Monday, September 08, 2014

Reasonable psychologist would treat "must pay" dues as mandatory

In re APA Assessment Fee Litigation, --- F.3d ----, 2014 WL 4377770, No. 13–7032 (Sept. 5, 2014)

The American Psychological Association (APA) is a national nonprofit organization representing clinical, research, and academic psychologists.  Members pay annual fees billed on a yearly “Membership Dues Statement.”  For some members, there was also a separate, “special assessment” fee on the dues statement. At all relevant times, the instructions informed affected members that they “MUST PAY” the special assessment. However, this assessment wasn’t a membership requirement.  Instead, it was an optional payment that funded the lobbying activities of an APA-affiliated organization (since as a 501(c)(3) the APA itself was restricted in its ability to lobby).

Several members sued, seeking to represent a class of members who paid the special assessment to maintain their membership, not knowing it was optional.  The district court dismissed all the claims, concluding that plaintiffs couldn’t have reasonably believed that the assessment fee was mandatory. The court of appeals reversed in part, though it still got rid of the California statutory consumer protection claims. (Not clear why the California plaintiff didn’t file in California; I believe the choice of law issue would have come out differently there, especially given the reason the court of appeals ultimately gives for choosing DC law.)

According to the complaint, APA leadership understood that many members wouldn’t want to pay to fund the lobbying organization (APAPO), so it misrepresented to clinician members that they were required to pay a special assessment fee that supported APAPO, even though the APA could not condition membership on payment of that fee without jeopardizing the organization’s § 501(c)(3) tax status. In 2009, the special assessment was $137 per person while regular APA dues were $238.

Plaintiffs’ complaint alleged unjust enrichment and violations of California’s UCL/FAL.  The district court reasoned that unjust enrichment was unavailable when an actual contract existed between the parties that covered the issue under dispute.  The APA bylaws and rules were such a contract. The district court rejected proposed amendments to add fraudulent inducement/recission claims, because it found there was no reasonable reliance on any misrepresentation.  It also dismissed the California claims on the ground that DC law applied.

For unjust enrichment, the parties agreed that the unjust enrichment law of the various potential jurisdictions was identical so choice of law analysis was unnecessary.  Under D.C. law, “[u]njust enrichment occurs when: (1) the plaintiff conferred a benefit on the defendant; (2) the defendant retains the benefit; and (3) under the circumstances, the defendant’s retention of the benefit is unjust.”

Unjust enrichment isn’t available when the parties have a contract governing the relevant relation, but if the contract is invalid or doesn’t cover the disputed issue, unjust enrichment can still apply. The district court thought that the APA bylaws and Association Rules covered this claim, but plaintiffs alleged that paying the special assessment “had no bearing on plaintiffs’ rights or obligations as APA members under the bylaws and rules.”  Defendants indeed allowed that nothing in the bylaws and rules permitted APA to terminate membership for nonpayment of the special assessment. If that’s so, paying the special assessment wasn’t part of the explicit contractual agreement between the APA and its members, but rather was extra-contractual.  This was actually a standard unjust enrichment pattern: defendants allegedly used misleading language to make plaintiffs overpay, and recovering overpayment of money not due is a core case for restitution.

Next, defendants argued that plaintiffs were fully aware of what the special assessment funded, and that they got what they paid for (lobbying).  But plaintiffs alleged that they didn’t have any interest in APAPO lobbying, and rather only paid because they were misled into thinking it was an APA membership precondition.  The fact that the lobbying services were ultimately delivered couldn’t make “just” the retention of the fees plaintiffs never desired to pay in the first place.

Finally, defendants argued that plaintiffs’ alleged reliance was unreasonable.  It wasn’t clear that DC law precluded recovery in cases of genuine but unreasonable mistake; the Restatement (Third) of Restitution and Unjust Enrichment says that, “[a]s in other cases of benefit conferred by mistake, the fact that the claimant may have acted negligently in making a mistaken payment is normally irrelevant to the analysis of the claim.”  Still, even assuming reasonable reliance was required, it was “amply” pled to survive a motion to dismiss. 

For example, the 2001 Membership Dues statement, appended to the motion to dismiss, had a line for “REGULAR APA DUES,” with a preprinted amount, $219. The “2001 Special Assessment” appeared in the next box, also with a preprinted amount, $110. The only other preprinted figure was $329, “SUBTOTAL DUES AND ASSESSMENTS.” Below that was a box labeled “VOLUNTARY CONTRIBUTIONS,” for several different things, with no preprinted amount.  The court of appeals pointed out that the name itself, “Special Assessment,” suggested that payment was mandatory.  The preprinting of the special assessment on its own line and as part of a subtotal indicated that it was required for membership.  “That implication was further reinforced by the various ‘VOLUNTARY CONTRIBUTIONS’ listed in a box found immediately next on the form, the presence of which indicated that the preprinted fees above that box were not voluntary.”

This was enough, but there was more!  The accompanying instructions had an “EXPLANATION” column and an “ACTION REQUIRED” column. The instructions for the special assessment fee explained: “An annual assessment is applied to all licensed health care psychologists who provide services in the health or mental health field or who supervise those who do.”  Then it listed categories of psychologists who “MUST PAY” the special assessment.  Then the “ACTION REQUIRED” column told members to “ *Pay $110 (the preprinted amount) unless you hold a full-time faculty position.”  Then the instructions listed six “SPECIAL ASSESSMENT EXEMPTIONS” who didn’t have to pay and could “cross off the amount.” This all strengthened the impression that everyone else couldn’t “cross off” the preprinted assessment fee and stay an APA member.  Also, the instructions for the “TOTAL AMOUNT PAYABLE TO APA” said that, if members did not calculate the total themselves, “the total of all preprinted dues and assessments will be charged to you.” This use of the default “cemented the conclusion that that assessment formed part of the minimum payment required for membership.”

The APA website worked similarly. In fact, the website allegedly did not allow members to pay their APA dues without paying the special assessment.

Defendants highlighted an instruction for line 2 of the dues statement (pertaining to amounts still owed from past years) which stated that “[b]asic dues are required for continuous membership.”  Since the same language didn’t appear in the special assessment instructions, they argued that any reasonable reader would’ve inferred that the special assessment was not “required for continuous membership.”  (There is a joke here about the APA obviously not listening to the behavioral psychologists.)  The court of appeals pointed out that the line 2 instructions wouldn’t be relevant to members without carryover balances, and anyway such a negative inference “would not begin to overcome the overwhelming indications to the contrary, particularly for purposes of resolving defendants’ motion to dismiss. For instance, a member might well have reasonably concluded that the emphatic ‘MUST PAY instruction for the special assessment was a shorthand equivalent of the ‘required for continuous membership’ language from the line 2 instructions.”

Defendants also argued that “MUST PAY” just meant a professional obligation, not a membership requirement.  Not on a motion to dismiss!  Nor would anything in the bylaws or rules have signalled that plaintiffs’ beliefs were unreasonable.  The bylaws authorized the APA to impose “basic Association dues to be paid annually by Members,” but didn’t specifically mention the special assessment.  The court didn’t see why members couldn’t reasonably have believed that the special assessment was merely a particular type of “dues,” since the term wasn’t defined in the bylaws and rules and was preprinted on the “Membership Dues Statement” as something members “MUST PAY.”  

“[P]laintiffs reasonably could have concluded that the meaning of the dues statement was clear, such that there was no reason to investigate further.” This wasn’t an arms’-length, adversarial business dealing but instead membership in “a reputable national professional organization.” “In that setting, there is no reason to conclude that D.C. courts would impose on a would-be member any heightened duty to investigate before relying on facially straightforward billing language.”

The court turned to the California statutory claims, where defendants fared better.  The district court concluded that DC law applied.  California has an obvious interest in protecting its residents from fraud.  However, the coordinate state law, D.C.’s Consumer Protection Procedures Act (CPPA), didn’t provide plaintiffs with a cause of action because they weren’t acting as “consumers” for purposes of the CPPA.  The CPPA requires that a plaintiff must “purchase, lease ..., or receive consumer goods or services,” that is, goods or services “normally use[d] for personal, household, or family purposes.” Separately, the CPPA expressly provides that any “action ... against a nonprofit organization shall not be based on membership in such organization, membership services, ... or any other transaction, interaction, or dispute not arising from the purchase or sale of consumer goods or services in the ordinary course of business.” 

This was not a false conflict. DC didn’t just fail to provide a statutory cause of action.  A liability-exemption rule may further an interest in protecting potential defendants. “[T]he available evidence suggests that the D.C. Council acted specifically to shield nonprofit organizations from statutory liability for membership-related disputes.”  The Council revised the CPPA in 2007 to make clear that nonprofits were liable just like for-profits when they acted as “merchants,” but still explicitly barred claims relating to organizational membership. “The amendment’s legislative history indicates a concern with appropriately calibrating the level of nonprofit liability” in the interest of avoiding “unnecessary burdens that have little benefit but limit nonprofits’ effectiveness.”

Given the conflict, both jurisdictions had equally strong interests.  The other choice of law factors were not particularly helpful either.  The injury to California plaintiffs occurred in California, but the conduct causing the injury occurred in DC, where the APA was.  It wasn’t clear where the relationship between a national nonprofit organization and its members was “centered,” so overall the factors didn’t favor application of either jurisdiction’s law. Under DC law, then, ties go to the forum jurisdiction. Thus, the California law claims were dismissed, even though they wouldn’t have been under the same reasoning in California.

On remand, the plaintiffs could try again on negligent misrepresentation too.

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