Yet Another Artificial "Natural" Class Action Shot Down in the Food Court

A federal court has found numerous issues precluding class certification of three proposed class actions challenging the labels of defendant's food products.  See Jones  v. ConAgra Foods, Inc., No. 12-01633 (N.D. Cal. 6/13/14).

This was a putative consumer class action about allegedly deceptive and misleading labels on three types of food products. The court acknowledged that the Northern District has seen a flood of such cases in recent years.  Plaintiffs have challenged, with limited degrees of success, marketing claims on everything from iced tea to nutrition bars. Plaintiffs here moved to certify three separate classes under Federal Rule of Civil Procedure 23(b)(2) and 23(b)(3)–one for each type of food product at issue. The complaint, as is typical, alleged (1) unlawful, unfair, and fraudulent business acts and practices in violation of California Business and Professions Code section 17200 (“UCL”), (2) misleading, deceptive, and untrue advertising in violation of California Business and Professions Code section 17500 (“FAL”), (3) violations of the Consumers Legal Remedies Act (“CLRA”), and (4) restitution based on unjust enrichment.  Also, as typical, the claims centered on marketing about "natural" - "100% Natural" and a "natural source" of antioxidants. 

Lengthy and comprehensive opinion. Let's focus on just some of the key arguments. Although there is no explicit ascertainability requirement in Rule 23, courts have routinely required plaintiffs to demonstrate ascertainability as part of Rule 23(a). See, e.g., Astiana v. Ben & Jerry’s Homemade, Inc., 2014 WL 60097, at *1 (N.D. Cal. Jan. 7, 2014) (“apart from the explicit requirements of Rule 23, the party seeking class certification must also demonstrate that an identifiable and ascertainable class exists.”). A class is not ascertainable unless membership can be established by means of objective, verifiable criteria. See Xavier v. Philip Morris USA, Inc., 787 F. Supp. 2d 1075, 1088-90 (N.D. Cal. 2011).  Without an objective, reliable way to ascertain class membership, the class quickly would become unmanageable, and the preclusive effect of final judgment would be easy to evade.  Id. at 1089.  While there are a few outliers, multiple courts have concluded that the ascertainability requirement cannot be met in the context of low-cost consumer purchases that customers would have no reliable way of remembering. See, e.g., In re POM Wonderful LLC, 2014 WL 1225184, at *6 (C.D. Cal. Mar. 25, 2014) (unascertainable because “[f]ew, if any, consumers are likely to have retained receipts during the class period” and “there is no way to reliably determine who purchased Defendant’s [juice] products or when they did so.”); Red v. Kraft Foods, Inc., 2012 WL 8019257, at *5 (C.D. Cal. Apr. 12, 2012) (finding unascertainable a proposed class of purchasers of various cracker and cookie products marketed as healthy despite including partially hydrogenated vegetable oil and other unhealthy ingredients); Hodes v. Van’s Int’l Foods, 2009 WL 2424214, at *4 (C.D. Cal. July 23, 2009).

Even assuming that all proposed class members would be honest, the court found it hard to imagine that they would be able to remember which particular products they purchased from 2008 to the present, and whether those products bore the challenged label statements. As defendant pointed out with the Hunt's class, there were “literally dozens of varieties with different can sizes, ingredients, and labeling over time” and “some Hunt’s cans included the challenged language, while others included no such language at all.”  The court also noted a concern that the defendant would be forced to accept class members estimates without the benefit of cross-examination; this was not a case in which the consumers were likely to have retained receipts or where the defendant would have access to a master list of consumers.

Second, there was a standing issue. California courts require plaintiffs who are seeking injunctive relief under these claims -- a change in defendant's sales practices -- to express an intent to purchase the products in the future. See, e.g., Rahman v. Mott’s LLP, 2014 WL 325241, at *10 (N.D. Cal. Jan. 29, 2014) (“to establish standing [for injunctive relief], plaintiff must allege that he intends to purchase the products at issue in the future”); Jou v. Kimberly-Clark Inc., No. 13-3075, 2013 WL 6491158, at *4 (N.D. Cal. Dec. 10, 2013) (“[b]ecause Plaintiffs fail to identify any allegation in their
Complaint that suggests that they maintain an interest in purchasing the diapers or wipes, or
both, in the future, Plaintiffs have not sufficiently alleged standing to pursue injunctive relief").

Here, plaintiffs could point to no evidence that the class reps intended to buy the specific products again. Some still had leftover product and had not used them at all since the litigation was filed. Without any evidence that plaintiffs planned to buy such products in the future, they did not have standing to bring an injunctive class. 

Turning to the damages classes, the court found additional problems. Here, there was a lack of cohesion among the class members, both because consumers were exposed to label statements that varied by can size, variety, and time period (and the challenged ingredients also differed), but more importantly because even if the challenged statements were facially uniform, consumers’
understanding of those representations would not be. Plaintiff's' expert did not explain how the challenged statements, together or alone, were a factor in any consumer’s purchasing decisions. She did not survey any customers to assess whether the challenged statements were in fact material to their purchases, as opposed to, or in addition to, price, promotions, retail positioning, taste, texture, or brand recognition. The expert acknowledged in her deposition that some
customers have never noted the “natural claim,” some have never looked at the ingredients list, some would buy a product regardless of whether the product says “natural,” and some do not care about labeling statements.

This rather startling admission might have something to do with the fact that there is no single, controlling definition of the word “natural.” See Pelayo v. Nestle USA, Inc., 2013 WL 5764644, at *4-5 (C.D. Cal. 2013) (discussing lack of a common understanding of the term “all natural” that is shared by reasonable consumers). It is undisputed that the FDA has not defined the word “natural.” See Lockwood v. ConAgra Foods, Inc., 597 F. Supp. 2d 1028, 1034 (N.D. Cal. 2009). Moreover, it was not clear that the challenged ingredients here are not “natural.”

Here, there are numerous reasons why a customer might buy the products, such as Hunt’s tomatoes, and there was a lack of evidence demonstrating the impact of the challenged label statements. Accordingly, Plaintiffs lacked common proof of materiality.

Multiple courts have refused to certify classes where such individual purchasing inquiries predominated, and the court was not convinced that the common questions would predominate over the individual questions. Who purchased what, when during the relevant class period, which kind of products they purchased, how many they purchased, and whether the kinds they purchased contained the alleged false nutritional information. Whether this is viewed as a predominance question, an ascertainability question, or a manageability question, it was clear that the defendant had no way to determine who the purchasers of its products are, i.e., the identity of class members. And thus it was true that individualized purchasing inquiries will be required to determine how many and which kind of products each class member bought.

Finally, In Comcast Corp. v. Behrend, 133 S.Ct. 1426, 1433-34 (2013), the Supreme Court
held that in order to satisfy the predominance inquiry, plaintiff must also present a model that
(1) identifies damages that stem from the defendant’s alleged wrongdoing and (2) is
“susceptible of measurement across the entire class.” 133 S.Ct. at 1433-34. “At class certification, plaintiff must present a likely method for determining class damages, though it is not necessary to show that his method will work with certainty at this time.” Chavez, 268 F.R.D. at 379.  Here plaintiffs' first theory called for return of the purchase price. That method did not account for the value class members received from the products, and so it was incorrect. The products were not
“economically worthless.”  In the alternative, plaintiffs proposed calculating damages via a benefit-of-the-bargain analysis.  But their expert failed to identify a comparator product in order to calculate the alleged percentage of overpayment.  

For a variety of good reasons, certification denied.

Consumer Fraud Class Claim Dismissed in Beverage Case

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

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

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

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

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

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

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

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

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

Claims dismissed (with leave to amend).

 

No Purchase, No Standing

Earlier this month a federal court reaffirmed that a named class representative in a proposed consumer class action against Ghirardelli Chocolate Co. lacked standing to assert claims about products he never bought. See Miller v. Ghirardelli Chocolate Co., No. 12-04936 (N.D. Cal. 4/5/13). We have posted before about plaintiffs overreaching in consumer fraud class actions. If a tree falls and no one is there, does it make a sound? If you never bought and used a product, how can you bring a “consumer” claim?

Plaintiff Scott Miller allegedly bought a package of “Ghirardelli® Chocolate Premium Baking Chips –Classic White” and then, on behalf of himself and other consumers, sued the Ghirardelli
Chocolate Company, complaining that defendant somehow deceived customers into thinking that this and four other products contained “artificial” or “imitation” ingredients, in violation of United States Food and Drug Administration (“FDA”) and state regulations.

Readers may know that Ghirardelli is one of America’s longest continuously operating chocolate manufacturers (more than 150 years) and that it is one of very few American manufacturers that make chocolate starting from the cocoa bean through to finished products. Ghirardelli accepts
only the highest-quality beans, rejecting as many as 30% of the beans that are offered it. Ghirardelli roasts the cocoa beans in-house to ensure the company’s signature flavor profile is consistently maintained in all chocolate products.

Miller filed suit in San Francisco County Superior Court, and Ghirardelli removed to federal
court and moved to dismiss the complaint. The court initially agreed that Miller lacked standing for products he had not purchased. At oral argument, however, plaintiff argued that the branding on the label meant that – under the FDA regulations and standards – the alleged harm was identical across product lines, and that established standing as to products he never used. Miller filed an amended complaint and Ghirardelli again moved to dismiss.

Hard as it may be to believe, there are a few cases that suggest that a plaintiff who does not purchase a product nonetheless may have standing if the products and alleged misrepresentations were substantially similar. E.g., Astiana v. Dreyer’s Grand Ice Cream, Inc., No. C-11-2910 EMC, 2012 WL 2990766, at *11 (N.D. Cal. July 20, 2012). But certainly where the alleged misrepresentations or accused products are dissimilar, courts tend to dismiss claims to the extent they are based on products not purchased. E.g., Larsen v. Trader Joe’s Co., No. 11-cv-5188-SI (Docket No. 41) (N.D. Cal. June 14, 2012), the court found that the plaintiffs lacked standing to bring claims based on products they did not purchase (wide range of Trader Joe’s products (cookies, apple juice, cinnamon rolls,biscuits, ricotta cheese, and crescent rolls). See also Stephenson v. Neutrogena, No. C-12-0426 PJH, 2012 U.S. Dist. LEXIS 1005099, at *1 (N.D. Cal. Jul. 27, 2012) (plaintiff brought suit over six Neutrogena Naturals products but had only purchased the purifying facial cleanser).

Even under the Astiana approach, here the products were too different: they look different; they have different uses (baking chips, drink powders, and wafers); they have different labels and different representations on packaging, and they are marketed and sold differently in that, for example, some are sold alongside each other, and some are sold in commercial markets and others in consumer markets. The logo, which plaintiff put so much emphasis on, was relatively unimportant considering the varying products, packaging and representations, and markets. Logos cannot be dispositive of what a product is and that a consumer determines what a product or characterizing flavor is by reviewing the label. Finally, the identity of the commodity here under FDA regulations was “white chocolate,” not “chocolate” as in the logo. That in turn means that a determination of standing required an examination of the entire label, and again, the five products and the alleged misrepresentations were not sufficiently similar.

Class Claim Against Crock-Pot Seems a Crock

There was an era in television that featured lots of made-for-TV "sporting events," like Battle of the Network Stars, that were popular with some viewers, but not really sports.  That is the world of consumer fraud class actions today, popular with some lawyers but very little deception of consumers going on.

A federal court last month dismissed proposed consumer class action claims against the  manufacturer of the Crock-Pot.  See Rice v. Sunbeam Products Inc., No. CV 12-7923-CAS (C.D. Cal., 1/07/13).

Plaintiff alleged that the Crock-Pot, a slow-cooking kitchen device sold on-line by the manufacturer direct to consumers and through various retailers of household goods, posed an unreasonable risk of burns, fires, and other related injuries to consumers when used as intended, asserting claims under the state Consumer Legal Remedies Act, Cal. Civ. Code §§ 1750, et seq. (“CLRA”);  the California Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200 et seq. (“UCL”); the California False Advertising Law, Cal. Bus. & Prof. Code §§ 17500 et seq. (“FAL”); and various common law claims.

The device's accompanying Owner’s Manual recommended cooking times between one hour and nine hours using one of the device’s three temperature settings. After purchase, with the device slow cooking plaintiff’s meal, she allegedly reached across her counter to grab an item next to the Crock-Pot. As she was doing so, she allegedly suffered a burn on her wrist due to the high temperature of the stainless steel exterior of the Crock-Pot. Plaintiff alleged that the placement of the heating components in the device created high temperatures on the exposed stainless steel part of the Crock-Pot, which in turn created an unreasonable risk of harm to consumers. Plaintiff brought this putative class action suit on behalf of herself and all other persons who purchased a Crock-Pot during the last four years from defendant’s website or an authorized retail store located in the State of California. Defendant moved to dismiss. 

Although only part of the Court's analysis, let me point out what is wrong with these kinds of all too common claims: the Owner’s Manual mentioned six times that the device becomes hot during cooking and the Owner’s Guide instructs the user to place the Crock-Pot at least six inches from other items and surfaces while in use because it gets hot.  But the class was surprised that it might burn them?

The CLRA prohibits a variety of “unfair or deceptive acts” in the sale of goods or services to a consumer. Cal. Civ. Code § 1770(a). This includes the use of “deceptive representations” in connection with the sale of goods or “representing that goods. . . have characteristics, ingredients, uses, [or] benefits. . . which they do not have. . . .” Id. § 1770(a)(4), (5). California courts have interpreted the CLRA to also proscribe fraudulent omissions in limited circumstances: “the omission must be contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.” Daugherty v. Am. Honda Motor Co., Inc., 144 Cal. App. 4th 824, 835 (2006). Relevant here, a duty to disclose arises where the defendant “had exclusive knowledge of material facts not known to the plaintiff” or “actively conceals a material fact from the plaintiff.” In re Toyota Motor Corp. Unintended Acceleration Mktg., Sales Practices, & Products Liab. Litig., 754 F. Supp. 2d 1145, 1172–73 (C.D. Cal. 2010); see also Ehrlich v. BMW of N. Am., LLC, 801 F. Supp. 2d 908, 916 (C.D. Cal. 2010) .

Here, defendant allegedly failed to disclose that the exposed stainless steel base of the Crock-Pot allegedly reaches dangerously hot temperatures, higher than comparable home kitchen appliances.  Plaintiff alleged that despite the fact that defendant advertised the Crock-Pot for “household use only,” the external surface of the device reaches temperatures that are appropriate only for commercial kitchens.  Defendant argued that the representation that it is for “household use only” would not deceive a reasonable consumer into believing that the base of the device would not reach temperatures that could cause burns during normal use. The Crock-Pot becomes hot regardless of whether or not a consumer supervises it. Defendant further argued that because
it made no representations about the surface temperature of the Crock-Pot, such that plaintiff cannot state a claim on the basis of an omission “contrary” to a claim actually made by defendant. In support of this contention, defendant noted the six times in the Owner’s Manual where it  disclosed that the device becomes hot during cooking.

The Court concluded that plaintiff failed to state an actionable claim under the CLRA under either a representation or omission-based theory. Most problematically, plaintiff failed to allege with the requisite particularity several of the representations she and other consumers reasonably relied on in making their purchasing decisions. Moreover, even putting to one side the pleading deficiencies, the Court was unconvinced that plaintiff was pleading actionable representations—a plaintiff must allege a plausible interpretation of a representation that defendant actually made to state a claim under the CLRA, based on the perspective of a reasonable consumer in the marketplace. Here, plaintiff did not plausibly allege that a reasonable consumer would be deceived by any of the alleged representations. The Court was unable to discern how a reasonable consumer would understand a statement regarding “all day cooking” to be a representation regarding the temperature of the exterior of the Crock-Pot. Second, plaintiff’s argument with respect to the alleged “safe for household use” representation was also unconvincing. Plaintiff failed to explain how an instruction regarding the use of a cooking device in the home is deceptive to a reasonable consumer with respect to the temperature that this cooking device allegedly reaches while cooking. In fact, the Owner’s Guide instructs the user to place the Crock-Pot at least six inches from other items and surfaces while in use, among other cautionary statements. For these reasons, the Court concluded that plaintiff failed to adequately plead a misrepresentation under the CLRA.

Plaintiff alleged that defendant violated the UCL by (1) failing to disclose the unreasonably hot surface temperatures the Crock-Pot attains during cooking; (2) failing to provide warnings on the device itself; (3) misrepresenting the Crock-Pot’s safety for household use; and (4) continuing
to market the device after receiving notice of the purported defect. However, plaintiff failed to adequately allege that defendant had knowledge of a defect that needed to be remedied.  In addition, plaintiff offered no factual support for her allegation that defendant’s conduct causes harm to consumers that “greatly outweighs any benefits” associated with the sale of its Crock-Pot in the marketplace. Plaintiff’s conclusory allegation failed to state a claim based upon alleged unfair conduct.  Accordingly, the Court granted defendant’s motion to dismiss plaintiff’s UCL claim.

To plead a claim under the FAL, a plaintiff must allege that a defendant publicly disseminated advertising that false or misleading, and which the defendant knew or reasonably should have known was untrue or misleading. Cal. Bus. & Prof. Code § 17500. As with the CLRA, the perspective of a reasonable consumer is the standard by which an advertisement is measured. See Paduano v. Am. Honda Motor Co., Inc., 169 Cal. App. 4th 1453, 1497–98 (2009). The Court found that the alleged representations that plaintiff purported to rely on in support of its FAL  claim were not actionable nor pleaded with sufficient particularity. As noted, plaintiff failed to adequately allege defendant’s knowledge of the purported defect. Courts that have considered the
issue have required that a plaintiff allege in far greater factual detail the basis for a claim that defendant had knowledge of a defect or the falsity of its statements. Vaguely alleging awareness of customer complaints, without any factual detail, does not suffice to demonstrate that defendant should have known about the falsity of its alleged representations.  Accordingly, the Court granted defendant’s motion to dismiss plaintiff’s claim under the FAL.
 

Finally, the warranty claims were dismissed because the plaintiff failed to avail herself of the remedy provided for in the warranty, the return of the allegedly defective Crock-Pot.   Moreover, her warranty allegations rested on the alleged representations that the Crock-Pot was “safe and fit for household use,“ which were insufficient to create an express warranty under California law. 


 

"Go" Power Defeats Proposed Class Action

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

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

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

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

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

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

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

Court of Appeals Compels Arbitration, Not Class Litigation

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

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

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

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

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

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

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

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

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

 

Proposed TV Class Action Dismissed Again

A California federal  court has again dismissed a proposed class action brought against Sony Corp. of America regarding allegedly defective televisions. Marchante, et al. v. Sony Corp. of America Inc., et al., No. 3:10-cv-00795 (S.D. Calif.).

Plaintiffs alleged that overheating caused the chassis and internal parts of nine different Sony rear-projection televisions to melt or burn during normal use. Plaintiffs, on behalf of  a proposed class of purchasers, claimed that Sony violated several consumer protection statutes (such as, typically the California Consumer Legal Remedies Act) and breached express and implied warranties by selling them the defective televisions. Earlier this year, the court dismissed without prejudice all of the claims, and plaintiffs filed an amended pleading.  Defendants again moved to dismiss.

The court reviewed the Twombly/Iqbal standards, and ruled that the plaintiffs had not fixed the pleading problems. Plaintiffs again alleged that Sony engaged in unfair business acts or practices by selling, promoting, and recalling the television models at issue. The court had previously dismissed plaintiffs’ unfair business act claim because plaintiffs failed to allege a substantial consumer injury; in the new complaint plaintiffs again failed to allege that the televisions exhibited any problems during the one-year limited warranty period. Every alleged problem surfaced several years after purchase. Any alleged failure to disclose thus related to a defect that arose years after the express warranty expired. And any failure to disclose therefore could not constitute substantial injury.  Although plaintiffs did amend their complaint to include allegations that the televisions failed to operate properly from the outset, plaintiffs’ amendments did not cure the deficiencies of the prior complaint.  The fact remained that the defects did not become apparent to the plaintiff-consumers until after the warranty expired. Thus, the complaint still fell short of alleging that the defects caused the televisions to malfunction within the warranty period, as is required to allege a substantial consumer injury under California's consumer statutes. 

As a general rule, manufacturers cannot be liable under the CLRA for failures to disclose a
defect that manifests itself after the warranty period has expired.  A possible exception exists, however, if the manufacturer fails to disclose information and the omission is contrary to a representation actually made by the defendant, or the omission pertains to a fact the defendant was otherwise obligated to disclose. Here, all of plaintiffs alleged CLRA violations pertained to Sony’s alleged failures to disclose; the question therefore was whether Sony carried any obligation to disclose the alleged defect. The court noted that under the CLRA, a manufacturer’s duty to disclose information related to a defect that manifests itself after the expiration of an express warranty is limited to issues related to product safety.  Moreover, in order to have a duty to disclose, the manufacturer must be aware of the defect at the time that plaintiffs purchased, since a manufacturer has no duty to disclose facts of which it was unaware. In dismissing the prior complaint, the court held that plaintiffs failed to invoke the safety exception because the complaint was devoid of allegations that anyone or any property —other than the television itself— was damaged by the allegedly defective televisions.  

Even assuming plaintiffs’ allegations that the televisions pose a safety risk were sufficient to invoke the safety exception (fire hazard?), plaintiffs failed to allege that Sony was aware of this safety hazard at the time plaintiffs purchased the televisions.  First, plaintiffs alleged that Sony had known about it since 2008 and "possibly even earlier.”   Plaintiffs bought their televisions in 2004, 2005, and 2006. So under plaintiffs’ own allegations, Sony may not have been aware of the alleged defect at the time plaintiffs made their purchases, or even within the respective one-year post-purchase warranty periods.  Second, all of plaintiffs' allegations regarding Sony’s knowledge of the alleged defect pertained to Sony’s knowledge that the defect caused excess heat that resulted in the deterioration of the television display, not that the defect posed any safety hazard. 

 The court thus dismissed the CLRA claims without prejudice. 

The court previously dismissed plaintiffs’ claim for breach of the express (limited warranty) because the alleged defects did not manifest until after the one-year warranty period expired. The general rule is that an express warranty does not cover repairs made after the applicable warranty period—here, one year after purchase—has elapsed.  None of the plaintiffs here sought repair or replacement of their televisions within the warranty period. None of the four named plaintiffs alleged that Sony either refused to repair any covered defects or refused to replace any televisions suffering from covered defects.

Plaintiffs’ implied warranty claims again failed because they were untimely. Subject to a sixty-day minimum and one-year maximum, implied warranties are equal in duration to corresponding express warranties under California law, said the court.  The implied warranty here was deemed to have a one-year duration to match that of the express warranty. And because Plaintiffs purchased the televisions in 2004, 2005, and 2006, the implied warranties would have expired by 2007, at the latest. But the amended complaint did not contain allegations that the televisions failed to function as warranted or that plaintiffs sought warranty coverage during the one-year period following their respective purchases. Thus, these claims were dismissed with prejudice.

Plaintiffs continue to try to shoe horn claims into the consumer fraud matrix, thinking they will have an easier road to class certification.  That makes the court's scrutiny of the pleadings even more crucial.

 

Choice of Law Defeats Another Proposed Nationwide Consumer Fraud Class

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

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

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

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

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

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

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

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

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

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


 

"Infected" Tissue Claim Not A Consumer Fraud Claim

Readers have seen my warnings about plaintiff attorneys trying to turn every marketing statement of opinion or puffing into a consumer fraud claim. Now comes a decision about a non-consumer product consumer fraud claim. A federal court recently decided that a plaintiff failed to plead a proper consumer fraud claim against a human tissue product supplier for allegedly providing infected material that was implanted into his body. See Wamsley v. Lifenet Transplant Services Inc., No. 10-00990 (S.D.W. Va., 11/10/11).

Plaintiff sued non-profit corporations who were suppliers and distributors of human tissue products, such as human tendons. Plaintiff alleged that he underwent surgery to repair a rupture to the Achilles tendon in his left ankle, a procedure that involved the implantation of a human tendon obtained from defendants. Plaintiff alleged the product was defective because it was “infected.”  Consequently, plaintiff alleged he had to undergo additional surgeries “to correct the damage caused by the defective tendon.

Plaintiff claimed that supplying an infected tendon constitutes an unfair method of competition and unfair or deceptive act or practice as defined by the West Virginia Consumer Credit Protection Act.  Defendants moved to dismiss the complaint on the grounds that plaintiff had failed to allege any action or inaction on the part of the defendants which would constitute unfair competition, unfair acts or practices, deceptive acts or practices, or fraudulent acts or practices. Plaintiff only formulaically recited the elements of a cause of action under the WVCCPA.   the court agreed and had plaintiff file an amended complaint which alleged defendants concealed from plaintiff, his doctors, and his hospital, that the tendon was infected.  He claimed the alleged concealment
that a tendon provided for human implantation is infected constitutes an unfair method of competition and unfair or deceptive act or practice.
 

Defendants then filed a motion to dismiss the amended complaint arguing that plaintiff’s
amended complaint fails to meet the pleading standards articulated in Ashcroft v. Iqbal, 556 U.S. 662 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). Defendants further contended that plaintiff did not have a private cause of action under the WVCCPA because no causal connection exists between the alleged unlawful conduct and the alleged ascertainable loss: because a physician (a “learned intermediary”) made the decision as to what product to use to repair the ruptured Achilles tendon, plaintiff could not establish the necessary causal connection between the alleged unlawful practice by defendants and the alleged injury.

The court began by outlining the relevant legal standard, familiar to our readers. The
plausibility standard requires a plaintiff to demonstrate more than a sheer possibility that a
defendant has acted unlawfully;  it requires the plaintiff to articulate facts, when accepted as
true, to state a claim to relief that is plausible on its face. While a court must accept the material facts alleged in the complaint as true, bare legal conclusions are not entitled to the assumption of truth and are insufficient to state a claim.  Facts pled that are merely consistent with liability are not sufficient.

Moreover, the court noted in an elegant way, "fraud is a generous tort, encompassing affirmative misrepresentations and omissions alike, its boundaries limited only by the imaginations of crafty and unprincipled minds."  A claim that “sounds in fraud” must satisfy Rule 9(b)’s more rigorous pleading standards. Rule 9(b)’s heightened pleading standards advance several interests, including protecting defendants’ reputations from baseless accusations, eliminating unmeritorious suits that are brought only for their nuisance value, discouraging fishing expeditions brought in the dim hope of discovering a fraud, and providing defendants with detailed information in order to enable them to effectively defend against a claim.

Plaintiff’s sole relevant factual allegation concerning defendants’ alleged unlawful conduct was that the defendants concealed from plaintiff, his doctors, and his hospital, that the tendon was infected. But he offered not a single fact in support of his theory that defendants concealed from surgeons the fact that the human tissue they provided was “infected” or knew that the surgeons would implant the diseased tendon into a human body.  (Indeed, the serious nature of this allegation made it more at home in a criminal court than a consumer fraud action.) Such an unadorned, conclusory averment leashed to not a single supporting fact failed to meet the pleading standard. Moreover, Plaintiff’s allegation that defendants concealed a material fact sounds in fraud
and, thus, triggered rigorous pleading requirements under Fed.R.Civ.P. 9(b).  However, the court called this a  "shoot-and-ask-questions-later lawsuit"  because it offered no facts to support a good faith belief that defendants knowingly distributed diseased or “infected” human body parts to plaintiff’s health care providers. No names, places, dates, or times, and no concrete facts to support the alleged conduct. No narrative on what was medically deficient about the tendon implant except to state that it was “infected.” In sum, plaintiff’s theory of liability failed to cross the line between possibility and plausibility of entitlement to relief. 

Even if the amended complaint had been "the model of perfect pleading," it would still fail because it does not state a cognizable claim under the WVCCPA. Plaintiff cannot shoulder his burden of stating a claim upon which relief can be granted because, within the meaning of the WVCCPA, the provisioning of blood and human tissue by the non-profit defendants to the health care providers was not “trade or commerce”; the service provided by the defendants was not performed “in connection with the sale or advertisement of any goods or services”; plaintiff was not a “consumer”; and the parities had not entered into a “consumer transaction.”

The West Virginia Legislature, in accord with many other jurisdictions, expressed its intent
that suppliers of human blood and tissue products be held to different legal standards than those
businesses that manufacture, distribute, and sell conventional goods and services. Blood and tissue distributors are rendering a service— and not making a sale—when they provide human blood and tissue products according to the West Virginia Legislature, which intended to limit the liability of such distributors in contract warranty and strict liability tort claims, plainly distinguishing human body products from ordinary goods. The court thus applied the West Virginia high court's decision in White v. Wyeth, 705 S.E.2d 828, 837 (W. Va. 2010), which held prescription drugs aren't proper subjects of consumer protection claims; the court refused to allow a plaintiff to morph what is most naturally a product liability or breach of warranty action into a purported statutory consumer protection claim would permit an end-run around the state's blood shield statute.

Finally, the court noted that plaintiff was correct in observing that if his WVCCPA complaint was dismissed, plaintiff would be left with no adequate legal remedy. Defendants had explained that the WVCCPA claim was a products liability claim in disguise, brought only because the statute of limitations had run on plaintiff’s traditional tort remedies. Thus, any difficulty plaintiff might having pursuing more traditional causes of action was likely his own fault.  The legislature did not intend that WVCCPA serve as "a Plan B litigation backstop" for claims when a plaintiff had—but did not pursue—appropriate traditional causes of action.


 

Company "Doe" Files Suit Challenging the CPSC Database

Multiple reports indicate that an unnamed company filed a suit last week, under seal, to challenge aspects of the Consumer Product Safety Commission's new public database.

Readers may recall that the Consumer Product Safety Improvement Act of 2008 mandated the creation of a consumer product safety information database, and from the beginning, there was controversy about the absence of an adequate process for addressing false and inaccurate reports that will scare consumers, harm business, and generate no additional safety gains; the need to employ means to prevent the submission of fraudulent reports of harm while not discouraging the submission of valid reports; the importance of not putting the governmental imprimatur on voluntary data that has not been verified; and the absence of a sufficient time period allocated for manufacturers to evaluate and respond to any proposed report.

The suit was reportedly filed in federal court in Maryland, and relates to material inaccuracies with respect to a report of alleged injury that found its way into the database.  The suit apparently asks that the CPSC be enjoined from keeping the complaint about one of the company's products in the public database.

Almost anyone can file a “report of harm,” including consumers; government agencies; health care professionals; child service providers; and public safety entities. Consumers could include not just the purchaser of the product but their personal injury attorney, with their own agendas.

Manufacturers have only a limited opportunity to review and dispute information in incident reports before they are published on-line in the CPSC database. Manufacturers have limited control over what information can be removed or amended once posted. The two dissenting votes at the time the CPSC commissioners approved the database made an unsuccessful attempt to amend the final rule so as to give manufacturers more time to comment on or respond to the inaccuracy of postings before they are published to the database and to the public.

The database is accompanied by a weak disclaimer stipulating that CPSC has not verified the accuracy of any report. Observers continue to worry that the agency has not paid sufficient attention to legitimate issues of a manufacturer's goodwill and reputation, to the costs of unnecessary panic among product consumers, and the mischief that plaintiffs' lawyers might cause with unwarranted increase in litigation against manufacturers.

A recent U.S. Government Accountability Office report on the database found that of 1,800  published reports, manufacturers noted that 160, nearly 10%, had materially inaccurate information.

 

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

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

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

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

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

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

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

Class Certification Denied in Printer Litigation

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

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

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

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

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

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

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Court Dismisses Consumer Fraud Claims Against iPad

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

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

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

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

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

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

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

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

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

 

Court Hits Cancel On Bulk of Printer Class Action

A California federal court earlier this month rejected many of the claims in a putative class action against Epson America Inc.  Christopher O'Shea, et al. v. Epson America Inc., et al., 2011 WL 3299936 (C.D. Cal.). What may be of most interest to our readers is the important reminder that a manufacturer is not required under consumer protection laws to denigrate its own product and broadcast that its product may not perform as well as its competition.

Plaintiffs claimed that Epson affirmatively misrepresented and failed to disclose material information regarding the performance and/or value of Epson inkjet printers and ink cartridges. Named plaintiffs claimed to be frustrated with the amount of ink the Epson printer consumed.

In fact, Epson discloses that its printers are tested in accordance with ISO standards, and makes available to consumers detailed information about how ink yields are calculated, including the fact that testing is conducted based on continuous printing; potential consumers, further, are expressly cautioned that since no single yield standard can duplicate a customer's actual printer usage, Epson recommends that customers also consider print yield comparisons from reputable independent sources. In the same vein, Epson discloses on the packaging of its printers that actual cartridge yields may vary considerably for reasons including images printed, print settings, temperature and humidity.  But plaintiffs never let a wealth of information deter them from finding one factoid they allegedly didn't get.

So, in essence, plaintiffs sought to impose a duty on the seller to compare this feature of its printers to competitors' products, as the Complaint referred to yields which were allegedly well below the yields of other manufacturers' printers. 

The California courts have held that for an omission to be actionable for purposes of  the state consumer fraud laws, it must be either (1) contrary to a representation actually made by the defendant, or (2) a fact the defendant was obligated to disclose.  E.g., Daugherty v. Am. Honda Motor Co., Inc., 144 Cal.App.4th 824, 835–36, 51 Cal.Rptr.3d 118, 128 (2006). Here, because there was no allegation that the “omitted” information was contrary to an actual representation, to defeat summary judgment and prevail on an omission-based theory of liability, plaintiffs had to establish that Epson was affirmatively obligated to disclose the information.

Yet, plaintiffs failed to identify—and the Court was unable to find—any case in any jurisdiction in which a court imposed an affirmative legal obligation upon a manufacturer to disclose on its packaging that its products performed less efficiently than similar products from competing manufacturers. To the contrary, as Epson pointed out, courts have unequivocally rejected this proposition. As the federal court explained, in the absence of some special circumstance, any duty to disclose information about a competitor's products would be anathema to a competitive free-market economy.  Imagine a car manufacturer having to tell you in every ad about every other car that got better gas mileage or did better in a crash test. Imagine every food maker having to tell you in its ads of every competitive food or beverage that was lower in calories.

Plaintiffs did not allege that Epson's printers were defective, let alone dangerously defective. Their claim, rather, was that they were unhappy upon discovering that Epson's printers “wasted” more ink than other printers.  California's consumer protection laws, though broad and sometimes scary, do not extend so far as to require a company to denigrate its own products or promote those of its competitors just because consumers might be interested in the comparison. The duty that plaintiffs sought to impose upon Epson was properly served by independent consumer reports.

The court held that Epson was not legally obligated to disclose that actual print yields generated by its printers and ink cartridges are “grossly inefficient” vis à vis “reason-able consumer expectations and the yields of other manufacturers' printers.”  Because Epson was not obligated to disclose the purportedly “omitted” information, plaintiffs' omission-based claims consequently failed as a matter of law.

However, the court denied the motion as to express representations allegedly made concerning the claims on one proposed sub-class which alleged that the defendant deceived customers when it told them that its NX series of printers, which uses individual cartridges for different colors of ink, would allow customers to “replace only the color you need.”  There was an issue of fact regarding whether the consumer is familiar enough with printer technology and operations to know that small amounts of colored ink are used when printing black-and-white documents to keep the print head clear. The plaintiffs have moved for class certification, with the hearing set for later in August.
 

House Committee Votes To End Funding for CPSC Database

The House Appropriations Committee voted last week (tally 27–21) to send a funding bill to the House floor that would cut off funds from being used for the Consumer Product Safety Commission's new consumer database.

Readers may recall that the Consumer Product Safety Improvement Act of 2008 mandated the creation of a consumer product safety information database, and from the beginning, there was controversy about the absence of a process for addressing false and inaccurate reports that will scare consumers, harm business, and generate no additional safety gains; the need to employ means to prevent the submission of fraudulent reports of harm while not discouraging the submission of valid reports; the importance of  not putting the governmental imprimatur on voluntary data that has not been verified; and the absence of a sufficient time period allocated for manufacturers to evaluate and respond to any proposed report.

As we have posted, the U.S. Consumer Product Safety Commission gave final approval late last year to the new consumer product safety database, overriding very real concerns about who should be permitted to submit incident reports and how they will be verified as accurate. CPSC commissioners split along party lines in the 3-2 vote, which came after a final discussion of whether the regulation would simply give certain interest groups a new forum to attack product makers and plaintiff lawyers a new tool, giving rise to lawsuits based on a rumor repeated through the echo chamber of the Internet.

Manufacturers have limited control over what information can be removed or amended once posted. The two dissenting votes made an unsuccessful attempt to amend the final rule so as to give manufacturers more time to comment on or respond to the accuracy of postings before they are published to the database and to the public.

The database is accompanied by a weak disclaimer stipulating that CPSC has not verified the accuracy of any report. Observes worry that the agency has not paid sufficient attention to legitimate issues of a manufacturer's goodwill and reputation, to the costs of unnecessary panic among product consumers, and the mischief that plaintiffs' lawyers might cause with unwarranted increase in litigation against manufacturers.

The bill just passed out of committee would cut CPSC's overall budget by about $3.5 million—approximately the same amount needed for the database—from FY 2011 levels, and provides that  no funds may be used to carry out any of the database activities.  It appears the bill will be taken up on the House floor in July. 

While consumer groups have opposed the funding cut-off, the majority on the committee agreed with the concern about the risks of unverifiable and inaccurate consumer comments that may be submitted. In the meantime, a 2011 continuing resolution requires the GAO to conduct an analysis of the database.

 

 

Plaintiffs Attacking Fiji's Green Water Sing the Blues

A California appeals court last week affirmed the dismissal of a putative class action in which plaintiffs accused Fiji Water Co. LLC of improperly promoting its bottled water. Ayana Hill v. Roll International Corp. et al., No. A128698 (Cal. Ct. Appeal, 1st Appellate District).

Plaintiff  Hill alleged she bought bottles of Fiji water, on the label of which was a green drop; she claimed that the drop somehow represented Fiji bottled water was environmentally superior to other waters and endorsed by an environmental organization. Hill filed a proposed class action on behalf of herself and other consumers of Fiji bottled water, asserting violations of California‚Äüs Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.), False Advertising Law (FAL) (§ 17500 et seq.), and Consumers Legal Remedies Act (CLRA) (Civ. Code, § 1750 et seq.), plus common law fraud and unjust enrichment.

Readers know that the term “green” is commonly used to describe the environmentally friendly aspects of products, and that concerned about over-use of such terms, the Federal Trade Commission (FTC) has issued standards known as “Green Guides” to describe the appropriate use of such labeling. The Federal Trade Commission last Fall proposed revisions to the guidance that it gives marketers to help them avoid making misleading environmental claims. The proposed changes were designed to update the Guides and make them easier for companies to understand and use.  The changes to the Green Guides included new guidance on marketers’ use of product certifications and seals of approval, “renewable energy” claims, “renewable materials” claims, and “carbon offset” claims.

Because the guides are not legislative rules under Section 18 of the FTC Act, they are not themselves enforceable regulations, nor do they have the force and effect of law. They consist of general principles, followed by nonexclusive specific examples, and are intended to provide a safe harbor for marketers who want certainty about how to make environmental claims. However, a few states, such as California, have incorporated the FTC guides into their consumer fraud (here CLRA) definition of environmental marketing claims.  

Hill's personal allegations were that, starting in 2008, she bought Fiji water about twice a week from Walgreens stores in San Francisco, relying on  these alleged representations that the product was “environmentally friendly and superior.” She would not have bought Fiji water had she supposedly known the truth that the Green Drop was the creation of defendants, not a neutral party or environmental group. Defendants accomplish this supposed elaborate "deception” through conspicuous placement of the Green Drop on the front of the product to allegedly look similar to environmental seals of approval.  Further, plaintiff complained  that in their packaging and marketing, defendants have “called their product FijiGreen” and, in stores and other public places, stated that "Every Drop is Green.” 

The trial court dismissed the claims, and plaintiff appealed.  In that posture, the court assumed that Hill actually was, as she claims, misled in the context to believe that the green drop symbol on Fiji water was a seal implicitly indicating approval by a third party organization, and thus believed that the Fiji product was environmentally superior to competitors' bottled water.

The problem was that Hill's beliefs, asserted and even assumed, do not satisfy the reasonable consumer standard, as expressed in the FTC guides (16 C.F.R. § 260.7(a) (2011) [material implied claims conveyed “to reasonable consumers”]) and as used in California's consumer laws. The court of appeals emphasized that the standard is not a least sophisticated consumer, nor the unwary consumer , but the ordinary consumer within the larger population.  Importantly, the court noted that "it follows, in these days of inevitable and readily available Internet criticism and suspicion of virtually any corporate enterprise, that a reasonable consumer also does not include one who is overly suspicious."  How true that is.

So, does the green drop on Fiji water bottles convey to a reasonable consumer in the circumstances that the product is endorsed for environmental superiority by a third party organization? No, said the court. The drop itself bears no name or recognized logo of any group, much less a third party organization, no trademark symbol, and no other indication that it is anything but a symbol of Fiji water.  The water has just a green drop, the drop being the most logical icon for this particular product—water.  And for context, a green drop on the back of every bottle appears right next to the website name, “fijigreen.com,” further confirming to a reasonable consumer that the green drop symbol is by Fiji water, not an independent third party organization—and, of course, inviting consumers to visit the website, where Fiji Water's explains its  environmental efforts.

Plaintiff asked the court of appeals to reverse the the trial court's denial of leave to amend, claiming that any defects in the complaint could be cured by amendment. But Hill's saying so "does not make it so," and it was her burden to show how she might amend to cure the deficiencies. She did not. Dismissal without leave affirmed.


 

Federal Court Dismisses Soda Misrepresentation Claim

A New Jersey federal recently dismissed a putative class action accusing The Coca-Cola Co. of misleading consumers about the health value of the carbonated beverage Diet Coke Plus.  Mason et al. v. The Coca-Cola Co., No. 09-cv-00220 (D.N.J. 3/31/11).

This is another in the series of cases we have warned readers about: plaintiffs are not injured, are not at risk of injury, have gotten the benefit of their bargain, but claim they were somehow duped by marketing. Here, plaintiffs alleged that they “were persuaded to purchase the product because the term ‘Plus’ and the language ‘Diet Coke with Vitamins and Minerals’ suggested to consumers that the product was healthy and contained nutritional value,” when it allegedly did not.

Defendants moved to dismiss under the Twombly/Iqbal doctrine.  Of course, claims alleging fraud or mistake must also meet the heightened pleading requirements of Fed. R. Civ. P. 9(b), which requires such claims to be pled with “particularity.”

To state a claim under the New Jersey Consumer Fraud Act., a plaintiff must allege: “(1) unlawful conduct by the defendants; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendants’ unlawful conduct and the plaintiff’s ascertainable loss.” Frederico v. Home Depot, 507 F.3d 188, 202 (3d Cir. 2007). Plaintiffs claimed that defendant committed affirmative acts of fraud and deception, and that they were persuaded to purchase the product because the term ‘Plus’ and the language ‘Diet Coke with Vitamins and Minerals’ somehow suggested to consumers that the product was healthy and contained extra nutritional value.

However, the FDA's warning letter about the product attached by plaintiffs to their own complaint shows that it is not false that Diet Coke Plus contains vitamins and minerals.  Plaintiffs failed to allege with particularity what further expectations beyond these ingredients they had for the product or how it fell short of those expectations. Plaintiffs simply made a broad assumption that defendant somehow intended for Diet Coke Plus’s vitamin and mineral content to deceive plaintiffs into thinking that the beverage was really “healthy.”  Without more specificity as to how defendant made false or deceptive statements to plaintiffs regarding the healthiness or nutritional value of the soda, the court found that plaintiffs failed to plead the “affirmative act” element with sufficient particularity to state a viable NJCFA claim.

Plaintiffs also failed to plead an ascertainable loss. When plaintiffs purchased Diet Coke Plus, they received a beverage that contained the exact ingredients listed on its label. Plaintiffs could not explain how they experienced any out-of-pocket loss because of their purchases, or that the soda they bought was worth an amount of money less than the soda they consumed. Mere subjective  dissatisfaction with a product is not a quantifiable loss that can be remedied under the NJCFA.  The same defects doomed the common law misrepresentation claims.

Although the FDA had issued the warning letter (on a somewhat arcane and technical issue), the court noted that not every regulatory violation amounts to an act of consumer fraud. The court also noted that it is simply not plausible that consumers would be aware of FDA regulations regarding “nutrient content” and restrictions on the enhancement of snack foods. The complaint actually did not allege that consumers bought the product because they knew of and attributed something meaningful to the regulatory term “Plus” and therefore relied on it. Rather, plaintiffs alleged merely that they subjectively thought they were buying a “healthy” product that happened to also apparently run afoul of a technical FDA regulation.

CPSC General Counsel Speaks at DRI

I am attending the DRI Product Liability Conference in New Orleans this week (as I know a number of readers are). Your humble blogger serves as Chair of the Mass Torts and Class Action sub-committee.

At the keynote address, Cheryl Falvey, Esq., General Counsel of the Consumer Product Safety Commission, spoke about an issue we have posted on before, the new incident report database.
With the usual disclaimer that she was not speaking for the CPSC officially, she shared a number of personal insights.

The new database went on line last month, and the first consumer reports were posted last week. It can be viewed through the Commission site with a link to SaferProducts.gov. There is a search function for products or manufacturers names, and it lists any recalls and reports, which can be filtered by date.

She indicated that, like Congress and the bar, the Commission is extremely divided on the new database. She stressed that, per the statutory requirement, there is a disclaimer on the site that: CPSC does not guarantee the accuracy, completeness, or adequacy of the contents of the Publicly Available Consumer Product Safety Information Database on SaferProducts.gov, particularly with respect to information submitted by people outside of CPSC. She admitted, however, that some lawyers may well seek to use the database to argue manufacturers were on notice of something regarding the product.

She noted that anonymous reports to the CPSC are not automatically published, but of course as to the public, every report on the website appears anonymous.

The CPSC believes it is mandated to publish reports of risks of harm as well as actual harm.

The Commission, she says, investigates only about 10% of the reports received; they do not have the budget and resources to investigate every report, let alone investigate reports before they are published. The CPSC is thus "not adjudicating" the product complaints, just posting them.
 

House Hearing on Consumer Product Safety Improvement Act

The House Energy and Commerce Committee's Subcommittee on Commerce, Manufacturing, and Trade, chaired by Rep. Mary Bono Mack (R-CA), held a hearing last week to examine the unintended consequences of the Consumer Product Safety Improvement Act of 2008 on American job creators, including small businesses. The purpose of this oversight hearing was to develop an understanding of the problems created by CPSIA, including the practical impediments to implementation; the impact of CPSIA on children’s safety; the impact on American jobs and businesses of all sizes; and practical ways to amend the law without endangering children’s health.

Two panels of witnesses testified before the Subcommittee. On the first were Honorable Inez Tenenbaum, Chairman, Consumer Product Safety Commission; and Honorable Anne Northup, Commissioner, Consumer Product Safety Commission.   The second panel included a mix of child safety advocates and representatives of small business industries.

The Chair noted that as a former small business owner, she recognized how unnecessary regulations – even well intentioned ones – can destroy lives.  Rick Woldenberg, the operator of Learning Resources, Inc., a small business making educational products and educational toys, testified on the many difficulties associated with the new, burdensome regulatory requirements. His company, Learning Resources, Inc., has recalled a grand total of 130 pieces in a single recall since its founding in June 1984, showing management of safety risks that was highly effective long before the government intervened in the safety processes.

CPSC Commissioner Northup testified on the exorbitant costs to small businesses, stating that in  March 2009, Commission staff reported that the economic costs associated with the CPSIA would be in the billions of dollars. Small businesses without the market clout to demand that suppliers provide compliant materials have been hit the hardest. Many report that the new compliance and testing costs have caused them to cut jobs, reduce product lines, leave the children’s market completely, or close.

CPSC Commissioner Anne Northup also focused on a key aspect of the new reporting database, observing that the Commission's database rule all but guarantees that the database will be flooded with inaccurate reports of harm, and thus it will be less useful for commission staff in determining hazard patterns than are the current, internal databases. She suggested that the Congress delay the launch of the database until new CPSC regulations can ensure that reports of harm contain sufficient information to permit verification, and the agency has an effective procedure in place to resolve a claim of material inaccuracy before a report is posted on the database.

She noted that the the Majority on the CPSC has expanded the list of database submitters to such an extent that virtually anyone can submit reports of harm—thereby rendering meaningless the statutory language listing permitted submitters. A database full of inaccurate reports from individuals who have second or third-hand information is not remotely helpful to consumers to determine which consumer product they should purchase.  Soliciting information from sources seeking to promote an agenda unrelated to simply sharing first-hand information invites dishonest, agenda-driven use of the database.  Trial lawyers, unscrupulous competitors, advocacy groups and other nongovernmental organizations and trade associations serve their own agendas and lack an incentive to prioritize accuracy in their reports of harm.  In particular, she testified, plaintiff trial lawyers with self-serving motives will use the Commission’s database to look for potential trends and patterns of hazards. Under the current database rule, this same group could also submit to the database false and unverifiable reports to fuel a lawsuit.


 

State Supreme Court Ignores Amendment to Find Standing in Consumer Fraud Claim

California's Supreme Court ruled late last month that consumers who purchase a product allegedly as a result of misleading advertising can sue the manufacturer even in the absence of traditional injury, despite enactment of a recent ballot proposition that was designed to stiffen injury requirements and limit standing under the state's unfair competition and false advertising laws. Kwikset Corp. v. Superior Court, No. S171845, 2011 WL 240278 (Cal. Jan. 27, 2011).

Readers have seen our posts about the danger of plaintiffs' misuse of state consumer fraud acts and unfair and deceptive practices acts.  Partially in response to such abuse, a few years back the voters of California passed Proposition 64, which substantially revised the state's unfair competition and false advertising laws by beefing up standing and injury requirements for suits by private individuals.  The initiative declared: “It is the intent of the California voters in enacting this act to prohibit private attorneys from filing lawsuits for unfair competition where they have no client who has been injured in fact under the standing requirements of the United States Constitution.”  Specifically, Proposition 64 also restricted standing to consumers who can allege they have suffered “injury in fact” and have “lost money or property” as a result of the defendant's improper business practice.  The plain import of this is that a plaintiff now must demonstrate some form of economic injury -- the issue is what form. 
 
Plaintiff James Benson brought suit against Kwikset Corp. challenging the company's “Made in U.S.A.” labeling of lock sets that allegedly contain foreign-made parts or involved foreign manufacture.  Specifically, plaintiff alleged that Kwikset falsely marketed as “Made in USA” locksets that contained screws or pins made in Taiwan or that were assembled in Mexico. Plaintiff prevailed in the trial court, on injunctive relief, but lost on the restitution claim. While cross-appeals were pending, Proposition 64 took effect. The lower courts gave plaintiff an opportunity to plead standing based on injury under the new Prop standing requirements of injury in fact and loss of money or property. The amended complaint then alleged that plaintiff relied on Kwikset’s representations in deciding to purchase the locks, and that he supposedly would not have purchased the locksets if they were not labeled “Made in the USA.”  On appeal, the court of appeals vacated the decision in light of the standing issues in the wake of the new law. The court found that the plaintiffs (new plaintiffs had been added) had alleged “injury in fact,” but they had not alleged “loss of money or property” because they got perfectly functioning locksets in return for their money, and they were not overpriced or defective. Plaintiffs therefore received the benefit of the bargain. 

The state Supreme Court agreed to hear the appeal, specifically to address the new standing requirements and what constitutes “loss of money or property” under California’s unfair competition law (Business and Professions Code section 17200 et seq. (the UCL)) and the false advertising law (Business and Professions Code section 17500 et seq.).

The state high court held that plaintiffs who allege they are deceived by a product’s label and thus purchase a product that they would not have purchased otherwise have “lost money or property” as required by Proposition 64 and have standing.  The court somehow concluded that such an individual does not receive the “benefit of the bargain” even if the product is not overpriced or defective, and works just fine. The Supreme Court concluded that “labels matter.” For each consumer who relies on the truth and accuracy of a label and is deceived by misrepresentations into making a purchase, the economic harm is the same: the consumer has purchased a product that he or she paid more for than he or she otherwise might have been willing to pay if the product had been labeled accurately, said the court. This economic harm -the "loss of real dollars from a consumer's pocket" -is the same whether or not a court might objectively view the products as functionally equivalent.  If a party has alleged or proven a personal, individualized loss of money or property in any non-trivial amount, he or she has also alleged or proven injury in fact.

The majority worried that to deny such consumers standing would bring an end to private consumer enforcement regarding label misrepresentations.  Instead, this unfortunate decision may well encourage frivolous and contrived class action litigation by plaintiffs who have not suffered any type of quantifiable economic loss -- exactly what the voters voted to curtail.

The dissent correctly noted that the majority's ruling directly contravened the both the intent of Prop 64 and the express language of the amendment.  Indeed Proposition 64 was an effort to curb suits just like this one (which was mentions in the campaign), in which plaintiff got the benefit of their bargain. In direct contravention of the electorate's intent, the majority disregarded the express language of the amendment and arguably made it easier for a plaintiff to achieve standing under the UCL.  Lost money cannot refer to every time a consumer pays for something, because then every consumer would always have standing to challenge every transaction, and how could Proposition 64 be seen as a new restriction on standing?  Loss of money is not the same as any economic injury. Lost money or property is a subset, one form of, economic injury.  Not all economic injuries include lost money as the statute uses the term;  the majority effectively rendered one of the two statutory requirements redundant and a nullity. 

By delving into the subjective motivation of the plaintiff ("labels matter"), the court ignored the focus of the statute not on subjective intent of the buyer, but objective proof of actual loss of property versus no such loss.

In focusing on the fact that the plaintiffs paid for the items, the majority ignored the fact that plaintiffs received the locksets in return, which were not alleged to be overpriced or otherwise defective. Aside from paying the purchase price of the locksets, plaintiffs have not alleged they actually “lost” any money or property.  The majority simply concluded there was a loss of real dollars, but there was no such allegation of such a loss here, where plaintiffs simply paid the purchase price for the mislabeled but otherwise fully functional locksets. Plaintiffs did not allege that the locksets were worth less or were of lesser quality or were defective, and the majority's holding apparently does not require that plaintiffs allege any price differential.

 

Snapple Prevails in All Natural Suit

A federal court granted summary judgment to defendant Snapple in a lawsuit accusing
Snapple Beverage Corp. of misleading consumers by labeling drinks as "all natural" even though they are sweetened with high fructose corn syrup. Weiner et al. v. Snapple Beverage Corp., No. 1:07-cv-08742 (S.D.N.Y.).

We have commented on the growing and alarming trend of plaintiffs' lawyers concocting consumer fraud class action claims against products, even when consumers were not injured and got basically what they paid for, because of some alleged ambiguity in the label or old-fashioned puffing.

Snapple Beverage Corporation was founded in New York’s Greenwich Village in 1972. Snapple began selling and marketing its teas and juice drinks in the late 1980s. In marketing its beverages, Snapple focused on, among other things, flavor, innovation, and humor. Snapple became known for its quirky personality and funny advertising, as well as its colorful product labels and beverage names. For instance, Snapple’s television advertisements featured, among other things, Snapple bottles dressed in wigs and hats, singing in a Backstreet-esque “boy-band,” running with the bulls (hamsters with cardboard horns) in Spain, and performing synchronized swimming.

When Snapple entered the beverages market in the late 1980s, it avoided putting preservatives, which were then commonly found in some similar beverages, in its teas and juice drinks. Snapple was able to do so by using a “hot-fill” process, which uses high-temperature heat pasteurization to preserve products immediately before bottling. Snapple also used 16-ounce glass bottles instead of aluminum cans or plastic. Hence the term on their label "All Natural."

From their inception, Snapple’s beverages were sweetened with high fructose corn syrup. HFCS is made from corn ( a natural product last time we checked), and its primary constituents are glucose and fructose, the sugars that comprise table sugar and honey (which also sound pretty natural). It is undisputed that Snapple disclosed the inclusion of HFCS in the ingredient list that appears on the label of every bottle of Snapple that was labeled “All Natural.”

Readers may recall from our previous post, that here plaintiffs sued seeking to represent a nationwide class of consumers who made purchases between 2001 and 2009 in New York of Snapple beverages labeled “all natural” and which contained high fructose corn syrup.  The plaintiffs alleged they paid a premium for the company's drinks as a result of the all natural claim.

Judge Cote denied the plaintiffs' motion for class certification last year, finding that plaintiffs had not proposed a suitable methodology for establishing the critical elements of causation and injury on a class-wide basis. Without a reliable methodology, plaintiffs had not shown that they could prove at trial, using common evidence, that putative class members in fact paid a premium for the beverage. Because individualized inquiries as to causation, injury, and damages for each of the millions of putative class members would predominate over any issues of law or fact common to the class, plaintiffs’ claim could not be certified under Rule 23(b)(3).

Snapple then moved for summary judgment on the two named plaintiffs' individual claims
under New York's consumer protection laws, as well as claims of unjust enrichment and breach of express warranty.

Jurisdiction was predicated on CAFA, so a preliminary issue was whether the court retained jurisdiction after the denial of class certification. The statute does not speak directly to
the issue of whether class certification is a prerequisite to federal jurisdiction, and the Second Circuit has not addressed the issue. The circuits that have considered the issue, however, have uniformly concluded that federal jurisdiction under CAFA does not depend on class certification. See Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806 (7th Cir. 2010); United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union, AFL-CIO, CLC
v. Shell Oil Co., 602 F.3d 1087, 1092 (9th Cir. 2010); Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1268 n.12 (11th Cir. 2009).

The court granted the motion, finding that the named plaintiffs had failed to show that they were injured as a result of Snapple's labeling.  According to Snapple, because the plaintiffs had not offered evidence showing either the price they paid for Snapple or the prices charged by competitors for comparable beverages, they could not demonstrate that they paid a premium for the “All Natural” Snapple product and thus could not show harm stemming from the allegedly misleading label.  Neither of the plaintiffs had any record of his purchases of Snapple. Their most recent purchases were made in 2005 and 2007, or 3 to 5 years before their deposition testimony was taken. Not surprisingly, they had only vague recollections of the locations, dates, and prices of their purchases of Snapple. Besides being unable to establish the actual price they paid for the Snapple products at issue here, the plaintiffs have offered no other evidence from which to
calculate the premium they paid for Snapple. The court agreed that plaintiffs failed to prove that they paid more for Snapple's products than they would have for comparable beverages.

As for the breach of expressed warranty claim, an injured party is entitled to the benefit of its bargain, measured as the difference between the value of the product as warranted by the manufacturer and its true value at the time of the transaction. Because the plaintiffs
had not demonstrated that they purchased Snapple's drinks in reliance on the “all natural”
label, they could not show any such difference in value. 

CPSC to Hold Webinars on New Product Safety Database

The Consumer Product Safety Commission is holding two Web conferences to demonstrate to interested stakeholders various aspects of its new (and still controversial) consumer product safety information database.  The conferences will focus on the incident reporting form, industry registration and comment features, and the search function of the publicly available part of the database.

The first Web conference will be held from 10:30 a.m. to 12:30 p.m. today, January 11, 2011, and the second Web conference will be held from 10:30 a.m. to 12:30 p.m. on Thursday, January 20th. The first Web conference will focus on the incident form that the public will use to file a report of harm and the search function of the database. The Web conference is intended to inform all interested stakeholders of the information required on the form to be used to report an incident, in addition to an explanation of the public search function of the Database.  The second Web conference will focus on the industry registration and comment features, the process for reporting incidents, and the public search component of the database.  It will address how to access and use the new business portal, and how to register an account on the business portal, which is designed to facilitate more efficient electronic notice, review, and comment on reports of harm before they are published in the database.  The database is set to go live March 11 through the CPSC's website.

As we have noted, the database raises a number of significant issues for our readers, as the CPSC will not be able to guarantee the accuracy of reports before it publishes them on the database, important confidentiality concerns may be compromised, and the data appears vulnerable to trolling and misuse by plaintiff lawyers.  Reports of harm will be published in the database 10 business days after the company has been provided notice of the report of harm. The CPSC has acknowledged that it will not be able to independently verify the accuracy of the information in the reports in that time, so  manufacturers will need to attempt to ask the CPSC to remove “materially inaccurate information” and “confidential information” in the report before it is published, or file comments about the report of harm to be published along with the report in the database.  As a practical matter, it may be difficult for a company to fully investigate the allegations in the report in that time frame. Moreover, any such investigation will likely not include an interview of the person who filed the report, because the person filing the report can choose to not release his or her name.

Reports may be filed not only by consumers but by health care workers, attorneys, and many others. Plaintiffs' lawyers have an unhealthy incentive to seed the database with self serving reports, and, at the least, may search the database looking for products to go after.

Again, companies should register with the CPSC so that they can receive the most timely notice of a report filed about their products.  It may make sense to consider developing an SOP for reviewing and following up on reports in the database, including designation of a lead reviewer or team to follow through. This SOP may include a plan for quickly preparing the appropriate documentation that the company's products are in fact reasonably safe, and for dealing with any adverse PR.  


 

Seventh Circuit Sticks to Its Criticism of CopyCat Class Action

Last month we posted about a class action decision from the Seventh Circuit, in which the court of appeals approved an injunction against copycat litigation once class certification was denied.  Thorogood v. Sears, Roebuck & Co., No. 10-2407 (7th Cir., 11/02/10).

Ordinarily the ability to plead res judicata or collateral estoppel gives a litigant adequate protection against being harassed by repetitive litigation by the loser in a previous suit against him. But this case was unusual, said Judge Posner, both because it involved class action litigation and because of the specific tactics employed by class counsel. Class members are interested in relief for the class but the lawyers are primarily interested in their fees, and the class members’ stakes in the litigation are ordinarily too small to motivate them to supervise the lawyers in an effort to align the lawyers’ incentives with their own. The defendant wants to minimize outflow of expenditures
and the class counsel wants to increase inflow of attorneys’ fees. "Both can achieve their goals if they collude to sacrifice the interests of the class.” Leslie, “The Significance of Silence: Collective Action Problems and Class Action Settlements,” 59 Fla. L. Rev. 71, 79-81 (2007). And when the
central issue in a case is given class treatment and so will be resolved once and for all, a trial becomes a roll of the dice. Depending on the size of the class, a single throw may determine the outcome of an immense number of separate claims (hundreds of thousands, in this home dryer
litigation)—there is no averaging of decisions over a number of triers of fact having different abilities, priors, and biases. The risk of error becomes asymmetric when the number of claims aggregated in the class action is so great that an adverse verdict would push the defendant into bankruptcy; in such a case the defendant will be under great pressure to settle even if the merits
of the case are slight.

The plaintiff appellee filed a petition for panel rehearing, and rehearing en banc. All the judges  voted to deny the petitions, and typically that is the end of the appeal.  But the court wrote an opinion about the denial, "in view of the accusations leveled in the petition by the plaintiff’s lawyer."

On the merits, said the court, the petition ignored the principal reasons for enjoining the copycat class actions, and said virtually nothing about the All Writs Act, which was the very grounds for the prior decision.  The petition also ignored the point that class certification was improper given the nature of the plaintiff's claim, which did not present common issues that would support a class action.  It ignored the panel's criticism of the district court reasoning, and mischaracterized the scope of the injunction, as individual claims were not enjoined.

The petition's main concern was with the language used in the opinion describing plaintiff counsel as pugnacious, pertinacious to a fault, and a "nuisance." To which the panel responded that the petition ignored the facts and analysis that supported those characterizations, and the right of a court to  and the duty of a court to note unacceptable tactics.

The petition claims the panel did not treat the counsel with respect, to which the court noted that the lawyer had compared Judge Posner to Simon Cowell.

What the panel had said is that the structure of class actions gives plaintiff lawyers an incentive to negotiate settlements that enrich themselves but give scant rewards to class members. With numerous citations, the panel noted that the criticisms in the prior opinion of the tactics employed by some class action lawyers are not criticisms made by judges alone, let alone judges of the panel or judges of the Seventh Circuit.

So far from retracting any criticisms or modifying any language, the court reaffirmed its key criticisms.

CPSC Approves Product Safety Database Rule

The U.S. Consumer Product Safety Commission last week gave final approval to the controversial
new consumer product safety database, overriding very real concerns about who should be permitted to submit incident reports and how they will be verified as accurate. Readers may know that Section 212 of the Consumer Product Safety Improvement Act of 2008 (‘‘CPSIA’’) amended the Consumer Product Safety Act (‘‘CPSA’’) to require the Commission to establish and maintain a publicly available, searchable database on the safety of consumer products, and other products or substances regulated by the Commission.

CPSC commissioners split along party lines in the 3-2 vote, which came after  a final discussion of whether the regulation would simply give certain interest groups a new forum to attack product makers and plaintiff lawyers a new tool, giving rise to lawsuits based on a rumor repeated through the echo chamber of the Internet.

The rule will give consumers access to reports of alleged product-related safety incidents via a new publicly accessible database.  Consumers, government agencies, and various public health and safety interest groups will be able to post largely self-verified reports related to the safety of any product regulated by the CPSC.

Manufacturers will have limited control over what information can be removed or amended once posted.  The two dissenting votes made an unsuccessful attempt to amend the final rule so as to give manufacturers more time to comment on or respond to the accuracy of postings before they are published to the database and to the public. 

The database will be accompanied by a weak disclaimer stipulating that CPSC has not verified the accuracy of any report.  But the Democratic commissioners rejected any system by which the CPSC could investigate obviously questionable claims and find out the origin of such reports before allowing the public to see and use them.   We posted about these very issues last Spring, and argued that the CPSC had not fully addressed them.  It still seems that insufficient attention has been paid by the majority commissioners to legitimate issues of a manufacturer's goodwill and reputation, to the costs of unnecessary panic among product consumers, and the mischief that plaintiffs' lawyers might cause with unwarranted increase in litigation against manufacturers.

Accordingly, a product seller may only make a comment in response to the report of harm, which may be published; claim the report of harm contains confidential business information, triggering a CPSC review of the claim; and/or claim the report of harm contains materially inaccurate information (e.g., that it is not the manufacturer or private labeler of the product), triggering a CPSC review of the claim. Materially inaccurate information is narrowly defined to include information that is false or misleading and relates to a matter which is so substantial and important as to affect a reasonable consumer’s decision making about the product. 

CPSC is expected to have the database go live at www.saferproducts.gov in March, 2011. In the meantime, the Commission plans to start outreach on business portal registration and features; conduct workshops with manufacturers and private labelers; offer training webinars; and finalize the new incident report form.

Court of Appeals Enjoins Copycat Class Actions

The Seventh Circuit has held that a "copycat" class action suit cannot go forward in federal court in California after a similar class action had already been denied certification in federal court in Illinois.  Thorogood v. Sears, Roebuck & Co., No. 10-2407 (7th Cir., 11/02/10).

The first class action in the package of related cases was filed in state court in Illinois but removed to federal court under the Class Action Fairness Act.  Thorogood, a Tennessean, bought a Kenmore-brand clothes dryer from Sears (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 was made of stainless steel. Thorogood claimed to have thought that this meant that the drum was made entirely of stainless steel, whereas part of the front of the drum—a part the user would see only if he craned his head inside the drum—is made of a ceramic-coated steel. 

The district court certified a multi-state class of Kenmore-brand clothes dryer purchasers. On appeal, the Seventh Circuit called the case “a notably weak candidate for class treatment.” Not only did common issues of law or fact not predominate over the issues particular to each purchaser of a stainless steel Kenmore dryer, as Rule 23(b)(3) requires, there were, the court said, “no common issues of law or fact.” 547 F.3d at 746-47.  It was well-nigh inconceivable, said the court,  that the other members of the class had the same understanding of Sears’s advertising as Thorogood claimed to have. Sears hadn’t advertised the dryers as preventing rust stains on clothes; and it’s not as if such stains are a common concern of owners of dryers—there was no suggestion of that either.

Stainless steel appliances are popular even among consumers, undoubtedly the vast majority, who do not expect a dryer to cause rust stains. Stainless steel does not rust, and that is certainly a plus, clothing stains to one side. But ceramic doesn’t rust either.  Advertisements for clothes dryers mention a host of features that might matter to consumers, such as price, size, electrical usage, appearance, speed, and controls, but not the prevention of clothing stains attributable to rust. The litigation of the class members’ claims would thus have devolved into a series of individual hearings in which each class member who wanted to pursue relief against Sears would testify to what he understood to be the meaning of a label or an  advertisement that identified a clothes dryer as containing a stainless steel drum. Few if any of them would have shared Thorogood’s alleged concerns, which, were a confabulation, said the court.

After the court of appeals thus ordered the first class decertified, thus shrinking the suit to Thorogood’s individual claim, Sears made Thorogood an offer of judgment under Rule 68 of $20,000 inclusive of attorneys’ fees. The district judge, believing that Thorogood should receive no attorneys’ fees, dismissed the suit. The Seventh Circuit affirmed the district court’s denial of attorneys’ fees and dismissal of the suit. 595 F.3d 759 (7th Cir. 2010).

The same plaintiffs' lawyer then brought Murray v. Sears, Roebuck & Co., No. 4:09-cv-
5744-CW (N.D. Cal.). Murray was a member of Thorogood’s class, and he brought essentially the identical claim in California.  Sears Roebuck sought an injunction halting the new class action in front of Judge Leinenweber, who had presided over and eventually dismissed Thorogood’s original class suit, but he ruled that Sears could obtain adequate relief against being harassed by repetitive litigation by pleading collateral estoppel in Murray’s suit in California. Sears appealed, asking the court to to reverse the district court's denial of  Sears’s motion to enjoin the virtually identical class action suit.

The Seventh Circuit (Judge Posner writing) noted that the class in Murray’s case was smaller than
Thorogood’s because it was limited to California purchasers, but it was still very large. The claims in Murray’s original complaint, when Sears pleaded the defense of collateral estoppel, were identical to Thorogood’s; they challenged the same advertising for the same models of clothes dryer. Murray acknowledged that he was alleging “a similar general set of operative facts as alleged in the Thorogood case.”  That caused the California court to find for Sears on collateral estoppel grounds.  So re judicata saves the day, just like the Illinois district court predicted in denying the requested injunction.

But (wouldn't be a blog-worthy case without the but) Murray then amended his complaint to allege additional facts in an effort to show that he had a different case, perhaps one more amenable to class action treatment. On the basis of the amendment, the district judge in California reversed his earlier ruling, and having thus rejected the defense of collateral estoppel allowed discovery to begin.

Ordinarily the ability to plead res judicata or collateral estoppel gives a litigant adequate protection against being harassed by repetitive litigation by the loser in a previous suit against him. But this case was unusual, said Judge Posner, both because it involved class action litigation and because of the specific tactics employed by class counsel. Class members are interested in relief for the class but the lawyers are primarily interested in their fees, and the class members’ stakes in the litigation are ordinarily too small to motivate them to supervise the lawyers in an effort to align the lawyers’ incentives with their own.  The defendant wants to minimize outflow of expenditures
and the class counsel wants to increase inflow of attorneys’ fees. "Both can achieve their goals if they collude to sacrifice the interests of the class.” Leslie, “The Significance of Silence: Collective Action Problems and Class Action Settlements,” 59 Fla. L. Rev. 71, 79-81 (2007). And when the
central issue in a case is given class treatment and so will be resolved once and for all, a trial becomes a roll of the dice. Depending on the size of the class, a single throw may determine the outcome of an immense number of separate claims (hundreds of thousands, in the dryer
litigation)—there is no averaging of decisions over a number of triers of fact having different abilities, priors, and biases. The risk of error becomes asymmetric when the number of claims aggregated in the class action is so great that an adverse verdict would push the defendant into bankruptcy; in such a case the defendant will be under great pressure to settle even if the merits
of the case are slight.

Moreover, in most class action suits, there is far more evidence that plaintiffs may be able to discover in defendants’ records (including emails, the vast and ever-expanding volume of
which has made the cost of discovery soar) than vice versa. Usually the defendants’ conduct is the focus of the litigation and it is in their records, generally much more extensive than the plaintiffs’ (especially when as in a consumer class action the plaintiffs are individuals
rather than corporations or other institutions), that the plaintiffs will want to go in search of a smoking gun.

There is no way in which Sears could recoup the expense of responding to Murray’s discovery requests and of filing preclusion defenses against even more soon-to-be-filed duplicative class actions in other states. The harm it faces from the denial of the injunction was irreparable and its remedy at law against settlement extortion nonexistent, found the Seventh Circuit.  Sears’s action under the All Writs Act was its only means, other than submitting to plaintiffs' lawyer’s  demands, of avoiding being drowned in the discovery bog.

Here, despite the artful pleading in the amneded complaint in California, there was nothing materially new in Murray’s complaint that should have allowed allow an escape from the bar of collateral estoppel. The critical issue was and is what consumers would understand by representations that the Kenmore dryer has a stainless steel drum. The finding in the first court was that common issues did not predominate in Thorogood’s suit; neither did they in Murray’s; the differences between the suits did not bear on that particulat finding.  Yet, the California court did not agree.

Sears’s motion had been filed under the “All Writs Act,” which authorizes a federal court to issue “all writs necessary or appropriate in aid of [its] jurisdiction and agreeable to the usages and
principles of law,” 28 U.S.C. § 1651(a), and which has been interpreted to empower a federal court “to issue such commands . . . as may be necessary or appropriate to effectuate and prevent the frustration of orders it has previously issued in its exercise of jurisdiction otherwise obtained.” United States v. N.Y. Tel. Co., 434 U.S. 159, 172 (1977). Abuse of litigation is a conventional ground for the issuance of an injunction under the All Writs Act, because without an injunction a defendant might have to plead the defense of res judicata or collateral estoppel in a myriad of jurisdictions in order to ward off a judgment, not without risks, and would be helpless against settlement extortion pressures.

The court of appeals left the details of the injunction to be worked out by the district judge, but noted that it had ordered the class decertified inthe first case because of the absence of issues common to all the class members. That ruling—as the injunction must make clear—does not preclude any of the class members from filing individual suits, should they choose. For it was not a ruling on the merits of any class member’s claim (including Thorogood’s). All that would be precluded is the filing (by members of Thorogood’s class, which includes the members of Murray’s class, or by the lawyers for those classes) of class action suits that are indistinguishable, so far as lack of commonality among class members’ claims is concerned, from Thorogood’s.  The plaintiff lawyers should be included in the injunction, as has been done in other cases. See In re Bridgestone/Firestone, Inc., Tires Products Liability Litigation, 333 F.3d at 769; Newby v. Enron Corp., 302 F.3d 295, 300-03 (5th Cir. 2002).


 

CPSC Shares Public Comments on Product Database

The Consumer Product Safety Commission is in the process of reviewing comments submitted on the impending consumer product safety information database. The agency has posted the comments received.

No surprise, those consumer-oriented interest groups in favor of a database generally praise what CPSC is proposing to do, and industry groups reiterate concerns they have about the implementation of the database concept.

As we have posted before, even back to the time Congress was considering this provision, there remain concerns about the accuracy and confidentiality of reports of alleged injury submitted and conveyed back tot he public in the database;  and the CPSC remains vague about how it will provide "due process" for product sellers who could find the database being used against them even when it contains erroneous, duplicate, or confidential data.  for manufacturers and private labelers.  There seems scant attention to legitimate issues of a manufacturer's goodwill and reputation, to the costs of unnecessary panic among product consumers, and the mischief that plaintiffs' lawyers might cause with unwarranted increase in litigation against manufacturers.


Organizations such as  the National Association of Manufacturers noted that false or inaccurate information does not serve the interests of consumers. Congress knew that counterfeit products are too common in the marketplace and may be confused with real brand name products.  Manufacturers and private labelers of products have a legitimate interest in protecting their brands from inaccurate, defamatory, and intentionally false statements and in protecting trade secret and confidential commercial information.  Accordingly, a request for confidential treatment “is not a matter that should be left to the discretion of a CPSC staffer,” NAM said.

Industry groups also worried about the CPSC's unduly broadening the list of people who can submit a report to the database. Broadening the list of reporting parties does not serve the Congressional interest in providing accurate information to consumers about reports of harm. It is obvious why parties included in CPSC's broad proposed listing of "others" may not be reliable reporters of an incident. CPSC has largely added parties who are more likely to have an agenda that goes beyond merely advising CPSC of an incident. The possibility that someone might attempt to seed the database with inaccurate or misleading information to provide ostensible support for lawsuits is a real concern. 

So far, the Commission has not ensured that the CPSC will deal with accuracy challenges in a timely manner. Conceivably, busy CPSC staff might take weeks, months, or even years to determine whether information that is posted on the database is materially inaccurate.  CPSC has also set up a catch-22 procedure for handling such challenges. CPSC has asked firms who wish "expedited" treatment to submit no more than five pages including attachments to show a problem. However, CPSC has simultaneously set a standard of  "significant evidence" to support claims that information is materially inaccurate.  To provide sufficient evidence to support a challenge, a manufacturer may need to provide more than 5 pages of information; however, if they do so,  CPSC will publish first, and resolve the challenge at some indefinite time in the future.

These parts of the proposal likely will not withstand judicial scrutiny, nor should they have any credibility with the public.

 

Game Over for Plaintiffs in Wii Class Action

A federal court last week granted defendant's summary judgment motion in a putative class action alleging Nintendo of America Inc. sold defective wrist straps with its Wii controllers.  Elvig, et al. v. Nintendo of America Inc., No. 08-cv-02616 (D. Colo.)

Readers are familiar with the Wii game system. The Wii employs a motion sensing controller that allows the player to manipulate the on-screen action by performing imitative physical actions, such as swinging the controller like a tennis racquet to control the onscreen action in a tennis game. (Readers may recall the classic product liability issues over various lawn dart games; with Wii you can play them in your family room.) To ensure that controllers do not leave a player’s hand during vigorous physical activity, Nintendo includes a “safety strap” to be worn around the player’s wrist. The strap, in turn, connects to the controller by means of a “string sling.” 

Plaintiff sued, alleging the strap was defective, broke, and caused damage to her television. She alleged violation of the Colorado Consumer Protection Act (“CCPA”), of the Colorado Product Liability Act, and a breach of implied warranty or merchantability and of fitness for a particular purpose. To establish a claim under the CCPA, a plaintiff must show: (i) that the defendant engaged in one of several categories of unfair or deceptive trade practices; (ii) the practice occurred in the course of the defendants business or trade; (iii) the practice significantly impacts the public as actual or potential consumers of the defendant’s goods or services; (iv) the plaintiff suffered an injury; and (v) the challenged practice caused the injury. Nintendo argued that Ms. Elvig could not establish the first and last elements – i.e. a deceptive practice and causation of injury.  The court found that plaintiff's vague reference to “false advertising” that “touts the Wii’s athletic usages while making no mention of the straps’ propensity to break” was inadequate in detail and content to make out such a claim.  Plaintiff lacked specifics about what the advertising actually said.

On the product liability claim, Nintendo contended that it gave players adequate warnings of the need to retain possession of the controller and advised them of the possibility that release of the controller during vigorous motion could result in breakage of the strap and damage to persons or property. The court noted the evidence that Nintendo did advise players, via a safety card included with the Wii system, that “If you use excessive motion and let go of the Wii Remote, the wrist strap may break and you could lose control of the Wii Remote. This could injure people nearby or cause damage to other objects.” This, coupled with repeated instructions on the safety card that advise players “DO NOT LET GO OF THE REMOTE DURING GAME PLAY,” ensure that, if the player follows Nintendo’s instructions and heeds its warnings, the Wii system does not pose an unreasonable danger. Ms. Elvig did not dispute that such instructions were included with the Wii she received. Nintendo thus having given an adequate warning to users, it may “reasonably assume that it will be read and heeded,” and thus, has ensured that the product was not “unreasonably dangerous” under the Second Restatement, § 402A, comment j. An interesting take on the relationship of warning and design issues.

On the implied warranty of merchantability, the court cited the lack of evidence that would indicate what the intended purpose of the strap was. One might plausibly assume, as plaintiff did, that the strap was intended to prevent a controller, inadvertently released by the player during vigorous activity, from hurling towards the player’s television (or towards another player) and causing damage.  But equally, one might assume that the strap was simply intended to keep an
inadvertently released controller in the vicinity of the player so that it could be easily retrieved and was was never intended to withstand the forces of high-speed controller release. To withstand summary judgment, plaintiff needed more than one of alternate plausible assumptions; she needed evidence of the ordinary purpose of the strap and proof that it failed the ordinary purpose.

Finally, the court noted that a “particular purpose” differs from the ordinary purpose for which the goods are to be used; in other words, a buyer obtaining goods for a “particular purpose” is one who, for reasons peculiar to the buyer, is obtaining the goods for use other than that which is customarily made of the goods.  Here, there was no evidence that Ms. Elvig obtained the Wii for a “particular purpose” other than that for which it would customarily be used.  The damages occurred when the plaintiff was allegedly playing the Wii bowling game  (no bowling shoes required)-- in the manner and fashion represented by Nintendo in its marketing and promotion materials. In short, using the Wii for its “ordinary purpose” at the time of the accident, not for some “particular” – e.g. unusual – purpose.

Hence, summary judgment for defendant on all claims.

 

Summary Judgment in Ignition Lock Class Action

A federal judge has dismissed a class action against Ford Motor Co. over allegedly defective ignition locks. Richard Smith, et al. v. Ford Motor Co., No. 06-00497 (N.D. Calif. 9/13/10).  The case offers an interesting take on the interplay of express warranties and fraud/failure to disclose claims.

Plaintiffs alleged that Ford unlawfully concealed information concerning the failure rate of the ignition locks in its Focus vehicles. An ignition lock is the vehicle part in which the key is inserted and turned to activate the ignition; its purpose is to start the car. When an ignition lock fails, the driver is prevented from turning the key. Following the launch of the Focus, there was a spike in warranty claims related to the ignition locks. In order to counter the relatively high warranty repair rates, Ford and its ignition lock manufacturer made manufacturing and design changes to the subject ignition locks, which resulted in a substantial decrease in the warranty repair rates. Specifically, from a warranty repair rate of 24.3 % for its 2000 model year Focus vehicles, Ford saw the rate drop to 6.9% for its 2001model year vehicles, then drop again to 3.1% for its 2002 model year vehicles.

In their complaint, plaintiffs asserted state law claims against Ford for, inter alia, Unfair and
Deceptive Acts and Practices in Violation of California’s Consumer Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1750 et. seq.; and Unfair, Fraudulent, and Unlawful Practices under the Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code sections 17200-17209.

Ford moved for summary judgment, arguing that it had no legal duty to disclose the risk that the subject ignition locks would fail, and could stand on its standard three-year, 36,000 mile warranty.

The district court agreed, granting summary judgment.  The court noted first that  under California law, a manufacturer cannot be found liable under the CLRA for failure to disclose a defect that manifests itself after expiration of the warranty period unless such omission (1) is contrary to an express representation actually made by the defendant, or (2) pertains to a fact the defendant was obligated to disclose.  Plaintiffs argued there was an obligation to disclose "material" risks.  But where, as here, a plaintiff’s claim is predicated on a manufacturer’s failure to inform its customers of a product’s likelihood of failing outside the warranty period, the risk posed by such asserted defect cannot be “merely” the cost of the item's repair.  Rather, for the omission to be material, the failure must pose “safety concerns.”  In other words, under California law, a manufacturer’s duty to consumers is limited to its warranty obligations absent either an affirmative misrepresentation or a safety issue. 

Accordingly, because plaintiffs’ CLRA claim here was not based on any misrepresentation made by Ford, but rather was based on an allegation that Ford had a duty to disclose the risk its ignition locks would fail, plaintiffs’ claim, absent evidence of a safety concern, could not succeed. Plaintiffs argued that the ignition lock issue was a substantial "safety concern" because such locks can (1) prevent drivers from starting their vehicles, and (2) prevent drivers from shutting off their vehicles’ engines -- despite the fact that there were no reports that anyone has ever been injured by the failure of an ignition lock.  Plaintiffs hypothesized drivers getting stranded in unsafe locales. Ford argued that the dangers described by plaintiffs were too speculative to amount to a safety issue giving rise to a duty of disclosure.

The court agreed with Ford, noting “security” concerns are distinguishable from “safety” concerns. The dangers envisioned by plaintiffs were speculative in nature, deriving in each instance from the particular location at which the driver initially had parked the vehicle and/or the driver’s individual circumstances. Plaintiffs offered no evidence that the ignition-lock defect causes engines to shut off unexpectedly or causes individuals to stop their vehicles under dangerous conditions.

Similarly, to the extent plaintiffs’ fraudulent concealment claim was based on Ford’s alleged duty to disclose the risk of failure of the subject ignition locks, Ford was entitled to summary judgment on that claim also as there was no duty to disclose a failure rate, post-warranty, for a non-safety issue.  Again, as plaintiffs have failed to show an affirmative duty to disclose the risk of post-warranty failure of the ignition locks, plaintiffs also had not shown that a reasonable customer could have been deceived; as a matter of law, the only reasonable expectation customers could have had about the subject ignition locks was that they would function for the length of Ford’s express warranty. 

Proposed CFA Class Action on Bath Products Is Dismissed

A federal court has dismissed a putative class action accusing Johnson & Johnson Consumer Co. Inc., L'Oreal USA Inc., Kimberly-Clark Corp., and other defendants, of selling children's bath products that contain toxic and carcinogenic substances. See Herrington v. Johnson & Johnson Consumer Co. Inc., et al., No. 09-cv-01597 (N.D. Calif. 9/1/10).

Specifically, plaintiffs alleged that the defendants failed to disclose that their products contain probable carcinogens, other unsafe contaminants, and/or ingredients that have not been shown to be safe. Plaintiffs further contended that defendants deceived consumers by affirmatively misrepresenting the safety of their products.  Plaintiffs averred that they purchased the products for use on their young children, and contended that, had defendants disclosed the contaminants in their children’s products and the fact that all ingredients were not "proven safe," they would not
have purchased the products at all.

To evidence the alleged hazards, plaintiffs cited a press release and a report entitled “No More Toxic Tub,” both of which were published by an extremist anti-business group, the Campaign for Safe Cosmetics. In the report, the Campaign points to trace amounts of chemicals such as formaldehyde allegedly in defendants’ products.

They sued for alleged violations of California’s false advertising statute, Cal. Bus. & Prof. Code §§ 17500, et seq.; California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code §§ 17200, et seq.; and California’s Consumer Legal Remedies Act (CLRA), Cal. Civ. Code §§ 1750, et seq.; and
various other state unfair and deceptive trade practices acts, as well as making common law claims for misrepresentation; fraud; and breach of warranties.  Plaintiffs noted they intended to move for certification of a nationwide class and various subclasses.

Defendants filed a motion to dismiss.  They first argued that plaintiffs did not have standing to sue
because they cannot show that they have suffered a concrete, actual injury-in-fact. Plaintiffs responded that they pleaded two injuries sufficient to confer standing: “(1) risk of harm to their children resulting from their exposure to carcinogenic baby bath products; and (2) economic harm resulting from the purchase of these contaminated, defective bath products.”

The court rejected this plaintiff argument, noting that plaintiffs did not cite controlling authority that the “risk of harm” injury employed to establish standing in traditional environmental cases in some states applies equally to what is, at base, a product liability action. To the extent that an increased risk of harm could constitute an injury-in-fact in a product liability case such as this one, in any event, plaintiffs would have to at lease plead a credible or substantial threat to their health or that of their children to establish their standing to bring suit.  But plaintiffs did not allege such a threat. They made general statements about the alleged toxicity of various chemicals, but did not allege that the amounts of the substances allegedly in defendants’ products have caused harm or create a credible or substantial risk of harm.  {Fundamental principle of toxicology - dose matters.}  Plaintiffs did not plead facts sufficient to show that a palpable risk exists. In fact, plaintiffs' own pleading noted that the Consumer Product Safety Commission (CPSC) has stated that, although the presence of certain chemicals “is cause for concern,” the CPSC is merely continuing “to monitor its use in consumer products.”  Seemed a far cry from substantial risk.

The court found this case analogous to Koronthaly v. L’Oreal USA, Inc., 2008 WL 2938045 (D.N.J.), aff’d, 2010 WL 1169958 (3d Cir. 2010), which we posted on before, and which was dismissed on standing grounds. There, the plaintiff was a regular user of the defendants’ lipstick, which, according to another report by the same Campaign group, contained lead.  The plaintiff alleged that she had been injured “by mere exposure to lead-containing lipstick and by her increased risk of being poisoned by lead.”  However, she did not complain of any current injuries. The district court concluded, and the Third Circuit affirmed, that the plaintiff’s allegations of future injury
were “too remote and abstract to qualify as a concrete and particularized injury.” Id. at *5.

The court here also held that the various counts failed to state a claim. For example the fraud-related claims failed to plead, as required by Federal Rule of Civil Procedure 9(b), “the who, what, when, where, and how of the alleged fraud.” See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003).  While plaintiffs tried to argue that their consumer fraud act claims are different from common law fraud, the Ninth Circuit has held that Rule 9(b) applied to a plaintiff’s claims under the CLRA and UCL when they were grounded in fraud.  Also, plaintiffs did not not plead the circumstances in which they were exposed to the alleged false statements. Nor did they plead which of these alleged misrepresentations they relied on in making their purchase of products.  Again, plaintiffs cited In re Tobacco II Cases, 46 Cal. 4th 298 (2009), to argue that they were not required to allege which representations they specifically saw. That case was factually distinguishable on many grounds.  And, in any event, to the extent In re Tobacco II provides that to establish UCL standing, reliance need not be proved through exposure to particular advertisements under some unique factual circumstance, the case does not stand for, nor could it stand for, a general relaxation of the pleading requirements under Federal Rule 9(b).

Similarly, plaintiffs made the general allegation that defendants engaged in unfair business acts or practices but did not allege facts suggesting that consumers have suffered an injury based on the defendants’ alleged conduct. Thus, for the same reasons they lacked Article III standing, they failed to state a claim for those types of claims as well. 

The court gave plaintiffs leave to try to file an amended complaint.

 

CPSC Finds No Product Link to Alleged Diaper Injuries

The Consumer Product Safety Commission, aided by Health Canada, has not been able to identify any link between new technology diapers and reports of alleged diaper rash-like injuries in users. CPSC says it looked into nearly 4,700 reports of diaper rash from April to August, 2010, but cannot identify a "scientific connection.”

Readers may recall that we posted about plaintiffs who have sued the Procter & Gamble Co. in a proposed national class action, alleging that new Pampers diapers containing “Dry Max” technology is causing rashes and "chemical burns" in some infants. See Clark, et al. v. Procter & Gamble Co., No. 10-301 (S.D. Ohio, 5/11/10).  What was most interesting for our readers, perhaps, is the fact that this litigation was apparently spurred by the social networking site, Facebook, where some parents have been blaming the new diapers for rashes. This has spread not only word of the incidence of a possible problem, but also the non-scientific, non-expert attribution of causation.

The CPSC said the on-line activism was part of what prompted them to try to get to the bottom of the alleged diaper issues. But it now has reported that the review has not identified any specific cause linking Dry Max diapers to diaper rash. CPSC notes that nearly 85 percent of the complaints came in May and then dropped off significantly -- which, MassTortDefense notes,  wouldn't make sense if the diapers actually were causing problems.

As part of its technical evaluation, staff from each agency considered certain characteristics of the diaper, including the materials used, the construction of the diaper, and heat and moisture retention issues.  In addition, CPSC staff reviewed clinical and toxicological data found in published, peer-reviewed medical literature. CPSC also critically reviewed data submitted by Procter & Gamble and the results of a human cumulative irritation patch study conducted by P&G in May 2010. Further, chemistry, toxicology and pediatric medicine information provided by Health Canada was reviewed by CPSC.

Both agencies say they will continue to evaluate consumer complaints related to Pampers Dry Max diapers and will provide parents with updated information if this assessment of no link somehow changes. Parents and caregivers were advised to seek the attention of a medical professional if they have any concerns about adverse health reactions to any baby product.  But most babies exhibit diaper rash at least once in their lifetime. At any given moment, more than 250,000 babies will experience a serious rash.  Diaper rash is not only very common, it is sometimes severe, regardless of the diaper used. Disposable diapers in fact have helped reduce the incidence of rash by more than 50 percent since they were first introduced in the 1960s because they pull wetness away from a baby's skin.

Snapple The Best Stuff in Court - Consumer Class Action Denied

Earlier this month a trial court in New York denied class certification purchaser of Snapple beverages who complained that drinks labeled “All Natural” are somehow misleading because they contain high fructose corn syrup.  See Weiner v. Snapple Beverage Corp., (S.D.N.Y. 8/3/10).

Off and on, we have commented on the growing and alarming trend for plaintiffs lawyers to concoct consumer fraud class action claims against products, even when consumers were not injured and got basically what they paid for, because of some alleged ambiguity in the label or old-fashioned puffing.

Snapple Beverage Corporation was founded in New York’s Greenwich Village in 1972. Snapple began selling and marketing its teas and juice drinks in the late 1980s. In marketing its beverages, Snapple focused on, among other things, flavor, innovation, and humor. Snapple became known for its quirky personality and funny advertising, as well as its colorful product labels and beverage names. For instance, Snapple’s television advertisements featured, among other things, Snapple bottles dressed in wigs and hats, singing in a Backstreet-esque “boy-band,” running with the bulls (hamsters with cardboard horns) in Spain, and performing synchronized swimming.

When Snapple entered the beverages market in the late 1980s, it avoided putting preservatives, which were then commonly found in some similar beverages, in its teas and juice drinks. Snapple was able to do so by using a “hot-fill” process, which uses high-temperature heat pasteurization to preserve products immediately before bottling. Snapple also used 16-ounce glass bottles instead of aluminum cans or plastic. Hence the term on their label "All Natural."

From their inception, Snapple’s beverages were sweetened with high fructose corn syrup.  HFCS is made from corn ( a natural product last time we checked), and its primary constituents are glucose and fructose, the sugars that comprise table sugar and honey (which also sound pretty natural). It is undisputed that Snapple disclosed the inclusion of HFCS in the ingredient list that appears on the label of every bottle of Snapple that was labeled “All Natural.”

But plaintiffs alleged that they paid a price premium for Snapple beverages as a result of the “All Natural” labeling, and that Snapple’s “All Natural” labeling was misleading because Snapple had HFCS.  They brought a class action on behalf of all people who purchased Snapple in New York.  The FDA is reportedly looking at whether high fructose corn syrup may be considered a natural ingredient, but the court didn't need that guidance to dispose of this bogus class claim.

The court focused on the Rule 23(b)(3) predominance inquiry which tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation. The predominance requirement is met only if the plaintiff can establish that the issues in the class action that are subject to generalized proof, and thus applicable to the class as a whole, predominate over those issues that are subject only to individualized proof.  The issues in turn are determined by the causes of action and defenses to them.  Plaintiffs' main claim was for alleged deceptive acts or practices in the conduct of any business, trade or commerce under N.Y. Gen. Bus. L. § 349. Generally, claims under § 349 are available to an individual consumer who falls victim to misrepresentations made by a seller of consumer goods through false or misleading advertising.

New York's § 349 does not require proof of actual reliance. But the plaintiff must show that the defendant’s material deceptive act caused the injury. In addition, a plaintiff must prove actual injury to recover under the statute.  The court noted that proof of actual injury in this case is bound up in proof of damages, or by how much plaintiffs have been harmed. Only by showing that plaintiffs in fact paid more for Snapple beverages as a result of Snapple’s “All Natural” labeling could plaintiffs establish the requisite elements of causation and actual injury under § 349.

The court concluded that plaintiffs had not proposed a suitable methodology for establishing the critical elements of causation and injury on a class-wide basis. Without a reliable methodology, plaintiffs had not shown that they could prove at trial using common evidence that putative class members in fact paid a premium for the beverage. Because individualized inquiries as to causation, injury, and damages for each of the millions of putative class members would  predominate over any issues of law or fact common to the class, plaintiffs’ § 349 claim could not be certified under Rule 23(b)(3).

In support of their contention that causation and injury were susceptible to generalized proof on a class-wide basis, plaintiffs relied on the expert report of Dr. Alan Goedde, an economist.  In his report, Goedde proposed two “approaches” for determining the purported price premium attributable to Snapple’s “All Natural” labeling: (1) a “yardstick” approach, which would use “class-wide economic data and standard economic methodologies” to “compare the price of products labeled ‘All Natural’ to similar products which do not have ‘All Natural’ labeling;” and (2) an “inherent value”  approach, which would analyze unspecified “studies and market research” to gather “data that can be used to determine the increased value, standing alone, that a product realizes due to the perception of that product being natural.”

The court found Goedde’s testimony unreliable. The witness did not demonstrate in adequate detail how his proposed “approaches” would be used to develop an empirical algorithm to determine, on a class-wide basis, whether there was a price premium as a result of Snapple’s “All Natural” labeling and, if so, how such a premium could be quantified. For example, he did not identify the products to which Snapple should be compared. He did not explain how his approach would isolate the impact of the “All Natural” labeling from the other factors that purportedly affect the price of Snapple and its competitors. He failed to take into account that there was no uniform price for Snapple beverages during the class period, and thus did not explain how his approach would account for the various prices that putative class members actually paid in determining injury
on a class-wide basis.

Goedde relied on two internal Snapple marketing strategy documents to support his alternate hypothesis that Snapple’s “All Natural” label allowed it to command a premium in the marketplace. Yet he did not review the deposition transcripts of Snapple’s witnesses or any of the other  documents produced by Snapple, which would have provided critical context for these documents.

The court accurately spotlighted the common plaintiff tactic in these kinds of cases: the failure to
invest sufficient time and effort to develop a reliable methodology to support an expert opinion at the class certification stage.  Although the court thought plaintiffs correct in arguing that Goedde need not “implement” or fully “test” his methodology at the class certification stage, an expert must still provide sufficient detail about the proposed methodology to permit a court to determine whether the methodology is suitable to the task at hand.

Without Goedde’s testimony, plaintiffs offered no evidence that a suitable methodology is available to prove the elements of causation and actual injury on a class-wide basis. Individualized inquiries would therefore be required in order to determine whether class members in fact paid a premium for Snapple beverages, and whether any such premium was attributable to the “All Natural” labeling. This would require, among other things, an examination of each of the millions of class members’ Snapple purchases, which the evidence showed were made in different locations, at different times, and for different prices, over the nearly eight-year class period.

One further issue of note is class definition.  The court found that plaintiffs failed to show how the potentially millions of putative class members could be ascertained using objective criteria that were administratively feasible. Plaintiffs - typically  - suggested that after certification, the court could require simply that class members produce a receipt, offer a product label, or even sign a declaration to confirm that the individual had purchased a Snapple beverage within the class period. The court labeled this suggestion "unrealistic." Plaintiffs offered no basis to assume that putative class members retained a receipt, bottle label, or any other concrete documentation of their purchases of Snapple beverages bearing the “All Natural” description.  Indeed, putative class members were unlikely to remember accurately every Snapple purchase during the class period, much less whether it was an “All Natural” or diet beverage, whether it was purchased as a single bottle or part of a six-pack or case, whether they used a coupon, or what price they paid. Soliciting declarations from putative class members regarding their history of Snapple purchases would invite them "to speculate, or worse."

However beloved Snapple may be, said the court,  there is no evidence to suggest that its consumers treat it like a fine wine and remove and save its labels.

 

Window Closing on Time to Comment on CPSC Draft Strategic Plan

In 2008, as readers know, the CPSC was granted extensive new regulatory authorities and mandates to on consumer product safety issues through the Consumer Product Safety Improvement Act (CPSIA).   So what's next? The Commission recently completed a strategic planning process intended to help align resources with agency priorities to meet what it sees as the key challenges moving into the next decade.

The CPSC is for only a short time longer accepting comments on a new draft of its 2011–2016 strategic plan.  As globalization and technological advances expand the range of products on the market, the risks and opportunities associated with these advancements make the challenge of overseeing and regulating the thousands of product types all the more complex, says CPSC. Some risks include the growth of global supply chains that assemble products across a vast web of interconnected geographies, the difficulty of identifying product hazards among hundreds of thousands of containers entering US ports, and the new ways in which the public receives product information through the Internet and other media sources.

The revised plan details CPSC efforts to set consumer product safety priorities, efficiently identify and respond to product hazards, improve public outreach efforts, and raise awareness of potential product risks. The plan grew out of interviews and focus groups with 76 internal and external stakeholders to obtain feedback on the CPSC’s performance and how the agency can improve in the future (these individuals and groups included a cross-section of diverse stakeholders: consumer organizations, industry associations, the CPSC headquarters staff, the CPSC field staff, other federal agencies, and states’ attorneys general).

One goal of the plan is to find ways the CPSC can reduce the number of unsafe imported products entering the U.S. marketplace, such as by strengthening its bilateral and multilateral relationships with foreign regulators and manufacturers. The draft also states that CPSC wants to improve its response time for removing hazardous products from the market. 

A third major aspect of the plan relies on the new public product safety database, which is scheduled for launch in March 2011.  The database will allow consumers and others to submit reports of alleged harm in a Web-based, publicly search-able format to the CPSC. The database is to be designed with the needs of multiple types of users in mind. Creation of the database is being guided by a series of public hearings, focus groups, and joint workshops with CPSC staff to determine how manufacturers, retailers, and consumer advocates expect to use the database and how they think it should work. The new system is supposed to make it simple for consumers, industry representatives, health officials, and any other member of the public to report safety incidents and view publicly reported incident information that the CPSC has amassed on a particular consumer product safety concern.

We reported earlier this year on the notice of proposed rulemaking that would establish a publicly available consumer product safety information database. As we have noted at MassTortDefense, CPSC still needs to develop a rigorous and timely process for addressing false and inaccurate reports-- those 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 any 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.
 

Federal Court Misses Opportunity To Support Common Sense

A federal court last week refused to dismiss most claims by a putative class challenging health claims in vitaminwater beverage labeling. Ackerman v. Coca-Cola Co., CV-09-0395 (E.D.N.Y., 7/21/10).

Here at MassTort Defense we have warned companies about the dangers of consumer fraud class actions and highlighted some of the many ridiculous, far-fetched, beyond belief claims that plaintiffs make about being misled about some product.  This one is near the top of the list. Plaintiffs allege that the name, "vitaminwater," along with a description of the vitamins in the water are somehow deceptive because they supposedly mislead people to believe that the beverages do not have sugar or calories in them. Plaintiffs are not alleging that vitaminwater doesn't have water or doesn't have vitamins or that the particular vitamins in vitaminwater fail to provide the benefit claimed. Rather, they claim that vitaminwater’s labeling and marketing are misleading because they "bombard" consumers with a message that supposedly draws consumer attention away from the significant amount of sugar in the product. About the sugar? The FDA-mandated label on each bottle bears the true facts about the amount of sugar per serving.

(The opinion also rejected defendant's argument that the claim was expressly and/or impliedly preempted by statutes and regulations preventing states from imposing labeling requirements that are different from those imposed by the FDA.)

The complaint alleged claims of unlawful business acts and practices in violation of California Business and Professions Code (“Cal. BPC”) § 17200 et seq. (“Unfair Competition Law” or “UCL”); Cal. BPC § 17500 et seq. (“False Advertising Law” or “FAL”); and California’s Consumers Legal Remedies Act, Cal. Civ. Code § 1750 et seq. (“CLRA”); (2) unfair business acts and practices in violation of California UCL; (3) fraudulent business acts and practices in violation of California UCL; (4) misleading and deceptive advertising in violation of California FAL; (5) untrue advertising in violation of California FAL; (6) unfair methods of competition or unfair or fraudulent acts or
practices in violation of § 1770(a)(7) of the CLRA; (7) deceptive acts or practices in violation of
New York General Business law (“GBL”) § 349; (8) false advertising in violation of New York
GBL § 350; (9) violation of New Jersey Consumer Fraud Act (“NJCFA”), N.J.S.A. 56:8-1 et
seq.; (10) breach of an express warranty; (11) breach of an implied warranty of merchantability;
(12) deceit and/or misrepresentation; and (13) unjust enrichment.

The claims were brought on behalf of three purported classes of plaintiffs: all California Residents who purchased vitaminwater at any time from January 15, 2005 to the present, (the “California Class”); all New York residents who purchased vitaminwater at any time from January 30, 2003 to the present, (the “New York Class”); and all New Jersey residents who purchased vitaminwater at any time from January 22, 2003 to the present (the “New Jersey Class”).

So what's misleading? The court found that plaintiffs had sufficiently pleaded that the collective effect of the marketing statements was to mislead a reasonable consumer into believing that vitaminwater is either composed solely of vitamins and water, or that it is a beneficial source of nutrients.   Despite the fact that the sugar content was plain as day to anyone who would look at the label. The court found that the fact that the actual sugar content of vitaminwater was accurately stated in an FDA-mandated label on the product does not eliminate the possibility that "reasonable" consumers may be misled. The court relied on Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), for the notion that the mere fact that an FDA-mandated nutritional panel provided
accurate nutritional information on a product did not bar claims that reasonable consumers could
be misled. Reasonable consumers should not, said the court, be expected to look beyond representations on the front of the box to discover the truth from the ingredient list in smaller print on the side of the box. But unlike the Gerber case, there were no allegations here that the packaging for vitaminwater contained any false statements or pictures. As noted, plaintiffs concede that vitaminwater actually contains the vitamins the marketing says it does. And it hardly seems like an unfair burden on a "reasonable" consumer to turn from the word "vitaminwater" on one part of the bottle to the label in close proximity on the very same bottle.

As a matter of law, plaintiffs should not be permitted to move forward with a claim about the presence of an ingredient that is clearly disclosed on the Nutrition Facts label, exactly where FDA tells the manufacturer to put that information.  And, of course, the problem with allowing the claim to proceed past the motion to dismiss claim is that the case will proceed through expensive discovery to reach a stage where common sense prevails and summary judgment is granted -- if a defendant is not blackmailed into settling.  And a common thread in many of these consumer fraud class actions is the fundamental notion by plaintiffs' attorneys --implicit in their theory-- that the public must be stupid, cannot read labels, and cannot make legitimate product choices for itself. In fact, the public speaks just fine with its wallets and pocketbooks. Fortified beverages are not new and are one of the fastest-growing market segments. Consumers are indeed able to read nutrition labels and ingredient listings and make smart choices, for themselves, without the help of the plaintiffs' bar.  Contrast this case with recent comon sense decisions.

Cap'n Crunch Defeats Class Action Marauders

 A federal court has dismissed a proposed class action against PepsiCo Inc. alleging that consumers were somehow being misled to believe that the company's Cap'n Crunch's Crunch Berries breakfast cereal contain real fruit.  Roy Werbel v. PepsiCo Inc., No: C 09-04456 SBA (N.D. Cal. 7/1/2010).

Here at MassTortDefense we have railed against the trends in consumer fraud class actions, as plaintiff lawyers seek class status for alleged economic-only harm claims, when they find some word or image in advertising that they can quibble about or argue is somehow ambiguous to a client.  No one is really harmed; no one is misled; no one is defrauded.  The theories of the case make a mockery of common sense and personal responsibility. But, hey, fees may be available. This case is part of an appropriate response to such claims.

Cap'n Crunch debuted in 1963, and Crunch Berries came along in 1967. The Cap'n was drawn by the same guy that created Dudley Do-Right, George of the Jungle, and Moose and Squirrel (Rocky and Bullwinkle.)  Perhaps some of our readership will remember the original commercials featuring the canine Sea Dog, who sailed with the Cap’n on his ship, The Good Ship Guppy. The crew was tasked with keeping the cereal safe from the Cap’n’s nemesis, Jean LaFoote, the Barefoot Pirate.  Trivia question: what is the Cap'n's full name?  See below.

Plaintiff Roy Werbel brought the putative class action against defendant on behalf of consumers who allegedly were misled into believing that “Cap’n Crunch’s Crunch Berries” cereal derives some of its nutritional value from real berries or fruit.  On the package, immediately below the product name is a product description, which states: “SWEETENED CORN & OAT CEREAL.”  The display panel also depicts a ship’s captain in cartoon form standing behind a bowl of cereal, and holding a spoonful of multi-colored Crunch Berries. Plaintiff alleged that the colorful Crunchberries [sic] on the box conveyed only one message: that Cap’n Crunch "has some nutritional value derived from fruit.”  Although the product contains strawberry juice concentrate, that ingredient allegedly is for flavoring only.  According to plaintiff, the only reason that the front display panel on the Cap’n Crunch cereal box refers to “berries” is “to lead consumers to believe that the Product contains nutritional content derived from fruit.”

Plaintiff alleged statutory violations under California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof.Code § 17200, et seq., False Advertising Law (“FAL”), id. § 17500, et seq., and Consumer Legal Remedies Act (“CLRA”), Cal. Civ.Code § 1750, et seq., along with common law causes of action for intentional misrepresentation and breach of express and implied warranty. Claims made under these statutes are governed by the “reasonable consumer” test which focuses on whether “members of the public are likely to be deceived.” Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008) (citing Freeman v. Time, Inc., 68 F.3d 285, 289 (9th Cir. 1995)).

In response to the theory that members of the public were likely to be deceived into believing that Cap’n Crunch derives nutrition from actual fruit by virtue of the reference to Crunch Berries, the court gave a one word conclusion: "Nonsense."   It was obvious from the product packaging that no
reasonable consumer would believe that Cap’n Crunch derived any nutritional value from
berries. As an initial matter, the term “Berries” was not used alone, but always was preceded by the
word “Crunch,” to form the term, “Crunch Berries.”  Even the image of the Crunch Berries showed four cereal balls with a rough, textured surface in hues of deep purple, teal, chartreuse green and bright red. These cereal balls do not even remotely resemble any naturally occurring fruit of any kind we have ever seen; there are no pictures or images of any berries or any other fruit depicted on the Cap’n Crunch cereal box.  

Moreover, there were no representations that the Crunch Berries are derived from real fruit or are nutritious because of fruit content. To the contrary, the packaging clearly stated that product is a “SWEETENED CORN & OAT CEREAL.” In short, no reasonable consumer would be deceived into believing that Cap’n Crunch has some nutritional value derived from fruit. 

The warranty claim, that defendant allegedly warranted that Cap’n Crunch “contains berries” and “was a substantially fruit-based product deriving nutritional value from fruit,” was deemed "frivolous." No such claim was made expressly or impliedly anywhere on the Cap’n Crunch packaging or marketing material cited by plaintiff.

Case dismissed, with NO leave to amend to try to salvage some treasurer from nothing.  The Cap'n lives on.

Trivia answer: In May 2007 Cap'n Crunch's full name was revealed as Captain Horatio Magellan Crunch.

California Right To Know Bill Strikes the Wrong Balance

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

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

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

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

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

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

 

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

 

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

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


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

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

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

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

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

 

Self-Annointed Watchdogs, Eat Your Own Unhappy Meals

We are generally hesitant to post about some of the ridiculous industry-bashing that many anti-science, anti-capitalism groups spout -- for fear of spreading their misguided word one inch farther.  But sometimes, when litigation is threatened, you just have to stop biting your tongue.

The self-proclaimed Center for Science in the Public Interest has apparently threatened to sue McDonald’s if the popular food company does not stop marketing toys with its Happy Meals.  The claim is that the toys included in the meals instill unhealthy eating habits in children.  CSPI sent a letter to McDonald's last week demanding that the company immediately pull toys from its Happy Meal children’s meals. By advertising that Happy Meals include toys, McDonald’s somehow supposedly unfairly and deceptively markets directly to children.   Advertising a small toy in a Happy Meal box is supposedly deceptive because children under the age of 8 are not advanced enough to understand the "intent" of the marketing.

Well, how wrong can one misguided group be?  Let's count the ways.  Last time we checked, in a democracy with a free market economy, product sellers were free to make their products attractive to consumers, free to advertise them, and free to market their wares with accurate and truthful statements.  A Happy Meal is advertised to contain a toy.  It does.  It has a meal, just like promised.  And as a dad, I can attest to the fact the box meal does make kids happy.  Where is the deception?  There is none. The group cites a variety of state consumer fraud acts in the letter, but not a single case supporting its preposterous legal theories -- because there aren't any. For example, the group cites the Massachusetts law (93A), but the recent case Rule v. Ford Dodge Animal Health Inc., 2010 WL 2179794 (1st Cir. 6/2/10), makes clear that there is no valid consumer claim when the customer does not suffer a traditional and real economic injury.

Next, last time we checked, very few small children were behind the wheel in the drive-through line.  Parents can decide what their kids eat.  And parents can still say "no" when little Johnny or Suzie wants burgers and fries too often. When did we cross the line from parents raising their kids to the best of their ability, to the government (regulators or the courts through a suit) determining how kids should be raised, down to what they can eat and whether they get a small toy to play with after dinner?  According to CSPI, many children will pester their parents to take them to McDonald’s.  So what?  Kids pester; that's what they do.  Parents say "no."  That's what they do.  Problem solved -- without a class action.

Next, the rabble rousers complain that the Happy Meals are slightly higher in calories than the group thinks is reasonable.  Thank goodness for the self-appointed calorie police who think that the best way to tackle the issue of weight in this country is to have the courts force all food companies to make food that looks and tastes like cardboard and is boring, anything but "happy."  How about we get kids to put down the remote control and exercise and play sports more?  Problem solved -- without the litigation.

But, cries the group, the toys build brand loyalty and send the customers back again in the future.  Since when was it an actionable wrong to actually provide your customers with a product they like so much they come back and buy it again in the future?  What kind of economy does this group want?

CSPI needs to worry more about junk science than junk food.  In fact, in my area, McDonald's heavily advertises the four-piece Chicken McNuggets Happy Meal, which includes Apple Dippers, low-fat caramel dip and 1 percent low-fat white milk.  Maybe the issue is that the parents of the CSPI members never told them "no."  Not to worry, they will soon hear it from the courts if they pursue this threatened litigation.
 

Court of Appeals Rejects Consumer Fraud Class Action for Pet Medication

The First Circuit affirmed last week the lower court's dismissal of a putative consumer fraud class action involving a re-called heartworm medication for dogs. Rule v. Ford Dodge Animal Health Inc., 2010 WL 2179794 (1st Cir. 6/2/10).

Plaintiff, Rule, purchased two doses of ProHeart 6, a medicine for preventing heartworm in dogs, and had them administered to her dog Luke. She later filed a putative class action against Wyeth, alleging that defendant had sold ProHeart 6 without disclosing safety concerns revealed in initial testing and in subsequent use.  She alleged these concerns ultimately led Wyeth to recall the product at the FDA's request. According to plaintiff, adverse reactions were suffered by dogs after receiving ProHeart 6 during trials and in general use after the product was released. Importantly, the class representative conceded that Luke had not suffered any harm from the drug, and that Luke had not developed heartworm while using the drug.

Plaintiff's first cause of action was based on breach of the implied warranty of merchantability and the other based on the state consumer fraud statute, Mass. Gen. Laws ch. 93A. For damages on these two counts, Rule asserted that she and others similarly situated were entitled to the difference between the price they actually paid for ProHeart 6 and what it would have been worth had safety risks been adequately disclosed; for the chapter 93A count, she sought statutory damages if greater than actual damages and also trebling of damages. 

On the warranty count, the alleged unmerchantability (unfitness for ordinary use) of ProHeart 6 lay in its potential for causing harm to a dog. Rule conceded, however, that neither of the two doses injured Luke. So, while the sale to Rule may have been of an "unfit" drug, its unfitness did not give rise to any injury to Rule against which the warranty was designed to guard. Nor did she suggest that Luke became more susceptible to injury, as might be the case where one bought and installed a defective car tire that has not yet run its life. Recovery generally is not available under the warranty of merchantability where the defect that made the product unfit caused no injury to the claimant, the threat is gone, and nothing now possessed by the claimant has been lessened in value.

On the consumer fraud count, the act provides a cause of action for a plaintiff who has been injured by unfair or deceptive acts or practices. In Rule's view, she purchased Proheart 6 because of a deception (failure to disclose the risk), the product was “in reality” worth less than she paid for it (because of that undisclosed risk), and so she suffered damage measured by the difference between what she paid and what she would have paid if the risk had been disclosed. One problem with plaintiff's scenario was that she also alleged that had the risks been known, ProHeart 6 could not be sold at all, given FDA requirements.

But even assuming otherwise, Rule's suit was brought after her purchases and use of the drug, and she admitted that she got both the protection and convenience she sought and that the risk did not manifest itself in injury to her or her dog. Nor was she still holding a product that was worth less than she paid for it; she used the product up entirely and in fact suffered no economic injury at all. Indeed, her theory would not be adopted by deceived buyers whose dogs were actually injured or killed; they could seek not some modest reduction in price but the full cost of added veterinary bills and, if the dog died, its value.

So to the extent chapter 93A injury requires that a plaintiff who seeks to recover show “real” economic damages, Rule did not qualify. If, instead, a different notion of injury had sufficed - such as injury as a violation of some abstract “right” like the right not to be subject to a deceptive act that happened to cause no economic harm - then she would arguably have had a claim under chapter 93A and perhaps could obtain statutory damages.  The First Circuit observed some "tension" in the language used as between the earlier and the later state SJC decisions on the statute and especially where deception and risk are involved. However, said the court of appeals, the most recent SJC cases on point appear to have reaffirmed the notion that injury under chapter 93A means economic injury in the traditional sense.

Finally, the First Circuit addressed plaintiffs' typical policy-based argument that deceptive conduct needs to be deterred through a class action. While the alleged conduct such as that attributed to defendant needs to be deterred, that need not necessarily come from those who bought the product but were not injured.  It could be deterred by those with actual injury.
 

CPSC Issues Proposed Rule on Database

The Consumer Product Safety Commission has issued a notice of proposed rulemaking that would establish a publicly available consumer product safety information database.  Readers may know that Section 212 of the Consumer Product Safety Improvement Act of 2008 (‘‘CPSIA’’) amended the Consumer Product Safety Act (‘‘CPSA’’) to require the Commission to establish and maintain a publicly available, searchable database on the safety of consumer products, and other products or substances regulated by the Commission. We posted on some of the potential issues before.  Serious questions surround the potential posting of inaccurate, incomplete, or confidential information as part of the database.

The proposed rule would interpret the various statutory requirements pertaining to the information to be included in the database and also would establish provisions regarding submitting reports of harm; providing notice of reports of harm to manufacturers; publishing reports of harm and manufacturer comments in the database; and dealing with confidential and materially inaccurate
information.  The new regs would consist of four subparts:  Subpart A—Background and Definitions; Subpart B—Content Requirements; Subpart C—Procedural Requirements; Subpart D—Notice and Disclosure Requirements.

Some of the highlights: A submitter of a report of harm must affirmatively verify that he or she has reviewed the report of harm and that the information contained therein is true and accurate to
the best of the submitter’s knowledge, information and belief.  As part of verifying the report, submitters of reports of harm must indicate which category they are in (consumer,
government agency, health care professional etc.).

Proposed § 1102.12(a) would state that manufacturers who receive a report of harm transmitted from the CPSC may submit comments. Proposed § 1102.12(b) would propose that comments may be received via an on-line manufacturer portal where the manufacturer can register to submit comments on a secure nonpublic portal that will be provided through the Commission’s database. The proposal also would specify that comments may be submitted via electronic mail or regular mail. The Commission will publish a manufacturer’s comments related to a report of harm if the comment specifically relates to a report of harm, contains a unique identifier assigned to it, contains the manufacturer’s verification of the truth and accuracy of their comment (similar to the verification required of a submitter of a report of harm) as well as their consent for publication in the database. The proposed rule would require a manufacturer to affirmatively request that its comment be published and to affirmatively consent to such publication in order for the manufacturer comment to be published in the database.

CPSC says it will not publish confidential information in the database. Proposed §1102.24 explains how the Commission will define ‘‘confidential information’’ and would set forth criteria which must be followed to assert a claim of confidentiality. The Commission notes its view that most reports of harm received from consumers will not likely contain confidential information. However, where such a claim for a portion of information on a report of harm is asserted, the proposal would require affirmative statements that would assist the Commission in an evaluation of the merits of the request. The proposal would establish parameters for asserting and supporting a claim of a portion of a report of harm as confidential. For example, proposed § 1102.24(b)(3) would require an explanation on whether the asserted confidential portion of the report is commonly known or readily ascertainable by outside persons with a minimum of time and effort. Proposed § 1102.24(b)(5) would explain that the manufacturer also must support a confidentiality claim by describing how release of the information could cause competitive harm. Overall, one wonders whether the CPSC is trying to create a barrier to a valid claim of confidentiality much higher than in other contexts.

Proposed § 1102.26 would contain definitions and the process for how claims of materially inaccurate information contained in reports of harm may be asserted and how they will be evaluated. Materially inaccurate information in a report of harm means information that is false or misleading in a significant and relevant way that creates or has the potential to create a substantially erroneous or substantially mistaken belief in a database user about information in a report of harm relating to:
(i) The identification of a consumer product;
(ii) The identification of a manufacturer or private labeler; or
(iii) The harm or risk of harm related to use of the consumer product.

Written comments must be received by July 23, 2010.  It is not clear that the database plan offers adequate safeguards or assurances that the information posted will be true and accurate, will not simply lead to consumer confusion, and will not give rise to lawsuits based on a rumor repeated through the echo chamber of the Internet.  Although not as strong as we have called for here at MassTortDefense, § 1102.42 does have a disclaimer to the effect that the Commission does not guarantee the accuracy, completeness or adequacy of the contents of the Database, particularly with respect to the accuracy, completeness, or adequacy of information submitted by persons outside of the CPSC. The Consumer Product Safety Information Database will contain a notice to this effect that will be prominently and conspicuously displayed on the database and on any documents that are printed from the database.
 



 

CPSC Chair Offers Comments on Database

U.S. Consumer Product Safety Commission Chairwoman Inez Tenenbaum testified last week at a  hearing before the U.S. Senate Subcommittee on Financial Services and General Government.  She noted that her agency was preparing to staff up for 2011 in anticipation of greater enforcement efforts under the Consumer Product Safety Improvement Act of 2008.  

Tenenbaum was seeking a slight increase in CPSC's approximately $118 million funding. She testified that the budget will allow CPSC to hire 46 new full-time employees, bringing total staffing staffing levels more than 1.5 times the complement as recently as in 2008.  Tenenbaum also noted that the CPSC would work closely with small businesses to ensure that CPSIA third-party verification requirements do not become a costly burden, by dedicating a business ombudsman to address concerns.

She testified that the CPSC is currently in the process of building the Consumer Product Safety Risk Management System, a Web-based database that is supposed to change the way CPSC collects, analyzes and deploys data about regulated products. She reiterated that the system is scheduled to be up and running by March 11, 2011.

We have posted about this database before.  And we had the opportunity to hear the Chair speak on the issue at the recent DRI Products Liability Annual Meeting.  She noted she understand the level of concern about the database.  The CPSC has issued a proposed notice of rulemaking on the database, and the recent Open Commission Briefing/Meeting on Public Database - Notice of Proposed Rules-making is available. To concerns from the manufacturing community about whether the database might allow for unconfirmed reports about their products, she noted that the CPSC does not want to publish inaccurate or confidential information. Every report of harm that is submitted will be reviewed by a member of the agency’s staff and, further, every report that identifies a manufacturer will be sent to that manufacturer, generally within 5 business days. She stressed the creation of a non-public manufacturer portal to speed receipt of and replies to these reports. She also stated that the agency will protect proprietary and confidential information from the companies.

While those goals are worthy, CPSC needs to develop a rigorous and timely process for addressing false and inaccurate reports-- those 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 any 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.

Consumer Class Certification Denied -- Again

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.

 

 


 

Update on CPSC Database Issues

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.    

State Supreme Court Rejects Nationwide Consumer Fraud Class

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

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

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

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

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

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

Nanotechnology Legislation Introduced in Senate

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.
 

Class Plaintiffs Lack Standing - Summary Judgment Granted

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.
 

EU Council Adopts Regulations for Cosmetics with Nano-ingredients

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.

 

Appeals Court Affirms Rejection of Class Action in HDTV Case

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

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

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

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

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

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

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

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

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

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

Federal Court Dimisses Consumer Fraud Allegations in Washer Litigation

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.

MDL Created For Zicam Litigation

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.

 

Federal Court Dismisses Consumer Fraud Class Action on Washers

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. 

Defendants Seek Dismissal Of Baby Product Class Action

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.




 

Update On Chinese Drywall Litigation

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. 

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Presidential Memo On Preemption Sends A Warning

Along with my partner Andy Gaddes, I taught a recent CLE seminar on products liability issues.  One of the topics the attendees -- in-house counsel from a variety of industries -- were most interested in was President Obama's May, 2009 memorandum to federal agencies reversing the Bush administration's well-reasoned preemption policy.
 
The new policy is contained in a memo, not a formal executive order, but it clearly expresses a new view of preemption. Cloaked somewhat ironically in the guise of "state's rights", the policy comes from an administration that apparently has no trouble expanding the role of the federal government in unprecedented ways, taking over the auto companies, banks, and others.
 
The memo provides that heads of departments and agencies should not include in regulatory preambles statements that the department or agency intends to preempt State law through the regulation except where preemption provisions are also included in the codified regulation.  Heads of departments and agencies should not include preemption provisions in codified regulations except where such provisions would be justified under the Administration's new interpretation of the legal principles governing preemption.  Finally, heads of departments and agencies should review regulations issued within the past 10 years that contain statements in regulatory preambles or codified provisions intended by the department or agency to preempt State law, in order to decide whether such statements or provisions are justified under the new interpretation of the applicable legal principles governing preemption.
 
The legal basis of the doctrine is not really that malleable. Federal preemption is derived from the supremacy clause of the Constitution that says federal law is the supreme law of the land and any conflicting state law or regulation is without effect.  The policy basis of the doctrine is equally clear: allowing each state to set diverse and individual safety standards can undercut needed uniformity and can subject manufacturers to expensive, unfair, and confusing requirements. It forces product sellers to potentially navigate a confusing, often contradictory patchwork quilt of up to 50 sets of laws and regulations.  Of course, the preemption issue affects more than traditional administrative regulation by the states: companies may become subject to regulation by litigation at the hands of the plaintiffs' bar. 
 
The new policy has the potential to create a real chilling effect in agencies that should be clear about the preemptive intent and reach of their regulations.  While the Obama administration claims its approach breaks no new ground, it may well fundamentally weaken the federal government's ability to address problems on a national level and thus may have untended consequences by allowing states to interfere with parts of the Obama administration's domestic agenda. Regulations for health care and climate change, for example, arguably cannot work absent preemption.
 
Preemption has been applied to drugs and medical devices, vehicular roof crush standards issued by the National Highway Traffic Safety Administration, mattress flammability standards issued by the Consumer Product Safety Commission, pesticides regulated by the EPA and a variety of other products.  A majority of the regulations containing preemptive language were issued by the FDA and NHTSA.   
 

 

iPhone MDL Created

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.

Class Action Dismissed In Printer Litigation

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.

MDL Created for Chinese Drywall Litigation

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.

Class Certification Rejected in French Fry MDL

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.
 

Agency Corresponds With Congress on Consumer Product Safety Improvement Act Issues

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.
 

Canadian Court Certifies Another Class Action

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.
.
 

State Attorneys General and the CPSAct

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.
 

Federal Court Denies Class Certification In Teflon Litigation

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.

 

 

Federal Court Denies Certification Of Mouthwash Consumer Fraud Class

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.
 

Seventh Circuit Rejects Consumer Fraud Act Class Action

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.
 

California Court Upholds Class Certification of Potentially Invalid Consumer Fraud Act Claims

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.
 

CPSC Holds Public Meeting On New Legislation

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.
 

China Dairy Product and Infant Formula Issues Grow

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.
 

California Moves Forward With "Green Chemistry" Bills

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.  

BPA Update

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.
 

Third Circuit Confirms Reliance Is Required For PA Consumer Fraud Act Claims

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.
 

MDL Created For BPA Litigation

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.

 

 

President Signs CPSC Reform Act

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.
 

Federal Court Rejects Inkjet Printer Class Action

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.
 

CPSC Improvement Act Update

The White House received the Consumer Product Safety Commission Improvement Act of 2008 (H.R. 4040)  on August 6th, giving the president until August 18th to sign the bill into law. Apparently the Congress had delayed sending the bill to accommodate the president's travel schedule to the Summer Olympics.

The president has 10 days, excluding Sundays, in which to sign the bill into law.  All indications are that President Bush will sign the legislation.

As noted here at MassTortDefense both houses of Congress passed the CPSC reform bill with near-unanimous support. 

Lipstick Wars: Latest Round

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."

 

Ohio Federal Court Declines To Dismiss Consumer Fraud Putative Class Claim

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.”
 

Class Certification Denied In Peanut Butter MDL Litigation

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...."  

CPSC Legislation Passes Both Houses

A quick update on the CPSC reform legislation: The House voted 424-1 (9 not voting) to agree to the Conference Report on the Consumer Product Safety Commission Reform Act of 2008. Last night, the Senate agreed to the Conference Report by a vote of 89-3 (neither Presidential candidate present to vote). On to the White House.

Compromise Reported On CPSC Reform Act

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.


Federal Court Denies Motion To Dismiss In Proposed Lipstick Class Action

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.



Conference Committee Reports Progress On CPSC Legislation

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.

CPSC Releases Import Final Safety Strategy Document

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

Risk Management Article: China Manufacturing Risks

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.

Interest Group Releases Sunscreen "Analysis" As FDA Ponders Regulations

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.

State Supreme Court Affirms Class Certification In GM Case

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.

Congress Still Wrestling with CPSC Legislation

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.

House Committee Holds Hearing On Phthalates And BPA In Consumer Products

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.

State Appeals Court Rejects Consumer Fraud Class Action

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.

Supreme Court Decides RICO Issue

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.

FDA To Form Committee To Analyze BPA Issues

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.

Congress Set to Reconcile CPSC Reform Bills

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.

Congressional Developments: Hearings and Research Service Weighs in on BPA Issues

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.



 

CPSC Reveals New Import Safety Strategy

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

Recalls of Products Made in China (Part II)

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.

Recalls of Products Made in China (Part I)

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.

Texas Supreme Court Relies On Riegel Analysis For Preemption Decision Under CPSA

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.

Two Recent Consumer Fraud Class Action Decisions

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.)
 

8th Circuit Decertifies Device Class With Consumer Fraud Allegations

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.