The Rise (and Fall) Of Consumer Fraud Nationwide Class Actions

The use of nationwide class actions as a vehicle for the aggregated resolution of multiple similar claims remains a controversial topic. The overwhelming trend in mass-produced product liability litigation has been to reject use of the class action device to prosecute claims against manufacturing defendants. Having rejected in nearly every instance various personal injury class actions, plaintiffs are recasting their run-of-the mill product liability claims into consumer fraud actions. The thinking is that consumer fraud actions ought to be more easily certifiable under a Rule 23 analysis than traditional personal injury class actions. As some plaintiffs are learning, however, consumer fraud cases are not without individual issues that stand as a bar to certification. In particular, conflicts-of-law issues play prominently and can have a dramatic impact on the certification process, including the elements of predominance, commonality, and manageability. Furthermore, proving the element of reliance has also been a stumbling block for plaintiffs seeking certification of their consumer fraud class actions in both federal and state courts.

Conflicts-of-Law Analysis As a Bar to Certification

In a wide array of cases, both state and federal courts have grappled with conflicts-of-law analysis involving multi-state disputes over mass-produced products. Recently, in a divided ruling, the Washington Supreme Court, in Schnall v. AT&T Wireless, Inc., 2010 WL 185943 Wash. Jan. 21, 2010), rejected an effort to certify a nationwide consumer protection class because of complications arising from conflicts-of-law that precluded the class action vehicle from being the superior method of adjudication. The Schnall case arose from AT&T's alleged practice of billing customers for a charge assessed against AT&T by the Federal Communications Commission. Private plaintiffs brought suit under Washington State's Consumer Protection Act (“CPA”). Plaintiffs alleged that the company misled consumers when it billed them for a charge that was not included in advertised monthly rates and was allegedly not described clearly in billing statements. Members of the plaintiffs' class included residents of Washington State and California. The residents of California entered service contracts in California.

The parties in Schnall initially disputed whether the choices-of-law clauses in the customers' contracts were enforceable. All of AT&T's wireless service contracts contained a choice-of-law clause that required disputes arising from the contract to be decided under the law of the state in which the contract was made. The choice-of-law clauses in this case required customers to litigate asserted violations of their contract in the respective jurisdiction where they signed the contract. The court rejected the intermediate appellate court's suggestion that subclasses and special master hearings could “sort out the morass” of addressing variations in state law.

The court recognized that there were significant differences in the contract law in the various states, and therefore, the plaintiffs could not show that common legal and factual issues would predominate over individual issues. Thus, the choice-of-law clauses, along with the interpretation of the contracts, the difference in the materials and information each potential class member received, and the availability of differing affirmative defenses created predominance of individual issues over a common one. In Schnall, the court concluded that AT&T should not be forced to face the “enormous case and complexity presented by a nationwide class action” when they suitably included choice-of-law provisions in their customers' contracts and the choice of forum is, in any event, dictated by the consumer.

Of particular interest, the court found that the state of Washington had no interest in seeing contracts executed by AT&T representatives in other states with citizens of those states examined and adjudicated in Washington courts. Indeed, the court declined an invitation to turn Washington into a “locus of nationwide class action litigation.” The court noted that certified as a nationwide class action, this case would have presented an unwarranted and unnecessary burden on the state judicial system, all at a large cost to state taxpayers. See, e.g., R.J. Reynolds Tobacco Co. v. Engle, 672 S.2d 39, 41 (Fla. Dist. Ct. App. 1996) (“No doubt a tremendous number of retired judges, special masters and general masters would have to be appointed by the court in order to complete this herculean task within a reasonable period of time ' all at staggering costs to the taxpayers.”). The court concluded that there is no sound reason to force Washington trial courts to entertain the contract claims of citizens from around the nation. Their state courts are equally as prepared, if not better situated to apply the contract laws of their own states.

But even where courts find that a nationwide, state-law governed class otherwise meets Rule 23(a) and 23(b)(3) criteria, the court noted that “the choice-of-law inquiry will ordinarily make or break certification.” This is because if the laws of 50 jurisdictions apply to plaintiffs' claims, the variations in the laws of the states may swamp any common issues and defeat predominance. Quoting Castano v. The American Tobacco Co., 84 F.3d 734 (5th Cir. 1996).

The decision in Schnall with respect to class certification and conflicts-of-law is mirrored by many courts. See, e.g., Tyler v. Alltel Corp., 2010 U.S. Dist. LEXIS 15550 (E.D. Ark. Feb. 23, 2010) (holding conflicts-of-law analysis precludes class certification where case involves plaintiffs from 25 different states); Alberghetti v. Corbis Corp., 2010 U.S. Dist. LEXIS 13251 *30 (C.D. Cal. Jan. 13, 2010) (noting that “Plaintiffs do not have a 'typical' claim where conflicts-of-law are at issue”); Thorogood v. Sears, Roebuck and Co., 2010 U.S. App. LEXIS 2842 *2 (7th Cir. Feb. 12, 2010) (noting that the matter was “a notably weak candidate for class treatment. Apart from the usual negatives, there are no positives: not only do common issues of law or fact not predominate over the issues particular to each purchase and purchaser ' but there are no common issues of law or fact ' “).

Moreover, assuming that one state's consumer protection statute may be applied to out-of-state plaintiffs, there is still another significant hurdle standing in the way of applying a single uniform standard in multi-state consumer class actions ' namely the Supreme Court's holding in Phillips Petroleum Co. v. Shutts, 472 U.S. 197 (1985) (setting for the test in applying a single uniform standard in multi-state consumer class actions). In Shutts, the Supreme Court created a two-prong test that established the constitutional limits for applying a single state's law to the claims of all class members in a multi-state class action. Under the first prong, a court must determine if there is a “material” conflict between the single state law sought to be applied and the substantive law of any other state implicated in the litigation. If no such material conflict exists, then it is constitutionally permissible to apply a single legal standard. If a material conflict is brought to light, however, then under the second prong of the Shutts test, for one state's substantive law to apply to the entire class, that state must have a “significant contact or significant aggregation of contacts, creating state interests, such that [the] choice of its law is neither arbitrary nor fundamentally unfair.” Pursuant to the Court's holding in Shutts, a single legal standard could potentially be applied in a multi-state consumer class action.

Reliance: A Significant Individual Issue

An additional consideration with respect to certifying consumer fraud class actions is the element of reliance. Given the host of individual factors that could influence a class member's decision to purchase a particular product, the element of reliance could possibly present an individual issue for each class member and prevent certification. Reliance is the traditional causal element of a common law misrepresentation claim that requires an injured party to allege that the manufacturer's misrepresentation induced the consumer to purchase the product. While some courts have relaxed the underlying substantive law by eliminating reliance, the majority of jurisdictions have not. Thus, the individualized nature of establishing reliance in a consumer fraud act makes class certification under Federal Rule 23(b)(3) potentially as difficult as the individual issues that arise in product cases alleging personal injury.

For instance, in Schnall, the Washington Supreme Court also considered whether its prior precedents required consumer protection act plaintiffs to prove that the unfair or deceptive act was a “but for” cause of their injuries, and that causation could be established in the absence of reliance. The court then suggested that a showing of individual reliance will almost always be necessary in misrepresentation cases, making class certification inappropriate.

Reiterating the court's ruling in Indoor Billboard/Washington Inc. v. Integra Telecom of Washington Inc., 162 Wn.2d 59, 170 P.3d 10 (2007), the court confirmed that causation is not established by the mere fact that plaintiffs paid the charge that they now complain about. Causation is also not established by evidence of a “mere capacity to deceive.” Rather, under the Washington Consumer Protection Act (“CPA”), plaintiffs must show that they “were actually deceived” and that they would not have “purchased [the] service, or paid the [charge] but for” the defendant's representations. The court remanded the case to the trial court to determine whether such evidence of causation would be so individualized that even a statewide class would not be warranted on plaintiffs' claims that AT&T Wireless misrepresented the nature of a particular charge. In the words of the dissent, the majority's causation analysis “creates an individual issue that will predominate over the class issues ' in every CPA misrepresentation class action in the future.” Id.

In a matter described as “exemp- lify[ing] the difficulty with class treatment of cases alleging fraud or misrepresentation,” the Eighth Circuit decertified a consumer fraud class in light of the individual issues surrounding the element of reliance. The defendant, St. Jude Medical, Inc., produced the Silzone prosthetic heart valve, a product with a unique silver coating. After a clinical study showed that the patients implanted with the valve experienced an increased risk of paravalvular leakage, St. Jude recalled all Silzone valves that had not been implanted. The plaintiffs were patients who were implanted with the valves. See In re: St. Jude Medical, Inc., Silzone Heart Valve Products Liability Litigation, 522 F.3d 836 (8th Cir. April 9, 2008).

The court explained that in the typical common-law fraud case, a plaintiff must show that he or she received the defendant's alleged misrepresentation and relied on it. Because proof often varies among individuals concerning what representations were received, and the degree to which individual persons relied on the representations, the court explained that fraud cases often are unsuitable for class treatment. The court reasoned that evidence of representations made by the physicians, and representations made about the heart valve in general, gave rise to individual issues making class certification inappropriate. Principally for that reason, the court concluded that resolution of St. Jude's potential liability to each plaintiff under the consumer fraud statutes will be dominated by individual issues of causation and reliance. Accordingly, the court held that the need for such plaintiff-by-plaintiff determination means that common issues will not predominate the inquiry into St. Jude's liability.

In sum, subjective, individualized reliance on a deceptive practice within the circumstances of each plaintiff's purchase will make it difficult for plaintiffs to satisfy Rule 23(b)(3)'s requirements that common issues predominate over individual issues and that a class action is a superior method of adjudication.

Conclusion

As shown above, state and federal courts throughout the country have rejected class certification of consumer protection claims in mass-produced and distributed products cases in light of the difficulties that arise because of conflicts-of-law and the element of reliance. Certain consumer protection statutes have been construed as allowing recovery without any showing of individual causation or harm, and courts in those few states have been willing to certify various deceptive practiced claims. However, courts in a greater number of states have found that their respective statutes, or common law claims of misrepresentation, preclude the certification of such claims because proof of individual reliance precludes a finding of predominance.

Barbara A. Lukeman is an associate in the Products: Class Action, Trade and Industry Representation Group of Nixon Peabody LLP. Her practice includes experience with toxic exposure claims, product liability matters, and commercial litigation.

The use of nationwide class actions as a vehicle for the aggregated resolution of multiple similar claims remains a controversial topic. The overwhelming trend in mass-produced product liability litigation has been to reject use of the class action device to prosecute claims against manufacturing defendants. Having rejected in nearly every instance various personal injury class actions, plaintiffs are recasting their run-of-the mill product liability claims into consumer fraud actions. The thinking is that consumer fraud actions ought to be more easily certifiable under a Rule 23 analysis than traditional personal injury class actions. As some plaintiffs are learning, however, consumer fraud cases are not without individual issues that stand as a bar to certification. In particular, conflicts-of-law issues play prominently and can have a dramatic impact on the certification process, including the elements of predominance, commonality, and manageability. Furthermore, proving the element of reliance has also been a stumbling block for plaintiffs seeking certification of their consumer fraud class actions in both federal and state courts.

Conflicts-of-Law Analysis As a Bar to Certification

In a wide array of cases, both state and federal courts have grappled with conflicts-of-law analysis involving multi-state disputes over mass-produced products. Recently, in a divided ruling, the Washington Supreme Court, in Schnall v. AT&T Wireless, Inc., 2010 WL 185943 Wash. Jan. 21, 2010), rejected an effort to certify a nationwide consumer protection class because of complications arising from conflicts-of-law that precluded the class action vehicle from being the superior method of adjudication. The Schnall case arose from AT&T's alleged practice of billing customers for a charge assessed against AT&T by the Federal Communications Commission. Private plaintiffs brought suit under Washington State's Consumer Protection Act (“CPA”). Plaintiffs alleged that the company misled consumers when it billed them for a charge that was not included in advertised monthly rates and was allegedly not described clearly in billing statements. Members of the plaintiffs' class included residents of Washington State and California. The residents of California entered service contracts in California.

The parties in Schnall initially disputed whether the choices-of-law clauses in the customers' contracts were enforceable. All of AT&T's wireless service contracts contained a choice-of-law clause that required disputes arising from the contract to be decided under the law of the state in which the contract was made. The choice-of-law clauses in this case required customers to litigate asserted violations of their contract in the respective jurisdiction where they signed the contract. The court rejected the intermediate appellate court's suggestion that subclasses and special master hearings could “sort out the morass” of addressing variations in state law.

The court recognized that there were significant differences in the contract law in the various states, and therefore, the plaintiffs could not show that common legal and factual issues would predominate over individual issues. Thus, the choice-of-law clauses, along with the interpretation of the contracts, the difference in the materials and information each potential class member received, and the availability of differing affirmative defenses created predominance of individual issues over a common one. In Schnall, the court concluded that AT&T should not be forced to face the “enormous case and complexity presented by a nationwide class action” when they suitably included choice-of-law provisions in their customers' contracts and the choice of forum is, in any event, dictated by the consumer.

Of particular interest, the court found that the state of Washington had no interest in seeing contracts executed by AT&T representatives in other states with citizens of those states examined and adjudicated in Washington courts. Indeed, the court declined an invitation to turn Washington into a “locus of nationwide class action litigation.” The court noted that certified as a nationwide class action, this case would have presented an unwarranted and unnecessary burden on the state judicial system, all at a large cost to state taxpayers. See, e.g., R.J. Reynolds Tobacco Co. v. Engle , 672 S.2d 39, 41 (Fla. Dist. Ct. App. 1996) (“No doubt a tremendous number of retired judges, special masters and general masters would have to be appointed by the court in order to complete this herculean task within a reasonable period of time ' all at staggering costs to the taxpayers.”). The court concluded that there is no sound reason to force Washington trial courts to entertain the contract claims of citizens from around the nation. Their state courts are equally as prepared, if not better situated to apply the contract laws of their own states.

But even where courts find that a nationwide, state-law governed class otherwise meets Rule 23(a) and 23(b)(3) criteria, the court noted that “the choice-of-law inquiry will ordinarily make or break certification.” This is because if the laws of 50 jurisdictions apply to plaintiffs' claims, the variations in the laws of the states may swamp any common issues and defeat predominance. Quoting Castano v. The American Tobacco Co. , 84 F.3d 734 (5th Cir. 1996).

The decision in Schnall with respect to class certification and conflicts-of-law is mirrored by many courts. See, e.g., Tyler v. Alltel Corp., 2010 U.S. Dist. LEXIS 15550 (E.D. Ark. Feb. 23, 2010) (holding conflicts-of-law analysis precludes class certification where case involves plaintiffs from 25 different states); Alberghetti v. Corbis Corp., 2010 U.S. Dist. LEXIS 13251 *30 (C.D. Cal. Jan. 13, 2010) (noting that “Plaintiffs do not have a 'typical' claim where conflicts-of-law are at issue”); Thorogood v. Sears, Roebuck and Co., 2010 U.S. App. LEXIS 2842 *2 (7th Cir. Feb. 12, 2010) (noting that the matter was “a notably weak candidate for class treatment. Apart from the usual negatives, there are no positives: not only do common issues of law or fact not predominate over the issues particular to each purchase and purchaser ' but there are no common issues of law or fact ' “).

Moreover, assuming that one state's consumer protection statute may be applied to out-of-state plaintiffs, there is still another significant hurdle standing in the way of applying a single uniform standard in multi-state consumer class actions ' namely the Supreme Court's holding in Phillips Petroleum Co. v. Shutts , 472 U.S. 197 (1985) (setting for the test in applying a single uniform standard in multi-state consumer class actions). In Shutts, the Supreme Court created a two-prong test that established the constitutional limits for applying a single state's law to the claims of all class members in a multi-state class action. Under the first prong, a court must determine if there is a “material” conflict between the single state law sought to be applied and the substantive law of any other state implicated in the litigation. If no such material conflict exists, then it is constitutionally permissible to apply a single legal standard. If a material conflict is brought to light, however, then under the second prong of the Shutts test, for one state's substantive law to apply to the entire class, that state must have a “significant contact or significant aggregation of contacts, creating state interests, such that [the] choice of its law is neither arbitrary nor fundamentally unfair.” Pursuant to the Court's holding in Shutts, a single legal standard could potentially be applied in a multi-state consumer class action.

Reliance: A Significant Individual Issue

An additional consideration with respect to certifying consumer fraud class actions is the element of reliance. Given the host of individual factors that could influence a class member's decision to purchase a particular product, the element of reliance could possibly present an individual issue for each class member and prevent certification. Reliance is the traditional causal element of a common law misrepresentation claim that requires an injured party to allege that the manufacturer's misrepresentation induced the consumer to purchase the product. While some courts have relaxed the underlying substantive law by eliminating reliance, the majority of jurisdictions have not. Thus, the individualized nature of establishing reliance in a consumer fraud act makes class certification under Federal Rule 23(b)(3) potentially as difficult as the individual issues that arise in product cases alleging personal injury.

For instance, in Schnall, the Washington Supreme Court also considered whether its prior precedents required consumer protection act plaintiffs to prove that the unfair or deceptive act was a “but for” cause of their injuries, and that causation could be established in the absence of reliance. The court then suggested that a showing of individual reliance will almost always be necessary in misrepresentation cases, making class certification inappropriate.

Reiterating the court's ruling in Indoor Billboard/Washington Inc. v. Integra Telecom of Washington Inc. , 162 Wn.2d 59, 170 P.3d 10 (2007), the court confirmed that causation is not established by the mere fact that plaintiffs paid the charge that they now complain about. Causation is also not established by evidence of a “mere capacity to deceive.” Rather, under the Washington Consumer Protection Act (“CPA”), plaintiffs must show that they “were actually deceived” and that they would not have “purchased [the] service, or paid the [charge] but for” the defendant's representations. The court remanded the case to the trial court to determine whether such evidence of causation would be so individualized that even a statewide class would not be warranted on plaintiffs' claims that AT&T Wireless misrepresented the nature of a particular charge. In the words of the dissent, the majority's causation analysis “creates an individual issue that will predominate over the class issues ' in every CPA misrepresentation class action in the future.” Id.

In a matter described as “exemp- lify[ing] the difficulty with class treatment of cases alleging fraud or misrepresentation,” the Eighth Circuit decertified a consumer fraud class in light of the individual issues surrounding the element of reliance. The defendant, St. Jude Medical, Inc., produced the Silzone prosthetic heart valve, a product with a unique silver coating. After a clinical study showed that the patients implanted with the valve experienced an increased risk of paravalvular leakage, St. Jude recalled all Silzone valves that had not been implanted. The plaintiffs were patients who were implanted with the valves. See In re: St. Jude Medical, Inc., Silzone Heart Valve Products Liability Litigation, 522 F.3d 836 (8th Cir. April 9, 2008).

The court explained that in the typical common-law fraud case, a plaintiff must show that he or she received the defendant's alleged misrepresentation and relied on it. Because proof often varies among individuals concerning what representations were received, and the degree to which individual persons relied on the representations, the court explained that fraud cases often are unsuitable for class treatment. The court reasoned that evidence of representations made by the physicians, and representations made about the heart valve in general, gave rise to individual issues making class certification inappropriate. Principally for that reason, the court concluded that resolution of St. Jude's potential liability to each plaintiff under the consumer fraud statutes will be dominated by individual issues of causation and reliance. Accordingly, the court held that the need for such plaintiff-by-plaintiff determination means that common issues will not predominate the inquiry into St. Jude's liability.

In sum, subjective, individualized reliance on a deceptive practice within the circumstances of each plaintiff's purchase will make it difficult for plaintiffs to satisfy Rule 23(b)(3)'s requirements that common issues predominate over individual issues and that a class action is a superior method of adjudication.

Conclusion

As shown above, state and federal courts throughout the country have rejected class certification of consumer protection claims in mass-produced and distributed products cases in light of the difficulties that arise because of conflicts-of-law and the element of reliance. Certain consumer protection statutes have been construed as allowing recovery without any showing of individual causation or harm, and courts in those few states have been willing to certify various deceptive practiced claims. However, courts in a greater number of states have found that their respective statutes, or common law claims of misrepresentation, preclude the certification of such claims because proof of individual reliance precludes a finding of predominance.

Barbara A. Lukeman is an associate in the Products: Class Action, Trade and Industry Representation Group of Nixon Peabody LLP. Her practice includes experience with toxic exposure claims, product liability matters, and commercial litigation.