Wednesday, December 28, 2011

No class treatment for "cure" claims

Doe v. Passages Malibu, 2011 WL 6739610 (Cal.App. 2 Dist.)
Doe was a former client of defendant Grasshopper House d/b/a Passages Malibu, an alcohol and drug treatment center.  He sued after his admission was terminated early as a result of his allegedly violent threats against the owner of the facility. He paid $200,000, and argued that he was wrongfully denied a refund of over $100,000 for the unused period of his stay. He also contended that defendants' use of the word “cure” in advertising was unlawful and misleading.
He wanted to sue on behalf of a class consisting of all clients who had paid for “the addiction cure services” during the class period, and a subclass who’d been involuntarily terminated without a refund.  Doe argued that the CLRA and UCL claims could be dealt with classwide because they relied on the same misrepresentations of addiction cure services, and that the core of the case was that Passages wasn’t licensed to provide medical treatment and falsely represented that it could offer a medical cure.  Given the undeniable materiality of a promised cure to a class of people suffering from addiction, he contended, the claims were amenable to class treatment.  He cited case law that causation on a classwide basis could be shown by materiality, and that a material misrepresentation would give rise to an inference of reliance for the class.
Defendants argued that class treatment was inappropriate.  Each client signed a contract on admission acknowledging that no guarantee of recovery had been made, thus making issues of materiality or reliance vary from consumer to consumer.  Further, defendants argued, each class member’s right to medical privacy would render management difficult or even impossible.  Plus, the large admission fee would give each member sufficient incentive to litigate on her own.
The trial court denied certification, and the court of appeals affirmed.  Substantial evidence supported the trial court’s determination that common questions of law or fact didn’t predominate.  In order to establish commonality in false advertising, a plaintiff must show at a minimum that each class member was exposed to the ads.  But the class definition included people who never saw any of Passages’s ads, as well as people who were cured.  Tobacco II was not to the contrary; it involved standing, not commonality.  Even assuming that the class comprised only those exposed to the ads at issue, Doe would have to show reliance, and the trial court found that reliance and causation couldn’t be established classwide, a finding that was supported by the evidence.
If materiality or reliance would vary from consumer to consumer, the issue is not subject to common proof, and the action is properly not certified as a class action. That was the situation here because, “among other reasons, there was no evidence of a common misrepresentation that had caused injury to the entire class, and there was a potential conflict between those class members who had read and attempted to negotiate the allegedly unconscionable contract and those, like plaintiff, who had not read or negotiated the contract.”  But isn’t a promised cure inherently material to these vulnerable consumers, and thus presumed to cause classwide reliance?  Passages argued that the contract dispersed any such inference, and Doe didn’t address the contract until his reply brief.  The court of appeals held that the enforceability of the contract provision might vary from client to client; Doe’s declaration said that he didn’t read or understand the contract and was mentally and physically impaired when he signed it.  That supported a finding that his claim was not typical and that potential class members differed.
Moreover, the court of appeals affirmed denial of certification of the UCL claim on superiority grounds, even though the UCL claim didn’t require reliance or proof of exposure to deceptive advertising.  The proposed class included those who were actually cured, which mattered to the question of restitution, which is measured by the difference between what the plaintiff paid and the value of what she received.  For cured class members, that difference was zero.  For those who relapsed, calculating restitution wouldn’t be a simple matter of calculating the cost per day to attend Passages.  Thus, the trial court reasonably denied certification of the proposed class on the ground that, in order to fashion a restitution award, “it would be necessary to litigate the degree of each class member's recovery (or lack thereof) from addiction.”

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