As we ring in the new year, it is time once again to reflect on some of the most significant legal developments for drug and device companies this year. The list below is by no means exhaustive (who could forget the Rule 702 updates that took place this year, which will carry over into 2023?), but provides a brief recap and assessment of five of the most interesting and consequential developments affecting drug and device law in 2022.
Class certification is the feature fight of any putative class action lawsuit. If granted, it can multiply the stakes of a case several hundred- or thousand-fold. If denied, it can signal the end of the litigation. Because of its importance, parties often invest heavily in the class certification fight, including by offering – and challenging – expert testimony.
As this trend has become more common, more focus has been devoted to answering a key question – to what extent should Rule 702 apply at this critical juncture? A number of circuits have held that Rule 702 applies in full force and that opinions deemed inadmissible under Rule 702 should not be considered in regard to class certification; others, such as the Ninth Circuit, have taken a somewhat different approach. Recently, the Southern District of California, in Stewart v. Quest Diagnostics Clinical Labs., Inc., 2022 WL 5236821 (S.D. Cal. Oct. 5, 2022), weighed in on this question.
Motions to dismiss in consumer fraud cases often focus on the element of deception—whether a reasonable consumer would be deceived by the statement or practice at issue. But there is another element of statutory consumer fraud claims that deserves closer scrutiny at the pleading stage—injury. Where plaintiffs claim that they were injured because they paid a “price premium” but do not allege facts to support that claim, defendants should consider moving to dismiss for failure to adequately plead injury.
State consumer protection statutes typically include injury as a required element for a private cause of action. New York General Business Law Sections 349 and 350, for example, require a plaintiff to establish that she purchased a product because of the allegedly deceptive business practice and did not receive the full value of the purchase. Similarly, plaintiffs suing under California’s Unfair Competition Law, False Advertising Law, or Consumer Legal Remedies Act must establish that they suffered an “economic injury” caused by the practice or advertising at issue.
As we discussed in a previous post, the Northern District of California recently dismissed a plaintiff’s claim that the term “vanilla” was misleading on the label of a soymilk product. The Southern District of New York has now similarly dismissed a putative class action complaint alleging that a “vanilla” almond milk product was labeled in a way that misled customers.
In Wynn v. Topco Associates, LLC, No. 19-cv-11104, Plaintiffs alleged that Defendant’s use of the word “vanilla” on the label of its almond milk product – “Vanilla Almost Milk” – falsely communicated to consumers that the beverage’s flavor was derived entirely from real vanilla, when in fact the product includes non-vanilla flavorings. Plaintiffs claimed, among other things, that this violated the New York General Business Law (NYGBL).
Consider this: What if plaintiffs could assert a cause of action for negligence without proving, or even pleading, any actual damages? And what if the remedy for this damage-free tort claim were disgorgement of profits allegedly acquired by a breach?
This may seem foreign to American tort lawyers, but for Canadian litigants this cause of action has a name, albeit a confusing one: waiver of tort. It is often pled as an independent, gain-based cause of action, and it is a source of frustration and controversy for our friends in the True North. Indeed, class certification grounded in waiver of tort forces defendants to face the prospect of disgorgement without proof that any class member actually suffered damage, even though these commonly advanced claims have never fully been tried in Canada. Canadian scholars have suggested that this uncertainty has the potential to drive settlement negotiations unfairly in the class context.
The U.S. Supreme Court’s recent decision in Liu v. SEC, No. 18-1501 (June 22, 2020), limiting the SEC’s ability to obtain monetary equitable relief in securities fraud litigation, may seem an odd topic for this blog. But Liu is worth some attention because it may foreshadow an impact on calculation and distribution of monetary awards in consumer fraud class actions. The decision may influence the calculation of disgorgement or restitutionary remedies, and it may signal another hurdle for the controversial judge-made distribution mechanism, cy pres.
Liu v. SEC
In Liu, the SEC won summary judgment in an enforcement action for securities fraud, obtaining an award for “disgorgement” of the funds acquired by defendants from their fraudulent scheme. The district court declined to deduct any of defendant’s business expenses to offset the “ill-gotten gains,” awarding all sums fraudulently raised from investors. The Ninth Circuit affirmed, rejecting challenges to both the SEC’s authority to obtain disgorgement and its gross method of calculating the disgorgement award.