Thursday, June 27, 2019

Court formulates survey question in consumer protection case

Moorer v. Stemgenex Medical Group, Inc., No. 16-cv-2816-AJB-NLS, 2019 WL 2602536 (S.D. Cal. Jun. 25, 2019)

This “complex and troubling case” involves allegedly false advertising of stem cell treatments; the court found it “narrowly” certifiable and—unusually—specified the consumer survey questions to be asked by an expert seeking to test materiality/damages. Plaintiff brought the usual California claims, and an elder abuse claim, against defendants, alleging that they falsely and without support claimed that the treatments “effectively treat a multitude of diseases.” [Sounds like the FDA should be taking notice, too, as it has for other stem cell promoters.]  They allegedly advertised that “100% of its prior consumers are satisfied with its service” (“Patient Satisfaction Ratings” or “PSR”), while omitting material information about its services, including consumer dissatisfaction and complaints regarding the ineffectiveness of the treatments. Plaintiff Moorer, suffering from lupus, and plaintiff Gardener, suffering from diabetes, each allegedly relied upon the customer satisfaction statistics and paid $14,900 for the treatment, did not benefit from the treatment, and told defendants. They alleged that they would “not have paid for the Stem Cell Treatment had they known that the statistics on the StemGenex website regarding consumer satisfaction were false, and that StemGenex had no reasonable basis for its marketing claim that the Stem Cell Treatments were effective to treat diseases as advertised.”

Defendants sought to strike an expert report analyzing what effect the PSR had on a consumer’s decision to purchase the treatment. The court denied the motion; the expert had relevant expertise in consumer behavior and marketing.  The proposed survey to determine damages would ask, in essence, (1) how important is the recommendation of previous customers to your decision to pursue a medical procedure, and (2) how important are price differentials in out-of-pocket expenses for a procedure.  Then it proposed to ask:

Assume that there was a procedure that could substantially improve [their medical condition]. The procedure costs $14,900, all of which you would have to pay yourself. Everyone who has had the procedure (100% of all patients receiving the procedure) report satisfaction with the results, that is, all patients reported that the procedure met or exceeded their expectations and were satisfied or extremely satisfied with the outcome. Now assume that you are considering this procedure and learn that not all patients were satisfied. In fact, you learn that only 50% of all patients who obtained the procedure reported any major improvement. Would you still consider this procedure given what you now know about the potential benefit?

The proposed answers were: Yes, I’ll try anything that might help; Yes, if I were offered a discount on the price; No; or Don’t know. For those who indicated they required a discount, the respondents would then be asked how much of a discount they would want, starting with a minimum discount of 5% and up to “more than 65%.”

The court found that this was a relevant question, but directed that it be changed to match the actual language defendants used, with this as an example (it could be changed but had to follow the court’s basic directions):

Assume that there was a procedure that could substantially improve [their medical condition]. The procedure costs $14,900, all of which you would have to pay yourself. The providers of the procedure report that 100% of its prior consumers were satisfied with the provider’s service. Now assume that you are considering this procedure and learn that the patient’s statements of satisfaction were obtained in exit interviews following receiving the procedure. Further you learn that only 50% of all patients who obtained the procedure reported any major improvement following the procedure. Would you still consider this procedure given what you now know about the potential benefit?

Comment: The court didn’t explain the legal or factual basis for the change, but it might well have some interesting effects on the answers.  In particular, the revision makes it much clearer—without saying as much—that the providers misleadingly advertised satisfaction.  (“Satisfaction” itself can be misleading because reasonable consumers are likely to focus on the medical effects of the procedure, not on whether the procedure seemed to go as planned, which is the only question patients can answer at an exit interview.) The extra element of learning that the providers overclaimed might have independent effects on consumers’ willingness to trust the underlying procedure, as compared to a question (perhaps in a control group) in which the consumers are given the truth at the outset and the 100% satisfaction claim never appears.  There is no neutral baseline from which to assess the appropriate question; I definitely see the case for asking people whether it would matter that the provider misstated the truth, because that can and probably should matter to consumers in taking a chance on an unproven medical treatment.

Another expert report purportedly showed that a pie chart in defendants’ advertising was material and misleading.  In a survey, respondents were shown screenshots of the defendants’ web homepage on two different dates. One group saw four pie charts regarding satisfaction with overall experience, the medical team, if StemGenex was a trusted partner, and whether patients would recommend StemGenex. The other group saw a screenshot with nine pie charts, however, in this version all pie charts included a disclaimer stating, “patient satisfaction ratings above represent data received from patient exit surveys evaluating patient experience and care, accommodations, staff and facilities.” The survey asked respondents to rank various statements which appeared on the screenshots to show which statement “most generated [their] interest in StemGenex stem cell therapy.” There was only one specific option based from factual information, selected from the overall experience Pie Chart; the others were puffery. Anything ranked in the top four was considered material.

The next part of the survey asked respondents what they thought patients were referring to in the Overall Experience Pie Chart. Respondents were given five options, one of which being effectiveness of the product. Defendants argued that only 38% stated the Pie Chart meant effectiveness, though that would be a pretty big number in a Lanham Act case. Without a control group, defendants argued, the survey couldn’t determine causation.  Plaintiffs argued that the survey compared two versions of the same page—which is true; the survey does effectively test whether the disclaimer does any work to change the meaning consumers take away from the pie charts/diminish the message that the procedure is medically effective.  But they also argued that there was no control group (as to the pie charts) because the research goal was to examine “the presence or absence” of the patient satisfaction ratings to causally establish the impact the charts had on the consumers’ decisions whether to undergo stem cell therapy.  Plaintiffs, and possibly everyone, got a little mixed up about distinguishing what the control should be from whether there is a control.  As I noted above, choice of proper control is a normative decision; the best discussion is Richard Craswell, “Compared to What?”: The Use of Control Ads in Deceptive Advertising Litigation, 65 Antitrust L.J. 757 (1997).  Anyway, the court said that the report couldn’t be used to show causation, but could be used to show materiality of the pie chart.  “The simple fact is that Defendants put out an overly vague statement and created confusion where different interpretations might lie. Defendants cannot then turn around and use that confusion as a shield.”

As for certification, though there were concerns about variation among patients, “this is a marketing case, not a medical one,” and even though damages might differ that wouldn’t prohibit class treatment.  Similarly, defenses such as whether consent forms cured any misrepresentations before the treatment [consumer protection law answers no by prohibiting bait and switch techniques] were applicable to the entire class.  Defendants argued that consumer motivations for the therapy were highly varied and individualized, but the common questions weren’t affected by those motivations: (1) whether Defendants misrepresented the PSRs; and (2) whether the misrepresentation was likely to deceive a reasonable consumer.  Under the relevant laws, the plaintiffs only need to show that members of the public were likely to be deceived—no proof of individualized reliance would be necessary. Although there was varying testimony about what named plaintiffs remembered about the PSR/pie charts, only exposure was necessary classwide, not reliance. And under the CLRA, reliance is inferred for fraudulent and negligent misrepresentation claims if material misrepresentations are made to an entire class.

No comments: