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Pulp Fiction: The “Food Court” Squeezes Statutory Damages Request By Class Of Defrauded “Joint Juice” Health Supplement Buyers – Trials & Appeals & Compensation



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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.

Conclusion

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.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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