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

Continuing that long line of cases rejecting claims by third party payors seeking to recover sums paid for medicines that allegedly were promoted for off-label uses is Southeast Laborers Health & Welfare Fund v. Bayer Corp., Case No. 08-1928-MD-Middlebrooks/Johnson, slip op. (S.D. Fla.) (registration with Law 360 required to access link).  In Southeast Laborers, the trial court had given plaintiff two extra opportunities to plead a claim under RICO or the New Jersey Consumer Fraud Act. 

Plaintiffs alleged that Bayer promoted the $1,000-per-dose drug Trasylol for off-label use in controlling surgical bleeding despite its knowledge that there were cheaper, more effective medicines that presented less risks of kidney damage and other harms.  In the Second Amended Complaint, plaintiff alleged that it "paid enormous sums of money to Bayer that they would not have paid had they been aware that Trasylol was not safer, more efficacious or of greater value than available alternatives that were significantly cheaper," and it "would never have incurred this expense had Bayer been honest about the safety and efficacy of Trasylol."  Slip op. at 10.  

The court held that this failed to plead the necessary proximate causation under RICO because it was tantamount to a "fraud-on-the-market" theory that nearly every court to consider the question has rejected outside of the securities context.  Slip op. at 12.  As the court explained:

Although Plaintiff argues that it had an independent choice of whether or not to pay for Trasylol, it does not explain how/why it made the choice to pay for Trasylol and how/why Bayer's alleged concealment of the dangers of Trasylol led Plaintiff to pay for Trasylol.  Ultimately, Plaintiff has not established a different premise of proximate causation and still has not met the Holmes requirement that it demonstrate a direct relation between its payment for Trasylol and Bayer's alleged fraudulent concealment.

Id. at 13.  The court thus dismissed the RICO claim with prejudice.

For similar reasons, the court dismissed the New Jersey Consumer Fraud Act claim with prejudice, holding that plaintiff had failed to properly allege proximate causation.  Id. at 16 ("Plaintiff has not alleged a premise of proximate causation that is distinguishable from one that relies on a fraud-on-the-market analysis.").  Plaintiff argued that a fraud-on-the-market analysis applies only where a plaintiff argues that the price was inflated by the alleged misrepresentations.  But the court rejected this argument, saying that even where plaintiff alleges that it would not have paid any amount for the medicine and seeks a complete rescission of all sales, this, too, is a fraud-on-the-market analysis that has been rejected repeatedly.  Id.

Plaintiff had added to the Second Amended Complaint express and implied warranty theories.  The court dismissed the express warranty theory without prejudice for plaintiff's failure to identify any affirmation of fact, promise, or description of Trasylol that it had received that had become part of the basis of the bargain.   Id. at 18-19.  The court dismissed the implied warranty claim without prejudice because the complaint did not allege that Trasylol was unfit for the intended purpose of preventing perioperative bleeding.  Id. at 20.

The court dismissed plaintiff's common law fraud and negligent misrepresentation claims with prejudice for failure to identify any reasonable reliance and/or proximate causation.  Id. at 22.

And the court dismissed the unjust enrichment count because such claims generally are "not allowed to proceed where all of the plaintiff's other tort claims have failed because of the remoteness of a plaintiff's injuries from a defendant's wrongdoing.  Id. at 23.

Southeast Laborers joins a growing body of law that prevents remote parties from bringing suits for speculative harm allegedly arising out of hundreds or thousands of individual doctor-patient decisions.

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The recent opinion in Fitzpatrick v. General Mills, 2010 WL 146846 (S.D. Fla. Jan. 11, 2010)highlights how important the reliance/causation requirement is in consumer fraud class action litigation.  The court in Fitzpatrick refused to certify a class for breach of express warranty because establishing that the challenged statements in yogurt advertising formed the "basis of the bargain" would require reliance, thus destroying predominance under Rule 23.  Nevertheless, because the court concluded that under the Florida Deceptive and Unfair Trade Practices Act (FDUTPA) no plaintiff was required to establish deception or causation specific to himself -- but instead could rely on a hypothetical reasonable everyman -- the court certified a class of Florida consumers.

Fitzpatrick was a challenge to General Mills's Yo-Plus yogurt, which contains probiotic bacterium, inulin (fiber), and vitamins A and D.  The defendant had marketed this probiotic yogurt as an "aid in promoting digestive health."  Plaintiff, who had been eating a competitor's probiotic yogurt, switched to Yo-Plus and, over a year, bought roughly 24 4-packs of Yo-Plus.  She claimed her digestive health was the same before, during, and after eating Yo-Plus, and thus claimed it provides no digestive benefits, its marketing is deceptive, and she is entitled to damages under the FDUTPA.

Despite the language of the FDUTPA and a number of decisions holding that an FDUTPA plaintiff must establish "causation" -- i.e., that the deceptive conduct was an actual cause of his damages -- the court concluded that plaintiff's class could be tried almost entirely on generic proof.  For example, the court reasoned that to establish deceptiveness a plaintiff need not point to any specific advertisement in which he heard an alleged misrepresentation; rather, he could "reach outside the circumstances of a single transaction to establish a 'practice' constituting a deceptive act."  Slip op. at n.5.  As the court put it, each plaintiff would need to prove that he was "exposed to" the "allegedly deceptive message that eating Yo-Plus promotes digestive health in ways that eating normal yogurt cannot," but in proving that the message is deceptive, he may introduce evidence about ads to which he was not personally exposed.  Slip. op. at 7.

As for "causation," the court relied on a Florida court of appeals decision to hold that "'[t]he question is not whether the plaintiff actually relied on the alleged deceptive trade practice, but whether the practice was likely to deceive a consumer acting reasonably in the same circumstances.'"  Slip op. at 7 (citation omitted). 

Untethering deception and causation from a particular plaintiff and pegging it instead to a hypothetical everyman will yield bizarre and unjustifiable results.  To begin with, under such a rule a class member who bought Yo-Plus for reasons other than digestive health would recover regardless of the fact that he was not deceived.  The same would be true for a doctor who actually read the studies General Mills relies upon, and bought Yo-Plus with full knowledge of the scientific literature. 

Moreover, should consumers who actually experienced digestive health benefits be allowed to recover damages under the FDUTPA?  The court says that the damages issue "centers on the scientifically complex question of whether Yo-Plus provides a digestive health benefit, and if General Mills had an adequate basis to disseminate that message to Florida consumers."   Slip op. at 16.  So apparently plaintiff's subjective claim that her digestive health was not benefited by Yo-Plus is defeated if the defendant is adjudicated to have had adequate scientific proof of such benefit generally.  And if the defendant is not determined to have had quite enough evidence, the court's clear implication is that consumers who nevertheless received digestive health benefits might have a damages claim.  That, of course, would be an absurd result.

Causation and injury are fundamental bedrocks of American jurisprudence.  Indeed, one cannot have standing to sue without them.  When courts read the causation and injury requirements out of causes of action and make the outcomes determined by hypothetical actors, they increase the risk that uninjured people will benefit unfairly from a lawsuit.  Where, as here, such rules are to be applied in a class action, that risk increases exponentially.  The causation and injury requirements of the FDUTPA -- read in plain English as the legislature wrote them -- require individualized determinations that should have precluded class certification.

Here, even the class definition, as amended by the court, requires a subjective individual determination that ought to have prevented class certification:  "all persons who purchased Yo-Plus in the State of Florida to obtain its claimed digestive health benefit."  That is not an objectively identifiable class -- it requires inquiry at the outset into why class members bought the product.  Who is bound by a judgment in that class?  And if the class loses, couldn't one simply argue in a future suit that she was not bound by the Fitzpatrick judgment because she had bought Yo-Plus for a different reason?

The court's decision in Fitzpatrick is subject to serious challenge on appeal.  But by contrasting the effect of a causation/reliance requirement by denying certification of the express warranty class, the opinion can serve as a useful teaching tool for why it is important not to read the basic causation and injury requirements out of state consumer protection statutes.

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No issue of science has been more of a political football in recent years than Bisphenol-A (“BPA”), a chemical used to create certain kinds of plastic bottles and epoxy linings that prevent food and beverage canisters from rusting and degrading from within.  BPA is present in trace amounts of a number of food and beverage products that we use, and the media frequently report that microscopic amounts of BPA can be found in the urine of most Americans.  However, Japan, Norway, the European Union, Germany, Australia, New Zealand, Canada, and, notably, the FDA – and more recently, the EPA – have conducted studies or reviews that have concluded that there is no known health risk from low-dose exposure to BPA.  

Despite this fact, a number of advocacy groups and a handful of scientists have fanned the political flames, criticizing the work done by the FDA and advocating for bans on BPA in consumer products.  In particular, critics have raised concerns that low-dose exposure to BPA can affect embryos in utero and small children, altering their hormones and impacting their development and later reproductive function.  (Recently, a major independently-funded study by the EPA failed to find evidence of low-dose effects from BPA.)

It’s little surprise that this debate about science has played out not only in regulatory and legislative circles, but also in American courts.  Last year, a number of putative consumer fraud class actions were filed against baby bottle manufacturers and baby formula producers, and the Joint Panel on Multidistrict Litigation created an MDL.  Some 48 cases are now consolidated before the Western District of Missouri.  None of them has asserted actual physical injury; rather, they assert consumer fraud, misrepresentation, and breach of warranties.  Recently, the court ruled on the defendants’ motions to dismiss.

In In re Bisphenol-A (BPA) Polycarbonate Plastic Products Liability Litigation, MDL No. 1967, Slip Op. 1 (W.D. Mo. Nov. 9, 2009), the court considered the defendants’ motions to dismiss on the grounds of primary jurisdiction and federal preemption.  The court explained the regulatory background for BPA.  Slip op. 1 at 2-3.  The FDA has issued regulations prescribing the safe use of resinous and polymeric coatings, which are an approved “food additive” under the Food Drug and Cosmetics Act.  The court noted that it was reasonable to infer that the FDA has determined that food additives containing BPA can be used safely without labeling because the FDA is obligated under the FDCA to require labeling if it were necessary for safety.  Id. at 3.

The court rejected the defendants’ argument that the FDA has primary jurisdiction of the BPA issue and the plaintiffs’ lawsuit thus should be dismissed under the primary jurisdiction doctrine.  In doing so, however, the court tried to draw what seems to be a false distinction between what the court is being asked to do and what the FDA has regulatory authority for:

"However, the ultimate issues in these cases are whether defendants failed to disclose material facts to Plaintiffs and whether Defendants breached the implied warranty of merchantability through the sale of products containing BPA.  The FDA cannot resolve these questions, and the FDA’s determination that BPA is 'safe' is not determinative of any of those issues."

Id. at 4.

That is manifestly wrong, however.  Safety is the key to both the “materiality” of the information that allegedly was not disclosed and the merchantability of the defendants’ products.  If the use of BPA is safe at trace levels – as the FDA has indisputably concluded – then the fact that the products contain trace amounts of BPA cannot be “material” and no legal duty can be imposed upon defendants – who have no fiduciary relationship with the plaintiffs – to disclose its presence in the product.  Similarly, for a product to be unmerchantable under the Uniform Commercial Code, it must fail of its essential purpose.  Here, the baby bottles work properly, and the baby formula nourishes the infants.  The only way in which, under plaintiffs’ theory, the products could be unmerchantable is if they were unsafe – but the FDA already has considered the issue and determined conclusively that they are safe.  As such, the court’s conclusion that it is being asked to resolve a question that is somehow different from the safety issue already resolved by the FDA is incomprehensible.  (Notably, the FDA is planning to release another report on BPA at the end of November.)  Accordingly, the court’s rejection of the primary jurisdiction argument seems incorrect.

The court next examined the defendants’ federal preemption argument.  The court rejected the defendants’ reasoning based on Geier v. American Honda Motor Co., 529 U.S. 861 (2000), in which the Supreme Court held that a plaintiff’s claim against an auto manufacturer was subject to conflict preemption because allowing a state law claim would preclude the types of choice in safety restraints that the federal agency had allowed manufacturers.   Instead, the court held that the issue was controlled by the Supreme Court’s recent decision in Wyeth v. Levine, 129 S. Ct. 1187 (2009), in which the court held that the federal regulation represented a “floor” above which states could impose additional requirements.  Slip op. 1 at 7.

The court reached a different conclusion, however, with respect to the infant formula defendants, who rested their preemption argument not on conflict preemption, but rather on the express preemption provisions involving the FDCA’s misbranding provisions and accompanying regulations.  The infant formula defendants cited the FDA’s determination that epoxy resins are exempt from disclosure under the FDA’s regulation governing incidental additives.  Id. at 8.  The FDCA expressly prohibits states from establishing labeling requirements for food that are not identical to the federal requirements.  Id. at 9.  Thus, the court concluded that the plaintiffs’ claims would embody a disclosure requirement that is the exact opposite of the nondisclosure of incidental additives that the FDA’s regulation provides.

Plaintiffs argued that they fell within a “safety exemption” to the FDCA’s express preemption provision, but the court fell back on its earlier conclusion that the FDA already had concluded that the use of BPA as an incidental additive is safe.  Id. at 9.  Thus, the court held that the claims against the infant formula defendants are expressly preempted, but the claims against the baby bottle defendants are not.

In a second opinion, the court addressed the motions to dismiss the individual counts of the complaint:  violation of state consumer fraud laws, breach of express warranties, breach of implied warranties, intentional misrepresentation, negligent misrepresentation, and unjust enrichment.  See In re Bisphenol-A (BPA) Polycarbonate Plastic Products Liability Litigation, MDL No. 1967, Slip op. 2 (W.D. Mo. Nov. 9, 2009).  

To begin with, the court held that the plaintiffs failed to plead with the particularity required by Federal Rules of Civil Procedure 8 and 9(b) the express statements that formed the basis of their fraud, misrepresentation, and breach of express warranty claims.  Slip op. 2 at 4.  The court noted that “platitudes about a particular Defendant’s commitment to safety and quality or general allegations about a particular Defendant’s marketing and advertising strategy” were insufficient to state a claim for misrepresentation.  Similarly, the court noted that the same failure to plead specific statements failed the requirement that a plaintiff pleading a breach of express warranty claim plead that it was part of the “basis of the bargain.”  Id. at 9.

Nevertheless, the court refused to dismiss the consumer fraud and misrepresentation claims to the extend they were based on the failure to disclose the presence of BPA in the products, reasoning that “all jurisdictions surveyed create a duty to disclose material facts that are more readily known by one side of the transaction.”  Id. at 10.  But the imposition of a duty to disclose is not based just on so-called “superior” knowledge.  If it were, a manufacturer would always have a duty to disclose every ingredient or component of a product – something that plainly is not the law.  No, the key is that the information must be “material.”  Here, the FDA already has determined that the presence of trace amounts of BPA in bottles or formula is “safe.”  Accordingly, BPA's presence – which is readily ascertainable from public sources – cannot be “material” as a matter of law.

The MDL court’s approach to other legal issues is particularly disappointing because – although the pleadings are obviously deficient as a matter of law – the court chose to defer ruling on these deficiencies until the class certification stage because of the number of states involved and the varieties in state law.  But the fact that the conduct alleged falls within a consumer protection statute’s safe harbor, or that a buyer lacks privity with the seller, or that a claim is obviously untimely from the face of the complaint, compels dismissal as a matter of law.  Id. at 15.   By failing to rule on these issues merely because of the number of complaints or states involved, the court improperly forced the defendants to throw open the doors of discovery to plaintiffs armed only with general conclusions.  See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009).  

The court did, however, dismiss the claims for breach of the implied warranty of fitness for a particular purpose because plaintiffs failed to identify a purpose other than the typical one for the subject products.  But the court failed to examine the specifics of state unjust enrichment law to reach determinations on the defendants’ motion regarding this count.  

The court also had a curious analysis of the so-called “unmanifested defect” argument.  Defendants argued that without a plaintiff having actually experienced a physical harm from the product, he suffered no cognizable harm whatsoever.  The court disagreed, suggesting:

"The buyer has been damaged regardless of whether he replaces or disposes of the product because, either way, he has paid the seller for a product that he would not have purchased had he known that the poison was present, and has received no use from the product.  The poison may not injure him, but the condition complained of – poison’s presence – is known to exist.  Similarly, the Plaintiffs in this category purchased a product they allege they would not have purchased had they known the true facts."

Id. at 19.  Based on this analysis, the court held that plaintiffs how had not used their products still had a claim, while those who had used their products had obtained the full value of their products and had not suffered any damage.  Id. at 20.

But once again, this conclusion is difficult to reconcile with the court’s determination regarding the FDA’s determination of the “safety” of food additives like BPA.  A legal claim premised on “know[ledge] that the poison was present” is wholly inconsistent with the FDA’s safety determination that BPA is not a “poison” at all.

The court’s decisions in the BPA MDL ensure that there will be discovery and another chance for the court to consider the defendant’s arguments about the required elements of plaintiffs’ claims at the class certification stage.  Maybe next time it will get the decision more than half right.

 

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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 court's recent decision in In re OnStar Contract Litigation, 2009 WL 415990 (E.D. Mich. Feb. 19, 2009) is a grab bag of rulings favoring both plaintiffs and defendants.

Plaintiffs in OnStar are buyers and lessees of four manufacturers' autos equipped with the OnStar in-vehicle telecommunications system that provided "automatic crash notification to emergency responders, stolen vehicle location, remote door unlock and remote diagnostics in the event of problems with airbags, anti-lock brakes or other systems."  Id. at *1.  Plaintiffs allege that by August 2002, the manufacturers knew that because the Federal Communications Commission ruled that cell phone companies need not support analog signals after February 2008, the analog OnStar equipment would stop working by 2008.  Plaintiffs allege the manufacturers' failure to tell buyers this fact violated various state laws.  They brought a putative class action against four auto manufacturers and OnStar, alleging breach of warranties and violations state consumer protection statutes.

The defendants moved to dismiss.  They won some, and lost some.

The court began by noting the importance of a proper choice of law analysis, particularly for class certification.  But plaintiffs alleged that they needed discovery to conduct a proper analysis.  Accordingly, the court tabled any issue that required a choice of law analysis.

Except one.  None of the plaintiffs were Michigan residents, and yet they had brought a claim for violation of Michigan's Consumer Protection Act, arguing that this was proper because Michigan is the defendants' primary place of business.  The court looked to the text of the MCPA, which limits class actions under the MCPA to people "residing or injured" in Michigan.  The court rejected plaintiffs' argument that because they paid money that ultimately flowed into Michigan, they were "injured in" Michigan.  Accordingly, it dismissed the MCPA claim.  Id. at *4-*5.

But the court tabled the determination regarding other states' consumer protection statute claims because it would involve individual state-by-state analysis into whether a plaintiff may have the benefit of a discovery rule or equitable tolling of the statute of limitations due to fraudulent concealment.  Id. at *5-*6.

A number of defendants made individual arguments about the statutory claims that the court rejected.  For example:

1.  The court rejected OnStar's argument that the consumer protection act claims failed for failure to plead with particularity under Rule 9(b).  The court observed that these claims were based on a variety of theories, including warranty theories, that were not fraud-based.

2.  The court also rejected OnStar's argument that the plaintiffs failed to adequately plead a "co-venture" that would make OnStar liable for other defendants' actions.

3.  The court rejected Honda's argument that the California, New York, and Washington consumer protection act claims failed because they were inconsistent with the terms of the express warranty.  The court relied on the safety-related allegations about not having On-Star to conclude that it was possible those states would recognize a CPA claim that goes beyond the term of the express warranty.

4.  The court also rejected Subaru's argument that the fraud claims should fail because the complaint establishes that plaintiffs received constructive notice from the FCC that the analog equipment would cease to work.

5.  In addition, the court rejected Subaru's argument that the consumer protection act claims should be dismissed for being predicated on express warranty claims that are unsustainable.

6.  Volkswagen argued that plaintiffs had not pled a "transaction" under California's Consumer Legal Remedies Act because plaintiffs bought the cars from dealers, not VW directly.  The court wholly rejected the argument.

7.  The court also rejected VW's proposed interpretation of Colorado's consumer protection statute, holding that the statute does not preclude class actions for damages.

VW did, however, win one important issue regarding the statutory counts.  Section 901(b) of the New York statute precludes class actions for exemplary damages unless such a class action is expressly authorized by another statute.  Plaintiffs argued that this provision was merely procedural and thus did not apply in federal court.  The OnStar court disagreed, holding that it was substantive law that applies in federal court.  Id. at *14.

The defendants also scored an important victory on the warranty counts.  Defendants challenged the warranty claims because the OnStar equipment was fully functional for the entire term of the durational warranty.  Citing an Illinois decision, the court recognized that allowing claims beyond the durational limits in the warranty would make the manufacturer the insurer for the product and extend the relationship beyond what it had contracted.  Id. at *16.  Thus, the court held that because the Limited Warranty expired before any plaintiff first asserted a warranty claim, the express and implied warranty claims of those plaintiffs whose claims were governed by the UCC must be dismissed.  The court also held that the complaint failed to plead that the warranty terms were unconscionable.  Id. at 19.

For the remaining implied warranty claims, the court refused to rule because they required a conflicts of law determination.  And because the implied warranty claims impacted the claim asserted under the Magnuson-Moss Warranty Act, the court deferred decision on that count, too.

The OnStar decision is a good example of the use of a motion to dismiss to whittle away certain claims, leaving the others ripe for summary judgment after discovery.  Given that the remaining claims are primarily those premised on various states' consumer protection statutes, it seems clear that the defendants have strong arguments opposing the certification of a class in the action because of the difficulty of applying various states' laws in a single trial.

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A few weeks ago a federal court in California issued a decision that has profoundly troubling implications for consumer fraud class actions.  See Wiener v. Dannon Co., 2009 WL 383650 (C.D. Cal. Jan. 30, 2009). 

In Wiener, the plaintiff challenged two of Dannon's brands that contain probiotic bacteria:  (1) Activia yogurt, which is advertised as "'scientifically proven' to naturally regulate digestion when eaten daily for two weeks," and (2) DanActive drinkable dairy product, which is marketed as "'clinically proven' to strengthen the immune system."  Id. at *1.  Dannon claims to have approximately twelve studies that support its claims about Activia, and approximately twenty-one that support its claims about DanActive.

The decision in Wiener starts off uncontroversially enough.  Plaintiff sought to represent a class of "[a]ll persons who purchased in California at any time up to August 1, 2008, DanActive, Activia or Activia Li[ght]," asserting claims under California's Unfair Competition Law, its Consumer Legal Remedies Act, and a claim for breach of express warranty.  The court denied class certification, holding that the plaintiff -- who had bought Activia, but had never bought DanActive -- was not typical of absent class members who had bought DanActive:

In cases involving a variety of products, courts, emphasizing that different products have different functions and different consumers, have held that a named plaintiff that purchased a different product than that purchased by unnamed plaintiffs fails to satisfy the typicality requirement of Rule 23(a)(3). . . . Dannon has made different health benefit claims regarding Activia and DanActive, which feature different types of probiotic bacteria . . . Therefore, the products target consumers with different health issues.  Moreover, different studies allegedly substantiate these health benefits.  Furthermore, the advertising and marketing of the two products is separate. . . .  In other words, the evidence needed to prove Wiener's claims involving Activia . . . is not probative of the claims of unnamed class members who purchased DanActive . . .

Id. at *4-*5 (citations omitted).  Nevertheless, the court gave plaintiff leave to amend to substitute into the case an appropriate class representative.  As a result, the court did not stop its analysis with typicality, but proceeded to address the other class action prerequisites.  The opinion goes downhill from there.   

The court found that the remaining prerequisites of Rule 23(a) were satisfied.  In analyzing predominance under Rule 23(b), the court acknowledged that reliance on the alleged misrepresentation was an element of plaintiff's causes of action.  Dannon argued that because there was a variety of different print, TV, in-store and other marketing materials, the nature of the alleged misrepresentation -- as well as whether it was material to the consumer's decision to buy the product -- would be individual issues that would have to be litigated for each class member.

The court disagreed, opining that at trial, plaintiffs could rely on an "inference of reliance" that "arises if material misrepresentations were 'made to persons whose acts thereafter were consistent with reliance upon the misrepresentation.'"  Id. at *8 (citation omitted).  Numerous courts, of course, have rejected just such a presumption of reliance, noting that although it may make sense in an "efficient market" like the securities market, which is capable of rapidly assimilating new information into the prices of stocks, the market for consumer goods is not "efficient," in that buyers often fail to take into account new information and make their purchase decisions based on any number of other factors, such as taste, personal preferences, brand loyalty and the like.  See, e.g., McLaughlin v. American Tobacco Co., 522 F.3d 215, 223-25 (2d Cir. 2008); International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., 929 A.2d 1076, 1088 (N.J. 2007).

The district court -- although aware that people buy consumer products for different reasons -- seemed to penalize Dannon for not having submitted expert proof as to what all of those individual reasons for purchase might be:

The record clearly establishes that the characteristic that distinguishes the Products from others on the market is their respective alleged health benefit.  Dannon has not pointed to any meaningful difference in flavor, serving size, or the like that might influence consumers' purchases. . . .  The Court is aware that many factors influence all consumers' purchasing decisions, a point which Dannon emphasizes, yet given the alleged misrepresentations are the distinguishing characteristic of the Products, the Court finds that these representations induced consumer purchases because without the alleged misrepresentations, there is no reason, even with sales, coupons, or other promotions, to suggest that purchasers would have selected the Products over other Dannon products or similar, generally less expensive, products by other brands. . . .  Thus, the Court finds that the evidence presently before the Court allows for an inference of reliance in this case.

Wiener, 2009 WL 383650 at *9 (citations omitted).

Interestingly, the court acknowledged that Dannon would have the right to rebut the inference of reliance, but it did not explain how that could be done manageably at trial.  Id. at *8.

Dannon also had pointed out the difficulty of proving individual damages in consumer products cases, where the products may have had very different prices, been subject to coupons or rebates, and may even have been returned for a refund.  The court, however, was having none of that argument.  It merely repeated the mantra that the calculation of individual damages should not defeat class certification, and posited that "actual damages for these claims can be calculated by subtracting the value of the Products without the claimed health benefits, a uniform value to be determined based on the evidence presented at trial, from the price that the particular class member is able to prove he or she paid."  Id. at *10.

Once the plaintiff in Wiener amends the complaint to add into the action another named plaintiff who actually bought DanActive, we can expect the court to certify the class action using the specious "presumption of reliance" that robs the defendant of its ability to present individual defenses regarding what actually motivated the product purchase decision.  Thankfully, Wiener lies far outside the mainstream of thought on reliance issues in consumer products cases.  But the opinion represents a troubling undercurrent of thought that too readily sacrifices the defendant's right to challenge individual claims in order to make it easier to try them in the aggregate.

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Sometimes it takes until the eve of trial for a judge to really get it.  There, with sleeves rolled up and mired in the exhibit lists, motions in limine, draft jury instructions, summary judgment motions and the like, epiphany can strike:  "Gee, the nitty-gritty of these cases really is about individual issues, and even the few named plaintiffs whose claims are being tried here really are different.  How can a verdict as to one of them bind absent class members consistent with due process?"

I'm not saying that's what happened in the Neurontin off-label-use class action down in Philadelphia this week.  I'm not involved in the case and have no reason to know.  But it's certainly one explanation for the order I'm reading.  Gregory Clark and Linda Meashey v. Pfizer Inc. and Warner-Lambert Co., LLC, No. 1819, Control Nos. 061293/061291, Slip op. (Pa. Ct. Com. Pleas -- Philadelphia County  Feb. 9, 2009).  [If you'd like a copy, e-mail me and I'll shoot you a pdf.]

The Clark case was scheduled to go to trial on March 9 as a class action.  But yesterday, the court granted summary judgment on the express warranty claim and decertified the class.  It did, however, deny summary judgment on the individual claims for misrepresentation, negligence, and negligence per se, and kept the March 9 trial date for the two plaintiffs' individual claims.

The court's reason for granting summary judgment on the express warranty claim was simple:  "Here, there is no evidence that plaintiffs saw, heard or in any way received any warranties that Neurontin could be used in circumstances not approved by the FDA.  The alleged fraud on the medical profession which is the essence of plaintiffs' claims does not create any warranty."  Slip op. at 4.

Importantly, the plaintiffs' individual proofs demonstrated that some class members actually received benefits from their off-label use of Neurontin.  Indeed, Plaintiff Meashey's prescribing physician testified that, in his clinical judgment, Neurontin had been effective for five patients whom he had taken off of the medicine after a Dateline feature, but subsequently re-prescribed the medicine when they experienced worsening anxiety.  Indeed, he even testified that Plaintiff Meashey herself "had gotten help with anxiety while on Neurontin."  Slip op. at 3.  Moreover, Plaintiff Clark's treating physician testified that he "continues to prescribe Neurontin for [certain off-label] conditions because in his clinical judgment it is effective" (slip op. at 3).

Faced with evidence that at least some class members benefited from the very use of the medicine that plaintiffs claimed was unlawful, the court granted summary judgment for defendants "as to those class members who benefited from prescribed off-label uses of Neurontin."  Slip op. at 4.

Even more important, the court concluded that, for this reason, the class should be decertified: 

Individual questions of fact exist as to each class member to determine whether their off-label prescription of Neurontin was beneficial.  Whether an individual class member suffered a compensable loss is an inherently individualized question which predominates, making class resolution impracticable and possibly impossible.

Slip op. at 5.

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