Amicus Brief Applies Comcast in Ninth Circuit Appeal

The U.S. Chamber of Commerce recently weighed in with an amicus brief in an interesting class action appeal in the Ninth Circuit.  See Brazil v. Dole Packaged Foods LLC, No. 14-17480 (9th Cir., brief filed 6/3/15).  The issue in the case, which we posted on before, centered on whether a proposed class plaintiff had shown a reliable model for establishing class-wide damages.  

Readers will recall that under Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), a class action should not be certified under Fed. R. Civ. P. 23(b) unless the proposed plaintiffs can present a damages model that isolates the harm attributable to the alleged misconduct.   We have posted about this important requirement before.

In this case, plaintiff pleaded two relevant class claims alleging misrepresentation: a claim under California Business and Professions Code section 17200 (the Unfair Competition Law, hereinafter “UCL”) and one claim under the common law for unjust enrichment. He contended the proposed class should be entitled to restitution for the UCL claim and to disgorgement of defendant's profits under the unjust enrichment claim.

The district court rejected both claims, granting summary judgment, correctly (per the brief) determining that plaintiff failed to meet the Comcast requirement for his UCL claim because his “damages model” did not isolate the price premium he alleged the class paid (what the class might be entitled to as restitution) as the result of the alleged mislabeling (the theory of liability). Because this damages model failed, the court dismissed the UCL claim for insufficient evidence. The district court then further found that the same damages analysis applied to the unjust enrichment claim, making the unjust enrichment claim duplicative of the UCL claim and dooming it on the merits for the same reason. 

The Chamber took issue with plaintiff’s argument on appeal that the unjust enrichment claim provided a different measure of damages; both claims measure the same quantum of damages.  Thus, a mislabeling plaintiff’s claim for unjust enrichment cannot salvage a damages model for restitution that otherwise fails under Comcast.  In any event, the class cannot recover both the price premium it paid as a result of the allegedly misleading label and the profits Dole derived from the allegedly misleading label. That would amount to double recovery which is unavailable by law and would raise serious due process concerns for the businesses targeted in these mislabeling lawsuits. That same price premium can be recovered only once (at most) assuming that there is an appropriate model that passes muster under Comcast.  Although unjust enrichment starts from a different premise, the measure of recovery for unjust enrichment—at least in a food mislabeling case—is necessarily the same as the measure for restitution: the premium (if any) the business charged for the food as a result of the allegedly misleading claim on the label.

Plaintiff appeared to argue in his opening brief that the burden should shift to the defendant to provide a damages model for plaintiff’s unjust enrichment claim. This is contrary to the customary burden of proof for any plaintiff. Indeed, the authority cited by plaintiff all starts with the plaintiff producing evidence permitting at least a reasonable approximation of the amount of the wrongful gain.  Plaintiff simply cannot, argued the amicus, circumvent Comcast by pleading an unjust enrichment claim in an effort to shift to the defendant the burden of coming up with a damages model. And disgorging more profits from businesses than they made as a result of an allegedly
misleading statement on a label would raise those serious due process issues.

Report Issued on "New Lawsuit Ecosystem"

The U.S. Chamber of Commerce Institute for Legal Reform has released a report examining the developing lawsuit “ecosystem” and areas of litigation of most concern to the business community. The report examines the trends and players in six key litigation areas, offers insights into new emerging liability threats, and explores the growing alliance between state attorneys general and the plaintiffs’ bar.  One key feature notes how alleged deceptive marketing claims against food and beverage makers are on the rise.  Readers will recall our many posts about the trend for plaintiffs to parse labels and bring putative class actions even when they were not injured by the product. The report is entitled "The New Lawsuit Ecosystem.”

The report delves into the areas of law where entrepreneurial plaintiffs’ lawyers have been prospecting for new liability: Class actions against food makers alleging misleading advertising;
Data privacy suits against businesses over allegations that they inadvertently violated released or misused customer information; Claims against brand-name drug manufacturers for injuries allegedly stemming solely from generic products they did not make or sell; Speculative theories of liability seeking to recover for risks of harm or “economic loss,” not actual injuries.

The report also looks at the increasingly troubling trend of state attorneys general turning over the keys to their offices and litigation powers to private plaintiffs’ lawyers. Plaintiffs’ lawyers often develop the legal theories, decide whom to target, and then “recruit” state attorneys general
to retain them on a contingency fee basis to bring the lawsuits. This process provides significant advantages to plaintiffs’ lawyers: it eliminates the need to represent individuals who were actually injured by a defendants’ product or conduct; avoids any contribution those individuals may have
made to their own injuries; reduces traditional defenses; heightens the plaintiffs’ lawyers’ subpoena power; and gives them the ability to seek fines, not just damages. State attorneys general have these powers because they are to be used sparingly, and only to advance appropriate public policies. They are not to be used to maximize personal profit, which is the goal
of private contingency fee lawyers who are often personal or political allies of the state attorneys general.

Very interesting read.


Among those contributing to the report were my colleagues Mark Behrens, Phil Goldberg, Victor E. Schwartz and Cary Silverman.

U.S. Chamber Describes Tort Reform Goals for 2012

Here at MassTortDefense we try to keep at least one eye on important tort reform efforts, and how they may impact  the litigation that we blog about.

That is why we reviewed with great interest the tort reform agenda of the U.S. Chamber of Commerce for 2012, which happens to be the organization's 100th year representing the business community.

The head of the Chamber recently delivered the organization's annual State of American Business address to its members. In it, he noted the need for significant regulatory and legal reform:

The regulatory avalanche confronting our job creators is unprecedented. The Labor Department has 100 rule-makings in the pipeline. Dodd-Frank requires 447 rules, 63 reports, and 59 studies. The health care law established 159 new agencies, panels, commissions, and regulatory bodies. EPA has some 200 regulations in the works. The Chamber supports necessary, sensible, and forward-looking regulations -- but not proposals that fail to meet that test. The Chamber is also working to modernize the overall regulatory system—including legislation to reform the permitting process and update the Administrative Procedure Act for the first time since the Truman administration. 

The Chamber's Institute for Legal Reform will continue to fight the expansion of excessive litigation that is sucking the vitality out of American businesses.  America’s civil justice system is the world’s most expensive, with a direct cost in 2009 of $248.1 billion, or 1.74% of the U.S. GDP.
The tort cost per person was $808 in 2009, a sevenfold increase from 1950 even when adjusted for inflation. While small businesses are responsible for 64% of all new American jobs, lawsuits cost them $105.4 billion in 2008—money that could be invested in more jobs, higher wages, or better benefits. Two out of three senior executives and litigators at America’s largest employers believe that the litigation environment in a state is likely to impact important business decisions at their companies, including whether to grow jobs or do business in a state.

A key focus for 2012 will be the alarming rise of third-party litigation financing. That’s where outside investors fund lawsuits in exchange for a share of the award or settlement. This can encourage the filing of frivolous claims. It may invite testing questionable claims in court. It probably provides an incentive to unduly prolong cases. And it raises serious ethical questions. Who does the lawyer really represent—his client or the outside financial backers?


 

California Right To Know Bill Strikes the Wrong Balance

Last week, the California Assembly’s Committee on Environmental Safety and Toxic Materials approved the Consumer Right to Know Act, S.B. 928.  The bill passed the California State Senate last April, and is currently pending in the California Assembly’s Committee on Appropriations.

This bill would ban the manufacture, sale, or distribution of certain consumer products unless the manufacturer publishes a comprehensive list of ingredients on a publicly available website and directs consumers to a web address on the product’s label. The ingredients would have to be identified with a Chemical Abstract Service (CAS) number. Additionally, they should be identified by either the Consumer Specialty Products Association Consumer Product Ingredients Dictionary (CSPA dictionary) name or the International Nomenclature Cosmetic Ingredient (INCI) name.

As originally drafted, the bill applied to all consumer products as defined by the federal Consumer Product Safety Act. As amended, the current bill applies only to “designated consumer products.” So far, those products include: air care products, automotive products, cleaning products, and polish or floor maintenance products. But, according to observers, the scope of products is under review and could be changed by the legislature before enactment.

One huge issue with the bill is its inadequate protection for legitimate intellectual property, including trade secret information.

As it is currently drafted, S.B. 928 purports to protect trade secrets from disclosure, but it also restricts this ostensible protection in several problematic ways.

  • First, “hazardous” ingredients cannot be trade secrets for purposes of the bill. And the bill has an overbroad broad definition of “hazardous.” That is, a “hazardous substance” is defined as a chemical, or chemical compound, including breakdown products, identified by any state or federal agency or other governmental body or the World Health Organization as potentially having properties of eye and skin irritation, sensitization, acute or chronic toxicity, carcinogenicity, cytotoxicity, neurotoxicity, developmental or reproductive toxicity, or both, endocrine disruption or ecotoxicity.  Any chemical has the "potential" to be toxic at the wrong dose. Even substances universally regarded as safe can cause sensitization in a few hyper-allergic persons.

 

  • Second, hazardous incidental ingredients—those without a technical or functional effect, which, for example, can be present in very small quantities from processing or the production of other products—cannot be protected as trade secrets.

 

  • Third, if a product or its ingredients or incidental ingredients can be reverse engineered, it should not receive trade secret protection. Of course, it is impossible for manufacturers to know in advance what is capable of being reversed engineered for the purposes of disclosing ingredients.

Such disclosure of all chemical ingredients in products may lead to final product manufacturers being placed in the awkward situation of asking suppliers to divulge ingredient information, unique combinations of ingredients, and/or formulas that are patented, proprietary, or considered trade secrets. Many times these formulas are provided to final product manufacturers only under confidentiality agreements. The legislation, in those cases, would appear to require manufacturers to violate those confidentiality agreements by disclosing chemical ingredient information.


In addition, the bill requires that a manufacturer complete a complicated and unworkable formal process to have product information protected as a trade secret. This includes a showing of how secrecy leads to value, the ease of duplication if disclosure is made, how the chemical identity relates to how the chemical is made, how the manufacturer maintains secrecy, and how hard it is to reverse engineer the product. Most importantly, this includes disclosure of the basis for the manufacturer’s determination that its ingredients are not hazardous. That is, prove the negative. 

Finally, if the state Department of Toxic Substances Control (DTSC) determines that the product is not deserving of trade secret protection for any number of listed reasons, including request from the public, the government can affirmatively disclose the product information. In order to prevent disclosure, the manufacturer will have 30 days to file for an injunction. That is an unfair and unworkable time frame.

A coalition of business interests led by the California Chamber of Commerce is opposing the bill on the grounds it increases costs to consumers and will expose confidential business information.  It fears that the definition of product will be expanded "to include everything under the California sun."

The bill would also eliminate trade secret protection after six years unless the manufacturer renews its claim. There is no apparent purpose for such a sunset provision on a trade secret claim other than to burden and place additional expense on the manufacturer. Finally, the bill provides no protections against private rights of action, including actions that may arise under California consumer fraud laws.

We could go on, but isn't that enough reason to conclude the bill strikes the wrong balance?

 

Tort Liability Annual Report Released by Think Tanks

The Pacific Research Institute (PRI), a free-market think tank based in San Francisco, and the Manufacturers Alliance/MAPI, a public policy and economic research organization based in Arlington, VA, announced last week the release of their 2010 U.S. Tort Liability Index, a measure of which states impose the highest and lowest tort costs and risks.

According to the report, Alaska, Hawaii, and North Carolina lead the pack with the best rankings, while New Jersey, New York and Florida bring up the rear. Again, the states with the worst performance had the highest monetary tort losses and tort litigation risks, meaning they had more costly and riskier business climates due to larger plaintiff awards, larger plaintiff settlements, more lawsuits, or some combination of the three.

Direct tort costs account for almost 2 percent of GDP in the United States, which is the highest in the world, not surprising to our readers. Such high costs cause businesses to divert revenue, that could hire workers, to fight lawsuits. But all our readers ultimately shoulder the burden through higher prices and insurance premiums, lower wages, restricted access to health care, less innovation, and higher taxes to pay for court costs.

The Best Tort climates, according to the report:

Alaska
Hawaii
North Carolina
South Dakota
North Dakota
Maine
Idaho
Virginia
Wisconsin
Iowa


The Worst climates, according to the report:

New Jersey
New York
Florida
Illinois
Pennsylvania
Missouri
Montana
Michigan
Connecticut
California
 

States were also ranked according to their tort rules and reforms to reduce lawsuit abuse and limit tort costs and risks, such as award caps, or venue reforms to stop “litigation tourism."  Oklahoma, Texas, Ohio, Colorado and Mississippi did well on the tort reform scale in this report. The states with the least favorable tort rules for defendants, according to the analysis, are Rhode Island, New York, Pennsylvania, Minnesota and Illinois. 

This report can also be contrasted with the Chamber of Commerce report ranking state liability systems, and the ATRA report of the "most unfair jurisdictions."

Chamber Releases State Liability Systems Ranking Study

The Institute for Legal Reform of the U.S. Chamber of Commerce has released its 2010 State Liability Systems Ranking Study.  The study was conducted for the U.S. Chamber to explore how reasonable and balanced the states’ tort liability systems are perceived to be by U.S. business. Participants in the survey were comprised of a sample of 1,500 in-house general counsel, senior litigators or attorneys, and other senior executives who indicated they are knowledgeable about litigation matters at companies with at least $100 million in annual revenues.

The 2010 ranking builds on seven previous surveys in which all 50 states were ranked by those familiar with the litigation environment in that state.  The State Liability Systems Ranking Study basically aims to quantify how corporate attorneys view the state systems.  Overall, more than two in five (44%) senior attorneys view the fairness and reasonableness of state court liability systems in America as excellent or pretty good, up slightly from the last survey in 2008 (41%).  A majority
(56%) view the systems as only fair or poor. Two-thirds (67%) report that the litigation environment in a state is likely to impact important business decisions at their companies, for instance, where to locate or do business, an increase from 63% in 2008 and 57% in 2007.

Respondents were asked to give jurisdictions a grade (A, B, C, D or F) in each of the following areas:

  • Having and enforcing meaningful venue requirements;
  • Overall treatment of tort and contract litigation;
  • Treatment of class action suits and mass consolidation suits;
  • Damages;
  • Timeliness of summary judgment or dismissal;
  • Discovery;
  • Scientific and technical evidence;
  • Judges’ impartiality;
  • Judges’ competence; and
  • Juries’ fairness.

These elements were then combined to create an overall ranking.

The worst jurisdiction in the survey was Chicago/Cook County, Illinois,  followed by Los Angeles,
California, the state of California in general, the state of  Texas in general, and Madison County, Illinois.  Your humble logger's home turf of Philadelphia was ranked 13th worst.

The best? Survey says:

1. Delaware
2. North Dakota
3. Utah
4. Nebraska
5. Iowa

Chamber of Commerce Requests Open Debate on Science of Global Warming

The U.S. Chamber of Commerce last week filed a supplemental request for an “on-the-record” hearing to debate the evidence behind the Environmental Protection Agency’s expected finding that greenhouse gases endanger the public health and welfare.

Readers of MassTortDefense may recall that in 2007, in Massachusetts v. EPA, 549 U.S. 497 (2007), the Supreme Court found that greenhouse gases could be regarded as air pollutants, and held that EPA must determine whether or not emissions of greenhouse gases from motor vehicles cause or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare, or whether the science is too uncertain to make a reasoned decision. In making these decisions, the agency is required to follow the language of section 202(a) of the Clean Air Act. The Supreme Court decision resulted from a petition for rulemaking under section 202(a) filed by more than a dozen environmental, renewable energy, and other organizations.

The EPA is proposing to find that the current and projected concentrations of the mix of six key greenhouse gases — carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6) — in the atmosphere threaten the public health and welfare of current and future generations. This is typically referred to as an "endangerment finding."  EPA is further proposing to find that the combined emissions of CO2, CH4, N2O, and HFCs from new motor vehicles and motor vehicle engines contribute to the atmospheric concentrations of these key greenhouse gases and hence to the threat of climate change.  While an endangerment finding under the Clean Air Act would not by itself automatically trigger extensive regulation under the entire Act, many observers expect such regulations.  Moreover, the finding could prod the Congress to pass controversial climate legislation.  Finally, it may impact the pace and weight of climate change litigation.

The Chamber argues that the informal notice-and-comment process employed here has not worked to air the issues, and the only real solution is an on-the-record hearing for a transparent review of all the evidence.  Having reviewed the evidence in EPA’s endangerment docket, the Chamber observes flaws and omissions in the reasoning underlying the proposed endangerment finding. The Chamber is thus asking for more transparency in this process, as the ruling could ultimately cause a "regulatory train wreck" with inescapable economic consequences, as well as an impact on mass tort litigation. The agency has apparently ignored evidence contradicting its preliminary conclusions on a wide range of issues, such as the alleged effect higher temperatures will have on net mortality and on the levels of other pollutants.  Media reports have surfaced that EPA ignored a study by two members of its staff concluding that the agency had relied on outdated studies and that the current state of climate science refutes the proposed endangerment finding.