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Food for Thought:
Consumer Protection Lawsuit Abuse on the Rise

Consumers familiar with Nutella™ know it as a tasty, chocolaty hazelnut spread. Nutella’s federally mandated nutritional labeling makes clear that it contains over 200 calories per spoonful and a significant amount of fat.
So how can a lawsuit plausibly claim consumers were misled by advertising to believe that Nutella is some kind of health food?

Yet a proposed settlement of class action lawsuits in California and New Jersey would compensate those who purchased Nutella anywhere in the United States during a roughly three-year period with $4 per jar, up to 5 jars, for a maximum award of $20 per household. Consumers do not have to show, or even claim, they were deceived. Nor do they need to present receipts. Those who filled out a one-page form by July 2012 certifying how much Nutella they purchased may, at some point, get their portrait of Andrew Jackson. This “consumer protection” lawsuit stemmed from an advertisement in which a mother claimed that it is hard to get her kids to eat breakfast, but spreading Nutella on healthy foods can help.

Undoubtedly, the lawyers who ginned up the litigation will get a great deal more than $20 each. They sought $3 million in attorneys’ fees, $78,888 in expenses, and one-third of the value of the settlement – about $4 million. Fortunately, the court didn’t grant them that big a payday, but they’ll be the only real winner. Why? Because even those lovers of Nutella who’ll get their $20 if they go to the trouble of filling out and submitting the claim form will invariably pay more for Nutella in the future as the litigation’s costs are ultimately passed on to them. But the biggest loss may be measured in the public’s eroding respect for the civil justice system when it’s abused in cases such as this.

Another breakfast food maker being squeezed in California courts by opportunistic class-action lawyers is Kellogg. The proposed settlement it reached with plaintiffs’ lawyers obligated Kellogg to pay $10 million for having asserted that kids are more attentive when they eat Frosted Mini-Wheats cereal for breakfast. Giving kids something frosted for breakfast is probably going to increase their attentiveness, but the “science” adduced by plaintiffs supports only an 11% boost in attentiveness, not the 20% boost advertised by the manufacturer. While each Mini-Wheats purchaser would receive up to $15, the lawyers would pocket $2 million in attorneys’ fees for their efforts. And, recognizing that most people will not bother filling out forms for such a paltry sum, about half of the proposed settlement would have come in the form of $5.5 million “worth” of food given to unnamed charities. It was this last factor that primarily led a unanimous panel of the U.S. Court of Appeals for the Ninth Circuit to reject the settlement this year, finding no tie between the donations and consumers who were allegedly injured. The court also found that the vagueness of how the food donation would be valued (i.e., at Kellogg’s cost, wholesale value, or retail value) could allow plaintiffs’ lawyers to improperly justify an inflated award of attorneys’ fees. But California taxpayers were forced nonetheless to provide court resources for this nonsense, even as court budgets are being slashed and civil dockets grow ever longer.

Moving to lunch, McDonald’s was recently forced to fight off a consumer protection suit that claimed it had engaged in an “unfair” practice by including toys in its Happy Meals. The claim alleged that McDonald’s knew such toy offerings would “result in kids nagging parents” to take them to McDonald’s. Parents, the court was asked to believe, are powerless to control the demands of their six-year-olds. The complaint, also filed in California, asserted a vast conspiracy to “subvert parental authority” and manipulate young children to “insidiously and deceptively access parents’ wallets.” Usually these types of lawsuits settle, as the Nutella and Frosted Mini-Wheats cases show, but this one was actually dismissed. Why? Consumers received exactly what they paid for – a Happy Meal with a toy. Rather than using a state consumer protection law as a means to extract a large payday for attorneys, an agenda-driven group had attempted to use a lawsuit to regulate and limit the food choices available to consumers. They were not successful – at least not this time around. But no one should expect the radical food police to simply cease and desist.

If reading about all this tedious litigation that exploits well-intentioned but overly broad consumer protection laws has made you hungry, maybe you need a snack. Nature Valley granola bars are among many food products hit with lawsuits after advertising them as “100% natural.” Plaintiffs’ lawyers who view the food industry as deep-pockets claim that such products, when they include ingredients such as high fructose corn syrup rather than straight sugar, or genetically modified ingredients like soy, yellow corn flour, soy flour and soy lecithin, fall short of 100%. These lawsuits claim that consumers paid a premium for the all natural product, even though the ingredients were clearly listed on the label.

Perhaps the most infamous, if somewhat encouraging, of the recent consumer protection food lawsuits was the class action launched against Taco Bell. This federal lawsuit, driven by a notorious personal injury law firm based in Alabama, also was filed in . . . wait for it . . . California, claiming that the fast-food chain misled consumers about the content of its taco filling. The plaintiffs alleged that the meat used by Taco Bell was not pure “beef,” as advertised, and sought to require Taco Bell advertising to refer instead to its “taco meat filling.” Taco Bell felt it was defamed by the lawsuit, which the plaintiffs’ publicized in the media. It fought back in newspaper ads, social media, and a series of videos giving its side: Sure, its beef contains other ingredients for flavor and texture – 3% water, 4% seasonings, and 5% other ingredients, such as oats and sugar – the company explained, just like mama’s homemade meatballs or dad’s delicious burgers from the grill. When it became clear that Taco Bell would not be bullied into an expeditious and lucrative settlement for the parasitic plaintiffs’ lawyers, they voluntarily withdrew the lawsuit in April 2011, issuing their own deceptive statement, claiming falsely that Taco Bell had made “changes in marketing and product disclosures.” But, according to Taco Bell, it had done no such thing and the company demanded an apology. It didn’t get one and isn’t holding its breath, but I did score a big win, albeit after considerable legal costs that its loyal customers will bear over time.

Aside from these ridiculous types of food suits, plaintiffs’ lawyers also are increasingly using laws meant to help consumers get their money back when misled into making a purchase as an alternative to personal injury lawsuits. An extraordinary example comes from Massachusetts this year, where the state’s highest court is currently reviewing a case in which a judge accepted the invitation of a plaintiff’s lawyer to use the state’s consumer protection law to override a jury’s decision in a wrongful death case. In that case, a young man who had been drinking heavily entered an off-limits area of a bar to talk on his cell phone and somehow fell down a stairway leading to the basement. There were no witnesses to the tragic accident. A jury found that the bar was not responsible for his death. But the plaintiffs’ lawyers had also asserted a creative claim under the state’s consumer protection law, known as Chapter 93A. Since consumer protection claims in Massachusetts are not entitled to a jury trial, the jury issued only an advisory verdict on the Chapter 93A claim, finding that the bar did not engage in any unfair or deceptive conduct. Remarkably, the judge disregarded the jury’s conclusion and entered a verdict for the plaintiff on the consumer protection claim. He found that because the bar constructed the stairway at issue, years earlier, without proper permits, and since the stairway was not up to code, the bar had engaged in an unfair trade practice. By applying the consumer protection law, the judge transformed a defense verdict into a plaintiff’s verdict and, given the generous recovery allowed by Chapter 93A, hit the small business with triple damages and required its owners to pay the plaintiff’s attorneys fees – amounting to a nearly $7 million award.

As this case shows, consumer protection claims can provide for significantly higher awards for damages than personal injury suits and allow a plaintiff to recover attorneys’ fees, even though each side is responsible for paying its own attorneys in most other types of lawsuits. The reason is simple – consumer protection laws include such incentives to make it worthwhile to seek recovery for small losses stemming from everyday consumer purchases. Given the vagueness of many such laws, which broadly prohibit “unfair and deceptive” conduct, plaintiffs’ lawyers routinely tack consumer protection claims onto all sorts of lawsuits. Plaintiffs’ lawyers also use these broad consumer protection laws to circumvent the evidence required in product liability and other types of personal injury lawsuits, such as an actual physical injury, causation, and damages.

For instance, instead of showing that a prescription drug has an inadequate warning label, personal injury lawyers have alleged that a drug is simply not as safe or effective as patients were led to believe, or that the patient would not have purchased the drug had she fully appreciated the risks, even when the medicine helped. Another example of a product liability suit masquerading as a consumer protection claim is the one filed against cell phone manufacturers and retailers claiming that their products emit dangerous levels of radiation. Consumer protection laws provide cover to file such lawsuits even when the plaintiffs’ lawyers cannot present anyone who suffered an injury from cell phone use. A federal appellate court threw out the suit on the grounds that the emission levels at issue were within those considered safe by the Federal Communications Commission, and the U.S. Supreme Court declined to review the decision last year.

When people get ripped off when purchasing goods or services, they should get their money back. But these types of lawsuits primarily benefit lawyers, and do little, if anything for consumers. In fact, they drive up prices. Courts are the first line of defense against such abuse. First and foremost, judges should not allow lawyers to use consumer protection lawsuits in situations for which they were never intended, such as personal injury or product liability claims. Legislators can also act. For example, in 2011 Tennessee enacted legislation limiting enforcement of the state consumer protection act’s broad prohibition of “any act or practice that is deceptive” to enforcement by the state attorney general, while continuing to permit private lawsuits for more specific violations, and allowed only individual lawsuits, not class actions, under the consumer law.

The Worst (and Best) Federal Appellate Decisions of 2012

This year the Judicial Hellholes report debuts a new section scrutinizing some of the federal appellate courts’ worst and best decisions of 2012. In identifying court rulings worthy of praise or concern, the following criteria were considered: 1) did the appellate court properly apply the applicable state law; 2) did the court faithfully follow the instructions of the U.S. Supreme Court; and 3) did the federal court, as is sometimes the case in Judicial Hellholes’ state courts, interpret the law in a way that allows abusive litigation? The report identifies three of this year’s worst federal appellate court decisions in each of these areas, contrasting them with cases in which other courts issued sound rulings.

Using the Wrong State’s Law to Create a Cause of Action

One of the worst decisions of the year was Glazer v. Whirlpool Corp. (6th Cir. May 3, 2012). In May, the Sixth Circuit affirmed certification of a class action brought on behalf of 200,000 Ohio consumers of Whirlpool washing machines even though only a tiny fraction of them had experienced problems with their washers. To justify the ruling, the Sixth Circuit used decisions applying California’s consumer law, even though the Supreme Court decision of some 75 years ago, Erie v. Tompkins, requires federal courts to apply the law of the state in which the federal court has exercised jurisdiction – here, Ohio law. California’s consumer laws are widely considered among the most lawsuit-friendly in the nation, much broader in scope than Ohio law.

Specifically, the Sixth Circuit used California law to satisfy the commonality requirement for class actions even though the plaintiffs’ allegations widely varied from each other. More than 20 different washing machine models were involved, the plaintiffs differed in how they used the machines, and an overwhelming majority of them never experienced any problems whatsoever. In fact, 97% of all class members never experienced the mold problem alleged in the lawsuit. To gloss over these differences, the court relied on a case involving California law to create a damages theory that plaintiffs were all injured simply because they bought washing machines: “class plaintiffs may be able to show that each class member was injured at the point of sale upon paying a premium price for the [washer] as designed, even if the washing machines purchased by some class members have not developed the [problem](emphasis added).” This novel “premium price” theory was not raised by the plaintiffs and has no support in Ohio law.

The Sixth Circuit also cited a widely criticized California Supreme Court ruling, Kwikset Corp. v. Superior Court, to skip over the fact that the overwhelming majority of class members never experienced the alleged harm. In that ruling, the California high court allowed an action against Kwikset for advertising locks as “Made in the U.S.A.” when some may have included screws or pins produced abroad. The court allowed plaintiffs to satisfy the damages requirement under a novel theory that the locksets’ post-sale value might now be diminished. This ruling was criticized, including in last year’s Judicial Hellholes report, because it subverted a California voter referendum requiring plaintiffs to have actually been injured by the product they are suing over. Ironically, an earlier ruling in the Kwikset case was the poster child for the reforms to end these shakedown “consumer” suits.

By relying on novel California law to uphold class certification governed by Ohio law, the Sixth Circuit did precisely what the Supreme Court has prohibited: it applied the law of an unrelated jurisdiction to facilitate class certification. In Phillips Petroleum Co. v. Shutts, where Kansas law was applied to all class members even though most plaintiffs had no connection to Kansas, the Supreme Court held that using the wrong state’s law violates constitutional limitations on choice of law under the Due Process and Full Faith and Credit clauses. The U.S. Supreme Court should hear this case to stop such “law shopping,” especially since the Sixth Circuit’s ruling may be having a ripple effect as other courts consider class certification for similar claims.

As California voters made clear with passage of Proposition 64 last decade, “consumer” actions wherein there is no actual injury serve only the interests of plaintiffs’ lawyers who gin up these class actions, hurting consumers and workers with higher prices and unemployment. They should not be exported to other states.

One of the best decisions of the year was Sikkeelee v. Precision Airmotive Corp. (3d Cir. Oct. 17, 2012). Standing in stark contrast to the Sixth Circuit’s ruling in Glazer, the Third Circuit required district judges to show restraint in applying Pennsylvania’s product liability law. The problem is that in recent years, Pennsylvania’s product liability law has fallen into a state of “profound uncertainty,” with the Pennsylvania Supreme Court acknowledging that state design defect law is in a “continuing state of disrepair.”

While this situation could create a quandary for federal courts applying Pennsylvania’s law, the Third Circuit stepped in to require a consistent, modest approach until Pennsylvania determines its law. In a 2009 decision, the Third Circuit held that Pennsylvania requires plaintiffs to follow design defect standards in the Restatement Third of Torts, Products Liability, not older formulations under Restatement (Second). It affirmed that ruling in 2011.

In July 2012, though, U.S. District Court Judge John E. Jones III reverted to the Restatement (Second) approach in a case involving a plane crash where the defendant argued the engine was not defective under the Restatement Third. To its credit, the Third Circuit accepted an interlocutory (immediate) appeal and summarily reversed the trial court ruling. ATRA agrees with product liability lawyers who hope this ruling “puts an end to the muddle that has developed in this area, with some federal judges electing to ignore Third Circuit precedent.” The Third Circuit should be commended for assuring clarity and predictability in the law.

Ignoring Supreme Court Precedent

Another of the worst decisions of the year was Bartlett v. Mutual Pharmaceutical Co. (1st Cir. May 2, 2012). The First Circuit, in what has been called an “absurd result,” thumbed its nose at the U.S. Supreme Court’s ruling in PLIVA v. Mensing. In Mensing, the Supreme Court held that federal law preempts state failure-to-warn claims against manufacturers of generic drugs. Much has been written about Mensing because it results in different liability laws for users of generic drugs and users of brand-name drugs.

In 2009 the U.S. Supreme Court ruled in Wyeth v. Levine that federal law does not preempt such failure-to-warn claims against manufacturers of brand-name drugs. As a result, users of generic drugs cannot bring failure to warn claims, but users of brand-name drugs can. The Supreme Court fully appreciated that “finding pre-emption [in Mensing] but not in Wyeth makes little [practical] sense.” But it explained that the result was necessary because of how federal law treats the two types of drugs.

Manufacturers of brand name drugs have the power to change warning labels if courts find existing labels inadequate. By contrast, generic manufacturers must use the warnings approved for the brand-name version of a drug and cannot make changes to the labeling in response to tort suits. The high court then stated that it was up to Congress and [the Food and Drug Administration], not courts, to “change the law and regulations if they so desire.”

Despite this admonishment, the First Circuit took the law in its own hands. It wrote that it did not believe that a plaintiff should lose the right to recover “by the mere chance of her drug store’s selection of a generic.” It then concocted a design defect theory for allowing what are in essence failure-to-warn claims against generic drug manufacturers. In short, it held that a generic drug manufacturer can be subject to liability for simply selling its drugs if a jury would find that the warning is inadequate to make the drug “safe and effective.”

To explain its ruling, the First Circuit wrote that the Mensing decision was “technically limited” to failure-to-warn claims, and that “while the generic maker has no choice as to label, the decision to make the drug and market it . . . is wholly its own.” The First Circuit acknowledged that under such a theory, a jury would be able to “second-guess the FDA” and determine that the drug’s “risks outweighed its benefits making it unreasonably dangerous to consumers, despite [FDA’s] having never withdrawn its statutory ‘safe and effective’ designation.”

Fortunately, the Supreme Court recently granted review of the First Circuit’s ruling. The high court should ensure that federal appellate courts respect its decisions and find that Americans’ healthcare interests are better served when decisions about the availability of pharmaceutical drugs are made by FDA experts with wide access to scientific and clinical evidence – evidence well beyond that which might be adduced in a single courtroom.

Among the best decisions of the year was Native Village of Kivalina v. ExxonMobil Corp. (9th Cir. Sept. 21, 2012). In contrast to the First Circuit, the Ninth Circuit took the opposite path in Kivalina by following a Supreme Court ruling to dismiss a tort claim, even when it clearly sympathized with the plaintiffs. Kivalina was one of four lawsuits filed in recent years seeking to subject American energy producers to tort liability based on allegations that their products are causing global climate change. The Alaskan village of Kivalina sought hundreds of millions of dollars in tort liability because a polar ice wall protecting its arctic village has become less stable in recent years.

In dismissing the claim, the Ninth Circuit accepted that its decision had to be guided by the U.S. Supreme Court’s 2011 ruling in AEP v. Connecticut, in which several state attorneys general sued six of the nation’s largest utilities under federal tort law to require the utilities to reduce their greenhouse gas (GHG) emissions. The Supreme Court held that Congress had displaced federal common law tort actions over GHG emissions when it charged the Environmental Protection Agency under the Clean Air Act with determining whether there should be caps on these emissions and, if so, how such caps should be decided and implemented.

The Supreme Court also explained why tort law, which requires courts to determine whether certain conduct is reasonable or unreasonable, is not the way to “regulate” GHG emissions. The judiciary, the Supreme Court stated, does not have the institutional tools or competence to decide what level of emissions are “reasonable” for each defendant. Most notably, courts cannot weigh the impact any such ruling would have on the ability of people to meet their energy needs in an affordable way. Justice Ginsburg, who authored the unanimous ruling, said at the hearing that it would be wrong to “set up a district judge . . . as a kind of super EPA.”

The Ninth Circuit did not try to wiggle out from under AEP even though Kivalina presented the issue slightly differently. The Village sought monetary damages, not injunctive relief. The court explained that although Kivalina “presents the question in a slightly different context” than in AEP, “If a federal common law cause of action has been extinguished by Congressional displacement, it would be incongruous to allow it to be revived in another form.” At the same time, the court expressed concern for the villagers who were being “displaced.”

Failing to Stop Abusive Litigation

The third of the worst decisions of the year was Maracich v. Spears (4th Cir. Apr. 4, 2012). The Fourth Circuit allowed plaintiffs’ lawyers to essentially create their own ambulances to chase. In this case, a few lawyers decided that they wanted to file a lawsuit against hundreds of car dealerships over certain fees that the lawyers argued were improperly charged to the dealers’ customers. The lawyers had just one problem: none of them were retained by or even knew anyone who bought a car from many of the dealers they wanted to sue.

Rather than be deterred, the lawyers filed a “placeholder” class action to sue first and find plaintiffs later. To find plaintiffs, the lawyers filed Freedom of Information Act requests to South Carolina’s DMV seeking motor vehicle records of the names, addresses and car purchase information of anyone who bought a car from the targeted dealerships. The lawyers then sent a mass mailing to the owners seeking support for the litigation.

Not surprisingly, several car owners took issue with this misuse of their confidential information, saying it was a violation of the federal Driver’s Privacy Protection Act (DPPA). The owners then filed their own action against the lawyers involved.

The issue before the Fourth Circuit was whether the use of the car owners’ personal information to drum up business, which is prohibited by federal law, fits under the DPPA’s “litigation exception.” This exception allows lawyers to investigate a matter in anticipation of litigation, not use the state’s driver lists to troll for clients. Yet the Fourth Circuit dismissed the owners’ claim with an overly broad interpretation of the litigation exception that allows the lawyers to use the private information not only for current clients, but to find new ones.

The U.S. Supreme Court granted certiorari and will hear the case this term. Some legal observers have predicted that because this is a new issue with no split in the courts there is a “better-than-even chance that the Court will reverse the Fourth Circuit.” Otherwise, what would be next, state Medicaid records?

The last of the best decisions of the year was EEOC v. TriCore Reference Laboratories (10th Cir. Aug. 12, 2012). Not only did the Tenth Circuit take a clear stand against frivolous litigation in EEOC, it went to the encouragingly extraordinary length of imposing a sanction on the government for abusive enforcement of federal law.

This case involved an employee who returned to work following foot and ankle surgery. TriCore’s management provided the employee with extended leave, a reduced schedule, and a substantially reduced workload – essentially creating a new job for her. Even still, she made repeated errors, some of which jeopardized patient safety. TriCore placed her on unpaid leave and suggested she apply for other TriCore positions. She refused and sought social security disability benefits due to her inability to stand or walk for any length of time.

The Equal Opportunity Employment Commission (EEOC) aggressively pursued TriCore, claiming it failed to make reasonable accommodations for this employee, despite recognizing early on that the employee could not, even with accommodations, perform the essential requirements of her position. As a result of this admission, the EEOC would not be able to prove an essential element of its case against TriCore.

The Tenth Circuit took a hard stand against this frivolous enforcement act. It affirmed the trial judge’s decision to require the EEOC to reimburse $140,571.62 in attorneys’ fees and ordered additional sanctions against the EEOC for its pursuit of a frivolous appeal. The court also found that TriCore went above and beyond its legal obligations: “Substantiating the old saw that no good deed goes unpunished,” Circuit Judge Terrance L. O’Brien wrote for a unanimous 3-judge panel, “the EEOC persisted in litigating this case in spite of clear evidence that TriCore went well beyond [Americans With Disabilities Act] requirements in trying to oblige an employee.”

The American Tort Reform Association urges courts to take similar stands against all abusive civil litigation.