Why the Rise of Ascertainability Signals the Fall of 'All Natural' Consumer Class Actions

The filing of a consumer class action is a significant event in the life cycle of a consumer product. The widespread publicity such a lawsuit draws often has an immediate adverse impact on the product, its brand, and its manufacturer. Taking control of these class actions early, containing them through appropriate corporate messaging, and ending them quickly at the class certification stage is therefore imperative, particularly in the food and beverage industry, where maintaining consumer trust and confidence is of the utmost importance.

In recent years, numerous consumer class actions have challenged the labeling of food and beverage products as “All Natural,” “100% Natural” or some variant. The phrase “All Natural” has never been defined by the Food & Drug Administration (FDA), and judicial requests to the FDA for guidance on what the term means have been largely ignored. Courts themselves have struggled to define the label. But this quest may be largely academic in light of the recent trend to deny certification in consumer class actions on ascertainability grounds.

Ascertainability is an essential prerequisite to maintaining a Rule 23 class action. See, e.g., Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 592-94 (3d Cir. 2012); Little v. T-Mobile USA, Inc., 691 F.3d 1302 (11th Cir. 2012); John v. Nat'l Sec. Fire & Cas. Co., 501 F.3d 443, 445 (5th Cir. 2007); In re Initial Pub. Offerings Sec. Litig. , 471 F.3d 24, 30 (2d Cir. 2006); Crosby v. Social Sec. Admin.of the U.S., 796 F.2d 576, 580 (1st Cir. 1986). It means that the proposed class must be “currently and readily ascertainable based on objective criteria.” Marcus, 687 F.3d at 593. It requires that the plaintiff demonstrate at the class certification stage that some reliable, administratively feasible way of identifying class members exists. Carrera v. Bayer Corp., 727 F.3d 300, 307-08 (3d Cir. 2013). The process proposed must be “manageable” and must “not require much, if any, individual fact inquiry.” Id. In other words “[i]f class members are impossible to identify without extensive and individualized fact-finding or 'mini-trials,' then a class action is inappropriate.” Id. at 305; see Marcus, 687 F.3d at 593.

Ascertainability serves several important objectives: 1) “it eliminates serious administrative burdens that are incongruous with the efficiencies expected in a class action”; 2) “it protects absent class members by facilitating the best notice practicable under Rule 23(c)(1) in a Rule 23(b)(3) action”; and 3) “it protects defendants by ensuring that those persons who will be bound by the judgment are clearly identifiable.” Id. at 305-06 (quoting Marcus, 687 F.3d at 593). Ascertainability also “provides due process by requiring that a defendant be able to test the reliability of the evidence submitted to prove class membership.” Id' at 307.

Consumer class actions “fall on a continuum of ascertainability dependent upon the facts of the particular case or product.” In re POM Wonderful, LLC, 2014 U.S. Dist. LEXIS 40415, at *22-23 (C.D. Cal. March 25, 2014). “While no single factor is dispositive, relevant considerations include the price of the product, the range of potential or intended uses of the product, and the availability of public records.” Id. at *23. “In situations where purported class members purchase an inexpensive product for a variety of reasons, and are unlikely to retain receipts or other transaction records, class actions may present such daunting administrative challenges that class treatment is not feasible.” Id.

Indeed, countless consumer class actions predicated on the labeling or advertising of low-cost, consumable products have failed precisely for these reasons. See, e.g., In re Clorox Consumer Litig., 2014 U.S. Dist. LEXIS 104183, at *12-14 (no reliable, administratively feasible way to determine when customers purchased Fresh Step cat litter and how much they purchased); Stewart v. Beam Global Spirits & Wine, Inc., 2014 U.S. Dist. LEXIS 87487, at *45-46 (D.N.J. June 26, 2014) (no reliable, administratively feasible way to determine who purchased Skinnygirl Margarita within the relevant timeframe); Bruton v. Gerber Prods. Co., 2014 U.S. Dist. LEXIS 86581, at *24-25 (N.D. Cal. June 23, 2014) (no reliable, administratively feasible way to determine who purchased various different types of baby food during the class period); Weiner v. Snapple Beverage Corporation, 2010 U.S. Dist. LEXIS 79647 at *41-42(S.D.N.Y. Aug. 5, 2010) (no reliable, administratively feasible way to determine who purchased Snapple iced tea drinks labeled “All Natural”).

In many cases, plaintiffs propose ascertaining class members through individual consumer affidavits. While some courts have permitted this method at the certification stage, see Werdebaugh v. Blue Diamond Growers, 2014 U.S. Dist. LEXIS 71575 (N.D. Cal. May 23, 2014); Ries v. Arizona Beverages USA LLC, 287 F.R.D. 523, 535 (N.D. Cal. 2012), the vast majority of courts have rejected it because it is inherently unreliable, invites fraud and inaccuracy, and deprives defendants of their due process right to challenge the qualifications of individual class members. See, e.g., Carrera , 727 F.3d at 309 (holding that use of affidavits to determine class membership is unaceptable because “it does not address a core concern of ascertainability: that a defendant must be able to challenge class membership”); Karhu v. Vital Pharms., Inc., 2014 U.S. Dist. LEXIS 26756, at *9 (S.D. Fla. March 3, 2014) (use of affidavits to determine class membership would violate the defendant's due process rights, invite fraud and inaccuracy, and “could dilute the recovery of genuine class members”); Xavier v. Philip Morris USA Inc., 787 F. Supp. 2d 1075, 1090-91 (N.D. Cal. 2011) (declining to permit affidavits to ascertain class members because it invites fraud and inaccurate claims).

These newly refined, broadly accepted principles of ascertainability strongly suggest that “All Natural” consumer class action litigation will face an uphill battle at the class certification stage. “All Natural” consumer class actions often involve low-cost, consumable products for which consumers do not typically keep receipts. The defendants in these cases typically do not sell the product directly to consumers and thus possess no records of who purchased the product. Retailers who sell the product may be able to identify some consumers through their records, but typically cannot identify all of them.

Two Recent Examples

Two recent federal district court cases illustrate these points. In S tewart v. Beam Global Spirits & Wine, Inc., supra, the defendant sold a “low-calorie, pre-mixed alcoholic beverage product known as 'Skinnygirl Margarita'” that it marketed as “all natural” and a “healthy alternative to other commercial Margarita products.” 2014 U.S. Dist. LEXIS 87487, at *2. The plaintiffs filed a class action lawsuit asserting that these representations were misleading and moved for class certification, arguing in their reply brief that their proposed class could be ascertained using affidavits. Id. at *18-19. The court denied the motion on ascertainability grounds finding that there was no “independently verifiable proof of purchase through receipts, retail records, or otherwise ' .” Id. at *23.

In In re Clorox Consumer Litigation, the federal district court reached a similar conclusion. 2014 U.S. Dist. LEXIS 104183. Defendant marketed its Fresh Step cat litter as “more effective at eliminating cat odors” than other products. Id. at *6. Plaintiffs filed a class action lawsuit asserting that this representation was misleading and moved to certify five subclasses. Id. The court denied certification in part on ascertainability grounds, stating: “The problem plaintiffs face is figuring out exactly who purchased Fresh Step during the class period.” Id. at *10. None of the named plaintiffs kept receipts, nor did they necessarily “remember when they bought cat litter, or which sizes, types, or even brands of cat litter they purchased.” Id. Additionally, one of the plaintiffs could not remember whether she purchased the cat litter during the class period. Id . The court remarked, “That is precisely why affidavits from consumers are insufficient to identify the class.” Id. at *11.

Nonetheless, the plaintiffs proposed ascertaining the consumer class through records “from the retailers who sell Fresh Step.” Id. at *11. To support their proposal, “plaintiffs contacted sixteen Fresh Step retailers, which accounted for about 85 percent of Fresh Step sales nationwide.” Id. Some of these retailers failed to respond or provide information. Id. Other retailers could provide information through credit card purchases or the use of store loyalty cards, but those identifiable purchases did not represent all of the Fresh Step purchases made. Id. at *11-13. The court concluded that “[p]laintiffs' evidence demonstrates quite clearly that there is no administratively feasible method for ascertaining the plaintiff classes.” Id. at *13.

Though the issue was not raised in In re Clorox Consumer Litigation, relying solely on retail credit card or store loyalty card records to determine class membership is likely unreliable for several reasons. First, these records do not capture individual monetary transactions, which are highly prevalent in commercial transactions for low-cost, consumable goods. Second, store loyalty cards usually entitle the holder to a discount or permit the holder to acquire points that can be applied to discount future purchases. Simply because a store loyalty card has been swiped and a discount has been applied during a particular transaction does not necessarily mean that the consumer ultimately purchased the product or did not return the product at a later date. The same concern with regard to returning purchases applies equally to individual consumer credit card data. Thus, how a retailer stores customer purchase data and what that data actually reveals about a particular transaction is important for defense attorneys to know and understand so they can effectively oppose class certification.

In re Clorox Consumer Litigation and Stewart illustrate how defendants can use the ascertainability requirement to dismantle consumer class actions at the certification stage. They also dispel the fundamental misconception that ascertainability requires plaintiffs to prove the identity of all class members at the class certification stage. See Ries , 287 F.R.D. at 535. It does not. What the ascertainability requirement demands is actually much less; it simply requires plaintiffs to show that a reliable, administratively feasible way of identifying class members actually exists. Plaintiffs can do this in a number of ways, by, for example, pointing to a database in the defendant's possession that contains electronic records of all consumer purchases, or by pointing to a contract or warranty issued in connection with the product that consumers are likely to have retained. But class plaintiffs cannot rely solely on the “say-so” of individuals to establish class membership without converting Federal Rule of Civil Procedure 23 into a tool to eviscerate the due process rights of defendants. See Carrera, 727 F.3d at 306.

Conclusion

Although ascertainability has long been a prerequisite to class certification, it has only recently emerged as tool to curtail unwieldy consumer class actions. Cases like Stewart and In re Clorox Consumer Litigation illustrate precisely why “All Natural” consumer class action litigation should almost always fail at the class certification stage on ascertainability grounds. Absent some preliminary showing that a reliable, administratively feasible way to identify class members exists, defendants simply should not be forced into a costly pretrial discovery process where the risks in terms of reputational and monetary harm in going to trial are so great as to effectively force defendants to settle regardless of the validity of claims against them.

Vivian M. Quinn, a member of this newsletter's Board of Editors, is a Partner and Anthony J. Galdieri is a Senior Associate at Nixon Peabody LLP. They concentrate their practice on commercial and consumer product litigation, including work for the Food & Beverage Industry.

The filing of a consumer class action is a significant event in the life cycle of a consumer product. The widespread publicity such a lawsuit draws often has an immediate adverse impact on the product, its brand, and its manufacturer. Taking control of these class actions early, containing them through appropriate corporate messaging, and ending them quickly at the class certification stage is therefore imperative, particularly in the food and beverage industry, where maintaining consumer trust and confidence is of the utmost importance.

In recent years, numerous consumer class actions have challenged the labeling of food and beverage products as “All Natural,” “100% Natural” or some variant. The phrase “All Natural” has never been defined by the Food & Drug Administration (FDA), and judicial requests to the FDA for guidance on what the term means have been largely ignored. Courts themselves have struggled to define the label. But this quest may be largely academic in light of the recent trend to deny certification in consumer class actions on ascertainability grounds.

Ascertainability is an essential prerequisite to maintaining a Rule 23 class action. See, e.g., Marcus v. BMW of N. Am., LLC , 687 F.3d 583, 592-94 (3d Cir. 2012); Little v. T-Mobile USA, Inc. , 691 F.3d 1302 (11th Cir. 2012); John v. Nat'l Sec. Fire & Cas. Co. , 501 F.3d 443, 445 (5th Cir. 2007); In re Initial Pub. Offerings Sec. Litig. , 471 F.3d 24, 30 (2d Cir. 2006); Crosby v. Social Sec. Admin.of the U.S., 796 F.2d 576, 580 (1st Cir. 1986). It means that the proposed class must be “currently and readily ascertainable based on objective criteria.” Marcus, 687 F.3d at 593. It requires that the plaintiff demonstrate at the class certification stage that some reliable, administratively feasible way of identifying class members exists. Carrera v. Bayer Corp. , 727 F.3d 300, 307-08 (3d Cir. 2013). The process proposed must be “manageable” and must “not require much, if any, individual fact inquiry.” Id. In other words “[i]f class members are impossible to identify without extensive and individualized fact-finding or 'mini-trials,' then a class action is inappropriate.” Id. at 305; see Marcus, 687 F.3d at 593.

Ascertainability serves several important objectives: 1) “it eliminates serious administrative burdens that are incongruous with the efficiencies expected in a class action”; 2) “it protects absent class members by facilitating the best notice practicable under Rule 23(c)(1) in a Rule 23(b)(3) action”; and 3) “it protects defendants by ensuring that those persons who will be bound by the judgment are clearly identifiable.” Id. at 305-06 (quoting Marcus, 687 F.3d at 593). Ascertainability also “provides due process by requiring that a defendant be able to test the reliability of the evidence submitted to prove class membership.” Id' at 307.

Consumer class actions “fall on a continuum of ascertainability dependent upon the facts of the particular case or product.” In re POM Wonderful, LLC, 2014 U.S. Dist. LEXIS 40415, at *22-23 (C.D. Cal. March 25, 2014). “While no single factor is dispositive, relevant considerations include the price of the product, the range of potential or intended uses of the product, and the availability of public records.” Id. at *23. “In situations where purported class members purchase an inexpensive product for a variety of reasons, and are unlikely to retain receipts or other transaction records, class actions may present such daunting administrative challenges that class treatment is not feasible.” Id.

Indeed, countless consumer class actions predicated on the labeling or advertising of low-cost, consumable products have failed precisely for these reasons. See, e.g., In re Clorox Consumer Litig., 2014 U.S. Dist. LEXIS 104183, at *12-14 (no reliable, administratively feasible way to determine when customers purchased Fresh Step cat litter and how much they purchased); Stewart v. Beam Global Spirits & Wine, Inc., 2014 U.S. Dist. LEXIS 87487, at *45-46 (D.N.J. June 26, 2014) (no reliable, administratively feasible way to determine who purchased Skinnygirl Margarita within the relevant timeframe); Bruton v. Gerber Prods. Co., 2014 U.S. Dist. LEXIS 86581, at *24-25 (N.D. Cal. June 23, 2014) (no reliable, administratively feasible way to determine who purchased various different types of baby food during the class period); Weiner v. Snapple Beverage Corporation, 2010 U.S. Dist. LEXIS 79647 at *41-42(S.D.N.Y. Aug. 5, 2010) (no reliable, administratively feasible way to determine who purchased Snapple iced tea drinks labeled “All Natural”).

In many cases, plaintiffs propose ascertaining class members through individual consumer affidavits. While some courts have permitted this method at the certification stage, see Werdebaugh v. Blue Diamond Growers, 2014 U.S. Dist. LEXIS 71575 (N.D. Cal. May 23, 2014); Ries v. Arizona Beverages USA LLC , 287 F.R.D. 523, 535 (N.D. Cal. 2012), the vast majority of courts have rejected it because it is inherently unreliable, invites fraud and inaccuracy, and deprives defendants of their due process right to challenge the qualifications of individual class members. See, e.g., Carrera , 727 F.3d at 309 (holding that use of affidavits to determine class membership is unaceptable because “it does not address a core concern of ascertainability: that a defendant must be able to challenge class membership”); Karhu v. Vital Pharms., Inc., 2014 U.S. Dist. LEXIS 26756, at *9 (S.D. Fla. March 3, 2014) (use of affidavits to determine class membership would violate the defendant's due process rights, invite fraud and inaccuracy, and “could dilute the recovery of genuine class members”); Xavier v. Philip Morris USA Inc. , 787 F. Supp. 2d 1075, 1090-91 (N.D. Cal. 2011) (declining to permit affidavits to ascertain class members because it invites fraud and inaccurate claims).

These newly refined, broadly accepted principles of ascertainability strongly suggest that “All Natural” consumer class action litigation will face an uphill battle at the class certification stage. “All Natural” consumer class actions often involve low-cost, consumable products for which consumers do not typically keep receipts. The defendants in these cases typically do not sell the product directly to consumers and thus possess no records of who purchased the product. Retailers who sell the product may be able to identify some consumers through their records, but typically cannot identify all of them.

Two Recent Examples

Two recent federal district court cases illustrate these points. In S tewart v. Beam Global Spirits & Wine, Inc., supra, the defendant sold a “low-calorie, pre-mixed alcoholic beverage product known as 'Skinnygirl Margarita'” that it marketed as “all natural” and a “healthy alternative to other commercial Margarita products.” 2014 U.S. Dist. LEXIS 87487, at *2. The plaintiffs filed a class action lawsuit asserting that these representations were misleading and moved for class certification, arguing in their reply brief that their proposed class could be ascertained using affidavits. Id. at *18-19. The court denied the motion on ascertainability grounds finding that there was no “independently verifiable proof of purchase through receipts, retail records, or otherwise ' .” Id. at *23.

In In re Clorox Consumer Litigation, the federal district court reached a similar conclusion. 2014 U.S. Dist. LEXIS 104183. Defendant marketed its Fresh Step cat litter as “more effective at eliminating cat odors” than other products. Id. at *6. Plaintiffs filed a class action lawsuit asserting that this representation was misleading and moved to certify five subclasses. Id. The court denied certification in part on ascertainability grounds, stating: “The problem plaintiffs face is figuring out exactly who purchased Fresh Step during the class period.” Id. at *10. None of the named plaintiffs kept receipts, nor did they necessarily “remember when they bought cat litter, or which sizes, types, or even brands of cat litter they purchased.” Id. Additionally, one of the plaintiffs could not remember whether she purchased the cat litter during the class period. Id . The court remarked, “That is precisely why affidavits from consumers are insufficient to identify the class.” Id. at *11.

Nonetheless, the plaintiffs proposed ascertaining the consumer class through records “from the retailers who sell Fresh Step.” Id. at *11. To support their proposal, “plaintiffs contacted sixteen Fresh Step retailers, which accounted for about 85 percent of Fresh Step sales nationwide.” Id. Some of these retailers failed to respond or provide information. Id. Other retailers could provide information through credit card purchases or the use of store loyalty cards, but those identifiable purchases did not represent all of the Fresh Step purchases made. Id. at *11-13. The court concluded that “[p]laintiffs' evidence demonstrates quite clearly that there is no administratively feasible method for ascertaining the plaintiff classes.” Id. at *13.

Though the issue was not raised in In re Clorox Consumer Litigation, relying solely on retail credit card or store loyalty card records to determine class membership is likely unreliable for several reasons. First, these records do not capture individual monetary transactions, which are highly prevalent in commercial transactions for low-cost, consumable goods. Second, store loyalty cards usually entitle the holder to a discount or permit the holder to acquire points that can be applied to discount future purchases. Simply because a store loyalty card has been swiped and a discount has been applied during a particular transaction does not necessarily mean that the consumer ultimately purchased the product or did not return the product at a later date. The same concern with regard to returning purchases applies equally to individual consumer credit card data. Thus, how a retailer stores customer purchase data and what that data actually reveals about a particular transaction is important for defense attorneys to know and understand so they can effectively oppose class certification.

In re Clorox Consumer Litigation and Stewart illustrate how defendants can use the ascertainability requirement to dismantle consumer class actions at the certification stage. They also dispel the fundamental misconception that ascertainability requires plaintiffs to prove the identity of all class members at the class certification stage. See Ries , 287 F.R.D. at 535. It does not. What the ascertainability requirement demands is actually much less; it simply requires plaintiffs to show that a reliable, administratively feasible way of identifying class members actually exists. Plaintiffs can do this in a number of ways, by, for example, pointing to a database in the defendant's possession that contains electronic records of all consumer purchases, or by pointing to a contract or warranty issued in connection with the product that consumers are likely to have retained. But class plaintiffs cannot rely solely on the “say-so” of individuals to establish class membership without converting Federal Rule of Civil Procedure 23 into a tool to eviscerate the due process rights of defendants. See Carrera, 727 F.3d at 306.

Conclusion

Although ascertainability has long been a prerequisite to class certification, it has only recently emerged as tool to curtail unwieldy consumer class actions. Cases like Stewart and In re Clorox Consumer Litigation illustrate precisely why “All Natural” consumer class action litigation should almost always fail at the class certification stage on ascertainability grounds. Absent some preliminary showing that a reliable, administratively feasible way to identify class members exists, defendants simply should not be forced into a costly pretrial discovery process where the risks in terms of reputational and monetary harm in going to trial are so great as to effectively force defendants to settle regardless of the validity of claims against them.

Vivian M. Quinn, a member of this newsletter's Board of Editors, is a Partner and Anthony J. Galdieri is a Senior Associate at Nixon Peabody LLP. They concentrate their practice on commercial and consumer product litigation, including work for the Food & Beverage Industry.