Friday, May 30, 2014

a twist on substantiation claims in consumer protection cases

In re Bayer Heathcare and Merial Ltd. Flea Control Prods., --- F.3d ----, 2014 WL 2209024 (6th Cir. May 29, 2014)
In this multidistrict litigation, the district court dismissed the claims after limited discovery, and the court of appeals affirmed. 
Defendants claimed that their flea control products dispersed over pets’ bodies via the skin/hair after being applied to one area.  To streamline the case, the district court framed it as turning on a single issue—whether these claims were substantiated.  Defendants had the initial burden of producing studies to substantiate the claims, and then plaintiffs would have to show that the studies were unreliable, inaccurate, or incomplete.  The plaintiffs agreed to this case management plan, but then sought discovery on additional issues.  The district court denied most of those request and granted summary judgment to defendants.
Defendants submitted several studies, including a peer-reviewed study which applied Bayer’s product on dogs, and tested dog hair and skin samples for distribution of the product’s active ingredient and a doctoral dissertation that topically applied Merial’s product on dogs, and tested dog hair samples for distribution of the product’s active ingredient.  Plaintiffs submitted their own studies.  The district court concluded that defendants had a good faith basis for their claims; the parties failed to reach settlement and defendants weren’t interested in commissioning a neutral study as the district court suggested.  The district court then allowed discovery into consumer complaints, on the theory that evidence that the companies had received a large volume of consumer complaints would call into question Bayer and Merial’s good faith reliance on their studies.  After that came the summary judgment ruling. 
The court of appeals first affirmed reliance on the case management plan, which treated the case as having only one dispositive issue, and its associated discovery limits, to which the plaintiffs agreed. “[A]lthough they gave up discovery and some of the claims in the case, they got something in return. They no longer shouldered the initial burden of disproving the defendants’ advertisements; the defendants instead shouldered the initial burden of substantiating them.”
Then the court of appeals agreed that defendants met their burden, and plaintiffs didn’t successfully refute their studies.  Plaintiffs argued that their studies showed the presence of the products in animals’ bloodstreams, “which when considered in isolation might suggest that the products spread internally rather than by translocation.”  But the study also detected active ingredients in the pets’ hair twenty-four hours after application. Plaintiffs’ study asserted that its protocol was superior to the protocol used in Bayer and Merial’s studies, but it did not attack the basis of Bayer and Merial’s studies.  At best, this was a conflict, but that didn’t meet plaintiffs’ burden of showing that defendants couldn’t rely on their own studies in their advertising.  More than mere assertion that defendants’ studies weren’t as good was required.  “By requiring the plaintiffs to submit studies that demonstrated why Bayer and Merial’s studies did not provide a good faith basis for their claims, the district court was able to avoid a ‘battle of the experts’ and the attendant costs, which was another objective of the case management plan.”
Plaintiffs argued that the truth of the claims was at issue, but “if veracity was the central issue in the case, one would expect the plaintiffs to bear the initial burden of showing that Bayer and Merial’s claims are false.” Instead, the central issue was whether the plaintiffs could cast doubt on Bayer and Merial’s good faith basis for their advertising claims through expert studies.  “The plaintiffs’ studies did not attack the basis of Bayer and Merial’s studies; they merely asserted an opposing conclusion.”   
Comment: I would think that expert analysis of the defendants’ studies, not (or not just) conflicting studies would be required; otherwise there is, as the court of appeals says, just a disagreement, not an explanation of which is better.  The court's discussion of the plaintiffs' burden suggests that this is true, even though some of its language could be read as requiring plaintiffs to submit studies of their own.  Since plaintiffs failed to show that Bayer and Merial’s studies were unreliable, inaccurate, or incomplete, summary judgment was appropriate.
The court of appeals also rejected the plaintiffs’ argument that the defendants’ studies were never subjected to Daubert analysis because this argument was raised for the first time on appeal.

Thursday, May 29, 2014

Regression analysis is a plaintiff's best friend

Werdebaugh v. Blue Diamond Growers, 2014 WL 2191901,  No. 12–CV–2724 (N.D. Cal. May 23, 2014)
I’m going to try, with probably limited success, to summarize results rather than reasoning for most of this consumer class action case in which certification of a California class was granted, and focus on the interesting damages model bits.  Werdebaugh sued Blue Diamond for listing the sweetener on its almond milk as “evaporated cane juice” instead of sugar, and using “All Natural” when in fact the products allegedly contained synthetic ingredients.

Werdebaugh had standing to bring his claims for damages, but not for injunctive relief.  His deposition testimony clearly showed that he wouldn’t have bought Blue Diamond almond milk had he known about the alleged misbranding, which sufficed.  He testified that he was unfamiliar with the product, but “the ‘all natural’ label stood out” to him. He “stood at the shelf and saw this packaging and picked it up, read the labels, and made the purchase,” and the “all natural” label was a substantial reason why.  Werdebaugh further testified that he was concerned about seeing “evaporated cane juice” on the ingredients list, but did not know that it is “the equivalent of table sugar.”
Blue Diamond argued that it was implausible for Werdebaugh to believe that the products didn’t contain added sugars, since the nutrition facts panel that the almond milk contained 20 grams of sugars, and anyway he didn’t know what “evaporated cane syrup” or “dried cane syrup” was either so his purchase decision wouldn’t be affected by using those terms either.  The court disagreed.  The ingredients wouldn’t necessarily have indicated the presence of added sugars; Werdebaugh testified that he thought the 20 grams of sugar in the product he purchased was not added sugar, but rather was “an actual squeezed element of an almond that naturally occurs.”  Though he testified that “dried cane syrup” wouldn’t have affected his purchase decision, that just showed that he didn’t know what it was.  He’d still introduced sufficient evidence of reliance on both statements.
Ascertainability: not a problem, especially limited to a California class.  The class was defined based on objective criteria, and that was enough.
Numerosity: but of course.
Commonality:  Blue Diamond argued that what’s material varies from consumer to consumer.  “The law is to the contrary…. Whether Blue Diamond’s label statements constitute material misrepresentations does not depend on the subjective motivations of individual purchasers, and the particular mix of motivations that compelled each class member to purchase the products in the first place is irrelevant.”  Blue Diamond also argued that the allegedly deceptive labeling statements were not specifically regulated and, therefore, were not material, since the only official guidance came from “non-binding FDA policy statements.” But at this stage, the only question was whether materiality was a common question.  Finally, Blue Diamond argued that “All Natural” had no common definition and thus was not susceptible to common proof.  But cases using that reasoning generally involved representations that differed for each class member, such as representations made by doctors prescribing drugs. Here, the alleged misrepresentations were the same to each calss member, so the objective inquiry into whether “a reasonable consumer would attach importance” to Blue Diamond’s label statements was a question common to the class.  And, unlike the Astiana case cited by Blue Diamond, where over 90 different products with different ingredients and different ad campaigns were challenged, Werdebaugh was only challenging seven products, all based on their inclusion of the same ingredient (potassium citrate).  Blue Diamond didn’t contend that differences in its products’ labels would cause prospective consumers to understand the representations differently.
Typicality: Blue Diamond objected to including products Werdebaugh didn’t buy—he only bought Blue Diamond Almond Breeze Shelf Stable Chocolate Almond Milk.  But every other product included in the class definition was an almond milk product, and each bore one or both of the same misbranded label statements. They were different flavors, but the legal theory was identical for all claims. That’s typicality.
Blue Diamond then argued that Werdebaugh’s claims were atypical because he didn’tread or review the back label, which contained two of three “All Natural” statements.  But Blue Diamond didn’t persuade the court that he needed to read and rely on all alleged misrepresentations; even if he didn’t read two repetitions of “All Natural,” “he read the third, and Defendant provides no reason to distinguish between the three statements.”  Reading it on the package once was enough for typicality.
Nor were defenses unique to Werdebaugh likely to become the focus, since under California consumer protection law “individual experience with a product is irrelevant” because “the injury under the UCL, FAL and CLRA is established by an objective test.” Regardless of his particular motivations for purchase, “he shares with the proposed class the same interests in determining whether Blue Diamond products were deceptively advertised and labeled.”
Adequacy: yep.
Predominance: not for a nationwide class per Mazza, but for a California class.
Blue Diamond then argued that there was no predominance because Werdebaugh hadn’t identified an appropriate damages model, an argument the court analyzed in detail.  An appropriate damages model under the Supreme Court’s recent Comcast ruling must measure only damages attributable to the defendant’s conduct.
Restitution was available under California consumer protection law to compensate the purchaser for the difference between a product as labeled and the product as received.  For this, Werdebaugh needed a damages methodology that could determine the price premium attributable to Blue Diamond’s use of the labeling statements “All Natural” and “Evaporated Cane Juice.” 
The court rejected a full refund model, because it was wrongly based on the assumption that consumers receive no benefit whatsoever from purchasing the accused products.  
Then, the court turned to Werdebaugh’s expert’s price premium model, which compared the price of the accused products to allegedly comparable products without the challenged statements and calculated the entire price difference as restitution.  The court also rejected this model. “[The expert] has no way of linking the price difference, if any, to the allegedly unlawful or deceptive label statements or controlling for other reasons why allegedly comparable products may have different prices.”  The comparison product (a Whole Foods house brand) itself included the objectionable ingredient potassium citrate; the label listed “organic evaporated cane juice” as an ingredient until 2013; and the alternative was currently priced the same as the challenged Blue Diamond version at Whole Foods stores in San Francisco and Palo Alto. Werdebaugh’s deposition testimony also indicated that consumers typically pay a premium simply by buying from Whole Foods, which the model didn’t account for.  The price premium model just calculated what the price difference was, without tying it to a legal theory; it didn’t account for factors that might lead consumers to prefer Blue Diamond over “other identical products.”  These factors could include “brand loyalty or quality differences between brand and generic products.”  (If they’re identical, why the brand loyalty?)
However, a regression model saved the day (or ruined it, if you’re Blue Diamond).  By controlling for commonly recognized factors associated with sales—“price of the product, prices of competing and complementary products, income, advertising, seasonality, and regional differences”—as well as by taking into account differences in sales of the products before and after the “All Natural”/“evaporated cane juice” labeling, a more precise measure of damages could be calculated.
Blue Diamond argued that this model would raise individual issues not subject to common proof because consumers experience price variation across “products, sales channels, retailers, geographic regions, and time.”  For example, “the price for the top selling shelfstable Blue Diamond almondmilk product in 2012 varies by 26% across sales channels, by 31% across the top three retailers, and by 40% across cities in California.” But that’s kind of what the regression controls for, and Blue Diamond didn’t explain how these differences would affect the measure of damages—“price changes within regions that correspond to the introduction and/or removal of the allegedly misleading label statements.”  Even if a carton costs $4 in San Francisco and $3 in Sacramento, that wouldn’t necessarily affect damages—the price might have risen by a constant amount or by a percentage, but either way it could be calculated classwide.  (This would also be easier with a class limited to California instead of nationwide.)  If Blue Diamond introduced evidence that the price increase attributable to the allegedly false labeling would be 20% in San Francisco and 2% in Sacramento, the model might well fail under Comcast, but Blue Diamond didn’t explain why that would happen.
Blue Diamond also argued that retail prices varied and that it didn’t set retail prices, and that using a weighted average price measure would undercompensate some consumers and overcompensate other, but that didn’t address the way the model purported to measure price changes from the allegedly false advertising.  The model controlled for regional differences.  Comcast doesn’t require calculations to be exact, only that a model supporting a damages case has to be consistent with the theory of liability, both at certification and at trial. Even with regional differences, the regression model was sufficiently precise under Comcast, and could control for non-liability-producing factors.
Blue Diamond said that the methodology was too vague, but at this stage what is needed is a workable model, not necessarily a model that actually works. “Comcast did not articulate any requirement that a damage calculation be performed at the class certification stage,” so the fact that the expert had yet to actually run the regressions and provide results, and would need discovery to do so, wasn’t necessarily fatal.  Blue Diamond couldn’t succeed by attacking the specific variables of the regression the expert posed, if the tool of regression analysis itself was appropriate, as it was.
Superiority: yep.

Wednesday, May 28, 2014

publicizing a falsely obtained injunction can be false advertising

Peek v. Whittaker, 2014 WL 2154965, No. 2:13–cv–O1188 (W.D. Pa. May 22, 2014)
The court sets the stage: “This case is the latest skirmish in the on-going battle between two carpet-cleaning rivals, and is the federal court spill-over of their hotly-contested Pennsylvania state court lawsuit.”  Extremely briefly: Whittaker and his company sued Peek (et al.) in state court.  Peek’s coventurers were former Whittaker employees, and Whittaker initially obtained a preliminary injunction against Peek, which Whittaker then disseminated in the carpet-cleaning world.  When discovery had taken place, the state court dismissed trade secret claims against Peek as without foundation (and dismissed claims for violation of restrictive employment covenants because they had by then expired).
Among other things, Whittaker’s computer expert at the state-court PI hearing testified that Stephenson, one of the state-court defendants, had connected hard drives to Whittaker’s computer network that were capable of downloading all the information in Whittaker’s customer databases.  Plus, Whittaker argued that the state-court defendants were attempting to use chemical formulas for carpet-cleaning fluids, and the identity of the manufacturer of those fluids, which were trade secrets, as was the identity of Whittaker’s equipment manufacturer (with which the state-court defendants had discussions).  On this basis, the state court granted a PI on the grounds that the state-court defendants “engaged in a conspiracy to unlawfully utilize confidential information and trade secrets obtained while [state-court defendants] Stephenson and Offutt were employed by [Whittaker Co.] and use this information to the advantage of all defendants by engaging in a business competing with [Whittaker Co.].”  The PI was appealed and affirmed.
After substantial discovery, the same judge dismissed the state-court complaints, finding “no evidence that any defendant obtained a compilation of [Whittaker Co.’s] customers and customer data.” As it turned out, Whittaker admitted that Stephenson’s laptop didn’t have any access to the customer databases.  And those external drives contained nothing that could be “considered to be trade secret or confidential,” nor did anything else he took.  The identity of Whittaker’s fluid manufacturer was well known, not a trade secret, and the formula belonged to the manufacturer, not to Whittaker, which didn’t even know the formula.  With no evidence of any trade secret misappropriation, the complaints failed; the state-court judge observed that “the record presently before the [c]ourt is much different that [sic] the record upon which the [c]ourt relied in issuing its preliminary injunction.”
Peek (et al.) then sued in federal court, alleging that the initial state-court claims were knowingly false when made.  Peek also alleged that Whittaker sent copies of the PI as soon as it was issued to third-party carpet manufacturers and customers to persuade them not to do business with Peek, and successfully persuaded the fluid manufacturer not to sell to Peek’s company.
The court sustained plaintiffs’ Dragonetti Act (codified claim for abuse of process) and common-law abuse of process claims in part.  While there was probable cause to proceed on the anticompete clause in the relevant employment contracts—there was evidence that a former employee did seek to breach his agreement, and so the Dragonetti Act claim based on the lawsuit against him failed—that didn’t make all the state-law claims immune.  The other plaintiffs (Peek, never an employee, and the company Peek formed) could still proceed, since all of Whittaker’s claims against them were based on trade secret/misappropriation allegations.  And those were the ones that allegedly always lacked probable cause.  The complaint also sufficiently alleged an improper purpose, interference with plaintiffs’ ability to establish a competing business.  Because the legal analysis differed a bit with the common law abuse of process claim—the question was whether the legal process in question was used “primarily not exclusively to achieve a goal unauthorized by the procedure in question”—even the existence of probable cause wasn’t enough to defeat it, even as to the former employee.
Lanham Act false advertising: “While Plaintiffs’ claim may not be a textbook Lanham Act cause of action, the Court has not found, nor been presented with, any case law suggesting that Section 1125(a) contains any sort of prohibition or limitation that would preclude this false advertising claim.”  Plaintiffs alleged that defendants’ knowingly false statements about their own products—that they, and information about their origin and manufacture, were trade secrets that had been misappropriated—were the basis for the PI.  Defendants then publicized the PI, which included factual recitations based on these allegedly false statements, to customers and third party businesses.  Plaintiffs further alleged that this dissemination did in fact deceive recipients and influence their purchasing decisions.  Though Section 1125(a) does not have “boundless application,” this was plausibly “the type of unfair trade practice contemplated by the text of the statute.”   
Comments: (1) For once, I don’t see a Dastar problem, since the falsity wasn’t in the claim of origin but the claim of trade secrecy; even if you don’t think that’s a statement about the characteristics of defendants’ goods/services, it does seem to be a statement about plaintiffs’ commercial activities, also covered. (2) Interesting interactions here with the line of cases saying that "we sued X for patent infringement" isn't generally actionable as false advertising.  By sticking so closely to abuse of process, plaintiffs seem to have avoided that caselaw.
State law unfair competition claims, which tracked the Restatement (Third) of Unfair Competition definition, also survived.  Here the Restatement does require statements about the actor’s own goods, services, or commercial activities, but the court considered this “nearly identical” to §43(a)(1)(B) anyway.
The fraud claim was dismissed because plaintiffs themselves didn’t receive the misrepresentations or rely on them.  Under Pennsylvania law, the plaintiff must be the one who detrimentally relied to bring a fraud claim.
The court ended by reiterating that it was taking the facts as alleged in the light most favorable to plaintiffs; all depends on factual development, which if history is any indication will be extensive.

Green (yellow) marketing: nonprofit's claims against Chiquita survive

Water & Sanitation Health, Inc. v. Chiquita Brands Int’l, Inc., No. C14–10, 2014 WL 2154381 (W.D. Wash. May 22, 2014)
Chiquita buys millions of pounds of bananas per year, including from a company named COBIGUA in Guatemala.  Chiquita made a number of claims about its environmentally safe business practices, “including, among others, that it protects water sources by reforesting all affected natural watercourses, using solid waste traps at all packaging stations to keep rivers and streams clean, and planting cover crops in all drainage ditches of banana farms rather than allowing chemical weed control.”  Plaintiff WSH is a nonprofit dedicated to providing sustainable clean-water systems to people in impoverished villages around the world.  It avoids buying food from companies that destroy such clean-water systems. 
WSH alleged that it relied on Chiquita’s representations about its environmentally safe practice, then learned that the community in which COBIGUA produced Chiquita bananas had chemicals contaminating the drinking water from large scale, mono-culture banana production.
The court first dismissed WSH’s unjust enrichment claim, which requires the defendant to know or appreciate the benefit conferred on it by the plaintiff.  Though Chiquita allegedly received at least part of WSH’s purchase money, the court found that WSH didn’t plausibly allege that Chiquita had an appreciation or knowledge of the revenue from the purchase.
The other claims fared better.
A claim under Washington’s Consumer Protection Act requires (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) that impacts the public interest, (4) that injures plaintiff in her business or property, and (5) causation.  Chiquita argued that WSH didn’t plausibly allege injury to business or property, but allegations that WSH relied on the advertising and wouldn’t have bought the bananas had it known the truth were sufficient.
Similarly, the breach of express warranty claim survived.  Chiquita argued that the complaint only speculated that the bananas WSH bought were grown in Guatemala.  But the claim wasn’t limited to the allegation that the bananas were produced in Guatemala.  Rather, WSH alleged that Chiquita advertised that it protected water sources in a number of ways across all its production.  WSH’s allegations of reliance and falsity with respect to a Guatemala site therefore plausibly alleged a claim for breach of express warranty.  So too with the negligent misrepresentation claim.
However, the claim for injunctive relief was dismissed, because WSH didn’t plausibly allege that legal remedies were inadequate.