The Rise of No-Injury Class Actions

We all know that for a product liability plaintiff to have standing to sue, he must demonstrate both that he suffered some form of compensable harm and that the harm was caused by the defendant's product. But what if that plaintiff is an unnamed member of a class action? Though the answer ought to be the same for individual plaintiffs and members of class actions, recent case law questions that assumption. Hopefully, two cases pending before the Supreme Court may clarify, or potentially change, the landscape.

Why Have No-Injury Claims Become More Common?

A traditional product liability claim seeking damages for personal injury or property damage faces some common challenges. First, proving that there was a design or manufacturing defect in any given product can be very difficult, particularly when that product is a sophisticated, computer-controlled device, as more and more consumer products are these days. Second, the economics of smaller, one-off product liability claims are not always attractive to plaintiffs' lawyers. Courts rarely certify class actions that attempt to improve the economics of traditional product liability cases because individual questions of law and fact tend to predominate over common questions.

Thus, in recent years there has been a significant shift in the focus of product liability claims toward companies' knowledge of, and response to, alleged defects. The focus in these cases is less on the alleged defect itself, and more on violations of state consumer protection laws or consumer fraud claims, which also allow plaintiffs to seek measures of damages unavailable under traditional product liability theories.

No-injury class actions also tend to avoid the individual questions of law and fact that tend to predominate in traditional product liability claims. In recent high-profile cases brought against automobile and auto part manufacturers, food and beverage companies and makers of a wide variety of consumer products, plaintiffs have increasingly sought only economic loss damages in no-injury class actions. It is typically alleged that the product is now worth less than what the plaintiff paid because of the undisclosed alleged defect (“diminution of value”), or that the price the plaintiff paid was artificially increased based on a quality or characteristic that the product does not actually have (“price inflation”). These claims are frequently brought as class actions that attempt to aggregate small economic losses into much larger, cumulative statewide or nationwide claims.

Putting aside the often speculative nature of damages in these suits, it is frequently the case that many, and sometimes most, of the class members never experienced any harm at all because their product never failed. This brings us to the challenge at hand ' how can class members have standing to sue without having experienced an actual harm caused by the product?

Standing in Recent No-Injury Cases

The problems inherent in “no injury” class actions have been bubbling up in the class action world for some time. Defendants challenge these cases with arguments that plaintiffs lack Article III standing, the class definition is overbroad, there is a lack of commonality across the class, or the class claims simply fail to state a cause of action under the relevant state tort law. However, it is the lack of standing argument that comes most into play in recent court analyses of no-injury class actions. Whirlpool Corp v. Glazer, 678 F.3d 409 (6th Cir. 2012) cert denied; Butler v. Sears Roebuck, 702 F. 3d 359 (7th Cir. 2012).

Both of these “moldy washer” cases asserted various product liability claims related to the allegation that design defects in the subject washing machines caused the growth of smelly mold or mildew. However, it was effectively undisputed that a majority of the washing machines covered by the putative classes had not developed this odor problem. Nonetheless, classes were certified in both cases.

The U.S. Courts of Appeal for the Sixth and Seventh Circuits rejected defendants' arguments that the inclusion in the proposed classes of owners who had not experienced odor problems rendered them overbroad. Both defendants then petitioned for certiorari to the Supreme Court. Rather than deal with the petitions, the Supreme Court summarily reversed and remanded the two cases for further consideration on the basis of its decision in Comcast v, Behrend, 133 S.Ct. 1426 (2013), which had been decided in the interim. On remand, both the Sixth and Seventh Circuits maintained the same rulings, holding that Comcast was not relevant. Surprisingly, the Supreme Court declined to grant subsequent certiorari petitions, thereby passing on a ripe opportunity to clarify the limits of no injury class actions. In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014).

This class action forced the U.S. Court of Appeal for the Fifth Circuit to assess class certification where the class likely contained non-injured members, but the court's ability to probe behind the pleadings at the certification stage was limited by Supreme Court holdings like Amgen Inc. v. Connecticut Ret. Plans & Trust Funds, 133 S. Ct. 1184, 1194-95 (2013) (“Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage. Merits questions may be considered to the extent ' but only to the extent ' that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.”).

The parties settled the case, with a court-appointed administrator managing settlement pay-outs. Some class members objected, but the settlement was ultimately approved by the court. The objecting class members appealed, and BP subsequently joined in opposing the settlement because the Claims Administrator had issued unfavorable interpretations of the settlement agreement in the interim. BP's appeal argued that the settlement agreement violated Rule 23, the Rules Enabling Act, and Article III because two court-approved Policy Announcements issued by the Claims Administrator would have permitted claimants without any actual injuries caused by the oil spill to receive payments.

The Fifth Circuit affirmed. The court emphasized that “had the class in this case been certified under Rule 23 for further proceedings on the merits rather than for settlement, the district court might ultimately have had occasion to apply a stricter evidentiary standard.” The court also noted that, although the Claims Administrator is not bound by issues of Article III standing, BP would likely be afforded a rigorous analysis of injury and causation by the Claims Administrator per the provisions of the Settlement Agreement.

The U.S. Courts of Appeal for the Second and the D.C. Circuits, along with the Seventh and Eighth Circuits, have rejected certification where the proposed class contains numerous members who have not sustained any injury caused by the defendant. These cases are not reconcilable with the Fifth Circuit's decision in In re Deepwater Horizon; however, the Supreme Court denied BP's petition for review. Robins v. Spokeo, Inc., 742 F.3d 409 (9th Cir. 2014) cert. granted, 135 S. Ct. 1892 (2015).

In Robins v. Spokeo, the plaintiff brought a putative class action under the Fair Credit Reporting Act (FCRA), alleging that Spokeo published incorrect personal information about him, thereby harming his job-hunting prospects. Spokeo moved to dismiss on the ground that the plaintiff lacked Article III standing, but the district court denied the motion and concluded that the plaintiff had alleged sufficient injury in fact. Spokeo then moved to certify an interlocutory appeal, which prompted the district to reconsider its previous ruling. The court then ruled, contrary to its previous ruling, that plaintiff had failed to plead an injury in fact and dismissed the case. The plaintiff then appealed.

The U.S. Court of Appeals for the Ninth Circuit reversed, finding that the plaintiff had properly alleged a willful violation of the FRCA, and that, although the plaintiff did not allege that he had suffered any actual injuries, the statutory violation claim did not require that he allege actual harm. Spokeo petitioned for certiorari, and the U.S. Supreme Court agreed to hear the case. Oral arguments are set to commence during the new term, which began in October. The Supreme Court's decision on the issue of standing created by statutory violations where there is no actual harm will likely have significant implications regardless of outcome. Tyson Foods, Inc. v Bouaphakeo 765 F.3d 791 (8th Cir. 2014), cert. granted (2015).

The plaintiff class in Tyson Foods sued under provisions of the federal Fair Labor Standards Act (FLSA), alleging that they were not properly compensated for overtime before and after their shifts for time spent putting on and taking off protective equipment or walking to and from their stations. The district court certified a class, and the Eighth Circuit affirmed certification in a split decision.

Tyson's arguments on appeal focused in part on the fact that certain members of the employee class had suffered no loss. The court rejected Tyson's arguments, holding that the inclusion of class members who may not have worked overtime (and accordingly did not suffer a loss) did not affect the validity of the class certification because variability in the damages of class members was no bar to certification unless the individual damages calculations overwhelm the common issues.

Tyson also argued that plaintiffs' use of both individual time sheets and the averaging of sample employee observations constituted a 'trial by formula” contrary to the Supreme Court's holding in Wal-Mart Stores Inc. v Dukes, 131 S. Ct. 2541 (2011). The court rejected this argument as well, ruling that the approach in Dukes, where plaintiffs attempted to prove liability for an entire class based on an analysis of a sample set of class members, was distinguishable from the scenario in Tyson, where the plaintiffs proved liability for the class as a whole and only needed to use employee time records to establish damages for individual class members. Accordingly, the district court's ruling stood.

In its certiorari application, Tyson presented two questions for the Supreme Court: “I. Whether differences among individual class members may be ignored and a class action certified ' where liability and damages will be determined with statistical techniques that presume that all class members are identical to the average observed in a sample. II. Whether a class action may be certified … when the class contains hundreds of members who were not injured and have no legal right to any damages.”

On June 8, 2015, shortly after granting certiorari in the Spokeo matter, the Supreme Court granted review of both questions. While the first question will allow the Court to revisit the scope of its decision in Dukes as it relates to evidentiary proof of class liability and damages, the second will probe the standing question in no-injury cases from the perspective of certification requirements. Together with the Court's review of Spoke , we can expect the review of this case to generate additional guidance regarding the appropriateness of no-injury class actions.

Legislative Efforts

Rather than waiting for the Supreme Court to address no-injury class actions, the House Judiciary Committee approved the “Fairness in Class Action Litigation Act of 2015″ (H.R. 1927) on June 24, 2015. The bill requires that class actions be made up only of members with the same type and scope of injury as the named class representative. If enacted, the new law would introduce a new tool to limit overbroad, no-injury class actions, but even it may not fully resolve the issue. The version of the bill reported out of committee incorporated amendments that restrict the bill's application to actions “seeking monetary relief for personal injury or economic loss,” so that the limitation would not apply to civil rights class actions or other actions seeking declarations of rights or injunctions. Unfortunately, the effect of that limitation also may be to exempt no injury class actions based on statutory causes of action where statutory damages do not require proof of personal injury or economic loss ' precisely the scenario presented by the Spokeo case.

Efforts to push the pendulum in the other direction are exemplified by a bill recently introduced in the California legislature that would have expanded manufacturers' liability for certain product defects under the California Consumer Legal Remedies Act (CLRA). Under the CLRA, consumers can bring suit against manufacturers for making fraudulent claims about their goods or services, or for failing to inform consumers of a known product defect. However, courts routinely reject fraudulent non-disclosure claims where the product or service did not pose a risk to the health or safety of the consumer. California Senate Bill 1188 sought to eliminate this carve-out. This change would have greatly expanded the scope of defect litigation and would effectively render manufacturers' warranty limitations meaningless. Ultimately, the bill did not pass, but it nonetheless stands as an example of a state effort to create a statutory right to a no-injury action of the same sort at issue in Spokeo.

Analysis

In the near term, the Supreme Court's denial of certiorari in the Deepwater Horizon case may encourage plaintiffs to bring more no-injury class actions that seem to contradict Article III and Rule 23 requirements. This raises troubling concerns, not the least of which is defendants' obligation to defend against product liability claims where some of the plaintiffs have suffered no harm causally connected to the product. Of course, defendants should continue to refocus the courts on the over-breadth of class definitions and the lack of injury in absent class members. Even where these efforts are not successful at the class certification stage, they can still win the day at trial. By way of example, in Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 722 F.3d 838, 857 (6th Cir. 2013), the Sixth Circuit certified a class that included plaintiffs who had suffered no injury, but at trial the jury ruled in Whirlpool's favor, recognizing that because most of the class members did not experience the mold problem, the washing machines were not defectively designed.

In the longer term, the Supreme Court's rulings in Spokeo and Tyson will also likely affect the type and scope of product liability class actions filed. In particular, the Tyson case may expand the court's 2013 ruling in Comcast by precluding certification of cases involving plaintiffs with different types of injuries; particularly in cases where some plaintiffs may not have been injured at all. Such a ruling would be welcome relief indeed for product liability defendants.

Peter Masaitis is a partner in Alston & Bird LLP's Los Angeles office. He can be reached at 213-576-1094 or [email protected].

We all know that for a product liability plaintiff to have standing to sue, he must demonstrate both that he suffered some form of compensable harm and that the harm was caused by the defendant's product. But what if that plaintiff is an unnamed member of a class action? Though the answer ought to be the same for individual plaintiffs and members of class actions, recent case law questions that assumption. Hopefully, two cases pending before the Supreme Court may clarify, or potentially change, the landscape.

Why Have No-Injury Claims Become More Common?

A traditional product liability claim seeking damages for personal injury or property damage faces some common challenges. First, proving that there was a design or manufacturing defect in any given product can be very difficult, particularly when that product is a sophisticated, computer-controlled device, as more and more consumer products are these days. Second, the economics of smaller, one-off product liability claims are not always attractive to plaintiffs' lawyers. Courts rarely certify class actions that attempt to improve the economics of traditional product liability cases because individual questions of law and fact tend to predominate over common questions.

Thus, in recent years there has been a significant shift in the focus of product liability claims toward companies' knowledge of, and response to, alleged defects. The focus in these cases is less on the alleged defect itself, and more on violations of state consumer protection laws or consumer fraud claims, which also allow plaintiffs to seek measures of damages unavailable under traditional product liability theories.

No-injury class actions also tend to avoid the individual questions of law and fact that tend to predominate in traditional product liability claims. In recent high-profile cases brought against automobile and auto part manufacturers, food and beverage companies and makers of a wide variety of consumer products, plaintiffs have increasingly sought only economic loss damages in no-injury class actions. It is typically alleged that the product is now worth less than what the plaintiff paid because of the undisclosed alleged defect (“diminution of value”), or that the price the plaintiff paid was artificially increased based on a quality or characteristic that the product does not actually have (“price inflation”). These claims are frequently brought as class actions that attempt to aggregate small economic losses into much larger, cumulative statewide or nationwide claims.

Putting aside the often speculative nature of damages in these suits, it is frequently the case that many, and sometimes most, of the class members never experienced any harm at all because their product never failed. This brings us to the challenge at hand ' how can class members have standing to sue without having experienced an actual harm caused by the product?

Standing in Recent No-Injury Cases

The problems inherent in “no injury” class actions have been bubbling up in the class action world for some time. Defendants challenge these cases with arguments that plaintiffs lack Article III standing, the class definition is overbroad, there is a lack of commonality across the class, or the class claims simply fail to state a cause of action under the relevant state tort law. However, it is the lack of standing argument that comes most into play in recent court analyses of no-injury class actions. Whirlpool Corp v. Glazer, 678 F.3d 409 (6th Cir. 2012) cert denied; Butler v. Sears Roebuck, 702 F. 3d 359 (7th Cir. 2012).

Both of these “moldy washer” cases asserted various product liability claims related to the allegation that design defects in the subject washing machines caused the growth of smelly mold or mildew. However, it was effectively undisputed that a majority of the washing machines covered by the putative classes had not developed this odor problem. Nonetheless, classes were certified in both cases.

The U.S. Courts of Appeal for the Sixth and Seventh Circuits rejected defendants' arguments that the inclusion in the proposed classes of owners who had not experienced odor problems rendered them overbroad. Both defendants then petitioned for certiorari to the Supreme Court. Rather than deal with the petitions, the Supreme Court summarily reversed and remanded the two cases for further consideration on the basis of its decision in Comcast v, Behrend, 133 S.Ct. 1426 (2013), which had been decided in the interim. On remand, both the Sixth and Seventh Circuits maintained the same rulings, holding that Comcast was not relevant. Surprisingly, the Supreme Court declined to grant subsequent certiorari petitions, thereby passing on a ripe opportunity to clarify the limits of no injury class actions. In re Deepwater Horizon, 739 F.3d 790 (5th Cir. 2014).

This class action forced the U.S. Court of Appeal for the Fifth Circuit to assess class certification where the class likely contained non-injured members, but the court's ability to probe behind the pleadings at the certification stage was limited by Supreme Court holdings like Amgen Inc. v. Connecticut Ret. Plans & Trust Funds , 133 S. Ct. 1184, 1194-95 (2013) (“Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage. Merits questions may be considered to the extent ' but only to the extent ' that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.”).

The parties settled the case, with a court-appointed administrator managing settlement pay-outs. Some class members objected, but the settlement was ultimately approved by the court. The objecting class members appealed, and BP subsequently joined in opposing the settlement because the Claims Administrator had issued unfavorable interpretations of the settlement agreement in the interim. BP's appeal argued that the settlement agreement violated Rule 23, the Rules Enabling Act, and Article III because two court-approved Policy Announcements issued by the Claims Administrator would have permitted claimants without any actual injuries caused by the oil spill to receive payments.

The Fifth Circuit affirmed. The court emphasized that “had the class in this case been certified under Rule 23 for further proceedings on the merits rather than for settlement, the district court might ultimately have had occasion to apply a stricter evidentiary standard.” The court also noted that, although the Claims Administrator is not bound by issues of Article III standing, BP would likely be afforded a rigorous analysis of injury and causation by the Claims Administrator per the provisions of the Settlement Agreement.

The U.S. Courts of Appeal for the Second and the D.C. Circuits, along with the Seventh and Eighth Circuits, have rejected certification where the proposed class contains numerous members who have not sustained any injury caused by the defendant. These cases are not reconcilable with the Fifth Circuit's decision in In re Deepwater Horizon; however, the Supreme Court denied BP's petition for review. Robins v. Spokeo, Inc. , 742 F.3d 409 (9th Cir. 2014) cert. granted, 135 S. Ct. 1892 (2015).

In Robins v. Spokeo, the plaintiff brought a putative class action under the Fair Credit Reporting Act (FCRA), alleging that Spokeo published incorrect personal information about him, thereby harming his job-hunting prospects. Spokeo moved to dismiss on the ground that the plaintiff lacked Article III standing, but the district court denied the motion and concluded that the plaintiff had alleged sufficient injury in fact. Spokeo then moved to certify an interlocutory appeal, which prompted the district to reconsider its previous ruling. The court then ruled, contrary to its previous ruling, that plaintiff had failed to plead an injury in fact and dismissed the case. The plaintiff then appealed.

The U.S. Court of Appeals for the Ninth Circuit reversed, finding that the plaintiff had properly alleged a willful violation of the FRCA, and that, although the plaintiff did not allege that he had suffered any actual injuries, the statutory violation claim did not require that he allege actual harm. Spokeo petitioned for certiorari, and the U.S. Supreme Court agreed to hear the case. Oral arguments are set to commence during the new term, which began in October. The Supreme Court's decision on the issue of standing created by statutory violations where there is no actual harm will likely have significant implications regardless of outcome. Tyson Foods, Inc. v Bouaphakeo 765 F.3d 791 (8th Cir. 2014), cert. granted (2015).

The plaintiff class in Tyson Foods sued under provisions of the federal Fair Labor Standards Act (FLSA), alleging that they were not properly compensated for overtime before and after their shifts for time spent putting on and taking off protective equipment or walking to and from their stations. The district court certified a class, and the Eighth Circuit affirmed certification in a split decision.

Tyson's arguments on appeal focused in part on the fact that certain members of the employee class had suffered no loss. The court rejected Tyson's arguments, holding that the inclusion of class members who may not have worked overtime (and accordingly did not suffer a loss) did not affect the validity of the class certification because variability in the damages of class members was no bar to certification unless the individual damages calculations overwhelm the common issues.

Tyson also argued that plaintiffs' use of both individual time sheets and the averaging of sample employee observations constituted a 'trial by formula” contrary to the Supreme Court's holding in Wal-Mart Stores Inc. v Dukes, 131 S. Ct. 2541 (2011). The court rejected this argument as well, ruling that the approach in Dukes, where plaintiffs attempted to prove liability for an entire class based on an analysis of a sample set of class members, was distinguishable from the scenario in Tyson, where the plaintiffs proved liability for the class as a whole and only needed to use employee time records to establish damages for individual class members. Accordingly, the district court's ruling stood.

In its certiorari application, Tyson presented two questions for the Supreme Court: “I. Whether differences among individual class members may be ignored and a class action certified ' where liability and damages will be determined with statistical techniques that presume that all class members are identical to the average observed in a sample. II. Whether a class action may be certified … when the class contains hundreds of members who were not injured and have no legal right to any damages.”

On June 8, 2015, shortly after granting certiorari in the Spokeo matter, the Supreme Court granted review of both questions. While the first question will allow the Court to revisit the scope of its decision in Dukes as it relates to evidentiary proof of class liability and damages, the second will probe the standing question in no-injury cases from the perspective of certification requirements. Together with the Court's review of Spoke , we can expect the review of this case to generate additional guidance regarding the appropriateness of no-injury class actions.

Legislative Efforts

Rather than waiting for the Supreme Court to address no-injury class actions, the House Judiciary Committee approved the “Fairness in Class Action Litigation Act of 2015″ (H.R. 1927) on June 24, 2015. The bill requires that class actions be made up only of members with the same type and scope of injury as the named class representative. If enacted, the new law would introduce a new tool to limit overbroad, no-injury class actions, but even it may not fully resolve the issue. The version of the bill reported out of committee incorporated amendments that restrict the bill's application to actions “seeking monetary relief for personal injury or economic loss,” so that the limitation would not apply to civil rights class actions or other actions seeking declarations of rights or injunctions. Unfortunately, the effect of that limitation also may be to exempt no injury class actions based on statutory causes of action where statutory damages do not require proof of personal injury or economic loss ' precisely the scenario presented by the Spokeo case.

Efforts to push the pendulum in the other direction are exemplified by a bill recently introduced in the California legislature that would have expanded manufacturers' liability for certain product defects under the California Consumer Legal Remedies Act (CLRA). Under the CLRA, consumers can bring suit against manufacturers for making fraudulent claims about their goods or services, or for failing to inform consumers of a known product defect. However, courts routinely reject fraudulent non-disclosure claims where the product or service did not pose a risk to the health or safety of the consumer. California Senate Bill 1188 sought to eliminate this carve-out. This change would have greatly expanded the scope of defect litigation and would effectively render manufacturers' warranty limitations meaningless. Ultimately, the bill did not pass, but it nonetheless stands as an example of a state effort to create a statutory right to a no-injury action of the same sort at issue in Spokeo.

Analysis

In the near term, the Supreme Court's denial of certiorari in the Deepwater Horizon case may encourage plaintiffs to bring more no-injury class actions that seem to contradict Article III and Rule 23 requirements. This raises troubling concerns, not the least of which is defendants' obligation to defend against product liability claims where some of the plaintiffs have suffered no harm causally connected to the product. Of course, defendants should continue to refocus the courts on the over-breadth of class definitions and the lack of injury in absent class members. Even where these efforts are not successful at the class certification stage, they can still win the day at trial. By way of example, in Whirlpool Corp. Front-Loading Washer Prods. Liab. Litig., 722 F.3d 838, 857 (6th Cir. 2013), the Sixth Circuit certified a class that included plaintiffs who had suffered no injury, but at trial the jury ruled in Whirlpool's favor, recognizing that because most of the class members did not experience the mold problem, the washing machines were not defectively designed.

In the longer term, the Supreme Court's rulings in Spokeo and Tyson will also likely affect the type and scope of product liability class actions filed. In particular, the Tyson case may expand the court's 2013 ruling in Comcast by precluding certification of cases involving plaintiffs with different types of injuries; particularly in cases where some plaintiffs may not have been injured at all. Such a ruling would be welcome relief indeed for product liability defendants.

Peter Masaitis is a partner in Alston & Bird LLP's Los Angeles office. He can be reached at 213-576-1094 or [email protected].