In the

United States Court of Appeals

For the Seventh Circuit

No. 10-3847

IN THE MATTER OF:

AQUA DOTS PRODUCTS LIABILITY LITIGATION

APPEAL OF:

SARAH BERTANOWSKI, et al.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division.

No. 08 C 2364 (MDL No. 1940)—David H. Coar, Judge.

ARGUED APRIL 14, 2011—DECIDED AUGUST 17, 2011

Before EASTERBROOK, Chief Judge, and ROVNER and SYKES,

Circuit Judges.

EASTERBROOK, Chief Judge. Moose Enterprises made,

Spin Master distributed, and many retailers sold, Aqua

Dots, a toy consisting of small, brightly colored beads

that can be fused into designs when sprayed with water.

Moose Enterprises contracted production of Aqua Dots

to JSSY Ltd., a Chinese company, which substituted 1,4

butanediol for the specified adhesive, 1,5 pentanediol.
2 No. 10-3847

While the substitute adhesive is chemically similar to

1,5 pentanediol, it came with a drawback. When ingested,

1,4 butanediol metabolizes into gamma-hydroxybutyric

acid (GHB), which can induce nausea, dizziness, drowsiness, agitation, depressed breathing, amnesia, unconsciousness, and death. Although the directions told users to

spray the beads with water and stick them together, it

was inevitable given the age of the intended audience

and the beads’ resemblance to candy (see the image

below) that some would be eaten. Children who swallowed a large quantity of the beads became sick. At least

two fell into comas.

After learning of the problem, Spin Master recalled

all Aqua Dots products. The recall notice instructed

consumers to take Aqua Dots products away from

children and to contact Spin Master to exchange them
No. 10-3847 3

for (non-defective) replacement kits or a comparably

priced toy. Alternatively consumers could return their

toys to retailers. The recall notice did not mention refunds, but money-back requests were honored.

Consumers returned roughly 600,000 of the more than

one million defective Aqua Dots kits that had been

sold. Another three million kits were pulled from the distribution channel before sale. Retailers gave customers

refunds as agents for the manufacturer. Spin Master

generally gave customers replacement kits or other toys,

although, when asked, it provided refunds. The episode

was the end of the line for Aqua Dots—but the same

product is available today under the name PixOs.

The plaintiffs, purchasers of Aqua Dots products

whose children were not harmed and who did not ask

for a refund, challenge the adequacy of the recall program. They sued Spin Master, Moose Enterprises, Target,

Toys “R” Us, and Wal-Mart (collectively “Spin Master”).

They rely on the Consumer Products Safety Act, 15 U.S.C.

§§ 2051–89, express and implied warranties, and state

consumer-protection statutes. The plaintiffs asked for a

full refund under federal law plus punitive damages

under state law. The Panel on Multidistrict Litigation

transferred twelve suits to the Northern District of

Illinois for pretrial proceedings. After the district court

denied plaintiffs’ motion to certify a class, see 270 F.R.D.

377 (N.D. Ill. 2010), we authorized an interlocutory appeal under Fed. R. Civ. P. 23(f).

Before addressing the question of certification, we must

consider Spin Master’s argument that there is no case or
4 No. 10-3847

controversy because plaintiffs lack standing to sue. The

requirements for standing, laid out in Lujan v. Defenders

of Wildlife, 504 U.S. 555 (1992), are injury, causation, and

redressability. Spin Master contends that the plaintiffs

do not have standing because none of the plaintiffs (or

their children) was injured by swallowing the beads.

This means that members of the class did not suffer

physical injury, but it does not mean that they were

uninjured. The plaintiffs’ loss is financial: they paid more

for the toys than they would have, had they known of

the risks the beads posed to children. A financial injury

creates standing. See, e.g., Clinton v. New York, 524 U.S.

417, 432 (1998); Bryant v. Yellen, 447 U.S. 352, 366–67

(1980); Selevan v. New York Thruway Authority, 584 F.3d

82, 89 (2d Cir. 2009) (standing requirements satisfied by

an increase in highway tolls).

The district court’s opinion denying class certification

principally discussed Rule 23(b)(3), which says that

certification is proper only if (among other things) “a

class action is superior to other available methods

for fairly and efficiently adjudicating the controversy.”

The district court framed the question as “whether a

defendant administered refund program may be found

superior to a class action within the meaning of Rule

23(b)(3)”. 270 F.R.D. at 381. The court recognized that a

recall is not a form of “adjudication” but decided

that what it called a “policy approach” is superior to

following the Rule’s text. The court concluded that consumers would be better off returning their products

for refund or replacement than pursuing litigation,

which the court thought would just require the class
No. 10-3847 5

members to bear attorneys’ fees in order to obtain a

remedy that is theirs for the asking already. The district

court observed that the recall was widely publicized.

The record shows that more than 600,000 consumers

returned Aqua Dots kits, and that more than 500,000 of

these 600,000 received refunds. The plaintiffs could

have had refunds—and still can have them today. The

district court concluded that the substantial costs of

the legal process make a suit inferior to a recall as a

means to set things right.

It is hard to quarrel with the district court’s objective. The lower the transactions costs of dealing with

a defective product, the better. The transactions costs

of a class action include not only lawyers’ fees but also

giving notice under Rule 23(c)(2)(B). Notice may well

cost more, per kit, than the kits’ retail price—and could

be ineffectual at any price, since most purchases were

anonymous. The court can’t send each buyer a letter.

Notice would be by publication, yet the recall was

widely publicized. Why bear these costs a second time?

The Consumer Products Safety Commission has not

expressed dissatisfaction with the recall campaign or its

results, and the record does not contain any evidence of

injury to children after the recall was announced. Spin

Master believes that most of the 400,000 kits not returned in the recall were used before the recall began

and that few, if any, defective kits remain in consumers’

hands. Consumers whose children used their kits are

not members of the proposed class, so a public notice

of a class action could be expensive yet pointless.
6 No. 10-3847

Still, a district court’s conclusion that it has a better

idea does not justify disregarding the text of Rule 23.

Policy about class actions has been made by the Supreme

Court through the mechanism of the Rules Enabling

Act, 28 U.S.C. §§ 2071–77. A district court is no more

entitled to depart from Rule 23 than it would be to

depart from one of the Supreme Court’s decisions

after deeming the Court’s doctrine counterproductive.

Rule 23 establishes a national policy for the Judicial

Branch; individual district judges are not free to prefer

their own policies. The Court made this point twice in

its most recent Term. See Wal-Mart Stores, Inc. v. Dukes,

131 S. Ct. 2541 (2011); Erica P. John Fund, Inc. v. Halliburton

Co., 131 S. Ct. 2179 (2011). See also, e.g., Schleicher v.

Wendt, 618 F.3d 679, 685–86 (7th Cir. 2010); Amalgamated

Workers Union of Virgin Islands v. Hess Oil Virgin Islands

Corp., 478 F.2d 540 (3d Cir. 1973) (rejecting an argument that “policy” justifies departing from the normal

meaning of the word “adjudication” in Rule 23(b)(3)).

It is not as if the Supreme Court and other participants

in the rulemaking process (the Judicial Conference, the

Standing Committee on Rules of Practice and Procedure,

and the Advisory Committee on Civil Rules) used the

word “adjudication” loosely to mean all ways to redress

injuries. The third circuit observed in Hess Oil that

the advisory committee’s notes demonstrate that

Rule 23(b)(3) was drafted with the legal understanding

of “adjudication” in mind: the subsection poses the question whether a single suit would handle the dispute

better than multiple suits. 478 F.2d at 543. A recall cam-
No. 10-3847 7

paign is not a form of “adjudication” under the committee note.

Although the district court’s rationale is mistaken, it

does not follow that the court’s decision is wrong. Other

parts of Rule 23 give a district judge ample authority

to decide whether a class action is the best way to

resolve a given dispute. Instead of departing from the

text of Rule 23(b)(3), the district court should have

relied on the text of Rule 23(a)(4), which says that a

court may certify a class action only if “the representative parties will fairly and adequately protect the interests of the class.” Plaintiffs want relief that duplicates

a remedy that most buyers already have received, and

that remains available to all members of the putative

class. A representative who proposes that high transaction costs (notice and attorneys’ fees) be incurred at the

class members’ expense to obtain a refund that already

is on offer is not adequately protecting the class members’ interests. See Thorogood v. Sears, Roebuck & Co., 627

F.3d 289, 293–94 (7th Cir. 2010) (discussing a variety of

ways that class actions may not protect the interests

of the class). The judge cited the wrong subsection of

Rule 23; so did Spin Master. But defendants did not

forfeit their arguments; they made the essential contentions. No harm was done by the mis-citation. See Elder

v. Holloway, 510 U.S. 510 (1994) (a court of appeals is

entitled to apply the controlling law even if the litigants

failed to cite the best authority).

Plaintiffs want punitive as well as compensatory damages. The punitive-damages claims depend on state
8 No. 10-3847

law. This creates problems under Rule 23(b)(3)(D),

which requires judges to consider “the likely difficulty

in managing a class action.” Different states may have

different ideas about whether a product’s distributor

should pay punitive damages for a problem caused by

a foreign supplier’s unauthorized substitution. We held

in In re Bridgestone/Firestone, Inc., Tires Products Liability

Litigation, 288 F.3d 1012 (7th Cir. 2002), that a nationwide

consumer class was not manageable, and thus could not

be certified, when it would depend on multiple states’

laws. See also Wal-Mart, 131 S. Ct. at 2551–52.

There would be serious problems of management

apart from the variability of state law. As we have mentioned already, individual notice would be impossible,

which would make it hard for class members to opt out.

No one knows who bought the kits. No one knows

who used them without problems; this would make it

difficult if not impossible to determine who would be

entitled to a remedy. The per-buyer costs of identifying

the class members and giving notice would exceed the

price of the toys (or any reasonable multiple of that

price), leaving nothing to be distributed. The principal

effect of class certification, as the district court recognized, would be to induce the defendants to pay the

class’s lawyers enough to make them go away; effectual

relief for consumers is unlikely.

Even if the subclasses proposed by the plaintiffs could

address variance across state consumer protection laws,

it would be very difficult to determine which consumers were in each subclass. The problems with the
No. 10-3847 9

plaintiffs’ proposed subclasses are explored in detail in

the district court’s opinion; it is unnecessary to repeat

that discussion. See 270 F.R.D. at 385–87.

AFFIRMED

8-17-11