9th Circuit Affirms Dismissal of Putative Class Action for Individual Named Plaintiffs' Pleading Failures
The Ninth Circuit disposed of a putative consumer fraud class action this week in an opinion that has some important points to highlight for those who defend class actions. See Sanford v. MemberWorks, Inc., No. 09-55502, Slip op. (9th Cir. Oct. 25, 2010). Often plaintiffs argue that they should not be subject to the ordinary pleading rules when they purport to represent an entire class of people. The decision in Sanford squarely rejects this argument, focusing on the individual details of the named plaintiffs' claims and then affirming dismissal of the entire case.
In the interest of full self-disclosure: I'm biased; my colleagues represented the defendant in this case, which is one of my clients. Take my view of the court's analysis accordingly.
The plaintiffs in Sanford had been enrolled in the defendant's membership discount programs after calling a toll-free number to buy products they had seen advertised on television. Subsequently, they sued, alleging that they were fraudulently enrolled in the membership discount programs and asserting a variety of causes of action. The case has a convoluted procedural history, but ultimately the district court had dismissed the case, and the Ninth Circuit affirmed.
In doing so, the Ninth Circuit focused on the claims of the individual plaintiffs. The first one, Ms. Sanford, was held to have no standing because she had settled her claims in a state court settlement with the telemarketer. The release associated with that settlement released "any claims arising out of or that could have arisen out of the allegations set forth" in the state court case. Slip op. at 17497. Ms. Sanford argued that her interest in attorneys' fees gave her standing, but the court held that the release of "any claim for costs, expenses, pre or post judgment interest, penalties, fees" encompassed all such claims. Id.
That left two plaintiffs, the Smiths. The district court had dismissed the RICO count for the Smiths' failure to plead wire or mail fraud with the particularity required by Rule 9(b). Mr. and Mrs. Smith could not remember which of them was on the phone and heard the sales pitch for the various membership programs. The court held that: "it is not unreasonable to expect the Smith who placed the phone calls to have personal knowledge of the relevant facts," and plaintiffs' failure to identify basic details about the calls or the membership kits that were mailed to them made them fail the requirement of pleading with particularity. Slip op. at 17500. The court further explained that the district court did not err in denying leave to amend the complaint, since the factual deficiencies were about facts that should have been in the plaintiffs' control. Id. at 17501.
The court also dismissed the "conspiracy to violate RICO" count, reasoning that if you can't plead a valid RICO claim, then one cannot plead the conspiracy to commit a RICO violation. Id.
In addition, the court dismissed the Smiths' federal "Unordered Merchandise Statute" claim because membership programs simply are not merchandise. Id. at 17501-02. And it dismissed the Electronic Funds Transfer Act claim because the statute clearly covers debit cards, and yet the Smiths had used credit cards -- not debit cards -- to make their purchases. The court explained that "[w]hen a named plaintiff has no cognizable claim for relief, 'she cannot represent others who may have such a claim, and her bid to serve as a class representative must fail.'" Id. at 17504 (citation omitted). And it rejected the plaintiffs' suggestion that the court allow some unidentified debit card holder to intervene, reasoning that "where, as here, the original named plaintiffs fail to state a cognizable claim from the outset, intervention is not required." Id.
Sanford is yet another decision that recognizes that for Rule 12 purposes, a putative class action rises or falls on the strength of the claims actually pled for the named plaintiffs.