Liability Without Harm: Is There a New Source of Catastrophic Liability Lurking Within Your State's Consumer Protection Statute?

Part One of a Two-Part Series

The $10.1 billion judgment entered against Philip Morris in an Illinois state court in 2003 received national attention, as did the reversal of that judgment in December 2005. Price v. Philip Morris Inc., No. 00-L-112 (Ill. Cir. Ct. March 21, 2003), rev'd, No. 96236 (Ill. Sup. Ct. Dec. 15, 2005). Less well known, however, is the theory under which the plaintiffs won their judgment at trial. Unlike the plaintiffs in some other large tobacco verdicts, the plaintiffs in Price did not claim personal injury or wrongful death. Instead, the plaintiffs alleged that Philip Morris deceived them into believing that 'light' cigarettes were safe and caused an entire class of people to pay more for the cigarettes than they should have.

While the Price case is the most highly publicized example, it is by no means the only case in which plaintiffs have sued a product manufacturer without claiming to have suffered a physical injury. Across the country, manufacturers of many different products are facing an increasing number of class action suits under state consumer protection or unfair trade practice statutes in which the plaintiffs claim only to have suffered economic harm. In these cases, the plaintiffs assert that their injury is the 'lost benefit of the bargain' ' the difference in market value between the promised product and the delivered product.

This article has three aims. First, it explores the nature of 'lost benefit' claims. Lost benefit plaintiffs frequently claim that their suits are nothing new, but instead are merely a new iteration of existing law. In fact, the plaintiffs' claims are novel and significant departures from traditional tort principles. Second, the article identifies lost benefit suits that have been brought against product manufacturers of all types, negating the notion that such suits are a special plague upon the tobacco industry. Third, the article identifies some steps that product manufacturers and their lawyers may take to prevent such suits from happening and to defend them successfully when they do arise.

Lost Benefit Suits Represent a Significant Departure from Tort Principles

Traditionally, a plaintiff could not recover from a product manufacturer in a tort action unless he or she could demonstrate both injury and causation; that is, the plaintiff had to demonstrate that the product was defective and that the defect caused his or her injury. Section 402A of the Restatement (Second) of Torts reflected this view. Under that section, a manufacturer whose product incorporated a defect was 'subject to liability for physical harm thereby caused.' Restatement (Second) of Torts '402A (1965) (emphasis added).

The traditional requirements of injury and causation were arguably undisturbed when state legislatures passed a wave of consumer protection and unfair trade practice statutes in the 1970s. Many such statutes incorporated an injury requirement by requiring the plaintiff to demonstrate an 'ascertainable loss of money or property.' See, e.g., Conn. Gen. Stat. '42-110g(a) (2005). Most statutes contained a causation element as well. New York's statute, for example, empowered a plaintiff to bring an unfair trade practice action only if he or she had been 'injured by reason of' the challenged practice. N.Y. Gen. Bus. Law '349 (h) (2005). California's statute was a significant exception; until its amendment by Proposition 64 in 2004, it allowed private enforcement suits in the absence of an injury. Cal. Bus. & Prof. Code ”17200 et seq.

Lost benefit plaintiffs challenge the traditional injury and causation requirements using two approaches. The first approach attempts to avoid the traditional injury requirement by claiming that a deceptive trade practice is an injury per se. This approach was most successfully invoked in Aspinall v. Philip Morris, a 2004 decision of the Massachusetts Supreme Judicial Court. 442 Mass. 381, 813 N.E.2d 476. In Aspinall a group of 'light' cigarette smokers sought class certification for the lost benefit claims that they brought under Massachu-setts' consumer protection statute, General Laws chapter 93A. The plaintiffs claimed that a cigarette manufacturer's advertising of its 'light' cigarettes was deceptive; they alleged that although such cigarettes might produce lower levels of tar and nicotine in laboratory tests, under conditions of actual consumer use they delivered the same or even higher levels of toxins. The cigarette manufacturer opposed class certification on a number of grounds, including that the putative class members did not share a common injury. In the manufacturer's view, the conditions of actual consumer use varied from consumer to consumer, and some consumers used the cigarettes in a manner that did indeed deliver a reduced level of tar and nicotine ' in short, they 'got what the advertising promised.' Id., 442 Mass. at 393, 813 N.E.2d at 486.

The Massachusetts Supreme Judicial Court rejected the manufacturer's defense, holding that even those consumers who 'got what the advertising promised' had sustained an injury. The court 'reject[ed] the proposition that the purchase of an intentionally falsely represented product cannot be, by itself, an ascertainable injury under our consumer protection statute.' Id., 442 Mass. at 394, 813 N.E.2d at 486. An injury exists whenever there is 'an invasion of a legally protected interest,' and since the statute conferred upon consumers a legal right to be free from deceptive trade practices, 'deceptive advertising … effected a per se injury on consumers who purchased the cigarettes represented to be lower in tar and nicotine.' Under this view, 'all members of the class of purchasers of [light cigarettes] will have been injured (regardless of whether some smokers actually received lower tar and nicotine) … because all purchased … a product that was deceptively advertised.' Id., 442 Mass. at 401-02, 813 N.E.2d at 491-92.

The per se approach affects the causation requirement as well, in that it excuses the plaintiff from demonstrating reliance. Ordinarily, a plaintiff cannot claim that a manufacturer's representation or other business practice caused his or her injury unless the plaintiff could demonstrate that he or she relied on the representation in the purchase of the product. If, however, a 'deceptive' ad is per se injurious, it may follow that it is actionable without reliance. Indeed, the Aspinall court held that '[a] successful … action based on deceptive acts or practices does not require proof that a plaintiff relied on the representation.' Id., 442 Mass. at 394, 813 N.E.2d at 486. In the court's view, the recipient of a deceptive advertisement may recover, whether he or she was taken in by the ad or not. 'Neither an individual's smoking habits nor his or her subjective motivation in purchasing [a product] bears on the issue of whether the advertising was deceptive.' Id., 442 Mass. at 397, 813 N.E.2d at 489.

The Aspinall approach may not be adopted in other jurisdictions, however, for three reasons. First, the Massachusetts Supreme Judicial Court's holding relied heavily on the text and history of Massachusetts' consumer protection statute. That statute had originally required a plaintiff to 'show some loss of 'money or property, real or personal,” but was later amended to add 'expansive language providing a right of action to 'any person … who has been injured by another person's” deceptive trade practice. Id. Additionally, the statute contained a nominal damages provision that, in the court's view, entitled successful plaintiffs to 'statutory damages, without regard to whether the plaintiffs are successful in establishing that consumers were overcharged for the deceptively advertised [products].' Id., 442 Mass. at 400-02, 813 N.E.2d at 490-92. Second, other courts may not accept the concept of deceptive advertisements being per se injurious, particularly given that there is no strong policy reason or logical basis for dispensing with the causation requirement.

Third, the Supreme Judicial Court recently suggested that there were limitations with respect to its holding in Aspinall. In Hershenow v. Enterprise Rent-a-Car Company of Boston,the court held that 'proving a causal connection between a deceptive act and a loss to the consumer is an essential predicate for recovery under our consumer protection statute.' 445 Mass. 790, 791, __ N.E.2d __ (2006). The court did not, however, overrule Aspinall. To the contrary, it cited Aspinall as authority for its holding, in spite of Aspinall's express language that 'deceptive advertising … effect[s] a per se injury' that does not require proof of reliance. Id., 445 Mass. at 801. Nevertheless, Massachusetts lawyers will surely struggle to reconcile the Aspinall and Hershenow cases for years to come, and no attempt to do so is made here. Rather, the Massachusetts experience is presented as an example of the per se approach that lost benefit plaintiffs sometimes advance.

Since not all consumer protection regimes are as hospitable to class action plaintiffs as those of Massachusetts, lost benefit plaintiffs sometimes present the per se approach obliquely. In the Illinois case of Avery v. State Farm, for example, the plaintiffs did not ask the court to recognize a deceptive trade practice as a per se injury but instead proffered a damage theory that had the same practical effect. Avery v. State Farm Mut. Auto. Ins. Co., __ N.E.2d __, 2005 WL 1981444 (Aug. 18, 2005). The Avery plaintiffs brought suit against their automobile insurer under Illinois' Consumer Fraud Act, which unlike the Massachusetts statute required 'actual damage as a result of a violation.' Id., 2005 WL 1981444 at *39 (quoting 815 Ill. Comp. Stat. 505/2-10(a)). The plaintiffs attacked the insurer's quotation of 'aftermarket' repair part prices in the repair estimates that informed its claim payments on the theory that such parts were categorically inferior to original equipment parts.

They asked the court to award them what their expert witness termed 'specification' damages ' damages that allegedly occurred when the insurer 'specified' aftermarket parts in its estimate, regardless of whether such a part was actually used in the repair of the car. Thus, the Avery plaintiffs asked the court to hold that they suffered an injury at the moment the defendant committed an unfair trade practice, regardless of whether any actual financial harm ensued ' just as the plaintiffs did in Aspinall. The Avery plaintiffs prevailed in the trial court, winning a widely publicized $1.186 billion verdict.

The Illinois Supreme Court reversed, but the Avery experience nevertheless demonstrates that lost benefit plaintiffs will sometimes seek to establish the per se approach by altering the vocabulary by which they present it.

The second approach taken by lost benefit plaintiffs concedes the requirement of an actual injury, but attempts to satisfy it with nontraditional damage evidence. This approach achieved its most spectacular success in the Price trial court, which recognized that the Illinois Consumer Fraud Act requires 'actual damage to the Plaintiffs … proximately caused by the defendants.' Price v. Philip Morris Inc., No. 00-L-112, '20 (Ill. Cir. Ct. March 21, 2003), rev'd, No. 96236 (Ill. Dec. 15, 2005). It further recognized that the proper measure of damages under the Act is the same measure traditionally applicable to commercial misrepresentations generally ' 'the difference between the value the product would have had at the time of the sale if the representations had been true and the actual value to the consumer of the property sold.' The problem with applying the traditional measure of damages to the plaintiffs' claim was that the product the plaintiffs claimed to have been promised ' a 'safer' cigarette ' did not exist and accordingly could not be valued with traditional market techniques. The plaintiffs attempted to fill the void with the results of an Internet survey, in which 'light' cigarette smokers were invited to estimate the amount of value they attached to the alleged representation of reduced tar and nicotine.

The trial court accepted the survey in rendering a compensatory damage award of $7.1005 billion, inclusive of interest. The Illinois Supreme Court reversed the case on other grounds, but noted in dicta its 'grave reservations about the novel approach to the calculation of damages that was offered by the plaintiffs and accepted by the circuit court.' Price v. Philip Morris Inc., No. 96236, slip op. at 71 (Dec. 15, 2005).

The damage aspects of lost benefit claims will be discussed more fully in Part Two. For now, it is enough to note that lost benefit suits attack the traditional requirements of injury and causation, and accordingly represent a significant departure from traditional principles of tort law.

James H. Rotondo is the chair of the Trial Section at Day, Berry & Howard LLP, and focuses his practice on product liability and insurance litigation. Thomas O. Farrish is an associate in the Insurance and Torts Litigation Department at the firm.

Part One of a Two-Part Series

The $10.1 billion judgment entered against Philip Morris in an Illinois state court in 2003 received national attention, as did the reversal of that judgment in December 2005. Price v. Philip Morris Inc., No. 00-L-112 (Ill. Cir. Ct. March 21, 2003), rev'd, No. 96236 (Ill. Sup. Ct. Dec. 15, 2005). Less well known, however, is the theory under which the plaintiffs won their judgment at trial. Unlike the plaintiffs in some other large tobacco verdicts, the plaintiffs in Price did not claim personal injury or wrongful death. Instead, the plaintiffs alleged that Philip Morris deceived them into believing that 'light' cigarettes were safe and caused an entire class of people to pay more for the cigarettes than they should have.

While the Price case is the most highly publicized example, it is by no means the only case in which plaintiffs have sued a product manufacturer without claiming to have suffered a physical injury. Across the country, manufacturers of many different products are facing an increasing number of class action suits under state consumer protection or unfair trade practice statutes in which the plaintiffs claim only to have suffered economic harm. In these cases, the plaintiffs assert that their injury is the 'lost benefit of the bargain' ' the difference in market value between the promised product and the delivered product.

This article has three aims. First, it explores the nature of 'lost benefit' claims. Lost benefit plaintiffs frequently claim that their suits are nothing new, but instead are merely a new iteration of existing law. In fact, the plaintiffs' claims are novel and significant departures from traditional tort principles. Second, the article identifies lost benefit suits that have been brought against product manufacturers of all types, negating the notion that such suits are a special plague upon the tobacco industry. Third, the article identifies some steps that product manufacturers and their lawyers may take to prevent such suits from happening and to defend them successfully when they do arise.

Lost Benefit Suits Represent a Significant Departure from Tort Principles

Traditionally, a plaintiff could not recover from a product manufacturer in a tort action unless he or she could demonstrate both injury and causation; that is, the plaintiff had to demonstrate that the product was defective and that the defect caused his or her injury. Section 402A of the Restatement (Second) of Torts reflected this view. Under that section, a manufacturer whose product incorporated a defect was 'subject to liability for physical harm thereby caused.' Restatement (Second) of Torts '402A (1965) (emphasis added).

The traditional requirements of injury and causation were arguably undisturbed when state legislatures passed a wave of consumer protection and unfair trade practice statutes in the 1970s. Many such statutes incorporated an injury requirement by requiring the plaintiff to demonstrate an 'ascertainable loss of money or property.' See, e.g., Conn. Gen. Stat. '42-110g(a) (2005). Most statutes contained a causation element as well. New York's statute, for example, empowered a plaintiff to bring an unfair trade practice action only if he or she had been 'injured by reason of' the challenged practice. N.Y. Gen. Bus. Law '349 (h) (2005). California's statute was a significant exception; until its amendment by Proposition 64 in 2004, it allowed private enforcement suits in the absence of an injury. Cal. Bus. & Prof. Code ”17200 et seq.

Lost benefit plaintiffs challenge the traditional injury and causation requirements using two approaches. The first approach attempts to avoid the traditional injury requirement by claiming that a deceptive trade practice is an injury per se. This approach was most successfully invoked in Aspinall v. Philip Morris, a 2004 decision of the Massachusetts Supreme Judicial Court. 442 Mass. 381, 813 N.E.2d 476. In Aspinall a group of 'light' cigarette smokers sought class certification for the lost benefit claims that they brought under Massachu-setts' consumer protection statute, General Laws chapter 93A. The plaintiffs claimed that a cigarette manufacturer's advertising of its 'light' cigarettes was deceptive; they alleged that although such cigarettes might produce lower levels of tar and nicotine in laboratory tests, under conditions of actual consumer use they delivered the same or even higher levels of toxins. The cigarette manufacturer opposed class certification on a number of grounds, including that the putative class members did not share a common injury. In the manufacturer's view, the conditions of actual consumer use varied from consumer to consumer, and some consumers used the cigarettes in a manner that did indeed deliver a reduced level of tar and nicotine ' in short, they 'got what the advertising promised.' Id., 442 Mass. at 393, 813 N.E.2d at 486.

The Massachusetts Supreme Judicial Court rejected the manufacturer's defense, holding that even those consumers who 'got what the advertising promised' had sustained an injury. The court 'reject[ed] the proposition that the purchase of an intentionally falsely represented product cannot be, by itself, an ascertainable injury under our consumer protection statute.' Id., 442 Mass. at 394, 813 N.E.2d at 486. An injury exists whenever there is 'an invasion of a legally protected interest,' and since the statute conferred upon consumers a legal right to be free from deceptive trade practices, 'deceptive advertising … effected a per se injury on consumers who purchased the cigarettes represented to be lower in tar and nicotine.' Under this view, 'all members of the class of purchasers of [light cigarettes] will have been injured (regardless of whether some smokers actually received lower tar and nicotine) … because all purchased … a product that was deceptively advertised.' Id., 442 Mass. at 401-02, 813 N.E.2d at 491-92.

The per se approach affects the causation requirement as well, in that it excuses the plaintiff from demonstrating reliance. Ordinarily, a plaintiff cannot claim that a manufacturer's representation or other business practice caused his or her injury unless the plaintiff could demonstrate that he or she relied on the representation in the purchase of the product. If, however, a 'deceptive' ad is per se injurious, it may follow that it is actionable without reliance. Indeed, the Aspinall court held that '[a] successful … action based on deceptive acts or practices does not require proof that a plaintiff relied on the representation.' Id., 442 Mass. at 394, 813 N.E.2d at 486. In the court's view, the recipient of a deceptive advertisement may recover, whether he or she was taken in by the ad or not. 'Neither an individual's smoking habits nor his or her subjective motivation in purchasing [a product] bears on the issue of whether the advertising was deceptive.' Id., 442 Mass. at 397, 813 N.E.2d at 489.

The Aspinall approach may not be adopted in other jurisdictions, however, for three reasons. First, the Massachusetts Supreme Judicial Court's holding relied heavily on the text and history of Massachusetts' consumer protection statute. That statute had originally required a plaintiff to 'show some loss of 'money or property, real or personal,” but was later amended to add 'expansive language providing a right of action to 'any person … who has been injured by another person's” deceptive trade practice. Id. Additionally, the statute contained a nominal damages provision that, in the court's view, entitled successful plaintiffs to 'statutory damages, without regard to whether the plaintiffs are successful in establishing that consumers were overcharged for the deceptively advertised [products].' Id., 442 Mass. at 400-02, 813 N.E.2d at 490-92. Second, other courts may not accept the concept of deceptive advertisements being per se injurious, particularly given that there is no strong policy reason or logical basis for dispensing with the causation requirement.

Third, the Supreme Judicial Court recently suggested that there were limitations with respect to its holding in Aspinall. In Hershenow v. Enterprise Rent-a-Car Company of Boston,the court held that 'proving a causal connection between a deceptive act and a loss to the consumer is an essential predicate for recovery under our consumer protection statute.' 445 Mass. 790, 791, __ N.E.2d __ (2006). The court did not, however, overrule Aspinall. To the contrary, it cited Aspinall as authority for its holding, in spite of Aspinall's express language that 'deceptive advertising … effect[s] a per se injury' that does not require proof of reliance. Id., 445 Mass. at 801. Nevertheless, Massachusetts lawyers will surely struggle to reconcile the Aspinall and Hershenow cases for years to come, and no attempt to do so is made here. Rather, the Massachusetts experience is presented as an example of the per se approach that lost benefit plaintiffs sometimes advance.

Since not all consumer protection regimes are as hospitable to class action plaintiffs as those of Massachusetts, lost benefit plaintiffs sometimes present the per se approach obliquely. In the Illinois case of Avery v. State Farm, for example, the plaintiffs did not ask the court to recognize a deceptive trade practice as a per se injury but instead proffered a damage theory that had the same practical effect. Avery v. State Farm Mut. Auto. Ins. Co. , __ N.E.2d __, 2005 WL 1981444 (Aug. 18, 2005). The Avery plaintiffs brought suit against their automobile insurer under Illinois' Consumer Fraud Act, which unlike the Massachusetts statute required 'actual damage as a result of a violation.' Id., 2005 WL 1981444 at *39 (quoting 815 Ill. Comp. Stat. 505/2-10(a)). The plaintiffs attacked the insurer's quotation of 'aftermarket' repair part prices in the repair estimates that informed its claim payments on the theory that such parts were categorically inferior to original equipment parts.

They asked the court to award them what their expert witness termed 'specification' damages ' damages that allegedly occurred when the insurer 'specified' aftermarket parts in its estimate, regardless of whether such a part was actually used in the repair of the car. Thus, the Avery plaintiffs asked the court to hold that they suffered an injury at the moment the defendant committed an unfair trade practice, regardless of whether any actual financial harm ensued ' just as the plaintiffs did in Aspinall. The Avery plaintiffs prevailed in the trial court, winning a widely publicized $1.186 billion verdict.

The Illinois Supreme Court reversed, but the Avery experience nevertheless demonstrates that lost benefit plaintiffs will sometimes seek to establish the per se approach by altering the vocabulary by which they present it.

The second approach taken by lost benefit plaintiffs concedes the requirement of an actual injury, but attempts to satisfy it with nontraditional damage evidence. This approach achieved its most spectacular success in the Price trial court, which recognized that the Illinois Consumer Fraud Act requires 'actual damage to the Plaintiffs … proximately caused by the defendants.' Price v. Philip Morris Inc., No. 00-L-112, '20 (Ill. Cir. Ct. March 21, 2003), rev'd, No. 96236 (Ill. Dec. 15, 2005). It further recognized that the proper measure of damages under the Act is the same measure traditionally applicable to commercial misrepresentations generally ' 'the difference between the value the product would have had at the time of the sale if the representations had been true and the actual value to the consumer of the property sold.' The problem with applying the traditional measure of damages to the plaintiffs' claim was that the product the plaintiffs claimed to have been promised ' a 'safer' cigarette ' did not exist and accordingly could not be valued with traditional market techniques. The plaintiffs attempted to fill the void with the results of an Internet survey, in which 'light' cigarette smokers were invited to estimate the amount of value they attached to the alleged representation of reduced tar and nicotine.

The trial court accepted the survey in rendering a compensatory damage award of $7.1005 billion, inclusive of interest. The Illinois Supreme Court reversed the case on other grounds, but noted in dicta its 'grave reservations about the novel approach to the calculation of damages that was offered by the plaintiffs and accepted by the circuit court.' Price v. Philip Morris Inc., No. 96236, slip op. at 71 (Dec. 15, 2005).

The damage aspects of lost benefit claims will be discussed more fully in Part Two. For now, it is enough to note that lost benefit suits attack the traditional requirements of injury and causation, and accordingly represent a significant departure from traditional principles of tort law.

James H. Rotondo is the chair of the Trial Section at Day, Berry & Howard LLP, and focuses his practice on product liability and insurance litigation. Thomas O. Farrish is an associate in the Insurance and Torts Litigation Department at the firm.