Lawton v. Basic Research, LLC, No. 10-6341 (NLH)(AMD), 2011 WL 1321567 (D.N.J. April 4, 2011).

Looking for rapid weight loss? Well, this plaintiff class was, but only in state court. Instead, the federal district court was hungry for another CAFA case and kept this one.

In this case, a District Court in New Jersey held that in a claim for refund of the purchase price of a commodity, since the defendant provided the actual sales data, the defendant satisfied the amount in controversy requirement of CAFA.

The plaintiff brought this putative class action alleging that defendants, Basic Research, LLC,, engaged in fraudulent, deceptive, and misleading labeling and advertising of Zantrex-3, a dietary supplement that the plaintiff contended was ineffective and not proven to cause rapid weight loss despite the defendants’ claims. 

The plaintiff, on behalf of himself and others similarly situated, sought trebled compensatory damages, including the refund of the purchase price each member of the class paid for Zantrex-3, and punitive damages, among other relief.

The defendants removed the case from the New Jersey state court to the federal court pursuant to CAFA. The plaintiff moved to remand, which the District Court denied.

In support of remand, the plaintiff pointed out that he specifically limited the value of his case to below $5 million. In opposition, the defendants contended that despite plaintiff’s valuation of his case, they provided sufficient evidence that sales of Zantrex-3 in New Jersey during the time period covered by the plaintiff’s claims exceeded $5 million.

The Court noted that when the complaint specifically avers that the amount sought is less than the jurisdictional minimum, the standard set forth by Morgan v. Gay, 471 F.3d 469, 475-76 (3d Cir. 2006) applies.  (Editors’ Note: See the CAFA Law Blog analysis of Morgan posted on January 19, 2007). 

Under Morgan, a defendant seeking removal must prove to a “legal certainty” that plaintiff can recover the jurisdictional amount. The Morgan court observed that because the defendants did not provide “statistical sales information regarding the amount of the supplement sold in New Jersey,” and did not state the actual cost of the supplement, the defendants failed to prove to a legal certainty that plaintiff’s claims can exceed $5 million. The Court opined that Morgan test applied to this case.  

The Court stated that in this case, the defendants attempted to remedy the dearth of information to support CAFA jurisdiction that doomed the defendants in Morgan. To address the value of the plaintiff’s putative class claims, which concern thousands of New Jersey citizens who purchased Zantrex-3, the defendants attached a declaration of Steven S. Dickert, CFO of Zoller and Basic Research, to their notice of removal.  Dickert attested that retail sales of Zantrex-3 in New Jersey during the time period covered by plaintiff’s claims totaled over $6.5 million, and that with trebled damages, plaintiff’s case could exceed $19.5 million.

In his motion to remand, the plaintiff challenged the defendants’ reliance upon Dickert’s certification based on the same reasons pointed out in Morgan. The plaintiff, among other things, argued that the sales figure of $6.5 million did not show what profit would be eligible for disgorgement; the defendants did not provide any statistical information to support Dickert’s unsubstantiated statement regarding the $6.5 million figure; and the defendants did not provide information regarding the actual cost of Zantrex-3 or the exact number of New Jersey purchasers. 

In response, the defendants filed under seal more specific sales data, and Dickert supplemented his original certification with a detailed explanation of the sales data.  Dickert explained three categories of sales data: Category 1 – actual retail sales figures reported for sales in New Jersey during the relevant time period; Category 2 – estimated retail sales figures for New Jersey based upon actual national reported retail sales figures; Category 3 – estimated retail sales figures for actual shipments to that retailer.  He also explained how the different retailers reported their sales data, and how this affected defendants’ calculations. 

In reply, the plaintiff argued that the actual sales data was the only data to be credited, and the remainder of the allocation estimations should be ignored.  The plaintiff pointed out that the actual data figure did not meet $5 million, and that the figure did not account for non-New Jersey residents who purchased Zantrex-3 in a New Jersey store.

The Court observed that the federal court is a forum available to defendants despite plaintiff’s choice, as long as defendants have proven that plaintiff’s case meets the jurisdictional requirements of CAFA to a legal certainty.  The defendants had done so here, the Court stated.

The Court remarked that setting aside the defendants’ estimated sales data, and not factoring in the possibility of punitive damages, the defendants still concretely proven that the amount in controversy exceeded $5 million. As a part of his claim, the plaintiff requested that he and his class members be refunded the purchase price of Zantrex-3, and the defendants provided actual data of sales of Zantrex-3 in New Jersey that, when trebled, was just shy of the $5 million mark.  The figure then easily surpassed $5 million when attorneys’ fees were added.  The Court stated that even if counsel fees totaled only 3% of the trebled damages, those fees plus the damages based on the actual retail sales data readily exceed the $5 million threshold.

Accordingly, the Court denied the plaintiff’s motion for remand to the state court.