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April 2016

San Diego Team Defeats Class Certification in Tea Cases

Gordon & Rees San Diego partners Timothy Branson and Miles Scully, and senior counsel Joni Flaherty and James Danaher, successfully defeated class certification in two food labeling lawsuits filed against their client, a national family-owned tea company.
Judge William H. Orrick of the Northern District of California found that the plaintiffs failed to advance an acceptable model of damages to support the certification of the class action. The Court denied certification of a damages class under Federal Rule of Civil Procedure Rule 23(b)(3), finding that the plaintiffs failed to provide a damages model linked to their theory of liability as required under Comcast Corp. v. Behrend, 133 S.Ct. 1426 (2013).  Additionally, the Court denied certification of an injunctive class under Rule 23(b)(2), finding that the plaintiffs lacked standing to sue. Id. at 9:17-18.
The cases against the Defendant are two of nearly 50 lawsuits filed by the same attorneys against food manufacturers beginning in 2012. The cases claim that the food companies have somehow harmed consumers through their product labeling, allegedly violating California’s consumer protection laws. Defendant's labels, which are controlled by Food & Drug Administration regulations, tout the health benefits of its teas and inclusion of beneficial antioxidants in its products.  The named plaintiffs in the two related lawsuits testified that they enjoyed consuming the teas until learning of the opportunity to participate in these lawsuits from class counsel.
To certify a representative class action on behalf of other consumers, plaintiffs must prove, inter alia, that damages are capable of measurement on a classwide basis, and that the damages methodology is tied to the plaintiffs’ theory of liability. In other words, if the model purporting to serve as evidence of damages in the class action does not measure only those damages attributable to Defendant's alleged conduct, then the plaintiffs cannot possibly establish that damages are susceptible of measurement across the entire class. The plaintiffs argued that if liability was proven, damages to the class members would equal the total purchase price of the tea products, and the Court disagreed.
In the opinions, Judge Orrick confirmed that “the proper measure of restitution in a mislabeling case is the amount necessary to compensate the purchaser for the difference between a product as labeled and the product as received, not the full purchase price or all profits.” Khasin at 5:15-18. The Court accordingly rejected plaintiffs’ attempt to bypass this requirement by falsely claiming the products were of no value, such that class members were entitled to a full refund. Judge Orrick held that it was “too implausible” to assume consumers gained no benefit from the challenged products. Id. at 6:4-17. The Court stated that it had already clarified the proper calculation for restitution, and declined to change its position now. Id. at 6:19-22.
Judge Orrick further held that future harm was unlikely, since the plaintiffs knew of Defendant's labeling and would not subsequently read the labels in the manner contended by class counsel. The Court also rejected plaintiffs’ request for statutory or nominal damages, finding plaintiffs failed to demonstrate they were entitled to these remedies or that Defendant had breached any duty to its customers. Khasin at 6:23-7:19.
The Court also noted several other potential deficiencies to the plaintiffs’ bid for class certification, including problems with ascertainability, lack of common questions of law and fact, and failure to show classwide proof that a reasonable consumer would find the statements material. Khasin at 10:9-17. In light of the plaintiffs’ failure to present a viable damages model, a threshold issue for class certification, the Court declined ruling on these other issues. Id. at 10:18-22.
The decision was covered by Law360 in a report that can be viewed here (subscription required).

Timothy K. Branson
Miles D. Scully