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.

Federal Court Rejects Copycat Class Action

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

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

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

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

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

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

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

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

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

Federal Court Rejects Fraud Class Action

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

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

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

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

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

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

 

Supreme Court Remands Two Class Actions in Light of Comcast

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


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

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

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

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

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

 Two to keep an eye on.

 

 

Toy Class Rejected on Commonality Grounds

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

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

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

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

An interesting one to watch if it goes on appeal.

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

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

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

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

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

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

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


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

Ninth Circuit Applies Dukes

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

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

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

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

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

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

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

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

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

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

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

Dukes Applied to Reconsideration of Class Certification

A state court recently denied the motion of a group of Michigan residents to certify a class action regarding their dioxin claims against Dow Chemical Co. See Henry v. Dow Chemical Co., No. 03-47775-NZ (Saginaw County, Mich., Cir. Ct.,  7/18/11).

Here at MassTortDefense we typically focus on appellate decisions, but we thought it interesting that this court relied heavily on the Supreme Court's decision in Dukes v. Wal-Mart  to re-analyze the prerequisites for class certification under state law.

Plaintiffs live in an area along the Tittabawassee River near Dow's plant in Midland, and allege their properties were contaminated by dioxin from the plant.

The trial court originally certified a class, and on appeal the Michigan Supreme Court vacated the decision and remanded the issue in 2009, calling for the trial court to clarify its evaluative framework, particularly for the general prerequisites of typicality, adequacy, and commonality.

On remand, the court concluded that Dukes has “far-reaching implications for certification of class action lawsuits, including the present case.”  Accordingly the court “must reanalyze whether the commonality prerequisite to class certification was satisfied in this case."


Relying on the Supreme Court analysis in Dukes, the court changed its mind and denied certification based on a failure by plaintiffs to establish the commonality element, because of the absence of a “glue” to hold all of the plaintiffs’ claims together. The only common issue, said the court, was whether the defendant negligently released the chemical, so whether and how each class member was injured involved a highly individualized inquiry regarding issues such as the level and type of contamination allegedly on the specific properties, the different remediation needs of the properties, and the varying stages of ongoing remediation.

Similarly, even under the nuisance claim, it was clear that individual plaintiffs used and enjoyed their properties in different ways. “Whether plaintiffs have suffered an interference with or loss of use and enjoyment of their property requires an individualized factual inquiry into each plaintiff’s use and enjoyment of their property.”

The court rejected plaintiffs' argument that the allegation of "one defendant" with a supposedly singular act of pollution in "one discrete geographic area" distinguished this case from the Supreme Court's commonality concerns in the discrimination context. 

In light of the commonality failing, the court did not reach the reconsideration of the other factors, such as typicality and adequacy.

 


 

Dukes v. Wal-Mart: What It May Mean for Mass Torts

Three new Supreme Court decisions to comment on this week.  Let's take one at a time and start with Dukes v. Wal-Mart, 564 U.S. __ (2011). The U.S. Supreme Court yesterday overturned a lower-court decision that had certified a massive class action against retailer Wal-Mart. The suit was filed by current or former employees of petitioner Wal-Mart, who sought judgment against the company for injunctive and declaratory relief, punitive damages, and backpay, on behalf of themselves and  a class of some 1.5 million female employees.  They claimed that local managers exercised their discretion over pay and promotions disproportionately in favor of men.

The District Court certified the class, finding that respondents satisfied Federal Rule of Civil Procedure 23(b)(2)’s requirement of showing that “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.”  The Ninth Circuit substantially affirmed,and ruled that the class action could be "manageably" tried without depriving Wal-Mart of its right to present its statutory defenses.

We will leave to our colleagues on the Employment Litigation & Policy  team how this decision impacts employee discrimination claims.  But let's talk about the larger potential significance of the decision for mass tort class actions.

The Court began where we always like to begin in class certification briefing, reminding everyone that a class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.  In order to justify a departure from that rule, a class representative must be part of the class and possess the same interest and suffer the same injury as the class members. Rule 23(a) ensures that the named plaintiffs are appropriate  representatives of the class whose claims they wish to litigate. The Rule’s four requirements—numerosity, commonality, typicality, and adequate representation—effectively limit the class claims to those fairly encompassed by the named plaintiff’s claims, when applied correctly.

The crux of this case, said the Court, was commonality—the rule requiring a plaintiff to show that “there are questions of law or fact common to the class.”  But that language, warned the Court, is "easy to misread" as any competently crafted class complaint can raise seemingly common questions. (citing the late mass tort scholar R. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97, 131–132 (2009)). Such as the standard ones relating to defendant's alleged conduct.  But simply reciting these questions is not sufficient to obtain class certification. Commonality requires the plaintiff to demonstrate that the class members have suffered the same injury, which in turn does not mean merely that they have all suffered a violation of the same provision of law. The allegedly common contention must be of such a nature that it is capable of class-wide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.  So, what matters is not the raising of seemingly common questions, but, rather, the capacity of a class-wide proceeding to generate common answers apt to drive the resolution of the litigation. Thus, the Court came down on the side of the lower courts that have applied the commonality rule with rigor and with common sense, requiring meaningful common questions.  And commonality thus becomes a more potent weapon in your efforts to defeat mass tort class actions.

Second, the Court re-emphasized that a party seeking class certification must affirmatively demonstrate his compliance with the Rule.  Sometimes it may be necessary for the trial court to probe behind the pleadings before coming to rest on the certification question. Certification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied.  And frequently that “rigorous analysis” will entail some overlap with the merits of the plaintiff’s underlying claim. "That cannot be helped." The class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff’s cause of action.  Not completely new, but an important reminder.

Third, the Court noted that the parties disputed whether plaintiffs' expert's testimony met the standards for the admission of expert testimony under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U. S. 579 (1993). The District Court concluded that Daubert did not apply to expert testimony at the certification stage of class action proceedings. Although dicta, the Court went out of its way to note, " We doubt that is so."  A signal to the lower courts who somehow think junk science is acceptable at the class certification hearing, and a green light to those that apply Daubert.

Fourth, the Court also concluded that respondents’ claims for backpay were improperly certified under Federal Rule of Civil Procedure 23(b)(2), holding that such claims cannot be, at least where (as here) the monetary relief is not incidental to the injunctive or declaratory relief.  One possible reading of this provision is that it applies only to requests for injunctive or declaratory relief and does not authorize the class certification of monetary claims at all. The Court did not have to reach that question because, at a minimum, claims for individualized relief (like the backpay at issue here) do not satisfy this Rule. The key to the (b)(2) class is “the indivisible nature of the injunctive or declaratory remedy warranted—the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.”  Thus, Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment against the defendant. Similarly, it does not authorize class certification when each class member would be entitled to an individualized award of monetary damages. The Court said it was "clear that individualized monetary claims belong in Rule 23(b)(3)."  While not deciding in this case whether there are any forms of truly  “incidental” monetary relief that are consistent with this interpretation of Rule 23(b)(2) and that comply with the Due Process Clause, the Court's ruling may impact mass torts such as medical monitoring claims in which the plaintiffs try to avoid the predominance test of Rule 23(b)(3) by seeking a so-called court administered fund to pay for medical monitoring for the class rather than individual medical monitoring damages.  When the "program" sought is in essence an injunction ordering defendant to pay for each class member's individual medical screening tests, (b)(2) should not be available.

Fifth, the Court noted that the 9th Circuit had found the trial of the proposed class action to be manageable and in accord with due process by ignoring the traditional procedures and proceeding "with Trial by Formula."  In other words, a sample of the class members would be selected, as to whom liability for sex discrimination and the backpay owing as a result would be determined in depositions supervised by a special master. The percentage of claims determined to be valid would then be applied to the entire remaining class, and the number of (presumptively) valid claims thus derived would be multiplied by the average backpay award in the sample set to arrive at the entire class recovery—without further individualized proceedings. This extrapolation methodology has been proposed by many mass tort plaintiffs (including in asbestos) as a means to make the class trial "manageable."  The Supreme Court was clear: "We disapprove that novel project." Because the Rules Enabling Act forbids interpreting Rule 23 to abridge,enlarge or modify any substantive right, a class cannot be certified on the premise that the defendant will not be entitled to litigate its defenses to individual claims.  The same issue applies to the trial plans proposed by many mass tort plaintiffs, which try to use the class rule to prevent defendants from ever having an opportunity to litigate individual defenses as to individual class members. 

Lots to think about.

Update on Chinese Drywall Litigation

The Consumer Product Safety Commission last week announced the results of testing performed by the Lawrence Berkeley National Laboratory on allegedly defective drywall samples.  Among the findings, most of the drywall that has allegedly caused personal injury and corroded electrical components in various homes throughout the U.S. was indeed manufactured in China;  specifically,  the most reactive sulfur-emitting drywall samples were all produced in China, according to the CPSC.  The worst-testing samples of the Chinese drywall showed emission rates of hydrogen sulfide 100 times greater than non-Chinese drywall samples.

CPSC released the names of the 10 worst-performing samples, including those of Knauf Plasterboard (Tianjin) Co. Ltd. for drywall manufactured in 2005, Taian Taishan Plasterboard Co. Ltd. for drywall manufactured in 2006, Shandong Taihe Dongxin Co. for drywall manufactured in 2005, Beijing New Building Materials for drywall manufactured in 2009.  Drywall samples manufactured in the United States in the same period contained low or no detectable emissions of hydrogen sulfide, according to the agency. 

At the U.S.-China Strategic and Economic Dialogue meetings in Beijing May 24-25, U.S. officials reportedly pressed the Chinese government to facilitate a meeting between CPSC and the Chinese drywall companies whose products were used in U.S. homes, and which exhibit the emissions identified during the testing procedures. The Strategic and Economic Dialogue represents the highest-level bilateral forum to discuss a broad range of issues between the two nations.

Federal cases concerning the drywall products are coordinated in multidistrict litigation pending in the U.S. District Court for the Eastern District of Louisiana. More than 7,000 plaintiffs have claimed that Chinese-made drywall in their homes emits sulfide gases that corrode electrical wiring and/or cause personal injury such as nasal damage and other respiratory problems.  In the first trial, the court ordered Taishan Gypsum to pay $2.6 million to seven plaintiffs last April. In the second trial, the court ordered Knauf Plasterboard to pay a plaintiff family $164,000.  In re: Chinese-Manufactured Drywall Products Liability Litigation, MDL No. 2047 (E.D. La.).

Cases are also pending in state court, and a state trial court in Miami recently certified a class in this litigation. Harrell v. South Kendall Construction Corp. et al., No. 09-008401 (11th Judicial Circuit, Fla.). Following a hearing last Thursday, Judge Farina granted class certification, the first Chinese drywall case to be certified. The class consists of approximately 150 claimants who were purchasers of homes in three subdivisions of the Keys Gate community there. The class alleged that those homes were built using Chinese drywall. Defendants are home builder Kendall Construction Corp., Palm Isles Holdings LLC, broker Keys Gates Realty Inc, and supplier Banner Supply Co.

The court found that a predominating common issue in each class member's case is whether the drywall installed in his or her house was defective. The trial court found that the alleged defect, the potential to emit sulfur gases that can cause damage, is inherent in the physical characteristics of the product and thus has a uniform nature. With one supplier and one builder allegedly involved, the court distinguished the case from other product defect cases in which individual issues are typically found to predominate.

The opinion noted that differences among proof of damages has typically not defeated class certification. The court stressed that if individual class member homeowners were to file their own separate actions, the court would be confronted with a multiplicity of lawsuits that would unnecessarily burden the court system and create the risk of inconsistent rulings and contradictory judgments.

While the court was clearly influenced by the belief that the issues surrounding the allegedly defective product were "unaffected by outside variables," like the way the product was used, its analysis of predominance is quite questionable.  For example, it concluded that a common issue was whether the defective drywall damaged the homes of the putative class members, and thus that the issue of injury (whether the drywall damaged all the homes) could be proved with class-wide evidence.  The fact is that enough of the drywall was imported to damage more than 50,000 homes; yet only a small percentage of that has been observed. Thus, it may be that any number of factors may be impacting the damage drywall is or is not causing in a particular house. Moreover, it is far too simplistic to talk about the injury or "damage" being caused, when there are hotly debated issues about whether there is injury to, or the need for remediation of, non-problem drywall, insulation, flex duct, molding, encapsulated wiring, counter tops, and a whole host of house components. Similar issues will relate to the causation of corrosion of a home’s electrical wiring or AC system.  

State Supreme Court Rejects Nationwide Consumer Fraud Class

A recurring theme at MassTortDefense has been the risks associated with the plaintiffs' bar growing creativity in the use of state consumer fraud acts to substitute for traditional product liability claims.  In particular, plaintiffs assert that class actions pursuant to state unfair or deceptive trade practices acts ought to be more easily certifiable than traditional personal injury class actions. A recent case in this area is notable not only for its actual holding rejecting a nationwide class, but also for the philosophy expressed by the court on these kinds of proposed class actions. Schnall v. AT&T Wireless Inc., 2010 WL 185943 (Wash. Jan. 21, 2009).

Customers of AT&T Wireless Services filed a nationwide class action alleging the company misled consumers when it billed them for a charge that was not included in advertised monthly rates and was allegedly not described clearly in billing statements. An immediate issue loomed concerning choice of law, which can have a dramatic impact on several aspects of the certification process, including the elements of commonality, predominance, and manageability.  The parties initially disputed whether the choice of law clauses in the customers' contracts were enforceable. The choice of law clauses in this case required customers to litigate asserted violations of their contract in the respective jurisdiction where they signed the contract. (Such jurisdiction is often based on the customer's area code.)  The court concluded that AT&T should not  be forced to face the "enormous cost and complexity presented by a nationwide class action" when they conscionably included choice of law provisions in their customers' contracts and the choice of forum is, in any event, dictated by the consumer.

The choice of law clauses, along with the interpretation of the contract terms, the differences in the materials and information each potential class member received, and the availability of differing affirmative defenses created a predominance of individual issues over common ones.  But even where courts find that a nationwide, state law governed class otherwise meets Rule 23(a) and 23(b)(3) criteria, the court opined that “the choice-of-law inquiry will ordinarily make or break certification.”  This is because if the laws of 50 jurisdictions apply to plaintiffs' claims, the variations in the laws of the states may swamp any common issues and defeat predominance. (citing Castano, Georgine, and In re American Medical System.)

Of particular interest, the court found that the state of Washington has no interest in seeing contracts executed by AT&T representatives in other states with citizens of those states examined and adjudicated in Washington courts. Certified as a nationwide class action, this case would have presented an unwarranted and unnecessary burden on the state judicial system, all at a large cost to state taxpayers. See R.J. Reynolds Tobacco Co. v. Engle, 672 So.2d 39, 41 (Fla.Dist.Ct.App.1996) (“No doubt a tremendous number of retired judges, special masters, and general masters would have to be appointed by the court in order to complete this herculean task within a reasonable period of time--all at a staggering cost to the taxpayers.”)(of course, even the state-wide Engle class was a disastrous mistake by the Florida courts). The court concluded that there is no sound reason to force Washington trial courts to entertain the contract claims of citizens from around the nation. Their state courts are equally as prepared, if not better situated to apply the contract laws of their own states.

That conclusion was bolstered by the observation that nothing in Washington law indicates that Consumer Protection Act claims by nonresidents for acts occurring outside of Washington can even be entertained under the statute. Because the laws of each state are designed to regulate and protect the interest of that state's own residents and citizens, each state has a measurable, and usually predominant, interest in having its own substantive laws apply.  While it is true that Washington has a strong interest in regulating any behavior by Washington businesses which contravenes the CPA, the CPA indicates the legislature's intent to limit its application to deceptive acts that affect the citizens and residents of Washington. To state a CPA claim, a person must show that the unfair or deceptive act affected the people of the state of Washington. This geographic and jurisdictional limitation originates in the CPA's history as a tool used by the State attorney general to protect the citizens of Washington. (as is the situation with many such state statutes.)

The court remanded the case for consideration of a state-wide class claim, but note the better view that where, as here, the plaintiffs allege that their damages were caused by deceptive, misleading, or fraudulent statements or conduct, as a practical matter it is not possible that the damages could be caused by a violation of the Act without proof of reliance on the statements or conduct alleged to violate the statutes. Cf. Group Health Plan, Inc. v. Philip Morris, Inc., 621 N.W.2d 2, 13 (Minn.2001); Hageman v. Twin City Chrysler-Plymouth Inc., 681 F.Supp. 303, 308 (M.D.N.C.1988) (“To prove actual causation, a plaintiff must prove that he or she detrimentally relied on the defendant's deceptive statement or misrepresentation.”); Feitler v. Animation Celection, Inc., 170 Or.App. 702, 13 P.3d 1044, 1047 (2000) (holding causal element of misrepresentation claim requires reliance by the consumer); cf. Siemer v. Assocs. First Capital Corp., 2001 WL 35948712, at *4 (D.Ariz. Mar.30, 2001) (“The injury element of the [state consumer protection statute] claim occurs when the consumer relies on the misrepresentations.”); see generally S. Scheuerman, The Consumer Fraud Class Action: Reining in Abuse by Requiring Plaintiffs to Allege Reliance as an Essential Element, 43 Harv. J. on Leg. 1 (2006).
 

Appeals Court Affirms Rejection of Class Action in HDTV Case

The  California appeals court has affirmed a trial court's decision to deny plaintiff's motion for class certification in a case involving high definition (HD) television services. See Cohen v. DIRECTV, Inc., No. B204986, 2009 WL 3069116 (Cal. Ct. App. 2d Dist. 10/28/09).

A subscriber to services delivered by a satellite television company filed a proposed class action complaint alleging the company had disseminated false advertising to induce him and other subscribers to purchase more expensive HD services.  The complaint alleged that DIRECTV switched its HDTV channels to a lower resolution, reducing the quality of the television images it transmits to its subscribers.

Importantly, the complaint did not allege that DIRECTV breached its subscribers' contracts for satellite television services by allegedly transmitting a lower resolution television image than it was contract-bound to deliver. Instead, plaintiff alleged a species of fraud in the inducement, alleging that subscribers to DIRECTV's HD services purchased those services in reliance on the company's supposedly false advertising. In that vein, Cohen alleged that he and the other putative class members subscribed to the HD service package based upon DIRECTV's national advertising and marketing.  Thus, plaintiff  asserted two causes of action: (1) violation of the Consumer Legal Remedies Act or “CLRA” (see Civ. Code, § 1750 et seq.), and (2) violation of the Unfair Competition Law or “UCL” (see Bus. & Prof. Code, § 17200).

Plaintiff requested the trial court to certify a class defined as follows:  “Residents of the United States of America who subscribed to DIRECTV's High Definition Programming Package.”  The motion to certify the class was supported in significant part with evidence seeking to show DIRECTV's print advertising and promotional materials for its HD Package; DIRECTV's opposition to the motion for class certification was supported in large part by a number of declarations from subscribers to the company's HD Package, each of whom explained that their individual decisions to buy the upgraded service had not been precipitated by any printed advertising or other promotional materials disseminated by DIRECTV.

California's Code of Civil Procedure section 382 authorizes a representative plaintiff to pursue a class action “when the question [in the action] is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court . . . .” A plaintiff moving for class certification must establish the existence of (1) an “ascertainable” class and (2) a “commonality” of interests among the members of the class. E.g., Lockheed Martin Corp. v. Superior Court, 29 Cal.4th 1096, 1103-1104 (2003).

The appeals court, first, disagreed with trial court which had found the proffered defined class not ascertainable. The defined class of all HD Package subscribers was sufficiently precise, with objective characteristics and transactional parameters which could be determined by DIRECTV's own account records.

However, the class did fail on the issues surrounding commonality.  In this proposed national class, subscribers' legal rights would vary from one state to another state, and subscribers outside of California may well not be protected by the CLRA and UCL.

Beyond legal issues, the record supported the trial court's finding that common issues of fact do not predominate in the proposed class because the class would clearly include subscribers who never saw DIRECTV advertisements or representations of any kind before deciding to purchase the company's HD services.  The proposed class would include subscribers who only saw and/or relied upon advertisements that contained no mention of technical terms regarding bandwidth or pixels, and also subscribers who purchased DIRECTV HD primarily based on word of mouth or because they saw DIRECTV's HD in a store or at a friend's or family member's home.

Interestingly, the court of appeals distinguished the state's supreme court's recent decision in In re Tobacco II Cases,  46 Cal.4th 298 (2009).  The opinion suggests that Tobacco II held that, for purposes of standing in context of the class certification issue in a “false advertising” case involving the UCL, the absent class members need not be assessed for the element of reliance. Or, in other words, class certification may not automatically be defeated on the ground of lack of standing upon a showing that class members did not all rely on common false advertising. The court of appeals found that Tobacco II essentially ruled that, for purposes of standing, as long as a named plaintiff is able to establish that he or she relied on a defendant's false advertising, a absent class members may also be deemed to have standing, regardless of whether any of those class members have in any way relied upon the defendant's allegedly improper conduct.

MassTortDefense readers will likely find that notion ridiculous, particularly when the courts typically do not enforce the ostensible requirement that named plaintiffs should be typical and adequate class representatives.  In the contextual setting presented by the present case, however, Tobacco II was seen to be irrelevant because the issue of “standing” simply is not the same thing as the issue of “commonality.” Standing, generally speaking, is a matter addressed to the trial court's jurisdiction because a plaintiff who lacks standing cannot state a valid cause of action. Commonality, on the other hand, in the context of the class certification issue, is a matter addressed to the practicalities and utilities of litigating a class action in the trial court. The court saw nothing in the language in Tobacco II which suggests that the state supreme court intended California trial courts to dispatch with an examination of commonality when addressing a motion for class certification.