Lilly v. Jamba Juice Co., 2015 WL 1248027, No. 13-cv-02998
(N.D. Cal. Mar. 18, 2015)
This preliminary approval for a settlement contains the most
extensive analysis I’ve seen of the “deceived consumers do have standing for
injunctive relief in consumer deception cases” position.
Jamba Juice labeled its smoothie kits “all natural,” but the
kits allegedly contained ingredients that consumers would not have understood
to be “natural”: ascorbic acid, xanthan gum, steviol glycosides, modified corn
starch, and gelatin. Plaintiffs brought
the usual California claims, including breach of warranty, and moved to
certify a class for liability and
damages purposes. Due to questions about whether damages could “feasibly and
efficiently be calculated,” the Court declined to certify a damages class, but
certified a class for the purpose of determining liability and requested
supplemental briefing on the 23(b)(2) issue of certification for injunctive
relief. After mediation, the parties
reached a preliminary settlement, including injunctive relief. The court was required to raise standing sua
sponte.
Standing for injunctive relief requires a plaintiff to allege
that a ‘real or immediate threat’ exists that he will be wronged again.” “In a
class action, ‘[u]nless the named plaintiffs are themselves entitled to seek
injunctive relief, they may not represent a class seeking that relief.’” (This
isn’t my area, but I don’t understand why a settlement can’t include relief
that a plaintiff might not have gotten at trial. There can be cy pres uses specified for
unclaimed settlement funds, right? If
that’s ok, why not injunctive relief?)
Courts are split on when a consumer class may be certified for the
purposes of obtaining injunctive relief against deceptive product labeling. The
court here decided that injunctive relief was available, because “[t]o hold
otherwise would effectively preclude consumers from ever obtaining prospective
relief against mislabeling.”
Courts that reached the contrary conclusion “misapprehend
the nature of the injury suffered by the consumer. When a consumer discovers
that a representation about a product is false, she doesn’t know that another,
later representation by the same manufacturer is also false. She just doesn’t
know whether or not it’s true.” Misrepresentations injure consumers not just
through untruth, but also through lack of certainty about truth. (The market for
lemons!) Because we already know the
purchaser was willing to buy the product with the set of attributes she thought
it had, she’s most likely to be
injured without an injunction, not least.
“Consumers make choices in the marketplace among the
alternative goods competing for their dollars.” A purchase is a revealed
preference: it justifies the inference that the consumer chose the bundle of
characteristics most likely to provide the greatest utility for her money. A
consumer who buys a mislabeled product lets us know that “she values most
highly the product as it was promised to be – because that’s how she spent her
money.” She may discover the truth, but
the manufacturer may later change its product to conform to the label—“[i]n
fact, the manufacturer has every reason to do this, since the market apparently
values the very attribute the label promises.”
(Well… “every reason” might be going a bit too far in the absence of
regulation!) Without injunctions, consumers won’t know whether the labels are
true, and will have to suspect a continuing misrepresentation, thus deterring
her from spending her money in a utility-maximizing way. While others may but, our skeptical
consumer—“the person most likely to suffer future injury from this
misrepresentation” – will be deprived of it.
As a result, a rule denying her standing “prevents the person most
likely to be injured in the future from seeking redress.”
Defendants previously disputed whether the plaintiff’s
declaration that she would consider buying properly labeled smoothie kits was
enough to confer standing. The court concluded that willingness to consider
future purchase was sufficient, given that the harms avoided by the litigation
are not just the harms of buying or using a misleadingly labeled product, “but
also the harm of being a consumer in the marketplace who cannot rely on the
representations made by Defendants on their product labels. Without injunctive
relief, Lilly could never rely with confidence on product labeling when
considering whether to purchase Defendants’ product.”
In addition, a requirement that a plaintiff articulate a
definite intent to buy a product sometime in the future “is inconsistent with
the realities of consumer purchase decisions. Consumers make decisions in a
dynamic marketplace, based on all the information available to them at the time
of purchase, including the other similar products then available and all other
potential uses of the funds available to make the purchase at issue.” A
plaintiff can’t really know what the competing uses for her money will be
sometime in the future, what new products may emerge, or what her tastes may
be. “Nonetheless, injunctive relief
enables the Plaintiffs and other consumers to have confidence that the
information they receive about the challenged products at the time of purchase
is accurate.” Lilly’s statement of
willingness was therefore enough.
Under the stipulated injunction, Jamba Juice would relabel
the products so that they didn’t use “all natural” on packaging or other
advertising, including websites, but would not be required to remove or recall
existing products or packaging in inventory or on the market.
The Ninth Circuit strongly favors settlement. Settlement requires a preliminary
determination of acceptability on the merits of the settlement and, if the
class action settled before class certification, the propriety of certifying
the class. Where the parties reach a class action settlement prior to class
certification, courts “must be particularly vigilant not only for explicit
collusion, but also for more subtle signs that class counsel have allowed
pursuit of their own self-interests and that of certain class members to infect
the negotiations.” Preliminary approval of a settlement is appropriate if “the
proposed settlement appears to be the product of serious, informed,
non-collusive negotiations, has no obvious deficiencies, does not improperly
grant preferential treatment to class representatives or segments of the class,
and falls within the range of possible approval.”
The court so found here.
The settlement was both procedurally and substantively fair. The court’s certification order indicated that
plaintiffs faced substantial obstacles to obtaining classwide monetary relief,
but otherwise showed that class treatment was appropriate. They just hadn’t shown
that common questions predominated for the purposes of determining damages, because
they failed failed to present a damages model. In light of the difficulty of establishing
damages and the relatively small amount of money individual class members could
get, the difficulties of further litigation supported a conclusion that the
settlement was substantively fair. The consumer protection purpose of the class
action mechanism was “partially vindicated” by this settlement, which would
help future consumers.
Notice to absent class members was not required because
settlement class members didn’t release any monetary claims for mislabeling. Rule
23(e)(1) states that “[t]he court must direct notice in a reasonable manner to
all class members who would be bound by the proposal.” Membership in a Rule
23(b)(2) class is “mandatory,” as “[t]he Rule provides no opportunity for
(b)(1) or (b)(2) class members to opt out, and does not even oblige the
District Court to afford them notice of the action.” The court reasoned that “the key question in
determining whether notice is required is ‘whether the rights of absent class
members were compromised in any way.’” Because class members retained their
right to sue for damages, but wouldn’t be able to opt out of the injunction no
matter what, the court concluded that no notice was required.
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