We continue to scratch our heads over consumer class actions seeking monetary compensation when the customers received exactly what they paid for. We see them from time to time in the pharmaceutical space, where patients claim monetary compensation even though the prescription drugs they used worked like they were supposed to with no adverse reactions. That last point is worth repeating—no adverse reactions, as in no injury incurred or even alleged. These kinds of money-for-nothing lawsuits often do not survive, as we reported here and here.
Many, however, are filed in California, where the state’s permissive consumer fraud laws erect a low bar. One example is a very long-running hormone replacement therapy case called Krueger v. Wyeth, Inc., No. 3:03-cv-2496, 2019 WL 2743942 (S.D. Cal. July 1, 2019), where the district court certified a class of HRT patients several years ago, and recently denied the defendants’ motion for summary judgment in part, thus allowing a class of uninjured patients to claim hundreds of millions of dollars in so-called “restitution.”
Restitution of what? Since the class members disavowed any personal injury and admitted that the drug provided benefits, what could they possibly be claiming? Well, let’s dig a little deeper on that. The case is styled as a consumer class action under California’s Unfair Competition Law (“UCL”) and Consumer Legal Remedies Act (“CLRA”), and it is brought on behalf of “all California consumers who purchased [the HRT products] for personal consumption between January 1995 and January 2003, and who do not seek personal injury damages.” Id. at *1, *8. These uninjured patients allege that the drug manufacturer did not adequately disclose certain risks prior to 2003 and, had they been fully informed, they would not have purchased the drug. Id. at *7.
In allowing a restitution claim to go forward, the district court addressed three issues: Standing, damages, and restitution. On standing, the defendant justifiably argued that the plaintiff had not produced evidence of injury or reliance by class members on the alleged misrepresentations and omissions. Id. at *5. As a matter of substantive California law, the district court ruled that reliance can be presumed under the UCL and the CRLA “when the facts show that material misrepresentations were made to the entire class.” Id. We are aware of the cases that say that, and we don’t like them because they unacceptably weaken a fundamental requirement for proving fraud—that the alleged misrepresentation actually had an impact. Regardless, because the plaintiff was claiming that the defendants “employed a standardized pervasive marketing campaign” that was misleading [id. at *1], the district court presumed reliance. Id. at *5.
Article III standing was a more difficult question, but with the same result. The district court adopted a two-step analysis: “(1) ensuring that individual standing of the named plaintiff is supported by competent evidence and (2) examining the class definition to ensure that anyone within it would have standing.” Id. at *6. The first step was satisfied by the plaintiff’s contention that she would not have purchased the drugs “but for” the defendants’ alleged conduct; and the second step was satisfied by a presumption of reliance and causation in the case of a material fraudulent omission (recall that purportedly “standardized pervasive marketing campaign”). Id. at *8. The district court therefore ruled that the class of all uninjured purchasers had standing, but based only on a presumption.
On damages and restitution, the defendants argued that the plaintiff could prove neither because none of the models that her expert offered took into account the value that the class members received. The named plaintiff herself testified that the product “alleviated hot flashes, reduced symptoms of insomnia, and improved memory and everyday functioning”; and her expert held the opinion that hormone therapy confers “significant benefits.” Id. at *13. In other words, the plaintiff got what she paid for, yet the plaintiff’s damages expert gave the defendant zero credit for that value conferred.
That gap was the death knell for actual damages under the CLRA:
Although Plaintiff argues that she would not have purchased HRT “but for” [the] deceptive conduct, when calculating actual damages, the Court must look to what actually occurred, taking into consideration that which Plaintiff did, in fact, receive and the market value of the product (both with and without the misrepresentation).
. . . .
Plaintiff offers no evidence of the monetary effect of the alleged misrepresentations or omissions on the market price of the Defendants’ products.
Id. at *11. Because the district court was missing evidence necessary to calculate actual damages, it granted summary judgment as to those claims. Id.
Although the analysis should have been the same or similar for restitution under the UCL, the district court denied summary judgment on that claim. The court acknowledged that restitution is “broadly designed to ‘restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest,” and it further acknowledged that restitution has two purpose: “to restore the defrauded party to the position he would have had absent the fraud,” and “to deny the fraudulent party any benefits . . . which derive from his wrongful act.” Id. at *12.
The court concluded, however, that it could measure restitution without accounting for the benefit that the drugs undisputedly conferred on the plaintiff and the class. According to the court, the class members’ out-of-pocket expenses and the defendants’ profits (as calculated by the plaintiff’s expert) provided reasonable bases to calculate “restitutionary disgorgement.” Id. at *12-*16.
The truck-sized hole through this conclusion is that these models of “restitutionary disgorgement” do not restore the status quo. Instead, they place the plaintiff and class members in a better position because they get all their money back plus they keep the benefit they derived from taking a useful and helpful prescription drug without any adverse reaction. That is not restitution.
So it goes. Patients who received the beneficial prescription medication that they paid for and experienced no adverse impact whatsoever are in a position to claim hundreds of millions in “restitution.” The law should not allow that. Money for nothing.