classwide damage models in misleading and false...
TRANSCRIPT
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Presenting a live 90-minute webinar with interactive Q&A
Classwide Damage Models in Misleading
and False Advertising Consumer Class Actions
Today’s faculty features:
Robert J. Bonsignore, Trial Lawyer, Bonsignore, Las Vegas
Dr. Jesse David, Partner, Edgeworth Economics, Pasadena, Calif.
Robert D. Phillips, Jr., Partner, Alston & Bird, San Francisco
1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific
THURSDAY, NOVEMBER 30, 2017
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RECENT DEVELOPMENTS IN CASE LAW CONSTRUING COMCAST
Robert Bonsignore, Esq.
3771 Meadowcrest Dr
Las Vegas, NV 89121
(781) 856-7650
RECENT DEVELOPMENTS IN CASE LAW CONSTRUING COMCAST
Most federal circuit courts have interpreted Comcast as
establishing two propositions:
• A plaintiff’s model for determining class-wide damages must measure
the damages that result from the theory of liability asserted by the class.
• The presence of individualized damages inquiries does not
automatically preclude certification under Rule 23(b)(3).
District courts have varied in their willingness to accept
damages models as satisfying Comcast’s standards.
The following recent cases illustrate approaches taken by
different courts in interpreting Comcast and its impact upon
the analysis of predominance as it relates to class-wide damage
models.
6
Ninth Circuit
The Ninth Circuit has been a hotbed for false advertising cases involving food product misbranding. A number of appeals have been decided in the past year from which general principles have emerged. • The proper damages model for such claims generally is price premium, which
is the difference in the market value of a product in the condition it was delivered and its market value in the condition in which it should have been delivered.
• Plaintiffs have had difficulty in identifying a damages model that passes court muster as sufficiently isolating the premium due to their theory of liability. However, a model using a combination of hedonic regression and conjoint analysis was recently endorsed by the Ninth Circuit as acceptable which may be a template for future cases. A certiorari petition has been docketed with the Supreme Court for that case.
• Full refund model has been rejected as overcompensating and inconsistent with the idea that companies charge more for a product due to mislabeling. Nevertheless, refund model was recently upheld in case where plaintiffs claimed full restitution because the product was worthless.
7
Ninth Circuit
Briseno v. ConAgra Foods, Inc., 674 Fed. Appx. 654 (9th Cir. 2017), cert. petition docketed, April 12, 2017 • Mislabeling class action alleging that manufacturer falsely advertised
cooking oil as 100% natural. Certification upheld.
• In short opinion, Ninth Circuit found Comcast satisfied and found model measured damages associated with the theory of liability.
• Damages were to be measured by price premium as measured by two steps: 1) hedonic regression analysis to determine the premium attributable to the false labeling of 100% natural and 2) conjoint analysis to separate out the premium due to the understanding that it meant no genetically modified organism used.
• District court 141-page opinion discusses the damages model in great depth. See In re ConAgra Foods, Inc., 90 F. Supp. 3d 919 (C.D. Cal. 2015)
8
Ninth Circuit
Lambert v. Nutraceutical Corp., 870 F.3d 1170 (9th Cir. 2017) • False advertising case regarding dietary supplement. Ninth Circuit
reversed decertification by district court which had found that class’s full refund restitution damages model did not satisfy Comcast.
• Full restitution model applied when a product is shown to be worthless, and damages are calculated by multiplying the average retail price by number of units sold. Plaintiffs were claiming that the product was worthless.
• Focus was upon whether damages model matched theory of liability and whether it was supported by evidence admissible at trial.
• Interpreted Comcast as not preventing class certification where there is uncertainty regarding class members' damages “as long as a valid method has been proposed for calculating those damages” is offered.
• Of note, court found that calculation of class-wide damages for false advertising claims are “particularly forgiving.”
9
Ninth Circuit
Brazil v. Dole Packaged Foods, LLC, 660 Fed. Appx. 531 (9th Cir.
2016)
• False advertising claims regarding manufacturer’s alleged
misrepresentation and mislabeling of packaged fruit as “All Natural
Fruit” when it contained ascorbic and citric acids. Court upheld
decertification of class.
• Damages model sought full refund of price of fruit assuming it was
worthless.
• Ninth Circuit held damages should be price premium and plaintiffs did
not demonstrate how they would calculate that premium class wide
with common proof.
10
Ninth Circuit
In re NJOY, Inc. Consumer Class Action Litig., CV 14-428-JFW (JEMX), 2016 WL 787415 (C.D. Cal. Feb. 2, 2016) • Consumer class action alleging false advertising relating to e-cigarettes. Statements
at issue were that they are safer than tobacco cigarettes and omissions of material information on package were alleged regarding certain ingredients’ health risks. Certification denied.
• Amended complaint, like original one, was dismissed in part because plaintiffs had failed to demonstrate that damages were capable of measurement on a class-wide basis in violation of Comcast.
• Court rejected three damages models proposed by Plaintiffs’ expert: conjoint analysis, the direct method, and hedonic regression.
• Conjoint analysis and direct method models rejected because they ignored price at which e-cigarette manufacturers would be willing to sell their products. They were rejected also for their focus on consumers’ subjective valuation and did not permit Court to calculate true market price of e-cigarettes without the purported misrepresentations and omissions.
• Hedonic regression model similarly deficient for failure to measure only those damages attributable to manufacturer’s misrepresentations and/or omissions.
11
Ninth Circuit
Khasin v. R. C. Bigelow, Inc., 12-CV-02204-WHO, 2016 WL
1213767 (N.D. Cal. Mar. 29, 2016)
• Mislabeling consumer action against green tea manufacturer.
Certification denied.
• Court rejected full refund damages model as “too implausible” and held
damages were not provable on class-wide basis as required by
Comcast.
12
Second Circuit
Waggoner v. Barclays PLC, No. 16-1912-CV, 2017 WL 5077355 (2d Cir. Nov. 6, 2017) • Securities fraud action by investors claiming that defendant gave favored
treatment in trades to certain clients. Certification granted.
• Stated Second Circuit interpretation that Comcast had precluded class certification “only ... because the sole theory of liability that the district court determined was common in that antitrust action, overbuilder competition, was a theory of liability that the plaintiffs' model indisputably failed to measure when determining the damages for that injury.”
• Rejected attack on damages model that measured damages by measuring the drop in share price after the attorney general’s revelation of the improper practices.
• Defense had argued that damages model presented by expert violated Comcast because it did not disaggregate variations that could have been caused by factors other than concerns about defendant’s integrity and by other market forces.
• Discounted fact that share price drop may have also been due to attorney general’s action and fines as not rendering the model violative of Comcast.
13
Third Circuit
Neale v. Volvo Cars of N. Am., LLC, 794 F.3d 353 (3d Cir. 2015) • Case involved defective design claims by class of consumers against
manufacturer based upon leaky sunroofs. Third Circuit remanded case for further analysis of predominance issue as it related to presence of common questions.
• Although case was remanded in part due to lack of detailed analysis of predominance, court focused upon commonality of causes of action, rather than damages incursion, as proper inquiry.
• Third Circuit had limited interpretation of Comcast, highlighting the Supreme Court’s statement that it “was not breaking any new ground” and restricting its predominance holding to antitrust cases.
• Noted Supreme Court statement that “[r]ecognition that individual damages calculations do not preclude class certification under Rule 23(b)(3) is well nigh
14
Fifth Circuit
In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014)
• Class action for damages related to oil spill in Gulf of Mexico.
Certification upheld.
• Fifth Circuit held 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.”
• Rejected challenge that voluntary payments made under settlement
agreement to parties who did not demonstrate injury violated Comcast
requirement that damages model isolate damages attributable to theory
of liability.
15
Sixth Circuit
Rikos v. Procter & Gamble Co., 799 F.3d 497 (6th Cir. 2015), cert. denied, 136 S. Ct. 1493 (2016) • Consumer class action against manufacturer of probiotic supplement
alleging false advertising. Court found predominance requirement met where damages model was full refund of purchase price to all consumers.
• Defense argument that predominance not met because product worked for some consumers not sufficient to defeat certification because plaintiffs’ theory was that it did not work for anyone and, if incorrect, lawsuit would fail.
• Found damages model satisfied Comcast’s requirement that “any model supporting a plaintiff's damages case [is] consistent with its liability case,” i.e., that the model “measure[s] only those damages attributable to that theory” of liability.”
• Held that “Plaintiffs' damages model measures only damages attributable to its theory of liability, i.e., that P & G is liable if it is not proven scientifically that Align helps anyone, and thus satisfies Comcast.”
16
Seventh Circuit
Suchanek v. Sturm Foods, Inc., No. 11-CV-565-NJR-RJD, 2017 WL 3704206 (S.D. Ill. Aug. 28, 2017) • Coffee mislabeling class action regarding product that was not actually ground
coffee, but was instant coffee. District court rejected motion to decertify class in which defendants attacked experts’ opinions in support of damages model.
• Held that damages were susceptible to measurement on class-wide basis using retail damages model, which gave full refund to reflect that product was worthless, or, in the alternative, the price premium damages model.
• Distinguished other cases rejecting full refund model as typically involving “a product label that does not misrepresent the entire essence of the product but instead falsely claims the product possesses a particular premium quality.”
• Found that product “wasn't simply missing a particular premium quality advertised on the package. Instead, the package misrepresented the very essence of what was being purchased.”
• Court noted that even if damages ultimately could not be proven on class-wide basis, decertification was not required as issues class device could still be used.
17
Eleventh Circuit
Carriuolo v. General Motors Co., 823 F.3d 977 (11th Cir. 2016)
• Deceptive and unfair trade practices class action based upon
misstatements made by manufacturer as to safety ratings of vehicles.
Class certification upheld.
• Damages alleged were the price premium and court found they were
directly related to the legal theory of liability.
• Held that “individualized damages calculations are insufficient to
foreclose the possibility of class certification, especially when, as here,
the central liability question is so clearly common to each class
member.”
• Held that Comcast did not require that common questions of both
liability and damages must predominate.
18
First Circuit
Bezdek v. Vibram USA Inc., 79 F. Supp. 3d 324 (D. Mass.), aff'd, 809 F.3d 78 (1st Cir. 2015) • False advertising action by class against manufacturer alleging
footwear did not possess represented health benefits. Settlement approved.
• In course of approving settlement, price premium damages model discussed. Court held that predominance requirement met to maintain class action.
• Settlement class certification requirements met despite court note that although “plaintiffs have not provided chapter and verse to address the Comcast requirement of presenting a methodology that would allow damages to be calculated with precision on a class-wide basis, they have tendered an acceptable general damages theory.”
• Emphasized that common sense approach should be taken to Comcast in settlement context.
• First Circuit affirmance did not address issue.
19
www.alston.com © Alston & Bird LLP 2017
Classwide Damages in False Advertising Class Action Litigation
Bo Phillips, Alston & Bird LLP November 30, 2017
© Alston & Bird LLP 2017 21
Introduction
How to calculate damages when a product has value, but allegedly not as much as advertised?
Howmuchofthepurchasepricewas“excessive”?
Howmuchofthe“excess”canbeattributedtoafalse or misleading label or advertisement?
Forexample,“naturalcheese,”“100%naturaltomatoes,”“allnatural”Criscooil,Beck’s“German”beer,“notsugar”sweetenerinalmondmilk
© Alston & Bird LLP 2017 22
Damages Approaches
Full Refund- the price paid for the product
Profit Disgorgement- profits on allegedly deceptive products
Actual Discount- discount the products to a corrected price reference
Regression Analysis
© Alston & Bird LLP 2017 23
Spann v. J.C. Penney Corp., 307 F.R.D. 508, 529–30 (C.D. Cal. 2015), modified, 314 F.R.D. 312 (C.D. Cal. 2016)
Plaintiff was shopping at J.C. Penney and saw signs indicating an original price ($30.00) for shirts, with discount signs next to the shirts suggesting that they were on sale (for $17.99).
PlaintiffclaimsthatJ.C.Penney’s“originalprice”isfalseadvertising because the shirts were always sold for $17.99.
BroughtclaimsunderCalifornia’sUCL,FalseAdvertisingLaw, Consumer Legal Remedies Act, and California Business and Professions Code.
© Alston & Bird LLP 2017 24
Spann v. J.C. Penney Corp., 307 F.R.D. 508, 529–30 (C.D. Cal. 2015), modified, 314 F.R.D. 312 (C.D. Cal. 2016)
Plaintiff had J.C.Penney’sinternalpricingguidesandhistorical data of its pricing.
Sought alternative damages: (1) complete restitution- full purchase price; (2)restitutionbasedonthefalse‘transactionvalue’promisedbyJ.C.
Penney, measured by the amount that each class member would have paid had J.C. Penney offered a discount from the actual ‘regular’price;or
(3) restitution in the amount that J.C. Penney profited from sales of productsbasedondeceptivepricecomparisons.”
Courtgrantedclasscertificationandfoundthatplaintiffs’damages models were appropriate because they were subjecttocommonevidenceofJ.C.Penney’spricing.
© Alston & Bird LLP 2017 25
Expert Analysis and Admissible Evidence
Federal Rule of Evidence 702
Daubert Test
Comcast requirementof“tethering”
© Alston & Bird LLP 2017 26
Federal Rule of Evidence 702
A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if: (a) the expert's scientific, technical, or other specialized
knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.
© Alston & Bird LLP 2017 27
Daubert v. Merrel Dow Pharmaceuticals, Inc, 509 U.S. 579 (1993)
The trial judge must determine whether an expert is proposing to testify to (1) scientific knowledge, that is (2) relevant.
Districtcourtisthe“gatekeeper”forthetrieroffact. “Thisentails a preliminary assessment of whether the reasoning or
methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.”
Courts consider (1) whether the scientific theory can be or has been tested; (2) whether the theory has been subjected to peer review and publication; and (3) whether the theory has been generally accepted in the relevant scientific, technical, or professional community.
© Alston & Bird LLP 2017 28
Daubert Some question about necessity of Daubert for the purposes of class certification
because trial judge need not act as gatekeeper for jury. For example, in Wal-Mart Stores Inc. v. Dukes, 131 S. Ct. 2541, 2554 (2011),
district court found that Daubert does not apply at the certification stage, and the SupremeCourtexpressed“doubt”abouttheholding(butdidnotreject).
In re Zurn Pex Plumbing Prod. Liab. Litig., 644 F.3d 604, 614 (8th Cir. 2011):“Weconclude that the district court did not err by conducting a focused Daubert analysis which scrutinized the reliability of the expert testimony in light of the criteria for class certification and the current state of the evidence.”
But, in contrast, the Seventh Circuit requires a district court to determine whether the expert testimony is not just sufficient for class certification but also ultimately admissible at trial. American Honda Motor Company, Inc. v. Allen, 600 F.3d 813, 816–17 (7th Cir. 2010).
© Alston & Bird LLP 2017 29
Comcast Corp. v. Behrend, 569 U.S. 27 (2013)
“any model supporting a plaintiff’sdamages case must be consistent with its liability case, particularly with respect to theallegedanticompetitiveeffectoftheviolation.”
“Thefirststepinadamagesstudyisthetranslationofthe legal theory of the harmful event into an analysis of the economic impact of that event.”
“Wehave interpreted Comcast to mean that ‘plaintiffsmust be able to show that their damages stemmed from the defendant's actions that created the legal liability.’” Pulaski & Middleman, LLC v. Google, Inc., 802 F.3d 979, 987–88 (9th Cir. 2015).
© Alston & Bird LLP 2017 30
Recent Reported Decisions
In contrast with Span v. J.C. Penney, significant number of courts have not certified classes for false advertising, finding that the damages issues are too individualized.
Judge Koh in N.D. Cal. decertifying two cases after Comcast, finding that experts could not adequately perform a regression analysis to isolate damages attributabletodefendants’useof“allnatural”labels. Brazil v. Dole Packaged Foods, LLC, Case No. 12-CV-01831-
LHK (N.D. Cal. Nov. 6, 2014). Werdebaugh v. Blue Diamond Growers, Case No. 12-CV-02724-
LHK (N.D. Cal. Dec. 15, 2014).
© Alston & Bird LLP 2017 31
Recent Reported Decisions
Briseno v. ConAgra Foods, Inc., 674 F. App'x 654, 657 (9th Cir. 2017) (cert denied) Plaintiffs proposed to (1) use hedonic regression analysis to
calculatethepricepremiumattributabletothe“100%Natural”label;(2) use conjoint analysis to segregate the portionofthatpremiumattributabletoa“no-GMO”understanding of the label.
Courtfound:“itwas not an abuse of discretion for the district court to conclude that Plaintiffs' proffered model tracked their theory of liability and was therefore sufficient to survive class certification.”
© Alston & Bird LLP 2017 32
Recent Reported Decisions
Some circuits take a limited view of the Comcast holding.
Roach v. T.L. Cannon Corp., 778 F.3d 401, 407 (2d Cir. 2015) “Comcast held that a model for determining classwide damages
relied upon to certify a class under Rule 23(b)(3) must actually measure damages that result from the class's asserted theory of injury; but the Court did not hold that proponents of class certification must rely upon a classwide damages model to demonstrate predominance.”
“TheSupreme Court did not foreclose the possibility of class certification under Rule 23(b)(3) in cases involving individualized damages calculations.”
© Alston & Bird LLP 2017 33
Defense Issues
Basic FRE 702 and Daubert tests
Reliability of underlying sales/price data
Defining relevant markets and data
Inducement/causation as individualized issues
Possible overlap of consumer survey evidence
© Alston & Bird LLP 2017 34
Bo Phillips Alston & Bird LLP
San Francisco 415-243-1080
Los Angeles 213-576-1080
Hedonic Price Regressions in False Advertising Class Actions
Jesse David, Ph.D.
November 30, 2017
Strafford Webinars
36
Determining “Value” in a False Ads Class Action
Damages (or “Price Premium”): Difference between the price paid by a consumer and the “value” actually received
• Actual price
• Consumer receipts
• Point-of-sale records
• Nielsen/IRI surveys
• Loyalty cards
• “Value” received
• Personal value or “willingness to pay”
• Potential problem for class: Likely to vary by consumer
• Market value
• The price that would have prevailed but for the misrepresentations
37
Evolution of Market-Based Methods for Measuring “But-For” Price
Comparable
Group
Hedonic
Regression
Before-and-
After
Benchmark
Product
38
What Is a Hedonic Price Regression?
Key Assumptions
• A consumer good is comprised of attributes
• Attributes affect consumer utility
• Attributes are costly to provide
• Competition drives prices to reflect costs
• Under these conditions, a regression of prices on product attributes can lead to estimates of the impact of individual attributes on price
• Waugh (1928): Impact of quality features on price • Lancaster (1966): Consumer utility as a function of product
features • Rosen (1974): Formalized idea that market prices can be
functions of product features
39
Basic Structure
Example: Single-Family Housing
P = ∝ + 𝛽1𝑋1 + 𝛽2𝑋2 + 𝛽3𝑋3 + γ1𝑍1 + γ2𝑍2 + ε
P Sales price of house
Xi Economy-wide factors affecting demand (income, interest rates) and supply (labor costs, energy prices); and local factors (school district, traffic)
Zj Variables for features: dummy (corner lot, swimming pool); non-dummy (# bedrooms, sf)
Under proper conditions, coefficients γi provide estimates of the market value of each feature
interest
rates
lumber
price school
dist.
sq.
footage corner lot
40
Typical Applications
1) Housing
2) Consumer durables
3) Produce/commodities
Key Characteristics of These Markets
• Limited number of important attributes
• Attributes are quantifiable and easily measured
• Consumer preferences for attributes are (reasonably) predictable
• Competitive marketplace
41
Potential Problem Cases: Branded Consumer Products
• Large number of hard-to-define attributes/ingredients
• Highly differentiated
• Importance of advertising and specific labels
• Limited academic literature applying hedonics to such products
42
Potential Issues with Branded Consumer Products
• Difficult to develop a priori hypotheses about coefficients • Do more calories increase/decrease price? Chocolate flavor?
• Potential multicollinearity between brand and feature of interest • May be difficult to find other-branded products with/without the particular
misrepresentation
• Large number of attributes: what to include? • Omitted variable problems
• Brands often have some pricing power • Example: Line pricing
• Little variation in price from day to day and store to store • Thousands of transactions, actually very little information
Under these conditions, coefficients on feature variables may not represent the impact
of features on price (i.e., may not provide estimates of “but-for” pricing or “price premium”)
43
Takeaways
• For hedonic regression to work, the product market and available data must meet certain conditions
• Regression is a tool, not a panacea
• Like most statistical analyses, the results can be highly sensitive to choices made by the analyst
• The more competitive the market, and the broader range of included products/features, the better chance the coefficients will make sense
• Common-sense tests (before-and-after or benchmark-product), and thorough analysis of the marketplace can be very helpful
www.edgewortheconomics.com
Jesse David, Ph.D.
Partner, Edgeworth Los Angeles
(626)657-7950
www.edgewortheconomics.com 45
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