The court denied Schwartz’s motion to certify a class under
California’s FAL based on allegations that defendant LOA deceptively marketed
its LED lamps by overstating their light output and lifetime, without
substantiation, which resulted in an FTC action. Previously, the court found that Schwartz was
an inadequate representative for UCL and CLRA claims because he was a Florida
resident who’d bought the products in Florida, and LOA had shown material
differences in the states’ consumer protection laws as well as foreign state
interests in applying their own laws to injured state plaintiffs that would be
impaired by application of California law.
However, LOA didn’t show material differences between California's FAL
and the laws of the foreign states. “Given the FAL's express prohibition
against disseminating false advertisements across state lines, the Court
reasoned that the FAL could, conceivably, be applied across a nationwide class
where putative plaintiffs were harmed by false advertisements generated in
California and disseminated throughout the country.”
But not here.
Plaintiffs satisfied numerosity, commonality, and typicality. Adequacy turned on whether the court could
apply the FAL nationwide. But LOA
subsequently presented evidence of a material conflict among the states’ false
advertising laws. Thus, foreign laws had
to be applied to foreign plaintiffs, at least by way of subclassing. Because the California and Florida false
advertising laws were materially different, Schwartz couldn’t claim under the
FAL.
That took care of Rule 23(a), but there was still Rule
23(b)(3). Still, the same problems
defeated a finding of predominance.
Schwartz urged the court to apply the FAL nationwide, which required a
choice of law analysis under Mazza. LOA’s headquarters was located in California,
it made its products only in California, and all its ads were created in California. This was enough to shift the burden to LOA to
show that foreign law should apply to class claims. LOA provided “comprehensive examples” of
potentially outcome-determinative state differences in scienter, reliance,
availability of private class actions, and remedies. Schwartz argued that the differences weren’t
material because plaintiffs could readily satisfy even the most stringent
standards for scienter and reliance, but that required merits judgments that
the court wasn’t willing to make at this stage.
Dukes gives courts some leeway
in assessing the merits at the class certification phase, but the court wasn’t
willing to use that to make a finding on scienter. And those foreign states had important
interests in what conduct was permitted or banned within its own borders.
Schwartz argued that California’s interest in applying the
FAL was still greater because LOA was a California corporation conducting its
business exclusively in California. The
language of the FAL offered support: it prohibits the dissemination of false or
misleading advertisements “from this state before the public in any state.” But
federalism still had a role to play. “Although
the California legislature has every right to regulate business within its
borders, the 49 other state legislatures have the same right, and California
cannot exercise its power in a manner that encroaches on other states'
authority.… California cannot create laws that reach conduct occurring in other
states, even if a California corporation is the culprit.” California law also generally acknowledges
that the place of the wrong has the predominant interest in applying its own
laws. Schwartz argued that, because the
false ads came from California, California was the place of the wrong, but
that’s not right: it’s where the last event necessary to make the actor liable
occurred, and that means it’s the place where the falsehoods were communicated
to the class. The statutory language can be given effect through criminal
prosecutions or a civil suit by an injured California competitor, even if it
can’t be used in a class action. (And
that doesn’t raise federalism concerns because … ?)
Other states’ interests would be more impaired by failure to
apply their laws, as in Mazza. It didn’t matter that Mazza involved a multinational corporation and LOA was a California
corporation conducting business exclusively in California. Mazza
also involved ads generated in California and disseminated nationwide. The wrongs were still in the foreign
states. Also, Mazza’s federalism analysis is “broad and categorical.” Defendants will love this line: “Thus, for
false advertising claims--where the harm occurs in the state in which the
advertisement is communicated--the interests of foreign states will invariably prevail over California's
interest any time the advertisement is disseminated to foreign states”
(emphasis added). The court couldn’t
find any post-Mazza case where a
defendant successfully demonstrated a conflict but failed to show that another
jurisdiction had a superior interest in applying its law. Maybe there can be subclassing, though, the
court suggested. But here, applying 50
different consumer protection laws destroyed predominance.
This also meant there was no superiority: the task of
instructing a jury on 50 different laws would be “terribly inefficient,
confusing, time consuming, and a waste of judicial resources,” and the court
didn’t think grouping would help.
However, plaintiff was given the opportunity to replead with subclasses.
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