Federal Court Decertifies "Natural" Damages Class Action- Naturally

A federal court last week ordered decertification of a damages class action challenging “all natural” fruit labels, due to deficiencies with the the plaintiffs' damages model. See Brazil v. Dole Packaged Foods, LLC,  No. 12-1831 (N.D. Cal., 11/6/14).

Our loyal readers know we have posted on Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), and its potential impact on proposed damages class actions. Here, plaintiff alleged that 10 products, three he purchased and seven that were "similar", had labels that were false and misleading, especially with regard to their use of the term "natural," because all ten products contain ascorbic acid (commonly known as Vitamin C) and citric acid, both allegedly synthetic ingredients.

The court granted in part and denied in part the plaintiff's Motion for Class Certification on May 30, 2014. With respect to the damages class, Brazil's damages expert, Dr. Oral Capps, had advanced three models for measuring the alleged price premium attributable to Dole's use of the "All Natural" label statements. Of those three, the Court originally accepted only the model based on econometric or regression analysis. The Court concluded that the Regression Model, as originally presented to the Court at the time, provided a means of showing damages on a class-wide basis through common proof, thus satisfying the Rule 23(b)(3) requirement that common issues predominate over individual ones.  In reaching this conclusion, the Court rejected Dole's argument that class certification should be denied because Dr. Capps had not yet run his full regressions.

On August 21, 2014, Dole filed a Motion to Decertify.  Readers know that the standard used by the courts in reviewing a motion to decertify is the same as the standard when it considered plaintiffs' certification motions. E.g,, Ries v. Ariz. Beverages USA LLC, 2013 WL 1287416 , at *3 (N.D. Cal. Mar. 28, 2013).  On a motion for decertification, the burden remains on the plaintiffs to demonstrate that the requirements of Rules 23(a) and (b) are met.. Id . (quoting Marlo v. United Parcel Serv., Inc., 639 F.3d 942 , 947 (9th Cir. 2011)); see also Negrete v. Allianz Life Ins. Co. of N. Am., 287 F.R.D. 590 , 598 n.1 (C.D. Cal. 2012).

In its Motion to Decertify, Dole made two chief contentions. First, Dole argued that the damages class certified under Rule 23(b)(3) should be decertified because Dr. Capps' Regression Model was fundamentally flawed, rendering it incapable of measuring only those damages attributable to Dole's alleged misbranding. Second, Dole contends that the damages class, as well as the injunction class certified under Rule 23(b)(2) , should be decertified because neither is ascertainable.  Let's focus on the former. 

To satisfy the Rule 23(b)(3) predominance requirement, plaintiff needed to present a damages model that was consistent with his liability case. Comcast, 133 S. Ct. at 1433. More specifically, the regression model purporting to serve as evidence of damages in this class action must measure only those damages attributable to Dole's alleged conduct. Specifically, the type of damages that Brazil's model sought to prove was restitution, a remedy whose purpose is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest. Kor. Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134 , 1149 , 131 Cal. Rptr. 2d 29, 63 P.3d 937 (2003). The UCL, FAL, and CLRA - statutes relied on by plaintiff -- authorize California trial courts to grant restitution to private litigants. See Colgan v. Leatherman Tool Grp., Inc., 135 Cal. App. 4th 663 , 694, 38 Cal. Rptr. 3d 36 (2006). The proper measure of restitution in a mislabeling case, said the court, is the amount necessary to compensate the purchaser for the difference between a product as labeled and the product as received. Restitution is then determined by taking the difference between the market price actually paid by consumers and the true market price that reflects the impact of the unlawful, unfair, or fraudulent business practices. See Werdebaugh v. Blue Diamond Growers, 2014 WL 2191901 , at *22 (N.D. Cal. May 23, 2014). Accordingly, Brazil had to present a damages methodology that can accurately determine the price premium attributable to Dole's use of the "All Natural Fruit" label statements.

Right out of the box, plaintiff had trouble with the methodology, which originally compared data on identical Dole products: the product before the label statement was introduced, and the same product after its label included the alleged misrepresentation.  But as it turned out, discovery revealed that the labels for nine of the ten products in the certified class did not actually change during the class period. So Dr. Capps had to change his methodology as a result, going to a type of regression methodology known as "hedonic price analysis" or "hedonic regression."  

Then, Dole identified six flaws with the new method [the "Model"]: (1) the Court approved a "sales" regression but Dr. Capps performed a "price" regression; (2) the Model confused "brand" and "label"; (3) the Model improperly used retail-level data; (4) the Model did not control for other variables; (5) the Model had data errors; and (6) the Model failed under Comcast. The Court relied on the latter three arguments to find that Dr. Capps' Model did not sufficiently isolate the price impact of Dole's use of the "All Natural Fruit" labeling statements, and therefore failed under Comcast to adequately tie damages to Dole's supposed misconduct.

Plaintiffs had represented that the Model could control for all other factors that may affect the price of Dole's fruit cups, such as Dole's advertising expenditures, the prices of competing and complementary products, the disposable income of consumers, and population.  But the court agreed with Dole, for example, that Brazil failed to show how the Model controlled for other variables affecting price. With respect to advertising, Dr. Capps admitted that he did not control for this variable -- i.e., whether any price premium on the challenged products was due to Dole's "All Natural Fruit" labeling claim rather than to its advertising expenditures. Moreover, many of Dr. Capps' assumptions about the competing products upon which his model relies were either wrong or untested. For example, it was not shown that Del Monte, Dole's chief competitor, actually made the "All Natural" labeling claim on its products. This methodology cannot survive Comcast, said the court. The whole stated objective of Dr. Capps' model was to isolate the price premium supposedly attributable to Dole's "All Natural Fruit" label claim. So if the model was unsure whether the non-Dole products actually made an "All Natural" labeling claim, then how could a court know whether the price premium the model generates is based on Dole's labeling claim rather than on some other factor? "Put simply, it cannot."   

The Model also overlooked differences in how the products are packaged. Consumers might be willing to pay a premium for fruit products packaged in a certain way. Many of the challenged products, such as the "Pineapple Tidbits," come in "four packs," or four, 4-oz. cups packaged together. But Dr. Capps' model treated a "four pack" as equal to a 16-oz can. There is no control for packaging convenience in the model, even though consumers might well pay a premium for the convenience of four individual fruit cups.

Thus, plaintiff had not met his burden to show that the model he proposed was capable of controlling for all other factors and isolating the price premium, if any, attributable to Dole's "All Natural Fruit" label only. As such, Comcast required the court to find that the Rule 23(b)(3) predominance requirement had not been satisfied.

Damages class decertified.

 (Court rejects ascertainability challenges to injunctive relief class. More on that another day.)