Choice of Law in Complex Litigation
In many of the cases reproduced in earlier chapters, the choice-of-law problem involved a choice between two jurisdictions’ laws and the dispute involved a single defendant and a single plaintiff. This chapter considers a much more difficult question that currently plagues many U.S. courts: how to determine the applicable law when a large number of plaintiffs each bring one or more claims, at times against multiple defendants, which are all handled as a single case. The materials that follow present several facets of the problem in two complex litigation contexts: (1) putative class action proceedings in state and federal courts (“class action cases”); and (2) pretrial proceedings in Multidistrict Litigation cases (“MDL cases”). MDL cases are multiple related actions filed in different federal district courts but transferred to a single federal district court for consolidated pretrial proceedings.
The class action device enables multiple plaintiffs to consolidate their individual claims into a single lawsuit. The class action is particularly helpful in situations where a number of individuals all suffer relatively small harms from the same basic cause, because in these circumstances many of the individual harms might go unaddressed or the cases ineffectively prosecuted without a device that enables plaintiffs to pool the value of their claims. Class actions are not available anytime plaintiffs wish to aggregate their claims, however. Rules governing the certification of class actions in state and federal courts are designed to ensure that the proposed class action would further the aims of efficiency and fair adjudication. Federal Rule of Civil Procedure 23 governs class action certification in federal courts, and several states have adopted rules that mirror Rule 23. Rule 23(a) describes the attributes of an action that are necessary for class action certification. It provides:
(a) Prerequisites. One or more members of a class may sue or be sued as representative parties on behalf of all members only if:
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.
These prerequisites are commonly referred to as numerosity, commonality, typicality, and adequacy, respectively. Numerosity, commonality, and typicality all help to ensure that the claims are appropriate for class treatment rather than individual prosecution. Typicality and adequacy help to address fairness problems that can arise with the reality that very few class plaintiffs will be actively involved in the prosecution of the claims and yet the ultimate resolution will bind all plaintiffs.
In addition to satisfying these four prerequisites, certification requires that the proposed class action falls into one of the types of class actions described in Rule 23(b):
(b) Types of Class Actions. A class action may be maintained if Rule 23(a) is satisfied and if:
(1) prosecuting separate actions by or against individual class members would create a risk of:
(A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or
(B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests;
(2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or
(3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include:
(B) the extent and nature of any litigation concerning the controversy already begun by or against class members;
(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and
(D) the likely difficulties in managing a class action.
Subsection (b)(1) is designed to cover situations where the remedy ordered by a court in an earlier action might effectively limit or preclude the remedies that are available to plaintiffs and courts in later actions. For example, this subsection is occasionally applied to limited fund cases, where all plaintiffs seeking money damages must recover from a fixed and limited fund with a value that is likely not large enough to satisfy all of the claims. Subsection (b)(2) covers situations where plaintiffs seek primarily declaratory or injunctive relief and that relief would be appropriately administered to the class as a whole. Subsection (b)(3) covers the typical actions where plaintiffs seek primarily money damages but there is no limited fund problem. Cases can fall into more than one of these categories. Note that the certification requirements are more onerous for cases that fall under subsection (b)(3). What might justify the differing certification standards here?
Choice of law is relevant to class certification under Rule 23 in a number of ways. For example, the governing laws applied to each claim can influence whether “the claims or defenses of the representative parties are typical of the claims or defenses of the class” under Rule 23(a). More importantly, if the individual claims will be resolved pursuant to differing jurisdictions’ governing laws, and the class is seeking certification under Rule 23(b)(3), then the “questions of law or fact common to class members” might fail to “predominate over” “questions affecting only individual members.” In addition, multiple governing laws might render the class action inferior to other methods of adjudicating the controversy. In these situations, courts might determine that under Rule 23(b)(3)(D) “the likely difficulties in managing a class action” are too large to justify certification.
As with all actions, the choice-of-law determination here can significantly affect the likely success of the plaintiffs’ claims and, once the governing law is known, the case is more likely to settle. Choice of law appears to be even more significant in putative class actions than in other actions for two reasons: (1) Class actions almost never go to trial or appeal thereafter, so the choice-of-law determinations are more likely to have controlling significance in these cases; and (2) the certifiability of a class action based on state law often turns on the governing law. As the cases in this chapter illustrate, the viability of dozens, hundreds, or even thousands of claims can thus turn on the choice-of-law determination, even when the laws of every connected state provide remedy to plaintiffs.
Because the choice-of-law determination is so important to the viability of the class action, plaintiffs’ attorneys often attempt to file class claims in courts that use choice-of-law methods that increase the likelihood that the certification prerequisites will be deemed satisfied. Strategic class action filings in state courts have been somewhat limited with Congress’s passage of the Class Action Fairness Act of 2005 (“CAFA”). CAFA was designed to discipline some of the state courts that were notorious for certifying nationwide class actions. It facilitated defendants’ removal of class actions to federal court by relaxing the diversity of citizenship requirement for class claims with more than $5,000,000 in controversy. See 28 U.S.C.A. §1332(d)(2). However, CAFA did not directly address choice of law for class actions. Under Klaxon, federal courts sitting in diversity must continue to apply state choice-of-law rules, so it appears that strategic filings continue, with choice-of-law arguments sometimes made in federal rather than state court. Given the flexibility of state choice-of-law rules, however, federal courts are far from fully constrained in their determinations.
MDL cases also are significantly influenced by choice-of-law determinations, although the effects in these cases are more subtle. Under 28 U.S.C. §1407, the Judicial Panel on Multidistrict Litigation, which consists of seven federal district and circuit court judges, may transfer “civil actions involving one or more common questions of fact” that “are pending in different districts” “to any district for coordinated or consolidated pretrial proceedings.” These pretrial consolidations are authorized in circumstances where the Judicial Panel determines “that transfers for such proceedings will be for the convenience of parties and witnesses and will promote the just and efficient conduct of such actions.” Id. at §1407(a). Among other pretrial determinations, the transferee judge is empowered to issue determinations regarding the governing law(s) for the consolidated actions. As discussed in Chapter 6, when a case that involves state law claims is transferred from one federal district court to another, the transferee court must apply the choice-of-law principles of the state where the transferor court is located. When state law claims are consolidated under §1407, the transferee court is required to apply the choice-of-law principles of the states where the individual claims were each originally filed. See Manual for Complex Litigation §31.132 at 254 (3d ed. 1995). In practice, however, the transferee court, faced with a bundle of claims involving the same or similar events, may view the choice-of-law inquiry differently than would a court faced with a single claim. Given the flexibility in state choice-of-law doctrine, the transferee court is often able to adjust the governing law in order to “promote the just and efficient conduct of such actions.” Cases consolidated for pretrial purposes typically settle prior to being sent back for trial. See Annual Report of the Director of the Administrative Office of the U.S. Courts 21 (1990) (nearly 96% of cases consolidated under §1407 between 1968 and 1990 were terminated by the transferee courts). Thus, choice-of-law determinations made by the transferee court are unlikely to be reviewed by the transferor court and are quite capable of significantly influencing the outcome of nationwide litigation.
This chapter explores some of the approaches that courts have taken to resolve choice-of-law issues in complex litigation. Class action plaintiff attorneys sometimes seek to remove state choice-of-law impediments to certification by casting claims under federal law—securities, antitrust, RICO, or other federal private rights of action. When such efforts fail or are unavailable, plaintiffs pursue other strategies, including arguments that (1) state law is sufficiently uniform or can be melded together so that no choice-of-law problem impedes class certification; (2) although state laws differ, the relevant choice-of-law analysis points to a single state’s governing law; or (3) although multiple state laws apply to the claims, the class action can manageably be broken into subclasses to take into account the varying governing laws. Some of these strategies also are present in consolidated MDL proceedings.
Recall that in Phillips Petroleum Co. v. Shutts, supra page 326, the U.S. Supreme Court rejected the Kansas Supreme Court’s position that it had more latitude in applying its own law to the claims due to the fact that it was adjudicating a nationwide class action:
[W]hile a state may … assume jurisdiction over the claims of plaintiffs whose principal contacts are with other States, it may not use this assumption of jurisdiction as an added weight in the scale when considering the permissible constitutional limits on choice of substantive law.… The issue of personal jurisdiction over plaintiffs in a class action is entirely distinct from the question of the constitutional limitations on choice of law; the latter calculus is not altered by the fact that it may be more difficult or more burdensome to comply with the constitutional limitations because of the large number of transactions which the State proposes to adjudicate and which have little connection with the forum.…
…[T]he constitutional limitations laid down in cases such as Allstate and Home Ins. Co. v. Dick must be respected even in a nationwide class action.
Within this constitutional constraint, what can and should courts do to resolve the choice-of-law issues?
1. No Choice Necessary
Ferrell v. Allstate Insurance Co.
144 N.M. 405 (2008)
This appeal arises as a result of the district court’s decision to certify a multi-state class in New Mexico for the purposes of litigating a class action lawsuit against Allstate Insurance Company (Allstate). Plaintiffs are Allstate insureds who contend that Allstate is liable for breach of contract for failing to include installment fees that are charged when an insured opts to pay the premium in monthly installments in the total premium calculation. Allstate counters that the installment fees are not part of the premium; instead, the fees are imposed when an insured chooses to pay the policy in installments rather than in one lump sum.1
Plaintiffs originally requested that the district court certify a nationwide class, but eventually narrowed the class to fifteen states, including New Mexico. The district court … certified a class of thirteen states and found that there was no conflict among the laws of the thirteen states such that application of New Mexico law to the plaintiffs from those states was appropriate. The district court declined to certify the plaintiffs from either Hawaii or Washington because, unlike the policies from the other thirteen states, the insurance policies issued in those states contained specific information about installment fees. The district court “retain[ed] jurisdiction to create subclasses or otherwise alter or amend [the certification order] before a decision on the merits.” Allstate appealed the class certification to the Court of Appeals.…
The Court of Appeals first reviewed the laws of the states connected to the dispute and determined that the laws of the thirteen states potentially conflicted with one another, due to unresolved ambiguities in each state’s law. Based upon this conclusion, the Court determined it would be inappropriate to apply New Mexico law to the entire multi-state class.…[T]he Court undertook a conflict-of-laws analysis and determined that the laws of the state where each insurance contract was entered into would separately apply to the plaintiffs from that state. In other words, if the multi-state class action were to proceed, the district court would have to apply the laws of each of the thirteen states connected to the dispute. Because the “need to apply the ambiguous laws of the other class states would render [the] case unmanageable and not superior as a matter of law,” the Court of Appeals decertified the class with respect to all out-of-state class members. The Court of Appeals affirmed the certification with respect to New Mexico class members only,… subject to the district court’s discretion. We granted certiorari to review significant, novel issues relevant to New Mexico class action jurisprudence….
The district court’s certification was appropriate if the court properly considered the requirements of our class action rule, portions of which can only be satisfied in a multi-state class action by considering conflict-of-laws principles. We begin our discussion with an overview of our class action rule, which forms the backdrop of this appeal. We then discuss the Court of Appeals’ determination that the laws of the thirteen states connected to this dispute conflicted. In so doing, we consider as a vital threshold inquiry whether the class proponent has the burden of affirmatively disproving a hypothetical conflict between the laws of the relevant states, as the Court of Appeals held, or whether the party opposing certification has the burden of affirmatively proving that the laws of the relevant states actually conflict.
CLASS ACTIONS IN GENERAL
[The court set out the text of Rule 1-023(A) and (B), and noted that its language mirrors that of FRCP 23.] Thus, we may seek guidance from federal law applying the rule.…
In addition to meeting all of the threshold requirements of Rule 1-023(A), a district court may only certify a class if the class meets the requirements of one of the categories contained in Rule 1-023(B). Of the three categories of Rule 1-023(B), only subsection (B)(3) is relevant to this appeal because it is the category that generally applies when class members seek monetary damages. Rule 1-023(B)(3) provides that a class action is maintainable only if “the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” “Subdivision (b)(3) encompasses those cases in which a class action would achieve economies of time, effort, and expense, and promote uniformity of decision as to persons similarly situated, without sacrificing procedural fairness or bringing about other undesirable results.” 1 Conte & Newberg, supra, §3:1, at 214 (quoting Rules Advisory Committee to 1966 Amendments to Rule 23).
The requirements contained in subsection (B)(3) are commonly referred to as predominance and superiority. Our class action rule does not define predominance and superiority, but [Rule 1-023(B)(3)] contains several factors to consider when making a determination about whether predominance and superiority have been met. Those relevant factors include:
(a) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (b) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (c) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (d) the difficulties likely to be encountered in the management of a class action.
Class actions involving plaintiffs from multiple states present particular challenges for district courts, and may “implicate the predominance and superiority requirements … because of the combination of individual legal and factual issues that need to be determined.” 7AA Charles Alan Wright et al., Federal Practice and Procedure §1780.1, at 202 (3d ed. 2005). If too many separate state laws must be applied, then the class proponent may have a difficult time persuading the district court that common questions of law predominate and that a class action is the superior method of litigation. A determination that the district court will have to apply the laws of multiple states also impacts the court’s ability to manage the proposed class. See Rule 1-023(B)(3)(d); 7AA Wright et al., supra, §1780.1, at 211 (“[C]ourts also have found that the class device is not a superior method to adjudicate the claims [of a multi-state class] because differences in state law make the action unmanageable.”).
A decision to apply the laws of several states does not, however, necessarily foreclose class certification. A court may be able to manage a class through the use of subclasses or by grouping certain issues together that can be resolved by applying one state’s law. See In re Sch. Asbestos Litig., 789 F.2d 996, 1011 (3d Cir. 1986) (affirming class certification under Rule 23(b)(3) because, even though “ manageability [was] a serious concern,…[m]anageability is a practical problem, one with which the district court generally has a greater degree of expertise and familiarity than does an appellate court”).
Thus, a certifying court must first determine which law will apply to the class so that it can then assess the predominance and superiority of the proposed class action. Plaintiffs bear the initial burden of producing evidence of the various states’ laws and demonstrating “‘that class certification does not present insuperable obstacles.’ If the defendant wishes to contest the plaintiff’s characterization of the laws of the relevant states, the defendant must “inform the district court of any errors they perceive.” If the defendant fails to bring any “‘clearly established’ contradictory law” to the court’s attention, the district court cannot be faulted if it concludes that the laws of the jurisdictions connected to the dispute do not conflict such that a single state’s law may be applied to the entire class. [Berry v. Fed. Kemper Life Assurance Co., 2004-NMCA-116] (quoting Sun Oil Co. v. Wortman, supra page 333).
In this case, the district court’s decision to certify the class was proper if the district court correctly determined that New Mexico law applied to the entire class. A district court’s choice to apply forum law is appropriate if (1) the choice to apply forum law is constitutional or (2) an application of the forum’s choice-of-law rules leads to the selection of forum law. A forum’s choice to apply its own law is constitutional if the law of the forum does not actually conflict with the law of any other jurisdiction connected to the dispute. See Shutts [supra page _______] (“There can be no injury in applying [forum] law if it is not in conflict with that of any other jurisdiction connected to this suit.”). Additionally, a forum’s choice to apply its own law is constitutional, even if the laws of the states connected to the dispute actually conflict, if the forum state has “a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.” Id. (quoting Allstate Ins. Co. v. Hague, supra page 311). The parties to this appeal have focused their arguments on whether the Court of Appeals correctly found an actual conflict between New Mexico law and the laws of the other twelve states. We will concentrate our analysis in a similar fashion.
…[W]hen the laws of the relevant states do not actually conflict, the court may avoid a conflict-of-law analysis and may apply forum law to the entire class. See Shutts (“We must first determine whether [forum] law conflicts in any material way with any other law which could apply. There can be no injury in applying [forum] law if it is not in conflict with that of any other jurisdiction connected to this suit.”). If, however, the laws of the relevant states actually conflict, or if the laws of certain of the relevant states conflict, then the forum court must resolve that conflict using the choice-of-law rules contained in the forum state’s conflict-of-laws doctrine.
A district court’s conclusion that the laws of the various states do not actually conflict is particularly important in multi-state class actions. If the law of a single state can be applied to the entire class, it is more likely that the class will meet the predominance and superiority requirements of our class action rule. The converse is true as well. If the laws of the states connected to the dispute actually conflict, and if the court’s choice-of-law analysis provides that the laws of several states must apply to the class, then it is less likely that the class will meet the certification requirements.
WHEN CAN THE LAWS OF THE INTERESTED STATES BE SAID TO ACTUALLY CONFLICT SUCH THAT APPLICATION OF FORUM LAW IS INAPPROPRIATE?
In the instant appeal, the Court of Appeals concluded that a district court may only apply forum law to class members from other states if the laws of the states connected to the dispute “are identical, or different, but produce identical results” (emphasis added). While acknowledging the apparent similarities among the states’ laws, the Court of Appeals was nevertheless troubled because “[n]one of the class states [had] appellate court opinions interpreting the statutory definition of premium or otherwise deciding whether fees constitute premium in the context of a breach of contract issue.” Despite the lack of evidence that the difference in state law would actually influence the outcome of a trial on the merits, the Court of Appeals concluded that where the laws of the relevant states “could produce different results,” (emphasis added), it would be inappropriate to apply New Mexico law to the entire class.
The Court limited its analysis to a comparison of the statutory definition of premium, and to the issue of whether fees constitute premiums. The Court noted that six states “have a statutory definition of ‘premium’ that is materially the same as the definition found in New Mexico’s Section 59A-18-3.” The Court further stated that three states “have statutes that essentially define premium as ‘the consideration for insurance’ but do not provide the list of examples that New Mexico’s statute does.” And, while three states did not have a statutory definition of premium, the Court acknowledged that two of those states had appellate opinions “holding that fees charged by insurance companies for the privilege of paying in monthly installments constitute ‘gross premium’ for purposes of statutory or constitutional provisions that require insurance companies to pay taxes on the ‘gross premiums’ collected.”…
The question before us … is whether an actual conflict exists when the laws of the other states could hypothetically produce different results or whether an actual conflict requires a showing of something more. In answering that question, we examine whether the uncertainty created by the lack of appellate precedent necessarily creates an actual conflict. We also consider who must demonstrate the existence of an actual conflict and who carries the burden of failing to prove that an actual conflict exists.
We begin our discussion with [Shutts] and Sun Oil, two U.S. Supreme Court cases … before turning our attention to…Berry, a case similar to Ferrell, involving appellate review of a district court’s decision to certify a multi-state class. In [Shutts], the U.S. Supreme Court reviewed the constitutionality of the Kansas court’s decision to apply principles of Kansas law to the claims of a multi-state class.…[T]he Court held that a court may apply forum law when that law does not “conflict in any material way with any other law which could apply.” (emphasis added). Alternatively, the forum court may apply its own state law, even if forum law conflicts with the laws of the other states connected to the dispute, as long as the forum has “a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.” Id. (quoting Hague, supra). “Given Kansas’ lack of ‘interest’ in claims unrelated to that State, and the substantive conflict with jurisdictions such as Texas, we conclude that application of Kansas law to every claim in this case is sufficiently arbitrary and unfair as to exceed constitutional limits.” Id. Having so concluded, the Supreme Court reversed the Kansas court’s decision to apply Kansas law and remanded the case for the Kansas court to apply the laws of the other states connected to the dispute.
In Sun Oil, the U.S. Supreme Court had the opportunity to review how the Kansas court complied with the constitutional mandates set forth in [Shutts]. The Kansas court in Sun Oil again chose to apply principles of Kansas law to the entire class to determine the prejudgment interest rate with respect to the plaintiffs’ claim for royalties. On appeal, to the U.S. Supreme Court, the defendant-oil company argued that the Kansas trial court had “unconstitutionally distorted” the laws of the other states when it concluded that the laws of those states did not materially conflict with the law of Kansas.
The U.S. Supreme Court acknowledged that the statutes of the relevant states were facially different, yet upheld the Kansas court’s decision to apply Kansas law to determine the prejudgment interest rate for the entire class. The oil company had failed to present the court with any clearly established case law demonstrating that, under similar circumstances, the other states would apply their state’s statutory rate, rather than the rate chosen by the Kansas court. The U.S. Supreme Court held that the Kansas court’s interpretation of unsettled law was valid, even though the highest court of a sister state had yet to rule on the issue. See id. at n. 4 (relying on a previous opinion where the Court had stated that “[t]here was neither allegation nor proof that the court of last resort in Louisiana had considered the question or made any ruling upon it, and so it became the duty of the Texas courts … to decide the question according to their independent judgment” (quoted authority omitted)); see also Berry, (relying on [Shutts] and Sun Oil for the proposition that “the forum court [is not] required to try to match or divine the result of the case as if it were being decided in the other states”). Additionally, the Supreme Court noted that simply because a forum court must interpret the laws of a sister state does not necessarily mean that the forum court is foreclosed from applying forum law, if the court interprets that law to be similar to the forum law. See Sun Oil (noting that the Kansas court was called upon to interpret a Texas appellate court decision and, in so doing, distinguished that case from the case at bar based on the “eminently reasonable ground” that the disputes did not involve the same legal claim).
… In Berry, the district court certified a nationwide class seeking damages against a life insurance company based on breach of contract and breach of the duty of good faith. In its conflict-of-laws analysis, the Berry court relied on [Shutts] and Sun Oil as a framework for determining whether the district court appropriately considered the differences between the laws of the various states when it decided to apply New Mexico law to the claims of the entire multi-state class. From those cases, the Berry Court distilled several overarching principles that a court should consider when making a determination about whether a conflict exists.
The Court noted that, as an initial step, “courts dealing with multistate class actions must consider and evaluate how the laws of other states apply to the class claims.” While “[t]he forum state cannot simply assume that its law will govern[,]… the forum court [is not] required to try to match or divine the result of the case as if it were being decided in the other states. The forum court is only bound by ‘clearly established’ law brought to its attention.” After setting forth these general principles, the Court then utilized them to analyze the plaintiffs’ claims arising under both breach of contract, and breach of good faith and fair dealing.
With respect to the breach of contract claim, the Berry court focused on the significance of the demonstrated conflicts, not on potential conflicts. Rather than requiring an affirmative showing that the laws would produce identical results, the court noted that “the law in this area [was] uniform enough,” there was “no significant variation in the cases from the standard approach to interpretation of insurance contracts,” and there were “no fatal contradictions of law,” (emphases added). Significantly, the Berry court rejected the defendant’s argument that it would be improper to apply New Mexico law to the entire class because a determination of “whether the policy would be deemed ambiguous ‘could’ vary from state to state.”
The Berry court rejected this argument for two reasons, which we find persuasive. First, the court noted that the district court had yet to decide that an ambiguity existed. Second, the court stated that it saw “no significant variation among the states concerning how [the] decision [about ambiguity] is made.” Thus, the court rejected the defendant’s argument—that the laws could potentially produce different results—because “there is no need to forecast how the inquiry would actually be resolved in any other court because the case is here, and the decision is to be made here in accordance with reasonably uniform rules.” Because the laws of the relevant states were sufficiently uniform to allow the application of New Mexico law, the Court affirmed the district court’s certification decision with respect to the breach of contract claim. Id.
The Berry court’s discussion of the breach of good faith and fair dealing claim is illustrative of the level of proof required by a defendant to establish that an actual conflict exists. In its analysis, the court relied on actual variations among the laws of certain states in making the determination that the laws of the various states were not sufficiently uniform to apply New Mexico law. Significantly, the defendant cited established cases from the class states with holdings that were contrary to New Mexico law. Because the laws of the states were not sufficiently uniform, the court decertified the class with respect to the breach of good faith and fair dealing claim.
Having reviewed both Ferrell and Berry, it is clear that the two New Mexico Court of Appeals’ opinions set forth conflicting standards for what constitutes an actual conflict. Plaintiffs argue that Berry and Sun Oil set forth rules that a court should follow when determining whether the laws of the states connected to the dispute can be said to conflict. The Ferrell court disagreed and did not rely on Sun Oil for what constitutes an actual conflict, because that court concluded that Sun Oil “does not say anything about when the laws of two jurisdictions can be said to ‘conflict.’”
In addition to reading Sun Oil differently, Berry and Ferrell diverge on the issue of who bears the risk of ambiguity in the law. Both opinions appropriately place the initial burden of persuasion on the class proponent by requiring the plaintiffs to persuade the district court that there are no significant variations among the laws of the states connected to the dispute. However, the opinions apportion the risk of ambiguity differently. The Berry court places the risk of ambiguity on the party opposing certification by requiring that party to demonstrate that the laws of the various states actually conflict. The Ferrell court, on the other hand, places the risk of ambiguity on the party seeking certification by requiring that party to disprove all hypothetical conflicts before a court can conclude that forum law applies.
By placing the risk of ambiguity on the party seeking certification, the Court of Appeals’ opinion in Ferrell can be read as holding that the party seeking certification cannot meet its burden if the laws of the other states are unclear or unsettled, despite significant facial similarities between the statutes at issue. Such a holding places an intolerable burden on the party seeking certification. Multi-state class actions might never be possible if courts must await final appellate court decisions in each state resolving all hypothetical conflicts.
We agree with Plaintiffs that Berry sets forth the preferable analysis. The party opposing certification must establish that the laws of the relevant states actually conflict. Sun Oil. If the class proponents have met their burden and the party opposing certification fails to show that the laws of the relevant states actually conflict through clearly established, plainly contradictory law, then the district court cannot be faulted if it concludes that there is no material conflict between the laws of the relevant states.
The Berry court’s approach is consistent with the principles underlying our class action rule—judicial economy and fairness to the parties. See Brooks v. Norwest Corp., 2004-NMCA-134, ¶9 (“The core policy behind the Rule is to provide a forum for plaintiffs with small claims who otherwise would be without any practical remedy. At the same time, the district court must ensure that a class action is not only efficient, but that it is a fair method to all parties, including absent class members and defendants.”). This approach, while not necessarily favoring certification in all situations, does not act as an undue impediment to certification. Similarly, it ensures that the class certification is fair to all parties. Defendants cannot complain about the application of forum law if they have not presented law from another state to the contrary demonstrating a real, irreconcilable, and material conflict. Further, the plaintiffs will not face the unduly burdensome task of having to disprove all hypothetical conflicts.
WAS AN ACTUAL CONFLICT PROVEN SUCH THAT IT WAS INAPPROPRIATE FOR THE DISTRICT COURT TO DETERMINE THAT NEW MEXICO LAW COULD APPLY TO THE ENTIRE CLASS?
… In this case, the district court found that the class met the requirements of Rule 1-023(B). The district court made its determination based on its understanding of the various states’ laws as presented by the parties. Plaintiffs presented the court with surveys detailing the laws from the various states involved in an attempt to meet their burden of showing that the predominance and superiority requirements of Rule 1-023 were met. These surveys consisted of: (1) excerpts from the relevant statutory provisions, (2) statutory definitions of “premium,” and (3) case citations for various legal propositions relating to breach of contract. Allstate submitted a memorandum in opposition, which included a discussion regarding variations among the states’ laws. In its memorandum, Allstate specifically argued that the relevant states differed with respect to certain affirmative defenses as well as contract interpretation, including the use of extrinsic evidence to resolve an ambiguity in the contract. Allstate also argued that the definition of premium varied from state-to-state.…
Plaintiffs suggested that the variations among the laws of the states connected to the dispute were either irrelevant or did not rise to the level of constitutional significance. For example, in its briefing, Allstate contended that the states differed with respect to authorizing or implying a private right of action for violations of the state insurance code. Plaintiffs countered that they were not seeking a private right of action under any state insurance code, but rather were suing under a common-law theory of breach of contract. Further, Plaintiffs noted that many of the conflicts discussed by Allstate arose in states other than those implicated in the proposed class. More to the point, Plaintiffs insisted that the definition of premium did not vary materially from state to state, and this went to the heart of Plaintiffs’ class-wide claims for breach of contract. Additionally, Plaintiffs noted that the affirmative defenses that Allstate argued defeated class certification were simply “hypothetical.”
After [an extensive] hearing, the district court concluded that “a class action is a superior method of litigation instead of individual lawsuits in each member’s respective state.” The court also concluded that the case was manageable because “there [was] no debilitating conflict of law among the thirteen (13) states on the issues of contract interpretation, right to jury trial, and the definition and specification of insurance policy premiums, the issues to be adjudicated under the breach of contract claim.” (Emphasis added.) Significantly, the district court excluded the plaintiffs from Hawaii and Washington, which demonstrates that the court considered the differences between the policies, and the breach of contract claims premised on those policies, in the relevant states.
And, while Allstate argues that certain states may take a different approach with respect to the “four corners” rule for resolving an ambiguity in the contract, the district court’s decision about whether an ambiguity exists would again be made using relatively uniform rules. If the district court determines that an ambiguity exists in some contracts, and that the states where those contracts were entered into vary significantly in their approach to the “four corners” doctrine, the district court may revisit its certification decision. Until that time, “there is no need to forecast how the inquiry would actually be resolved in any other court because the case is here, and the decision is to be made here in accordance with reasonably uniform rules.” Berry.
Thus, Plaintiffs met their burden of showing that the laws of the class states were similar enough to support certification. The statutes at issue do not present “fatal contradictions of law.” Berry. And while Allstate presented evidence of some differences between the laws of the class states, the district court was not persuaded that the differences rose to the level of constitutional significance. In a case such as this one, where the statutes of the other states have yet to be definitively construed by a state appellate court, any conflict will likely be hypothetical. A hypothetical conflict should not preclude the district court from deciding, on balance, that forum law may be applied to the entire class. Instead, under Berry and Sun Oil, the party opposing class certification must provide the district court with evidence that an actual conflict exists before a court will be faulted for concluding that forum law may apply to the entire class. In this case, the Court of Appeals implicitly acknowledged that Allstate had not met this burden when it stated “that if a New Mexico court were to apply New Mexico’s statutory definition of premium to plaintiffs from other states, doing so would not run afoul of [Sun Oil]. [T]he court would not be ruling in contravention of the clearly established laws of other jurisdictions because … there is no clearly established law from any of the jurisdictions on the issue of whether fees constitute premium.”
Thus, we conclude that the district court’s decision to apply New Mexico law, in the absence of a demonstrated, material conflict, was proper. Because the district court’s decision to apply New Mexico law to the entire class was appropriate, we conclude that the court did not abuse its discretion when it certified the class, and we remand to the district court for further proceedings consistent with this Opinion.
On remand the district court retains jurisdiction over the class and may revisit its certification decision. See Rule 1-023(C)(1). Thus, the court may need to consider changes in the laws of the class states that may have occurred while this appeal has been pending to ensure that class certification is still appropriate. See Ferrell (“If the court has second thoughts on any issue, it can reconsider and either decertify or modify certification if the manageability of damages adjudication or distribution proves to be an intolerable burden on the judicial system or otherwise proves to create a situation that is less fair and efficient than other available techniques.”).
CONTINUED VIABILITY OF THE RESTATEMENT (FIRST) OF CONFLICT OF LAWS FOR MULTI-STATE CLASS ACTION LAWSUITS
After determining that an actual conflict existed in this case, the Court of Appeals correctly relied on the Restatement (First) of Conflict of Laws and the place of contracting rule contained within the Restatement (First) to determine what law ought apply to the class members from states other than New Mexico. However, we note that the Court of Appeals’ adoption of the actual conflict doctrine represents a divergence from the analysis traditionally undertaken under the Restatement (First) because, as discussed below, the Restatement (First) does not contemplate a comparison of the laws of the states involved.
Despite being contrary to a traditional choice-of-law analysis, the Court’s decision to adopt the actual conflict doctrine is consistent with the procedures required by our class action rule. As discussed above, a district court must undertake an analysis of the laws of the relevant states to ensure that the predominance and superiority requirements of the class action rule are met. If a court finds that the laws of the relevant states are similar enough to meet the predominance requirement, but then has to apply the laws of the state where the insured entered into the contract, the district court’s analysis regarding predominance would have been in vain. Thus, a strict adherence to the traditional principles espoused by the Restatement (First) may render multi-state class actions a virtual nullity. Because we reverse the Court of Appeals’ determination that an actual conflict exists in this case, we could stop at this point. However, because the doctrine we currently follow may no longer be appropriate for multi-state class action litigation, we resolve this potential problem in this Opinion for the benefit of our class action jurisprudence.
New Mexico has traditionally followed the Restatement (First). The Restatement (First) consists of rules for each substantive area of the law, which are based on a particular pre-determined contact. Thus, under the Restatement (First), a court does not choose between competing laws, but simply chooses between competing jurisdictions. If a party argues that the laws of the state where the right vested conflict with a fundamental public policy of New Mexico, a New Mexico court may refuse to apply that state’s law.
As the Court of Appeals correctly noted, if an actual conflict exists, a court presiding over a multi-state class action lawsuit in a Restatement (First) jurisdiction must make an initial determination of which state or states’ law applies to the controversy, based upon the traditional principles of the Restatement (First). Following this traditional approach literally, when faced with a multi-state class action, a court could not consider the laws of the other states connected to the dispute; instead the court would be required to apply the rule from the Restatement (First) that pertains to the claim alleged. See Leflar et al., supra, §86, at 256 (noting that a court in a state that has adopted the Restatement (First) “ha[s] only to determine … the nature of the issue before it…, look up the choice-of-law rule conceptually appropriate to that type of case, then apply the rule to the facts”).
Thus, with respect to the instant appeal, the district court would have simply applied the Restatement (First) §311, “the [law of]‘the place of contracting.’” Assuming that the place of making the contract was the state where the insured entered into the contract, the district court would have been required to apply the separate law of each of the thirteen states involved in the class action, without considering the competing laws and policies of the other states connected to the suit. This leads to problems and could conflict with the policy behind class actions, i.e., the district court would have no choice but to apply the thirteen states’ laws, which may make the class action unmanageable.
Because of the mechanical nature of its application, the Restatement (First) has been widely criticized as being inflexible, rigid, and leading to unjust results. Another criticism levied against the Restatement (First) is that it does not recognize choice-of-law provisions. Currently only eleven states, including New Mexico, continue to follow the choice-of-law rules set forth in the Restatement (First) with respect to contract claims.
Twenty-four states have rejected the Restatement (First) in favor of the Restatement (Second) of Conflict of Laws (1971) with respect to contract conflicts. The Restatement (Second) eschews a rigid, mechanical selection of a particular jurisdiction and, instead, focuses on the content of the laws of the states connected to the dispute. As such, a court does not choose between two competing jurisdictions, but between competing bodies of law, and competing public policies. See Leflar et al., supra, §100, at 282-284. Additionally, the Restatement (Second) proceeds issue by issue, rather than by an entire claim, so one issue may be resolved under the law of one jurisdiction, while another issue may be resolved under the law of a different jurisdiction. Further, the Restatement (Second), unlike the Restatement (First), acknowledges the realities of modern contracts and respects party autonomy by allowing the parties to choose the law that will govern the dispute. Restatement (Second) §187. If the contract has a valid choice-of-law provision, that law presumptively applies.
In the absence of an enforceable choice-of-law provision, and if the rules regarding specific types of contracts or specific issues in contract do not supply the law to be applied, the Restatement (Second) relies on the “most significant relationship” test which is used to determine which state has the most significant relationship to the transaction and to the parties. Id. §188(1), at 575. A court considers a variety of contacts when making a determination about which state’s law applies to the dispute. See id. (listing the following relevant contacts “(a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties”). Significantly, a court must consider both the number of contacts in a given jurisdiction, and even more importantly, the quality of those contacts. See id. (“These contacts are to be evaluated according to their relative importance with respect to the particular issue.”). The qualitative nature of a particular contact is determined by reference to the “Choice-of-Law Principles” set forth in Section 6, which include: (a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied.
After comparing the Restatement (First) and the Restatement (Second), it is apparent that the rigidity of the Restatement (First) is particularly ill-suited for the complexities present in multi-state class actions. It does not allow a court to consider the competing policies of the states implicated by the suit.3 We conclude that the Restatement (Second) is a more appropriate approach for multi-state contract class actions.
Thus, if a district court determines that the laws of the states implicated in a multi-state contract class action actually conflict, the court should then apply the principles of the Restatement (Second) to determine which law applies to the disputed issue. Once the court determines which law applies, the court must then determine whether the application of that chosen law is constitutional. Only then may a district court determine whether the class meets the requirements of our class action rule.
Questions and Comments
(1) As footnote 1 of the Ferrell court’s opinion indicates, another New Mexico court (Nakashima) had already ruled on the merits of the same basic claim brought against State Farm Insurance Company. That court determined that the monthly payment fee did not constitute premium for purposes of state insurance law and therefore that the fee did not need to be included in the premium calculation. If Nakashima represents New Mexico law, does it now govern the outcome for Ferrell plaintiffs in all 13 states? Put differently, did the New Mexico court determine that defendant failed to prove dissimilarities between New Mexico law and the law of the other 12 states and that therefore they all were deemed to be the same in content? Or was the New Mexico Supreme Court instead saying that the district court could treat the laws as similar until dissimilarities appeared on the jurisprudential landscape? If the latter interpretation is correct, can the plaintiffs move to decertify the class with respect to the New Mexico plaintiffs? Would the New Mexico court retain jurisdiction over the case under those circumstances?
(2) The Ferrell opinion suggests that application of forum law is not only constitutionally permissible but also correct as a matter of choice-of-law policy when the laws of other states is unknown. Does that seem correct? The Sun Oil court’s constitutional treatment of choice of law may have resulted from its frustration with monitoring state court choice-of-law decisions rather than from any conclusion that its test constituted sound choice-of-law policy. On the other hand, the court’s strategy of proceeding with forum law unless a conflict is clearly established is commonly used for choice-of-law problems outside the class action context. Is there anything different about class actions that suggests a different approach should be followed?
(3) Does Shutts require the court to conduct a detailed choice-of-law inquiry for class actions? The Eighth Circuit reversed a district court’s determination that Minnesota law applied to a nationwide consumer class action brought by plaintiffs with synthetic heart valves even though the valves were produced in Minnesota by defendant firm whose principal place of business was Minnesota. In re St. Jude Medical, Inc., 425 F.3d 1116 (8th Cir. 2005). The court stated:
The district court’s class certification was in error because the district court did not conduct a thorough conflicts-of-law analysis with respect to each plaintiff class member before applying Minnesota law. The Supreme Court has held an individualized choice-of-law analysis must be applied to each plaintiff’s claim in a class action. Shutts.… Therefore we must first decide whether any conflicts actually exist.
Id. at 1120. Does this seem correct? Isn’t it sufficient that each claim involves a connection with Minnesota significant enough to satisfy the constitutional test set forth in Hague? Does this passage suggest that Shutts might require more from choice of law in class actions than is required in other litigation contexts? In re LILCO Securities Litigation, 111 F.R.D. 663 (E.D.N.Y. 1986), suggests otherwise. In LILCO, a district court initially certified a class action brought by investors against the Long Island Lighting Company alleging securities law violations as well as fraud, breach of fiduciary duty, and waste of corporate assets. The court reasoned:
Without doubt, Shutts does not require us to apply the law of each state on which the plaintiffs reside nor does it prohibit the application of one state’s law to all plaintiffs, regardless of residence. Defendants, therefore, misread Shutts when they argue that this Court may be forced to consider the law of all fifty states. In any event, the spectre of having to apply different substantive law does not warrant refusing to certify a class on the common law claims.… At this juncture, it is not necessary for the Court to decide the choice of law issue.
Id. at 670.
(4) Whether or not required by Shutts, at what point should the choice-of-law inquiry occur? Some courts have taken the position that a detailed choice-of-law analysis must be conducted prior to certification. Compaq Computer Corp. v. Lapray, 135 S.W.3d 657 (Tex. 2004). In contrast, the Supreme Court of Arkansas, like the Eastern District of New York in LILCO, determined that choice-of-law inquiries were not necessary at the certification stage. General Motors Corp. v. Bryant, 285 S.W.3d 634 (Ark. 2008). The Bryant court was unconcerned that multiple laws might end up being applied to the case. Furthermore, the court noted that if choice-of-law difficulties rendered the class action unmanageable, the “class can always be decertified at a later date if necessary.” Id. at 641. Which view seems more reasonable?
(5) Relatedly, from what vantage point should a court measure similarities and differences across state laws? Some state laws are generally uniform when stated as a general concept even though there are fine gradations in how those laws have been applied to individual factual scenarios. Consider, for example, Cole v. General Motors Corp., 484 F.3d 717 (5th Cir. 2007). In Cole, the district court certified a nationwide class action involving breach of contract and warranty claims against GM for problems associated with the side-impact airbag system in some Cadillac De Ville models. On appeal, the Fifth Circuit ordered the class action decertified for failure to satisfy the predominance standard of Rule 23(b)(3). Its opinion suggested that the choice-of-law inquiry needs to take into account fine gradations in the law:
The party seeking certification of a nationwide class must … provide an “extensive analysis” of state law variations to reveal whether these pose “insuperable obstacles.” And the district court must then consider how these variations affect predominance. Failure to engage in an analysis of state law variations is grounds for decertification.…
Plaintiffs assert that they have analyzed the applicable laws of the fifty-one jurisdictions and that they are “virtually the same.” They conclude that predominance is unfettered in this case because any variations in the substantive law applicable to this case are “not significant and would not affect the result.” They further conclude that “neither complex jury instructions nor multiple separate trials would be required to try the common issues in this proceeding under the laws of the 51 jurisdictions.”
As support for their arguments, plaintiffs provided the district court with an extensive catalog of the statutory text of the warranty and redhibition laws of the fifty-one jurisdictions implicated in this suit; included in this catalog is the text of the relevant provisions of the Louisiana Civil Code and the UCC provisions of the forty-nine states and the District of Columbia. Plaintiffs additionally provided an overview of textual variations in the relevant UCC provisions as adopted by the fifty jurisdictions. Finally, plaintiffs submitted a report from an expert on contract law who opined, after analyzing some variations, that “the few variations in the provisions of UCC Article 2 relevant to this case are such that they do not affect the result” and that Louisiana law “does not differ from Article 2 in a manner that would affect the result.”
We conclude that plaintiffs did not sufficiently demonstrate the predominance requirement because they failed both to undertake the required “extensive analysis” of variations in state law concerning their claims and to consider how these variations affect predominance. Plaintiffs’ assertion of predominance relied primarily on the textual similarities of each jurisdiction’s applicable law and on the general availability of legal protection in each jurisdiction for express and implied warranties. Plaintiffs’ largely textual presentation of legal authority oversimplified the required analysis and glossed over the glaring substantive legal conflicts among the applicable laws of each jurisdiction.
As we explain below, there are numerous variations in the substantive laws of express and implied warranty among the fifty-one jurisdictions that the plaintiffs failed to “extensively analyze” for their impact on predominance.…
Id. at 725-726. Is there a principled way of determining the appropriate vantage point for determining whether laws differ?
(6) Note the Ferrell plaintiffs’ strategy for maintaining a multistate class action in the face of competing state laws: Plaintiffs included in the requested class insureds from states where the legal definition of premium could possibly include the monthly installment fee. From that vantage point, the disagreement between the Court of Appeals and the state supreme court becomes one of the appropriate number of states in the class action. Both courts seem to agree that the class could include plaintiffs from states whose laws were clearly the same as New Mexico’s and could not include plaintiffs from states whose laws clearly differed from New Mexico’s, but what of the plaintiffs from states that had not yet addressed the question?
(7) The court in Ferrell distinguishes the burden of persuasion regarding governing law and the risk of ambiguity when the governing law is unclear. Plaintiffs bear the initial burden of persuading the court that the laws of the states connected to the dispute do not vary significantly. But the party opposing certification bears the risk of ambiguity in that that party must demonstrate that the laws of the states actually conflict. Does this distinction make sense?
(8) In Ferrell, the New Mexico Supreme Court announced that in future cases the Second Restatement approach would apply in class actions even though the state uses the First Restatement approach to make choice-of-law decisions in other contexts. The Court says that retaining the First Restatement approach for class actions might “render multistate class actions a virtual nullity.” Does that seem correct? The court justifies its switch in approach by claiming that the First Restatement approach does not permit a comparison of laws as is required for class action certification. Is this rationale convincing? In practice, regardless of approach, choice-of-law issues tend not to arise unless the parties note a difference in laws worth fighting over.
Is it appropriate for a court to use a different choice-of-law approach for class actions given the complexity of the choice-of-law problem in this context as well as its import beyond simply setting governing legal standards? Is it legitimate for a court to apply a different substantive legal standard to claims brought in the aggregate from those that would apply when the same claims are brought individually? Several scholars think not:
When one posits that the claims of individuals in a class action, would, in the absence of the class context, be decided under different laws, it is not clear why aggregation should alter that result. Certainly as conceived by the 1996 amendments to Rule 23, the class action was not designed, nor could it have purported, to change the substantive rights of the parties. The reason for the class device is that a coherence of rights and claims already exists among potential class members, and it is the existence of those elements that makes the representative suit appropriate. To use the class action as the justification for altering choice of law rules would be to put the cart before the horse and to misunderstand the role of both class actions and choice of law.
Silberman, The Role of Choice of Law in National Class Actions, 156 U. Pa. L. Rev. 2001, 2022 (2007-2008). See also Kramer, Choice of Law in Complex Litigation, 71 N.Y.U. L. Rev. 547, 549 (1996); Nagareda, Aggregation and Its Discontents; Class Settlement Pressure, Class-Wide Arbitration, and CAFA, 106 Colum. L. Rev. 1872, 1911 (2006). That view is far from uniform, however:
There is a strong claim that large-scale aggregations of parties justify choices of law that would not be made if each element in the aggregation were the subject of a separate action. The justifications run in both directions—the choice facilitates the procedural advantages of aggregation, and aggregation facilitates a choice of law that yields overall more satisfactory results than those that would be achieved by separate actions.…
… Events that entangle two or more law-giving jurisdictions invoke additional interests often referred to in the choice-of-law process. There are shared interests in uniformity of outcome, interests that are associated with equal treatment of actors caught up in indistinguishable events. The interest in uniformity and quality is bolstered by the interest in mutual accommodation, the recognition that subordination of event-specific interests of any particular jurisdiction for that set of events will be repaid by subordination of others’ interests when another set of events comes to be litigated. In addition, there is an interest in the efficient and consistent application of whatever set of rules is chosen. This interest is better served by aggregation than by repeated litigation in multiple forums.
Cooper, Aggregation and Choice of Law, 14 Roger Williams U. L. Rev. 12, 13-14 (2009). See also Cabraser, The Manageable Nationwide Class: A Choice-of-Law Legacy of Phillips Petroleum Co. v. Shutts, 74 U.M.K.C. L. Rev. 543, 567 (2006). Which viewpoint seems correct?
(9) Relatedly, in 1994 the American Law Institute’s project on Complex Litigation proposed a uniform choice-of-law code to govern cases consolidated in the federal courts. ALI, Complex Litigation: Statutory Recommendations and Analysis §§6.01-6.03 (1994). The drafters acknowledged that their proposal would result in disparate treatment between parties involved in smaller actions not involving consolidation and those involved in cases that have been transferred for consolidation. However, the disparate treatment was justified by “the need to achieve justice among the litigants by assuring the uniform and economical treatment of their dispute.” Id. at Choice of Law, Introductory Note, p. 308. The drafters’ solution was to advocate the careful cabining of those cases deemed appropriate for consolidated treatment. Id. at 309. The proposed code was never enacted.
(10) If crafting a separate choice-of-law approach for complex litigation seems legitimate and appropriate, what approach makes most sense?
2. Single Governing Law
Courts sympathetic to the value of class actions sometimes seek the application of a single state’s law to plaintiffs’ claims. To be consistent with Shutts, however, the choice must be one that is constitutionally permissible as applied to each individual claim. When multiple plaintiffs sue a single defendant for the same basic conduct, a defendant-based connection, such as defendant’s principal place of business or place of conduct (manufacture, contracts processing, training, etc.) can provide the basis for a single, constitutionally permissible choice of law.
Ysbrand v. DaimlerChrysler Corp.
81 P.3d 618 (Okla. 2003)
This opinion reviews the trial court’s determination that this dispute meets the requirements for a class action found at Title 12, §2023, of the Oklahoma Statutes. The class certification order is affirmed as to the warranty claims asserted but is reversed as to the claim for fraud and deceit.
Defendant, DaimlerChrysler, is a Delaware corporation with its principal place of business in Michigan. It manufactured over one million 1996 and 1997 model “minivans” equipped with front passenger seat air bags. Plaintiffs, each an owner of one of the minivans, have asserted Uniform Commercial Code claims for “breach of express warranty,” “breach of implied warranty of merchantability,” and “breach of implied warranty of fitness.” In addition, they assert a claim for “fraud and deceit.”
Plaintiffs’ claims are based on their assertion that the front passenger seat air bags are defective due to “1) their propensity to deploy with overly aggressive force and 2) their propensity to deploy during a low speed collision.” Plaintiffs further assert that DaimlerChrysler failed to warn purchasers that this defect has the potential to kill or seriously injure a child or small adult seated in the front passenger seat. According to Plaintiffs, there are air bags available which deploy with less force and at higher collision speeds. They claim that these bags are currently used as replacements when a bag has been deployed. Plaintiffs seek damages in an amount sufficient to allow owners to install the “safer” air bags or, in the alternative, replacement of the “defective” air bags by DaimlerChrysler.
Following initial discovery and a hearing, the trial court issued a twenty-one page order certifying a class consisting of [current owners of the minivans at issue but excluding both owners who have suffered personal injury from airbag deployment and owners who have had their airbags deactivated or replaced.]2 DaimlerChrysler now appeals the class certification order.…
Class action is a procedural device provided by Title 12, §2023, of the Oklahoma Statutes. It permits plaintiffs to “vindicat[e] the rights of individuals who otherwise might not consider it worth the candle to embark on litigation in which the optimum result might be more than consumed by the cost.” Section 2023 requires, as does its federal counterpart; numerosity, commonality, typicality, and adequacy of representation. In addition, the court must find that “questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” Id. at §2023(B)(3).
DaimlerChrysler challenges the trial court’s determination that each of these requirements was demonstrated by Plaintiffs. Its challenge is focused primarily on whether common questions of law and fact predominate and whether a class action is superior to other available methods of adjudicating the controversy.…
A. ISSUES OF LAW
DaimlerChrysler argues that common issues of law or fact do not predominate because varying state laws will apply to the asserted claims and defenses. It cites KMC Leasing, Inc. v. Rockwell-Standard Corp., 2000 OK 51, 9 P.3d 683, in which this Court found no abuse of discretion in the trial court’s refusal to certify a class for lack of predominating issues. The proposed class consisted of private aircraft owners who alleged four different product defects against multiple defendants in different states. The matter required application of differing terms in hundreds of nonuniform aircraft purchase contracts. Because the substantive law of numerous states applied to issues which were not common to the entire class, there was no predominance and the trial court did not err in refusing to certify the class.
In this matter the trial court determined that “the alleged choice of law problems identified by [DaimlerChrysler did] not bar certification.” It relied upon In re Bridgestone/Firestone, Inc. Tires Liability Litigation, 155 F. Supp. 2d 1069 (S.D. Ind. 2001), which granted class certification upon a finding of predominance.
In Firestone, a federal district court sitting in Indiana determined which state’s substantive law applied to a nationwide state law class action. Buyers had asserted tort and contract claims against Ford Motor Co. and Bridgestone/Firestone, Inc. for alleged tire defects on Ford’s Explorer model sport utility vehicle. The court reasoned that because “the relationship between the parties [was] simply that of buyer and seller,” the place where the products were purchased was not significant to the claims for product defect. Rather, it was “the conduct of Defendants as manufacturers” which was the focus of the litigation. Therefore, the law of Michigan and Tennessee, the principal places of business of the manufactures, controlled.4
The trial court’s application of Firestone to this matter evidences its intent to apply the substantive law of Michigan, DaimlerChrysler’s principal place of business, to the claims and defenses asserted. Application of Oklahoma’s choice of law rules supports that conclusion.
1. CHOICE OF LAW—UCC CLAIMS
The “most significant relationship” test applies to an action for breach of warranty in a sale of goods under Article 2 of the UCC. [citations omitted] This test is guided by principles and contacts from the Restatement (Second) of Conflicts (1971). It determines which state’s law is most directly connected to the parties and the transaction.
Under section 6 of the Restatement, the factors relevant to any choice of law decision include: (a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied.
The contacts to be considered in applying these principles to an issue in contract include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties. The contacts are to be evaluated according to their relative importance with respect to the particular issue. Id. at §188(2) (emphasis added).
However, a third provision, section 191, applies to a sale of interests in chattel. “So in a contract for the sale of goods the most significant contact is the place of delivery unless another state has a more significant relationship.” As comment f to section 191 explains: “On occasion, a state which is not the place of delivery will nevertheless, with respect to the particular issue, be the state of most significant relationship to the transaction, the parties and the chattel and hence the state of the applicable law.” The particular dispute in this matter presents such an occasion in which “the local law of some state other than that of delivery should be applied in any event because of the intensity of the interest of that state in the determination of the particular issue.” Id.
All 50 states and the District of Columbia bear some relationship to the parties and transactions in this dispute by virtue of the nationwide sales of the minivans. The question becomes whether the relationship of each state where the vehicles were purchased is more significant to the parties and this litigation than that of Michigan, the principal place of business of DaimlerChrysler.
The Restatement’s section 188(2) contacts of the place of contracting, the place of negotiation and performance, and the location of the subject matter are of diminished significance to the sales of the minivans. The UCC warranties are not something which is negotiated in the purchase of a new car. Thus, the relative interest of each buyer’s home state in applying its version of the UCC is more or less equal. By contrast, Michigan’s interest in having its regulatory scheme applied to the conduct of a Michigan manufacturer is most significant. Michigan is where the decisions concerning the design, manufacture, and distribution of the minivans were made. Michigan is the only state where conduct relevant to all class members occurred. The principal place of DaimlerChrysler’s business is the most important contact with respect to the UCC warranty claims.
The selection of Michigan law furthers the relevant factors stated in section 6 of the Restatement. The needs of the interstate system and the basic policies of predictability and uniformity of result require that the issue of product defect be determined in one forum with one result rather than in 51 jurisdictions with the very real possibility of conflicting decisions. While the interest of each home state in applying its local law is significant, Michigan’s interest in the conduct of its manufacturer, and thus its connection to the warranty issues, is greater. Michigan law applies. It should be noted that this conclusion is consistent with the constitutional imperative that “for a state’s substantive law to be selected in a constitutionally permissible manner, that state must have a significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.” [Shutts, supra page 326 (quoting Hague, supra page 311).]
2. CHOICE OF LAW—FRAUD AND MISREPRESENTATION
Section 148 of the Restatement6 applies to actions to recover pecuniary damages for false representations whether fraudulent, negligent, or innocent. Subsection (2) applies to this dispute because the nationwide representations in DaimlerChrysler’s advertising were made in states outside each class member’s home state. The home state is where each class member acted in reliance on those representations by purchasing a minivan. Thus, this Court is directed to consider:
(a) the place, or places, where the plaintiff acted in reliance upon the defendant’s representations,
(b) the place where the plaintiff received the representations,
(c) the place where the defendant made the representations,
(d) the domicil, residence, nationality, place of incorporation and place of business of the parties,
(e) the place where a tangible thing which is the subject of the transaction between the parties was situated at the time, and
(f) the place where the plaintiff is to render performance under a contract which he has been induced to enter by the false representations of the defendant.
The comments to subsection (2) describe (a), (b), (c), and (d) as the “more important of these contacts.” Comment j articulates the general approach:
If any two of the above-mentioned contacts, apart from the defendant’s … place of business, are located wholly in a single state, this will usually be the state of the applicable law with respect to most issues. So when the plaintiff acted in reliance upon the defendant’s representations in a single state, this state will usually be the state of the applicable law, with respect to most issues, if (a) the defendant’s representations were received by the plaintiff in this state, or (b) this state is the state of plaintiff’s domicil.…
In this matter, each class member presumably received the representation in their home state, their place of domicile. Therefore, the contacts point to each class member’s home state for the applicable law. Applying the law of 51 jurisdictions to the fraud claim presents an overwhelming burden which would make the class unmanageable and a class action determination of that claim inappropriate. The class action certified by the trial court will go forward only on the warranty claims asserted.
B. ISSUES OF FACT
[The court concluded that individualized issues of fact were minimal and did not appear to defeat a finding of predominance.]
A. CLASS ACTION VERSUS ADMINISTRATIVE REMEDY.
DaimlerChrysler argues that a class action is not superior because the National Traffic and Motor Vehicle Safety Act impliedly preempts this warranty and common law tort action. Thus, it urges, the National Highway Traffic Safety Administration (NHTSA) must adjudicate this controversy. The Act, however, expressly provides that compliance with its provisions does not immunize a manufacturer from liability under common law or for warranty claims. 49 U.S.C. §30103.
DaimlerChrysler also argues that, without regard to implied administrative preemption, the administrative remedy of a NHTSA complaint is superior to a class action. The argument must fail.
A class action may be maintained only when it is “superior to other available methods for the fair and efficient adjudication of the controversy.” Okla. Stat. tit. 12, §2023(B)(3) (2001) (emphasis added). There is no administrative method of adjudication available to Plaintiffs. The NHTSA has declined to investigate further. See supra n. 2. An alternate method for adjudication must be available in order for it to be superior.
The question then becomes whether class action is superior to individual litigation. As the trial court found, the individual claims are not substantial enough to support individual litigation. In addition, the prosecution of separate individual actions would inevitably result in inconsistent results.
B. LOGISTICS OF CLASS MANAGEMENT
… There will be logistical problems in any nationwide class action. The fact that travel for counsel, parties, and witnesses will be necessary would be true no matter where the action was pursued. Plaintiffs have chosen Sequoyah County. None of the logistical problems, however, prevent the trial court from resolving this dispute as a class action. As the trial court observed, the advantage of adjudicating the common issues in a single proceeding far outweighs the logistic demands of class treatment.…8
AFFIRMED IN PART; REVERSED IN PART.
OPALA, V.C.J., LAVENDER, KAUGER, SUMMERS, BOUDREAU, JJ., concur.
WATT, C.J., HARGRAVE, J., concur in part; dissent in part.
WINCHESTER, J., dissents.
Questions and Comments
(1) Do you agree that the court’s analysis regarding the UCC claims is consistent with the Second Restatement approach? The court identified a Second Restatement default rule (place of delivery) and then proceeded to replace that default rule on grounds that DaimlerChrysler’s principal place of business had a more significant relationship to the dispute. Note that under the court’s analysis the “dispute” appears to be the litigation as a whole, not the individual claims. Regarding the claims for fraud and misrepresentation, the court identified the relevant default rule and then applied it without asking whether another state might have a more significant relationship to the dispute. If one were to view the issue from the perspective of the litigation as a whole, then DaimlerChrysler’s principal place of business might well prove more significant. But here the court’s analysis never moved beyond the perspective of the individual claims. Why did the court shift perspectives when considering the different claims? Which perspective should a court take when treating choice of law under the Second Restatement?
(2) The Oklahoma legislature apparently takes a less charitable view of state courts as a locus for nationwide class actions. In 2009, it enacted Title 12, §2023(D)(3), which provides:
For actions filed after November 1, 2009, class membership shall be limited, unless otherwise agreed to by the defendant, only to individuals or entities who are:
a. residents of this state, or
b. nonresidents of this state who:
(1) own an interest in property located in this state where the property is relevant to the class action, or
(2) have a significant portion of the nonresident’s cause of action arising from conduct occurring within the state.
Is it constitutionally permissible for a state court to close its doors to outsiders seeking class action relief? See Chapter 4 supra.
(3) Other cases have considered defendant-based contacts as a mechanism for determining that a single law applies to all claims. The Ysbrand court discusses In re Bridgestone/Firestone, Inc. Tires Product Liability Litigation. As indicated in footnote 4 of the court’s opinion, the Seventh Circuit reversed the district court’s certification of a nationwide class of plaintiffs asserting breach of warranty and consumer fraud claims against both Ford Motor Company and Bridgestone/Firestone for reduced value of their automobiles resulting from the vehicles’ defective tires. The district court, applying Indiana choice-of-law rules, concluded that the law of defendant’s headquarters should apply to claims against each defendant. The Seventh Circuit disagreed that Indiana courts would apply the law of defendant’s headquarters. Judge Easterbrook, writing for the court, pointed out that Indiana was a First Restatement state and that “in all but exceptional cases it applies the law of the place where the harm occurred.” 288 F.3d at 1016. The harm in this case was financial, and “was suffered in the places where the vehicles and tires were purchased at excessive prices or resold at depressed prices. Those injuries occurred in all 50 states, the District of Columbia, Puerto Rico, and U.S. territories such as Guam. The lex loci delicti points to the places of these injuries, not the defendant’s corporate headquarters, as the source of law.” Id. In response to plaintiffs’ claim that in 1987 the Indiana courts signaled a more flexible approach to the choice-of-law question, Judge Easterbrook wrote:
Has Indiana since 1987 applied the law of a state where a product was designed, or promotional materials drafted, to a suit arising out of an injury in Indiana? As far as we can tell, the answer is no—not even once, and the state has had plenty of opportunities. Yet since 1987 both Indiana and this court have routinely applied Indiana law when injury caused by a defective product occurred in Indiana to Indiana residents. Neither Indiana nor any other state has applied a uniform place-of-defendant’s headquarters rule to products-liability cases. It is not hard to devise an argument that such a uniform rule would be good on many dimensions, but that argument has not carried the day with state judges, and it is state law rather than a quest for efficiency in litigation (or in product design decisions) that controls.
Id. Why might courts be reluctant to adopt a general choice-of-law rule that the law of defendant’s manufacture or principal place of business applies to product liability or warranty claims? Would not such a rule create perverse incentives for firms to locate themselves in places where consumer protections are relatively weak? If such a rule also enabled the certification of class actions brought by consumers against defendants, however, both companies and their consumers might be better off. Does that argument justify a new choice-of-law rule?
(4) In the class action context, it is not uncommon to see plaintiffs making choice-of-law arguments typically made by defendants outside of class actions, and vice versa. For example, in Bridgestone/Firestone, plaintiffs argued for application of the law of defendants’ headquarters. Advocacy positions are similarly turned around in the context of choice-of-law clause enforcement. Consumers who bring actions against companies traditionally attempted to circumvent the choice-of-law clause while defendant companies sought as broad enforcement of those clauses as was possible. In the class action context, defendants sometimes attempt to undo their own choice-of-law clauses while consumers rely on them to argue that all claims are subject to a single law—that chosen in the contract. See Schnall v. AT&T Wireless Services, infra page 812 for an example.
(5) Courts handling pretrial proceedings in MDL cases also sometimes focus on defendant-based contacts to arrive at the application of a single governing law for all of the consolidated cases. In In re Air Crash Disaster near Chicago Illinois on May 25, 1979, 644 F.2d 594 (7th Cir. 1981), the Seventh Circuit used this approach to conclude that none of the plaintiffs were entitled to recover punitive damages in their cases against defendants American Airlines and McDonnell Douglas Corp. Shortly after takeoff on an American flight scheduled to fly from Chicago, Illinois, to Los Angeles, California, all 271 people on the plane plus two on the ground were killed when the plane lost its engine and crashed. The MDL included 181 wrongful death actions filed in Illinois, California, New York, Michigan, Hawaii, and Puerto Rico. Plaintiffs and their decedents resided in 11 states and territories plus three foreign countries. McDonnell Douglas Corp. (“MDC”), the aircraft’s manufacturer, was incorporated in Maryland and had its principal place of business in Missouri. Plaintiffs sought punitive damages on the ground that MDC had acted egregiously in the design and manufacture of the plane, both of which occurred in California. American was incorporated in Delaware, and its principal place of business moved from New York to Texas in 1979. Plaintiffs sought punitive damages against American based on egregious maintenance of the aircraft, and American’s maintenance center was located in Oklahoma. The court noted that U.S. states were fairly evenly split on the question whether punitive damages were recoverable in wrongful death actions. Missouri, Oklahoma, and Texas permitted the recovery of punitive damages, but Illinois, California, and New York did not permit them.
The Seventh Circuit separately conducted a choice-of-law analysis for (1) cases filed in Illinois and New York, which the court concluded were states that would apply the Second Restatement; (2) actions filed in California, a comparative impairment state; (3) actions filed in Michigan and Puerto Rico, which the court concluded would apply the lex loci delicti rule; and (4) the case filed in Hawaii, where the governing choice-of-law principles were unknown. For each approach, the court separately considered the choice-of-law results for claims against MDC and American.
For claims against MDC under the Second Restatement, the court concluded that punitive damages were not recoverable. The court determined that the states of plaintiffs’ residences could be ignored under the Second Restatement because plaintiffs’ states could have a legitimate interest in full compensation for their residences but not the actual recovery of punitive damages. Defendants’ states and the state of the place of injury could have an interest in the recovery of punitive damages. In this action, Missouri, MDC’s principal place of business, was deemed to have an interest in holding its company accountable and in deterring its egregious conduct, and California, the place of design and manufacture of the plane, was deemed to have an interest in protecting its corporate activities from financial liabilities. Thus, there was a true conflict. To resolve the conflict, the court took into account Illinois’s interests. Although the place of injury is largely fortuitous for plane crashes, the state’s interests were still relevant. Because Illinois was the site of a very busy airport, the court thought Illinois had interests both in not being the site of crashes and in protecting companies who do business in the state. Thus, Illinois law represented a balance of interests and, with the interests of other states equally divergent, could appropriately apply. Thus, recovery of punitive damages was not permitted.
For claims against American under the Second Restatement, the court utilized a similar analysis. First, the court concluded that American’s principal place of business was New York on the date of the crash (an issue hotly contested by the parties). A true conflict existed between the laws and interests of New York and Oklahoma, the place of American’s conduct, so here too Illinois law was used to break the tie, and the recovery of punitive damages was not permitted.
Under the comparative impairment approach as applied to MDC, both Missouri and California had strong current interests in applying their punitive damages laws, and neither law was archaic or isolated. Missouri could effectuate its interests somewhat by using its criminal law to discipline its corporations, and California’s protections could be achieved somewhat with corporate liability insurance. The court concluded that the two states’ laws would be equally impaired if not applied. Here too Illinois law tipped the scales. A similar reasoning was applied to claims against American under comparative impairment: New York and Oklahoma laws would be equally impaired, and Illinois’s laws and policies became the deciding factor.
Under the lex loci delicti rule, for claims against both American and MDC, the law of the place of injury, Illinois, applied. Here too that meant plaintiffs could not recover punitive damages.
Finally, the Seventh Circuit turned to the claim filed in Hawaii. Unable to glean Hawaii’s choice-of-law approach, the court thought it appropriate to presume that Hawaii courts would apply forum law. Unfortunately, Hawaii’s punitive damages rule was also unclear. The court concluded that Hawaii courts would not permit the recovery of punitive damages in wrongful death cases, and stated that this result would not be unjust, given the result of the other cases.
Judge Cudahy concurred in the result, but wrote separately to comment:
Some questions remain for me whether Missouri would, in fact, have a strong interest in imposing financial sanctions on its own corporate domiciliary, employing Missouri citizens and paying Missouri taxes, as punishment for that corporation’s extraterritorial torts affecting non-residents of Missouri. The finding of such a Missouri interest may impute an unusual level or [sic] altruism to Missouri policy and may overstate the commitment to Missouri (or any other state) to “corporate accountability” in circumstances where both the misconduct and the injuries took place outside the borders of the domiciliary state.
Id. at 633. Both the majority and the concurring opinions lamented the failure of Congress to federalize the governing tort law for air disasters.
Evaluate the Seventh Circuit’s analysis. See also In re Air Crash Disaster at Sioux City, Iowa, on July 19, 1989, 734 F. Supp. 1425 (N.D. Ill. 1990) (utilizing similar defendant-based contacts to determine a single applicable law for each defendant applied to all claims against it).
(6) Although the temptation of some courts to apply a single defendant-based law to all claims is controversial among scholars for the now familiar reason that it threatens to alter the parties’ substantive rights as a result of aggregation, others have advocated for the approach. See Issacharoff, Settled Expectations in a World of Unsettled Law: Choice of Law After the Class Action Fairness Act, 106 Colum. L. Rev. 1839 (2006); Cabraser, Just Choose: The Jurisprudential Necessity to Select a Single Governing Law for Mass Claims Arising from Nationally Marketed Consumer Goods and Services, 14 Roger Williams U. L. Rev. 29 (2009).
(7) In Barbara’s Sales, Inc. v. Intel Corporation, 879 N.E.2d 910 (Ill. 2007), the Illinois Supreme Court rejected class certification for personal computer purchasers suing the chip manufacturer. Plaintiffs had argued that California law could apply to all of plaintiffs’ claims because that state was the principal place of business for defendant. The state appellate court concluded that this result was consistent with the Restatement (Second) of Conflict of Laws, in part because under section 6, “[t]he needs of the interstate system … require one forum with one result rather than results in 51 jurisdictions with the distinct possibility of conflicting decisions.” Id. at 921. The state supreme court strongly disagreed:
This declaration completely ignores the distinct interests of the differing states embodied in our federalist system and constitutional precedent.…
Moreover, an examination of the reasoning behind this factor shows that it is not fit for the appellate court’s purpose to obtain “one forum with one result.” The goals of the “needs of the interstate system” principle are “to make the interstate and international systems work well,” to promote “harmonious relations,” and “to facilitate commercial intercourse between them.” Restatement Second §6, Comment d. The Restatement also directs courts to strive to adopt “the same choice of law” rules reflected in other states’ precedent. Id. The application of California law or Illinois law, as plaintiffs urge in this nationwide class, to a citizen of Washington state who purchased his computer in Washington state does nothing to improve the harmonious relations between the states. Thus, we are not persuaded that section 6 of the Restatement compels us to apply California law.
Id. at 921-922. Do you agree? This is clearly a different conclusion from that of the Ysbrand court. If Restatement drafters were to compose a list of factors that courts should and do take into account when determining the applicable law for class actions, what factors would you recommend be on that list?
Note on General Consensus Law
Is it ever appropriate in complex litigation for a court instead to opt for the application of a single set of legal principles that are not rooted in any one jurisdiction?
Consider In re Agent Orange Product Liability Litigation, 580 F. Supp. 690 (E.D.N.Y. 1984). The case involved a class product liability action brought by Vietnam War veterans for injuries that they suffered as a result of their exposure to herbicides manufactured by defendants and purchased by the U.S. government for use in aiding the Vietnam War efforts. Cases were filed across the country, transferred to the Eastern District of New York (Judge Weinstein) for pretrial consolidation, and then certified as a nationwide class action based in part on Judge Weinstein’s conclusion that all claims involved a question of federal law. The Second Circuit reversed the district court’s ruling that the claims presented federal questions and remanded the action for consideration under state law.
Judge Weinstein thought that all of the claims should be decided according to a single governing law because the veterans were all in the service of the U.S. government working toward the same goals when they were exposed to Agent Orange. Plaintiffs lived in all or nearly all of the U.S. states and territories as well as in some foreign countries, and defendants and their relevant activities were similarly scattered. Because the cases were initially filed in other district courts and the claims were based in state law, the district court felt constrained to apply the choice-of-law rules of the states from which the individual cases were originally transferred. Because transferor courts were located across the country, the district court conducted a survey of choice-of-law results under all of the existing approaches to choice of law. It concluded that whether using the First Restatement, Second Restatement, interest analysis, Leflar, or forum law approaches to choice of law, the state courts across the country would apply “national consensus law” to the claims. Judge Weinstein reasoned:
It is entirely reasonable to assume that the state courts would recognize the strong national interest in a uniform national rule. A considerable number of states have already recognized the unique nature of the Agent Orange litigation problem. Given the strong state-federal interest in uniformity, the lack of a federal statute or of a uniform state statute, and the Second Circuit opinion denying that the federal common law controls of its own force all substantive issues in Agent Orange, what would state courts do? Would they not look to the first court that dealt with the issue or to a neutral body to formulate the uniform rules they could all accept for this unique litigation? And is not a federal court charged with adjudicating all or nearly all the Agent Orange cases such a body?…
Once it is conceded, as we think it must be, that each of the jurisdictions involved would appreciate the overwhelming need for uniformity, to what single state’s law could any state look to as controlling? Given the plethora of states and nations with contacts and the impossibility without a full trial of even knowing where the allegedly offending dioxin was produced, it becomes apparent that no acceptable test can point to any single state. Thus, the law is driven in this most unusual case to either federal or national consensus substantive law as the only workable approach.
Id. at 710-711.
Does it make sense for a court to apply general consensus law in this circumstance? The content of that national consensus law was left for later articulation, but the case settled soon thereafter. What would be the best way to determine the content of national consensus law, assuming that the approach was legitimate? Would it be a good idea for a court to apply substantive rules that were routinely applied across the states and throw out outlier rules that exist in only one or a few states? Is there any important distinction between choosing a choice-of-law approach used solely in class actions (i.e., Ferrell) and choosing a governing law used solely in class actions (i.e., Agent Orange)? Is Judge Weinstein’s national consensus law approach constitutionally permissible under Shutts? Does your answer depend at all on the method for determining national consensus law? For an argument that applying law that reflects the “average law” in the U.S. to all claims would be permissible, see McCloud & Rosenberg, A Solution to the Choice of Law Problem of Differing State Laws in Class Actions: Average Law, 79 Geo. Wash. L. Rev. 374 (2011). Is the approach consistent with the mandates of Erie?
The case for uniform treatment of plaintiffs is particularly compelling in Agent Orange, but concerns for uniformity and manageability are present in many class action cases, and was specifically mentioned by the Ysbrand court in its Second Restatement analysis. Could general consensus law serve as a choice-of-law approach in other class action contexts? In practice, this approach is almost never used by courts, and has been heavily criticized where attempted.
In In re Rhone-Polenc Rorer, Inc., 51 F.3d 1293 (7th Cir. 1995), for example, the Seventh Circuit reversed a district court’s decision to certify a nationwide class for purposes of resolving some but not all issues involved in the claims. Plaintiffs were hemophiliacs infected by the HIV-AIDS virus and defendants were drug companies who manufactured blood solids. Prior to knowing about the disease, its transmission through blood, and methods available for killing the virus contained in blood, the defendants manufactured contaminated solids that led to a large number of infections and deaths. Plaintiffs alleged that defendants were negligent in failing to protect them from infection, and they proffered two theories for negligence. Under the first, the plaintiffs argued that the manufacturers should have done more to protect blood solid recipients from contracting Hepatitis B, a transmission problem that was known when plaintiffs were infected. If the defendants had taken more care to prevent Hepatitis B transmission, then “serendipitously,” the preventative actions also would have prevented the transmission of HIV. Second, plaintiffs argued that the manufacturers should have known of the risk of HIV transmission sooner and should have taken preventative steps earlier than they did. Federal Rule of Civil Procedure 23(c)(4) permits a district court to certify a class action with respect to particular issues only. In this case, the district court certified a class for purposes of trial on the question whether the defendants were negligent. If defendants were found negligent, then individual cases would be litigated to determine whether individual plaintiffs were entitled to relief. The Seventh Circuit reversed the district court’s certification. Writing for the panel, Judge Posner stated:
We believe that [the district court judge] was responding imaginatively and in the best of faith to the challenge that mass torts, graphically illustrated by the avalanche of asbestos litigation, pose for the federal courts. But the plan that he has devised for the HIV-hemophilia litigation exceeds the bounds of allowable judicial discretion. Three concerns, none of them necessarily sufficient in itself but cumulatively compelling, persuade us to this conclusion.
The first is a concern with forcing these defendants to stake their companies on the outcome of a single jury trial, or be forced by fear of the risk of bankruptcy to settle even if they have no legal liability, when it is entirely feasible to allow a final, authoritative determination of their liability for the colossal misfortune that has befallen the hemophiliac population to emerge from a decentralized process of multiple trials, involving different juries, and different standards of liability, in different jurisdictions; and when, in addition, the preliminary indications are that the defendants are not liable for the grievous harm that has befallen the members of the class. These qualifications are important. In most class actions—and those the ones in which the rationale for the procedure is most compelling—individual suits are infeasible because the claim of each class member is tiny relative to the expense of litigation. That plainly is not the situation here. A notable feature of this case, and one that has not been remarked upon or encountered, so far as we are aware, in previous cases, is the demonstrated great likelihood that the plaintiffs’ claims, despite their human appeal, lack legal merit. This is the inference from the defendants’ having won 92.3 percent (12/13) of the cases to have gone to judgment. Granted, thirteen is a small sample and further trials, if they are held, may alter the pattern that the sample reveals. But whether they do or not, the result will be robust if these further trials are permitted to go forward, because the pattern that results will reflect a consensus, or at least a pooling of judgment, of many different tribunals.
For this consensus or maturing of judgment the district judge proposes to substitute a single trial before a single jury instructed in accordance with no actual law of any jurisdiction—a jury that will receive a kind of Esperanto instruction, merging the negligence standards of the 50 states and the District of Columbia. One jury, consisting of six persons (the standard federal civil jury nowadays consists of six regular jurors and two alternates), will hold the fate of an industry in the palm of its hand. This jury, jury number fourteen, may disagree with twelve of the previous thirteen juries—and hurl the industry into bankruptcy. That kind of thing can happen in our system of civil justice (it is not likely to happen, because the industry is likely to settle—whether or not it really is liable) without violating anyone’s legal rights. But it need not be tolerated when the alternative exists of submitting an issue to multiple juries constituting in the aggregate a much larger and more diverse sample of decision-makers. That would not be a feasible option if the stakes to each class member were too slight to repay the cost of suit, even though the aggregate stakes were very large and would repay the costs of a consolidated proceeding. But this is not the case with regard to the HIV-hemophilia litigation. Each plaintiff if successful is apt to receive a judgment in the millions. With the aggregate stakes in the tens or hundreds of millions of dollars, or even in the billions, it is not a waste of judicial resources to conduct more than one trial, before more than six jurors, to determine whether a major segment of the international pharmaceutical industry is to follow the asbestos manufacturers into Chapter 11.
We have hinted at the second reason for concern that the district judge exceeded the bounds of permissible judicial discretion. He proposes to have a jury determine the negligence of the defendants under a legal standard that does not actually exist anywhere in the world. One is put in mind of the concept of “general” common law that prevailed in the era of Swift v. Tyson. The assumption is that the common law of the 50 states and the District of Columbia, at least so far as bears on a claim of negligence against drug companies, is basically uniform and can be abstracted in a single instruction. It is no doubt true that at some level of generality the law of negligence is one, not only nationwide but worldwide. Negligence is a failure to take due care, and due care a function of the probability and magnitude of an accident and the costs of avoiding it. A jury can be asked whether the defendants took due care. And in many cases such differences as there are among the tort rules of the different states would not affect the outcome. The Second Circuit was willing to assume dubitante that this was true of the issues certified for class determination in the Agent Orange litigation. In re Diamond Shamrock Chemicals Co., 725 F.2d 858, 861 (2d Cir. 1984).
We doubt that it is true in general, and we greatly doubt that it is true in a case such as this in which one of the theories pressed by the plaintiffs, the “serendipity” theory, is novel. If one instruction on negligence will serve to instruct the jury on the legal standard of every state of the United States applicable to a novel claim, implying that the claim despite its controversiality would be decided identically in all 50 states and the District of Columbia, one wonders what the Supreme Court thought it was doing in the Erie case when it held that it was unconstitutional for federal courts in diversity cases to apply general common law rather than the common law of the state whose law would apply if the case were being tried in state rather than federal court. Erie R.R. v. Tompkins, [supra page 509]. The law of negligence, including subsidiary concepts such as duty of care, foreseeability, and proximate cause, may as the plaintiffs have argued forcefully to us differ among the states only in nuance, though we think not, for a reason discussed later. But nuance can be important, and its significance is suggested by a comparison of differing state pattern instructions on negligence and differing judicial formulations of the meaning of negligence and the subordinate concepts. “The common law is not a brooding omnipresence in the sky, but the articulate voice of some sovereign or quasi sovereign that can be identified.” Southern Pacific Co. v. Jensen, 244 U.S. 205, 222 (1917) (Holmes, J., dissenting). The voices of the quasi-sovereigns that are the states of the United States sing negligence with a different pitch.
The “serendipity” theory advanced by the plaintiffs in Wadleigh is that if the defendants did not do enough to protect hemophiliacs from the risk of Hepatitis B, they are liable to hemophiliacs for any consequences—including infection by the more dangerous and at the time completely unknown AIDS virus—that proper measures against Hepatitis B would, all unexpectedly, have averted. This theory of liability, which draws support from Judge Friendly’s opinion in Petition of Kinsman Transit Co., 338 F.2d 708, 725 (2d Cir. 1964), dispenses, rightly or wrongly from the standpoint of the Platonic Form of negligence, with proof of foreseeability, even though a number of states, in formulating their tests for negligence, incorporate the foreseeability of the risk into the test. These states follow Judge Cardozo’s famous opinion in Palsgraf v. Long Island R.R., 248 N.Y. 339 (1928), under which the HIV plaintiffs might (we do not say would—we express no view on the substantive issues in this litigation) be barred from recovery on the ground that they were unforeseeable victims of the alleged failure of the defendants to take adequate precautions against infecting hemophiliacs with Hepatitis B and that therefore the drug companies had not violated any duty of care to them.
The plaintiffs’ second theory focuses on the questions when the defendants should have learned about the danger of HIV in the blood supply and when, having learned about it, they should have taken steps to eliminate the danger or at least warn hemophiliacs or their physicians of it. These questions also may be sensitive to the precise way in which a state formulates its standard of negligence. If not, one begins to wonder why this country bothers with different state legal systems.
Both theories, incidentally, may be affected by differing state views on the role of industry practice or custom in determining the existence of negligence. In some states, the standard of care for a physician, hospital, or other provider of medical services, including blood banks, is a professional standard, that is, the standard fixed by the relevant profession. In others, it is the standard of ordinary care, which may, depending on judge or jury, exceed the professional standard. Which approach a state follows, and whether in those states that follow the professional-standard approach manufacturers of blood solids would be assimilated to blood banks as providers of medical services entitled to shelter under the professional standard, could make a big difference in the liability of these manufacturers. We note that persons infected by HIV through blood transfusions appear to have had little better luck suing blood banks than HIV-positive hemophiliacs have had suing the manufacturers of blood solids.
The diversity jurisdiction of the federal courts is, after Erie, designed merely to provide an alternative forum for the litigation of state-law claims, not an alternative system of substantive law for diversity cases. But under the district judge’s plan the thousands of members of the plaintiff class will have their rights determined, and the four defendant manufacturers will have their duties determined, under a law that is merely an amalgam, an averaging, of the nonidentical negligence laws of 51 jurisdictions. No one doubts that Congress could constitutionally prescribe a uniform standard of liability for manufacturers of blood solids. It might we suppose promulgate pertinent provisions of the Restatement (Second) of Torts. The point of Erie is that Article III of the Constitution does not empower the federal courts to create such a regime for diversity cases.
If in the course of individual litigations by HIV-positive hemophiliacs juries render special verdicts that contain findings which do not depend on the differing state standards of negligence—for example a finding concerning the date at which one or more of the defendants learned of the danger of HIV contamination of the blood supply—these findings may be given collateral estoppel effect in other lawsuits, at least in states that allow “offensive” use of collateral estoppel. In that way the essential purpose of the class action crafted by Judge Grady will be accomplished. If there are relevant differences in state law, findings in one suit will not be given collateral estoppel effect in others, and that is as it should be.…
Id. at 1299-1302. Should the certification decision turn on the likely legal merits of the case? On the viability of individually litigated cases? Do these factors inevitably become relevant as a way of prioritizing the fairness claims of plaintiffs and defendants in class action litigation? Are there other ways to balance these concerns? Judge Posner mentions collateral estoppel as a more just alternative to class action certification. Is his argument convincing? What do you think of the notion that decentralized litigation has benefits that should not be discounted in the certification decision?
3. Multiple Governing Laws
Schnall v. AT&T Wireless Services, Inc.
225 P.3d 929 (Wash. 2010) Supreme Court of Washington, En Banc
MADSEN, C.J. [with four Justices joining]
This case asks our court to decide whether Washington will become a locus of nationwide class action litigation. In the context of this case, we believe the trial court did not abuse its discretion by declining to certify such a class. To the extent a class action is feasible here, the only appropriately certified class for plaintiffs’ contract claims is a state wide class. We reverse, in part, and remand for proceedings consistent with this opinion.
Customers of AT&T Wireless Services, Inc. (AT&T) filed a nationwide class action alleging the company misled consumers when it billed them for a charge that was not included in advertised monthly rates and was not described clearly in billing statements. The Federal Communications Commission (FCC) requires telecommunications companies like AT&T to contribute to the Universal Service Fund (USF), a fund created by the Telecommunications Act of 1996 that subsidizes phone and Internet service to low-income and rural areas. The FCC expressly permits companies to recover USF contributions from customers. AT&T recovered its contributions from customers by charging a Universal Connectivity Charge (UCC), listed in customer agreements as either “Other Charges & Credits” or “Taxes, Surcharges & Regulatory Fees.” Named plaintiff Martin Schnall claims this categorization of the UCC violates the Washington Consumer Protection Act (CPA) and further, that AT&T violated the terms of its contract by failing to disclose the charge at the time he signed his agreement for wireless service. Schnall further claims AT&T violated the terms of its user contracts by increasing the UCC charge without notice. Schnall sought certification of a nationwide class of all AT&T customers “who have been improperly billed and paid a universal connectivity charge that they did not owe.”
The trial court determined that “individual questions predominated over common questions” and denied class certification on all of Schnall’s claims. Schnall appealed that decision to Division One of the Court of Appeals which reversed the trial court and certified the class.…
Enforceability of Choice of Law Clauses
The parties initially dispute whether the choice of law clauses in the customers’ contracts are enforceable. The choice of law clauses in this case require customers to litigate asserted violations of their contract in the respective jurisdiction where they signed the contract. This jurisdiction is often based on the customer’s area code.
We interpret contract provisions to render them enforceable whenever possible. Further, “[w]e generally enforce contract choice of law provisions.”… [The court quoted from §187(2) of the Restatement (Second) of Conflict of Laws, which treats the enforceability of choice-of-law clauses as applied to matters that parties could not have resolved with an explicit provision in their agreement. See supra pages 690–691.]
The choice of law provisions in this case were mostly based on customers’ area codes, not on forums having no substantial relationship to the parties or location of the transaction between them. While it is true that AT&T is headquartered in Washington State, the customer’s area code is left to the discretion of the customer, and this area code often corresponds with the customer’s place of residence: in effect the customer selected which forum’s law would apply when he requested phone service from AT&T. AT&T should not now be forced to face the enormous cost and complexity presented by a nationwide class action when they conscionably included choice of law provisions in their customers’ contracts and the choice of forum is dictated by the consumer.
Schnall presents no valid reason why we should now invalidate the choice of law clause each customer signed when he or she purchased wireless service from AT&T. The trial court did not abuse its discretion when it held
[t]here does not seem to be any public policy reason not to enforce the choice of law provision of the agreements in this case. The law of the state associated with the area code will generally be the law of the customer’s home state, thereby applying to that customer the law with which he or she is most familiar.
Upholding the trial court’s decision to deny certification of a nation wide class does nothing to prevent persons outside of Washington from filing statewide class actions in each of their respective home states. Indeed, the citizens of California have already filed such a statewide class action.
Class Certification of Contract Claims
Schnall brings two types of claims before the court: one based in contract, the other based on the CPA. The differences between these two types of claims have important implications for analysis of their suitability as class action claims. AT&T argues the trial court was correct in deciding that the choice of law clauses in each customer’s contract caused individual issues to predominate over common ones.… The trial court held: “[a]pplying the law of the customer’s home state to the contract claims in this case makes the contract claims unmanageable.”
To validly certify a nationwide class for the contract claims, Schnall must meet the requirements of CR 23(a): numerosity, commonality, typicality, and adequacy of representation. Once those have been met, he must further satisfy the tougher standard of CR 23(b)(3) and prove that common legal and factual issues predominate over individual issues and that a class action is an otherwise superior form of adjudication. Factors to be considered by the court when assessing predominance and superiority include
(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.
CR 23(b)(3). It is “incumbent upon class counsel to prove to the court … that there are no significant differences in the various state laws, or if there are variations, that they can be managed by the trial court.”
The Court of Appeals held that a “common nucleus of operative facts” predominated, but failed to substantially analyze the issue of predominance, especially in consideration of the potential application of 50 different states’ laws. The Court of Appeals’ predominance analysis reads more like a CR 23(a) commonality test: “The common nucleus of facts among all class members on this breach of contract claims is.… The common legal theory is…” (emphasis added). Simply stating the existence of commonalities does not prove predominance. The trial court’s analysis on this point is more thorough and is clearly supportable under our abuse of discretion standard.
As the Court of Appeals noted, the trial court “made several findings about the individual issues the contract claim raised.” The trial court found that the choice of law clauses, the interpretation of the contract terms, the differences in the materials and information each potential class member received, and the availability of differing affirmative defenses created a predominance of individual issues over common ones.
Because CR 23 is identical to its federal counterpart, “cases interpreting the analogous federal provision are highly persuasive.” The Court of Appeals reached a conclusion that flies in the face of this “highly persuasive” federal law regarding nationwide class action certification: “[b]ased primarily on the burden of applying multiple states’ laws, an overwhelming number of federal courts have denied certification of nationwide state-law class actions.” [extensive case citations omitted]
Even where courts find that a nationwide, state-law governed class otherwise meets Rule 23(a) and 23(b)(3) criteria, “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.’” [citations omitted]
The choice of law provisions in this case will do more than cause variations in damages. The availability of the voluntary payment doctrine alone could abrogate AT&T’s liability for all customers who voluntarily paid the UCC after receiving the informational flyer detailing their responsibility for its payment and reside in states employing the doctrine. This is only one example.
The Court of Appeals dismissed the trial court’s concerns in part because it determined that “extrinsic evidence” “will not be necessary here because these consumers entered into a standardized contract.” However, there is no support cited for this conclusion. Indeed, some Washington courts have held just the opposite: “When material extrinsic evidence shows that outside agreements were relied upon, those parol agreements should be given effect rather than allowing boilerplate ‘to vitiate the manifest understanding of the parties.’” [citation omitted] Further, simply because the Court of Appeals finds extrinsic evidence would be unnecessary under Washington law does not mean that the law of all other 49 states would exclude such evidence as well.
An additional concern is the availability of affirmative defenses. As the trial court noted, “[s]ome states, such as Illinois,… allow as a contract claim defense, the voluntary payment doctrine which prohibits a contract claim for refund of a sum voluntarily paid.” The Court of Appeals suggested the trial court employ subclasses and master’s hearings to sort out the morass. However, the availability of these mechanisms for efficient management of large class actions cannot change the predominance of the individualized issues in this case. See 2 Alba Conte & Herbert B. Newberg, Newberg on Class Actions §4:32, at 286-287 (4th ed. 2002) (noting courts have found “subclasses would not cure the problems” of diverse factual issues and that “when a court determines that a multitude of mini-trials will be necessary to dispose of individual claims, the court will likely find that common questions do not predominate.”). As the trial court noted, “[w]hile Washington would be only one of fifty jurisdictions’ law[s] which would have to be addressed in resolving the contract claims, it is illustrative of the issues that would arise.”
Even if individualized issues did not predominate, CR 23(b)(3) also requires “that a class action [be] superior to other available methods for the fair and efficient adjudication of the controversy.” See 4 Conte & Newberg, supra, §13:11, at 406 (“It must be emphasized that, under the rule, a class action must be superior, not just as good as, other available methods.” (emphasis added)). The superiority requirement “focuses upon a comparison of available alternatives.”
In more traditional statewide class actions, these alternatives include joinder, intervention, or consolidation. The most obvious alternative to the proposed nationwide class action in this case is numerous statewide class actions brought by the citizens of each state against AT&T. This is not a case where the choice is either a nationwide class action or no action at all. Given the sheer number of AT&T customers in each of the 50 states, no one state’s citizens will be left out in the class action cold without the possibility of amassing enough individual claims within their state to cover litigation costs.
Although it is true that small amounts of money are at issue and the decision will have broad impact, there is simply no efficiency in asking a trial judge to manage the laws of 50 different states as they apply to plaintiffs’ contract claims and the varied factual scenarios inherent therein. See Miller & Crump, Jurisdiction and Choice of Law in Multistate Class Actions After Phillips Petroleum Co. v. Shutts, 96 Yale L.J. 1, 64 (1986) (“Beyond the difficult task of correctly determining foreign law, the nationwide class action may present an even greater problem because of the sheer burden of organizing and following fifty or more different bodies of complex substantive principles. Although the comparison obviously is inexact, one can appreciate the magnitude of the trial judge’s task by imagining a first-year law student who, instead of a course in contracts, is required simultaneously to enroll in fifty courses, each covering the contract law of a single state, and to apply each body of law correctly on the final examination.”).
Further, Washington has no interest in seeing contracts executed by AT&T representatives in other states with citizens of those states examined and adjudicated in Washington courts. Certified as a nationwide class action, this case would present an unwarranted and unnecessary burden on the state judicial system, all at a large cost to taxpayers. See R.J. Reynolds Tobacco Co. v. Engle, 672 So. 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 a staggering cost to the taxpayers.”). There is no sound reason in this case for this court 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 states.… This court does not dispute, however that if the contract class were constructed as a statewide class, it would meet the requirements of both CR 23(a) and (b)(3).
The trial court and the Court of Appeals both noted that the CPA was applicable to all plaintiffs’ claims because they arose from statute instead of contract. However, nothing in our law indicates that CPA claims by nonresidents for acts occurring outside of Washington can be entertained under the statute. “Because the laws of each state are designed to regulate and protect the interest of that state’s own residents and citizens, each state has a measurable, and usually predominant, interest in having its own substantive laws apply.” While it is true that “Washington has a strong interest in regulating any behavior by Washington businesses which contravenes the CPA,” the CPA indicates the legislature’s intent to limit its application to deceptive acts that affect the citizens and residents of Washington. The CPA states: “[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.” RCW 19.86.020. “Trade” or “commerce” is defined as “the sale of assets or services, and any commerce directly or indirectly affecting the people of the state of Washington.” RCW 19.86.010(2) (emphasis added). To state a CPA claim a person must show that the unfair or deceptive act affected the people of the state of Washington. This geographic and jurisdictional limitation originates in the CPA’s history as a tool used by the State attorney general to protect the citizens of Washington. The attorney general of the state of Washington has no power outside the geographic boundary of this state. It is understood that her actions will be brought on “behalf of persons residing in the state.” RCW 19.86.080(1).
This statutory and jurisdictional limitation cannot be obviated simply because the claimants are private citizens. Indeed, our courts retained this limitation for private attorneys general through the requirement that the private claimants prove a defendant’s practices affect “the public interest.” Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wash. 2d 778, 784 (1986). Because of the statute’s jurisdictional limitation, applicable to both the attorney general and private claimants, a private claimant cannot state a CPA claim by proving the defendant’s practices affected the public interest or the citizens of another state. See Lyon, 194 F.R.D. at 215 (“State consumer fraud acts are designed to either protect state residents or protect consumers engaged in transactions within the state.”). RCW 19.86.920 does not indicate otherwise. This portion of the CPA empowers courts analyzing unfair competition claims to consider “whether conduct restrains or monopolizes trade or commerce” even when those market effects are felt outside of Washington. RCW 19.86.920. This provision merely closes a potential loophole in the CPA that would allow companies to escape liability by claiming their methods of competition are within Washington’s boundaries even though those methods effectively monopolize trade outside the state. This portion of the statute does not give Washington the power to enforce its laws outside its territorial borders.
Even the general extraterritorial flavor of RCW 19.86.920 cannot change the clear standing limitations in the statute: a claimant must allege injury in trade or commerce that “directly or indirectly affect[s] the people of the state of Washington.” RCW 19.86.010(2); Panag v. Farmers Ins. Co. of Wash., 166 Wash. 2d 27, 38 (2009) (“[T]he Hangman Ridge-test incorporates the issue of standing, particularly the elements of public interest impact and injury.”). In the context of this case, the CPA only applies to claims brought by persons residing in Washington.
REMAINING WASHINGTON PLAINTIFFS’ CPA CLAIMS
The question then remains, can a class of Washington only CPA plaintiffs be certified? The trial court correctly found that “proof of causation is an essential element of a CPA action.” Hangman Ridge requires CPA plaintiffs to establish a causal link “between the unfair or deceptive act complained of and the injury suffered.” We have more recently held that this causal link must establish that the “injury complained of … would not have happened” if not for defendant’s violative acts. Indoor Billboard, 162 Wash. 2d at 82. The quantum of proof necessary to establish the proximate, “but for” causation required by the CPA is not fully developed in our case law. However, Indoor Billboard clearly establishes that proximate cause in a class action cannot be established by “mere payment” of an allegedly injurious charge, though that payment can be “considered with all other relevant evidence on the issue of proximate cause.” Id. at 83. Indoor Billboard did not reject individual reliance as a method of proving causation under the CPA, but merely held that plaintiffs cannot be required to show reliance where other evidence is sufficient to establish “but for” causation.…
As the trial court recognized, this court does not require proof of individual reliance from CPA claimants as a separate element. But, where knowledge of the truth would defeat a claim of misrepresentation, that alleged misrepresentation has been eliminated as the “but for” cause of the claimant’s injury. In misrepresentation and deception or fraud cases, the claimant may be called upon to offer more individualized proof that she had no knowledge of the truth because the remaining evidence is simply insufficient to establish “but for” causation. In the case at hand, for example, some plaintiffs received materials that “specifically list the ‘universal connectivity charge’ as one of the fees, taxes, and surcharges which the customer is responsible for paying.” Under plaintiffs’ misrepresentation theory of causation the trial court will need to decide … whether “individual class members were actually deceived and whether they would have” purchased their cellular service, or paid the UCC but for AT&T’s marketing of the cost of the cellular plan or their explanations regarding the genesis of the UCC.
The trial judge found that “[i]n the context of” a nationwide CPA action, proof of causality for each plaintiff “must necessarily be individual for each potential class member,” resulting in an uncertifiable class in which “individual issues would predominate over class issues and a class action would be unmanageable.” However, the trial court provided no specific analysis of whether proof of causality would be so individualized among a class comprised only of Washington customers. For example, if Washington customers all had received no information regarding the UCC, proof of causality could be more common than if they all had received different and allegedly fraudulent representations: proving a plaintiff relied on an affirmative misrepresentation is necessarily individualized, but proving the lack of information was the common cause of each plaintiffs’ decision to sign up for wireless service could be more generalized.
Because the trial court did not analyze the causality element of plaintiffs’ CPA claims as it would apply only to the facts and evidence pertaining to Washington customers, we remand for further consideration of this issue in accordance with our opinion.
In sum, we agree with the trial court that this action should not be certified as a nation wide class action. Washington need not apply its Consumer Protection Act, or its contract laws, to the citizens of other states in order to protect the interests of the citizens of Washington. A nationwide class would be unmanageable and unduly burdensome on the trial court and the state judicial system and serve no real benefit to plaintiffs who are free to bring statewide class actions in their home states.
SANDERS, J. (dissenting). [with three Justices joining]
Because the trial court abused its discretion when it denied nationwide class certification absent a sufficient analysis of the feasibility of such a class, I dissent.…
… As recognized by the Court of Appeals, subclasses and master’s hearings could be used to address differing state contract laws. Not every state contract law is materially different for purposes here, and the trial court abused its discretion by failing to consider whether the laws of the states could be grouped together in a manageable number of subclasses. I agree with the trial court and Court of Appeals that the Washington CPA can be applied nationwide; the majority all but ignores that AT&T, a party to every transaction at issue, is headquartered in Redmond, Washington, and the decisions, representations, and communications were made, formulated, and/or approved there. I disagree with the majority’s view of causation under the CPA. The CPA and CR 23 (governing class certification), are intended to be liberally construed and should provide the class with a forum to litigate these claims. The majority creates impossible evidentiary burdens for the class that preclude it and future classes from challenging conduct as alleged here—a corporation nickel and diming consumers wholesale, escaping litigation by only taking small amounts of money from each customer.
ENFORCEABILITY OF CHOICE OF LAW PROVISIONS
The majority concludes that the choice of law clauses in the individual customers’ contracts should be enforced. The majority’s analysis appears to address only the contract claims and not the CPA ones. I concur with the application of the choice of law clauses to the contract claims. As explained more fully below, however, this application of different state contract laws does not necessarily defeat class certification because subclasses and other mechanisms could likely be used to address any variances.
The choice of law clauses do not apply to the CPA claims.3 The CPA claims are based upon statute, not contract, and many of the claims arose before the class members even entered into their contracts with AT&T pertaining to choice of law. The first element of a CPA action—an unfair or deceptive act—can arise prior to a contract; a litigant need only show an act “had the capacity to deceive a substantial portion of the public.” Hangman Ridge, supra.4 That is the case here where the CPA claims relate to the use of allegedly deceptive language, advertising, and promotional materials.
CLASS CERTIFICATION OF CONTRACT CLAIMS
The majority endorses the trial court’s view that individual issues predominate over the common legal and factual issues due to the “interpretation of the contract terms” and “the availability of differing affirmative defenses” under the laws of 50 different states. The trial court listed potential differences in contract interpretation, the voluntary payment doctrine, and the interpretation of arbitration agreements as examples of where the claims would need to be analyzed under 50 different state laws. However, not every law of the 50 states has a different approach to contract interpretation and affirmative defenses. Where state laws materially differ, subclasses could be established to address those differences. [citations omitted]5
The trial court abused its discretion by failing to determine whether the laws of the states could be separated into a few, manageable subclasses. The trial court only referenced speculative differences in the law of every state without determining whether material differences actually existed in each. I would therefore remand this issue to provide the parties an opportunity to further brief, and the trial court to fully consider, whether subclasses could be created to address materially different state laws within a nationwide class.
CR 23(b)(3) requires a court to find that “a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” The majority concludes that a nationwide class action is not superior to other available methods—namely, that individual state class actions are better suited to resolve the controversy. However, the majority’s reasoning does not support this conclusion.
First, the majority asserts that, although class actions permit claims involving small amounts of money to be brought to court, this does not weigh in favor of a nationwide class because there are enough AT&T customers to bring 50 individual statewide class action suits.6 This ignores the significant advantages of a nationwide suit. The claims in every state involve the nature of the universal connectivity charge (UCC), an apparent nationwide approach to charging fees in relation to the UCC, omissions or the same or similar misrepresentations to further that approach, and the same defendant corporation. A nationwide suit avoids a 50-fold redundancy of litigation, which will substantially increase the costs of the litigation to both parties, particularly attorney fees; result in redundant discovery, including repetitive document production and depositions; result in redundant relitigation of the same issues; and saddle the judiciary of all 50 states with significant costs to redundantly try statewide class action suits based on the actions of a single Washington corporation.
Next, the majority claims it would be inefficient to have a trial judge manage a claim litigated under 50 different state laws.7 As more fully discussed infra, the law of all 50 states will not conflict and, as recognized by the Court of Appeals, subclasses and master’s hearings can be used to address subsets of class members. The trial court abused its discretion, asserting a nationwide class would be unmanageable without analyzing the extent to which the state laws are materially similar and can be grouped into multistate subclasses.
Finally, the majority asserts Washington has no interest in having claims against a Washington corporation litigated in this state if they involve customers from other states. But as later discussed in more detail, Washington has a substantial interest in assuring Washington corporations conduct business in a fair and honest manner. Washington also has a substantial interest to provide a forum to resolve the legal issues of Washington businesses.
Pending a determination that the contract laws of the 50 states do not materially differ from one another so as to preclude a manageable number of subclasses to address those differences, a nationwide class is the most efficient, economical, and reliable way to assure that every class member is provided a forum in which to bring his or her claim.
“EXTRATERRITORIAL” APPLICATION OF WASHINGTON’S CONSUMER PROTECTION ACT
The trial court and the Court of Appeals agreed that the Washington CPA was applicable to the nationwide class because AT&T is headquartered in Redmond, Washington. Washington regulates the behavior of Washington businesses; the purpose of the CPA is not only to protect the public from unfair and deceptive acts, but also to “foster fair and honest competition” among businesses. See RCW 19.86.920. If a Washington business is acting in an unfair or dishonest way nationwide, Washington has a strong interest to address the full, nationwide effects of that behavior; Washington should not become a harbor for businesses engaging in unscrupulous practices out of state.
The majority instead ignores this interest, mischaracterizing transactions between a Washington corporation and an out-of-state citizen as wholly extraterritorial, and then misreading the statutory language of the CPA to exclude “claims by nonresidents for acts occurring outside of Washington.” First, these transactions are not wholly extraterritorial. At least one party—AT&T—is native to Washington in every transaction here. The transactions involve AT&T’s formulation of its representations, the approval and distribution of those representations, and the offer and acceptance of the agreements.9 Significant portions of each transaction occurred in Washington.10
Second, the statutory language of the CPA applies to transactions between a Washington party and an out-of-state party in two ways here. RCW 19.86.020 requires that the “[u]nfair methods of competition and unfair or deceptive acts or practices” must be “in the conduct of any trade or commerce.” (Emphasis added.) “Commerce” under the CPA is described as “any commerce directly or indirectly affecting the people of the state of Washington.” RCW 19.86.010(2) (emphasis added). “Person” is defined to include “natural persons, corporations, trusts, unincorporated associations and partnerships.” RCW 19.86.010(1) (emphasis added). Thus, the transaction here is “commerce” that “directly … affect[s]” AT&T, a corporation headquartered in Washington and thus a “person” under the CPA. The CPA therefore applies.
Furthermore, RCW 19.86.010(2) also encompasses commerce that indirectly affects the people of the state of Washington. Ignoring, as the majority does, that the statutory definition of “person” includes corporations, AT&T’s exchange of goods and services with individuals outside the state of Washington is still commerce that indirectly affects Washingtonians. First, the Washington employees of AT&T are “natural persons,” and AT&T’s commerce with the claimants indirectly affects the nature and availability of their employment. Second, to the extent “the people of the state of Washington,” is read as a broader appeal to the public interest, the commerce and trade AT&T brings into Washington, and the alleged unfair and dishonest method by which it does so, affects the state economy and thus affects the Washington public at large.
The transactions here, between a Washington resident and out-of-state customers, originating at least in part in this state, fall well within the jurisdictional boundaries of the CPA.11 The CPA encompasses the nationwide class action proposed here.
REMAINING WASHINGTON PLAINTIFFS’ CPA CLAIMS (CAUSATION)
To prevail on a private CPA claim, a plaintiff must show the defendant (1) engaged in an unfair or deceptive act or practice, (2) in trade or commerce, (3) that affects the public interest, (4) and injured the plaintiff’s business or property, and (5) there is a causal link between the unfair or deceptive act and the injury suffered. The fifth requirement, causation, is at issue here.
… The class members agreed to pay AT&T a certain amount for services; AT&T charged more than that amount; AT&T misrepresented that the excess charges were imposed by the federal government on the consumer; those charges were not imposed by the federal government on the consumer; and the class members paid the excess charges. A trier of fact could make the common sense inference that people do not willingly pay more money for commercial services than they must and, in particular, more than they originally agreed. People do, however, expect to be taxed; AT&T’s misrepresentation of the fee as a mandatory federal tax on consumers causes class members to pay the “tax.” Payment of the UCC in light of the nature of the misrepresentation and reasonable inferences drawn from common sense provides a sufficient basis for a trier of fact to find causation, as envisioned in Indoor Billboard. Therefore the causation requirement does not preclude class certification here.
Despite our decision in Indoor Billboard the majority elevates the bar to prove causation far beyond any evidentiary standard that could be met by a class action seeking redress for a misrepresentation under the CPA.…13
The majority’s holding is nothing short of a disaster for plaintiffs, the CPA and CR 23, and the jurisprudence of this court. The majority’s requirement of a showing of individualized reliance for misrepresentation claims under the CPA creates an individual issue that will predominate over the class issues here, and in every CPA misrepresentation class action in the future. Under the majority’s reasoning there is no longer any legal recourse for individuals who fall victim to the misrepresentations of corporations when those misrepresentations do not cause sufficient loss to make an individual lawsuit economically feasible. Yet assuring such access to the courts, even when the economic stakes are too small individually, is precisely the purpose of CR 23, which the majority so effectively eviscerates.
The majority’s holding also flies in the face of this court’s history of liberally construing CR 23 and the CPA to effectuate their purposes. [citations omitted] The CPA, which permits private citizens to act as private attorneys general to protect the public interest against unfair and deceptive practices, no longer provides any ability to protect the public now if a corporation misrepresents its charges or services to the public. The majority’s requirement of proof that each class member did not know the truth of the lie will destroy any class action.…
Here, the surrounding facts provide a basis for a causal connection. Class members, after entering into a contract with AT&T at a certain price, would not have rationally intended to pay more without a valid justification for the additional charge. A trier of fact could draw the inference that individuals were motivated by the most obvious source—a belief that the charge was a mandatory federal tax on consumers.
The majority’s view of causation is excessive and contrary to this court’s previous holdings. Rather than render the CPA and CR 23 ineffectual in addressing the wholesale bilking of consumers, I would certify the class.…
… The majority … errs when it neuters the Washington Consumer Protection Act, rendering its protection lean and lank, by providing a safe haven for businesses in Washington to engage in unfair or dishonest practices outside the state of Washington. I would remand the nationwide class certification issue to the trial court for reconsideration in light of the discussion here.
NOTE: On motion for reconsideration, the Washington Supreme Court withdrew the above opinion. In a very similar replacement opinion, the still-divided court came to the same basic conclusion, that the trial court had properly declined to certify a nationwide class, although a remand for possible certification of a state-wide class of Washington plaintiffs was appropriate. Schnall v. AT&T Wireless Service, Inc., 259 P.3d 129 (Wash 2011). In the new opinion, however, the majority toned down its rhetoric about not wanting to be the locus of a national suit and instead emphasized the importance of giving deference to trial court certification decisions. Moreover, the majority no longer rested any of its analysis on a conclusion that the Washington CPA was not intended to apply to plaintiffs outside of Washington when the defendant is a Washington company. In a footnote, the majority stated that it did not need to address that question once it concluded that a nationwide class was inappropriate for other reasons. The same footnote acknowledged that the state attorney general had submitted a brief providing “credible reasons” why the CPA might well apply extraterritorially. Id. at 136, n.4.
In re Telectronics Pacing Systems, Inc.
172 F.R.D. 271 (S.D. Ohio 1997)
SPIEGEL, Senior D.J.
For the fourth time in little more than a year, this Court addresses the question whether class certification is appropriate in this case.…
A. THE PARTIES
This is a products liability action concerning pacemakers containing the Accufix Atrial “J” Lead. Plaintiffs in this action are recipients of the Accufix Atrial “J” Lead Pacemaker Model 330-801 and Model 329-701 (“J Lead”).
Defendant, TPLC, Incorporated (“TPLC”), is a Delaware corporation engaged in the business of designing, manufacturing, and marketing medical devices including the Accufix Atrial “J” Lead pacemakers at issue in this case. They manufactured the “J” Lead pacemakers Models 330-801 and 329-701 from 1988 until 1994. Defendant, Telectronics Pacing Systems, Incorporated (“TPSI”), is also a Delaware corporation. TPSI’s sole business is to hold certain industrial property rights, real estate and the equity interest in TPLC. [Two Australian companies acting as holding company and parent company were originally named in the suit but Plaintiffs do not seek class certification against them.]
B. THE “J” LEAD CONTROVERSY
A pacemaker is a device that uses electrical impulses to reproduce or regulate the rhythms of the heart. It is driven by a battery and connected to the heart by leads and electrodes. [The pacemaker models at issue in this case] utilize a retention wire to hold the atrial lead in the shape of a “J”.…
The retention wire is encased in polyurethane insulation and bends back and forth within the system. The bending has caused the retention wire to break in some instances and poke through the polyurethane. The retention wire is not electrically active in the pacing circuit. Consequently, it has nothing to do with the conduction of the electrical signal or the operation of the pacing system. A fracture, however, can cause serious injury to the heart or blood vessels if it pokes through the polyurethane.
Approximately 25,000 pacemakers with “J” Leads were implanted in hearts of United States residents. Between December 1988 and February 1993, TPLC received reports of at least seven fractures of “J” Lead retention wires. On October 21, 1994, TPLC notified the Food and Drug Administration (“FDA”) that it was recalling all unsold leads. Telectronics’ President, James W. Dennis, then sent a letter to all doctors on November 3, 1994, notifying them that TPLC was voluntarily recalling all unimplanted Accufix Atrial “J” Lead pacemakers.…
By August 1996, TPLC had received notice of at least thirty-two injuries due to fractures, including six deaths. Additionally, eight others have died while having their lead extracted. [Company documents indicate that the fracture rate is somewhere between 12 and 20%.]
In response to the fracture problem, TPLC has done three things to control the situation. First, TPLC has established the Accufix Research Institute (“ARI”) to manage the lead recall. The ARI communicates with doctors and patients concerning patient management recommendations. ARI is conducting a Multi-Center study (“MCS”) involving twelve hospitals to monitor a subset of leads over time. ARI analyzes the data from the MCS to assess the risk of injury from the “J” wire fracture as well as the risk of injury from lead extraction.
Secondly, TPLC formed a Physicians Advisory Committee (“PAC”) to provide advice concerning clinical management of lead patients. The PAC reviews information from the MCS and other sources. The PAC then makes recommendations to the ARI concerning patient care.
Upon the PAC’s recommendation, Telectronics sent a letter to doctors [notifying them of the fracture problem and advising them that implantees should receive fluoroscopic screening every six months to detect early signs of fracture.]
Finally, TPLC has agreed to “reimburse reasonable unreimbursed medical expenses for screening and Lead extraction that are consistent with patient management guidelines.”
C. PROCEDURAL HISTORY
Plaintiffs, Elise and Eugene Owens, filed the lead action in this case on February 13, 1995, alleging injury due to a defective “J” lead. Plaintiffs allege that it was TPLC’s negligent manufacture or design of the “J” Lead that causes the retention wire to fracture. The Panel on Multi-District Litigation (“MDL Panel”) selected this Court as the transferee court for all claims involving the Accufix “J” Lead. Presently, over 400 cases are pending before this Court for pretrial proceedings.
The Court appointed a Plaintiffs’ Steering Committee (“PSC”) to coordinate discovery and other pretrial proceedings on behalf of Plaintiffs in the cases transferred to this Court. The Court ordered the PSC to file a Master Complaint.…
The Court initially certified a worldwide class of all “J” Lead implantees for the common issues of medical monitoring, negligence, strict liability, fraud, misrepresentation, and breach of warranty. On February 23, 1996, the Court decertified the international class. TPLC moved to have the Court reconsider the class certification in light of the Sixth Circuit’s decision in In re American Medical Systems, 75 F.3d 1069 (6th Cir. 1996). On July 16, 1996, the Court granted the motion to reconsider and decertified this case as a class action (hereinafter Decertification Order).
D. CLASS STRUCTURE
Plaintiffs have now filed a Renewed Motion for Class Certification.…
Plaintiffs seek to certify a nationwide class on claims of medical monitoring, negligence, strict liability and punitive damages. State products liability law encompasses several different causes of action.
“That branch of the law commonly called ‘products liability’ is often spoken of as a unitary, coherent body of statute and precedent when in fact there are at least three common theories of recovery for damages sustained as a result of a defective product. In a ‘products liability’ case, a plaintiff may seek recovery, as did this plaintiff, upon (1) a theory of negligence; (2) a theory of ‘strict liability’; or (3) a theory of breach of warranty, either express or implied.” Ragland Mills, Inc. v. General Motors Corp., 763 S.W.2d 357, 359 (Mo. App. 1989) (citations omitted). However, not all states permit all three causes of action in products liability actions. See e.g., O.R.C. §2307.71 et seq. (establishing strict liability as the exclusive remedy in all products liability actions); Washington Water Power Co. v. Graybar Elec. Co., 112 Wash. 2d 847 (1989) (finding that Washington Product Liability Act, RCWA 7.72.010(4), preempts common-law causes of action for harms caused by product defects).
In our Decertification Order, we found that Plaintiffs must demonstrate how this case can be managed as a class action in light of the variations in state law. Furthermore, we required Plaintiffs to come forward with exact definitions of subclasses, its representatives, and the reasons each subclass meets the requirements of Rule 23. Consequently, Plaintiffs have proposed ten subclasses (Subclass 6 contains three sub-subclasses) which take into account the variations of state law.
First, Plaintiffs propose one nationwide subclass for all medical monitoring claims. It is defined as follows:
SUBCLASS ONE: all persons who have had the Accufix atrial “J” pacemaker leads … placed in their bodies whose leads have not been explanted and who seek the establishment of a medical monitoring and research program.
The medical monitoring program which Plaintiffs seek would provide diagnostic testing for each class member, as well as conduct research on better methods of detecting fractured leads and determine safer methods for removing the fractured leads.
Plaintiffs seek to certify two negligence subclasses. Subclass Two would represent “J” Lead implantees who reside in states whose law permits a cause of action for negligence in a product liability action and allows the introduction of the state-of-the-art evidence.2 Subclass Three would be made up of “J” Lead implantees residing in states whose law does not allow introduction of state-of-the-art evidence in negligence actions.
Plaintiffs have proposed four strict liability subclasses. Subclass Four consists of implantees from states which follow Restatement (Second) of Torts Section 402A3 and which allow the introduction of state-of-the-art evidence. Subclass Five consists of implantees from states which follow Restatement (Second) of Torts Section 402A and which do not allow the introduction of state-of-the-art evidence. Subclass Six consists of implantees from states which follow a modified version of Restatement (Second) of Torts Section 402A and which allow the introduction of state-of-the-art evidence.4 Subclass Six is further divided into three sub-subclasses based upon whether the state requires a showing that the product is defective, unreasonably dangerous or both. Subclass Seven consists of three states which follow the Greenman v. Yuba Power Products, formulation of strict liability.5
Plaintiffs propose three subclasses covering claims for punitive damages. Plaintiffs have divided the classes based upon level of culpability which must be shown in order to justify punitive damages.
Finally, Plaintiffs have chosen not to seek certification of the remaining causes of action: fraud, loss of consortium, breach of warranty, misrepresentation and infliction of emotional distress.
II. Elements of Rule 23(a)
[The court found that the proposed class meets the requirements of Rule 23(a)—numerosity, commonality, typicality, and adequacy.]
III. Elements of Rule 23(b) and Medical Monitoring Class
… In order for a class action to be maintainable, the putative class must also satisfy one of the three subsections of Rule 23(b), in addition to the requirements of Rule 23(a). Rule 23(b) states as follows:
(1) the prosecution of separate actions by or against individual members of the class would create a risk of
(A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or
(B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or
(2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole; or
(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.
Fed. R. Civ. P. 23(b). The elements of Rule 23(b) overlap, and often a class may satisfy more than one of the subsections of Rule 23(b).
Turning to the requirements of Rule 23(b) as applied to the specific subclasses, we find that certifying a medical monitoring class is justified under both Rule 23(b)(1)(A) and 23(b)(3). “Certification under Rule 23(b)(1) is appropriate when a unitary decision is essential.” “Rule 23(b)(1) classes are designed to avoid prejudice to the defendant or absent class members if individual actions were prosecuted in contrast to a class suit yielding a unitary adjudication.” However, the possibility that some plaintiffs might recover and others might not does not justify class certification under Rule 23(b)(1)(A).
A. CLASS CERTIFICATION OF MEDICAL MONITORING PURSUANT TO RULE 23(B)(1)(A).
Rule 23(b)(1)(A) states that class certification is proper if separate actions “would create a risk of inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class.…” Fed. R. Civ. P. 23(b)(1)(A). “The phrase ‘incompatible standards of conduct’ is thought to refer to the situation where different results in separate actions would impair the opposing party’s ability to pursue a uniform continuing course of conduct.” “[S]ubdivision (b)(1)(A) is applicable when practical necessity forces the opposing party to act in the same manner toward the individual class members and thereby makes inconsistent adjudications in separate actions unworkable or intolerable.”
The medical monitoring claim here is an ideal candidate for class certification pursuant to Rule 23(b)(1)(A) because separate adjudications would impair TPLC’s ability to pursue a single uniform medical monitoring program. Presently, TPLC is conducting a research program which is investigating the cause of the fractures, looking for better ways to detect the fractures and seeking safer methods of extracting the damaged leads. Plaintiffs seek the establishment of a medical monitoring program which would include diagnostic testing and research. TPLC asserts that medical monitoring beyond that recommended by TPLC’s Physicians’ Advisory Committee is not warranted. TPLC’s research program is a uniform benefit to the class of “J” lead implantees as a whole. Any judicially-imposed modification of this program would then, by necessity, affect all of the “J” lead implantees. Furthermore, separate judicial orders pertaining to medical monitoring could require TPLC to institute differing types of monitoring programs which TPLC would have to reconcile.
TPLC argues that the recommendations of the Physicians’ Advisory Committee are subject to approval by the FDA. TPLC insists that “the Court [will] have to reconcile its involvement in a medical monitoring program with FDA’s statutorily mandated oversight function.… The potential for unnecessary conflict and expense with no patient benefit is readily apparent, with TPLC caught in an impossible position between the judicial and executive branches of government.” Whether FDA regulations preempt or otherwise limit state law tort claims for medical monitoring goes to the merits of the class claims and must be determined at a later date.
However, individual adjudication of implantees’ claims for medical monitoring would not alleviate TPLC’s fear of conflicting standards of medical monitoring imposed by the judicial branch and executive branch. In fact, the danger of courts imposing conflicting duties upon Telectronics would only be compounded if the question of medical monitoring is not certified as a class action pursuant to Rule 23(b)(1)(A). Presently, there are over 400 individual actions consolidated before this Court by the Judicial Panel for Multidistrict Litigation. Certainly, a large number of similar cases are pending in state courts across the country. Thus, TPLC could still face multiple and conflicting orders rendered from different courts regarding the scope and necessity of a medical monitoring program which may also conflict with FDA imposed requirements. Accordingly, the Court certifies the medical monitoring subclass under Rule 23(b)(1)(A).
…[T]here are also significant policy reasons for requiring one medical monitoring class. Any research component should be coordinated in order to maximize resources and avoid duplication. To promote consistency in treatment, doctors should also be given one set of advice in terms of treatment options for their “J” lead patients.
B. CLASS CERTIFICATION OF MEDICAL MONITORING PURSUANT TO RULE 23(B)(1)(B).
The argument for certification of a medical monitoring subclass is bolstered by the fact that separate adjudications may adversely affect other implantees’ ability to recover anything. Under Rule 23(b)(1)(B), certification is justified if adjudications by individual class members might “as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests.” Fed. R. Civ. P. 23(b)(1)(B). The most common use of subsection (b)(1)(B) is in limited fund cases. “A limited fund exists when a fixed asset or piece of property exists in which all class members have a preexisting interest, and an apportionment or determination of the interests of one class member cannot be made without affecting the proportionate interests of other class members similarly situated.” In the same limited circumstances, the potential or probable insolvency of the defendant due to a large number of pending tort actions can create a limited fund appropriate for adjudication under Rule 23(b)(1)(B). See e.g., In re Asbestos Litigation, 90 F.3d 963, 983 (5th Cir. 1996) (citing cases).
[The court noted that this could be a limited fund case given that TPLC has recently sold all of its assets to another corporation. However, it lacked the information necessary to confidently make that conclusion.]… The possibility of the existence of a limited fund, however, lends further support to a conclusion that medical monitoring class should be certified under Rule 23(b)(1).
C. CLASS CERTIFICATION OF MEDICAL MONITORING PURSUANT TO RULE 23(B)(3).
In addition, we note that a medical monitoring subclass also satisfies Rule 23(b)(3). Rule 23(b)(3) has two primary requirements: (1) that common issues predominate over individual issues, and (2) class treatment is superior to other methods of adjudication.
First, TPLC’s defense to Plaintiffs’ medical monitoring claim clearly predominates over any individual issues raised by the medical monitoring claims. TPLC acknowledges that all “J” lead implantees require medical monitoring to prevent injury due to fracture. Telectronics’ primary defense to Plaintiffs’ claims for additional or different medical monitoring than that offered by TPLC is that its medical monitoring program has been approved by the FDA and is the best program available under present research and technology. This defense is common to all implantees and is the predominant issue regarding the appropriateness of a court ordered medical monitoring program.
Second, class certification of a medical monitoring class is also the superior method of dealing with the medical monitoring claims. As pointed out in our discussion of Rule 23(b)(1), there is risk that TPLC could be ordered to conduct conflicting medical monitoring programs if individual implantees pursue medical monitoring claims in separate actions. In addition, practically speaking, for many of the “J” Lead recipients their only realistic claim may be for medical monitoring. This is not the type of claim that is likely to lead to large damage awards. While TPLC has to its credit instituted a significant medical monitoring program, Plaintiffs have every right to challenge the adequacy of this program. Thus, it appears that many of the proposed class members have small monetary claims that would be difficult to pursue in individual actions. The superiority prong of Rule 23(b)(3) is satisfied if aggregation of small monetary claims is required to ensure vindication of legal rights. See Scholes v. Stone, McGuire & Benjamin, 143 F.R.D. 181, 185 (N.D. Ill. 1992) (finding plaintiffs had satisfied superiority prong in part because many class members had claims which would be uneconomical to pursue individually); Wehner v. Syntex Corp., 117 F.R.D. 641, 645 (N.D. Cal. 1987) (finding class action superior where “[i]n practical terms, plaintiffs … may be economically precluded from bringing separate lawsuits and thus be barred access to the judicial system.”).
Defendants counter that class certification of a medical monitoring subclass is unmanageable in light of the variations in state law of medical monitoring. We disagree. TPLC acknowledges that all implantees require medical monitoring. The critical questions are whether the present monitoring program is adequate and whether Telectronics will be required to continue it. Thus, most variations in state law regarding medical monitoring are immaterial.
One major distinction in the law of medical monitoring is relevant in this situation. In some states, medical monitoring is only recoverable if the plaintiff shows physical injury. Without a fracture of the “J” Lead, class members in those states may be unable to pursue claims for monitoring even though TPLC concedes that monitoring is required. Thus, pursuant to Rule 23(c)(4), the Court will divide the medical monitoring class into two subclasses: (1) implantees from states that do not require present physical injury to recover for medical monitoring, and (2) implantees from state that require present physical injury in order to recover for medical monitoring.
A. NEGLIGENCE AND STRICT LIABILITY SUBCLASSES AND RULE 23(B).
Pursuant to the Sixth Circuit’s directive in In re American Medical Systems to take into account the variations in state law, Plaintiffs now propose two negligence subclasses and three strict liability subclasses.
… Both the negligence and strict liability claims are primarily actions for damages which are generally certified pursuant to Rule 23(b)(3).… Rule 23(b)(3) has two primary requirements: (1) that common issues predominate over individual issues, and (2) class treatment is superior to other methods of adjudication. Rule 23(b)(3) parallels Rule 23(a)(2) in that both subdivisions require that common issues exist, but 23(b)(3)’s predominance test goes further by insuring that the common issues predominate over individual issues. The inquiry is mainly a pragmatic one: do the common issues justify a common adjudication?
B. DO COMMON ISSUES PREDOMINATE?
That common issues predominate over individual issues does not require that the class members’ claims be proven by identical evidence or that individualized proof cannot be introduced on some issues.
No matter how individualized the issue of damages may be, these issues may be reserved for individual treatment with the question of liability tried as a class action. Consequently, the mere fact that questions peculiar to each individual member of the class remain after the common questions of the defendant’s liability have been resolved does not dictate the conclusion that a class action is impermissible.
Sterling v. Velsicol Chem. Corp., 855 F.2d 1188, 1196-1197 (6th Cir. 1988); see also In re American Medical Systems, 75 F.3d at 1084 (quoting Sterling with approval). Generally, mass tort accidents are appropriate for resolution on a class-wide basis because the cause of the accident is a single course of conduct. “[W]here the defendant’s liability can be determined on a class-wide basis because the cause of the disaster is a single course of conduct which is identical for each of the plaintiffs, a class action may be the best suited vehicle to resolve such a controversy.” Sterling, 855 F.2d at 1197. Numerous courts have found that common issues predominate when a large number of lawsuits arise from a single disaster or single course of conduct. [citations omitted]
The Sixth Circuit in American Medical Systems, however, found that products liability actions differed from mass tort cases because products liability cases usually involve factual and legal issues that vary dramatically from individual to individual. Nevertheless, the Sixth Circuit did not close the door on product liability class actions but instead held that district courts must exercise great care before certifying such a class. [75 F.3d] at 1089 (“This is not to say that a class action in [medical product liability/personal injury cases] will never be appropriate, but it is to say that strict adherence to Rule 23 in products liability cases involving … medical products which require FDA approval is especially important.”).
The issues common for all of the negligence and strict liability claims are whether TPLC negligently designed or manufactured the “J” Leads or whether TPLC’s “J” Leads are defective. Both issues seek to resolve whether TPLC is legally responsible for the “J” Lead fractures.
The “J” Lead controversy appears to be the exception to the general rule that medical products liability actions require extensive proof of individualized issues. This case does not involve many of the factual and legal complications which prevented certification in other medical products liability actions. First, this case involves two nearly identical pacemaker leads manufactured by one company. Compare In re Copley Pharmaceutical, Inc., 158 F.R.D. 485 (D. Wyo. 1994) (certifying class involving one product manufactured by one defendant), with In re American Medical Systems, 75 F.3d at 1085 (finding class action involving ten different penile implant models did not satisfy predominance prong); Georgine v. Amchem Prods., 83 F.3d 610, 626 (3d Cir. 1996) cert. granted, 519 U.S. 957 (1996) (decertifying in part because “[t]he class members’ claims vary widely in character. Class members were exposed to different asbestos-containing products for different amounts of time, in different ways, over different periods of time.”), and Castano v. American Tobacco Co., 84 F.3d 734, 742-743 n.15 (5th Cir. 1996) (“The Castano class suffers from many of the difficulties that the Georgine court found dispositive. The class members were exposed to nicotine through different products, for different amounts of time, and over different time periods.”). Second, Plaintiffs all allege one defect—a potential for or actual fracture of the retention wire. Cf. In re American Medical Systems, 75 F.3d at 1085 (finding common issues did not predominate in product liability action where class members alleged multiple defects with their product). Third, in traditional medical product liability situations, causation is often the overarching issue that requires extensive individualized proof; the same is not true in this situation.…
The other individual issues—whether an individual implantee’s retention wire has fractured and what are the individual’s damages—do not preclude class certification. Whether a particular individual’s lead has fractured is easily resolved because a fracture is detectable by a fluoroscope. The damage issue, although requiring individualized proof, does not preclude class certification. Therefore, we find common issues predominate.
C. IS CLASS TREATMENT SUPERIOR?
“That common question predominate is not itself sufficient to justify a class action under subdivision (b)(3) for another method of handling the litigious situation may be available which has greater practical advantages.” Fed. R. Civ. Pro. 23, Advisory Committee Note. Plaintiffs must also demonstrate that this litigation would be superior to all other methods of litigation. Fed. R. Civ. P. 23(b)(3). “[T]he purpose of the superiority requirement is to assure that the class action is the most efficient and effective means of settling the controversy.…” “The rule asks us to balance, in terms of fairness and efficiency, the merits of a class action against those of ‘alternative available methods’ of adjudication.”
Rule 23(b)(3) identifies four factors which should be examined by the court to determine whether class treatment would be fair and efficient.
(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions;
(B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class;
(C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum;
Efficiency and economy are factors in favor of certification under the superiority prong. Here, because it appears likely that there is a single cause of the “J” Lead fracture, a single determination of causation would efficiently resolve a large issue in this case for all class members. This conclusion, however, is not enough to find class treatment the superior method of dealing with the “J” Lead cases.
Several recent circuit court decisions have focused upon the fourth factor as a possible roadblock to class certification in diversity actions. See e.g., In re American Medical Systems Inc., 75 F.3d at 1085 (noting that district judge failed to consider how state law variations would affect the appropriateness of class treatment). Thus, in order to demonstrate that a class action is superior to other forms of litigation in the context of diversity based actions, Plaintiffs must show that such an action is manageable in light of state law variations.13
In our Decertification Order, we found that Plaintiffs had failed to make such a showing. We held that Plaintiffs must come forward with the exact definition of subclasses, their representatives, and the reasons each subclass meets the prerequisites of Rule 23(a) and (b). Furthermore, the variations in state law must guide Plaintiffs’ creation of subclasses.
1. NEGLIGENCE SUBCLASSES
Taking into account the state law variations regarding negligence, Plaintiffs have divided the subclasses to reflect the forty-six jurisdictions that permit the introduction of state-of-the-art evidence and the two jurisdictions which do not.
Plaintiffs state that forty-seven jurisdictions permit plaintiffs in product liability actions to bring negligence claims. Plaintiffs assert that all states that recognize negligence as a cause of action in a products liability action apply the same elements to determine liability: duty, breach, causation, injury and damage. Not only do all states use the same elements to define a cause of action for negligence, many of those states look to the same source for a standard in products liability cases. See Restatement (Second) of Torts §395 and Appendix (cited with approval by courts in thirty-six states); [case citations omitted].
As discussed earlier, the predominant issue to be decided in this case is whether TPLC is legally responsible for the “J” Lead fractures. A major element of that question is whether state law provides a defense because the product was designed, inspected, tested, labeled or produced with the best knowledge and technology reasonably available at the time.
TPLC counters that just because those jurisdictions all recognize a cause of action in negligence in a products liability case does not mean that the law of negligence is universal. TPLC insists that the law of negligence is too diverse to certify a nationwide products liability class action. TPLC argues that Plaintiffs have failed to properly consider all of the nuances of state law in defining its proposed subclasses. Finally, TPLC argues that the Court cannot decide for itself that any differences are insignificant. Presumably, this means that the Court may not, in essence, overlook these differences, no matter how slight, and certify a class which contains implantees from states whose pattern jury instructions are not identical.
We disagree.… First, state law does not need to be universal in order to justify nationwide class certification.
Secondly, while it is certainly true that state tort law varies, the question under the superiority prong of Rule 23(b)(3) is can the relevant variations be dealt with in a simple and efficient manner. It seems certain though that only particular nuances should be relevant to the question of class certification. The Court must make a careful inquiry to determine which variations might impede class certification. Obviously, the Court will have to determine whether the variations are significant and whether they are material to the issues contested in the case. In other words, are there nuances in the state law at issue in the case which must be addressed in order to satisfy Erie R.R. v. Tompkins, [supra page 509]. It seems that the Court has three options in making this inquiry: (1) find that state law is sufficiently similar that a single class is appropriate, (2) find that the state law varies so much that class certification is inappropriate, or (3) find that state law variations can be categorized and then divided into subclasses.
Thus, if the elements of the cause of action are the same and the legal standards on “important/meaningful/significant/pivotal” issues are substantial similar the state laws can be grouped for purposes of class certification. In looking at the nuances of state law, it is important to distinguish between nuances that are pertinent to the issues being certified and those which are unimportant to these questions.
Specifically, TPLC argues that the use of the term “proximate cause” varies from state to state. For example, California and Oklahoma no longer use the term “proximate cause” in jury instructions in negligence cases. On the other hand, TPLC asserts that Georgia and Nebraska require the trial court to instruct the jury on proximate cause.
While we might agree that these variations in language are technically “nuances” in state law, minute and insignificant differences cannot preclude class certification or else no class could ever be certified in this context. Upon review of the case law and pattern jury instructions from the various states, we find this a distinction without a difference. Some states may have done away with the use of the term “proximate cause,” but those states still instruct juries on the concept of legal causation. While we agree that some states, for example Georgia, mandate that trial courts instruct juries on the meaning of proximate cause, the real point to these cases is not the term “proximate” but the concept of legal causation. As the Georgia Supreme Court later explained…, the need for an instruction on proximate cause is because causation is a necessary element of any decision on liability. Dietz v. Becker, 434 S.E.2d 103, 106 (1993).…
Likewise, states that have eliminated use of the term “proximate cause” still retain causation as an essential element of a negligence action. Often, the deletion of the term “proximate cause” is merely a cosmetic change in the state’s law or jury instructions.…
We find that the differences in state law regarding “proximate cause” instructions are insignificant, and therefore, they present no hurdle to class certification on negligence classes proposed by Plaintiffs.
2. SUPERIORITY AND STRICT LIABILITY SUBCLASSES
Plaintiffs divide the strict liability issue into subclasses in order to take into account the variations in state law. Plaintiffs assert that forty-six jurisdictions recognize some form of strict liability in products liability actions. Plaintiffs contend that thirty-two jurisdictions follow the version of strict liability outlined in the Restatement (Second) of Torts §402A. Plaintiffs assert that eleven states apply a modified version of §402A which incorporates some elements of negligence into the strict liability formulation. Finally, three states follow the California Supreme Court decision in Greenman v. Yuba Power Products, 59 Cal. 2d 57 (1963), which held that the plaintiff need only show that the product was defective.
In addition to the various formulations of strict liability, as with the negligence subclasses, Plaintiffs subdivide the strict liability claims under §402A on the basis of whether the state allows introduction of state of the art evidence. Plaintiffs further subdivide the modified §402A jurisdictions on the basis of whether the jurisdiction requires proof that the product was either defective, unreasonably dangerous or both.
The Court has reviewed the subclass distinctions and finds that they adequately account for variations in the state law of strict liability. Plaintiffs have created subclasses which sufficiently take into account state law variations in the law of strict liability.
Telectronics insists that these classifications are insufficient because there are substantial differences in state law language defining “unreasonably dangerous.” For example, both New York and Tennessee are in Subclass 6, sub-subclass B. In New York, a manufacturer is liable for a product that is “not reasonably safe.” Voss v. Black & Decker, 450 N.E.2d 204, 208 (1983). In Tennessee, a manufacturer is liable for a product that is “defective or unreasonably dangerous.” Tenn. Code. Ann. §29-28-105 (1994). We agree with Telectronics that these slight variations in language make a difference in the impact of the law. However, we agree with Plaintiffs that these types of variations can be managed with proper jury instructions.
Other variations pointed out by Telectronics are either insignificant or irrelevant to the issues presented in this case.… Accordingly, we find that the strict liability subclasses satisfy the requirements of Rule 23(b)(3).
V. Punitive Damages
We previously denied certification of a punitive damages class because we found that punitive damages, like compensatory damages, must be measured individually based upon the facts and local law. We find here that the proposed punitive damages subclasses fail to satisfy Rule 23(b). Plaintiffs have failed to take into account adequately the multiple variations in the law of punitive damages. The law of punitive damages has undergone significant change in the last couple of years. In many instances, state legislatures have stepped in and imposed varying procedures for the imposition of punitive damages. State law also evidences substantial variances in standards of conduct and proof. A further complication arises because some states that apply a similar standard of conduct sometimes require different standards of proof. For example, both Arkansas and Alabama require a showing of willful or wanton conduct in order to award punitive damages. Consequently, Plaintiffs group Alabama and Arkansas in Subclass Eight. These two states, however, require different standards of proof. In Alabama, Plaintiff must prove punitive damages are recoverable clear and convincing evidence. In Arkansas, punitive damages are recoverable upon by preponderance of the evidence. Plaintiffs’ proposed Subclass Eight includes both states.
It is not appropriate to group together in one subclass implantees from states whose laws provide for different standards of proof. Any attempt to do so would make it nearly impossible to properly instruct a jury and would be hopelessly confusing to the jury. This is merely one example of the complications in attempting to accommodate state law variations on punitive damages.
Thus, we are not convinced that Plaintiffs have shown that class certification is the superior method of dealing with the punitive damages claim. Accordingly, the Court denies certification of any punitive damages subclasses at this time.
However, the Court contemplates conducting a summary jury trial before the trial on the merits in hopes of encouraging the Parties to settle this litigation.… We may submit the question of punitive damages to the summary jury through a series of interrogatories reflecting the different standards and burdens of proof. Following the summary jury trial we may revisit the question whether punitive damages should be certified for class action treatment.
… The Court hereby Certifies subclasses for Medical Monitoring, Negligence and Strict Liability as outlined in the Appendix to this Order. The Court, however, does not certify any punitive damage subclasses.
Questions and Comments
(1) Both the Schnall and Telectronics courts focused on choice of law tied to the state of the plaintiffs’ residences. Are there types of claims or approaches to choice of law that are more likely to lead to plaintiff-based choices of law? Would the Schnall court have focused on plaintiffs’ residences even in the absence of the choice-of-law clause?
(2) The application of multiple governing laws can work to defeat class certification, but some courts are willing to divide claims into subclasses depending on the applicable law and factual divergence of the claims. Rule 23(c)(5) states: “When appropriate, a class may be divided into subclasses that are each treated as a class under this rule.” Obviously, the greater the number of differing state laws and the greater the factual variances, the less likely any court is to certify the class. But other factors come into play as well. In Telectronics, for example, the court was willing to certify the class action for many of the claims, despite the fact that ten or more subclasses plus some special jury instructions would be necessary in order for the class to proceed. The Schnall majority was unwilling to certify the class action even though, given the small number of relevant legal differences, a much smaller number of subclasses would be needed to resolve the case. What might account for the differences in the courts’ willingness to certify a nationwide class?
One relevant difference is that Schnall is a state court decision while Telectronics is a federal court decision. Federal courts often have more generous resources available to oversee complex litigation involving subclassing. In federal courts there is also less mismatch between the tax base used to finance the class action and the geographic residence of plaintiffs seeking class relief. If this distinction actually matters, then there may be some irony in Congress’s efforts in CAFA to rein in certification of nationwide class actions by removing decisions to the federal courts.
Another difference between the two cases is that in Telectronics, part of the plaintiffs’ claims that seeking medical monitoring remedies, was certifiable as a nationwide class under Rule 23(b)(1) without regard to satisfaction of the predominance and superiority prongs of Rule 23(b)(3). Because the medical monitoring claims were closely tied to the negligence and strict liability claims, the court might have been more willing to stretch to certify the latter claims than might a court faced with a request to certify a nationwide class under Rule 23(b)(3) alone.
A third difference between the two cases is the fact that while there are 300 plaintiffs in Telectronics, there are thousands in Schnall. The difference in number of plaintiffs can affect the likely viability of single-state class actions (though the dissenting judges in Schnall disagreed with the majority over both the viability and the relevance of the possibility of single-state actions). In some other cases, such as Rhone-Poulenc Rorer, [supra page 809], courts take into account whether the claims are individually viable when rendering the certification decision. In what sense do these considerations matter to the certification decision? How large a factor should they be? Should we be concerned about the potentially wasteful duplication of litigation efforts present with multiple litigation?
(3) Of course, to some extent the varying decisions turn on judicial attitudes toward the class action mechanism. Class actions can enable redress for plaintiffs who each suffer small harms, but they can also be used to force companies to pay large sums of money simply out of fear of even larger jury verdicts. Judge Posner explained the problem in Rhone-Poulenc Rorer:
Three hundred is not a trivial number of lawsuits. The potential damages in each one are great. But the defendants have won twelve of the first thirteen, and, if this is a representative sample, they are likely to win most of the remaining ones as well. Perhaps in the end, if class-action treatment is denied (it has been denied in all the other hemophiliac HIV suits in which class certification has been sought), they will be compelled to pay damages in only 25 cases, involving a potential liability of perhaps no more than $125 million altogether. These are guesses, of course, but they are at once conservative and usable for the limited purpose of comparing the situation that will face the defendants if the class certification stands. All of a sudden they will face thousands of plaintiffs. Many may already be barred by the statute of limitations, as we have suggested, though its further running was tolled by the filing of [this case] as a class action.
Suppose that 5,000 of the potential class members are not yet barred by the statute of limitations. And suppose the named plaintiffs in Wadleigh win the class portion of this case to the extent of establishing the defendants’ liability under either of the two negligence theories. It is true that this would only be prima facie liability, that the defendants would have various defenses. But they could not be confident that the defenses would prevail. They might, therefore, easily be facing $25 billion in potential liability (conceivably more), and with it bankruptcy. They may not wish to roll these dice. That is putting it mildly. They will be under intense pressure to settle. If they settle, the class certification—the ruling that will have forced them to settle—will never be reviewed. Judge Friendly, who was not given to hyperbole, called settlements induced by a small probability of an immense judgment in a class action “blackmail settlements.” Henry J. Friendly, Federal Jurisdiction: A General View 120 (1973). Judicial concern about them is legitimate, not “sociological,” as it was derisively termed in In re Sugar Antitrust Litigation, 559 F.2d 481, 483 n.1 (9th Cir. 1977).…
51 F.3d at 1298-1299. Other judges, however, question whether it is appropriate to use certification as a means to protect defendants. In a portion of the Telectronics opinion not reproduced above, the district court noted:
There has been much discussion regarding the need to reform or improve how federal courts deal with mass tort litigation. While we agree changes might be appropriate, the district courts are left to fight the battles and resolve the Parties disputes’ with the tools provided by Congress and our appellate courts. Thus, we must grant or deny certification on the basis of the federal rules as written today and interpreted by the Sixth Circuit and the Supreme Court.
In deciding this question, the Court is mindful of the applicable law and rules, the procedural and substantive legal rights of the Parties and the ethical concerns raised by adjudication of mass tort claims. Recently, several Circuit Courts have been highly critical of the use of class actions in mass tort and product liability cases. While we recognize the difficulties inherent in diversity based-class actions as outlined by the Circuit Courts, we continue to believe that class action provides the fairest, most efficient and economical means of dealing with these types of cases. We believe courts must play an important role in the efficient resolution of mass tort action. This is especially so where, as here, there is a danger that the expense of litigation and potential for large damage awards threaten to bankrupt the defendant and leave some class members without a remedy.
We also strongly disagree with those Circuit Courts which have allowed their apparent economic biases to influence their interpretation of the requirements of Rule 23. For example, in Castano v. American Tobacco Co., 84 F.3d 734, 746 (5th Cir. 1996), the Fifth Circuit found that class certification of all nicotine dependent individuals was not superior under Rule 23(b)(3) because of the strategic effect class certification has upon the defendants’ chances.
In the context of mass tort class actions, certification dramatically affects the stakes for defendants. Class certification magnifies and strengthens the number of unmeritorious claims. Aggregation of claims also makes it more likely that a defendant will be found liable and results in significantly higher damage awards.
See also Matter of Rhone-Poulenc Rorer Inc., 51 F.3d 1293 (7th Cir. 1995). To credit the Fifth Circuit’s statement is to also state that its converse—denying class certification makes it less likely defendants will be found liable or responsible for lower damage awards—is true. Plaintiffs in individual actions will have to bear a greater share of the cost and risk for maintaining their action as compared to plaintiffs in a class action. Often an individual action pits a single plaintiff relying on his or her own resources to fund the litigation against the vast resources of a large manufacturer and the large law firms which represents [sic] it.
Obviously, the procedural rules affect the outcome of litigation. These Circuit Courts seemed to ignore the essence of Rule 23 because of their philosophical disagreement with the effects of Rule 23.
172 F.R.D. at 275-276. Is it legitimate for a court to take into account its own normative views on class actions as part of its “superiority” analysis under Rule 23(b)(3)? Is it inevitable?
(4) Is it appropriate for a court to consider the likely merits of a case when deciding whether to certify? Most courts think not. Indirectly, however, the strength of plaintiffs’ claims inevitably matters. For example, if defendant’s behavior is so egregious that it is wrongful under all laws, then the differences will matter little to recovery and may also matter little to the certification decision. As one court noted, “[a] breach is a breach is a breach, whether you are on the sunny shores of California or enjoying a sweet afternoon breeze in New Jersey.” Klay v. Humana, Inc., 382 F.3d 1241, 1263 (11th Cir. 2004). If plaintiffs instead must stretch to find viable theories for recovery, recognition of those theories might well vary across jurisdictions, making at least nationwide class certification less likely.
(5) In Klay, the Eleventh Circuit ultimately determined that class certification was inappropriate because, although there were no significant differences in the legal standard that applied to each breach of contract claim, factual differences in plaintiffs’ situations precluded class treatment. Recall that Rule 23(b)(3) requires that “questions of law or fact common to class members predominate over any questions affecting only individual members.” A case that would involve some subclassing given minor variations in governing law might be certified if the factual makeup of the claims is quite similar but not be certified if factual differences exist across claims.
(6) The majority and dissent in the first Schnall opinion disagreed about whether the Washington CPA applies extraterritorially. Which appears to have the better argument? Is the majority’s recasting of the grounds for its decision a concession that it was wrong? The majority and dissent apparently both agree that the choice-of-law clause in the customer agreement does not cover causes of action under consumer protection acts. Does that conclusion seem sound?
(7) Note the relationship between choice-of-law clauses and class actions. Some companies place choice-of-law clauses into their standard form contracts choosing a single governing law that is friendly to the company’s interests. The chosen law might be company-friendly relative to other applicable laws, but the fact of a single chosen law enhances the likelihood that proposed class actions will be certified. AT&T chose a different strategy by pegging the governing law to the location of the customer. That strategy disenables the company from choosing the law best suited to its interests, and it disenabled the company from conducting its business according to a single governing law. However, the clause as written basically ensured enforcement (who can complain if the customer effectively chooses the governing law and court?), enabled certainty regarding the governing law that applied to each individual contract, and helped to defeat certification of a nationwide class. Should we expect to see many more companies choosing the law associated with plaintiffs’ residence? Note that one upshot of the Concepcion case, supra page 755, which also involved AT&T’s cell phone service agreements, is that companies may be able to avoid class proceedings with an arbitration clause coupled with a class ban. If so, then the company could choose a single governing law and still avoid class actions. Does that seem appropriate?
(8) The dissenting judges in Schnall and the Air Crash Disaster near Chicago (supra page 805) cases both invoke an interest on the part of the state of the principal place of business of defendant to foster corporate accountability. Does this interest seem reasonable? Is this a more enlightened application of interest analysis? Or something else?
(9) Differences in governing substantive law most often interfere with class action certification when certification is sought under Rule 23(b)(3) because that is where the predominance and superiority tests apply. Plaintiffs can sometimes circumvent the problem of the application of multiple state laws by seeking certification as a limited fund or as a claim for injunctive relief under Rules 23(b)(1) or (2), which provide that class action certification can be appropriate in cases where:
(1) prosecuting separate actions by or against individual class members would create a risk of:
(A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or
(B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests;
(2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.
Why should these situations be treated differently? Is the court supposed to apply multiple governing laws in these cases, if applicable? Or is the court to choose a single governing law? Might your answer turn on the specific basis for class certification?
(10) When the claims in a proposed class action present difficulties with respect to predominance and/or superiority, a federal court can instead certify a class to resolve individual issues. Rule 23(c)(4) provides: “When appropriate, an action may be brought or maintained as a class action with respect to particular issues.” In Hohider v. United Parcel Service, Inc., 574 F.3d 169, 201 n.25 (3d Cir. 2009), the Third Circuit noted that “[t]he interaction between the requirements for class certification under Rule 23(a) and (b) and the authorization of issues classes under Rule 23(c)(4) is a difficult matter that has generated divergent interpretations among the courts.” In addition to discussing some of the cases that had grappled with this form of certification, the court provided some guidance:
[We] believe several considerations are relevant to determining “[w]hen [it is] appropriate” for a court to certify a class only “with respect to particular issues”: the type of claim(s) and issue(s) in question; the overall complexity of the case and the efficiencies to be gained by granting partial certification; the substantive law underlying the claim(s), including any choice-of-law questions it may present; the impact partial certification will have on the constitutional and statutory rights of both the class members and the defendant(s); the potential preclusive effect that resolution of the proposed issues class will have; and so forth. See, e.g., Principles of the Law of Aggregate Litigation ch. 2 (A.L.I. Proposed Final Draft Apr. 1, 2009).
Id. at 201. How often and under what circumstances should issue classes be certified?
(11) Sometimes counsel for both plaintiffs and defendant seek certification of a class action for purposes of settlement only. Although many class action cases, including those presented in this chapter, pit plaintiffs seeking certification against defendants opposing certification, the parties’ interests can align. In particular, a defendant facing multiple suits with likely liabilities in many different courts might want all actions settled in a single case, if the defendant can negotiate a satisfactory deal. When settlement classes are certified, the certification occurs simultaneously with the termination of the action. If a case no longer requires judicial management, the court might be tempted to circumvent analysis under Rule 23(a) and (b) and simply ask whether the proposed settlement seems fair and reasonable. The U.S. Supreme Court has held that federal courts are required to conduct the same basic certification inquiry for settlement class certification that it conducts for other certifications. Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997). In addition to satisfying the requirements of Rule 23(a), class settlement certifications under Rule 23(b)(3) must satisfy both predominance and superiority. However, the manageability prong of the inquiry can be ignored, given that no trial is contemplated. Id.
In practice, however, a court faced with a proposed settlement class is also more likely to find that the predominance requirement is satisfied because the litigation difficulties associated with a lack of predominance need not be addressed by the court. Consider, for example, In re Prudential Insurance Co. America Sales Practices Litigation, 148 F.3d 283 (3d Cir. 1998), a case in which a proposed nationwide settlement class was certified despite multiple state and federal law claims, including federal securities law violations, common law fraud, breach of contract, bad faith, negligent misrepresentation, negligence, unjust enrichment, and breach of state consumer fraud statutes. Despite multiple potential differences in state laws as well as factual differences pertinent to issues of causation and reliance, the district court and the Third Circuit concluded that the common issues of law and fact predominated. Some of the potential problems associated with a failure to take into account differentially situated plaintiffs were resolved with the parties’ proposed claim resolution mechanism, and the differences in governing laws fell into “a limited number of predictable patterns.” Id. at 315.
(12) Note that in MDL cases, it is common for the transferee court to apply multiple governing legal rules as well as multiple conflict of laws principles to the various claims before it. As noted at page 780, supra, when federal court jurisdiction is based on diversity, the transferee court must apply the choice-of-law principles of the state where the individual action was filed. After cases are transferred for consolidation, however, new cases often are filed directly in the transferee court. Which state’s choice-of-law rules should apply to those new direct-file claims? Most transferee courts apply forum choice-of-law principles to these cases. See, e.g., In re Trasylol Prods. Liab. Litig., No. 1:08-MD-01928, 2011 WL 1033650, at *3 (S.D. Fla. Jan. 18, 2011); In re Vioxx Prods. Liab. Litig., 522 F. Supp. 2d 799, 806 (E.D. La. 2007). Does that make sense, if the only connection between the forum and the claims, and perhaps the only justification for locating venue in the transferee court, is the fact of consolidation? For a discussion of relevant cases and proposed solutions, see Bradt, The Shortest Distance: Direct Filing and Choice of Law in Multidistrict Litigation, 88 Notre Dame L. Rev. 759 (2012).
1. Plaintiffs acknowledge that the underlying issue in this case may, in fact, be moot based on the Court of Appeals’ recent decision in Nakashima v. State Farm Mutual Automobile Insurance Co., 141 N.M. 239, cert. denied, 141 N.M. 401. Despite the similarities between Nakashima and this appeal, Plaintiffs believe that their facts are distinguishable from Nakashima. Class certification, however, is not the appropriate time to decide the merits of a case. Because the validity of class certification is the only issue on appeal, we do not reach the question of mootness.
3. Our courts have been willing to consider the Restatement (Second) approach in other circumstances. See Fed. Deposit Ins. Corp. v. Hiatt, 117 N.M. 461, 470 (1994) (Montgomery, C.J., dissenting) (“I wish to register my continuing objection to this Court’s rigid adherence to the lex loci contractus choice-of-law rule for deciding which state’s law will govern a dispute over a contract.” (footnote omitted)); id. at 470 n. 3 (noting that “[i]n State Farm Mutual Insurance Co. v. Conyers…[the New Mexico Supreme] Court displayed a willingness to consider an approach, such as that embodied in Section 6 of the [Second Restatement], other than the strict lex loci contractus rule.” (citation omitted)); State Farm Mut. Ins. Co. v. Conyers, 109 N.M. 243, 247 (1989) (“In any event, in this case it is not necessary for us either to reaffirm a lex loci contractus rule categorically or to adopt or reject for all cases the Restatement (Second) ‘significant relationship’ tests. Even were we to apply a Restatement (Second) analysis, New Mexico law would still govern the outcome of this particular dispute.”); In Re Gilmore, 124 N.M. 119 (“The approach, if not the result, [taken by the New Mexico Supreme Court] in Torres is consistent with the Restatement Second.… Although our Supreme Court has followed the Restatement Second in some respects—principally, with regard to forum non conveniens, and jurisdiction—we are well aware that it has not embraced the Restatement Second with respect to choice-of-law issues in either tort or contract.”); Scoles et al., supra, §2.21, at 90 (“New Mexico’s highest court has recently acknowledged its past adherence to the lex loci delicti rule but did not in fact apply it.” (citing Torres v. State, 119 N.M. 609 (1995)).
2. The trial court’s class certification followed the litigation of similar issues in Louisiana and unsuccessful attempts to remove this case to federal court. The decision in In re Air Bag Products Liability Litigation, 7 F. Supp. 2d 792 (E.D. La. 1998), involved allegations of air bag defects against several automobile manufacturers and dealers. All claims were dismissed or summarily adjudicated in favor of defendants under Louisiana and Texas law. No class certification was involved. Thus, nothing about that decision impacts the issue of class certification presented in this litigation.
The class certification also followed the refusal of the National Highway Traffic Safety Administration (NHTSA) to further investigate following its determination that vehicles, including 1996 Chrysler minivans, “had rates of air bag deployments per 100 collision claims that are similar to that of many other vehicles.” In doing so, NHTSA noted its “need to allocate and prioritize [its] limited resources.”
4. The Court of Appeals for the Seventh Circuit reversed the decision. See In re Bridgestone/Firestone Inc., 288 F.3d 1012 (7th Cir. 2002), cert. den. 537 U.S. 1105 (2003). It did so based on its determination that “Indiana is a lex loci delicti state: in all but exceptional cases it applies the law of the place where harm occurred.” As a result, “Indiana’s choice-of-law rule selects the 50 states and multiple territories where the buyers live, and not the place of the sellers’ headquarters, for these suits.” Thus, “[b]ecause these claims must be adjudicated under the law of so many jurisdictions, a single nationwide class is not manageable.” Although the Seventh Circuit rejected the lower court’s conclusion as to which choice of law rule Indiana utilizes, the lower court’s analysis under a most significant relationship test remains persuasive.
6. §148. Fraud and Misrepresentation
(1) When the plaintiff has suffered pecuniary harm on account of his reliance on the defendant’s false representations and when the plaintiff’s action in reliance took place in the state where the false representations were made and received, the local law of this state determines the rights and liabilities of the parties unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in §6 to the occurrence and the parties, in which event the local law of the other state will be applied.
(2) When the plaintiff’s action in reliance took place in whole or in part in a state other than that where the false representations were made, the forum will consider such of the following contacts, among others, as may be present in the particular case in determining the state which, with respect to the particular issue, has the most significant relationship to the occurrence and the parties: [contacts provided in the text].
8. The class certification remains subject to modification and “may be altered or amended before the decision on the merits.” Okla. Stat. tit. 12, §2023(C)(1) (2001). If necessary the class “may be divided into subclasses and each subclass treated as a class.” Id. at §2023(C)(4).
3. I can only assume that the majority, silent on this issue, does not find the choice of law clauses applicable to the CPA claims. If it did, its further analysis of the “extraterritorial” application of and causation issues under the CPA would be rendered dictum since the multistate-law issue the majority finds so damning to class certification with regard to the contract claims would also apply to the CPA claims.
4. A litigant can make such a showing even prior to suffering an injury, because the CPA not only vindicates individual rights but protects the public interest. This protection of the public interest extends to misrepresentations made to one person, where those misrepresentations have the capacity to deceive a substantial portion of the public—for example, if they are made in a standard form contract. [citations omitted]
5. The majority cites over 50 cases in which federal courts declined to certify a class based on Fed. R. Civ. P. 23 where multiple state laws applied. But this list of cases, devoid of detail or discussion, merely supports the obvious proposition that under some facts, application of numerous state laws can defeat class certification. There is no need to counter in kind to cite to the equally obvious corollary—that under some facts the potential application of multiple state laws can be managed, and class certification is warranted.
6. The majority provides no basis for its insinuation that a class is waiting in every state to file a statewide class action suit now that the majority is dissolving the nationwide class action here. A nationwide class provides no risk that the consumers of any states will be left behind.
7. The majority opines that granting class certification here would force Washington to “become a locus for nationwide class action litigation.” But perhaps it should, where the litigation involves the conduct of a Washington corporation stemming from corporate decision making occurring in this state.
9. To the extent AT&T branch offices in other states offered and accepted the contracts with customers, the AT&T headquarters would have provided them the authority to do so under the representations and omissions challenged here.
10. The CPA claims also include allegations of omissions. To the extent AT&T decided to omit information or failed to provide information it should have to consumers, those decisions or oversights would be attributable to decisions made at AT&T’s headquarters in Washington.
11. Although the statutory language here is clear, ambiguity would be liberally resolved with a construction that effectuates the CPA’s purposes, including the fostering of fair and honest competition. See RCW 19.86.920.
13. The majority requires satisfaction of a difficult evidentiary burden since class members are forced to prove a negative—that they did not know the true nature of the UCC. The majority does not explain why it is not sufficient that the plaintiffs allege ignorance—a factual allegation that must be taken as true for the purposes of class certification. After class certification AT&T could still put forth evidence that some plaintiffs had additional information concerning the UCC through materials it circulated. The trial court could utilize subclasses or master’s hearings to permit a trier of fact to determine whether those materials conveyed the true nature of the charge to its recipients. This method does not wholesale extinguish individuals’ ability to bring a class action under the CPA for misrepresentation, as does the majority.
2. State-of-the-art evidence is “evidence that a product’s danger was scientifically undiscoverable at the time the defendant distributed the product.” “[T]he effect of the ‘state-of-the-art’ defense is to permit a defendant to rebut the presumption of knowledge of its product’s harmful propensities … by proving the impossibility of knowledge, even by experts in the field.”[citations omitted]
3. Restatement (Second) of Torts §402A states that “[o]ne who sells any product in a defective condition unreasonably dangerous to the user … is subject to liability for physical harm thereby caused to the ultimate user.…”
4. States which apply a modified version of Restatement (Second) Torts §402A incorporate negligence elements into the strict liability formulation.
5. Under Greenman, plaintiff need not show that the product was unreasonably dangerous but merely that the product was defective.
13. Plaintiffs argue that this Court could apply one state’s law to all of the class members’ claims under Ohio choice-of-law rules. There is some support for Plaintiffs’ conclusion. See In re Bendectin Litigation, 857 F.2d 290, 303-305 (6th Cir. 1988) (approving district court’s choice of the law from the state of manufacture, under Ohio choice-of-law rules, in products liability actions consolidated for trial from across the country). We, however, question the correctness of that ruling and further question the continuing validity of that holding in light of the Sixth Circuit’s later ruling in In re American Medical Systems. Accordingly, in an abundance of caution, we will presume the law of the state of residence of individual class members would apply to those claims. If at some later point, the Court finds that one state’s law will apply to all class members’ claims, the appropriateness of class certification will be more readily apparent.