Thursday, August 18, 2022

Court reduces NY GBL statutory damages award to avoid unreasonableness in Joint Juice case

Montera v. Premier Nutrition Corp., 2022 WL 3348573, No. 16-cv-06980-RS (N.D. Cal. Aug. 12, 2022)

Montera sued Premier on behalf of a class for its marketing of Joint Juice. A jury found Premier liable for violations of NY GBL sections 349 and 350 and found actual damages to the class of nearly $1.5 million, representing full refunds of the money they paid for Joint Juice. Plaintiff then sough statutory damages in the amount of $50 per unit sold for violations of GBL § 349 and $500 per unit sold for violations of GBL § 350, as well as prejudgment interest. “A reduction of statutory damages is permitted under Supreme Court and Ninth Circuit law, and is warranted in this case because the calculated amount of statutory damages, $91,436,950, is ‘so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable,’” especially given that statutory damages can’t be obtained in class actions in NY state court. The court thus reduced statutory damages to a bit over $8.3 million, but awarded prejudgment interest of nearly $4.6 million, calculated as class members’ claims accrued.

The court also refused to decertify the class or grant judgment as a matter of law. “[D]espite the possibility of recoveries in the thousands of dollars for class members, the class action remains a superior device for resolving claims in this case.”

The court had previously ruled that statutory damages would be calculated on a per-unit basis, since a violation of the law

occurs when a consumer views the label and purchases the product. This means a plaintiff may experience multiple violations of the statutes. Indeed, Premier marketed its product to encourage consumers to drink the product regularly and to make multiple purchases. Consumers were repeatedly exposed to the label, and repeatedly made the choice to buy the product.

Much of Premier’s argument was that statutory damages would be so high as to be unconstitutional in this case, but that couldn’t show that an award of statutory damages on a per unit basis would be unconstitutional in every instance. “Indeed, it is easy to imagine products for which the statutory damages to be awarded on a per unit violation would be much closer to the actual unit price, such as some smartphones or car tires.”

The parties also disputed whether Montera had to present evidence of actual damages; because the statutes allow a plaintiff to recover the greater of actual damages or statutory damages, that meant that both had to be determined and compared, so Montera was directed to prove actual damages at trial, which also assisted in the constitutional argument. The jury was only asked about actual damages, since statutory damages were a question of law for the court.

When it comes to statutory damages, “[a] statutorily prescribed penalty violates due process rights ‘only where the penalty prescribed is so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.’ ” Relying heavily on Justice Ginsburg’s dissent in the case that directed federal courts to apply federal class action rules to NY state claims for statutory damages, the court reasoned that “the New York legislature views the aggregation of those penalties across a class as a punitive measure.” Thus, this case was different from others involving high statutory damage awards, where the legislature had intended statutory damages to be available to classes.

But how is a district court supposed to adjust the damages? There isn’t much guidance, just some arbitrary numbers. The court looked at the Seventh Circuit’s direction “to start from harm rather than wealth, then add an appropriate multiplier, after the fashion of the antitrust laws (treble damages) or admiralty (double damages), to reflect the fact that many violations are not caught and penalized.” United States v. Dish Network L.L.C., 954 F.3d 970 (7th Cir. 2020).

Because the NY legislature wanted to avoid punitiveness, it was appropriate to consider punitive damage award precedents, which consider: “(1) the degree of reprehensibility of the defendant’s misconduct; (2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.” Montera’s request for over $91 million would be more than 61 times greater than actual damages, and grossly excessive. This was so despite “significant evidence of reprehensibility,” included repeated actions/continued marketing of joint health benefits to people seeking relief from joint pain and arthritis, despite evidence of Premier’s awareness of “numerous” studies pointing to lack of benefit. However, the harm was “purely economic”—consumers wasted money but weren’t physically harmed. [The court didn’t consider whether they might have delayed other treatments.] The court did mention “the intangible harm of lost hope.… Premier Nutrition may not have targeted people with financial vulnerability, but it did target people in pain who were desperate for relief. Thus, the reprehensibility factors point in both directions.”

The ratio of statutory to actual damages was “immense,” not near the single-digit ratio the Court has decided is okay. And the third due process consideration is “not quite applicable here,” because it is, in fact, “civil penalties authorized or imposed in comparable cases,” which would seem to be applicable-but-pro-plaintiff, but again, NY didn’t want that to happen, and it was arbitrary to allow higher recoveries in federal court.

So the court awarded $8.3 million, corresponding to GBL § 349(h), $50 per unit sold. “This award of statutory damages is approximately 5.59 times greater than the amount of actual damages.”

While federal courts have declined to impose prejudgment interest for statutory damages, those cases mostly involved federal causes of action; NY law provided for it regardless of the source of the damage award.

In its renewed motion for decertification, Premier’s only new argument was superiority: now that it was on the hook, individual claimants (if they bothered to sue) could get more in statutory damages on a per transaction basis because—as Premier requested—the court limited the statutory damages available in a class action. But “[e]ven a recovery in the tens of thousands of dollars would not necessarily be sufficient to pursue an individual claim in this litigation, as such a recovery still ‘pales in comparison with the cost of pursuing litigation.’” Montera was required to provide “significant amounts of scientific evidence and retain numerous experts. It is unclear how an individual plaintiff would be incentivized to undertake those costs, even if the possible recovery was in the tens of thousands of dollars.”

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