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

As I have noted repeatedly in prior posts, statements about the nutritional value or health effects of food and beverage products often serve as the basis for putative consumer fraud class actions.  Increasingly, however, courts are taking a critical view of these theories, dismissing claims based on puffery or representations that no reasonable consumer would rely upon.

For example, in Carrea v. Dreyer's Grand Ice Cream, Inc., No. 11-15263, Slip op. (9th Cir. Apr. 5, 2012), the plaintiffs had alleged that the defendant had violated California's Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law, and New York's GBL section 349 by putting various statements on the packaging for its delicious Drumsticks product.  Plaintiffs alleged that putting "0g Trans Fat" on the front label was deceptive because there were trace amounts (less than 0.5 grams per serving) of trans fat in a serving.  Plaintiffs argued that although the FDA allows such a statement to be made in the Nutrition Facts label, it was fraud to put this statement on the front label unqualified by the statement "per serving."

The Ninth Circuit affirmed the trial court's dismissal of the claim as preempted by the Nutrition and Labeling Act.  Similarly, the court affirmed the trial court's holding that it would be implausible for a reasonable consumer to interpret the following statements to mean that Drumsticks are more nutritious or "wholesome" than competing products:  "Original Sundae Cone," "Original Vanilla," and "Classic."  The court noted that "it strains credulity to claim that a reasonable consumer would be misled to think that an ice cream dessert, with 'chocolate coating topped with nuts,' is healthier than its competitors simply by virtue of these 'Original' and 'Classic' descriptors."  Id. at 3.

Last week the maker of Muscle Milk was largely successful in having a number of allegations dismissed from a putative consumer fraud class action alleging that statements about its nutritional value were deceptive.  In Delacruz v. Cytosport, Inc., No. 11-3532 CW, Slip op. (N.D. Cal. Apr. 11, 2012), the plaintiffs claimed that Muscle Milk's beverage "Ready to Drink" and its snack bars ("Muscle Milk Bars") were deceptively marketed because they contained so many calories, saturated fat, and total fat, but still claimed to be healthy and nutritious.

The court looked to each set of representations allegedly made on the product, in advertising, and on the web.  With respect to representations on the product itself, the only ones that the court found to be potentially actionable were the use of the terms "healthy fats" and "nutritional shake."  The former suggests that the product has more unsaturated fats than it does, the court said.  The latter gave rise to an overall allegation of nutritiousness that could be actionable, the court explained.

The defendant argued that because the fats and other components were specifically listed in the Nutrition Facts panel, there could be no deception as a matter of law. But the court rejected this argument, reasoning that where the package has an affirmative misrepresentation, the defendant should not be allowed to rely on the small print of the Nutrition Facts panel to contradict it.  Slip op. at 13 (citing Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th cir. 2008); Yumul v. Smart Balance, Inc., 733 F. Supp. 2d 1117 (C.D. Cal. 2010)).

But the court rejected plaintiff's claim that the statement "Healthy, Sustained Energy" on the product labels was misleading, reasoning that "the term 'healthy' is difficult to define and Plaintiff has not alleged that the drink contains unhealthy amounts of fat, saturated fat, or calories from fat, compared to its protein content, based on any objective criteria."  Slip op. at 13-14.  Plaintiffs had compared the fat content of defendants' products to Krispy Kreme donuts.  But the court held that this was unhelpful because plaintiff did not "explain how much protein, vitamins and minerals are in such a doughnut or posit an objectively healthy ratio of protein to fat.  Slip op. at 14.  With respect to the snack bars, plaintiff had also alleged that "healthy" was deceptive because it did not disclose that the bars contain saturated fats, fractionated palm kernel oil, and partially hydrogenated palm oil.  The court rejected this, stating that plaintiff did not allege that these fats were trans fats.

Looking at the advertising, the court rejected plaintiffs' claim based on the following statements, which it concluded were non-actionable puffery: 

Go from cover it up to take it off.

From invisible to OMG!

From frumpy to fabulous.

Slip op. at 14.

And in analyzing the website, the court considered this statement:  "Ready-to-Drink is an ideal nutritional choice [if] you are . . . on a diet."  The court concluded that this, too, is puffery:  "The word 'ideal' is vague, highly subjective, and non-actionable, like 'superb, uncompromising quality,' addressed in Oesteicher v. Alienware Corp., 544 F. Supp. 2d 964, 973 (N.D. Cal. 2008), and 'high performance' and 'top of the line,' addressed in Brothers v. Hewlett-Packard Co., 2006 WL 3093685, at *4-*5 (N.D. Cal. 2006)."  Slip op. at 15.

Thus, after all of the statements challenged by plaintiffs, the court concluded:

the sole cognizable misrepresentation that Plaintiff has plead is the 'healthy fats' statement on the fourteen ounce Muscle Milk RTD container, buttressed by the 'nutritious snack' statement.

Id.

These decisions -- particularly coming, as they do, from the People's Republic of California -- provide some encouragement that courts are becoming increasingly comfortable with excluding challenged representations as non-actionable as a matter of law where they are puffery or could not be reasonably relied upon by a reasonable consumer to produce an injury.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Sixth Circuit recently affirmed dismissal of a putative class action against a car rental company based on the voluntary payment doctrine.  See Salling v. Budget Rent-A-Car Sys., Inc., No. 10-3998, Slip op. (6th Cir. Feb. 29, 2012).

In Salling, Plaintiff challenged Budget's EZ FUEL fee.  Under the rental contract, Budget will charge you the EZ FUEL fee (a flat, $!3.99 fee) for gas if you have driven the car less than 75 miles.  To avoid having the fee charged, you have to fill the tank with gas and provide a receipt.  The receipt requirement makes sense, since the amount of gas used on short trips may not be visible from looking at the gas gauge.  

Plaintiff objected to paying the fee when he returned his car.  But he apparently did not have his gas receipt with him.  Ultimately, he paid the fee, receiving a receipt that broke out the EZ FUEL fee that he disputed.  He then filed a class action against Budget.  Budget removed it to federal court and moved to dismiss based on the voluntary payment doctrine.  The trial court granted the motion, and Plaintiff appealed.

The Sixth Circuit first examined its jurisdiction, It observed that Budget bore the burden of proof on the jurisdiction question, but held that it met its burden with a spreadsheet that listed more than 1 million renters who drove less than 75 miles, were charged the EZ FUEL fee, and had a fuel gauge reading of "full" upon return of the car.  The spreadsheet indicated that Budget collected $11.2 million from those drivers.  This was enough to satisfy CAFA's pre-requisites. 

The court then turned to the voluntary payment doctrine, finding that it is recognized by Ohio law.  The doctrine is best described in this way:  "money voluntarily paid by one person to another on a claim of right to such payment, cannot be recovered merely because the person who made the payment mistook the law as to his ability to pay."  Slip op. at 5.  The court noted that the Plaintiff had paid the fee in anticipation of filing suit, and held that the payment was voluntary.  It explained that a payment that is made on a disputed construction of a contract term is not made under a mistake of fact, but rather under a mistake of law.  Although a payment made under a mistake of fact might be recoverable, a payment made under a mistake of law is still voluntary and cannot be reversed.  Slip op. at 6.

A little over a year ago I had written about an opinion from the Seventh Circuit written by none other than Justice Sandra Day O'Connor, which applied the "voluntary payment doctrine" with even more discussion.  That opinion, along with the Sixth Circuit's opinion in Salling, reiterate that the voluntary payment doctrine is alive and well as a defense in consumer class action litigation.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Small plate #3:  Retailer's Extended Warranty/Service Agreements

I'm tickled pink (pun intended) to report a decision out of the People's Republic of Minnesota that actually enforces the terms of a contract and uses them as a defense to an unfair competition claim.  Really.  See Baker v. Best Buy Stores, LP, 2012 WL 539196 (Minn. Ct. App. Feb. 21, 2012).

In Baker, plaintiff bought a TV that had a one-year manufacturer's warranty.  In addition, she bought Best Buy's four-year service contract.  The service contract provided that if the TV failed during the duration of the contract, Best Buy would either repair or, at its discretion, replace the TV.  In the next paragraph, it provided that "[o]ur obligations under this Plan will be fulfilled in their entirety if we replace your product."  Again, in the "Limits of Liability" paragraph, the contract provided that "[i]n the event . . . we replace the product, we shall have satisfied all obligations under the Plan."

Plaintiff's TV stopped working nearly two years after purchase.  Best Buy took the return and determined that it could not or should not be repaired, so Best Buy replaced the TV with a comparable model.  It also told plaintiff that the service contract did not cover this new TV, and encouraged her to buy a new four-year service contract, which she did.  Then, she sued, claiming that she originally had bought a TV with four years of service, and thus she should not be robbed of two years of service just because she returned the TV because it failed to work properly.

The court failed to credit plaintiff's argument and affirmed the trial court's decision in favor of Best Buy:

[A]ppellants purchased a television set and a service contract from Best Buy.  The set subsequently malfunctioned after the expiration of the manufacturer's warranty, and Best Buy replaced it pursuant to the terms of the contract.  Although the service contract was purchased for a four-year term, the plain language of the contract contains specific language limiting the length of the contract if certain events occur.  This unambiguous language provided that the service contract is fulfilled if the television is replaced.  The district court correctly concluded that appellants received the benefit of the bargain with Best Buy.

Slip op. at 3.  The court rejected plaintiff's argument that the contract was really one for insurance, rather than a service contract.  And it rejected the notion that the contract was unfair because it gave Best Buy sole discretion to terminate the contract by providing a new TV.  As the court observed, that was the exact bargain spelled out in the contract, and the plaintiff agreed to its terms by signing the contract.

Plaintiffs then argued that the service contract was fraudulent and deceptive under Minnesota's Consumer Fraud Act and its False Statements in Advertising Act.  The court rejected these claims as well, primarily for the reasons stated in its "breach of contract" section of the opinion, and because of plaintiff's failure to identify with particularity a single advertisement that she claimed was false and misleading.  Slip op. at 4-5.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Ninth Circuit issued an important opinion last Thursday, holding that an Unfair Competition Law class action cannot be premised on a so-called "duty" to disclose that a product might cease to perform after the expiration of the limited warranty.  See Wilson v. Hewlett-Packard Co., No. 10-16249 (9th Cir. Feb. 16, 2012).

In Wilson the plaintiff alleged that certain of the defendant's notebook computers have a "defect" in the design of the powerjack that causes them to fail after the expiration of the two-year limited warranty.  Plaintiff argued that the "useful life" of the computer is much longer than two years, and that the manufacturer had a duty to disclose the fact that the powerjack had an increased tendency to fail within this "useful life," and that the manufacturer violated the UCL and the Consumer Legal Remedies Act ("CLRA") by "concealing" that fact.

Plaintiff alleged that HP violated the CLRA by "representing that goods or services have . . . characteristics . . . which they do not have," and "representing that goods or services are of a particular standard, quality, or grade" that they are not.  Slip op. at 1827.

The Ninth Circuit's opinion is a strong affirmation of the basic principle that if you are warranting a product for a period of time, you have no duty to disclose -- and thus cannot be liable for "concealing" -- information about product difficulties that may arise after the warranty period has expired (unless they present significant health or safety concerns).  As the court explained:

California courts have generally rejected a broad obligation to disclose, adopting instead the standard enumerated by the California Court of Appeal in Daugherty v. American Honda Motor Co., 144 Cal. App. 4th 824 (Ct. App. 2006).  Daugherty held that a manufacturer is not liable for a fraudulent omission concerning a latent defect under the CLRA, unless the omission is "contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose."  The Daugherty court found the plaintiff alleged no facts that the manufacturer was "bound to disclose," as the complaint did not allege "any instance of physical injury or any safety concerns posed by the defect."  The court noted that the plaintiff merely alleged that the risk posed by the alleged defect was the cost to repair the product, which did not give rise to a duty to disclose.  Consequently, the court also rejected plaintiff's UCL claim, since absent a duty to disclose, the failure to disclose a defect "that might, or might not" shorten the useful life of a car that "functions precisely as warranted throughout the term of its express warranty" is not an unfair or fraudulent business practice under the UCL.

California federal courts have generally interpreted Daugherty as holding that "[a] manufacturer's duty to consumers is limited to its warranty obligations absent either an affirmative misrepresentation or a safety issue."

Courts have also cited policy considerations to limit the duty to disclose, noting that to broaden the duty to disclose beyond safety concerns "would eliminate term limits on warranties, effectively making them perpetual or at least for the 'useful life' of the product."  Under a contrary rule, as the Court of Appeal noted in Daugherty, the "[f]ailure of a product to last forever would become a 'defect,' a manufacturer would no longer be able to issue limited warranties, and product defect litigation would become as widespread as manufacturing itself."

Slip op. at 1827-29 (citations omitted).

The Ninth Circuit went on to analyze whether plaintiffs had pled the existence of an unreasonable safety defect, holding that they had not.  Plaintiffs' second amended complaint had considerable detail about the alleged defect:  that the powerjack, over time, would lose the solder on the pins connecting it to the motherboard, causing it to stop delivering power to the motherboard.  The complaint also pled that some users had experienced severe overheating and fires with the computers.  What the complaint did not do, however, was connect the alleged design defect to the fires in any way.  Slip op. at 1834 ("As Plaintiffs do not plead any facts indicating how the alleged design defect, i.e., the loss of the connection between the power jack and the motherboard, causes the Laptops to burst into flames, the District Court did not err in finding that Plaintiffs failed to plausibly allege the existence of an unreasonable safety defect.").

The Ninth Circuit also noted that knowledge and intent were elements of plaintiffs' causes of action, and it held that plaintiffs had failed to adequately allege that HP had knowledge of the alleged safety condition.  Slip op. at 1835.  The mere fact alone that HP had access to aggregate information about product performance did not, according to the Ninth Circuit, establish the knowledge element.  Of itself, it was far too speculative.  Similarly, the fact that some customers had registered complaints about overheating was not enough to establish knowledge of a defect.  The complaints merely established that some customers were complaining, and "[b]y themselves they are insufficient to show that [the manufacturer] had knowledge [of the defect]."  Slip op. at 1839 (citation omitted).

Wilson is a strong decision that defendants should have in their armamentarium when faced with class actions alleging unmanifested defects.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Have you ever tried to pound a square peg into a round hole?  See Wenger v. Cardo Windows, Inc., 2012 WL 280254 (N.J. Super. -- App. Div. Jan. 31, 2012).

In Wenger, plaintiffs received a postcard advertising the sale of replacement windows for their home.  They called and set up an appointment.  A salesman visited and, at the conclusion of his presentation, plaintiffs signed a Purchase agreement for 20 windows at $10,700.  They also signed a financing document to finance the cost over 60 months.  They also received a Notice of Cancellation, which would allow them to cancel the order.

Plaintiffs reflected on the deal and signed and submitted the Notice of Cancellation.  The seller wouldn't take "no" for an answer.  It reduced the price and had plaintiffs sign some more forms.  Plaintiffs then spoke to their roofing contractor, who said they needed single-unit bay windows that would be secured from the sides, not the top and bottom.  The defendant wouldn't do that.  So once again plaintiffs canceled the order. 

The defendants sued plaintiffs in small claims court for $3,000.  Plaintiffs brought a class action in New Jersey state court.  Initially, the trial court dismissed claims under New Jersey's Consumer Fraud Act, Contractor's Registration Act, and Home Improvement Practices regulations, and the appellate division affirmed.  But the appellate division had instructed the trial court to reconsider its dismissal of the claims under New Jersey's Door-to-Door Home Repairs Sales Act, Home Repair Financing Act, and Truth-in-Consumer Contract Warranty and Notice Act, as well as the FTC's "Cooling Off Rule."  On remand, the trial court granted class certification on those causes of action.  The appellate division refused to take the appeal, but the New Jersey Supremes instructed the court to do so.  And so the appellate division came to consider whether class certification was proper.

The defendant had numerous arguments for why there was no commonality or predominance, and why plaintiffs failed the typicality and adequacy of representation tests.  Simply put, plaintiffs were unlike most class members because they never paid any money or received any windows.  There were numerous oral interactions, in addition to the paperwork.  And there was the dispute on the type of windows plaintiffs needed.

The appellate division didn't care.  It kept claiming that the case was about the forms that were signed and whether or not those complied with the statutes.  The forms were the same, it reasoned, and thus the class could be certified.  The court never discussed the commonality standard of Wal-Mart v. Dukes.

The defendant argued that the class action was not superior, since there was no Consumer Fraud Act claim and no class member could recover any actual damages; rather, the most they could recover would be $100 statutory damages.  As such, the binding effect of the class judgment could harm class members with actual damages.  The appellate division swatted this concern away with the observation that class members with actual damages could opt out and the maxim that class actions provide a useful mechanism for the recovery of low-dollar claims.

Interestingly, no one appeared to challenge the class definition itself, which was:  "All person who . . . received a transaction document from Defendants the same or similar to the transaction documents given to Plaintiffs."

It will be interesting to see what, if anything, the New Jersey Supreme Court does with this case.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I'll admit to being a bit of an idealist.  (You're shocked, SHOCKED, at that admission, no doubt.) 

I understand that one often may not be able to win in a particular trial court, regardless of how right one is on the law or the facts.  But I generally believe in the power of a well-written appeal to right such wrongs.  And personally, I'd rather spend my money establishing that I am right on the law than spend the same amount settling and sweeping a bad decision under the rug.  In my experience, hard-fought appellate victories pay future dividends as opponents (and potential opponents) understand your values and level of commitment.

And yet, when confronted with a completely BS case that no real human being cares about, and a bad decision that -- while clearly contrary to governing law -- could be effectively erased for not a lot of money, it's understandable that many corporate defendants would elect to quickly end the litigation and return to the business of selling their product.

Except that that rewards those who file BS cases, which really sticks in my craw. 

Like I said, I'm an idealist.

Regular readers of my blog know that I think the Nutella litigation is just that:  nuts.  The ingredients for the delicious product are disclosed right on the label.  The stuff even tastes cloyingly sweet, for Pete's sake!  The idea that a parent could say with a straight face -- let alone under oath -- that she did not know the product contained lots of sugar and oils and Nutella's manufacturer somehow hid that fact from her is patently ridiculous.  Read the Nutrition Facts on the label!  And frankly, anything that a parent can use to get a kid to sit down and actually have breakfast in the morning is a good thing.

Different law firms had filed competing Nutella class actions in New Jersey and California.  The Judicial Panel on Multidistrict Litigation refused to consolidate them into an MDL, which I posted about.  I even noted that the California federal court refused to dismiss the complaint.  The legal competition in the competing cases was fierce; the plaintiffs from California unsuccessfully sought to intervene in the New Jersey action -- twice -- for the sole purpose of moving to dismiss it.  I was especially unhappy to report that the California court had seen fit to certify a class around Thanksgiving, as I knew that the handwriting probably was on the wall.  The defendant subsequently agreed to a nationwide settlement of the New Jersey actions.

On January 10, class counsel in the New Jersey action moved for preliminary approval of a nationwide class action settlement that would enjoin the defendant from describing Nutella as part of a nutritious breakfast, require the defendant to make certain "disclosures" on its label and website, and establish a settlement fund of $2.5 million that would not revert to the defendant.

This is how you know that no one really believes there was mass deception involving Nutella:  claimants can submit claims for cash reimbursements for up to 5 jars of Nutella at $4 per jar (or a total of $20), and yet they clearly don't expect even $2.5 million in claims.  Indeed, the settlement fund is supposed to pay for claim administration and part of the attorneys' fees!  And if the claims exceed the fund, they will be reduced on a pro rata basis.

And let's look at the attorneys' fees, shall we?  According to class counsel's brief, while the class gets only part of the $2.5 million settlement fund and some meaningless injunctive relief ("meaningless" because no one was ever really deceived in the first place), the attorneys get two things:  (1) up to $3,000,000 from the defendant and its insurers, and (2) up to 30% of the settlement fund (or $750,000) as attorneys' fees plus reimbursement of expenses from the settlement fund.  That's not bad compensation for the attorneys, when you consider that the "case has been pending for approximately one year" and "is in an early stage of the litigation," according to class counsel's brief.  Apparently class counsel has reviewed 53,000 pages of documents produced by the defendant and taken 2 depositions.  At nearly $4 million, that's nice work, if you can get it -- particularly where the class itself actually stands to gain less than $2 million.

As I said before, I fully understand why one might agree to settle a truly BS claim like the ones in Nutella with just such a settlement.  In many respects, it makes a whole lot of sense.

But it still sticks in my craw.

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

As a kid, I was a huge fan of Carnac the Magnificent on Johnny Carson's Tonight Show.  In this first post of the new year, I thought I would channel my inner Carnac to make some predictions about what we can expect in the field of consumer class actions and mass torts in 2012.

1.  Wal-Mart v. Dukes will have tremendous impact on consumer class actions and mass torts.  Despite plaintiffs' attempts to limit the opinion solely to employment discrimination cases, the actual holdings in Dukes go to the fundamental core of class actions.  A unanimous Court said you can't deprive a defendant of its substantive right to challenge the elements of individual class members' claims just to make it easier to have a class.  Similarly, a unanimous Court strongly suggested -- even if the 8th Circuit didn't get it -- that Daubert rules matter at the class cert stage.  And a unanimous Court rejected the use of "trial by formula" rather than proof of actual damages.  These holdings are just as important -- if not moreso -- as the Court's articulation of the commonality standard, and you will begin to see the impact of these Dukes holdings in consumer class action cases this year.

2.  So many courts -- primarily in California -- have struggled to get around the clear preemption analysis in AT&T Mobility v. Concepcion that the U.S. Supreme Court is going to have to take up the issue of class arbitration waivers again.  It may not happen by the end of 2012, but too many courts have shot the bird to the Supremes since Concepcion.  Some argue that the decision does not apply to a particular cause of action under a state statute.  Others just find the whole arbitration provision containing a class action waiver void as against public policy.  But the simple fact is that it is nearly impossible to square these opinions with the very clear preemption analysis in Concepcion, and in the right case, the Court is going to have to issue certiorari to say that it really meant what it said.

3.  Courts may struggle for the right standard by which to judge personal jurisdiction, but plain ole stream-of-commerce theory is dead.  A majority of justices made that much plain in J. McIntyre Machinery, Ltd. v. Nicastro, 131 S. Ct. 2780 (2011).  They just couldn't agree on a new standard.  But we know there must be some purposeful availment in addition to mere awareness that the product might reach the forum.  I believe most courts that find jurisdiction will rely on web presence in the forum as the "plus" factor that shows purposeful availment of the forum's laws.

4.  Prescription medicine plaintiffs will continue to cast their plain old failure to warn claims as "design defect" claims to try to get around the clear bar of the learned intermediary doctrine.  Hopefully, most courts will continue to recognize that medicines are unavoidably unsafe products for which you cannot have a design defect claim.  Indeed, you can't even propose a feasible alternative design, because to do so is to change the product into something else!

5.  Global warming lawsuits seeking to foist on certain industries humanity's collective responsibility for climate change will continue, but the defenses of standing, remoteness, proximate cause and the political question doctrine will continue to be strong defenses.  Because the Supremes dealt only with federal law issues in American Electric Power Co. v. Connecticut, 131 S. Ct. 2527 (2011), courts will still have to work these issues out as matters of state law.  We can expect plaintiffs to win at least one of these cases at a trial court level.  But the sheer magnitude of how far they are attempting to stretch state law should cause appellate courts to be more circumspect.

6.  Product sellers from tobacco to telephones will continue to vigorously defend their commercial speech rights under the First Amendment.  Appellate courts will grapple with these sellers' rights to not be forced to convey government messages about their products where there are other, less intrusive means of achieving the government's purpose.

7.  Plaintiffs will attempt to circumvent the federal preemption for generic medicines recognized in Pliva, Inc. v. Mensing, 131 S. Ct. 2567 (2011), by trying to describe various claims -- such as express warranty claims -- as enforcing voluntarily adopted standards, rather than imposing state law requirements that conflict with federal law.  Plaintiffs will be hard-pressed to succeed on such dubious claims for at least two reasons.  First, the statements they point to will be consistent with what FDA has approved for the label, making plaintiffs' claims conflict with federal law.  And second, it will be very difficult to find statements that were actually material and became part of the basis of the bargain.

8.  The food and beverage industries are going to continue to be a primary target for consumer fraud claims.  Often these suits are fueled by health claims in advertising or on the label.  But increasingly such suits are being brought based on an ingredient in the product.  Although FDA has balked at issuing regulations that fully define when products may be labeled "natural," it has begun enforcement actions against products that use the term and contain synthetic preservatives or other synthetic ingredients.  Expect more of such consumer fraud class actions in 2012.

9.  Although class action suits over head injuries in professional football players may capture the imagination of sports writers and the public, the fact remains that class actions for personal injuries are almost never certified because the individualized issues regarding each class member's alleged injury, causation, and damages predominate over any common issues.  Don't expect 2012 to bring a big class action payday for professional footballers who allege concussion-related harm.

10.  The U.S. Supreme Court's majority and dissenting opinions in Kiobel v. Royal Dutch Petroleum, No. 10-1491, are going to be fascinating reading.  Kiobel, of course, raises the issue of whether legally fictitious entities -- corporations, rather than individuals or Nation-States -- can be sued under the Alien Tort Statute, which dates back to 1789.  The Second Circuit -- looking around the globe to foreign legal precedents -- held that corporations were not subject to ATS suits.  One may imagine that certain Justices who might concur in that result might bristle at relying on foreign legal precedents to get there.  While I'm willing to bet that the result in Kiobel is affirmed, I'll honestly admit that I can't predict what the opinion(s) will look like in reaching that result.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

District Judge Dennis M. Cavanaugh recently issued an opinion in a consumer warranty class action that provides a good illustration of basic principles of warranty law.  In Suddreth v. Mercedes-Benz, LLC, Civ. A. No. 10-CV-05130 (DMC-JAD), Slip op. (D.N.J. Oct. 31, 2011), the plaintiffs -- owners of 2006 Mercedes ML 350 cars -- brought a putative class action against Mercedes, claiming that their soccer mom cars were defective because the balance shaft gear had a tendency to wear out prematurely, causing the "check engine" light to illuminate and the car to misfire or stop running.  Mercedes had issued a technical service bulletin about the problem in 2007, and it changed the design of its engine in 2009.  

Mercedes moved to dismiss the lawsuit, and Judge Cavanaugh ultimately granted the motion.

Mercedes moved to dismiss the express warranty cause of action on the ground that the failures in plaintiffs' vehicles occurred outside of the 4-year/50,000 mile warranty.  Plaintiffs argued that the "defect" was latent in the vehicle during the warranty period, but the court noted that "[c]ourts have consistently rejected claims that a latent defect was present in a vehicle from the date of manufacture, when that defect did not manifest itself until outside of the warranty period."  Slip op. at 6 (citations omitted). 

Plaintiffs also argued that the warranty was unconscionable because it did not cover the expected useful life of the balance shaft gear.  The court rejected that argument, too.  It noted that merely knowing that a product might fail after the expiration of the warranty is not enough to make a limited warranty unconscionable.  Slip op. at 7.  Moreover, plaintiffs' use of their vehicles during the warranty period without failure simply cannot be classified as "nominal" use of the product.  Slip op. at 8.

As for the breach of implied warranty claim, the court focused on the fact that plaintiffs drove their cars for the full warranty period without incident:  "It is simply not plausible that a motor vehicle could be classified as not merchantable when it has been used for its intended purpose for 4 years and 50,000 miles."  Slip op. at 9.

Plaintiffs also had sued under various state consumer fraud statutes, arguing that Mercedes's failure to disclose these "known" defects was an unfair practice that violated the statute.  The court, analyzing the New Jersey Consumer Fraud Act, noted that where an allegedly defective product is alleged to have been under warranty, a claim for a defect that manifests after the warranty period cannot establish liability under the NJCFA unless "the manufacturer knew with certainty that the product at issue or one of its components was going to fail."  Slip op. at 10.  Because Mercedes had no certainty that the gear would fail, there was no liability under the NJCFA.  As for the other states' statutes, the court also relied on the fact that there was no evidence that Mercedes knew the gear's propensity to fail until after it had sold the cars.  It also held that the Massachusetts plaintiff's failure to provide statutory notice defeated his claim.

The court also dismissed claims for strict liability and negligence, relying on the economic loss doctrine.  Slip op. at 11.  And it dismissed the unjust enrichment claim, noting that the failure of the other causes of action that had alleged wrongful conduct meant that the unjust enrichment claim must be dismissed as well.

The decision in Suddreth makes it very clear that when you buy a product under a limited warranty and the product performs for the full life of the warranty, you have no cause of action if it subsequently requires repair.  No amount of creative lawyering about "latent defects" that allegedly existed "unmanifested" during the warranty period should change this basic fact.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

What is it about the People's Republic of California that makes one feel as if everything he learned in law school is exactly wrong? 

Get this:  a guy walks into a car dealership.  He buys a used car -- A USED MERCEDES BENZ WORTH NEARLY $50,000 -- AND HE DOESN'T READ THE CONTRACT!!!!!  The contract has an arbitration provision.  It's at the end of the contract -- where you'd expect an arbitration provision to be, since you'd logically discuss all of the contract terms and required performances first, before discussing what happens if the whole deal breaks down.  It isn't in 16-point type, but it's in a box entitled "ARBITRATION CLAUSE" and captioned with the admonition to "PLEASE REVIEW -- IMPORTANT -- AFFECTS YOUR LEGAL RIGHTS."  And remember, it's a guy who doesn't care enough about his $50,000 purchase to even read the contract.  Absent something extraordinarily awful in the substance of the arbitration provision, those of you who didn't sleep through first year contracts class would assume that the arbitration provision would be enforceable, right?

Not in the PRC, my friend!  California's Second District Court of Appeal just issued an opinion holding that such an arbitration provision was procedurally unconscionable.  Why?  Well, first because it was a contract of adhesion:  the poor fellow spending $50,000 wasn't allowed to negotiate the terms of the clause he didn't read, and it wasn't clear that he could go elsewhere and spend $50,000 on a used (er, "pre-owned") car with a dealer who wouldn't also insist on an arbitration clause.  (No, I'm not twisted enough to make this stuff up.)  Second, the clause's location on the back page of the contract made it unnoticeable to the guy who didn't bother reading the contract in the first place.  See Sanchez v. Valencia Holding Company, 2011 WL 5027488 (Cal. App. 2d Dist. Oct. 24, 2011).

I suppose if you're a used (er, "pre-owned") car dealer in California after Sanchez, you should put your arbitration provision on the front page of the contract, hold a gun to your customer's head while he reads it, and then offer him the option of paying $10,000 more for the car if he wants it without an arbitration provision.

Was Sanchez really just a nutty opinion, or was there something else going on?  Well, earlier this year the US Supreme Court decided AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), in which it held that the PRC could not invalidate class action waivers as a condition to enforcing arbitration provisions.  The Supreme Court stressed enforcing the parties' agreement as written, and if the defendant had not agreed to arbitrate a class action, the PRC could not force it to.

The arbitration clause at issue in Sanchez had a class action waiver provision.  In fact, that provision said that if the class action waiver was held to be unenforceable, the whole arbitration provision was unenforceable.  That's hardly unreasonable for a defendant that wanted to make clear it was not consenting to adjudicating class actions through the arbitration process.

The trial court had held that the class action waiver was unenforceable under California law and, based on this "poison pill" provision, refused to enforce the arbitration clause.  Subsequently, Concepcion came down, making the class action waiver enforceable.  

The Court of Appeal in Sanchez refused to consider whether the class action waiver was enforceable.  Instead, it skinned the cat a different way, by declaring the entire arbitration provision to be unconscionable, thus allowing for a potential class action to proceed in state court.

Aside from "procedural unconscionability," the court in Sanchez also identified four ways in which the arbitration provision was purportedly "substantively unconscionable."

First, the court found unconscionable the provision that allowed for either party to appeal if the award was $0 or over $100,000.  Despite the fact that this provision, as drafted, would benefit a customer who recovered nothing, the court held that it really benefitted the seller unfairly.  Remember, of course, that the used (er, "pre-owned") car was worth a little less than $50,000.  So the $100,000 threshold was more than two times the value of the car.  Nevertheless, the court (citing cases that had thresholds of $25,000 and $50,000) held that the clause was unconscionable because the dealer's obligations under various consumer laws could lead to awards well in excess of $100,000.  "A truly bilateral clause would allow a buyer to appeal an award below $100,000," the court concluded.

Second, the court held that it was unconscionably one-sided to allow an appeal if the arbitrator issued an award containing injunctive relief, since injunctive relief likely would only be issued against the dealer. 

Of course, the third independent reason the court held the arbitration provision substantively unconscionable was that it preserved and exempted from arbitration the dealer's -- and only the dealer's -- self-help remedies, such as repossessing the car.  "As several courts have held, arbitration provisions are unconscionable if they provide for the arbitration of claims most likely to be brought by the weaker party but exempt from arbitration claims most likely to be filed by the stronger party," the court reasoned.

Reasons two and three, however, leave the dealer on the horns of a dilemma.  If it can't use self-help to preserve the status quo (and the car itself), then it may well need to seek preliminary injunctive relief in arbitration to do so.  That, of course, would make the appeal rights truly two-sided.  But the court did not consider this, and was unwilling to invalidate just one provision, like the self-help provision.

Fourth, the court found the fee clauses in the appeal provision to unfairly benefit the dealer.  The arbitration provision allowed either party to seek an appeal to a three-arbitrator panel if it recovered nothing.  "The appealing party requesting a new arbitration shall be responsible for the filing fee and other arbitration costs subject to a final determination by the arbitrators of a fair apportionment of costs."  The Sanchez court noted that under California's Consumer Legal Remedies Act, a consumer does not have to pay arbitration costs or fees that she cannot afford or that are prohibitively high.  It held that having the appealing party -- who may be the consumer -- advance both side's costs violated this provision, in part because there was no procedure in place for the party to challenge his ability to pay.

The court refused to simply strike those clauses it found unconscionable; rather, it held the entire arbitration agreement to be unconscionable.  In doing so, it achieved the same result as the trial court, which had been effectively overruled by the US Supreme Court in Concepcion.

After Concepcion, many journalists and commentators questioned whether that decision spelled the end of consumer class actions.  Sanchez suggests that -- at least in California -- it may not.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I'm always on the lookout for new sources of consolidated information on a subject.  I trust that you are, too.  That's why I wanted to share with you a site I recently was turned on to that is an excellent resource for news and materials relating to food litigation.  The folks at the Washington Legal Foundation have established a separate site called Eating Away Our Freedoms that is designed to provide news and analysis on the multi-pronged assault currently being waged on the food and beverage industries.  It covers news and legal developments very well.  It also does a fine job of deconstructing the public relations campaign that activists have undertaken to demonize these industries and limit Americans' food and beverage options.  I encourage you to pay the site a visit.  You'll be glad you did.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

What exactly is it about food products litigation that brings out plaintiffs' lawyers' claws?  Today we have two decisions rendered on the same day that address a fight between competing law firms to control putative class actions in food litigation.

The first is Glover v. Ferrero USA, Inc., 2011 WL 5007805 (D.N.J. Oct. 20, 2011).  It involves various class actions alleging that the maker of Nutella -- a delicious hazelnut spread -- fraudulently markets the product as healthy when, in fact, it is not.

What we'll call "Group 1" of plaintiffs' lawyers filed two putative nationwide Nutella class actions in California .  What we'll call "Group 2" of plaintiffs' lawyers filed a similar putative nationwide Nutella class action in New Jersey three weeks later, and subsequently filed in New Jersey yet another putative nationwide class action.

Group 1 and Group 2 proceeded to fight like cats in a gunny sack over who would control the litigation.  Group 2 filed a motion with the Joint Panel on Multidistrict Litigation to have the cases transferred into an MDL based in New Jersey.  The JPML denied the request. 

Group 1 then launched an assault on Group 2, filing a motion to have its plaintiffs intervene in the New Jersey actions for the purpose of filing a motion to dismiss them under the "first filed" rule, which is the basic principle that in cases of concurrent federal jurisdiction, the court that has first possession of a subject must decide it.

In analyzing Group 1's motion to intervene, the court applied the four factors applicable to intervention as of right under Rule 24(a)(2):

first, a timely application for leave to intervene; second, a sufficient interest in the litigation; third, a threat that the interest will be impaired or affected, as a practical matter, by the disposition of the action; and fourth, inadequate representation of the prospective intervenor's interest by existing parties to the litigation.

2011 WL 5007805 at *2.

Although the court found the intervention motion to be timely, it held that Group 1 did not have sufficient interest in the litigation that merited protecting.  The court explained that a mere economic interest in the litigation is insufficient to support a motion to intervene as of right, and thus the mere fact that the lawsuit may impede the proposed intervenor's right to recover in a separate suit ordinarily does not support intervention.  More important, the interest expressed by the proposed intervenors was not an interest in participating in the New Jersey case; rather, it was an interest in shutting it down under the first filed rule.  The court reasoned that the first-filed rule was inapplicable, in large part because the actions were not duplicative.  Group 1's California actions sought to represent a class that stretched back to the year 2000, and it sought to apply only California law and statutes to the class claims.  Group 2's New Jersey actions, by contrast, represented purchasers from 2008 to the present, and sought to apply New Jersey law and statutes to the nationwide class.  Thus, the class periods and the claims were different.  (The court noted in a footnote that it was unlikely indeed that California law would be applied to the nationwide class, as the defendant had no connection to that forum.  It was, however, a resident of New Jersey.)

The court also observed that by denying intervention, it wasn't affecting Group 1's ability to litigate the California action.  No class had been certified in either forum, and there was much litigating to be done -- including over choice of law -- before either set of plaintiffs could be deemed to represent anyone other than themselves.

The court proceeded to consider whether to allow discretionary intervention under Rule 24(b)(1)(B).  For the same reasons that it denied intervention as of right, it denied discretionary intervention.

The second opinion to consider the issue is Askin v. The Quaker Oats Company, 2011 WL 5008524 (N.D. Ill. Oct. 20, 2011).  This case involved various putative class actions alleging that Quaker's marketing of its granola and oatmeal products as "heart healthy" was fraudulent because their ingredients contain trans fats. 

This litigation was even more hard-fought than Nutella.  Here, what we'll call "Group A" of plaintiffs' lawyers filed three sets of putative nationwide class actions in California.  After the third filing, the plaintiffs moved to consolidate and appoint their counsel as interim class counsel.  One of the plaintiffs, however, substituted in a new firm, which we'll call "Group B."  Group B filed a copycat class action in Illinois, and then within a week filed a petition with the JPML seeking to consolidate and transfer the actions to Illinois.  The JPML denied the petition.

Immediately thereafter, Group A sought to consolidate all of the California cases before the same judge and have themselves appointed interim class counsel.  Group B opposed and sought appointment as interim class counsel.  Group A won its motion in California, and Group B then amended its complaint in Illinois to include "allegations that are partly copied from the California consolidated complaint."  The defendant, Quaker Oats, moved to dismiss the Illinois action under the first-to-file rule and for plaintiff's lack of standing.  Group A sought to intervene in the Illinois action to assert its own motion to dismiss under the first-to-file rule.

The district court -- like the New Jersey district court in the Nutella litigation -- applied the four factors to conclude that Group A did not meet the prerequisites for intervention as of right.  The Group A plaintiffs argued that they would be harmed in their California litigation by the stare decisis effect of any decision by the Illinois court.  The court, reviewing precedents, held that this was not enough to justify intervention as of right:

That is because 'the opinion of a single district judge rarely yields an effect broader than the force its reasoning carries,' and that reason is not enough to justify 'adding as parties all who might be concerned about the court's choice of words.'  Thus in a situation where a proposed party 'has nothing to contribute except legal argument,' concerns about stare decisis do not rise to the standard of Rule 24(a)(2).

2011 WL 5008524 at *4 (citations omitted); see also id. ("their interest in avoiding the possible stare decisis effect in California of decisions related to the first-to-file question here does not have sufficient teeth to meet the Rule 24(a) standard for intervention as of right").

The court also considered and rejected Group A's interest in retaining its role as interim class counsel:  "But the Guttmann plaintiffs have not cited any cases in which a law firm's interest in protecting its role as interim class counsel is characterized as the kind of 'direct, significant, legally protectable' interest required to justify intervention as of right."  Id. at *5.

Nevertheless, the court decided to exercise its discretion to allow Group A to intervene under Rule 24(b)(1)(B).  In support of this decision, the court noted that it already had pending the defendant's motion to dismiss in favor of the first-filed rule.  Because it was not fully briefed, allowing intervention and giving the Group B plaintiffs the opportunity to file a consolidated response would not delay the proceedings.  Moreover, the court reasoned that the absent class members should not have to rely on the defendant to make the first-filed argument for them.

Glover and Askin are instructive because they demonstrate just how much effort competing plaintiffs' firms put into trying to obtain (and retain) control of class action litigation, even in (or perhaps especially in?) dubious cases that involve significant defenses and choice-of-law issues. 

A question for my readers:  In your experience, are intervention motions becoming commonplace in competing class actions?

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

Food companies increasingly are being hit with claims about their labeling.  "You may have included this particular ingredient on your label, and you may have accurately reported how much of it is in your product," plaintiffs' counsel seem to be saying, "but we want you to pay us huge sums of money because you didn't tell us where the ingredient came from."  Diplomatically speaking, such claims are horse puckey.

That's why it's fitting that Judge Posner's recent decision affirming dismissal of such a claim came in a suit about fiber.  See Turek v. General Mills, Inc., No. 10-3267, Slip op. (7th Cir. October 17, 2011).  In Turek, plaintiff sued the makers of certain brands of "chewy bars," including Kellogg's chocolate-chip chewy bar called "Fiber Plus."  The Nutrition Facts on the package discloses that a serving contains 9 grams of dietary fiber, and that this is 35% of a person's Daily Value of dietary fiber.  The front of the package touts, "35% of your daily fiber."  

The fiber in these chocolate chip chewy bars is inulin that has been extracted from chicory root.  In fact, it's listed that way in the ingredients right on the Nutrition Facts on the label.  Plaintiff claimed that such fiber is somehow inferior to the unprocessed fiber found in bananas, onions, leeks, Jerusalem artichokes and other veggies.  She alleged that it causes some people to have stomach problems and can be harmful to women who are pregnant or breast feeding.  And thus plaintiff sued under the Illinois Consumer Fraud and Deceptive Practices Act, alleging that the Act is violated and consumers are defrauded by the defendants' failure to disclose that the inulin is not "natural," but instead is processed.

The trial court had dismissed the case for lack of federal subject matter jurisdiction, based on its conclusion that the claims were preempted by the federal Nutrition Labeling and Education Act. 

Judge Posner, writing for a unanimous panel of the Seventh Circuit, said the trial court had gotten it only partially wrong.  Yes, the claim was preempted, but the disposition should have been a dismissal on the merits under Rule 12(b)(6), rather than a dismissal for lack of jurisdiction.

The NLEA disclaims any intent to occupy the field of food product labeling.  Nevertheless, it does preempt state law claims by prohibiting states from imposing any requirement respecting a food label that is not identical to the requirement of section 343(r) of the Food, Drug, and Cosmetic Act.  Thus, a state may impose penalties for violating a federal requirement under section 343(r), but it cannot require anything different than federal law.  Slip op. at 5.  As Judge Posner explained,

It is easy to see why Congress would not want to allow states to impose disclosure requirements of their own on packaged food products, most of which are sold nationwide.  Manufacturers might have to print 50 different labels, driving consumers who buy food products in more than one state crazy.

Slip op. at 6.

The court then looked at federal regulations governing labeling regarding fiber.  They require disclosure of the amount of dietary fiber contained in each serving size, but do not require any statement regarding whether it is "natural" or processed.  Accordingly, plaintiff's claims are preempted because they would require different labeling than the federal law.  Judge Posner conceded that the disclaimers plaintiff proposed might be consistent with the federal regulatory scheme, but "consistency is not the test; it identity is."  Slip op. at 7-8.  Because the state law claim imposed requirements that were not identical to federal law, the state law claim was preempted.

Judge Posner also noted that even if plaintiff's claim had not been preempted, it would have been subject to dismissal under Illinois law because ICFA has a safe harbor provision for actions that are specifically authorized by a regulatory body or federal or state law.  Because "[t]he representations on the packaging of the defendants' chewy bars concerning dietary fiber are specifically authorized by the federal statutes and regulations that we've discussed," there could be no consumer fraud claim brought under ICFA.  Slip op. at 8.

Judge Posner's decision in Turek -- dumping the putative fiber class -- makes tremendous sense.  It remains to be seen, however, whether it will have the effect of flushing similar cases against food companies from the system.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Unjust enrichment is one of those "Hail Mary" passes that plaintiffs lawyers make when they have no other option.  Typically, it is the last cause of action pled in a complaint, following causes of action such as consumer protection statutes and common law fraud.  Often plaintiffs' counsel recognize that the more traditional theories present problems of proof that would make class certification difficult.  For example, common law fraud would require each claimant to prove injury caused by their reliance upon a specific misrepresentation.  That would present individualized issues that likely would preclude class certification.  Even for claims brought under a state consumer protection statute, each claimant often is required to establish causation, i.e., that a specific misrepresentation caused his damages.

So plaintiffs' counsel often reason that because the elements of "unjust enrichment" are loosely described and old decisions often use an "I-know-it-when-I-see-it" approach, "unjust enrichment" just might prove to be the catch-all theory that works where others fail.

In many states, unjust enrichment is not a cause of action, but rather is a type of remedy.  It basically is restitution.  In such states, the plaintiff often is required to prove an underlying tort. 

Last week the Seventh Circuit Court of Appeals issued an opinion addressing an attempt to use unjust enrichment as the basis for a class action involving Illinois smokers.  See Cleary v. Philip Morris Inc., No. 10-2960, Slip op. (7th Cir. Aug. 25, 2011).  This case was an extraordinarily clean presentation of the legal issues:  there was no underlying tort pled, and the plaintiffs expressly disclaimed the need for a claimant to prove that he or she was deceived, relied on the deception, or suffered any damages or injury whatsoever.  Rather, plaintiffs' position was that unjust enrichment focuses on the conduct of the defendant, and it allows for the disgorgement of all revenues derived from wrongful conduct.

The Seventh Circuit began by observing that the Illinois Supreme Court has treated unjust enrichment as its own separate cause of action in certain cases.  Accordingly, the Seventh Circuit would not hold that the claim should be dismissed because no underlying cause of action was pled.

Plaintiffs' theory of unjust enrichment was that the defendant earned revenues it should not retain by not disclosing that smoking is addictive and by failing to disclose that light cigarettes allegedly are as unhealthy as ordinary cigarettes.  They disclaimed any obligation to prove deception, causation, or actual harm to individual class members.

The court began by stating the elements of an unjust enrichment claim under Illinois law:

'[A] plaintiff must allege that the defendant has unjustly retained a benefit to the plaintiff's detriment, and that defendant's retention of the benefit violates the fundamental principles of justice, equity, and good conscience.'

Slip op. at 14 (citation omitted).

The court reasoned that by disclaiming any individual harm, plaintiffs failed to allege the key element of detriment:

But while a plaintiff need not show loss or damages, he must show a detriment--and, significantly, a connection between the detriment and the defendant's retention of the benefit. . . .

. . . But since the plaintiffs disclaim any need to allege either personal damages, deception, or reliance with regard to any member of the class, it is difficult to see how the defendants' retention of the revenue paid by a consumer is to that consumer's detriment.  According to the plaintiffs, the class of people with a valid unjust enrichment claim would include the consumer who bought cigarettes and never was injured in any manner by his purchase.  It would include the consumer who was satisfied by his cigarette purchase and planned to continue purchasing cigarettes.  It would include the consumer who would not have acted any differently had he been fully informed about cigarettes, but bought them anyway regardless of the defendants' marketing.  It would include the consumer who was not deceived by the marketing because he was personally aware of the true nature of cigarettes, but still bought cigarettes despite their addictive and harmful nature -- or even because of it. . . .

But for many of these consumers, the defendants' retention of the cigarette revenue is not a deteriment to them--it is possible that many of the consumers have no regrets about their purchases and would willingly complete the same transaction . . .  Since these consumers would have acted no differently had the defendants properly informed them about the true natures of cigarettes, their transfer of money to the defendants in exchange for cigarettes was not to their detriment--and, accordingly, the defendants' continued retention of the money cannot be to their detriment either.

Slip op. at 15-16.

Plaintiffs argued that they had a right to be informed about product risks, even if it would not have changed their behavior.  The Seventh Circuit flat out rejected this theory as a basis for unjust enrichment recovery:

[W]e hold that the mere violation of a consumer's legal right to know about a product's risks, without anything more, cannot support a claim that the manufacturer unjustly retained the revenue from the product's sale to the consumer's detriment.

Id. at 18.  The court noted, in a footnote, that compensating people who had suffered no detriment would drain a defendant's resources and thereby possibly prevent the defendant from compensating those plaintiffs who actually suffered an injury.

The Seventh Circuit's opinion is a strong explanation of why unjust enrichment cannot be used as a means of removing proof of individual deception, harm, and causation as an obstacle to class certification.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Yesterday I opined that consumer fraud litigation against the maker of Nutella was frivolous because the amount of saturated fats, the calorie count, and the fact that Nutella contains sugar were all disclosed on the label of the product.  As such, a consumer's purported reliance on advertising puffery about Nutella being part of a healthy breakfast to conclude otherwise was per se unreasonable, I harrumphed.

Late last night Bryan Redding at Lexis Nexis wrote me about a decision that came up online just as my post went up, denying the defendant's motion to dismiss.  There's also an article about it at Product Liability Law360.  Apparently basic fraud law does not apply in the People's Republic of California, I lamented.  But perhaps I was too quick to reach an opinion on the subject.

In In re Ferrero Litigation, Case No. 11-CV-205-H (CAB), Slip op. (S.D. Cal. Aug. 29, 2011), the defendant argued that plaintiffs lacked standing because they had not identified a "long-term" advertising campaign for Nutella.  The TV campaign, the defendant said, had only begun in 2009.  

Citing the California Supreme Court's decision in In re Tobacco II Cases, 46 Cal. 4th 298 (2009), the court opined that the plaintiffs did not need to identify with specificity the misrepresentations they relied on where they alleged exposure to a long-term advertising campaign.  Slip op. at 3.  Because there was a dispute as to whether such a long-term campaign existed -- and the complaint alleged that it did -- the court gave the plaintiffs the benefit of the doubt and denied the motion to dismiss, observing that issue could be one upon which the defendant would prevail on summary judgment or at class certification.

The court also held that the UCL allegations met the Rule 9(b) pleading standard by identifying specific statements in the advertisements that were part of the "long-term" advertising campaign and explaining how they are allegedly deceptive.  Slip op. at 4.

Interestingly, the defendant's motion does not appear to have argued that there can be no deception as a matter of law where the label itself discloses the ingredients, calories, and the amount of saturated fats.  Of course, I have posted previously about decisions holding that where the product contains the ingredients listed on the label, mere advertising puffery describing the product as "healthy" is not enough to sustain a consumer fraud claim. 

We'll see if Ferrarro ultimately is successful in getting these putative class actions dismissed.  Maybe, maybe not.  But I stand behind my belief that the JPML, in concluding that these cases did not present complicated fact issues, had in the back of its mind that this was frivolous litigation that ought to be dismissed, not consolidated into a federal MDL to manage massive pre-trial discovery.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Every so often, the Judicial Panel on Multidistrict Litigation issues an opinion that leaves me scratching my head and saying "huh?".  The JPML issued one such opinion just a few weeks ago.  I thought it might be interesting to compare and contrast this opinion with another JPML opinion from the same hearing date.  Let's start with the typical one.

In In re:  Dial Complete Marketing and Sales Practices Litigation, MDL No. 2263, Transfer Order (J.P.M.L. Aug. 18, 2011), the court was faced with a series of ten putative class actions pending in seven judicial districts.  (All assert statewide classes, and two also purport to represent nationwide classes.)  As is demonstrated by an exemplar complaint, the cases assert that Dial Complete Soap is deceptively marketed as capable of killing 99.9% of bacteria without having adequate scientific research to back the claim, and without disclosing that many bacteria have become resistant to the active ingredient in the soap.

The JPML decided to consolidate the cases in a new MDL to be venued in New Hampshire, holding that "these ten actions involve common questions of fact, and that centralization under Section 1407 . . . will serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation."  Transfer Order at 1.

Compare the Dial decision with In re:  Nutella Marketing and Sales Practices Litigation, MDL No. 2248, Order Denying Transfer (J.P.M.L. Aug. 16, 2011).  In Nutella, the panel was faced with three putative national class actions in two judicial districts.  The cases assert that Nutella hazelnut spread is deceptively marketed as a nutritious part of a healthy breakfast without adequately disclosing that the spread is made from saturated fats and large amounts of processed sugar, allegedly leading to heart disease, obesity, and diabetes.  All of the plaintiffs and the defendant supported consolidation, although they disagreed on where the MDL should be located.

The JPML denied the motion, stating:

Here, the Panel is not persuaded that Section 1407 centralization is necessary for the convenience of the parties and witnesses or for the just and efficient conduct of this litigation at this time.

The actions may share some factual questions regarding the common defendant's marketing practices, but these questions do not appear complicated.  Indeed, the parties have not convinced us that any common factual questions are sufficiently complex or numerous to justify Section 1407 transfer at this time.  Cooperation among the parties and deference among the courts should minimize the possibility of duplicative discovery and inconsistent pretrial rulings.

Order Denying Transfer at 1.

Huh?

So what is so different about Nutella?  Obviously, it involves 7 fewer actions; but the JPML has created MDLs for 3 nationwide putative class actions before.  There were 12 plaintiffs' firms involved in Dial, but only 2 in Nutella, but surely that was not the sole reason for denying the MDL transfer that all parties requested.

I suspect that a large part of the JPML's motivation in denying an MDL transfer is the obviously frivolous nature of the Nutella lawsuits.  Nutella, as a food product, lists its ingredients right on the label, and includes "Nutrition Facts" that disclose the calories and amounts of saturated and trans fats contained in a serving of the product.  You don't need to conduct discovery or create an MDL to know that a claim based on the failure to disclose facts that are right on the label of the product shouldn't survive a motion to dismiss -- regardless of whether New Jersey or California law applies.

Now that the cases will go back to federal courts in New Jersey and California, it will be interesting to monitor the Nutella cases to see how they fare in pleadings challenges.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

If at first you don't succeed in getting an action dismissed, try, try again.  The Coca Cola Company proved the truth of this old addage last Thursday when it finally won a dismissal with prejudice in its "Diet Coke Plus" litigation.  See Mason v. The Coca-Cola Company, Civ. No. 09-0220, Slip op. (D.N.J. Mar. 31, 2011). 

In Mason, plaintiffs brought a putative nationwide class action against the defendant for allegedly misbranding its "Diet Coke Plus" product, which was Diet Coke fortified with 10% of the USRDA of a number of vitamins and minerals.  The amounts were listed with the Nutrition Facts on the label.

The FDA had sent a letter to the defendant, warning that it considered "Diet Coke Plus" to be in violation of its policy against fortifying snack food with vitamins and minerals, and labeling the product "plus" without providing a comparison product.  Plaintiffs attached the FDA's letter to their complaint, and complained that the term "Plus" had misled them to believe that the product was "healthy," causing them to spend more for the beverage than it was worth.

The defendant had previously moved to dismiss, although the court had rejected its arguments about primary jurisdiction and preemption, it had held that plaintiffs failed to properly plead fraud and ascertainable loss.  I had described this opinion in a prior post.  But that opinion had allowed plaintiffs another bite at the apple.

So the defendant moved again to dismiss the complaint, and this time the district court not only granted the motion, but made it stick.  It refused to revisit its conclusions on primary jurisdiction and preemption, but it analyzed (and ultimately dismissed) plaintiffs' causes of action.

In considering the claim pled under the New Jersey Consumer Fraud Act, the court first concluded that plaintiffs had failed to allege fraudulent or deceptive conduct by the defendant:

In order for these claims to amount to a NJCFA violation for an affirmative act of deception or fraud, plaintiffs must show that defendant's statements on its product are false. . . . [The FDA's warning letter itself] shows that it is not false that Diet Coke Plus contains vitamins and minerals, and plaintiffs have failed to allege with particularity what further expectations beyond these ingredients they had for the product or how it fell short of those expectations.  Instead, plaintiffs simply make a broad assumption that defendant intended for Diet Coke Plus's vitamin and mineral content to deceive plaintiffs into thinking that the beverage was "healthy."  Without more specificity as to how defendant made false or deceptive statements to plaintiffs regarding the healthiness or nutritional value of the soda, plaintiffs have failed to plead the "affirmative act" element with sufficient particularity to state a viable NJCFA claim.

Slip. op. at 7-8 (citations omitted).

The court also held that plaintiffs failed to plead the second element of an NJCFA claim:  ascertainable loss.  Citing New Jersey case law, the court noted that the loss must be "quantifiable or measurable."  And yet, all the plaintiffs pled was that they paid "money for a product that never should have been marketed to consumers in a misleading manner," and "money for a product that was of lesser value than what was represented."  Slip op. at 9.  The court held that this was hogwash:

When plaintiffs purchased Diet Coke Plus, they received a beverage that contained the ingredients listed on its label.  Plaintiffs have not explained how they experienced any out-of-pocket loss because of their purchases, or that the soda they bought was worth an amount of money less than the soda they consumed.  At most, plaintiffs simply claim that their expectations of the soda were disappointed.  Dissatisfaction with a product, however, is not quantifiable loss that can be remedied under the NJCFA.

Id. at 9-10 (citations omitted).

The court also dismissed plaintiffs' claims for negligent and intentional misrepresentation because they had not pled an ascertainable loss of money or property.  Id. at 12.

In a footnote, the court made this observation:

At its core, the complaint is an attempt to capitalize on an apparent and somewhat arcane violation of FDA food labeling regulations.  But not every regulatory violation amounts to an act of consumer fraud.  It is simply not plausible that consumers would be aware of FDA regulations regarding "nutrient content" and restrictions on the enhancement of snack foods.  The distinction is a fine but important one.  The complaint does not allege that consumers bought the product because they knew of and attributed something meaningful to the regulatory term "Plus" and therefore relied on it.  Rather, they allege merely that they thought they were buying a "healthy" product that happened to apparently run afoul of FDA regulations.

Id. at 12 n.4.  The latter, the court clearly implied, simply is not consumer fraud.

Mason is part of a growing trend of cases that take on consumer fraud allegations at the pleading stage, weeding out those complaints that ultimately fail to plead an actionable falsehood -- particularly in light of the disclosures made on the label of the product itself.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Illinois' Fifth District Court of Appeal recently reversed the certification of a Madison County class action against an insurance company, holding that the litigation should have been dismissed on the merits.  See Coy Chiropractic Health Center, Inc. v. Travelers Casualty & Surety Co., No. 5-08-0578, Slip op. (Ill. App. -- 5th Dist. Mar. 14, 2011).

In Coy Chiropractic, plaintiff sought to represent a class of all licensed Illinois healthcare providers whose reimbursement for medical services covered by a workers' compensation policy was reduced by Travelers pursuant to a Preferred Provider Organization ("PPO") discount since February 2005.  Plaintiff alleged that when it joined a PPO network, it did so based on the understanding that the insurer would provide financial incentives to its members to stay within network.  Illinois's workers' compensation laws prohibit such incentives, so insurers do not pay them.  According to plaintiff, the insurer thus is not entitled to deduct the PPO discount when paying for workers' compensation medical services.  Plaintiff sued on theories of breach of contract, breach of Illinois's Consumer Fraud Act, and unjust enrichment.

Although the trial court had certified a class action on the claims, the Court of Appeal held that this was one of those cases where there was "no need to determine whether the prerequisites of the class action are satisfied" because "as a threshold matter, the record establishes that the plaintiffs have not stated an actionable claim."  Slip op. at 6 (citation omitted).

The court noted that the plaintiff and other service providers had not entered into a contract with Travelers directly.  Rather, they had signed PPO contracts with First Health, which then entered into a contract with Travelers to act as the payor on all workers' compensation claims.  Neither the PPO's contracts nor Travelers' "payor contract" required the insurer to offer financial incentives to workers' compensation payments.  Accordingly, the court held that the PPOs had no actionable claim for breach of contract.

The court then looked to Travelers' rights under its contract with First Health to conclude that plaintiffs had not alleged any breach of the Consumer Fraud Act.  First, it noted that the ICFA cannot be used to merely re-package deficient breach of contract claims; there must be an independent fraud.  There was no fraudulent statement actually identified here, and from the structure and terms of the contracts, it was plain that Travelers was entitled to take the PPO discount, even for workers' compensation medical services.

The court engaged in a similar analysis for the unjust enrichment count:  plaintiffs contractually agreed to accept discounted payments for in-plan treatment, even for workers compensation.  Moreover, there was a lack of privity between the PPO providers and Travelers.  The PPO providers treated their patients.  To the extent any quasi-contract arose for the reasonable payment for such services, it was between the treater and the patient.  Slip op. at 9.  To the extent the PPO providers are seeking to step into their patients' shoes and assert their claims against the workers' compensation payor, Travelers, they are bound by the exclusive remedy provisions of the Workers Compensation Law.  Id.

Coy Chiropractic is an excellent example of a court refusing to allow a party to turn a basic breach of contract suit into something more -- namely, a suit for fraud or so-called "unjust enrichment."  Where the contract clearly sets forth the rights between the parties, it is not enough for plaintiff to merely testify that he expected something different.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

A number of commentators, including the UCL Practitioner and Bailey Class Action Dailey, were quick to report the California Supreme Court's recent decision holding that a plaintiff who pleads that he read a misrepresentation, relied on it in buying a product, and would not have bought the product but for the misrepresentation, has pled sufficient facts to establish standing to bring a claim under California's Unfair Competition Law.  See Kwikset Corp. v. Superior Ct., No. S171845 (Cal. Jan. 27, 2011).  A number of defense firms have issued client alerts, some of which sound like the sky is falling.

Although I obviously don't agree with the California Supreme Court's statutory analysis, I am a "glass-half-full" kind of guy, and there are some details of the opinion that give me some encouragement on the issue of UCL class actions for restitution.

In Kwikset, the plaintiff had bought a lock labelled "Made in the USA."  Some of the screws or pins had been made in Taiwan.  And for some of defendant's products, the latch subassembly had been performed in Mexico.  But the lock itself had been assembled in the good ole US of A.  This is the stuff of class actions, you ask?  It is in California.

In 2004 the trial court had conducted a bench trial and entered judgment against the defendant.  It found that the defendant violated California's Made in the USA statute (yes, there's a statute for that in California), it's "Geographic Origin" statute (ditto), the UCL, and the False Advertising Law.  The trial court enjoined the defendant "from labeling any lockset intended for sale in the State of California 'All American Made,' or 'Made in the USA,' or similar unqualified language, if such lockset contains any article, unit, or part that is made, manufactured, or produced outside of the United States."  Slip op. at 3.  Using its equitable powers, the trial court also ordered the defendant to notify its retailers and distributors about the falsely labeled products and give them a chance to return them for refund or replacement.

Interestingly, the trial court denied the plaintiff's request for restitution to consumers/end purchasers.  The trial court:

concluded restitution "would likely be very expensive to administer, and the balance of the equities weighs heavily against such a program" where the violations had ceased and "the misrepresentations, even to those for whom the 'Made in the USA' designation is an extremely important consideration, were not so deceptive or false as to warrant a return and/or refund program or other restitutionary relief to those who have been using their locksets without other complaint.

Slip op. at 4.

During the appeals process, California's voters passed Proposition 64, which requires a UCL claimant to have an "injury in fact" and have "lost money or property" as a result of the alleged unfair business practice.  (My problem with the majority's opinion in Kwikset is that it equates the two separate requirements and does not give the phrase "lost money or property" its ordinary meaning.  Instead, the majority assumes money or property is lost when a claimant buys a product that she otherwise would not have bought.  But what if the product she bought performs perfectly and is cheaper than what she would have bought had she known about the Taiwanese screws?  I would argue -- as Justice Chin did in the dissent -- that there is no loss of money or property, even though there may otherwise be an injury in fact that might meet the first element.)

Having passed Prop 64, there was lots of wrangling in California over whether it applied to pending cases.  Ultimately, the Supreme Court held that it did, and that for such cases plaintiffs should be given leave to replead.

In Kwikset, the plaintiff was allowed on remand to add plaintiffs and replead the complaint to state that plaintiffs saw the misrepresentations, relied upon them in buying the products, and would not have bought the products but for the misrepresentations.  The defendant demurred, arguing that plaintiffs had no standing under Prop. 64 because they did not adequately plead that they lost money or property.  The trial court rejected that demurrer.  But on appeal, the Court of Appeal reversed.  Plaintiffs' "patriotic desire to buy fully-American-made products was frustrated," but they otherwise got what they paid for and thus did not experience a loss of money or property as the UCL now requires, the Court of Appeal held.  This was the conclusion that the California Supremes reversed.

But in finding that the plaintiffs had pled standing, the California Supremes were clear that reliance and causation were factual issues that plaintiffs would still bear the burden of proving in order to recover under the UCL.  Citing their earlier decision in In re Tobacco II Cases, the Kwikset Court reiterated that a UCL plaintiff relying on the fraud prong of the statute "must demonstrate actual reliance on the allegedly deceptive or misleading statements."  Slip op. at 16; see also id. at n.11 ("At succeeding stages, it will be plaintiffs' obligation to produce evidence to support, and eventually to prove, their bare standing allegations.  If they cannot, their action will be dismissed.").

Interestingly, the California Supremes never once in the Kwikset opinion criticize the trial court's refusal to grant a restitution remedy or its reasoning therefor.  Indeed, much of what the Supreme Court says seems to indicate that the proof for restitution would need to be individual.  For example:  "For each consumer who relies on the truth and accuracy of a label and is deceived by misrepresentations into making a purchase, the economic harm is the same."  Slip op. at 20.  Of course, the inverse would be that consumers who do not rely on the label or who are not deceived by the representations do not suffer the economic harm, which the court describes as making a purchase they otherwise would not have made. 

Put differently, by affirmatively stating that the harm must flow from actual deception that causes the consumer to enter a transaction she otherwise would not enter (slip op. at 21), the court makes it plain that any entitlement to restitution is going to be subject to individualized inquiries into whether any putative class member saw the alleged misrepresentation, actually relied on it, and wouldn't have entered the transaction without it.  Otherwise, there is no economic harm, under the Kwikset Court's own reasoning.

Notably, the Court instructs in a footnote that once the threshold issue of standing is addressed,

it will remain the plaintiff's burden thereafter to prove the elements of standing and of each alleged act of unfair competition, and the trial court's role to exercise its considerable discretion to determine which, if any, of the various equitable and injunctive remedies provided for by sections 17203 and 17535 may actually be warranted in a given case.

Slip op. at 22 n.15.

In rejecting the standards for restitution as the standard for standing (slip op. at 29-31), the Court made it plain that "[r]estitution under section 17203 is confined to restoration of any interest in 'money or property, real or personal, which may have been acquired by means of such unfair competition.'"  Slip op. at 30 (citation omitted).  Without proof of loss of money or property caused by the alleged deception, a claimant is not entitled to restitution.

In sum, although the Kwikset decision may have held that "ineligibility for restitution is not a basis for denying standing" under the UCL, it certainly did not change California's restitution prerequisites or the UCL to make it easier to certify a class action for restitution under the UCL.  In fact, if anything, Kwikset highlights that entitlement to restitution is still a highly fact-specific, individualized inquiry into what claimants saw, relied upon, and what they would have done absent the challenged conduct.

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

Previously I had covered the New Jersey lawsuit brought by the Center for Science in the Public Interest arguing that Denny's committed consumer fraud by not including on its menu the sodium content of its meals.  The suit had been dismissed by the trial court.

On January 11, the Appellate Division affirmed the dismissal and reaffirmed the principle that the New Jersey Product Liability Act is the sole and exclusive remedy for defective product claims in New Jersey, and that they cannot be dressed up as Consumer Fraud Act claims for "economic loss" to escape the requirements of the PLA.  DeBenedetto v. Denny's, Inc., Slip op., No. A-4135-09T1 (N.J. Super. -- App. Div. Jan. 11, 2011).

Plaintiff did not plead that Denny's had made affirmative misrepresentations.  Rather, he pled that Denny's meals were dangerously high in sodium, and that Denny's had a duty to disclose the sodium content.  Plaintiff made no allegation of physical injury; rather, he sought recovery for "economic loss."

The Appellate Division held that without an allegation of an affirmative misrepresentation, there can be no Consumer Fraud Act claim based on an allegedly defective product:

The Supreme Court did not hold in Dean [v. Barrett Homes, Inc.] that any defective product claim escapes the exclusive remedy provisions, and the physical injury requirements, of the [Product Liability Act] merely because the plaintiff fashions the claim as one seeking recovery only for "economic loss." . . .

Nothing in the Court's opinion in Dean abrogates, or in any way modifies, the PLA's long-understood requirement that a plaintiff alleging a product is defective or dangerous must also allege [physical or mental] "harm" . . . .  Nor does the opinion in Dean alter the Court's prior holding . . . that claims for "'harm caused by a product' are governed by the PLA 'irrespective of the theory underlying the claim.'"

Slip op. at 7-8 (citations omitted).

DeBenedetto is strong confirmation that litigants in New Jersey cannot use the Consumer Fraud Act to invent a "duty to disclose" alleged product risks; rather, they must meet all of the prerequisites of the Products Liability Act.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

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

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

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

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

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

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

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

Reading a decision from the West Virginia Supreme Court often is like taking Mr. Toad's Wild Ride; you just never know where you might end up.  Last Friday's decision in White v. Wyeth, No. 35296, Slip Op. (W. Va. Dec. 17, 2010), is no different.

The West Virginia Supremes are the gang that not long ago rejected the traditional learned intermediary doctrine, holding instead that manufacturers of medicines have a duty to warn patients directly of the medicine's potential side effects.  See State ex rel. Johnson & Johnson Corp. v. Karl, 647 S.E.2d 899 (W. Va. 2007).

So one can be forgiven for being less than optimistic when hearing that the West Virginia Supremes, in a prescription hormone therapy class action, decided whether the plaintiffs had to demonstrate that they had relied on the alleged consumer fraud to their detriment in bringing a claim under West Virginia's Consumer Protection Act. 

As readers of this blog know, most states' consumer protection acts require the plaintiff to connect his or her injury to the defendant's allegedly deceptive activity.  Folks have different names for that requirement.  Some call it "reliance."  Others call it "causation."  But the bottom line is that the plaintiff cannot receive damages merely by proving that the conduct is allegedly deceptive; he or she must have actually been injured by it.

I'll admit, as I sank into my club chair with my afghan and hot cocoa with peppermint to read this decision, I was expecting the West Virginia Supremes to join the fringe decisions -- like the Ninth Circuit's decision in Yokoyama -- that read the causation requirement right out of the statute.  Boy, was I wrong!  Instead, here's what they did.

First, the court quoted the statute it was interpreting:

Any person who purchases . . . goods . . . and thereby suffers any ascertainable loss of money or property . . . as a result of the use or employment by another person of a method, act or practice prohibited or declared to be unlawful by the provisions of this article . . . may bring . . . [a civil] action . . . to recover actual damages or two hundred dollars, whichever is greater.

Slip op. at 2.  The fundamental question was what does the "as a result of language" require the plaintiff to allege and prove?  Reliance?  Or something else?  It was undisputed that the complaint did not allege that any of the plaintiffs or their doctors ever received, read, or relied upon the defendants' alleged misrepresentations about hormone therapy.

Plaintiffs argued that there was no reliance/causation requirement because elsewhere the statute defined deceptive practices as the "concealment, suppression, or omission of any material fact" with the intent that others rely on it "whether or not any person has in fact been misled, deceived or damaged thereby."  Slip op. at 8-9.

But as I had noted in response to Yokoyama, state consumer protection statutes were adopted in the late 1960s and early 1970s when people believed the FTC did not have enough resources to police consumer fraud.  They were modeled, in large part, on the FTC Act and various proposed uniform statutes.  But one HUGE difference between the FTC Act and state consumer protection statutes was that, for the most part, the state statutes gave individual citizens a private right of action.  (The FTC Act does not; enforcement power lies only with the FTC.)  Typically, that private right of action in state statutes was limited -- individuals could not sue to enjoin deceptive activity (that power was usually reserved to state authorities), but individuals could sue where they had suffered actual loss as a direct result of the allegedly deceptive conduct.  

This division of authority has important implications.  State authorities can sue to enjoin "deceptive activity" without having to prove that a single person lost money, so long as the activity is deceptive.  But individuals, who do not have that power, are bound by notions of constitutional standing to have an injury that was caused by the defendant's conduct.  Thus, in the clauses where a private right of action is created, the statute typically requires a loss of money or property "as a result of" the deceptive conduct.  This causation requirement is not just a statutory pre-requisite; in many states it is a constitutional precondition to having standing to sue.

The West Virginia Supremes recognized the standing requirements inherent in the Consumer Protection Act.  Slip op. at 12-13.  And it looked to what other states with similar language had held in interpreting their statutes.  Id. at 15-16.  The court recognized the interconnectedness of the concepts of "reliance" and "causation."  And it articulated a rule that will apply in other Consumer Protection Act cases in West Virginia:

[W]hen consumers allege that a purchase was made because of an express or affirmative misrepresentation, the causal connection between the deceptive conduct and the loss would necessarily include proof of reliance on those overt misrepresentations.  Where concealment, suppression or omission is alleged, and proving reliance is an impossibility, the causal connection between the deceptive act and the ascertainable loss is established by presentation of facts showing that the deceptive conduct was the proximate cause of the loss.  In other words, the facts have to establish that "but for" the deceptive conduct or practice a reasonable consumer would not have purchased the product and incurred the ascertainable loss. . . . Thus, a private cause of action under [the Consumer Protection Act] must allege:  (1) unlawful conduct by a seller; (2) an ascertainable loss on the part of the consumer; and (3) proof of a causal connection between the alleged unlawful conduct and the consumer's ascertainable loss.  Where the deceptive conduct or practice alleged involves affirmative misrepresentations, reliance on such misrepresentations must be proven in order to satisfy the requisite causal connection.

Slip op. at 17-18 (citations omitted).

So far, so good, right?  Well, after I read the next three pages of the opinion, you could've knocked me over with a feather.  The court concluded that West Virginia's Consumer Protection Act did not apply to the transaction at issue in White:  the purchase of prescription pharmaceuticals.  As the court explained it, "we are simply not convinced that a causal connection exists within the context of prescription drug purchases" because "the consumer can not and does not decide what product to purchase."  Slip op. at 18.  Citing a New Jersey case, the court reasoned that doctors make the prescription decision.  And citing a law review article by Victor Schwartz, the court noted that the high degree of federal regulation of prescription medicines means that the fundamental "gap-filling" purpose behind the Consumer Protection Act is absent.  Id. at 19.  The court then held:

[F]or the reasons stated above, we find that the private cause of action afforded consumers under West Virginia Code sec. 46A-6-106(a) does not extend to prescription drug purchases.  But see State ex rel. Johnson & Johnson Corp. v. Karl, 220 W. Va. 463, 647 S.E.2d 899 (duty of drug manufacturers to warn in context of product liability cases).  Consequently, upon remand of this case, an order of dismissal should be entered in keeping with this new point of law.

Id. at 19-20.

So just to recap, in West Virginia, the Consumer Protection Act does not apply to prescription products because of the physician's role in prescribing the medicine and the federal regulatory oversight of the medicine.  But, the prescription product manufacturer can be held liable for a failure to warn despite it having warned the physician of all potential side effects included in an FDA-approved package insert.

Wild and Wonderful . . . West Virginia.

The White decision was issued without dissent.  Two justices -- Chief Justice Davis and Justice Workman -- were disqualified and were replaced by judges sitting by temporary assignment.  Justice McHugh delivered the opinion of the court.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Well, the nattering nutrition nannies are at it again!  The Center for Science in the Public Interest has sued McDonald's in a putative class action alleging consumer fraud.  See Parham v. McDonald's Corp., Case No. ______, (Cal. Super. -- San Francisco Dec. 15, 2010) (Class Complaint).

What evil can such a corporate behemoth have perpetrated?  Did it make any false statements in advertising?  No, that's not alleged.  Did it fail to disclose some questionable food additive?  No, that's not alleged.  So what is this awful thing that McDonald's has done?

It puts free toys in Happy Meals.

Yes, ladies and gentlemen, that's the evil that CSPI has chosen to expend its resources on.  Toys in Happy Meals.

A Happy Meal, for those of us who don't have kids, consists of a hamburger, cheeseburger, or 4 chicken McNuggets with a side (small fries or apple slices that can be dipped in a caramel sauce) and a drink (soft drink, low-fat milk, or apple juice).

Happy Meals don't make CSPI happy.  It claims they have too many calories, saturated fat, sugars, and sodium, and not enough complex carbohydrates (because McDonald's uses white flour, rather than whole wheat flour, in its buns).

So what's so wrong about putting toys in Happy Meals, you ask?  Well, it makes kids want them.  And that, according to CSPI, is inherently deceptive.

Here's the basic argument from CSPI's complaint:

1.  Children 8 and under don't understand that advertising is trying to persuade them.

2.  The FTC says advertising to adults that does not disclose that it is advertising designed to persuade is inherently deceptive.

3.  Thus, advertising to children 8 and under is inherently deceptive.

4.  Such advertising -- particularly with toys -- interferes with parents' relationships with their kids because it causes the kids to nag the parents to got to McDonald's.  When parents don't give in, it creates animosity.  When they do, kids consume "unhealthy" meals.

Plaintiffs clearly have pled this complaint to avoid federal court.  They assert a class of California parents and a class of California children (age 8 and under) who have seen Happy Meal marketing in the last 4 years.  In an attempt to avoid CAFA removal, they seek only injunctive relief and disclaim any relief constituting restitution, penalties or damages.  Compl. para. 20.  (Given the rules against claim-splitting, that raises certain adequacy of representation concerns, doesn't it?)  The complaint pleads that "the amount in controversy is far below $75,000 [and] [n]o matter how evaluated, the amount in controversy falls far short of $5,000,000."  Id.

The complaint pleads two basic causes of action:  violation of California's Unfair Competition Law and its Consumer Legal Remedies Act.  Interestingly, the UCL claim appears to only rely on the "unlawful" prong, pleading a violation of the CLRA as a predicate violation for the UCL claim.

Here are the plaintiff-specific allegations for the plaintiff in this case:

94.  Maya, age six, continually clamors to be taken to McDonald's "for the toys."

95.  Maya and other members of the Children Class have been deceived by McDonald's marketing practices.

96.  Maya does not understand that McDonald's marketing efforts are intended to make her want to eat Happy Meals.  Maya interprets this marketing as good advice for proper eating.

97.  Often, Maya wants Happy Meals because toys based on trusted characters from television and movies (such as Shrek) endorse the Happy Meals in McDonald's advertising.

* * *

100.  McDonald's has unfairly influenced Maya.  It's Happy Meals advertising aimed at Maya has influenced her desire to eat the poor-nutrition Happy Meals, thereby harming Maya's health without her knowledge or comprehension.

* * *

103.  . . . Maya's friends are McDonald's viral marketers.

104.  Maya learns of Happy Meal toys from other children in her playgroup, despite [her Mother's] efforts to restrict Maya's exposure to McDonald's advertising and access to Happy Meal toys.  This is McDonald's advertising directive -- to subvert parental authority and mobilize pester power in order to sell unhealthful meals to kids using the lure of a toy.

* * *

107.  Although [her Mother] frequently denies Maya's repeated requests for Happy Meals, these denials have angered and disappointed Maya, thus causing needless and unwarranted dissension in their parent-child relationship.

Compl. paras. 94-107.

Based on these allegations, plaintiffs want the court to "[e]njoin McDonald's from continuing to advertise Happy Meals to California children featuring toys."

CSPI's complaint fundamentally challenges whether any product manufacturer can lawfully advertise products to children.  Under it's theory, no advertising to children would be lawful because children purportedly don't understand the concept of advertising.  (Notably, there are many social science articles that discuss how young people actually do understand that advertisers are trying to persuade them.) 

But the simple fact is that advertising to children -- which has been studied and considered by the Federal Trade Commission -- is lawful.  It's also commercial speech protected by the First Amendment.  And while activist groups like CSPI might like to turn off all media, home school our kids, and force them to eat like Euell Gibbons, no state's consumer fraud law allows them to impose such a viewpoint on the rest of us.  Parents decide where and what their children ages 8 and under will eat, and there is no "deception" or falsehood in the advertising that plaintiffs complain about that prevents parents from making those decisions responsibly.

Let's hope the court that ultimately decides this lawsuit -- whether it is a federal court or state court -- will recognize that CSPI's suit requests a dangerous extension of consumer fraud statutes that has no basis in California law.

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

My firm is involved in this case, so I'll stick to strict reporting, but last Friday the Neurontin MDL transferee issued an opinion granting summary judgment on the claims of a number of third party payors, as well as many (but not all) individual claimants.  See In re Neurontin Marketing and Sales Practices Litigation, MDL No. 1629, Civ. A. No. 04-cv-10891-PBS, slip op. (D. Mass. Dec. 10, 2010).

The plaintiffs in the case are so-called "third party payors" (or "TPPs") -- health and benefit funds, mostly -- who allegedly paid for their members' prescriptions for the anti-convulsant medicine Neurontin.  There are also some individual plaintiffs in the cases who actually used the medicine. 

The TPPs allege that the defendant engaged in consumer fraud and RICO violations by allegedly promoting Neurontin for off-label uses, such as pain management, thus allegedly causing the TPPs to pay for prescriptions that were not beneficial to the patients.  The individual plaintiffs claim their doctors would not have prescribed Neurontin to them if the defendants had not engaged in certain alleged misrepresentations about off-label uses of the medicine.  All of the plaintiffs seek to be reimbursed for the amounts they spent on Neurontin.

The defendants had moved for summary judgment, arguing, inter alia, that plaintiffs did not create a triable issue of fact as to causation.

The court granted summary judgment against each of the TPPs that the defendants had moved against.  (There was one other TPP that had alleged it directly received and relied on misrepresentations, and it had tried its claim to a plaintiff's verdict.)  In analyzing the summary judgment motion, the court first noted that, to establish a RICO violation, "plaintiffs must show both that defendants' mail or wire fraud in violation of the racketeering statute was a 'but for' cause of their injuries as well as a proximate cause."  Slip op. at 21 (citations omitted).  The TPPs pointed to aggregated proof that after doctors were approached by salespeople about the medicine, prescriptions rose significantly.  But the TPPs could not show which prescriptions were for off-label use, and they could not show which prescriptions were caused by misrepresentations and which were not.

(As we have noted before, off-label use of a medicine can be beneficial.  Doctors are allowed to prescribe medicines for uses that are not yet approved by the FDA, relying on such things as their patients' experience, the experience of colleagues in the medical community, and the available medical literature.)

The court followed the strong body of precedents that reject aggregate proof that does not address causation individually and specifically:

However, the Class TPP Plaintiffs have put forth no evidence as to which, if any, doctors were tainted by misleading information like 'Dear Doctor' letters or other marketing material.  There is no evidence in the record that any of the Class TPP Plaintiffs communicated directly with Pfizer in the development or evaluation of a drug formulary.

. . . [Merely correlating promotional spending to prescriptions] does not suffice to demonstrate the extent of harm caused by the fraud, as opposed to run-of-the-mill off-label detailing.  Most courts have rejected such aggregate proof.  The Second Circuit recently held, in a class action regarding sales and marketing of the drug Zyprexa, that where 'plaintiffs allege an injury that is caused by physicians relying on [a pharmaceutical company's] misrepresentations,' the injury cannot be shown by generalized proof. . . .

Because the Class TPP Plaintiffs have not directly relied on misrepresentations by defendants, and because they  have presented no evidence as to how many or which physicians who prescribed Neurontin to their members relied on fraud, they cannot establish causation.

Slip op. at 26-28 (citations omitted).

The court also analyzed the claims of 6 individual plaintiffs.  The treating doctors all had testified that they had not been influenced by any sales presentations by the defendant in prescribing Neurontin for these patients.  The court generally credited this testimony, granting summary judgment on the claims of 4 of the individual plaintiffs.  It denied summary judgment and found a triable issue of fact for 2 plaintiffs who could establish that their doctors had actually received a communication from the defendant that had been alleged in another trial to be misleading for the information that it had not disclosed.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

When I first ran across Tennille v. Western Union Co., 2010 WL 4609732 (D. Colo. Nov. 8, 2010), I worried that Toni Tennille -- or worse yet, her husband/accompanist, the perpetually mute Captain -- had fallen on hard times and needed each of their remaining fans to wire them 20 bucks.  Then, I read the caption more closely and saw that the plaintiff was James P. Tennille.  A son, perhaps?  Toni Tennille is now 70, lives in Prescott, Arizona, and just celebrated her 35th anniversary of being married to The Captain.  (35 years?!  Talk about "Love Will Keep Us Together.")

Tennille v. Western Union is, in fact, about wire transfers.  Mr. Tennille apparently seeks to represent a class of people who wired money that was never claimed at the other end of the transaction.  Tennille claimed that the defendant had a duty to notify the senders that their funds had failed to go through or went unclaimed.  Instead, the defendant allegedly held on to unclaimed funds, accruing interest on them in interest-bearing accounts "until individual state unclaimed property laws trigger a notification obligation."  Id. at *1.  The defendant allegedly then attempted to return the principal, but retained the accumulated interest for itself.  Id.

Plaintiff seeks to represent a nationwide class of wire transferors, asserting claims for conversion, fraud, and unjust enrichment.  The defendant moved to dismiss, and the trial court denied the motion.

The court first determined that it would not matter what state's law governed the claim, since the laws that possibly applied (Colorado, Missouri, Illinois and Alabama) did not differ materially.  Then, in analyzing the unjust enrichment cause of action, the court reasoned that, regardless of which state's law applies, "[t]he essence of the claim is the retention of a benefit under circumstances where it would be unjust to return it."  Id. at *2.  The court rejected the defendant's argument that unjust enrichment could not apply because the underlying transaction was governed by a written contract.  Its reasoning, however, seems to articulate an exception that would swallow the rule:

While it is true that neither equity nor tort law provides a means for shifting risk one has assumed under contract, that maxim does not prevent recovery where the wrong alleged falls outside or exists independently of that contract. . . .  Here, where the terms and import of any express contract between the parties is in dispute, Plaintiffs' claims for unjust enrichment are not barred under any of the applicable states' common law.

Id. at *3 (citations omitted).  But how "in dispute" could the terms of this written contract really be?  Western Union is full of sharp employees.  It has to anticipate that customers may attempt to hold the company liable for funds that are not claimed, and you can bet that the form written agreement a customer signs addresses the issue of how that money will be handled, including interest.  If all that a plaintiff must do is merely plead that an agreement does not exist in order to get around the contractual bar to the equitable remedy of unjust enrichment, then the contractual bar is essentially worthless.

The court also adopted a novel approach to the defendant's statute of limitations challenge.  Although plaintiffs' claims were premised -- at least in part -- on the failure to notify the sender that the transfer did not go through, the court did not measure the three-year statute of limitations from the date of the transfer.  Rather, it chose to measure the accrual of the claim from the date years later when the defendant notified class members that the transfers did not go through.  Why?  "Because Western Union continued to generate and retain interest on Plaintiffs' unclaimed funds until such time as they notified Plaintiffs that their deposits had not been redeemed, Plaintiffs' claims did not accrue for statute of limitations purposes until then."  Id.

In addition, the court denied defendant's motion to dismiss the conversion claim, reasoning that it was essentially identical to the unjust enrichment claim, even though it had different elements.  The defendant had argued that the plaintiffs had failed to plead a demand and refusal for the interest, as required for conversion.  The court held -- with little analysis -- that "[i]f a technical 'demand and refusal' is necessary to state a claim for conversion of that interest, then the filing of these lawsuits clearly satisfies this requirement."  Id. at *4.

The court held the fraud claim in abeyance, and encouraged the parties to settle:  "Specific consideration should be given to resolving this case short of protracted litigation based on the rulings issued to date."  Id.

Ultimately, the decision in Tennille leaves me with same incomplete feeling I had when I first listened to Muskrat Ramble in the Seventies.  There's more to the defenses than is articulated in this opinion.

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

I never cease to be amazed by people who believe that other people owe them a duty to save them money.  I've defeated a class action premised on this theory before, and so I was gratified to come across the recent decision in Levine v. Blue Shield of California, 2010 WL 4369797 (Cal. App. -- 4th Dist. Nov. 5, 2010).

In Levine, the plaintiff brought a putative class action against a health plan.  Literally.  He was both the named plaintiff AND the counsel for the putative class.  Here's his beef:  Blue Shield didn't tell him that if he had bought a different policy, he could have saved quite a bit of money in premiums.

You see, when 40-year-old Michael Levine first bought his policy, he was single.  He bought a policy for himself, and one for each of his two dependents.  A few years later, when he married his 25-year-old wife, she submitted an application to be added to his plan.  But if they instead had bought a new policy with the young wife as the primary insured and the dependents as part of a single family plan, they could have obtained the same benefits for significantly less premiums.  Michael alleged that Blue Shield had a legal duty to tell him this, and brought causes of action for fraudulent concealment, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and violation of the Unfair Competition Law.

Both the trial court and the Fourth District Court of Appeal disagreed.  The appellate court noted:

[T]he Levines fail to cite any case in which a court has concluded that the covenant of good faith and fair dealing requires an insurer to disclose to the purchaser of insurance the lowest price that the insurer is willing to accept for insurance coverage.

Id. at *5.  The court relied on California Service Station etc. Ass'n v. American Home Assurance Co. (1998) 62 Cal. App. 4th 1166 to hold that the insurer has no duty to disclose pricing information to potential customers in an arm's length transaction.  In doing so, the court noted, "[W]e can conceive of no principled basis for concluding that Blue Shield owed the Levines a duty to disclose how the Levines could obtain the same health care coverage for a lower price, in view of the California Service Station court's holding that the insurer did not owe a duty to disclose the 'final negotiated price' itself."  Id. at *7.  It explained that although an insurer may have a duty to explain details about the coverage terms of a policy or how claims under it are processed, it has no duty regarding the price:

The amount of money that an insurer is willing to accept in exchange for coverage is not information that implicates the special relationship between an insurer and its insured, because it does not relate to coverage or the processing of claims.  We therefore reject the Levines' contention that the purported 'special relationship' between the Levines and Blue Shield gives rise to a duty of disclosure in this case.

Id. at 9 (citation omitted).

Because the plaintiffs could not plead a legal duty that the defendant violated, the court in Levine affirmed the trial court's dismissal of the entire case with prejudice.

Levine is an excellent reminder that parties negotiating a contract stand at arm's length and are not fiduciaries. 

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

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

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

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

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

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The Ninth Circuit disposed of a putative consumer fraud class action this week in an opinion that has some important points to highlight for those who defend class actions.  See Sanford v. MemberWorks, Inc., No. 09-55502, Slip op. (9th Cir. Oct. 25, 2010).  Often plaintiffs argue that they should not be subject to the ordinary pleading rules when they purport to represent an entire class of people.  The decision in Sanford squarely rejects this argument, focusing on the individual details of the named plaintiffs' claims and then affirming dismissal of the entire case.

In the interest of full self-disclosure:  I'm biased; my colleagues represented the defendant in this case, which is one of my clients.  Take my view of the court's analysis accordingly.

The plaintiffs in Sanford had been enrolled in the defendant's membership discount programs after calling a toll-free number to buy products they had seen advertised on television.  Subsequently, they sued, alleging that they were fraudulently enrolled in the membership discount programs and asserting a variety of causes of action.  The case has a convoluted procedural history, but ultimately the district court had dismissed the case, and the Ninth Circuit affirmed. 

In doing so, the Ninth Circuit focused on the claims of the individual plaintiffs.  The first one, Ms. Sanford, was held to have no standing because she had settled her claims in a state court settlement with the telemarketer.  The release associated with that settlement released "any claims arising out of or that could have arisen out of the allegations set forth" in the state court case.  Slip op. at 17497.  Ms. Sanford argued that her interest in attorneys' fees gave her standing, but the court held that the release of "any claim for costs, expenses, pre or post judgment interest, penalties, fees" encompassed all such claims.   Id.

That left two plaintiffs, the Smiths.  The district court had dismissed the RICO count for the Smiths' failure to plead wire or mail fraud with the particularity required by Rule 9(b).  Mr. and Mrs. Smith could not remember which of them was on the phone and heard the sales pitch for the various membership programs.  The court held that:  "it is not unreasonable to expect the Smith who placed the phone calls to have personal knowledge of the relevant facts," and plaintiffs' failure to identify basic details about the calls or the membership kits that were mailed to them made them fail the requirement of pleading with particularity.  Slip op. at 17500.  The court further explained that the district court did not err in denying leave to amend the complaint, since the factual deficiencies were about facts that should have been in the plaintiffs' control.  Id. at 17501.

The court also dismissed the "conspiracy to violate RICO" count, reasoning that if you can't plead a valid RICO claim, then one cannot plead the conspiracy to commit a RICO violation.  Id.

In addition, the court dismissed the Smiths' federal "Unordered Merchandise Statute" claim because membership programs simply are not merchandise.  Id. at 17501-02.  And it dismissed the Electronic Funds Transfer Act claim because the statute clearly covers debit cards, and yet the Smiths had used credit cards -- not debit cards -- to make their purchases.  The court explained that "[w]hen a named plaintiff has no cognizable claim for relief, 'she cannot represent others who may have such a claim, and her bid to serve as a class representative must fail.'"  Id. at 17504 (citation omitted).  And it rejected the plaintiffs' suggestion that the court allow some unidentified debit card holder to intervene, reasoning that "where, as here, the original named plaintiffs fail to state a cognizable claim from the outset, intervention is not required."  Id.

Sanford is yet another decision that recognizes that for Rule 12 purposes, a putative class action rises or falls on the strength of the claims actually pled for the named plaintiffs.

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

Today the Ninth Circuit, in an unpublished opinion, affirmed an MDL transferee's Rule 12 dismissal of a putative class action brought by third party payors against a biotech company for allegedly fraudulent promotion of off-label uses for its medicines that promote blood cell production.  See United Food & Commercial Workers Central Pennsylvania & Regional Health & Welfare Fund v. Amgen, Inc., No. 90-56118, Slip op. (9th Cir. Oct. 21, 2010).  Because I helped brief the appeal for the defendant, I won’t editorialize here.

Plaintiffs had asserted a federal RICO claim, as well as a claim under California's Unfair Competition Law (Cal. Bus. & Prof. Code sec. 17200).  They alleged that the defendant promoted its medicines Epogen and Aranesp for uses that had not been approved by the FDA.  The trial court initially had dismissed the claims, granting plaintiffs leave to replead and encouraging them to provide sufficient particularity regarding the alleged fraud and how it purportedly caused them harm.  Plaintiffs filed an amended complaint, which the defendant again moved to dismiss.  The trial court granted the motion, dismissing the case with prejudice.

The Ninth Circuit affirmed, holding that the third party payors had not alleged with sufficient particularity the fraudulent nature of defendant’s conduct:

The complaint did not identify statements or representations made by Amgen that were literally false or misleading at the time they were made, as required in a civil RICO action based on mail and wire fraud.  Nor did the complaint identify material omissions in derogation of an independent statutory or fiduciary duty to disclose.

Slip op. at 2 (citations omitted)

The court also independently held that plaintiffs failed to allege proximate causation with sufficient particularity, i.e., they did not allege a direct causal connection between the defendant’s conduct and plaintiffs' alleged injury:

Instead, the complaint proffered an attenuated causal chain that involved at least four independent links, namely, (1) the USP-DI’s listing of Aranesp for anemia of cancer, (2) Medicare’s decision to cover Aranesp for anemia of cancer, (3) third-party payors’ decision to cover Aranesp for anemia of cancer (in addition to covering Aranesp for anemia in heart failure patients and cancer directly, and Epogen for all of those uses), and (4) doctors’ decisions to prescribe Aranesp and Epogen for these uses.  This causal theory is too attenuated to satisfy the Supreme Court’s proximate causation requirement in the RICO context.  Hemi Group, LLC v. City of New York, 130 S. Ct. 983, 989 (2010) . . .

The complaint also failed to satisfy Rule 9(b) with respect to its UCL claims, because it did not explain why Amgen’s conduct was fraudulent or allege an adequate theory of causation or reliance. . . .

Slip op. at 3 (citations omitted).

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Do consumer product sellers have a duty to inform buyers about legal requirements associated with product installation and use? 

The Ohio Court of Appeals recently considered that question in Taylor v. Best Buy Co., 2010 WL 3931487 (Ohio App. Oct. 7, 2010).  In Taylor, a homeowner was shopping for a new stove.  She had received an estimate at Home Depot, and Best Buy offered to match it, and to install the stove at a special price of $49.99.  The salesman told her:  "We do this all the time.  We take it, we install it, and it will be in your house ready to go.  You can cook dinner that night."  Slip op at *1.  

Plaintiff didn't know that Ohio law requires every gas outlet to have an individual shut-off valve within 6 feet of the appliance.  Her shut-off valve was in the basement, far from the gas outlet in her kitchen.  Plaintiff did not tell the salesman that she had an old home or discuss in any way the necessity for a shut-off valve.

In what must have been a huge disappointment, Best Buy arrived at plaintiff's house with the stove, but then refused to install it because to do so would be against the code.  Best Buy's installers are not licensed plumbers; they informed plaintiff that she needed to find a licensed plumber to install a shutoff valve before they could install a stove.

Plaintiff hired a plumber, whom she paid $68 to install a shut-off valve.  Best Buy then installed the stove for $49.99; it apparently did not charge her for the earlier failed installation attempt.

Plaintiff complained, and Best Buy offered her a courtesy check of $75.  Plaintiff didn't cash it, but instead filed a putative class action for fraud, breach of warranty, unjust enrichment, breach of contract, and violation of Ohio's Consumer Sales Practices Act.  The trial court granted summary judgment for defendant.  And the Court of Appeals affirmed.

The court was unequivocal that the burden was on the homeowner -- not the appliance seller -- to know and comply with state law:

Best Buy had no responsibility to ensure that Taylor's home was code-compliant before delivering and installing Taylor's new stove.  Under Ohio law, Taylor is required to have a gas shut-off valve present near the stove.  This duty exists independent of any agreement between the parties. . . .  In this instance, Taylor's failure to have the required shut-off valve was a violation of state code and a safety concern.  Pursuant to Best Buy's policy, once Taylor's home was made code-compliant, Best Buy performed the installation for the contracted price and fulfilled its contractual obligations. . . .

Taylor further argues that Best Buy falsely represented that it would install the gas stove for a stated price.  We agree with Best Buy's position that it had no duty to inform Taylor of applicable codes and that it performed the represented service for the stated price once Taylor complied with code requirements. . . .

Id. at *2.

Notably, Best Buy actually included in its product brochure information about the code requirement, although plaintiff claimed never to have read it.  The court said that although including information about the code in the brochure made sense where the issue was commonplace, Best Buy was under no duty to do so.  In fact, it held that plaintiff could not prove reliance on any representations by Best Buy because "[t]he presence of a shut-off valve as required by state code is a matter of law which Taylor is presumed to know."  Id.

This decision highlights an important defense in many consumer product cases:  the requirements of state law.  Although this decision involved summary judgment, the conclusive nature of this defense often can support a motion to dismiss because it operates as a matter of law.  This Court's twin conclusions of "no duty" and "no reliance" as a matter of law served as the basis for summary judgment on a variety of claims, from fraud, contract, "unjust enrichment" and the Consumer Sales Practices Act.

• Email This
• Print
• Comments
• Trackbacks
• Share Link