Posts belonging to Category Caselaw Developments

In an important victory for class action plaintiffs, California’s Second Appellate District has held that “unnamed putative members of a class that was never certified cannot be bound by collateral estoppel.”  Bridgeford v. Pacific Health Corp., No. B227486, 2012 Cal. App. LEXIS 26, * 1-2 (Cal. Ct. App. Jan. 18, 2012) (available here).  The unanimous decision, designated for publication, reverses the trial court’s misapplication of the doctrine of collateral estoppel in reliance on the U.S. Supreme Court’s ruling in Smith v. Bayer Corp., 131 S. Ct. 2368 (2011).  In Smith, the Supreme Court resolved a circuit split and held that unnamed putative class members cannot be bound by issue preclusion if a class in a prior proceeding was denied certification.  Id. at *15 (citing Smith, 131 S. Ct. at 2380-2381).

The Bridgeford plaintiffs alleged numerous wage and hour violations against their employer, Los Angeles Memorial Medical Center, a subsidiary of Pacific Health Corporation.  Their lawsuit sought classwide relief including compensatory damages and civil penalties pursuant to PAGA, the California Labor Code Private Attorneys General Act.  Id. at *2-3.  In a prior class action, another named plaintiff had moved for and lost class certification against the same defendant as to the same wage and hour claims.  Id. at *3-6.  In Bridgeford, the defendant demurred on grounds that collateral estoppel barred the plaintiffs from re-litigating class certification.  Id. at *6.  The trial court sustained the demurrer, without leave to amend.  Id. 

The Court of Appeal reversed, holding that “the denial of class certification cannot establish collateral estoppel against unnamed putative class members on any issue because unnamed putative class members were neither parties to the prior proceeding nor represented by a party to the prior proceeding so as to be considered in privity with such a party for purposes of collateral estoppel.”  Id. at *16.  Accordingly, because the Bridgeford plaintiffs were not parties to the prior action, they could not be precluded from pursuing their own class claims against the defendant.  Id. at *16-17. 

California’s Fourth Appellate District has made it more difficult for defendants to dismiss consumer claims brought under California’s Unfair Competition Law (UCL).  The court found that plaintiffs could adequately plead a cause of action under the UCL based on allegations that the defendant provided misleading, inaccurate, or incomplete disclosures in adjustable rate mortgage (ARM) loan documents.  Boschma v. Home Loan Center, 198 Cal. App. 4th 230, 243 (Aug. 10, 2011) (available here). 

The Boschma plaintiffs’ operative complaint alleged that the defendant’s loan documents failed to clearly state that making payments pursuant to the payment schedule would definitely result in negative amortization during the initial years of the loan.  Id. at 242.  Rather, the defendant only disclosed that negative amortization could occur.  Id.  The court concluded that the plaintiffs had adequately pled their UCL claim against the defendant lender for failure to accurately disclose the terms of its ARM loans.  Id. at 251-254.

Boschma thus represents an important contribution to California’s consumer protection doctrine.  In addition to upholding the UCL claim for misleading loan documents, the court also sustained the plaintiffs’ allegations of fraudulent concealment on the basis that pertinent loan information had been presented in a confusing manner.  Id. at 248-249.   This broad interpretation of fraudulent concealment may be applicable in other finance and home mortgage lawsuits, as well as in consumer class actions generally.

Following the U.S. Supreme Court’s decision in Dukes v. Wal-Mart, the federal circuit courts have re-defined class actions in far less restrictive terms than many had predicted.  Recently, the Seventh Circuit approved the use of economic and statistical evidence to estimate the impact of defendant Northshore University HealthSystem’s anticompetitive conduct on putative class members.  See Messner v. Northshore University HealthSystem, No. 10-2514 (7th Cir. Jan. 13, 2012) (order reversing denial of class certification) (available here).

In Messner, the plaintiffs sought certification of a class of patients and third-party payors who were purportedly charged inflated prices for health care by Northshore.  Slip op. at 2.  The Federal Trade Commission (FTC) previously found that the company had violated federal antitrust law.  Id.  The district court denied plaintiffs’ motion for certification, reasoning that their expert’s methodology could not show uniform price increases across the proposed class, and, consequently, the predominance standard could not be satisfied.  See Slip op. at 26-29.

The Seventh Circuit granted an interlocutory appeal pursuant to Federal Rule 23(f) and concluded that the district court abused its discretion by requiring an impossible degree of commonality.  Slip op. at 3.  The panel noted that “it is important not to let a quest for perfect evidence become the enemy of good evidence.”  Id.  The panel also rejected the district court’s predominance analysis, concluding that its “approach would come very close to requiring common proof of damages for class members, which is not required” at the time of certification.  Slip op at 28. 

The 7th Circuit concluded that the plaintiffs’ proffered expert analysis of post-merger price increases was sufficient to show some common antitrust injury to putative class members.  Slip op. at 26-27.  Notably, the economic and statistical methods used by plaintiffs were also used by the FTC.  Slip op. at 2.

Going forward, Messner may prove useful to plaintiffs in consumer class actions where it is alleged that consumers paid more for an item than they would have, had they been provided with full, accurate information. 

In a victory for consumers, California’s Third Appellate District has reversed a trial court’s ruling that granted judgment on the pleadings in favor of the defendants, personal computer manufacturers eMachines and Gateway (collectively, “eMachines”).  See Collins v. eMachines, No. C066092, 5-6 (Cal. Ct. App. Nov. 28, 2011) (available here).  The ruling affirmed that “injury in fact” can be satisfied by alleging as damages the difference between the actual purchase price and the fair market value of a defective product.  Slip op. at 4.  Additionally, the ruling importantly distinguished product defect cases in which warranties are implicated.  See slip op. at 9-12.

The lawsuit arose over allegations that the chip responsible for writing and reading data on eMachines’ floppy disc drives malfunctioned, resulting in lost data and files.  Slip op. at 3.  The plaintiffs allege that the disc drives did not wear out from normal use, but rather were defective at the time of purchase.  Slip op. at 5.  Because the defect existed at the time of purchase, the appellate court rejected eMachines’ claim that the plaintiffs were attempting an “end-run” around warranty laws.  Slip op. at 11.  In contrast to automobile cases in which a defect only manifested after an express warranty period and was therefore not actionable, in this case the plaintiffs experienced problems with their computers both before and after the warranty’s expiration.  Slip op. at 9-12 (distinguishing Daugherty v. Amer. Honda Motor Co., 144 Cal. App. 4th 824 (2006) and Bardin v. DaimlerChrysler Corp., 136 Cal. App. 4th 1255 (2006)).    

The Collins plaintiffs are now expected to proceed with their product defect claims against eMachines principally under California’s Consumer Legal Remedies Act (CLRA) and Unfair Competition Law (UCL).