Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

Yes, you read that headline correctly.  The Ninth Circuit actually reversed certification of a class!  It was a split opinion, however.  And the swing vote -- again, who voted to reverse class certification -- was none other than U.S. District Judge James Gwin from Cleveland, sitting by designation.  January 12 was truly a red-letter day.  See Mazza v. Am. Honda Motor Co., 2012 WL 89176 (9th Cir. Jan. 12, 2012).

Mazza reaches a few conclusions that I disagree with, but it has some important analysis of conflicts of law and of class definitions that will provide important precedents in attacking consumer class actions in the Ninth Circuit.

Mazza was all about what Honda told customers about its cruise control and automatic braking system, the "Collision Mitigation Braking System" ("CMBS") during a three-year period beginning in 2005.  Plaintiffs claimed Honda should have disclosed that the system turns itself off in bad weather, might not stop a vehicle before impact, and that its three stages might overlap.

Honda had a limited TV ad campaign in November 2005 and for nine months in 2006.  It had a magazine ad campaign during the same timeframe in 2006.  Then it opted for smaller-scale marketing, such as videos viewable on kiosks at Acura dealerships, and videos available on an owner's website.

The district court certified a nationwide class asserting claims under California's Unfair Competition Law, False Advertising Law, Consumer Legal Remedies Act, and "unjust enrichment." 

Because Honda did not challenge the district court's finding that "common questions exist as to whether Honda had a duty to disclose or whether the allegedly omitted facts were material or misleading to the public," the Ninth Circuit held that the commonality requirement as described in Wal-Mart v. Dukes had been satisfied. 2012 WL 89176 at *5. 

The court then focused on what law should be applied.  The court began its analysis by holding that California law could have been applied to the class consistent with the Constitution:

California has a constitutionally sufficient aggregation of contacts to the claims of each putative class member in this case because Honda's corporate headquarters, the advertising agency that produced the allegedly fraudulent representations, and one fifth of the proposed class members are located in California.

Id. at *6.  The court reaches this conclusion, however, without analyzing the expectations of the parties whose transactions were conducted wholly out of state.  Shutts taught that, constitutionally, such expectations matter.  Similarly, the court neglected to consider whether the causes of action here -- which are not product liability claims, but instead are all based on representations made (or not made) in the plaintiffs' home states -- really give California standing to assert an interest.  I may be a New York resident, but if I go to North Dakota, make some representations in North Dakota, and ultimately engage in a business transaction in North Dakota, that doesn't give my home state any interest in regulating the transaction, which occurred outside its borders.  I would argue the same is true in Massa.  The claim is not that Honda made a defective product that emanated from California.  Rather, it's that when Honda was in North Dakota dealing with a North Dakota purchaser, it chose not to say things there that it should have said.  That claim has no real nexus with California, other than Honda's citizenship.  And, I would argue, it would be unconstitutional for California to attempt to assert its laws extraterritorially to govern such conduct by its citizen in other states.

Regardless, the Ninth Circuit held that under California's own choice of law principles, "the district court abused its discretion in certifying a class under California law that contained class members who purchased or leased their car in different jurisdictions with materially different consumer protection laws."  Id. at *6.

Honda had briefed the differences in state consumer protection laws, but the district court had ignored them.  The Ninth Circuit concluded that these differences were important:  (1) some states require scienter, (2) some require reliance, while some don't, and (3) states have different available remedies.  Id. at *7.

In analyzing the interest of the competing jurisdictions in having their laws applied, the court recognized that a fundamental principle of federalism is giving a state the authority to regulate the conduct that occurs within its borders.  The Ninth Circuit also pointed out that in the context of consumer protection statutes, you can't simply look to see which state's statute "protects" consumers most.  Rather, these statutes involve a balancing of competing interests -- conducted primarily by the Legislature -- between protecting consumers and providing incentives to attract foreign businesses:

In our federal system, states may permissibly differ on the extent to which they will tolerate a degree of lessened protection for consumers to create a more favorable business climate for the companies that the state seeks to attract to do business in the state. . . . [T]he district court erred by discounting or not recognizing each state's valid interest in shielding out-of-state businesses from what the state may consider to be excessive litigation.  As California's Supreme Court recently re-iterated, each state has an interest in setting the appropriate level of liability for companies conducting business within its territory.

* * *

Getting the optimal balance between protecting consumers and attracting foreign businesses, with resulting increase in commerce and jobs, is not so much a policy decision committed to our federal appellate court, or to particular district courts within our circuit, as it is a decision properly to be made by the legislatures and courts of each state.  More expansive consumer protection measures may mean more or greater commercial liability, which in turn may result in higher prices for consumers or a decrease in product availability. . . . As it is the various states of our union that may feel the impact of such effects, it is the policy makers within those states, with their legislatures and, at least in exceptional or occasional cases where there are gaps in legislation, within their state supreme courts, who are entitled to set the proper balance and boundaries between maintaining consumer protection, on the one hand, and encouraging an attractive business climate on the other hand.

Id. at *8 (citations omitted).  The Ninth Circuit thus held that the district court failed to adequately recognize the interest of each state to applying its own law to the transaction, and further held that "each class member's consumer protection claim should be governed by the consumer protection laws of the jurisdiction in which the transaction took place."  Id. at *10.

The court next analyzed the predominance of common issues.  The Ninth Circuit held that the class definition -- which was an "all purchasers" and "all lessors" class -- swept into the class too many people who were never exposed to the alleged misrepresentations.  Plaintiffs pushed hard the argument that under In re Tobacco II, a California UCL class is entitled to a presumption of reliance on misrepresentations in advertising.  But the Ninth Circuit said no -- such a presumption of reliance only arises in the context of a "decades long" advertising campaign that not only denies the truth, but represents the polar opposite.  

Honda's advertising campaign fell far short of such an extensive and long-term ad campaign, and the ads did not deny that limitations to the CMBS performance exist.  These differences were significant, according to the court:

A presumption of reliance does not arise when class members "were exposed to quite disparate information from various representatives of the defendant."  California Courts have recognized that Tobacco II does not allow "a consumer who was never exposed to an alleged false or misleading advertising . . . campaign" to recover damages under California's UCL.  For everyone in the class to have been exposed to the omissions, as the dissent claims, it is necessary for everyone in the class to have viewed the allegedly misleading advertising.  Here the limited scope of that advertising makes it unreasonable to assume that all class members viewed it.

In the absence of the kind of massive advertising campaign at issue in Tobacco II, the relevant class must be defined in such a way as to include only members who were exposed to advertising that is alleged to be materially misleading.  The relevant class must also exclude those members who learned of the CMBS's allegedly omitted limitations before they purchased or leased the CMBS system.  The district court certified a class that included all persons who purchased or leased an Acura RL with the CMBS between August 2005 and class certification.  This class is overbroad.  We vacate the class certification decision on this ground because common questions of fact do not predominate where an individualized case must be made for each class member showing reliance.

. . . And even if the class was restricted to only those who purchased or leased their car in California, common issues of fact would not predominate in the class as currently defined because it almost certainly includes members who were not exposed to, and therefore could not have relied on, Honda's allegedly misleading advertising material.

Id. at *12 (citations omitted; emphasis added).

Mazza promises to be an invaluable tool in fighting UCL class actions in federal court.

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I like Nutella.  I like peanut butter better, and that's usually what's on my toast in the morning.  But sometimes I like to switch it up with Nutella.

I don't know the precise amount of sugar or oil that it contains.  But I know where to look for such information:  right on the label, in the box marked "Nutrition Facts."

I have voiced my opinion in previous posts about the bogus nature of lawsuits where lawyers have invented class action "misrepresentation" claims out of Nutella's claim that the tasty spread can be part of a healthy breakfast. No one can be deceived into thinking that Nutella has suddenly become wheat germ.  A simple look at the Nutrition Facts on the label tells anyone who is curious what they want to know.

And so it was with great disappointment that I read the decision certifying a class of California purchasers of Nutella.  See In re Ferrero Litigation, Case No. 11-CV-205 H(CAB), Slip op. (S.D. Cal. Nov. 15, 2011) (Law 360 subscription required).  Plaintiffs' consolidated complaint asserted claims under California's Unfair Competition Law, its False Advertising Act, Consumer Legal Remedies Act, and for breach of express and implied warranties.  It claims that "Ferrero misleadingly promotes its Nutella spread as healthy and beneficial to children when it in fact contains dangerous levels of fat and sugar."  Slip op. at 2.

The opinion gives great lip service to the Supreme Court's decision in Wal-Mart v. Dukes, quoting it often on rigorous analysis and commonality.  And yet it ultimately certifies a class in which most of the class members likely were not deceived and would have bought Nutella even if they had read the label and thus knew the facts that plaintiffs claim were concealed.  The district court reasoned:

To the extent that Defendant interprets the decision in Wal-Mart as requiring plaintiffs to prove common class-wide injury at the class certification stage, the Court disagrees.  Rather, Plaintiffs must show that the claims of the class "depend on a common contention . . . of such a nature that it is capable of classwide resolution--which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke."  Wal-Mart Stores, Inc., 131 S. Ct. at 2551.  In this case, the claims made on behalf of the proposed class are based on a common advertising campaign, and include common questions such as whether Ferrero's advertising campaign misrepresented that Nutella is healthier or more nutritious than it actually is, or makes a more significant contribution to a balanced breakfast than it actually does, including for children.  Thus, Rule 23(a)(2)'s commonality requirement is satisfied.

Slip op. at 6.

One of the fundamental questions that remains unaddressed in the district court's opinion is the obvious overbreadth of the class definition.  The class is defined as a classic "all purchasers" class:  "all persons who . . . bought one or more Nutella products in the United States for their own household use rather than resale or distribution."  Slip op. at 2.  This, of course, sweeps into the class everyone, even those who used and enjoyed the product and would purchase it again and again.  Like me.  Or like plaintiff Hohenberg, who testified at her deposition that she "does not regret buying Nutella and continued using the spread after she learned about its sugar content."  Slip op. at 8-9.

Of course, where a class includes a large number of people who have no damages and have not been injured, the class definition is imprecise and overbroad.  Courts routinely deny class certification in such circumstances. See, e.g., State ex rel. The Coca-Cola Company v. Nixon, 249 S.W.3d 855 (Mo. 2008) (class of all purchasers of fountain Diet Coke was overbroad because many did not care that the product contains saccharin and would drink it anyway).  But the court in the Nutella litigation did not even consider the issue.  Nor did it consider how class members would provide objective proof at the outset of the litigation that they are class members.  Ascertainability, too, is a problem for this class.

The bright side, to the extent that there is one, is that the district court clearly recognized that the consumer protection laws of the 50 states are far too different for a nationwide class to pass muster under the predominance requirement, and California could not properly impose its consumer protection statutes on transactions that occurred outside its borders involving nonresidents.  Slip op. at 10-11.  Thus, the court certified a California-only class.  And it limited the class period to the start of the defendant's advertising campaign in August 2009, rather than the January 2000 start-date the plaintiffs had requested.

Still, that means that the maker of Nutella must endure merits discovery and a classwide trial over the claims of many Californians who have not experienced an injury or suffered any damages.  Here's hoping they have the fortitude to stick it out and put the "class" to its proofs.

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Last Thursday the Sixth Circuit issued an opinion that makes a strong case for challenging class certification at the outset of the case. 

In Pilgrim v. Universal Health Card, LLC, 2011 WL 5433770 (6th Cir. Nov. 10, 2011), the plaintiffs brought a putative nationwide class action against the defendants, asserting that the defendants' marketing of a membership program for access to a network of low-priced healthcare providers was deceptive and violated state consumer protection statutes.  The class purportedly encompassed over 30,000 people from all fifty states.  Plaintiffs alleged that the newspaper advertisements -- in the form of "advertorials" -- deceived people into believing they were news articles and labeled the program as "free" even though it required a nonrefundable registration fee and only gave members one month without charging a membership fee.  Moreover, plaintiffs asserted that some of the advertised healthcare providers in their area were not actually part of the program and did not offer membership discounts.

At the responsive pleading stage, one of the defendants moved to strike the class allegations, arguing that because the consumer protection laws of all fifty states must be applied, common issues did not predominate.  The district court granted the motion to strike, and then dismissed the case for lack of subject matter jurisdiction.  The Sixth Circuit affirmed.

The plaintiffs argued that they should have been allowed to take class discovery and file their own motion for class certification in their own time.  The Sixth Circuit rejected that argument, observing that Rule 23(c)(1)(A) encourages a decision "at an early practicable time" in the litigation and holding that either plaintiff or defendant may move for a determination of the class certification issue.  2011 WL 5433770 at *5.  The court cautioned that a district court must undertake a rigorous analysis of the class certification prerequisites, which may require delving into the merits of the case.  Thus, there will be times where class discovery is required in order to decide the class certification issue.  But sometimes the issue is just so plain from the pleadings themselves that they cry out for early resolution:

The problem for the plaintiffs is that we cannot see how discovery or for that matter more time would have helped them.  To this day, they did not explain what type of discovery or what type of factual development would alter the central defect in this class claim.  The key reality remains:  Their claims are governed by different States' laws, a largely legal determination, and no proffered or potential factual development offers any hope of altering that conclusion, one that generally will preclude class certification. 

Id. at *6.

The court then held that the district court properly concluded that each class member's claim would be subject to the law of the state of her residence.  Plaintiffs had argued that the law of the defendants' residence should govern.  The court -- applying Ohio law and the standard factors from Section 6 of the Restatement (Second) of Conflict of Laws -- strongly rejected this argument, noting that it would lead to the absurd result that a state could cram down its lenient laws on nonresidents injured outside of that state.  The court held that:

the State with the strongest interest in regulating such conduct is the State where the consumers -- the residents protected by its consumer-protection laws -- are harmed by it.  That is especially true when the plaintiffs complain about the conduct of companies located in separate States . . ., diluting the interest of any one State in regulating the source of the harm yet in no way minimizing the interest of each consumer's State in regulating the harm that occurred to its residents.

Id. at *3.  The court also noted that no potential common fact issues could salvage the case from the need to apply fifty states' laws.  Moreover, it concluded that the defendants' program did not operate the same way in every state, and that the plaintiffs thus would have to make different particularized showings for individual plaintiffs, including what different advertisements showed in various states.

The court instructed that the district had erred when it concluded that -- by striking the class allegations and noting that none of the individual claims would meet the threshold jurisdictional amount individually -- the case should be dismissed.  Jurisdiction is measured as of the time of the filing of the initial pleading.  Nevertheless, because the plaintiffs had not challenged the jurisdictional holding on appeal and had indicated that they would abide by it if the class ruling were affirmed, the Sixth Circuit affirmed the trial court's dismissal of the lawsuit without prejudice to refiling in state court.

The decision in Pilgrim is strong authority supporting the efficiency of a motion to strike class allegations where it is clear from the complaint that the proposed class would involve the application of fifty states' laws, which cannot be performed consistent with the predominance and superiority requirements of Rule 23(b)(3).

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One of the most significant hurdles to the certification of nationwide consumer fraud classes is the difference in the laws of the 50 states.  The various states' consumer protection statutes have different elements, standards of proof, and defenses.  As a result, trying a nationwide class where the laws of 50 states must be applied would be wholly unmanageable.

Plaintiffs use various strategies to try and get around this problem.  Often, they argue that the only law that should apply is the law of the defendant's residence.  Most courts reject such an argument, recognizing that the expectation of consumers is that the law that will govern their transactions is the law of the place where they live and bought and used the product.

Another strategy for trying to get around this problem is pleading a claim for violation of the federal RICO statute.  Who cares that the statute is designed to get at mob-related activity?  They figure that if they can survive the inevitable motion to dismiss, the elements of that one statute will govern the claims of all class members.

Of course, surviving a motion to dismiss a civil RICO claim is tough work, as is demonstrated by the recent decision in Spelman v. Bayer Corp., 2011 WL 4966298 (D.S.C. Oct. 19, 2011).  In Spelman, the plaintiffs alleged that the defendant falsely represented that two of its different multivitamin products acted as preventatives against prostate cancer.  Plaintiffs had pled a number of causes of action, including the violation of the RICO statute.  The district court had granted a motion to dismiss that count once, granting leave to amend.  After amendment, Bayer moved once again to dismiss.  This time, the court granted the motion with prejudice.

The court had two basic holdings.  First, it held that the complaint failed to adequately plead a RICO enterprise that includes persons separate and apart from Bayer.  The plaintiffs alleged that the RICO enterprise consisted of a "Direct-to-Consumer Marketing Enterprise" that included Bayer, its marketing agency, and various unidentified marketing and advertising agencies.  The court reasoned: 

Although Plaintiffs make a legal conclusion that the marketing agency members of the DTC Enterprise are not 'agents' of Bayer, the factual allegations in the First Amended Complaint merely indicate that the marketing agencies created materials based on Bayers' representations at Bayer's direction. . . . Nothing in the complaint indicates that the marketing agencies, or the DTC Enterprise, undertook any function independent of Bayer's direction or separate from Bayer's own business of marketing its products.

Second, the court held that enterprise alleged by plaintiffs did not exist separate and apart from the alleged pattern of racketeering activity:  "The racketeering activity alleged by Plaintiffs continues to only consist of the marketing of Bayer products which is the same as that activity alleged to be the indidica of the DTC Enterprise."

Spelman is a continuation of a long line of cases that demonstrate that run-of-the-mill consumer protection claims simply are not amenable to adjudication as RICO claims.

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Last year I posted about a fascinating opinion in which a district court held that the superiority requirement of Rule 23(b)(3) was not met where the defendant already had engaged in a voluntary recall program for a toy that had inadvertently presented serious health risks to children who ingested it.  The court had reasoned that the voluntary recall program was superior to class litigation that would do nothing except add transaction costs to the same relief.

This week Ted Frank alerted me to a Seventh Circuit decision affirming that denial of class certification, but for different reasons.  See In re Aqua Dots Prods. Liab. Litig., No. 10-3847 (7th Cir. Aug. 17, 2011).  First, it held that the district court was wrong about Rule 23(b)(3)'s superiority requirement; superiority only looks to whether the proposed class would be superior to other litigation options, not voluntary recall and refund campaigns.  Andrew Trask discusses this portion of the opinion more fully here.

But in inimitable Easterbrook style, the court observed that "[a]lthough the district court's rationale is mistaken, it does not follow that the court's decision is wrong."  Slip op. at 7.  Instead of hanging its hat on superiority, the district court should have relied on Rule 23(a)(4)'s adequacy of representation requirement because "[a] representative who proposes that high transaction costs (notice and attorneys' fees) be incurred at the class members' expense to obtain a refund that already is on offer is not adequately protecting the class members' interests."  Slip op. at 7.  Indeed, "[t]he principal effect of class certification . . . would be to induce the defendants to pay the class's lawyers enough to make them go away; effectual relief for consumers is unlikely."  Slip op. at 8.

The Seventh Circuit also had some important things to say about manageability.  To begin with, a nationwide class's claim for punitive damages would present thorny choice of law problems.  Moreover, the court held that providing notice to anonymous purchasers -- coupled with the problem of determining who used the toys without problems, making them ineligible for class membership -- would present "serious problems of management."  Id. at 8.  Similarly, trying to assign class members to various subclasses for purposes of state consumer protection statutes would be "very difficult." 

Once again, this case should serve as an encouragement to companies that want to voluntarily remedy a newly-discovered problem with their products.  Here, a well-publicized recall program that provided substitute products or refunds served to avert a class action altogether.

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This week I published in the National Law Journal a column addressing choice of law in class actions, which you can read here.  The article focuses on the recent decision in the Toyota Unintended Acceleration MDL denying the plaintiffs' motion to apply California law (the law of one defendant's residence) to all of the plaintiffs' claims.  In that case, the plaintiffs' counsel had strategically cherry-picked plaintiffs who had filed their claims in California, so that California choice of law principles would govern the ultimate question.  (For plaintiffs whose claims were filed outside of California, the law of the transferor forum would govern the choice of law issue.)

The MDL transferee reached the following conclusions:

1.  Strategic gamesmanship should not govern what substantive law applies.

2.  MDL litigation should be managed to preserve the separate and distinct character of the individual cases.

3.  Using the filing of a "Master Complaint" to bind all plaintiffs to a new choice of law rule would be tantamount to using a procedural device to improperly alter the parties' substantive rights.

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On June 1 the Ninth Circuit granted a motion for panel rehearing and issued a new opinion in Carijano v. Occidental Petroleum Corp., No. 08-56187 (9th Cir. June 1, 2011) that unduly restricts a district court's authority in granting forum non conveniens dismissal and provides a roadmap for foreign plaintiffs to defeat forum non conveniens motions.

In Carijano, 25 members of a tribe indigenous to the Peruvian rainforest sued the defendant for its former Peruvian subsidiary's 30 years of allegedly polluting the rainforest and water supplies with the discharge of toxic oil byproducts.  These plaintiffs sued in California state court in 2007, asserting claims for strict liability, negligence, battery, medical monitoring, wrongful death, fraud, misrepresentation, public and private nuisance, trespass, and intentional infliction of emotional distress, as well as a violation of California's Unfair Competition Law.

After the defendant removed the case to federal court and evinced its intention to move for forum non conveniens dismissal, plaintiffs amended their complaint to add as a plaintiff a U.S. advocacy group, Amazon Watch, that had been assisting plaintiffs for some time.

Defendant moved for forum non conveniens dismissal and, not surprisingly, the district court granted the motion.  The alleged pollution and contamination was in Peru.  It allegedly was discharged by what was a Peruvian company.  The alleged victims all were exposed in Peru, treated in Peru, and live in Peru.

The district court had looked at the Piper Aircraft factors and held that the private and public interest factors favored dismissal in favor of Peru.  It considered expert evidence to conclude that Peru would provide an adequate alternative forum.  The Ninth Circuit did not disagree with this conclusion.

It did, however, take the district court to task for discounting the domestic status of Amazon Watch.  The district court concluded that this plaintiff's choice of forum was entitled to reduced deference because the main subject of the suit was compensation of Peruvian residents like the 25 original plaintiffs to the suit.  The Ninth Circuit held that the district court committed reversible error by not giving substantial deference to Amazon Watch's status as an American citizen.  The clear import of the Carijano opinion is that if you are a foreign national that wants to avoid forum non conveniens dismissal, add a U.S. advocacy group to your lawsuit as a plaintiff.

Notably, the defendant had strong arguments that Amazon Watch had no direct injury and thus lacked Article III standing and standing under California's Unfair Competition Law to bring a suit at all.  The Ninth Circuit twisted the holding in a case in which the argument for forum non conveniens dismissal was so strong that the Supreme Court held that the issue could be decided before even reaching Article III jurisdiction.  See Slip op. at 7136 (citing Sinochem Int'l Co. v. Malaysia Int'l Shipping Corp., 549 U.S. 422 (2007).  It used this holding to presume that Amazon Watch properly had standing and thus concluded that its choice of forum as a domestic plaintiff was entitled to full Piper deference, i.e., "a strong presumption that its choice of forum was convenient."  This was so even though Amazon Watch was added as an afterthought upon removal and was accompanied by 25 foreign nationals asserting personal injuries from conduct arising on foreign soil by a foreign subsidiary.

The Ninth Circuit panel also concluded that it did not matter that a US court could not compel the attendance of witnesses from Peru because by filing the lawsuit, the plaintiffs had evinced a willingness to travel to New York.  It chided the defendant for not being able to identify individuals who would not travel to the U.S.  This, despite the fact that all of the injuries allegedly occurred in Peru, were treated in Peru, and allegedly were the result of the activities of former employees of a subsidiary in Peru.  At the pleading stage, it is simply unreasonable to require a defendant to identify individuals who have expressed an unwillingness to travel when all of the sources of proof reside in another country.

The Ninth Circuit panel held that California had an interest in "providing a forum for those harmed by the actions of its corporate citizens" that was at least as strong as Peru's interest in compensating the physical injuries of its residents.  Slip op. at 7145-46.  That seems highly improbable.  Certainly the interest of a domestic defendant's state of residence is not given the same weight in conflicts of law interest analysis as that of a state where a plaintiff was injured.  And this analysis ignores the corporate formalities between the defendant and its former Peruvian subsidiary.

One other problem with the court's analysis is its consideration of the statute of limitations issue.   Slip op. at 7149.  The court held that the defendant's clear intention to use the statute of limitations as a defense in Peru makes Peru an inadequate forum.  The statute of limitations, of course, is part of the foreign nation's sovereign law.  And while it may be reasonable for a court considering a forum non conveniens motion to condition dismissal on the defendant agreeing to tolling during the pendency of the U.S. action, it is manifestly unreasonable to require a defendant to agree to foregoing the statute of limitations defense altogether where the claim expired years before it was ever filed in the United States.  This is particularly true when one considers that a U.S. court applying foreign law would itself be bound to apply the foreign state's statute of limitations.

The panel's opinion on rehearing indicates that the parties are free to file new petitions for panel rehearing and rehearing en banc.  Here's hoping an en banc panel of the Ninth Circuit will reverse some of the damage to forum non conveniens law that was done by the Carijano opinion.

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Yesterday Law360 reported that the maker of Four Loko -- a flavored malt beverage -- was sued in a putative nationwide class action.  A quick review of the complaint reveals the dubiousness of the plaintiff's claims and, more importantly, demonstrates the sheer avarice underlying these sorts of "economic loss" class actions in the product liability context generally.

People have consumed alcohol and caffeine together for so long that their effects are common knowledge.  Whether it's an Irish Coffee, a Rum & Coke, an Expresso Martini, or a popular "energy drink" and vodka, caffeinated alcohol drinks are far from uncommon.  The distilled spirits used in mixing such cocktails often have more than 25 percent alcohol by volume.  The defendant's Four Loko, according to the complaint, had between 6 and 12 percent alcohol by volume, depending on the state in which it was sold.

As the complaint reflects, over the last five years some in the public health community have voiced concerns about combining alcohol with caffeine.  Certain studies mentioned in the complaint reported that young adults who made cocktails of vodka and a popular caffeinated "energy drink" did not perceive some of the effects of intoxication (e.g., drowsiness, impaired motor skills).  The complaint paints a gruesome picture, attempting to blame Four Loko (rather than other beverages) for incidents of alcohol poisoning and deaths.  Compl. para. 27.

But the complaint doesn't seek to compensate anyone who allegedly was physically injured by the product (although it doesn't exclude them from the class and presumably would bar their future claims through res judicata).  And -- although it prays for a "corrective advertising campaign" -- it doesn't seek to stop the sale of product.  That's because the defendant beat them to it:  the manufacturer itself reformulated the product last year to address the concerns raised by the Food and Drug Administration, voluntarily removing the caffeine, taurine, and guarana from its product.

Instead, the plaintiff in this case is a woman who allegedly bought Four Loko Fruit Punch on two consecutive days last August "for a purchase price of approximately $3 per can" without "any warning of the particular dangers of drinking a caffeinated beverage with high alcoholic content."  Id. at para. 30.  She alleges that she and the class of all Four Loko customers across the nation "spent money purchasing Four Loko at a price premium when it actually had significantly less value than was reflected in the price [they] paid for it."  Id. at para. 32.

The Bottom line:  The class wants to be refunded part of the money they spent buying and drinking 23.5 ounce cans of "Four Loko" which clearly listed the ingredients caffeine, taurine and guarana, and (according to the plaintiff) was commonly referred to on the street as "blackout in a can."  Id.at 19.  And what could be the reason for this refund?  The can didn't disclose the alleged "dangers of drinking a caffeinated beverage with high alcoholic content."  Really?!

Like so many "economic loss" class actions, this is a lawsuit invented by lawyers to use the tool of aggregation to enrich themselves on the fiction that consumers actually suffered small injuries that make this a "negative value suit" susceptible to class treatment.  Horsepuckey!  Particularly in this case.  No honest economist will be able to testify that a product purportedly referred to as "blackout in a can" had an inflated price because it failed to disclose risks.  Period.

But beyond that, let's look at some of the other obstacles to certifying this class.  To begin with, plaintiffs likely will not be able to build an economic model to support their price theory for much the same reasons that Judge Denise Cote listed in her opinion rejecting the "inflated price" theory in Weiner v. Snapple.  Notably, the defendant here is in an even better position to say that it did not control retail pricing, since it is far removed from retail sales due to the "three-tier system" that keeps manufacturers from controlling wholesalers, who are similarly prevented from controlling retailers (both on-premise retailers and off-premise retailers).

Second, the class definition fails to exclude the (presumably vast majority of) class members who got exactly what they paid for and would make the same purchase again if the defendant had not voluntarily reformulated the product.  This is a fundamental -- and likely irreparable -- failure of pleading.  The fountain versus bottled Diet Coke cases are probably the best example of this strong defense argument.  See State ex rel. Coca-Cola Co. v. Nixon, 249 S.W.3d 855, 861 (Mo. 2008); Oshana v. Coca-Cola Co., 472 F.3d 506 (7th Cir. 2006).

Next, look at the causes of action pled.  Three out of four of them are California statutes:  the Unfair Competition Law, the False Advertising Law, and the Consumer Legal Remedies Act (which doesn't even plead that the defendant has received and had a chance to respond to a proper notice letter).  There is absolutely no basis for imposing California law on transactions that occurred in other states; the defendant is not even a California resident.  And when was the last time you saw a nationwide class certified on the consumer protection statutes of the various states?  Moreover, California case law in the last few years suggests that there is a causation requirement inherent in a restitution claim, and individual class members who were not deceived are not entitled to receive a partial refund on products they consumed and enjoyed.

The fourth and final cause of action -- "fraudulent concealment" -- is typically a means to do an end run around the statute of limitations.  To the extent this cause of action is intended as a basis for recovery, it is "fraud."  Fraud law varies considerably by state, and certainly requires individualized proof of reliance.  There can be no class action on this count.

The whole issue of caffeinated alcohol beverages has, in my personal opinion, been horribly bungled by public health advocates and regulators who assail certain companies apparently to score media points while not insisting that everyone (brewers, distillers, makers of popular mixers, and bartenders who mix cocktails) play by the same rules.  (I suppose I benefit from this selective "enforcement," as I enjoy drinking a particular unnamed double-expresso vodka on the rocks on rainy Fall football afternoons.  And no one has gone after it -- yet.  But I keep an extra case in my basement, on the off chance that consistency becomes a hobgoblin in some official's mind.)

Regulatory inconsistencies aside, make no mistake:  this lawsuit, which was brought against a company that already voluntarily discontinued the sale of caffeinated alcohol beverages, has nothing whatsoever to do with public health.  And it has nothing to do with compensating people who were surprised about the product they bought.  This lawsuit is about the lawyers' fees, pure and simple.  The thing that encourages me is that if the defendant sticks to its guns and makes the right arguments, this suit should be a dry hole for the lawyers who are speculating on it.

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Judge Timothy Savage has written a strong opinion denying certification of a nationwide class in an implied warranty case, in large part because the application of 50 states' laws would make the class unmanageable.  See Powers v. Lycoming Engines, 2011 WL 504786 (E.D. Pa. Feb. 9, 2011).

In Powers, the defendant -- an aircraft engine manufacturer -- had issued two Mandatory Service Bulletins requiring roughly 4,000 owners of certain engines to replace crankshafts that had metallurgical flaws that could cause total power loss, in flight engine failure, and possible loss of the aircraft.  The defendant would replace the crankshafts for free if the owners paid to have their engines overhauled at one of its facilities, or it would pay all but $2,000 of the price for a "crankshaft and parts" kit -- but it would not pay for labor, shipping, alternative transportation, or other costs.

Not surprisingly, plaintiffs brought a nationwide class action against the manufacturer.  Originally they had asserted breach of implied warranty and unjust enrichment and had a class certified, but the Third Circuit had remanded the case, directing the court to examine the conflicts of law issues.  Plaintiffs dropped their unjust enrichment claim, so that all that was at issue was breach of the implied warranty of merchantability.  And then they moved to certify the class.

The court denied certification under Rule 23(b)(3), based on conflicts of law issues.  The court did a good job of detailing the differences in state law regarding the privity requirement, as well as disclaimers, limitations of liability, and available defenses.  The court determined that there was a true conflict between states that had eliminated the privity requirement and those that still retained it.  It then applied the factors outlined Section 188 of the Restatement (Second) Conflicts of Laws to determine that the law of where the plaintiff purchased the engine should control. 

Importantly, the court, citing Shutts, held that apply the law of the manufacturer's residence -- Pennsylvania -- would violate due process:

Class members have a due process right to have their claims decided by application of their own states' laws.  To apply the law of a state having little or no connection to the claims would be arbitrary and unfair.

Here, Pennsylvania does not have the "significant aggregation of contacts" to the implied warranty of merchantability claim asserted by each class member that will ensure the application of its law will not be "arbitrary or unfair."  Very few of the class members have any connection with Pennsylvania. . . .  [For the rest], the only connection to Pennsylvania is that it is the state of manufacture of the engine containing the qualifying crankshaft and where Lycoming is located.  Under these circumstances, applying Pennsylvania law to each class member's implied warranty of merchantability claim would violate the Due Process Clause and the Full Faith and Credit Clause.

Id. at *9.

The court rejected the suggestion of subclassing the plaintiffs by what their states held on privity, noting that there were still conflicts in how states approached what notice was adequate to pursue an implied warranty claim.  Id. at *10.  In concluding that a class action also was not superior to pleading in individual claims, the court pointed to differences in the law of disclaimers of implied warranties.  Id. at *13.  The court concluded that applying the laws of the various states would simply be unmanageable, and it noted that plaintiff had not presented a proposal for managing these difficult choice of law problems.  Accordingly, it denied class certification.

I commend Powers to anyone opposing certification of an implied warranty claim on conflicts of law arguments.

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Regular readers will recall that last year Michael Reese and his colleagues at Reese Richman earned the title of Torts Twit of the Month for their suit against the chocolaty beverage Yoo-hoo for its alleged failure to disclose the presence of partially-hydrogenated soybean oil -- even though it was printed right on the label. 

Well, they are at it again with another ridiculous food-based lawsuit in which they hope to ring the class action bell.  This time they have sued Quaker Oats, once again complaining about the presence of partially hydrogenated oil in food.  According to the complaint, Quaker Oats committed fraud by calling its foods "low fat," a "good source of calcium," "heart healthy," "made with whole grain oats," and containing "no high fructose corn syrup."  Compl. para. 3.  Reese does not allege that these statements are untrue individually.  Rather, he alleges that the manufacturer's failure to disclose on the front of the packaging the presence of trace amounts of partially hydrogenated oil -- which he compares to poison and alleges causes "cancer, birth defects, heart disease, diabetes, and many other fatal diseases" (Compl. para. 4) -- makes any statement about health misleading.

Of course, the FDA allows the use of partially hydrogenated oils -- or so-called "trans fats" -- in food, and has established regulations and guidance for how trans fats should be disclosed on product labeling.   Moreover, Quaker Oats places required nutritional information on the product label itself.  For example, the label for Quaker Chewy Granola Bars discloses that a 1-bar serving has 0 grams of trans fats.  Plaintiff does not plead that Quaker Oats fails to comply with FDA rules and regulations in listing the amount of trans fat at 0 grams per serving.  Rather, he complains that, under the FDA rules, there could be "nearly 5 [grams] of trans fat overall" in a 10-serving box.  But this is plainly consistent with FDA regulations, which talk of nutrition information in terms of individual servings.

Surprisingly, plaintiff -- a New York resident -- had his New York lawyers sue Quaker Oats at its headquarters in Chicago, seeking to apply the Illinois Consumer Fraud Act to the claims of a nationwide class customers who bought Quaker Oats products.  Of course, if counsel had read the decisions of the Illinois Supreme Court from Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100 (2005) through Barbara's Sales, Inc. v. Intel Corp. (Ill. 2007) and beyond, they would know that the Illinois Supreme Court has definitively held that Illinois's Consumer Fraud Act cannot be used by nonresidents to recover in consumer fraud actions, even against defendants domiciled in Illinois.  Simply put, Illinois has no interest in the extraterritorial application of its law to sales transactions in other states.  Quaker Oats ought to be awarded its costs for even having to move to dismiss that count.

Similarly, the express warranty and implied warranty claims should be dismissed on the pleadings as well.  FDA regulations allow much more trans fats than Quaker Oats has in its products.  The fact that there may be some trace amounts does not make the goods unmerchantable in the trade or unfit for human consumption.  Moreover, plaintiff cannot plead or prove that the express statements made about the goods are untrue.  And they comply with FDA rules and regulations.  Put simply, there is no reasonable ground for a breach of warranty action.

Plaintiff's "unjust enrichment" theory is equally flawed.  Although the complaint pleads that plaintiff paid an inflated or "premium" price for the foodstuffs because he believed they contained no trans fats, he will be just as unable to establish any sort of "premium" price for such products as the plaintiffs were in Weiner v. Snapple Beverage Corp. (S.D.N.Y. 2010), in which Judge Denise Cote dismissed similar claims for failure to establish any pricing differential and, thus, any injury.

In the end, this is yet another attempt by the plaintiffs' bar to achieve regulation through financially lucrative litigation.  Let's hope the courts in the Northern District of Illinois are as quick as other courts have been in deeming such misuse of the class action mechanism impermissible.

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A New Jersey federal court recently rejected the “place of the manufacturer’s residence” argument in dismissing a putative class action without prejudice for failure to plead the elements of a statutory consumer fraud claim with particularity.  Nikolin v. Samsung Electronics Am., Inc., 2010 WL 4116997 (D.N.J. Oct. 18, 2010).

Plaintiff was a Texas resident who bought a Samsung television from Best Buy. She had first shopped for it online, selecting it from the listed category of LED (light emitting diode) TVs. After buying the television, plaintiff learned that the Samsung TVs have an LCD (liquid crystal display) screen with LED backlighting. She thought she was buying a “true” LED TV with a screen comprised solely of light-emitting diodes. Purporting to represent a nationwide class, plaintiff pled violations of the New Jersey Consumer Fraud Act, the consumer fraud statutes of other states, and unjust enrichment.

Samsung moved to dismiss under Rule 12(b)(6), arguing that Plaintiff could not assert a cause of action under the New Jersey Consumer Fraud Act because she is not a New Jersey resident, but instead resides in Texas.

The court concluded there was an actual conflict between Texas and New Jersey law, in that Texas's DTPA requires a plaintiff to demonstrate reliance, while the NJCFA does not.  Thus, the court had to decide which state's law properly applied to plaintiff's claim.  Plaintiff argued that New Jersey -- as the home of the manufacturer -- should have its law apply to the entire class's claims, including plaintiff's claims.  The court rejected the "law of the manufacturer" argument:

. . . Plaintiff is a resident of Texas; she received the information about Samsung's televisions in Texas; she purchased her television from a retail store in Texas; and, she used the television in Texas, where it appears the television is currently located.  Although Plaintiff alleges that Samsung's headquarters are in New Jersey, the weight of this factor is diminished by Samsung's state of incorporation, which the parties agree is New York.  In cases presenting similar consumer fraud claims, other courts in this District have held that mere allegations that the unlawful conduct emanated from New Jersy did not outweigh the substantial ties to plaintiffs' home states. . . .  Under the circumstances of this case, this Court is persuaded by the majority of courts that have held that the location of the manufacturer's headquarters does not supersede the numerous contacts with the consumer's home state.  Because of the numerous contacts with Texas in this case -- Plaintiff resides in Texas, she purchased and used the television in Texas, she was exposed to the alegedly deceptive conduct in Texas, and the television seemingly still remains in Texas -- this Court finds that Texas has the most significant relationship with the instant litigation.  Accordingly, the Court will apply the DTPA to Plaintiff's consumer fraud claim.

Id. at *4 (citations omitted).

Because a plaintiff suing under the Texas DTPA must demonstrate that she would not have entered into the transaction if the information had been disclosed, the court held that plaintiff failed to state a claim under the Texas DTPA for failure to plead both reliance and injury.  Even though the plaintiff did not seek leave to amend, the court gave it to her anyway, ordering that she had 15 days to amend or disclaim any intention to amend.  Moreover, because the plaintiff had not complied with the Texas DTPA's pre-suit notice requirement, the court abated the action until plaintiff complied with the statutory notice requirement.

Nikolin is a good example of a district court deciding the conflicts of law question at the outset of the litigation (on a motion to dismiss) in order to adjudicate the named plaintiff's claims.

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District Judge David H. Coar has issued an important opinion analyzing Rule 23(b)(3)'s superiority requirement in the context of recalled products with manufacturer-sponsored refund programs.

In In re Aqua Dots Prods. Liab. Litig., 2010 WL 3927611 (N.D. Ill. Oct. 4, 2010), Judge Coar was the MDL transferee faced with 14 putative class actions that were brought in the wake of Spin Master's recall of its Aqua Dots toys.  Aqua Dots, you may remember, are small, brightly-colored beads that fuse together when sprayed with water.  In 2007, Spin Master discovered that they had been manufactured with the wrong adhesive -- one that was converted by the human body into the illegal drug gamma-hydroxy butyrate (GHB, known as the "date rape drug") when ingested.  In conjunction with the CPSC, Spin Master voluntarily recalled approximately 4.2 million Aqua Dots products on November 7, 2007.  Of those, over 1,300,000 had been sold to consumers.

The recall was all over the news, and retailers like Wal-Mart, Target and Toys "R" Us collected the toys and issued refunds.  In total, roughly 600,000 products were returned -- usually for a refund, although some consumers accepted a free replacement toy.  The recall/refund offer for the affected Aqua Dots products remains available to this day, and there was no evidence that anyone was denied the right to return an affected product for a refund.

Despite the success of the recall/refund program, Spin Master was hit with so many putative class actions that an MDL was formed.  The cases generally fell into three groups.  One wanted a nationwide class for alleged violations of reporting requirements under the federal Consumer Product Safety Act.  There were nine single-state classes asserting state-law claims of unjust enrichment, breach of express and implied warranties, and violations of state consumer protection statutes.  And there was an unjust enrichment class seeking four subclasses composed of groupings of states with materially identical requirements.  Apparently each class also wanted punitive damages and/or treble damages and declaratory or injunctive relief. 

Judge Coar began his analysis with the superiority requirement because he found that it ended the inquiry.  The initial question was a legal one:

A threshold legal question is whether a defendant-administered refund program may be found to be superior to a class action within the meaning of Rule 23(b)(3), which permits the court to certify a class only if it finds, among other things, that "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy."

Id. at *3.

As Judge Coar explained, the cases on the question are split between the "textual approach" -- which holds that the term "adjudicating" precludes consideration of non-judicial alternatives -- and the "policy approach" -- which focuses on the efficiency purpose of the inquiry thus asks whether nonjudicial remedies may obviate the need for court involvement.  Id.  The court undertook a thorough examination of the precedents supporting the policy approach (going back to 1967), and it sided with them, concluding that "when a defendant already is offering an effective remedy for putative class members through out-of-court channels, a class action threatens to consume substantial judicial resources to no good end."  Id.

Judge Coar grounded much of his opinion in Thorogood v. Sears, Roebuck & Co., 547 F.3d 742 (7th Cir. 2008), observing that by ensuring that the class action is premised on the realistic prospect of a remedy that the class members could not otherwise obtain, the court is also protecting the interests of absent class members, who may have different interests than those of class action lawyers who want to obtain a fee for providing the same or similar relief.  Aqua Dots, 2010 WL 3927611 at *5.  The court even noted that none of the named plaintiffs in the case before it had requested a refund from the defendant, and that class counsel had expressly advised one such plaintiff not to do so.  The court concluded:

At bottom, this is a suit to recover the purchase price of tainted Aqua Dots.  Since the defendants will provide a refund -- without needless judicial intervention, lawyer's fees, or delay -- to any purchaser who asks for one, there is no realistic sense in which putative class members would be better off coming to court.  From their perspective a class action is not the superior alternative.  The court therefore declines to certify any of the proposed classes.

Id. at *7.

Judge Coar also had some important things to say about unjust enrichment class actions, which he said were "fraught with procedural and choice of law problems that further preclude certification."  Id.  Even with the subclassing proposed by the plaintiffs, Judge Coar concluded that the classes were unmanageable because the legal rules simply were not identical:

Furthermore, the unjust enrichment subclasses pose insurmountable choice-of-law problems.  As other members of this court have pointed out, the law of unjust enrichment varies too much from state to state to be amenable to national or even multistate class treatment.

Id. at *8.  He gave a number of examples, and then concluded that it was "emphatically not the case here" that the subclasses were governed by the same legal rules, "and any attempt by the court to tinker with the composition of the subclasses to satisfy this requirement would be futile anyhow."  Id. at *10.

Judge Coar's decision should give encouragement to defendants who -- faced with the need to recall a product -- do the right thing and implement a robust recall and replacement program.  His opinion would suggest that the more that you can document how successful your recall was -- and promote the ease of obtaining the refund for all class members -- you may have a substantial defense to so-called "economic loss" class actions that ordinary defendants simply do not possess.

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Often cases that fall outside the fields of consumer class actions and mass torts can teach us something useful about our practice in these fields.  Today's case is just such a decision.  See Sullivan v. DB Investments, Inc., Nos. 08-2784, 08-2785, 08-2798, 08-2799, 08-2818, 08-2819, 08-2831, 08-2881 (3d Cir. July 13, 2010).

Sullivan was an appeal from the settlement of an antitrust class action that had been certified under Rule 23(b)(3) for damages relief and under Rule 23(b)(2) for injunctive relief.  It had involved alleged price fixing in the diamond market, and had two classes of plaintiffs:  (1) direct purchasers, who had bought diamonds directly from the mining companies and sued for damages under the federal Sherman Act and Clayton Act, and (2) indirect purchasers (retailers and consumers) who bought diamonds from middlemen and, because of the Supreme Court's decision in Illinois Brick, could not sue for damages under the Sherman Act or Clayton Act, but did so instead under state antitrust and consumer protection laws, as well as for unjust enrichment.

Objectors appealed, and what the Third Circuit had to say about class actions and class action settlements is important -- and not just for antitrust class actions.

First, the Third Circuit reiterated the rigorous analysis standard it had set forth in In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305, 316 (3d Cir. 2008).  See Sullivan, slip op. at 11-12.  Indeed, the court instructed:

When presented with a motion to certify a class for settlement purposes only, as in this case, the court need not consider the difficulties associated with managing the class action through trial.  Regardless of the purpose for which class certification is sought, though, the court is not required to rest its certification order solely upon the pleadings.  Instead, the court should perform a "rigorous analysis" that "delve[s] beyond the pleadings to determine whether the requirements for class certification are certified."

Id. (citations omitted).

In conducting its rigorous analysis, the Third Circuit first looked at predominance:

The predominance of an issue depends upon the value that addressing it will yield for all class members.  The issue need not be dispositive of the case, but must be significant to every class member's claim.  Issues are not predominant if they are common to all class members but their resolution does little to bring the case to conclusion.  Thus, the predominance inquiry requires the court to identify class members' claims and to ask whether the class can support any of the elements of those claims through common proof.

Id. at 12 (citations omitted).

The objectors to the settlement argued that the state antitrust and consumer protection laws -- as well as state law on unjust enrichment -- were so different that no common issue predominated over the entire class.

The court proceeded to analyze the differences in state antitrust laws, concluding that they were very different and that no jurisdiction provided a claim shared by all -- or even a majority -- of the class members.  In a passage that could just as well have been describing state tort law, the court admonished that the differences in the state laws were not trivial, but instead "represent fundamental policy differences among the several states."  Id. at 15.  The court described how some states follow Illinois Brick to preclude damages suits by indirect purchasers, while others expressly allow such suits.  It then reached a conclusion about differences in state law that, once again, sounds very familiar to mass tort and consumer class action lawyers:

The natural result of all of those differences [in state laws] is that there can be no certification of a nationwide class of state indirect purchaser plaintiffs because there is no common question of law or material fact.  It is improper to certify a nationwide class when the legal right shared by class members purportedly arises under the laws of multiple jurisdictions, but only some of those jurisdictions extend standing to class members to enforce that right.

. . . The lack of substantive rights cannot be wished away by the promise of easier litigation management [in settlement than in trial].  Proponents of class certification for any purpose, including settlement, retain the burden of demonstrating that all class members share common legal or factual issues and that those issues predominate over matters requiring individual proof.  That test presupposes that everyone in the class at least has a cause of action.  The variations in state law identified by the objectors preclude requisite finding of predominance under Rule 23(b)(3) because indirect purchasers do not have a right to recover in all states, and, therefore, no question of law or fact regarding their legal rights is uniform throughout the class.

Id. at 16 - 17.

The court counseled that even where the defendant agrees to the settlement, the court has an independent duty to rigorously analyze whether the Rule 23 prerequisites are met because to do otherwise would allow collusive settlements.

The Third Circuit went on to analyze state consumer protection laws and unjust enrichment precedents, holding that they, too, present material differences across the states.  The court concluded that although the defendant's conduct may have actually harmed all indirect purchasers, it could not serve as the basis for a predominance finding because it does not give rise to a legal right of recovery in all of the jurisdictions implicated by a nationwide class.  Id. at 20.

The Third Circuit also took the district court to task for not having listed the "claims, issues, or defenses to be treated on a class basis."  Id. at 22.  It noted:

[T]he Court never identified pertinent state antitrust or consumer protection statutes, explained the relevant state common law of unjust enrichment, or described how those statutes and the common law affect class-wide rights.  Nor did the Court indicate whether the class antitrust issues that it actually identified would affect the consumer protection and unjust enrichment claims.  The failure do so constitutes an abuse of discretion.

Thus, the District Court's class certification order is deficient because the precise claims subject to class treatment are not "readily discernable from the text" of the order and the accompanying opinion.  On remand, any certification order must identify with particularity both the prerequisites for membership in the class and the issues or claims that will be resolved on a class-wide basis. . . .  [W]e have recommended that the format of an enumerated list can bring clarity to matters subject to class adjudication and facilitates appellate review of a certification order.

Id. at 22-23.

The rules the Third Circuit reiterates in Sullivan are not limited to settlement classes or antitrust class actions; they are applicable in consumer class actions and mass torts, too.  It is incumbent on us to use Sullivan to remind courts of their obligations to delve into the facts beyond the pleadings, to consider substantive differences of law among class members, to clearly identify precisely who is included within the class definition, and to list the issues and elements of causes of action that are subject to class treatment.

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Judge Garrett E. Brown, Jr. recently issued an opinion in a consumer product class action that illustrates the typical problems with the types of claims that are presently brought as consumer class actions.  In Payne v. Fujifilm U.S.A., Inc., Civ. A. No. 07-385 (GEB), Slip op. (D.N.J. May 28, 2010), plaintiffs sought to bring a nationwide class action against Fujifilm, alleging that its FinePix 3800 camera had a soldering defect on the power board that could cause the camera to lose function intermittently or totally.  Plaintiffs brought various breach of contract and breach of warranty theories, as well as a claim under New Jersey's Consumer Fraud Act.

The court didn't even bother analyzing the Rule 23(a) factors, as it was able to conclude that the class was not certifiable under Rule 23(b)(2) or Rule 23(b)(3).

In analyzing whether an equitable relief class was proper under Rule 23(b)(2), the court quickly concluded that "Plaintiffs' main goal is to obtain monetary damages," and thus the monetary damages were not merely incidental to the claim for injunctive relief.  Indeed, plaintiffs sought "compensatory damages, statutory damages, punitive damages, and a refund of monies spent purchasing, repairing, and/or disposing of their cameras."  Slip op. at 5.  The court refused to certify the class under Rule 23(b)(2).

The court just as easily concluded that the proposed class could not meet the predominance standard of Rule 23(b)(3).  To begin with, this was not a product with a high failure rate.  Rather, the vast majority of putative class members had not experienced a product malfunction.  As the court noted, out of the nearly 300,000 cameras sold in a two-year period, the total return rate for any reason whatsoever was only 4%.  The number of cameras returned for any kind of power problem was only between 1% and 2%.  Thus, the vast majority of the class members had not experienced any product malfunction.  Moreover, there are a variety of potential causes for power problems with cameras, including:  "impact damage, water, a short circuit, extreme temperatures, blown fuses, tamper damage, normal wear and tear, or simply improper batteries."  Slip op. at 9-10.  Thus, even the small return rate was not per se evidence of a solder problem.

The court concluded that common factual issues did not predominate because the cases would devolve into individual determinations of whether the class member had experienced a "manifested" defect, since the law generally does not give consumers relief from so-called "unmanifested defects."  See id. at 6-8 (citing Chin v. Chrysler Corp., 182 F.R.D. 448 (D.N.J. 1998); In re Ford Motor Co. Ignition Switch Prods. Liab. Litig., 174 F.R.D. 332 (D.N.J. 1997); In re Cannon Cameras Litig., 237 F.R.D. 357 (S.D.N.Y. 2006)).

Plaintiffs had relied on an expert who examined the named plaintiffs' cameras.  He testified that the cameras had a joint solder defect that would cause power loss.  The court was unpersuaded that this was evidence of a defect in all cameras.  To begin with, the expert only examined the named plaintiffs' cameras, not any others.  He admitted that he could not determine how the solder fractures occurred or whether they even occurred in joints that were necessary for the camera's functionality.  He further admitted that he could not causally connect the fractures to any difficulties the named plaintiffs had experienced with their cameras.  And he admitted that "normal wear and tear" can contribute to "accumulating creep fatigue" in all solder joints in any soldered product over time.  This was not enough to prove a common defect among all cameras.  Slip op. at 10.

Plaintiffs also sought to rely on the fact that the defendant, in its troubleshooting guide, had indicated that a soldering problem might be a cause of power problems experienced with the camera.  But the inclusion of that potential cause was based on only one instance, and it was only one of many potential causes listed for power problems.  The troubleshooting guide was not enough to establish a common defect -- particularly where most customers used the product for the life of the warranty without experiencing any problem.

The court also concluded that common issues of law did not predominate.  Plaintiffs argued that because Fujifilm had its principal place of business in New Jersey, New Jersey law should apply to all plaintiffs' claims.  The court -- applying sections 6, 148, and 188 of the Restatement (Second) of Conflict of Laws -- held that the law of the plaintiffs' residences governed each transaction.  The court faulted the plaintiffs for not preparing an extensive choice of law analysis, which was their burden once it was clear that multiple states' laws might apply to the claims. 

The court held that state consumer fraud laws are too different to have common issues of law predominate:

For example, only thirty-three states have authorized injunctive relief under their consumer fraud statutes, thirty-four states required that a plaintiff plead an "ascertainable loss" with regard to consumer fraud claims, and many states have varying statute of limitations periods applicable to such claims.  Plaintiffs have not provided the Court with any method for managing such individualized issues of state law . . .

Slip op. at 16.

Similarly, the court held that the breach of contract/breach of warranty causes of action were too different to be tried together:

State laws regarding breach of express and implied warranty also differ greatly with regard to "(1) whether plaintiffs must demonstrate reliance, (2) whether plaintiffs must provide notice of breach, (3) whether there must be privity of contract, (4) whether plaintiffs may recover for unmanifested . . . defects, (5) whether merchantability may be presumed and (6) whether warranty protections extend to used [goods]."

Slip op. at 17 (citation omitted).

Judge Brown's analysis is spot on.  Where, as here, there is no widespread failure of a product, there simply is no reason for a class action.  As a practical -- as well as a legal -- matter, people whose product performs as expected throughout the warranty period are not entitled to damages or other relief for so-called breach of warranty or consumer fraud. 

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AstraZeneca recently got rid of a bad case of heartburn it has had since 2005.  In Pennsylvania Employee Benefit Trust Fund v. Zeneca, Inc., No. 05-075-ER, Slip op. (D. Del. May 6, 2010), some union health benefit funds and other third party payors -- as well as some individual consumers -- had sued the company in a putative class action for consumer fraud, unjust enrichment and negligent misrepresentation.  Originally, the defendants were successful in having the case dismissed on preemption grounds.  But the U.S. Supreme Court's decision in Wyeth v. Levine changed that, and so the defendants once again moved to dismiss -- this time arguing that the complaint failed to state a claim as a matter of law.

Plaintiffs' theory of the case was simple.  They alleged that as defendants' Prilosec was going off patent and becoming available in cheaper generic form, defendants obtained FDA approval for Nexium, which -- plaintiffs alleged -- was basically the same thing as Prilosec.  Nexium was no more effective than Prilosec, they argued, but the defendants' marketing campaign caused people to buy the more expensive Nexium rather than generic Prilosec because they were misled into thinking Nexium was more effective.

The court engaged in an extensive choice-of-law analysis.  Plaintiffs argued that Delaware law should apply because defendants were Delaware corporations.  Defendants argued that the law of plaintiffs' home states should apply:  Pennsylvania, New York, and Michigan.  The court employed a two-part analysis, determining first whether there was any real conflict between the states' laws on each cause of action, and then employing Delaware's "most significant relationship" test.

For the consumer fraud statute cause of action, the court found that there was a real conflict between Delaware's statute and the other states' statutes.  Delaware does not require reliance or causation, the court said.  Pennsylvania requires justifiable reliance.  New York requires at least causation.  And Michigan requires proof that the purchase was by a consumer for personal or home use.

The court then analyzed which state had the most significant relationship, referring to Restatement (Second) of Conflicts of Laws sections 6, 145, and 148.  The court refused to apply section 148(1), concluding that the representations were not made in each state, but rather emanated out of Delaware.  Slip op. at 18.  Instead, the court applied section 148(2).  Nevertheless, the court concluded that the law of the plaintiffs' home states governed.  Relying on comment j to section 148, the court found that, for the Pennsylvania plaintiffs, "Pennsylvania law controls in that this is the forum where each Plaintiff relied upon the alleged misrepresentations by buying Nexium, as well as the place where (a) the alleged misrepresentations were received and (b) each Plaintiff's residence or place of business is located."  Id. at 22.

The court held that states of plaintiffs' residence had at least as strong an interest in protecting consumers located within their own jurisdictions from deceptive commercial practices.  And it noted that applying the law of the plaintiff's home better protected the expectation of the parties.  Indeed, the court held that plaintiffs could not have had a justified expectation that the law of the defendant's residence would control:

Certainly, it could not upset these Plaintiffs' expectations to apply the law of their home state as their only justified expectation would be for an opportunity for redress under the laws of their own jurisdiction.  Stated differently, these Plaintiffs would not be justified in expecting Delaware law to apply to their claims when purchasing Nexium in Pennsylvania.

Id. at 25.

Accordingly, the court applied the consumer fraud statute of each plaintiff's home state to his or her claims.

As for the unjust enrichment and negligent misrepresentation causes of action, the parties had not briefed any differences in the laws.  Finding no actual conflict, the court determined to analyze those claims using Delaware law and the law of the plaintiff's home state interchangeably.

In analyzing whether plaintiffs had stated a claim under their home states' consumer fraud statutes, the court observed that the amended complaint was seriously lacking in factual allegations about reliance and causation.  See id. at 43 ("the Amended Complaint is devoid of any allegations showing that Plaintiffs . . . relied upon, or even were aware of, the [physician directed] Marketing and/or [direct-to-consumer] Advertising campaigns which form the basis for these Plaintiffs UTPCPL claims").  As for the New York plaintiff, the court said that he must at least have pled that he was aware of the advertising and marketing campaigns in order for there to be the necessary causation under New York law.  Id. at 45.  But he did not.

The court even noted that the very logic underlying the complaint -- that "customers had to pay inflated prices for what they thought was a superior product" -- presupposes some knowledge about the alleged false advertising and marketing.  And yet it was completely unsupported by any plaintiff-specific allegations about knowledge, reliance, or causation.  Accordingly, the court dismissed the statutory consumer fraud claims.

There was one Michigan plaintiff, who was the state insurance commissioner standing in the shoes of an insolvent third party payor, The Wellness Plan.  As "Rehabilitator" of The Wellness Plan, the commissioner was seeking to collect and liquidate the plan's assets.  Under Michigan law, however, the consumer fraud statute only applies to consumers -- not businesses.  After analyzing Michigan law, the court explained that it "must decide whether the Wellness Plan's role as a third party payor ("TPP") rendered it a 'mere conduit or intermediary' for its participants' use of Nexium or whether it purchased Nexium principally to engage in its own commercial enterprise."  Id. at 51.  The court concluded that the amended complaint failed to give it sufficient information to make that determination.  Thus, it dismissed the claim with leave to replead.

As for the unjust enrichment claim, the court cited one of the "remoteness" decisions from tobacco litigation:  Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc., 171 F.3d 912 (3d Cir. 1999).  In this context, the court reasoned, the unjust enrichment claim is just another way of stating a classic tort claim.  Thus, where the plaintiff -- on the classic tort claim -- "cannot establish proximate cause due to the remoteness of the injuries in relation to the defendant's wrongful conduct," the unjust enrichment claim also should be dismissed just like the classic tort claim.  Id. at 54.

Finally, as to the negligent misrepresentation claim, the court observed that justifiable reliance is an element of the claim under each state's law.  But the amended complaint had no allegations of reliance or causation for any individual plaintiff, let alone allegations establishing that such reliance was justifiable.  Accordingly, the cause of action was dismissed.

Despite the length of time the case had been pending and the opportunities plaintiffs had had to amend their claims, the court allowed plaintiffs another opportunity to replead.  This was primarily due to the fact that the issues that had been on appeal were completely different from the issues raised in defendants' motion to dismiss.

Nevertheless, the court's opinion makes it clear that plaintiffs have a high hurdle to plead reliance and causation in this litigation.

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The Third Circuit recently affirmed dismissal of a putative nationwide class action in a textbook decision involving Samsung televisions with a limited capability to display high-quality video signals known as 1080p (or "HDMI") signals.  Cooper v. Samsung Elecs. Am. Inc., 2010 WL 1220946 (3rd Cir. Mar. 30, 2010).  Plaintiff alleged that he bought the 61" TV at an Arizona retailer to watch HDMI content from "native 1080p" devices, but only learned months later that the only 1080p device his television would work with was a computer -- not HD-DVD players.  Plaintiff failed to contact Samsung about his problem or give it any pre-suit notice of his claim.

Plaintiff ultimately brought a putative nationwide class action in New Jersey, asserting breach of express and implied warranties, violation of the Magnuson-Moss Warranty Act, violation of the New Jersey Consumer Fraud Act, fraudulent concealment, and unjust enrichment.  The District Court dismissed plaintiffs' claims -- although for plaintiff's consumer fraud claim, the court first determined that Arizona law would apply and thus applied the law of plaintiff's residence, rather than the law of the defendant's residence.  Plaintiff appealed.

The Third Circuit affirmed.  As for the express warranty claim, the court held that plaintiff failed to allege a breach of contract.  The warranty purported to cover "manufacturing defects in materials and workmanship," and required that "[t]o receive warranty service, a purchaser must contact SAMSUNG for a problem determination and service procedures."  The court held that plaintiff's warranty claim failed on two counts:  first, he failed to provide notice and ask for service.  And second, he alleged a product design problem, not a manufacturing defect that would be covered by the warranty.

The court affirmed dismissal of the federal Magnuson-Moss Warranty Act because it was based on state law; if the state law warranty claims failed, then the MMWA must as well.

The fraudulent concealment claim failed for failure to plead fraud with sufficient particularity under Rule 9(b).

Plaintiff had argued forcefully that the district court had erred in applying Arizona law -- rather than the law of Samsung's residence, New Jersey -- to the consumer fraud claim.  The Third Circuit analyzed the six elements of the fraud choice-of-law inquiry outlined in Restatement (Second) Conflict of Laws Section 148, and concluded that "[t]he transaction in question bears no relationship to New Jersey other than the location of Samsung's headquarters.  Cooper's claim bears the most significant relationship with Arizona, the state in which the television was marketed, purchased, and used."  Id. at *4.  Thus, the district court had properly applied the Arizona consumer fraud statute and concluded that plaintiff had failed to state a claim.  Accordingly, the court affirmed the judgment of the district court.

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Mass tort and product liability lawyers are all too familiar with the tragic facts surrounding Factor VIII cases.  In the early 1980s, as HIV was first being identified and viable tests for the disease were being developed, some HIV-contaminated blood was used to make a blood clotting agent -- Factor VIII -- that was used by hemophiliacs to control bleeding and extend their lives.  As a result, a number of hemophiliacs were exposed to and developed the disease.  The cases were consolidated in an MDL in the Northern District of Illinois, and most of them had long ago been resolved.  Last year, however, the Seventh Circuit decided Abad v. Bayer Corp., 563 F.3d 663 (7th Cir. 2009), in which it affirmed the forum non conveniens dismissal of a series of cases brought by Argentine plaintiffs.

Last Friday the Seventh Circuit decided a parallel case, Chang v. Baxter Healthcare Corp., Nos. 09-2280, 09-3020, Slip op. (7th Cir. Mar. 26, 2010).  Chang was brought by Taiwanese residents who had been exposed to contaminated blood clotting agents in the 1980s.  Most of them had signed a 1998 settlement with the defendant in which they received $60,000.  Feeling cheated by that amount, they filed suit in California in 2004 and the cases subsequently were transferred to the MDL in Chicago.

The district court held that plaintiffs' tort claims were barred by the statute of limitations.  California uses the "discovery rule," meaning that the state's two-year statute of limitations for personal injury actions does not begin to run until the plaintiff reasonably should have suspected that a wrong may have been done to him.  But plaintiffs had signed a settlement agreement with defendants in 1998, which should have put them inquiry notice of their claims more than six years before they filed suit.

Plaintiffs argued that the defendant's denial of liability in the settlement was "fraudulent concealment."  Judge Posner -- who wrote the opinion -- rejected this out of hand:  "Denial of liability when negotiating a settlement is the norm; it is not evidence of fraudulent concealment of anything."  Slip op. at 6-7.

The Seventh Circuit also held that the district court was correct when it concluded, alternatively, that California would use its borrowing statute to apply Taiwan's 10-year statute of repose to bar all claims older than ten years.  Slip op. at 7.

The district court also had dismissed some of the Taiwanese plaintiffs' claims on forum non conveniens grounds, reasoning that they had arisen in Taiwan and the witnesses and evidence were in Taiwan.  In particular, the court dismissed the breach of contract claim in favor of litigation in Taiwan.  The contract had a "most favored nation" clause, which required defendants to increase the compensation in the settlement to match those offered to other claimants.  Judge Posner held that the contract was ambiguous in that it did not specify whether the reference was to other Taiwanese claimants or other world claimants.  Judge Posner held that to "disambiguate" this clause would require testimony from witnesses residing almost exclusively in Taiwan.  Slip. op. at 11.

Ultimately, the Seventh Circuit affirmed forum non conveniens dismissal in favor of Taiwan, even though plaintiffs' claims likely would be time-barred in Taiwan.  The court noted that the statute of repose and the short statute of limitations "expresses a substantive policy that the plaintiff is trying to avoid.  Refusing to invoke forum non conveniens would give the plaintiff a gratuitous substantive advantage.  Convenience favors Taiwan and the statute of limitations applicable to this suit will be the same whether the case is tried there or in California."  Slip op. at 16.

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Last November I posted about two decisions on motions to dismiss issued by Judge Otrie Smith in the MDL involving bisphenol-A ("BPA") in baby bottles, sippy cups and infant formula, which is pending in the Western District of Missouri.  Apparently the "Bottle Defendants" -- who had not received the benefit of federal preemption in Judge Smith's opinion -- moved to reconsider on the breach of warranty and unjust enrichment claims or, in the alternative, certify the issues for interlocutory appeal.  On Tuesday, the court issued an opinion denying the motion.

Growing up in my small Missouri town, I was always an optimist.  Indeed, I was an actual member of the Optimist Club, which began its weekly meetings at the incorrigibly optimistic hour of  6:30 a.m.  I'm prone to viewing the sippy cup as half full, rather than half empty. 

And so you would expect me to be encouraged by this little nugget in Judge Smith's order denying the defendants' motion.  The court acknowledged that its prior order might have been unclear in its discussion of unjust enrichment.  The court had never intended to suggest that all plaintiffs "automatically and necessarily have a valid claim for unjust enrichment."  Slip op. at 2.  Rather, unjust enrichment is an individual issue because of the differences in state laws and in the factual situations of the plaintiffs:

The Court's holding is, essentially, that its "benefit of the bargain" analysis did not affect the unjust enrichment claims because the "benefit of the bargain" does not play a role in the analysis -- at least, for some jurisdictions.  In contrast to the law of warranty (which is somewhat uniform because of the states' adoption of the Uniform Commercial Code), the law of unjust enrichment cannot be confidently described as uniform.  When this observation is coupled with the differing circumstances of each Plaintiff (and potential Plaintiff), the Court cannot conclude that no purchaser can assert a claim for unjust enrichment.  Ultimately, differences in individual circumstances and the content of state laws make it impossible for the Court to hold that all consumers either have or do not have a cause of action as a matter of law.

Id. at 3.

Thus, although the Bottle Defendants don't get a free ride to the Eighth Circuit just yet, Judge Smith has clearly given them a present, as there is no way he can certify an unjust enrichment class consistent with that opinion.

Hit my sippy cup again, bartender!

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That Fred Burnside gets TWO gold stars today!  First, he informed me that the Ninth Circuit refused to hear the appeal of the decision denying class certification in the Xbox litigation.  Now he shares with us a well-written opinion from the Washington Supreme Court holding that a trial court in wireless telephone litigation correctly refused to certify a nationwide class action.

The decision in Schnall v. AT&T Wireless Servs., Inc., No. 80572-5 (Wash. Jan. 21, 2010) (en banc) is particularly timely because its reasoning on the Washington Consumer Protection Act stands in stark contrast to the decision I highlighted on Tuesday, which had effectively read the causation requirement out of Florida's Deceptive and Unfair Trade Practices Act.  But I've gotten ahead of myself.

In Schnall, plaintiffs had brought a putative nationwide class action against AT&T Wireless, claiming that its collection of a "universal connectivity charge" violated the customers' contracts and violated Washington's Consumer Protection Act.  The trial court had refused to certify the class, but the intermediate appellate court had reversed, reasoning that the challenge to a standardized contract was capable of class adjudication.

The Washington Supreme Court reversed the class certification, making four important points.  First, the court held that the trial court had not abused its discretion in holding that the need to apply the law of 50 states made the putative nationwide class fail the predominance requirement.  The Washington Supremes observed that the trial court was correct in honoring the choice of law provision in the contracts, which required the application of the law of the place where the customer signed the contract.  Further, it cited at length the federal precedents recognizing that the need to apply the law of 50 states generally makes class certification untenable, because the variations in state laws may swamp common issues and defeat predominance.  Slip op. at 11.  For example, in the context of the Schnall complaint, the court observed that, for those states that recognize it, "[t]he availability of the voluntary payment doctrine alone could abrogate AT&T's liability for all customers who voluntarily paid the [fee] after receiving the informational flyer."  Id. at 12.

Second, the Washington Supremes noted in their analysis of the superiority factor that:

Washington has no interest in seeing contracts executed by AT&T representatives in other states with citizens of those states examined and adjudicated in Washington courts.  Certified as a nationwide class action, this case would present an unwarranted and unnecessary burden on the state judicial system, all at a large cost to taxpayers.  There is no sound reason in this case for this court to force Washington trial courts to entertain the contract claims of citizens from around the nation.  Their state courts are equally as prepared, if not better situated to apply the contract laws of their states.  The trial court did not abuse its discretion by denying nationwide certification of the plaintiffs' contract claims.

Id. at 15 (citation omitted).

Third, the Washington Supremes recognized that the state's Consumer Protection Act ("CPA") does not apply extraterritorially to provide a cause of action to nonresidents whose claims arose in other states.  Id. at 16.  This geographic restriction is inherent in the language of the statute, but as the court recognized, it also emanates from the CPA's "history as a tool used by the State attorney general to protect the citizens of Washington."  Id.  The AG, the court noted, has no power beyond the state's borders and is charged with protecting only Washington residents.  Thus, regardless of whether it is the official Attorney General or a "private attorney general" suing to enforce the statute, the jurisdictional limitation applies and a "private claimant cannot state a CPA claim by proving the defendant's practices affect the public interest or the citizens of another state."  Id. at 17 (emphasis in original).

Fourth -- and this is where the decision stands in stark contrast to the one I discussed on Tuesday -- the Washington Supremes reiterated that even for Washington plaintiffs, proof of causation is an essential element of a CPA claim.  Id. at 18.  Indeed, "proximate cause in a class action cannot be established by 'mere payment' of an allegedly injurious charge."  Id.  Rather, "in the context of private CPA actions where plaintiffs seek damages, more than a mere capacity to deceive must be shown to establish 'some causal link between defendant's unfair act and [consumer's] injury," and, "[i]n the context of private misrepresentation cases, a plaintiff can satisfy the 'but for' causation requirement by showing she relied on the misrepresentation."  Id. at 20 (citation omitted).  In the context of the Schnall case, that meant that where the plaintiff actually knew that the charge was being levied, the alleged "misrepresentation" had been eliminated as the "but for" cause of the injury.  Id. at 21.  Accordingly, even for Washington residents to whom the CPA applied, the issue of causation could be an individual issue that would defeat predominance.  But because the trial court had not analyzed that question sufficiently, the Washington Supremes remanded the case with instruction to consider the question in the context of a statewide class.

The court's conclusion forcefully shuts Washington's doors to putative nationwide class actions:

In sum, we agree with the trial court that this action should not be certified as a nationwide class action.  Washington need not apply its Consumer Protection Act, or its contract laws, to the citizens of other states in order to protect the interests of the citizens of Washington.  A nationwide class would be unmanageable and unduly burdensome on the trial court and the state judicial system and serve no real benefit to plaintiffs who are free to bring statewide class actions in their home states. 

Id. at 22.

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Loyal reader Fred Burnside just informed me that the Ninth Circuit has denied the plaintiffs' Rule 23(f) petition to appeal of the denial of class certification in In re Microsoft Xbox 360 Scratched Disk Litigation, No. C07-1121-JCC, Slip op. (W.D. Wash. Oct. 5, 2009).  Previously I had posted on the district court's decision, which refused to apply the law of the defendant's residence to a putative nationwide class and recognized that causation and damages require individualized proof where most class members have not experienced the alleged product malfunction.

Congratulations to Davis Wright Tremaine!

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Previously I posted about a New York trial court which held that ordinary forum non conveniens principles do not apply in "mass tort litigation," opting to keep for itself and a New York jury the job of adjudicating the claims of nonresidents whose claims arose in other states.  In that post, I contrasted the trial court's decision -- which is currently on appeal -- with the decision of another New York trial court that had refused to retain the product liability claims of nonresidents whose claims arose in other states.  That decision, too, was on appeal.  Today it was decided in the defendant's favor.

In Avery v. Pfizer, Inc., slip op. (N.Y. App. Div., 1st Dep't Dec. 22, 2009), the court unanimously affirmed the dismissal of 17 plaintiffs' individual product liability suits alleging personal injuries from having taken the defendant's cholesterol-lowering medicine.  Each of the plaintiffs was, like the named plaintiff, a non-resident whose claim arose in his or her home state:

[Plaintiff] . . . is a resident of Georgia; his physician who recommended and prescribed the drug, and on whose recommendation [plaintiff] solely relied, lives in Georgia; [plaintiff] ingested the drug in Georgia and suffered his injuries in Georgia; all of [plaintiff's] treating physicians are in Georgia; and all of [plaintiff's] witnesses are in Georgia.

Slip op. at 1-2.

Plaintiffs had argued that a New York forum was especially appropriate here because the allegedly fraudulent representations emanated from New York and allegedly were developed here.  But the court flatly rejected that argument, holding that "Plaintiff's 'bare assertion[s]' of fraud allegedly committed at defendant's corporate headquarters in New York, are insufficient to create a substantial nexus with New York outweighing the compelling reasons for dismissal."  Id. at 2 (citation omitted).

The court also explicitly rejected the argument -- advanced in the plaintiffs' briefs -- that "mass torts" are somehow different and require disregarding the standard forum non conveniens factors that apply in other cases.  Because the trial court was the coordinating court for all New York state court cases involving Pfizer's cholesterol-lowering medicine, plaintiffs reasoned, it should hear all such cases, regardless of the state of their origin. 

Of course, much of the concern underlying the traditional forum non conveniens rule is that a local court should not get ensnared in interpreting and applying the nuances of a single state's foreign law.  The irony of plaintiff's "mass torts" exception is that it would enmesh New York's coordinating courts in interpreting and applying the law not just of one state, but of as many as 50 foreign jurisdictions. 

The First Department understood that foreign law was the law that would apply to these cases.  In holding that New York's interest was "insufficient" to outweigh the compelling reasons for dismissal, the court cited Devore v. Pfizer, Inc., 58 A.D. 3d 138, 143 (1st Dep't 2008), in which the First Department had held -- on a nearly identical complaint -- that the "locus of the tort" was in the plaintiff's home state and that the governing law thus would not be New York law, but the law of plaintiff's home state.

Ultimately, the First Department rejected the OxyContin court's "mass torts" exception explicitly:  "We decline to disregard the traditional forum non conveniens factors in favor of a 'mass tort litigation' standard."  Slip op. at 2 (citing Matter of OxyContin II, 23 Misc. 3d 974 (N.Y. Sup. Ct., Richmond Co. 2009)).

Now, all that remains is for the Appellate Division, Second Department to do the same.

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This week I submitted an amicus brief for the Chamber of Commerce of the United States of America in a particularly interesting appeal in New York's Appellate Division, Second Department, which is an intermediate court of appeal.  The issue is whether a single state court should be allowed to arrogate to itself the power to coordinate and try individual product liability cases involving one medicine brought by plaintiffs from across the nation, or whether traditional forum non conveniens principles should apply to require the dismissal of such claims by foreign plaintiffs.

The appeal arises out of litigation over OxyContin, a powerful pain medicine that can cause serious injuries when abused.  New York -- like the federal system and many states -- has a procedure for coordinating cases filed throughout the state before one judge, i.e., a state MDL procedure.  The New York State OxyContin cases have been coordinated before a justice in Staten Island.  Although the plaintiffs' counsel in these cases are predominantly just a few New York law firms, most of the plaintiffs themselves are not from New York.  Indeed, from the trial court's opinion, it appears that there were a total of 1,190 non-resident claimants before the court during the entire course of the litigation, and only 223 New York plaintiffs.  Put differently, 81% were foreign litigants, while only 19% were New Yorkers.

The defendant manufacturer -- a Connecticut company -- settled one batch of claims, which led to more filings.  Subsequently, it moved for forum non conveniens dismissal, arguing that where the medicine was marketed, prescribed, and ingested in another state, allegedly causing injury in that state, New York's common law forum non conveniens factors required dismissal of the claim in favor of the foreign forum.  The defendant noted that most of the witnesses resided in other states -- including the physicians, whose testimony is key to failure to warn claims because of the learned intermediary doctrine.  Other non-resident witnesses -- including neighbors, co-workers, friends and family who may have seen the plaintiffs engaging in the misuse and abuse of other prescription and illegal drugs -- also are key to the defense of these claims.  And yet all of these non-resident witnesses reside outside of the subpoena power of a Staten Island court.

The trial court denied the manufacturer's motion to dismiss.  See In re OxyContin II, 23 Misc. 3d 974, 881 N.Y.S.2d 812 (Sup. Ct. 2009).  It held that "mass torts are different," and that the interests of economy across the nation's judicial system and the need for uniformity of decisions outweighs any marginal burden on a New York state court that already is adjudicating the coordinated claims of New York plaintiffs.  The trial court seemed to express its disappointment that the Joint Panel on Multidistrict Litigation twice had refused to create a federal multidistrict litigation to coordinate the pre-trial proceedings in the cases.  And seeing a need, it decided to step in to manage discovery and promote settlements.

But unlike a federal MDL, this is a court that cannot transfer cases back to their home venues.  Keeping them means trying them.  And the court seemed to discount the conflict of laws problems presented by such claims.  Yet choice of law issues factor heavily in the prior New York precedents that granted forum non conveniens dismissal even in individual claims.  It cannot be the intention of New York's highest court, the Court of Appeals, that a New York trial court should saddle itself with the job of discerning the nuances of product liability law for 50 states.  Particularly in the area of product liability, where the law represents complicated public policy choices that may not have been ruled upon by a state's highest court, fundamental principles of comity suggest that New York trial courts should avoid adjudicating such claims.

Moreover, New York's citizens and litigants deserve more husbandry of New York's scarce judicial resources.  Trying foreigners' claims takes citizen jurors, judges, and scarce judicial resources away from deciding the backlogged claims of New York residents.  Moreover, imposing the peculiar rules of New York's Civil Practice Law and Rules on non-residents' claims deprives the defendant of discovery tools available in other jurisdictions -- such as expert depositions -- that can be essential in pharmaceutical product liability claims.

Interestingly, the Appellate Division, First Department -- which covers Manhattan -- last week heard an appeal raising the opposite forum non conveniens issue in a case argued for the defendants by one of my partners, Mark Cheffo.  There, the trial court had granted Pfizer's motion to dismiss a number of individual product liability cases involving the cholesterol-lowering medicine Lipitor.  See Wilson v. Pfizer, Inc., 2008 WL 2468538 (N.Y. Sup. Ct. June 13, 2008).  The issue was whether the trial court had abused its discretion in using the recognized forum non conveniens factors to dismiss the claims in favor of filing in the plaintiffs' home states.  The plaintiffs had argued in their briefs that the trial court's decision in Oxycontin II should control.  Mass torts are different, they said.  At the oral argument, which was very brief, the justices seemed to recognize that the locus of the tort was where the doctor received any representations, decided to prescribe the drug, and treated the plaintiffs' alleged injury.  The law of the plaintiffs' residences thus would control.  And presumably the primary witness in these pharmaceutical product liability cases -- the learned intermediary -- would lie outside the subpoena power of a New York court.  What abuse of discretion could there be in deciding that such cases should be dismissed in favor of the plaintiffs' home fora?  A decision in this appeal is expected early next year.

Recently, the U.S. Court of Appeals for the Second Circuit affirmed an MDL transferee's decision to dismiss the entire litigation in favor of proceeding in Brazil.  See Lleras v. Excelaire Servs., Inc., 2009 WL 4282112 (2d Cir. Dec. 2, 2009).  In Lleras, a mass tort was not "different."  Ordinary forum non conveniens principles applied.  The case involved a plane crash in the Amazon rainforest.  The plaintiffs and decedents were Brazilian citizens.  The Second Circuit held that the trial court had "properly found that 'the important factors of lack of jurisdiction in this forum over potentially liable parties and the lack of compulsory process over witnesses and evidence in Brazil, together with other considerations, swing the balance sufficiently to make this forum genuinely inconvenient and a Brazilian forum significantly preferable.'"  Id. at *1 (citation omitted).

The doctrine of forum non conveniens is increasingly important in product liability and mass tort litigation.  In the early part of the 20th Century, tort suits were filed at home, where the plaintiff lived and was injured.  But with the advent of national and international corporations, broad distribution of products, and lawyer advertising, suits increasingly are filed in states far from plaintiffs' home, but where plaintiffs can still obtain personal jurisdiction over the defendant.  Forum non conveniens is an increasingly important tool to protect a forum's limited resources and its citizens, as well as defendants.

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California state courts are reluctant to apply their Unfair Competition Law to a nationwide class.  Perhaps it's because they recognize that theirs is one of the most liberal (and standardless) consumer fraud statutes in the nation.  Whatever the cause, this reluctance made it all the more notable when Judge Christina A. Snyder held -- with little conflicts-of-law analysis whatsoever -- that the UCL could be applied to a nationwide class of advertisers suing Citysearch.  See Menagerie Productions v. Citysearch, 2009 WL 3770668 (C.D. Cal. Nov. 9, 2009).

Plaintiffs sought to represent a nationwide class of advertisers who had elected to have their advertising priced by the number of clicks on their ads.  CitySearch recognized that "spiders," "robots," and other tools often try to click on advertisers' ads, and these do not represent potential sales.  Thus, CitySearch represented that it employed "industry leading traffic quality systems . . . to detect unusual and fraudulent click behavior.  Attempts to artificially drive up an advertiser's clicks, whether manually or via robots or other deceptive tools, will be detected by our systems and automatically thrown out."

Plaintiffs claim CitySearch failed to identify fraudulent clicks, and that they paid too much for their advertising as a result.  They asserted breach of contract, breach of the implied covenant of good faith and fair dealing, and violation of the Unfair Competition Law.

The court found that the requirements of Rule 23(a) were met, ignoring the defendant's arguments that plaintiffs had not seen the alleged misrepresentations and that CitySearch had had individual dealings with complaining advertisers, which made the plaintiffs' claims atypical.

The court then analyzed whether the proposed class met the requirements of Rule 23(b)(3).  It held that the breach of contract count met the predominance requirement because the language of the contract -- which was the same for all class members -- was unambiguous, and it specified that California law would govern.  Even if the language were not unambiguous, the court reasoned, the extrinsic evidence that the court would rely upon would be representations on CitySearch's website that were uniform for all class members.  It similarly held that the breach of the covenant of good faith and fair dealing count also met the predominance requirement.

On the UCL claim, the court found that the predominance requirement was met for the "fraudulent" prong of the UCL because, it reasoned, there was no need to adjudicate individual circumstances; rather, applying In re Tobacco II, 46 Cal. 4th 298, 320 (2009), the court concluded that the case would be adjudicated under a "reasonable consumer standard" that focuses on whether members of the public were likely to be deceived."  Thus, there would be no individualized proof of deception, reliance, and injury caused thereby.

The court reached a different conclusion for the "unfairness" prong of the UCL.  There, the court held that the test for "unfairness" requires a balancing of effects and motives that make the plaintiffs' individual expectations relevant in determining the extent of the harm.  As such, the court concluded that the predominance requirement was not met for claims under the "unfairness" prong of the UCL.

Incredibly, the court's entire analysis of whether the UCL could be applied to a nationwide class based on the California residence of defendant CitySearch is contained in this sentence:

Furthermore, the Court agrees that California's UCL can be applied to the nationwide class, as CitySearch has not shown that any "differences between California law and the law of other jurisdictions are material," nor that "other states have an interest in applying their laws to this case."

2009 WL 3770668 at *15 (citation omitted).  To begin with, the burden on choice of law is the plaintiffs' as proponents of the class, not CitySearch's.  As yesterday's post showed, without an extensive choice of law analysis, plaintiffs cannot even begin to meet that burden.  But beyond that, come on:  there is no evidence of the differences between the California UCL and other states' UCLs being material?  Really?!!  How about the fact that every other state requires some sort of proof of actual deception that causes injury -- for each class member?  Or the fact that some states, like South Carolina, do not even allow class actions under their consumer fraud statutes?

The CitySearch opinion has a number of points that would appear to present appealable error, including the court's conclusions on superiority in which the proposed trial plan utterly ignores the defendants' individual defenses.  But this conclusion -- applying California's UCL to a nationwide class -- is the most wrong and least supported in the opinion, which should make it rife for an appeal to the Ninth Circuit.

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It's hardly news when another court refuses to certify a personal injury class action.  These days, it's almost a given that such litigation presents too many individual issues of fact to meet the predominance standard of Rule 23(b)(3).

But the recent decision from Judge Terrence Boyle in the Panacryl Sutures Multidistrict Litigation is notable for its considerable discussion of the choice of law problems presented by such claims.  See In re Panacryl Sutures Prods. Liab. Cases, No. 5:08-MD-1959-BO, Slip op. (E.D.N.C. Nov. 13, 2009).  In this case, plaintiffs alleged that they suffered personal injuries as a result of having been implanted with absorbable surgical sutures that were designed to remain in the body for 24-36 months after surgery to provide wound support.  The sutures had been the subject of a Class II recall by the defendant.  Plaintiffs alleged that they were prone to cause a high rate of infection, and that the defendant failed to warn of that fact.  Interestingly, the opinion never once quotes the proposed class definition, but we know that it was a putative nationwide class with representatives from North Carolina, Wisconsin, and Arkansas.

The court began its analysis with the choice of law issue, and it took the plaintiffs to task for not having provided a comprehensive survey of the substantive laws potentially applicable to all class members' claims, holding that they failed to carry their burden of proving that common questions of law predominate.  Slip op. at 4.

Nevertheless, the court completed the analysis, noting the differences in the substantive laws of the various states, and examining the factors identified in Section 6 of the Restatement (Second) of Conflict of Laws to determine what law governs in a tort action.  The court rejected the plaintiffs' suggestion that the law of the manufacturer's residence should govern, instead holding that the interests of the class members' home states in protecting their residents from in-state injuries caused by foreign companies outweighed New Jersey's interest in regulating domestic corporations.  Slip. op. at 6-7.  It noted that plaintiffs would not likely have imagined that their claims could be governed by foreign New Jersey law, and that the defendant had to expect to be subject to the laws of all jurisdictions in which it sold products.  The court also held that the plaintiffs' home states were where the injuries occurred, where the conduct causing the injury (sale and marketing) occurred, and where the relationship between the defendant and the plaintiffs was centered.  Id. at 9.

The court also cited a recent New Jersey Supreme Court decision -- Rowe v. Hoffman LaRoche, Inc., 917 A.2d 767 (N.J. 2007) -- in which the court held that applying New Jersey law to a Michigan plaintiff's claims merely because the drug was made in New Jersey "completely undercuts Michigan's interests, while overvaluing our true interest in this litigation."  Accordingly, the court held that the law of each class member's home jurisdiction would apply to his or her claims.

The court found that the numerosity and commonality requirements of Rule 23(a) were satisfied, but the conflict of laws problem required a finding that the typicality and adequacy of representation requirements of Rule 23(a) were not satisfied.  Slip op. at 12-14.

In analyzing the predominance requirement of Rule 23(b)(3), the court noted that "[c]ourts have generally found that common questions of fact do not predominate in medical products liability cases."  Id.  But beyond the individual fact issues trumping the predominance of any common issues, the conflict of law issues also required the same result.  Indeed, once again the court took plaintiffs to task for failing to provide an "'extensive analysis' of the laws of the interested jurisdictions showing that variations among the applicable state laws do not pose 'insuperable obstacles" to class certification."  Id. at 15.

Judge Boyle also rejected a proposed trial plan that would have used "issue classes" to decide common issues even though Rule 23(b)(3)'s requirements were not satisfied.  In the proposed trial plan, "Phase One" would have addressed "common issues of liability and general causation," and "Phase Two" would have consisted of "individual trials to determine specific causation and damages."  Id. at 18.  In rejecting the plan, the court stated:

But Rule 23(c)(4) may not be used to manufacture predominance for the purposes of Rule 23(b)(3).  Plaintiffs' trial plan does not eliminate the necessity of applying the laws of several jurisdictions or the individualized inquiry into whether Panacryl Sutures caused each plaintiff's injuries.  And even under Plaintiffs' proposed trial plan, the difficulty of applying the laws of several states to issues of liability and general causation would remain.

Id. at 19.

Judge Boyle's opinion is an excellent recent example of a trial court confronting head-on the proof problems presented by a personal injury class action and refusing to vary the substantive law (including the elements of causes of action, as well as individual defenses) just to achieve the so-called "procedural efficiency" of a classwide trial.

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An Alabama federal court recently held that the Torture Victims Protection Act does  not authorize wrongful death claimants to bring suit for their own damages, but instead merely authorizes them to sue for the torture victim’s own injury.  In Baloco v. Drummond Co., Case No. 7:09-CV-00557-RDP, Slip op. (N.D. Ala. Nov. 9, 2009) (subscription to AmLaw Daily may be required to see opinion), the children of alleged torture victims sued Drummond Company for wrongful death damages that they had suffered as a result of their fathers’ murders in Columbia, which allegedly were committed by Colombian paramilitary organizations at the behest of the defendant to prevent union organizing.

Previously, wives and family members had brought suit against Drummond under the Alien Tort Claims Act, the TVPA, and Columbian common law for the injuries suffered by their murdered family members, which suit had resulted in summary judgment for Drummond on the wrongful death claims and a jury verdict for Drummond on the ATCA claim for allegedly aiding and abetting the murders.  Slip op. at 3.

In analyzing the motion to dismiss, Judge David Proctor first had to decide whether the claims of these plaintiffs were barred by the res judicata effect of the earlier judgment.  In addition to a final judgment rendered by a court of competent jurisdiction, res judicata requires that the parties in the two actions be identical, or at least in privity.  It also requires that the same cause of action be involved in both cases.  Analyzing the pleadings in the first action, Judge Proctor determined that many of the plaintiffs before him had also been plaintiffs in the first action and asserted the same claim.  Judge Proctor considered their argument that res judicata should not apply to them because they had learned new facts since the first action that supported their claim.  But the court distinguished between new factual developments that occur that may justify not applying res judicata, and the mere discovery of new evidence that existed at the time of the first action, which does not.

Nevertheless, there were three plaintiffs who could not be eliminated on res judicata grounds at the pleading stage, and so the court moved on to consider the question of their standing to bring their claims.  The TVPA provides a federal cause of action for torture and extrajudicial killing.  The claim may be brought by the victim or on his behalf by his legal representative or one who would be a claimant in an action for wrongful death.  Plaintiffs argued that this allowed them to sue for their own wrongful death damages.  The court concluded, however, that the TVPA does not allow recovery for injuries except those suffered by the torture victim himself; the mention of wrongful death in the statute defines who may bring the claim, but does not alter the fact that the claim is for the victim’s damages, not those of his family.  Slip op. at 13-16.  Accordingly, the court held that plaintiffs lacked standing to sue under the TVPA.

Plaintiffs also asserted claims under the Alien Tort Claims Act.  But the ATCA provides no guidance on the issue of standing.  Judge Proctor reasoned that “[i]n the case of the [ATCA], several courts, including the Eleventh Circuit, have referenced the TVPA as the most analogous statute.”  Id. at 16.  The court thus held that because the plaintiffs lack standing under the TVPA, they lack standing under the ATCA as well.

Finally, in declining to exercise supplemental jurisdiction over the Columbian common law claims, the court noted that the issues of Columbian law were so complex that it would be impossible for the court to navigate them.

 

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How many litigators -- after having served that killer set of interrogatories, cross-examined that prevaricating expert, or filed that surgical strike of a dispositive motion -- have returned home to secretly slay the "evildoers" (as #43 used to call them) in a game of Halo 3?  Apparently one too many.  Since 2005, Microsoft has been defending cases alleging a defect in its Xbox 360 video gaming system.  The central allegation is that the Xbox loading tray allows the video game disc to load in such a way that it can be thrown or "chucked" from its spindle, and that the disc is then moving at such force that deep groves are gouged into the disc as it rattles around the inside of the machine, making the disc inoperable.

Loyal reader Fred Burnside of Davis Wright Tremaine LLP forwarded for our benefit yesterday's decision from Judge John C. Coughenour denying certification of a nationwide class in the litigation.  See In re Microsoft Xbox 360 Scratched Disc Litigation, No. C07-1121-JCC, Slip op. (W.D. Wash. Oct. 5, 2009).  The decision is important because it rejects the notion of applying the law of the defendants' residence to all members of the class, and because it recognizes that in a case where most class members have not experienced the problem, causation and damages are issues that require individualized proof.

Shortly before the release of the product, Microsoft had observed the issue of scratched discs.  Because its engineers determined that the problem occurred only if the machine was moved during game play (as the disc was spinning), the company put a warning sticker over the disc tray mechanism that read "Do not move console with disc in tray" and included an instruction in the user manual.  Microsoft had received roughly 55,000 complaints about scratched game disks, but this represented less than 1% of product owners.

Plaintiffs were residents of Pennsylvania, Washington, and California.  They sought certification of a class applying the law of Washington, Microsoft's residence.  The court analyzed choice of law first.

Microsoft had an interesting choice of law clause in its Xbox 360 warranty:

If you acquired the Xbox Product in the United States, the laws of the State of Washington, U.S.A., will apply to this Limited Warranty.  The laws of your state of residence will apply to any tort claims and/or any claims under any consumer protection statutes.

Slip op. at 5 (emphasis in original).

The court determined that the forum, Washington, would apply a contractual choice of law clause unless:  (1) without the provision, Washington law would apply; (2) the chosen state's law violates a fundamental public policy of Washington; and (3) Washington's interests in the outcome outweighs the chosen state's interests.  Id. (citation omitted).

The court proceeded to analyze two Washington Supreme Court decisions in which the court refused to apply forum selection clauses because they were violative of Washington's public policy:  Dix v. ICT Group, 161 P.3d 1016 (Wash. 2007), and McKee v. AT&T Corp., 191 P.3d 845 (Wash. 2008).  Although the court conceded that, at first glance, the cases seemed to support plaintiffs' position, it reasoned that, on closer scrutiny, they did not:

In Dix, AOL's provision would have required Washington residents to litigate in courtrooms on the other side of the country.  Microsoft's provision requires no such thing, and in fact subjects Microsoft to liability in the plaintiff's most convenient forum, his or her home state.  In McKee, AT&T's choice-of-law provision would have required that Washington residents hire an attorney familiar with New York law.  Microsoft's provision imposes no such burden, and in fact obligates Microsoft to familiarize itself with the consumer-protection laws of fifty different states. . . .  Microsoft's choice-of-forum provision . . . is enforceable, because it leaves open a "feasible alternative for seeking relief."  See McKee, 191 P.3d at 852.  Aggrieved Xbox customers have the option of filing statewide class-action suits in their home states.  Plaintiffs fail to point to a Washington case holding that the State's public policy is to guarantee nationwide class-action resolution of small claims, and this court does not read Dix and McKee as stating that much.

Slip op. at 7-8.

The court held that Washington law did not apply to the claims of all class members, but rather the consumer protection laws of each plaintiff's home state should be applied.  The court held that this alone would defeat predominance because "[s]tate consumer protection law varies considerably across the fifty states" and applying fifty states' consumer protection laws would "create innumerable difficulties."  Id. at 9.

But the court also held that individual issues of fact predominate over the common issues.  The court observed that fewer than one percent of Xbox owners had experienced the alleged defect, and recognized that most owners would use the consoles throughout their useful life without experiencing the problem.  Such class members, the court held, would have suffered no damages, and thus determining the issue of damages required an individualized injury.  Id. at 10-11.  Moreover, because the scratched discs may arise from what Microsoft characterized as product misuse, the cause of any damages also was an individualized fact issue that precluded class certification.  Id. at 11.

The decision in the Xbox Scratched Disc Litigation is an important reminder that even where a considerable number of people may have experienced a problem with a product, individual issues of fact and law may still make a class resolution of their claims unmanageable.

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In Wilson v. Hewlett-Packard Co., 2009 WL 3021240 (N.D. Cal. Sept. 17, 2009), the court packed a lot of legal issues into a short opinion.

The plaintiff brought a putative class action, claiming that HP's laptop computers have a defect in the power jack's attachment to the motherboard that causes the solder connection to be interrupted, resulting in the ultimate failure of the laptops.  Initially, plaintiff brought the putative class action in state court alleging that an "abnormally high" number of such laptops were defective, and representing that the individual class members' claims were under $75,000 and that the aggregate liability was under $5 million.  Subsequently, they amended the complaint to allege that all HP laptops of certain models had the defect.  HP removed to federal court under CAFA 129 days after the filing of the original complaint, and plaintiff moved to remand.  The court retained jurisdiction, finding that HP had been justified in relying upon the monetary allegations in the initial complaint to refrain from investigating whether the amount in controversy exceeded $5 million.

The court also granted defendant's motion to dismiss, giving plaintiffs leave to amend.  Plaintiffs had pled three causes of action:  California's Consumer Legal Remedies Act, California's Unfair Competition Law, and breach of warranty.

The court held that the allegations at issue did not impose upon the defendant any duty to disclose under the CLRA, noting that the alleged defect did not involve a risk of physical injury.

It also held that the allegations were insufficient to state a UCL claim under Federal Rule of Civil Procedure 9(b).  Although the complaint alleged violation of ten statutory prohibitions, it gave no facts as to how those prohibitions were violated.  Moreover, the court held that the following statements were non-actionable puffery:  that laptops are designed to "'perform . . . flawlessly,'" that they provide "'easy-to-use technology'" and that they "'enable greater mobility and resource sharing within homes or small offices.'"  Id. at *2.

The court also held that the breach of warranty claim failed because plaintiff's computer failed after the running of the two-year warranty period.  The court rejected plaintiff's argument that a two-year warranty period was unconscionable.

One disappointing bit of dictum in the Wilson decision is the court's statement that, at the pleading stage, California's UCL constitutionally could apply to the claims of out-of-state plaintiffs because the defendant's actions and representations are alleged to have emanated from California.  The decision, however, engages in no conflict of laws analysis and fails to consider any of the large number of decisions that refuse to apply the law of the defendant's residence to facilitate a class action.

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One of the favorite arguments of plaintiffs' counsel is that choice of law problems can be solved by simply applying one law -- the law of the manufacturer's residence -- to the entire class of purchasers.  Typically, that argument is made in support of class certification.  And typically -- unless you happen to be in Oklahoma state court -- that argument is flatly rejected.  Using the factors of the Restatement (Second) Conflicts of Law, it simply makes no sense to apply the law of, say, Michigan to a transaction that occurred in, say, Texas involving a Texas resident and the alleged failure of the product in Texas.  The Texas consumer's legitimate expectations are that the law of her state will govern in such a transaction.

A recent decision out of the Central District of California follows the trend of rejecting the law of the manufacturer's residence as the sole law governing a nationwide consumer class action, but does so in a somewhat unique context:  deciding whether to enforce an arbitration provision.  See In re DirecTV Early Cancellation Fee Litigation, 2009 WL 2912656 (C.D. Cal. Sept. 9, 2009).

In DirecTV, plaintiffs alleged that the defendant's policy of requiring a minimum commitment period and imposing early cancellation fees on those who stopped their service before the end of the commitment period violated California's Unfair Competition Law and the consumer protection laws of various states.  They also pled counts for unjust enrichment, money had and received, and declaratory relief.

The Customer Agreement provided to every subscriber included an arbitration clause.  It adopted the rules of JAMS, waived anyone's right to a class action, and chose the law of the customer's home state to govern the "interpretation and enforcement" of the agreement.  The named plaintiffs were residents of Florida and Virginia.  DirecTV is a California resident.

The court was faced with the question whether to enforce the arbitration agreement.  Although it noted a trend toward not enforcing such agreements -- particularly where they contain class action waivers -- the court noted that the language of the Federal Arbitration Act is mandatory, and the exceptions to it are narrow.  Thus, unless the arbitration provision was unconscionable, the court was required to enforce it.  Unconscionability, the court noted, is governed by the appropriate state law.

Because the court sat in California, it had to use California's conflicts of law rules to determine whether to enforce the Customer Agreement's choice of law provision.  California courts have a strong policy favoring enforcement of choice of law provisions, and only refuse to enforce such provisions where the chosen state has no relationship to the parties or transaction and there is no reasonable basis for the parties' choice, or where applying the law of the chosen state would be contrary to a fundamental policy of California law where California has a materially greater interest in the determination of the issue than the chosen state.  2009 WL 2912656 at *4 (citing Restatement (Second) sec. 187(2)).

Obviously, the states where the plaintiffs lived had a relationship to the contract.  So plaintiffs argued that California, as the home of the manufacturer, had a materially greater interest in applying its law.  The court disagreed, citing Klussman v. Cross Country Bank, 134 Cal. App. 4th 1283, 1299 (2005) for the proposition that a state's interest in general matters of corporate regulation were materially outweighed by a state with a number of significant contacts to a consumer transaction.  Accordingly, the court chose to apply the law of Virginia and Florida to determine whether the Customer Agreement was unconscionable.  Not surprisingly, the court concluded that it was not.  Florida law only voids contracts for unconscionability where there is proof of both procedural and substantive unconscionability.  And in Virginia "unconscionability is 'a narrow doctrine' that invalidates only the most inequitable of contracts."  Id. at *6.

This decision illustrates once again that conflicts of law principles matter in class action litigation, and different states have different rules that impact the claims of their citizens.  Lawyers would be wise to pay close attention to conflicts of law issues in class action cases.

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Ahhhh, the 50-state survey!  The mere mention of its name strikes terror in the hearts of young associates everywhere -- and sparks questions about what to do with the District of Columbia, Puerto Rico, Guam and other non-states.  And yet the 50-state survey is increasingly an essential tool on the class action litigator's workbench.  The more courts scrutinize precisely how a case will be tried on a classwide basis, the more important choice of law (and the differences among state laws) become.

A recent decision from a federal court in Arkansas illustrates precisely how important the choice of law inquiry can be.  In Thompson v. Bayer Corp., 2009 WL 362982 (E.D. Ark. Feb. 12, 2009), the plaintiff challenged the defendants' marketing of One-A-Day Weight Smart vitamins, which purportedly increased the metabolism of people as they age.  The vitamins contained ECGC from an extract of green tea.  Plaintiff alleged there was no evidence this substance actually increased metabolism.

Plaintiff's case was far from specious.  The FTC had ordered the defendants to stop making scientifically unsubstantiated claims about its One-A-Day products in 1991.  In 2007, the FTC sued the defendants for violating the order with their marketing of the Weight Smart vitamins, and the defendants were fined $3.2 million by the FTC.

The plaintiff sought to certify a nationwide "unjust enrichment" class to force defendants to disgorge the profits they had made from their allegedly fraudulent activities.  She specifically defined out of her class any person "claiming personal injury or damage beyond that specifically claimed in this motion."

The court immediately focused on choice of law.  Plaintiff argued that Arkansas law did not conflict with the law of other states on unjust enrichment, and she urged that it was the defendants' burden to establish that a conflict exists.  Applying Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) and Sun Oil Co. v. Wortman, 486 U.S. 717 (1988), the court disagreed.

In analyzing whether Arkansas law conflicts with the law of the other states, the court considered 50-state surveys submitted by both plaintiff and defendants.  Plaintiff had done her best to simplify the differences in state laws, grouping them into three categories:

Plaintiff claims that, in general, the elements of unjust enrichment are as follows:

1.  Defendant must have received something of value;

2.  Defendant, in good conscience, is not entitled to the benefit.

Plaintiff acknowledges, however, that there are three different approaches taken by the states to unjust enrichment claims:

1)  Restitution:  those that follow a restitution approach where a plaintiff must show that a defendant accepted and used a benefit bestowed upon the defendant by the plaintiff, which benefit would be inequitable to retain;

2)  Restitution Plus:  those that follow the restitution approach but also require that there be no adequate remedy at law;

3)  Wrongful Acts:  those that require a plaintiff to show that the defendant benefited from the plaintiff through fraud, duress, misconduct, wrongful acts or taking undue advantage.

According to Plaintiff, the Restitution approach is followed by 37 states, the Restitution Plus approach is followed by seven states, and the Wrongful Acts approach is followed by six states.

Thompson, 2009 WL 362982 at *3-*4.

After analyzing the parties' arguments, the court concluded that the differences in state laws on unjust enrichment were too substantial to allow a nationwide class to go forward.  The court noted: 

Some of the most troublesome differences are those recognized by the Plaintiff, i.e., the disparity in proof required to prove an enrichment was "unjust or wrongful" and the requirement by some states that there be no adequate remedy at law.  However, these are not the only conflicts that exist in this area of law.  There are other differences that Plaintiff has not included in this list including, the direct and indirect benefit elements of unjust enrichment.

Id. at *4.  A number of states preclude claims for unjust enrichment where the plaintiff is not the direct purchaser of the product.  The court observed that this would be a real problem in the case before it, as few, if any, of the plaintiffs could be said to have purchased the vitamins directly from the defendants.

The court's opinion has a very useful discussion of the various differences in state unjust enrichment law.  Ultimately, the court concluded that the variations in unjust enrichment laws caused the proposed class to fail the predominance and superiority requirements of Rule 23(b)(3).  The plaintiff asked, in the alternative, for the certification of a smaller class, or even a statewide class.  The court held that it was not sufficiently briefed, and denied the alternative request without prejudice.

Thompson illustrates the fact that even where the facts supporting a class action may be strong, the variations in the applicable laws may make the class so unmanageable that it is uncertifiable.  Given this fact, the 50-state survey is likely here to stay in the briefing of proposed nationwide class actions.

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In In re Cessna 208 Series Aircraft Products Liability Litigation, MDL No. 1721, 2009 WL 274509 (D. Kan. Feb. 5, 2009), the plaintiffs -- the estates and relatives of 9 Washington residents who perished in a Cessna crash near Naches, Washington -- sued the aircraft manufacturer under a variety of theories for a plane crash allegedly caused by a faulty de-icing system.  Cessna moved to dismiss the fraud and punitive damages counts of the Complaint.

Cessna's motion presented the court with two primary questions:  (1) whose law applied? and (2) were the facts pled in the complaint sufficient to state a cause of action?

The choice of law question was particularly important, because Washington -- unlike Cessna's home state of Kansas -- does not allow punitive damages.  The court used section 145(2) of the Restatement (Second) of Torts to evaluate the most significant relationship, looking at "(a) where the place of the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered."

The court noted that the Restatement creates a sort of presumption that the law of the state where the injury occurred will govern, but observed that because the location of air crashes is simply fortuitous, the presumption is easily overcome in air crash cases.

The court reached a curious conclusion.  Although the injury occurred in Washington and the plaintiffs were Washington residents, the court nevertheless chose to apply the law of Kansas because it was Cessna's principal place of business and the place where the misconduct allegedly took place.  And yet, the court noted that Kansas's interests were in both "controlling behavior and in protecting defendant from liability."  Id. at *4.  Of course, the interest in protecting Cessna from liability would have been best served by applying Washington law, which does not allow punitive damages.

Indeed, the court's decision to apply Kansas law without going to the step of evaluating the "interests and public policies of potentially concerned jurisdictions" and the purposes "sought to be achieved by their relevant local law rules" was particularly ironic.  Even in states that allow them, punitive damages are never viewed as a plaintiff's right or entitlement.  Here, the court's decision favored the assertion of a punitive damages claim by residents of a state that bars them as a matter of public policy, using the law of a state that has an interest in protecting the defendant from punitive liability.

Despite the court's nonplussing decision on choice of law, the end result favored the defendant because the court concluded that plaintiffs had failed to meet their pleading burdens for fraud and punitive damages.  The court began by citing Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007) for the proposition that plaintiffs must plead facts -- not labels, conclusions, and legal elements -- sufficient to plead a plausible claim.  2009 WL 274509 at *1.  The court recognized that plaintiffs bear a clear and convincing burden of proof on the issue of reliance -- and yet plaintiffs had not pled that they themselves had received and relied upon any misrepresentations from Cessna.  The court rejected the notion that a presumption of reliance could be borrowed from securities law based on a "fraud on the market" theory.  It concluded that "[b]ecause plaintiffs have not alleged that they knew of Cessna's representations to the FAA or to pilots, they cannot establish that they received the information or that they detrimentally relied on it."  Id. at *6.

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