April 14, 2014
Authored by: James Smith
In postings in September 2013 and February 2014, I discussed tactics for opposing class certification in food labeling class actions. These tactics included relying on the Supreme Court’s opinion in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), to challenge the sufficiency of the plaintiffs’ damages model, which should be particularly difficult in these types of claims. In late March 2014, the Northern District of California decertified a food labeling class action largely based on those shortcomings.
In re POM Wonderful LLC Marketing & Sales Practices Litigation, 2014 U.S. Dist. LEXIS 40415 (N.D. Cal. Mar. 25, 2014), involves allegations that the defendant falsely advertised that certain of its juice products provide various health benefits and that substantial scientific research demonstrates those benefits. The plaintiffs alleged familiar theories based largely on California consumer fraud statutes. The court had earlier certified the class, and the plaintiffs proposed two damages models from their expert as part of that process. The first would grant a full refund of the entire purchase price to the entire class–$450 million. That model assumed “that consumers would not have purchased Defendant’s juices if not for the alleged misrepresentations.” Id. at *11. The court rejected that model, however, because it failed to acknowledge that consumers received some benefit even if they purchased the juice based on the “fraudulent” representations. It would be an improper windfall for the plaintiffs to receive a full refund when they could not “plausibly contend that they did not receive any value at all from Defendant’s products.” Id. at *14.
The second damages model was the “price premium” model. It assumed that consumer demand for the products would have been lower if not for the alleged misrepresentations. That damages calculation was approximately $290 million. But the plaintiffs did not use any sort of consumer research data to show why consumers purchased these products or the effect of the alleged misrepresentations. Instead, they tried to rely on the fraud on the market theory that familiarly appears in securities fraud class actions. The fraud on the market theory, however, really only applies to establishing or overcoming the need to prove reliance on a classwide basis. It does not calculate damages. Plus, no case seems to have applied this theory to a consumer class-action. Id. at *16. Furthermore, the plaintiffs did not establish that an efficient market for the juices exists, which is a predicate to the securities fraud on the market theory. It truly would be impossible to establish such an efficient market because consumers by such products for a host of different reasons, and the marketplace has not adjust the price to reflect all of those reasons. ”Absent such traceable market-wide influence, and where, as here, consumers buy a product for myriad reasons, damages resulting from the alleged misrepresentations will not possibly be uniform or amenable to class proof.” Id. at *18.
Things kept going downhill for the plaintiffs. Even if a fraud on the market theory somehow were relevant, the plaintiffs could not show that the alleged misrepresentations caused the class to pay a price premium. The plaintiffs’ expert tried to compare the POM products to the average prices of refrigerated orange, grape, apple, and grapefruit juice. He never tried to explain why the POM juices were more expensive; he simply observed that they were and assumed that all of that price difference was attributable to the misrepresentations. The expert “assumed, without any methodology at all to support the assumption, that not a single consumer would have chosen POM juice over some agglomeration of orange, grapefruit, Apple, and grape juice if not for POM’s allegedly deceptive advertising.” Id. at *21. But that ignores that consumers purchased products for several reasons– because they are thirsty, they want to try something new, a friend likes the flavor, it was on sale, etc. That type of damages model did not meet the requirement that class-wide damages be tied to a legal theory, and the court could not conduct a rigorous analysis when “there is nothing of substance to analyze.” Id. at *22. Significantly, the court also noted that the expert’s opinions were not admissible under Daubert, implying that judge believes that standard governs the use of expert testimony at class certification. Id. at *22 n.7. Admittedly, that is an unresolved question across the Circuit Courts and the United States Supreme Court.
The final blow to class certification was ascertainability. It seems impossible to believe that many consumers would have retained receipts to prove that they purchase these products. ”Here, at the close of discovery and despite Plaintiffs’ best efforts, there is no way to reliably determine who purchased Defendant’s products were when they did so.” Id. at *24.
This is an important victory for food labeling class action defendants that ties together several tactics. First, these plaintiffs tend to rely on that same price premium theory. It seems impossible, however, to create a coherent theory of establishing that damages model under Comcast. People buy food products for too many different reasons to suggest that alleged fraud harmed everyone. This is where a defendant may want to use its own consumer survey research data to affirmatively demonstrate those different motivations for product purchases. And ascertainability will continue to be a very difficult hurdle for these plaintiffs to overcome. Not yet addressed in an opinion I have seen is any effort to show which class members actually were “injured,” even under a price premium theory. That is, the actual price someone pays varies greatly from day to day and store to store. A product may be on sale because a particular store has too much in stock. The manufacturer may be running a promotion as well. Supermarket customer loyalty programs also may result in discounts. It seems impossible to segregate “injured” class members from those who did not suffer any purported injury because they paid a price that is beneath the supposed “premium price.”
James Smith is a partner in the Phoenix office of Bryan Cave LLP. He is a member of the Class and Derivative Actions Client Service Group and the Food & Beverage Team.