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CAFA Law Blog Information, cases and insights regarding the Class Action Fairness Act of 2005

A Court Cannot Accept A Plainly Overbroad Reading Of The Complaint To Conclude That The Amount In Controversy Is Satisfied

Posted in Case Summaries

Slocum_v_Gerber_Products_Co, 2016 WL 3983873 (W.D. Mo. July 25, 2016).

In this action, the United States District Court, Western District of Missouri, Central Division (the “District Court”) granted the plaintiff’s Motion to Remand finding defendant Gerber Products Co. (“Gerber”) failed to demonstrate, by a preponderance of the evidence, the amount in controversy excees $5 million.

The plaintiff brought a putative class action involving a claim arising under the Missouri Merchandising Practices Act (“MMPA”) in the Circuit Court of Pettis County alleging Gerber falsely and deceptively marketed its Gerber Good Start Gentle line of infant formula products (“Good Start”) as the “1st and Only” routine formula endorsed by the United States Food and Drug Administration to reduce the risk of developing allergies. In October 2014, the United States Federal Trade Commission had filed suit against the defendant to enjoin it from representing to consumers that feeding infants the Good Start Gentle formula would prevent or reduce the risk of infant allergies.

Gerber removed the case to the District Court contending the District Court had original jurisdiction over the action pursuant to the Class Action Fairness Act (“CAFA”). The plaintiff moved to remand, which the District Court granted.

Gerber contended the plaintiff’s claim was comprised of three components, that together, indicated the amount in controversy exceeded $5 million: (i) compensatory damages, (ii) punitive damages, and (iii) attorneys’ fees.

First, the District Court noted compensatory damages on an MMPA claim are measured by the benefit of the bargain rule, “which compares the actual value of the item to the value of the item if it had been as represented at the time of the transaction.” The plaintiff alleged that as a result of Gerber’s false representations and deceptive marketing practices, the plaintiff and other Missouri consumers did not receive the benefit of their bargain in purchasing Good Start.  The plaintiff contended Gerber’s marketing permitted the company to sell the formula at the premium price of “up to 10.4% more than competing similar powder infant formula products that were also sold by other manufacturers in the State of Missouri which have not been marketed as preventing or reducing the risk of allergies or atopic dermatitis.”

Gerber submitted a declaration from Russ Levitan, its Associate Director of Customer Analytics with its Notice of Removal, where Mr. Levitan stated, “such actual and estimated sales of the formula were made to more than 100 persons, and that the value of such actual and estimated sales exceeded $5,000,000.” The plaintiff contended the value of the compensatory damages claimed in the lawsuit was only $520,000, which was 10.4 percent of the estimated $5 million in sales and far below the requisite jurisdictional threshold of $5 million.

Gerber contended the plaintiff’s compensatory damages could far exceed $520,000, as Mr. Levitan stated, sales of the formula during the relevant time period exceeded $5 million and that the defendant is the party more likely to be in possession of the data indicating exactly how much formula was sold during the relevant time period. The defendant further argued that the plaintiff’s current damages theory of a 10.4% price premium was not binding on the putative class.  The District Court recognized that while the plaintiff and the class could later seek damages in excess of the 10.4% price premium, Missouri law on compensatory damages was clear that the appropriate measure of damages for an MMPA claim was determined by the benefit of the bargain rule.

The District Court found the plaintiff had not alleged the Good Start formula was harmful to the children ingesting it, or made any other allegation to suggest that the benefit of the bargain rule would afford the putative class a recovery of anywhere near the entire purchase price of the product. The District Court thus found the plaintiff’s initial claim that Gerber was able to charge a 10.4% price premium appeared reasonable in light of the remainder of the pleadings.  The District Court acknowledged that while a plaintiff was not permitted to limit damages for the putative class, it need not accept a plainly overbroad reading of the petition to conclude the amount in controversy was satisfied.  The District Court thus found the amount of compensatory damages in controversy appeared to be approximately $520,000.

Second, the District Court noted punitive damages may be considered along with compensatory damages when determining the amount in controversy; however, where punitive damages are not sought in the petition, they are legally unrecoverable under Missouri law. In this matter, the plaintiff had not sought punitive damages in the petition.  Gerber argued that as the representative plaintiff may not bind the putative class to limited damage recovery prior to class certification, punitive damages should be considered when determining the jurisdictional amount.

Since the plaintiff had not pleaded she and the putative class were entitled to punitive damages, the District Court found the petition as it currently existed precluded the plaintiff and the putative class from recovering punitive damages. The District Court further found the plaintiff’s decision not to request punitive damages in the petition did not constitute impermissible binding of the putative class.  The District Court also found if a plaintiff later seeks to amend the petition to request punitive damages which would result in federal jurisdiction, the defendant may at that point seek removal of the case.  The District Court thus held that punitive damages would not be considered in determining the amount in controversy.

Third, the District Court noted the final component of the plaintiff’s claim in determining the amount in controversy was attorneys’ fees. The District Court further noted the MMPA permits a court to “award to the prevailing party attorney’s fees, based on the amount of time reasonably expended.”  Gerber contended the risk and complexity of prosecuting class actions, extensive discovery period, likelihood of a multi-week trial, and extensive motion practice in the instant case indicated attorneys’ fees could be in the millions and potentially cause the amount in controversy to exceed $5 million.  The District Court; however, found Gerber provided no specific arguments about how the facts of the instant case, legal, or discovery issues were likely to affect the attorneys’ fees incurred.

Further the District Court found Gerber had not argued that litigation of the instant case was likely to last anywhere near five years; rather, the scheduling order currently in force had trial set approximately a year and a half after the action was removed.  The District Court further found the plaintiff had not sought to certify a nationwide class and the only evidence about the size of the putative class was contained in Mr. Levitan’s declaration, which stated that the class exceeded 100 individuals.  The District Court thus found Gerber had not presented any argument, based on the specific facts of the case, explaining why the attorneys’ fees were likely to exceed $4,480,000, such that the total amount in controversy with compensatory damages would exceed $5 million.

The District Court thus ruled Gerber failed to demonstrate, by a preponderance of the evidence, recovery in the instant case could exceed $5 million. Thus, the District Court had no jurisdiction over the matter under CAFA.  Accordingly, the District Court granted the plaintiff’s Motion to Remand.

Yaron Shaham