Firms targeted with class-action litigation should look for holes in class-certification arguments, challenge the underlying rationale for complaints and generally make plaintiffs work for the money they aim to "extort," industry attorneys say.

In a June 9 Council for Responsible Nutrition webinar, lawyers discussed class actions often brought by “opportunistic” plaintiffs, many of which piggyback on FDA warning letters, Federal Trade Commission consent orders, Lanham Act litigation and National Advertising Division reviews.

While the attorneys' experience is largely in the dietary supplement space, they addressed issues increasingly faced by cosmetics firms as well, with a growing number of suits targeting personal-care product claims for alleged false advertising, consumer fraud and other cited violations.

Rather than letting fear dictate the outcome of such suits – which many companies are inclined to settle rather than face the costs of drawn-out litigation and potential damages payouts – firms should utilize their full arsenal of legal defenses and do their part to turn the tide for the good of the industry, the attorneys suggested.

“There is a lot of pressure to settle [complaints], and that pressure comes from huge unknown risk floating around with potentially large classes and potentially large payouts,” noted Travis Larsen, senior counsel with Albion Laboratories Inc., a Clearfield, Utah-based nutrition research firm.

"What I’ve seen often in these cases is plaintiffs going out and cherry-picking [warning letters and consent decrees] that they think provide a basis for a claim of falsity, when they don’t really spend the time at the pleading stage to read those reports and determine whether their theories of reliability are in concert with the findings of those reports." – Kelley, Drye & Warren attorney Jeff Castello

Larsen noted that in the Supreme Court’s 2010 ruling in Shady Grove Orthopedic v. Allstate, Justice Ruth Bader Ginsburg said a court’s “decision to certify a class action places pressure on defendants to settle even unmeritorious claims.”

“That is the truth,” Larsen said, adding that every win or favorable settlement for the plaintiffs’ bar fuels additional claims against industry players.

“That’s how it feels a lot, that you’re dealing with someone who is willing to apply for that extortion, to make you pay them money. So think twice about that before you pay that extortionists’ demand, because there is a long view here,” he said.

“When you put dollars into the hands of these plaintiffs’ attorneys, you are enabling them to come back around and take additional bites of the apple, to file new claims.”

Bayer HealthCare LLC faced a class action complaint in 2008 after it entered a consent decree with FTC that included a $3.2 million penalty for weight-loss claims associated with its One A Day WeightSmart multivitamins. Bayer settled the litigation this year for $500,000 Also see "FTC Supplement Settlements Spotlight Bayer, Mark First Hoodia Action" - Pink Sheet, 8 January, 2007..

New York-based KindLLC has been hit with a slew of lawsuits in California after receiving an FDA warning letter in March Also see "Audio Feature: FDA Monitoring Cosmetic Claims, But Litigation Remains Biggest Threat" - HBW Insight, 14 May, 2015.. FDA noted that four of the firm’s Kind bars were labeled as “healthy” but did not meet specific content requirements.

Three suits seeking class-action status were filed within two weeks of FDA’s letter, and at least a dozen cases have been lodged so far, said Ronald Rothstein, a partner in the Chicago office of Winston & Strawn LLP who has represented major consumer products firms in addition to food and beverage companies.

The suits allege the firm misleads consumers into buying bars that are, contrary to its advertising, not healthy by FDA’s standards.

On the cosmetics side, L'Oreal USA, Inc.'s settlement with FTC in 2014 for gene-related anti-aging claims ushered forth a number of class action filings against the firm, and attorneys predicted that the company's high-profile travails would trigger further litigation against cosmetics, which could be seen in recent class actions lodged against brands for claims on stem-cell booster serums and the like Also see "New Litigation Risks Possible From Pending Allergan V. Athena Case" - HBW Insight, 17 June, 2015..

‘Ascertainability’ The First Battle

In their defense work, companies should consider whether a plaintiff even has a basis for class action, said Jeff Castello, a partner in the Parsippany, N.J. office of Kelley, Drye & Warren LLP.

Plaintiffs must convince a judge they have an “ascertainable class” – a clearly defined and identified class of members who were negatively impacted by a product, Castello said.

Rules established for U.S. district courts, the Federal Rules of Civil Procedure, state that for a class to be ascertainable, it must “avoid subjective standards.” Additionally, the court must find it “administratively feasible” to determine whether a particular individual belongs to a class.

The ascertainability stage “is still a crucial fight” in the class-action process, according to Castello.

“Our job … is to challenge plaintiffs’ ascertainability argument at the class certification stage and force the plaintiff to prove to meet his or her burden by providing the preponderance of evidence that class by ascertainability is based on objective criteria,” he said.

“You can’t let a plaintiff propose to a judge that, ‘Judge, we’ll take care of this down the road. Just certify this class and we’ll have a class claims administrator review affidavits and ensure your honor that who is claiming in this class has a right to claim.’”

In Bayer’s One A Day class action battle, the firm argued against the ascertainability of the class in an appeals court after a lower court certified the class of consumers who purchased its product. The plaintiffs based ascertainability for their class on retailer records and affidavits that consumers purchased the product, since most consumers do not keep receipts for such products.

The appeals court agreed with Bayer that the retail records were not reliable because of differences in retailers’ record-keeping and also because they could not log people who paid with cash. Further, the court said the affidavits were not reliable because consumers can lie.

Though the case was remanded to district court and the class ultimately was certified, the circuit court’s decision provides a “sign of hope” that other courts could hold class-action plaintiffs to higher standards in proving ascertainability, Castello said.

Legislation introduced in the House in April would prohibit federal courts from certifying any class action unless a plaintiff can demonstrate class members share the same type and extent of injuries. Introduced by House Judiciary Committee Chairman Bob Goodlate, R-Va., the Fairness in Class Action Litigation Act of 201, H.R. 1927, would promote greater federal scrutiny of claims.

However, the bill “falls into the category of having a zero chance” of passing and would be vetoed by the president, said Elizabeth Chiarello, a partner in the Chicago office of law firm Sidley Austin LLP.

Tighten Screws On ‘Cherry-Picking’ Plaintiffs

Plaintiffs’ lawyers often do not connect the dots between regulatory enforcement actions and their cases before filing a complaint, according to Castello.

“What I’ve seen often in these cases is plaintiffs going out and cherry-picking [warning letters and consent decrees] that they think provide a basis for a claim of falsity, when they don’t really spend the time at the pleading stage to read those reports and determine whether their theories of reliability are in concert with the findings of those reports.”

Castello said companies should “scour that complaint to find what that plaintiff is really alleging, because oftentimes there is not much there.”

In many cases spurred by National Advertising Division reviews of firms’ ad claims, the plaintiff “isn’t coming forward in his or her complaint saying, “I can prove the advertising is false.’ Instead, what the plaintiff is saying is, ‘Judge, someone else said the advertising is false, [and] I purchased the product.’”

When a complaint is based on a warning letter or independent regulator report, companies must emphasize to judges that the instrument does not carry "the force of law,” added Castello.

“Make sure that the judge now stuck with the case understands that all you have here is the enterprising and maybe lazy plaintiffs’ lawyer trying to make the most of the government’s work,” he said.

Class Action ‘Extortion’ Demands Defense From Get-Go – Attorneys

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