Pulp Fiction: El «Food Court» rechaza la solicitud de indemnización por daños y perjuicios presentada por un grupo de compradores defraudados del suplemento alimenticio «Joint Juice».

Joint Juice, according to its labelling and advertising, promoted “healthy and happy,” if not pain free, joints.  A jury apparently thought it was closer to snake oil, finding the product’s marketing false, misleading, and fraudulent.  But the recent decision on post-trial motions in that federal class action—Montera v. Premier Nutrition Corp.—will  provide at least partial pain relief to the defendant manufacturer—and to all manufacturers of consumer goods facing the staggering aggregated statutory damages possible under New York’s frequently invoked consumer protection statutes.  Those statutes, New York General Business Law §§ 349 and 350 (collectively, “NYGBL”), are a darling of the plaintiffs’ bar because, despite the New York Legislature’s clear intent that NYGBL’s statutory damages of $50 and $500 not be available in class actions, the United States Supreme Court has said aggregation is permitted if the class action is filed in federal court.  In Montera, the statutory damages arising from that procedural loophole were $91 million (nearly 60 times actual damages for a product that often sold for less than $10).  Finding that multiple unconstitutionally punitive, the Montera court reduced the award to $8.3 million.

But Montera is hardly a silver bullet for defendants.  Despite the significant reduction, the court still levied significant statutory damages and weighed in on two unsettled issues in ways that will partially re-inflate reduced statutory damages.

Constitutional limits on statutory damages, including under NYGBL

Almost twenty years ago, the Second Circuit in Parker v. Time Warner Entertainment Co., 331 F.3d 13, 22 (2d Cir. 2003), observed that the “potential for a devastatingly large [statutory] damages award, out of all reasonable proportion to the actual harm suffered by members of the plaintiff class, may raise due process issues.”  These Due Process Clause concerns are similar to those raised in the context of punitive damages.  But where the U.S. Supreme Court has set out a modern framework for assessing whether an award of punitive damages is unconstitutionally large, the last U.S. Supreme Court decision considering a reduction of statutory damages was handed down more than a century ago, well before the advent of class actions.  See St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 66-67 (1919) (finding statutory damages award was not “wholly disproportioned to the offense and obviously unreasonable,” and therefore did not violate the Due Process Clause).

Under NYGBL, statutory damages are $50 (§349) and $500 (§350).  Another New York state statute, Section 901(b) of the New York Civil Practice Law and Rules (“NYCPLR”), bars statutory damages under NYGBL in class actions in New York state court.  However, the U.S. Supreme Court held in Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co.,  559 U.S. 393 (2010), that this bar does not apply in class actions in federal court because it conflicts with Rule 23, the federal rule of civil procedure governing class actions.  Since Shady Grove, federal courts have permitted class actions seeking statutory damages under NYGBL to proceed in federal court even though they would be barred if brought in state court.  Until Montera, there has been scant guidance on whether statutory damages in federal class actions brought under NYGBL can swell to a level that violates the Due Process Clause.

The Montera decision

The U.S. District Court for the Northern District of California—commonly referred to as the “Food Court” even though more food labelling cases are now filed in New York federal courts—recently addressed that question in Montera v. Premier Nutrition Corp., No. 16-CV-06980-RS, 2022 WL 3348573 (N.D. Cal. Aug. 12, 2022).  In Montera, the court certified eight statewide classes of Joint Juice purchasers, including a class of New York consumers, who alleged that the beverage’s labelling and advertising violated NYGBL by making false claims about its ability to provide relief for achy joints.  The case was tried to a jury, which found against Joint Juice’s maker, Premier Nutrition, awarding actual damages of $1,488,078.49 for full refunds of the money the class paid for Joint Juice.  Post-verdict, Premier Nutrition moved to decertify the class action and for judgment as a matter of law, but the court denied both motions.  In denying the motion to decertify, the court focused on the class certification requirement of superiority.  The court held that notwithstanding an individual plaintiff’s potential recovery of statutory damages in the tens of thousands of dollars, a class action remained the superior adjudicative method because any possible recovery would still pale in comparison with the litigation costs.

Plaintiff and the class brought a motion for entry of judgment, asking the court to impose statutory damages under NYGBL based on the number of units sold for an amount totaling $91,436,950, as well as prejudgment interest of $4,583,004.90.  The court made three key rulings.

First, the court held that the statutory damages award was “so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonably” under the century-old Williams standard and then reduced it to $8,312,450, equating to $50 per unit sold.  In making this reduction, the court used the U.S. Supreme Court’s guideposts for determining whether punitive damages violated the Due Process Clause.  In this regard, the court found that the “reprehensibility” of the misconduct was mixed, with Premier Nutrition continuing to market its product’s health benefits despite awareness of lack of scientific support but with the harm being purely economic rather than physical.  The court next concluded that the disparity between the statutory damages and the actual damages was “immense,” far exceeding the U.S. Supreme Court’s guidance that few punitive to actual damages ratios exceeding 9x will ever satisfy the Due Process Clause.  Finally, the court noted that the disparity arising merely from “selection of a federal forum rings of arbitrariness.”

Second, the court awarded statutory damages on the basis of each unit of Joint Juice purchased, as opposed to on a per consumer/class member basis.  The court viewed contrary case law from the Ninth and Second Circuits as thinly reasoned, and instead was persuaded by the argument that because repeat buyers presumably were exposed to the deceptive label during each purchase, an award of statutory damages on a per unit basis was consistent with the text and intent of NYGBL.

The court’s reading, however, is not inevitable as the language of both statutes provides that “any person who has been injured by reason of any violation” may recover the greater of actual damages or the statutory amounts.  That language supports a finding of only one violation per consumer, and it is not implausible to read “any” violation as referring to “any and all” violations.

Finally, the court imposed prejudgment interest on the reduced statutory damages award.  Acknowledging the limited authority on this issue, the court was swayed by a Second Circuit case not involving statutory damages, let alone NYGBL statutory damages, holding that the purpose of prejudgment interest is to compensate a plaintiff for the loss of use “of funds ultimately awarded,” and by New York state and federal court opinions awarding prejudgment interest on treble damages.  The court also held that interest should begin at the purchase date of the product as this was when each claim accrued.  Accordingly, the court awarded prejudgment interest in the amount of $4,583,004.90.

Like its per-unit violation ruling, the court’s decision on prejudgment interest leaves room for future challenges.  The plaintiff class was never out of pocket for the NYGBL statutory damages as they were out the purchase price.  And while the court analogized to punitive damages in reducing the amount of statutory damages, the court ignored authority cited by Premier Nutrition that prejudgment interest does not apply to punitive damages because such damages are meant to punish defendant, not compensate plaintiff.

Key takeaways

As the first federal court decision to directly consider a reduction of NYGBL statutory damages at ultra-high ratios to actual damages, Montera will benefit defendants facing claims under these frequently asserted New York statutes.

• With a federal court now ordering a significant reduction of aggregated statutory damages under NYGBL, more defendants may resist what Parker described as the “in terrorem effect” of potentially crippling aggregated statutory damages and resulting “unfair” inducement to settle even a strong case.
• In settlement discussions, companies and their counsel now have a weapon to wield against exorbitant demands from counsel for a certified class in federal class actions involving NYGBL.
• Although Montera, in line with Parker, held that statutory damage reduction can be considered only post-trial, this ruling may encourage defendants to press the issue at the class certification stage.  And with the apparent openness of the present U.S. Supreme Court to reconsideration of precedent, it may make sense to press for a revisiting of Shady Grove.

At the same time, companies should still expect their actions to be scrutinized closely by the court after an adverse jury verdict.  The reduction in Montera likely would have been far smaller if the product had also turned out to be dangerous, resulting in physical injury.

Montera makes it more likely that other courts also will compute NYGBL statutory damages on a per unit purchased basis, although the law remains unsettled on that question.  And Montera may influence future courts to award prejudgment interest on NYGBL statutory damages awards, even though the plaintiff class was not out of pocket for that amount.

Conclusión

Montera certainly will impact federal court NYGBL class actions, but the extent of that impact is unclear.  The decision’s reduction—but not elimination—of enormous statutory damages is a well-reasoned, Due Process Clause-based solution—albeit a partial one—to the NYGBL conundrum created by Shady Grove.  Will this single district court decision be enough to change the calculus of companies facing the possibility of annihilating statutory damages awards?  What does seem clear is that Montera will not be the last word on any of these issues.