In an important ruling on March 25 that could have wide-ranging (and thankfully positive) repercussions for marketers who face class actions in California and around the United States, a federal court judge in Los Angeles de-certified a previously certified nationwide class of consumers in a long-pending false advertising case against POM Wonderful.
In the case, the plaintiffs contended that POM had wrongfully exaggerated the health benefits of its pomegranate juice drinks, causing $450 million in damages to the purchasers of those drinks.
To the extent the judge's decertification order in the POM case is followed by other judges in other cases, the ruling could make class certification much harder for future plaintiffs to obtain.
The order requires that, for a class to be certified, a "rigorous analysis" first must occur of the claimed class-wide damages sufficient to show that those damages stemmed from the specific actions of the defendant that created the legal liability and not from anything else. In other words, to obtain class certification, a plaintiff must present a logical method for determining class-wide damages specifically traceable to the defendant's misconduct. Depending on the case, that can be very tough to do. Second, the order requires that the putative class be ascertainable, meaning there must be an administratively manageable method of figuring out who is a member of the class and who isn't. In the POM case, the judge found that the plaintiffs failed both these tests.
With regard to the first requirement, the judge rejected both damages models offered by the plaintiffs in the POM case. The plaintiffs' first model was a "full refund" model. This model assumed that consumers would not have purchased POM's drinks if not for the alleged misrepresentations concerning their health benefits and, thus, it used the full retail price paid by everyone as the measure of class damages. The judge rejected this model because, in his estimation, it failed to account for the value that consumers may have gotten from drinking POM's drinks. Those drinks provided value, he observed, in the form of hydration, flavor, good taste, and vitamins and minerals. If, for the sake of argument, there had been false or deceptive advertising by POM then the proper measure of restitution, the judge reasoned, should be what the plaintiffs paid minus the value of what the plaintiffs received. The "full refund" model failed to capture this.
The plaintiffs' second damages model, a "price premium" model, also was found to be flawed. That model calculated damages by comparing the higher price consumers had paid for POM's drinks to the average price (which was lower) that consumers had paid for other refrigerated juices of the same size. This assumed that consumers had paid a premium for POM's drinks because of the alleged misrepresentations of POM. However, that was simply an assumption. The judge observed: "Even a material misrepresentation might not necessarily have any effect on prices." He noted that consumers might have bought the POM drinks and paid their higher price for "myriad reasons" other than the allegedly exaggerated health claims made for the drinks. The judge ruled that class-wide damages such as an alleged "premium" paid for a product need to be tied to the defendant's misconduct with more than speculation.
It should be noted that in a footnote, however, the judge did state that "Single use products, such as, for example, an expensive pill claiming to cure baldness, likely require less rigorous methodologies and models than do consumables such as POM's juices, which consumers presumably purchase for a wide variety of reasons."
As for the duty of the plaintiffs to demonstrate an "ascertainable" class, the judge considered the fact that POM's juices had been sold in retail stores across the country for years, and he was very troubled by the fact that "based on the volume of product sold, every adult in the United States is a potential class member." He added: "Millions of consumers paid only a few dollars per bottle, and likely made their purchases for a variety of reasons. No bottle, label or package included any of the alleged misrepresentations. Few, if any, consumers are likely to have retained receipts during the class period." Based on this, the judge concluded that there was "no way to reliably determine who purchased [POM's] products or when they did so."
In the coming months, companies who are sued in class action cases are likely to cite the POM Wonderful decision as additional ammunition in their effort to defeat class certification.
Originally published in Response Magazine on April 8, 2014.
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