Early this year the Ninth Circuit U.S. Court of Appeals put the brakes on applying California's consumer-friendly laws to national class actions - in the process possibly curbing the ability of plaintiffs lawyers to roll up class members in other states.
The ruling came on an interlocutory appeal in a class action involving a sophisticated automobile braking system first offered by American Honda Motor Co. in 2005. Honda promised in its advertising that the system, available as part of a $4,000 optional package on certain Acura models, would reduce the danger of rear-end collisions with a three-step process: first warning the driver, then braking, and tightening the occupants' seat belts.
What Honda didn't mention in its marketing was that the three stages sometimes overlapped, potentially causing the system to shut down completely in rain, snow, or fog - when drivers might need it most.
In 2007 Michael and Janet Mazza purchased an Acura equipped with the braking system in Orlando, Florida. Later that year plaintiffs filed a class action in Los Angeles federal court on behalf of Acura consumers in 44 states. They alleged that ads by American Honda, headquartered in Torrance, misrepresented or failed to mention the braking system's flaws in violation of the state Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code § 17200-17210); the False Advertising Law (Cal. Bus. & Prof. Code § 17500-17509); and the Consumer Legal Remedies Act (CLRA) (Cal. Civ. Code § 1750-1785).
U.S. District Judge Valerie Baker Fairbank granted the plaintiffs' renewed motion for nationwide class certification in 2008, concluding that common questions predominated over individual ones. In addition, Fairbank ruled that California law could be applied to all class members because Honda had failed to show that differences in state consumer protection laws were material (Mazza v. American Honda Motor Co. Inc.
, 254 F.R.D. 610 (C.D. Cal. 2008)).
Honda appealed, disputing the plaintiffs' commonality and alleging that material differences did
exist between California's laws and those of the other 43 states. The Ninth Circuit accepted the case but deferred consideration pending a U.S. Supreme Court ruling in Wal-Mart Stores, Inc. v. Dukes
(131 S. Ct. 2541 (2011)).
In January, a three-judge panel vacated the class as overbroad. It found that plaintiffs had satisfied their commonality burden under the new Wal-Mart
guidelines - but that the district court erred by concluding California law could be applied to the entire class and by presuming that all consumers had relied on Honda's advertisements (Mazza v. American Honda Motor Co. Inc.
, 666 F.3d 581 (9th Cir. 2012)).
Writing for the majority, Circuit Judge Ronald M. Gould found "the 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." He added, "[I]f California law were applied to the entire class, foreign states would be impaired in their ability to calibrate liability to foster commerce."
Perhaps just as important, Judge Gould also found that the trial court could not presume that class members had relied on Honda's allegedly misleading advertisements. In the Tobacco II
ruling, the state Supreme Court held that Prop. 64 - passed by voters in 2004 - had imposed reliance requirements only on the named plaintiff in consumer litigation, not on unnamed class members. The ruling permitted a presumption of consumer reliance on smoking ads because tobacco advertising had lasted for decades and was broadly disseminated. (In re Tobacco II Cases
, 46 Cal. 4th 298, 313-314 (2009)).
Judge Gould ruled in Mazza
that absent a similar promotional campaign, consumer class members must be "exposed to advertising that is alleged to be materially misleading."
In dissent, Judge Dorothy W. Nelson warned, "The majority's proposed standard will prove devastating to consumers." She predicted, "[If] a nationwide class action is not a potential consequence, corporations can choose increased revenues over the consumer with impunity."
In February plaintiffs petitioned for en banc review. "The panel opinion does not merely torpedo this particular nationwide class action against Honda, it also threatens to sink the nationwide class action device itself," Theodore Maya, an associate with Los Angeles's Ahdoot & Wolfson, wrote in the plaintiffs' petition. Rebecca M. Labat, another of the plaintiffs' counsel at Initiative Legal Group APC in Los Angeles, declined to comment while the petition is pending.
Others in the plaintiffs bar contend the panel's decision is just wrong-headed. "I think that the decision misapplies California choice of law rules and misapplies the UCL," says Kimberly A. Kralowec, a specialist in UCL litigation for the Kralowec Law Group in San Francisco.
In particular, Kralowec calls Judge Gould's application of the state's governmental interest test for determining choice of law "deeply flawed." Under California law, a trial court must decide whether laws on an issue differ in the affected jurisdictions, if conflict exists between those laws, and which jurisdiction would be more impaired if its law were not applied. Applying that test, Judge Gould found that differences in the scienter and reliance requirements in various state consumer protection laws "will spell the difference between the success and failure of a claim."
Kralowec, however, contends proof of consumer reliance is not
an element of a UCL claim. "One only has to show that consumers were likely to be deceived," she says. "Yet the court held there was no reliance [on the advertising]." As for judicial deference to states with more business-friendly climates, Kralowec calls Judge Gould's comments dicta. "He says other states have an interest, but he doesn't cite anything to show it."
Neither Honda nor its lawyer, Eric Y. Kizirian of Lewis Brisbois Bisgaard & Smith in Los Angeles, would comment on the appeal. But Anna S. McLean, a partner in the business trial practice group at the San Francisco office of Sheppard Mullin Richter & Hampton, says the appellate ruling follows a general trend away from applying one state's law nationwide.
"Courts can't assume reliance when it is not clear that consumers saw the ads," McLean says. As a result of Mazza
, she predicts, courts "will need to look at choice of law in light of other state policy decisions. That will be part of the analysis. And on reliance, that will be a higher hurdle for plaintiffs to meet."
McLean admits that plaintiffs lawyers might adjust by simply filing more lawsuits on behalf of smaller classes. Still, Mazza
promises to "decrease the bet-the-company-size cases," she says. "One jurisdiction, one court, one jury deciding a case can have a profound effect. I think defendants prefer multiple courts rather than one."
Pamela A. MacLean, a freelance writer based in the Bay Area, has reported on state and federal courts for more than 25 years.