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

I've previously opined on this blog and elsewhere that global warming litigation -- at least cases in which individuals seek damages from companies that emit greenhouse gasses -- has no leg to stand on because causation is so attenuated and the issue is tied up with important political questions that are committed to the expertise of federal agencies like the EPA, as well as Congress.

My viewpoint was confirmed a few years ago in a case called Comer, in which a Mississippi federal court dismissed a class action filed by Hurricane Katrina victims who sought to blame their loss on various energy and mining companies.  The trial court had held that the chain of causation was too attenuated to confer constitutional standing on the plaintiffs, and it further held that the case should be dismissed under the political question doctrine because it required the federal court to decide policy questions about greenhouse gas emissions that were committed to the province of the political branches.

Comer had a curious subsequent history.  Plaintiffs appealed to the Fifth Circuit, where they won a partial victory, with the appellate court reversing the judgment on the state law claims of public and private nuisance, trespass, and negligence.  The defendants, however, petitioned for rehearing en banc, and the Fifth Circuit granted the petition and vacated the three-judge panel's decision.  Then, a Fifth Circuit judge was recused, resulting in the loss of a quorum for an en banc panel to act.  The Fifth Circuit thus dismissed the appeal and reinstated the District Court's opinion.  Plaintiffs did not petition the U.S. Supreme Court for certiorari, but instead petitioned for a writ of mandamus to require the Fifth Circuit to reinstate the appeal.  The Supreme Court denied plaintiffs' petition, and thus the District Court's opinion dismissing the lawsuit remained the law of the case.

In May 2011, Ned Comer and the other plaintiffs filed a virtually identical lawsuit in the same District Court asserting the causes of action the three-judge panel had said should have been remanded:  public and private nuisance, trespass, and negligence.  Plaintiffs sued the same defendants, and added a few more.  Feeling as if it was Groundhog's Day, the defendants once again moved to dismiss.

Yesterday the court issued an opinion unsurprisingly granting the defendants' motion to dismiss.  See Comer v. Murphy Oil USA, Inc., No. 1:11CV220-LG-RHW, Slip op. (S.D. Miss. Mar. 20, 2012).  The court's primary holding is that the suit is barred by the doctrines of res judicata and collateral estoppel.  The 11 plaintiffs in Comer I are the same plaintiffs who have brought Comer II.  The district court's order in Comer I was a final order dismissing the case for lack of jurisdiction, which is a decision on the merits for the purposes of res judicata.  Plaintiffs had a full and fair opportunity to argue the issue in the first suit.  The two suits involve the same "transaction," namely damages arising out of the occurrence of Hurricane Katrina.  Moreover, the admitted purpose of the second lawsuit is to convince the court that it was wrong in the first lawsuit.

The district court's res judicata holding should have ended the issue.  However the court, "out of an abundance of caution," went on to address the defendants' additional arguments.

The court held that plaintiffs lacked Article III standing to assert their state law claims.  The court focused on the causation element of the standing inquiry.  It noted that the U.S. Supreme Court found that a state had standing to bring a lawsuit to force the EPA to issue greenhouse gas regulations in Massachusetts v. EPA, 549 U.S. 497 (2007).  However, the Supreme Court gave special deference to a state  suing in its capacity as a quasi-sovereign, and expressly reserved the question of whether an individual would have standing to bring a global warming claim.  Moreover, the Supreme Court had acknowledged that causation regarding greenhouse gases emissions was a difficult global problem, and that any domestic reductions in emissions likely would be offset by increases in developing countries.

The district court also observed that in American Electric Power Co. v. Connecticut, 131 S. Ct. 2527 (2011), the Supreme Court was equally divided on the question whether states had standing to file lawsuits against corporations to reduce greenhouse gas emissions, and it expressly reserved the question whether individuals could assert such standing.

The plaintiffs in Comer II relied on authorities under the Clean Water Act finding standing where the defendants were merely alleged to have contributed to plaintiffs' injuries.  The district court distinguished their authorities, relying in part on Native Village of Kivalina v. Exxonmobil Corp., 663 F. Supp. 2d 863 (N.D. Cal. 2009), which had explained that CWA cases only find "contribution" standing where a presumption of standing arises as a result of a defendant's violation of federally-mandated pollution limits.  Where, as here, there is no such federally-mandated limit on greenhouse gases (and thus no such violation), no presumption can arise.  Moreover, even the CWA cases recognized that a point of discharge can be too remote from the plaintiff's injury to be legally recognized as a contributing cause.  See slip op. at 21-22 (citing Friends of the Earth, Inc. v. Crown Cent. Petrol. Corp., 95 F.3d 358 (5th Cir. 1996) (plaintiffs whose injury was 18 miles from discharge did not have standing to sue over the discharge)).

Ultimately, the Comer II court recognized, even plaintiffs admit that global warming is attributable to numerous natural and man-made causes that interact cumulatively over the period of centuries to create climate effects:

The plaintiffs cannot allege that the defendants' particular emissions led to their property damage.  At most, the plaintiffs can argue that the types of emissions released by the defendants, when combined with similar emissions released over an extended period of time by innumerable manmade and naturally-occurring sources encompassing the entire planet, may have contributed to global warming, which caused sea temperatures to rise, which in turn caused glaciers and icebergs to melt, which caused sea levels to rise, which may have strengthened Hurricane Katrina, which damaged the plaintiffs' property.

It is insufficient for the plaintiffs to allege that the defendants' emissions contributed to the kinds of injuries that they suffered.

Slip op. at 20-21.  The court concluded that such tenuous causation should not allow plaintiffs to send the defendants on a discovery odyssey "that will likely cost millions of dollars."

The district court in Comer II also held that plaintiffs' claims were non-justiciable under the political question doctrine as established in Baker v. Carr.  Plaintiffs argued that Massachusetts v. EPA had rejected that argument.  But the district court held that Massachusetts v. EPA was fundamentally different because it involved the proper construction of a congressional statute.  Here, the policy judgments regarding greenhouse gas emission levels were expressly committed to the EPA.  Indeed, the district court noted, the Supreme Court had stated "that it possessed neither the expertise nor the authority to evaluate the policy judgments that EPA offered as justification for refusing to regulate motor vehicle emissions, such as issues involving foreign relations."  Slip op. at 26.  The Comer II court concluded:

[T]he plaintiffs are asking the Court, or more specifically a jury, to determine without the benefit of legislative or administrative regulation, whether the defendants' emissions are "unreasonable."  Simply looking to the standards established by the Mississippi courts for analyzing nuisance, trespass, and negligence claims would not provide sufficient guidance to the Court or a jury. . . .

. . . The Supreme Court held that judgments concerning the reasonableness of greenhouse gas emissions are properly committed to the EPA, and if district courts were to make such judgments, those judgments would interfere and potentially conflict with the EPA's actions.

. . . The Court finds that the claims presented by the plaintiffs constitute non-justiciable political questions, because there are no judicially discoverable and manageable standards for resolving the issues presented, and because the case would require the Court to make initial policy determinations that have been entrusted to the EPA by Congress.

Slip op. at 28-29.

The district court in Comer II also concluded that plaintiffs' state law causes of action are preempted by the Clean Air Act and the EPA actions that it authorizes, relying primarily on American Electric Power Company v. Connecticut.  That case had held that the CAA preempted a federal common law right to seek abatement of carbon dioxide emissions from power plants.  The Comer II court reasoned that plaintiffs' state law claims here required the court to do the same thing the federal common law claim would have in Connecticut:  determine the reasonableness of the defendants' greenhouse gas emissions.  Accordingly, it held that the state law claims were similarly preempted.

The district court in Comer II also held that plaintiffs' claims were barred by Mississippi's three-year statute of limitations.  Katrina had hit in 2005, but the lawsuit was filed in 2011.  Plaintiffs argued that Mississippi's savings statute operated to toll the statute of limitations.  The savings statute gives a plaintiff a year to commence a new suit where the prior suit has been dismissed or abated because of a defect or other matter not affecting the merits.

The district court held the savings statute did not apply because there was a judgment of dismissal with prejudice entered in Comer I.  Plaintiffs could have asked the U.S. Supreme Court for a writ of certiorari, but they did not.  Accordingly, the judgment was final.

There is, however, a slim reed of hope for plaintiffs to file a Comer III.  In ruling on the statute of limitations, the court concluded that plaintiffs' allegations about their future risk for more severe storms and loss of property are not yet actionable, in part because plaintiffs did not seek injunctive relief.  "As a result, the Court finds that the only actionable claims filed by the plaintiffs are the claims concerning Hurricane Katrina, and those claims are barred by the statute of limitations."  Slip op. at 33.  Could another storm or another theory of injury produce a Comer III?  It shouldn't.  But with these Plaintiffs, who knows?

Finally, the district court granted the defendants' motion to dismiss regarding proximate cause, which is a required element of each of plaintiffs' state law claims.  Mississippi defines proximate cause as a cause "'which in natural and continuous sequence unbroken by any efficient intervening cause produces the injury and without which the result would not have occurred.'"  Slip op. at 34 (citation omitted).  The court held that plaintiffs' theory couldn't meet this standard as a matter of law:

The assertion that the defendants' emissions combined over a period of decades or centuries with other natural and man-made gases to cause or strengthen a hurricane and damage personal property is precisely the type of remote, improbable, and extraordinary occurrence that is excluded from liability.

Slip op. at 35.

Judge Louis Guirola's opinion in Comer II is a strong reminder of the many difficulties that private plaintiffs would have trying to impose legal liability on companies for the purported effects of global warming.  Although I do not expect plaintiffs' counsel to simply vacate the field in the wake of this opinion, the strength of the arguments against liability suggest why there has been no great rush of firms to file suits asserting these theories of liability.

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Previously I have discussed the federal doctrine of so-called American Pipe tolling, in which a legal fiction is employed to toll the running of the statute of limitations on absent class members' federal causes of action during the pendency of the class action -- at least until certification is denied or something else occurs (such as dismissal) that would make it unreasonable for an absent class member to think that her interests are continuing to be protected by the class action lawsuit.  The whole doctrine is based on the legal fiction that absent class members actually are aware of the pending class action suit and would seek to intervene in it unless class action tolling of the statute of limitations applied to their claims.  

American Pipe tolling is a judicially-created exception to federal statutes of limitations in federal courts.  Whether a previously-filed class action has any effect on the running of the statute of limitations on a state law cause of action is for each state to decide.  Most states have not directly considered the question.  Of those that have, many do not give any tolling effect to class actions filed outside of the state, i.e., they reject cross-jurisdictional class action tolling.  This makes sense, of course, when you remember that the whole tolling doctrine is premised on the fiction that absent class members are actually aware of the putative class action.  That is much less likely where the class action was filed in another state far away.

Recently, the MDL transferee in the Fosamax litigation certified two tolling questions to the Virginia Supreme Court.  The MDL transferee was faced with a motion for summary judgment on four individual claims brought by Virginia residents.  Each was clearly outside the statute of limitations unless tolling was applied.  Plaintiffs argued that the prior pendency of a putative nationwide class action filed in the Middle District of Tennessee operated to toll the running of the statute of limitations on their Virginia law claims for strict liability, negligence, and medical monitoring.

Virginia law doesn't even allow class actions in state court.  So the MDL transferee asked two questions of the Virginia Supreme Court:  (1) does equitable tolling apply to extend the statute of limitations during the pendency of a putative class action, and (2) does the statute of limitations itself allow for tolling during the pendency of a putative class action.  The Virginia Supreme Court answered with a resounding "no."  See Casey v. Merck & Co., No. 111438, Slip op. (Va. Mar. 2, 2012).

It first held that Virginia law is clear that there are no equitable exceptions to the statute of limitations.  It then looked at the text of the statute of limitations itself.  The statute does allow for credit to be given to a previously-filed action, but that previously-filed action must have been the same party as the party to the later suit.  Here, different named plaintiffs had filed the Tennessee action -- albeit as putative representatives of all people who took Fosamax.  The Virginia Supreme Court noted that Virginia law does not allow class actions and thus does not recognize such "representative" status.  Accordingly, it held that there was no statutory authority for tolling the statute of limitations here because the parties to the two actions were different.

Casey thus squarely places Virginia in the camp of states that have rejected not only cross-jurisdictional class action tolling, but any form of class action tolling whatsoever.

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

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

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

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

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

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

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

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

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

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

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

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A recent class action involving the propriety of collecting sales tax from customers highlights the importance of the Executive Branch in the three-branch system of government, and the deference that courts will give it -- particularly in the area of taxation. 

In Stoloff v. Neiman Marcus Group, Inc., 2011 WL 1957694 (Pa. Super. May 23, 2011), a mail order shopper who bought a little black dress from Neiman Marcus objected to the retailer's collection of 6% sales tax on the dress, since most clothing items in Pennsylvania (except accessories, ornamental wear and formal wear) are not subject to tax.  She filed a class action suit, alleging breach of contract, unjust enrichment, violation of the consumer protection statute, and conversion.  She sought injunctive relief to prevent the retailer from collecting such tax in the future and force it to return the tax collected, as well as damages and punitive damages.

The trial court dismissed the claim, arguing that the plaintiff had failed to exhaust her administrative remedies before the Pennsylvania Department of Revenue, thus depriving it of subject matter jurisdiction.  The intermediate appellate court disagreed, but only slightly.  It held that the Department did not have the authority to give the plaintiff all of the relief she sought, so exhaustion of remedies was not really the issue.  Rather, the injunctive relief was within the province of the courts to grant.  But where a party holds on behalf of the State taxes that it has collected for the State, the Department of Revenue has primary jurisdiction on questions of whether the tax should have been collected in the first place.

Thus, the court -- recognizing the primary authority of the Department to interpret legislation and determine whether taxes should be collected -- directed the trial court on remand to reinstate the complaint and then stay the action, giving the plaintiff time to seek an administrative remedy first from the Department of Revenue on the issue of whether the tax was rightfully collected.  If it was not, then the courts could deal with the issue of how to award relief to the class.

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Those looking for confirmation that Kiobel is really the law of the Second Circuit need look no further than Shan v. China Construction Bank Corporation, No. 10-2992-cv, Slip op. (2d Cir. May 5, 2011) (Summary Order).  In Shan, the plaintiff sued his former employer, the China Construction Bank Corp., claiming that it caused his torture by reporting him to the Chinese police, which allegedly tortured and detained him.  Plaintiff alleged violations of the Torture Victimss Act and the Alien Tort Statute. 

The Second Circuit previously had held in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010), pet. for reh'g en banc denied, 2011 WL 338151 (2d Cir. Feb. 4, 2011), that the Alien Tort Statute (and the generally-recognized law of nations) does not provide a cause of action against corporations, only individuals and governments.  This decision was widely criticized.  I discussed it favorably here and here. 

In a Summary Order in Shan, a two-judge panel of the Second Circuit (Circuit Judge Reena Raggi and District Judge John Gleeson, sitting by designation) held that they were simply unable to consider arguments that Kiobel was wrongly decided.  (Circuit Judge Guido Calabresi had recused himself, and the other two judges were in agreement, obviating the need for a replacement for Judge Calabresi.)  The court cited as support case law indicating that only an en banc panel could overrule Kiobel. 

The plaintiff advanced an interesting argument, urging that Kiobel had deliberately limited itself to private corporations, and thus was not applicable to the defendant in Shan, since it was a company that was wholly-owned by the Chinese government.  But the panel refused to consider this argument because the complaint, it held, failed to plead any underlying cause of action with the sufficiency required by Federal Rule of Civil Procedure 8.

The complaint failed to adequately plead direct liability for torture because it did not plead that the Bank directed the Chinese police to torture the plaintiff.  At best, it pled only that the Bank procured his arrest in retaliation for releasing an audit.  But it did not plead that the Bank was directly responsible for the police's alleged human rights violations. 

The complaint failed to plead "aiding and abetting" or "conspiracy" liability because it did not sufficiently plead that the Bank acted with the purpose that the plaintiff be tortured.  The cause of action also failed because the plaintiff failed to plead that the Bank's conduct amounted to "substantial assistance."

The bank had advanced an interesting Kiobel-like argument that corporations are not capable of being sued under the TVPA because that act covers violations only by individuals or governments.  The DC Circuit recently had reached this conclusion.  But the Second Circuit in Shan chose not to reach the argument because it could dismiss the case on the failure to meet the pleading standard on the underlying causes of action.  Thus, the question whether the Torture Victims Prevention Act only allows a claim against natural persons and governments -- like the Second Circuit had held with respect to the Alien Tort Statute -- remains an open one in the Second Circuit.

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I am traveling on the Left Coast for business this week.  And so it was with a certain amount of bemusement that I read this article that came across my Blackberry yesterday.  It explains that an environmental activist group, "Our Children's Trust," has decided to sue a number of states, seeking to force judges into ordering state governments to mandate the reduction of greenhouse gases, with the goal of preventing global warming. 

One of the activists is quoted as saying:

"We should be getting youths in front of the courts, not polar bears," Wood said, referring to a widely publicized attempt to have courts declare polar bears endangered as rising temperatures melt Arctic ice.

So how are these activists using America's youth to paint a compelling picture for judicial regulation of greenhouse gases?  Read this portion of a complaint apparently filed by the organization in New Mexico:

Climate change is adversely affecting [16-year-old] Akilah Sanders-Reed now.  Akilah is a skiing enthusiast and has been skiing regularly for the last 8 years.  Over that time, Akilah has seen a decrease in the snowpack on the slopes of Taos and Santa Fe.  The snowpack on those slopes has been thin and generally not good for skiing.  Akilah plans to continue skiing and to teach her younger brother to ski.  Therefore she is concerned that if the quality and amount of snowpack on the Taos and Santa Fe ski slopes continues to decline, she will have fewer opportunities to ski during the already abbreviated ski season in New Mexico.

Compl. para. 10.

Really?!!!  This is the tragedy that justifies judicial exercise of Executive Branch powers?  No skiing on Spring Break?  Bring back the cute, cuddly Polar Bears whose very existence is threatened, please!

The group's legal strategy seems as flawed as its storytelling.  It is suing the governors of various states on the so-called "public trust doctrine," which they describe as a common law theory.  But it's hardly a cause of action, like public nuisance.  Rather, it is simply a doctrine recognizing the sovereign's ownership interest in the land underlying navigable waters.  Ironically, the whole reason for the doctrine is to preserve the ability of the public to use such waters for commerce.  Our Children's Trust, of course, wants to invoke the doctrine to impede commerce and economic activity, state by state.

The fact that it can't cite in its New Mexico complaint a single New Mexico case applying the doctrine as they request gives you some idea of just what a long-shot their legal theory actually is.  They do nothing in their pleadings to anticipate the defenses that typically have proven fatal to climate change cases.  For example, they do nothing to establish the children's standing to assert a claim.  In public nuisance -- which is an actual cause of action designed to protect interference with the public's right of enjoyment of property -- the right to sue is reserved to the sovereign unless an individual can prove that he or she suffers a special injury that is different in type and degree from that suffered by the general public.  Notably, a bad ski day (if there really is such a thing) wouldn't cut it.

Similarly, defendants have argued that federal statutes and regulations preempt individual common law claims aimed at regulating greenhouse gas emissions.  Notably, even the cases that Our Children's Trust cite in its complaint expressly recognize the preeminence of federal authority.  For example, in Illinois Central Railroad v. Illinois, 146 U.S. 387 (1892), the court observed that the state's rights and obligations under the public trust doctrine were "subject always to the paramount right of Congress to control [the] navigation [of the state's navigable waters] so far as may be necessary for the regulation of commerce with foreign nations and among the States."  Id. at 435.  Likewise, in Montana v. United States, 450 U.S. 544 (1981) -- also cited by plaintiffs -- the court cautioned that:

The State's power over the beds of navigable waters remains subject to only one limitation:  the paramount power of the United States to ensure that such waters remain free to interstate and foreign commerce. 

Id. at 551.

Moreover, the plaintiffs make no allowance in their pleading for defenses such as the political question doctrine, primary jurisdiction, or causation.  Notably, courts and advocates that have considered the climate change question have acknowledged that the issue of greenhouse gas emissions is a global one; emissions from one part of the globe may travel and have effects in other parts of the globe.  Thus, localized emissions caps -- like plaintiffs advocate -- have no real hope of abating the alleged nuisance locally, and local emissions cannot be deemed the substantial cause of alleged local climate change.

Ultimately, all that Our Children's Trust has achieved is making cash-strapped states that have no ability to solve the problem defendants in frivolous litigation that will cost lots of time and money to defend.  And they did so without finding a more compelling mascot than fluffy polar bears.

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Lots of ink has been spilled of late about litigants trying to use the courts to achieve certain results regarding global warming.  And much has been written about nuclear power in the wake of the tragedy in Japan.

So you can imagine that my eyebrows arched as I thumbed through my "to read" pile and discovered a decision from the Connecticut Supreme Court addressing a citizen's challenge to a nuclear plant's plan to increase its power generation, thereby increasing its discharge of radioactive waste and the discharge of warm water into Long Island Sound.  The court's decision is a good reminder that plaintiffs seeking to regulate through litigation often lack the sort of personal and direct injury that give rise to standing to sue.

In Burton v. Dominion Nuclear Connecticut, Inc., No. SC 18603 (Conn. Apr. 19, 2011), the plaintiff sued to prevent the operator of the Millstone Nuclear Power Station in Waterford from implementing its plan to increase its pwer generating capacity in its Unit 3 reactor by 7%.  The Plaintiff alleged that this would both increase the amount of nuclear waste released into the atmosphere, and would generate a warm-water plume in Long Island Sound that would injure the acquatic wildlife. 

(The operator had applied for and received all appropriate permits, with the Nuclear Regulatory Commission issuing a safety evaluation report finding that even with the increased radioactivity, the discharge would remain within federal guidelines and the thermal plume would pose no threat to endangered or threatened species of marine life.  Slip op. at 2.)

The plaintiff sued for a TRO and a permanent injunction in state court, asserting causes of action under the Connecticut Environmental Protection Act, common law public nuisance, "classical aggrievement," and violation of Connecticut's Unfair Trade Practices Act.

The trial court dismissed the claim, and the Connecticut Supreme Court affirmed.

The Connecticut Supreme Court first analyzed whether the plaintiff's claims were preempted by the federal Atomic Energy Act, concluding that one of them was.  As the court explained it, the AEA reserves to the federal government the regulation of the radiological safety aspects of nuclear plants, but reserves to the states their traditional responsibility for regulating utilities.  Thus, the court concluded, the trial court "had no jurisdiction to consider the plaintiff's claim regarding the increase in radioactive waste because the federal government has exclusive regulatory authority over radiation hazards and safety as well as radiological discharges from nuclear power plants."  Slip op. at 4. 

As for the plaintiff's claim about the thermal plume, however, that fell within the state's traditional powers and was not preempted.  Accordingly, the court went on to consider the plaintiff's standing to raise these claims.  The court quickly dispatched the CEPA claim, holding that because she merely challenged the result of the agency's decisionmaking, but did not allege that the discharges would result in pollution that exceeded the amount permitted under the regulatory scheme, she lacked standing to assert a CEPA claim.  The court described this problem as lacking the "substantive heft" required under the CEPA to establish citizen standing.  

Plaintiff relied on a prior case in which she had successfully sued to protect marine life in Long Island Sound.  But the Supreme Court distinguished that case, noting that there she had pled procedural violations by the agency in its decisionmaking process.  Because there were no such allegations in this case, however, and no allegations that the discharge levels would exceed established standards, the court found plaintiff's authority inapposite. Slip op. at 7.

The court then analyzed the public nuisance claim.  It instructed that private individuals have no standing to bring public nuisance claims generally; that power typically is reserved to the state.  The exception is where the individual has sustained injury of a different type and degree from the public at large.  Here, the plaintiff alleged no special injury and, as such, lacked standing to bring a public nuisance claim.  Slip op. at 8.

In Connecticut, the doctrine of "classical aggrievement" operates almost exactly like the special injury requirement of the public nuisance cause of action.  The plaintiff must allege a distinct legal interest in the subject matter of the lawsuit that is different from the general public's, and must show that the agency's decision has specifically injured that interest.  Slip op. at 9.  Because plaintiff could not make that showing, she had no standing to bring such a claim.

Finally, the court considered the plaintiff's Hail Mary theory:  violation of CUPTA.  In reasoning that should resonate beyond the facts of this case, the Supreme Court reiterated that where plaintiffs plead unfair trade practices under CUTPA, they must plead a direct injury caused by the unfair trade practice.  See slip op. at 9 (citing cases holding that the doctrines of remoteness and proximate causation apply to CUTPA claims).  The court concluded:

We concluded that the plaintiff has failed to establish standing to bring her CUTPA claim because she does not allege harm from the increase in the temperature of the thermal plume that is not remote, indirect, or derivative.  Her principal allegation is that the elevated temperature of the water will affect wildlife, fish and other aquatic organisms, which, in turn, will indirectly pose a danger to her health and affect ther ability to enjoy her recreational pursuits of swimming, boating and consuming seafood from Long Island Sound and estuary.  She does not allege, however, precisely how her health will be endangered from the elevated temperature of the thermal plume or how her recreational pursuits will be affected; nor did she present evidence to that effect at the hearing on the motion to dismiss.  Thus, without more specificity, it is impossible to conclude that the harm the plaintiff has alleged is direct.  We therefore conclude that the trial court properly dismissed her claim of unreasonable pollution under CUTPA for lack of standing.

Slip op. at 9 (citation omitted).

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The Fourth Circuit recently issued an opinion reflecting the conservative approach that is required when federal courts sitting in diversity are called upon to predict how the state supreme court would rule on controlling issues of state tort law.

In Rhodes v. E.I.DuPont de Nemours & Co., 2011 WL 1335799 (4th Cir. Apr. 8, 2011), customers of the Parkersburg, West Virginia City Water Department sued the defendant in a putative class action for contaminating the public water supply with perfluorooctanoic acid (PFOA).  Thankfully, none of the class representatives had become ill, but their blood did reflect higher-than-normal levels of PFOA, which they alleged had been associated with an increased risk of liver disease, cholesterol abnormalities, and certain cancers.

The plaintiffs originally asserted a variety of causes of action:  negligence, gross negligence, battery, trespass, private nuisance, and the separate tort of medical monitoring.  The district court held that the medical monitoring claim was not susceptible to classwide proof.  It also denied class certification under the traditional common law tort claims.  Plaintiffs then amended their complaint to add a public nuisance claim. 

Subsequently, the district court granted summary judgment to the defendant on all of the traditional tort claims for lack of injury.  But it denied summary judgment on the individual claims for the "new" tort of medical monitoring.  So that they could appeal immediately, without having to wait for their remaining individual claims to be litigated, the plaintiffs voluntarily dismissed their individual medical monitoring claims.

On appeal, the Fourth Circuit dealt first with the class claims for negligence and gross negligence.   It concluded that they must be dismissed because they require a plaintiff to produce evidence of a health detriment that actually has occurred or "is reasonably certain to occur due to a present harm."  2011 WL 1335799 at *3 (citation omitted).

With respect to the claim for battery, the Fourth Circuit held that the mere presence of PFOA in the plaintiffs' blood was not a battery because it did not cause any "physical impairment."  Id.  Plaintiffs argued that the West Virginia Supreme Court would waive any impairment requirement in such a situation, but the Fourth Circuit refused to engage in such speculation:

The West Virginia Supreme Court of Appeals has not adopted this view and, in fact, expressly has required that a plaintiff alleging battery demonstrate "actual physical impairment."  Also, the West Virginia Supreme Court of Appeals has not embraced the alternative definition of battery embraced by the plaintiffs, battery based on "offensive contact," as provided in Section 18 of the Restatement.

In the absence of such action by the highest state court in West Virginia, our role in the exercise of our diversity jurisdiction is limited.  A federal court acting under its diversity jurisdiction should respond conservatively when asked to discern governing principles of state law.  Therefore, in a diversity case, a federal court should not interpret state law in a manner that may appear desirable to the federal court, but has not been approved by the state whose law is at issue.

Id. at *4 (citations omitted; emphasis added).

Analyzing the trespass claim, the Fourth Circuit concluded that the plaintiffs had failed to produce evidence showing the PFOA in the water had damaged or interfered with the plaintiffs' possession, use or enjoyment of the property.

The court also rejected the private nuisance claim, understanding that the legal interest asserted -- public access to clean drinking water -- was a pubic one, not a private one, and thus incapable of supporting a private nuisance claim.  Id. at *4-*5.

As for the public nuisance claim, the court held that plaintiffs lacked standing because they did not have a "special" injury that was different in both character and degree from the general public.  (Traditionally, the right to assert public nuisance claims was left to the sovereign.  Over time, it developed that individuals also could assert such claims on the public's behalf, but only where they had a "special" injury that could ensure that they would vigorously prosecute the claim.)  Plaintiffs argued that West Virginia would follow the Restatement, which would create an exception to the "special injury" requirement for class action plaintiffs.  The Fourth Circuit held that it was enough for them that the West Virginia Supreme Court had not adopted this approach:  "We decline to recognize such an exception in the first instance because, as we have stated, a federal court in the exercise of its diversity jurisdiction should act conservatively when asked to predict how a state court would proceed on a novel issue of state law."  2011 WL 1335799 at *6 (citation omitted).

The Fourth Circuit next considered the plaintiffs' arguments that they could obtain medical monitoring as an element of relief on their traditional tort claims even if they did not meet the "injury" requirement.  The Fourth Circuit rejected this approach outright, pointing to the West Virginia Supreme Court's decision that created a separate tort of medical monitoring.  In that decision, the court had held that the "injury" necessary to support an independent medical monitoring claim was "a 'significantly increased risk of contracting a particular disease relative to what would be the case in the absence of exposure.'"  Id. at *7 (citation omitted).  It did not re-define "injury" as something less for the traditional torts and, in fact, if it had done so, it would not have needed to create a separate, independent tort of "medical monitoring" in the first place.

The Fourth Circuit then dealt with the final issue on appeal:  whether the plaintiffs' voluntary dismissal of their individual medical monitoring claims precluded them from challenging the district court's decision that the independent "medical monitoring" claim could not be certified as a class action.  After surveying the variety of approaches courts have taken to the question of voluntary dismissals designed to elude the problem of  interlocutory appeals, the court followed basic standing principles to hold that voluntary dismissal of a cause of action barred appeal of the decision not to certify a class on that cause of action:

Applying the principles set forth by the Supreme Court, we conclude that when a  putative class plaintiff voluntarily dimsisses the individual claims underlying a request for class certification, as happened in this case, there is no longer a "self-interested party advocating" for class treatment in the manner necessary to satisfy Article III standing requirements.  Thus, we hold that we lack jurisdiction to decide the issue whether the district court abused its discretion in denying the plaintiff's request for class certification of their medical monitoring claims.

Id. at *9 (citation omitted).

The Fourth Circuit's decision in Rhodes is a strong example of a federal court showing deference to state sovereignty by refusing to invent new tort rules and causes of action that have not been recognized by the state's high court, and by declining to allow people who have surrendered their claims for strategic reasons to continue to assert the aggregated claims of a large number of the state's citizens.

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

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

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

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

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

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

Slip op. at 4.

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

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

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

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

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

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

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

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

Slip op. at 22 n.15.

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

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

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

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

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

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

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

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

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

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Cases brought by public water authorities often present special challenges, particularly where the party sued is not a neighboring landowner, but instead is a product manufacturer that stands far removed from any alleged contamination.  Federal preemption sometimes can be an issue.  Proximate causation is often problematic, since the presence of any alleged contaminant can only have occurred through the conduct of independent third parties, like neighboring farmers, who may or may not have followed the manufacturer's instructions and warnings.

The recent opinion in City of Greenville v. Syngenta Crop Protection, Inc., 2010 WL 4791674 (S.D. Ill. Nov. 18, 2010) raises different issues, including the adequacy of pleadings.  The plaintiffs in the case are public water authorities from various states.  They sued to recover the cost of testing and monitoring their water for atrazine, a chemical used in Syngenta's herbicide.  They also want the cost of installing a carbon-based filtration system to remove atrazine from the water, as well as punitive damages.  

Plaintiffs assert four causes of action:  (i) trespass onto plaintiffs' rights to possess raw water; (ii) public nuisance for interfering with the use and enjoyment of the raw water; (iii) strict liability, and (iv) negligence for breaching duties to avoid contaminating plaintiffs' water sources.  

The defendant moved to dismiss, and the court ultimately mostly denied the motion.  The court began its analysis by considering the defendant's argument that the plaintiffs had not properly pled any injury -- and thus lacked standing -- because they did not plead that their "finished water" (or post-treatment water) contained atrazine at maximum contaminant levels ("MCLs") higher than the EPA's set limit of 3 parts per billion on an average annualized basis.  Without contamination at such levels, the defendant argued, the plaintiffs had not demonstrated that they were impaired in their ability to provide potable water to the public.

The court rejected this argument and sided with plaintiffs, who had cited an opinion from the MTBE Products Liability Litigation.  The court reasoned that where the presence of atrazine at any level makes the plaintiffs' job of providing potable water more difficult and costly, the plaintiffs have suffered an injury regardless of whether the MCL threshhold has been reached.  The court remarked:

[I]t seems an extremely bad rule to require a public water supplier to provide overly contaminated water to the public before it can seek redress from one responsible for the contamination.  Thus, the Court agrees with the In re:  MTBE court that a water provider may demonstrate an injury in fact even if its finished water does not exceed an MCL if its use of the water to meet its statutory obligations to the public becomes more costly because of a defendant's conduct.

Id. at *4.  The court warned, however, that on summary judgment, the plaintiffs will have to show a specific, immediate threat of atrazine in excess of the MCL to maintain standing to sue.  Id. at *5.

Next, the court considered the defendant's challenge to the strict liability claim of the Indiana plaintiffs.  It summarily dismissed the strict liability claim because Indiana law does not allow strict liability in design defect cases; design defect is measured by a negligence standard.  Thus, the court granted the defendant's motion on that count against the claims of the Indiana plaintiffs.  Id. at *6.

The court next analyzed whether the economic loss doctrine barred the tort claims of the remaining plaintiffs under Ohio, Iowa, Kansas, Missouri and Indiana law.  The court concluded that it did not.  The court recited a basic description of the economic loss doctrine, and then concluded that the "economic loss rule simply does not apply in this case because the plaintiffs have alleged that the defendants are responsible for damages to their property rights in their raw water sources by causing those sources to be contaminated by atrazine."  Id. at *8 (citing MTBE).

Finally, the court refused to dismiss the plaintiffs' claims for future damages and refused to apply the statute of limitations at the motion to dismiss stage.

So, the City of Greenville plaintiffs live to fight another day.  But there are many, many more legal defenses that they must surmount, and it remains to be seen whether the claims can be tried together as a class action.  This is a litigation worth monitoring, and we'll report on further developments as they arise.

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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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Judge Kathleen O'Malley recently handed down an interesting opinion in a consumer class action case styled McKinney v. Bayer Corp., Case No. 10-CV-224, Slip op. (N.D. Ohio Sept. 30, 2010).  In McKinney, plaintiff sued the maker of vitamins (One-A-Day Men's Health Formula and One-A-Day Men's 50+ Advantage), claiming that its representations that the vitamins "promote prostate health" and "may reduce the risk of prostate cancer" were false.  In fact, according to plaintiff, the vitamins increased the risk of aggressive prostate cancer and diabetes.  Plaintiff sued on behalf of a class of Ohio purchasers of the products, asserting breach of the Ohio Consumer Sales Practices Act, breach of the Ohio Deceptive Trade Practices Act, breach of express warranty, and breach of implied warranty.

The question presented by the OCSPA claim was straightforward:  does the provision limiting class actions under Act to instances where the Attorney General, a court, or a regulatory agency has issued an opinion prohibiting substantially similar conduct survive after the Supreme Court's recent Shady Grove decision?  See Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 130 S. Ct. 1431 (2010).

You'll recall, of course, that in Shady Grove the Supreme Court allowed the federal class action rule, Fed. R. Civ. P. 23, to trump a state law that limited instances in which class actions could be brought.  Justice Scalia, writing for a plurality, concluded that Rule 23 is within the Rules Enabling Act because it is procedural in nature, and the substantive purpose of the competing state law makes no difference because it is the procedural nature of the federal rule that matters.  Justice Stevens, however, wrote a separate concurrence, framed the rule of decision differently, suggesting that a federal rule "cannot govern a particular case in which the rule would displace a state law that is procedural in the ordinary use of the term but is so intertwined with a state right or remedy that it functions to define the scope of the state-created right."  Id. at 1452.

Judge O'Malley held that she was governed by Justice Stevens' concurrence because it was the narrowest grounds for the Supreme Court's opinion.  Slip op. at 18.  In doing so, she relied on two other recent district court opinions:  In re Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 2010 U.S. Dist. LEXIS 69254 (N.D. Ohio July 12, 2010), and Bearden v. Honeywell Int'l Inc., 2010 U.S. Dist. LEXIS 83996 (M.D. Tenn. Aug. 16, 2010).  Judge O'Malley then concluded that the class action limitations in the OCSPA are substantive in nature, and thus applying Federal Rule of Civil Procedure 23 to permit a class action would modify substantive law in a way that is disallowed under the Rules Enabling Act.  Accordingly, the court dismissed the class claim under the OCSPA.

Judge O'Malley next confronted the question whether a consumer has standing to assert a claim under the Ohio Deceptive Trade Practices Act.  The ODTPA is based on the federal Lanham Act, which has been held not to afford standing to individual consumers because the purpose of the statute is to protect people engaged in commerce against unfair competition.  Nevertheless, the language of the ODTPA -- like the Lanham Act itself -- contains no express limitation on who may assert a claim.  But allowing a consumer standing to assert an ODTPA claim would seem to make the consumer statute, the OCSPA, superfluous.  Ultimately, Judge O'Malley chose to certify the question to the Ohio Supreme Court, and thus denied the motion to dismiss on this question.

Judge O'Malley did dismiss the implied warranty claim, noting that Ohio imposes a strict privity requirement for such claims.  The complaint could not allege privity between the plaintiff and the vitamin maker.

But Judge O'Malley refused to dismiss the express warranty claim, finding that there was a question of fact for the jury at issue there.  The defendant had argued that, "when read as a whole, the Prostate Claims amount to conditional statements that the products might have certain health benefits, but that they also might not."  Slip op. at 31.  This was in large part based on disclaimers on the packaging to the effect that "FDA has determined that this evidence [of cancer risk reduction] is limited and not conclusive," and that "This statement has not been evaluated by the Food and Drug Administration."  Id. at n.11.  It is hardly surprising that the court refused to dismiss the express warranty claim on the basis of this language, particularly where the plaintiff had affirmatively pled that he had relied on the Prostate Claims in purchasing the product.

In sum, the McKinney case suggests that state restrictions on class actions are not necessarily a dead letter after Shady Grove, and we can watch with interest to see how the Ohio Supreme Court will answer the certified question of whether consumers have standing to bring claims under the Ohio Deceptive Trade Practices Act.

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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.

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Regular readers of this blog know that there are a plethora of decisions dismissing class actions brought by so-called "third party payors" (e.g., union health and benefit plans) to recover sums they paid for medicines that their members took.  Typically, courts hold that the injury in such cases is simply too remote for the third party payors to have standing.  Put differently, courts hold that the defendant's challenged conduct is not the direct cause of these third party payors' "injuries" because the decision to prescribe and take the medicine was a result of the independent conduct of prescribing physicians and their patients.

Last week the MDL court in the Yaz Marketing, Sales Practices and Products Liability Litigation reached the same conclusion after canvassing the case law.  See Philadelphia Firefighters Union Local No. 22 Health and Welfare Fund v. Bayer Healthcare Pharmaceuticals, Inc., 3:09-cv-20071-DRH-PMF, Slip op. (S.D. Ill. Aug. 5, 2010).

The class definition in Philadephia Firefighters was as broad as could be:  "'[a]ll third party payors in the United States and its territories that purchased, reimbursed, and/or paid for all or part of the cost of YAZ dispensed pursuant to prescriptions in the United States.'"  Id. at 2.  Plaintiffs pled causes of action under RICO, as well as common law negligence, fraud, misrepresentation, and unjust enrichment.  (Notably, plaintiffs did not plead state consumer fraud statutes.  Presumably this was because the state consumer fraud statutes are simply too different to be adjudicated in a single class.)  Plaintiffs' theory of the case was that although Yaz was approved by the FDA as an oral contraceptive and to treat moderate acne and Premenstrual Dysphoric Disorder (PMDD), the defendant had promoted Yaz to treat off-label conditions like mild acne and Premenstrual Syndrome (PMS) without telling people about the substantially increased risks of heart and gallbladder problems from the medicine.  This allegedly caused the market for Yaz to expand and allowed the defendant to maintain a "falsely inflated price" for Yaz.  Id. at 6.

The court began its analysis by considering whether the plaintiffs had the necessary standing to assert a RICO claim under federal law.  Reciting the Supreme Court case law, the court observed that RICO requires plaintiffs to show not only that defendant's conduct was a "but-for" cause of their injuries, but also that it is the proximate cause as well.  In other words, there must be a direct relationship between the injury asserted and the injurious conduct alleged.

The court surveyed a majority of the third party payor opinions, concluding that the injury to third party payors is simply too remote and speculative to meet RICO's direct injury requirement.  The court adopted the reasoning of Ironworkers Local Union No. 68 v. Astrazeneca Pharmaceuticals LP, 585 F. Supp. 2d 1339 (M.D. Fla. 2008), explaining:

[P]hysicians use independent medical judgment to decide whether to prescribe the subject drug to a particular patient and that judgment can be influenced by any number of factors.  Accordingly, establishing that the third party payor's injuries were caused by the alleged misconduct would require an inquiry into each doctor patient relationship to determine whether the physician was influenced by the alleged misrepresentations and to what extent.

Philadelphia Firefighters, Slip op. at 16.

The court concluded that "multiple steps separate the alleged wrongful conduct . . . and the alleged injuries . . . including patient preference, the independent judgment of the prescribing physician, and the reimbursement decision rendered by the third party payor and its benefits manager."  Id. at 18.  Accordingly, the complaint flunked RICO's direct injury requirement.

The court applied the same analysis to plaintiffs' common law causes of action, finding no proximate causation for negligence, misrepresentation or fraud.  As for unjust enrichment, the court reasoned that because that theory was based on an underlying tort, and no tort cause of action had been sufficiently pled, the unjust enrichment complaint also failed as a matter of law.

Philadelphia Firefighters is a strong opinion that confirms what already has become quite clear:  although plaintiffs lawyers have gravitated toward these claims as a way to possibly avoid learned intermediary and causation defenses, the overwhelming weight of authority is that third party payors stand far too remote from the medical treatment decisions to plead proximate causation.

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You've got to hand it to my friends in the plaintiffs' bar -- they are the most creative lawyers I know.  Given the difficulties of obtaining certification of a personal injury class in product liability litigation, they have endeavored to frame their claims as all sorts of different suits.  They have sued on behalf of so-called "diminished value" classes.  Or "equitable relief" classes.  They have sued on behalf of third-party payors.  Some have even convinced States to sign a contingency fee agreement and allow them to sue on behalf of the State to recover Medicaid payments for discontinued drugs. 

But this takes chutzpah:  after pitching the State on the causes of action it could bring to recover Medicaid funds spent on a discontinued drug and having the state say "no," a citizen of the state filed suit as a taxpayer to recover the Medicaid funds the State had spent.  Just last week the Vioxx MDL judge dismissed the case for lack of standing.  See In re:  Vioxx Prods. Liab. Litig. (Franklin v. Merck & Co., Inc., No. 07-2073), MDL 1657 (E.D. La. July 26, 2010). 

The facts of Vioxx are well known.  The pain medicine, a "COX-2 inhibitor" held the promise of providing pain relief without the gastrointestinal problems associated with other types of pain medicines.  It was pulled from the market after studies seemed to indicate that Vioxx could increase the risk of cardiovascular thrombotic events.  The typical mass of suits followed.

Plaintiffs' counsel in the Franklin matter had met with the Colorado Attorney General's office to pitch the state on Colorado's potential legal claims against Merck for Vioxx purchases made through Colorado's State Mediciaid Program.  The Colorado Attorney General advised plaintiffs' counsel that the State would not file suit against Merck.  Slip op. at 3.

So the lawyers filed suit on behalf of James Franklin, who, as a Colorado resident, asserted standing as a taxpayer to sue on behalf of the state to recover sums spent on Vioxx.  Merck moved to dismiss, attacking Mr. Franklin's standing.  No statute authorized his action, Merck asserted, and Mr. Franklin did not even have access to any of the information possessed by the State of Colorado that Merck had asked for in its document requests.

The court observed that Mr. Franklin's suit was a derivative action to assert state rights.  The authority to bring such suits is a matter of state law, and federal courts are reluctant to create such rights where they are not clearly authorized by statute.  Plaintiff cited a number of Colorado decisions recognizing a taxpayer's right to sue the State where governmental actions had harmed the plaintiff.  The court distinguished these cases, noting that while they recognized a taxpayer's right to be against the State, none recognized a right to sue on behalf of the State.

Second, the court rejected plaintiff's argument that suits allowing taxpayers to step into the shoes of municipalities gave authority for taxpayers to sue on behalf of the State.  In fact, no Colorado case had recognized such standing at all.

Franklin was yet another creative attempt by lawyers to gain authority to sue on behalf of the State.  Judge Eldon Fallon's straightforward rejection of taxpayer standing suggests that the taxpayer standing argument will have little traction in other cases.

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

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

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

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

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

Id. (citations omitted).

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

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

Id. at 12 (citations omitted).

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

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

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

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

Id. at 16 - 17.

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

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

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

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

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

Id. at 22-23.

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

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Who knew that not everyone loved Zipcar?  Since the company burst onto the scene about a decade ago, it has spawned a group of almost cult-like devotees who seemingly can't shut up about the company.

For those of you who don't live in urban areas and have no idea what I'm talking about, here's the deal.  Lots of city dwellers spend years -- even decades -- of their lives not owning a car.  (Even I did.  Although now I have 2.  Go figure.)  Generally, these carless city folk get around just fine on subways, buses, taxis and bicycles.  But there are some errands -- like going to Costco to stock up for the party you are throwing, or picking up that sofa you bought on Craig's list, or a trip to Ikea -- that just cry out for a car.  But renting a car in the city can be a real pain in the tucchus.  First of all, it's expensive.  Car rental can be $200 or more in Manhattan.  And you have to rent the car for an entire day.  And then there's the fact that the car rental places are not conveniently located.

Enter Zipcar.  By paying an annual fee to join Zipcar, you "co-own" cars that are sprinkled in parking garages throughout the city.  You can schedule use of a Zipcar in increments as small as an hour, which makes taking a car on an errand very affordable.  Zipcar relies on its members to keep the cars clean and gassed for subsequent users.  And, as you can imagine for a company that schedules car use by the hour, it is very concerned about the timely return of a Zipcar.

People who use Zipcars tend to speak glowingly about them.  They throw around terms like "convenient," "affordable," and "environmentally responsible."  Try not to get trapped by one of them at a cocktail party.

Imagine my surprise to find a class action opinion in a case against Zip Car!  See Blay v. ZipCar, Inc., 2010 WL 2292467 (D. Mass. June 7, 2010).  It seems that for at least one two-year member of Zipcar, the luster is off the pearl.  He alleged that under Zipcar's membership contract, there were five types of charges added onto the hourly charges that were unfair and unlawful.  Those five charges were:

1.  If members make or alter reservations by speaking to a live operator rather than using the Internet or an automated phone system, they are charged $3.50.

2.  If Zipcar must process a parking or traffic ticket, it charges the member an automatic fee.

3.  If a Zipcar is returned late, there are escalating fees (starting at $50) that are charged regardless of whether someone else is waiting for the vehicle.

4.  If a member forgets property in the car, he must retrieve it within 3 hours, attempt recovery through an online lost and found, or reserve the car for an hour to retrieve it.

5.  If a member's account is inactive, he is charged $20 per month if he has money on account; if he has no money on account, his membership may be terminated.

The plaintiff alleged that these fees were penalties not associated to any actual costs to Zipcar, and he sought to recover them for a nationwide class on causes of action for unjust enrichment, money had and received, and declaratory judgment.

Not surprisingly, Zipcar moved to dismiss.  The district court -- applying Twombly and Iqbal -- granted the motion without prejudice.

First, the court held that it could properly consider the membership agreement and terms on the website, both of which were referenced in plaintiff's complaint.  It also allowed into evidence on the motion to dismiss an e-mail from plaintiff and Zipcar's standard operating procedures.

The defendant argued that these charges were not in the nature of liquidated damages at all, but were instead alternative ways in which plaintiffs could perform their obligations under the membership agreement.  The court generally seemed somewhat dubious of the alternative performance argument, observing that "[t]he concept of an alternative performance contract has been largely absent from Massachusetts case law for over the past century and Zipcar's memorandum contains numerous citations to other jurisdictions and to Massachusetts cases from the 1920s or earlier."  Id. at *3.

Nevertheless, when the court looked at the $3.50 fee to speak to a live operator, it held that "it represents a clear alternative performance term" that is based in the cost to Zipcar of providing a live representative to speak to.  The court thus dismissed the challenge to this fee without prejudice.

As for the late fees, the court reasoned that plaintiff had not met his burden of pleading that they were unenforceable penalties grossly disproportionate to Zipcar's costs.  Id. at 5.  It observed that Zipcar had a legitimate reason for encouraging members to return cars on time, and it noted that members could avoid the penalties simply by extending their reservation by a half hour  or more at the normal hourly rates.  The court thus dismissed the challenge to this fee without prejudice.

The court next analyzed the fee for Zipcar to process traffic tickets.  The court noted that plaintiff failed to provide any evidence -- other than threadbare allegations -- that the fee is grossly disproportionate to Zipcar's cost.  Moreover, Zipcar established that it must pay people to process the traffic tickets.  Accordingly, the court dismissed the challenge to this fee without prejudice.

Similarly, the court held that plaintiff failed to plead how the fee for lost items was unfair and disproportionate.  Moreover, Zipcar allowed less costly means of obtaining the goods.  The court thus dismissed the challenge to this fee, too, without prejudice.

The court refused, however, to dismiss the challenge to the "inactivity fee," at least initially, reasoning:

With respect to these fees, Blay's argument is colorable.  In particular, the Court is unpersuaded that an inactive member costs Zipcar anything at all, let alone $20 per month, and Blay is correct that the clear motive seems to be to induce customers to maintain active memberships.  Although it is still unclear whether the charges might prove to be enforceable penalties and plaintiff's pleading is again cursory, the Court finds that the allegations related to inactivity fees are sufficient to state a cause of action and survive a motion to dismiss.

 Id. at *7.

But not so fast!  The defendant argued that plaintiff did not actually pay an inactivity fee, and thus did not have standing to bring such a claim.  The court agreed:  "Because he does not explicitly allege that he incurred such a fee, he cannot represent a putative class based only upon that claim.  His claim based upon the inactivity fee will, therefore, be dismissed as well."  Id. at *8.

The defendant had raised other strong arguments against plaintiff's causes of action.  For example, it argued that plaintiff could not seek recovery in "quasi contract" for unjust enrichment where the claims were governed by written, explicit contracts.  Similarly, the defendant asserted the voluntary payment doctrine as a bar to recovery.  (Regular readers remember the voluntary payment doctrine holds that a consumer's voluntary payment of a disclosed fee that was made without fraud, concealment or compulsion cannot form the basis of a subsequent claim to recover those payments.  Because the court could decide the case without reaching these arguments, it did not rule on them.  But they provide additional support for the result in this case, and they should tend to discourage plaintiff from attempting to amend his complaint to re-assert the causes of action that he had pled.

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This is the way an MDL ends:  not with a bang, but a whimper.

My apologies to Eliot, but this bastardization of The Hollow Men seemed appropriate in this instance.  Today we feature two decisions that -- although they are marked "not for publication" -- clearly demonstrate the hollowness of consumer and third party actions based on the "diminished value" theory. 

Law360 reported yesterday (subscription required) that Judge Stanley R. Chesler of the District of New Jersey finally pulled the plug on an MDL begun in 2006 involving claims that Schering-Plough Corp. engaged in unlawful off-label promotion of its medicines Intron-A and Temodar.  In one opinion, he dismissed a putative consumer class action involving the medicines.  In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, No. 2:06-cv-5774 (SRC) (D.N.J. June 9, 2010) (the "Consumer Slip Op.").   In the other, he dismissed a putative class action involving third party payors -- various insurers and union health benefit plans.  In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, No. 2:06-cv-5774 (SRC) (D.N.J. June 9, 2010) (the "TPP Slip Op.").

Last summer, Judge Chesler had dismissed the complaint in these actions, giving the plaintiffs leave to amend.  See In re Schering Plough Corp. Intron/Temodar Consumer Class Action, 2009 WL 2043604 (D.N.J. July 10, 2009).  The opinion was a lengthy discussion of why neither the consumer class action nor the TPP class action pled viable claims.  Last week's opinions reiterate that analysis and formally pronounce the death of the litigation.

In the consumer class action, the named plaintiff had suffered from Hepatitis C, but was asymptomatic.  Her doctor originally recommended against treatment with Schering's medicines.  Subsequently, however, the doctor changed his mind and recommended treatment with a combined prescription of Schering's medicines.  Plaintiff alleged in the complaint that she suffered from some of the medicines' side effects and lost weeks of work.  The medical records reflected that the doctor discussed with plaintiff the risk of side effects.

Plaintiff's complaint had all sorts of allegations of off-label promotion of the medicines.  Schering had pled guilty to a criminal information involving off-label promotion of the medicines, and plaintiff incorporated the whole criminal information in her complaint by reference.  She also incorporated by reference the entire complaint in a civil qui tam action. 

Applying Iqbal, the court held that plaintiff did not have Article III standing to sue because she did not plead any facts to support the notion that Schering's conduct actually caused her injury.  The court held that general allegations of off-label promotion don't cut it, since doctors may lawfully prescribe medicines for off-label purposes and, although off-label promotion may violate an FDA regulation, it is not inherently false.  In any event, there were no facts pled suggesting that plaintiff's doctor relied on false statements made by Schering in prescribing the medicines.

Similarly, the court observed that although there were generic allegations that Schering paid kickbacks to doctors to prescribe its medicines, there were no allegations that it did so to plaintiff's doctor or that such kickbacks made him change his mind on prescribing the medicine.  Consumer Slip Op. at 14-15.  The court reiterated that it need not credit bald assertions or legal conclusions, but need only look at facts pled in the complaint, and those were sorely lacking.

The court also instructed that because the complaint referred to plaintiff's medical records, the court could properly look to the medical records on a motion to dismiss.  Those records suggested other plausible reasons besides fraud why plaintiff's doctor made the prescription.  Accordingly, the plaintiff had failed to meet her burden under Iqbal, and the court dismissed the consumer class action for lack of jurisdiction.

The Third Party Payor action was particularly interesting, because there the plaintiffs had whittled their claims down from nine causes of action to just four:  RICO, New Jersey's mini-RICO statute, a common-law claim for tortious interference with contract, and unjust enrichment. 

In its opinion last summer, the court had rejected the TPP plaintiffs' RICO pleading because it basically pled that the TPPs had suffered injury by paying for medicines that were used off label.  The court explained that off-label use is not necessarily false or non-beneficial, even if it was done as a result of a promotion that violated FDA regulation.  It had established what TPP plaintiffs must plead to state a viable claim for diminished value:  "that Named Plaintiff TPPs paid for Subject Drugs that were inferior and/or worth less than what Plaintiffs paid."  TPP Slip. Op. at 9 (referring to earlier opinion).  The court had explained that "[t]he inferiority of the product could be alleged, for example, by pleading facts asserting that the drug was either ineffective for the indication for which it was prescribed or [that it was] unsafe."  Id.

The TPP plaintiffs did not plead this, however.  At best they pled that Schering did not have the science to prove the effectiveness of the medicines for off-label uses.  That is tantamount, the court said, to giving a private right of action to enforce the Food, Drug and Cosmetics Act, which is something that courts cannot do.  Id. 

The court also rejected the invitation to adopt a "fraud on the market" theory, i.e., that by promoting its medicines for off-label use, Schering drove up the demand for the products and thus inflated the prices that TPPs paid. 

Aside from not having an injury, the TPP plaintiffs had no causation -- i.e., they could not attribute any harm they received as being caused by the actions of Schering.  The TPP plaintiffs asked the court to assume that there was such causation:

Named Plaintiffs, in short, allege that the deliberately widespread nature of Defendants' marketing scheme supports the inference that some portion of prescriptions for the Subject Drugs paid for by the TPPs were written for off-label indications as a result of Schering's unlawful marketing.

TPP Slip Op. at 13.  But the court noted that none of the named TPPs linked a single prescription that it paid for to a single instance of alleged misconduct by Schering.  Not one doctor was identified who prescribed because of alleged kickbacks, or as a result of fraudulent misrepresentations.  Moreover, the amended complaint failed to plead that the medicines were actually unsafe or ineffective for the off-label purposes for which they were prescribed.  As a result, the court held that the TPPs failed to plead facts to establish standing to bring a federal or New Jersey RICO claim.  TPP Slip Op. at 21-22. 

The court made quick work of the TPP plaintiffs' common law claims.  First, it noted that the TPP plaintiffs failed to allege that their contracts with their plan members were actually breached.  As a result, they could allege no interference with contractual relations.  Similarly, there could be no "unjust enrichment" where there was no other underlying cause of action. 

Once again, Judge Chesler's opinions demonstrate that "diminished value" claims lack substance, particularly in the context of the alleged overpromotion of medicines for off-label use.  Plaintiffs deliberately plead these claims vaguely, and for good reason:  if they actually acknowledged that they must show injury and causation on a prescription-by-prescription basis, it would be obvious that these claims never could be tried as class actions.  Thus, for the sake of attempting to reach a class action jackpot, plaintiffs refuse to plead any facts that might possibly establish the individual's standing to bring a claim.

Judge Chesler's opinions suffer from only one apparent flaw:  they should be designated for publication.  This is particularly true for opinions that mark the end of a multi-year class action pleading battle. 

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Those who have litigated the question know that there's something a little kooky about the District of Columbia's Consumer Protection Procedures Act.  Plaintiffs often argue that it has one of the most liberal grants of standing to sue in the country, not requiring an actual loss of money or property to bring a claim.  Defendants, of course, dispute that construction, but it often results in arguments over whether an organization or individual who has suffered no harm can sue to enforce the DCCPPA.

Recently, the DC Circuit affirmed the dismissal of a CPPA claim.  In Shaw v. Marriott Int'l, Inc., 2010 WL 2134277 (D.C. Cir. May 28, 2010), plaintiffs brought a putative class action for violation of the CPPA against Marriott for advertising the rates at its Russian hotels in dollars and not disclosing that its policy was to allow payment only in rubles (at less than the Central Bank's exchange rate), thereby inflating the cost of a room by as much as 18% more than the price guests had been quoted when making reservations.

The plaintiffs were a think tank that funded its employees' professional travel to Russia, an employee of the think tank who had traveled to Russia, a lawyer who had traveled to Russia for his law firm, and a Michigan resident who had traveled to Russia on vacation. 

The DC Circuit concluded that the think tank had Article III standing to sue because it allegedly had lost money directly.  The employee and the lawyer, however, did not have Article III standing.  To begin with, they admitted that it wasn't their money they were cheated out of.  They each had been reimbursed by their employer. 

The employee-plaintiffs argued that they had been deprived of their legally cognizable interest in being free from deceptive trade practices.  The court observed that a statute can confer such a right on an individual, and that the violation of that right can constitute an injury-in-fact sufficient to allege standing.  Nevertheless, it did not work for these plaintiffs, because they were not within the scope of individuals protected by the statute.  The DCCPPA protects "consumers," which the court determined were people who receive goods or services that are primarily for personal, household, or family use.  The traveling employees were using the hotel rooms for work on work trips.  They were not consumers, therefore, and thus had suffered no injury to a protected right.  2010 WL 2134277 at *4.

The DC Circuit also affirmed the trial court's grant of summary judgment on the think tank's claim because it, too, was a professional entity, not a "consumer" to whom the CPPA applied.  Id. at *5.

Finally, the DC Circuit also affirmed summary judgment against the vacationer, holding that DC's CPPA did not apply to him because he was from Michigan, while the statute was only designed to protect DC consumers.  The Michigan plaintiff argued that DC law should apply because Marriott included a DC address on its website and certain financial materials.  Applying a governmental interest analysis, the court held that DC had virtually no interest in having its law apply to the dispute given that Marriott is a Delaware company and did not maintain a principal place of business in the District of Columbia.  Id. at *6.

The Shaw decision is a good reminder that even where the consumer protection statute has been broadly interpreted, paying close attention to the scope of the statute and the relevant choice of law principles can still afford a defendant with an opportunity to dismiss a claim.

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Today's post is about dogs and drugs.  Mr. Ted E. Bear was kind enough to illustrate by channeling his inner "fat Elvis," complete with bejewelled white jumpsuit, prescription medicines, and alcohol.

Regular readers of this blog know that, over time, we have discussed many cases holding that if a plaintiff has not experienced a product malfunction, he has no injury and cannot assert a claim for breach of warranty or consumer fraud.  Last Wednesday the First Circuit Court of Appeals issued a decision that strongly reaffirms these principles and challenges the underpinnings of so-called "diminished value" class actions. 

In Rule v. Fort Dodge Animal Health, Inc., No. 09-1364, Slip op. (1st Cir. June 2, 2010), plaintiff had twice bought ProHeart 6 and had it administered to her dog, Luke, to protect him from heartworm.  Fortunately, it worked.  Luke never developed heartworm, and he never developed any adverse reactions to the medicine.

But the manufacturer ultimately issued a recall on ProHeart 6 because there had been incidents in testing and actual use of dogs developing adverse reactions.  Some even died.

Plaintiff brought a putative nationwide class action against the defendants, alleging a number of causes of action.  She claimed that if she had known the truth about the adverse reactions at the time she bought the medicine, the medicine would have been worth less than what she actually paid for it, and thus she (and the class) should recover the diminished value of the medicine.  The trial court dismissed her claims for lack of standing.  She appealed the dismissal of only 2 counts:  breach of the implied warranty of merchantability and consumer fraud under Massachusetts' statute, Chapter 93A of the Massachusetts General Laws.

The First Circuit said that the implied warranty claim was easily disposed of:

But the unfitness of ProHeart 6 lay in its potential for causing harm to the dog.  [Plaintiff] concedes that neither of the two doses injured Luke.  So, while the sale to [plaintiff] may have been of an unfit drug, its unfitness did not give rise to any injury to [plaintiff] against which the warranty was designed to guard.  Nor does she suggest that Luke is now more susceptible to injury, as might be the case where one bought and installed a defective tire that has not run its life or smoked cigarettes whose potential for harm lasts into the future.

Recovery generally is not available under the warranty of merchantability where the defect that made the product unfit caused no injury to the claimant, the threat is now gone, and nothing now possessed by the claimant has been lessened in value. . . .  True, purchasers whose dogs were injured might have such claims; but one who has no claim is not normally a suitable plaintiff to represent a class of those who do.

Slip op. at 5-6  (citations omitted).

In analyzing the consumer fraud claim under Chapter 97A, the First Circuit recognized that it was a closer call.  Some earlier opinions of the Massachusetts Supreme Judicial Court had suggested that a claim for deception might lie even where it did not result in a direct economic loss.  But the statute itself requires injury "caused by" the deceptive acts, and the later opinions interpreting the statute seem to clearly require injury suffered as a result of the alleged deceptive conduct.  The First Circuit ultimately held that "the notion of injury under Chapter 93A means economic injury in the traditional sense," and if Massachusetts wants to identify exceptions to that rule, it remains free to do so.  Slip op. at 12.

The court continued:

Conduct like that attributed to [the defendant] needs to be deterred, but not necessarily by those who bought the drug but were not injured.  The state has authority to seek heavy sanctions on those who engage in deceptive advertising even without injury, Mass. Gen. Laws Ch. 93, Sec. 4; and anyone whose dog was injured, or a class of those persons, may (assuming [plaintiff's] allegations are correct) likely sue and collect damages.  [Plaintiff], having suffered no economic injury, may not.

Id.

The First Circuit's opinion raises the important question of who should vindicate society's interest in deterring alleged deceptive conduct.  Seldom, if ever, should it be individuals who are uninjured by the conduct, as they lack the appropriate incentives.  Warranty law -- and the consumer fraud statutes of most states -- require that a plaintiff have actually suffered an injury caused by the alleged misconduct in order to maintain a claim.  Efforts to water down the standing requirements for individual plaintiffs must be resisted. 

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The Third Circuit recently affirmed dismissal of a consumer class action involving the contractual rights, if any, of season ticketholders to a professional sporting event.  Mayer v. Belichick, 2010 WL 1980344 (3d Cir. May 19, 2010).

In Mayer, the named plaintiff was a season ticketholder to the New York Jets football franchise.  He sued because a rival team -- the New England Patriots and their coach, Bill Belichick -- were found by the National Football League to have improperly engaged in the recording of the Jets's signals and visual coaching instructions.  Plaintiff alleged that implicit with the purchase of a ticket is the promise that "each game will be played in accordance with NFL rules and regulations as well as all applicable federal and state laws."  Id.  Plaintiff alleged 9 causes of action: 

(1) tortious interference with contractual relations; (2) common law fraud; (3) violations of the New Jersey Deceptive Practices Act; (4) violations of New Jersey's racketeering statute; (5) violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"); (6) the infringement of the rights of ticket-holders as third-party beneficiaries; (7) breach of implied contract or quasi-contract; and (8) violations of the New Jersey Consumer Fraud Act ("NJCFA").  Finally, [plaintiff] advanced a breach of contract claim against the NFL on account of its destruction of the videotapes.

Id. at *5.

The Third Circuit observed that this was an unusual case.  It traced the history of professional sporting cases generally brought by fans, noting that in nearly all of them, the courts held that the ticket merely gave the fan a license to attend the event premises; it did not create a contract to present any particular kind of show or dictate the manner in which it was to presented. 

Here, the plaintiff indisputably had access to NFL football games.  He did not pay something and receive nothing in return.  Moreover, the court reasoned, courts are ill-equipped to decide cases based on the alleged violation of the rules of the game.  That task, the court reasoned, is better left to the game's authorities, like the NFL, which did act and imposed considerable sanctions.  Id. at *11-*12.  The court noted that:

At the very least, a ruling in favor of Mayer could lead to other disappointed fans filing lawsuits because of 'a blown call' that apparently caused their team to lose or any number of allegedly improper acts committed by teams, coaches, players, refereees and umpires, and others.  This Court refuses to countenance a course of action that would only further burden already limited judicial resources and force professional sports organizations and related individuals to expend money, time and resources to defend against such litigation.

Id. at *12.

Accordingly, the Third Circuit held that the plaintiff "suffered no cognizable injury to a legally protected interest."  Id. at 11.

The Third Circuit's analysis is important beyond the sporting context.  Plaintiffs often attempt to infuse into their complaints "implied" promises to comply with legal, regulatory, or advisory standards.  The Third Circuit in Mayer looked beyond these allegations to examine what the nature of the injury to plaintiff was and whether it was one protected by law or contract.  This approach should apply in other contexts as well.

I am pleased to report that the Mayer decision was won by colleagues of mine, Shepard Goldfein and Paul Eckles. 

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I've always wondered how people end up becoming plaintiffs in consumer class actions.  Thanks to the recent decision in Farokhzadeh v. Too Faced Cosmetics, B213306, Slip Op. (Cal. App. -- 2d Dist. Apr. 26, 2010), now I know.

A woman goes to the cosmetics store looking for lip gloss.  She see's an in-store display for "FUZE Slenderize Guilt Free Lip Gloss" that promises:  "Always on the lips . . . Never on the hips!"  She buys it for "about like $20."

The woman uses the lip gloss for a couple of weeks and begins talking about it with her friend, an unemployed lawyer.  He asks her if the product has helped her to lose weight.  She says "no."  He says "like, oh, you should contact [a lawyer]."  A few days later, she calls him and gets a referral to a plaintiffs' law firm.

Despite the fact that she had determined the lip gloss was not performing on its promise to help her lose weight, plaintiff continued to use the lip gloss and did not return it to the retailer "because, in her own word, of 'laziness.'"   Indeed, she still had the lip gloss in her purse at the time of her deposition, some 10 months after having purchased it.

The trial court had ruled on the plaintiff's motion for class certification some six months before the California Supremes' decision in In re Tobacco II Cases, 46 Cal. 4th 298 (2009).  The trial court questioned plaintiff's standing, given that she did not return the lip gloss and still used it, and that the lip gloss was cheaper than other products that were just pure lip gloss without "appetite supression qualities."

Applying Tobacco II, the Court of Appeal, in an unpublished decision, held that the plaintiff had standing and had "lost money" within the terms of the statute even though the Fuze lip gloss was cheaper than some standard lip gloss products that did not tout weight loss properties.

But the court upheld the trial court's holding that plaintiff was an inadequate class representative:

There is substantial evidence in the record supporting the trial court's conclusion that Garokhzadeh had no interest in vindicating her own consumer rights, let alone protecting the rights of any other consumer.  In fact, she did nothing until after she had been prompted by a friend with a legal background to "contact [a lawyer]."  By her own admission, she suffered from "laziness" when it came to vindicating her own rights.  We believe that the trial court reasonably concluded that she was not a person who would willingly assume the fiduciary responsibility to prosecute a UCL action on behalf of absent class members.

Slip op. at 8.

This decision highlights the importance of using discovery to thoroughly explore adequacy of representation issues, even in those jurisdictions that seem predisposed to find adequacy where class counsel themselves are adequate.  Where, as here, the plaintiff has been less than vigilant in pursuing her own claim, you may be able to argue that she cannot adequately pursue claims on behalf of others and effectively manage class counsel.

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U.S. District Judge Lee Rosenthal in Houston -- the Chair of the Judicial Conference Committee on Rules of Practice and Procedure -- recently Issued a very thoughtful opinion analyzing the Alien Tort Claims Act and other statutes in a case brought by victims of 21 terrorist attacks in Israel during the Second Intifada and their families against oil companies that bought and sold Iraqi oil.  See Abecassis v. Wyatt, 2010 WL 1286871 (S.D. Tex. Mar. 31, 2010).  The 193 plaintiffs' theory was that payments from the oil sales were diverted by Saddam Hussein to secret accounts in Jordan that Hussein subsequently used to pay rewards to the families of the suicide bombers in each of the 21 terrorist attacks.  Defendants thus allegedly "violated international law by financing terrorism and by aiding and abetting and conspiring to commit acts of genocide and crimes against humanity."  The complaint did not name as defendants Saddam Hussein, Iraq, the terrorist organizations, or the individual terrorists who carried out these attacks.

Most of the plaintiffs were aliens and asserted claims under the Alien Tort Claims Act.  The U.S. nationals asserted a claim under the Antiterrorism Act ("ATA").

Judge Rosenthal's opinion describes in careful detail the United Nations economic sanctions that were imposed on Iraq in the 1990s and the UN's "Oil for Food Program," in which Iraq was allowed to make limited oil sales in exchange for funds that would be deposited in an account that could only be used to buy food and medicines for the Iraqi people.  The complaint alleged that many of the companies and individuals that Iraq chose to receive allocations to buy Iraqi oil were not really oil companies and made huge profits by selling their oil allocations to brokers and others able to transport the oil to a refinery.  These companies -- defendants in the action -- allegedly secured their allocations by making side payments to Hussein's secret accounts.

As I have explained before in prior posts, the Alien Tort Claims Act gives federal courts jurisdiction over certain violations of "customary international law," but that jurisdiction is severely limited.  When the ATCA was first adopted in 1789, the recognized violations of "customary international law" that it covered were:  (1) piracy, (2) interfering with a nation's "safe conduct" request for one of its citizens, and (3) assaulting or impeding a nation's ambassador.  Since the 1980s, however, litigants have sought to broaden the scope of "customary international law" covered by the ATCA, as well as the type of "people" who may be sued under the Act.  It is this fundamental tension that presents judges like Judge Rosenthal with difficult questions indeed.

In Abecassis, the defendants moved to dismiss the case for lack of Article III standing.  Citing Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992), Judge Rosenthal observed that constitutional standing to bring a claim requires an "injury in fact" that is both "concrete and particularized" and "actual or imminent," a causal connection between the injury and the challenged conduct; and the likelihood that a favorable decision would redress the alleged injury.  The defendants' motions to dismissed challenged the second element -- causation -- arguing that plaintiffs failed to show that their injury was "fairly traceable to the challenged action of the defendant, and not the result of the independent action of some third party not before the court."  Id. (quoting Lujan).

The defendants argued that plaintiffs' injuries resulted from the independent acts of the terrorists and, perhaps, of Saddam Hussein, but certainly not as the result of their purchases of oil.  The plaintiffs responded that because they pled the defendant oil companies were accessories and aidors and abettors to genocide and crimes against humanity, rather than direct tortfeasors, they did not have to plead "but for" causation, i.e., that their injuries would not have happened but for the oil purchases.  Rather, they allege, they need only plead that the oil companies gave substantial assistance to the direct tortfeasors.

There have been ATCA cases that have gone both ways on the question of aiding and abetting liability, and Judge Rosenthal carefully analyzed them.  Ultimately, she concluded that the injuries pled were not fairly traceable to the defendants, and plaintiffs thus failed to allege constitutional standing to bring their ATCA claim:

The plaintiffs here allege that the Hussein government caused their injuries by making payments to suicide bombers' families, which encouraged future suicide bombings.  It is speculative whether the bombings that injured the plaintiffs and their family members are fairly traceable to Hussein's prior payments to families of other suicide bombers.  It was the suicide bombers and the terrorist organizations that decided to carry out the specific attacks, not the Hussein government, not the third party that bought Iraqi oil, and not [the defendant that held the allocation for the oil].  The suicide bombers were independent of [the defendant].  The injuries caused by those bombers are not fairly traceable to [the defendant].

. . .

. . . The plaintiffs here have not alleged a direct relationship between [the defendants] and the principal tortfeasors, the suicide bombers.  There were independent third parties between Iraq and the plaintiffs. . . .  Even if [the defendants were] not independent of Hussein because of the aiding and abetting allegations, it was the third party oil sellers' decision to mark up the oil price to pay kickbacks and it was the terrorists' decisions to carry out the attacks.  What these actors would have done without [the defendants'] involvement is speculative.  The causation prong of the standing test is not met.

Id. at *16. 

Judge Rosenthal also analyzed whether the ATCA claims stated a claim under Rule 12(b)(6), concluding that they did not.  She looked to international law to determine whether there was a sufficient international norm for recognizing "secondary liability" (or "aiding and abetting" liability) for the torts pled.  She held that there was not, and that the complaint failed to plead that the defendants even knew that their kickbacks paid through the Oil for Food Program were being used to fund attacks in Israel -- let alone any intention that they do so.  She held that "[t]he allegation would have to be that the defendant acted with the purpose of assisting terrorists to murder or maim innocent civilians."

In analyzing the claims of the U.S. nationals under the Antiterrorism Act ("ATA"), Judge Rosenthal assumed -- without deciding -- that plaintiffs had pled standing under the liberally drafted statute, but dismissed the claim (with leave to replead) for failure to plead a cognizable claim under Rule 12(b)(6).

The ATA makes it a federal crime to "provide[] material support or resources . . . knowing or intending that they are to be used in preparation for, or in carrying out" a violation of the section that makes it a crime to kill, conspire to kill, or inflict bodily injury on a U.S. citizen abroad.  18 U.S.C. sec. 2339A.  Judge Rosenthal relied upon the Seventh Circuit's recent en banc decision in Boim v. Holy Land Foundation (Boim III), 549 F.3d 685 (7th Cir. 2008), which "held that anyone who provides material support -- not necessarily substantial support -- to a terrorist organization, directly or indirectly, with knowledge that the organization carries out attacks in Israel (or with recklessness as to the truth of this fact), is liable under the ATA to an American (or his estate) injured in Israel by that organization."

After a lengthy exposition of the cases analyzing the ATA and the type of causation that it requires, Judge Rosenthal ultimately concluded that whatever the standard is, the plaintiffs had failed to meet it here because they had not alleged that each defendant knew that the oil it was buying was tied to a kickback to Saddam Hussein and that Hussein was using that money to fund terrorism targeted at U.S. nationals.  Indeed, the complaint cited a news story from the time indicating Hussein was using the money to fund his army and his luxurious lifestyle, mentioning nothing about paying suicide bombers.  Moreover, there were no allegations of an agreement among the "co-conspirators" to fund or otherwise support terrorism targeting Americans.

Judge Rosenthal's opinion is an excellent example of the cautious approach judges should take to claims brought under the Alien Tort Claims Act and other statutes that, if abused, could drag American corporations into costly "secondary liability" lawsuits over tortious violence committed by direct actors who have not been held to account for their actions.

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On March 25, U.S. District judge Jeffrey White dismissed a lawsuit brought by the litigation project at the Center for Science in the Public Interest ("CSPI").  See Center for Science in the Public Interest v. Bayer Corporation, et al., No. C 09-05379, Slip op. (N.D. Ca. Mar. 25, 2010) (Law360 subscription required to view pdf).  CSPI had sued Bayer over its One a Day Men's Multivitamins, which purportedly contain selenium and which Bayer allegedly has been marketing as promoting prostate health.  CSPI sued for injunctive relief under California's Unfair Competition Law and its Consumer Legal Remedies Act.

The district court granted Bayer's motion to dismiss, holding that CSPI lacked standing to sue in a representative capacity on behalf of its members, and it had not suffered an injury itself that gave rise to standing as an institution.  The UCL, as we have noted many times on this blog, was amended by Proposition 64 to limit standing to sue only to those people who have suffered an injury in fact and lost money or property as a result of the allegedly deceptive conduct.  CSPI did not meet this standard, the court held.

Similarly, the CLRA applies only to consumers of services for personal, family, or household purposes.  Again, that is not CSPI.

The court analyzed CSPI's claim of institutional standing, in which it claimed to have suffered injury from Bayer's representations about its vitamins.  The court rejected any allegation of injury to CSPI, noting:  "[T]he allegations as currently pled indicate that, in reaction to Bayer's alleged misrepresentations, CSPI as an organization reacted by disseminating information about nutritional science and by educating its members.  This conduct, rather than causing CSPI to incur injury, fulfilled the espoused purpose of the organization.  Accordingly, CSPI fails to allege any property loss or any interference with its institutional activities or ability to operate."  Slip op. at 6.  The court granted the motion to dismiss the UCL claim and the claim for declaratory relief with leave to amend, and granted dismissal of the CLRA claim with prejudice. 

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

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

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

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

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

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

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

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Yesterday the Texas Supreme Court issued a class action opinion that raises the fundamental question of what are the responsibilities of class representatives?  In some jurisdictions, courts refuse to entertain challenges to the adequacy of class representatives, reasoning that so long as class counsel are capable, the class will be adequately represented.  Texas lies at the other end of the spectrum, viewing the class representative as a real client who actually makes the decisions in the litigation, not the class counsel.  Whether the class representative is a mere figurehead witness or an actual litigant has a significant impact on the adequacy of representation analysis.

In Southwestern Bell Telephone Co. v. Marketing on Hold, Inc., No. 05-0748, slip op. (Tex. Feb. 19, 2010) (now reported at 2010 WL 572876), the plaintiff and putative class representative, Marketing on Hold, was a company that audits its customers' telephone bills and seeks adjustments on their behalf for improper charges in exchange for 50% of what it recovers.  The company convinced five of its customers to assign to the company their causes of action against Southwestern Bell, lowering its fee to 30% of recovery.

The theory of class recovery was that Southwestern Bell charged its customers a municipal fee that it had not been authorized to charge from 1991 to 1998.   

The defendant challenged the plaintiff's standing to sue, arguing that the assignments of claim were void as against public policy.  The Texas Supreme Court rejected this argument, observing that the assignability of a cause of action is generally freely permitted.  Slip op. at 5.  The court noted that plaintiff "already had a substantial financial interest in the claims against Southwestern Bell prior to assignments" (id.), and thus was not a "stranger/entrepreneur" whose actions "disrupt the class suit vehicle and distort the judicial process."  Id. at 6.  Accordingly, the court held the assignment was not against public policy and thus the plaintiff had standing to sue.

In analyzing the prerequistes to class certification under Texas's class action rule, Rule 42, the court found for the plaintiff on typicality and predominance.  But the court held that the company with assigned claims failed the adequacy of representation test:

We believe courts should scrutinize carefully the motivating interests and incentives of parties that agree at an apparent financial loss to obtain the right to serve as the class representative. . . .

. . . We agree that [plaintiff's] interests conflict with those of the absent class members.  [Plaintiff] is not an injured claimant seeking relief to make itself whole, but voluntarily assume the classwide injury in order to serve as the class representative.  Unlike the class, [plaintiff] has a materially lesser interest in making itself and the class whole because it was never personally aggrieved by Southwestern Bell's alleged overcharging, and its maximum recovery is less than half the value of any individual claim for damages.  For example, because [plaintiff] never paid the alleged overcharges at issue and can retain at best only thirty-percent of any recovery, [plaintiff's] incentive in settling quickly in order to minimize litigation expenses differs from class members who have overpaid and may be willing to hold out for a settlement that approximates their actual damages.  For the same reason, [plaintiff's] motivation may encourage pursuit of theories of relief that are more efficient for it, but yield less recovery for absentee class members.

Id. at 16-17 (citation and footnotes omitted).  The court went on to explain that although the plaintiff appeared to take a loss (30% rather than its contractual 50%) on the assigned claims of five customers, it still had a number of other contracts with other customers through which it stood to benefit by gaining control of the class action. 

This troubled the court because of its view of the responsibilities of a class representative:

Class representation vests a great deal of power in the class representative.  The class representative decides, among other matters, which claims to pursue and which to forgo, and the remedies and strategies to pursue in supervising class counsel. . . .

[Plaintiff's] lack of any claim of its own makes it unique among the members of the class.  Its only knowledge of the claims it holds must be obtained from its assignors. . . . Both [of plaintiff's officers] indicated that they would rely heavily on [plaintiff's] counsel to conduct the litigation.  While we recognize that class counsel's control over class litigation is often greater than it is in non-class litigation, the class action rule contemplates that the class representative is "not simply lending [its] name [] to a suit controlled entirely by the class attorney."  7A Charles Alan Wright, Federal Practice and Procedure sec. 1766 (3d ed. 2005).  In this case, [plaintiff's] interest in the litigation by assignment removes it and its counsel one step further from the class members, enhancing the risk of conflicts.

Id. at 17-18.  The court thus concluded that plaintiff failed to meet the adequacy of representation requirement.

Where the class representative is expected to control the litigation, Marketing on Hold demonstrates how entrepreneurial speculators who invest in litigation can present special opportunities for mischeif that counsel against allowing them to participate as class representatives.

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

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

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

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

Id. at *4.

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

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

Id. at *6. 

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

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

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

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

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

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