August 15, 2022 Montera v. Premier Nutrition Corporation: A Case Study in Aggregate Statutory Damages

By: Alexander M. Smith, Jenna L. Conwisar, and Peter Welch

New York’s two principal consumer fraud statutes, N.Y. G.B.L. §§ 349 and 350, authorize statutory damages of $50 or $500 per violation respectively. In false advertising cases involving low-cost consumer products, these statutes pose the risk that defendants may face hundreds of millions—if not billions—of dollars in exposure if found liable at trial. And while N.Y. C.P.L.R. § 901(b) seeks to avert this result by prohibiting courts from awarding statutory damages in class actions, the Supreme Court has held that this is a “procedural” rule that does not preclude federal courts sitting in diversity from awarding statutory damages in class actions. See generally Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2009). Since Shady Grove, plaintiffs have routinely used the threat of statutory damages under Sections 349 and 350 to bludgeon defendants into settling false advertising class actions before trial.

That threat materialized in July 2022, however, when a jury in the Northern District of California returned a verdict for the plaintiffs in a certified class action, Montera v. Premier Nutrition Corporation. Although the jury determined that the class had suffered less than $1.5 million in actual damages, the plaintiff nonetheless asserted that the class was entitled to over $91 million in statutory damages. In a result that will inevitably disappoint both plaintiffs and defendants, the Montera court awarded the class only $8.312 million in statutory damages—less than 10% of what the plaintiffs sought, but over five times the amount of actual damages.

In a critical victory for defendants, the court reduced the aggregate amount of statutory damages based on its finding that “the calculated amount of statutory damages . . . is ‘so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.’” ECF No. 293 (Damages Order) at 2 (quoting St. Louis I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 66–67 (1919)). In so holding, the court rejected the plaintiff’s assertions that aggregate statutory damages do not present due process concerns and that courts have no discretion to reduce an aggregate award of statutory damages. But other aspects of the court’s ruling—including its decision to calculate statutory damages on a per-product basis and its decision to award statutory damages well in excess of actual damages—illustrate that defendants continue to face a very real threat from aggregate statutory damages.


Montera is one of many cases in the Northern District of California challenging the advertising of a glucosamine supplement called “Joint Juice.” Although Premier claimed that Joint Juice was effective at reducing joint pain, the plaintiff alleged that Joint Juice does not relieve joint pain and is worthless. After certifying a class of California consumers in one of the related actions in 2016, the court certified a class of New York consumers in 2019—raising the possibility that these consumers would obtain aggregate statutory damages under Sections 349 and 350 if they prevailed at trial.

Prior to trial, the parties vigorously disputed how the court should address the plaintiff’s claims for statutory damages. The plaintiff argued that statutory damages should be awarded on a per-transaction basis (rather than a per-customer basis), that the class should receive separate awards of statutory damages under Sections 349 and 350, and that Premier should not be allowed to reference the possibility of statutory or enhanced damages to the jury. Premier, in turn, argued that statutory damages should be awarded on a per-customer basis (if at all) and that the class should receive only—at most—an award of $50 per customer under Section 349. Premier argued that these limitations were necessary to vindicate the intent of the New York legislature to forbid statutory damages in class actions and to avoid an unconstitutionally excessive award of statutory damages. Premier also argued that the court should allow it to inform the jury of the possibility of statutory damages, as it had a Seventh Amendment right to have the jury decide whether to award enhanced damages.

The court resolved both disputes in the plaintiff’s favor. It prohibited Premier from referencing statutory damages to the jury, and it rejected Premier’s argument that “the Seventh Amendment requires a jury determination as to statutory damages.” ECF No. 215, at 6. Because Sections 349 and 350 prescribe “specific statutory damages amounts, with no room for variation,” the court concluded that the amount of statutory damages presented a purely “legal question once the jury has determined the number of units sold and the amount of actual damages.” Id. And while the court left open the possibility that a due process inquiry “may be needed in cases in which the amount of statutory damages is immense in comparison to the actual damages,” the court nonetheless found that “the proper time to consider due process implications of the award of statutory damages is at the time of the . . . award.” Id. at 5 n.1. The court also agreed with the plaintiff that Sections 349 and 350 authorize statutory damages on a per-purchase basis, as opposed to a per-person basis. See ECF No. 180, at 10–14. The court acknowledged that there were cases supporting both sides’ reading of the statutes and admitted that this question “does not have a clear answer.” Id. at 14. But the court nonetheless found that the plaintiff’s position was “more compelling” and agreed that a “reading of [S]ections 349 and 350 that recognizes that a plaintiff experiences a violation each time the product is purchased is consistent with the text and intent of the statute.” Id.

After a lengthy jury trial, the jury found in the plaintiff’s favor and concluded that the labeling of Joint Juice was false and misleading. The jury then determined that the class had suffered $1,488,078.49 based on a total of 166,249 units of Joint Juice sold during the putative class period.

The Court’s Statutory Damages Award

Following the jury’s verdict, the plaintiff requested that the court award the class over $91 million in statutory damages—including $8,312,450 in statutory damages under Section 349 and $83,124,500 in statutory damages under Section 350. See ECF No. 273. In requesting this award, the plaintiff argued that Sections 349 and 350 make an award of statutory damages mandatory if they exceed the plaintiff’s actual damages (which they indisputably did here) and that an award of statutory damages did not offend the Due Process Clause.

Relying heavily on Bateman v. American Multi-Cinema, Inc., 623 F.3d 708 (9th Cir. 2013), the plaintiff argued that, in light of the New York Legislature’s judgment that an award of $50 or $500 was an appropriate amount of compensation, any “consideration of proportionality to actual harm [is] improper.” ECF No. 273, at 3. And even if the Due Process Clause requires a court to scrutinize the amount of a statutory damages award, the plaintiff argued that this inquiry is limited to “whether the penalty prescribed is so severe and oppressive as to be wholly disproportionate to the offense and obviously unreasonable.” Id. at 4 (quoting Williams, 251 U.S. at 66–67) (internal quotation marks omitted). In contrast, the plaintiff asserted, “whether statutory damages are proportional to actual damages does not matter to this analysis.” Id. In other words, “even where statutory damages are more than actual damages and sufficient enough to deter misconduct, due process is not violated where the aggregate statutory award simply reflects the number of violations multiplied by the statutory amount intended by Congress or the legislature.” Id. at *5. The plaintiff asserted that this result was consistent not only with Williams and Bateman, but with two recent Telephone Consumer Protection Act (TCPA) cases in which district courts awarded nine-figure aggregate statutory damages to a certified class and refused to reduce the awards on due process grounds. See id. at 5–6.

Premier responded that it was improper to award over $90 million in statutory damages when the jury found that the class had suffered less than $1.5 million in actual damages. Leaving aside the fact that awarding damages under both Section 349 and Section 350 would amount to an impermissible double recovery, Premier argued—relying heavily on Williams—that the aggregate statutory damages award violated the due process clause because it was wholly disproportional to the actual harm suffered by the class. It also argued that statutory damages of over $90 million were “so disproportionately large that they amount to de facto punitive damages, but awarded as a matter of strict liability, rather than for the egregious conduct typically necessary to support a punitive damages award.” ECF No. 280, at 1 (citation and internal quotation marks omitted). And Premier argued, as it had before, that these statutory damages were not consistent with the intent of the New York legislature—which rendered this case distinct from the TCPA cases in which courts had declined to reduce aggregate statutory damages because Congress knew that TCPA cases would be brought as class actions. Premier suggested that the statutory damages should be limited to $50 per class member, which it maintained was both the amount authorized by Section 349 and consistent with due process principles.

On August 12, the court largely sided with Premier and awarded statutory damages of only $8,312,450—exactly $50 per unit of Joint Juice sold. The court acknowledged that there was “little guidance” about how to apply Williams in cases seeking an award of statutory damages. Damages Order at 6. But the court found that there was “no question” that “a district court may evaluate whether the statutory damages in a case are ‘wholly disproportioned to the offense and obviously unreasonable,’” and it described this inquiry as “the crux for whether a reduction of statutory damages is appropriate.” Id. And while the court acknowledged that Shady Grove had held that New York’s prohibition on awarding statutory damages in class actions does not apply to federal courts sitting in diversity, it nonetheless found that the New York legislature’s “explicit concern about the punitive nature of aggregate statutory damages differentiates this case from others involving high awards of statutory damages”—such as a recent TCPA case, Wakefield v. ViSalus, Inc., in which the court had awarded over $900 million in statutory damages. Id. at 8.

The court also found that the New York legislature’s view that aggregate statutory damages create “immense punitive consequences” weighed in favor of evaluating an aggregate statutory damages award using the same framework that the Supreme Court had set out to evaluate the constitutionality of a punitive damages award. See Damages Order at 9–10. Under that framework, the court concluded that an aggregate statutory damages award of over $91 million was “grossly excessive.” 10. In so holding, the court noted that there was no evidence that “Joint Juice caused physical harm to any consumer,” emphasized that “the ratio of the statutory damages is immense as compared to the actual damages,” and found that awarding over $91 million in statutory damages “merely depending on the selection of a federal forum rings of arbitrariness.” Id. at 10–11. In light of these factors, the court reduced the statutory damages award to $8,312,450, which was equivalent to the $50 per unit permitted Section 349 and “approximately 5.59 times greater than the amount of actual damages.” Id. at 11–12.

Implications of the Court’s Decision

Both the plaintiff and Premier have indicated that they intend to appeal, and it is not clear whether the Ninth Circuit will agree with the court’s decision to reduce the statutory damages award. Nonetheless, the decision has significant implications for both plaintiffs and defendants in consumer class actions—if for no other reason than the scarcity of decisions awarding aggregate statutory damages under Sections 349 and 350.

On the one hand, the court’s reduction of statutory damages weakens the threat of astronomical statutory damages and reduces the leverage that Sections 349 and 350 give to plaintiffs seeking to exact hefty settlements. Even if damages of $50 per unit sold may face defendants with significant liability in consumer class actions involving low-cost goods like Joint Juice, they do not pose the same existential threat as damages of $500 per unit sold—or $550 per unit sold, as the plaintiff requested here—with which defendants are frequently confronted. And by reducing the damages award on due process grounds, the court made clear—despite the plaintiff’s insistence to the contrary—that the award of aggregate statutory damages under Sections 349 and 350 is not automatic, as many plaintiffs have claimed.

But while an award of $50 per violation may be significantly more palatable for defendants than $500 or $550 per violation, few defendants will relish the possibility that a class member could receive $50 per violation in cases involving low-cost household staples. That is particularly true in cases where the plaintiffs seek “price premium” damages amounting to a fraction of the product’s cost, as opposed to seeking the product’s entire purchase price (as the plaintiff did here). Perhaps most importantly, by declining to evaluate the propriety of an aggregate statutory damages award until after the jury has rendered its verdict, the court’s approach still faces defendants with the potential of catastrophic liability, as there remains a possibility that a court may not reduce the statutory damages at all or that it may apply only a modest reduction. Although the decision is hardly an unmitigated victory for class action plaintiffs, it is equally unlikely to embolden defendants to try Section 349 and 350 claims in lieu of settling them.

CATEGORIES: Class Action Settlements, Class Action Trends

December 27, 2021 Ninth Circuit Rejects Challenges to Conjoint Analysis in Consumer Class Action

By: Alexander M. Smith

In recent years, conjoint analysis has proliferated as a methodology for calculating class-wide damages in consumer class actions. While conjoint analysis first emerged as a marketing tool for measuring consumers’ relative preferences for various product attributes, many plaintiffs (and their experts) have attempted to employ conjoint analysis as a tool for measuring the “price premium” attributable to a labeling statement or the effect that the disclosure of a product defect would have had on the product’s price. Defendants, in turn, have taken the position that conjoint analysis is only capable of measuring consumer preferences, cannot account for the array of competitive and supply-side factors that affect the price of a product, and that it is therefore incapable of measuring the price effect attributable to a labeling statement or a disclosure. Consistent with that position, defendants in consumer class actions frequently argue not only that conjoint analysis is unsuited to measuring class-wide damages consistent with Comcast Corp. v. Behrend, 569 U.S. 27 (2013), but also that it is inadmissible under Federal Rule of Evidence 702 and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). But a recent Ninth Circuit decision, MacDougall v. American Honda Motor Co., --- F. App’x ---- (9th Cir. 2021) may threaten defendants’ ability to challenge conjoint analysis on Daubert grounds.

In MacDougall, the plaintiffs brought a consumer class action against Honda premised on Honda’s alleged failure to disclose the presence of a transmission defect in its vehicles. The plaintiffs attempted to quantify the damages attributable to this omission through a conjoint analysis, which purported to “measure the difference in economic value—and thus the damages owed—between Defendants’ vehicles with and without the alleged transmission defect giving rise to this action.” MacDougall v. Am. Honda Motor Co., No. 17-1079, 2020 WL 5583534, at *4 (C.D. Cal. Sept. 11, 2020). Honda argued that this conjoint analysis was flawed and inadmissible, both “because it only accounts for demand-side and not supply-side considerations” and “because it utilizes an invalid design that obtains mostly irrational results.” Id. at *5. The district court agreed with Honda, excluded the expert’s conjoint analysis, and entered summary judgment in Honda’s favor based on the plaintiffs’ failure to offer admissible evidence of class-wide damages. In so holding, the court concluded that the expert’s conjoint analysis “calculates an inflated measure of damages because it does not adequately account for supply-side considerations” and only measures a consumer’s willingness to pay for certain product features—not the market price that the product would command in the absence of the purported defect. Id. “[W]ithout the integration of accurate supply-side considerations,” the district court explained, “a choice-based conjoint analysis transforms into a formula missing half of the equation.” Id. And separate and apart from this central economic defect, the district court found that other errors in the expert’s methodology—including his failure to conduct a pretest survey and the limited number of product attributes tested in the conjoint survey—rendered his conjoint analysis unreliable and inadmissible. See id. at *7-9.

The Ninth Circuit reversed. Beginning from the premise that expert testimony is admissible so long as it is “relevant” and “conducted according to accepted principles,” the Ninth Circuit found that the admissibility of expert testimony was a “case-specific inquiry” and therefore rejected Honda’s argument that “conjoint analysis categorically fails as a matter of economic damages.” Slip Op. at 2-3. The Ninth Circuit then concluded that Honda’s methodological challenges based on “the absence of market considerations, specific attribute selection, and the use of averages to evaluate the survey data go to the weight given the survey, not its admissibility.” Id. at 3 (citations and internal quotation marks omitted). And while the Ninth Circuit acknowledged that the district court relied on numerous decisions that had rejected the use of conjoint analysis in consumer class actions, it held that these decisions did not concern the “admissibility of conjoint analysis under Rule 702 or Daubert” but instead its “substantive probity in the context of either class-wide damages under Comcast . . . or substantive state law.” Id. at 2.

In distinguishing between the question of whether conjoint analysis is admissible under Daubert and whether it is capable of measuring damages on a class-wide basis consistent with Comcast, the Ninth Circuit preserved an opening for defendants to challenge the use of conjoint analysis to measure class-wide damages at the class certification stage. Nonetheless, MacDougall undoubtedly weakens defendants’ ability to challenge the admissibility of conjoint analysis on methodological grounds, and it is possible that some district courts may read the Ninth Circuit’s opinion to stand for the broad proposition that juries, rather than judges, should decide whether conjoint analysis can properly measure economic damages.

CATEGORIES: Class Action Settlements, Class Action Trends, Class Certification

PEOPLE: Alexander M. Smith

November 1, 2021 Seventh Circuit Offers Useful Reminders about Removal

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By: Gabriel K. Gillett, Kelsey L. Stimple, and Howard S. Suskin

In Railey v. Sunset Food Mart, Inc., -- F.4th --, No. 21-2533, 2021 WL 4808222 (7th Cir. Oct. 15, 2021), the U.S. Court of Appeals for the Seventh Circuit affirmed the district court’s order remanding a class action asserting claims under the Illinois Biometric Information Privacy Act because the removal was untimely. Beyond the specific holding, the Court’s opinion serves as a useful reminder about some of the contours around removal of class actions, including under the Class Action Fairness Act (CAFA). We discuss some of those key principles below, through the lens of the Court’s decision.

Appellate courts can review remand orders in some situations. Though appellate courts typically lack jurisdiction to review remand orders, they have the discretion to do so for orders remanding a case removed under CAFA, 28 U.S.C. § 1453(c)(1), and are “free to consider any potential error in the district court’s decision.” Slip op. 4-5, 9 (quoting Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 451 (7th Cir. 2005)).

Removal may be permitted based on “complete preemption.” The defendant in Railey first argued that removal to federal court was appropriate because the named plaintiff—an employee at one of the defendant’s grocery stores—was represented by a union, and her claims were therefore preempted by the Labor Management Relations Act. See Slip op. 2. The court acknowledged that removal is appropriate if the plaintiff’s claims are “completely preempted” by federal law and that one of its recent decisions indicated that the plaintiff’s claims “may, in fact, be preempted by the Labor Management Relations Act.” Slip op. 9 (citing Fernandez v. Kerry, Inc., No. 21-1067, 2021 WL 4260667, at *1–2 (7th Cir. 2021)).

A defendant’s time to remove may be triggered by its own subjective knowledge or ability to learn key facts related to removal. The court held, however, that the defendant’s November 2020 notice of removal was untimely because it was not filed within 30 days of the plaintiff serving her complaint in February 2019. Slip op. 11. Defendants can remove a class action within 30 days after the case is filed, or 30 days after “the defendant receives a pleading or other paper that affirmatively and unambiguously reveals that the predicates for removal are present.” Walker v. Trailer Transit, Inc., 727 F.3d 819, 824 (7th Cir. 2013) Though the defendant claimed that the 30-day clock was triggered by the plaintiff confirming her union membership in an October 2020 interrogatory, it had acknowledged in oral argument that the complaint supplied enough information—the plaintiff’s name, dates of employment, job title, and job location—to ascertain that she was represented by a union. Slip op. 10. “Based on this information, diligent counsel had everything necessary to recognize that the Labor Management Relations Act may preempt [the plaintiff’s] or the class’s claims.” Slip op. 11.

The court was careful to caution that its opinion should not be read “to impose any meaningful burden on defendants” and it stood “fully by [its] prior determination that district courts are not required to engage in a ‘fact-intensive inquiry about what the defendant subjectively knew or should have discovered’ about the plaintiff’s case to assess the timeliness of a defendant’s removal.” Slip op. 11 (quoting Walker, 727 F.3d at 825. The court pointed out that the plaintiff was a union member working at the defendant’s store and “a defendant can be held to information about its own operations that it knows or can discern with ease.” Id. “That reality mean[t] that the 30-day removal clock in § 1446(b)(1) began to tick when [the plaintiff] served her complaint in February 2019” and the November 2020 notice of removal was therefore untimely. Id.

Still, the Seventh Circuit’s statement seems to be in at least some tension with the First Circuit’s categorical statement that “[t]he defendant has no duty, however, to investigate or to supply facts outside of those provided by the plaintiff.” Romulus v. CVS Pharmacy, Inc., 770 F.3d 67, 75 (1st Cir. 2014). The First Circuit explained its view as follows: “The district court reasoned that information on damages is not ‘new’ if the defendant could have discovered it earlier through its own investigation. This is not how the statute reads and would produce a difficult-to-manage test. … Determining what the defendant should have investigated, or what the defendant should have discovered through that investigation, rather than analyzing what was apparent on (or easily ascertainable from) the face of the plaintiff's pleadings, will not be efficient, but will result in fact-intensive mini-trials.” Id. at 73-76 (surveying somewhat different approaches the circuits have adopted). According to the First Circuit, “[e]very circuit to have addressed this issue has ... adopted some form of a bright-line rule that limits the court's inquiry to the clock-triggering pleading or other paper” provided by the plaintiff to the defendant. Id. at 74 (internal quotations omitted).

The 30-day deadline to remove is triggered (or not) based on the particular removal theory and related facts; “separate removal attempts are governed by separate removal clocks.” In January 2021, the defendant raised CAFA’s minimal diversity requirements as a second basis for removal to federal court. The court emphasized that the timeliness of this basis was unaffected by the timeliness of the earlier preemption argument because “[a] defendant may remove even a previously remanded case if subsequent pleadings or litigation events reveal a new basis for removal.” Slip op. 6. If they attempt to do so, “separate removal attempts are governed by separate removal clocks.” Id.

The court held that this minimal diversity basis for removal was not untimely. Slip op. 8. Though the plaintiff had moved out of Illinois and changed her domicile to Georgia in February 2020, the defendant only discovered this fact through its own investigation in January 2021. Slip op. 7; see 28 U.S.C. § 1453(b) (eliminating § 1446’s one-year limitation on diversity-based removal for class actions); cf. id. § 1332(d)(7) (evaluating diversity when case is filed or when diversity becomes apparent later based on “an amended pleading, motion, or other paper”). The court noted that “[a] plaintiff may trigger a removal clock—and protect itself against a defendant’s strategic maneuvering—by affirmatively and unambiguously disclosing facts establishing federal jurisdiction in an initial pleading or subsequent litigation document.” Slip op. 7 (internal quotations omitted). But because the plaintiff had not done so here and the defendant discovered the federal jurisdiction basis independently, the defendant could “remove the case at whatever point it deems appropriate, regardless of whether the window for removal on another basis already opened and closed.” Slip op. 7.

CAFA’s exception for “home-state controversies” may bar even timely removals. The case still had to be remanded to state court, however, because the minimal diversity exception faced a different barrier. CAFA removal is subject to an exception for “home-state controversies,” where “two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed.” 28 U.S.C. § 1332(d)(4)(B); see Slip op. 8. “By limiting the class to Illinois citizens, [the plaintiff] eliminated any concern that any [defendant] employees domiciled outside the state comprise greater than one-third of the class and all but ‘guaranteed that the suit would remain in state court.’” Slip op. 8 (quoting In re Sprint Nextel Corp., 593 F.3d 669, 676 (7th Cir. 2010)).

CATEGORIES: CAFA, Class Action Trends

PEOPLE: Howard S. Suskin, Gabriel K. Gillett, Kelsey L. Stimple

August 18, 2021 A Benefytt or a Curse: Ninth Circuit Holds That Bristol-Myers Does Not Apply Before Class Certification

Supreme Court Pillars - iStock_000017257808LargeBy: Alexander M. Smith

In 2017, the Supreme Court held in Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017), that a defendant in a mass tort action is not subject to specific personal jurisdiction as to the claims of non-resident plaintiffs whose injuries lack a sufficient connection to the forum state. The Court did not decide, however, whether its holding applied to nationwide class actions. And in the four years following Bristol-Myers, district courts in the Ninth Circuit have reached highly divergent results:

  • Some district courts have “agree[d] . . . that Bristol-Myers Squibb applies in the nationwide class action context” and have dismissed claims brought on behalf of putative nationwide classes, reasoning that “a state cannot assert specific personal jurisdiction for the claims of unnamed class members that would not be subject to specific personal jurisdiction if asserted as individual claims.” Carpenter v. PetSmart, Inc., 441 F. Supp. 3d 1028, 1035 (S.D. Cal. 2020); see also, e.g., Wenokur v. AXA Equitable Life Ins. Co., No. 17-165, 2017 WL 4357916, at *4 (D. Ariz. Oct. 2, 2017) (“The Court notes that it lacks personal jurisdiction over the claims of putative class members with no connection to Arizona and therefore would not be able to certify a nationwide class.”).
  • Other district courts have declined to extend Bristol-Myers to nationwide class actions. Some have reasoned that Bristol-Myers likely does not apply in federal courts at all, or at least not in cases arising under federal law. See, e.g., Pascal v. Concentra, Inc., No. 19-2559, 2019 WL 3934936, at *5 (N.D. Cal. Aug. 20, 2019) (“Bristol-Myers does not apply in this case because Plaintiff asserts his claim in a federal court and under federal law.”); Massaro v. Beyond Meat, Inc., No. 20-510, 2021 WL 948805, at *11 (S.D. Cal. Mar. 12, 2021) (similar). Others have distinguished Bristol-Myers on the basis that it involved a mass tort claim and have “decline[d] to extend Bristol-Myers to the class action context,” reasoning that doing so would “radically alter the existing universe of class action law.” Sotomayor v. Bank of Am., N.A., 377 F. Supp. 3d 1034, 1038 (C.D. Cal. 2019); see also, e.g., Fitzhenry-Russell v. Dr. Pepper Snapple Grp., Inc., No. 17-564, 2017 WL 4224723, at *5 (N.D. Cal. Sept. 22, 2017) (“[T]he Supreme Court did not extend its reasoning to bar the nonresident plaintiffs’ claims here, and Bristol-Myers is meaningfully distinguishable based on that case concerning a mass tort action, in which each plaintiff was a named plaintiff.”).
  • Still others have sidestepped the question of whether Bristol-Myers applies to nationwide class actions by holding that “the claims of unnamed class members are irrelevant to the question of specific jurisdiction” until the court certifies a class. In re Morning Song Bird Food Litig., No. 12-1592, 2018 WL 1382746, at *5 (S.D. Cal. Mar. 19, 2018). These courts have concluded that, “[u]nless and until [the plaintiff] demonstrates that she is entitled to litigate the claims of non-resident potential class members, it is premature for the Court to rule on whether it has jurisdiction over claims belonging to non-resident putative class members.” Robinson v. Unilever U.S., Inc., No. 17-3010, 2018 WL 6136139, at *3 (C.D. Cal. June 25, 2018).

On August 10, 2021, the Ninth Circuit issued a published opinion, Moser v. Benefytt, Inc., --- F.4th ----, that endorsed the third approach and held that it is “premature” for a court to determine at the pleading stage whether it can exercise personal jurisdiction over the claims of putative class members. Although Moser deprives defendants in nationwide class actions of a potential jurisdictional challenge at the pleading stage, it leaves that challenge open later in the case—and makes clear that a defendant does not waive a Bristol-Myers challenge by failing to raise it at the pleading stage.

In Moser, a California resident brought a putative class action under the Telephone Consumer Protection Act against Benefytt, a Delaware corporation with its principal place of business in Florida, and sought to represent a nationwide class. Although Benefytt did not raise Bristol-Myers in its motion to dismiss, it opposed the plaintiff’s motion for class certification by arguing, among other things, that Bristol-Myers precluded the court from exercising personal jurisdiction over the claims of non-resident class members. In its order granting the plaintiff’s motion for class certification, the district court declined to reach the merits of Benefytt’s Bristol-Myers challenge, finding instead that Benefytt had waived any objections to personal jurisdiction by failing to raise them in a motion to dismiss or an answer. After granting Benefytt permission to appeal the class certification order pursuant to Federal Rule of Civil Procedure 23(f), the Ninth Circuit vacated the class certification order and held that Benefytt had not waived its Bristol-Myers challenge.

After concluding that Rule 23(f) authorized it to review the district court’s personal jurisdiction ruling, the Ninth Circuit held that the district court erred by finding that Benefytt had waived its Bristol-Myers defense by failing to raise it in a motion to dismiss. The Ninth Circuit reached this conclusion based on two premises: (1) that Federal Rule of Civil Procedure 12(b)(2) only requires defendants to raise a personal jurisdiction defense if it is “available”: and (2) that “a class action, when filed, only includes the claims of the named plaintiff.” “Putting these points together,” the Ninth Circuit reasoned, showed that Benefytt “did not have ‘available’ a Rule 12(b)(2) personal jurisdiction defense to the claims of unnamed putative class members who were not yet parties to the case.” The Ninth Circuit accordingly concluded that Benefytt “could not have moved to dismiss on personal jurisdiction grounds the claims of putative class members who were not then before the court” and that Benefytt was therefore not “required to seek dismissal of hypothetical future plaintiffs.” In so holding, the Ninth Circuit stressed that its conclusion was consistent with the holdings of the Fifth Circuit in Cruson v. Jackson National Life Insurance Co., 954 F.3d 240 (5th Cir. 2020) and the D.C. Circuit in Molock v. Whole Foods Market Group, Inc., 952 F.3d 293 (D.C. Cir. 2020)—both of which concluded that Bristol-Myers does not apply to the claims of nonresident putative class members until and unless a class is certified.

Although the Ninth Circuit held that Benefytt had not waived its Bristol-Myers challenge and vacated the district court’s class certification order, it declined to reach the underlying question of whether Bristol-Myers applies to nationwide class actions and left that issue for the district court to address on remand. In so holding, the Ninth Circuit suggested—albeit in passing—that the analysis may turn on “additional record development,” potentially including additional discovery as to the extent of Benefytt’s contacts with California. And while the Ninth Circuit did not expressly say so, this conclusion appears inconsistent with the holdings of some district courts that Bristol-Myers is categorically inapplicable in federal court or to nationwide class actions. Nonetheless, regardless of how broadly or narrowly one interprets the Ninth Circuit’s decision, it makes clear that the Bristol-Myers analysis must take place at the class certification stage—and gives defendants comfort that they will not waive their Bristol-Myers defenses by waiting until class certification to raise them.

CATEGORIES: Class Action Settlements, Class Action Trends, Class Certification, US Supreme Court

PEOPLE: Alexander M. Smith

July 8, 2021 Supreme Court Limits Article III Standing for Class Action Plaintiffs: Implications for Data Breach Class Actions


By: Clifford W. BerlowAlexander E. Cottingham, and Lindsay C. Harrison


On June 25, 2021, the US Supreme Court in TransUnion LLC v. Ramirez[1] narrowed the scope of Article III standing for plaintiffs who allege the violation of a statute but cannot show they otherwise suffered harm. Though decided in the context of a Fair Credit Reporting Act (FCRA) class action, the decision has major implications for parties litigating state and federal statutory claims of all varieties in federal courts. In particular, TransUnion seems poised to limit the viability of class actions arising from data breaches. The decision likely means, for example, that plaintiffs lack Article III standing when their information may have been accessed but was not misused in a manner causing concrete harm—a subject on which the courts of appeals previously had split. The decision also will limit plaintiffs’ ability to assert Article III standing merely based on the violation of privacy statutes alone without any resulting harm. 

Defendants litigating data breach class actions can take advantage of this new precedent in federal court to seek dismissal of data breach class actions for lack of Article III standing. But doing so is not without consequence. If federal courts are not available to adjudicate these claims, plaintiffs likely will pursue them in state courts, where standing precedent may be more lenient for plaintiffs. Defendants thus will need to be strategic about how aggressively they pursue TransUnion-based dismissals.


A class of 8,185 individuals sued TransUnion under the FCRA for failing to use reasonable procedures to ensure the accuracy of their credit files.[2] Each of their credit reports contained inaccurate information added by TransUnion that mislabeled them as matches for potential terrorists, drug traffickers, or other serious criminals from a list maintained by the Treasury Department’s Office of Foreign Assets Control (OFAC).[3] The parties stipulated that TransUnion actually provided credit information to potential creditors for just 1,853 of those class members, and maintained in its database but did not share with anyone inaccurate credit file information for the remaining 6,332 class members.[4] The question presented was whether the mere existence of inaccurate information, absent dissemination, constituted sufficient harm to supply the basis for Article III standing.[5]

Court’s Opinion

The Court, with Justice Kavanaugh writing for a five-justice majority, held that the class members whose credit reports were distributed had Article III standing because they demonstrated a concrete harm, but the 6,332 class members whose erroneous credit reports were never distributed lacked standing.

The Court’s decision focused on the requirement for Article III standing that the plaintiff allege an injury-in-fact that is “concrete.” In Spokeo v. Robbins,[6] the Court held that a “bare procedural violation” of a statute was not enough to plead a concrete harm.[7] But recognizing that Congress could “elevate” legally cognizable injuries that were previously inadequate,[8] the Court left open exactly when a statutory violation may reflect the kind of concrete harm necessary to confer standing. As a result, courts remained divided over how to evaluate standing where a plaintiff alleged the violation of a state or federal statute. Some circuits focused on whether the harm alleged was a “bare procedural” violation of the statute or an intrusion on a “substantive” statutory right. Other circuits focused on whether the statutory harm alleged bore a “close relationship” to a harm “traditionally” recognized as providing a basis for a lawsuit in American courts.[9] 

In TransUnion, the Court reaffirmed that “Article III standing requires a concrete injury even in the context of a statutory violation” and that a plaintiff does not automatically satisfy the injury-in-fact requirement by pleading the violation of a statute.[10] Then, the Court held that for a harm to be “concrete,” the harm attributable to the claimed statutory violation must bear a “close relationship” to a harm “traditionally” recognized as providing a basis for a lawsuit in American courts.[11] That test narrows the path for Article III standing in those circuits that had previously rejected the “close relationship” test, though lower courts have some room to determine how to apply this test moving forward.

The Court also addressed when a risk of future harm may be sufficiently concrete to supply a plaintiff with Article III standing—another question on which courts remained divided following Spokeo. Although the plaintiffs had urged the Court to hold that a risk of future harm is sufficiently concrete, the Court rejected that theory. In a suit for damages, the Court held that the “mere risk of future harm” does not confer standing unless exposure to the risk of future harm causes a separate concrete harm or the risk of harm materializes into actual harm.[12]

Takeaways for Data Breach Class Actions

While TransUnion addressed standing in the context of the FCRA, its holding on risk of future harm and concrete injury is broadly applicable to data breach class actions. Defendants litigating data breach class actions in federal court regularly move to dismiss for plaintiffs’ lack of Article III standing. In many of those cases, courts face the perennial question of a tree falling in the forest: if a plaintiff’s data is accessed but not misused in a manner causing concrete injury (such as for identity theft), was that person harmed? Courts in different circuits have resolved that question differently, with some accepting broader theories of standing related to risk of future harm than others.[13] Courts deciding those motions now have clear direction from the Supreme Court as to two key issues: a plaintiff’s ability to demonstrate standing based on the mere risk of future harm, and a plaintiff’s ability to demonstrate standing based purely on the violation of a statute.

First, in the context of suits for damages, TransUnion appears to foreclose Article III standing where plaintiffs claim only the risk of future harm from a data breach without actual misuse of their data to cause injury. In TransUnion, the plaintiffs had attempted to demonstrate a risk of future harm, but the Court rejected each of their theories, explaining that they could not plead a “sufficient likelihood” that third parties would request their personal information or that TransUnion would intentionally or accidentally release their information.[14] Those theories are remarkably similar to those pled by plaintiffs in data breach class actions, such as the risk that they will suffer identity theft, or that their information may be sold on the dark web and used to blackmail them. Just as the TransUnion class could not demonstrate standing by theorizing about hypothetical future harms, so too will data breach plaintiffs fail to satisfy Article III by pleading an imaginary parade of horribles yet to befall them.

Second, after TransUnion, plaintiffs may no longer rely on a violation of a statutory right alone to demonstrate Article III standing. In data breach cases, plaintiffs sometimes invoke state privacy statutes to bolster their standing claims, arguing that the violation of a state data breach notification or consumer protection law provides them with standing. Those sorts of arguments are likely to face greater resistance following TransUnion because plaintiffs will have to identify some historical common-law analogue to the statutory violation—a tall task in a data breach suit. Accordingly, TransUnion appears to close the door on several of the more creative arguments plaintiffs have used to assert Article III standing in data breach suits.

What to Look for Now

TransUnion is a clear win for corporate defendants, in particular corporate defendants seeking to dismiss federal class actions arising from data breaches on standing grounds. But the legacy of TransUnion may prove to be more complex, including in data breach cases. 

It is important to remember that the Court’s decision places a limit only on the jurisdiction of federal courts. The states remain free to define the parameters for standing to sue in their own courts.[15] At present, roughly half the states do not have lockstep Article III standing rules.[16] And, as Justice Thomas noted in dissent, courts in states with more lenient standing requirements may still adjudicate statutory claims that now cannot proceed in federal courts under TransUnion.[17] As a result, moving to dismiss federal class actions for lack of standing under TransUnion is not a panacea. Instead, in cases where Article III standing may be lacking under TransUnion, plaintiffs may be able to proceed in state court. And if defendants attempt to remove a state court lawsuit to federal court only to dismiss for lack of standing, courts may not only remand the case, but also may force the defendant to pay the plaintiffs’ attorney’s fees. 

In short, as the doors to the federal courthouse close, companies can expect plaintiffs to cross the street to state court, at least when companies are subject to the jurisdiction of a state that is not in lockstep with federal Article III standing rules. Companies therefore will want to be strategic about how they advocate for the application of TransUnion, bearing in mind local conditions in the states where they are amenable to suit and local standing rules in those states. As a result, the ultimate consequence for corporate defendants of the Supreme Court’s decision to limit Article III standing remains to be seen. 


[1] TransUnion LLC v. Ramirez, No. 20 - 297, slip op. (U.S. June 25, 2021).

[2] TransUnion, slip op. at 1.

[3] Id. at 4.

[4] Id. at 5 - 6.

[5] Id. at 6.

[6] 578 U.S. 330 (2016).

[7] Id. at 341.

[8] Id.

[9] Id.

[10] TransUnion, slip op. at 1 (quoting Spokeo, 578 U.S. at 341).

[11] Id. at 9.

[12] Id. at 20–22.

[13] Some courts have accepted broader theories of standing. See, e.g., Attias v. Carefirst, Inc., 865 F.3d 620, 629 (D.C. Cir. 2017); Galaria v. Nationwide Mut. Ins. Co., 663 F. App’x 384, 387–89 (6th Cir. 2016); Remijas v. Neiman Marcus Grp., LLC, 794 F.3d 688, 692, 694–95 (7th Cir. 2015); Krottner v. Starbucks Corp., 628 F.3d 1139, 1142–43 (9th Cir. 2010). Other courts have limited standing more narrowly. See, e.g., Tsao v. Captiva MVP Restaurant Partners, LLC, 986 F.3d 1332 (11th Cir. 2021); Beck v. McDonald, 848 F.3d 262, 273–76 (4th Cir.), cert. denied sub nom. Beck v. Shulkin, ––– U.S. ––––, 137 S. Ct. 2307, 198 L.Ed.2d 728 (2017); Whalen v. Michaels Stores, Inc., 689 F. App’x 89, 90–91 (2d Cir. 2017); In re SuperValu, Inc., 870 F.3d 763, 770–72 (8th Cir. 2017); Reilly v. Ceridian Corp., 664 F.3d 38, 42–44 (3d Cir. 2011).

[14] TransUnion, slip op. at 22–23.

[15] State courts “are not bound by the limitations of a case or controversy or other federal rules of justiciability even when they address issues of federal law.” ASARCO Inc. v. Kadish, 490 U.S. 605, 617 (1989).

[16] See Bennett, The Paradox of Exclusive State-Court Jurisdiction Over Federal Claims, 105 Minn. L. Rev. 1211 (2021).

[17] TransUnion, slip op. at 18 n.9 (Thomas, J., dissenting).

CATEGORIES: Class Action Trends, Decisions of Note, US Supreme Court

June 24, 2021 Supreme Court Gives More Tools for Defendants to Challenge Class Certification in Securities Fraud Cases


By: Ali M. Arain, Stephen L. Ascher, Howard S. Suskin, and Reanne Zheng

Supreme Court PillarsIntroduction

On June 21, 2021, the US Supreme Court issued its decision in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System,[1] providing guidance to lower courts regarding class certification in securities fraud class actions. On balance, the opinion favors defendants, and potentially signals a backlash against the tide of securities fraud class actions based on vague and generic misstatements. Importantly, the Court instructed that all relevant evidence should be considered when making the class certification decision, sending a message that lower courts must grapple with and cannot ignore relevant evidence at the class certification stage simply because it overlaps with the merits-related evidence. The Court also stressed that the generic nature of a misrepresentation is often important evidence of lack of price impact, which lower courts should consider when deciding whether to grant or deny a class certification motion. 

Although the Supreme Court’s decision was not as sweeping as the defendants wanted, it does signal the Supreme Court’s concern that companies are too frequently held liable for securities fraud as a result of adverse legal or business developments, even where the company had never made any specific statements about the matters in question.


The underlying facts of this case relate to Goldman’s now well-publicized involvement in the Abacus CDO transaction and subsequent settlement with the SEC in the aftermath of the 2008 financial crisis. In the consolidated complaint, which was filed in 2011, plaintiff shareholders alleged that Goldman had violated securities laws by making repeated misrepresentations in its SEC filings and other public statements in connection with the Abacus CDO transaction, beginning in late 2006/early 2007. The alleged misrepresentations were generic statements regarding Goldman’s conflict of interest policies and business practices, including statements like: “We have extensive procedures and controls that are designed to identify and address conflicts of interest”; “Our clients’ interests always come first”; and “Integrity and honesty are at the heart of our business.” According to the plaintiffs, these alleged misrepresentations allowed Goldman to maintain an inflated stock price until 2010, when the SEC filed a complaint against Goldman for securities fraud. Goldman later disclosed that it had agreed to pay $550 million as part of a settlement with the SEC and acknowledged that it should have disclosed certain conflicts of interest in 2007 when underwriting the Abacus CDO that cost its clients $1 billion.  The plaintiffs argued that once the SEC enforcement action and related news reports revealed that Goldman in fact engaged in conflicted transactions, the stock price dropped and caused Goldman shareholders to suffer losses.

The Southern District of New York denied Goldman’s motion to dismiss, and the plaintiffs moved for class certification. The plaintiffs argued that Goldman’s generic statements regarding its business practices and conflict of interest procedures artificially maintained an inflated stock price. Goldman argued that the alleged misstatements were too generic to have any impact on stock price. Following extensive expert testimony on the issue, the District Court certified the class. The Second Circuit vacated the class certification order, holding that the burden was on Goldman to prove a lack of price impact by a preponderance of the evidence, but that the District Court erred by holding Goldman to a higher burden of proof. On remand, the District Court certified the class again, finding that Goldman’s expert testimony failed to establish by a preponderance of the evidence that the alleged misrepresentations had no price impact. The Second Circuit affirmed in a divided decision, holding the District Court’s price impact determination was not an abuse of discretion. 

The Supreme Court’s Decision

On appeal, the Supreme Court was asked to resolve two questions: first, whether the generic nature of Goldman’s alleged misrepresentations is relevant to the price impact inquiry; and second, whether Goldman has the burden of persuasion to prove lack of price impact.

On the first question, Goldman argued that the Second Circuit erred in holding that the generic nature of alleged misrepresentations was irrelevant to the price impact question. Goldman’s initial position was that generic statements could not impact stock price, while the plaintiffs argued that the generic nature of the alleged misrepresentations had no relevance to the price impact inquiry at all. The parties later agreed that the generic nature of the statements was relevant to price impact and should be considered at the class certification stage. The Court agreed, holding that district courts should consider all probative evidence in assessing price impact and clarifying that courts may consider the generic nature of misrepresentations at class certification “regardless whether the evidence is also relevant to a merits question like materiality.”[2] The Court further explained that the generic nature of an alleged misrepresentation “often will be important evidence of a lack of price impact, particularly in cases proceeding under the inflation-maintenance theory” where it is less likely that a specific, negative disclosure actually corrected a prior generic misrepresentation.[3]  Ultimately, the Court remanded on this issue and instructed the Second Circuit to “take into account all record evidence relevant to price impact” because the Court concluded the Second Circuit’s decision left “sufficient doubt” that it properly considered the generic nature of the statements.[4]

On the second question, Goldman argued that the Second Circuit erred in placing the burden of persuasion on Goldman, as a defendant, to prove a lack of price impact. According to Goldman, the presumption of fraud on the market, articulated in the Court’s seminal Basic v. Levinson ruling,[5] only shifts the burden of production to the defendant, but the defendant can rebut the presumption by producing any competent evidence of a lack of price impact, while the plaintiff carries the burden of persuasion to prove price impact. The Court rejected Goldman’s argument, concluding that a defendant “bears the burden of persuasion to prove a lack of price impact” and agreeing with the Second Circuit that the defendant carries that burden by a preponderance of the evidence.[6] However, the Court noted that, because the parties in most securities fraud class actions typically submit competing expert evidence on price impact, its decision regarding the allocation of the burden was “unlikely to make much difference on the ground.”[7]

Key Takeaways

Overall, the Court’s decision favors defendants by holding that all relevant evidence, including merits-based evidence, should be considered when evaluating price impact at the class certification stage, which gives a lower court more discretion to deny class certification based on the entire record before it. 

In addition, in cases premised on generic misstatements, the Court’s holding should make it easier for defendants to rebut the Basic presumption, given that the Court expressly recognized that the general nature of a misstatement “will often be important evidence of lack of price impact.”[8] Importantly, the Court noted that this is especially true in cases based on the “inflation maintenance” theory, where price impact is the amount of price inflation maintained by an alleged misrepresentation. The Court emphasized that in these type of cases, there is less of a reason to infer front-end price inflation based on a back-end price drop. In doing so, the Court seemed to reject the idea that negative disclosures or allegations of wrongdoing necessarily “correct” prior generic statement by the defendant company. While defendants still bear the burden of disproving price impact, this should make it harder for plaintiffs to succeed in cases relying on inflation maintenance theory unless they can show a link between the front-end price and the back-end price drop.

Finally, on the burden issue, the Court made clear that its holding is unlikely to have much practical effect, noting that the defendant’s burden of persuasion would only become dispositive “in the rare case” in which the parties’ evidence of price impact is perfectly balanced.[9] In most cases, however, the “district court's task is simply to assess all the evidence of price impact — direct and indirect — and determine whether it is more likely than not that the alleged misrepresentations had a price impact.”[10] 


[1] Goldman Sachs Grp. Inc. v. Arkansas Tchr. Ret. Sys., No. 20–222, slip op. (U.S. June 21, 2021).

[2] Goldman, slip op. at 7.

[3] Id. at 8.

[4] Id. at 9.

[5] Basic v. Levinson, 485 U.S. 224 (1988).

[6] Id. at 11.

[7] Id. at 12.

[8] Id. at 8.

[9] Id. at 3.

[10] Id. at 12.

CATEGORIES: Class Action Trends, US Supreme Court

February 11, 2021 Kang v. PF Chang’s, Inc.: Reasonable Consumer Deception, or Just a “Crabby” Plaintiff?

By: Alexander M. Smith

SushiOn February 9, 2021, the Ninth Circuit—in a split decision with a spirited dissent—reversed the dismissal of a consumer class action challenging P.F. Chang’s’s use of the phrase “krab mix” to describe sushi rolls that contain no real crab. Although Kang is an unpublished case and breaks little new legal ground, the two opinions offer a useful glimpse into how both defendants and plaintiffs frame their positions in false advertising lawsuits, and they highlight how easily judges can come to radically different conclusions in consumer class actions, even when faced with the same facts and law.

In Kang, the plaintiff alleged that P.F. Chang’s’s sushi rolls were deceptively labeled because they purported to contain “krab mix,” but did not include any crab at all. Judge Anderson of the Central District of California dismissed the plaintiff’s lawsuit, holding that no reasonable consumer would be deceived into believing that “krab mix” contained crab. The Ninth Circuit reversed. Judge Friedland and Judge Watford—writing for the panel majority—emphasized that “determining whether reasonable consumers are likely to be deceived will usually be a question of fact not appropriate on a motion to dismiss.” Applying this standard, the panel majority concluded that the plaintiff had plausibly alleged that the “inclusion of the term ‘krab mix’ in the ingredient list for certain of its sushi rolls is likely to deceive reasonable consumers into thinking that the sushi rolls contain at least some real crab meat when in fact they contain none.” Although P.F. Chang’s offered several reasons that this interpretation was implausible, the panel majority rejected them all:

  • The panel majority rejected P.F. Chang’s’s argument that the “fanciful” term “krab mix” suggested the absence of real crab. Although the panel majority agreed that “reasonable consumers confronted with the fanciful spelling of ‘krab’ on the menu would not assume they were purchasing a sushi roll with 100% real crab meat,” it nonetheless concluded that the plaintiff had plausibly alleged that the term “krab mix” suggests that the product contains “a mixture of imitation and real crab.” In contrast to cases where the challenged term has a specific, widely-understood meaning (such as “diet” soft drinks), the panel majority held that “there is no prevailing understanding that listing ‘krab mix’ as an ingredient in a sushi roll signifies that the item contains no real crab meat.” And in contrast to a case where the “fanciful” term appears in the name of the product (such as “Froot Loops”), the panel majority concluded that the term was at least plausibly misleading because it appeared in the ingredient list.
  • The panel majority rejected P.F. Chang’s’s argument that the relatively low price of the sushi rolls suggested that they contained no real crab, and it found that this issue was not susceptible to resolution on a motion to dismiss.
  • The panel majority rejected P.F. Chang’s’s argument that a reasonable consumer would not be misled by the use of the term “krab mix” because other menu items included “crab” in the ingredients list. Much as a reasonable consumer should not be expected to look at the ingredient list on the packaging of a food to correct a misrepresentation elsewhere on the packaging, the panel majority concluded that “we cannot assume that reasonable consumers would necessarily look past the term ‘krab mix’ in the item they were ordering to notice that ‘crab’ appeared as an ingredient in other items on the same menu.” For similar reasons, the panel majority rejected P.F. Chang’s’s argument that the use of the term “crab” elsewhere on the menu served as “qualifying language” that corrected the alleged misimpression arising from the term “krab mix”—particularly since “that language does not appear immediately next to the representation that it purportedly qualifies.”

Judge Bennett vigorously dissented. The first paragraph of his opinion struck a dramatically different tone than the panel majority:

Class representative Chansue Kang bought sushi rolls on April 12, 2019, according to his opening brief. His complaint contends he bought the appetizer because he read and relied on the “false and misleading” menu description “krab mix.” Kang claims that he believed he was getting crab. He further claims that he wouldn’t have bought the “krab” had he known “krab” wasn’t crab. Thus, he tells us he was “deceived.” His complaint states that on April 29, 2019, he gave pre-suit notice by certified mail. So, in a seventeen-day period: (1) Plaintiff was unfairly bamboozled by P.F. Chang’s into thinking “krab” was crab; (2) Plaintiff discovered the horrible truth that “krab” wasn’t crab; (3) Plaintiff found a crusading attorney; (4) that attorney somehow confirmed the horrible truth; and (5) that attorney drafted and mailed a pre-suit letter. Remarkable diligence!

After setting this stage, Judge Bennett then noted that the standard for consumer deception “is not whether the ‘least sophisticated’ or ‘most gullible’ consumer would be misled by the term ‘krab mix,’ but whether a significant portion of ordinary consumers, acting reasonably, would think ‘krab mix’ contains real crab meat.” From his perspective, he noted, the panel majority “fails to give the ordinary California consumer enough (or any) credit.” For example, he noted that “‘Krab’ with a ‘k’ should be a dead giveaway,” as consumers “understand that fanciful spellings materially change the meaning of a word.” Much as a reasonable consumer would not conclude that Froot Loops contain real fruit, that “cavi-art” contains real caviar, or that “tofurky” contains real turkey, an “ordinary consumer” acting with “ordinary common sense” would not conclude that “krab mix” contained real crab meat. Moreover, because “krab” is indisputably different from “crab,” Judge Bennett reasoned, no reasonable consumer could conclude that “krab mix” contains real crab, as opposed to “a mixture of ‘krab’ and other ingredients.” While “[c]onsumers may be unsure about what exactly those ingredients are,” Judge Bennett explained, “that doesn’t make it reasonable to assume one of those ingredients will be crab.”

“Context matters too,” Judge Bennett then explained, “and it does not support the majority’s conclusion.” In contrast to the panel majority, which placed little stock on the fact that other products featured “crab” in the ingredients list, Judge Bennett found that this fact defeated the plaintiff’s theory of deception: “[W]hen confronted with both ‘krab mix’ and ‘crab’ on the same menu,” Judge Bennett noted, “such a consumer knows that one is not another.” Although Judge Bennett acknowledged that a manufacturer ordinarily cannot use an ingredients list on a box to correct an affirmative misrepresentation on the front of the package, he emphasized that “the ingredient list on product packaging . . . is nothing like a restaurant menu.” While the ingredient list “exists to satisfy regulatory requirements,” “is almost always tucked away on the back or side of the product label,” and “is usually expressed in very small print,” Judge Bennett explained, “[t]he same cannot be said for items or ingredients on a menu that are placed on equal footing with, and on the same page as, the alleged misrepresentation.” Even if a “hasty diner . . . might fixate on sushi rolls with ‘krab mix’ to the exclusion of all other items on the menu,” Judge Bennett concluded that this “approach to ordering food doesn’t bear any resemblance to the real dining experience of consumers.”

Ultimately, the panel majority and Judge Bennett came to diametrically opposed—and incompatible—conclusions. The panel majority, like many plaintiffs in false advertising class actions, focused on the purported difficulty of resolving factual questions about the deceptive effect of the labeling at the pleading stage, and it relied on many of the most common cases cited by plaintiffs in false advertising class actions. Judge Bennett, in turn, relied more on many of the common themes raised by defendants in these cases—including, most importantly, that “context matters” and that reasonable consumers must be expected to apply “common sense.” And while the panel majority did not frame its result in policy terms, Judge Bennett did not hesitate to point out that the decision did not help protect consumers; to the contrary, he explained, “[t]he real harm here comes from allowing such implausible claims as Plaintiffs’ to proceed, which will increase costs to all consumers.”

While Kang is hardly groundbreaking, it undoubtedly serves as a microcosm for the issues that recur at the pleading stage in virtually every food labeling case. And just as importantly, it underscores that the decision may depend as much on the judge’s orientation to consumer fraud cases as any other factor.

CATEGORIES: Class Action Trends

PEOPLE: Alexander M. Smith

March 19, 2020 COVID-19 / Coronavirus Resources

We continue our efforts to do everything we can to support our clients as they navigate these times.  Our lawyers have provided practical insight into the legal and strategic challenges companies are facing.  To stay abreast of the quickly changing landscape, Jenner & Block has assembled a multi-disciplinary team, drawn from a variety of our practice areas and sector gro Noun_virus_1772453ups, to support clients as they navigate these uncharted waters.  We also continue to update our COVID-19 / Coronavirus Resource Center.  It provides helpful and timely information on the legal and strategic challenges companies are facing. Following is a list of some of those pieces.

First COVID-19 Securities Class Action Lawsuits Hit Cruise Line and Pharmaceutical Company

The rapid developments in the spread and economic impact of COVID-19 present particular challenges for officers and directors of public companies trying to manage their businesses while providing timely and truthful information to shareholders.  Over the last few days, shareholders have filed the first suits alleging that public companies materially misrepresented the impact of COVID-19 on their operations.  If history is any guide, derivative litigation alleging director and officer mismanagement is likely to follow.  Directors and officers of public companies should exercise great care in any public statements regarding the impact of COVID-19 on their businesses, and carefully consider and document the steps they are taking to oversee and respond to COVID-19 developments.

To read more, please click here.

COVID-19: "Employer Guidance for Addressing Possible Layoffs and Closures"

As employers grapple with staffing while dealing with the current COVID-19 crisis, they need to be mindful of their obligations under federal and state legislation addressing certain closures and layoffs.

Under the federal Work Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. §2101, covered employers must provide at 60 calendar days written notice of a covered “plant closing” or “mass layoff.”  WARN contains various definitions that establish:

  • Which employers must give notice;
  • When such notice must be given;
  • Who must receive notice;
  • What must the notice contain; and
  • When notice may be excused.

To read more, please click here.

COVID-19: Issues Facing the Airline Industry

As the novel coronavirus / COVID-19 continues to cause economic and social turmoil across the globe, the airline industry is suffering particularly acute hardships.  US carriers, including Delta, American, United and Southwest, have announced plans to cut their international routes by as much as 80% to 90% over the next several months, and domestic capacity is now being reduced by 20%-40%.  Foreign carriers have been impacted even more harshly.  Ryanair has announced it may have to ground its entire fleet, Air France has announced cuts into its flight schedule of up to 90% and British Airways has made similar cuts of up to 75%.  Furthermore, the aircraft that continue to fly are far from full.  Along with these flight reductions, airlines have grounded fleets of their larger aircraft, instituted hiring freezes and in some cases commenced layoffs, and US airlines are actively seeking ways to preserve cash on hand and obtain relief from the federal government.

To read more, please click here.

To stay abreast of developments through this unprecedented situation, continue to monitor the Consumer Law Round-Up blog and visit the resource library for helpful reference materials.

CATEGORIES: Class Action Trends, Employment, Securities

March 13, 2020 Ninth Circuit Sharply Limits Pre-Certification Discovery Into the Identity of Other Class Members

By:  Alexander M. Smith

CaliforniaWhile the Ninth Circuit’s decision reflects a welcome concern about the use of pre-certification discovery to identify potential clients, it further exacerbates the stark contrasts between class action practice in California state courts and California federal courts.

In class actions, named plaintiffs frequently seek discovery from the defendant regarding the identities and contact information of other putative class members. While some view this practice as a normal method of obtaining information about other similarly situated consumers, others view it as a way for plaintiffs’ lawyers to fish for potential plaintiffs—either in new lawsuits, or as a “backup” in the event the court finds the original named plaintiff atypical or inadequate.

In spite of these concerns about fishing expeditions, California state courts have consistently permitted named plaintiffs in class actions to obtain pre-certification discovery regarding the names and contact information of other putative class members. Indeed, the California Supreme Court has repeatedly blessed this practice, holding that the interests of named plaintiffs in seeking relief on behalf of similarly situated consumers—and the broad scope of discovery under California law—weighed in favor of requiring defendants to identify other potential members of the class. See Pioneer Elecs. (USA) v. Superior Court, 40 Cal. 4th 360, 373-74 (2007); Williams v. Superior Court, 3 Cal. 5th 531, 547 (2017).

In a sharp divergence from this line of cases, however, the Ninth Circuit held earlier this year that a named plaintiff in a class action is not entitled to pre-certification discovery regarding the identities of other putative class members. See In re Williams-Sonoma, 947 F.3d 535 (9th Cir. 2020). While the Ninth Circuit’s decision reflects a welcome concern about the use of pre-certification discovery to identify potential clients, it further exacerbates the stark contrasts between class action practice in California state courts and California federal courts.


In Williams-Sonoma, the named plaintiff—a Kentucky resident—allegedly purchased bedding from Williams-Sonoma in reliance on the advertised thread count of 600 threads per square inch. When the plaintiff allegedly discovered that this representation was false, he filed a class action in the Northern District of California on behalf of a putative class of consumers who bought bedding from Williams-Sonoma based on the same thread count representations. Before a class was certified, the district court determined that the plaintiff could not assert his claim on a class-wide basis, as Kentucky consumer law governed his individual claims and barred class actions. The named plaintiff informed the district court that he would pursue his individual claims in Kentucky, but sought discovery from Williams-Sonoma to identify a California purchaser who might be willing to serve as a named plaintiff in his stead.

Over Williams-Sonoma’s objections, the district court ordered Williams-Sonoma to produce a list of all California consumers who had purchased the bedding at issue since January 2012. Williams-Sonoma then filed a petition for a writ of mandamus, and the Ninth Circuit—in a divided opinion—granted that petition. Relying primarily on Oppenheimer Fund v. Sanders, 437 U.S. 340 (1978), the court held that the district court clearly erred in permitting pre-certification discovery into the identities of absent class members, as the names of absent class members were not “relevant to any party’s claim or defense” under Federal Rule of Civil Procedure 26(b)(1). As in Oppenheimer, the court reasoned, “using discovery to find a client to be the named plaintiff before a class action is certified is not within the scope of Rule 26(b)(1).”

Notably, the court did not make any effort to square its holding with the rule embraced by the California Supreme Court. Instead, it emphasized that the district court erred by relying on California discovery rules to justify its order compelling Williams-Sonoma to produce the names of other purchasers, as these rules are not binding in federal court.

Judge Paez dissented. He rejected the majority’s reading of Oppenheimer to preclude discovery into the identities of putative class members and held that it “stands for a much narrower proposition”—namely, that class counsel must rely on the procedures set forth in Federal Rule of Civil Procedure 23, rather than the discovery rules set forth in Rule 26 through 37, to identify and notify absent class members that a class had been certified. In fact, Judge Paez explained, the Supreme Court had expressly left open the possibility that Rule 26 would authorize discovery into the identity of absent class members so long as it was “relevant to other issues in the case.”

Moreover, aside from Oppenheimer, Judge Paez noted that no federal court had clearly addressed whether Rule 26 could be used to obtain discovery for the purpose of identifying a substitute plaintiff, and he accordingly refused to conclude that the district court’s discovery was erroneous—let alone so clearly erroneous as to warrant the extraordinary remedy of mandamus.

And in any event, even if Rule 26 did not authorize discovery into the identities of absent class members, he explained that Rule 23(d) provided an alternative source of authority for that order, as it permits district courts to order the plaintiff to provide notice to putative class members and empowers them to force defendants (such as Williams-Sonoma) to cooperate in this process.

Implications of Williams-Sonoma for Federal Court Practitioners

As the competing opinions illustrate, it is possible to read Williams-Sonoma in any number of ways. For instance, one might read Williams-Sonoma to stand for the broad proposition that the federal discovery rules simply do not permit discovery into the identity of absent class members and that this information is categorically not relevant to the parties’ claims or defenses. Indeed, given that the Ninth Circuit found the district court’s order so clearly erroneous as to warrant the extraordinary remedy of mandamus, one might conclude that this information is now strictly off-limits.
On the other hand, one could also read Williams-Sonoma much more narrowly. Unusually, the plaintiffs in Williams-Sonoma expressly admitted that their discovery requests were aimed at finding a new plaintiff, rather than discovering information relevant to the merits of the class’s claims. Thus, a plaintiff could argue that Williams-Sonoma simply stands for the uncontroversial proposition that discovery must be related to the parties’ claims and defenses. And in a similar vein, a plaintiff might argue that Williams-Sonoma no longer applies once a class has been certified: if the court has already concluded that the named plaintiff is an adequate class representative, there is no reason to believe that discovery into the identity of absent class members is aimed at identifying substitute plaintiffs.

At this stage, it is unclear which of these readings courts will adopt. The Ninth Circuit issued its decision in Williams-Sonoma less than two months ago, and no federal court has had occasion to apply that decision since then. But regardless of how broadly or narrowly federal courts read Williams-Sonoma, it adds yet another checkmark to the long list of distinctions between federal and state court class action practice.

Reprinted with permission from the March 12 issue of The Recorder. © [2020] ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved. The original article can be viewed here.

CATEGORIES: Class Action Trends

March 13, 2020 Seventh and DC Circuits Allow Nationwide Class Actions with Claims of Out-of-State Plaintiffs after Bristol-Myers Squibb

By: Michael T. Brody, Gabriel K. Gillett, Howard S. Suskin and Brenna J. Field

New-Development-IconThis week, the Seventh and DC Circuits issued long-awaited and major decisions addressing a critical issue in class action litigation explicitly left unresolved in Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017)—whether a federal court has jurisdiction to hear claims by out-of-state members of a putative nationwide class action whose claims lack a connection to the forum. Both courts said yes, albeit for different reasons. As other circuit courts weigh in, and possibly disagree, the Supreme Court will likely be called upon to resolve the issue.

In Bristol-Myers Squibb, 600 plaintiffs brought a coordinated mass tort action asserting California state law claims in California state court using a California rule for consolidating individual suits. But only 86 plaintiffs were California residents. The defendant argued that it was not subject to specific personal jurisdiction as to the non-resident plaintiffs’ claims because they and their claims lacked a sufficient connection to the forum. The Supreme Court agreed, but stated that it did not decide whether its holding applied to federal courts or to class actions. Since then, some federal district courts have taken this to mean that federal courts have specific personal jurisdiction over defendants facing claims by absent non-resident putative class members in any type of aggregated litigation while others have taken the opposite view, that this ruling limits the court’s jurisdiction to claims by plaintiffs (named and unnamed) with a connection to the forum.

On March 11, the Seventh Circuit became the first appellate court to decide whether Bristol-Myers Squibb applies to federal class actions. In Mussat v. IQVIA, Inc., No. 19-1204, the court sided with plaintiffs and held that a federal court has jurisdiction to hear federal claims by unnamed class members in a putative nationwide class action even if they lack a connection to the forum. In this Telephone Consumer Protection Act suit, defendant moved to strike the class definition, which included out-of-state plaintiffs. The Court held that Bristol-Myers Squibb did not bar federal courts from hearing these claims, reasoning that absent class members are not “parties” to a class action for purposes of jurisdiction, whereas due process required a due process result for the consolidated mass action plaintiffs in Bristol-Myers Squibb. A day earlier, the DC Circuit reached a similar conclusion, at least temporarily, without taking on Bristol-Myers Squibb. In Molock v. Whole Foods Market Group, Inc., No. 18-7162, an employment discrimination case arising from the denial of the defendant’s motion to dismiss, the court held that the defendant could not challenge personal jurisdiction over claims by absent class members until after the class is certified. The Court reasoned that it would be premature to dismiss absent class members until they are full parties to the action.

IQVIA and Whole Foods will not be the last words on federal court jurisdiction over class actions after Bristol-Myers Squibb. The Fifth and Ninth Circuits are each considering cases that raise the issue. See Tredinnick v. Jackson National Life Ins., No. 18-40605 (5th Cir.); Moser v. Health Insurance Innovations, No. 19-56224 (9th Cir.). Meanwhile, district courts likely will continue to reach divergent results. Litigants are therefore well-advised to continue raising and preserving the issue for further review, as these decisions hardly bring clarity or certainty on the important issue of whether a defendant is subject to claims in federal court asserted by a putative class of plaintiffs with no tie to the forum. That clarity and certainty may only arrive when the Supreme Court interprets how its decision in Bristol-Myers Squibb applies in the class action context once and for all.

CATEGORIES: Class Action Trends

January 2, 2020 Zero Calories, Zero Plausibility: Ninth Circuit Affirms Dismissal of “Diet” Soda Class Action

By: Alexander M. Smith

SodaIn 2017, several plaintiffs began bringing lawsuits in California and New York premised on the theory that “diet” sodas — i.e., sodas sweetened with zero-calorie artificial sweeteners rather than sugar — were mislabeled because the sodas falsely suggested they would help consumers lose weight, even though aspartame and other artificial sweeteners are supposedly associated with weight gain.  Courts have routinely dismissed these lawsuits on one of two grounds:

  • Some courts have concluded that this theory of deception is implausible because reasonable consumers understand the term “diet” to mean that the soda has zero calories, not that it will help them lose weight.  See, e.g., Geffner v. Coca-Cola Co., 928 F.3d 198, 200 (2d Cir. 2019) (“[T]he “diet” label refers specifically to the drink’s low caloric content; it does not convey a more general weight loss promise.”); Becerra v. Coca-Cola Co., No. 17-5916, 2018 WL 1070823, at *3 (N.D. Cal. Feb. 27, 2018) (“Reasonable consumers would understand that Diet Coke merely deletes the calories usually present in regular Coke, and that the caloric reduction will lead to weight loss only as part of an overall sensible diet and exercise regimen dependent on individual metabolism.”). 
  • Other courts have dismissed these lawsuits on the basis that the scientific literature cited by the plaintiffs does not support a causal relationship between zero-calorie sweeteners and weight gain.  See, e.g., Excevarria v. Dr. Pepper Snapple Grp., Inc., 764 F. App’x 108, 110 (2d Cir. 2019) (affirming dismissal of lawsuit challenging labeling of Diet Dr. Pepper, as “[n]one of the studies cited . . . establish a causal relationship between aspartame and weight gain”).

The Ninth Circuit recently joined the chorus of courts that have rejected this theory of deception.  In Becerra v. Dr. Pepper/Seven Up, Inc., the district court dismissed a lawsuit alleging that Diet Dr. Pepper was mislabeled as a “diet” soda, both because the plaintiff had not alleged that consumers construed the term “diet” as a representation about weight loss and because the plaintiff had not sufficiently alleged that aspartame is associated with weight gain.  On December 30, 2019, the Ninth Circuit issued a published decision affirming the dismissal of this lawsuit.  Becerra v. Dr. Pepper/Seven Up, Inc. --- F.3d ----, 2019 WL 7287554 (9th Cir. 2019).

The Ninth Circuit began by explaining that California’s consumer protection statutes require the plaintiff to allege that consumers are “likely to be deceived” — not simply a “mere possibility that Diet Dr. Pepper’s labeling might conceivably be misunderstood by some few consumers viewing it in an unreasonable manner.”  Id. at *3.  Applying this standard, the Ninth Circuit agreed that the term “diet” was not likely to mislead a reasonable consumer.  In so holding, the Ninth Circuit rejected the plaintiff’s reliance on dictionary definitions of the term “diet”; even though this term may imply weight loss when used as a noun, the court explained, it clearly implied that a product was “reduced in or free from calories” when used as an adjective.  Id.  And while the plaintiff argued that consumers could nonetheless “misunderstand” the term “diet” to suggest weight loss benefits when used in this context, the Ninth Circuit made clear that such “unreasonable assumptions” would not give rise to a plausible claim of deception.  Id. at *4. (“Just because some consumers may unreasonably interpret the term differently does not render the use of ‘diet’ in a soda’s brand name false or deceptive.”).

The Ninth Circuit also rejected the plaintiff’s remaining arguments about why consumers might interpret the term “diet” as a representation about weight loss.  It held that the use of “attractive, fit models” in its advertisements did not suggest to consumers that drinking Diet Dr. Pepper would “help its consumers achieve those bodies.”  Id.  It also rejected the plaintiff’s reliance on American Beverage Association blog posts suggesting that consumers associate diet soft drinks with weight loss, as those blog posts “emphasize that other lifestyle changes beyond merely drinking diet soft drinks are necessary to see weight-loss results.”  And it likewise rejected the plaintiff’s reliance on a survey showing that consumers expected diet soft drinks to help them lose weight or maintain their current weight: even accepting the survey’s findings at true, the Ninth Circuit nonetheless held that “a reasonable consumer would still understand ‘diet’ in this context to be a relative claim about the calorie or sugar content of the product.”  Id. at *4-5.  Because the survey “does not address this understanding or the equally reasonable understanding that consuming low-calorie products will impact one’s weight only to the extent that weight loss relies on consuming fewer calories overall,” the Ninth Circuit concluded that it did not support the plaintiff’s claims of deception.  Id. at *5.

CATEGORIES: Class Action Trends

PEOPLE: Alexander M. Smith