Thursday, February 05, 2009

No Injury Consumer Fraud Claims

As readers who use our No Injury Scorecard know, we’re very interested in identifying situations where plaintiffs – and especially consumer fraud plaintiffs – get dismissed because they don’t have (or don’t choose to allege) a legally sufficient injury.

Why?

Class actions, mostly. As we’ve pointed out before, the plaintiff-side class action aggregators have pretty much been expelled from the product liability/personal injury temple. This trend – that personal injuries and class actions don’t mix – is so pronounced that even more recent drafts of the ALI’s Principles of Aggregate Litigation (which we think has an inordinate fondness for class actions) admit it.

So to keep their straws in the prescription medical product honey pot, the class action purveyors had to find something else to sue over – several things, actually. They now like pure economic loss claims. But they can’t use (at least in most places) traditional tort causes of action because of other impediments, such as reliance requirements that bar most traditional fraud class actions and the economic loss rule, which precludes purely economic losses from being recovered in negligence or strict liability. Maybe one day we'll post about those, but not today.

Hence the recent emphasis on consumer fraud statutes.

But in the consumer fraud arena, most of these statutes (even California, now) require that there be some sort of actual, concrete loss. The more favorable statutes require a loss of money or property. Others, with vaguer damage provisions (such as New Jersey’s “ascertainable loss” standard) have, not surprisingly, seen more action from the other side of the v.

In those cases – as far as the damage requirement goes – our bottom line is this: if a particular individual (whether a class representative or just a class member) took/used the drug/device and (1) it provided effective relief of the condition it was prescribed to treat, and (2) the person didn’t suffer whatever risk allegedly wasn’t warned about, then the case shouldn’t be in court.

In that situation, not only wasn’t there any harm (the stuff worked and caused no other injury) but it would be unfair to the defendant to permit any recovery. Basically, that particular plaintiff/class member got exactly what s/he paid for. Whatever unwarned-of risk is being litigated didn’t affect this person. There’s no injury, and thus no basis for recovery. Any recovery amounts to a windfall.

Not only is this the right result for a whole host of social and jurisprudential reasons – but it has an extra added benefit that (from our perspective as defense lawyers) is even better. It should defeat class certification.

Why?

The spiel used to justify economic loss class actions is that economic damages can simply be calculated on the basis of some formula, and because of that, they aren’t an “individualized” issue (like calculating personal injury damages) that defeats class certification. But if the fact of injury – putting aside the amount – is dependent upon the existence of personal injury, then most if not all of the individualized issues that surround personal injuries get reincorporated into the consumer fraud action, even if the only damages actually recoverable are economic.

So the argument that the plaintiff wasn’t hurt because s/he got exactly what s/he paid for has the added bonus (beyond simply making logical sense) of defeating class certification. How does it do in court?

Pretty well, most of the time.

The first time we ever ran across the argument was in a rather weird context – constitutional, that is “case or controversy,” standing. Rivera v. Wyeth-Ayerst Laboratories, was (predictably) a class action for economic loss. Insurers were suing over their (alleged) payment for prescriptions for a drug with an unwarned-of risk. But the drug was effective, and only a few people (twelve) ever encountered the risk. Despite that, the insurers sought reimbursement for every prescription they reimbursed during whatever class period was alleged.

Well, pigs get fat, but hogs get slaughtered. And this overreach got slaughtered.

The Rivera court held “no way.” The class alleged no injury that could even count as a case or controversy under Article III of the U.S. Constitution. First, there was no claim in contract/warranty:


By plaintiffs’ own admission, [the class representative] paid for an effective pain killer, and she received just that - the benefit of her bargain. An award of damages for breach of contract is supposed to place the injured party as nearly as possible in the position that he would have occupied had the defaulting party performed the contract. [The drug] worked. Had [defendant] provided additional warnings or made [the drug] safer, the plaintiffs would be in the same position they occupy now. Accordingly, they cannot have a legally protected contract interest.
283 F.3d 315, 320 (5th Cir. 2002). Second, there was no claim in tort:


The plaintiffs apparently believe that if they keep oscillating between tort and contract law claims, they can obscure the fact that they have asserted no concrete injury. Such artful pleading, however, is not enough to create an injury in fact. . . . By definition, [plaintiff’s] no-injury “damages” will not vary with [defendant’s] degree of negligence or the drug's propensity for harm. [Plaintiff] has not even indicated what additional warnings [defendant] should have included. . .perhaps because as one not injured by the drugs, she does not know.
Id. at 320-21.

Hard on the heels of Rivera, came a similar decision involving the diabetes drug Rezulin. That drug allegedly carried inadequate warnings about liver injury. A class of alleged users brought consumer fraud claims even though they never got hurt by the drug, and it had treated their conditions (diabetes) effectively. The court held that there were no damages, even under the capacious terms of the New Jersey consumer fraud statute:

Every one of these theories would involve issues individual to the particular class member. . . . Plaintiffs’ contention that everyone who took [the drug] sustained an ascertainable loss presumes that [it] was worthless. But that is not a defensible position. Even plaintiffs’ experts acknowledge that [the drug] was enormously beneficial to many patients. Those patients presumably got their money's worth and suffered no economic injury. And the question whether an individual class member got his or her money’s worth is inherently individual. Indeed, it involves very much the same questions as would a claim for money damages for personal injury.

In re Rezulin Products Liability Litigation, 210 F.R.D. 61, 68-69 (S.D.N.Y. 2002); see Zehel-Miller v. Astrazenaca Pharmaceuticals, LP, 223 F.R.D. 659, 664 (M.D. Fla. 2004) (quoting and following Rezulin).

A year later, another court put the question thusly: “The question. . .is whether patients who were prescribed a drug for pain, and who personally suffered no ill effects or lack of efficacy, can sue for money damages. . .as consumers injured by. . .allegedly-fraudulent advertising claims.” Williams v. Purdue Pharma Co., 297 F. Supp. 2d 171, 172 (D.D.C. 2003). After reviewing the plaintiffs and their allegations, the court noted the disconnect between the two. Id. at 176 (“[t]he class these plaintiffs seek to represent, however, has not had those problems”) (emphasis original). The class could not sue over alleged injuries to other people:


Although the plaintiffs allege a “benefit of the bargain” theory of injury, they do not allege that [the drug] failed to provide them effective pain relief or that they suffered any adverse consequences from their use of [the drug]. . . . Without alleging that a product failed to perform as advertised, a plaintiff has received the benefit of his bargain and has no basis to recover purchase costs. . . . Those patients who purchased [the drug]. . ., and who obtained effective pain relief without addiction received the “benefit of their bargain.” Those who did not, as plaintiffs concede, can be compensated through tort law.
Id. To the extent there were misrepresentations without injury, the government, but not private plaintiffs, could enforce consumer protection statutes. Id. at 177.

Almost simultaneously, another court adopted essentially the same argument – although the class action claims involved were unjust enrichment and warranty, rather than consumer fraud. Again, economic loss does not occur where the drug is effective and the plaintiff was not injured:


The Court cannot accept this argument, however, for it is based on the premise that Baycol did not provide any benefit. . . . [T]o succeed on either the unjust enrichment or breach of warranty claims, Plaintiffs would have to demonstrate that they were either injured by [the drug], or that [the drug] did not provide them any health benefits.
In re Baycol Products Liability Litigation, 218 F.R.D. 197, 213-14 (D. Minn. 2003). See also Heindel v. Pfizer, Inc., 381 F. Supp.2d 364, 379-80 (D.N.J. 2004) (class action claim that purchasers of a “medicine whose benefits they clearly enjoyed” were nevertheless “entitled to reimbursement for some or all of the purchase price” was “patently absurd”; “recoveries by those whose products function properly means excess compensation”).

Then, in Prohias v. Pfizer, Inc., 485 F. Supp.2d 1329, 1336 (S.D. Fla. 2007), similar allegations were made against a drug manufacturer, this time for supposed promotion of an off label use. Ruling under the consumer fraud statutes of New York and New Jersey, the court pointed out that not only wasn’t the drug harmful – but these plaintiffs still took it, even after filing suit:

I cannot come up with any theory upon which [plaintiffs] are actually injured or aggrieved by the allegedly misleading advertisement. Rather, as explained above, the fact that they currently take [the drug], in light of the information they have, requires me to conclude that they take [the drug] for its. . .undisputed health benefits, and therefore cannot claim to have suffered any damage from the allegedly misleading statements about [its other] benefits.

* * * *

Moreover, [plaintiffs] (or their physicians) obviously believe that they continue to receive benefits from taking [the drug], notwithstanding any alleged limitations as to its efficacy, and continue to pay the price charged by [defendant] and its distributors. Thus, to show any damages under the “price inflation” theory, would require evidence of the hypothetical price at which [the drug] would sell if not for the allegedly misleading advertisements. Determination of such hypothetical price, even with expert proof, is too speculative to be the premise of an “actual injury.”

Id. at 1336-37. The utter lack of damages is one reason we previously referred to this litigation as a “strike suit.”

Most recently – only a couple of months ago – another federal court reached held that allegedly illegal off-label promotion was not actionable where the plaintiff did not allege ineffectiveness or inferiority. This time a RICO class action bit the dust:

Plaintiffs allege that Defendants’ fraud is their misrepresentation of the safety and efficacy of [the drug] for off-label uses and that it is worth less than what they paid for it, without alleging that the drug harmed the beneficiaries in any way or that the drug lacked safety or efficacy; as such, the Court must infer that the drug did not harm the beneficiaries. Without alleging that a product failed to perform as advertised, a Plaintiff has received the benefit of his bargain and has no basis to recover purchase costs. Therefore, Plaintiffs do not plead a concrete financial loss in the form of overpayment, absent allegations that the drug was inferior on some level and worth less than what they paid for it. Because Plaintiffs fail to sufficiently allege a cognizable RICO injury under federal or New Jersey law, they lack standing to bring such claims.

District 1199P Health and Welfare Plan v. Janssen, L.P., 2008 WL 5413105, at *9 (D.N.J. 2008. Dec. 23, 2008).

State courts have drawn similar conclusions. In Baron v. Pfizer, Inc., 840 N.Y.S.2d 445 (App. Div. 2007), the first state appellate court to consider such an argument concluded, in an off-label promotion case, that a company’s promotion of an effective off-label use – while illegal – was not actionable consumer fraud:


[W]e note that plaintiff failed even to allege. . .that [the drug] was ineffective to treat her neck pain, and her claim that any off-label prescription of [the drug] was potentially dangerous both asserts a harm that is merely speculative and is belied in any event by the fact that off-label use is a widespread and accepted medical practice. In short, because plaintiff failed to allege actual harm or that she sustained a pecuniary injury, [the trial court] properly determined that she failed to state a claim.
Id. at 448. Similar allegations were dismissed in Kansas:


[T]he plaintiffs did not suffer “loss or injury” and were not aggrieved within the meaning of the statute. . . . The plaintiff. . .suffered no physical injury and received a drug that provided relief for her pain. Thus, she has no loss. The attorney general may bring an action against defendant if he believes that the citizens of Kansas have been aggrieved by defendant's actions, even if no loss has been suffered.
Porter v. Merck & Co., 2005 WL 3719630, at *3 (Kan. Dist. Aug. 19, 2005). And in Indiana:


[Plaintiff] does not allege that she had to supplement her [drug] with other pain relievers or incur any other cost because [the drug] was not safe or effective. Nor does she allege. . .that she suffered any injury because [the drug] was less safe than [the defendant] represented it to be. . . . [Plaintiff] has not alleged any actual damages as required by the [consumer fraud act].
Kantner v. Merck & Co., 2007 WL 3092779, at ¶¶17-19 (Ind. Super. Apr 18, 2007).

But all is not sweetness and light. Last year the court in De Bouse v. Bayer AG, 896 N.E.2d 882, (Ill. App. 2008) – the Fifth District (the court with jurisdiction over Illinois’ infamous Madison and St. Clair litigation centers) – allowed a class action to proceed that, in practical terms, was indistinguishable from that rejected in In re Baycol (the nominal causes of action being different, however). The reasoning in De Bouse relied more on Gestalt psychology than on legal causation principles:


The dissent suggests that the plaintiff cannot establish that she suffered actual damages, even if the purchase was based on deceptive conduct, if the drug lowered the plaintiff’s cholesterol without causing any side effects, because the plaintiff would have gotten exactly what she paid for: a safe, cholesterol-lowering drug. In our view, a consumer who is fortunate to avoid a known but concealed adverse reaction associated with the use of a medication does not necessarily “get her money's worth.” Product value is determined by the price, the product’s efficacy and benefits, the product’s safety risks, and the availability of other products relative to price, performance, and risk. A consumer cannot judge “true value” where known information regarding product performance is withheld. A consumer is entitled to make an informed choice, in conjunction with her health care professionals, about the actual risks and benefits of a prescription drug.
896 N.E.2d at 891.

By contrast, the dissent in De Bouse accepted the majority-rule argument – effective treatment without encountering the alleged risk means no legally cognizable injury:
[T]he plaintiff cannot establish that she suffered actual damage as a result of her purchase of [the drug]. . . . The plaintiff purchased and paid for a cholesterol-lowering drug. The complaint does not allege that the plaintiff suffered any personal injury as a result of using the drug, nor does she allege that the drug did not work to lower her cholesterol. If, in fact, the drug lowered the plaintiff's cholesterol without causing any adverse side effects or personal injuries, then the plaintiff got exactly what she paid for: an effective, safe, cholesterol-lowering drug.

Id. at 901.

But the outlier decision that is De Bouse might not be around much longer. In our pursuit of completeness, we actually checked the citing references for every case in this post – even cases from 2008. Sometimes, compulsive behavior is rewarded. Checking De Bouse revealed a very recent development:

Appeal Allowed by, No. 107528, ___ N.E.2d ___ (Ill. Jan. 28, 2009).

That means that less than a week ago, the Illinois Supreme Court agreed to review De Bouse. We can only hope that the court will appreciate the wisdom embodied by the majority rule and will reject strike-suit class actions on behalf of uninjured persons.

3 comments:

Russell Jackson said...

You gents are so correct that the fact and amount of damage should be an individualized inquiry that prevents class certification! To add to your excellent list of cases, I offer Williams v. Nidek Co., Ltd., 2009 WL 226024 (Cal. App. -- 4th Dist. Feb. 2, 2009), an (unfortunately) unpublished decision in which the court affirmed denial of class certification because, inter alia: "[T]he remedy provided by the CLRA consists of the actual damages suffered by the consumer from the falsely advertised product. . . . Plaintiffs made no effort below to articulate how a class member's actual damage under the CLRA would be measured without evaluating the results of the particular procedure, and the court concluded mini-trials to evaluate the results of each particular procedure would be necessary and thereby presented an additional impediment to class certification." Id. at *11.

Bruce said...

Gents,

More from California: only a few days before the Williams case Russell Jackson discussed, the Cal Supremes decided Meyer v. Sprint Spectrum LP (S158346), a published decision, also dealing with the CLRA, and holding that with no damage, there was no CLRA suit. And with no CLRA suit, there's no CLRA class certification. More on this at CalBizLit.com for January 29, 2009.

Bruce Nye
www.CalBizLit.com

A personal injury lawyer in Boston MA said...

I wonder what the motivation behind class action lawsuits is these days - the plaintiffs don't make much off the suits, I feel like the personal injury lawyers are the ones who benefit. Individualized personal injury and medical malpractice cases are probably the most beneficial to wounded parties.