Court of Appeals Affirms Summary Judgment in Home Products Case

The 8th Circuit recently affirmed the grant of summary judgment to the defendant in a proposed class action brought by an Iowa homeowner suing over allegedly defective house trim.  See Brown v. La.-Pac. Corp., No. 15-1830, 2016 WL 1425824 (8th Cir. 4/12/16).

In 2003, Brown purchased a lot and hired a contractor, who in turn selected defendant's  TrimBoard as the product to be installed on Brown's new home. The TrimBoard installed on Brown's home came with a ten-year limited warranty, covering delamination, checking, splitting, cracking and chipping of the basic substrate for a period of ten years from the date of installation under normal conditions of use and exposure, providing the trim is properly stored, installed, maintained, and protected as specified in defendant's Application Instructions.

Plaintiff never viewed informational or advertising literature for TrimBoard, never spoke to any representative of defendant about the TrimBoard product, and did not see a copy of the limited warranty prior to the product's installation on his home.

In August 2004, Brown moved into his new home. Sometime in 2010, plaintiff allegedly noticed damage to certain pieces of the installed TrimBoard. Ultimately, defendant offered Brown $197.67 in compensation for the damaged TrimBoard, which Brown rejected. In January 2011, Brown hired a local contractor to replace various pieces of TrimBoard on his house, at a total cost of $1,700.00, inclusive of labor and materials. 

Brown subsequently filed this putative class action, alleging claims for negligence, fraudulent misrepresentation, breach of warranty, and unfair or deceptive practices, and requesting declaratory relief and money damages. After some rounds of motion practice, the claims were dismissed. On appeal, Brown argued that the district court erred in granting summary judgment  on his claims for fraudulent misrepresentation, unfair or deceptive practices, and breach of warranty.

The court of appeals began with the fraudulent misrepresentation claim. For Brown to prevail on his fraudulent-misrepresentation claim under Iowa law, he needed to prove the following elements:

(1) defendant made a representation to the plaintiff, (2) the representation was false, (3) the representation was material, (4) the defendant knew the representation was false, (5) the defendant intended to deceive the plaintiff, (6) the plaintiff acted in reliance on the truth of the representation and was justified in relying on the representation, (7) the representation was a proximate cause of plaintiff's damages, and (8) the amount of damages.  Gibson v. ITT Hartford Ins. Co., 621 N.W.2d 388, 400 (Iowa 2001).

The court focused on justifiable reliance. Brown contended that LP's alleged misrepresentations were passed through a third party—his contractor—and then communicated to Brown and relied upon by him. Iowa law provides that "persons who fraudulently misrepresent the truth can be held liable to third parties if they have a 'reason to expect' their misrepresentation will be communicated to third parties." Clark v. McDaniel, 546 N.W.2d 590 , 593 (Iowa 1996) (quoting Restatement (Second) [*4] of Torts § 533 (1977)); see also United States v. Hawley, 619 F.3d 886 , 897 (8th Cir. 2010) ("The [Iowa Supreme] Court [in Clark] expressly adopted section 533 of the Restatement (Second) of Torts (1977) . . . .").  An objective standard applies to whether one has "reason to expect" reliance by another: "'The maker of the misrepresentation must have information that would lead a reasonable man to conclude that there is an especial likelihood that it will reach those persons and will influence their conduct.'" Id. (quoting Restatement (Second) of Torts § 533 cmt. d (1977)). "[T]he fact that the maker has an advantage to gain, even though it is in some other transaction, by furnishing the misrepresentation for repetition to the third person is of great significance in determining whether he has reason to expect that the original recipient should so repeat it." Restatement (Second) of Torts § 533 cmt. e (1977) (emphasis added).

Here, however, the court found that Brown presented insufficient evidence that his contractor ever received a relevant communication from LP. The contractor failed to identify "which advertisements he viewed, when he viewed them, or which statements from the advertisement he read and relied upon in advising [Brown] of the suitability of the product."  In fact, it appeared that the contractor was provided with copies of ads at the time of his sworn affidavit and he could only affirm that the advertisements were consistent with materials he recalled possibly viewing some nine to ten years ago. So the record left open the distinct possibility that the contractor had heard of TrimBoard from another source.

The court turned next to the unfair and deceptive trade practices act claim. The Iowa Private Right Act provides that any "consumer who suffers an ascertainable loss of money or property as the result of a prohibited practice or act in violation of this chapter may bring an action at law to recover actual damages." Iowa Code Ann. § 714H.5(1)(including material misrepresentations). Brown argued that the materiality of LP's alleged misrepresentations created an inference of causation that satisfied factual causation between LP's alleged unfair or deceptive trade practice and Brown's damages. But the act requires that plaintiff "suffer[ed] an ascertainable loss of money or property as the result of a prohibited practice." Iowa Code Ann. § 714H.5(1). And Brown failed to establish such causation as a matter of law. To show causation, Brown needed to prove that, but-for LP's purported misrepresentation, he would not have elected to purchase TrimBoard and install it on his home. And to satisfy this requirement, he needed to show that his contractor received a material representation that LP made. As noted, Brown failed to satisfy this showing. Because Brown produced no evidence that the contractor was the recipient of any representation made by LP, Brown "failed to generate a genuine issue of material fact with respect to causation."

Finally, Brown argued that the limited warranty failed of its essential purpose by inadequately compensating him for the costs to repair the direct and consequential damages to his home. The Iowa Supreme Court has elaborated on the meaning of "essential purpose," stating:  A remedy's essential purpose "is to give to a buyer what the seller promised him." Hartzell v. Justus Co., Inc., 693 F.2d 770 , 774 (8th Cir. 1982). The focus of analysis "is not whether the remedy compensates for all damage that occurred, but that the buyer is provided with the product as seller promised." Brunsman v. DeKalb Swine Breeders, Inc., 952 F. Supp. 628 , 635 (N.D. Iowa 1996); Nelson v. DeKalb Swine Breeders, Inc., 952 F. Supp. 622 , 628 (N.D. Iowa 1996).

Where repair or replacement can give the buyer what is bargained for, a limitation of remedies does not fail of its essential purpose. Badgett Constr. & Dev. Co. v. Kan-Build, Inc., 102 F. Supp. 2d 1098 , 1105 (S.D. Iowa 2000). In other circumstances, however, repair or replacement is not sufficient, and then a court may find the remedy failed of its essential purpose. See Select Pork, Inc. v. Babcock Swine, Inc., 640 F.2d 147 , 150 (8th Cir. 1981). "The issue of whether a limited remedy fails of its essential purpose is separate and distinct from whether a limited remedy is unconscionable." Baptist Mem'l Hosp. [*9] v. Argo Constr. Corp., 308 S.W.3d 337 , 345 (Tenn. Ct. App. 2009). Here, Brown essentially argued that the warranty fails of its essential purpose because the defect was latent and could not have been discovered. But numerous jurisdictions have held that a latent defect does not cause an exclusive contractual remedy to fail of its essential purpose. See Arkwright-Boston Mfrs. Mut. Ins. Co. v. Westinghouse Elec. Corp., 844 F.2d 1174 , 1179-80 (5th Cir. 1988); Wis. Power & Light Co. v. Westinghouse Elec. Corp., 830 F.2d 1405 , 1412-13 (7th Cir. 1987); Boston Helicopter Charter, Inc. v. Agusta Aviation Corp., 767 F. Supp. 363 , 374 (D. Mass. 1991); Hart Eng'g Co. v. FMC Corp., 593 F. Supp. 1471 , 1479 (D.R.I. 1984); Regents of the Univ. of Colo. ex rel . Univ. of Colo. at Boulder v. Harbert Constr. Co., 51 P.3d 1037 , 1041 (Colo. Ct. App. 2001 ); Clark v. Int'l Harvester Co., 99 Idaho 326 , 581 P.2d 784 , 802-03 (Idaho 1978)). The court of appeals concluded that the Iowa Supreme Court would follow this majority rule.  The court also noted that there is no evidence—and Brown made no allegation—that the purported defects in the TrimBoard were not remedial and could not be repaired or replaced.  So, the mere fact that the Limited Warranty does not compensate a buyer for the entirety of his damages does not mean it has failed of its essential purpose.

Handcrafted Bourbon Class Dismissed

 A California federal court earlier this month dismissed a proposed class action claiming the makers of Jim Beam misrepresented its bourbon as “handcrafted.”  See Scott Welk v. Beam Suntory Import Co. et al., No. 3:15-cv-00328 (S.D. Cal. 8/21/15)  A victory for common sense.

This putative class action centered on the use of the word "handcrafted" on Jim Beam Bourbon bottle labels. The use of the term "Bourbon" for a type of whiskey has been traced to the 1820's, and the term began to be used consistently in Kentucky in the 1870's. According to the Kentucky Distillers' Association, Kentucky produces 95 percent of the world's bourbon supply.

The complaint asserted causes of action for violation of California's false advertising law, Cal. Bus. & Prof. Code § 17500 et seq. ("FAL"), violation of California's unfair competition law, id. at § 17200 et seq. ("UCL"), intentional misrepresentation, and negligent misrepresentation. Jim Beam filed a motion to dismiss, arguing (1) under California's safe harbor doctrine, its compliance with federal labeling law insulates it from Welk's claims, (2) Welk failed to state a plausible claim because he hasn't alleged facts to show that the label would mislead a reasonable consumer, and (3) the economic loss doctrine barred Welk's negligent misrepresentation claim.

Let's focus on the reasonable consumer issue. According to Welk, a "reasonable consumer" would believe that "Jim Beam Bourbon was crafted by hand" and that consumers have long associated this with higher quality manufacturing and high-end products. But, he alleged, Jim Beam Bourbon was actually manufactured using at least in part a mechanized and/or automated process. California UCL and FAL claims are governed by the "reasonable consumer" test. Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir. 2008). Under that standard, Welk must "show that members of the public are likely to be deceived." Id.  A reasonable consumer is the ordinary consumer acting reasonably under the circumstances, and is not versed in the art of inspecting and judging a product, in the process of its preparation or manufacture. See Colgan v. Leatherman Tool Grp., Inc., 135 Cal.App.4th 663, 682 (2006).  Where a court can conclude as a matter of law that members of the public are not likely to be deceived by the product packaging, dismissal is appropriate. See Werbel ex rel. v. Pepsico, Inc., 2010 WL 2673860, at *3 (N.D. Cal. July 2, 2010).

Generalized, vague, and unspecified assertions constitute mere puffery upon which a reasonable consumer could not rely. McKinney v. Google, Inc., 2011 WL 3862120, at *6 (N.D. Cal. Aug. 30, 2011).  Rather, 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. Vitt v. Apple Computer, Inc., 469 Fed. Appx. 605, 607 (9th Cir. 2012).

The court concluded that Welk's proposed definition of the word "handcrafted" just doesn't fit the process of making bourbon. To make bourbon, grains are ground into "mash" and cooked; then yeast is added, and the mixture ferments; then the mixture is distilled, i.e., heated until the alcohol turns to vapor; then the alcohol is cooled until it returns to liquid form, and transferred to barrels for aging. Indus. & Trade Summary, USITC Pub. No. 3373, 2000 WL 1876666 (Nov. 2000). Fermentation, distillation, and aging are necessary to meet the legal definition of bourbon. See 27 C.F.R. §§ 5.11, 5.22(b)(1)(I). Machines, including stills and other equipment, have always been necessary to make bourbon. See Henry Crowgey, Kentucky Bourbon: The Early Years of Whiskeymaking 34, 59 (2008).

Thus, a reasonable consumer wouldn't interpret the word "handcrafted" on a bourbon bottle to mean that the product is literally and completely "created by a hand process rather than by a machine." Thus, it isn't "reasonably interpreted as a statement of objective fact." Vitt, 469 Fed. Appx. at 607. Instead it's "generalized, vague, and unspecified" and therefore inactionable as "mere puffery." McKinney, 2011 WL 3862120, at *6; see also Salters, 2015 WL 2124939, at *3.

The court thus dismissed the suit with prejudice, saying no amendment would cure Welk's inadequate allegation that Jim Beam's use of the term "handcrafted" is misleading.

 

"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. 

Proposed CFA Class Action on Bath Products Is Dismissed

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

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

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

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

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

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

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

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

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

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

 

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.