Mazza v. American Honda Motor Co., Inc., --- F.3d ----, 2012
WL 89176 (9th Cir.)
A little late, but this case will be much cited (see forthcoming post), so I'm doing it anyway. Over a strong dissent by Judge Nelson, the court of appeals
reversed a certification of a nationwide class under California law, though
still adhered to a bunch of 9th Circuit precedent on standing
despite defendant Honda’s arguments.
The district court certified a class of all consumers who
purchased or leased Acura RLs equipped with a Collision Mitigation Braking
System (“CMBS”) during a 3 year period, based on claims that certain
advertisements misrepresented the characteristics of the CMBS and omitted
material information on its limitations. The CMBS was part of an optional technology
package costing $4000 (it also included adaptive cruise control and run-flat
tires). Honda advertised that it
detected the proximity of other vehicles; assessed speed; and implemented a
warning, braking, and seatbelt-tightening process to minimize damage from
rear-end collisions.
The claims about the CMBS were made in product brochures
available at dealerships, in TV ads, and in magazine ads. Two intranet commercials stating that the
system had limitations were viewable at kiosks at Acura dealerships, and Honda
encouraged dealers to show them to potential customers, though the extent of
use was unclear. It also put video clips
up on its websites directed at (but not limited to) owners. And it Acura Style—a magazine sent to
dealerships, subscribing owners, and “interested consumers”—reported on CMBS in
an article. In addition, the owner’s
manual explained that CMBS might shut off in certain conditions, including bad
weather, with a 5-second alert displaying on the instrument panel.
Plaintiffs alleged that Honda didn’t warn consumers that (1)
the stages of the advertised 3-stage collision avoidance system might overlap,
(2) the system might not warn drivers in time, and (3) the system shuts off in
bad weather. After several rounds of
briefing, the district court granted certification on the usual California
statutes. Class members purchased or leased
their cars in 44 different states, though 12 states account for 76% of class
members, with California at 20%, Florida at 10%, and New York, Virginia, New
Jersey, Texas, Pennsylvania, Washington, Illinois, Maryland, Massachusetts, and
Ohio at 3–6% each.
The district court found several common questions of law and
fact:
(1) whether Honda had a duty to Plaintiffs and the
prospective class members to disclose that: the three stages of the CMBS System
overlap; the CMBS will not warn drivers in time to avoid an accident; and that
the CMBS shuts off in bad weather;
(2) whether Honda had exclusive knowledge of material facts
regarding the CMBS System, facts not known to the Plaintiffs and the
prospective class members before they purchased the RL equipped with the CMBS
System;
(3) whether a reasonable consumer would find the omitted
facts material; and
(4) whether Honda's omissions were likely to deceive the
public.
The district court also found predominance and that
California “as the forum state, has enough significant contact or aggregation
of contacts to the claims asserted, given Defendants' contacts with the state,
to ensure that the choice of California law is not arbitrary or unfair to
nonresident class members.” California
law could be applied to all class members because Honda didn’t show how
state-law differences were material or how other states had interests in
applying their laws in this case. Under
California law, class members were entitled to an inference of reliance on a
material misrepresentation.
The burden is on the party seeking certification. On appeal, Honda challenged commonality,
relying on Dukes.
Commonality requires a common contention, such that determination of its
truth or falsity will resolve an issue central to the validity of each
claim. Honda argued that the “crucial
question” of “which buyers saw or heard which advertisements” was not
susceptible to common resolution, and that a showing of a “greater propensity
to purchase” is “the same type of abstract question of potential peripheral
significance that the Court in Dukes held was not common”
under Rule 23(a)(2).
The problem with Honda’s argument was that commonality only
requires a single significant question of law or fact. Even accepting Honda’s “crucial question”
idea, those individual issues went to preponderance under Rule 23(b)(3), not
commonality.
On to Rule 23(b)(2), superiority and predominance. Honda first challenged the uniform
application of California law to class members in 44 jurisdictions. Under California choice of law rules, the
class action proponent must first show that California has “significant contact
or significant aggregation of contacts” to the claims of each class member. At
that point, the burden shifts to the other side to demonstrate “that foreign
law, rather than California law, should apply to class claims.” California law may only be used if “the
interests of other states are not found to outweigh California's interest in
having its law applied.” In turn, this
question is resolved by asking whether the laws of the jurisdictions are
different and what interests they have in having their own laws apply. If there’s a true conflict, the states’
interests must be weighed to figure out which one’s would be more impaired if
its policy were subordinated to the policy of the other state.
California had a constitutionally sufficient aggregation of
contacts to the claims of each putative class member in this case because
Honda's corporate headquarters, the advertising agency that produced the
allegedly fraudulent misrepresentations, and one fifth of the proposed class
members were located in California. However, the district court abused its
discretion in certifying a class under California law that contained class
members who purchased or leased their car in different jurisdictions with
materially different consumer protection laws.
Honda “exhaustively detailed the ways in which California
law differs from the laws of the 43 other jurisdictions in which class members
reside.” The district court found that Honda had not met its burden of
demonstrating that any of these differences were material, but the majority
disagreed. Some states require scienter,
unlike California. California named
class plaintiffs have to show reliance, while other states’ statutes don’t
require that. These were not “trivial or
wholly immaterial differences.” Moreover,
there were material differences in remedies, which might depend on
wilfulness. Unjust enrichment claims
also varied from state to state.
Given these differences, the next question was whether the
other states’ interests outweighed California’s. Each state is allowed to make its own
judgments about prohibiting conduct within its borders, and has an interest in
having its law applied to resident claimants.
Thus, the 44 states at issue here had a strong interest in applying their
own consumer protection laws to these transactions. “In our federal system, states may
permissibly differ on the extent to which they will tolerate a degree of
lessened protection for consumers to create a more favorable business climate
for the companies that the state seeks to attract to do business in the state.”
Note that there is an empirical claim embedded in this
statement: that making things better for consumers makes things worse for
businesses. As George Akerlof famously
demonstrated, there are at least some circumstances where this is false:
consumers who have no reason to believe sellers’ promises have little reason to
buy—as, perhaps, potential customers in the market for private-label
mortgage-backed securities might be the most recent to testify. Indeed, all the states adopted consumer
protection laws in part with the rationale that doing so served to enhance the
fortunes of those businesses that treated consumers well, so while one may
argue that it is legislatures and not courts that ought to make this call, state legislatures in fact have made this
call. Thus, the strong form of this empirical
claim is hard to accept even as a conflict of laws principle.
Still, the majority held that 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…. Maximizing
consumer and business welfare, and achieving the correct balance for society,
does not inexorably favor greater consumer protection; instead, setting a
baseline of corporate liability for consumer harm requires balancing the
competing interests.” The balance “between
protecting consumers and attracting foreign businesses, with resulting increase
in commerce and jobs,” is a policy decision for legislatures and courts within
each state. “More expansive consumer
protection measures may mean more or greater commercial liability, which in
turn may result in higher prices for consumers or a decrease in product
availability.” Each state should be able
to make that call on its own, and has an interest in applying its own limits on
liability.
California conflict of laws doctrine isn’t supposed to
identify the “best” social policy. Thus,
the district court didn’t give adequate weight to foreign states’ interests in
applying their laws to transactions within their borders, and the impairment to
those interests caused by application of California law to those transactions. The district court wrongly elevated state
interests in consumer protection, “while ignoring or giving too little
attention to each state's interest in promoting business.” CAFA was supposed to stop that. Also,
California generally considers the place of the wrong (where the last act
necessary to make the actor liable occurred, here the communication of the ads
to the customers) as having the predominant interest. California’s interest in regulating such
transactions is attenuated, even though Honda is a California corporation. Under the circumstances, each state’s
consumer protection laws should apply to transactions within that state’s
borders.
Thus, the certification order was vacated; the majority expressed no view on
whether certification of a California-only class or state by state subclasses
would be appropriate, in the latter case with different jury instruction for
materially different bodies of state law.
Honda also argued that there was no predominance of
individual issues because individualized determinations of whether class
members were exposed to misleading ads and whether they relied on the ads would
be required. It contended that presuming
common exposure and reliance violated Article III’s standing requirements
because nonexposed/nonrelying class members didn’t suffer an injury in fact.
The court found for Honda on the predominance argument but
against it on standing. The UCL allows
relief to absent class members without individualized proof of deception,
reliance, or injury; Honda concluded that therefore the class included
individuals who have no injury in fact.
However, to the extent that class members paid more for the CMBS than they
otherwise would have paid, or bought it when they otherwise wouldn’t have,
because of Honda’s deceptive claims, they suffered injury in fact. In light of existing precedent, the fact that
state law gives a right to relief without more particularized proof of injury
and causation was not enough to preclude standing.
However, the majority agreed that the misrepresentations here
didn’t justify a presumption of reliance, “primarily because it is likely that
many class members were never exposed to the allegedly misleading
advertisements, insofar as advertising of the challenged system was very
limited.” While an inference of reliance
has been made in other cases where the advertising at issue was broadly
disseminated, there was no extensive and long-term fraudulent campaign
here. (The majority seems to give weight
both to the extent of the campaign and to the fact that Honda’s misconduct
allegedly came from omitting the limitations of its systems rather than from
outright fraud.) The limited scope of
the ads at issue made it unreasonable to assume that all class members viewed them. In the absence of a “massive” ad campaign,
the relevant class has to be defined in such a way as to include only members
who were exposed to the ads, and also to exclude members who learned the truth
before they bought. Thus, certification
was also vacated because “common questions of fact do not predominate where an
individualized case must be made for each member showing reliance.”
The majority, in a footnote, differed with the dissent over “the
importance of the individualized questions of law or fact over which any common
questions must predominate.” The
majority concluded that the dissent gave inadequate weight to the limited dissemination
of the Honda ads at issue, making reliance harder to presume. On choice of law, the dissent gave inadequate
weight to differences in consumer protection laws.
Judge Nelson dissented.
The CLRA and UCL allowed a presumption of reliance, and the focus of the
inquiry shouldn’t be on which class members saw the ads and relied on
them. They were broadly disseminated,
and they omitted potentially material information. Plaintiffs alleged that everyone in the class
was exposed, even if other information was potentially available, and they also
alleged that the named plaintiffs and class members wouldn’t have paid for the
CMBS system with adequate disclosure. This was enough to impute reliance to the
class.
The dissent concurred that Honda’s contacts with California
were sufficient to satisfy the Constitution.
Honda’s principal place of business and corporate HQ are in California,
and so are the ad agencies that created ads for the CMBS system and internet-based
ads.
On choice of law, the dissent found only one potentially
material difference in state laws: Louisiana, Georgia, Mississippi, Kentucky,
Virginia and Alabama prohibit class actions that allege unfair trade practices
under state law. The dissent then
considered whether those states had interests in applying their laws to this
litigation. “[P]ro-business legislation
does not speak to the specific interest states have in imposing their laws on
this litigation. Honda has not shown how a state's general interest in
prohibiting class actions brought under its own consumer protection laws
translates into an interest in having its laws apply to this litigation.
Unmistakably, California has a keen interest in deterring California
corporations, with their principal places of business in California, from
engaging in tortious conduct within the state.”
California suffered more from not having its law applied to
this case: “Honda is incorporated and headquartered in California; the
advertisements at issue emanated from the state. California has a compelling
interest in regulating the conduct of corporations operating within the state
and availing themselves of the state's privileges.”
The dissent predicted significant negative consequences for
consumers, because individual actions are so unlikely. “Without certification of a nationwide class
to which California law applies, Honda becomes free to avail itself of the
benefits offered by California without having to answer to allegations by
consumers nationwide that it has violated the consumer protection laws of its
forum state. This situation will allow corporations to take advantage of a
forum state's hospitable business climate on the one hand, while simultaneously
discounting the potential for litigation by nationwide consumers in response to
a particular profit-motivated but harmful action on the other.”
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