In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3847
IN THE M ATTER OF:
A QUA D OTS P RODUCTS L IABILITY L ITIGATION
A PPEAL OF:
S ARAH B ERTANOWSKI, et al.
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 08 C 2364 (MDL No. 1940)—David H. Coar, Judge.
A RGUED A PRIL 14, 2011—D ECIDED A UGUST 17, 2011
Before E ASTERBROOK, Chief Judge, and R OVNER and SYKES,
Circuit Judges.
E ASTERBROOK, Chief Judge. Moose Enterprises made,
Spin Master distributed, and many retailers sold, Aqua
Dots, a toy consisting of small, brightly colored beads
that can be fused into designs when sprayed with water.
Moose Enterprises contracted production of Aqua Dots
to JSSY Ltd., a Chinese company, which substituted 1,4
butanediol for the specified adhesive, 1,5 pentanediol.
2 No. 10-3847
While the substitute adhesive is chemically similar to
1,5 pentanediol, it came with a drawback. When ingested,
1,4 butanediol metabolizes into gamma-hydroxybutyric
acid (GHB), which can induce nausea, dizziness, drowsi-
ness, agitation, depressed breathing, amnesia, unconscious-
ness, and death. Although the directions told users to
spray the beads with water and stick them together, it
was inevitable given the age of the intended audience
and the beads’ resemblance to candy (see the image
below) that some would be eaten. Children who swal-
lowed a large quantity of the beads became sick. At least
two fell into comas.
After learning of the problem, Spin Master recalled
all Aqua Dots products. The recall notice instructed
consumers to take Aqua Dots products away from
children and to contact Spin Master to exchange them
No. 10-3847 3
for (non-defective) replacement kits or a comparably
priced toy. Alternatively consumers could return their
toys to retailers. The recall notice did not men-
tion refunds, but money-back requests were honored.
Consumers returned roughly 600,000 of the more than
one million defective Aqua Dots kits that had been
sold. Another three million kits were pulled from the dis-
tribution channel before sale. Retailers gave customers
refunds as agents for the manufacturer. Spin Master
generally gave customers replacement kits or other toys,
although, when asked, it provided refunds. The episode
was the end of the line for Aqua Dots—but the same
product is available today under the name PixOs.
The plaintiffs, purchasers of Aqua Dots products
whose children were not harmed and who did not ask
for a refund, challenge the adequacy of the recall pro-
gram. They sued Spin Master, Moose Enterprises, Target,
Toys “R” Us, and Wal-Mart (collectively “Spin Master”).
They rely on the Consumer Products Safety Act, 15 U.S.C.
§§ 2051–89, express and implied warranties, and state
consumer-protection statutes. The plaintiffs asked for a
full refund under federal law plus punitive damages
under state law. The Panel on Multidistrict Litigation
transferred twelve suits to the Northern District of
Illinois for pretrial proceedings. After the district court
denied plaintiffs’ motion to certify a class, see 270 F.R.D.
377 (N.D. Ill. 2010), we authorized an interlocutory ap-
peal under Fed. R. Civ. P. 23(f).
Before addressing the question of certification, we must
consider Spin Master’s argument that there is no case or
4 No. 10-3847
controversy because plaintiffs lack standing to sue. The
requirements for standing, laid out in Lujan v. Defenders
of Wildlife, 504 U.S. 555 (1992), are injury, causation, and
redressability. Spin Master contends that the plaintiffs
do not have standing because none of the plaintiffs (or
their children) was injured by swallowing the beads.
This means that members of the class did not suffer
physical injury, but it does not mean that they were
uninjured. The plaintiffs’ loss is financial: they paid more
for the toys than they would have, had they known of
the risks the beads posed to children. A financial injury
creates standing. See, e.g., Clinton v. New York, 524 U.S.
417, 432 (1998); Bryant v. Yellen, 447 U.S. 352, 366–67
(1980); Selevan v. New York Thruway Authority, 584 F.3d
82, 89 (2d Cir. 2009) (standing requirements satisfied by
an increase in highway tolls).
The district court’s opinion denying class certification
principally discussed Rule 23(b)(3), which says that
certification is proper only if (among other things) “a
class action is superior to other available methods
for fairly and efficiently adjudicating the controversy.”
The district court framed the question as “whether a
defendant administered refund program may be found
superior to a class action within the meaning of Rule
23(b)(3)”. 270 F.R.D. at 381. The court recognized that a
recall is not a form of “adjudication” but decided
that what it called a “policy approach” is superior to
following the Rule’s text. The court concluded that con-
sumers would be better off returning their products
for refund or replacement than pursuing litigation,
which the court thought would just require the class
No. 10-3847 5
members to bear attorneys’ fees in order to obtain a
remedy that is theirs for the asking already. The district
court observed that the recall was widely publicized.
The record shows that more than 600,000 consumers
returned Aqua Dots kits, and that more than 500,000 of
these 600,000 received refunds. The plaintiffs could
have had refunds—and still can have them today. The
district court concluded that the substantial costs of
the legal process make a suit inferior to a recall as a
means to set things right.
It is hard to quarrel with the district court’s objec-
tive. The lower the transactions costs of dealing with
a defective product, the better. The transactions costs
of a class action include not only lawyers’ fees but also
giving notice under Rule 23(c)(2)(B). Notice may well
cost more, per kit, than the kits’ retail price—and could
be ineffectual at any price, since most purchases were
anonymous. The court can’t send each buyer a letter.
Notice would be by publication, yet the recall was
widely publicized. Why bear these costs a second time?
The Consumer Products Safety Commission has not
expressed dissatisfaction with the recall campaign or its
results, and the record does not contain any evidence of
injury to children after the recall was announced. Spin
Master believes that most of the 400,000 kits not re-
turned in the recall were used before the recall began
and that few, if any, defective kits remain in consumers’
hands. Consumers whose children used their kits are
not members of the proposed class, so a public notice
of a class action could be expensive yet pointless.
6 No. 10-3847
Still, a district court’s conclusion that it has a better
idea does not justify disregarding the text of Rule 23.
Policy about class actions has been made by the Supreme
Court through the mechanism of the Rules Enabling
Act, 28 U.S.C. §§ 2071–77. A district court is no more
entitled to depart from Rule 23 than it would be to
depart from one of the Supreme Court’s decisions
after deeming the Court’s doctrine counterproductive.
Rule 23 establishes a national policy for the Judicial
Branch; individual district judges are not free to prefer
their own policies. The Court made this point twice in
its most recent Term. See Wal-Mart Stores, Inc. v. Dukes,
131 S. Ct. 2541 (2011); Erica P. John Fund, Inc. v. Halliburton
Co., 131 S. Ct. 2179 (2011). See also, e.g., Schleicher v.
Wendt, 618 F.3d 679, 685–86 (7th Cir. 2010); Amalgamated
Workers Union of Virgin Islands v. Hess Oil Virgin Islands
Corp., 478 F.2d 540 (3d Cir. 1973) (rejecting an argu-
ment that “policy” justifies departing from the normal
meaning of the word “adjudication” in Rule 23(b)(3)).
It is not as if the Supreme Court and other participants
in the rulemaking process (the Judicial Conference, the
Standing Committee on Rules of Practice and Procedure,
and the Advisory Committee on Civil Rules) used the
word “adjudication” loosely to mean all ways to redress
injuries. The third circuit observed in Hess Oil that
the advisory committee’s notes demonstrate that
Rule 23(b)(3) was drafted with the legal understanding
of “adjudication” in mind: the subsection poses the ques-
tion whether a single suit would handle the dispute
better than multiple suits. 478 F.2d at 543. A recall cam-
No. 10-3847 7
paign is not a form of “adjudication” under the com-
mittee note.
Although the district court’s rationale is mistaken, it
does not follow that the court’s decision is wrong. Other
parts of Rule 23 give a district judge ample authority
to decide whether a class action is the best way to
resolve a given dispute. Instead of departing from the
text of Rule 23(b)(3), the district court should have
relied on the text of Rule 23(a)(4), which says that a
court may certify a class action only if “the representa-
tive parties will fairly and adequately protect the in-
terests of the class.” Plaintiffs want relief that duplicates
a remedy that most buyers already have received, and
that remains available to all members of the putative
class. A representative who proposes that high transac-
tion costs (notice and attorneys’ fees) be incurred at the
class members’ expense to obtain a refund that already
is on offer is not adequately protecting the class mem-
bers’ interests. See Thorogood v. Sears, Roebuck & Co., 627
F.3d 289, 293–94 (7th Cir. 2010) (discussing a variety of
ways that class actions may not protect the interests
of the class). The judge cited the wrong subsection of
Rule 23; so did Spin Master. But defendants did not
forfeit their arguments; they made the essential conten-
tions. No harm was done by the mis-citation. See Elder
v. Holloway, 510 U.S. 510 (1994) (a court of appeals is
entitled to apply the controlling law even if the litigants
failed to cite the best authority).
Plaintiffs want punitive as well as compensatory dam-
ages. The punitive-damages claims depend on state
8 No. 10-3847
law. This creates problems under Rule 23(b)(3)(D),
which requires judges to consider “the likely difficulty
in managing a class action.” Different states may have
different ideas about whether a product’s distributor
should pay punitive damages for a problem caused by
a foreign supplier’s unauthorized substitution. We held
in In re Bridgestone/Firestone, Inc., Tires Products Liability
Litigation, 288 F.3d 1012 (7th Cir. 2002), that a nationwide
consumer class was not manageable, and thus could not
be certified, when it would depend on multiple states’
laws. See also Wal-Mart, 131 S. Ct. at 2551–52.
There would be serious problems of management
apart from the variability of state law. As we have men-
tioned already, individual notice would be impossible,
which would make it hard for class members to opt out.
No one knows who bought the kits. No one knows
who used them without problems; this would make it
difficult if not impossible to determine who would be
entitled to a remedy. The per-buyer costs of identifying
the class members and giving notice would exceed the
price of the toys (or any reasonable multiple of that
price), leaving nothing to be distributed. The principal
effect of class certification, as the district court recog-
nized, would be to induce the defendants to pay the
class’s lawyers enough to make them go away; effectual
relief for consumers is unlikely.
Even if the subclasses proposed by the plaintiffs could
address variance across state consumer protection laws,
it would be very difficult to determine which con-
sumers were in each subclass. The problems with the
No. 10-3847 9
plaintiffs’ proposed subclasses are explored in detail in
the district court’s opinion; it is unnecessary to repeat
that discussion. See 270 F.R.D. at 385–87.
A FFIRMED
8-17-11