Candy manufacturers nationwide are increasingly finding themselves in Missouri state court, facing class action allegations that their use of over-sized packaging misleads consumers into believing the package contains more product than is actually present. A recent Eighth Circuit decision in a “slack-fill” case suggests that when a corporate defendant removes to federal court under the Class Action Fairness Act (CAFA), it may face a stiff challenge when the plaintiffs move to remand the case to state court, on the grounds that the value of their claims total less than $5 million.
In Waters v. Ferrara Candy Co., people who bought Red Hot candies initiated claims against the candy company for violation of the Missouri Merchandising Practices Act (“MMPA”) based on under-filled or “slack-filled” cardboard boxes of the candies. The consumers filed suit in the City of St. Louis Circuit Court. Presumably seeking a less plaintiff-friendly venue, the candy company removed the case to the federal court for the Eastern District of Missouri, under CAFA, arguing that the total value of the consumers’ claims exceeded $5 million, the minimum amount required for the district court’s jurisdiction under that statute. The candy company based its calculation on what the consumers could potentially recover as compensatory damages (total sales in Missouri for the past five years), attorney’s fees (at 40% of compensatory damages), and punitive damages (at 5 times compensatory and punitive damages), and the cost of changing its packaging processes to eliminate slack-fill.
The consumers moved to remand the case back to the City of St. Louis, arguing that the $5 million threshold was not met. In opposition, the candy company submitted affidavits from executives attesting to the total retail sales of all Red Hots products for the previous five years and how much it would cost to change its packaging processes to eliminate slack-fill, if it were compelled to do so.
The district court considered each category of potential recovery by the consumers and concluded that taken together or separately, the value of the consumers’ claims did not meet the $5 million threshold and ordered the case back to the City of St. Louis. The court concluded that compensatory damages and attorney’s fees added up to less than $1 million, and that punitive damages should not be included in the calculation, because the consumers had not adequately pled punitive damages in their petition and, therefore, punitive damages would not be recoverable in this case. That left the value of injunctive relief. In deciding how to calculate the value of injunctive relief, the court followed “longstanding Eighth Circuit tradition” and looked at it from the consumers’ point of view, rejecting the “either viewpoint” test, which compares the value of injunctive relief to consumers to the cost to the manufacturer and taking the more expensive of the two. The candy company urged adoption of the “either viewpoint” test but presented no evidence of the value of injunctive relief from the consumers’ point of view, so the court disregarded this factor as well.
The court went on to criticize the efficacy of the candy company’s affidavits to establish the cost of injunctive relief from the manufacturer’s point of view. The CEO’s affidavit addressed the cost of changing its packaging to eliminate slack-fill based on an estimated cost to upgrade its packing equipment. The court found this to be speculative because it did not specify what injunctive relief would actually require the manufacturer to do -- add more candy to the existing package size, shrink the package size to more closely fit the current weight of actual candy, or modify every Red Hots candy production line. As a result, the court found the proposed cost to be too speculative to allow the consumers’ to rebut it.
The candy company appealed this decision, challenging (among other things) the district court’s adoption of the “plaintiff’s viewpoint” test. The Eighth Circuit Court of Appeals was unmoved. The appeals court found it unnecessary to rule on whether the district court should have applied the “plaintiff’s viewpoint” or the “either viewpoint” test, because it found that under either standard, the candy company failed to prove by a preponderance of the evidence that the amount in controversy exceeded $5 million. The appeals court agreed with the district court that the two affidavits did not adequately quantify what it would cost the company to comply with an injunction.
Given another chance, the Eighth Circuit might decide that the “plaintiff’s viewpoint” test determines the value of injunctive relief for establishing the jurisdictional amount under CAFA. Thus, a reasonable and conservative strategy to keep a slack-fill class action in federal court would be to present evidence from the consumers’ point of view and be as specific as possible about the method and cost of eliminating slack-fill. This is a calculus that can be accomplished before deciding to remove, and if neither of these amounts can be supported with specific evidence to establish a finding of at least $5 million, it might be more cost effective to just stay in state court.
Counsel should also keep in mind that in cases where plaintiffs have adequately pled punitive damages in their state court petition (which did not occur in the Waters case), it is not uncommon for punitive damages to total up to 10 times the amount of compensatory damages, and this can be a critically important factor in determining whether the CAFA threshold has been met.