2d 942, 964-65 (S.D. Cal. 2012) (rejecting argument that plaintiffs' CLRA, UCL, and FAL claims were governed by the choice of law provision in defendants' terms of service contract, where "[b]y its own terms, . . . the provision dictates only that California law applies to the construction and interpretation of the contract, and thus the provision does not apply to plaintiffs' non-contractual claims asserted under California's consumer protection statutes").

Complaint dismissed with leave to try to amend. 

Economic Loss Doctrine Dooms Negligence CLaim

A federal court recently issued an interesting decision discussing the often-confusing economic loss doctrine.  See Schwabe North America, Inc. v. Cal-India Intl Foods, Inc., et al., No. 14-cv-00235 (E.D. Wis. 12/23/14).

Plaintiff Schwabe manufactures, sells and distributes a variety of dietary supplements, plant-based medicines and other healthcare products. Defendant manufactures and sells nutraceutical and industrial enzymes. The court recited that Schwabe contracted with defendant to provide certain enzymes to be incorporated in the manufacture and sale of Schwabe's dietary supplement products to distributors and consumers. Schwabe's complaint alleged defendant knew the enzymes would be used in this way, and that defendant warranted the enzymes met certain specifications. Upon receiving the enzymes, Schwabe did incorporate them into the products and distributed them to clients. According to the amended complaint, when defendant shipped the enzymes, they had been contaminated with chloramphenicol, which Schwabe alleged is "an antibiotic that poses a serious health danger to consumers."

Defendant apparently issued a 2013 recall for certain of its enzymes, including those that had been incorporated into Schwabe's products. Schwabe alleged it was then forced to recall its own affected products, causing losses, expenses and damages. Schwabe filed suit, alleging negligence, breach of warranty and a violation of Wis. Stat. § 100.18, which prohibits false and deceptive representations in connection with the sale of goods and services. The sole issue before the court was defendant's motion to dismiss the negligence claim.

Dismissal for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure is proper "when the allegations in a complaint, however true, could not raise a claim of entitlement to relief." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 558 (2007). To state a claim, a complaint must contain sufficient factual matter "that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).  

The issue before the court was whether Schwabe's negligence claim was barred by Wisconsin's economic loss doctrine, pursuant to which a commercial purchaser of a product cannot recover from a manufacturer, under the tort theories of negligence or strict products liability, damages that are solely economic in nature. See Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 400, 573 N.W.2d 842 (1998); see also Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis. 2d 910, 437 N.W.2d 213 (1989). The Wisconsin Supreme Court has identified three policies that underlie the economic loss doctrine:  application of the economic loss doctrine to tort actions between commercial parties is generally based on three policies, none of which is affected by the presence or absence of privity between the parties: (1) to maintain the fundamental distinction between tort law and contract law; (2) to protect commercial parties' freedom to allocate economic risk by contract; and (3) to encourage the party best situated to assess the risk of economic loss, the commercial purchaser, to assume, allocate, or insure against that risk.  

In this case, the court said the alleged losses at issue were economic in nature. This category of loss, sometimes called "commercial loss," Miller v. U.S. Steel Group, 902 F.2d 573, 574 (7th Cir. 1990), generally includes damages resulting from inadequate value because the product is inferior and does not work for the general purposes for which it was manufactured and sold. See Daanen, 216 Wis. 2d at 845, 573 N.W.2d 842. More specifically, economic loss includes costs of the replacement of and repair to the defective product, and lost profits attributable to the defect. Id.; see also Northridge Co. v. W.R. Grace & Co., 162 Wis. 2d 918, 926, 471 N.W.2d 179 (1991).

Conceptually, costs and expenses associated with recalling a defective product, which were at issue in this case, fit into the category of economic loss.  Indeed, the Seventh Circuit has held that recall expenses are an economic loss. See Rich Products Corp. v. Kemutec Inc., 241 F.3d 915 (7th Cir. 2001).

Schwabe argued that the economic loss doctrine did not bar its negligence claim because the defective product (the enzyme) caused damage to other property (the dietary supplement it was used in). Generally, the economic loss doctrine does not bar a commercial purchaser's claims based on personal injury or damage to property other than the product, or economic loss claims that are alleged in combination with non-economic losses. Plaintiff contended that its negligence claim fell within this "other property" exception to the economic loss doctrine.

The "other property" exception, however, said the court, has been limited by Wisconsin courts by the related concept of the "integrated system." See Grams v. Milk Products, Inc., 2005 WI 112,  283 Wis. 2d 511, 699 N.W.2d 167 (2005).  Under the concept of an integrated system (which is not recognized in all states), if  the product at issue is a defective component in a larger system, the other components of that system are not regarded as other property in a legal sense, even if they are different property in a literal sense. Thus, in Bay Breeze Condominium Ass'n v. Norco Windows, Inc., for example, the Wisconsin Court of Appeals applied the "integrated system" concept to find that defective windows were simply "part of a single system or structure, having no function apart from the buildings for which they were manufactured." 2002 WI App 205, 257 Wis. 2d 511, 651 N.W.2d 738.

The same conclusion followed here, said the court. Like the defective windows in Bay Breeze, the contaminated enzymes in this case were merely a component of an integrated system—the supplements. Thus, the "other property" exception did not apply, said the court.

Schwabe attempted to avoid this conclusion by invoking the "disappointed expectations" test, which is yet another concept courts in Wisconsin (and elsewhere) have utilized in determining the scope of the economic loss doctrine.  But under this test, the exclusive remedy for a commercial product that causes property damage by failing to perform as expected is generally under contract since the parties can allocate the risk of such non-performance by contract. The court held it was within the parties' expectations in this case that if defendant supplied Schwabe with adulterated enzymes, its own dietary supplements would have to be recalled.

Schwabe's other argument against dismissal of its negligence claim was based on the claimed "public safety" exception to the economic loss doctrine. In support of its argument, Schwabe relied on Northridge v. W.R. Grace & Co., 162 Wis. 2d 918, 922, 471 N.W.2d 179 (1991). In Northridge the owners of two shopping malls sued the manufacturer of an asbestos insulation product in negligence and strict liability for the costs of inspecting, testing and removing the product, along with the diminished value of the malls caused by the contamination. Schwabe claims that in that case the court recognized a public safety exception to the economic loss doctrine that applies where the alleged negligence of the defendant creates a public health hazard.  However, Northridge does not create a broad public safety exception to the economic loss doctrine, said the court.  See also Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 264, 593 N.W.2d 445 (1999). That case was an "other property case," and the alleged health hazard to occupants of the mall viewed in the context of deciding whether the complaint alleged damage to property other than the product itself. 

Motion granted.

Another Artificial All Natural Class Action Rejected

We have posted before about the plaintiffs' bar ongoing war on innocuous product labels, especially the popular "natural" claims --seeking to take advantage of consumer protection acts designed for situations in which buyers actually suffer measurable damages.

A recent skirmish in this war involves plaintiff's claims that certain cooking oils were not "all natural." Introduced in 1911, the oils are primarily utilized for baking, frying, marinades, and dressings. Defendant produced nine varieties of oil, all bearing the Crisco name -- four of which were at issue here. Plaintiff proposed a class action, alleging that defendant engaged in false, unfair, deceptive and/or misleading trade practices by misrepresenting to consumers that Crisco oils are "All Natural," when they are, in fact, made allegedly in part from genetically modified plants.  Plaintiff averred that she was damaged by overpaying for a nonexistent product attribute--"All Natural."  

The federal court rejected this proposed class of consumers who allegedly purchased these natural cooking oils. See Randolph v. J.M. Smucker Co., 2014 WL 7330430 (S.D. Fla., 12/23/14).  Our review will focus on ascertainability and predominance.  

The burden of proof to establish the propriety of class certification rests with the advocate of the class. Rutstein v. Avis Rent-A-Car Sys., Inc., 211 F.3d 1228, 1233 (11th Cir. 2000). In order for an action to fall under Rule 23, a party must affirmatively demonstrate his compliance with the Rule. Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432 (2013) (quoting Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011)). It is not sufficient that a party simply plead conformity with the requirements of the Rule; instead, “a party must not only be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation, as required by Rule 23(a) . . . [t]he party must also satisfy through evidentiary proof at least one of the provisions of Rule 23(b).” Id.  Conclusory statements are insufficient to meet the burden of proof on a motion for class certification). In fact, the Supreme Court has indicated that only after rigorous analysis may certification be granted. See Comcast, 133 S. Ct. at 1432. The trial court can and should consider the merits of the case to the degree necessary to determine whether the requirements of Rule 23 will be satisfied.  Valley Drug Co. v. Geneva Pharm., Inc., 350 F.3d 1181, 1197 (11th Cir. 2003); see also Comcast, 133 S. Ct. at 1432 (“Repeatedly, we have emphasized that it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question . . . .”).

Before establishing the explicit requirements of Rule 23(a), a plaintiff must first establish that the proposed class is “adequately defined and clearly ascertainable.  This threshold issue of “ascertainability” relates in part to whether the putative class can be identified: an identifiable class exists if its members can be ascertained by reference to objective criteria. Bussey v. Macon Cnty. Greyhound Park, Inc., 562 F. App’x 782, 787 (11th Cir. 2014).  These “objective criteria” should be “administratively feasible,” meaning that the identification of class members should be “a manageable process that does not require much, if any, individual inquiries.” Id.  The district court must be satisfied that this requirement can be met even before delving into the rigorous analysis of the explicit Rule 23 elements.  If a plaintiff fails to demonstrate that the putative class is clearly ascertainable, then class certification is properly denied. See Walewski v. Zenimax Media, Inc., 502 F. App’x 857, 861 (11th Cir. 2012).   

Defendant contended that plaintiff had not offered a feasible mechanism for determining the purchasers of the Crisco oils containing the offending “All Natural” label. Second, even assuming that plaintiff could identify the oil purchasers, the court would have to make individualized inquiries, specifically, whether the term “All Natural” was a factor in the individual’s purchasing decisions, and how each individual defines the term “natural.” The court was not persuaded by the argument concerning the ability of class members to self-identify as purchasers, mistakenly believing that in challenging administrative feasibility defendant was seeking to require a class-action plaintiff to present proof that the identification of class members would be "next to flawless."  Nevertheless, the court agreed that the facts and circumstances of the instant case presented plaintiffs with substantial difficulties. During the relevant time period, at least nine different Crisco oils frequented retail establishments, but only four of these oils contained the challenged statement. Moreover, the challenged statement was not placed on all four oils uniformly throughout the class period.  Based on these facts, the likelihood that an individual would recall not only which specific kind of oil, but also, when that oil was purchased, complicated identification of the putative class.

This fact pattern reminded the court of Jones v. ConAgra Foods, Inc., No. C 12-01633 CRB, 2014 WL 2702726 (N.D. Cal. June 13, 2014). In Jones, the plaintiff sought to certify a class of  all persons in the state of California who purchased a certain canned tomato product bearing the label statement  "100% Natural" or "Free of artificial ingredients & preservatives" but which contained certain ingredients. Similar to the case at bar, the plaintiff in Jones argued that the class could be ascertained by reference to objective criteria, namely, whether the consumer claimed he purchased one of the products at issue during the class period.  In finding the class to be unascertainable, the Northern District of California recognized that there were literally dozens of varieties with different can sizes, ingredients, and labeling over time and some such cans included the challenged language, while others included no such language at all. Thus, the court identified this as a “subjective memory problem,” and found that “the variation in defendant's products and labels makes self-identification infeasible.” Id; see also Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK, 2014 WL 5794873, at *15 (N.D. Cal. Nov. 6, 2014).

After an extensive review of the record here, the court was inclined to agree that the class was similarly not ascertainable. The fact that putative class members were highly unlikely to retain proof of purchase for such a low price consumer item might be alone insufficient to defeat certification. However, taking the aforementioned variations in Crisco products in conjunction with the fact that the challenged product is a low-priced consumer item, of which the normal consumer likely does not retain significant memory about, the likelihood of a potential class member being able to accurately identify themselves as a purchaser of the allegedly deceptive product, was "slim." Not only would the individual need to recall purchasing Crisco oil, but also the specific variety purchased, and the specific date on which it was purchased beyond simply within the period between “May 2009 [and] the present.” Furthermore, the nature of the product at issue made it less likely for a consumer to recall a specific purchase. Crisco oil is intended to be an additive ingredient to a final product, rather than a final product directly consumed by the user. This fact made it less likely that the consumer would recall the specific purchase of the cooking oil during a specific time frame.

In fact, the named plaintiff’s own testimony reflected this point, failing to recall the number of times Crisco oils were purchased, when they were purchased, and what variations were purchased. Under the facts and record presented, self-identification through affidavit was not administratively feasible.

The Rule 23(b)(3) claim required that common issues predominate, and under the applicable act, FDUTPA, the labels at issue must have been “likely to mislead the consumer acting reasonably in the circumstances,” that is, a probability, not simply a mere possibility, of deception. Millennium Commc’ns & Fulfillment, Inc. v. Office of Attorney Gen., Dep’t of Legal Affairs, State of Fla., 761 So. 2d 1256, 1263 (Fla. 3d DCA 2000).  So the issue here was whether the challenged misrepresentation was likely to deceive a consumer acting reasonably in the same circumstances. However, like the hurdles presented when attempting resolve the issue of ascertainability, plaintiff had not demonstrated that an objectively reasonable consumer would agree with her individual interpretation of “all natural.” Plaintiff’s own evidence supported the assertion that the use of GMOs is a widely disputed issue; the fact is that there is a lack of consensus on the use of such products. See also Krzykwa, 946 F. Supp. 2d at 1374-75 (noting that the FDA has “repeatedly declined to adopt formal rule-making that would define the term ‘natural’”).  

Finally, predominance also requires that damages resulting from the injury be measurable on a class-wide basis through use of a “common methodology.” Comcast, 133 S. Ct. at 1430. A model purporting to serve as evidence of damages in this class action must measure only those damages attributable to that theory. If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3). The Supreme Court has instructed lower courts to conduct a “rigorous analysis” to determine whether the purported damages model fits the liability case. Id. at 1433. Actual damages for a claim brought under FDUTPA is the difference in the market value of the product or service in the condition which it was delivered and its market value in the condition in which it should have been delivered.  Contrary to plaintiff’s contention, more is required than simply demonstrating the existence of a viable damages model.

That is, plaintiff’s theory of liability rested on the fact that defendant’s product contained a “price premium” by virtue of the “All Natural” label.  But plaintiff had not demonstrated that the proposed damages model would be capable of measuring damages on a class-wide basis and tying those damages to the specific issue of liability, that is, the “All Natural” label. Other than the "bald, unsupported assertion" that this method would work, plaintiff presented no hard-and-fast evidence that the alleged premium was capable of measurement.  Nor had plaintiff demonstrated that the model could isolate a premium received by the inclusion of the alleged misrepresentation. See Werdebaugh, 2014 WL 7148923, at *14 (“Plaintiff has failed to show that his proposed damages stemmed from the defendant’s actions that created the legal liability.”  Accordingly, plaintiff had failed to present sufficient evidence of a viable damages model capable of estimating damages on a class-wide basis as is required by Comcast.
 

Class Certification Denied in Drug Case

A federal court rejected a proposed class action in which plaintiffs alleged that a drug maker misstated the frequency of potential side effects.  See Saavedra v. Eli Lilly & Co., No. 12-09366 (C.D. Calif., 12/18/14).

Plaintiffs alleged they were harmed because the defendant allegedly understated the risk of withdrawal-related side effects, so they purportedly received a product that had less value than they expected it to have. Plaintiffs asserted that their proposed class met the requirements for Rule 23(b)(3). To qualify for certification under this subsection, a class must satisfy two conditions: (1) common questions of law or fact must “predominate over any questions affecting only individual members,” and (2) class resolution must be “superior to other available methods for the fair and efficient adjudication of the controversy.” Fed. R. Civ. P. 23(b)(3). The predominance requirement is satisfied where common questions comprise a significant portion of the case and can be resolved for all class members in one adjudication. See In re ConAgra Foods, Inc.,  No. CV 11-05379 MMM AGRX, 2014 WL 4104405, at *29 (C.D. Cal. Aug. 1, 2014). 

Rule 23(b)(3)’s predominance prong also requires the moving party to show that “damages are capable of measurement on a classwide basis.” Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1433 (2013). Specifically, this requires plaintiffs to tie their method of proving damages to their theory of liability. We have posted about the impact of this decision before, and here.

Plaintiffs relied on Dr. Joel W. Hay to establish their method of proving class-wide damages.  Plaintiffs did not seek damages for personal injuries. Instead, plaintiffs argued that class members were harmed because they purchased a product that was represented to have a lower risk of withdrawal side than it actually had.  Thus, plaintiffs claim they were injured because the drug as received was worth less than the drug as represented. However, plaintiffs did not assert that class members were harmed by being overcharged or by being induced to purchase something that they would not have otherwise purchased. Instead, plaintiffs argued that the harm was in receiving a product that had less value than the value of the product as class members expected to receive it. Plaintiffs thus seemed to use the term “value” to mean consumer utility—a concept distinct from and not directly related to price. According to plaintiffs, this consumer value or "utility" supposedly was the measure of the benefit that consumers believe they will obtain by using or owning a product.

Plaintiffs’ theory of injury thus was trying to be distinct from the typical benefit-of-the bargain claim
because it focused only on the demand side of the equation, rather than on the intersection of  supply and demand. In other words, plaintiffs sought to prove injury by showing that each class member received a drug that the average consumer would subjectively value less than the average consumer subjectively valued the drug he expected to purchase. In contrast, the typical benefit-of-the-bargain claim relies on a difference in fair market value (i.e. the amount that a willing
buyer and willing seller would both accept) between the product as represented and the product
actually received.

The court rejected this theory, and agreed with defendant that its flaws impacted predominance and superiority. Dr. Hay’s model looked only to the demand side of the market equation. By looking only to consumer demand while ignoring supply, Dr. Hay’s method of computing damages converts the lost-expectation theory from an objective evaluation of relative fair market values to a seemingly subjective inquiry of what an average consumer wants. But plaintiffs provided and the court found no case holding that a consumer may recover based on consumers’ willingness to pay irrespective of what would happen in a functioning market (i.e. what could be called sellers’ willingness to sell).


Second, at some point the subjective valuation had to be converted to actual dollar damages. But as Dr. Hay readily admitted, the prescription drug market is not an efficiently functioning market. Unlike markets for ordinary consumer goods, the prescription drug market is heavily regulated and restricted. The market is further complicated by insurance plans’ (or their absence’s) and their determinative effect on the price that an individual pays.  This price, in turn, relies on prices set by a complex array of contracts between such entities as health plan sponsors, third-party payers, pharmacy benefit managers, retail pharmacy chains, and the drug manufacturer.  Thus, depending on her insurance plan, an individual might pay nothing, a percentage of a “full price” determined by a contract between her insurance provider and another entity, a flat co-payment, or some other “full” price.

So, even assuming the expert's analysis could be used to compute the relative value consumers place on a drug having a lower withdrawal risk (which of course defendant disputed), Hay's proposed measure was highly flawed.  As noted, the numerous complicating factors in the prescription drug market sever the relationship between price and value. See In re POM Wonderful LLC, No. ML 10-02199 DDP RZX, 2014 WL 1225184, at *4 (C.D. Cal. Mar. 25, 2014) (stating that in contrast to an efficient market, in an inefficient market some information is not reflected in an item’s price). In other words, a consumer’s out-of-pocket cost for a drug is not a proxy for the drug’s value to that consumer. Thus, class members’ out-of-pocket costs are not a proxy for the value of the drug as represented. Therefore, applying the value ratio to class members’ out-of-pocket costs fails to tether the consumers’ relative valuations of product features to the drug's fair market value. Instead, it yields an arbitrary amount that is unrelated to the amount of harm incurred by individual class members.

While Dr. Hay might have been correct that a rational consumer would not pay more for the drug than she believes it is worth, a rational consumer would surely pay less than she believes the drug is worth. Thus, it does not follow that a consumer who pays a $20 co-payment believes that the drug is only worth $20. Therefore applying the refund ratio to that consumer’s co-payment does not yield an accurate approximation of the difference between the consumer’s subjective valuation of the drug as represented and the drug as actually received (even assuming plaintiffs' medical facts were right). 


Additionally, Dr. Hay’s model suffered from serious methodological flaws. He proposed conducting a survey in 2014 (or later) to estimate consumers’ valuation and apply this estimate to harms incurred by class members beginning in 2004, a decade ago.  With no legitimate basis for that leap.

Accordingly, plaintiffs failed to show that damages could be “feasibly and efficiently calculated” once liability issues common to the class were decided. Rahman v. Mott's LLP, No. 13-CV-03482-SI, 2014 WL 6815779, at *8 (N.D. Cal. Dec. 3, 2014); accord Lilly v. Jamba Juice Co., No. 13-CV-02998-JST, 2014 WL 4652283, at *9–10 (N.D. Cal. Sept. 18, 2014) (same). Plaintiffs’ failed to present a method of calculating damages that was tied to their theory of liability. The court therefore declined to grant the motion to certify a damages class under Rule 23(b)(3).

 

Appeals Court Upholds Successor Liability Reform

A Pennsylvania appeals court issued has upheld an important statutory reform, a law limiting the liability of Pennsylvania-based businesses that have merged with companies facing a risk of asbestos liability. See James Markovsky, et al. v. Crown Cork & Seal Co., et al., No. 2755 EDA 2013 (Pa. Super. 12/22/14).

A 2001 law imposed a limitation on successor asbestos-related liabilities, such that the cumulative
successor asbestos-related liabilities of a domestic business corporation which was incorporated in the Commonwealth prior to May 1, 2001, shall be limited to the fair market value of the total assets of the transferor determined as of the time of the merger or consolidation, and such corporation shall have no responsibility for successor asbestos-related liabilities in excess of such limitation.

Defendant was alleged to be liable based on successor liability, and obtained summary judgment based on the statutory cap, and plaintiff appealed, arguing that the act was unconstitutional, inter alia, because the legislation containing the relevant Section 1929.1 supposedly violated Sections 1 (original purpose) and 3 (single subject) of the Pennsylvania Constitution. 

The court noted that It is well-settled that a statute may be deemed per se unconstitutional if, under the classification, the class consists of one member and is closed to future membership. See Pa. Tpk. Comm'n v. Commonwealth, 899 A.2d 1085, 1098 (Pa. 2006); accord Harrisburg Sch. Dist. v. Hickok, 761 A.2d 1132, 1136 (Pa. 2000) (“[A] classification is per se unconstitutional when the class consists of one member and it is impossible or highly unlikely that another can join the class.”). Here, Section 1929.1 was not per se constitutionally infirm because it does not contain an apparent class consisting of one member that is closed or substantially closed to future membership.  Moreover, based on the record, Appellant had not offered any relevant evidence suggesting that Section 1929.1 is limited to the defendant and that no other company could avail itself of the benefits of the law.  The Appellant carries a heavy burden of proof for purposes of challenging the constitutionality of the act. The statute’s legislative history reflected that its sponsors used the defendant as an example of the statute’s purpose, all the while emphasizing the potential benefit to other similarly situated corporations throughout the Commonwealth.  More importantly, Appellant did not show it is impossible or highly unlikely for other corporations to enjoy the statute’s protection.

The panel also rejected arguments that the law ran afoul of the equal protection provision of the U.S. Constitution by subjecting out-of-state corporations to disparate treatment.

Thus, the trial court did not err as a matter of law in granting the motion for summary judgment. 

A common sense decision, as the legislature clearly saw important policy benefits in terms of merger activity and protection of local employers.