Federal Court Denies Class Certification Based on Differences in State Laws on Unjust Enrichment
Ahhhh, the 50-state survey! The mere mention of its name strikes terror in the hearts of young associates everywhere -- and sparks questions about what to do with the District of Columbia, Puerto Rico, Guam and other non-states. And yet the 50-state survey is increasingly an essential tool on the class action litigator's workbench. The more courts scrutinize precisely how a case will be tried on a classwide basis, the more important choice of law (and the differences among state laws) become.
A recent decision from a federal court in Arkansas illustrates precisely how important the choice of law inquiry can be. In Thompson v. Bayer Corp., 2009 WL 362982 (E.D. Ark. Feb. 12, 2009), the plaintiff challenged the defendants' marketing of One-A-Day Weight Smart vitamins, which purportedly increased the metabolism of people as they age. The vitamins contained ECGC from an extract of green tea. Plaintiff alleged there was no evidence this substance actually increased metabolism.
Plaintiff's case was far from specious. The FTC had ordered the defendants to stop making scientifically unsubstantiated claims about its One-A-Day products in 1991. In 2007, the FTC sued the defendants for violating the order with their marketing of the Weight Smart vitamins, and the defendants were fined $3.2 million by the FTC.
The plaintiff sought to certify a nationwide "unjust enrichment" class to force defendants to disgorge the profits they had made from their allegedly fraudulent activities. She specifically defined out of her class any person "claiming personal injury or damage beyond that specifically claimed in this motion."
The court immediately focused on choice of law. Plaintiff argued that Arkansas law did not conflict with the law of other states on unjust enrichment, and she urged that it was the defendants' burden to establish that a conflict exists. Applying Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) and Sun Oil Co. v. Wortman, 486 U.S. 717 (1988), the court disagreed.
In analyzing whether Arkansas law conflicts with the law of the other states, the court considered 50-state surveys submitted by both plaintiff and defendants. Plaintiff had done her best to simplify the differences in state laws, grouping them into three categories:
Plaintiff claims that, in general, the elements of unjust enrichment are as follows:
1. Defendant must have received something of value;
2. Defendant, in good conscience, is not entitled to the benefit.
Plaintiff acknowledges, however, that there are three different approaches taken by the states to unjust enrichment claims:
1) Restitution: those that follow a restitution approach where a plaintiff must show that a defendant accepted and used a benefit bestowed upon the defendant by the plaintiff, which benefit would be inequitable to retain;
2) Restitution Plus: those that follow the restitution approach but also require that there be no adequate remedy at law;
3) Wrongful Acts: those that require a plaintiff to show that the defendant benefited from the plaintiff through fraud, duress, misconduct, wrongful acts or taking undue advantage.
According to Plaintiff, the Restitution approach is followed by 37 states, the Restitution Plus approach is followed by seven states, and the Wrongful Acts approach is followed by six states.
Thompson, 2009 WL 362982 at *3-*4.
After analyzing the parties' arguments, the court concluded that the differences in state laws on unjust enrichment were too substantial to allow a nationwide class to go forward. The court noted:
Some of the most troublesome differences are those recognized by the Plaintiff, i.e., the disparity in proof required to prove an enrichment was "unjust or wrongful" and the requirement by some states that there be no adequate remedy at law. However, these are not the only conflicts that exist in this area of law. There are other differences that Plaintiff has not included in this list including, the direct and indirect benefit elements of unjust enrichment.
Id. at *4. A number of states preclude claims for unjust enrichment where the plaintiff is not the direct purchaser of the product. The court observed that this would be a real problem in the case before it, as few, if any, of the plaintiffs could be said to have purchased the vitamins directly from the defendants.
The court's opinion has a very useful discussion of the various differences in state unjust enrichment law. Ultimately, the court concluded that the variations in unjust enrichment laws caused the proposed class to fail the predominance and superiority requirements of Rule 23(b)(3). The plaintiff asked, in the alternative, for the certification of a smaller class, or even a statewide class. The court held that it was not sufficiently briefed, and denied the alternative request without prejudice.
Thompson illustrates the fact that even where the facts supporting a class action may be strong, the variations in the applicable laws may make the class so unmanageable that it is uncertifiable. Given this fact, the 50-state survey is likely here to stay in the briefing of proposed nationwide class actions.
