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

Right around Christmas I gave you a boxed set of decisions involving Apple as a defendant.  Today I thought I would even the score a bit and report on a short decision by U.S. District Judge Marsha J. Pechman regarding claims against Microsoft.

In Alvarado v. Microsoft Corp., 2010 WL 715455 (W.D. Wash. Feb. 22, 2010), the plaintiff had brought a putative class action under Washington's Consumer Protection Act, as well as a common law claim of unjust enrichment and a request for declaratory judgment.  Plaintiff complained that customers who buy new computers and only want to run Windows XP must first buy a computer with Vista or Windows 7 and then "downgrade" their computer to XP.

Plaintiff alleged that she bought a Lenovo laptop that included a license to use the Vista Business Operating System.  

Judge Pechman analyzed the CPA claim first, holding that plaintiff failed to plead that she was a direct purchaser, thus running afoul of the CPA's direct purchaser requirement.  Washington's intermediate appellate court had rendered a decision in a pharmacy case that patients who buy medicines from a pharmacy are indirect purchasers who do not have claims against the maufacturers.  See Id. at *2 (citations omitted). 

She also held that plaintiff failed to identify an unfair or deceptive act or practice.  Unfairness, under Washington law, requires a legislative declaration that certain acts are per se unfair.  There were no such declarations here.  Second, there was nothing deceptive about Microsoft's conduct of selling new computers with the most advanced operating systems.  Because the plaintiff had been given multiple opportunities to plead a CPA claim, the court dismissed this count with prejudice.

The court dismissed the unjust enrichment count without prejudice.  The court rejected Microsoft's argument that an indirect purchaser cannot assert an unjust enrichment claim.  Id. at *5.  She did note, however, that plaintiff never pled that she had to pay for a downgrade; in fact, from the complaint it seemed that she received both XP and Vista for the price of one.  Accordingly, there was no unjust enrichment.  And since there was no unjust enrichment and no violation of the CPA, there could be no declaratory judgment.

• Email This
• Print
• Comments
• Trackbacks

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.

• Email This
• Print
• Comments
• Trackbacks

On deck for this morning is another case that brings home the message:  read those service contracts, folks, because they really can cut off your legal options.

In Minnick v. Clearwire US, LLC, 2010 WL 431879 (W.D. Wash. Feb. 05, 2010), customers sued the provider of wireless Internet and telephone service over the early termination fee ("ETF") contained in its contract.  The wireless service, plaintiffs alleged, was unreliable, slow and often non-existent.  But when they went to terminate service, the defendant pointed to the contract, which included an ETF of $220 less $5 per month of service the customer had since the beginning of the two year service contract.  

US District Judge Marsha Pechman -- who has previously ruled on Microsoft matters discussed in this blog -- granted the defendant's motion to dismiss the complaint.

She began her analysis by looking at what law would apply.  The contract provided that Washington or Delaware law would control.  Plaintiffs identified no difference in the laws, so the court did not ultimately make a choice of law determination.

The gist of plaintiffs' causes of action was that the ETF was an unconscionable penalty and should be disregarded.  The defendant convinced the court, however, that it was more analogous to an "alternative performance provision" that gave customers choices at the outset for how they would perform their obligations under the contract.

The court also analyzed UCC 2-302 -- even though this was a contract for services, not goods -- and observed that "unconscionability" is a defense to enforcement of a cause of action, but is not in itself a basis for restitutionary relief.

In analyzing the claim under Washington's Consumer Protection Act, the court noted that plaintiffs had two options:  either the actions had to have the capacity to deceive a substantial portion of the public, or they had to constitute a per se unfair trade practice.  The plaintiffs disclaimed a deception-based approach -- presumably since all of the contract terms were disclosed to customers before establishing service -- and instead relied on the "per se unlawful" prong of the CPA.  But all they could point to were common law precedents about "unlawful penalties" in contracts.  The Washington Supreme Court has held that the "per se unlawful" prong of the statute only applies to practices that the Legislature has declared unlawful.  Thus, common law precedents did not cut it and the CPA count was dismissed.

Plaintiffs also asserted an unjust enrichment count.  But "[u]nder Washington law, a plaintiff who is a party to a 'valid express contract is bound by the provisions of that contract' and may not bring a claim for unjust enrichment for issues arising under the contract's subject matter.  Id. at *5 (citation omitted).  Plaintiffs argued that they were merely engaging in "alternative pleading," but the court noted that the contract also had a severability provision, so even if the ETF provision were unenforceable, the remainder of the contract would survive and govern plaintiffs' payment obligations. 

The court also rejected plaintiffs' breach of contract count based on the allegedly lousy service they received from the defendant.  The contract provided that customer must notify the defendant in writing within 20 days if they disputed charges, and it limited damages to a credit for the customers' prorated monthly charges.  Even these were not available absent a written request.  Because the plaintiffs had not alleged compliance with these provisions, the court granted dismissal of the breach of contract count.

Finally, the court rejected the plaintiffs' count for false advertising under the CPA.  The court noted that no plaintiff identified statements that they relied upon, and therefore "they have not alleged a plausible basis to identify CPA causation."  Moreover, the court pointed to the FAQ section of the defendant's website, which "state[d] that the quality of service may vary depending on geography and modem placement."

Minnick is an important reminder that service contracts matter, and that they can be important tools to prevent class action litigation.

• Email This
• Print
• Comments
• Trackbacks

In Levinson v. Johnson & Johnson Consumer Cos., 2010 WL 421091 (D.N.J. Feb. 1, 2010), Judge Dennis Cavanaugh was confronted with yet another attempt to turn a product liability action into a consumer fraud class action by carefully pleading only economic harm and a failure to disclose the risk of harm.  Faced with motion to dismiss, Judge Cavanaugh significantly narrowed the class, but he allowed certain limited claims to go forward.

In Levinson, some Missouri plaintiffs brought a putative nationwide class action against J&J and Wal-mart, alleging that J&J's Baby Shampoo and Wal-mart's Equate Tearless Baby Wash contained trace amounts of chemicals that increase the risk of cancer, cause skin irritation, and can lead to asthma and hypersensitivity.  Plaintiffs allegedly had independent lab tests conducted that identified trace amounts of methylene chloride (which FDA has banned from use in cosmetics), 1,4-dioxane and formaldehyde.  Plaintiffs alleged that the defendants' failure to disclose the presence of these chemicals -- as well as statements such as "Ultra Mild," "Hypoallergenic," and "gentle enough even for newborns" -- constituted a violation of state consumer fraud statutes, a breach of the implied warranty of merchantability and implied warranties of fitness for a particular purpose, and unjust enrichment.

The defendants moved to dismiss for lack of standing and for failure to state a claim as a matter of law.  In analyzing their standing argument, the court relied heavily on Koronthaly v. L'Oreal, 2008 U.S. Dist. LEXIS 59024 (D.N.J. July 25, 2008), a case involving the purchase of lipstick containing lead.  Judge Cavanaugh described the holding in Koronthaly as "[i]n the absence of an FDA regulation concerning lead content in lipstick, or other legal prohibition, the plaintiff could not 'seek a remedy for a harm that she had not actually or allegedly suffered.'"  Levinson, 2010 WL 421091 at *4 (citation omitted).  Accordingly, the court held that plaintiffs lacked standing to assert purely economic harm from the chemicals that were unregulated by the FDA in soap or cosmetics (formaldehyde and 1,4-dioxane), but they could assert a claim for purely economic harm involving the substance that had been banned by the FDA for use in cosmetics (methylene chloride).  As the court explained:

While the Court agrees that the assertion of an economic injury is not an automatic bar to standing, Koronthaly demonstrates that an exception has been recognized in the context of claims concerning defective products, absent a specific legal prohibition precluding particular ingredients or usages.  Insofar as Plaintiffs' claims pertain to allegedly toxic chemicals that have not been banned by the FDA for use in cosmetics . . . this Court concludes that any potential injury is too remote, hypothetical and/or conjectural to establish standing in this matter.  However, insofar as Plaintiffs' claims pertain to methylene chloride, a chemical explicitly banned for use by the FDA in any cosmetic, this Court declines to dismiss Plaintiffs' claims pursuant to Fed.R.Civ.P. 12(b)(1) for lack of standing.

Id. at *4.

The court then proceeded to analyze whether the individual causes of action stated a claim under Rule 12(b)(6).  The parties apparently had represented to the court that regardless of whether New Jersey law or Missouri law were applied, the result would be the same, and thus there was no conflict of laws issue.  Id. at *5.  The court disagreed, holding that New Jersey's Product Liability Act preempted plaintiffs' other claims.  The court relied upon Sinclair v. Merck & Co., 948 A.2d 587 (N.J. 2008), in which the New Jersey Supreme Court held that consumer fraud claims for economic harm allegedly caused by prescriptions for Vioxx were preempted by the Product Liability Act.  Judge Cavanaugh concluded:

Similarly, at the heart of this matter is the potential for harm caused by the defective products, J&J Baby Shampoo and Wal-Mart Equate Tearless Baby Wash, containing allegedly "toxic chemicals linked to increased cancer risk, adverse skin reactions, and other serious health problems." (See Pl. Compl. para. 2). . . .  [C]onsistent with the Sinclair decision, this court concludes that the PLA subsumes all of Plaintiffs' claims, effectively precluding Plaintiffs' claims with respect to the CFA, and otherwise, in the absence of "harm" as defined by the PLA.  The Court does not agree that articulating a claim in terms of pure economic harm where the core issue is the potential injury arising as a consequence of the products' allegedly harmful chemicals converts the underlying defective product claim into an independent and unrelated consumer fraud issue.  Limiting a claim to economic injury and the remedy sought to economic loss cannot be used to obviate the PLA.

Id. at *6. 

Accordingly, because New Jersey's Product Liability Act would preempt all claims, but Missouri's would not, the court concluded there was a conflict of laws requiring it to determine which law would apply.  Because the plaintiffs were from Missouri and bought and used the product there, the court concluded that Missouri law would apply to these plaintiffs' claims.

Missouri's Consumer Fraud Act requires a causal connection between the allegedly unfair practice and the plaintiff's harm.  Where the harm allegedly results from a failure to disclose, "'there must be a showing that the [product] in fact suffered that defect, or evidence from which the defect reasonably could be inferred, in order to demonstrate an ascertainable loss as a result of [defendant]'s failure to disclose the defect.'"  Id. at *7 (citation omitted).  The court concluded that as to methylene chloride, which the FDA had banned for use in cosmetics, plaintiffs had sufficiently pled a Consumer Fraud Act claim.

Similarly, the court concluded that, with respect to methylene chloride, plaintiffs had sufficiently pled claims for breach of implied warranties under Missouri law.  Id. at *9.

However, the court held that plaintiffs had failed to plead a cause of action for unjust enrichment under Missouri law because they had not sufficiently pled that there was irreparable injury or the lack of an adequate remedy at law.  Id.  The loss was economic, and could be remedied by the payment of money, which could be recovered by an action at law.  Thus, there could be no unjust enrichment.

For those keeping a tally, the court whittled the Missouri plaintiffs' claims down to the violation of Missouri's Consumer Fraud Act and breach of implied warranties solely for the inclusion of methylene chloride -- not the other substances.  In concluding that New Jersey law would preclude all claims because of its Product Liability Act, the court also went a long way toward establishing why a nationwide class could not be certified.  It remains to be seen where this action will go from here, but we will attempt to monitor it for you.

• Email This
• Print
• Comments
• Trackbacks

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. 

• Email This
• Print
• Comments
• Trackbacks

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.

• Email This
• Print
• Comments
• Trackbacks

Last November I posted about two decisions on motions to dismiss issued by Judge Otrie Smith in the MDL involving bisphenol-A ("BPA") in baby bottles, sippy cups and infant formula, which is pending in the Western District of Missouri.  Apparently the "Bottle Defendants" -- who had not received the benefit of federal preemption in Judge Smith's opinion -- moved to reconsider on the breach of warranty and unjust enrichment claims or, in the alternative, certify the issues for interlocutory appeal.  On Tuesday, the court issued an opinion denying the motion.

Growing up in my small Missouri town, I was always an optimist.  Indeed, I was an actual member of the Optimist Club, which began its weekly meetings at the incorrigibly optimistic hour of  6:30 a.m.  I'm prone to viewing the sippy cup as half full, rather than half empty. 

And so you would expect me to be encouraged by this little nugget in Judge Smith's order denying the defendants' motion.  The court acknowledged that its prior order might have been unclear in its discussion of unjust enrichment.  The court had never intended to suggest that all plaintiffs "automatically and necessarily have a valid claim for unjust enrichment."  Slip op. at 2.  Rather, unjust enrichment is an individual issue because of the differences in state laws and in the factual situations of the plaintiffs:

The Court's holding is, essentially, that its "benefit of the bargain" analysis did not affect the unjust enrichment claims because the "benefit of the bargain" does not play a role in the analysis -- at least, for some jurisdictions.  In contrast to the law of warranty (which is somewhat uniform because of the states' adoption of the Uniform Commercial Code), the law of unjust enrichment cannot be confidently described as uniform.  When this observation is coupled with the differing circumstances of each Plaintiff (and potential Plaintiff), the Court cannot conclude that no purchaser can assert a claim for unjust enrichment.  Ultimately, differences in individual circumstances and the content of state laws make it impossible for the Court to hold that all consumers either have or do not have a cause of action as a matter of law.

Id. at 3.

Thus, although the Bottle Defendants don't get a free ride to the Eighth Circuit just yet, Judge Smith has clearly given them a present, as there is no way he can certify an unjust enrichment class consistent with that opinion.

Hit my sippy cup again, bartender!

• Email This
• Print
• Comments
• Trackbacks

Well, this is a little awkward.  I mean, it's the New Year . . . Christmas is over . . . and I didn't get you anything.  I got a Nano and a couple of gift cards for iTunes.  But what to get you . . .

I know!  A boxed set of three decisions involving Apple, circa December 2009!

In Hovespian v. Apple, Inc., 2009 WL 5069144 (N.D. Cal. Dec. 17, 2009), the court granted Apple's motion to dismiss and its motion to strike class allegations.  (It was a good holiday for Apple, too, apparently.)  Plaintiff -- a Florida resident -- had brought a class action in California federal court, purporting to represent all people who bought iMAC G5 personal computers.  Plaintiff alleged that the display screen was prone to developing vertical lines that ultimately rendered the screen unusable, that Apple knew of this fact and concealed it, refusing to repair the machines because the lines developed after the one year express warranty had run on the machine.  (Plaintiff bought his Mac in October 2006, but the lines did not appear until March 2008.)  Plaintiff's Second Amended Complaint ("SAC") pled causes of action under California's Consumer Legal Remedies Act, the Unfair Competition Law, for fraudulent omission, for unjust enrichment, and for a declaration that the one-year warranty limitation was unenforceable.

The court dismissed plaintiff's CLRA claim without leave to amend because it failed to state with particularity -- as required by Rule 9(b) -- "when and where Apple made an affirmative misrepresentation, if any, that contradicts its alleged omissions."  Id. at *3.  The complaint contained only generalized allegations that Apple had exclusive knowledge of the problem and concealed it.  This was insufficient -- without affirmative statements that contradict the omitted information -- to state a CLRA claim.

The court also granted dismissal of the UCL claim without leave to amend.  Citing to Clemens v. DaimlerChrysler Corp., 534 F.3d 1017 (9th Cir. 2008), the court held that an alleged defect that may shorten the life span of a product that performs as warranted throughout the express warranty term does not cause a substantial injury to consumers and cannot serve as the basis for a UCL claim.

The court granted dismissal of the common law fraudulent omission claim for the same reason it dismissed the CLRA claim, but it made the dismissal without prejudice to give plaintiff leave to re-plead to elaborate on what duty to speak Apple had that it allegedly had violated.

The court also dismissed the unjust enrichment claim with prejudice, holding that an unjust enrichment claim that is premised on the same course of conduct that underlies the statutory and common law tort claims cannot stand alone as an independent claim for relief.  Id. at *5.  It fails for the same reason the other claims fail.

The court also granted Apple's motion to strike the class allegations, citing its authority under Federal Rules of Civil Procedure 23(c)(1)(A), 23(d)(1)(D), and 12(f).  Plaintiff defined the class as all persons who purchased iMAC G5 personal computers from Defendant Apple, Inc.  The court held that the complaint failed to state a valid class action claim against Apple:

First, the class is not ascertainable because it includes members who have not experienced any problems with their iMAC display screens.  Such members have no injury and no standing to sue.  Second, the class is not maintainable under Rule 23(b)(3) because it includes members who can have no claim against Apple.  For example, the putative class includes members who (a) did not purchase the particular iMac model or the type of iMac screen that Hovespian alleges is defective and (b) experienced the alleged defect after their warranty expired.  Finally, the class is not maintainable under Rule 23(b)(1) or Rule 23(b)(2).  These types of class actions are not suitable for actions where recovery of money damages is the primary relief sought by the plaintiff.

Id. at *6.  The court struck the class allegations without prejudice, thus allowing amendment after plaintiff amended his fraudulent concealment claim.

The second case in our Apple boxed set was well reported on:  Birdsong v. Apple, Inc., 2009 WL 5125776 (9th Cir. Dec. 30, 2009).  Birdsong involved a class action challenge to Apple's iPod based on the potential for hearing loss.  Plaintiffs alleged that the iPod was defective in that it could achieve sounds of 115 decibels, the long battery life allows those sounds to be played over long periods of time, the ear buds are designed to be placed deep in the ears (rather than over the ears), the ear buds lack noise cancelling properties, and the iPod lacks a volume meter that tells users they are listening at dangerous levels. 

Apple includes this warning with each iPod:

Warning:  Permanent hearing loss may occur if earphones or headphones are used at high volume.  You can adapt over time to a higher volume of sound, which may sound normal but can be damaging to your hearing.  Set your iPod's volume to a safe level before that happens.  If you experience ringing in your ears, reduce the volume or discontinue use of your iPod.

Id. at *1.

The Ninth Circuit affirmed dismissal of the implied warranty of merchantability count, observing that nothing in the complaint says the iPod is defective for its ordinary purpose of listening to music.  Rather, the statements in the complaint merely suggest that users have the option of using the iPod in a risky manner, but it does not suggest the product lacks any minimum level of quality.  Where, as here, the complaint merely seeks additional features to make the product safer, it fails to allege the sort of lack of baseline utility that would support a breach of the implied warranty of merchantability claim.  Id. at *2-*3.

Plaintiffs abandoned the breach of express warranty and breach of the implied warranty of fitness for a particular purpose claims on appeal. 

The Ninth Circuit also affirmed dismissal of the Unfair Competition Law claim because they failed to allege the requisite injury to have standing to bring the claim.  To begin with, the complaints did not allege that the plaintiffs themselves ever suffered hearing loss or were at risk of imminent hearing loss.  Nor did they allege that plaintiffs themselves ever used their iPods in a way that exposed them to a risk of hearing loss.  Rather, they cast their allegations as potential impacts on unidentified users.  This was insufficient to meet the injury requirement for Article III standing.  Id. at *4.

The court also held that plaintiffs failed to allege an economic harm (lost money or property) that would confer standing to sue under the UCL because "the alleged loss in value does not constitute a distinct and palpable injury that is actual or imminent because it rests on a hypothetical risk of hearing loss to other consumers who may or may not choose to use their iPods in a risky manner."  Id. at *5.  And the court rejected plaintiffs' "benefit of the bargain" theory, holding that the "plaintiffs' alleged injury in fact is premised on the loss of a 'safety' benefit that was not part of the bargain to begin with."  Id.

The third case in our boxed set is a lump of coal:  Owens v. Apple, Inc., 2009 WL 5126940 (S.D. Ill. Dec. 21, 2009).  Plaintiffs brought a putative nationwide class action, alleging that Apple breached a contract and violated various consumer fraud statutes when it sold gift cards to people with the representation that songs cost $.99 a song, and then on April 7, 2009 raised the price of certain songs to $1.29.

Apple moved to dismiss, asserting a privity defense to the breach of contract claims.  The court rejected it outright, where the gift card at issue was marketed by Apple and could be used only on Apple's website. 

The court also held that there was nothing vague about the representation:  "Songs are 99 cents, and videos start at $1.99."  The complaint alleged plaintiffs relied on the price guarantee as part of the basis of the bargain, and that plaintiffs were damaged as a result of the price increase.  The court refused to dismiss the breach of contract counts.

The court also refused to dismiss the consumer fraud counts.  Apple had argued that the statement "Songs are 99 cents," did not mean that the price of all songs was 99 cents, but rather that some songs were 99 cents.  Plaintiffs argued that this interpretation was a "slippery slope" that would allow Apple to market its gift cards in the same way so long as one song was 99 cents.  The court refused to find that the phrase was not deceptive as a matter of law.

So that's it.  A boxed set of Apple decisions for you.  If they don't fit and you want to exchange them for a sweater vest I received this Christmas, just let me know.

• Email This
• Print
• Comments
• Trackbacks

Yesterday Merck won an important appeal in a California Vioxx class action in which plaintiffs had argued that the California Supreme Court's recent decision in In re Tobacco II Cases, 46 Cal. 4th 298 (2009) required the reversal of a trial court's refusal to certify a class action under California's Unfair Competition Law.  See In re Vioxx Class Cases, No. B216521 (Cal. App. -- 2d Dist. Dec. 15, 2009).  The Vioxx Class Cases decision is important because it recognizes that although Tobacco II imposed a new understanding of the UCL's standing requirement, it did not fundamentally alter the other elements of the statute, and a proposed class can still fail the class action prerequisites where the relief requested requires individualized determinations and where the named plaintiffs' claims are not typical of those of other class members.

Vioxx was a Non-Steroidal Anti-Inflammatory Drug ("NSAID") that was used to treat pain until it was removed from the market in 2004.  Unlike aspirin or naproxen, which are NSAIDs that can cause gastrointestinal complications, Vioxx was a "COX-2" inhibitor that was expressly designed to avoid the gastrointestinal effects inherent in NSAIDs like naproxen.  Vioxx was removed from the market after studies determined that it presented a risk of adverse cardiovascular effects.

Plaintiffs brought a statewide class action under the UCL, the False Advertising Act, the Consumer Legal Remedies Act, and common law unjust enrichment.  They sought classwide restitution of the difference in price between what they paid for Vioxx and what they would have paid for a safer, equally effective, pain reliever.  Their economist calculated that price differential to be $8.3 billion nationally, but did not break it down to what allegedly was owed to California purchasers.

Plaintiffs' theory of liability was simple:  Merck knew its drug presented cardiovascular risks, but concealed that fact and marketed Vioxx as safe to the public and to doctors.  Slip op. at 7.  As a result, they said, they were entitled to classwide restitution of the difference between the price of Vioxx and the price of generic naproxen.

Interestingly, in discovery, plaintiffs would not say that they would have taken naproxen instead of Vioxx.  Rather, they would only say that they would not have taken Vioxx if they had known the risks, and that the drug they would have used instead was irrelevant.  Slip op. at 6.

In the trial court, Merck had established that roughly 16,500 people in the US died from gastrointestinal bleeds -- the most common NSAID complication -- each year, and over 100,000 were hospitalized.  It presented medical testimony that for patients with a history of serious gastrointestinal problems who could not tolerate traditional NSAIDs, COX-2 inhibitors like Vioxx were the only appropriate option.  Further, it presented evidence from third party payors -- who were included in the class of purchasers, even though the named plaintiffs were all individuals -- establishing that some third party payors' Pharmaceutical and Therapeutics committees had studied the risks of Vioxx thoroughly and only approved the drug for use with patients who had a history of gastrointestinal disease and had first tried one or two traditional NSAIDs without success.  The third party payors' records also established that when Vioxx was removed from the market, most patients did not switch to generic NSAIDs like naproxen, but rather switched to another branded COX-2 inhibitor with a price comparable to Vioxx.

Merck also established in the trial court that doctors apply their clinical judgment to each patient's unique situation in choosing which pain medicine to prescribe, looking at eight different factors.  Merck also established that doctors rely on different sources of information, with some even rejecting out of hand research the company provides.

On appeal, plaintiffs challenged three conclusions of the trial court.  First, they challenged the trial court's conclusion that the individual plaintiffs' claims were not typical of the claims of third party payors.  Second, they said the trial court erred in concluding that individual issues of reliance barred a class action.  And third, they urged that their method of calculating damages was subject to common, class-wide proof, making classwide restitution appropriate.

Typicality and Third Party Payors

Plaintiffs argued that the individual plaintiffs could represent the interests of the third party payors -- like union health benefit plans -- because if an individual relied on Merck's alleged misrepresentations to buy Vioxx, then the third party payor who paid for most of that prescription should be entitled to recover, too.  The Court of Appeal held that the flaw in this analysis is that it treats the third party payor as a passive entity that pays without having any say in what is prescribed.  But the evidence showed that, at least for some large third party payors, their Pharmaceutical and Therapeutics committees conducted literature reviews and studies, and made their own decisions about what they were going to pay for.  As a result, evidence about what alleged misrepresentations the individuals received or relied upon could not apply to third party payors, and the court could not presume reliance across all third party payors based on any individual's reliance.  Slip op. at 21.  Indeed, for third party payors who only paid for Vioxx where there was a history of gastrointestinal problems and the patient could not tolerate other NSAIDs, every penny it paid for Vioxx was for a patient who benefited from the prescription.  Id. at 22.  Accordingly, the individuals' claims were not typical of the third party payors.

Individual Issues of Reliance Predominate the CLRA Claim

California's Consumer Legal Remedies Act requires some form of causation between the unlawful act and the consumer's damages:  it gives a cause of action to "[a]ny consumer who suffers any damage as a result of the use or employment" of an unlawful act.  Cal. Civ. Code sec. 1780(a) (emphasis added).  Some California cases have held that an "inference of reliance" may arise for the class where a material misrepresentation has been made to the whole class.  But "if the issue of materiality or reliance is a matter that would vary from consumer to consumer, the issue is not subject to common proof, and the action is not properly certified as a class action."  Slip op. at 16.

Plaintiffs suggested that hiding an increased risk of death from cardiovascular complications is about as material as a misrepresentation can get, and that reliance should be inferred to the whole class for purposes of the CLRA.  But the Court of Appeal rejected this notion for four reasons.

First, Vioxx did not present an increased risk of death for all patients, because there were patients with gastrointestinal problems who would have been more likely to die from complications with traditional NSAIDs like naproxen.  Second, the record evidence reflected that there were patients who would still take Vioxx if it were on the market today, and physicians who would still prescribe it.  Thus, for some subset of the class, the cardiovascular risks were not material to their decision whether to take the medicine.  Third, the differences in how doctors study and evaluate the risks of medicines prevented a classwide inference of materiality.  And fourth, the patient-specific factors that doctors evaluate in prescribing a pain medicine also made a presumption of materiality not viable.  For example, a doctor might downplay the clotting risk of Vioxx for a patient already receiving a blood thinner like Coumadin.  Slip op. at 24. 

Individual Issues Regarding Injury and Restitution Predominate the UCL and FAA Claims

The Court of Appeal noted that although the UCL liberalizes the standards for finding liability, it narrowly prescribes the remedies available under the statute:  injunctive relief and restitution.  There was no need for injunctive relief, since the product had been pulled from the market.  So the question was one of restitution.  Plaintiffs' economist proposed comparing the price of Vioxx with the price of generic naproxen, using the difference as the amount of restitution. 

But the Court of Appeal concluded that this approach could not be applied to the class as a whole, because there was substantial record evidence that after Vioxx was withdrawn from the market, most Vioxx patients switched to other similarly-priced brand-name COX-2 inhibitors, not generic naproxen.  Plaintiffs argued that adjudicating the validity of naproxen as a comparison improperly went to the merits of the action, but the Court of Appeal said no.  Rather, it went to whether a "measurable amount" of restitution could be proven on a classwide basis.  The court held that it could not, and that class members thus would have to individually establish the appropriate comparator medicine, and then whether he suffered an injury.  This was a patient-specific issue, the court held, "incorporating the patient's medical history, treatment needs, and drug interactions."

Dicta on the Class Definition

The Court of Appeal was highly critical of the plaintiffs' class definition, which included "all individuals or entities in California who . . . paid some or all of the purchase price for the prescription drug Vioxx."  Slip op. at 6-7.  Besides improperly lumping individuals and third party payors together, the Court of Appeal also was clearly troubled that there was no carve-out for people who suffered physical injuries (slip op. at 5-6, n.4), thereby presenting problems of claim-splitting.  The court said the class definition was overbroad, and that those with physical injuries "should not be bound in an action pursuing only economic damages for the price of Vioxx."  Slip op. at 20, n.16.  Moreover, the class definition also was overbroad because it included those with flat co-payment obligations who would have paid the same amount of co-payment regardless of what drug was applied; they would have suffered no injury, and thus should not be in the class.  Id. 

Moreover, given the fact that -- as the Court of Appeal noted -- many of the class members actually derived benefit from Vioxx's lack of gastrointestinal effects, I would argue that the class definition also should have been required to exclude those people from the class.

The decision in Vioxx Class Cases is an important reminder that the elements of the causes of action for UCL, CLRA, FAA and unjust enrichment claims in California provide important defenses to class certification.  Just because a UCL claim may survive a demurrer does not mean that it can be tried on a classwide basis.  Defendants would be wise to follow Merck's lead and develop strong factual bases for why classwide presumptions are not viable and individual proof of injury should be required.

• Email This
• Print
• Comments
• Trackbacks

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.

 

• Email This
• Print
• Comments
• Trackbacks

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.

• Email This
• Print
• Comments (1)
• Trackbacks

When I teach my product liability course as an adjunct professor, I often include on the exam a class action question.  It's always a traditional issue-spotting exam, and I expect to see students set forth the elements for class certification and analyze them in the course of their answer.

One of the elements of class certification that all but the best of my students often ignore is the class definition.  Although Federal Rule of Civil Procedure 23 does not have any express requirements for class definitions, courts recognize that there is an inherent rule for all class actions that the class be objectively identifiable and ascertainable at the outset of the litigation.  Otherwise, how could one tell who would be bound by the class adjudication?

I previously have written about a decision in which a court refused to certify a class based on problems with the class definition.  Today, I proffer to you another -- which, incidentally, was won by my new colleagues John Beisner and Jessica Miller.

In Solo v. Bausch & Lomb, Inc., MDL No. 1785, Slip Op. (D.S.C. Sept. 25, 2009) (AmLaw Daily registration may be required), the court refused to certify two classes of California and Pennsylvania consumers, respectively, who bought contact lens  solution between September 1, 2004 and April 10, 2006 and discarded it after the defendant told consumers to do so.

The ReNu with MoistureLoc litigation is familiar to everyone.  It was posited that ReNu was responsible for an increase in cases of eye infection and blindness due to a fungus, fusarium keratitis.  The infections were first noticed in Asia, and after the CDC noted an increase in fusarium keratitis infections in the United States, the defendant recalled its product and advised consumers to switch to another contact lens solution.  In exchange, the defendant offered a refund or a coupon applicable to others of its contact lens solutions.

Nevertheless, there were a slew of lawsuits seeking recovery for "economic harm" allegedly suffered by ReNu consumers.  The MDL court had refused to certify a nationwide class action, and subsequently refused to certify a class action involving just California-only and Pennsylvania-only classes.

Plaintiffs filed another amended complaint for Pennsylvania-only and California-only classes, asserting various breach of warranty claims, consumer fraud claims, and unjust enrichment claims.  The court dismissed the warranty claims, but allowed the California statutory claims and the California and Pennsylvania unjust enrichment claims to proceed.

Interestingly, one of the three named plaintiffs in the action subsequently voluntarily dismissed her claims after changing her story about whether she bought and discarded Renu in 2006.  But the claims of two plaintiffs (one California, one Pennsylvania) made it to the certification motion.  For each state class, the definition was:

All people in [California/Pennsylvania] who purchased MoistureLoc, other than for resale, from September 1, 2004 through April 10, 2006, who lack full reimbursement for any quantity discarded following Bausch's MoistureLoc recall.

Id. at 5. 

The court described the class definition as "'an essential prerequisite to maintaining a class action,.'"  Id. at 6 (citation omitted).  Citing Wright, Miller & Kane, the court declared that the class definition must be "'sufficiently definite so that it is administratively feasible for a court to determine whether a particular individual is a member,'" and noted that the definition "'must not depend on subjective criteria or the merits of the case or require an extensive factual inquiry to determine who is a member.'"  Id. at 7 (citations omitted).  Thus, "[w]here determining membership in the class would require fact-intensive mini-trials, the class is not ascertainable, and the court should deny certification."  Id. at 8.  Citing the court's decision in In re Phenylpropanolamine (PPA) Products Liability Litigation, 214 F.R.D. 614 (W.D. Wash. 2003), the court exhibited great sensitivity to how class members would prove that they bought the product, as well as how much was left when they discarded it,  Slip op. at 9.  

The court was especially aware that memories fade over time, and it noted the varying testimony of the two remaining named plaintiffs, as well as the named plaintiff who had voluntarily dismissed her claim after changing her testimony about whether she bought and discarded the product.  The court also recognized that determining who "lack[ed] full reimbursement" for their losses would require mini-trials.  Would a consumer who used most of the solution and received an $8 replacement coupon be a class member?  What if he failed to use the coupon?  Id. at 11.

The court concluded that mini-trials were unavoidable, and that they made any class unmanageable:

[T]he membership of plaintiffs' proposed class would require countless factual inquiries into the individual circumstances of potential class members, most of whom will have long ago forgotten the details relevant to plaintiffs' allegations.  Moreover, it is hard to fathom how thousands of unnamed putative class members could possibly provide credible testimony about their class membership more than three years after the fact when the proposed class representatives themselves have presented conflicting testimony that changed over time. . . . While the court realizes it is likely that many individuals incurred some monetary loss as a result of the MoistureLoc recall, plaintiffs must still meet the requirements for class certification.

Id. at 14.

The opinion in Solo should prove useful in other cases where consumer products have already been consumed and proving loss is a difficult case of recall, rather than documents. 

• Email This
• Print
• Comments
• Trackbacks (1)

My Grandaddy used to advise me never to look a gift horse in the mouth.  I've generally followed his advice, although I sometimes engage in "re-gifting."  But my Grandaddy was never a plaintiffs' lawyer in California.  There, looking a gift horse in the mouth apparently can be quite lucrative.

Last week a California federal court refused to dismiss a putative class action against McDonald's brought buy a man who tried to exchange his $5 gift card for cash at the fast food restaurant.  See Marilao v. McDonald's Corp., 2009 WL 3007368 (S.D. Cal. Sept. 21, 2009).  The case will proceed under two counts:  (1) California's Unfair Competition Law, and (2) unjust enrichment.

California Civil Code section 1749.5(b)(2) provides that "any gift certificate with a cash value of less than ten dollars ($10) is redeemable in cash for its cash value."  Plaintiff purports to represent a class of individuals who received McDonald's gift cards and want to redeem them for cash.  The cards provide on the back side that "[t]he value on this card may not be redeemed for cash . . . unless required by law."  McDonald's allegedly refused to give plaintiff cash when he tried to redeem his card.

Plaintiff pled a UCL claim, alleging a violation of section 1749.5(b)(2) as the predicate illegal act.  McDonald's challenged plaintiff's standing to bring a UCL claim, arguing that such claims can only be brought by one who suffered injury in fact and lost money or property as a result of the alleged unfair competition.  Because plaintiff could still exchange the card for five dollars' worth of McDonald's merchandise, he had suffered no injury and no loss of money or property, the defendant argued.  The court squarely rejected the argument, observing that plaintiff pled he was denied money to which he has a right under law.  That was sufficient to establish standing under the UCL, the court concluded.

And because the plaintiff adequately alleged a violation of the UCL based on McDonald's purported failure to comply with Civil Code section 1749.5(b)(2), he also sufficiently alleged an unjust enrichment claim, the court concluded.

The court did, however, dismiss the claim pled under California's False Advertising Law.  There, plaintiff had alleged that the language on the back of the card failed to apprise consumers of their right to request cash and deceived consumers into not requesting cash.  Plaintiff, however, did not allege that he had relied on that language and been injured thereby.  Accordingly, the court dismissed the claim.

• Email This
• Print
• Comments
• Trackbacks

It often seems that courts addressing consumer claims seem to absolve consumers of any personal responsibility to manage their finances.  Judge Michael J. Reagan of the Southern District of Illinois -- a former president of the Illinois Trial Lawyers Association -- recently issued a refreshing opinion in a telemarketing case that squarely places responsibility on the consumer to monitor what his money is being spent on and to read his mail.  See Spivey v. Adaptive Marketing LLC, No. 07-cv-0779-MJR (S.D. Ill. Sept. 23, 2009).

In Spivey, a putative class action, the plaintiff alleged that the defendant used telemarketing transactions to "cram" consumers' debit and credit cards with unauthorized transactions without the cardholder's knowledge.  The complaint asserted two counts:  (1) breach of contract, and (2) unjust enrichment.  Defendant moved for summary judgment, and the court granted it.

Plaintiff had called a telemarketing number to order an Atkins diet product.  The conversation was recorded, revealing that plaintiff was also offered a free 30-day membership to HomeWorks, a membership program offering discounts at numerous chain stores.  The salesperson explained that after 30 days, if Plaintiff did not cancel, the membership would be automatically extended and Plaintiff's card would be charged a $96 annual fee once each year.  He could cancel at any time, and the full details of the program would be contained in a welcome kit that would arrive in the mail.

Plaintiff claimed not to remember receiving the "welcome kit," alleging that if he did receive it, the kit was designed to look like junk mail and he threw it away without opening it.  But the court employed the "mailbox rule" to impose the written terms of the welcome kit to Plaintiff's transaction.  The mailbox rule says that where a letter is properly addressed and mailed, there is a presumption that it reached its destination in the usual time and was read by the recipient.  The defendant testified that it was its practice to send the welcome kit to each new member in a membership program.  Plaintiff's testimony that he did not recall receiving the welcome kit was not enough to rebut the presumption of the mailbox rule.

The court also rejected the Plaintiff's argument that written terms sent after the creation of an oral contract cannot govern the relationship.  The court noted that the written terms often follow in the mail after a consumer transaction, and those terms are held to govern the transactions.  The court observed: 

In sum, Adaptive invited acceptance by conduct, i.e., by sending the kit to Spivey and allowing him the opportunity to call within 30 days to cancel the agreement or to call within the first year to receive a full refund.  By not calling the toll-free number in the first 30 days (or even in the first year) -- as advised by the telemarketer and set forth in the agreement -- Spivey accepted the offered services and the terms and conditions under which they were offered.  He had a clear mechanism and reasonable opportunity to reject them.  Spivey is bound by the written terms provided after the transaction. 

Slip op. at 13.  The court also noted that the written agreement had an integration clause and that the terms of plaintiff's posited oral contract did not contradict the written contract.

Analyzing plaintiff's claim of "cramming" -- i.e., placing unauthorized charges on credit cards with the hope the consumer will pay the balance without noticing them -- the court began by observing that the charges were not unauthorized.  Rather, both the oral and written contracts authorized them.

The court also held that the "voluntary payment doctrine" is an independent alternative ground for dismissing Plaintiff's claims.  The doctrine holds that "'a plaintiff who voluntarily pays money in reply to an incorrect or illegal claim of right cannot recover that payment unless he can show fraud, coercion, or mistake of fact.'"  Slip op. at 16 (citation omitted).

The court noted that plaintiff paid the annual charges for four years without ever questioning the payments.  The charges were clearly labeled "HomeWorks Plus," and the statement provided a toll-free number to inquire about any charge.  The court concluded that "[t]o the extent that Spivey was ignorant of the charges on his credit card statement, it was because he failed or refused to apprise himself of that knowledge, and he must bear the consequences."  Slip op. at 17.

Accordingly, the court granted judgment to defendant on the breach of contract count.  The court also granted judgment for the defendant on the unjust enrichment count because unjust enrichment -- doctrine that implies a contract in law where none exists -- is not available where a contract controls the relationship between the parties.  Also, the voluntary payment doctrine applies to the unjust enrichment count as well.  Slip op. at 19.

Judge Reagan's opinion in Spivey is an important reminder that we as consumers have responsibilities -- including to read our mail and monthly manage our finances and credit card charges.  Where we fail to do that, caveat emptor applies.

• Email This
• Print
• Comments
• Trackbacks

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.

• Email This
• Print
• Comments
• Trackbacks

Conventional wisdom says that the need for individual proof of damages does not preclude class certification.  But as Judge Dennis Cavanaugh recently recognized in Kings Choice Neckwear v. FedEx Corp., 2009 WL 689718 (D.N.J. Mar. 11, 2009), the need for individual proof of damages can destroy the predominance that makes the class manageable.

In Kings Choice, plaintiff was a frequent customer of FedEx who used a standard shipping agreement that allowed FedEx to recover "all reasonable costs incurred by FedEx" in collecting payment.  Plaintiff received a letter from FedEx's collection agency demanding payment of outstanding fees plus a 25% collection fee.  Plaintiff paid the collection fee under protest, and then brought a class action for breach of contract, violation of the New Jersey Consumer Fraud Act, and unjust enrichment, claiming that the 25% collection fee did not represent the "reasonable costs" allowed by the shipping agreement.

The court held that the requirements of Rule 23(a) were met, but that the proposed class failed the predominance and superiority requirements of Rule 23(b)(3).  As the court explained:

By its very nature, determining the reasonableness of the 25% collection fee is a highly fact-specific inquiry that depends upon a series of individualized variables within the collection process, including, inter alia, the frequency and manner of attempted contacts with the debtor, the necessity of retaining a collection agency or outside attorneys, and the extent to which legal remedies were pursued.  While Plaintiff suggests that a cost-averaging approach is appropriate because collection efforts are mostly uniform with only a negligible difference in cost, the Court finds differently and holds that determining "reasonableness" would require an untenable inquiry into the facts of each specific case.  Furthermore, assuming, arguendo, that liability could be established on an aggregate basis, it nonetheless appears that the Court would be required to conduct a series of "mini-trials" to determine damages.  The amount of damages owed to each individual class member will differ depending upon a series of individualized factors, including, inter alia, the cost of collection, whether payment was actually made, whether a reduced payment was negotiated, and whether any interest is owed.  Because it appears that FedEx sometimes waives collection fees and at other times negotiates reduced fees, the Court would be forced to inquire as to each individual class member to determine the amount paid, and, if reduced, whether the amount constituted a "reasonable" approximation of the collection costs. . . . [T]he Court finds that determining damages in this case on a class-wide basis would require significant individualized inquiry and would present manageability problems.

Id. at *4. 

In concluding that the class device was not superior to other methods of adjudication, the court also noted that the laws of 51 jurisdictions likely would have to be applied, further compounding the disparities among class members and presenting the court with insuperable obstacles.  Id. at *5.

Kings Choice is a good reminder to not let an old canard about damages keep you from making a compelling argument that the individualized inquiry required to determine damages can present such manageability problems that a class should not be certified.

• Email This
• Print
• Comments
• Trackbacks

Yesterday the Eighth Circuit affirmed a decision dismissing a consumer fraud class action against a cable television provider.  See Crumley v. Time Warner Cable, Inc., 2009 WL 454723 (8th Cir. Feb. 25, 2009).  Plaintiff alleged that the defendant violated Minnesota's Consumer Fraud Act by effectively charging for the same system upgrades twice.  The defendant's first recovery for the upgrades allegedly occurred when it persuaded the Federal Communications Commission to approve a five-year surcharge to pay for systems upgrades the defendant was going to perform.  The defendant's second recovery came when it filed an FCC "Form 1235" with the City of Minneapolis in 2001 to incorporate a "network upgrade fee" into its basic cable rate.  Plaintiff sought both damages and recovery for the defendant's alleged unjust enrichment.

The district court had granted the defendant's motion to dismiss, and the Eighth Circuit affirmed, citing the "filed rate doctrine," which "forbids a regulated entity from charging a rate for its services other than the rate on file with the appropriate regulatory authority."  Id. at *2 (citation omitted).  Here, the City of Minneapolis was the appropriate regulator, and the "network upgrade fee" had gone through the appropriate approval process.  Accordingly, plaintiff could not bring a state law claim that would effectively require the defendant to charge a different rate, even though the allegation was that the rate had been approved based on a fraud:

[Plaintiff's] attempts to characterize her complaint as one challenging Time Warner's actions as fraudulent do not change the fact that what she challenges is the rate on file with the City of Minneapolis.  If Crumley's suit was successful, . . . Time Warner would not be allowed to charge the allegedly unlawful upgrade fee . . .  This is directly contrary to the filed rate doctrine, which "'prohibits a party from recovering damages measured by comparing the filed rate and the rate that might have been approved absent the conduct in issue.'"  That Crumley's claim involves allegations of fraud is of no moment. . . .  This case is directly governed by the filed rate doctrine because, if allowed to proceed, "the court's decision will [impact] . . . agency . . . rate determinations."

Id. at *2 (citations omitted).

• Email This
• Print
• Comments
• Trackbacks (1)

Many thanks to loyal reader Fred Burnside of Davis, Wright, Tremaine LLP in Seattle, who forwarded me an opinion in which Judge Marsha Pechman decertified a consumer fraud claim against Microsoft.  See Kelley v. Microsoft Corp., Case No. C07-0475 MJP, slip op. (W.D. Wash. Feb. 18, 2009).  [After trying unsuccessfully to upload the opinion, I see it is now available at 2009 WL 413509.]

Last year Judge Pechman had issued an opinion with Weinstein-esque creativity, certifying a class action against Microsoft for two causes of action:  breach of the Washington Consumer Protection Act, and unjust enrichment.  See Kelley v. Microsoft Corp., 251 F.R.D. 544 (W.D. Wash. 2008).  Microsoft was alleged to have defrauded the public by allowing computer manufacturers to label certain computers "Windows Vista Capable" that would not be able to run any form of Vista Premium; they would only be upgradable from Windows XP to Vista Basic, which lacked the Aero graphics interface Microsoft used to promote Vista, as well as a file backup system, media center, DVD-making capability, and tablet-PC capability.  Slip op. at 2.  

In the opinion certifying the class, the court had recognized that Washington law would not allow certification of a "deception based" theory under the WCPA because the statute effectively required individual proof of causation.  But despite the lack of any supporting Washington authority and in the face of contrary authorities from other states, the court had certified the class under a "price inflation" theory of causation where plaintiffs would show that "Microsoft artificially inflated demand for computers only capable of running Vista Home Basic, causing Plaintiffs to pay more for those PCs than they would have without the 'Windows Vista Capable' campaign."  251 F.R.D. at 558-59.

A year later -- after plaintiffs' expert had rendered his opinion and been deposed -- Microsoft returned to the court, seeking summary judgment and decertification.  Judge Pechman refused to grant summary judgment on whether Microsoft's "Vista Capable" designation had the capacity to deceive, but she decertified the class, finding that plaintiffs' expert had utterly failed to support a "price inflation" theory of causation.

The WCPA has a strong causation provision:  "a plaintiff must show that the deceptive act was a cause which 'in direct sequence . . . produce[d] the injury complained of and without which such injury would not have happened.'"  Slip op. at 8 (quoting statute).  The court ultimately held that plaintiffs failed to demonstrate classwide effects on demand or on the price of "Vista Capable" computers.

The court noted that "[b]ecause Plaintiff's [and the court's] price inflation theory is novel in the context of consumer protection claims, Defendant analogizes to other areas of the law where a plaintiff may establish causation by demonstrating an artificial increase in demand."  Id. at 9.  Microsoft relied on McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008), in which the plaintiffs failed to isolate the shift in demand caused by allegedly deceptive "light" labeling on cigarettes, and thus common issues did not predominate.  It also relied on In re New Motor Vehicles Canadian Export Antitrust Litig., 522 F.3d 6 (1st Cir. 2008), where plaintiff's expert had completed a regression analysis, but failed to isolate the price impact caused by impermissible actions from the impact caused by permissible actions.

Judge Pechman also relied on these decisions in concluding that "Plaintiff's evidence fails to establish class-wide causation because it does not attempt to identify a specific shift in the demand for Vista Capable PCs."  Slip op. at 10.  Plaintiff's expert, Dr. Keith Leffler, did not even attempt a regression analysis or an econometric analysis of the impact of the "Vista Capable" designation on demand for computers.  Instead, he relied on internal Microsoft documents that allegedly discussed the "Vista Capable" program increasing demand for Windows XP-based computers, as well as the testimony of the individual plaintiffs. 

Judge Pechman recognized that relying on such proof would amount to extrapolating from a few documents or individual testimony -- which is something the WCPA's causation provision simply does not allow. 

Ultimately, Dr. Leffler conceded that he could not use available data to quantitatively isolate a demand effect of the "Vista Capable" program, and he could not separate it out from other things, such as holiday promotions, that computer manufacturers may have done to promote their computers.  Similarly, he could not use regression analysis to demonstrate a price effect. 

Reviewing this testimony, the court concluded that "its is clear [plaintiffs] rely on anecdotal evidence to demonstrate class-wide causation," which is contrary to Washington law.  As a result, the court decertified the class.  Refusing, however, to grant summary judgment, the court noted that in their individual cases, plaintiffs could rely on a deception theory to establish causation.  The court decertified the unjust enrichment theory for the same reasons it decertified the WCPA claims.

This new decision from Judge Pechman is important evidence for why creative attempts to get around the basic elements of consumer fraud claims to facilitate class certification so often present more -- not less -- complications than the traditional elements of the claim.

• Email This
• Print
• Comments
• Trackbacks

Ahhhh, the 50-state survey!  The mere mention of its name strikes terror in the hearts of young associates everywhere -- and sparks questions about what to do with the District of Columbia, Puerto Rico, Guam and other non-states.  And yet the 50-state survey is increasingly an essential tool on the class action litigator's workbench.  The more courts scrutinize precisely how a case will be tried on a classwide basis, the more important choice of law (and the differences among state laws) become.

A recent decision from a federal court in Arkansas illustrates precisely how important the choice of law inquiry can be.  In Thompson v. Bayer Corp., 2009 WL 362982 (E.D. Ark. Feb. 12, 2009), the plaintiff challenged the defendants' marketing of One-A-Day Weight Smart vitamins, which purportedly increased the metabolism of people as they age.  The vitamins contained ECGC from an extract of green tea.  Plaintiff alleged there was no evidence this substance actually increased metabolism.

Plaintiff's case was far from specious.  The FTC had ordered the defendants to stop making scientifically unsubstantiated claims about its One-A-Day products in 1991.  In 2007, the FTC sued the defendants for violating the order with their marketing of the Weight Smart vitamins, and the defendants were fined $3.2 million by the FTC.

The plaintiff sought to certify a nationwide "unjust enrichment" class to force defendants to disgorge the profits they had made from their allegedly fraudulent activities.  She specifically defined out of her class any person "claiming personal injury or damage beyond that specifically claimed in this motion."

The court immediately focused on choice of law.  Plaintiff argued that Arkansas law did not conflict with the law of other states on unjust enrichment, and she urged that it was the defendants' burden to establish that a conflict exists.  Applying Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) and Sun Oil Co. v. Wortman, 486 U.S. 717 (1988), the court disagreed.

In analyzing whether Arkansas law conflicts with the law of the other states, the court considered 50-state surveys submitted by both plaintiff and defendants.  Plaintiff had done her best to simplify the differences in state laws, grouping them into three categories:

Plaintiff claims that, in general, the elements of unjust enrichment are as follows:

1.  Defendant must have received something of value;

2.  Defendant, in good conscience, is not entitled to the benefit.

Plaintiff acknowledges, however, that there are three different approaches taken by the states to unjust enrichment claims:

1)  Restitution:  those that follow a restitution approach where a plaintiff must show that a defendant accepted and used a benefit bestowed upon the defendant by the plaintiff, which benefit would be inequitable to retain;

2)  Restitution Plus:  those that follow the restitution approach but also require that there be no adequate remedy at law;

3)  Wrongful Acts:  those that require a plaintiff to show that the defendant benefited from the plaintiff through fraud, duress, misconduct, wrongful acts or taking undue advantage.

According to Plaintiff, the Restitution approach is followed by 37 states, the Restitution Plus approach is followed by seven states, and the Wrongful Acts approach is followed by six states.

Thompson, 2009 WL 362982 at *3-*4.

After analyzing the parties' arguments, the court concluded that the differences in state laws on unjust enrichment were too substantial to allow a nationwide class to go forward.  The court noted: 

Some of the most troublesome differences are those recognized by the Plaintiff, i.e., the disparity in proof required to prove an enrichment was "unjust or wrongful" and the requirement by some states that there be no adequate remedy at law.  However, these are not the only conflicts that exist in this area of law.  There are other differences that Plaintiff has not included in this list including, the direct and indirect benefit elements of unjust enrichment.

Id. at *4.  A number of states preclude claims for unjust enrichment where the plaintiff is not the direct purchaser of the product.  The court observed that this would be a real problem in the case before it, as few, if any, of the plaintiffs could be said to have purchased the vitamins directly from the defendants.

The court's opinion has a very useful discussion of the various differences in state unjust enrichment law.  Ultimately, the court concluded that the variations in unjust enrichment laws caused the proposed class to fail the predominance and superiority requirements of Rule 23(b)(3).  The plaintiff asked, in the alternative, for the certification of a smaller class, or even a statewide class.  The court held that it was not sufficiently briefed, and denied the alternative request without prejudice.

Thompson illustrates the fact that even where the facts supporting a class action may be strong, the variations in the applicable laws may make the class so unmanageable that it is uncertifiable.  Given this fact, the 50-state survey is likely here to stay in the briefing of proposed nationwide class actions.

• Email This
• Print
• Comments
• Trackbacks

The class action rule itself gives little guidance regarding how to properly define a class, which may explain why attacks on the class definition are discussed in the case law with little frequency.  Nevertheless, courts increasingly are recognizing that there are common law rules governing how classes may be defined, and they are more than willing to dismiss a case for definitional problems.

One of the most common problems with class definitions is that membership in the class is not immediately and objectively identifiable, making membership in the class itself something that must be the subject of mini-trials.  This is particularly problematic, as the court and the parties have no knowledge at the outset what people will be bound by the judgment in the class action.  Cases rejecting these kinds of definitions include Intratex v. Beeson (Tex. 2000), and The Coca Cola Company v. Nixon (Mo. 2008).

Add to this list Brown v. SBC Communications, Inc., 2009 WL 260770 (S.D. Ill. Feb. 4, 2009).  In Brown, plaintiff sued on behalf of a putative class of telephone subscribers who allegedly had been the victims of "cramming" -- i.e., having unauthorized charges placed on their bill for products or services they did not receive.  Plaintiff sued for violations of Illinois' Consumer Fraud and Deceptive Business Practices Act and unjust enrichment.  

The court concluded that class could not be certified because the definition -- "all persons or entities who were residents of Illinois and who were improperly billed for cramming charges" -- would require individualized factfinding:

Similarly, here, the Court will need to make individual determinations as to whether each proposed class member authorized the charges for which he was billed by defendants.  The proposed class member authorized the charges for which he was billed by defendants.  The result will be multiple mini-trials, each requiring individual proofs.

Id. at *3.

Backpedaling in his reply brief, plaintiff proposed another definition that would include only subscribers who paid for charges they did not use.  The court held that this was no better:

While the Court agrees that the fact that an individual member did not utilize the service for which he was charged is evidence that he did not actually authorize the charge, the Court would still have to resolve the issue of whether each individual class member actually authorized the charge for which he or she was billed.  If an individual member did authorize the charge, then Defendants did not act improperly, at least as alleged by Plaintiff, in billing for the charge, regardless of whether the member actually utilized the service for which he or she was charged.

Id. at *4

When analyzing arguments in defense of class action litigation, it pays to start up front with close consideration of the class definition.

• Email This
• Print
• Comments
• Trackbacks

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

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

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

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

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

• Email This
• Print
• Comments
• Trackbacks