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

In December I posted about Price v. Martin, in which the Louisiana Supreme Court expressly adopted the U.S. Supreme Court's analysis in Wal-Mart v. Dukes to reverse certification of a class of property owners who alleged that they were exposed to certain chemicals by a neighboring wood treatment facility.  In Price, the court recognized that there was no real commonality because establishing damages and causation would require individualized analysis.

Just last week, the Louisiana Supreme Court issued a per curiam opinion demonstrating that Price was not an anomaly.  In Alexander v. Norfolk Southern Corp., No. 11-C-2793, Slip op. (La. Mar. 9, 2012), the putative class action arose out of a chemical spill from a train in New Orleans in 2001.  The Fire Department investigation had established that ethyl acrylic fumes leaked from valves in two cars that were parked for less than an hour waiting for another train.  The firefighters tightened the valves, which solved the problem, and sent the trains on their way.  No evacuation was called.  Twenty people were treated at the scene for exposure and released.  Hundreds of other people complained of eye/nose/throat irritation and a noxious smell.  Naturally this spawned a class action, which was certified by the trial court and affirmed by the intermediate court of appeal.

The Louisiana Supreme Court, citing Price, reiterated that class certification requires a rigorous analysis and that there must be significant proof of a common question, the determination of which will "'resolve an issue that central to the validity of each one of the claims in one stroke.'"  Slip op. (quoting Price quoting Dukes).

The court ultimately premised its reversal on the lack of predominance of common issues, and the need for individual trials:

[T]he district court failed to take into account undisputed evidence in the record demonstrating that any determination of damages will be dependent upon proof of facts individual to each putative class member.  In particular, . . . plaintiffs' toxicologist testified that only those individuals with a unique susceptibility to ethyl acrylate would exhibit physical symptoms at the extremely low concentrations involved in the release, that this susceptibility would manifest itself in less than .1 percent of any given population, and determining whether any particular person was within this microcosm of the population would require an entirely individualized understanding of each person's health, medical history, records, and other variables impacting exposure.  In addition, [he] testified that the dose of exposure would be impacted by important individual variables, such as the specific location of the plaintiff at the time of exposure, and whether the plaintiff moved from location to location during the exposure.  Similarly, the defense toxicologist, . . . testified the symptoms complained of by the plaintiffs, such as irritation of the eyes and nose, respiratory irritation, coughing, nausea, and vomiting, are not specific or unique to ethyl acrylate exposure, but are common symptoms with a myriad of causes.

Given this testimony, it is clear that each member of the proposed class will necessarily have to offer different facts to establish liability and damages. . . . [T]he class would degenerate into a series of individual trials.

Slip op.

The decision in Alexander is a strong reminder that even in state court class actions, expert proof at the class certification stage is important because it can frame how the issues must be tried at trial.

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

Last week I read a short article in Law 360 that piqued my curiosity.  A state trial court in San Bernadino, California had certified a class of all purchasers in California of Lichi Super Fruit Weight Management Products.  The attached order was all of a page-and-a-half.  It merely parroted the language of the class action requirements.  And, strikingly, it foisted onto the defendant all of the notice costs:  "Defendant . . . is hereby ordered to pay costs that will be incurred by the Class administrator in giving notice to the Class and administration of any settlement."  Settlement?  Surely that was a bit cheeky, no?

I then looked at the date of the order:  February 7, 2012.  I scratched my head, reaching for the complaint, which was dated roughly two months before:  December 9, 2011.  I checked to make sure it wasn't merely an "amended" complaint.  But no, it was the initial filing.  So the suit had gone from filed to certified in less than 2 months.  How?

I remember the pre-CAFA days of drive-by certifications, when Southern courts would certify classes ex parte on the day the complaint was filed.  But this is 2012.  We employ "rigorous scrutiny" of the class certification requirements now.  Plaintiffs not only must plead a class action properly, they actually bear the burden of proving -- with evidence -- that the class certification prerequisites are met.

So I asked myself, was the Lichi defendant a victim of a run-by fruiting as Pierce Brosnan had been in the movie "Mrs. Doubtfire"?

Well, yes and no.  A docket search reflects that service of process was made on the defendant right before the holidays, on December 19.  Plaintiff filed her motion for class certification on January 9, 2012.  Plaintiff moved for a default judgment on January 23, which was entered that day.  The motion for class certification was heard on February 7 at 8:30 a.m., and no one showed up for the defendant.  Hence, the class certification motion was unopposed, and granted that same day.

Now here's the question for you, dear readers.  Where a defendant has defaulted and the plaintiff seeks class certification, what are the court's responsibilities?  Remember that this is an "all purchasers" class alleging the product does not work.  Does the "rigorous analysis" requirement still apply?  Should the order reflect the fact that it was entered without the defendant posing an opposition?  Do the court's obligations to absent class members become more or less important where the defendant is absent from the class certification process?

Discuss.

Post Script:  My only time through San Bernadino County was during a 1993 drive of Route 66 from Chicago to Santa Monica.  In Victorville, I was honored to meet a Route 66 legend:  Miles Mahan.  Mr. Mahan, who was in his 90's at the time, had created "Hulaville," a wonderful "half acre" of kitsch carved out of the desert, the crowning glory of which was a hula girl that had been on the sign of a Hawaiian restaurant.  He had spirit trees covered with colored bottles, books of his own poetry, and a million stories of his life as a carney.  He's gone now, of course.  But I think of him every time I hear "Kingman, Barstow, San Bernadino . . ." 

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

My colleague, John Beisner, is involved in this case, so I'll merely report the decision here.

This morning the Kentucky Court of Appeals reversed a trial court's certification of a class of Vioxx users who asserted a diminished value theory of recovery under various consumer fraud causes of action.  See Merck & Co. v. Ratliff, No. 2011-CA-000234-MR, Slip op. (Ky. App. Feb. 10, 2012).

The court embraced the "rigorous analysis" standard and cited Dukes.

The court held that the fraudulent misrepresentation and negligent misrepresentation causes of action presented too many individual issues that predominated over any common issues, making class certification reversible error.

Plaintiffs also had asserted a fraud-on-the-market theory.  The court observed that such a theory has been employed by other courts in the securities context to create a presumption that class members relied on the defendant's alleged misrepresentations.  But the court refused to import such a concept into Kentucky law, particularly in a consumer products case:

In the present case we have a corporate defendant that has allegedly disseminated false, fraudulent, or misrepresentative information into the marketplace.  However, while we have sympathy for the users of Vioxx whose physicians may have relied upon such false or incomplete information, the "fraud-on-the-market" approach has never been recognized in this jurisdiction for a fraud or misrepresentation case.  Further, every other jurisdiction we found which has been confronted with the theory has rejected it outside the securities litigation context. . . .

For this reason, we decline to recognize a similar theory here.  Causation, reliance, and damages are required to be shown on an individual basis.  Thus, if the action were tried as a class, after the common questions of Merck's representations in its marketing campaign were decided, the case would essentially fragment into a series of amalgamated "mini-trials" on each of these individualized questions. . . .

Thus, we find that common questions do not predominate.  Further, because these individualized questions would substantially overtake the litigation, and would override any common questions of law or fact concerning Merck's conduct, we find that a class action is not the superior mechanism by which to try these cases. . . .

Slip op. at 15-16 (citations omitted).

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

On Monday, Law 360 reported that the judge in the Ford E-350 Van MDL denied class certification.  The opinion -- although it is designated "not for publication" -- is a strong and important reminder of why consumer fraud and warranty suits present individual issues that often preclude any ability to certify a class.  In re Ford Motor Co. E-350 Van Prods. Liab. Litig., MDL No. 1687, Civ. A. No. 03-4558, Slip op. (D.N.J. Feb. 6, 2012).

Plaintiffs alleged that Ford's "15-passenger" vans had a high center of gravity that leads to an unusually high risk of rollover, particularly where the van is full of passengers.  Of course, they brought a "diminished value" class action that excluded anyone who ever actually experienced a rollover.  Instead, the class sought recovery of the "diminished value" of the vans, as measured either in a decrease in the resale value or by the cost of a retrofit package that would add an additional axle and wheels to the vehicle.

The case had a tortured history of motions to dismiss and motions for summary judgment, such that the chart of remaining claims for plaintiffs from various states looked like a target shot full of birdshot.  Plaintiffs ultimately moved for certification of: (1) a breach of implied warranty class for residents of NY, NJ, PA, GA, and MI, (2) a consumer protection statute class for residents of NY, FL, and TX, and (3) an unjust enrichment class for residents of CA, GA, and PA.  In the alternative, they moved for certification of 8 statewide classes of "all purchasers" or others who acquired the vans within the class period.  The class period was defined as 1991 to 2005 for all proposed classes.  Slip op. at 5.

The court, citing Hydrogen Peroxide, recognized that it must give rigorous scrutiny to whether the plaintiffs had actually proven that the class action prerequisites were met.  It ultimately concluded that plaintiffs had not proven that the predominance requirement was met, and thus refused to certify the class action.  In doing so, it looked at each element of proof of each state law cause of action.  Although that led to a bit of repetition in the 86-page opinion, the court's decision can be boiled down to the following basic points.

1.  There was no uniform misrepresentation that every class member saw.  Sales brochures changed over time, some class members saw no representations, others received oral representations from salesmen, and the safety disclaimers changed over time.  And advertising changed over time for the product.  Ultimately, proof of the representation would have to be an individual issue.

2.  Class members were going to have to prove that they were actually deceived and acted to their detriment because of it.  Plaintiffs who never received a misrepresentation were not deceived.  Similarly, plaintiffs who read or heard the many media articles about the problem, or who -- incredibly -- had experienced rollover previously in other vans were not actually deceived.  Indeed, one plaintiff, in negotiating the price, warned the salesman that the vans could only be driven by experienced, trained drivers like himself.  These presented individual issues.  See Slip op. at 33 ("Considering that Plaintiff's primary theory of damages at the class certification stage is a common benefit-of-the-bargain injury, it stands to reason that the consumers who saw these reports and understood the E-350 van to have significant handling problems will have a difficult time proving causation, and in doing so, they would not rely on common proof.").  The court noted that --particularly in light of the published media reports about rollover and handling issues -- "Ford would be entitled to examine which class members had knowledge of the E-350's handling characteristics at the time of purchase, the extent of such knowledge, [and] whether the knowledge was derived from personal use or published reports."  Id. at 43; see also id. at 51.

3.  Plaintiffs would have to prove either that the product actually failed (e.g., exhibited a defect), or that they actually incurred repair costs or diminished value as a result of the defect.  Sliip op. at 35.  That is an individual injury.  The court noted that a so-called "reputational injury" that somehow inhibits resale value does not injure those plaintiffs who have no intention of selling their vans, and there was no evidence that the proposed retrofit would cure the speculated reputational injury.  Slip op. at 39.  Citing New York law, the court noted that a prior judge in this case had "properly recognized that [New York law] stopped short of requiring manifestation of the defect; yet, in the absence of such manifestation, [it] still required the plaintiff to present evidence of an actual injury, in the form of out-of-pocket repair costs or a sale at a loss."  Slip op. at 39-40.  The court also noted that "'[a] plaintiff who purchases a [product] that never malfunctions over its ordinary period of use cannot be said to have received less than what he bargained for when he made the purchase.'"  Id. at 41 (citation omitted).

These basic problems permeated the various causes of action:  implied warranty, consumer protection acts, and unjust enrichment.  Moreover, the court noted that in order to prove reliance on an "omission" under Texas's Deceptive Trade Practices Act, the plaintiffs would have to establish that they would not have bought the product if the information had been disclosed.  The record in this case clearly indicated that some plaintiffs bought the vans with full knowledge of handling problems and rollover risks -- primarily because they believed themselves qualified to drive the vehicle with the requisite skill.  As such, the reliance element of the DTPA presented individual issues that precluded class certification.  Slip op. at 56.

The court also noted at the end of the opinion that statute of limitations issues -- particularly on the warranty claims -- presented individual issues that also would be incapable of being proved on a classwide basis.

The court's opinion is another strong reminder that even in cases of so-called "omissions," the individual issues can preclude class certification.  The court explained that its "ruling reflects the unique and highly individualistic experiences of consumers, many of whom were not actually deceived and many of whom have suffered no actual injury as a result of Ford's conduct."  Slip op. at 79.

• 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

Conventional wisdom says that classes involving personal injuries or emotional distress damages cannot be certified because individual issues predominate those types of claims.  As Law360 reported on Tuesday, that conventional wisdom was confirmed by a recent decision in the litigation involving Similac powdered infant formula, which the manufacturer had recalled based on reports of beetle larvae contamination that allegedly caused some infants to suffer gastrointestinal problems.  See Brandner v. Abbott Labs., Inc., Civ. A. No. 10-3242, Slip op. (E.D. La. Jan. 23, 2012).

Plaintiff sought certification of a Louisiana-only Rule 23(b)(3) class of purchasers of Similac products bearing recall lot numbers that were purchased during the recall purchase period.  She asserted claims for personal injury and emotional distress damages under Louisiana's Product Liability Act, and she asserted economic loss under a theory of redhibition.

The court described its job as identifying the substantive issues that would control the outcome of the case, assessing which issues would predominate and whether they were common to the class, and then determining whether there is a way to try the case that would prevent "'the class from degenerating into a series of individual trials.'"  Slip op. at 6 (quoting Madison v. Chalmette Refining LLC, 637 F.3d 551, 555 (5th Cir. 2011)).

The court examined the elements of an LPLA claim, and quickly concluded that it needed to go no further than holding that the elements of predominance and superiority were not met:

The Court finds that the individual issues predominate over issues common to the class.  First, despite Brandner's argument to the contrary, the LPLA requires a plaintiff to demonstrate that the product was unreasonably dangerous when it left the manufacturer's control.  Courts routinely deny claims when the plaintiff cannot establish this element of an LPLA cause of action.  Whether each class member purchased contaminated Similac is subject to individualized, not collective, proof.

Second, each putative class member must establish that Abbott's actions were a proximate cause of his or her injury. . . .  The court need not determine predominance with respect to general causation, because proving specific causation would require a determination of "an individual's family and medical history; age; gender; diet; . . . the timing of ingestion of the product; . . . whether that individual suffered an injury, when the injury occurred, the type of injury suffered, and the number of occurrences of the injury; the likelihood of injury; and/or the foundation as to whether a justifiable fear of injury exists." . . .  This highly individualized inquiry leads the court to conclude that issues common to the class do not predominate.

Third, all plaintiffs who claim emotional distress . . . would have to establish not only the distress but also the attendant damages. . . .  The damages issue requires a determination of whether plaintiffs sought medical treatment, psychiatric treatment, the degree to which plaintiffs manifested generalized fear, and the severity of plaintiffs' emotional distress.  Because the determination of whether each member suffered emotional distress turns on a highly individualized assessment, questions of fact regarding individual members predominated over common issues of fact.

. . . Establishing emotional [distress] damages would entail the exact type of 'mini-trials' the Fifth Circuit has cautioned against.

Slip op. at 9-13 (citations omitted).

The court also denied certification of the redhibition claim, which required claimants to establish that the product had a physical imperfection or deformity at the time it was purchased in order for the claimants to recover the purchase price, as well as any interest.  Plaintiff argued that the fact of the recall made the redhibition claim subject to common proof.  The court held otherwise.  Because the defendant's testing had not found contamination in every batch, and because many of the lots that were included within the recall simply were not tested at all, there was no way to know on a class-member-by-class-member basis whether the product actually was contaminated.  If it was not, there was no claim under Louisiana redhibition law.  Moreover, the recall was voluntary and did not admit contamination of each of the recalled lot numbers; in fact, the recall notice had said the possibility of contamination was remote.  Accordingly, the court held that common issues did not predominate for this cause of action as well.

Because the court was able to decide the class certification motion on the issues of predominance and superiority, it did not engage in an analysis of Rule 23(a) factors or have to construe the Supreme Court's Wal-Mart v. Dukes decision.

Although the result in Brandner is hardly surprising, it is a good reminder why class actions for personal injuries and emotional distress simply are not suited for class action treatment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * *

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

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

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

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

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

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

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

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

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

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

Still need proof that the U.S. Supreme Court's decision is going to have far-reaching effects in the world of mass torts and consumer class actions?  Look no further than Price v. Martin, No. 2011-C-0853, Slip op. (La. Dec. 6, 2011).

Price was a class action that had been certified by the trial court and affirmed on appeal.  It alleged that the various owners of a wood treatment facility ran it in such a way as to pollute the neighborhood's air, soil and water -- including plaintiffs' properties -- with various chemicals, including dioxin.  The class of over 3,000 people alleged that it had suffered property damage, diminished property values, and increased risk of disease.  It asserted theories of nuisance and negligence.  The class was defined as all people or entities who, from 1944 to the present, owned or were present on property in a defined area who claim property damage and diminished property value.

The Louisiana Supreme Court began its analysis by indicated that it had granted certiorari "to examine whether [the lower] courts engaged in the rigorous analysis required to determine whether this action meets the requirements imposed by law for class action certification."  Slip op. at 5.  The court concluded that they had not, and therefore reversed and remanded the case.

The court explained that Louisiana's class action rules were extensively revised in 1997 to essentially adopt Federal Rule of Civil Procedure 23.  Citing Dukes, the court explained that a class action is an "exception to the rule that litigation be conducted by and on behalf of individual named parties only."  Slip op. at 6 (citation omitted).  That is why there is a rigorous analysis standard on whether the requirements for class certification are met.  And that rigorous analysis, the court explained, often will overlap with the underlying merits of the claim.  Id. at 7 (citing Dukes).

The court bought in to the Dukes formulation of the commonality requirement completely:

The mere existence of common questions, however, will not satisfy the commonality requirement.  Commonality requires a party seeking certification to demonstrate the class members' claims depend on a common contention, and that common contention must be one capable of class-wide resolution--one where the 'determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.' Wal-Mart Stores, Inc., 131 S. Ct. at 2551. . . .

In the context of mass tort litigation, this court has further refined the commonality requirement, stating that, in such cases, 'in order to meet the common cause requirement, each member of the class must be able to prove individual causation based on the same set of operative facts and law that would be used by any other class member to prove causation.'

Id. at 10-11 (citations omitted).  The court, citing Dukes, reiterated that not only must there be a common question that is suitable for classwide resolution, but the proof of commonality must be significant.  Id. at 13.

This class failed the commonality requirement for a variety of reasons.  The facility's owners -- and its operations -- changed significantly over the 66-year period of emissions.  Depending on the date and the nature of the emission, different owners could be responsible.  Moreover, even the legal standards applying to the discharge of the chemicals changed over time, such that "[c]lass members who owned property damaged by emissions in the 1950s will not be able to rely on the same environmental standards invoked by those who own property damaged by emissions in the 1980s."  Id. at 14.  Thus, the "issue of breach will thus turn on different conduct, by different defendants, at different times, under different legal standards."

Citing Dukes, the court also noted that plaintiffs could not prove common causation, i.e., that the facility was the source of dioxin in area attics.  Id. at 15.  The court explained:

Given the multitude of alternate sources of PAHs and dioxins proven to exist in the area in question and the inability of plaintiffs to link those contaminants solely to emissions from the Dura-Wood facility, it is clear that plaintiffs have failed to offer significant proof that causation for each class member will be determined by a common nucleus of operative facts.

Id. at 18.  The court concluded that:

Plaintiffs do not in fact allege that damage has been caused by only one defendant; they allege damage emanated from one facility, but that facility was operated successively and independently by more than one owner over a period of 66 years, providing more than one source of emissions from multiple operations performed according to varying standards of conduct.  [A prior Louisiana case] instructs that, unlike the present case, only mass torts 'arising from a common cause or disaster' are appropriate for class certification. 

Id. at 21.

The court also held that plaintiffs failed to meet the predominance requirement for largely the same reason as why they had failed the commonality requirement.  It also held that the district court erred in finding a class action superior to other methods of adjudication.  But the reasoning seems to implicated adequacy of representation concerns as much as anything.  The court reasoned that by defining the class to include such a long period covering property owners, there were conflicts of interest between present and prior property owners.   The court also found that the need for individual adjudication of so many issues meant the class was not superior because it could not vindicate the public policies underlying class actions.  Id. at 26.

Louisiana thus falls squarely in the camp of states aligned with the U.S. Supreme Court on the rigorous analysis required for class actions, as well as the reinvigorated commonality standard.  And it applies the rule in tort cases -- not just in the employment discrimination context that was at issue in Dukes.  Look for more state court decisions adopting the Dukes approach.

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

Andrew Trask, whom I hear is hard at work on the second edition of his excellent Class Action Playbook (Oxford Press 2010), has a terrific post today on motions to strike class allegations.  He includes a tally of reported decisions on motions to strike that have been handed down this year -- a nice tip of the hat to auld lang syne.

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

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

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

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

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

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

Id. at *6.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * *

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

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

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

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

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

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

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

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

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

As many of you know, I participated in a symposium over at SCOTUSblog on the future of class actions in light of the Supreme Court's many class action decisions this term.  There were a number of participants, including Professor Scott Dodson from my alma mater, William & Mary's Marshall-Wythe School of Law.  Professor Dodson's position was that it was unfortunate that the Supreme Court had been so restrictive in its class action decisions; this was contrary to salutary purpose of class actions (to help society and advance public policy) and was, in essence, a form of judicial activism.  Amendments to Rule 23, Professor Dodson suggested, would better be made by the Civil Rules Advisory Committee, not courts.

This argument -- which I've heard before -- rings hollow for me given the history of Rule 23.  Nobody who was actually on the 1966 Advisory Committee that amended Rule 23 to give us the (b)(3) class action could have predicted the explosion of class action litigation that has occurred in the last 45 years.  They believed that class actions were rarely certifiable, but imminently useful where appropriate.  The prerequisites that they built into Rule 23 were designed to restrict certification to only those cases that really warranted certification.  Far from being activist, the Supreme Court's insistence on the application of Rule 23's prerequisites is advancing the goals of the 1966 Advisory Committee.

So, I took the folks at SCOTUSblog up on their offer to respond to a panelist's post.  You can find that response here.   

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

A recent appellate decision from California is an excellent example of how common issues can fail to predominate even in property-based public nuisance claims.

In Department of Fish and Game v. Superior Court, No. CO66158 (Cal. Ct. App. -- Third Dist. Aug. 2, 2011), various real property and business owners brought a putative class action against the California Department of Fish and Game for its application of poison to Lake Davis to eradicate an invasive species of fish, the northern pike.  The Department allegedly widely publicized its plan to poison the pike, closed all roads providing access to the lake, and posted blinking signs about the lake's closing on Highway 70.  The lake was closed from September 2007 through January 2008, and it was not re-certified as a source of drinking water until May 2008.  By statute, area residents could present claims to a victim compensation claims board for damages.

Plaintiffs sought certification of three subclasses:  (1) all businesses in the area whose timely claims were rejected by the Department's claims board, (2) all real property owners whose timely claims for the decrease in real property values were rejected by the Department's claims board, and (3) all persons or entities whose timely claims for lost tax revenues or lost economic growth were rejected by the Department's claims board.

The Court of Appeal granted mandamus against the trial court's certification of the classes.

The court first analyzed whether common issues actually predominated.  In concluding that they did not, the court rejected the plaintiffs' proffer of expert testimony purporting to support the use of a classwide economic model or formula to calculate the class members' damages.  Instead, it found that every member of the class would be required to litigate a number of substantial questions about his or her right to recover, even after a judgment on the so-called "common" issues pertaining to all class members.

In determining that the issues of liability and damages could not be determined on a collective basis, the court determined that the different situations of the various putative class members caused individual issues to predominate:

[T]he impact of the 2007 poisoning . . . may be different depending on the particular characteristics and location of each individual parcel.  And, in light of the claims asserted byplaintiffs, these differences are more than just a matter of damages, but go to the fundamental issues of liability.

Slip op. at 17.

The trial court had applied the wrong standard for looking at the expert proof in the action, the Court of Appeal explained.  It had looked at the plaintiffs' experts' reports, concluded that they met the plaintiff's burden of establishing predominance, and then shifted the burden to the defendant's experts to disprove predominance.  But the burden at all times should rest with the plaintiff, the Court of Appeal instructed, and a fear of reaching the "merits" should not prevent the trial court from weighing the expert testimony to determine how the case will have to be tried.

In this instance, as the defendants' expert had explained, an across-the-board formula for damages would not properly take into account individual differences among class members:

'The reasons for this conclusion include the varied nature of the industries within the business community of the Lake Davis Area, the different economic pressures and influence felt by different industries, the differing levels of bookkeeping sophistication and record keeping methodologies used by different businesses and individuals, changes in local economic influences specific to individual businesses but unrelated to the treatment of Lake Davis including changes in contractual relationships, competition, and the labor force among others.  Finally, tourism obviously affects businesses differently and reduced tourism would not have a common impact on all businesses owned by proposed class members.' 

Slip op. at 40 (quoting defendant's expert).

The court of appeals then went through each cause of action, identifying the necessary elements of proof and whether those elements could be proven with common evidence or individual evidence.  It noted that "it is not enough simply to prove there was an average loss per parcel of property" because "[a]ll parcels are, more or less, different," and one "must look at the characteristics of each parcel, the reasonable expectations of the owner and the actual loss."  Slip op. at 49.  the court concluded that the issues of duty, causation, and the amount of damages must be determined on an individual basis.

Particularly in light of the US Supreme Court's recent treatment of commonality and expert testimony in Wal-Mart Inc. v. Dukes -- which is not cited in this opinion -- the California court's decision in Department of Fish and Game is a strong example of a state court focusing on how the case actually would be tried and scrutinizing expert testimony about statistical modeling.

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

A recent decision denying class certification in two putative class actions brought over a coal ash spill reminds us that numerosity is not a throw-away element of class certification and it cannot be satisfied merely by spouting a number of claimants who "may" be affected by the challenged conduct.  The decision was first reported by Law 360 (subscription required).

In Mays v. Tennessee Valley Authority, No. 3:09-CV-06 (Varlan/Guyton) (E.D. Tenn. May 10, 2011), the plaintiffs asserted a number of causes of action against the defendants because the defendant's dike failed and allowed coal ash to spill into rivers and allegedly harm properties downstream.  The cases were consolidated before a single judge.  One of the classes was defined as all people who owned property on the adjoining the TVA's property or downstream from the plant on the Emory or Clinch rivers on Dec. 22, 2008.  It asserted a private nuisance claim only.  The other class actions originally had asserted claims for personal injury, medical monitoring and property damage, although the class certification motion only sought certification of property damage claims.  The motion originally had been heard by a magistrate judge who issued a report and recommendation against class certification.  The District Court adopted the report and recommendation.

Interestingly, the court stressed that it was required to give "rigorous analysis" to class certification motions and look beyond the pleadings to the merits of the case, if necessary.  Slip op. at 29-30.  Of course, the rigorous analysis standard -- which rejects the misreading of Eisen that some courts have used to justify turning a blind eye to anything related to the merits of the case -- came into play in the Wal-Mart v. Dukes case and may receive further explanation by the Supreme Court in the next six weeks.

The Mays court began its class certification analysis with the numerosity requirement.  As I have lamented in this space before, too many people (courts, lawyers, litigants) treat numerosity as a throw-away requirement.  If there are potentially more than some magic number of claimants (often 40 or 100), some treat numerosity as "established" and can get very upset if a defendant won't concede it.

A word of advice:  don't.

As the Mays court explained, numerosity requires much more than simply counting how many people might have claims.  Rather, the proponent of class certification has the burden of establishing the actual impracticability of joinder.  Slip op. at 11 (citation omitted).  Thus, the court can consider a number of factors, including the ease of identifying and locating class members, their geographical dispersion, and ease of service if they were joined.  As the court explained:

. . . The joinder inquiry, like that required for the entire class certification inquiry, requires a fact-specific analysis that turns on the unique circumstances of each case and not on a single factor, such as the number of potential claimants. . . .

Plaintiffs argue . . . that there are a number of properties within the proposed class definitions where coal ash may be present and that these property owners may want to bring claims against TVA.  However, beyond providing the Court with estimates of the number of potential claimants, plaintiffs have not shown what make joinder impracticable given the large number of individual cases that have been filed and are proceeding to trial, the relatively small geographic area in which potential claimants reside or are located, the publicity surrounding the coal ash spill and this litigation, the close proximity of this Court to the location of the potential claimants, the number of attorneys willing to take these cases, the Court's familiarity with this litigation, the Court's ability to resolve broad legal questions and pre-trial discovery issues, and the procedures put in place for moving these cases forward and toward trial.

Slip op. at 12-13 (citations omitted).  The court also rejected the plaintiffs' argument that some claimants may not be able to afford bringing suit, reasoning that such speculation "is not specific evidence showing or indicating that there are indeed barriers to filing suit that would weigh towards a finding of class certification."  Id. at 13.

The Mays court concluded that although plaintiffs had identified a large number of people who might have been affected by the coal ash spill, they had not met their burden to prove "that joinder of these potential claimants is impracticable, or that potential claimants could not bring suit on their own."  Id. at 14.

The court also found that the plaintiffs were inadequate class representatives because they did not seek certification of (and thus risked losing, through res judicata and issue preclusion) personal injury and medical monitoring claims like the ones they had asserted on behalf of many of the named plaintiffs in their complaints.  The Mays court concluded that claim-splitting matters:

. . . [T]he Court finds that it cannot conclusively determine the res judicata effect of a decision yet to be handed down by this Court.  Such a decision is for the forum presented with the issue if and when it arises.  The Court believes that it can, however, assess the risks of such a determination and weigh it in the Court's consideration of class certification.  Accordingly, given the potential effect of res judicata, the application of which may preclude subsequent litigation under certain conditions, along with the application of the single injury rule, which Tennessee courts appear to follow, the Court finds that whether putative class members could bring these claims in a subsequent suit is, at best, undeterminable. 

Id. at 16-17 (citations omitted).  Because claims that had once been asserted by the putative class representatives have now been abandoned without any indication that the absent class members have willingly abandoned those claims, the court concluded that plaintiffs failed to adequately represent the class under Rule 23(a)(4).

The Mays court also determined that the commonality and typicality requirements were not satisfied because "the ultimate determination of each plaintiff's claim will turn primarily on individualized inquiries into how the coal ash affected each plaintiff's specific property interest.  Given the unique location of each plaintiff's individual property, and the unique situation of each plaintiff and his or her use and enjoyment of the property, individualized inquiries will apply to both the property damage and nuisance claims."  Id. at 22-23.

For similar reasons, the court concluded that the proposed class failed the predominance inquiry of Rule 23(b)(3):

[T]he Court agrees with Judge Guyton that these individualized inquiries, such as whether coal ash is or was present on a specific property, the proximate causation inquiry as to whether nondiscretionary conduct for which TVA can be sued caused coal ash to be present on a specific property, how each plaintiff's property interest and use and enjoyment of property has been impacted by the coal ash, and the extent of each plaintiff's damages, will predominate.

Id. at 26.

The Mays opinion is a strong, workmanlike analysis of each element of the class certification inquiry and what issues will have to be tried.  It is notable because -- even though it arose out of a common incident (a coal ash spill) -- the court recognized that the individual issues involved in establishing liability and damages would make the case unmanageable to be tried as a class action.

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

The Supreme Court issued an interesting decision today holding that the Federal Arbitration Act ("FAA") preempts any state law that would require consumer contracts including arbitration provisions to make class arbitration available.  The Court's analysis of the FAA's Savings Clause -- which broadly interpreted Congress's purposes and objectives in passing the FAA -- just goes to show that the Court continues to be all over the lot when it comes to preemption analysis.  Perhaps what is most interesting about the opinion is what it portends for Wal-Mart v. Dukes, which should be decided later this term.

In AT&T Mobility LLC v. Concepcion, No. 09-893 (U.S. Apr. 27, 2011), the plaintiff claimed AT&T should not have charged him sales tax on a phone it marketed as "free."  The mobile phone contract between the parties precluded class arbitration, providing instead that the plaintiff could proceed in arbitration only on an individual basis (or in small claims court).  It also required AT&T to make an initial settlement offer, pay the costs of all nonfrivolous claims submitted to arbitration, forego attorneys fees for itself, and pay a $7,500 minimum recovery and two times the plaintiff's attorneys fees if the plaintiff received an arbitration award that was more than AT&T's last settlement offer.

California's Supreme Court previously had held that including class action waivers in consumer arbitration contracts was unconscionable as a matter of California law. 

Section 2 of the FAA, however, provides that agreements to arbitrate are "valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract."  9 U.S.C. sec. 2 (emphasis added).  In a 5-justice majority opinion (Roberts, Scalia, Kennedy, Thomas, and Alito) written by Justice Scalia, the court held that California's common law rule was preempted by the FAA because California's rule "'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'"  Slip op. at 18 (citation omitted).  Specifically, "[r]equiring the availability of classwide arbitration interferes with the fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA."  Slip op. at 9.

As Justice Scalia explained, "The point of affording parties discretion in designing arbitration processes is to allow for efficient, streamlined procedures tailored to the type of dispute."  Slip op. at 10.  But the California rule -- which would operate in consumer disputes where there is a "contract of adhesion" -- operated directly contrary to the goal of streamlining the resolution of disputes.  Indeed, by creating a mandatory right to class arbitration, that rule provided a disincentive to product suppliers to provide for arbitration at all.  Slip op. at 13. 

The majority had some interesting things to say about the difference between individual and class proceedings -- things that may portend a reversal in Wal-Mart v. Dukes.  Most notable is that the majority recognized that when a class is involved, more formal structural protections are necessary to preserve the due process rights of absent class members and defendants:

This is obvious as a structural matter:  Classwide arbitration includes absent parties, necessitating additional and different procedures and involving higher stakes.  Confidentiality becomes more difficult.  And . . . arbitrators are not generally knowledgeable in the often-dominant procedural aspects of certification, such as the protection of absent parties.  The conclusion follows that class arbitration, to the extent it is manufactured by [the California rule] rather than consensual, is inconsistent with the FAA.

First, the switch from bilateral to class arbitration sacrifices the principal advantage of arbitration -- its informality -- and makes the process slower, more costly, and more likely to generate procedural morass than final judgment. . . . [B]efore an arbitrator may decide the merits of a claim in classwide procedures, he must first decide, for example, whether the named parties are sufficiently representative and typical, and how discovery for the class should be conducted. . . .

Second, class arbitration requires formality.  If procedures are too informal, absent class members would not be bound by the arbitration.  For a class-action money judgment to bind absentees in litigation, class representatives must at all times adequately represent class members, and absent members must be afforded notice, an opportunity to be heard, and a right to opt out of the class. . . .

Third, class arbitration greatly increases the risk to defendants. . . .  Defendants are willing to accept the costs of . . . errors in arbitration, since their impact is limited to the size of individual disputes, and presumably outweighed by savings from avoiding the courts. . . . We find it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe that Congress would have intended to allow state courts to force such a decision.

Slip op. at 13-17.

None of these statements are particularly groundbreaking.  And yet, as I've noted at Point of Law, these are issues -- adequacy of representation, opt-out rights where money damages are involved, predominance and the due process rights of defendants -- that are front and center in the Wal-Mart v. Dukes case that is expected to be decided later this year.  The opinion in Concepcion suggests that there are at least five Justices who may be willing to take some of these issues head-on in the Dukes opinion.

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

You don’t often catch me reading bankruptcy court opinions. I find the Bankruptcy Code impenetrable, and I’m ecstatic that there are smart people at my firm who want to practice in this area so that I don’t have to.

But occasionally a bankruptcy court has something important to say about mass tort litigation.  And so, last week I uncharacteristically sat reading a bankruptcy court decision, In re Motors Liquidation Co., 2011 WL 284933 (Bankr. S.D.N.Y. Jan. 28, 2011).  I even wrote up a post that – to my utter annoyance [insert curse words here] – disappeared into the ether before I could upload it.  That turns out to have been a good thing, though, as there have been subsequent developments that I am now able to share with you in this post.

In Motors Liquidation, Judge Robert Gerber was faced with two basic questions.  First, could the claims against the Old General Motors brought under the Alien Tort Statute be certified as class claims in the proof of claim process?  Second, could ATS claims even be asserted against Old GM at all, given the Second Circuit’s holding in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111, 149 (2d Cir. 2010) that corporate liability cannot form the basis of a suit under the ATS?

Judge Gerber’s opinion gives these two questions straightforward and frank consideration, ultimately answering both in the negative.  Despite the fact that it is a bankruptcy court opinion, Judge Gerber’s opinion is instructive for how questions regarding corporate ATS liability should be answered in the Second Circuit post-Kiobel.

Despite the fact that there is some question about the applicability of Rule 23 to some stages of the bankruptcy process, Judge Gerber’s opinion makes it plain that under classic Rule 23 jurisprudence, there simply is no way that the sweeping class pled in the Apartheid litigation could possibly meet the predominance and superiority requirements of Rule 23(b)(3). The proposed classes spanned over twenty years’ worth of alleged misconduct that purportedly gave rise to at least four causes of action under international law:  “crimes against humanity,” “extrajudicial killing,” “torture,” and “cruel, inhuman or degrading treatment.”  Moreover, the legal issues were complicated by the fact that the Old GM was alleged to have aided and abetted these crimes, not committed them itself directly.  This added layers of questions about action and intent for each incident.

Judge Gerber explained this eloquently:

For both the more general claim of “crime against humanity,” on the one hand, and the more specific ways by which people were injured, on the other, I just see too many individual issues.

The complication (and in my view it’s a major one) is the difficulty in establishing, for so many people’s unique injuries, causation and the requisite purpose on the part of Old GM personnel with respect to whatever was being done to cause or facilitate the particular injury alleged by the claimant (or class member) involved – which in my view is not just a matter of damages but a matter necessary to fix liability in the first place. . . .

. . .

. . . [Claimants’] rights to recover against the Old GM for such injuries would depend not just on their individual damages (which, if that were all, would likely not defeat class certification), but also on the numerous combinations of injury involved, action causing it, assistance of that action, and purpose on the aprt of Old GM personnel to facilitate the commission of the primary violations of international law and resulting injury on which the aiding and abetting claims would be based.

. . .

. . . As relevant here, apartheid was implemented in many different ways, injuring people in many different ways, and Old GM’s alleged wrongful acts and purpose, if any, would have a nexus to the affected people in too many different ways. . . .

. . . [C]laims of secondary liability for aiding and abetting . . . at least normally requires showings not just of the primary violation, but of additional matters applicable to the aider-and-abettor, such as substantial assistance, and a purpose or intent to advance the primary violation.

2011 WL 284933 at *5-*8 (citations omitted).

Judge Gerber also recognized that because any classwide trial would be unmanageable, the superiority requirement of Rule 23(b)(3) also could not be met:

But to proceed on a class action basis, I’d have to choose between holding one or more trials of extraordinary complexity, on the one hand, or taking inappropriate shortcuts as to individual issues of wrongful conduct, causation and requisite purpose and assistance, on the other. . . . I think any shortcuts that would have to be taken to make class action treatment superior as an administrative matter would have to come at the expense of due process concerns.

Id. at *9.

Judge Gerber’s opinion states the obvious, but it is still remarkable for doing so clearly in the face of the inevitable criticism that would come from any opinion finding against classwide recovery in the face of an evil such as Apartheid, no matter how far removed the defendant may have been from it.  The simple truth is that it is beyond cavil that a class action over aiding and abetting millions of individual acts in furtherance of Apartheid over a more than twenty-year period presents too many individual issues to be adjudicated in a single classwide trial consistent with a defendant’s due process rights.  Judge Gerber’s opinion gives the roadmap to this conclusion.

As for the second question, Judge Gerber recognized that the Second Circuit in Kiobel already instructed that there cannot be corporate liability under the Alien Tort Statute:

No corporation has ever been subject to any form of liability whether civil, criminal or otherwise) under the customary international law of human rights. Rather, sources of customary international law have, on several occasions, explicitly rejected the idea of corporate liability. Thus, corporate liability has not attained a discernable, much less universal, acceptance among nations of the world in their relations inter se, and it cannot, as a result, form the basis of a suit under the Alien Tort Statute.

Id. at *13.

The plaintiffs offered Judge Gerber a number of reasons to ignore Kiobel.  It was subject to a motion for rehearing.  The opinion had raised the issue sua sponte and not had the benefit of briefing by the parties.  Another panel of the Second Circuit had not reflexively followed Kiobel yet in an appeal.

But Judge Gerber rejected all of these arguments, sticking to the limited scope of his authority:

[T]hose are points for the Circuit to consider, not me; I’m bound as a lower court in the Second Circuit to abide by any Second Circuit holding. As “corporate liability . . . cannot . . . form the basis of a suit under the ATS,” and each of the claims submitted by the Aparthied Claimants is alleged against a corporation, I must disallow the remaining claims.

Id. at *14 (citation omitted).

Judge Gerber was right.  One week later, the Second Circuit issued two orders:  one from the panel that heard the case denying rehearing by the panel, and another order denying the petition for rehearing Kiobel in banc, reflecting a tied 5-5 vote.  The former order really merits reading, as it places the debate about corporate liability under the ATS in context.  This much is abundantly clear:   Kiobel is Second Circuit law and can no longer be avoided.

Interestingly, some of the news services have been reporting that the Eleventh Circuit recently decided an ATS case that creates a split with Kiobel.  See Baloco v. Drummond Co., No. 09-16216 (11^th Cir. Feb. 3, 2011).  But although Baloco results in the continuation of ATS claims against a corporate defendant, nowhere does it undertake an analysis of whether customary international law actually allows claims against juridical entities.  Rather, in Baloco, the court held that family members of union leaders killed in Columbia adequately pled causes of action under the ATS, the Torture Victims Protection Act, and Columbian wrongful death law. The court in Baloca also considered whether the plaintiffs were bound by the res judicata effect of a prior action, holding that the minor children – who, according to the pleadings, had not been represented by guardians in the prior proceeding – could not be bound by the res judicata effect of the prior proceeding.

Notably, Judge Gerard E. Lynch, in dissenting from the denial of in banc rehearing in Kiobel, argued that that Kiobel had caused a circuit split with the 11th Circuit due to its decision in Romero v. Drummond Co., 552 F.3d 1303, 1315 (11th Cir. 2008).  We no doubt will see this argument advanced forcefully in certiorari petitions in the U.S. Supreme Court.

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

I keep hearing that, in legal circles at least, "Green" is the new black.  In keeping with this trend, I'm recycling yesterday's National Law Journal column into a blog post.  The full column can be read here.

When expert testimony is used at the class certification stage of the proceedings, how should it be evaluated?  Some courts -- like the 9th Circuit in the blockbuster Dukes v. Wal-Mart decision -- have exhibited a reluctance to scrutinize such testimony with the full rigor of the Daubert standard for admissibility.  This squeamishness is often expressly rooted in the notion derived from Eisen that courts should not get into the underlying merits of the case in deciding class certification issues.

The better approach -- and, indeed, the one followed by more recent decisions -- is to apply Daubert with it full rigor, even if it requires touching on the merits of the suit.  This is consistent with the Supreme Court's mandate in Falcon to rigorously scrutinize whether each of the class action prerequisites have been met, even if that requires looking into the underlying merits of the action.

My NLJ column gives some recent examples of courts that have excluded expert testimony that classwide proof could be used to establish loss or causation because that testimony was based on insufficiently reliable methodology.

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

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

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

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

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

Id. at *1.

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

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

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

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

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

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

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

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

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

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

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

Colleagues at my firm are involved in this litigation, so I'll stick to brief reportage, but the MDL transferee presiding over Light Cigarette Litigation, Judge John A. Woodcock, Jr., issued an opinion on Wednesday denying class certification for lack of predominance, superiority and/or constitutional standing.  See In re Light Cigarettes Marketing Sales Practices Litig., No. 1:09-md-02068-JAW, Slip op. (D. Me. Nov. 24, 2010).

In the cases, plaintiffs are suing Philip Morris USA and Altria Group, claiming that the marketing for light cigarettes was misleading in that it caused people to think they would consume less tar and nicotene by smoking light cigarettes than they would if they smoked regular cigarettes, when in fact they allegedly would not.  Plaintiffs alleged that smokers "compensated" for the cigarettes' lower tar and nicotene levels by, inter alia, smoking heavier and blocking ventilation holes, so that they ended up consuming the same amount of tar and nicotene as the smokers of regular cigarettes.

The plaintiffs' lawyers were very careful about the classes and claims that they first advanced for class certification.  They moved to certify a class of California residents, asserting claims under the Unfair Competition Law, the Consumer Legal Remedies Act, and the False Advertising Law.  They moved to certify a class of District of Columbia residents under the DC Consumer Protection and Procedures Act and common law unjust enrichment.  They moved to certify a class of Ilinois residents under the Illinois Consumer Fraud Act and common law unjust enrichment.  And they sought to certify a Maine class just under the theory of unjust enrichment.

The court first analyzed the requirements of Rule 23(a), and concluded that the proposed classes met each of these requirements:  numerosity, commonality, typicality and adequacy of representation.  Notably, the court rejected the defendants' argument that plaintiffs -- by splitting causes of action and abandoning personal injury claims and other causes of action for economic harm -- had failed the adequacy of representation requirement.  Slip op. at 25-26.  The court acknowledged the general rule against claim-splitting, but reasoned that personal injury damages are different enough from causes of action for economic harm that the former could not be said to be capable of being obtained in this putative class action.  (The court did not, however, address the fact that many of the causes of action the plaintiffs failed to assert, such as for common law fraud and breach of warranty, were capable of being pursued in the action and would be barred by the res judicata effect of any classwide judgment in the case.)

The court concluded, however, that the predominance requirement of Rule 23(b)(3) was not met because plaintiffs could not establish causation and injury with classwide proof:

Whether the class members were damaged because of the Defendants' misrepresentations is an individual inquiry that cannot be proven on a class-wide basis.  The record contains unrefuted evidence that many light cigarette smokers do not fully compensate when they smoke and that the extent of their compensation can only be predicted by assessing their smoking habits. . . .  If smokers did not fully compensate, they were not injured by the representations because they received lower levels of tar and nicotene.  There is also significant record evidence that many smokers did not believe the Defendant's claims that light cigarettes had lower tar and nicotene and smoked light cigarettes for reasons unrelated to the alleged health benefits. . . .  For these smokers, there is no causal conection between the misrepresentation and the purchases of light cigarettes. 

Slip op. at 28-29 (citations omitted).

In analyzing the argument, the court recognized that Illinois' ICFA, Illinois unjust enrichment, and California's CLRA, all require proof of causation.  Plaintiffs said they could put on classwide proof of causation, but the court disagreed.  The plaintiffs also argued that California's UCL and DC's CPPA, along with the unjust enrichment causes of action in Maine and DC, do not require proof of injury or causation. 

The court conceeded that the elements of unjust enrichment in Maine and DC do not articulate a precise injury and causation requirement.  Nevertheless, the court held that they were inherent in the cause of action:

However, the Plaintiffs do not explaine why it is unjust for the Defendants to retain the money from someone who did not believe their representations when purchasing, did not purchase because of their representations, or received the benefit promised. . . . [Plaintiffs] have not established why, absent injury and causation, the Defendants' 'retention of the benefit is unjust."

Id. at 33.

The court also acknowledged that the DC CPPA and California's UCL purport not to require injury and causation of absent class members.  But the court held that it would be without Article III  jurisdiction to adjudicate a class action for which the claimants had not experienced an injury caused by the challenged conduct:

Here, the proposed classes include class members without standing.  Each state's class effectively includes everyone who purchased light cigarettes in the respective limitations periods, and this group necessarily includes class members who knew light cigarettes were not healthier than other cigarettes, notwithstanding Defendants' alleged representations to the contrary.  Those class members were not injured by the Defendants' misconduct and thus do not have standing. 

Id. at 37.

Importantly, the court also held that the defendants' affirmative defenses -- the statute of limitations and the voluntary payment doctrine -- presented individual issues that could not be adjudicated on a classwide basis and thus prevented class certification.  Id. at 40-41.  Additionally, the court concluded that "[d]espite the strong policy in favor of certification, individual issues of injury, causation, and affirmative defenses defeat the superiority of class treatment."  Id. at 42.  Finally, it found the California plaintiff's claim for certification of injunctive relief under Rule 23(b)(2) failed because it was mooted by the federal Family Smoking Prevention and Tobacco Control Act, which included a prohibition on certain marketing that was "broader than the relief [plaintiff] seeks."  Id. at 43.

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

It really chaps my tucchus when courts engage in a thoughtful legal analysis in an opinion and then declare that it's "unpublished" and therefore "not precedential."  News flash:  We live in the Internet Age, and there is no such thing as an "unpublished" decision anymore.  And as my Granddaddy used to say, "Anything worth doing is worth doing right."  Unless these courts are actually admitting that they got it wrong in their opinion, I say it's fair game to study, learn from, and even -- heaven forfend -- cite such opinions where they support your position.

What has my dander up this morning, you ask?  The Fifth Circuit's recent decision in In re Katrina Canal Breaches Litig., No. 09-31071 (5th Cir. Nov. 11, 2010), in which the court affirmed the trial court's denial of class certification using a thoughtful analysis of the predominance requirement, and then declaring the decision to be unpublished.

Plaintiffs in Katrina were policyholders who sued insurance companies under a Louisiana statute for bad faith in adjusting their Katrina-related insurance claims and not paying plaintiffs what they had claimed within 30 days after the insurers received proof of loss.  (I should note that my firm represents an insurer in such litigation.)  The trial court held that the class could not be certified because it failed the predominance requirement of Rule 23(b)(3).  The Fifth Circuit affirmed.

The began by explaining its job in evaluating the predominance inquiry:

The court must assess 'how the matter will be tried on the merits, which "entails identifying the substantive issues that will control the outcome, assessing which issues will predominate, and then determining whether the issues are common to the class."'

Slip op. at 3 (citation omitted).

The court then looked to the governing Louisiana statute, which requires proof that the insurer received satisfactory proof of loss, yet failed to tender payment within 30 days of receipt, and that its failure was arbitrary, capricious, or without probable cause.  Louisiana's Supreme Court has instructed that "[t]his standard requires an assessment of the reasonableness of the defendant's conduct, and 'when there are substantial, reasonable and legitimate questions as to the extent of an insurer's liability or an insured's loss, failure to pay within the statutory time period is not arbitrary, capricious or without probable cause.'"  Id. (citation omitted).

The fundamental underlying question was whether the claims were covered "wind damage," or were "flood damage" from the storm surge that were excluded from the policies.  The court held that "each Plaintiff's claim turns on the reasonableness of the Defendant's conduct in deciding whether to make payments to each individual Plaintiff."  Id.

Plaintiffs argued that the defendants' bad faith could be adjudicated on a class-wide basis because they had alleged a scheme to deny claims in which they all participated.  The court disagreed:

But even in the face of such a scheme, individualized issues will predominate, such as the nature and extent of a class member's damage, whether and how much a class member was paid and for what type of damage, and whether any payment was sufficient and timely.  There will also be issues as to whether the class member fulfilled his duty to timely notify the insurer of the claim and whether there was sufficient proof of loss.  All of the individual inquiries will be part of the overall determination of whether the insurer acted arbitrarily and capriciously, and therefore defeat class certification.

Id. at 4.  The court reiterated that the Louisiana Supreme Court already had instructed that evaluating the insurer's reasonableness "will necessarily involve detailed and individualized consideration of each class member's claim."  Id.

Plaintiffs also argued that the federal court should have certified the class because some Louisiana state courts have permitted similar class actions.  The Fifth Circuit, citing Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 130 S. Ct. 1431 (2010), rejected this argument, arguing that federal class action procedure is governed by federal -- not state -- procedural rules.  Id. at 4-5.

Stunningly, plaintiffs -- who had refused the trial court's invitation to re-plead their action as an individual one -- argued that the trial court erred in refusing their request that it order the insurers to issue notice to their customers (effectively a class notice) that they may have individual rights to recovery under the Louisiana statute.  Not surprisingly, the Fifth Circuit rejected this out of hand:

Even assuming that the district court had the power to issue such an order, which we do not decide, there is nothing that requires the court to order notice of the denial of class certification, and we find no abuse of discretion in the court's refusal to do so.

Id.  The court cited authorities noting that plaintiffs, not defendants, bear the cost of class notice, and that where a court denies certification, the notice provisions of Rule 23(e) do not apply.

This Katrina opinion merits discussion, regardless of whether the Fifth Circuit thinks it should be published.

• Email This
• Print
• Comments
• 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

Judge Posner recently issued a whopper of a decision holding that a district court abused its discretion in not enjoining the relitigation of the denial of class certification in other courts throughout the country.  See Thorogood v. Sears, Roebuck & Co., No. 10-2407, Slip op. (7th Cir. Nov. 2, 2010).

The procedural history of the case is somewhat tortured.  Steven Thorogood and his lawyer, Clinton Krislov, sued Sears in state court.  The case was removed to the Northern District of Illinois and was a putative class action, alleging that the defendant had committed consumer fraud by marketing a clothes dryer as having a stainless steel drum when, in fact, there was a part of the drum that was ceramic-coated mild steel.  Thorogood's case was a "diminished value" case; it did not allege that the class experienced any rust getting on their clothes or other damage to person or property.  Rather, the dryer purportedly wasn't worth as much as what the purchasers allegedly thought they were purchasing.  The trial court had certified the class, but the Seventh Circuit then reversed, holding that "[i]t was well-nigh inconceivable that the other members of the class had the same understanding of Sears's advertising as Thorogood claimed to have."  Id. at 5.  As such, the court held that the issues of fraud and damages presented individual questions of fact, making the class fail the predominance requirement.  The Thorogood case then went down to the district court and back up to the Seventh Circuit on another issue before it was dismissed for good.

The same lawyer, Mr. Krislov, filed a copycat case in California on behalf of a new plaintiff, Martin Murray.  This suit was a putative class action brought on behalf of California residents.  The trial court initially had held the suit was barred by collateral estoppel, but it allowed Murray to amend his complaint.  After amendment, the court held that the case was different enough from the Illinois action that it could proceed to discovery. 

Sears had moved in the Northern District of Illinois for an injunction preventing Mr. Krislov and any putative member of the Thorogood class from relitigating the issue of class certification in another court.  The District Court refused, reasoning that Sears could use the collateral estoppel defense in any suit brought by members of the failed Thorogood class.

The Seventh Circuit reversed.  It found jurisdiction in the All Writs Act, which authorizes a federal court to issue all writs necessary in aid of its jurisdiction.  Id. at 3.

Judge Posner clearly thought very little of the underlying class action.  He called Thorogood's claim a "confabulation" (id. at 6), and said "[t]he merit of Murray's case, like Thorogood's, of which it is a close copy, is slight."  Moreover, he labelled lawyer Krislov's tactics of filing a new California class action and then pressing expansive discovery "something close to settlement extortion."  Id. at 12.

Judge Posner's opinion does a fine job of setting out the irreparable harm to the defendant, explaining the overwhelming pressure to settle that is generated by the multiple filings of even patently bogus class action, given the costs of discovery and the all-or-nothing nature of a class action trial.  See id. at 12-14.  He even cites fellow blogger Andrew Trask's new book when acknowledging that one rarely-admitted purpose of discovery is to make the opponent spend money.  Id. at 15.  He concluded that "Sears's action under the All Writs Act is its only means . . . of avoiding being drowned in the discovery bog."  Id. at 18.

The court concludes that absent class members are bound by collateral estoppel on the denial of class certification, which was based on there being too many individual issues such that predominance could not be satisfied.  Id. at 20.  Sears thus was entitled to an injunction against lawyer Krislov and the members of Thorogood's putative class from bringing class actions on the same claims.  Id. at 22-23.  The injunction could not, however, prevent individual suits.  Moreover, the court directed:

The injunction should state that no unnamed class member can be punished for contempt until and unless a copy of the injunction is served on him; should cover all class action suits challenging representations, in Sears' existing advertising, labeling and other marketing that hte stainless steel drums in Kenmore dryers are made of stainless steel; and should not forbid class action suits challenging representations materially different from those in Thorogood's and Murray's cases, or representation concerning a dryer that contains a different amount of stainless steel.

Id. at 23.

This decision clearly implicates issues that are before the U.S. Supreme Court in Smith v. Bayer Corp.  But this is a strong articulation of why injunctive relief should be available to prevent abuse of the class action tool to coerce a defendant to settle claims where it already has won the issue of class certification.

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

Every once and a while you come across a class action in which a lawyer seems to have found a technical violation of a statute and made a federal case of it, even though no one has been injured.  Loreto v. Procter & Gamble Co., 2010 WL 347152 (S.D. Ohio Sept. 3, 2010) is one of those cases.

In Loreto the defendant loaded its NyQuil and DayQuil cold and flu products with 150% of the recommended daily allowance of Vitamin C, using an ad campaign with famous TV moms (Mrs. Cunningham from Happy Days, Shirley Partridge from the Partridge Family, and Mrs. Brady from the Brady Bunch) touting the fact that the products help "replenish" the Vitamin C that the body needs and may help blunt the effects of the cold or flu. 

The FDA, apparently, was not amused.  Long ago, it had convened an advisory committee and issued a monograph that "does not allow for the combination of vitamin C with any of the other active ingredients" in cold and flu products.  Id. at *4.  The committee had found some evidence that vitamin C might be effective in mitigating cold or flu symptoms, but there was no evidence to suggest effective dosing.  In response to the defendant's advertising campaign, the FDA sent a warning letter stating that the vitamin C-laden products "'do not comply with the final monograph for OTC Cough-Cold'" medicines and thus, the FDA did not recognize them as safe and effective.

That's all some plaintiffs' lawyers needed to file a putative nationwide class on behalf of all purchasers, alleging violation of every state's consumer protection statute, as well as unjust enrichment.  They alleged that class members would have bought other, cheaper products if they had known the facts set forth in the FDA Warning letter.

Judge Timothy Black dismissed the complaint with prejudice.  To begin with, he noted that the named plaintiffs were New Jersey residents.  Thus, he analyzed the state consumer protection statute claim solely under New Jersey's statute.  Id. at *5-*6.  In doing so, he considered the defendant's argument that the NJCPA claim was barred by 21 U.S.C. sec. 337(a), which has been interpreted to mean that there is no private cause of action to enforce the provisions of the Food, Drug, and Cosmetics Act.  The court explained that plaintiffs could not "'use other federal statutes or state unfair competition laws as a vehicle to bring a private cause of action that is based on violations of the FDCA,'" or, in other words, they could not assert a claim that would not exist if the FDCA did not exist.  Id. at *7 (citation omitted).

The court held that plaintiffs failed this standard, because the only facts they pled to establish that the NyQuil and DayQuil products were ineffective was the FDA's warning letter.  That letter, as the court noted, only said FDA didn't recognize the safety and effectiveness of the products.  In fact, there was no evidence that vitamin C counteracts or inhibits the other ingredients in the products, and there was even evidence to suggest that vitamin C itself may be effective -- even if FDA does not formally recognize it.  Most important, plaintiffs did not plead that the products didn't work for them.  Thus, plaintiffs' cause of action under the NJCPA really was just asserting a technical violation of the FDCA, not that the defendant's products failed to actually work.  As such, the claim was one to enforce the FDCA in violation of 21 U.S.C. sec. 337(a).  Id. at *9-*10.

The court also held that plaintiffs lacked any injury that would give them standing to bring an NJCPA claim or an unjust enrichment claim.  Importantly, the court observed that:

Ascertainable loss is insufficiently pled where a plaintiff simply contends that the price charged for the misrepresented product 'was higher than it should have been as a result of defendant's fraudulent marketing campaign.'

Id. at *11.  The court noted that the complaint had no factual allegations that the medicines were ineffective in relieving the symptoms of plaintiffs' colds or flu.  Accordingly, plaintiffs got what they bargained for:  cold and flu medicine.  Thus, the unjust enrichment claim had to be dismissed.  Id. at *12.  

The court concluded that its dismissal should be with prejudice because plaintiffs had been given three opportunities to plead injury, including one attempt at re-pleading after the defendant had first filed its motion to dismiss.  (One might wonder why plaintiffs would not have pled personal facts about their experience with the products.  Other than the fact that the products probably worked just fine, the answer is simple:   if personal facts about the effectiveness of the products are necessary, then class certification clearly would be inappropriate because such individual inquiries would fail the predominance requirement of Rule 23(b)(3).  Plaintiffs often avoid personalizing pleadings precisely to avoid creating problems for themselves at the class certification stage.)

Loreto is an excellent example of how the "no private right of enforcement" argument can be used to dismiss specious class actions alleging technical statutory violations, but no real harm.

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

I grew up in a part of the U.S. of A. where iced tea is Lipton's black tea that was freshly brewed that morning.  So you can imagine what I think of Snapple.  (Or green tea.  Or Starbuck's "Passion" tea, for that matter.)  I'll confess, some of Snapple's crazy flavors that don't try to be tea are pretty enjoyable.  I'll have a Kiwi-Strawberry Juice Drink, please.  You can keep the "tea."

Recently the folks at the Washington Legal Foundation were kind enough to let me update one of my prior blog posts about a Snapple case and turn it into one of their "Legal Opinion Letters."  You can download it here.  It discusses Judge Denise Cote's denial of class certification against Snapple for allegedly failing to disclose that some of its drinks contain high fructose corn syrup -- or what the corn lobby reportedly now wants to call "Corn Sugar." 

(Who ever knew there was a "corn lobby," anyway?  The Corn Palace, yes.  I've been to Mitchell, South Dakota.  But I don't think even it has a corn lobby.) 

In her opinion, Judge Cote applies rigorous analysis to the class certification prerequisites, kicks the plaintiffs' expert out of the case on Daubert grounds, and concludes that plaintiffs failed to meet the predominance requirement of Rule 23(b)(3).  It's worth a read if you haven't seen it yet. 

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

A number of prominent, scholarly people keep trying to explain why aggregate proof of causation should be allowed in order to facilitate class action litigation.  Judge Jack B. Weinstein has done it in his opinions.  Professor Sam Issacharoff has written about it.  And many deans of the plaintiffs' bar have argued for it.

But nobody has been able to explain to my satisfaction how one uses Rule 23 -- which is not supposed to (and constitutionally could not) alter the substantive elements of claims or defenses -- to deprive a defendant of the right to challenge each class member on the element of legal causation, where such factual challenge would be possible if the class members sued individually. 

Recently, the Second Circuit took up the question of aggregate proof in a third-party payor case against a pharmaceutical company.  In UFCW Local 1776 v. Eli Lilly & Co., No. 09-0222-cv, Slip op. (2d Cir. Sept. 10, 2010), union health benefit plans and other third-party payors for plan members' prescriptions sued the maker of Zyprexa in a class action lawsuit, alleging RICO violations, common law fraud, unjust enrichment, and violations of state consumer protection statutes.  In a lengthy opinion, Judge Jack B. Weinstein had certified a class of third-party payors on the theory that they had paid a higher price for Zyprexa than they would have if the maker had not allegedly misrepresented certain product risks and promoted the medicine for unapproved uses.  Professor Issacharoff defended the certification on appeal, arguing for aggregate proof of causation.

The Second Circuit reversed, and in doing so, had some important things to say about aggregate proof.  The court noted that the market for prescription medicines involves lots of intermediaries:

[D]irect exchanges between consumers and producers are rare.  An individual patient does not choose what drug to take; she is prescribed a drug by her physician.  Nor does the individual patient always pay directly for that drug.  Rather, a TPP, such as her insurance provider, often pays some or all of the drug's cost.

. . . The [TPP's] formulary is usually managed by a Pharmacy Benefit Manager ("PBM"). . . . Drugs placed on a formulary are approved by the PBM's Pharmacy and Therapeutics Committee, made up of physicians and clinical pharmacists. . . .

[I]n the market for prescription drugs, three sets of price negotiations exist:  "(1) retail pharmacies and nonretail providers negotiate with pharmaceutical managers and wholesalers, (2) payors (often through PBMs) negotiate with pharmaceutical manufacturers and wholesalers, and (3) payors negotiate with retail pharmacies and nonretail providers.  The negotiations over price, moreover, do not intersect with the therapeutic choice of what drug a patient should take, which is a decision made by a physician with only minimal input by her patient or the TPP.

Slip op. at 9-10.

It was precisely because of these intermediaries -- and the independent way in which they make their decisions -- that the court held that "but-for" causation could not be the subject of aggregate proof.  Because doctors consider things other than a manufacturer's statements about the efficacy and side effects of its medicine when they are deciding what medicine to prescribe, reliance could not be presumed for each prescription.  Id. at 26.

The court also rejected plaintiffs' theory of proximate cause -- namely, that because the manufacturer put out alleged misrepresentations, the doctors necessarily relied on them to prescribe more of the medicine and the TPPs paid for it.  The court explained:

This narrative skips several steps and obscures the more attenuated link between the alleged misrepresentations made to doctors and the ultimate injury to the TPPs.  In fact, if plaintiffs' factual allegations are correct, the chain of causation runs as follows:  Lilly distributes misinformation about Zyprexa, physicians rely upon the misinformation and prescribe Zyprexa, TPPs relying on the advice of PBMs and their Pharmacy and Therapeutics Committees place Zyprexa on their formularies as approved drugs, TPPs fail to negotiate the price of Zyprexa below the level set by Lilly, and TPPs overpay for Zyprexa. . . .  [P]hysicians, PBMs, and PBM Pharmacy and Therapeutics Committees all play a role in the chain between Lilly and TPPs.

Id. at 27.

The court also noted that doctors rely on a variety of sources for information about medicines other than the manufacturer, including their own knowledge and experience.  Because it was possible -- indeed, even probable -- "that at least some doctors were not misled by Lilly's alleged misrepresentations" and thus did not fall within plaintiffs' theory, the court concluded that "[t]his makes general proof of but-for causation impossible."

Plaintiffs' counsel keep trying to import the concept of aggregate proof from securities litigation, where the presumption of an efficient market suggests that information that is disclosed about a product necessarily affects its price.  But that is not how the markets for consumer goods work.  Disclosures do not move markets.  People buy consumer goods for a variety of reasons -- even irrational ones.  The Second Circuit stressed that fact in McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008).  And a defendant accused of consumer fraud is allowed to challenge each person's decisionmaking process and to prove that nothing it said harmed the plaintiff.  The fact that it is a class action in which the allegations are made does not change that simple fact. 

Hopefully the recent decision in Local 1776 puts the aggregate proof concept to rest in consumer class actions.  But it probably won't.  My colleagues on the other side of the "v" are creative and indefatigable.  As for me -- I'll keep my focus on the fact that Rule 23 doesn't change the substantive rules, no matter what.  And as long as one can demonstrate independence of thought and action in the consumer marketplace, the concept of "aggregate proof of causation" or a "presumption of reliance" amounts to a change of the substantive rules just to facilitate class certification.  And that's just wrong.

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

Yesterday the National Law Journal published my column on the preclusive effect of decisions denying class certification.  The article also addressed the Eleventh Circuit's recent punt on the preclusive effect of the phase one findings of the class action trial of the Engle case, which was decertified by the Florida Supreme Court.

Being a believer in recycling, I encourage you to read the column here.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Slip op. at 11.

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

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

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

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

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

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

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

Id. (citations omitted).

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

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

Id. at 12 (citations omitted).

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

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

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

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

Id. at 16 - 17.

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

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

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

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

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

Id. at 22-23.

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

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

Class actions for personal injuries are almost never certified.  Invariably, they present too many individual issues -- particularly of specific causation -- for common issues to predominate over individual issues in a classwide trial.

It was little surprise, then, when U.S. Magistrate Judge Jeremiah McCarthy recommended denying certification of a personal injury class in a case arising out of the sale of ground beef tainted with E.coli bacteria.  See Patton v. Topps Meat Co., LLC, No. 07-CV-00654(S)(M), Report and Recommendation, Slip op., (W.D.N.Y. May 27, 2010) (available here at Law360, subscription required).

In Patton, Topps Meat Company -- which distributed meat to Wal-Mart, Pathmark, and Shoprite stores -- had issued two voluntary recalls of some 21.7 million pounds of ground beef products based on potential E.coli contamination.  The recalls bankrupted Topps.  The Centers for Disease Control and the Department of Agriculture investigated and found 40 cases of E.coli infection traceable to Topps' product in 8 states.

All of the named plaintiffs claimed to have experienced personal injuries as a result of consuming contaminated meat.  They sought to certify 2 classes:  a personal injury class, and a "consumer class" for those who suffered only economic harm.  They asserted a variety of legal theories, including strict liability, negligence, breach of implied warranty of fitness, negligence per se, and breach of consumer protection statutes.

Magistrate Judge McCarthy recommended denying certification of any class in a Report and Recommendation, which plaintiffs must object to by June 14.  He first analyzed the Rule 23(a) factors, and then proceeded to the 23(b) factors.

Interestingly, he agreed with plaintiffs that the numerosity requirement was met.  The CDC had identified only 40 cases of E.coli contamination, and of those, 9 people already had filed suit.  That hardly suggests to me that joinder of all class members was impracticable.  Nevertheless, the court credited the testimony of plaintiffs' expert that for every case diagnosed by the CDC, there are 20 cases that go undiagnosed.

Magistrate Judge McCarthy held that the typicality requirement, however, was not met.  Although the issue of general causation -- i.e., whether E.coli could cause the type of injuries suffered by class members -- was likely common to the class, he reasoned that the issue of specific causation -- i.e., whether E.coli caused each class member's individual symptoms -- was not capable of classwide proof.  Instead, it would require individualized proof, which was made all the more difficult because none of the named class representatives had tested positive for E.coli in their stool samples.  Moreover, some of the putative representatives' symptoms fell outside the "window of outbreak" and "incubation period" to be expected if s/he had E.coli contamination.  In short, because the proof about each putative class representative would be highly individualized and not tend to establish the claim of any other class member, the class members failed the typicality requirement.  Slip op. at 8-9.

The Magistrate Judge also concluded that the putative class representatives failed the adequacy of representation requirement because they would have to focus too much on establishing the elements of their individual claims.

Plaintiffs had sought to certify a limited fund class under Rule 23(b)(1)(B).  Magistrate Judge McCarthy ultimately rejected plaintiffs' speculation that the pool of available insurance coverage was only $11 million.  With other defendants and their available insurance, it was much more than that.  But as the Magistrate Judge correctly pointed out, Justice Scalia's opinion in Ortiz v. Fibreboard Corp., 527 U.S. 815, 843-44 (1999), seriously calls into question whether Rule 23(b)(1)(B) can ever be used to "aggregate unliquidated tort claims on a limited fund rationale."  Slip op. at 12.

As for the predominance requirement of Rule 23(b)(3), Magistrate Judge McCarthy correctly held that common questions of law do not predominate because the court could not impose the law of New York on foreign plaintiffs who bought, consumed, and were injured by products in their home states.  The law -- particularly the law of consumer fraud -- was simply too different to be applied in a single classwide trial.  Plaintiffs did not disagree, but simply argued that New York had an interest in imposing its law because Topps was a New York company.

Judge McCarthy also correctly concluded that common fact issues could not predominate the personal injury class where issues of specific causation for each class member were so important.

Plaintiffs argued that an issue class certification under Rule 23(c)(4) was justified, but Magistrate Judge McCarthy -- citing the Second Circuit's seminal decision in McLaughlin v. American Tobacco Co., 522 F.3d 215, 234 (2d Cir. 2008) -- recognized that merely obtaining a finding on specific causation would do little to advance the ball in this litigation, and would not reduce the range of issues in dispute or promote judicial economy.  Slip op. at 19.

Interestingly, in adjudicating the question of whether the consumer class for economic harm should be certified, the Magistrate Judge did not undertake as extensive an analysis of each Rule 23 factor.  He addressed some arguments on typicality, finding that the plaintiffs met the typicality requirement.  Rather, his rejection of the consumer class turned almost exclusively on his determination that a class action was an inferior method of adjudicating the class members' claims, thus failing the superiority requirement.  The defendants already had a refund program in place, where all a claimant had to do to recover what she paid for the beef was to submit her proof of purchase.  The Magistrate Judge cited authorities finding such refund programs to be superior to creating new class action litigation. 

Patton is one of those opinions that leads you to ask the fundamental question "Why do we need a class action in this instance?"  Those with any serious physical injuries -- which are undoubtedly few -- can bring an individual claim.  (Plaintiffs indicated that the average recovery for E.coli personal injury claims is $1.4 million.  Slip op. at 17.)  And anyone who simply spent money on the beef can get their money back directly from defendants' refund program.  What can be achieved by injecting a class action into the situation, other than creating a large claim for counsel fees?

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