false advertising consumer class actions: latest developments

False Advertising Consumer

Class Actions: Latest Developments Best Practices for Bringing or Defending Misleading Advertisement Litigation

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THURSDAY, SEPTEMBER 6, 2012

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

Neal R. Marder, Partner, Winston & Strawn, Los Angeles

Michael R. Reese, Partner, Reese Richman, New York

Brian A. Troyer, Partner, Thompson Hine, Cleveland

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© 2012 Winston & Strawn LLP

Mazza v. American Honda Motor Company, Inc. and

Other Recent Trends in False Advertising Class Action Litigation

Neal R. Marder Winston & Strawn (213) 615-1700 [email protected]


Agenda

• In re Tobacco II and California False Advertising Law

• California Standing Requirements

• Economic Damages Class Actions

• Standing in Federal Court and the Mazza Decision

• Other Recent Trends

• Greenwashing Claims

• Misleading Health Claims

• Individual Sales Presentations

6


California Standing Requirements

• Proposition 64

• In 2004, California voters passed Proposition 64, which altered the standing requirement for plaintiffs bringing claims under California’s Unfair Competition Law (“UCL”) and False Advertising Law (“FAL”).

• The UCL and FAL, as amended by Proposition 64, provide that a person may pursue “representative claims or relief on behalf of others” only if that person (1) “has suffered injury in fact and has lost money or property as a result of the unfair competition,” and (2) complies with Section 382 of the California Code of Civil Procedure (the authorizing statute for class actions in California).

• Since the passage of Proposition 64, courts have continued to develop the law of UCL and FAL standing.

7


California Standing Requirements (cont’d)

• In re Tobacco II Cases, 46 Cal. 4th 298 (2009)

• The California Supreme Court held that only the named class representatives in a private enforcement action under the UCL need to plead and prove that they suffered injury in fact and lost money or property “as a result of” the alleged wrongdoing.

• The Court also held – while carefully limiting its discussion to the “fraudulent” prong of the UCL – that the “as a result of” language requires a showing of actual reliance.

8


Economic Damages Class Actions

• What is an economic damages class action?

• A class action lawsuit commenced by plaintiffs who have not suffered personal injury or damage to property, yet contend that they have been harmed because they were deprived of an economic benefit.

• Plaintiffs' class counsel avoid alleging personal injury or property damage and tailor their argument in this way to avoid losing on class certification due to individual issues predominating

• Typical Contentions in Economic Damages Class Actions

• Plaintiffs contend that they, and a class of similarly situated consumers, have been deceived into paying more for the product than they otherwise would have paid had they known the truth about the product in question (i.e., had they known about the potential dangers of using the product).


Economic Damages Class Actions (cont’d)

• Economic Damages Cases & Standing: Prior to Kwikset

• Until recently, most courts had found that allegations of economic injury alone, in the absence of physical injury or property damage, were not sufficient to establish a legally cognizable injury or standing to sue.

• Birdsong v. Apple, Inc., 590 F.3d 955 (9th Cir. 2009). • Class action alleging that the iPod was defective because it poses a risk of hearing loss.

• The alleged economic harm – purchasing a product that was allegedly worth less than the purchase price – did not constitute an injury in fact. “[T]he alleged loss in value does not constitute a distinct and palpable injury that is actual or imminent because it rests on a hypothetical risk [of future physical injury].”

• The majority of courts had reached the same conclusion: • Koronthaly v. L’Oreal USA, Inc., 2008 WL 2938045 (D.N.J.), aff’d by 2010 WL 1169958 (3d

Cir. 2010);

• O’Neil v. Simplicity, Inc., 574 F.3d 501 (8th Cir. 2009);

• Rivera v. Wyeth-Ayerst Labs., 283 F.3d 315 (5th Cir. 2002);

• Herrintgton v. Johnson & Johnson Consumer Cos., 2010 WL 3448531 (N.D. Cal. 2010).



• Economic Damages Cases & Standing: Prior to Kwikset (cont'd): The Other Side

• Prior to the recent Kwikset decision, a handful of courts, however, held that allegations of economic harm alone are sufficient to give plaintiff class standing to sue:

• Cole v. General Motors Corp., 484 F.3d 717 (5th Cir. 2007);

• Gonzalez v. Pepsico, Inc., 489 F. Supp. 2d 1233 (D. Kan. 2007);

• Sanchez v. Wal-Mart Stores, 2008 WL 3272101 (E.D. Cal. Aug. 6, 2008).



• Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011)

• The California Supreme Court held that “plaintiffs who can truthfully allege they were deceived by a product’s label into spending money to purchase the product, and would not have purchased it otherwise, have ‘lost money or property’ within the meaning of Proposition 64, and have standing to sue.”

• The Court adopted a two-part test for interpreting the “lost money or property” standing requirement. A party must:

• (1) establish a loss or deprivation of money or property sufficient to qualify as injury in fact, i.e., economic injury; and

• (2) show that the economic injury was the result of, i.e., caused by, the unfair business practice or false advertising that is the gravamen of the claim.

12


• Following Tobacco II, federal courts initially found that each and every putative class member must have Article III standing.

• Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023 (8th Cir. 2010)

• The Court of Appeals found that the holding of Tobacco II – that only the class representatives are required to meet Proposition 64’s standing requirements – “is inconsistent with the doctrine of standing as applied by federal courts.”

• “Although federal courts do not require that each member of a class submit evidence of personal standing, a class cannot be certified if it contains members who lack standing. A class must therefore be defined in such a way that anyone within it would have standing. Or, to put it another way, a named plaintiff cannot represent a class of persons who lack the ability to bring a suit themselves.”

• Fine v. ConAgra Foods, 2010 WL 3632469 (C.D. Cal. Aug. 26, 2010)

• “[E]ach class member need not submit evidence of personal standing . . . [but] a class must be defined in such a way that anyone within it would have standing.”

• “[C]lass definitions ‘should be tailored to exclude putative class members who lack standing.’”

13

Article III Standing


• More recent decisions, however, have suggested contrary views.

• Degelmann v. Advanced Med. Optics, Inc., 659 F.3d 835 (9th Cir. 2011)

• The plaintiffs in Degelmann alleged that they had been misled by the defendant’s advertising for contact lens solution because certain consumers allegedly suffered from infections due to dirty contact lenses.

• The Ninth Circuit found that the class representatives had Article III standing because they alleged facts sufficient to meet the Kwikset standing analysis.

• Stearns v. Ticketmaster Corp., 655 F.3d 1013 (9th Cir. 2011)

• The plaintiffs alleged that they were inappropriately induced into purchasing membership in a coupon service that was deceptively advertised on Tickemaster’s website.

• Citing Tobacco II, the Ninth Circuit found that individualized proof of reliance and causation is not necessary to establish standing under the UCL.

• The court also noted that only the named plaintiff needs to satisfy the standing requirements.

14

Article III Standing (cont’d)


• Delarosa v. Boiron, Inc., 818 F. Supp. 2d 1177 (C.D. Cal. 2011)

• The Central District of California, citing Tobacco II, found that the named plaintiff had standing because the “defendant’s misrepresentation or nondisclosure was an immediate cause of the plaintiff’s injury-producing conduct” and “a ‘reasonable man’ would attach importance” to the statements made by the defendant.

• Citing to Tobacco II and Stearns, the court also found that the absent class members had standing.

• Greenwood v. Compucredit Corp., 2010 WL 4807095 (N.D. Cal. Nov. 19, 2010)

• Citing Tobacco II, the Court stated, “in UCL claims for false advertising, a material misrepresentation results in a presumption, or at least an inference, of individualized reliance.”

• Rejecting Avritt, the Court stated: “This presumption of reliance, applied to all class members who necessarily received the allegedly materially deceptive solicitations, buttresses the ruling that class members suffered Article III injury.”

15

Article III Standing (cont’d)


• Mazza v. Am. Honda Co., 666 F.3d 581 (9th Cir. 2012)

• The plaintiffs purchased Acura vehicles equipped with a Collision Mitigation Braking System (“CMBS”). Alleging that Honda’s “advertisements misrepresented the characteristics of the CMBS and omitted material information on its limitations” in violation of the UCL, FAL, and CLRA.

• The district court certified a nationwide class action, concluding that the plaintiffs raised common questions of fact and determining that those common questions predominated over individual ones.

• The district court also concluded that California, the forum state, had sufficient contacts to the claims asserted; that California law could be applied to all class members regardless of their location; and that class members were entitled to an inference of reliance under California law.

16

The Mazza Decision


• The Ninth Circuit held that a nationwide class could not be certified because nationwide application of California law would impair other states’ interests.

• The court further held that a California class could not be certified because individualized issues would predominate over common issues.

• While noting that “[n]o class may be certified that contains members lacking Article III standing,” the court adopted the reasoning of Tobacco II and held that the putative class suffered sufficient “injury in fact” because class members allegedly had been “relieved of money” by Honda’s deceptive conduct.

• Notwithstanding Article III standing, however, the court concluded there was insufficient evidence to presume reliance by the class as a whole. The court explained that, “[i]n the absence of the kind of massive advertising campaign at issue in Tobacco II, the relevant class must be defined in such a way as to include only members who were exposed to advertising that is alleged to be materially misleading,” and “must also exclude those members who learned of the CMBS’s allegedly omitted limitations before they purchased or leased the CMBS system.”

17

The Mazza Decision (cont’d)


• Takeaways

• After the Mazza decision, plaintiffs will have a difficult time certifying a nationwide class under California’s consumer protection laws.

• Under the UCL, FAL, and CLRA, the presumption of reliance permitted in Tobacco II cannot properly be applied absent a “massive” and long term advertising campaign. While this reasoning is not explicitly standing-related, the Mazza decision suggests that issues of standing are relevant to the analysis of commonality and predominance of individual issues. Thus, Article III informs the Rule 23 analysis.

18

The Mazza Decision (cont’d)


• Keegan v. Am. Honda Motor Co., 2012 WL 2250040 (C.D. Cal. June 12, 2012)

• In contrast to Mazza, “[t]here is no question of different statements being made to different groups of consumers, or certain class members being exposed to information others were not. Consequently, the court concludes that any potential differences in state law concerning the proof of reliance that is necessary to prevail on consumer protection claims do not defeat predominance in this case.”

• Bruno v. Eckhart Corp., 280 F.R.D. 540 (C.D. Cal. 2012)

• The district court denied a motion for decertification of a nationwide class under the UCL, FAL, and CLRA, holding that the Mazza decision did not require reconsideration of its prior order because it did not change California state law or overrule Ninth Circuit precedent.

19

Fallout from the Mazza Decision


• Motions for certification of nationwide classes denied:

• Gianino v. Alacer Corp., 846 F. Supp. 2d 1096 (C.D. Cal. 2012);

• Ralston v. Mortg. Investors Grp., Inc., 2012 WL 1094633 (N.D. Cal. Mar. 30, 2012);

• Kowalsky v. Hewlett-Packard Co., 2012 WL 892427 (N.D. Cal. Mar. 14, 2012).

20

Fallout from the Mazza Decision (cont’d)


“Greenwashing” Consumer Class Actions

• What is a “Greenwashing” consumer class action?

• Making a false or unverifiable claim that your product or service is environmentally friendly in an effort to foster a pro-environmental image and increase sales.

• Examples of common words that could result in a claim of Greenwashing include, among others: “environmentally friendly,” “sustainable,” “gone green,” “recyclable content.”

• Symbols are also used to convey that a product is environmentally friendly or “green.”


“Greenwashing” (cont’d)

• Federal Trade Commission (“FTC”)

• The FTC has the power to protect consumers by bringing enforcement actions against companies that make false or misleading marketing claims, including environmental or “green” marketing claims.

• In order to protect consumers from unfair or deceptive practices, the FTC pronounced a multi-tiered approach of (1) issuing rules and guides for businesses, including “Green Guides,” (2) publishing materials to help consumers make informed purchasing decisions, and (3) challenging fraudulent and deceptive ads through enforcement actions.



• Recent Greenwashing Cases

• Koh v. SC Johnson & Son, Inc., 2010 WL 94265 (N.D. Cal. Jan. 6, 2010)

• SC Johnson put a Greenlist “seal of approval” label on its Windex products, suggesting these products were environmentally sound.

• The Court considered whether consumers were likely to believe the Greenlist label was being endorsed by a third party.

• It examined the context of the symbols and their use by environmental groups to describe environmentally sound products.

• It also considered the FTC’s so-called “Green Guides,” where the FTC indicated that a product label containing a globe with the words “Earth Smart” might be deceptive.

• The Court allowed the case to proceed and denied SC Johnson’s motion to dismiss, concluding that a reasonable consumer could have found the Greenlist label to be misleading.


• Recent Greenwashing Cases (cont’d) - The Flip Side:

• Hill v. Roll Int’l Corp., 195 Cal. App. 1295 (2011)

• Plaintiff, a consumer, brought a class action alleging that images of green drops appearing on Fiji Water packaging looked like seals of approval used by independent, third-party organizations. Plaintiff alleged the drop conveyed that the product was environmentally sound.

• The California Court of Appeal dismissed the lawsuit, finding that the Green Drop was not deceptive because it bore “no name or recognized logo of any group, much less a third party organization, no trademark symbol, and no other indication that it is anything but a symbol of Fiji water.”

• The court noted the image was “just a green drop, being the most logical icon for its particular product, water,” unlike the globe icon cited by the FTC.

• The court also found that the placement of the symbol, on the back of the bottle next to Fiji’s own website address, showed that it is a symbol of Fiji Water and not a third party organization.

24




• Greenwashing and Section 17200

• Trends to Watch – Potential that increased governmental regulation to prevent “Greenwashing" will give rise to Section 17200 claims based on allegedly "unlawful" business practices.

• People v. Enso Plastics, No. 30-2011-00518091-CU-MC-CJC (Orange County Superior Court, Oct. 26, 2011)

California Attorney General very recently filed a lawsuit against Enso Plastics, Aquamantara, and Balance Water Company over alleged deceptive and false labeling/marketing of plastic bottles as “biodegradable” and “recyclable” under the UCL and the FAL claiming it is an unlawful business practice to the extent the defendants violated FTC guidelines.

• Key Battleground in Greenwashing Suits – Litigation over standing requirements, injury in fact, and “long-term, extensive advertising” in light of In re Tobacco II and subsequent cases.



• Summary

• Because consumers are growing increasingly concerned about the impact of their purchases on the environment, companies are likely to try to gain competitive advantage by marketing their products and services as environmentally friendly or “green”.

• However, these types of claims, and other claims regarding corporate responsibility, run the risk of sparking consumer class action lawsuits alleging that the claims are deceptive or misleading.

• Policies and procedures should be put in place to minimize potential exposure from these types of claims.


Misleading Health Claims

• Growing Area of Litigation

• Just as companies are tempted to gain competitive advantage by marketing their products and services as environmentally friendly, so too are companies running into trouble by marketing products and services based on their healthful and nutritional value.

• Such health and nutritional claims run the risk of sparking consumer class action lawsuits alleging that the claims are deceptive or misleading.

• Increased enforcement by the FTC and FDA has lead to an increase in the filing of false advertising class actions. Indeed, plaintiffs’ attorneys have filed a number of false advertising class actions following agency enforcement actions – including actions against Kellogg, Dannon, Coca-Cola, Nestlé, and Reebok.

27


• In re Ferrero Litig., 278 F.R.D. 552 (S.D. Cal. 2011)

• Plaintiff brought a nationwide class action under the UCL, FAL, and CLRA claiming Ferrero’s long-term labeling and advertising campaign was deceptive and misleading by “promot[ing] its Nutella spread as healthy and beneficial to children when in fact it contains dangerous levels of fat and sugar.”

• Contacts with California of putative class members who resided outside of California were found insufficient to support certification of a nationwide class. The Court certified a class of California purchasers only.

• The Court found that the plaintiffs’ claims “are based on a common advertising campaign, and include common questions such as whether Ferrero’s advertising campaign misrepresented that Nutella is healthier or more nutritious than it actually is.”

28

Misleading Health Claims (cont’d)


• Red v. Kraft Foods, Inc., 2011 WL 4599833 (C.D. Cal. Sept. 29, 2011)

• “Plaintiffs’ proposed class consists of millions of consumers who purchased different products bearing different labels over the span of a decade.”

• The district court denied class certification in part because “different consumers were exposed to different representations.”

• Unlike Ferrero, Kraft did not involve a long-term, singular, uniform advertising claim.

29



• Zeisel v. Diamond Foods, Inc., 2011 WL 2221113 (N.D. Cal. June 7, 2011)

• Northern District certified false advertisement class based on Diamond’s allegedly deceptive health claims.

• In this case, the main battle was over the ascertainability of the class.

• The court rejected Diamond’s argument that the lack of records enabling one to confirm if an individual consumer actually purchased the products in question foreclosed a finding of ascertainability.

• The court held that “the [class] definition [is not] subjective or imprecise. Rather, it includes objective characteristics that would permit a consumer to identify themself as a member of the proposed class.”

30



• False advertising class actions brought on the heels of FTC and FDA enforcement actions have largely been unsuccessful:

• Fraker v. Bayer Corp., 2009 WL 5865687 (E.D. Cal. Oct. 6, 2009);

• Fine v. ConAgra Foods, Inc., 2010 WL 3632469 (C.D. Cal. Aug. 26, 2010);

• Weiner v. Snapple Beverage Corp., 2011 WL 196930 (S.D.N.Y. Jan. 21, 2011);

• Von Koenig v. Snapple Beverage Corp., 2011 WL 43577 (N.D. Cal. Jan. 6, 2011);

• Carrea v. Dreyer’s Grand Ice Cream, Inc., 2011 WL 159380 (N.D. Cal. Jan. 10, 2011);

• Scheuerman v. Nestle Healthcare Nutrition, Inc., 2012 WL 2916827 (D.N.J. July 17, 2012).

31



Individualized “Sales Pitch”

• Kelley v. Eighth Judicial District Court, 2011 WL 1631573 (Nev. April 28, 2011)

• Plaintiff sought to represent a class consisting of all purchasers of automobiles from a single dealership, including those buyers who had engaged in individual person to person negotiation and those who had engaged in no negotiations.

• The Nevada Supreme Court held that a class of purchasers who engaged in individual person to person negotiations could not be certified because the contents of the individual negations would require individual inquiries into each sale.

• Fairbanks v. Farmers New World Life Ins., 197 Cal. App. 544 (2011)

• Plaintiff’s brought a class action alleging misrepresentations about policy perks both in the materials distributed to the class and in the sales pitch made by individual agents.

• The Court affirmed the denial of class certification stating:

• “[A]gents ‘did not make standardized, uniform oral sales presentations by rote to all of their prospective . . . purchasers . . . [because] there is no evidence that the same material misrepresentations have actually been communicated to each member of the class.”

• “While policy language clearly is amenable to common proof, plaintiffs did not seek class certification on the basis that the policy language standing alone was misleading; they alleged that it was misleading in the context of the entire marketing scheme.”

• The result here might have been different if Plainitff only relied on the misleading policy language

32


Individualized “Sales Pitch”

• Gray v. Hearst Commc’ns, Inc., 2011 WL 3734413 (4th Cir. Aug. 25, 2011)

• Defendants challenged an order conditionally certifying a class action based on a uniform contractual obligation in contracts for the purchase of ad space in telephone books.

• Defendants argued that “the individualized nature of different representations that may (or may not) have been made in the negotiations” for the ad space rendered class treatment inappropriate.

• The Court reasoned that despite the fact that the “sales representatives may have had broad discretion to make different sales pitches . . ., they could not make binding promises . . . which differed from that reflected in the contract.”

• The Court held that the existence and fulfillment of any obligation was a question “capable of classwide proof” despite individualized sales presentations.

• Lesson learned - whether the class will be certified in this type of case is highly dependent on the facts and circumstances of each case.

33

PLAINTIFF’S STRATEGIES IN FALSE

ADVERTISING CLASS ACTIONS

Michael R. Reese, Esq.

[email protected]

REESE RICHMAN LLP

September 6, 2012

TWO RECENT IMPORTANT

SUPREME COURT DECISIONS

THE IMPACT OF CONCEPCION and DUKES

Two relatively recent United States Supreme Court decisions

- AT&T Mobility LLC v. Concepcion and Wal-mart Stores,

Inc. v Dukes - have had a significant impact on class action

litigation.

These two cases have resulted in the dismissal of several

actions after years of litigation and discovery.

35



The Impact of AT&T Mobility LLC v. Concepcion

On April 27, 2011, in the matter of AT&T Mobility LLC v. Concepcion, 131

S. Ct. 1740, 179 L. Ed. 2d 742 (2011), the United States Supreme Court

issued a ground-breaking decision on the enforceability of arbitration

provisions in customers.

- Concepcion reversed long established precedent (commonly

know as the “Discover Bank rule”) that had held that arbitration provisions

in consumer contracts at least under California law – were unconscionable,

and therefore unenforceable, when the arbitration agreement contained a

class action waiver.

36



The Impact of AT&T Mobility LLC v. Concepcion (cont.)

- Concepcion held that a state law that "stands as an obstacle to

the accomplishment and execution of the full purposes and objectives of

Congress" in enacting the Federal Arbitration Act (“FAA”) is preempted by

the FAA. Concepcion, 131 S. Ct. at 1753.

- In finding the so-called "Discover Bank rule" preempted by the

FAA the Court explicitly rejected the argument that "class proceedings are

necessary to prosecute small-dollar claims that might otherwise slip through

the legal system," finding instead that, "States cannot require a procedure

that is inconsistent with the FAA, even if it is desirable for unrelated

reasons."

37



The Impact of AT&T Mobility LLC v. Concepcion (cont.)

As a result of Concepcion, a number of class action cases that have been

pending for several years have been dismissed.

Indeed, judges had cited the decision no less than 75 times as a reason to

prevent potential class-action lawsuits from moving ahead.

An excellent source discussing Concepcion and its impact can be found in a

recent report by Public Citizen and National Association of Consumer

Advocates that can be found at:

http://www.citizen.org/documents/concepcion-anniversary-justice-denied-

report.pdf

38



Impact of Wal-mart Stores, Inc. v Dukes,

131 S. Ct. 2541 (2011)

- On June 20, 2011, the United States Supreme Court issued case

of Wal-mart v. Dukes, reversed an order certifying a class of a class in a

massive gender discrimination case. The Supreme Court ruled that the

class had been improperly certified under Federal Rule of Civil Procedure

23(b)(2), both because common questions were lacking under Rule

23(a)(2), and because the class had sought individualized monetary relief in

addition to injunctive and declaratory relief.

- As a result of Dukes, many motions have been made to decertify

classes. This has met with limited success.

39

Johnson v. General Mills, Inc.

case no. 10-cv-00061CJC, 2011 U.S. Dist. LEXIS 103357

(C.D. Cal. Sept. 12, 2011)

- Plaintiff brought class action asserting that the defendant had

violated California's consumer protection statutes by falsely representing

that YoPlus yogurt products promote digestive health.

- Court certified a class on April 20, 2011.

- Defendant moved for decertification after Dukes.

40

Johnson v. General Mills, Inc. (cont.)

case no. 10-cv-00061CJC, 2011 U.S. Dist. LEXIS 103357

(C.D. Cal. Sept. 12, 2011)

- Court denied the motion for decertification:

“Unlike in Wal-Mart, where the injury suffered, discrimination, happened

at the hands of different supervisors in different regions without the link of

a common practice or policy, any injury suffered by a class member in this

case stems from a common core of salient facts. The class members all

assert they were misled by a common advertising campaign that had little

to no variation. Here there is a unitary message, which Mr. Johnson

claims is fraudulent, that Wal-Mart lacked, and thus class certification is

warranted under the standard set forth in Wal-Mart.”

41

Connor B. v. Patrick

case no. 10-cv-30073-MAP, 2011 U.S. Dist. LEXIS 130444

(D. Mass. Nov. 10, 2011)

- Case involves allegations that the Massachusetts Department of

Children and Families had systemic deficiencies that placed foster children

and risk and exposed to potential harm.

- On February 28, 2011, the court certified a class.

- After Dukes, the defendant moved for decertification.

42

Connor B. v. Patrick (cont.)

case no. 10-cv-30073-MAP, 2011 U.S. Dist. LEXIS 130444

(D. Mass. Nov. 10, 2011)

- Court denied motion for decertification, holding:

“Contrary to Defendants' contention, the Wal-Mart decision did

not change the law for all class action certifications. Instead, it provided

guidance on how existing law should be applied to expansive, nationwide

class actions that are very different from the case currently before the court.

* * *

Thus, because the facts and demands for relief in Wal-Mart are readily

distinguishable from the case at hand, Defendant's argument that Wal-Mart

calls for reconsideration of the court's original certification order is

unpersuasive.”

43

Other Cases

Other cases trend the same way, i.e. denying motions for decertification:

- - Jermyn v. Best Buy Stores, L.P., case no. 08-cv-214

(CM), 2011 U.S. Dist. LEXIS 104449 (S.D.N.Y. Sept. 15, 2011) (“the

recent Dukes decision does undermine Second Circuit precedent this Court

relied on in certifying the Rule 23(b)(2) "injunction class", requiring

reexamination of that issue….Moreover, Dukes makes no new law that

impacts in any way this Court's certification of the Rule 23(b)(3) "damages

class."”)

- Bouaphakeo v. Tyson Foods, Inc., case no. 07-cv-04009 JAJ,

2011 U.S. Dist. LEXIS 95814 (N.D. Iowa Aug. 25, 2011) (“The court has

studied the Dukes decision and finds its holdings and analysis largely

inapplicable to and/or distinguishable from the instant case.”)

44

SETTLEMENT CONSIDERATIONS:

COUPON SETTLEMENTS

- The Class Action Fairness Act, 28 U.S.C. §§ 13321(d), 1453 and 1711-14 (“CAFA”) now governs class actions in federal court.

- 28 U.S.C. § 1712 governs coupon settlements and does not favor them.

- Under section 1712, to the extent attorneys’ fees are based on an award of coupons, they must be based on the value of the coupons actually redeemed by class members.

- However, section 1712 does not define coupon.

- Also, coupon settlements are subject to “heightened judicial scrutiny”

45


COUPON SETTLEMENTS

In sum: Coupon Settlements Strongly Disfavored in Federal Court.

- Since CAFA, a number of courts have rejected coupon based class action

settlements.

- Wilson v. DirectBuy, Inc., 2011 U.S. Dist. LEXIS 51874 (D. Conn. May 16,

2011) (rejecting coupon settlement, holding that “the settlement is valueless to more

than half the class. Twenty-five percent of current DirectBuy members will likely opt

not to renew their membership…suggesting that they would not view this settlement as

any award at all. Further, every class member that has chosen to leave DirectBuy will

be required to settle their claims in exchange for returning to a company that they

presumably no longer want to be a part of. This right to rejoin is not of a "value" that

falls within the range of reasonable settlements..).

46


COUPON SETTLEMENTS

- Synfuel Technologies, Inc. v. DHL Express, 463 F. 3d 646, 648 (7th Cir.

2006), (reversing district court approval of a coupon based class action settlement,

holding that “the [trial] court did not attempt to quantify the value of [the] plaintiffs'

case or even the overall value of the settlement offer to class members.").

- Acosta v. Trans Union, LLC, 243 F.R.D. 377 (C.D. Cal. 2007) (rejecting

coupon-like settlement finding that free credit reports offered as part of settlement

provided little or no value to the class because consumers were already entitled to one

free credit report, which most consumers did not redeem. Therefore, the court rejected

the settlement, noting in particular that "the economic value of the Settlement pales in

comparison to [the] Plaintiffs' potential recovery through litigation.")

- Figueroa v. Sharper Image, 517 F. Supp. 2d 1292, 1321 (S.D. Fla. 2007)

(rejecting class action settlement that offered $19 coupons for for use at the defendant's

stores reasoning that it was not the product of an informed, arm's-length negotiation”.)

47


COUPON SETTLEMENTS

National Association of Consumer Advocates (“NACA”) Guidance on Coupon

Settlements: Should only be proposed in rare circumstances.

Such instances include:

1) If the primary goal of litigation is injunctive relief and the defendant agrees to it, or

the coupons are good for small-ticket items class members are likely to purchase, or

the certificates represent true discounts not otherwise available,

2) where the coupons are freely transferable,

3) where the coupons can be added to any already existing coupons or sales incentives,

4) where the coupons are stackable, i.e., more than one can be used in a transaction;

and

5) where there is a market-maker to insure a secondary transfer market.

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COUPON SETTLEMENTS

Coupons settlements should rarely, if ever, require identifiable class members to

purchase major, large ticket items from defendant as the sole significant relief.

Coupons should have some form of guaranteed cash value, even if the cash redemption

value is less.

Coupon settlements should not be proposed to the court unless it is apparent that the

defendant is providing greater relief to the class than would be available from an all-

cash settlement.

Coupons should be for a wide variety of goods, and not just the goods at issue in the

case.

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CY PRES AWARDS

- The doctrine of cy pres - meaning “as near as possible.”

- A cy pres award takes funds from a settlement and distributes it to

organizations for the benefit of the class.

- Cy pres awards have been recognized as appropriate by both federal and

state courts. See e.g., In re Agent Orange Product Liability Litig., 818 F.2d 179 (2d

Cir. 1987); State of California v. Levi Strauss, 41 Cal. 3d 460 (1986).

- There should be some nexus between the proposed use of the funds and the

class on whose behalf the litigation was brought, or where the proposed use further the

purpose of the statutes upon which the litigation was based.

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CY PRES AWARDS

Recent Trends Regarding Cy Pres Awards

- Cy pres awards as part of settlement often bring objectors.

- While district courts tend to overrule these objections, several cases in

which cy pres awards were components of the settlement have been appealed and are

now pending before the appellate courts.

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RECENT IMPORTANT

NINTH CIRCUIT CASE

Dennis v. Kellogg Co., No. 11-55674,

2012 WL 2870128 (9th Cir. July 13, 2012)

- Plaintiffs alleged Defendant made false and unsubstantiated representations

in its advertising and labeling that consumption of Frosted Mini-Wheats products was

clinically shown to improve children's attentiveness by nearly 20%.

- Settlement included a non-revertible fund of $2.75 million to provide cash

payments to class members who submit claim forms with any money remaining to be

distributed to appropriate charities. In addition, Defendant to distribute $5.5 million

worth of specified food items to charities that feed the indigent.

- Two class members objected, arguing cy pres distributions are only proper

after it is proven that distribution to the class is impractical. The District Court rejected

this argument, and granted final approval to the settlement.

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RECENT IMPORTANT

NINTH CIRCUIT CASE (cont.) Dennis v. Kellogg Co.

- The objectors appealed to the Ninth Circuit. The Ninth Circuit reversed the

lower court’s decision granting approval of the settlement.

- With respect to the cy pres aspect of the settlement, the Ninth Circuit held

that:

“…[T]he district court did not apply the correct legal standards governing cy pres

distributions and thus abused its discretion in approving the settlement. The

settlement neither identifies the ultimate recipients of the cy pres awards nor sets

forth any limiting restriction on those recipients, other than characterizing them as

charities that feed the indigent. To the extent that we can meaningfully review such

distributions where the parties fail to identify the recipients, we hold that the cy pres

portions of the settlement are not sufficiently related to the plaintiff class or to the

class’s underlying false advertising claims.”

Dennis v. Kellogg, No. 11-55674, 2012 WL 2870128 (9th Cir. July 13, 2012)

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ONE TO WATCH: Lane v. Facebook, Inc.

case no.5:08-cv-03845-RS, 2010 U.S. Dist. LEXIS 24762 (N.D. Cal.

May 10, 2010)

- Case involved Facebook’s Beacon, which was a part of Facebook's

advertisement system that sent data from external websites to Facebook, for the

purpose of allowing targeted advertisements and allowing users to share their activities

with their friends.

- Case challenged Facebook for disseminating private information regarding

its users.

- As part of the settlement, Facebook agreed to pay $9.5 million to used to

establish and operate a privacy foundation which was devoted to funding and

sponsoring programs designed to educate users. No money went to consumers.

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ONE TO WATCH: Lane v. Facebook, Inc. (cont.)

- Four class members objected on the basis that no class members received

compensation.

- District Court overruled objections.

- Objectors appeal. Case fully briefed before Ninth Circuit and oral

argument held on October 12, 2011. Decision expected to be issued soon. One to

watch.

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APPLICATION OF STATE LAW

ON A NATIONWIDE BASIS

Impact of Mazza v. American Honda Motor Co.,

666 F.3d 581 (9th Circ. Jan. 12, 2012)

- In sum, Ninth Circuit said that California consumer protection law cannot

be applied on a nationwide basis to non-California residents.

- Has resulted in the denial of several motions for class certification seeking

application of California law on a nationwide basis.

- May also result in the increase of litigation.

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Agenda

Motions to Compel Arbitration

Substantive Motions and Defenses

Defeating Class Certification

Update on Removal and Shady Grove

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State law unconscionability doctrines disfavoring arbitration agreements, including class action waivers, are preempted by the Federal Arbitration Act.

AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011); see also CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012) (holding that class action waivers were enforceable as to claims under Credit Repair Organizations Act).

Homa v. Am. Express Co., 2012 U.S. App. LEXIS 17763 (3d Cir. Aug. 22, 2012) (affirming order dismissing class action and compelling arbitration of New Jersey Consumer Fraud Act claims, because, under Concepcion, “[e]ven if Homa cannot effectively prosecute his claim in individual arbitration, that procedure is his only remedy, illusory or not”) (emphasis added).

Kilgore v. Keybank, N.A., 673 F.3d 947 (9th Cir. 2012) (holding that the FAA preempts California “Broughton-Cruz rule” that arbitration agreements are not enforced where the plaintiff is “functioning as a private attorney general, enjoining future deceptive practices on behalf of the general public,” finding no procedural unconscionability, and declining to reach substantive unconscionability); see also Arellano v. T-Mobile USA, Inc., 2011 WL 1842712 (N.D. Cal. May 16, 2011) (compelling arbitration and holding that California rule of law that claims for injunctive relief are not subject to arbitration was preempted).

Cruz v. Cingular Wireless, LLC, 648 F.3d 1205, 1215 (11th Cir. 2011) (following Concepcion and affirming dismissal); see also In re Checking Account Overdraft Litig., 685 F.3d 1269 (11th Cir. 2012) (holding that South Carolina’s unconscionability doctrine does not interfere with fundamental attributes of arbitration, and finding that fee-shifting clause was unconscionable, but reversing denial of motion to compel arbitration, because fee-shifting clause was severable).

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Procedural unconscionability challenges may remain viable.

Coneff v. AT&T Corp., 673 F.3d 1155 (9th Cir. 2012) (reversing denial of motion to compel arbitration on grounds of substantive unconscionability of class action waiver under Washington law but remanding for determination as to procedural unconscionability, including choice of law).

Sanchez v. Valencia Holding Co., LLC, ___ Cal. Rptr. 3d ___, 2011 WL 5027488 (Cal. Ct. App. Oct. 24, 2011).

The Second Circuit also has held that Concepcion does not apply to class action waivers of federal rights (Clayton Act). In re American Express Merchants’ Litigation (Amex III), 667 F.3d 204 (2d Cir. 2012), rehearing en banc denied, 681 F.3d 139 (2d Cir. 2012).

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Substantive Motions and

Defenses

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Failure to Plead False or Misleading

Representations

Loreto v. Procter & Gamble Co., 737 F. Supp. 2d 909 (S.D. Ohio 2010) (dismissing Ohio and New Jersey statutory claims of purchasers of cough medicine with Vitamin C after finding that plaintiffs failed to allege false or misleading representations and failed to allege ascertainable loss because they received expected benefits).

Allegations of falsity were based on failure to meet FDA approval standards.

Plaintiff failed to allege that product and Vitamin C delivered no benefit.

Mason v. The Coca-Cola Co., 774 F. Supp. 2d 699 (D. N.J. 2011) (dismissing third amended complaint in "Diet Coke Plus" action that claimed "Plus" was deceptive in misleading plaintiffs to think it was healthy).

FDA warning letter confirmed that Diet Coke Plus did contain vitamins and minerals.

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Failure to Plead False or Misleading

Representations

Wright v. General Mills, Inc., 2009 WL 3247148 (S.D. Cal. 2009) (dismissing UCL, FAL, and CLRA claims for failure to plead facts supporting elements and failure to plead fraud with particularity, but denying motion to the extent based on preemption and primary jurisdiction).

Claim that advertising granola bars as “100% Natural” was misleading because they contained HFCS was formulaic and failed under Twombly/Iqbal and Rule 9(b), as did allegation of resulting economic loss.

Fink v. Time Warner Cable, 837 F. Supp. 2d 279 (S.D.N.Y. 2011) (dismissing claims under California and New York law that advertised internet speeds were misleading).

Advertising claims that service was “blazing fast” and “the fastest, easiest way” to connect were nonactionable puffing.

Plaintiffs insufficiently alleged that advertising claims of “always on” connection that was “up to 3x” faster than DSL and “100x faster than dial-up” were misleading, because their only specific complaints related to use of certain internet applications.

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Materiality and Puffing

Televisions with “industry leading black levels and contrast ratios”

“Panasonic’s alleged misrepresentations about the Televisions’ ‘industry leading’ technology and features, which create superior image and color quality, are not ‘statements of fact,’ but rather subjective expressions of opinion.” Hughes v. Panasonic Consumer Electronics Co., 2011 U.S. Dist. LEXIS 79504 (D. N.J. 2011) (dismissing complaint).

Nutella as “healthy”

“Generalized, vague, and unspecified assertions constitute ‘mere puffery’ upon which a reasonable consumer could not rely ….” In re Ferrero Litig., 2011 U.S. Dist. LEXIS 70629, at *15 (S.D. Cal. Aug. 29, 2011) (but denying motion to dismiss Nutella "healthy" advertising claim under UCL).

Claims that, e.g., vitamins with selenium “may reduce risk of prostate cancer” and provide “support for prostate” health

McKinney v. Bayer Corp., 744 F. Supp. 2d 733 (N.D. Ohio 2010) (declining to dismiss warranty claims as a matter of law).

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Materiality and Puffing

Description of iPad as “just like a book”

Baltazar v. Apple, Inc., 2011 U.S. Dist. LEXIS 147502, 2011 WL 6747884 (N.D. Cal. Dec. 22, 2011) (dismissing third amended complaint and also finding, “[p]laintiffs claim that they relied on the commercial to conclude that the device would operate ‘outdoors,’ or ‘under the conditions in the advertisement,’ (Third Amd. Compl. ¶ 35) but they allege only that the device fails to operate without interruption in a limited subset of outdoor conditions”).

Descriptions of iBook G4 as “rugged,” "mobile," "durable," "portable,“ "built to withstand reasonable shock," "reliable," "high performance," "high value," an "affordable choice," and an "ideal student laptop"

Vitt v. Apple Computer, Inc., 2011 WL 6396322 (9th Cir. Dec. 21, 2011) (affirming dismissal on grounds that these are generalized terms and not specific, measurable claims).

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Failure to Plead Reliance or Causation

In re Actimmune Mktg. Litig., 2010 WL 3463491 (N.D. Cal. Sept. 1, 2010) (dismissing consumer and payer UCL “unlawful act” claims for failure to allege reliance on allegedly misleading representations) (“Actimmune III”).

Consumers failed to allege that their prescribers believed that the drug was effective for the challenged indication as a result of allegedly fraudulent off-label promotion.

Payers failed to allege that prescribers relied upon off-label promotion as opposed to “perfectly legitimate channels of communication” with defendant.

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Failure to Plead Reliance or Causation

Cleary v. Philip Morris Inc., 656 F.3d 511 (7th Cir. 2011) (affirming

dismissal and holding that plaintiffs failed to state a claim for unjust

enrichment, even assuming that Illinois recognized an independent

tort, where they alleged no deception, causation, or harm).

Ironworkers Local Union No. 68 v. AstraZeneca Pharms. LP, 585 F.

Supp. 2d 1339 (M.D. Fla. 2008) (dismissing claims of third-party

payers under RICO, New Jersey, Pennsylvania and Tennessee

statutes, and common law for lack of proximate causation), aff’d on

other grounds, 634 F.3d 352 (2011) (affirming on grounds that

plaintiffs failed to plead economic injury).

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Motions Narrowing Plaintiffs’ Claims

Smajlaj v. Campbell Soup Co., 782 F. Supp. 2d 84 (D. N.J. 2011).

Evidence of literal truth not properly before court.

Literally true low-sodium claims could still be misleading.

Ascertainable loss alleged by personal reliance and loss of difference in price between regular and low-sodium soup (difference in value/benefit of bargain).

Label claims pled with sufficient particularity, but website claims sufficiently pled only by one plaintiff, and “marketing materials” claim insufficiently pled.

“To the extent this [as to website] raises issues with respect to the class nature of the suit, those issues will be taken up when a class certification motion is filed.”

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Motions Narrowing Plaintiffs’ Claims

Delacruz v. Cytosport, Inc., No. C 11-3532 CW, 2012 U.S. Dist. LEXIS 51094 (N.D. Cal. April 11, 2012).

Plaintiff alleged that Muscle Milk® Ready-To-Drink (RTD) and Muscle Milk® Bars were deceptively marketed because of various health and nutrition-related terms used. Motion to dismiss granted in part, denied in part.

Allegations that RTD was advertised as a “nutritious snack” containing “healthy fats” stated a claim, while allegations regarding other terms like “Healthy, Sustained Energy” and “0g Trans Fat” did not.

Plaintiff sufficiently alleged reliance upon label but not upon long-term advertising or website claims.

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Preemption and Related Defenses

Gordon v. Church & Wright Co., 2010 WL 1341184 (N.D. Cal. April 2, 2010).

Claims that condoms were falsely advertised as reducing risk of HIV transmission on were barred by FDA’s primary jurisdiction over questions of efficacy and labeling

Autin v. Solvay Pharmaceuticals, Inc., 2006 WL 889423 (W.D. Tenn. March 31, 2006).

State law claims for alleged sale of unapproved new drugs and for implied misrepresentation of approval impliedly preempted by the FDCA and subject to FDA’s primary jurisdiction.

Smajlaj v. Campbell Soup Co., 782 F. Supp. 2d 84 (D. N.J. 2011).

Claims that low-sodium tomato soup was falsely advertised were not preempted by the FDCA and NLEA to the extent based on label contents but were preempted to the extent based on alleged omissions (which would add to federal requirements).

Turek v. General Mills, 662 F.3d 423 (7th Cir. 2011).

Claims that “chewy bar” labels were misleading for lacking disclaimers regarding fiber types were preempted by Nutrition Labeling and Eduction Act (NLEA).

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Preemption and Related Defenses

Astiana v. Dreyer’s Grand Ice Cream, Inc., 2012 U.S. Dist. LEXIS 101371 (N.D. Cal. July 20, 2012).

The court held that (1) plaintiff stated claims that “All Natural Flavors” and “All Natural Ice Cream” slogans were misleading, and (2) claims were not preempted by the Food, Drug & Cosmetic Act and FDA regulations (but dismissing claim under Magnuson-Moss Act).

Hairston v. South Beach Beverage Co., 2012 WL 1899318 (C.D. Cal. May 18, 2012).

The court dismissed claims that Lifewater was deceptively marketed as “all natural with vitamins” while containing synthetic vitamins and no actual fruit, because the claims relating to use of fruit names and vitamins in labels were preempted, and the “all natural” language was not deceptive in context.

Pom Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012).

The court affirmed summary judgment for defendant on Lanham Act and UCL claims that its labeling using the word “Pomegranate” and a picture of a pomegranate were misleading because the product contained 99% apple and grape juices

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Preemption and Lack of Deception

Lack of deception and preemption are related defenses, because off-label promotion is not inherently deceptive.

In re Epogen and Aranesp Off-Label Mktg. & Sales Prac. Litig., 2009 WL 1703285 (C.D. Cal. June 17, 2009).

“[In its previous order, the Court] found that Plaintiffs could not predicate RICO and state consumer fraud claims on what are, in essence, misbranding claims, absent allegations that Amgen made false or deceptive statements. This is because off-label promotion is not inherently fraudulent; truthful off-label promotion of drugs does not violate RICO or state consumer protection laws. Rather, it violates the FDCA. But the law is very clear in that only the federal government, and not a private plaintiff, may enforce the FDCA.”

Loreto v. The Procter & Gamble Co., 737 F. Supp. 2d 909 (S.D. Ohio 2010).

The court dismissed Ohio and New Jersey statutory claims of purchasers of cough medicine with Vitamin C after finding that plaintiffs failed to allege falsity and thus were attempting to assert a private right of action for marketing an unapproved drug, and that they failed to allege ascertainable loss because they received that for which they bargained.

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Defeating Class Certification

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Class Definition

Ascertainability: are class members objectively identifiable?

Weiner v. Snapple Beverage Corp., 2010 WL 3119452 (S.D.N.Y. Aug. 5, 2010) (denying certification where, among other things, class members would not have retained receipts and labels, and a declaration process would simply invite speculation and require burdensome administration).

Overbreadth: does the definition include persons without claims?

E.g., Sanders v. Apple Inc., 672 F. Supp. 2d 978 (N.D. Cal. 2009) (striking class allegations where definition would include owners of computers who neither purchased them nor saw ads, individual reliance issues would predominate, and different state laws would apply).

Failsafe: does the definition incorporate merits inquiry (often in order to avoid overbreadth and often making the class unascertainable without detailed inquiry)?

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Commonality

“Commonality requires the plaintiff to demonstrate that the class members ‘have suffered the same injury.’ This does not mean merely that they have all suffered a violation of the same provision of law.…Their claims must depend upon a common contention - for example, the assertion of discriminatory bias on the part of the same supervisor. That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011) (emphasis added).

Challenging commonality: questions must arise from the same facts for everyone.

Is it necessarily a question in every class member’s case?

Is it the same question in every class member’s case?

Are the facts and evidence relevant to the question in the plaintiff’s case the same as the facts and evidence that are relevant to every class member’s claim?

A class action is a representative action; ultimately, the question is always whether the evidence relevant to the named plaintiff’s claim is the same evidence that would be relevant for every class member.

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Class Standing

Universal class member standing required.

E.g., Avritt v. Reliastar Life Ins., 615 F.3d 1023, 1034 (8th Cir. 2010); Webb v. Carter’s, Inc., 2011 WL 343961, at *6-9 (C.D. Cal. Feb. 3, 2011).

In re Light Cigarettes Mktg. & Sales Practices Litig., 2010 U.S. Dist. LEXIS 124774 (D. Me. Nov. 24, 2010).

“Even assuming that the California UCL and the Washington D.C. CPPA recognize and injury ‘for having been exposed to misrepresentations,’ the Plaintiffs still must prove that each class member bought a misrepresented product.…In the context of this case, the Court cannot conclude that the Plaintiffs are able to do so with common proof. Standing prevents plaintiffs from suing based on misrepresentations made to others.”

Standing not required?

Glazer v. Whirlpool Corp., 678 F.3d 409 (6th Cir. 2012) (affirming pre-Wal-Mart v. Dukes certification of consumer class and holding that certification may be appropriate “[e]ven if some class members have not been injured by the challenged practice”) (quoting Gooch v. Life Investors Ins. Co. of Am., 672 F.3d 402, 432 (6th Cir. 2012), an injunctive relief action certified under Rule 23(b)(3)).

Kohen v. Pacific Inv. Mgt., 571 F.3d 672 (7th Cir. 2009) (stating that “as long as one member of a certified class has a plausible claim to have suffered damages, the requirement of standing is satisfied,” even though “a class should not be certified if it is apparent that it contains a great many persons who have suffered no injury”).

Defining standing down

Degelmann v. Advanced Medical Optics Inc., 2010 WL 55874 (N.D. Cal. 2010) (reversing summary judgment and holding that claim that plaintiffs would have paid less or not purchased at all satisfied standing, despite the fact that they would have purchased another brand).

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Standing and Choice of Law

Some courts have held that standing to represent class members under laws of other states depends on Rule 23(a) adequacy.

In re Bayer Corp. Combination Aspirin Prods. Mktg. and Sales Practices Litig., 701 F. Supp. 2d 356 (E.D.N.Y. 2010).

Others have held that claims under laws of states under which no plaintiff has standing should be dismissed.

E.g., Smith v. Pizza Hut, Inc., 2011 WL 2791331 (D. Colo. July 14, 2011) (employment case).

Note: a similar split of authority exists as to standing and purchasers of different products.

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Adequacy and Typicality

A plaintiff who seeks class-wide relief already available through defendant’s voluntary refund program does not fairly and adequately represent class members. In re Aqua Dots Products Liability Litig., 654 F.3d 748 (7th Cir. 2011).

“Plaintiffs want relief that duplicates a remedy that most buyers already have received, and that remains available to all members of the putative class. A representative who proposes that high transaction costs (notice and attorneys' fees) be incurred at the class members' expense to obtain a refund that already is on offer is not adequately protecting the class members' interests.” Id. at 752.

A plaintiff who does not share the same injuries is an inadequate representative, and her claims are not typical. Peviani v. Natural Balance Inc., 2011 WL 1648952 (S.D. Cal. May 2, 2011) (holding that wife of male performance enhancement product user suing for economic loss failed to satisfy adequacy and typicality requirements because she did not suffer injuries users may have suffered).

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Injunctive Relief Classes (Rule 23(b)(2))

Certification is often sought under both 23(b)(2) and

23(b)(3).

Individualized claims for monetary relief may not be certified

under Rule 23(b)(2) (at least if the monetary relief is not

incidental). See Dukes, 131 S. Ct. at 2557-59.

If certification is sought under Rule 23(b)(2), is injunctive relief

moot?

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Predominance and Superiority (Rule 23(b)(3))

Pelman v. McDonald’s Corp., 272 F.R.D. 82 (S.D.N.Y. 2010) (denying class certification).

Individual questions

Whether class members purchased because they believed the products healthy

Causal relationship between fatty, salty food and alleged health conditions

Sources of food consumed

Rule 23(c) issue certification also denied for lack of proof of numerous persons of age who relied upon advertising and suffered health effects as a result.

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Predominance and Superiority (Rule 23(b)(3))

Weiner v. Snapple Beverage Corp., 2010 WL 3119452

(S.D.N.Y. Aug. 5, 2010) (denying certification).

Claim that consumers paid more for beverages because of “All

Natural” labeling could not be proved on a class-wide basis

(causation and actual injury).

Economist’s contention that he could develop models showing

injury to all consumers was speculative and insufficient.

The potentially millions of class members were also

unascertainable, since purchasers likely did not retain receipts.

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Absent Class Member Reliance in UCL Cases

Plaintiffs alleged that Honda advertising failed to disclose material facts about Collision Mitigation Braking System.

The Ninth Circuit reversed certification of nationwide (44-state) class under California law (UCL, etc.). Mazza v. American Honda Motor Co., 666 F.3d 581 (9th Cir. 2012).

Common questions did not predominate.

Application of California law to non-California members would impair other states’ interest in regulating consumer transactions.

No presumption of reliance applied under the UCL in the absence of a long-term, widespread (and consistent) advertising campaign to which it is reasonable to presume all class members were exposed. (Distinguishing Tobacco II.) Alleged omissions do not raise common questions it is reasonable to assume that all members were exposed to the advertising.

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Standing and Commonality in Mazza

Holdings and reasoning

The commonality requirement was satisfied by common questions of duty to disclose and materiality of undisclosed facts.

The requirement that all class members have standing was satisfied because the UCL allows restitution to class members “without individualized proof of deception, reliance, or injury.” (Citing Tobacco II.)

Plaintiffs claimed that all class members “paid more” for vehicles.

“To the extent that class members were relieved of their money by Honda’s deceptive conduct—as Plaintiffs allege—they have suffered ‘injury in fact.’”

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Standing and Commonality in Mazza

Problems

The court also held that California law could not be applied to the whole class.

How then could the UCL establish universal standing?

How could alleged omissions raise common questions of law without accounting for differences in law?

The court also held that no presumption of reliance applied, because it was not reasonable to believe that all class members were exposed to the ads.

How then could all class members have standing by virtue of having been “relieved of their money by Honda’s deceptive conduct”?

How could the question of duty to disclose be common to all members when, “[f]or everyone in the class to have been exposed to the omissions, as the dissent claims, it is necessary for everyone in the class to have viewed the allegedly misleading advertising.”

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No Fraud on the Consumer/Payer Market

UFCW Local 1776 v. Eli Lilly Co., 620 F.3d 121 (2d Cir. 2010) (reversing certification of nationwide RICO class of Zyprexa payers and rejecting “excess price” and “excess sales” theories of fraud on the market).

McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008) (reversing certification of nationwide RICO class of light cigarette purchasers and rejecting fraud on the market to show but-for and proximate causation, injury, and damages under RICO).

In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, No. 2:06-cv-5774, 2009 WL 2043604 (D. N.J. July 10, 2009) (dismissing consumer RICO and state-law claims and rejecting numerous damage theories including class-wide price premium and price differentials).

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No Fraud on the Consumer/Payer Market

Int’l Union of Operating Eng’rs Local No. 68 Welfare Fund v. Merck & Co., 192 N.J. 372 (2007) (reversing certification of drug consumer and payer NJCFA classes based on price inflation theory of ascertainable loss).

Southeast Laborers Health & Welfare Fund v. Bayer Corp., 655 F. Supp. 2d 1270, 1283 (S.D. Fla. 2009) (“I find that the Zyprexa court's reliance on this type of fraud on the market theory of damages and/or causation is simply misplaced. This is because the fraud on the market theory relies on an efficient market theory.”).

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Illusory Commonality and Predominance

Alternatively, plaintiffs may attempt to satisfy Rule 23’s commonality and predominance requirements with statistical evidence purporting to show that sales were a result of fraud, even where they do not purport to use “price effects” and “quantity effects.” They often prove that commonality and predominance are lacking, rather than that they are satisfied.

Example: In re Neurontin Sales & Mktg. Litig. 244 F.R.D. 89 (D. Mass. 2007) (“Neurontin I”); In re Neurontin Sales and Mktg. Practices Litig., 257 F.R.D. 315 (D. Mass. 2008) (Neurontin II).

Statistical (econometric) analysis may demonstrate aggregate numbers of fraudulently induced prescriptions but cannot show which ones.

Even if competent proof that 75% of prescriptions were fraudulently induced, which ones?

Flawed methodology for indications allegedly >99% caused by fraud.

Off-label promotion not necessarily fraudulent

Off-label prescribing based on factors other than promotion by Lilly

Differences between TPP knowledge and formulary practices also precluded TPP class.

Statistics do not describe individual events or subjects (ecological fallacy).

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More Reliance and Causation Loopholes

Fitzpatrick v. General Mills, Inc., 635 F.3d 1279 (11th Cir. 2011) (approving certification of class of probiotic yogurt purchasers but vacating certification order solely because class definition incorporated actual reliance, which is not an element of Florida Deceptive and Unfair Trade Practices Act claim).

How would injury and damages be determined without adopting fraud on the (consumer) market? Where is class-wide causation?

Lee v. Carter-Reed Co., 203 N.J. 496, 4 A.3d 561(N.J. 2010) (reversing denial of class certification where plaintiff alleged that diet supplement Relacore provided none of its advertised benefits to anyone).

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Affirmative Defenses

Defendants have the due process right to litigate individual

defenses, including affirmative defenses, individually.

Dukes, 131 S. Ct. at 2561 (holding that class certification would deprive

defendant of right to litigate individual defenses, in violation of Rules

Enabling Act and defendant’s right of due process).

In re Light Cigarettes Mktg. & Sales Practices Litig., 2010 U.S. Dist.

LEXIS 124774 (D. Me. Nov. 24, 2010) (holding that limitations and

voluntary payment doctrine required individual inquiries).

In re St. Jude Medical, Inc., Silzone Heart Valve Prod. Liab. Litig., 522

F.3d 836 (8th Cir. 2008) (holding that class treatment would deprive

defendant of right to litigate individual defenses).

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Removal and Shady Grove

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Class Action Fairness Act

Jurisdiction based on minimal diversity

Advantages of Federal Court

Often more favorable procedure and procedural law

Coordination (especially after Smith v. Bayer, ___ U.S. ___, 131 S. Ct. 2368 (2011))

Potentially more effective enforcement of judgments

Potential Disadvantage

Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., ___ U.S. ___, 130 S. Ct. 1431 (2010) (holding that state law class action prohibitions that are procedural rather than substantive do not supersede Rule 23 in federal court).

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Federal courts have interpreted and applied Shady Grove in different ways, reaching varied results.

Some have applied the reasoning of the plurality opinion written by Justice Scalia, and others the narrower reasoning of the concurrence written by Justice Stevens.

Several courts, for example, have held that the restriction on class actions in the Ohio Consumer Sales Practice Act is substantive and bars federal class actions, both applying the narrow reading.

See Leonard v. Abbott Labs., 2012 U.S. Dist. LEXIS 30608 (E.D.N.Y. Mar. 5, 2012); McKinney v. Bayer Corp., 744 F. Supp. 2d 733 (N.D. Ohio 2010).

Other courts have reached different conclusions about other state law rules

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false advertising consumer class actions: latest developments

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