Wednesday, July 06, 2022

Juul RICO and consumer protection classes certified despite different "nicotine journeys" among users

In Re Juul Labs, Inc., Marketing Sales Practices & Prods. Liab. Litig., Case No. 19-md-02913-WHO, 2022 WL 2343268 (N.D. Cal. Jun. 28, 2022)

A lot going on here, including a certification of a RICO class, believe it or not. I don't even have a RICO tag! I am skipping a lot of the elements.

Plaintiffs moved to certify four classes of purchasers of JUUL products on “theories that defendants’ marketing of JUUL was unlawfully deceptive, JUUL was unlawfully marketed to youth, and JUUL products are not fit for ordinary use.” The court rejected defendants’ arguments that the putative classes were too heterogenous for certification:

Some of the identified differences – for example, differences in advertisements that the named plaintiffs or class members may have seen over time or differences in the amount of JUUL product purchased – are simply not material. Given the legal standards applied to plaintiffs’ claims, other identified differences – what an advertisement meant or portrayed to a specific named plaintiff or class member – are not material for purposes of class certification. Still more purported differences hinge on classic “battles of the experts” that must be resolved by the trier of fact. For example, will the trier of fact believe plaintiffs’ experts that JLI’s marketing campaigns conveyed a Unique Selling Proposition (“USP”) that made JLI’s alleged failures to disclose material? Or will the trier of fact believe JLI’s experts that no such USP can be inferred from JLI’s marketing, especially given changes in JLI’s marketing materials over the whole class period? At base, defendants’ attacks on plaintiffs’ experts present common questions that cannot be resolved at this juncture and do not preclude certification.

The four classes were (1) a nationwide purchaser class (RICO); (2) a nationwide youth class (RICO); a California purchaser class (UCL, CLRA, FAL, common law fraud, unjust enrichment, implied warranty of merchantability, Magnuson-Moss Warranty Act); and a California youth class (UCL and unjust enrichment). All were limited to individuals who purchased JUUL products from brick and mortar or online retailers (with the usual exclusions for those involved in the litigation).

Skipping factors about which little need be said, defendants argued that the class representatives weren’t typical because they varied in dates of first use, what they knew about JUUL prior to first use/purchase, their experience with cigarettes/other nicotine products, when they became aware of JUUL’s potential addictiveness, and how they were affected by that (what defendants call their “nicotine journey”). But the key was “whether specific differences identified by defendants are material to the claims at issue and the legal theories underpinning each of the four classes plaintiffs seek to certify.”

Defendants didn’t identify unique injuries or unique defenses for the named plaintiffs sufficient to make them atypical. Apparently, one named plaintiff for the putative youth class didn’t know that JUUL even contained nicotine; “[h]is lack of knowledge that JUUL contained nicotine and his lack of prior history of smoking are fairly common among the Youth class members, as defendants’ own chart acknowledges.” Another never attempted to purchase online, so he never encountered “the allegedly deficient age-verification system that forms part of the youth marketing claims,” and was prevented from buying other products by the same system “when he fraudulently attempted to use someone else’s identification.” “But the illegality of the youth purchases is a common issue among the youth class and is not unique to any particular Youth class member.” Whether this subjected him and another named plaintiff to an unclean hands defense was a common issue and would be evaluated later.

Predominance: Different nicotine journeys could form the basis for a factfinder’s rejection of the claims, perhaps, but experts could battle about the key questions: “whether JLI’s marketing presented a consistent USP, whether reasonable consumers would find misrepresented or omitted information material, whether the reach of those marketing materials was sufficient to support a presumption of reliance, whether JLI’s marketing was ‘youth-oriented’, and how much of the youth-driven consumption can be linked to JLI’s own conduct.”

The fraud-based advertising claims centered on defendants allegedly having conveyed that JUUL products were less addictive than cigarettes and omitting material information that would have informed consumers about the truth. Plaintiffs alleged, with support from their experts, that varying images and words “conveyed consistent messages about JUUL products that would be likely to deceive reasonable consumers in similar ways.” As to package labeling, the claims centered on an allegedly consistent false/misleading comparison of a JUUL pod to one pack of cigarettes and statements that JUUL is an “alternative for adult smokers.” Omission-based claims centered on defendant JLI’s failure, before mid-2018, to state that nicotine was addictive; “failure to disclose that JUUL products used a unique formulation and design that was highly effective at creating and maintaining addiction”; and failure to disclose that use of the products poses a significant risk of injury and disease.

All these claims predominated over individual issues. Among other things, as to the RICO claims, reliance is not required in racketeering fraud cases. Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639 (2008).

Defendants tried to argue that the products’ addictiveness meant that consumers were acting in irrational ways that weren’t subject to class action treatment. But “[s]imply because a product is addictive does not obviously alter the analysis for the legal claims at issue. The arguments JLI actually makes – different people had different reasons for using JUUL and different understandings of whether nicotine was in the product or whether nicotine was addictive or otherwise dangerous – would apply to most types of consumer products cases that are certified.” Also, “even addicted consumers had other product options … that reasonable consumers could have preferred if JLI had disclosed the alleged health risks and high degree of addictiveness and potent nicotine delivery from using JUUL products.”

Plaintiffs’ damages models using conjoint analysis also met the requirements of Comcast: they fit plaintiffs’ theories of recovery. So did a full refund model for the youth purchaser classes. Though a number of cases have rejected a full refund model, none dealt with “underage or otherwise allegedly inherently unfair or illegal sales.” “Plaintiffs’ theory is that because it was illegal or inherently unfair to market and sell the JUUL product to youth, youth purchasers received no value from it at all.” Defendants argued that at least some of those sales weren’t its fault, but defendants could test causation at a later stage for youth RICO claims, and the UCL made intervening causes irrelevant to the restitution model. Relatedly, plaintiffs provided evidence that JLI intended “to create a viral uptake in the use of its product through its marketing of youthful and healthy themes,” so even if class members got the product from other people who had themselves relied on the marketing, that would still qualify as a predominant question. Under the circumstances, plaintiffs had sufficient evidence of proximate causation of their overpayment for JUUL as a result of viral advertising campaigns:

[E]ven if some significant portion of the class did not see or rely on JLI marketing materials before their first purchase – a question debated by the parties and their experts – the particular allegations in this case may nonetheless fit within the recognized third-party proximate causation line of cases.

In another sign of the power of RICO, defendant Altria’s argument that it wasn’t involved for a big chunk of the class period, so the damages model didn’t fit it, failed because “all defendants who participated in the RICO enterprise are liable for the entire injury caused by the enterprise’s illegal conduct, regardless of whether they personally participated in every aspect of the conspiracy.”

Similar reasoning applied to the UCL/FAL/CLRA claims. Here the dispute centered on whether every class member was exposed to the allegedly misleading marketing. “As recognized in In re Tobacco II, and reiterated by numerous Ninth Circuit opinions that followed, as long as named plaintiffs are able to demonstrate reliance on JLI’s marketing that caused them injury, a presumption of reliance arises to on behalf of all class members.” In the case of misrepresentations, that “conclusive presumption” of reliance arises only where “the defendant so pervasively disseminated material misrepresentations that all plaintiffs must have been exposed to them,” while for an omission, “a plaintiff must show that the defendant’s nondisclosure was an immediate cause of the plaintiff’s injury-producing conduct,” though it need not be the sole or even predominant cause if it was a substantial factor in the plaintiff’s decision. “That one would have behaved differently can be presumed, or at least inferred, when the omission is material.”

Variations in different marketing campaigns and channels (social media versus traditional media) did not defeat predominance. There was (contested) evidence that “a main purpose of corporate use of social media to introduce and market a product is to spur third-party content to create the viral response JUUL allegedly achieved,” so whether third-party content had to be distinguished from JUUL and its influencers’ content was an issue for the factfinder.

Defendants also argued that the ad campaign wasn’t decades long, as in In re Tobacco II Cases.

But the appropriateness of applying the “presumption of reliance” does not depend on the length of marketing campaigns containing or furthering the impact of a misrepresentation as much as on the campaigns’ “reach.” Here, there is classwide proof showing the “message” or USP of JUUL was received by a significant portion of the class members – Californians who purchased JUUL products from brick and mortar or online retailers – that supports the presumption.

Plaintiffs offered expert testimony that “all of JLI’s campaigns convey a similar message or USP (of a tech lifestyle and product that satisfies, that is free of health and safety risks), despite variations in words, themes, or target audiences.” Defendants’ attacks on those experts generally went to weight rather than admissibility. “That the ‘look’ of particular advertisements varied, that different text was used, or that different channels delivered the messages, does not necessarily undermine plaintiffs’ experts’ opinions that the themes and USP were consistent across the relevant time periods.”

Defendants were also free to argue to the factfinder that “the start of investigations by the government and media of the health and safety of e-cigarettes at some undefined point during the class period,” and that JLI’s introduction of a “black box warning” about nicotine in mid-2018 made a difference to what a reasonable consumer would have thought about its representations or omissions.

The court also noted that the fact that “a consumer may consider many factors in determining whether to purchase a product does not mean that misrepresented or omitted information cannot be material.” Materiality does not require sole causation.

What about the label, with its pod versus pack comparison? The presumption of reliance also applied to that (subject to proof of materiality), even if the label statements were “discrete [discreet?] and not prominent on the packaging.” Likewise, the court rejected defendants’ argument that online purchasers wouldn’t have seen the label. “Given the context and record in this case – especially considering that class members were typically repeat purchasers of a product whose sole purpose is the delivery of nicotine – that some online purchasers may not have viewed the package prior to one or more purchases is not significant at this juncture (although possibly relevant to damages or restitution).” This was not a large item or one-time purchase case involving information provided only post-purchase.

Moreover, even if some buyers knew that JUUL had nicotine and others didn’t, that didn’t affect the materiality of the claims that plaintiffs alleged defendants made: “that JUUL products were portrayed as healthy but engineered and designed to make them more addictive and that use of those products created health hazards.” A factfinder could find that information material to nicotine-na├»ve consumers and cigarette smokers alike.

A nice statement: “There will always be differences between purchasers of consumer products. Unless those differences cause them to view the misrepresentations or react of the omitted information in a significantly different matter, those distinctions do not undermine the disputed but sufficient showing by plaintiffs of a presumption of classwide materiality.”

JLI argued that all equitable claims, including the youth class in its entirety, failed under Sonner v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020), because class members have complete theoretical legal relief under the CLRA or RICO claims. But plaintiffs alleged inadequate remedies at law. JLI argued that plaintiffs’ damages expert’s conjoint analysis showed that the equitable relief of restitution was duplicative of the damages sought in the California purchaser class, requiring dismissal. But this was a common issue, not a reason to deny class certification, and whether plaintiffs’ equitable claims fully overlapped their damages claims concerning each set of defendants couldn’t be resolved at this juncture, “especially because each set of defendants repeatedly argues that they are differently situated with respect to the timeframe of their conduct and the types or amount of damages/restitution potentially available to the classes under the various claims.”

Standing/uninjured consumers: TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021), says that plaintiffs must demonstrate standing for each claim that they press and for each form of relief that they seek. Since many purported class members were addicted to nicotine, JLI argued, they got what they wanted and weren’t harmed. But “consumers had a range of e-cigarettes or other nicotine-delivery devices that were available,” and a factfinder could agree with plaintiffs’ expert evidence “showing that had JLI not misrepresented its product and omitted material information, consumers would have paid less for JUUL products or have chosen different nicotine-containing products.” Also, though defendants argued that consumers who bought JUUL to resell it could suffer no injury, consumer protection law’s overpayment injury happens at the time of sale, and RICO doesn’t recognize a pass-on defense.

Superiority: if there was an aggregate damages award, defendants could introduce evidence of sales to resellers and illegal purchases by youth class members to reduce it, if those were relevant defenses (not resolved here; itself a common issue). They could also use their own and retailers’ records to show that they sold at a discount to reduce the award. And they could contest any particular class member’s entitlement to participate in a claims process. (Although JLI pointed to studies that establish “frequent product misidentification of e-cigarettes” amongst consumers, there was no evidence that JUUL products – “that to this point neither side has disputed have a very unique and obvious design” – were included in that confusion.)

If JLI timely decided to raise an arbitration agreement defense, that could also be dealt with by altering the class definition.

The court also rejected a bunch of Daubert challenges. I was particularly interested in the treatment of the opinions of Dr. Sherry Emery (U Chicago), who currently studies the impact of media marketing on the sales of e-cigarettes for the CDC. She opined on the youth-focused marketing of JUUL, and JLI criticized her for, among other things, not distinguishing between JUUL’s own content and third-party social media not under JLI’s control. “But the thrust of her opinions is that JLI’s own, intentional youth-focused-marketing and its own use of social media to push out those campaigns were intended to and did ‘seed’ significant third-party content.” Her analysis of sales data and user interaction/response to various phases of JLI’s-own campaigns did not amount to an attempt to hold JLI liable for another’s content. “It is instead showing why JLI’s own actions and content intended and caused the subsequent content.” Though this was contestable, it was not the same as holding JLI responsible for third-party content on a ratification theory, which the court rejected.

There was also a lot on damages expert Hal Singer and his conjoint analysis, which studied possible versions of JUUL with different disclosures about addictiveness and safety. Among the criticisms that went to weight rather than admissibility were defendants’ critiques that it was wrong to conduct a conjoint survey in 2021 when the relevant conduct was up to seven years prior—the court pointed out that there’s really no alternative—and that the survey failed to define “addiction” or what it meant for products to be “twice as” or “half as” addictive as a pack of cigarettes for respondents.

There were also disputes about how Singer should have handled the very real phenomenon of respondents who were willing to pay more for a product that was “twice as addictive” as cigarettes. This wasn’t a trivial number: 40% in one survey and 18% in another. But since conjoint analysis is designed to identify what the marginal consumer would have paid, Singer’s treatment was acceptable (but of course subject to cross-examination).

No comments: