Consumer Class Actions and Mass Torts

Federal Court Holds State Product Liability Act Trumps other Causes of Action, Including the State's Consumer Fraud Act

Russell Jackson — Fri, 12 Mar 2010 04:00:00 -0500

We defense lawyers have grown so accustomed to plaintiffs trying to repackage a products liability claim as one for consumer fraud that we sometimes forget to check a state's products liability statute for potential defenses when the complaint fails to mention it and instead cites the state's consumer fraud act. But by failing to look at the product liability statute, we may be passing up an important defense, as was demonstrated in Mitchell v. Proctor & Gamble, 2010 WL 728222 (S.D. Ohio Mar. 1, 2010).

The plaintiff in Mitchell brought a putative class action against the maker of an over-the-counter heartburn medicine, Prilosec OTC. The plaintiff, who said he was the only one who became ill after a buffet-style dinner party, claimed that taking Prilosec OTC predisposed consumers to contracting food-borne illnesses. His class was defined as all consumers of Prilosec OTC from 2004 to the present. He asserted causes of action for strict liability failure to warn, negligent failure to warn, violations of Ohio's Consumer Sales Practices Act, breach of express warranty, and breach of implied warranty.

The court first analyzed the defendants' argument that the entire action was preempted by Ohio's Products Liability Act. The OPLA defined a "products liability claim" as a civil claim seeking recovery for compensatory damages from a manufacturer for death, personal injury, emotional distress, or property damage arising from the product's design, any warning or instruction, or the product's failure to conform to a warranty. Id. at *2-*3. The OPLA had eliminated all common-law product liability causes of action.

The plaintiff sought recovery for "treatments for food-borne illnesses," "the purchase price of the product," and the difference between the market value of the product and its actual value. But the court held that "[plaintiff] cannot separate out his claims from the purview of the OPLA simply by claiming only economic losses. His claims . . . are products liability claims. And the injury he is alleged to have suffered relates directly to that product." Id. at *4.

The court also noted that there was a long line of authority holding that where a plaintiff used the consumer fraud statute (the OCSPA) to assert claims that were primarily rooted in products liability claims, the OPLA preempted those claims, too. Id. Accordingly, the court dismissed all of plaintiff's claims without prejudice for him to plead a proper claim under the OPLA, which he had not previously cited. Thus, an unpled product liability statute proved to be the Defendant's best weapon to defeat a host of consumer fraud claims.

In dicta, the court also commented on the inadequacy of the factual pleadings under the Rule 8 standard of Twombly/Iqbal. Plaintiff alleged that he attended a dinner, that he had been taking Prilosec, and that he was the only one who became sick. That, the court held was not enough:

Nowhere in [plaintiff's] factual allegations does he connect his assertion that Prilosec OTC increase the risk of foodborne illness with the circumstances surrounding his illness. Thus, his Amended Complaint is full of "naked assertions" that are lacking "further factual enhancement." This Court cannot make inference upon inferences to provide the factual enhancement to [plaintiff's] claims.

Id. at *5 (citations omitted).

Ultimately, the court held that plaintiff should have another chance to plead an OPLA claim with sufficient factual particularity. But it was clear from Mitchell that both the common law and OCSPA claims were preempted -- proving once again that it pays to check statutes that are not cited in the complaint when making decisions about motions to dismiss and affirmative defenses.

Torts Twits of the Month: NY Assembly Members Ortiz, Markey, and Perry

Russell Jackson — Wed, 10 Mar 2010 18:17:04 -0500

I'm instituting a new feature on the blog this month: "Torts Twit of the Month." Each month I'll name someone who has done something exceptionally ridiculous in the field of torts be our Twit of the Month. Who knows, if it catches on, perhaps we can vote for our favorite Torts Twit of the Year!

The idea came to me as I read about the legislation featured below. To be candid, I'm not at all sure that I'll be able to keep up a Torts Twit of the Month feature. Most folks who do things that I disagree with in the field of torts are motivated by a legitimate reason. I may not agree with it, but I wouldn't go so far as to call them a twit. Biased, maybe. Wrong even. But not a twit.

But every once in a while you come across some bozo who is just soooo far out there that he just cries out for recognition of some kind. Here are their stories.

Three members of the New York Assembly make up our first recipients of the Torts Twit of the Month honors. This great triumvirate sponsors legislation to ban New York restaurants from cooking with salt.

Yes, you read that right: BAN New York restaurants from COOKING with ANY salt WHATSOEVER!

This salty troika's bill would empower the Attorney General -- who surely has better things to do -- to go to court to enjoin restaurants that violate the salt ban "without requiring proof that any person has, in fact, been injured or damaged thereby." The bill also would allow civil penalties of up to $1,000 for each instance of a restaurant's use of salt in meal preparation.

Salt, of course, is the oldest known food additive. It enhances other tastes, so that sweets taste sweeter and bitters less bitter. Salt is used in everything from eggs to soups to baked goods. It even acts as a preservative in my favorite Easter ham.

Which is what makes it so darn ridiculous that our March Torts Twits want to ban it entirely from restaurants. These elected officials are no doubt motivated by a desire to improve public health by lowering our salt intake. They may even have compelling personal stories about family experiences with health issues caused by the overconsumption of salt.

But that does not excuse the sheer hubris of this trio of local politicos in deciding for the rest of New Yorkers that they shall never have salt in a restaurant meal again. That's no way to approach a public health problem. Education? Sure. Public information campaigns? You bet. Targeted interventions by medical professionals? Absolutely.

But for the arrogance to assume the power to tell New Yorkers what we can and can't eat in our increasingly expensive restaurants, these three Assembly members have jointly earned the title of Torts Twits of the Month:

Assemblyman Felix Ortiz

District 51 (Brooklyn)

Salt Ban Sponsor

Assemblywoman Margaret M. Markey

District 30 (Queens)

Salt Ban Co-Sponsor

Assemblyman N. Nick Perry

District 58 (Brooklyn)

Salt Ban Multi-Sponsor

Another Federal Court Denies Class Certification Where Class Is Overbroad

Russell Jackson — Wed, 10 Mar 2010 17:09:40 -0500

A recent tobacco decision out of the Northern District of Illinois highlights the importance of challenging the class definition in the defense of consumer fraud cases. in Cleary v. Philip Morris USA, Inc., 2010 WL 680957 (N.D. Ill. Feb. 22, 2010), plaintiffs had brought three different class actions against the tobacco industry. One was for illegal underage smoking, one was for nicotene addiction, and one was for allegedly deceptively marketing "low tar," "light," and "ultra light" cigarettes as safer than other cigarettes.

Because of summary judgments that previously had been granted, the first two classes failed for lack of a representative plaintiff. But the court considered the class certification motion for the "light" cigarettes case.

The class was defined expansively: "persons who purchased and consumed Marlboro Lights in Illinois 'from the time such cigarettes were placed into the stream of commerce until the date that the defendant publicly and adequately disclosed to consumers the true nature and effect of these cigarettes." Id. at *1.

The court found that the complaint met the numerosity and commonality requirements of Rule 23(a), but it failed to meet the typicality requirement for two reasons. First, the plaintiff did not explain how he intended to demonstrate that he suffered an injury from defendant's alleged fraud and how that was typical of the class members. Second -- and more important -- the court focused on the overbreadth of plaintiff's class definition.

As the court explained:

Class C is defined so broadly that it is likely to include persons who suffered no detriment at all due to Philip Morris's conduct. Some class members may have purchased Marlboro Lights for reasons wholly unrelated to its purportedly less-unhealthy qualities--for example, because they preferred the flavor of other brands. And other class members may have purchased Marlboro Lights despite being completely unaware of claimed differences between the adverse effects of "light" cigarettes and other, non-"light" brands. It is not entirely clear where Cleary fits in along this spectrum. Though it is true, as Cleary points out, that factual differences among the claims of class members do not necessarily defeat typicality, the likelihood that some significant proportion of class members experienced no injury at all does, at least in a case like this one in which proof of detriment is a necessary element of the claim.

Id. at *4 (citation omitted).

Whether the court treats it as part of the element of typicality, as the Cleary court did here, or whether it treats it as a fundamental problem with the class definition, "overbreadth" (i.e., including within the class people who were uninjured by the product) presents serious problems that go to the core of who is going to be bound by the verdict and how the proof is going to establish classwide truths. That is why courts increasingly are denying class certification to overbroad classes.

Microsoft Wins Another CPA Claim in Washington

Russell Jackson — Tue, 09 Mar 2010 15:18:46 -0500

Right around Christmas I gave you a boxed set of decisions involving Apple as a defendant. Today I thought I would even the score a bit and report on a short decision by U.S. District Judge Marsha J. Pechman regarding claims against Microsoft.

In Alvarado v. Microsoft Corp., 2010 WL 715455 (W.D. Wash. Feb. 22, 2010), the plaintiff had brought a putative class action under Washington's Consumer Protection Act, as well as a common law claim of unjust enrichment and a request for declaratory judgment. Plaintiff complained that customers who buy new computers and only want to run Windows XP must first buy a computer with Vista or Windows 7 and then "downgrade" their computer to XP.

Plaintiff alleged that she bought a Lenovo laptop that included a license to use the Vista Business Operating System.

Judge Pechman analyzed the CPA claim first, holding that plaintiff failed to plead that she was a direct purchaser, thus running afoul of the CPA's direct purchaser requirement. Washington's intermediate appellate court had rendered a decision in a pharmacy case that patients who buy medicines from a pharmacy are indirect purchasers who do not have claims against the maufacturers. See Id. at *2 (citations omitted).

She also held that plaintiff failed to identify an unfair or deceptive act or practice. Unfairness, under Washington law, requires a legislative declaration that certain acts are per se unfair. There were no such declarations here. Second, there was nothing deceptive about Microsoft's conduct of selling new computers with the most advanced operating systems. Because the plaintiff had been given multiple opportunities to plead a CPA claim, the court dismissed this count with prejudice.

The court dismissed the unjust enrichment count without prejudice. The court rejected Microsoft's argument that an indirect purchaser cannot assert an unjust enrichment claim. Id. at *5. She did note, however, that plaintiff never pled that she had to pay for a downgrade; in fact, from the complaint it seemed that she received both XP and Vista for the price of one. Accordingly, there was no unjust enrichment. And since there was no unjust enrichment and no violation of the CPA, there could be no declaratory judgment.

Financier Worldwide Publishes Article of Mine on Third Party Payor Cases

Russell Jackson — Wed, 03 Mar 2010 12:44:40 -0500

Recently I contributed an article to the magazine Financier Worldwide on the subject of third party payor suits in the United States. You can find the article here, in their March issue.

California's Second District Court of Appeals Takes Narrow View of In re Tobacco II

Russell Jackson — Sun, 28 Feb 2010 14:13:59 -0500

When the California Supreme Court issued its opinion last summer in In re Tobacco II Cases, 46 Cal. 4th 298 (2009), many commentators viewed it as a fundamental sea change in California's Unfair Competition Law jurisprudence, reading concepts of standing completely out of UCL class actions. Others, however, were mindful of the context in which it arose, observing that the rules developed in tobacco and asbestos cases often are not rules of general application.

The Second District Court of Appeal recently issued a decision that suggests the latter view may be right. In Pfizer v. Superior Ct., 2010 WL 660359 (Cal. App. Feb. 25, 2010), a consumer had sued the manufacturer of Listerine for a promotion it had run in 2004 to 2005 in which some TV ads and some product labels suggested Listerine was as effective as flossing in preventing plaque buildup. The trial court had certified the following broad class: "all persons who purchased Listerine, in California, from June 2004 through January 7, 2005."

The Court of Appeal had reversed, holding that the class definition was overbroad because it included numerous people who had no claim as a matter of law. After the California Supreme Court decided In re Tobacco II, holding that Proposition 64's injury requirements do not apply to absent class members, it directed the Second District to reconsider its decision in light of the new opinion.

The Second District did so, and once again reversed the class certification. In examining In re Tobacco II, the court noted that the tobacco case involved a decades-long campaign of allegedly deceptive and misleading advertising to which nearly everyone was exposed. Id. The Second District held that although Tobacco II allows a plaintiff who actually relied on the misleading advertising to represent others who may have lost money as a result of it, "Tobacco II does not stand for the proposition that a consumer who was never exposed to an alleged false or misleading advertising or promotional campaign is entitled to restitution." Id.

The court held that the class was overbroad because it encompassed many people who have no cause of action. The court noted that "unlike the saturation advertising promulgated by the tobacco defendants, the Listerine 'as effective as floss' campaign was limited in its scope and lasted just over six months." This led the court to conclude:

[L]arge numbers of class members were never exposed to the 'as effective as floss' labels or television commercials. As to such consumers, there is absolutely no likelihood they were deceived by the alleged false or misleading advertising or promotional campaign. Such persons cannot meet the standard of section 17203 of having money restored to them because it 'may have been acquired by means of' the unfair practice. In the language of section 17203, with respect to perhaps a majority of class members, there is no doubt Pfizer did not obtain any money by means of the alleged UCL violation.

Id. See also id. ("one who was not exposed to the misrepresentations and therefore could not possibly have lost money or property as a result of the unfair competition is not entitled to restitution").

Consumer Has No "Ascertainable Loss" under Consumer Fraud Act Where His Product Performed Throughout Warranty Period

Russell Jackson — Fri, 26 Feb 2010 14:46:22 -0500

Cars -- like diamonds -- are forever. Or so we'd like to think. I used to have a vintage Mercedes that I bought for $4,000. I loved to sit in that car. Of course, that's all I could do with it. It never really ran. But I looked fantastic in it, sitting in my garage. My friends used to say it looked like a sedan a Latin American dictator would be assassinated in -- which was fitting, since it killed me to junk that car (which, it turns out, was held together with Bondo).

Gilbert Noble, no doubt, knows what I mean. He bought a 1999 Porsche 911 Carrera Coupe in 2005. It was already out of warranty (4 years/50,000 miles). The 1999 911 was the first year that Porsche began equipping their products with a water-cooled engine. Gilbert used his car for about a year, when he started noticing smoke billowing from the tailpipe. It turns out that antifreeze had leaked into the car's oil through a defective cylinder, irreparably damaging the engine.

Gilbert wrote Porsche. Porsche said, "Sorry, you didn't buy the car from us, and it was out of warranty when you bought it." So Gilbert sued Porsche, asserting two causes of action: (1) strict liability, and (2) violation of New Jersey's Consumer Fraud Act. The court dismissed his claim on the pleadings. Noble v. Porsche Cars North America, Inc., 2010 WL 606305 (D.N.J. Feb. 19, 2010).

The court made easy work of Gilbert's strict liability claim, holding that it was barred by the economic loss doctrine, which "bars tort claims for harm sustained to the product alone, as opposed to harm to persons or other property damage." Id. at *3.

The claim under New Jersey's Consumer Fraud Act ("CFA") was more difficult. There are three elements to a CFA claim: (1) unlawful conduct, (2) an ascertainable loss, and (3) a causal relationship between the two. The court held that, under New Jersey law, "a plaintiff cannot maintain an action under New Jersey's CFA when the only allegation is that the defendant 'provided a part -- alleged to be substandard -- that outperforms the warranty provided." Id. at *4. To hold that the CFA covers parts failures beyond the warranty period "'would be tantamount to rewriting that part of [the] contract which defined the length and scope of the warranty period . . . [which] would also have a tendency to extend those warranty programs for the entire life of the vehicle.'" Id. (citation omitted).

Gilbert (and I) learned a valuable lesson: nothing lasts forever, and when you buy a used product outside of the warranty period, you bear the risk that the product will no longer work. That's how you can buy a Mercedes for $4,000, or a Porsche 911 for whatever Gilbert paid for it.

Justice Souter Reverses Order Denying Class Certification, Reasoning that It Failed to Rigorously Analyze Rule 23 Prerequisites

Russell Jackson — Fri, 26 Feb 2010 08:18:44 -0500

It's not often that you find a Supreme Court Justice commenting on mass tort class actions. But on Tuesday, retired Justice David H. Souter sat by designation on the First Circuit and issued an opinion in Gintis v. Bouchard Transp. Co., 2010 WL 617395 (1st Cir. Feb. 23, 2010). Of course, if you read this blog, you remember Gintis: it was part of the competing class actions that arose out of an oil spill in Buzzards Bay that I posted about previously. The District Court ultimately denied class certification of a public nuisance class because the individualized issues of "special injury" and damages predominated over the common issues.

On appeal, Justice Souter reversed the decision below because the trial court did not engage in a rigorous analysis of whether the class certification requirements were met. As Justice Souter characterized the opinion below, it "listed the elements to be proven by evidence that ultimately must speak to individual claims, and cited one precedent example among cases going different ways." Id. at *2.

Although Justice Souter did not dictate what the outcome should be on remand, it was clear that he believed a class should be certififed. Noting the defendant's objection to the use of its records and its challenge to the plaintiffs' expert's appraisal methodology, he posited that the defendant's "arguments in this appeal appear to show that substantial and serious common issues would arise over and over in potential individual cases." Id. at *3. He opined that with likely recoveries being between $12,000 and $39,000, and the defense challenging injury, causation, and compensation, this may be one of those cases "that may well go to the very reason for Rule 23(b)(3), mentioned before (i.e., to make room for claims that plaintiffs could never afford to press one by one)." Id.

You may remember that the District Court's decision had raised an interesting question: what is the preclusive effect of the state court's refusal to certify a broad class of property owners all over Buzzard's Bay? (Instead, it certified a much smaller class of property owners from one small town.) Justice Souter relegated that question to a footnote: "that judgment has no prelusive effect against these plaintiffs, who were neither parties to the state action nor in privity with those who were." Id. at n.2.

Texas Supremes Hold that a Litigant with Assigned Claims Was an Inadequate Class Representative

Russell Jackson — Sat, 20 Feb 2010 12:16:03 -0500

Yesterday the Texas Supreme Court issued a class action opinion that raises the fundamental question of what are the responsibilities of class representatives? In some jurisdictions, courts refuse to entertain challenges to the adequacy of class representatives, reasoning that so long as class counsel are capable, the class will be adequately represented. Texas lies at the other end of the spectrum, viewing the class representative as a real client who actually makes the decisions in the litigation, not the class counsel. Whether the class representative is a mere figurehead witness or an actual litigant has a significant impact on the adequacy of representation analysis.

In Southwestern Bell Telephone Co. v. Marketing on Hold, Inc., No. 05-0748, slip op. (Tex. Feb. 19, 2010) (now reported at 2010 WL 572876), the plaintiff and putative class representative, Marketing on Hold, was a company that audits its customers' telephone bills and seeks adjustments on their behalf for improper charges in exchange for 50% of what it recovers. The company convinced five of its customers to assign to the company their causes of action against Southwestern Bell, lowering its fee to 30% of recovery.

The theory of class recovery was that Southwestern Bell charged its customers a municipal fee that it had not been authorized to charge from 1991 to 1998.

The defendant challenged the plaintiff's standing to sue, arguing that the assignments of claim were void as against public policy. The Texas Supreme Court rejected this argument, observing that the assignability of a cause of action is generally freely permitted. Slip op. at 5. The court noted that plaintiff "already had a substantial financial interest in the claims against Southwestern Bell prior to assignments" (id.), and thus was not a "stranger/entrepreneur" whose actions "disrupt the class suit vehicle and distort the judicial process." Id. at 6. Accordingly, the court held the assignment was not against public policy and thus the plaintiff had standing to sue.

In analyzing the prerequistes to class certification under Texas's class action rule, Rule 42, the court found for the plaintiff on typicality and predominance. But the court held that the company with assigned claims failed the adequacy of representation test:

We believe courts should scrutinize carefully the motivating interests and incentives of parties that agree at an apparent financial loss to obtain the right to serve as the class representative. . . .

. . . We agree that [plaintiff's] interests conflict with those of the absent class members. [Plaintiff] is not an injured claimant seeking relief to make itself whole, but voluntarily assume the classwide injury in order to serve as the class representative. Unlike the class, [plaintiff] has a materially lesser interest in making itself and the class whole because it was never personally aggrieved by Southwestern Bell's alleged overcharging, and its maximum recovery is less than half the value of any individual claim for damages. For example, because [plaintiff] never paid the alleged overcharges at issue and can retain at best only thirty-percent of any recovery, [plaintiff's] incentive in settling quickly in order to minimize litigation expenses differs from class members who have overpaid and may be willing to hold out for a settlement that approximates their actual damages. For the same reason, [plaintiff's] motivation may encourage pursuit of theories of relief that are more efficient for it, but yield less recovery for absentee class members.

Id. at 16-17 (citation and footnotes omitted). The court went on to explain that although the plaintiff appeared to take a loss (30% rather than its contractual 50%) on the assigned claims of five customers, it still had a number of other contracts with other customers through which it stood to benefit by gaining control of the class action.

This troubled the court because of its view of the responsibilities of a class representative:

Class representation vests a great deal of power in the class representative. The class representative decides, among other matters, which claims to pursue and which to forgo, and the remedies and strategies to pursue in supervising class counsel. . . .

[Plaintiff's] lack of any claim of its own makes it unique among the members of the class. Its only knowledge of the claims it holds must be obtained from its assignors. . . . Both [of plaintiff's officers] indicated that they would rely heavily on [plaintiff's] counsel to conduct the litigation. While we recognize that class counsel's control over class litigation is often greater than it is in non-class litigation, the class action rule contemplates that the class representative is "not simply lending [its] name [] to a suit controlled entirely by the class attorney." 7A Charles Alan Wright, Federal Practice and Procedure sec. 1766 (3d ed. 2005). In this case, [plaintiff's] interest in the litigation by assignment removes it and its counsel one step further from the class members, enhancing the risk of conflicts.

Id. at 17-18. The court thus concluded that plaintiff failed to meet the adequacy of representation requirement.

Where the class representative is expected to control the litigation, Marketing on Hold demonstrates how entrepreneurial speculators who invest in litigation can present special opportunities for mischeif that counsel against allowing them to participate as class representatives.

Another Federal Court Dismisses Third Party Payor Suit

Russell Jackson — Thu, 18 Feb 2010 12:11:33 -0500

Continuing that long line of cases rejecting claims by third party payors seeking to recover sums paid for medicines that allegedly were promoted for off-label uses is Southeast Laborers Health & Welfare Fund v. Bayer Corp., Case No. 08-1928-MD-Middlebrooks/Johnson, slip op. (S.D. Fla.) (registration with Law 360 required to access link). In Southeast Laborers, the trial court had given plaintiff two extra opportunities to plead a claim under RICO or the New Jersey Consumer Fraud Act.

Plaintiffs alleged that Bayer promoted the $1,000-per-dose drug Trasylol for off-label use in controlling surgical bleeding despite its knowledge that there were cheaper, more effective medicines that presented less risks of kidney damage and other harms. In the Second Amended Complaint, plaintiff alleged that it "paid enormous sums of money to Bayer that they would not have paid had they been aware that Trasylol was not safer, more efficacious or of greater value than available alternatives that were significantly cheaper," and it "would never have incurred this expense had Bayer been honest about the safety and efficacy of Trasylol." Slip op. at 10.

The court held that this failed to plead the necessary proximate causation under RICO because it was tantamount to a "fraud-on-the-market" theory that nearly every court to consider the question has rejected outside of the securities context. Slip op. at 12. As the court explained:

Although Plaintiff argues that it had an independent choice of whether or not to pay for Trasylol, it does not explain how/why it made the choice to pay for Trasylol and how/why Bayer's alleged concealment of the dangers of Trasylol led Plaintiff to pay for Trasylol. Ultimately, Plaintiff has not established a different premise of proximate causation and still has not met the Holmes requirement that it demonstrate a direct relation between its payment for Trasylol and Bayer's alleged fraudulent concealment.

Id. at 13. The court thus dismissed the RICO claim with prejudice.

For similar reasons, the court dismissed the New Jersey Consumer Fraud Act claim with prejudice, holding that plaintiff had failed to properly allege proximate causation. Id. at 16 ("Plaintiff has not alleged a premise of proximate causation that is distinguishable from one that relies on a fraud-on-the-market analysis."). Plaintiff argued that a fraud-on-the-market analysis applies only where a plaintiff argues that the price was inflated by the alleged misrepresentations. But the court rejected this argument, saying that even where plaintiff alleges that it would not have paid any amount for the medicine and seeks a complete rescission of all sales, this, too, is a fraud-on-the-market analysis that has been rejected repeatedly. Id.

Plaintiff had added to the Second Amended Complaint express and implied warranty theories. The court dismissed the express warranty theory without prejudice for plaintiff's failure to identify any affirmation of fact, promise, or description of Trasylol that it had received that had become part of the basis of the bargain. Id. at 18-19. The court dismissed the implied warranty claim without prejudice because the complaint did not allege that Trasylol was unfit for the intended purpose of preventing perioperative bleeding. Id. at 20.

The court dismissed plaintiff's common law fraud and negligent misrepresentation claims with prejudice for failure to identify any reasonable reliance and/or proximate causation. Id. at 22.

And the court dismissed the unjust enrichment count because such claims generally are "not allowed to proceed where all of the plaintiff's other tort claims have failed because of the remoteness of a plaintiff's injuries from a defendant's wrongdoing. Id. at 23.

Southeast Laborers joins a growing body of law that prevents remote parties from bringing suits for speculative harm allegedly arising out of hundreds or thousands of individual doctor-patient decisions.

Federal Court Uses Service Contract to Dismiss Class Action Against Wireless Provider

Russell Jackson — Wed, 17 Feb 2010 09:17:47 -0500

On deck for this morning is another case that brings home the message: read those service contracts, folks, because they really can cut off your legal options.

In Minnick v. Clearwire US, LLC, 2010 WL 431879 (W.D. Wash. Feb. 05, 2010), customers sued the provider of wireless Internet and telephone service over the early termination fee ("ETF") contained in its contract. The wireless service, plaintiffs alleged, was unreliable, slow and often non-existent. But when they went to terminate service, the defendant pointed to the contract, which included an ETF of $220 less $5 per month of service the customer had since the beginning of the two year service contract.

US District Judge Marsha Pechman -- who has previously ruled on Microsoft matters discussed in this blog -- granted the defendant's motion to dismiss the complaint.

She began her analysis by looking at what law would apply. The contract provided that Washington or Delaware law would control. Plaintiffs identified no difference in the laws, so the court did not ultimately make a choice of law determination.

The gist of plaintiffs' causes of action was that the ETF was an unconscionable penalty and should be disregarded. The defendant convinced the court, however, that it was more analogous to an "alternative performance provision" that gave customers choices at the outset for how they would perform their obligations under the contract.

The court also analyzed UCC 2-302 -- even though this was a contract for services, not goods -- and observed that "unconscionability" is a defense to enforcement of a cause of action, but is not in itself a basis for restitutionary relief.

In analyzing the claim under Washington's Consumer Protection Act, the court noted that plaintiffs had two options: either the actions had to have the capacity to deceive a substantial portion of the public, or they had to constitute a per se unfair trade practice. The plaintiffs disclaimed a deception-based approach -- presumably since all of the contract terms were disclosed to customers before establishing service -- and instead relied on the "per se unlawful" prong of the CPA. But all they could point to were common law precedents about "unlawful penalties" in contracts. The Washington Supreme Court has held that the "per se unlawful" prong of the statute only applies to practices that the Legislature has declared unlawful. Thus, common law precedents did not cut it and the CPA count was dismissed.

Plaintiffs also asserted an unjust enrichment count. But "[u]nder Washington law, a plaintiff who is a party to a 'valid express contract is bound by the provisions of that contract' and may not bring a claim for unjust enrichment for issues arising under the contract's subject matter. Id. at *5 (citation omitted). Plaintiffs argued that they were merely engaging in "alternative pleading," but the court noted that the contract also had a severability provision, so even if the ETF provision were unenforceable, the remainder of the contract would survive and govern plaintiffs' payment obligations.

The court also rejected plaintiffs' breach of contract count based on the allegedly lousy service they received from the defendant. The contract provided that customer must notify the defendant in writing within 20 days if they disputed charges, and it limited damages to a credit for the customers' prorated monthly charges. Even these were not available absent a written request. Because the plaintiffs had not alleged compliance with these provisions, the court granted dismissal of the breach of contract count.

Finally, the court rejected the plaintiffs' count for false advertising under the CPA. The court noted that no plaintiff identified statements that they relied upon, and therefore "they have not alleged a plausible basis to identify CPA causation." Moreover, the court pointed to the FAQ section of the defendant's website, which "state[d] that the quality of service may vary depending on geography and modem placement."

Minnick is an important reminder that service contracts matter, and that they can be important tools to prevent class action litigation.

Federal Court Narrows Class Using Standing and the NJ Products Liability Act

Russell Jackson — Wed, 10 Feb 2010 09:40:10 -0500

In Levinson v. Johnson & Johnson Consumer Cos., 2010 WL 421091 (D.N.J. Feb. 1, 2010), Judge Dennis Cavanaugh was confronted with yet another attempt to turn a product liability action into a consumer fraud class action by carefully pleading only economic harm and a failure to disclose the risk of harm. Faced with motion to dismiss, Judge Cavanaugh significantly narrowed the class, but he allowed certain limited claims to go forward.

In Levinson, some Missouri plaintiffs brought a putative nationwide class action against J&J and Wal-mart, alleging that J&J's Baby Shampoo and Wal-mart's Equate Tearless Baby Wash contained trace amounts of chemicals that increase the risk of cancer, cause skin irritation, and can lead to asthma and hypersensitivity. Plaintiffs allegedly had independent lab tests conducted that identified trace amounts of methylene chloride (which FDA has banned from use in cosmetics), 1,4-dioxane and formaldehyde. Plaintiffs alleged that the defendants' failure to disclose the presence of these chemicals -- as well as statements such as "Ultra Mild," "Hypoallergenic," and "gentle enough even for newborns" -- constituted a violation of state consumer fraud statutes, a breach of the implied warranty of merchantability and implied warranties of fitness for a particular purpose, and unjust enrichment.

The defendants moved to dismiss for lack of standing and for failure to state a claim as a matter of law. In analyzing their standing argument, the court relied heavily on Koronthaly v. L'Oreal, 2008 U.S. Dist. LEXIS 59024 (D.N.J. July 25, 2008), a case involving the purchase of lipstick containing lead. Judge Cavanaugh described the holding in Koronthaly as "[i]n the absence of an FDA regulation concerning lead content in lipstick, or other legal prohibition, the plaintiff could not 'seek a remedy for a harm that she had not actually or allegedly suffered.'" Levinson, 2010 WL 421091 at *4 (citation omitted). Accordingly, the court held that plaintiffs lacked standing to assert purely economic harm from the chemicals that were unregulated by the FDA in soap or cosmetics (formaldehyde and 1,4-dioxane), but they could assert a claim for purely economic harm involving the substance that had been banned by the FDA for use in cosmetics (methylene chloride). As the court explained:

While the Court agrees that the assertion of an economic injury is not an automatic bar to standing, Koronthaly demonstrates that an exception has been recognized in the context of claims concerning defective products, absent a specific legal prohibition precluding particular ingredients or usages. Insofar as Plaintiffs' claims pertain to allegedly toxic chemicals that have not been banned by the FDA for use in cosmetics . . . this Court concludes that any potential injury is too remote, hypothetical and/or conjectural to establish standing in this matter. However, insofar as Plaintiffs' claims pertain to methylene chloride, a chemical explicitly banned for use by the FDA in any cosmetic, this Court declines to dismiss Plaintiffs' claims pursuant to Fed.R.Civ.P. 12(b)(1) for lack of standing.

Id. at *4.

The court then proceeded to analyze whether the individual causes of action stated a claim under Rule 12(b)(6). The parties apparently had represented to the court that regardless of whether New Jersey law or Missouri law were applied, the result would be the same, and thus there was no conflict of laws issue. Id. at *5. The court disagreed, holding that New Jersey's Product Liability Act preempted plaintiffs' other claims. The court relied upon Sinclair v. Merck & Co., 948 A.2d 587 (N.J. 2008), in which the New Jersey Supreme Court held that consumer fraud claims for economic harm allegedly caused by prescriptions for Vioxx were preempted by the Product Liability Act. Judge Cavanaugh concluded:

Similarly, at the heart of this matter is the potential for harm caused by the defective products, J&J Baby Shampoo and Wal-Mart Equate Tearless Baby Wash, containing allegedly "toxic chemicals linked to increased cancer risk, adverse skin reactions, and other serious health problems." (See Pl. Compl. para. 2). . . . [C]onsistent with the Sinclair decision, this court concludes that the PLA subsumes all of Plaintiffs' claims, effectively precluding Plaintiffs' claims with respect to the CFA, and otherwise, in the absence of "harm" as defined by the PLA. The Court does not agree that articulating a claim in terms of pure economic harm where the core issue is the potential injury arising as a consequence of the products' allegedly harmful chemicals converts the underlying defective product claim into an independent and unrelated consumer fraud issue. Limiting a claim to economic injury and the remedy sought to economic loss cannot be used to obviate the PLA.

Id. at *6.

Accordingly, because New Jersey's Product Liability Act would preempt all claims, but Missouri's would not, the court concluded there was a conflict of laws requiring it to determine which law would apply. Because the plaintiffs were from Missouri and bought and used the product there, the court concluded that Missouri law would apply to these plaintiffs' claims.

Missouri's Consumer Fraud Act requires a causal connection between the allegedly unfair practice and the plaintiff's harm. Where the harm allegedly results from a failure to disclose, "'there must be a showing that the [product] in fact suffered that defect, or evidence from which the defect reasonably could be inferred, in order to demonstrate an ascertainable loss as a result of [defendant]'s failure to disclose the defect.'" Id. at *7 (citation omitted). The court concluded that as to methylene chloride, which the FDA had banned for use in cosmetics, plaintiffs had sufficiently pled a Consumer Fraud Act claim.

Similarly, the court concluded that, with respect to methylene chloride, plaintiffs had sufficiently pled claims for breach of implied warranties under Missouri law. Id. at *9.

However, the court held that plaintiffs had failed to plead a cause of action for unjust enrichment under Missouri law because they had not sufficiently pled that there was irreparable injury or the lack of an adequate remedy at law. Id. The loss was economic, and could be remedied by the payment of money, which could be recovered by an action at law. Thus, there could be no unjust enrichment.

For those keeping a tally, the court whittled the Missouri plaintiffs' claims down to the violation of Missouri's Consumer Fraud Act and breach of implied warranties solely for the inclusion of methylene chloride -- not the other substances. In concluding that New Jersey law would preclude all claims because of its Product Liability Act, the court also went a long way toward establishing why a nationwide class could not be certified. It remains to be seen where this action will go from here, but we will attempt to monitor it for you.

How Much Is That Doggy in the Window Worth if He Came from a Puppy Mill?

Russell Jackson — Sun, 07 Feb 2010 09:11:46 -0500

New Yorkers always warn: "Don't buy a dog at a pet store! They all come from puppy mills, are sick, and were raised in deplorable conditions."

But I bought my dog at a mall pet store. I wasn't shopping for a dog nearly two years ago when Ted came into my life. But decisions have consequences, and the decision to kill time at a pet store while waiting for friends to arrive for dinner at a nearby restaurant resulted in me sharing my apartment with Mr. Ted E. Bear.

I didn't know much about where he came from. His papers said a farm in Missouri, my home state.

And frankly, I didn't care. Although I sincerely hoped he had not come from a puppy mill, he had a very chill personality and I could tell we would get along well together. If he had the croup and I had to pay for a vet visit, so be it. (Thankfully, he didn't.)

Given this experience, I read Martinelli v. Petland, Inc., 2010 WL 376921 (D. Ariz. Jan. 26, 2010) with great interest. In Martinelli, 32 plaintiffs brought a class action against Petland, alleging that they defrauded consumers by selling sick dogs that were raised in puppy mills while representing to the public that the puppies were "healthy," "the finest available," bred by "professional and hobby breeders who have years of experience in raising quality family pets," and "bred under safe and humane conditions by a reputable breeder with proper canine husbandry practices." Plaintiffs plead causes of action under RICO, state consumer protection statutes, and unjust enrichment.

The court in Martinelli dismissed all but two plaintiffs' RICO and consumer protection claims for failure to adequately plead causation. The complaint was chock full of allegedly fraudulent statements made by Petland and the breeder, The Hunte Corporation, on websites and in written materials. Conspicuously absent from the complaint, however, were allegations saying that these statements caused them to make their purchase. The court noted that "not a single Plaintiff has alleged that he or she ever visited Defendants' websites, received Defendants' written brochures, or relied on a written health certificate or warranty." Id. at *3.

The court held that "absent some allegation of reliance, Plaintiffs have not pled a 'direct and proximate causal relationship' between Plaintiffs' injuries and [the] purported fraudulent scheme." Id. The plaintiffs argued that causation should be inferred as a matter of common sense, as no one would want to purchase defective goods. But the court noted that even if plaintiffs had received the alleged misrepresentations, the court could not presume that they were material to the plaintiffs' decisions to purchase the animals:

[T]here is no single, common-sense reason for a puppy purchase. A person might buy a puppy because he falls in love with it in the store window, he has heard it will make a good guard dog, he likes the price, he is referred to the store by a friend, or he finds the store convenient. It is not necessarily true that every purchaser would base his or her decision on the fact that the puppy was "the finest available" or was bred by professional, hobby, or USDA-approved breeders -- key misrepresentations identified in the amended complaint.

In making their common-sense causation argument, Plaintiffs focus exclusively on the health of the puppies, asserting that "it is illogical that Plaintiffs would purchase their sickly or dying puppy mill puppy absent a misrepresentation as to its health. . . . A person who falls in love with a puppy in the store window might well purchase the puppy in the absence of any representation concerning its health. However unwise, some people may even buy a sick puppy in order to provide it a good home and nurse it back to health. It simply cannot be said that a representation concerning the puppy's health is obviously relied on in the same way that a consumer looking for car wax relies on the product's label as "car wax" or in the same way that a person paying for a tax service relies on the assumption that the service will be available. Plaintiffs conspicuously have failed to allege that they relied on representations concerning the puppies' health, and the Court cannot assume that such representations were the reason Plaintiffs purchased the puppies.

Id. at *4 (citations omitted).

The court dismissed the RICO claims of all plaintiffs except two -- Plaintiffs Moskow and Galatis -- who alleged reliance upon oral representations made by Petland (but not the breeder, Hunte). Plaintiff Galatis allegedly was specifically reassured by a Petland employee that the puppy was healthy and "(1) it had never been sick, (2) was up to date on his shots, (3) was not hypoglycemic, and (4) was lethargic and quiet only because he was stuck in a cage all day long." Id. at *5. Plaintiff Moskow asked whether his puppy was from a puppy mill and he was assured that it was not. The court held that these oral representations were part of the scheme alleged in the complaint, and it inferred that plaintiffs had relied upon them in making their purchase. Thus, the RICO claim survived for Plaintiffs Moskow and Galatis.

The court applied the same analysis to the Rule 9(b) challenge to the complaint and to the state consumer protection act claims. The generic allegations of the vast majority of the plaintiffs failed to sufficiently plead causation:

Plaintiffs assert that reliance is not an element of many state consumer protection claims. But plaintiffs do not dispute that causation is an essential element. Indeed, "whether it be termed an issue of reliance or an issue of proximate cause, an appropriate rule is that where the defendant is alleged to have made material misrepresentations or misstatements, there must be a cause and effect relationship between the defendant's acts and the plaintiff's injuries. Thus, regardless of whether reliance is a required element under state consumer protection statutes, Plaintiffs "must at least allege that they were exposed to the offensive conduct." Plaintiffs other than Moskow and Galatis have made no such allegation.

Id. at *9 (citations omitted).

The court thus dismissed the state consumer protection claims except for Plaintiff Moskow's claim under the Maine consumer protection act. (Plaintiff Galatis was from Massachusetts, but the Massachusetts act had not been pled in the amended complaint.) It also dismissed the unjust enrichment claims for all plaintiffs except Moskow and Galatis; because the two had adequately pled a fraud-based claim, the unjust enrichment claim could stand, the court held.

Finally, the court rejected the defendant's assertion of the economic loss doctrine as a defense to the claims. Petland argued that because plaintiffs allegedly received damaged goods, they therefore were asserting typical warranty claims that give rise to purely economic loss. The court disagreed, observing that plaintiffs were seeking damages for being fraudulently induced into entering into the sales contract.

Martinelli is an interesting decision because it parses through the possible motivations underlying the purchase decision and holds that, after already having been given one chance to amend the complaint, a plaintiff cannot plead consumer fraud or RICO without pleading a causal connection between the allegedly fraudulent statements and the reason he made the purchase. Because this is an essential element of each class member's claim, it seems clear that individual issues would predominate a trial, making class certification unlikely.

West Virginia Jury Pool Too Opinionated to Seat a Jury in a Tobacco Trial

Russell Jackson — Fri, 05 Feb 2010 13:31:21 -0500

One of my news clipping services brought me this fascinating tidbit from The West Virginia Record: after 3 days of trying to empanel a jury in a massive liability trial over cigarettes, the court simply gave up. It had gone through 650 prospective jurors and only qualified 6 for potential service. According to the article, "Lawyers excused a woman who said people have no right to sue over diseases that are disclosed on the warning label of a package." Funny, I would have liked her on my jury.

The court will try again in June, this time with a panel of 2,000 prospective jurors.

The article's description of the trial raises some constitutional questions, too. Apparently one jury would participate in the liability trial, and if it finds the defendants liable, a second jury would be empaneled for a damages trial. Seventh Amendment, anyone? (Or at least, as my colleague Hayden Coleman correctly points out, its state constitutional equivalent?)

Magistrate Judge's Report Reads Physical Injury Requirement Out of Strict Liability Statute

Russell Jackson — Fri, 05 Feb 2010 09:02:47 -0500

A recent report and recommendation from a US Magistrate Judge raises the question: Does a group of patients who were exposed to pathogens but never developed a disease have a cause of action?

In Descoteau v. Analogic Corp., 2010 WL 325933 (D. Me. Jan. 21, 2010), Magistrate Judge John Rich III suggests that they do, although he clearly seems to stretch Maine law in order to find a cause of action for a bad factual situation. If this report and recommendation is affirmed by the District Court, it will not be the first time hard facts have made bad law.

The facts are not pretty. Plaintiff is one of some 23,000 veterans who were potentially exposed to HIV, Hepatitis B, Hepatitis C, and other bloodborne viral pathogens when they underwent diagnostic procedures and biopsies at VA hospitals using a rectal probe made by the defendants. Both the operation manual for the rectal probe -- as well as the oral instructions from the device representative who demonstrated it at the VA hospital that treated plaintiff -- indicated that the probe could be cleaned by flushing it with a syringe full of detergent and water. Years after the hospital bought and began using the defendants' rectal probe, the hospital's staff discovered that blood and fecal matter remained in the probe even after it had been cleaned according to the manufacturer's instructions -- without using a brush. The VA conducted a systemwide review and notified some 23,000 veterans nationwide of the potential exposure and their need to receive testing for bloodborne pathogens and disease. Plaintiff received his notice on April 14, 2006, was tested on April 27, 2006, and was notified that fortunately his test results were negative on May 11, 2006. Plaintiff sued on behalf of a class of 528 veterans who were potentially exposed to bloodborne pathogens at the Togus VA Medical Center in Augusta, Maine, asserting causes of action for strict liability and negligent infliction of emotional distress.

The defendants moved to dismiss, asserting Maine's 6-year statute of limitations, arguing that plaintiff's original diagnostic procedure occurred more than six years prior to his filing suit. The Magistrate Judge easily dispatched of that challenge, holding that plaintiff's cause of action for emotional distress did not accrue until he was notified in 2006 that he might be infected. Thus, the suit was well within the statute of limitations.

Defendants also moved to dismiss the strict liability count, citing the language of Maine's strict liability statute, which provides:

One who sells any goods or products in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to a person whom the manufacturer, seller, or supplier might reasonably have expected to use, consume or be affected by the goods, or to his property, if the seller is engaged in the business of selling such a product and it is expected to and does reach the user or consumer without significant change in the condition in which it was sold.

Id. at *5 (quoting statute).

The defendant argued that a prerequisite to a strict liability claim is physical harm or impairment, and that plaintiff -- who contracted no disease and suffered no impairment -- thus could not bring a claim. Plaintiff argued, however, that the needle stick required for the HIV and Hepatitis testing qualified as "physical harm" sufficient to support a strict liability claim. The court -- striving to find a cause of action for an obviously-inconvenienced plaintiff -- bought the argument, observing that "[t]he defendants cite no authority in support of the proposition that a needle stick or blood draw constitutes insufficient physical harm, as a matter of law, to support a strict liability claim, and I find none." Id.

But the rule of strict liability is not available for all types of harm; rather, it is reserved for physical injury and damage to property. The Restatement defines physical injury as a "detrimental change in the physical condition of a person's body." Id. at n.4. The court's stretching of the definition of physical injury to encompass a subsequent needle stick effectively reads the physical injury element out of the statute. Nevertheless, the court recommended that the strict liability claim should survive the motion to dismiss.

The defendants also moved to dismiss the negligent infliction of emotional distress ("NIED") claim. The court began by opining that the plaintiff had sufficiently alleged a count for negligence for physical injury (i.e., the needle stick). But as for emotional distress, the court was bound by Maine precedent that reserves the cause of action for defendants who are in a special relationship with the plaintiff. Maine courts have found such special relationships in very limited circumstances (e.g., doctor-patient, counselor-patient, hospital-decedent's family). Id. at *6. The court held that because its research had not uncovered an instance where the Maine courts had found a special relationship between a manufacturer and an end user, the NIED claim must be dismissed.

It remains to be seen whether the District Court will adopt the report and recommendation in Descoteau, which effectively reads the physical injury requirement out of Maine's strict liability statute and thereby would impose upon manufacturers strict liability for purely emotional harm. Even if it did, however, it is difficult to fathom how 528 people's emotional harm could be adjudicated on a classwide basis consistent with the requirements of Rule 23.

The Alabama Supremes Hold That Two Is Not Better Than One

Russell Jackson — Thu, 04 Feb 2010 09:02:34 -0500

Is it fair for a plaintiff to sue the same defendant twice for the same thing? Of course not! But what legal redress is available to a defendant who is sued twice by the same plaintiff? In Alabama, at least, the answer is now mandamus as a result of Ex parte J.E. Estes Wood Co., 2010 WL 335646 (Ala. Jan. 29, 2010).

In Estes, a railroad filed suit in federal court in Alabama against property owners who allegedly caused a fire that burned down a wooden bridge over a waterway. Two days later, the railroad filed an identical suit in Alabama state court "'to preserve a forum to litigate its claims in the event the federal action was dismissed for lack of subject matter jurisdiction more than two years after the fire.'" Id. at *1 (quoting the railroad's brief).

The defendants moved to dismiss the federal action for lack of subject matter jurisdiction, and then they moved to dismiss the state court action under Alabama's abatement statute, which provides:

No plaintiff is entitled to prosecute two actions in the courts of this state at the same time for the same cause and against the same party. In such a case, the defendant may require the plaintiff to elect which he will prosecute, if commenced simultaneously, and the pendency of the former is a good defense to the latter if commenced at different times.

Ala. Code sec. 6-5-440. (Numerous cases have interpreted the phrase "the courts of this state" to include federal courts in Alabama, as well as state courts.)

The state trial court refused to dismiss the state action, choosing instead to stay it pending resolution of the federal action. The railroad petitioned for a writ of mandamus. During the intervening time period, the federal court dismissed the federal case for lack of subject matter jurisdiction, and the railroad had appealed that decision.

The Alabama Supreme Court began by explaining the long common law history of its abatement statute, which stretches all the way back to 15th Century England and stems from the common law maxim that (interpreted from the Latin) provides: "No man ought to be twice troubled or harassed for one and the same cause." Estes, 2010 WL 335646 at *2. At common law, a defendant subject to two identical lawsuits could prevail on a plea in abatement -- the predecessor to the motion to dismiss -- because the second lawsuit was, as a matter of law, vexatious and "ill ab initio." Abatement was dismissal, not a stay.

Alabama had some class action authority suggesting that where two identical class actions were pending at the same time, the second should be stayed pending resolution of the first. But the Alabama Supreme Court noted in Estes that this prior authority was not based on the abatement statute, and held that to the extent it suggested a stay was proper under the abatement statute, it was incorrect.

The "stay" should not be an option to be exercised at the discretion of the judiciary because:

the principle codified by the statute "is founded upon the policy of discouraging a multiplicity of suits--of protecting the defendant from oppression, [and] from the grievance of double vexation for the same cause or thing." "When a defendant is twice impleaded by the same plaintiff, for the same thing, the oppression and vexation is not matter of fact; it is a conclusion of law, and is not dependent upon an inquiry into the actual circumstances of the two cases."

"The institution of the second action" is, in itself, an "offense or wrong, so to speak." The "offense or wrong" that the statute seeks to prevent consists in the very "existence simul et semel" of the second action. The wrong committed "'was vexatious and ill ab initio." . . .

. . . "There can be no necessity for the institution or the pendency of two suits for the same matter at the same time. The security of the plaintiff cannot require it." If the first action is "defective, it is the fault of the plaintiff, not of the defendant." Indeed, recognizing a stay of the second action as an acceptable option, pending the outcome of the first, would not only encourage forum shopping, but also "'would encourage and cultivate a want of due care in making the first one effectual.'" Even if the later filed action is stayed, the defendant remains obligated to stand before both courts prepared to defend against the same cause.

[The railroad] essentially concedes that it had reservations about the viability of its federal action and that it sought to hedge its bet by filing the state action. This is precisely the evil the statute aims to prevent.

Id. at *5 - *6 (citations omitted).

The decision in Estes should go a long way in preventing plaintiffs from filing multiple actions to pick among the judges they draw or to hedge their bets when they doubt federal jurisdiction will lie. Indeed, it's important to note that when mandamus issued in Estes, the federal action already had been dismissed for lack of jurisdiction, and yet the Alabama Supremes held that the later-filed state court action nevertheless must be dismissed.

Louisiana Court Affirms Denial of Certification of Class Alleging 40 Years of Exposure to Radioactive Dust

Russell Jackson — Tue, 02 Feb 2010 08:36:17 -0500

A recent decision from the Louisiana Court of Appeals demonstrates once again why personal injury claims simply cannot be tried as class actions. In Pollard v. Alpha Technical Services Inc., 2010 WL 323576 (Jan. 28, 2010), plaintiffs alleged that for more than forty years, industrial property in Harvey, Louisiana had been used to clean oilfield pipes of scale or crust that had built up in the interior of the tubing. This scale or crust was alleged to be barium sulfate -- later identified as radium sulfate -- and other radioactive materials. Plaintiffs alleged that "toxic dust" from the industrial property was deposited in their residential neighborhood, causing "various diseases and illnesses, including prenatal complications, various types of cancer, neurological disorders, impairment of kidney function," and impairment of liver function. Id. at *2.

The trial court conducted a class certification hearing and determined that the putative class failed to meet the class certification prerequisites. Plaintiffs appealed, and the Court of Appeals determined that, for the most part, the trial court had not abused its discretion in its analysis.

I say "for the most part" because the Court of Appeals did hold that the trial court abused its discretion in finding that the numerosity requirement was not satisfied. Plaintiffs estimated the potential class to be between 2,000 and 4,000 people. The trial court determined that 3,748 people already had indicated their intention to opt out. Id. at *5. The plaintiffs argued that there can be no opt outs until a certified class exists and absent class members can evaluate whether to participate. The Court of Appeals agreed, holding that "the trial court was manifestly erroneous in finding that the plaintiffs failed to satisfy the numerosity requirement." Id. at *6

But the Court of Appeal affirmed the trial court's remaining conclusions. It found no abuse of discretion in the trial court's conclusion that the commonality requirement had not been satisfied:

There is no controlling issue subject to proof on a class-wide basis. The differences in amounts and lengths of exposure, the personal history, habits and supposed illnesses of each particular claimant and the differences in operations and locations and customers of the five pipe-cleaning defendants, taken together and taken separately, mean that Plaintiffs cannot identify any common issue that can be resolved with respect to putative class members.

Id. at *7.

Similarly, the trial court was correct in concluding that the typicality requirement was not met:

The class representatives' claims are widely divergent from those of the putative class members. . . . Some class representatives claimed no medical condition whatsoever, implicitly conceding that none could have been caused. . . . Others claim widely varying problems, ranging from loss of smell to skin rashes to nosebleeds to hammer-toe to miscarriages to cancer.

Id.

And the trial court was correct in holding that the named class representatives could not adequately represent the absent class members because of the differences in their injuries. Id. at *8.

The trial court also was correct in holding that the proposed class definition failed to properly identify at the outset who was in the class. The trial court noted the inconsistencies and errors made by Plaintiffs' expert in modeling air dispersion and trying to establish times, spatial boundaries, and exposure levels for defining the class. The trial court found that the proposed class definition "could potentially include anyone who once drove through the area," and it could not be saved by defining the class as persons who suffered injury from exposure because that would require a merits-based determination to be made in mini-trials at the outset just to decide who was in and out of the class. Id. at *9. The Court of Appeals agreed, but observed that if the other problems with the class had not been so insurmountable, it might have been inclined to remand so that plaintiffs could more narrowly define the class. However, given the other fatal problems with the class, the court simply affirmed the trial court's conclusion on the class definition as well. Id. at *11.

SDNY Refuses to Certify Insurance Class Action

Russell Jackson — Mon, 01 Feb 2010 09:00:23 -0500

A recent decision of the Southern District of New York reminds us that even where the subject of the suit is a standardized contract, there can still be individual issues that preclude class certification.

In Spagnola v. Chubb Corp., 2010 WL 46017 (S.D.N.Y. Jan. 7, 2010), some insureds sued their insurer, Great Northern Insurance Company, along with two related insurers over policies that allegedly were supposed to increase coverage daily to reflect the current effect of inflation. Plaintiffs claimed that the insurers left them underinsured and sued under a variety of theories. The district court previously had dismissed all of the causes of action, and the Second Circuit had affirmed dismissal of all but the breach of contract count -- to the extent that it was based on the increase in coverage and premiums in a way that did not reflect current property costs and values. Id. at *2. The Second Circuit also had instructed that the voluntary payment doctrine -- which precludes a plaintiff from recovering for payments made with full knowledge of the facts -- was not ripe to support dismissal as pled here at the motion to dismiss stage.

On remand, Judge Harold Baer, Jr. considered two basic questions: (1) could plaintiffs maintain suit against the "related" companies, and (2) should it grant the defendant's motion to deny class certification.

Plaintiffs' policies were written by a subsidiary of the Chubb Corporation. In addition to their insurer, Plaintiffs sued Chubb and its largest subsidiary, Federal Insurance Company, which allegedly manages the other Chubb subsidiaries. Of course, plaintiffs were asserting a breach of contract theory only at this point, and they had a contract only with Great Northern; neither Chubb nor FIC were signatories to the policies. Judge Baer thus considered whether plaintiffs had adequately alleged alter ego liability or an agency theory to keep the two non-signatory defendants in the case.

Although plaintiffs pled a credit agreement that considered Chubb and its subsidiaries as a whole, as well as the overlap of senior management, officers and directors, and advertising that refers to the "Chubb Group," the court held that it was insufficient to pierce the corporate veil:

Although Plaintiffs have alleged facts to suggest some overlap between the operations between Chubb and its subsidiaries, this overlap is not unusual and Plaintiffs' allegations do not rise to the level that indicates the kind of complete domination and control that is required under the first prong of the alter-ego analysis. Indeed, courts routinely refuse to pierce the corporate veil based on allegations limited to the existence of shared office space or overlapping management, allegations that one company is the wholly-owned subsidiary of another, or that companies are to be "considered as a whole."

Id. at *7 (citation omitted).

In considering the agency theory, the court held that plaintiffs had pled no facts establishing that Chubb or FIC had actual authority to act as Great Northern's agent. However, the court held that plaintiffs had pled enough facts to keep Chubb in the case at the motion to dismiss stage on the issue of apparent authority:

Specifically, Plaintiffs have alleged that the cover letter enclosing the policies bore the Chubb trademarked logo; that an integrated advertising and marketing campaign relating to the Policies referred only generally to "Chubb"; that insureds under the Policies were directed to make all inquiries to Chubb and to make payments "payable to Chubb." The Court agrees with Plaintiffs that they have thus sufficiently alleged that insureds could have reasonably believed that they had contracted with Chubb and not Great Northern, notwithstanding the express terms of the policies.

Id. at *10. The court, however, dismissed the complaint against FIC because no such evidence was pled against it.

In considering the defendant's motion to deny class certification, the court held that the plaintiffs had satisfied the elements of commonality and typicality, but they failed the elements of adequacy of representation, predominance and superiority. For some of the policies, the insurer bore the risk of underinsurance, but for others, that risk was borne by the insured. Plaintiffs, who held policies where the insurer bore the risk, could not be expected to adequately represent the interests of those with policies where they bear the risk of loss. Moreover, one of the plaintiffs had purchased his policies outside the defined class period and was a close personal friend of class counsel. Accordingly, the adequacy of representation element was not satisfied.

In analyzing predominance, the court concluded that the class members' claims were not capable of classwide proof, but would require an analysis of individual issues, including:

the unique characteristics of each class member's home, whether each policyholder's coverage was actually increased using CPI or some other guideline, the amount of the increase, whether the policy requested that the increase be waived or revalued, and actual replacement cost of each policyholder's home. Compounded with these individual questions is the lingering concern relating to the potential unique defense of voluntary payment, among others. Ultimately, the Court or the jury will be tasked with the determination, for each individual class member, whether they knew or should have known of the circumstances surrounding the increases in their respective coverages but continued to pay, or whether such payment was the result of a mistake of fact or law relating to their obligation to pay.

Id. at *19. Accordingly, the predominance requirement of Rule 23(b)(3) was not met. Similarly, the need for individual mini-trials to resolve class members' claims and the affirmative defense of the voluntary payment doctrine made the class action fail the superiority requirement as well.

The decision in Spagnola is a clear-eyed analysis of how claims relating to standardized contracts can nevertheless involve individual issues that make classwide adjudication impossible.

Oklahoma Supremes Hold Class Action Should Be Dismissed Where Defendants Had No Legal Duty to Speak

Russell Jackson — Fri, 29 Jan 2010 16:25:12 -0500

The Oklahoma Supremes recently held that a group of defendants who had no statutory duty to reveal the presence of additives in their products could not be sued in a class action for breach of warranty, breach of contract, and violation of the state's Consumer Protection Act for not posting the amount of ethanol in their gasoline. See Rogers v. QuickTrip Corp., 2010 WL 175073 (Okla. Jan 19, 2010).

The defendants in Rogers sold gas at retail. They initially moved to dismiss, challenging the court's jurisdiction to hear the case. The Oklahoma Corporation Commission is charged with setting public energy policy and regulating the sale of gas, the defendants argued, and thus a court could not, in a class action, take actions that effectively impose upon the entire retail gas industry a duty contrary to what the Commission had decided. The court rejected this argument, noting that the Corporation Commission has no ability to award damages to individuals in private disputes. Accordingly, the court was unwilling to dismiss for lack of jurisdiction.

But the court held that the trial court erred in failing to grant the defendant's motion to dismiss on the merits. The court began by observing that a statute in effect when the suit was filed expressly stated that "retail facilities that sell motor fuel shall not be required to post information regarding fuel additives . . ." A subsequent regulation had allowed retailers to post such information about ethanol content if they wanted to.

Subsequent to plaintiffs' filing of the lawsuit, a statute required retailers to post a sign indicating "contains Ethanol" for gasolines containing more than one percent ethanol.

The Oklahoma Supremes determined that because the statutory scheme expressly allowed retailers to sell gasoline without posting its ethanol content prior to the lawsuit's filing, there could be no legal duty -- not in contract, warranty law, or in connection with the Consumer Protection Act -- that required such disclosure. The Oklahoma statute effectively preempted Oklahoma common law.

Consumer fraud claims often are premised on a failure to inform consumers of a particular fact about a product. The decision in Rogers demonstrates that where a statute gives a seller the freedom to refrain from disclosing that particular fact, the statute can trump disclosure duties that plaintiffs may assert arise from the common law or consumer protection statutes.

Federal Court Rejects CAFA Removal Because Plaintiff Is Uninjured and Thus Lacks Standing

Russell Jackson — Thu, 28 Jan 2010 14:20:28 -0500

Reading National Consumers League v. General Mills, Inc., Civ. A. No. 09-10881 (HHK), Slip op. (D.D.C. Jan 15, 2010) will make you feel as if you have fallen through the looking glass. In this case, the National Consumers League ("NCL") sued General Mills for alleged misrepresentations about the cholesterol-lowering properties of Cheerios. The NCL brought suit under DC's Consumer Protection Procedures Act ("CPPA") for declaratory relief, injunctive relief, the "greater of 'treble damages or statutory damages in the amount of $1,500 per violation,'" and attorneys' fees, expenses and costs. Id. at 2. General Mills removed the case to federal court pursuant to the Class Action Fairness Act.

So far, so good. Sounds positively ordinary, right? Hang on.

The NCL made an emergency motion to remand, arguing that it had suffered no injury and thus lacked the Article III standing necessary to pursue a claim in federal court.

Yes, that's right. Plaintiff stipulated that it had suffered no injury and lacked standing.

How can a plaintiff do that and avoid ruining its prospects of pursuing its claim in "state" court, too? Indeed, don't state courts have standing rules that prevent the adjudication of "hypothetical" disputes and require a plaintiff to have injury and causation in order to establish a justiciable case or controversy? Nearly all do. Indeed, most people would have thought that DC courts, which are statutorily authorized to adjudicate only "cases or controversies" (D.C. Code sec. 11-705), have standing requirements as well. See, e.g., Speyer v. Barry, 588 A.2d 1147, 1160 (D.C. 1991); Cmty. Credit Union Servs . v. Fed. Express Servs. Corp., 534 A.2d 331, 333 (D.C. 1987).

Unfortunately, however, the District of Columbia held last year that the District's courts are "not required to abide by any of the constitutional or traditional standing principles that apply in federal courts 'when the [D.C.] Council has provided the cause of action.'" Archis A. Parasharami and Kevin Ranlett, The Nation's New Lawsuit Capital? D.C. High Court Eliminates Standing Requirements for Consumer Protection Lawsuits, Threatening Flood of Abusive Litigation, vol. 9, no. 20, Mealey's Litigation Report: Class Actions (Dec. 17, 2009) (discussing Grayson v. AT&T Corp.., 980 A.2d 1137 (D.C. 2009)). The DC Council had amended the CPPA in 2000 to allow any person to bring an action on behalf of the general public. Accordingly, the NCL was free to escape federal court by arguing that it had no injury because the District appears not require an injury for private attorneys general asserting CPPA claims.

The federal court in National Consumers League could have stopped there, but it didn't. It also opined that the case was not removable as a "mass action" under CAFA because it fell into the exception of being a non-removable suit "brought on behalf of the general public." Slip. op. at 8-9. This conclusion seems suspect, however, given that the suit seeks -- in addition to injunctive and declaratory relief -- damages, which the court stated were not payable to the uninjured plaintiff, but instead only to those consumers who had been actually harmed. Id. at 9-10. At least with the damages portion of the suit, then, the plaintiff (NCL) is representing a subset of the general public: Cheerios consumers who were actually injured by the defendant's alleged misconduct and can collect damages. That sounds much more like a "mass action" or "class action" than a suit on behalf of the "general public." Nevertheless, the court mandated remand to DC Superior Court.

The result in National Consumers League highlights the potential for a disturbing trend: unscrupulous litigants may file CPPA claims in DC Superior Court seeking damages for other people and, by disclaiming any injury themselves, effectively avoid CAFA's clear purpose of having such suits adjudicated in federal courts. That can hardly be what Congress intended when it enacted CAFA. And I continue to find it difficult to believe that it really is the law in the District of Columbia.