Whenever the New Jersey Supreme Court gets its hands on a class certification decision, you never know what to expect. Sometimes, it’s great news (no class action for Vioxx TPPs!). Some times, it’s downright scary. Take, for example, the recent Relacore decision, issued just in time to kick off Halloween season. In Lee v. Carter-Reed Co., LLC, __A.3d __, 2010 WL 3781595 (N.J. Sept. 30, 2010) (no page numbers available yet), the court lauded the class action as a mechanism to “balance the scales of power between the putative class members and a corporate entity” (uh-oh...), and found that class certification was appropriate for a putative class of New Jersey consumers who purchased Relacore, a dietary supplement pill.
The trial court had denied class certification, seizing on a number of “individualized factors” that would render the class action unmanageable. The Appellate Division affirmed the trial court, finding that individual issues predominated over common issues. The supreme court reversed, ruling that both lower courts “failed to accept as true the allegations asserted in plaintiff’s complaint or to view the pleadings in a light favorable to plaintiff, as required by our jurisprudence. Had those courts…accepted plaintiff’s representations that [the defendant’s] advertising of Relacore was no more than a passel of lies, then they should have concluded that the common issues of fact and law predominated over individual ones and that the case was not beyond the management skills of our capable Superior Court judges.” (We do have to tip our hat to the turn of phrase, " a passel of lies." Great name for an up-and-coming indie band, a hardboiled detective novel, or a mediocre thriller starring Russell Crowe, Clive Owen, or Leo DiCaprio chasing after the truth in some exotic locale. But we digress...)
The representations at issue centered around Relacore’s efficacy as a dietary supplement; according to the marketing campaign, Relacore would “shrink belly fat, improve users’ mood, and combat the medical condition known as ‘metabolic syndrome.’” The complaint alleged that every one of these representations was false – that “Relacore does not relieve anxiety, improve the user’s mood, or shrink belly fat.” The complaint alleged there was “no reasonable scientific evidence” supporting these claims; nor was there scientific validation for Relacore’s claimed weight loss mechanism (cortisol reduction). The putative class claimed these alleged misrepresentations violated the New Jersey Consumer Fraud Act (CFA).
The supreme court’s decision, unsurprisingly, turned on predominance. The battleground was well-defined by the parties. According to the plaintiff, all of Relacore’s claimed benefits were false. Further, as a “credence good” – a good that is known to consumers “only by the representations made about the product by its distributor” – consumers only purchase Relacore if they see ads for the product. In other words, it doesn’t matter why a class member bought the product (i.e., for weight loss or to improve mood); each class member bought Relacore because he or she saw an ad containing a false statement. The defendant, on the other hand, argued that Relacore is marketed for a number of different reasons, that the putative class may have received some of those other advertised benefits, and that third parties may have made additional or different representations at the time of sale. Moreover, the defendant argued, the complaint did not allege that Relacore is “worthless” or “ineffective” for all advertised purposes. Thus, this was not a case involving a “uniform misrepresentation” that affected all class members in the same way.
As you may have guessed by now, the supreme court rejected the defendant’s arguments and sided with the plaintiff. The court criticized the lower courts for “implictly assum[ing] that Relacore produced some of the benefits advertised.” The court acknowledged that this "assumption," if accurate, would make proof of causation “a perplexing problem, the resolution of which would depend on a number of individual inquiries.” On the other hand, “[p]roving that the deceptive marketing of Relacore is causally related to an ascertainable loss under the CFA is not so problematic from a class-wide perspective if the allegations in plaintiff’s complaint are accepted as true.” Uh, yeah – that’s because the plaintiff’s complaint in effect says nothing more than, “don’t worry, this was a web of lies that affected everyone.” Relying on the plaintiff’s say-so, the court concluded that if Relacore offered none of the promised benefits (such that you can write consumer preference out of the equation) and if the “entire” marketing plan was based on those “fictional benefits,” then it would “hardly matter” whether a particular class member “enjoyed good or impaired health” after taking Relacore. Huh?
So what to make of this decision? Well, for starters, it should be strictly limited to its facts. The court’s decision rested entirely on accepting plaintiffs’ representations that all representations about Relacore were nothing more than a “passel of lies” and that Relacore was, in effect, snake oil. In federal court, where most class actions reside and TwIqbal governs, we wouldn't expect to see courts reaching similar class certification results in so facile a manner. Moreover, the unusual procedural posture surely had something to do with the outcome. In this case, the trial court struck both sides’ expert reports from the record – the plaintiff’s report on timeliness grounds, and the defendant’s report because it offered opinions that were “common knowledge” and thus not helpful – so those experts did not factor into the class certification decision or the subsequent reversal. It is rare to find a court willing to certify a class in the absence of any expert proof establishing that the plaintiff class will be able to prove liability and damages on a classwide basis. Of course, the New Jersey supreme court simply assumed Relacore was worthless snake oil and called it a day, making it a whole lot easier to avoid the nasty reality that individual class members may have purchased the product for different reasons, gotten some benefit from the product, or may not have been damaged as much (or at all).
But the case is also troubling, because it signifies an unwarranted departure from the “rigorous analysis” or “close look” that should be a prerequisite to certifying any class. Class actions are expensive, and they exert hydraulic settlement pressure on defendants. It should not be the case that a consumer fraud class may be certified any time the plaintiffs merely declare that the product is "useless." And it should not be the case that a class may be certified without any consideration whatsoever as to how, exactly, the putative class intends to prove there were actual deceptions that caused “ascertainable loss” for every class member. We know that plaintiffs’ class action lawyers are howling at the moon, saying that the merits are strictly off-limits at the class certification stage and the court was right to take the plaintiff’s bald “trust us” allegations at face value. But that’s not consistent with the “rigorous analysis” that is required, and it’s out of step with the modern trend away from “drive-by” class certifications and towards a meaningful, robust, and practical consideration of the manageability of the class action tool on a case-by-case basis. The modern trend towards “rigorous analysis” is not mere whimsy – it prevents procedural and substantive abuses that lead to unfair settlement pressure. In fact, the supreme court recognized precisely some of the procedural problems that its decision could cause: “The class-action challenge will be if the trier of facts finds that Relacore provides some advertised benefits but not others. The burden will be on plaintiff who has broadly defined the class to establish the causal relationship between the unlawful practice and the ascertainable loss.” What will happen if the supreme court’s fears come to pass? Decertification? Proceed on a more limited class? The supreme court recognized both of these potential solutions, but gave short shrift to the most elegant solution – simply scrutinize the putative class action more closely, and affirm the trial court and Appellate Division decisions denying certification.