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

A Pennsylvania intermediate appellate court yesterday affirmed a trial court's decertification of a statewide class action alleging plaintiffs had suffered economic harm from taking Neurontin for uses not approved by the FDA.  See Clark v. Pfizer Inc., No. 754 EDA 2009, 2010 Pa. Super. 6, Slip op. (Pa. Super. Jan. 19, 2010).  In doing so, the court rejected a "fraud on the market" theory and so-called "statistical proof" of causation.  Because my Skadden colleagues worked on the appeal, I'll only briefly summarize its holdings here.

Plaintiffs often cite to Pennsylvania precedents that encourage early and liberal certification of class actions.  But the corollary to such a liberal certification rule, of course, is that where discovery presents evidence that the case cannot be manageably tried as a class, the trial court retains the discretion to decertify the class.  That is what happened in Clark:  the trial court originally had certified a class of Pennsylvania residents, but after discovery and upon the evidence, the court then decertified the class.  It also found that people who benefitted from taking Neurontin could not state a claim, and so it had granted summary judgment as to those class members who had benefitted from taking the medicine.  And it granted summary judgment on the express warranty claim because there was no proof that plaintiffs had received any warranties.

Plaintiffs complained that the trial court -- by granting summary judgment and then decertifying the class -- had put them in an impossible position where absent class members arguably were bound by substantive judgments on their claims, but could not appeal them because there was no proper class.  Under the circumstances, the Superior Court effectively agreed and reversed the trial court's two grants of summary judgment.  Slip op. at 24-25.

But the Superior Court affirmed the trial court's decertification of the class.  The trial court had decertified the class because there were individual questions for each class member as to whether he or she had benefitted from taking Neurontin.  Although the Superior Court acknowledged that this was true, it stressed that the real reason the class could not be certified was that the proposed class failed the typicality, commonality and predominance requirements of the class action rule.  Why?  Because causation (i.e. reliance by each class member's doctor upon a misrepresentation) could not be presumed:

Where there exists various intervening and possibly superseding causes of the damage, liability cannot be determined on a class-wide basis because individual issues would predominate issues of fact and law that are common to the class and the representatives of the class.

Slip op. at 10 (citation omitted).

Plaintiffs' expert had relied on statistical modeling to opine that virtually all of the class members' doctors had relied on the defendants' alleged misrepresentations to prescribe Neurontin for uses not approved by the FDA.  But as a result of discovery, defendants had introduced testimony from Pennsylvania doctors establishing that their prescriptions were based on other factors, not any so-called "misrepresentations."  Citing to the decision in the federal MDL -- In re Neurontin Marketing, Sales Practices & Products Liability Litigation, 257 F.R.D. 315 (D. Mass. 2009) -- the Superior Court rejected any "presumption of causation" or "fraud-on-the-market theory" (slip op. at 11), holding instead that each class member must establish reliance/causation on his or her own to establish a right to recover (id. at 15).  As the court put it:

In sum, statistical probability does not substitute for actual inquiry, as a general showing of percentages does not tend to prove that the class members' specific doctors relied upon Defendants' statements or that Defendants' statements were the proximate cause of an injury.

Slip op. at 16.

Because the issue of causation was an individual question for each class member, the case could not be tried as a class action.

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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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