Thursday, November 05, 2015

Instant lack of gratification: coffee class certified

Suchanek v. Sturm Foods, Inc., 2015 WL 6689359, No. 11-CV-565 (S.D. Ill. Nov. 3, 2015)
After the district court’s initial dismissal of this class action case was resoundingly reversed, the case returned and was here certified by a new district judge, the prior judge having retired during the pendency of the appeal.  In Seventh Circuit style, the opinion also resolves a number of evidentiary challenges to plaintiffs’ claim that Sturm falsely advertised its instant coffee as ground.
Sturm made single-serve coffee cups for use in Keurig machines under the name Grove Square Coffee (GSC). While Sturm allegedly sold GSC as premium, ground coffee, it was actually more than 95% instant coffee. Plaintiffs sued Sturm for violating the consumer protection statutes and unjust enrichment laws of Alabama, California, Illinois, New Jersey, New York, North Carolina, South Carolina, and Tennessee.
Plaintiff submitted the testimony of Bobby Calder, a professor at Northwestern University who teaches consumer behavior and marketing strategies. Plaintiffs submitted his opinions to show that the issue of liability is capable of resolution on a class-wide basis and predominates over the individual issues.  Calder’s report had two sets of opinions. The first, based on his review of GSC packaging, Sturm’s marketing documents, and consumer complaints, concluded that:
A reasonable consumer would have been led to falsely believe that [GSC] contained regular ground coffee for brewing in a Keurig machine....Usage of the word “instant” on the package in a non-prominent way would not have been sufficient to prevent consumers being misled and deceived....(and) Sturm’s plan for marketing the [GSC] product was at its heart intended to distract consumers from realizing that the product quality or standard was instant coffee and not regular ground coffee for brewing.
Sturm argued that this opinion should be excluded because it wasn’t based on evidence of actual consumer perceptions, specifically a survey.  But a consumer survey is not the only acceptable evidence of consumer deception; testimony from consumers or appropriate experts can also suffice.  Calder had plenty of evidence that went to consumer deception:  Sturm’s own research showed that Keurig users did not want instant coffee, so Sturm avoided using the word “instant” on the label. Sturm also conducted product testing to see if consumers noticed the physical differences between GSC cups and regular K-cups that signaled GSC was instant coffee. Most importantly, in hundreds of consumer complaints, people said they felt “disappointed, dissatisfied, displeased, disgusted, swindled, robbed, cheated, ripped off, duped, and misled. Others said GSC was a hoax, deceptive, an absolute fraud, a rip off, a sad joke, a gross misrepresentation, a clearly substandard instant coffee disguised as a Keurig k-cup, and a waste of money.”  Calder didn’t need a survey when he had “oodles” of complaints that were explicit about what consumers thought.
Calder also designed and conducted a study in which he interviewed twenty-three randomly recruited individuals in Chicago who owned and used Keurig machines. The participants overwhelmingly identified single-serve brands with the quality of ground roasted coffees, not instant coffees, and therefore expected GSC “to be a traditional ground coffee filtered from roasted beans that did not contain instant coffee.” After a product demonstration, the participants “changed their minds dramatically.” Qualitative results also showed the participants “for the most part realized that they had been misled.”
Sturm challenged the survey, and frankly if Sturm hadn’t been such an obvious bad actor here (try to imagine a survey that wouldn’t have found confusion!) I’d have had sympathy for it.  I would not use this case to argue for the admissibility of similar surveys in closer cases. Sturm argued that Calder used an improper universe, an unrepresentative sample from the universe, and ambiguous, imprecise, and biased questions.  Nor did he use a control group, replicate the store environment, or use a double-blind format. 
But the court found that Calder’s opinions based on this survey weren’t critical to class certification, and in any event it wasn’t so fundamentally flawed as to be inadmissible. The universe of current Keurig users was close enough to the set of potential GSC consumers, and Calder’s use of a convenience sample was routine in surveys conducted by experts in marketing and in deceptive advertising cases. After all, Sturm’s own market research comprised interviews with only seven consumers  Nor did Calder bias participants by displaying a GSC cup and a Green Mountain cup simultaneously at the beginning of the study and then asking if single-serve coffee cups were more similar to ground coffee or instant coffee. Sturm didn’t explain how the simple presence of the Green Mountain cup injected an impermissible bias into the study.
The questions weren’t so flawed as to make the study excludable.  “To the extent Calder’s questions elicited ambiguous responses, participants immediately explained their responses.”  Though the questions were close-ended, that can be ok, especially “for assessing choices between well-identified options or obtaining rating on a clear set of alternatives.” Nor did the absence of a “no opinion” or “don’t know” option invalidate the study, because participants were still able to indicate neutrality and were encouraged to offer commentary during their interview. “Despite the lack of a ‘don’t know’ option, participants commented on their uncertainty in a number of instances. Calder also told the participants that if they were unsure about a question, they should ask him for an explanation.”
Nor did the lack of a control group make the study inadmissible, because in the before and after format (in which the truth was revealed to consumers and then they were asked about GSC again) each participant served as his or her own control.  “Likewise, the failure to conduct a double-blind study does not make Calder’s study wholly inadmissible; it simply limits the reliability of it.”  (This is the weakest point.) 
Finally, the study wasn’t inadmissible because Calder pointed out and read aloud six sections of the GSC package that plaintiffs contended were deceptive, unlike what would happen in a real store.  The point was to figure out whether those sections were misleading, so reading them was necessary to ensure that the participants saw that information, an approach used in other surveys as well.
The court also rejected challenges to plaintiffs’ damages expert Candace Preston.  Sturm argued that her model was unreliable because it assumed that, if GSC had been marketed truthfully, consumers wouldn’t have bought it at all.  This assumption was supported by Calder’s opinion and by customer complaints.  Sturm further argued that Preston’s assumption was contradicted by favorable consumer comments, but “[t]his argument is laughable. Ten positive reviews do not somehow negate the hundreds, if not thousands, of bad (sometimes scathing) reviews, particularly when there is evidence that Defendants had their employees write fake, positive reviews.”  Yikes. 
Further, after the Seventh Circuit suggested that a partial refund might be appropriate relief here (cold comfort for coffee drinkers who never wanted to buy instant in the first place, but ok), Preston developed a model for calculating the amount of such a refund, which the court refused to exclude.  Using the cost of other instant coffees as a measure seemed perfectly appropriate.  “Defendants quibble that this fails to take into account any value associated with the k-cup brewing system ….”  But so what? As one of Calder’s interviewees said, “It’s kind of like why bother to have a Keurig with Grove Square? Add the water and call it a day. You’re paying for the separate tubs. I could just take a spoon and drop it in if that’s all the Grove Square is.”
Defendant’s expert, Neal Roese, was a social psychologist at Northwestern University with expertise on judgment and decision-making. He opined that there was no uniform or typical consumer decision process across consumers who have purchased GSC; instead, there were significant variations.  Although he relied on the named plaintiffs’ deposition testimony about their individual purchase decisions, and plaintiffs thought he should have interviewed other purchasers, the court didn’t think that mattered.  “Regardless of what he read or who he talked to, Roese was going to reach the conclusion that there was a significant variation in consumers’ decision-making process when it came to purchasing GSC.”  (Ulp.)  Of course no two decisions are exactly the same.  That did not show lack of typicality or that individual issues predominated.  The report wasn’t unreliable or irrelevant under Daubert; it just wasn’t useful.
Sturm did win exclusion of the opinions of Robert Klein, an expert witness in Keurig’s false advertising lawsuit against Sturm, since he wasn’t disclosed as an expert before the deadlines had passed, and his testimony was not admissible under any other theory.
On to class certification, excluding online purchasers and no longer seeking injunctive relief. Moreover, since plaintiffs failed to brief unjust enrichment, the court only ruled on the consumer protection law claims.
The Seventh Circuit set forth the law of the case on commonality: “The question whether the GSC packaging was likely to mislead a reasonable consumer is common to the claims of every class member.”  Its reasoning also strongly suggested that typicality was satisfied. Typicality means that the named representative’s claim “arises from the same event or practice or course of conduct that gives rise to the claims of other class members and...[the] claims are based on the same legal theory.”  As the court of appeals said, “the plaintiffs’ claims and those of the class they would like to represent all derive from a single course of conduct by Sturm: the marketing and packaging of GSC.” It continued: “[t]he same legal standards govern every class member’s claim; [Defendant] admits in its brief that ‘[a]ll of the applicable state consumer protection laws require proof that a statement is either (1) literally false, or (2) likely to mislead (either through a statement or material omission) a reasonable consumer.’ ” Sturm nonetheless argued that typicality was not satisfied because the class members “bought GSC for different reasons and formed their beliefs about it for different reasons.”  For example, “[s]ome Plaintiffs bought GSC because a retailer placed it on a shelf near the Keurig k-cups. Others bought GSC because they wanted to try something new. Still others bought GSC because of its low price.”  But typicality didn’t require all class members to have the same perceptions and knowledge about GSC and the same preferences and reasons. “In fact, when it comes to consumer fraud class actions, individual differences are to be expected.”

The class members here were exposed to the same misrepresentations, and their claims were essentially the same: they were duped into believing they were purchasing ground coffee, and they would not have purchased GSC (or paid as much as they did) had they known it was actually instant coffee. 
Likewise, though different named plaintiffs identified different parts of the packaging as deceptive, they were adequate, especially given record evidence showed that “hundreds, if not thousands, of other consumers held the same mistaken belief and were equally disappointed upon learning the true nature of the product.”  It didn’t matter whether some were misled solely by affirmative misrepresentations and images versus material omissions versus a combination of the above.  “[A]ll of their claims stand or fall on the issue of whether a reasonable consumer was likely to be misled by the overall packaging, not any one particular attribute or omission.”  And they all suffered the same injury: overpaying or buying a product they wouldn’t have bought if they’d known the truth.  Any differences wouldn’t create misaligned incentives among class members and the class representatives, which is the concern behind the adequacy requirement.
Under Rule 23(b)(3), damages must be susceptible of measurement across the entire class, which requires “a single or common method that can be used to measure and quantify the damages of each class member.” A full refund would be justified if the product was worthless to its purchasers.  Sturm argued that GSC wasn’t completely worthless because it provided convenience, hydration, and caffeine, and cited four cases rejecting full refunds in cases involving deceptive food/beverage packaging. But two were unpublished, one had minimal analysis, and one explicitly distinguished Sturm. 
The court shares my reaction: “if there was ever a case where [a full refund] theory was appropriate, this may be it,” given the extensive evidence of but-for causation.  Only consumers who owned a Keurig machine, or were buying for an owner, would buy GSC, and “there is plenty of evidence showing that, when it came to coffee, Keurig machine owners wanted to brew only premium, fresh, ground coffee.” Further, Sturm was fully aware of Keurig machine owners’ preferences and “went to great lengths to disguise the fact that GSC was not premium, fresh, ground coffee,” with the result that hundreds of consumers complained.  There was on the other side “absolutely no evidence that some consumers may have still purchased GSC had they known GSC was instant coffee,” or that some consumers did know the truth but still bought it.  A finder of fact could conclude that the product was worthless to its consumers.
Plus, if a full refund wasn’t appropriate, damages could still be calculated by subtracting the actual value of GSC, which could be calculated from the price per cup of equivalent instant coffee.
Predominance: liability for deception was particularly appropriate for class-wide resolution, because all of the applicable consumer protection statutes required proof that Sturm’s statement was “likely to mislead a reasonable consumer.”  The necessary proof, survey evidence and expert testimony, was common to all class members, and was costly enough to make multiple individual lawsuits duplicative and wasteful, though of course they wouldn’t even happen.
Proximate causation and reliance might require individualized proof, but these were much simpler issues than liability, and the necessary information was more accessible to individual litigants, who knew their own mental states, than the information needed to prove liability. Thus, plaintiffs showed predominance and superiority.
The class was ascertainable by reference to objective criteria: in-store purchasers of GSC defrauded by packaging during a specific period in particular states.  The Seventh Circuit has explicitly rejected a heightened (receipt-based) ascertainability requirement as inconsistent with the purpose of class actions. Nor was the class overbroad because some consumers might not have been deceived; there’s a difference between class members who could not have been harmed and those who were not harmed.  Though Sturm modified the package to change it from saying “soluble and microground” to “instant and microground” during the class period, Sturm didn’t show how many purchasers of the modified packaging existed, and plaintiffs in any event provided evidence that this change didn’t prevent deception and that complaints continued. As far as the court could tell, the modified package kept all the other allegedly deceptive features, and in any event, the basic problem—that the K-cup form misrepresented the true nature of the product—remained the same.
Alabama, Tennessee, and South Carolina consumer protection statutes allow only individual actions, but Shady Grove Orthopedic Assoc., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010), held that a nearly identical New York rule shouldn’t be applied in federal court, because Rule 23 controlled and didn’t alter substantive rights.  Although the Supreme Court was divided 4-1-4, it clearly held that the New York rule didn’t apply in federal court, and Sturm identified no legal differences between the New York provision and the state provisions at issue here.
Seriously, guys: get out the checkbook and start writing.

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