August 14, 2009
MELISSA LEE, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-APPELLANT,
CARTER-REED COMPANY, L.L.C., A/K/A THE CARTER REED COMPANY, BASIC RESEARCH, L.L.C., DG ENTERPRISES, INC., ALPHAGENBO TECH, L.L.C., BODY FORUM, L.L.C., BODY INNOVENTIONS, L.L.C., COVARIX, L.L.C., COVAXIL LABORATORIES, L.L.C., BYDEX MANAGEMENT, L.L.C., WESTERN HOLDINGS, L.L.C., DENNIS W. GAY, AND NATHALIE CHEVREAU, DEFENDANTS-RESPONDENTS.
On appeal from the Superior Court of New Jersey, Law Division, Union County, Docket No. L-3969-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: January 14, 2009
Before Judges Cuff, Fisher and Baxter.
We granted leave to appeal an order denying class certification in this matter, which may be categorized as a mass media false advertising case. We affirm.
Plaintiff Melissa Lee is a purchaser of a dietary supplement, known as Relacore, formulated, manufactured, marketed, and distributed by defendant Carter-Reed Company, L.L.C. (Carter-Reed). She alleges that she first purchased Relacore in April 2004 at a CVS drugstore and took the product for approximately three months. She paid $39.99 for each bottle or thirty-day supply of the supplement.
Carter-Reed commenced marketing Relacore in 2002 through magazines, television, radio stations, Internet websites, and promotional materials sent to retailers. The advertising campaign varied over the years. Some advertisements emphasized that Relacore helps reduce stress-induced belly fat. Others emphasize that Relacore is a "non-sedating, mild anti-anxiety mood enhancer that reduces stress-induced cortisol production by helping to minimize stress." Some advertisements emphasize its capacity to elevate mood; others contain statements from defendant Dr. Nathalie Chevreau promising a reduction in belly fat and "an overall feeling of well-being." Product packaging and labeling emphasize a variety of product attributes, including stress reducer, mood elevator, and belly fat retardant. The product carries a money-back guarantee which is featured prominently in its advertising campaign.*fn1
On November 10, 2004, plaintiff filed a complaint, on behalf of herself and all similarly situated persons who bought Relacore, in which she alleged that defendants Carter-Reed, Basic Research, L.L.C., DG Enterprises, Inc., Alphagenbo Tech, L.L.C., Body Forum, L.L.C., Body Innoventions, L.L.C., Covarix, L.L.C., Covaxil Laboratories, L.L.C., Bydex Management, L.L.C., Western Holdings, L.L.C., Dennis W. Gay, and Nathalie Chevreau (collectively referred to as defendants) devised and utilized a fraudulent, deceptive and improper advertising campaign for Relacore. Plaintiff sought relief pursuant to the Consumer Fraud Act (CFA), N.J.S.A. 56:8-1 to -166, and the common law of this State for herself and all class members since the product was introduced to the market by defendants in 2002.*fn2 Individual members of the class have monetary claims ranging from $40 to $120.
Plaintiff alleged that she purchased the product based on its advertised claims to reduce belly fat. She further alleges that she used the product as directed for ninety days, did not lose belly fat and her waist actually grew larger.
Following discovery limited to class suitability, plaintiff moved for class certification and appointment of class counsel on November 20, 2007. Defendants opposed the motion. Following oral argument, Judge Dupuis denied the application for class certification. We granted leave to appeal from this April 18, 2008 order.*fn3
In her written opinion, Judge Dupuis found that the putative class met the requirements of Rule 4:32-1(a)(1) to (4), but did not meet the requirements of Rule 4:32-1(b)(3). That is, the judge held that questions of law or fact common to the class did not predominate over the questions affecting only its individual members and that a class action was not superior to other methods of adjudication. In her analysis the judge held that "[t]he common questions of law or fact in this litigation are whether the advertising claims that Relacore could 'shrink stubborn belly fat' or enhance mood were misleading under the [CFA], whether the defendants have been unjustly enriched at the class members' expense, and whether certain warranties have been breached." On the other hand, the judge found that the difficulties of managing the class were "insurmountable." She identified individual factors that would require evidentiary hearings as to each member on fourteen different issues. The individual factors identified by the judge are (a) whether they bought the product to reduce belly fat, reduce stress or fight metabolic syndrome; (b) whether they read the magazine advertisements, and if so which ones; (c) whether they viewed any television commercials and if so, which ones; (d) the extent to which the advertisements were relied upon in making the purchase; (e) whether the purchaser bought the product at the recommendation of a friend, relative, or store employee; (f) whether some of the alleged benefits of Relacore were experienced by the class member in question, and if so, which benefits; (g) whether the health condition of the class member affected the efficacy of [the] product; (h) whether the class member followed directions, and which direction the member followed; (i) whether any of the plaintiffs took medication, and if so, which medication they were taking; (j) whether there was a causal nexus between the alleged wrongful acts of the defendants and an ascertainable loss; (k) the amount of money paid by the consumer; (l) price or any other factor upon which the purchase was based; and (m) whether they suffered an ascertainable loss as necessary under the CFA; (n) whether a refund was requested and received.
The judge also noted that plaintiff had not suggested any method to handle the numerous individual questions confronting the class.
As to plaintiff's unjust enrichment claim, Judge Dupuis also held that the court was confronted with individual issues of whether each class member received the benefit of the bargain. The breach of express warranty claims also required individual showings of which of several possible warranties were breached and whether there was timely notice to the seller of the express warranty breach. Similarly, the implied warranty of merchantability required an examination of individual issues of fitness for the ordinary purpose for which the product was used and conformation to the promises or affirmations of fact made on the container or label.
On appeal, plaintiff argues that the trial judge abused her discretion when she denied class certification due to remainder issues and defenses requiring some individualized examination and abdicated her case management responsibilities by declining to certify a class on manageability and superiority grounds. Defendants argue that the trial judge properly found that individual issues predominated plaintiff's claims and properly held that class certification of plaintiff's CFA, common law fraud, unjust enrichment, and breach of warranty claims should be denied on lack of predominance grounds.
Our Supreme Court has recently addressed class action certification in several cases: International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., 192 N.J. 372 (2007); and Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88 (2007).*fn4 In each case, as here, whether the class was subject to class certification focused on the specific requirements of Rule 4:32-1(b)(3): whether the putative class raises "questions of law or fact common to the members of the class [that] predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy."
The analysis of these aspects of the rule must be rigorous. Iliadis, supra, 191 N.J. at 106-07. However, the analysis must neither overwhelm nor ignore the recognized benefits of the class action when a multitude of claimants present similar claims for relatively small amounts of money. Id. at 115, 116-17; Muhammad, supra, 189 N.J. at 17-18. In its evaluation of commonality and predominance of common issues over individual issues, a court is required to determine whether there is a "common nucleus of operative facts." In re Cadillac V8-6-4 Class Action, 93 N.J. 412, 431 (1983). Accord, Int'l Union, supra, 192 N.J. at 383; Iliadis, supra, 191 N.J. at 108-09. The court must also identify the elements of each claim and apply the identified facts to the elements of each cause of action. Int'l Union, supra, 192 N.J. at 388; Iliadis, supra, 191 N.J. at 109.
The presence of individual issues does not defeat class certification. Int'l Union, supra, 192 N.J. at 383; Varacallo v. Mass. Mut. Life Ins. Co., 332 N.J. Super. 31, 45 (App. Div. 2000). It is not necessary that common issues must resolve the entire dispute. Int'l Union, supra, 192 N.J. at 383.
The superiority requirement requires an analysis that includes:
"'(1) an informed consideration of alternative available methods of adjudication of each issue, (2) a comparison of the fairness to all whose interests may be involved between such alternative methods and a class action, and (3) a comparison of the efficiency of adjudication of each method.'" [Iliadis, supra, 191 N.J.] at 114-15 (quoting In re Cadillac, supra, 93 N.J. at 436 (quotation omitted in original)). More specifically, in Iliadis, we identified as important to the superiority analysis a consideration of the "class members' 'lack of financial wherewithal.'" Id. at 115 (quoting Saldana v. City of Camden, 252 N.J. Super. 188, 200 (App. Div. 1991)). In such circumstances, we have expressed a concern that, absent a class, the individual class members would not pursue their claims at all, thus demonstrating superiority of the class action mechanism. See ibid.; Muhammad[, supra,] 189 N.J. [at 17]. [Id. at 384.]
Manageability of the class is a consideration, but it is "disfavored" to deny class certification on this basis. Iliadis, supra, 191 N.J. at 117. In order to justify denial of class certification on this basis, the management issues must be of great magnitude. Int'l Union, supra, 192 N.J. at 384-85; Iliadis, supra, 191 N.J. at 118. Here, the issue of manageability is clearly subordinate to the issue of predominance.
In this case, plaintiff and the putative class contend defendants' actions give rise to various causes of action, the dominant claims being violations of the CFA and common law fraud. The judge considering class certification must consider what questions of law and fact are common and whether those questions predominate. Int'l Union, supra, 192 N.J. at 389-90.
A party asserting a CFA claim must establish wrongful conduct, an ascertainable loss, and a causal relationship or nexus between the wrongful conduct and the loss. Id. at 389; N.J. Citizen Action v. Schering-Plough Corp., 367 N.J. Super. 8, 12-13 (App. Div.), certif. denied, 178 N.J. 249 (2003). A common law fraud claim requires proof of "a material representation of a presently existing or past fact, made with knowledge of its falsity and with the intention that the other party rely thereon, resulting in reliance by that party to his detriment." Jewish Ctr. of Sussex County v. Whale, 86 N.J. 619, 624 (1981). In this case, the central issue for the consumer fraud claim is the existence of a causal nexus between the wrongful conduct and any loss.
In International Union, supra, the plaintiff was a joint union-employer trust fund organized to sponsor and administer health benefit plans for union members and their beneficiaries. 192 N.J. at 376-77. The plaintiff claimed that fraudulent marketing schemes by the manufacturer of prescription pain reliever Vioxx caused it to pay inflated costs for claims submitted by its members. Id. at 377. It claimed that the drug manufacturers violated the CFA, id. at 385, and sought relief for itself and a class that included other union-employer trust funds, corporate health insurers, health maintenance organizations, private employers, self-insured employers, and multi-employer union benefit organizations, id. at 378. The Court held that this class was improperly certified because individual issues predominated. Id. at 391.
Specifically, the Court emphasized that each putative class member relied on committees to investigate, review, analyze and ultimately decide which drugs marketed by a variety of manufacturers should be included in their formularies and under what terms members and their beneficiaries would be reimbursed for any drug. Id. at 390-91. Although there were certain common facts, including the contents of the defendant's marketing plan, withholding adverse information, existing Food and Drug Administration warning letters, and withdrawal of the product from the market, id. at 388, the Court held that there was a distinct lack of uniformity on the critical element of a causal nexus between any unlawful conduct and any ascertainable loss. Id. at 390-91. The Court explained:
More important to our analysis, however, plaintiff does not suggest that each of these proposed class members, receiving the same information from defendant, reacted in a uniform or even similar manner. Rather, the record speaks loudly in its demonstration that each third-party payor, relying on P[rescription]B[enefit]M[anager]s and P[harmacy] & T[herapeutics] Committees, made individualized decisions concerning the benefits that would be available to its members for whom Vioxx was prescribed. The evidence about separately created formularies, different types of tier systems, and individualized requirements for approval or reimbursement imposed on various plans' members and, to some extent, their prescribing physicians, are significant. That evidence convinces us that the commonality of defendant's behavior is but a small piece of the required proofs. Standing alone, that evidence suggests that the common fact questions surrounding what defendant knew and what it did would not predominate. [Ibid.]
The Court, therefore, reversed the order certifying the class. Id. at 394.
Here, plaintiff has a similar set of problems as the plaintiffs in International Union. Plaintiff asserts that she relied on a false marketing campaign and she was induced by the false representations to purchase and use the product. Neither plaintiff nor this court know, however, what caused others to purchase and use the product. Neither plaintiff nor this court know whether putative class members even saw the print or Internet advertisements or whether they purchased the product due to a recommendation from a friend or family member.
Moreover, this case has a problem other than that presented in International Union. In International Union, the defendant had assembled a uniform market program for Vioxx. It touted Vioxx as a more effective pain reliever than traditional pain relievers. Id. at 377. Here, however, the Relacore market campaign is multi-faceted. In some ads, it is touted as a belly fat retardant; in others, a mood elevator; in others, a stress reducer. We have no idea the reason any putative class members purchased the product, assuming they heard or saw any advertising.
In Iliadis, supra, the Court reversed an order denying class certification, 183 N.J. at 121, but Iliadis does not compel class certification. In Iliadis, the plaintiff sought to certify a nation-wide class of Wal-Mart employees who received less pay than they should have received, 191 N.J. at 95, due to the employer's adoption of a company-wide policy that dropped small increments of time from an employee's recorded time, id. at 96-97. The loss to individual employees was nominal; the amount due nation-wide was significant. Id. at 115. The Court identified core issues, including common evidentiary issues, id. at 111-12, and concluded that the affirmative cause of action asserted by the plaintiff and the putative class "'has the community of interests and of questions of law or fact which justify the class action concept,'" id. at 112 (quoting Branch v. White, 99 N.J. Super. 295, 310 (App. Div.), certif. denied, 51 N.J. 464 (1968)).
To be sure, the putative class is composed of persons with relatively small, even nominal, monetary claims, and these persons are unlikely to pursue individual claims through litigation.*fn5 In Iliadis, however, the class members were victims of a company-wide policy designed to deny them compensation for relatively small units of time. 191 N.J. at 98. No action by any individual member of the class affected whether he or she was paid less than he or she was due. The only individual issue was the amount of money owed to the individual employee. Id. at 112. Iliadis truly presented the "quintessential" class action. Int'l Union, supra, 192 N.J. at 394.
Similarly, In re Cadillac does not compel class certification. There, a motor vehicle was manufactured and promoted as having certain features. In re Cadillac, supra, 93 N.J. at 421-22. The vehicle did not perform as advertised. Id. at 422. As in Iliadis, a single problem, which in In re Cadillac was a product defect, uniformly affected everyone who purchased the vehicle and individual actions by purchasers and users had no impact on the nature or extent of the defect and the damage caused to the purchaser.
Moreover, plaintiff has not identified, and we have not found, any case in which any court in this State has certified a class action in the context of a mass media false advertising case. Plaintiff suggests that this court's opinion in Varacallo, supports class certification in this circumstance. We disagree.
In Varacallo, this court held that a class of all New Jersey residents who purchased so-called "vanishing premium" whole life insurance policies from an insurance company over a four-year period should have been certified. 332 N.J. Super. at 34. The proposed class asserted that the defendant insurance company withheld material information from its market literature to enhance the prospect that individuals would purchase the vanishing premium whole life insurance product offered by the defendant. Id. at 40-41. The proposed class argued that the market scheme violated the CFA. Id. at 35. They also asserted a common law fraud claim. Id. at 43. We held that the claim asserted by the plaintiff and the putative class satisfied the predominance requirement of Rule 4:32-1(b)(3). Id. at 42, 48-49.
Although this court recognized that the majority of jurisdictions that had addressed the issue of class certification in vanishing premium whole life insurance litigation had denied class certification on the predominance issue, id. at 44, we decided that the predominance factor had been met because a common core of operative facts existed and the class was seeking to redress a common legal grievance, id. at 48.
Central to our analysis of whether the Varacallo rule applies to this case is recognition that the material omissions that formed the basis of the misleading life insurance marketing scheme in Varacallo were uniform and common to all class members. We emphasized that the literature compiled by the insurance company and the sales campaign designed by the insurance company and implemented by its agents never deviated from a common message. Id. at 35-41. Every marketing effort was accompanied by explanatory literature and verbal explanations based on projections the insurance company knew it could not maintain. Id. at 40-41. That is not this case.
Here, although defendants offer a single product, the marketing effort is multi-faceted. In some instances, defendants emphasize Relacore's weight loss or weight control features. In other instances, it is touted as a mood elevator, an anxiety reliever, or a stress reducer. It is offered in a nighttime formula, thereby suggesting that it may address insomnia or other sleep disorders. Unlike the class members in In re Cadillac and Varacallo, who suffered losses based on a defect or a series of misrepresentations common to all class members, plaintiff and the putative class members suffered losses from a variety of sources not common to all.
Moreover, the representations in Varacallo concerned a financial product. Class actions are particularly suitable for cases in which a common set of misrepresentations or malfeasance infect a financial product offered broadly in the marketplace.
Indeed, as noted in Varacallo, the theory of fraud on the market is particularly susceptible to class action treatment, id. at 47-48, but the application of this theory is confined to federal securities fraud litigation, Int'l Union, supra, 192 N.J. at 392; Kaufman v. i-Stat Corp., 165 N.J. 94, 97-98 (2000). To the extent Varacallo suggests the fraud on the market theory, which eliminates proof of even indirect reliance in a common law fraud action, is applicable in a mass market media fraud action, subsequent cases have clearly rejected this notion. Int'l Union, supra, 192 N.J. at 392; N.J. Citizen Action, supra, 367 N.J. Super. at 15-16.
The lack of predominance is even more obvious in the context of plaintiff's common law fraud claim. For this claim, plaintiff and the putative class must prove reliance. Jewish Ctr. of Sussex County, supra, 86 N.J. at 624. In light of the multiple qualities attributed to the product and the variety of advertising campaigns and media outlets utilized by defendants, the issue of reliance by individual users overwhelms any common issues.*fn6
In short, we hold that the trial judge properly denied class certification for this mass media false advertising claim. The multiple qualities attributed to the product, coupled with the multiple advertising campaigns focusing on one of several attributes compels a finding that a common core of facts and law does not predominate to allow class treatment. We, therefore, affirm the April 18, 2008 order denying class certification.