Tuesday, April 10, 2018

Consumer class action fails for failure to survey on the exact statements challenged

Townsend v. Monster Beverage Corp., --- F.Supp.3d ----, 2018 WL 1662131, No. 12–2188–VAP (KKx) (C.D. Cal. Mar. 20, 2018)

The Ninth Circuit remanded this case on UCL, FAL, and CLRA claims insofar as they challenge four specific on-label representations of certain Monster Rehab drinks, holding that even if they weren’t strictly false, it was plausible that the statements were misleading.  The four statements were: “Hydrates Like a Sports Drink”; “Re-hydrate”; Consume Responsibly—Max 1 can every 4 hours, with limit 3 cans per day. Not recommended for children, people sensitive to caffeine, pregnant women or women who are nursing.”; and “It’s an ideal combo of the right ingredients in the right proportion to deliver the big bad buzz that only Monster can.”

Plaintiffs argued that,“[t]o the extent that energy drinks, including Monster Drinks, have any hydrating qualities, they do not hydrate like a sports drink. Sports drinks contain water, salt and sugar, and are designed to replenish the electrolytes and energy one’s body loses during exercise.” In addition, the Hydrates and Re-hydrate statements were allegedly misleading because “consumption of [Monster Rehab drinks] as prescribed on the label could cause severe dehydration because the combination of caffeine and guarana in energy drinks acts as a diuretic.” The consume responsibly/ideal combo statements were allegedly misleading because of “potential health risks associated with frequent consumption of Monster Drinks.”

Plaintiffs’ claims suffered numerous setbacks.  First, there was Stefan Boedeker, plaintiffs’ economic damages expert who conducted a consumer survey and choice-based conjoint analysis to determine how much, if at all, the representations at issue contributed to the price of the product.  However, with one exception, the phrases he tested weren’t identical to the challenged statements and thus they were unreliable/irrelevant.  He tested: (1) “Long Lasting Energy;” (2) “RE–HYDRATE to Bring You Back;” (3) “Hydrates like a Sports Drink;” (4) “Ideal Combo of the Right Ingredients in the Right Proportion;” and (5) “Safe level of consumption incorrectly specified on label” or “Safe level of consumption correctly specified on label.”

“In order for Plaintiffs to meet the Rule 23(b)(3) requirement of predominance, they must show that the same representations were specifically made to each class member. The exact wording of each statement is thus critical to Plaintiffs’ claims and class certification.”  By substituting his own interpretations for the exact wording, the expert rendered his tests unreliable.  For example, shortening “It’s the ideal combo of the right ingredients in the right proportion to deliver the big bad buzz that only Monster can” to “Ideal combo of the right ingredients in the right proportion” wasn’t just eliminating the puffery part.  Whether that part was puffery was a legal conclusion he wasn’t qualified to make, and the court didn’t accept his conclusory assertion that he’d captured the essence of the claim, since his expertise wasn’t in interpreting words and his survey didn’t measure respondents’ understanding or interpretation of the statements. Moreover, the second half of the statement was essential to understanding its meaning because it informed the consumer what purpose the phrase “right ingredients in the right proportion” serves. “Without the latter half of this statement, the consumer is left guessing whether the ingredients are the ‘ideal combo’ for energy, hydration, flavor, or any other possible attributes an energy drink might tout.”

Similarly, by adding a reason to re-hydrate—“to bring you back”—the survey became unreliable; the phrase became focused on energy rather than hydration. “[A]dding language that confuses the re-hydrates and hydration attributes with energy may be particularly critical to the analysis since Mr. Boedeker’s survey shows that the energy attribute of a drink is a much stronger market driver than the hydration attribute.”

The survey didn’t test “consume responsibly,” but rather described in broad terms the type of statement that might be on such a label by providing the options: “safe level of consumption incorrectly specified;” “safe level of consumption correctly specified;” “no information on label regarding safe level of consumption;” or nothing at all.  This analysis was untethered to plaintiffs’ theory of liability. “Comparing the price impact of a correct, rather than an incorrect, safety statement is irrelevant; only a label perceived as being correct is at issue here. Further, assigning a safety label the descriptor of ‘correct’ or ‘incorrect’ presumes that a consumer is making this determination at all, as well as potentially influencing such a statement’s weight.” And “safe consumption” was materially different from “consume responsibly.” The survey thus didn’t assess the premium paid for “consume responsibly.”

The court additionally excluded a survey that plaintiffs’ survey expert submitted in response to earlier criticisms; by providing new data including a different survey population, not just re-analysis of existing results, the survey became new evidence that needed to have been disclosed earlier.

However, his earlier survey was not inadmissible just because he didn’t ask survey participants about why they purchased Monster energy drinks; he asked only their understanding of each statement. How reasonable consumers perceive and interpret the statements was relevant to whether they’d find their truth or falsity material.  One set of conclusions was unreliable, however, because he accidentally omitted the word “bad” from the “big bad buzz” portion of the ideal combo statement, and there was no way to tell whether this made a difference to consumer responses.  The specific representations are key in false advertising cases, and, since the burden on plaintiffs was to show admissibility, they failed.

The court was equally rigorous as to defendant’s survey expert, who was qualified to opine on the reliability/design of a consumer survey about materiality, but not to opine on the quantitative analysis (which he argued produced an unrealistically large damages number) because he lacked the relevant statistical background.

The motion for class certification failed mostly because plaintiffs failed to show that a presumption of reliance was justified. The admissible parts of plaintiffs’ survey showed how respondents understood the Hydrates, Re-hydrate, and Consume Responsibly statements, but didn’t provide insight into their purchasing decisions; the survey didn’t even target people who bought Monster branded energy drinks.  [No role for common sense, apparently.]  “While a challenged statement need not be the sole or even dominant factor in consumers’ purchasing decisions, a survey needs ‘to assess whether the challenged statements were in fact material to [consumers’] purchases, as opposed to, or in addition to, price, promotions, retail positioning, taste, texture or brand recognition.’”

The conjoint analysis could potentially show materiality by determining the statements’ value to consumers. But it was only admissible as to the Hydrates claim.  And plaintiffs didn’t show that the Hydrates statement had a common meaning.  The survey asked “What does the statement that Monster Rehab is a ‘... triple threat that quenches thirst, hydrates like a sports drink, and brings you back after a hard day’s night’ mean?” and “Does the statement that Monster Rehab Energy Drink ‘Rehydrates’ or that it ‘... hydrates like a sports drink’ say or suggest that Monster Rehab has the same level of electrolytes as a sports drink?” But no question showed how consumers understand the Hydrates statement alone.

Consumers’ responses also didn’t support the deceptiveness theory.  For the first question, 24.2% of respondents stated they understood the statement to mean “energizes;” 24.2% said “rehydrates/aids rehydration;” 15.9% stated “thirst quenching;” 5.1% replied “electrolytes mention/additives;” and 47.8% provided miscellaneous responses. Plaintiffs’ misleadingness theory, that the Monster product does not contain electrolytes like a sports drink, was only mentioned by 5% of respondents.  Also, their answers didn’t support any single common understanding of the Hydrates statement across the class; “this indicates that claims related to this statement require an individual inquiry.”

In response to a specific question asking consumers to compare the electrolyte content of a sports drink versus a Monster Rehab Energy drink, 80.6% of respondents stated that Monster Rehab definitely or probably has the same amount of electrolytes as a sports drink. Still, the court considered the unprompted responses more important, and also it was unclear whether the Re-hydrate statement or the Hydrates statement led consumers to this conclusion. Answers to the open-ended questions indicated that electrolytes were more often associated with the Re-hydrate statement than the Hydrates statement.  

Nor did plaintiffs show that the Hydrates statement was material to all class members. When their survey expert asked in an open-ended format why respondents chose defendants’ energy drinks as opposed to another brand, so few respondents listed hydration as a purchase driver that he didn’t it as a quantifiable reason. Even when respondents were prompted, only 25.2% of respondents selected hydration as a purchase motivator.  In Boedeker’s survey, only 7.3% of respondents selected the Hydrates statement as a factor in their purchasing decision, out of a list of 16 attributes.  Thus, plaintiffs didn’t show the existence of a common answer to the question of whether a reasonable consumer would consider any of the challenged statements a material misrepresentation.

Plaintiffs also didn’t present a damages model consistent with their theory of liability. They tried to rely on Boedeker’s model, but his survey suffered from focalism bias, “rendering it useless for the purpose of determining price premiums attributable to the challenged statements.”  In the list of 16 attributes driving purchase, respondents chose flavor most often (42.8% of respondents); then price (25.9%); then energy (25.3%); then brand (23.8%); Re-hydrates came in at 8.7% and Hydrates like a Sports Drink at 7.3%.  But in determining price premium, Boedeker examined only flavor, the challenged statements, the ingredients label, and the price.  The court agreed that presenting the claims out of context and failing to include other important attributes artificially inflated the importance of the challenged claims. The court didn’t believe the conclusion that “the attributes that ranked 8th, 9th, 10th, and 11th out of 16 attributes, with less than 10% of all survey respondents even mentioning each attribute as important to their purchasing decision, constitute approximately 81% of the value of the overall product …. At the maximum price point …, the challenged statements would constitute 52% of the value of the beverage. These incongruous results support Defendants’ complaint that Mr. Boedeker’s survey fatally suffers from focalism bias.”  Plaintiffs failed to justify the selection of attributes; the court suggested that the expert could have reproduced the conjoint analysis with different variable attributes to see if the estimated price premium is reliable, controlled for other highly-valued attributes, or tried to price these other attributes.

Finally, the failure to show that Hydrates statement had a common, deceptive meaning compounded the problem.  “In order to tie a damages model for a misleading statement to a theory of liability, a plaintiff must show that the price premium paid was for the attribute consumers believed the product contained. In other words, Plaintiffs here would have to show that consumers paid a price premium for a drink they believe contained electrolytes in order for it to align with their theory of liability.”

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