Consumer Class Actions panel at the ABA

Buy This All-Natural Product and Become Stronger, Healthier, and Sexier: The Latest in False Advertising Consumer Class Actions

Moderator: Patricia E. Lowry, Squire Sanders US LLP

Aashish Desai, Desai Law Firm, P.C.

Dukes and Concepcion made plaintiffs’ lives much harder.  As long as companies don’t make you sign an arbitration agreement when you buy shoes or toothpaste, that will be a focus—people have migrated to the consumer class action.

Janine L. Pollack, Milberg LLP

Given the recession, advertisers are pushing the envelope.  The balance is strained now.  Plaintiffs’ lawyers have started to realize there are promises being made by ads that can’t be fulfilled.  FTC has stepped up to the plate and getting more active. Gov’t intervention spurs private attorneys. Securities cases are also getting harder, causing people to migrate to advertising. Lower barriers to entry.

Robert J. Herrington, Greenberg Traurig LLP

Explosion in past 2-3 years.  Defense perspective: attributing rise to (1) increased regulatory focus from a number of agencies, esp. FTC pushing companies more. More warning letters. Plaintiffs’ bar tracks those letters. Can draw a class action in days.  (2) P’s bar has become more sophisticated in looking at FDA regulations.  Some regs are difficult to comply with. California: P’s bar has been able to use the UCL to enforce the regs.  (3) Concepcion is a huge driver.  Some sophisticated companies are trying, but it’s difficult to get an enforceable class action waiver on a consumer product purchased at the retail level.  Because of the challenge, products at the retail level—not over the internet, because that’s easier—are easier pickings.

Desai: should we have a lawyer when we buy dental floss?

Herrington: ours have very clear language.

Pollack: easy to understand, but unenforceable!

Timothy G. Blood, Blood Hearst & O’Reardon LLP

Aging population, people trying to take care of themselves healthwise. Also track the bad economy. Marketing people will say anything to sell the product; that’s their job.  In house constraints are the downers.  In a soft economy, especially in a mature market like food where you’re grinding out every tenth of a point, marketing folks win more battles.  Other factors contribute, but these companies are victims because they made themselves so.

Desai: E.g., lose 30 pounds with diet or exercise by sprinkling powder on your food.  Toning shoes.  One case: lose 10 pounds in 48 hours!  Another promised 5 pounds in 24, if you were too lazy for two days.  One case: coconut water—life enhancing with mega-electrolytes.  “All natural” cosmetics. Pomegranates make you live forever. When companies make these claims, no one is watching over them. And once one starts, e.g. toning shoes, the others feel they have to fall in line. You’d think consumers would know better, but they don’t.

Q: are companies thinking they’ll make money and then settle a suit?

Blood: No, they’re not planning to stop—they’re just ignoring the lawyer. But eventually companies get more sophistitcated.

Pollack: once the message is out there, you can’t unring the bell. They figure: we got the message out for a year.  If we have to change the ad a bit, the math still works out!  Everyone now knows about toning shoes—she still sees people wearing them.

Lowry: are these actually being certified?

Blood: yes.  Prototypical class actions.  Consumer fraud was the type of case said to be readily certifiable when Rule 23 was promulgated. One singular uniform representation; then a question of science—is it true or not—a generalized question. Prone to certification even after Wal-Mart v. Dukes.  Supposed to be defense-side case, but he cites it all the time, because it reminds the Ps bar of what you’re supposed to focus on. In the past, the way to defeat class actions was the snowflake analogy: every snowflake/consumer is unique and different. Wal-Mart pulls back and says we look at big issues with answers to common questions. You don’t look at snowflakes to answer the big question: did it snow last night? Discovery is early; when you get to the certification stage, you’re just about ready to have a trial.

Kara L. McCall, Sidley Austin LLP

Views Dukes differently: forces meat behind allegations. Can’t ignore the merits.  Look at how named P will prove the case and whether evidence will apply to every single class member.  Look at merits to see how you’ll prove every element of every claim. Discovery is also huge.  Everyone is reviewing what kind of discovery has to take place. Ds have always argued it should be limited; only discovery necessary to decide certification. But case management conferences now feature Ps saying under Wal-Mart I need lots of discovery to prove my case!

Also, the issue of using experts: what kind of Daubert analysis a court is supposed to conduct.  SCt expressed doubt as to 9^th Cir.’s opinion that Daubert didn’t need to be done, and lots of courts have taken that to court.  Claiming that they can prove classwide damages shouldn’t be taken at face value—take a deposition; courts should decide whether expert has a methodology that will allow classwide damages.

Pollack: Comcast—obviously, she loves the dissent. Ginsburg says the case is limited to these facts; litigants didn’t have the chance to answer the Q the Court ultimately decided.  What’s happening is that all the costs are shifted a lot sooner, trial-ready at the certification stage. This may be bad for everyone; Ps no longer have bifurcated discovery because they have to do the deep dive early on.  There’s no longer a basis to resist that. Experts are now lined up at the certification stage. Spending a ton of money a lot earlier than they used to. That has goods and bads.  Great to get in charge of facts much earlier, but higher investment; trial-ready at cert. stage. Scalia is chipping away at the class mechanism when he can, but there’s still good out there.

McCall: damages is back into the class certification discussion.  Individualized damages doesn’t preclude certification—but that just means that the number at the end of the day may differ, and you still need a classwide methodology.  Does that help with product price?  Yes, because price can differ dramatically depending on place of purchase, methodology.  Ds job is to develop record—nobody ever has receipts.

Blood: Comcast—P had four theories of damage, and goes to SCt on one.  In an antitrust case, if not everybody suffered injury, that makes a classwide damage model difficult.  Reminds us that the issue is whether the issue can be tried classwide. For consumers, it’s different. Basically strict liability statutes in many states.  If reasonable person deceived, people get their money back. So you just need to show a methodology that works classwide.

Q: how do you find the class members?

Blood: technically not an ascertainability issue, which is whether there are objective criteria for being members of the class; you don’t have to actually locate them.  If they bought, there.

McCall: Standing issue—may include people who didn’t read the label.

Herrington: plenty of these plaintiffs lie about whether they bought the product, and we have the right to challenge that for each and every class member.  How do you cross-examine a claim form?

Desai: then you could never have a class action. [This was my immediate reaction!]

McCall: not in this context, no!

Blood: nationwide class actions are still possible.  Mazza is just a choice of law decision.  It changed the landscape because it’s a recent 9^th Circuit case. But the more you push Mazza, the less there is. They announce a rule, skip over the analysis, and reach a conclusion, but they don’t overturn existing Cal. choice of law rules. Ps have to be more careful than in the past.  Ps were terrible (and Ds too) in analyzing choice of law in the past because it was a lot of work and took lots of pages, but you have to do it and have to do it correctly. A lot of post-Mazza district court cases say they comply with Mazza and still allow possible nationwide class.

Defendants won’t be happy: now Ps bar is focusing more on multistate classes. Why fight so hard for Wyoming and Utah?  Who cares?  Take laws that are readily, easily on their face similar—California, NJ, maybe NY and Pa. and Florida—that’s effectively nationwide without the trouble of states that don’t add much to the mix and create tremendous issues.

Q: will you sue in companies’ home states?

Blood: it’s always been part of the mix.  Where a state has the old Restatement test, you will never get a nationwide class.

Pollack: if the D bar is so bent as keeping it as single-state class, aren’t you encouraging us to go file in multiple states? Isn’t that inefficient?  Maybe just 6 states.

Herrington: the bar for entry into consumer class actions is also going up.  Some firms have the wherewithal to do a case right, but there are plenty of garbage cases that you can make go away if you create enough problems.  In terms of the lesson for today: the Ps bar and the Ds bar are likely to see better lawyers and cases as the SCt ratchets up the bar for class action.

Q: how do you minimize risks? Voluntary refunds/recalls.

McCall: Best thing is to be proactive on substantiation and claims made. Give and take between marketing and R&D/nutrition. Can’t stress enough that there must be careful, thoughtful, constant review of claims and underlying science. Focus on one claim makes it easier for Ps so also think about diversifying message. Consumer research is a double edged sword. If you have research showing that people take away multiple messages or rely on their doctors instead of labels, that’s great, but if your research says “this is the biggest motivating claim” you have an issue. In house counsel should make sure to control market research, what kinds of questions are being asked, what’s being tested. Make sure it’s privileged (at least the discussion about whether it should be done).

Voluntary refunds: interesting body of case law discussing whether recall/refund affects Rule 23 in terms of superiority. Several courts have said that it does as another method for adjudicating the controversy. 7^th Cir. has said it’s not a method of adjudication, but said that Ps counsel bringing the case when a robust refund program is in place makes them question adequacy, since the transaction costs of litigation v. refund are so much higher.  Check your jurisdiction.

Q: offers of judgment, recent FLSA case?

Blood: Won’t have an impact. Justice Thomas goes out of his way to distinguish FLSA from class actions.  Pickoff situations: most judges don’t like it. Feels sleazy.

Desai: in California, that won’t insulate you from a state law claim. Anyway, when you buy off someone in a labor case, that tends to foment more litigation by other employees; that comes with the statutory atty’s fees in a FLSA case. So he thinks these cases are not broad as the media would have you believe.

McCall: Picking off just doesn’t work in the 7^th Circuit if you’ve already filed for certification.  Good lawyers immediately file for cert. with the complaint, so that won’t help if there’s a good lawyer on the P’s side. We think about it all the time because it doesn’t hurt when you have a multimillion-dollar class action.

Lowry: talk about settlements!

Pollack: cy pres. Whatever’s left over, to be given to a charitable cause. Some judges have taken a more active role in policing a link.

McCall: Kellogg: donation to food bank wasn’t enough; a consumer protection case should go to consumer protection groups. That makes Ds nervous because some consumer protection groups are connected to consumer protection lawyers.  No longer can you wait to determine the group later; has to be determined as part of settlement negotiations.

Blood: interesting how aggressive the 9^th Circuit has been; other circuits don’t care. Kellogg was a good settlement—a pool of cash, for a consumer protection organization to be named later, which makes sense because we didn’t know how much money would be left over. Makes no sense to give $1000 to each of 5 organizations, nor $5 million to one organization with a $500,000 budget. 9^th Circuit ignored the cash part of the settlement, oh well. We chose Feeding America (he was on the receiving end of the decision) because more than half of the indigent in the US are kids and the case was about kids’ nutrition. Other cases, like the Facebook case—goes the other way with a sensible, creative way of spending the cy pres money.

Parties used to work really hard on class notice and distribution.  Now most of the settlement time is spent on the cy pres recipient!  D won’t be willing to give $ to Center for Science in the Public Interest, which goes after food Ds all the time, even though it’s the best recipient.

Experian case from 9^th Circuit: weird and shocking. Had a settlement with a provision that says a class rep will get $5000 provided they don’t object to the settlement.  That’s a standard settlement agreement. D lawyers add a bunch of provisions requiring class reps to support the settlement. These are innocuous to practitioners; never create an issue. If some class rep didn’t like the settlement, no such provision has ever stopped a class rep from complaining.  It’s just miscellaneous garbage.

But the 9^th Cir. thought they were terrible. Look back at all your agreements & forms and get rid of such provisions! No upside and now a downside.

Q: talk about Skechers/Reebok/toning.

Pollack: We filed cases before the FTC acted, though the FTC was looking into them (we didn’t know that).  We worked with the FTC to bring injunctive and monetary relief to the class. Filed the complaints and entered into settlement talks. FTC wanted the private suits to be the mechanism of delivering relief, and were able to get very substantial refunds.  Reebok & Skechers, about $50, which was substantial. Skechers was the largest FTC settlement ever. Helpful because of FTC’s big splashy publicity—got 200 claims/minute, crashed the FTC website.

Blood: savvy defense lawyer informed Ps of FTC investigation.  Investigation is confidential; typically do sue and settle all together. FTC can’t talk about investigation w/out subject’s permission. Lawyer had developed a certain level of trust w/Blood and talked about it.  New for FTC to work with class—great for the class because of the free publicity getting participation; it is usually expensive to find class members.

Pollack: no professional objectors at all. 

Blood: one half-wit who stumbled into it, and he walked away without money.

Pollack: true—some tried but withdrew. Very clean hearing.

Q: substantiation?

Desai: Claim substantiation is a very powerful theory, based on FTC standards.  Standard isn’t just “we think it”; can require certain kinds of tests.  He had one case where someone paid for a 30-person test and market research and said that proved the product caused weight loss.  Our claim: we are not acting on behalf of the FTC, but litigating under the UCL. We aren’t saying we need the same level of proof, but rather saying that under California (as well as NY and some other states) law the standard isn’t deception but rather “likely to deceive,” a much lower standard, and that’s where we try to get in this idea of lack of substantiation.  (Ok, I think I see the conceptual disconnect here.  Ps really need to be making the Lanham Act move of identifying the necessarily implied claim of substantiation--which is a straight-up false message received by a consumer as a result of her receipt of the explicit scientific-sounding claim--rather than just saying the scientific-sounding claim is unsubstantiated.  This is an argument with a pedigree and a lot of caselaw behind it!)

Herrington: Hughes v. Ester-C: a product that provided vitamin C.  One of the best summaries of the law of substantiation and whether a consumer fraud claim can be stated and what the motion to dismiss standard is. Basically: substantiation isn’t a private cause of action. Also Bronson v. J&J. Court looked for a study that the P could cite in the complaint that contradicted D’s claim. If you have that, you can survive motion to dismiss.

Eckler v. Wal-Mart, Equate. Substantiation isn’t enough. Can state a claim using a specific scientific study contradicting D’s claim.  P there had 10-12 studies where one of the ingredients, glucosamine, was studied, and the court did a detailed analysis and rejected the complaint under Twiqbal because the studies didn’t study D’s product which had other ingredients—kind of amazing on a motion to dismiss. Great defense case.

Chavez v. Nestle, 9^th Cir.: Juicy Juice brain development: dct dismissed as lack of substantiation claim.  Court of appeals reversed, 2-1.  P is essentially alleging that there’s so little DHA in the product that, even if DHA works, a kid would have to drink too much to count, and that’s enough to state a claim. Dissent says, giving guidance to defense: this is a prior substantiation case on its face. Majority opinion is dishonest because there’s enough DHA in the Juicy Juice product to say it has DHA; does not claim that it’s all the DHA the kid needs, just that it helps with brain development.

Desai: old fashioned UCL claim.  P’s bar should start thinking about RICO. You don’t need direct evidence of reliance in a RICO case, so you don’t need that to certify and would also help with Mazza because no choice of law.