Suchanek v. Sturm Foods, Inc.

• Citation: 764 F.3d 750
• Decision Date: 22 September 2014
• Docket Number: No. 13–3843.,13–3843.
• Parties: Linda SUCHANEK, et al., individually and on behalf of others similarly situated, Plaintiffs–Appellants, v. STURM FOODS, INC., and Treehouse Foods, Inc., Defendants–Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

764 F.3d 750

Linda SUCHANEK, et al., individually and on behalf of others similarly situated, Plaintiffs–Appellants,

v.STURM FOODS, INC., and Treehouse Foods, Inc., Defendants–Appellees.

No. 13–3843.

United States Court of Appeals, Seventh Circuit.

Argued June 4, 2014.

Decided Aug. 22, 2014.

Rehearing and Rehearing En Banc Denied Sept. 22, 2014.

Peter Burke, Burke Harvey & Frankowski, Birmingham, AL, for Plaintiffs–Appellants.

Craig S. Fochler, Rebecca R. Hanson, Foley & Lardner LLP, Chicago, IL, for Defendants–Appellees.

Before WOOD, Chief Judge, and CUDAHY and ROVNER, Circuit Judges.

WOOD, Chief Judge.

This case is about coffee. Not just any coffee—it is about the individual coffee pods that are used in the popular Keurig coffeemakers. The Keurig system solved a problem with which coffee drinkers had struggled for years: how to make individual portions of fresh-brewed coffee in a tidy, flavorful, easy, and relatively inexpensive way. The defendants, Sturm Foods, Inc., and Treehouse Foods, Inc., wanted to enter the market for Keurig-compatible pods once patent protection expired, but they jumped the gun in a way that the plaintiffs who hope to represent a class, believe was deceptive and in violation of the consumer protection laws of a number of states. The district court refused to certify the class, and then ruled against each of the named plaintiffs' individual claims. We conclude that the court erred in its class certification decision; if its approach were correct, it would never be possible to certify a consumer class action because some individual proof is always needed. We also conclude that the court overlooked genuine issues of fact when it granted summary judgment against the individual plaintiffs We therefore reverse and remand for further proceedings.

I

Keurig coffee machines are one of the most popular single-serve coffeemakers on the market. To prepare a cup of freshly brewed coffee, the Keurig user need only drop a small pod (known as a K–Cup) filled with ground coffee into the machine, push a button, and wait a few moments. The machines are not only quick and easy to use; surveys show that its users appreciate the quality of the coffee they produce. According to the defendants' marketing studies, Keurig machines are “premium branded products and consumers have the perception that they brew premium coffee in their machines.” For this union of convenience and quality, consumers shell out hefty sums for both the machine it-self and the K–Cups.

K–Cups, which are sold separately from the machines, are small plastic cartridges designed to be used exclusively with Keurig machines. The K–Cups are typically filled with an individual serving of ground coffee beans, although other hot beverages like cider, tea, and hot chocolate are also available. Until 2012 when its patent expired, only Keurig itself could make K–Cups with filters because Keurig held a patent over the K–Cup's filter technology. Sturm Foods and its parent company Treehouse (collectively Sturm) badly wanted a piece of the Keurig market. Blocked from direct competition by the patent, Sturm turned to the substitute that is at the heart of this case. In 2010, it introduced a product that used the external K–Cup design but whose innards were entirely different. For starters, the Sturm cup did not contain any type of filter. In internal emails, Sturm's executives discussed their plan to gain a first-mover advantage in the post-patent Keurig coffee market by selling the filter-less product before the patent's expiration. One employee commented that by the time the Keurig patent expired, “Sturm will have been packaging and processing for 2 years.... During this time, we [will] have gained experience and improved packaging and production processes in areas where others will have yet to start.” Sturm marketed its product under the name Grove Square Coffee (GSC).

The lack of a filter created a quandary for Sturm: it made the use of fresh coffee grounds impossible. Sturm decided to put instant coffee into the cups—essentially, small chunks of freeze-dried brewed coffee that dissolve and are reconstituted when hot water is added to them. That is not the kind of premium product that Keurig customers expected, as Sturm's marketing surveys confirmed. Indeed, Sturm's consultants warned that “use of the word ‘instant’ is a real nono” and should be avoided “if at all possible” in marketing the GSC product to the only people who would buy a KCup: Keurig machine owners. Sturm followed that advice. The GSC packaging stated in small font that it contained “naturally roasted soluble and microground Arabica coffee”; it never explained that soluble coffee is instant coffee. Nor did it mention that the GSC pods contained over 95% instant coffee with only a tiny bit of microground coffee mixed in.

The rest of the GSC packaging was mute about the true nature of the product, except insofar as it implied that these were genuine K–Cups like those Keurig users had come to expect. We have included some images of the GSC product packaging in an Appendix to this opinion. Those images show that like many of the premium Keurig coffee products shelved nearby, the front of the GSC package contained an image of K–Cups with fresh roasted coffee beans and the admonition that the GSC product was intended “[f]or use by owners of Keurig© coffee makers.” As one Sturm executive admitted, the company “rearrange[d] the packaging operation to put [GSC] into a display like Keurig had on the shelf.” Its objective was to package the product “to look like the Keurig product in box style.”

The back of the package featured a number of representations about the product. A “quality promise” indicated that the coffee was “made with some of the world's highest quality Arabica beans, roasted and ground to ensure peak flavor, then packaged to lock in optimum freshness.” It failed to add that, except for the trivial amount of “microground” coffee dusting the instant chunks, the coffee was no longer in the form of ground beans. One version of the package set forth a “Coffee Lover's Bill of Rights,” which included the right to a “fresh, delicious cup.” Another version stated that its contents were “simply fresh, hot and delicious” and “recaptured [the] rich, traditional cup” that is “savored ... in neighborhood coffee shops.” At some point, Sturm added the word “instant” to the packaging, but the record is unclear whether this new package was ever distributed and, if so, how widely. Interestingly, the package also included this warning: “DO NOT REMOVE the foil seal as the cup will not work properly in the coffee maker and could result in hot water burns.” Except as a measure designed to ensure that the user did not view the true contents of the pod, this makes no sense: the presence or absence of a foil seal on top would have no effect on the risk of burns or the use of the cup.

Numerous expert surveys in the record concluded that few consumers understood the true nature of the GSC product. One of them, conducted by plaintiff's expert Robert L. Klein, attempted to recreate conditions of in-store buying by presenting participants first with a photograph of the GSC product on shelves near other Keurig-related products, and then presenting participants with images of the GSC box to look over for 30 seconds. Only 14% of participants in Klein's study identified GSC's product as containing instant coffee. Sturm's own expert, George Mantis, employing a different methodology, found that only one in 151 test participants equated the term “soluble and microground” with the term “instant and microground.” Another expert, Bobby J. Calder, using still another methodology, asked participants to score the product on a scale of 1 to 10 on various measures based on its packaging, with “1” being least likely and “10” being most likely. When asked whether participants expected GSC to contain instant coffee, the mean answer was 1.61. Asked whether the GSC product filtered ground coffee just as other Keurig-compatible coffee products did, participants essentially said yes, recording an average score of 9.26. And even if consumers saw and understood that the term “soluble” meant “instant” in context, they had no way to know that GSC actually was more than 95% “soluble” (instant) coffee.

Sturm put a lot of money and thought into marketing GSC. In addition to following its consultants' warning against using the term “instant coffee,” Sturm conducted focus-group testing to determine whether participants would notice anything amiss about GSC. One test comparing reactions to GSC and licensed Keurig K–Cups containing ground coffee and filters concluded that the participants did not “notice[ ] any difference between the single serve cups [ i.e., between the GSC product and licensed K–Cups] with respect to weight and none noticed [that] the [GSC] cup emitted a distinct rattle when shaken.” (Emphasis added.) Even when these differences were pointed out, participants “did not equate [those differences] with quality.” Sturm also priced GSC at near-premium levels, about 10% less than Keurig products. This had the dual benefit of reaping a high profit and forestalling consumer suspicions. As one executive admitted candidly, “If you actually got the price too low, people would perceive it as poor quality.” The plaintiffs' expert Klein opined that the GSC product was “three to four times more expensive than the typical instant coffee that may be spooned into a cup of hot water” and that “only a very ‘price insensitive’ consumer, or one who was misled, would use a $100 brewer [ i.e., the Keurig machine] to heat water to make instant coffee.”

The public response after the release of GSC was awful. The day after the product started selling in Wal–Mart stores, Sturm emailed its employees to request that the legal department, not the quality control or sales department, be immediately informed about any complaints...