Fulbright Briefing: 9th Circuit Tightens Standards For Certifying Nationwide Consumer Class Actions Applying California Law

Fulbright Briefing: 9th Circuit Tightens Standards For Certifying Nationwide Consumer Class Actions Applying California Law

The Ninth Circuit's decision in Mazza v. American Honda Motor Co., Inc., Case No. 09-55376 (Jan. 12, 2012), provides defendants significant protection against certification of nationwide classes alleging claims under California's consumer protection statutes for false advertising or misrepresentations in consumer transactions.

In Mazza, Defendant sold Acura RL vehicles throughout the United States with an optional Collision Mitigation Braking System ("CMBS"). Plaintiffs allege there were various misrepresentations and omissions made in advertising and marketing the CMBS. They assert claims under several California consumer protection statutes, including the Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code section 17200, and the Consumer Legal Remedies Act, Cal. Civ. Code section 1750. The district court certified a class of purchasers in all 44 states where vehicles with CMBS systems were sold in 2005-2008.

In a 2-1 decision, the Ninth Circuit reversed. The decision is noteworthy primarily for the rationale used to determine that the district court erred by applying California law classwide.

Several prior California cases held that non-resident class members could sue under California law if the conduct at issue - i.e., the misrepresentations - had "occurred in" or "emanated from" California. Those courts found this requirement satisfied under facts similar to Mazza: the corporate headquarters and marketing departments responsible for preparing and approving the allegedly deceptive marketing materials were in California, even though individual class members' purchase transactions occurred in other states. See, e.g., Norwest Mortgage, Inc. v. Sup. Ct., 72 Cal. App. 4th 214, 222-227 (1999); Wershba v. Apple Computer, Inc., 91 Cal. App. 4th 224 (2001); Parkinson v. Hyundai Motor America, No. 8:06-cv-00345-AHS-MLG, D.E. #175, at 36-37 (C.D. Cal., Dec. 12, 2008).

However, as the Ninth Circuit noted, a nationwide class action can be adjudicated under California law only if a three-step "governmental interest test" is met, based on assessment of: (1) whether the relevant laws of the concerned states are different; (2) if so, whether each state has an interest in applying its own law; and (3) if so, which state's interest would be more impaired if its law were not applied. Wash Mut. Bank v. Sup. Ct., 24 Cal. 4th 906, 921 (2001); McCann v. Foster Wheeler LLC, 48 Cal. 4th 68, 81-82 (2010). In Mazza, the Ninth Circuit held that the district court abused its discretion in applying this test to apply California's consumer protection statutes to the entire national class.

First, the Ninth Circuit found a number of material differences between California's UCL, in particular, and the consumer protection statutes in certain other states, on issues including (i) whether misrepresentations must be intentional or at least reckless, a higher standard than required under the UCL; (ii) whether plaintiffs must prove reliance on the alleged misrepresentations or omissions; and (iii) the available remedies.

As to the second step, Mazza held that the other 43 states had an interest in having their own law applied to claims brought by their residents and a "strong interest in applying [their] own consumer protection laws" to sales transactions that occurred in state. See Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1187 (9th Cir. 2001. Further, Mazza held, the district court erred in concluding that no state could have an interest in denying its citizens the benefit of California's potentially more favorable consumer protection laws. Rather, the Ninth Circuit explained, "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" and one valid way to do so could be to "shield out-of-state businesses from what the state may consider to be excessive litigation." The court summarized the basis for its holding that even states whose laws are less favorable to consumers have an interest in applying those laws to actions brought by their residents by concluding that "maximizing consumer and business welfare . . . does not inexorably favor greater consumer protection."

Similarly, regarding the third element, Mazza held that the district court failed to recognize that "if California law were applied to the entire class, foreign states would be impaired in their ability to calibrate liability to foster commerce." Specifically, the Ninth Circuit found that the district court improperly "elevated all states' interests in consumer protection to a super-ordinate level, while ignoring . . . each state's interest in promoting business."

Further, in contrast to other prior cases that had allowed "extraterritorial" application of California's UCL in arguably similar circumstances, the Ninth Circuit concluded that the alleged misconduct had occurred not in California (where Honda had approved the dissemination of the allegedly misleading marketing materials and advertising) but, instead, at the point of sale of the subject vehicles in the 44 different states. Mazza interpreted California law to be that "the 'place of the wrong' [is] the state where the last event necessary to make the actor liable occurred," and for "an omission [that] is the place of the transaction where it should have been disclosed." Accordingly, both of those factors dictated that the place of the wrong in Mazza was where the putative class member had purchased the vehicle.

Finally, Mazza reversed certification even as to California class members, finding that common issues would not predominate. The court held that, even though UCL claims do not require proof of actual deception, reliance or injury by absent class members, they cannot be asserted by consumers who were not exposed to the allegedly misleading marketing materials. Accordingly, Mazza found that the district court erred in certifying the California class because the evidence showed "it is likely that many class members were never exposed to the allegedly misleading advertisements," which included two television commercials run for brief parts of the four-year class period, magazine ads that ran for several months, and statements in product brochures that were available at dealerships but not necessarily given to or reviewed by every purchaser. Critically, the Mazza court rejected the argument that all California class members were "exposed to" the alleged omissions, concluding that "for everyone in the class to have been exposed to the omissions . . . it is necessary for everyone in the class to have viewed the allegedly misleading advertising."

Read Fulbright's Briefing online.

This article was prepared by Joshua D. Lichtman (jlichtman@fulbright.com or 213 892 9226), Peter H. Mason (pmason@fulbright.com or 213 892 9233) and Eric A. Herzog (eherzog@fulbright.com or 213 892 9276) from Fulbright's Litigation Practice Group, Fulbright's Appellate Practice Group and Fulbright's Class and Group Actions Practice Group.

Notice: We are providing the Fulbright Briefing as a commentary on current legal issues, and it should not be considered legal advice, which depends on the facts of each situation. Receipt of the Fulbright Briefing does not establish an attorney-client relationship. The listed attorneys and/or other attorneys may provide services in connection with a particular matter.


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