Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

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.

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This is yet another case that serves as a reminder to defense lawyers not to neglect the class definition requirements -- which are not articulated in the class action rule -- when challenging class certification.

In Sevidal v. Target Corp., 2010 WL 4260891 (Cal. App. -- 4th Dist. Oct. 29, 2010), the plaintiff sued Target because he bought two pairs of running shorts and a tie that had been described on Target's website as "Made in the U.S.A.," when in fact they were not.  Plaintiff claimed this violated California's Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act, as well as constituted fraudulent concealment and unjust enrichment.  He sought certification of a statewide class of:

any California consumer who purchased any product from Target.com on or after November 21, 2003 which was identified on Target.com as 'Made in the USA,' when such product was actually not manufactured or assembled in the United States.

Id. at *2. 

The trial court denied class certification, and the Court of Appeal affirmed on two grounds.  First, it held that the class was unascertainable.  Second, it held that the class was impermissibly overbroad.

The ascertainability determination turned, in part, on the facts involving Target's website.  The "Made in the USA" designation was not seen by all users of the website who viewed the affected items.  Rather, it was in a subroutine of a subroutine of the program.  In other words, once one clicked on the product, one had to click on "View Details" and then "Additional Info" before the "Made in the USA" designation would appear.  Based on Target's 5-month test, 80% of customers did not click on the "Additional Info" tab at all and thus never could have seen the "Made in the USA" designation.

Moreover, the mis-designation as "Made in the USA" was the result of a computer bug that only sometimes would cause the mis-designation to appear.  In other words, sometimes the information displayed in "Additional Info" was correct, and sometimes it wasn't.  And Target had no record of who saw what.  Plaintiffs argued that this was Target's fault and should not impair a class, but the court observed that "Target had no contractual or statutory duty to maintain records pertaining to a consumer's selection of the 'Additional Info' icon."  Id. at *10.

Plaintiff relied heavily on In re Tobacco II Cases (2009) 46 Cal.4th 298, which held that absent class members subjected to a pervasive advertising campaign do not have to demonstrate reliance to obtain relief in a UCL class action.  The importance of Sevidal lies in its holding that Tobacco II does not excuse a UCL class action from meeting the other class action requirements, including ascertainability.  The court explained:

A class representative has the burden to define an ascertainable class.  Although the representative is not required to identify individual members, he or she must describe the proposed class by specific and objective criteria. Ascertainability is achieved "'by defining the class in terms of objective characteristics and common transactional facts making the ultimate identification of class members possible.'" . . .

"'Ascertainability . . . goes to the heart of the question of class certification," and "'requires a class definition that is precise, objective, and presently ascertainable . . . .'"  The purpose of the ascertainability requirement is to ensure it is possible "'to give adequate notice to class members'" and "'to determine after the litigation has concluded who is barred from relitigating.'"  The ascertainability requirement is satisfied if "the potential class members may be identified without unreasonable expense or time and given notice of the litigation, and the proposed class definition offers an objective means of identifying those persons who will be bound by the results of the litigation."

Sevidal, 2010 WL 4260891 at *7-*8 (citations omitted).

The Court of Appeal held that because the computer glitch did not consistently misidentify the goods as "Made in the USA," and because there was no record of who received the misidentifications, and because a substantial majority of those who used the website never visited the portions of the website where misidentifications could occur, the court held that the trial court was correct in finding that the class was unascertainable and thus could not be certified.  And the Court of Appeal observed that "[t]hese conclusions are fully consistent with Tobacco II's holding that UCL claims brought as class actions remain subject to the statutory class certification rules, including the requirement that the plaintiff show an ascertainable class."  Id. at *10.

The Court of Appeal separately held that the class was not certifiable because the class definition was overbroad.  The plaintiff argued that Tobacco II removed any causation requirement that absent class members demonstrate a loss caused by misconduct in order to be entitled to restitution under the UCL.  The Court of Appeals, in rejecting plaintiff's conclusion, focused on the language of Cal. Bus. & Prof. Code section 17203, which provides that parties are entitled to restitution "to restore to any person in interest any money or property, real or personal, which may have been acquired by means of the unfair practice."  Here, the court reasoned, the vast majority of the class never saw the misidentification of the goods because they never viewed the "Additional Info" area for a product on the website.  Thus, they definitively are not people from whom money "may have been acquired by means of the unfair practice," and thus cannot properly be part of the class.  As the court explained:

But the Tobacco II court did not state or suggest there are no substantive limits on absent class members seeking restitution when a defendant has engaged in an alleged unlawful or unfair business practice.  Instead, the court recognized that under the UCL's statutory language, a person is entitled to restitution for money or property which may have been acquired by means of the unfair or unlawful practice. . . .  Even after the Tobacco II decision, the UCL and FAL still require some connection between the defendant's alleged improper conduct and the unnamed class members who seek restitutionary relief.

Id. at *12.  The court relied heavily on Pfizer, Inc. v. Superior Ct. (2010) 182 Cal. App. 4th 622, 631, which held that "one who was not exposed to the alleged misrepresentations and therefore could not possibly have lost money or property as a result of the unfair competition is not entitled to restitution" under the UCL.

Because the class definition included primarily people who were not entitled to recovery under the UCL, it was impermissibly overbroad and the class could not be certified.

Sevidal is an important reminder that -- even in the face of substantive causes of action that loosen the restrictions on causation and reliance -- the class definition is still an important first line of defense against class certification.

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A recent tobacco decision out of the Northern District of Illinois highlights the importance of challenging the class definition in the defense of consumer fraud cases.  in Cleary v. Philip Morris USA, Inc., 2010 WL 680957 (N.D. Ill. Feb. 22, 2010), plaintiffs had brought three different class actions against the tobacco industry.  One was for illegal underage smoking, one was for nicotene addiction, and one was for allegedly deceptively marketing "low tar," "light," and "ultra light" cigarettes as safer than other cigarettes.

Because of summary judgments that previously had been granted, the first two classes failed for lack of a representative plaintiff.  But the court considered the class certification motion for the "light" cigarettes case.

The class was defined expansively:  "persons who purchased and consumed Marlboro Lights in Illinois 'from the time such cigarettes were placed into the stream of commerce until the date that the defendant publicly and adequately disclosed to consumers the true nature and effect of these cigarettes."  Id. at *1. 

The court found that the complaint met the numerosity and commonality requirements of Rule 23(a), but it failed to meet the typicality requirement for two reasons.  First, the plaintiff did not explain how he intended to demonstrate that he suffered an injury from defendant's alleged fraud and how that was typical of the class members.  Second -- and more important -- the court focused on the overbreadth of plaintiff's class definition.

As the court explained:

Class C is defined so broadly that it is likely to include persons who suffered no detriment at all due to Philip Morris's conduct.  Some class members may have purchased Marlboro Lights for reasons wholly unrelated to its purportedly less-unhealthy qualities--for example, because they preferred the flavor of other brands.  And other class members may have purchased Marlboro Lights despite being completely unaware of claimed differences between the adverse effects of "light" cigarettes and other, non-"light" brands.   It is not entirely clear where Cleary fits in along this spectrum.  Though it is true, as Cleary points out, that factual differences among the claims of class members do not necessarily defeat typicality, the likelihood that some significant proportion of class members experienced no injury at all does, at least in a case like this one in which proof of detriment is a necessary element of the claim. 

Id. at *4 (citation omitted).

Whether the court treats it as part of the element of typicality, as the Cleary court did here, or whether it treats it as a fundamental problem with the class definition, "overbreadth" (i.e., including within the class people who were uninjured by the product) presents serious problems that go to the core of who is going to be bound by the verdict and how the proof is going to establish classwide truths.  That is why courts increasingly are denying class certification to overbroad classes. 

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