United States: Combating Damages Models In Food, Cosmetic Class Actions

A bread manufacturer promises "natural whole-grain goodness," but the bread contains some white flour to help it rise. A cosmetic manufacturer promises "longer-lasting" nail polish and, while resistant to chipping, the polish "lasts" no longer than other polishes.

Food and cosmetic marketing and mislabeling class actions have proliferated recently, even against the backdrop of the savvy consumer accustomed to sweeping changes in nutrition and the next age-defying cosmetic breakthrough. No one knows for sure what "natural whole-grain goodness" means, and ultimately nail polish will "last" only as long as the nail grows. In all likelihood, these purchases stem from a myriad of reasons other than marketing representations, such as individual preferences, sale prices, brandy loyalty or simply to placate a misbehaved child in a shopping cart. Presenting a damages model that both integrates these reliance questions and complies with the U.S. Supreme Court's ruling in Comcast Corp. v. Behrend has made certification in food and cosmetic marketing class actions increasingly difficult.

Comcast was an antitrust class action premised on the acquisition of competitor cable providers and "swapping" cable systems for that of the acquired provider in a designated market area. As the dissent pointed out, certiorari was granted on the Daubert-related issue of "[w]hether a district court may certify a class action without resolving whether the plaintiff class has introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a classwide basis." However, the court actually determined that Rule 23(b)(3) requires a "rigorous analysis" showing that common questions of fact and law relating to injury and damages predominate. The damages model must "measure only those damages attributable to" the proposed plaintiff class's theory of liability. The court insisted on a methodology that calculates damages that result from the wrong alleged even if the proof overlaps with a "merits" determination.

Presenting a cogent damages model in food and cosmetic labeling and marketing class actions can be challenging. In many cases, the consumer has received some value from his or her purchase, unlike the purchase of products that fail of their essential purpose. When products do provide some value, a damages model must be established at the class certification stage that "teases out" the value received by a consumer from the amount paid by the consumer for the item. As Comcast instructs, the damages model must measure damages related to the plaintiff's theory of liability. Thus, the reduction in product value must be related to the misrepresentation allegedly made in marketing or labeling.

Regardless of the damages model employed, plaintiffs seeking class certification also face challenges in showing the number of products purchased and identifying the purchase price. (See Ackerman v. Coca- Cola Co. (beverage was sold in different sizes, in different sales units, such as individually, in a six-pack, or case, and through different sales channels); Astiana v. Ben & Jerry's Homemade Inc.; and Pagan v. Abbott Labs. Inc.) This is particularly difficult where the defendant is a manufacturer that does not sell the product at retail, and at best, retail pricing information would need to be subpoenaed from retailers. (See Carrera v. Bayer Corp.; and Astiana.) But, also see Lanovaz v. Twinings North America Inc.; and Brazil v. Dole Packaged Foods LLC.

Full Refund Model

The full refund model calls for each class member to receive a full price refund for the product at issue. Most courts have disapproved of this damages model because it fails to take into account the actual value that was received by the consumer. (For example, see, Werdebaugh v. Blue Diamond Growers; Lanovaz v. Twinings North America Inc.; In re POM Wonderful LLC).

The full refund damages model is available only "if not a single class member received any benefit from the product[]," thus rendering the value of the product at zero. (See Caldera v. The J.M. Smucker Co.; Thurston v. Bear Naked Inc.; and Red v. Kraft Foods Inc., noting that full refunds would constitute "nonrestitutionary disgorgement.")

The full refund model of damages might be appropriate for products having no intrinsic value as allegedly misrepresented. (See Khoday v. Symantec Corp.) As explained in Khoday, the downloadable Norton software and insurance at issue was "unlike a beverage or an item of clothing, which may have value to a consumer even if the beverage is not actually 'natural' as advertised or the clothing does not eliminate odor as promised, the [product] ... only has potential utility" under certain advertised conditions.

Price Premium Model

The price premium model of damages assumes that without the alleged misrepresentations in labeling or marketing the demand for the product — and thus its value — would be lower. Accordingly, the price premium model quantifies damages by comparing the actual price charged for the product with the price of comparable products on the market. (See POM Wonderful.) The model should eliminate causes other than the alleged misrepresentation for the price point of the product. Thus, an expert damages analysis is needed for class certification. (See., for example, Guido v. L'Oreal USA Inc., denying certification without prejudice because no expert evidence that damages may be calculated by ascertaining the difference between the historical market price of L'Oreal hair serum and the true market price with a flammability warning; Algarin v. Maybelline LLC, noting that to show "any difference in price is attributed solely to the alleged misrepresentation" the price premium model "would have to control and neutralize all other product differences;" Werdebaugh, comparison of almond milk with other brands failed to link price differential with "all natural" representation; and Brazil, price premium model failed to account for factors other than alleged mislabeling affecting price.)

By way of example, in Ebin v. Kangadis, a district court certified a class of consumers who had purchased oil described as "100 [percent] Pure Olive Oil" that actually was "pomace oil," an oil pressed by machine

centrifuge from the residue of olive skins and pits left over after olive oil is manufactured. The expert analysis provided different damages theories, including a price premium model which calculated the difference between the actual price paid by for the oil and the market price of pomace oil, because the product should have been marketed as pomace oil. The court found that this approach complied with Comcast.

On the other hand, in Lanovaz v. Twinings North America Inc., the plaintiff complained about the Twinings label describing its tea as containing a natural source of antioxidants. Plaintiff's expert tried to differentiate the value of the promised antioxidant health benefits from the cost of the Twinings tea. One method was to compare the price of Twinings tea with the price of other teas on the market without antioxidant claims. However, such an approach failed by not factoring in reasons other than the antioxidant claim for the price differential. The court denied class certification.

Benefit of the Bargain

The benefit of the bargain damages model is used in implied warranty or contract claims that accompany consumer protection claims in class actions. The benefit of the bargain model calculates damages based on the difference between the value of the goods accepted and the value of the goods had they been as warranted. (See Caldera.) The benefit of the bargain damages can be calculated by showing the difference between the average price of the product as advertised and the average price of the product that was actually received by the consuming members of the class. (See Ebin.) Damages are calculated as of the time and place of acceptance of the product. (See Guido v. L'Oreal USA Inc.)

Some courts have treated the benefit of the bargain model as being the same as the price premium model, while others have differentiated the two models. (Compare Lanovaz with Caldera.) The difference between the price premium model and the benefit of the bargain is that the former compares the amount paid by the consumer for the product with the price of comparable products on the market, while the latter compares the price paid with the price of the specific product received without the alleged misrepresentation. However, when a damages model requires inquiry into the individual expectations for the product, the model fails under the Comcast damages standard. (Compare Montgomery v. Kraft Foods Global Inc., where individual expectations for uses of coffee brewer do not lend themselves to class treatment, with Thurston, where plaintiffs contend they can show some disparity between the expected and received value).

Regression Model

Regression may be more of a mathematical construct than a model for damages in food and cosmetic class actions. After all, the expert in Comcast used a regression model comparing actual cable prices to hypothetical prices absent all forms of the alleged anti-competitive conduct. Nevertheless, it is discussed separately because some courts have addressed the damages predominance issue by referring to "regression models." (See, for example, Lanovaz.)

A regression model used for damages at the class certification stage analyzes the relationship between the variable to be explained (i.e., dependent variable) and other variables for which the association is sought (i.e., explanatory or independent variables). (See Werdebaugh.) In theory, regression analysis will allow a determination of the impact of certain factors (e.g., marketing representations) on price, provided that data is available for the price of the product before and after the representation. (See Brazil, regression model isolates the impact of alleged mislabeling on price by comparing identical products before and after labeling). It may be impossible to perform a regression analysis if "before and after" data is not available. (See Lanovaz.) Of course, a regression analysis that fails to relate the alleged wrongful conduct to the harm alleged is insufficient to establish predominance for class certification. (See Comcast.)

Survey Damages

Some cases have attempted to show damages predominance through expert-performed surveys. For example, in Bruce v. Teleflora LLC, the plaintiffs alleged the defendant marketed high quality and timely floral arrangements. However, the defendant was not a florist, and the arrangements were made and delivered by member florists. Plaintiff claimed that the low profit margin for member florists encouraged poor quality arrangements that did not conform to the advertised product. The plaintiff's damages expert arranged an online survey which compared the floral arrangements pictured with the product received. Based on the average net perceived difference, the expert calculated damages as a percentage of the actual purchase price. The court discarded the evidence because the survey respondents were not class members and because the damages percentage was premised on the receipt of a lesser quality arrangement, which was not the case for all those surveyed, thus creating individual issues that counseled against class certification.

On the other hand, survey evidence can be an essential ingredient for defendants seeking to show that individual issues predominate. For example, in Algarin v. Maybelline, the defense expert's survey showed repeat customers of cosmetics that promised "24-hour staying power," showing consumer satisfaction with the product's duration. The survey results also indicated that the 24-hour duration was not the only "driver" causing consumers to purchase the cosmetics. Thus, survey evidence can be helpful in challenging the assumptions for expert damages models. (See Astiana v. Ben & Jerry's Homemade Inc., defense survey showed that only 13 percent of consumers surveyed expected "all-natural" label on ice cream to mean that the alkali was "natural" and only 3 percent said it would affect their purchase decision.)

Disgorgement of Profits

The recovery of profits gained unlawfully can provide a basis for damages in class actions, but only to the extent that the profit represents funds given to the defendant or benefits in which the plaintiff has an ownership interest. (See Astiana.) Disgorgement holds defendants liable for the refund of all money acquired as a result of the alleged illegal activities. (See Zuckman v. Monster Beverage Corp.) Disgorgement of profits as a damages model in the food and cosmetic area is difficult to prove for the same reason that courts are reluctant to adopt the full refund model of damages. A plaintiff would have to show that he or she had an ownership interest in all of a defendant's profits, and in all likelihood the consumer received some value from the product. (See Red v. Kraft Foods Inc.) But see Turnbow v. Life Partners Inc., which found disgorgement can be shown through common proof, but the court declined to certify the class due to individual issues of reliance.)

Statutory Damages

Some states have a statutory penalty or minimum amount of damages that can be awarded under their consumer protection statutes. Thus, while a plaintiff class did not show predominance on damages under a California law based upon Comcast, predominance was found for the class under New York law for statutory damages. (See Guido v. L'Oreal USA Inc.) However, in Ackerman v. Coca-Cola Co., the court denied class certification even though New York law provided a statutory minimum damage because each member of the plaintiff class would still need to provide that a premium was paid for the vitamin water due to the alleged misrepresentations compared with the price of comparable beverages. Moreover, the availability of statutory damages does not eliminate the need to prove ascertainable loss or injury if required by the state consumer protection act, which also may entail individual issues of proof. (See Bezdek v. Vibram USA Inc.)

Injunctive Relief

Classes can be certified for injunctive relief even where the proffered damages models do not relate to the alleged misrepresentation under Comcast. (See Ackerman v. Coca-Cola Co., which permits certification for injunctive relief where a defendant has acted or refused to act on grounds applicable to the entire class; Caldera; and Brazil.) However, class certification should be denied if the injunctive relief is incidental to the monetary relief sought. (See Ries v. Arizona Beverages USA LLC; McManus v. Sturm Foods Inc., where monetary relief is primarily sought, certification under Fed. R. Civ. P. 23(b)(2) is improper because "class members would likely prefer independent actions" and there is no means to opt out). But see Lanovaz, certifying class for injunctive relief.

Additionally, injunctive relief may be sought only where there is a probability of future violations. (See Ogden v. Bumble Bee Foods LLC.) There is a split in court decisions as to whether class members or purchasers who disclaim the intent to purchase the product in the future have standing to seek injunctive relief. (See Richardson v. L'Oreal USA Inc. and the cases cited therein.) Also, compare Brazil (although skeptical, plaintiff still "willing to" purchase product) with Algarin v. Maybelline, where plaintiffs cannot seek injunctive relief since "by now" they should be aware that the products do not last 24 hours).

The class action vehicle presents inherent challenges for food and cosmetic consumer litigation. Typically, the products are low cost and the sales volume is substantial. Even the most disappointed consumer usually receives some value from the purchase of the product. Thus, except in instances where the product quality is grossly distorted or the product is devoid of value, certification and thus maintenance of class actions will face continued challenges.

Originally published by Law360, June 18, 2014.

Charlotte Thomas is a partner in Duane Morris' Philadelphia office.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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