Friday, November 09, 2012

Classless In California


Our interest is piqued by a pair of recent California class action wins – well, mostly wins, on the class action parts, anyway.  The first of the decisions, Arroyo v. Chattem, Inc., 2012 WL 5412295 (N.D. Cal. Nov. 6, 2012), was a complete win.  The plaintiff complained that the defendant’s dietary supplement (but it could have been just about anything) was contaminated with undisclosed dihydrogen monoxide – actually hexavalent chromium – but again it could have been just about any chemical that sounds scary. Apparently, the supplement (at least according to the complaint) works because of the chromium.  Id. at *1.

Plaintiff wasn’t harmed in any way (no surprise there, this is California class action litigation).  Indeed, the complaint does not allege that the plaintiff ever used the stuff – only that she bought it.  She claimed that by not disclosing the supposed contamination, the defendant rendered its product overpriced.  However, the claimed contamination had been discussed in website content that had existed well before the purchase.  Id. at *2 & n. 5 (test posted almost a year earlier).  This suggests a lawyer trolling for a client.

Other attributes of the Arroyo action were lazy pleading and dizzily inconsistent arguments.  Plaintiff asserted (successfully) that she had standing because she asserted “financial loss from purchasing a product in reliance on false or misleading information.”  Id. at *3.  However, she then turned around and argued that she didn’t have to meet the stricter pleading standards of Fed. R. Civ. P. 9(b) because the California consumer protection statutes “do not sound in fraud.”  2012 WL 5412295, at *5.  The court had none of it.  Not only was that argument inconsistent with the previous standing argument, but also with the allegations of the complaint, which:

alleges that Defendant marketed its . . . products as “safe, healthy, and appropriate for consumption,” despite knowing that they were tainted with hexavalent chromium.  It further alleges that Defendant actively concealed this information with the intent to induce consumer sales.  And it alleges that Plaintiff and other consumers in the class reasonably relied on the misrepresentations of product safety and suffered economic harm from the purchase(s) that resulted.  These allegations touch upon all elements of common law fraud.

Id.

Having ascertained the proper standard, the court found the allegations pitifully inadequate.  The discussion of what is “safe” is particularly useful.  The complaint asserted that contamination with some unspecified amount of an allegedly toxic substance was “unsafe” without any indication of how much of the stuff was involved.

No way.

There’s no such thing as safety in the air – and the court’s language should be widely quoted by defense counsel in similar, meritless actions.

[Plaintiff] does not plead with the required particularity what level of hexavalent chromium makes [the product] unsafe.  Many foods and drugs on the market are not one hundred percent safe, and general allegations that a product’s safety is less than one hundred percent do not give rise to a lawsuit for fraud.  If it did, then every consumer would be able to bring a suit for economic injury anytime the consumer became aware of an additional, unlabeled product risk after his or her purchase.

Id. at *6 (emphasis added) (footnote about the “perils” of tofu omitted).  For “unsafe” to have any meaning/materiality/plausibility under TwIqbal, both the minimum safe level and the actual amount of the allegedly dangerous substance must be stated.  Id. at *6-7.

The Arroyo complaint also came up far short on pleading reliance.  It would be good for a plaintiff, when claiming reliance on a defendant’s label, to at least plead that s/he read it.  The complaint “does not allege that [plaintiff] read the packaging prior to purchasing the product.”  Id. at *7.  Not only that, but while alleging that she wouldn’t have bought the product had she known it contained the purported contaminant, plaintiff failed to allege that, at the time, she knew anything about it – and, indeed, admitted that she didn’t:

[A]t oral argument, Plaintiff’s attorney conceded that Plaintiff did not know anything about hexavalent chromium's dangers prior to purchasing the product.  Thus, Plaintiff cannot show that − even had she read it − she relied on the absence of hexavalent chromium on the label in making her decision to purchase.

Id. at *7.  Go away – action dismissed with prejudice. Id. at *8.

The second flawed California class action, Federman v. Qualitest, BC471059, slip op.  (Cal. Super. L.A. Co. ??? 2012).  In Federman, the court denied class certification to an oral contraceptive maker in the wake of a product recall that (as in Arroyo) was not about anything that ever hurt anyone.  As stated in the opinion:

The contraceptives did not cause physical injuries or unwanted pregnancies, but some packaging was flawed.  Once [defendant] discovered the flaws, it investigated the cause and took corrective actions.  It also recalled all the . . . products packaged with the flawed process.

Federman, slip op. at 1.  The packaging flaw was something attached upside down, which changed the order in which the pills might be taken.  Id. at 4.  The error thus affected neither the composition of the pills nor the risk information about them.

Amazingly, the plaintiff sued.

Not so amazingly, the plaintiff decided to bring a class action against the manufacturer.

However, the basis of the suit was individualized screw up by the plaintiff’s pharmacist.  Plaintiff had been using the oral contraceptive, and she received a recall notice from the pharmacist.  The then called the pharmacist, who made the recall sound as if the error rendered the contraceptives ineffective, when that was not true.  As a result she bought a pregnancy test kit, which produced negative results.  Id. at 1.  She sued for the cost of the pills and the test.  In short, “the record does not show the recall affected any California consumer besides Plaintiff Samantha Federman in any way.”  Id.

Class certification was thus denied.  The most interesting ground was that recalls did not ordinarily deserve to be punished by class-wide liability:

[The] manufacturer[] voluntarily worked to fix the potential problems, and these efforts alone do not justify class treatment. . . .  [R]emedial efforts alone do not justify class certification.  If a recall alone dictated class action treatment, then a class action would follow every recall.  That would make manufacturers more reluctant to recall products: a disincentive that would disserve future consumers, who want manufacturers swiftly to cure defects.

Federman, slip op. at 4 (citation omitted).  We agree with that as far as it goes.  We’d apply the same logic, however, to individual claims.

Another ground sounds like numerosity – or utter lack of same

[T]he product error rate was small − in this case, vanishingly small.  The product defect rarely, if ever, caused any real problem. . . .  Here, the evidence is that California consumers received zero defects.  [plaintiff] did not receive a defective product.  There is no evidence any California consumer received a Qualitest defect.

Federman, slip op. at 4.  Federman thus recognized (as did the court in Arroyo) the contrived nature of the suit.  “[T]he record is that this consumer class action is about a nonexistent consumer problem.”  Id. at 5.

Finally, there was either a typicality or a predominance of common issues problem.  The plaintiff’s circumstances – a non-defective product, and getting a bum steer over the phone – were unique:

The true cause of her injury . . . was the incorrect [pharmacist] statement. . . .  [Plaintiff’s] experience thus seems unusual.  Her packaging was not defective.  She bought a pregnancy test only because of the unprofessional mistake by the unnamed [pharmacist].  No evidence shows this unprofessional experience was typical.  Apparently no other consumer got bad pharmacy advice.

Federman, slip op. at 6.  Again, go away, at least to the class action.

The only downside of Federman is its inexplicable denial of summary judgment against the plaintiff’s individual strict liability claims.  That’s hard to believe when there was no evidence of a product defect, as the opinion states in several places, such as “[t]he uncontradicted evidence does show [defendant] packaged [plaintiff’s] pills correctly.”  Federman, slip op. at 2.  What, then, supposedly supported strict liability?  The opinion states that “two factors” – “the [pharmacist’s] statement and the money [plaintiff] spent on the pregnancy test” – “create strict liability.”  Id.

Huh?  How could “unprofessional” conduct by a pharmacist create strict liability for a manufacturer?

Here’s the decision’s reasoning:

[Defendant] announced a recall when it discovered its admitted glitch.  The defect was real, although the probability of any one package containing the error was extremely low.  Nevertheless . . . [it] was high enough to prompt [defendant] to direct pharmacies to contact customers.  [The pharmacist] in turn mailed [plaintiff], who then phoned [the pharmacist].  The [pharmacist’s] person told [plaintiff] that “it’s as if I [plaintiff] hadn’t been on birth control for three months.”  This [pharmacist] statement was erroneous.

Id.

Something else is “erroneous” – let us count the ways:

  • This is not a product defect, it is an “unprofessional” statement by a third person conducting a recall.  It can’t be strict liability, since for fifty years that has required a product defect in California.  If there’s anything at all, it would have to be a negligence claim, since the gravamen is conduct – the erroneous answer to the plaintiff’s question.
  • There’s no California precedent (or anywhere else) for strict liability failure to recall.
  • There is no evidence (at least none cited) to support the court’s bald conclusion that the pharmacist, in giving erroneous information over the phone (as opposed to sending a letter that the plaintiff did not rely upon), was acting as the manufacturer’s “agent.”  Indeed, agency would seem inherently inconsistent with the conclusion that the pharmacist was acting in a “professional” capacity.
  • There is no evidence (at least none cited) that the manufacturer provided the false information that the plaintiff ultimately heard.  Thus there’s no causation, since the screw up was by somebody else.
  • The damages sought were purely economic loss for being “at risk” of injury that never happened.  That’s only recoverable in an medical monitoring action (something California recognizes), a claim the plaintiff didn’t bring.

But, in any event, the suit is now only about the cost of some pills and a pregnancy test.  Let the plaintiff take that to trial.

These cases are emblematic of the widespread abuse of class actions to facilitate litigation that has no business existing.  As we’ve said before (although we can’t quickly put our finger on it), we believe that generalized (“transubstantive”) class action rules should be abolished altogether.  If Congress or a state legislature wishes to authorize a class action for a particular type of harm, it should specify exactly what the parameters are, as Congress did in the Magnuson-Moss Act.  What might make sense in a civil rights action makes no sense in product liability litigation.  The effect that class actions have on litigation (as these two cases demonstrate) is so large that it’s inherently substantive, and thus should not be created through procedural rule.

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