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Lee v. Carter-Reed Company

September 30, 2010

MELISSA LEE, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF-APPELLANT,
v.
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, Appellate Division.

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Plaintiff, Melissa Lee, a New Jersey resident, purchased three bottles of a dietary supplement pill called Relacore from CVS for about $120. Relacore is manufactured and distributed by defendant Carter-Reed Company, L.L.C. (Carter Reed). Carter Reed has marketed Relacore primarily as a weight-reduction product with the additional benefits of lessening anxiety and elevating mood. Lee claims that she bought Relacore based on Carter Reed's false representations about its product. Although the promised benefit of taking Relacore was the reduction of belly fat, Lee -- after using the product as directed for approximately four months -- gained weight instead. Lee filed a class action lawsuit on behalf of thousands of New Jersey consumers who have purchased Relacore, alleging that Carter Reed sold Relacore using various mass-marketing deceptions that violated the New Jersey Consumer Fraud Act (CFA), breached express and implied warranties, and unjustly enriched Carter Reed. In her complaint, Lee contends that there is no specific support that Relacore provides any of the benefits claimed by Carter Reed. Lee and the putative class members seek compensatory and punitive damages, injunctive relief, and attorneys' fees, but do not seek damages for any personal injuries.

In her motion for class-action certification, Lee maintained that only through the aggregation of thousands of small claims in a class action will similarly situated consumers have a financially feasible way in which to prosecute their case against Carter Reed. The trial court denied Lee's class-certification motion on the ground that prosecution of thousands of claims dependent on so many individualized factors would be unmanageable under Rule 4:32-1(b) (3). The Appellate Division, in an unpublished opinion, affirmed the trial court's denial of class certification but for different reasons, finding that the individual issues of fact and law predominated over those that were common to the class members. The Supreme Court granted Lee's motion for leave to appeal.

HELD: Based on a review of the record, Melissa Lee's claims, Carter Reed's defenses, and the applicable substantive law, and in light of the analysis of the predominance, superiority, and manageability factors of Rule 4:32-1(b) (3), the trial court mistakenly exercised its discretion in not certifying the class of New Jersey Relacore purchasers on Lee's Consumer Fraud Act claim.

1. The class action is a device that allows "an otherwise vulnerable class" of diverse individuals with small claims access to the courthouse. In deciding whether to grant or deny class certification, a trial court does not decide the ultimate factual issues underlying the cause of action but instead, at the class-certification stage, the court must accept as true all of the allegations in the complaint and consider the remaining pleadings, discovery, and any other pertinent evidence in a light favorable to plaintiff. Under Rule 4:32-1(b) (3), the trial court must understand and analyze the claimed defenses, relevant facts, and applicable substantive law in determining whether a class action: 1) presents common issues of fact and law that predominate over individual ones, 2) is a superior means of achieving efficient and just results, and 3) is manageable. An appellate court must ascertain whether the trial court has followed these standards and properly exercised its discretion in granting or denying class certification. (pp. 4-5)

2. For a class action to proceed under Rule 4:32-1(b) (3), the court must find that questions of law or fact common to the members of the class predominate over the 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 core issues before the Court are whether: 1) common issues of law and fact predominate over individual ones concerning the putative class, 2) the class action is superior to a myriad of individually litigated cases, and 3) a class action, given the number of individual claims involved, is manageable. In determining whether a class representative has established predominance, a court must determine whether the proposed class is sufficiently cohesive to warrant adjudication collectively by a class representative. Whether a class action is superior to thousands of minor, individual actions involves considerations of fairness to the putative class members and the defendant, and the efficiency of one adjudicative method over another. Although class certification may be denied on manageability grounds, such an approach is strongly disfavored. (pp. 24-28)

3. Under the Consumer Fraud Act, N.J.S.A. 56:8-1 to -181, a consumer who proves 1) an unlawful practice, 2) an ascertainable loss, and 3) a causal relationship between the unlawful conduct and the ascertainable loss is entitled to legal and/or equitable relief, treble damages, and attorney's fees. An unlawful practice is any unconscionable practice, deception, fraud, false pretense, false promise, or misrepresentation in connection with the sale or advertisement of any merchandise. An ascertainable loss is one that is quantifiable or measurable. In order to prove an ascertainable loss, a consumer does not have to show that a pre-suit demand for a refund was made. To establish causation, a consumer merely needs to demonstrate that he or she suffered an ascertainable loss as a result of the unlawful practice. The CFA is remedial legislation and is liberally construed. (pp. 28-30)

4. For purposes of the class-certification motion, neither the trial court nor the Appellate Division accepted as true Lee's detailed allegations that all of Relacore's advertisements were false. Because those courts failed to give a deferential view to Lee's case at the class-certification stage, they applied legal principles to a distorted picture of the record. Viewing the record in a light favorable to Lee, common issues of law and fact predominate over individual ones. The CFA provides relief to plaintiff and the putative class if Carter Reed engaged in the deceptive marketing of Relacore and plaintiff and the class members suffered an ascertainable loss causally related to that unlawful practice. In their analyses, the trial court and Appellate Division implicitly assumed that Relacore produced some of the benefits advertised. That assumption made causation a perplexing problem, the resolution of which would depend on a number of individual inquiries. Proving that the deceptive marketing of Relacore is causally related to an ascertainable loss under the CFA is not so problematic from a class-wide perspective if the allegations in Lee's complaint are accepted as true. The CFA does not require proof of reliance but only a causal connection between the unlawful practice and ascertainable loss. Under Lee's scenario, the ascertainable loss here is the cost of a bottle of broken promises; each container of Relacore, when not refunded, is an out-of-pocket loss. While individual questions will remain, those questions will not present an insurmountable obstacle. (pp. 30-38)

5. The class action is a superior vehicle and perhaps the only practical vehicle for consumers who were allegedly deceived into purchasing Relacore. It is unlikely that thousands of individual consumers, purportedly duped into buying a worthless product that cost only about $40, will file actions in small claims court. A refund policy, particularly in cases of small claims, would not immunize a merchant from a CFA claim. It is not difficult to conclude that a class action is the superior means of vindicating the rights of consumers who claimed to have been wronged by Carter Reed's marketing of Relacore. (pp. 39-41)

6. A class action in this case is not unmanageable. Denying class certification on manageability grounds is disfavored in general and it is not justified here. The finding that class certification should have been granted is fully in line with recent jurisprudence on this subject. The trial court mistakenly exercised its discretion in not granting class certification of Lee's CFA claim. The trial court and Appellate Division erred by not adhering to the standard of review that governs consideration of class certification -- viewing the record in light most favorable to plaintiff. Those courts failed to accept Lee's assertions that she was challenging all of Carter Reed's advertising methods regarding Relacore. On the present record before it, the Court declines to resolve whether class certification should be granted on the unjust enrichment and express- and implied-warranty claims. The Court vacates the trial court's denial of class certification on those claims and remands to the trial court for consideration under the standards enunciated in this opinion. (pp. 41-47)

Judgment of the Appellate Division which upheld the denial of class certification on all claims is REVERSED and the matter is REMANDED to the trial court for proceedings consistent with this opinion.

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, WALLACE, RIVERA-SOTO, and HOENS join in JUSTICE ALBIN's opinion.

The opinion of the court was delivered by: Justice Albin

Argued April 27, 2010

A class-action lawsuit can give a large number of consumers with small claims the power to act collectively in seeking redress against a corporate entity. In this appeal, we must decide whether denying thousands of individuals the opportunity to proceed as a class in a consumer-fraud action was an abuse of discretion.

Plaintiff Melissa Lee purchased, for a price of about $120, three bottles of a dietary supplement pill called Relacore, which is manufactured and distributed by defendant Carter-Reed Company, L.L.C. Carter Reed has marketed Relacore primarily as a weight-reduction product with the additional benefits of lessening anxiety and elevating mood. Plaintiff filed a class-action lawsuit on behalf of thousands of New Jersey consumers, alleging that Carter Reed sold Relacore using various mass-marketing deceptions that violated the New Jersey Consumer Fraud Act, breached express and implied warranties, and unjustly enriched Carter Reed. In her complaint, plaintiff contends that there is no scientific support that Relacore provides any of the benefits claimed by Carter Reed.

Plaintiff filed a motion to certify as a class all New Jersey consumers who have purchased Relacore. Plaintiff maintains that only through the aggregation of thousands of small claims in a class action will similarly situated consumers have a financially feasible vehicle to prosecute their cases against Carter Reed.

The trial court denied plaintiff's class-certification motion on the ground that prosecution of thousands of claims dependent on so many individualized factors would be unmanageable under Rule 4:32-1(b)(3). The Appellate Division affirmed the denial of class certification, but for different reasons, finding that the individual issues of fact and law predominated over those that were common to the class members.

We now reverse. For purposes of the class-certification motion, the trial court and Appellate Division failed to accept as true the allegations asserted in plaintiff's complaint or to view the pleadings in a light favorable to plaintiff, as required by our jurisprudence. Had those courts viewed the pleadings in the proper light at this stage of the proceedings, and accepted plaintiff's representations that Carter Reed's advertising of Relacore was no more than a passel of lies, then they should have concluded that the common issues of fact and law predominated over individual ones and that the case was not beyond the management skills of our capable Superior Court judges. We hold that plaintiff has satisfied the requirements of Rule 4:32-1(b)(3) and that a class action, rather than the prosecution of thousands of individual small claims, is the superior method for proceeding in this case.

I.

A. Standard of Review

In deciding whether to grant or deny class certification, a trial court does "not decide[e] the ultimate factual issues" underlying the plaintiff's cause of action. See Riley v. New Rapids Carpet Ctr., 61 N.J. 218, 223 (1972). Rather, at the class-certification stage, a court must "accept as true all of the allegations in the complaint," Int'l Union of Operating Eng'rs Local No. 68 Welfare Fund v. Merck & Co., 192 N.J. 372, 376 (2007), and consider the remaining pleadings, discovery (including interrogatory answers, relevant documents, and depositions), and any other pertinent evidence in a light favorable to plaintiff, see Iliadis v. Wal-Mart Stores, Inc., 191 N.J. 88, 96 (2007). Although a plaintiff is accorded "every favorable view of the complaint and record," ibid. (citation and internal quotation marks omitted), the trial court nevertheless must engage in a "rigorous analysis" to assess whether the requirements of class certification have been met under Rule 4:32-1(b)(3), id. at 106-07 (citation and internal quotation marks omitted). The trial court must understand and analyze the "claims, defenses, relevant facts, and applicable substantive law" in determining whether a class action: (1) presents common issues of fact and law that predominate over individual ones, (2) is a superior means of achieving efficient and just results, and (3) is manageable. Id. at 107 (citation and internal quotation marks omitted); R. 4:32-1(b)(3).

An appellate court must ascertain whether the trial court has followed these standards and properly exercised its discretion in granting or denying class certification. See In re Cadillac V8-6-4 Class Action, 93 N.J. 412, 436 (1983). We now review the record through the prism of the standards governing the certification of a class action. We start by looking at the allegations set forth in plaintiff's complaint.

B. The Complaint

In 2007, plaintiff Melissa Lee filed a second-amended class-action complaint against defendant Carter-Reed Company, L.L.C.,*fn1 (and multiple other related entities and individuals) in the Superior Court, Law Division, Union County.*fn2 Plaintiff claimed that Carter Reed's distribution and marketing of Relacore, a dietary supplement pill, violated the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 to -181,*fn3 breached express and implied warranties made by Carter Reed, and unjustly enriched it at the expense of New Jersey residents who purchased Relacore. Plaintiff, a New Jersey resident, purchased Relacore from a CVS store in 2004. She claims that she bought Relacore based on Carter Reed's false representations about its product. Although the promised benefit of taking Relacore was the reduction of belly fat, plaintiff -- after using the product as directed for approximately four months -- gained weight instead. Plaintiff seeks to certify a state-wide class of thousands of New Jersey citizens who purchased Relacore based on Carter Reed's mass-marketing deceptions.

In or about 2002, Carter Reed began marketing Relacore through advertisements on television, in the print media, on its website, and on the packaging and labeling of each bottle sold.*fn4

Through its promotional campaign, in various ways, Carter Reed described Relacore as a product that would "shrink belly fat, improve users' mood, and combat the medical condition known as 'metabolic syndrome.'"*fn5 Carter Reed touted Relacore as a "breakthrough anti-anxiety, mood elevating pill that helps cut stress-related cortisol production." Cortisol -- according to Carter Reed -- is a "'nasty little stress hormone'" naturally produced by the body that causes "pound after pound to accumulate around your waist and tummy." Relacore is advertised as a "'feel good pill' that will 'naturally shrink your belly fat,' leav[ing] its users 'feeling happier, [and] full of energy'" -- "short-circuiting the 'stress-to-belly-fat cycle.'"

The complaint contends that every benefit ascribed to Relacore in its multi-media advertising, including those in testimonials by "Dr." Chevreau, is false. The complaint alleges that Relacore does not relieve anxiety, improve the user's mood, or shrink belly fat. According to the complaint, "there has been no scientific validation of a causal relationship between cortisol production and weight gain, or cortisol reduction and weight loss." Additionally, the complaint charges that "[t]here is no reasonable scientific evidence supporting any of [the] claims" that "Relacore is formulated to help 'Reduce Stress', 'Reduce Mild Anxiety', 'Improve Mood', 'Fight Mid-Day Fatigue', and 'Increase Energy.'"

Plaintiff and the putative class members seek compensatory and punitive damages, injunctive relief, and attorneys' fees, but do not seek damages for any personal injuries.

In its answer, Carter Reed denied plaintiff's allegations that Relacore did not provide the benefits advertised and raised as an affirmative defense that "[t]he proposed class cannot be certified because it does not meet the requirements set forth in [Rule] 4:32-1."

The trial court had set a discovery timeline even before the filing of the second-amended complaint. The parties exchanged interrogatory answers, documents, and expert reports, and plaintiff and Esther Anderson, a corporate representative of Carter Reed, were deposed. We now turn to what was learned in discovery.

Discovery

Plaintiff is married, has four children, and works as a sales consultant for an automobile dealership. In about 2004, she saw advertisements for Relacore in magazines called "First" and "Women's World," and on television. A full-page promotional for Relacore in one edition of "First" begins with a question in large bold letters: "Can a natural 'feel good pill' get rid of belly fat?" The advertisement provides the answer, stating that "Relacore is the natural anti-stress, mood elevating pill that can help positively alter the underlying causes of excess belly fat... leaving you happier, full of energy, and with that flat, youthful tummy you never thought you'd see again."

Plaintiff purchased a bottle of ninety pills of Relacore --a thirty-day supply -- at a CVS Store in Rahway for $39.99 in 2004. She read the representations on the bottle. The labeling on one such bottle states: "Stress Reducer/Mood Elevator... Helps Prevent Stress-Related Abdominal Fat." The box containing the bottle refers to Relacore as a dietary supplement. Plaintiff bought Relacore because it promised to shrink belly fat, and she expected the product to work as advertised. She did not see results in the first thirty days and purchased a second bottle, and eventually a third one. After completing two bottles and at least part if not all of the third, and despite regular exercise, plaintiff observed that she had gained, not lost, weight.

The print, television, radio, and internet advertisements reveal that the targeted audience was women and that the core message was that Relacore was a weight-loss product with the additional benefits of reducing anxiety and elevating mood. Many of the ads picture a young slender woman, clad in undergarments or nightwear, standing on a scale and smiling --seemingly content with her experience with Relacore. Here is a sampling of the representations made in those ads:

1. "All-Natural 'Feel Good Pill' Weight Loss Breakthrough... now you can beat stress-induced belly fat with Relacore... The Most Significant Weight Control Advancement In More Than A Decade... Relacore is the natural anti-stress, mood elevating pill that can help positively alter the underlying cause of excess belly fat...." (Carter Reed website ad).

2. "High levels of cortisol... cause pound after pound of excess body fat to accumulate around your waist and tummy... a health-threatening, figure-destroying condition affecting an estimated 47 million Americans... mostly women.... But now you can beat stress-induced belly fat with Relacore... that helps cut cortisol production by short-circuiting the 'stress-to-belly-fat cycle.'" (Carter Reed website ad).

3. "Shedding Excess Belly Fat Can Be As Easy As 1·2·3... Relacore (REL·a·KOR), the all-natural anti-stress, 'feel-good pill' is fast becoming the formula of choice for those who want to lose belly fat." (Retail brochure 2002).

4. "Diet Failure is Not Your Fault.... When you are over 30, over stressed, and want to get rid of stubborn belly fat, the answer is Relacore... Satisfaction Guaranteed or Your Money Back. Call Now!... 100% 30-Day Money-Back Guarantee." (Television ad).

5. "As Featured On TV... Helps Reduce Stress Induced Cortisol... Control Belly Fat... Increase Energy." (Relacore box).

Although the packaging and labeling of Relacore made no representation of a money-back guarantee if the user was dissatisfied, Carter Reed did convey, in some but not all ads, that a customer would receive a "full, prompt, no-questions-asked refund" if not satisfied with the product.*fn6

Esther Anderson, a compliance specialist with Carter Reed, testified at her deposition that the company had a thirty-day money-back guarantee policy for Relacore, but that company officials had authorized refunds requested beyond the thirty-day period, and indeed hundreds of refunds had been given. She admitted that Carter Reed's marketing scheme targeted New Jersey consumers.

Carter Reed made approximately 15,000 sales to New Jersey consumers as of 2007, and had records for eighty to eighty-five percent of those sales.

Carter Reed submitted the reports of two experts. In his report, Martin Block, Ph.D., a professor at Northwestern University, explained that a consumer's decision to purchase a product is based on a host of individual factors. In another report, Daniel Hoffman, Ph.D., a professor at Rutgers University, expressed the view that a wide variety of factors contribute to a person's weight loss.

In response, plaintiff submitted the expert reports of Jonathan Waitman, M.D., an internist specializing in clinical nutrition, and Warren J. Keegan, D.B.A., a professor of marketing. Dr. Waitman expressed the opinion that "there is no scientific basis for the claims of the efficacy of Relacore as to stress relief, mood elevating energizing qualities, mitigation of Metabolic Syndrome, reduction of belly fat, or reduction of cortisol level." Mr. Keegan concluded that if ...


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