Monday, April 03, 2017

NY class certified in "flushable" wipes case with statutory damages available

Kurtz v. Kimberly-Clark Corp., No. 14-CV-1142 et al., 2017 WL 1155398, --- F.Supp.3d ---- (E.D.N.Y. Mar. 27, 2017) (not effective until April 10, 2017) (I suspect this is another way for the judge to say “get this out of my courtroom already,” but I’ll take suggestions on what this means)

Judge Weinstein is a class action legend, and here he expresses many of his current thoughts about the class action mechanism in the course of certifying a New York class in this action against vendors and makers of “flushable toilet wipes.”  Plaintiffs alleged that, in fact, the products aren’t flushable because they clog household plumbing.  The ideal was “to achieve a single decision by a single court or administrative agency—preferably through a global settlement—that fairly decides all pending disputes, forestalls future similar disputes, and protects both consumers and suppliers.”  But the parties didn’t take that route, even though the court indicated that this dispute “could have been readily settled to the benefit of all parties and the public by relatively minor changes in labeling.”

The central injury alleged here was payment of an unjustified premium for a product misrepresented as “flushable.” Damages to plumbing wouldn’t be covered by the class certification.  Likewise, consumers didn’t argue that they could also bring municipalities’ claims “as taxpayers because clogging at sewage plants ultimately puts in danger the system to which their household disposal systems are connected.”

The district court stayed the litigation to see if the FTC could resolve the issue.  The FTC entered into a final consent order with Nice-Pak, which also covered its retailers, including Costco and CVS.  The consent order had a “flexible and somewhat amorphous definition of ‘flushability,’” to wit, “disperses in a sufficiently short amount of time after flushing to avoid clogging, or other operational problems in, household and municipal sewage lines, septic systems, and other standard wastewater equipment.”  Still, it was “a reasonable attempt to devise a national standard protective of consumers, manufacturers and retailers.” Nonetheless, the FTC responded to the court’s referral by stating that it would address flushability only on a case by case basis; the FTC can’t engage in “aggregate adjudication” of claims and didn’t intend to engage in rulemaking on this issue, though the parties could look to the Nice-Pak consent order for the FTC’s views.  Judge Weinstein griped that consolidated agency action with a uniform definition of flushability would have been better.  A class-wide settlement could also have done the job, or “industry-wide regulation through standards set by the relevant industry association, through multidistrict litigation, or by legislative action at the municipal, state, or federal level.”  But this has not happened, so state-by-state litigation it is.

The court found all the requisites satisfied for injunctive and damages classes.  Ascertainability was satisfied even though many consumers might not have retained receipts; only one product was at issue, and it was labeled uniformly as to the relevant claim.  Costco had electronic records of purchases, and anyway to require receipts would destroy most consumer protection class actions.  Article III standing for injunctive relief existed, despite the named plaintiff’s unwillingness to buy again, because the product was still on sale and, “[i]f defendant’s theory were to be accepted, it would effectively bar injunctive classes in consumer deception cases …. That result is undesirable as a matter of public and federal policy and practice.”

The court also approved hedonic regression as a measure of classwide damages to show the premium for “flushable” wipes.  NY GBL §349 doesn’t require showing individualized reliance.  Although previously the court indicated that FTC proceedings would be “superior” to a class action, that’s not going to happen.  The court also previously indicated that “an award of statutory damages could be excessive and in violation of New York State policy.”  The reason is that §349 allows statutory damages of fifty dollars per event, but NY civil procedure bars statutory damages in class actions unless that’s specifically authorized by the underlying statute, which it is not for §349.  The Supreme Court has explicitly held that Rule 23 conflicts with this rule and prevails, making statutory damages available in federal class actions.  On further reflection, the court concluded that to weigh the policy conflict against certification would “flout” the Supreme Court’s decision.  “While disagreeing with the Supreme Court majority opinion, the district court is bound by it.”  And the court’s initial stay of the cases under the primary jurisdiction doctrine was no longer supportable, given the FTC’s subsequent actions.  The Nice-Pak consent order provided “a solid basis for settlement of all cases with but minor tweaking,” but the parties resisted settlement.

[Scroll past the images of wipes]

Charmin label

More Charmin

Cottonelle label

Cottonelle sewer and septic safe

Cottonnelle SafeFlush technology

More Cottonelle claims

Kirkland flushable

Kirkland flushable-only one at a time claim

Kirkland "safe for well-maintained sewer and septics"

Kirkland "not recommended for motor homes/basement pumps"

A few specifics about particular brands: P&G offers full reimbursements to consumers who claim that Freshmates caused a clog, including a full refund of the purchase price and a “goodwill” reimbursement of up to $250 if the consumer complains that Freshmates caused plumbing damage. Freshmates packaging provides a toll-free customer service telephone number, but no information about P&G’s refund policies. Costco also offers its customers a full refund—no questions asked—if they are not 100% satisfied, but the phone number provided on the packaging is the phone number for the manufacturer, Nice-Pak. Nice-Pak sometimes reimburses a complainant for reasonable plumbing costs upon receipt of documentation from the customer, but the packaging doesn’t disclose this refund policy.  Kirkland’s wipes are probably better labeled than the others in that, while other brands suggest using up to two wipes before flushing, Kirkland states “NEVER FLUSH MORE THAN 1 WIPE AT A TIME” and also claims “Safe for Well-Maintained Sewer & Septics*” with a warning “*NOT RECOMMENDED FOR USE IN MOTOR HOMES OR WITH BASEMENT PUMP SYSTEMS.”

Defendants argued that what “flushable” meant to consumers couldn’t be decided on a classwide ebasis because of variability in the definitions.  One of their experts deemed a golf ball “flushable”; P&G committed to “it will not cause problems in their home system.”  Kimberly-Clark and Costco argued that “flushability” had to be determined individually. All defendants followed the guidelines of the Association of the Nonwoven Fabrics Industry in their labeling.

The court found that the meaning of flushability was subject to classwide proof, but strongly suggested that a study of New York consumers was warranted. Regardless, “[t]ypically ... where the consumer protection statute at issue supplies an objective test, such claims are considered ‘ideal for class certification’ because they allow the court to adopt classwide presumptions of reliance and do not require an investigation into ‘class members’ individual interaction with the product.’ ”  Unlike a case in which the impact of the phrase “The Better Vitamin C”—akin to puffery—couldn’t be disentangled from other non-misleading representations on the label, flushability was sufficiently distinctive that it could be isolated from other label claims.

The common questions:
(1) What do defendants’ “flushable” representations mean to a reasonable consumer?
(2) Do defendants’ products currently satisfy that meaning?
(3) Did previous iterations of defendants’ products satisfy that meaning?
(4) Are defendants’ “flushable” representations materially misleading?
(5) Did class members pay an unsupported premium as a result of the “flushable” representation?
(6) Was that premium—to the extent that it can be reasonably ascertained—relatively uniform?

Defendants argued that payment of a price premium “depends on the purchaser’s individual experience with the product after purchase.”  But that’s not the right injury in a false advertising case, which doesn’t depend on individual reliance or whether the product met consumers’ personal, subjective expectations. The fact that some “consumers were satisfied with the product is irrelevant” if the advertising was likely to mislead a reasonable consumer.

The court also found typicality satisfied. Defendants argued that Kurtz continued buying the wipes—and refrained from flushing them—after he no longer believed the wipes were “flushable,” making him subject to a unique “voluntary payment” defense. It was unclear whether his subjective belief that the wipes should not be flushed constituted “full knowledge of the facts” so that this defense applies. There was also no evidence that Kurtz’s purchases were ever made with “full knowledge” that he was paying a premium price for the “flushable” representation.  Even if the voluntary payment defense applied to any person who purchased wipes and did not flush them, typicality would still not be defeated, because, according to defendants, many consumers who purchased wipes did not flush them. The individual circumstances related to his plumbing also didn’t matter since his claims were based on the price of the wipes.

As for Rule 23(b)(2) injunctive class status, plaintiffs wanted the products to “either be relabeled or taken off the market.”  Some courts (including the Second Circuit) require plaintiffs to demonstrate that a (b)(2) class is “cohesive” and “necessary.” Cohesiveness is similar to commonality, and necessity reflects that certification is not always required to get relief that runs to the benefit of others similarly situated to the named plaintiff.  Judge Weinstein commented that “[t]hese additional case law interpretive requirements to Rule 23 are unjustified in light of the detailed legislative attention to Rule 23, which does not contain them,” but regardless, cohesiveness and necessity were present. 

Defendants argued that injunctive relief would be “prudentially moot” because the FTC has already provided the plaintiffs with all the relief they could be accorded through an injunction, given the FTC’s decisions to enter into a consent order with Nice-Pak and to close its investigation of Kimberly-Clark. The FTC’s actions allegedly established that the products now on the market as packaged definitely do not contravene law, and Costco’s agreement with the FTC meant that it “voluntarily ceased” any past illicit conduct. “Prudential mootness doctrine often makes its appearance in cases where a plaintiff starts off with a vital complaint but then a coordinate branch of government steps in to promise the relief she seeks.” However, the mere promulgation of an informal definition of “flushable” wasn’t adequate relief. The FTC’s investigation of P&G was ongoing, so it was too soon to say whether Freshmates even met that vague definition. The FTC’s letter on the closed investigation on Kimberly-Clark no expressly stated that the closure “is not to be construed as a determination that no violation has occurred.” Costco, whose wipes were subject to the Nice-Pak Final Consent Order, had the strongest mootness argument, but a promise made to an administrative agency to do something—or to refrain from doing something—didn’t assure that no violation occurred or will occur or that the effects of any past violation had been completely and irrevocably eradicated. “There is too much money at stake for plaintiffs to assume defendants will do ‘the right thing’ in a relabeling that might reduce sales and profits.” Moreover, the consent order didn’t provide the relief Kurtz was actually seeking: a change in the label or removal of the product from the market.

Turning to Rule 23(b)(3), this too was satisfied.  On predominance, defendents argued that some consumers “consistently flushed without problem” and therefore could not “have been deceived” by the “flushable” label. But there’s the price premium issue again. The question of whether the products didn’t disintegrate “for some individuals goes solely to the merits; it has no relevance to the class certification issue.” Nor did materiality require individual proof, because “individualized proof of reliance is not necessary” for § 349 claims. Materiality to a reasonable consumer’s decision to purchase “is an objective inquiry that focuses on that packaging.”

It was also common sense that “flushability” was “a valuable characteristic that producers include on their labels with the expectation that it will allow them to extract a higher price for the product. Internal company documents make it clear that flushability is the raison d’ĂȘtre for this market niche.” Testimony from company executives confirmed this importance.  All three companies expended significant resources to improve “dispersibility” of the wipes once flushed.  “It is impossible to accept the argument that these companies would make this investment to gain or improve flushability without expecting a reasonable financial return.”

The single question of whether plaintiffs paid more than they would have for the good because of the deceptive flushability label predominated over any individualized damages inquiries. This was especially true because the battle of experts on the magnitude of any price differential was “largely beside the point,” because once the fact of injury was established, statutory damages could be calculated classwide: $50 to each class member for each time defendant violated the statute by a sale.  Individualized issues of physical plumbing damages would be tried on an individual basis, not as part of the class action, and any such potential recoveries were likely to be de minimis as compared to the class recovery.

Superiority: defendants argued that their refund programs were superior, providing faster compensation with lower transaction costs than a class action. But statutory damages were a more effective remedy for most class members than a simple refund. “[T]he uncertain prospect of some class members recovering money for plumbing damages—which is likely to be a de minimis sum—does not make the refund program superior to a class action.” Also, given the failure to advertise that the companies were willing to reimburse consumers for plumbing expenses incurred allegedly due to use of their products, any potential recovery of plumbing damages that could inure to class members through a refund program was “somewhat illusory,” as compared to a class action remedy. A remedy that consumers don’t know about can’t be superior.  Nor was FTC action superior, given the limited possibility of further action.

As for Kurtz’s common law claims of negligent misrepresentation, breach of warranty, and unjust enrichment, though, common questions of law or fact didn’t predominate because individualized proof would be necessary to demonstrate each purchaser’s reliance on defendants’ alleged misrepresentations.

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