In a decision issued earlier this year, Mier v. CVS Health, 2023 U.S. App. LEXIS 19472 (9th Cir. 2023), the Ninth Circuit held (per our research, for the first time) that class-wide damages models must be based on conjoint analyses that accurately reflect market realities, especially when market supply fluctuates during the class period.
Under Comcast v. Behrend, 569 U.S. 27 (2013), plaintiffs seeking certification of a damages class under Rule 23(b)(3) must set forth a method of computing damages to the class that tracks their theory of liability. In consumer false advertising suits, plaintiffs often rely on “conjoint analysis” as their methodology of choice. Broadly speaking, conjoint analysis uses survey data to determine consumers’ preferences for particular product features, then seeks to translate respondents’ survey choices into measurements of value for each feature. Those results are then used to create a formula for modeling and calculating damages for the class based on the value associated with the challenged product feature(s).
A common criticism of using conjoint analysis for this purpose that is that it often fails to adequately consider supply-side factors. That is, models based on conjoint analysis frequently do not account for other factors that bear on a product’s actual market price, such as manufacturers’ cost of goods, competitors’ pricing behavior, the entry of new market participants, and seasonality. As such, it is prone to inflating the “premium” allegedly associated with the challenged claim, by presupposing that the product could and would be sold at the same price, and in the same quantities, without the challenged product attributes. In actions involving multi-year class periods and fluctuating market supply, the failure to account for these supply-side factors can have a particularly distortive effect on damages calculations, resulting in a patently defective methodology.
Plaintiffs’ Arguments Regarding Supply-Side Factors
Generally, plaintiffs have offered two counterarguments to criticisms that conjoint analyses fail to account for supply-side factors. First, plaintiffs have argued that, if the analysis incorporates actual prices and quantities of past sales of the product at issue, these data points inherently reflect both demand and supply factors, and therefore sufficiently account for the latter. Second, plaintiffs have argued that, if supply was constant during the class period at issue—for example, if a car manufacturer would still have sold the same number of vehicles in the class period notwithstanding a drop in price due to a defect—supply-side factors would not affect the damages output.
Although erroneous as a matter of basic economics, these arguments occasionally found success among a few district courts in the Ninth Circuit, even when the proffered conjoint analysis offered little or no consideration of supply-side factors. See, e.g., In re Myford Touch Consumer Litig., 291 F. Supp. 3d 936 (N.D. Cal. 2018).
The Mier Decision
Until recently, the Ninth Circuit had largely been silent on whether the failure to account for supply-side factors was fatal to a conjoint-based damages model. The Ninth Circuit came closest in Zakaria v. Gerber Prods. Co., 755 Fed. Appx. 623 (9th Cir. 2018), in which the panel affirmed the district court’s holding that the proffered conjoint analysis was inadequate because it did not reflect market realities and prices for infant formula products. Yet the court did not elaborate on its decision or clearly hold that that class-wide damages models must reflect supply-side factors.
Enter Mier. In Mier, plaintiff challenged the labeling of CVS’s hand sanitizer, which claimed to be capable of killing 99.99% of germs (the "99.99% claim”). In support of their motion for class certification, plaintiff proposed a damages model for certain of their claims that calculated the supposed “price premium” associated with the 99.99% claim based on surveys that captured respondents’ preferences depending on the product features displayed. Specifically, their damages model used conjoint analysis to combine the results of three surveys identifying consumers’ general assessment of the product and purchasing decisions, consumers’ willingness to pay for a product with the 99.99% claim, and consumers’ willingness to pay for a product without the 99.99% claim. The resulting damages model converted the survey information into demand curves representing the quantity of money that consumers would not have paid but for the 99.99% claim. Plaintiff argued that this analysis showed the value to consumers of the allegedly misleading 99.99% claim, which therefore showed the “premium” each consumer was unfairly made to pay based on that claim. Nonetheless, the court denied class certification, holding, in relevant part, that the damages model did not adequately consider supply-side factors, such as the scarcity of CVS’s supply of hand sanitizer during the COVID-19 pandemic. Such low supply of hand sanitizer with high demand could significantly increase consumers’ willingness to pay—and it did increase consumers’ willingness to pay for hand sanitizer during the pandemic. The court thus recognized that the proposed damages model was based on a faulty fundamental calculation and could not be accepted as accurate.
In a unanimous—albeit unpublished—decision, the Ninth Circuit affirmed the district court’s denial of class certification, agreeing that the damages model was inadequate. It focused, in particular, on two flaws in the model.
First, although plaintiff argued that the supply curve of the damages model tracked the “real world” supply curve—which would purportedly indicate that the model accurately reflected supply-side factors—CVS had put forth evidence that market supply had, in fact, fluctuated during the class period. In particular, CVS’s supply of hand sanitizer “ran low” amid the COVID-19 pandemic, an event included in the class period. Further, plaintiff had failed to provide a damages model that considered supply for pre-pandemic months, even though the class period extended back to 2016. Therefore, the supply curve of the damages model did not reflect the “real world” supply curve’s fluctuations surrounding the pandemic.
Second, the court did not buy plaintiff’s argument that marginal supply costs would have remained the same if CVS had stopped selling sanitizers with labels displaying the challenged claim. As the panel explained, the model still failed to account for how a change in market demand caused by removing the statement would have affected the market supply. CVS, like other retailers and manufacturers, does not make pricing decisions based solely on consumers’ price preferences in the abstract. Consumers’ willingness to pay a lower price for the hand sanitizer without the 99.99% claim therefore did not compel the conclusion that CVS also would have been willing to sell the differently labeled product at that same price point.
On this point, the panel found unpersuasive plaintiff’s reliance on deposition testimony that CVS did not consider label claims when arriving at suggested retail pricing. Plaintiff argued that since the testimony showed that CVS does not consider label claims when making pricing decisions, a change in the label would not have any effect on CVS’s pricing decision, including CVS’s consideration of supply-side factors when coming to a pricing determination. The court disagreed with this logic, noting that, if anything, this testimony “reasonably suggested” that there was no price premium associated with the alleged false statement “at all.”
Finally, adding insult to plaintiff’s (non-)injury, the panel also affirmed the district court’s decision to exclude testimony from the plaintiffs’ conjoint analysis expert because the expert had not calculated a supply curve. According to the panel, the expert’s testimony was properly dismissed as irrelevant because he had failed to analyze where the supply curve intersects with market demand.[1]
Key Takeaways
What are the lessons for manufacturers and advertisers after Mier? Although the decision is unpublished, it signals that courts will not blindly accept plaintiffs’ damages models just because they take the form of a “conjoint analysis.” Defendants in putative false advertising class actions should look for opportunities in expert depositions and class certification (and decertification) motion practice to attack the model’s failure to account for supply-side factors, or to challenge the flawed assumptions that plaintiffs use as proxies for those factors. Examples of such opportunities include when supply of the product at issue fluctuated widely during the class period, or when consumers’ subjective values associated with a product attribute vary significantly. Developing these arguments for a strong Comcast opposition is one of the most effective strategies for resisting certification of a damages class.
[1] However, the panel vacated the district court’s denial of class certification of plaintiff’s California consumer protection claims, which allow for recovery of restitution (i.e., the difference in what the consumer actually paid and what the consumer would have been willing to pay without the allegedly misleading claim). The district court had found that plaintiff’s survey showed that 80% of class members were still willing to purchase the hand sanitizer without the 99.99% claim, thus signifying no value (or injury) associated with that claim. The Ninth Circuit concluded that the district court had misinterpreted the survey: it showed that purchases of hand sanitizer would decrease by 20% if the claim was removed, not that the number of unique purchasers would decrease by 20%.
