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New Jersey Federal Court OKs Nationwide Class Under NJ Consumer Law

Posted in Class Certification

A New Jersey district judge has certified a nationwide class to pursue claims under the New Jersey Consumer Fraud Act (NJCFA) (pdf), in conflict with the decisions of other courts that have refused to permit nationwide classes to proceed under the law of a single state. The plaintiffs in Kalow & Springut, LLP v. Commence Corp.2012 WL 6093876 (D.N.J. Dec. 7, 2012), contend that Commence, a New Jersey software company, intentionally inserted a “time bomb” that caused its software to stop working in 2006 in order to force users to buy a software fix or upgrade.

Most of the plaintiffs bought the software and were allegedly injured in states other than New Jersey, and it was in those states that they would have received and relied on any misrepresentations by omission. And the district court recognized that the consumer laws of the 51 jurisdictions differed in material respects. Nonetheless, based on its application of New Jersey choice-of-law principles (which follow the Restatement’s most-significant-relationship test), the court concluded that New Jersey’s interests in preserving the reputations of its local merchants outweighed the interests of other states in regulating business transactions that occurred within their borders and were claimed to injure their citizens. Because the NJCFA is one of the strictest consumer laws in the nation, the court found that other states’ interests in applying their own laws to in-state transactions would not be impaired. In effect, the court held (as I see it) that the most plaintiff-friendly rule is always acceptable everywhere else.

That approach contrasts with the Ninth Circuit’s decision in Mazza v. American Honda Motor Co. Applying California’s governmental interest test for choice of law, the Ninth Circuit held that the interests of the states where the allegedly offending communications were made and where reliance might have occurred had a predominant interest in setting the rules for out-of-state businesses’ operations within their borders—an interest that outweighed California’s interest in imposing its laws on the nationwide operations of companies headquartered there. The Mazza court rejected the notion that the imposition of the most plaintiff-friendly rule would not impair the interests of states that had decided to provide a more business-friendly legal environment. (Full disclosure: I represented Honda before the Ninth Circuit in Mazza.)

The apparent conflict between Kalow and Mazza cannot be explained by any differences between California and New Jersey choice-of-law principles, especially because the New Jersey Supreme Court has characterized the governmental interest test as “substantially similar” to New Jersey’s most-significant-relationship test—in an opinion that confirmed the continuing significance of the place of injury in New Jersey choice-of-law analysis.

In addition to creating an apparent conflict with Mazza, the decision in Kalow included a noteworthy dictum (in footnote 8) suggesting that the Third Circuit’s en banc decision in Sullivan v. DB Investments, Inc. made any choice-of-law inquiry at the class certification stage optional. Yet Sullivan involved a settlement class, a context in which choice-of-law often receives a back seat because courts need not address whether a settled class action is manageable at trial.

Kalow is one of a handful of exceptions to what we see as growing skepticism by the federal courts about certifying nationwide class actions under the law of a single state. Mazza is likely the most significant recent case on the issue, focusing on Rule 23 and choice-of-law arguments. Relatedly, my colleagues Archis Parasharami and Kevin Ranlett have written a piece for InsideCounsel identifying arguments against nationwide class actions based on due process and federalism principles.