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17 August 2010

Eighth Circuit Holds that Class Actions Under California Unfair Competition Law Must Meet Federal Standing Requirements for Absent Class Members

The US Court of Appeals for the Eighth Circuit has held that a federal court cannot certify a class action seeking monetary relief under California’s Unfair Competition Law (UCL) unless the class meets federal standing requirements. The named plaintiffs must establish not only that they themselves were injured by and relied on the challenged conduct, but also that absent class members can show injury and reliance by common evidence. That is, the class must consist of actually injured persons. The decision in Avritt v. Reliastar Life Ins. Co. adds to a growing divide among courts concerning when class actions under the UCL (also known as Section 17200) may be certified. 

The plaintiffs in Avritt were California residents who had purchased annuities from an insurance company based in the state of Washington that later merged with Reliastar, a Minnesota-based company. Among other contentions, the plaintiffs alleged that the company had made various misrepresentations about the annuities’ interest rates, and that the alleged misrepresentations violated California’s UCL. The district court denied plaintiffs’ motion for class certification. 

The Eighth Circuit affirmed the denial of class certification. With respect to the Avritts’ California UCL claim, the court analyzed the effect of the California Supreme Court’s 2009 decision in In re Tobacco II Cases. In Tobacco II, the California Supreme Court interpreted 2004 amendments to the UCL that provided that a plaintiff could bring a claim under the UCL only if he or she had lost money or property “as a result” of the challenged practice. For UCL claims involving an alleged misrepresentation, a plaintiff therefore must show that he or she relied upon the challenged statement. 

But the Tobacco II court also held that, as a matter of California standing principles, this requirement applied only to the class representative. (Please click here for an article by Mayer Brown lawyers discussing Tobacco II in greater detail.) The Avritts argued that, under Tobacco II, they did not need to produce evidence of absent class members’ common reliance and injury in order to pursue their UCL claim on a class-wide basis. Rather, the Avritts contended, the class could be defined to include persons who were not injured at all.

The Eighth Circuit squarely rejected that argument. The court of appeals noted that “the state of California’s UCL jurisprudence is currently uncertain” in the wake of Tobacco II: although some California appellate decisions have interpreted the UCL in the same way that the Avritts urged, others have rejected that interpretation. But the Eighth Circuit explained that, regardless of which interpretation of the UCL governed proceedings in California state court, federal standing principles do not permit a single injured plaintiff to maintain a class action on behalf of absent class members who do not themselves have standing to bring the same claims. 

According to the court of appeals, under Article III of the US Constitution, the “irreducible constitutional minimum of standing requires a showing of injury in fact,” and “a class cannot be certified if it contains members who lack standing.” Thus, whatever the implications of Tobacco II, in federal court “a named plaintiff cannot represent a class of persons who lack the ability to bring a suit themselves.” 

As a result, in order to certify a class under Federal Rule of Procedure 23(b)(3), the plaintiffs were required to show that all putative class members had relied upon the alleged misrepresentation. Finding that those questions of reliance were individualized, the court of appeals held that common questions did not predominate over individualized ones, making it improper to certify a class under Rule 23(b)(3). Because “the level of disclosure—as well as the extent of each individual’s reliance—varied between plaintiffs,” the court affirmed the rejection of a Rule 23(b)(2) class because the defendant’s practices could not “be evaluated without reference to the individual circumstances of each plaintiff.”

Avritt is of interest to any business that may be the target of a putative class action lawsuit in federal court involving claims under California’s UCL. In particular, Avritt provides a basis for defendants to argue that, as a matter of federal law and procedure, many class actions brought under California’s UCL cannot be certified. Several federal district courts in California have certified classes under the UCL irrespective of whether the putative class members were actually injured or whether their alleged injury was subject to common proof. 

Mayer Brown LLP is currently handling two Rule 23(f) petition proceedings raising this issue in the Ninth Circuit, one of which has been argued. For more information about Avritt or any other matter raised in this Legal Update, please contact Donald Falk or Archis Parasharami.

Learn more about our Consumer Litigation & Class Actions and Supreme Court & Appellate practices.


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