Joint Juice Ruling Fails to Quench Thirst for Guidance on Class-Wide Statutory Damages Awards
A few months ago, we previewed an imminent decision that would address, for the first time, a long-unsettled question for class actions brought under New York’s General Business Law (“GBL”): can a class of consumers obtain class-wide statutory damages under the GBL in federal court, even though the New York legislature has expressly prohibited statutory damages for GBL class actions brought in state court?
Now, the decision has issued, and the result is . . . unsatisfying. The court in Montera v. Premier Nutrition Corp., 2022 WL 3348573 (N.D. Cal. Aug. 12, 2022) awarded approximately $8 million in statutory damages under GBL § 349 to a class of consumers alleging that defendant (maker of “Joint Juice” drink products) had falsely represented the beverage’s ability to relieve arthritis pain. This $8 million statutory damages award was a strange intermediate between the parties’ two positions, seemingly driven by the court’s discomfort with the consequences of fully endorsing either. This post discusses what guidance, if any, the Montera court offers regarding how federal courts should address concerns stemming from GBL statutory damages in class action litigation.
GBL Statutory Damages and Class Action Litigation
As we previously detailed, statutory damages under GBL §§ 349 & 350 are relatively unique, guaranteeing minimum damages of $50/violation (under § 349) and/or $500/violation (under § 350). The rationale for these provisions is that they incentivize lawsuits that might not otherwise make financial sense for an individual litigant to bring.
However, the need to incentivize plaintiffs with the lure of statutory damages fades away when a GBL claim proceeds as a class action, since class actions are themselves a means of removing individual litigants’ barriers to suit. Thus, CPLR 901(b) forbids consumers from bringing GBL claims as class actions “unless they waive their rights to recover statutory penalties.” In other words, in cases brought in New York state court, statutory damages are categorically unavailable to classes that pursue claims for GBL violations.
In its 2010 decision in Shady Grove, the U.S. Supreme Court took direct aim at CPLR 901(b), concluding that the provision was preempted by Federal Rule of Civil Procedure 23, and thereby allowing GBL statutory damages in class actions brought in federal court. See Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 398 (2010). In addition to creating tension between what is permitted in class actions in state vs. federal court, in the wake of Shady Grove, federal courts have grappled with the potential for “devastatingly large” GBL statutory damages, including that such awards may violate the Due Process Clause of the Fourteenth Amendment. See Parker v. Time Warner Ent. Co., L.P., 331 F.3d 13, 22 (2d Cir. 2003); see also Famular v. Whirlpool Corp., 2019 WL 1254882, at *11 (S.D.N.Y. Mar. 19, 2019); In re Hulu Priv. Litig., 2014 WL 2758598, at *23 (N.D. Cal. June 17, 2014).
This long-fretted concern became a very real problem for Joint Juice-maker Premier Nutrition in Montera. Following a jury trial in which the plaintiff established that Joint Juice is mislabeled, the jury awarded plaintiffs $1.49 million in actual economic damages (based on what plaintiffs would have paid for the product absent the false representation). However, relying on GBL §§ 349 and 350, plaintiffs sought an additional $91 million in statutory damages, an amount approximately 60 times the “damage” to individual class members.
Against this backdrop—and since no court had yet issued a GBL statutory damages award in a false advertising class action—Montera emerged as a possible test case for guidance in a post-Shady Grove world. False advertising lawyers (these authors included) have been eager to see how federal courts grapple with issuing a GBL statutory damages award that exceeds, by many millions of dollars, the actual harm suffered by class members. Montera, unfortunately, did not quite meet our expectations.
The Montera Court’s Decision
The Montera decision acknowledges the long and confusing history regarding whether statutory damages raise constitutional concerns. In addressing plaintiffs’ request for $91 million, the court relied on Williams (a 1919 Supreme Court case), reiterating that the “crux” of whether plaintiffs’ requested damages violated the Due Process Clause is whether the request is “wholly disproportionate to the offense and obviously unreasonable.” Montera, 2022 WL 3348573, at *3-4 (citing St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 66-67 (1919)).
But recognizing there is “little guidance” in how to directly apply Williams, the Montera court turned to Shady Grove and the legislative history of CPLR 901(b). The court noted the New York Legislature’s “explicit concern about the punitive nature of aggregated statutory damages,” which spurred the legislature to enact CPLR 901(b)’s waiver of statutory damages in class actions to avoid “annihilating punishment of the defendant.” Montera, 2022 WL 3348573, at *4-5 (citing Shady Grove, 559 U.S. at 444) (emphasis added). This, the court held, “differentiates this case from others involving high awards of statutory damages.” Montera, 2022 WL 3348573, at *5. However, despite its review of the unique legislative history of CPLR 901(b), the court effectively threw up its hands, conceding that “[l]ittle to no guidance exists within the realm of reducing statutory damages.” Id.
Given that vacuum, the Montera court resorted to general principles of equity and inapposite case law. Relying on legislative concern regarding the “immense punitive consequences” of GBL statutory damages, the court considered whether to reduce the statutory damages award by applying the test for determining the constitutionality of a punitive damages award. Id. In so doing, the court did not offer any real reasoning or acceptance of either party’s position, acknowledging that the analysis “do[es] not map perfectly onto the consideration of whether the award of statutory damages here is excessive.” Id. at *6.
Specifically, the court applied the three “guideposts” set by the Supreme Court in State Farm and found that plaintiffs’ requested statutory damages were “wholly disproportioned to the offense and obviously unreasonable.” Id. at *5-6 (citing State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 416, 418 (2003)). First, as to “the degree of reprehensibility of the defendant’s misconduct,” the court both called out defendant’s mislabeling and noted it could have been worse. For example, the court explained that defendant’s conduct “involved repeated actions, namely [defendant’s] choice to continue marketing its product as containing joint health benefits,” despite numerous studies suggesting this was not true. Montera, 2022 WL 3348573, at *6. However, the court also noted that the injury at issue “was purely economic and not physical” and that “the only harm is wasted money.” Id.
Next, the court concluded that the wide disparity between the actual harm suffered by plaintiffs and the proposed statutory damages clearly favored a reduction. Where the Supreme Court has noted that “few awards exceeding a single-digit ratio between punitive and compensatory damages . . . will satisfy due process,” the court highlighted that the class’s requested statutory damages were over sixty times greater than its actual damages. Id. (quoting State Farm, 538 U.S. at 425).
Finally, the court reiterated the “arbitrariness” of the reality that “the same conduct, litigated using the same cause of action, could result in a $91,436,950 or $1,488,078.49 award merely depending on the selection of a federal forum.” Montera, 2022 WL 3348573, at *6.
Ultimately, the court concluded that $8,312,450 was an appropriate statutory damages award, i.e., “the amount of statutory damages owed under GBL § 349(h), $50 per unit sold.” Id. Notably, however, none of the court’s rationales for reducing the damages award explained why $8 million in statutory damages, as opposed to any other damages figure between $1.49 million and $91 million, was the “right” number to arrive at from a proportionality respective. It appears that the Montera court used GBL § 349’s $50/violation provision to anchor its damages award in some statutory grounding, without any nexus necessarily linking that figure and a “fair” award to a class of purchasers that bought approximately 166,000 units of Joint Juice during the relevant period.
Takeaways From the Montera Court’s Decision
While its analysis is informed by Due Process concerns and principles underlying the New York Legislature’s enactment of CPLR 901(b), the Montera court’s decision to impose $8 million in statutory damages leaves many questions unanswered.
While the decision has some appeal from an equitable standpoint—particularly given that the court concluded defendant “target[ed] people in pain who were desperate for relief,” Montera, 2022 WL 3348573, at *6—it is ultimately unmoored from the statutory text on which the damages award is purportedly derived. If GBL § 350’s statutory award of $500 per violation is undoubtedly too much, as the court found, the result should not be to rewrite the statute, but to find that it is inapplicable in this context—particularly in view of CPLR 901(b). In our view, the court was right to focus on the fact that the New York Legislature has deemed class-wide statutory damages awards so intrinsically punitive as to prohibit them entirely in state court. But that should have been reason enough to preclude statutory damages here.
To be sure, courts and juries arrive at “rough justice” damages awards every day, and they are vested with discretion to do so. And we appreciate the Montera court’s recognition that awarding damages at $500/violation under GBL § 350 would have been outrageous given the circumstances of the case. But when the quantum of damages is specifically prescribed by statute, and a court finds that quantum is unconstitutionally excessive, the right result should be to decline to impose it, rather than craft a “statutory” award somewhat arbitrarily tethered to GBL § 349.
In the end, the Montera decision is really not the “lodestar” that many were hoping for. The court itself seems to recognize this point, noting the lack of guidance in the “the realm of reducing statutory damages” on multiple occasions. See, e.g., id. at *5. The decision ultimately reads as an attempt to make the best out of a challenging and unique situation. But the reasoning for the award amounts to little more than “this feels right”—or at least, “this feels less wrong than what either party has proposed.” And so litigants and other interested parties will continue to look forward to a case that takes a firmer stand on how to balance Shady Grove against its punitive (and legislature-defying) consequences.