Lamond v. Pepsico, Inc., No. 06-3043 (D.N.J. June 8, 2007).

Just in time for the Sopranos finale: the New Jersey District Court has a sit down with Pepsico. “What can you do?” Pepsico tried to get out of New Jersey state court by removing the case to federal court under CAFA. The district court, however, examined the jurisdictional issue sua sponte and sent them back to New Jersey state court. “Che peccato.” Check out the Sopranos website for their list of mobspeak.

This case began on May 24, 2006 when the plaintiff filed a class action complaint in the Superior Court of New Jersey for Camden County. The complaint was filed by the plaintiff “for herself and on behalf of all persons in New Jersey who, within in the past four years, purchased beverages with the tendency to contain benzene.” The complaint was originally filed against defendants Pepsico, Inc., Kraft Foods, Inc., Cadbury Scweppes Americas, Meridian Beverage Company, the Coca-Cola Company, Faygo Beverages, Inc., Giant Food Stores, LLC, Safeway, Inc., Sunny Delight Beverages Company, and Talking Rain Beverage Company, for a “class composed of thousand of members” with a “reasonable likelihood that the recovery in the case would exceed $15,000.” 

The plaintiff claimed that benzene was formed by the interaction by two ingredients, a preservative and an acid. When the beverages produced by these particular defendants were exposed to heat or light, these two ingredients formed benzene. The plaintiff alleged that the defendants knew that these beverages could form benzene under certain conditions, but continued to manufacture and sell the beverages. The plaintiff did not allege any physical or emotional injury to herself or any putative class members, but instead alleged that had she known of the purported tendency of the beverages to contain benzene, she would not have purchased the beverages. The complaint alleged breach of implied warranty, claims under the New Jersey Consumer Fraud Act, unjust enrichment and willful and wanton misconduct. The plaintiff sought damages equal to the amount paid for the products, an injunction, treble damages, disgorgement of profits, attorney’s fees and costs and punitive damages.

On July 6, 2006, Coca-Cola consulted its consigliere and removed the case to the New Jersey District Court pursuant to CAFA. On October 6, 2006, the plaintiff filed an amended complaint asserting claims against only Pepsico, Kraft Foods, Coca-Cola and Sunny Delight. The other defendants either settled with or were dismissed by the plaintiff. After further dismissals, only two defendants, Pepsico and Sunny Delight Beverage Company, remained. These two defendants filed motions to dismiss in lieu of answers in federal court.

While the defendants’ motions to dismiss were pending, the Court conducted a telephone conference with the parties and informed them of its concerns regarding jurisdiction.  The Court asked the parties to submit briefs on the issue.  After the parties filed their briefs, the Court remanded the case to New Jersey State Court. 

The Court began its opinion by examining CAFA’s jurisdictional provisions. The Court stated that the first two elements, one hundred or more class members, and minimal diversity, were not in dispute. The third element, however, regarding the requisite five million dollar amount in controversy was disputed by the parties. 

The Court cited the case of Morgan v. Gay in short order stating that “the parties seeking to remove the case federal court bear the burden to establish that the amount in controversy requirement is satisfied.” (Editor’s Note: See the CAFA Law Blog analysis of the Third Circuit’s opinion in Morgan v. Gay and the lower court opinions posted on January 19, 2007).   Interestingly, the Court stated that the parties did not dispute that the defendants bear the burden of proof. (Editor’s Note: We are not sure why the defendants did not argue the burden of proof issue. See also the law review article by CAFA Law Blog Editors on the burden of proof issue.  We have already done all of the research for them..   The parties did, however, dispute the standard of the burden of proof.

Outlining the Ninth Circuit’s decision in Lowdermilk v. United States Bank Nat’l Assn (Editors’ Note: See the CAFA Law Blog analysis of Lowdermilk posted on July 30, 2007.  You may also want to see the CAFA Law Blog analysis of Tate v. United States Bank Nat’l Association that discussed Lowdermilk posted on May 2, 2007) and the Eleventh Circuit’s decision in Lowery (Editors’ Note: See the CAFA Law Blog analysis of Lowery v. Alabama Power posted on May 15, 2007), the Court noted that there is some confusion as to the appropriate burden of proof. The Court, however, turned to caselaw in the Third Circuit focusing on whether or not the facts relevant to resolving the amount in controversy question were in dispute. The test as set out by the Court states “if the facts are in dispute, the removing party must first establish the facts before the Court by a preponderance of the evidence. Once the Court has made its preliminary findings or assuming the facts were not in dispute in the first instance, the burden on the removing party becomes one of legal certainty.”

In this case, the parties did not dispute the facts set forth by the defendants to establish jurisdiction, such as the amount of beverages sold or the average prices of the sodas. Because the relevant facts were not in dispute, the Court held that the defendants had to prove the requisite amount in controversy, five million dollars, to a legal certainty. Looking at the allegations at the time of the removal, the Court found that the defendants failed to meet their burden to a legal certainty.

Again citing Morgan v. Gay, the Court stated that the Third Circuit gave three main instructions in analyzing the amount in controversy. First, the party wishing to establish subject matter jurisdiction has a burden to prove to a legal certainty that the amount in controversy exceeds the statutory threshold. Second, a plaintiff may limit her monetary claims to avoid the threshold. Third, even if a plaintiff states that her claims fall below the threshold, the Court must look to see if the plaintiff’s actual monetary damages in the aggregate exceed the threshold, irrespective of whether the plaintiff states that the demands do not.

The plaintiff sought damages equal to the amount she paid for the beverages, treble damages under the Consumer Fraud Act, an injunction in joining the continued advertising and sale of the offending products, disgorgement of profits and imposition of punitive damages. Defendants, Pepsico and Sunny Delight, submitted two declarations to establish the five million dollar threshold. The only product alleged to have the tendency to contain benzene produced by Pepsico was Diet Wild Cherry Pepsi. Pepsico submitted a declaration explaining its process of selling concentrate to independent bottlers throughout the United States. According to the declaration the retail sales in New Jersey for Diet Wild Cherry Pepsi totaled more than six million in four years prior to the complaint. Similarly, Sunny Delight’s declaration stated that sales of its Sunny Delight Citrus Punch in New Jersey from October 2005 through June 2006 amounted up to approximately six hundred thousand dollars.

The District Court quickly discounted these declarations due to the legal claims set forth by the plaintiff’s complaint. The Court stated that the law governing the claim at issue, implied warranty of merchantability, makes clear that the amount that a plaintiff is entitled to equals the amount paid for the product minus the value of the product received. The Court held that the defendants made no such calculation and the defendants could not meet their burden of proof by simply citing to their retail sales. The defendants failed to make any deduction from the $6.6 million sales figure in order to properly calculate damages under the cause of action. The Court came to similar conclusions as to the plaintiff’s other claims under the Consumer Fraud Act and unjust enrichment.

In its conclusion, the Court held that the defendants had not satisfied their burden that the amount in controversy exceeded the requisite five million dollars. The Court had only gross sales figures and no assessment of value to be deducted. Additionally, there was no evidence of profits by the defendants and no assessment of punitive damages exposure. Without that information, the Court stated that the amount in controversy is unclear, and being unclear, the defendants had not carried their burden of proving the amount in controversy to a legal certainty.

All this CAFA is making me hungry…time for gabagool