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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