Last month we brought you word of an excellent result (preemption) in a ridiculous case − a class action claiming that the drops in eye-drops are too big. That decision was in accord with an earlier decision likewise dismissing such claims on preemption grounds. See Thompson v. Allergan USA, Inc., 993 F. Supp.2d 1007 (E.D. Mo. 2014) (discussed here).
However, there is another ground on which these bottom-feeding actions have been dismissed – lack of sufficient injury to support standing. After all, the concept of some sort of ideal “price” for a product, above which it is improper to charge is a will-o-wisp, apparently knowable only to plaintiff-side experts (just ask them, they’ll tell you). This is called “benefit of the bargain” by such experts. Courts tend to use a different description – “absurd.”
[Plaintiff] received the drug she was prescribed, the drug did the job it was meant to do . . ., and it caused no apparent physical injuries. Under such circumstances, there could be no ascertainable loss. . . . The Court believes Plaintiffs’ proposed liability theory, which requires no demonstrable loss of any benefit, would lead to absurd results and holds that Plaintiffs fail to state a claim as a matter of law.
In re Avandia Marketing Sales Practices & Products Liability Litigation, 639 F. Appx. 866, 869 (3d Cir. 2016) (citations and quotation marks omitted), affirming, 100 F.Supp.3d 441, 446 (E.D. Pa. 2015), also holding “absurdity is inherent in the nature of Plaintiff’s claimed loss” because it was “based only on the idea that [the product] is inherently worth some unspecified amount less than whatever Plaintiff might have paid for it”).
That was essentially how the Seventh Circuit reacted to these same eye drop allegations in Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir. 2017) (discussed here). We described the absurd theory that the plaintiffs were pursuing in our Eike post, and because we’re lazy, we’ll simply repeat that here:
The plaintiffs sued pharmaceutical manufacturers of eye drops used for the treatment of glaucoma because the drops were bigger than they needed to be. The theory is that the plaintiffs were paying more than they would have if the drops were smaller. The plaintiffs alleged no conspiracy among the defendants. This was not an antitrust case. . . . Nor did the plaintiffs allege any misrepresentations. Rather, the plaintiffs simply sought, because they thought it would be less expensive, a smaller dose product that nobody made.
The Seventh Circuit essentially agreed: “The fact that a seller does not sell the product that you want, or at the price you’d like to pay, is not an actionable injury; it is just a regret or disappointment − which is all we have here, the class having failed to allege ‘an invasion of a legally protected interest.’” 850 F.3d at 318 (citations omitted). Accord Carter v. Alcon Laboratories, Inc., 2014 WL 989002, at *4-5 (E.D. Mo. March 13, 2014) (also dismissing identical claim for lack of any cognizable injury).
Apparently, however, the inherent triviality of that claim is no deterrent to today’s class action lawyers, who seem to have nothing better to do than measure the comparative value of eye drop drips. After several attempts, they seem to have found a couple of judges credulous enough to allow one of these non-injury cases to survive – at least on the standing/injury issue. That’s today’s case, Cottrell v. Alcon Labs, ___ F.3d ___, 2017 WL 4657402 (3d Cir. Oct. 18, 2017). Looking to the “scientific consensus on eye drop size,” the majority is willing to let plaintiffs proceed on the notion that making eye drop drips bigger than they have to be is a consumer protection violation. Id. at *2. They may proceed even though “no defendant has reduced their products’ drop sizes,” and thus there is no competing product, priced at any price, against which to ascertain the plaintiffs’ purportedly “substantial economic injury.” Id. Nor does it appear that the FDA has ever approved – or even had submitted to it – eye drop drips of the “smaller” size plaintiffs claim it is somehow illegal not to make under state law.
The standing question focused on “injury in fact,” and as the party bringing the claim, plaintiffs had the burden of proving standing. Id. at *4. To find standing here, the majority (conceding that the district court’s no-standing analysis had “some persuasive appeal”) went deep into the weeds – breaking “injury in fact” into various “components.” Id. at *5. The first was a “legally protected interest.” Conveniently, this allowed the Cottrell majority to base their result on something that prior precedent had “not defined” or even “clarified whether [it] does any independent work in the standing analysis.” Id. Presto! A clean slate on which to build a standing castle in the air. “[W]hether a plaintiff has alleged an invasion of a ‘legally protected interest’ does not hinge on whether the conduct alleged to violate a statute does, as a matter of law, violate the statute.” Id. Impressive – this is a holding that the merits don’t matter. We’ll come back to that.
The second aspect of Cottrell’s drawing on a clean slate is “that financial or economic interests are ‘legally protected interests’ for purposes of the standing doctrine.” Id. at *6. Well, duh. That seems like a platitude. Third, “legally protected interests” can be created by statute, including a state statute. Id. That also sounds platitudinous – except Cottrell separates that proposition from any injury. That comes in the fourth factor – that “interest must be related to the injury in fact” as opposed to being “a byproduct of the suit itself.” Id.
Having set up this thicket on its clean slate, the court’s actual analysis of the injury requirement’s application to overly large eye drop drips takes only a paragraph:
Plaintiffs claim economic interests: interests in the money they had to spend on medication that was impossible for them to use. They seek monetary compensation for Defendants’ conduct that they allege caused harm to these interests. Plaintiffs’ claimed interests arise from state consumer protection statutes that provide monetary relief to private individuals who are damaged by business practices that violate those statutes. These claims fit comfortably in categories of “legally protected interests” readily recognized by federal courts.
Id. (citing Cantrell v. City of Long Beach, 241 F.3d 674, 684 (9th Cir. 2001)). Wow! At that level of generality, any claim that anything for any reason should have been made differently or priced differently confers standing. That no such alternative product exists is of no bearing. This breathtakingly broad holding means that the amount of harm to the “economic interest” being undefinable has no bearing. That the “business practices” at issue were a consequence of the FDA-approved design of the product has no bearing. These are presumably “merits questions” that court already divorced from standing by putting that rabbit in the hat in its “first” stroke on the blank slate – that merits don’t matter.
We’ve seen this sort of credulous avoidance of merits questions before in class actions before. Remember how courts for decades misinterpreted Eisen v. Carlyle & Jacqueline, 417 U.S. 156 (1974), to find that class certification can’t look at the merits? That was finally interred once and for all in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 & n.6 (2011), but now we see it popping up again on this supposed standing blank slate.
It’s not really a blank slate, however. The Third Circuit, and many other courts, have held that TwIqbal “plausibility” requirements apply to the analysis of standing questions. “With respect to 12(b)(1) motions in particular, the plaintiff must assert facts that affirmatively and plausibly suggest that the pleader has the right he claims.” In re Schering Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235, 244 (3d Cir. 2012) (applying TwIqbal pleading requirements to standing analysis in RICO drug pricing class action). TwIqbal “teach that standing cannot rest on mere ‘legal conclusions’ or ‘naked assertions.’” Finkelman v. Nationall Football League, 810 F.3d 187, 194 n. 55 (3d Cir. 2016) (citation and quotation marks omitted).
Because Lujan mandates that standing “must be supported in the same way as any other matter on which the plaintiff bears the burden of proof,” it follows that the Twombly–Iqbal facial plausibility requirement for pleading a claim is incorporated into the standard for pleading subject matter jurisdiction. Lujan, 504 U.S. at 561. Therefore, we join many of our sister circuits and hold that when evaluating a facial challenge to subject matter jurisdiction under Rule 12(b)(1), a court should use Twombly–Iqbal’s “plausibility” requirement, which is the same standard used to evaluate facial challenges to claims under Rule 12(b)(6).
Silha v. ACT, Inc., 807 F.3d 169, 174 (7th Cir. 2015) (citing Schering Plough along with many other cases). “Just as the plaintiff bears the burden of plausibly alleging a viable cause of action, so too the plaintiff bears the burden of pleading facts necessary to demonstrate standing.” Hochendoner v. Genzyme Corp., 823 F.3d 724, 730 (1st Cir. 2016) (Iqbal citation omitted) (also providing string citation of TwIqbal standing cases).
Along these lines, we also point out that the sole citation in Cottrell supporting its one-paragraph injury in fact analysis, Cantrell, supra, is a Ninth Circuit case, and the Ninth Circuit is the only circuit that does not follow TwIqbal in standing cases. See Maya v. Centex Corp., 658 F.3d 1060, 1068 (9th Cir. 2011) (cited as lone exception in Silha).
Having thus improperly insulated the inherently ridiculous nature of the alleged injury from TwIqbal inspection on standing questions – without even mentioning TwIqbal − Cottrell then disagrees with Eike for precisely that reason. To do so, Cottrell splits another hair – distinguishing business practices that are “unfair” under a consumer protection statute from those “that are fraudulent, deceptive, or misleading.” 2017 WL 4657402, at *6.
The plaintiffs in Eike explicitly alleged that the defendants’ practices in manufacturing and selling eye medication were “unfair”. . . . The Court was obliged to take these allegations as true for purposes of the standing inquiry.
That is, to be charitable, garbage. “Unfair” by itself is your classic legal conclusion. Under TwIqbal, legal conclusions have to be accompanied by some factual basis to survive dismissal. Eike rightly pointed out that, in the absence of any allegation of anything false or misleading about how these products were marketed, an “unfairness” allegation amounted to mere “dissatisfaction with the defendants’ products or their prices.” 2017 WL 4657402, at *6 (describing Eike).
Having thus improperly given the plaintiffs’ inherently implausible theory on “legally protected interest a TwIqbal free pass, Cottrell also waved it through the other injury in fact factors it created. Most interestingly – because of the dissent – Cottrell attempted to distinguish a prior standing precedent, Finlelman, supra.
[Plaintiffs’] pricing theory is far less speculative than . . . the theory of financial harm we rejected in Finkelman . . ., [where t]he plaintiff claimed that this policy reduced the number of tickets available in the resale market. Under the basic economic principle of supply and demand then, the policy resulted in an inflated ticket price in the resale market, according to the plaintiff. We rejected plaintiff’s theory, as the plaintiff pled no facts to support their assertion that [defendant’s] policy would actually reduce the number of tickets in the resale market.
Id. at *9. Since a “reduced size” of the eye drop drip (produced by a different sized hole in the tip) was the “only change from the status quo” that plaintiffs’ theory in Cottrell requred in the majorities eyes, it was less “speculative” than the too-remote theory in Finkleman, and thus “sufficient to satisfy the injury-in-fact requirement.” Id. at *10.
The dissent saw things differently. Finkleman was dispositive (“I believe that Finkelman all but decides this case”). Cottrell, 2017 WL 4657402, at *12 (dissenting opinion). “We properly recognized that markets operate in complex ways.” The market forces in Finkleman “made clear that any potentially unlawful conduct by the [defendant] did not necessarily result in higher prices to the plaintiff” and “concluded that we have no way of knowing whether [defendant’s] withholding of tickets would have had the effect of increasing or decreasing prices on the secondary market.” Id.
[F]or purposes of analyzing economic injuries in the context of marketwide effects, we cannot do precisely what the plaintiffs here ask of us: isolate and change one variable while assuming that no downstream changes would also occur. These cases . . . reflect courts’ skepticism about plaintiffs’ ability to satisfy the case or controversy requirement of Article III by relying on such imaginative economic theories. Thus, contrary to the Majority’s assertion, the plaintiffs’ pricing theory does in fact depend on exactly the sort of presumption rejected by us and by other courts − namely, the presumption that no other aspects of the market would change once the defendants’ conduct did. . . . Finkelman makes clear that [standing analysis] distinguishes “between allegations that stand on well-pleaded facts and allegations that stand on nothing more than supposition.” . . . The plaintiffs . . . ask us to assume certain facts about other actors’ behavior − exactly the sort of assumption that cannot be proven at trial. Accordingly, I would reject the plaintiffs’ alleged economic injury as overly speculative and untenable under existing precedent.
Id. at *13 (multiple citation footnotes omitted).
The Cottrell dissent goes on to discuss multiple reasons why plaintiffs’ attenuated economic assumptions are “a particularly bad fit for the market for pharmaceuticals.” Id.
- Pharmaceuticals are not priced “by volume;” “unit-based pricing is too one-dimensional for the [pharmaceutical] marketplace.”
- Pharmaceutical pricing is “value-based”; “measured in part by effective doses.”
- This pricing “shift . . . sever[s] the link between volume and price upon which the plaintiffs’ alleged injury depends.”
- “[T]he price of each bottle could actually increase if each bottle provided more doses.”
- Because plaintiffs’ assumption “does not reflect market conditions and pressures in the pharmaceutical industry,” it would “draw an unreasonable inference about the downstream consequences of” the design change they are demanding.
- “[U]nreasonable” inferences cannot be accepted “at face value.”
Id. at *13-14 (dissenting opinion).
The dissent is of the view that the majority’s decision conflicts with Finkleman. We agree, but go further. We think the entire construct in Cottrell conflicts with prior Third Circuit precedent applying TwIqbal in standing cases because of its holding that the merits – and thus the facts that must be pleaded to establish the “plausibility” of the claim on the merits – don’t matter in standing cases. Cottrell thus represents, with In re Fosamax (Alendronate Sodium) Products Liability Litigation, 852 F.3d 268 (3d Cir. 2017), the second abrupt pro-plaintiff lurch by the Third Circuit this year, which is less surprising than it might seem, considering the both of the judges in the majority in Cottrell also decided Fosamax.
About the only good thing that can be said about Cottrell is that it did not purport to decide that preemption issue that has also defeated these half-baked dropper drip size allegations. Id. at *11. That argument is that design changes affecting the dosage of medication delivered – which is necessarily what plaintiffs’ drop size allegations depend on – are “major” changes that require prior FDA approval, and thus are “impossible” to carry out with the immediacy that state law demands. See Gustavesen v. Alcon Laboratories, Inc., ___ F. Supp.3d ___, 2017 WL 4374384, at *5 (D. Mass. Sep. 29, 2017), and Thompson, 993 F. Supp.2d at 1013-13, as discussed in our prior posts.