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

We defense lawyers have grown so accustomed to plaintiffs trying to repackage a products liability claim as one for consumer fraud that we sometimes forget to check a state's products liability statute for potential defenses when the complaint fails to mention it and instead cites the state's consumer fraud act.  But by failing to look at the product liability statute, we may be passing up an important defense, as was demonstrated in Mitchell v. Proctor & Gamble, 2010 WL 728222 (S.D. Ohio Mar. 1, 2010).

The plaintiff in Mitchell brought a putative class action against the maker of an over-the-counter heartburn medicine, Prilosec OTC.  The plaintiff, who said he was the only one who became ill after a buffet-style dinner party, claimed that taking Prilosec OTC predisposed consumers to contracting food-borne illnesses.  His class was defined as all consumers of Prilosec OTC from 2004 to the present.  He asserted causes of action for strict liability failure to warn, negligent failure to warn, violations of Ohio's Consumer Sales Practices Act, breach of express warranty, and breach of implied warranty.

The court first analyzed the defendants' argument that the entire action was preempted by Ohio's Products Liability Act.  The OPLA defined a "products liability claim" as a civil claim seeking recovery for compensatory damages from a manufacturer for death, personal injury, emotional distress, or property damage arising from the product's design, any warning or instruction, or the product's failure to conform to a warranty.  Id. at *2-*3.  The OPLA had eliminated all common-law product liability causes of action.

The plaintiff sought recovery for "treatments for food-borne illnesses," "the purchase price of the product," and the difference between the market value of the product and its actual value.  But the court held that "[plaintiff] cannot separate out his claims from the purview of the OPLA simply by claiming only economic losses.  His claims . . . are products liability claims.  And the injury he is alleged to have suffered relates directly to that product."  Id. at *4.

The court also noted that there was a long line of authority holding that where a plaintiff used the consumer fraud statute (the OCSPA) to assert claims that were primarily rooted in products liability claims, the OPLA preempted those claims, too.  Id.  Accordingly, the court dismissed all of plaintiff's claims without prejudice for him to plead a proper claim under the OPLA, which he had not previously cited.  Thus, an unpled product liability statute proved to be the Defendant's best weapon to defeat a host of consumer fraud claims. 

In dicta, the court also commented on the inadequacy of the factual pleadings under the Rule 8 standard of Twombly/Iqbal.  Plaintiff alleged that he attended a dinner, that he had been taking Prilosec, and that he was the only one who became sick.  That, the court held was not enough:

Nowhere in [plaintiff's] factual allegations does he connect his assertion that Prilosec OTC increase the risk of foodborne illness with the circumstances surrounding his illness.  Thus, his Amended Complaint is full of "naked assertions" that are lacking "further factual enhancement."  This Court cannot make inference upon inferences to provide the factual enhancement to [plaintiff's] claims.

Id. at *5 (citations omitted).

Ultimately, the court held that plaintiff should have another chance to plead an OPLA claim with sufficient factual particularity.  But it was clear from Mitchell that both the common law and OCSPA claims were preempted -- proving once again that it pays to check statutes that are not cited in the complaint when making decisions about motions to dismiss and affirmative defenses.

• Email This
• Print
• Comments
• Trackbacks

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. 

• Email This
• Print
• Comments
• Trackbacks

Right around Christmas I gave you a boxed set of decisions involving Apple as a defendant.  Today I thought I would even the score a bit and report on a short decision by U.S. District Judge Marsha J. Pechman regarding claims against Microsoft.

In Alvarado v. Microsoft Corp., 2010 WL 715455 (W.D. Wash. Feb. 22, 2010), the plaintiff had brought a putative class action under Washington's Consumer Protection Act, as well as a common law claim of unjust enrichment and a request for declaratory judgment.  Plaintiff complained that customers who buy new computers and only want to run Windows XP must first buy a computer with Vista or Windows 7 and then "downgrade" their computer to XP.

Plaintiff alleged that she bought a Lenovo laptop that included a license to use the Vista Business Operating System.  

Judge Pechman analyzed the CPA claim first, holding that plaintiff failed to plead that she was a direct purchaser, thus running afoul of the CPA's direct purchaser requirement.  Washington's intermediate appellate court had rendered a decision in a pharmacy case that patients who buy medicines from a pharmacy are indirect purchasers who do not have claims against the maufacturers.  See Id. at *2 (citations omitted). 

She also held that plaintiff failed to identify an unfair or deceptive act or practice.  Unfairness, under Washington law, requires a legislative declaration that certain acts are per se unfair.  There were no such declarations here.  Second, there was nothing deceptive about Microsoft's conduct of selling new computers with the most advanced operating systems.  Because the plaintiff had been given multiple opportunities to plead a CPA claim, the court dismissed this count with prejudice.

The court dismissed the unjust enrichment count without prejudice.  The court rejected Microsoft's argument that an indirect purchaser cannot assert an unjust enrichment claim.  Id. at *5.  She did note, however, that plaintiff never pled that she had to pay for a downgrade; in fact, from the complaint it seemed that she received both XP and Vista for the price of one.  Accordingly, there was no unjust enrichment.  And since there was no unjust enrichment and no violation of the CPA, there could be no declaratory judgment.

• Email This
• Print
• Comments
• Trackbacks

Recently I contributed an article to the magazine Financier Worldwide on the subject of third party payor suits in the United States.  You can find the article here, in their March issue.

• Email This
• Print
• Comments
• Trackbacks

When the California Supreme Court issued its opinion last summer in In re Tobacco II Cases, 46 Cal. 4th 298 (2009), many commentators viewed it as a fundamental sea change in California's Unfair Competition Law jurisprudence, reading concepts of standing completely out of UCL class actions.  Others, however, were mindful of the context in which it arose, observing that the rules developed in tobacco and asbestos cases often are not rules of general application.

The Second District Court of Appeal recently issued a decision that suggests the latter view may be right.  In Pfizer v. Superior Ct., 2010 WL 660359 (Cal. App. Feb. 25, 2010), a consumer had sued the manufacturer of Listerine for a promotion it had run in 2004 to 2005 in which some TV ads and some product labels suggested Listerine was as effective as flossing in preventing plaque buildup.  The trial court had certified the following broad class:  "all persons who purchased Listerine, in California, from June 2004 through January 7, 2005."

The Court of Appeal had reversed, holding that the class definition was overbroad because it included numerous people who had no claim as a matter of law.  After the California Supreme Court decided In re Tobacco II, holding that Proposition 64's injury requirements do not apply to absent class members, it directed the Second District to reconsider its decision in light of the new opinion.

The Second District did so, and once again reversed the class certification.  In examining In re Tobacco II, the court noted that the tobacco case involved a decades-long campaign of allegedly deceptive and misleading advertising to which nearly everyone was exposed.  Id. The Second District held that although Tobacco II allows a plaintiff who actually relied on the misleading advertising to represent others who may have lost money as a result of it, "Tobacco II does not stand for the proposition that a consumer who was never exposed to an alleged false or misleading advertising or promotional campaign is entitled to restitution."  Id.

The court held that the class was overbroad because it encompassed many people who have no cause of action.  The court noted that "unlike the saturation advertising promulgated by the tobacco defendants, the Listerine 'as effective as floss' campaign was limited in its scope and lasted just over six months."  This led the court to conclude:

[L]arge numbers of class members were never exposed to the 'as effective as floss' labels or television commercials.  As to such consumers, there is absolutely no likelihood they were deceived by the alleged false or misleading advertising or promotional campaign.  Such persons cannot meet the standard of section 17203 of having money restored to them because it 'may have been acquired by means of' the unfair practice.  In the language of section 17203, with respect to perhaps a majority of class members, there is no doubt Pfizer did not obtain any money by means of the alleged UCL violation.

Id.  See also id. ("one who was not exposed to the misrepresentations and therefore could not possibly have lost money or property as a result of the unfair competition is not entitled to restitution").

• Email This
• Print
• Comments
• Trackbacks

Cars -- like diamonds -- are forever.  Or so we'd like to think.  I used to have a vintage Mercedes that I bought for $4,000.  I loved to sit in that car.  Of course, that's all I could do with it.  It never really ran.  But I looked fantastic in it, sitting in my garage.  My friends used to say it looked like a sedan a Latin American dictator would be assassinated in -- which was fitting, since it killed me to junk that car (which, it turns out, was held together with Bondo).

Gilbert Noble, no doubt, knows what I mean.  He bought a 1999 Porsche 911 Carrera Coupe in 2005.  It was already out of warranty (4 years/50,000 miles).  The 1999 911 was the first year that Porsche began equipping their products with a water-cooled engine.  Gilbert used his car for about a year, when he started noticing smoke billowing from the tailpipe.  It turns out that antifreeze had leaked into the car's oil through a defective cylinder, irreparably damaging the engine.

Gilbert wrote Porsche.  Porsche said, "Sorry, you didn't buy the car from us, and it was out of warranty when you bought it."  So Gilbert sued Porsche, asserting two causes of action:  (1) strict liability, and (2) violation of New Jersey's Consumer Fraud Act.  The court dismissed his claim on the pleadings.  Noble v. Porsche Cars North America, Inc., 2010 WL 606305 (D.N.J. Feb. 19, 2010).

The court made easy work of Gilbert's strict liability claim, holding that it was barred by the economic loss doctrine, which "bars tort claims for harm sustained to the product alone, as opposed to harm to persons or other property damage."  Id. at *3.

The claim under New Jersey's Consumer Fraud Act ("CFA") was more difficult.  There are three elements to a CFA claim:  (1) unlawful conduct, (2) an ascertainable loss, and (3) a causal relationship between the two.  The court held that, under New Jersey law, "a plaintiff cannot maintain an action under New Jersey's CFA when the only allegation is that the defendant 'provided a part -- alleged to be substandard -- that outperforms the warranty provided."  Id. at *4.  To hold that the CFA covers parts failures beyond the warranty period "'would be tantamount to rewriting that part of [the] contract which defined the length and scope of the warranty period . . . [which] would also have a tendency to extend those warranty programs for the entire life of the vehicle.'"  Id. (citation omitted).

Gilbert (and I) learned a valuable lesson:  nothing lasts forever, and when you buy a used product outside of the warranty period, you bear the risk that the product will no longer work.  That's how you can buy a Mercedes for $4,000, or a Porsche 911 for whatever Gilbert paid for it. 

• Email This
• Print
• Comments
• Trackbacks

Continuing that long line of cases rejecting claims by third party payors seeking to recover sums paid for medicines that allegedly were promoted for off-label uses is Southeast Laborers Health & Welfare Fund v. Bayer Corp., Case No. 08-1928-MD-Middlebrooks/Johnson, slip op. (S.D. Fla.) (registration with Law 360 required to access link).  In Southeast Laborers, the trial court had given plaintiff two extra opportunities to plead a claim under RICO or the New Jersey Consumer Fraud Act. 

Plaintiffs alleged that Bayer promoted the $1,000-per-dose drug Trasylol for off-label use in controlling surgical bleeding despite its knowledge that there were cheaper, more effective medicines that presented less risks of kidney damage and other harms.  In the Second Amended Complaint, plaintiff alleged that it "paid enormous sums of money to Bayer that they would not have paid had they been aware that Trasylol was not safer, more efficacious or of greater value than available alternatives that were significantly cheaper," and it "would never have incurred this expense had Bayer been honest about the safety and efficacy of Trasylol."  Slip op. at 10.  

The court held that this failed to plead the necessary proximate causation under RICO because it was tantamount to a "fraud-on-the-market" theory that nearly every court to consider the question has rejected outside of the securities context.  Slip op. at 12.  As the court explained:

Although Plaintiff argues that it had an independent choice of whether or not to pay for Trasylol, it does not explain how/why it made the choice to pay for Trasylol and how/why Bayer's alleged concealment of the dangers of Trasylol led Plaintiff to pay for Trasylol.  Ultimately, Plaintiff has not established a different premise of proximate causation and still has not met the Holmes requirement that it demonstrate a direct relation between its payment for Trasylol and Bayer's alleged fraudulent concealment.

Id. at 13.  The court thus dismissed the RICO claim with prejudice.

For similar reasons, the court dismissed the New Jersey Consumer Fraud Act claim with prejudice, holding that plaintiff had failed to properly allege proximate causation.  Id. at 16 ("Plaintiff has not alleged a premise of proximate causation that is distinguishable from one that relies on a fraud-on-the-market analysis.").  Plaintiff argued that a fraud-on-the-market analysis applies only where a plaintiff argues that the price was inflated by the alleged misrepresentations.  But the court rejected this argument, saying that even where plaintiff alleges that it would not have paid any amount for the medicine and seeks a complete rescission of all sales, this, too, is a fraud-on-the-market analysis that has been rejected repeatedly.  Id.

Plaintiff had added to the Second Amended Complaint express and implied warranty theories.  The court dismissed the express warranty theory without prejudice for plaintiff's failure to identify any affirmation of fact, promise, or description of Trasylol that it had received that had become part of the basis of the bargain.   Id. at 18-19.  The court dismissed the implied warranty claim without prejudice because the complaint did not allege that Trasylol was unfit for the intended purpose of preventing perioperative bleeding.  Id. at 20.

The court dismissed plaintiff's common law fraud and negligent misrepresentation claims with prejudice for failure to identify any reasonable reliance and/or proximate causation.  Id. at 22.

And the court dismissed the unjust enrichment count because such claims generally are "not allowed to proceed where all of the plaintiff's other tort claims have failed because of the remoteness of a plaintiff's injuries from a defendant's wrongdoing.  Id. at 23.

Southeast Laborers joins a growing body of law that prevents remote parties from bringing suits for speculative harm allegedly arising out of hundreds or thousands of individual doctor-patient decisions.

• Email This
• Print
• Comments
• Trackbacks

On deck for this morning is another case that brings home the message:  read those service contracts, folks, because they really can cut off your legal options.

In Minnick v. Clearwire US, LLC, 2010 WL 431879 (W.D. Wash. Feb. 05, 2010), customers sued the provider of wireless Internet and telephone service over the early termination fee ("ETF") contained in its contract.  The wireless service, plaintiffs alleged, was unreliable, slow and often non-existent.  But when they went to terminate service, the defendant pointed to the contract, which included an ETF of $220 less $5 per month of service the customer had since the beginning of the two year service contract.  

US District Judge Marsha Pechman -- who has previously ruled on Microsoft matters discussed in this blog -- granted the defendant's motion to dismiss the complaint.

She began her analysis by looking at what law would apply.  The contract provided that Washington or Delaware law would control.  Plaintiffs identified no difference in the laws, so the court did not ultimately make a choice of law determination.

The gist of plaintiffs' causes of action was that the ETF was an unconscionable penalty and should be disregarded.  The defendant convinced the court, however, that it was more analogous to an "alternative performance provision" that gave customers choices at the outset for how they would perform their obligations under the contract.

The court also analyzed UCC 2-302 -- even though this was a contract for services, not goods -- and observed that "unconscionability" is a defense to enforcement of a cause of action, but is not in itself a basis for restitutionary relief.

In analyzing the claim under Washington's Consumer Protection Act, the court noted that plaintiffs had two options:  either the actions had to have the capacity to deceive a substantial portion of the public, or they had to constitute a per se unfair trade practice.  The plaintiffs disclaimed a deception-based approach -- presumably since all of the contract terms were disclosed to customers before establishing service -- and instead relied on the "per se unlawful" prong of the CPA.  But all they could point to were common law precedents about "unlawful penalties" in contracts.  The Washington Supreme Court has held that the "per se unlawful" prong of the statute only applies to practices that the Legislature has declared unlawful.  Thus, common law precedents did not cut it and the CPA count was dismissed.

Plaintiffs also asserted an unjust enrichment count.  But "[u]nder Washington law, a plaintiff who is a party to a 'valid express contract is bound by the provisions of that contract' and may not bring a claim for unjust enrichment for issues arising under the contract's subject matter.  Id. at *5 (citation omitted).  Plaintiffs argued that they were merely engaging in "alternative pleading," but the court noted that the contract also had a severability provision, so even if the ETF provision were unenforceable, the remainder of the contract would survive and govern plaintiffs' payment obligations. 

The court also rejected plaintiffs' breach of contract count based on the allegedly lousy service they received from the defendant.  The contract provided that customer must notify the defendant in writing within 20 days if they disputed charges, and it limited damages to a credit for the customers' prorated monthly charges.  Even these were not available absent a written request.  Because the plaintiffs had not alleged compliance with these provisions, the court granted dismissal of the breach of contract count.

Finally, the court rejected the plaintiffs' count for false advertising under the CPA.  The court noted that no plaintiff identified statements that they relied upon, and therefore "they have not alleged a plausible basis to identify CPA causation."  Moreover, the court pointed to the FAQ section of the defendant's website, which "state[d] that the quality of service may vary depending on geography and modem placement."

Minnick is an important reminder that service contracts matter, and that they can be important tools to prevent class action litigation.

• Email This
• Print
• Comments
• Trackbacks

In Levinson v. Johnson & Johnson Consumer Cos., 2010 WL 421091 (D.N.J. Feb. 1, 2010), Judge Dennis Cavanaugh was confronted with yet another attempt to turn a product liability action into a consumer fraud class action by carefully pleading only economic harm and a failure to disclose the risk of harm.  Faced with motion to dismiss, Judge Cavanaugh significantly narrowed the class, but he allowed certain limited claims to go forward.

In Levinson, some Missouri plaintiffs brought a putative nationwide class action against J&J and Wal-mart, alleging that J&J's Baby Shampoo and Wal-mart's Equate Tearless Baby Wash contained trace amounts of chemicals that increase the risk of cancer, cause skin irritation, and can lead to asthma and hypersensitivity.  Plaintiffs allegedly had independent lab tests conducted that identified trace amounts of methylene chloride (which FDA has banned from use in cosmetics), 1,4-dioxane and formaldehyde.  Plaintiffs alleged that the defendants' failure to disclose the presence of these chemicals -- as well as statements such as "Ultra Mild," "Hypoallergenic," and "gentle enough even for newborns" -- constituted a violation of state consumer fraud statutes, a breach of the implied warranty of merchantability and implied warranties of fitness for a particular purpose, and unjust enrichment.

The defendants moved to dismiss for lack of standing and for failure to state a claim as a matter of law.  In analyzing their standing argument, the court relied heavily on Koronthaly v. L'Oreal, 2008 U.S. Dist. LEXIS 59024 (D.N.J. July 25, 2008), a case involving the purchase of lipstick containing lead.  Judge Cavanaugh described the holding in Koronthaly as "[i]n the absence of an FDA regulation concerning lead content in lipstick, or other legal prohibition, the plaintiff could not 'seek a remedy for a harm that she had not actually or allegedly suffered.'"  Levinson, 2010 WL 421091 at *4 (citation omitted).  Accordingly, the court held that plaintiffs lacked standing to assert purely economic harm from the chemicals that were unregulated by the FDA in soap or cosmetics (formaldehyde and 1,4-dioxane), but they could assert a claim for purely economic harm involving the substance that had been banned by the FDA for use in cosmetics (methylene chloride).  As the court explained:

While the Court agrees that the assertion of an economic injury is not an automatic bar to standing, Koronthaly demonstrates that an exception has been recognized in the context of claims concerning defective products, absent a specific legal prohibition precluding particular ingredients or usages.  Insofar as Plaintiffs' claims pertain to allegedly toxic chemicals that have not been banned by the FDA for use in cosmetics . . . this Court concludes that any potential injury is too remote, hypothetical and/or conjectural to establish standing in this matter.  However, insofar as Plaintiffs' claims pertain to methylene chloride, a chemical explicitly banned for use by the FDA in any cosmetic, this Court declines to dismiss Plaintiffs' claims pursuant to Fed.R.Civ.P. 12(b)(1) for lack of standing.

Id. at *4.

The court then proceeded to analyze whether the individual causes of action stated a claim under Rule 12(b)(6).  The parties apparently had represented to the court that regardless of whether New Jersey law or Missouri law were applied, the result would be the same, and thus there was no conflict of laws issue.  Id. at *5.  The court disagreed, holding that New Jersey's Product Liability Act preempted plaintiffs' other claims.  The court relied upon Sinclair v. Merck & Co., 948 A.2d 587 (N.J. 2008), in which the New Jersey Supreme Court held that consumer fraud claims for economic harm allegedly caused by prescriptions for Vioxx were preempted by the Product Liability Act.  Judge Cavanaugh concluded:

Similarly, at the heart of this matter is the potential for harm caused by the defective products, J&J Baby Shampoo and Wal-Mart Equate Tearless Baby Wash, containing allegedly "toxic chemicals linked to increased cancer risk, adverse skin reactions, and other serious health problems." (See Pl. Compl. para. 2). . . .  [C]onsistent with the Sinclair decision, this court concludes that the PLA subsumes all of Plaintiffs' claims, effectively precluding Plaintiffs' claims with respect to the CFA, and otherwise, in the absence of "harm" as defined by the PLA.  The Court does not agree that articulating a claim in terms of pure economic harm where the core issue is the potential injury arising as a consequence of the products' allegedly harmful chemicals converts the underlying defective product claim into an independent and unrelated consumer fraud issue.  Limiting a claim to economic injury and the remedy sought to economic loss cannot be used to obviate the PLA.

Id. at *6. 

Accordingly, because New Jersey's Product Liability Act would preempt all claims, but Missouri's would not, the court concluded there was a conflict of laws requiring it to determine which law would apply.  Because the plaintiffs were from Missouri and bought and used the product there, the court concluded that Missouri law would apply to these plaintiffs' claims.

Missouri's Consumer Fraud Act requires a causal connection between the allegedly unfair practice and the plaintiff's harm.  Where the harm allegedly results from a failure to disclose, "'there must be a showing that the [product] in fact suffered that defect, or evidence from which the defect reasonably could be inferred, in order to demonstrate an ascertainable loss as a result of [defendant]'s failure to disclose the defect.'"  Id. at *7 (citation omitted).  The court concluded that as to methylene chloride, which the FDA had banned for use in cosmetics, plaintiffs had sufficiently pled a Consumer Fraud Act claim.

Similarly, the court concluded that, with respect to methylene chloride, plaintiffs had sufficiently pled claims for breach of implied warranties under Missouri law.  Id. at *9.

However, the court held that plaintiffs had failed to plead a cause of action for unjust enrichment under Missouri law because they had not sufficiently pled that there was irreparable injury or the lack of an adequate remedy at law.  Id.  The loss was economic, and could be remedied by the payment of money, which could be recovered by an action at law.  Thus, there could be no unjust enrichment.

For those keeping a tally, the court whittled the Missouri plaintiffs' claims down to the violation of Missouri's Consumer Fraud Act and breach of implied warranties solely for the inclusion of methylene chloride -- not the other substances.  In concluding that New Jersey law would preclude all claims because of its Product Liability Act, the court also went a long way toward establishing why a nationwide class could not be certified.  It remains to be seen where this action will go from here, but we will attempt to monitor it for you.

• Email This
• Print
• Comments
• Trackbacks

New Yorkers always warn: "Don't buy a dog at a pet store!  They all come from puppy mills, are sick, and were raised in deplorable conditions."

But I bought my dog at a mall pet store.  I wasn't shopping for a dog nearly two years ago when Ted came into my life.  But decisions have consequences, and the decision to kill time at a pet store while waiting for friends to arrive for dinner at a nearby restaurant resulted in me sharing my apartment with Mr. Ted E. Bear.

I didn't know much about where he came from.  His papers said a farm in Missouri, my home state.

And frankly, I didn't care.  Although I sincerely hoped he had not come from a puppy mill, he had a very chill personality and I could tell we would get along well together.  If he had the croup and I had to pay for a vet visit, so be it.  (Thankfully, he didn't.)

Given this experience, I read Martinelli v. Petland, Inc., 2010 WL 376921 (D. Ariz. Jan. 26, 2010) with great interest.  In Martinelli, 32 plaintiffs brought a class action against Petland, alleging that they defrauded consumers by selling sick dogs that were raised in puppy mills while representing to the public that the puppies were "healthy," "the finest available," bred by "professional and hobby breeders who have years of experience in raising quality family pets," and "bred under safe and humane conditions by a reputable breeder with proper canine husbandry practices."  Plaintiffs plead causes of action under RICO, state consumer protection statutes, and unjust enrichment.

The court in Martinelli dismissed all but two plaintiffs' RICO and consumer protection claims for failure to adequately plead causation.  The complaint was chock full of allegedly fraudulent statements made by Petland and the breeder, The Hunte Corporation, on websites and in written materials.  Conspicuously absent from the complaint, however, were allegations saying that these statements caused them to make their purchase.  The court noted that "not a single Plaintiff has alleged that he or she ever visited Defendants' websites, received Defendants' written brochures, or relied on a written health certificate or warranty."  Id. at *3.

The court held that "absent some allegation of reliance, Plaintiffs have not pled a 'direct and proximate causal relationship' between Plaintiffs' injuries and [the] purported fraudulent scheme."  Id.  The plaintiffs argued that causation should be inferred as a matter of common sense, as no one would want to purchase defective goods.  But the court noted that even if plaintiffs had received the alleged misrepresentations, the court could not presume that they were material to the plaintiffs' decisions to purchase the animals:

[T]here is no single, common-sense reason for a puppy purchase.  A person might buy a puppy because he falls in love with it in the store window, he has heard it will make a good guard dog, he likes the price, he is referred to the store by a friend, or he finds the store convenient.  It is not necessarily true that every purchaser would base his or her decision on the fact that the puppy was "the finest available" or was bred by professional, hobby, or USDA-approved breeders -- key misrepresentations identified in the amended complaint.

In making their common-sense causation argument, Plaintiffs focus exclusively on the health of the puppies, asserting that "it is illogical that Plaintiffs would purchase their sickly or dying puppy mill puppy absent a misrepresentation as to its health. . . . A person who falls in love with a puppy in the store window might well purchase the puppy in the absence of any representation concerning its health.  However unwise, some people may even buy a sick puppy in order to provide it a good home and nurse it back to health.  It simply cannot be said that a representation concerning the puppy's health is obviously relied on in the same way that a consumer looking for car wax relies on the product's label as "car wax" or in the same way that a person paying for a tax service relies on the assumption that the service will be available.  Plaintiffs conspicuously have failed to allege that they relied on representations concerning the puppies' health, and the Court cannot assume that such representations were the reason Plaintiffs purchased the puppies.

Id. at *4 (citations omitted).

The court dismissed the RICO claims of all plaintiffs except two -- Plaintiffs Moskow and Galatis -- who alleged reliance upon oral representations made by Petland (but not the breeder, Hunte).  Plaintiff Galatis allegedly was specifically reassured by a Petland employee that the puppy was healthy and "(1) it had never been sick, (2) was up to date on his shots, (3) was not hypoglycemic, and (4) was lethargic and quiet only because he was stuck in a cage all day long."  Id. at *5.  Plaintiff Moskow asked whether his puppy was from a puppy mill and he was assured that it was not.  The court held that these oral representations were part of the scheme alleged in the complaint, and it inferred that plaintiffs had relied upon them in making their purchase.  Thus, the RICO claim survived for Plaintiffs Moskow and Galatis.

The court applied the same analysis to the Rule 9(b) challenge to the complaint and to the state consumer protection act claims.  The generic allegations of the vast majority of the plaintiffs failed to sufficiently plead causation:

Plaintiffs assert that reliance is not an element of many state consumer protection claims.  But plaintiffs do not dispute that causation is an essential element.  Indeed, "whether it be termed an issue of reliance or an issue of proximate cause, an appropriate rule is that where the defendant is alleged to have made material misrepresentations or misstatements, there must be a cause and effect relationship between the defendant's acts and the plaintiff's injuries.  Thus, regardless of whether reliance is a required element under state consumer protection statutes, Plaintiffs "must at least allege that they were exposed to the offensive conduct."  Plaintiffs other than Moskow and Galatis have made no such allegation.

Id. at *9 (citations omitted).

The court thus dismissed the state consumer protection claims except for Plaintiff Moskow's claim under the Maine consumer protection act.  (Plaintiff Galatis was from Massachusetts, but the Massachusetts act had not been pled in the amended complaint.)  It also dismissed the unjust enrichment claims for all plaintiffs except Moskow and Galatis; because the two had adequately pled a fraud-based claim, the unjust enrichment claim could stand, the court held.

Finally, the court rejected the defendant's assertion of the economic loss doctrine as a defense to the claims.  Petland argued that because plaintiffs allegedly received damaged goods, they therefore were asserting typical warranty claims that give rise to purely economic loss.  The court disagreed, observing that plaintiffs were seeking damages for being fraudulently induced into entering into the sales contract.

Martinelli is an interesting decision because it parses through the possible motivations underlying the purchase decision and holds that, after already having been given one chance to amend the complaint, a plaintiff cannot plead consumer fraud or RICO without pleading a causal connection between the allegedly fraudulent statements and the reason he made the purchase.  Because this is an essential element of each class member's claim, it seems clear that individual issues would predominate a trial, making class certification unlikely. 

• Email This
• Print
• Comments
• Trackbacks

The Oklahoma Supremes recently held that a group of defendants who had no statutory duty to reveal the presence of additives in their products could not be sued in a class action for breach of warranty, breach of contract, and violation of the state's Consumer Protection Act for not posting the amount of ethanol in their gasoline.  See Rogers v. QuickTrip Corp., 2010 WL 175073 (Okla. Jan 19, 2010).

The defendants in Rogers sold gas at retail.  They initially moved to dismiss, challenging the court's jurisdiction to hear the case.  The Oklahoma Corporation Commission is charged with setting public energy policy and regulating the sale of gas, the defendants argued, and thus a court could not, in a class action, take actions that effectively impose upon the entire retail gas industry a duty contrary to what the Commission had decided.  The court rejected this argument, noting that the Corporation Commission has no ability to award damages to individuals in private disputes.  Accordingly, the court was unwilling to dismiss for lack of jurisdiction. 

But the court held that the trial court erred in failing to grant the defendant's motion to dismiss on the merits.  The court began by observing that a statute in effect when the suit was filed expressly stated that "retail facilities that sell motor fuel shall not be required to post information regarding fuel additives . . ."  A subsequent regulation had allowed retailers to post such information about ethanol content if they wanted to.

Subsequent to plaintiffs' filing of the lawsuit, a statute required retailers to post a sign indicating "contains Ethanol" for gasolines containing more than one percent ethanol. 

The Oklahoma Supremes determined that because the statutory scheme expressly allowed retailers to sell gasoline without posting its ethanol content prior to the lawsuit's filing, there could be no legal duty -- not in contract, warranty law, or in connection with the Consumer Protection Act -- that required such disclosure.  The Oklahoma statute effectively preempted Oklahoma common law.

Consumer fraud claims often are premised on a failure to inform consumers of a particular fact about a product.  The decision in Rogers demonstrates that where a statute gives a seller the freedom to refrain from disclosing that particular fact, the statute can trump disclosure duties that plaintiffs may assert arise from the common law or consumer protection statutes.

• Email This
• Print
• Comments
• Trackbacks

Reading National Consumers League v. General Mills, Inc., Civ. A. No. 09-10881 (HHK), Slip op. (D.D.C.  Jan 15, 2010) will make you feel as if you have fallen through the looking glass.  In this case, the National Consumers League ("NCL") sued General Mills for alleged misrepresentations about the cholesterol-lowering properties of Cheerios.  The NCL brought suit under DC's Consumer Protection Procedures Act ("CPPA") for declaratory relief, injunctive relief, the "greater of 'treble damages or statutory damages in the amount of $1,500 per violation,'" and attorneys' fees, expenses and costs.  Id. at 2.  General Mills removed the case to federal court pursuant to the Class Action Fairness Act. 

So far, so good.  Sounds positively ordinary, right?  Hang on.

The NCL made an emergency motion to remand, arguing that it had suffered no injury and thus lacked the Article III standing necessary to pursue a claim in federal court.

Yes, that's right.  Plaintiff stipulated that it had suffered no injury and lacked standing.

How can a plaintiff do that and avoid ruining its prospects of pursuing its claim in "state" court, too?  Indeed, don't state courts have standing rules that prevent the adjudication of "hypothetical" disputes and require a plaintiff to have injury and causation in order to establish a justiciable case or controversy?  Nearly all do.  Indeed, most people would have thought that DC courts, which are statutorily authorized to adjudicate only "cases or controversies" (D.C. Code sec. 11-705), have standing requirements as well.  See, e.g., Speyer v. Barry, 588 A.2d 1147, 1160 (D.C. 1991); Cmty. Credit Union Servs . v. Fed. Express Servs. Corp., 534 A.2d 331, 333 (D.C. 1987).

Unfortunately, however, the District of Columbia held last year that the District's courts are "not required to abide by any of the constitutional or traditional standing principles that apply in federal courts 'when the [D.C.] Council has provided the cause of action.'"  Archis A. Parasharami and Kevin Ranlett, The Nation's New Lawsuit Capital?  D.C. High Court Eliminates Standing Requirements for Consumer Protection Lawsuits, Threatening Flood of Abusive Litigation, vol. 9, no. 20, Mealey's Litigation Report:  Class Actions (Dec. 17, 2009) (discussing Grayson v. AT&T Corp.., 980 A.2d 1137 (D.C. 2009)).  The DC Council had amended the CPPA in 2000 to allow any person to bring an action on behalf of the general public.  Accordingly, the NCL was free to escape federal court by arguing that it had no injury because the District appears not require an injury for private attorneys general asserting CPPA claims.

The federal court in National Consumers League could have stopped there, but it didn't.  It also opined that the case was not removable as a "mass action" under CAFA because it fell into the exception of being a non-removable suit "brought on behalf of the general public."  Slip. op. at 8-9.  This conclusion seems suspect, however, given that the suit seeks -- in addition to injunctive and declaratory relief -- damages, which the court stated were not payable to the uninjured plaintiff, but instead only to those consumers who had been actually harmed.  Id. at 9-10.  At least with the damages portion of the suit, then, the plaintiff (NCL) is representing a subset of the general public:   Cheerios consumers who were actually injured by the defendant's alleged misconduct and can collect damages.  That sounds much more like a "mass action" or "class action" than a suit on behalf of the "general public."  Nevertheless, the court mandated remand to DC Superior Court.

The result in National Consumers League highlights the potential for a disturbing trend:  unscrupulous litigants may file CPPA claims in DC Superior Court seeking damages for other people and, by disclaiming any injury themselves, effectively avoid CAFA's clear purpose of having such suits adjudicated in federal courts.  That can hardly be what Congress intended when it enacted CAFA.  And I continue to find it difficult to believe that it really is the law in the District of Columbia.

• Email This
• Print
• Comments
• Trackbacks

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

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

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

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

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

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

Id. at 15 (citation omitted).

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

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

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

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

Id. at 22.

• Email This
• Print
• Comments
• Trackbacks

A Pennsylvania intermediate appellate court yesterday affirmed a trial court's decertification of a statewide class action alleging plaintiffs had suffered economic harm from taking Neurontin for uses not approved by the FDA.  See Clark v. Pfizer Inc., No. 754 EDA 2009, 2010 Pa. Super. 6, Slip op. (Pa. Super. Jan. 19, 2010).  In doing so, the court rejected a "fraud on the market" theory and so-called "statistical proof" of causation.  Because my Skadden colleagues worked on the appeal, I'll only briefly summarize its holdings here.

Plaintiffs often cite to Pennsylvania precedents that encourage early and liberal certification of class actions.  But the corollary to such a liberal certification rule, of course, is that where discovery presents evidence that the case cannot be manageably tried as a class, the trial court retains the discretion to decertify the class.  That is what happened in Clark:  the trial court originally had certified a class of Pennsylvania residents, but after discovery and upon the evidence, the court then decertified the class.  It also found that people who benefitted from taking Neurontin could not state a claim, and so it had granted summary judgment as to those class members who had benefitted from taking the medicine.  And it granted summary judgment on the express warranty claim because there was no proof that plaintiffs had received any warranties.

Plaintiffs complained that the trial court -- by granting summary judgment and then decertifying the class -- had put them in an impossible position where absent class members arguably were bound by substantive judgments on their claims, but could not appeal them because there was no proper class.  Under the circumstances, the Superior Court effectively agreed and reversed the trial court's two grants of summary judgment.  Slip op. at 24-25.

But the Superior Court affirmed the trial court's decertification of the class.  The trial court had decertified the class because there were individual questions for each class member as to whether he or she had benefitted from taking Neurontin.  Although the Superior Court acknowledged that this was true, it stressed that the real reason the class could not be certified was that the proposed class failed the typicality, commonality and predominance requirements of the class action rule.  Why?  Because causation (i.e. reliance by each class member's doctor upon a misrepresentation) could not be presumed:

Where there exists various intervening and possibly superseding causes of the damage, liability cannot be determined on a class-wide basis because individual issues would predominate issues of fact and law that are common to the class and the representatives of the class.

Slip op. at 10 (citation omitted).

Plaintiffs' expert had relied on statistical modeling to opine that virtually all of the class members' doctors had relied on the defendants' alleged misrepresentations to prescribe Neurontin for uses not approved by the FDA.  But as a result of discovery, defendants had introduced testimony from Pennsylvania doctors establishing that their prescriptions were based on other factors, not any so-called "misrepresentations."  Citing to the decision in the federal MDL -- In re Neurontin Marketing, Sales Practices & Products Liability Litigation, 257 F.R.D. 315 (D. Mass. 2009) -- the Superior Court rejected any "presumption of causation" or "fraud-on-the-market theory" (slip op. at 11), holding instead that each class member must establish reliance/causation on his or her own to establish a right to recover (id. at 15).  As the court put it:

In sum, statistical probability does not substitute for actual inquiry, as a general showing of percentages does not tend to prove that the class members' specific doctors relied upon Defendants' statements or that Defendants' statements were the proximate cause of an injury.

Slip op. at 16.

Because the issue of causation was an individual question for each class member, the case could not be tried as a class action.

• Email This
• Print
• Comments
• Trackbacks

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.

• Email This
• Print
• Comments
• Trackbacks

I have written previously about the proliferation of suits brought by "third party payors" (or "TPPs") -- such as insurers and union health benefit funds -- that appear like ants at a picnic whenever a medicine is recalled, a new warning is mandated, or a pharmaceutical company is accused of marketing a medicine for "off label uses" that have not been approved by the FDA.  Often such claims are dismissed at the pleading stage because it is so difficult to connect any alleged misrepresentation made by a pharmaceutical company to a prescribing doctor's decision to prescribe the medicine. 

A recent decision in the Neurontin MDL makes it plain that even where such claims are allowed to progress past the pleading stage, it is next to impossible for most TPPs to actually prove causation.  See In re Neurontin Marketing and Sales Practices Litig., 2010 WL 53568 (D. Mass. Jan. 8, 2010).  In light of the fact that lawyers from my firm are involved in the case, I'll keep the editorializing to a minimum.

In the Neurontin case, defendants moved for summary judgment against 3 TPPs.  Two of them had not implemented special restrictions on prescribing Neurontin until at the earliest 2004, and they did not allege reliance on any particular statements by the defendant.  The court granted summary judgment as to these TPPs.

First, the court noted that "trial courts have almost uniformly held that in a misrepresentation action involving fraudulent marketing of direct claims to doctors, a plaintiff TPP or class must prove through individualized evidence that the misrepresentation caused specific physicians, TPPs, or consumers to rely on the fraud, and cannot rely on aggregate or statistical proof."  Id. at *9 (citing 4 cases).  The court observed that "[t]he Second Circuit has reached a similar conclusion, despite evidence of widespread fraudulent marketing of cigarettes to consumers, stating that 'not every wrong can have a legal remedy . . . at least not without causing collateral damage to the fabric of our laws.'"  Id. (quoting McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 219 (2d Cir. 2008)).

Tellingly, the court observed that although it had presided over Neurontin-related litigation for more than 10 years, "no evidence has been presented of any doctor who states that she relied on a misrepresentation or omission in prescribing Neurontin for an off-label indication."  Id. at *10.

The court held that because the 2 TPPs "cannot prove which doctor's prescriptions were caused by Defendants' alleged fraudulent misrepresentations or omissions and which were not," summary judgment on causation was appropriate.  Id.  "Plaintiffs must provide a damages model that segregates damages caused by unlawful conduct from damages caused by lawful conduct."  The court held that the TPPs' reliance upon an expert opinion employing an aggregate damages model was insufficient as a matter of law.

(A third TPP's claims survived summary judgment, but that TPP was unusual in that it had alleged direct interactions between the defendant and the TPP's decisionmakers regarding its formulary.  Id. at *2.) 

The decision in Neurontin is another strong link in a long chain of decisions rejecting so-called "aggregate" methods of proof of causation and reliance in third party payor cases.   

• Email This
• Print
• Comments
• Trackbacks

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.

• Email This
• Print
• Comments
• Trackbacks

Plaintiffs in consumer fraud class actions often argue that pleading fraud on the market is sufficient to establish a classwide claim for violation of a state consumer fraud act.  But the Illinois Supreme Court recently reiterated that Illinois' Consumer Fraud Act requires individual proof of deception and causation.  In DeBouse v. Bayer Ag, 2009 WL 4843362 (Ill. Dec. 17, 2009), plaintiff had sued Bayer in a class action for economic harm allegedly caused by the cholesterol-lowering medicine, Baycol, which was withdrawn from the market in August 2001 after its use was associated with a serious muscle condition.  

Bayer had moved for summary judgment, arguing that plaintiff could not establish actual deception and that that deception caused plaintiff's harm, as required under the statute.  Plaintiff countered that where the defendant is alleged to have concealed a serious product risk from the medical community and the public at large, individual proof of deception was not required under ICFA.  Plaintiff did not suffer personal injuries from taking Baycol, but alleged that the price she paid was inflated because Bayer had not disclosed the risk of the serious muscle condition.  The plaintiff had testified that she saw no Baycol advertising and knew nothing about the medicine prior to her doctor prescribing it for her. 

The trial court refused to grant summary judgment for the defendant, but certified three questions for interlocutory appeal.

Question 1:  Whether an Illinois consumer who purchases a pharmaceutical product, later withdrawn from the market because it was deemed unsafe, can maintain an action under the Illinois Consumer Fraud Act, even though the pharmaceutical company did not engage in direct communication or advertising to the consumer.

The Illinois Supreme Court answered this question in the negative.  Reviewing a long line of cases interpreting ICFA, the court observed:

The basic principle in each of the foregoing cases is that to maintain an action under the Act, the plaintiff must actually be deceived by a statement or omission that is made by the defendant. . . .

. . . [W]e have consistently rejected the market theory of causation. . . .  [W]e have repeatedly emphasized that in a consumer fraud action, the plaintiff must actually be deceived by a statement or omission.  If there has been no communication with the plaintiff, there have been no statements and no omissions.  In such a situation, a plaintiff cannot prove proximate cause.  We therefore answer the first certified question in the negative.  A consumer cannot maintain an action under the Illinois Consumer Fraud Act when the plaintiff does not receive, directly or indirectly, communication or advertising from the defendant.

Id. at *5.

Question 2:  Whether the Defendant's offering for sale a product in Illinois is a representation to prospective customers that the product is reasonably safe for its intended purpose such that proof of a defendant's failure to disclose safety risks associated with the product to consumers is a violation of the Illinois Consumer Fraud Act.

The Illinois Supreme Court recognized that the answer to the question might depend on the nature of the product being sold.  Accordingly, it limited its response to pharmaceutical products.  The court noted that it had adopted Section 402A of the Restatement (Second) of Torts and comment k, which recognizes that prescription drugs are unavoidably unsafe products:

The Restatement approach reflects the reality that even in their intended and ordinary use, prescription drugs may nonetheless cause harmful side effects in some patients.  A drug manufacturer cannot say with complete certainty that its product, when used as intended, will be reasonably safe for all patients.  As a result, the mere sale of a prescription medication cannot be a representation which serves as the basis for a consumer fraud claim.  Consequently, we answer the second certified question in the negative.

Id. at *7.

Question 3:  Whether fraudulent statements or omissions made by a defendant to third parties, other than the consumer, with the intent that they (1) reach the plaintiff and (2) influence the plaintiff's action and (3) plaintiff relies upon the statements to his detriment, can support an action under the Illinois Consumer Fraud Act.

The Illinois Supreme Court answered this question in the affirmative; misrepresentations that indirectly reach the plaintiff and are relied upon can support an ICFA action.  But the court, reviewing prior decisions, held that this did not mean that a "fraud on the market" theory would support an ICFA claim.  Rather, a plaintiff must establish who received the misrepresentations, that they reached the plaintiff or were acted upon, and that they caused plaintiff's damages:

In this case, DeBouse similarly fails to allege that her particular doctor was actually deceived by any of Bayer's advertisements or statements.  What she does allege is the general deception of 'consumers, the medical community, the health care insurance industry, and the public.' . . .  DeBouse alleges the deception of unspecified persons having no demonstrated connection to her.  As such, DeBouse's claim is likewise based on the market theory that this court has consistently rejected.  Therefore, we hold that the circuit court erred in denying Bayer's motion for summary judgment.

Id. at *8.

The decision in DeBouse is an important example of courts enforcing the reliance and causation elements of state consumer fraud statutes to ensure that only those who actually were deceived and injured by a defendant's representations may recover damages.

• Email This
• Print
• Comments
• Trackbacks

In a previous post I had sounded the alarm about Yokoyama v. Midland National Life Insurance Co., 2009 WL 2634770 (9th Cir. Aug. 28, 2009), in which the Ninth Circuit had misread Hawaii's Deceptive Practices Act to reverse the trial court's denial of class certification, holding that neither the class representative nor the class was required under the statute to establish causation in order to recover damages.  Instead, the Ninth Circuit opined, they need only prove a "tendency to deceive" under a so-called "objective" standard.

If that were, in fact, true, it would make Hawaii's Deceptive Practices Act the most liberal consumer fraud act in the country.  But it is not.

This week I published an article in the Federalist Society's periodical Class Action Watch which explains the fundamental flaw in the Yokoyama opinion:  it focuses only on the part of the DPA that defines deceptive conduct, and wholly ignores the private right of action provision that authorizes individuals to sue for damages caused by that deceptive conduct.  It is this latter provision that requires causation for every claimant (both class representative and absent class member) by creating a private right of action for "any consumer who is injured by an unfair or deceptive act or practice forbidden or declared unlawful by" the statutory section the Ninth Circuit relied upon.  Haw. Rev. Stat. sec. 480-13(b) (emphasis added).  As my article explains, the Ninth Circuit previously had addressed the interplay between these two statutory provisions, recognizing that mere deceptive conduct -- without damages caused by such conduct -- was not enough to state a claim under Hawaii's DPA.  Now, the Yokoyama decision -- which wholly fails to address this prior Ninth Circuit precedent -- sits in the casebooks like a proverbial siren, beckoning lawyers and jurists off course from established Hawaii law at their peril.

I was disappointed that no petition for rehearing en banc appears to have been filed, suggesting that this fundamentally flawed precedent is one we will have to live with for years to come.

• Email This
• Print
• Comments
• Trackbacks

The Searle Civil Justice Institute at Northwestern University's School of Law recently released a preliminary report on two studies entitled "State Consumer Protection Acts:  An Empirical Investigation of Private Litigation."  The Institute was created last year with the mission of generating hard data on public policy issues related to the civil justice system through large scale empirical studies.

And the hard data it has generated is particularly telling.  The Report's key findings:

*  Litigation under state consumer protection acts has increased by 119% between 2000 and 2007.

*  Vague statutory definitions of prohibited conduct are a major driver of state consumer protection act litigation.

*  Between 1995 and 2007, the expected value of recovery for state consumer protection act plaintiffs increased dramatically as measured by the statutory requirements to bring a cause of action and available remedies.

*  Those states with more generous remedies and less strict requirements for bringing an action see more consumer protection act litigation.

*  Employing a "Shadow FTC" of five Shadow Commissioners who reviewed representative sample case scenarios, most state consumer protection act claims would not constitute illegal conduct under the Federal Trade Commission's consumer protection standards.

*  Almost 40% of consumer protection act claims where the consumer plaintiff prevailed at trial would not constitute illegal conduct under the FTC's consumer protection standards.

These data have important potential policy implications, according to the study's authors:

1.  To the extent that state consumer protection acts are envisioned as complements to FTC consumer protection, they appear to have overshot the mark.

2.  Vague definitions of illegal conduct in consumer protection acts, while legislatively expeditious, create costly uncertainty and unpredictability in the law.

3.  The statutory language of consumer protection acts matters, and legislatures can impact the amount of consumer protection act litigation by altering the statutory text to provide incentives or disincentives to suit.

4.  Because amendments to consumer protection acts have generally tended to lower the requirements to bringing suit, it may be useful to investigate whether other established causes of action are being usurped.

5.  To the extent that the FTC standard meets its goal of an optimal balance between the public interest and protection of individual consumers, it is uncertain that the broader coverage of consumer protection acts benefits consumers.

The Report makes for interesting reading, and in addition to its description of litigation trends and conclusions, it provides a good history of federal and state consumer protection efforts.

• Email This
• Print
• Comments
• Trackbacks

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

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

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

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

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

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

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

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks

Last week I posted about a news article reporting that the Center for Science in the Public Interest's putative statewide class action pending in New Jersey against Denny's was dismissed for failure to meet the standards of the New Jersey Product Liability Act.  Plaintiff had sued Denny's for injunctive relief under the New Jersey Consumer Fraud Statute for having menu items with high sodium content without disclosing the sodium content and warning about the risks of a high sodium diet.

After unsuccessfully attempting to obtain the opinion in that action, I asked Steve Gardner -- the Director of CSPI's Litigation Project and someone with whom I have negotiated previously -- if he might be able to provide me with a copy.  Steve stopped me from chasing my tail.  Apparently there is no written opinion, just an order granting the motion to dismiss and giving plaintiff leave to amend the complaint.

"We disagree with the Court's holding that New Jersey products liability law applies to a case that does not seek personal injury damages, and are pretty certain of getting a reversal on appeal," Gardner said.  "However, since the court gave us leave to amend, we will revise the complaint to make it clear that this is only a products liability suit in the minds of Denny's lawyers."

Stay tuned for further developments in this case.

• Email This
• Print
• Comments
• Trackbacks

Last month I posted about an advisory opinion issued by Judge Jack Weinstein in which he indicated that he likely would dismiss a putative class action over allegedly fraudulent sales practices involving pre-paid phone cards because the issue was better handled by the federal regulatory authorities than the courts.  I pointed out at that time Judge Weinstein's unusual tactic of summoning the federal government, in the presence of an assistant US Attorney, to explain the federal government's activities in combatting fraud in the pre-paid phone card industry.

Well, it's now official.  Last week Judge Weinstein denied class certification and granted summary judgment in the case, holding that the superior method for dealing with the allegations of fraud in the litigation would be to have the Federal Trade Commission and Federal Communications Commission uniformly regulate the industry.  See Ramirez v. Dollar Phone Corp., 2009 WL 3747215 (E.D.N,Y. Nov. 10, 2009).  Judge Weinstein explained:

In general it is inappropriate to deny those wronged civilly a fallback court-supervised remedy when the administrative law segment of our justice system has neglected to provide an available superior form of protection.  There are, however, instances where the litigation remedy is relatively so inferior as to warrant denying it altogether in the hope that administrative justice will prevail.  This is such an instance.

The superior and sensible way to deal with this controversy, involving as it does a multibillion-dollar national and international communications industry that serves millions of people in every state, many of them poor and uneducated, is for the Federal Trade Commission ("FTC") or another federal agency with authority in this area to issue appropriate regulations.  Certification is denied.

. . . [N]either the FTC nor any other governmental agency has comprehensively addressed the serious problems raised by the instant litigation.  Plaintiff's allegations present issues better addressed and resolved on a uniform, national basis, rather than by piecemeal state-law-based litigation.  While utilization of cy pres or the fluid recovery doctrine might provide a viable remedy with some benefit to the class and society, this is the unusual situation where the present action's limited patchwork repairs are not worth the costs or benefits of allowing the case to go forward.

Id. at *1 - *2.

Judge Weinstein observed that providing relief to the class would require using cy pres and fluid recovery remedies, and complained that these types of remedies have been rejected by appellate courts.  It also would require injunctive relief, which "would engage the court in inappropriate detailed continuing supervision of the industry."  Id. at *19.

Ramirez is an important precedent, but it is all the more important because its author historically has been such an advocate of using courts to solve social problems.  Ramirez is an articulate recognition of the principle that regulation by litigation can create chaos and inconsistencies in the law that do not help consumers or industry.  Where that is the case, the answer is not serial class actions, but rather uniform government action, and sometimes the wisest course of action is for a court to stay its hand.

• Email This
• Print
• Comments
• Trackbacks

Despite conventional wisdom, cruises aren't for everyone.  Roger and Vivian Wang took a two-week European cruise with their two daughters in 2005, and they ended up bringing a class action against Princess Cruise Lines over it.  Their complaint, in a nutshell, was that the cruise line allegedly overcharged for shore excursions, and the Wangs sought to represent a class of "all California residents who were passengers on cruises operated by petitioner who paid prices for shore excursions that were 'in excess of the shore excursion operator's actual price.'"

The Wangs pled five causes of action, including violations of California's Unfair Competition Law, False Advertising Act, and Consumer Legal Remedies Act, as well as common law fraud and negligent misrepresentation.  The trial court granted summary judgment on the two common law claims because the Wangs did not rely upon any alleged misrepresentations made by the defendant.  But it refused to grant summary judgment on the statutory claims, holding that such claims do not require plaintiffs to plead or prove reliance.

This week the California Court of Appeal reversed, holding that the statutory claims should have been dismissed for lack of reliance.  See Princess Cruise Lines, Ltd. v. Superior Court, 2009 WL 3747211 (Nov. 10, 2009).

The evidence on lack of reliance was clear.  Neither of the Wangs had spoken with the defendant prior to purchasing the cruise, nor had they read any of defendant's materials.  Moreover, Ms. Wang had told her travel agent that she wanted to go on the shore excursions whatever they cost.  Thus, not only had the plaintiffs not received any alleged misrepresentations about the price of the shore excursions from defendant, but even if they had, they would not have relied upon them in making the decision to take the shore excursions.

The Court of Appeal looked to the California Supreme Court's recent decision in In re Tobacco II, 46 Cal. 4th 298 (2009), which held that although absent class members do not have to meet the standing requirements imposed on the Unfair Competition Law by Proposition 64, named class representatives do.  As the Court of Appeal in Princess Cruise Lines explained, the Tobacco II decision was clear that named plaintiffs asserting a misrepresentation theory under the UCL must demonstrate actual reliance on the allegedly false or misleading statements.  2009 WL 3747211 at *4.  Because the Wangs had no contact with the defendant, did not read its literature, and based their decision to take the shore excursions on reasons other than representations, "there is no reason to delve into the contention that what is at issue here is a prolonged advertising campaign and that the Wangs do not have to show individualized reliance on specific misrepresentations."  Id. at *5.

The Court of Appeal also used the Tobacco II court's analysis of the phrase "as a result" to conclude that the CLRA also requires proof of actual reliance.  Id. at *7.  (The CLRA grants a cause of action to a consumer "who suffers any damage as a result of the use" of a proscribed act.)

Accordingly, the Court of Appeal held that the trial court should have granted summary judgment not just on the common law claims, but also on each of the statutory claims, for plaintiffs' failure to prove actual reliance.  This decision is an important application of the new standard articulated by the California Supreme Court in In re Tobacco II, and we hope to see more decisions like it in the coming months.

• Email This
• Print
• Comments
• Trackbacks

No issue of science has been more of a political football in recent years than Bisphenol-A (“BPA”), a chemical used to create certain kinds of plastic bottles and epoxy linings that prevent food and beverage canisters from rusting and degrading from within.  BPA is present in trace amounts of a number of food and beverage products that we use, and the media frequently report that microscopic amounts of BPA can be found in the urine of most Americans.  However, Japan, Norway, the European Union, Germany, Australia, New Zealand, Canada, and, notably, the FDA – and more recently, the EPA – have conducted studies or reviews that have concluded that there is no known health risk from low-dose exposure to BPA.  

Despite this fact, a number of advocacy groups and a handful of scientists have fanned the political flames, criticizing the work done by the FDA and advocating for bans on BPA in consumer products.  In particular, critics have raised concerns that low-dose exposure to BPA can affect embryos in utero and small children, altering their hormones and impacting their development and later reproductive function.  (Recently, a major independently-funded study by the EPA failed to find evidence of low-dose effects from BPA.)

It’s little surprise that this debate about science has played out not only in regulatory and legislative circles, but also in American courts.  Last year, a number of putative consumer fraud class actions were filed against baby bottle manufacturers and baby formula producers, and the Joint Panel on Multidistrict Litigation created an MDL.  Some 48 cases are now consolidated before the Western District of Missouri.  None of them has asserted actual physical injury; rather, they assert consumer fraud, misrepresentation, and breach of warranties.  Recently, the court ruled on the defendants’ motions to dismiss.

In In re Bisphenol-A (BPA) Polycarbonate Plastic Products Liability Litigation, MDL No. 1967, Slip Op. 1 (W.D. Mo. Nov. 9, 2009), the court considered the defendants’ motions to dismiss on the grounds of primary jurisdiction and federal preemption.  The court explained the regulatory background for BPA.  Slip op. 1 at 2-3.  The FDA has issued regulations prescribing the safe use of resinous and polymeric coatings, which are an approved “food additive” under the Food Drug and Cosmetics Act.  The court noted that it was reasonable to infer that the FDA has determined that food additives containing BPA can be used safely without labeling because the FDA is obligated under the FDCA to require labeling if it were necessary for safety.  Id. at 3.

The court rejected the defendants’ argument that the FDA has primary jurisdiction of the BPA issue and the plaintiffs’ lawsuit thus should be dismissed under the primary jurisdiction doctrine.  In doing so, however, the court tried to draw what seems to be a false distinction between what the court is being asked to do and what the FDA has regulatory authority for:

"However, the ultimate issues in these cases are whether defendants failed to disclose material facts to Plaintiffs and whether Defendants breached the implied warranty of merchantability through the sale of products containing BPA.  The FDA cannot resolve these questions, and the FDA’s determination that BPA is 'safe' is not determinative of any of those issues."

Id. at 4.

That is manifestly wrong, however.  Safety is the key to both the “materiality” of the information that allegedly was not disclosed and the merchantability of the defendants’ products.  If the use of BPA is safe at trace levels – as the FDA has indisputably concluded – then the fact that the products contain trace amounts of BPA cannot be “material” and no legal duty can be imposed upon defendants – who have no fiduciary relationship with the plaintiffs – to disclose its presence in the product.  Similarly, for a product to be unmerchantable under the Uniform Commercial Code, it must fail of its essential purpose.  Here, the baby bottles work properly, and the baby formula nourishes the infants.  The only way in which, under plaintiffs’ theory, the products could be unmerchantable is if they were unsafe – but the FDA already has considered the issue and determined conclusively that they are safe.  As such, the court’s conclusion that it is being asked to resolve a question that is somehow different from the safety issue already resolved by the FDA is incomprehensible.  (Notably, the FDA is planning to release another report on BPA at the end of November.)  Accordingly, the court’s rejection of the primary jurisdiction argument seems incorrect.

The court next examined the defendants’ federal preemption argument.  The court rejected the defendants’ reasoning based on Geier v. American Honda Motor Co., 529 U.S. 861 (2000), in which the Supreme Court held that a plaintiff’s claim against an auto manufacturer was subject to conflict preemption because allowing a state law claim would preclude the types of choice in safety restraints that the federal agency had allowed manufacturers.   Instead, the court held that the issue was controlled by the Supreme Court’s recent decision in Wyeth v. Levine, 129 S. Ct. 1187 (2009), in which the court held that the federal regulation represented a “floor” above which states could impose additional requirements.  Slip op. 1 at 7.

The court reached a different conclusion, however, with respect to the infant formula defendants, who rested their preemption argument not on conflict preemption, but rather on the express preemption provisions involving the FDCA’s misbranding provisions and accompanying regulations.  The infant formula defendants cited the FDA’s determination that epoxy resins are exempt from disclosure under the FDA’s regulation governing incidental additives.  Id. at 8.  The FDCA expressly prohibits states from establishing labeling requirements for food that are not identical to the federal requirements.  Id. at 9.  Thus, the court concluded that the plaintiffs’ claims would embody a disclosure requirement that is the exact opposite of the nondisclosure of incidental additives that the FDA’s regulation provides.

Plaintiffs argued that they fell within a “safety exemption” to the FDCA’s express preemption provision, but the court fell back on its earlier conclusion that the FDA already had concluded that the use of BPA as an incidental additive is safe.  Id. at 9.  Thus, the court held that the claims against the infant formula defendants are expressly preempted, but the claims against the baby bottle defendants are not.

In a second opinion, the court addressed the motions to dismiss the individual counts of the complaint:  violation of state consumer fraud laws, breach of express warranties, breach of implied warranties, intentional misrepresentation, negligent misrepresentation, and unjust enrichment.  See In re Bisphenol-A (BPA) Polycarbonate Plastic Products Liability Litigation, MDL No. 1967, Slip op. 2 (W.D. Mo. Nov. 9, 2009).  

To begin with, the court held that the plaintiffs failed to plead with the particularity required by Federal Rules of Civil Procedure 8 and 9(b) the express statements that formed the basis of their fraud, misrepresentation, and breach of express warranty claims.  Slip op. 2 at 4.  The court noted that “platitudes about a particular Defendant’s commitment to safety and quality or general allegations about a particular Defendant’s marketing and advertising strategy” were insufficient to state a claim for misrepresentation.  Similarly, the court noted that the same failure to plead specific statements failed the requirement that a plaintiff pleading a breach of express warranty claim plead that it was part of the “basis of the bargain.”  Id. at 9.

Nevertheless, the court refused to dismiss the consumer fraud and misrepresentation claims to the extend they were based on the failure to disclose the presence of BPA in the products, reasoning that “all jurisdictions surveyed create a duty to disclose material facts that are more readily known by one side of the transaction.”  Id. at 10.  But the imposition of a duty to disclose is not based just on so-called “superior” knowledge.  If it were, a manufacturer would always have a duty to disclose every ingredient or component of a product – something that plainly is not the law.  No, the key is that the information must be “material.”  Here, the FDA already has determined that the presence of trace amounts of BPA in bottles or formula is “safe.”  Accordingly, BPA's presence – which is readily ascertainable from public sources – cannot be “material” as a matter of law.

The MDL court’s approach to other legal issues is particularly disappointing because – although the pleadings are obviously deficient as a matter of law – the court chose to defer ruling on these deficiencies until the class certification stage because of the number of states involved and the varieties in state law.  But the fact that the conduct alleged falls within a consumer protection statute’s safe harbor, or that a buyer lacks privity with the seller, or that a claim is obviously untimely from the face of the complaint, compels dismissal as a matter of law.  Id. at 15.   By failing to rule on these issues merely because of the number of complaints or states involved, the court improperly forced the defendants to throw open the doors of discovery to plaintiffs armed only with general conclusions.  See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).  

The court did, however, dismiss the claims for breach of the implied warranty of fitness for a particular purpose because plaintiffs failed to identify a purpose other than the typical one for the subject products.  But the court failed to examine the specifics of state unjust enrichment law to reach determinations on the defendants’ motion regarding this count.  

The court also had a curious analysis of the so-called “unmanifested defect” argument.  Defendants argued that without a plaintiff having actually experienced a physical harm from the product, he suffered no cognizable harm whatsoever.  The court disagreed, suggesting:

"The buyer has been damaged regardless of whether he replaces or disposes of the product because, either way, he has paid the seller for a product that he would not have purchased had he known that the poison was present, and has received no use from the product.  The poison may not injure him, but the condition complained of – poison’s presence – is known to exist.  Similarly, the Plaintiffs in this category purchased a product they allege they would not have purchased had they known the true facts."

Id. at 19.  Based on this analysis, the court held that plaintiffs how had not used their products still had a claim, while those who had used their products had obtained the full value of their products and had not suffered any damage.  Id. at 20.

But once again, this conclusion is difficult to reconcile with the court’s determination regarding the FDA’s determination of the “safety” of food additives like BPA.  A legal claim premised on “know[ledge] that the poison was present” is wholly inconsistent with the FDA’s safety determination that BPA is not a “poison” at all.

The court’s decisions in the BPA MDL ensure that there will be discovery and another chance for the court to consider the defendant’s arguments about the required elements of plaintiffs’ claims at the class certification stage.  Maybe next time it will get the decision more than half right.

 

• Email This
• Print
• Comments
• Trackbacks

The Nation's Restaurant News is reporting that on Tuesday a New Jersey Superior Court dismissed a putative statewide class action lawsuit alleging that Denny's restaurants were violating the New Jersey Consumer Fraud Act and breaching the implied warranty of merchantability by including on their menus items that allegedly were high in sodium without providing sodium content information on the menu.  The plaintiff was represented by the Center for Science in the Public Interest's Litigation Project.  The complaint was filed in July and sought injunctive relief requiring Denny's to provide sodium content for its menu items and warn about the alleged risks of high-sodium food.

According to the article, the court dismissed the suit because plaintiff had no physical injury and thus could not meet the requirements of New Jersey's Products Liability Act, which the court held was a prerequisite to asserting the CFA and implied warranty claims.  The decision was not immediately available.

• Email This
• Print
• Comments
• Trackbacks

One of the defenses that seldom gets much attention is the failure to exhaust administrative remedies.  A recent decision out of a Florida federal court demonstrates how this defense works within the context of a heavily regulated industry.

In Screnci v. State Farm Mutual Automobile Insurance Co., 2009 WL 3667091 (S.D. Fla. Oct. 26, 2009), the plaintiff brought a putative class action challenging the way that the defendant calculated its premiums and expenses.  In particular, the case was a challenge to State Farm's Excess Assurance Protection ("EAP") program, in which the insurer would take a case to trial and assume liability for the final judgment, even if it were to be in excess of the policy limit.  State Farm allegedly accounted for such EAP judgment payments as "bodily injury liability coverage payments," thus allegedly improperly skewing the dividend and premium calculations for policyholders in the same actuarial class.  Id. at *1.

The Florida Insurance Statute allows a policyholder to challenge an insurer's rate by filing a grievance with the insurance commissioner.  Fla. Stat. sec. 627.371. 

The court in Screnci granted the defendant's motion to dismiss for failure to exhaust administrative remedies.  The court noted that two intermediate appellate court cases hold that "challenges to rates charged by insurers must first be administratively exhausted pursuant to Florida Statute section 627.371."  Id. at *3.  Plaintiff argued that the remedies that are available administratively are inadequate because the Office of Insurance Regulation cannot award attorneys' fees.  But the court rejected this argument, noting that:

Plaintiff's request for attorneys' fees is not a claim that justifies bypassing an administrative body.  To the contrary, Florida law is clear that the recovery of attorneys' fees is ancillary to substantive claims for relief.

Id. at *4.

Accordingly, the court dismissed the complaint for failure to exhaust administrative remedies.

Particularly where administrative agencies are charged with setting or approving rates and charges, it is important that challenges to those rates and charges are adjudicated first by the agency with regulatory responsibility rather than courts.  Indeed, Florida's system for policyowner challenges of rates provides for agency review, and then appeal of the agency decision to a Florida District Court of Appeal. 

Defense lawyers should not forget to consider whether to assert defenses like the filed rate doctrine and the failure to exhaust administrative remedies when they are dealing with heavily regulated industries.

• Email This
• Print
• Comments
• Trackbacks

Arkansas has never enjoyed a reputation as a haven for corporate defendants.  Far from it.  Indeed, after Razorback football, class actions appear to be the state’s favorite sport.

It’s precisely because of these facts that you could have bowled me over with a feather when I read the Arkansas Supreme Court’s recent decision affirming – yes, I said affirming – a trial court’s dismissal of a putative class action in its entirety.  Has there been a sea change in this landlocked litigation forum?  Who knows?  But this decision has some far-reaching pronouncements that may offer some comfort to consumer product manufacturers that find themselves ensnared in consumer fraud litigation there.  My friends Beck and Herrmann at Drug and Device Law covered this opinion yesterday, before I could get this post up.  But because this decision has implications beyond just drugs and devices, I'm also covering it here.

The facts in DePriest v. AstraZeneca Pharmaceuticals, L.P., 2009 WL 3681868 (Ark. Nov. 5, 2009) are relatively straightforward.  As AstraZeneca’s heartburn medicine, Prilosec, was going off patent, the company released another prescription heartburn medicine, Nexium, in the same class as Prilosec, "proton pump inhibitors."  Plaintiffs claimed that the defendant falsely marketed Nexium as “new” and “better” than Prilosec, when it was basically the same thing as Prilosec and had similar results.  The result of this conduct, plaintiffs alleged, was that the defendant was able to sell more Nexium at higher prices than it otherwise would have been able to do.  Plaintiffs alleged a host of theories, including breach of the Arkansas Deceptive Trade Practices Act, the Arkansas Unfair Practices Act, and the Arkansas Medicare Fraud False Claims Act, as well as common law fraud, breach of contract, promissory estoppel and unjust enrichment. 

The trial court had dismissed the plaintiffs' third amended complaint, observing that while it "would perhaps make an excellent article in a scientific magazine, . . . it fails as a legal pleading."  Undeterred, the plaintiffs twice amended their complaint, which ballooned up to 290 pages.  They also moved to recuse the judge -- twice -- for bias, citing the language of his ruling.  (My Grandaddy always said not to take a hoe to a snake unless you know you can cut it's head off, or you just might get bitten instead.  The idea that lawyers would twice move to recuse a judge on such an obviously flimsy record is nothing short of remarkable.)

The Unfair Practices Act and Medicare False Claims Act do not provide a private right of action, and plaintiffs did not challenge that dismissal on appeal.  The real news is the Arkansas Supreme Court's analysis of the DTPA's "safe harbor" provision, which states that the DTPA does not apply to "[a]dvertising or practices which are subject to and which comply with any rule, order, or statute administered by the Federal Trade Commission," as well as "[a]ctions or transactions permitted under laws administered by . . . [a] regulatory body or officer acting under authority of this state or the United States."  Ark. Code Ann. sec. 4-88-101(1) & (3).

The court looked to the FDA's approved label for Nexium, which had an analysis of clinical studies showing that the healing rates of Nexium 40 mg were higher than the healing rates of Prilosec 20 mg, and the heartburn resolution rates of Nexium 40 mg were higher than Prilosec 20 mg.  The court thus concluded that advertising which summarized this information from the FDA-approved label was squarely within the Arkansas DTPA's safe harbor:

The information included in the labeling of a new drug reflects a determination by FDA that the information is not "false or misleading."  By approving information to be included in the drug labeling, the FDA has determined that the information complies with its rules and regulations.  Therefore, if the FDA labeling supports the statements made in advertising for an FDA-approved drug, the statements are not actionable under the DTPA.

(Citation omitted.)

The Arkansas Supreme Court carried this analysis over to the common law fraud count, holding that "because AstraZeneca's advertisements were in accordance with that labeling, they were thus not false or misleading as a matter of law."  Similarly, the court agreed that "'[t]here cannot be any "unjust" enrichment where AstraZeneca's alleged conduct falls within what is permitted by federal law and Nexium's labeling,'" because "[o]ne who is free from fault cannot be held to be unjustly enriched merely because he or she has chosen to exercise a legal or contractual right."

The court also affirmed the dismissal of the promissory estoppel claim because "Appellants cite no authority that a product advertisement constitutes a quasi-contractual 'promise.'"

The real takeaway from DePriest is that Arkansas has now made it clear that where a regulatory agency has approved a factual statement -- even for purposes other than advertising -- that agency's conclusion that the statement is not false or misleading cannot be second-guessed by Arkansas courts in cases challenging the product's advertising.  Not under the DTPA, which explicitly provides a safe harbor, but also not under common law fraud or equitable theories like unjust enrichment or promissory estoppel.

This is an important holding, particularly at a time when the federal preemption defense is seen by many commentators to be at its nadir.  I never thought I'd say it, but one can only hope that other states with safe harbor provisions in their consumer fraud statutes will follow Arkansas' lead.

• Email This
• Print
• Comments (1)
• Trackbacks

Crisis Communications Guru Richard Levick has a regular feature of his firm's blog that interviews plaintiffs' lawyers in an effort to discover what is the "next big thing."  This week's featured interview is with Won Kim, founder of Kim Orr Barristers in Toronto.  Mr. Kim speaks about a recent ruling by the Ontario Supreme Court that allows U.S. plaintiffs' firms to have a more direct role in Canadian class action litigation.

Canadian class actions have always been a concern for U.S. defense lawyers.  Many of the important class action defenses -- such as predominance and superiority -- appear to be weak or non-existent in Canadian practice.  Canada does, however, have a loser pays rule, which one would expect to moderate some of the types of class actions that are brought there.  It remains to be seen how closer coordination with U.S. powerhouse plaintiffs' firms will impact Canadian class actions. 

• Email This
• Print
• Comments
• Trackbacks

Well, the entries are all in, and with copious amounts of coffee, aspirin and candy corn after a raucous Halloween night, I was able to pick a winner for this blog's first-ever specious complaint contest.  For those of you who have been living under a rock for the last week, I challenged my readers to review the class action complaint recently filed against the University of Illinois by a disgruntled student who was not admitted to the school, and to outline in 200 words or less the arguments that belonged in the motion to dismiss.  It was a traditional issue-spotting exercise.

And the winner is:  Brian P. Perryman, an associate at the Washington, DC firm Jorden Burt LLP.  Brian is a 2003 graduate of George Mason University School of Law and was an editor on the law review there. 

Congratulations, Brian!!!  You can expect to receive your new Rumpole book at your office in the next few days. 

Brian handles a variety of types of consumer class actions for the consumer financial services industry.  When asked about his entry in this contest, Brian said that the challenging part wasn't thinking of all of the reasons the complaint should be dismissed; rather, "the challenge was to stay under your 200-word limit." 

Brian had second thoughts about his CAFA jurisdiction argument and asked me to delete it, but because I believe it is still plausible, I have included it here as well.  Here is Brian's winning entry:

"No CAFA jurisdiction.

1.      Parties not minimally diverse.

2.      $5 million threshold not met.  7K students x 10 years x $40 < $5 million. 

Lacks Article III standing.  Injury not traceable to “tainted” application process or that plaintiff’s application was affected.

Wrong venue.  Parties located in Central District of Illinois.  Substantial events occurred there.

Violates Rule 10(f), does not allege time of application, which is material to statute of limitations.

Class allegations subject to striking.

1.      Nationwide class improper, Illinois law cannot be applied to every applicant.

2.      Class composition cannot be determined without ascertaining whether class members were denied admission because of tainted process or other, legitimate reason.

All counts barred by State Lawsuit Immunity Act.  745 ILCS 5/1.

Count I – Catalog not contract.  No breach because no allegation that “tainted” process was reason plaintiff’s application denied.

Counts II & III – No implied contract alleged, no breach alleged as in Count I.

Count IV – No allegation that fee unjustly obtained because no allegation that “tainted” process was reason application denied.

Count V – Does not identify misrepresentation or a duty to disclose facts.

Count VI – No violation of constitutional rights.

Count VII – No fiduciary duty or complex transaction requiring accounting."

An honorable mention goes to University of Miami School of Law third year student Santiago Asconape, who is the founder and President of the school's new Mass Torts Litigation Society, which purports to be the only student organization in the country dedicated to the study of complex litigation.  They publish a newsletter called "The Class Act," which is worth a read.  

Santiago's entry proposed an early challenge to the class allegations:

In this case, it is easily determined from the complaint that individual issues of law and fact will overwhelm common issues.  Plaintiffs proposed class is much too vague and amorphous.  One applicant may have been rejected because of a poor GPA.  Another, for his poorly written personal statement.  Another, for disciplinary reasons.  Individual mini-trials would be required to discern which applicants truly were rejected because of their lack of political clout.  Furthermore, the plaintiff has proposed a nationwide class.  The Plaintiff's alleged claims will vary from state to state, and the resulting choice of law issues will make satisfaction of Rule 23's predominance and superiority requirements impossible.

I almost threw my vote to Santiago in the hope that I would receive an all-expenses paid trip to address the Society in Miami during the coldest week of NYC's February, but I was afraid that I would run afoul of the new disclosure rules for bloggers.  Nevertheless, I am heartened to see students with such a keen interest in mass torts and class actions.  Congratulations to you, Santiago, for an excellent entry, and best of luck to you and your colleagues in the Mass Torts Litigation Society.

• Email This
• Print
• Comments
• Trackbacks

Everybody loves criticizing a specious lawsuit.  This was made all too clear by the comments generated by my description of the Fifth Circuit's recent global warming decision on this blog, the WSJ Law Blog, and the Houston Chronicle's Science Guy Blog.

And everybody loves a contest.  (Witness the participation in Power Ball drawings.)

So today I'm happy to announce the first-ever contest at the Consumer Class Actions and Mass Torts Blog!  It's like an issue-spotting exam based on a real-life consumer fraud class action lawsuit brought by a disgruntled student who failed to get into the college of his choice.  Simply e-mail me a short outline of the motion to dismiss in 200 words or less by October 31, 2009.  Sadly, this ain't Power Ball.  Instead, the winner will receive a copy of the new collection by the late John Mortimer, "A Rumpole Christmas:  Stories," which was reviewed well by Publishers Weekly and is being released on October 29.  (By submitting a contest entry, you agree to allow me to post all or a portion of your entry on this site, along with your name.)

Let me set up the complaint, which was filed on October 20 in federal court in Chicago.  Federal jurisdiction is premised on the Class Action Fairness Act.  An Illinois plaintiff sued the University of Illinois and its trustees based on a May 29, 2009 Chicago Tribune article.  Plaintiff alleges that the school -- in its undergraduate and graduate programs, including the law school -- used a "clout list" of applicants (also the "Category I List") "to reward high-ranking lawmakers and other politicians and 'very important persons' with discrete access to the powers that be in the University, by admitting student applicants who were favored by [the school and its trustees] and/or otherwise lacked the credentials and academic qualifications required to gain admission."  Compl. para. 2.  The complaint alleges that in 2008, the average Illinois freshman was in the 88th percentile of his class, while people on the clout list were only in the 76th percentile.  Id. para. 18.

Plaintiff alleges that the use of this clout list was not disclosed by the school.  (However, the "Counselor FAQ" attachd as Exhibit B to the Complaint discloses that "[b]eing a legacy can be considered in the admissions process . . .")  People listed on the clout list also allegedly had an "informal appeal process" to have the school reconsider rejections, and this process allegedly was not available to other applicants.

Plaintiff was wait-listed and then denied admission to the school.  He alleges that "[b]ut for the Defendants' omission and/or failure to disclose their creation, maintenance and use of a Category I clout list, the Plaintiff and the class would not have applied for admission to the University and would not have incurred an application fee [$40] and expenses related to same."   Compl. para. 25.  Plaintiff alleges that each year, 20,000 high schoolers from across the country apply for 7,000 undergraduate slots at the school.

The class is defined as:

All non-Category I applicants to the University of Illinois at Champaign-Urbana who, during the time period of 1999 until August, 2009, paid an application fee to Defendants in consideration of admission to the University and were subsequently denied admission to the University.

Id. at para. 28.

Plaintiff pleads 7 counts.  Count 1 is breach of express contract, with the university catalog forming part of the contract and plaintiff's payment of the application fee being the consideration.  Count 2 is breach of an implied-in-fact contract.  Count 3 is breach of an implied-in-law contract.  Count 4 is unjust enrichment.  And Count 5 is common law fraud, with the school's admissions policy constituting "a false statement of material fact where it failed to disclose that political clout and/or connections would form the basis of a decision to admit or reject an applicant for admission to its University."  Id. at para. 65.  Plaintiff alleges that he and the class paid the application fee in reliance on these "fraudulent statments."  Count 6 is for denial of equal protection under 42 U.S.C. sec. 1983, since those with "clout" were treated differently by a governmental entity than those without clout.  Count 7 seeks an accounting.   Plaintiffs seek actual, compensatory and punitive damages, as well as attorneys' fees and costs.

Should this complaint survive a motion to dismiss?  And what are the school's best defenses?

Stay tuned, loyal readers!  The results and the winner will be announced on November 2.

• Email This
• Print
• Comments
• Trackbacks

Sometimes if you shake them, you can coax a few more pages out of them.

No, not associates.  Printer ink cartridges. 

It's hardly news to those of us who actually change printer cartridges that there's some little bit of ink left in there.  We've all tried to coax it out when trying to print a last-minute brief or presentation and we've forgotten to stock up on backup cartridges.  And, at least intellectually, we know that extra bit of ink is in there to keep us from ruining the printer by running it completely dry, as we otherwise would if left to our own devices.

But who would've thought you could make a federal case about it?  Apparently at least one California resident.

In Baggett v. Hewlett-Packard Co., Case No. SACV 07-0667 AG (RNBx), Slip op. (C.D. Cal. Sept. 29, 2009), plaintiff brought a putative class action against HP because its laser jet printers shut down printer operations before the toner cartridges are really empty.  According to plaintiff, the average amount of toner left in the cartridge was 9% for Black, 26% for Cyan, 30% for Magenta, and 19% for Yellow.  The User Manual did not disclose that toner would remain in the cartridges when they reached "empty," but rather advised that the cartridges would yield up to 2,000 color pages.  Plaintiff sued for trespass to chattels, conversion, violation of the Unfair Competition Law, and fraudulent concealment.  The court granted the defendant's motion for summary judgment, thus mooting plaintiff's motion for class certification.

The court granted summary judgment on the trespass to chattels and conversion counts, applying the economic loss doctrine, which "requires a purchaser to recover in contract, and not tort, for 'purely economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond a broken contractual promise.'"  Slip op. at 3 (citation omitted).  The purpose of the rule is to ensure that the law of sales is not overrun by tort law.  Id.  The court rejected plaintiff's argument that the rule did not apply to intentional torts.  Id. at 4.

The court also rejected plaintiff's UCL claim, finding that the fact that he might have been able to print more pages with his original cartridge if HP had not instituted its automatic "hard stop" was irrelevant.  Id. at 5-6.  Rather, Plaintiff was promised the ability to print up to 2,000 color pages, which he apparently could do.  As such, "Plaintiff received exactly what he paid for, and his "loss" of toner beyond that which he was promised cannot confer standing under the UCL.

Finally, the court considered and rejected plaintiff''s fraudulent concealment theory, which was based on the computer providing messages that toner must be replaced and the manufacturer failing to disclose that cartridges still contain "'a significant amount of toner'" when that message comes on.  Id. at 6-7 (citation omitted).  The court noted that "at no point did HP represent to Plaintiff that no toner remained in the cartridge," and observed that:

Under California law, a defendant can only be held liable for an omission where it is 'contrary to a representation actually made by the defendant, or an omission of fact the defendant was obligated to disclose.'"

Id. at 7 (citations omitted).

Because all of Plaintiff's causes of action had run dry, the court dismissed the case, holding that plaintiff's motion for class certification was moot.

• Email This
• Print
• Comments
• Trackbacks

As consumer fraud claims go, the high fructose corn syrup ("HFCS") claims really are scraping the bottom of the barrel.  Some activists and class action lawyers attempt to blame HFCS for the so-called "obesity epidemic," but even the activist group the Center for Science in the Public Interest has counseled that this is an "urban myth" and that "[t]here isn't a shred of evidence that HFCS is any more harmful (or healthier) than sugar."

That is why it was so satisfying to see a federal court recently use the recent U.S. Supreme Court decision in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) to dismiss (without prejudice) an HFCS class action brought under California's Unfair Competition Law, False Advertising Act, and Consumer Legal Remedies Act.  See Wright v. General Mills, Inc., Civ. A. No. 08cv1532 L(NLS), Slip op. (S.D. Cal. Sept. 30, 2009).

In Wright, plaintiffs alleged that the defendant had defrauded the public by using the term "100% Natural" on its Nature Valley crunchy granola bars and chewy trail mix bars at a time in the past when they had contained HFCS.  Applying Iqbal, the court held that the following allegation from the complaint was too conclusory and speculative to meet the Rule 8 pleading standard:

As a direct result of its misleading, deceptive, untrue advertising and its unlawful, unfair and fraudulent business practices related to the "100% Natural" products listed above, Defendant caused Plaintiff and other members of the class to purchase, purchase more of, or pay more for, these Nature Valley products.

Slip op. at 8.  The plaintiff failed to plead facts supporting the elements of her statutory claims and, to the extent that she alleged fraud, failed to meet the requirements of Federal Rule of Civil Procedure 9(b) that she aver "'the who, what, when, where, and how' of the misconduct charged."  Slip op. at 9.  The court, however, gave plaintiff leave to replead.

The court also held that plaintiff's claim for injunctive relief failed because the defendant already had stopped using HFCS in its Nature Valley products and there were no facts pled indicating that a recurrence of the use of HFCS was likely.  Slip op. at 8.  Again, plaintiff was given leave to replead.

Interestingly, the defendant's use of the term "natural" was perfectly consistent with federal law.  As the court noted, "[t]he FDA follows a policy of not taking enforcement action charging that a product labeled as 'natural' is misbranded, as long as the product has no 'added color, synthetic substances, and flavors.'"  Slip op at 5 (citation omitted).  HFCS is not synthetic, of course.  Rather, it is made from corn.

Nevertheless, the court denied the defendant's motion to dismiss based on federal preemption.  In doing so, the court relied, in large part, on the savings clause in the Nutrition Labeling and Education Act of 1990:  "Congress stated that '[t]he [NLEA] shall not be construed to preempt any provision of State law, unless such provision is expressly preempted under section 403A of the Federal Food, Drug, and Cosmetic Act.'"  Slip op. at 3 (citation omitted).  The court reasoned that the inclusion of this clause negated any intention to occupy the field of food labeling.  Id. at 4.  The court also rejected the defendant's conflict preemption argument, finding no conflict where the FDA has deferred taking action to specifically define the term "natural."  Id.  The defendant also had asserted the defense of primary jurisdiction, asking the court to stay proceedings pending action by the FDA.  But the court concluded that the issue did not meet the criteria for invoking this prudential doctrine.

Although the court in Wright gave plaintiffs another bite at the apple, it remains to be seen whether they can truthfully plead their statutory and fraud claims with the specificity required by Iqbal.

• Email This
• Print
• Comments
• Trackbacks (1)

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

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

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

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

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

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

Slip op. at 5 (emphasis in original).

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

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

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

Slip op. at 7-8.

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

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

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

• Email This
• Print
• Comments
• Trackbacks

One of the more interesting developments in the rise of consumer fraud class actions has been the involvement of third party payors (or "TPPs") -- such as union health benefit plans -- as plaintiffs in these cases. These TPPs pay for medicines prescribed for individual members of these health benefit plans; the TPPs maintain a list or "formulary" of approved medicines for which they will pay, and they often contract with a pharmacy benefit manager to manage the formulary and approve claims.

These health and welfare benefit organizations often have a relationship with a plaintiffs' law firm from having made claims in securities class actions.  But consumer fraud cases are far, far different from securities fraud cases because they do not presume reliance; rather, it has to be pled and proven.  And that's where these TPPs often have a problem, because they typically are unwilling to go through their own voluminous documents to establish reliance on an individual doctor-by-doctor basis, and the underlying transactions are covered by privacy laws.  Accordingly, the name of the game for TPPs is to keep the pleadings as generic as possible, so as to avoid these issues and try to skirt by the obvious predominance and superiority problems that they raise.

Yesterday -- in a decision won by my partner, Mark Cheffo -- Judge Kimba Wood dismissed a putative class action of TPPs brought against Pfizer because they failed to plead the necessary reliance.  See Southern Illinois Laborers' and Employers Health and Welfare Fund v. Pfizer Inc., Civ. A. No. 08 CV 5175 (KMW), Slip Op. (S.D.N.Y. Sept. 30, 2009).  In Southern Illinois Laborers, the plaintiffs were eleven health and welfare funds that sought to represent a nationwide class of TPPs that had paid for Lipitor, Pfizer's blockbuster cholesterol-lowering medication.  They asserted causes of action under RICO, state consumer protection statutes, and common law unjust enrichment, negligent misrepresentation, and civil conspiracy.  Plaintiffs alleged that Pfizer (1) misrepresented certain guidelines promulgated by an expert panel regarding who would benefit from lowering low-density lipoprotein (LDL cholesterol) levels, (2) failed to disclose and fraudulently minimized to physicians Lipitor's side effects, (3) misled physicians and pharmacy benefit managers about what patient groups would benefit from taking Lipitor.  They also alleged that Lipitor cost more than other statin medicines, and that they would not have paid a premium for Lipitor but for their reliance on a statement on the defendant's website that said it was lawfully advertising Lipitor.

Applying the strict pleading standard of Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), Judge Wood held that "that Plaintiffs have not adequately alleged causation, and, thus, they lack standing to bring any of their claims against Defendant."  Slip op. at 8.  She did, however, grant Plaintiffs leave to amend most of their claims.

In analyzing the RICO claim, Judge Wood noted that standing requires three elements:  (1) a RICO violation, (2) an injury to the plaintiff's business or property, and (3) a causal relationship connecting the RICO violation to the plaintiff's injury.  She focused on the causation element, which requires that plaintiff plead both a "but for" cause and a "proximate" cause.  Proximate cause, she observed, demands "'some direct relation between the injury asserted and the injurious conduct alleged.'"  Slip op. at 13 (citation omitted).

Plaintiffs advanced three different theories of causation, but the court held that each of them failed.  The first theory -- that physicians' reliance upon Pfizer's alleged misrepresentations about the safety and efficacy of its medicine caused the TPPs' injury -- failed because:

Plaintiffs do not explicitly allege that physicians in fact relied on Defendant's misrepresentations.

     Plaintiffs do not cite a single instance in which a physician received the fraudulent information and decided to prescribe Lipitor based on the information she received.  Plaintiffs do not even explicitly allege the more general claim that physicians in general relied on Defendant's misrepresentations.

Slip op. at 16.

The second causation theory floated by Plaintiffs was that pharmacy benefit managers relied on the Defendant's alleged misrepresentations, which caused the TPPs' injuries.  But again, the court looked to the Complaint to see that it did not alleged that the pharmacy benefit managers in fact relied on misrepresentations "regarding the cost effectiveness, efficacy, or safety of Lipitor when [they] decided to include Lipitor on the recommended formularies.  In addition, Plaintiffs do not specifically allege that Plaintiffs used formularies that were developed by [pharmacy benefit managers]."  Slip op. at 17.

The court gave short shrift to Plaintiffs' third causation theory that their injuries were caused by their reliance on the Defendant's statement on its website that it was marketing Lipitor lawfully.  The website statement was not substantive information about Lipitor and could not have affected the TPPs' assessment of Lipitor's "value, efficacy, and safety."  Id. at 18.  And although the TPPs might have been able to give doctors information to counter the Defendant's representations if they had known it was not marketing to physicians lawfully, even that theory requires an underlying allegation that the doctors were relying on the Defendant's alleged misrepresentations, which the Complaint did not contain.  Judge Wood distinguished the case upon which the Plaintiffs relied -- Desiano v. Warner-Lambert Co., 326 F.3d 339 (2d Cir. 2003) -- because it involved an underlying misrepresentation to TPPs about the safety of a drug.  Here, however, the underlying misrepresentation arguably was "a single, very general misrepresentation on [a] website [that Defendant's] advertising campaign was lawful, when it was not."  Slip op. at 19.

As for the state law claims, the court held that plaintiffs lack Article III standing to bring the claims because they do not expressly allege causation.  Nevertheless, it gave plaintiffs leave to replead all except the following:

• Ohio Consumer Sales Practices Act -- because TPPs are not natural persons who can engage in consumer transactions under the Act.
• Texas Deceptive Trade Practices Act -- because TPPs are not consumers under the DTPA because they do not "use" the goods they buy.
• New Jersey Consumer Fraud Act -- because TPPs are not consumers under the CFA because they do not "use" the goods they buy.
• Illinois Negligent Misrepresentation -- because the economic loss doctrine precludes the TPPs' claims.
• Ohio Negligent Misrepresentation -- because the cause of action applies only to those in the business of supplying information, not tangible products.
• Indiana Negligent Misrepresentation -- because the cause of action is viable only in the context of an employer-employee relationship.

By the way, the post on this case over at Herrmann and Beck's Drug and Device Law Blog has a number of links to their excellent prior posts addressing the problems with third party payor class actions.  Be sure to check it out.

• Email This
• Print
• Comments
• Trackbacks (1)

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. 

• Email This
• Print
• Comments
• Trackbacks (1)

In February I wrote about a decision in litigation about Dannon's statements involving the health benefits of its Activia and DanActive lines of yogurt, which the defendant claimed were backed up by numerous scientific studies.  The California decision allowed plaintiffs to presume reliance upon alleged misrepresentations without actually pleading it. 

Just a little over a week ago Dannon filed in federal court in Ohio a $35 million settlement of the series of putative class actions involving its yogurt brands that it had been defending.  See Gelmas v. The Dannon Co., No. 1:08-cv-00236, Stipulation of Settlement, Docket Entry # 38 (N.D. Ohio Sept. 18, 2009).  The settlement purports to cover and release all claims -- except personal injury claims -- that were asserted or could have been asserted in the yogurt lawsuits.

The settlement structure and proof of claim process for this proposed settlement is interesting, since the settling parties are dealing with the problem of consumer product purchasers who already consumed the products and, for the most part, cannot be expected to have retained proof of purchase.  Class members may recover up to $15 merely by submitting a claim form.  To obtain between $15 and $30, they must submit a claim form "signed under penalty of perjury attesting to the amount purchased."  Claimants seeking between $30 and the maximum of $100 must not only submit the claim form with the amount sworn to under penalty of perjury, but they also must provide "a register receipt or other sufficient proof of purchase for the amount of Product for which payment is sought."  Each claimant's claim must include, "to the extent reasonable," the number and type of products purchased, the amount paid, the approximate dates of purchase, and the name of the retailer from whom purchased.  A claims administrator will be charged with whittling out the false claims.  

The settlement fund is capped at $35 million, so what individual claimants actually receive will depend on the total amount of claims and whether the fund is fully expended.  The settlement fund also covers administration fees and expenses, as well as the fees of class counsel.  Class counsel indicate in the agreement that they want "no more than" $10 million plus expenses out of the $35 million fund.  The settlement proposes that the named plaintiffs receive incentive payments of up to $5,000 if they were deposed and up to $1,000 if they were not. 

If -- as I think is highly likely -- too few claims are made to deplete the settlement fund, Dannon will distribute the value of the remainder in the form of yogurt products to charities to feed the poor, which is highly commendable.

The proposed settlement also contains "equitable relief" in the form of restrictions on advertising and labeling.  Reading these so-called restrictions, I am struck by the fact that the statements challenged in these lawsuits clearly were not false.  Indeed, if I were still teaching my Product Liability course, I would ask my students to study this settlement and tell me whom they trust the most to issue restrictions on speech based on the results of scientific research:  lawyers (as here), judges, juries, or scientists employed by regulatory bodies. 

Compare the lawsuits' allegations with the settlement. 

In the case I wrote about in January, Wiener v. The Dannon Co., 255 F.R.D. 658 (C.D. Cal. 2009), the complaint had alleged statements about Bifidus Regularis and L. casei Immunitas -- types of patented probiotic bacteria used in the Activia and DanActive products, respectively.  These were the alleged misrepresentations:

Throughout its marketing . . . Dannon advertises that Activia is "scientifically proven" to naturally regulate digestion when eaten daily for two weeks.  According to Dannon, this claim is supported by approximately twelve clinical studies . . .  

. . . In its marketing campaign . . . Dannon claims that DanActive is "clinically proven" to strengthen the immune system.  According to Dannon, this claim is supported by approximately twenty-one clinical studies.

. . . These [plaintiffs'] causes of action are based on allegations that Dannon's claims regarding the health benefits of Activia, Activia Light, and DanActive (the "Products") are unsubstantiated and deceptive.

Id. at 663 (citations omitted).

Now, here is what the settlement allows Dannon to say about its products:

First, it may say that its Activia products with Bifidus Regularis are "scientifically proven" or "clinically proven" to help regulate the digestive system, so long as it also says that it "helps with slow intestinal transit when eaten daily for two weeks, as part of a balanced and healthy lifestyle."  The settlement also provides that "[i]n existing television commercials where the qualifying language currently exists, the qualifying language shall be made materially more prominent."  (Emphasis added.)

Second, for its DanActive products with L. casei Immunitas, the defendant must remove the word "IMMUNITY" from its labeling and packaging, but it may say that the DanActive products are "'clinically proven' or 'scientifically proven' to help strengthen your body's defenses," and that they help "support the structure or function of the digestive tract's immune system."   The settlement also requires the defendant to remove the phrase "they have a positive effect on your digestive tract's immune system," which it can replace with "they interact with your digestive tract's immune system."

Third, for both product lines, the defendant is required to place on its websites' FAQs and in any product overwrap packaging the following statement:  "[This] is a food product and not a treatment or cure for any medical disorder or disease.  If you have any concerns about your digestive system, you should consult a healthcare professional."

Finally, the defendant will place the correct genus, species and strain designation of the bacteria in close proximity to the FDA-required nutritional label and ingredient list.  For Activia, that is "Bifidobacteria lactis DN 173-010," and for DanActive it is "Lactobacillus casei DN 114-001."

It's understandable that it could make economic sense for a defendant to settle a series of class actions after years of litigation.  But this settlement's so-called "equitable" relief involving the defendant's advertising and labeling makes it crystal clear that these lawsuits were not based on any real fraud at all.  The settlement allows Dannon to say practically the same thing it always has said.  The lawsuits obviously were lawyer-invented, and although they may have survived some motions to dismiss, the settlement's equitable relief demonstrates that the defendant's statements were backed up by real science.  

Is this another instance of regulation by litigation in which the only ones who really benefit are class counsel, who seek to take more than $10 million of the settlement fund in fees and expenses?  Submit a comment and let me know what you think.  

• Email This
• Print
• Comments (2)
• Trackbacks

My Grandaddy used to advise me never to look a gift horse in the mouth.  I've generally followed his advice, although I sometimes engage in "re-gifting."  But my Grandaddy was never a plaintiffs' lawyer in California.  There, looking a gift horse in the mouth apparently can be quite lucrative.

Last week a California federal court refused to dismiss a putative class action against McDonald's brought buy a man who tried to exchange his $5 gift card for cash at the fast food restaurant.  See Marilao v. McDonald's Corp., 2009 WL 3007368 (S.D. Cal. Sept. 21, 2009).  The case will proceed under two counts:  (1) California's Unfair Competition Law, and (2) unjust enrichment.

California Civil Code section 1749.5(b)(2) provides that "any gift certificate with a cash value of less than ten dollars ($10) is redeemable in cash for its cash value."  Plaintiff purports to represent a class of individuals who received McDonald's gift cards and want to redeem them for cash.  The cards provide on the back side that "[t]he value on this card may not be redeemed for cash . . . unless required by law."  McDonald's allegedly refused to give plaintiff cash when he tried to redeem his card.

Plaintiff pled a UCL claim, alleging a violation of section 1749.5(b)(2) as the predicate illegal act.  McDonald's challenged plaintiff's standing to bring a UCL claim, arguing that such claims can only be brought by one who suffered injury in fact and lost money or property as a result of the alleged unfair competition.  Because plaintiff could still exchange the card for five dollars' worth of McDonald's merchandise, he had suffered no injury and no loss of money or property, the defendant argued.  The court squarely rejected the argument, observing that plaintiff pled he was denied money to which he has a right under law.  That was sufficient to establish standing under the UCL, the court concluded.

And because the plaintiff adequately alleged a violation of the UCL based on McDonald's purported failure to comply with Civil Code section 1749.5(b)(2), he also sufficiently alleged an unjust enrichment claim, the court concluded.

The court did, however, dismiss the claim pled under California's False Advertising Law.  There, plaintiff had alleged that the language on the back of the card failed to apprise consumers of their right to request cash and deceived consumers into not requesting cash.  Plaintiff, however, did not allege that he had relied on that language and been injured thereby.  Accordingly, the court dismissed the claim.

• Email This
• Print
• Comments
• Trackbacks

It often seems that courts addressing consumer claims seem to absolve consumers of any personal responsibility to manage their finances.  Judge Michael J. Reagan of the Southern District of Illinois -- a former president of the Illinois Trial Lawyers Association -- recently issued a refreshing opinion in a telemarketing case that squarely places responsibility on the consumer to monitor what his money is being spent on and to read his mail.  See Spivey v. Adaptive Marketing LLC, No. 07-cv-0779-MJR (S.D. Ill. Sept. 23, 2009).

In Spivey, a putative class action, the plaintiff alleged that the defendant used telemarketing transactions to "cram" consumers' debit and credit cards with unauthorized transactions without the cardholder's knowledge.  The complaint asserted two counts:  (1) breach of contract, and (2) unjust enrichment.  Defendant moved for summary judgment, and the court granted it.

Plaintiff had called a telemarketing number to order an Atkins diet product.  The conversation was recorded, revealing that plaintiff was also offered a free 30-day membership to HomeWorks, a membership program offering discounts at numerous chain stores.  The salesperson explained that after 30 days, if Plaintiff did not cancel, the membership would be automatically extended and Plaintiff's card would be charged a $96 annual fee once each year.  He could cancel at any time, and the full details of the program would be contained in a welcome kit that would arrive in the mail.

Plaintiff claimed not to remember receiving the "welcome kit," alleging that if he did receive it, the kit was designed to look like junk mail and he threw it away without opening it.  But the court employed the "mailbox rule" to impose the written terms of the welcome kit to Plaintiff's transaction.  The mailbox rule says that where a letter is properly addressed and mailed, there is a presumption that it reached its destination in the usual time and was read by the recipient.  The defendant testified that it was its practice to send the welcome kit to each new member in a membership program.  Plaintiff's testimony that he did not recall receiving the welcome kit was not enough to rebut the presumption of the mailbox rule.

The court also rejected the Plaintiff's argument that written terms sent after the creation of an oral contract cannot govern the relationship.  The court noted that the written terms often follow in the mail after a consumer transaction, and those terms are held to govern the transactions.  The court observed: 

In sum, Adaptive invited acceptance by conduct, i.e., by sending the kit to Spivey and allowing him the opportunity to call within 30 days to cancel the agreement or to call within the first year to receive a full refund.  By not calling the toll-free number in the first 30 days (or even in the first year) -- as advised by the telemarketer and set forth in the agreement -- Spivey accepted the offered services and the terms and conditions under which they were offered.  He had a clear mechanism and reasonable opportunity to reject them.  Spivey is bound by the written terms provided after the transaction. 

Slip op. at 13.  The court also noted that the written agreement had an integration clause and that the terms of plaintiff's posited oral contract did not contradict the written contract.

Analyzing plaintiff's claim of "cramming" -- i.e., placing unauthorized charges on credit cards with the hope the consumer will pay the balance without noticing them -- the court began by observing that the charges were not unauthorized.  Rather, both the oral and written contracts authorized them.

The court also held that the "voluntary payment doctrine" is an independent alternative ground for dismissing Plaintiff's claims.  The doctrine holds that "'a plaintiff who voluntarily pays money in reply to an incorrect or illegal claim of right cannot recover that payment unless he can show fraud, coercion, or mistake of fact.'"  Slip op. at 16 (citation omitted).

The court noted that plaintiff paid the annual charges for four years without ever questioning the payments.  The charges were clearly labeled "HomeWorks Plus," and the statement provided a toll-free number to inquire about any charge.  The court concluded that "[t]o the extent that Spivey was ignorant of the charges on his credit card statement, it was because he failed or refused to apprise himself of that knowledge, and he must bear the consequences."  Slip op. at 17.

Accordingly, the court granted judgment to defendant on the breach of contract count.  The court also granted judgment for the defendant on the unjust enrichment count because unjust enrichment -- doctrine that implies a contract in law where none exists -- is not available where a contract controls the relationship between the parties.  Also, the voluntary payment doctrine applies to the unjust enrichment count as well.  Slip op. at 19.

Judge Reagan's opinion in Spivey is an important reminder that we as consumers have responsibilities -- including to read our mail and monthly manage our finances and credit card charges.  Where we fail to do that, caveat emptor applies.

• Email This
• Print
• Comments
• Trackbacks

It's not every day an MDL transferee dismisses the entire litigation on the pleadings.  Too often their job is viewed as assembling a document depository and presiding over copious amounts of discovery.  But some cases are just meant to die with the pleadings -- even where there are enough of the cases to warrant creating an MDL.

Judge Dickinson Debevoise has served in the District of New Jersey for nearly 30 years, and for almost half of that time he has been the court's senior member.  Thus, it should come as no surprise that he, as an MDL transferee judge, exhibited no reticence whatsoever in dismissing a consolidated class action complaint on the pleadings where the statements that formed the bedrock of the litigation were obvious puffery.

In In re Toshiba HD DVD Marketing and Sales Practices Litigation, 2009 WL 2940081 (D.N.J. Sept. 11, 2009), the plaintiffs alleged that Toshiba had misled customers by not disclosing that it was going to throw in the towel in the high-def DVD format war it was waging against Sony's Blu-ray technology.  They claimed that months, if not years, before the company's decision to discontinue making its HD DVD players, the company knew that most of the Hollywood studios had embraced Sony's technology and that it was just a matter of time before Toshiba would be forced to abandon the field to Blu-ray, much as Betamax abandoned the field to VHS.  Plaintiffs alleged that, had they known this fact, they would not have paid a premium price above ordinary DVD players to buy Toshiba's HD DVD players. They alleged 4 causes of action:  (1) violation of New Jersey's Consumer Fraud Act, (2) unjust enrichment, (3) breach of express and implied warranties, and (4) violation of the Magnuson-Moss Warranty Act.

In deciding the Rule 12(b)(6) motion, the Court relied heavily on the Supreme Court's recent decision in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), refusing to credit plaintiffs' legal conclusions or other "threadbare recitals of a cause of action."  Rather, it demanded factual allegations, and found the plaintiffs' complaint lacking.

In analyzing the New Jersey CFA, the court looked first to the affirmative acts that were pled, namely, "(1) representing that HD DVD offered the best of high-definition television and DVD; and (2) representing that HD DVD was a format for today, tomorrow, and beyond, and that Toshiba was committed to supporting the HD DVD format into the future."  Id. at *9.  The court held that these were not actionable misrepresentations of fact, but rather were mere puffery, i.e., subjective statements of opinion.  In so holding, the court was mindful of how widely publicized the war between the HD DVD and Blu Ray formats was:

It defies logic that a consumer would believe, based on the tag line "For Today, Tomorrow and Beyond" that Toshiba was committed to producing HD DVD Players indefinitely, particularly given the well-publicized format war with Blu-ray, wherein both Sony and Toshiba were trying to capture the next generation DVD market.

Id. at *10.  The court concluded that the complaint failed

"to allege sufficient facts to claim that an 'ordinary' consumer -- who they admit would have been aware of the format war between HD DVD and Blu-ray -- would have expected to remain in the market indefinitely regardless of the implications of doing so.  On the contrary, the numerous articles referenced in the [complaint] provide support for the notion that the struggle to capture the next generation DVD market was seen as a winner-take-all battle.

Id.

Plaintiffs also asserted two basic "omissions" that Toshiba failed to warn consumers about:  (1) that "major motion pictures would not be released on HD DVD," and (2) that Toshiba planned to withdraw its support from HD DVD technology by exiting the market.  The court once again relied upon the many articles describing the format war between Sony and Toshiba, which "was characterized as a battle which would result in only the 'winning' format continuing in the marketplace."  Id. at 12.  The court said that it "defies logic" that Toshiba's potential market withdrawal could have been concealed in the face of such articles.

Besides puffery, the court held that the New Jersey CFA claim failed because plaintiffs failed to allege sufficient facts under Rule 9(b) to establish an ascertainable loss and causation; they failed to plead where they bought the players, how much they paid, how much ordinary DVD players cost, and whether plaintiffs were ever exposed to the alleged misrepresentations and made their decision because of those misrepresentations.

With respect to the unjust enrichment count, the court held that plaintiffs failed to plead it adequately because they got exactly what they paid for:  a DVD player that played HD DVDs at a higher quality than ordinary DVDs.  The court noted that Toshiba did not control the fact that movie studios opted for Blu-ray technology, and it relied on the fact that the format war was well-publicized.

With respect to the express warranty claim, the court held that the statement "Today, Tomorrow and Beyond" did not create an express warranty and was, in fact, puffery.  Similarly, on the implied warranty claim, the court noted that for an implied warranty of merchantability to be breached, the product actually has to be defective or not be fit for the ordinary purpose for which it was intended.  The complaint does not allege that the players fail to work, but merely that third parties have stopped providing new DVDs in that format.  Thus, it does not allege a breach of implied warranty claim.

Finally, the court held that because there was no implied warranty claim under state law, there could be no Magnuson Moss claim under federal law.

Judge Debevoise's opinion is important not only for its recognition that the statements at issue were mere puffery, but also because it recognizes the context in which consumers were making their choices.  Where the format war was obvious and consumers could be expected to pay attention to it in making their selection, any basic statement in support of the superiority of that technology could not be actionable.  The court refused to impose on a company fighting for the survival of its product line a legal duty to broadcast to consumers (and competitors) that it was considering exiting the market in a period of months.

• Email This
• Print
• Comments
• Trackbacks

Conventional wisdom says that the need for individual proof of damages does not preclude class certification.  But as Judge Dennis Cavanaugh recently recognized in Kings Choice Neckwear v. FedEx Corp., 2009 WL 689718 (D.N.J. Mar. 11, 2009), the need for individual proof of damages can destroy the predominance that makes the class manageable.

In Kings Choice, plaintiff was a frequent customer of FedEx who used a standard shipping agreement that allowed FedEx to recover "all reasonable costs incurred by FedEx" in collecting payment.  Plaintiff received a letter from FedEx's collection agency demanding payment of outstanding fees plus a 25% collection fee.  Plaintiff paid the collection fee under protest, and then brought a class action for breach of contract, violation of the New Jersey Consumer Fraud Act, and unjust enrichment, claiming that the 25% collection fee did not represent the "reasonable costs" allowed by the shipping agreement.

The court held that the requirements of Rule 23(a) were met, but that the proposed class failed the predominance and superiority requirements of Rule 23(b)(3).  As the court explained:

By its very nature, determining the reasonableness of the 25% collection fee is a highly fact-specific inquiry that depends upon a series of individualized variables within the collection process, including, inter alia, the frequency and manner of attempted contacts with the debtor, the necessity of retaining a collection agency or outside attorneys, and the extent to which legal remedies were pursued.  While Plaintiff suggests that a cost-averaging approach is appropriate because collection efforts are mostly uniform with only a negligible difference in cost, the Court finds differently and holds that determining "reasonableness" would require an untenable inquiry into the facts of each specific case.  Furthermore, assuming, arguendo, that liability could be established on an aggregate basis, it nonetheless appears that the Court would be required to conduct a series of "mini-trials" to determine damages.  The amount of damages owed to each individual class member will differ depending upon a series of individualized factors, including, inter alia, the cost of collection, whether payment was actually made, whether a reduced payment was negotiated, and whether any interest is owed.  Because it appears that FedEx sometimes waives collection fees and at other times negotiates reduced fees, the Court would be forced to inquire as to each individual class member to determine the amount paid, and, if reduced, whether the amount constituted a "reasonable" approximation of the collection costs. . . . [T]he Court finds that determining damages in this case on a class-wide basis would require significant individualized inquiry and would present manageability problems.

Id. at *4. 

In concluding that the class device was not superior to other methods of adjudication, the court also noted that the laws of 51 jurisdictions likely would have to be applied, further compounding the disparities among class members and presenting the court with insuperable obstacles.  Id. at *5.

Kings Choice is a good reminder to not let an old canard about damages keep you from making a compelling argument that the individualized inquiry required to determine damages can present such manageability problems that a class should not be certified.

• Email This
• Print
• Comments
• Trackbacks

The court's recent decision in In re OnStar Contract Litigation, 2009 WL 415990 (E.D. Mich. Feb. 19, 2009) is a grab bag of rulings favoring both plaintiffs and defendants.

Plaintiffs in OnStar are buyers and lessees of four manufacturers' autos equipped with the OnStar in-vehicle telecommunications system that provided "automatic crash notification to emergency responders, stolen vehicle location, remote door unlock and remote diagnostics in the event of problems with airbags, anti-lock brakes or other systems."  Id. at *1.  Plaintiffs allege that by August 2002, the manufacturers knew that because the Federal Communications Commission ruled that cell phone companies need not support analog signals after February 2008, the analog OnStar equipment would stop working by 2008.  Plaintiffs allege the manufacturers' failure to tell buyers this fact violated various state laws.  They brought a putative class action against four auto manufacturers and OnStar, alleging breach of warranties and violations state consumer protection statutes.

The defendants moved to dismiss.  They won some, and lost some.

The court began by noting the importance of a proper choice of law analysis, particularly for class certification.  But plaintiffs alleged that they needed discovery to conduct a proper analysis.  Accordingly, the court tabled any issue that required a choice of law analysis.

Except one.  None of the plaintiffs were Michigan residents, and yet they had brought a claim for violation of Michigan's Consumer Protection Act, arguing that this was proper because Michigan is the defendants' primary place of business.  The court looked to the text of the MCPA, which limits class actions under the MCPA to people "residing or injured" in Michigan.  The court rejected plaintiffs' argument that because they paid money that ultimately flowed into Michigan, they were "injured in" Michigan.  Accordingly, it dismissed the MCPA claim.  Id. at *4-*5.

But the court tabled the determination regarding other states' consumer protection statute claims because it would involve individual state-by-state analysis into whether a plaintiff may have the benefit of a discovery rule or equitable tolling of the statute of limitations due to fraudulent concealment.  Id. at *5-*6.

A number of defendants made individual arguments about the statutory claims that the court rejected.  For example:

1.  The court rejected OnStar's argument that the consumer protection act claims failed for failure to plead with particularity under Rule 9(b).  The court observed that these claims were based on a variety of theories, including warranty theories, that were not fraud-based.

2.  The court also rejected OnStar's argument that the plaintiffs failed to adequately plead a "co-venture" that would make OnStar liable for other defendants' actions.

3.  The court rejected Honda's argument that the California, New York, and Washington consumer protection act claims failed because they were inconsistent with the terms of the express warranty.  The court relied on the safety-related allegations about not having On-Star to conclude that it was possible those states would recognize a CPA claim that goes beyond the term of the express warranty.

4.  The court also rejected Subaru's argument that the fraud claims should fail because the complaint establishes that plaintiffs received constructive notice from the FCC that the analog equipment would cease to work.

5.  In addition, the court rejected Subaru's argument that the consumer protection act claims should be dismissed for being predicated on express warranty claims that are unsustainable.

6.  Volkswagen argued that plaintiffs had not pled a "transaction" under California's Consumer Legal Remedies Act because plaintiffs bought the cars from dealers, not VW directly.  The court wholly rejected the argument.

7.  The court also rejected VW's proposed interpretation of Colorado's consumer protection statute, holding that the statute does not preclude class actions for damages.

VW did, however, win one important issue regarding the statutory counts.  Section 901(b) of the New York statute precludes class actions for exemplary damages unless such a class action is expressly authorized by another statute.  Plaintiffs argued that this provision was merely procedural and thus did not apply in federal court.  The OnStar court disagreed, holding that it was substantive law that applies in federal court.  Id. at *14.

The defendants also scored an important victory on the warranty counts.  Defendants challenged the warranty claims because the OnStar equipment was fully functional for the entire term of the durational warranty.  Citing an Illinois decision, the court recognized that allowing claims beyond the durational limits in the warranty would make the manufacturer the insurer for the product and extend the relationship beyond what it had contracted.  Id. at *16.  Thus, the court held that because the Limited Warranty expired before any plaintiff first asserted a warranty claim, the express and implied warranty claims of those plaintiffs whose claims were governed by the UCC must be dismissed.  The court also held that the complaint failed to plead that the warranty terms were unconscionable.  Id. at 19.

For the remaining implied warranty claims, the court refused to rule because they required a conflicts of law determination.  And because the implied warranty claims impacted the claim asserted under the Magnuson-Moss Warranty Act, the court deferred decision on that count, too.

The OnStar decision is a good example of the use of a motion to dismiss to whittle away certain claims, leaving the others ripe for summary judgment after discovery.  Given that the remaining claims are primarily those premised on various states' consumer protection statutes, it seems clear that the defendants have strong arguments opposing the certification of a class in the action because of the difficulty of applying various states' laws in a single trial.

• Email This
• Print
• Comments
• Trackbacks

Yesterday the Eighth Circuit affirmed a decision dismissing a consumer fraud class action against a cable television provider.  See Crumley v. Time Warner Cable, Inc., 2009 WL 454723 (8th Cir. Feb. 25, 2009).  Plaintiff alleged that the defendant violated Minnesota's Consumer Fraud Act by effectively charging for the same system upgrades twice.  The defendant's first recovery for the upgrades allegedly occurred when it persuaded the Federal Communications Commission to approve a five-year surcharge to pay for systems upgrades the defendant was going to perform.  The defendant's second recovery came when it filed an FCC "Form 1235" with the City of Minneapolis in 2001 to incorporate a "network upgrade fee" into its basic cable rate.  Plaintiff sought both damages and recovery for the defendant's alleged unjust enrichment.

The district court had granted the defendant's motion to dismiss, and the Eighth Circuit affirmed, citing the "filed rate doctrine," which "forbids a regulated entity from charging a rate for its services other than the rate on file with the appropriate regulatory authority."  Id. at *2 (citation omitted).  Here, the City of Minneapolis was the appropriate regulator, and the "network upgrade fee" had gone through the appropriate approval process.  Accordingly, plaintiff could not bring a state law claim that would effectively require the defendant to charge a different rate, even though the allegation was that the rate had been approved based on a fraud:

[Plaintiff's] attempts to characterize her complaint as one challenging Time Warner's actions as fraudulent do not change the fact that what she challenges is the rate on file with the City of Minneapolis.  If Crumley's suit was successful, . . . Time Warner would not be allowed to charge the allegedly unlawful upgrade fee . . .  This is directly contrary to the filed rate doctrine, which "'prohibits a party from recovering damages measured by comparing the filed rate and the rate that might have been approved absent the conduct in issue.'"  That Crumley's claim involves allegations of fraud is of no moment. . . .  This case is directly governed by the filed rate doctrine because, if allowed to proceed, "the court's decision will [impact] . . . agency . . . rate determinations."

Id. at *2 (citations omitted).

• Email This
• Print
• Comments
• Trackbacks (1)

A few weeks ago a federal court in California issued a decision that has profoundly troubling implications for consumer fraud class actions.  See Wiener v. Dannon Co., 2009 WL 383650 (C.D. Cal. Jan. 30, 2009). 

In Wiener, the plaintiff challenged two of Dannon's brands that contain probiotic bacteria:  (1) Activia yogurt, which is advertised as "'scientifically proven' to naturally regulate digestion when eaten daily for two weeks," and (2) DanActive drinkable dairy product, which is marketed as "'clinically proven' to strengthen the immune system."  Id. at *1.  Dannon claims to have approximately twelve studies that support its claims about Activia, and approximately twenty-one that support its claims about DanActive.

The decision in Wiener starts off uncontroversially enough.  Plaintiff sought to represent a class of "[a]ll persons who purchased in California at any time up to August 1, 2008, DanActive, Activia or Activia Li[ght]," asserting claims under California's Unfair Competition Law, its Consumer Legal Remedies Act, and a claim for breach of express warranty.  The court denied class certification, holding that the plaintiff -- who had bought Activia, but had never bought DanActive -- was not typical of absent class members who had bought DanActive:

In cases involving a variety of products, courts, emphasizing that different products have different functions and different consumers, have held that a named plaintiff that purchased a different product than that purchased by unnamed plaintiffs fails to satisfy the typicality requirement of Rule 23(a)(3). . . . Dannon has made different health benefit claims regarding Activia and DanActive, which feature different types of probiotic bacteria . . . Therefore, the products target consumers with different health issues.  Moreover, different studies allegedly substantiate these health benefits.  Furthermore, the advertising and marketing of the two products is separate. . . .  In other words, the evidence needed to prove Wiener's claims involving Activia . . . is not probative of the claims of unnamed class members who purchased DanActive . . .

Id. at *4-*5 (citations omitted).  Nevertheless, the court gave plaintiff leave to amend to substitute into the case an appropriate class representative.  As a result, the court did not stop its analysis with typicality, but proceeded to address the other class action prerequisites.  The opinion goes downhill from there.   

The court found that the remaining prerequisites of Rule 23(a) were satisfied.  In analyzing predominance under Rule 23(b), the court acknowledged that reliance on the alleged misrepresentation was an element of plaintiff's causes of action.  Dannon argued that because there was a variety of different print, TV, in-store and other marketing materials, the nature of the alleged misrepresentation -- as well as whether it was material to the consumer's decision to buy the product -- would be individual issues that would have to be litigated for each class member.

The court disagreed, opining that at trial, plaintiffs could rely on an "inference of reliance" that "arises if material misrepresentations were 'made to persons whose acts thereafter were consistent with reliance upon the misrepresentation.'"  Id. at *8 (citation omitted).  Numerous courts, of course, have rejected just such a presumption of reliance, noting that although it may make sense in an "efficient market" like the securities market, which is capable of rapidly assimilating new information into the prices of stocks, the market for consumer goods is not "efficient," in that buyers often fail to take into account new information and make their purchase decisions based on any number of other factors, such as taste, personal preferences, brand loyalty and the like.  See, e.g., McLaughlin v. American Tobacco Co., 522 F.3d 215, 223-25 (2d Cir. 2008); International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., 929 A.2d 1076, 1088 (N.J. 2007).

The district court -- although aware that people buy consumer products for different reasons -- seemed to penalize Dannon for not having submitted expert proof as to what all of those individual reasons for purchase might be:

The record clearly establishes that the characteristic that distinguishes the Products from others on the market is their respective alleged health benefit.  Dannon has not pointed to any meaningful difference in flavor, serving size, or the like that might influence consumers' purchases. . . .  The Court is aware that many factors influence all consumers' purchasing decisions, a point which Dannon emphasizes, yet given the alleged misrepresentations are the distinguishing characteristic of the Products, the Court finds that these representations induced consumer purchases because without the alleged misrepresentations, there is no reason, even with sales, coupons, or other promotions, to suggest that purchasers would have selected the Products over other Dannon products or similar, generally less expensive, products by other brands. . . .  Thus, the Court finds that the evidence presently before the Court allows for an inference of reliance in this case.

Wiener, 2009 WL 383650 at *9 (citations omitted).

Interestingly, the court acknowledged that Dannon would have the right to rebut the inference of reliance, but it did not explain how that could be done manageably at trial.  Id. at *8.

Dannon also had pointed out the difficulty of proving individual damages in consumer products cases, where the products may have had very different prices, been subject to coupons or rebates, and may even have been returned for a refund.  The court, however, was having none of that argument.  It merely repeated the mantra that the calculation of individual damages should not defeat class certification, and posited that "actual damages for these claims can be calculated by subtracting the value of the Products without the claimed health benefits, a uniform value to be determined based on the evidence presented at trial, from the price that the particular class member is able to prove he or she paid."  Id. at *10.

Once the plaintiff in Wiener amends the complaint to add into the action another named plaintiff who actually bought DanActive, we can expect the court to certify the class action using the specious "presumption of reliance" that robs the defendant of its ability to present individual defenses regarding what actually motivated the product purchase decision.  Thankfully, Wiener lies far outside the mainstream of thought on reliance issues in consumer products cases.  But the opinion represents a troubling undercurrent of thought that too readily sacrifices the defendant's right to challenge individual claims in order to make it easier to try them in the aggregate.

• Email This
• Print
• Comments (1)
• Trackbacks

Many thanks to loyal reader Fred Burnside of Davis, Wright, Tremaine LLP in Seattle, who forwarded me an opinion in which Judge Marsha Pechman decertified a consumer fraud claim against Microsoft.  See Kelley v. Microsoft Corp., Case No. C07-0475 MJP, slip op. (W.D. Wash. Feb. 18, 2009).  [After trying unsuccessfully to upload the opinion, I see it is now available at 2009 WL 413509.]

Last year Judge Pechman had issued an opinion with Weinstein-esque creativity, certifying a class action against Microsoft for two causes of action:  breach of the Washington Consumer Protection Act, and unjust enrichment.  See Kelley v. Microsoft Corp., 251 F.R.D. 544 (W.D. Wash. 2008).  Microsoft was alleged to have defrauded the public by allowing computer manufacturers to label certain computers "Windows Vista Capable" that would not be able to run any form of Vista Premium; they would only be upgradable from Windows XP to Vista Basic, which lacked the Aero graphics interface Microsoft used to promote Vista, as well as a file backup system, media center, DVD-making capability, and tablet-PC capability.  Slip op. at 2.  

In the opinion certifying the class, the court had recognized that Washington law would not allow certification of a "deception based" theory under the WCPA because the statute effectively required individual proof of causation.  But despite the lack of any supporting Washington authority and in the face of contrary authorities from other states, the court had certified the class under a "price inflation" theory of causation where plaintiffs would show that "Microsoft artificially inflated demand for computers only capable of running Vista Home Basic, causing Plaintiffs to pay more for those PCs than they would have without the 'Windows Vista Capable' campaign."  251 F.R.D. at 558-59.

A year later -- after plaintiffs' expert had rendered his opinion and been deposed -- Microsoft returned to the court, seeking summary judgment and decertification.  Judge Pechman refused to grant summary judgment on whether Microsoft's "Vista Capable" designation had the capacity to deceive, but she decertified the class, finding that plaintiffs' expert had utterly failed to support a "price inflation" theory of causation.

The WCPA has a strong causation provision:  "a plaintiff must show that the deceptive act was a cause which 'in direct sequence . . . produce[d] the injury complained of and without which such injury would not have happened.'"  Slip op. at 8 (quoting statute).  The court ultimately held that plaintiffs failed to demonstrate classwide effects on demand or on the price of "Vista Capable" computers.

The court noted that "[b]ecause Plaintiff's [and the court's] price inflation theory is novel in the context of consumer protection claims, Defendant analogizes to other areas of the law where a plaintiff may establish causation by demonstrating an artificial increase in demand."  Id. at 9.  Microsoft relied on McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008), in which the plaintiffs failed to isolate the shift in demand caused by allegedly deceptive "light" labeling on cigarettes, and thus common issues did not predominate.  It also relied on In re New Motor Vehicles Canadian Export Antitrust Litig., 522 F.3d 6 (1st Cir. 2008), where plaintiff's expert had completed a regression analysis, but failed to isolate the price impact caused by impermissible actions from the impact caused by permissible actions.

Judge Pechman also relied on these decisions in concluding that "Plaintiff's evidence fails to establish class-wide causation because it does not attempt to identify a specific shift in the demand for Vista Capable PCs."  Slip op. at 10.  Plaintiff's expert, Dr. Keith Leffler, did not even attempt a regression analysis or an econometric analysis of the impact of the "Vista Capable" designation on demand for computers.  Instead, he relied on internal Microsoft documents that allegedly discussed the "Vista Capable" program increasing demand for Windows XP-based computers, as well as the testimony of the individual plaintiffs. 

Judge Pechman recognized that relying on such proof would amount to extrapolating from a few documents or individual testimony -- which is something the WCPA's causation provision simply does not allow. 

Ultimately, Dr. Leffler conceded that he could not use available data to quantitatively isolate a demand effect of the "Vista Capable" program, and he could not separate it out from other things, such as holiday promotions, that computer manufacturers may have done to promote their computers.  Similarly, he could not use regression analysis to demonstrate a price effect. 

Reviewing this testimony, the court concluded that "its is clear [plaintiffs] rely on anecdotal evidence to demonstrate class-wide causation," which is contrary to Washington law.  As a result, the court decertified the class.  Refusing, however, to grant summary judgment, the court noted that in their individual cases, plaintiffs could rely on a deception theory to establish causation.  The court decertified the unjust enrichment theory for the same reasons it decertified the WCPA claims.

This new decision from Judge Pechman is important evidence for why creative attempts to get around the basic elements of consumer fraud claims to facilitate class certification so often present more -- not less -- complications than the traditional elements of the claim.

• Email This
• Print
• Comments
• Trackbacks

In the recent decision in Lyons v. Coxcom, Inc., 2009 WL 347285 (S.D. Cal. Feb. 6, 2009), the court granted a motion to dismiss, highlighting the need to plead damages resulting from wrongful conduct in actions brought under California's consumer protection statutes.

In Lyons,  the plaintiff upgraded her internet service to the defendant's "premier" service with "PowerBoost" package in order to take advantage of "blazing fast" internet service and "up to 33% faster downloads."  Plaintiff alleged that despite these advertised advantages of upgraded service, the defendant slowed or severely limited her coverage and that of a nationwide class by transmitting certain unauthorized hidden codes to prevent customers' computers from executing certain peer-to-peer filesharing. 

The defendant moved to dismiss certain counts pursuant to Rule 12(b)(1) for lack of standing, and moved to dismiss the rest of the complaint under Rule 12(b)(6).  Basically, defendant argued that although plaintiff's complaint identified representations in advertising and declared that she had upgraded her service to take advantage of increased internet speed, it failed to plead reliance or causation:  "she fails to allege that she [bought] Cox's internet service as a result of any advertisement."  Id. at *2.

The court concluded that California's Unfair Competition Law, its False Advertising Law, and its Consumer Legal Remedies Act all require that a claimant suffer an injury in fact and incur damages as a result of the challenged conduct.  Because plaintiffs' complaint did not allege that reliance/causation element, the court dismissed these counts without prejudice, giving plaintiffs a chance to replead.  The court also dismissed a count based on the consumer protection statutes from 27 other states and the District of Columbia, holding that because plaintiff could not establish standing under her own state's statutes, she (as a non-resident) could not seek relief on behalf of a class of residents of other states.  Again, plaintiff was given leave to replead.

As for the defendant's Rule 12(b)(6) motion, the court took judicial notice of the defendant's Subscriber's Agreement ("SU"), Acceptable Use Policy ("AUP"), Terms and Conditions, and Limitations of Service.  Each of these documents was mentioned in the plaintiff's complaint.  The court dismissed the breach of contract count, giving effect to the terms of the SA, which required the application of Georgia law.  The court noted that the SA and the AUP reserve to defendant the right to manage its network and to take actions against subscribers whose use impedes the use of others.  Because plaintiff failed to plead a provision of the contract in which the defendant promised to provide unlimited access without interruption or to provide unlimited use of peer-to-peer applications, the court dismissed the breach of contract count, giving plaintiff leave to amend.  The court also dismissed the count alleging a breach of the covenant of good faith and fair dealing, because Georgia law does not allow such a cause of action independent of a breach of contract claim.

The court dismissed without prejudice the count alleging violation of the federal Computer Fraud and Abuse Act because plaintiff did not allege that she personally suffered damages in an amount in excess of $5,000.

Although the court had dismissed the California statutory counts for lack of standing, it proceeded to analyze the substantive challenges to them as well.  It noted that the CLRA claim was not pled with the particularity necessary for a fraud claim because it left out the "who, what, when, where, and how" of the claim.  But the court rejected the defendant's argument that the statements plaintiff identified were non-actionable puffery.  "Plaintiff does allege statements that may be demonstrated to be true or false, such as download speeds of up to 20 Mbps and whether upload speed is indeed doubled and downloads are indeed 33% faster. . . .  Plaintiff has sufficiently pled statements likely to deceive under the CLRA."  Id. at *11.

As for the UCL claim based on fraudulent acts and practices, the court rejected the defendant's argument that Rule 9(b) applied and held that plaintiff's claim as pled had sufficient specificity to establish a likelihood to deceive and was not mere puffery.  Nevertheless, the claim remained dismissed without prejudice for failure to sufficiently allege standing.  (The court also held that two UCL counts based on "unlawful acts" and "unfair acts," respectively, failed to state a claim.) 

As for the False Advertising Law count, the court rejected the defendant's argument that a Rule 9(b) pleading standard applied, but reiterated that the count was dismissed for failure to plead standing.

The defendant also had made the argument -- somewhat akin to a preemption argument -- that the court should delay its consideration of the case because the Federal Communications Commission (which has primary regulatory authority over internet services) was in the process of deciding the appeal of a dispute involving a different provider (Comcast), which might resolve the key questions in this case.  The court refused to defer to the FCC under the defendant's "primary jurisdiction" theory, noting that where the issues involved are primarily grounded in contract, false advertising and unfair competition, they fall squarely within the court's traditional functions.

• Email This
• Print
• Comments
• Trackbacks

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.

• Email This
• Print
• Comments
• Trackbacks

In the last few years, a number of courts have looked favorably upon federal preemption of state law claims based on food and beverage labeling.  See, e.g., Holk v. Snapple Bev. Corp., 574 F. Supp. 2d 447 (D.N.J. 2008) (finding implied preemption of state law claims against Snapple for for using "all natural" to describe beverages containing high fructose corn syrup); Fraker v. KFC Corp., 2007 WL 1296571 (S.D. Cal. Apr. 30, 2007) (finding implied preemption of state law claims against defendant for using trans fats in oils).

But a recent decision bucks that trend.  In Lockwood v. ConAgra Foods, inc., 2009 WL 250459 (N.D. Cal. Feb. 3, 2009), Judge Charles Breyer denied the defendant's motion to dismiss the plaintiff's Unfair Competition Law claim that "high fructose corn syrup" is not produced by a natural process, thus making it misleading to label pasta sauce containing it as "all natural."  The defendant had argued that the California state law claim was preempted -- either expressly by the federal Food, Drug and Cosmetic Act ("FDCA"), or impliedly by the FDA's regulation of the field.

Citing Altria v. Good, 129 S. Ct. 538 (2008), Judge Breyer began his analysis with a presumption against preemption.  Looking to the express preemption provisions of the FDCA and the National Labeling and Education Act of 1990 ("NLEA"), Judge Breyer concluded that the UCL claim was not preempted because it was not establishing a labeling requirement different from the federal requirement and did not involve "misbranding" of an imitation product as the real thing.  2009 WL 250459 at *2. 

He also rejected the notion that field preemption could apply, citing Freightliner v. Myrick, 514 U.S. 280 (1995) for the proposition that "'an express definition of the pre-emptive reach of a statute "implies" -- i.e., supports a reasonable inference -- that Congress did not intend to pre-empt other matters.'"

Moreover, Judge Breyer reasoned that the FDA's policy on the use of the word "natural" supported his conclusion against preemption.  Under that policy, "natural" simply means that nothing artificial or synthetic is included in, or has been added to, the product that would not normally be there.  In 1991, Judge Breyer recounted, the FDA had solicited public comment on a proposed rule defining the term "natural," acknowledging that -- if not properly defined -- the term might have the potential to mislead consumers.  But the rule was never to be: 

"'Because of resource limitations and other agency priorities, FDA is not undertaking a rulemaking to establish a definition for "natural" at this time.  The agency will maintain its current policy [as explained above].'"  58 F.R. 2302-01 (1993).  Although the FDA acknowledges that consumers are being misled by the use of the term "natural," it has declined to adopt any regulations regarding this term.  This inaction is consistent with an intent not to occupy the field.  This is especially so given that at the time the FDA declined to formally define "natural" it was aware of and had reviewed state regulation of the use of the term, yet it made no mention of the need for uniformity or a preemptive federal regulation, . . . instead, it declined to take any action.

Id. at *5.

In addition, Judge Breyer used the FDA's limited resources and different priorities as a justification to also reject the defendant's primary jurisdiction argument that the court should defer ruling in the case in order to give the regulatory agency the opportunity to address the issue.

• Email This
• Print
• Comments
• Trackbacks

One of my all-time favorite bartenders, Howie, just can't believe what I do for a living.  "You mean you defend cases brought by a bunch of people who weren't hurt and didn't have their product break on them," he asks incredulously.

"For a lot of my cases, that's pretty much it."  I respond.

"So what kindof money do they think they're going to get outta these class actions?"

"Well, Howie, sometimes they want everybody who bought the product to get all of their money back.  And sometimes they just want the difference between the value of what they thought they were buying and the so-called "diminished value" of what they actually bought.  And again, they want this for everybody who bought the product, which can be a lot of money."

"Aww, that's ridiculous," Howie says.  Shaking his head and pouring another round, he consoles me:  "Well, Cuz, with cases like that out there for you to defend, at least you ought to win a lot!"

I'll enjoy telling Howie this weekend about Williams v. Nidek Co., Ltd., 2009 WL 226024 (Cal. App. -- 4th Dist. Feb. 2, 2009).  Fortunately, the court in Williams got it right, affirming the denial of class certification.  But the claims in Williams go a long way toward demonstrating everything that is wrong with consumer class action practice today. 

The plaintiffs in Williams had undergone Lasik surgery on their eyes to achieve hyperopic corrections (i.e., corrections for far-sightedness).  The Nidek laser that had been used during their surgeries had not yet been approved by the FDA for hyperopic correction.  (It subsequently was in 2006.)  Plaintiffs claimed that Nidek and plaintiff's doctors violated a host of statutes by "concealing" from plaintiffs that the Nidek laser was not approved by the FDA for this particular kind of Lasik surgery.  But plaintiffs admitted that they had not relied on any representations from the doctors about FDA approval, and they conceded that they "do not contend they were disappointed in the results of the surgery."  Id. at *6.  Indeed, plaintiffs defined a California residents class and a nationwide class, both consisting of people who had had the surgery, but who had not suffered personal injuries.  Id. at n.8. 

Yes, you read that right:  the putative class members were perfectly satisfied with the results of their surgeries and had not been physically injured.  Still, they wanted money back:  either "the entire cost of the surgery (because they did not receive what they had been promised) or, alternatively, the difference between the value of what they had been promised (surgery on an approved Laser) and what they received (surgery on a nonapproved Laser)."  Id. at n.14.

Of course the reason consumer class actions like Williams are pled to exclude the very people, if any, who may have been injured is that including them in the class would present too many individual issues, making class certification inappropriate.  So instead, plaintiffs plead it as a straightforward fraudulent concealment claim for economic harm, thinking that doing so will make it seem like there are fewer individual issues that would predominate a trial of the action.

California's class action rule doesn't mirror the federal Rule 23 exactly, but as it has been interpreted by California's courts, its elements are similar.  In particular, the common issues to be tried on a classwide basis need to predominate over the issues that require individual determination for each class member.  The trial court in Williams concluded that they did not, and the Court of Appeal affirmed.

As the court observed, the bulk of plaintiffs' claims were misrepresentation claims; they "turned on the assertion that the physicians misrepresented the Lasers as appropriate or approved for hyperopic procedures, or intentionally concealed (or negligently failed to disclose) that the Lasers were not approved for such treatments, and/or conspired to engage in such conduct."  Id. at *9.

But as the Court of Appeal recognized, "plaintiffs' misrepresentation/concealment/nondisclosure claims would have required a mini-trial to assess each permutation of the representations made to each class member by 60 to 70 doctors or their staff . . . and required an examination of the informed consent forms signed by the patient, and/or each patient's discussion with his or her doctor or staff, and whether [Nidek's Patient Information Booklet] had been given to some patients by some physicians."  Id. (emphasis in original).  Nidek had distributed, as required by the FDA, a booklet explicitly advising patients that the Laser was not approved for hyperopia.  Id. at n.13.  Moreover, even the named plaintiff's doctor had a patient's informed consent form disclosing that the FDA had not yet approved the Laser for hyperopia.

As the Court of Appeal recognized, these patient-specific mini-trials "would be further complicated by the fact that the physicians making (and the patients receiving) the representations spanned an approximately seven-year period," making "mini-mini-trials" on statute of limitations and tolling issues necessary for each class member.  Id. at *10.  Also, issues inherent to the 60-70 doctors potentially would be added to the mix.

Moreover, by adding the distributor, Nidek -- which had had interactions with many of the doctors, informed them that the hyperopic use was unapproved, and asked them to install software that would prevent use of the Laser to treat hyperopic conditions -- mini-trials also would be necessary addressing Nidek's dealings with each physician.

Even the damages inquiry would require individual mini-trials because the measure of damages required comparing the amounts paid and the value actually received by each patient.  Id. at *11.

The Court of Appeal in Williams clearly reached the right result by affirming the denial of class certification.  And yet it's disappointing that such a frivolous lawsuit had to go even that far:  through costly discovery, dispositive motion practice, and ultimately a class certification hearing. 

Just try explaining to Howie why this suit wasn't easily dismissed at the outset.  If you can do that, the next one's on me.

• Email This
• Print
• Comments
• Trackbacks (1)

California's Unfair Competition Law has an admittedly broad reach, but Californians took an important step to rein in the abuse of this statute by passing Proposition 64, which requires UCL plaintiffs to have suffered an actual injury in order to bring a claim.  Courts interpreting Proposition 64 have carefully enforced this requirement.

In Klein v. Avis Rent a Car System, Inc., 2009 WL 151521 (C.D. Cal. Jan. 21, 2009), plaintiff and/or his counsel had brought a total of 8 putative class actions against car rental companies.  The defendants were alleged to have sold extended protection insurance coverage that they either underwrote themselves or with third party entities, at coverage rates that had not received the necessary approvals from California's Insurance Commissioner.  

Although plaintiff alleged that at least once in 2007 he bought the extended coverage with a vehicle he rented, plaintiff did not identify whose coverage he purchased.  Suing under California's Unfair Competition Law, plaintiff sought recovery on behalf of a nationwide class of people who bought extended coverage in California in the last 4 years.  Plaintiff sought declaratory and injunctive relief, as well as restitution and disgorgement of all monies defendants had received from the class for extended coverage.

The defendants moved to dismiss the complaint, arguing that the plaintiff had not pled an injury that he suffered as a result of the alleged wrongful conduct.  The District Court agreed, granting the motion.

As the court noted, Californians passed Proposition 64 precisely to limit the ability to bring UCL claims to only those people who have "suffered injury in fact and [have] lost money or property as a result of the unfair competition."  Citing two recent California decisions, the court explained that the plaintiff did not suffer an economic loss as a result of the mere failure to get regulatory approval for the rates charged.  He received the coverage he paid for, did not have a claim denied, and did not allege he paid more for the coverage than he would have if the defendants had obtained the necessary regulatory approvals of the rates.  Thus, the plaintiff was barred by Proposition 64 from bringing a UCL claim. 

The court did give the plaintiff leave to amend his complaint to identify the insurance he bought and to plead additional facts about the insurance he purchased that would establish an actual injury resulting from the lack of regulatory approval.  But the import of the court's opinion was clear:  unless plaintiff can establish that he paid more than he would have had to pay for Commissioner-approved coverage, plaintiff has no injury and no claim.

• Email This
• Print
• Comments
• Trackbacks

California’s Fourth District Court of Appeal issued an opinion last Monday that illustrates once again why splitting the baby is never a satisfying result.  See Paduano v. American Honda Motor Co., 2009 WL 57806 (Cal. App. Jan. 12, 2009).  The case was straightforward enough:  plaintiff bought a hybrid car expecting it to get 51 miles per gallon, which was what the brochure said was the EPA’s fuel economy estimate for manual transmission versions of the car.  But the car didn’t come close.  Instead, it averaged roughly 30 miles per gallon when plaintiff drove the car.  Apparently EPA’s method of testing hybrid cars differs substantially from how some drivers typically drive them, so that the EPA estimates can be significantly better than actual experience.

Plaintiff sued for breach of one federal and two state warranty statutes, as well as for violations of California’s Unfair Competition Law (“UCL”) and its Consumer Legal Remedies Act (“CLRA”).

The trial court granted summary judgment on all claims, finding, inter alia, that they were preempted by the federal Energy Policy and Conservation Act.  The Court of Appeal, however, affirmed dismissal of the warranty claims, but reversed on the UCL and CLRA claims, holding that they were not preempted.

The court was right to affirm dismissal of the warranty claims because Honda clearly made no warranty about the EPA’s fuel economy estimate.  Rather, the label stated – as required by federal law – “ACTUAL MILEAGE will vary with options, driving conditions, driving habits and vehicle’s conditions.”  And 49 U.S.C. § 32908(d) “clearly provides that ‘[a] disclosure about fuel economy or estimate annual fuel costs under this section does not establish a warranty under the law of the United States or a State.’”  Id. at *7.

Ultimately, however, the majority held that the plaintiff’s UCL and CLRA claims were not preempted.  In doing so, it applied a presumption against preemption from the California Supreme Court’s “colored salmon” case:  Farm Raised Salmon Cases, 42 Cal.4th 1077, 1087-88 (2008), cert. denied sub nom., Albertson’s, Inc. v. Kanter, 2009 WL 56199 (U.S. Jan. 12, 2009).  Paduano, 2009 WL 57806 at *12-*13.  It then applied the U.S. Supreme Court’s recent decision in Altria Group v. Good, 2008 WL 5204477 (U.S. Dec. 15, 2008) to hold that the language of the Energy Policy and Conservation Act does not expressly preempt the plaintiff’s claims.  Paduano, 2009 WL 57806 at *15.  Because the UCL and the CLRA are laws of general applicability that are not based specifically on the disclosure of fuel economy or fuel operating costs, the court held that the federal act’s express preemption provision did not apply.

The majority then found that there might be viable UCL and CLRA claims arising out of two statements from the defendant’s sales brochure:  (1)  “Just drive the Hybrid like you would a conventional car and save on fuel bills,” and (2) “IS THERE ANYTHING SPECIAL I HAVE TO DO?  You just have to love saving money and getting terrific gas mileage.”   Id. at *10-*11.

As Justice Terry O’Rourke points out in the dissent, these statements are “mere unspecific, nonfactual assertions constituting non-actionable puffery.”  Id. at *32-*33.  And the first statement, taken in context, is actually just differentiating this Hybrid from an electric car the owner would have to plug in to charge.  Id. at *23.

But more important, Justice O’Rourke makes it plain that the plaintiff’s sole theory of liability is premised exclusively on the EPA’s mileage estimate, and that the sought-after relief – eliminating or reducing the EPA’s mileage estimate –  actually was expressly preempted by the federal statute because it would impose a legal obligation “related to fuel economy standards.”  Id. at *25.  The Supreme Court’s recent Good decision, Justice O’Rourke explains, is wholly irrelevant to the issue at hand.

The majority and dissenting opinions in Paduano highlight the difficulty of consistently applying the Supreme Court’s preemption precedents.  There is much too much detail in the two sides’ positions to analyze in this blog post.  But certain fundamental questions – such as when to apply the presumption against preemption, and when does a statute of general applicability “impose” obligations within the meaning of an express preemption provision – clearly remain hotly disputed.  One hopes the California Supreme Court will accept review of Paduano, which seems certain to be appealed, and provide some additional clarity in this area.

 

• Email This
• Print
• Comments
• Trackbacks