Insurance Litigation & Regulatory Law Blog : California Insurance Lawyer & Attorney : Barger & Wolen Law Firm : CA Insurance & Bad Faith Litigation

In a follow up to last week’s post regarding the Nelson v. Pearson opinion, the Ninth Circuit has now applied similar principles when applying California state law. In Rubio v. Capital One Company, the Ninth Circuit further confirmed that all that is required to establish a plaintiff’s standing under the California Unfair Competition Law (“UCL”) is an allegation of some lost “money or property” fairly traceable to unlawful, unfair, and/or fraudulent conduct by the defendant.

Raquel Rubio (“Rubio) received a credit card solicitation from Capital One Bank (“Capital One”) offering a 6.99% fixed rate. The fixed rate was further explained in smaller text on the page as being fixed, so long as none of three conditions occurred: (1) a late payment; (2) charges are made over the credit limit; and (3) a payment is returned for any reason. Rubio did not allow any of those conditions to occur; however, three years later, Rubio received a letter noting that her APR of 6.99% would increase to 15.9%. Rubio could avoid the increase only by closing her credit card account and paying off the balance on the card by the end of the next month. Capital One defended the hike in interest rate by referring to additional language in eight-point type, found under the heading “Terms of Service,” that stated “[m]y Agreement terms (for example, rates and fees) are subject to change.”

Rubio brought suit alleging violations of the federal Truth in Lending Act (“TILA”), the UCL and breach of contract. The Ninth Circuit agreed with the District Court by finding that there was no breach of contract because the solicitation was not a contract, and therefore, Capital One was not bound by its terms. The Ninth Circuit found however that it was error for the District Court to dismiss Rubio’s TILA claims because Capital One failed to show that its APR disclosure in the solicitation was “in a reasonably understandable form and readily noticeable to the consumer.” Therefore, the Court reversed the trial court’s decision to dismiss the TILA claim, sending it back for further proceedings.

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On August 28, the Ninth Circuit Court of Appeals issued a decision that found the Hawaii District Court had erred in denying class certification in a case involving the sale of annuities to senior citizens. While expressing no opinion as to the merits of the case, the Court of Appeals concluded that the class in Yokoyama v. Midland National Life Insurance Company should have been certified.

According to the Ninth Circuit, the plaintiffs in Yokoyama limited their claim to one that specifically targeted the misrepresentations made by Midland National in its brochures that promoted the annuities as appropriate for seniors. (No actual brochure language is quoted in the case.) Significantly, the claim was alleged solely under the Hawaii Deceptive Practices Act (“DPA”), which appears to be similar to a claim under the Unfair Competition Law in California. 

The District Court’s opinion issued in 2007 found that each plaintiff would have to show subjective, individualized reliance on deceptive practices related to each plaintiff’s purchase of an annuity, and thus class certification was denied. In contrast, the Ninth Circuit found that the District Court had erred in denying class certification, based on the fact that “this action has been narrowly tailored to rely only on Hawaii law,” that the DPA only requires an objective test to determine reliance, and that the plaintiffs were not basing their claim on the individual solicitations by agents.

The Ninth Circuit concluded: “Accordingly, there is no reason to look at the circumstances of each individual purchase in this case, because the allegations of the complaint are narrowly focused on allegedly deceptive provisions of Midland’s own marketing brochures, and the fact-finder need only determine whether those brochures were capable of misleading a reasonable consumer.” 

In addition, the Ninth Circuit opinion also rejected Midland National’s argument (and the District Court’s holding) that the potential existence of individualized damage assessments made the action unsuitable for class treatment. The Court of Appeals explained that “[in] this circuit, however, damage calculations alone cannot defeat certification.”

Much of the Yokohama decision is focused on the standard of review for a district court’s ruling as to certification, with the Ninth Circuit announcing that the standard of review is de novo, rather than the accepted abuse of discretion standard typically used in reviewing class certification rulings on appeal, at least in situations where the underlying issue is purely one of law.  On this point, however, there was a split among the three-judge panel. 

The third judge on the panel forcefully rejected this de novo standard and observed that it is “an assault on Ninth Circuit precedent.” The Judge concluded his separate opinion by advising that it “is an en banc panel who should make this determination to depart from longstanding Circuit precedent, not two judges who would make the standard of review less deferential.” The third Judge nevertheless concurred in the Court’s ultimate conclusion that the denial of class certification was to be reversed even under the de novo standard. Whether Midland National will seek en banc review in the case is presently unknown.

Ultimately, the Yokoyama opinion sanctions that, if plaintiff’s counsel in a case can craft the claims asserted against the defendant in a narrow manner so as to avoid individual variance among the class members, then even in a situation where class certification would seem not to be appropriate due to the inherent individualized issues, certification may nevertheless be permitted on that narrowed claim.  

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In most lawsuits seeking to certify a class action, the motion to determine whether a class can be certified is brought by the plaintiff(s). But not always. In a new case issued July 7 by the Ninth Circuit Court of Appeals, Vinole v. Countrywide Home Loans, Inc., (Case No. 08-55223), the Appellate Court found that the District Court had properly considered and granted the defendant’s motion to deny certification.

The Vinole action was brought by a proposed class of current and former Home Loan Consultant employees of Countrywide, who claimed they were misclassified as exempt employees and thus not paid overtime and other wages. While Countrywide applied a uniform wage exception to these employees and therefore contended it was not obligated to pay them overtime, Countrywide also presented evidence that it had no control over what the employees did on a daily basis and did not monitor their work performance. As a consequence, Countrywide contended that these employees were exempt from overtime under California and Federal law.

Ten months after the lawsuit was filed – and before plaintiffs moved to certify a class – Countrywide filed a motion to deny certification of the class. The District Court granted the motion and the plaintiffs took an interlocutory appeal to the Ninth Circuit. The primary argument raised on appeal was the assertion that it was per se procedurally improper for the District Court to have decided a motion to deny class certification, before the plaintiffs had brought their affirmative motion for class certification. The court advised, however, “[a]lthough we have not previously addressed this argument directly, we conclude that Rule 23 does not preclude a defendant from bringing a ‘preemptive’ motion to deny certification.” 

In support of that conclusion, the court first explained that nothing in Federal Rule of Civil Procedure 23 “either vests plaintiffs with the exclusive right to put the class certification issue before the district court or prohibits a defendant from seeking early resolution of the class certification question.” It then rejected plaintiffs’ argument that allowing such motions to deny certification would open “troubling new territory,” since federal courts have “repeatedly considered defendants’ motions to deny class certification.” It also rejected plaintiffs’ reliance on cases that plaintiffs claimed espoused a “per se rule” disallowing such preemptive motions.

The plaintiffs argued that it was procedurally unfair for Countrywide to move to deny class certification prior to the pre-trial motion deadline and before plaintiffs had sufficient time to conduct discovery. The Ninth Circuit quickly disposed of these assertions, finding that there was no timing restriction violated by Countrywide and the plaintiffs had nearly ten months to conduct informal and formal discovery to oppose Countrywide’s motion. In other words, there is no procedural unfairness in the trial court deciding Countrywide’s motion when it did.

Finally, plaintiffs argued that the District Court had abused its discretion by finding common issues did not predominate in light of the uniform wage exemption employed by Countrywide as to the plaintiffs. The Ninth Circuit found, however, that despite using such a uniform exemption, there were still individualized inquiries that would need to be made as to how each of the employees carried out his or her work, perhaps requiring “several hundred mini-trials” with respect to each employee’s actual work performance.

The lesson to be learned from Vinole is that, in the appropriate case, defendants should consider the filing of a motion to deny class certification, which may be an effective vehicle to short-circuit a putative class action.

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In Kearns v. Ford Motor Company, --- F.3d ----, 2009 WL 1578535 (9thCir. June 8, 2009), plaintiff William Kearn sued Ford for alleged violations of California’s Consumers Legal Remedies Act (“CLRA”) and California’s Unfair Competition Law (“UCL”) arising out of Ford’s Certified Pre-Owned (“CPO”) vehicle program. Kearn’s complaint generically alleged that Ford had made false and misleading statements concerning the safety and reliability of its CPO vehicles (without identifying who made the statements, the specific content of the statements, or when and how Kearn was exposed to such statements), and failed to disclose to consumers Ford’s lack of actual oversight in determining whether used vehicles qualify for the CPO program.  Kearn alleged that he was harmed by the foregoing conduct because he had paid a higher price for a CPO vehicle then he would have paid for a non-CPO vehicle, even though there was no difference between the two. While Kearn alleged that Ford’s conduct constitutes an unfair business practice under California law, he did not assert any claims for fraud in the complaint.

In the district court, Ford brought a motion to dismiss Kearn’s complaint for failure to comply with the heightened pleading standards of Federal Rule of Civil Procedure 9(b). The district court granted the motion and Kearn appealed, principally arguing that Rule 9(b) does not apply to California’s consumer protection statutes because California courts have not applied Rule 9(b) to such statutes, and that Rule 9(b) does not apply to his CLRA and UCL claims because they are not grounded in fraud. 

In rejecting Kearn’s arguments, the Ninth Circuit held that it is well established that the Federal Rules of Civil Procedure – including Rule 9(b) – apply in federal court, “irrespective of the source of the subject matter jurisdiction, and irrespective of whether the substantive law at issue is state or federal.” The Court further noted that while a federal court examines state law to determine whether the elements of fraud have been sufficiently pled to state a cause of action, the Rule 9(b) requirement that fraud be pled with specificity is a federally imposed rule. The Court also held that, while fraud is not a necessary element of a claim under the CLRA or UCL, if the plaintiff nevertheless alleges a unified course of fraudulent conduct and relies entirely on that course of conduct as the basis of the CLRA or UCL claim, the CLRA or UCL claim is considered to be “grounded in fraud” or sounding in fraud such that the complaint as a whole must satisfy the particularity requirement of Rule 9(b).

Get a copy of the opinion here.

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