Court of Appeals Rejects Washer Class Action

The 11th Circuit recently ruled that class certification had been improperly granted to owners of front-loading washing machines that allegedly were susceptible to mold build-up. See Brown v. Electrolux Home Prods. Inc., No. 15-11455, 2016 WL 1085517 (11th Cir. 3/21/16).

Across the country, consumers have filed class actions against the manufacturers of front-loading washing machines. Front-loaders are considered an improvement over traditional top-loading machines because they use less water and energy. But the initial models allegedly had a problem: the rubber seal on the front door of the machine retains water, which allows mildew to grow.  In this case, consumers from California and Texas filed a class action against Electrolux Home Products, the manufacturer of Frigidaire front-loading washing machines. After the district court certified two statewide classes, see Terrill v. Electrolux Home Prods., Inc., 295 F.R.D. 671 (S.D. Ga. 2013), Electrolux filed this interlocutory appeal. The 11th Circuit vacated the certification as the district court abused its discretion in determining the predominance requirement of Federal Rule of Civil Procedure 23(b)(3).

The district court certified two statewide classes: California Class: All persons and entities who purchased, other than for resale, after March 5, 2004, and while in the State of California, a Frigidaire front-loading washing machine with a convoluted bellow. And Texas Class: All persons and entities who purchased, other than for resale, after March 5, 2004, and while in the State of Texas, a Frigidaire front-loading washing machine with a convoluted bellow.  

The district court recognized that it must conduct a "rigorous analysis" to determine whether a class action satisfies Rule 23 . See Vega v. T-Mobile USA, Inc., 564 F.3d 1256 , 1266 (11th Cir. 2009). And it correctly explained that "[a] party seeking class certification must affirmatively demonstrate his compliance with the Rule."  Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338 (2011).  The district court concluded that the questions of law or fact common to class members predominate over any questions affecting only individual members, Fed. R. Civ. P. 23(b)(3). With respect to the consumer claims, the district court somehow concluded that every element was susceptible to class-wide proof. For example, the district court concluded that each class member presumably relied on the fact that defendant provided Washing Machines suited for cleaning and freshening clothing.  The district court then explained that the class members could show their reliance on defendant's alleged failure to disclose the Washing Machines' alleged design defect and the inevitable consequences of that defect through the same class-wide proof that they purchased machines to clean and freshen their clothes rather than to soil and odorize them.  As for the warranty claims, the district court rejected Electrolux's argument that the questions whether the class members gave Electrolux pre-suit notice of the defect, whether the class members gave Electrolux an opportunity to cure the defect, and whether the defect manifested during the warranty period would require individual proof. Instead, it concluded that the questions whether pre-suit notice, an opportunity to cure, and manifestation of the defect are required under California and Texas law are "common questions" that weigh in favor of class certification.

The court of appeals noted first that the district court misstated the law when it said that it "resolves doubts related to class certification in favor of certifying the class."  Indeed, the party seeking class certification has the burden of proof. Valley Drug Co. v. Geneva Pharms., Inc., 350 F.3d 1181 , 1187 (11th Cir. 2003). And the entire point of a burden of proof is that, if doubts remain about whether the standard is satisfied, "the party with the burden of proof loses." Simmons v. Blodgett, 110 F.3d 39 , 42 (9th Cir. 1997). All else being equal, the presumption is against class certification because class actions are an exception to our constitutional tradition of individual litigation. See Comcast Corp. v. Behrend, 133 S. Ct. 1426 , 1432 (2013); Hansberry v. Lee, 311 U.S. 32 , 40-41 (1940). A district court that has doubts about whether "the requirements of Rule 23 have been met should refuse certification until they have been met." Fed. R. Civ. P. 23 advisory committee's note to 2003 amendment; accord In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 , 321 (3d Cir. 2008); Wallace B. Roderick Revocable Living Trust v. XTO Energy, Inc., 725 F.3d 1213, 1218 (10th Cir. 2013).

The district court also misstated the law when it said that it "accepts the allegations in the complaint as true." and "draws all inferences and presents all evidence in the light most favorable to Plaintiffs." The party seeking class certification has a burden of proof, not a burden of pleading. See Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 , 2412 (2014). He "'must affirmatively demonstrate his compliance' with Rule 23 " by proving that the requirements are "in fact" satisfied. Comcast, 133 S. Ct. at 1432 (quoting Wal-Mart, 131 S. Ct. at 2551 ). And the district court must conduct a "rigorous analysis" to determine whether the movant carried his burden, which "will frequently entail 'overlap with the merits of the plaintiff's underlying claim.'" Id . (quoting Wal-Mart, 131 S. Ct. at 2551 ). Of course, the district court can consider the merits to the extent "they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied." Amgen Inc. v. Conn. Ret. Plans & Trust Funds, 133 S. Ct. 1184 , 1195  (2013). And if a question of fact or law is relevant to that determination, then the district court has a duty to actually decide it and not accept it as true or construe it in anyone's favor. See Comcast, 133 S. Ct. at 1432-33 ; Szabo v. Bridgeport Machs., Inc., 249 F.3d 672 , 675-76 (7th Cir. 2001); Gariety v. Grant Thornton, LLP, 368 F.3d 356, 365-66 (4th Cir. 2004). The district court erred when it stated the opposite.
 

Ultimately, the district court abused its discretion when it decided that the questions of law or fact common to class members predominate over any questions affecting only individual members, Fed. R. Civ. P. 23(b)(3). To determine whether the requirement of predominance is satisfied, a district court must first identify the parties' claims and defenses and their elements. The district court should then classify these issues as common questions or individual questions by predicting how the parties will prove them at trial. Common questions are ones where "the same evidence will suffice for each member," and individual questions are ones where the evidence will "vary] from member to member." Blades v. Monsanto Co., 400 F.3d 562 , 566 (8th Cir. 2005).  After identifying the common and individual questions, the district court should determine whether the common questions predominate over the individual ones. Many courts  have adopted the following rule of thumb: if common issues truly predominate over individualized issues in a lawsuit, then the addition or subtraction of any of the plaintiffs to or from the class should not have a substantial effect on the substance or quantity of evidence offered. If, on the other hand, the addition of more plaintiffs leaves the quantum of evidence introduced by the plaintiffs as a whole undisturbed, then common issues are likely to predominate.

But predominance requires a qualitative assessment too; it is not bean counting, and the relative importance of the common versus individual questions also matters. Predominance can only be determined after considering what value the resolution of the class-wide issue will have in each class member's underlying cause of action.  District courts should assess predominance with its overarching purpose in mind—namely, ensuring that "a class action would achieve economies of time, effort, and expense, and promote . . . uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results." Amchem Prods., Inc. v. Windsor, 521 U.S. 591 , 615 (1997).

Electrolux argued that the district court misapplied California and Texas law when it concluded that the plaintiffs could prove causation on a class-wide basis. Electrolux argued that causation requires individual proof. Under California law, one who was not exposed to the alleged misrepresentations and therefore could not possibly have lost money or property as a result of the unfair competition is not entitled to restitution. Pfizer Inc. v. Superior Court, 182 Cal. App. 4th 622 , 105 Cal. Rptr. 3d 795 , 803 (Cal. Ct. App. 2010); accord Am. Honda Motor Co. v. Superior Court, 199 Cal. App. 4th 1367 , 132 Cal. Rptr. 3d 91 , 101 (Cal. Ct. App. 2011); Kaldenbach v. Mut. of Omaha Life Ins. Co., 178 Cal. App. 4th 830 , 100 Cal. Rptr. 3d 637 , 652 (Cal. Ct. App. 2009). The district court rejected Electrolux's argument because it concluded that the class members were exposed to uniform business practices.
The district court misunderstood the plaintiffs' complaint. Brown alleged that Electrolux engaged in unfair competition by omitting essential information in its advertisements. The only advertisements that Brown identified were on Frigidaire's website, but he made no effort to prove that any member of the California Class visited the website before purchasing a washing machine. Brown in fact admitted that he never saw any advertisements from Frigidaire. Because the class members were not exposed to a uniform misrepresentation, the claim under the California Unfair Competition Law is unsuitable for class treatment. See Simon v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 482 F.2d 880 , 883 (5th Cir. 1973); Mazza v. Am. Honda Motor Co., 666 F.3d 581 , 595 (9th Cir. 2012).

The Texas Deceptive Trade Practices—Consumer Protection Act prohibits "[f]alse, misleading, or deceptive acts or practices in the conduct of any trade or commerce." Tex. Bus. & Com. Code Ann. § 17.46(a) . To recover under the Act, a plaintiff must prove that he "relied on" the defendant's conduct to his detriment. Id.§ 17.50(a)(1) (B). This reliance element requires that the plaintiff "actually did rely" on the defendant's statement or omission, not that the defendant "wanted purchasers to rely on its advertisements and other representations." Henry Schein, Inc. v. Stromboe, 102 S.W.3d 675 , 694 (Tex. 2002).  It appears that no Texas court has ever certified a class action under the Texas Deceptive Trade Practices—Consumer Protection Act, see Tex. S. Rentals, Inc. v. Gomez, 267 S.W.3d 228 , 237 (Tex. App. 2008). That a plaintiff could prove reliance on a class-wide basis is "a near-impossibility," according to the Texas Court of Appeals. Id . (quoting Fid. & Guar. Life Ins. Co. v. Pina, 165 S.W.3d 416 , 423 (Tex. App. 2005)).  The district court certified a class anyway, and it erred.  The court cannot presume that the class members relied on any uniform misrepresentation. The court could have no inkling whether the class members saw any advertisements from Frigidaire, much less uniform advertisements, before they purchased their washing machines. This means that their claim under the Texas Deceptive Trade Practices-Consumer Protection Act cannot proceed as a class action. See Wal-Mart, 131 S. Ct. at 2552 n.6; Sandwich Chef of Tex, Inc. v. Reliance Nat. Indem. Ins. Co., 319 F.3d 205, 219 (5th Cir. 2003); In re Clorox Consumer Litig., 301 F.R.D. 436, 446 (N.D. Cal. 2014).

Electrolux next argued that the district court prematurely certified the warranty claims because it did not first resolve several questions of state law that were relevant to predominance. That is, the district court could not determine predominance without first deciding whether California and Texas law require pre-suit notice, an opportunity to cure, and manifestation of the defect. The court of appeals agreed. A district court must decide all questions of fact and law that bear on the propriety of class certification. For example, a question of state law bears on predominance if, answered one way, an element or defense will require individual proof but, answered another way, the element or defense can be proved on a class-wide basis. Because each requirement of Rule 23 must be met, a district court errs as a matter of law when it fails to resolve a genuine legal or factual dispute relevant to determining the requirements.  

The questions of state law that Electrolux asked the district court to resolve—whether the plaintiffs must prove pre-suit notice, an opportunity to cure, and manifestation of the defect—bear on predominance. If California and Texas law do not excuse pre-suit notice and an opportunity to cure when the defendant had prior knowledge of the design defect, as the district court speculated, then each class member will need to prove that he gave Electrolux pre-suit notice and an opportunity to cure. This showing could require individual proof.  And if California and Texas law require the defect to manifest, then each class member will need to prove that his washing machine actually grew mildew during the warranty period. This showing could also require individual proof. See Gen. Motors Corp. v. Garza, 179 S.W.3d 76 , 82-84 (Tex. App. 2005). Because the answers to these preliminary questions of California and Texas law could affect whether Rule 23(b)(3) is satisfied, the district court had a duty to resolve them.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. Wal-Mart, 131 S. Ct. at 2551.  Answering the questions whether California and Texas law require pre-suit notice, an opportunity to cure, and manifestation of the defect would not resolve issues that are "central to the validity" of the plaintiffs' warranty claims. Because the district court punted these questions instead of answering them, it abused its discretion.

Finally, on damages, even if individual issues regarding damages do not always defeat predominance in and of themselves, individual damages defeat predominance if computing them will be so complex, fact-specific, and difficult that the burden on the court system would be simply intolerable. Klay, 382 F.3d at 1260.  Furthermore, individual damages defeat predominance when they are accompanied by "significant individualized questions going to liability." Id. (citing Sikes v. Teleline, Inc., 281 F.3d 1350 , 1366 (11th Cir. 2002). The court of appeals left it to the district court on remand to decide whether the latter rule was satisfied here.
 

Defendant Seeks Review of Trial by Formula Decision

Defendant Google has filed a powerful cert petition, asking the U.S. Supreme Court to review a controversial Ninth Circuit decision reviving a putative class action. See Pulaski & Middleman LLC, et al. v. Google Inc., No. 15-1101 (U.S. petition filed 3/1/16).

 

This case presents the issue whether plaintiffs may use a formula that relies on a uniform measure of harm derived from the average experience of all class members as common proof of damages.

Google AdWords is an online advertising service. During the class period, AdWords allowed advertisers to place ads alongside Google search results or on other webpages that were part of Google’s advertising network. The ads generally were matched to Internet users based on the search queries the users entered on Google (or other search engines) or the subject-matter of the websites they viewed. The ads typically were short strings of text with hyperlinks that, when clicked, took the user to the advertiser’s website.  Advertisers paid Google each time an Internet user clicked on an advertisement link. Plaintiffs in this suit all purchased advertising services from Google AdWords. They alleged that Google misled them in violation of California law by showing their ads on two types of websites: “parked domains” and “error pages.”

 

 

The plaintiffs moved for class certification, and the district court denied this motion for a Rule 23(b)(3) class. The court found that while the issue whether Google’s alleged omissions were misleading to a reasonable AdWords customer could be seen as common, the individual nature of the restitutionary relief sought predominated. Plaintiffs’ theory rested on what AdWords customers would have paid but forthe alleged misstatements or omissions.  Yet, any effort to determine what advertisers would have paid requires a complex and highly individualized analysis of advertiser behavior for each particular ad that was placed.

A panel of the Ninth Circuit reversed, concluding that the predominance requirement was satisfied. In
reaching that conclusion, the court of appeals concluded  that any differences in calculating
the amount of restitution could not predominate. That is because, the court declared, damage calculations alone cannot defeat certification.  Applying that categorical rule, the court did not even consider whether, in the particular circumstances of this case, there were any individual issues of damages—much less whether those issues overwhelmed questions common to the class. 

The Ninth Circuit embraced a general, one-size-fits-all formula to resolve damages for the whole class, because it did “not turn on individual circumstances.”  But the Supreme Court has expressly disapproved just that “novel project” of computing class damages by a formula “without further individualized proceedings.” Wal-Mart, 131 S. Ct. at 2561. Wal-Mart’s holding on that point directly follows from the Rules Enabling Act, 28 U.S.C. § 2071,  which “forbids interpreting Rule 23 to ‘abridge, enlarge or modify any substantive right.’ ” Wal-Mart, 131 S. Ct. at 2561 (quoting 28 U.S.C. § 2072(b)). “Trial by Formula” forecloses individual defenses and sets damages for plaintiffs at amounts divorced from their particular circumstances, thereby giving plaintiffs greater substantive rights than they would have in individual proceedings. 

Consistent with the Rules Enabling Act, the Second, Fourth, Fifth, and Seventh Circuits have all
held that damages in class actions cannot be computed using an abstract analysis of averages. E.g., Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 343 (4th Cir. 1998). The Ninth
Circuit’s decision erroneously joins the minority viewof the Eighth and Tenth Circuits, contrary to WalMart’s instruction. 


In short, argues the petition, the Ninth Circuit’s decision conflicts with Comcast and Wal-Mart, and it creates and deepens divisions among the circuits regarding class certification standards. This is actually not the only case raising this issue with the Court.  One to watch.

Federal Court Rejects Class Action on 23(a) Grounds

A federal court in Massachusetts federal court recently denied class certification to consumers who claimed their wood-plastic composite decks were defective. See Anthony Pagliaroni et al. v. Mastic Home Exteriors Inc. and Deceuninck North America LLC, No. 1:12-cv-10164 D. Mass. 9/22/15). Readers may find the analysis of the Rule 23(a) factors of typicality and commonality useful.

Oasis is a manufactured composite decking material made of wood flour, high-density polyethylene (“HDPE”) and micro ingredients such as talc.  Plaintiffs submitted a report by experts opining on a defect in the material and the alleged cause of Oasis’s failure in the decks.  Importantly, they concluded that Oasis “suffers from the common defect of excessive water absorption” that results in swelling, cupping and cracking of the product. Thus, plaintiffs alleged that defendant misrepresented the composition of Oasis, and that the product failed to comply with building codes. 
(Defendant marketed Oasis using a variety of written marketing materials, including print
advertisements, brochures, website materials, tear sheets, physical samples and point of purchase
displays that varied from material to material and year to year.)

The product initially came with a ten-year limited warranty. The warranty stated that Oasis “products will not crack, split, splinter, or suffer structural damage due to termites, insects, or fungal decay.” The warranty excluded damage done by various specific factors, such as improper installation. The ten-year warranty was not transferrable. Mastic changed this warranty in 2006, extending the period to twenty-five years and making the warranty transferrable to future homeowners. 

Plaintiffs also submitted an expert report purporting to set forth a formula to calculate damages as measured by the repair or replacement costs to homeowners. This formula was based upon the size of the deck and its location, with additional considerations pertaining to the scope of damage and the surrounding landscape. The damages report posited that an inspector could identify
which deck components require replacement by placing a sticker on each damaged component
and taking photographs of the entire deck. Plaintiffs asserted that this formula could be
applied uniformly to estimate damages.

The court rejected Daubert challenges, finding the issues with the common defect opinion went to the weight of the testimony, not its admissibility.

Plaintiffs then moved to certify a class defined as all individuals and entities that own homes, residences, buildings, or other structures physically located in the states of Massachusetts, Minnesota, New York, and Oregon in which Oasis decking is or has been installed. The Court noted that it must conduct a rigorous analysis of the prerequisites established by Rule 23 before certifying a class.  In doing so, a court may probe behind the pleadings to formulate some prediction as to how specific issues will play out.  In re New Motor Vehicles Canadian Export Antitrust Litig., 522 F.3d 6, 17 (1st Cir. 2008) (internal citations and quotation marks omitted). This is because the class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.

The Court focused first on commonality. In light of Wal-Mart, the possibility of a yes or no answer to a class-wide question is inadequate to establish commonality. Plaintiffs must show that the proposed common questions will lead to answers "apt to drive the resolution of the litigation,” meaning that they “will resolve an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart, 131 S.Ct. at 2551. Plaintiffs offered five questions to show commonality and were correct that the five questions offered could be answered yes or no for the entire class. However, further inquiry is necessary to determine whether these answers would drive the resolution of any of plaintiffs’ causes of action.


Plaintiffs asserted express warranty claims, governed by § 2-313 of the Uniform Commercial Code, which provides that any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.  First, plaintiffs argued that defendant Mastic breached an express warranty about the product’s durability, an another about the limited warranty. The Court concluded that plaintiffs had not offered a common question that would drive the resolution of the litigation under either of these express warranty theories, because determining which, if any, representations became a basis of the bargain with a plaintiff would be driven by individualized proof, especially in light of the fact that there was a multi-tiered distribution system and defendant did not sell Oasis directly to homeowners.

 Regarding implied warranty, and fitness for ordinary use, the Court observed that some consumers received Oasis decks that were alleged to be unfit for ordinary use, whereas others have had no performance problems with their decks. In light of this record, whether a particular Oasis deck fails ordinary expectations for use was not a common question susceptible to class-wide proof or determination.

None of the common questions proposed by plaintiffs could generate answers that could drive the resolution of the unjust enrichment claims either. To resolve these claims, individual plaintiffs would need to demonstrate that due to the condition of their decks and notwithstanding any warranty payments offered by defendants (and accepted or rejected by Plaintiffs), the plaintiff conveyed on defendants a benefit that would be unjust for defendants to retain.

Regarding the consumer fraud claims, these laws require a showing of injury and causation. See
Tyler v. Michaels Stores, Inc., 464 Mass. 492, 503, (2013); LensCrafters, Inc. v. Vision World,
Inc., 943 F. Supp. 1481, 1488 (D. Minn. 1996); City of New York v. Smokes-Spirits.Com, Inc.,
911 N.E.2d 834, 838 (N.Y. 2009). Questions of injury and causation are not amenable to common resolution for this proposed class, where the record raises individualized questions of proof as to whether an Oasis owner has actually suffered any injury, whether that injury has already been remedied by the Oasis warranty program and whether a particular representation or action by defendants caused that owner’s damages. Hence, insufficient commonality.

The Court also concluded that given the breadth of the proposed class definition the named
plaintiffs had not met the typicality requirement, for several reasons. First, the named plaintiffs
alleged that they suffered failure of their Oasis decks, whereas most class members have not
reported any problems with their Oasis decks, so the alleged injury suffered was not common.
There is no legally cognizable injury in a product defect case, regardless of whether the claim is
for fraud, violation of consumer protection statutes, breach of warranty, or any other theory,
unless the alleged defect has manifested itself in the product used by the claimant, observed the Court.

Next, the named plaintiffs were also atypical of the class because the four named plaintiffs
either did not accept the warranty payments offered to them by defendants or were deemed
ineligible for warranty compensation due to installation error, whereas most class members who
submitted claims for damage to their Oasis decks accepted warranty payments, some of which
payments included costs beyond those covered by the warranty program such as labor costs.

Finally, the breadth of the proposed class definition presented additional problems. The
class included purchasers of Oasis and transferee owners who purchased a building that already
had Oasis installed. The named plaintiffs were all direct purchasers of Oasis decks and their
theory of liability would differ from the claims of a transferee owner who did not view
any representations by Mastic about Oasis and did not select or pay for Oasis.

Class certification denied.

 

Court of Appeals Rejects Nuisance Class

The Eighth Circuit recently reversed class certification in a recent environmental case. See Smith v. ConocoPhillips Pipe Line Co., No. 14-2191 (8th Cir., 9/15/15).

Defendant owned a petroleum products pipeline which runs through the town of West Alton, Missouri. After a leak in the line was discovered way back in 1963, its source was repaired, but the contamination at the leak site allegedly was not fully remediated. In 2002, contaminants allegedly from the leak were discovered in a family residence in the area. Defendant purchased and demolished this property as well as others affected by the leak. In cooperation with the Missouri Department of Natural Resources, Phillips fenced in the area around the leak site and set up monitoring wells to track any spread of pollutants. This action was filed in 2011 on behalf of a putative class of nearby landowners alleging that the contaminated site is a nuisance. The district court certified the class on the theory that possible "pockets of contamination" existed within the identified area.

The class plaintiffs presented expert  evidence, including Dr. Patrick Agostino, a Ph.D in geology. Dr. Agostino explained that leaked contamination is pulled downward by gravity and spreads out, thus shifting over time. According to his testimony, the contamination in West Alton spread both to the north and south of the leak site; it was then pulled downward until it reached the water table and contaminated the groundwater. Based on his analysis, Dr. Agostino concluded that the resulting plume of contamination could have been “considerably larger” in the past than currently, and that it would therefore have affected other properties outside the contamination site. Discovery also included sampling of the contamination site and nearby properties.

The district court certified the class seeking nuisance based damages and injunctive relief. In its certification order the court relied on evidence that contaminants had been shown in some monitoring wells, that the pollution was continually shifting, and that it could not “rule out the possibility that pockets of contamination exist.”

To show the Rule 23 requirement of commonality, the plaintiff must demonstrate that the class members have suffered the same injury. On appeal, Phillips argued that the lack of proof of contamination spread throughout the class land shows there is no class-wide injury. Absent the injury of actual contamination, it argued, plaintiffs could not meet the Rule 23 requirements of commonality or typicality. The key contaminant chemicals had not been shown to be on land owned by the class members. 

 

The court of appeals saw a contemporary consensus reached by persuasive authority on the meaning of common law nuisance in the context of environmental contamination, requiring physical contact or impact or invasion.  Thus, the panel concluded that the putative class fear of contamination spreading from the West Alton leak site to harm their property is not a sufficient injury to support a claim for common law nuisance in the absence of such proof. So there was a crucial lack of commonality defeating class certification.

 

Court Hangs Up On Cell Phone Class Action

A Texas federal court recently denied class certification to a group of cell phone customers who alleged they were sold defective models. See Shane Galitsky et al. v. Samsung Telecommunications America LLC, No. 3:12-cv-04782 (N.D. Tex. 9/11/15).

Plaintiffs brought a putative class action against Samsung on behalf of hundreds of thousands of California consumers who purchased allegedly defective Galaxy S mobile phones. Plaintiffs alleged that four models suffered from a common hardware defect that could cause them to randomly freeze, shut down, reboot, and power off while in standby or sleep mode, rendering the phones unfit for their intended use and purpose.  The suit included claims under federal and California law for breach of express warranty; breach of implied warranty; violations of the Song-Beverly Consumer Warranty Act (“Song-Beverly Act”), Cal. Civ. Code § 1792 (West 2009); violations of the MagnusonMoss Warranty—Federal Trade Commission Improvement Act (“Magnuson-Moss Act”), 15 U.S.C. § 2301 et seq.; violations of the Consumers Legal Remedies Act (“CLRA”), Cal. Civ.
Code § 1750 et seq. (West 2009); violations of the California Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq. (West 2008); and common law claims for assumpsit and quasi-contract. Several of those claims were kicked out on motions to dismiss.

Plaintiffs then filed for class certification on the remaining warranty and consumer fraud claims. The court's analysis focused on the  Rule 23(b) requirements of “predominance” and “superiority,” which require that common questions “predominate over any questions affecting only individual members,” and that class resolution be “superior to other available methods for fairly and efficiently adjudicating the controversy.” Rule 23(b)(3).  The court noted that the class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only. To come within the exception, a party seeking to maintain a class action must affirmatively demonstrate his compliance with Rule 23. The Rule does not set forth a mere pleading standard. Rather, a party must not only be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, typicality of claims or defenses, and adequacy of representation, as required by Rule 23(a). The party must also satisfy through evidentiary proof at least one of the provisions of Rule 23(b).

“To decide whether there is a class-wide basis for deciding the predominant issues, [the court] must first ascertain which are the predominant issues that must be decided on a class basis.” Gene and Gene LLC v. BioPay LLC, 541 F.3d 318, 326 (5th Cir. 2008). The court must identify the substantive issues that will control the outcome of the case, assess which of these issues will predominate, and determine whether these issues are common throughout the proposed class. Id. A class plaintiff cannot merely point to a so-called “common course of conduct” without also demonstrating whether the common course of conduct provides a class-wide basis for deciding the predominant class issues of fact and law. And in order to predominate, common issues must constitute a significant part of the individual cases.

In analyzing whether a class certification motion satisfies the predominance requirement, the court also “must consider how a trial on the merits would be conducted if a class were certified.” See  Sandwich Chef of Tex., Inc. v. Reliance Nat’l Indem. Ins. Co., 319 F.3d 205, 218 (5th Cir. 2003). “This, in turn, entails identifying the substantive issues that will control the outcome, assessing which issues will predominate, and then determining whether the issues are common to the class, a process that ultimately prevents the class from degenerating into a series of individual trials.” Bell Atl. Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th Cir. 2003) (citation and internal quotation marks omitted). “Considering whether ‘questions of law or fact common to class members predominate’ begins, of course, with the elements of the underlying cause of action.” Erica P. John Fund, Inc. v. Halliburton Co., 563 U.S. 804, 131 S.Ct. 2179, 2184 (2011) (quoting Rule 23(b)(3)).  The failure to satisfy the predominance requirement is sufficient of itself to warrant denying class certification.

Plaintiffs argued that their legal claims focused on defendants' conduct; that all plaintiffs got the same warranty; that the alleged defect was common to all phones. But the facts revealed that certain class members who experienced uninitiated power off or freezing of the phone may not be covered by the Warranty; for each class member whose phone exhibited the alleged power-off issue, Samsung was entitled to introduce evidence that, as to that class member’s phone, there was another, more likely cause of the power-off issue (including a cause not covered by the Warranty). Thus the determinative question of whether the alleged breach can be established via class-wide proof must, given the particular facts of this case, be answered in the negative, said the court.

While plaintiffs alleged a common design issue, the court noted that plaintiffs will not be able to prevail on their breach of express warranty claims merely by presenting class-wide proof that all Galaxy S phones contained the same alleged defect. Rather, under California law, it would be necessary for plaintiffs to prove that each individual class member’s Galaxy S phone experienced the power-off issue as a result of the allegedly defect, and that this occurred during the one-year Warranty period. This showing could not be made through proof of a common design defect that, for any given class member’s phone, may or may not have caused that phone to malfunction at all,
or to have malfunctioned during the one-year Warranty period. Instead, it would be be necessary
for plaintiffs to introduce individual evidence for each member of the proposed class establishing that the alleged defect caused that particular class member’s phone to experience the power-off
defect within Warranty period.

Individual issues also predominated with respect to the Warranty precondition that a phone purchaser return the phone to an “authorized phone service facility” during the applicable warranty period.  Accordingly, no class member could recover for breach of the Samsung Warranty unless the member first established that he or she returned the phone to an authorized phone service facility during the warranty period. Any trial of plaintiffs’ express warranty claims would require the jury to determine, for each individual class member, whether and when that class member returned the phone to an authorized phone service facility.

Although the presence of individualized issues will not necessarily prevent certification, there must be some underlying common question whose resolution would constitute a significant part of the individual cases. Only mini-trials can determine the issues, so the court held that the predominance requirement of Rule 23(b)(3) was not satisfied regarding the warranty claims.

On the UCL claims, the court held that plaintiffs could not establish through class-wide proof the amount that Samsung should disgorge from profits earned from sales of the Galaxy S phones, because Samsung would be entitled to present at trial that most class members received some benefit from their phones—indeed, that many class members received the full benefit from their phones. Plaintiffs could not establish that awarding class members the full amount by which Samsung profited from its sale of the phones correlated, in any way, to the amount necessary to restore to each class member that which Samsung obtained by its allegedly unfair practices. Awarding class members the full amount that Samsung profited could possibly be achieved on a class-wide basis, but this method would result in the award of non-restitutionary disgorgement for many of plaintiffs’ proposed class members, which California law does not permit. 

The court also concluded that plaintiffs had not met their burden of establishing that the award of restitution damages presented a common issue that can be determined on a class-wide basis. The methods that plaintiffs proposed for awarding restitution damages to individual class members actually would require the jury to decide, inter alia, for each individual class member, whether he or she received any value from his or her Galaxy S phone.

Certification motion denied.

 

First Circuit Rejects Use of Rule 68 Offer to Moot Class

Just an FYI for our loyal readers involved in class action work that the First Circuit is the latest federal appeals court to reject a defendant's attempt to moot a proposed a class action by an offer of judgment to the lead plaintiff.  See Bais Yaakov of Spring Valley v. ACT Inc., No. 14-1789 (1st Cir. 8/21/15).

The case arose from alleged unsolicited facsimiles reminding plaintiffs of testing deadlines and test sites, sent in violation of the federal Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227, and an analogous New York state law.  Defendant tendered to Bais Yaakov an offer for judgment under Federal Rule of Civil Procedure 68. And later moved to dismiss this lawsuit for lack of subject matter jurisdiction, arguing that its unaccepted and withdrawn Rule 68 offer fully resolved any case or controversy between the parties, rendering Bais Yaakov's claims moot. The district court denied ACT's motion to dismiss, holding that an unaccepted offer of judgment did not moot Bais Yaakov's claim. The district court accepted ACT's contention that the offer, had it been accepted before it was
withdrawn, would have provided Bais Yaakov with everything to which it would have been entitled on its individual claim, had it prevailed.

The question of whether an unaccepted offer for individual relief in a putative class action moots the action is a question of law that the court of appeals reviewed de novo.  Plaintiffs seeking to pursue a lawsuit brought in a representative capacity must prove their authorization to bring the lawsuit. For example, a person who is not a guardian cannot sue as such, and so on. Unlike most other representative plaintiffs, however, plaintiffs seeking to proceed as representatives of a class under Rule 23 must show both that they are members of the class and that they adequately represent the class. Fed. R. Civ. P. 23(a).  Against this background, ACT advanced "a nifty stratagem" for defeating motions for class certification: offer only the named plaintiff full payment for its individual claims, and then move to dismiss the suit as moot before the court has a chance to consider whether the plaintiff should be allowed to represent the putative class. In recent years, this stratagem has become a popular way to try to thwart class actions, said the court.

The First Circuit observed this strategy seemed to run against the grain of the Supreme Court's holding in Deposit Guaranty National Bank v. Roper, 445 U.S. 326, 340 (1980). Plaintiff argued that under this precedent, Bais Yaakov had a continuing economic interest in the controversy: the interest in sharing attorney's fees with other class members, and the interest in a possible incentive award for serving as a lead plaintiff.  But the court questioned whether this was a sufficient interest.  It also rejected plaintiff's argument that its interest in having a class certified is enough to defeat ACT's mootness argument.  

In order to decide whether an unaccepted Rule 68 offer triggers mootness, the court concluded it must first decide that a plaintiff who has refused such an offer has "received complete relief," such that there remains no individual case or controversy sufficient to satisfy Article III. Five circuit courts that have considered such an argument recently have rejected  it. See Hooks v. Landmark Indus., Inc., No. 14-20496, 2015 WL 4760253, at *3-4 (5th Cir. Aug. 12, 2015); Chapman v. First Index,
Inc., Nos. 14-2773 & 14-2775, 2015 WL 4652878, at *2-3 (7th Cir. Aug. 6, 2015); Tanasi v. New Alliance Bank, 786 F.3d 195, 199-200 (2d Cir. 2015), Stein v. Buccaneers Ltd. P'ship, 772 F.3d 698, 704-05 (11th Cir. 2014), Diaz v. First Am. Home Buyers Prot. Corp., 732 F.3d 948, 954-55 (9th Cir. 2013).

The issue may be before the Supreme Court. See Campbell-Ewald Co. v. Gomez, 135 S. Ct. 2311, 2311 (2015) (No. 14-857) (granting petition for certiorari seeking review of the questions of whether a case becomes moot when a plaintiff receives an offer of complete relief on his claim, and whether the answer to that question differs in a putative class action); see also Petition for Writ of Certiorari,
Campbell-Ewald, ___ U.S. ___, (No. 14-859), 2015 WL 241891, at *i (filed Jan. 16, 2015).

In the interim, the court of appeals agreed with the Second,  Fifth, Seventh, Ninth, and Eleventh Circuits that an unaccepted Rule 68 offer cannot, by itself, moot a plaintiff's claim. The court took this position because, when employed as ACT hoped to employ it here, an unaccepted Rule 68 offer is "a red herring: it does not, in itself, provide any relief." And nothing in Rule 68--or any other rule--contemplates use of a rejected offer to secure dismissal of a case. To the contrary, Rule 68 expressly specifies what happens to a rejected offer: it is deemed to be "withdrawn," and it is "not admissible except in a proceeding to determine costs." Fed. R. Civ. P. 68(b).

 

Drug Class Action Rejected Again

Class certification was denied -- again -- in litigation brought by plaintiffs who allege a drug maker misstated the likelihood of withdrawal symptoms in use of a prescription medication.  See Saavedra v. Eli Lilly & Co., No. 12-09366 (C.D. Calif., 7/21/15).

Plaintiffs originally moved to certify four classes under the state consumer fraud acts of Missouri, New York, Massachusetts and California. The court rejected those proposed classes, noting plaintiffs' "unusual" theory of injury and damages. Plaintiffs did not allege they suffered the alleged withdrawal effects, or that they were injured by being overcharged.  They asserted instead that they were harmed because they received a product that had less value than the class expected it to have.  They got a product with less utility, defined as the benefit consumers believe they will get by using the product.  This flawed model looked only to the demand side of the market because it focused on a refund tied to consumers out of pocket costs; yet, the prescription drug market is quintessentially inefficient and the relationship between price and value is "severed."  In turn, causation and injury could not be shown on a class-wide basis, and common issues did not predominate. 

Plaintiffs tried again, with a proposal to certify New York and Massachusetts classes. This effort, too, raised serious issue of predominance. Plaintiffs claimed to seek only the minimum statutory damages provided under the laws of the two states,  Thus, they sought to avoid the problems of their original damages model.  But plaintiffs still had to show that each class member was injured as a result of defendant's alleged misleading act -- that the act caused the loss.  Plaintiffs could only show that harm by alleging the acts caused them to pay the wrong price, too much, a price premium, for the drug;  this is either a variant on the rejected fraud-on-the-market theory or a theory that calls for a subjective individual inquiry into what each class member got and paid for.  Because the prescription drug market is not efficient (for example, it is complicated by the role of insurance and co-payments), plaintiffs cannot rely on price to show injury in this way.  Pricing affected different class members to varying degrees because of different health insurance and the different terms of benefits that can accompany it. Even if, under the new theory, plaintiffs did not need to quantify the subjective injury each felt to quantify damages, that didn't change the fact that plaintiffs would need to show that same thing to establish causation and fact of injury.  This could not be done on a class-wide basis.

Here, the class period spanned a decade and included class members who paid different prices for the drug and had different insurance. Different class members would have been affected to different degrees.  And use of a defendant's internal marketing or pricing documents wouldn't bridge the gap: the suggestion that a lower level of withdrawal symptoms might lead some consumers to pay more for a drug does not prove that a premium was actually charged, that the price charged was in excess of the drug's true value, or that prices negotiated with third-party payers were directly and fully passed on to the class.

So, again, the attempted showing of predominance failed.

 

Class Rejected Again Under Ascertainability Doctrine

We have posted before about the important doctrine of ascertainability, implicit in Rule 23's requirements.  And last year we posted about a federal court in New Jersey rejecting a class certification effort by plaintiffs complaining about the marketing of Skinnygirl Margaritas.

Following the Third Circuit decision clarifying one aspect of the ascertainability doctrine, in Byrd v. Aaron's Inc., 784 F.3d 154 (3d Cir. 2015), as amended (Apr. 28, 2015), plaintiffs tried a second time to show that class membership could be adequately determined.  See Bello v. Beam Global Spirits & Wine, Inc., No. CIV. 11-5149 NLH/KMW, 2015 WL 3613723 (D.N.J. June 9, 2015). The District Court again rejected the claim.

Many courts and commentators 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.  If class members are impossible to identify without extensive and individualized fact-finding or mini-trials, then a class action is inappropriate.  The Third Circuit has explained that the ascertainability requirement serves several important objectives. First, at the commencement of a class action, ascertainability and a clear class definition allow potential class members to identify themselves for purposes of opting out of a class. Second, it ensures that a defendant's rights are protected by the class action mechanism. Third, it ensures that the parties can identify class members in a manner consistent with the efficiencies of a class action. If a class cannot be ascertained in an economical and administratively feasible manner, significant benefits of a class action are lost.

The method of determining whether someone is in the class must be administratively feasible. Administrative feasibility means that identifying class members is a manageable process that does not require much, if any, individual factual inquiry. To satisfy ascertainability as it relates to proof of class membership, the plaintiff must demonstrate his purported method for ascertaining class members is reliable and administratively feasible, and permits a defendant to challenge the evidence used to prove class membership. The Third Circuit has also held that a plaintiff does not meet his burden of showing by a preponderance of the evidence that there is a reliable and administratively feasible method for ascertaining the class when the only proof of class membership is the say-so of putative class members or if ascertaining the class requires extensive and individualized fact-finding.

Plaintiffs cited the clarification in Byrd as an avenue to submit the Declaration of an expert which purported to detail a claim submission process to identify class members in this matter. According to the Declaration, the screening method would involve three levels of claims validation to reduce the likelihood that individuals who submit fraudulent claims would be included in the class. One level included a supposed review by “sophisticated and state-of-the-art data matching technologies that identify patterns of duplication.” Plaintiffs also contended that the damages in this case would not be determined from claimants' proofs of purchase, but rather from Defendants' total sales.  Defendants responded that nothing had changed since the Court's prior denial of class certification, and that the expert's method had only been used in the context of settled class actions, and not in ascertaining class membership in litigated disputes. The Defendants expressed concern that potential class members would not accurately recall the details of their alleged purchases, such as the date of purchase, and the proposed process would do little to weed out fraudulent or inaccurate claims; in the end the individualized fact-finding as to each affidavit submitted that would be necessary to assess claim validity. 

The Court was not convinced that the putative classes in this case were ascertainable. The Third Circuit's concern that membership in the class cannot be ascertained other than the “say so” of proposed class members remained applicable here. Plaintiffs had not proposed an objective way of identifying class members, suggesting only the submission of claim forms by putative class members without any verifiable records or documents to corroborate the claims. The named plaintiffs in this case had already demonstrated difficulty remembering the details of their purchases,which implicated the defendant's ability to challenge class membership. A process requiring reliance on affidavits of putative class members as the primary method of ascertaining the members of the class “leaves Defendants without a suitable and fair method for challenging these individuals' purported membership in the class.”

Plaintiffs still had not offered a suitable method by which the Court could identify class members with any reliability. Defendants represented that they had no records to specifically identify the class members because they did not sell Skinnygirl Margarita directly to consumers. The Court found that the process proposed by the new expert did not demonstrate a reliable and administratively feasible mechanism for ascertaining class members.  It was unlikely that many, if any, class members had retained a receipt for their purchases of Skinnygirl Margarita approximately four to six years ago. (None of the three named plaintiffs has retained a receipt for their purchases.)  The proposed methodology also would not detect those instances in which multiple claimants file claims based on one receipt, or where a claimant has fabricated a receipt to support a fraudulent claim, or where a claimant happens to have a receipt but never actually purchased a bottle of Skinnygirl Margarita. Plaintiffs had not presented a mechanism to screen out these fraudulent types of claims, and as such had not demonstrated that their proposed methodology was reliable.

Plaintiffs' inability to remember the specifics of their purchases was not “beside the point,” for it highlighted a major flaw in Plaintiffs' proposed claim process. The specific details surrounding a claimant's purchase of Skinnygirl Margarita were necessary to validate a claim. The "Court is left to wonder how the named plaintiffs, or any claimant, can complete an affidavit attesting under oath to the details of their purchases when they cannot remember such specifics." Under the proposed method, it was unclear (1) whether a purchaser must recall the exact date of purchase versus a more general time frame; (2) an acceptable range of prices; and (3) whether all of the criteria must be accurately identified or, if not, the acceptable number of criteria that must be correctly identified for a claim to advance to the next level of review.

Plaintiffs further proposed cross-referencing claims with social media activity and e-mail communications as another means of providing reliability, but the Court rejected this argument. One inherent problem with Plaintiffs' suggested use of cross-checking social media and e-mail records is that such Facebook and e-mail records, at most, only identify some unknown, unspecified portion of the putative class and may very well include individuals who never bought the product and in fact are not members of the class.  Therefore, Plaintiffs' proposed reliance on affidavits alone, without any objective records to identify class members or a method to weed out unreliable affidavits, failed to satisfy the ascertainability requirement under the law of this Circuit.

Plaintiffs were unable to identify even one consumer class action in which the procedure identified in the expert declaration was used in a litigated class action, rather than one that was settled. Overall, the Court thus found that Plaintiffs had not met their burden of demonstrating the reliability of their model. Finally, the Court rejected Plaintiffs' argument that Defendants' due process rights were protected because the entire damages were purportedly objectively quantifiable and were not based on a claimant's proof of purchase. The ascertainability requirement not only seeks to protect a defendant's rights but is also aimed at protecting the rights of absent class members. As discussed above, there is a possibility that the proposed method for ascertaining the class would result in the submission of fraudulent claims. The recovery of true class members could therefore be diluted by these fraudulent claims. Thus, Plaintiffs' focus only on Defendants in addressing ascertainability of the class was misplaced.  

 

Amicus Brief Applies Comcast in Ninth Circuit Appeal

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

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

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

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

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

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

Federal Court Rejects Off-Label Marketing Class Action

A Pennsylvania federal court recently refused to certify a proposed class action accusing a drugmaker of off-label marketing. See  In re: Actiq Sales and Marketing Practices Litigation, No. 2:07-cv-04492 E.D. Pa. March 23, 2015).

Plaintiffs were various entities who pay for employee's prescription drugs.  They alleged that defendant promoted its drug Actiq for uses not approved by the FDA.  As readers know, it is legal for doctors in their judgment to prescribe medications for uses other than those approved by the FDA, i.e., off-label uses. Plaintiffs argued that Cephalon’s conduct somehow caused Plaintiffs to make excessive off-label prescription payments for Actiq to treat conditions not approved by the FDA and for whom less expensive pain management drugs were appropriate. They asserted that under the circumscriptions of Actiq’s approved label, off-label marketing is not permissible since most forms of off-label use were for contraindicated conditions.

Plaintiffs moved for certification of one Nationwide Class defined as follows:
All Third Party Payors (“TPP”) in the United States who paid and/or reimbursed, in whole or in part, for the cost of Actiq prescribed for indications other than cancer and for consumption by their members, employees, plan participants, beneficiaries or insureds during the period from January 1, 2002 through December 31, 2006. Plaintiffs also suggested multi-state classes. 

The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only. Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432 (2013) (quoting Califano v. Yamasaki, 422 U.S. 682, 700-01 (1979)).  Class certification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites’ of Rule 23 are met. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 309 (3d Cir. 2008) (quoting Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 161 (1982)).

A decision to certify a class requires findings by the court, not merely a threshold showing by a party, that each requirement of Rule 23 is met.  In re Hydrogen Peroxide, 552 F.3d at 306; see Wal-Mart Stores, Inc., 131 S. Ct. at 2551. In conducting its analysis, a court is to resolve factual disputes by a preponderance of the evidence and to consider all relevant evidence and arguments by the parties. In re Hydrogen Peroxide, 552 F.3d at 306, 320. “Frequently [the court’s] ‘rigorous analysis’ will entail some overlap with the merits of the plaintiff’s underlying claim.” Wal-Mart Stores, Inc., 131 S. Ct. at 2551. Merits questions may be considered to the extent that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.  Amgen Inc. v. Conn. Ret. Plans and Trust Funds, 133 S. Ct. 1184, 1195 (2013). Plaintiffs’ burden is to show that the elements of their claims are capable of proof through evidence that is common to the class. See In re Hydrogen Peroxide, 552 F.3d at 311-12.

In opposing class certification here, Cephalon argued that individualized factual issues would predominate over their common claims, and the class action would be impossible to manage if certified. The Court agreed.

Nationwide and multi-state classes raise the issue of applicable substantive law.  Because choice of law is thus relevant to a determination under Rule 23, the Court first had to determine what law applied to Plaintiffs’ claim of unjust enrichment. 22 Powers v. Lycoming Engines, 328 F. App’x 121, 124 (3d Cir. 2009). Irreconcilable conflicts among state laws may defeat class certification. Federal courts sitting in diversity are to use conflict of laws rules of the forum state to determine which substantive law applies. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941); Kaneff v. Del. Title Loans, Inc., 587 F.3d 616, 621 (3d Cir. 2009). This Court therefore used Pennsylvania rules on conflict of laws.

“[U]njust enrichment is a tricky type of claim that can have varying interpretations even by courts within the same state, let alone amongst the fifty states.” In re Sears, Roebuck & Co. Tools Mktg. and Sales Practices Litig., Nos. 05 C 4742, 05 C 2623, 2006 WL 3754823, at *1 n.3 (N.D. Ill. Dec. 18, 2006).  Here, Cephalon presented several bases upon which states’ laws conflict. For example, states apply various statutes of limitations to unjust enrichment claims. These differences meant that Plaintiffs’ claim for unjust enrichment  could withstand a statute of limitations defense in some jurisdictions but not in others, depending on the applicable law. A statute of limitations evidences a state’s policy interest in preventing litigation of delayed claims and preventing injustice by affording a defendant a fair opportunity to defend.

Additional variances in states’ unjust enrichment jurisprudence existed, including the availability of unjust enrichment as an independent cause of action, the need to show an absence of an adequate remedy at law, the requirement that a benefit be obtained at the direct expense of the plaintiff, the level of misconduct a plaintiff must prove, and the availability of defenses such as unclean hands and laches.  

Applying Pennsylvania's choice of law rules,most of the relevant factors weighed in favor of applying the laws of TPPs’ various home states, including the most important factors. See Restatement (Second) of Conflict of Laws § 221 cmt. d. Policy considerations also led to the same conclusion. Plaintiffs’ home states had a regulatory interest in providing redress to its citizens for acts of wrongdoing.

For the same reasons why an actual conflict existed among the unjust enrichment laws of the fifty states, individual issues of law predominated with regard to a nationwide class. In addition to proving different elements for all class members to establish unjust enrichment at trial, other individual issues that may predictably arise included the level of misconduct required to be proven and whether defendant might avail itself of particular defenses. 

Plaintiffs argued their smaller multi-state classes addressed this issue. Plaintiffs’ notable grouping efforts, however, still did not account for individual fact issues such that common issues predominated. “The polestar of the unjust enrichment inquiry is whether the defendant has been unjustly enriched[.]” Limbach Co., LLC v. City of Phila., 905 A.2d 567, 577 (Pa. Cmmw. Ct. 2006). Resolution to this question is, by nature, fact-sensitive. Id. Even if some common proof regarding equitable circumstances was present here, Plaintiff’s proposal to make a class-wide showing of whether Cephalon’s enrichment was unjust failed. Under an unjust enrichment theory, all facts and circumstances are considered to determine whether, without a remedy, inequity would result or persist. It is a physician’s prerogative whether to prescribe Actiq for any medical purpose, on-label or off. Physicians may have accounted for a number of factors in making their Actiq prescriptions, including their experiences with patients and their experiences with prescribing Actiq. See Ironworkers Local Union 68 v. AstraZeneca Pharm., LP, 634 F.3d 1352, 1362 (11th Cir. 2011) (“Several considerations shape the physician’s medical judgment, including both individual patient concerns and drug-specific information regarding the propriety of a drug’s use for treatment of a patient’s given condition . . . The physician learns about a drug through multiple sources, only one of which might be the drug manufacturer’s promotions and literature.”  It was also uncontested that Actiq provided the benefit of effective pain relief to many who used it. If doctors would have written Actiq prescriptions regardless of the defendant's alleged acts, then payment for prescriptions beyond would not be unjust.  In sum, whether  payments for Actiq prescriptions resulted in "unjust" enrichment is a question resolved by examination into the actions not only of Cephalon, but also of individual payers  and prescribing doctors. See Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 611 (3d Cir. 2012).

The class also failed the superiority prong. Together with predominance, the superiority criterion is designed to “achieve economies of time, effort, and expense, and promote . . . uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results.” Amchem Prods., Inc., 521 U.S. at 615 (quoting Fed. R. Civ. P. 23 advisory committee’s note). The Court here considered the factors enumerated in Rule 23(b)(3) for determining superiority:
(A) the class members’ interests in individually controlling the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.

Here, the largest impediment to a finding of superiority was the difficulty of managing a class action in which the laws of plaintiffs' various home states applied and individual questions of fact predominated. Also, plaintiffs here were sophisticated institutional entities with an interest in controlling litigation when relatively large amounts of money are at stake.  Indeed, some putative absent class members had already filed suit based on Cephalon’s distribution of Actiq.

Motion for class certification denied.

Federal Court Denies Certification in Groundwater Class Case

A federal judge in Oklahoma earlier this week denied class certification to homeowners living near a research facility, holding that individual issues outweighed allegedly common issues among the class claiming injury from contamination from the site. See Mitchell McCormick, et al. v. Halliburton Co. et al., No. 5:11-cv-01272 (W.D. Ok. 3/3/15).

For several decades, Halliburton performed a variety of important tasks on the Site at issue, including work for the United States Department of Defense cleaning out missile motor casings. This work involved removing solid rocket propellant, consisting primarily of ammonium perchlorate, from the missile casings using a high pressure water jet. As the missile motor casings were  cleaned, water from the hydrojet and the dislodged propellant was run through screens to separate the solid materials from the cleaning water. The solid propellant was collected and periodically burned in pits on the Site, and the cleaning water was ultimately discharged into evaporation ponds. Over time, plaintiffs alleged, perchlorate from these operations reached the groundwater under the Site and migrated off-site.

So in 2011, plaintiffs filed the instant action, asserting causes of action for private nuisance, public nuisance, negligence, trespass, strict liability, and unjust enrichment. Plaintiffs then moved the Court to certify a class with respect to Halliburton’s alleged liability to the class for damages to their properties.

The Court began its analysis by noting that the class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.  Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2550 (2011). “To come within the exception, a party seeking to maintain a class action must affirmatively demonstrate his compliance with Rule 23.” Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432 (2013). Further, plaintiff ultimately bears the burden of showing that the Rule 23 requirements are met, and the district court must engage in its own “rigorous analysis” to ensure that certification is appropriate. See Shook v. El Paso Cnty., 386 F.3d 963, 968 (10th Cir. 2004).

Here, that analysis revealed that plaintiffs had not shown that 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.
“Considering whether ‘questions of law or fact common to class members predominate’
begins, of course, with the elements of the underlying cause of action.” Erica P. John Fund, Inc.
v. Halliburton Co., 131 S. Ct. 2179, 2184 (2011). Halliburton’s liability as to any of plaintiffs’ causes of action could not  be determined on a class wide basis because certain elements of plaintiffs’ causes of action require significant individualized evidence.

Regarding plaintiffs’ nuisance causes of action, observed the court, “[a] nuisance consists in unlawfully doing an act, or omitting to perform a duty which act or omission either . . . annoys, injures, or endangers the comfort, repose, health, or safety of others; or . . . in any way renders the other persons insecure in life, or in the use of property. . . .” Okla. Stat. tit. 50, § 1. Further, “[i]n order to maintain a cause of action for nuisance, the plaintiff must prove an unlawful act or omission of duty which either injured or endangered his use of his property.” N.C. Corff P’ship, Ltd. v. OXY USA, Inc., 929 P.2d 288, 294 (Okla. Civ. App. 1996).  Thus, in order to establish Halliburton’s liability for nuisance, plaintiffs had to prove an injury to the use and/or the enjoyment of the property or that the use and/or the enjoyment of the property was endangered. This clearly required an individual plaintiff by plaintiff factual determination, i.e., did that particular plaintiff have a well on his property; did that particular plaintiff use the well for drinking water; was that particular plaintiff already on public water; what was the actual use of that particular property, etc. Additionally, regarding a cause of action for public nuisance, “before an individual can abate a public nuisance, it must be shown that the activity is specifically injurious to the person’s rights.” Smicklas v. Spitz, 846 P.2d 362, 369 (Okla. 1992). Further, in order to make this showing, a plaintiff must demonstrate that he sustained injuries “different in kind from that suffered by the public at large.” Schlirf v. Loosen, 232 P.2d 928, 930 (Okla. 1951). Thus, no class member could recover under a public nuisance theory without introducing individualized evidence of special harm different from other members of the public, which would necessarily include other members of the class.

Similarly, regarding plaintiffs’ negligence cause of action, while it is possible plaintiffs could establish duty on a class-wide basis in theory, plaintiffs could not show injury: establishing that defendant proximately caused an injury to a plaintiff is necessarily a highly individualized determination requiring each plaintiff to show that his property contains perchlorate and that the perchlorate came from the Site and not from some other source. Individual issues permeated the other causes of action as well.

The court concluded that "the vast number of important individualized issues" relating to defendant's alleged ultimate liability as to all of plaintiffs’ causes of action overwhelmed any common questions. The Court also found that a trial on whether defendant  released perchlorate into the groundwater, as well as the current and future scope and extent of that groundwater contamination, was unlikely to substantially aid resolution of the ultimate determination of liability. Proof of these allegedly class wide facts would neither establish liability to any class member nor fix the level of damages awarded to any plaintiff; the common facts would not establish a single plaintiff’s entitlement to recover on any theory of liability, or even show that a single plaintiff was injured. Simply put, the individual issues would dwarf whatever common issues there may be, such that a vast array of mini-trials would be required for each class member if certification were granted.

Accordingly, a class action in relation to Halliburton’s liability was not superior to other available methods for fairly and efficiently adjudicating the controversy. Even if the Court were to certify the allegedly common issues, the subsequent separate proceedings necessary for each plaintiff
would undo whatever efficiencies such a class proceeding would have been intended to promote.

 

 

Another Artificial All Natural Class Action Rejected

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

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

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

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

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

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

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

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

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

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

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

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

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.

 

 

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. 

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.

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.

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.)