Monday, June 19, 2017

Court approves conjoint analysis to determine damages in consumer class action

Morales v. Kraft Foods Group, Inc., 2017 WL 2598556, No. CV14-04387 (C.D. Cal. Jun. 9, 2017)

Plaintiffs alleged that they were misled by Kraft’s use of the term “natural cheese” on its “Natural Cheese Fat Free Shredded Fat Free Cheddar Cheese,” bringing the usual statutory California claims. The court previously certified a California class.  Here the court partially decertifies the class but rejects Kraft’s challenge to plaintiffs’ expert, who performed a conjoint analysis to try to determine the incremental value to consumers of “natural.”

Dr. Anand V. Bodapati has been a Professor of Marketing at the UCLA Anderson School of Management since 2000, teaching “Marketing, Consumer Psychology, Consumer Behavior, and Statistical Methods for making inferences from data on how consumers respond to product offerings, pricing, advertising, and other marketing activity in the marketplace.”  He surveyed California buyers of Kraft shredded cheese, presenting them choices between images of (a) the marketplace offerings of some leading manufacturers, (b) Kraft’s shredded fat free cheddar cheese product as it was offered in the marketplace with the “natural cheese” label, and/or (c) a digitally altered image identical to the Kraft image except without the “natural cheese” label. Each respondent chose between options 14 times, with price differences between the products ranging from $0.80 to $4.50, randomly assigned.  The survey results showed that 26% of consumers would pay more than $1 extra for a product with the “natural cheese” label, and 12% would pay more than $2 extra for such a product. Bodapati concluded that, on average, customers would be willing to pay $0.747 more for a product with that label.

Kraft marshalled several experts in response.  Key challenges: (1) Was the proper group surveyed?  Kraft argued that its fat free cheese product was a niche product, so surveying all shredded cheese buyers was inappropriate.  The court found that this didn’t justify exclusion.  Bodapati explained why he chose Kraft shredded cheese buyers—he didn’t have any reason to believe that the value of “natural” would differ as between fat free and non-fat free buyers, and he didn’t want to make the study more arduous.  Also, some of the evidence Kraft cited indicated that consumers varied—its category review indicated that fat content was only the third most important factor cited by consumers, while the use they intended and the form of the cheese were more important; the review also said that “[c]onsumers buy more than one health segment for different uses, household members and taste preferences.” Thus, the markets didn’t seem that distinct.

Kraft then argued that the survey was irrelevant because it didn’t calculate damages.  The survey calculated the value to consumers, which was relevant to damages.  Kraft contended that a price premium theory was the only allowable model for false advertising damage, and conjoint analysis couldn’t be used. The court disagreed. Dourts frequently admit evidence based on a conjoint analysis.

Additional challenges to survey methodology could be addressed on cross.  Though the experts disagreed about whether conjoint analysis could be used to compare products with only one nonprice attribute, Bodapati testified that “having one attribute only is good for the conjoint analysis in the sense that it reduces cognitive overloading and thereby increases the fidelity of the decision making.”  As for whether the survey telegraphed its purpose to respondents, Bodapati explained that respondents’ attempts to pick the “right” answer weren’t worrisome to him because, in conjoint analysis, there is no “right” answer. He also testified that he elected not to show the back of the packaging out of a concern for verisimilitude—how consumers actually understand the products.  And he didn’t provide a none of the above option because, he said, conjoint analysis works without that.  These and other criticisms went to weight, not admissibility.

Decertification: willingness to pay can measure restitution damages, but under California law restitution  is confined to restoration of any interest in “money or property, real or personal, which may have been acquired by means of such unfair competition.” But the conjoint analysis provided only evidence of loss to the plaintiffs, not of gain to Kraft. While injunctive relief was still possible, the court decertified the Rule 23(b)(3) class and sought additional briefing on whether the class would be re-certifiable under Rule 23(b)(2). This was possible because, under California law, deception and materiality need not be proved as to every member of the class. Bodapati’s report and testimony showed a triable issue as to materiality under the CLRA.

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