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.
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