The recent decision in Cholly v. Uptain Group, No. 15 C 5030, 2017 WL 449176 (N.D. Ill. Feb. 1, 2017), drives home the point—as we’ve discussed on the blog before—that sometimes the pleadings alone reveal that the requirements for class certification cannot possibly be met. In Cholly, the plaintiff alleged the defendant debt collector violated the Telephone Consumer Protection Act (“TCPA”) by calling her mobile phone using an automatic telephone dialing system (“ATDS”) after she had told the defendant to stop calling. The plaintiff sought to represent (i) a class of persons who received calls from the defendant where it did not have consent, and (ii) a subclass of persons who received calls after they revoked consent. But the district court struck all of the plaintiff’s class allegations under Federal Rule of Civil Procedure 12(f)—at the pleading stage and before discovery—and ordered that the case proceed on an individual basis.

At the outset, the court recognized that Rule 23(c)(1)(a) requires that it “determine whether to certify an action as a class action ‘[a]t an early practicable time’” and that a motion to strike class allegations under Rule 12(f) is an appropriate device to determine if the case will proceed as a class action. The court concluded that the plaintiff couldn’t satisfy the “typicality” requirement under Rule 23(a)(3) because she originally consented to the defendant’s calls and, thus, “cannot represent a class of persons who received calls from [the defendant] where [it] did not have express consent.”

The court held the plaintiff couldn’t represent the subclass either because she couldn’t meet the predominance requirement under Rule 23(b)(3). In particular, the court found that individual inquiries as to whether the putative class members revoked consent would predominate over any common questions of fact:

In order to determine whether each potential class member did in fact revoke his or her prior consent at the pertinent time, the [c]ourt would have to conduct class-members specific inquiries for each individual. The class members would not be able to present the same evidence that will suffice for each member to make a prima facie showing at the recipients of defendants’ telemarketing calls had validly revoked his or her prior consents.

The plaintiff has filed a petition for leave to appeal under Rule 23(f), and the Seventh Circuit directed the defendant to respond. We’ll report on any major developments.

Plaintiffs routinely bring consumer class actions under statutes that allow only consumers—not businesses—to bring claims, or that are limited to transactions solely for personal or household purposes. See, e.g., Electronic Funds Transfer Act, 15 U.S.C. § 1693a(2); Real Estate Settlement Procedures Act, 12 U.S.C. § 2606(a)(1); California’s Consumer Legal Remedies Act, Cal. Civ. Code § 1780. But in some cases, the “consumer” requirement can be the Achilles’ heel for class certification. If it is difficult to determine whether a particular customer is a “consumer” without individualized inquiries, a proposed class action may flunk the predominance, ascertainability, and manageability requirements for class certification.

For example, in a recent zip-code class action, Leebove v. Wal-Mart Stores, Inc., the retailer was accused of improperly requiring customers paying by credit card to provide their phone numbers and addresses in violation of California’s Song-Beverly Credit Card Act. But that statute creates a private right of action only for a “natural person to whom a credit card is issued for consumer credit purposes.” Cal. Civ. Code § 1747.02(d). Business entities and people who use corporate credit cards are not eligible to sue.

That fact was crucial for defeating class certification in Leebove. As the court explained, “before liability could be established with respect to each class member, individualized proof regarding whether each class member’s credit card was issued as a consumer or as a business card would have to be produced.” Although the court also identified other defects in the proposed class, the need for mini-trials as to whether each class member qualified as a “consumer” under the statute was key to the court’s holding that the plaintiffs had failed to establish predominance.

There should be many other opportunities to make this kind of argument either in opposing a motion for class certification or in moving to strike class allegations at the very outset of the case. Here are some ideas (and helpful authority):

  • If the class is defined to include only consumers, does the need for individualized inquiries into whether a purchaser qualifies as a consumer or a business render the class non-ascertainable? See, e.g., Walewski v. Zenimax Media, Inc., 502 F. App’x 857, 861 (11th Cir. 2012).
  • Alternatively, is the class overbroad because it includes businesses? See, e.g., Mazur v. eBay Inc., 257 F.R.D. 563, 567 (N.D. Cal. 2009).
  • Or is the question whether the putative class member qualifies as a consumer so individualized as to either defeat predominance or make a classwide trial unmanageable? See, e.g., Kennedy v. Natural Balance Pet Foods (pdf), 361 F. App’x 785, 787 (9th Cir. 2010); Johnson v. Harley-Davidson Motor Co. Group, LLC (pdf), 285 F.R.D. 573, 583 (E.D. Cal. 2012); Ballard v. Branch Banking & Trust Co., 284 F.R.D. 9, 13-16 (D.D.C. 2012); Ewert v. eBay Inc., 2010 WL 4269259, at *9 (N.D. Cal. Oct. 25, 2010).
  • Finally, if the named plaintiff himself or herself arguably is not a “consumer” under the applicable law, are his or her claims typical of those of the absent class members? See, e.g., Aberdeen v. Toyota Motor Sales, U.S.A. (pdf), 2009 WL 7715964, at *6 (C.D. Cal. June 23, 2009), aff’d in relevant part, 422 F. App’x 617 (9th Cir. 2011).

 

We recently blogged about one of the recent “class standing” decisions holding that a named plaintiff has standing to represent a class on false advertising claims challenging products the named plaintiff never purchased with labels the named plaintiff never saw. According to that decision, so long as the products that were purchased by the named plaintiff were “sufficiently similar” to the products purchased by the putative class, the named plaintiff had the requisite “sufficient ‘personal stake’ in the litigation” for standing purposes. For example, a named plaintiff who purchased only a few varieties of green tea had standing to sue in the name of a nationwide class challenging similar advertising of dozens of other tea varieties.

Even as some courts have found in favor of plaintiff on this threshold standing question, however, they recognize that it is but a single step along the way to class certification. Another major hurdle these plaintiffs face is to demonstrate that their claims are “typical” of those class members who purchased different products. In a recent decision, the Northern District of California made clear that this hurdle often will be insurmountable.

In Major v. Ocean Spray Cranberries, Inc., 2013 WL 2558125 (N.D. Cal. June 10, 2013), the plaintiff alleged that Ocean Spray’s product labels were false or deceptive in violation of California’s consumer protection laws. The plaintiff herself had bought only a few Ocean Spray products. But that didn’t stop her from suing in the name of a nationwide class of all purchasers of the entire gamut of Ocean Spray’s “100% Juice” products, “Sparkling” beverages, “Juice Drinks,” and “Cherry” products.

In ruling on class certification, Judge Davila started with Rule 23(a)(3)’s requirement “that Plaintiff’s claims be typical of those that would be advanced by the proposed class.” Judge Davila explained that typicality requires that “in determining whether to certify a class a district court must ‘ensure that the named plaintiffs have incentives that align with those of absent class members so as to assure that the absentees’ interest will be fairly represented.’” Among other things, “‘a class representative must . . . suffer the same injury as the class members.’”

Judge Davila added that when these principles are applied to “cases involving several products at issue—like the one presently before the Court—district courts have held that the typicality requirement has not been met where the ‘named plaintiff . . . purchased a different product than that purchased by unnamed plaintiffs.’” Judge Davila concluded that this case was no different, and held that “the proposed class representative . . . has not met her burden of showing that her claims are typical of those of the proposed class members.”

As Judge Davila explained, “[T]he typicality requirement has not been met” because “Plaintiff’s proposed classes are so broad and indefinite that they encompass products that she herself did not purchase” and “had nothing to do with.” Thus, purchasing Ocean Spray’s “Diet Sparkling Pomegranate Blueberry drink,” as the named plaintiff did, does not satisfy the typicality requirement over the entirety of Ocean Spray’s “Sparkling” line of products, because the various products may have differing labels and nutrition claims.

Plaintiff’s counsel responded to the decision by saying they intended “to refine” the complaint “to address the court’s articulated opinion.” [San Jose Judge Sets Up Roadblock for Plaintiff’s Lawyers in Food Labeling Case (LA Daily Journal June 12, 2013).] We’ll see.

Here’s the situation: You’re facing a class action in federal court in which the plaintiffs define the putative class so broadly as to encompass many people who weren’t injured by the alleged wrongdoing. For example, consider a false-advertising class action on behalf of “all purchasers” of a product that the vast majority of purchasers would have used without any problem whatsoever, meaning that the alleged rarely occurring (or entirely hypothetical) defect that the defendant failed to disclose makes no difference to them. What’s the best way to attack this weakness in the complaint?

One option would be to characterize the problem as a lack of Article III standing. Article III allows courts to hear a case only if the plaintiff has suffered an injury in fact that is fairly traceable to the defendant’s conduct and that could be redressed by a favorable decision from the court. In our hypo, the defendant could move to strike the class allegations on the ground that virtually all of the alleged class members lack standing.

This approach, however, has potential pitfalls. For example, some courts have held that Article III requires merely that the named plaintiffs have standing, a rule that (as plaintiffs argue with some success) allows a class action to go forward even though the putative class includes people who themselves lack standing and thus could not bring their own individual actions. See, e.g., Stearns v. Ticketmaster Corp., 655 F.3d 1013, 1021 (9th Cir. 2011). But see, e.g., Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th Cir. 2010); Denney v. Deutsche Bank AG, 443 F.3d 253, 263-64 (2d Cir. 2006). In the wrong jurisdiction, the court will simply deny the motion to strike as foreclosed by circuit precedent.

To avoid this difficulty, the defendant can move to strike the class allegations, using the fact that most class members are uninjured to challenge commonality, typicality, adequacy, and predominance. Of course, because courts are divided over the standing issue, that issue is ripe for eventual Supreme Court review. Defendants therefore should consider raising the standing defect in the alternative in order to preserve the issue (though insofar as standing is jurisdictional, it should be possible to raise it at any time even if it has not been raised before).

But what if the named plaintiffs themselves appear to be uninjured because they didn’t experience the alleged product defect either? The defendant could challenge their standing in a motion to dismiss for lack of subject matter jurisdiction. But there is a risk to doing so. Some federal courts believe that the proper course when the named plaintiffs lack standing is to remand the case to state court, where laxer concepts of standing, more lenient class-certification standards, and antipathy toward out-of-state businesses may hamstring the defendant’s ability to defend itself. To make matters worse, the Tenth Circuit recently held that a district court decision remanding a class action to state court for lack of “standing” is non-reviewable under 28 U.S.C. § 1447(d). See Hill v. Vanderbilt Capital Advisors LLC (pdf), No. 11-2213 (10th Cir. Dec. 27, 2012). Accordingly, unless there is clear Circuit precedent indicating that the district court should not remand in this situation or the state court to which the case would be remanded is not hostile to business defendants, companies confronted with such a dilemma may be better served challenging the merits of the plaintiffs’ claims rather than their standing to assert them.

We’ve been blogging about the Second Circuit’s decision in NECA-IBEW Health & Welfare Fund v. Goldman Sachs (pdf), which held that a named plaintiff in a securities fraud suit might have standing in some situations to assert class action claims regarding securities that he or she never purchased. Yesterday, the Supreme Court denied (pdf) Goldman’s petition for certiorari (pdf) in that case. We’ll continue reporting on the aftermath of the Second Circuit’s decision.

In the meantime, defendants facing these sorts of claims should remember that the Second Circuit’s novel standing test requires that the claims regarding the unpurchased securities raise the same set of concerns as the claims regarding the securities that the named plaintiff actually bought. That limitation should help trim the sails of expansive securities fraud class actions.

In addition, defendants should emphasize that the fact that a named plaintiff may have standing to sue does not mean that he or she can represent a class of purchasers of securities that the named plaintiff never bought. At class certification, the defendant may be able to mount challenges to commonality, typicality, adequacy, and predominance based on the fact that the named plaintiff never bought some of the securities at issue.

Plaintiff Christopher Rapczynski testified that he purchased Skinnygirl Margarita mix “because I love my wife,” she “said she liked it,” and she “has my three children and works very hard.” Those all may be good reasons for a nice Valentine’s Day present, but not for bringing a class action. As the Southern District of New York recently held, Rapczynski was an inadequate class representative—not for lack of love—but because he hadn’t relied on the allegedly false claim on the product’s label about which he was suing. For that and other reasons, the court denied certification of a putative class of Skinnygirl purchasers. See Rapczinsky v. Skinnygirl Cocktails LLC (pdf), 2013 WL 93636 (S.D.N.Y. Jan. 9, 2013).

Rapczynski had filed a putative false advertising class action against the makers and distributors of Skinnygirl Margaritas, alleging that the “All Natural” statement on the product label was misleading because the product contains sodium benzoate (a preservative) and mixto (a tequila byproduct). (The Skinnygirl brand was created by reality TV star Bethenny Frankel, but as fans of her show know (and non-fans can learn from Wikipedia), she sold the brand for an obscene amount.)

The court found that Rapczynski was not an adequate representative of the class and that his claims were not typical of those of the putative class members because his deposition testimony confirmed that he hadn’t relied on the allegedly false statement, a necessary element of claims for breach of express warranty and promissory estoppel under New York law. Rapczynski admitted that he had bought the product to thank his wife and because he knew that she enjoyed it, rather than because of anything on the label. His statements further established that “he would have bought that product regardless of price” and that “his belief with respect to its naturalness was irrelevant to his purchasing decision.”

The court also held that Rapczynski’s claims were not typical of those of a putative class of New York purchasers because he had bought the product outside of New York state and thus was attempting “to assert the class’s rights under at least two statutes that do not guard against the [out-of-state] transactions which allegedly caused him injury.”

The court’s denial of class certification serves as a reminder that the deposition of a class representative can be the key to defeating class certification. It is also a reminder that consumers buy products for all sorts of reasons—including ones that have absolutely nothing to do with the representations alleged in a false-advertising or breach-of-warranty complaint. Although not every class representative may be as candid as Rapczynski, the cases serves as a good illustration of the kinds of arguments that defendants in false advertising class actions can develop to show either that the proposed class representative is atypical and inadequate or that the reliance or causation elements of the plaintiffs’ claims turn on an endless series of individualized determinations, thus precluding class certification.

In litigation—as in war—it is natural to focus on winning today’s skirmish and to defer planning for battles that might not happen for weeks or months.  But that shortsightedness can lead to strategic blunders—as one class action plaintiff suing Capital One Bank and credit counseling agency InCharge Debt Solutions recently learned the hard way.

In King v. Capital One Bank (USA), N.A. (pdf) (W.D. Va.), the plaintiff, who had asked InCharge to help her with a debt-management plan for some debts she owed to Capital One, alleged that (among other things) the two companies had a hidden relationship that violated the Credit Repair Organizations Act.  After she filed a class action, the defendants moved to compel arbitration on an individual basis under the arbitration clause in her written contract with InCharge.

In response, the plaintiff argued that she never agreed to arbitrate because—despite InCharge’s evidence that it had a standard practice of providing its customers with contracts containing an arbitration clause—she somehow had not been given a copy.  This type of contract-formation challenge appears to be increasingly common after the Supreme Court’s decision in Concepcion confirmed that federal law generally requires enforcing agreements to arbitrate on an individual basis.  And in a narrow sense, the argument was successful: the court held that the plaintiff was entitled to a bench trial on whether she had agreed to arbitrate.

But in making this argument, the plaintiff failed to appreciate that it would sink her ability to maintain a class action.  For if the plaintiff hadn’t agreed to the standard contract, she wouldn’t be typical of the putative class of customers—the vast majority of whom would have received written contracts and thus be subject to enforceable arbitration agreements.  Nor could she represent a class of other customers who hadn’t been given copies of their contracts.  Even assuming that there were enough such customers to satisfy Rule 23(a)(1)’s numerosity requirement, identifying those customers and evaluating the varying scenarios in which a customer might not have signed a contract would require a host of individualized inquiries, thus preventing common issues from predominating over individualized ones.  For these reasons (and other defects in the putative class action), the court granted the defendants’ motion to strike the class allegations.

The takeaways from this case are that class action defendants should be alert for opportunities to turn plaintiffs’ arguments at one stage of the case against them in other stages and, when appropriate, should move to strike class allegations rather than play on the plaintiffs’ turf by waiting to resist a motion for class certification.  There frequently are openings for legal jujitsu when a plaintiff’s opposition to a motion to dismiss or to compel arbitration highlights individualized issues that can defeat class certification.  And defendants often can minimize their defense costs by immediately moving to strike the class allegations on those grounds, rather than waiting until the plaintiff has moved for class certification after potentially expensive and burdensome discovery.