23andMe’s legal woes continue

Five days after receiving a warning letter from the FDA, a disgruntled consumer has filed a class action lawsuit in the Southern District Court of California (Forbes on December 2, 2013). Since my knowledge of class actions is derived solely from John Grisham novels, I invited Tania Bubela to provide a guest post which explains the import of this new development:

Lisa Casey, on behalf of herself and others, claims: (1) 23andMe “falsely and misleadingly” advertised their saliva kit and Personal Genome Service (PGS) as providing health information on conditions, traits, drug responses, and carrier status without an analytical basis or clinical validation; (2) 23andMe provided information from the tests and questionnaires completed by consumers to researchers “even though the test results are meaningless”; and (3) despite a lack of FDA approval, 23andMe continued to increase the list of indications for PGS and “initiated new marketing campaigns… in violation of the Federal Food, Drug and Cosmetic Act”.

So what is a class action lawsuit, how is it started and what happens next? A class action lawsuit is a procedure in civil (not criminal) law that enables a group of individuals to join forces as plaintiffs against a defendant (or defendants) – in this case, 23andMe. Many jurisdictions around the world enable class actions to alleviate the burden on the judicial system of multiple similar lawsuits against the same defendant(s).

While class actions save the system significant time and money, they are also beneficial for the plaintiffs. Often, plaintiffs are claiming small amounts of damages, making a lawsuit uneconomical (no lawyer, unless ideologically motivated, would take on a lawsuit for damages of $99, the cost of 23andMe’s test). Lawsuits are expensive propositions and a class action allows the cost to be spread amongst the plaintiffs. By joining forces, a class action may become an action for many millions of dollars, attracting competent legal counsel. Legal counsel often take such cases on contingency, meaning they are not paid upfront, but take a percentage of the damages if they win.

However, there are also downsides to any legal action, besides time, money and energy. For example, there are many hidden costs to contingency arrangements, which are not widely advertised by law firms. Plaintiffs remain responsible for paying for disbursements (e.g., phone calls, photocopies, and other general office charges), which can amount to significant amounts of money. Of even greater concern, if the case goes to court and the plaintiffs lose, they may be responsible for the substantial legal costs of the defendant(s), since the general rule is “loser pays”. Class actions allow costs to be spread amongst individuals who have signed on as plaintiffs, often for a small fee.

So far, Lisa Casey has simply filed a class action. Before it becomes one, however, it needs to be certified by the Court. The filing spends some time explaining how this claim meets both Federal and State law in California on class actions. A threshold issue is if the subject matter of the class action is allowable. Since class actions often arise in the context of consumer protection, and the plaintiff has claimed false and misleading advertising of products and services – appropriate subject matter for a class action. Next the Court will consider the criteria for a class action – does it meet the requirements of numerosity, commonality; adequacy of class representative and adequacy of legal counsel. Each of these is addressed in the filing. Numerosity simply means that there are enough plaintiffs to make a class action an efficient means of handling the claims. Here the plaintiffs are all customers of 23andMe in the United States, which number at least in the thousands (the filing even suggests the possibility that the plaintiffs number in the millions, a very optimistic assessment of the company’s customer base at this time).

The next requirement is common issues of fact and law, and this may explain why the facts in the filing are limited to exposure to advertising, the receipt of the saliva kit, the purchase of the test, the return of results, and the fact that the terms and conditions for 23andMe’s services apply to all customers. If the plaintiff claimed other kinds of damages, such as psychological harm arising from the receipt of disturbing test results – such as increased susceptibility to breast cancer or Alzheimer’s – the facts would be idiosyncratic and not necessarily common enough to be representative of all potential plaintiffs in the class. In other words, this filing has played it safe, increasing the likelihood of certification, but reducing the scope for damages. The facts also suggest that Lisa Casey’s experiences with 23andMe are representative of the majority of customers, meaning that she may meet the criterion as an adequate representative plaintiff. Finally, given the sophistication and rapidity of the filing, it appears that competent legal counsel has been retained, the final criterion.

So what next? Lawsuits of this magnitude often take years, if not decades, to pass through the many main and ancillary hearings and likely appeals. The best case scenario is a rapid settlement of the suit, and most civil actions settle out of court after processes of discovery which enables examination of the evidence and strength of the plaintiffs’ case. However, if there is no settlement, the claim requests a jury trial in a State – California – with a long history of generous damages awards by juries to plaintiffs. The latter will include the direct damages claimed by the plaintiffs, but may also include punitive damages, which the jury may award to “punish” a badly-behaved defendant. Punitive damages in California are awarded according to statute and are not compensatory in nature. While they go to the plaintiff (with a large percentage going to the plaintiffs’ legal counsel), they are designed to deter others from engaging in the same conduct as the defendant. 23andMe therefore faces, if it loses, compensatory damages, possible punitive damages, and, of course, the payment of the plaintiff’s legal fees.

In sum, whether the class action is certified, or it wins or loses, 23andMe is in deep trouble. The result of legal action is a loss of consumer and investor confidence. When faced with a significant financial penalty from a class action, even robust companies have failed. Whether 23andMe can survive remains highly in doubt. What is not in doubt is the emotional energy, cost and time 23andMe will have to expend to defend its actions and business model in the court of public opinion and the Southern District Court of California.

Tania Bubela, Associate Professor, Department of Public Health Sciences
School of Public Health, University of Alberta