Class Actions

As was reported yesterday the plaintiffs in the 2011 landmark class action case Dukes v. Wal-Mart haven't given up and are now attempting to pursue regional class cases in federal courts in California, Tennessee, Texas, Florida and Wisconsin. In an attempt to overcome the issues raised by the U.S. Supreme Court, counsel for the Wal-Mart plaintiffs contend the narrower, regional classes pass muster because they are geographically focused and allegedly identify specific store, district and regional practices that led to the alleged discriminatory practices. Counsel for Wal-Mart contends the plaintiffs' class certification motion merely "recycles" arguments previously rejected by the high court, noting the remaining differences between the individual plaintiffs in each of the proposed classes.

Do these new regional classes meet the standards announced in Dukes v. Wal-Mart? How have the plaintiffs overcome the conflicts present in the initial classe, such as including female managers and their female subordinates in the same class?

Categories: Class Actions | Employment/Labor Law

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A current trend in consumer class action litigation across the country focuses on food and beverage labeling. Plaintiffs will allege that products labeled as “all natural,” being a good source of a certain nutrient, or having “no artificial ingredients” are deceptive and violate various unfair competition laws. The United States District Court for the Northern District of California has become a particularly active forum for these claims, earning the nickname, “the food court.” That court often denies motions to dismiss and grants class certification, largely relying on California’s consumer-friendly False Advertising Law, Unfair Competition Law, and Consumers Legal Remedies Act. A recent decision on one of the earliest “all natural” class actions, however, emphasizes that defendants can succeed against these claims even after losing the motion to dismiss and motion for class certification. This decision reminds us that, as with any class action, it is important to prepare the case as if you will take it to trial (and be prepared to try it) and to put the plaintiffs to the test of meeting the essential elements of their claims.

Reis v. AriZona Beverages USA LLC, No. 10-01139 RS (N.D. Cal. Mar. 28, 2013), began in March 2010 and is one of the earlier “all natural” food labeling cases. Those two plaintiffs alleged that the defendants falsely labeled AriZona Iced Tea as “all natural,” “100 percent natural,” and “natural” even though the products contain high fructose corn syrup and citric acid. The plaintiffs contended that those ingredients are not natural and that the marketing, advertising, and labeling was deceptive. The Northern District of California denied a motion to dismiss, denied a motion for summary judgment, and certified a class under Federal Rule of Civil Procedure 23(b)(2) to pursue claims under California law.

Things changed, however, after discovery had closed. The plaintiffs never disclosed any expert opinion as to whether high fructose corn syrup and citric acid are not “natural,” and they did not provide any evidence as to how to measure restitution or disgorgement under California law. Thus, the defendants renewed their motion for summary judgment.

The court took a particularly harsh view of plaintiffs’ failure to conduct basic discovery or provide evidence supporting essential elements of the claims. Central to the claims, of course, is the assertion that high fructose corn syrup and citric acid are not “natural.” The defendants provided an expert report from a food scientist who described the processes of making those ingredients, and who opined that they are natural. The defendants also provided declarations from their suppliers reflecting that the high fructose corn syrup supplied to defendants satisfies FDA natural policy, and a certificate of the natural status of their citric acid.

The plaintiffs did not offer any evidence that high fructose corn syrup is artificial. Instead, they asked the court to take judicial notice of patents issuing for the process of producing that product. They argued that high fructose corn syrup is not natural as a matter of law because a patented process is necessary to create it. The court quickly dismissed that argument as it lacked any legal support and was nothing more than an extension of plaintiffs’ contention that a product is artificial if it cannot be grown in soil, plucked from a tree, or found in the ocean. As the court noted (Slip Op. at 7), “[i]n the face of a motion for summary judgment, rhetoric is no substitute for evidence.”

The plaintiffs truly seemed to discard their “not natural” argument. Instead, they contended that the labels were misleading under California law because ordinary consumers would not know that “all natural” includes such ingredients derived through complex processes. The court rejected that argument as well because California law requires that the statements be likely to mislead the public, not merely that they could mislead the public. To succeed on this type of claim, the plaintiffs should have demonstrated by extrinsic evidence (such as consumer survey evidence) that the challenged statements tend to mislead the public. Ambiguous deposition testimony from one of the defendant’s executives about the decision to include the “all natural” labeling on the products did not meet the plaintiffs’ burden.

Equally important, the plaintiffs failed to meet their burden of establishing some way to measure damages. Under California law, plaintiffs and the class would only be entitled to restitution or disgorgement. The proper measure of such damages is the difference between what plaintiffs paid for and what they received. Even under the plaintiffs’ theory, the drinks they purchased had some value—presumably the same value as “correctly” labeled beverages that did not tout being “all natural.” But the plaintiffs did not even address this essential element of their claims. “They offer not a scintilla of evidence from which the finder of fact could determine the amount of restitution or disgorgement to which plaintiffs might be entitled if this case were to proceed to trial.” [Slip Op. at 11] That failure alone was sufficient to grant summary judgment.

Last, the court also decertified the Rule 23(b) (2) class that it had certified. The court concluded that the plaintiffs and their counsel were not adequate representatives for the absent class. The failure to even attempt the necessary discovery and to fail to address at all in their summary judgment opposition the proper measure of damages indicated they could not protect the class’ interests.

Although Ries is a district court decision, it is significant for a few reasons. First, it is an important victory for class defendants facing such food labeling claims in the Northern District of California. That court has become a magnet for these types of claims. Second, the decision emphasizes that class action defendants cannot view class certification as the end of their case. Class action plaintiffs’ reliance on the vague meaning of “all natural” can work against them on the merits of the claim. At some point, plaintiffs must prove that the ingredients they challenge truly are not “natural” or not a good source of a nutrient. While plaintiffs in this district often defeat motions to dismiss through rhetoric (i.e., it is not natural if it can’t be grown or raised), meeting the burden of proof at summary judgment is a different matter altogether. Defendants should be able to compel plaintiffs to provide, at a minimum, expert testimony to meet this burden. Of course, expert testimony must satisfy Daubert at the summary judgment stage, so that provides another avenue of attacking the plaintiffs’ case. As with every case, prepare it from the outset as if you are going to trial.

Categories: Class Actions | Food Safety

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Class Action Deemed to Be Improperly Certified by Lower Courts

CHICAGO – (March 27, 2013) The Supreme Court this morning reversed the judgment of the Third Circuit Court of Appeals in the case of Comcast v. Behrend, an opinion in alignment with the position of DRI – Voice of the Defense Bar in its amicus brief filed in August of last year. The majority held that the class action in Comcast v. Behrend was improperly certified under Rule 23(b)(3).

In this case, subscribers sued Comcast Corp. and various Comcast subsidiaries, alleging that Comcast monopolized Philadelphia’s cable market and excluded competition in violation of federal antitrust laws. To constitute a class, plaintiffs proffered an expert damages model that purported to prove each class member’s damages by evidence common to all. Comcast responded that the plaintiffs’ model was incapable of calculating damages for the class because it was based on several erroneous assumptions about the asserted claims, and indeed that common proof of damages is impossible given significant differences among the class members. The district court nonetheless certified the class.

Comcast sought review in the Third Circuit Court of Appeals, which affirmed the certification order after expressly declining to consider Comcast’s contentions. While the Third Circuit acknowledged that, “[t]o satisfy . . . the predominance requirement, Plaintiffs must establish that the alleged damages are capable of measurement on a class-wide basis using common proof,” it nonetheless insisted that “[w]e have not reached the stage of determining on the merits whether the methodology [offered by Plaintiffs] is a just and reasonable inference or speculative.” The court concluded that Comcast’s “attacks on the merits of the methodology” have “no place in the class certification inquiry.”

In his dissent, Judge Jordan stated in part, “not only have Plaintiffs failed to show that damages can be proven using evidence common to the class, they have failed to show . . . that damages can be proven using any evidence whatsoever—common or otherwise.”

The Supreme Court held that the Third Circuit erred in refusing to decide whether the plaintiff class’s proposed damages model could show damages on a class-wide basis. Under proper standards, the model was inadequate and the class should not have been certified. The vote was 5–4 with Justices Breyer, Ginsburg, Sotomayor and Kagan dissenting.

Citing the Federal Judicial Center’s Reference Manual on Scientific Evidence, the majority held that “’The first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event.’ The District Court and the Court of Appeals ignored that first step entirely.”

The Third Circuit’s approach to class certification would have allowed plaintiffs to obtain certification without showing a reasonable likelihood that they will be able to prove their class-wide claims (predominately) by common evidence. This would have significantly lowered class plaintiffs’ burden under Rule 23 and resulted in the certification of many more non-meritorious class actions.

Brief author Jonathan F. Cohn of Sidley Austin LLP, Washington DC, is available for interview or for expert comment through DRI’s Communications Office.

For the full text of the brief, click here.

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The growing industry of litigation funding will be expanding further very soon. Reuters reported last week that well known former federal prosecutor Andrew Stolper of Santa Ana, California, will open a litigation financing firm. The new company will be based in Irvine, California and will specialize in funding plaintiffs in commercial litigation cases. Firms like Stolper’s loan money to plaintiffs in exchange for a percentage of any recovery. The loans typically do not have to be repaid if the plaintiff does not recover.

Litigation financing is a very controversial practice. In 2011 the New York City Bar Association issued a formal opinion stating that it is not unethical per se for a lawyer to represent a plaintiff with a non-recourse financing agreement. However, the same opinion pointed out that there may be a loss of confidentiality due to sharing privileged information with the litigation finance company. The opinion states “a lawyer representing a client who is party, or considering becoming party, to a non-recourse funding arrangement should be aware of the potential ethical issues and should be prepared to address them as they arise.”

In addition to the various ethical concerns, one of the practical ramifications of litigation financing is that it can often complicate the resolution of a case by settlement since the funding company will typically have a lien against the proceeds, minimizing the plaintiff’s net recovery via settlement. Many mediations fail because of such liens.

Stolper enters his new business with a history of having been strongly criticized by a federal judge in 2009 for engaging in a “shameful” effort to intimidate witnesses. Further, his partner in the new venture, Peter Norrell, is a former FBI agent who pled guilty in 2010 to illegally accessing FBI records and threatening criminal prosecution to assist a friend in a debt collection matter. He received two years of probation and three months of home confinement for that incident. Apparently, Norrell and Stolper have worked together in the past and they bring their experience to the questionable litigation financing industry.

Categories: Class Actions | Defense Practice | Law Suit | Lawyers' Professionalism and Ethics

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To successfully assert a claim under New York General Business Law § 349 (h) or § 350, "a plaintiff must allege that a defendant has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice"

A claim is brought under GBL § 349 to allege misleading and deceptive trade practices and under GBL § 350 to allege false advertising. Typically, these two sections are pled in tandem, both in single plaintiff cases and in class action litigation seeking relief from consumer fraud.

In their NYLJ article (12/28/12) looking back at the significant New York State class action decisions that were handed down during 2012, authors Thomas A. Dickerson, Jeffrey A. Cohen (both Second Department judges) and Kenneth A. Manning devote special attention to the Court of Appeals decision in Koch v. Acker, Merrall & Condit, in which the court clarified that justifiable reliance is not an element of a GBL § 350 claim. Prior decisions had already done away with any reliance requirement on a GBL § 349 claim

The element of reliance had always seeming been an important defense weapon in deceptive trade practice class action litigation. In Koch, plaintiff alleged that the auction house described its wines as "extraordinary, " "absolutely stunning," and among the "greatest wines...ever experienced" when, in fact, these wines were undeniably nothing of the kind. But the First Department made short shrift of plaintiff's claims. The court gave considerable deference to the disclaimer language in the auction house's brochure which provided an "as is" disclaimer.

In addition to the "as is" caveat, the "Conditions of Sale/Purchaser's Agreement" made "no express or implied representation, warranty, or guarantee regarding the origin, physical condition, quality, rarity, authenticity, value or estimated value" of the wine. Should not a reasonable consumer, the appellate court reasoned, been alerted by these disclaimers, would not have relied, and thus would not have been misled, by defendant's alleged misrepresentations concerning the vintage and provenance of the wine it sells? In this instance, according to Decanter.com, the plaintiff was Florida billionaire, William "Bill" Koch, who apparently believed that the auction house had sold him the proverbial "bill of goods". If anyone was to read and understand the "fine print" in the disclaimer, surely a sophisticated investor like Mr. Koch would.

In answer, the Court of Appeals held that the "as is" provision does not bar the claim (at least at the pleading stage) and does not establish a defense as a matter of law.

As Messrs. Dickerson and Cohen explained in an earlier NYLJ article (4/19/12), the Koch ruling may be a "game changer" in deceptive and misleading business practices class action litigation. They cite a long series of prior appellate cases, which had established reliance as a basis for obtaining a recovery under GBL § 350, which clearly is no longer good law. In the past, New York courts were reluctant to certify GBL § 350 claims because they found that reliance was not subject to class wide proof.

When the Appellate Division issued its decision, wine industry attorney Brian Pedigo in Irvine California expressed concern to Decanter.com that it would set bad precedent if all prospective bidders had to satisfy themselves by inspection rather than to trust in the auction house's represenations. In pertinent part, he commented, "A regular Joe consumer is not going to fly overseas [or across the country] to inspect wine. A reasonable consumer will rely on the representation of the seller, and will not read or understand the fine print disclaimers". An adverse decision for the auction house, he believed, would be "horrible for consumer trust in the online auction environment; it could possibly destroy this niche market sector". Would internet commerce beadversely affected if the e-consumer was not able to trust the e-seller?

The Court of Appeals apparently agreed with Mr. Pedigo that the risk of authenticity should not entirely shift to the consumer, regardless of whether the consumer is Joe consumer or Bill Koch.

The claim against Acker Merrall is not Mr. Koch's only wine-related lawsuit. He previously brought a RICO claim against Christie's, another auction house, after purchasing four bottles of wine that he believed were connected to Thomas Jefferson, but turned out were not really that old. That Koch wine auction case ended up in the Second Circuit; but that's a story for another time.

At the end of the day, Koch serves to harmonize GBL § 349 and GBL § 350; there is no reliance pleading requirement under either statute.

However, all is far from lost for the defendants in these cases. As discussed at the outset of this article, plaintiffs must prove (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice". Accordingly, although reliance need not be shown, the plaintiff must still prove causation. Proof of causation remains plaintiff's critical hurdle in succeeding in these claims.

Republished with permission from www.toxictortslitigationblog.com

Categories: Bad Faith | Class Actions | Defense Practice | Discovery

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The recent experience of the passengers the Carnival Triumph debacle once again raises the question of remedies sought and available for cruise passengers who suffer harms while at sea. As with the Costa Concordia shipwreck a year ago, and with most hospitality-related providers, there are limitations on how and what guests can recover. Forum selection clauses, of a similar type to what most of our clients use, frequently limit where suits can be brought. For cruise passengers, who frequently travel from another location to the port city, the limitation on permissible fora can be an insurmountable hurdle to bringing suit. For the passengers on the Triumph, any claims face the additional obstacle that recoveries are likely limited to only those individuals who suffered some physical harm as a result of the incident.

These limitations are once again causing outrage among some who believe that the recourse of cruise passengers is too limited. But before jumping on that bandwagon, it is important to consider the consequences of opening the floodgates to more claims. For example, invalidating the forum selection clauses on cruise ship agreements could also open up hospitality providers like ski resorts or amusement parks, to claims far outside their operating jurisdictions.

Extending the ability of a party to recover damages for emotional “injuries” without any physical harm could also dramatically change the legal landscape. Would that allow individuals who claim to receive a “bad” dinner or view an “offensive” show the ability to recover damages for their claimed emotional injuries even without a physical harm? Even with limitations for only egregious conduct, the implications could be far-reaching for those throughout the hospitality industry and beyond.

It seems as though Carnival is attempting to thwart the legal onslaught, and possibly the push for legal changes, by offering full refunds to passengers plus cash and a voucher for future travel. We will see if it is enough. In the meantime, I wonder if those vouchers are transferrable?

Cynthia P. Arends, carends@nilanjohnson.com

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A Pennsylvania district court in CAMICO Mutual Insurance Co. v. Heffler, Radetich & Saitta, LLP (E.D. Pa. Jan. 28, 2013), refused to allow an insurer access to its insured’s defense file, holding that that the insurer was not a client of the insured’s defense counsel. There, CAMICO Mutual Insurance Co. insured Heffler, Radetich & Saitta, L.L.P. (“Heffler”) which was sued for misappropriating class action settlement proceeds. In response to the suit, Heffler selected its defense counsel, and CAMICO agreed to pay defense counsel’s fees.

CAMICO filed this declaratory judgment action seeking a finding apparently regarding the available policy limits. In connection therewith, CAMICO sought production of certain documents related to the underlying lawsuit. Heffler refused, and CAMICO moved to compel. CAMICO argued the application of exceptions to the attorney-client privilege, which the parties agreed would have otherwise protected the documents from production.

CAMICO relied on the co-client exception, which concerns where two or more clients share the same attorney. CAMICO argued that the exception applied because defense counsel represented the joint interests of Heffler and CAMICO with respect to the underlying lawsuit. The district court disagreed, relying on several authorities for the proposition that the insurer is not automatically a client of defense counsel, even when it funds its insured’s defense. Further, the district court found that based on the factual record, CAMICO was not a client of defense counsel. Therefore, the district court denied CAMICO’s motion.

Notably, the district court glossed over three important issues, which merit a brief discussion here: (1) Heffler’s choice of its own defense counsel, (2) the common interest exception as an exception to the attorney-client privilege, and (3) CAMICO’s providing a defense to Heffler in the underlying lawsuit while seeking to litigate the extent of coverage.

First, that Heffler chose its own defense counsel made the arguments in favor of the co-client exception peculiar. If CAMICO had appointed defense counsel for Heffler, there probably would have been a better argument for a co-client exception.

Second, several courts recognize the common interest doctrine as an exception to the attorney-client privilege. E.g., Waste Management, Inc. v. Int’l Surplus Lines Ins. Co., 144 Ill. 2d 178, 579 N.E.2d 322 (1991). Although the district court asserted, without more, that CAMICO’s counsel did not share information with Heffler’s defense counsel, that is the point—CAMICO desired that defense counsel provide its counsel with otherwise privileged information. This may have been a legitimate exception to the attorney-client privilege. And, the Third Circuit and the Supreme Court of Pennsylvania have not taken a position on whether they will follow the Illinois Supreme Court’s interpretation of the common interest exception as set forth in Waste Management.

Third and finally, that CAMICO was not seeking a declaration that it had no duty to defend or indemnify suggests that CAMICO and Heffler could have a common interest with respect to the underlying lawsuit. Most courts that have criticized the Waste Management reject, in pertinent part, the concept that the insurer can seek to vindicate its disclaimer of coverage in a declaratory judgment action, yet have a common interest with its abandoned insured in the underlying tort action. While subject to debate, that CAMICO was merely seeking to litigate the available limits suggests that the common interest exception may be available here.

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Law.com’s Legal Blog Watch recently noted a viral Facebook photo involving a “footlong” sandwich that appeared to be less than 12 inches long: http://legalblogwatch.typepad.com/legal_blog_watch/2013/01/how-many-inches-is-your-subway-footlong-sub.html. Citing a post from Today where restaurant customers were posting pictures of footlong sandwiches, http://lifeinc.today.com/_news/2013/01/17/16565128-wheres-the-inch-subways-footlong-falls-short?lite, Legal Blog Watch asked whether a class action or two or three would soon follow. One might reasonably question whether customers suffered any damages by the claimed shortfall. One might further question how plaintiffs’ counsel could possibly prove any sort of claim on a class-wide basis. Nonetheless, the fact that such questions come to mind shows the pervasiveness of class action litigation in today’s society. The issues inherent in the current use of the class action device are of such importance that the U.S. Supreme Court’s current docket features five merits cases involving class action claims. Those Supreme Court cases, along with a number of other cutting-edge class action topics, will be the subject of DRI’s 2013 Class Action Seminar, which will take place at the Washington Court Hotel in Washington, DC on July 25 and 26. DRI members interested in this area of law will want to attend this Program.

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With the start of the holiday shopping rush just a week away, retailers should be mindful of their responsibility to keep customers safe when large crowds gather to take advantage of well-advertised and highly-anticipated sales. Customers, drawn by the promise of “doorbuster savings” and warned of limited quantities, do not always act in the most courteous manner when rushing to enter the store and running toward the products they desire. Sadly, it has become all too common for injury, whether accidental or intentional, to occur as customers dash into and through stores during these special sales, and when a customer is injured during the clamor, a retailer can be held liable.

Although the law varies from state to state, in many states, a retailer’s duty to use reasonable care to protect customers from reasonably anticipated injuries includes foreseeing that large crowds might gather due to the advertised sales and that individuals might be injured due to the overcrowding, the congestion at the door, or the unruliness of the other customers. Consequently, a retailer may be held liable to a customer who is injured due to pushing, crowding, trampling, or jostling by other customers when the retailer conducts a promotional activity or sale that will foreseeably cause crowds to gather and push.

At least one jury has determined that reasonable care when undertaking a special promotion that might cause people to run, push, and shove includes the retailer giving warnings of the dangers involved, taking steps to control or police the crowd, using loud speakers to warn the crowd not to run over people, and warning the elderly or children to stay out of the crowd. Given the tragedies that have occurred in the past several years during “Black Friday Sales,” it is advisable for retailers to, at the very least, implement the above measures. However, the above measures may not be sufficient given the particular circumstances of a retailer. That is why each retailer should conduct a careful risk assessment evaluation that is tailored to its location and history. This assessment will allow the retailer to develop and implement a plan that keeps its customers safe and happy during this holiday season. Now go shopping!

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Terry Baynes of Thomson Reuters has an interesting article on efforts by a few plaintiffs’ attorneys to “crowd source” consumer arbitration claims. The effort arises out of the Supreme Court’s decision in AT&T Mobility v. Concepcion, 131 S.Ct. 1740 (2011), upholding class action waivers in mandatory arbitration clauses. The article discusses how two plaintiffs’ attorneys have created a website to generate consumer interest in filing multiple arbitration claims against a company with the stated goal of overwhelming the company “with hundreds or thousands of claims.” The article quotes one of the founding lawyers as saying, “If it happens enough, companies will want class actions again.” Andrew Pincus, who represented AT&T Mobility before the Supreme Court, is quoted as calling the site “marketing front for plaintiffs’ law firms.” Mr. Pincus discussed Concepcion at DRI’s 2011 Class Action Seminar in Washington, DC. DRI will hold the next edition of the Class Action Seminar on July 25 and 26, 2013. That program is expected to include discussions of the Supreme Court’s current term’s class action and collective action cases. More details on that will follow soon.

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Dukes Plaintiffs: When at First You Don't Succeed . . . .

An Important Class Action Defense Victory in the "Food Court"

Supreme Court Decision in Comcast v. Behrend Aligns With DRI Amicus Brief

Former Federal Prosecutor to Open Yet Another Litigation Financing Firm

Koch Rattles Wine Auction World: GBL § 350 "Game Changer"

Cruise-line mishaps and the Difficulty Pursuing Claims

District Court Denies Insurer Access to Insured’s Defense File

“How much is not enough? Blog asks whether class action litigation will follow if sandwiches don’t measure up.”

ON YOUR MARK…., GET SET…., SHOP!

Be Careful What You Wish For: Interesting Article On Efforts To “Punish” Companies For Using Arbitration Clauses To Avoid Class Actions

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