Practice Tip: Constitutional Standing, Numerosity, and the Beer Drinker's Burden

The first part of this article discussed lines of reasoning that courts have used to circumvent the highly individualized injury inquiry. In federal court, however, the federal questions of Article III standing and numerosity should present an obstacle to these circumventions. This blocking flows from two principles.

First, as a matter of federal law, a person who would have made the same Budweiser purchase for the same price without regard to the alcohol content stated on the bottle was not injured as a matter of federal law, and therefore has no standing to participate in a federal court proceeding.

Second, a person with no standing to participate in a federal court proceeding cannot be counted in the class size when the plaintiff attempts to establish numerosity.

Injury in fact is a bedrock requirement of constitutional standing ' it is an “irreducible constitutional minimum.” Lujan v. Defenders of Wildlife, 504 US 555, 560-61 (1992). And for two reasons plaintiffs cannot argue that only the class representative must show injury in fact sufficient to establish Article III standing. See Stearns, 655 F.3d at 1021 (following long line of Ninth Circuit cases that to establish Article III standing in a class action, only the named class representative must prove injury in fact). First, as the Supreme Court has stated, in a class action the class representative must have “the same injury shared by all members of the class.” Schlesinger, 418 U.S. at 208 (emphasis added) (quoted in Dukes, 131 S.Ct. at 2550); see also Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th Cir.2010) (“Although federal courts do not require that each member of a class submit evidence of personal standing, a class cannot be certified if it contains members who lack standing.” (quotation omitted)). Second, plaintiffs asserting a class action must show numerosity, which can only be established by “'real' plaintiffs, each of which has standing to sue.” In re FleetBoston Fin. Corp. Sec. Litig., 253 F.R.D. 315, 350-51 (D.N.J. 2008).

The numerosity requirement imposes an obligation on the class representative to show that there are enough members of the class who suffer the same injury to make a federal class action worthwhile. The plaintiff must establish by a preponderance of the evidence that the class is “so numerous that joinder of all members is impracticable.” Fed. R. Civ. P. 23(a)(4); Marcus v. BMW of North America, 687 F.3d 583, 595 (3rd Cir. 2012) (“Critically, numerosity ' like all Rule 23 requirements ' must be proven by a preponderance of the evidence.”). Class plaintiffs like those in the Budweiser “watering down” case essentially assume that because AB InBev has millions of customers, numerosity is established. But without showing that those customers were influenced by the alcohol content stated on Budweiser labels when they purchased the beer, those consumers have not been injured and have no standing to be in federal court. Without standing to be in federal court, those consumers cannot be considered for purposes of determining numerosity, and the numerosity inquiry fells the class.

Other Contexts

Courts in other contexts have used this reasoning to reject class certification. See, e.g., Kempner v. Town of Greenwich, 249 F.R.D. 15, 18 (D. Conn. 2008) (class contained members without standing and “even were the court to redefine the proposed class so as to eliminate those members without standing under Article III, the plaintiffs' proposed class could not be certified because the plaintiffs have failed to establish that the proposed class satisfies the numerosity requirement”); In re W.T. Grant Co., 24 B.R. 421, 425 (Bankr. S.D.N.Y. 1982) (rejecting class certification based on numerosity because 3,331 of the putative class members had signed waivers and so had no standing to remain in court).

As quoted above, the court in FleetBoston noted that “[n]umerosity is not an abstract concept” and “can be met only by 'real' plaintiffs, each of which has standing to sue.” 253 F.R.D. at 350-51. In what will likely be pertinent to the Budweiser class action, the court flatly rejected both the plaintiffs' glib argument that “standing is irrelevant to the numerosity requirement” and the “abstract, fact-barren statement” that “any suggestion that there are not sufficient number of shareholders in the alleged class is simply ludicrous.” Id. (alterations omitted). But see Chavez v. Blue Sky Natural Beverage Co., 268 F.R.D. 365, 377 (N.D. Cal. 2010) (inferring that plaintiff satisfied numerosity simply by presenting defendant's high sales); Babcock v. Computer Associates Int'l, Inc., 212 F.R.D. 126, 129-30 (E.D.N.Y. 2003) (accepting without analysis the conclusory argument that “[s]tanding and numerosity are two separate and unrelated inquiries”) (citing 1 Herbert B. Newberg, Newberg on Class Actions ' 2.09 (3d ed.1992), an inapplicable section relating to the threshold inquiry about named class representative standing being necessary before even proceeding to a Rule 23 analysis). The bottom line is that plaintiffs cannot rely on “common sense” and “[m]ere speculation” to establish numerosity. Marcus, 687 F.3d at 596-97.

This federal analysis should defeat the state-specific argument that injury/reliance is not required to prove a particular state's consumer protection violation. Whatever the state substantive legal requirements, the federal plaintiffs must comply with federal procedural rules like standing and numerosity. Miller v. Redwood Toxicology Lab., Inc., 688 F.3d 928, 935 (8th Cir. 2012) (“No matter that Miller and the putative class might be able to seek protection under Minnesota law, this does not vitiate the altogether different requirement of causation in federal court.” (quotation omitted)); see also Shady Grove Orthopedic Associates v. Allstate Ins., 130 S. Ct. 1431, 1447-48 (2010) (holding that federal court Rule 23 trumps conflicting state-court rules in federal class proceedings).

Similarly, the federal analysis defeats the state-specific (really California-specific) “injury presumed” reasoning ' that because the same misrepresentation was uniformly made to all consumers, it can be presumed that those consumers relied on the misrepresentation to their detriment. Federal courts have adopted this presumption in only one limited context: the fraud-on-the-market theory in securities litigation. “The fraud-on-the-market premise is that the price of a security traded in an efficient market will reflect all publicly available information about a company; accordingly, a buyer of the security may be presumed to have relied on that information in purchasing the security.” Amgen, Inc. v. Conn. Ret. Plans & Trust Funds, 133 S.Ct. 1184, 1190 (2013).

There is no similar construct for presuming reliance as a matter of federal law in the beer market ' a market driven by advertising and availability, not by instantaneous and detailed secured transactions. Notably, “[c]ourts have generally limited the use of the fraud-on-the-market theory to securities fraud cases.” Appletree Square I, Ltd. P'ship v. W.R. Grace & Co., 29 F.3d 1283, 1287 (8th Cir. 1994).

Real Injury Needed

Finally, the Ninth Circuit's recent-vintage reasoning that everyone is injured in consumer transactions because “[e]ach alleged class member was relieved of money in the transactions” cannot hold up under the standing-numerosity analysis. The relevant inquiry to determine whether a class member can be counted toward numerosity is whether they would have been relieved of the same amount of money but for the misrepresentation. If they would have ' that is, if they would have bought the same beer for the same price ' they have suffered no injury and have no standing to be counted toward numerosity.

It is worth noting that the Ninth Circuit's recent reasoning seems inconsistent with past Ninth Circuit cases, which have looked to whether a purchaser would have paid less or refused the transaction, not simply whether the purchaser entered a transaction. See, e.g., Maya v. Centex Corp., 658 F.3d 1060, 1069 (9th Cir. 2011) (finding standing because plaintiffs “paid more for their homes than the homes were worth” and “would not have purchased their homes had defendants made the disclosures allegedly required by law”).

Courts should therefore conclude that class action treatment is inappropriate in the Budweiser class actions. The plaintiffs' allegations that consumers purchase Budweiser at a particular price because of the particular percentage of alcohol stated on the label cannot be reconciled with the powerful marketing themes that have driven consumer demand for Budweiser over the years ' from Adolphus Busch's own slogan “The King of Beers,” to the Budweiser Clydesdales, the Dale Earnhardt, Jr./Kasey Kahne/Kevin Harvick Budweiser NASCAR, and the Bud Bowl, to name a few. It is impossible to determine which consumers relied on these market drivers as opposed to those who went to the store and engaged in a price-to-alcohol-content comparison. Nor, like in FleetBoston, can plaintiffs assert that it is “simply ludicrous” to argue that numerosity is not met ' numerosity is a concrete requirement on which the plaintiff bears the burden of proof to establish that a class action is appropriate. 253 F.R.D. 315, 350-51; see also Marcus, 687 F.3d at 596-97.

Conclusion

Given past consumer marketing cases, particularly in the Ninth Circuit, plaintiffs may be able convince courts to circumvent other traditional barriers to class litigation in the name of protecting consumers from a fraction of a percent reduction in the amount of alcohol in a Budweiser. But it should be impossible for plaintiffs to prove that enough people care about the percentage of alcohol stated on a bottle, or that a small difference would change their purchasing decision, to satisfy the oft-neglected numerosity requirement for class actions.

I would urge the reader not to dismiss this as simply a technical legal argument. In a very real way the inquiry into whether injury can be proven to a sufficient number of consumers is an inquiry into whether the lawsuit might benefit consumers if successful, or will harm consumers whatever the result.

The only parties who materially benefit from large-scale consumer class actions are class action defense attorneys, like the author, and plaintiffs' lawyers, who keep a hefty percentage of whatever recovery they make on behalf of the class. All of the money to pay both sides' lawyers and to administer settlements comes from manufacturers like Budweiser, who then set consumer prices in part based on the new lawsuit-raised bottom line. If these class actions become the expensive and inefficient method of policing consumer product packaging, the prices of those products will invariably rise, even where plaintiffs cannot show that many ' if any ' other consumers suffered any injury.

Andrew Tuck is a Senior Associate at Alston & Bird LLP with a litigation practice focusing on appeals, class actions, and antitrust matters. In the interest of full disclosure, the author notes that his wife's family runs a Budweiser distributorship.

The first part of this article, published last month, explained the background behind lawsuits alleging that Anheuser-Busch InBev (AB InBev) is “watering down” its beer, and that consumers can purportedly bring a class action against the company in federal court. It then described the problem of the individualized “injury inquiry” that should present an insurmountable obstacle to class certification, and different lines of reasoning courts ' particularly in the Ninth Circuit ' have applied to circumvent this highly individualized injury inquiry and certify classes.

In Part Two herein, we suggest that in federal court the injury inquiry implicates constitutional standing and the often-neglected numerosity requirement for class certification in such a way that the lines of reasoning used to circumvent the injury inquiry are inapplicable ' particularly in an industry as driven by advertising as the beer industry.

Constitutional Standing and Numerosity

The first part of this article discussed lines of reasoning that courts have used to circumvent the highly individualized injury inquiry. In federal court, however, the federal questions of Article III standing and numerosity should present an obstacle to these circumventions. This blocking flows from two principles.

First, as a matter of federal law, a person who would have made the same Budweiser purchase for the same price without regard to the alcohol content stated on the bottle was not injured as a matter of federal law, and therefore has no standing to participate in a federal court proceeding.

Second, a person with no standing to participate in a federal court proceeding cannot be counted in the class size when the plaintiff attempts to establish numerosity.

Injury in fact is a bedrock requirement of constitutional standing ' it is an “irreducible constitutional minimum.” Lujan v. Defenders of Wildlife , 504 US 555, 560-61 (1992). And for two reasons plaintiffs cannot argue that only the class representative must show injury in fact sufficient to establish Article III standing. See Stearns, 655 F.3d at 1021 (following long line of Ninth Circuit cases that to establish Article III standing in a class action, only the named class representative must prove injury in fact). First, as the Supreme Court has stated, in a class action the class representative must have “the same injury shared by all members of the class .” Schlesinger , 418 U.S. at 208 (emphasis added) (quoted in Dukes , 131 S.Ct. at 2550); see also Avritt v. Reliastar Life Ins. Co. , 615 F.3d 1023, 1034 (8th Cir.2010) (“Although federal courts do not require that each member of a class submit evidence of personal standing, a class cannot be certified if it contains members who lack standing.” (quotation omitted)). Second, plaintiffs asserting a class action must show numerosity, which can only be established by “'real' plaintiffs, each of which has standing to sue.” In re FleetBoston Fin. Corp. Sec. Litig., 253 F.R.D. 315, 350-51 (D.N.J. 2008).

The numerosity requirement imposes an obligation on the class representative to show that there are enough members of the class who suffer the same injury to make a federal class action worthwhile. The plaintiff must establish by a preponderance of the evidence that the class is “so numerous that joinder of all members is impracticable.” Fed. R. Civ. P. 23(a)(4); Marcus v. BMW of North America , 687 F.3d 583, 595 (3rd Cir. 2012) (“Critically, numerosity ' like all Rule 23 requirements ' must be proven by a preponderance of the evidence.”). Class plaintiffs like those in the Budweiser “watering down” case essentially assume that because AB InBev has millions of customers, numerosity is established. But without showing that those customers were influenced by the alcohol content stated on Budweiser labels when they purchased the beer, those consumers have not been injured and have no standing to be in federal court. Without standing to be in federal court, those consumers cannot be considered for purposes of determining numerosity, and the numerosity inquiry fells the class.

Other Contexts

Courts in other contexts have used this reasoning to reject class certification. See, e.g., Kempner v. Town of Greenwich , 249 F.R.D. 15, 18 (D. Conn. 2008) (class contained members without standing and “even were the court to redefine the proposed class so as to eliminate those members without standing under Article III, the plaintiffs' proposed class could not be certified because the plaintiffs have failed to establish that the proposed class satisfies the numerosity requirement”); In re W.T. Grant Co., 24 B.R. 421, 425 (Bankr. S.D.N.Y. 1982) (rejecting class certification based on numerosity because 3,331 of the putative class members had signed waivers and so had no standing to remain in court).

As quoted above, the court in FleetBoston noted that “[n]umerosity is not an abstract concept” and “can be met only by 'real' plaintiffs, each of which has standing to sue.” 253 F.R.D. at 350-51. In what will likely be pertinent to the Budweiser class action, the court flatly rejected both the plaintiffs' glib argument that “standing is irrelevant to the numerosity requirement” and the “abstract, fact-barren statement” that “any suggestion that there are not sufficient number of shareholders in the alleged class is simply ludicrous.” Id. (alterations omitted). But see Chavez v. Blue Sky Natural Beverage Co. , 268 F.R.D. 365, 377 (N.D. Cal. 2010) (inferring that plaintiff satisfied numerosity simply by presenting defendant's high sales); Babcock v. Computer Associates Int ' l, Inc. , 212 F.R.D. 126, 129-30 (E.D.N.Y. 2003) (accepting without analysis the conclusory argument that “[s]tanding and numerosity are two separate and unrelated inquiries”) (citing 1 Herbert B. Newberg, Newberg on Class Actions ' 2.09 (3d ed.1992), an inapplicable section relating to the threshold inquiry about named class representative standing being necessary before even proceeding to a Rule 23 analysis). The bottom line is that plaintiffs cannot rely on “common sense” and “[m]ere speculation” to establish numerosity. Marcus, 687 F.3d at 596-97.

This federal analysis should defeat the state-specific argument that injury/reliance is not required to prove a particular state's consumer protection violation. Whatever the state substantive legal requirements, the federal plaintiffs must comply with federal procedural rules like standing and numerosity. Miller v. Redwood Toxicology Lab., Inc. , 688 F.3d 928, 935 (8th Cir. 2012) (“No matter that Miller and the putative class might be able to seek protection under Minnesota law, this does not vitiate the altogether different requirement of causation in federal court.” (quotation omitted)); s ee also Shady Grove Orthopedic Associates v. Allstate Ins. , 130 S. Ct. 1431, 1447-48 (2010) (holding that federal court Rule 23 trumps conflicting state-court rules in federal class proceedings).

Similarly, the federal analysis defeats the state-specific (really California-specific) “injury presumed” reasoning ' that because the same misrepresentation was uniformly made to all consumers, it can be presumed that those consumers relied on the misrepresentation to their detriment. Federal courts have adopted this presumption in only one limited context: the fraud-on-the-market theory in securities litigation. “The fraud-on-the-market premise is that the price of a security traded in an efficient market will reflect all publicly available information about a company; accordingly, a buyer of the security may be presumed to have relied on that information in purchasing the security.” Amgen, Inc. v. Conn. Ret. Plans & Trust Funds , 133 S.Ct. 1184, 1190 (2013).

There is no similar construct for presuming reliance as a matter of federal law in the beer market ' a market driven by advertising and availability, not by instantaneous and detailed secured transactions. Notably, “[c]ourts have generally limited the use of the fraud-on-the-market theory to securities fraud cases.” Appletree Square I, Ltd. P'ship v. W.R. Grace & Co. , 29 F.3d 1283, 1287 (8th Cir. 1994).

Real Injury Needed

Finally, the Ninth Circuit's recent-vintage reasoning that everyone is injured in consumer transactions because “[e]ach alleged class member was relieved of money in the transactions” cannot hold up under the standing-numerosity analysis. The relevant inquiry to determine whether a class member can be counted toward numerosity is whether they would have been relieved of the same amount of money but for the misrepresentation. If they would have ' that is, if they would have bought the same beer for the same price ' they have suffered no injury and have no standing to be counted toward numerosity.

It is worth noting that the Ninth Circuit's recent reasoning seems inconsistent with past Ninth Circuit cases, which have looked to whether a purchaser would have paid less or refused the transaction, not simply whether the purchaser entered a transaction. See, e.g., Maya v. Centex Corp. , 658 F.3d 1060, 1069 (9th Cir. 2011) (finding standing because plaintiffs “paid more for their homes than the homes were worth” and “would not have purchased their homes had defendants made the disclosures allegedly required by law”).

Courts should therefore conclude that class action treatment is inappropriate in the Budweiser class actions. The plaintiffs' allegations that consumers purchase Budweiser at a particular price because of the particular percentage of alcohol stated on the label cannot be reconciled with the powerful marketing themes that have driven consumer demand for Budweiser over the years ' from Adolphus Busch's own slogan “The King of Beers,” to the Budweiser Clydesdales, the Dale Earnhardt, Jr./Kasey Kahne/Kevin Harvick Budweiser NASCAR, and the Bud Bowl, to name a few. It is impossible to determine which consumers relied on these market drivers as opposed to those who went to the store and engaged in a price-to-alcohol-content comparison. Nor, like in FleetBoston, can plaintiffs assert that it is “simply ludicrous” to argue that numerosity is not met ' numerosity is a concrete requirement on which the plaintiff bears the burden of proof to establish that a class action is appropriate. 253 F.R.D. 315, 350-51; see also Marcus, 687 F.3d at 596-97.

Conclusion

Given past consumer marketing cases, particularly in the Ninth Circuit, plaintiffs may be able convince courts to circumvent other traditional barriers to class litigation in the name of protecting consumers from a fraction of a percent reduction in the amount of alcohol in a Budweiser. But it should be impossible for plaintiffs to prove that enough people care about the percentage of alcohol stated on a bottle, or that a small difference would change their purchasing decision, to satisfy the oft-neglected numerosity requirement for class actions.

I would urge the reader not to dismiss this as simply a technical legal argument. In a very real way the inquiry into whether injury can be proven to a sufficient number of consumers is an inquiry into whether the lawsuit might benefit consumers if successful, or will harm consumers whatever the result.

The only parties who materially benefit from large-scale consumer class actions are class action defense attorneys, like the author, and plaintiffs' lawyers, who keep a hefty percentage of whatever recovery they make on behalf of the class. All of the money to pay both sides' lawyers and to administer settlements comes from manufacturers like Budweiser, who then set consumer prices in part based on the new lawsuit-raised bottom line. If these class actions become the expensive and inefficient method of policing consumer product packaging, the prices of those products will invariably rise, even where plaintiffs cannot show that many ' if any ' other consumers suffered any injury.

Andrew Tuck is a Senior Associate at Alston & Bird LLP with a litigation practice focusing on appeals, class actions, and antitrust matters. In the interest of full disclosure, the author notes that his wife's family runs a Budweiser distributorship.