Comcast May Be A Class Action Game-Changer, But Not In Boston

In Comcast Corp. v Behrend, 133 S.Ct. 1426 (March 27, 2013), the Supreme Court held that the lower court erred in failing to consider flaws in plaintiffs' damages model merely because the damages model would be pertinent on merits issues.....thus, "running afoul of our precedents requiring precisely that inquiry".  It was up to the district court to determine whether the expert's methodology was "just and reasonable inference or speculative."  

Citing the Reference Manual on Scientific Evidence, the court held that the "first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event."  

Pre-Comcast, plaintiffs generally focused on getting over the hump of standing and/or alleging damages under various legal theories at the pleading stage, without knowing how they would ever prove up damages. No more! The ground has shifted beneath the feet of the plaintiff class action bar.  To cite the D.C. Circuit Court of Appeals, the new judicial mantra is "No damages model, no predominance, no class certification".

Despite Comcast's holding, some federal trial courts continue to certify class actions of arguably questionable merit. An example of such a case is In re: Nexium (Esomeprazole) Antitrust Litigation which was handed down by the District of Massachusetts on November 14, 2013.

Plaintiffs alleged that they paid higher prices for Nexium because less expensive generic versions of Nexium were prevented from coming onto the market due to AstraZeneca’s settlement with three generic manufacturers. The end-payors (as the plaintiffs called themselves) sought to certify a sprawling Rule 26(b)(3) class consisting of virtually every consumer (insured and uninsured), commercial insurer, health plan and pharmacy benefit manager who had paid any portion of the purchase price for Nexium for a six year period in twenty-six states.

Although the district court referenced the Supreme Court’s rulings in Wal-Mart and Comcast, it certified a class despite plaintiffs’ adoption of a model that adopted the use of “aggregate damages calculations.” The defendants properly objected to the damages model because it failed to account for differences in injuries and losses among class members.

The use of an "average" price differential, even if capable of being proven, ignored the variations within the class and did not identify which end-purchasers would have saved money and which would have lost money if and when generic Nexium had entered the market. Even the district court acknowledged that under plaintiffs’ model certain class members who suffered no damages whatsoever would remain in the class.

Applying the reasoning of the D.C. Circuit in In re: Rail Freight Fuel Surcharge Antitrust Litig., one of the most important circuit court decisions applying Comcast, class certification would most likely have been denied because common questions of fact cannot predominate where there exists no reliable means of proving classwide injury in fact.

Plaintiffs’ expert conceded that the proposed class included tens of thousands of consumers who would continue to purchase branded Nexium after generic entry due to preference or their physician’s recommendation. Such brand loyalists would potentially have faced higher Nexium prices had generic Nexium been available.

Other consumers were not injured because their co-pays were the same for both generic and branded Nexium. Plaintiffs’ average price differential model ignored variations within the class and failed to distinguish between purchasers who would have lost money if and when generic Nexium would have entered the market and those who would not have lost money.

 In an almost identical situation involving a similar set of facts and the same plaintiffs’ expert, Dr. Meredith Rosenthal, a Philadelphia district court denied class certification in Sheet Metal Workers Local 1141 Health and Welfare Plan v. GlaxoSmithKline, No. 04-5898, 2010 WL 385552, at #27 (E.D.Pa. Sep. 30, 2010), class certification was denied by the Pennsylvannia district court (pre-Comcast) which rejected an analogous damages model proposed by Dr. Rosenthal in a case of alleged generic drug suppression involving the drug Wellbutrin SR.  There, as in the Nexium case, plaintiffs’ model failed to exclude uninjured class members. Because plaintiffs were unable to meet their burden of Rule 26(b)(3) that questions of law or fact common to class members predominated over any questions affecting only individual members, the district court denied class certification.

It is difficult to understand how the Massachusetts district court determined that the Nexium end-payors’ damages model met the “rigorous analysis” standard required by Comcast and Wal-Mart, particularly as there are many  thousands of plaintiffs in the class who have not suffered injury. Plaintiffs' methodology indisputably failed to identify non-injured members of the class.  We look forward to the First Circuit's analysis of the Rule 23(b)(3) issues presented by the case, assuming that an appeal is in the offing. 
 

Koch Rattles Wine Auction World: GBL § 350 "Game Changer"

To successfully assert a claim under New York General Business Law § 349 (h) or § 350, "a plaintiff must allege that a defendant has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice" 

A claim is brought under GBL § 349 to allege misleading and deceptive trade practices and under GBL § 350 to allege false advertising.  Typically, these two sections are pled in tandem, both in single plaintiff cases and in class action litigation seeking relief from consumer fraud. 

In their NYLJ article (12/28/12) looking back at the significant New York State class action decisions that were handed down during 2012, authors Thomas A. Dickerson, Jeffrey A. Cohen (both Second Department judges) and Kenneth A. Manning devote special attention to the Court of Appeals decision in Koch v. Acker, Merrall & Condit, in which the court clarified that justifiable reliance is not an element of a GBL § 350 claim. Prior decisions had already done away with any reliance requirement on a GBL § 349 claim

The element of reliance had always seeming been an important defense weapon in deceptive trade practice class action litigation. In Koch, plaintiff alleged that the auction house described its wines as "extraordinary, " "absolutely stunning," and among the "greatest wines...ever experienced"  when, in fact, these wines were undeniably nothing of the kind. But the First Department made short shrift of plaintiff's claims.  The court gave considerable deference to the disclaimer language in the auction house's brochure which provided an "as is" disclaimer.

In addition to the "as is" caveat, the "Conditions of Sale/Purchaser's Agreement" made "no express or implied representation, warranty, or guarantee regarding the origin, physical condition, quality, rarity, authenticity, value or estimated value" of the wine.  Should not a  reasonable consumer, the appellate court reasoned, been alerted by these disclaimers, would not have relied, and thus would not have been misled, by defendant's alleged misrepresentations concerning the vintage and provenance of the wine it sells?  In this instance, according to Decanter.com, the plaintiff was Florida billionaire, William "Bill" Koch, who apparently believed that the auction house had sold him the proverbial "bill of goods".  If anyone was to read and understand the "fine print" in the disclaimer, surely a sophisticated investor like Mr. Koch would.

In answer, the  Court of Appeals held that the "as is" provision does not bar the claim (at least at the pleading stage) and does not establish a defense as a matter of law. 

As Messrs. Dickerson and  Cohen explained in an earlier NYLJ article (4/19/12), the Koch ruling may be a "game changer" in deceptive and misleading business practices class action litigation.  They cite a long series of prior appellate cases, which had established reliance as a basis for obtaining a recovery under GBL § 350, which clearly is no longer good law. In the past, New York courts were reluctant to certify GBL § 350 claims because they found that reliance was not subject to class wide proof. 

When the Appellate Division issued its decision, wine industry attorney Brian Pedigo in Irvine California expressed concern to Decanter.com that it would set bad precedent if all prospective bidders had to satisfy themselves by inspection rather than to trust in the auction house's represenations.  In pertinent part, he commented, "A regular Joe consumer is not going to fly overseas [or across the country] to inspect wine. A reasonable consumer will rely on the representation of the seller, and will not read or understand the fine print disclaimers".  An adverse decision for the auction house, he believed, would be "horrible for consumer trust in the online auction environment; it could possibly destroy this niche market sector".  Would  internet commerce be adversely affected if the e-consumer was not able to trust the e-seller?

The Court of Appeals apparently agreed with Mr. Pedigo that the risk of authenticity should not entirely shift to the consumer, regardless of whether the consumer is Joe consumer or Bill Koch. 

The claim against Acker Merrall is not Mr. Koch's only wine-related lawsuit.  He previously brought a RICO claim against Christie's, another auction house, after purchasing four bottles of wine that he believed were connected to Thomas Jefferson, but turned out were not really that old.  That Koch wine auction case ended up in the Second Circuit; but that's a story for another time. 

At the end of the day, Koch serves to harmonize GBL § 349 and GBL § 350; there is no reliance pleading requirement under either statute. 

However, all is far from lost for the defendants in these cases.  As discussed at the outset of this article, plaintiffs must prove  (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice".  Accordingly, although reliance need not be shown, the plaintiff must still prove causation.  Proof of causation remains plaintiff's critical hurdle in succeeding in these claims.  

Louisiana Appeals Court Rejects NORM Class Action

On January 28, 2010, the Louisiana Court of Appeal, Fourth Circuit, affirmed the New Orleans  trial court’s denial of class certification in a series of putative class actions involving alleged exposure to Normally Occurring Radioactive Material (“NORM”) on industrial property located in , Louisiana, which had been used for oilfield pipe and equipment cleaning operations for over forty years. Although class certification was rejected on multiple grounds, the decision relied in large part upon the Louisiana Supreme Court’s landmark decision in Ford v. Murphy Oil USA, Inc., 703 S.2d 542, which involved alleged exposures from hazardous materials from several distinct sources. As in Ford, the class action failed because the Harvey plaintiffs alleged toxic exposures as a result of pipe cleaning activity on the non-contiguous property of three separate and distinct landowners – Rathborne, Grefer and ITCO – over a forty-six year period, with varying amounts of pipe cleaning taking place at different times in different locations (in almost checkerboard pattern) by different companies. Ford stands for the proposition that only mass torts arising from a single common cause or disaster are appropriate for class certification.

How did pipe cleaning cause the alleged NORM exposure? Pipe cleaning involves the mechanical reaming of the inside of oilfield pipe to remove scale or crust that builds up on the interior of the tubing to the point where the scale impedes the flow of oil up the pipe. The scale, formed from natural elements, gradually clogs the pipes that are inserted deep into the ground during the course of petroleum production. At some point, it was determined that the scale inside the pipe contained material determined to be radioactive, with varying half-lives (time for half of the atoms of a radioactive substance to decay), which is called “NORM” or “TERM,” an acronym referring to Technologically Enhanced Radioactive Material. When precisely the oil industry knew or should have known that pipe cleaning could result in occupational exposure to NORM is hotly disputed. The plaintiffs allege that over the decades this pipe cleaning occurred in Harvey, “toxic dust” (NORM/TERM) was deposited in their neighborhoods and was the source of various diseases and illnesses.

What I find interesting about the Fourth Circuit’s opinion is its rejection of the trial court’s determination that the plaintiffs failed to satisfy the numerosity requirement of the Louisiana Class Action Statute, which was a primary basis for the trial court’s denial of class certification. The trial court  found that there was not sufficient numerosity because so many potential class members had already opted out, citing other lawsuits in which 3,748 individuals, a large percentage of the putative class, were involved. These so-called opt-outs were represented by several outspoken plaintiff lawyers, who did not want to see a class certified. The Fourth Circuit ruled that it was premature to opt out of a class before it was certified. A plaintiff could not opt out of a class that did not yet exist. Therefore, the Fourth Circuit found that the numerosity requirement had been met. However,  the Fourth Circuit held that sufficient commonality for class certification was not present. In addition, the Fourth Circuit held that the broad diversity of the diseases and ailments of the plaintiffs underscored the inadequacy of the class representatives representation, leading the court to conclude that there was no typicality. The Harvey TERM plaintiffs complained of diseases ranging from common cold symptoms to reproductive problems and many different forms of cancer.  The plaintiffs' strategy at both the trial court and appellate level was to argue that the court should not be required to conduct a rigorous analysis of whether the facts satisfied the class action requirements.  Plaintiffs argued that the trial court confused a motion to certify a class with a trial on the merits, essentially asserting that it had made too many "factual findings".  However, the Fourth Circuit soundly rejected this argument, citing the Louisiana Supreme Court's decision inBrooks v. Union Pacific Railroad Co., 2008-2035, *6, 2009 WL 1425972 (La. 05/22/09), which recognized the "essentially factual basis of the certification inquiry and of the district court's inherent power to manage and control pending litigation."  Brooks, 08-2035 at p. 11, 13 So 3d at 554