Antitrust Law Daily Wrap Up, ADVERTISING—C.D. Cal.: Class certification rejected for children's electronic tablet purchasers, (Dec 4, 2015)

By Edward L. Puzzo, J.D.

In a putative class action alleging misrepresentation by the manufacturer of electronic tablet devices for children, class certification was not appropriate at this time because the methodology proposed to determine class-wide damages was too undeveloped to allow the court to determine its adequacy, the federal district court in Los Angeles has ruled (Miller v. Fuhu Inc., December 1, 2015, Snyder, C.).

Fuhu, Inc. and Fuhu Holdings, Inc. manufactured electronic tablet devices for children under the Nabi brand name. Scott Miller alleged that Fuhu's advertising represented to consumers that the tablets included a "power adapter," were "rechargeable," and had "rechargeable batteries." These representations were false because the tablets had defective power adapters that failed to reliably recharge the tablets and further prevented the tablets from being used during recharging. Miller filed a putative class action alleging, among other claims, that Fuhu's advertising representations violated California’s Consumers Legal Remedies Act (CLRA), False Advertising Law (FAL), and Unfair Competition Law (UCL).

Fuhu contended that the defects complained of by Miller were capable of being cured by a free over-the-air software update. But Miller noted that to accept the update, users had to agree to amended Terms of Use that included both an arbitration clause and a class action waiver provision, an unconscionable requirement.

Miller moved to certify the class. To certify a class action, the court explained, plaintiffs must set forth facts that provide prima facie support for the four requirements of Federal Rule of Civil Procedure 23(a): (1) numerosity; (2) commonality; (3) typicality; and (4) adequacy of representation.

Commonality. The court found that the primary issue—whether consumers were deceived by Fuhu's marketing materials uniformly representing that the Nabi tablets were rechargeable—presented common questions of law and fact. The issue of the conscionability of the Terms of Use also presented common questions of law and fact. However, the court continued, the class that the plaintiff sought to certify—a nationwide class of all persons who purchased a Nabi tablet after July 3, 2010—was overly broad. During the class period, Fuhu sold multiple versions of the Nabi tablet. Since the claims turned heavily on alleged design defects, the differences in design precluded a finding of commonality for the class as presented.

However, since there were two major designs of the tablet charging system, commonality could be addressed by dividing the proposed class into two sub-classes: those who purchased tablets with the first generation of charging system, and those who purchased tablets with the second generation of charging system. With that change the commonality requirement would be met, the court stated. The court also found that the remaining Rule 23(a) requirements of numerosity, typicality, and adequacy of representation had been met.

Under Rule 23(b)(3), class certification is appropriate when the requirements of Rule 23(a) have been met, questions of law and fact common to the class predominated over questions affecting only individual members, and a class action was superior to other available methods to adjudicate the controversy. Regarding the fraud-based claims brought under the UCL, FAL and CLRA, a "reasonable consumer" test is used without a requirement of individualized proof of deception, reliance, and injury. Consequently, the court found, common questions predominated regarding liability under fraud-based claims.

Class-wide damages. Miller proposed a "full refund" model and a "diminution in value" model for determining class-wide damages. The court found the first to be inappropriate because a majority of the Nabi tablets had not manifested the charging defect. The second approach, however, could be legally justifiable.

Miller's damages experts proposed two approaches for determining "diminution in value" damages: the cost to repair or replace the charger, or a contingent valuation approach based on consumer surveys. The court opined that the first approach was not viable because it was not clear that repair or replacement of the charger would cure the defect. The second approach, using a Contingent Valuation Method (CVM) or Choice-Based Conjoint Analysis (CBC) to measure the price premium the defendant was able to charge by not disclosing the defect, has been found by courts to be an acceptable methodology for determining class-wide damages, the court stated.

However, the plaintiff had not provided sufficient detail on the proposed surveys to allow the court to determine whether either CVM or CBC could be reliably used in this case to determine damages. Plaintiff's expert had not designed, let alone conducted, the survey he proposed. Given the relatively undeveloped state of plaintiff’s proposed survey, the court stated, it was unable at this stage to determine either whether plaintiff’s proposed methodology was sufficiently reliable to pass muster under Daubert; or whether using a survey of the type described by plaintiff could sufficiently measure damages across the entire proposed class. Accordingly, the court found that plaintiff failed to meet his burden to demonstrate that damages could be measured on a class-wide basis.

The court denied Miller's motion for class certification, but did so without prejudice, stating that with more detail provided to the court, Miller's proposed "diminution in value" damages model could provide a legally justifiable measurement for class-wide damages.

The case is Civil Action No. 2:14-cv-06119-CAS-AS.

Attorneys: Adam Joshua Gutride (Gutride Safier LLP) for Scott Miller. Ivo M. Labar (Kerr and Wagstaffe LLP) and Matthew D. Powers (O'Melveny and Myers LLP) for Fuhu Inc. and Fuhu Holdings Inc.

Companies: Fuhu Inc.; Fuhu Holdings Inc.

Cases: Advertising ConsumerProtection StateUnfairTradePractices CaliforniaNews