United States: Variations In Damages & Settlement Classes - Richardson v. L'Oreal USA, Inc.

Last Updated: January 2 2014
Article by Andrew J. Trask

In the wake of Comcast Corp. v. Behrend, a number of different courts have weighed in on the question of whether variations in damages should preclude certification of a litigation class. Last month, however, the District of the District of Columbia issued an opinion which implied that variations in damages might preclude the certification of a settlement class.

The case is Richardson v. L'Oreal USA, Inc., 2013 U.S. Dist. LEXIS 158599 (D.D.C. Nov. 6, 2013).  And it's another Center for Class Action Fairness case. (You can read Ted Frank's original writeup of the case here, and let me offer the usual disclaimer: I have worked with the CCAF in the past.)

Richardson alleged that L'Oreal falsely marketed certain hair care products as "available only at fine salons and spas" even though they were also available at big-box retailers like Kmart.

L'Oreal and the plaintiffs sought to settle the case for injunctive relief--L'Oreal would change its labeling-- even though the class members would also be extinguishing any class claims for monetary relief. L'Oreal's logic for doing so is clear: it got a broad release. The plaintiffs' logic was less so: they argued that the variations in damages were too great to allow certification under Rule 23(b)(3), so injunctive relief was all they could get.

The CCAF objected, making three substantive arguments:
(1) the plaintiffs lacked standing to seek injunctive relief (after all, they weren't in danger of being misled again);
(2) individualized damages issues would predominate, particularly between retail and mass-market purchasers; and
(3) the class was not cohesive enough to justify Rule 23(b)(2) certification.

The court did not accept the standing argument, though it conceded that its "power ... seems undeniable," it found that "public policy requires plaintiffs to have standing here." It was troubled, however, by the predominance and cohesiveness problems presented by the class. (The plaintiffs tried to argue against a predominance analysis since they did not seek damages, but the court ruled that if they extinguished damages claims, then absent class members deserved Rule 23(b)(3) notice and opt-out protections.) And it was particularly troubled by the ramifications of settling a class action under Rule 23(b)(2) that would also extinguish classwide damages claims as "too hard to certify." As it wrote:

It is not hard to imagine adventurous or avaricious counsel taking advantage of this novel settlement structure to the detriment of absent class members. For example, imagine a putative consumer class action where damages determinations would be relatively complex or speculative on a nationwide basis, but perhaps not so on a state-to-state basis. Calculating that a piece of a state-wide class would not be very rewarding to pursue, the hypothetical plaintiffs build a record showing that a broad nationwide class seeking damages could never be certified. Then, plaintiffs seek to file a suit for injunctive relief only and seek to settle with the defendant. Because releasing all damages claims in a (b)(2) settlement class would almost certainly be improper, the defendant agrees that plaintiffs need not release individual damages claims--the value of which is trivial, as in many consumer class actions. But plaintiffs agree to release class-wide damages claims, under the auspices of an impossible-to-certify nationwide class. Plaintiffs get attorney's fees, defendant gets a near-bulletproof release, and class members get . . . an injunction.

In the end, stripping the procedural right to bring a damages class action from absent class members without their knowledge or consent--and effectively precluding their damages claims--is not proper.

(Emphasis added; and that ellipses is in the original for dramatic effect.)

The court also held that the intra-class conflict between those who bought at salons and those who bought at Kmart meant the class was not cohesive enough for Rule 23(b)(2) certification.

While the court also conducted a Rule 23(e) analysis (which the settlement also flunked), it is the Rule 23 analysis that is most helpful for defense attorneys going forward: variations in damages continue to matter. Sometimes they preclude certification simply because they are so complex themselves. But sometimes--like here--they point out larger problems in a proposed class.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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