California District Court Employs Presumption of Reliance in Consumer Class Action
A few weeks ago a federal court in California issued a decision that has profoundly troubling implications for consumer fraud class actions. See Wiener v. Dannon Co., 2009 WL 383650 (C.D. Cal. Jan. 30, 2009).
In Wiener, the plaintiff challenged two of Dannon's brands that contain probiotic bacteria: (1) Activia yogurt, which is advertised as "'scientifically proven' to naturally regulate digestion when eaten daily for two weeks," and (2) DanActive drinkable dairy product, which is marketed as "'clinically proven' to strengthen the immune system." Id. at *1. Dannon claims to have approximately twelve studies that support its claims about Activia, and approximately twenty-one that support its claims about DanActive.
The decision in Wiener starts off uncontroversially enough. Plaintiff sought to represent a class of "[a]ll persons who purchased in California at any time up to August 1, 2008, DanActive, Activia or Activia Li[ght]," asserting claims under California's Unfair Competition Law, its Consumer Legal Remedies Act, and a claim for breach of express warranty. The court denied class certification, holding that the plaintiff -- who had bought Activia, but had never bought DanActive -- was not typical of absent class members who had bought DanActive:
In cases involving a variety of products, courts, emphasizing that different products have different functions and different consumers, have held that a named plaintiff that purchased a different product than that purchased by unnamed plaintiffs fails to satisfy the typicality requirement of Rule 23(a)(3). . . . Dannon has made different health benefit claims regarding Activia and DanActive, which feature different types of probiotic bacteria . . . Therefore, the products target consumers with different health issues. Moreover, different studies allegedly substantiate these health benefits. Furthermore, the advertising and marketing of the two products is separate. . . . In other words, the evidence needed to prove Wiener's claims involving Activia . . . is not probative of the claims of unnamed class members who purchased DanActive . . .
Id. at *4-*5 (citations omitted). Nevertheless, the court gave plaintiff leave to amend to substitute into the case an appropriate class representative. As a result, the court did not stop its analysis with typicality, but proceeded to address the other class action prerequisites. The opinion goes downhill from there.
The court found that the remaining prerequisites of Rule 23(a) were satisfied. In analyzing predominance under Rule 23(b), the court acknowledged that reliance on the alleged misrepresentation was an element of plaintiff's causes of action. Dannon argued that because there was a variety of different print, TV, in-store and other marketing materials, the nature of the alleged misrepresentation -- as well as whether it was material to the consumer's decision to buy the product -- would be individual issues that would have to be litigated for each class member.
The court disagreed, opining that at trial, plaintiffs could rely on an "inference of reliance" that "arises if material misrepresentations were 'made to persons whose acts thereafter were consistent with reliance upon the misrepresentation.'" Id. at *8 (citation omitted). Numerous courts, of course, have rejected just such a presumption of reliance, noting that although it may make sense in an "efficient market" like the securities market, which is capable of rapidly assimilating new information into the prices of stocks, the market for consumer goods is not "efficient," in that buyers often fail to take into account new information and make their purchase decisions based on any number of other factors, such as taste, personal preferences, brand loyalty and the like. See, e.g., McLaughlin v. American Tobacco Co., 522 F.3d 215, 223-25 (2d Cir. 2008); International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., 929 A.2d 1076, 1088 (N.J. 2007).
The district court -- although aware that people buy consumer products for different reasons -- seemed to penalize Dannon for not having submitted expert proof as to what all of those individual reasons for purchase might be:
The record clearly establishes that the characteristic that distinguishes the Products from others on the market is their respective alleged health benefit. Dannon has not pointed to any meaningful difference in flavor, serving size, or the like that might influence consumers' purchases. . . . The Court is aware that many factors influence all consumers' purchasing decisions, a point which Dannon emphasizes, yet given the alleged misrepresentations are the distinguishing characteristic of the Products, the Court finds that these representations induced consumer purchases because without the alleged misrepresentations, there is no reason, even with sales, coupons, or other promotions, to suggest that purchasers would have selected the Products over other Dannon products or similar, generally less expensive, products by other brands. . . . Thus, the Court finds that the evidence presently before the Court allows for an inference of reliance in this case.
Wiener, 2009 WL 383650 at *9 (citations omitted).
Interestingly, the court acknowledged that Dannon would have the right to rebut the inference of reliance, but it did not explain how that could be done manageably at trial. Id. at *8.
Dannon also had pointed out the difficulty of proving individual damages in consumer products cases, where the products may have had very different prices, been subject to coupons or rebates, and may even have been returned for a refund. The court, however, was having none of that argument. It merely repeated the mantra that the calculation of individual damages should not defeat class certification, and posited that "actual damages for these claims can be calculated by subtracting the value of the Products without the claimed health benefits, a uniform value to be determined based on the evidence presented at trial, from the price that the particular class member is able to prove he or she paid." Id. at *10.
Once the plaintiff in Wiener amends the complaint to add into the action another named plaintiff who actually bought DanActive, we can expect the court to certify the class action using the specious "presumption of reliance" that robs the defendant of its ability to present individual defenses regarding what actually motivated the product purchase decision. Thankfully, Wiener lies far outside the mainstream of thought on reliance issues in consumer products cases. But the opinion represents a troubling undercurrent of thought that too readily sacrifices the defendant's right to challenge individual claims in order to make it easier to try them in the aggregate.
I applaud this decision, which is clearly right. It should be sufficient to draw an inference of reliance if the evidence establishes a reasonable likelihood that the preponderance of members of the class received or had access to the false statements and misrepresentations in advance of making their purchase decisions.
Class Actions serve a critical purpose in our legal system--providing incentives for attorneys to redress wrongs that, individually, are too small to litigate. Reliance and causation should never bar the courthouse steps to claims like this. In this era of massive corporate corruption, unconscionable misconduct and negligence by overpaid corporate executives, and an increasingly conservative judiciary that has too often failed to support justice based on flimsy and unsupported cries by corporate america about alleged litigation abuse, it is vitally important to reaffirm our commitment to encouraging lawyers to serve the public interest and the cause of justice by prosecuting class action cases against unscrupulous companies and their executives who would otherwise commit wrongs with impunity.