Reena R. Bajowala

Pop Quiz! An Inch, 3% Or 10 Calories: Which One Is Material?

Sub Sandwich 2By Reena R. Bajowala 

Class plaintiffs often accuse food manufacturers of misrepresenting some aspect of their product offerings.  There are countless examples where the discrepancies latched onto by the plaintiffs’ bar between what the manufacturer advertised and what the consumer received are small.  But how small is too small to matter?  Lawyers have a name for this question:  materiality.  A claim for fraudulent misrepresentation can only go forward if the alleged misrepresentation is material.  

The Seventh Circuit recently rejected a proposed settlement involving Subway, citing materiality as one reason.  In In re Subway Footlong Sandwich Marketing & Sales Practices Litig., ___ F.3d ___, 2017 WL 3666635 (7th Cir. Aug. 25, 2017), class members sued Subway for marketing its trademark sandwich as a “footlong” when some sandwiches fell a little short.  The parties presented a settlement to the district court that involved injunctive relief and up to $525,000 in attorney’s fees.  The Seventh Circuit Court of Appeals rejected the settlement, calling it “utterly worthless.”  Discovery established that the vast majority of sandwiches are 12-inches; minor variations in length were attributable to unpreventable vagaries in the baking process.  Importantly, even if the sandwich was slightly shorter, each customer received the same amount of food.  The court noted that “the element of materiality – a requirement for a damages claim under most state consumer-protection statutes – was an insurmountable obstacle to class certification” because “[i]ndividualized hearings would be necessary to identify which customers, if any deemed the minor variation in bread length material to the decision to purchase.”  Because there was no compensable injury, the parties shifted to an injunctive relief class, which the court said “d[id] not benefit the class in any meaningful way.” 

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Whirlpool Defeats Multi-State Certification Bid Reliant on “Kitchen Sink” Expert Report

Storm_Hurricane_iStock_000022250449XLargeBy Reena R. Bajowala 

Recently, a federal court in Chicago rejected an attempt to certify multi-state classes of consumers who purchased allegedly defective ovens manufactured by the Whirlpool Corporation.  The plaintiffs claimed that the ovens had a design defect rendering them inoperable after one or more self-cleaning cycles.  Plaintiff moved for class certification, relying almost exclusively on the opinion of proffered expert Albert de Richemond, a professional engineer with a master’s degree from Virginia Tech, as proof of a common defect in all ovens purchased by class members (i.e, as proof of commonality).  One of the key lessons from Wal-Mart Stores Inc. v. Dukes, 564 U.S. 338, 350 (2011), was that commonality “is not the raising of common questions – even in droves – but rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.”

De Richemond’s report addressed a confluence of alleged defects relating to the thermostat, the thermo-regulator, lack of proper insulation, heat-resistance of component parts, excessive temperatures for the self-cleaning cycle, insufficient cooling fans and various ineffective fuses.  The class representatives’ class certification and Daubert briefing generally followed suit, referring to this “undifferentiated mass of potential problems” as the defect.  

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Class Action Goes “To The Dogs” When Plaintiff Fails to Sufficiently Allege Damages from “Made in the USA” Claim

By Reena R. Bajowala

Dog-foodA federal court in Chicago recently dismissed a lawsuit brought by Dale Sabo, an Illinois resident seeking to represent a multi-state class of consumers who bought defendant Wellpet LLC’s pet food products. Sabo alleged that the products were falsely labeled “Made in the USA,” but instead contain vitamins and minerals sourced from outside the United States in violation of Illinois, California, New York and six other state consumer fraud statutes.  Sabo alleged that he places a premium on American-made products and is willing to pay more for them.  In addition, he claims that a majority of Americans feel the same way, particularly given recent reports of recalls linked to foreign-sourced ingredients. 

To prevail on a consumer fraud claim, though, a plaintiff must plead actual damages, i.e., actual pecuniary loss.  The court found that plaintiff failed to do so. While Sabo alleged that he “paid more for the products than they were actually worth,” the court held that he failed to provide the factual foundation “to moor his subjective estimation of the products’ worth.”  Neither did he allege that products that lacked domestic-source designations were less expensive.  As a result, “while he alleges that he (and other consumers) are willing to pay a premium for goods made in the United States, he stops short of alleging that he in fact paid more for defendant’s . . . American-made” products.  Because the damages allegation was too speculative, the Court dismissed the lawsuit.

Sabo v. Wellpet, LLC, 2017 WL 1427057, ___ F. Supp. 3d ___ (N.D. Ill. Apr. 4, 2017). 

Deadline Looming For Comments About FDA Guidance on Lead in Cosmetic Products

Fashion-girl-makeup-paintBy Reena R. Bajowala

On February 21, 2017, the comment period closes for draft guidance issued by the Food and Drug Administration setting a maximum lead content of 10 parts per million (ppm) in cosmetic lip products and externally applied cosmetics.  The guidance also applies to shampoos and body lotions, but not to “topically applied products . . . classified as drugs or to hair dyes . . . contain[ing] lead acetate.”  The guidance is the FDA’s first foray into setting an acceptable limit for lead concentration in cosmetic products, though FDA scientists have been analyzing the issue for a decade.  In its most recent testing, the FDA found that lead levels were below 10 ppm for most of the 685 products tested.  The agency noted that modern testing capabilities “enable manufacturers to avoid the purchase of ingredients with unacceptably high levels of lead and to determine whether lead is introduced into their products during the manufacturing process.”  While the guidance is a recommendation and not a legally enforceable responsibility, the FDA noted that it is prepared to take enforcement action against cosmetic products that may harm consumers – which, according to the draft guidance, is at some level above 10 ppm.   What action the FDA takes with respect not only to enforcement, but to finalizing the guidance, depends on the new administration, which is signaling a possible period of decreased agency action. 

The proposed rule is Lead in Cosmetic Lip Products and Externally Applied Cosmetics: Recommended Maximum Level, Docket Number FDA-2014-D-2275.  Comments can be submitted electronically here.  Instructions on submitting comments using other methods can be found here.

The Third Circuit Reinstates Data Breach Lawsuit, Finding Spokeo Simply Reiterates Existing Law

Shutterstock_90095539By Reena R. Bajowala

Spokeo, Inc. v. Robbins, 136 S. Ct. 1540 (2016), which many read as elevating the standing requirements for statutory claims, remains an effective tool for class action defense lawyers – at least in some circuits.  In other circuits, as we reported here and here, Spokeo has been afforded much less status.  The Third Circuit remains circumspect about Spokeo, as it laid out in In re Horizon Healthcare Services, Inc. Data Breach Litigation, ___ F.3d __, 2017 WL 242554 (3d Cir. Jan. 20, 2017).  In Horizon, a group of insurance plan participants alleged that Horizon failed, under the Fair Credit Reporting Act (FCRA), to adequately safeguard their personal information, which was stored on laptops stolen from Horizon’s headquarters.  The district court dismissed the lawsuit, finding no cognizable injury (and, consequently, no Article III standing) because the plaintiffs failed to adequately allege that the stolen information was actually used to their detriment.  The Third Circuit reversed, finding that the unlawful disclosure of legally protected information is “a clear de facto injury.”  Spokeo, it reasoned, did not “erect any new barriers” to standing, even “though [an alleged violation] may be based on intangible harms.”  Accordingly, the court rejected the “possible . . . read[ing of] Spokeo as creating a requirement that a plaintiff show a statutory violation has caused a ‘material risk of harm’ before he can bring suit.”  The court opined that the Supreme Court did not “intend[] to change the traditional standard for the establishment of standing.”  It remains to be seen whether the Third Circuit’s approach truly realizes the Supreme Court’s intent. 

How Far Does American Pipe Tolling Reach?

By Reena R. Bajowala

Supreme Court 35719-0001The Supreme Court started another term this week.  One granted petition of interest is DeKalb County Pension Fund v. Transocean Ltd., which arises out of the Second Circuit’s ruling that the filing of a putative Rule 23 class action does not suspend the three-year period of repose for claims brought under Section 14(a) of the Securities Exchange Act.  In so ruling, the Second Circuit declined to extend to “statutes of repose” the Supreme Court’s landmark holding in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), that “statutes of limitations” are tolled for all putative class members.  Quick primer:  A statute of limitations is typically based on when a plaintiff experiences harm associated with the legal injury.  A statute of repose, on the other hand, is a time limit that is triggered by an event unconnected to the harm – such as the date a stock was first offered for sale.  Courts have typically held that statutes of limitations can be equitably tolled, while statutes of repose are stricter and cannot.  In DeKalb County, the consequences of applying the statute of repose were significant.  The plaintiff filed suit within the period of repose and moved for lead plaintiff status after the period of repose had expired.  The court denied the motion, finding him to be a flawed representative, and consequently held that the claims of the class were time-barred.  With DeKalb County, the Court will resolve a circuit split.  In Joseph v. Wiles, 223 F. 3d 1155 (10th Cir. 2000), the Tenth Circuit held that American Pipe tolling does apply because statutes of repose are subject to tolling that is legal (as opposed to equitable) in nature, like that which occurs when an action is commenced and class certification is pending, and arises from the procedures set forth in Rule 23.  The Court granted certiorari on this question two years ago, but later dismissed its order as “improvidently granted.”  Public Employees’ Retirement System v. IndyMac MBS, 134 S. Ct. 1515 (2014). 

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Class of Illinois Users “Tag” Facebook with Action Under Illinois Biometric Privacy Law

By Reena R. Bajowala

HttpThree named plaintiffs, on behalf of a class of Illinois residents, brought suit against Facebook under the Biometric Information Privacy Act, 740 Ill. Comp. Stat. 14/1/ et seq. (“BIPA”), alleging that Facebook violated BIPA by amassing biometric data to fuel its “Tag Suggestions” program without their consent.  Plaintiffs alleged in their complaint that the Tag Suggestions program uses state-of-the-art facial recognition technology to scan photographs uploaded to Facebook and identify individuals who appear therein by name for the user.  BIPA, passed back in 2008, is an Illinois statute that governs a private entity’s retention, collection, disclosure and destruction of information about a “biometric identifier” – defined in the statute as “a retina or iris scan, fingerprint, voiceprint, or scan of hand or face geometry,” and “biometric information” – biometric identifiers used for identification purposes. The consolidated matter was transferred from the Northern District of Illinois to the Northern District of California, where Facebook resides, based on a venue-selection clause in the Facebook user agreement.

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Ninth Circuit Affirms Application of The CAFA “Local Controversy” Exception To Send Case To State Court

By Reena R. BajowalaGavel

In Allen v. Boeing Co., the court ended a two-year cycle of removal, remand and appeal under the Class Action Fairness Act (“CAFA”).  Jocelyn Allen and a group of over 100 Washington property owners sued The Boeing Company (a Delaware Co.) in Washington State Court for alleged environmental damage from contaminated groundwater caused by Boeing’s use of hazardous solvents dating back to the 1960s.  Plaintiffs also brought a claim against Landau Associates, Inc., a Washington-based environmental-remediation contractor who was hired in 2002, for negligence in remediating the contamination.  Boeing removed the matter to federal court as a “mass action” pursuant to the CAFA.  28 U.S.C. §1332(d)(11)(B).  Since then, the parties have been arguing about whether certain exceptions under the CAFA apply.  On this third trip to appellate court (and second trip to the Ninth Circuit), the question presented was whether the district court properly remanded the matter to state court pursuant to the CAFA’s “local controversy” exception.  The local controversy exception provides that federal courts “shall” decline jurisdiction for “truly local” controversies – meaning those where (1) more than 2/3 of the proposed plaintiffs are citizens of the filing state; (2) plaintiffs seek “significant relief” against at least one in-state defendant whose conduct is a “significant basis” for the asserted claims; (3) the “principal injuries” were incurred in the forum state; and (4) no similar class action has been filed within the last three years.  28 U.S.C. § 1332(d)(4)(A).  Boeing argued on appeal that Landau’s conduct, and the relief sought from Landau, was not “significant” compared to Boeing’s.  Boeing argued that Plaintiffs failed to distinguish between the relative involvement of Boeing and Landau, and failed to specify the division of damages sought against the two defendants.  If they had done so, Boeing argued, it would have been clear that Landau was an isolated player that arrived on the scene decades after the groundwater was allegedly contaminated, and that Landau’s exposure to liability was insignificant in comparison to Boeing’s.  The court held that a determination about the respective abilities of the defendants to satisfy a judgment would result in an improper “mini-trial on the merits.”  Further, the fact that Landau was one of only two defendants and that Plaintiffs asserted separate claims against Landau for its conduct made it “significant.”  The Ninth Circuit affirmed the district court’s remand order, sending the matter back to remain in state court. 

Allen v. Boeing Co., __ F.3d __, 2016 WL 2586334 (9th Cir. May 5, 2016).

Eighth Circuit Reverses Class Certification, Finding Best Buy Established Lack of Price Impact

New-Update-IconBy Reena R. Bajowala

Earlier this week, the Eighth Circuit reversed the lower court’s certification of a class of Best Buy Co., Inc. shareholders alleging, in a Rule 10b-5 securities lawsuit, that Best Buy executives made misleading statements that artificially inflated the stock price.  The statements were contained in an 8 AM press release, and then confirmed during a 10 AM analyst call.  The Eighth Circuit found that Best Buy met its burden of showing that the statements made during the analyst call had no impact on Best Buy’s stock price.  In doing so, the Eighth Circuit became the first Court of Appeals to grapple with the Supreme Court’s decision in Halliburton Co. v. Erica P. John Fund, 134 S. Ct. 2398 (2014), which gives defendants the right to rebut the fraud-on-the-market presumption of reliance with evidence at the class certification stage showing the misstatement had no price impact.  The Eighth Circuit found that the “district court ignored [the fact] that defendants did present strong evidence on this issue.”  The evidence came from plaintiffs’ expert, who admitted that the statements made during the analyst call did not elevate, but had only “fraudulently maintained,” the share price.  The price had already risen following the earlier press release.  However, the statements in the press release were deemed forward-looking and, accordingly, non-actionable thanks to the Private Securities Litigation Reform Act’s safe harbor.  The evidence showed that the analyst call two hours later had no immediate price impact, severing any causal link between the representations during the call and the stock price at which plaintiffs purchased.  Thus, plaintiffs could not satisfy the predominance requirement of Rule 23(b)(3).

IBEW Local 98 Pension Fund et al. v. Best Buy Co., Inc., No. 14-3178 (8th Cir. April 12, 2016).

Defendant’s Attempt To Value Plaintiff’s Case Above $5 Million Fails in Recent CAFA Ruling

UntitledBy Reena R. Bajowala

Companies facing the uncertainties of defending class actions in state court often seek ways to access the federal forum under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d).  The defendant in Amaya v. Apex Merchant Group, LLC, pending in the Eastern District of California, is trying to do just that.  In that suit, plaintiff alleges that defendant misclassified him and a class of other sales consultants as exempt employees, violating the California Labor Code and California Business & Professions Code.  At issue was whether the CAFA requirement that the “amount in controversy” exceed $5 million was satisfied.  The plaintiff omitted reference to any damages figures in the complaint. 

That left defendant in the awkward position of calculating the value of plaintiff’s claims against it – with the goal of exceeding $5 million.  Defendant submitted a declaration from a record custodian calculating damages at almost $8 million. He reviewed business records and identified 1,750 sales consultants who were employed and terminated during the relevant time frame.  Defendant calculated statutory penalties for violations of the minimum wage requirements  and meal and rest period violations under Cal. Labor Code §§ 226.7 and 1197.1, and used a “conservative” calculation for unpaid wages at discharge.  Plaintiff submitted no evidence contradicting defendant’s calculations. 

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