Tuesday, April 01, 2014

Knockout (fruit) punch: Pom class decertified

In re Pom Wonderful LLC Marketing and Sales Practices Litigation, No. ML 10–02199, 2014 WL 1225184 (C.D. Cal. Mar. 25, 2014)

In what defendants doubtless hope is a winning trend, the court decertified a class on the ground that it’s impossible to prove that you bought a low-value general consumer product, which means that there will be no more consumer class actions for such products (the very products for which the class action mechanism is the only direct relief imaginable) and only competitors and government regulators will be able to take action against falsehoods used to sell such products. 

Plaintiffs brought the usual California claims against Pom’s marketing of its juice products, as challenged by the FTC.  The court initially certified a damages class of all buyers from Oct. 2005 to Sept. 2010.  Pom argued that Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), changed the analysis.  In Comcast, the Court emphasized that certification requirements, especially predominance, require “rigorous analysis” that will often overlap with the merits.  It concluded that the Comcast plaintiffs’ damages model didn’t show a valid methodology suitable to class treatment, and that this prevented predominance.  The court didn’t adopt the very broad reading of Comcast urged by Pom (that the damages model must not only prove classwide damages but distinguish the injured from the uninjured and calculate the amount of individual damages).  But, applying rigorous analysis, “plaintiffs must be able to show that their damages stemmed from the defendant’s actions that created the legal liability.”

The model here fell short.  Plaintiffs’ expert used two alternatives. The first was the “Full Refund” model, assuming that consumers wouldn’t have bought Pom juices if not for the misrepresentations, resulting in a total of $450 million in spending during the class period. The court agreed that the Full Refund model was invalid because it didn’t account for any value consumers received, at least in the form of hydration, vitamins, and minerals, even if they didn’t receive health benefits.  Restitution is an available remedy, but it has to measure the difference between the value of what the plaintiff paid and what she received. Plaintiffs argued that if consumers wouldn’t have bought the juices absent the misrepresentations, a full refund would be appropriate, but that’s not how restitution is calculated. Thus, the Full Refund model couldn’t accurately measure classwide damages.

The alternative was a Price Premium model, looking for the premium over other refrigerated juices allowed by the alleged misrepresentations.  This yielded damages of about $290 million.  This model depended on a fraud on the market theory, analogizing from securities law.  “Frauds on the market are only possible in efficient markets, where the price of (in most cases) a stock is determined by openly disseminated information about a business.”  Fraud on the market affects price regardless of whether a particular investor is exposed to the misrepresentation. Plaintiffs argued that a presumption of reliance would show the existence of fraud on the market, causing damage to every consumer regardless of purchase motivation or satisfaction with the product because of the across-the-board higher price. 

The court held that the facts alleged here could support a presumption of reliance for liability purposes. But that didn’t make the damages model adequate.  A plaintiff alleging fraud on the market must show that the relevant market is efficient, but there wasn’t evidence that the market for Pom’s high-end refrigerated juice products operated efficiently.

Plaintiffs appear to suggest that, given a presumption of reliance, materiality of a misrepresentation is a substitute for market efficiency. This reasoning has some superficial appeal, as universal reliance upon a material fact might have some ultimate effect on demand and prices. If information had no effect on demand, the argument goes, it would not be material in the first instance. Efficiency, however, is not demonstrated simply by any change in price, but rather, in large part, by a change in price that has some empirically demonstrable relationship to a piece of information. In an inefficient market, in contrast, some information is not reflected in the price of an item. In such a market, even a material misrepresentation might not necessarily have any effect on prices. Absent such traceable market-wide influence, and where, as here, consumers buy a product for myriad reasons, damages resulting from the alleged misrepresentations will not possibly be uniform or amenable to class proof.

In a footnote, the court rejected the relevance of cy pres/fluid recovery; that’s a means of paying damages, not of determining the amount of damages.

Even if fraud on the market was relevant to consumer fraud claims, plaintiffs would still have to show “that their damages stemmed from the defendant’s actions that created the legal liability”: that the misrepresentations caused plaintiffs to pay a price premium.  “Without any survey or other evidence of what consumers’ behavior might otherwise have been, and after excluding a series of products for various reasons of varying persuasive power, the Price Premium model uses an average of refrigerated orange, grape, apple, and grapefruit juice prices as a benchmark.”  While the price premium might be caused by something, and health benefits could be logical, there was no survey addressing consumer motivations.  The court saw no basis to believe that fully informed consumers would choose these juices instead.  (After Pom’s FTC loss, was there any price change as the market absorbed—or didn’t absorb—the information? What’s the relevance of the fact that Pom vigorously contends even today that the FTC is wrong?) Without evidence of “the critical question why that price difference existed, or to what extent it was a result of Pom’s actions,” the expert’s reasoning was insufficient.  He couldn’t just assume that not a single consumer would still have chosen Pom over other juices if not for the deceptive ads. The court commented, though, that matters would be different for different products: “Single use products, such as, for example, an expensive pill claiming to cure baldness, likely require less rigorous methodologies and models than do consumables such as Defendant’s juices, which consumers presumably purchase for a wide variety of reasons.”  (Why expensive?  What’s expense got to do with single use?)

Separately, the court found the class not ascertainable.  Ascertainability rests on a number of factors, including the price of the product, the range of potential or intended uses of a product, and the availability of purchase records. “In situations where purported class members purchase an inexpensive product for a variety of reasons, and are unlikely to retain receipts or other transaction records, class actions may present such daunting administrative challenges that class treatment is not feasible.” So here.  Based on the volume sold, every adult is a potential class member—realistically, 10-15 million people, who probably purchased for a variety of reasons without keeping records, and the bottles/labels themselves didn’t contain the alleged misrepresentations.  “Here, at the close of discovery and despite Plaintiffs’ best efforts, there is no way to reliably determine who purchased Defendant’s products or when they did so.”

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