Articles from February 2012

A federal judge has denied the Quaker Oats Company’s request to dismiss a consumer class action arising out of the company’s questionable product advertisements.  The lawsuit alleges that the cereal manufacturer’s characterizations of its oatmeal and granola as “wholesome” and “heart-healthy” are deceptive, because the products actually contain unhealthy trans fats.  See Askin v. The Quaker Oats Co., No. 11-cv-0111 (N.D. Ill. Oct. 12 2011) (order denying motion to dismiss) (available here).    

The plaintiff claims that Quaker has “engaged in a wide-spread marketing campaign to mislead consumers about the nutritional and health qualities of its Products.”  Slip op. at 3.  Contrary to its health-focused advertisements, Quaker products “contain highly unhealthy, unwholesome artificial trans fat.”  Slip op. at 3.  The plaintiff alleges that he has suffered an “injury-in-fact” because he purchased Quaker products in reliance on these false advertisements and that, had he known the truth, he would not have been willing to pay as much as he did for the products.  Slip op. at 3-4.

Quaker moved to dismiss the case by a Rule 12 motion, arguing that the levels of trans fats are so insignificant that the plaintiff cannot establish standing.  Specifically, Quaker contended that the plaintiff’s health concerns are speculative, and therefore his economic damage is not “a real injury.”  Slip op. at 4-5. 

The court disagreed with Quaker. In the order denying Quaker’s Rule 12 motion, Magistrate Judge Young B. Kim found that “regardless of whether [Plaintiff] was physically harmed by the products he consumed, he alleges that he would not have purchased them absent the allegedly misleading statements.  That allegation states the kind of economic injury that is redressable through this suit.”  Slip op. at 9.

 Quaker was likewise unsuccessful in attempting to dismiss a California consumer action with similar claims.  See Chacanaca v.The Quaker Oats Co., 752 F. Supp. 2d 1111 (N.D. Cal. Oct. 14, 2010) (available here).

A recently published case from California’s Court of Appeal underscores the continuing vitality of the state’s unconscionability doctrine, despite the “strong public policy favoring arbitration.”  Ajamian v. CantorCO2e, No. A131025 (Cal. Ct. App. Feb. 16, 2012) (available here).  In Ajamian, a unanimous panel of the First Appellate District considered the arbitration provision in an employment contract and concluded that “the provision was procedurally unconscionable and substantively unconscionable in more than one respect, such that the [trial] court did not abuse its discretion in concluding that the provision could not be saved by severing the offending terms.”  Slip. op at 1-2.

The Ajamian plaintiff had signed an acknowledgement form presented to her at the start of her employment, which made reference to an online compliance manual that she had not reviewed.  Slip op. at 2.  The manual contained an arbitration agreement.  Slip op. at 2.  Later, the plaintiff received a promotion, at which point the defendant required her to sign an employment agreement containing an express arbitration provision.  Slip op. at 3-5.  The employment agreement also contained a clause stating that the plaintiff would potentially be liable for the defendant’s attorney fees.  Slip op. at 4.  When the plaintiff sued the defendant for issues arising out of her employment, the defendant sought to enforce the arbitration agreement.  Slip op. at 6.

 In a decision authored by Judge Needham, the Court of Appeal found that the trial court, not the arbitrator, properly decided the enforceability of the at-issue arbitration provision.  Slip. op. at 8-10.  The panel also concluded that the provision was procedurally unconscionable, as the plaintiff “had no realistic bargaining power and was required to sign the Employment Agreement to receive her promised compensation—for work she had already performed.  Furthermore, the Employment Agreement was not the subject of any negotiation.”  Slip op. at 26.  Likewise, the panel found that the agreement was substantively unconscionable, because the plaintiff was required to relinquish certain unwaivable statutory damages and remedies.  Slip op. at 28-31.  Further, the non-mutual attorneys’ fees provision, whereby the plaintiff but not the defendant would potentially pay prevailing party fees, was substantively unconscionable.  Slip op. at 31.

The plaintiff is now expected to pursue her claims against the defendant in San Francisco County Superior Court before the Hon. Peter J. Busch.

The Texas Court of Appeals has more than doubled the attorneys’ fee award in a securities class action, holding that the trial court misconstrued the multiplier doctrine and failed to enhance class counsel’s lodestar according to several well-established factors. See Stratton v. XTO Energy, No. 02-10-00483, 2012 Tex. App. LEXIS 1089 (Tex. App. Feb. 9, 2012) (available here). The lodestar multiplier methodology applied in the Texas case is substantially the same across jurisdictions, including California. See Lealao v. Beneficial California, 82 Cal. App. 4th 19, 26 (2000) (“the primary method for establishing the amount of ‘reasonable’ attorney fees is the lodestar method”) and Wershba v. Apple Computer, 91 Cal. App. 4th 224, 255 (2001) (“Multipliers can range from 2 to 4 or even higher.”).

In Stratton, class counsel had successfully negotiated a settlement of the plaintiffs’ claims for breach of fiduciary duty arising out of defendants’ $41 billion merger. See Stratton, 2012 Tex. App. LEXIS at *1-4. The trial court awarded fees of $3.97 million. However, the appellate court held that the trial court had misapplied the widely used “Johnson factors,” which are analyzed to determine whether a multiplier is warranted and how large the multiplier ought to be. See id. at *6-13 (citing Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974)). The Court of Appeals applied a 2.17 multiplier to the trial court’s award, arriving at the new, substantially increased fee award of $8.6 million. Stratton, 2012 Tex. App. LEXIS at *20-29.

In overturning the trial court’s fee award, the appellate court found that “the trial court ignored the uncontroverted evidence that (1) the suggested lodestar was calculated without enhancement by the Johnson factors and (2) that an enhancement was warranted by the facts of the case.” Id. at *9. The appellate court thus rejected the trial court’s assertion that a fee enhancement was inappropriate due to “a lack of evidence that the hours worked and rates billed were reasonable.” Id. at *3. The trial court’s failure to give due consideration to the Johnson factors and to the evidence thus “resulted in an award that cannot be said to be just.” Id.

The appellate court concluded that application of the Johnson factors supported the use of a multiplier. “The unenhanced lodestar does not reflect the exceptional results achieved by Plaintiffs’ counsel, the undesirability of this litigation, the high risk borne by its contingent nature, or the fact that the fee award requested is comparable to that awarded in similar class action litigation.” Id. at 29; accord Consumer Privacy Cases, 175 Cal. App. 4th 545, 556 (2009) (“Once the court has fixed the lodestar, it may increase or decrease that amount by applying a positive or negative ‘multiplier’ to take into account a variety of other factors, including the quality of the representation, the novelty and complexity of the issues, the results obtained, and the contingent risk presented.”).

In addition to analyzing the application of the Johnson factors, the Stratton decision also illuminates other commonly adopted principles of fee awards, including the valuation of work performed by paralegals and the use of expert testimony in determining whether the lodestar reflects a reasonable rate and number of hours. Id. at *14.

Stratton is likely to be relied on in California and the numerous other jurisdictions that have adopted the same lodestar multiplier framework, just as Johnson has been widely influential in shaping the analysis of attorney fee motions.

The U.S. Supreme Court has denied a petition for review brought by defendant Farmers Insurance, in the process strengthening the argument advocated by the plaintiffs’ bar that individual reliance need not be established in consumer class actions.  See Strawn v. Farmers Ins. Co., 256 P.3d 100 (Or. 2011), cert. denied, No. 11-445 (U.S. Jan. 23, 2012) (available here). 

The underlying ruling by the Oregon Supreme Court affirmed a jury verdict for the plaintiffs finding that Farmers Insurance had defrauded and breached its contractual obligations to class members.  Id. at 102.  The Oregon high court specifically rejected the defendant’s contention that the plaintiffs were required to show reliance by every class member on the allegedly fraudulent misrepresentations.  Id.  In a prior ruling in this case, the court explained that reliance among class members could be inferred if the defendant made the same misrepresentation to all, and if class members would have reasonably understood the misrepresentation in the same way.  Strawn v. Farmers Ins. Co., 258 P.3d 1199, 1213 (Or. 2011).

The Oregon Supreme Court thus endorsed a presumption of classwide reliance in consumer fraud class actions, further reinforcing the trend among trial and appellate courts to infer the reliance of absent class members.  See also Wolph v. Acer, 272 F.R.D. 477 (N.D. Cal. Mar. 25, 2011) (classwide reliance is presumed upon a showing that the misrepresentation is material); Fitzpartick v. General Mills, No. 10-11064, 2011 U.S. App. LEXIS 6047 (11th Cir. Mar. 25, 2011) (same); Cole v. Asurion Corp., 267 F.R.D. 322 (C.D. Cal. 2010) (same).

In denying Farmers Insurance’s certiorari petition, the U.S. Supreme Court has implicitly endorsed the Oregon court’s reasoning, and signaled that it is not willing to expand the reach of Dukes to the degree that some had predicted.