Friday, October 09, 2015

Class claims down the toilet? Court stays lawsuit for FTC action

Belfiore v. Procter & Gamble Co., --- F.Supp.3d ----, 2015 WL 5781541, No. 14–CV–4090 (E.D.N.Y. Oct. 5, 2015)
The district court stayed six related consumer class actions against “flushable” wipes on the ground that the FTC could probably protect consumers more effectively.  Consumers alleged that they paid a premium for “flushable” wipes—moist towelettes intended for use in place of, or in addition to, toilet paper—that are not actually “flushable.”  P&G’s wipe, “designed to break down through chemical processes and physical manipulation, shows no signs of coming apart while in a home’s plumbing, or possibly even after it reaches a municipal sewage plant.” “Similar class actions are pending in other courts. A number of municipalities have brought a class action against manufacturers of similar products, claiming clogging of their sewage disposal facilities,” while others are warning their citizens not to flush “flushable” wipes.  NYC has proposed to ban “flushable” claims unless they’re certified by a third party test approved by NYC.
The FTC has an ongoing inquiry into the use of the term, and one competitor was recently subject to a proposed consent agreement with the FTC about describing its products as “flushable.”  In order to make “flushable” and similar claims, the producer would be required, among other things, to have substantiation that its product “disperses in a sufficiently short amount of time after flushing to avoid clogging, or other operational problems in, household and municipal sewage lines, septic systems, and other standard wastewater equipment.”  P&G is also the subject of an “informal inquiry” by the FTC, focusing on the ability of various wipe products to pass through municipal sewage system facilities.
Because “certification of a statutory damages class would pit New York State’s consumer protection law, which explicitly prohibits statutory damages in class actions, against the federal class action rule, which contains no such prohibition,” here prudence counseled in favor of staying the putative class action to see what, if anything, the FTC will do, even though the class action predicates were otherwise met.  Fundamentally, Judge Weinstein disagreed with the Supreme Court’s treatment of the interaction between state law and Rule 23, because he believed that it would reward forum shopping, and used that disagreement to weigh against certification.  I imagine there’s room to disagree over whether this is appropriate.  Moreover, with multiple cases pending across the nation, “there is a substantial risk of inconsistent judgments regarding the meaning of ‘flushable.’ A robust management of the “flushable” problem by the FTC, rather than by courts, could avoid unnecessary inconsistencies and controversies, helping manufacturers, retail vendors and consumers alike.”
If circumstances changed, the court indicated that it would likely deny certification of a damages class, but certify an injunctive relief class.

The packaging of the wipes at issue, which had been the same since 2011, claims that the wipes are “flushable,” “Septic Safe,” and “Safe for sewer and septic systems.” 

“Flushable” wipes cost substantially more than toilet paper and non-flushable wipes.  P&G’s wipes are created by using jets of water to entangle a wood-pulp base, structurally supported by a chemical binder.  It contends that the wipes begin to disintegrate when dropped into the toilet upon exposure to physical forces and biological factors found in wastewater systems. P&G offers reimbursements who complain that the wipes caused a clog.  Plaintiff Belfiore bought the wipes and experienced clogged plumbing and sewer back-up; a plumber charged him over $500 to remove the wipes and other materials from the pipes, though he hasn’t yet paid the bill.
The parties argued about the definition of “flushable,” with plaintiff going basically for “it’s not flushable if it doesn’t break down sufficiently to pass through pipes and causes serious problems for individual owners and municipalities.”  P&G argued that what’s flushable is “a subjective inquiry, unique to each purchaser’s experience.”  Defendant’s experts suggested that “flushable” meant that an object would “successfully leave their home,” meaning that wristwatches and matchbox cars would qualify as flushable.  There are also industry guidelines for flushability that look at whether the product becomes unrecognizable in the sludge generated in the normal course of wastewater treatment.  The FTC’s proposed consent order also provided a definition that offered some guidance, as noted above.  There was no consumer survey on the term’s general meaning (though I would think that “septic safe” etc. further qualify the claim to give it more meaning).
NY’s GBL § 349 allows recovery of actual damages or $50 per transaction, whichever is greater, except that C.P.L.R. § 901(b) bars class actions seeking to recover “a penalty, or minimum measure of recovery created or imposed by statute,” unless that statute explicitly authorizes recovery through a class action, which §349 does not.
The Supreme Court considered the interaction between FRCP 23 and § 901(b) in Shady Grove Orthopedic Associates v. Allstate Ins., in which the Court found that Rule 23 controls over §901(b).  Though Shady Grove “undermines the important state substantive policy behind § 901(b). But it is binding on federal courts, and therefore, in the instant case.”  However, §901(b) still influenced the court’s certification analysis.
As for the class action factors, P&G disputed commonality on the theory that the alleged injury depended on individual experience with the product. But that’s not the injury in a false advertising case; here, injury was the price premium paid by everyone, even if some consumers were satisfied or had varying danages. “Those who are satisfied that the premium was worthwhile can opt out or decline to file for damages awarded to the class.”  Likewise, this meant that the plaintiff’s claims were typical, because his plumbing bill wasn’t the focus of the litigation and his damages theory was based on price premiums.
Adequacy: There was “some doubt” that counsel intended, or was able, “to finance the expensive consumer and economic studies necessary for effective prosecution of a case on a premium price theory.”  But, given that plaintiff was now seeking only the statutory $50 award, that wasn’t likely to be decisive, and counsel seemed qualified in other respects.
Ascertainability: the court rejected the “no receipts, no ascertainability” argument for the usual reasons—it would destroy the very low-value aggregated claims that the class action device was designed to accommodate, increasing injustice.  Self-identification via affidavit could be appropriate given that the alleged misrepresentation was uniform across all products.
Rule 23(b)(2) injunctive relief class: The court refused to hold that plaintiff lacked Article III standing to bring a claim for injunctive relief, because that would denigrate the NY consumer protection statute by denying anyone who figured out that she’d been deceived from representing a class of the still-deceived.
A single injunction against the labeling here would provide relief to each member of the class; individual claims for monetary relief can’t be certified under 23(b)(2), at least where it’s not incidental to the injunctive or declaratory relief.  The monetary relief sought by some class members—individual plumbing costs—was incidental to the injunctive relief and could be tried separately. Thus, if the action weren’t stayed, the court would look favorably on a 23(b)(2) injunctive class.
Rule 23(b)(3) damages class: The court found predominance.  P&G argued that whether consumers were injured by the “flushable” label requires an individualized inquiry into each purchaser’s experience, since some consumers have “consistently flushed without a problem” and therefore could not have been deceived.  But either all consumers bought “flushable” wipes that were, in fact, “flushable,” or none did.  P&G also argued that materiality would require individualized proof.  But such individualized proof is unnecessary under §349, which uses an objective standard.  Moreover, the plaintiff’s damages model, which used hedonic regression to determine a premium from the product, was sufficient to establish classwide injury.  Once injury was established, statutory damages could be calculated classwide.  Any individualized issues about plumbing products would be tried on an individual basis.
Superiority: The courts are split on whether superiority analysis can consider the ability of administrative agencies to address the key contention in the case.  Given Rule 23’s reference to “adjudicating” claims, some conclude that it only requires a comparison to individual litigation.  However, it was sensible to consider the FTC’s potential action, which could resolve issues on a uniform national basis.  If an administrative agency has yet to take definitive remedial measures, some courts deem a class action superior. See, e.g., Bryan v. Amrep Corp., 429 F.Supp. 313, 319 (S.D.N.Y. 1977) (status of FTC proceedings was unclear).
Here, however, a class action seeking statutory damages wasn’t superior, because the FTC was better suited to protect consumers nationally and it was already considering P&G’s flushable claims:
In the interest of uniform protection of consumers, the FTC should address the instant case and related cases, lest inconsistent judgments and labeling abound. This risk is serious, as noted by the number of cases that have already reached varying dispositions. Consumers as well as vendors require a uniform definition of “flushable,” and the FTC is best suited to announce it.
New York’s public policy against statutory damages in class action cases, which could easily be excessive (here, up to $95.5 million), buttressed this conclusion. Such a large award would also contradict Congress’ intent in enacting CAFA: “to discourage excessively harsh results eclipsing plaintiff’s actual damages.”  (Is that what CAFA intended to do?)  Thus, the court wasn’t likely to certify a damages class, on superiority grounds.
However, for the moment, the court merely relied on the primary jurisdiction doctrine to stay the case.  Although the doctrine is relatively narrow, and usually doesn’t apply where the issue is “legal in nature and lies within the traditional realm of judicial competence,” and although the courts are generally well-suited to determine false advertising issues—both in terms of the science and in terms of likely consumer understanding—policy considerations counseled in favor of a stay. GBL § 349 also expressly provides that it “shall be a complete defense” under the statute if the challenged act or practice “complies with the rules and regulations of, and the statutes administered by the federal trade commission ... as such rules, regulations or statutes are interpreted by the federal trade commission.” “Thus, a determination by the FTC that defendant’s flushability claims are supported by, or not supported by, competent evidence under the FTCA would, at a minimum, be important to proceedings in this court and could be conclusive.”  Moreover, there was danger of inconsistent rulings among various courts and the FTC, without a consensus on the definition of “flushable.”  An FTC ruling blessing or rejecting these claims could end the need for litigation.  Plus, the FTC process allows for public comment, while an individual class action generally doesn’t.  (Objections?)

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