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.

Class Certification Reversed in Unfair Trade Practices Case

A Florida appeals court recently decertified a class action with an unusual theory: a car maker who allegedly used headlights that can be too easily stolen in its luxury vehicles. See Porsche Cars v. Peter Diamond, et al., No. 3D12-2829 3d DCA Fla. 6/12/14).  One wonders why and how theft of auto parts is not the responsibility of the thief, but perhaps we digress. 

This case focuses on Porsche’s High Intensity Discharge Headlights. The Headlights are an upscale amenity in the luxury car market.  The intense blue-white light given by the Headlights is closer to natural daylight than the yellowish light of regular headlights. The Headlights provide better nighttime visibility than older types of headlights. Since model year 2000, the Headlights have been offered as standard or optional equipment across the Porsche vehicle line. The Headlights were mounted on modules that were slid into a plastic tray in the fender and clamped in place. This mounting made the Headlights less expensive to install and repair. Plaintiffs alleged it made them "easier" to steal. 

In this proposed class action, the class representatives asserted unfair trade practices and unjust enrichment claims. They alleged the defendant distributed a product highly susceptible to theft without taking any remedial steps. Specifically, the defendant allegedly failed to “notify owners of the flaw and potential risk of theft so they could take their own precautions,” to “offer replacement lights at reduced costs,” and to “work with law enforcement agencies to assist in the prevention of the theft of their headlights.”  This, the representatives members allege, violated the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”).  There was an unjust enrichment claim, and the plaintiffs also alleged that the defendant distributor could have redesigned the vehicles in
various ways, even though a car distributor does not design or manufacture vehicles.

The opinion did not reach the issue of whether such a factual theory of damages is viable (it would have been nice to see a blow struck for common sense). But the decision focused on the legal issues raised by the class action. The trial court certified the case as a rule 1.220(b)(3) class action. In a (b)(3) class action, common issues must predominate over individual issues. Fla. R. Civ. P. 1.220(b)(3). Common issues predominate when, considering both the rights and duties of the class members, the proof offered by the class representatives will necessarily prove or disprove the cases of the absent class members.  The class representative’s case must not merely raise a common question, but that proof of the class representative’s case must also answer the question.

FDUTPA declares unlawful unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce.  The term “unfair” is
not defined in FDUTPA. Here, the trial judge defined unfair trade practice as one that “offends established policy” and “is immoral, unethical, oppressive, unscrupulous or substantially injurious to customers.” This definition derives from a 1964 Federal Trade Commission policy statement. In 1980, however, the Federal Trade Commission updated its definition of unfair trade practice. The new definition established a three-pronged test for “unfairness,” which requires that the injury to the consumer:
(1) must be substantial;
(2) must not be outweighed by any countervailing benefits to consumers or competition that the practice produces; and
(3) must be an injury that consumers themselves could not reasonably have avoided.

The court held that Florida law adopted the definition of unfairness contained in the 1980 Policy Statement. The state legislature provided that violations of FDUTPA include violations of the standards of unfairness and deception set forth and interpreted by the Federal Trade Commission or the federal courts. The Florida Legislature amended FDUTPA in 1983, 2001, 2006, and 2013, for the specific purpose of adding to Florida Law the latest interpretations by the Federal Trade Commission or federal courts that occurred since the last statutory amendment.  In light of this history, the 1980 Policy Statement is clearly one of the “standards of unfairness” interpreted by the Federal Trade Commission and federal courts. 

The trial court erroneously adopted the premise that the distributor’s actions could be found to be an unfair trade practice regardless of whether class members knew and could have avoided the risk of the Headlight thefts. From this premise, it reasoned “an individual class member’s pre-purchase knowledge of the potential risk of theft was not relevant to the Plaintiff’s FDUTPA claim.” Since the premise was wrong, so was the conclusion.  The individual class member’s knowledge of the risk of Headlight theft bears on whether the practice was unfair because it impacts whether the consumer could reasonably avoid the risk. Given the nature of the claim in this case—that the Headlights functioned great as headlights but were too susceptible to theft—an individual class members knowledge of the risk of  theft goes to the heart of his or her claim.


To prove an unfair trade practice, the class must prove that the injury caused by the allegedly unfair trade practice could not have been reasonably avoided by the consumers.  The idea behind the reasonably avoidable inquiry is that free and informed consumer choice is the first and best
regulator of the marketplace: consumers may act to avoid injury before it occurs if they have reason to anticipate the impending harm and the means to avoid it, or they may seek to mitigate the damage afterward if they are aware of potential avenues toward that end.  A jury might well find that a consumer who knew the Headlights were targeted by thieves had avenues available to reasonably avoid the risk. This is particularly true where, as here, the alleged problem of theft was greater in some geographic locations than others. How about consumers park in only safe areas, install alarm systems extending to the mounting module, or, if these options were not acceptable, decline to purchase or lease a Porsche with the Headlights? Given the theory of this case, the knowledge of some class members that the Headlights were prone to theft could not be ignored.

Similarly, the determination of unjust enrichment would turn on individual facts. A court would be hard pressed to conclude that a distributor was unjustly enriched when class members with the sophistication and knowledge of the product continued to seek out the Headlights even when they knew of the thefts.

The court concluded that when the individual knowledge and experience of the consumer is an
important element of the cause of action and its defense, there can be no class-wide proof that injury was not reasonably avoidable.

Class certification reversed and remanded. 

Summary Judgment Affirmed in Medical Monitoring Class Action

The First Circuit  has affirmed a district court ruling rejecting a proposed class action seeking medical monitoring  for alleged exposure to hazardous beryllium.  See Barry Genereux, et al. v. Raytheon Company, No. 13-1921 (1st Cir. 6/10/14).

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

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


The plaintiffs in this case filed a putative class action filed in the United States District Court for the District of Massachusetts, invoking federal diversity jurisdiction under the special jurisdictional provisions of the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2). Their complaint alleged that the defendant, Raytheon Company, endangered the health of the plaintiffs and others similarly situated by negligently exposing them to beryllium used in the manufacturing process at its plant in Waltham, Massachusetts.

Beryllium is a useful but potentially hazardous substance, and sufficient exposure to it is a risk factor for a malady known as Chronic Beryllium Disease (CBD). This malady is characterized by inflammation and scarring of lung tissue. Although there is no known cure for CBD, early detection and treatment can ameliorate its impact. The pathogenesis of CBD may begin with beryllium sensitization (BeS). Even though BeS is regarded as an abnormal medical finding, it can be asymptomatic and is typically not treated. Plaintiffs argued that persons with BeS should receive periodic clinical screenings to detect actual disease onset because those persons who are diagnosed with BeS are allegedly at a risk of developing CBD during their lifetimes.

The plaintiffs sought to represent two proposed classes. One comprised all persons who worked at the Waltham plant for at least one month prior to 1997. The other comprised all persons who lived with members of the first class and thus were subject to alleged take-home beryllium exposure. Persons already diagnosed as having CBD were excluded from both proposed classes. Following extensive pretrial discovery and work devoted to a narrowing of the issues, the district court granted summary judgment in favor of Raytheon. See Genereux v. Hardric Labs., Inc., 950 F.Supp.2d 329, 341 (D. Mass. 2013). An appeal ensued.

The Court of Appeals noted that the cornerstone of an action for medical monitoring under Massachusetts law is the decision in Donovan v. Philip Morris USA, Inc., 914 N.E.2d 891 (Mass. 2009). There, the court ruled that the cost of medical monitoring may be recoverable in a tort suit under Massachusetts law under certain circumstances.  The First Circuit read the Donovan decision as tethering its holding to a doctrinal mooring: a combination of a defendant's alleged failure to meet an appropriate standard of care, a clear causal connection between that failure and the plaintiffs' alleged injuries, and resulting damages. To identify the injury in the absence of evidence that a plaintiff actually has a full-blown disease, the court demanded a showing that some subcellular or other physiological change has put plaintiffs at increased risk. The court noted that under the unique cause of action recognized in Donovan, increased epidemiological risk of illness caused by exposure, unaccompanied by some subcellular or other physiological change, is not enough to permit recovery in tort.

Here, the summary judgment record disclosed no evidence that any plaintiff — named or unnamed, employee class or take-home class — had as yet developed BeS. This gap in the proof was fatal to the plaintiffs' principal theory of liability. The plaintiffs had not carried their burden that under Massachusetts law that defines actionable injury in the medical monitoring milieu in terms of subcellular or other physiological change; the record revealed no significantly probative evidence of such an injury here.

In the alternative, the plaintiffs argued that the Massachusetts high court had speculated about whether a cause of action for medical monitoring might ever exist when no subclinical changes had occurred.  The trial court concluded that plaintiffs hadn't preserved a claim under this alternative theory.  The court of appeals agreed.  In complex cases, considerations of both fairness and efficiency dictate that a trial judge use his best efforts to winnow and clarify the issues.Plaintiffs' counsel had multiple opportunities to expound a new theory of the case that encompassed this issue.  A status conference transcript where the issue was raised was transparently clear: the plaintiffs told the court that they were not pursuing a theory based on any question that the SJC had allegedly left for another day.

Decision Affirmed.

Class Plaintiffs Ordered to Brief Damages Theory Under Comcast

We have posted about the impact of Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1435 (2013). As the Supreme Court reemphasized in Comcast, in order for Rule 23(b)(3)’s predominance requirement to be satisfied, a plaintiff must bring forth a damages measurement that can be applied class-wide and that ties the plaintiffs’ legal theory to the impact of the defendant’s allegedly illegal conduct. Thus, after Comcast, a key question is whether a plaintiff has met its burden of establishing that damages can be proven on a class-wide basis. See In re Diamond Foods, Inc., Sec. Litig., 2013 WL 1891382, at *252 (N.D. Cal. May 6, 2013).

One approach of lower courts to this issue is to require plaintiffs seeking class certification of their state law claims to file briefing specifically to address whether they have a reasonable way to measure damages on a class-wide basis.  See Edwards v. Nat'l Milk Producers Fed'n, No. 3:11-cv-04766-JSW (N.D. Cal., 5/28/14).

The trial court noted that in Comcast, the Supreme Court held that “[c]alculations need not be exact, ... but at the class certification stage (as at trial), any model supporting a plaintiff’s damages case must be consistent with its liability case, particularly with respect to the alleged anticompetitive effect of the violation.” Comcast, 133 S.Ct. at 1433 (internal quotation marks and citations omitted).
Moreover, “for purposes of Rule 23, courts must conduct a rigorous analysis to determine
whether that is so.” Id. (internal quotation marks and citation omitted).

Plaintiff moved for class certification in an antitrust case involving milk cow herds, and defendants moved to strike plaintiff's expert, Dr. Connor.  He purported to calculate the effects of the defendant's herd retirement program on a national level and multiplied his total calculation by the percentage of the population of the states in which Plaintiffs were bringing state-law claims. The problem with this method was that Plaintiffs, as indirect purchasers, were not bringing a federal anti-trust claim. They were only bringing state-law claims, and not in every state. Dr. Connor’s calculations included the effects from states in which Plaintiffs were not challenging any activity as illegal.

Thus, the Court found that Plaintiffs had not shown “that their damages stemmed from the defendant’s actions that created the legal liability.” Leyva v. Medline Indus. Inc., 716 F.3d 510, 514 (9th Cir. 2013) (citing Comcast, 133 S.Ct. at 1435). It was not clear whether Plaintiffs could modify their method of calculations in order to capture only the alleged effects from the states in which they contend Defendants violated antitrust laws. But, the Court directed Plaintiffs to file an additional brief to address whether they have a reasonable method for determining, on a class-wide basis, the alleged antitrust violations’ impact on class members.

Comcast Requirement of Class-wide Damages Dooms Class

A California federal court has denied class certification to a putative class of consumers who bought food products marketed as healthy, which allegedly were not because they contained hydrogenated oils and corn syrup. See Lucina Caldera, et al. v. The J.M. Smucker Co., No. 2:12-cv-04936 (C.D. Cal.).

On June 6, 2012, Plaintiff filed a consumer class action on behalf of individuals who purchased Defendant’s Uncrustables and Crisco Original and Butter Flavor Shortening products. Plaintiff alleged that the packaging of these products misled consumers into believing that they were healthful, when allegedly they were not because they contain trans fat and high fructose corn syrup. Based on these allegations, Plaintiff asserted the usual claims: (1) violation of Cal. Bus. &
Prof. Code §§ 17200, et seq. (“UCL”), unlawful prong; (2) violation of the UCL, fraudulent prong; (3)
violation of the UCL, unfair prong; (4) violation of California False Advertising Law (“FAL”), Cal.
Bus. & Prof. Code §§ 17500, et seq.; (5) violation of California Consumer Legal Remedies Act
(“CLRA”), Cal. Civ. Code §§ 1750, et seq.; (6) breach of express warranty under California law; and (7) breach of implied warranty of merchantability under California law.

The court denied with prejudice the Plaintiff’s attempt to certify the proposed classes.

Under Rule 23(b)(3), a plaintiff must show that “the questions of law or fact common to class
members predominate over any questions affecting only individual members,” and that “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.”
Predominance “tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.” Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 623 (1997). It focuses on the
relationship between the common and individual issues, requiring that the common issues be
qualitatively substantial in relation to the issues peculiar to individual class members. See Hanlon v. Chrysler Corp., 150 F.3d 1011, 1022 (9th Cir. 1998). The post-Dukes predominance inquiry
requires the court to consider whether other issues unique to individual class members are likely to render adjudication by representation impractical. See Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2556 (2011).  Defendant here argued that Plaintiff failed to satisfy the predominance requirement because she had not identified any method of proving damages on a classwide basis, and thus determining damages would involve individualized inquiries that predominate over common questions.

The predominance requirement is satisfied only if Plaintiff is able to show that class damages stemmed from the defendant’s actions that created the legal liability. Leyva v. Medline Industries, Inc., 716 F.3d 510, 514 (9th Cir. 2013); see Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1435 (2013).  As the Supreme Court reemphasized in Comcast, in order for Rule 23(b)(3)’s predominance requirement to be satisfied, a plaintiff must bring forth a measurement that can be applied classwide and that ties the plaintiff’s legal theory to the impact of the defendant’s allegedly illegal conduct. Thus, after Comcast, the question is whether a plaintiff has met its burden of establishing that damages can be proven on a classwide basis. See In re Diamond Foods, Inc., Sec. Litig., 2013 WL 1891382, at *252 (N.D. Cal. May 6, 2013).

Here, the court concluded, the Plaintiff failed to meet this burden.  Plaintiff did not offer any method of proving damages on a classwide basis. Plaintiff merely stated that damages could be proven on a classwide basis based on Defendant’s California sales data. However, this is not a case where class members would necessarily be entitled to a full refund of their purchase price. Accordingly, defendant’s sales data alone would not provide sufficient information to measure classwide damages. The class sought restitution, Restitution based on a full refund would only be appropriate if not a single class member received any benefit from the products. See In re POM Wonderful LLC, 2014 WL 1225184, at *3 & n.2 (C.D. Cal. Mar. 25, 2014). Plaintiff failed to offer any evidence, let alone expert testimony, that damages could be calculated based on the difference between the market price and true value of the products.

As evidenced by named Plaintiff’s own deposition testimony, class members undeniably received some benefit from the products. Awarding class members a full refund would not account for these benefits conferred upon class members. Accordingly, classwide damages could not accurately be measured based on Defendant’s sales data alone. (Plaintiff’s Motion to certify the injunctive relief
classes also was denied without prejudice.)

 

Juice Class Decertified at Close of Discovery

A federal court recently decertified a class action filed on behalf of  juice buyers, recognizing the grave ascertainability problems in the case alleging that the beverage maker misleadingly advertised its drink's health benefits. See In re Pom Wonderful LLC Mktg. & Sales Practices Litig., No. 2:10-ml-2199-DDP-RZ (C.D. Cal. 3/25/14).

Back in 2012, the court had certified a damages class comprised of all persons who purchased a Pom Wonderful 100% juice product between October 2005 and September 2010. After the  completion of discovery, Pom moved to decertify the class, in light of the facts developed and in light of the U.S. Supreme Court's decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013). On a motion for decertification, as at the certification stage, the burden to demonstrate that the requirements of Federal Rules of Civil Procedure 23(a) and (b) are met lies with the party advocating certification. E.g., Marlo v. United Parcel Serv. Inc., 639 F.3d 942, 947 (9th Cir. 2011).

The court noted that the Ninth Circuit has adopted a rather narrow reading of Comcast, which holds that, under rigorous analysis, “plaintiffs must be able to show that their damages stemmed from the defendant’s actions that created the legal liability.” Leyva v. Medline Indus., Inc., 716 F.3d 510, 514 (9th Cir. 2013). Thus, the court proceeded to examine plaintiffs’ damages models and the relationship of those models to the plaintiffs’ legal theories. Plaintiffs' expert advanced two damages models. The "Full Refund" model concluded that consumers spent $450 million on Pom’s 100% pomegranate juice and juice blends during the class period, and that class damages are 100% of the amount paid, or $450 million.  Defendant argued that the Full Refund model was invalid because it failed to account for any value consumers received. Even putting aside any potential health benefits, defendant argued, consumers still received value in the form of hydration, vitamins, and minerals.  The court agreed.  The California consumer acts authorize a trial court to grant restitution to private litigants asserting claims under those statutes. Colgan v. Leatherman Tool Group, Inc.,135 Cal.App.4th 663, 694 (2006). “The difference between what the plaintiff paid
and the value of what the plaintiff received is a proper measure of restitution.” In re Vioxx Class Cases, 180 Cal.App.4th 116, 131 (2009). “A party seeking restitution must generally return any
benefit that it has received.” Dunkin v. Boskey, 82 Cal.App.4th 171, 198 (2000).  Since the model did not account for this, it did not comport with Comcast.

The second or "Price Premium" model assumed that, absent the alleged misrepresentations, “demand for Pom would have been less and the Pom market price would have been lower.” The Price Premium model quantified alleged damages “by comparing the price of Pom with other refrigerated juices of the same size.”  This model yielded a damage calculation of “about $290 million.”  The parties agreed that the Price Premium model depended upon a “fraud on the market” theory. Plaintiffs essentially asserted (1) that a presumption of reliance dependent upon defendant’s alleged material misrepresentations establishes the existence of a fraud on the
entire juice market, (2) that because of that fraud on the market, every consumer who purchased defendant’s juices was similarly damaged, regardless of motivation or satisfaction, and (3) damages could therefore be measured on a class-wide basis. But, the court was not aware of any authority applying a fraud on the market theory to this type of consumer action. (It's a securities thing!)  Putting that issue aside, a plaintiff alleging a fraud on the market must show that the relevant market is efficient. See Smilovits v. First Solar, Inc., 295 F.R.D. 423, 429 (D. Ariz. 2013). This court was not persuaded that the market for defendant’s high-end refrigerated juice products operates efficiently.

Third, whether the entire class can be said to have relied upon the alleged  misrepresentations for liability purposes, this did not necessarily speak to the adequacy of a damages model. Plaintiffs must be able to show that their damages stemmed from the defendant’s actions that created the legal liability.  Plaintiff's expert made no attempt upon a sound methodology to explain how defendant’s alleged misrepresentations caused any amount of damages. Instead, the expert  simply observed that Pom’s juices were more expensive than certain other juices. Rather than
answer the critical question why that price difference existed, or to what extent it was a result of Pom’s alleged actions, the expert simply assumed that 100% of that price difference was attributable to the alleged misrepresentations. Rather than draw any link between Pom’s actions and the price difference between the juice average benchmark price and average Pom prices, the Price Premium model simply calculated what the price difference was. This damages “model” did not comport with Comcast’s requirement that class-wide damages be tied to a legal theory.

The other basis for the decision was ascertainability.  In situations where purported class members purchase an inexpensive product for a variety of reasons, and are unlikely to retain receipts or other transaction records, class actions may present such daunting administrative challenges that class treatment is not feasible.  See, e.g., In re Phenylpropanolamine Prods., 214 F.R.D. 614, 620 (W.D. Wash. 2003) (describing critical manageability problems concerning sales of a three dollar medication, despite possibility of fluid recovery); Sethavanish v. ZonePerfect Nutrition Co., 2014 WL 580696 at *5 (N.D. Cal. Feb. 13, 2014) (denying certification because proposed class of nutrition bar purchasers would not be ascertainable).  Here, plaintiffs acknowledged that, based on the volume of product sold, every adult in the United States is a potential class member. Realistically, the class included at least ten to fifteen million purchasers. These millions of consumers paid only a few dollars per bottle, and likely made their purchases for a variety of reasons, observed the court. Few, if any, consumers were likely to have retained receipts during the class period, which closed years before the filing of this action. This case therefore fell well toward the unascertainable end of the spectrum. Here, at the close of discovery and despite plaintiffs’ efforts, there was no way to reliably determine who purchased defendant’s products or when they did so.

Class decertified.

D.C. Circuit Applies Comcast Guidance to Class Certification

Readers will recall our posts about Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), and the majority's ruing that Rule 23 requires proof that damages and injury are amenable to class treatment, and not overrun with individual issues, before a class properly can be certified.

A district court considering class certification must look at how damages will be tried and managed if a class is certified. Is it a mere mathematical exercise, or are there factual issues that vary by class members? And the district court must conduct a rigorous analysis of the class plaintiff's proposed method for computing damages allegedly on a class-wide basis (which often will require a Daubert analysis in many cases).

While it is unusual for a dissenting justice to read the dissent from the bench, in this case two justices did so. One wonders whether that emphasis on the intensity of the dissent is inconsistent with the content of the dissent, which tried to argue that the decision could be limited to its facts, nothing big happened here, nothing to look at, keep moving...  The plaintiffs’ bar has been desperate to convince the lower courts to adopt the dissenting view, but with limited success as district courts continue to rely on Comcast to deny class certification. E.g., Torres v. Nutrisystem Inc., 2013 U.S. Dist. LEXIS 66444 (C.D. Cal. Apr. 8, 2013).

Earlier this month the D.C. Circuit relied on the precedent in In re: Rail Freight Fuel Surcharge Antitrust Litigation – MDL No. 1869, No. 12-7085, 2013 U.S. App. LEXIS 16500 (D.C. Cir. Aug. 9, 2013), to confirm that plaintiffs must have a way to establish class-wide proof of damages and injury.

In In re: Rail Freight Fuel Surcharge, plaintiffs allegedly shipped products via rail and were required to pay rate-based fuel surcharges by several major freight railroads. The heyday of the rate-based fuel surcharge did not last. Eventually, the Surface Transportation Board (STB) put an end to the practice with respect to common carrier traffic within its regulatory authority. But plaintiffs alleged collusion and price fixing among the defendants in the meantime.  The district court granted class certification.

The plaintiffs’ case for certification hinged on two regression models prepared by their expert. The first of these, the “common factor model,” attempted to isolate the common determinants of the prices shippers paid to the defendants. The expert also constructed a “damages model,” which sought to quantify, in percentage terms, the overcharge due to conspiratorial conduct at various intervals over the class period.

On appeal, after a discussion on interlocutory appeal standards, the D. C. Circuit held that meeting the predominance requirement demanded more than common evidence the defendants colluded to raise fuel surcharge rates. The plaintiffs must also show that they can prove, through common evidence, that all class members were in fact injured by the alleged conspiracy.  On the damages prong, defendants argued that the expert's model purported to quantify the injury in fact to all class members attributable to the defendants’ collusive conduct. But the same methodology also detected injury where none could exist.  In Comcast, the Court held that indisputably the role of the district court is scrutinize such evidence before granting certification, even when doing so “requires inquiry into the merits of the claim.” 133 S. Ct. at 1433. If the proposed damages model cannot withstand this scrutiny then, that is not just a merits issue. Here, the expert's model was essential to the plaintiffs’ claim that they could offer common evidence of class-wide injury. See Fuel Surcharge II, 287 F.R.D. at 66. No damages model, no predominance, no class certification.

Moreover, the court of appeals noted that it is not enough to submit a questionable model whose unsubstantiated claims cannot be completely refuted through a priori analysis. Otherwise, “at the class-certification stage any method of measurement is acceptable so long as it can be applied class-wide, no matter how arbitrary the measurements may be.” Comcast, 133 S. Ct. at 1433.

Before Comcast v. Behrend, the case law was far more accommodating to class certification under Rule 23(b)(3), said the court of appeals. It is now clear, however, that Rule 23 not only authorizes a hard look at the soundness of statistical models that purport to show predominance—the rule commands it.  Mindful that the district court neither considered the damages model’s flaw in its certification decision nor had the benefit  of Comcast’s guidance, the court decided to vacate class certification and remand the case to the district court to afford it an opportunity to consider these issues in the first instance..

The case is useful beyond the antitrust world in its recognition that Comcast did make a difference in how lower courts are to treat the issue of predominance with respect to an analysis of injury and damages. Certification of a class without class-wide proof of both injury and damages is subject to reversal on the prong of predominance.

DRI Class Action Seminar Underway

Your humble blogger is attending the DRI CLE seminar on class actions in our nation's capital, organized by my pal Jeff Holmstrand and my partner Tim Congrove, outstanding class action practitioners. 

The lead off speaker was Miguel Estrada, speaking on Comcast, which we have posted on before, as well as the aftermath

He offered some interesting personal observations about this important class action decision. Key take aways: individual damage questions can be a significant barrier to class certification under Rule 23(b)(3). A district court considering class certification must look at how damages will be tried and managed if a class is certified.  Is it a mere mathematical exercise, or are there factual issues that vary by class members? And the district court must conduct a rigorous analysis of the class plaintiff's proposed method for computing damages allegedly on a class-wide basis (which almost certainly will require a Daubert analysis in most cases).

Interesting observation: while it is unusual for a dissenting justice to read the dissent from the bench, in this case two justices did so.  One wonders whether that emphasis on the intensity of the dissent is inconsistent with the content of the dissent, which tried to argue that the decision could be limited to its facts, nothing big happened here, nothing to look at, keep moving...

Most lower courts are following and applying the Comcast decision.  E.g., Forrand, 2013 WL 1793951 (C.D. Cal.); TL Cannon, 2013 WL 1316452 (N.D.N.Y.).  see also the Martin case we posted on here.

One going the other way is Leyva in the 9th Circuit, 2013 WL 2306567, which performs gymnastics to read Comcast as stating only the proposition that a plaintiff must show the damages flow from the alleged illegal acts of the defendant.

 

 

Class Certification Denied in Minivan Case

A federal court last week denied class certification in a case alleging that vehicle axles were allegedly prone to cracking.   See Martin v. Ford Motor Co., No. 2:10-cv-02203 (E.D. Pa., 7/2/13).

Plaintiff filed suit against Ford on behalf of himself and others similarly situated claiming breach of express and implied warranties, unjust enrichment, and violations of state consumer protection laws. The claim related to alleged issues with the rear axle installed on 1998½ -2003 Ford Windstars.  Plaintiff moved to certify four classes of Windstar owners: an express warranty class, an implied warranty class, a consumer protection act class, and an unjust enrichment class.  Each included owners from several different states. Plaintiff moved to certify these four classes pursuant to Federal Rule of Civil Procedure 23(b)(2) and (b)(3), seeking injunctive relief and monetary damages on behalf of class members.

The court denied class certification in a lengthy and comprehensive opinion.  For our post, let's focus on the b(3) claim and the predominance element. Failure to satisfy the predominance requirement has doomed many an automotive defect cases. Federal courts have recognized that suits alleging defects involving motor vehicles often involve complicated issues of individual causation that predominate over common questions regarding the existence of a defect.

When a proposed class includes members from different states, there may be a choice of law problem that relates to predominance (as well as superiority and manageability). Several of the states in the express warranty class contain material differences in their legal definition of a breach of express warranty claim. Some of the group, but not all, required that a buyer show reliance on a statement or representation made by the seller as condition for recovery on a breach of express warranty claim. These differences undermine any finding of predominance. 

The court also found that a breach could not be proven without also inquiring into each individual class member’s Windstar experience, since the vast majority of Class members —approximately 83.2% — had not experienced any problems with their rear axles seven to twelve years after their vehicles were manufactured. In deciding whether Ford breached the express warranty that Windstars were “free from defects in material and workmanship,” a trier-of-fact could not solely look at evidence of Ford’s knowledge of the rear axle issues from 1997 through 2003, but must also consider how each axle performed through 2010. For example, a class member might own a 1998 Ford Windstar with 160,000 miles, which has been driven daily for twelve years without a problem. A second class member may have used his 2000 Windstar to travel constantly for business, putting 200,000 miles on the vehicle. A third class member may have only 50,000 miles on a 2003 Windstar because the class member drives the vehicle only on weekends. A fourth class member may have been forced to replace his original axle after only three months of use -- but because of a serious rear-end collision. None of these class members suffered an axle fracture. Were not these vehicles of different ages, with different mileage, in different conditions, which have been driven without a problem “free from defects”? These matters cannot be addressed by a trier-of-fact without consideration of the individual factual scenarios, said the court.

Even assuming breach could be proven on a class-wide basis, the calculation of damages for express warranty class members would be impossible without individualized inquiries into each claim.  The court cited to the Supreme Court's recent decision in Comcast Corp. v. Behrend that a model purporting to serve as evidence of damages in a class action must measure only those damages attributable to the theory of the case. If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b)(3). 133 S. Ct. 1426, 1433 (2013). Here, plaintiffs' damages model was based on injury to the resale price of a used Windstar; but that price would be based on a multitude of factors, of which the allegedly defective rear axle is but one. See, e.g., Carpenter v. BMW of N. Am., Inc., 1999 WL 415390, at *4 (E.D. Pa. June 21, 1999) (value of a vehicle is dependent on a "whole host of individualized factors including age, mileage, repair and maintenance history and accidents or damage.’”); see also Chin v. Chrysler Corp., 182 F.R.D. 448, 463 (D.N.J. 1998)). The need to take into account this multitude of factors creates a proximate cause issue, and required individual proof. Good to see the lower courts applying this important Supreme Court guidance.

Similarly, proving breach of implied warranty, that the Ford Windstars were not “fit for the ordinary purposes for which such goods are used,” was a question of fact with multiple relevant factors raising individual issues. Facts relevant to this inquiry would include not only the allegedly common testing and
monitoring of the axle but, as stated above in discussing the express warranty class, the experience of each individual Class member with the Ford Windstar.  And even if breach could be proven by using only common facts, the calculation of damages for the implied warranty class would face the exact same obstacle; again, approximately 83.2% of Windstar owners have not experienced any problems with
their rear axles. Plaintiff claimed that these Class members suffered damages through a reduction
in the resale value of their vehicles after a safety recall was initiated. Even assuming the recall did affect the market price for used Windstars, plaintiff had not provided a method to calculate the decrease in value on a class-wide basis.

Next the consumer protection claim required plaintiffs to prove each class member suffered a cognizable injury. To determine whether a class member suffered an “ascertainable loss,” and whether that loss was “as a result of” Ford’s alleged concealment or omission of information regarding the Windstar’s rear axle, would require the trier-of-fact to consider facts unique to each individual class member.  That is, plaintiff would encounter the same insurmountable obstacles in his attempt to prove a class-wide “ascertainable loss” suffered “as a result of” Ford’s conduct as he would encounter attempting to prove class-wide damages for the express and implied warranty classes.  Simply put, for a class member whose rear axle has not fractured — which was the vast majority of class members — proving a used Windstar suffered a loss in value because of Ford’s safety recall requires an inquiry into the age, mileage, and overall condition of the vehicle. This individual fact-gathering process would be essential to a consumer protection claim, and therefore fatal to the predominance requirement for class certification under Rule 23(b)(3).

Finally, the first element of an unjust enrichment claim — whether a class member conferred a benefit on Ford — again required an inquiry into each class member’s experience with the Windstar. Moreover, another element — whether it would be unjust for Ford to retain money provided by class members in view of the allegedly defective rear axle — was also incapable of proof without reference to individual facts. Ford’s actions could only be considered unjust if money was retained after selling a defective product. To prove a defect required the trier-of-fact to consider Ford’s conduct alongside each class member’s experience with the Windstar. The vast majority of class members have had no problems with their rear axles. The trier-of-fact would therefore have to consider whether Ford’s retention of the full purchase price of a 1998 Windstar, for example, was "unjust" in a situation where the Windstar has been driven by a class member for twelve years without incident.

Certification denied.

Supreme Court Decides Comcast

The Supreme Court weighed back in on the issues of class certification last month in Comcast v. Behrend, No. 11-864 (U.S. 3/27/13). Writing for the majority, Justice Scalia stated that the class had been improperly certified under Fed. R. Civ. P. 23(b)(3)'s predominance prong, in an opinion that bears careful scrutiny for our readers, but probably did not cover as much ground as some thought it would when cert was granted (no further guidance on Daubert at the class stage).

Plaintiffs brought a class action antitrust suit, under Rule 23(b)(3), claiming Comcast subscribers in the Philadelphia area were harmed because of a specific Comcast strategy that allegedly lessened competition and would lead to higher prices. Comcast allegedly “clusters” their cable television operations within a particular region by swapping their systems outside the region for competitor systems inside the region.  Plaintiffs offered several theories as to why this alleged approach harmed them: it allowed Comcast to withhold local sports programming from its competitors, resulting in decreased market penetration by direct broadcast satellite providers; it allegedly reduced the level of competition from “over-builders,” companies that build competing cable networks in areas where an incumbent cable company already operates; it reduced the level of “benchmark” competition on which cable customers rely to compare prices; and it allegedly increased Comcast’s bargaining power relative to content providers.

The District Court ruled that plaintiffs had to show that the “antitrust impact” of the violation could be proved at trial through evidence common to the class and that the damages were measurable on a class-wide basis through a “common methodology.” The trial court then certified the class, but accepted only one of the four proposed theories of antitrust impact. The Third Circuit affirmed, noting again its artificial separation of class and merits issues:  we "have not reached the stage of determining on the merits whether the methodology is a just and reasonable inference or speculative." The court of appeals concluded that Comcast's attacks on the merits of the methodology had "no place in the class certification inquiry.”

Of course class certification is a procedural step, not the occasion to decide which side has the winning case, but in recent years the Supreme Court has been telling the lower courts that the line between merits and certification is not such a bright line.  The Third Circuit ran afoul of this admonition when it refused to entertain arguments against the damages model that bore on the propriety of class certification simply because they might also be pertinent to the merits determination. A certifying court may have to probe behind the pleadings before coming to rest on the certification question; certification is proper only if the trial court is satisfied, after a rigorous analysis, that Rule 23’s prerequisites have been satisfied. Such an analysis will frequently overlap with the merits of the plaintiff ’s underlying claim because a class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff ’s cause of action. A District Court cannot refuse to evaluate evidence at the class certification stage just because that same evidence relates to the merits of the claims. In so doing, the Court made clear that the rigorous analysis discussed in Wal-Mart Stores v. Dukes, 131 S. Ct. 2541 (2011), applies to both the Rule 23(a) factors and the Rule 23(b) prerequisites. 

The figures that plaintiffs' expert used were calculated assuming the validity of all four theories of antitrust impact originally proposed, and did not delineate the differences between the allegedly supra-competitive prices prices attributable to over-builder deterrence, and the prices caused by other economic factors.  To ignore that would reduce the Rule 23(b)(3) predominance requirement to a nullity. The questions of individual damages calculations here would inevitably overwhelm questions common to the class in this antitrust case; the plaintiffs' model fell far short of establishing that damages were capable of measurement on a class-wide basis. Thus, the Court made clear that plaintiffs must offer a method sufficient to calculate damages on a class-wide basis in Rule 23(b)(3) class actions or risk losing certification.

 

Supreme Court Hears Arguments in Comcast

We alerted readers before about the Supreme Court consideration of the role of Daubert at the class certification stage.   See Comcast Corp. v. Behrend, U.S., No. 11-864 (cert. granted 6/25/12). The Court had indicated it was interested in the question "whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a classwide basis." Readers will recall that in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011) the Supreme Court in dicta referenced the question. Justice Scalia observed that the district court had "concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings," but the majority replied that "we doubt that is so." 131 S. Ct. at 2554. Thus, Dukes strongly suggested that it was appropriate for defendants to make the expert challenge at the class certification stage, and important for the court to resolve the issue then.

The justices heard arguments from both sides November 5th.  The district court in Comcast originally certified a class; following the court of appeals' decision in Hydrogen Peroxide, 552 F.3d 305, the district court granted in part Comcast‘s motion to reconsider its certification decision. After further briefing, plaintiffs got the case re-certified after convincing the district court that they could show that they had an expert methodology to prove damages on a classwide basis. On the current appeal, the Third Circuit agreed that the lower court had applied the "rigorous analysis," adding that at the class certification stage, "we are precluded from addressing any merits inquiry unnecessary to making a Rule 23 determination.” The Petitioners argued that the Third Circuit affirmed the certification order after expressly declining to consider several “merits” issues necessary to determine whether, as required by Rule 23(b)(3), common questions predominate over individual ones. The focus on damages, which some have viewed as narrowing the issue presented, still is a question that arises not just in antitrust cases, but also in mass torts, which are front and center for our readers.

Plaintiffs seemed to get more questions from the bench than did defendant, especially about any problem with allowing potentially inadmissible evidence to form the basis for the crucial class certification decision. 

Comcast emphasized flaws in the expert's damages model, including that the damage model was not linked to the class theory certified by the lower court, that the alleged monopolization of the Philadelphia area through clustering deterred competitors, or “overbuilders,” from competing. The district court should not have relied on it to certify the class. Plaintiffs argued waiver, that the company failed to bring up Daubert v. Merrell Dow Pharmaceuticals Inc., 509 U.S. 469 (1993), until it was too late. That focus led Justice Kagan to note, “I am still in search of a legal question that anybody disagrees about here.” Justice Elena Kagan observed it seemed the parties apparently agreed that if the Daubert question was not waived, the lower court should have held a hearing on the admissibility of the expert opinions. Comcast emphasized it had argued to the trial court that this model did not work, ought to be precluded, and was not a valid methodology.

Plaintiffs argued that allowing district courts to defer admissibility determinations under Daubert  until after the class certification stage is consistent with the broad discretion given judges on evidentiary issues.  But that failed to address the pressure that class certification puts on defendants to settle, a point that was not a focus of the arguments. Plaintiffs also seemed to be arguing for a standard in which the district court has to decide simply that it is more likely than not that the damages model/expert opinion will be admissible at trial, and will meet the standard that’s required to get to a verdict.  But Justice Sotomayor asked "can a district court ever say that it’s persuaded by unreliable or not probative evidence.” Justice Alito similarly asked how could this expert "report be probative if it did not satisfy Daubert?”
 

Comcast argued that the trial court needed to conduct more than a limited Daubert hearing, agreeing with what defendant called the holding of the Seventh Circuit in American Honda that the question at the class cert hearing is not solely one of whether the evidence would be admissible, but also  -- keeping in mind that the focus of the class certification hearing is to decide whether the case should be tried as a class --  whether it is a methodology that sufficiently fits the facts and is reliably based on a scientific method so that plaintiffs will be capable of proving, class-wide, this issue at trial.

Justice Scalia asked about a hybrid approach where the court would focus at the class stage on reliability, and leave other Daubert inquiries (like fit)  for trial. But a focus of Justice Ginsburg's questions right out of the box was whether any finding of reliability was necessary on damages. She noted that in discrimination law contexts, courts may, if the liability questions can be adjudicated on a class basis, have the damages question adjudicated individually.  Of course, that view of class actions seems to slight the manageability requirement in a (b)(3) context, and invites truncated procedures that violate a defendant's due process rights.

One to watch for sure.
 

 

Denial of Class Certification Affirmed in Cellphone Case

The Eleventh Circuit last week upheld a trial court’s refusal to certify a class action accusing the defendant of improperly reactivating lost or stolen cellphones.  See Robinson et al v. T-Mobile USA Inc., No. 12-10170 (11th Cir. 2012).

MassTortDefense has often wondered why the issue of damages seems to get insufficient weight in the class certification decision. Would a class be satisfied with proving its case except damages? Would an award of zero damages to a class be devastating to a defendant? Shouldn't it matter that each plaintiff get a fair an accurate amount of damages to compensate for the alleged conduct of defendant? Doesn't a defendant have a right to dispute claimed damages regarding each class member? Here, the trial court determined that plaintiffs failed to offer a viable method for how proposed damages were to be calculated, and plaintiffs paid too little attention to this issue on appeal as well.

The plaintiffs filed a proposed class action against T-Mobile asserting state-law claims of conversion, trespass to chattels, and unjust enrichment. They alleged that: (1) they had reported to T-Mobile that their cell phones had been lost or stolen; (2) an unknown person brought their lost or stolen phones to T-Mobile; and (3) T-Mobile unlawfully reactivated the phones without the plaintiffs’ permission.

The district court denied the plaintiffs’ motion for class certification on five grounds. The first ground was that the plaintiffs had not satisfied their preliminary burden of establishing that their
proposed class was clearly ascertainable. Before a district court may grant a motion for class certification, a plaintiff seeking to represent a proposed class must establish that the proposed class is “adequately defined and clearly ascertainable.” DeBremaecker v. Short, 433 F.2d 733, 734 (5th Cir. 1970)1; cf. John v. Nat’l Sec. Fire & Cas. Co., 501 F.3d 443, 445 (5th Cir. 2007) (“The existence of an ascertainable class of persons to be represented by the proposed class representative is an implied prerequisite of Federal Rule of Civil Procedure 23.”).  Here, the court reasoned, in part, that the plaintiffs had “made no effort to separate out those putative class members who may very well be barred from pursuing class claims due to the existence of valid arbitration agreements or class action waivers that potentially prohibit such litigation.”

The second ground on which the district court denied class certification was that the plaintiffs had not satisfied the Rule 23(a)(1) numerosity requirement. The court reasoned that the plaintiffs had offered no evidence showing numerosity, nor made any “effort to account for those putative class members who waived their right to pursue relief against T-Mobile on a class-wide basis or who are bound by their agreement to arbitrate disputes with T-Mobile.”

The third ground the district court stated for denying class certification was that the plaintiffs had failed to satisfy the predominance requirement in Rule 23(b)(3) because there were “significant state-wide variations in the law” of conversion and in the law regarding other issues, such as the enforceability of class-action waivers.

The fourth ground the court stated for denying class certification was that  the plaintiffs had failed to establish superiority under Rule 23(b)(3). The court based that determination, in part, on the plaintiffs’ failure “to suggest how to manage the rather thorny issue of putative class members whose rights to litigate their conversion claims as part of a class proceeding in this forum may have been cutoff by either a class action waiver provision, an agreement to arbitrate, or both.”
 

The fifth reason was that “damage-related concerns evidence a predomination of individualized inquiries and render the proposed class unfit for certification under Rule [23](b)(3).” The district court explained what those damage-related concerns were. Here, plaintiffs contended that “in this era of Ebay and other public online sites selling used phones by the millions, determining a particular model phone’s value is a relatively simple matter of online research.” However, they certainly offered no concrete proposal or methodology about how to effectively and accurately manage such online research on a nationwide basis. For example, when conducting online research, would 2011 be the year to use for establishing the value for a used phone of a certain model or would the year in which the phone was misplaced or stolen be the more appropriate time frame? Plaintiffs also ignored how individualized issues relating to the age of the phone, what contents or applications were previously on the phone, and whether the original owner was a heavy or light user of the phone, might affect the value of the used phone.  Additionally, plaintiffs did not address whether loss of use of the phone should be compensable and, if so, suggest how it might be reduced to a formula-type calculation.  

The district court’s determination that the plaintiffs had not established the predominance of common issues under Rule 23(b)(3) because of individual damage-related issues was an alternative, independent ruling -- and one that prevailed on appeal. Class certification would have been denied for that reason regardless of the variations instate law relating to conversion and regardless of the enforceability of class-action waivers.

Then on appeal, plaintiffs failed to adequately challenge in their opening brief the district court’s  independent, alternative ruling that damage-related concerns evidence a predomination of individualized inquiries and render the proposed class unfit for certification under Rule [23](b)(3). The plaintiffs’ opening brief failed to clearly argue the predominance issue involving variation in damages. They also failed to raise it in their reply brief after T-Mobile had argued in its answer brief that one of the reasons the court of appeals should affirm the denial of class certification was
that variation in damages destroyed the predominance of common issues, as the district court had ruled.  By failing to challenge in their brief the district court’s ruling, the plaintiffs had abandoned any contention that the court erred in denying class certification on that ground.

Decision affirmed.

Supreme Court to Review Issue of Daubert at Class Certification Stage

The U.S. Supreme Court agreed last week to hear argument in a case in which the lower courts wrestled with the issue whether, at the class certification stage, a district court must resolve Daubert issues. See Comcast Corp. v. Behrend, U.S., No. 11-864 (cert. granted 6/25/12). The Court indicated it was interested in the question "whether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a classwide basis."

Readers will recall that in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541 (2011)  the Supreme Court in dicta referenced the question. Justice Scalia observed that the district court had "concluded that Daubert did not apply to expert testimony at the certification stage of class-action proceedings," but the majority replied that "we doubt that is so." 131 S. Ct. at 2554. Thus, Dukes strongly suggested that it was appropriate for defendants to make the expert challenge at the class certification stage, and important for the court to resolve the issue then; the Comcast litigation may see the Court turn that persuasive dicta into binding precedent. 

Most district courts have been following the dicta. Historically, the Circuits have split.  The 8th and 9th Circuits call for an expert inquiry at this stage, and in American Honda, which we commented on here, the Seventh Circuit previously 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. Later, the Seventh Circuit reaffirmed its holding from 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).

The 3rd Circuit went in another direction. The district court in Comcast originally certified a class; following the court of appeals' decision in Hydrogen Peroxide, 552 F.3d 305, the district court granted in part Comcast‘s motion to reconsider its certification decision.  After further briefing, plaintiffs got the case re-certified after convincing the district court that they could show that they had an expert methodology to prove damages on a classwide basis. On the current appeal, the Third Circuit agreed that the lower court had applied the "rigorous analysis,"  adding that at the class certification stage, "we are precluded from addressing any merits inquiry unnecessary to making a Rule 23 determination.”  The Petitioners argued that the Third Circuit affirmed the certification order after expressly declining to consider several “merits” issues necessary to determine whether, as required by Rule 23(b)(3), common questions predominate over individual ones.

So the Comcast case may give the Supreme Court a chance to further explain what exactly a rigorous analysis should entail, especially with respect to alleged class-wide damages. The focus on damages, which some have viewed as narrowing the issue presented, still is a question that arises not just in antitrust cases, but also in mass torts, which are front and center for our readers. 

 

Ninth Circuit Applies Dukes

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

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

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

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

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

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

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

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

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

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

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

Ninth Circuit "Strikes" a Blow for Proper Motion Procedure

Phillies' slugger Ryan Howard was ejected from a game this week in extra innings, leaving his team (which had no more position players) to insert ace pitcher Roy Oswalt into the outfield and to use him at the plate. First time the Phils used a pitcher in the field in decades. Howard argued a mistakenly called third strike on a check swing.

Today's post relates to a different kind of mistaken strike. The Ninth Circuit has explained that trial courts cannot strike a claim for damages on the ground that the damages are precluded as a matter of law.  Whittlestone Inc. v. Handi-Craft Co., No. 09-16353 (9th Cir. Aug. 17, 2010).  Specifically, Rule 12(f) of the Federal Rules of Civil Procedure does not authorize the court to strike the claim for damages on the basis that such damages are legally not recoverable.

Here, the defendant field a Rule 12 motion to strike the paragraphs of the complaint that sought the recovery of lost profits and consequential damages, in alleged violation of the plain language of the parties' contract.  The trial court granted the motion, and plaintiff appealed.

Rule 12(f) states that a district court “may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” The function of a 12(f) motion
to strike is to avoid the expenditure of time and money that would arise from litigating spurious issues by dispensing with those issues prior to trial.  While the motion here seemed to fit the purpose of the rule, it didn't fit the language. The court found that the damages allegations met none of those listed categories. 

Handi-Craft argued that Whittlestone’s claim for lost profits and consequential damages should be stricken from the complaint, because such damages were precluded as a matter of law.  But that meant that Handi-Craft’s 12(f) motion was really an attempt to have certain portions of  Whittlestone’s complaint dismissed or to obtain summary judgment against Whittlestone as to those portions of the suit, which attempt was better suited for a Rule 12(b)(6) motion or a Rule 56
motion, not a Rule 12(f) motion. 

And this was not harmless error, said the 9th, because the standard for review of the different motions is not the same, and there was some question whether a 12(b)(6) motion would be granted, had it been filed.

The court concluded that Rule 12(f) of the Federal Rules of Civil Procedure does not authorize a district court to dismiss a claim for damages on the basis it is precluded as a matter of
law.


 

MDL Court Rejects Class Action In Genetically Modified Rice Litigation

The MDL court overseeing the litigation arising from alleged contamination of the U.S. rice supply by genetically modified strains has declined to certify a proposed class. In re Genetically Modified Rice Litigation, MDL No.1811, 2008 WL 3539879 (E.D. Mo. August 14, 2008).

Plaintiffs, U.S. long grain rice producers, alleged that the defendants contaminated the U.S. rice supply with non-approved genetically modified strains of rice, thereby affecting the market price for plaintiffs' crops. Plaintiffs alleged that the U.S. market price for rice dropped dramatically as a result of defendant's alleged contamination of the rice supply. (The United States is one of the leading producers in the world of rice, accounting for approximately 13% of the worldwide rice trade. Nearly half of the U.S. rice supply is exported to other countries.)


Mass Accident
While plaintiffs' primary claim for damages was that the defendants' activities caused a market loss injury to the U.S. rice market, the complaint asserted statutory and common law claims of public nuisance, private nuisance, negligence, products liability, and strict liability for ultra-hazardous activities. Thus, the court observed that, in many respects, the alleged widespread contamination of U.S. rice is akin to a “mass accident” mass tort - the sort of case that the Advisory Notes to Rule 23 say should rarely be afforded class treatment. A mass tort resulting in injuries to numerous persons is ordinarily not appropriate for a class action because of the likelihood that significant questions, not only of damages but of liability and defenses to liability, would be present, affecting the individuals in different ways. In these circumstances an action conducted nominally as a class action would degenerate in practice to multiple lawsuits separately tried. See Pruitt v. Allied Chemical Corp., 85 F.R.D. 100, 111 (E.D.Va.1980) (denying class certification for all plaintiffs who claimed to be injured as a result of defendant's pollution of a river, as the pollution affected various groups of plaintiffs in significantly different ways).


Damages Key on Predominance
MassTortDefense notes how significant the issue of damages was to the certification decision, and in particular the predominance inquiry balancing individual issues and alleged common issues. The court observed that, ordinarily, variation in individual damage amounts is not a bar to class certification. Even wide disparity among class members as to the amount of damages suffered does not necessarily mean that class certification is inappropriate. See Bell Atlantic v. AT & T Corp., 339 F.3d 294, 306 (5th Cir.2003). However, class certification “may not be suitable where the calculation of damages is not susceptible to a mathematical or formulaic calculation, or where the formula by which the parties propose to calculate damages is clearly inadequate.” Bell Atlantic, 339 F.3d at 306 (citing Broussard v. Meineke Discount Muffler Shops, Inc., 155 F.3d 331, 342-343 (4th Cir.1998)).


Here, plaintiffs argued that they could show on a class-wide basis the total amount of economic harm caused by the contamination. Plaintiffs argued they could show the total quantity of long-grain rice affected. Using these two market-based figures, plaintiffs would supposedly calculate damage on a per-hundredweight basis. This figure will be used to calculate each individual plaintiff's damages. Each class member would attest to the quantity of rice sold, and that figure would be multiplied by the per-hundredweight loss.

But the court was not persuaded that the calculation of damages in this case was a common issue. What plaintiffs have proposed was a convenient shorthand calculation that might represent an estimate of some damages for some plaintiffs. It might be a reasonable basis on which to reach a settlement of some claims, mused the court. But plaintiffs' proposed method for calculating damages does not represent an actual adjudication of any one plaintiff's claims. Rather, calculation of actual damage is an individual issue specific to each plaintiff in this case, involving a unique inquiry into the time, place, and manner in which each plaintiff both priced and sold the rice.


For example, some rice producers entered pools or cooperatives to sell their rice. Others sold rice through booking contracts, where a quantity of rice to be delivered or a price to be paid might be set far in advance. Rice producers using basis contracts or hedge-to-arrive contracts employed yet more complicated methods for pricing and selling their rice. An accurate, true assessment of any plaintiff's damages would require an extensive inquiry involving the circumstances of that particular plaintiff. This case was therefore more like those cases where class certification was denied because individual damages issues predominated over common elements. This individual inquiry on damages predominated over the common issues allegedly raised in the class action complaint.


Superiority Lacking
The class method was not superior either. The claims process would devolve into an endless series of “mini-trials” that would fail to meet the goals of class certification. Also, hundreds of plaintiffs had shown significant interest in prosecuting their own claims. While plaintiffs argued that to deny class certification in this case would result in hundreds of full-scale individual trials across five states, all dealing with the same issues, the court noted that there are many options available to resolve the hundreds of cases in this MDL. The parties can propose a collection of “test cases” to be tried to verdict before deciding how other cases should be handled. The MDL court also has the option of going to trial on the claims of the plaintiffs named in the master consolidated complaint that was filed in its home district.

The opinion is thus also instructive on the willingness to look at real world trial plans and alternate methods of moving an MDL forward, beyond class action treatment.