No Worse for Butter: Ninth Circuit Says Popcorn’s “Secret” Ingredient Does Not Confer Article III StandingThe Ninth Circuit recently determined that the mere presence of artificial trans fats in popcorn (i.e., the “butter” in butter flavored popcorn) does not create an injury that confers Article III standing.

In McGee v. S-L Snacks National, a consumer brought a putative class action alleging economic and physical injuries caused by the inclusion of artificial trans fats as an ingredient in Pop Secret. The plaintiff alleged that she purchased Pop Secret at least once every two to three months over the past decade, assuming it contained only “heart-healthy” ingredients. According to the plaintiff, Pop Secret’s manufacturer engaged in unfair practices, created a nuisance, and breached the warranty of merchantability by including artificial trans fats in its product.

The defendant moved to dismiss for lack of Article III standing, asserting that it’s not an injury to eat ingredients that are clearly disclosed on the nutrition label. The plaintiff countered that she had plausibly alleged injury from her consumption of Pop Secret in three ways. First, she claimed an economic injury equal to the amount she paid for Pop Secret because she believed she was purchasing a product that was safe for consumption, when, according to the plaintiff, Pop Secret was not fit for consumption and had no value. Second, the plaintiff alleged that consuming nearly half a pound of trans fats from Pop Secret caused her immediate physical injuries. Third, the plaintiff alleged that her consumption of Pop Secret increased her risk of future injury. The district court disagreed and granted the defendant’s motion to dismiss.

The Ninth Circuit affirmed and held that none of the plaintiff’s theories plausibly alleged an injury in fact sufficient to confer Article III standing.

Economic Injury. The plaintiff advanced two theories on appeal to support her alleged economic injuries: (1) a “benefit of the bargain” theory; and (2) an overpayment theory. As to the benefit of the bargain theory, the plaintiff claimed she purchased Pop Secret because she thought it was a safe, lawful product. But she urged that the presence of artificial trans fats deprived her of the benefit of her bargain. The Ninth Circuit found this argument unpersuasive, as it rested on the plaintiff’s blind wishes, not the disclosed facts. Although the plaintiff may have assumed that her popcorn contained only heart-healthy ingredients, the labeling on the product disclosed the inclusion of artificial trans fats. In other words, to the extent the plaintiff lost a “benefit,” the court found it was not part of the bargain to begin with.

The plaintiff’s overpayment theory fared no better. The key to success on an overpayment theory of economic injury is the defendant’s false representations or deceptive conduct. The court concluded that the plaintiff failed to allege that she paid more for the Pop Secret than it was worth due to the defendant’s deceptive conduct, as the presence of artificial trans fats was disclosed on the nutrition label.

Present and Future Physical Injury. The plaintiff’s alleged present physical injuries were too speculative to support standing, even at the initial pleading stage. The plaintiff alleged that consuming nearly half a pound of trans fats from Pop Secret over the past decade caused her physical injury. However, the court was skeptical of the plaintiff’s claimed injuries: she did not allege that she visited a doctor or sought any form of medical treatment for her ailments. Rather, her argument rested on the assumption that any consumption of artificial trans fats over the course of a decade invariably results in some form of physical injury. This “consumption assumption” was too speculative to confer standing.

Finally, the Ninth Circuit held that the plaintiff failed to allege an actionable future physical injury. As with the plaintiff’s present physical injury argument, the court was not persuaded that the plaintiff’s limited consumption of Pop Secret placed her at substantial risk of future physical injuries.

McGee is not a landmark class action case, but it joins the Subway footlong case, the Tito’s Vodka “old fashioned still” cases and any number of other food marketing class actions that serve as reminders that class actions about foods are common and frequently meritless.  In the meantime, consumers should read nutrition labels and enjoy buttery popcorn at their peril.

Competing Duties and Courts: 11th Circuit Clarifies Procedures and Counsel Duties in Competing Class ActionsThe 11th Circuit recently addressed the issue of competing or overlapping class actions, which often create problems for both the plaintiffs’ counsel and the defense. In Medical and Chiropractic Clinic, Inc. v. Oppenheim, the 11th Circuit clarified what duties class counsel owes to class representatives and the correct forum for asserting challenges by competing class counsel.

Oppenheim is part of a series of class actions that related to the Tampa Bay Buccaneers’ advertising practices. In brief, the AW Firm filed the original Cin-Q class action, but mediation stalled because one of their lead attorneys refused to settle for less than $99 million. A different attorney, David Oppenheim, took over the role of “closer.” Despite this switch, mediation still failed, and the AW Firm moved for class certification.

A week later, the Bock Firm recruited Oppenheim to join it. When Oppenheim left the AW Firm, he believed that he would continue to work with the AW Firm on the Cin-Q class action and took information about the action with him to the Bock Firm. (Oppenheim’s former firm also accused him of sharing inside knowledge of the Cin-Q litigation with his new firm).

With Oppenheim on board, the Bock Firm filed a competing class action, Technology Training Associates, and reached a proposed settlement with the Buccaneers. That case reached the 11th Circuit in Technology Training Associates, Inc. v. Buccaneers Limited Partnership after the district court denied the Cin-Q plaintiffs’ motion to intervene. Relying on the compelling evidence of a “reverse auction” facilitated by Oppenheim’s inside knowledge, the 11th Circuit held that intervention was proper.

Just prior to the filing of the motion for preliminary approval of the Technology Training Associates settlement, however, one of the class representatives from the Cin-Q class action, the Medical and Chiropractic Clinic, Inc. (M&C), sued Oppenheim and the Bock Firm, claiming that Oppenheim breached the fiduciary duties owed to M&C as the class representative and that the Bock Firm aided and abetted that breach. M&C sought both monetary damages and an injunction preventing the Bock Firm from further participating in these class actions against the Buccaneers. The district court held that Oppenheim did not owe an individual fiduciary duty to M&C and granted summary judgment in favor of Oppenheim and the Bock Firm. M&C appealed.

Two Key Decisions

The 11th Circuit decided two issues. It first affirmed that the class counsel does not owe any individual fiduciary duty to the class representative:

“[o]ne cardinal rule defines the scope of counsel’s ethical obligations in class actions: class counsel owes a duty to the class as a whole and not to any individual member of the class” (Oppenheim, 2020 WL 7038400, at *6).

And an “important corollary stems from this principle: class counsel does not owe a particular duty to any group comprised of class members, such as class representatives, distinct from the duty owed to the class.”

“If courts required class counsel to give special ethical considerations to class representatives (or any other subset of the class), the remaining class members would necessarily receive reduced ethical considerations in comparison.”

If counsel had to choose some class members’ interests over others, class actions could splinter, leading to costly litigation between class members.

The second principle from this decision is of even greater practical interest to class action defendants: The 11th Circuit affirmed that the court where the proposed settlement is pending alone has authority to make decisions about the settlement.

Specifically, the 11th Circuit held that “M&C’s filing of this suit in state court against Oppenheim and the Bock Firm strikes us as an attempt to end run around the [Technology Training Associates] court, which was solely responsible for making all Rule 23 determinations related to the Bock Firm’s requests to certify a class and approve a class settlement.” The 11th Circuit explained that “Rule 23 makes clear that the district court in which a class action is filed operates as a gatekeeper. It is that court, and that court alone, that has the task of deciding a number of Rule 23 questions, including whether to certify a class, whether to appoint class counsel, and whether to approve a proposed class settlement.” Although M&C and the AW Firm intervened in the Technology Training Associates action as well, the 11th Circuit made clear that the earlier filing of the lawsuit to enjoin the Bock Firm’s participation was “wholly inappropriate.” The court where the class action settlement is reached “is the only forum in which such a challenge should have been launched—certainly not a different court.”

Importance for Competing Class Actions

Oppenheim is important for competing class actions in the 11th Circuit. Under Oppenheim, the only court that can evaluate competing class counsel’s right to represent the class is the court where the settlement is. By channeling disputes to the court presiding over the settlement, Oppenheim aims to consolidate disputes in the court most familiar with the settlement, and to discourage disappointed parties (and their lawyers) from shopping for friendly forums to seek injunctions or damages. This case will hopefully reverse a trend in recent years where competing class counsel attempt to use the court where their own case is pending to obtain a ruling allowing them to interfere with their competition. Oppenheim’s ruling about class counsel’s duties may have fewer practical effects, but it remains important, especially when viewed alongside the recent Johnson opinion that forbids incentive payments to class representatives. Any attempt to treat class representatives and class members differently will receive heightened scrutiny in the 11th Circuit, and the court has been serious about requiring class counsel to show the same loyalty to the named class representative as to the absent class member.

The En Banc 11th Circuit Clarifies “Risk of Identity Theft” StandingIn a decision that narrows the path to federal court for plaintiffs seeking statutory damages with no actual harm, the full 11th Circuit has held that a plaintiff must plead a concrete injury to bring a claim based on an increased risk of identity theft. The en banc decision in Muransky v. Godiva Chocolatier, Inc. reverses a previous panel decision that upheld a class action settlement involving claims under the Fair and Accurate Credit Transaction Act (FACTA). We discussed that decision on this blog last year.

As we noted in our discussion of the panel opinion in Muransky, the plaintiff claimed a garden-variety FACTA violation: He alleged that Godiva printed the first six and last four digits of his credit card on his receipt. The case mediated, and the parties reached a class-wide settlement that would create a $6.3 million settlement fund to pay around $235 to each class member who submitted a claim form – with $2.1 million to class counsel. About 15% of the class members who received notice made claims, and there were five objectors. The objectors primarily focused on the issue of attorneys’ fees and the class representative’s $10,000 incentive award for serving as class representative. One objector asserted that the class representative lacked standing. The district court overruled the objections and approved the settlement. Two objectors appealed. After two panel opinions upholding the settlement, the en banc 11th Circuit reversed, with Judge Britt Grant writing for the majority.

The opinion focused on the issue of how concrete an injury must be to confer standing, and specifically how federal statutory rights play into that constitutional analysis. The court distilled the question into a two-step inquiry:

[W]e consider two things when we evaluate whether concrete harm flows from an alleged statutory violation—and thus whether the plaintiff has standing. First, we ask if the violation itself caused harm, whether tangible or intangible, to the plaintiff. If so, that’s enough. If not, we ask whether the violation posed a material risk of harm to the plaintiff. If the answer to both questions is no, the plaintiff has failed to meet his burden of establishing standing.

Under this rubric, the court found that receiving a non-compliant receipt is not a sufficient injury in itself. Receiving a non-compliant receipt does not violate any substantive right in a way that yields a concrete injury, the court found. Instead, an improper receipt was a “bare procedural violation” that Spokeo found insufficient to confer standing. Similarly, the time and energy the plaintiff spent safeguarding his receipt did not confer standing because the plaintiff did not allege that he actually spent any time and energy safeguarding a receipt. Likewise, the court rejected the notion that receiving a receipt is akin to a breach of confidence.

Turning to the second prong of the concreteness analysis, the court found that the plaintiff faced no risk of harm that conferred standing. This analysis hinged on how much weight the 11th Circuit was willing to give to Congress’ determination that untruncated receipts increase the risk of identity theft. The court engaged in a close analysis of FACTA to determine that Congress did not deem every FACTA violation to pose an actionable risk, but it ultimately asserted that the question of what risks confer standing is judicial, not legislative:

What Muransky asks is for us to abandon our judicial role by merging the ordinary steps in the analysis—concluding that because the statute protects a concrete interest, any violation automatically threatens that interest and thus supports standing. Although that approach would simplify our job, it is inconsistent with Spokeo and with what the Constitution demands of us.

[E]ven if Congress had explicitly stated in the text of the statute that every FACTA violation poses a material risk of harm, that alone would not carry the day. Although the judgment of Congress is an “instructive and important” tool to identify Article III injuries, we cannot accept Muransky’s argument that once Congress has spoken, the courts have no further role.

To determine whether the plaintiff could demonstrate a sufficient risk of injury, the court looked to the operative factual allegations and found them wanting.

There are three dissents, and they are too extensive to treat here. The dissents span 113 pages between them­­ –– against the majority’s 35 –– and they touch on the distinction between public and private rights, the procedural implications of the majority’s decision, separation of powers, and numerous other issues.

So what does Muransky mean?

Another blow to FACTA claims

As we have previously noted, FACTA claims have struggled after Spokeo, and Muransky further closes the door on such claims in the 11th Circuit. Pleading an actionable claim will require demonstrating a concrete injury or a material risk of injury, and that is a difficult task when most FACTA violations consist of nothing more than a cardholder receiving a receipt. Almost every FACTA plaintiff has a receipt to prove the injury, but the plaintiff’s possession of the receipt means that the plaintiff’s identity has almost certainly not been damaged by the receipt.

Another Hurdle for Federal Jurisdiction for Federal Statutory Claims

While we do not think Muransky restates the Eleventh Circuit’s standing test, it will certainly be cited against claims arising under other federal statutes that allow statutory damages in the absence of actual damages.

Another Hurdle for Certifying Classes

This is the most important point. Presumably, a FACTA plaintiff, or any plaintiff asserting a claim based on a risk of identity theft, will now go above and beyond to articulate a personal concrete injury with enough specificity to satisfy Muransky. But every personal fact asserted in support of the named plaintiff’s injury becomes an individualized fact that defendants can use in resisting class certification. If a plaintiff’s identity was stolen, representing a class of uninjured class members may be impossible. Plaintiffs who took particular steps to protect their identities or who suffered particular concern for the security of their identities may not be typical of a class who did not take those steps or share those concerns. A plaintiff who is too generalized in alleging harm gets kicked out of federal court. A plaintiff who is too specific in alleging harm may make class certification unlikely. Like Calvin from the old cartoon Calvin and Hobbes, alleging enough but not too much will be a challenge.

Another Hurdle in Data Breach Claims

We will be watching closely to see how courts treat Muransky outside of the context of federal statutory claims. Most consumer identity-theft cases assert negligence claims, but a common basis for standing is an allegation that the plaintiff and the class faced an increased risk of identity theft. This pleading pattern mirrors what the 11th Circuit addressed in Muransky, but without the overlay of Congressional findings.

Another Reason to Address Known Problems Up Front

The 11th Circuit attached great significance to the parties’ attempt to hustle their settlement through final approval before the anticipated release of the Supreme Court Spokeo opinion. That decision backfired on the plaintiff.  The 11th Circuit was not above sarcasm in pointing out what it called a “particularly acute” lack of unfairness:

We do not think it is too much to ask that litigants who are aware that their allegations may not satisfy constitutional standing requirements take the time to firm up those allegations—if it is possible to do so—before an en banc circuit court confirms their suspicions of inadequacy. This is not a case where a surprise standing issue was thrust upon an unaware plaintiff.

And, because the 11th Circuit dismissed the case without prejudice, the defendant faces the possibility of a new lawsuit. When settling, both parties share an interest in making sure jurisdiction exists and is adequately reflected in the record.

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One global thought in closing. A treasured mentor taught me that judges will do the right thing within the law, and I think that rule applies here. The 11th Circuit summarized the event at the center of this case as “Muransky has alleged that a cashier handed him a receipt containing some of his own credit card information printed on it.” That event does not demand a remedy at a gut level, much less does it seem to justify awarding millions in damages and fees. FACTA is a draconian statute that imposes liability far beyond what seems reasonable. After all, what is it about that sixth credit card number that suddenly makes identity theft a risk? The 11th Circuit’s tacit view that FACTA is unfair comes through in Muransky. The court’s skepticism of Congress’ findings should be seen in parallel with its skepticism of FACTA as a whole. And the opinion repeatedly denigrates the parties’ attempt to consummate their settlement before the Spokeo decision. Parties would do well to remember these gut-level equities.