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

New Yorkers always warn: "Don't buy a dog at a pet store!  They all come from puppy mills, are sick, and were raised in deplorable conditions."

But I bought my dog at a mall pet store.  I wasn't shopping for a dog nearly two years ago when Ted came into my life.  But decisions have consequences, and the decision to kill time at a pet store while waiting for friends to arrive for dinner at a nearby restaurant resulted in me sharing my apartment with Mr. Ted E. Bear.

I didn't know much about where he came from.  His papers said a farm in Missouri, my home state.

And frankly, I didn't care.  Although I sincerely hoped he had not come from a puppy mill, he had a very chill personality and I could tell we would get along well together.  If he had the croup and I had to pay for a vet visit, so be it.  (Thankfully, he didn't.)

Given this experience, I read Martinelli v. Petland, Inc., 2010 WL 376921 (D. Ariz. Jan. 26, 2010) with great interest.  In Martinelli, 32 plaintiffs brought a class action against Petland, alleging that they defrauded consumers by selling sick dogs that were raised in puppy mills while representing to the public that the puppies were "healthy," "the finest available," bred by "professional and hobby breeders who have years of experience in raising quality family pets," and "bred under safe and humane conditions by a reputable breeder with proper canine husbandry practices."  Plaintiffs plead causes of action under RICO, state consumer protection statutes, and unjust enrichment.

The court in Martinelli dismissed all but two plaintiffs' RICO and consumer protection claims for failure to adequately plead causation.  The complaint was chock full of allegedly fraudulent statements made by Petland and the breeder, The Hunte Corporation, on websites and in written materials.  Conspicuously absent from the complaint, however, were allegations saying that these statements caused them to make their purchase.  The court noted that "not a single Plaintiff has alleged that he or she ever visited Defendants' websites, received Defendants' written brochures, or relied on a written health certificate or warranty."  Id. at *3.

The court held that "absent some allegation of reliance, Plaintiffs have not pled a 'direct and proximate causal relationship' between Plaintiffs' injuries and [the] purported fraudulent scheme."  Id.  The plaintiffs argued that causation should be inferred as a matter of common sense, as no one would want to purchase defective goods.  But the court noted that even if plaintiffs had received the alleged misrepresentations, the court could not presume that they were material to the plaintiffs' decisions to purchase the animals:

[T]here is no single, common-sense reason for a puppy purchase.  A person might buy a puppy because he falls in love with it in the store window, he has heard it will make a good guard dog, he likes the price, he is referred to the store by a friend, or he finds the store convenient.  It is not necessarily true that every purchaser would base his or her decision on the fact that the puppy was "the finest available" or was bred by professional, hobby, or USDA-approved breeders -- key misrepresentations identified in the amended complaint.

In making their common-sense causation argument, Plaintiffs focus exclusively on the health of the puppies, asserting that "it is illogical that Plaintiffs would purchase their sickly or dying puppy mill puppy absent a misrepresentation as to its health. . . . A person who falls in love with a puppy in the store window might well purchase the puppy in the absence of any representation concerning its health.  However unwise, some people may even buy a sick puppy in order to provide it a good home and nurse it back to health.  It simply cannot be said that a representation concerning the puppy's health is obviously relied on in the same way that a consumer looking for car wax relies on the product's label as "car wax" or in the same way that a person paying for a tax service relies on the assumption that the service will be available.  Plaintiffs conspicuously have failed to allege that they relied on representations concerning the puppies' health, and the Court cannot assume that such representations were the reason Plaintiffs purchased the puppies.

Id. at *4 (citations omitted).

The court dismissed the RICO claims of all plaintiffs except two -- Plaintiffs Moskow and Galatis -- who alleged reliance upon oral representations made by Petland (but not the breeder, Hunte).  Plaintiff Galatis allegedly was specifically reassured by a Petland employee that the puppy was healthy and "(1) it had never been sick, (2) was up to date on his shots, (3) was not hypoglycemic, and (4) was lethargic and quiet only because he was stuck in a cage all day long."  Id. at *5.  Plaintiff Moskow asked whether his puppy was from a puppy mill and he was assured that it was not.  The court held that these oral representations were part of the scheme alleged in the complaint, and it inferred that plaintiffs had relied upon them in making their purchase.  Thus, the RICO claim survived for Plaintiffs Moskow and Galatis.

The court applied the same analysis to the Rule 9(b) challenge to the complaint and to the state consumer protection act claims.  The generic allegations of the vast majority of the plaintiffs failed to sufficiently plead causation:

Plaintiffs assert that reliance is not an element of many state consumer protection claims.  But plaintiffs do not dispute that causation is an essential element.  Indeed, "whether it be termed an issue of reliance or an issue of proximate cause, an appropriate rule is that where the defendant is alleged to have made material misrepresentations or misstatements, there must be a cause and effect relationship between the defendant's acts and the plaintiff's injuries.  Thus, regardless of whether reliance is a required element under state consumer protection statutes, Plaintiffs "must at least allege that they were exposed to the offensive conduct."  Plaintiffs other than Moskow and Galatis have made no such allegation.

Id. at *9 (citations omitted).

The court thus dismissed the state consumer protection claims except for Plaintiff Moskow's claim under the Maine consumer protection act.  (Plaintiff Galatis was from Massachusetts, but the Massachusetts act had not been pled in the amended complaint.)  It also dismissed the unjust enrichment claims for all plaintiffs except Moskow and Galatis; because the two had adequately pled a fraud-based claim, the unjust enrichment claim could stand, the court held.

Finally, the court rejected the defendant's assertion of the economic loss doctrine as a defense to the claims.  Petland argued that because plaintiffs allegedly received damaged goods, they therefore were asserting typical warranty claims that give rise to purely economic loss.  The court disagreed, observing that plaintiffs were seeking damages for being fraudulently induced into entering into the sales contract.

Martinelli is an interesting decision because it parses through the possible motivations underlying the purchase decision and holds that, after already having been given one chance to amend the complaint, a plaintiff cannot plead consumer fraud or RICO without pleading a causal connection between the allegedly fraudulent statements and the reason he made the purchase.  Because this is an essential element of each class member's claim, it seems clear that individual issues would predominate a trial, making class certification unlikely. 

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I knew it was too good to be true.  A few months ago I posted about a decision from the Arkansas Supreme Court that affirmed dismissal of a deceptive trade practices claim because it fell within a safe harbor of regulatory approval.  At the time, I asked if there had been a sea-change in Arkansas class action jurisprudence.  Today, I'm sad to report that the answer is "no."

If there's one thing I learned growing up in Southwest Missouri, it's that everything is just a little bit different in Arkansas.  (Even my friends from Rogers, Arkansas concede as much.)  Apparently that principle goes double for class actions.

At a time when the Supreme Court, most federal Circuit Courts of Appeal, and many state supreme courts have held that due process requires a rigorous analysis of how a case is actually going to be tried before a class can be certified, Arkansas continues to instruct its trial courts to retreat from any sort of reality that touches upon the substantive elements of a claim.  See Rosenow v. Alltel Corp., 2010 WL 199247 (Ark.  Jan 21, 2010).  

In Rosenow, a customer sued his mobile phone service provider for damages allegedly resulting from the early termination fee in its standardized customer contract.  Plaintiff asserted on behalf of those who paid the early termination fee a putative statewide class action for violation of Arkansas' Deceptive Trade Practices Act and for common law unjust enrichment.

The trial court rejected class certification, holding that although a number of elements of Rule 23 had been met, the commonality, predominance and superiority requirements were not met.  In doing so, the trial court had relied upon the defense expert's testimony that determining whether the early termination fee (i.e. liquidated damages provision) was a reasonable approximation of the defendant's damages would be an individualized inquiry that would make the class unmanageable.

The Arkansas Supremes reversed, articulating a theory of class actions that is just a little bit different than anywhere else.  According to the Arkansas Supremes, so long as there are common issues, the class should be certified for trial of those issues even if it must later be bifurcated into a second phase of individual trials over things like damages, and in deciding whether the class action prerequisites are met, courts should not inquire into defenses to plaintiffs' claims, as that is an impermissible inquiry into the merits of the case:

In this case, Appellant alleges that the common wrong giving rise to this litigation is that the Appellees engaged in an unfair and deceptive business practice of imposing the early termination fee.  Appellant further asserts a laundry list of common questions of law and fact that stem from this alleged common wrong.  There must be a determination on these common issues.  The mere fact that individual issues and defenses may be raised regarding the recovery of individual members cannot defeat class certification where there are common questions concerning the defendant's alleged wrongdoing which must be resolved for all class members.  Moreover, an attempt to raise defenses at this stage is an attempt to delve into the merits of the case. . . .

* * *

This court has further said that if a case involves preliminary issues common to all class members, predominance is satisfied even if the court must subsequently decertify a class due to individualized damages.  However, if the preliminary issues are sufficiently individualized, then predominance is not satisfied and class certification is improper.  Indeed, a case that presents numerous individual issues regarding the defendants' conduct, causation, injury and damages will best be resolved on a case-by-case basis.  Stated another way, predominance does not fail simply because there are individual issues that may arise; the central question to be resolved by the circuit court is whether there are overarching issues that can be addressed before resolving individual issues. . . .

* * *

Here, by focusing on the merits of the case, the court noted that it might be necessary to conduct thousand[s] of mini-trials that would overwhelm its docket and thus concluded that the superiority requirement was not satisfied.  However, as we have explained, the circuit court's reasoning was based on an impermissible evaluation of the merits of this case.  Accordingly, the circuit court abused its discretion in finding that the requirement of superiority could not be satisfied.

Id. (citations omitted).  Because the defense expert's testimony addressed issues of how to prove damages and the reasonableness of the liquidated damages as compared to actual damages, the Arkansas Supremes concluded that it was concerned with the underlying merits of the case and the trial court had abused its discretion in refusing to strike such testimony.

Of course, Rule 23 is a procedural device that is not intended to change the substantive elements of underlying claims or defenses viz a viz any individual class member.  See, e.g., Compaq Computer Corp. v. LaPray, 135 S.W.3d 657 (Tex. 2004).  By wholly ignoring how the defendant will prove its defenses with respect to each class member in a classwide trial, the Arkansas approach effectively alters substantive elements of the defenses -- which is not what the drafters of Rule 23 intended.  Thankfully, Arkansas remains an outlier jurisdiction, and the trend toward rigorous analysis of how the case will actually be tried -- both the causes of action and the defenses -- remains the norm in class action jurisprudence.

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Arkansas has never enjoyed a reputation as a haven for corporate defendants.  Far from it.  Indeed, after Razorback football, class actions appear to be the state’s favorite sport.

It’s precisely because of these facts that you could have bowled me over with a feather when I read the Arkansas Supreme Court’s recent decision affirming – yes, I said affirming – a trial court’s dismissal of a putative class action in its entirety.  Has there been a sea change in this landlocked litigation forum?  Who knows?  But this decision has some far-reaching pronouncements that may offer some comfort to consumer product manufacturers that find themselves ensnared in consumer fraud litigation there.  My friends Beck and Herrmann at Drug and Device Law covered this opinion yesterday, before I could get this post up.  But because this decision has implications beyond just drugs and devices, I'm also covering it here.

The facts in DePriest v. AstraZeneca Pharmaceuticals, L.P., 2009 WL 3681868 (Ark. Nov. 5, 2009) are relatively straightforward.  As AstraZeneca’s heartburn medicine, Prilosec, was going off patent, the company released another prescription heartburn medicine, Nexium, in the same class as Prilosec, "proton pump inhibitors."  Plaintiffs claimed that the defendant falsely marketed Nexium as “new” and “better” than Prilosec, when it was basically the same thing as Prilosec and had similar results.  The result of this conduct, plaintiffs alleged, was that the defendant was able to sell more Nexium at higher prices than it otherwise would have been able to do.  Plaintiffs alleged a host of theories, including breach of the Arkansas Deceptive Trade Practices Act, the Arkansas Unfair Practices Act, and the Arkansas Medicare Fraud False Claims Act, as well as common law fraud, breach of contract, promissory estoppel and unjust enrichment. 

The trial court had dismissed the plaintiffs' third amended complaint, observing that while it "would perhaps make an excellent article in a scientific magazine, . . . it fails as a legal pleading."  Undeterred, the plaintiffs twice amended their complaint, which ballooned up to 290 pages.  They also moved to recuse the judge -- twice -- for bias, citing the language of his ruling.  (My Grandaddy always said not to take a hoe to a snake unless you know you can cut it's head off, or you just might get bitten instead.  The idea that lawyers would twice move to recuse a judge on such an obviously flimsy record is nothing short of remarkable.)

The Unfair Practices Act and Medicare False Claims Act do not provide a private right of action, and plaintiffs did not challenge that dismissal on appeal.  The real news is the Arkansas Supreme Court's analysis of the DTPA's "safe harbor" provision, which states that the DTPA does not apply to "[a]dvertising or practices which are subject to and which comply with any rule, order, or statute administered by the Federal Trade Commission," as well as "[a]ctions or transactions permitted under laws administered by . . . [a] regulatory body or officer acting under authority of this state or the United States."  Ark. Code Ann. sec. 4-88-101(1) & (3).

The court looked to the FDA's approved label for Nexium, which had an analysis of clinical studies showing that the healing rates of Nexium 40 mg were higher than the healing rates of Prilosec 20 mg, and the heartburn resolution rates of Nexium 40 mg were higher than Prilosec 20 mg.  The court thus concluded that advertising which summarized this information from the FDA-approved label was squarely within the Arkansas DTPA's safe harbor:

The information included in the labeling of a new drug reflects a determination by FDA that the information is not "false or misleading."  By approving information to be included in the drug labeling, the FDA has determined that the information complies with its rules and regulations.  Therefore, if the FDA labeling supports the statements made in advertising for an FDA-approved drug, the statements are not actionable under the DTPA.

(Citation omitted.)

The Arkansas Supreme Court carried this analysis over to the common law fraud count, holding that "because AstraZeneca's advertisements were in accordance with that labeling, they were thus not false or misleading as a matter of law."  Similarly, the court agreed that "'[t]here cannot be any "unjust" enrichment where AstraZeneca's alleged conduct falls within what is permitted by federal law and Nexium's labeling,'" because "[o]ne who is free from fault cannot be held to be unjustly enriched merely because he or she has chosen to exercise a legal or contractual right."

The court also affirmed the dismissal of the promissory estoppel claim because "Appellants cite no authority that a product advertisement constitutes a quasi-contractual 'promise.'"

The real takeaway from DePriest is that Arkansas has now made it clear that where a regulatory agency has approved a factual statement -- even for purposes other than advertising -- that agency's conclusion that the statement is not false or misleading cannot be second-guessed by Arkansas courts in cases challenging the product's advertising.  Not under the DTPA, which explicitly provides a safe harbor, but also not under common law fraud or equitable theories like unjust enrichment or promissory estoppel.

This is an important holding, particularly at a time when the federal preemption defense is seen by many commentators to be at its nadir.  I never thought I'd say it, but one can only hope that other states with safe harbor provisions in their consumer fraud statutes will follow Arkansas' lead.

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It's not every day an MDL transferee dismisses the entire litigation on the pleadings.  Too often their job is viewed as assembling a document depository and presiding over copious amounts of discovery.  But some cases are just meant to die with the pleadings -- even where there are enough of the cases to warrant creating an MDL.

Judge Dickinson Debevoise has served in the District of New Jersey for nearly 30 years, and for almost half of that time he has been the court's senior member.  Thus, it should come as no surprise that he, as an MDL transferee judge, exhibited no reticence whatsoever in dismissing a consolidated class action complaint on the pleadings where the statements that formed the bedrock of the litigation were obvious puffery.

In In re Toshiba HD DVD Marketing and Sales Practices Litigation, 2009 WL 2940081 (D.N.J. Sept. 11, 2009), the plaintiffs alleged that Toshiba had misled customers by not disclosing that it was going to throw in the towel in the high-def DVD format war it was waging against Sony's Blu-ray technology.  They claimed that months, if not years, before the company's decision to discontinue making its HD DVD players, the company knew that most of the Hollywood studios had embraced Sony's technology and that it was just a matter of time before Toshiba would be forced to abandon the field to Blu-ray, much as Betamax abandoned the field to VHS.  Plaintiffs alleged that, had they known this fact, they would not have paid a premium price above ordinary DVD players to buy Toshiba's HD DVD players. They alleged 4 causes of action:  (1) violation of New Jersey's Consumer Fraud Act, (2) unjust enrichment, (3) breach of express and implied warranties, and (4) violation of the Magnuson-Moss Warranty Act.

In deciding the Rule 12(b)(6) motion, the Court relied heavily on the Supreme Court's recent decision in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), refusing to credit plaintiffs' legal conclusions or other "threadbare recitals of a cause of action."  Rather, it demanded factual allegations, and found the plaintiffs' complaint lacking.

In analyzing the New Jersey CFA, the court looked first to the affirmative acts that were pled, namely, "(1) representing that HD DVD offered the best of high-definition television and DVD; and (2) representing that HD DVD was a format for today, tomorrow, and beyond, and that Toshiba was committed to supporting the HD DVD format into the future."  Id. at *9.  The court held that these were not actionable misrepresentations of fact, but rather were mere puffery, i.e., subjective statements of opinion.  In so holding, the court was mindful of how widely publicized the war between the HD DVD and Blu Ray formats was:

It defies logic that a consumer would believe, based on the tag line "For Today, Tomorrow and Beyond" that Toshiba was committed to producing HD DVD Players indefinitely, particularly given the well-publicized format war with Blu-ray, wherein both Sony and Toshiba were trying to capture the next generation DVD market.

Id. at *10.  The court concluded that the complaint failed

"to allege sufficient facts to claim that an 'ordinary' consumer -- who they admit would have been aware of the format war between HD DVD and Blu-ray -- would have expected to remain in the market indefinitely regardless of the implications of doing so.  On the contrary, the numerous articles referenced in the [complaint] provide support for the notion that the struggle to capture the next generation DVD market was seen as a winner-take-all battle.

Id.

Plaintiffs also asserted two basic "omissions" that Toshiba failed to warn consumers about:  (1) that "major motion pictures would not be released on HD DVD," and (2) that Toshiba planned to withdraw its support from HD DVD technology by exiting the market.  The court once again relied upon the many articles describing the format war between Sony and Toshiba, which "was characterized as a battle which would result in only the 'winning' format continuing in the marketplace."  Id. at 12.  The court said that it "defies logic" that Toshiba's potential market withdrawal could have been concealed in the face of such articles.

Besides puffery, the court held that the New Jersey CFA claim failed because plaintiffs failed to allege sufficient facts under Rule 9(b) to establish an ascertainable loss and causation; they failed to plead where they bought the players, how much they paid, how much ordinary DVD players cost, and whether plaintiffs were ever exposed to the alleged misrepresentations and made their decision because of those misrepresentations.

With respect to the unjust enrichment count, the court held that plaintiffs failed to plead it adequately because they got exactly what they paid for:  a DVD player that played HD DVDs at a higher quality than ordinary DVDs.  The court noted that Toshiba did not control the fact that movie studios opted for Blu-ray technology, and it relied on the fact that the format war was well-publicized.

With respect to the express warranty claim, the court held that the statement "Today, Tomorrow and Beyond" did not create an express warranty and was, in fact, puffery.  Similarly, on the implied warranty claim, the court noted that for an implied warranty of merchantability to be breached, the product actually has to be defective or not be fit for the ordinary purpose for which it was intended.  The complaint does not allege that the players fail to work, but merely that third parties have stopped providing new DVDs in that format.  Thus, it does not allege a breach of implied warranty claim.

Finally, the court held that because there was no implied warranty claim under state law, there could be no Magnuson Moss claim under federal law.

Judge Debevoise's opinion is important not only for its recognition that the statements at issue were mere puffery, but also because it recognizes the context in which consumers were making their choices.  Where the format war was obvious and consumers could be expected to pay attention to it in making their selection, any basic statement in support of the superiority of that technology could not be actionable.  The court refused to impose on a company fighting for the survival of its product line a legal duty to broadcast to consumers (and competitors) that it was considering exiting the market in a period of months.

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The Ninth Circuit’s recent decision in Yokoyama v. Midland National Life Insurance Company, 2009 WL 2634770 (9th Cir. Aug. 28, 2009) reflects a fundamental misunderstanding of consumer fraud class actions and – if left untouched by the full panel on rehearing – threatens to do great mischief not only to Hawaii law, but to the law of other jurisdictions as well.

In Yokoyama, three senior citizens sued on behalf of a putative class of Hawaii residents who bought indexed annuity products.  They alleged that the defendant failed to adequately disclose in its brochures the risks associated with such products, and they thus alleged violations of Hawaii’s Deceptive Practices Act, Haw. Rev. Stat. sec. 480-2.

The district court had refused to certify the class, determining that Rule 23(b)(3) applied because the request for money damages predominated, and holding that the proposed class failed that rule’s predominance requirement because each class member would have to establish that he or she was actually misled and damaged thereby, as well as the amount of his or her damages.  See Yokoyama v. Midland Nat’l Life Ins. Co., 243 F.R.D. 400 (D. Haw. 2007).

In reversing the district court, the Ninth Circuit articulated – allegedly for the first time – that its standard of review when reviewing a trial court’s conclusion on an issue of law in the class certification context is de novo review.  Then, it held that the trial court erred because under Hawaii’s DPA, the class members did not have to prove that they relied on any deceptive statement, but only that the statement had a “tendency to deceive.”  Moreover, the court held that there was no need to inquire into what the brokers orally communicated to the senior citizens; the sole issue was whether the brochures “were capable of misleading a reasonable consumer.”  Finally, the court held that the need to calculate damages for each class members could not defeat class certification.

The sweeping effect of the Yokoyama Court’s re-write of Hawaii law is truly stunning:  apparently no class member – not even the named plaintiff – has to establish that he or she relied on a misrepresentation or that it in any way caused his or her injury in order to bring a damages claim under Hawaii’s DPA.  Not even the California has gone so far, divorcing the alleged misrepresentation entirely from any notion of reliance or causation for damages claims.  Notably, the Yokoyama Court reached this conclusion by citing two Hawaii Supreme Court decisions that were wholly inapposite on these issues.

The Yokoyama Court seemed to have no concept for how these products were actually sold.  As the district court had explained, the annuities were sold by independent brokers with different backgrounds and levels of training.  They gave different oral presentations and created on their laptops unique written materials for their customers based on the information the customers provided.  These interactions resulted in the customers’ different choices about which annuities to buy, what index or crediting method to select to achieve the best tax benefits, and how much to invest.

The bottom line is that – as part of these oral interactions – some portion of the putative class members were actually advised of the risks that may not have been mentioned in the brochures, and others were actually benefited and achieved their financial goals:

“Because some independent brokers did disclose, discuss, clarify, or explain the relevant provisions to individual consumers – even putting ‘worst case scenarios’ into writing – an individual inquiry is required to determine the impact of the oral presentation upon each investor, the behavior of the independent broker, and the nature of the relationship between each individual annuitant and his or her independent broker.”

243 F.R.D. at 408-09.

The Yokoyama Court’s opinion would allow people who were not deceived and who were not damaged to recover damages.  This is not only unfair; it makes absolutely no sense.  It also contradicts the express language of Hawaii’s statute:

“Any consumer who is injured by an unfair or deceptive act or practice forbidden or declared unlawful by section 480-2:  (1) May sue for damages sustained by the consumer . . .”

Haw. Rev. Stat. sec. 480-13(b).

Hawaii’s statute expressly requires causation:  if the allegedly deceptive act does not result in injury and damages, Hawaii citizens cannot recover under the statute.  The Yokoyama Court far exceeded the boundaries of the federal judiciary when it effectively re-wrote the legislature’s statute. It also seemingly forgot that Rule 23 is a procedural rule that is not intended to rewrite substantive law; in a class action, defendants must be allowed to present the same defenses to individual claims that they would have presented if the claims were brought individually.  The Yokoyama decision deprives the defendant of that right.

The court’s canard about damages not precluding certification also was overly simplistic.  That principle is applied in cases, like some securities class actions, where the calculation of damages is simplistic.  (E.g., plaintiff held X shares of stock, and the loss was Y dollars per share, so the damages were X x Y.)  But where, as in this case, even calculating the damages requires a highly individualized inquiry, courts frequently deny certification.

There can be little doubt, to those who know annuities, that calculating damages in the Yokoyama class action certified by the Ninth Circuit would be far from formulaic:

“[T]he amount of damage sustained by a single class member would depend on factors such as the financial circumstances and objectives of each class member; their ages; the [annuity plan] selected; any changes in the fixed interest rate for that [annuity plan]; the performance of the selected index; any changes in the index margin for that particular [annuity plan]; any cap on the indexed interest; the length of the surrender periods; whether the individual had undertaken or wanted to undertake an early withdrawal of funds; any benefit the individual policy holder derived from the form of the annuity itself, including the tax deferral of credited interest; and the actual rate of return on the [annuity plan].”

243 F.R.D. at 410-11.

If Yokoyama stands, other courts will be tempted to read the reliance and/or causation provision right out of the text of other states' deceptive trade practice statutes.  The specter of "damages" -- untethered to any concept of actual deception causing subsequent concrete financial injury -- would make the resulting class actions dangerous weapons for coercing settlements with no relation to actual harm, if any.

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When the Supreme Judicial Court of Massachusetts held that there was no preemption for light cigarette claims on Monday, it was big news that the court was following the U.S. Supreme Court's recent decision in Altria Group, Inc. v. Good, 128 S. Ct. 1119 (2008).  But that, of course, was to be expected.

What is more interesting about the Massachusetts Supremes' opinion in Aspinall v. Philip Morris, Inc., 2009 WL 637110 (Mass. Mar. 16, 2009), is the court's analysis of the safe harbor provision of the state's deceptive trade practices act and the deference the court gave to the relevant agency, the Federal Trade Commission.

Massachusetts' statute provides that:  "'Nothing in this chapter shall apply to transactions or actions otherwise permitted . . . by any regulatory board or officer acting under statutory authority of the commonwealth or of the United States.'"  Id. at *2 (quoting G.L. c. 93A, sec. 3).  The tobacco companies argued that they came within this safe harbor because their designations of "lights" and "low tar" were based on the FTC-approved method of measuring tar and nicotine yields.  Moreover, the FTC had entered into a consent decree with a manufacturer in 1971 that gave it permission to use the descriptors "light" and "low tar" if they were accompanied by tar and nicotine yields using the FTC method.

The court, however, disagreed.  First, it explained that the defendants had the "burden of proving the exemption," and that "burden is a heavy one."  Id. at *3.  According to the court, a defendant must do more than show mere related or overlapping regulatory schemes to meet its burden of proving the applicability of the safe harbor; rather, it "'must show that such [regulatory] scheme affirmatively permits the practice which is alleged to be unfair or deceptive.'"  Id.  (citation omitted).  The court cited the U.S. Supreme Court's analysis of the 1971 consent order in Good to conclude that the defendants showed nothing proving that the FTC had affirmatively permitted use of the questioned terms.  The agency's decision not to act to prevent use of the terms was not the same as affirmatively granting permission to use the terms, the court concluded.

It was particularly interesting -- given the U.S. Supreme Court's recent reluctance to give any credence whatsoever to the Food and Drug Administration's statements about its' regulatory policies and effects in Wyeth v. Levine -- that the Massachusetts Supremes gave substantial deference to the FTC's statements about its regulation on this issue:

[A] high-ranking FTC official stated in a deposition that the FTC has no official position on descriptors on cigarette packages.  This testimony is supported by FTC documents that state that there is no official definition for the terms "light" and "low tar" and that FTC guidance concerning the FTC method [of measuring tar and nicotine yields] did not "apply to other conduct or express or implied representations, even if they concern[ed] tar and nicotine yields."

 Id. at *3. 

The Massachusetts court ultimately held that the defendants failed to meet their burden of proving that they were given "affirmative permission" to use the descriptors "lights" and "low tar," and thus the safe harbor provision did not apply.

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