Mitchell K. Morris AND Luther T. Munford AUTHORED THE PRODUCT LIABILITY & SAFETY USA TRENDS AND DEVELOPMENTS SECTION OF THE 2021 CHAMBERS GLOBAL PRACTICE GUIDE. THE ARTICLE WAS ORIGINALLY PUBLISHED HERE.
Defeating The New Product Liability Mass Tort: Entrepreneurial Consumer Class Actions
Entrepreneurial consumer class actions present a new challenge to product manufacturers. Traditional product liability suits have alleged personal injury arising from a product defect or failure to warn, or perhaps economic damage arising from a breach of warranty. The entrepreneurial consumer class action instead typically focuses on alleged misstatements about a product.
The claim in such cases is simply that, but for the misstatements, the plaintiff would not have bought the product. Because the asserted damage (ie, the price of the product) is the same for all purchasers, the plaintiff can plausibly seek class certification. And certification in turn allows claims to be brought even when individual recoveries might be quite small.
So it is, that in the first half of 2021 alone, class actions have been filed targeting the sale of macaroni and cheese, shampoo, sunscreen, and household cleaning products.
These cases are “entrepreneurial” in that they are lawyer-driven and not client-driven. Fortunately, that same “entrepreneurial” quality can give rise to defences that can justify dismissal.
Background: the “entrepreneurial model” of mass torts
In the early 2000s, legal scholar Lester Brickman identified a shift in asbestos litigation “from the traditional model of an injured person seeking a lawyer” to what he described as “an entrepreneurial model under which plaintiff lawyers and their agents actively recruited hundreds of thousands of potential litigants who could claim . . . exposure to asbestos containing products.” Lester Brickman, On The Applicability Of The Silica MDL Proceeding To Asbestos Litigation, 12 CONN. INS. L. J. 35-36 (2006) (hereinafter, Brickman). Professor Brickman “concluded that a substantial percentage of these nonmalignant claimants” – that is, people alleging injuries other than cancer – “had no disease caused by asbestos exposure”; had “no loss of lung function”; and, that “the claims were often supported by specious medical evidence and entrepreneurially generated witness testimony[.]” See id.
The entrepreneurial model and contemporary class actions
Professor Brickman’s scholarship identified a number of recurrent features associated with claims generated through the “entrepreneurial model.” Many contemporary consumer class actions exhibit – often strikingly so – these same features.
The first “element of the entrepreneurial model” is “a massive client recruitment effort.” Brickman at 37. Of course, client recruitment lies at the heart of many class actions, with tried and true personal and professional networks often playing a vital role. See, for example, Bohn v Pharmavite, LLC, No CV 11-10430-GHK AGRX, 2013 WL 4517895, at *2 (C.D. Cal. Aug. 7, 2013) (class representative long-time personal friend of class counsel). The practice of lawyers enlisting friends, family members and employees as class representatives was perceived by Congress to be such an issue that it considered a proposal in 2017 to ban the first two and require automatic disclosure of the third (the proposal was not approved by the Senate).
The second element of the classical entrepreneurial model is “no medically cognizable . . . injury.” Brickman at 37. In the modern class context, not only is there no medically cognisable personal injury, there often is no economically or legally cognisable injury arising from the defendant’s alleged violation(s).
Indeed, a threshold issue in many, if not most, consumer protection actions is whether the plaintiff has suffered a concrete injury-in-fact sufficient to confer standing. See, for example, McGee v S-L Snacks Nat’l, 982 F.3d 700, 702 (9th Cir. 2020) (affirming the district court’s dismissal for lack of standing of a putative class action asserting claims based on a popcorn manufacturer’s use of partially hydrogenated oils). A recent case involving Apple mobile devices, Lopez v Apple, Inc., No 19-CV-04577-JSW, — F.Supp.3d —-, 2021 WL 823122 (N.D. Cal. Feb. 10, 2021), is instructive. The court dismissed a proposed class action alleging that Apple violated consumers’ privacy rights because “Siri” could be accidentally triggered and private communications had been disclosed without consent. Id. at *3. The court ruled that neither of the plaintiffs’ “two theories of harm” – that “Apple disclosed Plaintiffs’ private information without consent and” that “Plaintiffs suffered an economic injury because they overpaid for, and did not receive the full benefit of, their Apple devices” – were sufficient to establish standing. Id. Rather, the alleged injuries were purely “hypothetical . . . privacy harms of other class members that may not have affected Plaintiffs at all.” Id.
The third and fourth elements of the entrepreneurial model are that “the claims of injury are often supported by entrepreneurially generated . . . evidence,” and “are further supported by ‘litigants’’ testimony that is often the product of entrepreneurial witness preparation techniques[.]” Brickman at 37–38. Some recent cases allege similar conduct in the consumer class context. That is, lawyers being the driving force behind the purchases or other events giving rise to the alleged claims, as well as the evidence used to support them.
Last year, for example, the California Court of Appeals permitted a clothing manufacturer to proceed with a malicious prosecution action against the former named plaintiffs and plaintiffs’ lawyers in a putative class action claiming the manufacturer’s “Made in the U.S.A.” labels were misleading. See Citizens of Humanity, LLC v Hass, 259 Cal. Rptr. 3d 380 (Ct. App. 2020). The court reasoned: “Considering [the plaintiff’s] familial relationship with [one of the plaintiff attorneys], her history of serving as a plaintiff on mislabeling cases for the Del Mar Attorneys, her willingness to buy foreign made products (including jeans and shoes), her admission that she did not look at the labels before buying products, the fact she left the tags on her jeans, and her withdrawal as the named plaintiff, a reasonable inference could be drawn that she was a shill plaintiff. In other words, she purchased the subject jeans not because she was duped by the “Made in the U.S.A.” label, but because she wanted to again assume the role as a named plaintiff in another mislabeling case for the Del Mar Attorneys.” Id. at 391.
The remaining elements of the entrepreneurial model are bringing actions “mostly in a small number of jurisdictions”; filing actions “en masse in selected courts”; and, leveraging these pressures to cause defendants to “adopt settlement strategies that include payment of compensation irrespective of whether the litigants had suffered any actual injury . . .[that] was substantially caused by . . . defendant[.]” Brickman at 38. These elements, too, are present in some form in much contemporary consumer class litigation.
California, in particular, has proven to be an attractive venue, with litigants seeking to take advantage of favourable consumer protection laws. Meanwhile, the class action mechanism itself creates the “en masse” effect and associated settlement pressure. Whereas the mass asbestos cases of the past required hundreds of individually identified and named plaintiffs, putative class actions require only a handful of representative ones.
Defending entrepreneurial class actions
Having analysed contemporary class actions through the lens of the entrepreneurial model, we now discuss how these features can be leveraged in the defence of such actions.
Standing and causation
First and most fundamentally, a case’s entrepreneurial origins may have implications for the named plaintiffs’ standing to bring the claims at all. Although courts seem more willing to dismiss consumer class actions on standing grounds in the wake of the United States Supreme Court’s seminal decision in Spokeo, Inc. v Robins, 136 S. Ct. 1540 (2016), not all claims can be disposed of under Spokeo and its progeny. See, for example, Maisel v S.C. Johnson & Son, Inc., No 21-CV-00413-TSH, 2021 WL 1788397, at *3 (N.D. Cal. May 5, 2021) (“[B]ecause Maisel alleges she purchased the Ecover dishwasher tablets and would not have if she knew they were mislabeled, the Court finds she has Article III standing to bring this case”).
But what if it can be shown that an otherwise legally sufficient “injury” was lawyer-driven? Take, for example, a fact pattern like the Citizens of Humanity case, in which it is alleged that the representatives were recruited by class counsel as “shill plaintiffs” who “purchased the… jeans to serve as a plaintiff… in order to be paid.”
“An injury sufficient to confer standing cannot be manufactured for the purpose of litigation.” Barber v Bryant, 860 F.3d 345, 354 (5th Cir. 2017) (quotations and citations omitted). This principle should apply with full force when the “injury” is effectively “manufactured” by the claimant’s lawyer.
The reaction of one multidistrict litigation (MDL) court to such a fact pattern is instructive. Evidence surfaced that certain class counsel may have directed individuals to purchase the allegedly mislabelled products at issue in order to “recruit” them as class representatives. See In re: Dollar Gen. Corp. Motor Oil Marketing and Sales Prac. Litig., 4:16-md-2709-GAF (W.D. Mo.), ECF No 16.
Upon learning of class counsel’s conduct, the court stated: “[I]t’s clearly not appropriate and clearly not permissible. A plaintiff of that nature . . . would . . . lack standing to proceed.” Id., Hr’g Tr. (July 14, 2016) at 14:8-23. Ultimately, the court dismissed several named plaintiffs impacted by the alleged conduct. Id., ECF No 118.
As in that case, where there is evidence that the “injury” underlying a class action (or any action, for that matter) was effectively “manufactured” by counsel, courts should consider it as part of the threshold standing analysis. Spokeo demands as much: “Because the doctrine of standing derives from the case-or-controversy requirement, and because that requirement in turn is grounded in historical practice, it is instructive to consider whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts.” 136 S. Ct. at 1549. Self-inflicted or lawyer-manufactured “harms” do not pass muster under this standard.
For similar reasons, the entrepreneurial features of a class action may also bar a finding of causation, reliance or damages. If a lawyer instructs a client to purchase the supposedly mislabelled or defective product for the purpose of bringing a claim, then the plaintiff did not rely on any statement or omission by the defendant, and the defendant’s labelling is not the cause of the plaintiff’s “harm.”
In Clark v Hershey Co., No 18-CV-06113 WHA, 2019 WL 6050763, at *4 (N.D. Cal. Nov. 15, 2019), for example, the court granted summary judgment where a claimant’s “decision to stop purchasing the product was due to learning from her attorneys that the product contained an artificial flavor” and, thus, “there [wa]s no genuine dispute of fact that she did not rely on the label.” Similarly, in Weisberg v Takeda Pharm. U.S.A., Inc., No CV 18-784 PA (JCX), 2018 WL 4043171, at *7 (C.D. Cal. Aug. 21, 2018), the court noted the defendants’ potential defences regarding “reliance, causation, and injury” where the “Plaintiff admit[ted] to having hired a lawyer after learning the cost of the 90-day supply – the purchase for which Plaintiff now seeks restitution and damages – six days before completing the purchase.”
A case’s entrepreneurial features are also relevant to the requirements for class certification under Fed. R. Civ. P. 23(a); namely, typicality and adequacy of both plaintiff and class counsel. Indeed, the “idiosyncrasies” and “unique defences” associated with lawyer-driven claims can preclude the requisite showings under both Rule 23(a)(3) and (4). See Weisberg, 2018 WL 4043171, at *7.
In one case, a court found a plaintiff could not “adequately represent the class” where the evidence suggested that she had based certain “testimony on a memory that reconstructed the relevant events around her discussions with [class counsel] and the filing of this suit,” “indicat[ing] that Plaintiff has, at least unknowingly, tailored aspects of her memory to fit the narrative of this action.” Bohn, 2013 WL 4517895, at *2. Based on the “Plaintiff recall[ing] the events in a way that fits the narrative of this lawsuit” and her “eight-year friendship involving weekly gatherings” with the class counsel, the court concluded “that Plaintiff may have, at best, unduly relied on her close friend [class counsel], or, at worst, have no real interest in prosecuting this action other than to assist her close friend in recovering a sizeable fee award relative to the small individual recoveries of the class members.” Id. at 3.
In another case, the court noted that two of the original named plaintiffs – who the evidence suggested had “purchased [the product at issue] at class counsel’s direction for the purpose of initiating this lawsuit . . . using funds class counsel had given them” – “would not have been adequate class representatives had they remained in the case[.]” English, 2016 WL 1188200, at *13. As to the remaining plaintiff, the court found that the class counsel, who was the case’s “source and its driver” and who “commenced” the case in the aforementioned “dubious manner,” was not adequate under Rule 23(a)(4), even with the addition of co-counsel. Id. at *13-14. The court distinguished between “a case where the class counsel merely solicited a person to serve as a named plaintiff,” and the case before it, in which the “evidence . . . strongly indicates that class counsel instructed [two of the original plaintiffs] to purchase the service plans that gave rise to their claims, and gave them the funds to do so.” Id. at *13, n.16.
Exposing a case’s entrepreneurial origins
Persuading courts to reject entrepreneurially manufactured class actions is, of course, only half the challenge. Defendants must first develop the evidence necessary to support the arguments.
While standing is jurisdictional and, therefore, capable of being raised in an initial motion to dismiss under Fed. R. Civ. P 12(b)(1) (and at any other time), rarely if ever will the facts necessary to establish the entrepreneurial features of a claim appear on the face of the complaint or in any other source considerable on a Rule 12 motion. See, for example, Clark, 2019 WL 913603, at *2 (finding defendant’s argument “that plaintiffs do not have standing and lack a justiciable injury [ because] plaintiffs’ counsel recruited clients through a fishing website . . . which promises people that they can cash in on class settlements” to be “more appropriate for a summary judgment motion, after discovery on the way in which plaintiffs came to counsel” and, therefore, denying motion to dismiss without prejudice). Thus, at least some discovery will likely be required to support the standing and other arguments discussed above.
Rather than waiting to explore a case’s entrepreneurial features during general discovery, one possibility is to seek an initial discovery period limited to standing, or, alternatively, “on the way in which plaintiffs came to counsel.” Clark, 2019 WL 913603, at *2; see also Guttmann v Nissin Foods (U.S.A.) Co., Inc., No C 15-00567 WHA, 2015 WL 4881073, at *2 (N.D. Cal. Aug. 14, 2015) (ordering parties to conduct limited discovery on a defendant’s motion to dismiss asserting that the plaintiff lacked standing because of a prior “litigation campaign” and associated product knowledge). Rules 26 and 42 of the Federal Rules of Civil Procedure grant district courts broad discretion regarding the timing, sequence and bifurcation of discovery. See, for example, Physicians Healthsource, Inc. v Janssen Pharm., Inc., No CIV.A. 12-2132 FLW, 2014 WL 413534, at *4 (D.N.J. Feb. 4, 2014). Courts have demonstrated a willingness to bifurcate or limit initial discovery in the class action context where “a narrow, potentially dispositive issue exists,” as is the case with lawyer-manufactured claims. Id.
To support this kind of bifurcated discovery, it may be necessary – and will always be helpful – to make an initial showing of some likelihood that the case was improperly generated. Such a showing might entail past filings or litigation practices by the plaintiff or class counsel, as well as educating the court on the long history (thoroughly documented in legal scholarship) of problems associated with claims fitting the entrepreneurial model.
Where the known circumstances do not, in and of themselves, suggest the possibility of impropriety, another option is to request that the plaintiffs be required to provide at the outset certain basic facts regarding the origins of their claims. Such facts might include (i) the plaintiff’s relationship to counsel, (ii) when the plaintiff first communicated with counsel regarding a potential claim, and (iii) the date of the purchase or other event giving rise to the claim. These facts could be provided as part of the Rule 26(a)(1) initial disclosure process, or, in the case of consolidated, multidistrict-type proceedings, through plaintiff “fact sheets.” See, for example, Fed. R. Civ. P. 26(f)(3) (the discovery plan must address “what changes should be made in the timing, form, or requirement for disclosures under Rule 26(a)”). Such facts may, in turn, provide a basis to seek bifurcated discovery as discussed above.
Early disclosure of basic facts concerning a case’s origins can also be valuable in more traditional product liability actions, especially those filed en masse in multidistrict-type proceedings. Indeed, there are indications that such cases may exhibit some of the same problematic entrepreneurial features present in many consumer class actions. The following observations of a federal district judge who presided over a long running product liability MDL are especially incisive on this “phenomenon”:
“[T]he evolution of the MDL process . . . has produced incentives for the filing of cases that otherwise would not be filed if they had to stand on their own merit as a stand-alone action. Some lawyers seem to think that their case will be swept into the MDL where a global settlement will be reached, allowing them to obtain a recovery without the individual merit of their case being scrutinised as closely as it would if it proceeded as a separate individual action. This attitude explains why many cases are filed with little regard for the statute of limitations and with so little pre-filing preparation that counsel apparently has no idea whether or how she will prove causation.
. . . This phenomenon produces the perverse result that an MDL, which was established in part to manage cases more efficiently to achieve judicial economy, becomes populated with many non-meritorious cases that must nevertheless be managed by the transferee judge—cases that likely never would have entered the federal court system without the MDL.”
In re: Mentor Corp. Obtape Transobturator Sling Prod. Liab. Litig., No 2004408MD2004CDL, 2016 WL 4705807, at *1 (M.D. Ga. Sept. 7, 2016). Mandatory early disclosure of facts pertaining to a case’s potential entrepreneurial origins and features may permit litigants and courts to more quickly and efficiently weed out non-meritorious claims.
Discovery regarding the origins of a claim may elicit privilege objections. However, “the dates when [a plaintiff] contacted and hired his attorney are not privileged.” Wise v S. Tier Express, Inc., No 215CV01219APGPAL, 2017 WL 8219076, at *1 (D. Nev. July 10, 2017).
Likewise, not all communications between lawyer and prospective or current client are privileged. See, for example, CSX Transp., Inc. v Peirce, No 5:05-cv-00202-FPS-JES, ECF No 1093 at 7 (N.D. W. Va. June 6, 2012); 2012 WL 12892846, at *2 (N.D. W. Va. Oct. 9, 2012). An unsolicited communication from a lawyer directing an acquaintance to purchase a product for the purpose of making a claim should not be protected. Such communications do not meet the threshold requirement that the communication be made for the purpose of the client obtaining legal advice. See id.; see also Morisky v Pub. Serv. Elec. & Gas Co., 191 F.R.D. 419, 426 (D.N.J. 2000). They also may lack a reasonable expectation of confidentiality. See id. Internal documents discussing a firm’s entrepreneurial practices “prepared irrespective of any particular claim, created during the course of the firm’s general practice” should also not be protected. See CSX Transp., Inc., 2012 WL 12892734, at *2 (N.D.W. Va. Aug. 1, 2012).
Finally, in cases with evidence of sufficiently serious lawyer misconduct, the crime-fraud exception may apply to render otherwise protected information discoverable. See CSX Transp., Inc., 2009 WL 1528190, at *3-7 (N.D. W. Va. May 29, 2009); 2012 WL 12892735, at *6 (N.D. W. Va. July 18, 2012); see also Navient Sols., LLC v. L. Offs. of Jeffrey Lohman, No L19CV461LMBTCB, 2020 WL 1917837, at *5 (E.D. Va. Apr. 20, 2020). Although the crime-fraud exception normally arises from client misconduct, courts have also applied it based on lawyer misconduct, reasoning that a “lawyer or law firm may not engage in fraudulent or criminal activity and then hide behind any privilege to protect the firm’s or the individual lawyer’s interests.” CSX Transp., Inc., 2009 WL 1528190, at *7.
Shakespeare wrote that “What’s past is prologue” and litigation is no exception. Professor Brickman’s entrepreneurial model of past mass torts is a valuable tool to better understand and defend the new mass tort of today: entrepreneurial consumer class actions. Litigants should probe and expose a case’s potential lawyer-driven features, and, when present, leverage them at each stage of the defence.