Overpayment is injury for Article III purposes, for now

In re Evenflo Company, Inc., Marketing, Sales Practices & Prods. Liab. Litig., 2022 WL 17174950, -- F.4th ---, No. 22-1133 (1st Cir. Nov. 23, 2022)

Manufacturers lose an opportunity to create a circuit split on whether overpaying for a product that generally has a defect, which defect did not manifest for the class plaintiffs but plausibly reduced the value of the product, provides standing for a false advertising monetary relief claim. It does, because the harm is not the defect, but the loss of the benefit of the bargain when the plaintiffs received a product worth less than represented to them. (It does not, however, provide standing for declaratory or injunctive relief.)

The district court dismissed the operative complaint in this putative class action for lack of Article III standing. The complaint alleged several misrepresentations about the safety and testing of its children’s Big Kid car booster seat and that the plaintiffs bought the seat relying on those misrepresentations. But for Evenflo’s misrepresentations, the plaintiffs allegedly would not have purchased the seat, would have paid less for it, and/or would have bought a safer alternative. The court of appeals reversed as to monetary relief.

Evenflo allegedly misrepresented its Big Kid seat as safe for children as small as thirty pounds, despite being aware “[a]s early as 1992 ... that booster seats were not safe for children under 40 pounds.” Highway safety and child safety experts allegedly kept sounding the alarm, and in 2012, “Evenflo’s top booster seat engineer” delivered an internal presentation that Evenflo should “modify[ ] the [Big Kid’s] weight rating to 40 [pounds]” in order to “discourage early transitions to booster seats,” which place younger children at an “increased risk of injury.” A senior marketing director allegedly “vetoed” this and another weight recommendation.

Evenflo also allegedly misrepresented that the Big Kid had been “side impact tested,” describing its tests as meeting or exceeding federal standards and “simulat[ing] the government side impact tests conducted for automobiles.” But federal side impact testing allegedly assesses the damage done to crash test dummies after (1) crashing “a 3,015 pound moving barrier ... at 38.5 miles per hour into a standing vehicle” and (2) pulling “a vehicle angled at 75 degrees ... sideways at 20 miles per hour into a 25 cm diameter pole at the driver’s seating location.” By contrast, Evenflo’s test was allegedly “performed by placing a product on a bench (resembling a car seat), moving that bench at 20 miles per hour, then suddenly decelerating it.” And Evenflo considered a booster seat to have failed this test only if “(1) ... a child-sized dummy escape[d] its restraint entirely, ... or (2) the booster seat itself [broke] into pieces.” An Evenflo engineer allegedly “admitted under oath that, when real children move in [ways displayed by crash test dummies in tests considered successful by Evenflo], they are at risk for injurious head contact.”

The district court reasoned that the plaintiffs had failed to establish any economic injury sufficient to pursue monetary relief because (1) the complaint did not allege that the seats failed to perform -- such that the plaintiffs had necessarily received the benefit of the bargain in purchasing them -- and (2) the plaintiffs had not plausibly shown that the seats were worth less than what they had paid for them or estimated their true value.

The complaint alleged only economic injury in the form of overpayment.  The court of appeals rejected Evenflo’s “sweeping” argument that “where a plaintiff is not actually injured by an allegedly unsafe product, she does not have standing to pursue a claim for damages.” “This court has repeatedly recognized overpayment as a cognizable form of Article III injury.” So have the other circuits in false advertising cases (as opposed to product liability cases).

“Evenflo, supported by its amici, argues that this body of precedent recognizing overpayment injuries is in tension with the Supreme Court’s recent decisions in Spokeo v. Robins, 578 U.S. 330 (2016), and TransUnion.” Those decisions require injury to be “real, and not abstract.” But they also “made clear that monetary harms such as those alleged here fall firmly on the real, concrete side of the divide. TransUnion in fact described ‘monetary harms’ as ‘traditional tangible harms’ that ‘readily qualify as concrete injuries under Article III,’ and contrasted such harms with more abstract -- although still concrete -- forms of injury, such as ‘reputational harms, disclosure of private information, and intrusion upon seclusion.’” The court here commented: “Nothing in TransUnion indicated that some monetary harms are concrete while others are not; the Court there held that properly pleaded monetary harms -- like those asserted by the plaintiffs here -- are sufficiently concrete, as compared to other, nonmonetary forms of injury, which may or may not be concrete.”

Did the complaint allege sufficient facts to plausibly demonstrate that, as a result of Evenflo’s misrepresentations, the plaintiffs spent more money than they otherwise would have? Yes. As to each plaintiff, the complaint typically alleged that “[h]ad [the plaintiffs] known about the defective nature of Evenflo’s Big Kid booster seat[ ], [they] would not have purchased the seat, would have paid less for it, or instead would have purchased one of many safer available alternatives.” Evenflo argued that the plaintiffs’ proposed alternatives were implausible because plaintiffs plausibly “forgo buying [any] car seat, given that the use of a car seat is required by law in each state where the [p]laintiffs reside.” But the complaint alleged that booster seats are meant to be used only when children outgrow other models of car seat, some of which allegedly children up to 90 pounds, and that Evenflo’s marketing the seat as appropriate for smaller children over thirty pounds “presented the product as safe for use (and purchase) sooner than it actually was, making it reasonable to infer that parents could have continued using other models rather than choosing to buy a new seat.”

Evenflo also attacked the “would have paid less for the Big Kid” option as offering no measurement for the decreased price. “But it is a reasonable inference that, if Evenflo had not marketed the Big Kid as safe for children as small as thirty pounds and as side impact tested, the product would have commanded a lower price, allowing the plaintiffs to pay less for it.” That was enough to survive a motion to dismiss on standing grounds “even without quantification of the change in market value.” Citation of scientific studies or marketing expert testimony was not required where the theory of harm was plausible based on common sense.

What about buying a safer alternative seat? Evenflo pointed out that the complaint does not allege that such alternatives would have been cheaper -- and in fact alleges that the Big Kid was roughly $10 cheaper than its chief competitor. “This argument has some force, but we conclude that, at the pleading stage, it does not defeat the plaintiffs’ standing. Given that purchasing a different seat is only one of the three alternative courses of action described in the complaint and the possibility that a cheaper alternative exists, the complaint, taken as a whole, plausibly supports the plaintiffs’ argument that Evenflo’s misrepresentations caused them to overpay.”

Evenflo also argued that the plaintiffs must at least offer “the formula” for measuring damages. “But at the pleading stage, to demonstrate Article III standing, plaintiffs need not quantify or offer a formula for quantifying their injury.”

As for injunctive relief: “The plaintiffs’ assertions about their past behavior do not plausibly allege any likelihood of relying on Evenflo’s advertising or purchasing Big Kids in the future, and so there is no impending future injury that an injunction might redress. … [A] hypothetical future injury to other unnamed ‘parents and grandparents’ does not give these plaintiffs standing.” But that dismissal would be without prejudice, as required for a dismissal on Article III standing grounds.