Daniel Pilgrim, et al v. Universal Health Card, LLC, et al

Filing

OPINION and JUDGMENT filed: Judgment of district court striking the class allegations and dismissing the lawsuit without prejudice against both defendants is AFFIRMED, decision for publication pursuant to local rule 206. Damon J. Keith, Jeffrey S. Sutton (AUTHORING), David W. McKeague, Circuit Judges. [10-3211, 10-3475]

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RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206
File Name: 11a0289p.06

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
X
DANIEL PILGRIM and PATRICK KIRLIN,
Plaintiffs-Appellants, Nos. 10-3211/3475
v.
>
,
UNIVERSAL HEALTH CARD, LLC and
COVERDELL & COMPANY, INC.,
Defendants-Appellees. N
Appeal from the United States District Court
for the Northern District of Ohio at Akron.
No. 09-00879—John R. Adams, District Judge.

Argued: October 6, 2011
Decided and Filed: November 10, 2011
Before: KEITH, SUTTON and McKEAGUE, Circuit Judges.
_________________
COUNSEL
ARGUED: Peter N. Freiberg, MEISELMAN, DENLEA, PACKMAN, CARTON &
EBERZ P.C., White Plains, New York, for Appellants. Robert N. Rapp, CALFEE,
HALTER & GRISWOLD LLP, Cleveland, Ohio, Gary A. Corroto, TZANGAS,
PLAKAS, MANNOS & RAIES, LTD., Canton, Ohio, for Appellees. ON BRIEF:
Peter N. Freiberg, MEISELMAN, DENLEA, PACKMAN, CARTON & EBERZ P.C.,
White Plains, New York, for Appellants. Robert N. Rapp, Matthew J. Kucharson, Eric
S. Zell, CALFEE, HALTER & GRISWOLD LLP, Cleveland, Ohio, Gary A. Corroto,
Lee E. Plakas, Edmond J. Mack, TZANGAS, PLAKAS, MANNOS & RAIES, LTD.,
Canton, Ohio, for Appellees.

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_________________
OPINION
_________________
SUTTON, Circuit Judge. Hoping to represent a nationwide class of consumers,
Daniel Pilgrim and Patrick Kirlin sued two companies responsible for creating and
marketing a healthcare discount program, alleging that the companies had used deceptive
advertising to sell their product. The consumer-protection laws of many States, not just
of Ohio, govern these claims and factual variations among the claims abound, making
a class action in this setting neither efficient nor workable nor above all consistent with
the requirements of Rule 23 of the Federal Rules of Civil Procedure. We affirm.
I.
In 2007, Universal Health Card and Coverdell & Company created a program
designed to provide healthcare discounts to consumers. Membership in the program
gave consumers access to a network of healthcare providers that had agreed to lower
their prices for members. Universal placed ads in newspapers around the country
encouraging customers to visit its website or call its toll-free hotline to learn more about
the program and to sign up for a membership.

Coverdell was responsible for

maintaining the network of healthcare providers and for reviewing Universal’s
advertising materials.
Some people did not like the program. They discovered healthcare providers
listed in the discount network that had never heard of the program, and complained that
the newspaper advertisements, designed to look like news stories and dubbed
“advertorials,” were deceptive.
Two disenchanted consumers, Pilgrim and Kirlin, sued Universal and Coverdell
in federal court, seeking to represent a nationwide class of all people who had joined the
program. The opt-out class encompassed 30,850 people. The district court exercised
jurisdiction under a provision of CAFA, the Class Action Fairness Act of 2005,
28 U.S.C. § 1332(d), which grants jurisdiction over class actions in which the amount

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in controversy exceeds $5 million and the parties are minimally diverse. The plaintiffs
complained that the defendants advertised the program as “free” when it included a nonrefundable registration fee and a monthly membership fee after the first thirty days.
Even then, the program was worthless, they added, because the advertised providers in
their area did not offer the featured discounts. Based on these and other allegedly
deceptive practices, the plaintiffs claimed that the companies had violated the Ohio
Consumer Sales Practices Act as well as Ohio’s common law prohibition against unjust
enrichment.
Coverdell filed a motion to dismiss the complaint under Rule 12(b)(6), which the
district court granted. It reasoned that Universal, not Coverdell, peddled and sold the
memberships, making Coverdell too far removed from the transactions to qualify as a
“supplier” under Ohio law or to have to answer to an unjust-enrichment claim under
Ohio law.
Of more pertinence to this appeal, Universal filed a motion to strike the class
allegations, which the district court also granted. It reasoned that, under Ohio’s choiceof-law rules, it would have to analyze each class member’s claim under the law of his
or her home State. “Such a task,” the district court concluded, “would make this case
unmanageable as a class action” and would dwarf any common issues of fact implicated
by the lawsuit. Reasoning that the claims of the named plaintiffs did not exceed
$75,000, the district court dismissed the lawsuit without prejudice for lack of subject
matter jurisdiction.
II.
Rule 23 of the Federal Rules of Civil Procedure governs class actions in federal
court. To obtain class certification, a claimant must satisfy two sets of requirements:
(1) each of the four prerequisites under Rule 23(a), and (2) the prerequisites of one of
the three types of class actions provided for by Rule 23(b). A failure on either front
dooms the class. A district court’s class-certification decision calls for an exercise of
judgment; its use of the proper legal framework does not. So long as the district court
applies the correct framework, we review its decision for an abuse of discretion.

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In this instance, the district court opted to focus on a failure to meet the
predominance requirement under Rule 23(b), more particularly under Rule 23(b)(3), the
only conceivable vehicle for this claim. To demonstrate predominance, parties seeking
class recognition must show that “questions of law or fact common to class members
predominate over any questions affecting only individual members.” Fed. R. Civ. P.
23(b)(3). The plaintiffs could not do that here, the district court held, because each class
member’s claim would be governed by the law of the State in which he made the
challenged purchase, and the differences between the consumer-protection laws of the
many affected States would cast a long shadow over any common issues of fact plaintiffs
might establish. That judgment is sound and far from an abuse of discretion for three
basic reasons.
Reason one: different laws would govern the class members’ claims. As the
parties agree (quite properly, we might add), Ohio’s choice-of-law rules determine which
consumer-protection laws cover these claims. See Muncie Power Prod., Inc. v. United
Techs. Automotive, Inc., 328 F.3d 870, 873 (6th Cir. 2003). Under those rules, “the law
of the place of injury controls unless another jurisdiction has a more significant
relationship to the lawsuit.” Morgan v. Biro Mfg. Co., 474 N.E.2d 286, 289 (Ohio
1984). In determining the State with the most significant relationship, Ohio courts
consider: (1) “the place of the injury”; (2) the location “where the conduct causing the
injury” took place; (3) “the domicile, residence, . . . place of incorporation, and place of
business of the parties”; (4) “the place where the relationship between the parties . . . is
located”; and (5) any of the factors listed in Section 6 of the Restatement (Second) of
Conflict of Laws “which the court may deem relevant to the litigation.” Id. The Section
6 factors include: “the relevant policies of the [State in which the suit is heard],” “the
relevant policies of other interested states and the relative interests of those states in the
determination of the particular issue,” “the basic policies underlying the particular field
of law,” “certainty, predictability and uniformity of result” and “ease in the
determination and application of law to be applied.” Id. at 289 n.6 (internal quotation
omitted).

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Gauged by these factors, the consumer-protection laws of the potential class
members’ home States will govern their claims. As with any claim arising from an
interstate transaction, the location-based factors point in opposite directions: injury in
one State, injury-causing conduct in another; residence in one State, principal place of
business in another. Yet the other factors point firmly in the direction of applying the
consumer-protection laws of the States where the protected consumers lived and where
the injury occurred. No doubt, States have an independent interest in preventing
deceptive or fraudulent practices by companies operating within their borders. But the
State with the strongest interest in regulating such conduct is the State where the
consumers—the residents protected by its consumer-protection laws—are harmed by it.
That is especially true when the plaintiffs complain about the conduct of companies
located in separate States (Universal in Ohio; Coverdell in Georgia), diluting the interest
of any one State in regulating the source of the harm yet in no way minimizing the
interest of each consumer’s State in regulating the harm that occurred to its residents.
To conclude otherwise would frustrate the “basic policies underlying” consumerprotection laws. Morgan, 474 N.E.2d at 289 n.6. It would permit companies to “evade
[local] consumer protection laws by locating themselves just across the [border] from
the . . . citizens they seek as customers.” Williams v. First Gov’t Mortg. & Investors
Corp., 176 F.3d 497, 499 (D.C. Cir. 1999) (internal quotation marks omitted). And it
would permit nationwide companies to choose the consumer-protection law they like
best by locating in a State that demands the least. Does anyone think that, if State A
opted to attract telemarketing companies to its borders by diluting or for that matter
eliminating any regulation of them, the policy makers of State B would be comfortable
with the application of the “consumer-protection” laws of State A to their residents—the
denizens of State B? Highly doubtful: the idea that “one state’s law would apply to
claims by consumers throughout the country—not just those in Indiana, but also those
in California, New Jersey, and Mississippi—is a novelty.” In re Bridgestone/Firestone,
Inc., 288 F.3d 1012, 1016 (7th Cir. 2002); see also id. at 1018 (“We do not for a second
suppose that Indiana would apply Michigan law to an auto sale if Michigan permitted
auto companies to conceal defects from customers; nor do we think it likely that Indiana

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would apply Korean law (no matter what Korean law on the subject may provide) to
claims of deceit in the sale of Hyundai automobiles, in Indiana, to residents of Indiana
. . . .”). Indeed, it is not even clear whether, under a proper interpretation of the Ohio
Consumer Sales Practices Act, that law would apply to extraterritorial injuries. See
Chesnut v. Progressive Cas. Ins. Co., 850 N.E.2d 751, 756 (Ohio Ct. App. 2006). Under
Morgan, the place of the injury controls in a consumer-protection lawsuit, requiring
application of the home-state law of each potential class member.
Working to overcome this conclusion, plaintiffs offer up a pair of Ohio common
pleas court decisions that applied the Ohio Consumer Sales Practices Act to out-of-state
sales by Ohio suppliers. See Parker v. Berkley Premium Nutraceuticals, Inc., 2005 Ohio
Misc. LEXIS 605 (Montgomery County 2005); Brown v. Market Dev., Inc., 322 N.E.2d
367 (Hamilton County 1974). Yet one case (Brown) was decided before the Ohio
Supreme Court’s decision in Morgan and understandably makes no mention of it. The
other (Parker) was decided after Morgan, and less understandably makes no mention of
it, and, worse, treats Brown as a decision by the Ohio Supreme Court. See Parker, 2005
Ohio Misc. LEXIS 605, at *44. These decisions shed no light on the proper application
of Morgan—a decision of the Ohio Supreme Court—to this case.
In the final analysis, Morgan’s choice-of-law rules make clear that the consumerprotection laws of the State where each injury took place would govern these claims.
In view of this reality and in view of plaintiffs’ appropriate concession that the
consumer-protection laws of the affected States vary in material ways, no common legal
issues favor a class-action approach to resolving this dispute.
Reason two: any potential common issues of fact cannot overcome this problem.
Even if a nationwide class covering claims governed by the laws of the various States
could overcome this problem by demonstrating considerable factual overlap, a point we
need not decide, this is not such a case. The defendants’ program did not operate the
same way in every State and the plaintiffs suffered distinct injuries as a result. A core
part of the claim is that the program was worthless because the listed healthcare
providers near the plaintiffs did not offer the promised discounts or because there were

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no listed providers near them in the first place. But to establish the point, the plaintiffs
would need to make particularized showings in different parts of the country,
particularly since the program apparently satisfied some consumers, as confirmed by the
unchallenged reality that fifteen percent of those who signed up remained enrolled
months after the suit was filed. Where and when featured providers offered discounts
is a prototypical factual issue that will vary from place to place and from region to
region. Cf. Wal-Mart Stores, Inc. v. Dukes, 564 U.S. __, 131 S. Ct. 2541, 2552 (2011).
On top of that, the advertisements varied to account for the different requirements
of each State’s consumer-protection laws, a point plaintiffs acknowledge but cannot
overcome. “Other than variations to ensure compliance with consumer regulations of
the different states,” they say, “the advertisements that were published [in various local
newspapers] were substantially the same.” Plaintiffs’ Br. at 12. The key words are
“[o]ther than” and “substantially,” and these qualifications show that the plaintiffs’
claims are not even linked by a common advertisement. Variations designed to account
for differences in the applicable laws not only might suggest that the defendants were
trying to comply in different ways with their legal obligations in each State, but they also
confirm the varied nature of the claims, injuries and defenses. Even if, as the plaintiffs
claim, callers heard identical sales pitches, Internet visitors saw the same website and
purchasers received the same fulfillment kit, these similarities establish only that there
is some factual overlap, not a predominant factual overlap among the claims and surely
not one sufficient to overcome the key defect that the claims must be resolved under
different legal standards.
Reason three: this conclusion is consistent with decisions of this court and
several others. In a case involving negligence claims against a prosthetics manufacturer,
we refused to allow a nationwide class covered by the laws of different States. “If more
than a few of the laws of the fifty states differ,” we explained, “the district judge would
face an impossible task of instructing a jury on the relevant law.” In re Am. Med. Sys.,
Inc., 75 F.3d 1069, 1085 (6th Cir. 1995). So too here. Other circuits have come to
similar conclusions. The Seventh Circuit reversed a district court’s certification of a

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nationwide class in a contract and consumer fraud suit involving allegedly defective
tires, holding that such a class is rarely, if ever, appropriate where each plaintiff’s claim
will be governed by the law of his own State. In re Bridgestone/Firestone, Inc., 288
F.3d 1012, 1015, 1018 (7th Cir. 2002). “Because these claims must be adjudicated under
the law of so many jurisdictions,” the Court reasoned, “a single nationwide class is not
manageable.” Id. at 1018. Likewise, in a negligence, products liability and medical
monitoring lawsuit stemming from allegedly faulty pacemakers, the Ninth Circuit held
that variations in state law greatly compounded the factual differences between claims,
overwhelming any common issues related to causation and making national class
resolution impractical. Zinser v. Accufix Research Inst., Inc., 253 F.3d 1180, 1189–90
(9th Cir. 2001); see also Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 674 (7th Cir.
2001) (“Differences of [state law] cut strongly against nationwide classes . . . .”);
Castano v. American Tobacco Co., 84 F.3d 734, 741 (5th Cir. 1996) (“In a multi-state
class action, variations in state law may swamp any common issues and defeat
predominance.”); Georgine v. Amchem Prods., Inc., 83 F.3d 610, 627 (3d Cir. 1996)
(“[B]ecause we must apply an individualized choice of law analysis to each plaintiff’s
claims, the proliferation of disparate factual and legal issues is compounded
exponentially.” (citation omitted)), aff’d sub nom. Amchem Prods., Inc. v. Windsor, 521
U.S. 591 (1997). In each of these cases, there were many common issues of fact, but
none of that dissuaded the courts from refusing to certify class claims that would be
measured by the legal requirements of different state laws.
The plaintiffs’ other objection to the district court’s class-action ruling goes to
the timing, not the substance, of it. Given more time and more discovery, they say, they
would have been able to poke holes in the court’s class-certification analysis. We think
not.
That the motion to strike came before the plaintiffs had filed a motion to certify
the class does not by itself make the court’s decision reversibly premature. Rule
23(c)(1)(A) says that the district court should decide whether to certify a class “[a]t an
early practicable time” in the litigation, and nothing in the rules says that the court must

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await a motion by the plaintiffs. As a result, “[e]ither plaintiff or defendant may move
for a determination of whether the action may be certified under Rule 23(c)(1).” 7AA
Charles Allen Wright et al., Federal Practice and Procedure § 1785; see also, e.g.,
Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 941–44 (9th Cir. 2009); Cook
County College Teachers Union, Local 1600 v. Byrd, 456 F.2d 882, 884–85 (7th Cir.
1972).
To say that a defendant may freely move for resolution of the class-certification
question whenever it wishes does not free the district court from the duty of engaging
in a “rigorous analysis” of the question, and “sometimes it may be necessary for the
court to probe behind the pleadings before coming to rest on the certification question.”
Gen. Tel. Co. v. Falcon, 457 U.S. 147, 161, 160 (1982). The problem for the plaintiffs
is that we cannot see how discovery or for that matter more time would have helped
them. To this day, they do not explain what type of discovery or what type of factual
development would alter the central defect in this class claim. The key reality remains:
Their claims are governed by different States’ laws, a largely legal determination, and
no proffered or potential factual development offers any hope of altering that conclusion,
one that generally will preclude class certification.
That leaves one final point. After the district court granted the motion to strike
the class allegations, it dismissed the action without prejudice for lack of jurisdiction.
The jurisdictional determination is mistaken. See Metz v. Unizan Bank, 649 F.3d 492,
500 (6th Cir. 2011); United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus.
& Serv. Workers’ Int’l Union v. Shell Oil Co., 602 F.3d 1087, 1091–92 (9th Cir. 2010);
Cunningham Charter Corp. v. Learjet, Inc., 592 F.3d 805, 806 (7th Cir. 2010); Vega v.
T-Mobile USA, Inc., 564 F.3d 1256, 1268 n.12 (11th Cir. 2009). This flaw, however,
need not detain us or the parties. Even though parties may not establish subject matter
jurisdiction in the federal courts by consenting to it, see Steel Co. v. Citizens for a Better
Env’t, 523 U.S. 83, 93 (1998), that does not mean they must remain in federal court even
when they cannot do so on their own terms. The federal courts closely guard the
entrance to jurisdiction but not the exit. If the plaintiffs do not wish to continue pursuing

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relief in this court and in this context, nothing about Article III requires them to do so.
That is what happened here: the plaintiffs declined to appeal the district court’s holding
that it lacked jurisdiction once it struck the class allegations, and the parties agreed at
oral argument that an affirmance of the class issue as to Universal would apply with
equal force to Coverdell.
III.
For these reasons, we affirm the district court’s judgment striking the class
allegations and dismissing this lawsuit without prejudice against both defendants.