Ninth Circuit Decertifies Nationwide Class Under California Consumer Protection Laws
Class Action Alert
In a huge decision for companies everywhere – and particularly those domiciled in California – on January 12, 2012 a split Ninth Circuit Court of Appeals panel reversed a district court ruling certifying a nationwide class under California consumer protection laws. In the long-awaited decision in Mazza v. American Honda Motor Company, Inc., __ F.3d __, 2012 WL 89176 (9th Cir. 2012), the Court of Appeals held that the district court erroneously concluded that (1) California law could be applied to the entire nationwide class and (2) all purchasers or lessees can be presumed to have relied on the defendant's advertisements where the defendant did not engage in a massive advertising campaign. As a result, common issues did not predominate as required for class certification under Rule 23(b)(3).
Plaintiffs in Mazza alleged that advertisements by Honda for the Acura RL misrepresented the characteristics of its Collision Mitigation Braking System (CMBS) and omitted material information about the system's limitations in violation of California's Unfair Competition Law, False Advertising Law and Consumer Legal Remedies Act. In December 2008, the District Court for the Central District of California certified a nationwide class of purchasers or leases of an Acura RL equipped with the CMBS between 2005 and the date of certification.
The Ninth Circuit agreed with the lower court that the application of California's laws was constitutionally permissible because California has sufficient contacts with each class member because Honda's corporate headquarters, the advertising agency that produced the allegedly fraudulent misrepresentations and 20 percent of the proposed class members are located in California. The Court of Appeals reversed on the basis that the district court misapplied California's three-step governmental interest choice of law test to conclude that California law applied to a nationwide class. (A federal court sitting in diversity applies the choice of law rules of the forum state to determine the controlling substantive law.)
The first step in that analysis is to determine whether there is a conflict between the different states laws. On appeal, Honda made a much better showing of how the consumer protection laws of the states vary than it did before the district court.
Second, the court examines each jurisdiction's interest in applying its own law and, third, the court compares the nature and strength of each jurisdiction in applying its own law to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state. The district court's analysis fell short regarding the second and third steps, as the lower court concluded that all states had the same interest in consumer protection notwithstanding that some states' policies provide more protections for business (e.g., requiring scienter for violation of consumer protection laws). "The district court's reasoning elevated all states' interest in consumer protection to a superordinate level, while ignoring or giving too little attention to each state's interest in promoting business."
Noting other states' interest in regulating a purchase or lease within their borders, the majority disagreed with the dissent that California's interest would be most impaired because of its interest in regulating the conduct of a California corporation. Significantly for any consumer action that seeks to certify a nationwide liability class, the court held that "each class member's consumer protection claim should be governed by the consumer protection laws of the jurisdiction where the transaction took place."
In a second significant holding, the Ninth Circuit reversed on the basis that the case necessarily involves an individualized determination whether class members were exposed to the misleading advertisement and whether they relied on them, including whether they learned of the limitations of the CMBS pre-purchase or pre-lease. The Court of Appeals found critical that the advertising of the CMBS was limited; therefore, many class members were never exposed to the allegedly misleading advertisements and so could not have relied on the ads in making their decision to purchase or lease. The court rejected the argument that plaintiffs were entitled to a presumption of reliance and distinguished the California Supreme Court's decision in Tobacco II on the basis that its holding "was in the context of a 'decades-long' tobacco advertising campaign where there was little doubt that almost every class member had been exposed to defendants' misleading statements."
In support of its analysis, the Ninth Circuit relied on the recent California appellate court opinions in Davis-Miller, Pfizer and Cohen.
With Senior Circuit Judge Dorothy Nelson dissenting and a district court judge from Ohio sitting by designation concurring, the panel decision may not be the last word, as an en banc petition by the plaintiffs appears likely. Unless such a petition is accepted – or more remote, review by the U.S. Supreme Court granted – Mazza provides the defense a valuable weapon in class action cases.