March 27, 2013 / Law Alert

Ohio federal judge delivers big win for defense bar in consumer protection case

Manufacturers of consumer products scored a double-win in a recent decision by Judge Sara Lioi of the United States District Court for the Northern District of Ohio. In the case of Phillips v. Philip Morris Companies, Inc., No. 5:10-cv-1741, Judge Lioi held that: (1) the plaintiffs could not maneuver around a class-action-limiting provision in the Ohio Consumer Sales Practices Act (CSPA) by suing in federal court; and (2) the plaintiffs could not sue at all under the Ohio Deceptive Trade Practices Act (DTPA) because the DTPA affords no cause of action to consumers. As a result, Judge Lioi dismissed the plaintiffs’ class claims under the CSPA as well as their claims under the DTPA, which alleged that defendants Philip Morris USA, Inc., and Altria Group, Inc., falsely advertised their cigarettes as “light” and “low tar” when they actually contain as much tar or nicotine as regular cigarettes. 

The Ohio Consumer Practices Act’s class-action-limiting provision applies in federal court.

Judge Lioi’s dismissal of the plaintiffs’ class claims under the CSPA was based on the plaintiffs’ admitted failure to satisfy the notice requirement of Ohio Revised Code § 1345.09(A). To paraphrase, this provision states that a consumer may qualify for class-action certification under the CSPA only if the defendant’s alleged violation of the CSPA is substantially similar to an act or practice previously declared to be deceptive by an Ohio administrative rule or an Ohio state court decision. The plaintiffs had argued that R.C. § 1345.09(A), although binding in state court, does not apply in a federal court action founded on diversity jurisdiction. To apply the statute in federal court, the plaintiffs argued, would conflict with Rule 23 of the Federal Rules of Civil Procedure, which sets forth the procedure governing class certification in federal court and does not contain a similar notice requirement as a precondition to certification. Judge Lioi rejected plaintiffs’ argument, finding that R.C. § 1345.09(A) is so “intertwined” with the substantive rights conferred by the CSPA that it must be applied in Ohio diversity actions just like any of the CSPA’s other substantive provisions.

In reaching her decision, Judge Lioi relied in part on the Northern District of Ohio’s 2010 decision in McKinney v. Bayer Corp., No. 10-CV-224, in which Porter Wright attorneys Joyce Edelman, Kathleen Trafford, Caroline Gentry and Tracey Turnbull, along with co-counsel from DLA Piper, successfully represented Bayer Corporation in obtaining the dismissal of plaintiffs’ class claims under the CSPA based on alleged false advertising in the sale of Bayer multi-vitamins. In that case, as in this case, former District Judge Kathleen O’Malley based her decision on the plaintiffs’ failure to show that Bayer was on notice that its alleged conduct was deceptive as required by R.C. § 1345.09(A), which Judge O’Malley, like Judge Lioi, found to be substantive in nature and therefore applicable in a diversity action. 

Consumers lack standing to sue under the Ohio Deceptive Trade Practices Act

The plaintiffs in the Philip Morris case brought suit not only under the CSPA but also under the DTPA, which they alleged was violated by the defendants’ “deceptive and unfair representations” regarding their “light” and “low tar” cigarettes. Plaintiffs’ DTPA claim presented a completely different issue for the court to decide, but one that turned out to be equally fatal to plaintiffs’ case: whether consumers may pursue a claim under the DTPA. Although the Ohio Supreme Court has not yet answered this question, the vast majority of federal courts and lower state courts to consider the issue have concluded that relief under the DTPA is limited to parties engaged in commerce for competitive injury suffered as a result of another party’s deceptive practices. These courts have reasoned that the DTPA must be construed in accord with its federal analog, the Lanham Act, which likewise limits standing to commercial actors. Although a 2004 decision by the Southern District of Ohio, Bower v. International Business Machines, Inc., reached the opposite conclusion, Judge Lioi found the Bower court’s reasoning unpersuasive and instead sided with her colleagues in the majority, dismissing plaintiffs’ DTPA claims because, as plaintiffs’ conceded, they were suing as consumers of the defendants’ cigarettes.   

The dual holdings of the Philip Morris case make the decision a strong precedent for companies that find themselves the targets of consumer class actions based upon state consumer statutes. In particular, the court’s holding that the class-action-limiting provision of R.C. 1345.09(A) applies in federal court will help put an end to forum-shopping by class action plaintiffs and ensure that class action defendants do not forfeit this important right under the CSPA by removing a class action to federal court. This case is very helpful for companies that are potential targets for consumer class actions. 

For more information, please contact Terry Miller, chair of Porter Wright’s product liability practice.