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 recent appellate decision from California is an excellent example of how common issues can fail to predominate even in property-based public nuisance claims.

In Department of Fish and Game v. Superior Court, No. CO66158 (Cal. Ct. App. -- Third Dist. Aug. 2, 2011), various real property and business owners brought a putative class action against the California Department of Fish and Game for its application of poison to Lake Davis to eradicate an invasive species of fish, the northern pike.  The Department allegedly widely publicized its plan to poison the pike, closed all roads providing access to the lake, and posted blinking signs about the lake's closing on Highway 70.  The lake was closed from September 2007 through January 2008, and it was not re-certified as a source of drinking water until May 2008.  By statute, area residents could present claims to a victim compensation claims board for damages.

Plaintiffs sought certification of three subclasses:  (1) all businesses in the area whose timely claims were rejected by the Department's claims board, (2) all real property owners whose timely claims for the decrease in real property values were rejected by the Department's claims board, and (3) all persons or entities whose timely claims for lost tax revenues or lost economic growth were rejected by the Department's claims board.

The Court of Appeal granted mandamus against the trial court's certification of the classes.

The court first analyzed whether common issues actually predominated.  In concluding that they did not, the court rejected the plaintiffs' proffer of expert testimony purporting to support the use of a classwide economic model or formula to calculate the class members' damages.  Instead, it found that every member of the class would be required to litigate a number of substantial questions about his or her right to recover, even after a judgment on the so-called "common" issues pertaining to all class members.

In determining that the issues of liability and damages could not be determined on a collective basis, the court determined that the different situations of the various putative class members caused individual issues to predominate:

[T]he impact of the 2007 poisoning . . . may be different depending on the particular characteristics and location of each individual parcel.  And, in light of the claims asserted byplaintiffs, these differences are more than just a matter of damages, but go to the fundamental issues of liability.

Slip op. at 17.

The trial court had applied the wrong standard for looking at the expert proof in the action, the Court of Appeal explained.  It had looked at the plaintiffs' experts' reports, concluded that they met the plaintiff's burden of establishing predominance, and then shifted the burden to the defendant's experts to disprove predominance.  But the burden at all times should rest with the plaintiff, the Court of Appeal instructed, and a fear of reaching the "merits" should not prevent the trial court from weighing the expert testimony to determine how the case will have to be tried.

In this instance, as the defendants' expert had explained, an across-the-board formula for damages would not properly take into account individual differences among class members:

'The reasons for this conclusion include the varied nature of the industries within the business community of the Lake Davis Area, the different economic pressures and influence felt by different industries, the differing levels of bookkeeping sophistication and record keeping methodologies used by different businesses and individuals, changes in local economic influences specific to individual businesses but unrelated to the treatment of Lake Davis including changes in contractual relationships, competition, and the labor force among others.  Finally, tourism obviously affects businesses differently and reduced tourism would not have a common impact on all businesses owned by proposed class members.' 

Slip op. at 40 (quoting defendant's expert).

The court of appeals then went through each cause of action, identifying the necessary elements of proof and whether those elements could be proven with common evidence or individual evidence.  It noted that "it is not enough simply to prove there was an average loss per parcel of property" because "[a]ll parcels are, more or less, different," and one "must look at the characteristics of each parcel, the reasonable expectations of the owner and the actual loss."  Slip op. at 49.  the court concluded that the issues of duty, causation, and the amount of damages must be determined on an individual basis.

Particularly in light of the US Supreme Court's recent treatment of commonality and expert testimony in Wal-Mart Inc. v. Dukes -- which is not cited in this opinion -- the California court's decision in Department of Fish and Game is a strong example of a state court focusing on how the case actually would be tried and scrutinizing expert testimony about statistical modeling.

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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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I have written previously about the proliferation of suits brought by "third party payors" (or "TPPs") -- such as insurers and union health benefit funds -- that appear like ants at a picnic whenever a medicine is recalled, a new warning is mandated, or a pharmaceutical company is accused of marketing a medicine for "off label uses" that have not been approved by the FDA.  Often such claims are dismissed at the pleading stage because it is so difficult to connect any alleged misrepresentation made by a pharmaceutical company to a prescribing doctor's decision to prescribe the medicine. 

A recent decision in the Neurontin MDL makes it plain that even where such claims are allowed to progress past the pleading stage, it is next to impossible for most TPPs to actually prove causation.  See In re Neurontin Marketing and Sales Practices Litig., 2010 WL 53568 (D. Mass. Jan. 8, 2010).  In light of the fact that lawyers from my firm are involved in the case, I'll keep the editorializing to a minimum.

In the Neurontin case, defendants moved for summary judgment against 3 TPPs.  Two of them had not implemented special restrictions on prescribing Neurontin until at the earliest 2004, and they did not allege reliance on any particular statements by the defendant.  The court granted summary judgment as to these TPPs.

First, the court noted that "trial courts have almost uniformly held that in a misrepresentation action involving fraudulent marketing of direct claims to doctors, a plaintiff TPP or class must prove through individualized evidence that the misrepresentation caused specific physicians, TPPs, or consumers to rely on the fraud, and cannot rely on aggregate or statistical proof."  Id. at *9 (citing 4 cases).  The court observed that "[t]he Second Circuit has reached a similar conclusion, despite evidence of widespread fraudulent marketing of cigarettes to consumers, stating that 'not every wrong can have a legal remedy . . . at least not without causing collateral damage to the fabric of our laws.'"  Id. (quoting McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 219 (2d Cir. 2008)).

Tellingly, the court observed that although it had presided over Neurontin-related litigation for more than 10 years, "no evidence has been presented of any doctor who states that she relied on a misrepresentation or omission in prescribing Neurontin for an off-label indication."  Id. at *10.

The court held that because the 2 TPPs "cannot prove which doctor's prescriptions were caused by Defendants' alleged fraudulent misrepresentations or omissions and which were not," summary judgment on causation was appropriate.  Id.  "Plaintiffs must provide a damages model that segregates damages caused by unlawful conduct from damages caused by lawful conduct."  The court held that the TPPs' reliance upon an expert opinion employing an aggregate damages model was insufficient as a matter of law.

(A third TPP's claims survived summary judgment, but that TPP was unusual in that it had alleged direct interactions between the defendant and the TPP's decisionmakers regarding its formulary.  Id. at *2.) 

The decision in Neurontin is another strong link in a long chain of decisions rejecting so-called "aggregate" methods of proof of causation and reliance in third party payor cases.   

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