Meal Break Class Certification Denied

A California appeals court refused last week to revive a putative class action that alleged the defendant employer had not given employees adequate meal breaks. See In re: Walgreen Company Overtime Cases, No. B230191 (Cal. Ct. App. 2d Dist.,10/23/14).  What is interesting is that significant part of the reasoning related to the fact that multiple putative class members recanted at deposition declarations that had been prepared and submitted by class counsel. 

This class action was about meal breaks at work, and  while the company's stated policy was adequate, in practice the company allegedly departed from the policy. (California employers must give workers time off to eat meals at work.) The trial court denied plaintiffs'  motion for class certification. Plaintiff appealed.

The court of appeals noted the burden on the moving party is to “demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives.” Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021.  California courts generally afford trial courts great latitude in granting or denying class certification, and normally review a ruling on certification for an abuse of discretion. While a class certification motion is not a license for a free-floating inquiry into the validity of the complaint’s allegations, issues affecting the merits
of a case may be enmeshed with class action requirements.  Thus, analysis of a class certification’s propriety frequently will entail some overlap with the merits of the plaintiff’s underlying claim. That cannot be helped, said the court.

A legal issue is (1) whether an employer must merely make meal breaks available, or (2) whether the employer must actually ensure employees take the breaks. Walgreens employees apparently sometimes did decide to skip or delay breaks. One employee explained, for instance, that “I generally take my lunch breaks, but about once a week I will skip lunch because I want to be able to leave work early.” Another testified that, “[e]ven though it has always been Walgreens’ policy to provide a 30-minute meal period, I preferred to skip mine and instead leave early. If I am not hungry, which is typically the case, I do not need a meal period, especially since it is unpaid time.” There
was other similar evidence about skipping or delaying breaks.  

California has adopted the make available standard. To meet this test, attorneys for the class plaintiff submitted 44 form declarations from other workers, all saying that Walgreen forced them to work through some meal breaks because their store was understaffed.  The trial court gave the declarations no weight because they were deemed unreliable. That is, most witnesses recanted their declarations to some degree or entirely at their deposition. The court of appeals stated that the prevalence of apparent falsity in the declarations raised questions about how the lawyers had created these declarations in the first place.

The trial court was “especially troubled” that, once deposed, so many witnesses recanted their declarations. The court of appeals agreed, "Form declarations present a problem. When witnesses speak exactly the same words, one wonders who put those words there, and how accurate and reliable those words are."  There is nothing attractive, said the court, about submitting form declarations contrary to the witnesses’ actual testimony. Thus, it was not error for the trial court to give these unreliable declarations no weight.

Denial of certification affirmed.

 

Federal Court Grants Defense Motion to Deny Class Certification

A federal court earlier this month denied class certification in a case involving allegedly defective Sonicare Diamond Clean and Healthy White powered toothbrushes.  Coe v. Philips Oral Healthcare, Inc., No. C13-518MJP (W.D. Wash., 10/10/14).  Readers should note this was another example of a putative class defendant taking the initiative and moving preemptively to strike class allegations.

Plaintiffs sought a certification of a nationwide class of toothbrush purchasers under the Washington Consumer Protection Act-- something having to do with the attachment of the metal shaft of the device affecting the brush strokes per minute.  Defendant moved to deny class certification. We have posted about this tactic before.  Fed.R.Civ. P. 23 does not preclude affirmative motions to deny class certification. In Vinole v. Countrywide Home Loans, Inc.,571 F.3d 935 (9th Cir. 2009), the Ninth Circuit affirmed the right of defendants to bring preemptive motions, provided that plaintiffs are not procedurally prejudiced by the timing of the motion. Id. at 994.

Resolution of the class certification issue, said the court, turned primarily on the choice-of-law analysis, which determines whether Washington law or the laws of putative class members' home states should apply. If Washington law applied, common questions were more likely to predominate for a nationwide class, and a class action may seem more efficient and desirable. On the other hand, if the consumer protection laws of the consumers' home states apply, variations in the laws will overwhelm common questions, precluding certification. The next inquiry then was whether sufficient discovery had taken place to allow for the choice-of-law analysis. The court concluded it had.

Defendant showed that an actual conflict exists between the Washington Consumer Protection Act ("WCPA") and the consumer protection laws of other states.  Because a conflict exists, the court applied Washington's most significant relationship test in order to determine which law to apply. In adopting the approach of the Second Restatement of Law on Conflict of Laws (1971), Washington has rejected the rule of lex loci delicti (the law of the place where the wrong took place).  Instead, Washington's test requires courts to determine which state has the "most significant relationship" to the cause of action.  If the relevant contacts to the cause of action are balanced, the court considers the interests and public policies of potentially concerned states and the manner and extent of such policies as they relate to the transaction. 


Washington, observed the court, has a significant relationship to alleged deceptive trade practices by a Washington corporation. Washington has a strong interest in promoting a fair and honest business environment in the state, and in preventing its corporations from engaging in unfair or deceptive trade practices in Washington or elsewhere. Conversely, said the court, the putative class members' home states have significant relationships to allegedly deceptive trade practices resulting in injuries to their citizens within their borders. The Toothbrushes were sold and purchased, and representations of their quality made and relied on, entirely outside of Washington. No Plaintiff resides in Washington. While Plaintiffs contend Philips Oral Healthcare spent considerable time and resources analyzing the problem and attempting to fix it at their Washington facilities, thus increasing Washington's relationship to the action, the crux of Plaintiffs' action involves the marketing and sale of the Toothbrushes, which took place in other states.

Furthermore, the Ninth Circuit recently recognized the strong interest of each state in determining the optimum level of consumer protection balanced against a more favorable business environment, and to calibrate its consumer protection laws to reflect their chosen balance. Mazza v. Am. Honda Motor Co., Inc., 666 F.3d 581 (9th Cir. 2012). Washington has formally adopted § 148 of the Restatement in the fraud and misrepresentation context. FutureSelect Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc., 180 Wn.2d 954, 331 P.3d 29, 36 (2014). Section 148 of the Restatement and its comments make clear that the alleged misrepresentation to consumers and the consumers' pecuniary injuries, both of which occurred in consumers' home states and not in Washington, should be considered the most significant contacts in this particular case. Restatement (Second) of Law on Conflict of Laws § 148 cmts. i, j (1971).


Thus, the court agreed with defendant that consumers' home states had the most significant relationship to their causes of action. Therefore, the consumer protection laws of those states, and not WCPA, would apply. Material differences between the various consumer protection laws prevent Plaintiffs from demonstrating Rule 23(b)(3) predominance and manageability for a nationwide class. Accordingly, the Court granted defendant's motion to deny certification of a nationwide class under WCPA.

 

Federal Court Denies Class Certification in "Smart Meter" Case

A Florida federal court recently denied class certification in a case alleging negligence against Honeywell  over its installation of smart electric meters at the homes of Florida Power & Light customers. See Cortes, et al. v. Honeywell Building Solutions SES Corporation, et al., No. 1:14-cv-20429 (S.D. Fla., Sept. 25. 2014). 

Plaintiffs alleged the meters were defective, damaging the connections and allegedly causing electrical arcing, which resulted in more extensive damage to items like pools and air conditioners. 
They sought certification of a class defined as “All Florida Power & Light customers in Florida who had a Smart Meter installed at their property after September, 2009 and who have suffered or will suffer unreimbursed economic loss arising from the defendant’s improper installation of the Smart Meter."

The court noted that, although the trial court should not determine the merits of the plaintiffs’ claim at the class certification stage, 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 Pharms., Inc., 350 F.3d 1181, 1188 n.15 (11th Cir. 2003).  Indeed, sometimes it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question; certification is proper only if the trial court is satisfied, after a rigorous analysis, that the
prerequisites of Rule 23 have been satisfied. Frequently that rigorous analysis will entail some overlap with the merits of the plaintiff’s underlying claim. That cannot be helped.

Before analyzing the Rule 23(a) requirements, a court must determine whether the class definition is adequate. O’Neill v. The Home Depot U.S.A., Inc., 243 F.R.D. 469, 477 (S.D. Fla. 2006); see also Bussey v. Macon Cnty. Greyhound Park, Inc., 562 F. App’x 782, 787 (11th Cir. 2014).  A vague
class definition portends significant manageability problems for the court.  O’Neill, 243 F.R.D.
at 477. “An identifiable class exists if its members can be ascertained by reference to objective criteria."   The analysis of the objective criteria also should be administratively feasible, said the court. Administrative feasibility means that identifying class members is a manageable process that does not require much, if any, individual inquiry.  Bussey, 562 F. App’x at 787.

Defendants argued that membership in the proposed class required a determination whether the
Smart Meter was improperly installed; whether the customer had unreimbursed economic loss;
and whether the loss was caused by the improper installation. The court agreed that the proposed class definition impermissibly required a finding of liability and causation at the class certification stage. For the court to determine membership, it would also need to determine the validity of putative class members’ claims and defenses to those claims. The focus on individuals’ experiences — merely to determine membership in the class — would typically require the putative class members to self-report electrical problems started occurring after the Smart Meters were installed. As such, “the only evidence likely to be offered in many instances will be the putative class member’s uncorroborated claim that he or she” observed electrical problems after the Smart Meter installation. Perez v. Metabolife Int’l, Inc., 218 F.R.D. 262, 269 (S.D. Fla. 2003). This self-interested reporting, often unverifiable but for the Plaintiffs’ own testimony, implicates defendants’ due process rights, and “individualized mini-trials would be required even on the limited issue of class membership.” Id.  The repeated use of these procedures would result in inefficient resolution of the claims, defeating one of the central purposes of the class action tool. See McGuire v. Int’l Paper Co.,
1994 WL 261360, at *5 (S.D. Miss. Feb. 18, 1994).

The court also found the definition of the class impermissibly vague in its inclusion of “customers . . . who have suffered or will suffer unreimbursed economic loss . . . .”  Plaintiffs were requesting a class to be certified of individuals who, at any point in the future, may suffer economic losses as a result of the Smart Meter installations. Apart from the considerations of causation, this proposed subset of class membership was presently impossible to determine.

The court also questioned the showing of numerosity ( a somewhat rare gem for the class action defense reader). Plaintiffs made reference to 603 FPL customer inquiries involving alleged property damage related to Smart Meter installation, but they failed to indicate whether any of these 603 inquiries involve “unreimbursed economic loss,” a requirement contained in the proposed class definition. Plaintiffs then tried to point to evidence of a subset of customers who sought repairs following installation. But nothing in plaintiffs’ factual showing indicated these customers’ problems were caused by the Smart Meter installation — as opposed to any number of other factors — or, again, involved unreimbursed economic loss, two prerequisites to membership in the proposed class. Thus, said the court, these assertions did not come close to showing the number of plaintiffs is large enough to satisfy the numerosity requirement. See Hugh’s Concrete & Masonry Co. v. Southeast Pers. Leasing, Inc., No. 8:12-CV-2631-T-17AEP, 2014 WL 794317, at *2 (M.D. Fla. Feb. 26, 2014) (“[T]he Court cannot find Plaintiff’s bases for numerosity go beyond mere speculation, bare allegations, or unsupported conclusions. Thus, Plaintiff fails the numerosity requirement.”).


Turning to predominance under Rule 23(b)(3), under the law of the Eleventh Circuit, the combination of significant individualized questions going to liability and the need for individualized assessments of damages precludes Rule 23(b)(3) certification. In re Conagra Peanut Butter Products Liab. Litig., 251 F.R.D. 689, 698 (N.D. Ga. 2008).  As is typical, plaintiffs pointed to alleged common issues of defendant's conduct, such as training of employees on installation. While defendants may well have employed similar methods of training employees to install the Smart Meters, those actions were but one component of the tort inquiry. Plaintiffs also would need to prove a breach of duty, if any, was the proximate cause of the damages. The proximate cause determinations would predominate over the determination of the common issue of defendants’ alleged conduct, due to the numerous potential causes of meter can damage. The mere fact that installers were negligent in installations does not mean that negligence caused any damages. Even assuming negligence could be proven, plaintiffs “would still have the bulk of
their cases to prove,” namely injury in fact and causation. Neenan v. Carnival Corp., 199 F.R.D.
372, 376 (S.D. Fla. 2001); see also In re Agent Orange’ Prod. Liab. Litig. MDL No. 381, 818 F.2d 145, 165 (2d Cir. 1987) (“The relevant question, therefore, is not whether Agent Orange has the capacity to cause harm, . . . but whether it did cause harm and to whom. That determination is highly individualistic [] and depends upon the characteristics of individual plaintiffs (e.g. state of health, lifestyle) and the nature of their exposure . . . .”).  The fact-finder would still need to make specific determinations of proximate causation for additional plaintiffs, which would predominate over a class-wide determination of negligence.

Certification denied.

 

Court of Appeals Addresses Class-wide Arbitration Issue

Our loyal readers know that the decision whether a matter gets sent to arbitration, as opposed to being adjudicated through traditional litigation, can have profound impact, including on timing and costs to the litigants. Even more so, when the case is a proposed class action. A few weeks ago, the Third Circuit weighed in on the issue of the availability of class-wide arbitration, holding that it is generally a question for the court, not an arbitrator, to decide.  See Opalinski v. Robert Half Int'l Inc., No. 12-4444 (3d Cir., July 30, 2014). This week, the petition for rehearing was denied by the panel and the en banc court. See Opalinski v. Robert Half Int'l Inc., No. 12-4444 (3d Cir.) (petition for rehearing denied, 8/27/14).

The plaintiffs brought claims under the Fair Labor Standards Act.  The court noted that the issue was whether a district court, rather than an arbitrator, should decide if an agreement to arbitrate disputes
between the parties to that agreement also authorizes class-wide arbitration. Because of the fundamental differences between class-wide and individual arbitration, and the consequences of proceeding with one rather than the other, the court of appeals concluded that the availability of class-wide arbitration is a substantive “question of arbitrability” to be decided by a court, absent clear agreement otherwise. The only other Circuit Court of Appeals to have squarely resolved the “who decides” issue is the Sixth, which has also held that “whether an arbitration agreement permits
class-wide arbitration is a gateway matter” that is presumptively “for judicial determination.” Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 599 (6th Cir. 2013).

Plaintiffs had signed employment agreements that contained arbitration provisions. They provided that “[a]ny dispute or claim arising out of or relating to Employee’s employment, termination of employment or any provision of this Agreement” shall be submitted to arbitration. Neither agreement mentioned class-wide arbitration.  Defendant moved to compel arbitration of plaintiffs' claims on an individual basis. The District Court granted the motion in part, thus compelling arbitration but holding that the propriety of individual (also known as bilateral) versus class-wide arbitration was for the arbitrator to decide.

The first part of the analysis was whether the availability of class-wide arbitration is a “question of arbitrability.” See Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002).  If yes, it is presumed that the issue is “for judicial determination unless the parties clearly and unmistakably provide otherwise.” Id.  If the availability of class-wide arbitration is not a “question of arbitrability,” it is presumptively for the arbitrator to resolve. See First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 944-45 (1994). “Questions of arbitrability” are limited to a narrow range of gateway issues. They may include, for example, whether the parties are bound by a given arbitration clause or whether an arbitration clause in a concededly binding contract applies to a particular type of controversy. On the other hand, questions that the parties would likely expect the arbitrator to decide are not “questions of arbitrability.”  The Third Circuit has explained that questions of arbitrability generally fall into two categories – (1) when the parties dispute whether they have a valid arbitration agreement at all (whose claims the arbitrator may adjudicate); and (2) when the parties are in dispute as to whether a concededly binding arbitration clause applies to a certain type of
controversy (what types of controversies the arbitrator may decide). Puleo v. Chase Bank USA, N.A., 605 F.3d 172, 178 (3d Cir. 2010).

By seeking class-wide arbitration, plaintiffs contended that their arbitration agreements empower the arbitrator to resolve not only their personal claims but the claims of additional individuals not currently parties to this action. The determination whether defendant must include absent individuals in its arbitrations with named plaintiffs affects whose claims may be arbitrated and is thus a question of arbitrability to be decided by the court. Second, while plaintiffs argued that, because class actions in the context of traditional litigation are a procedural construct, the availability of class-wide arbitration is also a procedural question, the Supreme Court, in Stolt-Nielsen, SA v. Animal Feeds Int'l Corp., had expressly disclaimed class-wide arbitration as simply procedural. 559 U.S. at 687 (the differences between class and individual arbitration cannot be characterized as a question of “merely what ‘procedural mode’ [i]s available to present [a party’s] claims”). The Court stated that class action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.

Moreover, it is presumed that courts must decide questions of arbitrability unless the parties clearly and unmistakably provide otherwise, said the court. The burden of overcoming the presumption is onerous, as it requires express contractual language unambiguously delegating the question of arbitrability to the arbitrator. Here, the plaintiffs' employment agreements provided for arbitration of any dispute or claim arising out of or relating to their employment but are silent as to the availability of class-wide arbitration or whether the question should be submitted to the arbitrator. Nothing else in the agreements or record suggests that the parties agreed to submit questions of arbitrability to the arbitrator.

This case was remanded for the District Court to determine whether appellees’ employment agreements call for class-wide arbitration.

 

 

Motion to Dismiss Granted in Juice Case

A California federal court has rejected a proposed class action complaint arising from alleged misleading labeling and advertising of vegetable juice products as "raw" and "organic." See Alamilla, et al. v. The Hain Celestial Group Inc., et al., No. 3:13-cv-05595 (N.D. Calif. 7/2/14).

Specifically, the complaint asserted that the effects of a pressure treatment in the making of the products were "similar to those of cooking and pasteurization, namely the destruction of vitamins, nutrients, live enzymes, nutritional value, and health benefits." On their own, said the court, these allegations might seem to state a plausible claim that the defendants' representations could lead a reasonable consumer to conclude that pressure treatment did not deprive the juice of its nutritional value in the same way that pasteurization does.

But, the court said, the complaint also incorporated by reference two articles that contradicted the plaintiffs' claim. In particular, the complaint quoted and incorporated by reference a published article that concluded that pressurization has "little or no effects on nutritional and sensory quality aspects of foods."  Although the plaintiffs did not include this specific conclusion language in their complaint, there was no doubt they had incorporated by reference the entire text of the articles they quoted in their complaint.

The articles the plaintiffs cited contradicted the allegation upon which their entire complaint hinged—namely, that pressure treatment deprives juice of nutritional value to a similar degree as pasteurization. Courts "need not accept as true allegations contradicting documents that are referenced in the complaint." Lazy Y Ranch LTD v. 24 Behrens, 546 F.3d 580, 588 (9th Cir. 2008). "A plaintiff can plead himself out of court by alleging facts which show that he has no claim, even though he was not required to allege those facts." See Sprewell v. Golden State Warriors, 266 F.3d 979, 988-989 (9th Cir. 2001). 

Accordingly, the complaint was dismissed with prejudice.
 

Class Certification Denied on Ascertainability Grounds

A federal court in New Jersey last week rejected a class certification effort by plaintiffs complaining about the marketing of Skinnygirl Margaritas. See Stewart v. Beam Global Spirits & Wine, Inc., No. 1:11-cv-05149 (D.N.J., 6/27/14).

Plaintiffs essentially allege that despite being marketed and sold as an "all natural" product and a "healthy alternative to other commercial Margarita products" defendants' low-calorie, pre-mixed alcoholic beverage product known as "Skinnygirl Margarita" allegedly did not live up to these claims. Plaintiffs purportedly purchased Skinnygirl Margarita based on these alleged representations by defendants in magazine advertisements and on the product packaging.

Plaintiffs moved for class certification, and the issue quickly became ascertainability. In recent years, the Third Circuit, like many courts, has increasingly emphasized the importance of ascertainability of a class with respect to classes certified under Rule 23(b)(3). See, e.g., Carrera v. Bayer Corp., 727 F.3d 300, 305-08(3d Cir. 2013); Hayes v. Wal-Mart Stores, Inc.,725 F.3d 349, 354-56 (3d Cir. 2013); Marcus v. BMW of N. Am., LLC,687 F.3d 583, 592-94 (3d Cir. 2012).  In Marcus, the Third Circuit recognized that "an essential prerequisite of a class action, at least with respect to actions [brought] under Rule 23(b)(3), is that the class must be currently and readily ascertainable based on objective criteria." Marcus, 687 F.3d at 592-93; see also Hayes, 725 F.3d at 355 ("As 'an essential prerequisite' to class certification, . . . plaintiff must show by a preponderance of the evidence that the class is ascertainable.") (citations omitted); Carrera, 727 F.3d at 306 ("a plaintiff must show, by a preponderance of the evidence, that the class is 'currently and readily ascertainable based on objective criteria,' and a trial court must undertake a rigorous analysis of the evidence to determine if the standard is met.") (citations omitted).

Several important objectives are served by virtue of the ascertainability requirement for Rule 23(b)(3) class actions: (1) the requirement eliminates serious administrative burdens that are incongruous with the efficiencies expected in a class action by insisting on the easy identification of class members; (2) the requirement protects absent class members by facilitating the best notice practicable' under Rule 23(c)(2); and (3) the requirement protects defendants by ensuring that those persons who will be bound by the final judgment are clearly identifiable. Marcus, 687 F.3d at 593; see also Hayes,725 F.3d at 355. 

Ascertainability thus consists of at least two important elements -- the class must be defined with reference to objective criteria, and there must be a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.  See Hayes, 725 F.3d at 355. Ascertainability necessitates an inquiry into whether the defendants' records can ascertain class members, and if not, whether there is a reliable, administratively feasible alternative.  The Third Circuit has made clear that where class members are impossible to identify without extensive and individualized fact-finding or mini-trials, then a class action is inappropriate. Marcus, 687 F.3d at 593.

When considering a plaintiff's proposed mechanism for ascertaining the class, the courts have cautioned against approving a method that would amount to no more than ascertaining by potential class members' "say so" -- by, for example, having potential class members submit affidavits that promise they meet the class definition. Without further indicia of reliability, permitting such a method would essentially force defendants to accept as true absent persons' declarations that they are members of the class, raising serious due process implications.   

Defendants argued that the proposed class members cannot be identified from sales records; they pointed out that the named plaintiffs themselves had no objective evidence, or even consistent testimony, regarding their own alleged purchases. Some defendants were several steps removed from the actual retail purchases, and as a result, never had any record of which consumers bought the product. Absent proper records, it would be impossible to determine class membership without significant inquiry, resulting in a mini-hearing on the merits of each case.  

Plaintiffs proposed a mechanism for ascertaining the Classes which required that putative class members submit affidavits or attestations regarding their membership in the Classes. And defendants responded that they cannot be required to simply accept the self-serving say so of proposed class members; they must be permitted to exercise its due-process right individually to probe each putative class member's statements regarding their claimed purchase. Defendants had a due process right to challenge not only the named plaintiffs' claims that they purchased Skinnygirl Margarita, but also the claims of absent class members. That means individualized fact-finding and mini-trials as to every single absent class member's claim, which in turn means that class treatment is per se inappropriate.

So, plaintiffs' only suggested method for ascertaining the putative class members rested entirely on the submission of affidavits by individuals who claim that they purchased Skinnygirl Margarita; those affidavits would actually  need to include: (1) dates of purchases of Skinnygirl Margarita; (2) locations and retail establishments where purchases were made; (3) frequency of purchases; (4) quantity of purchases; (5) cost of purchases, etc. These types of information would be vital to determining whether each putative member fits within the class definitions in this case.

Moreover, even assuming that the affidavits sought all that information, obtaining this information by way of affidavits did not appear to be an effective method for ascertaining the Classes. Without any independently verifiable proof of purchase through receipts, retail records, or otherwise, putative class members would likely not accurately remember every Skinnygirl Margarita purchase they made during the class period, let alone where these purchases were made and the prices they paid each time. The submission of affidavits supplying such information would be very likely to invite speculation, or worse, not to mention that this process would result in an extremely burdensome task for the Court or a claims administrator even attempting to verify class members' claims. See Weiner v. Snapple Beverage Corp., 2010 WL 3119452, at *13 (S.D. N.Y. Aug. 5, 2010). Such a method cannot fairly be construed as an administratively feasible one which utilizes objective criteria.

Defendants have a right to cross-examine the plaintiffs on their alleged purchases, and cannot be forced to accept as true absent persons' declarations that they are members of the class, without further indicia of reliability.  Despite plaintiffs' attempt to argue otherwise, the rulings in cases like Marcus, Hayes, and Carrera make clear that relying on affidavits of putative class members as the primary method of ascertaining the members of the class is not a prudent course of action for a district court and is generally insufficient to meet the requirements of Rule 23. Such affidavits essentially amount to nothing more than reliance on the subjective "say so" of the putative members that they meet the class definition and are entitled to relief, and practically ignores the need for a class definition based on objective criteria. 

Class certification denied.

 

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.

 

Federal Court Dismisses Cane Juice Class Under Primary Jurisdiction Doctrine

A California federal court took a second look and decided to dismiss a proposed class action related to the ingredient “evaporated cane juice” in guacamole products. See  Swearingen et al. v. Yucatan Foods LP, No. 3:13-cv-03544 (N.D. Cal. 2014).

I am told that guacamole actually dates back to at least the 16th century, and was first made by the Aztecs in Mexico.  The 21st century issue relates to Plaintiffs in this putative class action claiming that use of the term “evaporated cane juice” in the product was unlawful in light of federal food labeling laws and regulations -- and therefore violative of California’s Sherman and Unfair Competition Laws.

Defendants moved to dismiss based on the doctrine of primary jurisdiction.  The primary jurisdiction doctrine applies when there is: (1) [a] need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration. See Clark v. Time Warner, 523 F.3d 1110, 1115 (9th Cir. 2008). The doctrine of primary jurisdiction is not designed to secure expert advice from agencies every time a court is presented with an issue conceivably within the agency’s ambit. It is to be used if a claim requires resolution of an issue of first impression, or of a particularly complicated issue that Congress has committed to a regulatory agency.

Here, the court originally denied the motion, in light of the fact that the FDA had not yet finalized a draft guidance issued more than four years ago, and that it continued to issue warning letters consistent with that earlier position.  However, on March 5, 2014, the FDA issued a notice in the Federal Register reopening the comment period for the draft guidance first issued on October 7, 2009, relative to the use of the term “evaporated cane juice.” That notice stated: “We have not reached a final decision on the common or usual name for this ingredient and are reopening the comment period to request further comments, data, and information about the basic nature and characterizing properties of the ingredient sometimes declared as ‘‘evaporated cane juice,’ how this ingredient is produced, and how it compares with other sweeteners.” In light of this notice, Yucatan moved for reconsideration of the court’s prior order.

Plaintiffs argued in response to the motion that the FDA is not engaged in formal rulemaking, and that even final guidance would not be binding on either the agency or manufacturers. See 21 C.F.R. § 10.115 (“Guidance documents do not establish legally enforceable rights or responsibilities. They do not legally bind the public or FDA.”).  But the notice did indicate that the FDA is actively engaged with the very issue presented in this litigation, one which has prompted a flurry of litigation in the federal courts.  The court noted that the question of evaporated cane juice labeling presents a host of technical issues uniquely within the agency’s expertise. For example, the FDA has specifically solicited comment on the basic nature and characterizing properties of the ingredient in question, and the difference between this ingredient and other sweeteners made from sugar cane.  Deferring to the FDA for resolution of these issues would enhance decision-making and efficiency by allowing the court to take advantage of administrative expertise.

A court presented with an issue to which agency deference is due under the primary jurisdiction doctrine has the discretion either to stay the case or to dismiss it without prejudice. Normally, if the court concludes that the dispute which forms the basis of the action is within the agency’s primary jurisdiction, the case should be dismissed so that the parties may pursue their administrative remedies. Syntek Semiconductor Co. v. Microchip Tech., Inc., 307 F.3d 775, 782 (9th Cir. 2002). Here, concluded the court, it was not necessary in this case for the court to maintain jurisdiction. Plaintiffs in this case sought primarily injunctive relief on behalf of a putative class for various products purchased throughout a four-year period preceding this litigation. Should some amount of time elapse before the FDA issued final guidance on this issue, no particular disadvantage inured to the plaintiffs. 

 

Long-lasting Lipstick Class Kissed Off

A federal court has rejected a proposed class of plaintiffs who alleged that they purchased deceptively labeled lipstick and foundation, in part because of an inability to show class-wide damages. See Algarin v. Maybelline, LLC,  No. 12-03000 (S.D. Cal., 5/12/14).

Maybelline manufactures, markets, sells, and distributes SuperStay 24HR Lipcolor, a line of lipcolors, and SuperStay 24HR Makeup, a line of skin foundations, Plaintiffs alleged these products were marketed to provide "all day comfort,” that withstands “heat, sweat, and humidity,” but allegedly do not. Plaintiffs alleged they paid a price premium because of the company's claims. On behalf of a proposed California class of consumers who bought the SuperStay products, they asserted claims under the California Unfair Competition Law and Consumers Legal Remedies Act.

In assessing the motion for class certification, the court found that there were issues with the proposed class definition. Plaintiffs defined the class as: “[a]ll California consumers who purchased SuperStay 24HR Lipcolor and/or SuperStay 24HR Makeup for personal use."  Given the number of differences between the two products, including but not limited to, pricing differences, claims differences, labeling differences, and ultimately merits differences, the Court questioned whether creating sub-classes would be needed. Beyond that, though not explicitly stated in Rule 23, courts have held that the class must be adequately defined and clearly ascertainable before a class action may proceed. See Chavez v. Blue Sky Natural Beverage Co., 268 F.R.D. 365, 376 (N.D. Cal. 2010) .  A class is sufficiently defined and ascertainable if, among other things, it is administratively feasible for the court to determine whether a particular individual is a member. See O’Connor v. Boeing N. American, Inc., 184 F.R.D. 311, 319 (C.D. Cal. 1998).   It must be administratively feasible to determine whether a particular person is a class member as an identifiable class exists if its members can be ascertained by reference to objective criteria, but not if membership is contingent on a prospective member’s state of mind. While here the class definition seemed ascertainable in the sense that class membership might be determined based on an objective criterion -- whether members purchased either the SuperStay lipcolor of the SuperStay makeup --  Plaintiffs failed to provide a reliable method of determining who the actual members of the class were. So it was not ascertainable in the sense that members could actually ever be determined. Plaintiffs failed to show how it was “administratively feasibile" to determine whether a particular person was a class member. The court correctly noted that this inquiry overlaps with the “manageability” prong of Rule 23(b)(3).

Specifically, Maybelline argued that purchasers were unlikely to have documentary proof of purchase of products like these years later, and Maybelline does not maintain a purchaser list or other identifying method. In such a situation, the Court and the parties would necessarily rely on class members to self-identify. There are a number of cases that stand for the proposition that where a court has no way to verify if a purchaser is actually a class member, class certification may be improper. See e.g., Red, 2012 WL 8019257, at *4;  Hodes v. Int’l Foods, 2009 WL 2424214, at
*4 (C.D. Cal. July 23, 2009). Here, the relevant purchase was not a memorable “big ticket” item, but rather small-ticket items that cost around $10.00; it was extremely unlikely the average purchaser would even remember she purchased the specific SuperStay products versus a competitor product.

The court also observed that expert evidence shows that materiality and reliance varied from consumer to consumer, such that these elements were not an issue subject to common proof. Under the claims alleged, a representation is considered material if it induced the consumer to alter his position to his detriment. If the issue of materiality or reliance is a matter that would vary from consumer to consumer, the issue is not subject to common proof, and the action is properly not certified as a class action. Maybelline introduced evidence of who the reasonable consumer in the target audience was and what drives her in making purchasing decisions. With cosmetics such as the ones at issue here, customers can readily discern how well they work and whether they lived up to the claimed representations. Accordingly, repeat purchasers can not be considered injured in the manner proposed by Plaintiffs. A repeat purchase indicates satisfaction. The evidence suggested that duration was not the only motivating factor in making the purchases; actual duration expectations varied widely among purchasers; and very few consumers actually read the package the way plaintiffs' counsel did and thus could have been “injured” in the manner alleged by Plaintiffs.

This undermined both the commonality and the typicality prerequisites. Based upon the evidence presented, the named Plaintiffs’ reliance on the alleged misrepresentations was not typical of other class members.

Under Rule 23(b)(2), the court concluded that the injunctive relief requested by the plaintiffs wasn't appropriate for the class as a whole. Class members who bought the cosmetics and used them became well aware of the realities of the products, and wouldn't benefit from the relief sought.

Under Rule 23(b)(3), the Plaintiffs sought individual monetized relief that would require an assessment of each class member's claim based on purchase history.  Given the number of individual purchasing inquiries, as well as the evidence showing materiality and reliance varied from consumer to consumer, it was evident that common issues did not predominate.  As is standard, Plaintiffs proposed the “price premium” method of determining class-wide damages, contending  that their damage theory was “simple."  It was not obvious to the Court, however, that the alleged 24 hour/no transfer claim commanded the alleged premium of $1.00-$3.00. Indeed, that was pure speculation on the part of Plaintiffs. Pricing could have been equally impacted by a higher quality of ingredients, the selection of colors offered, or the unique costs Maybelline expended in the research and development of these products. Plaintiffs’ method of using comparable products from other sellers is inconsistent with the law. To establish that any difference in price was attributed  to the alleged misrepresentation, the Court needed to compare a product, exactly the same but without the challenged marketing claim. Such a task was nearly impossible as no two products are completely identical.

Moreover, Maybelline did not sell retail and does not set retail prices. Establishing a higher price for a comparable product would be difficult where prices in the retail market differ and are affected by the nature and location of the outlet in which they are sold and/or the use of promotions and coupons. The Court could not simply assume that all retailers throughout California purchase and sell the products at one price. 

Finally, the existence of an economic injury was also not a common question as many purchasers were satisfied with the products. Economic injury is not a common question when many purchasers find the class products were worth the amount paid and fully satisfied.

Class motion denied.

Class Discovery Sufficient for Merits Summary Judgment

Readers know that courts will sometimes, perhaps often, bifurcate discovery in a proposed class action between the discovery needed to assess certification issues and that related to merits issues. This procedural tool can save the parties costs, and expedite the crucial decision on class status, which needs to be made as soon as practicable.

Sometimes that class discovery can shed light on summary judgement issues as well.  In a recent case, the Eighth Circuit held that a class plaintiff was not entitled to merits discovery before the court considered summary judgment based solely on the class certification discovery.  See Toben v. Bridgestone Retail Operations, LLC,  No. 13-3329 (8th Cir. 5/13/14).

Patricia Toben filed a putative class action alleging a violation of the Missouri Merchandising Practices Act (MMPA).  Plaintiff alleged on behalf of the proposed class that defendant's service shop improperly charged 6 percent of labor charges as a shop supply fee. Defendant responded that the supply fee covered a wide array of essential stuff, such as cleaners and rags. Specifically, Bridgestone identified over 70 examples of shop supplies covered by the fee.

After limited discovery, Toben moved for class certification. Bridgestone moved for summary judgment. Toben moved to stay summary judgment pending merits discovery. The district court denied the stay and granted summary judgment.  Plaintiff appealed.

The court of appeals noted that plaintiff had set forth some kinds of facts she hoped to elicit from further discovery, but had not shown that the facts sought exist.  It is well settled that Rule 56 does not condone a fishing expedition where a plaintiff merely hopes to uncover some possible evidence. Mere speculation that there is some relevant evidence not yet discovered will never suffice.  Here, class discovery revealed relevant information about the shop supply fee, and plaintiff identified no documents or specific facts she believed would contradict that.

If all one had to do to obtain a grant of a Rule 56d motion were to allege possession by movant of certain information, every summary judgment decision would have to be delayed while the non-movant goes fishing in the movant's files.  Plaintiff's motion for a stay provided only "speculative hope" of finding evidence to support her claim.

Thus, the court could not conclude that the district court abused its discretion in denying it. Summary judgment affirmed.

 

 

 

Fail Safe Class Rejected in TCPA Case

This year marks the 50th Anniversary of the taut Cold War thriller "Fail-Safe", starring Henry Fonda and Walter Matthau. (If I recall, there is no music in the entire B&W film.) In honor of the film, we post about a modern day fail-safe issue, less dramatic of course.

A crucial implicit requirement for class certification is that the plaintiff propose a workable, ascertainable class definition. One sub-set of this issue is the highly improper "fail-safe" class in which absent class members can use an imprecise class definition to affirm their membership when the class wins, but assert they were never members of the class when the defendant wins. A recent federal case sees the court striking class allegations that fall under this impermissible “fail safe” class rubric. See Sauter v. CVS Pharmacy, Inc., No. 2:13-cv-846 (S.D. Ohio, 5/7/14).

The Plaintiff brought a putative class action against the Defendant for alleged violations of the Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227. Plaintiff alleged that the class received phone calls from CVS, which utilized an automatic telephone dialing system (ATDS) to call, without the Plaintiffs' consent.  The call allegedly provided general information about a prescription refill and the location of his local CVS pharmacy.  (actually sounds kind of useful, but we digress)

Defendant made a Motion to Strike Plaintiff's Class Allegations. Most courts recognize that a motion to strike class action allegations may properly be filed before plaintiffs have filed a motion for class certification. See, e.g., Pilgrim v. Universal Health Card, LLC, 660 F.3d 943, 945 (6th Cir. 2011); Bearden v. Honeywell Intern., Inc., No. 3:09-01035, [2010 BL 63279], 2010 WL 1223936, at *9 (M.D. Tenn. Mar. 24, 2010).  A court may strike class action allegations before a motion for class certification where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met. See Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 160 (1982) ("Sometimes the issues are plain enough from the pleadings"). 

The big issue here was whether the complaint proposed a fail-safe class.   A class definition is impermissible where it is a class that cannot be defined until the case is resolved on its merits. See Randleman v. Fidelity Nat'l Title Ins. Co., 646 F.3d 347, 352 (6th Cir. 2011). A fail-safe class is defined to in essence include only those who are entitled to relief.  Such a class is prohibited because it would allow putative class members to seek a remedy but not be bound by an adverse judgment — either those class members win or, by virtue of losing, they are not in the class and are not bound.

The various subclasses here included those who received calls and did not provide prior express written consent, and those who received calls who had expressly revoked their consent for such calls.  Thus, each of the Plaintiff's proposed classes was defined to include only those individuals who did not expressly consent to the receipt of the defendant's phone calls made with the use of an ATDS. Because the TCPA prohibits calls to cellular telephones using ATDSs unless prior express consent has been given, defining the class to include anyone who received such a call without prior express consent meant that only those potential members who would prevail on this liability issue would be members of the class.  In other words, the proposed classes consisted solely of persons who could establish that defendant violated the TCPA. Thus, if the Plaintiff successfully demonstrated that the Defendant made calls using an ATDS without the class members' prior express consent, then the class members would win, said the court. However, if the Plaintiffs were unsuccessful in meeting their burden of proof, the class did not even not exist and the apparent class members (folks who got a call) would not be bound by the judgment in favor of the Defendant. This was the very definition of a prohibited fail-safe class.

So, motion granted; class allegations struck.

 

Comcast Requirement of Class-wide Damages Dooms Class

A California federal court has denied class certification to a putative class of consumers who bought food products marketed as healthy, which allegedly were not because they contained hydrogenated oils and corn syrup. See Lucina Caldera, et al. v. The J.M. Smucker Co., No. 2:12-cv-04936 (C.D. Cal.).

On June 6, 2012, Plaintiff filed a consumer class action on behalf of individuals who purchased Defendant’s Uncrustables and Crisco Original and Butter Flavor Shortening products. Plaintiff alleged that the packaging of these products misled consumers into believing that they were healthful, when allegedly they were not because they contain trans fat and high fructose corn syrup. Based on these allegations, Plaintiff asserted the usual claims: (1) violation of Cal. Bus. &
Prof. Code §§ 17200, et seq. (“UCL”), unlawful prong; (2) violation of the UCL, fraudulent prong; (3)
violation of the UCL, unfair prong; (4) violation of California False Advertising Law (“FAL”), Cal.
Bus. & Prof. Code §§ 17500, et seq.; (5) violation of California Consumer Legal Remedies Act
(“CLRA”), Cal. Civ. Code §§ 1750, et seq.; (6) breach of express warranty under California law; and (7) breach of implied warranty of merchantability under California law.

The court denied with prejudice the Plaintiff’s attempt to certify the proposed classes.

Under Rule 23(b)(3), a plaintiff must show that “the questions of law or fact common to class
members predominate over any questions affecting only individual members,” and that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”
Predominance “tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997). It focuses on the
relationship between the common and individual issues, requiring that the common issues be
qualitatively substantial in relation to the issues peculiar to individual class members. See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. 1998). The post-Dukes predominance inquiry
requires the court to consider whether other issues unique to individual class members are likely to render adjudication by representation impractical. See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2556 (2011).  Defendant here argued that Plaintiff failed to satisfy the predominance requirement because she had not identified any method of proving damages on a classwide basis, and thus determining damages would involve individualized inquiries that predominate over common questions.

The predominance requirement is satisfied only if Plaintiff is able to show that class damages stemmed from the defendant’s actions that created the legal liability. Leyva v. Medline Industries, Inc., 716 F.3d 510, 514 (9th Cir. 2013); see 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 measurement that can be applied classwide and that ties the plaintiff’s legal theory to the impact of the defendant’s allegedly illegal conduct. Thus, after Comcast, the question is whether a plaintiff has met its burden of establishing that damages can be proven on a classwide basis. See In re Diamond Foods, Inc., Sec. Litig., 2013 WL 1891382, at *252 (N.D. Cal. May 6, 2013).

Here, the court concluded, the Plaintiff failed to meet this burden.  Plaintiff did not offer any method of proving damages on a classwide basis. Plaintiff merely stated that damages could be proven on a classwide basis based on Defendant’s California sales data. However, this is not a case where class members would necessarily be entitled to a full refund of their purchase price. Accordingly, defendant’s sales data alone would not provide sufficient information to measure classwide damages. The class sought restitution, Restitution based on a full refund would only be appropriate if not a single class member received any benefit from the products. See In re POM Wonderful LLC, 2014 WL 1225184, at *3 & n.2 (C.D. Cal. Mar. 25, 2014). Plaintiff failed to offer any evidence, let alone expert testimony, that damages could be calculated based on the difference between the market price and true value of the products.

As evidenced by named Plaintiff’s own deposition testimony, class members undeniably received some benefit from the products. Awarding class members a full refund would not account for these benefits conferred upon class members. Accordingly, classwide damages could not accurately be measured based on Defendant’s sales data alone. (Plaintiff’s Motion to certify the injunctive relief
classes also was denied without prejudice.)

 

Lack of Confidence Not An Answer to CAFA Removal

Readers are used to litigants using favorable law to their benefit; this case involves a plaintiff trying to use unfavorable law to his benefit.  The court concluded that a proposed class of joint pain supplement purchasers could not escape the reach of the Class Action Fairness Act by asserting their case could never be certified in federal court. See Hoffman v. Nutraceutical Corp., No. 13-3482 (3rd Cir. unpublished decision 4/10/14).

Hoffman filed suit against Nutraceutical in the Superior Court of New Jersey, Bergen County. The action concerned a Nutraceutical supplement, which was marketed to help to stem the progression of osteoarthritis and reduce related joint pain. Hoffman, who bought a $20 bottle of the supplement, alleges that Nutraceutical falsely represented that the supplement was "of the highest quality," when in fact the "product was polluted and contaminated by significant concentrations of lead." Hoffman proposed a class consisting of all nationwide purchasers for the six year period preceding the filing of this suit. 

The Complaint asserted violations of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-2, as well as claims for common-law fraud, breach of contract, and common-law breach of warranty.   Neutraceutical removed the case to federal court under CAFA. The District of New Jersey denied Hoffman's motion for remand, and Hoffman appealed.

 

With certain exceptions not relevant here, CAFA grants federal courts original jurisdiction over actions in which: (1) the matter constitutes a "class action"; (2) "the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs"; (3) CAFA's minimal diversity requirements are met; and (4) there are at least 100 members of the putative class. 28 U.S.C. § 1332(d)(2), (d)(5)(B). Hoffman's challenge to the District Court's jurisdiction was premised entirely on the proposition that the amount in controversy of his suit  could not exceed $5 million.

 

Where, as here, the plaintiff does not specifically aver that the amount in controversy falls below CAFA's $5 million threshold, the case must be remanded to state court if it is "a legal certainty" that CAFA's amount in controversy requirement cannot be met. Frederico v. Home Depot, 507 F.3d 188, 197 (3d Cir. 2007). Hoffman argued, as both the sole class representative and the sole attorney for the class, that the purported class could not possibly be certified under established Third Circuit law. Thus, he reasoned, the amount in controversy of the action — as least while the case remained in federal court — was equivalent to the value of Hoffman's individual claim, rather than the aggregate value of the class members' claims, which would easily exceed $5 million. In other words, because it was supposedly a "legal certainty" that the class would not be certified, it follows that it was a "legal certainty" that the amount in controversy requirement cannot be met.

But CAFA mandates that federal courts calculate the amount in controversy of a putative class action before determining whether the class may be certified under Rule 23. A putative class action satisfies CAFA's amount in controversy requirement where (1) the action was filed under Rule 23 or a similar state statute or rule and (2) the aggregated claims of the proposed class members amount to more than $5 million. See Standard Fire Ins. Co. v. Knowles, 133 S. Ct. 1345, 1348 (2013).  Thus, a putative class action's prospects for certification are irrelevant to whether federal courts have subject matter jurisdiction over that action in the first instance.

Hoffman could not demonstrate to a legal certainty that the claims of the purported class — i.e., the "nationwide purchasers" of the supplement "for the six year period preceding the filing of this suit," — were worth $5 million or less. Accordingly, this action satisfied CAFA's amount in controversy requirement, and the District Court properly concluded that it had subject matter jurisdiction over Hoffman's suit.
 

TCPA Class Rejected on Defendant's Motion

Readers may know that there is a fair amount of litigation alleging violation of the Telephone Consumer Protection Act. What's interesting about this proposed TCPA class action, Ryan v. Jersey Mike's Franchise Sys., No. 3:13-cv-01427-BEN-JLB (3/28/14), is that the decision comes on defendants' motion to deny class certification, an aggressive and perhaps seldom used preemptive motion. 

A court is required to determine whether or not to certify the action as a class action at an early "practicable time." Fed. R. Civ. P. 23(c)(l)(A). Rule 23 is not a mere pleading standard, and a party seeking class certification must affirmatively demonstrate his or her compliance with the Rule.  Wal-MartStores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011). It may be necessary for a court to probe behind the pleadings before coming to rest on the certification question. In making the class certification determination, a court is required to engage in "rigorous analysis." Id. That analysis frequently entails "some overlap with the merits of the plaintiffs underlying claim." Id.

Several courts have approved the use of preemptive motions to deny class certification before a plaintiff has filed a motion to certify a class. E.g., Vinole v. Countrywide Home Loans, 571 F.3d 935, 941 (9th Cir. 2009). Such motions may be appropriately granted before discovery has been completed, as district courts have broad discretion to control the class certification process and have the discretion to determine whether discovery will be permitted. A party seeking class certification is not always entitled to discovery on the class certification issue.  See Doninger v. Pac Nw. Bell, Inc., 564 F.2d 1304, 1313 (9th Cir. 1977). A motion for class certification can be properly denied without discovery where plaintiffs cannot make a prima facie showing of Rule 23's prerequisites or where discovery measures are not likely to produce persuasive information substantiating class action allegations. 

Plaintiff here alleged that defendants transmitted unauthorized bulk spam text messages to the cellular phones of unwilling customers in order to promote their shop. Plaintiff alleged that these text message were aggravating and required consumers to pay their cell phone providers to not receive the spam messages. Plaintiff claimed that defendants assembled lists of consumer cell phone numbers, "without any authorization" to use the numbers.  Plaintiff alleged that the defendants then sent massive amounts of spam commercial text message advertisements, using auto-dialers or robo-callers.  Plaintiff further alleged that the texts were sent to mobile phone users with whom the defendants had "no prior business relationship."

The court described that the defendant store had a customer loyalty program known as the "Shore Points" in which it issued customers loyalty cards that they could use to earn and redeem "loyalty points" for free products. Each card had a unique bar code number and was linked in a database to a telephone number provided by the customer when the card is issued. Defendants claimed the only numbers in their records were numbers provided by their customers. Defendants explained that messages are only sent to members of the loyalty program who gave their cell phone numbers to the stores.  Plaintiff admits that he was given a loyalty card on one of his visits to the store, and he got a test message advertising the store, and offered free chips and a drink with the purchase of any sub.

Readers know that the typicality requirement is to assure that the interest of the named representative aligns with interests of the class.  E.g.,  Hanon v. Dataproducts Corp., 976F.2d 497, 508 (9th Cir. 1992). In determining whether the typicality requirement is satisfied, a court determines whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct.

Here, plaintiff said he did not remember ever giving a phone number,  but was "not 100% sure. I suppose it's possible." He argued that not remembering interactions with fast food attendants made him a "more typical consumer, not less typical."

On defendants' motion, the court concluded that class certification was inappropriate in this case; plaintiff was fatally inconsistent and uncertain about critical issues relating to the possible consent to receive text messages. These consent issues were critical to any theory of recovery, including the TCPA. While plaintiff stated under oath in his deposition that he did not provide his phone number, it was clear he did not remember his conversation with the cashier. His inconsistency and uncertainty rendered class action treatment inappropriate.  Plaintiff could not represent a class of individuals who did not give out their phone numbers because he was unsure whether he did not give the defendants his phone number.

While it was quite possible that most people would not remember such details, that did not make plaintiff an appropriate representative of a class to assert the rights of others.  Discovery would not allow him to resolve the uncertainty regarding his own experience. An inability to remember key details may be typical, but the typicality requirement of a class action lawsuit demands more.  Plaintiff's conflicting accounts of critical facts that would determine what kinds of claims he could bring meant that the necessary alignment of interests is impossible. Motion granted, no class.

 

Lack of Standing Dooms Beef Class Action

Article III's requirement that a plaintiff have standing to bring the claim applies to proposed class actions, and doomed class plaintiffs who were alleging that certain beef products were not kosher as marketed. See Wallace v. Conagra Foods, Inc., No. 13-1485 (8th Cir. 4/4/14).

Melvin Wallace and several other consumers claimed that some Hebrew National beef products were not “100% kosher.” Defendant removed to federal court, invoking the Class Action Fairness Act of 2005 (CAFA), 28 U.S.C. § 1453, then moved to dismiss contending the consumers lacked Article III standing and that the district court lacked jurisdiction to address religious questions
underlying the consumers’ claims. The district court decided the First Amendment prohibited the courts from adjudicating the consumers’ legal claims and, they appealed.

Plaintiffs argued that their purchase and consumption of the Hebrew National brand products was not motivated by faith, but rather on the belief that kosher is the “New Organic,” a promise of food purity amid other products full of artificial ingredients. They claimed this led them to pay an unjustified premium for Hebrew National’s ostensibly kosher beef.

The court of appeals concluded that the consumers lacked traditional Article III standing to pursue this case, and instructed the district court to remand the case to state court.

Defendant argued that even if the consumers would have overpaid if the Hebrew National products they bought were not actually kosher, the consumers did not adequately allege that the products they each purchased were defective.   Here, the consumers’ allegations did not establish that all or even most Hebrew National products were not kosher, which means the particular packages of
processed beef they purchased may have been—and indeed more than likely were—prepared in accordance with minimum kosher standards.

The court noted that Article III requires “an injury [to] be concrete, particularized, and actual or  imminent.” Monsanto Co. v. Geertson Seed Farms, 130 S. Ct. 2743, 2752 (2010). An alleged injury cannot be “too speculative for Article III purposes.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 564 n.2 (1992). If there is no “actual” harm, then there must at least be an “imminent” harm. Id. As the Supreme Court emphasized just last year, “mere speculation” that injury did or might occur “cannot satisfy the requirement that any injury in fact must be fairly traceable to” the alleged source. Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138, 1148 (2013).

 Here, the consumers’ allegations failed to show that any of the particular packages of Hebrew National beef they personally purchased contained non-kosher beef. The consumers frankly admitted that it was impossible for any reasonable consumer to detect whether purportedly kosher meat is non-kosher. The Supreme Court has made it clear that standing must be particularized, meaning the alleged injury must affect the plaintiff in a personal and individual way. In the context of defective products, it is not enough for a plaintiff to allege that a product line contains a defect or that a product is at risk for manifesting this defect; rather, the plaintiffs must allege that their product actually exhibited the alleged defect. See In re Zurn Pex Plumbing Prods. Liab. Litig., 644 F.3d
604, 616 (8th Cir. 2011).

Without any particularized reason to think the consumers’ own packages of Hebrew National beef actually exhibited the alleged non-kosher defect, the consumers lacked Article III standing to sue.  Even supposing some beef was improperly certified as kosher, the consumers gave the court no reason to think all the beef marked as kosher under the quota did not meet kosher standards. Which means, it was pure speculation to say the particular packages sold to the consumers were tainted by non-kosher beef.  Speculation and conjecture are not injuries cognizable under Article III. See, e.g., Clapper, 133 S. Ct. at 1148.  Because the consumers suffered no particularized and actual injury, Monsanto, 130 S. Ct. at 2752, the court of appeals was bound to conclude the consumers lacked traditional Article III standing.  CAFA did not extend federal jurisdiction to this case.

 

France Adopts Limited Class Action Rule

We have posted before about the potential spread of class action litigation to other countries.  Now comes word that French President François Hollande has signed into law France’s new Consumer Law, which includes a class action procedure for consumer protection and antitrust claims. The new French law elects the “opt-in” model and limits the role of class representation to certain nationally representative and  accredited consumer associations.

Some colleagues of mine at SHB do a more in-depth  analysis here.

 

Juice Class Decertified at Close of Discovery

A federal court recently decertified a class action filed on behalf of  juice buyers, recognizing the grave ascertainability problems in the case alleging that the beverage maker misleadingly advertised its drink's health benefits. See In re Pom Wonderful LLC Mktg. & Sales Practices Litig., No. 2:10-ml-2199-DDP-RZ (C.D. Cal. 3/25/14).

Back in 2012, the court had certified a damages class comprised of all persons who purchased a Pom Wonderful 100% juice product between October 2005 and September 2010. After the  completion of discovery, Pom moved to decertify the class, in light of the facts developed and in light of the U.S. Supreme Court's decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). On a motion for decertification, as at the certification stage, the burden to demonstrate that the requirements of Federal Rules of Civil Procedure 23(a) and (b) are met lies with the party advocating certification. E.g., Marlo v. United Parcel Serv. Inc., 639 F.3d 942, 947 (9th Cir. 2011).

The court noted that the Ninth Circuit has adopted a rather narrow reading of Comcast, which holds that, under rigorous analysis, “plaintiffs must be able to show 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). Thus, the court proceeded to examine plaintiffs’ damages models and the relationship of those models to the plaintiffs’ legal theories. Plaintiffs' expert advanced two damages models. The "Full Refund" model concluded that consumers spent $450 million on Pom’s 100% pomegranate juice and juice blends during the class period, and that class damages are 100% of the amount paid, or $450 million.  Defendant argued that the Full Refund model was invalid because it failed to account for any value consumers received. Even putting aside any potential health benefits, defendant argued, consumers still received value in the form of hydration, vitamins, and minerals.  The court agreed.  The California consumer acts authorize a trial court to grant restitution to private litigants asserting claims under those statutes. Colgan v. Leatherman Tool Group, Inc.,135 Cal.App.4th 663, 694 (2006). “The difference between what the plaintiff paid
and the value of what the plaintiff received is a proper measure of restitution.” In re Vioxx Class Cases, 180 Cal.App.4th 116, 131 (2009). “A party seeking restitution must generally return any
benefit that it has received.” Dunkin v. Boskey, 82 Cal.App.4th 171, 198 (2000).  Since the model did not account for this, it did not comport with Comcast.

The second or "Price Premium" model assumed that, absent the alleged misrepresentations, “demand for Pom would have been less and the Pom market price would have been lower.” The Price Premium model quantified alleged damages “by comparing the price of Pom with other refrigerated juices of the same size.”  This model yielded a damage calculation of “about $290 million.”  The parties agreed that the Price Premium model depended upon a “fraud on the market” theory. Plaintiffs essentially asserted (1) that a presumption of reliance dependent upon defendant’s alleged material misrepresentations establishes the existence of a fraud on the
entire juice market, (2) that because of that fraud on the market, every consumer who purchased defendant’s juices was similarly damaged, regardless of motivation or satisfaction, and (3) damages could therefore be measured on a class-wide basis. But, the court was not aware of any authority applying a fraud on the market theory to this type of consumer action. (It's a securities thing!)  Putting that issue aside, a plaintiff alleging a fraud on the market must show that the relevant market is efficient. See Smilovits v. First Solar, Inc., 295 F.R.D. 423, 429 (D. Ariz. 2013). This court was not persuaded that the market for defendant’s high-end refrigerated juice products operates efficiently.

Third, whether the entire class can be said to have relied upon the alleged  misrepresentations for liability purposes, this did not necessarily speak to the adequacy of a damages model. Plaintiffs must be able to show that their damages stemmed from the defendant’s actions that created the legal liability.  Plaintiff's expert made no attempt upon a sound methodology to explain how defendant’s alleged misrepresentations caused any amount of damages. Instead, the expert  simply observed that Pom’s juices were more expensive than certain other juices. Rather than
answer the critical question why that price difference existed, or to what extent it was a result of Pom’s alleged actions, the expert simply assumed that 100% of that price difference was attributable to the alleged misrepresentations. Rather than draw any link between Pom’s actions and the price difference between the juice average benchmark price and average Pom prices, the Price Premium model simply calculated what the price difference was. This damages “model” did not comport with Comcast’s requirement that class-wide damages be tied to a legal theory.

The other basis for the decision was ascertainability.  In situations where purported class members purchase an inexpensive product for a variety of reasons, and are unlikely to retain receipts or other transaction records, class actions may present such daunting administrative challenges that class treatment is not feasible.  See, e.g., In re Phenylpropanolamine Prods., 214 F.R.D. 614, 620 (W.D. Wash. 2003) (describing critical manageability problems concerning sales of a three dollar medication, despite possibility of fluid recovery); Sethavanish v. ZonePerfect Nutrition Co., 2014 WL 580696 at *5 (N.D. Cal. Feb. 13, 2014) (denying certification because proposed class of nutrition bar purchasers would not be ascertainable).  Here, plaintiffs acknowledged that, based on the volume of product sold, every adult in the United States is a potential class member. Realistically, the class included at least ten to fifteen million purchasers. These millions of consumers paid only a few dollars per bottle, and likely made their purchases for a variety of reasons, observed the court. Few, if any, consumers were likely to have retained receipts during the class period, which closed years before the filing of this action. This case therefore fell well toward the unascertainable end of the spectrum. Here, at the close of discovery and despite plaintiffs’ efforts, there was no way to reliably determine who purchased defendant’s products or when they did so.

Class decertified.

Remand Not Warranted in CAFA Case

Often defendants in proposed class actions think of an individual's playing a dual role as lead plaintiff and class counsel as a useful fact to defeat class certification under the adequacy prong. Credit a plaintiff for "creative" -- although ultimately unsuccessful -- use of this situation in a proposed class action. See Hoffman v. DSE Healthcare Solutions, LLC, No. 2:13-cv-07582-JLL-JAD (D.N.J. 3/21/14)(unpublished).

Plaintiff Harold M. Hoffman filed a consumer fraud class action complaint in state court under New Jersey's consumer fraud act. Plaintiff’s Complaint alleged that defendant made “false and misrepresented claims of product efficacy” about a dietary supplement known as Lipo-Flavonoid Plus.  Defendant removed the lawsuit to federal court pursuant to the diversity jurisdiction conferred by the Class Action Fairness Act ("CAFA"), codified at 28 U.S.C. § 1332(d). According to defendant, the court had original jurisdiction over this action because (1) the suit is a “class action” as defined in 28 U.S.C. § 1332(d)(1)(B); (2) there is "minimal diversity"; and (3) the "aggregate value of the amount in controversy based on Plaintiff's allegations exceeds $5 million."

Plaintiff' filed a motion to remand the case to the Superior Court of New Jersey.Specifically, plaintiff argued that class certification is impossible in federal court because his dual role as class representative and class counsel, which, he said, is per se impermissible in the Third Circuit. Without class certification, plaintiff asserted, defendant cannot establish that the amount in controversy exceeds $5 million, as required by CAFA. Defendant responded that plaintiff cannot unilaterally divest the court of  jurisdiction simply because he represents himself. 

When a class action complaint expressly disclaims the ability to recover the $5 million jurisdictional amount, the Third Circuit instructs that the burden is on defendant to prove "to a legal certainty that plaintiff can recover" that amount. See Frederico v. Home Depot, 507 F.3d 188, 197 (3d Cir. 2007). The concept of legal certainty is not well defined, but falls somewhere below "absolute certainty" and above "preponderance of the evidence." See Nelson v. Keefer, 451 F.2d 289, 293 n.6 (3d Cir. 1971)). A court examines both the dollar figure offered by the plaintiff and plaintiff's actual legal claims to determine whether the amount in controversy exceeds the statutory threshold.

The court's analysis here turned on a reading of Knowles, where the Supreme Court interpreted CAFA to hold that a named plaintiff cannot unilaterally circumvent CAFA by his own non-binding actions. Specifically, the Supreme Court rejected a plaintiff’s attempt to evade the scope of CAFA jurisdiction by stipulating that the class he sought to represent would not seek damages that exceed the $5 million jurisdictional threshold.  Here, the court agreed with defendant that just as a class representative could not bind a class with a stipulation to limit the class’ damages in order to avoid federal jurisdiction, a class representative, such as Hoffman, cannot bind the class by unilaterally deciding to select himself as counsel.

The primary issue was whether defendant could show “to a legal certainty” that the individual claims of all proposed class members aggregated to more than $5 million. If defendant satisfied this burden, remand would be inappropriate.  And the court found that defendant had made the requisite showing. Estimating the actual aggregate losses of the individuals in the proposed class was a relatively straightforward process, said the court, where plaintiff brings suit requesting treble damages under the CFA.

Motion denied.

 

Rare Class Decision Describing Adequacy Prong

The adequacy prong of Rule 23 as applied to named representatives probably does not garner as much attention in litigation as the other prerequisites.  A federal court decision reminds readers that there are proposed class actions where the adequacy prong can be vital.  See In re Kosmos Energy Ltd. Sec. Litig., No. 3:12-CV-3733-B (N.D. Tex. , 3/19/14).

The issue before the court was whether to grant Lead Plaintiff’s motion to certify a class of investors who purchased or otherwise acquired common stock from Defendant Kosmos Energy Ltd. (“Kosmos”), through its May, 2011 initial public offering (“IPO”), and were allegedly damaged thereby. The court concluded that Lead Plaintiff fell short of the dictates of Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011), and Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), as well as the Fifth Circuit’s standard for class certification in securities cases set out in Berger v. Compaq Computer Corp., 257 F.3d 475, 483 (5th Cir. 2001). Instead, and to its apparent detriment, plaintiff relied on pre-Comcast case authority. The prevailing current view  is that a plaintiff seeking class certification must affirmatively demonstrate his compliance with Rule 23(a) by showing that there are in fact sufficiently numerous parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation.

At the heart of defendants’ opposition to the pension plan’s request to be appointed as class
representative was their assertion that there was a fatal absence of evidentiary support for the Plan’s request. Defendants argued that a purported class representative must demonstrate that it possesses a sufficient level of knowledge and understanding to be able to control the litigation, that a potential representative must also establish that it—not the lawyers—is directing the litigation, and that it is not only sufficiently informed about the case to properly manage the effort, but that it must also be willing and able to take an active role and protect the interests of absentee class members. 

Defendants asserted that Lead Plaintiff fell far short of satisfying this stringent standard for  adequacy. They pointed out that the Plan offered little, if any, evidence to prove its adequacy to as
class representative. For their part, defendants submitted the deposition transcript of the Plan’s Board Chair Ms. Saville, which was taken in conjunction with the certification proceedings. Saville’s
deposition, Defendants claimed, established that the Plan had virtually no knowledge about the case, and in fact, did not understand their own allegations or the core themes permeating the complaint. Defendants pointed to portions of Saville’s deposition which they asserted showed that she had never seen, much less read, the Registration Statement, nor could she identify a single misstatement in it, was unable to recognize the names of certain defendants, and was either confused or did not know whether the Kosmos stock price dropped, or if it did, what might have caused the drop, after the Plan purchased the stock.

Adequacy is a constitutional prerequisite to class certification. In fact, it has been said that, due process issues are the single most important feature of class litigation, and adequacy looms
over the entire class debate.  There was no dominant, discernable standard of proof for the requirement. Some courts presumptively favored finding class representatives adequate, requiring little or no evidence to support the determination. Others employed a more robust review of the issue, incorporating the due process considerations inherent in the concept, making certain that the representative possessed the character traits necessary to guarantee his commitment to his fiduciary duties to the class.  The court concluded that the Supreme Court’s recent decisions in Wal-Mart and Comcast, leave no doubt that plaintiffs can no longer rely upon the lax adequacy standards employed at times in the past. Instead, plaintiffs seeking certification must produce actual, credible evidence that the proposed class representatives are informed, able individuals, themselves—not the lawyers––actually directing the litigation.

Applying this rigorous adequacy review—in practice—can involve consideration of a number
of factors, said the court. For example, courts often consider the proposed representative’s personal attributes, including evidence of the representative’s character, honesty, and conscientiousness.  The representative’s familiarity with the case is also important. Certification may be denied where the representative lacks knowledge or a basic understanding of what the suit is about. Likewise, evidence of the representative’s willingness or ability to participate in the litigation is relevant. When it appears that the potential representatives are simply lending their names to a suit controlled entirely by the class attorney, or where the representative is too closely affiliated with class counsel, courts may find them to be inadequate. Failing to appear at the class certification hearing has also been considered a negative factor in the adequacy assessment.  

In terms of evidence, deposition testimony of the proposed representative—where the party opposing certification was able to  question the individual in person—may trump a written, sworn statement by that representative. Here, the only evidence submitted by the Pension Plan in support of its claims of adequacy was the Declaration of its Board Chair, Suzanne Saville. The Declaration, however, contained little more than formulaic, boiler-plate assertions over two pages of substantive text. The court determined that the deposition taken carried more weight. Lead Plaintiff’s defense of the Saville deposition, in turn, fell short.  And without facts to support its position, the Plan failed the rigorous test posed by Berger, Wal-Mart and Comcast.

Moreover, when focusing on the factors listed above that courts have examined in assessing adequacy, (e.g. close affiliation with and dependence upon class counsel, knowledge of the basic facts of the case and defendants involved, desire to vigorously prosecute the case, among others), the court noted that here the plaintiff and counsel maintained the type of close affiliation that calls into question whether the Plan or its counsel was the one actually pursuing the case.  The court referred to the type of free securities monitoring service that counsel provided the Plan, which has been criticized by other courts as fostering tendencies toward lawyer-driven litigation.

Moreover, Saville did not attend the class certification hearing and sought permission to be excused from attending court-ordered mediation in person. These facts indicated that the Plan lacked the incentive needed to fulfill its fiduciary duties and vigorously prosecute the claims filed on behalf of “likely thousands” of potential class members who would not have the opportunity to represent themselves in court.

All in all, one of the more comprehensive recent discussions of the adequacy prong.

Certification Rejected in Dietary Supplement Claim

The important issues of ascertainability and choice of law led a federal court to deny class certification in litigation relating to the dietary supplement VPX Meltdown Fat Incinerator.  See Karhu v. Vital Pharm., Inc., No. 13-60768 (S.D. Fla., 3/3/14).

Plaintiff filed a class complaint against Vital Pharmaceuticals Inc.  to recover damages based upon VPX's alleged false advertisements, and to enjoin any further alleged misrepresentations. He sought to bring the suit on behalf of all persons in the United States who have purchased Meltdown for purposes other than resale since April 4, 2008. The claims included:  (1) breach of express warranty under the Magnuson-Moss Warranty Act ("MMWA"), 15 U.S.C. § 2301, et seq.; (2) breach of
express warranty; (3) unjust enrichment; and (4) violation of the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA"), Fla. Stat. § 501.201, et seq.

The court concluded that the case would be unmanageable as a class action. First, the court saw no practical method of verifying membership in the proposed Class of Meltdown purchasers. No central record of Meltdown customers existed, and it was unlikely that each Meltdown purchaser since 2008 has retained a proof of purchase. Second, the claims of the Nationwide Class would implicate the laws of multiple states. The varied requirements of the states' laws would require different proof on each claim depending on the locations of the class members. These legal permutations would render an eventual trial unwieldy, and would overshadow the common factual questions that otherwise allegedly united the class members' claims.

Regarding ascertainability, a plaintiff seeking class certification must first craft a class definition clear enough to allow the court to understand whether a particular individual is a member of the class, and that membership is ascertainable. A class is ascertainable only if the court can determine whether a given person is a class member through administratively feasible methods. See In re Checking Account Overdraft Litig., 286 F.R.D. 645, 650–51 & n.7 (S.D. Fla. 2012). Here, plaintiff failed to propose a realistic method of identifying the individuals who purchased Meltdown. The courts have come to recognize that purchasers are less likely to retain receipts or other records of minor purchases, and thus cannot rely on those proofs to ascertain the identities of class members. See Red v. Kraft Foods, Inc., 2012 U.S. Dist. LEXIS 186948, at *14–19 (C.D. Cal. Apr. 12, 2012).

Nor could the court trust individuals to identify themselves as class members through the submission of affidavits. Accepting affidavits of Meltdown purchases without verification would deprive VPX of its due process rights to challenge the claims of each putative class member.  On the other hand, having VPX contest each affidavit would require a series of mini-trials and defeat the purpose of class-action treatment. Using affidavits to determine class membership would also invite fraudulent submissions and could dilute the recovery of genuine class members, said the court.

Regarding predominance, the court noted that the MMWA does not define a stand-alone federal cause of action for breach of express written warranty, but instead borrows state law causes of action for breach of both written and implied warranties. Under choice of law analysis, the law governing each class member's warranty claim is the law of the state where he or she purchased the Meltdown. The court noted that state law varied on issues such as privity and reliance. In short, varied state laws would govern the MMWA claims of class members across the country, imposing different legal requirements and overshadowing the allegedly common factual bases of the claims. Moreover, some of these laws would require individualized proof inappropriate for class treatment. In light of the differences among applicable laws and the potential need for individualized proof, the court found that individualized legal and factual issues predominate over the common aspects of the proposed class MMWA claims, rendering class certification inappropriate under Rule 23(b)(3).

Class certification denied.

Class Certification Denied in Baby Seat Case

A California federal court declined to certify a class of consumers accusing a manufacturer of designing a baby seat that is allegedly prone to having unhealthy mold. See Butler v. Mattel Inc. et al., No. 2:13-cv-00306 (C.D. Calif.).

Plaintiffs move to certify a nationwide class of individuals who “acquired” a Fisher-Price Rock ‘N Play Sleeper (Sleeper) prior to January 8, 2013.  The court's analysis focused on predominance. The predominance inquiry under Rule 23(b) tests whether proposed classes are
sufficiently cohesive to warrant adjudication by representation. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997) (citation omitted). The thrust of plaintiffs’ case was that the Sleeper is defective because it has a “dangerous propensity” to grow mold. From that proposition, plaintiffs raised several claims for product defects and misrepresentations about the quality of the Sleeper.

The court concluded that plaintiffs’ bid to have the case handled on a class basis failed because they could not establish that any actual defect was common to the entire class. There was ample evidence in the record that the vast majority of the proposed class did not experience mold growth on the Sleeper to a degree that they saw fit to complain to defendant or to the Consumer Product Safety Commission.

The Sleeper was only alleged to have a “propensity” for mold growth – which the court saw as an issue separate and apart from the issue of an actual reaction by the consumer to whatever mold may be present. There was no evidence that every Sleeper developed notable levels of mold and ample evidence that most of them did not. Based on the record before the court, it appeared that the vast majority of the proposed class, for whatever reason, was in no way affected by the alleged increased propensity of the Sleeper to grow mold.  It was not clear whether any child suffered a reaction or injury. There was merely a limited “recall” by which defendants provided additional care instructions for cleaning any mold that may occur.

This meant that many of the proposed class members likely do not have standing to raise the class claims, and whether or not a particular class member has standing was an individual issue that was not amenable to class treatment. Only class members who actually experienced mold or who could show that their particular circumstances made it likely that they would actually experience a mold issue would likely have standing, said the court.

The dispositive issue of standing thus was not common to all class members and must be
addressed on an individual basis. The overarching importance of this question predominated over any common questions that may exist as it was impossible to award class wide relief without consideration of standing.

Class certification denied.

Federal Court Rejects Copycat Class Action

 A California federal court declined to certify a putative class of consumers in a suit accusing defendant of marketing defective dryers. See  Martin Murray v. Sears Roebuck and Co. et al., No. 4:09-cv-05744 (N.D. Cal.).

In 2009, Murray filed a putative class action on behalf of all California consumers who purchased the same Kenmore-brand dryer that he allegedly did. In his complaint, he alleged that Sears and Electrolux, the dryer’s manufacturer, had marketed the dryer to consumers by promoting its “stainless steel” drum without disclosing that the drum’s front -- the portion of the drum that allegedly rusted -- was actually made of a mild steel, which is allegedly more susceptible to corrosion and chipping. Based on this alleged omission, Murray asserted claims against defendants for unjust enrichment, breach of contract, and violations of California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL). Defendants removed the action to federal court under the Class Action Fairness Act.

The original complaint was a "copycat" of allegations in a class action in the 7th Circuit, the infamous Thorogood matter. After amendment, the court concluded that the new allegations were sufficiently different from those in Thorogood, such that plaintiff was not collaterally estopped from
asserting his claims on a class-wide basis.

Plaintiffs sought certification under Rule 23 subsections (b)(2) and (b)(3). Rule 23(b)(2) applies where the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole.  Rule 23(b)(3) permits certification where common questions of
law and fact predominate over any questions affecting only individual members, and class resolution is superior to other available methods for the fair and efficient adjudication of the
controversy. In deciding the class issue, the court must conduct a rigorous analysis, which may require it to probe behind the pleadings before coming to rest on the certification question. Wal-Mart
Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011).  Frequently that rigorous analysis will entail some overlap with the merits of the plaintiff’s underlying claim. "That cannot be helped.” Dukes, 131 S. Ct. at  2551.

The court's analysis focused on the commonality and typicality requirements of Rule 23(a). The court concluded that Murray failed to present any evidence that defendants represented on a class-wide basis that the dryer’s drum front was made of stainless steel (rather than mild steel) and that this feature would prevent its user’s clothes from developing rust stains or tears. None of the sales managers testified that Sears marketed the drums as preventing rust stains or tearing. One
product manager testified that she believed the stainless steel was marketed as an aesthetic feature. A third Sears employee simply referred Murray to Sears’s marketing team when asked about the company’s advertising practices. None of this testimony supported Murray’s claim that California consumers, as a class, were likely to be confused by Sears’s marketing claims.

While some of Sears’s promotional materials stated that the Kenmore-brand dryers feature an “exclusive, all stainless-steel drum that provides lasting durability,” this, said the court, hardly qualified as a material misrepresentation.  And Murray’s account of his personal experience at a single Sears store did not suggest that Sears made any representation about the Kenmore-brand dryers on a class-wide basis. Nor did it suggest that Sears ever made such a representation about the Frigidaire-brand dryers nor that Electrolux ever made similar  representations about either brand of dryers. If anything, his individual isolated (and uncorroborated) incident of allegedly deceptive marketing suggests that Murray’s claims, were highly “idiosyncratic” and, thus, not amenable to class-wide proof.  In addition, Murray’s failure to identify any other class  member whose clothes were stained by rust only reaffirmed that his claimed injury here was unique. He also had not offered any evidence to suggest that other California consumers’ clothes were ever damaged by Kenmore or Frigidaire dryers. 

Accordingly, because he had not identified any common questions of fact or law that pertain to every class member, Murray failed to meet the commonality prerequisite.

Rule 23(a)(3) requires that the claims or defenses of the representative parties be typical of the claims or defenses of the class. Murray failed to satisfy the typicality requirement here for the same reasons he failed to satisfy the commonality requirement: specifically, he had not presented evidence of any class-wide misrepresentations or class-wide injury. As explained above, the only evidence here that defendants ever specifically represented that their dryers’ stainless steel drums protect clothes from rust stains came from Murray’s own isolated experience at one Sears store. Murray did not present any evidence to suggest that either defendant ever made the same
representations to other California consumers. Nor did he present any evidence to suggest that other California consumers suffered the same problems,

Also, he testified that the loose drum was most likely what caused his clothes to become exposed to the rust in the first place because the rust had only developed on the exterior portion of the drum front -- a part of the dryer that would not normally come into contact with any clothes. This admission -- that other problems with Murray’s dryer may have contributed to the rust stains he experienced -- left the named plaintiff vulnerable to fact-based defenses that could not be raised against other class members.  Similarly, because Murray purchased his dryer in September 2001, and did not file until November 2009, the potential statute of limitations issue made his claim not typical (as well as affecting adequacy). 

Ascertainability Issues Doom Class

The federal court in Maryland recently rejected a proposed class action under the Telephone Consumer Protection Act, raising the important issue of ascertainability. See Brey Corp. v. LQ Mgmt. LLC, (D. Md., 1/30/14).

The implicit requirement of ascertainability is an important but sometimes overlooked prerequisite to class certification. A plaintiff must offer a definition of a class that is precise, objective and presently ascertainable. A threshold requirement to a Rule 23 action is the actual existence of a class which is sufficiently definite and identifiable.The courts have observed that the ascertainability requirement serves several important objectives. First, it eliminates serious administrative burdens that are incongruous with the efficiencies expected in a class action by insisting on the easy identification of class members. Second, it protects absent class members by facilitating the best notice practicable under Rule 23(c)(2) in a Rule 23(b)(3) action. Third, it protects defendants by ensuring that those persons who will be bound by the final judgment are clearly identifiable. If a class cannot be ascertained in an economical and administratively feasible manner, any significant benefits of a class action are lost.

Here, the court focused on the notice rationale.  The general proposition is of course that a class should be certified before class notices are sent. See generally Carrera v. Bayer Corp., 727 F.3d 300 (3rd Cir. 2013). But here, it was already clear that the court could not figure out who to send notice to.  First, the members of the putative class complaining about the junk faxes would have standing to assert a claim against defendant only if they received an unsolicited fax. There were no objective criteria that establish that a putative class member in fact obtained an unsolicited fax. A putative class member would be able to establish his, her, or its standing only by submitting an affidavit that he, she, or it had received the unsolicited fax. A sort of self defining, impossible to verify, class. In order for a plaintiff to recover, he or she must prove to the satisfaction of the fact-finder, after being cross-examined, that she, he, or it is entitled to the relief sought. And that would clearly involve, here, multiple individual issues and mini-trials.   

Second, said the court, the unsolicited faxes in question were sent some 6 or 7 years ago. Therefore, the dim recollection of a putative class member that he, she, or it had received a particular unsolicited fax would be involved, and obviously somewhat suspect.

Finally, the court observed that the provenance of this litigation was "somewhat suspect." Plaintiff’s counsel entered into a retainer agreement with plaintiff not because plaintiff was aggrieved by an unsolicited fax that it received. Instead, the retainer agreement provided that plaintiff was to send to plaintiff’s counsel any unsolicited fax it received so that plaintiff’s counsel could determine whether a violation of the Telephone Consumer Protection Act had occurred.

Class certification denied.  

 

 

 

 

 

 

Class Certification Denied in Dog Treat Case

 A federal court recently denied certification to a proposed nationwide class in a suit alleging defective dog treats. See Holt, et al. v. Globalinx Pet LLC, et al. (C.D. Cal., 1/30/14).  Differences in applicable state laws was a central factor.

The named class plaintiff, a resident of Texas, sued Globalinx Pet alleging her dog was injured by ingesting dog treats containing chicken jerky produced in China. Specifically, plaintiff began feeding the chicken jerky dog treats to her dog, Tucker, one to three times a week  in 2011-12. Tucker was a small mixed breed dog and about 8 years old at the time. (Although there is plenty of data about the number and distribution of purebred dogs in North America, such robust data is not really available for mixed breed dogs. The estimates are that "mutts" make up 53% of the dogs in the United States.)  Tucker fell ill, and after blood tests was reported to be in “acute kidney failure,” which resulted in Tucker being put down.

Plaintiff alleged that the dog treats’ packaging claimed that the food was “made from ‘100% Natural
Ingredients’ [salt, vegetable glycerin, and chicken] that were ‘delicious’ and had a ‘taste dogs
love.’ . . . [and were] ‘wholesome and nutritious.’”  Plaintiff concluded that these statements represented that the jerky dog treats were “safe” and “enjoyable” for dogs to eat.  However, plaintiff alleged that in past years, the FDA has warned about dog treats containing chicken jerky from China. Furthermore, news reports from around the world had allegedly discussed the alleged dangers of Chinese chicken jerky dog food products. Defendants’ pet food packaging did not warn consumers about the information from the FDA, claimed the plaintiff. 

Plaintiff filed her amended complaint  alleging eight causes of action for (1) Violation of implied warranties; (2) Violation of express warranties; (3) Common law fraud; (4) Unjust Enrichment; (5) Negligence; (6) Strict products liability (defect); (7) Strict products liability (failure to warn); and (8) Violation of the state Deceptive Trade Practices—Consumer Protection Act.  And then a series of proposed classes defined similarly as all persons in the United States (except Louisiana and Puerto Rico) who purchased any dog treat product containing chicken jerky manufactured or sold by defendants and containing chicken imported from China.

The court noted that a party seeking class certification must affirmatively demonstrate compliance
with Rule 23—that is, the party must be prepared to prove that there are in fact sufficiently
numerous parties and common questions of law or fact. Wal-Mart Stores, Inc. v. Dukes, 131 S.
Ct. 2541, 2550 (2011). This requires a district court to conduct a “rigorous analysis” that frequently “will entail some overlap with the merits of the plaintiff’s underlying claim.” Id.

In order for a class action to be certified under Rule 23(b)(3), the class representatives must show “the questions of law or fact common to the members of the class predominate over any questions affecting only individual members and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.”  The predominance inquiry tests whether proposed class actions are sufficiently cohesive to warrant adjudication by representation, and when the causes of action in a complaint are based on state statute or common law, material differences in state law across the jurisdictions covered by the class may compound the disparities among class members from different states and reveal that a proposed class fails to satisfy the predominance requirement.  See Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1189, amended by 273 F.3d 1266 (9th Cir. 2001). The Ninth Circuit has held that a nationwide class should not be certified if materially different consumer protection laws would require different state laws to govern different class plaintiffs, based on a conflict of law analysis using the facts and circumstances of each specific case. See Mazza v. Am. Honda Motor Co., Inc., 666 F.3d 581, 590, 594 (9th Cir. 2012).

Here, while the plaintiff maintained that the laws of California should apply to the proposed nationwide classes, defendants cataloged a series of material differences between the consumer protection laws of several states and those of California.  By the time of certification, the court had already performed a case-specific conflict of law analysis and determined that Texas law would govern four of the named plaintiff’s causes of action. In addition, defendants outlined a number of ways in which California’s consumer protection laws differed from those of other states, based on plaintiff’s claims in this particular case. For example, at least three states have passed comprehensive product liability statutes that preempt common law causes of action based on
harms caused by a product, which would certainly materially affect the warranty and strict product liability claims of potential class plaintiffs in those states.

Because of the material differences between the laws of California and the laws of other states, and the holding that the named plaintiff herself would be subject to different laws than a California plaintiff, the court concluded that the alleged common questions did not predominate over questions affecting individual class members. Nor could the court consider the plaintiff’s proposed nationwide classes a superior method for the fair and efficient adjudication of the present controversy. See Zinser, 253 F.3d at 1192 (“We have previously held that when
the complexities of class action treatment outweigh the benefits of considering common issues
in one trial, class action treatment is not the superior method of adjudication.”) 

Class certification denied.

 

Ice Cream Class Action Melts

Happy New Year to all our readers. Let's start 2014 with a delicious class action decision, a Late night snack for our readers.

A California court recently rejected a proposed statewide class in a suit accusing Ben & Jerry's Homemade Inc. of falsely advertising ice cream products as “all-natural.”  See Astiana v. Ben & Jerry’s Homemade Inc., No. 4:10-cv-04387 (N.D. Cal., 1/7/14).  Yes, we are starting off the year right where we left off, another all natural complaint.

Readers probably know that with a $5 correspondence course from Penn State in making ice cream, two regular guys named Ben and Jerry opened their first ice cream scoop shop in Burlington, Vermont, in 1978. 

Here, plaintiffs claimed that both the packaging and the advertising for the Ben & Jerry's ice cream products were deceptive and misleading to the extent that the cocoa in some of them was allegedly alkalized with a "synthetic" agent. Plaintiff filed the complaint in this action in 2010, alleging six causes of action – "unlawful business practices" in violation of Business & Professions Code § 17200; "unfair business practices" in violation of § 17200; "fraudulent business practices" in violation of § 17200; false advertising, in violation of Business & Professions Code § 17500; restitution based on quasi-contract/unjust enrichment; and common law fraud.  Everything but the ...pretty typical in these kinds of label attacks.

The parties originally reached a tentative settlement, which fell apart because of cy pres problems and S'mores issues regarding settlement distribution procedures.

Eventually, plaintiffs moved for class certification. Before certifying a class, the trial court must conduct a rigorous analysis to determine whether the party seeking certification has met the prerequisites of Federal Rule of Civil Procedure 23. Mazza v. American Honda Motor Co., Inc., 666 F.3d 581, 588 (9th Cir. 2012). The party seeking class certification must affirmatively demonstrate that the class meets the requirements of Rule 23. See Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541, 2551 (2011); see also Gen'l Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 156 (1982).  As a threshold matter, and apart from the explicit requirements of Rule 23, the party seeking class certification must also demonstrate that an identifiable and ascertainable class exists. Mazur v. eBay Inc., 257 F.R.D. 563, 567 (N.D. Cal. 2009).

The court here found that the motion must be denied, for two primary reasons – plaintiff had not established that the class was ascertainable, and she had not established that common issues predominated over individual issues.

While there is no explicit requirement concerning the class definition in Rule 23, courts have held that the class must be adequately defined and clearly ascertainable before a class action may proceed. See Xavier v. Philip Morris USA Inc., 787 F.Supp. 2d 1075, 1089 (N.D. Cal. 2011); Schwartz v. Upper Deck Co., 183 F.R.D. 672, 679-80 (S.D. Cal. 1999). A class definition need not be Berry, berry extraordinary, but should be precise, objective and presently ascertainable. See Rodriguez v. Gates, 2002 WL 1162675 at *8 (C.D. Cal. May 30, 2002). That is, the class definition must be sufficiently definite so that it is administratively feasible to determine whether a particular person is a class member. See Xavier, 787 F.Supp. 2d at 1089.

Defendant contended that because cocoa can be alkalized using one of several alkalis – some of which are "natural" and some of which are allegedly "non-natural" (i.e., "synthetic") – it would be necessary to determine which class members bought an ice cream containing alkalized cocoa processed with a synthetic ingredient.  However, there was no way to identify which class members bought which type of ice cream, particularly given that Ben & Jerry's is a wholesale manufacturer that does not maintain records identifying the ultimate customers or their purchases. What a cluster it would be.

The district court agreed with the defendant that the class was not sufficiently ascertainable. The class was defined as persons who bought Ben & Jerry's labeled "all natural" which contained alkalized cocoa processed with a synthetic ingredient. However, plaintiffs provided no evidence as to which ice cream contained the allegedly "synthetic ingredient" (assuming that alkali can even be considered an "ingredient"). More importantly, plaintiffs had not shown that a means exists for identifying the alkali in every class member's ice cream purchases. The packaging labels said only "processed with alkali," because that is all the FDA required.

A second basis for rejecting the class was the predominance requirement. This inquiry requires the weighing of the common questions in the case against the individualized questions, and the predominance analysis under Rule 23(b)(3) can be more stringent than the commonality requirement of Rule 23(a)(2).  Rule 23(b)(3) focuses on the relationship between the common and individual issues. The inquiry is rigorous as it tests whether proposed class is sufficiently cohesive to warrant adjudication by representation. See AmChem Prods., 521 U.S. at 623-24. 

Defendant asserted that reliance, materiality, and causation were all inherently individual; for example, its experts established that consumer choice is affected by many different factors, and plaintiff had no evidence to show that "all natural" has any uniform meaning or that it would have any major impact on a consumer's decision to purchase (or not to purchase) a particular brand of ice cream. Defendant also contended that the likelihood of confusion from the label must be "probable," not just "possible," and that studies showed that at most 3% of consumers who saw "all natural" on the packaging expected that the alkali used to process the cocoa was "natural."

Defendant similarly argued that the only way to test materiality and reliance would be to determine how much each consumer would have de-valued the ice cream products given the alleged presence of the "synthetic" alkalizing agent. However, this also could not be done on a class-wide basis, because consumer choice is affected by myriad factors. 

Most importantly, the damages claim was Half-baked, as the evidence showed that no one paid a premium for the "all natural" Ben & Jerry's ice cream, as Ben & Jerry's charges its wholesale customers the same price regardless of flavor and regardless of the contents of the label. When Ben & Jerry's changed its label and removed the "all natural" label from some ice cream packages, the prices did not decrease (neither the wholesale nor the retail prices);  so there was no support for plaintiff's speculation that "all natural" ice creams command a premium.

The Court agreed. Whichever way one approached it, plaintiff had not met her burden of showing that there was a class-wide method of awarding relief that was consistent with her theory of deceptive and fraudulent business practices, false advertising, or common law fraud (or the alternative theory of restitution based on quasi-contract). Plaintiff had not offered any expert testimony demonstrating that the market price of Ben & Jerry's ice cream with the "all natural" designation was higher than the market price of Ben & Jerry's without the "all natural" designation. More importantly, plaintiff had not offered sufficient expert testimony demonstrating a gap between the market price of Ben & Jerry's "all natural" ice cream and the price it purportedly should have sold for if it had not been labeled "all natural" – or evidence demonstrating that consumers would be willing to pay a premium for "all natural" ice cream that was made with cocoa alkalized with a "natural" alkali, and did in fact pay such a premium.

Under Comcast, the plaintiff is required to provide evidentiary proof showing a class-wide method of awarding relief that is consistent with plaintiff's theory of liability. See 133 S.Ct. at 1432. Here, however, plaintiff provided no such damages evidence, and the failure to offer a damages model that was capable of measurement across the entire class for purposes of Rule 23(b)(3) barred her effort to obtain certification of the class. 

Federal Court Rejects Consumer Class Action

 A California court recently rejected the class certification motion by a Chipotle Mexican Grill Inc. customer alleging the chain falsely advertised its meat as humanely raised and free of antibiotics and hormones. See Alan Hernandez v. Chipotle Mexican Grill Inc. et al., No. 2:12-cv-05543 (C.D. Cal. 2013). While the case was initially broader, plaintiff’s allegations came to center on the
representations allegedly made in Chipotle’s in-store menu signboards and Chipotle’s paper menus.

The court concluded that the proposed class action failed to satisfy the requirements of Rule 23(b)(3). Class certification under Rule 23(b)(3) is proper, inter alia, only when common questions present a significant portion of the case and can be resolved for all members of the class in a single adjudication. The predominance inquiry under Rule 23(b) tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation. See Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997).  Rule 23(b)(3) also requires the court to find that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.

Here, the court found that common questions did not predominate over individual issues, and the class action device was not a fair and efficient way to provide a fair opportunity for class members to obtain relief, or for Chipotle to defend itself against claims. Many key issues could only be handled individually. Most fundamentally, the questions of when a class member ate at Chipotle,
the exact location where he or she ate, and which meat (if any) he or she ate are all not subject to class treatment.  Here, the dispute concerned a very low price transaction that neither the class members nor Chipotle maintained any specific record of, or could be expected to recall. 

More importantly, the alleged misconduct took place only with regard to certain products at varying locations within limited time frames. That was critical, because certain stores were allegedly serving certain conventional meats only at certain times because of shortages. Therefore, a class member would need to know with some certainty – and Chipotle should be allowed some mechanism for confirming or contesting that certainty – the date, location, and particular meat purchased. That kind of certainty in a class action that  encompasses purchases more than five years ago and, said the court, was not practical. Credit card records could provide some evidence of class members’ purchases, but credit card records would not provide the critical detail of which meat was purchased in any given transaction. 

Further, the important question of whether a class member saw a point-of-purchase sign when a particular purchase was made cannot be handled on a class-wide basis. For each purchase when naturally raised meat was allegedly not being served, the court observed there were at least four possibilities: (1) the sign was there and the class member saw it, (2) the sign was there and the class member did not see it due to Chipotle’s conduct, (3) the sign was there and the class member did not see it due to the class member’s negligence, and (4) the sign was not there. Many of the individual issues regarding liability were also reasons why the class action mechanism was not fair and efficient in this case.

In a burst of realism, the court was "confident" that very few people in a class would be able to provide the necessary information. People will either (1) lie, (2) attempt to present the facts but be unable to do so accurately, or, most likely, (3) not know.  This would even impact a theoretical future settlement.  Money would be given out basically at random to people who may or may not actually be entitled to restitution. This is unfair both to legitimate class members and to Chipotle.

The decision is the latest instance of an emerging trend in consumer class action cases: a recognition of the often insurmountable task of reliably identifying disparate members of a proposed class where few, if any members, have documentary proof of their purchases.  Here, it is treated as part of the predominance inquiry, and in other cases as part of ascertainability.

 

Court Rejects Settlement Because of Cy Pres Issues

A federal court recently rejected a proposed settlement of an economic loss class action because of the details of its cy pres component.  See In re Hydroxycut Mktg & Sales Practices Litig. (Dremak v. Iovate Health Scis. Grp.),  No. 09-cv-1088 (S.D. Cal. 11/19/13).

The “Settlement Class” was defined as including those persons who purchased various Hydroxycut  Products between May 9, 2006 and May 1, 2009, inclusive.The settlement relief consists of a $10 million Cash Component and a $10 million Product Component. Settlement Class Members who opted to receive cash were to receive $25 for each Hydroxycut Product they purchased.  In lieu of cash, Settlement Class Members could elect to receive a Product Bundle for
each purchase of a Hydroxycut Product. Any amount remaining in the Cash Component after payment of Notice and Claim Administration Expenses, and Eligible Cash Claims would constitute the “Residual Settlement Amount.”  If any funds remained after six years from the Effective Date of the deal, the remainder was to be paid out pursuant to the cy pres doctrine to certain types of organizations (such as ones promoting community-based solutions for common and preventable diseases like cancer, heart disease, diabetes, obesity, and asthma).

The cy pres doctrine allows a court to distribute unclaimed or non-distributable portions of a class action settlement fund to indirectly benefit the entire class. See Six Mexican Workers v. Ariz.Citrus Growers, 904 F.2d 1301, 1305 (9th Cir. 1990). When employing the cy pres doctrine, unclaimed funds should be put to their next best use, e.g., for “the aggregate, indirect, prospective benefit of
the class.” Nachshin v. AOL, LLC, 663 F.3d 1034, 1038 (9th Cir. 2011). The Ninth Circuit has held that cy pres distribution must be “guided by (1) the objectives of the underlying statute(s); and (2) the interests of the silent class members.” Six Mexican Workers, 904 F.2d at 1307. A cy pres distribution is an abuse of discretion if there is “no reasonable certainty” that any class member
would benefit from it. Dennis v. Kellogg Co., 697 F.3d 858, 865 (9th Cir. 2012).  A court should not find that a settlement is fair, adequate, and reasonable unless the cy pres remedy accounts for the nature of the plaintiffs’ lawsuit, the objectives of the underlying statutes, and the interests of the absent class members.

Generally, a district court can approve a class action settlement if the court finds that the settlement is “fair, reasonable, and adequate.” Fed. R. Civ. P. 23(e). When the settlement is reached before formal class certification, settlement requires a higher standard of fairness and a more probing inquiry than may normally be required under Rule 23(e).

Here, the court concluded that the cy pres remedy did not satisfy the standards for cy pres relief set forth by the Ninth Circuit. and denied the motion for final approval of the settlement.  The court found that the proposed cy pres distribution in this proposed settlement did not benefit the class. At the hearing, defendant's counsel explained that under a separate master settlement agreement governing the personal injury cases in the multi-district litigation, personal injury claimants are to be paid out of a $14 million settlement fund. And cy pres distributions for personal injury claimants in this action reduce the amount that Iovate must pay into the personal injury fund, yet, said the court, providing no additional benefit to the personal injury claimants and no benefit at all to the class members who suffered no personal injury.

The court rejected the argument that causing a benefit in the form of "facilitating settlement" in this action or the separate personal injury actions is the type of “indirect benefit” that cy pres remedies are meant to provide. The focus, said the court, should be on whether the funds themselves are being used for the benefit of the class.

The cy pres remedy was also problematic, said the court, because it allowed for a disproportionate distribution of settlement funds to personal injury claimants. In doing so, the cy pres remedy fails to take into account the interests of the majority of absent class members who did not suffer any personal injury, and the nature of this action, which mostly concerned alleged unfair competition, consumer protection, and product warranty claims, not personal injury liability.

Because of the expenses and claims, it appeared that more than half the settlement might be used for cy pres distribution to the personal injury claimants. The court expressed concern that so little of the sizeable settlement fund directly benefitted the class. Under the terms of the settlement, most of the fund could be channeled into cy pres distribution.  The American Law Institute’s Principles of the Law of Aggregate Litigation provide that where a settlement involves individual distributions to class members and there are funds remaining after the distributions, the settlement should
presumptively provide first 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. See ALI Principles § 3.07(b) (2010).

Thus, the court found that the cy pres distribution was not guided by the interests of the class
members.  It appeared to the court that the cy pres relief was being used as a vehicle to help settle the personal injury cases, not to provide an indirect prospective benefit to the entire class.  The court also contrasted that class counsel was seeking $5 million in fees based in part on a percentage of the total fund.


 

Class Action Rejected Per Primary Jurisdiction Defense

A California federal court recently rejected a putative class action alleging meal replacement bars sold in General Nutrition Centers Inc. stores somehow defrauded customers into thinking they were healthy because they were labeled with the term “zero impact.”  See Gabe Watkins v. Vital Pharmaceuticals, et al., No. 2:12-cv-09374 (C.D. Cal. 2013).  Readers may be interested in the discussion of primary jurisdiction.

On September 25, 2012, Plaintiff filed a Class Action Complaint in the Superior Court of California
for Los Angeles County. Plaintiff alleged that Defendants falsely labeled the Bars in violation of the Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200, et seq., and the Consumers Legal Remedies Act ("CLRA"), Cal. Civ. Code § 1750, et seq.  Defendants removed the action to federal court, asserting federal subject matter jurisdiction in reliance on the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2).

Plaintiff asserted that while Vital and GNC marketed and advertised the Bars as 'ZERO IMPACT,' the Bars have an impact on consumers' carbohydrate, sugar and overall caloric intake, and to claim otherwise was "false and misleading."  However, the back of the wrapper features nutritional facts, an ingredient list, and a marketing statement, which notes that the low Dextrose Equivalent sugars contained in the Bars have less impact on blood sugar and glycemic index than most whole grain carbohydrates.  Plaintiff responded that the location and type size of the nutritional information and marketing statement allegedly made it too difficult to see and read.

Defendant moved to dismiss, arguing that the court should defer the question of whether the "ZERO IMPACT" label is misleading, to the Food and Drug Administration under the doctrine of primary jurisdiction.  Primary jurisdiction is a doctrine specifically applicable to claims properly cognizable in court that contain some issue within the special competence of an administrative agency.  Reiter v. Cooper, 507 U.S. 258, 268 (1993). While it is not to intended to secure expert advice for the courts from regulatory agencies every time a court is presented with an issue conceivably within the agency's ambit, it is a doctrine used by the courts to allocate initial decision-making responsibility between agencies and courts where such jurisdictional overlaps and potential for conflicts exist.  Syntek Semiconductor Co., Ltd. v. Microchip Tech. Inc., 307 F.3d 775, 780 (9th Cir. 2002). Typically, there are four factors present in cases where the doctrine properly is invoked: (1) the need to resolve an issue that (2) has been placed within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory scheme that (4) requires expertise or uniformity in administration. See United States v. Gen. Dynamics Corp., 828 F.2d 1356, 1362 (9th Cir. 1987). The doctrine is often most applicable where a claim requires resolution of an issue of first impression or of a particularly complicated issue that Congress has committed to a regulatory agency.

Here, the court concluded that the relevant factors weighed in favor of dismissing plaintiff's claims in deference to the FDA's primary jurisdiction.

Defendants contended that the FDA has primary jurisdiction over how a manufacturer may name
and label its food products and that the resolution of plaintiff's UCL and CLRA claims would clearly invade the FDA's primary jurisdiction. Indeed, Congress has granted the FDA regulatory authority over false and misleading food labeling as part of the Food, Drug, and Cosmetic Act. The primary jurisdiction doctrine was applicable in this case because the FDA has yet to consider the nutritional import of the claim "ZERO IMPACT" or in what context the claim might possibly mislead consumers about a product's nutritional content.

Plaintiff's claims centered on the argument that the nature of the marketing claim "ZERO IMPACT," combined with its location on the wrapper and larger type size, somehow created the impression that the Bars have no dietary impact at all.  But could not direct the court to any FDA rule, regulation, or guidance document discussing how the claim "ZERO IMPACT" or even the word "impact" can or should be used to describe a food product's nutritional content. Nor is there any evidence of the FDA bringing an enforcement action against anyone regarding the "ZERO IMPACT" claim or the nutrient content on its label.  Without any guidance about the context in which the FDA would find the claim "ZERO IMPACT" to be permissible, any determination on whether the term is misleading risked undermining, through private litigation, the FDA's considered judgments.

The FDA has issued some regulations with regard to the word "zero," but these are designed to
make sure that foods with claims like "zero calorie," "zero sodium," and "zero fat" contain the type
and amount of nutrients that a reasonable consumer would expect. See 21 C.F.R. §§ 101.60-101.62. Without more, however, there is no reasoned way for a court to determine whether the FDA regulations associated with labeling items as "zero calorie" and "zero fat" could encompass a claim like "ZERO IMPACT."   Calories, sugar, and fat are specific nutritional elements, but "impact" may refer to the effect those elements have on the human body.

In the absence of any FDA rules or regulations (or even informal policy statements) regarding the
use of the word 'impact' on food labels, the court declined to make any independent determination on whether defendant's use was false or misleading.  The court  concluded it lacked the FDA's expertise in guarding against deception in the context of food labeling.  See Pom Wonderful, 679 F.3d at 1178, and so it deferred this issue to the FDA to consider administrative action regarding the use of the "ZERO IMPACT" claim.

 

Supreme Court Hears Argument in CAFA Case

The U.S. Supreme Court heard argument in a case raising the issue whether a parens patriae group action by a state attorney general -- a class-like litigation without the procedural protections of a class action -- is removable as a mass action under CAFA.  See Mississippi ex rel. Hood v. AU Optronics Corp.,  No. 12-1036 (U.S., oral argument 11/6/13).

The Fifth Circuit, 701 F.3d 796 (5th Cir. 2012), had announced a claim-by-claim analysis to determine the real party in interest for purposes of CAFA jurisdiction in such parens patriae actions; the Fourth, Seventh and Ninth Circuits have taken a different, more “whole case” approach, considering the entire complaint to determine the real party in interest.  See AU Optronics Corp. v. South Carolina, 699 F.3d 385 (4th Cir. 2012); LG Display Co. v. Madigan, 665 F.3d 768 (7th Cir. 2011); Nevada v. Bank of America Corp., 672 F.3d 661 (9th Cir. 2012).

CAFA allows removal of certain mass actions, even if not styled as class actions, but contains an exception that a suit is not a mass action if all of the claims in the action are asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class) pursuant to a state statute specifically authorizing such action; but when specific individual consumers, in addition to the state, are the real parties in interest, there is no way that all of the claims are asserted on behalf of the general public.

Mississippi, of course, argued for "state sovereign prerogatives.”  And Mississippi focused on the statutory language about a mass action seeking a joint trial, and contended that the parens patriae action did not propose a joint trial for 100 or more plaintiffs' claims. On the other hand, defendants noted that the use of the word “persons” in CAFA's mass action provision clearly required the court to engage in a fact specific claim-by-claim analysis, rather than take a whole-claim approach. CAFA could have, but did not focus on “named plaintiffs.”  It was clear that the Mississippi consumers allegedly harmed by defendants' prices were the real parties in interest.  Regarding the federalism concerns, defendants noted that this was only a question of forum, and federal courts can faithfully enforce state law.

The Washington Legal Foundation, in one of multiple amicus filings, argued that CAFA was enacted to enhance the ability of defendants to remove interstate mass actions to federal court.  The Chief Justice raised the most compelling issue, asking “So the answer is, that there is nothing to prevent 50 attorneys general, from saying, every time there is a successful class action as to which somebody in my State purchased one of the items, we are going to file a parens patriae action, the complaint is going to look an awful lot like the class action complaint, and we want our money” -- in state court, out of the reach of CAFA?

 

Federal Court Rejects Fraud Class Action

A federal court stayed a  rejected proposed class action pending the outcome of plaintiffs' petition for interlocutory appeal of the class certification denial.  See Wiedenbeck v. Cinergy Health Inc., No. 12-cv-508-wmc (W.D. Wis., 9/20 class decision; stay 10/15/13).

Readers may be interested in the logic of the denial. Plaintiffs alleged that defendants used false or misleading infomercials to induce the purchase of a medical benefit plan that was deceptively limited, and then acted in bad faith in denying coverage under the plan.  The plaintiffs sought class certification for their fraud claim for a class of for all Wisconsin residents who purchased an insurance policy since Jan. 1, 2007.

Before addressing the specific requirements for class certification, the court discussed various Seventh Circuit precedents, including Thorogood v. Sears, Roebuck & Co., 547 F.3d 742 (7th Cir. 2008), in which the Seventh Circuit reversed the district court‟s order certifying a class because common issues of law or fact did not predominate over issues particular to each putative class member's purchase of the defendant's dryer. Thorogood alleged that the words “stainless steel” imprinted on the dryer were deceptive because the dryer drum was not made entirely of stainless steel.  In rejecting plaintiff‟s motion, the Seventh Circuit concluded that a fraud claim necessarily would turn on each class member's understanding of the meaning of the “stainless steel” label, reasoning that at least some portion of the class -- and, based on the court‟s pointed query, “Does anyone believe this besides Mr. Thorogood?”, perhaps all -- would not share the plaintiff‟s understanding of this point-of-sale advertisement. 

The court concluded that this case was arguably even less suited for class treatment than Thorogood.  Plaintiffs relied on different television commercials with different language; moreover, the record demonstrated that given the dates they aired, some class members could not have seen the alleged uniform representations. Defendants used at least 10 different "call scripts" for telemarketing, and transcripts of calls showed each representative responding to specific, individual questions posed by or information received from the customer, meaning the content of actual consumer calls necessary would vary.  There was evidence some consumers received other, material information about the policy at issue, which may have impacted their individual purchase decisions. For example, it is undisputed that purchasers had ten days to cancel the policy from receipt of a member handbook provided post-purchase.  Thus, there was evidence of no common misrepresentation, and no evidence of a common understanding by class members. 

Readers will note the response to plaintiffs' argument that a fraud claim is subject to common proof because the reasonableness of a consumer's reliance (or whether the reliance is justified) is allegedly judged from an “objective” standard. Even if true, an intentional misrepresentation claim under Wisconsin law still requires a plaintiff to demonstrate that he or she actually relied on the false representation (i.e., was misled), which is separate from any inquiry as to whether the reliance was justified or reasonable. And for this element, plaintiffs provided no basis for proving reliance or causation on a class-wide basis.  The courts have repeatedly rejected attempts to certify a class where a fraud claim turns on an individual's understanding in order to demonstrate causation or reliance.  Accordingly, plaintiffs could not meet the commonality prong of Rule 23. 

Final point worth noting, the court also declined to certify a single issue class. There was no common representation, so there really was no single issue as asserted by plaintiffs.

 

Denial of Class Certification Does Not Deprive Federal Court of CAFA Jurisdiction

Quick CAFA point for our readers.

Another federal court has ruled that the denial of a motion for class certification does not divest a federal district court of jurisdiction when the case has been properly removed under CAFA.  See Edwards v. Zenimax Media Inc., No. 1:12-cv-00411-WYD-KLM (D. Colo. 9/27/13).

Plaintiff brought a proposed class action alleging an animation defect in a video game.  I am not the video game maven that my kids are, but the allegation was that because of the defect a player must restart from square one with an entirely new character rather than being able to continue with open-ended game play. He brought claims under the Colorado Consumer Protection Act, as well as common law claims such as breach of the implied warranty of merchantability. The district court denied the motion for class certification and declined to allow plaintiff a second bite of that apple.  

In assessing further motion practice, the issue arose whether the federal court retained jurisdiction when the basis for the case being in federal court (the class claims) had arguably disappeared. This issue has not been decided by the Tenth Circuit, but the court noted that the Sixth, Seventh, Eighth, Ninth and Eleventh Circuits have held that a federal district court retains jurisdiction over a case removed pursuant to CAFA after class certification denial. See Metz v. Unizan Bank, 649 F.3d 492, 500-501 (6th Cir. 2011); Buetow v. A.L.S., Enters., Inc., 650 F.3d 1178, 1182 n. 2 (8th Cir. 2011); United Steel Workers Int’l Union v. Shell Oil Co., 602 F.3d 1087, 1092 (9th Cir. 2010); Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806 (7th Cir. 2010); Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1268 n. 12 (11th Cir. 2009).


The court predicted the Tenth Circuit would follow other appeals courts that have considered this issue.


 

Second Circuit Explains Home State Exception in CAFA

The Second Circuit recently weighed in on CAFA, and its  home state exception. See Gold v. N.Y. Life Ins. Co., No. 12-2344-cv (2d Cir., 9/18/13).

Not our usual mass tort context, and more up the alley of our colleague Bill Martucci, but plaintiff filed a complaint alleging wage and hour violations against his former employer, New York Life, individually and on behalf of a putative class of agents. The case was litigated for a number of years, and in 2012, New York Life moved to dismiss the complaint based on CAFA’s home state exception. Concluding that the exception applied, the district court dismissed the complaint. Gold appealed, contending that New York Life had waived the home state exception by failing to raise it within a reasonable time. The Second Circuit held that CAFA’s home state exception is not jurisdictional and must be –and in this case was– raised within a reasonable time.

CAFA confers original federal jurisdiction over class actions involving (1) an aggregate amount in controversy of at least $5,000,000; and (2) minimal diversity, i.e., where at least one plaintiff and one defendant are citizens of different states. 28 U.S.C. § 1332(d)(2). CAFA includes several exceptions, including the home state exception which provides that: “[a] district court shall decline to exercise jurisdiction . . . over a class action in which . . . two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.” 28 U.S.C. § 1332(d)(4)(B).

While plaintiff argued this exception was jurisdictional, the court found that the “‘decline to exercise’” language “‘inherently recognizes [that] the district court has subject matter jurisdiction’” but must actively decline to exercise it if the exception’s requirements are met. Reviewing this issue de novo, the Second Circuit agreed with the district court’s conclusion, and aligned itself with the Seventh and Eighth Circuits, in concluding that Congress’s use of the term “decline to exercise” means that the exception is not jurisdictional.

But, said the court, motions to dismiss under CAFA’s home state exception must also be made within a reasonable time.  Here, nearly three years after the complaint was filed, New York Life moved to dismiss based on the home state exception. Under most circumstances, the court said it would have some doubts that a delay of this length would be deemed reasonable. But, the application of the exception was, to a certain extent, complicated by the discovery schedule imposed by the district court here. Gold had apparently requested that individual discovery proceed first, followed by class discovery. The trial court agreed, and as a result, class discovery did not start until 2011. New York Life claimed that it learned only through class discovery that more than two-thirds of the class–New York Life agents employed in New York–were New York citizens, and then moved to dismiss based on the home state exception.

The district court held that because of the agreed upon bifurcated discovery plan, New York Life had not had the opportunity to discover the citizenship of class members until it undertook class discovery in 2011 and that, under these circumstances, New York Life’s delay was excused.  While noting that nearly three years may not always be a reasonable time for an employer to determine where its own sales force lives, the district court was in a better position than the court of appeals was to evaluate when New York Life’s motion could have been made, based on its greater familiarity with the course of the litigation, especially scheduling and discovery matters.  Thus, the court of appeals was not prepared to say that the district court abused its discretion. It did note that there are numerous instances where the home state exception was raised much more promptly than it was in this case, and without full blown class discovery.

Voluntary Dismissal Not A Route To Appellate Review of Class Issue

Getting an appeals court to focus on class decisions- certification, refusal to certify, and decertification - can be crucial to litigants on both sides of proposed class actions. The Third Circuit recently addressed one tactic in this field, finding that putative class members cannot appeal a district court’s class decertification order after having voluntarily dropped their individual claims in the same court.  The court thus dismissed two appeals brought by employees making wage and hour claims against the University of Pittsburgh Medical Center and West Penn Allegheny Health System. See Karen Camesi et al. v. University of Pittsburgh Medical Center et al., No. 12-1446, and Andrew Kuznyetsov et al. v. West Penn Allegheny Health System Inc. et al., No. 12-1903 (3rd Cir. Sept. 4, 2013).

The complaints similarly alleged that proposed class members were not compensated for work performed during meal breaks in violation of the FLSA.  The district court eventually decertifed the collective action. The named plaintiffs did not ask the District Court to certify its interlocutory order for appeal, but, instead, moved under Federal Rule of Civil Procedure 41(a) for “voluntary dismissal of their claims with prejudice in order to secure a final judgment for purposes of appeal.” The district court granted the unopposed motion on January 30, 2012, stating that “Plaintiffs’ remaining claim are hereby dismissed with prejudice in order to allow Plaintiffs to seek appellate review.”

The court of appeals began by considering whether appellants’ voluntary dismissal of their claims with prejudice under Rule 41(a) left them with a final order appealable under 28 U.S.C. § 1291. This question of first impression required the panel to consider the scope of two strands of Third Circuit authority: Sullivan v. Pacific Indemnity Co., 566 F.2d 444 (3d Cir. 1977), in which the court held that a plaintiff may not obtain appellate review after incurring a dismissal for failure to prosecute for the purpose of seeking to appeal an interlocutory class-certification order, and Fassett v. Delta Kappa Epsilon, 807 F.2d 1150 (3d Cir. 1986), in which the court ostensibly permitted plaintiffs to voluntarily dismiss a portion of their case in order to appeal an order of the district court terminating the remainder of their case. In considering the significance of these cases, the court seemed impacted most by the fact that appellants here sought review of only the orders decertifying their collective actions, and did not complain of the “final” orders that dismissed their cases.

Generally, a dismissal with prejudice constitutes an appealable final order under § 1291. See, e.g., In re Merck & Co. Sec., Derivative & ERISA Litig., 493 F.3d 393, 399 (3d Cir. 2007). Furthermore, “[u]nder the ‘merger rule,’ prior interlocutory orders [such as class-certification decisions] merge with the final judgment in a case, and the interlocutory orders (to the extent that they affect the final judgment) may be reviewed on appeal from the final order.” In re Westinghouse Sec. Litig., 90 F.3d 696, 706 (3d Cir. 1996).

But here defendants argued that appellants’ voluntary dismissals of their claims constituted impermissible attempts to manufacture finality, and the Third Circuit agreed.  In Sullivan, the court had noted that a class certification decision, per se, is not an appealable final order under 28 U.S.C. § 1291, but rather is an interlocutory order. Dismissal for failure to prosecute, as an attempt to avoid the court's firm position against interlocutory appeals of class certification determinations, was an impermissible strategy there, because if a litigant could refuse to proceed whenever a trial judge ruled against him, simply wait for the court to enter a dismissal for failure to prosecute, and then obtain review of the judge’s interlocutory decision, the policy against piecemeal litigation and review would be severely weakened. Allowing such a practice would risk inundating appellate dockets with requests for review of interlocutory orders and undermine the ability of trial judges to achieve the orderly and expeditious disposition of cases.

Appellants here had attempted to short-circuit the procedure for appealing an interlocutory district court order that is separate from, and unrelated to, the merits of their case. Appellants could have obtained appellate review of the decertification order by proceeding to final judgment on the merits of their individual claims. Or, appellants could have asked the District Courts to certify their interlocutory orders for appeal. But appellants instead sought to convert an interlocutory order into a final appealable order by obtaining dismissal under Rule 41. If the courts were to allow such a "procedural sleight-of-hand" to bring about finality here, said the court of appeals, there was nothing to prevent litigants from employing such a tactic to obtain review of discovery orders, evidentiary rulings, or any of the myriad decisions a district court makes before it reaches the merits of an action. This would greatly undermine the policy against piecemeal litigation embodied by § 1291, concluded the panel.

Both appeals dismissed for failure of jurisdiction.

Recognition for Class Action Team

As Fall approaches, many of our readers look each week to the college football polls to see if their alma mater or favorite team is ranked. 

Perhaps not with the same frequency, but with similar enthusiasm, we are happy to report that Shook Hardy was recently listed as a  "standout" in Class Action Litigation according to the BTI Litigation Outlook 2014 report by BTI Consulting Group Inc. (Wellesley, Mass.).

In essence, we are ranked in the Top Twenty in one of our favorite areas, class actions, based on interviews with 300 corporate counsel.

Nice to be recognized with some other very fine firms on the list.  But no bowl game looming.

Homeowner Class Decertified Under Statute of Repose

A federal court last week decertified a class of North Carolina homeowners who alleged breach of warranty against the manufacturer of window trim in a short, interesting decision.  See Hart v. Louisiana-Pacific Corp., No. 2:08-cv-00047 (E.D.N.C., 8/30/13).

Trimboard was a product allegedly sold for use on the exterior of homes. Plaintiffs alleged it was defective in design and manufacture because it allegedly would absorb water, warp, and bulge. The court had certified a homeowner class in July, 2011.

Then in July, 2013, the North Carolina Court of Appeals issued an opinion in Christie v. Hartley Const., Inc., 745 S.E.2d 60 (N.C. App. 2013), clarifying the state's statute of repose.  Per the appeals court, the statute bars claims for damages not filed within the repose period, even in the context of an alleged an express warranty that includes a longer term than the repose peiriod.

Defendants moved for decertification, contending that the recent decision of the Court of Appeals meant that the named plaintiffs' claims were barred by the applicable statute of repose under North Carolina law. "Summary judgment is proper if the pleadings or proof show without contradiction that the statute of repose has expired." Bryant v. Don Galloway Homes, Inc., 147 N.C. App. 655, 657 (2001).

It was undisputed that this suit was filed beyond the six-year statute of repose applicable to the claims of the named plaintiffs. Since any action for damages brought outside of the statute of repose is barred, summary judgment was therefore appropriate as to the claims of the named plaintiffs.

That of course raised issues of adequacy of representation, and more importantly, predominance. The task of  determining which absent plaintiffs would be permitted to bring an action for damages would
necessarily require an individualized determination of factors such as "the later of the specific last act or omission of the defendant giving rise to the cause of action or substantial completion of the improvement." N.C. Gen. Stat. § 1-50(a)(5), under the statute. The necessity for such a determination did in fact destroy "typicality, ... predominance, [and] otherwise foreclose class certification." Gunnells v. Healthplan Services, Inc., 348 F.3d 417,427-28 (4th Cir. 2003).

Accordingly, pursuant to Rule 23(c)(1)(3) of the Federal Rules of Civil Procedure and in light of the Court's broad discretion to certify or decertify a class action, Ward v. Dixie Nat. Life Inc. Co., 595 F.3d 164, 179 (4th Cir. 2010), the class certified by the court's July, 2011 order was decertified. 

 

Class of Coffee Purchasers Rejected

Let's continue on our recent focus on some interesting class action decisions. A federal court recently rejected a proposed class of coffee product purchasers.  See McManus v. Sturm Foods Inc., No. 3:11-cv-00565 (S.D. Ill., 8/26/13).

Plaintiffs claimed that defendants violated the consumer protection statutes and unjust enrichment laws of the eight states with regard to their Grove Square Coffee single serving coffee product.  Per the amended complaint, defendants allegedly misrepresented and omitted the true nature of Grove Square Coffee products by indicating the product contained fresh ground coffee and a filter rather than “instant” or “soluble” coffee.

In considering a motion for class certification, the court looked to the implicit, foundational prerequisites. A court must first ensure that the class is sufficiently “defined.” Jamie S. v. Milwaukee Public Schools, 688 F.3d. 481, 493 (7th Cir. 2012) (“a class must be sufficiently definite"). The class should be “ascertainable,” which it is if the court can  determine membership with objective criteria. A class is, on the other hand, overbroad if it sweeps in a great number of members who “for some reason could not have been harmed by the defendant’s allegedly unlawful conduct.” Messner, 669 F.3d 802 at 824; Kohen v. Pacific Inv. Management Co. LLC, 571 F.3d 672, 677 ( 7th Cir. 2009) (“a class should not be certified if it is apparent that it contains a great many persons who have suffered no injury at the hands of the defendant.”); Oshana v. Coca-Cola Co., 472 F.3d 506, 514 (7th Cir. 2006) (denying class certification when “[c]ountless members of Oshana’s putative class could not show any damage, let alone damage proximately caused by the alleged deception.”). A class is overbroad if it sweeps in many members who could not have been harmed at all: This distinction is critical for class certification purposes. If a proposed class consists largely (or entirely, for that matter) of members who are ultimately shown to have suffered no harm, that may not mean that the class was improperly certified but only that the class failed to meet its burden of proof on the merits. If, however, a class is defined so broadly as to include a great number of members who for some reason could not have been harmed by the defendant’s allegedly unlawful conduct, the class is defined too broadly to permit certification.  A class cannot, then, include numerous people who have no claim at all, observed the court.

The court here found that under any of the relevant the state consumer protection laws requiring causation or actual reliance, the plaintiffs’ class definitions were overbroad. The class definition included all individuals who purchased a Grove Square Coffee product. This definition necessarily includes purchasers who knew, or who were indifferent to the product’s alleged insoluble coffee content. For those purchasers, plaintiffs cannot prove causation, reliance, or actual injury from defendants’ alleged misrepresentation. For this reason, plaintiffs’ claims under Alabama, New York, New Jersey, North Carolina, Illinois, and South Carolina were overbroad and improper for class certification.

Turning to the remaining states, the court engaged in a specific analysis of the state law.  For example, to the extent a state requires plaintiffs to prove an actual loss, but would allow a class-wide presumption of actual loss if the defendant’s alleged misrepresentations were material and made to the entire class, the definition still ran into problems,  In California, said the court, an inference of reliance may be established on a class wide basis with a showing of materiality.  Materiality is objective and exists if a reasonable person would attach importance to the misrepresentation’s existence or nonexistence in determining his choice of action in the transaction in question. However, the inference of reliance is only appropriate if all purported class members were exposed to the alleged misleading advertising. Plaintiffs’ proposed class definition here included individuals who were not exposed to
defendants’ alleged misrepresentation; therefore a court could not presume reliance. In 2011, Sturm Foods allegedly changed its label to include the word “instant.” Class members that were exposed to the packaging after this date (nearly 4 million dollars of gross sales; a vast majority of the overall sales during the class period) were not exposed to what plaintiffs claim was defendants’ primary deception. 

Moreover, the record indicates that extensive sales occurred online, and the class as defined by plaintiffs included these online purchasers. Consumers who purchased the product online without ever seeing the packaging or product placement could not have been exposed to the alleged misrepresentation prior to purchase.

Plaintiffs’ amended complaint thus did not contain sufficient evidence of sales such that any presumption of exposure was appropriate. Materiality cannot be presumed and plaintiffs cannot adequately allege actual injury for the California class.

Overall, the class potentially included a great many individuals who bought Grove Square Coffee products because of, or in spite of, knowing that it contained instant coffee;  thus, the class included a great number of individuals who could not prove causation or an ascertainable loss, as required in various states. These individuals suffered no lost value or incurred no out of pocket expenses as a result of the alleged misrepresentation. Since this class definition potentially swept in a great number of individuals that could not show harm resulting from defendant’s conduct, the class definition was fatally overbroad.

Was there any way to cure the deficiency? It must be administratively feasible for the court to determine whether a particular individual is a member of the proposed class. Clay v. American Tobacco Co., 188 F.R.D. 483, 490 (S.D. Ill. 1999). And the administrative burden of using subjective membership criteria obviates the judicial efficiency that is the fundamental motive for class actions. See Milwaukee Public Schools, 668 F.3d 481, 496 (7th Cir. 2012) (denying class certification for indefiniteness when “identifying disabled students who might be eligible for special-education services is a complex, highly individualized task, and cannot be reduced to the application of a set of simple, objective criteria.”); Simer v. Rios, 661 F.2d 655, 669 (7th Cir. 1981) (noting that determining whether potential class members “knew of the existence of the regulation and were
discouraged from applying for [state heating] assistance . . . would be a burden on the court and require a large expenditure of valuable court time.”); Alliance, 565 F.2d at 978 (“In those cases in which class certification has been denied on account of indefiniteness, the primary defect in the class definition has been that membership in the class was contingent on the state of mind of the prospective class members.”).

Here, the only way to avoid over-inclusiveness would have been to impose criteria limiting class
membership to individuals properly captured by the underlying claim. However, any such criteria would necessarily be subjective. Limiting class membership to individuals that were actually exposed to the deceptive packaging or advertisement would be largely subjective and thus improper. See In re Yasmin, 2012 WL 865041, at *16. This court saw no way to limit class membership without an impermissible plaintiff-by-plaintiff subjective inquiry. Plaintiff’s proposed class was inadequate.

Another useful recent decision as courts place proper focus on the implicit requirements of Rule 23 and the no-longer-pro-forma issues of class definition.

Class certification denied.

Seventh Circuit Affirms Ruling Despite Comcast

The Seventh Circuit reaffirmed class certification yesterday in a case involving front loading washers, despite the U.S. Supreme Court's remand of the matter in light of Comcast Corp. v. Behrend. See Butler v. Sears, Roebuck & Co., No. 11-8029 (7th Cir. 8/22/13). 

Readers will recall that earlier this year, the Supreme Court vacated and remanded the Seventh Circuit’s decision in Butler v. Sears, Roebuck & Co., 702 F.3d 359 (7th Cir. 2012) for further consideration in light of Comcast  Corp. v. Behrend, 133 S. Ct. 1426 (2013). The Seventh Circuit had certified two class actions of washer consumers despite multiple significant differences among class members, including admitted variations in laundry habits; differences in remedial efforts; variation in service performed on the machines. And despite the fact that a reported 97% of the class had never complained of a problem or suffered the alleged defect..

On remand, the court of appeals affirmed its earlier ruling that the predominance requirement was satisfied; the court reasoned it supposedly "would drive a stake through the heart of the class action device, in cases in which damages were sought rather than an injunction or a declaratory judgment, to require that every member of the class have identical damages.”  If the issues of liability are genuinely common issues, and the damages of individual class members can be readily determined in individual hearings, in settlement negotiations, or by creation of subclasses, the fact that damages are not identical across all class members should not preclude class certification, the court concluded.

The Seventh Circuit in essence found that Rule 23(c)(4) permits a class action limited to determining liability on a class-wide basis, with separate hearings to determine the damages of individual class members or groups of class members.

Of course, the Supreme Court did not require that all class members' damages be identical -- a straw man from the court of appeals -- but clearly disapproved of the traditional approach that damages were not part of the predominance requirement.  And the court of appeals' explicit reference to settlement as an equally valid and available mechanism for resolving individual damages issues fundamentally illustrates the error of its opinion.  A class action cannot be certified under Rule 23, under the Rules Enabling Act, or basic notions of due process, on the basis that settlement may resolve predominating individual issues.  That is the essence of blackmail class action settlements. A class has to be certified on the premise that it will not settle, that it will go trial, and that handling all of the individual issues can properly and efficiently take place in a trial.  The Seventh Circuit's approach to the Rule 23(c)(4) issue certification is also a dangerous “end-run” around Rule 23(b)(3) and the predominance requirement. Nor can this approach be reconciled with Comcast or Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011).

This case, along with Glazer v. Whirlpool Corp., 2013 WL 3746205 (6th Cir. July 18, 2013), are likely headed back to the Supreme Court.  In the meantime, defendants will need to focus the courts on issues of manageability and trial plan, and make clear they intend to try each and every mini-trial, exercising their full due process rights, if the courts actually certify these types of cases.

Third Circuit Issues Opinion on Ascertainability

We have posted before about the potential importance of the implicit requirement under Rule 23 that a class be ascertainable under the definition proposed by plaintiffs.  Earlier this week, the Third Circuit vacated class certification of a class of WeightSmart supplements purchasers on the basis of ascertainability.  See Carrera v. Bayer Corp., No. 12-2621 (3d Cir. 8/21/13).


Last year the Third Circuit had decided Marcus v. BMW of North America, LLC, in which it held “[i]f class members are impossible to identify without extensive and individualized fact-finding or mini-trials, then a class action is inappropriate.” 687 F.3d 583, 593 (3d Cir. 2012). The court explained that if class members cannot be ascertained from a defendant's records, there must be a reliable, administratively feasible alternative; the court cautioned against approving a method that would amount to no more than ascertaining by potential class members' say so. Id. at 594. A plaintiff does not satisfy the ascertainability requirement if individualized fact-finding or mini-trials will be required to prove class membership. Id. at 593. Administrative feasibility means that identifying class members is a manageable process that does not require much, if any, individual factual inquiry.

The court of appeals explained that the ascertainability requirement serves several important objectives. First, it eliminates serious administrative burdens that are incongruous with the efficiencies expected in a class action by insisting on the easy identification of class members. Second, it protects absent class members by facilitating the best notice practicable under Rule 23(c)(2) in a Rule 23(b)(3) action. Third, it protects defendants by ensuring that those persons who will be bound by the final judgment are clearly identifiable. If a class cannot be ascertained in an economical and administratively feasible manner, any significant benefits of a class action are lost.

Accordingly, a trial court should ensure that class members can be identified without extensive and individualized fact-finding or mini-trials, a determination which must be made at the class certification stage.  Class ascertainability is an essential prerequisite of a class action, at least with respect to actions under Rule 23(b)(3). Marcus, 687 F.3d at 592-93. There is „no reason to doubt that the “rigorous analysis” requirement for trial courts considering class certification applies with equal force to all Rule 23 requirements. Accordingly, said the court, a plaintiff must show, by a preponderance of the evidence, that the class is currently and readily ascertainable based on objective criteria, and a trial court must undertake a rigorous analysis of the evidence to determine if the standard is met.

Of great interest to our readers is the court of appeal's analysis of the due process implications of ascertainability. In this case, the ascertainability question was whether each class member purchased WeightSmart in Florida. If this were an individual claim, a plaintiff would have to prove at trial that he purchased WeightSmart. A defendant in a class action has a due process right to raise individual challenges and defenses to claims, and a class action cannot be certified in a way that eviscerates this right or masks individual issues. See McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 231-32 (2d Cir. 2008) (rejecting a “fluid recovery” method of determining individual damages, in which aggregate damages would be based on estimates of the number of defrauded class members and their average loss), abrogated on other grounds by Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008); see also Dukes, 131 S. Ct. at 2561 (rejecting a method of class certification in which a sample set of class members would be used to extrapolate average damages). A defendant has a similar, if not the same, due process right to challenge the proof used to demonstrate class membership as it does to challenge the other elements of a plaintiff's claim. To force a defendant to accept as true the absent class members' declarations that they are members of the class, without further indicia of reliability, would have serious due process implications.  Ascertainability thus helps provide a measure of due process by requiring that a defendant be able to test the reliability of the evidence submitted to prove class membership.


Here, Carrera advanced two ways to ascertain the class: first, by retailer records of online sales and sales made with store loyalty or rewards cards; second, by affidavits of class members, attesting they purchased WeightSmart and stating the amount they purchased (despite the fact that in named plaintiff's own deposition testimony, he failed to remember when he purchased WeightSmart and confused it with WeightSmart Advanced and other generic or similar products, none of which are part of this litigation). The Third Circuit concluded this evidence did not satisfy the ascertainability requirement.  There was no evidence that a single purchaser of WeightSmart could be identified using records of customer membership cards or records of online sales. There was no evidence that retailers even have records for the relevant period.  As to the second, this argument failed because it did not address a core concern of ascertainability: that a defendant must be able to challenge class membership. 

Another key feature for our readers relates to plaintiff's claim that because he was proceeding under a state consumer fraud act (Florida's FDUTPA) which allegedly did not require individual proof of reliance, the total amount of damages that defendant would pay (the total sales in the state in the class period) did not change -- only which class member got what amount. Under Carrera's view, if fraudulent or inaccurate claims were paid out, the only harm was to other class members. But ascertainability protects absent class members as well as defendants, said the court, so Carrera's focus on defendant alone was misplaced. It would be unfair to absent class members if there was a significant likelihood their recovery will be diluted by fraudulent or inaccurate claims. In this case, there was the possibility that Carrera's proposed method for ascertaining the class via affidavits would dilute the recovery of true class members.  The defendant still had an interest in ensuring it pays only legitimate claims. If fraudulent or inaccurate claims materially reduce true class members' relief, these class members could argue the named plaintiff did not adequately represent them because he proceeded with the understanding that absent members may get less than full relief. When class members are not adequately represented by the named plaintiff, they potentially are not bound by the judgment.

Thus, the case could be an important precedent for defendants, especially those facing class actions asserting fraud allegations about products for which detailed, accurate receipts likely no longer exist.

Case remanded for further limited discovery on the issue, given the timing of Marcus.


 

D.C. Circuit Applies Comcast Guidance to Class Certification

Readers will recall our posts about Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), and the majority's ruing that Rule 23 requires proof that damages and injury are amenable to class treatment, and not overrun with individual issues, before a class properly can be certified.

A district court considering class certification must look at how damages will be tried and managed if a class is certified. Is it a mere mathematical exercise, or are there factual issues that vary by class members? And the district court must conduct a rigorous analysis of the class plaintiff's proposed method for computing damages allegedly on a class-wide basis (which often will require a Daubert analysis in many cases).

While it is unusual for a dissenting justice to read the dissent from the bench, in this case two justices did so. One wonders whether that emphasis on the intensity of the dissent is inconsistent with the content of the dissent, which tried to argue that the decision could be limited to its facts, nothing big happened here, nothing to look at, keep moving...  The plaintiffs’ bar has been desperate to convince the lower courts to adopt the dissenting view, but with limited success as district courts continue to rely on Comcast to deny class certification. E.g., Torres v. Nutrisystem Inc., 2013 U.S. Dist. LEXIS 66444 (C.D. Cal. Apr. 8, 2013).

Earlier this month the D.C. Circuit relied on the precedent in In re: Rail Freight Fuel Surcharge Antitrust Litigation – MDL No. 1869, No. 12-7085, 2013 U.S. App. LEXIS 16500 (D.C. Cir. Aug. 9, 2013), to confirm that plaintiffs must have a way to establish class-wide proof of damages and injury.

In In re: Rail Freight Fuel Surcharge, plaintiffs allegedly shipped products via rail and were required to pay rate-based fuel surcharges by several major freight railroads. The heyday of the rate-based fuel surcharge did not last. Eventually, the Surface Transportation Board (STB) put an end to the practice with respect to common carrier traffic within its regulatory authority. But plaintiffs alleged collusion and price fixing among the defendants in the meantime.  The district court granted class certification.

The plaintiffs’ case for certification hinged on two regression models prepared by their expert. The first of these, the “common factor model,” attempted to isolate the common determinants of the prices shippers paid to the defendants. The expert also constructed a “damages model,” which sought to quantify, in percentage terms, the overcharge due to conspiratorial conduct at various intervals over the class period.

On appeal, after a discussion on interlocutory appeal standards, the D. C. Circuit held that meeting the predominance requirement demanded more than common evidence the defendants colluded to raise fuel surcharge rates. The plaintiffs must also show that they can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy.  On the damages prong, defendants argued that the expert's model purported to quantify the injury in fact to all class members attributable to the defendants’ collusive conduct. But the same methodology also detected injury where none could exist.  In Comcast, the Court held that indisputably the role of the district court is scrutinize such evidence before granting certification, even when doing so “requires inquiry into the merits of the claim.” 133 S. Ct. at 1433. If the proposed damages model cannot withstand this scrutiny then, that is not just a merits issue. Here, the expert's model was essential to the plaintiffs’ claim that they could offer common evidence of class-wide injury. See Fuel Surcharge II, 287 F.R.D. at 66. No damages model, no predominance, no class certification.

Moreover, the court of appeals noted that it is not enough to submit a questionable model whose unsubstantiated claims cannot be completely refuted through a priori analysis. Otherwise, “at the class-certification stage any method of measurement is acceptable so long as it can be applied class-wide, no matter how arbitrary the measurements may be.” Comcast, 133 S. Ct. at 1433.

Before Comcast v. Behrend, the case law was far more accommodating to class certification under Rule 23(b)(3), said the court of appeals. It is now clear, however, that Rule 23 not only authorizes a hard look at the soundness of statistical models that purport to show predominance—the rule commands it.  Mindful that the district court neither considered the damages model’s flaw in its certification decision nor had the benefit  of Comcast’s guidance, the court decided to vacate class certification and remand the case to the district court to afford it an opportunity to consider these issues in the first instance..

The case is useful beyond the antitrust world in its recognition that Comcast did make a difference in how lower courts are to treat the issue of predominance with respect to an analysis of injury and damages. Certification of a class without class-wide proof of both injury and damages is subject to reversal on the prong of predominance.

Consumer Fraud Class Claim Dismissed in Beverage Case

Readers have seen our warning about the trend in food and beverage claims attacking virtually every aspect of the product's label as a supposed consumer fraud act violation. A federal court earlier this month dismissed just such a proposed class action challenging the labeling on VitaRain Tropical Mango Vitamin Enhanced Water Beverage.  See Maple v. Costco Wholesale Corp., No. 12-5166 (E.D. Wash., 8/1/13).

Plaintiffs alleged in their amended complaint that one defendant manufactured and bottled a product known as VitaRain Vitamin Enhanced Water Beverage. VitaRain came in four flavors: Tropical Mango, Raspberry Green Tea, Kiwi Strawberry, and Dragonfruit. The product was marketed and distributed by another defendant and sold at Costco warehouses throughout the
country. Plaintiffs alleged that the VitaRain Tropical Mango drink in particular was marketed as a natural product but in fact contained “unnatural” ingredients, including large amounts of “synthetic caffeine.” Specifically, plaintiffs alleged that the VitaRain Tropical Mango drink (1) lacked a front-facing disclosure that the beverage contained caffeine; (2) failed to disclose the relative amount of caffeine in the beverage; and (3) falsely claimed that the beverage is a “natural tonic” and
contains “natural caffeine.” Plaintiffs further alleged they “reasonably believed that they [had] purchased a Drink similar to vitamin water.” 

On behalf of a putative class consisting of all Washington residents who purchased the product over the four years preceding the filing of the lawsuit, the named plaintiff asserted claims for (1) violations of the Washington Consumer Protection Act; (2) misrepresentation; and (3) negligence.

Defendant Costco moved to dismiss the amended complaint, contending, inter alia, that some
of plaintiff’s claims were preempted by federal law; and that parts of the amended complaint failed to meet the pleading standards of Rules 8 and 9(b) of the Federal Rules of Civil Procedure.

To withstand dismissal, a complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). “Naked assertion[s],” “labels and conclusions,” or “formulaic recitation[s] of the elements of a cause of action will not do.” Id. at 555, 557.  A claim has facial plausibility only "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

First an interesting civil procedure issue. Ordinarily, when the district court considers matters outside the pleadings it must convert a motion to dismiss brought under Civil Rule 12(b)(6) into a Civil Rule 56 motion for summary judgment. Fed. R. Civ. P. 12(d). However, a court may consider certain materials without converting the motion to dismiss into a motion for summary judgment. See, e.g., United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Such materials include documents attached to the complaint, documents incorporated by reference in the complaint, or matters of judicial notice.  A document may be incorporated by reference into a complaint where the
plaintiff refers extensively to the document or the document forms the basis of plaintiff’s claim. In such cases, the defendant may offer that document and the district court may treat the document as part of the complaint for the purposes of a motion to dismiss. Here, the court concluded that judicial notice of the product label was appropriate and that it could consider the labeling without converting Costco’s motion to dismiss into one for summary judgment.

Defendants argued that plaintiff’s claims were expressly preempted by the Federal Food Drug and Cosmetics Act (“FDCA”), as amended by the National Labeling and Education Act (“NLEA”), 21 U.S.C. § 301 et seq. The FDCA “comprehensively regulates food and beverage labeling.” Pom Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170, 1175 (9th Cir. 2012).  And specifically, they govern whether and how a label must disclose the presence of caffeine.  Here, the Amended Complaint sought "to create and impose”  two new requirements which would directly conflict with federal law: (1) a requirement that caffeinated beverages disclose the fact that they contain caffeine on the front label; and (2) a requirement that labels state the “relative amount” of caffeine by providing a “daily value” amount.  By virtue of imposing these new and conflicting requirements, defendants contended, plaintiff’s claims were preempted.  The court agreed; defendants showed that these food labeling requirements are expressly covered by the regulations. Federal law preempts any state law that would impose additional requirements on how food labels present nutrition information.  See Turek v. Gen. Mills, Inc., 662 F.3d 423, 426 (7th Cir. 2011).  Specifically, the court held that federal law preempts plaintiff’s claims that (1) defendants were required to disclose that the drink contained caffeine on the front label of the drink and (2) that defendants were required to state the “relative amount” of caffeine in the drink. Therefore Costco’s motion to dismiss was granted as to these claims.

Next, defendants contended that plaintiff had also failed to adequately plead causation, an element of the remaining consumer fraud-based allegations. Specifically, defendants argued that plaintiff had not alleged that he even read the complained-of labels before purchasing the VitaRain drink. The court noted that while the amended complaint contained detailed allegations about what was, and what was not, on the label of the VitaRain Tropical Mango drink he allegedly purchased, nowhere did he state that he actually read the label, or that his purchasing decision was driven by the alleged deceptive statements on the label.  Broad conclusory statements on causation. such as that class members have suffered "as a result of" purchasing the energy Drink, were insufficient, especially in light of Plaintiff’s failure to allege that he even read the allegedly deceptive labels prior to purchasing the drink.

Finally, on the misrepresentation claims, defendants suggested that plaintiff could not prove the reliance elements of his fraudulent misrepresentation and negligent misrepresentation claims because he had not alleged that he saw the alleged misrepresentations prior to purchasing
the drink. The court dismissed plaintiff’s misrepresentation claim for the same reason that the CPA claim was dismissed: Plaintiff failed to adequately plead reliance because he had not alleged that he based his purchasing decision on the complained-of labels or that he even read the labels
prior to purchasing the drink.  The court refused to credit the naked assertion that he would not have purchased the drink had the label not contained such statements in light of the missing averments.

Claims dismissed (with leave to amend).

 

Rule 23's "Ascertainability" and "Numerosity" Prerequisites Again Prove Their Worth in Defeating Class Certification

Today a special treat for our readers: my partner Becky Schwartz has submitted a post as guest blogger.  Becky has defended numerous high profile class actions for tobacco, pharmaceutical, medical device, and alcoholic beverage manufacturers, and others. Her focus is a recent Third Circuit class action decision.  And she writes:

Good news for defendants facing threatened consumer class actions: the Third Circuit has once again confirmed that ascertainability and numerosity, two seemingly humble definition-related prerequisites of Fed. R. Civ. P. 23, can be sufficient to foil class certification. In a companion decision to last year’s Marcus v. BMW of North America, LLC, 687 F.3d 583 (3d Cir. 2012), last week the Third Circuit vacated a New Jersey district court’s order certifying a class against defendant Wal-Mart Stores, Inc. See Hayes v. Wal-Mart Stores, Inc., No. 12-2522, 2013 WL 3957757 (3rd Cir. Aug. 2, 2013). Plaintiff asserted claims for violation of the New Jersey Consumer Fraud Act, breach of contract and unjust enrichment in connection with the sale of extended warranty (service) plans for items sold at Wal-Mart’s wholly owned subsidiary, Sam’s Club. Plaintiff had allegedly purchased two “as is” items from Sam’s Club a clearance area, along with extended warranty service plans for each item. The express terms of the service plans sold, however, allegedly made them inapplicable to the “as is” items. The district court certified a class of persons who had purchased service plans to cover ineligible “as is” products sold at Sam’s Club, and Wal-Mart appealed the class certification on an interlocutory basis pursuant to Fed. R. Civ. P. 23(f).

Ascertainability and Numerosity Are Evidentiary Questions the Proponent of Certification Must Prove.

The district court’s certification of the Hayes class occurred before last year’s decision by the Third Circuit in Marcus, where the appellate court addressed Rule 23’s ascertainability, and numerosity requirements in significant detail. The Third Circuit here agreed to consider Wal-Mart’s appeal based on the company’s argument that Hayes had failed to establish by a preponderance of the evidence that the class was both ascertainable and sufficiently numerous under the class action rule. Specifically, Wal-Mart argued that the district court had erred by finding the Hayes class ascertainable without considering whether it was administratively feasible to determine class membership. And as to numerosity, Wal-Mart asserted that plaintiff had not adduced evidence sufficient to demonstrate that anyone (including himself) and thus that sufficient claimants could satisfy the proposed class definition.

Putative Class Members’ “Say So” Is Not Enough to Establish Class Membership.

Last year in Marcus, the Third Circuit held that to satisfy the implied Rule 23 prerequisite of ascertainability, a proposed class must be defined with reference to objective criteria, and an administratively feasible mechanism must exist for determining whether putative class members fall within the class definition. 687 F.3d at 593-94.  One key factor in assessing ascertainability is whether the defendant possesses records that could show whether individuals should be included in the class; if not, the class definition would be insufficient. Id. at 593.

In Hayes, the evidence reflected that Wal-Mart kept some records related to “as is” clearance items for sale, but lacked records that could definitively link the sale of extended service plans to ineligible “as is” clearance items. The Third Circuit confirmed that in such circumstances, a lack of evidence is the class proponent’s problem, not the defendant’s. “[T]he nature or thoroughness of a defendant’s record-keeping does not alter the plaintiff’s burden to fulfill Rule 23’s requirements,” particularly where there is no “statutory or regulatory authority obligating [defendant] to create and maintain a particular set of records.” Hayes, 2013 WL 3957757 at *4. “Rule 23’s requirements . . . cannot be relaxed or adjusted” simply because a defendants’ records prove to be no help to plaintiff. Id. Importantly, a dearth of evidence in defendant’s possession cannot be overcome by form affidavits provided by putative class members: a “petition for class certification will founder if the only proof of class membership is the say-so of putative class members or if ascertaining the class requires extensive individual fact-finding.” Id. at *5.

Mere Speculation Is Insufficient to Prove Rule 23(a) Numerosity.

The Third Circuit also made clear that precise proof is required to prove numerosity. Just as it had previously in Marcus, 687 F.3d at 596-97, the Third Circuit in Hayes considered whether and when “common sense” or “logic” could be substituted for such evidence. Sam’s Club had records reflecting 3,500 sales transactions that might have qualified purchasers for class membership, but no record evidence to establish which of those transactions actually did qualify purchasers for class membership. Proof of class membership would thus have required impermissible mini-trials for each putative class member. The district court nonetheless found the Rule 23(a)’s numerosity prerequisite met by reasoning that if even a mere hypothetical 5% of those potential class members actually qualified, the class would be sufficiently numerous under Rule 23. Hayes, 2013 WL 3957757 at *5.

Despite acknowledging that in some limited instances “circumstantial evidence” might permit the district court to make a factual finding by using “’common sense’ to forgo precise calculations and exact numbers,” the Third Circuit made clear that a district court cannot certify a class based on “improper speculation.” Id. at *6. And that, it found, is precisely what the district court had done: “the only conclusion that can be drawn from the evidence presented to the trial court is that the number of class members would equal-to-or-less than 3,500 and equal-to-or-greater than zero,” meaning that the court “can only speculate as to the number of class members.” Id. at *6. “[W]here a putative class is some subset of a larger pool, the trial court may not infer numerosity from the number in the larger pool alone.” Id. (citations omitted). Nor can a trial court take a “wait-and-see approach” to numerosity (or any other requirement of Rule 23). Id.

Key Takeaways.

Defense counsel working with clients facing class action allegations – particularly in the consumer fraud context where complete transactional histories and other class membership related records may not be available in defendants’ records – should recognize the potential power of Rule 23’s ascertainability and numerosity prerequisites to bar class certification.  

Keep the following in mind:
- Lack of available evidence to prove ascertainability and/or numerosity is plaintiff’s problem, not defendant’s;
- Class member affidavits alone (mere “say-so”) cannot be used to establish class membership; the result would be an impermissible compromise of defendants’ rights;
- Plaintiffs’ imperative to find evidence supportive of class certification could very well give rise to surprisingly aggressive and contentious discovery;
- Some trial courts may require reminders of the evolving standards applicable to these Rule 23 prerequisites, including burden of proof; and
- Defendants’ briefing and argument should focus on any gaps (when available) in the evidence supporting ascertainability and/or numerosity; courts must be dissuaded from employing speculation masquerading as “common sense” and “logic” to fill such gaps.

DRI Class Action Seminar Continues

A highlight of the afternoon session was the panel involving "A Wide-Ranging Discussion of Class Actions from the Client’s Perspective."  Hosted by my partner Tim Congrove, doing his best Phil Donahue impersonation, the panel included experienced, articulate in-house counsel. Specifically, the panel brought to the stage Michael G. McQueeney , The Coca-Cola Company, Malini Moorthy , Pfizer Inc., and Laura E. Proctor , LP Building Products.  Each of these highly accomplished in house counsel manages a complex civil litigation docket that includes active proposed class actions, certified classes, settled classes, and/or other aggregate litigation.

The panelists shared class-related issues of importance to them and their companies, including tactics for defending multiple class actions across jurisdictions, addressing no-injury classes, and resolution strategies.  They talked a bit about what they expect from their outside counsel (thank goodness your humble blogger qualified on all accounts), and the important factors they consider in deciding to try a case where a class has been certified.

A particularly interesting part of the discussion was the panel's thoughts on tort reform, civil justice reform, and what to do about the many vacancies currently on the federal courts.

On the last point, Congress passed legislation authorizing additional judgeships in 1990. Since that time the district courts have experienced a 38 percent growth in caseload, but only a 4 percent growth in judgeships. In five especially busy federal districts, the Eastern District of California, the Eastern District of Texas, the Western District of Texas, the District of Arizona, and the District of Delaware, the judges face weighted caseloads that exceed 700 cases per judge. The Judicial Conference recommends a weighted caseload of 430 per judgeship. 

In August the ABA House of Delegates will vote on a proposed resolution supporting enactment of comprehensive legislation to authorize needed permanent and temporary federal judgeships, and urging the President to advance nominees for current vacancies for federal judicial positions promptly and the United States Senate to hear and vote on those nominations expeditiously.

 

DRI Class Action Seminar Underway

Your humble blogger is attending the DRI CLE seminar on class actions in our nation's capital, organized by my pal Jeff Holmstrand and my partner Tim Congrove, outstanding class action practitioners. 

The lead off speaker was Miguel Estrada, speaking on Comcast, which we have posted on before, as well as the aftermath

He offered some interesting personal observations about this important class action decision. Key take aways: individual damage questions can be a significant barrier to class certification under Rule 23(b)(3). A district court considering class certification must look at how damages will be tried and managed if a class is certified.  Is it a mere mathematical exercise, or are there factual issues that vary by class members? And the district court must conduct a rigorous analysis of the class plaintiff's proposed method for computing damages allegedly on a class-wide basis (which almost certainly will require a Daubert analysis in most cases).

Interesting observation: while it is unusual for a dissenting justice to read the dissent from the bench, in this case two justices did so.  One wonders whether that emphasis on the intensity of the dissent is inconsistent with the content of the dissent, which tried to argue that the decision could be limited to its facts, nothing big happened here, nothing to look at, keep moving...

Most lower courts are following and applying the Comcast decision.  E.g., Forrand, 2013 WL 1793951 (C.D. Cal.); TL Cannon, 2013 WL 1316452 (N.D.N.Y.).  see also the Martin case we posted on here.

One going the other way is Leyva in the 9th Circuit, 2013 WL 2306567, which performs gymnastics to read Comcast as stating only the proposition that a plaintiff must show the damages flow from the alleged illegal acts of the defendant.

 

 

Class Certification Denied in Minivan Case

A federal court last week denied class certification in a case alleging that vehicle axles were allegedly prone to cracking.   See Martin v. Ford Motor Co., No. 2:10-cv-02203 (E.D. Pa., 7/2/13).

Plaintiff filed suit against Ford on behalf of himself and others similarly situated claiming breach of express and implied warranties, unjust enrichment, and violations of state consumer protection laws. The claim related to alleged issues with the rear axle installed on 1998½ -2003 Ford Windstars.  Plaintiff moved to certify four classes of Windstar owners: an express warranty class, an implied warranty class, a consumer protection act class, and an unjust enrichment class.  Each included owners from several different states. Plaintiff moved to certify these four classes pursuant to Federal Rule of Civil Procedure 23(b)(2) and (b)(3), seeking injunctive relief and monetary damages on behalf of class members.

The court denied class certification in a lengthy and comprehensive opinion.  For our post, let's focus on the b(3) claim and the predominance element. Failure to satisfy the predominance requirement has doomed many an automotive defect cases. Federal courts have recognized that suits alleging defects involving motor vehicles often involve complicated issues of individual causation that predominate over common questions regarding the existence of a defect.

When a proposed class includes members from different states, there may be a choice of law problem that relates to predominance (as well as superiority and manageability). Several of the states in the express warranty class contain material differences in their legal definition of a breach of express warranty claim. Some of the group, but not all, required that a buyer show reliance on a statement or representation made by the seller as condition for recovery on a breach of express warranty claim. These differences undermine any finding of predominance. 

The court also found that a breach could not be proven without also inquiring into each individual class member’s Windstar experience, since the vast majority of Class members —approximately 83.2% — had not experienced any problems with their rear axles seven to twelve years after their vehicles were manufactured. In deciding whether Ford breached the express warranty that Windstars were “free from defects in material and workmanship,” a trier-of-fact could not solely look at evidence of Ford’s knowledge of the rear axle issues from 1997 through 2003, but must also consider how each axle performed through 2010. For example, a class member might own a 1998 Ford Windstar with 160,000 miles, which has been driven daily for twelve years without a problem. A second class member may have used his 2000 Windstar to travel constantly for business, putting 200,000 miles on the vehicle. A third class member may have only 50,000 miles on a 2003 Windstar because the class member drives the vehicle only on weekends. A fourth class member may have been forced to replace his original axle after only three months of use -- but because of a serious rear-end collision. None of these class members suffered an axle fracture. Were not these vehicles of different ages, with different mileage, in different conditions, which have been driven without a problem “free from defects”? These matters cannot be addressed by a trier-of-fact without consideration of the individual factual scenarios, said the court.

Even assuming breach could be proven on a class-wide basis, the calculation of damages for express warranty class members would be impossible without individualized inquiries into each claim.  The court cited to the Supreme Court's recent decision in Comcast Corp. v. Behrend that a model purporting to serve as evidence of damages in a class action must measure only those damages attributable to the theory of the case. 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). 133 S. Ct. 1426, 1433 (2013). Here, plaintiffs' damages model was based on injury to the resale price of a used Windstar; but that price would be based on a multitude of factors, of which the allegedly defective rear axle is but one. See, e.g., Carpenter v. BMW of N. Am., Inc., 1999 WL 415390, at *4 (E.D. Pa. June 21, 1999) (value of a vehicle is dependent on a "whole host of individualized factors including age, mileage, repair and maintenance history and accidents or damage.’”); see also Chin v. Chrysler Corp., 182 F.R.D. 448, 463 (D.N.J. 1998)). The need to take into account this multitude of factors creates a proximate cause issue, and required individual proof. Good to see the lower courts applying this important Supreme Court guidance.

Similarly, proving breach of implied warranty, that the Ford Windstars were not “fit for the ordinary purposes for which such goods are used,” was a question of fact with multiple relevant factors raising individual issues. Facts relevant to this inquiry would include not only the allegedly common testing and
monitoring of the axle but, as stated above in discussing the express warranty class, the experience of each individual Class member with the Ford Windstar.  And even if breach could be proven by using only common facts, the calculation of damages for the implied warranty class would face the exact same obstacle; again, approximately 83.2% of Windstar owners have not experienced any problems with
their rear axles. Plaintiff claimed that these Class members suffered damages through a reduction
in the resale value of their vehicles after a safety recall was initiated. Even assuming the recall did affect the market price for used Windstars, plaintiff had not provided a method to calculate the decrease in value on a class-wide basis.

Next the consumer protection claim required plaintiffs to prove each class member suffered a cognizable injury. To determine whether a class member suffered an “ascertainable loss,” and whether that loss was “as a result of” Ford’s alleged concealment or omission of information regarding the Windstar’s rear axle, would require the trier-of-fact to consider facts unique to each individual class member.  That is, plaintiff would encounter the same insurmountable obstacles in his attempt to prove a class-wide “ascertainable loss” suffered “as a result of” Ford’s conduct as he would encounter attempting to prove class-wide damages for the express and implied warranty classes.  Simply put, for a class member whose rear axle has not fractured — which was the vast majority of class members — proving a used Windstar suffered a loss in value because of Ford’s safety recall requires an inquiry into the age, mileage, and overall condition of the vehicle. This individual fact-gathering process would be essential to a consumer protection claim, and therefore fatal to the predominance requirement for class certification under Rule 23(b)(3).

Finally, the first element of an unjust enrichment claim — whether a class member conferred a benefit on Ford — again required an inquiry into each class member’s experience with the Windstar. Moreover, another element — whether it would be unjust for Ford to retain money provided by class members in view of the allegedly defective rear axle — was also incapable of proof without reference to individual facts. Ford’s actions could only be considered unjust if money was retained after selling a defective product. To prove a defect required the trier-of-fact to consider Ford’s conduct alongside each class member’s experience with the Windstar. The vast majority of class members have had no problems with their rear axles. The trier-of-fact would therefore have to consider whether Ford’s retention of the full purchase price of a 1998 Windstar, for example, was "unjust" in a situation where the Windstar has been driven by a class member for twelve years without incident.

Certification denied.

Class Certification Denied in Auto Case

A federal court has declined to certify a proposed class of Ford Focus drivers who allege a suspension defect in their cars. Daniel v. Ford Motor Co., No. 2:11-02890 (E.D. Cal. 6/17/13).

Plaintiffs generally alleged that the 2005 to 2011 Ford Focus vehicles had a rear suspension “alignment/geometry defect” which leads to premature tire wear, which in turn leads to safety hazards such as decreased control in handling, steering, and stability. Plaintiffs sought to certify a class consisting of “[a]ll individuals who purchased or leased any 2005 through 2011 Ford Focus vehicle in
California and who currently reside in the United States.”

Before certifying a class, the trial court recognized it must conduct a “rigorous analysis” to determine whether the party seeking certification has met the prerequisites of Rule 23. See Mazza v. Am. Honda Motor Co., Inc., 666 F.3d 581, 588 (9th Cir.2012) (quoting Zinser v. Accufix Res. Inst., Inc., 253 F.3d 1180, 1186, amended by 273 F.3d 1266 (9th Cir. 2001)).

After motion practice, plaintiffs were left with warranty claims. Predominance was the key issue, and let's focus on the causation element -- the need for plaintiffs to show that the breach of warranty caused their alleged injury.

The court noted that when a warranty requires that a claimant show that something like tire wear (a condition caused by many things) is caused by a defect in the vehicles, the claims for breach of that warranty do not easily satisfy the Rule 23(b)(3) predominance test.  A determination whether the defective  alignment caused a given class member’s tires to wear prematurely would require proof specific to that individual class member.  Tires deteriorate at different rates depending on where and how they are driven; so, whether a set of tires wore out prematurely, and as a result of the alleged alignment defect, are individual causation/injury issues that make class-wide adjudication inappropriate.  

While named plaintiff presented evidence that her rear tires experienced the type of tire wear allegedly associated with the alleged suspension defect, even her experts admitted that driving habits, failure to properly maintain the vehicle, and other actions by a vehicle’s owner can cause or contribute to premature tire wear.  Resolving whether the alleged suspension defect caused the tire wear in the named class representative's vehicle would not resolve the same question for other class members who might have experienced different types of tire wear caused by different factors.


Therefore, concluded the court, whether the alleged suspension defect caused the proposed class members’ injuries was not a common question. Given the centrality of the causation issue, individual questions would predominate over questions allegedly common to the class; the court denied plaintiffs’ motion for class certification under Rule 23(b)(3).

 

Another Plaintiff Fails to Obtain Class Certification for Claims About Products Not Actually Purchased

We've posted before about the curious phenomenon of plaintiffs suing about the labeling on a product they never even purchased.  Recently class certification was denied in yet another case alleging false labeling on a product the named plaintiff did not buy  See Major v. Ocean Spray Cranberries Inc., No. 12-03067 (N.D. Cal., 6/10/13). We flag this case for our readers, because of the court's emphasis on the Rule 23(a) element of typicality instead of the equally applicable notion of standing.

Plaintiff alleged that she purchased several of defendant’s products in California. Her Complaint stated that Plaintiff purchased various “Ocean Spray juices and drinks” that were allegedly improperly labeled "No Sugar Added," or were bearing improper nutrient content claims, or had misrepresentations that the products were free from artificial colors, flavors or preservatives.  She alleged the usual causes of action, including violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq. (counts 1–3); violation of the False Advertising Law (“FAL”), Cal. Bus. & Prof. Code §§ 17500 et seq., (counts 4–5); violation of the Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1750 et seq. (count 6); restitution based on unjust enrichment or quasi-contract (count 7); and breach of warranty (8).

She sought certification of a class of similar purchasers. Rule 23(a)(3) requires that a named plaintiff’s claims be typical of those that would be advanced by the proposed class. Fed. R. Civ. P. 23(a)(3). The test for Rule 23(a) typicality in the Ninth Circuit is whether other members have the same or similar injury, whether the action is based on conduct which is not unique to the named plaintiffs, and whether other class members have been injured by the same course of conduct. See Wolin v. Jaguar Land Rover N. Am., LLC, 617 F.3d 1168, 1175 (9th Cir. 2010); Ries v. Arizona Beverages USA LLC, 287 F.R.D. 523, 539 (N.D. Cal. 2012).

In the context of cases involving several products at issue —like this one— district courts have held that the typicality requirement has not been met where the named plaintiff purchased a different product than that purchased by unnamed, absent class, plaintiffs. Wiener, 255 F.R.D. at 666; see also Gonzalez v. Proctor & Gamble Co., 247 F.R.D. 616 (S.D. Cal. 2007); Lewis Tree Serv., Inc. v. Lucent Techs. Inc., 211 F.R.D. 228 (S.D.N.Y.2002); Kaczmarek v. Int’l Bus. Machs. Corp., 186 F.R.D. 307, 313 (S.D.N.Y. 1999).

With that standard in mind, here the court found that plaintiff, the proposed class representative, had not met her burden of showing that her claims are typical of those of the proposed class members pursuant to Rule 23(a)(3).  The primary reason behind the court’s determination that the typicality requirement had not been met is that plaintiff’s proposed classes were so broad and indefinite that they encompassed products that she herself did not purchase. See Wiener, 255 F.R.D. at 666. In her deposition, plaintiff asserted that she purchased five of the defendants’ products. But the putative class definitions that plaintiff wanted the court to certify would have included a whole host of other products that plaintiff had nothing to do with. For example, the putative class would include any of defendant’s products “represented to contain no artificial colors, flavors or preservatives but which contained artificial colors, flavors or preservatives.”  The putative class also included entire lines of products; as an example, any product from the “Sparkling” line of products. However, in both of these examples, plaintiff failed to make an allegation that she purchased all of such products, all the products in these product lines. As such, the claims of the unnamed plaintiffs who purchased products plaintiff herself did not buy were not fairly encompassed by the named plaintiff’s claims.

The second basis of the finding that plaintiff's claims failed to meet the Rule 23(a) typicality requirement is the fact that the labels and nutrition claims on each of the products at issue was unique to that product itself. For example, plaintiff based her mislabeling causes of action with regard to the Diet Sparkling Pomegranate Blueberry drink product, in part, on the claims made on the specific label of this specific drink product -- language that included specific claims about blueberries, applicable only to drinks containing blueberries. The evidence needed to prove plaintiff’s claim that the Diet Sparkling Pomegranate Blueberry drink contained false or misleading labeling was not probative of the claims of unnamed class members who purchased products within the “Sparkling” line that did not contain blueberries. 

Certification denied.

 

Supreme Court Remands Two Class Actions in Light of Comcast

Earlier this week I spoke at a CLE seminar on the topic of class actions, and part of my focus was the recent Supreme Court decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013).  Since that decision, the Court has granted cert, vacated, and remanded for reconsideration two class action cases involving allegations of defects in washing machines:  Whirlpool Corp. v. Glazer, No. 12-322 (U.S. 4/1/13); Sears, Roebuck & Co. v. Butler, No. 12-1067 (U.S. June 3, 2013).


In Glazer, the lower court had certified a class of purchasers of washing machines despite admitted variations in laundry habits; differences in remedial efforts; variation in service performed on the machines.  And despite the fact that a reported 97% of the class had never complained of a problem or suffered the alleged defect. 678 F.3d 409 (6th Cir. 2012).

In Butler, the lower court had granted certification of two classes of more than 100,000 members in six states who purchased 20 different models of machines; again many never had the problem alleged.

So where does Comcast, ostensibly an antitrust case, fit here?  The Court reaffirmed that a class action is an exception to the rule of individual adjudication. And to get there, Rule 23 is not merely a pleading standard. Just as Dukes made clear that a rigorous analysis of the Rule 23(a) prerequisites, such as commonality, is required, the same principles apply to Rule 23(b) elements, such as predominance. And a court cannot refuse to consider class certification arguments just because those arguments also might be relevant to the merits of plaintiffs' claims.

In Glazer the district court made noises about some of the defense arguments on certification going to the merits, and the Sixth Circuit had about two sentences on predominance -- suggesting the absence of the rigorous analysis required.

In Butler, 702 F.3d 359 (7th Cir. 2012), the Seventh Circuit suggested predominance was met because it would be more efficient to resolve the question whether the machines were defective in a single class trial; predominance is a question of efficiency.  That would seem to run afoul of Rule 23, which incorporates efficiency in the notion of superiority, but not as a definition of or synonym for predominance. Indeed the Advisory Committee notes suggest that efficiencies flow only when predominance is present. Prior Court opinions instruct that predominance implies a notion of cohesion.  And the Butler court's treatment of the need for individual damages trials seems flatly inconsistent with the Comcast Court's statements on the need for proof on a class-wide basis.

 Two to keep an eye on.

 

 

Supreme Court Takes CAFA Parens Patriae Issue

The U.S. Supreme Court granted cert last week to address whether a state attorney general's parens patriae antitrust action is removable as a mass action under the Class Action Fairness Act of 2005.  See Mississippi v. AU Optronics Corp., No. 12-1036 (U.S., certiorari granted 05/28/13).

As noted in the respondents' papers, CAFA expands federal diversity jurisdiction for both “class actions” and “mass actions.” A “mass action” is defined as any civil action in which monetary relief claims of 100 or more persons are proposed to be tried jointly.  The definitions of “class actions” and “mass actions” are connected, as a mass action is deemed to be a class action removable to federal court if it otherwise meets the provisions of a “class action,” including CAFA’s unique minimal diversity.

Determining whether the 100 person level is satisfied requires consideration of whose claims are actually being asserted, as the Court has held that diversity  jurisdiction must be based upon the citizenship of
real parties to the controversy. E.g.,  Navarro Sav. Ass’n v. Lee, 446 U.S. 458, 461 (1980).  Where the action filed by the State seeks monetary relief claims on behalf of more than 100 unnamed persons who are among the real parties in interest and any one of them is diverse from any defendant, CAFA applies.  This was the approach of the 5th Circuit here, 701 F.3d 796, 800 (5th Cir. 2012), under the so-called “claim-by-claim" approach.  In contrast other courts look to the "state’s complaint as a whole." E.g., AU Optronics Corp. v. South Carolina, 699 F.3d 385, 394 (4th Cir. 2012).

It will be interesting to see if the Court applies the notion from the unanimous CAFA decision in Standard Fire that treating a nonbinding stipulation (on damages) from the class rep before a class is even certified as if it were binding on the later class would “exalt form over substance, and run directly counter to CAFA's primary objective: ensuring federal court consideration of interstate cases of national importance.”

 

 

Consumer Fraud Claims Denied; Class Decertified

A federal court ruled recently for defendant in a proposed class action about the labeling of an iced tea product. See Ries v. Arizona Beverages USA LLC, No. 10-01139 (N.D. Cal., 3/28/13).

We have posted before about plaintiffs' efforts to manufacture consumer fraud class actions out of any aspect of a product label or marketing. Here, plaintiffs brought a class action challenge defendants’ advertising, marketing, selling, and distribution of AriZona Iced Tea beverages labeled “All Natural,” “100% Natural,” and “Natural” because they allegedly contained high fructose corn syrup (HFCS) and citric acid. Problem turns out, plaintiffs could muster no proof the marketing was false.

The Complaint set forth six California state law claims for relief: under the False Advertising Law (FAL) for (1) misleading and deceptive advertising, and (2) untrue advertising; under the Unfair Competition Law (UCL), for (3) unlawful, (4) unfair, and (5) fraudulent business practices; and (6) under the Consumers Legal Remedies Act (CLRA), for injunctive and declarative relief.

The defendants filed a motion for summary judgment and plaintiffs filed a motion for class certification. The court initially certified the class under Rule 23(b)(2) for purposes of injunctive and declaratory relief only. At the close of discovery, defendants made a renewed motion for summary judgment, reviving their argument that the named plaintiffs could not support their claims, and had failed to meet their evidentiary burden of showing that defendants’ beverage labeling practices were unfair or misleading. Defendants further moved for decertification of the class.

The court noted that factual predicate for each of plaintiffs’ claims was that the beverages were falsely labeled as “all natural” despite allegedly containing HFCS and citric acid. So plaintiffs had to show that HFCS and citric acid are indeed not natural; and also that accordingly they were entitled to restitution. In their opposition to the motion for summary judgment, plaintiffs did not offer any credible evidence that HFCS is artificial and thus rendered the beverage not natural.  But plaintiffs had no credible evidence, relying primarily on the fact the ingredients were allegedly patented.  But they cited no legal authority supporting their contention that if the process to produce an ingredient is patented, that fact, in and of itself, automatically renders it artificial and no natural. This was, the court observed, merely an extension of their rhetoric that HFCS is artificial because it “cannot be grown in a garden or field, it cannot be plucked from a tree, and it cannot be found in the oceans or seas of this planet.”  The deposition testimony they cited, even when read in the light most favorable to plaintiffs, did not satisfy their evidentiary burden. It certainly did not demonstrate that it is probable that a significant portion of the consuming public could be confused by the “all natural” labeling of defendants’ products. Rather than showing that defendants were attempting to engage in unfair competition by capitalizing on any such confusion, the testimony indicated that everything in the beverages is natural, and that defendants even included labels specifying that they contain all natural tea without preservatives, artificial color, and artificial flavor to clarify that to theoretically confused customers.

On the restitution issue, the court noted there must be evidence that supports the amount of restitution necessary to restore to the plaintiff, meaning the difference between what the plaintiff paid and the value of what the plaintiff received.  Plaintiffs had no such evidence to support their prayer for restitution and disgorgement. Plaintiffs offered not a scintilla of evidence from which a finder of fact could determine the amount of restitution or disgorgement to which plaintiffs might be entitled if this case were to proceed to trial. This failure alone provided an independent and sufficient basis to grant defendants summary judgment.  

The court also found that plaintiffs' failures undermined the finding of adequacy of representation under Rule 23(a)(4). The class was therefore decertified. One wonders why it was certified in the first place.


The class was decertified, the motion for summary judgment was granted, and a motion to exclude expert opinion testimony was denied as moot.

Supreme Court Decides Comcast

The Supreme Court weighed back in on the issues of class certification last month in Comcast v. Behrend, No. 11-864 (U.S. 3/27/13). Writing for the majority, Justice Scalia stated that the class had been improperly certified under Fed. R. Civ. P. 23(b)(3)'s predominance prong, in an opinion that bears careful scrutiny for our readers, but probably did not cover as much ground as some thought it would when cert was granted (no further guidance on Daubert at the class stage).

Plaintiffs brought a class action antitrust suit, under Rule 23(b)(3), claiming Comcast subscribers in the Philadelphia area were harmed because of a specific Comcast strategy that allegedly lessened competition and would lead to higher prices. Comcast allegedly “clusters” their cable television operations within a particular region by swapping their systems outside the region for competitor systems inside the region.  Plaintiffs offered several theories as to why this alleged approach harmed them: it allowed Comcast to withhold local sports programming from its competitors, resulting in decreased market penetration by direct broadcast satellite providers; it allegedly reduced the level of competition from “over-builders,” companies that build competing cable networks in areas where an incumbent cable company already operates; it reduced the level of “benchmark” competition on which cable customers rely to compare prices; and it allegedly increased Comcast’s bargaining power relative to content providers.

The District Court ruled that plaintiffs had to show that the “antitrust impact” of the violation could be proved at trial through evidence common to the class and that the damages were measurable on a class-wide basis through a “common methodology.” The trial court then certified the class, but accepted only one of the four proposed theories of antitrust impact. The Third Circuit affirmed, noting again its artificial separation of class and merits issues:  we "have not reached the stage of determining on the merits whether the methodology is a just and reasonable inference or speculative." The court of appeals concluded that Comcast's attacks on the merits of the methodology had "no place in the class certification inquiry.”

Of course class certification is a procedural step, not the occasion to decide which side has the winning case, but in recent years the Supreme Court has been telling the lower courts that the line between merits and certification is not such a bright line.  The Third Circuit ran afoul of this admonition when it refused to entertain arguments against the damages model that bore on the propriety of class certification simply because they might also be pertinent to the merits determination. A certifying court may have to probe behind the pleadings before coming to rest on the certification question; certification is proper only if the trial court is satisfied, after a rigorous analysis, that Rule 23’s prerequisites have been satisfied. Such an analysis will frequently overlap with the merits of the plaintiff ’s underlying claim because a class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff ’s cause of action. A District Court cannot refuse to evaluate evidence at the class certification stage just because that same evidence relates to the merits of the claims. In so doing, the Court made clear that the rigorous analysis discussed in Wal-Mart Stores v. Dukes, 131 S. Ct. 2541 (2011), applies to both the Rule 23(a) factors and the Rule 23(b) prerequisites. 

The figures that plaintiffs' expert used were calculated assuming the validity of all four theories of antitrust impact originally proposed, and did not delineate the differences between the allegedly supra-competitive prices prices attributable to over-builder deterrence, and the prices caused by other economic factors.  To ignore that would reduce the Rule 23(b)(3) predominance requirement to a nullity. The questions of individual damages calculations here would inevitably overwhelm questions common to the class in this antitrust case; the plaintiffs' model fell far short of establishing that damages were capable of measurement on a class-wide basis. Thus, the Court made clear that plaintiffs must offer a method sufficient to calculate damages on a class-wide basis in Rule 23(b)(3) class actions or risk losing certification.

 

CAFA Local Exception Rejected

 A federal court in Georgia ruled last week that a proposed class action alleging injury from chemical exposures was properly removed under the Class Action Fairness Act of 2005.  See Anderson v. King America Finishing Inc., No. 1:11-cv-2258-JEC (N.D. Ga., 3/25/13).


Plaintiffs alleged that defendant King America Finishing released a toxic chemical into the Ogeechee River from its manufacturing plant in Dover, Georgia. According to plaintiffs, the toxic chemical release caused damage to surrounding land downstream from the Dover plant. In addition, plaintiffs claimed that certain individuals who swam in the Ogeechee River suffered from physical injuries due to the release. Plaintiffs filed a class action complaint in Fulton County Superior Court. They purported to represent a property damage class defined to include “[a]ll possessors of property affected, directly or indirectly, by [the May, 2011] release of chemicals into
the waters of the Ogeechee River.” One named plaintiff also purported to represent a personal injury class defined to include “[a]ll persons who have been exposed, directly or indirectly, with the waters of the Ogeechee River that had been contaminated by the Release.”


Defendants removed the case to federal court pursuant to the Class Action Fairness Act (“CAFA”), 28 U.S.C. §§ 1332(d) and 1453. CAFA generally provides for the removal of any class action in which there is: (1) minimal diversity, (2) at least 100 putative class members and (3) $5 million in alleged damages. 28 U.S.C. §§ 1332(d)(2) and 1453. It was undisputed that these requirements were met in this case. Plaintiffs conceded that all of the named plaintiffs were diverse from defendant, that the putative class exceeded 100 members, and that the claims exceeded $5 million in damages.

Nevertheless, plaintiffs filed a motion to remand the case to state court, based on the “local controversy” exception to CAFA jurisdiction, which provides for the remand of a class action that “uniquely affects a particular locality to the exclusion of all others.” Evans v. Walter Indus., Inc., 449 F.3d 1159, 1164 (11th Cir. 2006). Specifically, a “local controversy” is defined by CAFA as a class action in which: (1) greater than two-thirds of the class members are citizens of the state in which the action was originally filed, (2) at least one “significant” defendant is a citizen of the state in which the action was filed and (3) the principal injuries alleged in the action were incurred in the state in which the action was filed. 28 U.S.C. § 1332(d)(4)(A).

Defendants did not dispute elements 2 and 3. The argument among the parties centered on the two-thirds requirement.  Under CAFA, plaintiffs bear the burden of proving that the exception applies. In order to meet their burden on the two-thirds requirement, plaintiffs had to present evidence from which a court could credibly adduce that more than two-thirds of the purported class members were Georgia citizens. Plaintiffs used tax and voter registration records,  reference to the Secretary of State’s Corporation website, and interviews of personal injury class members who were determined by interview to be Georgia citizens, to just get over the threshold.

The court rejected their calculations, finding no sound evidentiary basis for including several of these groups in the calculation. For example, with regard to the legal entities, the Secretary of State’s website merely lists a Georgia office address for each entity. The website does not indicate that any of these entities have their “principal place of business” in Georgia. In addition to the evidentiary issues with the numerator in plaintiffs’ equation, there were serious questions about the denominator as well. Both the property and the personal injury classes were defined broadly in the complaint to include all land and persons directly or indirectly allegedly impacted by the May, 2011 release. Given that broad definition, the property class likely included many more members than the 900 or so landowners in the particular geographical area chosen by plaintiffs’ attorneys for their showing. Likewise, there could be many more individuals who were “indirectly” injured by the release than the 20 potential class members interviewed by plaintiffs.  The court could not simply speculate about the citizenship of these unaccounted for class members.
Accordingly, the court denied the plaintiffs' motion for remand.

Class Denied in Credit Card Claim

A federal court in California last week denied certification of  a proposed class of Nike store customers. Gormley v. Nike Inc., No. C-11-893-SI, (N.D. Cal., 1/28/13).  The issue, interestingly, was typicality.

Plaintiffs in these consolidated cases brought putative class actions on behalf of themselves
and a class of consumers, alleging that defendants violated the Song-Beverly Credit Card Act of 1971, by requesting and recording the ZIP codes of credit card customers through Nike’s “Information Capture Policy.”  Plaintiffs alleged that Nike implemented and maintained a policy whereby its cashiers were trained to follow the “EPOC manual” under which cashiers were prompted with a pop-up box on their screen to enter the customer’s ZIP code. The screen on the sales register that allowed the cashier to input a customer’s ZIP code did not appear until after the credit card was authorized and the receipt was printing. If a customer declined to provide a ZIP
code, Nike’s cashiers entered any alphanumeric combination.  In support of class certification, plaintiffs submitted evidence that, during the class period, Nike’s ZIP code request policy was allegedly implemented at every Nike retail store in California, and ZIP codes were requested and recorded during approximately 561,179 transactions.

The plaintiffs sought to represent a class of all those consumers who Nike requested a ZIP code from in conjunction with a credit card transaction in a retail store in California from February 24, 2010, to February 24, 2011.  Defendants raised a number of arguments against class certification, including noting that the proposed class definition appeared to be "fail-safe."  But the issue that the court focused on was typicality. Rule 23(a)(3) requires the named plaintiffs to show that their claims are typical of those of the class. To satisfy this requirement, the named plaintiffs must be members of the class and must possess the same interest and suffer the same injury as the class members. Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 156 (1982). The typicality requirement may be satisfied when each class member’s claim arises from the same course of events, and each class member makes similar legal arguments to prove the defendant’s liability. Rodriguez v. Hayes, 591 F.3d 1105, 1124 (9th Cir. 2010).

Although in the past many courts have found the typicality requirement is not stringent, the court here followed the recent trend, and held that plaintiffs had not demonstrated that they were typical of the class they seek to represent. The consolidated complaint challenged Nike’s “Information Capture Policy,” and yet all of the named plaintiffs testified that their experiences were not fully consistent with that policy. For example, some testified that cashiers asked them for their ZIP codes before providing them with their receipts and merchandise. However, under the Nike policy that is the subject of this lawsuit, cashiers were prompted to request ZIP codes after giving customers their receipts and merchandise.   The court read the governing statute as prohibiting merchants from requesting personal identification information as a condition precedent to accepting payment by a credit card,  Thus, as the legality of Nike’s policy depends on whether a consumer would perceive the store’s request for a ZIP code as a condition of the use of a credit card, the timing of that request is clearly relevant.

Accordingly, the Court found that the named plaintiffs were not typical of the class they seek to
represent, and denied class certification on this ground.

Class Denied for Failure to Show Common Injury

A federal court recently denied class certification in the MDL coordinating claims over an alleged defect in hybrid vehicles’ braking systems.  See IN RE: TOYOTA MOTOR CORP. HYBRID BRAKE MARKETING, SALES PRACTICES and PRODUCTS LIABILITY LITIGATION, No.: SAML 10-2172-CJC (C.D. Cal., 1/09/13). The basis of the ruling, that a substantial majority of class members never suffered an actual injury caused by the defect, will be of interest to our readers.

Plaintiffs alleged that a defect in the anti-lock brake system of their vehicles causes the ABS to improperly engage when it is not needed, resulting in increased stopping time and distance.  In February 2010, Toyota voluntarily recalled the vehicles and offered to install a software update to remedy the braking defect. Toyota asserted the software update accomplished its intended purpose, and remedied the defect, but plaintiffs claimed that the braking defect was not cured.

Plaintiffs brought five separate class actions in February 2010, later consolidated into an MDL, alleging Toyota had fraudulently induced them to purchase their hybrids by concealing the alleged defect in the braking system. Plaintiffs then moved to certify a class based on Federal Rule of Civil Procedure 23(b)(3), consisting of individuals who purchased or leased the Class Vehicles in California or Texas prior to February 8, 2010. Toyota opposed certification of any class, contending, among other things, that Plaintiffs cannot satisfy the predominance requirement of Rule 23(b)(3).
The court concluded Toyota was correct.

Although there were serious questions as to whether plaintiffs could satisfy the commonality, typicality, and adequacy requirements of Rule 23(a), the court concluded it need not  address those questions because plaintiffs clearly could not satisfy the predominance requirement of Rule 23(b)(3). It is beyond dispute that the critical issue involved in this case was whether there was a manifest defect in the ABS that caused an actual injury to each member of the proposed class. Unless plaintiffs could demonstrate such a manifest defect resulting in actual injury, they could not succeed on any of their five product liability claims. The resolution of this crucial issue, however, could not be accomplished through common or generalized proof as is required to maintain a class action. It must be done by an individualized and particularized inquiry for each member of the proposed class.

Most problematic for plaintiffs, said the court, was that they sought to certify a class in which the
substantial majority of class members never suffered an actual injury that was caused by a manifest defect in the ABS. Toyota presented substantial evidence that the updated software installed in the Class Vehicles as part of the national recall rectified any actual or perceived problem with the braking performance of the ABS. Plaintiffs presented no evidence to contradict Toyota’s evidence in this regard.  Indeed, plaintiffs did not even retain an expert to render an opinion on the safety and performance of the ABS postrecall. Plaintiffs instead argued that they suffered an actual injury because they would not have paid that same purchase price for each of their vehicles had they known of the problem with the ABS. Plaintiffs’ benefit-of-the-bargain argument was insufficient as a matter of law. Merely offering a creative damages theory does not establish the actual injury that is required to prevail on their product liability claims. And in this case, the class reps and, apparently, the majority of the purported class they seek to represent, received exactly what they paid for — that is a vehicle with a safe and operable ABS. After the updated software was installed in their vehicles, the class reps admitted they had no problem with
the braking performance of their vehicles. They were able to apply their brakes and stop their vehicles without incident. They never sold their vehicles. They never incurred any expense as a result of any problem with the ABS in their vehicles. Simply stated, the majority of the class members suffered no actual injury, let alone a common one resulting from the same manifest defect.

Moreover, since the number of members of the proposed class that allegedly suffered an injury was tiny, the proposal to certify a class of thousands of owners of the Class Vehicles, then determine which few suffered an actual injury that resulted from a manifest defect in the ABS, would render the class action device nothing more than a façade for conducting a small number of highly individualized, fact-intensive cases. In re Cannon Cameras, 237 F.R.D. 357, 360 (S.D.N.Y. 2006). Such a class action is certainly not a superior, fair, and efficient method for resolving the parties’ controversy.

Toy Class Rejected on Commonality Grounds

Christmas ought to be the toy season, after all Suzy wants a dolly and Johnny wants a truck. But the plaintiff bar wants it to be season of toy litigation.  Fortunately, a California court recently refused to certify a proposed class of consumers who sued alleging that venerable Tinkertoys were falsely advertised.  See O'Brien v. Hasbro Inc., No. BC438958 (Superior Court, County of Los Angeles, CA).

Plaintiffs' claim was that the packaging implied that the items pictured could be built with the parts contained in the package.  The court's reasoning in rejecting the the claim under California's Unfair Competition Law was interesting.  The court focused on the commonality issue, and whether the  plaintiffs could show through common proof that the entire class had been confused by the "Classic Tinkertoy Construction Set" packaging.

The evidence was that less than 100 consumers had ever complained to Hasbro about the issue. The court noted recent appellate decisions in which classes had been decertified when only a tiny percentage of the class actually had reported the alleged problem.

Even if traditional reliance is not an element of a claim, there is still going to be a requirement of injury.  If a class member is not deceived, then he or she has been injured.  And the fact that a tiny percentage of consumers claim to have been confused does not mean that plaintiffs can show on a common basis that all class members were deceived.

An interesting one to watch if it goes on appeal.

Federalists Debate Business in Supreme Court

Let's get out of the weeds today and think lofty thoughts. The Federalist Society's 2012 National Lawyers Convention was held earlier this month in Washington, D.C.  Readers may know that the society is an organization of 40,000 lawyers, law students, scholars, and other individuals "who believe and trust that individual citizens can make the best choices for themselves and society."

The topic of this year's convention was: The Future of U.S. Constitutional Law in the Supreme Court. The Convention addressed the fact that, at the present time, the Supreme Court seems closely divided on many foundational topics in constitutional law, such as federalism, separation of powers, and religious liberties.

One interesting panel was - Litigation: Business Cases in the Roberts Court: Perception and Reality,  which included practitioners, professors, and judges.  Some participants argued that this Court has issued pro-business decisions in nearly every major case, while others noted that the issue was a bit more complex.  For example, was Citizens United v. Federal Election Commission, 558 U.S. 50 (2010), a pro-business decision, or better seen as a victory for free speech?   Other speakers observed that a significant part of the Court's docket is in fact business v. business cases, so, by definition, a business will prevail.  

Still other panelists noted that many of the pro-business decisions arose in the class action context, which the Court had left inadequately tended and which saw numerous splits in the lower courts.  It will be interesting to see what the Court does in Comcast on Daubert, and in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, 81 U.S.L.W. 3258 (U.S. argued 11/13/12) on materiality.

Supreme Court Hears Arguments in Comcast

We alerted readers before about the Supreme Court consideration of the role of Daubert at the class certification stage.   See Comcast Corp. v. Behrend, U.S., No. 11-864 (cert. granted 6/25/12). The Court had indicated it was interested in the question "whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a classwide basis." Readers will recall that in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011) the Supreme Court in dicta referenced the question. Justice Scalia observed that the district court had "concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings," but the majority replied that "we doubt that is so." 131 S. Ct. at 2554. Thus, Dukes strongly suggested that it was appropriate for defendants to make the expert challenge at the class certification stage, and important for the court to resolve the issue then.

The justices heard arguments from both sides November 5th.  The district court in Comcast originally certified a class; following the court of appeals' decision in Hydrogen Peroxide, 552 F.3d 305, the district court granted in part Comcast‘s motion to reconsider its certification decision. After further briefing, plaintiffs got the case re-certified after convincing the district court that they could show that they had an expert methodology to prove damages on a classwide basis. On the current appeal, the Third Circuit agreed that the lower court had applied the "rigorous analysis," adding that at the class certification stage, "we are precluded from addressing any merits inquiry unnecessary to making a Rule 23 determination.” The Petitioners argued that the Third Circuit affirmed the certification order after expressly declining to consider several “merits” issues necessary to determine whether, as required by Rule 23(b)(3), common questions predominate over individual ones. The focus on damages, which some have viewed as narrowing the issue presented, still is a question that arises not just in antitrust cases, but also in mass torts, which are front and center for our readers.

Plaintiffs seemed to get more questions from the bench than did defendant, especially about any problem with allowing potentially inadmissible evidence to form the basis for the crucial class certification decision. 

Comcast emphasized flaws in the expert's damages model, including that the damage model was not linked to the class theory certified by the lower court, that the alleged monopolization of the Philadelphia area through clustering deterred competitors, or “overbuilders,” from competing. The district court should not have relied on it to certify the class. Plaintiffs argued waiver, that the company failed to bring up Daubert v. Merrell Dow Pharmaceuticals Inc., 509 U.S. 469 (1993), until it was too late. That focus led Justice Kagan to note, “I am still in search of a legal question that anybody disagrees about here.” Justice Elena Kagan observed it seemed the parties apparently agreed that if the Daubert question was not waived, the lower court should have held a hearing on the admissibility of the expert opinions. Comcast emphasized it had argued to the trial court that this model did not work, ought to be precluded, and was not a valid methodology.

Plaintiffs argued that allowing district courts to defer admissibility determinations under Daubert  until after the class certification stage is consistent with the broad discretion given judges on evidentiary issues.  But that failed to address the pressure that class certification puts on defendants to settle, a point that was not a focus of the arguments. Plaintiffs also seemed to be arguing for a standard in which the district court has to decide simply that it is more likely than not that the damages model/expert opinion will be admissible at trial, and will meet the standard that’s required to get to a verdict.  But Justice Sotomayor asked "can a district court ever say that it’s persuaded by unreliable or not probative evidence.” Justice Alito similarly asked how could this expert "report be probative if it did not satisfy Daubert?”
 

Comcast argued that the trial court needed to conduct more than a limited Daubert hearing, agreeing with what defendant called the holding of the Seventh Circuit in American Honda that the question at the class cert hearing is not solely one of whether the evidence would be admissible, but also  -- keeping in mind that the focus of the class certification hearing is to decide whether the case should be tried as a class --  whether it is a methodology that sufficiently fits the facts and is reliably based on a scientific method so that plaintiffs will be capable of proving, class-wide, this issue at trial.

Justice Scalia asked about a hybrid approach where the court would focus at the class stage on reliability, and leave other Daubert inquiries (like fit)  for trial. But a focus of Justice Ginsburg's questions right out of the box was whether any finding of reliability was necessary on damages. She noted that in discrimination law contexts, courts may, if the liability questions can be adjudicated on a class basis, have the damages question adjudicated individually.  Of course, that view of class actions seems to slight the manageability requirement in a (b)(3) context, and invites truncated procedures that violate a defendant's due process rights.

One to watch for sure.
 

 

Court of Appeals Applies CAFA Mass Action Provision

The Seventh Circuit has resolved a conflict between district court decisions about whether a motion to consolidate and transfer related state court cases to one circuit court constitutes a proposal to try the cases jointly triggers the “mass action” provision of the Class Action Fairness Act (“CAFA”).  The court held that plaintiffs’ motion to consolidate did propose a joint trial, and thus removal was proper. See In re Abbott Laboratories Inc., No. 12-8020 (7th Cir. 10/16/12).
 

Between August 2010 and November 2011, several hundred plaintiffs filed ten lawsuits in three different Illinois state courts for personal injuries they alleged were caused by Depakote, a prescription medication.  Later, plaintiffs moved the Supreme Court of Illinois to consolidate and
transfer their cases to one venue, St. Clair County. In the memorandum in support of their motion, plaintiffs indicated they were requesting consolidation of the cases through trial and not solely for pretrial proceedings. Defendant removed each of the cases to federal court (in two districts) asserting that the motion to consolidate brought the cases under CAFA’s “mass action” provision, which allows the removal of any case where 100 or more people propose to try their claims jointly. Plaintiffs moved to remand in both courts.

The Southern District granted the motion to remand, concluding that the language in the motion to consolidate did not propose a joint trial. The Northern District court denied plaintiffs’ motion to
remand, noting that the motion to consolidate clearly sought to consolidate the 10 complaints for all purposes, including for purposes of conducting a trial.  Plaintiffs argued on appeal that they did not specifically propose a joint trial because their motion to consolidate did not address how the trials of the various claims in the cases would be conducted, other than proposing that they all take
place in St. Clair County. In plaintiffs’ view, for the mass action provision to apply, they would have needed to take the further step of requesting a joint trial or an exemplar trial that would affect the remaining cases.

The court of appeals noted that plaintiffs argued that they never specifically asked for a joint trial, but a proposal for a joint trial can be implicit. See Bullard v. Burlington Northern Santa Fe Railway
Co., 535 F.3d 759 (7th Cir. 2008).  A joint trial does not have to encompass joint relief. For example, a trial on liability could be limited to a few plaintiffs, after which a separate trial on damages could be held. Similarly, a trial that involved exemplary plaintiffs, followed by application of issue or claim preclusion to more plaintiffs without another trial, would be one in which the claims of 100 or more persons are being tried jointly. In short, said the court of appeals, a joint trial can take different forms as long as the plaintiffs’ claims are being determined jointly.

Here, plaintiffs may not have explicitly asked that their claims be tried jointly, but the language in their motion came close. Plaintiffs requested consolidation of their cases “through trial” and “not solely for pretrial proceedings.” They further asserted that consolidation through trial “would also facilitate the efficient disposition of a number of universal and fundamental substantive questions applicable to all or most Plaintiffs’ cases without the risk of inconsistent adjudication
in those issues between various courts...”  It is difficult to see how a trial court could consolidate the cases as requested by plaintiffs and plaintiffs’ claims would somehow not be tried jointly. Although the transferee court will decide how their cases proceed to trial, it does not matter whether a trial covering 100 or more plaintiffs actually ensues; the statutory question is whether one has been proposed.

The court thus reversed the Southern District's grant of the plaintiff's motion to remand and affirmed the Northern District's ruling. 

"Go" Power Defeats Proposed Class Action

We have posted several times on the disturbing trend of plaintiffs seeking to turn virtually every advertising claim, label statement, or good old fashioned "puffing" about a product into an expensive consumer fraud class action. It is with great interest that we note for the loyal readers of MassTortDefense those putative class actions in which the courts require plaintiffs to fully meet all the underlying elements of the claim, and apply some common sense to those elements.

Recently, a New Jersey federal court dismissed a putative class action that alleged that the manufacturer overstated a cereal's ability to help lower cholesterol. Myers et al. v. General Mills Inc., No. 3:09-cv-02413 (D.N.J.).

Plaintiffs were consumers of Cheerios who resided in California, New Jersey, and New York, seeking to sue on behalf of all similarly situated individuals in the United States. Plaintiffs alleged General Mills deceived customers by marketing, advertising and promoting Cheerios as having the ability to prevent, mitigate, or treat high cholesterol. According to plaintiffs, defendant advertised that Cheerios could help lower a person’s cholesterol by 4% in six weeks when part of a healthy breakfast.  (We fondly remember the simple days of  "Big G, Little O. Get "Go" power with Cheerios!")

Defendant moved for summary judgment, alleging that plaintiffs did not suffer any concrete or particularized injury and thus did not have standing to sue. See Koronthaly v. L’Oreal USA, Inc., 374 Fed. Appx. 257 (2010). To prove constitutional standing, a plaintiff must demonstrate (1) an injury-in-fact that is actual or imminent and concrete and particularized, not conjectural or hypothetical, (2) that is fairly traceable to the defendant’s challenged conduct, and (3) is likely to be redressed by a favorable judicial decision. Summers v. Earth Island Inst., 129 S.Ct. 1142, 1149 (2009). 

Plaintiffs sought a full refund for all boxes of Cheerios that plaintiffs purchased during the relevant time-frame, on the typical theory that plaintiffs “would not have purchased Cheerios” but for defendant’s alleged deceptive practices. That assertion, however, did not comport with the testimony of the plaintiffs themselves.  Generally, the out-of-pocket theory applies only when the seller's misrepresentations render the product essentially worthless. Plaintiffs admitted they purchased their Cheerios for crunchiness, taste, convenience, as well as to help lower their cholesterol. Moreover, Ms. Theodore, like many mothers, selected Cheerios due to its healthy, simple ingredients for her children. The contention that these plaintiffs would not have purchased Cheerios but for defendant’s alleged misrepresentation was also contradicted by the testimony that Mr. Myers, Ms. Acevedo and Ms. Theodore still eat or purchase Cheerios today, and for various reasons including the ingredients (Theodore), and the taste (Myers and Acevedo) and convenience.  As such, plaintiffs failed to adequately show that they were entitled to full purchase price refunds, especially when they ate the Cheerios after learning of the alleged issues, and are still eating them today for other reasons.
 

Plaintiffs alternatively sought the difference between what plaintiffs paid for Cheerios and the price that plaintiffs supposedly would have paid for Cheerios, if defendant had not engaged in the alleged misrepresentation; readers will recognize this as the other typical injury theory, the so-called benefit of the bargain approach. This theory of relief was equally flawed, said the court. Plaintiffs purchased a food product, and got the exact product with the exact ingredients listed on the label.  At most, plaintiffs simply claimed that their expectations of the cereal were disappointed. Dissatisfaction with a product, however, is not a quantifiable loss that can be remedied under the CFActs. Even a technical alleged violation of FDA food labeling regulations would not show that plaintiffs purchased boxes of Cheerios that did not contain the ingredients listed on the Cheerios boxes. And, again, several plaintiffs consumed all of the Cheerios purchased for various other reasons such as convenience and crunchiness. Plaintiffs therefore failed to adequately allege that they suffered “benefit of the bargain” damages.
 

The court granted summary judgment, including on the class allegations, which clearly failed on typicality and commonality. 

Supreme Court Grants Cert in CAFA Case

Here is one to watch, especially for our readers with a class action practice. The U.S. Supreme Court granted certiorari last week in a case raising the issue whether class plaintiffs may stipulate to a damages amount below the jurisdictional threshold of the Class Action Fairness Act to avoid removal of the case to federal court. See Standard Fire Insurance Co. v. Knowles, No. 11-1450, U.S., certiorari granted 8/31/12).

Since the Act was passed in 2005, as surely as one end of a balloon expands when you squeeze the other end, litigants have reacted to the Congressional effort to expand federal jurisdiction over class actions by seeking exceptions and loopholes to keep the cases in state court.  This case will be the first time the Supreme Court considers a case arising under CAFA, and one of those creative efforts to avoid its reach.

Readers will recall that CAFA allows for removal of class actions in which just minimal diversity exists and the amount in controversy exceeds $5 million. A number of class plaintiffs have attempted to defeat the defendant's removal under the Class Action Fairness Act by filing a stipulation that purports to limit the damages sought to less than the $5 million threshold for federal jurisdiction.  A key question is whether that stipulation can be binding on absent class members, and thus possibly impact federal jurisdiction, when the Court recently reaffirmed that in a putative class action "the mere proposal of a class ... could not bind persons who were not parties." Smith v. Bayer Corp., 131 S. Ct. 2368, 2382 (2011).  In light of that holding, the question presented in this case is:

When a named plaintiff attempts to defeat a defendant's right of removal under the Class Action Fairness Act of 2005 by filing with a class action complaint a "stipulation" that attempts to limit the damages he "seeks" for the absent putative class members to less than the $5 million threshold for federal jurisdiction, and the defendant establishes that the actual amount in controversy, absent the "stipulation," exceeds $5 million, is the "stipulation" binding on absent class members so as to destroy federal jurisdiction?


The facts of the case involve a putative class action in Arkansas state court alleging that defendant Standard Fire Insurance Co. breached homeowners insurance policies by failing to fully  reimburse losses.  Standard Fire attempted to remove the case under CAFA but the federal district court remanded the case pursuant to the stipulation that plaintiffs would not seek damages above $5 million.   The Eighth Circuit denied Standard Fire's petition to appeal the remand order. Defendant then petitioned the Supreme Court for certiorari.  The U.S. Chamber of Commerce weighed in with an amicus brief in favor of the petition.


The petition argued that putative class members are not bound by such actions taken by the named plaintiffs before class certification. Such a limitation, if effective at the time suit is filed, would violate the due process rights of the proposed class members.  The Chamber echoed that district courts must conduct a meaningful analysis to determine with legal certainty whether the stipulation will truly limit the ability of absent class members to recover no more than the stipulated amount, and whether the stipulation is consistent with due process. If allowed to stand, the lower court's decision could result in an enormous CAFA loophole allowing plaintiffs to drag businesses into class action-friendly state court systems.  Plaintiff argued that the petition was premature because the issue could be considered at the class certification stage within the adequacy of representation prong. 

Definitely one to watch.

Denial of Class Certification Affirmed in Cellphone Case

The Eleventh Circuit last week upheld a trial court’s refusal to certify a class action accusing the defendant of improperly reactivating lost or stolen cellphones.  See Robinson et al v. T-Mobile USA Inc., No. 12-10170 (11th Cir. 2012).

MassTortDefense has often wondered why the issue of damages seems to get insufficient weight in the class certification decision. Would a class be satisfied with proving its case except damages? Would an award of zero damages to a class be devastating to a defendant? Shouldn't it matter that each plaintiff get a fair an accurate amount of damages to compensate for the alleged conduct of defendant? Doesn't a defendant have a right to dispute claimed damages regarding each class member? Here, the trial court determined that plaintiffs failed to offer a viable method for how proposed damages were to be calculated, and plaintiffs paid too little attention to this issue on appeal as well.

The plaintiffs filed a proposed class action against T-Mobile asserting state-law claims of conversion, trespass to chattels, and unjust enrichment. They alleged that: (1) they had reported to T-Mobile that their cell phones had been lost or stolen; (2) an unknown person brought their lost or stolen phones to T-Mobile; and (3) T-Mobile unlawfully reactivated the phones without the plaintiffs’ permission.

The district court denied the plaintiffs’ motion for class certification on five grounds. The first ground was that the plaintiffs had not satisfied their preliminary burden of establishing that their
proposed class was clearly ascertainable. Before a district court may grant a motion for class certification, a plaintiff seeking to represent a proposed class must establish that the proposed class is “adequately defined and clearly ascertainable.” DeBremaecker v. Short, 433 F.2d 733, 734 (5th Cir. 1970)1; cf. John v. Nat’l Sec. Fire & Cas. Co., 501 F.3d 443, 445 (5th Cir. 2007) (“The existence of an ascertainable class of persons to be represented by the proposed class representative is an implied prerequisite of Federal Rule of Civil Procedure 23.”).  Here, the court reasoned, in part, that the plaintiffs had “made no effort to separate out those putative class members who may very well be barred from pursuing class claims due to the existence of valid arbitration agreements or class action waivers that potentially prohibit such litigation.”

The second ground on which the district court denied class certification was that the plaintiffs had not satisfied the Rule 23(a)(1) numerosity requirement. The court reasoned that the plaintiffs had offered no evidence showing numerosity, nor made any “effort to account for those putative class members who waived their right to pursue relief against T-Mobile on a class-wide basis or who are bound by their agreement to arbitrate disputes with T-Mobile.”

The third ground the district court stated for denying class certification was that the plaintiffs had failed to satisfy the predominance requirement in Rule 23(b)(3) because there were “significant state-wide variations in the law” of conversion and in the law regarding other issues, such as the enforceability of class-action waivers.

The fourth ground the court stated for denying class certification was that  the plaintiffs had failed to establish superiority under Rule 23(b)(3). The court based that determination, in part, on the plaintiffs’ failure “to suggest how to manage the rather thorny issue of putative class members whose rights to litigate their conversion claims as part of a class proceeding in this forum may have been cutoff by either a class action waiver provision, an agreement to arbitrate, or both.”
 

The fifth reason was that “damage-related concerns evidence a predomination of individualized inquiries and render the proposed class unfit for certification under Rule [23](b)(3).” The district court explained what those damage-related concerns were. Here, plaintiffs contended that “in this era of Ebay and other public online sites selling used phones by the millions, determining a particular model phone’s value is a relatively simple matter of online research.” However, they certainly offered no concrete proposal or methodology about how to effectively and accurately manage such online research on a nationwide basis. For example, when conducting online research, would 2011 be the year to use for establishing the value for a used phone of a certain model or would the year in which the phone was misplaced or stolen be the more appropriate time frame? Plaintiffs also ignored how individualized issues relating to the age of the phone, what contents or applications were previously on the phone, and whether the original owner was a heavy or light user of the phone, might affect the value of the used phone.  Additionally, plaintiffs did not address whether loss of use of the phone should be compensable and, if so, suggest how it might be reduced to a formula-type calculation.  

The district court’s determination that the plaintiffs had not established the predominance of common issues under Rule 23(b)(3) because of individual damage-related issues was an alternative, independent ruling -- and one that prevailed on appeal. Class certification would have been denied for that reason regardless of the variations instate law relating to conversion and regardless of the enforceability of class-action waivers.

Then on appeal, plaintiffs failed to adequately challenge in their opening brief the district court’s  independent, alternative ruling that damage-related concerns evidence a predomination of individualized inquiries and render the proposed class unfit for certification under Rule [23](b)(3). The plaintiffs’ opening brief failed to clearly argue the predominance issue involving variation in damages. They also failed to raise it in their reply brief after T-Mobile had argued in its answer brief that one of the reasons the court of appeals should affirm the denial of class certification was
that variation in damages destroyed the predominance of common issues, as the district court had ruled.  By failing to challenge in their brief the district court’s ruling, the plaintiffs had abandoned any contention that the court erred in denying class certification on that ground.

Decision affirmed.

Federal Court Orders Class Action Plaintiffs to Share Defendant's Discovery Costs

A federal district court in Pennsylvania recently gave defendants in putative class actions new authority for requiring plaintiffs to share discovery costs. See Boeynaems v. LA Fitness International, LLC, No. 2-10-cv-2326-MMB, 2012 WL 3536306 (E.D. Pa. Aug. 16, 2012).  Specifically, Judge Michael Baylson ruled that when class action plaintiffs request “very extensive discovery, compliance with which will be very expensive,” plaintiffs typically should share defendant’s discovery costs – at least until plaintiffs’ certification motion has been filed and decided.

In discussing the case with my colleague Becky Schwartz, a class action guru, one of the things that jumped out at her was the notion: “If the plaintiffs have confidence in their contention that the Court should certify the class, then the plaintiffs should have no objection to making an investment.” Judge Baylson went on to say that the "Court is firmly of the view that discovery burdens should not force either party to succumb to a settlement that is based on the cost of litigation rather than the merits of the case.” 2012 WL 3536306, at *10. We have posted before about the dangers of blackmail settlements.

This case involved five named plaintiffs who alleged breach of contract and unfair trade practices related to alleged attempts to cancel their fitness club memberships. The parties were before the court on plaintiffs’ motion to compel production of additional documents and electronically stored information (“ESI”). One example of the parties’ disagreements involved defendant’s internal communications.  Defendant claimed that large numbers of internal memoranda had already been provided, while plaintiffs held fast to their demand that absolutely “all responsive internal documents” be identified and produced. The court compared the parties’ discovery dialog to “a Verdian opera scene, where a tenor and a bass boast of their qualities, to compete to win over the fair princess.” 2012 WL 3636306, at *2.

Recognizing that discovery in the case was “asymmetrical,” the court contrasted the “very few documents” in plaintiffs’ possession – e.g., their membership contract and related  correspondence – with the millions of potentially discoverable items in defendant LA Fitness’s possession. “The Court does not in any way suggest that counsel is acting otherwise than in the interests of their clients, but economic motivation and fairness are relevant factors in determining cost shifting of disputed discovery burdens,” Judge Baylson said. 2012 WL 336306, at *4.

“Plaintiffs have already amassed, mostly at Defendant’s expense, a very large set of documents that may be probative as to the class action issue,” the court opined. “If Plaintiffs conclude that additional discovery is not only relevant, but important to proving that a class should be certified, then Plaintiffs should pay for that additional discovery from this date forward, at least until the class certification is made.” 2012 WL 3536306, at *10.

My colleague Mark Cowing (many of our readers know Mark from his work on DRI’s Electronic Discovery Committee), pointed out that the court established a protocol by which the plaintiffs would list discovery that they still requested, being “specific as to what searching of ESI, or hard documents, is required.” Defendant’s response would include its internal costs for providing this information, including “the appropriately allocated salaries of individuals employed by Defendant who participate in supplying the information which Plaintiffs request, including managers, in-house counsel, paralegals, computer technicians and others involved in the retrieval and production of Defendant’s ESI.” 2012 WL 3536306, at *11. Plaintiffs would then be required to advise whether they were willing to make the necessary payment. Judge Baylson concluded the time-line by saying that “[t]he Court reserves the right to make an allocation of these costs depending upon the outcome of the class action motion and/or the merits of the case.” Id.

To help guide the process, the opinion itemized the categories of information that were considered to be relevant and irrelevant (i.e., “inside and outside the fence”) while certification remained pending. Citing the U.S. Supreme Court’s decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2451 (2011), Judge Baylson noted that “the most relevant discovery at this stage of the case is that which will illuminate the extent to which Defendant’s membership cancellation policies and practices are set and followed nationally; Plaintiffs must show either that individual managers have no discretion or that there is a common mode of exercising discretion that pervades the entire company.” 2012 WL 3536306, at *11 (internal quotation marks omitted).

SHB’s Suggestions for Defense Counsel

I asked Mark, Becky, and my partner Denise Talbert, who chairs SHB’s eDiscovery, Data & Document Management Practice, for some e-discovery pointers for our readers, in light of this potentially important discovery decision. They suggest that defendants: 

1. From the outset, maintain a record of the volume, cost, and custodians of documents and ESI reviewed for responsiveness and produced to opposing counsel.

2. In responses to plaintiffs’ requests for production, take care to (a) describe what defendant is willing to produce without objection; (b) specify the parts of plaintiffs’ requests that are irrelevant to the claims and defenses in the case; and (c) explain how individual requests are overly broad and unduly burdensome.

3. Be alert for opportunities where defendant may be able to offer to produce only examples of certain types of documents “sufficient to show” notice or some other specific fact. This can reduce costs associated with the production of repetitive documents such as articles and monthly reports.

4. Proactively seek agreement on the custodians and sources from which collection and production will be made. Emphasize the value of first producing from a core group of custodians (hopefully no more than three to five) and defendant’s willingness to meet and confer about reasonable requests to search additional sources after plaintiffs have reviewed the initial production.

5. Don’t jump the gun on a cost-shifting motion. It may well be stronger once a threshold volume of information has been produced and plaintiffs’ further requests begin to appear even more onerous.

6. Consider these approaches not only in class actions but in all complex cases in which a client is asked to produce documents and ESI in large volumes. 
 

Court of Appeals Vacates Class Certification in Tire Case

Last week, the Third Circuit reversed a trial court's certification of a class of consumer who alleged their vehicles were equipped with allegedly defective run-flat tires. Marcus v. BMW of North America LLC, Nos. 11-1192, 11-1193 (3d Cir.,  8/7/12).

As their name suggests, run-flat tires  can “run” while “flat.” Even if an RFT suffers a total and abrupt loss of air pressure from a puncture or other road damage, the vehicle it is on remains operable.  Plaintiff alleged he experienced four “flat” tires during his three-year lease of a BMW equipped with this tire technology.  In each case, the RFT worked as intended. That is, even though the tire lost air pressure, Marcus was able to drive his car to a BMW dealer to have the tire replaced. He nonetheless sued BMW and the tire maker Bridgestone, asserting consumer fraud, breach of warranty, and breach of contract claims. in part because the tires needed to be replaced rather than repaired.  The District Court certified plaintiff’s suit under Federal Rule of Civil Procedure 23(b)(3) as an opt-out class action brought on behalf of all purchasers and lessees of certain model-year BMWs equipped with Bridgestone RFTs sold or leased in New Jersey with tires that “have gone flat and been replaced.” Defendants appealed.

The requirements set out in Rule 23 are not mere pleading rules. The party seeking certification bears the burden of establishing each element of Rule 23 by a preponderance of the evidence. The Third Circuit has repeatedly emphasized that actual, not presumed, conformance with Rule 23 requirements is essential. Newton v. Merril Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 167 (3d Cir. 2001) (quoting Gen. Tel. Co. of the Sw. v. Falcon, 457 U.S. 147, 160 (1982)).  To determine whether there is actual conformance with Rule 23, a district court must conduct a “rigorous analysis” of the evidence and arguments put forth. When doing so, the court cannot be bashful. It must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits — including disputes touching on elements of the cause of action.

The term "game-changer" is often misused and overused as a buzz word in the business world by those who want sound trendy, but the Third Circuit here correctly recognized that, as a practical matter, the certification decision is "typically a game-changer, often the whole ballgame," for the parties and counsel. That is, denying or granting class certification is often the defining moment in class actions. 

The Third Circuit first addressed the issue of numerosity.  When a plaintiff attempts to certify both a nationwide class and a state-specific subclass, as plaintiff did here, evidence that is sufficient to establish numerosity with respect to the nationwide class is not necessarily sufficient to establish numerosity with respect to the state-specific subclass. See Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1266-68 (11th Cir. 2009) (plaintiff could not simply rely on the nationwide presence of T-Mobile to satisfy the numerosity requirement without Florida-specific evidence).  The District Court found that the New Jersey class met the numerosity requirement because “it is common sense" that there will probably be at least 40 class members in New Jersey. The court of appeals noted that this may be a bet worth making, but it cannot support a finding of numerosity sufficient for Rule 23(a)(1);  a district court must make a factual determination, based on the preponderance of the evidence, that Rule 23’s requirements have been met. Mere speculation is insufficient.

The second major issue was predominance. A plaintiff must demonstrate that the elements of the legal claim capable of proof at trial through evidence that is common to the class predominate over the issues that must be litigated through proof individual to its members. The court’s  obligation to consider all relevant evidence and arguments on a motion for class certification  extends to expert testimony on the common or individual nature of issues and proof, whether offered by a party seeking class certification or by a party opposing it. Expert opinion with respect to class certification, like any matter relevant to a Rule 23 requirement, calls for rigorous analysis. Weighing conflicting expert testimony at the certification stage is not only permissible, it may be integral to the rigorous analysis Rule 23 demands.  

Here, the District Court then found plaintiff could show, without resort to individual proofs, that the alleged common defect (RFTs go "flat" too easily) caused the class members’ damages. But that causation finding was an abuse of discretion.  Central to plaintiff's claim was what caused class members’ tires to go flat and need replacement. Causation was pivotal to each of Marcus’s claims. The District Court failed to analyze an undisputed, fundamental point: any tire can “go flat” for myriad reasons. Even “defective” tires can go flat for reasons completely unrelated to their defects. Critically, to determine why a particular class member’s Bridgestone RFT had “gone flat and been replaced” requires an individual examination of that class member’s tire. But these individual inquiries are incompatible with Rule 23(b)(3)’s predominance requirement.

For example, of the two tires plaintiff presented for inspection in his lawsuit, one went “flat” and was replaced because he ran over a jagged chunk of metal, and the other because he ran over a sharp object that tore and gouged the tire and damaged the sidewall. All the experts agreed that the two tires could not have been repaired and that any tire (run-flat or conventional, defective or not) would also have been damaged under the circumstances. Thus, even if Marcus could prove that Bridgestone RFTs suffer from common, class-wide defects, those defects did not cause the damage he suffered for these two tires: the need to replace them. In this sense, Marcus was no different than a class member who, seconds after buying his car, pulled off the dealership lot and ran over a bed of nails -- neither could claim a “defect” caused his tires to go flat and need replacement.

One other key aspect of the opinion for our readers: the court of appeals also raised an issue should plaintiffs attempt to get a different class certified on remand.  Many courts have recognized that an essential prerequisite of a class action, at least with respect to actions under Rule 23(b)(3), is that the class must be currently and readily ascertainable based on objective criteria. See, e.g., John v. Nat. Sec. Fire & Cas. Co., 501 F.3d 443, 445 (5th Cir. 2007).  If class members are impossible to identify without extensive and individualized fact-finding or “mini-trials,” then a class action is inappropriate. Some courts have held that where nothing in company databases shows or could show whether individuals should be included in the proposed class, the class definition fails. See Clavell v. Midland Funding LLC, No. 10-3593, 2011 WL 2462046, at *4 (E.D. Pa. June 21, 2011); Sadler v. Midland Credit Mgmt, Inc., No.06-C-5045, 2008 WL 2692274, at *5 (N.D. Ill. July 3, 2008); In re Wal-Mart Stores, Inc. Wage & Hour Litig., No. C 06-2069 SBA, 2008 WL 413749, at *8 (N.D. Cal. Feb. 13, 2008); Deitz v. Comcast Corp., No. C 06-06352 WHA, 2007 WL 2015440, at *8 (N.D. Cal. July 11, 2007).

The ascertainability requirement serves several important objectives. First, it eliminates serious administrative burdens that are incongruous with the efficiencies expected in a class action by insisting on the easy identification of class members.  Second, it protects absent class members by facilitating the “best notice practicable” under Rule 23(c)(2) in a Rule 23(b)(3) action. See Manual for Complex Litigation, § 21.222 (4th ed. 2004). Third, it protects defendants by ensuring that those persons who will be bound by the final judgment are clearly identifiable. See Xavier v. Philip Morris USA, Inc., 787 F. Supp. 2d 1075, 1089 (N.D. Cal. 2011). Ascertainability is needed for properly enforcing the preclusive effect of final judgment. The class definition must be clear in its applicability so that it will be clear later whose rights are merged into the judgment; that is, who gets the benefit of any relief and who gets the burden of any loss. If the definition is not clear in its applicability, then satellite litigation will be invited over who was in the class in the first place.

If plaintiff attempts to certify a class on remand, the District Court would have to resolve the critical issue of whether the defendants’ records can ascertain class members and, if not, whether there is a reliable, administratively feasible alternative. The Third Circuit cautioned against approving a method that would amount to no more than ascertaining by potential class members’ say so. For example, simply having potential class members submit affidavits that their Bridgestone RFTs have gone flat and been replaced may not be “proper or just.”  Defendants would be able to cross-examine an individual plaintiff at trial about whether and why his tires “have gone flat and been replaced.” So, forcing defendants to simply accept as true absent persons’ declarations that they are members of the class, without further indicia of reliability, "would have serious due process implications."

 

Amicus Files Third Circuit Brief on Important Class Issue

One of the things we like to do is flag for our readers interesting arguments raised by amicus on important appeals. The Product Liability Advisory Council recently submitted a brief to the Third Circuit. weighing in on the surprising and troubling certification of a class of consumers in a vitamin case. Carrera v. Bayer Corp. et al., No.12-2621 (3d Cir. 2012).

The implicit requirement of ascertainability is an important but sometimes overlooked prerequisite to class certification. A plaintiff must offer a definition of a class that is precise, objective and presently ascertainable. A threshold requirement to a Rule 23 action is the actual existence of a class which is sufficiently definite and identifiable. See, e.g., Kline v. Sec. Guards, Inc., 196 F.R.D. 261, 266 (E.D. Pa. 2000); Reilly v. Gould, Inc., 965 F. Supp. 588, 596 (M.D. Pa. 1997); Clay v. Am. Tobacco Co., 188 F.R.D. 483 (S.D. Ill. 1999). The initial inquiry on class definition is distinct from the analysis required by Federal Rule of Civil Procedure 23. See, e.g., Sanneman v. Chrysler Corp., 191 F.R.D. 441, 446 n. 8 (E.D. Pa. 2000). This notion means, in part, that the court can see sufficient administrative feasibility in determining whether a particular person belongs to a class -- that the court can identify class members in a practical and non-burdensome manner. A “proposed class must be sufficiently identifiable,” and it must be “administratively feasible to determine whether a given individual is a member of the class.”Mueller v. CBS, Inc., 200 F.R.D. 227, 233 (W.D. Pa. 2001). A class may not be ascertainable if it will require individual inquiry into each class member’s particular situation to determine whether that plaintiff suffered the injury alleged. Similarly, a class is not ascertainable if membership depends on a particular subjective state of mind. And even when plaintiffs offer ostensibly objective criteria for membership, the court must be able to apply that objective criteria to determine who is in the class without addressing numerous fact-intensive questions. Certification is denied when determining membership in the class essentially requires a mini-hearing as to each prospective class member. E.g., Agostino v. Quest Diagnostics Inc., 256 F.R.D. 437, 478 (D.N.J. 2009); Solo v. Bausch & Lomb Inc., 2009 WL 4287706, (D. S.C. Sept. 25, 2009) (class not appropriate for certification where determining class membership would require “fact-intensive mini-trials”).

Here, the trial court certified a class of Florida residents who purchased One-A-Day WeightSmart, a multivitamin that Bayer stopped selling in January 2007 – more than five years ago. As the
experience of the named plaintiff vividly illustrated, PLAC noted, membership in the class could not be demonstrated through objective documentation. Obviously, most consumers do not keep receipts or packaging from small-value, one-use products consumed years ago, and  plaintiff could not substantiate his own purchases (or offer any evidence that anyone else’s purchases could be substantiated).

Instead, noted the amicus, plaintiff proposed to prove class membership – for himself and for
the alleged members of the class – through self-serving statements whose veracity Bayer would have no ability to challenge. As the district court’s brief order described it, plaintiff and the other class members who lack objectively verifiable evidence that they ever purchased WeightSmart could still “establish” class membership by way of “claim forms or affidavits.” The order apparently made no provision for any substantive challenge to these proposed forms or affidavits; rather, the court viewed such submissions as “sufficient” in themselves to “verify claims.”

This one-sided procedure clearly violates a defendant's fundamental right to present individualized defenses, a right that is protected by the Due Process Clause. That right cannot be vitiated merely because the case is a putative class action or because the claims at issue have low dollar values.

Nor is the right to challenge class membership a mere technicality, noted PLAC. The named plaintiff himself had no definitive evidence that he purchased the product at issue in his suit. To the contrary, there was a real question, flagged by PLAC, whether he ever bought WeightSmart, given his erroneous recollection of the product’s packaging and the time period when it was on the market. Other potential class members would face similar challenges in proving that they purchased WeightSmart. Contrary to the district court's view, these were not minor manageability issues that should not prevent certification of a class.  That view, noted PLAC, confused Bayer’s fundamental rights with minor procedural issues that can be disregarded in service of class certification.

PLAC correctly pointed out the real danger in decisions like this: establishing a rule of law that defendants can be held liable to consumers without any real proof that those consumers purchased the defendants’ products, and sending a message that administrative convenience can override the basic due-process right to defend oneself in litigation.


 

Federal Court Rejects Truck Class Action Because Defendant Actually Has Right To Defend

A federal court recently rejected plaintiffs' class certification bid in a suit against Ford Motor Co. relating to diesel engines in some vehicles. Corder v. Ford Motor Co., No. 3:05-CV-00016 (W.D. Ky., 7/25/12).

Corder brought an action against Ford for allegedly violating the Kentucky Consumer Protection Act (“KCPA”). Corder alleged that the diesel engines installed in model year 2003 F-Series Super Duty Trucks and Excursions were "highly problematic."  Plaintiff then allegedly purchased a model year 2004 Ford F-250 Super Duty Truck with what he claimed was a “2003 engine” that did not have the improvements that were in the “2004 engine” According to plaintiff, non-disclosure of installation of the “2003 engine” in his model year 2004 truck was an unfair, false, misleading, or deceptive act within the meaning of the KCPA.

Ford noted that it makes running changes to its vehicles, including the engines, throughout the year. Purchasers of 2004 model year trucks built prior to October of 2003 received multiple slightly different engines, and all of those engines were improved over engines installed on most 2003 vehicles.

Following initial discovery, Ford moved for summary judgment. The trial court granted the motion, finding that Corder had not shown that Ford’s actions were false, misleading, or deceptive within the meaning of the KCPA, nor had Corder shown that he suffered an “ascertainable loss,” as is required to maintain a private action under the KCPA. The Sixth Circuit disagreed. Corder v. Ford Motor Co., 285 F. App’x 226 (6th Cir. 2008).  Upon remand, Corder filed a motion to certify a national class, but the district court found that a national class was not viable because the laws of each of the states in which the putative class members purchased their vehicles would have to be applied, which would lead to significant problems of individualized proof and manageability.

Plaintiff then amended, seeking to represent a class of only Kentucky residents. The court concluded that Rule 23(b)(3) was still not met. In order to meet the demand of Rule 23(b)(3) that common issues predominate, a plaintiff must show 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. Beattie v. CenturyTel, Inc., 511 F.3d 554, 564 (6th Cir. 2007). The predominance requirement in Rule 23(b)(3) guards against certifying class actions that could overwhelm or confuse a jury or compromise a party’s defense. Thus,  certification is not appropriate unless it is determinable from the outset that the individual issues can be considered in a manageable, time-efficient, and fair manner.

For Ford to be liable for damages under the KCPA, plaintiff had to establish that: (1) the person purchased or leased a Ford vehicle in question primarily for personal, family, or household purposes; (2) the person suffered an ascertainable loss; and (3) the loss was a result of an unfair, false, misleading or deceptive act or practice.

In this case, the need to determine the primary purpose for each customer’s purchase required an individualized inquiry that would overwhelm any alleged common issues. The trucks
at issue were not the type of product about which it may be inferred that all, or even the vast majority, were purchased primarily for a personal, family, or household purpose.  Indeed there was evidence suggesting that a large number of the purchasers of the trucks at issue bought them primarily for commercial use. And the Ford Design Analysis Engineer stated that it was “designed for heavy-duty use, including commercial use, and was too large to fit in many home garages."  The court noted that the burden on a class certification motion belongs to the plaintiff, In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 678 F.3d 409, 416 (6th Cir. 2012), but Corder offered no evidence controverting the suggestion that numerous customers purchased their trucks either partially or wholly for commercial purposes. Litigation of that issue would  require individualized inquiries into numerous class members. Clearly, the question of why any particular customer purchased the pickup truck was not something that can be resolved on a classwide basis.

Moreover, this element was a subjective one by its terms, focusing on the reasons underlying a
particular person’s reasons for purchasing a truck. Indeed, the statute did not restrict claims
to those purchasers whose only purpose was personal, family, or household related, but required
only that such a purpose be the primary one. That a purchaser can have a commercial purpose for the purchase of a truck, so long as that is only a secondary purpose, made the individualized inquiries and their resolution by a jury all the more detailed and complicated.

So far, a solid but not particularly uncommon analysis.  What is especially worthwhile for readers of MassTortDefense is that  plaintiff, as is growing more common, suggested that the court could simply use questionnaires, claim forms, or “judicial notice” to resolve the primary use inquiry. But none of those suggestions allowed for Ford to do what Ford was entitled to do: litigate the issue before a jury with respect to each customer for whom the relevant facts and inferences to be drawn therefrom are disputed. The requirement that a person have purchased a product primarily for personal, family, or household use prior to a finding of liability under KRS § 367.220 is an explicit element of the statute. Ford, of course, had every right to demand a full litigation of that element of the cause of action, and for each putative class member no less. The Rules Enabling Act forbids interpreting the Federal Rules of Civil Procedure, including Rule 23, to “abridge, enlarge or modify any substantive right.” 28 U.S.C. § 2072(b). Accordingly, a court could not certify a class action under the premise that Ford would not be entitled to fully litigate that statutory element in front of a jury, at least for those class members where the facts and inferences to be drawn therefrom are disputed. See Wal-Mart v. Dukes, 131 S.Ct. at 2561 (“Because the Rules Enabling Act forbids interpreting Rule 23 to ‘abridge, enlarge or modify any substantive right,’ a class cannot be certified on the premise that Wal-Mart will not be entitled to litigate its statutory defenses to individual claims”).

While plaintiff also argued that an “appropriate trial plan” would allow for resolution of the necessary individualized inquiries, he did not provide any detailed suggestion as to what sort of appropriate trial plan would allow for the resolution of the potentially numerous individualized inquiries without overwhelming the trial and the jury. Simply put, plaintiff could not meet his burden of showing that class certification was appropriate by making conclusory statements about questionnaires, judicial notice, or an appropriate trial plan.

 

 

Federal Court Denies Class Certification in Licensing Case

A New York federal court rejected a class certification motion recently in a suit over Scholastic Corp.'s alleged use of photographs in publications for one of its reading skills programs. See Palmer Kane LLC v. Scholastic Corp., No.1:11-cv-07456 (S.D.N.Y. 7/16/12).

It's a copyright case, which is not one of our typical areas of focus, but the class issues are illustrative more broadly.  As an aside, your humble blogger recalls fondly when, as a wee lad, the monthly Scholastic flyer was distributed in grade school, and there was an opportunity to pick out a new book to read. Defendant Scholastic has, since its founding in 1920, been a designer and developer of educational publications and services.

Plaintiff brought this purported class action alleging that Scholastic committed copyright infringement on images it allegedly used in certain of its books by printing more copies of the books than was allowed under the licenses it held, or by publishing the books prior to obtaining a license. The "READ 180" program at issue had multiple components geared toward students, teachers and school administrators: printed workbooks, instructional software, electronic books, paperback books and videos. The printed components of the materials that made up the READ 180 program contained thousands of illustrations and photographs. 

Plaintiffs sought certification of a class allegedly impacted by excessive or unauthorized uses of the images. In response, defendant offered evidence of Scholastic's complex process for obtaining licenses for images used in READ 180.

In evaluating a motion for class certification, the district court is required to make a definitive assessment of Rule 23 requirements, notwithstanding their overlap with merits issues, and must resolve material factual disputes relevant to each Rule 23 requirement.  What matters to class certification is not the raising of common questions--even in droves--but, rather the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation. Dissimilarities within the proposed class are what have the real potential to impede the generation of common answers. E.g., Salon FAD v. L'Oreal USA, Inc., No. 10 Civ. 5063, 2011 WL 4089902, at *5 (S.D.N.Y. Sept. 14, 2011). 

Here, plaintiff could not show that a class can be certified under the predominance requirement of Rule 23(b) (3). The court determined that the core of plaintiff's allegations was that Scholastic exceeded the scope of licenses that it negotiated with agents of rights holders or rights holders themselves. Because in order to answer whether Scholastic in fact held a license to use those images would necessarily involve, and depend upon, inquiries into a multitude of individual  relationships and interactions (between Scholastic and the rights owner; between Scholastic and the licensing agent; between the rights owner and the licensing agent), common questions of law or fact did not predominate over individual questions and a class action would not fairly and efficiently adjudicate these issues.

For example, as to some images, defendant entered into what Scholastic called "Preferred Vendor Agreements" that set out terms of the two parties' licensing arrangement with respect to future images.  But these agreements were far from uniform, differing as to usage rights, print run limitations, invoicing practices and the reuse of images --  all key issues.  Moreover, the Preferred Vendor Agreements were a product of negotiations between different personnel at Scholastic and the photo houses. Any inquiry into their terms would a review of representations that were individualized and could vary case by case.

Other agreements, not covered by a PVA, also raised individual issues. Each license obtained by Scholastic may have had different limitations placed on it by its rights holder and/or licensing agent--making an inquiry into the nature of the alleged infringements difficult (and maybe impossible) to resolve on a class-wide basis. The individualized inquiries necessary to determine the breadth of the licenses granted by each individual rights holder, often as a product of individual negotiation processes, was yet another factor militating against granting class certification.
 

Thus, plaintiff failed to demonstrate by a preponderance of the evidence that it could prove its claims on a class-wide scale, by referring to generalized proof. Accordingly, its motion to certify a class was denied.

The key here for our readers is when the facts involving plaintiffs' interactions with defendant appear complicated, use that complexity to full advantage on the issues of commonality and predominance.

 

Medical Monitoring at Issue in Oklahoma Federal Court

Readers know that medical monitoring is a recurring topic here at MassTortDefense.  Here is one to keep an eye on, as a defendant recently asked the Oklahoma federal court to reject plaintiffs' claim for medical monitoring in a putative class action. Mitchell McCormick, et al. v. Halliburton Co., et al., Np. 5:11-cv-0127 (W.D. Okla.).

Plaintiffs, about three dozen residents of Duncan, Okla., are seeking, inter alia, medical monitoring, establishment of a class-wide medical registry, and payment for medical research to assist alleged disease identification, prevention and treatment, based on allegations  that defendants exposed the town's residents to toxic substances.

Defendants have moved to dismiss, arguing that there is no cognizable claim for a medical monitoring remedy under Oklahoma law. Defendants noted the absence of any Oklahoma statutes or state court decisions recognizing or even suggesting the availability of medical monitoring, and the important public policy considerations that disfavor medical monitoring relief. Specifically, medical monitoring for uninjured plaintiffs (1) encourages highly speculative claims and equally conjectural awards; (2) diverts scarce medical resources away from truly injured individuals who need them most; (3) subjects defendants to open-ended liability; and (4) places significant strain on a judicial system that is generally ill-equipped to formulate and then supervise complex medical monitoring regimes.

Such fears are reflected in the prevailing trend in other jurisdictions to reject such claims. See Rhodes v. E.I. duPont de Nemours & Co., 657 F. Supp. 2d 751, 774 (S.D. W. Va. 2009) (noting post-Buckley trend); Norwood v. Raytheon Co., 414 F. Supp. 2d 659, 667 (W.D. Tex. 2006) (discussing “the recent trend of rejecting medical monitoring as a cause of action” in light of Buckley); see also Zarov et al., A Medical Monitoring Claim for Asymptomatic Plaintiffs: Should Illinois Take the Plunge?, 12 DEPAUL J. HEALTH CARE L. 1, 2 (2009).

The defendants cited additional authority: Hinton v. Monsanto Co., 813 So. 2d 827, 830 (Ala. 2001) (“To recognize medical monitoring as a distinct cause of action . . . would require this Court to completely rewrite Alabama’s tort-law system, a task akin to traveling in uncharted waters, without the benefit of a seasoned guide. We are unprepared to embark upon such a voyage.”); Badillo v. Am. Brands, Inc., 16 P.3d 435, 441 (Nev. 2001) (en banc) (“[W]e hold that Nevada common law does not recognize a cause of action for medical monitoring”); Wood v. Wyeth-Ayerst Labs., Div. of Am. Home Prods., 82 S.W.3d 849, 857 (Ky. 2002) (“We are supported in rejecting prospective medical monitoring claims (in the absence of present injury) by both the United States Supreme Court and a persuasive cadre of authors from academia. These authorities explain that, while well-intentioned, courts allowing recovery for increased risk and medical screening may be creating significant public policy problems.”); Henry v. Dow Chem. Co., 701 N.W.2d 684, 703 (Mich. 2005) (“To recognize a medical monitoring cause of action would essentially be to accord carte blanche to any moderately creative lawyer to identify an emission from any business enterprise anywhere, speculate about the adverse health consequences of such an emission, and thereby seek to impose on such business the obligation to pay the medical costs of a segment of the population that has suffered no actual medical harm.”); Paz v. Brush Engineered Materials, Inc., 949 So. 2d 1, 5-6 (Miss. 2007) (refusing to recognize a claim for medical monitoring allowing a plaintiff to recover medical monitoring costs for mere exposure to a harmful substance without proof of a current actual bodily injury); Lowe v. Philip Morris USA, Inc., 183 P.3d 181, 187 (Or. 2008) (“[W]e hold that negligent conduct that results only in a significantly increased risk of future injury that requires medical monitoring does not give rise to a claim for negligence.”). 

But see Bower v. Westinghouse Elec. Corp., 522 S.E.2d 424, 431 (W. Va. 1999); Meyer v. Fluor Corp., 220 S.W.3d 712, 717-18 (Mo. 2007); Donovan v. Philip Morris USA, Inc., 914 N.E.2d 891, 901 (Mass. 2009).

 

Medical Monitoring Claim Rejected by Federal Court

Readers know that medical monitoring claims are a focus of MassTortDefense.  In a recent case, a federal trial court granted summary judgment on a medical monitoring claim with an opinion that makes a salient point.  See Sahu v. Union Carbide Corp., 2012 WL 2422757 (S.D.N.Y. June 26, 2012.)

Plaintiffs filed suit as members of a putative class against Union Carbide Corporation, seeking monetary damages and medical monitoring for injuries allegedly caused by exposure to soil and drinking water polluted by wastes allegedly produced by the Union Carbide India Limited plant in Bhopal, India.  After years of discovery and tens of thousands of pages of document produced, defendants were able to move for summary judgment as to all theories of liability.  Specifically, plaintiffs brought negligence, public and private nuisance, and strict liability claims against UCC, seeking compensatory and punitive damages, as well as medical monitoring, for injuries allegedly caused by the Bhopal Plant operations.  But our focus in this post is on the medical monitoring claims.

Plaintiffs in the "Medical Monitoring Class” sought  a “court-ordered medical monitoring program for the early detection of various illnesses which they may develop as a result of exposure to the contaminants and pollutants to which they have been exposed"   The court rejected the claim, noting that medical monitoring was not a feasible remedy,  and was one which would face insurmountable hurdles: locating thousands of people who have resided 8,000 miles away in Bhopal, India, over a span of more than thirty years would be nearly impossible. Plaintiffs sought  relief on behalf of themselves, their families, their minor children, and a putative class of similarly situated people who “continue to reside in the municipal wards and residential areas in the vicinity of the UCIL plant and continue to be exposed to toxins” from contaminated soil and groundwater. Administration of such a program would require identification of every resident considered to be living “in the vicinity” of the Bhopal Plant site, and then further identification of those residents who “continue to be exposed to toxins.” To confirm exposure, it would be necessary to test the soil and drinking water supply throughout Bhopal. Literally construed, plaintiffs' complaint seemed to seek medical monitoring for every current resident of the Bhopal area—an impossible task.

This analysis is a refreshing counterpoint to the alarming feature of some recent medical monitoring decisions, in which the difficulty of identifying and ascertaining class members is somehow de-coupled from class certification and from the elements of the medical monitoring claim, and somehow relegated to an "administrative" feature of the relief program.

Class Certification Denied Under Ascertainability Analysis

We typically focus on appellate decisions regarding class certification, but wanted to note for you a recent lower court federal decision in case involving a proposed class of patients who claim they were implanted with a medical device for treating acid reflux . See Haggart v. Endogastric Solutions Inc., No. 2:10-cv-00346 (W.D.Pa. 6/28/12).


Readers will want to note the discussion of ascertainability. The implicit requirement of ascertainability is an important but sometimes overlooked prerequisite to class certification. A plaintiff must offer a definition of a class that is precise, objective and presently ascertainable. A threshold requirement to a Rule 23 action is the actual existence of a class which is sufficiently definite and identifiable. See, e.g., Kline v. Sec. Guards, Inc., 196 F.R.D. 261, 266 (E.D. Pa. 2000); Reilly v. Gould, Inc., 965 F. Supp. 588, 596 (M.D. Pa. 1997); Clay v. Am. Tobacco Co., 188 F.R.D. 483 (S.D. Ill. 1999). The initial inquiry on class definition is distinct from the analysis required by Federal Rule of Civil Procedure 23. See, e.g., Sanneman v. Chrysler Corp., 191 F.R.D. 441, 446 n. 8 (E.D. Pa. 2000). This notion means, in part, that the court can see sufficient administrative feasibility in determining whether a particular person belongs to a class -- that the court can identify class members in a practical and non-burdensome manner. A “proposed class must be sufficiently identifiable,” and it must be “administratively feasible to determine whether a given individual is a member of the class.”Mueller v. CBS, Inc., 200 F.R.D. 227, 233 (W.D. Pa. 2001). A class may not be ascertainable if it will require individual inquiry into each class member’s particular situation to determine whether that plaintiff suffered the injury alleged. Similarly, a class is not ascertainable if membership depends on a particular subjective state of mind. And even when plaintiffs offer ostensibly objective criteria for membership, the court must be able to apply that objective criteria to determine who is in the class without addressing numerous fact-intensive questions. Certification is denied when determining membership in the class essentially requires a mini-hearing as to each prospective class member. E.g., Agostino v. Quest Diagnostics Inc., 256 F.R.D. 437, 478 (D.N.J. 2009); Solo v. Bausch & Lomb Inc., 2009 WL 4287706, (D. S.C. Sept. 25, 2009) (class not appropriate for certification where determining class membership would require “fact-intensive mini-trials”).
 

Here, plaintiff claimed that defendant had misrepresented implantation of a medical device for treatment of acid reflux — describing it as “reversible” rather than “revisable.”  Plaintiff offered one class definition as “all individuals who have undergone the [procedure] . . . and who have relied upon representations” related to its reversibility and/or revisability,  This, the court said, was "simply a non-starter."  The determination of class membership under this definition would require the court to adjudicate on a person-by-person basis whether each proposed class member relied on defendant’s representations. That is, class membership would not be ascertainable without the imposition of serious administrative burdens incongruous with the efficiencies expected in a class action.

Plaintiff then went to an alternate class defined as “all individuals who have undergone the EsophyX procedure in the United States since September 24, 2007.” But this very broad proposed class failed the typicality requirement owing to marked differences as to information received and relied upon, the legal theory underlying plaintiff’s claims, and other factors.  Specifically, there would be numerous, inevitable questions regarding the information received by individual patients - from their physicians or other sources - and their reliance on particular representations. While named plaintiff was unhappy, plaintiff conceded that most patients undergoing an EsophyX procedure have had a successful result.  Putative class members received information regarding the procedure primarily from their physicians, which information likely varied for reasons related to both the physicians themselves and the individual patient’s medical circumstances; the amount and content of information received by a patient directly from defendant’s marketing or other materials likely differed from plaintiff’s and as between putative class members as well; and individual decisions to undergo the procedure were likely influenced by and premised on varying individual considerations -- all of which also undercut predominance.

Motion for class certification denied.

State Supreme Court to Review "Trial by Formula" Short Cuts In Class Action

The Pennsylvania Supreme Court agreed earlier this month to review an important class action issue: the use of "trial by formula" as a vehicle to overcome the un-manageability and predominance of individual issues in a proposed class action. Braun et al. v. Wal-Mart Stores Inc. et al., No. 551 EAL 201 (Pa. 7/2/12).

The case involves the appeal of an award for Wal-Mart employees who allegedly worked off the clock by skipping rest and meal breaks.

The state Supreme Court indicated it would review: Whether, in a purported class action tried to verdict, it violates Pennsylvania law (including the Pennsylvania Rules of Civil Procedure) to subject Wal-Mart to a “Trial by Formula” that relieves Plaintiffs of their burden to produce class-wide “common” evidence on key elements of their claims.

There is a huge difference between deciding that aspects of an adequate representative's claim are typical of other class members', and extrapolating from representative's claims to the class as a whole on issues that are admittedly not common.  We noted for readers before that this procedural short cut, which can deny defendants due process and a right to adjudicate and defend against each claim, was criticized in the federal class context in the U.S. Supreme Court's decision in Dukes v. Wal-Mart Stores Inc. The U.S. Supreme Court was clear: "We disapprove that novel project." Because the Rules Enabling Act forbids interpreting federal Rule 23 to abridge,enlarge or modify any substantive right, a class cannot be certified on the premise that the defendant will not be entitled to litigate its defenses to individual claims.

The same issue applies to the trial plans proposed by many mass tort plaintiffs, which try to use the class rule to prevent defendants from ever having an opportunity to litigate individual defenses as to individual class members. Now we may start to see if plaintiffs can evade this by proceeding at a state class level in cases not removable under CAFA.

Supreme Court to Review Issue of Daubert at Class Certification Stage

The U.S. Supreme Court agreed last week to hear argument in a case in which the lower courts wrestled with the issue whether, at the class certification stage, a district court must resolve Daubert issues. See Comcast Corp. v. Behrend, U.S., No. 11-864 (cert. granted 6/25/12). The Court indicated it was interested in the question "whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a classwide basis."

Readers will recall that in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011)  the Supreme Court in dicta referenced the question. Justice Scalia observed that the district court had "concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings," but the majority replied that "we doubt that is so." 131 S. Ct. at 2554. Thus, Dukes strongly suggested that it was appropriate for defendants to make the expert challenge at the class certification stage, and important for the court to resolve the issue then; the Comcast litigation may see the Court turn that persuasive dicta into binding precedent. 

Most district courts have been following the dicta. Historically, the Circuits have split.  The 8th and 9th Circuits call for an expert inquiry at this stage, and in American Honda, which we commented on here, the Seventh Circuit previously held that where an expert’s report or testimony is critical to class certification, a district court must conclusively rule on any challenge to the expert’s qualifications or submissions prior to ruling on the class certification motion. 600 F.3d at 815–16. Later, the Seventh Circuit reaffirmed its holding from American Honda, ruling that it was error for a district court to decline to rule on a Daubert motion at the class certification stage. Messner v. Northshore Univ. Healthsystem, 2012 U.S. App. LEXIS 731, *17 (7th Cir. Jan. 13, 2012).

The 3rd Circuit went in another direction. The district court in Comcast originally certified a class; following the court of appeals' decision in Hydrogen Peroxide, 552 F.3d 305, the district court granted in part Comcast‘s motion to reconsider its certification decision.  After further briefing, plaintiffs got the case re-certified after convincing the district court that they could show that they had an expert methodology to prove damages on a classwide basis. On the current appeal, the Third Circuit agreed that the lower court had applied the "rigorous analysis,"  adding that at the class certification stage, "we are precluded from addressing any merits inquiry unnecessary to making a Rule 23 determination.”  The Petitioners argued that the Third Circuit affirmed the certification order after expressly declining to consider several “merits” issues necessary to determine whether, as required by Rule 23(b)(3), common questions predominate over individual ones.

So the Comcast case may give the Supreme Court a chance to further explain what exactly a rigorous analysis should entail, especially with respect to alleged class-wide damages. The focus on damages, which some have viewed as narrowing the issue presented, still is a question that arises not just in antitrust cases, but also in mass torts, which are front and center for our readers. 

 

Amici Weigh in On Consumer Class Certification in 6th Circuit

Earlier this month, a number of prominent business groups, including the National Association of Manufacturers, weighed in supporting a petition for rehearing of a Sixth Circuit panel decision declining to vacate a class certification decision. See Gina Glazer et al. v. Whirlpool Corp., No. 10-4188 (6th Cir 2012). 
 

The case arises from the claims of a proposed class of consumers who alleged that their Whirlpool washing machines were defective. The Chamber of Commerce, NAM, the Business Roundtable, PLAC, DRI, and others submitted amicus briefs in support of rehearing, pointing out several issues with the class certification decision below, and as affirmed by the appellate panel. See 2012 US LEXIS 9002 (6th Cir., May 3, 2012).

For example, the amici pointed out that the class was certified despite the presence of individuals (perhaps 2/3 of the class) who have no Article III standing because they have not been injured.

The panel also failed to conduct or require the rigorous analysis required by the Supreme Court in Dukes, especially with regard to the predominance requirement. A specific issue related to the number of customers who had allegedly complained about the washers. In Dukes, the Supreme Court made clear that a district court may not simply rely on the plaintiffs’ allegations in ruling on class certification; rather, the court must consider, weigh and resolve disputed questions of fact.

The briefs also pointed out that the court ignored the important impact of potential affirmative defenses, such as misuse, on the predominance inquiry.

This is one worth keeping an eye on.

Find the amicus briefs here and here and here.

 

House Hearing on CAFA- Seven Years Later

A topic near and dear to the hearts of readers of MassTortDefense was the subject of a recent hearing by a subcommittee of the U.S. House Judiciary Committee. Entitled "Class Actions Seven Years After the Class Action Fairness Act,” the hearing was designed to address what has worked with the law, what has not, and what Congress overlooked when it passed CAFA.

Witnesses included a plaintiff-side attorney, who typically complained about CAFA's impact on consumer fraud class actions, and Professor Redish from Northwestern, who talked about the need for legislative revision of the use of so-called “cy pres” awards in class action proceedings in particular.

Rep. Trent Franks (R-Ariz.) is the chairman of the Subcommittee on the Constitution, and has expressed concern over the ability of plaintiffs to engage in a new form of forum shopping under CAFA, filing cases in particular federal circuits they think are more hospitable to class actions.

John Beisner, who typically represents defendants in class actions, testified on behalf of the U.S. Chamber Institute for Legal Reform; he noted that a small number of judicial rulings have ignored Congress’s intent behind this landmark legislation, meriting further legislative attention. From imposing a heightened “legal certainty” standard on defendants with respect to CAFA’s amount-in-controversy requirement to broadly construing CAFA’s narrow exceptions to federal jurisdiction, these rulings run afoul of CAFA’s presumption in favor of federal jurisdiction. Second, he argued that Congress should also assess certain troubling aspects of federal class action jurisprudence that were not affected by CAFA. These issues include: (1) efforts by a small number of federal courts to loosen the requirements of Rule 23; (2) the increasing use of cy pres settlements to support large fee payouts to class counsel; and, he noted, (3) judicial approval of class actions that encompass substantial numbers of uninjured individuals (that is, persons who lack Article III standing).

Consumer Fraud Claim on "All Natural" Beverage Rejected

One trend we are keeping an eye on here at MassTortDefense is plaintiffs' aggressive and excessive use of consumer fraud act claims, micro-analyzing every ad, turning traditional puffing into some kind of nefarious marketing scheme.  Class certification in such cases can trigger the need to think about "blackmail settlements."

So all victories are worth noting, and last week South Beach Beverage Co. Inc., maker of SoBe drinks, garnered dismissal of a California putative class action alleging false claims about their "0 Calories Lifewater" drinks. See Charles Hairston v. South Beach Beverage Co. Inc,. et al., No. 2:12-cv-01429 (C.D. Cal. 5/18/12).

SoBe manufactures a diverse range of beverages, including teas and enhanced waters, that are characterized by exotic flavor combinations and added vitamins. In his First Amended Complaint, plaintiff alleged that during the last three to four years, he regularly purchased SoBe 0 Calorie Lifewater beverages (“Lifewater”), which are no-calorie, vitamin-enhanced, flavored water drinks. Plaintiff raised three challenges to Lifewater’s labeling, which he claimed he “read and relied on.” First, plaintiff alleged that the “all natural” label was potentially deceptive because Lifewater contains “deceptively labeled ingredients” that are “synthetic or created via chemical processing.” Second, plaintiff alleged that Lifewater’s labels are potentially misleading because the names of various fruits are used to describe the different flavors of Lifewater even though Lifewater allegedly does not contain any actual fruit or fruit juice. Third, plaintiff alleged that the use of the common vitamin name (e.g., B12) on the product labels is misleading because the vitamins added to Lifewater are "synthetic" or created via chemical processing.

As is typical, plaintiffs alleged causes of action including for: (1) California Consumers Legal Remedies Act – California Civil Code §§ 1750, et seq. (“CLRA”); (2) California False Advertising Law – California Business & Professions Code §§ 17500, et seq. (“FAL”); (3) California Unfair Competition Law – California Business & Professions Code §§ 17200, et seq. (“UCL”).

Defendants argued first that the claims alleged related to the use of fruit names to describe the various flavors of Lifewater and their use of common vitamin names were preempted by the express preemption provisions in the Federal Food, Drug, and Cosmetic Act (“FDCA”) and by the specific labeling regulations promulgated by the Food and Drug Administration (“FDA”). The court concluded that plaintiff’s claims related to defendants’ use of the names of various fruits to describe the different flavors of Lifewater were indeed preempted. See, e.g., Dvora v.
General Mills, Inc., 2011 WL 1897349 (C.D. Cal. May 6, 2011) (holding that CLRA and UCL claims
were preempted where the plaintiff was challenging the use of the words “Blueberry Pomegranate”
in labeling a cereal not containing any blueberries or pomegranates because FDA regulations
explicitly permit manufacturers “to use the name and images of a fruit on a product’s packaging to
describe the characterizing flavor of the product even where the product does not contain any of
that fruit, or contains no fruit at all”); McKinnis v. General Mills, Inc., 2007 WL 4762172 (C.D. Cal.
Sept. 18, 2007) (holding that use of “Strawberry Kiwi” to designate the flavor of yogurt containing
no fruit ingredients was “permissible to demonstrate the ‘characterizing flavor’ of the product”).

The court also concluded that plaintiff’s claims related to defendants’ use of the common names
of vitamins were preempted. See, e.g., 21 C.F.R. § 101.9(c)(8)(v) (recognizing that “Vitamin C” and
“Ascorbic acid” are “synonym[s]” that may be used in the alternative in a product’s nutritional
information labeling); 21 C.F.R. § 101.9(k)(4) (stating that the FDA will consider a food
“misbranded” if its “label or labeling represents, suggests, or implies” that “a natural vitamin in food is superior to an added or synthetic vitamin”).

Significantly, the court concluded that plaintiff could not avoid preemption of these claims by arguing that his claim related solely to defendants’ “all natural” representations and that he included his fruit name and vitamin name claims only as support for his “all natural” claim. Such an argument would effectively allow a plaintiff to always avoid preemption of those claims, and would undermine the purpose of the federal labeling standards which includes avoiding
a patchwork of different state standards.  These claims were dismissed with prejudice.

Plaintiff also alleged that the “all natural” labeling on defendants’ products was potentially deceptive because the product contains “deceptively labeled ingredients” that are
“synthetic or created via chemical processing.” However, plaintiff could not state a claim under the
CLRA, FAL, or UCL regarding defendants’ allegedly deceptive “all natural” labeling because once
the preempted statements regarding fruit names and vitamin labeling were removed, plaintiff’s claim is based on a single out-of-context phrase found in one component of Lifewater’s label.

The court concluded that plaintiff’s selective interpretation of individual words or phrases from a product’s labeling could not support a CLRA, FAL, or UCL claim. See, e.g., Carrea v. Dreyer’s Grand Ice Cream, 2012 WL 1131526 (9th Cir. Apr. 5, 2012).  Lifewater’s label did not simply state that it is “all natural” without elaboration or explanation. Instead, the “all natural” language was immediately followed by additional statements, like “with vitamins” or “with B vitamins.”  Lifewater did not use the “all natural” language in a vacuum. Thus, it was impossible for plaintiff to allege how the “all natural” language would be deceptive without relying on the preempted statements regarding fruit names and vitamins.

In addition, the court concluded that no reasonable consumer would read the “all natural”
language as modifying the “with vitamins” language and somehow believe that the added vitamins are suppose to be “all natural vitamins.”  Moreover, to the extent there was any ambiguity, it was  clarified by the detailed information contained in the ingredient list, which explained the exact contents of Lifewater. In this case, the ingredient list was consistent with the front label statement of “all natural with vitamins.”

The court concluded that the challenge to the “all natural” language on Lifewater was not deceptive as a matter of law.

 

Court of Appeals Rejects RICO Claim in Drug Case

One of the things we like to do here at MassTortDefense is keep an eye on the non-traditional claims plaintiffs concoct -- to evade the requirements of traditional torts, or to expand the group of "injured" plaintiffs.  Earlier this month the Third Circuit knocked down just such an attempt. See In Re: Schering Plough Corp. Intron/Temodar Consumer Class Action, Nos. 10-3046 and 10-3047 (3d Cir. May 16, 2012).

The issue here was an attempt by two groups of plaintiffs to hold a drug manufacturer liable for violating the federal Racketeer Influenced and Corrupt Organizations Act (RICO) by allegedly marketing drugs for off-label uses. The court of appeals affirmed that neither had standing to maintain this cause of action, primarily for failure to allege a plausible nexus between the assailed marketing campaign and the physicians‘ decisions to prescribe certain drugs for off-label use.

While off-label marketing is prohibited, prescription drugs frequently have therapeutic uses other than their FDA-approved indications. The FDCAct does not regulate the practice of medicine, and so physicians may lawfully prescribe drugs for off-label uses. See Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341, 350 (2001) (recognizing off-label usage as an accepted and necessary corollary of the FDA‘s mission to regulate in this area without directly interfering with the practice of medicine); Wash. Legal Found. v. Henney, 202 F.3d 331, 333 (D.C. Cir. 2000) (physician may prescribe a legal drug to serve any purpose that he or she deems appropriate, regardless of whether the drug has been approved for that use by the FDA).

Plaintiffs' claims, as is so common, attempted to piggy-back off of prior government investigations. They alleged that Schering‘s marketing practices caused physicians to prescribe the drugs for off-label uses instead of equally effective alternative treatments that were approved for the prescribed uses or no medication at all. They assert that these marketing techniques led to a significant increase in prescriptions of the drugs for off-label uses, and contend that this caused the plaintiffs an "ascertainable loss" (key concept) because they supposedly paid millions of dollars for the drugs that they otherwise would not have paid.

The district court granted a motion to dismiss, and the plaintiffs appealed.

A motion to dismiss for lack of standing implicates Rule 12(b)(1) because standing is a jurisdictional matter, and 12(b)(6) with the Twombly/Iqbal guidance.  While the plausibility standard of those cases does not impose a probability requirement, it does demand more than a sheer possibility that a defendant has acted unlawfully. The plausibility determination is a context-specific task that requires the reviewing court to draw on its judicial experience and common sense; and some claims require more factual explication than others to state a plausible claim for relief.

The Constitution imposes a requirement that there be an actual case or controversy. Federal courts have developed several justiceability doctrines to enforce the case-or-controversy requirement, and perhaps the most important of these doctrines is the requirement that a litigant have standing to invoke the power of a federal court. The standing question is whether the plaintiff has alleged such a personal stake in the outcome of the controversy as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf. The plaintiff bears the burden of meeting the irreducible constitutional minimum of Article III standing by establishing three elements: First, the plaintiff must have suffered an injury in fact—an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of—the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court. Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.

In addition to meeting the constitutional standing requirements, plaintiffs seeking recovery under RICO must satisfy additional standing criterion set forth in section 1964(c) of the statute: that the plaintiff suffered an injury to business or property; and that the plaintiff‘s injury was proximately caused by the defendant‘s violation.

The Union plaintiff on behalf of a proposed class of third-party payors alleged economic loss based on paying for ineffective drugs. Accordingly, to establish standing, it must allege facts showing a causal relationship between the alleged injury—payments for a specific drug that was ineffective or unsafe for the use for which it was prescribed—and Schering‘s alleged wrongful conduct. However, there were no averments that came close to satisfying this standard. It was pure conjecture to conclude that because Schering‘s misconduct supposedly caused other doctors to write prescriptions for ineffective off-label uses for other products, the Union ended up paying for prescriptions for a different drug due to the same kind of alleged misconduct. (Again, attempted piggy-backing on government allegations.)

The court of appeals spent considerable effort reviewing claims of a proposed class of plaintiff consumers, who tried to prove standing by incorporating materials from the government investigation and concocting a series of purported links between drug trials, marketing activities and prescribing doctors' behavior.  The district court rejected this, and plaintiffs' focus on appeal on the pleading standards for each of these claims was secondary to the threshold issue that the consumers did not adequately allege an injury fairly traceable to Schering‘s alleged misconduct. Although the complaint was replete with factual allegations and indeed asserted them with somewhat greater specificity than the third-party payor complaint, they do not present a plausible allegation actually linking the injuries to any type of miscommunication or false claim about the drugs that were actually prescribed.

No standing. Dismissal affirmed. 

State Committee Misses Opportunity for Class Action Reform

Readers of MassTortDefense recognize that one of the most challenging jurisdictions for potential class actions defendants is California, given the substantive law, some state courts' take on certification issues, and the aggressive plaintiffs' bar.  It is no surprise that advocates of a balanced and appropriate role for class actions have from time to time attempted legislative reform in this state.

One idea that has been proposed is a requirement that class action advertisements (and there are plenty) include appropriate disclosures that potential plaintiffs could be liable for attorneys’ fees if a defendant prevails.

Unfortunately, the state Assembly's Judiciary Committee last week rejected such a proposal in a vote along party lines.  Proposed A.B. 1954 would have required ads soliciting plaintiffs for a class action to disclose that they might be held responsible for part of a defendant's legal fees if the defendant prevails under certain conditions. The legislation also would have permitted the state's Department of Consumer Affairs to impose a fine of up to $2,000 for an ad that failed to include the notice provision.

Supporters of the bill expressed concern about what they see as a flood of class action solicitations, which are seen as a serious impediment to doing business in California.  The bill was supported by the Civil Justice Association of California and the California Building Industry Association, as well as the California Chamber of Commerce.  Our readers know that some potential plaintiffs see class actions like purchasing a lottery ticket - no risk, high reward.  Opponents argued that in the state, orders directing named plaintiffs of a class to pay for a prevailing defendant’s fees happens only in rare cases. But it can and does happen, and what's wrong with letting potential plaintiffs know this? Such a bill would increases transparency and thus protect consumers; it might cut down on the number of "shakedown" class actions that only disclose promises of huge settlements without the potential other side of the coin. 

 

DRI Product Liability Conference Underway

This week I am attending the DRI Product Liability seminar.  Yesterday's highlights included a keynote address by Hon. Anne Northup, Commissioner of the Consumer Product Safety Commission.  Her remarks covered "The Past, Present, and Future of the CPSC."  She brings an interesting perspective, having formerly been a member of Congress.  As a mother of 6 kids and grandmother of 8, she feels well qualified to understand the use and abuse of children's products in particular. She emphasized that consumers value choice, a vibrant market, innovation and competition-- things that over-regulation can suppress.  She pointed to the onerous third-party testing requirements and record-keeping burdens in many of the recent CPSC rules.  She was cautiously optimistic that the continuing tough economy has given the majority Democrats on the CPSC some pause, as well as pointing to H.R. 2715 in which Congress told the Commission to simplify the burden of certification regulations.

I spoke at the session of the Mass Torts & Class Actions subcommittee, chaired by Glenn Kerner, on the topic of Medical Monitoring.  I tried to give the group some strategies to think about; e.g., recent federal cases have confirmed that the clarified pleading requirements of Twombly/Iqbal do apply to medical monitoring claims. E.g., Hagy v. Equitable Production Co., 2011 WL 1627920 (S.D. W.Va. April 28, 2011). That court dismissed the medical monitoring claim because plaintiff failed to allege sufficient specific facts showing the substance was hazardous, plaintiffs’ risk of future injury was a proximate result of the exposure, monitoring was reasonably necessary due to the increased risk, or that effective monitoring procedures exist. See also Bourgeois v. Exxon Mobil Corp., 2011 WL 6130767 (E.D.La. Dec.8, 2011).  I also touched on Jonathan Hirsch, et al. v. CSX Transportation Inc., 656 F.3d 359 (6th Cir. 2011), and its treatment of the exposure and risk elements of a medical monitoring theory.

Courts typically require that the prescribed monitoring regime is different from that normally recommended in the absence of exposure. One recent case exploring this notion which I pointed out  is In re Avandia Marketing, 2011 WL 4006639 (E.D.Pa. Sept. 7, 2011). In this class action involving the diabetes drug, the medical monitoring claim was denied because plaintiff failed to allege specific facts showing what medical monitoring would actually be needed because of exposure to the drug that would not already be recommended for some plaintiffs living with Type 2 Diabetes who did not take the drug.

Finally, I focused on Gates v. Rohm & Haas Co., 655 F.3d 255 (3d Cir. 2011), in which Third Circuit said it would "question whether the kind of medical monitoring sought here can be certified under Rule 23(b)(2)." If the plaintiffs prevailed, class members' regimes of medical screenings and the corresponding cost would vary individual by individual. A single injunction or declaratory judgment would seem to not be able to provide relief to each member of the class proposed in this case. Rule 23(b)(2) “does not authorize class certification when each class member would be entitled to an individualized award of monetary damages.” Wal-Mart, 131 S. Ct. at 2557.

Federal Court Denies Certification of MP3 Class Action - Again

A New Jersey federal court last week declined to certify a proposed class in a suit over alleged defects in the Zune MP3 player's display screen. See Maloney, et al. v. Microsoft Corp., No. 3:09-cv-02047 (D.N.J. 2012).

Readers may recall we blogged about this case when the court denied certification of a nationwide class, in part because of choice of law issues. The court at that point reserved decision as to whether or not a New Jersey-wide class might be certified, subject to further briefing by the parties.  We said at that time: "clearly additional individual issues will predominate in that context as well."  Hope our college Madness pool predictions will be as accurate.

The new proposed class was NJ residents who purchased or owned a Microsoft Zune 30gb model and whose Zune liquid crystal display screen cracked without cracking or chipping of the outer screen that covers the LCD screen within their applicable warranty period (one-year, unless under an extended warranty) and who notified Microsoft orally or in writing about the cracked LCD but did not receive repair or replacement of their Zune from Microsoft.  That's a mouthful.

Defendant argued that plaintiffs had no unifying theory of causation capable of class-wide proof and that individual questions of fact would therefore predominate at trial.  Plaintiff, on the other hand, argued that causation could be established on a class-wide basis because class members‘ LCD screens fractured without external damage to the outer lens;  fractured in locations that were disproportionately clustered around four identified alleged internal design defects; and were 20 times more likely to crack without external damage than were LCD screens on the later-model Zune.

Our readers know that the burden is on the plaintiff to prove that the requirements of Rule 23 have been satisfied. Class certification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites‘ of Rule 23 are met. Predominance was the key element here, as issues common to the class must predominate over individual issues. If any key elements of a claim can be proven only by resort to individual treatment, class certification is inappropriate. Plaintiffs seeking class certification must demonstrate that each element of [the cause of action is capable of proof at trial through evidence that is common to the class rather than individual to its members.

Here, the court determined that plaintiffs' purported proofs failed to establish that any of the alleged design defects commonly caused class members‘ injuries because this evidence suffered from what the United States Supreme Court has termed a failure of inference. Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2555 (2011).  Procedurally, any factual dispute concerning whether causation is capable of proof at trial through common evidence must be determined by the court. This often requires the weighing of conflicting expert testimony, and the court must then resolve expert disputes in order to determine whether the predominance requirement has been met. A court must engage in this analysis even if it overlaps with the merits.

The practical considerations underlying the presentation of a case at trial should be considered by the court in determining whether individual questions of fact would predominate.  In the context of proving the element of causation, numerous courts have held that individualized questions of fact prevent class certification where resort to case-by-case testimony would be necessary. In the context of consumer fraud, for example, class certification is inappropriate where oral representations are made to each class member and where plaintiffs must rely on this evidence to prove causation.

Here, the court noted that a jury must be able to independently weigh whether each alleged design defect actually existed and whether that specific defect was the cause of each class member‘s injury.  Plaintiff‘s proffered evidence was largely the plaintiff‘s lawyers‘ comparison effort.  Plaintiff‘s expert conducted no statistical analysis. It was thus impossible to tell from plaintiff‘s proffered evidence whether any of the numbers put forward were statistically significant.  Also, plaintiff had not put forth any evidence that a jury could rely upon in determining which alleged design defect led to which Zune failure or which grouping of Zune failures. As framed by the plaintiffs, the alleged LCD cracks resulted from a muddled mix of causes and effects. There was no indication that each purported cause led to a uniform result (e.g., an origination point in the same location), which would permit the jury to draw an inference of a specific design defect. Thus, there was no way to determine which of the purported causes or which grouping of these causes led to which individual LCD crack or group of LCD cracks.

Indeed, according to plaintiff‘s own expert, one of the most basic concepts of failure analysis is that the origin (position) of failure can be determined from the failure pattern on the fracture surface of an object. Plaintiffs also admitted that a number of the 30gb Zunes sampled by their expert fell outside the high-frequency areas identified in the expert report.  Just as statistical evidence of gender disparity at the regional or national level in Dukes could not establish gender disparity at the local level, plaintiffs' proof could not establish the design defects on a common basis.

Moreover, and this is an important point that some courts ignore, even if prima facie evidence of causation could be established on the basis of statistically significant recurrence of crack-origination points—something the plaintiffs had not established — the defendant must be given the opportunity to rebut such an inference; to defend against each of these alleged defects; to respond to that proof.  The only way in which the defendant could rebut plaintiff‘s proposed class-wide evidence would be through the presentation of individual evidence regarding the circumstances surrounding each cracked LCD screen. A lack of damage to the outer lens did not necessarily preclude evidence that other portions of the outer shell of the 30gb Zune were damaged by misuse.  Defendant would have to be given the opportunity to cross-examine each Zune owner to assure that there was no damage to the outer casing (as opposed to the outer lens covering the LCD screen) that resulted from misuse or abuse. This would result in hundreds of mini-trials.

Lastly, internal defendant communications did not establish causation as to each individual class member‘s injury. Generalized statements about an alleged design defect are merely that—general statements; they fail to show that all LCD cracks must have been the result of this alleged defect. Just as in Dukes, anecdotal evidence generally cannot serve as a basis for class certification.

Consumer Fraud Class Action Decertified in Drug Case

A state appeals court last week de-certified a class action by consumers over alleged misrepresentations in marketing a drug.  See Merck & Co. v. Ratliff, No. 2011-000234 (Ky. Ct. App.,  2/10/12).

The case involved the drug Vioxx, which was a highly effective medication formerly in widespread use for patients with arthritis and other conditions causing chronic or acute pain.  Plaintiff was a former user of Vioxx for his chronic osteoarthritis.  Although Ratliff’s insurance paid for most of the cost of the drug, which was at the time approximately $66 per month, Ratliff contributed about $5 each month out of pocket.  Ratliff discontinued using Vioxx in early 2004.

Plaintiff brought a putative class action on behalf of product users who had not suffered cardio-vascular side effects, alleging that the defendant deceived the members of the proposed class in violation of the state Consumer Protection Act by promoting and/or allowing the sale of Vioxx with the use of unfair, false, misleading or deceptive acts or practices.  As a result, the class purchased the drug when it wouldn't have otherwise.

The case followed a twisting path, to federal court, to the MDL, back to state court, up to the state supreme court on mandamus, and back.  Long story short, the class was certified by the trial court, and that decision eventually became ripe for review by the court of appeals.

The Kentucky rules are similar to the federal class action rules. The trial court certified the class under the prong (like b3) requiring that the questions of law or fact common to members of the class predominate over any questions affecting only individual members, and that a class action
is superior to other available methods for the fair and efficient adjudication of the controversy. The trial court found that common questions of law and fact did predominate, stating that there was a common nucleus of facts from which the potential plaintiffs’ claims arose. All of the potential
plaintiffs were prescribed Vioxx by doctors who supposedly relied on Merck’s assertions that it was safe and effective.

On appeal, Merck contended that plaintiff’s claims would require individualized proof such that common questions would not predominate. Merck argued that individual proof would be necessary to show that Merck made fraudulent or negligent misrepresentations toward each putative class member or his or her physician through the marketing and sale of Vioxx, that the alleged
misrepresentations were received by each putative member’s physician, that each putative member’s physician relied on such representations in his or her decision to prescribe Vioxx over another drug, and the amount of any damages suffered by each putative member.

The court of appeals noted that the common law misrepresentation claims would require proof of causation in the nature of reliance, and while "there are fewer obstacles to a class claim proceeding under the" state consumer protection act, that law still requires loss as a result of the wrongful act. Plaintiffs alleged that there was supposedly a consistent pattern of deception lasting essentially the entire time that Vioxx was on the market, and thus that generalized proof could be used to show the elements of fraud and misrepresentation in this case. This theory concerning generalized proof regarding Merck’s alleged conduct was similar to the rebuttable presumption of reliance and causation known in securities litigation as "fraud-on-the-market." The court of appeals noted that the “fraud-on-the-market” approach had never been recognized in the state for a fraud or misrepresentation case. Indeed, pretty much every other jurisdiction which has been confronted with the theory has rejected it outside of the securities litigation context. See, e.g., Kaufman v. i-Stat Corp, 754 A.2d 1188, 1191 (N.J. 2000); International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., Inc, 929 A.2d 1076, 1088 (N.J. 2007); Mirkin v. Wasserman, 858 P.2d 568, 584-95 (CA. 1993); Southeast Laborers Health and Welfare Fund v. Bayer Corp., 2011 WL 5061645 (11th Cir. 2011); Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341 (2001).

Accordingly, causation, reliance, and damages must be shown on an individual basis. Thus, if the action were tried as a class, even after the alleged common questions of Merck’s representations were decided, the case would essentially fragment into a series of amalgamated “mini-trials” on each of these individualized questions. Because these individualized questions would substantially overtake the litigation, and would override any common questions of law or fact concerning defendant’s alleged conduct, the court found that a class action was not the superior mechanism by which to try these cases. See, e.g., Zinser v. Accufix Research Institute, Inc., 253 F.3d 1180, 1192 (9th Cir. 2001).

 

 

Federal Court Denies Class Certification After Daubert Analysis

A  federal court late last month declined to certify three classes of consumers in litigation claiming that a defect in Harley-Davidson Motor Co. Inc.'s motorcycles caused severe wobbling and instability. See Steven C. Bruce, et al. v. Harley-Davidson Motor Co., Inc., et al., No. 2:09-cv-06588 (C.D. Cal.).

Plaintiffs were owners of Harley-Davidson motorcycles. According to plaintiffs, beginning in or before 2002, Harley-Davidson manufactured and sold touring motorcycles that had an alleged design defect in the form of an excessively flexible chassis. According to plaintiffs, the alleged defect caused “severe wobbling, weaving and/or instability,” especially occurring when riders made sweeping turns, and traveled at speeds above 55 miles per hour. Plaintiffs alleged that had they and other class members known of the defective nature of the vehicles, they would not have purchased or leased their motorcycles, or at least would have reduced the amount they were willing to pay for them. Hence, the classic alleged consumer fraud class action.

Plaintiffs moved for class certification, and relied on expert testimony to establish some of the Rule 23 elements.  Specifically, plaintiffs’ expert opined that a rider of a properly-designed
motorcycle should not experience a weave-mode instability event when riding within the
range of expected speeds.  He asserted that the class-purchased cycles shared a common design defect in the form of an “excessively flexible” chassis. The vehicles allegedly failed to “damp out,” or reduce, weave-mode oscillations to one half of their original amplitude within the time frame (a couple seconds) necessary to prevent them from becoming perceptible to the riders.

Defendants challenged the admissibility of that expert testimony under Daubert, contending that Rule 702 and Daubert apply with “full force” at the class certification stage. In support of this
position, Harley-Davidson relied primarily on Wal-Mart Stores, Inc., v. Dukes, 131 S. Ct. 2541 (2011), and Am. Honda Motor Co. v. Allen, 600 F.3d 813, 815–16 (7th Cir. 2010) (per curiam).  In Dukes, the Supreme Court noted that it doubted that Daubert did not apply at the certification stage of class-action proceedings. 131 S. Ct. at 2554. In American Honda, which we commented on here, the Seventh Circuit held that where an expert’s report or testimony is critical to class certification, a district court must conclusively rule on any challenge to the expert’s qualifications or submissions prior to ruling on the class certification motion. 600 F.3d at 815–16. Earlier this month, the Seventh Circuit reaffirmed its holding in American Honda, ruling that it was error for a district court to decline to rule on a Daubert motion at the class certification stage. Messner v. Northshore Univ. Healthsystem, 2012 U.S. App. LEXIS 731, *17 (7th Cir. Jan. 13, 2012).

Plaintiffs argued that a full Daubert inquiry into the reliability of expert opinions is not required or appropriate at the class certification stage. They cited In In re Zurn Pex Plumbing Prods. Liability Litig., 644 F.3d 604, 613 (8th Cir. 2011),which we criticized here, and in which the Eighth Circuit reasoned that an “exhaustive and conclusive Daubert inquiry before the completion of merits discovery” is not necessary due to the “inherently preliminary nature of pretrial evidentiary and
class certification rulings.”  See also Behrend v. Comcast Corp., 655 F. 3d 182, 204 n. 13 (3d Cir. 2011) (district court need not turn class certification into a "mini-trial”).

Here the district court found the approach adopted by the Eighth Circuit to be the appropriate application of Daubert at the class certification stage. Thus, a “tailored” or “focused” inquiry, to assess whether the experts’ opinions, based on their areas of expertise and the reliability of their analysis of the available evidence, should be considered in deciding the issues relating to class certification, said the court. Especially where discovery has been bifurcated into a class phase and a merits phase, an expert’s analysis may have to later adapt, as gaps in the available
evidence are filled in by merits discovery. Here, the court had granted defendants’ request for bifurcated discovery. Accordingly, the expert opinions would be assessed in light of the evidence currently available.

Even with a less than full inquiry, the court found that the proposed expert testimony must be excluded. In reaching this conclusion, the court decided the expert had not adequately
explained the scientific basis for his proposed standard, which also had not been accepted in
the field of motorcycle dynamics. While the evidence supported that the damping out of weave-mode oscillations may be an important factor for motorcycle stability, it did not establish that the expert's "rule" requiring the reduction of weave-mode oscillations to one half of their original amplitude within two seconds was scientifically valid.

The expert formed his opinions exclusively for the purposes of litigation and had not published his "rule" for peer review, providing further support for his exclusion.

Additionally, the court believed that he had not sufficiently accounted for other potential causes of the instability. He failed to consider and test for other possible causes including the use of non-specified tires and leaky shocks. See, e.g., Clausen v. M/V NEW CARISSA, 339 F. 3d 1049, 1058
(9th Cir. 2003) (“The expert must provide reasons for rejecting alternative hypotheses using scientific methods and procedures and elimination of those hypotheses must be founded on more than ‘subjective beliefs or unsupported speculation.’”).

Thus, plaintiffs failed to establish that common questions of law and fact predominated over individual inquiries. Once the opinions were excluded, plaintiffs failed to show that they had the ability to use common evidence by which they could demonstrate the defect. The fact that the chassis was the same for each vehicle ignored the failure to show how common evidence would ultimately be admissible to prove that they shared a common defect, and also was unavailing because it overlooked the Supreme Court’s admonition that a “rigorous analysis” will often “entail some overlap with the merits of the plaintiff’s underlying claim.” Dukes, 131 S. Ct. 2551.

Class Certification Denied in Baby Formula Case

A federal court last week denied class certification in a lawsuit over insect parts allegedly found in baby formula, recognizing that the claims raised multiple individual issues. Brandner v. Abbott Laboratories, et al., No. 2:10-cv-03242 (E.D. La. 1/23/12).

Plaintiff filed this suit in connection with Abbott’s September, 2010 recall of Similac brand infant formula because of the concern that insect parts may have been observed in a batch of finished product.  Brandner asserted that she purchased, and her child consumed, Similac that was
part of the product recall.  Plaintiff contended that during this period her child suffered alleged gastrointestinal problems, which symptoms required numerous visits to a physician, and that she allegedly experienced severe emotional distress upon learning she had fed her child infant formula containing beetles and beetle larvae.

Plaintiff's Rule 23 (b)(2) class allegations were dismissed, but plaintiff then sought monetary damages and moved to certify a class on her products liability and redhibition claims under
Federal Rule of Civil Procedure 23(b)(3). Defendant opposed this certification motion on the grounds that she failed to satisfy the commonality, typicality, and adequacy of representation requirements of Rule 23(a), as well as the predominance and superiority requirements of Rule 23(b)(3). The court's focus was on the predominance and superiority issues, and found no need to reach all the other questions.

Predominance of individual issues under the product liability claim-

Louisiana law requires a plaintiff to demonstrate that the product was unreasonably dangerous when it left the manufacturer’s control. Whether each class member actually purchased contaminated Similac was subject to individualized, not collective proof. Second, each putative class member would need to establish that Abbott’s actions were a proximate cause of his or her injury. Jefferson v. Lead Indus. Ass’n, Inc., 106 F.3d 1245, 1247 (5th Cir. 1997).  The plaintiff's cause of action here would require proof of medical causation, which has two components, general causation, which establishes that a substance has the capability of causing the injury or disorder in humans, and specific causation, which focuses upon whether the substance caused a particular injury to a particular individual. E.g., Ridgeway v. Pfizer, Inc.,, 2010 WL 1729187, at *2 (E.D. La. Apr. 27, 2010).  Even assuming general causation, proving specific causation would require a determination of an individual’s family and medical history; age; gender; diet; the timing of ingestion of the product; whether that individual suffered an injury, when the injury occurred, the type of injury suffered, and the number of occurrences of injury; and more. See In re Vioxx Prods. Liab. Litig., 239 F.R.D. 450, 459 (E.D. La. 2006)(citing In re Phenylpropanolamine (PPA) Prods. Liab. Litig., 208 F.R.D. 625, 631-32 (W.D. Wash. 2002)).

This highly individualized inquiry led the court to conclude that issues common to the class did
not predominate.   Interestingly, the court went on to note that all plaintiffs who claimed emotional distress (an issue that plaintiff contended was common to the class) would have to establish not only the distress but also the attendant damages. The damages issue required a determination  whether plaintiffs sought medical treatment, psychiatric treatment, the degree to which plaintiffs manifested generalized fear, and the severity of plaintiffs’ emotional distress. See Howard v. Union Carbide Corp., 897 So.2d 768, 774 (La. App. 2005). Because the determination of whether each member suffered emotional distress turned on a highly individualized assessment, questions of fact regarding individual members predominated over common issues of fact.  While the individual nature of damages alone does not necessarily preclude class certification, class treatment may not be suitable where the calculation of damages is not susceptible to a mathematical or formulaic calculation. Establishing emotional damages would entail the exact type of “mini-trials” the courts have cautioned against. Indeed, the very nature of these damages, compensating plaintiffs for emotional and other intangible injuries, necessarily implicated the subjective differences of each plaintiff’s circumstances; they were an individual, not class-wide, remedy.  See Allison v. Citgo Petroleum Corp., 151 F.3d 402, 417 (5th Cir. 1998). See also In re Katrina Canal Breaches Litig., 401 Fed. Appx. 884, 887 (5th Cir. 2010) (class certification not appropriate when individualized issues, such as the nature and extent of a class member’s damages, will predominate).

Superiority- 

The court also found that plaintiff made no showing of how she would try these claims on a class-wide basis. She thus failed to demonstrate how she would overcome the manageability problems posed by claims that require such disparate proof. Accordingly, she had not satisfied the requirement that a class action be superior to other available methods of adjudicating the controversy.

Other claims-

Plaintiff's redhibition claims also could not be certified as a class because common issues did not predominate, and a class action was not a superior mechanism for trying these claims. Plaintiff argued, in essence, that defendant admitted defect in recalling lots of the product.  But the court found that the recall notice was far from an admission that every unit contained a
redhibitory defect. Indeed, the press release actually stated that there was only a “remote possibility” of contamination in the products subject to recall. Plaintiff could not show through common proof that each class member purchased a defective product.  Plaintiff's expert did not convince the court otherwise. The overall rate of contamination in tested samples was only 0.16%.  The expert admitted there was no scientific way to evaluate contamination in units that were recalled but not tested.  And even if the product was considered “adulterated” per the FDCA, a food product is adulterated, inter alia, if it has been prepared, packed, or held under insanitary
conditions whereby it may have become contaminated with filth, or whereby it may have been rendered injurious to health. So a product can be “adulterated” under the FDCA without being contaminated or defective.

Class certification denied under (b)(3).

Court of Appeals Affirms Dismissal of FEMA Trailer Claims

The Fifth Circuit recently upheld the dismissal of putative class actions filed by Mississippi and Alabama residents against the federal government alleging trailers provided to Hurricane Katrina-impacted citizens contained hazardous levels of formaldehyde. See In re: FEMA Trailer Formaldehyde Products Liability Litigation (Mississippi Plaintiffs), No. 10-30921, and In re: FEMA Trailer Formaldehyde Products Liability Litigation (Alabama Plaintiffs), No. 10-30945 (5th Cir. 2012).

Plaintiffs-Appellants brought this Federal Tort Claims Act action against the United States for injuries allegedly related to their exposure to elevated levels of formaldehyde contained in the component materials of the Emergency Housing Units (“EHUs”) provided to them by the Federal Emergency Management Agency (“FEMA”) after Hurricanes Katrina and Rita. Readers will recall we have posted about various aspects of this litigation before. In October 2007, the United States Judicial Panel on Multidistrict Litigation created MDL No. 07-1873 (In re: FEMA Trailer Formaldehyde Products Liability Litigation), and assigned the complex litigation to the United States District Court for the Eastern District of Louisiana.

The key facts: After the hurricanes, FEMA activated its Individual and Household Assistance Program and, from September 2005 through May 1, 2009, the agency supplied disaster victims with EHUs, at no cost, to use as temporary shelter. The EHUs were taken from FEMA’s preexisting inventory, which had been purchased from public retailers as well as directly from manufacturers. The EHUs were small, portable, and usually placed at the disaster victims’ home sites. The trailers were installed by government contractors who placed the units on blocks or piers, anchored them to the ground using straps or bolts, and connected them to public sewer and water lines.

In March 2006, when FEMA began receiving formaldehyde-related complaints, it encouraged shelter occupants to ventilate their EHUs by opening the doors and windows. In June 2006, FEMA prepared an informational brochure informing EHU occupants of the potential risks of formaldehyde exposure, encouraging them to ventilate their units, and urging them to seek medical help if they developed health problems related to formaldehyde. In September 2006, FEMA began working with the Environmental Protection Agency to test the EHUs for formaldehyde, and also developed various new mitigation techniques.  In July 2007, FEMA distributed another informational brochure to EHU occupants, set up a hotline and a dedicated call center to field formaldehyde complaints from occupants, and continued to assist occupants in locating alternative housing. FEMA subsequently entered into an agreement with the CDC to conduct additional testing, the findings of which were compiled in a third informational brochure and distributed to EHU occupants in early 2008.

The federal government filed various motions to dismiss the claims against it, or in the alternative for summary judgment, based on the FTCA’s discretionary function exception.The district court denied the motions and held that the FTCA’s discretionary function exception might not apply to some or all of appellants’ claims, the determination of which would be driven by the facts of each individual case.  The district court then denied class certification and scheduled a series of bellwether trials in the MDL, but none of the FTCA claims brought by the bellwether plaintiffs against the Government advanced to the trial stage.

The Government then moved under Federal Rule 12(b)(1) to dismiss Appellants’ FTCA claims for lack of subject-matter jurisdiction on the grounds that no analogous private liability existed under the Mississippi and Alabama emergency statutes.  The district court granted the Government’s motion and dismissed appellants’ FTCA claims. Plaintiffs appealed to the Fifth Circuit.

 A plaintiff may only sue the United States if a federal statute explicitly provides for a waiver of sovereign immunity. The United States must consent to be sued, and that consent is a prerequisite to federal jurisdiction. Delta Commercial Fisheries Ass’n v. Gulf of Mex. Fishery Mgmt. Council, 364 F.3d 269, 273 (5th Cir. 2004). Waivers of sovereign immunity are narrowly construed in favor of the United States. In re Supreme Beef Processors, Inc., 468 F.3d 248, 253 (5th Cir. 2006). The FTCA is recognized as providing a waiver of sovereign immunity and provides the sole basis of recovery for tort claims against the United States. See 28 U.S.C. § 1346 and § 2671, et seq.; In re Supreme Beef Processors, 468 F.3d at 252 n.4. But the Act provides that the United States shall be liable in the same manner and to the same extent as a private individual under like circumstances. See
28 U.S.C. § 2674.

The "same manner" analysis is a mix of federal and state law. The FTCA requires the  Government's liability to be measured in accordance with the law of the state where the alleged act or omission occurred, so here the Appellants’ FTCA claims were limited by the relevant provisions set forth in Mississippi and Alabama tort law. See 28 U.S.C. § 1346(b)(1); Richards v. United States, 369 U.S. 1, 11-14 (1962); Cleveland ex rel. Cleveland v. United States, 457 F.3d 397, 403 (5th Cir. 2006). Whether a private person in “like circumstances” would be subject to liability is also a question of sovereign immunity and, thus, is ultimately a question of federal law. See United States v. Olson, 546 U.S. 43, 44 (2005). Because the federal government could never be exactly like a private actor, a court’s job in applying the standard is to find the most reasonable analogy. LaBarge v. Cnty. of Mariposa, 798 F.2d 364, 366-69 (9th Cir. 1986). Inherent differences between the government and a private person cannot be allowed to disrupt this analysis. The Fifth Circuit has consistently held that the government is entitled to raise any and all defenses that would potentially be available to a private citizen or entity under state law. Camacho v. Tex. Workforce Comm'n, 445 F.3d 407, 410 (5th Cir. 2006). Therefore, if a private person under “like circumstances” would be shielded from liability pursuant to a state statute, lower courts must decline to exercise subject matter jurisdiction in a case like this.

Because, here, the Mississippi and Alabama emergency statutes abrogate the tort liability of a private person who, (1) voluntarily, (2) without compensation, (3) allows his property or premises to be used as shelter during or in recovery from a natural disaster, the Government’s voluntary, cost-free provision of the EHUs to disaster victims, in connection with Hurricanes Katrina and Rita, was
also immunized conduct under the statute.  Despite plaintiffs' arguments, the Government’s provision of the government-owned EHUs, as implemented by FEMA, was voluntary because it was under no contractual or legal obligation, under any federal legislation, to provide the EHUs to disaster victims in response to the disasters. The Government did not receive compensation from the disaster victims in exchange for letting them use the EHUs. (The collection of taxes by the Government was not comparable to the traditional quid pro quo compensation contemplated by the statute.) In addition, the Government’s actions relating to the EHUs fell within the time frame contemplated by the statute as “during or in recovery from” a major disaster, since FEMA’s temporary emergency housing program ran from the hurricanes up to May, 2009.

Because Mississippi and Alabama emergency laws would protect those private individuals who shelter natural disaster victims from tort liability, the federal government's voluntary provision of the trailers was likewise immunized, the court concluded.

As an alternative, the appellants asked the Fifth Circuit to certify questions to the state supreme courts of Alabama and Mississippi regarding the meaning of the state emergency statutes, but the appeals court agreed with the district court that these questions did not warrant certification. Dismissals affirmed.

Court of Appeals Compels Arbitration, Not Class Litigation

The role of alternative dispute resolution mechanisms in alleged consumer product defect cases continues to be a hotly disputed issue.  Plaintiff lawyers prefer the class action device, with its ability to pressure blackmail settlements, while product makers continue to require in product literature that consumers go the quicker and cheaper route of ADR.

The Third Circuit held last week that a putative class of computer customers should arbitrate, not litigate, their product defect claims against Dell Inc., even though the arbitration forum originally named in the computer purchase "terms and conditions" was no longer available. See Raheel Ahmad Khan, et al. v. Dell Inc., No.10-3655 (3d Cir.).

This appeal involved a matter of first impression for this court– whether Section 5 of the Federal Arbitration Act (FAA) required the appointment of a substitute arbitrator when the arbitrator designated by the parties was unavailable.  The district court denied Dell's Motion to Compel Arbitration, based on the belief that the arbitration provision was rendered unenforceable because it provided for the parties to arbitrate exclusively before a forum that was unavailable when plaintiff commenced suit. The district court also refused to appoint a substitute arbitrator, finding that it could not compel the parties to submit to an arbitral forum to which they had not agreed.

Khan purchased a Dell computer through Dell's website; he alleged that his unit suffered from design defects, causing his computer to overheat and thereby destroy the computer's motherboard. Khan allegedly replaced the motherboard multiple times. Eventually, the  warranty expired. In 2009, Khan filed a putative consumer class action on behalf of himself and other similarly situated purchasers and lessees of the allegedly defectively designed computers.

But to complete the purchase, plaintiff had been required to click a box stating “I AGREE to Dell's Terms and Conditions of Sale.” Just beneath was a box requiring "BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF)."  However, at the time the lawsuit was filed, the NAF had gotten out of the business of conducting consumer arbitrations pursuant to a Consent Judgment, which resolved litigation brought by the Attorney General of Minnesota.  Although Khan suggested that Dell must have chosen the NAF based on its alleged corporate-friendly disposition, the record did not show that Dell was aware of the practices challenged by the state AG at the time that it selected the NAF as the arbitral forum governing Khan's purchase, or that Dell selected the NAF for any improper reason.

The arbitration provision did not designate a replacement forum in the event that NAF was unavailable for any reason. But, the product Terms and Conditions did incorporate the Federal Arbitration Act.  The court of appeals noted that, because this was a question of arbitrability, it was governed by the FAA. Congress passed the FAA in response to widespread judicial hostility to arbitration agreements. The FAA reflects a liberal federal policy favoring arbitration. The federal courts have regularly noted that questions of arbitrability must be addressed with a healthy regard for this federal policy favoring arbitration.

The particular problem presented in this case – the unavailability of the NAF – was addressed in section 5 of the FAA, which provides a mechanism for substituting an arbitrator when the designated arbitrator is unavailable. In determining the applicability of Section 5 of the FAA when an arbitrator is unavailable, courts have focused on whether the designation of the arbitrator was “integral” to the arbitration provision or was merely an ancillary consideration. Only if the choice of forum is an integral part of the agreement to arbitrate, rather than an ancillary logistical concern, will the failure of the chosen forum preclude arbitration. In other words, a court will decline to appoint a substitute arbitrator, as provided in the FAA, only if the parties' choice of forum is so central to the arbitration agreement that the unavailability of that arbitrator brings the agreement essentially to an end. In this light, said the court, the parties must unambiguously express their intent not to arbitrate their disputes in the event that the designated forum became unavailable.

Plaintiff stressed that the NAF's rules were incorporated into the contract, and that these rules provide that all arbitrations must be conducted by the NAF or an entity having an agreement with it.  The court found this requirement ambiguous as to what should happen in the event that the NAF was unavailable. The NAF's rules provided that they shall be interpreted in a manner consistent with the FAA and that, if any portion of the NAF rules were found to be unenforceable, that portion shall be severed and the remainder of the rules shall continue to apply.  This suggested the possibility of substitutions.

The dissent argued that it was important why the NAF was not available to arbitrate. But, the terms and conditions clearly contained an agreement to resolve disputes through arbitration, rather than through litigation. And the reason the forum was not available was not dispositive.

 

Ninth Circuit Decertifies Consumer Fraud Class

The Ninth Circuit last week reversed the certification of a nationwide class raising consumer fraud claims against an auto maker. See Mazza, et al. v. American Honda Motor Co., No. 09-55376 (9th Circuit). 

Honda appealed the district court’s decision to certify a nationwide class of all consumers who purchased or leased Acura RL's equipped with a Collision Mitigation Braking System (“CMBS”). The plaintiffs alleged that certain advertisements misrepresented the characteristics of the CMBS and supposedly omitted material information on its limitations. The complaint stated four claims under California Law, specifically the California Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200 et seq., False Advertising Law (FAL), Cal. Bus. & Prof. Code § 17500 et seq., the Consumer Legal Remedies Act (CLRA), Cal. Civil Code § 1750 et seq., and a claim for unjust enrichment.  Readers know those are the typical claims in a consumer fraud case in the popular forum of California.

The Ninth Circuit held that the district court erred because it erroneously concluded that California law could be applied to the entire nationwide class, and because it erroneously concluded that all consumers who purchased or leased the relevant Acura RL can be presumed to have relied on defendant’s advertisements, which allegedly were misleading and omitted material information.

In 2007, plaintiffs bought Acura RL's from authorized Acura dealerships, and the vehicles were equipped with the CMB System. In December 2007, they filed a class action complaint alleging
that Honda misrepresented and concealed material information in connection with the marketing and sale of Acura RL vehicles equipped with the CMBS. According to Plaintiffs, Honda did not warn consumers (1) that its CMB collision avoidance system’s three separate stages may "overlap,"  (2) that the system may not warn drivers in time to avoid an accident, and (3) that it allegedly shuts off in bad weather.

The district court certified a nationwide class of people in the United States who, between August 17, 2005 and the date of class certification, purchased or leased new or used Acura RL vehicles
equipped with the CMBS. The district court concluded that California law could be applied to all class members because Honda did not show how the differences in the laws of the various states were material, how other states might have an interest in applying their laws in this case, and how these interests were implicated in this litigation. It also held that class members were entitled to an
inference of reliance under California law.

Before certifying a class, the trial court must conduct a rigorous analysis to determine whether the party seeking certification has met the prerequisites of Rule 23.  The party seeking class certification has the burden of affirmatively demonstrating that the class meets the requirements
of Federal Rule of Civil Procedure 23. And, under Rule 23(b)(3), a plaintiff must demonstrate the
superiority of maintaining a class action and show that the questions of law or fact common to class members predominate over any questions affecting only individual members.  Here, Honda contended that common issues of law did not predominate because California’s consumer protection statutes may not be applied to a nationwide class with members in 44 jurisdictions.
It further contended that common issues of fact did not predominate because the court  impermissibly relied on presumptions that all class members were exposed to the allegedly
misleading advertising, that they relied on misleading information in making their purchasing decision, and that they were damaged as a result.

First, choice of law. Under California’s choice of law rules, the class action proponent bears the initial burden to show that California has significant contact to the claims of each class member. Also, California law may only be used on a class-wide basis if the interests of other states are not found to outweigh California’s interest in having its law applied.  Honda argued that the district court misapplied the three-step governmental interest test.  The Ninth Circuit agreed. The district court abused its discretion in certifying a class under California law that contained class members
who purchased or leased their car in different jurisdictions with materially different consumer protection laws.  For example, some state consumer fraud laws have no scienter requirement, whereas many other states’ consumer protection statutes do require scienter. See, e.g., Colo.
Rev. Stat. 6-1-105(1)(e), (g), (u) (knowingly); N.J. Stat. Ann. § 56:8-2 (knowledge and intent for omissions); Debbs v. Chrysler Corp., 810 A.2d 137, 155 (Pa. Super. 2002) (knowledge
or reckless disregard).  Some states require named class plaintiffs to demonstrate reliance, while some other states’ consumer protection statutes do not.  These differences are "not trivial or wholly immaterial."  

The court of appeals reminds us that consumer protection laws are a creature of the state in which they are fashioned. They may impose or not impose liability depending on policy choices made by state legislatures. Each state has an interest in setting the appropriate level of liability for companies conducting business within its territory.  Maximizing consumer and business welfare, and achieving the correct balance for society, does not inexorably favor greater consumer protection; instead, setting a baseline of corporate liability for consumer harm requires balancing these competing interests.  Getting the optimal balance between protecting consumers and attracting foreign businesses, with resulting increase in commerce and jobs, is not so much a policy decision committed to a federal appellate court, or to particular district courts where a plaintiff may sue, as it is a decision properly to be made by the legislatures and courts of each state. More expansive consumer protection measures may mean more or greater commercial liability, which in turn may result in higher prices for consumers or a decrease in product availability.  Here, the district court did not adequately recognize that each foreign state has an interest in applying its law to transactions within its borders and that, if California law were applied to the entire class, foreign states would be impaired in their ability to calibrate liability to foster commerce.

The court of appeals also found that the district court abused its discretion in finding that common issues of fact predominated, because the scale of the advertising campaign here did not support a presumption of reliance, even if one were legally available.  It was likely that many class members were never exposed to the allegedly misleading advertisements, insofar as advertising of the challenged system was very limited. And it was not dispositive that Honda’s advertisements were allegedly misleading because of the information they omitted, rather than the information they claimed.  For everyone in the class to have been exposed to the omissions, it was necessary for everyone in the class to have viewed the allegedly misleading advertising. Here the limited scope of that advertising makes it unreasonable to assume that all class members viewed it.
Honda’s product brochures and TV commercials fell short of the extensive and long-term fraudulent advertising campaign that might support a presumption in the eyes of some courts.  Even if Honda allegedly might have been more elaborate and diligent in disclosing the limitations of the CMB system, its advertising materials did not deny that limitations exist. A presumption of reliance does not arise when class members were exposed to quite disparate information from various representatives of the defendant.  California courts have not allowed a consumer who was never exposed to an alleged false or misleading advertising campaign to recover damages under California’s UCL.  

Dismissal of Actimmune Proposed Class Action Affirmed

The Ninth Circuit late last month upheld the dismissal of a proposed class action concerning alleged off-label marketing of the drug Actimmune.  In re: Actimmune Marketing Litigation, Nos. 10-17237 and 10-17239 (9th Cir. 12/30/11).

The panel, in an unpublished opinion, affirmed the judgment of the district court “for the reasons set forth in the district court's orders.”  See In re Actimmune Marketing Litig., 614 F.Supp.2d 1037
(N.D. Cal. 2009) (Actimmune I); In re Actimmune Marketing Litig., 2009 WL 3740648 (N.D. Cal. Nov. 6, 2009)(Actimmune II ); In re Actimmune Marketing Litig., 2010 WL 3463491 (N.D. Cal. Sept. 1, 2010) (Actimmune III).

In September 2010, the trial court had issued a ruling dismissing the amended complaints filed by consumers and an insurer, who alleged that defendants had improperly marketed Actimmune as a treatment for idiopathic pulmonary fibrosis.  Despite the additional allegations included in plaintiffs' latest amended pleadings, plaintiffs still failed to properly allege that defendants' conduct caused plaintiffs' injuries. Therefore, plaintiffs lacked standing to pursue their off-label marketing claims under the asserted consumer fraud claims.  Establishing that a defendant violated a law only accomplishes part of a plaintiff's burden; plaintiffs were also required to prove that they were injured “as a result of” defendants' alleged law-violating conduct.

In the context of the instant case, the “as a result of” language placed the burden on plaintiffs to establish that they actually relied upon the representations delivered through defendants' off-label marketing. Plaintiffs failed to allege a plausible causal chain of injury as required by Iqbal/Twombly.

The shortcoming in the consumer plaintiffs' pleadings was simple: all of the consumer plaintiffs failed to allege that their doctors believed that Actimmune was an effective treatment for IPF “as a result of” defendants' off-label promotion of Actimmune. With respect to each plaintiff, the complaint alleged only that their doctors were “exposed to at least some of InterMune's unfair and unlawful off-label marketing.”  That was not enough;  claims dismissed.

Laptop Claims Were Mere Puffery

The Ninth Circuit late last month issued an interesting little opinion on the venerable and useful notion of puffing. Vitt v. Apple Computer Inc., No. 10-55941 (9th Cir., 12/21/11).

The crux of plaintiff's contention, building on his dissatisfaction that his iBook G4 allegedly failed shortly after his one year warranty had expired, was that the iBook G4 does not last “at least
a couple of years,” which he alleged was the minimum useful life a reasonable consumer expects from a laptop.  Vitt alleged that this was because one of the solder joints on the logic board of the iBook G4 degraded slightly each time the computer was turned on and off, eventually causing the joint to break and the computer allegedly to stop working -- shortly after Apple’s one year express warranty has expired. Vitt further alleged that Apple affirmatively misrepresented the durability, portability, and quality of the iBook G4, and did not disclose the alleged defect.

The district court held that Apple’s affirmative statements were non-actionable puffery, and that Apple had no duty to disclose the alleged defect , citing Daugherty v. American Honda Motor Co., 144 Cal. App. 4th 824 (2006).

The court of appeals affirmed, for substantially the reasons given by the district court. To be actionable as an affirmative misrepresentation, a statement must make a “specific and  measurable claim, capable of being proved false or of being reasonably interpreted as a statement of objective fact. Coastal Abstract Serv. v. First Am. Title Ins. Co., 173 F.3d 725, 731 (9th Cir. 1999). California courts have also held that "mere puffing" cannot support liability under
California consumer protection laws. Vitt challenged Apple’s advertising because it allegedly stated that the iBook G4 was “mobile,” “durable,” “portable,” “rugged,”  “reliable,” “high performance,” “high value,” an “affordable choice,” and an “ideal student laptop.” These statements are generalized, non-actionable puffery because they contain “inherently vague and generalized terms” and were “not factual representations that a given standard has been met.”   

Even when viewed in the advertising context, as Vitt urged, these statements did not claim or imply that the iBook G4’s useful life will extend for at least two years.  For example, to the extent that “durable” is a statement of fact, it may imply in context that the iBook G4 is resistant to problems occurring because of its being bumped or dropped, but not that it will last for a duration beyond its express warranty.

Vitt also contended that Apple had an affirmative duty to disclose the alleged defect. But a  consumer’s only reasonable expectation was that the computer would function properly for the duration of the limited warranty. There is no duty to disclose that a product may fail beyond its warranty period absent an affirmative misrepresentation or a safety risk.  Adopting Vitt’s theory would effectively extend Apple’s term warranty based on subjective consumer expectations. The court of appeals agreed with the district court that Apple was under no duty to disclose the alleged "defect" in its iBook G4s.  Claims dismissed.

  

Class Certification Denied in BPA Litigation

A Missouri federal court last week denied the class certification motion of consumers suing defendants in the multi-district litigation over the use of bisphenol-A in baby bottles and sippy cups. In re: Bisphenol-A Polycarbonate Plastic Products Liability Litigation, No. 4:08-md-01967 (W.D. Mo.).

As we have posted before, the federal judge in the MDL involving BPA in baby bottles refused last Summer to certify three proposed multistate classes in this multidistrict litigation. In re: Bisphenol-A Polycarbonate Plastic Products Liability Litigation, No. 08-1967 (W. D. Mo. July 7, 2011).   That decision offered an interesting discussion of choice of law, and of the notion of commonality after Dukes v. Walmart, and included an important reminder that while individual issues relating to damages do not automatically bar certification, they also are not to be ignored. E.g., In re St. Jude Medical, Inc., 522 F.3d 836, 840-41 (8th Cir. 2008) (individual issues related to appropriate remedy considered in evaluating predominance); Owner-Operator Independent Drivers Ass’n, Inc. v. New Prime, Inc., 339 F.3d 1001, 1012 (8th Cir. 2003), cert. denied, 541 U.S. 973 (2004) (individual issues related to damages predominated over common issues); see also In re Wilborn, 609 F.3d 748, 755 (5th Cir. 2010).

The court gave plaintiffs an opportunity to show that a class of Missouri-only consumers should be certified, and plaintiffs then moved for certification of three classes of Missouri consumers. Plaintiffs alleged three causes of action: violation of the Missouri Merchandising Practices Act (MMPA), breach of the implied warranty of merchantability, and unjust enrichment.

The court focused first on standing. A court may not certify a class if it contains members who lack
standing. In re Zurn Pex Plumbing Products Liability Litigation, 644 F.3d 604, 616 (8th Cir. 2011). Plaintiffs’ proposed classes here could not be certified because they included individuals who had not suffered an injury-in-fact.  Individuals who knew about BPA’s existence and the surrounding controversy before purchasing defendants’ products had no injury. There was a potential for the proposed classes to include a large number of such uninjured consumers. Plaintiffs admitted that parents often carefully research baby care product purchases, and defendants submitted proof that information regarding BPA was in the media (including popular press such as "20/20") as early as 1999.

The opinion also offers an instructive discussion of reliance. Plaintiffs argued the issue of knowledge goes only to consumers’ reliance on defendants’ alleged nondisclosure, and plaintiffs always contend reliance is not an element of their consumer fraud claims. The court explained that the hypothetical posed by the question of reliance – whether the plaintiff would have purchased the product if she/he had known – presupposes the consumer did not know the relevant information. Thus, the question of knowledge logically precedes the question of reliance.

Even consumers who were unaware of BPA when they purchased defendants’ products may not have suffered an injury. Consumers who fully used defendants’ baby bottles and other products without physical harm before learning about BPA suffered no injury, and could not assert a claim under consumer protection statutes or for breach of warranty. Plaintiffs asserted that none of the proposed class members received what they intended to obtain, because plaintiffs were not provided material information before making their purchases. But plaintiffs were bargaining for baby products at the time of transaction, not for a certain type of information. Those who fully used the products before learning about BPA would have received 100% use (and benefit) from the products.

In the Rule 23 analysis proper, the court also noted that plaintiffs’ proof of what defendants failed to disclose would not be common for all class members, at least with respect to the scientific debate concerning BPA. Class-wide evidence cannot be used to show what defendants knew or should have known because their knowledge and the available information about BPA changed during the
class period. Plaintiffs' proposed trial plan stated they intended to show defendants' alleged awareness and nondisclosure of various scientific studies from 1997 to at least 2006.

The court's observation on materiality is also worth noting. A material fact for state consumer fraud liability includes a fact which a reasonable consumer would likely consider to be important in making a purchasing decision.  Even if this is an objective inquiry, that does not mean it can always be proven with class-wide evidence. A 2006 study allegedly showing BPA's effect on the endocrine systems of snails, even if material, would not be probative of defendants' liability in 2002. Similarly, a reasonable consumer may be less likely to consider a scientific study from 1997 significant if that consumer learned that federal agencies over the years – the FDA in particular – considered that study, and nevertheless still concluded BPA could be safely used to make baby products.

Finally, the court considered superiority and manageability, with a key issue of concern how to determine who was in the class (some courts do this analysis under the ascertainability rubric). Identifying himself or herself as a purchaser would not prove a person is in the class. A plaintiff in a typical case is not allowed to establish an element of a defendant’s liability merely by completing an affidavit swearing the element is satisfied, and this should be no different for a class action.  Defendants would be entitled to cross-examine each and every alleged class member regarding his or her memory and story.

For all these reasons, class certification denied.

Coffee's On: Claims Dismissed in Single-Cup Brewing Class Litigation

A federal court last week dismissed the claims in a case accusing Green Mountain Coffee Roasters of misrepresenting the performance quality of its single-cup brewing systems. See Green v. Green Mountain Coffee Roasters Inc., et al., 2011 WL 6372617 (12/20/12 D.N.J.).

Your humble blogger is in the minority, not being a coffee drinker. Nearly 60% of adults drink coffee daily. The average American drinks 3.1 cups of coffee each day. This contributes to an $18 billion U.S. coffee market. One of the tremendous innovations (speaking from experience, having given these as holiday gifts) in the market is the single cup brewing machine for the home, allowing coffee lovers to make less than a full pot, and to choose from among hundreds of flavors and brands of coffee-related beverages.

Defendants are in the specialty coffee and coffee maker businesses. They manufacture single-cup brewers, accessories and coffee, tea, cocoa and other beverages in "K–Cup portion packs.” Plaintiff Green maintained that his machine failed to brew the programmed amounts of K–Cup coffee within a few weeks of use. Plaintiff asserted that the machines had defective components, including defective pumps. As a result, the machines allegedly failed and brewed less than the specified amount. Furthemore, this defect allegedly caused consumers to use additional K–Cups to brew a single beverage. 

Plaintiff maintained that defendants' actions were in violation of the New Jersey Consumer Fraud Act (“CFA”), N.J. Stat. Ann. § 56:8–1, et seq., and constituted a breach of implied warranty. 

Defendants moved to dismiss.  The court noted that threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice under Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).  If the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint should be dismissed for failing to show that the pleader is entitled to relief. A plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. 

The motion challenged plaintiffs' standing. To have standing, the plaintiff must have suffered an injury in fact—an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of—the injury has to be fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court. Third, it must be likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.  The injury-in-fact element is often determinative.

The injury must affect the plaintiff in a personal and individual way.  Here, Green alleged that he purchased and used the Keurig Platinum Brewing System (model series B70).  Nevertheless, he sought to represent all individuals in New Jersey who “purchased or received”  a variety of Keurig Brewing Systems. Plaintiff did not have standing to pursue a claim that products he neither purchased nor used did not work as advertised.

Regarding that model series B70, plaintiff contended in his complaint that, because of defective components, the coffee machines at issue brew a lesser amount of coffee than the companies represented, compromising the quality of the beverage. Consumers are then forced to use additional K-Cups, which are a portion pack for the systems, according to the complaint. Defendants maintained that even if their alleged conduct was unlawful, plaintiff had not sufficiently pled ascertainable loss.  In a misrepresentation case, a plaintiff generally may show ascertainable loss by either out-of-pocket loss or a demonstration of loss in value.  In this case, Green did not allege that he made a claim for warranty repair or replacement of his machine.  The warranty provided as part of the contract of sale is part of the benefit of the bargain between the parties. Any defects that arise and are addressed by warranty, at no cost to the consumer, do not provide the predicate loss that the CFA expressly requires for a private claim.  Because plaintiff had not availed himself of defendants' warranty, he could not allege that the warranty does not address the defect in his machine.

Furthermore, the court found unpersuasive plaintiff's argument that the warranty did not address the defects in the brewers because other consumers allegedly reported that their replaced or repaired brewers were equally defective.  Allegations regarding the experience of absent members of the putative class, in general, cannot fulfill the requirement of pleading injury with adequate specificity.

Similarly, plaintiff did not sufficiently plead loss in value.   Plaintiff broadly asserted that he suffered a loss because each brewer failed to perform its advertised purpose and caused purchasers to suffer a loss of value of the product. But Green failed to allege how much he paid for his brewer and how much other comparable brewers manufactured by competitors cost at the time of purchase. Furthermore, Green had not suffered a diminution in value because the defective brewer could have been repaired or replaced with a new brewer which would have had its own one-year warranty.


Regarding the implied warranty claim, the general purpose of the brewers is to brew beverages. Even if defendants may have advertised that the machines would brew a specific amount of beverage, that alone did not transform the “general” purpose.  Green did not allege that his machine would not brew coffee or that it was inoperable.  The complaint was also devoid of any allegation that plaintiff can no longer use his brewer. Therefore, Green had not sufficiently alleged that his brewer was unfit for its ordinary purpose of brewing beverages at the time of purchase.

Defendants also contended that the class allegations should be dismissed. Plaintiff argued that the Court should deny the motion because it was premature. Nevertheless, a court may strike class action allegations in those cases where the complaint itself demonstrates that the requirements for maintaining a class action cannot be met.  Here, the court concluded that the plaintiff could not  meet the predominance requirement set forth in Fed.R.Civ.P. 23(b).

The complaint did not allege that all individuals in New Jersey who purchased the Keurig Brewing Systems had experienced the defect. Plaintiff acknowledged that there were members in the putative class who had not yet suffered the alleged pump failure. Consequently, the putative class included individuals who do not presently have a claim against defendants. Proving that defendants breached the implied warranty of merchantability would also require an individualized inquiry. Not every member of the putative class experienced a defect with the model series B70. Even if the purported defect had manifested in all of the brewers purchased within the class period, the court would have to make individual inquiries as to the cause and extent of the defect.  Motion granted. 

 

Fruit Juice MDL Court Dismisses Claims

The Massachusetts federal court overseeing multidistrict litigation against 11 beverage companies, including Coca-Cola Co. and Del Monte Corp., alleging that their fruit juices contained trace amounts of lead, dismissed the claims last week.  In re Fruit Juice Products Marketing and Sales Practices Litigation, No. 11-2231 (D. Mass., 12/21/11).

Plaintiffs alleged that the defendants misled them into believing that certain of their products were safe, whereas the products in fact contained lead and posed a health risk, especially to children.  The issue had caught the attention of the FDA, which concluded that while several of the products contained trace amounts of lead, in each case the level found would not pose an unacceptable risk to health.  (The FDA’s conclusion was based in part on a guidance report it issued in 2004. The agency concluded that many food products contain small amounts of lead because the substance is in the environment naturally and also released through many human activities.)

The majority of plaintiffs’ claims were for violations of the consumer protection laws of states in which defendants maintained their principal places of business. Plaintiffs also brought claims under the consumer protection laws of all states in which potential class members purchased the  products. Finally, the plaintiffs alleged breach of the implied warranties of merchantability and fitness for a particular purpose and for unjust enrichment.

Defendants moved to dismiss on several grounds, but the foundational argument that plaintiffs lacked standing was fatal to all of plaintiffs’ claims, and was in the eyes of the court so compelling that it was unnecessary for the court to reach the numerous satellite theories that defendants offered.

To establish Article III standing, a plaintiff must first demonstrate that he has suffered an injury in fact.  Whitmore v. Arkansas, 459 U.S. 149, 155 (1990). The injury must be concrete and the alleged harm actual or imminent, and not conjectural or hypothetical. Los Angeles v. Lyons, 461 U.S. 95, 101-02 (1983). If a plaintiff fails to allege sufficient facts to satisfy this requirement, the case must be dismissed.

In this case, plaintiffs did not allege a sufficient injury in fact. Plaintiffs offered two potential theories of injury in fact. First, they alleged that the lead in defendants’ products posed a health risk and that, by consuming these products, they placed themselves and their children at risk of future harm from lead poisoning. Second, plaintiffs alleged that they suffered economic injury when they purchased products that defendants advertised as safe, but that in fact contained allegedly dangerous amounts of lead. Both theories, according to the court, ran into the same problem -- plaintiffs
failed to allege any actual injury caused by their purchase and consumption of the products.

The claim of exposure to “potential adverse health effects” or “potential harm” was insufficient for Article III standing. A threatened future injury must be “certainly impending” to grant Article III
standing.  In product liability cases, courts have held that to establish standing based on a threat of future harm, plaintiffs must plead a credible, substantial threat to their health.  E.g., Herrington v. Johnson & Johnson Consumer Cos., Inc., 2010 WL 3448531, at *3 (N.D. Cal. Sept. 1, 2010); see also Public Citizen, Inc. v. Nat’l Highway Traffic Safety Admin., 489 F.3d 1279, 1293-96 (D.C. Cir. 2007); Sutton v. St. Jude Medical S.C., Inc.,419 F.3d 568, 570-75 (6th Cir. 2005).  But the complaint here contained no allegations that either plaintiffs or anyone else ever suffered any type of injury from consuming the products. The products were not recalled, and in fact, the FDA found that at least some of the specific products did NOT pose an unacceptable risk to human health.

Plaintiffs made no allegations as to the amount of lead actually in these products, did not claim that any particular amount in the products is dangerous, and did not allege that any specific amount had caused actual injuries to any plaintiff. The court also stressed that plaintiff did not allege that the levels of lead in the products violated any FDA standards. Under these circumstances, the allegations of risk of future harm to class members were insufficient to meet the “credible or substantial threat” standard. The claim of potential future injury was simply too hypothetical or conjectural to establish Article III  standing.

The court cited a series of cases involving lead in lipstick, which we have posted on, making clear that the type of speculative future injury here cannot form the basis of a lawsuit. See Koronthaly v. L’Oreal USA, Inc., 374 F. App’x 257(3d Cir. 2010), aff’g 2008 WL 2938045 (D.N.J. July 29, 2008); Frye v. L’Oreal USA, Inc., 583 F. Supp. 2d 954 (N.D. Ill. 2008).

Plaintiffs’ second theory of injury in fact was equally flawed. Plaintiffs alleged that defendants promised to provide products that were safe for consumption, but that plaintiffs received products that posed a health risk to them and their children. Consequently, the products were unsuitable for their intended purpose -- consumption -- and supposedly valueless. Because plaintiffs supposedly would not have purchased these products if they had known the products contained any lead, they suffered an economic injury -- the price of the product -- when they purchased the products.

But because plaintiffs were unable to show that any actual harm resulted from consumption of the fruit juice products, their allegation of “economic” injury lacked substance. The fact is that plaintiffs paid for fruit juice, and they received fruit juice, which they consumed without suffering harm. Again, the products were not recalled, did not cause any reported injuries, and did not violate any federal standards. The products thus had no diminished objective value due to the presence of the lead. These plaintiffs received the benefit of the bargain, as a matter of law, when they purchased these products and were able to consume them.

Other courts that have addressed similar “benefit of the bargain” standing arguments agree that plaintiffs who have not been injured by an allegedly defective product generally do not have standing to sue the product’s manufacturer. See, e.g., Rivera v. Wyeth-Ayerst Labs., 283
F.3d 315 (5th Cir. 2002).  Plaintiffs’ allegations only support the contention that the levels of lead in the products were unsatisfactory to them. This allegation was simply insufficient to support a claim for injury in fact. 

 

 

Class Certification Denied in Plant Explosion Case

A Massachusetts federal court last week declined to certify a class in a suit against chemical company Ashland Inc., in a dispute over a factory explosion. Riva et al. v. Ashland Inc., No. 1:09-cv-12074 (D. Mass.).

Plaintiffs alleged that the defendant negligently maintained certain highly explosive chemicals at a Danvers, MA, facility in such a way that caused an explosion in 2006. At the time of the explosion, Ashland was the primary provider of chemicals to C.A.I., a manufacturer of commercial printing inks, and Arnel Co., Inc. a manufacturer of paint products. C.A.I. and Arnel both operated from the Danvers facility.  There was an incident that destroyed the Danvers facility and caused property damage to the surrounding Danversport community. The named plaintiffs claimed that Ashland, among other things: did not inquire or determine whether C.A.I. or Arnel had a license or permit to maintain the quantities and types of chemicals Ashland provided; failed to warn about the scope and magnitude of the explosive risks and hazards of the chemicals and chemical mixtures that it was providing; delivered chemicals into inappropriate containers and vessels. Ashland prepared a vigorous defense. Plaintiffs sued under theories of strict liability, negligence, nuisance, and breach of implied warranty of merchantability.

As is typical with mass disasters, multiple law suits were filed, including a Borelli matter.  Ashland was not named as a defendant in Borelli or in any of the additional suits brought against C.A.I., Arnel and its insurers.   In connection with the Borelli action, certain households and businesses in the Danversport area in close proximity to the site of the explosion created the Danversport Trust for the benefit of those whose real estate Property was directly impacted by the explosion and fire at the Danvers facility.  The state court eventually certified the Borelli class and approved a comprehensive settlement agreement.  It gets a little complicated because not  all Borelli class members were Trust beneficiaries, and the settlement agreement also contained an indemnification provision which applied to Trust beneficiaries and certain other settling parties, but not all of them. Specifically, this indemnification provision did not require Borelli class members who were not in the Trust or in a "Subrogated Group" of claimants to indemnify the released defendants from future claims. Rather, the settlement agreement provided that the remaining Borelli class members expressly reserved the right to initiate individual, class, or collective actions against any or all non-released parties. 

And that is how this case came to be filed against Ashland. Borelli class members, including the
named plaintiffs in the present action, received compensation resolving their claims in that matter.  Named plaintiff  Riva alleged that her residence and personal property in Danvers were destroyed by the explosion. Although Riva was not a Trust beneficiary, she was a member of the
Borelli class and received money from the Claims Review Committee to resolve her claims in that
matter.  Named plaintiff Corrieri alleged that his uninsured boat was damaged in the explosion while it was stored at Liberty Marina in Danvers. Corrieri was neither a Trust beneficiary nor was
he asserting individual claims for damages to real property. He received a settlement payment in the prior class action for damage to the same boat for which he now asserted claims against Ashland.

The plaintiffs moved for class certification, and the court's analysis focused on the typicality and adequacy prongs, particularly in light of the prior class settlement.

The requirements of typicality and adequacy focus on the class representatives, Fed. R. Civ.
P. 23(a)(3) & 23(a)(4), and in the eyes of some courts “ tend to merge.” In re Credit Suisse-AOL Sec. Litig., 253 F.R.D. 17, 22 (D. Mass. 2008). Rule 23(a)(3) requires that “the claims or defenses of the representative parties [be] typical of the claims or defenses of the class.” The class representatives’ claims are “typical” when their claims arise from the same event or practice or course of conduct that gives rise to the claims of other class members, and are based on the same legal theory.  The class members' claims here did appear to arise from the same event (the accident), but despite these similarities, the court found that the named plaintiffs had not shown that their interests in proving liability were aligned with those of the class to meet the typicality requirement.

The indemnification provision of the prior settlement required the "Subrogated Group" and Trust beneficiaries to individually defend, hold harmless, and indemnify C.A.I. for any and all claims in the nature of third-party claims for indemnity or contribution which might be brought by Ashland. Since Ashland, a non-released party, had indeed brought a third-party claim for indemnification and contribution against C.A.I., a released party in Borelli, the impact of this indemnification provision on class members who were Indemnitors (i.e., Trust beneficiaries or members of the Subrogated
Group), was in the eyes of the court a "live issue in this case." The indemnification provision did not apply to the other class members who are neither Trust beneficiaries nor members of the Subrogated Group. So the indemnification provision could affect the Indemnitor and non-Indemnitor class members differently,  i.e., if the case was certified as a class action and the class prevailed, the Indemnitors in the class could become obligated to indemnify C.A.I., but other class members would not.

The court predicted that a substantial number of putative class members would be Indemnitors.  But the named plaintiffs were all non-Indemnitors and therefore would not be bound by the
indemnification provision. As non-Indemnitors, the named plaintiffs had a clear interest in proving
Ashland’s liability and maximizing damages. The majority of the class, the Indemnitors, on the
other hand, would not have the same goal since, according to the indemnification provision, they might be required to pay certain damages over to C.A.I.  Thus, it could not be said that the interests of the class representatives were typical of the class in this respect.

The adequacy requirement demands a similar inquiry into whether the putative representative plaintiff’s interests are aligned with other class members and whether the plaintiff is in a position to vigorously protect the class' interests.  Adequacy requires that the representative parties will fairly and adequately protect the interests of the class. To be adequate class representatives, plaintiffs must show that: (1) the interests of the representative party will not conflict with the interests of the class members; and (2) counsel chosen by the representative party is qualified, experienced and able to vigorously conduct the proposed litigation.  Here, an apparent conflict of interest exists between the non-Indemnitors (i.e., the named plaintiffs) and the Indemnitors (i.e., most of the class). The Indemnitors’ interest in shielding themselves from liability over indicated they would pursue tactics contrary to the named plaintiffs’ objectives in both proving liability and maximizing all kinds of damages against Ashland.

The court noted that the fact that the class representatives have suffered the same injury as the Indemnitors and non-Indemnitors in the class was insufficient to show that the adequacy requirement was met. Class representatives must also “possess the same interests” as other class members.

Class certification denied. 

State Supreme Court Applies Lessons of Dukes to Toxic Tort Class Action

Louisiana's Supreme Court last week reversed the certification of a class action brought by property owners over the alleged release of contaminants from a wood-treating site. See Price, et al. v. Martin, et al., No. 2011-C-0853 (La. 2011).  What should catch readers' eyes is the court's reliance on the U.S. Supreme Court's Wal-Mart v. Dukes decision in this mass tort case. we have been following the lower courts' treatment of that decision, and this case represents a sensible application of the Court's commonality analysis.

Several  individuals residing in the vicinity of the Dura-Wood Treating Company filed a proposed class action on behalf of persons who allegedly suffered damages as a result of operations at the wood-treating facility.  The petition alleged that the Dura-Wood facility was primarily engaged in the production of creosote-treated railroad ties. Plaintiffs alleged that various environmentally unsound practices caused a significant amount of hazardous and toxic chemicals to be released into the environment, including the air, soil, and water, of the communities in which plaintiffs resided.  For example, according to the petition, from 1940 to mid-1950, significant quantities of creosote sludge were deposited into area canals and ponds. According to plaintiffs, the allegedly negligent releases increased their risk of disease, caused property damage, and diminished property values. Plaintiffs also alleged that defendants’ activities constituted a nuisance.

Plaintiffs filed a Motion for Class Certification, asserting that more than 3,000 persons, firms, and entities had been damaged by defendants’ conduct and that the issues common to the
class -- generally liability issues --  predominated over individual issues.  The trial court granted plaintiffs’ motion, certifying a class defined as “property owners who owned property within the class area at the time the property was damaged during the years of 1944 through the present.   The court of appeals affirmed and the state supreme court granted cert.

The court began by noting that the class action rules do not set forth a mere pleading standard; rather, a party seeking class certification must affirmatively demonstrate his compliance
with the rule – that is, he must be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc. citing Dukes, 131 S.Ct. at 2551.  That a class can be decertified or later amended does not excuse a failure to take a rigorous look at prerequisites. Taking that careful look, the supreme court found that lower court erred in ruling that the commonality prerequisite was met and, further, in determining that the requirements that common issues predominate over individual issues and that the class device be superior were also satisfied.

The requirement that there be questions of law or fact common to the class (in La. C.C.P.
art. 591(A)(2) and in federal Rule 23(a)) is in language that is “easy to misread" since any competently crafted class complaint literally raises common questions. Dukes, 131 S.Ct. at 2551, quoting Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U.L. Rev. 97, 131-32 (2009). The mere existence of common questions, however, will not satisfy the commonality requirement. Commonality requires a party seeking certification to demonstrate the class members’ claims depend on a common contention, and that common contention must be one capable of class-wide resolution – one where the determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke. Dukes, 131 S.Ct. at 2551. In the context of mass tort litigation, said the court, each member of the class must be able to prove individual causation based on the same set of operative facts and law that would be used by any other class member to prove causation.

Here, thousands of property owners sued for alleged damage caused from 1944 to the present by the alleged emission of toxic chemicals from operations at the wood treating facility. The
essence of the causes of action was that the named defendants conducted activities which harmed the class members by depositing polycyclic aromatic hydrocarbons and dioxins in the attic dust of their residential and commercial properties. Plaintiffs argued this presented common questions, as they alleged that injury could be shown not by examining individual
residences, but by showing that elevated toxin levels emanated from the defendants’ facility “on an area-wide basis,” and that this issue, when decided for one class member, would thus be decided for all.

This represented a misinterpretation of the law and of plaintiffs’ burden of proof. To establish the “common issue” they posited, plaintiffs would be required to present evidence not simply that emissions occurred, but that the emissions resulted in the deposit of unreasonably elevated levels of chemicals on each plaintiff's property. And this issues must   be  capable  of common resolution for all class members based on common evidence. Moreover, the proof of commonality must be “significant.”

The court then proceeded to list some of the many reasons why the issues were not common.  The facility had three owners in the span (although only two were sued). These owners engaged in independent and varying operations throughout the approximately 66-year period of alleged emissions. The specific operations that plaintiffs alleged resulted in off-site emissions were varied –such as overflow, runoff,  and the burning of wood -- and occurred at varied and unspecified times during the period in question. Moreover, the facility’s operations changed over time. For example,certain burning processes ceased in or around 1982. Also, the chemicals used at the facility changed over time.

In an important, but often overlooked point, the court noted that the legal standards applying to the operations of the wood-treating facility have changed over time. For example, whether principles of strict liability or negligence would govern the conduct of defendants depended on the
year the damaging emission occurred. Likewise, exemplary damages were not available for some years, by statute. The applicable standards for air emissions varied also, with the enactment of the Clean Air Act decades after the class period began, and various amendments to it over time. Time raised another individual issue: while the attic dust from various properties was tested for contaminants, there was no attempt to determine when contaminants were deposited in the attics of the buildings that were tested.  Finally, over time there were varying alternative sources of the contaminants, including myriad area-wide and property-specific alternative sources of PAHs and dioxins in the defined class area.

For class certification to be appropriate, there must be some common thread which holds the claims together. With regard to causation and injury, plaintiffs thus failed to present sufficient evidence to prove the existence of that common thread.

For many of the same reasons, common issues did not predominate, and the class was not a superior method of resolving the dispute.  The court also noted the existence of potential conflicts between current owners and prior owners of the respective properties.  Also militating against class certification was the fact that several class members had already brought individual claims against these same defendants for personal injuries and property damage allegedly caused by the same facility emissions.

Class certification reversed.  

Class Action Complaint on 100% Natural Oil Dismissed

A federal court recently dismissed a proposed class action accusing a food company of misleadingly labeling cooking oils as 100% natural when they allegedly were made from genetically modified plants. Robert Briseno, et al. v. ConAgra Foods Inc., No. 2:11-cv-05379 (C.D. Calif.).

Quick research reveals that 88-94% of the nation’s crops of corn, soy and canola are grown from seeds that are the product of bioengineering.  There is no credible science that there are serious health issues with these products, and multiple peer reviewed studies on "GM" crops worldwide show farmers in underdeveloped countries have seen an increase in yield of about 29% from using them, along with decreased use of insecticide applications.

Plaintiff alleged that he regularly purchased Wesson Canola Oil, bearing labels that state the product is “100% Natural.” Plaintiff contended that contrary to these representations, ConAgra used plants grown from genetically modified organism seeds that have been engineered to allow for greater yield, and to be pest-resistant, to make Wesson-branded oils. He asserted that the genetically modified organisms are somehow not “100% natural,” and thus the labels and advertising are deceptive. Plaintiff filed a complaint seeking to represent a class of all persons in the United States who have purchased Wesson Oils from 2007 on. As is typical, he alleged
violation of California’s false advertising law (“FAL”), California’s unfair competition law (“UCL”), and California’s Consumer Legal Remedies Act (“CLRA”).

Defendant moved to dismiss. The first issue was preemption of the state law causes of action, based on FDA guidance regarding food labels. Federal preemption occurs, generally, when: (1) Congress enacts a statute that explicitly pre-empts state law; (2) state law actually conflicts with federal law; or (3) federal law occupies a legislative field to such an extent that it is reasonable to conclude that Congress left no room for state regulation in that field. Specifically, ConAgra argued that Briseno’s claims were preempted because the FDA has repeatedly concluded that bioengineered foods are not meaningfully different from foods developed by traditional plant breeding, and thus that the fact that a food product is derived from bioengineered plants need not be reflected on a product’s label. Plaintiff responded that he was not arguing that ConAgra was required to state whether its products were made from genetically modified plants. Rather, he contended that the decision to label its products “100% Natural” was misleading.

Courts have split on food preemption issues. Compare Dvora v. General Mills, Inc., 2011 WL 1897349 (C.D. Cal. May 16, 2011)(cereal-yes); Turek v. General Mills, Inc., 754 F.Supp.2d 956 (N.D. Ill. 2010)(snack bars-yes); Yumul v. Smart Balance, Inc., 2011 WL 1045555 (C.D. Cal. Mar. 14, 2011)(yes), with Lockwood v. Conagra Foods, Inc., 597 F.Supp.2d 1028 (N.D. Cal. Feb. 3, 2009)(pasta-no); Wright v. General Mills, Inc., 2009 WL 3247148 (S.D. Cal. Sept. 30, 2009)(granola bars-no).

Here, the court found no preemption on most of the complaint. The bulk of the complaint, said the court, alleged that use of the phrase “100% Natural” is misleading, and did not contend that additional information must be added to Wesson Oil labels. Regulations requiring that each product list its ingredients by their “common or usual name,” together with the regulations requiring that vegetable oils be denominated “ oil,” were inapplicable since plaintiff’s central argument was not that ConAgra cannot use the common or usual names of canola oil, vegetable oil or corn oil.

The FDA has expressed that it has no basis for concluding that bioengineered foods differ from other foods in any meaningful or uniform way, or that, as a class, foods developed by the new techniques present any different or greater safety concern than foods developed by traditional plant breeding. So, plaintiff, in essence, sought to create a distinction – between “natural” oils and those made from bioengineered plants when the FDA has determined that no such distinction exists. The court rejected this argument, refusing to read the FDA guidance as formal enough or clear enough on the issue.

Plaintiff did also seek an order requiring defendant to adopt and enforce a policy that requires appropriate disclosure of GM ingredients. Entering an order of this type would impose a
requirement that is not identical to federal law, and thus this particular prayer for such relief was preempted.

Rule 9(b) requires that in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. The pleading must identify the circumstances constituting fraud so that a defendant can prepare an adequate answer to the allegations. While statements of the time, place and nature of the alleged fraudulent activities are often sufficient, mere conclusory allegations of fraud are insufficient. Even if fraud is not a necessary element of a claim under the CLRA and UCL, when a plaintiff alleges fraudulent conduct then the claim can be said to be grounded in fraud or to sound in fraud.

Plaintiff alleged that he regularly purchased Wesson Canola Oil for his own and his family’s consumption. But his complaint contained no allegations as to whether he became aware of the
representation through advertising, or labeling, or otherwise. He provided no information about how often he was exposed to the allegedly misleading statement. He did not allege how
frequently he purchased the product and over what period of time, whether he relied on
statements on canola oil labels, on a website, in advertisements, or all of the above,
whether the statements remained the same throughout the class period, or, if they did not, on
which label(s), advertisement(s) or statement(s) he relied.

Thus, this complaint did not afford ConAgra adequate opportunity to respond. Consequently, defendant's motion to dismiss was granted (without prejudice).


 

Choice of Law Defeats Another Proposed Nationwide Consumer Fraud Class

A federal court recently ruled that a suit over alleged defects in an MP3 player's display screen could not proceed as a nationwide class action. See Maloney et al. v. Microsoft Corp., No. 3:09-cv-02047 (D.N.J.).

This dispute arose out of the sale of portable MP3 players, the 30 gb model Zune. Plaintiffs alleged that the 30gb-model Zune was defective because of alleged cracks on the liquid crystal display (LCD) screen. (News flash: if you drop an electronic device, it may crack.)

Plaintiffs moved for class certification, pursuant to Fed. R. Civ. P. 23(b)(3), of a national class of purchasers. The court concluded that each state‘s common law and consumer protection laws would apply, and therefore a nation-wide class could not properly be certified.

Attempts to structure and certify nation-wide classes involving plaintiffs in all fifty states often turn on whether the law of a single state or multiple states should be applied.  If all 50 states‘ laws apply to a class-action claim, the moving party must provide an extensive analysis of state law variances showing that class certification does not present insuperable obstacles. Plaintiffs bear this burden at the class certification stage, and rarely (we'd say never) can meet it.  Many courts have recognized that state implied warranty laws differ in significant and material ways. For example, states differ on: (1) application of the parole evidence rule; (2) burdens of proof; (3) statute of limitations; (4) whether plaintiffs must demonstrate reliance; (5) whether plaintiffs must provide notice of breach; (6) whether there must be privity of contract; (7) whether plaintiffs can recover for unmanifested defects; (8) whether merchantability may be presumed; and (9) whether warranty protections extend to used goods.

New Jersey courts have adopted the most significant relationship test of the Restatement (Second) of Conflicts of Law. Before applying the Restatement test, plaintiffs here contended that a choice-of-law clause contained in the limited warranty accompanying the product should apply to all of the claims. However, the court determined that the choice-of-law provision did not apply to any of plaintiffs‘ claims. First, the implied warranty claims asserted by the plaintiffs were not governed by the choice-of-law provision in the express warranty. As a plain reading of the text of the express warranty made clear, the choice-of-law provision applies only to the limited warranty, i.e., the express warranty.

To evade this plain reading of the express warranty, plaintiffs then attempted to shoehorn their implied warranty claims into the choice-of-law clause by conflating their implied warranty and Magnoson-Moss (MMWA) claims. Plaintiffs‘ argument was untenable because ultimately plaintiffs‘ MMWA claims rely on their implied-warranty claims, not violations of federal law. State warranty law lies at the base of all warranty claims under Magnuson-Moss. Plaintiffs wrongfully confused substantive MMWA violations and the right to recover under the MMWA.

Although federal substantive law—and not state law—prevents a seller from disclaiming implied warranties, plaintiffs‘ ultimate right to recover on their MMWA claims still depended on state law. When a defendant improperly disclaims an implied warranty, the MMWA provides a statutory remedy: such disclaimer would be void and plaintiffs would be able to proceed against defendant on breach of implied warranties claims, under state law.  Similarly, the choice-of-law provision contained in the limited warranty did not apply to plaintiffs‘ consumer-fraud claims.

Having determined that the choice-of-law provision in the limited warranty did not apply to any of the plaintiffs‘ claims, the court then applied  the choice-of-law rules of the State of New Jersey.  Considering all of the Restatement factors, the court concluded that the state with the most significant relationship to the implied warranty claims was each class member‘s home state.
First, the place of contracting occurred wherever each class member purchased their 30gb Zune, which was presumably in their home state. Second, there was no negotiation of the implied warranties. Third, the place of performance also occurred wherever each class member purchased their 30gb Zune. Fourth, the location of the subject matter of the implied warranties is wherever the Zune was physically located, also presumably in each class member‘s home state. Finally, the domicile of the plaintiffs varies between each class member. Weighing these considerations, the state with the most significant relationship to the implied warranty claims—and consequently, the MMWA claims— was each class members‘ home state.

Plaintiffs‘ consumer-fraud claims would also be governed by the laws of each class member‘s home state.  In this case, the place, or places, where the plaintiff acted in reliance upon the defendant‘s supposed representations; the place where the plaintiff received the alleged representations; the place where a tangible thing which is the subject of the transaction between the parties was situated at the time; and the place where the plaintiff is to render performance under a contract which he has been induced to enter by the alleged false representations of the defendant—all weighed in favor of applying the consumer fraud laws of each class member‘s home state.

In light of the court‘s determination that the laws of all 50 states apply to the claims, and because plaintiffs suggested no workable means by which to conduct a manageable trial—let alone the extensive analysis required of them—class certification was denied on a nation-wide basis. (The court reserved decision as to whether or not a New Jersey-wide class might be certified, subject to further briefing by the parties; clearly additional individual issues will predominate in that context as well, we predict at MassTortDefense.)


 

Food Spread Class Action Certified: What Happened to Wal-mart?

A California federal judge recently denied certification of a nationwide class, but certified a statewide class of plaintiffs in a suit over allegedly misleading promotion of the hazelnut spread Nutella as part of a healthy breakfast for kids. Hohenberg et al. v. Ferrero USA Inc., No. 3:11-cv-00205 (S.D. Calif.).

This type of case falls squarely in the zone we have warned readers about: the aggressive and excessive use of consumer fraud act claims by plaintiff attorneys, and certification triggering the need to think about "blackmail settlements."

Plaintiffs brought a putative consumer class action lawsuit on behalf of people who purchased Ferrero’s Nutella spread after relying on allegedly deceptive and misleading labeling and advertisements. Specifically, Plaintiffs alleged that Ferrero misleadingly promoted its spread as healthy and beneficial to children when in fact it contains levels of fat and sugar inconsistent with that claim.  We have posted on this product before.

Typically, plaintiffs brought causes of action alleging (1) violations of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq.; (2) violations of California’s False Advertising Law, (“FAL”), Cal. Bus. & Prof. Code §§ 17500 et seq.; (3) violations of California’s Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code §§ 1770 et seq.; (4) breach of express warranty; and (5) breach of implied warranty of merchantability.

Plaintiffs moved for class certification. Defendant Ferrero argued that plaintiffs did not satisfy the commonality requirement as clarified by the United States Supreme Court in Wal-Mart, because they did not offer evidence of a common injury. Indeed, plaintiffs did not support their motion with expert declarations that, for example, all class members were misled by a common advertising campaign that had little to no variation.  But the court, relying in part on pre-Wal-Mart decisions, e.g., Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019-20 (9th Cir. 1998), stressed that commonality under Rule 23(a)(2) only requires there be some common issues of fact. To the extent that defendant interpreted the decision in Wal–Mart as requiring plaintiffs to prove common class-wide injury at the class certification stage, the court disagreed. Rather, all plaintiffs must show, said the court, is that the claims of the class depend upon a common contention of such a nature that it is capable of class-wide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke. While that clearly was part of Wal–Mart, the decision is best read as finding that commonality requires the plaintiff to demonstrate that the class members have suffered the same injury, which means more than merely that they have all suffered a violation of the same provision of law.  Nevertheless, in this case, the court found sufficient the claims made on behalf of the proposed class based on a common advertising campaign,

But then there was the predominance issue of Rule 23(b).  Defendant disputed that common issues predominate, arguing that proposed class members’ injuries would require individualized assessment. Notably, one named plaintiff did not regret buying Nutella despite the alleged marketing, and continued using the spread after she learned about its sugar content. Another named plaintiff testified that her family loved Nutella and was upset when she took it away. Clearly, this case involved class members’ individual expectations, dietary preferences, nutritional knowledge, and the availability or non-availability of substitutes in the market. The court conceded that plaintiffs’ dietary choices may prove relevant to the merits of their case, but felt that it need not "decide the merits" of the case at this stage. However, as we have posted before, the Ninth Circuit has noted that it is not correct to say a district court may consider the merits to the extent that they overlap with class certification issues; rather, a district court must consider the merits if they overlap with the Rule 23(a) requirements. 


The court did reject the proposed national class, because plaintiffs made no showing that non-California class members saw the advertising at issue in California, purchased Nutella in California, or that their claims arise out of conduct that occurred in California. The choice of law issue thus overwhelmed the alleged common issues. So the certified class included “all persons who, on or after Aug. 1, 2009, bought one or more Nutella products in the state of California” for personal use.  Wal-Mart needs to have more impact than this.

Court Permits Plaintiffs to Evade CAFA Mass Action Reach

Readers know that one of the effects of the Class Action Fairness Act has been to encourage plaintiff counsel to get creative in ways to defeat federal jurisdiction and keep mass torts and class actions in state courts.  Last week, a federal court remanded several cases brought by individuals who claimed that they developed non-Hodgkins lymphoma as a result of exposure to PCBs, despite the “mass action” provisions of CAFA.  Nunn v. Monsanto Co., No, 4:11-CV-1657(CEJ) (E.D. Mo. 11/7/11).

Under CAFA, federal courts have jurisdiction over class actions in which the amount in controversy exceeds $5,000,000 in the aggregate; there is minimal diversity among the parties; and there are at least 100 members in the class. 28 U.S.C. §1332(d). CAFA also provides federal jurisdiction over a “mass action,” which is defined as “any civil action . . . in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact . . .” 28 U.S.C. § 1332(d)(11)(B)(i).

The district court stated that for it to have jurisdiction under the mass action provisions, defendants must demonstrate that there really are 100 plaintiffs. Defendants made a clever and powerful argument, pointing out that in addition to the cases and these plaintiffs subject to the remand motion,  plaintiffs’ counsel filed two separate, largely identical, cases in the state court (St. Louis City Circuit Court), one with 95 plaintiffs and one with 96 plaintiffs. This clearly evidenced plaintiffs’ counsel purposeful efforts to “splinter” a single mass tort case for the purpose of evading federal jurisdiction. That kind of rigging was rejected in cases like Freeman v. Blue Ridge Paper Prods., Inc., 551 F.3d 405 (6th Cir. 2008), and Westerfeld v. Independent Processing, LLC, 621 F.3d 819 (8th Cir. 2010), argued defendants.

The court felt obligated to disregard such manipulations, however.  Defendants’ contention that plaintiffs had deliberately divided their cases in order to avoid the mass action threshold was somehow "irrelevant."  Reference to the other identical cases was, the court thought, akin to defendant "consolidating" the cases; by excluding cases in which the claims were consolidated on
a defendant’s motion, Congress appears to have contemplated that some cases which could have been brought as a mass action would, because of the way in which the plaintiffs chose to structure their claims, remain outside of CAFA’s grant of jurisdiction. Citing Anderson v. Bayer Corp., 610 F.3d 390, 393 (7th Cir. 2010); see also Tanoh v. Dow Chem. Co., 561 F.3d 945 (9th Cir. 2009). 
 

So, another example of the numerical loophole to removal of mass actions, evading the Congressional intent. Plaintiffs' attorneys continue to resort to dividing their clients into groups of 99 or fewer plaintiffs to try to avoid federal court.


 

Competing Model of Plaintiff Class Action Bar Forthcoming

Readers of MassTortDefense are mostly from the defense bar, and are always thinking about what the other side is thinking about.

Visiting Professor Ratner of Harvard Law School is trying to give us a new view of plaintiff class action attorneys.  Since he practiced with Lieff Cabraser Heimann & Bernstein, readers can soon decide for themselves whether his view is descriptive or wishful thinking. See Ratner, Morris, A New Model of Plaintiffs' Class Action Attorneys (2011). Review of Litigation, Forthcoming.

According to the author, this article offers a new model for conceptualizing plaintiffs’ class action attorneys, and thus for understanding principal-agent problems in class action litigation. It responds to the work of Professor John C. Coffee, Jr., who, in a series of influential articles, demonstrated that principal-agent problems may be acute in class action litigation because class members lack the information or financial incentive to monitor class counsel; class counsel is thus free to pursue his own interests at the expense of the class members. But what are those interests, and how do they diverge from the class members’ interests? Professor Coffee provided one answer to this sub-set of questions, presenting an account of class counsel and the precise parameters of his disloyalty corresponding with three descriptive assertions: that class counsel is either a solo practitioner or in a small firm; that he is predominantly interested in maximizing his law firm profit; and he capably pursues his fee-maximizing goal by investing his time in cases based on confident predictions about expected fees.

In this article, the author offers a competing conception of the dominant class action attorneys and firms; he argues that the leading firms today are relatively large and internally complex; law firm structural complexity creates diverse incentives other than maximization of law firm profit; and class counsel invest time in cases for complex reasons other than the effect on expected fees, particularly because fees are notoriously difficult to predict. Modeling class counsel to recognize this complexity has three virtues, he claims: it better reflects the actual characteristics of the most significant class action attorneys, and hence is a more accurate descriptive tool; as such, it enables a more precise understanding of the extent and nature of agency or loyalty problems; and thus, finally, it provides a more solid basis for needed reforms. In particular, this new model, the author asserts, sheds insight on the importance of direct versus incentive-based regulation to manage agency costs in class actions. In light of the diverse incentives this new model reveals, direct regulation of outcomes by trial courts using enhanced final approval standards should be a central part of any package of reforms to manage agency costs in class litigation, argues the author.

We are looking forward to seeing the arguments.

Class Member Lacks Standing to Appeal Fees to Class Counsel

Last week, the First Circuit dismissed for lack of standing a class member's challenge to the significant fee award to class counsel in the Volkswagen AG/Audi AG MDL. In re Volkswagen and Audi Warranty Extension Litigation, MDL No. 1790.
 

The MDL included litigation over alleged oil sludge buildup in engines in the vehicles, and involved about 480,000 cars. The parties reached a settlement under which the automakers had agreed to cover the sludge-related maintenance costs for owners or lessees of Audi A4s from certain model years and Volkswagen Passats from specific model years, if the owners could document required oil changes.

The court also approved an award of $30 million in fees to the firms representing the plaintiffs, which drew the fire of class member Ashley Birkeland.  Her appeal of this issue was rejected last week, however, by the 1st Circuit, which dismissed for lack of standing. The court concluded that appellant suffered no redressable injury from the fee award. She did not allege, for example, that class counsel sold the class short as part of a collusive fee agreement. See Glasser v.  Volkswagen of America, Inc., 645 F.3d 1084, 1088-89 (9th Cir. 2011). Nor did she allege any improper supplemental agreement between plaintiffs counsel and defendant. Cf. In re Cendant Corp. PRIDES Litig., 243 F.3d 722, 726 & n.4 (3d Cir. 2001).

The court held that Fed. R. Civ. P. 23(h)(2) does not effectively confer standing to appeal on such appellants. "The district court's jurisdiction to review fee applications with the input of objectors is one thing; our appellate jurisdiction is another."

The court's reasoning seemed to reflect the view that the defendants, Volkswagen and Audi, and not class members, would be paying class counsel's fees -- implicitly rejecting the notion that such settlements are a zero-sum game based on a total that a defendant is willing to pay (and calculates it will have to pay in total), so every dollar in fees is a dollar less to the class members. 

 

And Here's Another Reason....

...why medical monitoring often does not make sense.

In our posts on medical monitoring, we have pointed out that even in those jurisdictions which do recognize this type of claim/damages, plaintiffs typically must show that the proposed medical monitoring regime is reasonably medically necessary.  Some courts articulate the notion that the testing be consistent with the standard of care, while others require the monitoring be reasonably necessary according to contemporary scientific principles.

An essential result of this is that the screening cannot risk doing more harm than good.  While the pre-load of a typical jury pool may be that monitoring is always helpful, the reality is that many forms of screening have significant potential costs and risks, associated with the procedure or the inevitable follow-up response to a positive test finding --which may turn out to be a false positive finding.  If those (and other) costs are not outweighed by the decrease in disease mortality fostered by the testing, then the monitoring doesn't make sense medically, and should not be available in a legal setting.

That is why we read with some interest the recent reports that the U.S. Preventive Services Task Force, which studies health screening measures, is planning to downgrade its recommendation on a common form of prostate cancer screening (PSA).  The test now gets a "D," which wasn't good when MassTortDefense was in school, and actually means it recommends against the screening because there is moderate or high certainty that the screening has no net benefit or that the harms outweigh the benefits.

The Task Force recognized that high or increasing levels of PSA can indicate many things besides an increased risk for prostate cancer; PSA tests have resulted in high rates of false positives (10-15%) and thus over-treatment for small, slow-growing cancers that will never actually cause harm. Those treatments, surgery and radiation, are not benign. In contrast, the latest studies of those screened show no statistically significant benefit after 10 years.

The point here for our readers is that if a commonly used, widely accepted test can be shown after actual use to risk more harm than good, then how questionable are the new technologies, made-for-litigation screening programs that plaintiffs' hired experts concoct for a class action?

 

Plutonium Class Action in Supreme Court

The U.S. Supreme Court last week invited the Solicitor General to weigh in on the issues in a significant class action, in which the plaintiffs allege plutonium contamination. Merilyn Cook, et al. v. Rockwell International Corporation, et al., No. 10-1377 (U.S.).

The plaintiffs were more than 15,000 property owners near the former Rocky Flats Nuclear Weapons Plant in Colorado.  In 2006, a jury found against defendants Dow and Rockwell.  In 2008, the federal trial court ordered the companies to pay a total of $926 million in damages. The 10th Circuit reversed.

At issue now is whether state substantive law controls the standard of compensable harm in suits under the Price-Anderson Act, or whether the Act instead imposes a federal standard; and, secondly, whether, if a federal standard applies, a property owner whose land has been contaminated by plutonium must show some physical injury to the property beyond the contamination itself in order to recover.

The court of appeals had concluded that plutonium contamination by itself was not adequate under the Act. In particular, property owners’ fears that the plutonium might damage their health was not a sufficient basis to award damages.

The case raises the all-too-familiar scenario of trial courts dispensing with traditional elements of a cause of action in order to proceed with class litigation. Plaintiffs alleged that defendants were  responsible for plutonium emissions that diminished their property values. But they did not prove any present physical injury to person or property, or loss of use of property, on a class-wide basis. Rather, they vigorously --and successfully-- urged the district court to dispense with any such injury requirement. The district court allowed petitioners to recover based solely on a risk of injury to person or property, even if unverifiable or scientifically unfounded.

 

Don't Forget the Cocktail Sauce: Second Circuit Tosses Shrimp Tray Class Action

We have warned readers of MassTortDefense of the alarming trend of plaintiff lawyers seeking to attack every aspect of a product's packaging and labeling as somehow a case of consumer fraud -- often ignoring common sense in the process.

The latest example comes from a case rightly rejected by the Second Circuit last week. See Verzani v. Costco Wholesale Corp., No. 10-04868, 2011 WL 4359936  (2d Cir., Sept. 20, 2011).

Plaintiffs brought a putative class action against Costco Wholesale Corp. over the size of its "shrimp trays." (We love em, especially for football parties.) Plaintiffs claimed that the wholesaler misled customers by labeling its shrimp trays as 16 ounce trays when the shrimp part of the tray itself only weighed about 13 1/2 ounces. The other few ounces were allegedly made up of  the cocktail sauce and lemon wedges. (We pause and ask, how can you eat shrimp without those two accompaniments?)

The case had a somewhat lengthy procedural history, with issues of preliminary injunctions, choice of law, motions to dismiss, and jurisdiction, in play; the class issue was never reached. In relevant part, the trial court dismissed the claims in 2009, concluding that the plaintiffs' contention that a “reasonable consumer” would not assume that the net weight of the product included the cocktail sauce and other (useful and edible) elements was not well founded. The district court later denied the plaintiffs' motion to amend, 2010 WL 3911499 (S.D.N.Y.), noting that a reasonable consumer would not believe that the net weight disclosed on the label for the shrimp tray refers to only the shrimp. The label lists the ingredients in descending order based on their relative weight --shrimp, lemon wedges, leaf lettuce -- followed by a number of ingredients that comprise the cocktail sauce, such as, tomato paste, distilled vinegar, and horseradish; it clearly states “Net WT 160z (1.00 lb).”

Verzani's interpretation of “net weight” as including 16 ounces of shrimp alone was objectively unreasonable; a simple visual inspection of the tray, with its clear plastic top,  would reveal that shrimp is not the only edible item inside. In fact, the product's name alone, “Shrimp Tray with Cocktail Sauce,” suggested that a consumer (at a minimum) is purchasing shrimp and cocktail sauce. A reasonable consumer reading the tray's label would not pick out “shrimp” to the exclusion of all the information on the label (including the product's name and the listed ingredients) when assessing the net weight of the product.

Plaintiffs appealed, but in a summary order, the panel found that court had been right to throw out the case and deny the motion to file an amended complaint.

Ninth Circuit Applies Dukes

The Ninth Circuit issued an interesting class action decision applying several of the key aspects of the recent Supreme Court decision in Wal–Mart Stores, Inc. v. Dukes.  See Ellis v. Costco Wholesale Corp., 2011 WL 4336668  (9th Cir. 2011).

The case was a gender discrimination claim; while we don't focus on labor law here at MassTortDefense, the Rule 23 guidance is instructive generally for many of our class action cases.

The district court certified the class, which alleged gender discrimination, and Costco appealed. Let's focus on three instructive aspects of the Ninth Circuit's analysis.

The trial court had found the commonality prerequisite, but the court of appeals noted that it is insufficient for plaintiffs to merely allege a common question. See Wal–Mart, 131 S.Ct. at 2551–52. Instead, they must pose a question that “will produce a common answer to the crucial question.” Id. at 2552; see also id. at 2551 (“What matters to class certification is not the raising of common ‘questions' ... but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.”). In other words, plaintiffs must have a common question that will connect many individual promotional decisions to their claim for class relief.

In thinking about common issues, some courts have remained reluctant to delve into the merits of the claims. The Ninth Circuit reminds us that it is not correct to say a district court may consider the merits to the extent that they overlap with class certification issues; rather, a district court must consider the merits if they overlap with the Rule 23(a) requirements. Here, the defendant challenged the admissibility of the plaintiffs' experts' opinions, and the district court seemed to have confused the Daubert standard with the distinct “rigorous analysis” standard to be applied when analyzing commonality. Instead of judging the persuasiveness of the evidence presented about commonality, the district court seemed to end its analysis of the plaintiffs' evidence after determining such evidence was merely admissible. To the extent the district court limited its analysis of whether there was commonality to a determination of whether plaintiffs' evidence on that point was admissible, it did so in error.

(Specifically, while plaintiffs alleged nationwide discrimination, their proof seemed to show great variation in defendant alleged conduct by region. Plaintiffs would face an exceedingly difficult challenge in proving that there were questions of fact and law common to the proposed nationwide class, but the district court failed to engage in a “rigorous analysis” on this point.)

Next is typicality. Costco argued that plaintiffs could not satisfy the typicality requirement because each of the named plaintiffs' respective discrimination claims were subject to unique defenses. The district court rejected this argument and held that, as a general matter, individualized defenses do not defeat typicality. This was also error. A named plaintiff's motion for class certification should not be granted if there is a danger that absent class members will suffer if their representative is preoccupied with defenses unique to him or her. A unique background or factual situation may require a named plaintiff to prepare to meet defenses that are not typical of the defenses which may be raised against other members of the proposed class. 

Third, the court examined the effort of plaintiffs to get damages in a 23(b)(2) class. The prior thinking was that in Rule 23(b)(2) cases, monetary damage requests might be allowable if they were merely incidental to the litigation, but "this standard has been called into doubt by the Supreme Court" in Wal–Mart, 131 S.Ct. at 2560. The Supreme Court rejected the “predominance” test for determining whether monetary damages may be included in a 23(b)(2) class certification. Id. at 2559. Instead of considering the amount of the damages sought or the subjective intent of the class members seeking relief to determine if injunctive relief “predominates,” the first relevant inquiry, said the Ninth Circuit, is what procedural safeguards are required by the Due Process Clause for the type of relief sought. Id. at 2557–58.

While rule 23(b)(3) arguably expanded the breadth of possible class actions, it also expanded the procedural protections afforded the class. Unlike classes certified under Rule 23(b)(1) or (b)(2), a(b)(3) class is not mandatory. Instead, putative class members are afforded the right to be notified of the action and to opt out of the class. The absence of these protections in a class action predominantly for monetary damages violates due process. And the Wal–Mart court opined: “We fail to see why the Rule should be read to nullify these protections whenever a plaintiff class, at its option, combines its monetary claims with a request—even a ‘predominating request’—for an injunction.” 131 S.Ct. at 2559.

Even beyond the due process issue, the Supreme Court also stated that claims for individualized relief (like the backpay at issue here) do not satisfy Rule 23(b)(2), because the “key to the (b)(2) class is the indivisible nature of the injunctive or declaratory remedy warranted."  Id. at 2557.  Rule 23(b)(2) does not authorize class certification when each class member would be entitled to an individualized award of monetary damages. Here, the district court erred, therefore, by focusing on evidence of plaintiffs' subjective intent, instead of on whether the monetary relief could be granted absent individualized determinations of each class member's eligibility.

The court of appeals vacated the district court's order finding that Plaintiffs had satisfied Rule 23(b)(2) and remand for the district court to apply the legal standard confirmed in Wal–Mart.  

Class Certification Denied in Printer Litigation

A federal court recently denied class certification in a case brought on behalf of consumers accusing Epson America Inc. of misrepresenting how its NX series of printers functioned with ink cartridges. Christopher O’Shea et al. v. Epson America Inc. et al., No. 09-cv-08063 C.D. Cal.). Readers may recall our post that the court earlier dismissed many of the plaintiffs' claims on the basis that a manufacturer is not required under consumer protection laws to denigrate its own product and broadcast that its product may not perform as well as its competition.

In May 2009, plaintiff Rogers purchased a “Stylus NX 200” inkjet printer manufactured by defendants. Her decision to purchase this printer was allegedly based, in part, on a statement on the printer box that read: “Replace only the color you need with individual ink cartridges.”  Plaintiff allegedly understood this statement to mean that the printer would only require a black cartridge to print black text. In actuality, plaintiff alleged, the Epson NX 200 printer requires all cartridges to function. She subsequently filed suit against Epson claiming that Epson failed to disclose and affirmatively misrepresented the features of the printer.

Plaintiff  moved for class certification.  The interesting part of the court's analysis relates to the predominance issue under Rule 23(b)(3). Even though individualized questions of reliance and materiality were diminished under some of the plaintiff's theories because the consumer fraud claims are governed by the “reasonable consumer” test, which requires plaintiff to show that members of the public are likely to be deceived, Williams v. Gerber Products Co., 523 F.3d 934, 938 (9th Cir. 2008), the notions of reliance and injury still impacted class certification. Specifically, the court was not convinced that members of the putative class had standing to pursue their claims in federal court. To have standing under Article III, a plaintiff must present an injury that is concrete, particularized, and actual or imminent; fairly traceable to the defendant’s challenged action; and redressable by a favorable ruling.

In the context of Rule 23(b)(3), questions of Article III standing amount to an inquiry as to whether individual issues of injury-in-fact and causation predominate over common issues. While case law suggested that absent class members need not establish standing under the requirements of California’s consumer laws, there is a distinct requirement of Article III standing in federal court.  Statutory interpretations cannot permit a federal class action to proceed where class members lack Article III standing.  The requirement that all members of the class have Article III standing makes sense. If that were not the rule, a class could include members who could not themselves bring suit to recover, thus permitting a windfall to those class members and allowing Rule 23 to enlarge substantive rights.  The court therefore held that absent class members must satisfy the requirements of Article III.

Satisfaction of Article III’s requirements in turn raised individualized issues that defeated certification under Rule 23(b)(3) in this case. Article III requires some showing of injury and causation for a plaintiff to recover. Even if the alleged failure to disseminate truthful information about the product  would be subject to common proof, whether each class member was entitled to recover was not susceptible to proof on a class-wide basis because, to establish standing under Article III, each class member was required to show that they suffered some injury as a result of using or buying the product. Plaintiff therefore must show that all persons in the United States who purchased an Epson NX series printer during the class period suffered an injury which was caused by Epson’s alleged misrepresentation, and which was likely to be redressed by a decision in plaintiff’s favor. The record contained evidence indicating that the injury purportedly suffered by some members of the putative class could not fairly be traced to Epson’s allegedly deceptive representation.  Those individuals who purchased printers from certain third-party on-line sources, such as Amazon.com, were not exposed to the allegedly deceptive representation before they purchased their printers. Not all consumers who purchased an NX200 printer bought it at a retail store. Nor could standing be established by plaintiff’s (unsupported) assertion that the misrepresentation was on every box of the subclass, since some individuals purchased class printers without ever having been exposed to the allegedly deceptive representation. The fact that these individuals may have subsequently seen the misrepresentation when the package arrived in the mail was beside the point. There cannot be a causal connection between the consumer’s injury (the money spent on the printer) and Epson’s alleged misconduct (the purportedly deceptive advertising) because these consumers purchased the printers without ever seeing the purported misrepresentation.

Based on the foregoing, the court found that individualized issues of injury and causation permeated the class claims.The proposed class failed to satisfy Rule 23(b)(3)’s requirement that common issues predominate.

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Mexico Passes Class Action Legislation

Readers with connections to Mexico may wish to take note that in March, 2012, enabling legislation will take effect permitting class action litigation in this southern neighbor.

While Mexico’s Consumer Protection Law had allowed for certain limited collective actions in consumer matters to be brought by the Federal Consumer Protection Agency, this marks a significant change. In April, 2010, the Mexican Congress passed an amendment to the Constitution permitting of class actions in federal courts in Mexico and requiring that class action implementing legislation be enacted within one year of the amendment’s effective date. The amendment was ratified by the required number of state legislatures, and Congress went to work.  The Senate approved a class action bill in December, 2010, as we alerted you. The House approved one in April, 2011. The law was published in the Official Gazette on Aug. 30, 2011, with an effective date of March, 2012.

Class actions will be available for consumer products and services claims, environmental claims, and certain financial services and antitrust claims.  The law recognizes three types of class actions:  diffuse actions to protect rights that belong to everyone, such as environmental issues; collective actions to protect rights that belong to a class linked by a non-contractual relationships; and homogeneous individual right-type class actions on behalf of a group linked by contract. Class actions that involve diffuse rights will be opt-out; and the class action will be opt-in if they involve collective rights or individual homogeneous rights. Significantly, the opt-in period can run up to 18 months following a final judgment or settlement.

In addition to individual actions (numerosity minimum 30); the law gives standing to a variety of federal agencies, such as the Federal Consumer Protection Agency, Federal Environmental Protection Agency, National Commission for the Protection of Users of Financial Services, and the Federal Antitrust Agency; and to certain civil not-for-profit associations whose function is to protect the collective rights of their members.

Plaintiffs must show commonality, and a notion of standing, and there is a general exception (perhaps like superiority/manageability?) for cases in which handling the dispute on a class-wide basis would be "improper."

Other features of note:

  • quick turn around on certification pleadings and the court's ruling on class certification
  • required settlement conference after certification, before trial
  • limits on attorney's fees for plaintiffs
  • modified loser pays provision
  • the court may order notice to class members “through the most suitable resources for that purpose”

In cases in which individual class members seek damages, the law adopts a two-stage procedure consisting of a class-wide trial followed by individualized mini-proceedings on damages. The law prohibits payments to individual class members through a class representative. Individualized evidence need not be submitted during the class-wide phase of the trial proceedings.

Time will tell how the federal courts of Mexico apply the new law beginning in 2012.  It is clear from the debate on the legislation that there is concern about class action abuse (American-style).  Certainly, the legal risks have been raised for those doing business in these sectors in Mexico.
 

 

Medical Monitoring Claim Rejected in Rail Spill

The Sixth Circuit recently rejected the medical monitoring claims of a putative class of residents of a small Ohio town who alleged exposure to chemicals released after a CSX Transportation Inc. train accidentally derailed. Jonathan Hirsch et al. v. CSX Transportation Inc., No. 09-4548 (6th Cir. Sept. 8, 2011).

On October 10, 2007, thirty-one cars of a CSX train derailed and caught fire near the town of Painesville, Ohio. As a precaution, emergency personnel removed about 1,300 people from the surrounding half-mile radius. Most of what burned in this fire was non-toxic, but nine of the cars were carrying potentially hazardous materials. The plaintiffs claimed that 2,800 tons of burning material were sent into the surrounding atmosphere, and that, as a result, the level of dioxin in their town was significantly elevated.

While the fire was still burning, several residents of the town brought suit against CSX;  the district court did not allow the plaintiffs to pursue an independent cause of action for medical monitoring, but decided a court-supervised medical monitoring was available as an equitable remedy under Ohio law. See Wilson v. Brush Wellman, 817 N.E.2d 59, 63-65 (Ohio 2004); see also Day v. NLO, 851 F. Supp. 869, 880 (S.D. Ohio 1994).  Defendant then moved for summary judgment, which was granted. The district court held that the plaintiffs had failed to meet their burden to show that (1) the dioxin released into the air by the fire is a known cause of human disease; and (2) that the named plaintiffs were exposed to dioxin in an amount sufficient to cause a significantly increased risk of disease such that a reasonable physician would order medical monitoring. The plaintiffs timely appealed.

The court of appeals focused on the issues of causation and injury. Rather than traditional personal injuries, the alleged injuries consisted solely of the increased risk of—and corresponding cost of screening for—certain diseases that, according to plaintiffs, were more likely to occur as a result of the train crash. Assuming that Ohio would recognize such an injury, the remedy would be a medical monitoring program that would spare the Plaintiffs these expenses. But were plaintiffs actually at such an increased risk of disease that they were entitled to a medical monitoring program? Not every exposure, not every increased risk risk of disease warrants increased medical scrutiny. For the plaintiffs to prevail, there must be evidence that a reasonable physician would order medical monitoring for them.

Plaintiffs hired several experts to try to meet this burden. (No Daubert issue raised; the issue was sufficiency, not admissibility.). They offered a chemical engineer who tested the community for levels of dioxin. He assumed a normal background level of dioxin at 4 parts per trillion and took measurements around Painesville to compare with this baseline. His measurements
showed elevated levels near the crash site.  Plaintiffs had a chemist who speculated about train cargo, nature and amounts; then, a physicist who plotted the dispersion and concentration of the chemicals from the fire on a map for the purpose of showing which members of the community were exposed to what levels of dioxin. Then a medical doctor used this map to determine who in the community was likely exposed to levels of dioxin above what the EPA considers acceptable—levels at which the risk of cancer increases by "one case in one million exposed persons."

The court of appeals saw at least two problems with this offer.  One issue was the use of the regulatory level. The expert not only accepted the risk of one in a million as the threshold for monitoring, but appeared to have halved it. “One should be afforded the benefit of medical
monitoring, if one has sustained a dose equal to or in excess of 50% of the EPA maximum.” There was little explanation as to why he believed that reasonable physicians would order expensive and burdensome testing for such a small risk, but he explained he wanted "to err on the side of patient safety.”  However, a one-in-a-million chance is small. Indeed, it is proverbially small. If something has a one-in-a-million chance of causing cancer in an individual, then it will not cause cancer in 999,999. For some perspective, the National Safety Council estimates a person’s lifetime risk of dying in a motor vehicle accident as 1 in 88. The lifetime risk of dying in “air and space transport accidents” is roughly 1 in 7,000. The risk of being killed by lightning
is roughly 1 in 84,000, while the risk of being killed in a “fireworks discharge” stands at around 1 in 386,000. So, a small risk and no basis to say it called for medical monitoring.  Certainly the EPA didn't base its standard on any medical monitoring analysis.

Second, the doctor based based his assessment on the exposure map.  But the map was unreliable. The estimate of the total material burned was speculative. The expert admitted that “the fire temperature, particle size distribution, and fire area were not established.” And there were other sources of exposure not accounted for.

Plaintiffs thus alleged only a risk that bordered on legal insignificance, and failed to produce evidence establishing with any degree of certainty that they had even this hypothetical risk.

Summary judgment affirmed.

Reconsideration Denied in Rejected "All Natural" Class Action

Here is an update on an interesting case we posted on before. A federal court last week denied a motion for reconsideration of its ruling that denied class certification to a consumer alleging that Arizona Beverages deceptively marketed its drinks as “all natural.”  See Coyle v. Hornell Brewing Co. et al., No.1:08-cv-02797 (D.N.J. 8/30/11). 

Plaintiff alleged that she was misled by labels on bottles of Arizona brand beverages touting “All Natural” ingredients, and thereby induced into buying bottles of Arizona beverages that contained High Fructose Corn Syrup (“HFCS”), which she claimed is not “natural”. Plaintiff sought to certify, under Fed. R. Civ. P. 23(b)(2), a class of consumers who purchased similarly labeled Arizona beverages that contained HFCS, seeking only declaratory and injunctive relief.

During the course of discovery in this case, plaintiff produced a retainer agreement she signed in anticipation of this lawsuit. But, the agreement was signed on August 9, 2007, more than seven months before plaintiff alleged that she was first misled by defendants’ “all natural” labeling in her product purchase on March 30, 2008. Indeed, plaintiff repeated the 3/08 purchase date in her deposition. She later changed her story.

The court originally observed that it need not find plaintiff to have intentionally lied to hold that she did not meet the adequacy element of Rule 23(a)(4). The issue was not simply whether plaintiff in fact lied, but whether her inconsistent testimony made her vulnerable to a unique factual or legal defense not faced by other class members, thereby rendering her interests potentially too antagonistic to the interests of the other class members. And that is exactly the case; the court found that plaintiff’s factual inconsistencies raised sufficiently grave credibility problems as to prevent her from serving as an adequate class representative.

Plaintiff filed a reconsideration motion. The court did reconsider its finding as to the adequacy of plaintiff’s counsel as a result of plaintiff’s repeated pleadings and certified discovery responses including the March 30, 2008 allegation. This "serious error" did not necessarily disqualify counsel.

But the court re-affirmed its decision as to the adequacy of plaintiff as class representative. Plaintiff argued that any defenses that she would face as a result of the credibility problems identified by the court could not become the focus of the entire litigation.  But the controlling rule does not hold that the only defenses that will disqualify a proposed named plaintiff on adequacy grounds are those which could become the focus of the entire litigation.  Indeed, to deny certification, a court need not conclude that credibility problems would ultimately defeat the class representative’s claim; rather, the court may deny class treatment if that unique defense is even arguably present. 

In any event, the court disagreed with plaintiff’s contention that the unique credibility-related defenses could not become the focus of the litigation in this matter. The court noted that plaintiff would have real trouble surviving summary judgment on the issue of "ascertainable loss" with a record  showing no dispute of fact that plaintiff’s only qualifying purchase of defendants’ product took place after plaintiff herself had concluded that the product was not “all natural.”  Plaintiff’s entire action would be vulnerable to a motion for summary judgment on the issue of ascertainable loss, which would prevent plaintiff (and the class she would seek to represent) from pursuing even injunctive relief.

Determining whether this plaintiff made her purchase of defendants’ product on the date she repeatedly claimed, after she had retained a lawyer to file the suit, would become a major focus and quite probably a show-stopper for this class. Reconsideration denied.

Court Dismisses Consumer Fraud Claims Against iPad

A California federal court last week dismissed a putative class action accusing Apple Inc. of misleading consumers about the ability of its iPad to function outdoors without interruption. Jacob Baltazar et al. v. Apple Inc., No. 3:10-cv-03231 (N.D. Cal. 8/26/11).

We have posted before about the spate of consumer fraud class actions that look for any aspect of a functioning product that can be attacked as less than perfect, and turn it into a nationwide class action.  Here is a good case reminding readers that manufacturers do not warrant perfection, merely that the product will be reasonably fit for ordinary uses and reasonable expectations.

Plaintiffs alleged that Apple had represented that its iPad tablet computers function outdoors without interruption, when in fact the devices allegedly overheat and shut down when used in sunny conditions. Plaintiffs in this consumer class action asserted claims including breach of warranty and fraud.  Apple moved to dismiss plaintiffs’ second amended complaint for failure to state a claim upon which relief may be granted. The court agreed that the complaint failed to allege facts tending to show that Apple ever represented or claimed that the iPad would operate under such conditions, or that members of the putative class justifiably relied on such representations.

Each of the named plaintiffs alleged that he or she chose to purchase an iPad based at least in part on what they characterize as representations by Apple that the iPad could function outdoors as an e-reader and mobile Internet device. They relied, first, on a claim that Apple produced a television commercial showing depictions of the iPad being used outdoors, at least some of the time on sunny days, and posted on its website a video showing scenes of the iPad being used outdoors and in the sun. They also based their claims on a statement made on Apple’s website that reading the iPad is "just like reading a book.” Finally, they asserted that Apple represented expressly, both on the iPad’s packaging and on its website, that the iPad would function normally within a specified ambient temperature range.

While a complaint attacked by Rule 12(b)(6) motion to dismiss does not need overly detailed factual allegations, a plaintiff’s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007).

Regarding the ads, while plaintiffs observed correctly that a warranty can be created by statements in advertisements, see e.g., Thomas v. Olin Mathieson Chem. Corp., 255 Cal. App. 2d 806, 811 (1967), they did not point to any cases in which a court found that advertising images alone are sufficient to created an express warranty. On the other hand, courts have rejected warranty claims based on advertising images alone. Moreover, even if the advertisement could be construed as an express warranty, the warranty would be that the iPad would work in the exact situations depicted, not in other situations. Plaintiffs described seven brief scenes in a thirty-
second commercial depicting the iPad in use in “outdoor locations,” some of which uses
allegedly occurred on a “sunny day.” But several of the images were on the screen for less
than a second, and none show the iPad being used in direct sunlight or for an extended period in
any environment. Even under the most liberal pleading standard, these brief clips of iPad use in some outdoor locations cannot be construed as an express warranty that the device will operate without interruption in direct sunlight or in outdoor conditions generally.

On the implied warranty claim,plaintiffs failed to identify with sufficient specificity which of the  functions are the ordinary purpose of the iPad and how the device was unfit for that purpose. The complaint alleged that the iPad was marketed as a mobile tablet computer that can be used “anywhere, whether it be while sitting in a park, at an outdoor café, or on one’s own front stoop.” However, the complaint alleged that the product was unfit for use, generally, presumably everywhere and under all conditions. It failed to allege the device did not meet “a minimum level of quality” for a tablet computer.

On the fraud-based claims, the court noted that to state a claim for fraud or intentional misrepresentation under California law, a plaintiff must allege: (1) misrepresentation (false representation, concealment, or nondisclosure); 2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage. Lazar v. Superior Ct., 12 Cal.4th 631, 638 (1996); Anderson v. Deloitte & Touche, 56 Cal.App.4th 1486, 1474 (1997).  Plaintiffs failed to allege adequately that Apple misrepresented the conditions under which the iPad would operate or that they justifiably could rely on those representations in believing that the iPad would operate as they expected. For example, none of the named plaintiffs claimed to have relied on Apple’s statement that the iPad can be used “just like a book,” which, the court noted, was mere puffery. 

However, the court gave the plaintiffs 30 days to submit a third amended complaint.

 

Court of Appeals Rejects Medical Monitoring Class Action

The Third Circuit last week affirmed a lower court decision denying class certification in a medical monitoring case alleging vinyl chloride exposures. Gates v. Rohm & Haas Co., No. 10-2108 (3d Cir.,  8/25/11).

Readers may recall we posted on this case at the trial court level last year.  Plaintiffs alleged that vinyl chloride released from Rohm & Haas’s specialty chemicals manufacturing facility in Ringwood, Illinois contaminated the groundwater in and around McCollum Lake Village, as well as the air in the Village. Plaintiffs alleged that between 1968 and 2002, the vinyl chloride evaporating from the shallow plume blew over the Village, contaminating the air in the Village and causing some Village residents to breathe varying amounts of it. Plaintiffs claimed that the levels of vinyl chloride in the Village air were higher than the background level.

Plaintiffs sought certification of two classes: (1) a class seeking medical monitoring for Village residents exposed to the airborne vinyl chloride between 1968 and 2002, and (2) a liability-only issue class seeking compensation for property damage from the exposure. (We will focus on medical monitoring.)

The district court denied certification; it found the medical monitoring class lacked the cohesiveness needed to maintain a class under Rule 23(b)(2), and that common issues of law and fact did not predominate as required under Rule 23(b)(3). Both failed for the same reason—the “common” evidence proposed for trial did not adequately typify the specific individuals that composed the two classes. In particular, the court found plaintiffs failed to present common proof of three issues critical to recovering on the medical monitoring claim—(1) that plaintiffs suffered from exposure greater than normal background levels, (2) the proximate result of which is significantly increased risk of developing a serious disease, and (3) whether the proposed medical monitoring regime is reasonably medically necessary.  The court also found the remaining individual issues would require individual trial proceedings, undoing any efficiencies of class treatment and possibly leading a second jury to reconsider evidence presented to the jury in the class proceeding.

Plaintiffs took an interlocutory appeal under Fed. R. Civ. P. 23(f) from the denial of class certification. The court of appeals affirmed.

The Third Circuit offered a number of important points for readers that may be confronting putative medical monitoring class actions:

1) what is a medical monitoring class?

A medical monitoring cause of action allows those exposed to toxic substances to recover the costs of periodic medical appointments and the costs of tests to detect the early signs of diseases associated with exposure. The few states that recognize medical monitoring as a remedy recognize it as a cause of action, like Pennsylvania, Redland Soccer Club, Inc. v. Dep’t of the Army, 696 A.2d 137, 142 (Pa. 1997), or treat it as a type of relief granted in connection with a traditional tort cause of action, see, e.g., Bourgeois v. A.P. Green Indus., Inc., 716 So.2d 355, 359 (La. 1998).

The remedy of medical monitoring has divided courts on whether plaintiffs should proceed under Rule 23(b)(2) or Rule 23(b)(3), said the court. The Pennsylvania Supreme Court has talked about awarding medical monitoring damages as a trust fund which “compensates the plaintiff for only the monitoring costs actually incurred.” Redland Soccer Club, 696 A.2d at 142 n.6. But it has not yet clearly decided whether or when medical monitoring awards can be in the form of a lump-sum verdict.

The appeals court noted, however, that some guidance may have come from the fact that the Supreme Court recently clarified that Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class. Wal-Mart Stores, Inc., v. Dukes, 131 S. Ct. 2541, 2557 (2011). In light of the Supreme Court's recent decision, the Third Circuit would "question whether the kind of medical monitoring sought here can be certified under Rule 23(b)(2)."  If the plaintiffs here prevailed, class members' regimes of medical screenings and the corresponding cost would vary individual by individual. A single injunction or declaratory judgment would seem to not be able to provide relief to each member of the class proposed here. Rule 23(b)(2) “does not authorize class certification when each class member would be entitled to an individualized award of monetary damages.” Wal-Mart, 131 S. Ct. at 2557. But it did not need to reach the issue, because certification was improper under either category of Rule 23 for reasons apart from the monetary nature of plaintiffs' claims.

2) Cohesion and (b)(2) Certification

Although Rule 23(b)(2) classes need not meet the predominance and superiority requirements of Rule 23(b)(3), it is well established that the class claims must be cohesive. A key to the (b)(2) class is the indivisible nature of the injunctive or declaratory remedy warranted—the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them. Wal-Mart Stores, Inc, 131 S. Ct. at 2557 (quoting Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L. Rev. 97, 132 (2009)). Indeed, a (b)(2) class may require more cohesiveness than a (b)(3) class. As all class members will be bound by a single judgment, members of a proposed Rule 23(b)(2) injunctive or declaratory class must have strong commonality of interests. The Supreme Court in Wal-Mart recently highlighted the importance of cohesiveness in light of the limited protections for absent class members under subsections (b)(1) and (b)(2) of the class rule. 

3) Individual Issues in Medical Monitoring Class

Because causation and medical necessity often require individual proof, medical monitoring classes may founder for lack of cohesion. See In re St. Jude Med. Inc., 425 F.3d 1116, 1122 (8th Cir. 2005); Ball v. Union Carbide Corp., 385 F.3d 713, 727-28 (6th Cir. 2004); Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1195-96, amended, 273 F.3d 1266 (9th Cir. 2001); Barnes, 161 F.3d at 143-46; Boughton v. Cotter Corp., 65 F.3d 823, 827 (10th Cir. 1995). Frequently the rigorous analysis of common and individual issues  will entail some overlap with the merits of the plaintiff‟s underlying claim.  Wal-Mart Stores, Inc, 131 S. Ct. at 2551.  The trial court may consider the substantive elements of the plaintiffs' case in order to envision the form that a trial on those issues would take.  The District Court here did so and found individual issues were significant to certain elements of the medical monitoring claims here.

Readers will recall that to prevail on a medical monitoring claim under Pennsylvania law, plaintiffs must prove:
(a) exposure greater than normal background levels;
(b) to a proven hazardous substance;
(c) caused by the defendant‟s negligence;
(d) as a proximate result of the exposure, plaintiff has a significantly increased risk of contracting a serious latent disease;
(e) a monitoring procedure exists that makes the early detection of the disease possible;
(f) the prescribed monitoring regime is different from that normally recommended in the absence of the exposure; and
(g) the prescribed monitoring regime is reasonably necessary according to contemporary scientific principles.
Redland Soccer Club, 696 A.2d at 145-46.  “Expert testimony is required to prove these elements.” Sheridan v. NGK Metals Corp., 609 F.3d 239, 251 (3d Cir. 2010).

Here, the District Court identified individual issues that would eclipse common issues in at least three of the required elements, noting several potential variations in proving exposure above background, a significantly increased risk of a serious latent disease, and the reasonable necessity of the monitoring regime.

4) Exposure

Plaintiffs proposed to show the exposure of class members through expert opinions on air dispersion modeling that mapped concentrations of vinyl chloride exposure (isopleths) that allegedly could provide average exposure per person. But in fact those isopleths only showed average daily exposure, not minimum exposure, used average exposure over very long periods of time when exposure likely varied, and thus could not show that every class member was exposed above background.  Instead of showing the exposure of the class member with the least amount of exposure, plaintiffs proof would show only the amount that hypothetical residents of the village would have been exposed to under a uniform set of assumptions without accounting for differences in exposure year-by-year or based upon an individual's characteristics. At most, the isopleths showed the exposure only of persons who lived in the village for the entire period the isopleth represents and who behaved according to all assumptions that the experts made in creating the isopleth.

5) Composite Proof
Plaintiffs cannot, said the court,  substitute for evidence of exposure of actual class members evidence of hypothetical, composite persons in order to gain class certification. The evidence here was not  truly common because it was not shared by all (possibly even most) individuals in the class. Averages or community-wide estimations would not be probative of any individual's claim because any one class member may have an exposure level well above or below the average.
Attempts to meet the burden of proof using modeling and assumptions that do not reflect the individual characteristics of class members have been met with skepticism, noted the court of appeals. See In re Fibreboard Corp., 893 F.2d 706, 712 (5th Cir. 1990); In re “Agent Orange” Prod. Liab. Litig. MDL No. 381, 818 F.2d 145, 165 (2d Cir. 1987); see also 2 Joseph M. McLaughlin, McLaughlin on Class Actions: Law and Practice § 8:9, at 8-55 to -57 (3d ed. 2006).

Plaintiffs have traditionally loved medical monitoring in part because they think that class certification may come more readily given their alleged ability to use epidemiological or group or aggregate proof to establish some the elements of the medical monitoring claim.  That is why it is significant that the Third Circuit recognized that plaintiffs' aggregate proof in the form of exposure isopleths did not reflect that different persons may have different levels of exposure based on biological factors or individual activities over the class period. Factors which affect a person's exposure to toxins can include activity level, age, sex, and genetic make-up. See Federal Judicial Center, Reference Manual on Scientific Evidence 430 (2d ed. 2000).  For example, some people will have higher breathing rates per body weight which would create a disparity between the concentrations of vinyl chloride (based on estimated exposure as opposed to actual exposure).
Each person's work, travel, and recreational habits may have affected their level of exposure to vinyl chloride. Differences in the amount of time spent outside the village would create different average concentrations to which the class members were exposed. A person who worked outside the village would have been exposed less than a stay-at-home parent, or retiree. The isopleths approach simply assumed exposure to the same concentration for class members who may have spent very different amounts of time in the village.

6) Significant Increased Risk

Plaintiffs were unable to prove a concentration of vinyl chloride that would create a significant risk of contracting a serious latent disease for all class members. Nor was there common proof that could establish the danger point for all class members. The court rejected plaintiffs' attempted use of a regulatory threshold by the EPA -- for mixed populations of adults and children—as a proper standard for determining liability under tort law. Even if the regulatory standard were a correct measurement of the aggregate threshold, it would not be the threshold for each class member who may be more or less susceptible to diseases from exposure to vinyl chloride.  Although the positions of regulatory policymakers are relevant in litigation, their risk assessments are not necessarily conclusive in determining what risk an exposure presents to specified individuals. See Federal Judicial Center, Reference Manual on Scientific Evidence 413 (2d ed. 2000) (“While risk assessment information about a chemical can be somewhat useful in a toxic tort case, at least in terms of setting reasonable boundaries as to the likelihood of causation, the impetus for the development of risk assessment has been the regulatory process, which has different goals.”); id. at 423 (“Particularly problematic are generalizations made in personal injury litigation from regulatory positions. . . . [I]f regulatory standards are discussed in toxic tort cases to provide a reference point for assessing exposure levels, it must be recognized that there is a great deal of variability in the extent of evidence required to support different regulations.”).  Plaintiffs proposed a single concentration without accounting for the age of the class member being exposed, the length of exposure, other individual factors such as medical history, or showing the exposure was so toxic that such individual factors are irrelevant. The Third Circuit concluded that the trial court did not abuse its discretion in concluding individual issues on this point make trial as a class unfeasible, defeating cohesion.

7) Necessity of Monitoring

Nor did the lower court abuse its discretion in determining individual issues defeat cohesion with respect to whether the proposed monitoring regime is reasonably medically necessary. Many courts have been skeptical that the necessity for individuals' medical monitoring regimes can be proven on a class basis. See Barnes, 161 F.3d at 146; see Principles of the Law of Aggregate Litigation § 2.04 reporter‟s notes cmt. b, at 126 (2010). Plaintiffs' experts had no compelling answer to the point that the negative health effects of screening may outweigh any potential benefits. For example, the proposed regime of serial MRIs would be contraindicated and potentially risky because the contrast agent used for MRIs poses dangers to those with kidney disease.

8) Certification under (b)(3)

Courts have generally denied certification of medical monitoring classes when individual questions involving causation and damages predominate over (and are more complex than) common issues such as whether defendants released the offending chemical into the environment. See In re St. Jude Med., Inc., 522 F.3d 836, 840 (8th Cir. 2008).  Here, the same the inquiries into whether class members were exposed above background levels, whether class members faced a significantly increased risk of developing a serious latent disease, and whether a medical monitoring regime was reasonably medically necessary all required considering individual proof of class members' specific circumstances.  Common issues did not predominate.

 

 
 

Court of Appeals Breathes New Life Into Class Action Prerequisite

The Seventh Circuit last week affirmed the trial court's decision not to certify a class of consumers making product liability claims against the makers of Aqua Dots toys. In Re: Aqua Dots Products Liability Litig., No. 10-3847 (7th Cir. Aug. 17, 2011). A tip of the cap to Ted Frank at PointofLaw who wanted to make sure we didn't miss this one, because of the potentially very useful analysis of Rule 23(a)(4).

Defendants made, distributed, or sold, AquaDots, a toy consisting of small, brightly colored beads
that can be fused into designs when sprayed with water. A Chinese sub-contractor apparently substituted adhesives. While the substitute adhesive was chemically similar to the specified glue, when ingested, the sub metabolizes into gamma-hydroxybutyric acid (GHB), which can induce nausea, dizziness, drowsiness, agitation, depressed breathing, amnesia, unconsciousness, and even death, depending on the dose. Although the directions told users to
spray the beads with water and stick them together, it was possible, given the age of the intended audience, that some would be eaten; children who swallowed a large quantity of the beads could become sick.

After learning of the problem, the manufacturer recalled all Aqua Dots products. The recall notice instructed consumers to take Aqua Dots products away from children and to contact the sellers to exchange them. Consumers got an exchange, or upon request, a refund. The recall was widely publicized, and hundreds of thousands of products were returned.

The plaintiffs were purchasers of Aqua Dots products whose children were not harmed and who did not ask for a refund; they challenged the adequacy of the recall program. The plaintiffs asked for a full refund under federal law plus punitive damages under state law. The Panel on Multidistrict Litigation transferred twelve suits to the Northern District of Illinois for pretrial proceedings. After the district court denied plaintiffs’ motion to certify a class, see 270 F.R.D. 377 (N.D. Ill. 2010), the Seventh Circuit authorized an interlocutory appeal under Fed. R. Civ. P. 23(f).

The district court framed the central class question as whether a defendant- administered refund program may be found superior to a class action within the meaning of Rule 23(b)(3).  270 F.R.D. at 381.  The court concluded that consumers would be better off returning their products for refund or replacement than pursuing litigation, which the court thought would just require the class members to bear attorneys’ fees in order to obtain a remedy that is theirs for the asking already. The record showed that more than 600,000 consumers returned Aqua Dots kits, and that more than 500,000 of these 600,000 received refunds. The district court concluded that the substantial costs of the legal process could make a suit inferior to a recall as a means to set things right.

The Seventh Circuit noted that it "is hard to quarrel with the district court’s objective." The lower the transactions costs of dealing with an allegedly defective product, the better. The transactions costs
of a class action include not only lawyers’ fees but also giving notice under Rule 23(c). Here, notice might well cost more, per kit, than the kits’ retail price—and could be ineffectual at any price, since most purchases were anonymous. The trial court couldn't order that defendants send each buyer a letter; notice presumably would be by publication, yet the recall was already widely publicized. Why bear these costs a second time?

Moreover, the Consumer Products Safety Commission had not expressed dissatisfaction with the recall campaign or its results, and the record did not contain any evidence of injury to children after the recall was announced.

The problem was, however, that a recall is not a form of “adjudication” as described in Rule 23, and a “policy approach” to the superiority analysis could not ignore the Rule’s text.  Policy about class actions has been made by the Supreme Court through the mechanism of the Rules Enabling Act, and Rule 23 establishes a national policy for the district judges.

Even as it mis-read Rule 23(b), departing from the text of Rule 23(b)(3), the district court could have, said the appeals court, simply relied on the text of Rule 23(a)(4), which says that a court may certify a class action only if the representative parties will fairly and adequately protect the interests
of the class.  Plaintiffs here wanted relief that duplicated a remedy that most buyers already had received, and that remained available to all members of the putative class. Bottom line: "A representative who proposes that high transaction costs (notice and attorneys’ fees) be incurred at the class members’ expense to obtain a refund that already is on offer is not adequately protecting the class members’ interests."

So, the trial judge cited the wrong subsection of Rule 23. But defendants did not forfeit their arguments by focusing on superiority; they made the essential contentions -- there is something wrong with proceeding as a class under these circumstances.

The panel noted also serious problems of management with the proposed class, including the  variability of state law, and the fact that individual notice would be impossible, which would make it hard for class members to opt out.  The per-buyer costs of identifying the class members and giving notice could exceed the price of the toys (or any reasonable multiple of that price), leaving nothing to be distributed. "The principal effect of class certification, as the district court recognized,
would be to induce the defendants to pay the class’s lawyers enough to make them go away."

But, the most interesting aspect of the decision, again, is the analysis of Rule 23(a)(4) and the notion that the adequacy requirement forbids class representatives from bringing socially wasteful litigation for the benefit of the attorneys at the expense of the class they seek to represent. The decision can be seen as part of the trend (including Dukes) to put rigor into the Rule 23(a) analysis.

Court Hits Cancel On Bulk of Printer Class Action

A California federal court earlier this month rejected many of the claims in a putative class action against Epson America Inc.  Christopher O'Shea, et al. v. Epson America Inc., et al., 2011 WL 3299936 (C.D. Cal.). What may be of most interest to our readers is the important reminder that a manufacturer is not required under consumer protection laws to denigrate its own product and broadcast that its product may not perform as well as its competition.

Plaintiffs claimed that Epson affirmatively misrepresented and failed to disclose material information regarding the performance and/or value of Epson inkjet printers and ink cartridges. Named plaintiffs claimed to be frustrated with the amount of ink the Epson printer consumed.

In fact, Epson discloses that its printers are tested in accordance with ISO standards, and makes available to consumers detailed information about how ink yields are calculated, including the fact that testing is conducted based on continuous printing; potential consumers, further, are expressly cautioned that since no single yield standard can duplicate a customer's actual printer usage, Epson recommends that customers also consider print yield comparisons from reputable independent sources. In the same vein, Epson discloses on the packaging of its printers that actual cartridge yields may vary considerably for reasons including images printed, print settings, temperature and humidity.  But plaintiffs never let a wealth of information deter them from finding one factoid they allegedly didn't get.

So, in essence, plaintiffs sought to impose a duty on the seller to compare this feature of its printers to competitors' products, as the Complaint referred to yields which were allegedly well below the yields of other manufacturers' printers. 

The California courts have held that for an omission to be actionable for purposes of  the state consumer fraud laws, it must be either (1) contrary to a representation actually made by the defendant, or (2) a fact the defendant was obligated to disclose.  E.g., Daugherty v. Am. Honda Motor Co., Inc., 144 Cal.App.4th 824, 835–36, 51 Cal.Rptr.3d 118, 128 (2006). Here, because there was no allegation that the “omitted” information was contrary to an actual representation, to defeat summary judgment and prevail on an omission-based theory of liability, plaintiffs had to establish that Epson was affirmatively obligated to disclose the information.

Yet, plaintiffs failed to identify—and the Court was unable to find—any case in any jurisdiction in which a court imposed an affirmative legal obligation upon a manufacturer to disclose on its packaging that its products performed less efficiently than similar products from competing manufacturers. To the contrary, as Epson pointed out, courts have unequivocally rejected this proposition. As the federal court explained, in the absence of some special circumstance, any duty to disclose information about a competitor's products would be anathema to a competitive free-market economy.  Imagine a car manufacturer having to tell you in every ad about every other car that got better gas mileage or did better in a crash test. Imagine every food maker having to tell you in its ads of every competitive food or beverage that was lower in calories.

Plaintiffs did not allege that Epson's printers were defective, let alone dangerously defective. Their claim, rather, was that they were unhappy upon discovering that Epson's printers “wasted” more ink than other printers.  California's consumer protection laws, though broad and sometimes scary, do not extend so far as to require a company to denigrate its own products or promote those of its competitors just because consumers might be interested in the comparison. The duty that plaintiffs sought to impose upon Epson was properly served by independent consumer reports.

The court held that Epson was not legally obligated to disclose that actual print yields generated by its printers and ink cartridges are “grossly inefficient” vis à vis “reason-able consumer expectations and the yields of other manufacturers' printers.”  Because Epson was not obligated to disclose the purportedly “omitted” information, plaintiffs' omission-based claims consequently failed as a matter of law.

However, the court denied the motion as to express representations allegedly made concerning the claims on one proposed sub-class which alleged that the defendant deceived customers when it told them that its NX series of printers, which uses individual cartridges for different colors of ink, would allow customers to “replace only the color you need.”  There was an issue of fact regarding whether the consumer is familiar enough with printer technology and operations to know that small amounts of colored ink are used when printing black-and-white documents to keep the print head clear. The plaintiffs have moved for class certification, with the hearing set for later in August.
 

Federal Court Dismisses Proposed Television Consumer Fraud Class Action

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.

Federal Court Denies Class Certification in Vitamin Consumer Case

A federal court late last month declined to certify a proposed class action in which plaintiffs challenged alleged claims about the weight-loss properties of One-A-Day WeightSmart vitamins. Gray v. Bayer Corp., No. 08-4716 (D.N.J. 7/21/11).  Our readers will be interested in the discussion of the predominance and superiority requirements for class actions.

Plaintiff alleged that the packaging of One-A-Day WeightSmart falsely claimed that the vitamin enhances a user’s metabolism. Plaintiff filed a complaint against Bayer alleging claims based on intentional and negligent misrepresentation, and the New Jersey Consumer Fraud Act (NJCFA), N.J.S.A. 56:8-1, et seq.;  plaintiff later moved  to certify a class of purchasers of One-A-Day WeightSmart pursuant to Rule 23(b)(3), which requires that a plaintiff establish that the questions of law or fact common to the class members predominate over any questions affecting only individual members and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.

As plaintiff’s proposed nationwide class called for the application of state substantive law, the court first looked to determine which state’s law governed the claims. Plaintiff argued that New Jersey had the most significant relationship to the claims because all of the decisions with respect to marketing allegedly took place in New Jersey, and all of the alleged operative misrepresentations originated in New Jersey, at Bayer’s headquarters. Defendant noted that because consumers purchased One-A-Day WeightSmart throughout the United States and thereby received the alleged misrepresentations in various jurisdictions other than New Jersey, the consumer fraud laws of the states where the product was purchased should apply. The court agreed that .the place where the
putative class members received Bayer’s alleged representations and the place where the consumers acted in reliance upon those representations, were key factors pointing to the law of the individual states where the product was purchased. (Consumers purchased One-A-Day WeightSmart at retail locations nationwide, not from Bayer itself.)

Moreover, to apply the NJCFA to all the out-of-state consumers in this case would be to ignore the interests of potentially fifty other jurisdictions. Simply because New Jersey has struck a particular balance between consumer protection and the promotion of business within its borders does not suggest that its interest in deterrence should displace the differing policy goals of its fellow states. Those states have instead struck their own legislative balances, awarding compensation based on differing standards of, inter alia, intent, causation, reliance, and damages. The interests of interstate comity and the competing interests of the states counseled against the blanket application of one state’s law over the laws of other interested states.

Thus, the court had to next consider whether variations in state laws presented the types of insuperable obstacles which render class action litigation unmanageable. See In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 529 (3d Cir. 2004). Where the applicable law derives from the law of the 50 states, as opposed to a unitary federal cause of action, differences in state law will compound any disparities among class members from the different states. It is plaintiff’s burden to
credibly demonstrate, through an extensive analysis of state law variances, that class certification does not present insuperable obstacles. 

Here, plaintiff failed to carry this burden.The court acknowledged a “brewing issue” in the Third Circuit over whether the NJCFA could be applied in a national class action. But the better view was that the court would be required to apply distinct standards of, inter alia, intent, causation, reliance, and damages in order to adjudicate plaintiff’s claims under each state’s consumer fraud law. Litigating plaintiff’s claims based on law from potentially fifty-one different jurisdictions would likely require a multitude of mini-trials to determine Bayer’s liability to each statewide group of consumers. Such a procedure would be an inefficient use of  judicial resources and would defeat the purported economies of class treatment.

The court therefore concluded that plaintiff’s proposed nationwide class failed both the predominance and superiority requirements under Rule 23(b)(3). 

Bayer argued that the alternative proposed Florida class was not ascertainable because claims under the Florida consumer fraud act are subject to a four-year statute of limitations and thus the claims of some Florida class members would be barred -- an issue requiring an individual analysis. Plaintiff was, however, granted leave to file a revised motion for class certification with respect to a more ascertainable Florida class only.

 

Dukes Applied to Reconsideration of Class Certification

A state court recently denied the motion of a group of Michigan residents to certify a class action regarding their dioxin claims against Dow Chemical Co. See Henry v. Dow Chemical Co., No. 03-47775-NZ (Saginaw County, Mich., Cir. Ct.,  7/18/11).

Here at MassTortDefense we typically focus on appellate decisions, but we thought it interesting that this court relied heavily on the Supreme Court's decision in Dukes v. Wal-Mart  to re-analyze the prerequisites for class certification under state law.

Plaintiffs live in an area along the Tittabawassee River near Dow's plant in Midland, and allege their properties were contaminated by dioxin from the plant.

The trial court originally certified a class, and on appeal the Michigan Supreme Court vacated the decision and remanded the issue in 2009, calling for the trial court to clarify its evaluative framework, particularly for the general prerequisites of typicality, adequacy, and commonality.

On remand, the court concluded that Dukes has “far-reaching implications for certification of class action lawsuits, including the present case.”  Accordingly the court “must reanalyze whether the commonality prerequisite to class certification was satisfied in this case."


Relying on the Supreme Court analysis in Dukes, the court changed its mind and denied certification based on a failure by plaintiffs to establish the commonality element, because of the absence of a “glue” to hold all of the plaintiffs’ claims together. The only common issue, said the court, was whether the defendant negligently released the chemical, so whether and how each class member was injured involved a highly individualized inquiry regarding issues such as the level and type of contamination allegedly on the specific properties, the different remediation needs of the properties, and the varying stages of ongoing remediation.

Similarly, even under the nuisance claim, it was clear that individual plaintiffs used and enjoyed their properties in different ways. “Whether plaintiffs have suffered an interference with or loss of use and enjoyment of their property requires an individualized factual inquiry into each plaintiff’s use and enjoyment of their property.”

The court rejected plaintiffs' argument that the allegation of "one defendant" with a supposedly singular act of pollution in "one discrete geographic area" distinguished this case from the Supreme Court's commonality concerns in the discrimination context. 

In light of the commonality failing, the court did not reach the reconsideration of the other factors, such as typicality and adequacy.

 


 

Class Certification Denied in BPA MDL

The federal judge in the MDL involving BPA in baby bottles refused last week to certify
three proposed  multistate classes in this multidistrict litigation. In re: Bisphenol-A Polycarbonate Plastic Products Liability Litigation, No. 08-1967 (W. D. Mo. July 7, 2011).

On August 13, 2008, the Judicial Panel on Multidistrict Litigation centralized the cases; there are approximately twenty-four cases left in this litigation.

The court’s discussion focused on three of the components required for certification: commonality, predominance, and superiority. The court said it focused on these issues because they presented "the most insurmountable obstacles to" plaintiffs’ request.

The analysis offered several interesting points:

1. Choice of law.  The court noted that many problems and immense difficulties arose from the vagaries of state law. The difficulties involved in comparing and contrasting all of the nuances of the laws of fifty-one jurisdictions is "undeniably complicated." Several courts have indicated the mere need to engage in such an analysis – and the exponential increase in the potential grounds for error – demonstrates a class action is inappropriate. E.g., Cole v. General Motors Corp., 484 F.3d 717, 724-26 (5th Cir. 2007); Klay v. Humana, Inc., 382 F.3d 1241, 1267-68 (11th Cir. 2004); Castano v. American Tobacco Co., 84 F.3d 734, 751-52 (5th Cir. 1996); In re American Medical Systems, Inc., 75 F.3d 1069, 1085 (6th Cir. 1996); In re Sch. Asbestos Litig., 789 F.2d 996, 1010 (3d Cir. 1986).

Here, the court offered a sampling of the legal disputes that the court was unable to resolve without delving into a legal inquiry more extensive than had been provided by the parties in order to ascertain (or predict) the holdings of the highest courts in these jurisdictions on legal issues. While defendants cannot thwart certification simply by tossing out imagined or slight variances in state laws, it is the plaintiffs' burden to demonstrate the common issues of law. Here, the plaintiffs could not show that the legal groupings they proposed actually satisfy Rule 23(a)(2)’s commonality requirement. And they present significant manageability concerns.

Significantly, the court noted that even if the plaintiffs had correctly grouped similar states’ laws, the application of those laws can turn out to be different even if they appear similar on the surface.  For example, plaintiffs have never alleged that the FDA banned BPA or argued that any government agency has definitively concluded that BPA in baby products is unsafe. Rather, the underlying theory of plaintiffs’ case is that, during the class period, there existed a serious scientific debate or controversy regarding the safety of BPA and that all defendants were aware of this  controversy;  defendants failed to advise them that the product contained BPA, a substance that the FDA approved for use but that was the subject of ongoing scientific discussion or controversy.  But, would every state regard this fact as material and something defendants were obligated to warn about?

2. Common issues of fact? The court relied on the recent Dukes v. Wal-Mart decision to note that commonality requires the plaintiff to demonstrate that the class members have suffered the same injury. This does not mean merely that they have all suffered a violation of the same provision of law. Their claims must depend upon a common contention that is capable of class-wide resolution – which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.  Even before Dukes, many courts held that commonality required an issue (1) linking the class members (2) that was substantially related to the litigation’s resolution. DeBoer v. Mellon Mortg. Co., 64 F.3d 1171, 1174 (8th Cir. 1995), cert. denied, 517 U.S. 1156 (1996); Paxton v. Union Nat’l Bank, 688 F.2d 552, 561 (8th Cir. 1982), cert. denied, 460 U.S. 1083 (1983).

While there were some common issues, other facts plaintiffs described as “common” clearly were not. For instance, “Plaintiffs’ testimony regarding the purchase of their Baby Products” was not common for all class members. One plaintiff’s actions, decisions, knowledge, and thought
processes are unique to that plaintiff. While this question must be answered for each plaintiff, the question will not be proved with the same evidence or have the same answer for each plaintiff. Even the simple question “Did each Plaintiff purchase a product manufactured by Defendant?” is not a common question because it is not capable of class-wide resolution as required by Dukes.

3. Individual issues.  Numerous individual issues predominated, including damages. Individual issues relating to damages do not automatically bar certification, but they also are not completely ignored. E.g., In re St. Jude Medical, Inc., 522 F.3d 836, 840-41 (8th Cir. 2008) (individual issues related to appropriate remedy considered in evaluating predominance); Owner-Operator Independent Drivers Ass’n, Inc. v. New Prime, Inc., 339 F.3d 1001, 1012 (8th Cir. 2003), cert. denied, 541 U.S. 973 (2004) (individual issues related to damages predominated over common issues); see also In re Wilborn, 609 F.3d 748, 755 (5th Cir. 2010).

Another individual issue in this case was each plaintiff’s knowledge about the BPA "controversy." A consumer’s knowledge of BPA’s existence and the surrounding controversy is legally significant.
Knowledge of the controversy carries with it knowledge of the likelihood (or at least possibility) that a plastic baby bottle contained BPA. A consumer who knew about the BPA knew what defendants allegedly failed to disclose. Similarly, a consumer who knew about the controversy and exhibited no concern about whether the product purchased contained BPA may have difficulty convincing a jury that the seller did anything wrong.

The time and other resources necessary to resolve the individual issues in a single forum, in the context of a single case, in front of a single jury, would be staggering. In contrast, the common factual issues would be relatively easy to litigate, said the court.

4. Adequacy.  The court observed that plaintiffs had elected not to assert consumer protection
claims and warranty claims against certain defendants, apparently motivated by the fact that the class representatives are from states that do not support certification of such claims. But other states may have more favorable law for plaintiffs, and thus the court concluded the class representatives were inadequate to protect the class. There was a problem with  depriving absent class members of his/her opportunity to pursue a warranty claim just because the class representative cannot assert such a claim on his/her own.

Plaintiffs proposed state-wide classes in the alternative, but the MDL court noted that the judges who preside over the individual cases would be best-equipped to rule on the
single-state classes.

 

Supreme Court Declines To End Multiple Class Action Mischief

The second of our Supreme Court trilogy for the week.  The Court ruled last week in Smith v. Bayer Corp., No. 09-1205, that a federal district court was prevented by the the Anti-Injunction Act from enjoining a state court from entertaining plaintiff's motion to certify a class action even when that federal court had earlier denied a similar motion to certify an overlapping class in a closely related case.

Generally, the Anti-Injunction Act bars a federal court from granting injunctions to stay proceedings in state courts except where specifically authorized by Congress, or "where necessary in aid of its jurisdiction, or to protect or effectuate its judgments."  Most of our readers hoped that the Court would agree with the lower courts' ruling that this was just such an exception.

The Smith case involved the issue whether a federal court can enjoin class members from bringing a product liability class suit in a state court after the federal court declined to certify a similar class. Specifically, the Baycol MDL court in Minnesota had denied class certification, and the court of appeals upheld the injunction barring plaintiffs from bringing virtually the same suit in West Virginia state court. The federal court of appeals in fact unanimously affirmed, holding that the injunction was authorized by the All Writs Act and the re-litigation exception to the Anti-Injunction Act, and that petitioners did not have a due process right to re-litigate class certification.

The Supreme Court, unfortunately, reversed, in a decision that may encourage forum shopping.

-The decision encourages "creative" case structuring strategies by the plaintiffs' bar to give themselves a second bite at the apple (or more) in class claims, even after the federal court properly denies certification, and even when the state class law mirrors Federal Rule 23; here, the Court found that an application of West Virginia's Rule 23 did not present the same exact issue as the application of the federal rule version, even though the language of the rules is nearly identical.

-The decision highlights the double-edged sword that is federalism; now, the preclusive effect of a certification denial, if any, will be decided by state courts applying the notions of res judicata rather than by the enjoining court.  This comports with the general notion that the second court looking back decides the impact, not the first court looking forward.  But readers are well aware of the hard-to-fathom preclusion decisions some state courts have fashioned in the class action context.  E.g., the Engle class in Florida. And, as plaintiffs told Justice Ginsburg in oral argument of the case, a state has the right to apply and interpret a rule of civil procedure "as it sees fit to manage its own docket and administrate its own docket as it sees fit."

-As a practical matter, it invites "if at first you don't succeed, try, try again," with plaintiffs seeking to bring similar cases again and again, shopping for a forum or judge that will finally agree to certify something. Plaintiffs will recruit a new named plaintiff, and recreate the risks associated with class certification, even after the defendant has seemingly won that important battle. Justice Alito asked petitioners at oral argument whether after a class certification denial is entered in one federal court, a plaintiff's attorney could simply substitute the name of a new named plaintiff and file the same complaint in another federal court. Plaintiffs answered that an attorney could do that.

-Note that petitioners had not been foreclosed from seeking relief on their individual claims, but only from seeking to represent other people through a class action. Whether a class should be certified had been fully and fairly litigated in proceedings that ought to be binding on petitioners and in which petitioners’ interests were adequately represented by an identically situated named plaintiff -- one whom plaintiff's counsel promised was an adequate representative, was typical, with common claims and no adverse interests. The Court apparently did not consider the possible argument that an absent class member who is adequately represented might be in sufficient privity with the named plaintiff such that he can be precluded from litigating the certification decision a second time.

-Even though in dicta, the Court discouraged the application of preclusion to absent class members.   It may be of little comfort to defendants faced with the costs and risks of serial class claims that, as the Court put it, the "legal system generally relies on principles of stare decisis and comity among courts to mitigate the sometimes substantial costs of similar litigation brought by different plaintiffs."

-The Court agreed that the policy concerns were the defendant's "strongest argument, " and seemingly recognized the mischief it was permitting, because the opinion noted that nothing in this holding forecloses legislation to modify established principles of preclusion should Congress decide that CAFA does not sufficiently prevent re-litigation of class certification motions. Nor does the opinion at all address the permissibility of a change in the Federal Rules of Civil Procedure pertaining to this question.  The Court said the trial court could not call on the "heavy artillery" of an injunction, but perhaps an even mightier weapon is needed.

 


 

Dukes v. Wal-Mart: What It May Mean for Mass Torts

Three new Supreme Court decisions to comment on this week.  Let's take one at a time and start with Dukes v. Wal-Mart, 564 U.S. __ (2011). The U.S. Supreme Court yesterday overturned a lower-court decision that had certified a massive class action against retailer Wal-Mart. The suit was filed by current or former employees of petitioner Wal-Mart, who sought judgment against the company for injunctive and declaratory relief, punitive damages, and backpay, on behalf of themselves and  a class of some 1.5 million female employees.  They claimed that local managers exercised their discretion over pay and promotions disproportionately in favor of men.

The District Court certified the class, finding that respondents satisfied Federal Rule of Civil Procedure 23(b)(2)’s requirement of showing that “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”  The Ninth Circuit substantially affirmed,and ruled that the class action could be "manageably" tried without depriving Wal-Mart of its right to present its statutory defenses.

We will leave to our colleagues on the Employment Litigation & Policy  team how this decision impacts employee discrimination claims.  But let's talk about the larger potential significance of the decision for mass tort class actions.

The Court began where we always like to begin in class certification briefing, reminding everyone that a class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.  In order to justify a departure from that rule, a class representative must be part of the class and possess the same interest and suffer the same injury as the class members. Rule 23(a) ensures that the named plaintiffs are appropriate  representatives of the class whose claims they wish to litigate. The Rule’s four requirements—numerosity, commonality, typicality, and adequate representation—effectively limit the class claims to those fairly encompassed by the named plaintiff’s claims, when applied correctly.

The crux of this case, said the Court, was commonality—the rule requiring a plaintiff to show that “there are questions of law or fact common to the class.”  But that language, warned the Court, is "easy to misread" as any competently crafted class complaint can raise seemingly common questions. (citing the late mass tort scholar R. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97, 131–132 (2009)). Such as the standard ones relating to defendant's alleged conduct.  But simply reciting these questions is not sufficient to obtain class certification. Commonality requires the plaintiff to demonstrate that the class members have suffered the same injury, which in turn does not mean merely that they have all suffered a violation of the same provision of law. The allegedly common contention must be of such a nature that it is capable of class-wide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.  So, what matters is not the raising of seemingly common questions, but, rather, the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation. Thus, the Court came down on the side of the lower courts that have applied the commonality rule with rigor and with common sense, requiring meaningful common questions.  And commonality thus becomes a more potent weapon in your efforts to defeat mass tort class actions.

Second, the Court re-emphasized that a party seeking class certification must affirmatively demonstrate his compliance with the Rule.  Sometimes it may be necessary for the trial court to probe behind the pleadings before coming to rest on the certification question. Certification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.  And frequently that “rigorous analysis” will entail some overlap with the merits of the plaintiff’s underlying claim. "That cannot be helped." The class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.  Not completely new, but an important reminder.

Third, the Court noted that the parties disputed whether plaintiffs' expert's testimony met the standards for the admission of expert testimony under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U. S. 579 (1993). The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class action proceedings. Although dicta, the Court went out of its way to note, " We doubt that is so."  A signal to the lower courts who somehow think junk science is acceptable at the class certification hearing, and a green light to those that apply Daubert.

Fourth, the Court also concluded that respondents’ claims for backpay were improperly certified under Federal Rule of Civil Procedure 23(b)(2), holding that such claims cannot be, at least where (as here) the monetary relief is not incidental to the injunctive or declaratory relief.  One possible reading of this provision is that it applies only to requests for injunctive or declaratory relief and does not authorize the class certification of monetary claims at all. The Court did not have to reach that question because, at a minimum, claims for individualized relief (like the backpay at issue here) do not satisfy this Rule. The key to the (b)(2) class is “the indivisible nature of the injunctive or declaratory remedy warranted—the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.”  Thus, Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment against the defendant. Similarly, it does not authorize class certification when each class member would be entitled to an individualized award of monetary damages. The Court said it was "clear that individualized monetary claims belong in Rule 23(b)(3)."  While not deciding in this case whether there are any forms of truly  “incidental” monetary relief that are consistent with this interpretation of Rule 23(b)(2) and that comply with the Due Process Clause, the Court's ruling may impact mass torts such as medical monitoring claims in which the plaintiffs try to avoid the predominance test of Rule 23(b)(3) by seeking a so-called court administered fund to pay for medical monitoring for the class rather than individual medical monitoring damages.  When the "program" sought is in essence an injunction ordering defendant to pay for each class member's individual medical screening tests, (b)(2) should not be available.

Fifth, the Court noted that the 9th Circuit had found the trial of the proposed class action to be manageable and in accord with due process by ignoring the traditional procedures and proceeding "with Trial by Formula."  In other words, a sample of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a special master. The percentage of claims determined to be valid would then be applied to the entire remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery—without further individualized proceedings. This extrapolation methodology has been proposed by many mass tort plaintiffs (including in asbestos) as a means to make the class trial "manageable."  The Supreme Court was clear: "We disapprove that novel project." Because the Rules Enabling Act forbids interpreting Rule 23 to abridge,enlarge or modify any substantive right, a class cannot be certified on the premise that the defendant will not be entitled to litigate its defenses to individual claims.  The same issue applies to the trial plans proposed by many mass tort plaintiffs, which try to use the class rule to prevent defendants from ever having an opportunity to litigate individual defenses as to individual class members. 

Lots to think about.

Plaintiffs' Class Allegations Flattened in Tire Case

A federal court in New York last week denied plaintiffs' motion for class certification in a case alleging that the run-flat tires on defendant BMW's MINI Cooper S were defective. See Oscar v. BMW of North America LLC, No. 1:09-cv-00011-RJH (S.D.N.Y. 6/7/11).

Oscar purchased a new 2006 MINI Cooper S from BMW-MINI of Manhattan, an authorized MINI dealership, but prior to purchasing the MINI did not do any sort of research. Nor did he take the car for a test drive. The car came with run-flat tires (RFTs), an innovation that allows drivers to drive to the nearest service station even after the tire was flat. As of December 2, 2009, a period of about three years, Oscar had had five flat tires.  Plaintiff alleges that  his troubles stemmed from the fact that his car was equipped with RFTs rather than with standard radial tires. He considered the number of flat tires he experienced to be evidence of a widespread defect.

Plaintiff proposed a nationwide class (or a New York class) of all consumers who purchased or leased new 2005, 2006, 2007, 2008, and 2009 MINI vehicles equipped with Run-Flat Extended Mobility Technology tires manufactured by Goodyear and sold or leased in the United States whose Tires have gone flat and been replaced.

On the first prerequisite of Rule 23(a), the court offered an interesting discussion arising from the fact that most of plaintiff's evidence of numerosity did not correlate directly to his class definition: data that may have included other vehicles, or non-RFT tires, or makers other than Goodyear. But the opinion noted that courts have relied upon "back-of-the-envelope calculations in finding numerosity satisfied."  Conservative assumptions leading to a likelihood of numerosity have at times sufficed. This case fell "right on the border between appropriate inference and inappropriate speculation."  Accordingly, numerosity was satisfied for the proposed national class but not the New York class.

Turning to the Rule 23(b)(3) requirements, the court confronted the choice of law issues inherent in a national class. Although plaintiff conceded that the law of the fifty states plus the District of Columbia would apply to the members of the nationwide class, he argued that the differences between the states’ laws on implied warranty claims were negligible because the implied warranty is a Uniform Commercial Code claim. But numerous courts have recognized that there are significant variances among the interpretation of the elements of an implied warranty of merchantability claim among the states. See Walsh v. Ford Motor Co., 807 F.2d 1000, 1016 (D.C. Cir. 1986); In re Ford Motor Co. Ignition Switch Litig., 194 F.R.D. 484, 489 (D.N.J. 2000).  In particular, several states still require privity; so, plaintiff advanced a theory of privity-by-agency. But this theory has not been accepted in all states. Readers know that choice of law issues impact, among other things, the manageability of the class and the superiority of the use of the class device.

The court also found that plaintiff failed to demonstrate that common questions of fact predominate. Plaintiff was unable to articulate and allegedly common defect, merely hypothesizing that the failure rate could stem from the RFTs’ "stiffness" and stating that further discovery would be necessary to ascertain the precise nature of the defect. Plaintiff did not provide the court with any evidence that Goodyear RFTs are likely to fail because of a particular common defect. The failure to specify an alleged common defect provided a further basis for concluding that plaintiff had not demonstrated predominance. See Am. Honda Motor Co. v. Allen, 630 F.3d 813, 819 (7th Cir. 2010) (holding predominance was not satisfied where forty-one plaintiffs owners alleged that their motorcycles wobbled, but failed to provide competent evidence that a common defect underlay their claims).

Even if Oscar had put forth evidence of a common defect, breach of warranty suits like this one often involve complicated issues of individual causation that predominate over common questions regarding the existence of a defect. See, e.g., In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1018-19 (7th Cir. 2002) (noting that class treatment of tire defect litigation was unmanageable in part because individual factors could affect the alleged tire failure); Sanneman v. Chrysler Corp., 191 F.R.D. 441, 451-52 (E.D. Pa. 2000) (declining to certify a class of vehicle owners whose paint had delaminated allegedly because of faulty painting process in part because the paint could delaminate for reasons other than the alleged defect); In re Ignition Switch Litig., 194 F.R.D. at 490-91 (declining to certify a class of vehicle owners whose passenger compartments caught on fire allegedly because of a faulty ignition switch because issues of individual causation would predominate); Feinstein v. Firestone Tire and Rubber Co., 535 F. Supp. 2d 595, 603 (S.D.N.Y. 1982) (declining to certify a class of tire purchasers because of “myriad [individual] questions,” including “other possible causes of the problem encountered”); see also Wolin v. Jaguar Land Rover N. Am., LLC, 617 F.3d 1168, 1172-74 (9th Cir. 2010).

Here, individualized issues of causation would swamp the common inquiry into an as yet to be identified tire design defect.  Even if the plaintiffs were to show that the Goodyear RFTs suffered from a common defect, they would still need to demonstrate that this defect caused each class member’s RFT to puncture. But tires can puncture for any number of reasons, and not all of these reasons will relate to the alleged defect. RFTs can go flat for reasons that would also cause a standard radial tire to go flat -- for example, if the driver ran over a nail, tire shredding device, or large pothole, or if a vandal slashed the tire. In order to demonstrate liability, plaintiff would have to demonstrate in each individual class member's case that the tire punctured for reasons related to the defect, rather than for a reason that would cause any tire to fail.

Similarly, under the state consumer fraud law claim, where the link between the defendant’s alleged deception (about the tires) and the injury suffered by plaintiffs is too attenuated and requires too much individualized analysis, courts will not certify a class. See, e.g., Pelman v. McDonald’s Corp., 272 F.R.D. 82 (S.D.N.Y. 2010) (declining to certify a class allegedly misled by McDonald’s claims that its food was healthy).  Again, determining whether each tire failed as a result of the allegedly concealed defect or as a result of unrelated issues, e.g., potholes or reckless driving habits, would devolve into numerous mini-trials.

Certification denied.

 

 

Proposed Class Rep Not Adequate: Got Your Dates Straight?

A federal court in New Jersey last week joined the small but growing trend (call it a simmer not a boil) of courts putting some real meaning into the prerequisites to class certification found in Rule 23(a).  The court in Coyle v. Hornell Brewing Co., No. 1:08-cv-02797-JBS-JS (D.N.J. 2011) found that the factual inaccuracies and/or inconsistencies in the proposed class representative's testimony constituted fatal flaws under Rule 23(a)(4) requiring an adequate class representative.

Plaintiff alleged that she was misled by labels on bottles of Arizona brand beverages touting “All Natural” ingredients, and thereby induced into buying bottles of Arizona beverages that contained High Fructose Corn Syrup (“HFCS”), which she claimed is not “natural”. Plaintiff sought to certify, under Fed. R. Civ. P. 23(b)(2), a class of consumers who purchased similarly labeled Arizona beverages that contained HFCS, seeking only declaratory and injunctive relief.  The underlying claims were based on the New Jersey Consumer Fraud Act (“NJCFA”). [Full disclosure, we are partial to their Arizona Sports thirst-quenchers.]

The court denied plaintiff’s motion for class certification because she could not satisfy the adequacy requirement of Rule 23(a)(4).  The reasoning is instructive. During the course of discovery in this case, plaintiff produced a retainer agreement she signed in anticipation of this lawsuit. But, the agreement was signed on August 9, 2007, more than seven months before plaintiff alleged that she was first misled by defendants’ “all natural” labeling in her product purchase on March 30, 2008.  Indeed, plaintiff repeated the 3/08 purchase date in her deposition.

Problem. Solution? Nearly two months after her deposition, plaintiff produced a signed declaration that contradicted her deposition testimony (and prior answers to interrogatories and the allegations in both her original Complaint and subsequent Amended Complaints).  She now said she meant to claim the alleged purchase occurred in March, 2007 rather than on March 30, 2008. But she offers no explanation for why she had previously alleged the March 30, 2008 date in her Complaints and in certified answers to interrogatories.

The court noted that in the procedural posture, the substantive allegations of the complaint must be taken as true.  But class certification questions are sometimes enmeshed in the factual and legal issues comprising the plaintiff's cause of action, and courts may delve beyond the pleadings to determine whether the requirements for class certification are satisfied.  The Third Circuit calls for a “rigorous analysis”  of a motion to certify a class. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 309 (3d Cir. 2008). Specifically, the district court must make findings that each Rule 23 requirement is met.  Id. at 310. Plaintiff has the burden of proof by a preponderance of the evidence that she has met each and every element of Rule 23.

Rule 23(a)(4) seeks to ensure “that the representatives and their attorneys will competently, responsibly, and vigorously prosecute the suit and that the relationship of the representative parties’ interests to those of the class are such that there is not likely to be divergence in viewpoint or goals in the conduct of the suit.”  Bogosian v. Gulf Oil Corp., 561F.2d 434, 449 (3d Cir. 1977). On the subsidiary question whether the named plaintiff has interests antagonistic to those of the class, courts often have to evaluate attacks on the named plaintiff’s credibility.

Here, defendants argued that plaintiff’s inconsistent allegations and testimony regarding the date of her qualifying purchase of an Arizona product render her an inadequate class representative. See Friedman-Katz v. Lindt & Sprungli (USA), Inc., 270 F.R.D. 150, 159 (S.D.N.Y. 2010). Plaintiff  responded that, to the extent that defendant raised a problem of plaintiff’s credibility, such a credibility question is one for the jury to decide; it would be improper for the court to make a credibility determination, on the factual dispute of when plaintiff last purchased an Arizona product, at this certification stage of the litigation.  However, the court properly recognized it had an independent obligation at the class certification stage to make findings on whether the named plaintiff satisfied each of the Rule 23 elements. The court thus had an obligation to look at whether the credibility problems raised by plaintiff’s contradictory testimony and subsequent declaration rendered her an inadequate class representative.

The court observed that it need not find plaintiff to have intentionally lied to hold that she does not meet the adequacy element of Rule 23(a)(4). The issue was not simply whether plaintiff in fact lied, but whether her inconsistent testimony makes her vulnerable to a unique factual or legal defense not faced by other class members, thereby rendering her interests potentially too antagonistic to the interests of the other class members.  And that is exactly the case; the court found that plaintiff’s factual inconsistencies raised sufficiently grave credibility problems as to prevent her from serving as an adequate class representative.

First, she filed three separate Complaints alleging with specificity that she was misled by  defendants’ labeling when she first purchased an Arizona beverage in March, 2008, but she had retained an attorney on this issue seven months previously.  She repeated these claims in at least two answers to interrogatories, assisted by counsel, and again repeated the claim in her  deposition, even after being confronted with the apparent inconsistency of such a claim. Her subsequent declaration, in which she attempted to “clarify” the time-line in her deposition, did not explain how she had repeatedly asserted the incorrect date in her Complaints and discovery answers.  This level of inconsistency logically demonstrated either (1) an effort to disguise the fact that she did purchase the Arizona beverage in 2008 as alleged, but for the sole purpose of bringing the lawsuit she had already hired a lawyer for, or (2) a significant carelessness about the specific highly material facts she has alleged in the case, said the court.

Under either scenario, the court would find that plaintiff was not an adequate class representative.  Were she to be a class representative, she would be required to address defendants’ argument that she made her only documented purchase of Arizona iced tea in March of 2008 solely for the purpose of bringing the instant lawsuit and therefore suffered no ascertainable loss. This argument would divert attention from the substance of the claims advanced on behalf of the class.  That would risk that the class could fail in its claim because its representative was unable to prove she made a qualifying purchase, noted the court.

Finally, the court found, as an alternative basis to deny class certification, that plaintiff’s counsel’s adequacy was also brought into question through the existence of these material discrepancies. Under the "most charitable interpretation" of these facts, counsel submitted three separate Complaints to the court alleging an incorrect date of purchase, at least two answers to interrogatories repeating the same purportedly incorrect purchase date. The court thought that was insufficient attention to detail to show the ability to effectively represent the interests of a class.

 

Plaintiffs Attacking Fiji's Green Water Sing the Blues

A California appeals court last week affirmed the dismissal of a putative class action in which plaintiffs accused Fiji Water Co. LLC of improperly promoting its bottled water. Ayana Hill v. Roll International Corp. et al., No. A128698 (Cal. Ct. Appeal, 1st Appellate District).

Plaintiff  Hill alleged she bought bottles of Fiji water, on the label of which was a green drop; she claimed that the drop somehow represented Fiji bottled water was environmentally superior to other waters and endorsed by an environmental organization. Hill filed a proposed class action on behalf of herself and other consumers of Fiji bottled water, asserting violations of California‟s Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.), False Advertising Law (FAL) (§ 17500 et seq.), and Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), plus common law fraud and unjust enrichment.

Readers know that the term “green” is commonly used to describe the environmentally friendly aspects of products, and that concerned about over-use of such terms, the Federal Trade Commission (FTC) has issued standards known as “Green Guides” to describe the appropriate use of such labeling. The Federal Trade Commission last Fall proposed revisions to the guidance that it gives marketers to help them avoid making misleading environmental claims. The proposed changes were designed to update the Guides and make them easier for companies to understand and use.  The changes to the Green Guides included new guidance on marketers’ use of product certifications and seals of approval, “renewable energy” claims, “renewable materials” claims, and “carbon offset” claims.

Because the guides are not legislative rules under Section 18 of the FTC Act, they are not themselves enforceable regulations, nor do they have the force and effect of law. They consist of general principles, followed by nonexclusive specific examples, and are intended to provide a safe harbor for marketers who want certainty about how to make environmental claims. However, a few states, such as California, have incorporated the FTC guides into their consumer fraud (here CLRA) definition of environmental marketing claims.  

Hill's personal allegations were that, starting in 2008, she bought Fiji water about twice a week from Walgreens stores in San Francisco, relying on  these alleged representations that the product was “environmentally friendly and superior.” She would not have bought Fiji water had she supposedly known the truth that the Green Drop was the creation of defendants, not a neutral party or environmental group. Defendants accomplish this supposed elaborate "deception” through conspicuous placement of the Green Drop on the front of the product to allegedly look similar to environmental seals of approval.  Further, plaintiff complained  that in their packaging and marketing, defendants have “called their product FijiGreen” and, in stores and other public places, stated that "Every Drop is Green.” 

The trial court dismissed the claims, and plaintiff appealed.  In that posture, the court assumed that Hill actually was, as she claims, misled in the context to believe that the green drop symbol on Fiji water was a seal implicitly indicating approval by a third party organization, and thus believed that the Fiji product was environmentally superior to competitors' bottled water.

The problem was that Hill's beliefs, asserted and even assumed, do not satisfy the reasonable consumer standard, as expressed in the FTC guides (16 C.F.R. § 260.7(a) (2011) [material implied claims conveyed “to reasonable consumers”]) and as used in California's consumer laws. The court of appeals emphasized that the standard is not a least sophisticated consumer, nor the unwary consumer , but the ordinary consumer within the larger population.  Importantly, the court noted that "it follows, in these days of inevitable and readily available Internet criticism and suspicion of virtually any corporate enterprise, that a reasonable consumer also does not include one who is overly suspicious."  How true that is.

So, does the green drop on Fiji water bottles convey to a reasonable consumer in the circumstances that the product is endorsed for environmental superiority by a third party organization? No, said the court. The drop itself bears no name or recognized logo of any group, much less a third party organization, no trademark symbol, and no other indication that it is anything but a symbol of Fiji water.  The water has just a green drop, the drop being the most logical icon for this particular product—water.  And for context, a green drop on the back of every bottle appears right next to the website name, “fijigreen.com,” further confirming to a reasonable consumer that the green drop symbol is by Fiji water, not an independent third party organization—and, of course, inviting consumers to visit the website, where Fiji Water's explains its  environmental efforts.

Plaintiff asked the court of appeals to reverse the the trial court's denial of leave to amend, claiming that any defects in the complaint could be cured by amendment. But Hill's saying so "does not make it so," and it was her burden to show how she might amend to cure the deficiencies. She did not. Dismissal without leave affirmed.


 

Supreme Court Declines to Clarify Tolling Effect of Mass Tort Class Actions

Earlier this week, the Supreme Court declined to take a case raising the tricky issues of cross-jurisdictional class action tolling.  Novartis Pharmaceuticals Corp. v. Stevens, No. 10-1196 (U.S., certiorari denied 5/31/11).

The question presented in the cert petition was whether was whether tolling the statute  of limitations for individual claimants based on the pendency of a mass personal injury class action violates fundamental federal due process protections where the class action provides no notice to a defendant of the identity of unnamed class members, thus absolutely precluding the timely preservation of evidence and testimony critical to presenting an effective defense.

Defendant/petitioner has been involved for several years in litigation claiming that the drug Zometa is linked to osteonecrosis of the jaw or “ONJ.”  Plaintiff below obtained a jury verdict on such a claim, affirmed by the Montana Supreme Court . 358 Mont. 474, 247 P.3d 244 (2010). The sole aspect of the Montana Supreme Court’s opinion at issue here was its ruling that the pendency of a never-certified federal class action on ONJ acts to resurrect respondent’s otherwise time-barred personal injury claims. The Montana Supreme Court determined as a matter of first impression in Montana that federal class action tolling should apply to render timely respondent’s complaint against petitioner. The Montana court noted that the concept of federal class action tolling was articulated by the Supreme Court in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). In American Pipe, the Court held that in some contexts, the commencement of the class action suit satisfied the purpose of the limitation provision as to all those who might subsequently participate in the suit as well as for the named plaintiffs. One reason was concerns of judicial economy, as a contrary holding might invite a multiplicity of activity that the federal rules of procedure were designed to avoid, as individual plaintiffs would be forced to file preventative motions to join or intervene as parties if the class action status was still pending at the expiration of the statute of limitations.

The problem is that in the specific context of a personal injury mass tort, the application of American Pipe federal class action tolling seems to infringe on a defendant’s ability to defend itself -- in violation of due process principles. Suspending statutes of limitation indefinitely for all purported members of the kinds of  “worldwide” classes we see of personal injury plaintiffs, based on nothing more than the filing a Rule 23 federal class action, introduces systemic unfairness to defendants. 

A  pharmaceutical personal injury case may be an especially poor vehicle for federal class action tolling. Virtually no pharmaceutical personal injury class action has been certified over opposition and survived appeal in the federal system for a decade now. See, e.g., Jolly v. Eli Lilly & Co., 751 P.2d 923, 933-38 (Cal. 1988) (en banc) (rejecting tolling due to pending personal injury class action because such torts are not susceptible to class action certification). Tolling individual  actions based on a pending personal injury class action renders limitations periods impermissibly uncertain and invites unnecessary litigation by giving plaintiffs’ counsel everywhere an incentive to add putative class relief to every federal complaint just to toll statutes of limitations to the benefit of unknown future plaintiffs -- knowing there will never be a certified class.  Some lower courts have thus concluded that class action tolling should not be applied in the mass tort context unless the defendant had actual notice of the identities of unnamed class members.

Petitioner argued that tolling the limitations period for all purported members of the class during the pendency of class certification proceedings – which in a mass class action can take years – creates an unacceptable risk that by the time the claims of unnamed individuals are adjudicated, evidence critical to defending claims of that individual plaintiff will have been lost.  Issues relating to exposures, learned intermediaries, concurrent risk factors, specific (as opposed to general) causation, proximate causation regarding warnings, and assumption of the risk, all involve evidence that can be both peculiar to the individual plaintiff, and turn out to be the central evidence in the action.

Perhaps because of unique procedural issues below (involving fictitious parties), however, the Court passed on the opportunity to address these serious issues.


 

Fracking Meets Medical Monitoring

We have posted before about medical monitoring claims, and recently noted how plaintiff attorneys have cast their eyes on hydraulic fracturing operations as a new source of revenue.

Now let's see how they combine: some Pennsylvania residents are suing various drilling companies over hydraulic fracturing operations, alleging that such operations have increased their risk of future disease such that they need medical monitoring.  Fiorentino v. Cabot Oil & Gas Co., et al., No. 3:09-cv-02284 (M.D. Pa.).  Plaintiffs seek a medical monitoring trust fund, paid for by the drillers.

The case is in the discovery stages, and defendants, logically, are seeking medical records of the plaintiffs.  Those not familiar with medical monitoring may wonder why medical records would be relevant regarding those plaintiffs who do not allege a traditional present physical injury but only the risk of future injury.  Indeed, plaintiffs earlier this month filed a motion seeking to block defendants from obtaining the medical records.  

However, defendants correctly point out in response that, in Pennsylvania, plaintiffs must prove all of the following elements to succeed on a claim for medical monitoring:
(1) exposure greater than the 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 reasonable necessary according to contemporary scientific
principles.
Redland Soccer Club, Inc. v. Dep’t of Army & Dep’t of Def. of U.S., 696 A.2d 137, 195-96 (Pa. 1997).

At the least, medical records are relevant to the sixth element, namely that “the prescribed monitoring regime is different from that normally recommended in the absence of the exposure.” For example, a plaintiff might already be undergoing testing because of an existing medical condition, or already be a candidate for screening because of other risk factors in his life, such as occupational exposure to toxins or a family history of disease or genetic risk factors, all
requiring their own medical monitoring regime which may overlap the claimed monitoring regime for the alleged exposure in this case. Without medical records, a medical monitoring defendant is denied a fair opportunity to attack plaintiff's proof on this element and to show a plaintiff is not able to satisfy the sixth element of the Redland test -- and, therefore, not prove a claim for medical monitoring. See, e.g., Barnes v. American Tobacco Co., 984 F. Supp. 842, 871-72 (E.D. Pa. 1997).

While arising here in a discovery context, this issue also is relevant to class certification claims in medical monitoring cases, as the individualized nature of the medical monitoring remedy demands that each plaintiff be evaluated to determine whether the medical monitoring on account of the alleged exposure to the class called for by plaintiff experts is any different from the medical monitoring a plaintiff is or should be receiving because of the separate and existing risk factors currently facing an individual proposed class member.  Such an individual issue weighs heavily against class certification.

In any event, several courts have found that a defendant is entitled to the records. See O’Connor v. Boeing North American, Inc., 185 F.R.D. 272, 283 (C.D. Cal. 1999);  Cook v. Rockwell Int’l Corp., 147 F.R.D. 237, 242 (D. Colo. 1993).

Class Certification Denied in YAZ MDL

The federal judge managing the multidistrict litigation over the birth control pill Yaz last week declined to certify a proposed national class of users allegedly harmed by the contraceptive, and struck the class action allegations from the complaint.  In re: Yasmin and Yaz (Drospirenone) Marketing, Sales Practices and Products Liability Litigation, No. 3:09-md-02100 (S.D. Ill.).

In the opinion, Judge Herndon noted that named plaintiff Plaisance was a 44-year-old citizen of the State of Louisiana who was prescribed YAZ in May of 2006 by her physician. During the summer of 2006, plaintiff was hospitalized due to a deep vein thrombosis (“DVT”) in her left leg.  She alleged that the DVT, as well as other adverse effects, were caused by her ingestion of YAZ.  Plaintiff sought class certification of a nationwide class of YAZ purchasers who contracted DVT, but in the alternative proposed separate state-wide classes.

Plaintiff asserted claims for negligence, strict product liability, breach of express warranty, breach of implied warranty, fraudulent misrepresentation, fraudulent concealment, negligent misrepresentation, medical monitoring, and fraud and deceit.

Plaintiff maintained that the putative nationwide and state wide classes met the requirements of Rule 23(a) and 23(b)(3). In addition, plaintiff contended that the unitary application of the law of Louisiana was appropriate and somehow resolved issues related to the application of the substantive laws of multiple jurisdictions.

Here, the Court’s analysis began and ended with Rule 23(b)(3); it was "evident" to the court that individual questions of law and fact predominated, and therefore the case was not manageable as a nationwide or statewide class action.  Rule 23(b)(3)’s predominance and manageability  requirements also precluded any proposed “issue” certification under Rule 23(c)(4).

To satisfy the requirements of Rule 23(b)(3), a plaintiff must show that common questions of factor law predominate over individual questions and that class treatment is superior to other available methods of adjudication.Fed. R. Civ. P. 23(b)(3). Assessing the predominance factor requires consideration of the substantive elements of a plaintiff’s claims and the proof necessary to establish those elements. See Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 673-74, 677-78 (7th Cir. 2001); In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1015-19 (7th Cir. 2002). In addition, a court must consider issues pertaining to manageability and choice of law.

On that last point, this action was transferred from the United States District Court for the Eastern District of Louisiana. Therefore, Louisiana choice of law rules governed the complaint. See Chang v. Baxter Healthcare Corp., 599 F.3d 728, 732 (7th Cir. 2010). Under Louisiana’s codified choice of law rules, the substantive law of each plaintiff’s home state would govern the merits of the case. Accordingly, the laws of all fifty states plus the District of Columbia would be applicable to the putative nationwide class members’ claims. Amongst the states, there are differences in the law of product liability as well as in the applicable theories of recovery and their subsidiary concepts. These differences, said the court, "are not insignificant." See e.g., Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1300-1301 (7th Cir. 1995). Indeed, “such differences have led [the Seventh Circuit] to hold that other warranty, fraud, or products-liability suits may not proceed as nationwide classes”). In re Bridgestone/Firestone, Inc., 288 F.3d at 1015.See also Isaacs v. Sprint Corp., 261 F.3d 679 (7th Cir.2001); Szabo v. Bridgeport Machines, Inc., 249 F.3d 672 (7th Cir.2001); In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293 (7th Cir.1995).  In the class action context differences in state law cannot be swept away by electing to apply the law of a single state to all class members’ claims. See Id. at 1017-1020. Although the unitary application of a single state’s law might promote  efficiency, it would also constitute an unacceptable violation of principles of federalism.   Differences across states may be costly for courts and litigants alike, but they are a fundamental aspect of our federal republic and must not be overridden in a quest to clear the queue in court.

The court went on to correctly note that mass product liability suits are rarely sustainable as class actions. Establishing the requisite elements of product liability claims sounding in strict liability, negligence, warranty, and/or fraud generally requires fact intensive inquiries unique to each plaintiff(such as questions related to causation, injury, affirmative defenses, and damages). In the instant case, almost every element of the asserted claims would have required highly individualized factual inquiries unique not only to each class member but also to each class member’s  prescribing physician. For example, establishing causation would require (1) an examination
of each class member’s medical history, including pre-existing conditions and use of other medications; (2) an evaluation of potential alternate causes for the alleged injury; and (3) an assessment of individualized issues pertaining to each class member’s prescriber, including how the doctor balances the risks and benefits of the medicine for that particular patient, the particular doctor’s prescribing practices, the doctor’s knowledge about the subject drug, and the doctor’s sources of information with regard to the subject drug. Establishing elements of the fraud and warranty claims would also turn on facts unique to each plaintiff, particularly with regard to questions of materiality and reliance.

On the (c)(4) issue, the court recognized that Seventh Circuit jurisprudence indicates that Rule 23(b)(3)’s requirements of predominance and manageability are applicable to “issue” certification under Rule 23(c)(4).  There is disagreement amongst district courts with regard to whether, under Rule 23(c)(4), the predominance evaluation is a limited inquiry, focusing only on the individual issue for which class treatment is sought, or requires consideration of the cause of action as a whole. See e.g., In re Fedex Ground Package System, Inc., Employment Practices Litigation, 2010 WL 1652863, *1-2 (N.D. Ind. Apr. 21, 2010); In re General Motors Corp. Dex-Cool Prods., 241 F.R.D. 305, 313-314 (S.D.Ill.2007).  The Fifth Circuit Court of Appeals in particular has been critical of district courts that fail to consider the case as a whole when evaluating predominance under Rule 23(c)(4). See Castano v. Am. Tobacco Co., 84 F.3d 734, 745 n. 21 (5th Cir. 1996). 

Here, the court felt no need to choose a side, because In the instant case, the putative common issues, including matters such as whether the subject drugs were defective or whether these defendants failed to give adequate warnings,  were enmeshed with the same individual issues of law and fact as affected certification of the putative class as a whole. The allegedly common issues had subsidiary concepts (such as causation, duty of care, and reliance) which would present questions that can only be answered by considering facts that are unique to each putative class member and her prescribing physician.

In addition, many – if not all – of the proposed common issues could not be certified without triggering the Seventh Amendment concerns discussed in Rhone-Poulenc Rorer. See Rhone-Poulenc Rorer, 51 F.3d at 1303. A trial court must divide issues between separate trials in such a way that the same issue is reexamined by different juries. Here, multiple juries in follow-up trials would have to examine such issues as comparative negligence and proximate cause after a first jury examined the alleged negligence.

A Comment on the EU's Working Paper: "Towards a Coherent European Approach to Collective Redress"

Earlier this year, the Commission Staff of the European Union issued a Staff Working Document seeking public comment on the topic "Towards a Coherent European Approach to Collective Redress."

In an individual capacity, your humble blogger joined some other lawyers in providing comments recently.

As readers of MassTortDefense may know, collective redress -- aggregate litigation -- is not a novel concept in the European Union. Existing EU legislation and international agreements require Member States to provide for collective injunctive relief in certain areas. All Member States have procedures in place which grant the possibility of certain injunctive relief to enjoin some allegedly illegal practices. In the area of consumer law, as a result of the Directive on Injunctions, consumer protection authorities and consumer organizations have standing to seek an injunction regarding practices that allegedly breach national and EU consumer protection rules in all Member States. In the area of environmental law, the Aarhus Convention requires Member States to ensure access to justice against infringements of environmental standards. All Member States have implemented this by introducing some form of collective injunctive relief, whereby non-governmental organizations are given standing to challenge certain environmental administrative decisions.

In our comments, we warned that experience with overly robust collective redress procedures in some jurisdictions (such as the class action procedures as implemented in some courts in the United States) reveals significant risks inherent in such actions. These risks include the ability of collective actions to result in lengthy and costly litigation; their ability to trample the right of the entity accused of unlawful practices to a fair adjudication of the allegations; and their ability to actually encourage abusive, spurious, and non-meritorious complaints because of the economic incentives they provide. [Readers in the U.S. are well aware of the "Field of Dreams" effect-  "if you build it they will come."]  In particular, the EU needs to guard against “lawyer-created” litigation that is fueled by the prospect of large fee awards rather than a significant injury.

Any proposal for a holistic European approach towards collective redress actions thus must be analyzed in the context of not only the potential utility of collective actions but also the substantial risks they create. Collective redress, if ever widely adopted, should be limited to where the same breach of EU law harms a large group of citizens and businesses, and individual lawsuits and other legal remedies are demonstrated not to be an effective means to end ongoing unlawful practices or to obtain compensation for the harm caused by these practices.

Any European approach to collective redress must, as paramount concerns, preserve the parties’ rights to a fair trial or adjudication of the factual and legal issues, and not create any untoward economic incentive for the bringing of abusive claims.  While various procedural and substantive safeguards might be adopted to help avoid abusive collective actions, including those inspired by some aspects of the existing national judicial redress systems in the EU Member States, those may not be sufficient to the task. That is, the unavailability of punitive damages or the unavailability of contingency fees for claimant attorneys, while extremely important, may not alone sufficiently decrease the risk of abusive litigation and unfairness to an extent compatible with the European legal tradition and fundamental justice.

What may also be required are clear limitations with regard to standing to bring a collective redress action, should the decision be made to move the proposal forward. The risk of abuses and unfairness can relate in some measure to the role of the sophisticated and entrepreneurial plaintiff’s class action bar. In many jurisdictions, they serve not as “gatekeepers” to screen out frivolous claims and pursue meritorious actions, but as the “promoters” of claims. Quite often, they create claims out of whole cloth, seek out the plaintiffs to nominally prosecute the class action, while they fund the litigation, and manage the cases. If the decision is made to move forward with European collective redress actions -- despite the substantial risks they present-- one important way to preserve the balance between preventing abusive and unfair litigation, and ensuring the effective access to justice for EU citizens and businesses, is to create a system that does not rely on the private bar in the first instance. Thus, any new EU collective redress system should be handled by public bodies exclusively. Individuals and private organizations representing those who are allegedly harmed by illegal conduct on a mass scale would have the ability to petition the public body to screen the allegations, bring the action, and obtain proper compensation for the damages they suffered following successful litigation.

Public bodies may be in the best position to overcome cross-border issues and coordinate the relevant actions. The alleged injuries that have arisen in an increasingly inter-connected European market are a primary reason an EU-wide collective redress system has become a focus of discussion. The use of public bodies would allow for consistent rules for choosing the appropriate venue in which to bring the collective redress actions.  The use of designated public entities is also one method of controlling the potentially crippling costs of discovery associated with class actions in some countries.  Should the decision be made to move forward with more systematic, broad collective redress, despite its many risks, this proposal may offer a way to address some of the specific concerns that cross-border collective redress actions present, while also adhering to the EU’s core legal principles.

Supreme Court Decides Class-wide Arbitration Issue

In recent years, corporate defendants facing consumer class actions in California and several other states have been unable to enforce arbitration agreements prohibiting class actions. Under the California Supreme Court’s ruling in Discover Bank v. Superior Court, 36 Cal. 4th 148, 162-63 (2005), class action waivers were unenforceable if the waivers were in “a consumer contract of adhesion,” in disputes that “predictably involve small amounts of damages,” when the “party with superior bargaining power" allegedly has harmed large numbers of consumers. 

Last week, the U.S. Supreme Court, in a 5-4 decision in AT&T Mobility LLC v. Concepcion, No. 09-893, held that the Federal Arbitration Act (“FAA”) preempted the Discover Bank rule. Significantly, the Supreme Court also held that “[r]equiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Slip Op. at 9. This decision will significantly enhance corporate defendants’ ability to enforce arbitration provisions in California and the many other states with similar limitations on class action waivers.

This decision may have a substantial impact in consumer product markets, enabling businesses to enforce contractual individual arbitration agreements and thereby very significantly narrow the occasions for certain consumer class actions. Many companies had changed their standard contracts to take the Discover Bank rule into account, and they may now want to consider modifying those standard agreements back to include class action waivers. Although the California rule was the only state law at issue in the case, Concepcion likely will impact other similar state law rules that have rendered class action waivers unenforceable and that similarly created impermissible “‘obstacle[s] to the accomplishment and execution of the full purposes and objectives of Congress,” in enacting the FAA. Id. at 18 (quoting Hines v. Davidowitz, 312 U.S. 52, 67 (1941)).

Medical Monitoring Class Actions

Last week I spoke at a CLE seminar on "Chemical Products Liability & Environmental Litigation."  The seminar was ably co-chaired by Ted Ray from ExxonMobil and Eric Sarner from Praxair.

My topic was Medical Monitoring Class Actions, with an emphasis on the trend by plaintiffs to seek (b)(2) certification, describing the money damages they want defendants to pay for future medical testing as some sort of court-supervised program and thus injunctive/equitable in nature.

By popular demand (ok, a handful of requests), I am making some slides on the topic available here.  Hope readers of MassTortDefense find them a useful resource.

DRI Class Action Seminar Worth A Look

This year's United States Supreme Court term promises to be a blockbuster for class action law. By the end of June, the Court will have released three important opinions in the class action arena, including Wal-Mart v. Dukes, Smith v. Bayer Corporation, and AT&T Mobility v. Concepcion -- just out in a 5-4 decision that holds that the FAA preempts state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives, requiring the individual cases involved to be arbitrated as opposed to a class-wide arbitration.

DRI has put together a timely class action seminar for July 21-22 in Washington, D.C.

The seminar will bring together counsel of record from these Supreme Court cases, along with federal appellate judges and renowned class action specialists to address these and other cutting-edge issues of class action law. If you practice in the fields of complex litigation, mass torts or class actions, you will want to check out this outstanding seminar.

More info here.

 

Injunction Issued in Protracted Dryer Litigation

We have posted before about the ongoing Thorogood v. Sears Roebuck & Co. litigation, when the 7th Circuit rejected the proposed class action; when the court held that a "copycat" class action suit could not go forward in federal court in California;  and when the court reaffirmed its decision in an unusual opinion on the petition for rehearing.

The district court had certified a multi-state class of Kenmore-brand clothes dryer purchasers. On appeal, the Seventh Circuit called the case “a notably weak candidate for class treatment.” Not only did common issues of law or fact not predominate over the issues particular to each purchaser of a stainless steel Kenmore dryer, as Rule 23(b)(3) requires, there were, the court said, “no common issues of law or fact.” 547 F.3d at 746-47.

The same plaintiffs' lawyer then brought Murray v. Sears, Roebuck & Co., No. 4:09-cv-5744-CW (N.D. Cal.). Murray was a member of Thorogood’s class, and he brought essentially the identical claim in California. Sears Roebuck sought an injunction halting the new class action in front of Judge Leinenweber, who had presided over and eventually dismissed Thorogood’s original class suit, but he ruled that Sears could obtain adequate relief against being harassed by repetitive litigation by pleading collateral estoppel in Murray’s suit in California. Sears appealed, asking the court to to reverse the district court's denial of Sears’s motion to enjoin the virtually identical class action suit.

Ordinarily the ability to plead res judicata or collateral estoppel gives a litigant adequate protection against being harassed by repetitive litigation by the loser in a previous suit against him. But this case was unusual, said Judge Posner for the panel, both because it involved class action litigation and because of the specific tactics employed by class counsel. Class members are interested in relief for the class but the lawyers are primarily interested in their fees, and the class members’ stakes in the litigation are ordinarily too small to motivate them to supervise the lawyers in an effort to align the lawyers’ incentives with their own. The defendant wants to minimize outflow of expenditures and the class counsel wants to increase inflow of attorneys’ fees. "Both can achieve their goals if they collude to sacrifice the interests of the class.” Leslie, “The Significance of Silence: Collective Action Problems and Class Action Settlements,” 59 Fla. L. Rev. 71, 79-81 (2007). And when the central issue in a case is given class treatment and so will be resolved once and for all, a trial becomes a roll of the dice. Depending on the size of the class, a single throw may determine the outcome of an immense number of separate claims (hundreds of thousands, in the dryer litigation)—there is no averaging of decisions over a number of triers of fact having different abilities, priors, and biases. The risk of error becomes asymmetric when the number of claims aggregated in the class action is so great that an adverse verdict would push the defendant into bankruptcy; in such a case the defendant will be under great pressure to settle even if the merits
of the case are slight.

In the most recent iteration, the district court -- nothing the "tortured path" the case has taken through the judicial system -- has followed the direction of the 7th Circuit. Needless to say,  the parties disagreed as to the terms of the injunction that should be issued.  The primary areas of dispute were whether the injunction should be broad enough to encompass class action claims against co-defendant Electrolux and whether former members of the class should be allowed to pursue class-wide discovery against Sears as a non-party.   Sears argued that its advertising would still be at issue, and that Electrolux was obligated to indemnify Sears for any damages related to the marketing of the dryers.  That is, the only basis for Murray’s claims against Electrolux was the same advertising and marketing by Sears at issue in this case. As such, allowing Murray and his lawyers to continue to burden Sears with class-wide discovery concerning that issue would defeat the purpose of the injunction and circumvent the ruling in Thorogood.

The court concluded that any injunction should not allow class-wide discovery from Sears related to its advertising or representations regarding the composition of the dryer drums. Based on the representations of Murray’s counsel to the California court, it was clear that if his class action suit against Electrolux were allowed to continue, his attorneys plan to seek the same discovery from Sears as they would have if Sears itself were the defendant. No matter what it is called — third–party discovery, non–party discovery — by any name the Seventh Circuit has held that this amounts to irreparable harm.

Regarding whether the focus of the injunction should be on the issues that were litigated and decided in the previous Thorogood rulings, or on the identity of the parties, the court decided that the injunction precedents were couched in terms of the issues decided in the prior case, not the specific parties involved. There was no indication in any of the Seventh Circuit’s rulings that this conclusion depends on the party sued over these representations. Moreover, an injunction is not invalid merely because it may benefit non-parties. See Easyriders Freedom F.I.G.H.T. v. Hannigan, 92 F.3d 1486, 1501–02 (9th Cir. 1996).

Thus, the Court found that Sears would invariably be drawn into the defense of any class-action lawsuit regarding its marketing of the dryers as containing stainless steel drums, regardless of what party is named as a defendant. This would defeat the purpose of the Seventh Circuit’s ruling in Thorogood and prevent Sears from receiving the full measure of relief ordered by the Seventh Circuit. Murray and the other members of the class were free to pursue on a class basis claims against Electrolux not related to Sears’ marketing of the dryers, but they may not use a suit against Electrolux as a back-door method of evading the Seventh Circuit’s ruling in Thorogood.

 


 

Class Rep Who Dismisses Individual Claim Lacks Standing to Appeal Denial of Certification

A proposed class representative who voluntarily dismisses his individual claims lacks standing to appeal the denial of certification of the class claims, according to the Fourth Circuit.  Rhodes v. E.I. du Pont de Nemours & Co., No. 10-1166 (4th Cir.,  4/8/11).

The plaintiffs were residents of the City of Parkersburg in Wood County, West Virginia, and  customers of the Parkersburg City Water Department  which supplied water to homes located in Wood County.  DuPont operated a manufacturing facility in Wood County. For an extended period of time, DuPont’s plant  allegedly discharged perfluorooctanoic acid (PFOA) into the environment
surrounding the plant. Measurable quantities of PFOA were allegedly detected in the water that is pumped by the Water Department into the plaintiffs’ residences.

In 2006, the plaintiffs filed a complaint against DuPont in the Circuit Court of Wood County, West Virginia. Defendant removed. The plaintiffs asserted six common law claims, individually and on behalf of a class of customers of the Water Department, addressing the contamination of their municipal water supply and the alleged resulting presence of PFOA in their blood. The plaintiffs sought damages and injunctive relief to obtain medical monitoring for latent diseases on behalf of a class of Water Department customers allegedly exposed to PFOA beginning in 2005.

After conducting a hearing on the plaintiffs’ motion for class certification under Federal Rule of Civil Procedure 23(b), the district court concluded that the elements of a medical monitoring claim could not be proved on a class-wide basis using the type of evidence presented by the plaintiffs. The district court therefore denied the plaintiffs’ motion for class certification of their stand alone medical monitoring claims. The district court further held that the plaintiffs had not met their burden under Rule 23 for certification of a class to pursue medical monitoring relief based on the plaintiffs’ claims of negligence, gross negligence, battery, trespass, and private nuisance, the common law torts. The district court then denied the plaintiffs’ motion for class certification of the traditional common law tort claims for damages also.

DuPont filed motions seeking summary judgment on all the plaintiffs’ claims. The district court granted in part and denied in part DuPont’s motions. The district court granted DuPont’s
motions with respect to all the plaintiffs’ traditional common law tort claims, Rhodes v. E.I. Du Pont De Nemours and Co., 657 F. Supp. 2d 751, 762-73 (S.D.W. Va. 2009), but denied summary judgment with respect to the plaintiffs’ individual claims of medical monitoring.

Rather than proceed to trial on those remaining individual claims, in order to appeal immediately the adverse summary judgment and certification rulings, the plaintiffs filed a stipulation of voluntary dismissal under Federal Rule of Civil Procedure 41(a)(1) of their individual claims for medical monitoring.

The court of appeals affirmed the summary judgments, but what will be of more interest to our readers is DuPont’s argument that the 4th Circuit lacked appellate jurisdiction to address the merits of plaintiff’s appeal of the denial of class certification of their medical monitoring claims. DuPont asserted that the plaintiffs no longer had standing to advance this argument on appeal because, by voluntarily dismissing their individual claims for medical monitoring, the plaintiffs abandoned their interest in litigating the certification question. As a result, DuPont contended, the plaintiffs had no personal stake in this issue and did not satisfy the requirements for Article
III standing.

In response, the plaintiffs maintained that litigants routinely are permitted to dismiss various claims in order to appeal other claims and, that under federal precedent, this court could review the denial of class certification for a particular claim even though no plaintiff presently was advancing individual claims asserting that cause of action. The plaintiffs further argued that by its plain terms, their stipulated dismissal applied only to their individual medical monitoring claims. Thus, the plaintiffs contended that they did not abandon their stake in the certification question.

As a general matter, circumstances may change while a case is pending, thereby leaving a plaintiff
without the personal stake necessary to maintain Article III standing. For example, claims can expire, or parties can settle or dismiss their claims entirely. In such situations, the district court or appellate court must dismiss the case for lack of subject-matter jurisdiction. On the other hand, generally, a class representative not only has a "personal stake" in the substantive claim he or she asserts, but also a distinct procedural right to represent the interests of similarly situated individuals. This second, representative interest sometimes gives a putative class representative a sufficient "stake" in the class certification question to appeal an adverse certification ruling even after the putative class representative’s claim is mooted by intervening events.

Two conditions must be met, however, to retain Article III jurisdiction, according to the 4th Circuit. The imperatives of a dispute capable of judicial resolution must be sharply present, and there must be self-interested parties vigorously advocating opposing positions.

Other federal circuit courts addressing this issue have reached different conclusions on the question whether a plaintiff may voluntarily settle or dismiss his or her individual claims and still
appeal a certification denial. Some courts have held that standing is maintained when a named plaintiff expressly reserves the right to appeal a certification denial. See Richards v. Delta Air Lines, Inc., 453 F.3d 525 (D.C. Cir. 2006) (express reservation of class claim preserves standing of class
representative to appeal certification denial); Dugas v. Trans Union Corp., 99 F.3d 724 (5th Cir. 1996) (reservation of right sufficient to give putative class representative who settles individual claims standing to appeal denial of class certification). Cf. Narouz v. Charter Commc’ns, LLC, 591 F.3d 1261 (9th Cir. 2010) (putative representative retains standing to appeal unless releases interest in class claims in settlement agreement). Other courts have held that even an express reservation of right is not sufficient to satisfy Article III standing requirements. See Muro v. Target Corp., 580 F.3d 485 (7th Cir. 2009) (recitation in settlement agreement that plaintiff reserves right to appeal denial of class certification not sufficient to create concrete interest in class certification issue); Anderson v. CNH U.S. Pension Plan, 515 F.3d 823 (8th Cir. 2008) (same).

Although several of these cases held that the language of a plaintiff’s settlement agreement is determinative of that plaintiff’s "stake" in an appeal, the 4th Circuit seemed less concerned about the language of the dismissal than the fact of dismissal. It concluded that when a putative
class plaintiff voluntarily dismisses the individual claims underlying a request for class certification, as happened in this case, there is no longer a "self-interested party advocating" for class treatment in the manner necessary to satisfy Article III standing requirements.

The court held that it thus did lack jurisdiction to decide the issue whether the district court abused its discretion in denying the plaintiffs’ request for class certification of their medical monitoring
claims.

Court of Appeals Vacates Class Certification in Toxic Tort Case

The Fifth Circuit has vacated the decision of the trial court in granting class status to a group of plaintiffs alleging that a refinery exposed them to toxic dust. Madison v. Chalmette Refining LLC, No. 10-30368 (5th Cir. 4/4/11).

Back in 2007, a number of schoolchildren, chaperoned by parents and teachers, participated in a historical reenactment at the Chalmette National Battlefield, the site of the January 8, 1815, Battle of New Orleans, the last great battle of the War of 1812 and “the site along the Mississippi River where Andrew Jackson gave the British their comeuppance.” D. BRINKLEY, The Wilderness Warrior: Theodore Roosevelt and the Crusade for America,p. 414 (2009). Adjacent to the battlefield is the Chalmette Refinery, which allegedly released an amount of petroleum coke dust that migrated over the battlefield. Plaintiffs sued on behalf of a class of all persons or entities located at the Chalmette National Battlefield in St. Bernard Parish, Louisiana, in the early afternoon of Friday, January 12, 2007 and who sustained property damage, personal injuries, emotional, mental, or economic damages and/or inconvenience or evacuation as a result of the incident.

The District Court granted the motion to certify, and defendants appealed. The court of appeals reviews the district court's decision to certify a class for an abuse of discretion. See, e.g., McManus v. Fleetwood Enters., Inc., 320 F.3d 545, 548 (5th Cir. 2003). The decision to certify is within the discretion of the trial court, but that discretion must be exercised within the framework of Rule 23. Castano v. Am. Tobacco Co., 84 F.3d 734, 740 (5th Cir. 1996).  The Supreme Court requires district courts to conduct a rigorous analysis of Rule 23 prerequisites.

The crux of this appeal was the legal basis for and sufficiency of evidence supporting the district court’s findings of superiority and predominance under Rule 23(b)(3). Before certifying a class under Rule 23(b)(3), a court must determine that questions of law or fact common to the members of the class predominate over any questions affecting only individual members and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. Determining whether the plaintiffs can clear the predominance hurdle set by Rule 23(b)(3) requires district courts to consider how a trial on the merits would be conducted if a class were certified.

Chalmette Refining cited the advisory committee note to Rule 23(b)(3), which has been quoted numerous times by the Fifth Circuit as highlighting the “relationship between predominance and superiority in mass torts.” See Castano v. American Tobacco Co., 84 F.3d 734, 745 n.19 (5th Cir. 1996). According to the note, a  “mass accident” resulting in injuries to numerous persons is ordinarily not appropriate for a class action because of the likelihood that significant questions, not only of damages but of liability and defenses to liability, would be present, affecting the individuals in different ways. In these circumstances an action conducted nominally as a class action would degenerate in practice into multiple lawsuits separately tried.

Here, the district court abused its discretion by failing to afford its predominance determination the “rigorous analysis” that Rule 23 requires. In particular, the district court did not meaningfully consider how plaintiffs’ claims would be tried.  Plaintiffs cited, and the trial court relied on, two cases that are among the very few certifying a tort injury class action. In Watson v. Shell Oil, the court certified a class of over 18,000 plaintiffs seeking damages stemming from an explosion at a Shell plant. 979 F.2d 1014, 1016 (5th Cir. 1992). Notably the court of appeals now clarified that "whether Watson has survived later developments in class action law–embodied in Amchem and its progeny–is an open question."  But even in Watson, the district court had a detailed four-phase plan for trial. Similarly, in Turner v. Murphy Oil USA, Inc., the district court granted class certification to a class of plaintiffs who suffered damages resulting from a post-Hurricane Katrina oil storage tank spill. 234 F.R.D. 597, 601 (E.D. La. 2006). Critical to the court’s predominance inquiry was the fact that plaintiffs had submitted a detailed proposed trial plan to the court, calling for bifurcation of certain issues.

In contrast, here there was no analysis or discussion regarding how the court would administer the trial.  Robinson v. Tex. Auto. Dealers Ass’n, 387 F.3d 416, 425–26 (5th Cir. 2004). The court failed to identify the substantive issues that would control the outcome, assess which issues will predominate, and then determine whether the issues are common to the class. Absent this analysis, it was impossible for the court to know whether the common issues would be a significant portion of the individual trials, much less whether the common issues predominate.  Instead, the trial court appears to have "adopted a figure-it-out-as-we-go-along approach." 

Even among the named class representatives, significant disparities existed, in terms of exposure, location, and whether mitigative steps were taken. The primary issues left to be resolved would turn on location, exposure, dose, susceptibility to illness, nature of symptoms, type and cost of medical treatment, and subsequent impact of illnesses on individuals.

 


 

Court of Appeals Vacates Premature Class Certification

The 11th Circuit earlier this month vacated the district court's premature certification of a class of property owners allegedly harmed by releases from a nearby industrial facility.  Sher v. Raytheon Corp., No. 09-15798 (11th Cir. 3/9/11).

Plaintiffs alleged that Raytheon, through improper disposal and/or storage of hazardous waste at its St. Petersburg, Florida facility, was responsible for the release of toxic waste into the  groundwater of surrounding neighborhoods.

To demonstrate the predominance of common issues under Rule 23(b)(3), plaintiffs’ offered a groundwater expert, Dr. Philip Bedient, who identified the impacted area as a toxic underground plume stretching approximately one mile long and 1.7  miles wide from the Raytheon facility. The need to show on an individual basis the impact of the pollution on each property is a major reason these kinds of property damage class claims are not certified. To try to show here that damages for alleged property injury to 1000 class members could be appropriately resolved in a single class action, plaintiffs presented the affidavit of their damages expert, Dr. John A.  Kilpatrick, who stated that he could develop a hedonic multiple regression model to determine diminution-in-value damages without resorting to an individualized consideration of each of the various properties.

Defendants, in turn, challenged Dr. Bedient’s methodology for defining the impacted area, or really the putative class, as “inconsistent with applicable professional standards.”  Dr. Bedient’s area of impact apparently encompassed many properties on which no contamination had been detected at all.  Raytheon also introduced its damages expert, Dr. Thomas O. Jackson. Dr. Jackson’s report stated that the Plaintiffs’ expert’s “proposed method of analysis of property value diminution using mass appraisal/regression modeling would be unacceptable for this purpose, and would not eliminate the need to evaluate each property in the proposed class area on an individual basis.”

So, notwithstanding the general rule that the court should not delve too deeply into the merits at the class certification stage, the court was confronted with dueling experts, and, more importantly, a serious challenge to the methodology of plaintiffs' experts.

As a threshold matter, the district court punted-- finding that it was not necessary at this stage of the litigation to declare a "proverbial winner in the parties’ war of the battling experts" or choose between the dueling statistics and chemical concentrations. This type of determination would require the court to weigh the evidence presented and engage in a Daubert-style critique of the proffered experts qualifications, which would be "inappropriate" at this stage of the litigation.  More specifically, an inquiry into the admissibility of plaintiffs’ proposed expert testimony as set forth in Daubert would be inappropriate, "because such an analysis delves too far into the merits of Plaintiffs’ case."

On appeal of the certification order, the court of appeals found the Seventh Circuit’s opinion in American Honda Motor Co., Inc., 600 F.3d 813 (7th Cir. 2010), to be persuasive. We posted on that before. The issue before the Seventh Circuit in American Honda was whether or not the district court should have conclusively ruled on the admissibility (versus the weight of, as also in this case) of expert opinion prior to certifying the class. In American Honda, the Seventh Circuit found that “when an expert’s report or testimony is critical to class certification, as it is here . . . , a district court must conclusively rule on any challenge to the expert’s qualifications or submissions prior to ruling on a class certification motion.” Id. at 815-16. The American Honda court found that, if the situation warrants, the district court must perform a full Daubert analysis before certifying the class. Id. at 816. “A district court is the gatekeeper. It must determine the reliability of the expert’s experience and training as well as the methodology used." Id. “The [district] court must also resolve any challenge to the reliability of information provided by an expert if that information is relevant to establishing any of the Rule 23 requirements for class certification.” Id.

Accordingly, here, in its Rule 23 analysis, the district court erred as a matter of law by not sufficiently evaluating and weighing conflicting expert testimony on class certification. It was error
for the district court to decline to declare a proverbial, yet tentative winner of the Daubert issue. Plaintiffs are required to prove, at the class certification stage, more than just a prima facie case, i.e., more than just a “pretty good case.” A district court must make the necessary factual and legal inquiries and decide all relevant contested issues prior to certification. Thus, the court erred in granting class certification prematurely. Tough questions must be faced and squarely decided, said the court, not side-stepped in an overly cautious attempt to avoid the merits. 

 

  

Panel Creates Vitaminwater MDL

The U.S. Judicial Panel on Multidistrict Litigation last week ordered the coordination of the litigation against Coca-Cola Co. alleging it misled the public about the nutritional benefits of its Vitaminwater.  In re: Glaceau Vitaminwater Marketing and Sales Practices Litigation, MDL No. 2215 E.D.N.Y.).

Common defendants The Coca-Cola Company and Energy Brands Inc. moved, pursuant to 28 U.S.C. § 1407, for coordinated pretrial proceedings of this litigation filed in three federal districts. (Two tag along districts emerged as well.) Some plaintiffs supported the motion; some opposed.  The parties opposing centralization variously argued, that (1) some of the actions named local retailers as defendants, and the claims against them presented unique
issues of fact; (2) questions of law were unique to the various jurisdictions in which actions have been filed; (3) only three actions were pending, alleging discrete multi-state or statewide classes of consumers.

The Panel found that these arguments had "some merit," but on balance, were outweighed by the benefits of centralization. Though only three actions were before the Panel, and they do not allege overlapping putative classes, the Panel was persuaded that centralization was appropriate. The relatively small number of cases was sufficient: the Eastern District of New York action consisted of five prior actions that were voluntarily consolidated, and it involves proposed classes of consumers from three states. Two additional related actions were pending.

These actions shared factual questions arising out of allegations that defendants misrepresented their VitaminWater product as a healthy alternative to soft drinks though it contains almost as much sugar, said the order. Section 1407 does not require a complete identity or even a majority of common factual or legal issues as a prerequisite to transfer. See, e.g., In re Gadolinium Contrast Dyes Prods. Liab. Litig., 536 F. Supp. 2d 1380, 1382 (J.P.M.L. 2008). Nor does it require an identity of common parties.

Centralization would eliminate duplicative discovery; prevent inconsistent pretrial rulings; and conserve the resources of the parties, their counsel, and the judiciary. Creation of an MDL will serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation, the Panel concluded.

The Eastern District of New York was deemed to be the most appropriate transferee district. The action in that district had been pending for two years, and is more advanced than any other action in this litigation. The court has ruled on a motion to dismiss, and discovery is underway. Both some plaintiffs and some defendants supported centralization in this district.

Partial Settlement Proposed in FEMA Trailer Litigation

Defendants and certain plaintiffs in the FEMA TRAILER FORMALDEHYDE PRODUCTS
LIABILITY LITIGATION, MDL NO. 07-1873(E.D. La.) have filed a joint motion seeking approval of a partial settlement of the litigation.

Readers may recall from our previous posts that plaintiffs had filed claims against the United States and several manufacturers alleging that they were exposed to high levels of formaldehyde contained in emergency housing provided to them by FEMA in the aftermath of Hurricane Katrina. The plaintiffs proposed litigating the claims in six subclasses, including four subclasses for residents divided by state (Louisiana, Alabama, Texas, and Mississippi), a medical monitoring (“future medical services”) subclass, and an economic loss subclass.  The court denied the personal injury class, and then the medical monitoring class.   The court then adopted a bellwether trial approach.  We posted on the federal jury in Louisiana returning a defense verdict in just such a bellwether plaintiffs' suit over alleged exposure to formaldehyde fumes while living for several months in a FEMA-provided trailer.  Indeed, all three bellwether trials have resulted in losses for plaintiffs. There are currently two appeals pending from previous bellwether trial verdicts. The MDL court also found last year that FEMA itself could not be held liable for the alleged formaldehyde in the trailers.
 

Now, several maker of the emergency mobile homes used after hurricanes Katrina and Rita have agreed to pay approximately $2.6 million to settle certain claims that plaintiffs were allegedly sickened by levels of formaldehyde in the homes.  The proposed settlement covers FEMA mobile homes issued to victims of the hurricanes, not the travel trailers, which actually formed the majority of emergency housing made available after the hurricanes. 

Under the proposed settlement, a whopping 48% of that total will be set aside for plaintiff attorneys' fees.  According to the settlement agreement, the size of the potential settlement class is more than 1,000.  In addition to the trial results, the joint motion makes reference to the MDL court ruling that precluded plaintiffs from arguing for liability under varied (and higher) state standards, rather than a uniform federal level.

Snapple Prevails in All Natural Suit

A federal court granted summary judgment to defendant Snapple in a lawsuit accusing
Snapple Beverage Corp. of misleading consumers by labeling drinks as "all natural" even though they are sweetened with high fructose corn syrup. Weiner et al. v. Snapple Beverage Corp., No. 1:07-cv-08742 (S.D.N.Y.).

We have commented on the growing and alarming trend of plaintiffs' lawyers concocting 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.”

Readers may recall from our previous post, that here plaintiffs sued seeking to represent a nationwide class of consumers who made purchases between 2001 and 2009 in New York of Snapple beverages labeled “all natural” and which contained high fructose corn syrup.  The plaintiffs alleged they paid a premium for the company's drinks as a result of the all natural claim.

Judge Cote denied the plaintiffs' motion for class certification last year, finding 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’ claim could not be certified under Rule 23(b)(3).

Snapple then moved for summary judgment on the two named plaintiffs' individual claims
under New York's consumer protection laws, as well as claims of unjust enrichment and breach of express warranty.

Jurisdiction was predicated on CAFA, so a preliminary issue was whether the court retained jurisdiction after the denial of class certification. The statute does not speak directly to
the issue of whether class certification is a prerequisite to federal jurisdiction, and the Second Circuit has not addressed the issue. The circuits that have considered the issue, however, have uniformly concluded that federal jurisdiction under CAFA does not depend on class certification. See Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806 (7th Cir. 2010); United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union, AFL-CIO, CLC
v. Shell Oil Co., 602 F.3d 1087, 1092 (9th Cir. 2010); Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1268 n.12 (11th Cir. 2009).

The court granted the motion, finding that the named plaintiffs had failed to show that they were injured as a result of Snapple's labeling.  According to Snapple, because the plaintiffs had not offered evidence showing either the price they paid for Snapple or the prices charged by competitors for comparable beverages, they could not demonstrate that they paid a premium for the “All Natural” Snapple product and thus could not show harm stemming from the allegedly misleading label.  Neither of the plaintiffs had any record of his purchases of Snapple. Their most recent purchases were made in 2005 and 2007, or 3 to 5 years before their deposition testimony was taken. Not surprisingly, they had only vague recollections of the locations, dates, and prices of their purchases of Snapple. Besides being unable to establish the actual price they paid for the Snapple products at issue here, the plaintiffs have offered no other evidence from which to
calculate the premium they paid for Snapple. The court agreed that plaintiffs failed to prove that they paid more for Snapple's products than they would have for comparable beverages.

As for the breach of expressed warranty claim, an injured party is entitled to the benefit of its bargain, measured as the difference between the value of the product as warranted by the manufacturer and its true value at the time of the transaction. Because the plaintiffs
had not demonstrated that they purchased Snapple's drinks in reliance on the “all natural”
label, they could not show any such difference in value.