Eighth Circuit Creates New Class Action Fairness Act Requirement, Sends Case to State Court

Cruz-Alvarez_FFeatured Expert Contributor – Civil Justice/Class Actions

Frank Cruz-Alvarez, Shook, Hardy & Bacon, L.L.P. (co-authored with Talia Zucker, Shook, Hardy & Bacon, L.L.P.)

On April 4, 2014, the U.S. Court of Appeals for the Eighth Circuit breathed new life into a proposed consumer class action lawsuit that was previously—and properly—dismissed with prejudice by the U.S. District Court for the District of Minnesota.     Instead of affirming the district court’s decision, the Eighth Circuit, in an attempt to save the lawsuit, reversed and remanded Melvin Wallace v. ConAgra Foods, Inc., — F.3d —-, 2014 WL 1356860 (8th Cir. Apr. 4, 2014), to the Minnesota state court where it originated. In doing so, the court’s ruling, either by design or by accident, undermined the framework and legislative purpose of the Class Action Fairness Act (“CAFA”).

The case originated in May of 2012, when a group of consumers purporting to represent a putative class sued ConAgra Foods, alleging that some of the company’s Hebrew National beef products are not 100% kosher, as the label claims. 2014 WL 1356860 at *1.ConAgra manufactures Hebrew National meat products using beef slaughtered by AER Services, Inc. (AER). Id. The slaughtering takes place in the facilities of American Foods Group, LLC (AFG), which sells kosher meat to ConAgra and any remaining meat to third parties. Id. AER employs the religious slaughterers, and a third party kosher certification entity named Triangle K, Inc., monitors whether AER, AFG, and ConAgra comply with the kosher rules. Id.

ConAgra promotes the kosher requirements as a reason to purchase Hebrew National products, which cost more than similar non-kosher products. Id. The consumers claim, however, that manufacturing quotas—not kosher rules—is the deciding factor in whether certain meat is certified as kosher; and with a quota of 70% for kosher meat, the kosher inspection process has become defective and unreliable. Id. at *2. Consequently, the consumers maintain they have been misled into paying an “unjustified premium for Hebrew National’s ostensibly kosher beef.” Id. at *1. Continue reading

WLF Briefing Discusses FDA’s “Plaintiffs’ Bar Over Patients” Generic Drug Labeling Proposal

FDA’s Generic Drug Labeling Proposal: Unauthorized and Counterproductive Disturbance of the Hatch-Waxman Balance

Our Panelists

  • Ralph G. Neas, The Generic Pharmaceutical Association
  • Alex Brill, American Enterprise Institute
  • Richard A. Samp, Washington Legal Foundation

Accompanying Materials

 

Behavior of Plaintiffs’ Lawyers in Food “Misbranding” Class Actions Called into Question

scalesOver the last two years at The Legal Pulse, we’ve expended a lot of digital ink on food labeling class action lawsuit rulings from the Northern District of California (aka “The Food Court”). Our focus here shifts to similar suits from the Central District of California. Two recent decisions from that jurisdiction spotlight some questionable behavior by plaintiffs’ lawyers.

Jovel v. Boiron, Inc. Plaintiff Jovel alleged in a class action suit that the non-pharmaceutical flu remedy he purchased at GNC, Oscillo, did not relieve his flu-like symptoms as the product label claimed it would. Boiron opposed Jovel’s motion for class certification on a number of grounds, including that Jovel was not an adequate representative of the class under Federal Rule of Civil Procedure 23(a).

What was it that made Jovel inadequate? During his deposition, Boiron’s counsel asked Jovel when he first read the flu-relieving claims on the product label. He stated that he hadn’t read it until after he finished the entire box—a week  after purchase. That fact is, of course, rather important in a case where the plaintiff must prove he relied on the label’s claims to make his purchase.

After a break in the deposition, Jovel’s story had changed. He said he had read the label before buying the Oscillo. Boiron’s counsel then asked:

Counsel: “Did you have a discussion with your counsel that refreshed your recollection about when you read the box?”

Jovel: “Yes”

Judge Stephen Wilson held that such “inconsistency” in his testimony on a material issue in the case reflected poorly on Jovel’s credibility, and he denied class certification on that basis. Continue reading

(Not) Inconceivable!: Florida Trial Judge Tosses Food Class Action on CAFA Grounds

Amy's KitchenIn a December 2013 post, Two More Food Labeling Class Action Rulings: Harbingers of the New Year?, we lauded Southern District of Florida Judge James Cohn for dismissing claims in a food-labeling class-action lawsuit based on the labeling of products that the plaintiff, Ms. Reilly, never actually purchased.

Judge Cohn issued two more opinions in Reilly v. Amy’s Kitchen, Inc. on March 7. After this one-two punch, the life of Reilly’s case may be no more.

In the first decision, Judge Cohn denied the plaintiff’s motion to reconsider his December 9 order that Reilly lacked standing to sue for alleged injuries caused by products she didn’t purchase. In the second, Judge Cohn dismissed the remaining claims for lack of subject matter jurisdiction. We’ll focus on the second ruling here.

Amy’s Kitchen argued in its motion to dismiss that Reilly’s dramatically thinner suit (from 60 claims to 3 after the December 9 order) failed to achieve the requisite amount in controversy of $5 million under the Class Action Fairness Act (CAFA). Unlike the plaintiffs in these food-labeling class actions, who likely could never produce proof of their purchases if asked, the defendants had very precise sales records. Amy’s Kitchen presented evidence that during the period of time Reilly alleges she was injured, it sold only $1,045,993 of the supposedly offending pizzas, veggie burgers, and enchiladas in Florida.

Vizzini

Vizzini

Judge Cohn agreed that because Reilly never had standing to sue for all 60 products, she could not meet the $5 million amount-in-controversy requirement from the outset.  The court held it could dismiss the suit for lack of subject matter jurisdiction”unless it appears to a ‘legal certainty’ that Plaintiff’s remaining claims meet CAFA’s $5 million jurisdictional minimum.” Reilly attempted to argue that the value of the injunctive relief she sought, combined with attorneys’ fees, could elevate the three claims to $5 million. Judge Cohn found such a possibility (as Wallace Shawn’s Vizzini in The Princess Bride liked to say) “inconceivable,” which falls quite short of “legal certainty.”

Judge Cohn dismissed Reilly’s claims without prejudice, but it seems unlikely an amended complaint will change the judge’s mind. Reilly will proceed with her appeal of the trial court’s December 9 standing decision to the U.S. Court of Appeals for the Eleventh Circuit, which, we expect, will be as unsuccessful as her motion to Judge Cohn for reconsideration.

Also published at WLF’s Forbes.com contributor page

New Corporate Survey Illustrates Burdens Of Document Preservation And Benefits Of Proposed Reform

computerpileWith the conclusion of the Federal Rules Advisory Committee’s public comment period last month, the first leg of what The Legal Pulse has described as the long and winding road to reform of the federal rules for discovery is now over. We have at last reached the “end of the beginning,” to borrow Churchill’s phrase.

Comments contributed by the business community conveyed the consistent message that the current rules encourage over-preserving documents, a practice that ill-serves the interests of justice. The committee record is replete with anecdotes demonstrating this point, but it had lacked aggregate data until recently. Enter a Preservation Costs Survey conducted by Professor William Hubbard (my former contemporary at the University of Chicago Law School who has returned to teach there now), which thoroughly documents systematic over-preservation of electronic materials and its profound costs. A summary of Professor Hubbard’s findings is available here.

Business Defendants’ Stories. In its comment to the Advisory Committee, 307,000-employee General Electric noted that in order to preserve information contained in emails alone, it is “faced with a universe of approximately 4,770 terabytes” of data. (Just 10 terabytes, by comparison, is roughly enough storage for the Library of Congress’s entire book collection.)  The comment cited one example from 2011 in an instance where litigation had not yet been filed. GE incurred “fees of $5.4 million to collect and preserve 3.8 million documents totaling 16 million pages.” The company also reported it must spend over $100,000 a year to simply maintain those documents.

Pfizer explained in its comment that it currently has over 300 active legal holds in place impacting over 80,000 employees. It preserves 5 billion emails, and expects that amount to grow by 1 billion per year. Allstate reported that in the past 5 years it has spent over $17 million on e-discovery costs alone.

Ford provided several case studies in its comment, including one arising from a suit in Montana. There, Ford’s legal staff invested more than 800 hours and paid outside lawyers $2 million to produce nine computer hard drives containing 360 gigabytes of documents and 1,200 witness transcripts from past lawsuits. The plaintiff was unsatisfied with Ford’s production and filed a motion for sanctions, which the court denied. In the end, the plaintiff sought to introduce one document from the massive trove it requested from Ford. Continue reading

Don’t Make a Federal Case Out of It: High Court Should Grant Review in No-Injury Class Action

wahooThe U.S. Supreme Court this week has a chance to strike a blow for judicial modesty and at the same time call a halt to a disturbing trend being pushed by the plaintiffs’ bar:  class-action lawsuits in which no one was injured but that seek millions of dollars in “damages.”  The Court is being asked, in the case of First National Bank of Wahoo v. Charvat, to consider whether federal courts possess jurisdiction to hear such no-injury lawsuits.  The Court should accept the invitation and announce that attorneys will no longer be permitted to flout Article III of the U.S. Constitution, which limits the filing of federal lawsuits to those who have actually suffered an injury.

The case involves two small Nebraska banks that, like most banks, charge a small fee to non-customers who use their ATM machines.  Federal law requires banks to provide notice that they charge such a fee.  The two Nebraska banks did provide notice (on the very first screen seen by ATM users), and no one has come forward to claim that he or she used one of the ATMs without being aware that a fee would be incurred.

Here’s the wrinkle: at the time this lawsuit arose, federal regulations (since repealed) also required a second form of notice—on a small placard physically attached to the ATM.  Some of the ATMs maintained by the First National Bank of Wahoo and the Mutual First Federal Credit Union did not display the placard.  Jarek Charvat, an enterprising young man working with a local plaintiffs’ law firm, knew about the ATM fees and observed that the banks were not in full compliance with the federal placard regulation.  So he went from bank branch to bank branch, making ATM withdrawals and deliberately incurring a $2.00 fee at each stop. Continue reading

FDA Action Should Take the Juice Out of Some Food Labeling Class Actions

Unevaporated Cane

Unevaporated Cane

We admit that before scrutinizing the related wave of food labeling class action litigation, we had never seen the term “evaporated cane juice” (ECJ).  It might be fair to wonder whether many of the plaintiffs in these suits had ever noticed it on food labels either. But claims alleging that using ECJ on a food label violate federal rules (and thus also California law) have become ubiquitous. As of January 22, there were over 50 suits pending in federal courts with an ECJ claim. Thanks to an action yesterday by the Food and Drug Administration (FDA), those claims may not survive beyond March.

FDA formally reopened the comment period for draft guidance first published on October 7, 2009. That draft guidance informed industry that “dried cane syrup,” not evaporated cane juice, is the common or usual name under federal rules for “the solid or dried form of sugar cane syrup.” FDA never finalized that guidance, but true to FDA form, the agency still invoked it in warning letters sent to companies using the term evaporated cane juice. Continue reading

WLF Brief Video Explains What’s at Stake as Supreme Court Hears Arguments in Halliburton v. Erica John Fund

Washington Legal Foundation filed an amicus brief supporting the petitioner in Halliburton v. Erica P. John Fund, on which we were represented by Lyle Roberts on a pro bono basis.  The brief is available here.

If you would like a copy of Mr. Robert’s comments, click here.

Courts Endorse Businesses’ Using Forum-Selection Clauses As Litigation Management Tools

Guest Commentary

by Ross Coker*

Since its debut in the early 2000s, Google has grown at a startlingly rapid pace, becoming not only a global behemoth in the online search engine and advertising markets, but expanding its reach through smartphones, computer operating systems, and more.  Just this month, Google surpassed ExxonMobil as the world’s second largest company by market capitalization.

In the United States, such success inevitably makes one a target of class-action lawsuits.  To avoid being dragged into one of the country’s notorious Judicial Hellholes,® companies like Google include venue and forum selection clauses in their consumer contracts.  In addition to avoiding plaintiff-friendly jurisdictions, such clauses allow companies to resolve legal disputes close to “home” in a manner that minimizes disruption to conducting business.

A recent federal district court ruling, Rudgayzer et al. v. Google Inc., reflects the importance and effectiveness of these forum-selection clauses and clarifies their strategic underpinning.  Rudgayzer filed suit in the Eastern District of New York (EDNY) alleging improper notice after Google settled another class action suit involving the now-defunct “Buzz” product.  The judge dismissed Rudgayzer’s suit because the plaintiff had assented to Google’s consumer contract, which contained the forum-selection clause.

Santa Clara County, CA

Santa Clara County, CA

In order to reach that conclusion, the court had to first determine whether the clause could be enforced.  The court noted that the federal circuits are split on the legal standard to apply in this situation.  The Second Circuit, whose precedents bind the EDNY, permits dismissal under Federal Rule of Civil Procedure 12(b)(3) if the consumer was made aware of the forum-selection clause, the clause is mandatory by the terms of the contract, and state contract law permits the imposition of such a clause.  The plaintiff can escape the clause only if it can show that the transfer of its case would be “unreasonable or unjust.”  Continue reading

Ninth Circuit Ruling Rejecting Preemption in Food Labeling Class Action Difficult to Swallow

Cruz-Alvarez_FFeatured Expert Column

by Frank Cruz-Alvarez, Partner, Shook, Hardy & Bacon, L.L.P., Miami office, with Travis Robert-Ritter, an associate in the firm’s Miami office.

Last week, the U.S. Court of Appeals for the Ninth Circuit in Lilly v. ConAgra Foods, Inc. held that California statutes obligating food manufactures to label the sodium content of the coating on sunflower seed shells are not expressly preempted by federal labeling law that exempts “bone, seed, shell, or other inedible components” from nutritional labeling requirements. — F.3d —-, No. 12-55921, 2014 WL 644706, at *1–3 (9th Cir. Feb. 20, 2014) (emphasis added). In doing so, the court departed from the fundamental precept of judicial interpretation that a statute or regulation “should be construed to give effect to the natural and plain meaning of its words,” and read a distinction into an unambiguous federal regulation where none exists. Id. at *3–4 (Vinson, J. Dissenting).

The appeal arose out of a putative class action filed against ConAgra Foods, Inc. for allegedly violating various California statutes by failing to include the sodium content of the coating on sunflower seed shells in the Nutritional Facts Panel of the company’s products. Id. at *1–2. ConAgra argued before the district court that the state-law claims were expressly preempted because they sought to impose a labeling requirement for sodium that is different from what is required under federal food labeling law. Id. The district court agreed, dismissing the putative class action as preempted because the claims attempted “‘to impose an additional sodium labeling requirement that [was] not identical to the’ Nutrition Labeling and Education Act (21 U.S.C. § 343).” Id. Continue reading