May 19, 2014
Authored by: James Smith
A recent decision denying class certification in a cosmetics labeling action provides a useful roadmap for defendants in consumer products labeling class actions, such as food labeling cases. These particular defendants used several of the strategies discussed in earlier blog posts, and the decision sends a shot across the bow of plaintiffs’ class counsel who bring such consumer fraud claims on the cheap in the hopes of a quick payout.
Representations About “24 Hour” Cosmetics.
Algarin v. Maybelline, LLC, No. 12-CV-3000 AJB (S.D. Cal. 5/12/14), involves allegations under California’s consumer protection laws. Those plaintiffs contend that lipstick and makeup labeled as “24HR” does not provide the promised 24-hour coverage, and they allege that they paid a premium for the products based on those representations. The proposed class would have included all California consumers who purchased the lipstick or makeup for personal use until the date of class notice. [Slip Op. at 6] Of course, California consumer protection laws depend on whether the advertising would mislead the hypothetical reasonable consumer. I have mentioned in earlier blog entries about the importance of using expert testimony to discuss actual consumer understandings. Maybelline took the same strategy here, and it carried the day: “Of great importance to the matters in this class certification is the fact Maybelline has introduced unrefuted evidence of who the reasonable consumer in the target audience is, and what drives her in making purchasing decisions.” [Id. at 8]
Maybelline provided two expert reports, one from a marketing expert and one from an economist. The marketing expert explained that repeat purchasers of the products could not be considered injured. After all, they bought the product, used it, and then bought it again (apparently satisfied with its original performance). Based on his survey research, the expert concluded that only 9 to 14 percent of the sampled consumers were one-time purchasers who expected the products to last 24 hours and were disappointed that it did not. [Id. at 9] These data turned out to be very important to the court.
Rule 23(a) Problems.
An initial problem for class certification was whether the class was ascertainable. As with many of these types of consumer class actions, the plaintiffs did not provide a reliable method of determining who actually purchased the products. The court was not willing to rely on having class members self-identify themselves with no actual proof of purchase. “Cases where self-identification alone has been deemed sufficient generally involves situations where consumers are likely to retain receipts, where the relevant purchase was a memorable ‘big ticket’ item; or where defendant would have access to a master list of customers or retailers.” [Id. at 13] Without an administratively feasible way of identifying class members, plaintiffs could not satisfy their burden under Rule 23(a).
Commonality also was lacking because of the objective evidence that the 24-hour statements did not mislead a substantial percentage of class members. “Indeed, most purchasers expected the product to last less than 24 hours or had no specific duration expectations.” [Id. at 15-16] The defendants used an economist’s report to explain that the existence of economic injury was not a common question because many purchasers were satisfied with the products. [Id. at 16]
The same shortcomings regarding what consumes believed was important was also doomed typicality. In sum, the court did not believe that the named plaintiffs’ reliance on the alleged misrepresentations was typical of other class members. Again, the consumer survey data were crucial to this point. [Id. at 17]
No Rule 23(b)(2) Injunction Class.
Things did not get any better for the plaintiffs with respect to their Rule 23(b)(2) class. That class sought injunctive relief, and the plaintiffs argued that any damages were merely incidental to the injunctive relief. But there is little point in any injunctive relief here. Any consumer would immediately know if the product met her expectations. If she nonetheless bought the product again, there would be no basis to allege that she was deceived. She would have known the “truth” at the time of the repeat purchase. [Id. at 18] Moreover, the restitution and disgorgement sought were not incidental to the injunctive relief. Indeed, the named plaintiffs knew about the products’ alleged shortcomings and would not purchase them again; their only legitimate concern would be with monetary relief, not an injunction.
Rule 23(b)(3) Problems.
These plaintiffs used the familiar “price premium” theory of damages. That is, they contended they paid a premium price for the products that they would not have paid if they knew the “truth” about the 24-hour representations. Plaintiffs, however, did not have any valid methodology to establish that the difference in price for these products was attributable solely to the alleged misrepresentation. For example, the price difference could not attributable to different ingredients, the selection of colors, or Maybelline’s internal costs. “To establish that any difference in price is attributed solely to the alleged misrepresentation, the Court must use a product, exactly the same but without the 24-hour claim.” [Id. at 21] The substantial variations in retail prices among the products and competing products made this type of damages analysis impossible.
Of course, Maybelline does not sell retail and does not set the retail prices—it sells wholesale to retailers or distributors. That alone made class treatment nearly impossible. While the plaintiffs argued through an expert that the court could rely on the wholesale prices charged by Maybelline, the same pricing variability existed as to wholesale prices. That is, the court could not assume that all retailers paid the same wholesale price or that any differences in wholesale price were attributable to the misrepresentations. [Id. at 22] Though not mentioned by the court, it also seems impossible to believe that wholesale pricing would directly affect retail pricing in every instance or that plaintiffs could control for those differences.
Finally, the court concluded that class treatment was not superior. Although Maybelline argued that its own refund program provided a superior alternative, the court was not comfortable comparing judicial remedies to that type of out-of-court resolution program. Setting that aside, all of the difficulties in identifying class members, determining their injuries, and evaluating whether any misrepresentations were material made class treatment inferior. Such actions “are not likely to benefit anyone but the lawyers who bring them.” [Id. at 23 (internal quotations omitted)]
Key Points For Defendants.
While Algarin deals with cosmetics, similar class actions target a number of other types of consumer products, particularly food and beverages. Many of these cases survive motions to dismiss, especially when California law is at issue, but the real battles are at class certification and summary judgment. That is why it is crucial to work with appropriate experts—typically a marketing/consumer research expert and a damages/economic expert—to build your defense early in the case. Don’t let the plaintiff’s arguments about what “typical” consumers believe go unchallenged. Drill into statistically-significant survey data to show the court why consumer buy your product, what they understand certain phrases to mean (or not to mean), and whether they are satisfied with the product. You also have a host of individual economic issues to address based on the “premium pricing” damages theory in these cases. Building this evidentiary record takes some time and money, of course, but it is well worth the expense. Class actions are like any other litigation matter—you need to prepare them as if you are going to take them to trial. You may find that your opponents do not take that approach, and that inevitably works to your benefit.
James Smith is a partner in the Phoenix office of Bryan Cave LLP. He is a member of the Class & Derivative Actions Client Service Group and of the Food and Beverage Team.