Mass Tort Defense : Mass Tort Defense Lawyer & Attorney : Sean P. Wajert : Dechert Law Firm : Products Liability, Class Actions, Pharmaceutical Litigation

Here's a case of a venerable rule (puffery) and an important new doctrine (Twiqbal) being applied in the context of a troubling trend -- the spate of consumer fraud class actions challenging everything a defendant says about its products.  A New Jersey federal court recently rejected a putative class action alleging that Panasonic Corp. falsely advertised its Viera plasma televisions made in 2008 and 2009. Shane Robert Hughes et al. v. Panasonic Consumer Electronics Co., No. 2:10-cv-00846 (D.N.J. July 21, 2011). A useful and detailed analysis of commonly found flaws in consumer fraud class action complaints.

Plaintiffs putatively represented a class defined as individuals and entities who own or purchased any 2008/2009 model Panasonic Viera Plasma Television. Plaintiffs alleged that the televisions suffered from increased “voltage adjustments” causing a rapid deterioration in picture quality. The  class members allegedly relied on Panasonic’s representations concerning the "industry leading" black levels and contrast ratios, and/or personally observed the televisions’ excellent picture quality on models displayed in retail stores. Plaintiffs sought damages and/or refunds from Panasonic for violations of the New Jersey Consumer Fraud Act (“NJCFA”), N.J. STAT. ANN. § 56:8-1 et seq.; other states’ consumer protection acts; and under various express and implied warranty claims.

Defendant moved to dismiss. The adequacy of pleadings is governed by Fed. R. Civ. P. 8(a)(2), which requires that a complaint allege “a short and plain statement of the claim showing that the pleader is entitled to relief,” but also requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

Although class members were from around the country, the court determined it need not decide whether it was appropriate to engage in a choice of law analysis at the pleadings stage because, as detailed below, each of the plaintiffs’ claims failed as a matter of law under any of the possibly applicable laws.

Claims under the NJCFA and most state consumer fraud acts require a plaintiff to allege (1) unlawful conduct by the defendants; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendants’ unlawful conduct and the plaintiff’s ascertainable loss.  Panasonic argued, among other things, that even if the allegations are true, plaintiffs’ CFA claim failed because plaintiffs had not pointed to any actionable unlawful conduct by Panasonic. According to Panasonic, plaintiffs did not set forth any specific advertisements, marketing materials, warranties, or product guides that plaintiffs viewed; where and from whom at Panasonic did plaintiffs received any such information; or how precisely, plaintiffs were injured by any such representations.

The Court found that Panasonic’s alleged misrepresentations about the Televisions’
“industry  leading” technology and features, which create superior image and color quality, were not “statements of fact,” but rather subjective expressions of opinion. Indeed, such statements of
product superiority are routinely made by companies in advertising to gain a competitive advantage
in the industry. The NJCFA distinguishes between actionable misrepresentations of fact and
"puffery.” Rodio v. Smith, 123 N.J. 345, 352 (1991) (the slogan “You’re in good hands with Allstate” was “nothing more than puffery” and as such was not “a deception, false promise, misrepresentation, or any other unlawful practice within the ambit of the Consumer Fraud Act”); see New Jersey Citizen Action v. Schering-Plough Corp., 367 N.J. Super. 8, 13-14 (N.J. Super. App. Div. 2003) (finding that defendant’s advertisements which employed phrases as “you . . . can lead a normal nearly symptom-free life again” were “not statements of fact, but are merely expressions in the nature of puffery and thus were not actionable” under the NJCFA).  The same is true in many states.

The remaining misrepresentations may have been statements of fact rather than mere puffery. However, plaintiffs did not assert sufficient allegations of fact to satisfy the requisite level of adequate pleading under Rule 9(b) or by Twombly/Iqbal.  For example, regarding the alleged misrepresentation about half-brightness, the Amended Complaint did not allege the date, place or time of this misrepresentation or otherwise inject some precision and some measure of substantiation into plaintiffs’ allegations of fraud. While plaintiffs could not be expected to plead facts solely within Panasonic’s knowledge or control, plaintiffs should be able to allege the specific advertisements, marketing materials, warranties or product guides that they each reviewed, which included this misrepresentation and when it was so advertised.

Plaintiffs also alleged various omissions, but fraudulent omissions require a showing of intent. Here, even accepting the allegations of omissions in the Amended Complaint as true, the court found that plaintiffs failed to allege sufficient facts to raise any plausible inference that Panasonic knowingly concealed the alleged defect with the intent that consumers and industry experts would rely upon the concealment. Indeed, throughout the Amended Complaint, it was alleged that Panasonic knew “or should have known” of the defect, but provides no additional facts explaining how or why Panasonic had knowledge of the defect to satisfy Twombly/Iqbal. Such allegations of intentionally failing to disclose the alleged defect were merely conclusory assertions.

Even assuming plaintiffs sufficiently alleged the “unlawful conduct” element under the consumer fraud acts, the court also concluded that the Amended Complaint did not satisfy the pleading requirements of Twombly/Iqbal or Rule 9(b) as to the “ascertainable loss” element.  A plaintiff must suffer a definite, certain and measurable loss, rather than one that is merely theoretical. The certainty implicit in the concept of an ascertainable loss is that it is quantifiable or measurable. The allegations did not sufficiently plead either an out-of pocket loss by plaintiffs or a showing of loss in value. For example. plaintiffs failed to allege how much they paid for their Televisions and how much other comparable Televisions manufactured by Panasonic’s competitors cost at the time.  Plaintiffs failed to allege how much of a premium they claim to have paid for their Panasonic Televisions.  Furthermore, in the Amended Complaint, plaintiffs affirmatively stated that most continue to use the Televisions, thus obscuring any possible measurable loss.  Typically, plaintiffs try not to allege details in this area for fear of undermining their class certification arguments.

Plaintiffs' warranty claim suffered from several defects. While the claim at times was presented as an alleged manufacturing problem, a review of the Amended Complaint revealed that plaintiffs alleged only that the Televisions suffered from an inherent design defect and/or improper programming. Plaintiffs one vague, conclusory allegation that the defect was caused, in part, due to “manufacturing errors” was insufficient to satisfy the requisite pleading standards under Twombly/Iqbal.  Moreover, the express warranty claims were impacted by what the court already concluded in connection with plaintiffs’ consumer fraud claims, that Panasonic’s statements about the Televisions’ “industry leading” technology and features, which create superior image and color quality, were mere expressions of puffery. As such, these marketing statements were not sufficient enough to create an express warranty. 

On the implied warranty claim, while plaintiffs alleged that the Televisions were defective, plaintiffs did not allege that the Televisions were inoperable or otherwise not in working condition. Indeed, the Amended Complaint did not contain any explicit allegation that plaintiffs could no longer use their Televisions - in other words, that they were no longer generally fit for their ordinary purpose.  Although the Televisions may not have fulfilled plaintiffs’ subjective expectations, plaintiffs did not adequately allege that the Televisions failed to provide a minimum level of quality, which is all that the law of implied warranty requires. See also In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 2001 WL 1266317, at *22 (D.N.J. Sept. 30, 1997) (merchantability “does not entail a promise by the merchant that the goods are exactly as the buyer expected, but rather that the goods satisfy a minimum level of quality”).

Thus, the court concluded, each of plaintiffs’ claims failed to state a claim under Rule 12(b)(6), to satisfy Rule 9(b) heightened pleading requirements, and/or pleading standards under
Twombly/Iqbal. The court granted Panasonic’s motion to dismiss the Amended Complaint without prejudice.

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A New Jersey federal recently dismissed a putative class action accusing The Coca-Cola Co. of misleading consumers about the health value of the carbonated beverage Diet Coke Plus.  Mason et al. v. The Coca-Cola Co., No. 09-cv-00220 (D.N.J. 3/31/11).

This is another in the series of cases we have warned readers about: plaintiffs are not injured, are not at risk of injury, have gotten the benefit of their bargain, but claim they were somehow duped by marketing. Here, plaintiffs alleged that they “were persuaded to purchase the product because the term ‘Plus’ and the language ‘Diet Coke with Vitamins and Minerals’ suggested to consumers that the product was healthy and contained nutritional value,” when it allegedly did not.

Defendants moved to dismiss under the Twombly/Iqbal doctrine.  Of course, claims alleging fraud or mistake must also meet the heightened pleading requirements of Fed. R. Civ. P. 9(b), which requires such claims to be pled with “particularity.”

To state a claim under the New Jersey Consumer Fraud Act., a plaintiff must allege: “(1) unlawful conduct by the defendants; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendants’ unlawful conduct and the plaintiff’s ascertainable loss.” Frederico v. Home Depot, 507 F.3d 188, 202 (3d Cir. 2007). Plaintiffs claimed that defendant committed affirmative acts of fraud and deception, and that they were persuaded to purchase the product because the term ‘Plus’ and the language ‘Diet Coke with Vitamins and Minerals’ somehow suggested to consumers that the product was healthy and contained extra nutritional value.

However, the FDA's warning letter about the product attached by plaintiffs to their own complaint shows that it is not false that Diet Coke Plus contains vitamins and minerals.  Plaintiffs failed to allege with particularity what further expectations beyond these ingredients they had for the product or how it fell short of those expectations. Plaintiffs simply made a broad assumption that defendant somehow intended for Diet Coke Plus’s vitamin and mineral content to deceive plaintiffs into thinking that the beverage was really “healthy.”  Without more specificity as to how defendant made false or deceptive statements to plaintiffs regarding the healthiness or nutritional value of the soda, the court found that plaintiffs failed to plead the “affirmative act” element with sufficient particularity to state a viable NJCFA claim.

Plaintiffs also failed to plead an ascertainable loss. When plaintiffs purchased Diet Coke Plus, they received a beverage that contained the exact ingredients listed on its label. Plaintiffs could not explain how they experienced any out-of-pocket loss because of their purchases, or that the soda they bought was worth an amount of money less than the soda they consumed. Mere subjective  dissatisfaction with a product is not a quantifiable loss that can be remedied under the NJCFA.  The same defects doomed the common law misrepresentation claims.

Although the FDA had issued the warning letter (on a somewhat arcane and technical issue), the court noted that not every regulatory violation amounts to an act of consumer fraud. The court also noted that it is simply not plausible that consumers would be aware of FDA regulations regarding “nutrient content” and restrictions on the enhancement of snack foods. The complaint actually did not allege that consumers bought the product because they knew of and attributed something meaningful to the regulatory term “Plus” and therefore relied on it. Rather, plaintiffs alleged merely that they subjectively thought they were buying a “healthy” product that happened to also apparently run afoul of a technical FDA regulation.

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Earlier this month a trial court in New York denied class certification purchaser of Snapple beverages who complained that drinks labeled “All Natural” are somehow misleading because they contain high fructose corn syrup.  See Weiner v. Snapple Beverage Corp., (S.D.N.Y. 8/3/10).

Off and on, we have commented on the growing and alarming trend for plaintiffs lawyers to concoct consumer fraud class action claims against products, even when consumers were not injured and got basically what they paid for, because of some alleged ambiguity in the label or old-fashioned puffing.

Snapple Beverage Corporation was founded in New York’s Greenwich Village in 1972. Snapple began selling and marketing its teas and juice drinks in the late 1980s. In marketing its beverages, Snapple focused on, among other things, flavor, innovation, and humor. Snapple became known for its quirky personality and funny advertising, as well as its colorful product labels and beverage names. For instance, Snapple’s television advertisements featured, among other things, Snapple bottles dressed in wigs and hats, singing in a Backstreet-esque “boy-band,” running with the bulls (hamsters with cardboard horns) in Spain, and performing synchronized swimming.

When Snapple entered the beverages market in the late 1980s, it avoided putting preservatives, which were then commonly found in some similar beverages, in its teas and juice drinks. Snapple was able to do so by using a “hot-fill” process, which uses high-temperature heat pasteurization to preserve products immediately before bottling. Snapple also used 16-ounce glass bottles instead of aluminum cans or plastic. Hence the term on their label "All Natural."

From their inception, Snapple’s beverages were sweetened with high fructose corn syrup.  HFCS is made from corn ( a natural product last time we checked), and its primary constituents are glucose and fructose, the sugars that comprise table sugar and honey (which also sound pretty natural). It is undisputed that Snapple disclosed the inclusion of HFCS in the ingredient list that appears on the label of every bottle of Snapple that was labeled “All Natural.”

But plaintiffs alleged that they paid a price premium for Snapple beverages as a result of the “All Natural” labeling, and that Snapple’s “All Natural” labeling was misleading because Snapple had HFCS.  They brought a class action on behalf of all people who purchased Snapple in New York.  The FDA is reportedly looking at whether high fructose corn syrup may be considered a natural ingredient, but the court didn't need that guidance to dispose of this bogus class claim.

The court focused on the Rule 23(b)(3) predominance inquiry which tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation. The predominance requirement is met only if the plaintiff can establish that the issues in the class action that are subject to generalized proof, and thus applicable to the class as a whole, predominate over those issues that are subject only to individualized proof.  The issues in turn are determined by the causes of action and defenses to them.  Plaintiffs' main claim was for alleged deceptive acts or practices in the conduct of any business, trade or commerce under N.Y. Gen. Bus. L. § 349. Generally, claims under § 349 are available to an individual consumer who falls victim to misrepresentations made by a seller of consumer goods through false or misleading advertising.

New York's § 349 does not require proof of actual reliance. But the plaintiff must show that the defendant’s material deceptive act caused the injury. In addition, a plaintiff must prove actual injury to recover under the statute.  The court noted that proof of actual injury in this case is bound up in proof of damages, or by how much plaintiffs have been harmed. Only by showing that plaintiffs in fact paid more for Snapple beverages as a result of Snapple’s “All Natural” labeling could plaintiffs establish the requisite elements of causation and actual injury under § 349.

The court concluded that plaintiffs had not proposed a suitable methodology for establishing the critical elements of causation and injury on a class-wide basis. Without a reliable methodology, plaintiffs had not shown that they could prove at trial using common evidence that putative class members in fact paid a premium for the beverage. Because individualized inquiries as to causation, injury, and damages for each of the millions of putative class members would  predominate over any issues of law or fact common to the class, plaintiffs’ § 349 claim could not be certified under Rule 23(b)(3).

In support of their contention that causation and injury were susceptible to generalized proof on a class-wide basis, plaintiffs relied on the expert report of Dr. Alan Goedde, an economist.  In his report, Goedde proposed two “approaches” for determining the purported price premium attributable to Snapple’s “All Natural” labeling: (1) a “yardstick” approach, which would use “class-wide economic data and standard economic methodologies” to “compare the price of products labeled ‘All Natural’ to similar products which do not have ‘All Natural’ labeling;” and (2) an “inherent value”  approach, which would analyze unspecified “studies and market research” to gather “data that can be used to determine the increased value, standing alone, that a product realizes due to the perception of that product being natural.”

The court found Goedde’s testimony unreliable. The witness did not demonstrate in adequate detail how his proposed “approaches” would be used to develop an empirical algorithm to determine, on a class-wide basis, whether there was a price premium as a result of Snapple’s “All Natural” labeling and, if so, how such a premium could be quantified. For example, he did not identify the products to which Snapple should be compared. He did not explain how his approach would isolate the impact of the “All Natural” labeling from the other factors that purportedly affect the price of Snapple and its competitors. He failed to take into account that there was no uniform price for Snapple beverages during the class period, and thus did not explain how his approach would account for the various prices that putative class members actually paid in determining injury
on a class-wide basis.

Goedde relied on two internal Snapple marketing strategy documents to support his alternate hypothesis that Snapple’s “All Natural” label allowed it to command a premium in the marketplace. Yet he did not review the deposition transcripts of Snapple’s witnesses or any of the other  documents produced by Snapple, which would have provided critical context for these documents.

The court accurately spotlighted the common plaintiff tactic in these kinds of cases: the failure to
invest sufficient time and effort to develop a reliable methodology to support an expert opinion at the class certification stage.  Although the court thought plaintiffs correct in arguing that Goedde need not “implement” or fully “test” his methodology at the class certification stage, an expert must still provide sufficient detail about the proposed methodology to permit a court to determine whether the methodology is suitable to the task at hand.

Without Goedde’s testimony, plaintiffs offered no evidence that a suitable methodology is available to prove the elements of causation and actual injury on a class-wide basis. Individualized inquiries would therefore be required in order to determine whether class members in fact paid a premium for Snapple beverages, and whether any such premium was attributable to the “All Natural” labeling. This would require, among other things, an examination of each of the millions of class members’ Snapple purchases, which the evidence showed were made in different locations, at different times, and for different prices, over the nearly eight-year class period.

One further issue of note is class definition.  The court found that plaintiffs failed to show how the potentially millions of putative class members could be ascertained using objective criteria that were administratively feasible. Plaintiffs - typically  - suggested that after certification, the court could require simply that class members produce a receipt, offer a product label, or even sign a declaration to confirm that the individual had purchased a Snapple beverage within the class period. The court labeled this suggestion "unrealistic." Plaintiffs offered no basis to assume that putative class members retained a receipt, bottle label, or any other concrete documentation of their purchases of Snapple beverages bearing the “All Natural” description.  Indeed, putative class members were unlikely to remember accurately every Snapple purchase during the class period, much less whether it was an “All Natural” or diet beverage, whether it was purchased as a single bottle or part of a six-pack or case, whether they used a coupon, or what price they paid. Soliciting declarations from putative class members regarding their history of Snapple purchases would invite them "to speculate, or worse."

However beloved Snapple may be, said the court,  there is no evidence to suggest that its consumers treat it like a fine wine and remove and save its labels.

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