Thursday, May 01, 2014

court certifies nationwide damages class for homeopathic products

Forcellati v. Hyland’s, Inc., No. CV 12–1983, 2014 WL 1410264 (C.D. Cal. Apr. 9, 2014)

Plaintiff sued for violation of New Jersey, California, and Missouri consumer protection laws (and breach of warranty), alleging that defendants misrepresented that their homeopathic products provide fast, safe, and effective relief from cold and flu symptoms, while in fact the products are “nothing more than sweetened, flavored water with ... highly diluted concentrations of the products’ so-called ‘active ingredients.’”

The court first found that California law could apply to everyone, given that defendants are headquartered in the state.  The burden was on defendants to defeat the presumption that California law applied, and they didn’t.  They needed to show a true conflict and that foreign states’ interests were stronger than California’s. Citing to other cases where defendants met that burden was insufficient.  Though they did identify differences in the various states’ consumer protection statutes and requirements for proving breach of warranty, they didn’t show that these differences were material.  Nor was quoting Mazza’s broad statement that “each of the 50 states has an interest in setting the balance between protecting its consumers and setting limits on when businesses may be sued for the purchase of their products” enough to show a true conflict on these facts, or any impairment of other states’ interests by the application of California law.  “[W]hile California recognizes that ‘a jurisdiction ordinarily has the predominant interest in regulating conduct that occurs within its borders,’ in a false advertising case the state from which the misrepresentation was disseminated often has the predominant interest.”  The economic injury occurred at the point of purchase, but that doesn’t mean that the predominant interest for choice of law purposes is in the state at the point of purchase.

On to class certification.  Ascertainability: While some courts have found that low-dollar purchases unlikely to leave records result in unascertainability, this court was having none of it.  Ascertainability means that the class can be defined by objective criteria, and if the class definition allows prospective plaintiffs to determine whether they’re class members.  Whether people bought the products at issue within a defined timeframe was objective, and that was enough. 

Neither class members nor defendants would have records of purchase.  Relying primarily on Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), defendants argued that class certification would be inappropriate because self-identification of a class deprived them of due process rights to challenge individual members’ claims; prevented finality because class members could later assert that fraudulent claims diluted their recovery; and made the class action an inferior mechanism because of the challenges of confirming class membership.  Given that facilitating small claims is “[t]he policy at the very core of the class action mechanism,” the court declined to follow Carrera.
First, defendants had no due process interest in how damages are distributed.  Their interest in not paying excess damages would only be implicated if aggregate liability couldn’t be reliably determined, or if they were entitled to unclaimed portions of the judgment.  Neither of these situations were present. Defendants’ aggregate liability was tied to a concrete, objective set of facts—total sales—“that will remain the same no matter how many claims are submitted.” Plus, unclaimed funds would likely be distributed under cy pres standards, given the relevant statutes’ deterrence goals. 

Second, class members would be bound by a final judgment.  Carrera said that fraudulent or inaccurate claims could lead to class members arguing that the named plaintiff wasn’t an adequate representative.  Initially, dilution of a class member’s recovery was highly unlikely as a practical matter, even assuming that inaccurate/fraudulent claims would inevitably fail to be screened out.  “The reality is the number of class members who actually file claims is relatively low.” As a result, it was almost inevitable that “any fraudulent or inaccurate claimants would merely be standing in the stead of legitimate ones, and no material dilution would occur.” Further, even if dilution might occur, there was no precedent justifying a fear that this would preclude a final judgment binding class members.  Defendants couldn’t identify a single case where a class member even challenged adequacy on the grounds that the named plaintiff “proceeded with the understanding that absent class members may get less than full relief.” In fact, “broad collateral review of the adequacy of representation (or the other due process requirements for binding absent class members) is not available.”  Adequate representation is protected by the certifying court, not by collateral review.  In addition, even if collateral review were available, there would be no basis for finding inadequacy in this case, since adequacy requires only vigorous prosecution and the absence of an insurmountable conflict of interest.  “To the extent that fraudulent and inaccurate claims might reduce true class members’ recovery, Plaintiffs’ recovery would be diluted to the same extent. They therefore share absent class members’ interest in screening out potential bad claims.”  Plaintiffs proposed a fraud analysis during the claims administration process to deal with this concern.

Third, “[t]he due process touchstone of adequacy and fairness of representation must be judged in light of” the alternatives to class treatment. The alternative here was nothing. “[A] diluted recovery is surely preferable to absent class members’ only realistic alternative: no recovery at all.”
Confirming class membership wasn’t overly burdensome and didn’t render the class action an inferior method.  “Generally, potential manageability problems during the damages phase of a class action do not defeat certification.”  Given the proposed claims administration screening, the court was confident that there weren’t overwhelming manageability hurdles, and the court retained flexibility to deal with problems if they did develop.  Though there was no “surefire” way to confirm each and every claimed purchase, this just didn’t affect defendants’ bottom line, and shouldn’t inure to their benefit.  Other 9th Circuit district court cases finding to the contrary involved an unknown number of total class members, and/or “class definitions based on imprecise, non-objective, or complex criteria such that people could not easily determine whether or not they were members.”  But generally in the 9th Circuit, “classes that are objectively defined by the purchase of a low-cost product during a prescribed timeframe are routinely certified.”

Numerosity was uncontested.

Commonality was easy: all the plaintiffs’ claims had the same fundamental premise, which was that defendants misrepresented their products as safely and effectively treating flu and cold symptoms when the products in fact had no medicinal value.  “If Plaintiffs can prove that homeopathy is a ‘pseudoscience,’ as they claim, and that Defendants’ products therefore uniformly do not perform as advertised, then the putative class will be entitled to relief under Plaintiffs’ warranty and false advertising claims.”  The court therefore rejected defendants’ arguments that (i) each product used different ingredients and treated different symptoms; (ii) whether the labels were misleading couldn’t be established on a classwide basis; and (iii) some consumers were satisfied with the products.  The efficacy of homeopathy would generate common answers to (i).  As to (ii), misleadingness is a classwide inquiry.   “It is simply a matter of common sense that consumers who purchased Defendants’ products did so in reliance on Defendants’ claims that the products provided effective relief from cold and flu symptoms.”  Finally, the argument that satisfied customers weren’t harmed or entitled to restitution was meritless.  Plaintiffs alleged that the products were placebos. Advertising is false if effectiveness arises solely as a result of the placebo effect.

Likewise, given the argument that homeopathy is uniformly ineffective, the extent to which plaintiffs’ children differed from average children was irrelevant to typicality, as was which particular products absent class members purchased.

On to 23(b)(3).  Predominance: yes, for reasons given above. Given the allegation of complete bunkum, “the products’ unique ingredients are relatively unimportant and do not threaten to predominate.”  Likewise, “that a large number of factors may have gone into each consumer’s decision to purchase Defendants’ products is immaterial here given the objective materiality of the alleged misrepresentations.” No one would buy a product that doesn’t work.

Superiority: Defendants’ refund program for dissatisfied consumers didn’t defeat superiority.  The plain language of Rule 23 directs courts to consider other available methods of adjudication, not refund programs.  You can’t disregard that text just because you think you have a better idea.

However, plaintiffs lacked Article III standing to seek injunctive relief, since they weren’t going to repurchase the products at issue. Even if this severely undermines the efficacy of California’s consumer protection laws, Article III still requires that result.

1 comment:

Anonymous said...

Fantastic and well reasoned decision. The carerra v bayer decision is an outlier action that if adopted would threaten to eliminate the vast class actions. Forced arbitrations and heightened ascertainability requirements immunize hucksters and illegitimate business.