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.

By: Elizabeth Avunjian

On December 16, 2021, the Federal Trade Commission (FTC) initiated a rulemaking to address government and business impersonation fraud, which involves “[i]mpersonators us[ing] all methods of communication to trick their targets into trusting that they are the government or an established business and then trad[ing] on this trust to steal their identity or money.”^[1] While such fraud is not a novel concern, the pandemic has resulted in a sharp spike in cases, with reported costs to consumers increasing 85% year-over-year and $2 billion in total losses between October 2020 and September 2021.^[2]

The FTC stated that it is “prepared to use every tool in [its] toolbox to deter government business impersonation fraud, penalize wrongdoers, and return money to those harmed.”^[3] Indeed, the FTC’s Advance Notice of Proposed Rulemaking, the first rulemaking initiated under the FTC’s streamlined rulemaking procedures, notes that an “impersonator rule that builds on the existing sector- and method-specific rules could more comprehensively outlaw government and business impersonation fraud.”^[4] Though the FTC has previously addressed such schemes through law enforcement actions, the Supreme Court’s recent decision in AMG Cap. Mgmt., LLC v. FTC, 141 S. Ct. 1341, 1352 (2021)—which we previously reported on here—has limited the FTC’s remedial options for actions brought pursuant to its statutory authority.^[5]

The FTC is soliciting public comments for a period of 60 days after publication in the Federal Registrar regarding “the prevalence” of impersonation schemes, “the costs and benefits of a rule that would address them, and alternative or additional action to such a rulemaking.” If public comments evidence the need for a trade regulation rule, the next step will be for the FTC to issue a notice of proposed rulemaking.

[1] “FTC Launches Rulemaking to Combat Sharp Spike in Impersonation Fraud”, December 16, 2021, available at https://www.ftc.gov/news-events/press-releases/2021/12/ftc-launches-rulemaking-combat-sharp-spike-impersonation-fraud?utm_source=govdelivery.

[2] Id.

[3] Id.

[4] Advance Notice of Proposed Rulemaking, at 10.

[5] Advance Notice of Proposed Rulemaking, at 7, n. 24 (citing AMG Cap. Mgmt., LLC v. FTC, 141 S. Ct. 1341, 1352 (2021) to explain that “The U.S. Supreme Court recently held that equitable monetary relief, including consumer redress, is not available under Section 13(b) of the FTC Act.”); see also “Statement by FTC Acting Chairwoman Rebecca Kelly Slaughter on the U.S. Supreme Court Ruling in AMG Capital Management LLC v. FTC”, April 22, 2021, https://www.ftc.gov/news-events/press-releases/2021/04/statement-ftc-acting-chairwoman-rebecca-kelly-slaughter-us?utm_source=govdelivery.

By: Lindsey A. Lusk

New York federal courts have recently shown a willingness to dismiss implausible mislabeling claims on the pleadings. The recent dismissal of three consumer class actions—all filed by the same plaintiff’s counsel—suggests that these federal courts are increasingly skeptical of lawyer-driven claims regarding alleged confusion over the labeling of popular food products.

On November 4, 2021, in Boswell v Bimbo Bakeries USA, Inc., Judge Furman of the Southern District of New York dismissed a putative class action alleging that Entenmann’s “All Butter Loaf Cake” was misleadingly labeled because it contained not only butter, but also soybean oil and artificial flavors.^[1] In reaching this conclusion, the court specifically called out the plaintiff’s attorney for bringing “a long string of putative class actions . . . alleging that the packaging on a popular food item is false and misleading.”^[2] Notably, the court took judicial notice not only of the labeling of the challenged Entenmann’s product, but also the labeling of other butter cake products—which the court deemed probative of the context in which consumers purchase these products.^[3]

On November 9, 2021, in Kamara v. Pepperidge Farm Inc., Judge Castel of the Southern District of New York dismissed with prejudice a putative class action alleging that the term “Golden Butter Crackers” was misleading because the crackers also contained vegetable oil.^[4] In so holding, the court noted that “a reasonable consumer could believe the phrase ‘Golden Butter’ refers to the product’s flavor and wasn’t a representation about the ingredients’ proportions.”^[5] But even if a consumer did believe as much, “[t]he packaging accurately indicated that the product contained butter,” which was prominently featured on the ingredient list—second only to flour.^[6] The court found that “[t]he complaint [did] not plausibly allege why a reasonable consumer would understand the phrase ‘Golden Butter’ to mean that ‘wherever butter could be used in the product, it would be used instead of using its synthetic substitute, vegetable oil.’”^[7]

Even more recently, on December 3, 2021, in Warren v. Whole Foods Market Group Inc., Judge Kovner of the Eastern District of New York dismissed a putative class action alleging that the label of Whole Foods Market’s instant oatmeal misled consumers into thinking the product was sugar-free or low in sugar.^[8] The court reasoned that “even if a reasonable consumer was unaware of sugar’s many names, or of the nutrition label’s purpose, the fact remains that the words ‘Sugar 11g’ are prominently displayed immediately next to the ingredient list.” As the court noted, “[t]hose words are hard to miss.”^[9]

These rulings may signal that federal courts—at least in New York—are increasingly inclined to take a harder look at the pleadings in food mislabeling cases, as well as the broader context in which the products are sold, and grant motions to dismiss where the allegations come up short of plausible. While it is unlikely that these rulings will completely deter other plaintiffs’ lawyers from filing these lawsuits, they undoubtedly provide ammunition for defendants faced with similar food labeling lawsuits in New York federal courts.

[1] Boswell v. Bimbo Bakeries USA, Inc., No. 20-CV-8923 (JMF), 2021 WL 5144552, at *1 (S.D.N.Y. Nov. 4, 2021).

[2] Id.

[3] Id. at *4.

[4] Kamara v. Pepperidge Farm, Inc., No. 20-CV-9012 (PKC), 2021 WL 5234882, at *2 (S.D.N.Y. Nov. 9, 2021).

[5] Id.

[6] Id. at 5.

[7] Id.

[8] Warren et al. v. Whole Foods Market Group, Inc., No. 19CV6448RPKLB, 2021 WL 5759702, at *1 (E.D.N.Y. Dec. 3, 2021).

[9] Id.