IntelliGender: California Precluded from Seeking Restitution, But Not Penalties or Injunctive Relief

Last month, the U.S. Court of Appeals for the Ninth Circuit ruled that, although the state of California was barred by res judicata (based on a prior class action settlement) from seeking restitution for purchasers of IntelliGender Prediction Test, it could seek civil penalties and injunctive relief on behalf of those purchasers. Writing for the court, Judge Kim McLane Wardlaw stated, “[b]ecause the State’s action is designed to vindicate broader governmental interests than the class action, the settlement agreement in the CAFA class action does not create privity sufficient to warrant enjoining the entire action.” The People of the State of California v. IntelliGender, LLC, No. 13-56806 (9th Cir. Nov. 7, 2014) (slip op. available here), slip op. at 4. This holding follows the Supreme Court’s recent decision in Mississippi ex rel. Hood, Attorney General v. AU Optronics Corp., et al., where the Court held that a parens patriae suit brought solely by a state on behalf of its injured citizens cannot be removed to federal court under CAFA. 134 S. Ct. 436 (2014).

In 2010, the plaintiff, Gram, filed a nationwide consumer class action against IntelliGender in federal court, invoking its jurisdiction under CAFA, for falsely advertising that the test could predict, from the mother’s urine sample, the gender of her fetus. In 2012, a California district court approved a settlement on behalf of purchasers of the gender prediction test. The class released its claims under the California Unfair Competition Law (UCL) and False Advertising Law (FAL) in exchange for payment by IntelliGender of $10 per approved claim and a promise to modify its advertising. Later in 2012, the state, by and through the San Diego City Attorney, filed suit against the company also for claims under the UCL and FAL, seeking injunctive relief, civil penalties, and restitution. The company moved to enjoin the state’s entire enforcement action and, separately, to enjoin the state’s restitution claims because they were barred by res judicata. Both motions were denied by the district court.

For res judicata to bar a later suit, the earlier suit must involve identical parties or parties in privity with one another. The Ninth Circuit found that there was insufficient privity between the state and the class members to warrant res judicata as to the defendant’s motion to enjoin the state’s enforcement action in its entirety. The court stated because the state’s action was brought on behalf of the people of California, thereby implicating public, in addition to private, interests. Slip op. at 17. The earlier class action settlement therefore did not bar the state in its sovereign capacity from seeking “remedial provisions [that] sweep much more broadly.” Id. Thus, the state may seek civil penalties and broad injunctive relief against IntelliGender. However, the panel held that the state’s action must be enjoined to the extent that it seeks restitution for individual class members, because, as to that relief, there was privity between the interests of the state and class members. The court held that the state’s restitutionary claims had to be barred both to preclude a double recovery and to ensure the finality of class settlements. Since the state had chosen not to participate when it was provided notice by the defendant under CAFA’s notification requirement (28 U.S.C. § 1715), the court held that the state was precluded from seeking the same relief as the CAFA class action.