The endless see-saw that is the battle to impose reason on California consumer fraud class actions, just took a “see” (or is that a “saw”) in the direction of the good guys. Last week, in a to-be-published opinion, the California Court of Appeal affirmed the denial of class certification for Vioxx-related consumer and third party payor actions. In re Vioxx Class Cases, 2009 WL 4806197, Slip op. (Los Angeles County Super. Ct. No. JCCP 4247).
The class plaintiffs here weren’t very original. We’ve heard these allegations before, but California’s always been a more dicey jurisdiction than most. The class plaintiffs claimed that Vioxx was no more effective than a cheaper generic alternative, and that it was less safe – and therefore, they would not have paid the price they paid for Vioxx but for Merck’s having deceived them. In short, it’s your typical “price inflation” allegations that most courts have rejected.

Merck used discovery to inquire just what drugs the plaintiffs would have purchased instead of Vioxx, but plaintiffs maintained that this level of specificity was not relevant; they just claimed they overpaid for Vioxx. Good for them. Merck turned their intransigence against them. Good for Merck. For plaintiffs, the facts turned out to be a most inconvenient truth.

Plaintiffs’ proposed measure of damages was the price they paid for Vioxx minus the price of the general comparator (that’s lawyerspeak for “alternative”) medication. Oops, didn’t happen. Evidence (critical to the win) showed that after the Vioxx withdrawal, most patients did not switch to the alternative generic comparator as alleged in the complaint. Instead, their doctors changed them over to other brand name products.

In a ruling that puts some of the sunshine back into sunny California (at least when there’s not an El Niño) the Court of Appeal affirmed the trial court’s well-reasoned denial of class certification.

One of the things that makes California so difficult is that there’s not just one consumer fraud statute. There’s a bunch, and each one’s a little different. The first claim the court dispatched was brought under the Consumer Legal Remedies Act (“CLRA”). Fortunately, the section of the CLRA that allows private citizens to recover damages has “as a result of” causation language that requires a showing that the alleged deception was “material.” The Court of Appeal agreed that, because materiality varied from person to person – based on his or her medical condition, severity of pain, reason for prescription, other medical issues, etc. – a class action would not be appropriate. Slip op. at 24. Seems logical enough to us, but since it’s California consumer protection law, we take nothing for granted. The ruling on this issue should be broadly applicable to cases under other states’ consumer fraud statutes which share the “as a result of” formulation.

Two other California consumer fraud statutes are the unfair competition law (“UCL”) and the false advertising law (“FAL”). These are even scarier because they require causation to be proven by the named plaintiff(s) only. See In re Tobacco II Cases, 46 Cal.4th 298 (2009). Once the named plaintiff shows harm “as a result of” violations of the UCL and FAL (don’t these make you think of Latin American communist groups?), plaintiffs assert that restitution can be granted to the entire class without a showing of reliance as to these class members – because of the language permitting restitution where monies “may have been acquired through means of unfair competition.” Despite this language, the Court of Appeal reasoned that “may have” only gets you so far – even if you need not prove individual injury, you must have appropriate class-wide proof as to the fact and extent of injury:

“While the ‘may have been acquired’ language . . . is so broad as to allow restitution without individual proof of injury, it is not so broad as to allow recovery without any evidentiary support.” Slip op. at 19. Plaintiffs’ theory was that restitution amounts could be measured solely by the price paid for Vioxx minus the price of the generic alternative medication – but the generic alternative wasn’t really an alternative at all, since the evidence showed it wasn’t the replacement for a majority of putative class plaintiffs. Thus the Court of Appeal said, “[w]hen the plaintiff seeks to value the product received by means of the market price of another, comparable product, that measure cannot be awarded without evidence that the proposed comparator is actually a product of comparable value to what was received.” Id. The inconvenient truth that the majority did not use the alternative that the plaintiffs alleged – not coincidentally the one that also would have maximized their recovery – sunk the class action. Because each person would have his or her own individualized alternative, there was no viable class-wide measure of damages. Splash; into the sea it goes.

A lot of the times, it’s hard for damages issues to be class-busters, but the Court of Appeal’s logic is dead on. For everybody who already tried and failed on the purported generic alternative, their measure of damages could not be ‘price of Vioxx minus price of purported comparator’. And for those whose doctors would never prescribe the purported comparator at all, the plaintiff’s simplistic damage calculation is simply irrelevant.

Evidence is good. The court rejected plaintiffs’ challenge for two critical reasons: first, a majority of the proposed class in fact switched not to the generic comparator, but to another branded medication in the same class. Plaintiffs’ would-be generic comparator was false not just as to some class members, but as to most. To prevent this sort of farce from recurring, the Court required all future plaintiffs to present evidence as to the legitimacy of their proposed comparator. Slip op. at 19. Second, the Court wouldn’t let the plaintiffs kick the can down the road. It wasn’t just measure of damages but a question of whether damages could ever be established and measured on a class-wide basis, and thus the issue could not be put off until the merits stage. Where each class member’s comparator is an individual choice, plaintiffs failed to proffer a viable method whereby damages could be assessed at all on a class-wide basis. Slip op. at 26-27.

Vioxx Class Cases is also important because it’s one of the first big appellate post-In re Tobacco II Cases, 46 Cal.4th 298 (2009), decisions. The Court of Appeal rejected plaintiff’s argument that Tobacco II required reversal/compels certification. Instead the court held that In re Tobacco II addressed only issues about the named plaintiff; it does not alter the underlying elements of the statutory causes of action. Slip op. at 13, n.11.

Stay tuned. We might learn more about the Court of Appeal’s views on this from Pfizer v. Galfano, which was argued to the same Court as Vioxx just last week.

Tip of the cyberhat – and congratulations – to Rich Goetz and Charlie Lifland at O’Melveny & Myers for letting us know about this win.