Third Circuit Eyes Up Consumers’ Standing, Splits With Seventh Circuit

by Foley & Lardner LLP

Last month, the Third Circuit issued a 2-1 decision in Cottrell v. Alcon Labs.,[1] reversing a district court’s dismissal of a class action lawsuit on standing grounds. The putative class in Cottrell is comprised of consumers of prescription eye droplet medication used to treat glaucoma. In their complaint, the named plaintiffs allege that the manufacturers and distributors of the droplets engaged in unfair trade practices—as prohibited by state consumer protection statutes—by selling them in dispensers that discharge the medicine in doses that are too large (i.e., the bottle’s dropper squirts out 15mL when an average consumer allegedly only requires 7mL).

In its decision below, the district court granted the defendants’ motion to dismiss on the grounds that the named plaintiffs lacked Article III standing, reasoning that the plaintiffs’ theory of injury rested on speculation about hypothetical alternatives and generalized disagreements about dispenser design.[2] However, the Third Circuit saw things differently, ruling that the named plaintiffs alleged a sufficient injury by claiming that the defendants caused them to waste money on medication that was effectively impossible for them to use.[3] In its opinion, the court broadly interpreted the Supreme Court’s phrase “invasion of a legally protected interest,” to hold that any allegation of financial or economic injury—regardless how hypothetical or speculative—suffices for purposes of Article III.[4]

The appellate court stressed that the named plaintiffs had brought suit pursuant to state consumer protection statutes that prohibit “unfair” business practices in rejecting the argument that the complaint merely expressed “dissatisfaction” with available products.[5] The Third Circuit chided the lower court’s decision for improperly blending the merits issue of the validity of the named plaintiffs’ claim with the jurisdictional issue of whether they possessed Article III standing to sue in federal court. In doing so, the Cottrell Court found the named plaintiffs’ allegations that a better-designed droplet dispenser would have saved them money to be non-speculative and to have stated a concrete and particularized injury.[6]

Perhaps most interesting was that the Third Circuit consciously decided to split with the Seventh Circuit, which had ruled on the same issue in a nearly-identical case, called Eike v. Allergan, Inc.,[7] just six months earlier. In his short opinion in Eike, Judge Posner focused on the fact that the plaintiffs had not alleged any type of deception or misrepresentation on the defendants’ part and the market pricing “assumptions” built into the plaintiffs’ allegations of injury.[8] But in the Third Circuit’s estimation, the Eike decision failed to account for the fact that the alleged misconduct related to an entirely separate category of illegal business practices from fraudulent, deceptive, or misleading practices—“unfair” business practices.[9] More fundamentally, the Third Circuit stated that Judge Posner got the entire analysis backward for purposes of standing, beginning with his assessment of whether the plaintiffs had a cognizable claim as opposed to whether they alleged a cognizable injury.[10]

Yet, in maintaining its bright line between standing and merits issues, the Third Circuit’s decision appears to overlook the plausibility of the alleged injury, such as whether it is plausible that an allegedly sub-optimal product design causes a plaintiff a concrete financial or economic injury. Judge Roth picked up this point in his dissent from the panel decision, characterizing the named plaintiffs’ complaint as mere allegations about what the defendants might be able to do (i.e., design a better dispenser), rather than about any affirmative wrong they actually had done.[11] His dissenting opinion also criticized the named plaintiffs’ argument as speculative to the extent that its allegations of harm were premised on the assumption that no other aspect of product pricing would change after the dispenser was redesigned.[12] Finally, Judge Roth expressed his concern that the pharmaceutical market was a particularly bad fit for this type of claim, given the regulatory approval necessary for any product redesign.[13]

The Cottrell case is a notable illustration of the division among the federal judiciary regarding the type of consumer harms that suffice for Article III standing purposes, even at the court of appeals level. Where some judges see speculation and assumptions about hypothetical alternative products and markets, others see allegations of a concrete and particularized financial loss in the form of a poorly-designed product. The Third Circuit’s panel decision in Cottrell is concerning to the extent that it could be interpreted as holding that a consumer possesses federal standing to sue for unfair business practices whenever he or she alleges that a manufacturer’s current product design is sub-optimal, which would appear to open the gates to a flood of class action litigation.

The defendants in Cottrell filed a petition for rehearing en banc. We will update this post should there be any developments of note.

[1] 874 F.3d 154 (3d Cir. Oct. 18, 2017) (Restrepo, Cir. J.).

[2] No. 14-5859, 2016 U.S. Dist. LEXIS 38816, at *18-19, 23 (D.N.J. Mar. 24, 2016) (Wolfson, Dist. J.).

[3] 874 F.3d 154, at *15-17.

[4] Id.

[5] Id. at *17-18, 20.

[6] Id. at *25-28.

[7] 850 F.3d 315 (7th Cir. Mar. 6, 2017) (Posner, Cir. J.)

[8] Id. at 317.

[9] 874 F.3d 154, at *17-18.

[10] Id. at *18-19.

[11] Id. at *30-31.

[12] Id. at *36-37.

[13] Id. at *38-40.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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