SHB Ranked in The Legal 500 As A Top Litigation Firm

We are happy to note that Shook, Hardy & Bacon has been recognized as a nationally recommended firm in both litigation and intellectual property in the newly issued 2014 edition of The Legal 500 United States.


The firm was lauded for its “deep bench of trial lawyers and strong reputation for high-profile defense work across various industries,” including its defense of thousands of individual tobacco cases, multiple class actions, and multi-district litigation. 

SHB was one of only three firms to receive top-tier recognition in the guide’s product liability: consumer products section, and one of six to receive a top-tier ranking in the pharmaceuticals and medical devices category. Additionally, SHB’s automotive/transport and toxic tort defense practices earned tier-two rankings, placing each group among the top 16 practices in the nation.

SHB was also highlighted in the guide’s intellectual property: patent prosecution section, which singled out SHB’s expertise in the telecom, computer software, and pharmaceutical and medical device industries.
 

Yet Another Artificial "Natural" Class Action Shot Down in the Food Court

A federal court has found numerous issues precluding class certification of three proposed class actions challenging the labels of defendant's food products.  See Jones  v. ConAgra Foods, Inc., No. 12-01633 (N.D. Cal. 6/13/14).

This was a putative consumer class action about allegedly deceptive and misleading labels on three types of food products. The court acknowledged that the Northern District has seen a flood of such cases in recent years.  Plaintiffs have challenged, with limited degrees of success, marketing claims on everything from iced tea to nutrition bars. Plaintiffs here moved to certify three separate classes under Federal Rule of Civil Procedure 23(b)(2) and 23(b)(3)–one for each type of food product at issue. The complaint, as is typical, alleged (1) unlawful, unfair, and fraudulent business acts and practices in violation of California Business and Professions Code section 17200 (“UCL”), (2) misleading, deceptive, and untrue advertising in violation of California Business and Professions Code section 17500 (“FAL”), (3) violations of the Consumers Legal Remedies Act (“CLRA”), and (4) restitution based on unjust enrichment.  Also, as typical, the claims centered on marketing about "natural" - "100% Natural" and a "natural source" of antioxidants. 

Lengthy and comprehensive opinion. Let's focus on just some of the key arguments. Although there is no explicit ascertainability requirement in Rule 23, courts have routinely required plaintiffs to demonstrate ascertainability as part of Rule 23(a). See, e.g., Astiana v. Ben & Jerry’s Homemade, Inc., 2014 WL 60097, at *1 (N.D. Cal. Jan. 7, 2014) (“apart from the explicit requirements of Rule 23, the party seeking class certification must also demonstrate that an identifiable and ascertainable class exists.”). A class is not ascertainable unless membership can be established by means of objective, verifiable criteria. See Xavier v. Philip Morris USA, Inc., 787 F. Supp. 2d 1075, 1088-90 (N.D. Cal. 2011).  Without an objective, reliable way to ascertain class membership, the class quickly would become unmanageable, and the preclusive effect of final judgment would be easy to evade.  Id. at 1089.  While there are a few outliers, multiple courts have concluded that the ascertainability requirement cannot be met in the context of low-cost consumer purchases that customers would have no reliable way of remembering. See, e.g., In re POM Wonderful LLC, 2014 WL 1225184, at *6 (C.D. Cal. Mar. 25, 2014) (unascertainable because “[f]ew, if any, consumers are likely to have retained receipts during the class period” and “there is no way to reliably determine who purchased Defendant’s [juice] products or when they did so.”); Red v. Kraft Foods, Inc., 2012 WL 8019257, at *5 (C.D. Cal. Apr. 12, 2012) (finding unascertainable a proposed class of purchasers of various cracker and cookie products marketed as healthy despite including partially hydrogenated vegetable oil and other unhealthy ingredients); Hodes v. Van’s Int’l Foods, 2009 WL 2424214, at *4 (C.D. Cal. July 23, 2009).

Even assuming that all proposed class members would be honest, the court found it hard to imagine that they would be able to remember which particular products they purchased from 2008 to the present, and whether those products bore the challenged label statements. As defendant pointed out with the Hunt's class, there were “literally dozens of varieties with different can sizes, ingredients, and labeling over time” and “some Hunt’s cans included the challenged language, while others included no such language at all.”  The court also noted a concern that the defendant would be forced to accept class members estimates without the benefit of cross-examination; this was not a case in which the consumers were likely to have retained receipts or where the defendant would have access to a master list of consumers.

Second, there was a standing issue. California courts require plaintiffs who are seeking injunctive relief under these claims -- a change in defendant's sales practices -- to express an intent to purchase the products in the future. See, e.g., Rahman v. Mott’s LLP, 2014 WL 325241, at *10 (N.D. Cal. Jan. 29, 2014) (“to establish standing [for injunctive relief], plaintiff must allege that he intends to purchase the products at issue in the future”); Jou v. Kimberly-Clark Inc., No. 13-3075, 2013 WL 6491158, at *4 (N.D. Cal. Dec. 10, 2013) (“[b]ecause Plaintiffs fail to identify any allegation in their
Complaint that suggests that they maintain an interest in purchasing the diapers or wipes, or
both, in the future, Plaintiffs have not sufficiently alleged standing to pursue injunctive relief").

Here, plaintiffs could point to no evidence that the class reps intended to buy the specific products again. Some still had leftover product and had not used them at all since the litigation was filed. Without any evidence that plaintiffs planned to buy such products in the future, they did not have standing to bring an injunctive class. 

Turning to the damages classes, the court found additional problems. Here, there was a lack of cohesion among the class members, both because consumers were exposed to label statements that varied by can size, variety, and time period (and the challenged ingredients also differed), but more importantly because even if the challenged statements were facially uniform, consumers’
understanding of those representations would not be. Plaintiff's' expert did not explain how the challenged statements, together or alone, were a factor in any consumer’s purchasing decisions. She did not survey any customers to assess whether the challenged statements were in fact material to their purchases, as opposed to, or in addition to, price, promotions, retail positioning, taste, texture, or brand recognition. The expert acknowledged in her deposition that some
customers have never noted the “natural claim,” some have never looked at the ingredients list, some would buy a product regardless of whether the product says “natural,” and some do not care about labeling statements.

This rather startling admission might have something to do with the fact that there is no single, controlling definition of the word “natural.” See Pelayo v. Nestle USA, Inc., 2013 WL 5764644, at *4-5 (C.D. Cal. 2013) (discussing lack of a common understanding of the term “all natural” that is shared by reasonable consumers). It is undisputed that the FDA has not defined the word “natural.” See Lockwood v. ConAgra Foods, Inc., 597 F. Supp. 2d 1028, 1034 (N.D. Cal. 2009). Moreover, it was not clear that the challenged ingredients here are not “natural.”

Here, there are numerous reasons why a customer might buy the products, such as Hunt’s tomatoes, and there was a lack of evidence demonstrating the impact of the challenged label statements. Accordingly, Plaintiffs lacked common proof of materiality.

Multiple courts have refused to certify classes where such individual purchasing inquiries predominated, and the court was not convinced that the common questions would predominate over the individual questions. Who purchased what, when during the relevant class period, which kind of products they purchased, how many they purchased, and whether the kinds they purchased contained the alleged false nutritional information. Whether this is viewed as a predominance question, an ascertainability question, or a manageability question, it was clear that the defendant had no way to determine who the purchasers of its products are, i.e., the identity of class members. And thus it was true that individualized purchasing inquiries will be required to determine how many and which kind of products each class member bought.

Finally, In Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1433-34 (2013), the Supreme Court
held that in order to satisfy the predominance inquiry, plaintiff must also present a model that
(1) identifies damages that stem from the defendant’s alleged wrongdoing and (2) is
“susceptible of measurement across the entire class.” 133 S.Ct. at 1433-34. “At class certification, plaintiff must present a likely method for determining class damages, though it is not necessary to show that his method will work with certainty at this time.” Chavez, 268 F.R.D. at 379.  Here plaintiffs' first theory called for return of the purchase price. That method did not account for the value class members received from the products, and so it was incorrect. The products were not
“economically worthless.”  In the alternative, plaintiffs proposed calculating damages via a benefit-of-the-bargain analysis.  But their expert failed to identify a comparator product in order to calculate the alleged percentage of overpayment.  

For a variety of good reasons, certification denied.

Class Certification Reversed in Unfair Trade Practices Case

A Florida appeals court recently decertified a class action with an unusual theory: a car maker who allegedly used headlights that can be too easily stolen in its luxury vehicles. See Porsche Cars v. Peter Diamond, et al., No. 3D12-2829 3d DCA Fla. 6/12/14).  One wonders why and how theft of auto parts is not the responsibility of the thief, but perhaps we digress. 

This case focuses on Porsche’s High Intensity Discharge Headlights. The Headlights are an upscale amenity in the luxury car market.  The intense blue-white light given by the Headlights is closer to natural daylight than the yellowish light of regular headlights. The Headlights provide better nighttime visibility than older types of headlights. Since model year 2000, the Headlights have been offered as standard or optional equipment across the Porsche vehicle line. The Headlights were mounted on modules that were slid into a plastic tray in the fender and clamped in place. This mounting made the Headlights less expensive to install and repair. Plaintiffs alleged it made them "easier" to steal. 

In this proposed class action, the class representatives asserted unfair trade practices and unjust enrichment claims. They alleged the defendant distributed a product highly susceptible to theft without taking any remedial steps. Specifically, the defendant allegedly failed to “notify owners of the flaw and potential risk of theft so they could take their own precautions,” to “offer replacement lights at reduced costs,” and to “work with law enforcement agencies to assist in the prevention of the theft of their headlights.”  This, the representatives members allege, violated the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”).  There was an unjust enrichment claim, and the plaintiffs also alleged that the defendant distributor could have redesigned the vehicles in
various ways, even though a car distributor does not design or manufacture vehicles.

The opinion did not reach the issue of whether such a factual theory of damages is viable (it would have been nice to see a blow struck for common sense). But the decision focused on the legal issues raised by the class action. The trial court certified the case as a rule 1.220(b)(3) class action. In a (b)(3) class action, common issues must predominate over individual issues. Fla. R. Civ. P. 1.220(b)(3). Common issues predominate when, considering both the rights and duties of the class members, the proof offered by the class representatives will necessarily prove or disprove the cases of the absent class members.  The class representative’s case must not merely raise a common question, but that proof of the class representative’s case must also answer the question.

FDUTPA declares unlawful unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce.  The term “unfair” is
not defined in FDUTPA. Here, the trial judge defined unfair trade practice as one that “offends established policy” and “is immoral, unethical, oppressive, unscrupulous or substantially injurious to customers.” This definition derives from a 1964 Federal Trade Commission policy statement. In 1980, however, the Federal Trade Commission updated its definition of unfair trade practice. The new definition established a three-pronged test for “unfairness,” which requires that the injury to the consumer:
(1) must be substantial;
(2) must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and
(3) must be an injury that consumers themselves could not reasonably have avoided.

The court held that Florida law adopted the definition of unfairness contained in the 1980 Policy Statement. The state legislature provided that violations of FDUTPA include violations of the standards of unfairness and deception set forth and interpreted by the Federal Trade Commission or the federal courts. The Florida Legislature amended FDUTPA in 1983, 2001, 2006, and 2013, for the specific purpose of adding to Florida Law the latest interpretations by the Federal Trade Commission or federal courts that occurred since the last statutory amendment.  In light of this history, the 1980 Policy Statement is clearly one of the “standards of unfairness” interpreted by the Federal Trade Commission and federal courts. 

The trial court erroneously adopted the premise that the distributor’s actions could be found to be an unfair trade practice regardless of whether class members knew and could have avoided the risk of the Headlight thefts. From this premise, it reasoned “an individual class member’s pre-purchase knowledge of the potential risk of theft was not relevant to the Plaintiff’s FDUTPA claim.” Since the premise was wrong, so was the conclusion.  The individual class member’s knowledge of the risk of Headlight theft bears on whether the practice was unfair because it impacts whether the consumer could reasonably avoid the risk. Given the nature of the claim in this case—that the Headlights functioned great as headlights but were too susceptible to theft—an individual class members knowledge of the risk of  theft goes to the heart of his or her claim.


To prove an unfair trade practice, the class must prove that the injury caused by the allegedly unfair trade practice could not have been reasonably avoided by the consumers.  The idea behind the reasonably avoidable inquiry is that free and informed consumer choice is the first and best
regulator of the marketplace: consumers may act to avoid injury before it occurs if they have reason to anticipate the impending harm and the means to avoid it, or they may seek to mitigate the damage afterward if they are aware of potential avenues toward that end.  A jury might well find that a consumer who knew the Headlights were targeted by thieves had avenues available to reasonably avoid the risk. This is particularly true where, as here, the alleged problem of theft was greater in some geographic locations than others. How about consumers park in only safe areas, install alarm systems extending to the mounting module, or, if these options were not acceptable, decline to purchase or lease a Porsche with the Headlights? Given the theory of this case, the knowledge of some class members that the Headlights were prone to theft could not be ignored.

Similarly, the determination of unjust enrichment would turn on individual facts. A court would be hard pressed to conclude that a distributor was unjustly enriched when class members with the sophistication and knowledge of the product continued to seek out the Headlights even when they knew of the thefts.

The court concluded that when the individual knowledge and experience of the consumer is an
important element of the cause of action and its defense, there can be no class-wide proof that injury was not reasonably avoidable.

Class certification reversed and remanded. 

Summary Judgment Affirmed in Medical Monitoring Class Action

The First Circuit  has affirmed a district court ruling rejecting a proposed class action seeking medical monitoring  for alleged exposure to hazardous beryllium.  See Barry Genereux, et al. v. Raytheon Company, No. 13-1921 (1st Cir. 6/10/14).

MassTortDefense has posted on medical monitoring several times before, incuding here and here. The clear trend has been away from recognizing these claims, see Lowe v. Philip Morris USA, Inc., 344 Or. 403, 183 P.3d 181 (2008), or to narrow their scope. See Sinclair v. Merck & Co., 195 N.J. 51, 948 A.2d 587 (2008).

Where recognized, medical monitoring plaintiffs typically must prove:
1. exposure greater than normal background levels;
2. to a proven hazardous substance;
3. caused by the defendant's negligence;
4. as a proximate result of the exposure, plaintiff has a significantly increased risk of contracting a serious latent disease;
5. a monitoring procedure exists that makes the early detection of the disease possible;
6. the prescribed monitoring regime is different from that normally recommended in the absence of the exposure; and
7. the prescribed monitoring regime is reasonably necessary according to contemporary scientific principles.


The plaintiffs in this case filed a putative class action filed in the United States District Court for the District of Massachusetts, invoking federal diversity jurisdiction under the special jurisdictional provisions of the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2). Their complaint alleged that the defendant, Raytheon Company, endangered the health of the plaintiffs and others similarly situated by negligently exposing them to beryllium used in the manufacturing process at its plant in Waltham, Massachusetts.

Beryllium is a useful but potentially hazardous substance, and sufficient exposure to it is a risk factor for a malady known as Chronic Beryllium Disease (CBD). This malady is characterized by inflammation and scarring of lung tissue. Although there is no known cure for CBD, early detection and treatment can ameliorate its impact. The pathogenesis of CBD may begin with beryllium sensitization (BeS). Even though BeS is regarded as an abnormal medical finding, it can be asymptomatic and is typically not treated. Plaintiffs argued that persons with BeS should receive periodic clinical screenings to detect actual disease onset because those persons who are diagnosed with BeS are allegedly at a risk of developing CBD during their lifetimes.

The plaintiffs sought to represent two proposed classes. One comprised all persons who worked at the Waltham plant for at least one month prior to 1997. The other comprised all persons who lived with members of the first class and thus were subject to alleged take-home beryllium exposure. Persons already diagnosed as having CBD were excluded from both proposed classes. Following extensive pretrial discovery and work devoted to a narrowing of the issues, the district court granted summary judgment in favor of Raytheon. See Genereux v. Hardric Labs., Inc., 950 F.Supp.2d 329, 341 (D. Mass. 2013). An appeal ensued.

The Court of Appeals noted that the cornerstone of an action for medical monitoring under Massachusetts law is the decision in Donovan v. Philip Morris USA, Inc., 914 N.E.2d 891 (Mass. 2009). There, the court ruled that the cost of medical monitoring may be recoverable in a tort suit under Massachusetts law under certain circumstances.  The First Circuit read the Donovan decision as tethering its holding to a doctrinal mooring: a combination of a defendant's alleged failure to meet an appropriate standard of care, a clear causal connection between that failure and the plaintiffs' alleged injuries, and resulting damages. To identify the injury in the absence of evidence that a plaintiff actually has a full-blown disease, the court demanded a showing that some subcellular or other physiological change has put plaintiffs at increased risk. The court noted that under the unique cause of action recognized in Donovan, increased epidemiological risk of illness caused by exposure, unaccompanied by some subcellular or other physiological change, is not enough to permit recovery in tort.

Here, the summary judgment record disclosed no evidence that any plaintiff — named or unnamed, employee class or take-home class — had as yet developed BeS. This gap in the proof was fatal to the plaintiffs' principal theory of liability. The plaintiffs had not carried their burden that under Massachusetts law that defines actionable injury in the medical monitoring milieu in terms of subcellular or other physiological change; the record revealed no significantly probative evidence of such an injury here.

In the alternative, the plaintiffs argued that the Massachusetts high court had speculated about whether a cause of action for medical monitoring might ever exist when no subclinical changes had occurred.  The trial court concluded that plaintiffs hadn't preserved a claim under this alternative theory.  The court of appeals agreed.  In complex cases, considerations of both fairness and efficiency dictate that a trial judge use his best efforts to winnow and clarify the issues.Plaintiffs' counsel had multiple opportunities to expound a new theory of the case that encompassed this issue.  A status conference transcript where the issue was raised was transparently clear: the plaintiffs told the court that they were not pursuing a theory based on any question that the SJC had allegedly left for another day.

Decision Affirmed.

Class Plaintiffs Ordered to Brief Damages Theory Under Comcast

We have posted about the impact of Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1435 (2013). As the Supreme Court reemphasized in Comcast, in order for Rule 23(b)(3)’s predominance requirement to be satisfied, a plaintiff must bring forth a damages measurement that can be applied class-wide and that ties the plaintiffs’ legal theory to the impact of the defendant’s allegedly illegal conduct. Thus, after Comcast, a key question is whether a plaintiff has met its burden of establishing that damages can be proven on a class-wide basis. See In re Diamond Foods, Inc., Sec. Litig., 2013 WL 1891382, at *252 (N.D. Cal. May 6, 2013).

One approach of lower courts to this issue is to require plaintiffs seeking class certification of their state law claims to file briefing specifically to address whether they have a reasonable way to measure damages on a class-wide basis.  See Edwards v. Nat'l Milk Producers Fed'n, No. 3:11-cv-04766-JSW (N.D. Cal., 5/28/14).

The trial court noted that in Comcast, the Supreme Court held that “[c]alculations need not be exact, ... but at the class certification stage (as at trial), any model supporting a plaintiff’s damages case must be consistent with its liability case, particularly with respect to the alleged anticompetitive effect of the violation.” Comcast, 133 S.Ct. at 1433 (internal quotation marks and citations omitted).
Moreover, “for purposes of Rule 23, courts must conduct a rigorous analysis to determine
whether that is so.” Id. (internal quotation marks and citation omitted).

Plaintiff moved for class certification in an antitrust case involving milk cow herds, and defendants moved to strike plaintiff's expert, Dr. Connor.  He purported to calculate the effects of the defendant's herd retirement program on a national level and multiplied his total calculation by the percentage of the population of the states in which Plaintiffs were bringing state-law claims. The problem with this method was that Plaintiffs, as indirect purchasers, were not bringing a federal anti-trust claim. They were only bringing state-law claims, and not in every state. Dr. Connor’s calculations included the effects from states in which Plaintiffs were not challenging any activity as illegal.

Thus, the Court found that Plaintiffs had not shown “that their damages stemmed from the defendant’s actions that created the legal liability.” Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir. 2013) (citing Comcast, 133 S.Ct. at 1435). It was not clear whether Plaintiffs could modify their method of calculations in order to capture only the alleged effects from the states in which they contend Defendants violated antitrust laws. But, the Court directed Plaintiffs to file an additional brief to address whether they have a reasonable method for determining, on a class-wide basis, the alleged antitrust violations’ impact on class members.

Motion to Strike Class Allegations Granted

Mercedes-Benz USA LLC made a successful preemptive strike against class certification in a proposed class action suit over alleged suspension problems in GL model Mercedes vehicles. See Becnel v. Mercedes-Benz USA, LLC, No. 2:14-cv-00003 (E.D. La., 6/3/14).

 

This matter arose from Plaintiff's claims for negligence, strict product liability, breach of implied warranty, fraud, and violations of the Louisiana Unfair Trade Practice Act,and the Magnuson-Moss Warranty Act. Plaintiff's claims arise from his purchase of a 2008 Mercedes-Benz GL320 from Mercedes-Benz of New Orleans.  Plaintiff brought the vehicle to the Dealer for service several times. Each time that Becnel tendered the vehicle to the Dealer, the Airmatic Suspension System allegedly was cited as the problem and was repaired. Plaintiff alleged that MBUSA knew that the Suspension System was defective but concealed that fact from current, future, and past owners and/or lessors of GL model vehicles. Plaintiff filed a class action complaint on January 2, 2014 against MBUSA on behalf of "[a]ll current and past owners or people who leased Mercedes-Benz USA, LLC GL model of vehicles since 2007."

Defendant moved to strike the class allegations. The standard applied to the motion to strike is essentially identical to the standard applied in class certification motions. See Grant,2010 WL 3303853; see also Markey v. Louisiana Citizens Fair Plan, 2008 WL 5427708 (E.D. La. Dec. 30, 2008)(Vance, J.) ; Truxillo v.Johnson & Johnson, et al., 2007 WL 4365439 *1 (E.D. La. Dec. 12, 2007)(Barbier, J.) (noting that the issues raised in a motion for judgment on the pleadings regarding class allegations overlap with the issues raised in a motion to certify the class.)

Defendant advanced several arguments in support of its motion to strike.   For example, MBUSA contended that due process barred the Court from applying Louisiana law to all the claims of absent class members from other states, and that the application of every other applicable state's laws would be unmanageable. Plaintiff suggested that this argument was premature. He argued that despite the potential for uncommon issues of law, it cannot be denied that there were some common issues of fact. Even if the Court would have to engage in a conflicts analysis to determine if the various state laws were incompatible, that only means that class certification may be improper further along in litigation, but was not improper now.

The court focused on the predominance and manageability challenges that were presented by the proposed class. The Court said it could not accept Plaintiff's assertion that he "cannot foresee any manageability problems." Based on the pleadings alone, the Court pointed to several issues: it was reasonable to assume that this matter will require the application of laws from fifty-one different jurisdictions, as it was readily apparent that at least one person from every state and the District of Columbia will be found to have purchased or leased a 2007 GL Class Mercedes. The Court anticipated serious manageability issues in applying these differing laws to Plaintiff's numerous state law causes of action, including claims for: negligence; products liability based on manufacturing defects, design defects, warning defects, and breach of express warranty; redhibition; fraudulent concealment; and unfair trade practices.

Additionally, Plaintiff, and presumably other class members, faced serious prescription.statute of limitations issues that would ultimately hinge on their ability to show that the discovery doctrine tolled the prescriptive period. The use of the discovery doctrine would necessarily involve the task of determining at what time it became unreasonable for each class member to ignore the problems with the vehicles at issue. See Chevron USA, Inc. v. Aker Mar., Inc., 604 F.3d 888, 893-94(5th Cir. 2010) (noting that in such cases, "the prescriptive period [does] not begin to run until [a plaintiff has] a reasonable basis to pursue a claim against a specific defendant.") The same issue would present itself with regard to the fraud claims, in that the Court would have to determine the element of reliance for each and every class member. See Castano, 84 F.3d at 745 ("fraud class action cannot be certified when individual reliance will be an issue.")

These serious manageability problems far outweighed any benefit that a class action would create, said the court. Plaintiff conclusorily pointed to the usual presumed benefits highlighted in class certification motions, but did not propose any concrete strategy for achieving these goals. In light of the manageability issues. The Court said it could not imagine that that the many issues that would require individual treatment for each class member would not outweigh or at least balance out any benefit conferred by class treatment.

Motion to strike granted.

 

Class Action Settlement Including Non-Monetary Relief Approved

Many of our posts relate to trials, and appeals, but today's arises in the settlement context.  The Ninth Circuit held that a district court doesn't necessarily have to assign a monetary value to proposed injunctive relief when approving the terms of a class action settlement.  See  Laguna, et al. v. Coverall North America Inc., et al., No. 12-55479 (9th Cir. 2014). 

Plaintiffs brought a class action suit against Coverall, a janitorial franchising company, in 2009 alleging that (1) Coverall misclassified its California franchisees as independent contractors, thereby avoiding the protections afforded by California’s labor laws to franchisees; and (2) Coverall breached its franchise agreements, and committed fraudulent and unfair practices, by removing
customer accounts from franchisees without cause so that it allegedly could resell those accounts to other franchisees. After about two years of significant litigation, the parties agreed on a settlement.

A class member objected on several grounds, and the fees were in dispute.  But our attention is focused on one issue:  the assessment of the fact that settlement included some non-dollar relief -- new franchisees would have a 30-day right to rescind their franchise agreements, and the settlement agreement also outlined other changes to the franchise agreements and Coverall’s operating procedures.  The trial court approved the settlement, and the objectors appealed.

The court of appeals noted that it reviews the district court’s approval of a proposed class action settlement agreement for abuse of discretion.  Rodriguez v. W. Publ’g Corp., 563 F.3d 948, 963 (9th Cir. 2009); see also United States v. Hinkson, 585 F.3d 1247, 1250 (9th Cir. 2009) (en banc) (giving general abuse of discretion standard in contexts beyond class actions). Thus, the review of a class action settlement is “extremely limited,” In re Mego Fin. Corp. Sec. Litig., 213 F.3d 454, 458 (9th Cir.
2000), and approval will only be reversed upon “a strong showing that the district court’s decision was a clear abuse of discretion,” Staton v. Boeing Co., 327 F.3d 938, 960 (9th Cir. 2003).

The objector here claimed that the district court was “under a special obligation to make clear, fact-based findings regarding the value of the non-monetary terms of the settlement,” by which he contended that the district court should have assigned a monetary value to the non-monetary terms of the settlement in order to assess approval. But, said the 9th Circuit, it had never required a district court to assign a monetary value to purely injunctive relief.

To the contrary, the general rule is that courts cannot “judge with confidence the value of the terms of a settlement agreement, especially one in which, as here, the settlement provides for injunctive relief.” Staton, 327 F.3d at 959. Monetary valuation of injunctive relief is difficult and imprecise. Courts typically put a good deal of stock in the product of an arms-length, non-collusive, negotiated resolution.  The district court had no obligation to make explicit monetary calculations of the injunctive remedies.

The district court's analysis was adequate in concluding that the injunctive terms of the settlement were not illusory because they had "practical value." All things considered, the settlement was "reasonable and within the range that we should approve.”

 

Beer Claims Rejected Under Twombly

A federal court in Ohio recently dismissed claims alleging that a brewer deliberately overstated the alcohol content of its beers.  See In Re: Anheuser-Busch Beer Labeling Marketing and Sales Practices Litigation, MDL No. 2448 (N.D. Ohio 6/2/14).  

Plaintiffs alleged that the defendant routinely and intentionally added extra water to its finished product to produce malt beverages that “consistently have significantly lower alcohol content than the percentages displayed on its labels.” (Amended Complaint ¶ 17) This practice allegedly results in consumers receiving “watered down beer containing less alcohol than is stated on the labels of Anheuser-Busch’s products.” Readers are probably very familiar with this company and may know that it employs five separate quality control checks to give its consumers the taste and consistent quality they expect. (Your humble blogger is a huge fan of their holiday commercials.) Speaking of water, Anheuser-Busch reduced total water use at its breweries by 37 percent in the last four years.

The Federal Alcohol Administration Act (“FAAA”), 27 U.S.C. §§ 201, et seq., enacted in 1935, governs the manufacture and sale of alcohol nationwide. The FAAA empowers the federal government to adopt regulations that ensure manufacturers “provide the consumer with adequate information as to the identity and quality of the products, [and] the alcoholic content thereof.” 27 U.S.C. § 205(f). In pursuit of this goal, several regulations have been promulgated that specifically address the labeling of malt beverage products. In particular, 27 C.F.R. § 7.71(c)(1) provides that for malt beverages containing 0.5 percent or more alcohol by volume, a tolerance of 0.3 percent (.003) will be permitted, either above or below the stated percentage of alcohol. In addition to the federal statutes and regulations, some state and local governments have enacted laws addressing the manufacturing and sale of alcoholic products, including malt beverages. Often the state and local governments adopt or refer to the federal regulations established under the FAAA in their own statutes and regulations, and it was undisputed that each state at issue in this litigation had adopted the federal regulation.

It was crucial that there was no allegation in the Complaint that the alleged mislabeling of alcohol content in Anheuser-Busch’s products has ever exceeded the tolerance amount of 0.3%. Further, Plaintiffs made very clear in their arguments and statements to the court that they had not alleged, and they had no reason to believe, that Anheuser-Busch has ever included a statement of alcohol content on its labels that varied by more than 0.3 percent from the actual alcohol content of the products in question.

Defendants moved to dismiss.  In order to survive a motion to dismiss, a complaint must provide the grounds of the entitlement to relief, which requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action. See Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964-65 (2007). That is, factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if
doubtful in fact). Accordingly, the claims set forth in a complaint must be plausible, rather than just conceivable. See Twombly, 127 S. Ct. at 1974. Conclusory allegations, or legal conclusions asserted in lieu of factual allegations are not sufficient. Bishop v. Lucent Tech, Inc., 520 F.3d 516, 519 (6th Cir. 2008).

The court here noted that there may be circumstances in which vagueness or ambiguity in the legislative language compels a court to look beyond the words employed to discern the meaning of a statute or regulation. However, neither vagueness nor ambiguity exists in the present case. On its face, 27 C.F.R. § 7.71(c)(1) is clear, specific, and unambiguous: “For malt beverages containing 0.5 percent or more alcohol by volume, a tolerance of 0.3 percent will be permitted, either above or
below the stated percentage of alcohol.” 27 C.F.R. § 7.71(c)(1). There was no dispute that the products at issue were malt beverages containing 0.5 percent or more alcohol by volume and that the stated percentage of alcohol on the labels of these products is within 0.3 percent of the actual percentage of alcohol in the product. 

Despite this seemingly straightforward match between the regulation and the agreed upon facts in this case, Plaintiffs presented an argument in an attempt to modify or, in their words, “clarify” the plain and unambiguous language set forth in the regulation.  For example, the meaning of "tolerance."  The court reasoned that the words of a statute or regulation are to be taken in their natural and ordinary significance and import; and if technical words are used, they are to be taken in a technical sense. The word “tolerance” is undefined in the regulation. When terms are undefined, the everyday understanding and regular usage of the term should instruct the court’s interpretation. Common sense, non-technical interpretations are the default. Cty. of Oakland v. Fed. Housing Finance Authority, 2013 WL 2149964, *3-4 (6th Cir 2013). The ordinary meaning of the word “tolerance” is the allowable amount of variation in any specified quantity.  In its ordinary usage, a “tolerance” is not limited or nullified by the alleged intent, motivation, or cause behind a variation or deviation. Thus, if given its ordinary meaning, there could be no dispute that the tolerance established was to be afforded without regard to the alleged cause or hypothetical intent behind any deviation of 0.3 percent or less between the alcohol content listed on the labels and the actual alcohol content within the regulated products.

The court thus rejected plaintiffs unsupportable view that the word “tolerance” should not be afforded its ordinary meaning, but should be considered to be a term of art that allows only “unintentional deviations” from the goal of absolute accuracy. Plaintiffs offered no legal or industry specific authority for this proposition. None of their cited sources had any connection to the regulation of alcoholic beverages, or other food and beverage labeling; none are sanctioned by the FAAA.   Thus, there was no legal or other relevant authority that would support giving the word
“tolerance” anything other than its ordinary meaning.

Since the leeway afforded by the CFR section is provided without regard to the supposed cause of any deviation or variation, and without regard to the alleged intention behind any statement of alcohol content within the defined tolerance range, the motion to dismiss was granted, with prejudice.