Thursday, December 20, 2018

"soluble" coffee case grinds on

Suchanek v. Sturm Foods, Inc., 2018 WL 6617106,  No. 11-CV-565-NJR-RJD (S.D. Ill. Jul. 3, 2018)

I don’t know why this took so long to show up in my searches, but: this is a consumer protection class action arising from Sturm’s ill-fated decision to put instant (which it labeled “soluble”) coffee into pods that fit into Keurig coffeemakers, to get a jump on the competition for nicer ground coffee pods once the pod patent expired. This lawsuit was filed in 2011; the district court dismissed it on the theory that consumers should have known that “soluble” meant “instant,” and the court of appeals reinstated it, after which a class was certified on liability. Sturm didn’t take my unasked-for advice of that last post; instead, it seems determined to litigate to the bitter end, no pun intended.

Plaintiffs brought claims under the consumer protection laws of Alabama, California, Illinois, New Jersey, New York, North Carolina, South Carolina, and Tennessee. This opinion details the court’s trial plan dealing with key elements of the claims.

Sturm waited seven years to raise a FDCA preemption argument and did so in a few sentences; nope.  The court also emits a bit of impatience with Sturm’s re-raising of previously rejected arguments.  More generally, case law about class certification establishes whether certain issues can be resolved with class-wide evidence at trial. And the fact that the Seventh Circuit said that “[e]very consumer fraud case involves individual elements of reliance or causation” in its earlier opinion in this case does not mean that class-wide proof is impermissible to establish reliance or causation under any and all circumstances.

The parties agreed that individual proof was needed to show causation under the statutes of Tennessee and South Carolina, but not on the other laws.

The Alabama Deceptive Trade Practice Act, for example, bans “[e]ngaging in any other unconscionable, false, misleading, or deceptive act or practice in the conduct of trade or commerce.” The court found that causation was clearly a required element: a deceptive act or practice is not actionable unless the defendant’s conduct “causes monetary damage to a consumer ....”  However, reliance could be presumed upon a showing of material falsehood.  Although common law fraud requires individualized proof of reliance, the ADTPA was a Little FTC Act intended to replace the common law and provide a stronger remedy; the legislature also directed courts to look to the FTCA for guidance in interpreting the law, and FTC practices supported a presumption of reliance from material falsehood.  Alabama bars consumer class actions under the ADTPA, but that procedural rule is only applicable in state court, not in federal courts governed by Rule 23; Alabama also allows the AG to bring classwide claims. Thus, the court wouldn’t impose a requirement to show justifiable reliance on an individual basis in order to implement an anti-class action policy. “Plaintiffs are entitled to a rebuttable presumption of reliance if they show Defendants made a uniform and material misrepresentation to the class. Moreover, causation and reliance are “twin” concepts that are often intertwined in the context of fraud.… Plaintiffs also are entitled to a presumption of causation if they establish the elements necessary for a presumption of reliance.”

California’s CLRA: “When the consumer shows the complained-of misrepresentation would have been material to any reasonable person, he or she has carried the burden of showing actual reliance and causation of injury for each member of the class. As some courts have put it, the plaintiff may establish causation as to each by showing materiality as to all.” Unless “the record will not permit” that inference, as when a named plaintiff testifies that she didn’t have the posited reaction to the claim or where it was “likely that many class members were never exposed to the allegedly misleading advertisement.”  Thus, inferences of causation, reliance, and injury arise under the CLRA “where plaintiffs can establish that the defendants made a uniform and material misrepresentation or omission to the entire class.”  The UCL “is much more straightforward” and doesn’t require individualized proof of deception, reliance and injury.

Illinois: ICFA claims require individual inquiries into proximate causation, except that “where the representation being challenged was made to all putative class members, Illinois courts have concluded that causation is susceptible of classwide proof ...” Causation can be presumed if there’s a uniform misrepresentation to all class members and “there is no other logical explanation for the class members’ behavior in response to the representation.”

New Jersey has applied a presumption of causation where a misrepresentation was material, in writing, and uniformly made to each plaintiff, and also where “all the representations about the product [were] baseless.” The application of a presumption of causation also may depend on whether plaintiffs could have known the truth behind the alleged fraud (why that is relevant is not clear to me) and whether plaintiffs reacted to information about the product in a similar manner.

New York doesn’t require reliance on a misleading act or practice, but does require plaintiffs to show they suffered a loss because of the defendant’s deceptive act. Causation can be shown class-wide “where the misrepresentation or omission was uniformly made to the entire class, crucial to the purchasing decision, and misrepresented the product’s very essence.” By contrast, individual proof is necessary where the product had “a number of characteristics that customers might value.”

North Carolina requires a showing of proximate causation, which itself requires a demonstration of actual and reasonable reliance. “While this inquiry may be difficult to conduct on a class-wide basis, the Supreme Court of North Carolina has held that circumstantial evidence may be sufficient for a factfinder to infer reliance.” For example, a material misrepresentation that went to the sole point of the product could justify a class-wide finding of causation, as could a sufficiently material misrepresentation uniformly made to the class.

The court concluded that the target consumers, Keurig owners, faced a “more-or-less one-dimensional decision making process” when they purchased the accused product. They hoped to buy single-servings of premium, ground coffee they could brew in their Keurig machines. “There is no other logical explanation as to why consumers would purchase instant coffee, at a premium price, in a K-Cup, that they had to brew.” It doesn’t make sense to buy a product three or four times more expensive than typical instant coffee to use a specialized machine to heat water for instant coffee. “This is simply not a case where the plaintiffs had a number of reasons for purchasing” the product.

The allegations were of a complete misrepresentation of instant coffee as ground coffee, “obviously crucial to Plaintiffs’ purchasing decisions as Keurig owners.” There was no evidence that plaintiffs would have purchased the product even if they “knew the truth” about the product, or that any significant part of the class had access to all the information they needed before they bought. “Here, numerous experts conducted surveys and concluded that few consumers understood that GSC [the product] contained instant coffee at all based upon either the initial or modified packaging. Even if some consumers did understand GSC consisted of instant coffee, they had no way of knowing GSC was actually more than 95% instant coffee.”  The record also showed a virtually unanimous reaction: “a uniform outpouring of dissatisfaction with the product…. Essentially, Plaintiffs received a useless product.”

Ultimately, though a jury would determine deceptiveness and proximate causation of injury, it could do so on a class-wide basis, without individual inquiries.

The court reasoned similarly with respect to how plaintiffs could show ascertainable loss under the relevant state laws.  Where plaintiffs allege that they bought a product at a price greater than a truthfully advertised product could have charged, class-wide evidence can establish injury.  Plaintiffs offered both a refund model (they bought a valueless product, since they did not want ground coffee at all) and a price premium model for showing damages, both of which the jury could consider.  For states providing statutory damages—Alabama and New York—those models could also establish damage-triggering injury (both states require a showing of some damage before awarding statutory damages).  Here, the plaintiffs’ injuries didn’t vary from person to person; “the focus is on what the defendants said on their packages and whether the product is different from what was promised.”

The court thus indicated its intent to subclass based on the initial and modified packages, further divided by state law.  The first planned jury trial would be bifurcated.  The first part would assess whether defendants committed a deceptive act or omission that would be materially misleading to a reasonable consumer. If the jury so found, the court would then decide whether those acts were materially deceptive under North Carolina law (which treats whether acts are unfair or deceptive as a question of law) and California law (because UCL and FAL claims are equitable in nature). The jury would then answer the same question for the remaining state subclasses.  If the jury said yes, it would proceed to answer questions about whether the conduct occurred in the course of trade or commerce [that one seems a gimme]; whether the conduct affected the public interest; whether the non-Tennessee/South Carolina/California classes suffered injuries/damages/ascertainable losses in reliance on, or as a proximate cause of, the deception; and whether defendants intended for that last group to rely on their deceptive acts or omissions. A second jury trial would then determine the remaining elements of ascertainable loss, proximate cause, and damages for the Tennessee and South Carolina subclasses.

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