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

Yes, I admit that I took a far-too-extended break from this blog without getting your permission.  I've missed you.  In some other posts, I will report on what I did on my summer vacation.

But I'm back, baby!

I look forward to posting some more fulsome materials later.  But today I'm in lovely New Orleans at the Annual Meeting of the Defense Research Institute.  There have been some fantastic presentations here at this conference.  I am getting ready to experience my 15 minutes (literally) of fame delivering a short speech on class action settlements at 4:30 p.m.  You can view my PowerPoint -- because really, who could possibly consider giving a speech without having a bunch of slides to preoccupy one's bored listeners? -- by clicking here.

I had written an article on the same subject just a few weeks ago in the National Law Journal.

More later.

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Have you ever wished that you could pull aside the people running a company and explain to them the seriousness of the threat of class actions?  My former colleague and current Greenberg Traurig partner Rob Herrington has done just that in his new book, Verdict for the Defense:  Fighting Jackpot Justice with Firewall Defense Strategies.  Although Rob's book has lots of good ideas that we as lawyers can benefit from, it is a candid and easily readable primer for business leaders on the scope of the risk posed by class actions and the simple steps such leaders can take to make it less likely that a class will be certified against their companies.

I asked Rob a few questions about Verdict for the Defense, which is available from Amazon or directly from the website link above.  His responses follow. 

1.  What made you target your class action book at businesspeople, rather than lawyers?

Because business leaders can and should play a central role in working to prevent and defend this type of litigation.  Class actions and mass actions create massive risk and massive expense that can threaten the financial stability of even the strongest companies.  Seemingly small or insignificant disputes can metastasize into a massive class action if not handled properly.  Business people need to understand this threat and often are in the best position to ensure that the company takes proactive steps to limit this risk.  Too often, however, business leaders are brought into the discussion too late - after a class has been certified or just before a key deposition.   At that point, it usually is too late; executives face a Hobson's choice of paying millions to settle what often seem like dubious cases or risking trial, where exposure may be in hundreds of millions or even billions of dollars. By learning about the risks created by class actions and mass actions, my hope is that executives begin to take a more active role in identifying areas where the company may be at risk and implementing strategies to limit that risk.  

2.  In your book, you give some strategies for avoiding class actions.  Tell my readers a bit about them, and where you came up with them.

The book's purpose is to offer ideas and strategies that business leaders can use to begin a discussion within their own companies about identifying and limiting the risk of class actions and mass actions.  The book discusses a number of strategies, which include implementing strategic variability to limit class action risk, improving customer service and complaint management as a means to reducing class action risk, and monitoring customer complaint websites, social media, and litigation against competitors to identify and understand emerging risks.  These strategies came from a number of sources. Some of it comes from personal experience, but most came from interviews and research.  In writing the book, I interviewed several plaintiffs' class action specialists and grilled them on what they look for in identifying and filing new class action and mass action cases.  Those interviews led to a number of strategies for reducing class actions.  During the research phase, I also studied all of the major class action decisions during the past decade, trying to identify trends and factors that led to a successful outcome (i.e., prevailing on a motion to dismiss or defeating class certification).  The book tries to meld this research with risk management principles to give business executives an overall framework and process for identifying these risks and working to limit them. 

3.  A lot of people predicted that consumer class actions would be dead after the Supremes' recent decision upholding arbitration clauses and class action waivers in consumer contracts.  I was skeptical of that viewpoint.  What's your view on the subject?

Consumer class actions are alive and well and present just as great a risk as ever.  Having spent more than a decade litigating these types of cases, I am constantly amazed by the ingenuity and tenacity of the plaintiffs' class action bar.   They will continue to present challenges to arbitration clauses and class action waivers in consumer agreements on any number of grounds. Public Justice, for example, has published an article offering 12 arguments plaintiffs' lawyers can use to challenge these provisions.  It also will be interesting to watch whether plaintiffs' class action lawyers start trying to use collateral estoppel principles to expand the impact of individual arbitration awards, if successful.  Now is not the time for companies to let down their guard.  These recent Supreme Court decisions have created an opportunity for companies to take a hard look at their business processes and start to implement methods to reduce the risk of these cases being filed.  

4.  What is the single legal reform that would have the most positive impact on the defense of class actions going forward?

Not fair limiting it to just one.  Let me offer a few ideas.  First, impose a discovery stay and a heightened pleading standard for putative class actions, similar to the reforms instituted through the Private Securities Litigation Reform Act (PSLRA).  In too many cases, plaintiffs' lawyers use discovery, particularly the enormous costs of e-discovery, to put pressure on defendants to settle.  There is no reason to permit plaintiffs to wield that type of weapon until the court is satisfied that the complaint states a cause of action based on facts, rather than speculation and innuendo.  Second, permit an immediate appeal of orders granting class certification (rather than just those denying) and permit more robust review by appellate courts.  An order certifying a class action is a game changer, creating massive exposure and massive risk for any company.  It is too important to leave to the discretion of a single judge.  Finally, implement a system that requires plaintiffs to pay for discovery costs up and until the point where they can establish, through evidence, a prima facie case of liability.  Discovery costs in class actions and mass action are asymmetrical, with a far greater portion of the costs falling on defendants because the defendant typically has far more information and documents.  Plaintiffs' lawyers sometimes use that asymmetry to increase the costs of litigation exponentially in the hope of creating settlement pressure - pressure that has nothing to do with the merits of the case.  Removing that tactic would make the process more fair, straightforward and efficient.   

5.  What's the one thing that companies faced with class action lawsuits most often fail to do that would improve their chance of prevailing if they would do it?

That's hard because there is no magic bullet to defeating these cases.  The "trick," if there is one, is understanding the risks these cases present, including how and why they are filed, and then establishing defensive measures designed to reduce risk and maximize effective defense arguments.  But if you're looking for just one simple strategy, consider this:  when a consumer class action is filed, one of the first things the company will be asked to provide is the advertising/disclosures/packaging/contracts/webpages that the named plaintiff viewed.   Many times these materials are subject to judicial notice in connection with a motion to dismiss and can provide the basis for a solid Rule 12(b)(6) challenge, which could end the case before it gets started.  The next thing the company will be asked for are all versions of the various advertising/disclosures/packaging/contracts/webpages for the product or service that is at issue in the case.  The hope is that there are a number of different versions with (hopefully) material differences that can be used to defeat class certification.  I am consistently surprised how often companies are unable to provide this information, often because of lax or nonexistent record-keeping practices.  When that happens, the company can lose one of the most effective weapons in defeating class actions, leaving it to proceed with expensive discovery and increasing the chances of a certified class.  If a company wants to improve its ability to defend consumer class actions, it should take a hard look at its record keeping and ensure that it can readily provide the documents and information needed to effectively defend these cases.  

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

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

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

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

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

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

Compare the lawsuits' allegations with the settlement. 

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

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

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

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

Id. at 663 (citations omitted).

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

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

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

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

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

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

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

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The nation’s self-appointed nanny, the Center for Science in the Public Interest (“CSPI”), truly outdid itself last week, filing a class action lawsuit in San Francisco federal court to “protect” Californians from Vitamin Water, which CSPI blames, in part, for America’s "obesity epidemic."  What could possibly be wrong with Vitamin Water, you ask? Not the FDA-required nutritional information on the label, apparently.  CSPI concedes that it accurately reflects the amount of vitamins and other ingredients in this line of beverages.

The fraud – according to CSPI – is that the beverages also contain sugar, while the label and the marketing touts the possible energy and health benefits of the other added ingredients.  Of course, both the amount of sugar and the amount of calories are squarely stated in the “Nutrition Facts” on the label.  And although the beverages do not purport to be “Sugar Free” or “Diet,” they do taste sweet, which should give the calorie-conscious consumer some clue to check the label for sugar content and calories.

Although CSPI claims throughout the complaint that the beverages are “misbranded” and marketed in a “false,” “misleading” and “deceptive” manner in violation of California’s Unfair Competition law (Cal. Bus. & Prof. Code § 17200), its Consumer Legal Remedies Act (Cal. Civ. Code § 1750) and its False Advertising Act (Cal. Bus. & Prof. Code § 17500), the simple fact is this:  the complaint never identifies a single false, misleading or deceptive statement, nor can it truthfully say that the calories or sugar content of these beverages are concealed from the consumer.

The complaint suffers from too many infirmities to list here.  In the unjust enrichment count, it asks for class members to get their money back even though they received the benefit they paid for, drank it, and can’t return it to the defendant.  The complaint also pleads fraud with no particularity whatsoever.  It does not limit the class definition to purchases that were made in California, thus creating choice of law problems.  And it premises liability on satirical marketing copy – such as “this combination of zinc and fortifying vitamins can . . . keep you healthy as a horse” – that obviously would be puffery under California law.  See, e.g., Consumer Advocates v. Echostar Satellite Corp., 113 Cal.App.4th 1351, 1361 (Cal. App. 2003) (“boasts” and “meaningless superlatives” that are not “factual representations that a given standard is met” are akin to puffing and are not actionable).

CSPI’s grandstanding lawsuit against one of America’s most respected product manufacturers – which it filed with two for-profit plaintiffs’ firms as co-counsel – is precisely the sort of abuse of legal process that gives consumer fraud class actions a bad name.
 

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