** Ninth Circuit Rules Failure to Disclose Transparency Issues Not Actionable Omission ** (more…)
Ninth Circuit
Supreme Court Skips on Ascertainability
** High Court Won’t Weigh in on Whether “All Natural” Class Requires Ascertainability **
By: Brent E. Johnson
In federal court, Civil Procedure Rule 23 governs the question of whether a class may be certified. The rule specifically identifies four primary requirements for certification: numerosity, commonality, typicality and adequacy. But many courts have added a further requirement – whether the putative class is “ascertainable.” While the question posed by this requirement is phrased differently from court to court, it can be distilled to this: Is there a reasonable and reliable way to identify the members of the proposed class? The Ninth Circuit recently rejected the application of this standard. And, on request for certiorari, the Supreme Court has refused to weigh in on this important issue.
Many federal courts were quick to adopt the ascertainability standard after it found its way into case law, particularly some of the district courts of California, which bear the brunt of the dramatic rise in consumer class actions. See, e.g., Lukovsky v. San Francisco, No. C 05–00389 WHA, 2006 WL 140574, *2 (N.D.Cal. Jan. 17, 2006) (“‘Although there is no explicit requirement concerning the class definition in FRCP 23, courts have held that the class must be adequately defined and clearly ascertainable before a class action may proceed”) (quoting Schwartz v. Upper Deck Co., 183 F.R.D. 672, 679–80 (S.D.Cal.1999)); Thomas & Thomas Rodmakers, Inc. v. Newport Adhesives & Composites, Inc., 209 F.R.D. 159, 163 (C.D.Cal.2002) (“Prior to class certification, plaintiffs must first define an ascertainable and identifiable class. Once an ascertainable and identifiable class has been defined, plaintiffs must show that they meet the four requirements of Rule 23(a), and the two requirements of Rule 23(b)(3)” (citation and footnote omitted)). Generally speaking, a class is sufficiently defined and ascertainable if it is “administratively feasible for the court to determine whether a particular individual is a member.” O’Connor, 184 F.R.D. at 319.
The ascertainability rule appeals to common sense – particularly in consumer class actions. Courts don’t want to certify classes without some reasonable assurance that aggrieved class members will be compensated for the wrong they suffered. Equally important, courts don’t want to create vehicles for petty fraud. As the court observed in Sethavanish v. ZonePerfect Nutrition Co., No. 12–2907–SC, 2014 WL 580696, *56 (N.D.Cal. Feb. 13, 2014), “Plaintiff has yet to present any method for determining class membership, let alone an administratively feasible method. It is unclear how Plaintiff intends to determine who purchased ZonePerfect bars during the proposed class period, or how many ZonePerfect bars each of these putative class members purchased. It is also unclear how Plaintiff intends to weed out inaccurate or fraudulent claims. Without more, the Court cannot find that the proposed class is ascertainable.”
In In re ConAgra Foods, Inc., 90 F. Supp. 3d 919, 969 (C.D. Cal. 2015), consumers brought a putative class action against Con Agra, alleging that the manufacturer deceptively and misleadingly marketed its cooking oils, made from genetically-modified organisms (GMO), as “100% Natural.” A class was certified , inter alia, on the basis that the proposed class was ascertainable. The District Court held that: (i) ascertainability was the law of the Circuit; and (ii) ascertainability was satisfied because membership was governed by a single, objective, criteria – whether an individual purchased the cooking oil during the class period. Id. at 969.
ConAgra, understandably unhappy with the result, appealed the factual basis for the district court’s ascertainability determination. It argued before the Ninth Circuit that plaintiffs did not propose any way to identify class members and could not prove that an administratively feasible method existed for doing so – because, for example, consumers do not generally save grocery receipts and are unlikely to remember details about individual purchases of cooking oil. Briseno v. ConAgra Foods, Inc., 844 F.3d 1121, 1125 (9th Cir. 2017). The Ninth Circuit, however — rather than analyzing whether the plaintiffs satisfied the ascertainability standard — ruled that it has no place in certification proceedings at all. “A separate administrative feasibility prerequisite to class certification is not compatible with the language of Rule 23 . . . Rule 23’s enumerated criteria already address the policy concerns that have motivated some courts to adopt a separate administrative feasibility requirement, and do so without undermining the balance of interests struck by the Supreme Court, Congress, and the other contributors to the Rule.” In short, according to the Ninth Circuit, Rule 23 does not mandate that proposed classes be ascertainable and the lower courts are bound to apply Rule 23 as written.
In so ruling, the Ninth Circuit joined the Sixth, Seventh, and Eighth Circuits. See Sandusky Wellness Ctr., LLC, v. Medtox Sci., Inc., 821 F.3d 992, 995–96 (8th Cir. 2016); Rikos v. Procter & Gamble Co., 799 F.3d 497, 525 (6th Cir. 2015); Mullins v. Direct Digital, LLC, 795 F.3d 654, 658 (7th Cir. 2015), cert. denied, ––– U.S. ––––, 136 S.Ct. 1161, 194 L.Ed.2d 175 (2016). On the opposite side of the ascertainability issue are the Third, Fourth and Eleventh Circuits. Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 593 (3d Cir. 2012); EQT Production Co. v. Adair, 764 F.3d 347, 359 (4th Cir. 2014); Karhu v. Vital Pharm., Inc., — F. App’x —, 2015 WL 3560722 at *3 (11th Cir. June 9, 2015).
ConAgra petitioned the Supreme Court to grant a writ of certiorari on May 10, 2017. It had reason to hope with the Supreme Court recently showing willingness to rule on class action and certification issues. (See prior posts). However, on October 10, 2017, the Supreme Court denied the petition without comment. Conagra Brands, Inc. v. Briseno, No. 16-1221, 2017 WL 1365592 (U.S. Oct. 10, 2017).
With the circuit split still alive, this is not the last we’ll hear on ascertainability. And no doubt defense counsel in affected jurisdictions will find ways to re-shape the reasoning applied in their ascertainability arguments to other parts of the Rule 23 analysis. But, no doubt, with this line of defense gone (for now) in the Ninth Circuit – many more consumer class actions will have their day in California courts.
Alert: Ninth Circuit Opens A Door For All Natural Class Claims
** Appeal Court Panel Holds That Genuine Dispute Remained As To Whether All Natural Claims Would Survive Reasonable Consumer Test **
By: Brent E. Johnson 
Judge Lucy H. Koh gave all natural class defendants cause for celebration back in 2014 when she closed the door on a putative class representative’s claim that Dole’s fruit juices and fruit cups were wrongfully labelled as “All Natural.” Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK, 2014 WL 6901867 (N.D. Cal. Dec. 8, 2014). Last week, however, the Ninth Circuit re-opened that door slightly – at least enough for the plaintiffs’ bar to try to squeeze their feet in.
Mr. Brazil alleged in his 2012 Complaint that Dole’s fruit cups and fruit juices were falsely labelled as “All Natural” because they contained citric acid (i.e. vitamin C) and ascorbic acid (used to prevent discoloring). Dole successfully argued on summary judgment that Plaintiff had failed to show that a significant portion of the consuming public or of targeted consumers, acting reasonably under the circumstances, would be misled by its labeling. Id. at *4, citing Lavie v. Procter & Gamble Co., 105 Cal.App. 4th 496, 507 (2003). Plaintiff’s own opinion about the added Vitamin C and absorbic acid was not enough. Id. Neither was his rationale that a reasonable consumer could be misled by virtue of a label that violated FDA guidance on the topic (the FDA is not a reasonable consumer and vice versa, Judge Koh reasoned). Further, in a prior ruling, Judge Koh decertified Plaintiff’s main damages class because Plaintiff’s damages model (or lack thereof) failed the threshold test of Comcast Corp. v. Behrend, 569 U.S. ___ (2013), i.e., that damages could be adequately calculated with proof common to the class. Brazil appealed both the summary judgment and decertification decisions.
The Ninth Circuit affirmed in part and reversed in part. Brazil v. Dole Packaged Foods, LLC, No. 14-17480, 2016 WL 5539863, at *1 (9th Cir. Sept. 30, 2016).
The good news is that the Ninth Circuit agreed with Judge Koh’s decertification of the damages class – and by so doing signaling that the Circuit will continue adhering to the Comcast principle that Plaintiffs have the burden of demonstrating a viable class-wide basis of calculating damages. It held that the lower court correctly limited damages to the difference between the prices customers paid and the value of the fruit they bought—in other words, the “price premium.” 2016 WL 5539863, at *2 – 3, citing In re Vioxx Class Cases, 103 Cal. Rptr. 3d 83, 96 (Cal. Ct. App. 2009). The Ninth Circuit reiterated that under the price premium theory, a plaintiff cannot be awarded a full refund unless the product she purchased was worthless – which in this case – the fruit was not. Id. citing In re Tobacco Cases II, 192 Cal. Rptr. 3d 881, 895 (Cal. Ct. App. 2015). Because Mr. Brazil did not (and presumably could not) explain how this premium could be calculated across a common class, the motion to decertify was rightly decided. Id. at *3.
The bad news is that the Appeals Court rejected the lower court’s reasoning that bare allegations of an individual’s claims of deception were insufficient to show the reasonable consumer would be equally deceived. Troublingly, the court used the FDA’s informal policy statement (see Janney v. Mills, 944 F. Supp. 2d 806, 812 (N.D. Cal. 2013) (citing 58 Fed. Reg. 2302–01)) on the issue as determinative of the reasonable consumer standard. As one commentator has noted, this converts informal guidance into binding authority.
With the damages class gone, the Ninth Circuit remanded the case for a determination of Plaintiff’s injunctive relief class. That may be a pyrrhic victory in the end. As we have blogged in the past, a plaintiff who is aware of the supposed deception is not in a position, as Pete Townshend penned, to be fooled again.
Long Term Effects of Tobacco II
** A Return to the Limits of In Re Tobacco II? Courts Find That Not Every Advertisement is Part of a “Long-Term Campaign” **
By: Brent E. Johnson
We normally don’t blog about unpublished decisions because . . . lack of precedential value and all that . . . . and that may turn out to be the case with the recent California Court of Appeal’s opinion in Santamarina v. Sears Roebuck & Co., B246705, 2016 WL 1714226, at *1 (Cal. Ct. App. Apr. 26, 2016) and the Ninth Circuit’s memorandum decision in Haskins v. Symantec Corp., No. 14-16141 (9th Cir. June 20, 2016). But these decisions are simply too good for us to pass up the opportunity to post about them – particularly for those who represent clients being sued under California’s CLRA or UCL based on foggy claims of consumer fraud. Invariably, a defendant bringing a Rule 9(b) motion to dismiss or opposing class certification based on the putative class representative’s inability to identify the false advertisements she relied on will be met with the plaintiff’s invocation of the “long-term advertising campaign” language in In re Tobacco II Cases (Tobacco II), 46 Cal. 4th 298 (2009) – the salve that heals all reliance deficiencies.
Of course, Tobacco II dealt with a class representatives’ allegations of “a decades-long campaign of deceptive advertising and misleading statements about the addictive nature of nicotine and the relationship between tobacco use and disease.” 46 Cal. 4th at 306 (emphasis added.) Which is no exaggeration, Joe Camel was R.J. Reynolds’ pitchman for a decade — although it seemed much longer — and the Marlboro Man rode shotgun for Philip Morris for almost half a century. Based on that allegation, the California Supreme Court held, “[W]here . . . a plaintiff alleges exposure to a long-term advertising campaign, the plaintiff is not required to plead with an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements.” Id. at 328. Despite the limited nature of this ruling, plaintiffs who have no idea what advertisements they may have seen frequently claim that the defendant engaged in a “long-term [false] advertising campaign.” Id.
Courts have shown varying degrees of willingness to go along with this class representative claim, particularly at the pleading and class certification stages. Those that do, often quote this language from Tobacco II: “The substantive right extended to the public by the UCL is the right to protection from fraud, deceit and unlawful conduct, and the focus of the statute is on the defendant’s conduct.” 46 Cal 4th at 324. Courts accepting the “long-term advertising campaign” excuse for the plaintiff’s inability to identify the advertisements he relied on tend to read Tobacco II as a judicial declaration that the UCL and CLRA are primarily punish-the-defendant statutes and only secondarily consumer protection laws.
But in Santamarina – a case involving “Made in the USA” advertising by Sears for its Craftsman® tools – the California Court of Appeal scaled back the expansive readings of Tobacco II by other California courts. In Santamarina, the putative class representatives were able to identify the specific advertising and labeling on which they relied so standing was not at issue as it was in Tobacco II. In addition, falsity and materiality were not in dispute given California law on “Made in the USA” claims. Moreover, discovery in the case apparently showed that Sears understood that “Made in the USA” was a valuable sales claim and internal marketing studies demonstrated that a significant percentage of consumers believed Craftsman® tools were made in the United States.
Despite the above, the Court of Appeal concluded that plaintiffs could not establish commonality or that the proposed class was ascertainable. Notably, the plaintiffs defined the class as “All persons who purchased, in the State of California from January 6, 2001 through the present, any Craftsman branded tool or product where any unit or part thereof was entirely or substantially made, manufactured, or produced outside of the United States.” The Court of Appeal agreed with the superior court that this definition doomed the proposed class under commonality and ascertainability requirements because the proposed class included consumers who never saw any Craftsman® “Made in the USA” advertising or labeling. The Court of Appeal responded to plaintiffs’ incantation of Tobacco II by holding, “Given that the time period at issue was several years, and only some Sears advertising and marketing could potentially be found to be false or misleading, substantial evidence supported the trial court’s finding that the advertising at issue here is not equivalent to the decades-long campaign in Tobacco II.” Particularly important are these words: “In contrast to the evidence here, Tobacco II ‘involved identical misrepresentations and/or nondisclosures by the defendants made to the entire class.’” Santamarina, 2016 WL 1714226, at *10 (citing Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 849.
For being designated as an unpublished opinion, the California Court of Appeal’s decision in Santamarina is unusually expansive in its analysis – covering 34 pages. In contrast, Haskins v. Symantec is the soul of wit. In a mere two paragraphs, the Ninth Circuit upheld the district court’s dismissal of a putative class action complaint alleging that Symantec failed to warn consumers that hackers had compromised the 2006 version of its ubiquitous Norton antivirus software. The plaintiff claimed, among other things, that she relied on Symantec’s advertising that its software was secure (when it allegedly wasn’t) in buying it – without identifying the specific advertising. The Ninth Circuit affirmed the district court’s dismissal under Rule 9(b) “[b]ecause Haskins’s complaint did not allege that she read and relied on a specific misrepresentation by Symantec.” In response to the plaintiff’s predictable invocation of Tobacco II, the Ninth Circuit found that the plaintiff “failed to establish that the Tobacco II standard is applicable to her pleadings because the misrepresentations at issue here were not part of an extensive and long-term advertising campaign like the decades-long campaign engaging in saturation advertising targeting adolescents in Tobacco II.”
Two cases do not a trend make — especially when California law is involved. But it is encouraging to see courts – even in unpublished decisions – return Tobacco II to its stated limits rather than assuming that any and every advertisement is part of a long-term campaign.
A Proper Pick-off Play? Conditions on Payment May Make The Difference.
** District Court Judge Construes Campbell-Ewald Giving Daylight to Defendants Wanting to Moot Class Claims **
By: Brent E. Johnson
We’ve recently blogged about the door left open by the U.S. Supreme Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 193 L. Ed. 2d 571 (2016) for mooting a putative class representative’s claim by the defendant depositing the full amount into an account payable to the plaintiff and the court entering judgment in that amount. In Chen v. Allstate Ins. Co., No. 13-16816, 2016 WL 1425869, at *1 (9th Cir. Apr. 12, 2016), the Ninth Circuit slammed that door shut, saying, in essence, that a trial court should not enter judgment if the class representative rejects a Rule 68 offer of judgment in order to pursue relief on behalf of members of a class even if the offer of judgment affords the individual plaintiff complete relief. 2016 WL 1425869, at *9. As we noted in a recent post about Chen, while the Ninth Circuit distinguished Allstate’s “reversionary interest” in its money from the situation where a defendant deposited the money into a court registry and could not reclaim it, that distinction is without a difference because Federal Rule of Civil Procedure 67 requires notice to the plaintiff and a court order permitting the deposit giving the plaintiff the right to oppose it on the ground that she does not want the money because she (ahem . . . her lawyers) would rather pursue class relief.
This rather tortured analysis about who owns the money after it has left the defendant’s hands but has not been accepted by the plaintiff stems from three 19th century tax cases where the defendants actually paid the amounts allegedly owed to the State of California into bank accounts in accordance with a California statute that required the State to accept payments in full. Under those circumstances, “[T]he railroad’s payments had fully satisfied the asserted tax claims, and so extinguished them.” Campbell-Ewald, 136 S. Ct. at 671. Thus, if the money changes hands, the case is over. This motiff was picked up by the Ninth Circuit in Chen, in which the Court discussed the common law doctrine of tender upon which Rule 68 is based. The Ninth Circuit noted that, under the tender doctrine, “[T]here may have been occasions when the deposit of money in court could be ‘treated as the equivalent of an actual payment to and acceptance by the plaintiff.’” (Citing, Robert G. Bone, “To Encourage Settlement”: Rule 68, Offers of Judgment, and the History of the Federal Rules of Civil Procedure, 102 Nw. U.L. Rev. 1561, 1585 (2008)). Chen, 2016 WL 1425869, at *8. However, the Ninth Circuit concluded that for the deposit of funds to be treated as payment and acceptance, “the defendant [must] unconditionally relinquish[ ] its entire interest in the deposited funds” — in other words, only when “‘the defendant bids his money an eternal farewell.’” (Quoting H. Gerald Chapin, Code Practice in New York 164 (1918)). Id. But it seems a Sisyphean task for a defendant to unconditionally relinquish its funds when the plaintiff won’t take them.
Just last week, however, the United States District Court for the District of Massachusetts found a way for a defendant to “bid [its] money an eternal farewell” in order to satisfy the demands of a putative class representative even when the class representative declines the payment. In Demmler v. ACH Food Companies, Inc., No. 15-13556-LTS (D. Mass. June 9, 2016) (Dkt. No. 48), the defendant manufactured Weber barbecue sauces labeled “All Natural” in large lettering on the bottles. Tragically, these delicious condiments contained caramel coloring. And as sure as the sun does rise, ACH received a Demand for Relief pursuant to Massachusetts General Law, Chapter 93A §9(3) from the plaintiff’s attorney purporting to represent a consumer class. ACH responded with a $75 check (statutory damages, trebled) and a letter that included the statement, in the Court’s words, “[T]hat ‘ACH is willing to offer’ a refund, and characterized the check as ‘the extent of [ACH’s] willingness to compromise under the circumstances.’” Id. at 4. Importantly, the Court noted that “the letter imposed no conditions or restrictions on the check it enclosed, either in the letter or on the face of the check.” Id.
The correspondence battle continued between the attorneys, with the plaintiff’s attorney objecting to the tender because it didn’t provide class-wide relief and ACH asserting that the unaccepted $75 payment mooted the case. Id. The plaintiff then filed suit. In a final flourish, defense counsel sent another $75 check — again without condition or restriction — that was, of course, rejected. It is of some significance that the putative class action did not seek injunctive relief because ACH had stopped labeling its products as “All Natural” eight months prior to receiving the plaintiff’s Demand. Id. at 5. The case was thus limited to compensating the putative class and attorney fees.
The barbecue brouhaha came to an abrupt conclusion when the Court granted ACH’s Motion to Dismiss the case as moot. The Court addressed Campbell-Ewald head on, distinguishing it on the basis that a Rule 68 offer of judgment is a settlement offer while ACH’s twice tender of $75 was a no-strings attached payment. As the Court found, “This distinction makes all the difference.” Id. at 6 – 7. The trio of 19th century tax cases that temporarily vexed the majority in Campbell-Ewald made a brief but important appearance in the Court’s opinion – they were the basis (along with the Supreme Court’s intentionally narrow ruling in Campbell-Ewald) for the Court to hold that “Demmler’s refusal to accept the $75 is immaterial.” “While ACH did not actually deposit the $75 check in an account payable to Demmler [as did the railroads in the 19th century tax cases] . . . ACH delivered the check to Demmler (or, more precisely, his attorney), entitling him to full possession of the $75.” Footnote 5 of the Court’s opinion distills Judge Sorokin’s thinking on the issue: “A defendant might condition, for example, satisfaction on the Plaintiff’s agreement to avoid litigation over whether the claim has become moot. In such a circumstance, the offer, like a Rule 68 offer, does not render the case moot, because that Plaintiff’s is remedied only if it agrees to the mootness determination.” Id. at 8.
After concluding that ACH’s rejected payment to the plaintiff mooted his individual claim, the Court addressed the question of whether ACH’s payment was a pickoff play that might invoke the legally-questionable “inherently transitory” exception to the general rule divined from Justice Kagan’s dissent in Genesis Healthcare – i.e., a claim that is “capable of repetition, yet evading review” may not be mooted by the termination (or, in this case, satisfaction) of the putative class representative’s claim. Without conceding that the First Circuit ascribed to the inherently transitory exception, the Court interpreted First Circuit precedent to require that — if such an exception exists — it does so only when there is some pattern or practice of defense lawyers (either individually or as a group with respect to a specific class of claims) picking off plaintiffs. Therefore, while it may be the practice of defense lawyers to pickoff plaintiffs in TCPA cases, “Demmler has offered no evidence that any ch. 93A defendants, let alone ACH specifically, has a pattern of engaging in such conduct.” Id. at 13 – 14.
What are the lessons of Demmler? First and foremost, that Campbell-Ewald has not resolved the issue of whether paying or offering to pay a plaintiff the full value of her claim deprives her of standing as a class representative. And second, if you’re going to try it, make the payment unconditional and don’t do it a lot.
Sugar By Any Other Name Not Just As Sweet – Says FDA
** FDA concludes its study on “Evaporated Cane Juice” – issues guidance that it is a misleading description for mere Sugar **
By: Brent E. Johnson
On May 25, 2016, the Food and Drug Administration (FDA) issued guidance that it is false or misleading to describe sweeteners made from sugar cane as “evaporated cane juice.” Guidance for Industry: Ingredients Declared as Evaporated Cane Juice.
The FDA promised guidance before the end of 2016 – so they under-promised and over-delivered. The FDA’s guidance reasoned that the term “cane juice”— as opposed to cane syrup or cane sugar—calls to mind vegetable or fruit juice, see 21 CFR 120.1(a), which the FDA said is misleading as sugar cane is not typically eaten as a fruit or vegetable. See U.S. Department of Agriculture, Center for Nutrition Policy and Promotion. “Added Sugars.” As such, the FDA concluded that the term “evaporated cane juice” fails to disclose that the ingredient’s “basic nature” is sugar. Guidance, Section III. As support, the FDA cited the Codex Alimentarius Commission — a source for international food standards sponsored by the World Health Organization and the United Nations — which defines “raw cane sugar” in the same way as “evaporated cane juice.” Codex 212-1999.1. The FDA therefore advised that “‘evaporated cane juice’ is not the common name of any type of sweetener and should be declared on food labels as ‘sugar,’ preceded by one or more truthful, non-misleading descriptors if the manufacturer so chooses.” Guidance, Section III. The FDA’s decision comes after a 2009 draft guidance advising against using the term “evaporated cane juice” and a host of lawsuits against food companies that ignored the guidance. Draft Guidance for Industry: Ingredients Declared as Evaporated Cane Juice (2009).
The FDA’s decision does not bode well for pending cases on this point. As we have blogged about recently, many evaporated cane juice lawsuits are currently stayed awaiting the outcome of the FDA’s guidance, see, e.g., Gitson, et al. v. Clover-Stornetta Farms, Inc., Case No. 3:13-cv-01517-EDL (N.D. Cal. Jan. 7, 2016); Swearingen v. Amazon Preservation Partners, Inc., Case No. 13-cv-04402-WHO (N.D. Cal. Jan. 11, 2016). And some have been revived on appeal – just in time – see Kane v. Chobani, LLC, No. 14-15670, 2016 WL 1161782, at *1 (9th Cir. Mar. 24, 2016) (overturning 2014 order from Northern District of California dismissing case). These suits (and others) are now set to proceed in the wake of the FDA’s guidance. Bear in mind, the guidance is not binding on courts and, in of itself, does not create a private right of action. 21 U.S.C. § 337(a) (“[A]ll such proceedings for the enforcement, or to restrain violations, of [the FDCA] shall be by and in the name of the United States”); see POM Wonderful LLC v. Coca-Cola Co., 573 U.S. ___ (2014); Buckman Co. v. Pls.’ Legal Comm., 531 U.S. 341, 349 n.4 (2001); Turek v. Gen. Mills, Inc., 662 F.3d 423, 426 (7th Cir. 2011); see also Smith v. U.S. Dep’t of Agric., 888 F. Supp. 2d 945, 955 (S.D. Iowa 2012) (holding that there is no private right of action regarding USDA statute).
In most false advertising cases, the governing test is what consumers, themselves, think – not what the FDA does. For example, in Mason v. Coca-Cola Co., plaintiffs alleged that “Diet Coke Plus” was misleading because the word “Plus” implied the product was “healthy” under FDA regulations. 774 F. Supp. 2d 699 (D.N.J. 2011). The court begged to differ: “At its core, the complaint is an attempt to capitalize on an apparent and somewhat arcane violation of FDA food labeling regulations . . . not every regulatory violation amounts to an act of consumer fraud . . . . It is simply not plausible that consumers would be aware of [the] FDA regulations [plaintiff relies on].” Id. at 705 n.4; see also Polk v. KV Pharm. Co., No. 4:09-CV-00588 SNLJ, 2011 WL 6257466, at *7 (E.D. Mo. Dec. 15, 2011); In re Frito-Lay N. Am., Inc. All Natural Litig., No. 12-MD-2413 RRM RLM, 2013 WL 4647512, at *15 (E.D.N.Y. Aug. 29, 2013) (“[T]he Court [cannot] conclude that a reasonable consumer, or any consumer, is aware of and understands the various federal agencies’ views on the term natural.”) Defendants in evaporated cane juice cases often assert that “evaporated cane juice” is a more accurate term than sugar to describe a type of sweetener that is made from sugar cane but undergoes less processing than white sugar. See e.g., Morgan v Wallaby Yogurt Company, No. CV 13-0296-CW, 2013 WL 11231160 (N.D. Cal, April 8, 2013) (Mot. to Dismiss). Those issues aside, many commentators believe the guidance will spur settlements – and they may be right. The guidance may also spur a round of label changes for those who have not already abandoned the controversial term.
Never Surrender – The Ninth Circuit’s Follow-Up to the Campbell-Ewald Anti-Pickoff Rule
** Insurer Fails to Convince Circuit Court that Escrow Payment Moots TCPA Case **
By: Brent E. Johnson
As we’ve posted about recently, in February 2016 the U.S. Supreme Court in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 193 L. Ed. 2d 571 (2016) resolved a circuit split over whether a defendant can “pick off” the lead plaintiff in a putative class action lawsuit via a Rule 68 offer of judgment that affords the plaintiff with complete relief prior to class certification. The majority, relying on “first-year law student” contract law, held that if the plaintiff doesn’t accept the offer of judgment – “however good the terms” (i.e., total surrender) — the defendant’s offer is a “legal nullity” and, therefore, the case or controversy remains. In reaching its decision, the Court felt compelled to distinguish “a trio of 19th-century railroad tax cases” (as if the fact that they were 19th-century railroad tax cases wasn’t enough) where the defendants actually paid the amounts alleged by the plaintiffs to be owed. The Court did so thusly: “In all three cases, the railroad’s payments had fully satisfied the asserted tax claims, and so extinguished them.” 136 S. Ct. at 671. This distinction, however, opened a small can of worms. What if the defendant deposited the full amount of the plaintiff’s claim into an account payable to the plaintiff, and the court then entered judgment in that amount? While the majority raised this hypothetical, they declined to answer it.
Acting with lightning speed, Allstate Insurance Company — embroiled in a putative TCPA class action in the Northern District of California — deposited $20,000 in a bank escrow account “pending entry of a final District Court order or judgment directing the escrow agent to pay the tendered funds to [the lead plaintiff], requiring Allstate to stop sending non-emergency telephone calls and short message service messages to [the plaintiff] in the future and dismissing this action as moot.” Chen v. Allstate Ins. Co., No. 13-16816, 2016 WL 1425869, at *1 (9th Cir. Apr. 12, 2016). Unfortunately for Allstate, the matter was already on appeal to the Ninth Circuit on the Rule 68 offer of judgment issue subsequently decided by the Supreme Court, so the district court wasn’t given first crack at deciding whether to enter Allstate’s proposed judgment.
On April 12, 2016 – before the ink was dry on the Campbell-Ewald opinion – the Ninth Circuit slammed shut the mootness door the Supreme Court left open. The court first observed that Allstate had not met the Supreme Court’s requirement that the plaintiff actually receive the complete relief offered – Allstate’s money was in escrow and it could get it back. 2016 WL 1425869, at *7. Allstate rejoined that all the court of appeals needed to do was order the district court to enter its proposed order and the money would be out of its hands for all eternity. The Ninth Circuit said no. If the plaintiff doesn’t want complete relief, he shouldn’t be forced to accept it – as long as he’s not bullheaded or crazy. And “[a] named plaintiff exhibits neither obstinacy nor madness by declining an offer of judgment on individual claims in order to pursue relief on behalf of members of a class.” 2016 WL 1425869, at *9. While the Ninth Circuit distinguished Allstate’s relationship to its money from the situation where a defendant deposited the money in the court registry and could not reclaim it, the distinction is without a difference because Federal Rule of Civil Procedure 67 requires notice to the plaintiff and a court order permitting the deposit.
Is the Primary Jurisdiction Doctrine Alive Again for “Natural” Defendants?
** Ninth Circuit Stays Natural Case In “Food Court” **
By: Brent E. Johnson
The doctrine of primary jurisdiction is a prudential means to stay or dismiss a party’s claims if the claims are better adjudicated or answered by an administrative agency – it “is concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties.” Ellis v. Tribune Television Co., 443 F.3d 71, 81 (2d Cir.2006). It is properly applied “whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body.” Id. When applicable, “a court defers to the agency for advisory findings and either stays the pending action or dismisses it without prejudice” Johnson v. Nyack Hosp., 86 F.3d 8, 11 (2d Cir.1996).
Courts must make a case-by-case determination when considering primary jurisdiction. In doing so, they generally focus on: (1) whether the question at issue is within the conventional experience of judges or whether it involves technical or policy considerations within the agency’s particular field of expertise; (2) whether the question at issue is particularly within the agency’s discretion; (3) whether there exists a substantial danger of inconsistent rulings; and (4) whether a prior application to the agency has been made. Nat’l Commc’ns Ass’n v. AT & T, 46 F.3d 220, 222 (2d Cir.1995).
There was a time when “primary jurisdiction” was in vogue for “all natural” defendants because of the perception that the FDA was the proper administrative body to answer the question of what sort of ingredients and products qualify as “natural.” The leading case was Astiana v. Hain Celestial Grp., Inc., 905 F. Supp. 2d 1013 (N.D. Cal. 2012). This case involved Hain Celestial’s cosmetics products with labels including “All Natural,” “Pure Natural,” or “Pure, Natural & Organic.” In this case, the putative nationwide class representatives alleged that they had been duped into purchasing Hain’s cosmetics that allegedly contained synthetic and artificial ingredients such as benzyl alcohol. As is typical in such cases, the plaintiffs sought damages and injunctive relief under a variety of theories including statutory violations under the California’s Consumer Legal Remedies Act. The district court dismissed the case, applying primary jurisdiction, holding that “[in] the absence of any FDA rules or regulations (or even informal policy statements) regarding the use of the word “natural” on cosmetics labels, the court declines to make any independent determination of whether defendants’ use of “natural” was false or misleading. Doing so would “risk undercutting the FDA’s expert judgments and authority.” Other district courts invoked the agency’s primary jurisdiction to wait and see if the FDA intended to offer regulations regarding the use of the term “natural” (in particular in GMO food cases). In re Gen. Mills, Inc. Kix Cereal Litig., No. CIV–A–12–249 KM, 2013 WL 5943972 (D.N.J. Nov. 1, 2013), Barnes v. Campbell Soup Co., No. C12–05185 JSW, 2013 WL 5530017 (N.D.Cal. July 25, 2013) (GMO food case), Cox v. Gruma Corp., No. 12–CV–6502 YGR, 2013 WL 3828800 (N.D.Cal. July 11, 2013) (GMO case).
Undeterred by the district court’s dismissal, the Plaintiffs in Astiana went on a two pronged attack. They went directly to the FDA seeking guidance on the definition of “natural.” The FDA responded by letter stating – “cosmetic public health and safety matters are currently fully occupying the resources that FDA has available for proceedings on cosmetics matters” and “proceedings to define ‘natural’ do not fit within [the agency’s] current health and safety priorities.” Plaintiffs also appealed to the Ninth Circuit. Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 759 (9th Cir. 2015). The Ninth Circuit held that — while the district’s court primary jurisdiction doctrine decision was not wrong — it should have stayed the matter awaiting an FDA response. Upon remand, the district court revisited the primary jurisdiction argument and, recognizing that the recent FDA letter demonstrated that the FDA has no interest in the subject matter and, therefore, referral to the FDA would be futile, the court denied defendant’s motion to stay on primary jurisdiction grounds. Astiana v. Hain Celestial Grp., Inc., No. 4:11-cv-06342-PJH (N.D. Cal. October 9, 2015) (Dkt. No. 114).
Courts in other jurisdictions have followed this same rejection of the primary jurisdiction doctrine argument made by cosmetic company defendants in “natural” cases. Goldemberg v. Johnson & Johnson Consumer Companies, Inc., 8 F. Supp. 3d 467, 476 (S.D.N.Y. 2014) (“the FDA has not begun to promulgate a rule concerning the term natural in cosmetics . . [i]nstead, it recently declined to make such a determination . . . [t]hus, as the agency is not simultaneously contemplating the same issue . . . this factor weighs against applying the primary jurisdiction doctrine”); Paulino v. Conopco, Inc., No. 14-CV-5145 JG RML, 2015 WL 4895234, at *1 (E.D.N.Y. Aug. 17, 2015); Langan v. Johnson & Johnson Consumer Companies, Inc., 95 F. Supp. 3d 284, 290 (D. Conn. 2015); Fagan v. Neutrogena Corp., No. 5:13-CV-01316-SVW-OP, 2014 WL 92255, at *1 (C.D. Cal. Jan. 8, 2014) (“Plaintiffs’ claims are not barred by the doctrine of primary jurisdiction . . . [as the] FDA has affirmed that proceedings to define the term natural in the context of cosmetics do not fit within its current health and safety priorities.”); see also Reid v. GMC Skin Care USA Inc., No. 815CV277BKSCFH, 2016 WL 403497, at *1 (N.D.N.Y. Jan. 15, 2016) (rejecting primary jurisdiction in case alleging that face cream with “DNA repair effect” statements was misleading); Randolph v. J.M. Smucker Co., No. 13-80581-CIV, 2014 WL 1018007, at *6 (S.D. Fla. Mar. 14, 2014).
At the same time that the primary jurisdiction doctrine was being buried with respect to “natural” claims, it remained viable in various food cases, particularly those presenting discrete technical questions, i.e. Backus v. Gen. Mills, Inc., 122 F. Supp. 3d 909, 933 (N.D. Cal. 2015) (primary jurisdiction invoked on question of the amount of trans fat in baked goods that is safe); Saubers v. Kashi Co., 39 F. Supp. 3d 1108 (S.D. Cal. 2014) (primary jurisdiction invoked with respect to “evaporated cane juice” labels) (collecting cases). The basis for primary jurisdiction in particular in the ECJ cases is that that FDA has indicated that it WILL issue regulatory guidance on evaporated cane juice – but not until the end of 2016. See also Draft Guidance for Industry on Ingredients Declared as Evaporated Cane Juice; Reopening of Comment Period; Request for Comments, Data, and Information, 79 Fed.Reg. 12,507 (Mar. 5, 2014). Most evaporated cane juice cases are currently stayed (or dismissed) see, e.g., Gitson, et al. v. Clover-Stornetta Farms, Inc., Case No. 3:13-cv-01517-EDL (N.D. Cal. Jan. 7, 2016) (extending ECJ stay for an additional 180 days, until August 2016) (Laporte, J.); Swearingen v. Amazon Preservation Partners, Inc., Case No. 13-cv-04402-WHO (N.D. Cal. Jan. 11, 2016) (Orrick, J.) (extending ECJ stay and continuing case management conference until July 2016). A few judges have lifted the ECJ stay (impatient at the FDA’s movement) but they appear to be out-liers. See Figy v. Lifeway Foods, Inc., No. 3:13-cv-4828-TEH (N.D. Cal. Jan. 4, 2016), Dkt. No. 57; Swearingen v. Pacific Foods of Oregon, Inc., No. 13-cv-04157 (N.D. Cal. Jan. 5, 2015), Dkt. No. 61.
But we digress. Back to “natural” and a significant development. In November 2015, the FDA issued a request for comments regarding the use of the term “natural” in connection with food product labeling. See Use of the Term “Natural” in the Labeling of Human Food Products; Request for Information and Comments, 80 Fed. Reg. 69,905 (Nov. 12, 2015). See our previous blog post. While noteworthy in and of itself, the FDA’s requests for comments also raised the secondary issue of whether the FDA’s new-found interest in potentially defining “natural” with respect to foods triggers the primary jurisdiction doctrine? Last week, the Ninth Circuit answered – Yes. In Kane v. Chobani, LLC, No. 14-15670, 2016 WL 1161782, at *1 (9th Cir. Mar. 24, 2016), the circuit court dealt with an appeal from the Northern District of California where buyers of Chobani fruit flavored Greek yogurt filed suit against the company alleging that its labels and advertising violated California law because the “all natural” yogurt included fruit juice and turmeric. Before the district court, the plaintiffs had a difficult time articulating why it was plausible to allege that fruit juice and turmeric are unnatural vacillating between the argument that it is unnatural to use these ingredients to color yogurt and the argument that the fruit juices at issue were so heavily processed that they are no longer natural. Ultimately the district court found that the case warranted dismissal on Rule 9(b) and 12(b)(6) grounds. Kane v. Chobani, LLC, 973 F. Supp. 2d 1120, 1138 (N.D. Cal. 2014). Plaintiffs appealed on the basis that under primary jurisdiction their case should have been stayed – not dismissed. And the Ninth Circuit agreed, vacating the dismissal and remanding to the district court under a stay pending resolution of the FDA’s “natural” proceedings. So a win for the plaintiffs in Chobani – but one that defendants will take careful note of – in the Ninth Circuit and beyond.
Supreme Court Alert
** Supreme Court Holds in TCPA Case That a Rule 68 Offer or Relief Does Not Moot Class Claims Under Rule 23 ** . . .
By: Brent E. Johnson
In the case of Campbell-Ewald Co. v. Gomez (No. 14-857), the Supreme Court issued a writ of certiorari to the Ninth Circuit to resolve a circuit split on the issue of whether a Rule 68 offer of judgment for complete relief to a putative class representative moots his claim thereby preventing him from serving as a class representative under Rule 23. See previous post. The underlying case concerns unsolicited text messages from an advertising company prohibited by the Telephone Consumer Protection Act (TCPA) 47 U.S.C. § 227. The defendant company offered Mr. Gomez the statutory TCPA remedy (trebled) and even agreed to a stipulated injunction prohibiting it from further violations the TCPA. Gomez rejected the offer. The defendant argued that its offer, which provided complete relief, mooted Gomez’s claim and he therefore did not have Article III standing. The Supreme Court ruled on January 20, 2016 (in a 6-3 decision) that an unaccepted settlement offer does not moot a plaintiff’s case. Campbell-Ewald Co. v. Gomez, 577 U. S. ____ (2016). The conservative-leaning court in recent years has issued rulings that put restrictions on class action lawsuits but did not continue that trend in this case. Justice Ginsburg delivered the opinion of the Court joined by Justices Kennedy, Breyer, Sotomayor, and Kagan with Justice Thomas concurring. Chief Justice Roberts filed a dissenting opinion, in which Justices Scalia and Alito joined. Notably, the ruling is limited in scope, with Justice Ginsburg pointing out that the Court was not deciding how a case would be resolved if the settlement funds had been deposited into an account payable to the plaintiff and the trial court then entered judgment in that amount. In reaching its determination that a rejected settlement offer does not moot a complaint, the majority pointed to Rule 68’s sanction – that the offeree must pay the offeror’s costs after the offer was made. This may turn out to be a silver lining for defendants in certain types of class actions, such as consumer cases, where it is unlikely that the class representative will obtain the full amount of his claim if the case were to proceed to trial. Costs in class action litigation are no small matter.
All Eyes on the Supreme Court for Consumer Class Action Lawyers
**The Supreme Court’s 2015 Term Opens With a Series of Cases Important for Consumer Class Action Defendants: Campbell-Ewald v Gomez, Spokeo v Robins and Tyson Foods v Bouaphakeo** . . .
By: Brent E. Johnson
In recent years, the Supreme Court has handed down victories to the class action defense bar. In Wal-Mart v. Dukes, 564 U.S. ___ (2011), the Court reversed a California district court certification of a gender discrimination class – raising the bar on commonality questions for plaintiffs. In Comcast v. Behrend, 569 U.S. __ (2013), the Court again reversed a district court certification – heightening scrutiny on plaintiffs’ methods for alleging class wide damages. As the 2015 term opens this week, defense counsel around the country eye further potential victories in three key cases.
The first case up is Campbell-Ewald Co. v. Gomez (No. 14-857) on appeal from the Ninth Circuit where the Court will deal with two frequently litigated questions as yet unresolved by the circuits. Namely, does a Rule 68 offer of complete relief to a plaintiff moot his or her claim and, if so, does it also moot the resulting class claim under Rule 23? The underlying case concerns unsolicited text messages prohibited by the Telephone Consumer Protection Act (TCPA) 47 U.S.C. § 227. The TCPA contains a statutory remedy and defendants argued that, to the extent they had offered Plaintiff the full amount of the statutory remedy (per Rule 68) as relief, the plaintiff suffered no cognizable Article III damages. Thus, defendants argue that because the plaintiff suffered no injury, he has no right to represent a class of people who may have been damaged. From a practical perspective, the case addresses the question: Can a defendant “pick off” would be class representatives through Rule 68 offers of judgment thereby destroying the foundation of the class action claim? As anyone who has defended corporations receiving required pre-litigation notices under consumer protection statutes has observed, plaintiff law firms have become increasingly reticent to disclose the identity of their clients at the notice stage in order to forestall Rule 68 offers of judgment until the putative class action lawsuit has been filed.
The second case is Spokeo Inc. v. Robins, (No. 13-1339) also on appeal from the Ninth Circuit. This case involves a related question of Article III standing for class representatives. Spokeo concerns the Fair Credit Reporting Act, 15 U.S.C. § 1681 (FCRA), which requires consumer credit agencies to take reasonable steps to ensure the accuracy of their published reports. Plaintiff in a putative class action argued in the Central District of California that results for his name on the Spokeo website contained inaccurate information about plaintiff’s education and professional experience – and that this inaccuracy harmed his employment prospects. The District Court dismissed, finding that the alleged damages – based on hypothetical impact on his employment – were too speculative to satisfy Article III standing. The Ninth Circuit reversed, holding that the statutory violation implicitly creates a private cause of action to enforce and that this violation of a statutory right was an “injury” sufficient to confer standing. The Ninth Circuit Spokeo decision was the latest in a circuit split – on one side the Second and Fourth circuits, which have rejected standing arguments from plaintiffs who alleged bare statutory violations that did not result in any actual harm (Kendall v. Emps. Ret. Plan of Avon Prods., 561 F.3d 112 (2d Cir. 2009); David v. Alphin, 704 F.3d 327 (4th Cir. 2013)); and the Ninth Circuit joining the Sixth and Seventh Circuits, which have come out on the side of recognizing “damages” for private plaintiffs with respect to minor statutory violations. Beaudry v. TeleCheck Servs, 579 F.3d 702 (6th Cir. 2009); Murray v. GMAC Mortg. Corp., 434 F.3d 948 (7th Cir, 2006). If the Supreme Court recognizes damages irrespective of actual harm, the impact could be felt more broadly than FCRA – there are numerous similar statutory schemes, including truth-in-lending legislation (15 U.S.C. § 1640(a)); debt collection statutes, (15 U.S.C. § 1692k(a)); as well as various privacy laws (18 U.S.C. § 2710(c)(1); 47 U.S.C. § 551(f)(1)-(2)).
The third case is Tyson Foods v. Bouaphakeo (No. 14-1146) – a challenge to a $5.8 million wage-and-hour judgment in favor of a class of employees at Tyson’s meat packing plant in Iowa. Tyson’s petition seeks a reversal of the district court and Eight Circuit’s decision to permit liability and damages verdicts to be based – not on an individual analysis of each purported class member – but by extrapolating a statistical average across the board based on the discrepancies observed in a sample class of workers’ hours and pay. Tyson further appeals on the lack of ascertainability of the class itself – that is, that the certified group (even according to the Plaintiffs’ own expert) included a significant number of people who weren’t underpaid at all. If successful, the Tyson case will build upon the Court’s disapproval in Wal-Mart of “trial by formula” and provide a significant bulwark against plaintiffs in putative class actions glossing over differences amongst their claimed class in order to achieve certification.
Not surprisingly, this trifecta of cases has generated a significant amount of interest, amicus briefing, and optimistic thinking from the defense bar that momentum is on its side. The implications are not insubstantial if defendants prevail: the type of de facto strict liability for statutory compliance created by such class actions will diminish, there will be new avenues to derail cases pre-certification, and the barrier of ascertainable and reliable class wide damages that plaintiff s must hurdle will be reinforced.