Posts belonging to Category Certification Rulings

Postpichal v. Cricket Wireless, LLC: Under RICO, Differences in Consumers’ Experience Purchasing 4G Cell Phones and Plans Does Not Defeat Predominance

“In the early 2010’s, 4G ranked as the newest development in the cellular services industry.” Postpichal v. Cricket Wireless, LLC, No. C 19-07270 WHA (N.D. Cal. Aug. 4, 2021) (“Postpichal”) (slip op. at 1, available here). “Cellular service companies needed 4G to stay current.” Id. at 2. According to the plaintiffs in Postpichal, Cricket Wireless, LLC (“Cricket”) failed to build out its 4G capabilities. Up to 77% of individuals living in areas of Cricket’s coverage did not have access to 4G. Id. Cricket deceptively advertised and sold 4G cellular phones and service plans in those areas anyway, according to the plaintiffs’ class action complaint.  

The plaintiffs moved for class certification on a single claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Slip op. at 7. One of the defendant’s primary arguments was that the plaintiffs could not establish commonality and predominance under Federal Rule of Civil Procedure, Rule 23(b)(3). Id. at 11. The defendant argued that there were “differences in marketing materials across different regions, unscripted conversations between employees and customers,” and issues as to “whether or not customers viewed coverage maps.” Id.

Under RICO, those differences did not defeat predominance, said the district court, because RICO plaintiffs do not need to prove first-party reliance. They “need to prove proximate cause and that in most cases requires reliance by someone.”Slip op. at 11 (emphasis in original). In other words, it would suffice if the plaintiffs proved that, while not everyone relied on the defendant’s fraudulent marketing scheme, a “critical mass” of consumers did, such that the defendant’s representations as to 4G “artificially support[ed] a higher price for both phones and plans.” Id. In that case, all class members will have paid more for their phones and plans than they should have because they purchased 4G phones and plans supposedly worth more than they actually were. Id.

The defendant also attempted to defeat commonality and reliance by likening Postpichal to another RICO case, Poulos v. Caesars World, Inc., 379 F.3d 654 (9th Cir. 2004). In Poulos, a cruise ship allegedly offered patrons video poker machines programmed to show near misses of a winning jackpot more often than they would appear on a truly random machine, creating the misperception of higher-than-actual odds of winning. Insidious as that practice may seem, the Ninth Circuit held that the plaintiffs failed to show proximate cause because people have “varying reasons” for gambling. Slip op. at 13. “[I]t may be an addiction, a form of escape, a casual endeavor, a hobby, a risk-taking money venture, or scores of other things.” Id. at 13, quoting Poulos at 668.  

The district court was not persuaded by the defendant’s reliance on Poulos. “This order declines Cricket’s invitation to treat cellular service plans and phones like gambling.” Slip op. at 13. Consumers do not purchase cell phones and plans for the thrill of betting that they get the service for which they paid. Rather, although consumers buy cell phones and plans for different reasons, “most reasonable consumers don’t pay more for nothing if given options.” Id. In obfuscating the true availability of 4G in most markets, the defendant deprived consumers of the option of making “informed choices about their purchases.” Id. Thus, the plaintiffs established commonality and predominance under RICO.

Authored by:
Robert Friedl, Senior Counsel

Bailey v. Rite Aid Corporation: Deception Is in the Eye of the Beholder

In Bailey v. Rite Aid Corporation, Defendant Rite Aid recently petitioned the Ninth Circuit for permission to appeal an order certifying a class of California consumers who purchased Rite Aid gelcaps (an acetaminophen product) labeled as “rapid release.” See Petition for Permission to Appeal Under Federal Rule of Civil Procedure 23(f), Bailey v. Rite Aid Corporation, No. 21-80061 (9th Cir. June 9, 2021) Dkt. No. 1-3 (“Petition”) (petition available here).

According to the plaintiff, Rite Aid gelcaps labeled as “rapid release” are sold in Rite Aid stores within “eye-view” of less expensive Rite Aid acetaminophen tablets that are not labeled “rapid release.” The plaintiff’s theory of liability is that because both products are within “eye-view,” and only one product is labeled “rapid release,” reasonable consumers would conclude that the gelcaps are faster-acting than the tablets, when in fact they are not. See Bailey v. Rite Aid Corporation, No. 4:18-cv-06926-YGR, N.D. Cal. April 28, 2021 (order granting in part and denying in part motion for class certification; order re: motions to seal, slip op. available here) (“Bailey”). The district court accepted the plaintiff’s theory and concluded that whether a reasonable consumer is likely to be deceived by Rite Aid gelcaps’ “rapid release” claim can be resolved by common evidence on a class-wide basis. Id. at 7-8.

Rite Aid states in its petition, “[t]his is not a typical product mislabeling case where the challenged product label is false or misleading on its face.” Petition at 1 (emphasis in original). That is true. “[The plaintiff]’s theory of liability requires a comparison by consumers of the label and price of the Rite Aid gelcaps against the labels and prices of cheaper Rite Aid acetaminophen tablets placed near the gelcaps.” Slip op. at 5 (emphasis added).    

That is no bar to liability. It is indisputable that consumers compare labels when shopping for products. The plaintiff’s “eye-view” theory simply applies the merchandising principle that in comparing products, in-store product placement and layout strategy has a powerful influence on consumers’ purchasing decisions. Therefore, as Bailey demonstrates, consumer deception in labeling cases need not be limited to the four corners of a product’s label. Rather, the context of how products are presented in stores—what consumers see—can also deceive.

Authored by:
Robert Friedl, Senior Counsel

Keurig K-Cup Consumers Win Class Cert of False “Recyclable” Claims

In Smith v. Keurig, N.D. Cal. Sept.  21, 2020, the district court granted Plaintiff Kathleen Smith’s motion for certification of a class of purchasers of Keurig coffee pods (“K-Cups” or “Pods”) based on Keurig’s allegedly false representation that the Pods are “recyclable.” The decision (slip op. available here) touches on a number of familiar issues that have been brewing in food labeling cases for years.

The plaintiff’s theory of liability boils down to allegations that K-Cups are not recyclable because they fail to meet Federal Trade Commission (“FTC”) guidance for Use of Environmental Marketing Claims (“Green Guides”). Under the Green Guides, the district court had previously stated, “if a product is rendered non-recyclable because of its size or components—even if the product’s composite materials are recyclable—then labeling the product as recyclable would constitute deceptive marketing” (citing 16 C.F.R. § 260.12(d)). In addition, a marketer may make an unqualified recyclability claim only “[w]hen recycling facilities are available to a substantial majority of consumers or communities where the item is sold.” 16 C.F.R. § 260.12(b)(1).  According to the plaintiff, the K-Cups are not “recyclable” because (a) less than 60% (or a “substantial majority”) of facilities will accept the products, (b) the products’ size prevents them from being properly sorted by recycling programs, and (c) there is a lack of end markets to recycle the products.

The plaintiff’s theory provides the grounds for several causes of action, including claims under California’s Unfair Competition Law (“UCL”) and the California Consumers Legal Remedies Act (“CLRA”). The plaintiff also sought to certify her claims under Fed. R. Civ. P. 23(b)(2), in order to obtain injunctive relief.

On the UCL claim, Smith discusses whether Keurig’s advertising raises the presumption of classwide reliance available under Tobacco II in the context of internet sales. The plaintiff testified that she was aware of Keurig’s claims that its products were recyclable, believing that the recycling claims on Keurig’s website and the packaging of products she purchased on the website were true. Smith, slip op. at 9. Since the plaintiff provided evidence that she relied on those representations, and “all the class members were exposed to Keurig’s recyclability representations,” the district court found that Keurig’s “advertising campaign” warranted a presumption of classwide reliance. Id. citing Walker v. Life Ins. Co. of the Sw., 953 F.3d 624, 630 (9th Cir. 2020), In re Tobacco II Cases, 46 Cal.4th 298, 328, 207 P.3d 20, 28 (2009).

Unlike the UCL, the CLRA requires a plaintiff to establish classwide reliance on misrepresentations. Here, the plaintiff successfully argued that, under the California Environmental Marketing Claims Act (“EMCA”) recyclability is material to reasonable consumers, raising an inference of classwide reliance. The EMCA makes it unlawful to make deceptive environmental marketing claims, including “any claim contained in the [Green Guides] published by the [FTC].” Cal. Bus. & Prof. Code § 17580.5(a). As the district court observed, by “specifically outlawing” an allegedly deceptive representation, the Legislature “recognizes the materiality of [the] representation.” Kwikset Corp. v. Superior Court, 51 Cal.4th 310, 329 (2011).

Lastly, Smith applied Davidson v. Kimberly-Clark Corp., 889 F.3d 956, 969 (9th Cir. 2018), to determine that the plaintiff had Article III standing to pursue injunctive relief. Keurig deployed the standard “can’t be fooled again” argument, i.e. that under Davidson, the plaintiff lacked Article III standing to pursue injunctive relief because she is now fully informed that the K-Cups are not “recyclable,” and therefore cannot be harmed by the representation in the future. Smith, slip op. at 18-19. However, Smith presents a factual scenario in which, absent injunctive relief, the plaintiff cannot know whether the “recyclable” representation is true. As the district court observed, “MRF’s [Materials Recovery Facilities] could evolve to capture small plastics such as Pods.” Id. Thus, the court found the plaintiff had Article III standing to seek injunctive relief under Davidson.

Authored by:
Robert Friedl, Senior Counsel

Magadia v. Wal-Mart: Employer Loses Bid to Decertify Meal Period Class Due to Its Own Records

Last November, a California federal court rejected Wal-Mart’s effort to decertify a class of employees who took late meal breaks or missed their meal breaks and were not paid adequately by Wal-Mart. Magadia v. Wal-Mart Associates, Inc., No. 17-CV-00062-LHK (N.D. Cal. Nov. 13, 2018) (slip op. available here). The court refused to disturb the prior certification order because the employer’s records, which included codes it generated after its investigation of a missed or late meal period, enabled the court to evaluate Wal-Mart’s liability on a class-wide basis. Slip op. at 8. Plaintiff employees should note that, following this example, certain employer records can be effectively used to answer the question of why meal periods were missed and avoid the need for an individualized, factual inquiry into the violations.

Earlier, the district court had certified three classes: a meal period class, an overtime/wage statement class, and a final wage statement class. Wal-Mart sought to decertify solely the meal period class. Under California law, employers may not employ employees for a work period of more than five hours per day without providing a 30-minute meal period. Cal. Lab. Code § 512(a). Pursuant to the Labor Code, when an employer fails to provide a meal period to an employee in accordance with state law, it must pay the employee one additional hour of pay at the employee’s regular rate of compensation—a meal period premium. Cal. Lab. Code § 226.7(c). The plaintiff alleged that, while Wal-Mart pays meal period premiums for non-compliant meal periods, the premiums are inadequate because they are paid at a straight hourly rate rather than at a higher, regular rate. The district court had certified the meal period class because it found that common questions predominated over individualized inquiries with respect to Wal-Mart’s liability to class members “because Wal-Mart’s own records ‘document why each meal exception [i.e., a late or missed meal period] happened.’” Slip op. at 8. In other words, “because Wal-Mart investigates and documents why each meal exception happened, ‘it would not be difficult to determine [Wal-Mart’s] liability to individual plaintiffs.’” Slip op. at 9.

Indeed, Wal-Mart’s practice included conducting an investigation, where its managers or human resource officials met with employees to determine why the meal period exception occurred, and then issuing Exception Management System (“EMS”) codes that Wal-Mart used to categorize the meal period exceptions. For certification, the district court found that such records could be used to extrapolate “whether each meal period premium that was paid to a class member was prompted by an actual failure by Wal-Mart to provide a compliant meal period.” Slip op. at 7.

In moving for decertification, Wal-Mart claimed that its investigations of meal period exceptions focused on documenting associate allegations rather than whether a meal premium was legally required. Wal-Mart contended that its own investigation worksheets were not reliable for determining whether or not Wal-Mart prevented a proper meal period; therefore, individual inquiries would predominate. The plaintiff argued that Wal-Mart’s own testimony demonstrated that it conducted significant and detailed investigations of meal period exceptions, logging the results, and it could not discredit its own documents. Ultimately, the district court denied Wal-Mart’s motion for decertification, finding that “[t]he evidence submitted . . . continues to demonstrate that Wal-Mart’s own records—specifically, the EMS codes generated after a meal period exception investigation—enable the Court to evaluate Wal-Mart’s liability to class members ‘on a class-wide basis,’ which warrants certification.” Slip op. at 8. Wal-Mart’s records appear to answer the question of why meal periods were missed and obviate the need for any heavily factual inquiry into the particular circumstances of each class member. Slip op. at 11.

Although decertification was improper, the district court nonetheless concluded that the question of the significance of Wal-Mart’s records could be revisited at the merits stage. For now, however, the certification order stands and the class’s “claims will ‘prevail or fail in unison,’ as required by Rule 23(b)(3).’” Id. Thus, a large class of Wal-Mart employees was able to utilize the employer’s records to support their theory of liability and could continue to proceed with their claims that the employer underpaid them for non-compliant meal breaks.

Authored By:
Liana Carter, Senior Counsel