Kentucky Appeals Court Reverses Diminished Value Class, Rejects Fraud-on-the-Market Theory
My colleague, John Beisner, is involved in this case, so I'll merely report the decision here.
This morning the Kentucky Court of Appeals reversed a trial court's certification of a class of Vioxx users who asserted a diminished value theory of recovery under various consumer fraud causes of action. See Merck & Co. v. Ratliff, No. 2011-CA-000234-MR, Slip op. (Ky. App. Feb. 10, 2012).
The court embraced the "rigorous analysis" standard and cited Dukes.
The court held that the fraudulent misrepresentation and negligent misrepresentation causes of action presented too many individual issues that predominated over any common issues, making class certification reversible error.
Plaintiffs also had asserted a fraud-on-the-market theory. The court observed that such a theory has been employed by other courts in the securities context to create a presumption that class members relied on the defendant's alleged misrepresentations. But the court refused to import such a concept into Kentucky law, particularly in a consumer products case:
In the present case we have a corporate defendant that has allegedly disseminated false, fraudulent, or misrepresentative information into the marketplace. However, while we have sympathy for the users of Vioxx whose physicians may have relied upon such false or incomplete information, the "fraud-on-the-market" approach has never been recognized in this jurisdiction for a fraud or misrepresentation case. Further, every other jurisdiction we found which has been confronted with the theory has rejected it outside the securities litigation context. . . .
For this reason, we decline to recognize a similar theory here. Causation, reliance, and damages are required to be shown on an individual basis. Thus, if the action were tried as a class, after the common questions of Merck's representations in its marketing campaign were decided, the case would essentially fragment into a series of amalgamated "mini-trials" on each of these individualized questions. . . .
Thus, we find that common questions do not predominate. Further, because these individualized questions would substantially overtake the litigation, and would override any common questions of law or fact concerning Merck's conduct, we find that a class action is not the superior mechanism by which to try these cases. . . .
Slip op. at 15-16 (citations omitted).
