Class Action Claims by Rice Growers Seeking Damages Arising from Contamination of U.S. Rice Supply by Non-Approved Genetically Modified Strains of Rice not Appropriate for Class Action Treatment because Substantial Differences in Individual Damages and Proof of Damages Defeat Rule 23(b)(3) Requirement for Predominance and Superiority Missouri Federal Court Holds
Various class action lawsuits were filed against Bayer CropScience and others seeking to recover for damages allegedly when “the defendants contaminated the U.S. rice supply with non-approved genetically modified strains of rice, thereby affecting the market price for plaintiffs’ crops.” The class action complaints were filed after the U.S. Department of Agriculture announced, in August 2006, that trace amounts of a rice seed developed by Bayer CropScience and “designed to be resistant to a Bayer herbicide, Liberty Link,” had been found in the U.S. rice supply. In re Genetically Modified Rice Litig., 251F.R.D 392 (E.D. Mo. 2008) [Slip Opn., at 1-2]. (The rice strain at issue in the class actions “is now deregulated by USDA, [but] at the time of the contamination it was not approved for human consumption.” Id., at 2.) The Judicial Panel on Multidistrict Litigation consolidated the class actions for pretrial purposes in the Eastern District of Missouri, and plaintiffs’ filed a master consolidated class action complaint. Id., at 1. “The plaintiffs in the master consolidated class action complaint are rice producers from five U.S. states where rice is grown and harvested: Arkansas, Louisiana, Mississippi, Missouri and Texas.” Id., at 3.Plaintiffs’ lawyers moved for class action certification; defense attorneys opposed class action treatment on the grounds that individual issues predominate over common issues. Id., at 1. The district court agreed that class action treatment was not warranted, concluding that class action certification was “inappropriate…because plaintiffs’ varying claims for damages are not amenable to class-wide adjudication.” Id.
According to the master class action complaint, world-wide reaction to the announcement directly affected the market for U.S. long grain rice: Japan barred further imports of such rice, the European Union required that all U.S. rice be “tested and certified as free of genetically-modified traits,” and several other countries – including Russia, Canada, the Philippines, Taiwan and Iraq – “imposed restrictions on U.S. rice imports.” In re Genetically Modified Rice, at 2-3. The class action alleged that “the U.S. market price for rice dropped dramatically as a result of Bayer’s contamination of the rice supply.” Id., at 3. The U.S. produces 13% of the world’s rice and exports nearly half of its rice, id. The class action relies on the market price for rice as listed on the Chicago Board of Trade (CBOT) for the period of August 18-23, 2006 to support its claim that the “dramatic price drop” is attributable to the announcement concerning the discovery of the contaminated rice. Id., at 4. The class action alleged further that economic harm continued beyond August 2006, id.
While defense attorneys contested the typicality and adequacy requirements of Rule 23(a), the district court found it unnecessary to address these issues because it concluded that plaintiffs could not satisfy Rule 23(b)(3). See In re Genetically Modified Rice, at 9-11. To understand the court’s analysis, we must provide details concerning the injuries allegedly suffered by the putative class. The district court explained at page 4 that, in addition to the drop in market price,
Other losses asserted by plaintiffs also relate to the LLRICE contamination. After the LLRICE problem was discovered, two rice varieties – Cheniere and CL 131 – were banned from planting for the 2007 crop year because of contamination. Some plaintiffs allege that as a result of this ban, they were forced to plant alternate, lower-yield seed varieties, thereby reducing the size of their harvests. Other plaintiffs allege that they were unable to obtain any rice seed because of the ban, and had to plant different crops altogether. Plaintiffs who produced rice during the 2007 crop year incurred added costs in testing and segregating their rice to make sure it was free of genetically-modified traits. Land, equipment, and storage facilities were also contaminated and had to be cleaned to prevent further contamination.
And with respect to the market price for rice, the federal court explained at pages 5 and 6,
Plaintiffs point to the CBOT market price as the gauge for measuring the harm inflicted by the contamination. However, to assess a particular plaintiff’s actual damages, it is necessary to look at how a plaintiff’s sale of rice is actually connected to the CBOT market price index. Rice producers sell their rice in a variety of ways. The simplest, most direct sale is done on a cash basis, whereby a producer is paid upon delivery. The price received is indexed to the current CBOT price per hundredweight. Other rice producers sell their rice through seasonal pools or cooperatives. A producer’s rice is pooled with rice from other producers, and is then sold collectively at a specified time. Each producer receives a pro-rata share from the cooperative. Still other producers sell rice through booking contracts – a producer will contract with a buyer in advance to deliver a specified quantity of rice on a certain date. The price per hundredweight may be fixed at the time of contract, or time of delivery, or some time in between. The buyer may specify a particular quality or milling weight for the rice to be delivered, and a deviation from that quality may result in a penalty or premium.
Some rice producers’ contracts are dependent on the calculation of a basis, in addition to the CBOT price. A basis is a specified adjustment between the national CBOT price and the local price offered by a particular buyer. If, for example, the CBOT price is listed as $10 per hundredweight, and a local buyer is offering to buy rice at $9.50 per hundredweight, the $0.50 adjustment is that buyer’s “basis.” Thus, where a basis is involved, the price received by the producer is dependent both on the fluctuating CBOT price and on a particular buyer’s fluctuating basis. Basis may fluctuate over time and from one buyer to the next. Under a “basis contract,” a rice producer and a buyer agree on a fixed basis before delivery. A contract might call for “30 cents under CBOT.” The $0.30 basis would remain fixed, and the market price would continue to fluctuate until delivery. The flip side of a basis contract is a “hedge to arrive contract.” Under this arrangement, a price based on the market would be agreed to in advance. The basis term would then be left open and fixed at a later date. Under either of these systems, the entire price paid to a particular producer would not be known until the fluctuating components that make up the price are fixed.
As if this were not complicated enough, “Other rice buyers may set prices without reference to the CBOT price at all. Some buyers correlate their prices with the World Market Price – a price set by the USDA and used in the calculation of farm subsidies. Unlike the CBOT which changes every day, the World Market Price changes once a week, and does not reference the CBOT. Some buyers purchase rice based on the World Market Price, but with an adjusted basis. Other buyers, such as Cargill, may offer a ‘flat price’ for purchasing rice, or may negotiate a price with a particular producer on an individual basis at the time of sale.” In re Genetically Modified Rice, at 6-7.
The class action complaint proposed five classes (one for each state), each with two subclasses: a “market loss subclass,” and an “other losses subclass.” In re Genetically Modified Rice, at 7. Plaintiffs argued that liability is susceptible to common proof, and that damages could be established by permitting the class action jury to “determine a total monetary cost (the market loss) caused by defendants’ conduct” and the “total quantity of U.S. rice affected by the…contamination.” Id., at 8. Once these figures were determined, plaintiffs argued, “damage could be calculated on a per-hundredweight basis” and then a claims process could be utilized to determine the damages owed to individual class members. Id. Defendants objected to class action treatment on various grounds, including that “plaintiffs have failed to show that common issues predominate over individual concerns about damages” and that “a class action is not the superior mechanism by which to resolve plaintiffs’ claims.” Id., at 9. The federal court agreed with defendants and denied the motion for class action certification.
Fundamentally, the district court was “not persuaded that the calculation of damages in this case is a common issue.” In re Genetically Modified Rice, at 14. Rather, at best plaintiffs proffered a “convenient shorthand calculation that might represent an estimate of some damages for some plaintiffs,” id., at 14-15, but it is not an “actual adjudication of any one plaintiff’s claims,” id., at 15. In this regard, the federal court held at page 15 that “calculation of actual damage is an individual issue specific to each plaintiff in this case, involving unique inquiry into the time, place, and manner in which each plaintiff both priced and sold his rice.” And the court recognized that “class certification ‘may not be suitable where the calculation of damages is not susceptible to a mathematical or formulaic calculation, or where the formula by which the parties propose to calculate damages is clearly inadequate.” Id., at 17-18 (citations omitted).
In sum, the district court found that this case was “akin to a ‘mass accident’ tort – the sort of case that the Advisory Notes to Rule 23 say should rarely be afforded class treatment.” In re Genetically Modified Rice, at 18-19 (citation omitted). The court further concluded that a class action as not the superior means of resolving the dispute, see id., at 20-22, particularly because it “would do little if anything to increase the efficiency of this litigation,” id., at 22. Accordingly, the court denied plaintiffs’ motion for class action certification, id., at 23.
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