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.

Background

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.” Id.at 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

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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

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