Mazza v. Honda: The Death of Class Action, or Just Making the Plaintiffs’ Bar Work a Little Harder?

In January in Mazza v. Honda, the Ninth Circuit Court of Appeals vacated an order of the Central District of California certifying a nationwide class of purchasers and lessees of the Acura RL equipped with Honda’s Collision Mitigation Braking System (CMBS).  No. 09 Civ. 55376, 2012 U.S. App. LEXIS 626, *2-3 (9th Cir. Jan. 12, 2012).  The heavily-publicized decision has been touted as a serious blow to class action plaintiffs, but does the decision merit all the hype?  On the critical issues that concern class action attorneys, has the Ninth Circuit said something radically different than courts in other recent decisions, like the Seventh Circuit’s decisions in Kohen v. Pacific Inv. Mgmt. Co. LLC, 571 F.3d 672 (7th Cir. 2009) or Pella Corp. v. Saltzman, 606 F.3d 391 (7th Cir. 2010)?  Does the plaintiffs’ bar need to adjust certain long-held stereotypes about its chances for success in these two jurisdictions?

In Honda, plaintiffs sought to represent a nationwide class of all consumers who purchased or leased Acura RLs equipped with the CMBS during a three-year period.  2012 U.S. App. LEXIS at *1-2.  Asserting claims under California’s consumer protection and unjust enrichment laws, the plaintiffs alleged that Honda’s advertisements misrepresented the characteristics of the CMBS and omitted material information on the system’s limitations.  Id. at *2.

Choice of Law and the Certification of Nationwide or Multistate Classes

The Ninth Circuit first performed a choice of law analysis, concluding that the district court erred when it applied California law to the proposed nationwide class.  Id. at *14.  The court found that California’s consumer protection and unjust enrichment laws differed from other state’s laws in ways that were “not trivial or wholly immaterial.”  Id. at *18-20 (California’s consumer protection laws, for instance, have no scienter requirement, require named class plaintiffs to demonstrate reliance, and provide different remedies than other states’ laws).

Recognizing that (1) under California choice of law principals, “the place of the wrong has the predominant interest, and (2) that California has an interest in regulating the conduct of California corporations that takes place within its borders, the Ninth Circuit nevertheless determined that each class member’s consumer protection claim would be governed by the consumer protection laws of the jurisdiction in which the transaction took place.  Id. at *26-28.  The court concluded that California considers the “place of the wrong” to be the place where the last necessary event took place, and the court found that this was the state in which the class member heard the allegedly misleading advertisements, not the state where the advertisements were created.  Id.

Whether you agree with the Ninth Circuit’s choice of law analysis or not, when one takes into consideration the proposed classes the courts were asked to consider for certification, the Ninth Circuit’s decision in Honda, widely regarded as a pro-defendant decision, may not articulate a very different standard of law from the one set out in the Seventh Circuit’s decision in Pella Corp. v. Saltzman, 606 F.3d 391 (7th Cir. 2010), a case that has been celebrated by the plaintiffs’ bar.

In Pella, plaintiffs alleged that the defendant’s windows contained a design defect that permitted water to seep behind the aluminum cladding, causing the wood to rot.  Pella, 606 F.3d at 392.  The district court certified several classes.  The first was a nationwide class of individuals whose windows had not yet manifested the defect or whose windows had some wood rot but had not yet been replaced, under Rule 23(b)(2).  Id.  This class sought, among other things, declarations that the defect existed, an enhanced warranty program, notice of the defect to the defendant’s customers, inspections at the defendant’s expense and a special master to adjudicate any coverage disputes.  Id.  The district court also certified six statewide liability classes, under Rule 23(b)(3), of individuals whose windows had already manifested the defect and been replaced, on the theory that the defendant had violated those states’ consumer fraud laws by failing to disclose the defect.  Id. at 392-93.

The Seventh Circuit affirmed the district court’s certification order in its entirety.  Id. at 396.  Noting that “[c]lass treatment of consumer fraud cases can certainly present difficulties, and courts should consider these concerns before deciding to grant class certification,” it nevertheless found that the district court had not abused its discretion in devising a creative solution to the class certification problem.  Id. at 393, 396.

It is worth noting that, in Honda, the Ninth Circuit twice reiterated that it “express[ed] no view whether on remand it would be correct to certify a smaller class containing only those who purchased or leased Acura RLs in California, or to certify a class with members more broadly but with subclasses for class members in different states, with different jury instructions for materially different bodies of state law.”  Id. at *28-29.   Essentially, the Ninth Circuit said that it was not necessarily opposed to a creative solution like the one reached in Pella; it had simply not been presented with that option.  The plaintiffs in Pella, on the other hand, worked very hard to give the court the tools it needed to reach its creative solution:

Under Rule 23, district courts are permitted to devise imaginative solutions to problems created by the presence in a class action litigation of individual damages issues.  In making the decision to certify the classes, the district judge had before him hundreds of pages of legal briefing, as well as hundreds of pages of documents, deposition transcripts, and expert reports.  Plaintiffs point out that they submitted a sample trial plan with a comparative legal analysis of each subclass state, suggestions of how the case could be tried in phases, and a statement of class structure and remedies.  Even the certification of the six state subclasses demonstrates that the district court carefully considered how the case would proceed, explicitly finding that the consumer protection acts of these six states have nearly identical elements and declining to certify a seventh state subclass that would have required a subjective analysis.

Pella, 606 F.3d at 396 (emphasis added, citation omitted).  On this issue, both cases appear to be driving home the same point to class action plaintiffs.  If you want a nationwide or multistate class, you cannot assume that one state’s laws or one nationwide class will fit all.  You must compare the applicable state laws and design a class structure and trial plan that demonstrate, in minute detail, how your proposal will work.  This growing trend is not by any means the death of class action, but it may be the death of many smaller-stakes class actions, as only cases with very large potential recoveries are likely to be worth the dramatic increase in time and energy that must be expended at class certification to convince the court to adopt a “creative” multi-state certification plan.

Class Member Standing and the Scope of the Class Definition

After deciding that a nationwide class under California law was not workable, the Ninth Circuit went on to consider a second significant issue:  whether the district court was required to satisfy itself that every absent class member had standing before it could certify a class.  Although the district court felt that a presumption of reliance was warranted where the misrepresentations at issue were primarily in the form of omissions, the Ninth Circuit held that “[f]or everyone to have been exposed to the omissions … it is necessary for everyone in the class to have viewed the allegedly misleading advertising.”  Id. at *33-34.  It also concluded that “Honda’s product brochures and TV commercials f[e]ll short of the extensive and long-term fraudulent advertising campaign at issue in Tobacco II” (internal quotation and citation omitted), and that a presumption that class members relied on the allegedly misleading advertisements was not warranted, insofar as advertising of the CMBS was “very limited.”  Id. at *31, 33.  In the absence of massive, decades-long advertising campaign like that at issue in Tobacco II, the court held that a class must be narrowly tailored to include only individuals who were exposed to the allegedly misleading advertising and to exclude any individuals who somehow received the omitted information that would have saved the advertising from being misleading.  Id. at *34.  According to the Ninth Circuit, the class that the district court certified, which included all purchasers or lessees of the Acura RL with CMBS, was overly broad.  Id.

The Ninth Circuit’s decision on this issue began with the premise that “no class may be certified that contains members lacking Article III standing.”  Id. at *29 (quoting Denney v. Deutsche Bank AG, 443 F.3d 253, 264 (2d Cir. 2006) and Bates v. United Parcel Svc., Inc., 511 F.3d 974, 985 (9th Cir. 2007)).  The premise is not an inevitable one.  In fact, it is one that was expressly rejected by the Seventh Circuit  in Kohen v. Pacific Inv. Mgmt. Co. LLC, 571 F.3d 672 (7th Cir. 2009).

In Kohen, plaintiffs alleged defendants violated section 9(a) of the Commodity Exchange Act, by cornering a futures market.  Id. at 674.  The district court certified a class of all persons who, during the relevant time, purchased a futures contract in order to close out a short position.  Id. at 676.  The defendants challenged the class definition on the ground that it included individuals who lacked standing to sue because they did not lose money.  (some class members might have taken both long and short positions in order to hedge and may have made more money in the end because of the defendants’ conduct than they lost, for example).  Id.  The plaintiffs acknowledged this possibility, but pointed out that such class members would either not end up submitting a claim, or would have their claim rejected because they could not prove damages.  Id.

The Seventh Circuit agreed with the plaintiffs.  It concluded that requiring the district court to determine which class members had suffered damages before it certified a class was “putting the cart before the horse” in a way that “would vitiate the economies of class action procedure; in effect the trial would precede the certification.”  Id.  Noting the possibility, “indeed inevitability.” that “a class will often include persons who have not been injured by the defendant’s conduct,” the court held that, “as long as one member of a certified class has a plausible claim to have suffered damages, the requirement of standing is satisfied.  This is true, “even if the named plaintiff (the class representative) lacks standing, provided that he can be replaced by a class member who has standing.”  Id. at 676-77 (citations omitted).  The Seventh Circuit reached this conclusion, “despite statements in some cases that it must be reasonably clear at the outset that all class members were injured by the defendant’s conduct.”  Id. at 677 (citing Denney, the very Second Circuit case the Ninth Circuit relied on in Honda).

It is this issue, and not, as discussed above, the Ninth Circuit’s choice of law analysis or its conclusion that a nationwide class could not be certified under a single state’s consumer protection law that I feel has the real potential to be the “death of class actions,” at least in California.  On the one hand you have the Seventh Circuit stating that it is inevitable that a class definition will include at least some persons who were not harmed by the defendant’s conduct.  On the other hand, you have the Ninth Circuit adhering to the strict rule that “no class may be certified that contains members lacking Article III.”  If it is “inevitable” that a class definition will include uninjured class members, it would seem that no class could ever be certified in the Ninth Circuit.  One hopes that the court in Honda did not intend, and will not impose, such a draconian outcome.