Monday, March 23, 2015

The market for lemon smoothies: injunctive class settlement certified

Lilly v. Jamba Juice Co., 2015 WL 1248027, No. 13-cv-02998 (N.D. Cal. Mar. 18, 2015)
This preliminary approval for a settlement contains the most extensive analysis I’ve seen of the “deceived consumers do have standing for injunctive relief in consumer deception cases” position.
Jamba Juice labeled its smoothie kits “all natural,” but the kits allegedly contained ingredients that consumers would not have understood to be “natural”: ascorbic acid, xanthan gum, steviol glycosides, modified corn starch, and gelatin.  Plaintiffs brought the usual California claims, including breach of warranty, and moved to certify  a class for liability and damages purposes. Due to questions about whether damages could “feasibly and efficiently be calculated,” the Court declined to certify a damages class, but certified a class for the purpose of determining liability and requested supplemental briefing on the 23(b)(2) issue of certification for injunctive relief.  After mediation, the parties reached a preliminary settlement, including injunctive relief.  The court was required to raise standing sua sponte.
Standing for injunctive relief requires a plaintiff to allege that a ‘real or immediate threat’ exists that he will be wronged again.” “In a class action, ‘[u]nless the named plaintiffs are themselves entitled to seek injunctive relief, they may not represent a class seeking that relief.’” (This isn’t my area, but I don’t understand why a settlement can’t include relief that a plaintiff might not have gotten at trial.  There can be cy pres uses specified for unclaimed settlement funds, right?  If that’s ok, why not injunctive relief?)  Courts are split on when a consumer class may be certified for the purposes of obtaining injunctive relief against deceptive product labeling. The court here decided that injunctive relief was available, because “[t]o hold otherwise would effectively preclude consumers from ever obtaining prospective relief against mislabeling.”
Courts that reached the contrary conclusion “misapprehend the nature of the injury suffered by the consumer. When a consumer discovers that a representation about a product is false, she doesn’t know that another, later representation by the same manufacturer is also false. She just doesn’t know whether or not it’s true.” Misrepresentations injure consumers not just through untruth, but also through lack of certainty about truth.  (The market for lemons!)  Because we already know the purchaser was willing to buy the product with the set of attributes she thought it had, she’s most likely to be injured without an injunction, not least.
“Consumers make choices in the marketplace among the alternative goods competing for their dollars.” A purchase is a revealed preference: it justifies the inference that the consumer chose the bundle of characteristics most likely to provide the greatest utility for her money. A consumer who buys a mislabeled product lets us know that “she values most highly the product as it was promised to be – because that’s how she spent her money.”  She may discover the truth, but the manufacturer may later change its product to conform to the label—“[i]n fact, the manufacturer has every reason to do this, since the market apparently values the very attribute the label promises.”  (Well… “every reason” might be going a bit too far in the absence of regulation!) Without injunctions, consumers won’t know whether the labels are true, and will have to suspect a continuing misrepresentation, thus deterring her from spending her money in a utility-maximizing way.  While others may but, our skeptical consumer—“the person most likely to suffer future injury from this misrepresentation” – will be deprived of it.  As a result, a rule denying her standing “prevents the person most likely to be injured in the future from seeking redress.”
Defendants previously disputed whether the plaintiff’s declaration that she would consider buying properly labeled smoothie kits was enough to confer standing. The court concluded that willingness to consider future purchase was sufficient, given that the harms avoided by the litigation are not just the harms of buying or using a misleadingly labeled product, “but also the harm of being a consumer in the marketplace who cannot rely on the representations made by Defendants on their product labels. Without injunctive relief, Lilly could never rely with confidence on product labeling when considering whether to purchase Defendants’ product.”
In addition, a requirement that a plaintiff articulate a definite intent to buy a product sometime in the future “is inconsistent with the realities of consumer purchase decisions. Consumers make decisions in a dynamic marketplace, based on all the information available to them at the time of purchase, including the other similar products then available and all other potential uses of the funds available to make the purchase at issue.” A plaintiff can’t really know what the competing uses for her money will be sometime in the future, what new products may emerge, or what her tastes may be.  “Nonetheless, injunctive relief enables the Plaintiffs and other consumers to have confidence that the information they receive about the challenged products at the time of purchase is accurate.”  Lilly’s statement of willingness was therefore enough.
Under the stipulated injunction, Jamba Juice would relabel the products so that they didn’t use “all natural” on packaging or other advertising, including websites, but would not be required to remove or recall existing products or packaging in inventory or on the market.
The Ninth Circuit strongly favors settlement.  Settlement requires a preliminary determination of acceptability on the merits of the settlement and, if the class action settled before class certification, the propriety of certifying the class. Where the parties reach a class action settlement prior to class certification, courts “must be particularly vigilant not only for explicit collusion, but also for more subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations.” Preliminary approval of a settlement is appropriate if “the proposed settlement appears to be the product of serious, informed, non-collusive negotiations, has no obvious deficiencies, does not improperly grant preferential treatment to class representatives or segments of the class, and falls within the range of possible approval.”
The court so found here.  The settlement was both procedurally and substantively fair.  The court’s certification order indicated that plaintiffs faced substantial obstacles to obtaining classwide monetary relief, but otherwise showed that class treatment was appropriate. They just hadn’t shown that common questions predominated for the purposes of determining damages, because they failed failed to present a damages model.  In light of the difficulty of establishing damages and the relatively small amount of money individual class members could get, the difficulties of further litigation supported a conclusion that the settlement was substantively fair. The consumer protection purpose of the class action mechanism was “partially vindicated” by this settlement, which would help future consumers.
Notice to absent class members was not required because settlement class members didn’t release any monetary claims for mislabeling. Rule 23(e)(1) states that “[t]he court must direct notice in a reasonable manner to all class members who would be bound by the proposal.” Membership in a Rule 23(b)(2) class is “mandatory,” as “[t]he Rule provides no opportunity for (b)(1) or (b)(2) class members to opt out, and does not even oblige the District Court to afford them notice of the action.”  The court reasoned that “the key question in determining whether notice is required is ‘whether the rights of absent class members were compromised in any way.’” Because class members retained their right to sue for damages, but wouldn’t be able to opt out of the injunction no matter what, the court concluded that no notice was required.

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