Bruce Cranner, Campbell Wallace and Ashley Wheelock of Frilot look at recent developments in products and related consumer fraud class and mass actions in the US:
"Several cases decided in 2013 further signal the court’s desire to restrict the mass and class actions and make removal under the Class Action Fairness Act more plausible."
Mass products liability and consumer fraud actions continue to be a remarkable feature of the litigation experience in the United States. Several recent opinions from the Supreme Court of the United States (SCOTUS) and federal courts of appeal, and the progress of multi-district litigation (MDL) and mass settlements – most notably the Chinese Drywall and BP Gulf Oil Spill settlements – are challenging previous notions about mass actions involving both products and related consumer fraud and liability claims. There is both good and bad news for the defence in these developments, and it is clear that litigation in the US will continue to feature mass and class actions of every kind.
Class Actions since Whirlpool v Glazer
Until the recent denial of writs in Whirlpool v. Glazer, 722 F.3d 838 (6th Cir. 2012) writ denied, 134 S.Ct. 1277 (2014), commentators believed that the SCOTUS was moving toward a significant downgrade of aggregate litigation, especially class actions. Many were suggesting that the court was signaling a willingness to pull back the scope of the “adventurous innovation” that is the FRCP Rule 23(b)(3) class action. However, suggestions of the demise of the products liability and consumer fraud class action were greatly exaggerated, although many were waiting with delight to attend the funeral.
In Wal-Mart Stores, Inc. v. Dukes, 504 US , 131 S.Ct. 2541, 180 L.Ed. 2d 374 (2011) and thereafter in Comcast v. Behrend, 569 US , 133 S.Ct. 1426, 185 L.Ed 2d 515 (2012), the court continued to encourage the federal district courts to look very closely at the plaintiff’s claims and exercise a high level of scrutiny to ensure that the representative plaintiff’s claims indeed predominate when faced with the issue of certification. At issue in Comcast was “[w]hether a district court may certify a class action without resolving whether the plaintiff class had introduced admissible evidence, including expert testimony, to show that the case is susceptible to awarding damages on a class wide basis”. Id at 1431 n.4. The court launched a critical analysis of the plaintiff’s expert’s calculations and methodology assessing common damages, concluding that the basic underlying theory was an anti-trust claim previously stricken by the district court. In the court’s majority Opinion, authored by Justice Scalia, it reversed certification, making it clear that federal courts must engage in a “rigorous analysis” of the plaintiff’s claims and evidence to ensure the prerequisites of Rule 23(a) apply and employ an “even more demanding” review of the claims under Rule 23(b)(3) to ensure the common claims do indeed predominate. Id. at 1432.
Several cases decided in 2013 further signal the court’s desire to restrict the mass and class actions and make removal under the Class Action Fairness Act (CAFA) more plausible. For example, in Standard Fire Insurance Company v. Knowles, 568 US , 133 S.Ct. 1345, 185 L.Ed 2d 439 (2013), the court addressed whether a representative plaintiff can stipulate to class-wide recovery below US$5 million and thereby defeat the statute’s jurisdictional minimum found in 28 USC 1332(d)(2),(5). It determined they cannot. The court restated the oft-forgotten principle that a plaintiff who files a purported class action suit cannot in fact bind the class before it is certified (133 S.Ct. 1340). Thus, of course, there cannot be a stipulation that class-wide damages bind the class as a whole. District courts must ignore such stipulations when faced with a motion to remand and must make its own determination. Id.
Similarly, in American Express Co. v. Italian Colors Rst, 570 US , 133 S.Ct. 1344, 186 L.Ed 2d 417 (2013), another anti-trust case, the court enforced an arbitration provision in American Express’ contract containing a class action waiver. In the majority Opinion, Justice Scalia, again writing for the court, made it clear that the economic advantages to plaintiffs using the class action vehicle to “vindicate” a statutory right to pursue an anti-trust case did not trump the enforceability of the waiver and arbitration clause. 133 S.Ct at 211. See also Oxford Health Plan LLC v. Sutter, 569 US , 133 S.Ct. 2064, 186 L.Ed. 2d 113 (2013).
However, with its denial of writs in Whirlpool, 134 S.Ct. 1277 (2014), the court allowed the door to products liability class actions to remain open, even where the majority of the class members have not suffered any measurable damage or injury. In Whirlpool v. Glazer, 678 F.3d 409 (6th Cir. 2012), the United States Court of Appeals for the Sixth Circuit (located in Ohio) initially affirmed the certification of a class of Ohio residents who purchased Whirlpool Duet model washers. The class representatives alleged that the Duet line of washers developed mould on the door seals and other internal parts that are not easily susceptible to cleaning. The SCOTUS initially granted a writ of certiorari vacating the judgment and remanded the case for further disposition (a grant, vacate, and remand, or GVR order). Whirlpool v. Glazer, ___ US __ , 133 S.Ct. 1722, 185 L.Ed. 782 (2013). The GVR order specifically required the Sixth Circuit to only determine whether the court’s ruling in Comcast Corp. v. Behrend had any effect on the Court of Appeal’s analysis of the requirements for certification in its decisions on interlocutory appeal concerning the district court’s certification of a liability class of consumers of the front-load Duet model washers. Id.
On remand, surprisingly, the Sixth Circuit once again affirmed the district court’s certification of the class after reviewing the case in light of Comcast Corp, declaring at the outset of its opinion that the Supreme Court’s GVR order “does not necessarily imply that the Supreme Court has in mind a different result in the case, nor does it suggest that our prior decision was erroneous”. Whirlpool v. Glazer, 722 F.3d 838, 845 (6th Cir. 2013). The court analysed the claims in “rigorous” detail, with particular attention paid to the evidence developed in pre-certification discovery probing past the allegations of the pleadings. With regard to commonality, the court determined that, under Ohio law, the claims of breach of warranty and negligent design “rise and fall” on whether a design defect proximately caused mould or mildew to develop in the Duet washers. Id at 854. The court concluded that ample evidence was presented to the district court on this point, including internal documents from Whirlpool indicating that the mould and mildew problem was occurring in all the various Duet models produced over many years. Id at 854. According to the Sixth Circuit, this was enough to find that all Duet owners “were injured at the point of sale upon paying a premium price for the Duets as designed, even those with owners who have not experienced a mold problem” and, as such, all Duet owners were properly identified as a class. Id at 857. The injury occurred when Whirlpool failed to disclose the Duet models’ tendency to develop mould growth. Id at 857. The court also found predominance and superiority under Rule 23(b)(3), stating:
“Rule 23(b)(3) does not mandate that the plaintiff seeking class certification prove that each element of the claim is susceptible to classwide proof [cit. omm]. Evidence will either prove or disprove at to all class members whether the alleged design defects caused the collection of biofilm, promoting mold growth, and whether Whirlpool failed to warn consumers adequately of the propensity for mold growth in the Duets.”
Id at 859. Specifically citing Comcast, the court went on to admit that it was convinced class certification is the superior method to adjudicate the case fairly and efficiently. Id at 861.
When Whirlpool applied for writs of certiorari, many hoped that the SCOTUS would accept the case and extend the rationale of Comcast to include a rigorous analysis of distinctions and differences in the putative class member’s claims. However, this did not occur. Writs were denied, which can only suggest an acceptance by SCOTUS that the Sixth Circuit had probed deep enough under Rule 23(a) and 23(b)(3) to permit this products liability/consumer fraud action to proceed as a class action. Whirlpool now serves as the model for plaintiffs’ counsel of a successful “Comcast Proof” analysis and provides a roadmap for the future.
MDLs and the mass tort settlement movement
Two remarkable MDL settlements in the matter pending in the United States District Court for the Eastern District of Louisiana will no doubt change the way mass products liability and consumer fraud cases will be resolved in the future.
First, in In re Chinese-Manufactured Drywall Productions Liability Litigation, MDL No. 09-2047 (E.D. La.), a products liability and consumer fraud case that was settled using a system designed to ensure that the effected claimants are compensated (Chinese drywall is removed from their homes and certain damage is repaired) with the scope of injury and causation stipulated by the parties. See MDL-2047 Chinese Manufactured Drywall Products Liability Litigation Settlements, //laed.uscourts.gov/Drywall/settlements.htm (last visited May 19, 2014). In this case, plaintiffs alleged that Chinese-made drywall, imported and installed mostly in the United States southeastern states after 2005, contained high levels of sulphur, which permeated and damaged wiring, air-conditioning systems, and metal parts. Some plaintiffs further claimed personal injuries including respiratory problems, other general damages and non-pecuniary losses.
The causation of the damage to the wiring and metal parts of the plaintiffs’ homes and buildings by the Chinese drywall could not be disputed, but the plaintiffs faced strong causation defences to their personal injury and non-pecuniary claims. The settlement, funded in large part by Knauf, established programmes administered by third parties and contractors that responded to homeowners’ claims with detailed inspection of the effected buildings, and then repairing and replacing components including damaged wiring and drywall. But, as a quid pro quo, plaintiffs waived their disputed claims for physical injury, general damages or pecuniary losses except where specific causation and damages could be proven with competent evidence. Arguably, this settlement will be a model for resolution of mass products and consumer fraud claims: more difficult proven claims will be waived when facing individual causation defences, while the easily proven class-wide economic claims will be efficiently resolved.
Interestingly, the converse is true of the settlement in Oil Spill by the Oil Rig “Deepwater Horizon”, MDL No. 10-2179 (E.D. La.). After the oil spill in (2009), British Petroleum (BP), as the responsible operator, established a settlement fund of US$20 billion to compensate individuals and businesses affected by spill in the Gulf Coast Region. It was, in fact, a global settlement of property and business loss claims approved by the court and engineered with the help of attorney Kenneth Feinberg as the settlement administrator, the court, and the attorneys for all of the parties. See MDL-2179 Oil Spill by the Oil Rig “Deepwater Horizon” Current Developments, //laed.uscourts.gov/OilSpill/OilSpill.htm (last visited May 19, 2014).
The crux of the settlement process is a formula designed to replace the need for individual proof of entitlement or causation. Simply, the formula permits businesses like fisherman, restaurants, hardware stores and even physicians, hospitals and professionals in the affected areas that experienced an actual drop in revenue to present their financial records and request compensation for the amount of the loss. Geographic proximity to the Gulf of Mexico and an actual loss of revenue replaced proximate cause as a basis for the award.
By eliminating the need for proof of proximate cause as part of the settlement process, BP effectively found a way to compensate a large number of claimants in the region, and perhaps overcompensate many who were not deserving. More aptly, BP settled with the deeply injured economy of the region where it continues to operate on and offshore. The BP settlement has not been without controversy, acrimony or dispute. Nonetheless, it may eventually prove to serve as a model for very large mass settlements of products and consumer fraud claims where individual causation is tenuous, but the cost in dollars and reputation of litigating the claims is unacceptable.
Products and related consumer fraud class and mass actions will remain a major feature of American litigation. Since CAFA, most of these cases will be litigated in the federal courts, but many will survive early motions and will either be certified or permitted to proceed as consolidated MDL actions. Certification of class actions will be subject to rigorous Comcast/Whirlpool scrutiny by the courts. We can expect detailed and exhaustive pre-certification discovery and extensive presentations of evidence and expert testimony during certification hearings. We also anticipate changes in the way these cases are settled, with the Chinese Drywall and BP Gulf Oil Spill settlements potentially providing a model for the distribution of settlement proceeds for purely economic injuries or consumer fraud claims without the need for proof of proximate cause.