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

An up and down class action proceeding involving Listerine has taken a new turn. Pfizer Inc. v. Superior Court of Los Angeles County, No.B188106 (Cal. App. 3/2/10).

Plaintiffs brought a proposed class action on behalf of California consumers who allegedly purchased Listerine on the claim that the mouthwash prevented plaque and gingivitis as effectively as dental floss, relying on the state's Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.) and the False Advertising Law (FAL) (§ 17500 et seq.).  The trial court certified a California class consisting of all individuals who purchased Listerine between June, 2004 and January, 2005.  The appeals court initially ruled in 2006 that the trial court’s certification was overbroad, relying on Proposition 64 which amended standing requirements in such actions and requires proof that the proposed class suffered injury.  Following the decertification order, however, the California Supreme Court ordered the appeals court to revisit the issue in light of its intervening decision in In re: Tobacco II, 46 Cal.4th 298 (2009). 

Upon remand, the court of appeals vacated the prior opinion, received supplemental briefs from the
parties and amici curiae, and reconsidered. Upon reflection, the appeals court concluded that the circumstances of the case still did not warrant class certification.

The court noted that the causation requirement for purposes of establishing standing under the UCL, and in particular the meaning of the phrase "as a result of" in section 17204, holds that a class representative proceeding on a claim of misrepresentation as the basis of his or her UCL action must demonstrate actual reliance on the allegedly deceptive or misleading statements, in accordance with well-settled principles regarding the element of reliance in ordinary fraud actions. Those same principles, the state supreme court had said Tobacco II in an amazingly result-driven fashion, do not require the class representative to plead or prove with an "unrealistic degree of specificity" that the plaintiff relied on particular advertisements or statements when the unfair practice is a fraudulent advertising campaign. But Tobacco II does not stand for the proposition that a consumer who was never exposed to an alleged false or misleading advertising or promotional campaign is entitled to restitution.

The certified class, consisting of all purchasers of Listerine in California, was overbroad because it presumed there was a class-wide injury. However, the record reflected that of 34 different Listerine mouthwash bottles on sale, 19 never included any label that made any statement comparing Listerine mouthwash to floss. Further, even as to those flavors and sizes of Listerine mouthwash bottles to which defendant did affix the labels which were at issue, not every bottle shipped between in the class period bore such a label. Also, although Pfizer allegedly ran four different television commercials with the “as effective as floss” campaign, the commercials did not run continuously and there is no evidence that a majority of Listerine consumers viewed any of those commercials. Thus, many, perhaps the majority of, class members who purchased Listerine during the pertinent period did so not because of any exposure to any allegedly deceptive conduct, but rather, because they were brand-loyal customers or for other reasons. As to such consumers, there is absolutely no likelihood they were deceived by the alleged false or misleading advertising or promotional campaign. Such persons cannot meet the standard of having money restored to them because it “may have been acquired by means of” the unfair practice.

Finally, plaintiff testified he did not make his purchase based on any of the four television commercials or other ads, and that he bought Listerine due to the bottle’s red label (which differed from the other labels), which he recalled said “as effective as floss.”  Because the various commercials and labels contained different language, with some even expressly advising consumers to continue flossing, his testimony as to his reaction to the Listerine label is not probative of his, or absent class members’, reaction to different language contained in television commercials and other labels. Therefore, named plaintiff lacked standing to assert a UCL claim based on those television commercials or other labels.

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We have posted before about one of the more controversial aspects of the Consumer Product Safety Improvement Act, the to-be-created publicly accessible database of product safety information.

The CPSIA mandates that the database be completed by March, 2011. The agency views its task as the creation of a public portal and a publicly accessible, searchable database of consumer product incident reports. Through the public portal, consumers will theoretically be able to report potential product safety hazards to CPSC in ways that are supposed to improve the quality, value, and accuracy of the data collected. Manufacturers will be able to investigate and respond to product hazard reports more quickly, and to share information with both CPSC investigators and with the public through the public database. And consumers are supposed to be able to use the public portal and database to find more information about hazards in order to keep their families safe.

Unless done very carefully, the database will be of little use to the average consumer, but subject to potential mischief in the hands of plaintiff lawyers.

Since last Fall, the CPSC has held various meetings and a two-day public workshop to gather stakeholder input on the new database. A number of affected groups have submitted comments on the implementation of the new product safety database, including the Soap and Detergent Association.  A common theme for the comments is the need for the CPSC to focus on verifying and ensuring the accuracy of safety incident reports submitted to the commission. Factual accuracy and veracity are two fundamental elements underpinning a credible incident database. 

CPSC needs to develop a process for addressing false and inaccurate reports that will scare consumers, harm business, and generate no additional safety gains. The commission needs to employ means to prevent the submission of fraudulent reports of harm while not discouraging the submission of valid reports.  CPSC also needs to think about specific disclaimers it should make with regard to the accuracy of the information contained in the public database, and not put the governmental imprimatur on voluntary data that has not been verified.  A sufficient time period should also be allocated for manufacturers to evaluate and respond to any proposed report.    

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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).
 

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Two Democratic legislators have introduced a bill that would create an FDA program to assess the potential health and safety effects of nano-technology ingredients in various consumer products.  Sens. Mark Pryor (D-Ark.) and Benjamin L. Cardin (D-Md.) introduced the "Nanotechnology Safety Act of 2010," S. 2942, last week. Their introductory remarks here.

The FDA established a Nanotechnology Task Force, which issued a report in July 2007. In the task force report, recommendations were made regarding FDA’s future direction for regulating nanomaterial-containing products. Guidance development was included as one the recommendations. The FDA’s Advisory Committee for Pharmaceutical Science and Clinical Pharmacology met In 2008. Among the agenda topics was a discussion of issues pertaining to the use of nanotechnology in drug manufacturing, drug delivery, or drug products.  Later, FDA held a public meeting to gather information that will assist the agency in further implementing the recommendations of the Nanotechnology Task Force Report relating to the development of agency guidance documents concerning nanotechnology.

The bill would create a program for the scientific investigation of nanoscale materials included or intended for inclusion in FDA-regulated products, to address the potential toxicology of such materials, the effects of such materials on biological systems, and interaction of such materials with biological systems.  Specifically, FDA would be charged to assess scientific literature and data on general nanoscale material interactions with biological systems and on specific nanoscale materials of concern to Food and Drug Administration, and collect, synthesize, interpret, and disseminate scientific information and data related to the interactions of nanoscale materials with biological systems.

Nanotechnology applications in drug development are likely to have a significant impact on the products that FDA regulates. Products containing nanomaterials are being investigated for potential applications as therapeutics, and some products containing nanoscale materials are already on the market. While some of these nanomaterials are nanoscale versions of larger materials used in approved products, other nanomaterials are novel and have never been used in drug products. In 2009, the FDA introduced the "Nanotechnology Initiative", a collaborative effort between FDA and the Alliance for NanoHealth.

The proposed law would also require a report from FDA by 2012 that includes a review of the coordination of activities under the program with other departments and agencies participating in the National Nanotechnology Initiative. The bill would send $25 million annual funding to the agency for the program. The bill was referred to the Committee on Health, Education, Labor, and Pensions,

Many readers of MassTortDefense know that nanotechnology refers to a new field of technology that seeks to manipulate and control products, really matter, on the atomic and molecular scale, typically 100 nanometers or smaller. To give some sense of scale, one nanometer is one billionth, or 10-9 of a meter. A nanometer compared to a meter is the roughly the same ratio as that of a baseball to the size of the Earth. Or another analogy, a nanometer is the length a man's whiskers grow in the time it takes him to lift his razor to his face to shave. We have posted on this topic here, here, and here.
 

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A federal judge has granted defendant's summary judgment motion in a putative consumer class action over contact lens solution. Degelmann, et al. v. Advanced Medical Optics Inc., No.07-0317 (N.D. Calif. 1/4/10).

Defendant, in 2007, issued a recall notice for their contact lens solution product, following an announcement by the U.S. Centers for Disease Control and Prevention that a small number of users of the contact lens solution might have developed a rare, but potentially serious, corneal infection, due to contamination.  The CDC report indicated that the epidemiological evidence showed that the product may be less effective than other solutions in disinfecting against the particular contamination. [Epidemiology, sometimes termed the "science of long division" or the "science of making the obvious obscure" is crucial to most toxic tort claims.]

Plaintiff brought a proposed nationwide class action under California Business & Professions Code § 17200 (Unfair Competition Law) and  § 17500 (False Advertising Law), and alleged that defendant AMO made false statements concerning its contact lens solution, and concealed certain known risks of using the solution. Plaintiffs did not allege that they suffered any physical injury from their use of the product.  Rather, the focus of the complaint was on AMO’s allegedly false representation that the product was a “disinfecting solution” or was a solution that “disinfects.”

AMO argued that the name plaintiffs had suffered no legally cognizable injury, and therefore lack both Article III standing and statutory standing under the UCL/FAL, among other summary judgment theories.  The court found that plaintiffs lack Article III standing, and granted the motion (without reaching the other issues).

The Constitution limits the federal judicial power to designated “cases” and “controversies.” U.S. Const., Art. III, § 2. Standing is an “essential and unchanging part of the case-or-controversy requirement of Article III.”  Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). Article III standing requires a plaintiff to show an “injury in fact,” a causal connection between the injury and the conduct complained of, and a likelihood that the injury will be redressed by a favorable decision. Id. at 560-61; see also Sprint Communications Co., L.P. v. APCC Services, Inc., 128 S.Ct. 2531, 2535 (2008). In order to establish standing, plaintiffs must show that they have suffered actual loss, damage, or injury, or are threatened with impairment of their own interests. The “injury in fact” requirement must involve an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical.  Lujan, 504 U.S. at 559-60

The court found that named plaintiffs could not show injury in fact because they  never contracted the infection at issue, and were never harmed by their use of the product. Because they stopped using the solution long before the recall, they could not allege that the recall caused them to discard unused solution, which is a typical "economic" harm argument plaintiffs try to make.  Moreover, they could not claim to have lost the money they spent purchasing the product in the first place, as they would have bought another, comparably priced, contact lens solution if they had not bought this one.  As plaintiffs sustained no damage and no injury, and made no showing of any sufficient  threatened injury that was likely to occur, they did not have standing under Article III.  Motion granted.

Defendants will want to not overlook the standing argument , especially when confronted with the concocted class claims of plaintiffs who were never really injured, and seek to recover for alleged bad conduct without showing any causal link between the conduct and an injury suffered.
 

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We have posted about nanotechnology issues before. Readers following nano-issues will want to note that the Council of the European Union last week approved an updated set of regulations on cosmetic products, and they include a requirement that cosmetics containing nanoscale ingredients have that information on their labels. [In the European Union, regulations automatically apply to all  member states, while directives are implemented through national legislation. The regulation thus represents a common European code on cosmetic products, designed to reduce the uncertainties arising from a differentiated implementation of the previous directives in the 27 member states.]

Specifically, the regulation states that, “All ingredients present in the form of nanomaterials shall be clearly indicated in the list of ingredients. The names of such ingredients shall be followed by the word ‘nano’ in brackets.”  see p. 61.  Some observers have questioned whether the mention of the term "nano" in labels will offer consumers much meaningful guidance. The FDA's 2007 Nanotechnology Task Force Report did not recommend labeling because current science did not support a finding that products with nanoscale materials necessarily present greater safety concerns than those without nanoscale materials.

The document indicates that the use of nanomaterials in cosmetic products may increase with the further development of technology. In addition, the EU Council suggest that in order to ensure a high level of consumer protection, free movement of goods, and legal certainty for manufacturers, it is necessary to develop a uniform definition for nanomaterials at the international level.  In the interim, "nanomaterial" for regulatory purposes means an insoluble or biopersistant and intentionally manufactured material with one or more external dimensions, or an internal structure, on the scale from 1 to 100 nm.

The Council states that, at present, there is inadequate information on the risks associated with nanomaterials. In order to better assess their safety, the Council calls for cooperation with relevant bodies on test methodologies which take into account specific characteristics of nanomaterials.

The new rule also will require manufacturers of new cosmetic products containing nanomaterials to notify the European Commission and to provide certain toxicological information before the products are placed on the market. Published reports suggest that manufacturers may have up to 3 years to comply with the new label regulations.

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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.

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A federal court has dismissed (with prejudice) a variety of consumer fraud and unjust enrichment claims in litigation alleging issues with front-loading washers. Butler, et al. v. Sears, Roebuck and Co., No. 06 C 7023 (N.D. Ill. Nov. 4, 2009).

In their Consolidated Complaint, plaintiffs alleged that the washing machines they bought
from Sears suffered from electronic control board failure and an alleged design defect that prevented adequate water drainage and proper self-cleaning. The water drainage and
cleaning defect allegedly resulted in odors on clothes. Plaintiffs contended that the electronic control board failure is manifested by the washing machines prematurely and repeatedly failing mechanically. 

Defendant was alleged to have known about the defects because of allegedly similar problems with other washing machines, and customer complaints of mold problems. As a result, plaintiffs contended that Sears violated their respective home states’ consumer fraud statutes.

The case has a bit of a history, as prior versions of these allegations had been the subject of three motions to dismiss. Although the court did allow plaintiffs to file this consolidated amended complaint (these cases were consolidated for purposes of discovery and pretrial proceedings on January 6, 2009), plaintiffs did not request leave to re-allege the claims that were dismissed with prejudice in the prior rulings, including consumer fraud claims under the laws of California, Illinois, Indiana, Kentucky, Michigan, Minnesota, New Jersey, New York, and Washington. See 2008 WL 4450307, at *8. Plaintiffs. however, re-alleged these claims in substantially the same form in their Consolidated Complaint.  Without leave to do so, and new details, these claims could not survive.

In order to survive a Rule 12(b)(6) motion, the complaint must not only provide the defendant with fair notice of the claim’s basis, but must also establish that the requested relief is plausible on its
face. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949, (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Allegations of fraud are subject to the heightened pleading standard of Rule 9(b), which requires a plaintiff to state with particularity the circumstances constituting fraud. Fed. R. Civ. P. 9(b). This means that the plaintiff must plead the “who, what, when, where, and how" of the alleged fraud.

The court found that the new allegations  were insufficient to meet Rule 9(b)’s pleading requirements. Plaintiffs adequately averred defendant's knowledge, but they did not adequately allege the other required elements. For example, plaintiffs had not indicated how the alleged reported failure rate compares with the failure rates of comparable machines produced by comparable manufacturers. Plaintiffs also failed to specify how often design or manufacturing defects related to self-cleaning features of washers occur. No meaningful engineering explanation had been alleged. The language reproduced in the Consolidated Complaint offered far from a meaningful engineering explanation for the defects; the allegations were vague and indeterminate.

The alleged violation of California’s Song-Beverly Consumer Warranty Act, Cal. Civil Code § 1790 et seq., survived the motion to dismiss.  But, overall, product manufacturers can appreciate the court's application of the Twombly doctrine, the fraud pleading requirements, and its reluctance to give plaintiffs many, many bites of the apple.  Federal court litigation should not be "if at first you do not succeed, try, try again," with the trial court offering plaintiff's counsel a road map how to construct a proper pleading.

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The Judicial Panel on Multidistrict Litigation has decided to consolidate multiple federal cases arising from the Zicam product line.  IN RE: ZICAM COLD REMEDY MARKETING AND SALES PRACTICES LITIGATION, MDL No. 2096.  Plaintiffs moved, pursuant to 28 U.S.C. § 1407, for coordinated or consolidated pretrial proceedings of multiple proposed class actions.  By the time the Panel issued its Order, there were 40 related actions pending in 26 federal districts.

Many of the pending cases were consumer fraud class actions against Matrixx Initiatives, Inc., and its subsidiaries Zicam, LLC, and Zicam Swab, LLC.  Plaintiffs opposed centralization of any actions alleging personal injury claims. But the Panel found that both kinds of actions involved sufficient common questions of fact, and that centralization of the actions under Section 1407 would serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation. The actions share factual questions regarding, inter alia, the marketing and sale of three Zicam nasal cold remedy products, and alleged injuries sustained by the use and/or purchase of those products, particularly whether the products cause anosmia (the loss of sense of smell). Centralization under Section 1407, the court found, would eliminate duplicative discovery, prevent inconsistent pretrial rulings (particularly with respect to class certification), and conserve the resources of the parties, their counsel and the judiciary.

The Panel declined to separate purported consumer class actions from other actions alleging personal injury. Centralization of all actions in this docket would, said the court, allow a single judge to structure pretrial proceedings to accommodate all parties’ discovery needs while ensuring that the common parties and witnesses are not subjected to discovery demands that duplicate activity that will or has occurred in other actions.

The court chose the District of Arizona as the appropriate transferee forum. The defendants are based within the District of Arizona, and relevant documents and witnesses are likely found there, observed the Panel. In addition, centralization in the District of Arizona will allow for coordination of the federal actions with related litigation pending in Arizona state court.

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A federal court has dismissed a putative class action alleging that Sears Roebuck & Co. and Whirlpool Corp. engaged in unfair business practices and misleadingly marketed thousands of supposedly defective washing machines. Tietsworth et al. v. Sears, Roebuck & Co. et al., No. 09-cv-288 (N.D. Calif.)(dismissal without prejudice).

Plaintiffs alleged that  Whirlpool manufactured top-loading Kenmore Elite Oasis automatic washing machines, and Sears marketed, advertised, distributed, warranted, and offered repair services for the machines. Plaintiffs alleged that thousands of the machines contained a defect that causes them to stop in mid-cycle and display a variety of error codes.  Plaintiffs claimed that these electrical control system problems began within the first year after they purchased their washers. Plaintiffs alleged that virtually everything the defendants said about the machines in marketing was false because all such statements related directly to the functioning and performance of the Machine’s Electronic Control Board and, in turn, the Electronic Control Board controls the laundry cycles, the water levels and spin speed.

Defendants moved to dismiss. A complaint may be dismissed for failure to state a claim upon which relief may be granted if a plaintiff fails to proffer enough facts to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Allegations of material fact must be taken as true and construed in the light most favorable to the non-moving party, but the court need not accept as true allegations that are conclusory, unwarranted deductions of fact, or unreasonable inferences. Here, although their claims arose under state law, plaintiffs' allegations were subject to the pleading requirements of the Federal Rules. Accordingly, the claims alleging fraud were subject to the heightened pleading requirements of Fed. R. Civ. P. 9(b). See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-04 (9th Cir. 2003) (if “the claim is said to be “grounded in fraud” or to “sound in fraud,” [then] the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b).”)

The principal element of fraudulent concealment at issue here was whether plaintiffs pled with sufficient particularity that defendants had a duty of disclosure with respect to the allegedly defective Electronic Control Boards. Plaintiffs argue that defendants had such a duty because they allegedly made "partial disclosures" about the Machines,and  were in a “superior
position" to know the truth.  These arguments were not persuasive to the court. There was no allegation at all, let alone an allegation with Rule 9 specificity, that defendants made any representations directly about the allegedly defective Electronic Control Boards. Nor could plaintiffs establish a duty by pleading, in purely conclusory fashion, that defendants were in a “superior position to know the truth;"  plaintiffs’ general allegations of “exclusive knowledge as the
manufacturer” and active concealment of a defect, if accepted, would mean that any unsatisfied customer could make a similar claim every time any product malfunctioned.

The district court then confirmed that Rule 9(b)’s heightened pleading standards apply to claims for violations of this state consumer act (CLRA ) and unfair competition act (UCL),  where such claims are based on a fraudulent course of conduct.  It was clear that the claims were entirely dependent upon allegations that defendants made misrepresentations, failed to disclose material facts, and concealed known information regarding the allegedly defective Electronic Control Boards.  So such claims failed for the same reasons.

Next, plaintiffs claimed that defendants  violated California’s Business and Professions Code by making misleading representations in informational placards on the floor models of the machines and in owners’ manuals. However, the court held that statements that the machines are “designed and manufactured for years of dependable operation” and that the machines “save you time by allowing you to do fewer, larger loads” are not statements about specific or absolute characteristics of a product, and properly are considered non-actionable puffery. See Anunziato v. eMachines Inc., 402 F. Supp. 2d 1133, 1139 (C.D. Cal. 2005) (holding that the representations concerning the “outstanding quality, reliability, and performance” of a product were non-actionable puffery”).

Regarding the unfair business act claim, an act or practice is unfair if the consumer injury is substantial, is not outweighed by any countervailing benefit to consumers or to competition, and is not an injury the consumers themselves could reasonably have avoided. Plaintiffs failed to plead adequately the second and third elements of their claim.  Plaintiffs failed to allege that they could not reasonably have avoided their claimed injuries, for example by purchasing an extended warranty. To the extent that plaintiffs based their claim on defendants’ alleged failure to disclose a
known defect in the machines, a mere failure to disclose a latent defect does not constitute a
fraudulent business practice.

One other highlight.  Plaintiffs contended that defendants’ warranties were procedurally and substantively unconscionable because defendants limited the warranties and allegedly actively concealed a known defect. However, any such claim of oppression may be defeated if the
complaining party had reasonably available alternative sources of supply from which to obtain
the desired goods or services free of the terms claimed to be unconscionable.  Here, plaintiffs failed to allege facts demonstrating that there were no alternative manufacturers of washers, and thus failed to allege the absence of an “available alternative source of supply from which to obtain the desired goods or services free of the terms claimed to be unconscionable.”  Dean Witter Reynolds, Inc. v. Superior Court, 211 Cal. App.3d 758, 768 (1989). Plaintiffs' emphasis that  any material alternative product or choice was curtailed or eliminated by the suggestions of Sears’ sales representatives that defendants’ machines were “the best” and superior to other washers, far from showing the absence of alternatives, merely highlighted the fact that alternatives apparently existed. 

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Defendants have moved to dismiss the complaint in a proposed class action by parents claiming that the makers of shampoos and and soaps for kids failed to list toxic chemicals on product ingredients lists. Vercellono, et al. v. Gerber Products Co., et al., No. 2:09-cv-02350 (D.N.J.).

The complaint names Gerber, Johnson & Johnson Consumer Cos. Inc., Procter & Gamble
Distributing LLC, MZB Personal Care, Wal-Mart Stores Inc. and Nestle Inc. as defendants.
The plaintiffs claim that several products, including Grins & Giggles, Head-to-Toe Baby Wash and others, contain formaldehyde and 1,4-dioxane.  Plaintiffs further allege that these chemicals have been linked to cancer, skin allergies and other health problems.

The plaintiffs are seeking compensatory, punitive and/or exemplary damages for the proposed class, which is defined as all consumers nationwide who purchased the products in question.  Plaintiffs allege that the companies violated consumer fraud statutes by making or distributing baby care products specifically marketed for sensitive skin despite containing the chemicals, and misrepresented that the products they marketed, distributed, promoted, sold, and/or made were safe for children.

Defendants' motions attack several aspects of the complaint, including the injury allegations in connection with the consumer fraud count.  The motion illustrates one of the key battlegrounds in a consumer fraud class action.  While plaintiffs typically assert that the predominating issues are common, defendants will point to the injury element under the statute as requiring individual proof.  But before even deciding the class issues, the question is raised whether plaintiffs have adequately alleged an  injury.  Often, they will seek to avoid suggestion of personal physical injury, because of the individual issues it raises.  But there is risk in going too far.

According to the Gerber motion, plaintiffs suffered only mere exposure to the chemicals and failed to cite any actual injury. The complaint fails to allege that plaintiffs, their children, or anyone else has ever suffered any actual harm as a result of using the products. Nor does the complaint allege that the products failed to perform as a bath product. Rather, the complaint merely alleges that plaintiffs have suffered “exposure” to formaldehyde and 1,4-dioxane.  While they assert that they were injured by paying the purchase prices for the defendants’ products, under the New Jersey Consumer Fraud Act, as under many such acts, plaintiffs are required to allege that they have suffered an ascertainable loss, and allegations of economic loss are insufficient, as are allegations of  the vague potential of a speculative future injury.

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The Consumer Products Safety Committee has reported that it has received approval from the Chinese for a visit to China in connection with the drywall issues, and that CPSC staff is working with the Chinese government to arrange an investigative visit beginning later this month.  The CPSC has asked to visit several sites of interest in its investigation of issues related to the tainted drywall, which we have posted about before.

The CPSC reports that it has now received a total of 810 reports related to the allegedly defective drywall, including complaints from two additional states, Pennsylvania and South Carolina. That means the Commission has received reports from homeowners in 23 states and the District of Columbia. The majority of the reports continue to be from Florida, Louisiana, and Virginia.  About 6.2 million sheets of Chinese drywall were imported into the U.S. during 2006.

As part of its investigation, the Commission notes the:
• Start of the Lawrence Berkeley National Laboratory chamber testing of various drywall samples to isolate specific emissions.
• Start of a 50 home indoor air sampling program.
• Site visit to a synthetic drywall manufacturing facility.
• Completion of testing for radioactive phosphogypsum contamination in drywall, in coordination with the Florida Department of Health and the EPA National Air and Radiation Environmental Laboratory. 

The EPA is conducting elemental analyses of 15 drywall samples, with a tentative date for completing its analyses of drywall samples by late August. The CPSC's engineering staff has visited seven homes in Florida, Louisiana and Virginia to gather samples of electrical, plumbing and safety systems. CPSC also has hosted a call among attorneys general of impacted States to coordinate and exchange information about State-level efforts.

Lawsuits filed over the drywall issues allege that excessive sulfur levels in the Chinese-made products are causing health effects and problems with air conditioning systems, appliances, internal wiring and other electrical systems. In June, the U.S. Judicial Panel on Multidistrict Litigation consolidated the lawsuits in the U.S. District Court for the Eastern District of Louisiana. More than 90 suits were on the docket as part of the MDL as of last week. Plaintiffs have asked the court to certify the matter as a class action. In re: Chinese-Manufactured Drywall Products Liability Litigation, MDL 2047.

The monthly status conference in the MDL was held last week before Judge Fallon. At the conference, the court considered issues raised by Liaison Counsel, including pre-trial orders, property inspections, Plaintiff and Defendant profile forms, an evidence preservation order, state court settings, state/federal coordination, discovery issues, Freedom of Information Act/ public records requests, trial settings in federal court, tolling agreement/suspension of prescription, plaintiffs' request for a class action, insurance issues, service of pleadings electronically, and the master complaint. A full report can be found here. 

[Remember you can add this blog to your feeds by clicking on the button on the left side, or subscribe by typing your email address into the blank space on the left margin.]
 

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The U.S. Judicial Panel on Multidistrict Litigation has issued an order consolidating 12 putative class actions alleging that Apple Inc.’s iPhone 3G did not perform as fast as promised on AT&T Mobility LLC’s 3G data network.  In re: Apple IPhone 3G Products Liability Litigation, MDL No. 2045.

Plaintiffs allege that iPhone owners paid extra for the supposedly superior functionality and high-speed data network used by the phone. They further allege that because the phone is typically used for e-mail and on-line activities, many purchasers subscribe to a data plan that uses AT&T’s 3G network. But, they assert, the phone does not function as fast as promised and often performs at slower speeds than other 2G and 3G phones. In the litigation thus far, plaintiffs' complaints conspicuously seem to omit one critical condition precedent to their causes of action: an allegation that they contacted Apple to seek a repair of the alleged defects or a replacement iPhone 3G under Apple's one-year limited warranty.

In the order issued last week, the JPML said that centralizing the lawsuits in the U.S. District Court for the Northern District of California was appropriate. All actions involve common factual questions arising from the performance of Apple’s iPhone 3G on AT&T’s 3G network. Specifically, the actions share allegations that Apple and, where named, AT&T, misrepresented to the public the speed, strength and performance of the iPhone 3G on AT&T’s 3G network. Centralization under Section 1407 will eliminate duplicative discovery; prevent inconsistent pretrial rulings, particularly with respect to class certification; and conserve the resources of the parties, their counsel and the judiciary.

The Northern District of California stands out as an appropriate transferee forum, said the panel. The headquarters of the common defendant, Apple, are located within this district; accordingly, relevant witnesses and documents will likely be found there. Eight actions are already pending in the district. Other cases are in the Southern District of Florida, the District of New Jersey, the Eastern District of New York and the Eastern District of Texas.

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The federal court has dismissed a proposed class action accusing Dell Inc. of fraudulently marketing an ink-jet printer feature to convince customers to replace ink cartridges that don't need to be replaced yet. Dajani v. Dell Inc., 2009 WL 1833983 (N.D.Cal. June 25, 2009).

Dajani alleged that Dell fraudulently marketed its Ink Management System, a technology feature on all Dell ink jet printers.  The feature will display ink levels on a status window during a print job. The complaint alleged that the Ink Management System was highly imprecise and inaccurate, and that it was designed to deceive customers into replacing what they believed to be nearly empty cartridges, when they actually still contained a substantial amount of usable ink. Dajani sought to represent a class of all Californians who own or have owned Dell ink jet printers.

Judge Susan Illston rejected the lawsuit, without leave to amend the complaint.  Previously, the court had dismissed California-law based claims, as the terms and conditions of his sales agreement provided for Texas law to be allied to all claims. The amended complaint alleged a claim under Texas law for breach of implied warranty of merchantability and a claim of unjust
enrichment.

The court ruled last week that the claim for the breach of implied warranty of merchantability could not survive, because the printer was not unmerchantable as the term is defined under Texas law. The product must be unfit for the ordinary purposes for which it is used because of a lack of something necessary for adequacy.  Dell argued that the ordinary use of the product was printing, not measuring ink, and that any alleged imprecision in the Ink Management System had no impact on that basic function. The court agreed, finding that at most, plaintiff had alleged that the use of the Ink Management System is cumbersome because of allegedly premature replacement prompts. The device still worked.  And plaintiff hurt his claim by alleging that upon receiving “low ink” warnings, he simply removed and discarded his ink cartridge and replaced it with a new one. Such was "plainly at odds" with the product’s instruction manual, which states that a low ink warning appears when ink cartridges are low, not yet empty, and that a separate "reserve tank"  window appears when they are empty.

The judge also dismissed the unjust enrichment claim because under Texas law, when a valid, express contract covers the subject matter of the parties' dispute, there can be no recovery under a theory of unjust enrichment. Fortune Prod. Co. v. Conoco, Inc., 52 S.W.3d 671, 684 (Tex.2000) (“Parties should be bound by their express agreements. When a valid agreement already addresses the matter, recovery under an equitable theory is generally inconsistent with the express agreement.”).

Because plaintiff cannot cure the defects mentioned above through the pleading of additional facts which do not contradict those already made, plaintiff's complaint was dismissed without leave to amend.

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The U.S. Judicial Panel on Multidistrict Litigation has consolidated a number of lawsuits brought over Chinese-made drywall installed in U.S. homes. See In re: Chinese-Manufactured Drywall Products Liability Litigation, MDL-2047 (JPML).

The motion for consolidation encompassed ten actions, four actions in the Southern District of Florida, three actions in the Middle District of Florida and one action each in the Northern District of Florida, Eastern District of Louisiana, and Southern District of Ohio. The panel said it was aware of 67 related lawsuits that were pending in federal courts around the country. Those suits and any other related actions will be treated as potential tag-along actions.

The Panel found that all actions share factual questions concerning drywall manufactured in China, imported to and distributed in the United States, and used in the construction of houses; plaintiffs in all actions allege that the drywall emits smelly, corrosive gases. Centralization under Section 1407 will eliminate duplicative discovery, including any discovery on international parties; prevent inconsistent pretrial rulings, particularly those with respect to class certification issues; and conserve the resources of the parties, their counsel and the judiciary, said the Panel.

As is sometimes the case, no district was a clear focal point of this litigation. The common manufacturing defendant and its affiliates are foreign entities without a major presence in any of the suggested transferee districts. Most actions also name local entities, such as builders and suppliers, as defendants. Several parties suggested different districts, and all of the suggested districts, particularly those in the southeastern region, have a nexus to the litigation through allegedly affected houses built with the drywall at issue. On balance, the panel was persuaded that the Eastern District of Louisiana is a preferable transferee forum for this litigation. Centralization in this district permits the Panel to effect the Section 1407 assignment to a judge who has "extensive experience in multidistrict litigation as well as the ability and temperament to steer this complex litigation on a steady and expeditious course." That would be the Honorable Eldon E. Fallon of the Eastern District of Louisiana.

As posted on MassTortDefense before, the lawsuits allege that sulfur compound levels in the drywall are too high, causing issues with air conditioning systems, electrical appliances, internal wiring and other electrical systems in homes. Plaintiffs also allege the drywall produces a rotten egg-like stench and causes a variety of respiratory and other health problems for those who live in the affected homes. The lawsuits filed so far have named Chinese-based manufacturers, as well as importers, developers and builders, contractors, suppliers and others. Companies facing suits include Knauf Gips KG, Knauf Plasterboard Tianjin Co., Taishan Gypsum Co., L&W Supply Corp. and USG Corp. Lennar Corp., a major home builder, has brought in more than 20 manufacturers, suppliers and installers.  Some legislators have been critical of the CPSC's handling of the issue.  And bills have been introduced to ban the product.

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A federal court has rejected class certification in the multidistrict litigation concerning McDonald's Corp.'s french fries. In Re McDonald’s French Fries Litigation, MDL No. 1784, Civ. No.06-C-4467 (N.D. Ill. May 6, 2009). Plaintiffs in all 50 states and Washington, D.C., brought claims against McDonald's for allegedly putting hydrolyzed wheat bran and hydrolyzed casein in a beef flavoring for oil used in production of french fries and hash browns. Plaintiffs included individuals with celiac disease; galactosemia; autism; and wheat or gluten allergies. Defendant was alleged to have falsely claimed the "Potato Products" were gluten, wheat, and dairy-free through its website and in literature available at the restaurants.

The plaintiffs did not claim that they were physically harmed by the presence of trace amounts of wheat gluten and casein — a milk protein — in the beef flavoring. Rather, they based their claims on theories of consumer fraud and alleged economic losses. Plaintiffs claim they purchased Potato Products based solely on defendant’s representations that those products were free of gluten, milk and/or wheat ingredients, that the Potato Products in fact contained these allergens, and that absent defendant’s misrepresentations, plaintiffs would not have purchased the Potato Products.

The court first addressed the class definition. Named plaintiffs had testified in their depositions that they were quite satisfied with the Potato Products they consumed. (This shows the importance of pre-certification discovery, and the common common disconnect between the theories of class counsel and the reality of the class). None of the named plaintiffs had any physical reaction to eating the Potato Products. It was clear, therefore, that many persons in the class as defined by plaintiffs had gone on eating defendant’s Potato Products even after defendant clarified its product disclosures. Expert testimony showed that many patients with food allergies conduct their own ‘trials’ to determine what foods with gluten they have previously enjoyed that they may eat in moderation without experiencing symptoms. People who continued to use the products suffered no injury, not even the economic one claimed in this lawsuit. So the class was both over-inclusive and too indefinite for certification.

Regarding a narrower possible class of persons who because of their diagnosis of celiac disease, galactosemia, autism or a wheat, gluten or dairy allergy would not have eaten McDonald’s french fries or  hash browns if they had known they contained, potentially, a small amount of hydrolyzed wheat bran and hydrolyzed casein in the beef flavor that makes up one percent of the oil in which the potato suppliers par-fry the potatoes before shipping them to McDonald’s, and who relied on a representation by defendant that its Potato Products were wheat or milk free in purchasing and eating the french fries or hash browns….the court found that individual issues and individualized proofs would destroy manageability of a class action. That class in essence asked the court or jury to, at a minimum, review and evaluate potentially millions of letters from doctors for each class member. In addition, each claimant would have to individually affirm that he or she had seen the representation, purchased Potato Products on the basis of the representation, and no longer did so following defendant’s expanded product disclosure in February, 2006. Such a necessary separate evidentiary inquiry into each class member’s claim precluded certification.

Finally, choice of law issues ensured that individual issues of law clearly predominated over
common issues, making a nationwide class unmanageable. In at least some jurisdictions, reliance is necessary to connect the representations with the economic harm claimed, and in others individual proof is necessary to show that any injury was proximately caused by the misrepresentation made by a defendant.
 

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Here at MassTortDefense we have posted before about the Consumer Product Safety Improvement Act of 2008 and how it might impact manufacturers, importers, distributors, and retailers. Congressman John Dingell, D-Mich., sent a March 2, 2009, letter to the commission posing specific questions about the ongoing implementation of the CPSIA.

Commissioner Moore responded, noting, first, that the agency did not get the immediate increase in funding that the Act envisioned. Second, the agency still has only two Commissioners (no chairman). Third, the letter noted that additional time to implement certain of the Act's provisions would have been preferable.

Acting Chairman Nord provided a longer, 20 page response from the agency staff, echoing requests for additional time, and resources. [Note, the Act required product manufacturers and importers subject to a consumer product safety standard or rule to certify in writing that the product conforms to all applicable standards or rules; children’s products must be tested by a third-party, accredited testing laboratory. The agency became backlogged with laboratories’ requests for accreditation. And thus a stay of a number of the Act's provisions has been imposed. Of course, the stay of the testing and certification requirements does not alter the requirements that all products must meet the underlying safety standard.] The staff letter asks Congress to eliminate the fixed time-table, and give the commission the discretion to address certification and testing on a product-class basis. 

A focus of the staff response is that the commission staff feels it needs more discretion to effectively implement the CPSIA and uphold its general purpose. The argument is that the strict CPSIA deadlines and standards deprive the commission of the ability to effectively use risk analysis in establishing priorities and resource allocation. The commission staff concludes that this factor, along with the limited resources point above, has prevented it from taking important measures with respect to other product safety rules, such as improving children’s health and safety.

For example, the commission staff views the definition of “children’s product” as over-inclusive for the CPSIA’s goals, considering that the risk of mouthing and ingestion decreases with age. The commission suggests lowering the age limit and giving the commission the discretion to set higher age limits for products that pose a greater risk to older children.
 

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The Ontario Court of Justice earlier this month certified a class action against Dell Canada Inc. for alleged damage caused to about 120,000 individuals, corporations, and government agencies by allegedly defective notebook computers. See Griffin v. Dell Canada Inc., Ontario Superior Court of Justice, No. 07-CV-325223D2 (2/3/09). Here at MassTortDefense, we have posted about just how difficult Canada is becoming as a jurisdiction for class actions defendants. Frequently, identical consumer products, drugs, and medical devices are marketed in Canada as well as the U.S.

The court concluded that a class action was the preferred option to address the issues, that it was “fanciful” to think that any claimant could pursue an individual claim in a complex products liability case, and rejected Dell's arguments that an arbitration clause in its terms and conditions of sale precluded direct litigation by its customers.

The court minimized the importance under the Class Proceedings Act of plaintiffs’ obligation to produce a workable litigation plan. Such a plan is necessary to help the court decide whether a class action is the preferable procedure, and whether the litigation is manageable. The more complex the litigation, the more detailed a plan is needed that indicates how to manage the litigation. The court ruled, however, that the plaintiff is not required to show that there is a fair, efficient, and manageable method of resolving the claim, but only that there is a fair, efficient, and manageable method for advancing the claim. Order at para. 95. Who cares about theoretical advancement if the claim cannot efficiently be resolved?  A class proceeding in this case achieved this lesser goal and met the objective of judicial economy, even though plaintiff’s plan provided no detail of the resources the class law firm has to administer a claims process of this dimension to ensure that the interests of class members are protected, and there was no analysis of the resources that will be required to litigate the class members' claims to conclusion. Nevertheless, the court went ahead and certified the action conditionally, subject to the plaintiffs producing an acceptable litigation plan. Order at para. 102.

The court rejected Dell Canada’s argument that the significant individual issues involved in each of the potential claims far outweigh the common issues, as merely a “familiar refrain.” Order at para. 90.  Perhaps it is familiar because it is frequently true? The court concluded that the trial judge will be able to fashion efficient and fair trial plan procedures using the extensive powers and discretion conferred on the court by Sec. 25 of Ontario's Class Proceedings Act. The prospect of individualized mini-trials on whether, and to what extent, other factors contributed to the computer failures did not deter the certification. Nor did potentially difficult issues of causation and damages. Order at para. 90.

Dell did not propose that consumers undertake individual lawsuits, but argued that adjudication through arbitration administered by the National Arbitration Forum, as specified in Dell's terms and conditions of sale, was preferable to a class action. The court found, however, that arbitration was not the kind of process that would be easy for class members to navigate without legal representation. The multitude of individual issues that Dell says precludes class treatment would also lead to more complex and therefore more costly arbitration hearings, said the court. Order at para. 92-93.

“On the other hand, aggregating similar individual actions in a class proceeding avoids unnecessary duplication of fact-finding and analysis, and distributes fixed litigation costs among class members, making it economical to prosecute this claim, thereby improving access to justice.” Order at para. 93.
.
 

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One potential products liability development to watch in 2009 is the impact of the Consumer Product Safety Improvement Act of 2008. As MassTortDefense alerted readers before the legislation was even passed, one of the potentially most significant aspects of the legislation is the provision giving state Attorney Generals expanded jurisdiction to seek to enforce the Act against manufacturers and sellers of consumer products.

Under the Act, state AGs are authorized to bring federal court actions to enforce any regulation or standard of the CPSC which affects their state's residents. Previously, many such standards and rules were enforced only by the CPSCommission. (An AG must give the CPSC 30 days notice before filing, unless the product poses a "substantial product hazard," in which case no notice is required.)  The legislation has given a potentially sweeping and relatively undefined authority for state Attorneys General to act on perceived product safety concerns, largely independent of the CPSC.

While this move has potentially increased the resources available for enforcement actions, it has also created the likelihood of different interpretations and applications of product safety rules, as different state officials apply different approaches to enforcement. The Act does not require that an Attorney General pursue the CPSC's viewpoint or position in regard to a consumer product issue. The provision could thus undermine both the uniformity of product safety standards as applied across the country, and the CPSC's role in providing centralized regulation and guidance to industry and consumers alike.

The media reports that the National Association of Attorneys General has amassed a war chest of $140 million dollars, available to help individual state Attorneys General investigate alleged wrongdoing and to pay for expert consultants. State AGs have already been very active in product liability contexts, even before the Act, with tobacco, baby products, toys and mattresses being involved in recent memory.
 

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The MDL court in the Teflon products litigation has refused to certify 23 proposed statewide consumer fraud class actions. In re Teflon Products Liability Litigation, 2008 WL 5148713 (S.D. Iowa, 2008).

Plaintiffs alleged that in producing and marketing Teflon® and unbranded, non-stick cookware coatings (“NSCC”), defendant DuPont allegedly made misleading representations regarding safety. None of the proposed class representatives alleged that he or she had been injured by the use of DuPont NSCC. Rather, in each of the purported class actions, plaintiffs sought recovery solely for economic damage and injunctive relief. In particular, plaintiffs demanded creation of a fund for scientific researchers to further investigate the potential for adverse health effects from the use of products containing DuPont's non-stick coating; that DuPont discontinue selling cookware containing the non-stick coating; that DuPont stop making alleged misstatements regarding the safety of its product; that DuPont replace and/or exchange all existing cookware containing DuPont non-stick coating possessed by class members with non-hazardous cookware; rescission and restitution; and/or that DuPont provide a new warning label or other disclosure on cookware made with or containing DuPont non-stick coating.

DuPont has steadfastly denied that PFOA's or any other chemicals are released at harmful levels when cookware coated with Teflon is used as intended.

The Class
The court first identified key deficiencies in plaintiffs’ attempt to define an ascertainable class. As they typically do, plaintiffs argued that at this stage, they do not need to show that each class member ultimately will be able to prove his or her membership; rather, the court need only ensure that the appropriate criteria exists to evaluate membership when the time comes. The court felt this argument necessarily depended upon the availability of evidence to establish membership at a later stage of the proceeding. No such evidence existed to be produced in the case. Deposition testimony showed that it is virtually impossible to identify a brand of non-stick coating based on a visual examination of the item of cookware. Testimony from the class members was thus a key component of the product identification and thus class membership issue. But, even after a lengthy discovery period, during which each proposed representative was thoroughly deposed, many class reps were unable to ascertain whether they belonged in the class or a particular sub-class. An “abundance” of proposed representatives had no memory whatsoever of the circumstances surrounding their purchase of the cookware—let alone records to document their purchase. Bottom line, too many infirmities existed in the class definitions to ensure that the court could determine objectively who was in the class, without resort to speculation. For example, many class representatives mistakenly believed their product contained Teflon coating-even when they were informed the particular brand of cookware at issue never used Teflon.

Lastly, membership in this class necessarily required a plaintiff to pinpoint the date on which he or she purchased the item of cookware; the proposed class representatives were unable to recall this information one-fourth of the time.

Typicality, Coherence, Predominance
An analysis of the claims made clear that common issues did not predominate; class reps’ claims were not typical. Plaintiffs built the majority of their claims around statements made and/or marketing practices employed by DuPont regarding its NSCC products. According to plaintiffs, the fact that each cause of action derived from an alleged  “common practice or course of conduct” on the part of DuPont rendered the claims made by a representative plaintiff typical of the claims of all class members. However, the alleged misstatements cited by plaintiffs span a forty-plus-year period, across a wide variety of advertising and promotional media. Each plaintiff was exposed to different representations, at different time periods. Because reliance is a key element of plaintiffs' claim for negligent misrepresentation, and is necessary for recovery under the consumer fraud statutes in many jurisdictions, an individualized inquiry must be conducted not only to pinpoint the representations at issue, but also to determine the extent to which each plaintiff relied upon the particular representations. Due to the widespread nature of DuPont's advertising over the years, however, determining the precise statements each plaintiff heard could only be accomplished through individualized inquiry.

The court also pointed out the varying degrees to which each plaintiff became educated about NSCC prior to purchase.  Even if class members were exposed to the same representation, advertisement, or omission, the court could not presume that each member responded to the representation or omission in an identical fashion. Here, some proposed class representatives who were informed of potential health risks from NSCC stopped using the cookware, but others exposed to similar information continued to use their existing cookware, and others purchased new non-stick cookware.

Finally the court worried that plaintiffs were splitting their cause of action and thus harming absent class members. Under any one of their alternative bases for relief, plaintiffs necessarily must establish first that DuPont's non-stick cookware coating is dangerous to the health of its users. But the class disclaimed personal injury and had abandoned their original claims for medical monitoring. The representative plaintiffs risked a future waiver not only of their own personal injury and medical monitoring claims, but also those of the absent class members.

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MassTortDefense has posted about the growing trend of plaintiffs to use consumer fraud act claims in place of traditional product theories. Plaintiffs continue to believe that claims based on unfair and deceptive trade practices acts are somehow easier to certify as class actions because of differing notions of reliance and causation. Score one for the defense in the effort to beat back this tide, with the lesson that if plaintiffs live by such statute they have to live by all the statute. Silverstein v. The Procter & Gamble Manufacturing Company,  2008 WL 4889677 (S.D.Ga. Nov. 12, 2008).

This action arose out of Procter & Gamble's manufacture and sale of Crest Pro-Health mouthwash, which allegedly stains its users'  teeth and impairs their sense of taste. Plaintiffs purchased Crest Pro-Health mouthwash as consumers. After using the mouthwash, each allegedly noticed that his teeth had acquired a brown stain and that his sense of taste allegedly was impaired. Since then, both plaintiffs stopped using Crest Pro-Health mouthwash. Plaintiffs alleged a violation of Georgia's Uniform Deceptive Trade Practices Act (“UDTPA”) and moved to certify a plaintiff class. Defendant opposed this motion and moved for summary judgment.

The court noted that an analysis of class certification must begin with the issue of standing. Specifically, the court must determine whether the named plaintiffs, as individuals, have standing to pursue the claims they intend to pursue on behalf of the class. There are multiple types of standing. Constitutional standing ensures that courts do not assume jurisdiction over disputes that are not cases or controversies within the meaning of Article III. Prudential standing encompasses a host of doctrines of judicial self-restraint, such as the rule that courts will not address political questions more appropriately resolved by the representative branches of government. Statutory standing asks whether a statute creating a cause of action permits the plaintiff before the court to prosecute that cause of action. Here, the court addressed constitutional and statutory standing.

Plaintiffs in this case sought injunctive relief, as injunctive relief is the only remedy permitted to consumers by Georgia's UDTPA. The function of an injunction is to afford preventative relief, not to redress alleged wrongs which have been committed already. Because injunctions can rectify ongoing or future harm but cannot redress past harm, a plaintiff who cannot show continuing, present adverse effects or a real and immediate threat of future harm lacks Article III standing to pursue an injunction. Plaintiffs alleged past harm --browned teeth and a loss of taste. An injunction could not right these wrongs. They stopped using the product, and they now obviously know of the alleged defects. In determining whether to certify the class that plaintiffs proposed, the court determined it must not focus on the standing of unnamed class members, some of whom might, in theory, have standing to seek an injunction because they do not yet know about Crest Pro-Health's alleged defects. Whether the unnamed class members have standing is irrelevant, found the court. The result of the rule, in most applications, acknowledged the court, is that once a plaintiff learns about a product's defect, he has lost his standing to enjoin the manufacturer from producing it. “Such is the state of the law.”

When a plaintiff asserts statutory authorization to sue, he must fall within the class of plaintiffs to whom the statute grants the authority to maintain suit. It has been said that statutory standing comprises the zone-of-interests test, which seeks to determine whether the plaintiff is within the class of persons sought to be benefited by the provision at issue. A plaintiff who demonstrates past harm, but does not allege ongoing or future harm, has not shown that he is “likely to be damaged” within the meaning of the statute. Instead, Plaintiffs' alleged harm is entirely past. Because plaintiffs cannot “raise a factual question about the likelihood of some future wrong,”  they lack statutory standing to maintain an action under the UDTPA.

While plaintiffs described this result as a “catch twenty-two of statutory construction,” the court found no Joseph Heller-like dilemma: this result is actually a vindication of the UDTPA drafters' intent. Although its text does not foreclose lawsuits by consumers, the UDTPA was drafted primarily to allow businesses to enjoin their competitors' unfair or deceptive trade practices.

Because it determined that plaintiffs lacked constitutional and statutory standing to maintain their UDTPA claim, the court granted defendant's motion for summary judgment as to plaintiffs' UDTPA claim.
 

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The Seventh Circuit has rejected a national consumer fraud class action. Thorogood v. Sears, Roebuck and Co., 2008 WL 4709500 (7th Cir. October 28, 2008).

As explained in the opinion of Judge Posner, plaintiff bought a Kenmore-brand clothes dryer from Sears Roebuck (Kenmore is a Sears brand name). The words “stainless steel” were imprinted on the dryer, and point of sale advertising explained that this meant that the drum in which the clothes are dried inside the dryer was made of stainless steel. The plaintiff says he thought it meant that the drum was made entirely of stainless steel. The plaintiff alleged that part of the drum rusted and stained the clothes that he dried in his dryer.

He filed a class action suit on behalf of himself and the other purchasers, scattered across 28 states plus the District of Columbia, of the half million or so Kenmore dryers advertised as containing stainless steel drums. He claims that the sale of a dryer so advertised is deceptive unless the drum is made entirely of stainless steel, since if it is not it may rust and cause rust stains on the clothes in the dryer. His individual claim is that the representation violated the Tennessee Consumer Protection Act. Although some members of the huge class are citizens of the states of which Sears is a corporate citizen (New York and Illinois), so that diversity of citizenship is not complete, the suit properly invoked federal jurisdiction under the Class Action Fairness Act, since the amount in controversy exceeds $5 million. The district court certified the class, but the 7th Circuit reversed.

After noting the potential benefits of a class action, especially where individual damages are small, the court noted that the class action device has its downsides. There is first of all a much greater conflict of interest between the members of the class and the class lawyers than there is between an individual client and his lawyer. The class members are interested in relief for the class, but the lawyers are interested in their fees, and the class members' stakes in the litigation may be too small to motivate them to supervise the lawyers in an effort to make sure that the lawyers will act in their best interests.

A further problem with the class action is the enhanced risk of costly error. When enormous consequences turn on the correct resolution of a complex factual question, the risk of error in having it decided once and for all by one trier of fact rather than letting a consensus emerge from several trials may be undue. Mejdrech v. Met-Coil Systems Corp., 319 F.3d 910, 912 (7th Cir.2003); see also Castano v. American Tobacco Co., 84 F.3d 734, 746 (5th Cir.1996); McMillian, “The Nuisance Settlement  Problem,“ 31 Am. J. Trial Advoc. 221, 252-53 (2007); Stempel, “Class Actions and Limited Vision,” 83 Wash. U. L.Q. 1127, 1213-14 (2005). If a company is sued in a number of different cases for selling a defective product, and then it ins some of the cases and loses some, the aggregate outcome may be a fair reflection of the uncertainty of the plaintiffs' claims. But when the central issue in a case is given class treatment and so resolved by a single trier of fact, a trial becomes a roll of the dice; a single throw will determine the outcome of a large number of separate claims-there is no averaging of divergent responses from a number of triers of fact having different abilities, priors, and biases.

The risk is asymmetric when the number of claims aggregated in the class action is so great that an adverse verdict would push the defendant into bankruptcy, for then the defendant will be under great pressure to settle even if the merits of the case are slight. In re Rhone-Poulenc Rorer, Inc., 51 F.3d 1293, 1298-99 (7th Cir.1995).

There is still another downside to the class action, and it is the tendency, when the claims in a federal class action are based on state law, to undermine federalism. In re Bridgestone/Firestone, Inc., 288 F.3d 1012, 1020-21 (7th Cir.2002); Elizabeth M. v. Montenez, 458 F.3d 779, 788 (8th Cir.2006). Here, the instructions to the jury on the law it is to apply would have to be an amalgam of the consumer protection laws of the 29 jurisdictions, and procedural rules by which particular jurisdictions expand or contract relief will be ignored. The Tennessee Consumer Protection Act, for example, does not authorize class actions.

Judge Posner felt that this case turns out to be a notably weak candidate for class treatment. “Apart from the usual negatives, there are no positives.” Common issues of law or fact not predominate over the issues particular to each purchase and purchaser of a “stainless steel” Kenmore dryer. The plaintiff claims to believe that when a dryer is labeled or advertised as having a stainless steel drum, this implies, without more, that the drum is 100 percent stainless steel because otherwise it might rust and cause rust stains in the clothes dried in the dryer. Do the other 500,000 members of the class believe this, asked the court? Does anyone believe this besides Mr. Thorogood? It is not as if Sears advertised the dryers as eliminating a problem of rust stains by having a stainless steel drum. There is no suggestion of that. It is not as if rust stains were a common concern of owners of clothes dryers. There is no suggestion of that either, and it certainly is not common knowledge.

Accordingly, the evaluation of the class members' claims will require individual hearings. Each class member who wants to pursue relief against Sears will have to testify to what he understands to be the meaning of a label or advertisement that identifies a clothes dryer as containing a stainless steel drum. Does he think it means that the drum is 100 percent stainless steel because otherwise his clothes might have rust stains, or does he choose such a dryer because he likes stainless steel for reasons unrelated to rust stains and is indifferent to whether a part of the drum not easily seen is made of a different material? In granting class certification, the district judge said that because “Sears marketed its dryers on a class wide basis ... reliance can be presumed.” Reliance on what? On stainless steel preventing rust stains on clothes? Since rust stains on clothes do not appear to be one of the hazards of clothes dryers, and since Sears did not advertise its stainless steel dryers as preventing such stains, the proposition that the other half million buyers, apart from Thorogood, all shared this understanding of Sears's representations and paid a premium to avoid rust stains is, to put it mildly, implausible, and so would require individual hearings to verify.
 

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The California court of appeals has upheld class certification of claims that Hewlett Packard laptops were defective because an allegedly flawed component caused the screens to dim. Hewlett-Packard Co. v. Superior Court of Santa Clara County (Rutledge), 2008 WL 4368563 (Cal.App. 6 Dist. 9/26/08).

Plaintiffs alleged violations of the California Bus. & Prof. Code Section 17200, the unfair competition law; and the Consumer Legal Remedies Act, Civ. Code Section 1750; and also made claims for breach of express warranty. In August 2005, plaintiffs filed a motion for certification of a class consisting of all persons and entities who own or owned certain HP computers, listed by product number, “who contacted HP about a lack of visibility of the display screen.”  HP opposed the motion, contending plaintiffs had not shown either that common issues of fact and law predominated or that there was an ascertainable class. Specifically, HP presented evidence that of the approximately 118,514 class model computers sold under the Pavilion brand name, only approximately 4,716 were reported to need repairs due to display screen problems. And that the causes were individual.

In November, 2005, the court determined that the proposed class definition was flawed, but that it would consider a subsequent motion should plaintiffs cure the defect. On August 30, 2006, plaintiffs filed a supplemental memorandum in support of their motion for class certification. Plaintiffs re-defined their proposed class as “[a]ll persons or entities who own or owned one or more of the following HP Pavilion notebook models: [model numbers]; [a]nd the computer contained or contains [a certain specific] inverter, [part numbers].”  The crux of the plaintiffs' claim was that the HP notebook computers contained types of inverters that would likely fail and cause the screens to dim and darken at some time before the end of the notebooks' "useful life," according to the court.  Inverters regulate electricity flowing to the display screen.

At the November, 2006 hearing on the supplemental motion, the court asked the parties to provide briefing on the effect of Daugherty v. American Honda Motor Co., Inc., 144 Cal.App.4th 824, 51 Cal.Rptr.3d 118 (2006), a case involving express warranties that had just been decided in October, 2006.

Eventually, the trial court certified the class. In its order certifying the class, the court stated that it was not ruling on the effect of the principles set forth in the Daugherty case. Following the California Supreme Court's denial of the petition for review in Daugherty, HP filed a motion for decertification on February 27, 2007, requesting the trial court rule on the effect that Daugherty had on the class certification. The court denied the motion in March, 2007, saying it was premature, so HP filed a petition for peremptory writ of mandate with the appeals court, which stayed the matter.

In Daugherty, the California Court of Appeal, Second District, held there can be no claim for breach of express warranty or unfair competition law violations arising from proof that "the manufacturer knew at the time of the sale that the component part might fail at some point in the future." HP focused on its holding that an express warranty does not extend the claims of defect beyond the warranty period. HP asserted Daugherty's rationale specifically limits its potential liability for the allegations set forth by plaintiff, making the issues individual, rather than subject to common proof. Moreover, HP argued the trial court erred in refusing to apply the principals of Daugherty to the determination of class certification.

In Daugherty, the plaintiffs were owners of Honda automobiles with an allegedly defective engine. The plaintiffs alleged that Honda had actual notice that the engines were experiencing severe mechanical problems due to oil leaks, but failed to provide adequate notice of the defect to owners of affected models. The plaintiffs first discovered the defects in their cars after the express warranty term of three years or 36,000 miles. The plaintiffs contended that “because the language of Honda's express warranty did not state that the defect must be ‘found,’ ‘discovered’ or ‘manifest’ during the warranty period, the warranty covers any defect that ‘exists' during the warranty period, no matter when or whether a malfunction occurs.” But the Daugherty court held: “[w]e agree with the trial court that, as a matter of law, in giving its promise to repair or replace any part that was defective in material or workmanship and stating the car was covered for three years or 36,000 miles, Honda did not agree, and plaintiffs did not understand it to agree, to repair latent defects that lead to a malfunction after the term of the warranty.”

Thus, Daugherty holds that failure of a component part after the expiration of the express warranty does not support a claim for relief under an express warranty claim. Daugherty holds there can be no claim for breach of express warranty or UCL violations arising from proof that the manufacturer knew at the time of the sale that the component part might fail at some point in the future. This would seem to cover plaintiffs' claim that certain HP notebook computers contained types of inverters that HP knew would likely fail and cause the screens to dim and darken at some time after warranty but before the end of the notebook's “useful life.”

However, the court of appeals found that while Daugherty may have implications for the merits of the underlying HP action, and indeed may serve to bar claims by plaintiffs that occurred outside the warranty period, it does not affect a determination of class certification. Daugherty was distinguished from the present action because it related to a substantive question on demurrer rather than a procedural question as here on a motion for class certification.

The court felt that if it were to accept HP's argument regarding the application of Daugherty to the present action, it would be considering the merits of the underlying action. And the question of class certification “does not ask whether an action is legally or factually meritorious.”

The court of appeals seemed to miss the point. While a court generally should not determine the merits of a claim at the class certification stage, it is appropriate to consider the merits of the case to the degree necessary to determine whether the requirements of class action rule will be satisfied. It may be necessary to analyze the plaintiff's factual allegations, the record evidence pertinent to class issues, and the applicable law in order to understand and evaluate the propriety of the class device. A court should look past the pleadings in order to determine whether a plaintiff's case meets the technical requirements for class certification. A court does not probe the merits when it probes behind a plaintiff's allegations because it is necessary to determine whether, if the class were certified, the issues presented could fairly and efficiently be resolved with respect to all the absent class members, based on the proof offered on behalf of only the named plaintiffs. Some inquiry into the substance of the plaintiff's case may be necessary for identifying the issues in the case and determining whether the complaint meets the requirements of commonality, typicality, and adequacy of representation, and what California calls community of interest. Evidence relevant to the class issues is often intertwined with the merits.
 

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The Consumer Product Safety Commission held a public meeting last week to discuss issues of testing and certification under the Consumer Product Safety Improvement Act (CPSIA). The meeting followed up on a September meeting regarding the accreditation of laboratories for third-party testing.

Readers of MassTortDefense will recall from other posts that the legislation increased CPSC budget, staff, and enforcement powers. The law mandates reduction of the amount of lead in toys; calls for third-party testing of certain children's products; raises allowable penalties for violations. And the Act has a number of potentially vexatious provisions for product sellers, including a broad protection of so-called employee whistleblowers. Such employees falling under the Act can seek to get their job back temporarily, and then after a hearing, permanently, with back pay, attorney fees, expert witness fees, and undefined compensatory damages. The former employee apparently needs to show that one, but not the only, reason for the firing was probably that the worker was or was about to start complaining about a product safety issue. It may be that prudent sellers will want train their management teams about the new provisions.

A second controversial provision was the move that state attorneys general can now take enforcement actions and seek the penalties that the commission could have. The aggressive approach of the National Association of Attorneys General (NAAG) members in the past may suggest that prudent national manufacturers who learn of a potentially substantial product safety situation will be better off negotiating a settlement with the federal agency rather than have the issue battled out in multiple state courts.

Third, the Act’s emphasis on independent lab certification of various products has caused some larger companies that have their own testing laboratories to consider divesting in-house laboratories.

At the meeting, participants discussed the requirement for certification of general conformity with all applicable requirements under any of the Acts administered by the CPSC, which becomes effective in November of this year. In response to questions on what the certificates should look like, CPSC plans to post a sample certificate on its Web site.

Officials of the CPSC assured attendees they are not out to play "gotcha" with manufacturers and importers, but the agency wants to ensure full compliance with the product certification requirements of the new law. There are significant penalties for noncompliance, including the destruction of imported goods that are not certified. When a product is imported, the foreign manufacturer and the importer both must certify that the product complies with all requirements, unless the commission exempts one or the other. Certification is required for products that are subject to a standard or ban, and are imported into the United States for consumption or warehousing. The Act provides that if there is no certificate, or a false certificate is furnished, the products will be refused entry. If the products are refused admittance into the United States, they may be destroyed, and the costs of destroying the products will be paid by the owner or consignee.

CPSC Acting Chairman Nancy A. Nord has agreed that the new law is "incredibly complex," and the agency will have to undertake about 40 new rulemakings to flesh out its provisions.  Among the likely forthcoming rules that will require certification are lead content, infant and toddler products, toys, phthalate, ATVs, drain covers for pools, and others.
 

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Quality control investigators in China have announced they had found a dangerous protein substitute in dairy products produced by 20% of the Chinese companies that make infant formula. Reports are that more than 12,000 children had been hospitalized, most with kidney ailments, and 40,000 with less severe symptoms have been treated without admission. At least three have been killed.

Melamine, a protein imitator that is toxic, was used as a cheaper fill, and was found in the test samples. Melamine is the same protein replacement used in the Chinese-made pet food that killed thousands of cats and dogs last year.

What is the impact for readers of MassTortDefense? Several major Chinese dairy companies involved have international investors. But none of the formula products were exported to North America. The FDA said there is no known threat of contamination in infant formula manufactured by companies that have met requirements to sell the formula in the United States. However, FDA is investigating whether infant formula manufactured in China is being sold in markets here that serve the Asian community. And the FDA is alerting consumers that seven "Mr. Brown" instant coffee and milk tea products are being recalled by a Taiwanese company, due to possible contamination with melamine.

The developing food safety scandal has called into question, yet again, the effectiveness of China’s quality control system in general, and the country's new food safety regime in particular. Last year’s spate of product recalls, including drugs, toys, pet food and tires, placed the spotlight on China's quality control problems. MassTortDefense has posted on this here and here. Now comes the news that the newly enacted food safety recall system was not activated for at least two weeks after the problem became known to local officials, and the prime minister of New Zealand (an importer) charged the matter was covered up for several weeks while the Beijing Olympics were underway. Thus, thoughts naturally turn to efforts importers may mitigate the risks. A recent article in Risk Management Magazine offers a broad perspective on this. (Kent Kedl, Risk Strategies for the Chinese Market , published by the Risk and Insurance Management Society, which targets corporate risk managers.) At bottom, it is risk management to avoid a potential mass tort.

First, plan Strategy before Structure. In recent years, the Chinese government has changed its investment regulations to allow --and even encourage-- a variety of business arrangements, from strategic partnerships to wholly foreign-owned enterprises, to full acquisitions. RM suggests that companies coming to China must first ignore the "how" of structure and first focus on the "why" of their strategic intent for China: What products will have the most play? What segments of the market should they target? What distribution channels should they use? Who will be the major competition and how can they structure a defensible and sustainable value proposition?

Second, they advise companies to Get Close to the Market. Clearly, there are Chinese factories that have had quality issues, but the fact remains that there are millions of products coming out of China every month, most of which have no problems whatsoever. Maybe, then, the question should be how best to manage product quality, because someone is doing it right. Kedl and RM suggest that foreign companies need to manage their vendors on an ongoing basis. Meet with suppliers; validate the supply chain; don’t worry about price and on-time delivery to the exclusion of all else. Companies sourcing from China should consider putting their own people on the ground to manage their supply chain, establish and monitor their own quality systems, and maintain ongoing relationships with the vendors. This approach may raise a company's fixed costs but, in the long run, may greatly lower the risk associated with having products made in an emerging market.

Third, recognize that Relationships Matter. Early successful foreign entrants to China worked hard to build a relationship network for themselves. As China has developed a more credible legal framework and a more predictable market environment, however, foreign companies too often have believed they no longer need that social network and that, instead, they can do it on their own. RM suggests that may be a mistake.

Ongoing events put a premium on efforts by both China and the U.S. in implementing the 2007 Memorandum of Agreement (MOA) on food and feed safety. The MOA established a bilateral mechanism to provide greater information and other assurances to enhance the safety of food and feed products traded between the two countries. The countries have improved the exchange of information on food safety and on the relevant regulatory systems. The U.S. has agreed to conduct training for Chinese officials on U.S. regulatory standards. Each has designated new emergency contacts and notification thresholds for import safety issues. The two countries have also been working towards an electronic certification system between the FDA and China's General Administration of Quality Supervision, Inspection and Quarantine to ensure that Chinese exports meet FDA standards for safety and manufacturing quality. The countries also agreed to increase their focus on inspection, supervision and laboratory testing of Chinese imports. Finally, the report described the establishment of a cooperative mechanism to notify each other of significant risks to public health related to product safety or the gross deception of consumers, and to share information to facilitate each other’s investigation.
 

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California – already one of the most aggressive states in regulating chemicals – has passed legislation designed to give state regulators new authority to regulate chemicals in consumer products. The bills are the companion measures, A.B. 1879 and S.B. 509. The state Senate approved its bill late last month. The Governator is expected to sign them in the near future.

The legislation is part of a so-called “green chemistry” initiative, launched more than a year ago. The program is designed to change the state's current chemical-by-chemical regulatory approach and focus on identifying chemicals of concern and exploring opportunities for safer alternatives before they are in widespread use.

The state Department of Toxic Substances Control conducted a series of public workshops and expert meetings to gather ideas on how to implement the initiative. One of the outcomes is the new legislation.  The bills, first, would give the state Department of Toxic Substances Control two years to develop a plan to identify and evaluate chemicals of concern and study alternatives to the chemicals. The measure requires the creation of a "Green Ribbon Science Panel" to advise the department in this task.

Second, the state would have authority to restrict use or ban chemicals from being used in consumer products in the first place – as opposed to regulating a chemical after it has been used as an ingredient. The bill proposes creation of a process to evaluate products for green chemistry regulation, including a multi-factorial life-cycle set of criteria to be considered, including the product’s manufacturing process, use characteristics, and its waste and end-of-cycle disposal.  Specific regulatory outcomes might range from disclosure of additional information regarding a chemical of concern and its potential alternatives; labeling or other types of consumer product information sharing; restrictions on the use of the chemical; to outright prohibition of the use of the chemical.

Third, the bills would require the department to create an Internet-based, publicly accessible Toxics Information Clearinghouse for data on chemicals and potential hazards. 

Some lawmakers supported the legislation because it would take the job of banning chemicals out of the hands of the state legislature. Clearly, the proactive philosophy of the legislation, as opposed to reacting to possible risks after the fact, appealed to some others. If the approach, and particularly the expert panel, takes some of the public hysteria and media frenzy out of the process, there may be an improvement to the rationality of the process. The product’s potential functions and the economic impact of regulating the chemical are supposed to be relevant factors considered.

Whether the green chemistry initiative has a significant impact on mass tort and toxic tort litigation remains to be seen. A more rational, science-based approach could curtail risks and undermine frivolous suits where general causation – the ability of the chemical to cause a disease – is far from clear.

The text of A.B. 1879 and S.B. 509 is available here.  

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The U.S. Food and Drug Administration has released a draft report finding that the chemical bisphenol A does not pose a serious health risk. BPA is used in several products, including some plastic baby bottles, food containers, and water bottles. The chemical is added to make polycarbonate plastic bottles clear and shatterproof.

As MassTortDefense has noted before, and here, BPA has been much in the news. In May, 2008, FDA officials told a congressional panel that the agency had no reason to recommend that consumers stop using products containing BPA.  FDA has been examining the data on BPA in anticipation of a September meeting on the issues surrounding the potential toxicity of the chemical. The new draft document will be reviewed by the Bisphenol A Subcommittee of the FDA Science Board on Sept. 16th. Details on the science panel's meeting can be found here.

The new assessment was particularly focused on the concerns for developmental toxicity identified in recent assessments of BPA, including those of the National Toxicology Program and their expert panel, based on animal data. FDA concluded that this data was insufficient to merit a change in the exposure levels the agency currently allows for BPA. FDA concluded that an adequate margin of safety exists for BPA at current levels of exposure from food contact uses, for infants and adults. This assessment represents a full examination of data considered pivotal to the relevant exposure levels associated with food contact substances, the FDA said.

To avoid underestimating risk, FDA said it made the conservative assumption that an infant drank only formula from cans lined with a bisphenol A-based enamel coating and that the parents heated that formula in polycarbonate baby bottles. Based on such assumptions, FDA estimated that an infant might consume up to 2.42 micrograms bisphenol A per kilogram body weight. Based on animal studies, FDA estimated that the no observed adverse effect level (NOAEL) for bisphenol A would be 5 milligrams per kilogram body weight. That means the margin of exposure, or the difference between infants' exposure and the NOAEL, is about 2,000x. That is, FDA said, "an adequate margin of safety...."

FDA's draft conclusion is consistent with the European Food Safety Authority's July 23 statement that it considers current uses of bisphenol A to be safe. FDA's draft assessment called for more research, and said data from nonhuman primates would be helpful, along with measurements of bisphenol A in the U.S. population. 
 

In other BPA news, the California Assembly rejected a bill (S.B. 1713) that would have banned bisphenol A in children's products, specifically BPA at levels above 0.1 part per billion in baby bottles, cups, food containers, or any other container designed for children under the age of 3 years. By Jan. 1, 2012, S.B. 1713 would have barred the sale of any liquid, food, or beverage in any can or jar containing 0.5 ppb or more of bisphenol A. The American Chemistry Council and numerous experts have contended the products the bill would ban are safe.
 

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In a putative class-action suit alleging deceptive conduct by producers of smokeless tobacco products pursuant to the Pennsylvania Uniform Trade Practices and Consumer Protection Law, the Third Circuit has overruled a district court’s denial of defendants’ motion to dismiss, remanding the case for further proceedings under the rubric that a complaint alleging deceptive conduct must allege that plaintiff justifiably relied on defendant's wrongful conduct or representation.

In Hunt v. U.S. Tobacco Co., 2008 WL 2967249 (3d Cir., August 05, 2008), the Third Circuit considered whether a private plaintiff alleging “deceptive” (rather than fraudulent) conduct under the amended so-called catch-all provision of the Pennsylvania Uniform Trade Practices and Consumer Protection Law must prove that he justifiably relied on the defendant’s alleged deceptive conduct or statements.

Hunt and proposed class members alleged that U.S. Smokeless Tobacco Co. engaged in anti-competitive behavior that artificially inflated the price of the company’s moist smokeless tobacco products. Hunt claimed that consumers “relied on a presumption that they were paying prices set by an efficient market, when in fact they were paying prices artificially inflated by the anti-competitive and deceptive conduct.” The alleged misconduct was framed as consumer deception in violation of Pennsylvania’s Uniform Trade Practices and Consumer Protection Law. Specifically, plaintiff brought suit under the so-called “catch-all provision” of the Consumer Protection Law, which proscribes engaging in any fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.

Defendant moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) on the ground that Hunt failed to allege that he had justifiably relied on the alleged deceptive conduct and suffered harm as a result of that reliance. The district court denied the motion, holding that a plaintiff does not need to establish reliance under the catch-all provision of the Consumer Protection Law. Interlocutory review was granted.

The Third Circuit disagreed, focusing on the causation requirement in the Consumer Protection Law’s standing provision, the part permitting suit by private plaintiffs who suffer loss “as a result of” the defendant’s deception. A private plaintiff pursuing a claim under the statute must prove justifiable reliance, otherwise the loss is not as a result of the conduct. See, e.g., Schwartz v. Rockey, 932 A.2d 885, 897 n.16 (Pa. 2007) (“the justifiable reliance criterion derives from the causation requirement” which is express on the face of the statute’s private-plaintiff standing provision). The Pennsylvania intermediate Superior Court had also applied the Supreme Court’s standing rule to the catch-all provision, see Debbs v. Chrysler Corp., 810 A.2d 137, 156–58 (Pa. Super. Ct. 2002).

Pennsylvania thus rejects the approach of those states which interpret their consumer fraud acts, and the “as a result of” kind of language, to require only a mere and tenuous causal connection, which could be established by, for instance, proof that a misrepresentation supposedly inflated a product’s price, thereby injuring every purchaser because he paid more than he would have paid in the absence of the misrepresentation. [Even then, one wonders about proof that the plaintiff would not have happily paid the other price even knowing the info.] A justifiable reliance requirement, by contrast, requires the plaintiff to go further—he must show that he justifiably bought the product in the first place (or engaged in some other detrimental activity) because of the misrepresentation.

Indeed, the Third Circuit has already interpreted the justifiable reliance/standing requirement to apply to multiple substantive subsections of the Consumer Protection Law.  In Tran v. Metro. Life Ins. Co., 408 F.3d 130, 139–41 (3d Cir. 2005), the court observed that the plaintiff was wise to retreat at oral argument from his contention that, because he alleged only unfair business practices and deceptive conduct, not fraud, he need not allege justifiable reliance.

Such a reading is especially appropriate because the justifiable-reliance requirement emanates not from the catch-all provision that the legislature added to the consumer fraud act in 1996, but rather from the private-plaintiff standing provision. A private-plaintiff standing provision, by its nature, applies to all private plaintiffs, whatever substantive subsection of the act they invoke, for its purpose is to separate private plaintiffs (who may only sue for harm they actually suffered as a result of the defendant’s deception) from the state Attorney General (who typically may sue to protect the public from conduct that is likely to mislead).

The Third Circuit then went on to find that Hunt had not adequately alleged reliance. Hunt’s complaint was that defendant’s alleged “deception, including its affirmative misrepresentations and omissions concerning the price of moist smokeless tobacco products, likely misled all consumers acting reasonably under the circumstances to believe that they were purchasing moist smokeless tobacco products at prices born[e] by a free and fair market.” No real reliance there. And the court rejected Hunt’s suggestion that he enjoys a presumption of reliance, as this suggestion is inconsistent with Pennsylvania case law. Hunt could not enjoy a presumption of what he must prove affirmatively—that is, under the Consumer Protection Law, Hunt must prove justifiable reliance affirmatively.

Case remanded for consideration whether plaintiff should get leave to amend.
 

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On August 13th, the JPML created MDL 1967, IN RE: BISPHENOL-A (BPA) POLYCARBONATE
PLASTIC PRODUCTS LIABILITY LITIGATION.

The panel's order found that these actions share factual questions arising out of allegations that various defendants manufactured, sold or distributed polycarbonate plastic bottle products containing Bisphenol-A without disclosing its possible harmful effects. The cases were assigned to Judge Ortrie Smith of the Western District of Missouri.

At the time of the motion to create the MDL, this litigation consisted of fourteen actions pending in eight districts as follows: four actions in the Central District of California; two actions each in the Eastern District of California, the Western District of Missouri, and the Western District of
Washington; and one action each in the Eastern District of Arkansas, the District of Connecticut, the Northern District of Illinois, and the District of Kansas.

While the motion was pending, the Panel was notified that nine additional related actions have been filed: three actions in the Central District of California, and one action each in the Eastern District of Arkansas, the Northern District of Illinois, the District of Kansas, the Western District of Missouri, the Southern District of Ohio, and the Western District of Washington. These actions will be treated as potential tag-along actions.
 

MassTortDefense has posted on BPA and here.  BPA received considerable recent attention due to widespread human exposures and concern for possible reproductive and developmental effects reported in laboratory animal studies. A recent draft report by the Center for the Evaluation of Risks to Human Reproduction (CERHR) of the National Toxicology Program (NTP) examined the Food and Drug Administration finding that bisphenol-A is safe when used to line infant formula cans. The CERHR/NTP draft report expressed "some concern" based on animal studies that the chemical might affect the neurological systems and behavior of fetuses, infants, and children.

The NTP Brief on Bisphenol A is not a quantitative risk assessment, nor is it intended to supersede risk assessments conducted by regulatory agencies. The NTP Brief on Bisphenol A does not present a comprehensive review of the health-related literature; it does not include a comprehensive analysis of the issues related to this chemical. The NTP report relies heavily on animal testing, rather than human epidemiology. Regarding the neural and behavioral effects reported in some studies of rats and mice at relatively low BPA doses, the Panel authoring the report also acknowledges that it is not even clear whether these effects should be construed as an adverse toxicological response. The draft report does not conclude that BPA is dangerous. It notes that further research is needed – that’s the right approach to new data or concerns about a product that has been in use for decades. And the key reported low-dose effects are not replicated or corroborated.

The European Food Safety Authority recently concluded a report with a key conclusion that after exposure, the human body rapidly metabolizes and eliminates BPA. This represents an important metabolic difference compared with rats, and suggests certain animal models are not all that useful. That is, people metabolize and excrete BPA far more quickly than rodents. This evidence further limits the relevance of low-dose effects of BPA reported in some rodent studies used for human risk assessment.

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Despite some concerns, President Bush on Thursday signed into law the Consumer Product Safety Improvement Act of 2008. A White House spokesman was quoted as saying, "This bill will help to ensure that the products Americans find on their store shelves are safe, and that the regulating agencies have the resources they need to enforce law."  Useful summary here.

The Act will increase funding for CPSC over five years; add whistleblower protections for employees of manufacturers and sellers; require third-party testing of certain children's products; adopt an interim toy safety rule and require CPSC to make new safety rules for toys; create a public database for consumer reports; ban six types of phthalates and lowers lead levels in certain products for children. Three of the phthalates would be temporarily banned pending further study. The American Chemistry Council said although there was no scientific basis for the phthalate restriction, they understood consumer concerns and were committed to working with the CPSC and others to conduct the studies.

One of the most controversial aspects empowers state attorneys general to enforce federal consumer rules.
 

MassTortDefense has posted about the legislation here and here.
 

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A federal district court has rejected a proposed nationwide class action in the litigation alleging that Hewlett Packard engaged in unfair and deceptive conduct in connection with the “smart chip” technology in its ink cartridges. In re HP Inkjet Printer Litigation, 2008 WL 2949265 (N.D.Cal. July 25, 2008). According to Plaintiffs, the “smart chips” are programmed to indicate prematurely that replacement is needed, when in fact “hundreds of additional pages” of ink remain. The “smart chip” technology allegedly also renders cartridges unusable on a concealed, built-in “expiration date,” which is the earlier of thirty months after installation or thirty months after a factory-set “install-by” date, regardless of the amount of usable ink remaining. Plaintiffs claim that HP's “SureSupply” marketing campaign falsely promised consumers an easy way to maintain adequate printer supplies that saves time and money while failing to disclose the premature ink warnings and built-in expiration dates. HP makes some of the best printers in the world and stands behind its technology.

Plaintiffs asserted several claims for relief including: (1) breach of express warranty; (2) breach of implied warranty; (3) unjust enrichment; (4) violations of several California consumer fraud statutes. The court addressed competing motions – defendant's for summary judgment and plaintiffs' for class certification.

Defendant moved for summary judgment, contending that named plaintiffs did not have standing because they cannot prove that they ever received a “low on ink” warning. However, the court found an issue of fact based on their deposition testimony, despite the fact they could not remember the precise wording of the low ink message received and did not recognize the actual message when shown it by opposing counsel at the deposition. “While the evidence is weak,” a reasonable jury could find that each named plaintiff has suffered a cognizable injury, said the court.

Specifically regarding the warranty claim, while neither plaintiff identified the precise language of the statements upon which he allegedly relied, the court found that recitation of the precise language is not an element of an express warranty claim. Again, while Plaintiffs' evidence is weak, it was sufficient to survive summary judgment.

No Class

Importantly for readers of MassTortDefense, the court rejected the proposed class. First, plaintiffs were seeking to represent the claims of a nationwide class without addressing any of the complexities involved in doing so. Plaintiffs appeared to simply presume that California law should apply to all putative class members nationwide; they made no attempt to satisfy their burden of establishing that the application of California law to the entire proposed class would be appropriate under Rule 23(b)(3). Plaintiffs did not adequately address any of the potential jurisdictional and due process limitations upon the application of California law to the claims of non-resident class members. Second, the plaintiffs did not address the potential choice of law problems that would arise should the court certify a nationwide class, noting each class member's home state has an interest in protecting its consumers from in-state injuries caused by foreign corporations and in delineating the scope of recovery for its citizens under its own laws.

In contrast to plaintiffs' dropping the ball, HP submitted a detailed analysis of the variations in state consumer protection and deceptive trade practice laws. This analysis demonstrates the many differences among states with respect to, for example, statutes of limitations, scienter requirements, and calculation of damages. See, e.g., In re Bridgestone/Firestone, 288 F.3d 1012, 1017-18 (7th Cir.2002) (“State consumer-protection laws vary considerably, and courts must respect these differences rather than apply one state's laws to sales in other states with different rules.”).

Based on the record before it, the court concluded that the proposed nationwide class would be unmanageable.
 

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Recently, MassTortDefense posted about a proposed class action alleging lead in lipstick. See Stella v. LVMH Perfumes and Cosmetics USA Inc., No. 1:07-cv-06509, 2008 WL 2669662 (N.D. Ill. 7/8/08). The Northern District of Illinois denied the motion to dismiss consumer fraud claims. Now, a federal judge has thrown out a purported class action against L’Oreal USA Inc. and Procter & Gamble Distributing LLC that accused the companies of selling Cover Girl and Maybelline lipsticks containing lead. Koronthaly v. L’Oreal USA, Inc., et al., No. 07-5588 (D.N.J. July 29, 2008), opinion found here.

The plaintiff brought various claims, including unjust enrichment, breach of implied warranty and violations of the New Jersey Consumer Fraud Act. The plaintiff asked the court to enjoin the companies from carrying the lipsticks at issue and requested compensatory damages to recover the money she allegedly spent on the products. She also asked for damages to cover the costs of medical monitoring to detect lead poisoning. Plaintiff contended she would not have bought the lipsticks if the defendants had revealed that they contained the lead.

In contrast to the ruling in Illinois, the New Jersey District Court found the plaintiff lacked standing to sue since she had alleged no injury, harm or ascertainable loss from having purchased the lipstick. Plaintiff's allegations of a merely potential future injury were too remote and abstract to qualify as a concrete and particularized injury. Plaintiff had not alleged any present injury. Plaintiff's mere demand for damages did not establish injury-in-fact either. Plaintiff bought lipstick and used the lipstick, only complaining that the lipstick's alleged levels of lead were unsatisfactory to her. The FDA does not provide limitations on lead levels in lipstick. The FDA does not otherwise regulate lipstick. The plaintiff's analogy to lead in candy was insufficient. Plaintiff cannot seek a remedy for a harm that she has not actually or allegedly suffered.

The plaintiff's allegation of economic injury in a products liability action is insufficient to establish an injury-in-fact. The plaintiff had suffered no ill effects from use of the product, and had not alleged that any future harm was expected. The so-called benefit of the bargain injury could not sustain a claim under these circumstances.

What is interesting is that the court's analysis focused not so much on the elements of the state statue, but the requirement of standing under Article III. The triad of injury in fact, causation, and redressability comprises the core of Article III's case or controversy requirement. Plaintiff's alleged injury was too conjectural and hypothetical to satisfy the injury in fact requirement. Plaintiff thus lacked standing to bring her claim. And standing cannot be "acquired through the back door of a class action."

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A federal court has denied Whirlpool Corp.’s motion to dismiss in a proposed class action arising over allegedly defective ice chutes in the company’s side-by-side refrigerator models. Nessle v. Whirlpool Corp., No.1:07-cv-03009 (July 25, 2008 N.D. Ohio). See here.

Judge Christopher Boyko denied the motion, finding plaintiff had sufficiently pled the key elements required to allege a claim under the Ohio Consumer Sales Practices Act. MassTortDefense has posted before on the growing impact of state-law based consumer fraud class actions.

Nessle purchased a Whirlpool-manufactured side-by-side refrigerator in May, 2006. The refrigerator came with a one-year limited warranty. It was sold under Whirlpool’s “Gold” label, which Nessle alleges she took to mean that the product was special and worth purchasing at a premium, or at a minimum would work properly, according to the opinion. Within a few weeks of purchasing the refrigerator, Nessle claimed, she began experiencing problems with the ice dispensing function of the refrigerator’s ice maker, including clogs in the ice chute. A service technician was dispatched to service the ice maker on several occasions, the complaint claimed. But plaintiff alleged that the ice chute would allegedly jam up and freeze again.

The lawsuit, filed in October, 2007, claims Whirlpool was aware of an alleged design defect in the refrigerators and failed to disclose the defect. It seeks to represent a statewide class consisting of all current and former Ohio residents who have, since 2000, purchased a side-by-side Whirlpool refrigerator with a purportedly defective ice chute. The complaint seeks an order requiring Whirlpool to repair or replace the defective ice chutes, as well as monetary relief.

Whirlpool argued that plaintiff failed to plead any act or omission by the company that would constitute an unfair or deceptive act under the OCSPA. Second, plaintiff had failed to adequately plead the element of proximate cause.

The court gave a narrow reading to the Supreme Court guidance in Bell Atlantic v. Twombly, 127 S.Ct. 1955 (2007), as requiring only enough facts to state a claim that is plausible on its face. Of course, the Court also has stated that, “Factual allegations must be enough to raise a right to relief above the speculative level.” Id. at 1965.

On the conduct element, and the use of the term “Gold,” the court relied on the purpose of the Act to compensate consumers and the need to “liberally construe” such legislation.  One would presume that beyond the motion to dismiss stage a serious challenge exists to plaintiff's alleged interpretation of the term "Gold." 

On the causation issue, defendant stressed that plaintiff did not contend the “Gold” label affected her decision to buy her refrigerator, and that Plaintiff did not read, hear, or see any statements of fact by Whirlpool prior to purchasing the refrigerator. Defendant’s argument, the court said, is “largely unpersuasive” because there is no provision in the statute itself requiring Plaintiff to show reliance on any statement of fact or omission. While proximate cause is an essential element of an OCSPA claim, the court relied on dicta from the Sixth Circuit that “a showing of subjective reliance is probably not necessary to prove a violation of the OCSPA.” Butler v. Sterling, Inc., No. 98-3223, 2000 WL 353502 at *4 (6th Cir. Mar. 31, 2000).

The court also relied on an intermediate appeals level state court opinion, which the court read to suggest  that individual reliance is not necessary with regard to class action suits under the state consumer fraud act. Amato v. General Motors Corp., 11 Ohio App. 3d 124, 126 (1982). In Amato, the court specifically noted: “[C]onsumer claims would amount to little if acceptance of the representations made for the product could be manifested only by one-on-one proof of individual exposure.”   MassTortDefense notes that that 25 year-old opinion actually held that proof of reliance may be sufficiently established by inference or presumption from circumstantial evidence to warrant submission to a jury without direct testimony from each member of the class. That does not mean that reliance is not relevant to the causation element. And how one proves causation in an alleged fraud case without showing reliance of some sort is an issue many state courts have refused to clarify in their desire to have the reliance element not defeat consumer class actions (as a dominant individual issue). 

Judge Boyko also let stand Nessle’s claim for breach of implied warranty of merchantability, and unjust enrichment, but dismissed the claim for breach of express warranty. “The written warranty contains no language pertaining to the reliability or performance of the ice maker, and provides only for repair or replacement of any defective parts during the one-year limited warranty period.”
 

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A federal court last week refused to certify two different classes of plaintiffs in multidistrict litigation that accuses ConAgra Foods Inc. of selling salmonella-contaminated peanut butter. In Re ConAgra Peanut Butter Products Liability Litigation, MDL-1845, 2008 WL 2885951 (N.D.Ga., July 22, 2008). 

The MDL transferee court ruled that the plaintiffs' economic claims (unjust enrichment) and personal injury claims were not suitable for class certification on predominance, manageability (choice of law), and superiority grounds (alternative means for resolution).

The litigation arises from the illness of several hundred people in numerous states; plaintiff class action lawyers allege the clients became ill from salmonella poisoning after eating ConAgra's peanut butter manufactured at its Sylvester, Ga., plant.

The plaintiffs had asked the court to certify two classes: a class of purchasers of the peanut butter, which was allegedly rendered “unusable and valueless” when the product was recalled; and a class of plaintiffs who consumed the peanut butter and claimed personal injury.

The court first rejected the plaintiffs' argument that it should apply Georgia's choice of law rules in the case. In multidistrict litigation, under 28 U.S.C. § 1407, the transferee court applies the state law that the transferor court would have applied. Murphy v. F.D.I.C., 208 F.3d 959, 965 (11th Cir. 2000). When this action was consolidated, separate actions had been filed in 10 different states. Thus, the MDL court needed to apply choice of law rules from each of the transferor courts, the court said. The obvious inference from that situation alone is that the class would be unmanageable.  Even if a class is not ipso facto unmanageable due to the application of different choice of law rules, there is substantial conflict between Georgia substantive law and other jurisdictions on the issues raised. On unjust enrichment, some states have a common law claim; others have a preemptive statute.  Privity is required in some; some but not all states require a direct benefit conferred by the plaintiff upon the defendant as a prerequisite; some but not all states have a state of mind requirement for recovery, etc. The court also found that proving damages under the unjust enrichment claim would require individualized determinations.

The un-manageability arsing from the choice of law issue also impacted the absence of superiority, what the court called the “inferiority of classwide resolution due to discerning the many differing legal standards.” Moreover, the defendant's refund program provided an alternate way of addressing the claim.

The court also declined to certify the class pursuing a personal injury claim, even a  limited "issues" class. The court found that such an issues class would not promote judicial economy or materially advance the litigation. “Although the defendant has not formally admitted liability, it is highly unlikely that it will deny that salmonella-contaminated peanut butter is a defective product and makes people sick who eat it,” the court said.

The importance of this reasoning to readers of MassTortDefense is that it points out that in balancing predominance, and assessing superiority and manageability, the court needs to take a realistic view of what issues will actually be litigated. The trial plan proposed by the parties has to reflect the real issues to be litigated.  The allegedly predominant common issue of defect or defendant negligence is immaterial if that is not an issue on which the parties will spend considerable time and effort.

Moreover, although the court focused on the predominance issue in denying the personal injury class, it made an important observation about the constitutional implications of an issue class or a bifurcated class proceeding. Denying the common issues personal injury class here also avoided "potential constitutional problems." Rule 23(c)(4) issues classes can violate the parties' Seventh Amendment jury trial rights, especially in personal injury cases. Many jurisdictions differ on the details of even a negligence claim.  Such nuances "can be important, and its significant is suggested by a comparison of differing state pattern instructions on negligence and differing judicial formulations of the meaning of negligence and the subordinate concepts.” In re Rhone-Poulenc Rorer, Inc ., 51 F.3d 1293, 1300 (7th Cir.1995).  And there is the very real risk that a second jury (even if just on damages) would have to reconsider some of the liability issues decided by the first jury: too substantial a risk to certify the issues class. The Court thus heeded the "binding authority" which cautions that separate trials of liability and damages must be approached "with trepidation” to avoid offending the Seventh Amendment. State of Alabama v. Blue Bird Body Co., Inc., 573 F.2d 309, 318 (5th Cir.1978).

Yet another important observation by the court was that the plaintiffs' case for class certification collapses when it confronts the fact that certification of a common issues class will not dispose of a single case or eliminate the need for a single trial. Any saving in judicial resources is speculative at best. See Castano v. American Tobacco Co., 84 F.3d 734, 749 (5th Cir.1996). Under the plaintiffs' trial plan, at least 6,000 individual trials on exposure, injury, causation, damages and other individual issues would have to be prosecuted whether or not a class is certified, presumably by the lawyers already retained by the personal injury claimants. The lesson here is the court was willing to "look down the road" to how the case would go.

Finally, another gem on the issue of superiority: While it would be possible, said the court, to have a common issues trial on the issue of, “Can eating peanut butter that is contaminated with the bacteria listed above cause illness?” (i.e. the general causation issue), "why bother having a trial on issues of such abstract generality?"  And a class trial of issues such as what the defendant allegedly knew or should have known and the adequacy of its general plant sanitation practices in relation to the onset of illness for thousands of people -- plaintiffs' quintessential "common" issues -- would require special interrogatories and a verdict form "of unimaginable complexity. I cannot imagine how to fashion a verdict form that would provide meaningful answers...."  

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The approach of the August congressional recess has apparently spurred compromise on the Consumer Product Safety Commission bill. The House passed its CPSC reform bill in December, 2007, and the Senate passed its version, the Consumer Product Safety Commission Reform Act of 2008, in March.  MassTortDefense has posted on the process here and here. And here.

The conference committee has reached an agreement, and will present the new compromise CPSC Improvement Act of 2008 to both houses for a vote, probably late this week.  The House Conference Report is found here.

One sticking issue had been language concerning phthalates, which have been used to soften plastic in children's toys. The original Senate version included a stringent assertedly non-preemptive version of a California law banning toxic phthalates in children's products. But, of course, not all phthalates are created equal. Phthalates are a broad class of chemicals, and each phthalate has distinct properties and safety profiles. The European Union Risk Assessment organization has concluded that one form (DINP) is safe for use in toys, for example. The new bill would ban phthalates from toys and other child-care items.

The compromise bill would name the ASTM international standard No. F963-07 as the temporary safety standard for toys, pending work on a permanent regulation (to take place within a year).  Ideally, this would mean that product safety decisions will be made by experts at the appropriate federal agencies, rather than allow creation of a hodge-podge of varying state standards. But the bill "grandfathers" in, as not preempted, any existing overlapping state regulations on child product safety, and permits states to apply for exemption from preemption for future proposed safety standards.  The CPSC is to consider whether the state standard offers significantly higher protection, the technological and economic feasibility of the standard, and the need for a uniform national standard.

The bill also contains the controversial "whistle-blower" protection provision, and requires third-party testing of certain children's products.  And it would create the consumer product safety database from the original House bill.

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A federal court earlier this month permitted a proposed class action to move forward with its central allegation that Christian Dior lipstick contains excessive levels of lead. See Stella v. LVMH Perfumes and Cosmetics USA Inc., No. 1:07-cv-06509, 2008 WL 2669662 (N.D. Ill. 7/8/08).

Named plaintiff Pamela Stella alleges that she purchased Christian Dior "Addict Positive Red" lipstick, manufactured by LVMH Perfumes and Cosmetics USA Inc., at a Nordstrom department store in June, 2007. The so-called “Campaign for Safe Cosmetics” group issued a report in October, 2007 claiming that tests showed a lead level in LVMH lipsticks which slightly exceeds the regulatory limit established by the Food and Drug Administration for lead content in certain products like candy.  In reality, the average amount of lead a woman would be exposed to when using cosmetics is 1,000 times less than the amount she would get from eating, breathing and drinking water that meets Environmental Protection Agency (EPA) drinking water standards, according to the Cosmetics, Toiletry and Fragrance Association (CTFA).

Plaintiff then sued LVMH in November, 2007 on behalf of a proposed nationwide class of lipstick purchasers. She alleged that the company violated the Illinois deceptive business practices statute and breached an implied warranty of merchantability. She also brought claims for strict liability, negligence per se, unjust enrichment, and injunctive relief.

Judge Elaine E. Bucklo of the U.S. District Court for the Northern District of Illinois denied defendant’s motion to dismiss. She determined that Stella sufficiently alleged a claim under the deceptive trade practices law, including its requirement of actual damages. Stella sought to recover actual damages, the court said, "in the form of pecuniary damages (the cost of the lipstick).” The court also noted that plaintiff had alleged that her reliance on defendant's omission caused her to buy the lipstick and become exposed to lead. “This sufficiently alleges proximate cause.”

The court also agreed with plaintiff that Illinois law would permit medical monitoring as a remedy. The Illinois Supreme Court has not ruled on the question. But in Carey v. Kerr-McGee Chemical Corp., 999 F. Supp. 1109, 1118-19 (N.D. Ill. 1998), the district court had predicted that medical monitoring would be recognized as cognizable under Illinois law.

MassTortDefense has posted on medical monitoring before, here and here. The clear trend has been away from recognizing these claims, see Lowe v. Philip Morris USA, Inc., 344 Or. 403, 183 P.3d 181 (2008), or to narrow their scope. See Sinclair v. Merck & Co., 195 N.J. 51, 948 A.2d 587 (2008).

Where recognized, medical monitoring plaintiffs typically must prove:
1. exposure greater than normal background levels;
2. to a proven hazardous substance;
3. caused by the defendant's negligence;
4. as a proximate result of the exposure, plaintiff has a significantly increased risk of contracting a serious latent disease;
5. a monitoring procedure exists that makes the early detection of the disease possible;
6. the prescribed monitoring regime is different from that normally recommended in the absence of the exposure; and
7. the prescribed monitoring regime is reasonably necessary according to contemporary scientific principles.

Medical monitoring is almost always seen as a potential class action claim, for several reasons:
• First, the individual damages associated with periodic testing of a so-far healthy plaintiff may not be all that financially attractive to plaintiff attorneys.
• Secondly, a number of the elements of the claim (or remedy) of medical monitoring seem, on the surface, amenable to “common” proof in the form of epidemiological evidence. For example, the increased risk that typically must be shown.

When the issue is ripe, it should be clear that such claims are not appropriate for class treatment, as numerous individual issues will arise, including choice of law, properly viewed, in a nationwide class.

Defendant LVMH's also challenged the implied warranty claims, based on the absence of contractual privity between plaintiff and LVMH. But the court narrowly construed the privity requirement to say that Illinois law requires contractual privity as a prerequisite for breach of implied warranty claims only for recovery of economic losses. Voelker v. Porsche Cars North Am., Inc., 353 F.3d 516, 527 (7th Cir.2003). The medical monitoring claim, as "a form of personal injury claim," brought plaintiff out from under this privity requirement, said the court.

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Congress took a step closer last week to finalizing the Consumer Product Safety Modernization Act. The conference committee (including chairs Sen. Daniel Inouye (D-Hawaii) and Rep. John Dingell (D-Mich.)) voted in favor of nine more provisions, further reconciling the different bills that have passed the Senate and House of Representatives. MassTortDefense has posted on the bills here and here.

The lawmakers agreed:
- to ban the export of recalled and nonconforming products, enabling the CPSC to prohibit a U.S. entity from exporting a product out of compliance with CPSC rules unless the importing country has previously notified the Commission of its permission;
- to require certain import safety management and interagency cooperation steps, requiring requires the CPSC to develop a plan to identify shipments of consumer products for import into the U.S.;
- to create a public consumer product safety database and
- to require the public disclosure of certain safety information.

They also adopted provisions to create a substantial product hazard list, mandate the destruction of imported products that don't comply with U.S. laws, require inspectors general to carry out audits and file reports, set new rules on lead paint in children's (12 or under) products and empower state attorneys general to enforce product safety laws.

The CPSC will return to five full members. Both bills (H.R. 4040 and S.2663 would increase funding for the agency. Both versions of the law would establish third-party premarket testing of certain products.

Senators and Representatives are still unable to agree on phthatlate restrictions, mandatory ASTM toy testing standards, preemption, whistleblower protection, mandatory All-Terrain Vehicle standards, and product-specific standards. The conferees also voted on an amendment to allow CPSC to ban importers and local manufacturers from the marketplace for repeat offenses. The Senators unanimously voted in favor while the Representatives unanimously voted against the amendment.

In the first conference on June 25, conferees voted and agreed on 21 noncontroversial items. The conferees have repeatedly said that they are hoping that the legislation passes in time for the August recess, which begins in just about two weeks.

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The Consumer Product Safety Commission has just released its revised import safety strategy document. The comment period on the draft import strategy (which MassTortDefense posted on here) expired in May. The final import plan is now described in the CPSC document, Executive Summary: Import Safety Strategy, found here.

The four-prong plan addresses regulated consumer products at the design, manufacture, distribution, and consumption stages:
I. Engage the private sector and foreign governments to foster both compliance with relevant safety standards and adoption of more effective techniques of identifying potential product hazards;
II. Build safety assurances into the production processes by promoting the use of safety standards by manufacturers, and verifying compliance through third-party testing and inspections where appropriate;
III. Prevent unsafe products through strategically redeploying CPSC resources according to principles of hazard analysis and risk management to target surveillance and inspection of the distribution chain; and
IV. Identify and quickly remove product hazards in the market and provide real-time communications to consumers, foreign governments, and the private sector.

There has been a 100% increase in imports of consumer products into the United States over the last decade. The value of all imported consumer products under the jurisdiction of the CPSC was an estimated $639 billion in 2007. Last year, approximately 42% of these products were from China, and the value of these imports from China nearly quadrupled from 1998 to 2007. While imports currently account for about 44% of all consumer products sold in the United States today, they comprise over three-fourths of all product recalls administered by the agency.

With over $2 trillion worth of products (including those under CPSC jurisdiction) imported into the United States every year by over 800,000 importers at more than 300 U.S. ports of entry, the CPSC must be strategic in its vision and targeted in its use of resources to ensure the products imported into this country are safe. The plan’s theme involves reaching out to foreign agencies and countries to attempt to build safety assurances into production processes. CPSC sees a need to address product safety in the "new global marketplace" with a range of actions beyond the traditional methods of marketplace surveillance and enforcement historically utilized by the Commission. Those actions include memoranda of understanding with 14 foreign regulatory agencies in Canada, China, European Commission, Israel, South Korea, Peru, Chile, Costa Rica, India, Japan, Mexico, Taiwan, Egypt, and Vietnam.

Imports from China, in particular, have recently presented serious issues, as noted by MassTortDefense here and here and here. The CPSC action plan with China's General Administration for Quality Supervision, Inspection, and Quarantine focuses on product safety for fireworks, toys, electrical products, and lighters. The plan employs such steps as exchange of standards information, training on product testing, and exchange of information on emerging hazards. This year, CPSC created a Chinese-language page on its web site. The U.S. in December, 2007 signed two memoranda of agreements with China to enhance the safety of a wide variety of food, feed, drugs, and medical devices.

The release of the plan was accompanied by an updated import action plan update report from the Interagency Working Group on Import Safety, citing progress in import safety strategy and reiterating the call for measures beyond simply inspecting imported products at the border. The report, Import Safety--Action Plan Update, here, outlines steps taken by the federal government and trading partners to improve import safety since the last update in November, 2007. The update cited new enforcement actions, signed agreements with key trading partners, bilateral and multilateral discussions, and critical information shared on best practices. For example, CPSC established its Import Surveillance Division in early 2008, representing the first permanent, full-time presence of CPSC personnel at key U.S. ports-of-entry 

A congressional conference committee currently is working to harmonize competing versions of CPSC reform legislation that would strengthen CPSC authority and increase funding. MassTortDefense has posted on the legislation, here and here. 

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MassTortDefense has posted about the recalls of products made in China, and ways product sellers can mitigate the risks of that happening, here and here. A recent article in Risk Management Magazine offers another, broader, perspective on this. (Kent Kedl, Risk Strategies for the Chinese Market , published by the Risk and Insurance Management Society, which targets corporate risk managers.) At bottom, it is risk management to avoid a potential mass tort.

First, plan Strategy before Structure. In recent years, the Chinese government has changed its investment regulations to allow --and even encourage-- a variety of business arrangements, from strategic partnerships to wholly foreign-owned enterprises, to full acquisitions. RM suggests that companies coming to China must first ignore the "how" of structure and first focus on the "why" of their strategic intent for China: What products will have the most play? What segments of the market should they target? What distribution channels should they use? Who will be the major competition and how can they structure a defensible and sustainable value proposition?

Second, they advise companies to Get Close to the Market. Clearly, there are Chinese factories that have had quality issues, but the fact remains that there are millions of products coming out of China every month, most of which have no problems whatsoever. Maybe, then, the question should be how best to manage product quality, because someone is doing it right. Kedl and RM suggest that foreign companies need to manage their vendors on an ongoing basis. Meet with suppliers; validate the supply chain; don’t worry about price and on-time delivery to the exclusion of all else. Companies sourcing from China should consider putting their own people on the ground to manage their supply chain, establish and monitor their own quality systems, and maintain ongoing relationships with the vendors. This approach may raise a company's fixed costs but, in the long run, may greatly lower the risk associated with having products made in an emerging market.

Third, recognize that Relationships Matter. Early successful foreign entrants to China worked hard to build a relationship network for themselves. As China has developed a more credible legal framework and a more predictable market environment, however, foreign companies too often have believed they no longer need that social network and that, instead, they can do it on their own. RM suggests that may be a mistake.

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Just when you thought it was safe to head outside to your Fourth of July picnic, parade, and swim party, an investigation by the Environmental Working Group (EWG) is released alleging that nearly 1,000 brand-name sunscreen products either fail to adequately protect consumers or contain chemicals that may pose health hazards.

Before we all cancel our plans, note the EWG study is based on non-standard methods and data, as well as subjective judgments, admittedly “customized” safety and effectiveness ratings, and “on a unique, in-house compilation” of industry, government and academic data sources. For what its worth, the study concludes that only 15% of products analyzed met EWG's subjective criteria for safety and effectiveness, blocking both UVA and UVB radiation, remaining stable in sunlight, and containing few if any ingredients with “suspected” health hazards.  It thus ignores a fairly extensive, long-standing body of scientific data, as sunscreen products have been thoroughly studied and tested, and used safely for more than 30 years.

Interestingly, the study asserts that many sunscreens contain nano-scale ingredients that raise "concerns.”  (MassTortDefense has posted on nano-technology here.) EWG asserts that powder and spray sunscreens with nano-scale ingredients raise concerns, since the small particles might be absorbed through the lungs. EWG also asserts that some sunscreens absorb into the blood and thus also raise safety concerns. “Some release skin-damaging free radicals in sunlight, some could disrupt hormone systems, several are strongly linked to allergic reactions, and others may build up in the body or the environment.”

EWG complains that the FDA has not established rigorous safety standards for sunscreen ingredients that fully examines these effects. The activist group also asserts that FDA has approved just 17 sunscreen chemicals for use in the U.S., while at least 29 are approved for use in the E.U.

However, there are currently FDA safety and effectiveness regulations that govern the manufacture and marketing of all sunscreen products. Sunscreens are classified as drugs by the FDA, and the agency requires significant safety and efficacy data on every active ingredient before it is approved for use in a sunscreen product. The agency also has broad authority to inspect manufacturers, require adherence to strict manufacturing practices, and enforce rigorous, science-based regulations to ensure that sunscreen products are safe and effective for consumers.

Moreover, the FDA in 2007 did propose a new regulation that would set standards for formulating, testing and labeling over-the-counter sunscreen products with ultraviolet A (UVA) and ultraviolet B (UVB) protection. The proposed regulation creates a consumer-friendly rating system for UVA products designed to help consumers identify the level of UVA protection offered by a product. Ratings would be derived from two tests the FDA proposes to assess the effectiveness of sunscreens in providing protection against UVA light. The first test measures a product's ability to reduce the amount of UVA radiation that passes through it. The second test measures a product's ability to prevent tanning. This test is nearly identical to the SPF test used to determine the effectiveness of UVB sunscreen products.

The finalization of the sunscreen safety standards is a complicated regulatory undertaking, addressing complex scientific principles involving countless submissions of data. FDA must thoroughly evaluate all of this information in making the best possible regulatory and scientific decision for consumers.

In the proposed regulations, a "Warnings" statement in the "Drug Facts" box will be required of all sunscreen product manufacturers. The warning would say: "UV exposure from the sun increases the risk of skin cancer, premature skin aging, and other skin damage. It is important to decrease UV exposure by limiting time in the sun, wearing protective clothing, and using a sunscreen." While the warning is intended to increase awareness that sunscreens are one part of a sun protection program, it seems likely that most adults today understand that exposure to the sun may cause skin damage, up to and including skin cancer. Skin cancer is the most common form of cancer in the United States.The American Cancer Society has long designated May as Skin Cancer Awareness Month.

Many manufacturers provide significant science and risk information on websites, as well as links to organizations such as the American Cancer Society, the American Skin Association,  the Skin Cancer Foundation, and the National Cancer Institute.

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In a very disturbing opinion, the Supreme Court of Arkansas rejected General Motor's appeal of a trial court decision to certify a class in a case involving allegedly defective parking brakes in GM vehicles. General Motors Corp. v. Bryant, et al., No. 07-437 (Ark., June 19, 2008). The case was originally brought in 2005 by named plaintiff Boyd Bryant, who alleged that a defectively designed parking brake incurred excessive wear after only 2,500 to 6,000 miles of use. GM allegedly discovered the defect in 2000 and redesigned the part, a spring clip, in 2001. The proposed class included owners of "1500 Series" pickups and utilities that were registered in the U.S. and were originally equipped with an automatic transmission and a PBR 210x30 Drum-in-Hat parking-brake system utilizing the high-force spring clip retainer. Plaintiff alleged that some 4,000,000 pickup trucks and sport utility vehicles sold by General Motors 1999-2002 were equipped with the defectively designed parking brakes. As causes of action, Bryant alleged breach of express warranty, breach of implied warranty of merchantability, violation of the Magnuson-Moss Warranty Act, unjust enrichment, and fraudulent concealment/failure to disclose.

After a hearing, the trial court certified the class. GM appealed.

The Class Rule

Rule 23 of the Arkansas Rules of Civil Procedure governs class actions and requires, like the federal rule, numerosity, commonality of questions of law or fact, typicality of the claims or defenses, and adequacy of representation by named parties and their counsel. A class action may be maintained if the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

The Appeal

General Motors asserted three main points on appeal worthy of our discussion: (1) that extensive legal variations in state laws defeated predominance; (2) that extensive factual variations in the millions of claims defeated predominance; (3) that class certification was not superior.

Choice of Law

General Motors noted that the significant variations among the fifty-one pertinent product defect laws should defeat predominance. [Most courts have accepted this notion.] The trial court had provided four reasons for its finding that the potential application of multiple states’ law did not create predominance concerns. First, the court noted that, unlike the federal rule which requires a rigorous analysis of class certification factors including the impact state law variations may have on predominance, no such rigorous analysis is required in Arkansas. Second, the potential application of many states’ laws was not germane to class certification, but was instead a task for the trial court to undertake later in the course of exercising its autonomy and substantial powers to manage the class action. Third, the trial court found that assessing choice of law was a merits-intensive determination and thus inappropriate at the certification stage. “It would be premature for the Court, at this stage in the case, to make the call on choice of law.” Fourth, if application of multiple states’ laws was eventually required, and it proved too cumbersome or problematic, the circuit court could always consider decertifying the class.

The state Supreme Court found that whether or not the class members’ vehicles contained a defectively designed parking-brake system, and whether or not General Motors concealed that defect, are predominating questions, notwithstanding the various states’ laws that may be required in determining the allegations of breach of express warranty, breach of implied warranty, a violation of the Magnuson-Moss Warranty Act, unjust enrichment, fraudulent concealment, damages, and restitution. The mere fact that choice of law may be involved in the case of some claimants living in different states is not sufficient in and of itself to warrant a denial of class certification. The Court viewed any potential choice of law determination and application as being similar to a determination of non-predominating individual issues, which would not defeat certification.

On the issue whether an Arkansas court must first conduct a choice of law analysis before certifying a multistate class action, the Court declined to follow the precedent of other jurisdictions, and rejected any requirement of a rigorous inquiry by the trial courts. Instead, it found that the circuit courts have broad discretion in determining whether the requirements for class certification have been met, recognizing the caveat that a class can always be decertified at a later date if necessary. Moreover, the Court believed that requiring the circuit court to conclude at this stage precisely which law should be applied could potentially stray into the merits of the action itself, which should not occur during the certification process.

The concurring opinion noted that this idea extended far past the holdings of prior case law, and potentially foreclosed analysis that could conceivably be required in some cases. A conclusion that choice-of-law issues not related to recovery or defenses will never predominate over common questions of law or fact is impermissibly overbroad.

MassTortDefense would suggest that most courts and commentators do not equate a choice of law analysis with an impermissible examination of the merits of the plaintiffs’ claims. Choice of law is a threshold question that ultimately permits a court to reach the merits of the dispute by establishing the governing legal rules. The selection of the proper law cannot fairly be termed a “merits-intensive determination” Moreover, the trial court need not make any determination about the merits of the causes of actions alleged in order to assess, based on relevant contacts, which state’s law ought to apply to those claims. Nor does the trial court even have to “make the final call” on what law will apply to each and every claim by every class member. It is sufficient for class certification for the trial court to discover that the law of many other states will likely have to be applied to many class members’ claims, and factor that into superiority and manageability of the proposed class.

Factual Variations

General Motors asserted that many factual variations preclude a finding of predominance, including issues of defect, causation, damages (was a parking brake repaired already under warranty and, if not, why not), notice of breach, class member knowledge about a potential parking-brake problem at the time of purchase, reliance, materiality, and affirmative defenses, such as comparative negligence.

The state Supreme Court found that the issue of defect was a predominating common issue. The Court viewed any need for individual inspections and/or the individual use factors merely as individual determinations relating to right to ultimate recovery or damages that pale in comparison to the purportedly common issues surrounding GM’s alleged defectively designed parking brake and alleged cover up to avoid paying warranty claims. (Of course, a proper choice of law analysis would have revealed that the issue of defect is not truly common.)

As is not uncommon, the trial court did not really address the question of how it would conduct a class trial, especially one involving legal standards from different states. But the Supreme Court stated, “We have repeatedly recognized that conducting a trial on the common issue in a representative fashion can achieve judicial efficiency.” The Court expressed general approval for the bifurcated approach to the predominance element by allowing circuit courts to divide a case into two phases: (1) certification for resolution of the preliminary, common issues; and (2) decertification for the resolution of the individual issues. Here, whether the parking-brake system installed in the class members’ vehicles was defective and whether General Motors attempted to conceal any alleged defect were “overarching issues” that could be resolved before the circuit court reaches any of the individualized questions raised by General Motors.

MassTortDefense notes that the courts rarely, if ever, focus on the manageability issues and due process concerns raised by this suggestion – devoid of analysis – that bifurcation of the trial and/or decertification following the “common” issues phase will somehow resolve all concerns. If separate juries are involved – and how can they not be with potentially millions of class members – the results of the first trial must be applied by the later juries. Fault of the defendant found in phase one must be compared with comparative fault of the plaintiff. The defect found in phase one must be shown to cause the injury and damages shown in the individual trial. False statements proven in phase one must be shown to have been relied on in the later phase. But the first trial, the common issues trial, is never tried in such a fashion (with verdict form and jury findings) that will allow that linking up to occur.

What is really happening is the transformation of class certification from a procedural tool for adjudicating large numbers of nearly identical claims into a device that aggregates disparate claims for the sole purpose of leveraging settlement. A grant of class status can put considerable pressure on the defendant to settle, even when the plaintiff’s probability of success on the merits is slight. Blair v. Equifax Check Servs., Inc., 181 F.3d 832, 834 (7th Cir. 1999); see also In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1298 (7th Cir. 1995) (companies facing millions of dollars in potential liability “may not wish to roll the dice. That is putting it mildly.”). Certifying a class without knowing whether it satisfies the requirements of Rule 23 misuses a procedural device to create settlement pressure where none should exist.

Superiority

General Motors contended that the superior method of handling a claim that particular  vehicles are defective is by petition to the National Highway Traffic Safety Administration (NHTSA). The Court observed that the superiority requirement is satisfied if class certification is the more efficient way of handling the case, and it is fair to both sides. In determining whether class-action status is the superior method for adjudication of a matter, it may be necessary for the circuit court to evaluate the manageability of the class. The court assumed that opt outs and summary dispositions would shrink the class, and at the same time, that the proposed class of approximately 4,000,000 members makes it at least likely that without a class action, numerous meritorious claims might go unaddressed. [What happened to the hard and fast rule not to consider the merits?] While not the sole basis for certifying the class, the smallness of the individual claims is another factor to be considered in deciding superiority.

In any event, NHTSA twice rejected petitions dealing with the allegations made in the instant case, so resolution by that agency cannot be superior to a class action when the agency has made such a rejection, observed the Court. Moreover, the rule was not intended to weigh the superiority of a class action against possible administrative relief. The superiority requirement was intended to refer to the preferability of adjudicating claims of multiple-parties in one judicial proceeding.

MassTortDefense would suggest that the repeated references to the trial court’s ability to later decertify the class smacks of the improper, rejected, concept of conditional certification – a practice that has been soundly rejected in recent years by state and federal courts and is now prohibited under both the Arkansas Rules of Civil Procedure and the federal rules on which they are modeled. After considerable time and effort is expended, courts are reluctant to decertify. Here, for example, GM presented the court with a thorough analysis of conflicts of laws regarding the state-law fraud claims, breach of warranty, applicable statutes of limitations, and unjust enrichment. It seems unlikely that the trial court (after its certification was affirmed) will ever seriously revisit this issue in the context of a new predominance determination. If the court’s approach were correct, class certification would be a meaningless exercise since courts would not address the most difficult and important class certification-related questions – i.e., whether a class trial is fair or feasible – until long after certification. 

MassTortDefense wonders, along with amicus the Chamber of Commerce, if Arkansas is likely become the latest “magnet” jurisdiction for the plaintiffs’ bar, imposing huge costs on companies that do business in the state and placing an unnecessary strain on Arkansas courts by forcing them to devote substantial resources to managing large-scale litigation matters that have only a minimal connection to Arkansas consumers.

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MassTortDefense has posted before about the competing Senate and House bills to reform the Consumer Product Safety Commission. See here.

Media reports are suggesting that conferees on Consumer Product Safety legislation might not complete their efforts before Congress recesses June 27th. House Majority Leader Hoyer (D-Md.), had predicted that the compromise CPSC bill would come to the floor in June. But debate, and lobbying, on the bill continue.

As noted before, most of the more contentious issues in the bill were included in the Senate version of the legislation, which was passed in March. Sticky issues include provisions granting state attorneys general the power to pursue purported violations of laws enforced by CPSC; whistleblower protections for employees of manufacturers; and a public database for reports of injuries, illness, death, or risk related to consumer products submitted by consumers, local, state or national government agencies.

If the process is not completed by August, Congress will be in campaign mode and that may scuttle the reform legislation for this year.

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The House Energy and Commerce Committee’s subcommittee on Commerce, Trade, and Consumer Protection held a hearing last week on “Phthalates and Bisphenol-A in Everyday Consumer Products.” See webcast here.  (MassTortDefense has posted on BPA before, here and here and here.  Phthalates are chemicals used to soften polyvinyl chloride (PVC) and make it flexible.)

This testimony before Congress pointed out one of the major problems with the knee-jerk reaction of sensationalist media, liberal lobbyists, and uninformed legislators who quickly call for the banning of useful products as soon as any scientific reports even hint of a risk. A chemist from the Consumer Product Safety Commission noted that the banning of di-isononyl phthalate (DINP) from all children's products, could lead to substitute plasticizers that are not as fully studied, not as well known, or not as well characterized toxicologically. And banning BPA could lead to more children injuries.

In addition to the CPSC, officials of the FDA, NTP, and EPA testified as well before the House subcommittee on June 10th. Also, the Science and Environmental Health Network testified in favor of a ban, while the American Chemistry Council opposed it. The hearing came as House and Senate conferees are working out differences in their respective legislation to reform the CPSC. See the MassTortDefense post here on that. The industry voluntarily removed DINP from teethers, rattles, and pacifiers in the late 1990’s. The Senate version of the CPSC bill would essentially prohibit these phthalates from children's toys or child care articles: DINP, di-isodecyl phthalate (DIDP), di-n-octyl phthalate (DnOP), di-(2-ethylhexyl) phthalate (DEHP), dibutyl phthalate (DBP), and benzyl butyl phthalate (BBP).

Bisphenol-A (BPA) was the other chemical at issue in the hearing. The CPSC official testified that its beneficial uses in items such as helmets and other protective gear to prevent injuries in children needs to be considered. A ban could result in less effective protection of children from head, eye, or bodily injury. Rep. Edward J. Markey (D-Mass.), a member of the House Energy and Commerce Committee, has introduced legislation that would prohibit the use of bisphenol-A in all food and beverage containers. (The “Ban Poisonous Additives (BPA)” Act, text here.)  But the Food and Drug Administration associate commissioner for science testified that available evidence indicates that food contact materials containing BPA currently are safe as exposures from food contact materials are well below the levels that may cause health effects.

The FDA formed a BPA task force in April that is reviewing current research on BPA, and looking at all products regulated by the FDA to better understand potential routes of exposure. The FDA also is looking at concerns raised by the draft report by the National Toxicology Program. See our post here.

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The Third DCA appeals court in Florida ruled last week that a class action involving consumers who bought Sephia model vehicles with allegedly defective brake systems from Kia Motors should not have been certified. Kia Motors America Corp. v. Butler, 2008 WL 2356354 (June 11, 2008, Fla. App. 3rd Dist.).

The panel held that the trial court in Miami-Dade County had abused its discretion by certifying the class. The named plaintiff, Yvonne Butler, had filed the proposed class action on behalf of all Florida purchasers of 1999-2001 Kia Sephia model passenger motor vehicles. The complaint alleged that all Sephias manufactured during those years contain a brake system design defect that causes premature wear of the brakes, as a result of which the vehicles fail to meet a U.S. market brake-wear expectation of 20,000-30,000 miles. According to the complaint, the defect caused the cars to be unable to stop, or to suffer impaired stopping performance, increased stopping distances, brake shudder, brake vibration, or brake lockup and loss of control. The class sought damages to each class member for economic losses, including the difference between the price paid for each vehicle and the value of the vehicle, reduced resale value, and any out-of-pocket repair costs on the cars. It was estimated that about 18,000 Sephia vehicles were sold or leased in the state during the class period.

Consumer Fraud Claim Made

Plaintiffs sought to proceed under the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), Fla. Stat. §§ 501.201-.213, as well as breach of statutory, implied and express warranty. That makes the case one of the recent trend in which plaintiffs bring consumer fraud claims for what in the past might have been traditional products liability claims for product defects, under the theory that consumer fraud claims are easier to get certified as class actions. Not this time.

The Decision

The appeals court noted that class actions are an exception to the general rule that litigation is conducted by, and on behalf of, individual named parties only. For that reason, the trial court must conduct a rigorous analysis to determine whether the elements of the class action rule have been met. The first set of these requirements are referred to as the numerosity, commonality, typicality, and adequacy of representation elements of class certification. But in addition to satisfying those, a plaintiff also must satisfy one of the three subdivisions of Florida Rule of Civil Procedure 1.220(b). The relevant subdivision in this case was subsection (b)(3), which requires that common questions of law or fact predominate over any individual questions of the separate members, and that class representation is superior to other available methods for the fair and efficient adjudication of the controversy. Thus, to certify a class, this rule requires not only that common questions exist, but that those common questions predominate over individual questions; and that the class action to be manageable and superior to other proceedings. (much like the federal rule)

To determine if these requirements have been met, a trial court must envision how a class action trial would proceed. (MassTortDefense has frequently urged trial judges to "look down the road" and not blindly accept plaintiffs' bold assertions about trial procedures.) Under this analysis, the trial court must determine whether the purported class representatives can prove their own individual cases and, by so doing, necessarily prove the cases for each one of the thousands of other members of the class. If they cannot, a class should not be certified.

Predominance Lacking

The class certification in this case failed, first, to satisfy the predominance criteria. While plaintiffs alleged a common defect, the evidence demonstrated that the brake systems found in the three Kia Sephia models in this case were far from uniform. The disc braking process in an automobile is a complicated mechanical and hydraulically assisted process. The Kia Sephia vehicle disc brakes installed during the model years at issue were comprised of component parts specific to that model year. For example, the pad material was changed, the pad shim material was changed, the pad shim protector was removed, and rotor material modified. The 2000 model Sephia was manufactured with a different brake pad design from the prior model. Additionally, the rotor thickness was changed. For the 2001 model-year, the Sephia's front brake system was completely redesigned.

Thus, the court concluded that the component and design changes resulted in significant  differences in the performance of the Kia Sephia's front brakes over the three model years at issue here. “It is therefore scientifically and logically impossible to conclude that any performance issues for these three model years were the result of a common design.”  And it follows that even if there existed a difference between the price paid for each vehicle and the value of the vehicle as delivered for any design period, that difference cannot be proven on a class-wide basis.

Due Process Concerns

Importantly, the court took on plaintiffs' vague trial plan assertions, noting that to proceed at the level of abstraction urged by plaintiffs would raise due process concerns. See Matsushita Elec. Indus. Co. v. Epstein, 516 U.S. 367, 377-78 (1996). The Third DCA cited the famous language from Broussard v. Meineke Disc. Muffler Shops, Inc., 155 F.3d 331, 344 (4th Cir.1998), about a trial plan denying a class action defendant a fair trial when it is forced to defend against a composite “perfect plaintiff” pieced together for litigation. The court went on to note that due process requires that class actions not be used to diminish the substantive rights of any party to the litigation. See generally Moller, The Rule of Law Problem: Unconstitutional Class Actions and Options for Reform, 28 Harv. J.L. & Pub. Pol. 855 (2005); Epstein, Class Actions: Aggregation, Amplification, and Distortion, 2003 U. Chi. Legal F. 475 (2003).

Consumer Fraud Act Analysis

A claim for damages under FDUTPA has three elements: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages. The FDUPTA class claim failed in this case on both the causation and actual damages elements. Among the individual questions that can be reasonably envisioned in the prosecution of this count, said the court, are: (1) whether the purchaser had knowledge of the alleged brake defect and purchased the vehicle despite such knowledge; (2) whether a deficiency attributable to Kia manifested itself; (3) whether an individual vehicle suffered diminished value as a result of the alleged deficiency if the deficiency was repaired; and (4) whether the purchase price of the vehicle reflected the alleged defect at the time it was purchased. These issues are compounded by the fact that the class representative in this case sought compensation not only for class members whose brakes have manifested a deficiency, but also for those whose brakes have performed satisfactorily. In certifying the class, the trial court had deviated from the majority of jurisdictions which consistently have denied class recovery on this type of theory.

The court concluded that without individual inquiry, there is no way to adjudicate this case to determine whether the need for a particular repair made by a class member was based on normal wear, a defective original part, a defective after market part, environmental factors, such as weather or road conditions, the presence of foreign objects in the braking system, the failure of parts other than the braking system, poor workmanship by a third party, or individual driving habits.

Superiority Lacking Too

To find superiority, a court must find all other methods of resolving the issues in a case to be inferior to a class action. Here, fewer than half of the class members reported brake difficulty. An individual inquiry and an inestimable number of mini-trials would be necessary to identify the class. Class certification is not ipso facto required where there exist multiple claims and potentially low dollar recovery.

Accordingly, the class was decertified.  And a decision product sellers may be able to use.

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The United States Supreme Court has just decided a case that may have significant impact on mass tort defendants. In Bridge v. Phoenix Bond & Indem. Co., 2008 WL 2329761 (U.S. June 9, 2008), the Court held that a plaintiff asserting a Racketeer Influenced and Corrupt Organizations Act (RICO) claim predicated on mail fraud need not show, either as an element of his claim or as a prerequisite to establishing proximate causation, that he relied on the defendant's alleged misrepresentations.

Why should readers of MassTortDefense care about RICO cases? Traditional claims such as strict liability and negligence still serve as the foundation of many mass torts. Increasingly, however, plaintiffs are looking for opportunities to bring novel and non-traditional claims as well, or instead of the traditional theories. Medical monitoring expands the pool of potential plaintiffs to those exposed to, but not yet injured by, a hazardous product. Consumer fraud claims may involve those with no personal injuries but only economic losses, and are, in the view of plaintiffs’ attorneys, theoretically easier to certify as class actions than traditional personal injury claims. A recent survey indicates that securities fraud cases filed against life sciences companies were up significantly in 2007 from the year before, often as plaintiffs try to turn a failure to warn claim into a securities class action. (When the market reacts to negative press about a product, the stock of a company could drop, opening it up to such claims.) And then there are civil RICO claims.

The Bridge case arose from the annual Cook County Treasurer's Office public auction to sell its tax liens on delinquent taxpayers' property. To prevent any one buyer from obtaining a disproportionate share of the liens, the county adopted the “Single, Simultaneous Bidder Rule,” which requires each buyer to submit bids in its own name, prohibits a buyer from using agents, employees, or related entities to submit simultaneous bids for the same parcel, and requires a registered bidder to submit a sworn affidavit affirming its compliance with the Rule. Respondents filed suit, alleging that petitioners (defendants below) fraudulently obtained a disproportionate share of liens by filing false documents, allegedly violating RICO through a pattern of racketeering activity involving mail fraud.

Defendants/petitioners argued that when basing a civil RICO claim on fraud, it is not sufficient for a plaintiff to show merely that some violation of a federal fraud statute has occurred. Rather, the plaintiff must show, like any other fraud plaintiff, that the plaintiff itself was defrauded. There is no indication that Congress, in authorizing a civil RICO action based on fraud, intended to permit such actions by persons who were not themselves defrauded. Here, because the alleged pattern of racketeering activity is predicated on mail fraud, respondents must show that they relied on petitioners' fraudulent misrepresentations, which they cannot do because the misrepresentations were made to the county. They argued that a proximate cause requirement inherent in the “by reason of” language of the statute demands that a civil RICO plaintiff asserting a claim based on fraud establish his reliance on a misrepresentation by the defendant. In the context of a civil RICO claim predicated on fraud, the required causal link demands a showing that the plaintiff relied on an alleged misrepresentation made to the plaintiff by the defendant. Otherwise, the causal relationship between the alleged injury and the alleged fraud is too attenuated.

The Court disagreed, finding that nothing on the statute's face imposes such a requirement. Using the mail to execute or attempt to execute a scheme to defraud is indictable as mail fraud, and hence a predicate racketeering act under RICO, even if no one relied on any misrepresentation. The Court rejected petitioners' arguments that under the “common-law meaning” rule, Congress should be presumed to have made reliance an element of a civil RICO claim predicated on a violation of the mail fraud statute. And rejected the argument that a plaintiff bringing a RICO claim based on mail fraud must show reliance on the defendant's misrepresentations in order to establish proximate cause. The Court felt it had no ability to respond to the policy argument that RICO should be interpreted to require first-party reliance for fraud-based claims in order to avoid the “overfederalization” of traditional state-law claims.

The Court noted that there is no general common-law principle holding that a fraudulent misrepresentation can cause legal injury only to those who rely on it. Of course, misrepresentation can cause harm only if a recipient of the misrepresentation relies on it. And a RICO plaintiff who alleges injury by reason of a pattern of mail fraud cannot prevail without showing that someone relied on the defendant's misrepresentations. But that does not mean that the only injuries proximately caused by the misrepresentation are those suffered by the recipient. There is a proximate cause element, and it requires a sufficiently direct relationship between the defendant's wrongful conduct and the plaintiff's injury. But here plaintiffs’ alleged injury --the loss of valuable liens-- is the direct result of petitioners' alleged fraud. It was a foreseeable and natural consequence of petitioners' scheme to obtain more liens for themselves, and that is sufficient.

The Court’s decision on reliance was based on statutory interpretation, rather than logic or common sense. It seems likely that it will create additional litigation in the lower courts over the meaning of the proximate cause element of a civil RICO claim. But the absence of a clear reliance requirement may in fact make this type of claim even more popular with mass tort plaintiffs. Product sellers, and especially those involved in RICO litigation already, will need to comb the opinion for ammunition to support their causation arguments.

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In the latest development on the issues surrounding Bisphenol-A in consumer products, the FDA announced that a subcommittee of the FDA's Science Board will hold a public meeting on the topic of BPA in plastics, review an Agency Task Force report on the topic, and deliver its findings to the Board's annual meeting this fall. Dr. Frank Torti, the FDA's principal deputy commissioner and chief scientist, has asked Science Board Chairwoman Barbara McNeil, head of Health Care Policy at Harvard Medical School, to establish a subcommittee to further assess BPA. (MassTortDefense has posted about BPA here and here.)

BPA is a chemical produced in large quantities for use primarily in the production of polycarbonate plastics and epoxy resins. Polycarbonate plastics in turn have many important applications, including use in certain food and drink packaging, e.g., water and infant bottles, compact discs, impact-resistant safety equipment, and medical devices. Polycarbonate plastic can also be blended with other materials to create molded parts for use in mobile phone housings, household items, and automobiles. Epoxy resins are used as lacquers to coat metal products such as food cans, bottle tops, and water supply pipes. Some polymers used in dental sealants or composites contain bisphenol A-derived materials.

This development comes on the heels of the FDA forming an agency-wide BPA Task Force to facilitate review of current research and new information on BPA. That Task Force is reportedly assembling an inventory of FDA-regulated products that contain BPA. Eventually, the Task Force may make recommendations to the Commissioner of Food and Drugs.

In April 2008, the National Toxicology Program (NTP) of the National Institutes of Health published a draft report indicating that some studies in animals suggest that BPA may raise “some concern” about potential developmental effects in humans. The NTP is still collecting public comments on the draft and has scheduled a June 11 peer review meeting for the draft.

In mid-May, FDA officials assured a congressional panel that the agency had no reason to recommend that consumers stop using products containing BPA, noting that a large body of evidence indicates that currently marketed products containing BPA, such as baby bottles and food containers, are safe and that exposure levels to BPA from these products are well below those that may cause health effects. See our post on the hearing.

Of course, the litigation has already begun, notwithstanding the science, with a proposed class action filed over the use of BPA in baby bottles in the U.S. District Court for the Western District of Missouri.

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As noted in earlier postings of MassTortDefense, both the House and Senate have passed legislation affecting the Consumer Product Safety Commission. The different versions have to be reconciled.

The House has just named conferees to work on the legislation, including Rep. John Dingell (D-Mich.), chairman of the Commerce and Energy Commission, Rep. Robert Rush (D-Ill.), chairman of the House Subcommittee on Commerce, Trade and Consumer Protection, Reps. Diana DeGette (D-Colo.), Janice Schakowsky (D-Ill.), Henry Waxman (D-Calif.), Joseph Barton (R-Texas), Cliff Stearns (R-Fla.), and Edward Whitfield (R-Ky.).

The Senate conferees were announced two weeks ago, and they include Senate Commerce Committee Chairman Daniel Inouye (D-Hawaii), and Sens. Mark Pryor (D-Ark.), Barbara Boxer (D-Calif.), Amy Klobuchar (D-Minn.), Ted Stevens R-Alaska), Kay Bailey Hutchison (R-Texas), and John Sununu (R-N.H.).

Consumer advocates are lobbying Congress to produce a compromise Consumer Product Safety Reform bill that combines the “strongest protections” of the House and Senate bills, particularly on toy and other children's product safety.

Both House and Senate bills would strengthen CPSC authority and funding, establish new standards on lead content in children's toys, and require third-party certification of testing of certain children's products.

Likely to be more controversial are some of the differences, including the proposal for a publicly accessible database of product safety information. This seems to be of little use to the average consumer, but subject to potential mischief in the hands of plaintiff lawyers. Think about how they attempt to misuse adverse event data in drug litigation.

Another issue is proposed enforcement of the CPSAct by state attorney generals. This proposal risks the creation of uncertainty and inconsistency, with the potential for a patch-work of differing practical rules, rather than a uniform federal standard.

The proposed new “whistle-blower” protections seem both unnecessary and likely to encourage additional litigation.

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The Congressional Research Service has released a report on Bisphenol A (BPA) in Plastics and Possible Human Health Effects. MassTortDefense previously posted on the BPA issues and the National Toxicology Program (NTP) draft report for public comment on BPA.

 The Congressional Research Service (CRS) serves as a sort of shared staff to congressional committees and Members of Congress. CRS staffers assist at the various stages of the legislative process — from bill drafting, through committee hearings and floor debate, to the oversight of enacted laws and various agency activities.

The BPA report is authored by Linda-Jo Schierow, Resources, Science, and Industry Division; and Sara A. Lister, Domestic Social Policy Division, and comes in the immediate wake of legislation proposed in April of 2008, S. 2928, which would prohibit use of BPA in some products intended for use by children. The report notes that the levels of potential exposure to the chemical from plastics is low, although the potential health effects from such exposures is deemed controversial.

In another BPA development, officials from the U.S. Food and Drug Administration and the U.S. Consumer Product Safety Commission both told the U.S. Senate Committee on Commerce, Science and Transportation subcommittee on consumer affairs last week that bisphenol-A did not appear to pose sufficient risks that the product should be banned. Although review is ongoing, at this time those agencies have no reason to recommend that consumers stop using products containing BPA. The FDA's associate commissioner for science said that a large body of evidence indicates that currently marketed products containing BPA, such as baby bottles and food containers, are safe and that exposure levels to BPA from these products are well below those that may cause health effects.

Sen. Chuck Schumer (D-N.Y.) told the subcommittee about the bill he introduced last month to ban BPA from all products for children up to seven years old. But the CPSC official said Congress should be careful not to ban the use of polycarbonate plastic for protective items such as pacifier shields, helmets, goggles and shin guards prematurely. Such products prevent children from receiving serious injuries, and this beneficial use of polycarbonate should be balanced before acting to ban bisphenol-A from children's products. Such a ban could result in less effective protection to children from head, eye or bodily injury, and less net safety.

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In an earlier post on the "year of China recalls," MassTortDefense noted legislative changes to the Consumer Product Safety Act and enhanced resources of the CPSC as a response to the spate of recalls.  The commission has announced it is now seeking public comments on a draft report, on Import Safety Strategy.

The Executive Summary notes that imports currently account for about 44 percent of all consumer products sold in the United States today, but they comprise over three-fourths of all product recalls administered by the agency. The value of all imported consumer products under the jurisdiction of the CPSC was an estimated $639 billion in 2007. Last year, approximately 42 percent of these
products were from China, and the value of these imports from China nearly quadrupled from
1998 to 2007.

The report describes a four-pronged strategy to deal with the issue if safety of imported products:

I.  Engage the private sector and foreign governments to foster both compliance with relevant safety standards and adoption of more effective techniques of identifying  potential product hazards;
II.  Build safety assurances into the production processes by promoting the use of safety standards by manufacturers, and verifying compliance through third-party testing and inspections where appropriate;
III.   Prevent unsafe products through strategically redeploying CPSC resources according to  principles of hazard analysis and risk management to target surveillance and inspection of the distribution chain; and
IV.   Identify and remove quickly product hazards in the market and provide real-time
communications to consumers, foreign governments, and the private sector.

Public comments are due  by May 30, 2008, and can be sent  via e-mail to
cpsc-os@cpsc.gov

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In the previous post, MassTortDefense began exploration of some of the issues associated with the "year of China recalls."  During fiscal year 2007, the CPSC announced 473 recalls, of which 288 were from China.

We continue in Part Two with some practical tips that may be considered to mitigate the risks of using China-based suppliers.

TO DO LIST

U.S. products sellers have to respond with proactive planning:

Testing and Sampling
A report from two Canadian researchers notes that since 1988, a majority of recalls of toys were related to design issues as opposed to poor manufacturing. But, assuming a prudent design, adherence to specifications becomes the focus. US importers have at times in the past chosen products from a showroom, such as in Hong Kong. At other times, products from China are purchased through one or several middlemen, with the ultimate U.S. buyers having little information about the manufacturing or QC of the products.  And importers have relied on purchase orders - a looming battle of the forms scenario -- rather than on a comprehensive contract.

Now, companies may need to turn to be more involved in the process upstream. Random sampling rather than relying on test certificates from their sellers may be wise. Companies may need to negotiate vendor and supply contracts to require those counterparts to test products for compliance with specifications and U.S. regulations. Such a compliance program may include third-party testing and a system to track products in the retail stream of commerce. If self-testing is employed, it may be prudent to have it conducted by a group of employees incentivized to make the testing accurate and thorough.  Companies need to ensure that they have strong process controls at the key risk points of the distribution chain. QC can involve early warning systems, and includes making corrections, documenting results. The timing and scheduling of QC interventions may need to be modified. Even "sealed" products may need to be randomly inspected.

Management

There can be surprisingly high management turnover rates in China, and local management is often the source of fraud when it occurs. Multi-national product sellers may explore returning to use of expatriate management where possible, although they may lack the level of understanding of the local environment.   Importers may also seek to get a better sense of the sub-contracting activities of their suppliers.  Indeed, tracking vendors, subs, and components supplied for the product can be important, even as the supply chain is a moving target.

Note, in this setting, it may be a mistake to leave negotiations and contract management to less senior people. The audit structure employed by management should also be of a design to detect and deter fraud and nepotism at the local management level. This may require not only more inspectors, but a different kind of inspector/on the ground agent.

Risk Sharing
Contracts can be both a risk reduction and dispute resolution mechanism. It is imperative that the contract clearly lay out responsibilities and rights on QC, specifications, delivery, testing, sub-contractors, performance milestones.  U.S. companies are seeking to add arbitration clauses to new contracts, and as existing supply deals expire. Arbitration in a forum that Chinese courts will recognize may be a means to share the burden of a potential recalls, which for the most part has fallen on U.S. importers. China does not generally recognize ad hoc arbitrations. Some importers are looking at CIETAC, the China International Economic and Trade Arbitration Commission as a possibility.  In a CIETAC arbitration, there will still be limited discovery, and short document-focused hearings. Another possibility is the Hong Kong International Arbitration Center.

Companies may think about choice if language provisions in their arbitration clauses, the nationality of the arbitrators, discovery rights, injunctive relief the parties consent to. Choice of law clauses are also key in renegotiated contracts.

Importers are also seeking bonding from their Chinese partners as a way of ensuring financial sharing of the cost of recalls.

The most important kind of risk sharing, however, may be the risk of non-payment, which is only viable when the U.S. importer has good knowledge of the supply chain -- who are the suppliers, and what are they supplying.

It may increasingly make sense to provide for litigation support in the contract, so that the U.S. importer has access to needed records and witnesses should legal issues arise.

Many companies have a crisis management team in place, trained to handle problems with their products, should any arise.  The team may include legal, HR, PR, QC, and regulatory members.

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The Cook County, Illinois Circuit Court gave preliminary approval recently to a proposed settlement related to RC2 Corporation’s recall of toys tainted with lead. (A hearing on final approval is set for August.) The settlement relates to claims of consumers who purchased a recalled Thomas & Friends Wooden Railway product. This is another step towards resolution of one of the major 2007 recalls of toys made in China.

RC2 Corporation had announced last summer that it was voluntarily recalling five toys from the Thomas & Friends Wooden Railway product line due to levels of lead in surface paint that may exceed U.S. Consumer Product Safety Commission requirements. There have been no reports of illness or injury related to any of the recalled toys.

This is a good reminder to readers of MassTortDefense concerning the risks of outsourcing to China, and an opportunity to comment on mitigation of those risks.

The Year of the China Recall

The year 2007 has been dubbed the year of China recalls because of the significant recalls of toys with lead, as well as tainted pet food, and toothpaste with chemical contamination. In fact, toy recalls had been stable (at about 30 per year) until 2007, which saw a huge spike in toy recalls to more than 80, involving 25 million units. [There have been about 50 already in 2008.]

Overall product recalls have been on the rise for several years. China’s share of total product recalls in the U.S. rose significantly (to about 67% overall), and China accounted for about 98% of all toy recalls in 2007. As recently as 1999, China accounted for less than half of U.S. toy recalls. Overall U.S. imports from China have increased steadily, and China supplies most of our imported toys, but recently the recalls of China-made toys has outpaced the increases in imports of toys.

And the presence of lead was the leading cause of products made in China being recalled. Overall, lead-focused recalls increased 10x in the last 4 years.

The number of products removed from the European Union market in 2007 increased by 53 percent, with more than half of the items coming from China. The EU notes that toys were the products most often removed from markets in the 27 EU member states. About 80 percent of all toys sold in Europe come from a Chinese manufacturing facility. (The EU has a rapid alert system known as RAPEX. The RAPEX report on goods pulled from the market in 2007 can be found  here.


IMPACT OF RECALLS

Recalls have direct and indirect costs to product sellers. The costs of notice, labor costs, disposal costs, lost inventory value, refunds and repair costs, and legal fees are some of the direct costs. Indirect costs include bad publicity, damage to goodwill and reputation, loss of sales, increased production costs and testing costs in the future, diversion of management and employees from normal duties, potential legal liability (personal injury, medical monitoring, punitive damages), and increased insurance premiums. The recall may spawn shareholder derivative lawsuits if the stock price is affected by the recall. An interesting report from Lucy Allen at NERA looks at the market cap impact of recalls. Government fines are possible. The CPSC recently issued a $1 million civil penalty against athletic-shoe maker Reebok International Ltd. related to company-issued charm bracelets with toxic levels of lead. It is not unusual for recalls to cost companies tens of millions of dollars.

REGULATION
Congress has already taken steps in response to the spate of recalls. The House passed the Consumer Product Safety Modernization Act, H.R. 4040, in December, and the Senate passed its own CPSC Reform Act, S.2663 in March. The two bills will be reconciled, and the CPSC budget, staff, and enforcement powers will be increased. Both bills mandate reduction of the amount of lead in toys; third-party testing of certain children's products; raise allowable penalties for violations; and give state attorneys general enforcement authority. Empowering state attorneys general is likely to generate more enforcement claims against companies, as state AGs have been willing to take an aggressive stand on other recent issues, beginning with tobacco. This provision might also undermine uniformity of enforcement of the CPS Act. State attorney generals may simply create a confused patchwork of standards.

The Senate provision would require the CPSC to post on Internet-searchable database the reports it receives about product-related injuries. This seems of limited use to the average consumer, but may encourage additional litigation; just like plaintiffs’ attempt with ADE reports in pharmaceutical litigation, this could be misused in product liability litigation.


WHAT CAN BE DONE
In some quarters, there is a notion that the market will force China to make improvements in quality control to avoid a repeat of the year of recalls. That is, if the products cannot be trusted, then importers will stop buying them. But the fact remains that regulation of product safety in China is not as advanced as it is in Europe and the United States. In essence the growth of their economy may have outpaced their ability to regulate product quality control.

Is there an ability to hold the Chinese companies accountable for the QC issues? Frequently, mass litigation arising from a large product recall will involve numerous parties within the chain of distribution, if not originally, then through indemnification and contribution claims. The original manufacturer of the allegedly defective product rarely is not involved. But plaintiff attorneys/consumers rarely try to pursue Chinese companies, forcing the U.S. importer/seller to try to pursue them.  But U.S. companies invariably may have difficulty pursuing the chain to a Chinese company that doesn't have assets or an office in the United States. Most Chinese companies have no assets in the United States, and will ignore U.S. complaints.

In the case of Menu Foods, the pet food manufacturer whose China-sourced ingredients allegedly contaminated dozens of brands of American pet food, several putative class-action suits were filed. See In re Pet Food Products Liability Litig., MDL No. 1850. But the Chinese defendants reportedly have not responded.

• There can be issues of personal jurisdiction. Asahi Metal Indus.. Co. v. Superior Court of Calif., 480 U.S. 102 (1987)(plurality suggesting that placement of product in stream of commerce, without more, may not be the substantial connection between defendant and forum state necessary for finding of minimum contacts). 
• Second, especially if the manufacturer is state owned, Chinese defendants may also assert defenses based on principals of sovereign immunity and international comity. Service of a Chinese company must be conducted in accordance with the Hague Convention, which can be cumbersome. Authorities in China frequently cannot locate the accused companies because the firms are often dissolved and the factories are under new ownership.
• Discovery is extremely limited in China. Even if a damage award is entered against a Chinese company, enforcement of the judgment may be impossible if the Chinese company does not have significant assets in the U.S.. There is no treaty between China and the United States that requires reciprocal enforcement of judgments. (Although a U.S. judgment may not be enforced in China, there may be assets of the Chinese company in other countries that enforce U.S. judgments...worth thinking about)

How about suits in China? Its nearly infeasible to file a lawsuit against a Chinese company in China. It can be impossible to get an expert to testify. There is limited discovery, if any. There is tolerance or lenient views of perjury.  Precedent can be irrelevant. The damages obtainable are often insufficient, with lost profits seemingly a lost concept. There are a variety of practical realities that favor the “home team.”  Foreign lawyers typically cannot be utilized.

More of what can be done in the next posting.

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In a recent posting, here, MassTortDefense examined the less than happy reaction of some members of the Arkansas Supreme Court to medical device preemption as defined by the U.S. Supreme Court. In Despain v. Bradburn, No. 07-714 2008 WL 1067202, (Ark., April 10, 2008), notions of “federalism,” the asserted importance of the common law, and the desire to compensate injured plaintiffs, compelled members of the court to decry (even as they applied) the guidance of the Supreme Court, and to call for the legislative reversal of the Riegel v. Medtronic,128 S. Ct. 999 (2008), decision.

A week later, the Texas Supreme Court decided an interesting preemption case, and relied on the rationale of Riegel to apply preemption outside the medical device area. Obviously, the government regulates the design and hazard communications of numerous other non-medical products for important safety reasons. And one of the things we love to do at MassTortDefense is point out how successful ideas in one mass tort may help in another significant product litigation as well. In Bic Pen Corp. v. Carter, 2008 WL 1765550 (Tex. Apr. 18, 2008), the Texas Supreme Court considered a case involving a disposable lighter and federal standards for child-proofing them promulgated by the CPSC.

Background

A six-year-old was severely burned when her five-year-old brother allegedly set fire to her dress with a J-26 model BIC lighter. Plaintiff claimed the injuries resulted from manufacturing and design defects in the J-26 lighter. The jury found for Carter, awarding three million dollars in actual damages and two million dollars in exemplary damages. A variety of issues were raised on appeal including spoliation and causation. But we focus here on preemption. The Court concluded that plaintiff’s manufacturing defect claim was not preempted, which simply asserted that the particular lighter involved in the case deviated “in its construction or quality” from the manufacturer’s design specifications. 2008 WL 1765550 at *6. It did not depend on standards different from what the CPSC had promulgated for child-proof lighters, and thus did not require a state court jury to set a state-law design standard that differed from the federal standard.

Design Defect

More interesting, however, is the Court’s conclusion that plaintiff’s design defect claim was preempted by federal law. The CPSC is charged with protecting the public against unreasonable risks of injuries from consumer products in the 1972 Consumer Product Safety Act. Specifically, the J-26 lighter is subject to the federal standards for child-proof lighters and must be certified as compliant by the Consumer Product Safety Commission. CPSC evaluated data regarding disposable lighters and promulgated regulations for child-proofing them. The Commission adopted regulations requiring disposable lighters to be child-resistant and setting a protocol for testing a lighter's child resistance. The regulations set forth specific requirements for compliance, and required the manufacturer to submit a description of all child-resistant features. The J-26 lighter underwent qualification testing in 1994. Bic completed the other requirements for the disposable lighter at issue in the case, and received a certificate of compliance from the CPSC.

In the Consumer Product Safety Act, Congress included both a preemption clause and a savings clause. The preemption clause states that no State “shall have any authority either to establish or to continue in effect any provision of a safety standard or regulation which prescribes any requirements as to the ... design” if it is “designed to deal with the same risk of injury” that the CPSC addressed through its regulations. 2008 WL 1765550 at *3. The savings clause, however, specifically allowed some common law tort lawsuits. The Texas Supreme Court considered the interplay between saving clauses and express preemption provisions based on the guidance of Geier v. American Honda Motor Co., 529 U.S. 861, 869-73 (2000). The combination of express preemption and savings clauses do not bar the ordinary working of conflict preemption principles. If the state law claim conflicts with federal regulations, it is still preempted. Because Carter maintained that the J-26 lighter was unreasonably dangerous under common law because more effective child-resistant lighter designs were available, the issue for preemption purposes was whether Carter's claim of a need for a higher standard of child resistance under the common law is compatible with federal regulation under the CPSA.

The opinion noted that one other trial court had rejected implied preemption in a child-proof lighter case, Colon v. BIC USA, Inc., 136 F. Supp. 2d 196 (S.D.N.Y. 2000), with the reasoning that the goal of reducing injuries to children was best served by supplementing the federal minimum standard on a case-by-case basis, according to the stricter requirements, if any, imposed by state common law. See id. at 209.

Analysis of the Regulatory Scheme

However, the Texas Court found preemption. Analyzing the CPSC scheme, the Court noted that the Commission weighed several factors, including child resistance, overall safety, the realities of manufacturing, the variability and randomness of child testing, the product's utility, and the importance of consumer acceptance. Indeed, one of the CPSC's primary objectives was to create a standard that encouraged the manufacture of child-resistant lighters and yet did not discourage adults from using them. The Commission was concerned that if adults were unable or unwilling to use child-resistant lighters, they might switch to non-child-resistant lighters or matches, which could expose children to an even greater risk. 2008 WL 1765550 at *4. The Commission, moreover, was aware that greater child resistance might be achieved but specifically rejected imposing higher standards, finding that a higher standard would reduce the utility and convenience of the product and increase costs disproportionate to the benefits.

Thus, interpreting federal regulation in this area merely as a liability floor that may be enhanced by state law, as plaintiff argued, undercut the federal regulations and the Commission's conclusion that the chosen standard “strikes a reasonable balance between improved safety for a substantial majority of young children and other potential fire victims and the potential for adverse competitive effects and manufacturing disruption.” Id. at *4. As the Commission judged, a stricter design requirement might “on its face, appear to increase safety,”  but the practical effect would be otherwise. Id.

Riegel Analysis Relevant

Although Riegel addressed an express preemption provision, the Texas court found its policy analysis applicable here, id. at *6, in part because both cases involved a balancing of factors by the regulators that ensure the product meets carefully prescribed safety standards. Significantly, the Texas Court quoted the Supreme Court’s admonition that that tort law, applied by juries under a negligence or strict-liability standard, is less deserving of preservation that state regulation, because it does not include the cost-benefit analysis similar to that applied by the experts at the FDA. Instead, a jury sees only the cost of a more dangerous design, and is not concerned with its benefits. Id. at *5.

Particularly where a federal agency has balanced the relevant factors and rejected the idea of more stringent standards, this case is more support for the notion that under Riegel a common-law tort claim could impose duties that conflict with the federal regulatory scheme and therefore would stand as an obstacle to the accomplishment and execution of the full purpose and objections of Congress, even outside the medical device area.

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Two recent decisions are worth noting in the emerging battleground that is “consumer fraud” litigation. Plaintiffs have turned increasingly to the state unfair and deceptive trade practices acts and consumer fraud statutes that exist in virtually every jurisdiction. Not only do these statutes potentially give plaintiff attorneys access to a wider group of product liability claimants – those with no traditional injury from a product – they also hold out the theoretical promise of class certification because of the interpretation of the reliance and causation elements of the statutory claims. Plaintiffs frequently assert that these elements do not present the predominating individual issues that cut against class certification in a traditional mass tort or complex product liability context.  Many consumer fraud statutes authorize multiple/treble damages, attorney fees and costs. Plaintiff attorneys have resorted to asserting that the law of one state (the most pro-plaintiff consumer fraud statute) should apply to plaintiffs from various other jurisdictions in a multi-state class action.  The American Tort Reform Association has a good report on this phenomenon.

First, the Supreme Court of Missouri decertified a class defined as all individuals who purchased fountain Diet Coke in the state after March 24, 1999. See Coca-Cola Co. v. Nixon, 2008 WL 1724177 (Mo. April 15, 2008). According to the opinion, since 1984, fountain Diet Coke has been sweetened with a blend of aspartame and saccharin while bottled Diet Coke has been sweetened exclusively with aspartame. Plaintiff contended that she and many other consumers would not have purchased fountain Diet Coke if they had known it contained saccharin. She further contended that the deception, itself, resulted in irreparable harm. The trial court certified the class, and defendant appealed.

Class Definition Key

The court began its analysis by noting that while the state class action rule does not explicitly mention a proper class definition, such a requirement clearly underlies each of the mandatory elements for certification. Moreover, a properly defined class is necessary to realize both the protections and benefits for which the class action device was created. A class definition that encompasses more than a relatively small number of uninjured putative members is overly broad and improper. Likewise, a proposed class definition may be improper because the putative class is indefinite. The primary concern underlying the requirement of a class capable of definition, the Court said, is that the proposed class not be amorphous, vague, or indeterminate. 2008 WL 1724177 at *4. The class definition must be sufficiently definite so that it is administratively feasible to identify members of the class, which means, first, that class membership cannot depend on individual merit determinations. Class definitions requiring merit determinations are inappropriate in that the members of the class could not be presently ascertainable; such determinations could not be made until the case is concluded. Second, class membership must be based on objective, rather than subjective, criteria.

Plaintiff's proposed class included an extremely large number of uninjured class members, that is, those who did not care if the Diet Coke they purchased contained saccharin. Many consumers had no choice of the brand of fountain diet cola they purchased at any given location, let alone the particular type of sweetener used in one brand, Diet Coke. Plaintiff's own expert witness indicated that only twenty percent of those who currently consume fountain Diet Coke would not continue to do so if they knew it contained saccharin. In other words, eighty percent of the putative class suffered no injury, even under plaintiff’s theory of damages. Because of the presumably large number of individuals who purchased fountain Diet Coke in Missouri, proposed class “could include millions who [were not injured] and thus have no grievance.” Id.

The Court also rejected proposed modifications of the class definition. If class membership was limited to those who were allegedly injured by Coca-Cola, the class definition would contain an impermissible merit determination. The circuit court would not be able to determine whether an individual is, or is not, a class member until after the completion of the litigation. If the class definition were modified to be based on an individual's dislike of saccharin, membership would depend on an individual's subjective preference. Such a modification would result in innumerable “mini-trials” to determine class membership. Id. at *5. The opinion is thus a useful reminder of the importance of a careful analysis of the class definition.

A second recent CFA decision highlights the tactical decisions associated with attempts to have CFA claims dismissed at an early stage, particularly in light of Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1974 (2007), which instructed that a district court should grant a motion to dismiss if plaintiffs have not pled enough facts to state a claim to relief that is plausible on its face. “Factual allegations must be enough to raise a right to relief above the speculative level.” Id. at 1965.

In Williams ex rel. Tabiu v. Gerber Products Co., 2008 WL 1776522 (9th Cir. April 21, 2008), the Ninth Circuit reversed the trial court’s decision dismissing a putative class action alleging various tort claims and violations of California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et seq., and California’s Consumer Legal Remedies Act, Cal. Civil Code § 1750 et seq. The plaintiffs challenged several aspects of the marketing of Fruit Juice Snacks sold as part of Gerber’s “Graduates for Toddlers.”

• First, they challenged the use of the words “Fruit Juice” juxtaposed alongside images of fruits such as oranges, peaches, strawberries, and cherries, contending that this juxtaposition was deceptive because the product did not contain fruit juice from all of the fruits pictured on the packaging;
• Second, they challenged a statement on the side panel of the packaging describing the product as made “with real fruit juice and other all natural ingredients,” even though the two most prominent ingredients were corn syrup and sugar.
• Third, plaintiffs challenged a separate statement on the side panel; namely, that Snacks was “one of a variety of nutritious Gerber Graduates foods and juices.”
• Fourth, they challenged Gerber’s decision to label the product a “snack” instead of a “candy,” “sweet,” or a “treat.”
  
   

Lower Court's Sensible Approach

Gerber filed a Rule 12(b)(6) motion, which the district court granted. 439 F.Supp.2d 1112 (S.D. Cal. 2006). Plaintiffs must allege that Defendants' statements are likely to deceive a reasonable consumer. The term “likely” means probable, not just possible. If the alleged misrepresentation would not mislead a reasonable consumer, then the allegation may be dismissed on a motion to dismiss. In determining whether a statement is misleading “the primary evidence in a false advertising case in the advertising itself.” Id. at 1115. The trial court noted that the mere depiction of fruit, or fruit like substances, is not a specific affirmative representation that the product contains those fruits. Viewing the packaging as a whole, the inescapable conclusion was that no reasonable consumer upon review of the package would conclude that the Snacks contain the juice from the actual and fruit-like substances displayed on the packaging particularly where the ingredients are specifically identified. “Where a consumer can readily and accurately determine the nutritional value and ingredients of a product, and the product packaging does not affirmatively mislead the consumer by means of specific representations, no reasonable consumer would be misled” by the words “Fruit Juice Snack” or deceived by depictions of fruit and fruit-like substances on the primary packaging label. Id. at 1116.

The motion to dismiss raises the intersection of federal pleading rules and the state law underlying the elements of the claim being alleged. The Ninth Circuit engaged in no balancing or careful melding, but rather disposed of the federal pleading requirement as clarified in Twombly by noting that “California courts, however, have recognized that whether a business practice is deceptive will usually be a question of fact not appropriate for decision on demurrer.” 2008 WL 1776522 at *3. The facts of this case, the panel thought, do not amount to the “rare situation” in which granting a motion to dismiss is proper. Id. at *4. The Court simply substituted its view of the potential impact of the packaging for the trial court’s view: The packaging pictures a number of different fruits, “potentially suggesting (falsely) that those fruits or their juices are contained in the product.” Id. Further, the statement that Fruit Juice Snacks was made with “fruit juice and other all natural ingredients” could “easily” be interpreted by consumers as a claim that all the ingredients in the product were natural, “which appears to be false.” Id. [That’s the good news/bad news about a de novo review standard.]

The Ninth Circuit also disagreed with the trial court’s view that reasonable consumers might be expected to look beyond the front of the box to discover the ingredient list on the side of the box.

“We do not, however, think that a busy parent walking through the aisles of a grocery store should be expected to verify that the representations on the front of the box are confirmed in the ingredient list. Instead, reasonable consumers expect that the ingredient list contains more detailed information about the product that confirms other representations on the packaging.” Id.

That view – as unsupported by evidence as any the trial court relied on – is apparently designed to substitute the appellate court’s view of consumers in that specific environment, for an objective analysis of the packaging in a calm, or reflective atmosphere. It seems potentially inconsistent with the court’s holding that claims under these California CFA statutes are governed by a “reasonable consumer” test, unless the advertisement targets a particular disadvantaged or vulnerable group. Apparently, shoppers in grocery stores – if they are parents – are too disadvantaged and vulnerable to be expected to read the ingredients on the food they are buying for their children. What a tremendous policy decision! Sure to encourage more informed decisions by consumers. Apparently, reasonable consumers don’t read the label.

FDA Role

It is curious also in light of the treatment of the issue of the role of the FDA in this case. The trial court noted that “the FDA authorizes the manner in which Gerber labels Snacks…. The depictions of the fruit suggest that the product is fruit flavored and, as indicated on the packaging label, Snacks is a naturally flavored drink containing grape juice and natural flavors, along with corn syrup, sugar, Vitamin C, and other listed ingredients.” 439 F.Supp.2d at 1112. The Ninth Circuit rejected Gerber’s assertion that the district court concluded as an “alternate holding” that the product complied with FDA guidelines. This supposedly was not an alternate holding but simply support for the conclusion that the product was not deceptive. (The Court put off as not yet ripe any preemption challenge.)
 

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Today, let’s continue mining the depths of the Eight Circuit’s recent decision, In re: St. Jude Medical, Inc., Silzone Heart Valve Products Liability Litigation, No. 06-3860, 2008 WL 942274, 522 F.3d 836
(8th Cir. April 9, 2008). The case offers a number of potential lessons for mass tort defendants, and not just those in the medical device arena. We already made some medical monitoring observations here.

CFA Claims Abound

Today’s focus is consumer fraud act (CFA) claims. Virtually every state has some version of an unfair or deceptive trade practice act, or some form of consumer-protection oriented fraud act. Often these statutes permit a private cause of action, in addition to possible enforcement by the state attorney general. Plaintiffs in the Silzone case relied on three Minnesota statutes, the False Advertising Act (MFAA), Minn. Stat. § 325F.67, the Consumer Fraud Act (MCFA), Minn. Stat. § 325F.69, and the Deceptive Trade Practices Act, Minn. Stat. § 325D.44.

Plaintiffs have been increasingly aggressive in recent years in seeking to apply such statutes to the traditional product liability world. Expanding the potential plaintiff group from those who actually suffered disease or personal injury as a result of a product, and beyond those who claim to be at increased risk of future personal injury (medical monitoring), such CFA claims seemingly permit anyone who used or purchased a product to seek economic damages (and sometimes punitives, and sometimes attorney fees, and sometimes treble or multiple damages). Thus, we now see CFA-type claims against drug and device makers, consumer product manufacturers, and a growing list of other industries.

Moreover, the elements of the CFA claims seem, superficially, more amenable to class action treatment. In particular, the courts’ treatment of the reliance element of CFA claims has been confused at times, shallow at others, and not always helpful to the defeat of class certification. Judge Colloton goes right to the heart of this issue: “This case exemplifies the difficulty with class treatment of cases alleging fraud or misrepresentation.” Id. at 838. In a typical common law fraud claim or negligent misrepresentation claim, a plaintiff must show he or she saw or heard the fraudulent statement and reasonably relied on it. Because proof virtually always varies among plaintiffs concerning what they saw and heard and the degree to which they relied, if at all, and the reasonableness of the reliance, such fraud claims generally shouldn’t be and don’t get certified as class actions.

Lower Court Got It Wrong

However, the District Court held that proof of individual reliance is unnecessary under the Minnesota consumer protection law (which the court was applying to all plaintiffs from 17 states). This conclusion was based on Group Health Plan Inc. v. Philip Morris Inc., 621 N.W.2d 2 (Minn. 2001), which stated that the state legislature had "eliminated the requirement of pleading and proving traditional common law reliance as an element of a statutory misrepresentation claim." The absence of any need to prove reliance, said the plaintiffs, eliminated this as an individual issue. And thus the allegedly common issue of the defendant’s fraudulent conduct predominated.

Unlike common law fraud, many consumer fraud statutes do not explicitly require a showing of reliance.  For this reason, plaintiffs have repeatedly argued that manufacturers can be held liable to
an entire class of plaintiffs for an alleged misrepresentation— even if most members of the
class never saw the misrepresentation, or saw it but purchased the item for some other, unrelated
reason. Consumer fraud defendants have fought back against this line of attack, with
varying degrees of success, by arguing that causation, which is required under most consumer
fraud statutes, cannot be proven in such situations.

8th Circuit Offers Deeper Analysis

The Court of Appeals, in a more nuanced analysis here, noted that while it was not necessary for plaintiffs to plead individual consumer reliance, and need not provide direct evidence of reliance by individual consumers as part of their burden of proof, that was not the end of the analysis. Plaintiffs must – and this is true generally beyond Minnesota – prove a causal nexus between the allegedly wrongful conduct of the defendant and the plaintiff’s damages. Thus, “reliance” evidence about the relationship between the claimed damages and the alleged conduct is relevant and probative of the causation issue – even when presented by the defendant.

The 8th Circuit believed that there was a “reliance component” to the causation element, at least where as a practical matter it is not possible that the damages could be caused by the alleged violation without some kind of reliance on the statements or conduct alleged to violate the statute.

But even if plaintiffs were not required to present any direct proof of individual reliance, this would not prevent a defendant from presenting direct evidence that an individual plaintiff, or his or her physician, did not rely on any representations from the company. "Whatever Group Health means about the need for these plaintiffs to present direct evidence of individual reliance, it does not eliminate the right of a defendant to present evidence negating a plaintiff's direct or circumstantial showing of causation and reliance.”  2008 WL 942274 at *3, 522 F.3d at 840.

Why This Matters?

This is a huge issue for defendants in many kinds of class action, including but not limited to CFA claims. Too often, courts addressing certification rely on an analysis of plaintiffs’ burden of proof and the elements of their claim. Sometimes, courts will look at affirmative defenses – but often relegating such to later phases of a bifurcated proceeding to give the impression that common issues dominate the first phase. More rarely, courts conduct the full analysis we see here: in addition to plaintiffs’ burden of proof, and formal affirmative defenses, defendant has a due process right to offer relevant, probative evidence tending to negate or defeat plaintiffs’ cause of action. If that evidence raises individual issues, if the nature of that evidence will require individual discovery and particularized assessment by the finder of fact, those individual issues are just as relevant to the class certification decision as individual or common issues raised by the elements of the cause of action itself.

The defendant here planned to present evidence of non-reliance by individual plaintiffs, and thus an absence of causation, and this made it clear to the appeals court that resolving the issue of the company's liability to each plaintiff under the Minnesota consumer fraud statutes would depend on individual issues of causation and reliance. Specifically, “St. Jude has presented evidence that a number of implant patients did not receive any material representation about the heart valve.” The doctors who prescribed the valves had “learned about St. Jude’s heart valve in different ways.” One doctor heard about the valve “from a senior partner, another discovered it at a cardiology conference, and a third learned about the valve from a St. Jude sales representative and a St. Jude advertisement.” (Two of the five named plaintiffs couldn’t remember hearing anything about the valve.)  Any trial thus would require a physician-by-physician inquiry into each doctor’s sources of information about the valve. “Given the showing by St. Jude that it will present evidence concerning the reliance or non-reliance of individual physicians and patients on representations made by St. Jude, it is clear that resolution of St. Jude’s potential liability to each plaintiff under the consumer fraud statutes will be dominated by individual issues of causation and reliance.”  Id.

The court recognized that there may be certain issues that are common to all plaintiffs, such as whether certain published representations about the valve were materially false. But without even reaching the issue of choice of law and the questionable application of one state’s law to plaintiffs from 17 jurisdictions, the court found it clear that the common issues do not predominate over the individual issues that must be litigated to resolve the plaintiffs' CFA claims. Increasingly, courts are being asked to certify sweeping consumer fraud class actions based on abstract and unproven economic injuries. St. Jude provides precedent for defendants’ right to present a defense based on lack of reliance/causation, and its impact on class certification.

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