Prevailing Trends in Consumer Product Liability: Allegations of - - PowerPoint PPT Presentation

Prevailing Trends in Consumer Product Liability: Allegations of Fraud

Navigating Aggregate Damages, Expert Scrutiny, and Other Evolving Practice Issues

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Presenting a live 90-minute webinar with interactive Q&A

Robert o A. Rivera-S

• t o, Part ner, Ballard Spahr, Cherry Hill, N.J.

Neal Walt ers, Part ner, Ballard Spahr, Cherry Hill, N.J.

• Dr. Richard S

emenik, Professor Emerit us of Market ing and Consumer Behavior Expert , Montana State University, Bozeman, Mont .

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Prevailing Trends in Consumer Product Liability: Allegations of Fraud

Strafford Publishers Webinar February 21, 2012 Neal Walters Ballard Spahr LLP WaltersN@ballardspahr.com

• Dr. Richard Semenik

Montana State semenik@montana.edu Justice Roberto Rivera-Soto Ballard Spahr LLP RiveraSotoR@ballardspahr.com February 21.2012

6

Speakers – Neal Walters

• Partner at Ballard Spahr LLP and head of its

Product Liability and Mass Tort Group

• Defends consumer product class actions
• Tried two consumer product class actions to

jury verdict

• Experience addressing some of the unique developments that occur later

in a class action, including post-trial decertification of a class and complex issues surrounding post trial claims proceedings

• Substantial experience counseling clients on product and class-action-

related risks before they reach litigation, including regulatory, advertising and risk management

• Graduate of Rutgers College and Rutgers School of Law

7

Speakers – Richard J. Semenik, Ph.D.

• Expert in advertising, branding, consumer decision making

and consumer behavior analysis

• Former Dean Montana State University College of Business
• Former Assoc. Dean for Research, Eccles School of

Business, University of Utah

• Co-Author of one of the leading advertising texbooks in the

world used in 500 universities in 6 countries

• Author of over 40 articles on branding, advertising and consumer behavior.

Presentations to academic and professional audiences across the United States and in Belgium, France, Ireland, Scotland, Netherlands, Mexico, Finland, Hungary, and Italy

• Expert witness services in over a dozen class action litigations since 1991
• Undergraduate degree University of Michigan, MBA Michigan State

University, Ph.D. from Ohio State University

• Graduate of Rutgers College and Rutgers School of Law

8

Speakers – Justice Robert Rivera-Soto

• After serving a seven-year term as a Justice of the

Supreme Court of New Jersey, Justice Rivera-Soto returned to the practice of law, joining Ballard Spahr LLP as a partner in its litigation practice

• Prior to his service on the Court, Justice Rivera-Soto

was a partner in a national law firm, and had been general counsel of two major gaming and entertainment companies

• He started his career as an Assistant United States Attorney

assigned to the Criminal Division of the U.S. Attorney's Office in Philadelphia, Pennsylvania. During his career, he has received a number of awards and is a Fellow of the American Bar Foundation

• He is a graduate of Haverford College (B.A. 1974; with

departmental honors) and the Cornell University School of Law (J.D. 1977)

9

Background

Overview

Anatomy of CFA Product Litigation Why Product Companies? Consumer Behavior Appellate Issues

10

Background

• States passed Little FTC Acts in the 1970s.
• Originally designed to enable Attorneys General to prosecute and

enjoin unfair trade practices without a showing of actual damages.

• Nearly all such statutes were amended to enable private rights of

action by individual consumers. Many such laws enable companies to pursue companies on unfair competition claims.

• When the statutes were amended to require a damages element, i.e.,

ascertainable loss, it was believed that this would control the expansion of relief available.

• But ascertainable loss has been construed broadly.
• And the availability of attorneys fees has spawned several decades of

active litigation in all product industries.

11

Different Plaintiffs

• State Attorneys General – occasionally
• The FTC pursuant to the FTCA – not so

much

• Companies v. Companies – Competition and

Disparagement Claims – Not uncommon

• Individuals v. Companies – Class actions –

the most prevalent

12

A Broad Range of Products

• Pharmaceuticals
• Medical Devices
• Electronics
• Appliances
• Automobiles

13

Anatomy and Elements of CFA Product Claim

• Something is undesirable about a product’s performance
• r official statements about the product’s capabilities are

inaccurate.

• The buyer contends that – if they had been properly

informed -- they would not have purchased the good, or that he or she would have paid less for it; or that they have incurred consequential out of pocket repair costs for its non-performance.

• The consumer similarly contends that there was pre-

existing knowledge of the problem, thus characterizing the concern as a traditional fraud theory.

14

The Elements of a CFA Product Claim

• An unlawful or unfair trade practice.
• A misstatement, either in the form of an untruthful, materially

inaccurate or misleading description of the product and its capabilities.

• An omission about the product’s problem or limitations.
• Causation or reliance
• This is the most hotly contested issue in consumer product

litigation.

• Damages in the form of ascertainable loss.

15

Examples of Product Fraud Claims

• Moulton v. LG USA Electronics, Inc., et al., 2:11-cv-04073-JLL (DNJ) –

Putative plaintiff class claims that defendant’s LCD and plasma televisions are subject to premature degradation.

• Montich v. Miele USA, Inc., 3:11-cv-02725-FLW (DNJ) – Putative plaintiff

class alleges that the design of defendant’s washing machines causes mold build-up.

• In re: Onstar Contract Litigation, MDL 07-md-1867 (ED Mi.) – Putative

plaintiff class alleges consumer fraud against OnStar and several auto manufacturers for allegedly failing to disclose impact of switch from analog to digital cellular service on telematics equipment.

• DeBenedetto v. Denny’s, Inc., MID-L-6259-09 (NJ Super. Ct.) – Putative

plaintiff class alleges that restaurant chain’s menus failed to disclose food’s unhealthy sodium levels.

• Stewart v. Beam Global Spirits and Wine, et al, 1:11-cv-5149-NLH (DNJ) –

Putative plaintiff class alleges that beverage falsely claimed to be all natural

16

Examples of Product Fraud Claims

• Little v. Kia Motors America, Inc., UNN-L-800-01 (N.J. Super. Ct.) –

Plaintiff class alleges that defendant failed to disclose premature brake degradation

• Oshana v. Coca-Cola Co., 225 F.R.D. 575 (N.D. Ill. 2005) – Putative

plaintiff class alleged defendant failed to disclose additive in Diet Coke

• Debbs v. Chrysler Corp., 810 A.2d 137 (Pa. Super. Ct. 2002) –

Plaintiff class alleged defendant failed to disclose potential injuries that could result from airbag deployment

• Lee v. Carter-Reed Company, 4 A.3d 561 (N.J. 2010) – Plaintiff class

alleges that nutritional supplement was not effective at inducing weight loss or other health benefit

• Gale v. IBM Corp., 781 N.Y.S.2d 45 (App. Div. 2004) – Putative

plaintiff class alleged defendant misrepresented capabilities of computer

17

Why Product Companies?

• Mass distribution of widgets with the same design makes

plaintiffs ROI attractive

• Mass distribution of the same literature.
• It is difficult to anticipate all of the ways in which

literature may be misconstrued

• Large amounts of memorialized data on testing, surveys,

warranty data, service reports from the field and customer service records reflecting consumer complaints.

18

Product Litigation Sources – Where Good and Bad Information Comes From

Field Issues Sales Issues Plant Issues

Quality Alert Bulletin Advertising Product defects Dealer Statements Vendor part quality Media statements/ competitor claims Customer Complaints Service Bulletins/Reports

19

Examples of Missteps - Advertising

20

Examples of Missteps - Advertising

…to the blistering heat of the most barren deserts…

21

Missteps – Regulatory Statements

• In the Onstar MDL, plaintiffs attempted to establish the

automobile manufacturers’ knowledge regarding the analog sunset by pointing to their statements during the FCC rulemaking process.

• For example, the Complaint quotes Audi’s comments to

the FCC in which it stated that “initial and subsequent

• wners of these vehicles should have a reasonable
• pportunity to benefit from their investment” in Onstar

equipment before the FCC takes action that “could have the potential effect of stranding their investment.”

• Plaintiffs’ Complaint featured similar quotes from Honda

and General Motors.

22

Product Manuals and Instructions

• Instruction and Owner’s Manuals can be a frequent source of

consumer fraud claims.

• Auditing of the technical descriptions and images is important.

23

Examples of Missteps – E-mail

• Real-world examples – Don’t Speculate…

From: xxxxxx Sent: March 9, 2000 To: xxxxxx Subject: VIGOR The CV events are clearly there. It is a shame, but it is…mechanism based as we worried it was. … There is always a hazard.

24

Prevailing Issues: Aggregate Damages

• The damages claims of individual consumers are often small and

many consumers may not have been impacted by the alleged practice at all.

• An average or “aggregate” of the damages may be a large number.

Even if only one-half of one million class members suffered $ 500 in loss, that is $ 500 million.

• Every class member must have suffered damage to be a member of

the class, and the determination of who has suffered damage must be subject to a common answer.

• Expert economists frequently may attempt to overcome these theories

through creative methodologies. See, e.g., Muise v. GPU, Inc., 851 A.2d 799 (N.J.Super. App. Div. 2004).

25

Prevailing Issues: Expert Scrutiny

• The trend toward a greater scrutiny of class certification proofs has

made challenging experts at the certification stage a real consideration.

• Peroxide was a big step. In re Hydrogen Peroxide Antitrust Litig.,

552 F.3d 305 (3d Cir. 2008). Dukes embraced this as part of the “rigorous analysis”.

• If an expert is engaged to speak to class certification issues, his

methodology and conclusions are likely subject to at least a minimal Daubert scrutiny. See, e.g., American Honda Motor Co.,

• Inc. v. Allen, 600 F.3d 813, 814 (7th Cir. 2010) (reversing grant of

certification in light of inadequate Daubert analysis and unreliable expert testimony).

• Consumer behavior experts are important in product class actions.

26

Consumer Behavior Science – 5 truths

• CFA claims are premised on the argument that consumers

were impacted by the alleged practice.

• The focus is typically on the “moment of truth”, i.e., the

time of sale.

• There are numerous factors impacting a consumer’s

purchase decision.

• While companies may strive to attract consumers with

advertising, the reality is that advertising rarely impacts purchase decisions

• Consumers rarely buy a complex product for the same

reason.

27

Do Don’t wo worry rry. I p pres esume e yo you a all ll relie relied.

“I didn't”

“I did”

“I don't Remember” “Maybe a little”

Did You Rely?

28

Examples of Missteps - Advertising

29

Examples of Missteps - Advertising

…to the blistering heat of the most barren deserts…

30

Provide Perspective to the Jury

“Experience the product” Test Drive…

Independent Research

Don’

• n’t ex

expec pect t thi his t truc uck to

• climb

b hi hills at at hi high gh speeds peeds

Critique Climb 60% grades Support

• 195 horsepower
• 0-60 in 18 secs.
• 7,000 lbs.

31

Consumer Behavior: Information Processing Science

Senders:

Marketers, Retailers, Media, Individuals

Encoded Information

Product features, Price, Retail access to the product

Media

Delivery of information via Salespeople, Brochures, Displays, Advertising Media, email, Web sites

Decoded Information

Customers process and interpret information within individual circumstances, lifestyle characteristics, values, etc. (See Figure 2)

Receivers: Consumers

Noise

Figure 1: Model of Information Communications[1]

[1] This model of Information Communication is based on historical models developed in the communications discipline. For examples see Wilbur Schramm, “

How Communication Works, The Process and Effects of Mass Communication, editor, Wilbur Schramm (Urbana, Ill.: The University of Illinois Press, 1961) pp. 5-6; David K. Berlo, The Process of Communication, (New York: Holt, Rinehart and Winston, Inc., 1960); Claude F. Shannon and Warren Weaver, The Mathematical Theory of Communication, (Urbana, Ill.: The University of Illinois Press, 1964) p. 7. Contemporary marketing textbooks rely on these traditional communication models as the basis for explaining consumer information processing. As examples see Charles Lamb, Joseph Hair and Carl McDaniel, Marketing, 8th Ed., Chapter 14 (Cincinnati, OH: Thomson Learning, 2006); Roger Kerin, Steven Hartley, and William Rudelius, Marketing, 9th Ed., (New York, NY: McGraw-Hill Irwin 2009), Chapter 18 and particularly p. 465; William M. Pride and O.C. Ferrell, Marketing, 14th Ed., (Boston, MA: Houghton Mifflin Company, 2008), p. 495.

32

Consumer Purchase Decision Model

33

Consumer Behavior Questions in Litigation

• Many cases involve allegations that something was not

disclosed.

• Would the alleged disclosure have made a difference?
• What exactly is it that should have been said?
• In what form? Writing; television or radio media; by

direct telephone contact?

• During what time frame? Timing is critical in relation to

the other information that may otherwise be available.

34

Appellate Issues: Background

• What are the options upon an adverse class certification

decision?

• To the plaintiff, the denial of class certification is alleged

to be the death knell of the case, removing the incentive to pursue larger recovery, by leaving only a single or several individual claims.

• To the defendant, the grant of class certification is akin to

a final judgment as to all issues, placing immense pressure

• n the defendant to settle given the large number of claims

to be considered in one venue.

35

Appellate Issues: Strategy and Choices

• Is the best choice an interlocutory appeal, or to further

develop the trial court record in hopes that more specific facts will demonstrate that class certification is improper?

• States and federal courts continue to look at the efficacy of

interlocutory review differently. FRCP 23(f) continues to be construed more liberally in favor of review.

• While state courts do recognize that class actions are

perhaps more deserving of interlocutory review, a state court on average is still far less likely than a federal court to grant a motion for leave on class certification.

36

Appellate Issues: Is this the right case?

• Are there issues below sufficiently developed to enable the

appellate court to clearly address the basis for appeal?

• Timing: do you want to chance the interim findings

associated with interlocutory review or do you want to preserve the issue for an appeal on the merits?

• Be careful what you ask for; you just might get it!
• Consumer product cases often raise class certification

issues, which complicated the interplay with the merits on appeal.

37

• The Third Circuit confirmed that a court shall apply the

rigorous scrutiny standard of review to class certification decisions.

• Courts are to weigh the evidence proffered in support and
• pposition to class certification
• This may require mini-Daubert challenges to the parties’

experts at the class certification stage In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305 (3d Cir. 2008)

Peroxide Changed Things

38

Peroxide’s Impact on Consumer Claims

• Many courts will be making the initial class certification

decision upon a fuller record.

• This may make courts less reluctant to recognize

decertification, particularly where modification of the initial decision is based upon new facts.

• Practically, courts may feel more justified in maintaining

the initial decision given that more work went into it.

• Consequently, appellate courts may also show greater

deference to a trial court decision made upon a fuller record.

39

Experts Rep Depositions Class Written Discovery Pleadings

Appeal: Is the Bathtub Too Full?

40

Peroxide and Product Evidence

• With a fuller class certification record on consumer issues,

there may be more merits evidence about the product and the individual consumer, including:

• More information about testing and statistics;
• A greater consideration of the advertising and marketing at

issue;

• More evidence about absent class members; and
• A greater scrutiny of the merits of all experts opinions;