Ninth Circuit Reverses Certification of UCL Class for Using One State's Law and for Defining Class To Include People Who Did Not Receive Representations
Yes, you read that headline correctly. The Ninth Circuit actually reversed certification of a class! It was a split opinion, however. And the swing vote -- again, who voted to reverse class certification -- was none other than U.S. District Judge James Gwin from Cleveland, sitting by designation. January 12 was truly a red-letter day. See Mazza v. Am. Honda Motor Co., 2012 WL 89176 (9th Cir. Jan. 12, 2012).
Mazza reaches a few conclusions that I disagree with, but it has some important analysis of conflicts of law and of class definitions that will provide important precedents in attacking consumer class actions in the Ninth Circuit.
Mazza was all about what Honda told customers about its cruise control and automatic braking system, the "Collision Mitigation Braking System" ("CMBS") during a three-year period beginning in 2005. Plaintiffs claimed Honda should have disclosed that the system turns itself off in bad weather, might not stop a vehicle before impact, and that its three stages might overlap.
Honda had a limited TV ad campaign in November 2005 and for nine months in 2006. It had a magazine ad campaign during the same timeframe in 2006. Then it opted for smaller-scale marketing, such as videos viewable on kiosks at Acura dealerships, and videos available on an owner's website.
The district court certified a nationwide class asserting claims under California's Unfair Competition Law, False Advertising Law, Consumer Legal Remedies Act, and "unjust enrichment."
Because Honda did not challenge the district court's finding that "common questions exist as to whether Honda had a duty to disclose or whether the allegedly omitted facts were material or misleading to the public," the Ninth Circuit held that the commonality requirement as described in Wal-Mart v. Dukes had been satisfied. 2012 WL 89176 at *5.
The court then focused on what law should be applied. The court began its analysis by holding that California law could have been applied to the class consistent with the Constitution:
California has a constitutionally sufficient aggregation of contacts to the claims of each putative class member in this case because Honda's corporate headquarters, the advertising agency that produced the allegedly fraudulent representations, and one fifth of the proposed class members are located in California.
Id. at *6. The court reaches this conclusion, however, without analyzing the expectations of the parties whose transactions were conducted wholly out of state. Shutts taught that, constitutionally, such expectations matter. Similarly, the court neglected to consider whether the causes of action here -- which are not product liability claims, but instead are all based on representations made (or not made) in the plaintiffs' home states -- really give California standing to assert an interest. I may be a New York resident, but if I go to North Dakota, make some representations in North Dakota, and ultimately engage in a business transaction in North Dakota, that doesn't give my home state any interest in regulating the transaction, which occurred outside its borders. I would argue the same is true in Massa. The claim is not that Honda made a defective product that emanated from California. Rather, it's that when Honda was in North Dakota dealing with a North Dakota purchaser, it chose not to say things there that it should have said. That claim has no real nexus with California, other than Honda's citizenship. And, I would argue, it would be unconstitutional for California to attempt to assert its laws extraterritorially to govern such conduct by its citizen in other states.
Regardless, the Ninth Circuit held that under California's own choice of law principles, "the district court abused its discretion in certifying a class under California law that contained class members who purchased or leased their car in different jurisdictions with materially different consumer protection laws." Id. at *6.
Honda had briefed the differences in state consumer protection laws, but the district court had ignored them. The Ninth Circuit concluded that these differences were important: (1) some states require scienter, (2) some require reliance, while some don't, and (3) states have different available remedies. Id. at *7.
In analyzing the interest of the competing jurisdictions in having their laws applied, the court recognized that a fundamental principle of federalism is giving a state the authority to regulate the conduct that occurs within its borders. The Ninth Circuit also pointed out that in the context of consumer protection statutes, you can't simply look to see which state's statute "protects" consumers most. Rather, these statutes involve a balancing of competing interests -- conducted primarily by the Legislature -- between protecting consumers and providing incentives to attract foreign businesses:
In our federal system, states may permissibly differ on the extent to which they will tolerate a degree of lessened protection for consumers to create a more favorable business climate for the companies that the state seeks to attract to do business in the state. . . . [T]he district court erred by discounting or not recognizing each state's valid interest in shielding out-of-state businesses from what the state may consider to be excessive litigation. As California's Supreme Court recently re-iterated, each state has an interest in setting the appropriate level of liability for companies conducting business within its territory.
* * *
Getting the optimal balance between protecting consumers and attracting foreign businesses, with resulting increase in commerce and jobs, is not so much a policy decision committed to our federal appellate court, or to particular district courts within our circuit, as it is a decision properly to be made by the legislatures and courts of each state. More expansive consumer protection measures may mean more or greater commercial liability, which in turn may result in higher prices for consumers or a decrease in product availability. . . . As it is the various states of our union that may feel the impact of such effects, it is the policy makers within those states, with their legislatures and, at least in exceptional or occasional cases where there are gaps in legislation, within their state supreme courts, who are entitled to set the proper balance and boundaries between maintaining consumer protection, on the one hand, and encouraging an attractive business climate on the other hand.
Id. at *8 (citations omitted). The Ninth Circuit thus held that the district court failed to adequately recognize the interest of each state to applying its own law to the transaction, and further held that "each class member's consumer protection claim should be governed by the consumer protection laws of the jurisdiction in which the transaction took place." Id. at *10.
The court next analyzed the predominance of common issues. The Ninth Circuit held that the class definition -- which was an "all purchasers" and "all lessors" class -- swept into the class too many people who were never exposed to the alleged misrepresentations. Plaintiffs pushed hard the argument that under In re Tobacco II, a California UCL class is entitled to a presumption of reliance on misrepresentations in advertising. But the Ninth Circuit said no -- such a presumption of reliance only arises in the context of a "decades long" advertising campaign that not only denies the truth, but represents the polar opposite.
Honda's advertising campaign fell far short of such an extensive and long-term ad campaign, and the ads did not deny that limitations to the CMBS performance exist. These differences were significant, according to the court:
A presumption of reliance does not arise when class members "were exposed to quite disparate information from various representatives of the defendant." California Courts have recognized that Tobacco II does not allow "a consumer who was never exposed to an alleged false or misleading advertising . . . campaign" to recover damages under California's UCL. For everyone in the class to have been exposed to the omissions, as the dissent claims, it is necessary for everyone in the class to have viewed the allegedly misleading advertising. Here the limited scope of that advertising makes it unreasonable to assume that all class members viewed it.
In the absence of the kind of massive advertising campaign at issue in Tobacco II, the relevant class must be defined in such a way as to include only members who were exposed to advertising that is alleged to be materially misleading. The relevant class must also exclude those members who learned of the CMBS's allegedly omitted limitations before they purchased or leased the CMBS system. The district court certified a class that included all persons who purchased or leased an Acura RL with the CMBS between August 2005 and class certification. This class is overbroad. We vacate the class certification decision on this ground because common questions of fact do not predominate where an individualized case must be made for each class member showing reliance.
. . . And even if the class was restricted to only those who purchased or leased their car in California, common issues of fact would not predominate in the class as currently defined because it almost certainly includes members who were not exposed to, and therefore could not have relied on, Honda's allegedly misleading advertising material.
Id. at *12 (citations omitted; emphasis added).
Mazza promises to be an invaluable tool in fighting UCL class actions in federal court.