Posts belonging to Category Certification Rulings

In a published opinion, California’s Second Appellate District has circumscribed the boundaries of trial court discretion in denying class certification where there is an allegation of class-wide reliance on a material misrepresentation.  See Marler v. E. M. Johansing, LLC, No. B229445, 2011 Cal. App. LEXIS 1314 (Cal. Ct. App. Oct. 19, 2011) (available here).

The plaintiffs, elderly mobile home park residents, alleged that the defendant developer made material misrepresentations about a condominium conversion proposal, suggesting that the lots would be priced between $110,000 and $150,000 for purchase by the residents.  See id. at *1-2, 4-5.  Based on these representations, the residents voted to approve the conversion; however, the defendant subsequently notified the residents that the purchase prices would be substantially greater than previously stated: $198,000 to $240,000.  Id. at *6. 

The trial court denied the plaintiffs’ class certification motion, finding that the class was not ascertainable and lacked the requisite community of interest.  Id. at *9.  The Court of Appeal reversed, holding that the certification analysis was not a particularly close call, and that the trial court’s legal analysis was flawed.  See id. at *10-11.

In analyzing the class’ ascertainability, the Court of Appeal concurred with the trial court that the class definition was overbroad and potentially confusing.  However, the unanimous three-judge panel concluded that denying certification was not the proper response to overbreadth.  Rather, “[o]verbreadth may be cured by modifying the class definitions.”  Id. at *15.  Striking a pragmatic note, the Marler court added that “[b]ecause there is an identifiable class, plaintiffs’ rights should not be forfeited because of counsel’s choice of words in the complaint or class certification motion.”  Id. at *16-17.

 As to the community of interest issue, the Court of Appeal found fault with the trial court’s denial of certification based on variances in individual damages, contrary to long-established class action jurisprudence to the effect that different damages among class members does not preclude certification.  See id. at *18-19 (citing Sav-On Drug Stores, Inc. v. Super. Ct., 34 Cal. 4th 319, 334 (2004)).  The Court of Appeal also rejected the trial court’s position that individual proof was needed to show reliance on the defendants’ allegedly fraudulent statements.  Instead, the Marler panel underscored that where fraud is alleged, class-wide reliance may be inferred when a misrepresentation is shown to be material.  See id. at *20-21.

In an important articulation of the standing requirements under California’s Unfair Competition Law (UCL) and Rule 23’s requirement that common questions of law or fact predominate in certified class actions, the Ninth Circuit has reversed Central District Judge Dale Fischer’s 2008 denial of class certification in three consolidated cases alleging that Ticketmaster deceived plaintiffs into registering for a coupon program that resulted in nearly $60 million in unintended charges triggered by a website “click through.”  See Stearns v. Ticketmaster Corp., No. 08-56065, No. 09-56126, No. 10-55341, 2011 U.S. App. LEXIS 17454 (9th Cir. Aug 22, 2011) (available here).   

Judge Fischer had denied certification of the UCL action, reasoning that all class members—the named plaintiffs as well as the absent class members—must identically prove the requisite injury to establish standing and thereby be eligible to seek remedies for the allegedly deceptive practice.  Stearns at *11-12.  The necessity of those individual determinations, Judge Fischer concluded, gave rise to individual issues, thus precluding certification.  Id.  The Ninth Circuit reversed.  

Writing for a unanimous three-judge panel, Circuit Judge Ferdinand F. Fernandez explained that the California Supreme Court’s In re Tobacco II requires only that the named plaintiff in a UCL action demonstrate actual injury and that Ninth Circuit precedent holds the same, as do class actions generally, stating: “At least one named plaintiff must satisfy the actual injury component of standing in order to seek relief on behalf of himself or the class.  The inquiry is whether any named plaintiff has demonstrated that he has sustained or is imminently in danger of sustaining a direct injury as the result of the challenged conduct.”  Id., citing Casey v. Lewis, 4 F.3d 1516, 1519 (9th Cir. 1993).  He also underscored that “our law keys on the representative party, not all of the class members, and has done so for many years.”  Stearns at *15.

In a consolidated consumer class action brought under California’s unfair competition law (UCL, Cal. Bus. & Prof. Code §§ 17200, et seq.) and Consumer Legal Remedies Act (CLRA), the plaintiffs allege that the defendant’s Coppertone SPF 30 Sunblock Lotion is misleadingly labeled, such that consumers are erroneously caused to believe that the lotion blocks potentially carcinogenic UVA rays.  Judge Carl West denied the plaintiffs’ class certification motion on the familiar ground that common questions did not predominate.  California’s Second Appellate District reversed the trial court judge’s denial of class certification.  See Gaston v. Schering-Plough Corp., No. B214935 (Cal. Ct. App. Aug. 9, 2011) (order reversing denial of class certification) (available here).

Although Judge West acknowledged that Proposition 64 could not be reasonably interpreted as imposing the requirement that absent class members prove individual reliance and damages—not least because practically no class could ever be certified under such a stricture—he nonetheless found the presumption of UCL reliance, most prominently set forth in Vasquez v. Superior Court and In re Tobacco II Cases, inapplicable to the plaintiffs’ claims.  Specifically, Judge West found the reliance question to be “highly individual” because consumers would have different motives for buying the sunblock and, moreover, because the consumers responding to the survey presented by the plaintiffs’ expert were likely to have interpreted key terms differently.  See Gaston at 11-12.  The Court of Appeal panel disagreed and held that any difference in purchasing motives is irrelevant, since the only requirement for establishing the reliance of absent class members in a UCL claim is that members of the public are likely to be deceived, and stated, “the labeling claims were material to a reasonable person, and the court should have applied the presumption of reliance as a matter of law.”  Id. at 21.

Indeed, the plaintiffs amply supported their claims, primarily as to the predominance of common questions and incidentally on the merits, by introducing survey evidence confirming that over 90 percent of consumers believed the defendant’s sunblock in fact blocked the sun’s UVA rays.  In addition, 87 percent of those surveyed believed that the product’s claim of being waterproof implied that the lotion’s UVA blockage would endure swimming and other water exposure, and over 80 percent of consumer respondents were willing to pay up to 15 percent extra to obtain these perceived benefits.  See Id. at 6.

The Second District’s opinion confirms the validity of using expert economic and survey testimony to determine damages that are formally restitution under the UCL.  Consumer class actions regularly allege that a retailer’s or manufacturer’s omission or misrepresentation caused purchasers to pay more than they would have had they been in possession of all material information, and Gaston provides an important counter-weight to defendants’ contentions that such determinations are either impossible or unduly individualized for class treatment.

Federal district judge Richard Stearns has provisionally certified two classes in a case in which the plaintiffs have alleged that subsidiaries of insurance giant Cigna invested employee death benefits for their own profit, and without making required disclosures to beneficiaries.  Otte v. Life Ins. Co. of North Amer., No. 09-CV-11537 (D. Mass. June 10, 2011) (order granting class certification) (available here).

Named plaintiff Brenda Otte alleges that the Cigna subsidiaries are violating the Employee Retirement Income Security Act of 1974 (ERISA) by investing death benefits owed to beneficiaries without making full disclosures or accounting to the beneficiaries.  The division of the class into two sub-classes, one for claims that accrued during the three years before the action’s September 2009 filing date and the second for claims that accrued during the three years before the start of the first class claim period, reflects that an outstanding legal determination remains as to whether the complex ERISA statute of limitations could potentially preclude the latter class’ claims.  Additionally, Judge Stearns recognized that “the claims of the [second] sub-class may be so individualized as to be unmanageable as a class action.”  Order at 19 n.13.  Soon after certification, the court issued a scheduling order specific to determinations bearing only on the class as to which doubts remained.  Explaining why he opted for innovative case management tactics rather than simply denying certification altogether, Judge Stearns noted that “‘[c]ourts traditionally have been reluctant to deny class action status under Rule 23(b)(3) simply because affirmative defenses may be available against individual members.’” Order at 19, citing Smilow v. Bell Mobile Sys., Inc., 323 F.3d 32, 39 (1st Cir. 2003).

Thus, even as to an individual defense with complex underlying factual determinations, such challenges can be localized in specific sub-classes, preserving both the defendant’s due process rights and the efficiencies of class actions, rather than warranting a sweeping denial of class certification.  Moreover, Judge Stearns modifying the class definition on his own initiative underscores the fact that issues with class definitions ought not be a barrier to class certification.