Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Or. Sup. Ct.: Marlboro Lights class certification rejected, (Oct 23, 2015)

By Edward L. Puzzo, J.D.

Misrepresentation claims brought against Philip Morris under Oregon’s Unlawful Trade Practices Act based upon “lowered tar and nicotine” labeling for Marlboro Lights were not appropriate for class certification, the Oregon Supreme Court in Salem has ruled, because individualized inquiries as to the smokers’ reasons for purchasing the product, rather than common evidence, would be required to demonstrate reliance for purposes of proof of economic injury (Pearson v. Philip Morris, Inc., October 22, 2015, Linder, V.)

Plaintiffs brought a putative class action alleging that Philip Morris, in violation of Oregon’s Unlawful Trade Practices Act (UTPA), misrepresented that its Marlboro Lights cigarettes delivered less tar and nicotine than regular Marlboros. Plaintiffs sought to certify a class consisting of approximately 100,000 individuals who had suffered economic injury by purchasing Marlboro Lights in Oregon during the 30-year period of 1971 through 2001 based upon these alleged misrepresentations.

The trial court denied certification of the class, ruling that individual inquiries predominated over common inquiries, so a class action was not the best means to adjudicate these claims. On appeal, the appellate court reversed, ruling that common questions did predominate.

Prerequisites and superiority. The rules for class certification in Oregon, the Supreme Court explained, first require that the five prerequisites of numerosity, commonality, typicality, adequacy and notice be met. If they are met, as they are in this case, then the next inquiry is whether a class action is superior to other available methods for the fair and efficient adjudication of the controversy.

One of the factors used to assess the superiority of a class action over individualized determinations is predominance; i.e. the extent to which questions

of law or fact common to the members of the class predominated

over any questions affecting only individual members. Notably, the court stated, if a class certification decision could come out different ways, depending on how factual disputes are resolved, the answer is not—as it would be for summary judgment—that the class should be certified and the dispute be resolved at trial. Instead, the trial court must resolve the dispute for the limited purpose of the class certification decision. The superiority determination in particular can pivot on the resolution of disputed facts.

Predominance standard. Plaintiffs met the commonality requirement as part of the initial prerequisites inquiry. However, the court cautioned, satisfying the commonality requirement is not the same as satisfying the far more demanding predominance criteria for purposes of assessing superiority. The predominance inquiry asks how central are the common questions are and whether common proof will resolve them.

One of the trade practices barred by the UTPA is a business’ representation that their goods have characteristics or qualities they do not have. A private action under the UTPA requires proof of injury in the form of an ascertainable loss of money or property.

Plaintiffs alleged that Philip Morris had affirmatively represented that Marlboro Lights inherently delivered lowered tar and nicotine, despite being well aware of the fact that smokers typically obtained as much tar and nicotine from light cigarettes as from regular cigarettes through methods such as taking deeper and more frequent puffs, or covering air holes, in order to obtain the stimulant effect provided by nicotine. Plaintiffs alleged that their economic loss was due to paying for, but not receiving, low tar and nicotine cigarettes.

Diminished value. Under plaintiffs’ “diminished value” theory of economic loss, class members suffered an economic loss at the moment of purchase because the product lacked the characteristic of “inherent lightness” which would have given it greater economic value than that of a regular cigarette. In response, Phillip Morris noted that Marlboro Lights had always been priced the same as regular Marlboros. Here the court concluded that where, as here, there was no difference in the price between a product with the represented feature and one without, plaintiffs’ theory of diminished value provided no logically viable theory on which class wide economic losses could be established.

Failure to disclose. Under plaintiffs’ alternate “failure to disclose” theory of economic loss, purchasers sought a refund based on having purchased a product believing that it had characteristics it did not have, due to defendant’s misrepresentations. Plaintiff must suffer a loss of money or property that was caused by the unlawful trade practice, the court stated. That causation can be established by reliance. In this case, the court ruled, proof of reliance on the alleged misrepresentation is integral to plaintiffs’ class claim.

Predominance of common issues. Given the above requirements, the next question is whether plaintiffs met their burden of showing that their class claim could be litigated through common proof and not require a significant number of individual inquiries. Plaintiffs alleged the class wide reliance could be inferred circumstantially: that through the “lowered tar and nicotine” labeling on Marlboro Lights uniformly made to all purchasers, all purchasers would have had a common understanding that the product’s defining feature was that the cigarettes were inherently lighter no matter how they were smoked, and therefore all purchasers naturally relied on the misrepresentation. In response, Phillip Morris stated that surveys of actual smokers showed they had various reasons for choosing the light cigarettes, not all of them related to purported health benefits.

The controlling question, the court explained, was not whether reliance was “susceptible” to class wide proof. Instead, the court noted that smoking, in many ways, was an irrational choice, and involved consumer choices implicating states of mind, perceptions, beliefs and conscious and subconscious motivations. Thus it is “all but patent” that individual inquires would be required in order to determine why individual members of a large class made the choices they made. The court opined that the “lowered tar and nicotine” representation was not “inherently lower in tar and nicotine no matter how smoked.” Since plaintiff’s claim of reliance depended on a purchaser’s subjective interpretation of the representation, the court questioned whether a considerable number of the class members over the 30-year class period may have known that Marlboro Lights were not inherently light and did not rely on that representation. The court found that plaintiffs failed to show that the reliance required to prove the refund theory of economic loss could be litigated through common evidence rather than individualized inquiries. Thus the Supreme Court affirmed the trial court’s rejection of class certification due to plaintiff’s failure to show that common issues predominated.

The case is Civil Action No. 358 Or 88 (2015).

Attorneys: Scott A. Shorr (Stoll Stoll Berne Lokting & Shlachter PC) for Marilyn C. Pearson. William F. Gary (Harrang Long Gary Rudnick, PC) for Philip Morris, Inc.

Companies: Philip Morris, Inc.

Cases: StateUnfairTradePractices Advertising OregonNews