## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N o. 10

- 3847 I N THE M A T T E ROF : A QUA D O TS P RO D UC TS L IABILITY L I T I GA T I ON A PP E A L OF : S ARAH B ERT ANOWS KI, e tal

.

A pp eal from the United S t ates Di strictC our tfo r the No rthernDi stricto f Illino is, Eas tern Div isi on. No . 08 C2364 ( MD L N o . 1940)

—David H . C oar, Ju dge .
A RG UE D A PRI L 14, 2011

— D ECI DE D A UGUS T 17, 2011

Befo re E A S T E RB R OO K, Chi e f Judg e, a nd R OV NERan d S YKES, C ircu it Judges . E A S T ER BR OO K, Chi e

f Judg e . M oo se En ter pri ses m ade, S pi n Mast erdi st r ibut ed, a nd many r et ai le r s so l d, Aqua Do ts, a to y c o ns i s t i ngo fs mal l, b r i g ht l y c o l o r e d b e a ds th at can be fused i nt o d esigns w he n sp rayed w ith w ater. M oo se En ter pri ses co ntra c ted pro du cti on o fA qua Dots to JSSY L td ., a C h i n es e c om p an y, w h ich su b st itu te d 1,4 b u ta n ed iol for th e s p ec i fied ad h es ive , 1,5 p en ta n ed iol.2 N o. 10

- 3847 W hi l e the subst i tute adhe siv e is chem i cal l y s i m i l arto 1 , 5 p e nt a ne di o l, i tc a me wi th a dr a wb a c k

. Whe n i ng e s t e d, 1,4 bu ta n ed iol m et ab oliz es int o ga m m a-h yd ro x yb u ty ric ac id (G H B ), w h ich ca n ind u c e n a u s e a, d izz in es s, d ro w siness, ag i tati on, depres sed br eathing, am n es ia, u n consci ousness, and death. A l though the di re cti ons tol d users to sp ra y t h e b ea d s w ith w at er an d st ick th em t o g e t h er , i t w as i nevi tabl e g i ven the age o fthe i ntended aud i ence and the be ad s’ r ese m bl ance to candy ( see the i m age b elo w ) th at s o m e w ou ld be ea te n . C h ild re nw h o s w all owed a l ar ge quanti ty of the b eads be cam e s i ck. A t l eas t tw o f el l i nto com as.

A fterl ear ni ng of the pr obl em , S pin M ast err ecal l ed al l A qua Dots pr oduc ts . T he r ecal l not i ce instr ucted consum er s t o tak e Aq ua Dots products a w ay f ro m chi l dren and to con ta ct S pin M ast erto exchange themN o. 10

- 3847 3 for (n on -d efe c tiv e) re p l a c em en t k its or a co m p ar ab ly p ric ed to y. A lte rn at ive ly c on su m er s c ou ld ret u rn th eir to y s t o r e t a i l e r s . T h e r e c a l l n o t i c e d i d n o tme nt i o n re fun ds , b utmo ne y -b a c kr e qu e s t s we r e h o no r e d. Consum er s r etur ned ro ughl y 6 00, 00 0 ofthe m or e than one m i l l i on defecti ve A q ua Dots ki ts that had been sol d. A notherthr ee m i l l i on k i ts w er e pu l l ed fro m the distribut i o n c ha nne l b efo r e sa l e. Re ta i l er s g av e cus to m ers re fund s a s a gents f orthe m anufa cturer. S pin M ast er gener al l y g ave custom er s r epl acem ent k i ts oro therto ys, a l tho ugh, wh e n a s k ed, i tp r o v i de d r e fun ds

. T he e pi s o de w as t he end ofthe l i ne f orA qua Dots

—b u tth e s a me product i s a vai l abl e t oday und erthe nam e Pi xO s. The pla i nti ff s, purchase rs o fA qua Dots prod u cts w hose chi l dren were not harm ed and w h o did notas k f ora re fund , chal l enge the a dequ ac y ofthe re cal l pro gr am . T he y s ue d S pi n M a s t e r, Mo o s e En t e r pr i s e s , T a r g et, T oys “R ” U s, an d W a l-M art (coll ectively “Sp in M aster” ). Th e y r e l y o n the Co ns ume r P r o du c t s S a f e t y Ac t, 1 5 U. S
. C. §§ 2051 –89, expre ss and i m pli ed w arrant i es, and sta te con su m er-protec tion statu tes. Th e p lai nt iffs asked f or a fullr efund under federa l l aw p lu s punit i ve dam age s und e r s t a t e l a w. T he P a ne l o n M ul t i di s t r i c tLi t i g a ti on tr ansfer re d tw el ve sui ts to t he N or ther n Dis tr i ct o f I ll inois f or pretrial pro ceed ings. A fter the d istri ct cou rt d e n i e d p l a i n t i ff s ’ mo t i o n t o c e r t i fy a c l a s s , s e e 2 7 0 F
. R. D. 3 7 7( N. D. I l l

. 2 0 1 0 ) , we a utho r i z e d a n i nt e r l o c ut o r y a pp eal un d er Fed

. R. Civ. P. 23(f ). Befo re address i ng the questi on of cer ti fi cati on, we m ust consi der S pin M ast er ’ s a rgum ent that there i s no cas e o r4 N o. 10

- 3847

co nt r o ve r syb ec au se pl aint i ff s l ac k s tan di ngt o s ue . The r equi r ement s f o r s ta ndi ng, l ai d o uti n Luja n v . D efend ers of Wil dlif

e, 5 04 U. S
. 5 55 ( 19 92 ) , a r e i nj ury, c au sa ti o n, a nd red ressab il ity. Spin M aster con ten d s that the p lai nt iffs do n o th a v e s t a nd i ngb e c a us e n o ne o fthe p l a i nt i ff s ( or the i r c hi l dr e n) wa s i nj ur e d b y s wa l l o wi ngthe b eads. This m eans that m em ber s o fthe cl ass d id notsuff er p hy sical injury, bu t it d oes not m ean that the y w ere un inj ure d

. Th e plaintiff s’ l oss is fi n a nc ial : they pa id m ore f orthe toy s than theywould have, had theyk n ow n of th e ri sks th e bead s p osed t o children

. A finan cial inj ury cre ate s s tandi ng. S ee, e. g. , C l i n to n v . New Yo rk, 524 U
. S. 41 7, 43 2 (1 99 8); B rya nt v . Yellen , 44 7 U.S
. 35 2, 366– 67 (19 80 ); Selev a n v. New York Thruwa y Au thori ty, 58 4 F
. 3d 82, 89 ( 2d Cir

. 20 09) ( sta nd i ng r eq u irem ents sat i sfi ed by an i nc rease in high w ay toll s). The dis tr i ct c ourt ’ s o pini on den yin g c l ass cer ti fi cati on pri nci pal l y di scusse d Ru l e 2 3( b) ( 3) , wh ich sa ys that cer ti fi cati on i s pro per onl y i f( am ong othe r th in gs ) “a c l a s s a c t i o n i s s up e r i o r t o o the r a v a i l a b l e me tho ds for fairly an d effic ien tly ad j u d ica tin g t h e c on tr ov er sy .” T he district cou rt fr am ed the q ue stio n as “w he th er a defen dan t admi ni st er ed r efun d pr o g r am m ayb e f o und su p er ior t o a cla ss ac tio n w i t h in th e m ea n in g of R u le 23(b) ( 3)”
. 27 0 F
. R. D. at 381. The co urt re cogni zed thata re cal l i s no t a for m o f“a dj ud i cati on” but deci ded that w hat i t ca l l ed a “ pol i cy approach ” i s s up er i orto f o l l o wi n g th e R u l e ’ s t e x t
. T h e c o u r t c o n c l u d e d th atc o nsum er s would be bet tero ff r eturni ng the i r products fo r r efund o r r epl ac ementtha n pur su i ngl i ti g at i o n, w h ich the cour t thought would j ust r equi re the cl assN o. 10

- 3847 5

m embe r s to b ea r a tt o r neys’ f ee s i n o r dert o o bt ain a re m edy th at i s thei rs f orthe ask i ng al re ady. The di str i ct c o ur to b s e r v e d t hat t he r e c a l l wa s wi de l y p ub l i c i z e d. T he record show s tha t m ore tha n 600,000 con su m ers re turned Aq ua Dots ki ts, and that m or e than 500 , 000 of th es e 600 ,00 0 rec eiv ed re fu n d s. T h e pla in tif f s c ou ld ha v e h a d r e fun ds

— an d s ti l l c anha ve th em to day

. The dist ri ct courtco ncl ud ed that the s ubstanti alco sts o f the l ega l pro cess m ake a sui t infe ri orto a re cal l as a m eans to setthi ngs r i ght. I t i s har d to q uarr elwith the di str i ct c ourt ’ s o bj ecti ve. The l ower the tr ansact i ons costs o fdeal i ng with a defecti ve product, the bett er . T he tr ansact i ons cos ts ofa cl ass act i on i ncl ud e no t o nl y l aw yer s’ fees but al so giv in g n ot ice u n d er R u le 2 3(c )(2) (B ). N ot ice m ay w ell cos t m or e, perki t, than the k i ts’ re tai l pri ce

— an d co u ld be ineffectu al at any p rice, sinc e m o st p urc ha ses w ere an ony m ou s. T he cou rt can ’t send each bu yer a l etter. N ot ice would be by publi cati on, ye t the r ecal l was w i del y publ i ci zed. W hy be arthes e co sts a se c ond ti m e? The C onsum erPro du cts SafetyCom m i ssi on has not express ed d i ssa ti sf acti on with the re cal l cam pai gn o r i ts re sul ts, and t h e recor d does no t co ntai n any evi dence of inj u ry to ch ild re n aft er th e re c all w as an n ou n c ed . Sp in M ast erbel i eve s that m osto fthe 400, 000 kits notr eturned in t he r ecal l were used bef or e the r ecal l beg an and that few , i fany, defect ive ki ts re m ai n i n consum er s’ ha nd s. C ons um ers w hos e ch il d ren u sed their ki ts are not m em ber s o fthe propos ed cl ass , so a pu bl i c not i ce ofa cl ass act i on co uld be expensi ve yetpoi ntl ess .6 N o. 10

- 3847 St i l l, a dist ri ct c ourt ’ s co ncl usi on that i t h as a be tte r i dea does notj usti fy di sr ega rdi ng the te xt o fR ule 23
. P o l i c y ab o u t cl a s s a c t i o n s h a s b e e n ma d e b y th e S u p r e me Cou r t th r o ug h the mech an i sm o f th e Rul es Enabl i ng A c t, 28 U
. S. C
. §§ 2071– 77. A district cou rt i s no m ore enti tl ed to depart f ro m Rule 23 than i t would be to depa r t f r o m o ne o fthe S upr eme Co ur t’ s dec i si o ns afterdeem i ng the Court ’ s d oct ri ne co unterpr oducti ve. Rule 23 est abl i shes a nat i onalp olic y forthe J ud i ci al Branch; ind i vi du aldi str i ct j ud ges ar e no t fre e t o prefer th eir ow n p olic ies
. T h e C ou rtm ad e t h is p oin t t w ice in i ts m ostr ecentTer m . S ee Wa l-M a rt Sto r es, Inc . v. D uk es , 13 1 S . C t. 25 41 (20 11 ); Eri ca P. John Fu nd, Inc . v. Hal l i b ur t on Co. , 13 1 S . C t. 21 79 (20 11 ). See als o, e.g., S c h l e i c h e rv. We ndt, 618 F.3d 67 9, 68 5– 86 (7t h C ir. 20 10 ); A m a lga m a ted Worke rs U ni on of

Vi rgi n Isla nd s v . He s s O i l Vi rgi n Is l ands Corp
. , 47 8 F
. 2d 54 0 ( 3d Ci r . 19 73 ) ( r ej ec ting anarg um ent that “ pol i c y” j usti fi es departi ng fro m the nor m al m ean ing of th e w ord “ad j ud ication” in Ru le 23(b) (3))
. I t i s no t a s i fthe Suprem e C ou rtand other parti ci pants i n the r ul emak i ngpr o ce ss ( th e J udi ci alCo nfer en ce , the St anding Com m i tte e o n Rule s o fPra cti ce a nd Pro cedure, an d the Advi so r y Com m i tt ee o n Ci vi l Rul es ) us ed th e w or d “adj ud i cati on” l oo sel y t o m ea n a l l ways to r edres s i nj uries. The thi r d c i r cui t o bs er ve d i n Hes s O il that the ad vis or y c om m itt ee ’s notes dem onst ra te that Rul e 23 ( b) ( 3) was dr afte d wi th th e l eg alunder st an di ng of“ a dj ud i c a t i o n” i n mi nd : the s ub s e c t i o n po s e s the que sti on wh ethera si ngl e s uitwo u ld h andle the dispute b e t t e r th a n mu l t i p l e s u i t s . 4 7 8 F
. 2 d a t5 4 3
. A r e c a l l c a m-N o. 10

- 3847 7 p a i g n i s n o ta f o r m o f“a dj ud i c a t i o n ” u n d e r th e c o mm i tte e no te. A lth ou g h th e d ist ric t c ou rt ’s ra tio n ale is m ist ak en , i t does not f ol l ow that the c ourt ’ s deci si on i s wrong. Other par t s o fR ul e 2 3 g i v e a di s t r i c tj ud g e a mpl e a utho ri ty to dec id e w h ether a cl ass act i on i s the be st w ay to r es o l ve a g i ve n di spu te
. I ns te ad o fde p artingfr o m the text ofRule 23 ( b) ( 3) , the di str i ct c ourtsho uld have re l i ed on the te xt o fRule 2 3(a )(4) , wh i ch say s that a c ou rt m ay cer ti fy a cl ass act i on o nl y i f“the r epres entati ve par ti es wi l l f ai r l y an d ade qua te l y pr o te ct th e in

ter est s o fthe cl ass . ” Pl ai nti ff s want r el i efthatdup l i cate s a r emedy th atmos t buy er s al r ea dy ha ve r ec ei ve d, a nd th at r em ai ns av ai l abl e t o al l m em ber s o fthe pu tat i ve cl ass . A r epres entat i ve w ho pro poses thathi gh tr ansacti o n c o sts ( no ti ce a nd a tt o r ne y s’ fee s) b e i nc ur r ed atthe c l a s s me mbe r s ’ e xp e ns e t o o b t a i n a r e fun d tha ta l r e a dy i s o n o ff e r i s n o t a d e q u a t e l y p r o t e c t i n gth e c l a s s me mb e r s ’ i nt e r e s t s . S e e Tho rogoodv. Se ars , Roe b uc k & C o. , 62 7 F. 3d 289, 29 3–94 ( 7th Ci r. 20 10) ( discu ss ing a var i etyo f w ays t h at c l ass act i ons m ay not prot ect the inter est s ofthe cl ass )
. The j ud ge ci ted th e w ro n g s ubsect i on o f Rule 23; so di d Spi n M ast er . But def endants di d not f o r f ei t th ei r a r g um en ts ; the y m ad e the e ss en ti alc o nt en t i o ns . No ha r m wa s do ne b y the mi s - c i t a t i o n. S ee E lder v. Hol l oway, 510 U .S. 51 0 (1 99 4) (a co u rtof ap p ea ls is enti tl ed to applythe contr ol l i ng l aw ev en i fthe l i tig an ts fai led to cite the best au th ority)
. P l a i n t i ff s w a n tp u n i t i v e a s w e l l a s c o mp e n s a t o r y d a mage s. The p u ni ti ve- dam age s cl ai m s depend on st ate8 N o. 10

- 3847 law

. Th is creates p roblem s un d e r Ru le 23(b) (3)( D ), whi c h r e qu i r e s j ud g e s t o c o ns i de r “ the l i k e l y di ffi cul ty i n m anagi ng a cl ass act i on. ” Di ff er ent s tat es m ay have diff er ent i deas about w hether a product ’s d i str ibutor shoul d pay puniti ve dam age s f or a probl em cause d by a fo re ign su p p l i e r’s u n au th or ize d su b st itu tio n . W e h eld i n In re B ri dgest one/Fires tone, Inc. , Tires P roducts Liabi li ty Li t igat i on , 2 8 8 F
. 3 d 1 0 1 2 (7t h Ci r . 2 0 0 2 ) , tha ta n a t i o nwi de c o ns ume rc l a s s wa s n o tma na g e a b l e , a nd thu s c o ul d n ot be cer ti fi ed, wh en i t would depend on m ult i ple st ate s’ l aw s. S ee al so Wa l-M a rt, 13 1 S
. Ct. at25 51–5 2. The r e woul d b e se r i o us pr o bl ems o fmana g ement apa r t f r o m the v ariabil i tyo fs ta te l aw. As we ha ve menti oned al re ady, i nd i vi du alnotice would be i m possibl e, w hi ch w oul d m ake i t har d fo r cl ass m em ber s t o opt o ut. No o n e kn o ws wh o b o u g h tth e k i t s. N o o n e kn o ws w ho use d them witho ut pro bl em s; thi s would m ake it di ffi c ul t i f no t i mpo s s ib l e t o de t e r mi ne who w oul d be en ti tled t o a r emedy

. The pe r -buy erc o st s o fi den ti fy i ng th e cl as s m embe r s an d g i vingno ti ce w o ul d e xc ee d the pri ce o ft h e to ys ( orany re aso nabl e m ult i ple o fthat p rice) , l eaving nothi ng to be dist ributed. The pri nci pal eff ect of c lass cer ti fi cati on, as the dist ri ct c ourtr eco gni ze d, woul d b e to i nduc e th e defen dan ts to p aythe cl ass ’ s l aw yer s enough to m ake them go aw ay; effectual re l i eff orco nsum er s i s unl i kel y. E ve n if th e s u b c las se s p ro p os ed by th e p lain tiffs co u ld add re ss var i ance a cro ss sta te consum erpro te c tion l aw s, i t woul d b e ve r y di ffi cul t to de te r m i ne whi chco ns u me r s we r e i n e a c h s u b c l a s s . T h e p r o b l e ms wi th t heN o. 10

- 3847 9 p lain tiffs ’ p ro p os ed su b c las se s a re ex p lore d in d et ail in the di str i ct c ourt ’ s o pini on; i t i s unneces sar y t o re peat that disc ussi on. S ee 270 F. R. D. at 385– 87. A FFI RMED

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