Today, let’s continue mining the depths of the Eight Circuit’s recent decision, In re: St. Jude Medical, Inc., Silzone Heart Valve Products Liability Litigation, No. 06-3860, 2008 WL 942274, 522 F.3d 836
(8th Cir. April 9, 2008). The case offers a number of potential lessons for mass tort defendants, and not just those in the medical device arena. We already made some medical monitoring observations here.

CFA Claims Abound

Today’s focus is consumer fraud act (CFA) claims. Virtually every state has some version of an unfair or deceptive trade practice act, or some form of consumer-protection oriented fraud act. Often these statutes permit a private cause of action, in addition to possible enforcement by the state attorney general. Plaintiffs in the Silzone case relied on three Minnesota statutes, the False Advertising Act (MFAA), Minn. Stat. § 325F.67, the Consumer Fraud Act (MCFA), Minn. Stat. § 325F.69, and the Deceptive Trade Practices Act, Minn. Stat. § 325D.44.

Plaintiffs have been increasingly aggressive in recent years in seeking to apply such statutes to the traditional product liability world. Expanding the potential plaintiff group from those who actually suffered disease or personal injury as a result of a product, and beyond those who claim to be at increased risk of future personal injury (medical monitoring), such CFA claims seemingly permit anyone who used or purchased a product to seek economic damages (and sometimes punitives, and sometimes attorney fees, and sometimes treble or multiple damages). Thus, we now see CFA-type claims against drug and device makers, consumer product manufacturers, and a growing list of other industries.

Moreover, the elements of the CFA claims seem, superficially, more amenable to class action treatment. In particular, the courts’ treatment of the reliance element of CFA claims has been confused at times, shallow at others, and not always helpful to the defeat of class certification. Judge Colloton goes right to the heart of this issue: “This case exemplifies the difficulty with class treatment of cases alleging fraud or misrepresentation.” Id. at 838. In a typical common law fraud claim or negligent misrepresentation claim, a plaintiff must show he or she saw or heard the fraudulent statement and reasonably relied on it. Because proof virtually always varies among plaintiffs concerning what they saw and heard and the degree to which they relied, if at all, and the reasonableness of the reliance, such fraud claims generally shouldn’t be and don’t get certified as class actions.

Lower Court Got It Wrong

However, the District Court held that proof of individual reliance is unnecessary under the Minnesota consumer protection law (which the court was applying to all plaintiffs from 17 states). This conclusion was based on Group Health Plan Inc. v. Philip Morris Inc., 621 N.W.2d 2 (Minn. 2001), which stated that the state legislature had “eliminated the requirement of pleading and proving traditional common law reliance as an element of a statutory misrepresentation claim.” The absence of any need to prove reliance, said the plaintiffs, eliminated this as an individual issue. And thus the allegedly common issue of the defendant’s fraudulent conduct predominated.

Unlike common law fraud, many consumer fraud statutes do not explicitly require a showing of reliance.  For this reason, plaintiffs have repeatedly argued that manufacturers can be held liable to
an entire class of plaintiffs for an alleged misrepresentation— even if most members of the
class never saw the misrepresentation, or saw it but purchased the item for some other, unrelated
reason. Consumer fraud defendants have fought back against this line of attack, with
varying degrees of success, by arguing that causation, which is required under most consumer
fraud statutes, cannot be proven in such situations.

8th Circuit Offers Deeper Analysis

The Court of Appeals, in a more nuanced analysis here, noted that while it was not necessary for plaintiffs to plead individual consumer reliance, and need not provide direct evidence of reliance by individual consumers as part of their burden of proof, that was not the end of the analysis. Plaintiffs must – and this is true generally beyond Minnesota – prove a causal nexus between the allegedly wrongful conduct of the defendant and the plaintiff’s damages. Thus, “reliance” evidence about the relationship between the claimed damages and the alleged conduct is relevant and probative of the causation issue – even when presented by the defendant.

The 8th Circuit believed that there was a “reliance component” to the causation element, at least where as a practical matter it is not possible that the damages could be caused by the alleged violation without some kind of reliance on the statements or conduct alleged to violate the statute.

But even if plaintiffs were not required to present any direct proof of individual reliance, this would not prevent a defendant from presenting direct evidence that an individual plaintiff, or his or her physician, did not rely on any representations from the company. “Whatever Group Health means about the need for these plaintiffs to present direct evidence of individual reliance, it does not eliminate the right of a defendant to present evidence negating a plaintiff’s direct or circumstantial showing of causation and reliance.”  2008 WL 942274 at *3, 522 F.3d at 840.

Why This Matters?

This is a huge issue for defendants in many kinds of class action, including but not limited to CFA claims. Too often, courts addressing certification rely on an analysis of plaintiffs’ burden of proof and the elements of their claim. Sometimes, courts will look at affirmative defenses – but often relegating such to later phases of a bifurcated proceeding to give the impression that common issues dominate the first phase. More rarely, courts conduct the full analysis we see here: in addition to plaintiffs’ burden of proof, and formal affirmative defenses, defendant has a due process right to offer relevant, probative evidence tending to negate or defeat plaintiffs’ cause of action. If that evidence raises individual issues, if the nature of that evidence will require individual discovery and particularized assessment by the finder of fact, those individual issues are just as relevant to the class certification decision as individual or common issues raised by the elements of the cause of action itself.

The defendant here planned to present evidence of non-reliance by individual plaintiffs, and thus an absence of causation, and this made it clear to the appeals court that resolving the issue of the company’s liability to each plaintiff under the Minnesota consumer fraud statutes would depend on individual issues of causation and reliance. Specifically, “St. Jude has presented evidence that a number of implant patients did not receive any material representation about the heart valve.” The doctors who prescribed the valves had “learned about St. Jude’s heart valve in different ways.” One doctor heard about the valve “from a senior partner, another discovered it at a cardiology conference, and a third learned about the valve from a St. Jude sales representative and a St. Jude advertisement.” (Two of the five named plaintiffs couldn’t remember hearing anything about the valve.)  Any trial thus would require a physician-by-physician inquiry into each doctor’s sources of information about the valve. “Given the showing by St. Jude that it will present evidence concerning the reliance or non-reliance of individual physicians and patients on representations made by St. Jude, it is clear that resolution of St. Jude’s potential liability to each plaintiff under the consumer fraud statutes will be dominated by individual issues of causation and reliance.”  Id.

The court recognized that there may be certain issues that are common to all plaintiffs, such as whether certain published representations about the valve were materially false. But without even reaching the issue of choice of law and the questionable application of one state’s law to plaintiffs from 17 jurisdictions, the court found it clear that the common issues do not predominate over the individual issues that must be litigated to resolve the plaintiffs’ CFA claims. Increasingly, courts are being asked to certify sweeping consumer fraud class actions based on abstract and unproven economic injuries. St. Jude provides precedent for defendants’ right to present a defense based on lack of reliance/causation, and its impact on class certification.