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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"Cognitive dissonance" is the anxiety resulting from holding two conflicting ideas in one's head at the same time.  You would have to think that Judge James M. Smart, Jr. experienced cognitive dissonance when he wrote the opinion in Hope v. Nissan North America, Inc., No. WD73299, Slip op. (Mo. App. -- W. Dist. Sept. 20, 2011).  I know I sure suffered from cognitive dissonance in reading it.

Hope is another one of those no-injury, BS class actions in which no one has actually experienced a product defect, but the plaintiffs' lawyers bring the suit claiming everyone suffered some "diminished value" of the product and thus are entitled to some small payment, while the lawyers make off like bandits.

Apparently Nissan Infiniti FX35 and FX45 models for the model years 2003 through 2007 had dashboards made of a particular material that had some propensity to exhibit surface bubbling in extreme heat and humidity.  Nissan, of course, would repair the problem when it occurred, and it revised the manufacturing process and changed the material composition for replacement dashboards by 2009.  In early 2010, Nissan extended the warranty for the FX vehicles to 8 years and unlimited mileage, so that it would replace any bubbled dashboards at no cost to the consumer, providing free loaner vehicles while doing so.  This warranty was fully transferrable with the vehicle.  Nissan even agreed to reimburse any customer who previously might have paid for a replacement.  And the problem was not rampant; as of the date of the filing of the lawsuit, only 54 of the 1,200 registered vehicles in Missouri had received a dashboard replacement.  Slip op. at n.12.  Plainly, Nissan had behaved as a responsible manufacturer and stood behind its product even though it was faced with a purely cosmetic issue.

Some creative class action lawyers sued Nissan for breach of express and implied warranties, as well as violation of Missouri's Merchandising Practices Act.  The trial court certified a class action for each of those causes of action, defined as:  "All persons who purchased and currently own an Infiniti FX35 or FX45, model years 2003 through 2007 inclusive, in the State of Missouri, with the dashboard installed as original manufacturer's equipment."

On appeal, Nissan challenged the class definition and the fact that the trial court had ordered it to propose its own class definition.  The court held that a "defendant cannot be coerced into assisting the success of the plaintiff's attempt to obtain class certification," that it had no duty to give such assistance, and that the trial court was without authority to compel Nissan to define the class.  Slip op. at 9.

As for the challenge to the definition itself, the court began by noting that although there is no express requirement in the rules regarding a class definition, such a requirement clearly exists because a proper class definition is necessary to define who is going to receive relief, who is going to be bound by the judgment, and who deserves notice and an opportunity to be heard.  Slip op. at 10.  The class cannot be vague, amorphous or indefinite, and must not sweep into its ambit a large number of uninjured people.  Such a definition would be " impermissibly overbroad."

The court relied on a classic class definition case, State ex rel. Coca-Cola Co. v. Nixon, 249 S.W.3d 855, 860-61 (Mo. banc 2008).  In that case, plaintiffs had sued the defendant because it did not inform consumers that fountain Diet Coke contained saccharin in addition to aspartame, unlike bottled Diet Coke, which contained only aspartame.  They defined the class as everyone who drank fountain Diet Coke in Missouri during a particular date range.  But the Nixon court had held that the class definition was impermissibly overbroad because it contained a large number of people who were uninjured -- they drank the Diet Coke and liked it, and would drink it again.  They had gotten the benefit of their bargain.  Id. at 862.  The Nixon court granted mandamus to decertify the class because there was no way the class definition could be modified to include only those people who dislike saccharin, as that would make the class indefinite and subject to thousands of individual determinations.  Id. at 863.

The Hope court ultimately held that the case before it was distinguishable from the Diet Coke case.  The car owners were identifiable, and they alleged that they were damaged by the "stigma" associated with the bubbling problem and a "'diminished resale value' . . . regardless of the manifestation of the defect."  Slip op. at 13.  The court thus rejected Nissan's challenge to the class definition -- but it seemed to do so more as a function of the state of the record:

While it is possible that a significant number of FX owners may not feel cheated or injured in any way, at this stage we do not have that information. . . .  Thus, the putative class is not so overbroad or indefinite within the parameters of an initial test of the class definition by the trial court, at least for present purposes, that we discern an abuse of discretion in the initial definition.

. . . While we agree with Nissan that the definition is subject to difficulties, we do not believe we can say at this point that the class definition was clearly overbroad or indefinite.

* * *

. . . Because the record is not developed at this point as to how Plaintiffs will seek to objectively prove the existence of the damage they assert, we cannot speculate on whether Plaintiffs can establish the economic injury they claim.  As a result, we cannot say categorically that the trial court abused its discretion in certifying the class.

Slip op. at 13-15 (emphasis in original).

The court then went on to analyze predominance.  Relying heavily on Plubell v. Merck & Co., Inc., 289 S.W.3d 707 (Mo. App. 2009), the Hope Court concluded that -- based on the rather undeveloped state of the record -- the trial court did not abuse its discretion in concluding that common issues predominated on the Merchandising Practices Act.  Under Plubell, the court reasoned, plaintiffs would not have to offer proof of Nissan's knowledge or intent for certain MMPA claims, and Plubell would allow the plaintiffs to meet the "ascertainable loss" requirement of the MMPA by pleading that they did not get the full benefit of their bargain (i.e. suffered "diminished value" of their product).  Slip op. 20-24.

But the court did a 360 on the issue of warranties, holding that the trial court abused its discretion in certifying a class action on breach of express and implied warranty claims.  To begin with, the court noted that subsequent purchasers -- people who bought the cars used from people other than Nissan -- could not establish that Nissan made an express warranty to them that they could rely on.  Slip op. at 25. 

But more important, the court analyzed the decisions from across the country and Missouri holding that a buyer has no breach of express or implied warranty claim where the alleged defect has not manifested in the product.  See Slip op. at 27-31.  The reason, of course, is as simple as it is clear:  if the product has not broken, then the user has received exactly what he paid for.  Thus, where a product performs satisfactorily during the warranty period and never exhibits an alleged defect, no cause of action lies for breach of express or implied warranty.  Slip op. at 27.  The court, in discussing an Eighth Circuit case, observed that where a plaintiff brings what is really a "no injury product liability suit," she cannot recover economic loss, because that kind of loss is only recoverable in contract, and the contract (i.e. warranty) does not provide for recovery of loss where the product works properly.

Thus, Missouri warranty law, at least, still requires a plaintiff to establish that he suffered a product malfunction in order to have a cause of action, and this individual issue -- along with the many other elements of warranty causes of action -- are individual issues that preclude an express or implied warranty suit.  See slip op. at 34-35 ("Class membership would require individual determinations of whether each putative class member actually experienced manifestation of the bubbling defect, so as to be able to maintain a cause of action for breach of implied warranty of merchantability, and then subsequently, individual inquiries into the extent of the damage sustained, whether the alleged defect was the cause in fact or proximate cause of the damage sustained, and finally, whether each individual class member notified Nissan.").

Although the Hope Court's decision on the express and implied warranty claims seems well within the mainstream of American jurisprudence, I have a hard time simultaneously holding in my head its apparent suggestion that an unmanifested defect can give rise to an MMPA claim that can be treated on a classwide basis.  As a practical matter, I don't think such an "unmanifested defect" MMPA claim actually can be tried manageably on a classwide basis.

I'm from Missouri, and you have to show me.

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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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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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Those of you who read this blog regularly know that I tend to harp on one particular class action requirement that is not even written in Rule 23:  the class definition.  Simply put, how you define the class matters; it impacts who will be bound by a judgment in the litigation, and can impact whether the case may be tried manageably as a class action.

Recently, I published an article about recent class definition cases in the Winter 2011 edition of the quarterly newsletter of the American Bar Association's Class Actions and Derivative Suits Committee of the Section of Litigation.  You can find that article here.

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Sometimes I feel like I'm beating a dead horse.  But can the horse really be that dead when a subject continually bears repeating?

Even though it's not written in the rule, one prerequisite to class certification is that the class has a definition that makes class membership objectively ascertainable at the outset of the litigation.  If you can't figure out who will be bound by a final judgment until after the merits are determined, then the class is not properly defined.  Judge Jeremy Fogel recently reiterated this fact in his denial of class certification in Heisler v. Maxtor Corp., 2010 WL 4788207 (N.D. Cal. Nov. 17, 2010). 

Heisler involved a series of complaints about Maxtor's manufacturing and warranty service procedures.  Plaintiffs moved for certification of two classes; one was comprised of California residents and purchasers, while the other was comprised of non-California U.S. residents.  The class definition required merits determinations, and was defined as:

All end-user persons or entities who purchased in the United States, excluding consumers who either lived in or purchased in California, a [Maxtor Hard Drive] sold by Maxtor Corporation or an authorized Maxtor retailer or distributor that have experienced a failure and (a) reported the failure to Maxtor and/or Seagate (the "Reporting" Class) and (b) who did not report the failure to Maxtor and/or Seagate (the "Non-Reporting" Class).

Id. at *1.

The plaintiffs moved for certification.  The trial court first considered and rejected their argument that the court could not reach the merits when deciding the motion, quoting Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 590 (9th Cir. 2010):  "A district court must sometimes resolve factual issues related to the merits to properly satisfy itself that Rule 23's requirements are met."

Next, the court moved to the Rule 23(a) requirements, beginning with numerosity.  It was here that the court addressed the class definition issue:

Here, the ascertainability of the proposed classes is questionable.  Plaintiffs' definition fails to explain clearly what causes a 'failure' of the subject hard drives; and no relevant date range is provided to exclude individuals who may have experienced a failure after expiration of the [one-year] warranty. . . .

Moreover, there is a real concern that the term ["failure"] could be interpreted too broadly, encompassing even hard drive problems resulting from operator error. . . .

Neither the list [of customer complaints] nor the Plaintiffs' proposed class definition includes objective limitations that would exclude temporary failures or failures occurring as a result of factors other than manufacturing defects.

Heisler, 2010 WL 4788207 at *2-*3.

The court also concluded that there was no commonality because plaintiffs could not point to one particular defect.  Rather, they had broad-ranging criticisms of Maxtor's processes, any one of which might have resulted in various kinds of problems.  For example, they claimed Maxtor employees did not employ adequate electrostatic discharge prevention measures.  But they also criticized the defendant's pre-sale testing methods, its procedures for diagnosing returned hard drives, and the hard drives' component parts.  Id. at *3-*4.  The court held that plaintiffs had failed to identify a common specific defect in the manufacturing process, and thus failed the commonality test.

The court observed that plaintiffs also had serious typicality problems, particularly on the issue of whether they had made a timely claim under the warranty.  One plaintiff couldn't locate his receipt.  Another testified that he was aware he was out of warranty when his hard drive failed.  Another broke the seal on the hard drive with knowledge that doing so would void the warranty.  And yet another returned the hard drives for a full refund and suffered no data loss.  The court noted that even though "injury within the warranty period is a threshold requirement in order to bring a claim based upon warranty," it was "far from clear that the named Plaintiffs have suffered a cognizable injury, let alone an injury that is common to the class."  Id. at *5.

The court gave the plaintiffs the benefit of the doubt on the adequacy of representation requirement, it concluded, when analyzing the predominance requirement of Rule 23(b), that "[p]laintiffs cannot meet this standard if issues common to the class are lacking at the outset, as is the case here."  Id. at *6.  The court denied the class certification motion without prejudice to plaintiffs later renewing it.

Heisler is an important reminder that warranty class actions must have objective, ascertainable class definitions at the outset, and that they must be based upon a theory of defect that is truly common to the whole class.

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This is yet another case that serves as a reminder to defense lawyers not to neglect the class definition requirements -- which are not articulated in the class action rule -- when challenging class certification.

In Sevidal v. Target Corp., 2010 WL 4260891 (Cal. App. -- 4th Dist. Oct. 29, 2010), the plaintiff sued Target because he bought two pairs of running shorts and a tie that had been described on Target's website as "Made in the U.S.A.," when in fact they were not.  Plaintiff claimed this violated California's Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act, as well as constituted fraudulent concealment and unjust enrichment.  He sought certification of a statewide class of:

any California consumer who purchased any product from Target.com on or after November 21, 2003 which was identified on Target.com as 'Made in the USA,' when such product was actually not manufactured or assembled in the United States.

Id. at *2. 

The trial court denied class certification, and the Court of Appeal affirmed on two grounds.  First, it held that the class was unascertainable.  Second, it held that the class was impermissibly overbroad.

The ascertainability determination turned, in part, on the facts involving Target's website.  The "Made in the USA" designation was not seen by all users of the website who viewed the affected items.  Rather, it was in a subroutine of a subroutine of the program.  In other words, once one clicked on the product, one had to click on "View Details" and then "Additional Info" before the "Made in the USA" designation would appear.  Based on Target's 5-month test, 80% of customers did not click on the "Additional Info" tab at all and thus never could have seen the "Made in the USA" designation.

Moreover, the mis-designation as "Made in the USA" was the result of a computer bug that only sometimes would cause the mis-designation to appear.  In other words, sometimes the information displayed in "Additional Info" was correct, and sometimes it wasn't.  And Target had no record of who saw what.  Plaintiffs argued that this was Target's fault and should not impair a class, but the court observed that "Target had no contractual or statutory duty to maintain records pertaining to a consumer's selection of the 'Additional Info' icon."  Id. at *10.

Plaintiff relied heavily on In re Tobacco II Cases (2009) 46 Cal.4th 298, which held that absent class members subjected to a pervasive advertising campaign do not have to demonstrate reliance to obtain relief in a UCL class action.  The importance of Sevidal lies in its holding that Tobacco II does not excuse a UCL class action from meeting the other class action requirements, including ascertainability.  The court explained:

A class representative has the burden to define an ascertainable class.  Although the representative is not required to identify individual members, he or she must describe the proposed class by specific and objective criteria. Ascertainability is achieved "'by defining the class in terms of objective characteristics and common transactional facts making the ultimate identification of class members possible.'" . . .

"'Ascertainability . . . goes to the heart of the question of class certification," and "'requires a class definition that is precise, objective, and presently ascertainable . . . .'"  The purpose of the ascertainability requirement is to ensure it is possible "'to give adequate notice to class members'" and "'to determine after the litigation has concluded who is barred from relitigating.'"  The ascertainability requirement is satisfied if "the potential class members may be identified without unreasonable expense or time and given notice of the litigation, and the proposed class definition offers an objective means of identifying those persons who will be bound by the results of the litigation."

Sevidal, 2010 WL 4260891 at *7-*8 (citations omitted).

The Court of Appeal held that because the computer glitch did not consistently misidentify the goods as "Made in the USA," and because there was no record of who received the misidentifications, and because a substantial majority of those who used the website never visited the portions of the website where misidentifications could occur, the court held that the trial court was correct in finding that the class was unascertainable and thus could not be certified.  And the Court of Appeal observed that "[t]hese conclusions are fully consistent with Tobacco II's holding that UCL claims brought as class actions remain subject to the statutory class certification rules, including the requirement that the plaintiff show an ascertainable class."  Id. at *10.

The Court of Appeal separately held that the class was not certifiable because the class definition was overbroad.  The plaintiff argued that Tobacco II removed any causation requirement that absent class members demonstrate a loss caused by misconduct in order to be entitled to restitution under the UCL.  The Court of Appeals, in rejecting plaintiff's conclusion, focused on the language of Cal. Bus. & Prof. Code section 17203, which provides that parties are entitled to restitution "to restore to any person in interest any money or property, real or personal, which may have been acquired by means of the unfair practice."  Here, the court reasoned, the vast majority of the class never saw the misidentification of the goods because they never viewed the "Additional Info" area for a product on the website.  Thus, they definitively are not people from whom money "may have been acquired by means of the unfair practice," and thus cannot properly be part of the class.  As the court explained:

But the Tobacco II court did not state or suggest there are no substantive limits on absent class members seeking restitution when a defendant has engaged in an alleged unlawful or unfair business practice.  Instead, the court recognized that under the UCL's statutory language, a person is entitled to restitution for money or property which may have been acquired by means of the unfair or unlawful practice. . . .  Even after the Tobacco II decision, the UCL and FAL still require some connection between the defendant's alleged improper conduct and the unnamed class members who seek restitutionary relief.

Id. at *12.  The court relied heavily on Pfizer, Inc. v. Superior Ct. (2010) 182 Cal. App. 4th 622, 631, which held that "one who was not exposed to the alleged misrepresentations and therefore could not possibly have lost money or property as a result of the unfair competition is not entitled to restitution" under the UCL.

Because the class definition included primarily people who were not entitled to recovery under the UCL, it was impermissibly overbroad and the class could not be certified.

Sevidal is an important reminder that -- even in the face of substantive causes of action that loosen the restrictions on causation and reliance -- the class definition is still an important first line of defense against class certification.

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In late October, McDonald's finally got the break it deserved when the federal court presiding over the so-called obesity litigation against it refused to certify a class in the case.  See Pelman v. McDonald's Corp., 02 Civ. 07821 (DCP) (S.D.N.Y. Oct. 27, 2010).  A number of bloggers have already covered the subject admirably, including Sean Wajert.  I won't try to rework the ground they've already tilled.  But I did think there were a couple of things worth noting about the opinion.  

First, although the court began and ended its analysis on the predominance requirement of Rule 23(b)(3), this whole issue could have been decided -- and, arguably, decided more decisively -- on the class definition, which applied to the class period 1985 through 2002.  As the court noted, the class was defined as follows: 

New York State residents, infants, and consumers, who were exposed to Defendant's deceptive business practices, and as a result thereof, purchased and consumed the Defendant['s] products in New York State stores/franchises, directly causing economic losses in the form of financial costs of the Defendant's goods, causing significant or substantial factors in the development of diabetes, coronary heart disease, high blood pressure, obesity, elevated levels of [LDL cholesterol], and or other detrimental and adverse health effects and/or diseases as medically determined to have been causally connected to the prolonged use of Defendant's certain products."

Slip op. at 15-16 (emphases added).

That, my friends, is a failsafe class.  It requires a determination of both causation and the type(s) of injury before class membership can be determined.  As I have explained many times on this blog, membership in a class must be objectively determinable at the outset, and a class definition that requires merits determinations to determine whether a person is a member of the class is an impermissible failsafe class.  Indeed, if McDonald's were to have won at trial, who would have been bound by the judgment under this definition? 

These defects in the class definition are hardly curable.  As the court noted, New York's consumer protection statute (Section 349 of the General Business Law) gives a private right of action only to those who have been "injured by reason of" the challenged practices.  See id. at 5 n.4, 21, 22-24, 29-30; see also id. at 25 ("no necessary generalizable causal connection is manifest between the consumption of Defendant's products and the development of certain medical conditions"), 28 ("whether or not Plaintiffs' claims -- that they ate McDonald's food because they believed it to be healthier than it was in fact -- are true for any particular person is an inquiry which also requires individualized proof").  Thus, as Judge Denise Cote recently recognized in the Snapple litigation, establishing membership in a Section 349 class would still require individual proof the the representation caused the alleged harm.

The second point that I thought was worth noting is that, although the court correctly decided that this case was not suitable for certification of an issues class, it appears to rely on a numerosity argument to do so.  See Slip op. at 40-42.  That seems particularly odd to me, given how much of the rest of the opinion is devoted to a discussion of how many issues there are that will need to be proved individually for each class member.  Even the Second Circuit -- which previously had approved an issues class in the Nassau County Strip Search case -- has recognized in the consumer fraud/product liability context that the certification of an issues class does not sufficiently advance the ball toward liability to justify certification of those common issues that may exist.  See McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008) ("Certifying, for example, the issue of defendants' scheme to defraud, would not materially advance the litigation because it would not dispose of the larger issues such as reliance, injury, and damages."); accord In re St. Jude Medical, Inc., 522 F.3d 836 (8th Cir. 2008).

McDonald's certainly deserves kudos for prevailing in this bogus class action.  But there are many other strong grounds for denying certification in this case besides those that were cited by the court in its opinion. 

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Senior US District Judge W. Harold Albritton recently issued an opinion in a nuisance case that once again reminds us of the importance of having a class that is capable of objective, ascertainable definition at the outset of the litigation.   See Benefield v. International Paper Co., Civ. A. No. 2:09cv232-WHA, Slip op. (M.D. Ala. Oct. 20, 2010). 

In Benefield, the plaintiffs alleged that the defendant's paper mill had discharged hazardous substances over the course of many years, resulting in property damage to properties within a two-mile radius of the facility.  The class was defined as all people who, as of the date of the filing of the Complaint, owned real property located within two miles of the facility which was contaminated by what was released from the defendant's facility and who suffered as a result a diminution in property value of $100 or more.  Slip op. at 2.  There were a number of exclusions, including people who suffered personal injuries and people who were litigants or class members in other similar cases.

The court denied class certification, beginning its analysis with the problems with the class definition.  Establishing that each property was contaminated would require individualized proof, the court concluded, as would determining whether the property value was diminished by more than $100.  Slip op. at 7-8.  Although the court ultimately concluded -- unlike many other courts -- that the admissibility of expert testimony was not ripe for adjudication at the class certification stage, the court focused on the weaknesses in the plaintiffs' experts' blanket conclusions and ill-conceived methodologies in rejecting the class definition:

In short, while the Plaintiffs have argued, correctly, that this court should not engage in any merits determination in determining whether the class should be certified, the Plaintiffs have asked the court to find facts, based on disputed evidence, to determine who is in the class.  The court concludes, therefore, that it is not administratively feasible for the court to determine whether a particular individual meets the class definition. 

Slip op. at 8 (citation omitted).  The court also noted that the exclusions carved out of the class definition also presented their own problems:  "That [personal injury] exclusion will require a determination of which people within the geographic area who own residential property also have personal injuries caused by releases from the Facility, which itself poses causation issues, and therefore makes the class definition improper."  Id. at 9.

The court went on to consider the standing of one plaintiff, who could not establish by deed or will that he actually had an ownership interest in his property.  The court concluded that he lacked standing to assert claims on behalf of property owners.  (He had asserted some damage to personal property as well, but the court indicated that this presented typicality/adequacy of representation problems, although it might cure his personal standing problem.)

The other plaintiff presented multiple typicality and adequacy problems.  First, he jointly owned his property with his wife, and his wife was the plaintiff in a similar action that had been carved out of the class definition.  Moreover, after filing the class certification motion, plaintiff filed an amended complaint that asserted claims for public nuisance, private nuisance, and fraud.  Yet he did not seek class certification for those claims.  This led the court to conclude that his adequacy was "undermined by the pendency of those claims."  Slip op. at 15 ("because Johnson's claims are factually the same as only some of the putative class, he is pursuing some damages not sought by the entire class, and he apparently seeks to recover on theories not asserted on behalf of the entire class, his claims are not typical, and he is not an adequate class representative").

In analyzing the predominance requirement of Rule 23(b)(3), the court observed that the claims for public nuisance, private nuisance, abnormally dangerous activity, and fraud likely would require "highly individualized determinations."  Slip op. at 19.  Moreover, there were significant individualized damages issues that -- when combined with the individualized causation issues -- counseled against certification.  Id. at 21. 

The court also found the superiority requirement lacking, particularly in light of the other actions already pending.

Benefield is a good reminder that how one defines the class -- and who is excluded from the class -- matters, and can prove fatal to a putative class action.

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I finally got around to reading Judge Denise Cote's opinion in case that sounds like the daily menu special at Gray's Papaya:  Weiner v. Snapple Beverage Corp., No. 07 Civ. 8742 (DLC), Slip op. (S.D.N.Y. Aug. 5, 2010).  It's a doozy.  Judge Cote articulates the rigorous analysis standard, uses Daubert to exclude unreliable expert testimony on plaintiffs' damages and loss causation, analyzes the predominance of common issues, and discusses the class definition and the problem of ascertainability of class membership. 

In Weiner, the plaintiffs sued Snapple for violation of New York's consumer fraud statute (General Business Law section 349), unjust enrichment, and breach of express and implied warranties.  The class was defined as "[a]ll persons or entities who, within the State of New York, purchased for personal consumption and not for resale or assignment, a Snapple beverage marketed, advertised, and promoted as 'All Natural,' but that contained [high fructose corn syrup] from October 10, 2001 to January 1, 2009."  Plaintiffs' theory of the case was that they were defrauded into paying a premium for Snapple beverages because they were represented as "All Natural," but contained HFCS, which plaintiffs argue is not natural, although it is derived from corn and contains the sugars found in table sugar and honey.

Judge Cote does a good job of setting forth the Second Circuit authorities supporting the rigorous analysis standard, explaining that a district court may not avoid looking into the merits of plaintiffs' claim where they intersect with the class certification elements.  See slip op. at 11-13.

Then, rather than attacking the plaintiffs' fundamental premise that HFCS is not natural or the adequacy or typicality of the named plaintiffs, Judge Cote begins her analysis by considering the element of predominance.  As the court described it, the predominance requirement asks the court to "consider whether the putative class members 'could establish each of the . . . required elements of [their] claim[s] . . . using common evidence.'"  Id. at 13 (citation omitted).  Then, looking at GBL section 349, the court concludes that plaintiffs cannot establish the fact of injury or that such injury was caused by the challenged conduct on a classwide basis. 

Judge Cote acknowledged that section 349 has been held to apply an "objective" standard for whether conduct is misleading, but it still requires injury caused by the challenged conduct:  "Only by showing that plaintiffs in fact paid more for Snapple beverages as a result of Snapple's 'All Natural' labeling can plaintiffs establish the requisite elements of causation and actual injury under section 349."  Id. at 15.  As Judge Cote noted, plaintiffs cannot do that on a classwide basis.  Even the named plaintiffs testified that they bought Snapple for reasons other than the "All Natural" representation, and that they would have bought Snapple regardless.

Plaintiffs proffered the testimony of an expert economist who testified that he could develop a model that would apply to all class members under one of two theories.  But the expert had not yet developed the model, surveyed the literature, or even reviewed most of the relevant documents produced in the case.  He did not consider that Snapple did not set retail prices, that class members had no documents to prove retail prices paid, and that Snapple did not vary the wholesale cost of its beverages based on whether the flavor was "All Natural" or not marked "All Natural."  In short, his testimony was nothing more than a promise or prediction that he could come up with a valid model in the future.  The court held that this was not enough under Daubert, and thus excluded his testimony as unreliable.  Id. at 21.  As the court explained:

At a minimum, [the expert] would need to determine what 'standard economic methodologies' he will employ, identify the relevant 'class wide economic data' and 'studies and market research,' and build an actual algorithm before it could be determined whether [his] proposed methodology can reliably prove injury and causation on a classwide basis.

Id. at 23.  Interestingly, the defense expert's testimony revealed that the price consumers paid for Snapple over the class period varied significantly based on a variety of factors, including where they bought it, the quantity they bought, when they bought it.  Id. at 25-26.

In looking at the unjust enrichment claim, the court also questioned how plaintiffs would prove that they received less than what they had contractually bargained for.  Especially troubling to the court was plaintiffs' testimony that they continued to buy Snapple even after they knew that it contained HFCS.  Id. at 29.

The same issues precluded a classwide mode of proof for breach of express warranty (id. at 31), and New York law requires direct privity with plaintiffs (id. at 32).

The court went on to express serious doubts about the superiority requirement -- in particular noting how unmanageable plaintiff's class definition was.  It included people from around the world who bought Snapple in New York, regardless of where they live.  And given that none of these people can be expected to have retained reciepts, "Plaintiffs have failed to show how the potentially millions of putative class members could be ascertained using objective criteria that are administratively feasible.  Id. at 34, 35-36.

Overall, the decision in Weiner is instructive on a variety of issues, and is a must-read opinion for those who regularly oppose the certification of fraud class actions in suits involving consumer products.

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This decision is just in from my colleagues, who -- with lawyers at Shook, Hardy & Bacon -- were successful in defeating certification of a statewide consumer fraud class action.  See Judy v. Pfizer, Inc., Case No. 042-01946-02 (Mo. Cir. Ct. [22d Cir., City of St. Louis] July 27, 2010).  The decision is instructive for a number of reasons.

First, it once again illustrates the importance of the class definition in class action litigation.  In Judy, the plaintiffs sought to represent "all persons and entities who/which . . . expended any sum of money in order to purchase Neurontin in the State of Missouri for any off-label use" during a ten-year class period.  (Slip op. at 2.)  Plaintiffs' theory of the case was that the defendant had violated Missouri's Merchandising Practices Act by deceptively marketing Neurontin for off-label uses for which the medicine had no proven scientific efficacy.

The court concluded that the class definition was overbroad because it included many people who suffered no injury at all:

The record before the Court shows that the efficacy of Neurontin varies from patient to patient and from use to use.  In addition, the evidence in the record shows that Neurontin is effective for the treatment of many conditions, including neuropathic pain.  As such, the Court cannot certify a potential class premised on Neurontin being ineffective for the treatment of off-label conditions because more than a small number of uninjured individuals would be included in the class definition.

Slip op. at 12.  As the court had explained earlier in the opinion, the class definition must make the identification of the class members administratively feasible at the outset of the litigation and cannot include large numbers of people who have suffered no injury.  Slip op. at 4 (citing, inter alia, State ex rel. Coca-Cola Co. v. Nixon, 249 S.W.3d 855, 861 (Mo. 2008)).  Here, as in Nixon, it was impossible to adjust the class definition to include only those people who derived no benefit from the product, as that would require individualized merits determinations that would make this a failsafe class.  See Slip op. at 4, 12.

The decision in Judy is also instructive because it distinguished Plubell v. Merck & Co., 289 S.W.3d 707 (Mo. App. 2009).  Plaintiffs argued that Plubell had held that the allegation that "Vioxx was worth less than the product as represented" adequately pled "objectively ascertainable loss" under the MMPA by using a "benefit-of-the-bargain" rule.  But the court in Judy held that Plubell was inapposite because:

. . . Plaintiffs are identifying a loss only as to some of the purchasers of the product.  Plaintiffs have not identified any product that is priced based on a purchaser's intended use, nor is the Court aware of such a product. . . [U]nder Plaintiffs' theory the represented value of Neurontin would differ from use to use.  In addition, there is no evidence in the record that the price of Neurontin is in any way predicated on the level of scientific efficacy for which it was proven to have for on-label uses, as such Plaintiffs have not shown that anyone within the proposed class was injured under their theory.   

Slip op. at 11.

Ultimately, the court held that the complaint not only failed to provide an adequate class definition, but that it also failed the predominance and superiority prongs of the class certification rule.  In addition, because the named plaintiffs were only individuals, the court also concluded that plaintiffs failed to establish that their claims would be typical of entities (such as insurers) that paid for Neurontin.  Moreover, the court questioned whether such entities could maintain a claim under the MMPA, which allows for claims by persons who buy merchandise for "personal, family, or household purposes."

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A recent tobacco decision out of the Northern District of Illinois highlights the importance of challenging the class definition in the defense of consumer fraud cases.  in Cleary v. Philip Morris USA, Inc., 2010 WL 680957 (N.D. Ill. Feb. 22, 2010), plaintiffs had brought three different class actions against the tobacco industry.  One was for illegal underage smoking, one was for nicotene addiction, and one was for allegedly deceptively marketing "low tar," "light," and "ultra light" cigarettes as safer than other cigarettes.

Because of summary judgments that previously had been granted, the first two classes failed for lack of a representative plaintiff.  But the court considered the class certification motion for the "light" cigarettes case.

The class was defined expansively:  "persons who purchased and consumed Marlboro Lights in Illinois 'from the time such cigarettes were placed into the stream of commerce until the date that the defendant publicly and adequately disclosed to consumers the true nature and effect of these cigarettes."  Id. at *1. 

The court found that the complaint met the numerosity and commonality requirements of Rule 23(a), but it failed to meet the typicality requirement for two reasons.  First, the plaintiff did not explain how he intended to demonstrate that he suffered an injury from defendant's alleged fraud and how that was typical of the class members.  Second -- and more important -- the court focused on the overbreadth of plaintiff's class definition.

As the court explained:

Class C is defined so broadly that it is likely to include persons who suffered no detriment at all due to Philip Morris's conduct.  Some class members may have purchased Marlboro Lights for reasons wholly unrelated to its purportedly less-unhealthy qualities--for example, because they preferred the flavor of other brands.  And other class members may have purchased Marlboro Lights despite being completely unaware of claimed differences between the adverse effects of "light" cigarettes and other, non-"light" brands.   It is not entirely clear where Cleary fits in along this spectrum.  Though it is true, as Cleary points out, that factual differences among the claims of class members do not necessarily defeat typicality, the likelihood that some significant proportion of class members experienced no injury at all does, at least in a case like this one in which proof of detriment is a necessary element of the claim. 

Id. at *4 (citation omitted).

Whether the court treats it as part of the element of typicality, as the Cleary court did here, or whether it treats it as a fundamental problem with the class definition, "overbreadth" (i.e., including within the class people who were uninjured by the product) presents serious problems that go to the core of who is going to be bound by the verdict and how the proof is going to establish classwide truths.  That is why courts increasingly are denying class certification to overbroad classes. 

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A recent decision from the Louisiana Court of Appeals demonstrates once again why personal injury claims simply cannot be tried as class actions.  In Pollard v. Alpha Technical Services Inc., 2010 WL 323576 (Jan. 28, 2010), plaintiffs alleged that for more than forty years, industrial property in Harvey, Louisiana had been used to clean oilfield pipes of scale or crust that had built up in the interior of the tubing.  This scale or crust was alleged to be barium sulfate -- later identified as radium sulfate -- and other radioactive materials.  Plaintiffs alleged that "toxic dust" from the industrial property was deposited in their residential neighborhood, causing "various diseases and illnesses, including prenatal complications, various types of cancer, neurological disorders, impairment of kidney function," and impairment of liver function.  Id. at *2.

The trial court conducted a class certification hearing and determined that the putative class failed to meet the class certification prerequisites.  Plaintiffs appealed, and the Court of Appeals determined that, for the most part, the trial court had not abused its discretion in its analysis.

I say "for the most part" because the Court of Appeals did hold that the trial court abused its discretion in finding that the numerosity requirement was not satisfied.  Plaintiffs estimated the potential class to be between 2,000 and 4,000 people.  The trial court determined that 3,748 people already had indicated their intention to opt out.  Id. at *5.  The plaintiffs argued that there can be no opt outs until a certified class exists and absent class members can evaluate whether to participate.  The Court of Appeals agreed, holding that "the trial court was manifestly erroneous in finding that the plaintiffs failed to satisfy the numerosity requirement."  Id. at *6

But the Court of Appeal affirmed the trial court's remaining conclusions.  It found no abuse of discretion in the trial court's conclusion that the commonality requirement had not been satisfied:

There is no controlling issue subject to proof on a class-wide basis.  The differences in amounts and lengths of exposure, the personal history, habits and supposed illnesses of each particular claimant and the differences in operations and locations and customers of the five pipe-cleaning defendants, taken together and taken separately, mean that Plaintiffs cannot identify any common issue that can be resolved with respect to putative class members.

Id. at *7.

Similarly, the trial court was correct in concluding that the typicality requirement was not met:

The class representatives' claims are widely divergent from those of the putative class members. . . .  Some class representatives claimed no medical condition whatsoever, implicitly conceding that none could have been caused. . . .  Others claim widely varying problems, ranging from loss of smell to skin rashes to nosebleeds to hammer-toe to miscarriages to cancer.

Id.

And the trial court was correct in holding that the named class representatives could not adequately represent the absent class members because of the differences in their injuries.  Id. at *8.

The trial court also was correct in holding that the proposed class definition failed to properly identify at the outset who was in the class.  The trial court noted the inconsistencies and errors made by Plaintiffs' expert in modeling air dispersion and trying to establish times, spatial boundaries, and exposure levels for defining the class.  The trial court found that the proposed class definition "could potentially include anyone who once drove through the area," and it could not be saved by defining the class as persons who suffered injury from exposure because that would require a merits-based determination to be made in mini-trials at the outset just to decide who was in and out of the class.  Id. at *9.  The Court of Appeals agreed, but observed that if the other problems with the class had not been so insurmountable, it might have been inclined to remand so that plaintiffs could more narrowly define the class.  However, given the other fatal problems with the class, the court simply affirmed the trial court's conclusion on the class definition as well.  Id. at *11.

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How many times have you said "I told you so" to an adversary who refused to listen to you when you explained that his case could not possibly proceed as a class action?  Sometimes my adversaries listen and drop their class claims.  Invariably, however, that is only after my client has spent large sums of money in class discovery and defending against the class certification arguments.

Recently I came across Johnson v. Microsoft Corp., Case No. C06-900RAJ, slip op. (W.D. Wash.  Jan. 15, 2010), in which the plaintiffs waited until the class certification motion was fully briefed and noticed for hearing before agreeing to drop most -- but not all -- of their class allegations from the complaint.  I waited too long to inform you of the opinion, however.  The folks at the Class Action Defense Blog described the case yesterday and included a downloadable pdf. 

Nevertheless, I highlight it here as encouragement for you defense counsel who want to file fee petitions in such situations:

If Plaintiffs had withdrawn their class-certification motion before Microsoft had prepared its Opposition, that could be a "no harm, no foul" situation.  But here, the "harm" was irreversibly inflicted when Plaintiff's' motion required Microsoft to prepare a defense, and it is not mollified by Plaintiffs' willingness to eliminate some of the additions to the Proposed TACC.  Under these circumstances, the court finds that it is appropriate for Plaintiffs to reimburse Microsoft for costs related to defending against the class certification motion.

Slip op. at 5.

Microsoft's fee petition is due February 12, and the issue should be fully briefed by March 5.  I'll keep an eye on it and let you know what happens.

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The recent opinion in Fitzpatrick v. General Mills, 2010 WL 146846 (S.D. Fla. Jan. 11, 2010)highlights how important the reliance/causation requirement is in consumer fraud class action litigation.  The court in Fitzpatrick refused to certify a class for breach of express warranty because establishing that the challenged statements in yogurt advertising formed the "basis of the bargain" would require reliance, thus destroying predominance under Rule 23.  Nevertheless, because the court concluded that under the Florida Deceptive and Unfair Trade Practices Act (FDUTPA) no plaintiff was required to establish deception or causation specific to himself -- but instead could rely on a hypothetical reasonable everyman -- the court certified a class of Florida consumers.

Fitzpatrick was a challenge to General Mills's Yo-Plus yogurt, which contains probiotic bacterium, inulin (fiber), and vitamins A and D.  The defendant had marketed this probiotic yogurt as an "aid in promoting digestive health."  Plaintiff, who had been eating a competitor's probiotic yogurt, switched to Yo-Plus and, over a year, bought roughly 24 4-packs of Yo-Plus.  She claimed her digestive health was the same before, during, and after eating Yo-Plus, and thus claimed it provides no digestive benefits, its marketing is deceptive, and she is entitled to damages under the FDUTPA.

Despite the language of the FDUTPA and a number of decisions holding that an FDUTPA plaintiff must establish "causation" -- i.e., that the deceptive conduct was an actual cause of his damages -- the court concluded that plaintiff's class could be tried almost entirely on generic proof.  For example, the court reasoned that to establish deceptiveness a plaintiff need not point to any specific advertisement in which he heard an alleged misrepresentation; rather, he could "reach outside the circumstances of a single transaction to establish a 'practice' constituting a deceptive act."  Slip op. at n.5.  As the court put it, each plaintiff would need to prove that he was "exposed to" the "allegedly deceptive message that eating Yo-Plus promotes digestive health in ways that eating normal yogurt cannot," but in proving that the message is deceptive, he may introduce evidence about ads to which he was not personally exposed.  Slip. op. at 7.

As for "causation," the court relied on a Florida court of appeals decision to hold that "'[t]he question is not whether the plaintiff actually relied on the alleged deceptive trade practice, but whether the practice was likely to deceive a consumer acting reasonably in the same circumstances.'"  Slip op. at 7 (citation omitted). 

Untethering deception and causation from a particular plaintiff and pegging it instead to a hypothetical everyman will yield bizarre and unjustifiable results.  To begin with, under such a rule a class member who bought Yo-Plus for reasons other than digestive health would recover regardless of the fact that he was not deceived.  The same would be true for a doctor who actually read the studies General Mills relies upon, and bought Yo-Plus with full knowledge of the scientific literature. 

Moreover, should consumers who actually experienced digestive health benefits be allowed to recover damages under the FDUTPA?  The court says that the damages issue "centers on the scientifically complex question of whether Yo-Plus provides a digestive health benefit, and if General Mills had an adequate basis to disseminate that message to Florida consumers."   Slip op. at 16.  So apparently plaintiff's subjective claim that her digestive health was not benefited by Yo-Plus is defeated if the defendant is adjudicated to have had adequate scientific proof of such benefit generally.  And if the defendant is not determined to have had quite enough evidence, the court's clear implication is that consumers who nevertheless received digestive health benefits might have a damages claim.  That, of course, would be an absurd result.

Causation and injury are fundamental bedrocks of American jurisprudence.  Indeed, one cannot have standing to sue without them.  When courts read the causation and injury requirements out of causes of action and make the outcomes determined by hypothetical actors, they increase the risk that uninjured people will benefit unfairly from a lawsuit.  Where, as here, such rules are to be applied in a class action, that risk increases exponentially.  The causation and injury requirements of the FDUTPA -- read in plain English as the legislature wrote them -- require individualized determinations that should have precluded class certification.

Here, even the class definition, as amended by the court, requires a subjective individual determination that ought to have prevented class certification:  "all persons who purchased Yo-Plus in the State of Florida to obtain its claimed digestive health benefit."  That is not an objectively identifiable class -- it requires inquiry at the outset into why class members bought the product.  Who is bound by a judgment in that class?  And if the class loses, couldn't one simply argue in a future suit that she was not bound by the Fitzpatrick judgment because she had bought Yo-Plus for a different reason?

The court's decision in Fitzpatrick is subject to serious challenge on appeal.  But by contrasting the effect of a causation/reliance requirement by denying certification of the express warranty class, the opinion can serve as a useful teaching tool for why it is important not to read the basic causation and injury requirements out of state consumer protection statutes.

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Well, this is a little awkward.  I mean, it's the New Year . . . Christmas is over . . . and I didn't get you anything.  I got a Nano and a couple of gift cards for iTunes.  But what to get you . . .

I know!  A boxed set of three decisions involving Apple, circa December 2009!

In Hovespian v. Apple, Inc., 2009 WL 5069144 (N.D. Cal. Dec. 17, 2009), the court granted Apple's motion to dismiss and its motion to strike class allegations.  (It was a good holiday for Apple, too, apparently.)  Plaintiff -- a Florida resident -- had brought a class action in California federal court, purporting to represent all people who bought iMAC G5 personal computers.  Plaintiff alleged that the display screen was prone to developing vertical lines that ultimately rendered the screen unusable, that Apple knew of this fact and concealed it, refusing to repair the machines because the lines developed after the one year express warranty had run on the machine.  (Plaintiff bought his Mac in October 2006, but the lines did not appear until March 2008.)  Plaintiff's Second Amended Complaint ("SAC") pled causes of action under California's Consumer Legal Remedies Act, the Unfair Competition Law, for fraudulent omission, for unjust enrichment, and for a declaration that the one-year warranty limitation was unenforceable.

The court dismissed plaintiff's CLRA claim without leave to amend because it failed to state with particularity -- as required by Rule 9(b) -- "when and where Apple made an affirmative misrepresentation, if any, that contradicts its alleged omissions."  Id. at *3.  The complaint contained only generalized allegations that Apple had exclusive knowledge of the problem and concealed it.  This was insufficient -- without affirmative statements that contradict the omitted information -- to state a CLRA claim.

The court also granted dismissal of the UCL claim without leave to amend.  Citing to Clemens v. DaimlerChrysler Corp., 534 F.3d 1017 (9th Cir. 2008), the court held that an alleged defect that may shorten the life span of a product that performs as warranted throughout the express warranty term does not cause a substantial injury to consumers and cannot serve as the basis for a UCL claim.

The court granted dismissal of the common law fraudulent omission claim for the same reason it dismissed the CLRA claim, but it made the dismissal without prejudice to give plaintiff leave to re-plead to elaborate on what duty to speak Apple had that it allegedly had violated.

The court also dismissed the unjust enrichment claim with prejudice, holding that an unjust enrichment claim that is premised on the same course of conduct that underlies the statutory and common law tort claims cannot stand alone as an independent claim for relief.  Id. at *5.  It fails for the same reason the other claims fail.

The court also granted Apple's motion to strike the class allegations, citing its authority under Federal Rules of Civil Procedure 23(c)(1)(A), 23(d)(1)(D), and 12(f).  Plaintiff defined the class as all persons who purchased iMAC G5 personal computers from Defendant Apple, Inc.  The court held that the complaint failed to state a valid class action claim against Apple:

First, the class is not ascertainable because it includes members who have not experienced any problems with their iMAC display screens.  Such members have no injury and no standing to sue.  Second, the class is not maintainable under Rule 23(b)(3) because it includes members who can have no claim against Apple.  For example, the putative class includes members who (a) did not purchase the particular iMac model or the type of iMac screen that Hovespian alleges is defective and (b) experienced the alleged defect after their warranty expired.  Finally, the class is not maintainable under Rule 23(b)(1) or Rule 23(b)(2).  These types of class actions are not suitable for actions where recovery of money damages is the primary relief sought by the plaintiff.

Id. at *6.  The court struck the class allegations without prejudice, thus allowing amendment after plaintiff amended his fraudulent concealment claim.

The second case in our Apple boxed set was well reported on:  Birdsong v. Apple, Inc., 2009 WL 5125776 (9th Cir. Dec. 30, 2009).  Birdsong involved a class action challenge to Apple's iPod based on the potential for hearing loss.  Plaintiffs alleged that the iPod was defective in that it could achieve sounds of 115 decibels, the long battery life allows those sounds to be played over long periods of time, the ear buds are designed to be placed deep in the ears (rather than over the ears), the ear buds lack noise cancelling properties, and the iPod lacks a volume meter that tells users they are listening at dangerous levels. 

Apple includes this warning with each iPod:

Warning:  Permanent hearing loss may occur if earphones or headphones are used at high volume.  You can adapt over time to a higher volume of sound, which may sound normal but can be damaging to your hearing.  Set your iPod's volume to a safe level before that happens.  If you experience ringing in your ears, reduce the volume or discontinue use of your iPod.

Id. at *1.

The Ninth Circuit affirmed dismissal of the implied warranty of merchantability count, observing that nothing in the complaint says the iPod is defective for its ordinary purpose of listening to music.  Rather, the statements in the complaint merely suggest that users have the option of using the iPod in a risky manner, but it does not suggest the product lacks any minimum level of quality.  Where, as here, the complaint merely seeks additional features to make the product safer, it fails to allege the sort of lack of baseline utility that would support a breach of the implied warranty of merchantability claim.  Id. at *2-*3.

Plaintiffs abandoned the breach of express warranty and breach of the implied warranty of fitness for a particular purpose claims on appeal. 

The Ninth Circuit also affirmed dismissal of the Unfair Competition Law claim because they failed to allege the requisite injury to have standing to bring the claim.  To begin with, the complaints did not allege that the plaintiffs themselves ever suffered hearing loss or were at risk of imminent hearing loss.  Nor did they allege that plaintiffs themselves ever used their iPods in a way that exposed them to a risk of hearing loss.  Rather, they cast their allegations as potential impacts on unidentified users.  This was insufficient to meet the injury requirement for Article III standing.  Id. at *4.

The court also held that plaintiffs failed to allege an economic harm (lost money or property) that would confer standing to sue under the UCL because "the alleged loss in value does not constitute a distinct and palpable injury that is actual or imminent because it rests on a hypothetical risk of hearing loss to other consumers who may or may not choose to use their iPods in a risky manner."  Id. at *5.  And the court rejected plaintiffs' "benefit of the bargain" theory, holding that the "plaintiffs' alleged injury in fact is premised on the loss of a 'safety' benefit that was not part of the bargain to begin with."  Id.

The third case in our boxed set is a lump of coal:  Owens v. Apple, Inc., 2009 WL 5126940 (S.D. Ill. Dec. 21, 2009).  Plaintiffs brought a putative nationwide class action, alleging that Apple breached a contract and violated various consumer fraud statutes when it sold gift cards to people with the representation that songs cost $.99 a song, and then on April 7, 2009 raised the price of certain songs to $1.29.

Apple moved to dismiss, asserting a privity defense to the breach of contract claims.  The court rejected it outright, where the gift card at issue was marketed by Apple and could be used only on Apple's website. 

The court also held that there was nothing vague about the representation:  "Songs are 99 cents, and videos start at $1.99."  The complaint alleged plaintiffs relied on the price guarantee as part of the basis of the bargain, and that plaintiffs were damaged as a result of the price increase.  The court refused to dismiss the breach of contract counts.

The court also refused to dismiss the consumer fraud counts.  Apple had argued that the statement "Songs are 99 cents," did not mean that the price of all songs was 99 cents, but rather that some songs were 99 cents.  Plaintiffs argued that this interpretation was a "slippery slope" that would allow Apple to market its gift cards in the same way so long as one song was 99 cents.  The court refused to find that the phrase was not deceptive as a matter of law.

So that's it.  A boxed set of Apple decisions for you.  If they don't fit and you want to exchange them for a sweater vest I received this Christmas, just let me know.

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Yesterday Merck won an important appeal in a California Vioxx class action in which plaintiffs had argued that the California Supreme Court's recent decision in In re Tobacco II Cases, 46 Cal. 4th 298 (2009) required the reversal of a trial court's refusal to certify a class action under California's Unfair Competition Law.  See In re Vioxx Class Cases, No. B216521 (Cal. App. -- 2d Dist. Dec. 15, 2009).  The Vioxx Class Cases decision is important because it recognizes that although Tobacco II imposed a new understanding of the UCL's standing requirement, it did not fundamentally alter the other elements of the statute, and a proposed class can still fail the class action prerequisites where the relief requested requires individualized determinations and where the named plaintiffs' claims are not typical of those of other class members.

Vioxx was a Non-Steroidal Anti-Inflammatory Drug ("NSAID") that was used to treat pain until it was removed from the market in 2004.  Unlike aspirin or naproxen, which are NSAIDs that can cause gastrointestinal complications, Vioxx was a "COX-2" inhibitor that was expressly designed to avoid the gastrointestinal effects inherent in NSAIDs like naproxen.  Vioxx was removed from the market after studies determined that it presented a risk of adverse cardiovascular effects.

Plaintiffs brought a statewide class action under the UCL, the False Advertising Act, the Consumer Legal Remedies Act, and common law unjust enrichment.  They sought classwide restitution of the difference in price between what they paid for Vioxx and what they would have paid for a safer, equally effective, pain reliever.  Their economist calculated that price differential to be $8.3 billion nationally, but did not break it down to what allegedly was owed to California purchasers.

Plaintiffs' theory of liability was simple:  Merck knew its drug presented cardiovascular risks, but concealed that fact and marketed Vioxx as safe to the public and to doctors.  Slip op. at 7.  As a result, they said, they were entitled to classwide restitution of the difference between the price of Vioxx and the price of generic naproxen.

Interestingly, in discovery, plaintiffs would not say that they would have taken naproxen instead of Vioxx.  Rather, they would only say that they would not have taken Vioxx if they had known the risks, and that the drug they would have used instead was irrelevant.  Slip op. at 6.

In the trial court, Merck had established that roughly 16,500 people in the US died from gastrointestinal bleeds -- the most common NSAID complication -- each year, and over 100,000 were hospitalized.  It presented medical testimony that for patients with a history of serious gastrointestinal problems who could not tolerate traditional NSAIDs, COX-2 inhibitors like Vioxx were the only appropriate option.  Further, it presented evidence from third party payors -- who were included in the class of purchasers, even though the named plaintiffs were all individuals -- establishing that some third party payors' Pharmaceutical and Therapeutics committees had studied the risks of Vioxx thoroughly and only approved the drug for use with patients who had a history of gastrointestinal disease and had first tried one or two traditional NSAIDs without success.  The third party payors' records also established that when Vioxx was removed from the market, most patients did not switch to generic NSAIDs like naproxen, but rather switched to another branded COX-2 inhibitor with a price comparable to Vioxx.

Merck also established in the trial court that doctors apply their clinical judgment to each patient's unique situation in choosing which pain medicine to prescribe, looking at eight different factors.  Merck also established that doctors rely on different sources of information, with some even rejecting out of hand research the company provides.

On appeal, plaintiffs challenged three conclusions of the trial court.  First, they challenged the trial court's conclusion that the individual plaintiffs' claims were not typical of the claims of third party payors.  Second, they said the trial court erred in concluding that individual issues of reliance barred a class action.  And third, they urged that their method of calculating damages was subject to common, class-wide proof, making classwide restitution appropriate.

Typicality and Third Party Payors

Plaintiffs argued that the individual plaintiffs could represent the interests of the third party payors -- like union health benefit plans -- because if an individual relied on Merck's alleged misrepresentations to buy Vioxx, then the third party payor who paid for most of that prescription should be entitled to recover, too.  The Court of Appeal held that the flaw in this analysis is that it treats the third party payor as a passive entity that pays without having any say in what is prescribed.  But the evidence showed that, at least for some large third party payors, their Pharmaceutical and Therapeutics committees conducted literature reviews and studies, and made their own decisions about what they were going to pay for.  As a result, evidence about what alleged misrepresentations the individuals received or relied upon could not apply to third party payors, and the court could not presume reliance across all third party payors based on any individual's reliance.  Slip op. at 21.  Indeed, for third party payors who only paid for Vioxx where there was a history of gastrointestinal problems and the patient could not tolerate other NSAIDs, every penny it paid for Vioxx was for a patient who benefited from the prescription.  Id. at 22.  Accordingly, the individuals' claims were not typical of the third party payors.

Individual Issues of Reliance Predominate the CLRA Claim

California's Consumer Legal Remedies Act requires some form of causation between the unlawful act and the consumer's damages:  it gives a cause of action to "[a]ny consumer who suffers any damage as a result of the use or employment" of an unlawful act.  Cal. Civ. Code sec. 1780(a) (emphasis added).  Some California cases have held that an "inference of reliance" may arise for the class where a material misrepresentation has been made to the whole class.  But "if the issue of materiality or reliance is a matter that would vary from consumer to consumer, the issue is not subject to common proof, and the action is not properly certified as a class action."  Slip op. at 16.

Plaintiffs suggested that hiding an increased risk of death from cardiovascular complications is about as material as a misrepresentation can get, and that reliance should be inferred to the whole class for purposes of the CLRA.  But the Court of Appeal rejected this notion for four reasons.

First, Vioxx did not present an increased risk of death for all patients, because there were patients with gastrointestinal problems who would have been more likely to die from complications with traditional NSAIDs like naproxen.  Second, the record evidence reflected that there were patients who would still take Vioxx if it were on the market today, and physicians who would still prescribe it.  Thus, for some subset of the class, the cardiovascular risks were not material to their decision whether to take the medicine.  Third, the differences in how doctors study and evaluate the risks of medicines prevented a classwide inference of materiality.  And fourth, the patient-specific factors that doctors evaluate in prescribing a pain medicine also made a presumption of materiality not viable.  For example, a doctor might downplay the clotting risk of Vioxx for a patient already receiving a blood thinner like Coumadin.  Slip op. at 24. 

Individual Issues Regarding Injury and Restitution Predominate the UCL and FAA Claims

The Court of Appeal noted that although the UCL liberalizes the standards for finding liability, it narrowly prescribes the remedies available under the statute:  injunctive relief and restitution.  There was no need for injunctive relief, since the product had been pulled from the market.  So the question was one of restitution.  Plaintiffs' economist proposed comparing the price of Vioxx with the price of generic naproxen, using the difference as the amount of restitution. 

But the Court of Appeal concluded that this approach could not be applied to the class as a whole, because there was substantial record evidence that after Vioxx was withdrawn from the market, most Vioxx patients switched to other similarly-priced brand-name COX-2 inhibitors, not generic naproxen.  Plaintiffs argued that adjudicating the validity of naproxen as a comparison improperly went to the merits of the action, but the Court of Appeal said no.  Rather, it went to whether a "measurable amount" of restitution could be proven on a classwide basis.  The court held that it could not, and that class members thus would have to individually establish the appropriate comparator medicine, and then whether he suffered an injury.  This was a patient-specific issue, the court held, "incorporating the patient's medical history, treatment needs, and drug interactions."

Dicta on the Class Definition

The Court of Appeal was highly critical of the plaintiffs' class definition, which included "all individuals or entities in California who . . . paid some or all of the purchase price for the prescription drug Vioxx."  Slip op. at 6-7.  Besides improperly lumping individuals and third party payors together, the Court of Appeal also was clearly troubled that there was no carve-out for people who suffered physical injuries (slip op. at 5-6, n.4), thereby presenting problems of claim-splitting.  The court said the class definition was overbroad, and that those with physical injuries "should not be bound in an action pursuing only economic damages for the price of Vioxx."  Slip op. at 20, n.16.  Moreover, the class definition also was overbroad because it included those with flat co-payment obligations who would have paid the same amount of co-payment regardless of what drug was applied; they would have suffered no injury, and thus should not be in the class.  Id. 

Moreover, given the fact that -- as the Court of Appeal noted -- many of the class members actually derived benefit from Vioxx's lack of gastrointestinal effects, I would argue that the class definition also should have been required to exclude those people from the class.

The decision in Vioxx Class Cases is an important reminder that the elements of the causes of action for UCL, CLRA, FAA and unjust enrichment claims in California provide important defenses to class certification.  Just because a UCL claim may survive a demurrer does not mean that it can be tried on a classwide basis.  Defendants would be wise to follow Merck's lead and develop strong factual bases for why classwide presumptions are not viable and individual proof of injury should be required.

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It's not often that a federal judge dismisses a class action sua sponte.  Ordinarily, a defendant who is served with even the most frivolous complaint must go to the trouble of hiring a lawyer to research and draft a motion to dismiss the case.  That's why it's such a breath of fresh air to read Judge Milton I. Shadur's opinion in Radke v. University of Illinois at Urbana-Champaign, 2009 WL 3617462 (N.D. Ill. Nov. 2, 2009).  There, Judge Shadur preaches the importance of federal judges taking a first look at newly-filed complaints to ensure that federal jurisdiction is proper, and sua sponte dismissing complaints where jurisdiction clearly does not lie.  Id. at *2.

Ironically, the complaint that Judge Shadur dismissed in Radke is a clone of the complaint that formed the basis of last month's Specious Complaint Contest on this blog, which was won by Brian Perryman three days ago.  It's the same lawyers.  Same class definition.  Same counts.  Just a different plaintiff.  (Of course, this suggests that counsel may have been engaged in judge shopping, i.e., filing multiple class actions in the same court to see who they are assigned to, and then subsequently dropping those assigned to judges they deem less favorable.  If so, Judge Shadur's sua sponte dismissal must have been quite a shock to plaintiffs' counsel.)

Brian, who won our contest, had expressed some doubt about the jurisdiction argument he included in his outline of the contest's hypothetical motion to dismiss, but I had determined to leave that argument in because it seemed correct to me.  Obviously, Judge Shadur agreed that there was no federal jurisdiction.

The facts in Radke are simple enough to recap:  The Chicago Tribune had run some stories about a so-called "clout list" that the University allegedly used to admit students who otherwise did not meet the school's grade or testing standards.  Plaintiff alleged that had he and the class known of these practices, they never would have paid $40 to submit an application to attend the school.  Plaintiff was a disgruntled student who had been denied admission to the University.  He brought a class action alleging breach of contract, fraud, unjust enrichment, denial of due process and equal protection, and the need for an accounting.  The class was defined as:

All . . . applicants to the University of Illinois at Urbana-Champaign [not on the "clout list"] who, during the time period of 1999 until August 2009, applied for admission to the University, paid an application fee to defendants in consideration of admission to the University and were subsequently denied admission to the University.

Judge Shadur held that this putative class action could not, on its face, meet the jurisdictional prerequisites of the Class Action Fairness Act, including its $5 million amount-in-controversy threshold.  The court noted at the outset the fundamental flaw with the class definition:  it was extraordinarily overbroad.  Even under the facts pled in the complaint, it was clear that some two-thirds of the class as defined by counsel would not have been admitted even without the use of a clout list.  Thus, they had suffered no injury and had no standing to sue.  Id. at *1.  And it was clear that the number of allegedly improper admissions involved only a small percentage of the 7,000 annual admissions to the school, so that at $40 per application it was "patently absurd to claim that the boxcar figure of $5 million" would come into play, as CAFA requires.

Moreover, by going back ten years to 1999, the class included many people "who are too long in the tooth for current admission, so that a Rule 23(b)(2) class that provides only injunctive or declaratory relief would not be appropriate."  Addiitionally, for those who were suing for damages under Rule 23(b)(3), the court noted that there obviously could be no class because individual issues predominated:

Just think of the individualized hearings required to evaluate each applicant to determine whether he or she would or would not have been admitted on the merits -- a decision that always legitimately involves subjective criteria, even when impermissible political considerations are taken out of the picture.

Id. at *2.

Ultimately, the court dismissed the complaint for lack of federal subject matter jurisdiction under CAFA, although the dismissal was without prejudice for plaintiff to:  (1) replead an equal protection claim that could meet the Rule 8 pleading standards, as interpreted by Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), or (2) assert the state law claims in state court. 

Radke is an excellent example of a court taking a hard look at a class that never could be certified and refusing to let putative class allegations obfuscate the fact that CAFA's amount in controversy requirement obviously cannot be met.  One can only hope that more courts will, sua sponte, act with such swiftness and precision to prevent defendants from unnecessarily incurring legal defense and discovery fees.

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When I teach my product liability course as an adjunct professor, I often include on the exam a class action question.  It's always a traditional issue-spotting exam, and I expect to see students set forth the elements for class certification and analyze them in the course of their answer.

One of the elements of class certification that all but the best of my students often ignore is the class definition.  Although Federal Rule of Civil Procedure 23 does not have any express requirements for class definitions, courts recognize that there is an inherent rule for all class actions that the class be objectively identifiable and ascertainable at the outset of the litigation.  Otherwise, how could one tell who would be bound by the class adjudication?

I previously have written about a decision in which a court refused to certify a class based on problems with the class definition.  Today, I proffer to you another -- which, incidentally, was won by my new colleagues John Beisner and Jessica Miller.

In Solo v. Bausch & Lomb, Inc., MDL No. 1785, Slip Op. (D.S.C. Sept. 25, 2009) (AmLaw Daily registration may be required), the court refused to certify two classes of California and Pennsylvania consumers, respectively, who bought contact lens  solution between September 1, 2004 and April 10, 2006 and discarded it after the defendant told consumers to do so.

The ReNu with MoistureLoc litigation is familiar to everyone.  It was posited that ReNu was responsible for an increase in cases of eye infection and blindness due to a fungus, fusarium keratitis.  The infections were first noticed in Asia, and after the CDC noted an increase in fusarium keratitis infections in the United States, the defendant recalled its product and advised consumers to switch to another contact lens solution.  In exchange, the defendant offered a refund or a coupon applicable to others of its contact lens solutions.

Nevertheless, there were a slew of lawsuits seeking recovery for "economic harm" allegedly suffered by ReNu consumers.  The MDL court had refused to certify a nationwide class action, and subsequently refused to certify a class action involving just California-only and Pennsylvania-only classes.

Plaintiffs filed another amended complaint for Pennsylvania-only and California-only classes, asserting various breach of warranty claims, consumer fraud claims, and unjust enrichment claims.  The court dismissed the warranty claims, but allowed the California statutory claims and the California and Pennsylvania unjust enrichment claims to proceed.

Interestingly, one of the three named plaintiffs in the action subsequently voluntarily dismissed her claims after changing her story about whether she bought and discarded Renu in 2006.  But the claims of two plaintiffs (one California, one Pennsylvania) made it to the certification motion.  For each state class, the definition was:

All people in [California/Pennsylvania] who purchased MoistureLoc, other than for resale, from September 1, 2004 through April 10, 2006, who lack full reimbursement for any quantity discarded following Bausch's MoistureLoc recall.

Id. at 5. 

The court described the class definition as "'an essential prerequisite to maintaining a class action,.'"  Id. at 6 (citation omitted).  Citing Wright, Miller & Kane, the court declared that the class definition must be "'sufficiently definite so that it is administratively feasible for a court to determine whether a particular individual is a member,'" and noted that the definition "'must not depend on subjective criteria or the merits of the case or require an extensive factual inquiry to determine who is a member.'"  Id. at 7 (citations omitted).  Thus, "[w]here determining membership in the class would require fact-intensive mini-trials, the class is not ascertainable, and the court should deny certification."  Id. at 8.  Citing the court's decision in In re Phenylpropanolamine (PPA) Products Liability Litigation, 214 F.R.D. 614 (W.D. Wash. 2003), the court exhibited great sensitivity to how class members would prove that they bought the product, as well as how much was left when they discarded it,  Slip op. at 9.  

The court was especially aware that memories fade over time, and it noted the varying testimony of the two remaining named plaintiffs, as well as the named plaintiff who had voluntarily dismissed her claim after changing her testimony about whether she bought and discarded the product.  The court also recognized that determining who "lack[ed] full reimbursement" for their losses would require mini-trials.  Would a consumer who used most of the solution and received an $8 replacement coupon be a class member?  What if he failed to use the coupon?  Id. at 11.

The court concluded that mini-trials were unavoidable, and that they made any class unmanageable:

[T]he membership of plaintiffs' proposed class would require countless factual inquiries into the individual circumstances of potential class members, most of whom will have long ago forgotten the details relevant to plaintiffs' allegations.  Moreover, it is hard to fathom how thousands of unnamed putative class members could possibly provide credible testimony about their class membership more than three years after the fact when the proposed class representatives themselves have presented conflicting testimony that changed over time. . . . While the court realizes it is likely that many individuals incurred some monetary loss as a result of the MoistureLoc recall, plaintiffs must still meet the requirements for class certification.

Id. at 14.

The opinion in Solo should prove useful in other cases where consumer products have already been consumed and proving loss is a difficult case of recall, rather than documents. 

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The class action rule itself gives little guidance regarding how to properly define a class, which may explain why attacks on the class definition are discussed in the case law with little frequency.  Nevertheless, courts increasingly are recognizing that there are common law rules governing how classes may be defined, and they are more than willing to dismiss a case for definitional problems.

One of the most common problems with class definitions is that membership in the class is not immediately and objectively identifiable, making membership in the class itself something that must be the subject of mini-trials.  This is particularly problematic, as the court and the parties have no knowledge at the outset what people will be bound by the judgment in the class action.  Cases rejecting these kinds of definitions include Intratex v. Beeson (Tex. 2000), and The Coca Cola Company v. Nixon (Mo. 2008).

Add to this list Brown v. SBC Communications, Inc., 2009 WL 260770 (S.D. Ill. Feb. 4, 2009).  In Brown, plaintiff sued on behalf of a putative class of telephone subscribers who allegedly had been the victims of "cramming" -- i.e., having unauthorized charges placed on their bill for products or services they did not receive.  Plaintiff sued for violations of Illinois' Consumer Fraud and Deceptive Business Practices Act and unjust enrichment.  

The court concluded that class could not be certified because the definition -- "all persons or entities who were residents of Illinois and who were improperly billed for cramming charges" -- would require individualized factfinding:

Similarly, here, the Court will need to make individual determinations as to whether each proposed class member authorized the charges for which he was billed by defendants.  The proposed class member authorized the charges for which he was billed by defendants.  The result will be multiple mini-trials, each requiring individual proofs.

Id. at *3.

Backpedaling in his reply brief, plaintiff proposed another definition that would include only subscribers who paid for charges they did not use.  The court held that this was no better:

While the Court agrees that the fact that an individual member did not utilize the service for which he was charged is evidence that he did not actually authorize the charge, the Court would still have to resolve the issue of whether each individual class member actually authorized the charge for which he or she was billed.  If an individual member did authorize the charge, then Defendants did not act improperly, at least as alleged by Plaintiff, in billing for the charge, regardless of whether the member actually utilized the service for which he or she was charged.

Id. at *4

When analyzing arguments in defense of class action litigation, it pays to start up front with close consideration of the class definition.

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