Tuesday, September 22, 2015

Google can't avoid class action just because damages are variable

Pulaski & Middleman, LLC v. Google, Inc., No. 12-16752 (9th Cir.  Sept. 21, 2015)
From 2004-08, many advertisers used Google’s AdWords to bid for Google to put their ads on websites. Pulaski sued under the California UCL and FAL, alleging that Google misled them as to the types of websites on which their advertisements could appear. Under Google’s auction system, the price of a click varied based on several factors: other bidders’ maximum bids, the ad’s quality score, and a “Smart Pricing” discount applied to the website where the ad was placed.  This discount comes from a ratio calculated by dividing the conversion rate for a lower-quality website by the conversion rate of google.com.  Although Google’s registration process only discussed Search Feed and Content Network placement—the first where the ads varied by the nature of the user’s search, and the second where the ads were determined by the content on the rest of the website, such as nytimes.com—AdWords also ran on parked domain pages and error pages.
After Google changed the AdWords program to let advertisers exclude parked domain and error pages, Pulaski sought only the equitable remedy of restitution. The district court held that common questions didn’t predominate because of damages issues, rejecting Yokoyama v. Midland National Life Insurance Co., 594 F.3d 1087 (9th Cir. 2010).  The court of appeals reversed.
Pulaski proposed three different methods for calculating restitution, all of which were based on a “but for” or “out-of-pocket loss” calculation: the difference between what advertisers actually paid and what they would have paid had Google informed them that their ads were being placed on parked domains and error pages.  One was based on the Smart Pricing discount ratio; a second method factored in the lower bidding that would have occurred had advertisers been allowed to bid separately on parked domains and error pages. A third method would provide full refunds for clicks on ads placed on parked domains and error pages. Each method would provide better results for different subgroups than the other methods.
The district court found that Rule 23(a) was satisfied in terms of numerosity, commonality, typicality, and adequate representation. However, for Rule 23(b)(3) predominance, the district court found that ascertaining who was even entitled to restitution would require individual inquiries, since “many advertisers … have no legal claim to restitution because they derived direct economic benefits from ads placed on parked domains and error pages.”  Individual questions would also arise in determining the amount of restitution owed.  Yokoyama held that damages calculations alone cannot defeat class certification, but that case involved a “workable method for calculating monetary recovery.” Here, the district court held, plaintiffs lacked such a workable method, given differing costs for each advertiser, each ad, and each click, overlaid with an auction process.
The court of appeals reversed. Entitlement to restitution was a common question.  The UCL and FAL are worded broadly; for false advertising claims, all a plaintiff must show is likely deception, not “individualized proof of deception, reliance and injury.” “[I]n effect, California has created what amounts to a conclusive presumption that when a defendant puts out tainted bait and a person sees it and bites, the defendant has caused an injury; restitution is the remedy.”
Google argued that class members were exposed to different information and thus couldn’t be treated together.  Pulaski responded that the conduct at issue was consistent: “all AdWords customers could select Search Feed pages, Content Network pages, or both; parked domain and error pages were never mentioned in AdWords’s sign-up materials; Google’s contracts with advertisers never disclosed that Google would place their ads on parked domains and error pages …; and Google’s materials answering frequently asked questions did not disclose ad placement on parked domain and error pages.”   Because Pulaski’s claims were based on the AdWords sign-up materials, “all of which were presented to putative class members through the same online portal,” Google’s argument failed.

The UCL and FAL provide for restitution as a remedy.  Courts need not make individual determinations about entitlement to restitution, which is available classwide once there’s a threshold showing of liability.
What about damage calculations?  Yokoyama held that “damage calculations alone cannot  defeat  certification.”  Google argued that Comcast Corp. v. Behrend, — U.S.—, 133 S. Ct. 1426 (2013), displayed Yokoyama, but that case involved a failure to provide a damages model that could link the plaintiff’s legal liability theory to only those damages attributable to that theory.  Comcast didn’t overrule Yokoyama as long as plaintiffs can show that their damages stemmed from the defendant’s actions that created the legal liability. Other circuits have agreed.
Google then argued that Pulaski’s proposed method for calculating restitution was “arbitrary,” but the court of appeals disagreed.  Restitution is “the return of the excess of what the plaintiff gave the defendant over the value of what the plaintiff received.” Restitution aims “to restore the defrauded party to the position he would have had absent the fraud,” and “to deny the fraudulent party any benefits, whether or not for[e]seeable, which derive from his wrongful act.”  In cases of deception, the consumer buys a product that he or she pays more for than he or she otherwise might have been willing to pay if the product had been labeled accurately.  This harm can occur even if the court views the products as functionally identical (as with two wines from different vintages), as long as the consumer wouldn’t.  Thus, UCL and FAL restitution is based on what a purchaser would have paid at the time of purchase had the purchaser received all the information.
California “requires only that some reasonable basis of computation of damages be used, and the damages may be computed even if the result reached is an approximation.” “[T]he fact that the amount of damage may not be susceptible of exact proof or may be uncertain, contingent or difficult of ascertainment does not bar recovery.”  Pulaski’s proposed method wasn’t arbitrary.  It didn’t need to account for post-purchase benefits, because the focus is the value of the service/what the consumer would have paid at the time of purchase. 
Pulaski’s main method of calculating restitution for Google’s placement of ads on lower-quality-than-expected web pages used Google’s Smart Pricing ratio, “which directly addresses Google’s alleged unfair practice by setting advertisers’ bids to the levels a rational advertiser would have bid if it had access to all of Google’s data about how ads perform on different websites.” Using a ratio that adjusts for web page quality “is both targeted to remedying the alleged harm and does not turn on individual circumstances.” The court therefore didn’t need to address the alternative methods.

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