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

A federal court has denied class certification in a proposed consumer fraud class action arising from the sale of microwave popcorn with artificial butter flavoring. See Courtney Fine v. Conagra Foods, Inc., No. CV 10-01848 SJO (C.D. Calif., Aug. 27, 2010).

The facts: Diacetyl is a naturally occurring chemical in butter, and was also used in artificial butter flavors for decades. In 2007 defendant Conagra, maker of microwave popcorn, issued a press release to the public stating it was no longer adding the compound diacetyl, which has been associated with lung injury in factory workers exposed to high doses, to its butter-flavored microwave popcorn products. Since the announcement, defendant "reformulated" all butter-flavored varieties of Orville Redenbacher's and Act II microwave popcorn in response, it said, to consumer uncertainty regarding the ingredients of the microwave popcorn. Conagra also redesigned the packaging for these products to display the words "No Added Diacetyl."

Plaintiff alleged that she understood the advertising claim to be there was no diacetyl in the new popcorn, as opposed to no added diacetyl, and alleged she relied on defendant's claims that there was "no diacetyl" in the popcorn products when making the purchases. Plaintiff asserted, however, that diacetyl is still present in the products (as part of natural butter). Plaintiff further asserted that had she known the representation regarding the diacetyl was false, she would not have made the purchases.

Plaintiff alleged causes of action for: (1) false and misleading representation of material facts, constituting unfair competition within the meaning of California Business & Professions Code §§ 17200, et seq. ("UCL"); and (2) false advertising in violation of Business & Professions Code §§ 17500, et seq. ("FAL"). She further alleged that she suffered a monetary loss as a result of defendant's alleged actions, which were in violation of the Consumer Legal Remedies Act ("CLRA"), Cal. Civ. Code §§ 1750, et seq.

Last March, Conagra removed the case from state court to federal (Judge Otero). Then they filed a Motion to Dismiss based on various grounds, including that: (1) Plaintiff does not allege a cognizable injury resulting from defendant's products and therefore lacks standing; (2) Plaintiff fails to state a claim under the UCL, FAL, and CLRA as a matter of law under Rule 12(b)(6). The gist of the final argument was that plaintiff "received exactly what she paid for."  But, the court was persuaded that plaintiff adequately asserted that she did not get what she paid for, as she was under the impression that defendant's popcorn products were free of diacetyl. That is, she asserted that Conagra’s placement of "No Diacetyl Added" on the packaging is a material misrepresentation, and that reasonable consumers could (somehow) have taken the label to mean that diacetyl did not exist in the product at all.

Plaintiffs then moved for certification of a class consisting of all persons residing in the state of California who purchased Orville Redenbacher's brand Light Butter, Movie Theater Butter Light microwave popcorn, and/or ACT II brand 94% Fat Free Butter, Light Butter, and Butter Lover's microwave popcorn for personal use and not for resale since September 1, 2007. Plaintiff sought certification under Rule 23(b)(3) and 23(b)(2), but argued her "primary goal is to obtain injunctive relief by way of an order enjoining Defendant from its continued practice of making misleading advertising and label claims about its butter flavored microwave popcorn products."

The court denied the motion for class certification on three related grounds. The first problem was that in the court's prior Order Denying Defendant's Motion to Dismiss (6/29/10), the court had ruled that plaintiff established standing for herself because she alleged that she incurred injury as a result of defendant's allegedly improper conduct. That is, plaintiff's spending money on defendant's popcorn in reliance of defendant's placing "No Added Diacetyl" on the packaging.

In the class Motion, plaintiff sought to certify a class that includes "all persons residing in the State of California who purchased [Defendant's] popcorn for personal use and not for resale since September 1, 2007."  Named plaintiff made no mention of the proposed class being comprised only of members who made the purchase as a result of defendant's allegedly false statements, which would be necessary in order to establish standing for the rest of the class.  The court noted that other courts have held that class definitions should be tailored to exclude putative class members who lack standing; each class member need not submit evidence of personal standing but, nonetheless, a class must be defined in such a way that anyone within it would have standing. Burdick v. Union Sec. Ins. Co., 2009 WL 4798873, at *4 (C.D. Cal. 2009).

Accordingly, class certification was improper here, given that plaintiff's proposed class included many people who may not have relied on defendant's alleged misrepresentations when making their purchasing decisions.

Second, a related problem was the Rule 23(a) requirement that plaintiff’s claims be typical of the class claims. The court agreed with Conagra that plaintiff failed to adduce facts suggesting that other class members have been injured by the same course of conduct that she asserts injured her. There could be no serious question, said the court, that the vast majority of putative class members here never read (let alone considered) the defendant's statement at issue, do not know what diacetyl is, and did not base their popcorn purchases on diacetyl-related issues. Plaintiff purchased popcorn, she said, because of defendant's allegedly misleading statements regarding diacetyl. Plaintiff's injury was established due to her alleged reliance on defendant's statements. But plaintiff sought to certify a class that would likely include people with varying rationales behind their purchases – many who purchased popcorn based on factors like flavor or brand. Plaintiff thus failed to establish that she could be a typical representative of the class, whose members were buying for all sorts of reasons unrelated to diacetyl.

Third, because the court found that plaintiff was not a typical representative, the court also held that plaintiff was not an adequate representative under Rule 23(a)(4).

What is refreshing about this short opinion is the recognition that Rule 23(a) matters too.  Often we see courts giver very cursory analysis of the (a) elements and/or emphasize that regardless of the initial prerequisites the issues of predominance, manageability and superiority dictate the certification result.  While the fact that class members undoubtedly bought microwave popcorn for many reasons would impact predominance of individual issues, it also does in fact suggest that the class representative's claims were not typical of the the class, as defined.

(NB. Your humble blogger is involved in the diacetyl litigation, but not this case.)

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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.

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The South Carolina Supreme Court last week vacated a $31 million verdict for a minor injured in a Ford Bronco rollover accident.  Branham v. Ford Motor Co., 2010 WL 3219499 (S.C. 8/16/10).  The case raises a number of interesting points for our readers.

This was a product liability action involving a Ford Bronco II.   Hale was driving the vehicle with several children as passengers, including her daughter seated in the front passenger seat.  No one was wearing a seat belt.  Hale admittedly took her eyes off the road and turned to the backseat to ask the children to quiet down. When she took her eyes off the road, the Bronco veered towards the shoulder of the road, and the rear right wheel left the roadway. She responded by over-correcting to the left, which allegedly led the vehicle to roll over.

Plaintiff, the parent of one of the injured passengers, sued. The case against Ford was based on two product liability claims, one a defective seat belt sleeve claim, and the other, a “handling and stability” design defect claim related to the vehicle's alleged tendency to rollover.  The jury returned a verdict of $16,000,000 in actual damages and $15,000,000 in punitive damages.

The trial court had dismissed the strict liability claim regarding the seat belt on the basis that the sleeve was not defective as a matter of law. But the negligence claim shared with the strict liability claim the element that the product be in a dangerous condition unreasonably dangerous. The trial court should thus have dismissed it too, the supreme court said.

The court also found that the closing argument of Branham's counsel was designed to and likely did inflame and prejudice the jury. The closing argument relied heavily on inadmissible evidence to pump up the punitives claim in requesting that the jury punish Ford.  This closing argument invited the jury to base its verdict on passion rather than reason, and the supreme court found that it denied Ford a fair trial.

But the more interesting part of the case related to Ford's two-fold argument that: (1) Branham failed to prove a reasonable alternative design pursuant to the risk-utility test; and (2) South Carolina law requires a risk-utility test in design defect cases to the exclusion of the consumer expectations test. 

The court found that plaintiff had produced sufficient evidence of a feasible alternative design to get to a jury.  But, while the consumer expectations test may fit well in manufacturing defect cases, the court agreed with Ford that the test is ill-suited in design defect cases. It thus held that the exclusive test in a products liability design case is the risk-utility test, with its requirement of showing a feasible alternative design.

The very nature of feasible alternative design evidence entails the manufacturer's decision to employ one design over another. This weighing of costs and benefits attendant to that decision is the essence of the risk-utility test.  The court noted that this approach is in accord with the current Restatement (Third) of Torts.  The court noted that the Third Restatement effectively moved away from the consumer expectations test for design defects, and towards a risk-utility test.  While the feasible alternative design inquiry is the core of the risk-utility balancing test in design defect cases, the court went out of its way to note that a jury question is NOT created merely because a product can be made safer. There is a longstanding principle that a product is not in a defective condition unreasonably dangerous merely because it “can be made more safe.” 

 The court sent the case back for a new trial.

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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.
 

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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.

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 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.

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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.
 

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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.
 

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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.
 

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The Coca-Cola Co. has successfully obtained summary judgment in a case alleging that the company unfairly marketed its Coca-Cola Classic soft drink as “original formula” despite allegedly having substituted high-fructose corn syrup for the ordinary table sugar it used when the drink was introduced. Judge Patrick Murphy issued an order last week in the U.S. District Court for the Southern District of Illinois.

Plaintiffs Amanda Kremers and Jason McCann, sued on behalf of themselves and a proposed class of Illinois citizens, alleging that Coca-Cola’s conduct in labeling cans and bottles of “Classic” Coke with the terms “Original Formula” constitutes a deceptive and unfair trade practice. This is because, plaintiffs contended, the “Original Formula” of Coke, which was invented in 1886, called for Coke to be sweetened using sucrose (ordinary table sugar, in essence), whereas “Classic” Coke currently is sweetened using high fructose corn syrup (“HFCS”). They alleged violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), and unjust enrichment.

Proposed class rep Kremers conceded at her deposition that she has known since the 1990's that “Classic” Coke contained HFCS and that “Classic” Coke is marketed as the “Original Formula” of Coke.  Kremers admitted also that she read the words “Original Formula” on a container of “Classic” Coke in the 1990s.  That was sufficient to put her on notice to inquire about her alleged claims, and that she knew or reasonably should have known of her so-called injury. Thus, her claim was barred by the statute of limitations, even with the discovery rule.

Turning to the merits of the case, the state statutory cause of action requires: (1) a deceptive act or practice by the defendant, (2) the defendant’s intent that the plaintiff rely on the deception, (3) the occurrence of the deception in the course of conduct involving trade or commerce, and (4) actual damage to the plaintiff (5) proximately caused by the deception.  To prove that element of proximate causation in a private cause of action brought under the ICFA, a plaintiff must allege that he was, in some manner, actually deceived. 

McCann’s testimony at his deposition was that he wasn't actually deceived.  He never read the key language until after he was approached by counsel for plaintiffs in this case about serving as the representative of the proposed class. Hence, he could not prove proximate causation for purposes of a claim for deceptive trade practices under the ICFA.

To establish a prima facie case of unfair trade practices under the ICFA, a plaintiff must prove that a defendant intentionally engaged in an unfair practice in the course of conduct involving trade or commerce, and that this practice proximately caused harm to the plaintiff. The court found that as a matter of law, the sales here were not unfair trade practices. The trade practices in dispute in this case were not deceptive acts (as above). No public policy of Illinois proscribed the use of HFCS as a sweetening agent in beverages and foodstuffs. The facts concerning plaintiffs' use hardly suggested they had been oppressed by Coca-Cola’s trade practices, or had been afforded the lack of meaningful choice necessary to establish unfairness.

Perhaps most importantly, McCann could not show the necessary substantial harm for an unfair trade practice, given the small amount of the product he purchased, the fact that he continued to purchase "Classic” Coke after the commencement of this suit and despite knowledge that the product contains HFCS, and because the alleged injury was one any consumer of “Classic” Coke quite easily could have avoided, by, for example, simply drinking a different soft drink or other beverage.

Although fraud is not an element of a claim for unjust enrichment under Illinois law, the Seventh Circuit nevertheless has made clear that where the plaintiff’s claim of unjust enrichment is predicated on the same allegations of fraudulent conduct that support an independent claim of fraud, resolution of the fraud claim against the plaintiff is dispositive of the unjust enrichment claim as well.

Class motion dismissed as moot.

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As readers know, much of the recent policy focus of the Consumer Product Safety Commission (as well as Congress) has been on the safety of products used by children. But what is a "children's product"?  The CPSC has announced it is issuing a proposed interpretive rule aimed at providing further guidance as to what constitutes a “children's product” to mitigate potential confusion among manufacturers about how to comply with the relevant new safety requirements, such as under the Consumer Product Safety Improvement Act.  The proposal would provide additional guidance on the factors that must be considered when evaluating what is a children's product. Written comments and submissions in response to this notice must be received by June 21, 2010.

Section 3(a)(2) of the CPSA (as amended by the CPSIA) defines a "children's product'' as a consumer product designed or intended primarily for children 12 years of age or younger. A determination of whether a product is a "children's product'' will be based on consideration of  four specified statutory factors, but because each of those four factors incorporates the concept of  "use'' by the child in some manner, under the proposed rule the Agency would further interpret the term "for use'' by children 12 years or younger to generally mean that children will physically interact with such products based on the reasonably foreseeable use and misuse of such product.

First factor: a manufacturer's statements about the product's intended use, including a label on such product; a manufacturer's statement that the product is not intended for children does not preclude a product from being regulated as a children's product if the primary appeal of the product is to children 12 years of age or younger. Similarly, a label indicating that a product is for ages 10 and up does not necessarily make it a children's product if it is a general use product. Such a
label may recommend 10 years old as the earliest age for a prospective user, not necessarily the age for which the product is primarily intended.

Second factor: if the product is represented in its packaging, display, promotion, or advertising as appropriate for use by children 12 years of age or younger. These representations can be express
(such as product advertising declaring that the product is for use by children 12 years of age or younger) or implied (such as product advertising showing the product being used by young children). These representations may be found in packaging, text, illustrations and/or photographs depicting consumers using the product, instructions, assembly manuals, or advertising media used to market the product. The prominence, conspicuousness, and or other emphasis given to each portrayal of a product's uses or intended users on packaging or in advertising media can be weighted differently according to which images or messages are the strongest and most obvious to the consumer at the point of purchase. For example, labeling in large, high contrast letters on the front of a package can send a stronger message than block letters in a small box on the package's side panel. Besides labeling and illustrations, a product's physical location in a retail outlet or visual associations in the pages of an on-line distributor's Web site could imply its suitability for a certain age group. The close association of a product in a store or on a Web site with other products that are clearly intended for children 12 years of age or younger could affect consumer perceptions of the intended age group for that product.

Third factor: whether a consumer product is designed or intended primarily for a child 12 years of age or younger is whether the product is commonly recognized by consumers as being intended for use by a child 12 years of age or younger. For example, traditional board and table games like chess, checkers, backgammon, playing cards, or Chinese checkers are commonly recognized as equally attractive to children and adults because the level of difficulty increases or decreases depending on the player's skill. Versions of these games, and similar games commonly considered by consumers to appeal to a general audience, are not considered children's products. However, if a manufacturer adds marketing portrayals or other features to the game or its packaging that make it more attractive to or suitable for children than a general use product would normally be, then the game could be  considered a children's product. Examples include small sizes that would not be comfortable for the average adult; exaggerated features (large buttons, bright indicators) that simplify the product's use by kids; safety features that are not found on similar products intended for adults; colors commonly associated with childhood (pinks, blues,
bright primary colors); features that do not enhance the product's utility, (such as cartoons), but contribute to its attractiveness to children 12 years of age or younger.

Fourth factor: the Age Determination Guidelines (``Guidelines'') issued by the CPSC staff in 2002, which focus on an age determination for a given product's intended user group,  The Guidelines provide information about the primary goals of play that are seen for different ages throughout childhood. For example, toddlers consistently want to mouth objects because mouthing is a primary strategy for exploration of any object at that age. Early  childhood entails lots of exploration and discovery. High levels of detail in their toys are not necessary, and toddlers like bright
colors. However, during middle childhood, children become very interested in role-playing, and they desire increasingly more realistic props during their playtime, and more realistic colors become
important. After a certain age, children do not consider the simplistic, brightly colored toys intended for toddlers to be intended for them and may find them very unappealing or even insulting. Nine to
12 year old children are interested in developing new motor skills and exercising their increasingly complex problem solving abilities. The factors that make various objects appealing to children of different ages are discussed at length in the Guidelines.

The proposed rules also offer examples in a number of product lines.

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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.

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

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

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

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

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

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

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

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

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

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

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

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A federal court has dismissed a class action that accused Bayer Corp. of misrepresenting the cancer-preventing nature of its men's vitamin products. Johns v. Bayer Corp. et al., (S.D. Cal. Feb. 9, 2010).

Readers of MassTortDefense know how a government investigation or advocacy group's criticism of a product can spawn products liability and other class action litigation.  But can plaintiffs walk too closely in the footsteps of the government?

Plaintiff David Johns filed a putative class action alleging that defendants misrepresented on product packaging, commercial advertisements, their website, and in other marketing materials, that one of the product line's key ingredients, selenium, has the ability to reduce the risk of prostate cancer in men. Plaintiff alleges that, despite emerging evidence, selenium does not in fact prevent or reduce the risk of prostate cancer. Plaintiff alleged he purchased one bottle of Men’s Health in July 2009 for approximately $8.  He alleges he read the information regarding selenium on the product packaging and relied on those statements in making his purchasing decision.

Plaintiff then brought a proposed class action on behalf of all persons in the United States or, alternatively, all California residents, who since 2005 purchased the men's health vitamin products. Plaintiff alleged claims for: (1) violation of California’s Unfair Competition Law, California Business & Professions Code § 17200 (“UCL”), (2) violation of the Consumers Legal Remedies Act, California Civil Code § 1750 (“CLRA”), and (3) unjust enrichment.

Defendants moved to strike key aspects of the complaint because the allegations seemingly were simply borrowed from the language of an FTC investigation of the vitamin product line. Defendants argued that these allegations violated plaintiff’s duty under Rule 11 to conduct a reasonable factual investigation into the allegations to be made in a complaint. Attorneys have a duty to make a reasonable inquiry into whether the factual contentions made in a complaint have evidentiary support. Fed. R. Civ. Pro. 11(b).

That FTC lawsuit resulted in a settlement and consent decree; there was no adjudication on the merits and no admission of wrongdoing or fault on the part of Bayer.  Thus, quotes from the government pleadings were, at best, a repetition of mere allegations, including of a special interest advocacy group that had complained to the government.  The federal court thus struck these allegations. See also In re Connectics, 542 F. Supp. 2d 996, 1005-06 (N.D. Cal. 2008).  Because the court granted defendants’ motion to strike the various paragraphs of the complaint, there were no factual allegations remaining to support the claim that defendants’ advertising was deceptive. Accordingly, the motion to dismiss was granted without prejudice.

The court went on to address several issues "as guidance if Plaintiff chooses to file an amended
complaint."  The court noted that in two recent opinions, the Supreme Court had clarified the  standard of review for Rule 12(b)(6) motions. See Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). To survive a motion to dismiss under this standard, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.’” Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 570).  For example, the court pointed out a standing issue: plaintiff did not allege that he saw any advertisements for one of the products in the line, Men’s 50+, nor that he read the packaging on the product, nor that he even considered purchasing the product. Plaintiff cannot expand the scope of his claims to include a product he did not purchase or advertisements relating to a product that he did not rely upon. The statutory standing requirements of the UCL and CLRA are narrowly prescribed and do not permit such generalized allegations.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The federal court has dismissed a putative class action brought by a group of municipal benefit funds over a pharmaceutical company's alleged efforts to market drugs for uses that did not have regulatory approval. Central Regional Employees Benefit Fund, et al. v. Cephalon Inc., No. 09-cv-03418 (D.N.J. Oct. 15, 2009).

Plaintiffs commenced this putative class action against defendants alleging violations of the New Jersey Consumer Fraud Act (“NJCFA”), and for fraudulent concealment, and “illegal fraud.”  The plaintiffs defined their putative class as including “all governmental entities in the United States of
America who have been caused to expend monies" for certain drugs as a "result of the off label promotion by the defendants.”  They alleged that defendant Cephalon promoted drugs for uses other than those approved by the FDA, and that as part of its “off label” marketing efforts, Cephalon allegedly made false representations regarding the use and application of several in particular, Provigil, Gabitril, Actiq and Fentora.

The case, thus, falls in the growing body of cases by governmental third-party payors searching for a windfall in revenue by challenging the marketing practices of pharmaceutical companies over drugs that are effective, are safe, are prescribed by physicians, and are often affirmatively recommended by other branches of the entity bringing suit.  As many courts have held, off-label use is an accepted and necessary corollary of the FDA’s mission to regulate in this area without directly interfering with the practice of medicine. E.g., Southard v. Temple University Hospital, 566 Pa. 335, 340 781 A.2d 101, 104 (2001) (quoting Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341, 350 (2001)). Such use, necessary because medical practice inevitably runs ahead of the slower pace of governmental regulation, is generally accepted, widespread in the medical community, and often is essential to giving patients optimal medical care. Buckman, 531 U.S. at 351 & n.5 (citation omitted).  Thus, a physician, using his or her best medical judgment for the benefit of his patient, generally is free to use an approved product in a manner different from that for which the FDA has approved. Cabiroy v. Scipione, 767 A.2d 1078, 1082 (Pa. Super. 2001).

The FDA has accepted off-label use for decades:

• Accepted medical practice often includes drug use that is not reflected in approved drug labeling. . . . a physician may prescribe a drug for. . .patient populations that are not included in approved labeling. Such. . .‘unlabeled’ uses may be appropriate and rational in certain circumstances, and may, in fact, reflect approaches to drug therapy that have been extensively reported in medical literature. . . . Valid new uses for drugs already on the market are often first discovered through serendipitous observations and therapeutic innovations.

FDA, “Use of Approved Drugs for Unlabeled Indications,” 12 FDA Drug Bulletin 4, 5 (1982). 

It is clear that physicians may prescribe a drug off-label for an unapproved population without FDA knowledge or approval.  Blain v. Smithkline Beecham Corp., 240 F.R.D. 179, 182 (E.D. Pa. 2007). And courts are “not willing to accept that a plaintiff could somehow be injured by purchasing a drug that is as effective, or more effective, than alternative treatments simply because the drug is marketed off-label.”  In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, 2009 WL 2043604, at *10 (D.N.J. July 10, 2009). Absent some “adverse effects,” a “theory under which [plaintiffs] would be entitled to reimbursement for some or all of the purchase price of [a drug] whose benefits they clearly enjoyed. . . is patently absurd.”  Heindel v. Pfizer, Inc., 381 F. Supp.2d 364, 380 (D.N.J. 2004).  

Cephalon moved to dismiss the NJCFA and common law fraud claims, contending that the plaintiffs failed to plead specific acts of fraud to support the legal conclusions contained in the Complaint. The plaintiff’s factual allegations must be enough to raise a right to relief above the speculative level. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007). Also, the plaintiffs’ common law fraud claims were subject to the heightened pleading standards of Rule 9(b), which requires that in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Fed.R.Civ.P. 9(b).

Cephalon argued that the plaintiffs, as third-party payors of prescription medication benefits, are not “consumers” under the NJCFA. The court said that the nature of the transaction, not the identity of the purchaser, determines whether the NJCFA is applicable. J & R Ice Cream Corp. v. Cal. Smoothie Lic. Corp., 31 F.3d 1259, 1273 (3d Cir. 1994).  For a NJCFA plaintiff to be a consumer respecting the transaction in question, the business entity must be one who uses economic goods, and so diminishes or destroys their utilities. However, third-party payors essentially serve as middlemen or insurers, paying all or part of the cost of a beneficiary’s drugs in return for a stream of payments from the beneficiary.  Because third-party payors do not use or consume prescription medications themselves, they are not “consumers” within the meaning of the NJCFA, and that statute was therefore inapplicable to the circumstances alleged in the Complaint.

Next, the court found that the plaintiffs’ common law fraud claims failed to meet the pleading requirements of Twombly, Iqbal, and Rule 9(b). Count II of the Complaint, fraudulent concealment, referred merely to an unspecified “transaction and/or providing of the prescription drugs Provigil,
Gabitril, Actiq and Fentora.” The court was at a loss to discern to what transaction the plaintiffs were
referring, as the Complaint fails to identify or explain the who,what, where, why, and how of any “transaction.”  Mere allegations that Cephalon provided prescription drugs, without saying to whom or under what circumstances, wholly failed to state a claim for fraud. 

The plaintiffs attempted to rely on a reference in the Complaint to a proceeding in the Eastern District of Pennsylvania in 2003, brought pursuant to the False Claims Act, 31 U.S.C. § 3729 et seq., wherein Cephalon was alleged to have engaged in “misbranding” of its products. However, referring to a plea agreement and civil settlement in another action does not satisfy the plaintiffs’ burden; it is well-established that off-label marketing of an approved drug is itself not inherently fraudulent. Merely alleging that Cephalon marketed the drugs at issue for off-label purposes did not state a claim for fraud.

The court thus also dismissed the claims for fraudulent concealment and illegal fraud, but without prejudice.
 

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Two recent consumer fraud class actions offer contrasting lessons.  First, the federal court declined to certify a class of Ford Motor Co. truck owners who alleged the vehicles are prone to a shimmying problem. Lewis v. Ford Motor Co., 2009 WL 2750352 (W.D. Pa. 8/25/09).

According to Plaintiffs, their vehicles were subject to front-end suspension defects which caused severe oscillation under ordinary driving conditions and allegedly created a safety hazard for the drivers of the vehicles as well as other motorists. Pennsylvania residents Timothy Lewis and Timothy Trapuzzano sued Ford on behalf of a statewide class of owners of 2005–2007 model year F-250 and F-350 trucks.  Plaintiffs moved seeking class certification as to Count III of their Complaint, the alleged violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law.  The court noted that the 3rd Circuit has recently re-evaluated the standard of review to be applied by a district court in considering a motion for class certification. First, the district court must consider carefully all relevant evidence and make a definitive determination that the requirements of Rule 23 have been met before certifying a class;  that is, it is no longer sufficient for a party to assure the court that it intends or plans to meet the requirements. Second, the decision to certify a class requires rigorous consideration of all the evidence and argu-ments offered by the parties.  This may require the court to resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits -- including disputes touching on elements of the cause of action.  Finally, weighing conflicting expert testimony at the certification stage is not only permissible; it may be integral to the rigorous analysis Rule 23 demands. In other words, to certify a class the district court must find that the evidence more likely than not establishes each fact necessary to meet the requirements of Rule 23. In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 310 (3d Cir.2008.)

Originally, plaintiffs alleged the defendant failed to comply with the terms of a written guarantee or warranty given to the buyer at, prior to or after a contract for the purchase of goods or services.  But at the motion stage, instead, plaintiffs relied on the so-called “catch-all” provision, which broadl includes “unfair methods of competition” or “unfair or deceptive acts or practices” to include “engaging in any other fraudulent or deceptive conduct."   This switch may have been done to avoid the argument that plaintiffs need to prove relaince -- an indivdualized inquiry that can impede certification.  The court consluded, based on the almost universal agreement of the district courts of the 3rd Circuit, that a plaintiff must allege and show justifiable reliance even for claims brought under the catch-all provision of the state's Consumer Protection Act.

The reliance element was individual, and interestingly, the court noted that this affected the 23(a) issue of commonality as well as the 23(b) issue of predominance. Next, plaintiffs argued that while there may be some individual differences in the amount of damages, such discrepancies were not sufficient to defeat class certification. However, the court noted, they failed to recognize that the threshold questions do not concern the amount of the individual damages but whether or not the individual injury occurred. Proof of injury or fact of injury (whether or not an injury occurred at all) must be distinguished from calculation of damages (which determines the actual value of the injury. 

If proof of the essential elements of the cause of action requires individual treatment, then class certification is unsuitable. Here, each class member would have to show not only justifiable reliance but also loss as a result of that reliance, aspects subject to individual, rather than common questions of law or fact. This lack of commonality rendered this case unsuitable for class treatment.  And it logically followed that if plaintiffs failed to satisfy the criteria for showing commonality, they cannot satisfy the more strenuous demands of the predominance analysis.

Shortly thereafter, the 9th Circuit handed down a decision announcing a standard of review for legal issues related to certification orders, and overruled a district court's denial of class certification in a consumer fraud class action.  Yokoyama v. Midland Nat'l Life Ins. Co., 2009 WL 2634770
(9th Cir.  8/28/09).

Three consumer senior citizens, all residents of Hawaii, alleged that they had purchased Midland's annuities from an independent broker. Plaintiffs alleged that the the annuities were marketed through deceptive practices, in violation of Hawaii's Deceptive Practices Act. The district court held that the plaintiffs could not satisfy Federal Rule of Civil Procedure 23's requirements that common issues predominate over individual issues and that a class action is a superior method of adjudication.

The dispositive issue on appeal was whether the Hawaii Act requires a showing of individualized reliance.  But there was a debate over the standard of review.  WHile certification decisions generally were reviewed under an abuse of discretion standard, the 9th Circuit panel agreed with the Seventh Circuit's explanation of the appropriate standard of review. Andrews v. Chevy Chase Bank, 545 F.3d 570, 573 (7th Cir.2008).  That is, the underlying rulings on issues of law must be reviewed de novo even when they are made in the course of determining whether or not to certify a class. We generally review a grant of class certification for abuse of discretion, but purely legal determinations made in support of that decision are reviewed de novo. (Note that Judge Smith argued in his concurrence that Ninth Circuit precedent cannot be overturned by two judges, only en banc).

Hawaii courts have interpreted the word “deceptive” to include those acts that mislead consumers acting reasonably under the circumstances, observed the panel.   And a deceptive act or practice is  a representation, omission, or practice that is likely to mislead consumers acting reasonably under the circumstances.  The representation, omission, or practice is material if it is likely to affect a consumer's choice. Whether information is likely to affect a consumer's choice is an objective inquiry, turning on whether the act or omission is likely to mislead consumers as to information important to consumers in making a decision regarding the product or service.  Therefore, said the court, since Hawaii's consumer protection laws look to a reasonable consumer, not the particular consumer, inidivudal relaince is not an element. The fact-finder will focus on the standardized written materials given to all plaintiffs and determine whether those materials are likely to mislead consumers acting reasonably under the circumstances.

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A putative class action of purchasers of the asserted mood enhancer and belly fat reducer Relacore was recently rejected by a New Jersey appeals court.  Lee v. Carter-Reed Co., 2009 WL 2475314 (N.J. Super. Ct. App. Div. 8/14/09).  The court affirmed a lower court's decision not to certify the class action, in which plaintiffs had alleged that the defendant falsely advertised the benefits of the product.

Plaintiff Melissa Lee alleged she purchased Relacore, manufactured and distributed by Carter-Reed Co., and asserted that she purchased the product based on the promise that it would reduce belly fat. But, she averred, she actually gained belly weight during the time she took the product.  She claims that defendant's advertising campaigns touted that Relacore helps reduce stress-induced belly fat. Lee claimed that the defendant devised and utilized a fraudulent, deceptive advertising campaign for Relacore. She sought relief under the New Jersey Consumer Fraud Act, and related common law fraud theories.

Following discovery limited to class suitability, plaintiff moved for class certification. Defendants opposed the motion. Following oral argument, the trial court denied the application for class certification, citing absence of superiority,  manageability, and predominance. In an unpublished per curiam opinion, the Superior Court affirmed and held that individual issues predominated over issues allegedly common to the class.

The court noted first that the superiority requirement requires an analysis that includes: (1) an informed consideration of alternative available methods of adjudication of each issue, (2) a comparison of the fairness to all whose interests may be involved between such alternative methods and a class action, and (3) a comparison of the efficiency of adjudication of each method. Manageability of the class is a consideration, as well, but it is “disfavored” in NJ to deny class certification on this basis alone. In order to justify denial of class certification on this basis, the management issues must be of great magnitude. 

Here, the issues of superioirty and of manageability were subordinate to the issue of predominance.  A party asserting a CFA claim in New Jersey must establish wrongful conduct, an ascertainable loss, and a causal relationship or nexus between the wrongful conduct and the loss. A common law fraud claim requires proof of  a material representation of a presently existing or past fact, made with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance by that party to his detriment. 

In this case, the central issue for the consumer fraud claim was the existence of a causal nexus between the wrongful conduct and any loss.  Plaintiff asserts that she relied on a false marketing campaign and she was induced by the false representations to purchase and use the product. Neither plaintiff nor the court knew, however, what caused others to purchase and use the product. Neither plaintiff nor the court knew whether putative class members even saw the alleged print or Internet advertisements or whether they purchased the product due to a recommendation from a friend or family member or for some other reasons.

Moreover, the Relacore market campaign was multi-faceted. In some ads, it was touted as a belly fat retardant; in others, a mood elevator; in others, a stress reducer.  There was no way to know on a common basis the reason any putative class members purchased the product, even assuming they heard or saw any advertising. This distinguished the case from Varacallo v. Massachusetts Mutual Life Insurance Co., 332 N.J. Super. 31 (N.J. Super. Ct. App. Div. 2000), in which the court certified a class of those who purchased “vanishing premium” life insurance, and in which the advertising approach was uniform and common to all class members.

The lack of predominance was even more obvious in the context of plaintiff's common law fraud claim. For this claim, the putative class must prove reliance -- which they could not on a common basis.

The case is useful as it analyzes establishing a causal nexus between the challenged conduct and an ascertainable loss.  Properly viewed, that causal link ought to be a major impediment to class certification because it requires individualized factual determinations for absent class members. Plaintiff's argument to extend Varacallo to false advertising product cases brought forth numerous opposing amici, including PLAC.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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MassTortDefense has posted about the dangers lurking in consumer fraud class actions before. The threat is no more evident than in the recent decision in Nafar v. Hollywood Tanning Systems, Inc., 2008 WL 3821776 (D.N.J., August 11, 2008), where the district court certified a nationwide class of tanning customers.

Plaintiff alleged she purchased monthly tanning memberships from defendant Hollywood Tanning Systems, in New Jersey. Plaintiff alleged that defendant fraudulently failed to disclose the fact that any exposure to ultraviolet rays (UV rays) increases the risk of cancer and allegedly deceptively failed to warn consumers about the dangers of indoor tanning. While plaintiff acknowledged that defendant's machines may block out most UVB rays, she contended that defendant failed to inform consumers that UVA rays, also emitted by its machines, are allegedly linked to skin cancer. Plaintiff instituted suit alleging: (1) violation of the New Jersey Consumer Fraud Act (“NJCFA”), (2) fraud, (3) unjust enrichment, and (4) breach of warranty. Plaintiff disclaimed any remedy for personal injuries suffered, but proceeded on her fraud-based causes of action, seeking return of her membership fees, treble damages, punitive damages, and attorney's fees.

Plaintiff sought a nationwide class of consumers who had purchased tanning memberships. The court’s analysis of the Rule 23(b) requirements for class certification was, unfortunately, devoid of substance. For the all-important predominance inquiry, the court first stated that common issues of law predominated: “Common questions of law predominate because New Jersey law is central to this litigation. The NJCFA [consumer fraud act] will apply to all class members because this particular law governs Defendant's behavior and uniform policies. New Jersey has a strong interest in this litigation because the case's outcome will likely affect Defendant's nationwide behavior…. Indeed, the NJCFA is one of this nation's strongest consumer protection laws and its application will not frustrate other states' consumer protection laws. ” That conclusion was not based on an analysis of the choice of law rules of the forum state; cited no state court cases suggesting that NJ law should apply to the claims of consumer from other states; failed to analyze the differences among the consumer protection laws of the various states; and failed to analyze the interests other states may have in applying their laws by simply assuming every state would rather apply NJ’s law.

The court then stated that common fact issues predominated as well because the alleged misrepresentations and omissions concerning the negative consequences related to indoor tanning are alleged to be uniform. However, the court failed to conduct any analysis of the elements of the claims upon which the class was certified, and whether any of the elements might raise individual questions. Nor did it discuss any of the defenses. For example, the defendant apparently submitted surveys showing that the risks of tanning are common knowledge, and many consumers understood the cancer risks involved. Even if plaintiffs were not required to present any direct proof of individual reliance – which they would be under some state laws – this would not prevent a defendant from presenting direct evidence that an individual plaintiff did not rely on any representations from the company. Defendants have a right to present evidence negating a plaintiff's direct or circumstantial showing of causation and/or reliance. The "predominance" inquiry here thus resembled a mere commonality test.

Similarly, the cursory superiority analysis reads as a mere recitation of the elements of the inquiry rather than as an application of the elements. It also fails to cite a single federal appellate decision supporting the conclusion reached. 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.

Clearly, this certification decision ought to be reviewed by the Third Circuit.
 

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

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

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

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

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

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