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

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

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

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

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

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

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

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

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

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On Wednesday the U.S. Senate's Judiciary Committee held a hearing to examine the effects of the U.S. Supreme Court's decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 244 (2007) and Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) on litigants' access to federal courts.  From all of the reports that I have read, most of the Committee members themselves -- other than Alabama Senator Jeff Sessions -- seem highly critical of the decisions and committed to changing the pleading standards to one in which a federal court cannot dismiss a case if it can conceive of any possible set of facts under which plaintiffs could state a claim.  That, of course, is a far cry from true notice pleading, in which a litigant with a Rule 11 obligation to have investigated his claim before filing it is required to plead the basic facts underlying his legal claim.

My colleague, John Beisner, recently circulated an update that explains three fundamental problems with the bills currently under consideration in the House and Senate.  First, although the bills' proponents talk wistfully of "returning" to Conley v. Gibson, 355 U.S. 41 (1957), courts never actually followed Conley's standard literally.  Second, the bills as drafted would override the heightened pleading standards previously imposed by Congress in statutes such as the Private Securities Litigation Reform Act.  Third, the bills also would nullify the particularity requirement that Federal Rule of Civil Procedure 9(b) has imposed on fraud claims since 1937.

The prepared remarks of the three witnesses from Wednesday's hearing are worth a read.  Professor Stephen Burbank of the University of Pennsylvania, an Iqbal critic, testified that legislation to "restore the status quo" is necessary now, followed by subsequent study regarding what the appropriate pleading standard should be.  Interestingly, Professor Burbank is of the opinion that it should be Congress -- and not the Supreme Court -- that makes this later decision:

Once legislation restoring the status quo is in place, it will be time to consider change after a thoughtful and deliberate study within more democratic processes. The Supreme Court, acting as such (that is, rather than as Congress’s delegate under the Enabling Act), is incapable of conducting or acting on such a study, because it lacks the information, experience and political legitimacy to make an informed judgment about either the procedural or the broader social costs and benefits of changing pleading law.

Testimony at 20.

Another Iqbal critic -- John Payton, President and Director-Counsel of the NAACP Legal Defense and Educational Fund -- reminded the Committee in his remarks that Conley was a civil rights case, and posited that if Iqbal had been the standard employed in 1957, the plaintiffs might not have prevailed.  He opined that in civil rights cases, the facts are mostly in the defendants' possession, and thus bare pleadings must be allowed in order to get access to the discovery necessary to substantiate the claim. 

One witness, however, supported the Iqbal/Twombly standard:  Gregory G. Garre, the former U.S. Solicitor General who had argued the Iqbal case on behalf of the government.  In his testimony, General Garre explained that Iqbal and Twombly are in line with decades of Supreme Court and Court of Appeals decisions that have required litigants to plead basic facts about their claims.  He also explained the enormous costs of allowing conclusory and implausible claims to proceed past the pleading stage to discovery.  In addition, he devoted considerable attention to explaining that the effect of Iqbal and Twombly to date has not been the wholesale dismissal of claims, citing to cases and the Advisory Committee on Civil Rules' report finding no evidence of a "drastic change" in dismissal rates. 

General Garre concluded that for Congress to revise the pleading standards at this time would only lead to more uncertainty and litigation.  Instead, he recommended allowing the Judicial Conference of the United States to do its job, studying the issue and recommending any necessary changes through the ordinary process for amending the civil rules.

To date, few Senators and Representatives have advocated this cautious and common-sense approach as eloquently as Gregory Garre.  But if we are to avoid reactionary legislation that muddies the water and results in uncertainty and an increase in frivolous and wasteful litigation, cooler heads on both sides of the aisle must stand up and quickly find their voice.

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An Alabama federal court recently held that the Torture Victims Protection Act does  not authorize wrongful death claimants to bring suit for their own damages, but instead merely authorizes them to sue for the torture victim’s own injury.  In Baloco v. Drummond Co., Case No. 7:09-CV-00557-RDP, Slip op. (N.D. Ala. Nov. 9, 2009) (subscription to AmLaw Daily may be required to see opinion), the children of alleged torture victims sued Drummond Company for wrongful death damages that they had suffered as a result of their fathers’ murders in Columbia, which allegedly were committed by Colombian paramilitary organizations at the behest of the defendant to prevent union organizing.

Previously, wives and family members had brought suit against Drummond under the Alien Tort Claims Act, the TVPA, and Columbian common law for the injuries suffered by their murdered family members, which suit had resulted in summary judgment for Drummond on the wrongful death claims and a jury verdict for Drummond on the ATCA claim for allegedly aiding and abetting the murders.  Slip op. at 3.

In analyzing the motion to dismiss, Judge David Proctor first had to decide whether the claims of these plaintiffs were barred by the res judicata effect of the earlier judgment.  In addition to a final judgment rendered by a court of competent jurisdiction, res judicata requires that the parties in the two actions be identical, or at least in privity.  It also requires that the same cause of action be involved in both cases.  Analyzing the pleadings in the first action, Judge Proctor determined that many of the plaintiffs before him had also been plaintiffs in the first action and asserted the same claim.  Judge Proctor considered their argument that res judicata should not apply to them because they had learned new facts since the first action that supported their claim.  But the court distinguished between new factual developments that occur that may justify not applying res judicata, and the mere discovery of new evidence that existed at the time of the first action, which does not.

Nevertheless, there were three plaintiffs who could not be eliminated on res judicata grounds at the pleading stage, and so the court moved on to consider the question of their standing to bring their claims.  The TVPA provides a federal cause of action for torture and extrajudicial killing.  The claim may be brought by the victim or on his behalf by his legal representative or one who would be a claimant in an action for wrongful death.  Plaintiffs argued that this allowed them to sue for their own wrongful death damages.  The court concluded, however, that the TVPA does not allow recovery for injuries except those suffered by the torture victim himself; the mention of wrongful death in the statute defines who may bring the claim, but does not alter the fact that the claim is for the victim’s damages, not those of his family.  Slip op. at 13-16.  Accordingly, the court held that plaintiffs lacked standing to sue under the TVPA.

Plaintiffs also asserted claims under the Alien Tort Claims Act.  But the ATCA provides no guidance on the issue of standing.  Judge Proctor reasoned that “[i]n the case of the [ATCA], several courts, including the Eleventh Circuit, have referenced the TVPA as the most analogous statute.”  Id. at 16.  The court thus held that because the plaintiffs lack standing under the TVPA, they lack standing under the ATCA as well.

Finally, in declining to exercise supplemental jurisdiction over the Columbian common law claims, the court noted that the issues of Columbian law were so complex that it would be impossible for the court to navigate them.

 

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Recently I spoke with Keith Loira at Public Nuisance Wire about the Fifth Circuit's recent decision in Comer v. Murphy Oil, which I previously posted about here. 

You can read Keith's interview of me here.

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In a guest blogger's post at Torts Prof Blog, Professor Adam Scales, from Washington & Lee University School of Law, has an interesting rumination on climate change litigation and the Fifth Circuit's decision in Comer v. Murphy Oil, which I previously covered here.  Professor Scales writes about the ebb and flow of tort law, describing the tort law of today as very different from that of the 1960s and 1970s, when new duties were being fashioned at a "heady clip."  He concludes:

It is thus a little surprising to see climate change activists so hopeful about reliance on today's tort law, as opposed to the tort law of a few years ago.  Tort law tends to rise and fall with the political winds; perhaps climate change action will strike judges (who shrink from charges of judicial activism), juries (decreasingly sympathetic to plaintiffs, and fed a diet of "crazy tort stories" in the media) and legislators (who have not been shy in recent years about pretermitting disfavored tort claims on behalf of important economic interests) as so urgent that it will constitute an exception in this era of retrenchment.  I don't think that is likely, and I hope it doesn't happen.  It is questionable whether any political system is capable of marshaling the extravagantly complex and overdetermined series of relationships that drive global emissions into an effective consensus for change.  I am fairly certain, however, that the small, inwardly-focused, intuitive, largely undemocratic cross-section of the political system that is tort law is not up to the task.

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Judge Saundra Brown Armstrong's opinion in Native Village of Kivalina v. ExxonMobil Corp., Case No. C 08-1138 SBA, Slip op. (Sept. 30, 2009) is a strong retort to the Second Circuit's recent opinion in Connecticut v. American Elect. Power Co., 2009 WL 2996729 (2d Cir. Sept. 21, 2009).  In Kivalina, Judge Armstrong was faced with a public nuisance suit for damages estimated to run between $95 million and $400 million.  She held that the court lacked subject matter jurisdiction under the political question doctrine, and that plaintiffs lacked Article III standing because their injuries were not fairly traceable to the defendants' alleged misconduct.  In these respects, her conclusions were squarely against those of the Second Circuit in AEP.

Judge Armstrong proceeded from the standard presumption against federal jurisdiction, placing the burden on plaintiffs, as the proponents of federal jurisdiction, to establish their right to be in federal court.  The court also refused to apply a lower standard to plaintiffs as governmental entities because theirs was a lawsuit for damages, not merely a suit to enforce a regulatory scheme.

Judge Armstrong agreed with the Second Circuit that the issue of global warming -- which implicates international relations through things like the Kyoto Protocol -- did not present an issue of foreign policy that was textually committed to another branch of government.    Slip op. at 8-9. 

But she parted company with the Second Circuit on the issue of whether the case was justiciable using judicially discoverable and manageable standards.  Judge Armstrong observed that the tort of public nuisance requires the jury to determine whether there was an "unreasonable" interference with a right common to the public.  That determination involves comparing the social utility of the defendant's conduct with the gravity of the harm it inflicts.  Judge Armstrong makes a strong case that this determination is not one that can be guided by rational, principled legal rules:

[T]he factfinder will have to weigh, inter alia, the energy-producing alternatives that were available in the past and consider their respective impact on far ranging issues such as their reliability as an energy source, safety considerations and the impact of the different alternatives on consumers and business at every level.  The factfinder would then have to weigh the benefits derived from those choices against the risk that increasing greenhouse gases would in turn increase the risk of causing flooding along the coast of a remote Alaskan locale.  Plaintiffs ignore this aspect of their claim and otherwise fail to articulate any particular judicially discoverable and manageable standards that would guide a factfinder in rendering a decision that is principled, rational, and based upon reasoned distinctions.

Id. at 12 (citations omitted).

Judge Armstrong acknowledged that the Second Circuit expressed faith in the judiciary's ability to handle "new and complex problems" of environmental law, but she herself was "not so sanguine."  Judge Armstrong pointed out that the Second Circuit's authorities were distinguishable because they "involved a discrete number of 'polluters' that were identified as causing a specific injury to a specific area."  Id.  But the Kivalina plaintiffs presented a far different case -- one where everyone in the world shared some responsibility, but only a handful of defendants were named, and where the harm at issue allegedly derived from emissions that occurred over more than a hundred years.  Judge Armstrong noted that the causal chain in the Second Circuit's environmental cases was much tighter than the one pled by plaintiffs:

In a water pollution case, the discharge in excess of the amount permitted is presumed harmful.  In contrast, the harm from global warming involves a series of events disconnected from the discharge itself.  In a global warming scenario, emitted greenhouse gases combine with other gases in the atmosphere which in turn results in the planet retaining heat, which in turn causes the ice caps to melt and the oceans to rise, which in turn causes the Arctic sea ice to melt, which in turn allegedly renders Kivalina vulnerable to erosion and deterioration resulting from winter storms.

Id. at 13 (citations omitted).  Because of the uniqueness of plaintiffs' theory, the prior case law would not equip a court to determine the claims in a reasoned manner, Judge Armstrong concluded.

Judge Armstrong also took issue with the conclusion that plaintiffs' global warming claims did not impermissibly ask the judiciary to make policy choices better left to the representative branches.  As she observed, deciding plaintiffs' public nuisance claim would require the court to determine what emission limits should have been imposed in the past, and to make the fundamental policy choice of who should bear the costs of global warming.  Particularly where plaintiffs admit that nearly everyone on Earth bears some responsibility, but they have sued only a limited number of defendants from arbitrarily chosen industries -- including none from the transportation industry -- the court could properly conclude that the policy choice of allocating responsibility for global warming should be made by the legislative or executive branch in the first place.

Because plaintiffs' claims lacked judicially manageable standards and required the court to make policy choices better left to political branches of government, Judge Armstrong held that the political question doctrine applied.

Judge Armstrong also found that plaintiffs lacked standing because their injuries were not fairly traceable to defendants' conduct.  Once again, the court analogized to earlier Clean Water Act cases.  Those cases had involved presumptively-harmful discharges above a permit level into a readily identifiable waterway.  In Kivalina, however, there were no federal standards on the release of greenhouse gases, and thus no presumptive causation could apply.  Moreover, the release was not traceable, but rather diffused into the atmosphere and combined with gases released from countless other sources over centuries.  Judge Armstrong analogized to water pollution cases discussing the concept of the "zone of discharge," which hold that where the plaintiff lives too far downstream, he is not within the zone that would make his injury fairly traceable to the defendant's release of effluent.  She concluded that, given the lack of traceability and the tenuous chain of causation pled, plaintiffs lacked standing to sue because their injuries were not fairly traceable to the defendants' conduct.

The Kivalina opinion is a well-written critique of federal jurisdiction over global warming claims.  One can expect that it will be heavily cited in petitions for rehearing en banc in AEP and Comer v. Murphy Oil Co., 2009 WL 3321493 (Oct. 16, 2009), which I posted yesterday.

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Dust off your old property texts and grab your briefcases, ladies and gentlemen!  We're off to the races in private party climate change class action litigation!

Yesterday the U.S. Court of Appeals for the Fifth Circuit became the second federal appeals court in less than a month to reverse a trial court decision that had thrown out a climate change lawsuit for presenting a nonjusticiable political question.  See Comer v. Murphy Oil USA, 2009 WL 3321493 (5th Cir. Oct. 16, 2009). 

(The Second Circuit previously had held that in the absence of comprehensive federal legislation regulating greenhouse gas emissions, states, municipalities and certain private organizations had standing to bring viable federal common law nuisance claims to impose caps on certain companies' greenhouse gas emissions.  See Connecticut v. American Elec. Power Co., 2009 WL 2996729 (2d Cir. Sept. 21, 2009.  A good description of that opinion can be found here.)

Comer is particularly important because it is a private class action for compensatory and punitive damages, not a suit brought by states or municipalities for injunctive relief.  And that means contingency fees.  And thus the promise of copycat lawsuits. 

The plaintiffs in Comer were property owners on Mississippi's Gulf Coast who had suffered property damage in Hurricane Katrina.  Their causation theory sounds a little like the litigator's equivalent to the game "Six Degrees of Kevin Bacon."  Plaintiffs sued a melange of energy, fossil fuel, and chemical companies, alleging that their greenhouse gas ("GHG") emissions contributed to an increase in air and water temperatures, causing a rise in sea levels and adding to the ferocity of Hurricane Katrina, which blew water and debris onto plaintiffs' property, thereby causing property damage.  Plaintiffs asserted a variety of theories under Mississippi common law, including public nuisance, private nuisance, trespass, negligence, unjust enrichment, fraudulent misrepresentation, and civil conspiracy.

The Fifth Circuit held that plaintiffs lacked standing to bring their claims for unjust enrichment, fraudulent misrepresentation, and civil conspiracy, but that they had standing to assert their claims for public and private nuisance, trespass and negligence.  The court further held that this latter group of claims did not present a non-justiciable political question.

The panel was comprised of two Clinton appointees and one Reagan appointee.  The Hon. James L. Dennis wrote the opinion, and Judges Carl E. Stewart and W. Eugene Davis joined in it.  However, Judge Davis (a Reagan appointee) noted separately that the defendants below also had moved to dismiss the claims for lack of proximate cause, and that he would have affirmed the dismissal on that ground.  Nevertheless, because the panel chose not to address grounds that the district court had not relied upon, Judge Davis joined in the panel opinion.  Nevertheless, Judge Davis's statement should give some hope to defendants who worried that the Fifth Circuit's determination that there was enough of a causal connection for standing might preclude successful motion practice in the district court on the issue of proximate cause.  Plaintiffs still have a very tough case to make on causation.

On the issue of the political question doctrine, the Fifth Circuit applied the standard test articulated in Baker v. Carr, concluding that the case did not involve issues:  (i) constitutionally committed to another branch of government, or (ii) that lack judicially discoverable standards for resolution, or (iii) that are impossible to decide without an initial policy decision being made that is not of a judicial character, or (iv) that require adherence to a previously-made political decision.  The Fifth Circuit said that the district court erred by relying on other district court decisions -- including the lower court decision in Connecticut v. American Electric Power -- that had interpreted the Supreme Court's decision in Chevron as requiring federal courts in air pollution cases to balance social and economic interests like a legislative body.  The Fifth Circuit reasoned that such an approach would make all air pollution cases non-justiciable political questions and would be contrary to how transboundary water disputes are determined.  It also would be contrary to the "long line of cases" holding that the Clean Air Act and Clean Water Act do not preempt state common law claims, the court said.

The Comer Court locked arms with the Second Circuit -- at least on the political question doctrine -- explaining:

Although we arrived at our own decision independently, the Second Circuit's reasoning [in Connecticut v. American Power] is fully consistent with ours, particularly in its careful analysis of whether the case requires the court to address any specific issue that is constitutionally committed to another branch of government.

On the issue of standing, the court divided plaintiffs' causes of action into 2 groups:  those that relied on a causal link between GHG emissions and Hurricane Katrina, and those that did not.  As to the first group, which included public and private nuisance, trespass and negligence, the only real standing element in dispute was whether plaintiffs' alleged injury was fairly traceable to the defendants' actions.  The court was careful to explain that the fact that the complaint may not adequately plead a cause of action under state law does not destroy jurisdiction, and that the Article III "fairly traceable" standard is not the equivalent of proximate cause under state law.  Clearly, the court was leaving open the very real possibility that, on remand, the district court would hold that plaintiffs' complaint fails to state a claim under state law. 

In reaching the decision that the "fairly traceable" standard had been met by plaintiffs' convoluted causation theory, the Fifth Circuit clearly felt constrained by the Supreme Court's decision in Massachusetts v. EPA, which seemed to accept "as plausible the link between greenhouse gas emissions and global warming" and the fact that "rising ocean temperatures may contribute to the ferocity of hurricanes."  Comer Slip op.  As the Comer court concluded, "the [Supreme] Court accepted a causal chain virtually identical in part to that alleged by plaintiffs" when it held in Massachusetts v. EPA that to meet the "fairly traceable" standard, the states merely had to show a contributing cause, not the primary cause, of their injuries.  Id.

As for standing in the Comer plaintiffs' second group of causes of action -- fraudulent concealment, unjust enrichment, and civil conspiracy -- the court employed the doctrine of "prudential standing" to conclude that plaintiffs lacked standing to bring these claims.  Plaintiffs' unjust enrichment claim was premised on the petrochemical companies artificially inflating the price of petrochemicals, impacting the public at large.  The fraudulent concealment theory was premised on the defendants knowing about global warming, but issuing misinformation to decrease public awareness of the phenomenon.  And the civil conspiracy claim was premised on the defendants misleading the government into not regulating GHG emissions.  Each of these theories had at its core a "generalized grievance more properly dealt with by representative branches [of government] and common to all consumers of petrochemicals and the American public," the Comer court observed.  In this way, these causes of action were very different from private claims for property damage.  As such, the court concluded that, for the second set of claims, plaintiffs lack standing under the doctrine of prudential standing, which:

encompasses "the general prohibition on a litigant raising another person's legal rights, the rule barring adjudication of generalized grievances more appropriately addressed in representative branches, and the requirement that a plaintiff's complaint fall within the zone of interests protected by the law invoked."

Comer Slip op. (citation omitted).

It seems clear that the Comer decision will provide some encouragement to plaintiffs' lawyers who dream of scoring a lucrative victory in climate change litigation.  But when one examines the opinion closely, it is clear that such cases still are plagued with significant causation problems that will present early and frequent opportunities for defendants to move for dismissal or summary judgment.  Neither Comer nor the Second Circuit's decision in Connecticut v. American Electric Power solve these fundamental causation problems for plaintiffs.

Yesterday I also received the district court decision in Native Village of Kivalina v. ExxonMobil Corporation, Case No. C 08-1138 SBA, Slip op. (N.D. Cal. Sept. 30, 2009), in which the court held that the village's federal common law claim for nuisance failed for lack of Article III standing and was barred under the political question doctrine.  Point of Law describes the decision here.  If I have any thoughts to add after comparing Comer and Kivalina, I'll post them later this weekend.

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

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

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

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

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

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

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

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

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

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

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Until a few years ago, a plaintiff suing under California's Unfair Competition Law was not required to have suffered an economic loss in order to have standing to bring a UCL claim.  Any Californian -- no matter how removed from the allegedly wrongful conduct -- was deputized to use the UCL to enforce California law.  Then, Californians passed Proposition 64, making actual economic loss a prerequisite to bringing a UCL claim.

The much-publicized debate over Proposition 64 and its impact on an uninjured plaintiffs' standing to bring UCL claims has obscured somewhat the controversy over the UCL's less-popular, but ubiquitous, sibling:  the Consumer Legal Remedies Act.  The CLRA (Cal. Civ. Code sec. 1750 et seq.) is often pled in tandem with the UCL.  The CLRA delineates a series of actions deemed to be unfair or deceptive when undertaken in the sale or lease of goods or services to a consumer.  Unlike the UCL, the CLRA requires a plaintiff to provide the defendant with notice of the allegedly unlawful conduct and an opportunity to cure it prior to filing suit.

Yesterday, the California Supreme Court was faced with the question whether a plaintiff who has suffered no economic harm nevertheless may bring a CLRA claim for injunctive relief and/or damages.  Carefully analyzing the text of the CLRA, the court concluded that some form of damages -- pecuniary loss, opportunity costs, or transaction costs -- is necessary in order to bring a CLRA claim.  See Meyer v. Sprint Spectrum L.P., 2009 WL 197560 (Cal. Jan. 29, 2009). 

Plaintiffs had alleged that their cellular provider breached the CLRA by including in their contracts unconscionable provisions, such as a binding arbitration provision, a class action waiver, a waiver of the right to a jury trial, a fee-splitting provision, a disclaimer of warranties, and a $150 early termination fee.  But the plaintiffs had made no claim against Sprint, and thus Sprint had not attempted to enforce any of these provisions in the service agreement against them.  The court characterized the suit as a "preemptive lawsuit to strike these terms should any dispute arise.  The question is whether the CLRA gives standing to permit such preemptive suits."

Section 1780(a) of the CLRA provides that:  "Any consumer who suffers any damage as a result of the use or employment by any person of a method, act, or practice declared to be unlawful by Section 1770 may bring an action against that person to recover or obtain any of the following:  (1) Actual damages . . . (2) An order enjoining the methods, acts, or practices. (3) Restitution of property. (4) Punitive damages. (5) Any other relief that the court deems proper."

The court began its analysis by noting that plaintiffs were correct that "actual damages" and "any damage" mean different things.  "Actual damages," the court observed, clearly refers to pecuniary harm, which is plainly recoverable under the CLRA.  The question, however, is what does "any damage as a result of" an unlawful act mean?  Plaintiffs asserted that it means merely being subjected to the unlawful conduct itself.

The court disagreed, holding that it means that the plaintiff must have suffered some type of increased costs (whether costs of suit, or opportunity costs) as a result of the unlawful conduct:

The statute speaks plainly about the use of an unlawful practice resulting in some sort of damage.  Thus, the statute provides that in order to bring a CLRA action, not only must a consumer be exposed to an unlawful practice, but some kind of damage must result.  If the Legislature had intended to equate "any damage" with being subject to an unlawful practice itself, it presumably would have omitted the causal link between "any damage" and the unlawful practice, and instead would have provided something like "any consumer who is subject to a method, act, or practice declared to be unlawful by Section 1770 may bring an action" under the CLRA.

To reach this sensible construction of the CLRA -- which also is in line with current UCL law -- the California Supreme Court had to backtrack on the broad dicta from a mid-1980s opinion that addressed a different, but related, issue.  In Kagan v. Gibraltar Savings & Loan Association, 35 Cal.3d 582 (1984), the defendant had represented that it would not charge management fees for an individual retirement account ("IRA").  After the plaintiff opened the IRA, the defendant informed plaintiff that there would be a $7.50 fee for administering it.  Plaintiff hired a lawyer, who made demands on behalf of the plaintiff and a class of those similarly situated.  The defendant decided not to charge the fee to the plaintiff, but refused to identify and reimburse other customers who had been charged the fee.

The defendant argued that the plaintiff in Kagan had no standing because he had not suffered any damage, since the defendant had not charged him the fee.  The California Supreme Court disagreed, holding that a defendant could not pick off prospective class action plaintiffs and thereby avoid CLRA class actions.  It then went on to say:

We thus reject Gibraltar's effort to equate pecuniary loss with the standing requirement that a consumer "suffer any damage."  As it is unlawful to engage in any of the deceptive business practices enumerated in section 1770, consumers have a corresponding legal right not to be subjected thereto.  Accordingly, we interpret broadly the requirement of section 1780 that a consumer "suffer[] any damage" to include the infringement of any legal right as defined by section 1770.

Kagan, 35 Cal.3d at 592-93.

In Meyer, the California Supreme Court distinguished Kagan and disapproved of its broadest dicta:

Although the Kagan court equated the infringement of any legal right under section 1770 with "suffering any damage" pursuant to section 1780(a), its holding ultimately was not based on an analysis of that language, but on the provisions of section 1782, subdivision (c), that once a person has been the victim of a proscribed practice under the CLRA and makes a demand on behalf of a class, remedying the plaintiff's individual complaint does not disqualify her as a class representative.  Moreover, . . . the plaintiff [in Kagan] was able to avoid the fee only by expending time and money threatening Gibraltar with a lawsuit.  As discussed, the expenditure of such transaction costs to avoid the consequences of a deceptive practice falls within the broad meaning of suffering "any damage as a result of the use or employment" of an unlawful practice, whether or not those transaction costs are cognizable as "actual damages."  The plaintiff in Kagan may have also incurred opportunity costs, because Gibraltar's alleged misrepresentations may have diverted the plaintiff from finding a financial institution that did not charge administrative fees.

Thus, the Meyer court "decline[d] to extend Kagan to situations in which an allegedly unlawful practice under the CLRA has not resulted in some kind of tangible increased cost or burden to the consumer," and it expressly disapproved of Kagan's dictum that "'we interpret broadly the requirement of section 1780 that a consumer "suffer[] any damage" to include the infringement of any legal right as defined by section 1770.'"  Meyer, 2009 WL 197560 at n.3.

The Meyer court also placed into perspective the wide array of precedents holding that the CLRA must be interpreted liberally:

It is evident that any rule that would expand the ability of individuals to bring lawsuits has costs as well as benefits.  It is also apparent that the Legislature, in weighing these costs and benefits in drafting the CLRA, set a low but nonetheless palpable threshold of damage, and did not want the costs of a lawsuit to be incurred when no damage could yet be demonstrated.

Finally, the court in Meyer also faced a challenge to the trial court's refusal to exercise its jurisdiction under the Declaratory Judgments Act ("DJA") to declare what provisions of the service agreement were invalid.  The court recognized that the DJA allows a court to refuse declaratory relief where it "is not necessary or proper at the time under all the circumstances."  Cal. Code Civ. Proc. sec. 1061.  Because there was no live dispute between the parties that required interpretation of the contract, the court held that the trial court had not abused its discretion in sustaining a demurrer to plaintiff's declaratory judgment count.  The court explained:  "But when resolution of the controversy over future remedies would have little practical effect in terms of altering parties' behavior, courts have considerable discretion . . . to deny declaratory relief because it 'is not necessary or proper at the time under all the circumstances.'"

Meyer is an extremely important opinion that brings the CLRA in line with the UCL in refusing to deputize people to prosecute class actions over alleged statutory violations with which they have no real connection.

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