Types of Claims
Among the most frequently asserted types of claims advanced in consumer cases are fraud and negligent misrepresentation, breach of contract, breach of warranty, defective design, and violation of state consumer protection statutes. Each of these claims can present potential challenges to parties seeking class certification.
Consumer fraud / negligent misrepresentation. In common-law fraud actions, satisfying the required element of predominant common issues is often a major hurdle to class certification because there may be great divergence within a putative class on such matters as (1) what specific representations were made to or received by a given class member and (2) the extent to which reliance on such statements may be shown.
One way to overcome the individualized nature of reliance is through a presumption of reliance. A presumption of reliance more likely will be found appropriate in fraud cases where plaintiffs primarily have alleged omissions of material facts. In addition, in some jurisdictions, an inference of reliance may arise when it is shown that the same alleged misrepresentations actually have been communicated to each member of a class, typically through either a “standardized,” scripted oral “sales pitch” or dissemination of standard written marketing materials to all purchasers. For example, in In re Hyundai & Kia Fuel Economy Litigation, the en banc U.S. Court of Appeals for the Ninth Circuit upheld a settlement class of claims against carmakers for advertising inflated fuel-economy standards, agreeing with the district court that “class members were exposed to uniform fuel-economy misrepresentations and suffered identical injuries within only a small range of damages” and that “no material conflicts existed among class members.”
However, absent evidence of a common script, courts “usually hold that an action based on substantially . . . oral rather than written misrepresentations cannot be maintained as a class action” because in such cases typically “each plaintiff heard a slightly different, individualized sales pitch.” For example, in Mazza v. American Honda Motor Co., the Ninth Circuit reversed certification of a putative class alleging that Honda misrepresented its vehicles’ collision mitigation braking system (CMBS) in a product brochure, a brief run of television commercials, a short-run print ad, and internet videos. The Ninth Circuit found that “there [was] no evidence that the allegedly false representations were uniformly made to all members of the proposed class” as not all Honda customers saw either the brochure, the commercials, or the videos, so “it is likely that many class members were never exposed to the allegedly misleading advertisements.” Accordingly, the Mazza court held that classwide reliance could not be inferred and, therefore, that commonly triable issues did not predominate.
State consumer protection acts. In contrast to claims of common-law fraud, actions alleging fraudulent business practices under the state consumer protection statutes often are more amenable to class treatment because many such acts do not require traditional elements of common-law fraud and negligent misrepresentation claims, such as reliance, intent, injury, or damages.
While all 50 states have enacted one or more statutes to protect consumers, the elements necessary to bring private lawsuits under such statutes vary widely from state to state. By not requiring reliance, certain state consumer protection acts have “significantly reduced the showing necessary to certify a case as a class action.” For example, to state a claim under the California Unfair Competition Law based on false advertising or promotional practices, “it is necessary only to show that members of the public are likely to be deceived,” but it is not necessary to show that they relied on, or were caused damages by, the alleged misrepresentations. The New Jersey Consumer Fraud Act (NJCFA) similarly has differences from common-law fraud claims that can impact class-certification decisions. For example, a court that certified a class of Mercedes buyers seeking relief under the NJCFA explained that the statute’s “causal nexus” standard did not require proof that “each individual class member relied on” Mercedes’s alleged misrepresentations concerning its vehicles by showing that they would not have purchased their vehicles but for the representations; rather, the plaintiffs could meet the causal nexus standard “simply by proving with respect to the class as a whole that” they “did not get what they paid for because of Mercedes’s alleged wrongdoing. . . .” Liability under Florida’s Deceptive and Unfair Trade Practices Act also “does not hinge on whether a particular plaintiff actually relied on [the defendant’s] claims” about its product; therefore, under that statute, “a plaintiff must simply prove that an objectively reasonable person would have been deceived.”
Because state consumer protection acts vary in their scope and requirements, a close examination of the statutory language of an act and case law construing it is critical to determining whether a particular business practice affecting consumers may justify class treatment.
False advertising claims: food and beverage product labels. In the past decade, there has been a surge in the number of false advertising class actions regarding allegedly false and misleading food product labels. In these types of cases, the uniformity of the representations tends to make certification an easier hurdle for plaintiffs to overcome because it becomes difficult to argue that common questions regarding consumer perception do not predominate.
One labeling claim litigated steadily for a number of years is the “all natural” claim (and several variations on the theme). For years, the U.S. Food and Drug Administration (FDA) resisted providing any formal definition for what constitutes a “natural” ingredient in a manufactured food product, even when courts expressly requested such guidance. However, in early 2016, the FDA announced that it was accepting public comments on the use of the term natural, based on “the changing landscape of food ingredients and production, and in direct response to consumers.” Nonetheless, the FDA has yet to provide a formal definition of the term.
Other hotbeds of consumer class actions are cases challenging food labeling claims of “no trans-fat” and those claiming deception in terms of so-called standards of identity, which are federal regulations that set requirements for the ingredients that a food product must or may contain (or manufacturing processes that must be followed) in order for the product to be marketed under, or “identified” by, a certain name. These cases stem from claims that certain food products are advertised as being a certain type or quality of food product but fail to meet federal regulations identifying that product. For example, cases have been filed based on allegations that foods advertised as “Greek yogurt,” “extra virgin olive oil,” and mayonnaise fail to comply with published FDA standards of identity; and some have gone so far as to assert that the mozzarella in McDonald’s mozzarella cheese sticks is not really cheese.
Food and beverage cases based on alleged misrepresentations on the labels are difficult to certify for class treatment when the product has intrinsic value. Under the damages theory, the product is worth less than the consumer paid because of the misleading claim on the label—the so-called price premium theory—but it is difficult to determine a price, much less a premium, that applies to everyone in the class. For example, the Ninth Circuit upheld decertification in an “all natural” case, Brazil v. Dole Packaged Foods LLC, concluding that predominance was not satisfied with respect to the plaintiffs’ claims alleging that statements on Dole’s frozen fruit and fruit cup labels were misleading because the plaintiffs had not shown how a price premium could be calculated with proof common to the class. The Ninth Circuit agreed that common issues on damages did not predominate because the plaintiffs’ “price premium” damages model failed to “explain how this premium could be calculated with proof common to the class. . . .” Similarly, in Singleton v. Fifth Generation, Inc., the court denied certification of the putative damages claims, concluding that the named plaintiff’s proposed price premium damages model “lacks sufficient detail to permit the Court to determine whether it satisfies Comcast and is suitable to the task at hand,” in particular because his expert had failed to explain how, considering the vastly different pricing inherent in retail sales of alcohol in New York, he could calculate a premium differential for the class.
Design defect, warranty, and products liability claims. Putative class actions often are filed in cases involving alleged defects in products sold to consumers. Whether common questions are found to predominate in such cases tends to vary based on (1) the theory of liability asserted and (2) the type of relief sought. Common issues are less likely to predominate where claims are asserted based on tort theories (such as negligence or strict products liability) rather than on contractual warranty theories. Similarly, where the relief sought would require proof of actual property damage or personal injury to class members, courts are less likely to find that commonly triable issues predominate unless certification is limited to liability issues or the class members’ damages can be determined by common proof, requiring individualized assessment only in terms of calculating the amount of damages rather than the fact of damage.
In In Re Whirlpool Corp. Front Loading Washer Products Liability Litigation, the plaintiffs brought claims for breach of warranty, negligent design, and failure to warn and for violation of the Ohio Consumer Sales Practices Act based on allegations that Whirlpool washing machines had a common design defect that caused them to develop mold and mildew. The plaintiffs sought certification of a “liability only” class based on 1.3 million complaints that the company had received prior to suit and an internal memo from the company’s lead engineer stating that mold “occurs under all/any common laundry conditions.” The defendant argued that the commonly triable issues did not predominate because “most” putative class members had not experienced mold growth in their washing machines and, therefore, could not prove “injury.”
The district court certified the class on all but the statutory claim, and the U.S. Court of Appeals for the Sixth Circuit affirmed. The Whirlpool court reasoned that common issues predominated because the warranty and design defect claims, as a matter of substantive law, did not require proof that the defect had actually manifested into mold in any given class member’s washing machine; therefore, the predominant liability issues could be resolved on common proof, namely, (1) whether the washers were defective due to a propensity to grow mold and (2) whether that defect caused the washers to have “decreased value.”
Cases where plaintiffs asserted design defects but sought certification as to both liability and damages have reached more mixed results. Some courts have denied certification outright, finding that all of the putative class members could not establish valid claims under the substantive law, while others have deferred this issue to the “merits” stage. For example, in Hicks v. Kaufman & Broad Home Corp., plaintiff homeowners alleged that the concrete slab foundations under their homes were “inherently defective” because the builder had constructed them using a product known as Fibermesh, which was “more prone” to cracking than welded wire mesh. The plaintiffs asserted various claims against the builder but only sought to recover the cost to repair/replace the allegedly defective concrete foundations, expressly not seeking recovery for personal injury or consequential property damages. The Hicks trial court denied class certification. The court of appeals reversed in part, concluding that common issues predominated in claims for breach of warranty because the alleged “inherent defect” could be proved in common and the only individualized issue as to those claims would be proof of the amount needed to repair or replace the foundation. However, the court agreed that common issues did not predominate as to the plaintiffs’ tort causes of action because the property damages flowing from strict liability and negligence would require individualized proof that the product malfunctioned and caused specific damage to their homes; the court therefore affirmed the denial of certification as to those claims.
Consumer form contract cases. Following the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, holding that a class action waiver provision in a consumer form contract was enforceable, businesses increasingly have inserted such provisions in consumer contracts and often have succeeded in using those agreements to force putative class actions to individual arbitration.
Nevertheless, with respect to consumer form contracts not containing arbitration provisions, numerous courts have found such actions amenable to class action treatment, holding that common issues relating to the meaning or validity of contract terms or relating to company practices in interpreting or implementing such contracts satisfy the predominance requirement, irrespective of the need for individual damages analyses. Examples of classes certified on this theory include insurance policies, Costco membership contracts, and notices and letters used in connection with debt collection.
Actions alleging violations of the Truth in Lending Act (TILA) have resulted in less consistent class-certification decisions, depending largely upon the remedy sought. For example, common issues were found to predominate in Hickey v. Great Western Mortgage Corp., in which the plaintiff alleged violations of TILA on behalf of a nationwide class as to certain fees and charges that were included in the wrong sections of the defendant’s truth-in-lending disclosure. The court held that common issues predominated because the claim arose from “standardized conduct” and that most of the asserted “individualized” issues either were decided readily with classwide proof or, to the extent subject to individual proof, presented a “simple ministerial task.” The court also held that differences in individual cases concerning damages would not bar certification, in part because TILA authorized recovery in class actions of statutory damages that likely would dwarf the relatively small amounts of individual “actual damages,” eliminating the need for significant individualized damages inquiry. In contrast, certification was denied in a TILA case involving misleading disclosures, Andrews v. Chevy Chase Bank, because the only remedy sought—rescission of the loans—would depend on highly individualized factors, such as whether the borrower was in a position to return the principal amount of the loan and whether “unwinding” the transaction could be accomplished safely without the bank losing its security interest in the property.
Standing
The U.S. Supreme Court has observed that a suit’s status as a class action “adds nothing to the question of standing.” A named plaintiff is not absolved from the requirements of standing simply because that plaintiff desires to represent a class. It is the role of courts to provide relief to claimants, in individual or class actions, who have suffered or will imminently suffer actual harm. Yet, analyzing and determining standing in a class action necessarily involve some considerations not implicated when an individual pursues only that individual’s own rights in litigation.
Spokeo and injuries in fact. A putative class action plaintiff, like an individual party, must demonstrate Article III standing for each claim asserted. The first element of Article III standing is the existence of an injury in fact. An injury in fact requires an invasion of a legally protected interest that is concrete and particularized and that is actual or imminent (not conjectural or hypothetical). In Spokeo, Inc. v. Robins, the Supreme Court clarified that the terms concrete and particularized have different meanings. A “particularized” injury must affect the plaintiff in a personal and individual way. A “concrete” injury must be de facto (i.e., must actually exist): it must be real and not abstract. Real does not necessarily mean tangible; although “tangible injuries are perhaps easier to recognize,” both tangible and intangible injuries can be concrete.
Intangible harm and injuries in fact. The Supreme Court provided some guidelines for determining whether an intangible harm constitutes an injury in fact. These guidelines include historical practice, Congress’s decision to elevate an intangible harm to a statutory violation, and the risk of real harm.
First, it is instructive to consider whether the alleged intangible harm has a close relationship to a harm that traditionally has been regarded as providing a basis for a lawsuit in English or American courts. This historical perspective reflects the grounding of Article III’s case-or-controversy requirement in historical practice.
Second, the judgment of Congress that an intangible harm should be elevated by statute to the status of a legally cognizable injury is “instructive and important.” However, Congress’s judgment
does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.
Alleging “a bare procedural violation, divorced from any concrete harm,” will not establish an injury in fact.
Third, in determining whether a statutory violation involving intangible harm produces a concrete injury, the concreteness requirement may be satisfied by the risk of real harm.
In some circumstances, the violation of a procedural right granted by statute can be sufficient. As examples, the Court cited two cases holding that the following statutory violations established an injury in fact: (1) the inability of a group of voters to obtain information that Congress had decided to make public and (2) the inability of two advocacy organizations to obtain information subject to disclosure under the Federal Advisory Committee Act. Even though harms such as these may be difficult to prove or measure, they can demonstrate a concrete injury. If the violation of a procedural right itself is sufficient to constitute an injury in fact, then a plaintiff need not allege any additional harm.
However, if the violation of a procedural right is not sufficient in itself to demonstrate an injury in fact, the plaintiff must allege some additional harm or a “material risk of harm” in order to meet the concreteness requirement. As an example of a bare procedural violation that does not in itself demonstrate an injury in fact, the Court observed that a violation of one of the Fair Credit Reporting Act (FCRA) procedural requirements might result in no harm. A consumer reporting agency might fail to provide a user with the required notice of the agency’s consumer information, but if that information is entirely accurate, there may be no harm. Alternatively, the information may be inaccurate, but the inaccuracy might be limited to the consumer’s zip code. The Court considered it “difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.”
Not surprisingly, courts differ in their assessment of whether and to what degree Spokeo changes the Article III standing inquiry. Spokeo distinguishes between tangible and intangible harm, but some courts have seized upon the Court’s example of a “bare procedural violation, divorced from any concrete harm,” to draw a similar distinction between substantive and procedural statutory violations, treating substantive violations as concrete injuries that do not require allegations of additional harm or risk of real harm. As one court explained,
[p]rivate litigation, even if authorized by statute to serve a range of public ends, must vindicate the plaintiff’s interests rather than serve solely [as] a vehicle for ensuring legal compliance.
Spokeo and injunctive relief. A related issue that often arises in consumer class actions is whether Spokeo impacts standing analysis for injunctive claims. The circuit courts of appeals are divided. The Seventh Circuit has adhered to its pre-Spokeo rule that a previously deceived consumer has standing to seek injunctive relief, while the Ninth Circuit is more amenable to a plaintiff’s present intention to repurchase the product once the deception is cured.
Personal Jurisdiction
In 2017, the U.S. Supreme Court decided Bristol-Myers Squibb Co. v. Superior Court (BMS), a landmark decision for mass-tort defendants because it provided a new jurisdictional weapon to dismiss claims brought by nonresident plaintiffs. In BMS, hundreds of plaintiffs joined together, bringing personal-injury claims against BMS in California Superior Court based on their ingestion of Plavix, a prescription blood thinner. Of these plaintiffs, 86 were California residents; the other 592 were residents of other states. The nonresident plaintiffs had no California ties related to their Plavix prescriptions, injuries, or treatments. The Supreme Court held that the nonresident plaintiffs had failed to establish specific jurisdiction to bring their claims against BMS in California.
In the wake of the BMS opinion, the federal district courts have divided over its application to class actions. One line of authority reasons that the Fourteenth Amendment’s due process requirements apply equally in the class action context. Other courts instead have concluded thatBMS does not apply to putative class members, observing that “‘[t]he pre-Bristol-Myers consensus . . . was that due process neither precluded nationwide or multistate class actions nor required [an] absent-class-member-by-absent-class-member jurisdictional inquiry.’”
Choice of Law Issues in Multistate Consumer Actions
Given that a number of consumer fraud actions seek certification of multistate or nationwide classes, choice of law problems often arise because of variations among state laws. These choice of law issues frequently lead courts to find proposed class actions to be unmanageable where the laws of multiple states would have to be applied to putative class members’ claims. In other cases, the choice of law issues do not curtail class certification.
In Mazza,the Ninth Circuit held that California law could not be applied nationwide to the putative class claims alleging false advertising against Honda because (1) there were material differences between California’s consumer protection statutes and those of other states; (2) the other states had an interest in their own laws applying to claims brought by their residents based on local sales transactions that had occurred in their state; and (3) the alleged misconduct had occurred not in California (where Honda approved the dissemination of the allegedly misleading advertisements) but, instead, at the point of sale of the subject vehicles in each state.
In Hyundai/Kia, the same court, sitting en banc in the context of a different settlement class involving automakers and vehicle purchasers, held that the trial court was proper in assuming the application of California law over all of the class members’ claims. This was because the objectors to the settlement had failed to carry their burden of demonstrating that differences between the consumer-protection laws of the relevant states precluded certification of the settlement class. In distinguishing Mazza, the Ninth Circuit pointed out that Mazza’s foreign-law proponent (there, the defendant) had “exhaustively detailed” the variations in state law that impacted certification. It also observed that, unlike Mazza, the Hyundai/Kia case was a settlement class, where issues of manageability for trial were irrelevant. Finding a “common nucleus of facts” because “the class claims turn on the automakers’ common course of conduct—their fuel economy statements,” the Ninth Circuit majority upheld certification of the nationwide settlement class.
Other courts likewise have found that class treatment in consumer fraud actions was warranted despite the fact that putative class members were located in multiple states, typically where those courts have concluded that it is appropriate to apply a single state’s law to the claims of a nationwide class on the grounds that (1) the alleged misrepresentations or other misconduct had “occurred in” or “emanated from” a particular state and (2) conflicts-of-law principles did not prohibit application of that state’s laws to the claims on behalf of nonresidents.
Predominance in Consumer Fraud Actions
In the context of consumer fraud class actions (grounded in either common law or statutory theories), the following is a summary of issues to consider in determining whether common issues may or may not predominate in a given case:
- Did each putative class member purchase the same product/service for the same purpose?
- Has there been a common misrepresentation or omission of material fact made in connection with the product/service at issue? If so, what was the source of the misrepresentation/omission?
- How was the product/service marketed/sold?
- Were there common sales materials/documents?
- Were any oral representations made at the point of sale?
- Did class members enter into any contracts? If so, were they standardized?
- Does the plaintiff need to show actual deception, or is proof of a practice that was merely likely to deceive sufficient?
- Who must prove reliance, if anyone? The class representative only? All class members?
- Is there any basis for a presumption of reliance (e.g., fraud on the market in securities cases or in common-law fraud cases where plaintiffs primarily have alleged omissions)?
- Is the plaintiff seeking certification of a multistate class? If so, do choice of law issues present significant manageability problems?
- What defenses or counterclaims might be raised? Will any party bring third-party claims?
Even where consumers may be able to establish a defendant’s liability through the use of common proof, the respective amounts of damages incurred by putative class members may vary widely. Such individual damages questions typically have not been found sufficient on their own to defeat class certification in consumer cases, but they may be relevant to assessing predominance, particularly if the defendant can demonstrate that there will be individualized questions as to the fact of damages and not merely as to the calculation of the amount of damages.
In Comcast Corp. v. Behrend, the Supreme Court placed additional constraints on the plaintiffs with respect to establishing classwide damages as a prerequisite to obtaining class certification. In Comcast, the plaintiffs alleged monopolization of cable television services in the Philadelphia market and offered a damages model that incorporated four separate theories of liability, but the district court certified a class based on only one theory. The Supreme Court reversed the grant of certification, finding that the plaintiffs did not establish predominance because their damages model failed to isolate damages attributable solely to the theory of liability accepted by the district court. The Court explained that “a model purporting to serve as evidence of damages in this class action must measure only those damages attributable to [the accepted] theory”; and it held that because the plaintiffs’ model “does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class.”
Since Comcast, however, plaintiffs often have argued successfully that the holding is limited to the unique facts of that case and did not fundamentally transform the substantial body of case law addressing how individual damages issues should be sorted out at the class-certification stage. As the U.S. Court of Appeals for the First Circuit stated,
Comcast did not require that plaintiffs show that all members of the putative class had suffered injury at the class certification stage—simply that at class certification, the damages calculation must reflect the liability theory.
Similarly, in Neale v. Volvo Cars of North America, LLC, the U.S. Court of Appeals for the Third Circuit stated that
it is “a misreading of Comcast”to interpret it as “preclud[ing] certification under Rule 23(b)(3)in any case where the class members’ damages are not susceptible to a formula for classwide measurement.”
Other circuits have been similarly reluctant to expand the impact of Comcast beyond a relatively narrow holding. For example, the Ninth Circuit, in Pulaski & Middleman, LLC v. Google, Inc., “reaffirmed that damages calculations alone cannot defeat class certification” following Comcast. The Ninth Circuit reasoned that Comcast merely stands “for the proposition that plaintiffs must be able to show that their damages stemmed from the defendant’s actions that created the legal liability” and, similar to the Third Circuit in Neale, asserted that Comcast should not be read to require plaintiffs to present “a classwide damages model to demonstrate predominance.” Rather, even after Comcast, in order to certify a class, plaintiffs need only demonstrate that damages can “feasibly and efficiently be calculated once the common liability questions are adjudicated.” Accordingly, in Pulaski, the Ninth Circuit reversed a denial of class certification because it concluded that the plaintiffs’ expert had offered a method to establish classwide entitlement to, and a means to individually calculate the amount of, restitution that was “workable” and “not arbitrary.”
In contrast, the U.S. Court of Appeals for the D.C. Circuit in In re Rail Freight Fuel Surcharge Antitrust Litigation read Comcast more expansively, stating that although it is not necessary at the class-certification stage for a plaintiff to provide common proof of the “precise amount of damages,” predominance nonetheless requires that plaintiffs “show that they can prove, through common evidence, that all class members were in fact injured” because, “[o]therwise, individual trials are necessary to establish whether a particular [class member] suffered harm.” The D.C. Circuit reasoned that Comcast requires courts at the class-certification stage to examine rigorously whether the plaintiff has presented a reliable method by which to establish classwide injury, stating that “[i]t is not enough to submit a questionable model whose unsubstantiated claims cannot be refuted through a priori analysis” because, “[o]therwise, ‘at the class-certification stage any method of measurement is acceptable so long as it can be applied classwide, no matter how arbitrary the measurements may be.’ ” In summary, the D.C. Circuit stated, “No [reliable] damages model, no predominance, no class certification.”
Conclusion
Class actions raise myriad challenges and opportunities for the vetting and resolution of a large number of claims. But they also raise the stakes of the litigation and so require multiple levels of procedural and substantive protections. Consumer class actions involve particularly complex questions based on the overlapping roles of the named plaintiffs as litigants and class representatives and the logistics of dealing with hundreds, thousands, or potentially millions of absent class members. Keeping abreast of the recent case developments is increasingly important to ensure that you can navigate quickly when opportunities arise or land mines need to be avoided.
