Legal Update: June 2024
Lytle v. Nutramax Laboratories, Inc. et al.—Challenging a Proposed Class Action
In Lytle v. Nutramax Laboratories, Inc., et al., 2024 U.S. App. LEXIS 9722; __ F.4th __; 2024 WL 1710663 (9th Cir. April 22, 2024), the court affirmed certification of a class of dog food purchasers alleging the defendants made fraudulent claims about the health benefits of the supplements they manufactured.
Andy Rooney famously said, “The average dog is a nicer person than the average person.” He was almost certainly right, and because of that, many dog owners go to great expense trying to protect their dogs’ health. In Lytle v. Nutramax Laboratories, Inc., et al, 2024 U.S. App. LEXIS 9722; __ F.4th __; 2024 WL 1710663 (9th Cir. April 22, 2024), the court affirmed certification of a class of dog food purchasers alleging the defendants made fraudulent claims about the health benefits of the supplements they manufactured.
Background
Justin Lytle and Christine Musthaler (collectively “Plaintiffs”) purchased certain Cosequin-based nutritional supplements for their dogs. These supplements are manufactured and distributed by Nutramax Laboratories, Inc. and Nutramax Laboratories Veterinary Sciences, Inc. (collectively “Nutramax” or “Defendants”). Plaintiffs alleged that Nutramax made false and misleading statements on the packaging of three of their products describing the products as:
- “Joint health supplement”;
- “Use Cosequin to help your pet climb stairs, rise, and jump!”;
- “Supports mobility for a healthy lifestyle”; and
- “Mobility, cartilage, and joint health support”.
According to Plaintiffs, there have only been two “peer-reviewed, double-blinded, randomized controlled trials” on Cosequin’s effects on canine health, and those studies showed that the supplement provided no more effect on dogs than a placebo. Plaintiffs offered an expert witness whose testimony mirrored that conclusion. Nutramax, in response, offered the testimony of its in-house veterinary expert contradicting those studies and, further, that those studies had been conducted on dogs with osteoarthritis and, Defendants contended, its products were not marketed as a “treatment” for the condition.
Plaintiffs sued Nutramax under the California Consumers Legal Remedies Act (Cal. Civil Code §§ 1750-1784) (the “CLRA”) and moved for certification of a class of Californians who purchased the products for personal use. Following class certification discovery, the trial court granted the motion. Defendants appealed, claiming that (a) reliance on the allegedly false statements cannot be shown on a class-wide basis and (b) that damages are not susceptible to common proof. The court of appeals addressed both issues[1] and affirmed the trial court’s decision.
Court Findings
Certification of a purported class under Federal Rule of Civil Procedure (“FRCP”) 23 requires the movant to show:
- The class is so numerous that joinder of all members is impracticable (aka “numerosity”);
- There are questions of law or fact common to all members (aka “commonality” or “predominance”);
- The claims or defenses of the representative parties are typical of the claims and defenses of the members of the class (aka “typicality”); and
- The representative parties will fairly and adequately protect the interests of the class (aka “adequacy”).
Defendants’ challenge on appeal went to the commonality prong; arguing that Plaintiffs had not presented a methodology for determining damages on a class-wide basis.
In support of their motion, Plaintiffs proffered the testimony of a professor of marketing from the University of Chicago who the district court found had extensive experience in marketing data and analytics. Plaintiffs’ expert proposed a marketing technique called a “conjoint survey” (also known as a “conjoint analysis”). In a conjoint survey, the researcher shows participants mockups of the product packaging with and without various specific features or language. Based on participant responses, the researcher can then calculate the economic value that consumers place on features. At the time the district court was considering Plaintiff’s motion, the expert had not yet actually conducted the proposed survey to determine the amount of damages.
Defendants argued that an “unexecuted” damages model was insufficient for granting class certification. The district court dismissed that argument pointing out that conjoint analyses were common in the marketing field, were a “well-established method for measuring class-wide damages in CLRA mislabeling cases,” and the expert’s analyses had been upheld in other cases.
Both parties acknowledged prior U.S. Supreme Court rulings that require trial courts to conduct a “rigorous analysis” in granting class certification and that a “class action plaintiff must ‘establish[] that damages are capable of measurement on a classwide [sic] basis.’”[2] Nutramax contended that, in order to meet this requirement, the plaintiff would need to actually proffer evidence showing class-wide damages.
Nutramax’s argument rests upon a misapprehension of the temporal focus of the class certification inquiry. As explained below, class action plaintiffs are not required to actually prove their case through common proof at the class certification stage. Rather, plaintiffs must show that they will be able to prove their case through common proof at trial. Given, moreover, that the Federal Rules contemplate that certification will be made “[a]t an early practicable time,” FRCP 23(c)(1)(A), we see no reason why plaintiffs may not, in appropriate circumstances, satisfy this burden through a proffer of a reliable method of obtaining evidence that will come into existence once a damages model is executed, even when the results are not yet available at the class certification stage. We thus hold that class action plaintiffs may rely on an unexecuted damages model to demonstrate that damages are susceptible to common proof so long as the district court finds, by a preponderance of the evidence, that the model will be able to reliably calculate damages in a manner common to the class at trial.[3]
Capability of proof, not actual proof, is consistent with the fundamental distinction at the class certification stage between the court’s obligation to assure the movant has met the requirements of FRCP 23 versus the merits of the movant’s claims. Ruling on a motion for class certification does not “grant courts license to engage in free-ranging merits inquiries at the certification stage. Rather, such merits questions may be considered to the extent—but only to the extent—that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.”[4]
Despite acknowledging that standard, Nutramax argued the theoretical possibility that, once completed, the conjoint survey might show that the class did not actually place value on the allegedly misleading packaging statements. Again, the appellate court determined that Nutramax misapprehended the applicable standard.
The focus of the predominance inquiry is whether the method of proof would apply in common to all class members, not whether the method of proof would or could prevail. As the Supreme Court explained in Tyson Foods, Inc. v. Bouaphakeo, when the concern about the proposed class is not that it exhibits some fatal dissimilarity but, rather, a fatal similarity—an alleged failure of proof as to an element of the plaintiffs’ cause of action—courts should engage that question as a matter of summary judgment, not class certification.
The theoretical possibility that [Plaintiffs’ expert’s] model, when executed, will reveal no damages thus does not undermine predominance, because that result would nonetheless be common to the class. Nor does the possibility [his] analysis might reveal damages with respect to some, but not all, of the challenged statements undermine predominance, because the very structure of the conjoint survey allows for an overcharge to be associated with each individual statement and label, allowing the amount each class member is entitled to recover to be easily assessed based solely on the product the class member purchased. And the possibility that an ascertainable portion of the class may be unable to recover—those not exposed to a statement with any attributable overcharge—does not in itself demonstrate class certification was improper.[5]
Defendants’ final challenge to class certification was that without actually executing the model, there is no way to know whether the class actually sustained any damages at all. Allowing a class to be certified and sending notice to prospective class members would be expensive and “an inefficient use of resources.” Plaintiffs responded that conducting a conjoint analysis is likewise expensive and time consuming. Requiring Plaintiffs to do the survey before the contours of the class have been identified would waste resources, not save them.[6] The court of appeals found both sides’ arguments speculative and, ultimately, irrelevant to the standards of class certification.
Conclusion
Class action lawsuits are sometimes the only viable means to redress wrongs, particularly in consumer fraud claims where an individual’s damages are too small to sustain the cost of litigation. While courts are directed to engage in a rigorous analysis to determine whether the proposed class meets the requirements of FRCP 23, the class proponent is not required to prove the merits of their claims; rather they must establish that their claim is capable of proof. Therefore, if damages are an element of the claim, the movant must be prepared, with expert testimony, to show that damages are subject to class-wide proof. The movant does not need to complete the analysis for purposes of class certification, just demonstrate that the methodology is available and reliable once executed.
[1] With regard to reliance, the appeals court recognized that where a defendant makes materially false statements to the entire class, a rebuttable presumption of reliance arises. Where, as here, the allegedly false statements are part of the packaging materials, the entire class has, by definition, seen the alleged misrepresentations. Nutramax contended that it had presented evidence showing that many veterinarians recommend Cosequin supplements to their patient owners and that a marketing study showed that about half of the respondents had decided to purchase Cosequin before going to a store or viewing the products on its website. Therefore, according to Defendants, they did not rely on the statements reflected on the product package. This was insufficient for the appellate court to reverse class certification. “To establish reliance under the CLRA, a misrepresentation need not be ‘the sole or even the decisive cause of the injury-producing conduct.’” 2024 U.S. App. LEXIS 9722 at *45, quoting Moore v. Mars Petcare US, Inc., 966 F.3d 1007, 1020 (9th Cir. 2020), where the court held the fact that consumers required a veterinarian’s prescription to purchase the pet food, rather than discovering it on their own, did not negate reliance as the requirement for a prescription and the advertising did not need to be the sole or even the decisive cause of the purchase.
[2] 2024 U.S. App. LEXIS 9722 at *16–17 (emphasis in original), quoting Comcast Corp. v. Behrend, 569 U.S. 27, 34, 133 S. Ct. 1426 (2013).
[3] Ibid. at *17–18, emphasis added.
[4] Ibid. at * 20–21, internal citations and punctuation marks omitted.
[5] Ibid. at *21–23, internal citations and punctuation marks omitted.
[6] By way of example, in Plaintiffs’ complaint, they had identified several alleged misleading statements in Nutramax’s marketing materials that were ultimately abandoned in the class certification process. (2024 U.S. App. LEXIS 9722 at *5–6.)
Michael J. Molder, JD, CPA, CFE, CVA, MAFF, applies 30 years of experience as a Certified Public Accountant and litigator to help investigate and analyze cases with complex financial and economic implications. He has acted as both counsel and accounting expert in pending and threatened litigation as well as participating in internal investigations of financial misconduct. As a litigator, Mr. Molder helped co-counsel understand complex financial and accounting issues in dozens of cases. In 2006, Mr. Molder returned to public accounting applying his unique skills to forensic engagements. He has also performed valuations of business interests in a wide variety of industries.
Mr. Molder has served as valuation expert for both plaintiffs and defendants in commercial litigation matters and owner and non-owner spouses in matrimonial dissolutions. He has participated in the valuations of businesses in a wide variety of industries, including: food service, wholesale and retail distribution, literary development and production, healthcare, manufacturing, and real estate development.
Mr. Molder has also investigated and valued damages in a wide variety of litigation contexts ranging from breach of contract claims to personal injury cases, and from employment disputes to civil fraud. He has consulted on many matters which have not involved the issuance of a report for litigation or resulted in deposition or trial testimony. Accordingly, the identity of these matters is protected by attorney client privilege.
Mr. Molder has also lectured widely on a variety of accounting and litigation related topics including business valuation, financial investigations in divorce proceedings, accountant ethics, financial statement manipulation and “earnings management.”
Mr. Molder can be contacted at (610) 208-3169 or by e-mail to Molder@lawandaccounting.com.
