Monday, April 28, 2014

FYI: 9th Cir Affirms Denial of Class Cert on Predominance Grounds, But Holds Appellate Jurisdiction Inheres in Stip to Dismiss w/o Settlement

Friday, February 14, 2014

The U.S. Court of Appeals for the Ninth Circuit recently held appellate jurisdiction existed under 28 U.S.C. § 1291 because, in the absence of a settlement, a class plaintiff’s stipulated dismissal with prejudice of claims against a home improvement retailer does not destroy the adversity in that judgment necessary to support an appeal. 

The  Ninth Circuit also  affirmed  the  denial  of  class  certification because the district court did not abuse its discretion in holding that the proposed classes that the Plaintiff was capable of representing did  not  meet the  requirement that  common questions predominated over individual issues under Fed. R. Civ. P. 23(b)(3).  More specifically, the factual circumstances surrounding whether a customer had knowledge of the Retailer’s damage waiver charge was optional required individual determinations, which precluded class treatment.

The Plaintiff appealed from the stipulated dismissal with prejudice of his putative class-action claims against the Retailer.   He alleges that the Retailer automatically imposed a ten percent surcharge for a damage waiver on tool rentals in its California stores, and the Retailer’s failure to inform customers of their ability to decline the surcharge was a violation of California’s Unfair Competition Law (“UCL”), the California Consumer Legal Remedies   Act (“CLRA”),   and   common-law   theories   of   unjust enrichment. 

When the Retailer rents tools to customers, it offers a “damage waiver.” The damage waiver allows the customer to avoid liability if a tool is damaged during the period of the rental. The Plaintiff alleged that when he rented a tool from the Retailer, he purchased the damage waiver without notice that it was optional.  He further alleged that the Retailer does not tell customers that this waiver is an optional add-on. He claims that the cost of the waiver is automatically added to the rental price.  The Retailer did not deny that its computers default to adding the damage waiver to a customer’s  receipt,  but customers are told of the optional nature of the waiver in three ways: 1) by the sales associate, 2) by signs posted in its stores, and 3) the final sales contract. 

The district court denied Plaintiff’s motion for class certification, concluding   that   the  proposed   class was not ascertainable and that Plaintiff did not meet the commonality, typicality, and   adequacy   of representation requirements of Fed.   R. Civ. P. 23(a). 

Plaintiff then stipulated with the Retailer to dismiss the action with prejudice, intending to appeal the denial of class certification. In the stipulation, the Retailer contested the Plaintiff’s ability to appeal.  The district court dismissed the action under Rule 41(a)(2), and the Plaintiff filed a timely notice of appeal.

The Retailer challenged appellate jurisdiction, relying on the Ninth Circuit’s ruling in Seidman v. City of Beverly Hills, 785 F.2d 1447 (9th Cir. 1986). In Seidman, the Ninth Circuit concluded that it had no jurisdiction to hear an appeal from a stipulated dismissal of a putative class action after the lead plaintiff settled his individual claims against the defendant.   Id. at 1447–48.

However, the Ninth Circuit distinguished Seidman.  Under Seidman, a final judgment must be adverse to a party in order to be appealable.  Id. at 1448.  While a stipulated dismissal pursuant to a settlement does not have the adversity required for appellate jurisdiction, absent a settlement, a stipulation alone does not destroy that adversity. See Coursen v. A.H. Robins, Co., Inc., 764 F.2d 1329 (9th Cir. 1985).

Here, the Ninth Circuit noted there was no allegation that the parties have entered into a settlement. Rather, the Plaintiff voluntarily  stipulated  to  the dismissal of his complaint with prejudice. The Ninth Circuit concluded that the stipulated dismissal was sufficiently adverse to allow him to appeal.

The Ninth Circuit began its substantive analysis of the class issues by examining Rule 23. As you may recall, a putative class-action plaintiff has the burden of showing that his  or her  claim  meets  the requirements of Rule 23.  Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011).

The Plaintiff argued that each of his proposed classes fall under Rule  23(b)(3),  which required  him  to  “demonstrate  the superiority of maintaining a class action and show ‘that the questions  of  law  and  fact  common  to  class  members predominate over any questions affecting only individual members.’” Mazza v. American Honda Motor Co., Inc., 666 F.3d 581, 589 (9th Cir. 2012).  To meet this requirement, the common questions must be “a significant aspect of the case . . . [that] can be resolved   for   all   members  of   the   class   in   a   single adjudication.”    Id.  

The Ninth Circuit then examined the UCL claim.  As you may recall, the UCL bans “unlawful, unfair or fraudulent business act[s] or practice[s] and unfair, deceptive, untrue or misleading advertising.” Cal. Bus. & Prof. Code § 17200.   The UCL focuses on the perpetrator’s behavior; a plaintiff must show only that members of the public are likely to be deceived.  In re Tobacco II Cases, 46 Cal. 4th 298, 312, 207 P.3d 20, 29–30, 93 (2009).

The Ninth Circuit noted,  the  question  of  likely  deception  does  not automatically translate  into  a  class-wide  question.   In a recent case, the Ninth Circuit held that class certification of UCL claims is available only to those class members who were actually exposed to the business practices at issue. Mazza, 666 F.3d at 595–96.

In Mazza, the Ninth Circuit reversed class certification on a claim against a car company that allegedly made deceptive and misleading claims about a particular brake system.  Id. at 585–88.   In distinguishing Mazza from Stearns (and Tobacco II), the Ninth Circuit relied on two crucial facts about the car company’s advertising program: first, that it did not constitute a fraudulent advertising campaign; and second, that its advertising materials do not deny that limitations existed. Id. at 596.  It was “unreasonable to presume” that all class   members   were   exposed   to   the manufacturer’s   misleading statements, and that without such exposure, consumers were not likely to be deceived. Id.

The Ninth Circuit found that the instant action was similar to Mazza. The Plaintiff had not alleged that all of the members of his proposed class were exposed to the Retailer’s alleged deceptive practices.  Each of the five contracts used by the Retailer required an independent legal analysis to determine whether the language and design of that contract did or did not suffice to alert customers that the damage waiver was an optional purchase, and thereby did or did not expose that group of customers to a potentially misleading or deceptive statement. Accordingly, the Ninth Circuit upheld the district court’s determination that any common questions shared by Plaintiff’s primary class do not predominate over the individual questions of contract interpretation.

With respect to subclass one - each member of which rented  tools  under  the  first contract -  the Ninth Circuit found that Plaintiff similarly had not alleged that each individual was exposed to the  same  misrepresentations  or  deceptions.    The Ninth Circuit further noted that the existence and content of signs within the stores alerting customers of the optional damage waiver was a crucial issue, which the district court reasonably held must be resolved on an individual rather than a class-wide basis.

Likewise, oral notice given by the Retailer’s employees about the nature of the damage waiver during a particular rental transaction constitutes a unique occurrence.  It was not an abuse of discretion for the district court to determine that maintaining a cause of action based on those statements would require each individual consumer to show that he or she had personally been exposed to misleading information.  See In re LifeUSA Holding, Inc., 242 F.3d 136, 145–46 (3rd Cir. 2001); Wang v. Chinese Daily News, 709 F.3d 829, 835 (9th Cir. 2013).

The Ninth Circuit next examined Plaintiff’s CLRA claim, which provides a cause of action for “unfair methods of competition and unfair or deceptive acts or practices” in consumer sales. Cal. Civ. Code § 1770. Unlike the UCL, the CLRA demands that each potential class member have both an actual injury and that the  injury was  caused  by the challenged practice. Steroid Hormone Product Cases, 181 Cal. App. 4th 145, 155–56 (2010).  However, if a “material misrepresentation ha[s] been made to the entire class, an inference of reliance arises as to the class.” Stearns, 655 F.3d at 1022.

Because the contracts used by the Retailer at different times contained distinct terms, the question of whether a material misrepresentation was made to  the  entire  class requires  an  individualized determination that the district court reasonably found predominates over any common questions.  Accordingly, the Ninth Circuit affirmed dismissal of the CLRA claim for the primary class.

Lastly, the Ninth Circuit examined whether Plaintiff’s common law claims were susceptible to class treatment.  The elements of unjust  enrichment are “receipt of a benefit and unjust retention of the benefit at the expense of another.” Lectrodryer v. SeoulBank, 77 Cal. App. 4th 723, 726, 91 Cal. Rptr. 2d 881 (2000). This equitable test requires injustice. Doe I v. Wal-Mart Stores, Inc., 572 F.3d 677, 684 (9th Cir. 2009).

Whether the Retailer’s receipt of funds for the damage waiver   was   unjust   or  inequitable,   thereby   justifying restitution, depends on whether the Retailer told its tool rental customers that the waiver was an optional product. As explained above, this determination required individualized determinations. 

As with the UCL and CLRA claims, the individual issues could reasonably be found to predominate over the common questions in the common-law claims, and the Ninth Circuit affirmed  the  district  court’s dismissal of both the primary class and proposed subclass one.

Eric Tsai
McGinnis Wutscher Beiramee LLP
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