Class Complaint Dismissed WITH Prejudice

The Second Circuit recently affirmed a trial court decision dismissing a proposed class action challenging the marketing of certain cosmetic products.  See DiMuro v. Clinique Labs, LLC, No. 13-4551 (2d Cir. 7/10/14) (unpublished).

Plaintiffs filed a putative class action complaint asserting claims under the Connecticut, New Jersey, and Illinois consumer fraud statutes, along with claims for breach of express warranty, breach of implied warranty, and unjust enrichment, arising from defendants’ marketing of seven different cosmetic products sold under the “Repairwear” product line. But while plaintiffs’ consolidated class action complaint asserted claims arising out of the marketing of seven different products, the named plaintiffs only alleged to have purchased and used three of the seven products.

Plaintiffs argued that they nevertheless had class standing to bring claims for Repairwear products that they did not buy-- a commonly attempted but seldom successful tactic.  Here, each of the seven different products have different ingredients, and defendant allegedly made different advertising claims for each product. Unique evidence would therefore be required to prove that the 35-some advertising statements for each of the seven different products were false and misleading. As a result, the court could not conclude that claims brought by a purchaser of one product would raise a set of concerns nearly identical to that of a purchaser of another Repairwear product. Accordingly, plaintiffs lacked standing to bring claims for the four products that they did not purchase.

The court also affirmed the dismissal of plaintiffs’ consumer fraud claims because plaintiffs failed to plead them with the requisite particularity under Fed. R. Civ. P. 9(b).  Rule 9(b) requires that a complaint specify the statements that the plaintiff contends were fraudulent, identify the speaker, state where and when the statements were made, and explain why the statements were fraudulent.  E.g., Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993). One of the cardinal purposes of Rule 9(b) is to “provid[e] a defendant fair notice of plaintiff’s claim, to enable preparation of [a] defense.” See DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987). Plaintiffs’ consolidated complaint was wholly conclusory and lacked the particularity required to ensure that defendant received fair notice of the claims.

Specifically, plaintiffs’ "group-pleading" as to the products and the advertisements at issue was
inconsistent with Rule 9(b)’s particularity requirement in that the complaint failed to specify which
of the alleged statements were fraudulent and with regard to what product.  It simply alleged that the products, collectively, cannot work. Given that the seven different products have different ingredients, different intended uses, and that defendant made different advertising claims for each one, this was wholly insufficient to satisfy Rule 9(b). Plaintiffs failed to address the different product ingredients, different intended uses, and different claims.

The complaint also failed to allege that any of the named plaintiffs even used the product, let alone used the product as directed. Similarly, the named plaintiffs did not allege what results they received from their use of the product. They only alleged that they received “no value,” “did not receive what they bargained for,” or “did not get what they paid for.” Since they did not allege which particular advertising claims each of the named plaintiffs relied on when purchasing the product, the conclusion that they did not receive what they bargained for had no ascertainable meaning. 

Plaintiffs’ claims for breach of express warranty and breach of implied warranty also relied on
allegations that the products did not perform as advertised. These allegations were wholly conclusory, and did not provide a sufficient factual basis to establish a plausible breach of any specifically identified express or implied warranty.

Pretty standard stuff, really, but let's turn to the most useful aspect of the analysis.  The complaint was dismissed with prejudice.  Leave to amend is given when justice so requires.  But what too often happens is that plaintiffs file a conclusory, fishing expedition of a complaint; the defendant expends considerable cost to point out the many deficiencies of the pleading; the court dismisses appropriately dismisses the complaint, and plaintiffs use the opinion as their model to draft an amended pleading-- often repeating the process several times, until they finally get a minimally acceptable pleading that bears little resemblance to their original complaint.  Here, the court recognized that plaintiffs are “not entitled to an advisory opinion from the Court informing them of the deficiencies in the complaint and then an opportunity to cure those deficiencies.” Bellikoff v. Eaton Vance Corp., 481 F.3d 110, 118 (2d Cir. 2007). Moreover, a plaintiff need not be given leave to amend if the plaintiff fails to specify either to the district court or to the court of appeals how amendment would cure the pleading deficiencies in its complaint. The district court’s decision to deny plaintiffs leave to amend their complaint was not an abuse of discretion. First, the plaintiffs failed to provide any detail as to what facts they would or could) plead to cure their pleading deficiencies. Second -- and this is very commonly the case --  much if not all of the information necessary for a properly pled complaint was and had always been in the possession of the plaintiffs. For example, which particular representations they relied upon, if and how they had used the products, what the results were.   Useful discussion of why leave should NOT be granted in these consumer fraud cases.

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

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

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

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

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

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

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

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

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

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

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

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

For a variety of good reasons, certification denied.

Consumer Fraud Class Claim Dismissed in Beverage Case

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

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

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

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

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

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

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

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

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

Claims dismissed (with leave to amend).

 

Another Un-natural "Natural" Claim Dismissed

We have posted before about the disturbing trend of plaintiffs parsing food labels to find something to complain about -- not that the product is unhealthy or harmful or doesn't taste good -- but a "gotcha" game raised to the level of a consumer fraud act violation or a breach of warranty class action.  So we like to note when common sense prevails in this arena.  A federal court recently held that a food manufacturer cannot be in breach of an express warranty for using the term "natural" on its label when that same label discloses the identity and presence of any ingredients the plaintiffs claim were not "natural."   See Chin v. General Mills Inc., No. 12-02150 (D.Minn. 6/3/13).


General Mills produces, markets, and sells a line of Nature Valley products, including “Protein Chewy Bars,” “Chewy Trail Mix Granola Bars,” “Yogurt Chewy Granola Bars,” “Sweet & Salty Nut Granola Bars,” and “Granola Thins.” By all accounts these are excellent products that taste great and offer nutritious ingredients. Plaintiffs were consumers who allegedly purchased one or more of the Nature Valley products. The plaintiffs alleged the products were deceptively labeled as “100 percent Natural” because they contained fructose corn syrup and high maltose corn syrup.  Plaintiffs alleged they relied on the representations, and would not have purchased the products or paid as much if they had known of the actual ingredients. Plaintiffs sought a national class, and sub-classes for New York and New Jersey.

The first problem was that plaintiffs sought relief for alleged representations made on bars that they never purchased; plaintiffs lacked Article III standing for these products and plaintiffs could not represent a class of consumers who purchased products that the named plaintiffs did not purchase. The named plaintiffs in a class action may not rely on injuries that the putative class may have suffered, but instead, said the court, must allege that they personally have been injured. Lewis v. Casey, 518 U.S. 343, 357 (1996); Thunander v. Uponor, Inc., 887 F. Supp. 2d 850, 863 (D. Minn. 2012).

The express warranty claim failed because the term “100% Natural” on a label cannot be viewed in isolation and must be read in the context of the entire package, including the ingredient panel. The specific terms included in the ingredient list must inform the more general term “Natural.” The specific terms determine the scope of the express warranty that was allegedly made to the plaintiffs. And here, a defendant cannot be in breach of an express warranty by including in the product an ingredient that it expressly informed consumers was included.  It is typical of plaintiffs in these cases to elevate one word or phrase in a label, while ignoring all the other information provided the consumer.

Finally, the fraud based claims were dismissed for failure to satisfy the heightened pleading requirements of Rule 9(b). Plaintiffs failed to plead how they were deceived by the “100% Natural” statement. Plaintiffs did not allege with any specificity what they believed “100% Natural” to mean.

Motion to dismiss granted.

 

 

No Purchase, No Standing

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

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

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

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

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

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

Class Claim Against Crock-Pot Seems a Crock

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

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

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

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

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

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

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

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

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

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

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


 

Consumer Fraud Class Claim Over Dietary Supplements Dismissed

A federal court in Illinois recently ruled that a plaintiff in a putative class action failed to state a claim in his suit challenging the marketing of two dietary supplements. See Padilla v. Costco Wholesale Corp., No. 11-C-7686 (N.D. Ill.,  1/16/13).

Plaintiff  alleged a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), 815 ILCS 505/2. He alleged that defendant distributed and marketed the Kirkland Signature™ line of dietary supplements in stores and on-line. These products included  Glucosamine with MSM products, and the Glucosamine/Chondroitin line of products.  Plaintiff asserted he purchased a bottle of Glucosamine with MSM.  And he alleged that that there was no competent and reliable scientific evidence that taking glucosamine either with chondroitin sulfate, or with MSM, results in the body metabolizing it into something that builds or nourishes cartilage or provides joint mobility or joint cushioning.  He asserted that clinical studies have found that glucosamine, chondroitin sulfate, and MSM are not effective.  Thus, he was allegedly deceived by defendant's representations regarding the products, and he would not have purchased Glucosamine with MSM had he known the truth.

Defendant moved to dismiss the (latest) complaint..  The court noted that a complaint must allege enough facts to state a claim to relief that is plausible on its face to survive a motion to dismiss. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547 (2007).  For a claim to have facial plausibility, a plaintiff must plead factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Typically, the amount of factual allegations required to state a plausible claim for relief depends on the complexity of the legal theory alleged. See Limestone Dev. Corp. v. Vill. of Lemont, 520 F.3d 797, 803 (7th Cir. 2008).

The court concluded the Padilla failed to state an ICFA claim as to Glucosamine Chondroitin because Padilla did not actually purchase Glucosamine Chondroitin. Plaintiff proposed to pursue claims on behalf of himself and putative class members who purchased either Glucosamine with MSM and/or Glucosamine with Chondroitin.  To bring an ICFA claim, a plaintiff must either allege it was a consumer of the defendant or allege a close nexus with Illinois consumers. Padilla purchased a bottle of Glucosamine with MSM, according to the complaint, but never alleged he purchased of the Glucosamine/Chondroitin. Because Padilla did not purchase Glucosamine Chondroitin, Padilla had not sustained any actual damage from alleged representations about it.

As to Padilla’s ICFA claim based on Glucosamine with MSM, the clinical studies cited by plaintiff were insufficient to state a claim that the product representations were false or misleading. Although Padilla cited to clinical studies supposedly showing the dietary supplements were ineffective for the treatment of osteoarthritis, he failed to make a connection between the studies and the actual representations on the label.  The Glucosamine with MSM product label did not claim to be effective for the treatment of osteoarthritis. Thus, clinical studies regarding the ineffectiveness of glucosamine or chondroitin in the treatment of osteoarthritis did not have any bearing on the truthfulness of the actual representations made.  

The court thus dismissed with prejudice the claims over the Glucosamine/Chondroitin supplement, and the MSM claim were dismissed with leave to amend. 



 

Another "Natural" Food Claim Falls to Common Sense

A  federal district court recently dismissed a putative class action alleging the defendant food company mislabeled its Florida's Natural products as 100% orange juice despite the alleged addition of compounds to mask the taste caused by pasteurization. See Veal v. Citrus World Inc., No. 2:12-cv-00801 (N.D. Ala. 1/8/13).

The plaintiff asserted that because the label did not mention that flavoring and aroma are added, consumers desirous of 100% pure and fresh squeezed orange juice had been deceived into purchasing Florida’s Natural.  The plaintiff did not aver that he personally ever consumed Florida’s Natural orange juice or that he suffered any ill health effects from consumption of the same, but rather alleged only that he purchased it, repeatedly, over the six years preceding the first complaint.  The essence of his claim concerned the question of how much processing is permissible in a product labeled as “fresh” “100%” or “pure.”

Despite plaintiff’s numerous allegations as to the general conduct of the orange juice industry, the court found the plaintiff had failed to state an actual, concrete injury. He stated he did not know store-bought orange juice was not fresh squeezed, but nowhere alleged any harm from its purchase or consumption. He did not even claim that upon learning packaged orange juice was not truly “fresh”, he had to resort to squeezing his own oranges. In other words, despite plaintiff’s protestations that he did not receive the product he believed he was purchasing, he made no allegation that he had stopped purchasing what he considered to be an inferior product in favor of
purchasing what he actually sought, which is apparently unpasteurized fresh squeezed orange juice.

In an attempt to save his claim and demonstrate an injury worthy of finding standing, the plaintiff argued that he did not receive the “benefit of the bargain” of what he believed he was actually purchasing. He professed to compare the cost of defendant’s orange juice to an orange juice concentrate, and alleged the difference between them is proof of his loss. This theory did not rise to the level of a “concrete and particularized” injury as opposed to a “conjectural or hypothetical” one. Plaintiff did not allege what the “higher value charged” was or what the orange juice supposedly “would have been worth” if it was “as warranted.” He did not show what products he actually bought, when he bought them, or where he bought them, much less what he paid.

From a legal standpoint, many courts have held that “benefit of the bargain” theories of injury like plaintiff’s, where a plaintiff claims to have paid more for a product than the plaintiff would have paid had the plaintiff been fully informed (or that the plaintiff would not have purchased the product at all), do not confer standing. See In re Fruit Juice Products Marketing and Sales Practices
Litigation, 831 F.Supp.2d 507 (D. Mass. 2011); see also Birdsong v. Apple, Inc., 590 F.3d 955, 961-62 (9th Cir. 2009) (noting potential for hearing loss from improper iPod use was not sufficient to state an injury for standing); cf. Rivera v. Wyeth-Ayerst Labs., 283 F.3d 315, 319-21 (5th Cir. 2002); McKinnis v. Kellogg USA, 2007 WL 4766060, *4 (C.D.Cal.2007); Sugawara v. Pepsico, Inc., 2009 WL 1439115 (E.D.Cal.2009). Young v. Johnson & Johnson, 2012 WL 1372286 (D.N.J.2012).

The plaintiff also complained that even though the FDA does require that defendant label its product as “pasteurized orange juice,” all of defendant’s other alleged representations were voluntary, and thus not within the protection of the FDA. Because the court found the plaintiff lacked standing to pursue his claims, the court did not have to rely on the impact of the extensive FDA regulations governing orange juice,  Nevertheless, the court noted, defendant labeled its orange juice in accordance with FDA regulations. The plaintiff could not dispute that the defendant’s product is “squeezed from our Florida oranges” or “100% orange juice.” Rather, his focus was that the squeezing and pasteurization is performed on a massive scale, and that the pasteurization process destroyed the flavor, causing ingredients already present in orange juice to be replaced in the marketed juice.

However, said the court, the fact that the plaintiff may have believed defendant hired individuals to hand squeeze fresh oranges one by one into juice cartons, then boxed up and delivered the same all over the country does not translate into a concrete injury to plaintiff upon his learning that beliefs about commercially grown and produced orange juice were incorrect.  By its very definition under FDA guidelines, pasteurized orange juice is orange juice (1) that has been processed and treated with heat, (2) in which the “pulp and orange oil may [have] been adjusted in accordance with good manufacturing practice,” and (3) which may have been “adjusted” by the addition of concentrated orange juice ingredients or sweeteners. Clearly, the defendant was selling pasteurized orange juice while labeling it “pasteurized orange juice.” Although the plaintiff objected to such labeling, in the light most favorable to the plaintiff, he purchased a product labeled as pasteurized orange juice and then complained that it was pasteurized.

 No standing, complaint dismissed with no leave to amend yet again.

"Go" Power Defeats Proposed Class Action

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

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

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

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

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

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

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

State Supreme Court Adopts Consumer Expectation Test for Alleged Food Defects

Our readers know that for nearly 50 years, an ongoing issue in product liability law has been the definition of "defect" within the strict liability context. A subtext to this ongoing discussion has been the appropriate test to apply to food products.  Earlier this month,  the “reasonable consumer expectation” test was adopted for food claims by the Maine Supreme Judicial Court in a strict liability claim involving a boneless turkey product. See Pinkham v. Cargill Inc., No. 2012 ME 85 (Me., 7/03/12).

Plaintiff allegedly consumed a hot turkey sandwich during his break.  Defendant  allegedly manufactured the boneless turkey product in the sandwich.  In the middle of or immediately after eating the sandwich, Pinkham allegedly experienced severe and sudden pain in his upper abdominal area and thought that he might be suffering from a heart attack. His doctors later determined that in their opinion he most likely had an “esophageal tear or perforation.” Plaintiff sued, alleging that this was a result of bone in the boneless turkey.

Although 50 percent of all turkey consumed in 1970 was during the holidays, today that number is around 31 percent as more people enjoy turkey year-round. In 2010, U.S. consumption of turkey was 16.4 pounds per person.  And turkey is now a $16 billion annual industry, according to the National Turkey Federation.  Readers will recall that our own Ben Franklin proposed the turkey as the national bird, at least in a letter he wrote to his daughter Sarah on January 26, 1784.

Back to the litigation. Defendant moved for summary judgment. After considering the motion, the trial court granted the motion in favor of Cargill, noting that Maine had not yet established which test to use when evaluating a strict liability claim for an allegedly defective food product pursuant to Maine’s strict liability statute, 14 M.R.S. § 221. The court recognized that, prior to the enactment of the state's strict liability statute, courts used a test similar to the “foreign-natural” doctrine when addressing an injury caused by a food product in an implied warranty of merchantability case. E.g., Kobeckis v. Budzko, 225 A.2d 418, 423 (Me. 1967). Readers will recall that the “foreign-natural” doctrine provides that in general a food producer is not liable for anything found in the food product that naturally exists in the ingredients. E.g., Newton v. Standard Candy Co., 2008 U.S. Dist. LEXIS 21886, at *6 (D. Neb. Mar. 19, 2008).  The major alternative has been the “reasonable expectation” test: which provides that regardless of whether a substance in a food product is natural to an ingredient thereof, liability will lie for injuries caused by the substance where the consumer of the
product would not reasonably have expected to find the substance in the product. E.g., Jackson v. Nestle-Beich, Inc., 589 N.E.2d 547, 548 (Ill. 1992).

The trial court proposed to evaluate the summary judgment motion under both the traditional
“foreign-natural” doctrine and the more recent  “reasonable expectation” test. The lower court concluded that, because bone is naturally found in turkey, and because the average consumer would reasonably expect to find bone fragments up to two millimeters in size in processed “boneless” turkey product (which the doctor had), the contents of the food bolus discovered in plaintiff's esophagus did not demonstrate that the product was defective, as a matter of law.

The supreme court noted that the state's strict liability approach was rooted in the Second Restatement.  It observed that the Restatement comments define “[d]efective condition” in part as a product that is “in a condition not contemplated by the ultimate consumer.” Restatement (Second) of Torts § 402A cmt. g. The comments also define “[u]nreasonably dangerous”: “The article sold must be dangerous to an extent beyond that which would be contemplated by the ordinary
consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics.” Id. cmt. i.  Relying on these comments, the court moved to the reasonable expectations test.

Applying that standard, the supreme court ruled that plaintiff had provided sufficient evidence that an alleged defect in the boneless turkey product he consumed might have caused his surgery-requiring injury. There was a genuine issue of material fact as to whether the turkey product caused the injury. One doctor testified that he believed that the injury was a “perforation secondary to a foreign body.”  There was direct evidence of the presence of the smaller pieces of bone or cartilage.  While there was no direct evidence of a larger piece of bone, the court thought a jury could conclude that a larger piece of bone could have been present in the turkey product Pinkham consumed, but may have passed, undetected, from Pinkham’s throat.

Whether a consumer would reasonably expect to find a particular item in a food product is normally a question of fact that is left to a jury.  The court concluded that the trial court could not find as a matter of law that a food bolus containing one-to-two-millimeter bone fragments is not defective.  The question of whether a consumer would reasonably expect to find a turkey bone or a bone
fragment large and/or sharp enough to cause an esophageal perforation in a “boneless” turkey product "s one best left to the fact-finder" said the court.

 

Consumer Fraud Claim on "All Natural" Beverage Rejected

One trend we are keeping an eye on here at MassTortDefense is plaintiffs' aggressive and excessive use of consumer fraud act claims, micro-analyzing every ad, turning traditional puffing into some kind of nefarious marketing scheme.  Class certification in such cases can trigger the need to think about "blackmail settlements."

So all victories are worth noting, and last week South Beach Beverage Co. Inc., maker of SoBe drinks, garnered dismissal of a California putative class action alleging false claims about their "0 Calories Lifewater" drinks. See Charles Hairston v. South Beach Beverage Co. Inc,. et al., No. 2:12-cv-01429 (C.D. Cal. 5/18/12).

SoBe manufactures a diverse range of beverages, including teas and enhanced waters, that are characterized by exotic flavor combinations and added vitamins. In his First Amended Complaint, plaintiff alleged that during the last three to four years, he regularly purchased SoBe 0 Calorie Lifewater beverages (“Lifewater”), which are no-calorie, vitamin-enhanced, flavored water drinks. Plaintiff raised three challenges to Lifewater’s labeling, which he claimed he “read and relied on.” First, plaintiff alleged that the “all natural” label was potentially deceptive because Lifewater contains “deceptively labeled ingredients” that are “synthetic or created via chemical processing.” Second, plaintiff alleged that Lifewater’s labels are potentially misleading because the names of various fruits are used to describe the different flavors of Lifewater even though Lifewater allegedly does not contain any actual fruit or fruit juice. Third, plaintiff alleged that the use of the common vitamin name (e.g., B12) on the product labels is misleading because the vitamins added to Lifewater are "synthetic" or created via chemical processing.

As is typical, plaintiffs alleged causes of action including for: (1) California Consumers Legal Remedies Act – California Civil Code §§ 1750, et seq. (“CLRA”); (2) California False Advertising Law – California Business & Professions Code §§ 17500, et seq. (“FAL”); (3) California Unfair Competition Law – California Business & Professions Code §§ 17200, et seq. (“UCL”).

Defendants argued first that the claims alleged related to the use of fruit names to describe the various flavors of Lifewater and their use of common vitamin names were preempted by the express preemption provisions in the Federal Food, Drug, and Cosmetic Act (“FDCA”) and by the specific labeling regulations promulgated by the Food and Drug Administration (“FDA”). The court concluded that plaintiff’s claims related to defendants’ use of the names of various fruits to describe the different flavors of Lifewater were indeed preempted. See, e.g., Dvora v.
General Mills, Inc., 2011 WL 1897349 (C.D. Cal. May 6, 2011) (holding that CLRA and UCL claims
were preempted where the plaintiff was challenging the use of the words “Blueberry Pomegranate”
in labeling a cereal not containing any blueberries or pomegranates because FDA regulations
explicitly permit manufacturers “to use the name and images of a fruit on a product’s packaging to
describe the characterizing flavor of the product even where the product does not contain any of
that fruit, or contains no fruit at all”); McKinnis v. General Mills, Inc., 2007 WL 4762172 (C.D. Cal.
Sept. 18, 2007) (holding that use of “Strawberry Kiwi” to designate the flavor of yogurt containing
no fruit ingredients was “permissible to demonstrate the ‘characterizing flavor’ of the product”).

The court also concluded that plaintiff’s claims related to defendants’ use of the common names
of vitamins were preempted. See, e.g., 21 C.F.R. § 101.9(c)(8)(v) (recognizing that “Vitamin C” and
“Ascorbic acid” are “synonym[s]” that may be used in the alternative in a product’s nutritional
information labeling); 21 C.F.R. § 101.9(k)(4) (stating that the FDA will consider a food
“misbranded” if its “label or labeling represents, suggests, or implies” that “a natural vitamin in food is superior to an added or synthetic vitamin”).

Significantly, the court concluded that plaintiff could not avoid preemption of these claims by arguing that his claim related solely to defendants’ “all natural” representations and that he included his fruit name and vitamin name claims only as support for his “all natural” claim. Such an argument would effectively allow a plaintiff to always avoid preemption of those claims, and would undermine the purpose of the federal labeling standards which includes avoiding
a patchwork of different state standards.  These claims were dismissed with prejudice.

Plaintiff also alleged that the “all natural” labeling on defendants’ products was potentially deceptive because the product contains “deceptively labeled ingredients” that are
“synthetic or created via chemical processing.” However, plaintiff could not state a claim under the
CLRA, FAL, or UCL regarding defendants’ allegedly deceptive “all natural” labeling because once
the preempted statements regarding fruit names and vitamin labeling were removed, plaintiff’s claim is based on a single out-of-context phrase found in one component of Lifewater’s label.

The court concluded that plaintiff’s selective interpretation of individual words or phrases from a product’s labeling could not support a CLRA, FAL, or UCL claim. See, e.g., Carrea v. Dreyer’s Grand Ice Cream, 2012 WL 1131526 (9th Cir. Apr. 5, 2012).  Lifewater’s label did not simply state that it is “all natural” without elaboration or explanation. Instead, the “all natural” language was immediately followed by additional statements, like “with vitamins” or “with B vitamins.”  Lifewater did not use the “all natural” language in a vacuum. Thus, it was impossible for plaintiff to allege how the “all natural” language would be deceptive without relying on the preempted statements regarding fruit names and vitamins.

In addition, the court concluded that no reasonable consumer would read the “all natural”
language as modifying the “with vitamins” language and somehow believe that the added vitamins are suppose to be “all natural vitamins.”  Moreover, to the extent there was any ambiguity, it was  clarified by the detailed information contained in the ingredient list, which explained the exact contents of Lifewater. In this case, the ingredient list was consistent with the front label statement of “all natural with vitamins.”

The court concluded that the challenge to the “all natural” language on Lifewater was not deceptive as a matter of law.

 

Federal Court Denies Class Certification After Daubert Analysis

A  federal court late last month declined to certify three classes of consumers in litigation claiming that a defect in Harley-Davidson Motor Co. Inc.'s motorcycles caused severe wobbling and instability. See Steven C. Bruce, et al. v. Harley-Davidson Motor Co., Inc., et al., No. 2:09-cv-06588 (C.D. Cal.).

Plaintiffs were owners of Harley-Davidson motorcycles. According to plaintiffs, beginning in or before 2002, Harley-Davidson manufactured and sold touring motorcycles that had an alleged design defect in the form of an excessively flexible chassis. According to plaintiffs, the alleged defect caused “severe wobbling, weaving and/or instability,” especially occurring when riders made sweeping turns, and traveled at speeds above 55 miles per hour. Plaintiffs alleged that had they and other class members known of the defective nature of the vehicles, they would not have purchased or leased their motorcycles, or at least would have reduced the amount they were willing to pay for them. Hence, the classic alleged consumer fraud class action.

Plaintiffs moved for class certification, and relied on expert testimony to establish some of the Rule 23 elements.  Specifically, plaintiffs’ expert opined that a rider of a properly-designed
motorcycle should not experience a weave-mode instability event when riding within the
range of expected speeds.  He asserted that the class-purchased cycles shared a common design defect in the form of an “excessively flexible” chassis. The vehicles allegedly failed to “damp out,” or reduce, weave-mode oscillations to one half of their original amplitude within the time frame (a couple seconds) necessary to prevent them from becoming perceptible to the riders.

Defendants challenged the admissibility of that expert testimony under Daubert, contending that Rule 702 and Daubert apply with “full force” at the class certification stage. In support of this
position, Harley-Davidson relied primarily on Wal-Mart Stores, Inc., v. Dukes, 131 S. Ct. 2541 (2011), and Am. Honda Motor Co. v. Allen, 600 F.3d 813, 815–16 (7th Cir. 2010) (per curiam).  In Dukes, the Supreme Court noted that it doubted that Daubert did not apply at the certification stage of class-action proceedings. 131 S. Ct. at 2554. In American Honda, which we commented on here, the Seventh Circuit held that where an expert’s report or testimony is critical to class certification, a district court must conclusively rule on any challenge to the expert’s qualifications or submissions prior to ruling on the class certification motion. 600 F.3d at 815–16. Earlier this month, the Seventh Circuit reaffirmed its holding in American Honda, ruling that it was error for a district court to decline to rule on a Daubert motion at the class certification stage. Messner v. Northshore Univ. Healthsystem, 2012 U.S. App. LEXIS 731, *17 (7th Cir. Jan. 13, 2012).

Plaintiffs argued that a full Daubert inquiry into the reliability of expert opinions is not required or appropriate at the class certification stage. They cited In In re Zurn Pex Plumbing Prods. Liability Litig., 644 F.3d 604, 613 (8th Cir. 2011),which we criticized here, and in which the Eighth Circuit reasoned that an “exhaustive and conclusive Daubert inquiry before the completion of merits discovery” is not necessary due to the “inherently preliminary nature of pretrial evidentiary and
class certification rulings.”  See also Behrend v. Comcast Corp., 655 F. 3d 182, 204 n. 13 (3d Cir. 2011) (district court need not turn class certification into a "mini-trial”).

Here the district court found the approach adopted by the Eighth Circuit to be the appropriate application of Daubert at the class certification stage. Thus, a “tailored” or “focused” inquiry, to assess whether the experts’ opinions, based on their areas of expertise and the reliability of their analysis of the available evidence, should be considered in deciding the issues relating to class certification, said the court. Especially where discovery has been bifurcated into a class phase and a merits phase, an expert’s analysis may have to later adapt, as gaps in the available
evidence are filled in by merits discovery. Here, the court had granted defendants’ request for bifurcated discovery. Accordingly, the expert opinions would be assessed in light of the evidence currently available.

Even with a less than full inquiry, the court found that the proposed expert testimony must be excluded. In reaching this conclusion, the court decided the expert had not adequately
explained the scientific basis for his proposed standard, which also had not been accepted in
the field of motorcycle dynamics. While the evidence supported that the damping out of weave-mode oscillations may be an important factor for motorcycle stability, it did not establish that the expert's "rule" requiring the reduction of weave-mode oscillations to one half of their original amplitude within two seconds was scientifically valid.

The expert formed his opinions exclusively for the purposes of litigation and had not published his "rule" for peer review, providing further support for his exclusion.

Additionally, the court believed that he had not sufficiently accounted for other potential causes of the instability. He failed to consider and test for other possible causes including the use of non-specified tires and leaky shocks. See, e.g., Clausen v. M/V NEW CARISSA, 339 F. 3d 1049, 1058
(9th Cir. 2003) (“The expert must provide reasons for rejecting alternative hypotheses using scientific methods and procedures and elimination of those hypotheses must be founded on more than ‘subjective beliefs or unsupported speculation.’”).

Thus, plaintiffs failed to establish that common questions of law and fact predominated over individual inquiries. Once the opinions were excluded, plaintiffs failed to show that they had the ability to use common evidence by which they could demonstrate the defect. The fact that the chassis was the same for each vehicle ignored the failure to show how common evidence would ultimately be admissible to prove that they shared a common defect, and also was unavailing because it overlooked the Supreme Court’s admonition that a “rigorous analysis” will often “entail some overlap with the merits of the plaintiff’s underlying claim.” Dukes, 131 S. Ct. 2551.

Laptop Claims Were Mere Puffery

The Ninth Circuit late last month issued an interesting little opinion on the venerable and useful notion of puffing. Vitt v. Apple Computer Inc., No. 10-55941 (9th Cir., 12/21/11).

The crux of plaintiff's contention, building on his dissatisfaction that his iBook G4 allegedly failed shortly after his one year warranty had expired, was that the iBook G4 does not last “at least
a couple of years,” which he alleged was the minimum useful life a reasonable consumer expects from a laptop.  Vitt alleged that this was because one of the solder joints on the logic board of the iBook G4 degraded slightly each time the computer was turned on and off, eventually causing the joint to break and the computer allegedly to stop working -- shortly after Apple’s one year express warranty has expired. Vitt further alleged that Apple affirmatively misrepresented the durability, portability, and quality of the iBook G4, and did not disclose the alleged defect.

The district court held that Apple’s affirmative statements were non-actionable puffery, and that Apple had no duty to disclose the alleged defect , citing Daugherty v. American Honda Motor Co., 144 Cal. App. 4th 824 (2006).

The court of appeals affirmed, for substantially the reasons given by the district court. To be actionable as an affirmative misrepresentation, a statement must make a “specific and  measurable claim, capable of being proved false or of being reasonably interpreted as a statement of objective fact. Coastal Abstract Serv. v. First Am. Title Ins. Co., 173 F.3d 725, 731 (9th Cir. 1999). California courts have also held that "mere puffing" cannot support liability under
California consumer protection laws. Vitt challenged Apple’s advertising because it allegedly stated that the iBook G4 was “mobile,” “durable,” “portable,” “rugged,”  “reliable,” “high performance,” “high value,” an “affordable choice,” and an “ideal student laptop.” These statements are generalized, non-actionable puffery because they contain “inherently vague and generalized terms” and were “not factual representations that a given standard has been met.”   

Even when viewed in the advertising context, as Vitt urged, these statements did not claim or imply that the iBook G4’s useful life will extend for at least two years.  For example, to the extent that “durable” is a statement of fact, it may imply in context that the iBook G4 is resistant to problems occurring because of its being bumped or dropped, but not that it will last for a duration beyond its express warranty.

Vitt also contended that Apple had an affirmative duty to disclose the alleged defect. But a  consumer’s only reasonable expectation was that the computer would function properly for the duration of the limited warranty. There is no duty to disclose that a product may fail beyond its warranty period absent an affirmative misrepresentation or a safety risk.  Adopting Vitt’s theory would effectively extend Apple’s term warranty based on subjective consumer expectations. The court of appeals agreed with the district court that Apple was under no duty to disclose the alleged "defect" in its iBook G4s.  Claims dismissed.

  

Proposed TV Class Action Dismissed Again

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

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

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

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

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

 The court thus dismissed the CLRA claims without prejudice. 

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

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

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

 

Class Action Complaint on 100% Natural Oil Dismissed

A federal court recently dismissed a proposed class action accusing a food company of misleadingly labeling cooking oils as 100% natural when they allegedly were made from genetically modified plants. Robert Briseno, et al. v. ConAgra Foods Inc., No. 2:11-cv-05379 (C.D. Calif.).

Quick research reveals that 88-94% of the nation’s crops of corn, soy and canola are grown from seeds that are the product of bioengineering.  There is no credible science that there are serious health issues with these products, and multiple peer reviewed studies on "GM" crops worldwide show farmers in underdeveloped countries have seen an increase in yield of about 29% from using them, along with decreased use of insecticide applications.

Plaintiff alleged that he regularly purchased Wesson Canola Oil, bearing labels that state the product is “100% Natural.” Plaintiff contended that contrary to these representations, ConAgra used plants grown from genetically modified organism seeds that have been engineered to allow for greater yield, and to be pest-resistant, to make Wesson-branded oils. He asserted that the genetically modified organisms are somehow not “100% natural,” and thus the labels and advertising are deceptive. Plaintiff filed a complaint seeking to represent a class of all persons in the United States who have purchased Wesson Oils from 2007 on. As is typical, he alleged
violation of California’s false advertising law (“FAL”), California’s unfair competition law (“UCL”), and California’s Consumer Legal Remedies Act (“CLRA”).

Defendant moved to dismiss. The first issue was preemption of the state law causes of action, based on FDA guidance regarding food labels. Federal preemption occurs, generally, when: (1) Congress enacts a statute that explicitly pre-empts state law; (2) state law actually conflicts with federal law; or (3) federal law occupies a legislative field to such an extent that it is reasonable to conclude that Congress left no room for state regulation in that field. Specifically, ConAgra argued that Briseno’s claims were preempted because the FDA has repeatedly concluded that bioengineered foods are not meaningfully different from foods developed by traditional plant breeding, and thus that the fact that a food product is derived from bioengineered plants need not be reflected on a product’s label. Plaintiff responded that he was not arguing that ConAgra was required to state whether its products were made from genetically modified plants. Rather, he contended that the decision to label its products “100% Natural” was misleading.

Courts have split on food preemption issues. Compare Dvora v. General Mills, Inc., 2011 WL 1897349 (C.D. Cal. May 16, 2011)(cereal-yes); Turek v. General Mills, Inc., 754 F.Supp.2d 956 (N.D. Ill. 2010)(snack bars-yes); Yumul v. Smart Balance, Inc., 2011 WL 1045555 (C.D. Cal. Mar. 14, 2011)(yes), with Lockwood v. Conagra Foods, Inc., 597 F.Supp.2d 1028 (N.D. Cal. Feb. 3, 2009)(pasta-no); Wright v. General Mills, Inc., 2009 WL 3247148 (S.D. Cal. Sept. 30, 2009)(granola bars-no).

Here, the court found no preemption on most of the complaint. The bulk of the complaint, said the court, alleged that use of the phrase “100% Natural” is misleading, and did not contend that additional information must be added to Wesson Oil labels. Regulations requiring that each product list its ingredients by their “common or usual name,” together with the regulations requiring that vegetable oils be denominated “ oil,” were inapplicable since plaintiff’s central argument was not that ConAgra cannot use the common or usual names of canola oil, vegetable oil or corn oil.

The FDA has expressed that it has no basis for concluding that bioengineered foods differ from other foods in any meaningful or uniform way, or that, as a class, foods developed by the new techniques present any different or greater safety concern than foods developed by traditional plant breeding. So, plaintiff, in essence, sought to create a distinction – between “natural” oils and those made from bioengineered plants when the FDA has determined that no such distinction exists. The court rejected this argument, refusing to read the FDA guidance as formal enough or clear enough on the issue.

Plaintiff did also seek an order requiring defendant to adopt and enforce a policy that requires appropriate disclosure of GM ingredients. Entering an order of this type would impose a
requirement that is not identical to federal law, and thus this particular prayer for such relief was preempted.

Rule 9(b) requires that in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. The pleading must identify the circumstances constituting fraud so that a defendant can prepare an adequate answer to the allegations. While statements of the time, place and nature of the alleged fraudulent activities are often sufficient, mere conclusory allegations of fraud are insufficient. Even if fraud is not a necessary element of a claim under the CLRA and UCL, when a plaintiff alleges fraudulent conduct then the claim can be said to be grounded in fraud or to sound in fraud.

Plaintiff alleged that he regularly purchased Wesson Canola Oil for his own and his family’s consumption. But his complaint contained no allegations as to whether he became aware of the
representation through advertising, or labeling, or otherwise. He provided no information about how often he was exposed to the allegedly misleading statement. He did not allege how
frequently he purchased the product and over what period of time, whether he relied on
statements on canola oil labels, on a website, in advertisements, or all of the above,
whether the statements remained the same throughout the class period, or, if they did not, on
which label(s), advertisement(s) or statement(s) he relied.

Thus, this complaint did not afford ConAgra adequate opportunity to respond. Consequently, defendant's motion to dismiss was granted (without prejudice).


 

Choice of Law Defeats Another Proposed Nationwide Consumer Fraud Class

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

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

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

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

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

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

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

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

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

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


 

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

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

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

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

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

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

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


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

"Infected" Tissue Claim Not A Consumer Fraud Claim

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

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

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

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

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

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

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

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

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

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


 

Chew on This: Consumer Fraud Claim on Snack Bars Preempted

The Seventh Circuit ruled earlier this month that federal food labeling law expressly preempts state law claims seeking certain additional health-related disclosures on chewy bars. Turek v. General Mills Inc., No. 10-3267 (7th Cir. 10/17/11).

The bars have been around since at least the early 1980's, but have grown into a nearly $2 billion segment of the food industry.  Consumers love their portability, and relatively low calorie count.

Plaintiffs brought a diversity class action suit under the Illinois Consumer Fraud and Deceptive Business Practices Act, and the Illinois Uniform Deceptive Trade Practices Act, alleging that the label of certain "chewy bars" was misleading regarding fiber content.  Specifically, the complaint alleged that the principal fiber, by weight, in the bars was inulin extracted from chicory root. The complaint describes inulin so extracted as a processed, "non-natural” fiber which was not as beneficial to consumer health as other fiber.

Those state law claims ran smack into a provision of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 343-1(a)(5), added by the Nutrition Labeling and Education Act of 1990, which forbids states to impose “any requirement respecting any claim of the type described in section 343(r)(1)
[of the Food, Drug, and Cosmetic Act] . . . made in the label or labeling of food that is not identical to the requirement of section 343(r).”  A state thus can impose the identical requirement or requirements, and by doing so be enabled, because of the narrow scope of the preemption provision in the Nutrition Labeling and Education Act, to enforce a violation of the Act as a violation of state law. See also In re Pepsico, Inc. Bottled Water Marketing and Sales Practices Litigation, 588 F. Supp. 2d 527, 532 (S.D.N.Y. 2008); “Beverages: Bottled Water,” 60 Fed. Reg. 57076, 57120 (Final Rule, Nov. 13, 1995). This is important because the Food, Drug, and Cosmetic Act does not create a private right of action. Medtronic, Inc. v. Lohr, 518 U.S. 470, 487 (1996).

The question thus became what requirements the federal law imposes on the labeling of dietary fiber. Section 343(q)(1) of the Act contains a requirement that the “label or labeling” of food products intended for human consumption state “the amount of . . . dietary fiber . . . contained in each serving size or other unit of measure.” Other requirements for labeling claims relating to dietary fiber are set forth in implementing regulations.  

The labeling of the products challenged by the plaintiff was compliant with these regulations relating to health claims for dietary fiber. See, e.g., 21 C.F.R. § 101.76. All the FDA’s requirements relating to labeling dietary fiber are requirements to which any labeling disclosures required by a state must be identical.  But the disclaimers that the plaintiff wants added to the labeling of the defendants’ inulin-containing chewy bars were not identical to the labeling requirements imposed on such products by federal law, and so they were barred, held the court of appeals. The information required by federal law does not include disclosing that the fiber in the product includes inulin or that a product containing inulin allegedly produces fewer health benefits than a product that contains only product that contains only “natural” fiber, for example. 

Even if the disclaimers that the plaintiff wants added would be "consistent" with the requirements imposed, importantly, consistency is not the test. Identity is, said the court.

The Seventh Circuit thus affirmed dismissal of the case. But clarified, procedurally, that when a state law claim is expressly preempted under section 403A of the Federal Food, Drug, and Cosmetic Act,” a dismissal on the merits is the proper outcome, with prejudice like other merits judgments, not dismissal for want of federal jurisdiction, as the district court had ordered.

This is a victory for consumers when one considers why Congress did not want to allow states to impose disclosure requirements of their own on packaged food products, most of which are sold nationwide. Manufacturers might have to print 50 different labels, driving consumers who buy the food products crazy. A granola bar you buy in California ought to look just like the one you buy in Maine.

 

Company "Doe" Files Suit Challenging the CPSC Database

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

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

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

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

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

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

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

 

Expert May Be Needed on Design Defect, Even Under Consumer Expectations Test

Back when we taught Products Liability in law school, one of the topics that always got significant attention and discussion from the bright-eyed students was how to define "defect." The panoply of tests for defective or unreasonably dangerous products never failed to excite discussion, particularly the role of consumer expectations in product assessment.

That same topic is the focus of an interesting recent decision in the Seventh Circuit. See Show v. Ford Motor Co., Nos. 10-2428 and 10-2637 (7th Cir.,  9/19/11).

Plaintiffs were involved in a motor vehicle accident in a 1993 Ford Explorer;  they sued Ford, alleging design defect. In products liability cases in which the plaintiff alleges a design defect, Illinois (whose law supplied the substantive rules) permits the claim to be established in either
of two ways. First, the plaintiff may introduce evidence that the product failed to perform as safely as an ordinary consumer would  expect when used in an intended or reasonably foreseeable manner. This has come to be known as the consumer expectation test. Second, the plaintiff may introduce evidence that the product’s design proximately caused his injury, when the benefits of the challenged design do not outweigh the risk of danger inherent in such design. This test, which adds the balancing of risks and benefits to the alternative design and feasibility inquiries, has come to be known as the risk-utility or risk-benefit test.

Here, plaintiffs proceeded under the first prong, and offered no expert opinion. Ford moved for summary judgment in light of the absence of expert testimony. Plaintiffs conceded that testimony by an engineer or other design expert was essential when a claim rests on the risk-utility approach. But, they argued that jurors, as consumers, can find in their own experience all of the necessary opinions under the consumer expectation test. The district court sided with the defense, and plaintiffs appealed.

The court first discussed a very interesting preliminary question. The parties assumed, as did the lower court, that state law in this diversity case determined whether expert testimony was essential. The assumption rested on a belief that the quality of proof is part of the claim’s substantive elements, which in turn depend on state law under the Erie doctrine even when substantive doctrine is implemented through federal evidentiary rules.  However, there was a question whether Illinois treats the risk-utility and consumer expectations approaches as distinct substantive law doctrines, or merely as procedural aspects of the general question: is the product unreasonably dangerous. Perhaps the two tests are not theories of liability; they could be considered methods of proof by which a plaintiff may demonstrate that the element of unreasonable dangerousness is met.  If the consumer expectation test is not an independent theory of liability, perhaps federal rather than state law determines whether expert evidence is essential on it. Federal law often requires expert evidence about consumers' knowledge and behavior, because jurors are supposed to decide on the basis of the record rather than their own intuitions and assumptions. If federal courts require expert evidence, rather than relying solely on jurors' experience, in trademark and credit suits, for example, why not in product defect cases, asked the court?  But the court decided to bypass the question, in light of the parties' positions below. 

Turning to the consumer expectations issue, the court felt that plaintiffs’ argument that jurors should be able to rely on their own expectations as consumers reflected a belief that “expectations” are all that matters. Yet because the consumer expectations approach is just a means of getting at some of the issues that bear on the question whether a product is unreasonably dangerous, it is impossible to dispense with expert knowledge, concluded the panel.  The design defect is tied up in the issue of causation. Did the design decisions that went into the 1993 Ford Explorer even contribute to the rollover? Causation is a question about physics, and design options are the province of engineers. Jurors own cars, but people own lots of products without being able to explain (or even understand) the principles behind their construction and operation.  Unguided intuitions will not solve the equations. Without an expert’s assistance the decision would depend on speculation, which cannot establish causation—an issue on which plaintiffs bear both the burden of production and the risk of non-persuasion.

Because consumer expectations are just one factor in the inquiry whether a product is unreasonably dangerous, a jury unassisted by expert testimony would have to rely on speculation. The record here did not show whether 1993 Explorers were unduly (or unexpectedly) dangerous, because the record (absent an expert) lacked evidence about many issues, such as: (a) under what circumstances they roll over; (b) under what circumstances consumers expect them to do so whether it would be possible to reduce the rollover rate; and (d) whether a different and safer design would have averted this particular accident. All of these are subjects on which plaintiffs bear the burden of proof. There are other issues too, such as whether the precautions needed to curtail the rate of rollovers would be cost-justified.

The absence of expert evidence on these subjects was fatal to plaintiffs’ suit.

 

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

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

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

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

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

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

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

Class Certification Denied in Printer Litigation

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

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

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

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

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

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

----------

 

Reconsideration Denied in Rejected "All Natural" Class Action

Here is an update on an interesting case we posted on before. A federal court last week denied a motion for reconsideration of its ruling that denied class certification to a consumer alleging that Arizona Beverages deceptively marketed its drinks as “all natural.”  See Coyle v. Hornell Brewing Co. et al., No.1:08-cv-02797 (D.N.J. 8/30/11). 

Plaintiff alleged that she was misled by labels on bottles of Arizona brand beverages touting “All Natural” ingredients, and thereby induced into buying bottles of Arizona beverages that contained High Fructose Corn Syrup (“HFCS”), which she claimed is not “natural”. Plaintiff sought to certify, under Fed. R. Civ. P. 23(b)(2), a class of consumers who purchased similarly labeled Arizona beverages that contained HFCS, seeking only declaratory and injunctive relief.

During the course of discovery in this case, plaintiff produced a retainer agreement she signed in anticipation of this lawsuit. But, the agreement was signed on August 9, 2007, more than seven months before plaintiff alleged that she was first misled by defendants’ “all natural” labeling in her product purchase on March 30, 2008. Indeed, plaintiff repeated the 3/08 purchase date in her deposition. She later changed her story.

The court originally observed that it need not find plaintiff to have intentionally lied to hold that she did not meet the adequacy element of Rule 23(a)(4). The issue was not simply whether plaintiff in fact lied, but whether her inconsistent testimony made her vulnerable to a unique factual or legal defense not faced by other class members, thereby rendering her interests potentially too antagonistic to the interests of the other class members. And that is exactly the case; the court found that plaintiff’s factual inconsistencies raised sufficiently grave credibility problems as to prevent her from serving as an adequate class representative.

Plaintiff filed a reconsideration motion. The court did reconsider its finding as to the adequacy of plaintiff’s counsel as a result of plaintiff’s repeated pleadings and certified discovery responses including the March 30, 2008 allegation. This "serious error" did not necessarily disqualify counsel.

But the court re-affirmed its decision as to the adequacy of plaintiff as class representative. Plaintiff argued that any defenses that she would face as a result of the credibility problems identified by the court could not become the focus of the entire litigation.  But the controlling rule does not hold that the only defenses that will disqualify a proposed named plaintiff on adequacy grounds are those which could become the focus of the entire litigation.  Indeed, to deny certification, a court need not conclude that credibility problems would ultimately defeat the class representative’s claim; rather, the court may deny class treatment if that unique defense is even arguably present. 

In any event, the court disagreed with plaintiff’s contention that the unique credibility-related defenses could not become the focus of the litigation in this matter. The court noted that plaintiff would have real trouble surviving summary judgment on the issue of "ascertainable loss" with a record  showing no dispute of fact that plaintiff’s only qualifying purchase of defendants’ product took place after plaintiff herself had concluded that the product was not “all natural.”  Plaintiff’s entire action would be vulnerable to a motion for summary judgment on the issue of ascertainable loss, which would prevent plaintiff (and the class she would seek to represent) from pursuing even injunctive relief.

Determining whether this plaintiff made her purchase of defendants’ product on the date she repeatedly claimed, after she had retained a lawyer to file the suit, would become a major focus and quite probably a show-stopper for this class. Reconsideration denied.

Court Dismisses Consumer Fraud Claims Against iPad

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

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

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

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

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

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

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

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

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

 

CHPA Comments on Draft FDA Guidance on Nanotechnology

Last week, the Consumer Healthcare Products Association (CHPA) submitted comments on the FDA’s draft guidance on nanotechnology, "Considering Whether an FDA-Regulated Product Involves the Application of Nanotechnology, "  which we posted on before.

CHPA is the not-for-profit association representing the makers of over-the-counter medicines and dietary supplements, and the consumers who rely on these healthcare products. CHPA is one of the oldest trade associations in the United States. Nanotechnology holds great promise for this industry.

CHPA agreed with the FDA that proposing a "definition" for nanotechnology is not a straight forward process; applying a strict, universal definition of nanotechnology to the fields of drug research, drug product development and drug manufacturing would not be, in CHPA's view, an appropriate science-based approach.

Defining a nanomaterial as a structure between 1 and 100 nm, and using this definition to establish new regulations on products containing nano-sized materials, would, they asserted,  erroneously group drug products together to form a new category based on size of ingredients.  Nanotechnology is not a separate drug category, but a technology used to, among other things, generate nanometer-sized ingredients and excipients. Inclusion of nanometer-sized active ingredients or excipients in a drug product does not by itself determine a product's safety and efficacy (i.e. size alone is not itself an indicator of toxicity). 

CHPA agreed that the agency should distinguish between engineered nanomaterials and those
naturally occurring at the nanoscale.  There exist common pharmaceutical ingredients with a long history of use that should not be considered as "engineered nanomaterials" or as agglomerates of nanomaterials but which may have particles whose size naturally falls within this range.

CHPA also noted that NIOSH accurately refers to nanotechnology as the manipulation of matter on a near-atomic scale to produce new structures, materials, and devices.  Nanomaterials are mainly engineered for their novel chemical, physical, and quantum mechanical properties; at the nanometer size, many materials exhibit such unique beneficial properties that may not exist when at the micron size. CHPA argued it is appropriate to include in the description the notion of particles that are deliberately manipulated and controlled at the nanoscale, which also exhibit changes in physical, chemical, or electromagnetic properties, the existence of unique phenomena to enable novel applications.

For example, milling, a beneficial process for the manufacturing of many individual pharmaceutical ingredients, may create particles with a portion of the particle size distribution under 1 micron; however, the chemical properties of the milled ingredient usually do not differ drastically from that of the bulk ingredient.

The agency should give further consideration, said CHPA,  to the possibility that not all materials should be considered equal; each material must be evaluated on a case-by-case basis. For example, soluble nanomaterials might not be treated the same as insoluble ones.  

Federal Court Dismisses Proposed Television Consumer Fraud Class Action

Here's a case of a venerable rule (puffery) and an important new doctrine (Twiqbal) being applied in the context of a troubling trend -- the spate of consumer fraud class actions challenging everything a defendant says about its products.  A New Jersey federal court recently rejected a putative class action alleging that Panasonic Corp. falsely advertised its Viera plasma televisions made in 2008 and 2009. Shane Robert Hughes et al. v. Panasonic Consumer Electronics Co., No. 2:10-cv-00846 (D.N.J. July 21, 2011). A useful and detailed analysis of commonly found flaws in consumer fraud class action complaints.

Plaintiffs putatively represented a class defined as individuals and entities who own or purchased any 2008/2009 model Panasonic Viera Plasma Television. Plaintiffs alleged that the televisions suffered from increased “voltage adjustments” causing a rapid deterioration in picture quality. The  class members allegedly relied on Panasonic’s representations concerning the "industry leading" black levels and contrast ratios, and/or personally observed the televisions’ excellent picture quality on models displayed in retail stores. Plaintiffs sought damages and/or refunds from Panasonic for violations of the New Jersey Consumer Fraud Act (“NJCFA”), N.J. STAT. ANN. § 56:8-1 et seq.; other states’ consumer protection acts; and under various express and implied warranty claims.

Defendant moved to dismiss. The adequacy of pleadings is governed by Fed. R. Civ. P. 8(a)(2), which requires that a complaint allege “a short and plain statement of the claim showing that the pleader is entitled to relief,” but also requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

Although class members were from around the country, the court determined it need not decide whether it was appropriate to engage in a choice of law analysis at the pleadings stage because, as detailed below, each of the plaintiffs’ claims failed as a matter of law under any of the possibly applicable laws.

Claims under the NJCFA and most state consumer fraud acts require a plaintiff to allege (1) unlawful conduct by the defendants; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendants’ unlawful conduct and the plaintiff’s ascertainable loss.  Panasonic argued, among other things, that even if the allegations are true, plaintiffs’ CFA claim failed because plaintiffs had not pointed to any actionable unlawful conduct by Panasonic. According to Panasonic, plaintiffs did not set forth any specific advertisements, marketing materials, warranties, or product guides that plaintiffs viewed; where and from whom at Panasonic did plaintiffs received any such information; or how precisely, plaintiffs were injured by any such representations.

The Court found that Panasonic’s alleged misrepresentations about the Televisions’
“industry  leading” technology and features, which create superior image and color quality, were not “statements of fact,” but rather subjective expressions of opinion. Indeed, such statements of
product superiority are routinely made by companies in advertising to gain a competitive advantage
in the industry. The NJCFA distinguishes between actionable misrepresentations of fact and
"puffery.” Rodio v. Smith, 123 N.J. 345, 352 (1991) (the slogan “You’re in good hands with Allstate” was “nothing more than puffery” and as such was not “a deception, false promise, misrepresentation, or any other unlawful practice within the ambit of the Consumer Fraud Act”); see New Jersey Citizen Action v. Schering-Plough Corp., 367 N.J. Super. 8, 13-14 (N.J. Super. App. Div. 2003) (finding that defendant’s advertisements which employed phrases as “you . . . can lead a normal nearly symptom-free life again” were “not statements of fact, but are merely expressions in the nature of puffery and thus were not actionable” under the NJCFA).  The same is true in many states.

The remaining misrepresentations may have been statements of fact rather than mere puffery. However, plaintiffs did not assert sufficient allegations of fact to satisfy the requisite level of adequate pleading under Rule 9(b) or by Twombly/Iqbal.  For example, regarding the alleged misrepresentation about half-brightness, the Amended Complaint did not allege the date, place or time of this misrepresentation or otherwise inject some precision and some measure of substantiation into plaintiffs’ allegations of fraud. While plaintiffs could not be expected to plead facts solely within Panasonic’s knowledge or control, plaintiffs should be able to allege the specific advertisements, marketing materials, warranties or product guides that they each reviewed, which included this misrepresentation and when it was so advertised.

Plaintiffs also alleged various omissions, but fraudulent omissions require a showing of intent. Here, even accepting the allegations of omissions in the Amended Complaint as true, the court found that plaintiffs failed to allege sufficient facts to raise any plausible inference that Panasonic knowingly concealed the alleged defect with the intent that consumers and industry experts would rely upon the concealment. Indeed, throughout the Amended Complaint, it was alleged that Panasonic knew “or should have known” of the defect, but provides no additional facts explaining how or why Panasonic had knowledge of the defect to satisfy Twombly/Iqbal. Such allegations of intentionally failing to disclose the alleged defect were merely conclusory assertions.

Even assuming plaintiffs sufficiently alleged the “unlawful conduct” element under the consumer fraud acts, the court also concluded that the Amended Complaint did not satisfy the pleading requirements of Twombly/Iqbal or Rule 9(b) as to the “ascertainable loss” element.  A plaintiff must suffer a definite, certain and measurable loss, rather than one that is merely theoretical. The certainty implicit in the concept of an ascertainable loss is that it is quantifiable or measurable. The allegations did not sufficiently plead either an out-of pocket loss by plaintiffs or a showing of loss in value. For example. plaintiffs failed to allege how much they paid for their Televisions and how much other comparable Televisions manufactured by Panasonic’s competitors cost at the time.  Plaintiffs failed to allege how much of a premium they claim to have paid for their Panasonic Televisions.  Furthermore, in the Amended Complaint, plaintiffs affirmatively stated that most continue to use the Televisions, thus obscuring any possible measurable loss.  Typically, plaintiffs try not to allege details in this area for fear of undermining their class certification arguments.

Plaintiffs' warranty claim suffered from several defects. While the claim at times was presented as an alleged manufacturing problem, a review of the Amended Complaint revealed that plaintiffs alleged only that the Televisions suffered from an inherent design defect and/or improper programming. Plaintiffs one vague, conclusory allegation that the defect was caused, in part, due to “manufacturing errors” was insufficient to satisfy the requisite pleading standards under Twombly/Iqbal.  Moreover, the express warranty claims were impacted by what the court already concluded in connection with plaintiffs’ consumer fraud claims, that Panasonic’s statements about the Televisions’ “industry leading” technology and features, which create superior image and color quality, were mere expressions of puffery. As such, these marketing statements were not sufficient enough to create an express warranty. 

On the implied warranty claim, while plaintiffs alleged that the Televisions were defective, plaintiffs did not allege that the Televisions were inoperable or otherwise not in working condition. Indeed, the Amended Complaint did not contain any explicit allegation that plaintiffs could no longer use their Televisions - in other words, that they were no longer generally fit for their ordinary purpose.  Although the Televisions may not have fulfilled plaintiffs’ subjective expectations, plaintiffs did not adequately allege that the Televisions failed to provide a minimum level of quality, which is all that the law of implied warranty requires. See also In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 2001 WL 1266317, at *22 (D.N.J. Sept. 30, 1997) (merchantability “does not entail a promise by the merchant that the goods are exactly as the buyer expected, but rather that the goods satisfy a minimum level of quality”).

Thus, the court concluded, each of plaintiffs’ claims failed to state a claim under Rule 12(b)(6), to satisfy Rule 9(b) heightened pleading requirements, and/or pleading standards under
Twombly/Iqbal. The court granted Panasonic’s motion to dismiss the Amended Complaint without prejudice.

House Committee Votes To End Funding for CPSC Database

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

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

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

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

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

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

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

 

 

Plaintiffs Attacking Fiji's Green Water Sing the Blues

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

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

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

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

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

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

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

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

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


 

Federal Court Dismisses Soda Misrepresentation Claim

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

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

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

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

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

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

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

House Hearing on Consumer Product Safety Improvement Act

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

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

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

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

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

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


 

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

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

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

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

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

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

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

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

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

 

Snapple Prevails in All Natural Suit

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

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

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

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

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

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

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

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

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

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

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

CPSC to Hold Webinars on New Product Safety Database

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

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

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

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

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


 

Seventh Circuit Sticks to Its Criticism of CopyCat Class Action

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

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

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

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

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

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

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

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

CPSC Approves Product Safety Database Rule

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

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

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

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

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

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

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

Court of Appeals Enjoins Copycat Class Actions

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

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

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

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

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

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

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

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

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

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

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

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

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

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


 

CPSC Shares Public Comments on Product Database

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

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

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


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

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

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

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

 

Summary Judgment in Ignition Lock Class Action

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

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

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

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

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

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

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

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

Class Certification Denied in Microwave Popcorn 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.)

 

Snapple The Best Stuff in Court - Consumer Class Action Denied

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

State Supreme Court Adopts Risk Utility Test for Defect

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.

Window Closing on Time to Comment on CPSC Draft Strategic Plan

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

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

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

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

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

We reported earlier this year on the notice of proposed rulemaking that would establish a publicly available consumer product safety information database. As we have noted at MassTortDefense, CPSC still needs to develop a rigorous and timely process for addressing false and inaccurate reports-- those that will scare consumers, harm business, and generate no additional safety gains. The commission needs to employ means to prevent the submission of fraudulent reports of harm while not discouraging the submission of valid reports. CPSC also needs to think about specific disclaimers it should make with regard to the accuracy of the information contained in the public database, and not put any governmental imprimatur on voluntary data that has not been verified. A sufficient time period should also be allocated for manufacturers to evaluate and respond to any proposed report.
 

Federal Court Misses Opportunity To Support Common Sense

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

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

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

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

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

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

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

Cap'n Crunch Defeats Class Action Marauders

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

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

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

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

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

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

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

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

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

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

Self-Annointed Watchdogs, Eat Your Own Unhappy Meals

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

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

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

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

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

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

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

Court of Appeals Rejects Consumer Fraud Class Action for Pet Medication

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

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

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

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

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

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

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

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

CPSC Issues Proposed Rule on Database

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

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

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

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

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

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

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



 

Claim Against Classic Coke Down the Drain

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.

 

Consumer Product Safety Commission Issues Draft Guidance on Definition of "Children's Products"

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.

CPSC Chair Offers Comments on Database

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

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

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

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

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

Consumer Class Certification Denied -- Again

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

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


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

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

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

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

 

 


 

Update on CPSC Database Issues

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

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

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

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

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

Court Dismisses Vitamin Consumer Class Action

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.

State Supreme Court Rejects Nationwide Consumer Fraud Class

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

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

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

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

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

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

Class Plaintiffs Lack Standing - Summary Judgment Granted

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

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

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

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

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

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

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

Appeals Court Affirms Rejection of Class Action in HDTV Case

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

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

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

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

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

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

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

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

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

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

Federal Court Dimisses Consumer Fraud Allegations in Washer Litigation

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

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

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

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

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

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

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

Federal Court Dismisses Consumer Fraud Class Action on Washers

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

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

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

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

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

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

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

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

Third-Party Payor Class Action Alleging Off-Label Marketing Dismissed by Federal Court

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.
 

Two Consumer Fraud Class Actions Offer Contrast

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.

 

 


 

Consumer Fraud Class Action Rejected In Supplement Case

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.


 

Class Action Dismissed In Printer Litigation

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

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

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

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

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

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

Federal Court Denies Certification Of Mouthwash Consumer Fraud Class

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

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

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


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

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

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

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

Seventh Circuit Rejects Consumer Fraud Act Class Action

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

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

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

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

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

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

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

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

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

CPSC Holds Public Meeting On New Legislation

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

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

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

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

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

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

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

District Court Certifies Nationwide Consumer Fraud Act Class Action

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.
 

Lipstick Wars: Latest Round

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

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

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

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

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