classwide damage models in misleading and false...

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Presenting a live 90-minute webinar with interactive Q&A

Classwide Damage Models in Misleading

and False Advertising Consumer Class Actions

Today’s faculty features:

Robert J. Bonsignore, Trial Lawyer, Bonsignore, Las Vegas

Dr. Jesse David, Partner, Edgeworth Economics, Pasadena, Calif.

Robert D. Phillips, Jr., Partner, Alston & Bird, San Francisco

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, NOVEMBER 30, 2017

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RECENT DEVELOPMENTS IN CASE LAW CONSTRUING COMCAST

Robert Bonsignore, Esq.

3771 Meadowcrest Dr

Las Vegas‎, NV 89121

(781) 856-7650

[email protected]

mailto:[email protected]



RECENT DEVELOPMENTS IN CASE LAW CONSTRUING COMCAST

Most federal circuit courts have interpreted Comcast as

establishing two propositions:

• A plaintiff’s model for determining class-wide damages must measure

the damages that result from the theory of liability asserted by the class.

• The presence of individualized damages inquiries does not

automatically preclude certification under Rule 23(b)(3).

District courts have varied in their willingness to accept

damages models as satisfying Comcast’s standards.

The following recent cases illustrate approaches taken by

different courts in interpreting Comcast and its impact upon

the analysis of predominance as it relates to class-wide damage

models.

6

Ninth Circuit

The Ninth Circuit has been a hotbed for false advertising cases involving food product misbranding. A number of appeals have been decided in the past year from which general principles have emerged. • The proper damages model for such claims generally is price premium, which

is the difference in the market value of a product in the condition it was delivered and its market value in the condition in which it should have been delivered.

• Plaintiffs have had difficulty in identifying a damages model that passes court muster as sufficiently isolating the premium due to their theory of liability. However, a model using a combination of hedonic regression and conjoint analysis was recently endorsed by the Ninth Circuit as acceptable which may be a template for future cases. A certiorari petition has been docketed with the Supreme Court for that case.

• Full refund model has been rejected as overcompensating and inconsistent with the idea that companies charge more for a product due to mislabeling. Nevertheless, refund model was recently upheld in case where plaintiffs claimed full restitution because the product was worthless.

7

Ninth Circuit

Briseno v. ConAgra Foods, Inc., 674 Fed. Appx. 654 (9th Cir. 2017), cert. petition docketed, April 12, 2017 • Mislabeling class action alleging that manufacturer falsely advertised

cooking oil as 100% natural. Certification upheld.

• In short opinion, Ninth Circuit found Comcast satisfied and found model measured damages associated with the theory of liability.

• Damages were to be measured by price premium as measured by two steps: 1) hedonic regression analysis to determine the premium attributable to the false labeling of 100% natural and 2) conjoint analysis to separate out the premium due to the understanding that it meant no genetically modified organism used.

• District court 141-page opinion discusses the damages model in great depth. See In re ConAgra Foods, Inc., 90 F. Supp. 3d 919 (C.D. Cal. 2015)

8

Ninth Circuit

Lambert v. Nutraceutical Corp., 870 F.3d 1170 (9th Cir. 2017) • False advertising case regarding dietary supplement. Ninth Circuit

reversed decertification by district court which had found that class’s full refund restitution damages model did not satisfy Comcast.

• Full restitution model applied when a product is shown to be worthless, and damages are calculated by multiplying the average retail price by number of units sold. Plaintiffs were claiming that the product was worthless.

• Focus was upon whether damages model matched theory of liability and whether it was supported by evidence admissible at trial.

• Interpreted Comcast as not preventing class certification where there is uncertainty regarding class members' damages “as long as a valid method has been proposed for calculating those damages” is offered.

• Of note, court found that calculation of class-wide damages for false advertising claims are “particularly forgiving.”

9

Ninth Circuit

Brazil v. Dole Packaged Foods, LLC, 660 Fed. Appx. 531 (9th Cir.

2016)

• False advertising claims regarding manufacturer’s alleged

misrepresentation and mislabeling of packaged fruit as “All Natural

Fruit” when it contained ascorbic and citric acids. Court upheld

decertification of class.

• Damages model sought full refund of price of fruit assuming it was

worthless.

• Ninth Circuit held damages should be price premium and plaintiffs did

not demonstrate how they would calculate that premium class wide

with common proof.

10

Ninth Circuit

In re NJOY, Inc. Consumer Class Action Litig., CV 14-428-JFW (JEMX), 2016 WL 787415 (C.D. Cal. Feb. 2, 2016) • Consumer class action alleging false advertising relating to e-cigarettes. Statements

at issue were that they are safer than tobacco cigarettes and omissions of material information on package were alleged regarding certain ingredients’ health risks. Certification denied.

• Amended complaint, like original one, was dismissed in part because plaintiffs had failed to demonstrate that damages were capable of measurement on a class-wide basis in violation of Comcast.

• Court rejected three damages models proposed by Plaintiffs’ expert: conjoint analysis, the direct method, and hedonic regression.

• Conjoint analysis and direct method models rejected because they ignored price at which e-cigarette manufacturers would be willing to sell their products. They were rejected also for their focus on consumers’ subjective valuation and did not permit Court to calculate true market price of e-cigarettes without the purported misrepresentations and omissions.

• Hedonic regression model similarly deficient for failure to measure only those damages attributable to manufacturer’s misrepresentations and/or omissions.

11

Ninth Circuit

Khasin v. R. C. Bigelow, Inc., 12-CV-02204-WHO, 2016 WL

1213767 (N.D. Cal. Mar. 29, 2016)

• Mislabeling consumer action against green tea manufacturer.

Certification denied.

• Court rejected full refund damages model as “too implausible” and held

damages were not provable on class-wide basis as required by

Comcast.

12

Second Circuit

Waggoner v. Barclays PLC, No. 16-1912-CV, 2017 WL 5077355 (2d Cir. Nov. 6, 2017) • Securities fraud action by investors claiming that defendant gave favored

treatment in trades to certain clients. Certification granted.

• Stated Second Circuit interpretation that Comcast had precluded class certification “only ... because the sole theory of liability that the district court determined was common in that antitrust action, overbuilder competition, was a theory of liability that the plaintiffs' model indisputably failed to measure when determining the damages for that injury.”

• Rejected attack on damages model that measured damages by measuring the drop in share price after the attorney general’s revelation of the improper practices.

• Defense had argued that damages model presented by expert violated Comcast because it did not disaggregate variations that could have been caused by factors other than concerns about defendant’s integrity and by other market forces.

• Discounted fact that share price drop may have also been due to attorney general’s action and fines as not rendering the model violative of Comcast.

13

Third Circuit

Neale v. Volvo Cars of N. Am., LLC, 794 F.3d 353 (3d Cir. 2015) • Case involved defective design claims by class of consumers against

manufacturer based upon leaky sunroofs. Third Circuit remanded case for further analysis of predominance issue as it related to presence of common questions.

• Although case was remanded in part due to lack of detailed analysis of predominance, court focused upon commonality of causes of action, rather than damages incursion, as proper inquiry.

• Third Circuit had limited interpretation of Comcast, highlighting the Supreme Court’s statement that it “was not breaking any new ground” and restricting its predominance holding to antitrust cases.

• Noted Supreme Court statement that “[r]ecognition that individual damages calculations do not preclude class certification under Rule 23(b)(3) is well nigh

14

Fifth Circuit

In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014)

• Class action for damages related to oil spill in Gulf of Mexico.

Certification upheld.

• Fifth Circuit held it is “a misreading of Comcast ” to interpret it as

“preclud[ing] certification under Rule 23(b)(3) in any case where the

class members' damages are not susceptible to a formula for classwide

measurement.”

• Rejected challenge that voluntary payments made under settlement

agreement to parties who did not demonstrate injury violated Comcast

requirement that damages model isolate damages attributable to theory

of liability.

15

Sixth Circuit

Rikos v. Procter & Gamble Co., 799 F.3d 497 (6th Cir. 2015), cert. denied, 136 S. Ct. 1493 (2016) • Consumer class action against manufacturer of probiotic supplement

alleging false advertising. Court found predominance requirement met where damages model was full refund of purchase price to all consumers.

• Defense argument that predominance not met because product worked for some consumers not sufficient to defeat certification because plaintiffs’ theory was that it did not work for anyone and, if incorrect, lawsuit would fail.

• Found damages model satisfied Comcast’s requirement that “any model supporting a plaintiff's damages case [is] consistent with its liability case,” i.e., that the model “measure[s] only those damages attributable to that theory” of liability.”

• Held that “Plaintiffs' damages model measures only damages attributable to its theory of liability, i.e., that P & G is liable if it is not proven scientifically that Align helps anyone, and thus satisfies Comcast.”

16

Seventh Circuit

Suchanek v. Sturm Foods, Inc., No. 11-CV-565-NJR-RJD, 2017 WL 3704206 (S.D. Ill. Aug. 28, 2017) • Coffee mislabeling class action regarding product that was not actually ground

coffee, but was instant coffee. District court rejected motion to decertify class in which defendants attacked experts’ opinions in support of damages model.

• Held that damages were susceptible to measurement on class-wide basis using retail damages model, which gave full refund to reflect that product was worthless, or, in the alternative, the price premium damages model.

• Distinguished other cases rejecting full refund model as typically involving “a product label that does not misrepresent the entire essence of the product but instead falsely claims the product possesses a particular premium quality.”

• Found that product “wasn't simply missing a particular premium quality advertised on the package. Instead, the package misrepresented the very essence of what was being purchased.”

• Court noted that even if damages ultimately could not be proven on class-wide basis, decertification was not required as issues class device could still be used.

17

Eleventh Circuit

Carriuolo v. General Motors Co., 823 F.3d 977 (11th Cir. 2016)

• Deceptive and unfair trade practices class action based upon

misstatements made by manufacturer as to safety ratings of vehicles.

Class certification upheld.

• Damages alleged were the price premium and court found they were

directly related to the legal theory of liability.

• Held that “individualized damages calculations are insufficient to

foreclose the possibility of class certification, especially when, as here,

the central liability question is so clearly common to each class

member.”

• Held that Comcast did not require that common questions of both

liability and damages must predominate.

18

First Circuit

Bezdek v. Vibram USA Inc., 79 F. Supp. 3d 324 (D. Mass.), aff'd, 809 F.3d 78 (1st Cir. 2015) • False advertising action by class against manufacturer alleging

footwear did not possess represented health benefits. Settlement approved.

• In course of approving settlement, price premium damages model discussed. Court held that predominance requirement met to maintain class action.

• Settlement class certification requirements met despite court note that although “plaintiffs have not provided chapter and verse to address the Comcast requirement of presenting a methodology that would allow damages to be calculated with precision on a class-wide basis, they have tendered an acceptable general damages theory.”

• Emphasized that common sense approach should be taken to Comcast in settlement context.

• First Circuit affirmance did not address issue.

19

www.alston.com © Alston & Bird LLP 2017

Classwide Damages in False Advertising Class Action Litigation

Bo Phillips, Alston & Bird LLP November 30, 2017

© Alston & Bird LLP 2017 21

Introduction

How to calculate damages when a product has value, but allegedly not as much as advertised?

How‎much‎of‎the‎purchase‎price‎was‎“excessive”?

How‎much‎of‎the‎“excess”‎can‎be‎attributed‎to‎a‎false or misleading label or advertisement?

For‎example,‎“natural‎cheese,”‎“100%‎natural‎tomatoes,”‎“all‎natural”‎Crisco‎oil,‎Beck’s‎“German”‎beer,‎“not‎sugar”‎sweetener‎in‎almond‎milk


Damages Approaches

Full Refund- the price paid for the product

Profit Disgorgement- profits on allegedly deceptive products

Actual Discount- discount the products to a corrected price reference

Regression Analysis


Spann v. J.C. Penney Corp., 307 F.R.D. 508, 529–30 (C.D. Cal. 2015), modified, 314 F.R.D. 312 (C.D. Cal. 2016)

Plaintiff was shopping at J.C. Penney and saw signs indicating an original price ($30.00) for shirts, with discount signs next to the shirts suggesting that they were on sale (for $17.99).

Plaintiff‎claims‎that‎J.C.‎Penney’s‎“original‎price”‎is‎false‎advertising because the shirts were always sold for $17.99.

Brought‎claims‎under‎California’s‎UCL,‎False‎Advertising‎Law, Consumer Legal Remedies Act, and California Business and Professions Code.


Spann v. J.C. Penney Corp., 307 F.R.D. 508, 529–30 (C.D. Cal. 2015), modified, 314 F.R.D. 312 (C.D. Cal. 2016)

Plaintiff had J.C.‎Penney’s‎internal‎pricing‎guides‎and‎historical data of its pricing.

Sought alternative damages: (1) complete restitution- full purchase price; (2)‎restitution‎based‎on‎the‎false‎‘transaction‎value’‎promised‎by‎J.C.

Penney, measured by the amount that each class member would have paid had J.C. Penney offered a discount from the actual ‘regular’‎price;‎or‎

(3) restitution in the amount that J.C. Penney profited from sales of products‎based‎on‎deceptive‎price‎comparisons.”

Court‎granted‎class‎certification‎and‎found‎that‎plaintiffs’‎damages models were appropriate because they were subject‎to‎common‎evidence‎of‎J.C.‎Penney’s‎pricing.


Expert Analysis and Admissible Evidence

Federal Rule of Evidence 702

Daubert Test

Comcast requirement‎of‎“tethering”


Federal Rule of Evidence 702

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized

knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;

(b) the testimony is based on sufficient facts or data;

(c) the testimony is the product of reliable principles and methods; and

(d) the expert has reliably applied the principles and methods to the facts of the case.


Daubert v. Merrel Dow Pharmaceuticals, Inc, 509 U.S. 579 (1993)

The trial judge must determine whether an expert is proposing to testify to (1) scientific knowledge, that is (2) relevant.

District‎court‎is‎the‎“gatekeeper”‎for‎the‎trier‎of‎fact. “This‎entails a preliminary assessment of whether the reasoning or

methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.”

Courts consider (1) whether the scientific theory can be or has been tested; (2) whether the theory has been subjected to peer review and publication; and (3) whether the theory has been generally accepted in the relevant scientific, technical, or professional community.


Daubert Some question about necessity of Daubert for the purposes of class certification

because trial judge need not act as gatekeeper for jury. For example, in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541, 2554 (2011),

district court found that Daubert does not apply at the certification stage, and the Supreme‎Court‎expressed‎“doubt”‎about‎the‎holding‎(but‎did‎not‎reject).

In re Zurn Pex Plumbing Prod. Liab. Litig., 644 F.3d 604, 614 (8th Cir. 2011):‎“We‎conclude that the district court did not err by conducting a focused Daubert analysis which scrutinized the reliability of the expert testimony in light of the criteria for class certification and the current state of the evidence.”

But, in contrast, the Seventh Circuit requires a district court to determine whether the expert testimony is not just sufficient for class certification but also ultimately admissible at trial. American Honda Motor Company, Inc. v. Allen, 600 F.3d 813, 816–17 (7th Cir. 2010).


Comcast Corp. v. Behrend, 569 U.S. 27 (2013)

“any model supporting a plaintiff’s‎damages case must be consistent with its liability case, particularly with respect to the‎alleged‎anticompetitive‎effect‎of‎the‎violation.”‎

“The‎first‎step‎in‎a‎damages‎study‎is‎the‎translation‎of‎the legal theory of the harmful event into an analysis of the economic impact of that event.”

“We‎have interpreted Comcast to mean that ‘plaintiffs‎must be able to show that their damages stemmed from the defendant's actions that created the legal liability.’” Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 987–88 (9th Cir. 2015).


Recent Reported Decisions

In contrast with Span v. J.C. Penney, significant number of courts have not certified classes for false advertising, finding that the damages issues are too individualized.

Judge Koh in N.D. Cal. decertifying two cases after Comcast, finding that experts could not adequately perform a regression analysis to isolate damages attributable‎to‎defendants’‎use‎of‎“all‎natural”‎labels. Brazil v. Dole Packaged Foods, LLC, Case No. 12-CV-01831-

LHK (N.D. Cal. Nov. 6, 2014). Werdebaugh v. Blue Diamond Growers, Case No. 12-CV-02724-

LHK (N.D. Cal. Dec. 15, 2014).



Briseno v. ConAgra Foods, Inc., 674 F. App'x 654, 657 (9th Cir. 2017) (cert denied) Plaintiffs proposed to (1) use hedonic regression analysis to

calculate‎the‎price‎premium‎attributable‎to‎the‎“100%‎Natural”‎label;‎(2) use conjoint analysis to segregate the portion‎of‎that‎premium‎attributable‎to‎a‎“no-GMO”‎understanding of the label.

Court‎found:‎“it‎was not an abuse of discretion for the district court to conclude that Plaintiffs' proffered model tracked their theory of liability and was therefore sufficient to survive class certification.”



Some circuits take a limited view of the Comcast holding.

Roach v. T.L. Cannon Corp., 778 F.3d 401, 407 (2d Cir. 2015) “Comcast held that a model for determining classwide damages

relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class's asserted theory of injury; but the Court did not hold that proponents of class certification must rely upon a classwide damages model to demonstrate predominance.”

“The‎Supreme Court did not foreclose the possibility of class certification under Rule 23(b)(3) in cases involving individualized damages calculations.”


Defense Issues

Basic FRE 702 and Daubert tests

Reliability of underlying sales/price data

Defining relevant markets and data

Inducement/causation as individualized issues

Possible overlap of consumer survey evidence


Bo Phillips Alston & Bird LLP

[email protected]

San Francisco 415-243-1080

Los Angeles 213-576-1080

Hedonic Price Regressions in False Advertising Class Actions

Jesse David, Ph.D.

November 30, 2017

Strafford Webinars

36

Determining “Value” in a False Ads Class Action

Damages (or “Price Premium”): Difference between the price paid by a consumer and the “value” actually received

• Actual price

• Consumer receipts

• Point-of-sale records

• Nielsen/IRI surveys

• Loyalty cards

• “Value” received

• Personal value or “willingness to pay”

• Potential problem for class: Likely to vary by consumer

• Market value

• The price that would have prevailed but for the misrepresentations

37

Evolution of Market-Based Methods for Measuring “But-For” Price

Comparable

Group

Hedonic

Regression

Before-and-

After

Benchmark

Product

38

What Is a Hedonic Price Regression?

Key Assumptions

• A consumer good is comprised of attributes

• Attributes affect consumer utility

• Attributes are costly to provide

• Competition drives prices to reflect costs

• Under these conditions, a regression of prices on product attributes can lead to estimates of the impact of individual attributes on price

• Waugh (1928): Impact of quality features on price • Lancaster (1966): Consumer utility as a function of product

features • Rosen (1974): Formalized idea that market prices can be

functions of product features

39

Basic Structure

Example: Single-Family Housing

P = ∝ + 𝛽1𝑋1 + 𝛽2𝑋2 + 𝛽3𝑋3 + γ1𝑍1 + γ2𝑍2 + ε

P Sales price of house

Xi Economy-wide factors affecting demand (income, interest rates) and supply (labor costs, energy prices); and local factors (school district, traffic)

Zj Variables for features: dummy (corner lot, swimming pool); non-dummy (# bedrooms, sf)

Under proper conditions, coefficients γi provide estimates of the market value of each feature

interest

rates

lumber

price school

dist.

sq.

footage corner lot

40

Typical Applications

1) Housing

2) Consumer durables

3) Produce/commodities

Key Characteristics of These Markets

• Limited number of important attributes

• Attributes are quantifiable and easily measured

• Consumer preferences for attributes are (reasonably) predictable

• Competitive marketplace

41

Potential Problem Cases: Branded Consumer Products

• Large number of hard-to-define attributes/ingredients

• Highly differentiated

• Importance of advertising and specific labels

• Limited academic literature applying hedonics to such products

42

Potential Issues with Branded Consumer Products

• Difficult to develop a priori hypotheses about coefficients • Do more calories increase/decrease price? Chocolate flavor?

• Potential multicollinearity between brand and feature of interest • May be difficult to find other-branded products with/without the particular

misrepresentation

• Large number of attributes: what to include? • Omitted variable problems

• Brands often have some pricing power • Example: Line pricing

• Little variation in price from day to day and store to store • Thousands of transactions, actually very little information

Under these conditions, coefficients on feature variables may not represent the impact

of features on price (i.e., may not provide estimates of “but-for” pricing or “price premium”)

43

Takeaways

• For hedonic regression to work, the product market and available data must meet certain conditions

• Regression is a tool, not a panacea

• Like most statistical analyses, the results can be highly sensitive to choices made by the analyst

• The more competitive the market, and the broader range of included products/features, the better chance the coefficients will make sense

• Common-sense tests (before-and-after or benchmark-product), and thorough analysis of the marketplace can be very helpful

www.edgewortheconomics.com

Jesse David, Ph.D.

Partner, Edgeworth Los Angeles

[email protected]

(626)657-7950

www.edgewortheconomics.com 45

About Edgeworth

Edgeworth Economics is a boutique economic, financial, and

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and government agencies. Our professionals include PhD

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