James et al v. Penguin Group (USA) Inc. et al
Filing
146
OPINION & ORDER...Plaintiffs' February 13 motion for class certification is denied. (Signed by Judge Denise L. Cote on 7/1/2015) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
MARY SIMMONS and JODI FOSTER, on
:
behalf of themselves and all others
:
similarly situated,
:
:
Plaintiffs,
:
:
-v:
:
AUTHOR SOLUTIONS, LLC,
:
:
Defendant.
:
:
-------------------------------------- X
13cv2801 (DLC)
OPINION & ORDER *
APPEARANCES
For plaintiffs:
Oren Giskan
O. Iliana Konidaris
Raymond Audain
GISKAN SOLOTAROFF ANDERSON & STEWART LLP
11 Broadway, Suite 2150
New York, NY 10004
For defendant Author Solutions, LLC:
Jonathan M. Herman
Christopher G. Karagheuzoff
Jonathan Montcalm
Dai Wai Chin Feman
DORSEY & WHITNEY LLP
51 West 52nd Street
New York, NY 10019
The Clerk of Court is respectfully directed to amend the
official caption in this case to conform to the caption above.
*
1
DENISE COTE, District Judge:
On February 13, 2015, Mary Simmons (“Simmons”), Jodi Foster
(“Foster”), and members of the putative class (collectively,
“plaintiffs”) filed a motion for class certification.
The
motion was fully submitted on May 14, when defendant Author
Solutions, LLC (“AS”), with the Court’s permission, filed a surreply.
For the following reasons, the motion is denied.
BACKGROUND
The background of this action is described in an Opinion
ruling on a motion to dismiss.
See James v. Penguin Grp. (USA)
(“MTD Op.”), No. 13cv2801 (DLC), 2014 WL 1407697, at *1-4
(S.D.N.Y. Apr. 11, 2014).
presumed.
Familiarity with that Opinion is
The following facts are drawn from the parties’
evidentiary submissions on this class certification motion.
I.
Factual Background
AS is a “supported self-publishing” company that sells
services to authors who desire to self-publish.
AS offers a
variety of services, which can be separated into three primary
categories: publishing, editorial, and marketing.
These
services are sold to authors by AS’s salesforce, made up of
Publishing Consultants, Editorial Consultants, and Marketing
2
Consultants. 1
AS operates through various branded imprints,
which it either owns or manages and operates primarily through
partnerships with traditional publishers.
Over the course of
the relevant class period, AS offered services through a total
of sixteen imprints.
Many of the imprints are designed to appeal to authors with
different motivations.
Some authors choose to publish with AS
because they could not secure a traditional publishing deal;
others want a book to give to family members.
Some hope to get
picked up by a traditional publisher or even aspire to become
the next best-selling author, while others simply want to see
their names in print on their bookshelves.
AS markets its services to authors primarily online through
its various imprints’ websites.
Authors initiate contact with
AS, typically by completing a form on an imprint’s website, thus
becoming a “lead” for that imprint.
Publishing Consultants
first contact authors after they have become a lead for the
imprint.
Editorial Consultants and Marketing Consultants
contact the authors at later stages of the publishing process.
Plaintiffs purport to find deceit in AS’s use of the label
“consultant” for its salespersons, claiming that the title
implies certain relevant experience or skill in its bearer.
Plaintiffs adduce no class-wide evidence, however, that the
label deceived authors.
1
3
AS’s salesforce often makes contact by telephone, and sales of
AS services are made almost exclusively by telephone, typically
after multiple calls.
The consultants are trained to engage
authors in dialogue to discern their individual publishing goals
and needs.
Because these goals and needs vary by author, no
sales script is used during sales calls.
If these sales calls
result in a sale, the author and AS enter into a contractual
agreement.
The services that AS offers and the service
agreements through which they are delivered vary across the AS
imprints, as do the websites and representations used to
advertise those services.
One of the imprints that AS owns, and the only imprint at
issue here, is iUniverse. 2
publishing packages.
Through iUniverse, AS offers five
Listed in ascending order of services
provided and price, they are: Select, Premier, Premier Pro,
Bookstore Premier Pro, and Book Launch Premier.
The iUniverse
website lists sixteen categories of marketing services.
Most of
them can be purchased on a standalone basis or as part of a
package.
Typically, each of the packages and services has its
own webpage describing its components.
Plaintiffs narrowed their putative class to authors with
iUniverse contracts because those contracts do not contain venue
clauses; other imprints’ contracts include venue clauses
selecting Indiana, the state in which AS is based.
2
4
iUniverse offers three recognition programs -- Editor’s
Choice, Rising Star, and Star -- the first two of which are
unique to iUniverse and provide part of the incentive for
authors to publish with iUniverse.
Earning the Editor’s Choice
designation is a prerequisite to earning the Rising Star
designation, which is geared toward rewarding and recognizing
books with high marketing potential.
Plaintiffs’ application for certification of a class
currently rests on three representations on AS’s websites about
its marketing programs. 3
iUniverse’s homepage includes the
following blurb:
Get primed for retail success
In a recent industry study, iUniverse sold twice as
many books in the retail channel as other leading
self-publishing companies. The entryway for many
iUniverse bestsellers is through our recognition
programs.
Similarly, iUniverse’s marketing and publicity services webpage
states:
If you want your book to sell, you’ll want to do more
than just hope for the best. Our selection of
promotional products and services allows authors to
build a dynamic platform from which they can
effectively promote and sell their books. Create your
marketing plan and materials with our simple step-byWhen this action was filed, the claims concerned, among other
things, the quality of AS’s editorial services and its payment
of royalties. Plaintiffs are not pursuing those theories of
liability in seeking class certification.
3
5
step tools.
. . .
iUniverse offers four distinct review services to help
you elevate your book’s credibility and raise its
marketing potential.
. . .
iUniverse can make your voice available to the
airwaves to help you reach new audiences and further
your cause.
iUniverse brings its authors together by genre to
promote their books directly to their target readers
in an effective, affordable co-op style.
. . .
[W]e’ve put our books in the hands of book lovers and
industry insiders through iUniverse book exhibition
services.
Finally, another iUniverse webpage proclaims:
The key to getting read, is getting book sales. At
iUniverse, we’re committed to helping you reach your
book sales goals. No other self publishing company
offers more support or services to help you in this
process.
In addition to these three statements on which plaintiffs
principally rely, AS made several other statements related to
its marketing program.
AS made disclaimers that it did not
guarantee book sales, and reinforced the message that marketing
has much to do with the author’s own efforts.
For instance,
iUniverse’s online marketing tips webpage states that “the most
crucial piece to your book’s online marketing plan is you.”
6
Following that observation, the online marketing tips webpage
advertises that “[i]f you need a little help . . . then
iUniverse can make it happen.
Contact your marketing consultant
today on [telephone number].”
Moving from the general to the specific, according to the
website of the Bookstore Premier Pro package, purchased by both
of the named plaintiffs, it offers services that are
a great choice for authors who want to present their
professional product to the marketplace or who want to
make their book a serious contender in today’s
competitive publishing environment. . . . The
Bookstore Premier Pro publishing package is focused on
enhancing your chances of success with major
bookselling chains such as Barnes and Noble.
The webpage for iUniverse’s recognition programs invites
authors to “[a]mp up your opportunity for retail success,”
explaining that the recognition programs “open the door to more
opportunities for retail presentation and placement.”
And the
Rising Star webpage touts that the designation “provides authors
with enhanced opportunities for exposure on local, regional and
national levels.”
The webpage goes on to explain that Rising
Star books “are presented to major retailers, such as Barnes &
Noble, Books-A-Million and Borders.”
The Rising Star program
simply entails AS shipping books and a sell-sheet to Barnes &
Noble’s press department.
According to the deposition testimony of the Global
7
Director of Author Marketing Services at AS, book sales is “not
one of the goals of [AS’s] marketing services.”
In fact, she
said, “[I]t would be unrealistic for us to think that we could
market our author’s books.
Assisted self-publishing is
marketing -- assisted marketing.”
AS employs no salesperson to
sell authors’ books to the general public through the retail
channel.
The salespeople it does employ are not required to
have marketing or publishing experience, and they focus their
efforts on selling AS products to authors.
Foster purchased a Bookstore Premier Pro package in March
2010.
The package included various services and made her
eligible for Editor’s Choice and Rising Star.
the Rising Star designation.
Foster received
She asserts that she later
purchased marketing services because she was told that if she
did not, she would lose her Rising Star designation.
Simmons purchased a Bookstore Premier Pro package in May
2011.
On or around December 13, 2012, Simmons also purchased
marketing services.
II.
Procedural Background
On April 24, 2013, Kelvin James (“James”), Terry Hardy
(“Hardy”), and Foster filed, on behalf of themselves and all
others similarly situated, a complaint naming as defendants
Penguin Group (USA) Inc. (“Penguin”), which is AS’s parent
8
corporation, and AS.
In response to a motion to dismiss, on
July 19 the plaintiffs filed an amended complaint.
defendants again moved to dismiss.
The
In a September 5 Order, the
plaintiffs were given one final opportunity to amend their
pleadings.
On September 27, the plaintiffs filed a second amended
complaint (“SAC”) that removed Hardy as a class representative
and added Simmons as a new class representative.
The SAC, which
is the operative complaint in this action, included eight
claims.
The first alleged breach of contract for failure to pay
royalties at the promised rate.
The second alleged unjust
enrichment for retention of royalties and for receipt of money
without providing promised services.
The third, fourth, fifth,
and sixth claims alleged consumer fraud and false advertising
under California’s Unfair Competition Law (“UCL”) and Fair
Advertising Law (“FAL”).
17500.
Cal. Bus. & Prof. Code §§ 17200,
The seventh claim alleged consumer deception under New
York law.
N.Y. Gen. Bus. L. § 349.
And the eighth claim
alleged fraudulent omissions under the Colorado Consumer
Protection Act (“CCPA”).
Colo. Rev. Stat. § 6–1–105(1)(u).
The defendants moved to dismiss the SAC, and, on April 11,
2014, the motion was granted in part:
Penguin was dismissed as
a defendant from the action and the unjust enrichment claim
9
against AS based on unpaid royalties was also dismissed.
Op., 2014 WL 1407697, at *12.
withdrew as a plaintiff.
MTD
On January 12, 2015, James
With James’s withdrawal, there is no
named plaintiff residing in New York.
Since Foster is a
resident of California and Simmons is a resident of Colorado,
this action now arises solely from statutory and common law
claims under the laws of California and Colorado, as well as the
breach of contract claim.
All discovery in this action was
completed by January 22, 2015.
DISCUSSION
Plaintiffs move to certify a class to bring claims for
alleged misrepresentations by AS about the marketing services
offered by iUniverse.
In their reply brief they appear to
define the class as all persons who, during the period September
1, 2007 through the present, purchased marketing services from
iUniverse in conjunction with their written work(s), including
through the purchase of a Premier, Premier Pro, Bookstore
Premier Pro, or Book Launch Premier package. 4
According to
In response to arguments made in AS’s opposition brief,
plaintiffs used their reply brief to redefine the class and
subclasses. It was in part because of this shift that AS was
granted leave to file a sur-reply. As there has been at least
one round of adversarial briefing on the class definitions set
forth in plaintiffs’ reply, those are the definitions that are
analyzed here.
4
On May 21, 2015, plaintiffs requested that the majority of
10
plaintiffs, each of these packages included Editor’s Choice,
Rising Star, or Star eligibility.
Plaintiffs seek to certify two subclasses, one for
California residents with a class period running from April 24,
2009, and one for Colorado residents with a class period from
September 27, 2010. 5
It is a “basic requirement that at least
one named plaintiff must have standing to pursue each claim
alleged.”
In re Salomon Analyst Level 3 Litig., 350 F. Supp. 2d
477, 496 (S.D.N.Y. 2004) (Lynch, J.); see also Comer v.
Cisneros, 37 F.3d 775, 788 (2d Cir. 1994) (“[O]ne named
plaintiff need have standing with respect to each claim.”).
Foster has standing to pursue the California claims, and Simmons
has standing to pursue the Colorado claims. 6
AS’s sur-reply be stricken, or alternatively that they be given
leave to file a sur-sur-reply, contending that several sections
of AS’s sur-reply do not respond to the new arguments in
plaintiffs’ reply brief, which was the purpose for which the
sur-reply was permitted. Plaintiffs’ May 21 request is denied.
AS’s sur-reply was, in fact, directed to that which shifted
between plaintiffs’ opening and reply briefs.
Plaintiffs do not explain why the class period runs from
September 1, 2007, but the earliest subclass period runs from
April 24, 2009.
5
Plaintiffs explain in their reply brief that a third purported
subclass, which they label the “Premier Publishing Package” or
“PPP” subclass, brings claims under the UCL and CCPA. They do
not explain, however, how the PPP subclass would differ from
their California and Colorado subclasses. Consequently, the
proposed subclasses as described above shall serve as the
subjects of analysis here.
6
11
As discussed in more detail below, a substantial portion of
plaintiffs’ motion can be denied without resort to the
strictures of Fed. R. Civ. P. 23.
Plaintiffs do not seek to
certify their breach of contract claim, and, as discussed below,
the unjust enrichment claim cannot be certified, because it is
precluded by the existence of an agreement.
Additionally, the
CCPA claim cannot be certified as requested here, because the
statute does not permit money damages claims in class actions.
Because the Colorado subclass would bring only the unjust
enrichment claim and the CCPA claim, neither of which can be
certified, and because plaintiffs have no further opportunity to
amend, a Colorado subclass may not be certified.
All that remains for Rule 23 analysis, then, is the
California subclass. 7
That analysis follows more detailed
discussion of the above rulings.
I.
Unjust Enrichment Claim
One of the claims on which plaintiffs seek certification is
their claim that AS was unjustly enriched by retaining payments
for marketing services that were not provided.
Plaintiffs have
It is not clear from the parties’ submissions how many authors
had contracts with iUniverse during the relevant period or
precisely how many plaintiffs would constitute the California
subclass. AS’s opposition brief, however, notes that “the
California Subclass encompasses thousands of authors.”
7
12
limited the putative class to only those authors with iUniverse
contracts, which, by their terms, are governed by Indiana law.
Under Indiana law, “[w]hen the rights of parties are
controlled by an express contract, recovery cannot be based on a
theory implied in law,” such as unjust enrichment. 8
Zoeller v.
E. Chi. Second Century, Inc., 904 N.E.2d 213, 221 (Ind. 2009).
Other writings, or matters contained therein, which
are referred to in a written contract may be regarded
as incorporated by reference as a part of the contract
and, therefore, may properly be considered in the
construction of the contract. Where a written
contract refers to another instrument and makes the
terms and conditions of such other instrument a part
of it, the two will be construed together as the
agreement of the parties.
MPACT Const. Grp., LLC v. Superior Concrete Constructors, Inc.,
785 N.E.2d 632, 639 (Ind. Ct. App.), transfer granted, opinion
vacated sub nom. MPACT Const. Grp. v. Superior Concrete
Constructors, Inc., 804 N.E.2d 746 (Ind. 2003), and aff’d, 802
Plaintiffs do not specify the jurisdiction under whose law they
assert the unjust enrichment claim, but it is universally
recognized that “[a] valid contract defines the obligations of
the parties as to matters within its scope, displacing to that
extent any inquiry into unjust enrichment.” Restatement (Third)
of Restitution and Unjust Enrichment § 2(2). As this is a
diversity case, New York’s choice of law rules apply. Chau v.
Lewis, 771 F.3d 118, 126 (2d Cir. 2014). And “New York choiceof-law rules . . . require the court to honor the parties’
choice of law provision insofar as matters of substance are
concerned, so long as fundamental policies of New York law are
not thereby violated.” Bank of New York v. Yugoimport, 745 F.3d
599, 609 (2d Cir. 2014) (citation omitted). Here, the contract
chooses Indiana law.
8
13
N.E.2d 901 (Ind. 2004).
Here, the iUniverse contracts provide that “[i]n the event
AUTHOR purchases additional services . . . than those described
in this Agreement, the Terms and Conditions available on the
iUniverse website at [web address] will take precedence.”
In
other words, any marketing services that plaintiffs claim were
not fulfilled properly would have been covered by an iUniverse
contract, either standing alone or in conjunction with the terms
and conditions on the iUniverse website.
In the face of such
contractual terms and conditions, plaintiffs’ unjust enrichment
claim cannot be certified.
II.
CCPA Claim
As relief for the alleged CCPA violation, plaintiffs seek
monetary damages.
But the CCPA does not permit monetary damages
in class actions.
Pursuant to the CCPA:
Except in a class action . . . , any person who . . .
is found to have engaged in . . . any deceptive trade
practice . . . shall be liable in an amount equal
to . . . [t]he greater of:
(I) The amount of actual damages sustained; or
(II) Five hundred dollars; or
(III) Three times the amount of actual damages
sustained, if it is established by clear and
convincing evidence that such person engaged in
bad faith conduct . . . .
Colo. Rev. Stat. § 6-1-113(2)(a) (emphasis added).
14
The Colorado
Supreme Court has not spoken on the issue, but, as noted by a
federal district court in Colorado in Martinez v. Nash Finch
Co., “[t]he plain and unambiguous language of the statute
compels the conclusion that all of the remedies in subparts
(a)(I)-(III) . . . , including actual damages, are not available
to classes.”
886 F. Supp. 2d 1212, 1218 (D. Colo. 2012); see
also Tasion Commc’ns, Inc. v. Ubiquiti Networks, Inc., No.
13cv1803 (EMC), 2014 WL 1048710, at *10 (N.D. Cal. Mar. 14,
2014) (dismissing CCPA claim “to the extent it seeks to assert a
class action for monetary relief”).
Against this conclusion, plaintiffs cite a number of
unhelpful cases.
They rely most heavily on Robinson v. Lynmar
Racquet Club, Inc., 851 P.2d 274 (Colo. App. 1993).
As the
Martinez court noted, however, Robinson involved a prior version
of the CCPA that did not expressly preclude actual damages in
class actions, as the current version, enacted in 1999, does.
See Martinez, 886 F. Supp. 2d at 1219; see also 1999 Colo.
Legis. Serv. Ch. 188 (S.B. 99-143).
At the time Robinson was
decided, Section 6-1-113(2)(a) provided,
Except in a class action, any person who . . . is
found to have engaged in any deceptive trade practice
shall be liable in an amount equal to . . . [t]hree
times the amount of actual damages sustained or two
hundred fifty dollars, whichever is greater . . . .
Robinson, 851 P.2d at 278 (citation omitted).
15
Robinson held
that class action members could not “benefit[] from damages
provided in subparagraph[] (2)(a).”
Id.
As the court
explained, “[A]lthough an individual plaintiff may be awarded
$250 under the provision without proof of actual damages, class
action members may not.”
Id.
Plaintiffs cite Robinson because, in dicta, the court
observed that “the statute does not preclude class members from
bringing an action for actual damages.”
Id.
The current
version of Section 6-1-113(2)(a), however, adds non-trebled
actual damages to the list of remedies precluded in class
actions. 9
Moreover, Kreger v. Gen. Steel Corp., another case cited by
plaintiffs, merely says that “[t]he CCPA prohibits the recovery
of treble damages in class actions, and the Colorado courts are
restrictive in their allowance of punitive damages under the
CCPA.”
No. 07cv575 (HGB), 2010 WL 2902773, at *14 (E.D. La.
July 19, 2010) (citation omitted).
The case does not discuss
the availability vel non of actual damages in class actions.
The only case plaintiffs cite that postdates Martinez is Spera
v. Samsung Electronics Am., Inc., No. 12cv5412 (WJM), 2014 WL
1334256 (D.N.J. Apr. 2, 2014), which indicates that it was not
issued for publication. In any event, Spera does not address
whether the CCPA permits actual damages claims in class actions;
instead, citing Robinson, the case merely states that “treble
damages are not available in a class action under the CCPA.”
Id. at *4.
9
16
In re OnStar Contract Litig., is the only case cited by
plaintiffs that actually “concludes that the [CCPA] does not
preclude class actions for actual damages.”
861, 874 (E.D. Mich. 2009).
600 F. Supp. 2d
The court offered two
justifications for this conclusion, neither of which is
persuasive.
First, OnStar said that by the plain terms of the
statute the Colorado legislature did not preclude class actions
for monetary damages; “[r]ather, by its plain terms, it simply
restricted its provisions for statutory damages [and] treble
damages.”
Id.
But, as quoted above, the statute explicitly
excepts class actions from the private actions in which one is
entitled to “the amount of actual damages sustained; or
[statutory damages]; or [treble damages].”
6-1-113(2)(a) (emphasis added).
Colo. Rev. Stat. §
With the first disjunct, the
Colorado legislature did indeed preclude actual damages claims
in class actions.
Second, OnStar relied on Robinson.
600 F. Supp. 2d at 874.
But OnStar did not note that Robinson analyzed a version of the
CCPA that did not expressly prohibit actual damages in class
actions, as does the version that prevailed both when OnStar was
decided and today. 10
With non-certification of the contract,
All but conceding that the CCPA does in fact prohibit actual
damages claims in class actions, plaintiffs, citing Shady Grove
Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393
17
10
unjust enrichment, and CCPA claims, the Colorado subclass may
not be certified.
IV.
California Subclass
It remains to be analyzed whether the California subclass
can be certified.
and UCL claims.
The California subclass would assert both FAL
Foster would be the class representative.
Plaintiffs assert that AS violated California law by
fraudulently holding itself out -- principally through the three
postings on its websites described above -- as a publisher
capable of and invested in helping authors sell their books,
when its business was actually designed to make money for AS
instead of selling authors’ books.
Plaintiffs assert that class
members would not have purchased AS services but for its website
descriptions of its marketing programs and identify the
following question as common to all class members:
Did AS
engage in a fraudulent scheme to sell worthless marketing
services?
Plaintiffs seek a refund of all payments for
marketing services made by each class member to AS. 11
(2010), argue that “the CCPA’s limitation on damages does not
apply in federal class actions pursuant to FRCP 23.” But Shady
Grove explicitly does not apply here. See id. at 401 (“We need
not decide whether a state law that limits the remedies
available in an existing class action would conflict with Rule
23.”).
In other words, plaintiffs have settled on what is essentially
an omissions theory, asserting liability in AS’s failure to
18
11
A.
Legal Standards Under Rule 23
A party seeking certification of a class must
“affirmatively demonstrate” compliance with each of the
requirements of Rule 23, In re U.S. Foodservice Inc. Pricing
Litig., 729 F.3d 108, 117 (2d Cir. 2013) (citation omitted),
cert. denied sub nom., US Foods, Inc. v. Catholic Healthcare W.,
134 S. Ct. 1938 (2014), and the Court must undertake “a rigorous
analysis” to satisfy itself that those requirements have been
met, Roach v. T.L. Cannon Corp., 778 F.3d 401, 405 (2d Cir.
2015) (citation omitted).
Thus, plaintiffs may sue as
representatives of a class 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.
Fed. R. Civ. P. 23(a).
If the above Rule 23(a) criteria are satisfied, an action
share that its business model is not tied directly to authors’
book sales. This action has been a story of plaintiffs’ search
for a theory of class-wide liability; their inability to find a
winner despite numerous iterations only bolsters the ruling of
non-certifiability.
19
may be maintained as a class action only if it also qualifies
under at least one of the categories provided in Rule 23(b).
Fed. R. Civ. P. 23(b); U.S. Foodservice, 729 F.3d at 117.
Plaintiffs seek to certify a class under Rule 23(b)(3). 12
Rule
23(b)(3) permits certification “if the questions of law or fact
common to class members predominate over any questions affecting
only individual members, and . . . a class litigation is
superior to other available methods for fairly and efficiently
adjudicating the controversy.”
Fed. R. Civ. P. 23(b)(3);
Johnson v. Nextel Commc’ns Inc., 780 F.3d 128, 137 (2d Cir.
2015).
Among other factors, courts are to consider:
(A) the class members’ interests in individually
controlling the prosecution or defense of separate
actions;
(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.
Fed. R. Civ. P. 23(b); U.S. Foodservice, 729 F.3d at 130 n.15.
According to the SAC, plaintiffs brought this class action
pursuant to both subsection (b)(2) and (b)(3) of Rule 23, but
the instant motion seeks certification under subsection (b)(3)
only.
12
20
“To certify a class, a district court must make a
definitive assessment of Rule 23 requirements, notwithstanding
their overlap with merits issues, must resolve material factual
disputes relevant to each Rule 23 requirement, and must find
that each requirement is established by at least a preponderance
of the evidence.”
Id. at 117 (citation omitted).
In other
words, “[t]he district judge must receive enough evidence, by
affidavits, documents, or testimony, to be satisfied that each
Rule 23 requirement has been met.”
Brown v. Kelly, 609 F.3d
467, 480 (2d Cir. 2010) (citation omitted).
B.
Elements of UCL and FAL Claims
The Rule 23 analysis described above requires an
understanding of the elements of the claims that would be
certified in the California subclass.
“California’s Unfair
Competition Law (UCL) bans ‘unlawful, unfair or fraudulent
business act[s] or practice[s] and unfair, deceptive, untrue or
misleading advertising.’”
Berger v. Home Depot USA, Inc., 741
F.3d 1061, 1068 (9th Cir. 2014) (quoting Cal. Bus. & Prof. Code
§ 17200).
“Each prong of the UCL [-- unlawful, unfair or
fraudulent --] is a separate and distinct theory of
liability . . . .”
Kearns v. Ford Motor Co., 567 F.3d 1120,
1127 (9th Cir. 2009).
Unlawful acts are anything that can properly be called
a business practice and that at the same time is
21
forbidden by law be it civil, criminal, federal,
state, or municipal, statutory, regulatory, or courtmade, where court-made law is, for example a violation
of a prior court order. . . . [F]raudulent acts are
ones where members of the public are likely to be
deceived.
Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1151-52
(9th Cir. 2008) (citation omitted).
The FAL provides in relevant part:
It is unlawful for any person, . . .
corporation . . . , or any employee thereof with
intent directly or indirectly to dispose of real or
personal property or to perform services . . . or to
induce the public to enter into any obligation
relating thereto, to make or disseminate . . . before
the public in this state, . . . in any newspaper or
other publication . . . or in any other manner or
means whatever, including over the Internet, any
statement, concerning that real or personal property
or those services . . . which is untrue or misleading,
and which is known, or which by the exercise of
reasonable care should be known, to be untrue or
misleading . . . .
Cal. Bus. & Prof. Code § 17500.
“Whether an advertisement is
‘misleading’ must be judged by the effect it would have on a
reasonable consumer.
A reasonable consumer is the ordinary
consumer acting reasonably under the circumstances.
To prevail
under this standard, [plaintiffs] must show that members of the
public are likely to be deceived by the advertisement.”
Davis
v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1161-62 (9th Cir. 2012)
(citation omitted).
“[A]ny violation of the [FAL] necessarily
violates the UCL.”
Kasky v. Nike, Inc., 45 P.3d 243, 250 (Cal.
22
2002), as modified (May 22, 2002) (citation omitted).
As the Ninth Circuit has explained:
Unlike common-law fraud claims that focus on the
victim’s reliance or damages, the UCL focuses on the
perpetrator’s behavior: to state a claim under either
the UCL or the [FAL] it is necessary only to show that
members of the public are likely to be deceived.
Actual falsehood, the perpetrator’s knowledge of
falsity, and perhaps most importantly, the victim’s
reliance on the false statements -- each of which are
elements of common-law fraud claims -- are not
required to show a violation of California’s UCL.
Berger, 741 F.3d at 1068 (citation omitted) (emphasis added).
C.
Application of Rule 23
Even assuming that all of the Rule 23(a) requirements are
satisfied and that Rule 23(b)’s superiority condition is met,
the California subclass cannot be certified, because
predominance is lacking under Rule 23(b).
Predominance is
established where “the legal or factual questions that qualify
each class member’s case as a genuine controversy can be
achieved through generalized proof and . . . these particular
issues are more substantial than the issues subject only to
individualized proof.”
omitted).
Johnson, 780 F.3d at 139 (citation
“Rule 23(b)(3) requires that common questions
predominate, not that the action include only common questions.”
Brown, 609 F.3d at 484.
“As long as a sufficient constellation
of common issues binds class members together, variations in the
sources and application of a defense will not automatically
23
foreclose class certification under Rule 23(b)(3).”
Id. at 483.
The essential inquiry for predominance is whether the proposed
class is “sufficiently cohesive to warrant adjudication by
representation.”
Amgen Inc. v. Conn. Ret. Plans & Trust Funds,
133 S. Ct. 1184, 1196 (2013) (citation omitted).
Here, the question whether AS’s representations are likely
to deceive a reasonable consumer is not subject to generalized
proof.
Following the above-reproduced passage from Berger, the
Ninth Circuit went on to say that
the question of likely deception does not
automatically translate into a class-wide question.
We do not, of course, suggest that predominance would
be shown in every California UCL case. For example,
it might well be that there was no cohesion among the
members because they were exposed to quite disparate
information from various representatives of the
defendant. In two recent cases, [the Ninth Circuit]
ha[s] held that class certification of UCL claims is
available only to those class members who were
actually exposed to the business practices at
issue. . . . [One of the cases concluded that] it was
unreasonable to presume that all class members were
exposed to [defendant]’s misleading statements, and
that without such exposure, consumers were not likely
to be deceived.
Berger, 741 F.3d at 1068 (citation omitted).
Plaintiffs offer no evidence that members of the California
subclass, other than Foster, were exposed to the representations
about which they complain.
be presumed.
As such, class-wide exposure cannot
See id. at 1069 (no presumption of exposure where
independent analysis required to determine whether disclosures
24
in class members’ contracts sufficed to alert customers to
alleged omission).
Indeed, class members may have read
different parts of iUniverse’s website (if they read it at all),
and what they read may have been supplemented by any number and
manner of telephone or email conversations with AS personnel.
Whether particular AS representations would be likely to deceive
any given class member, in other words, is not susceptible to
generalized proof.
A lack of evidence of exposure is not the only reason that
predominance is lacking here.
Even where there might be
evidence of exposure, the subject of that exposure is nebulous
at best:
The representations about which plaintiffs complain
(the most damning of which are quoted above) are by any measure
soft.
AS’s statements about its marketing services straddle the
line between representation and puffery, making it all the more
difficult to conclude that generalized proof could demonstrate
that these statements would likely deceive a member of the
public.
The interactions between AS and authors came through a
combination of internet information, conversations (often by
telephone) with salespeople, and written agreements.
Plaintiffs
allege no misrepresentations in the contract terms themselves,
and, due to the lack of a sales calls script, do not base their
25
theory of class-wide liability on individual conversations
either; plaintiffs are left with only the website
representations.
Those representations, however, hardly drive
the conclusion that a uniform scheme to defraud victimized the
class.
It would be easier to find predominance if, say,
plaintiffs offered evidence that everyone with an iUniverse
Bookstore Premier Pro publishing package was victim to
misrepresentations in the contracts they all shared.
It is unsurprising, however, that plaintiffs do not take
this tack.
Tellingly, the relevant contracts are nearly silent
on the issue of marketing services.
Under her contract, Foster
granted AS the right to market her work, but notably absent is
any accompanying obligation by AS to do so.
Similarly, the
portion of the agreement devoted to Rising Star sets out the
eligibility requirements that Foster had to meet, but imposes no
specific marketing duties on AS.
Against the conclusion that predominance is lacking,
plaintiffs rely on In re Tobacco II Cases, where the California
Supreme Court stated that “relief under the UCL is available
without individualized proof of deception, reliance and injury.”
207 P.3d 20, 35 (Cal. 2009).
There, the class plaintiffs
brought a UCL claim alleging that the tobacco companies
concealed the relationship between their product and various
26
diseases by engaging in a public disinformation strategy,
beginning in the 1960s with magazine articles that questioned
the link between smoking and lung cancer, and persisting through
misrepresentations that the tobacco companies were dedicated to
the pursuit and dissemination of the scientific truth regarding
smoking and health.
Id. at 27.
In other words, plaintiffs
alleged a specific, definite, fraudulent scheme and pointed to
particular acts of artifice.
As the Ninth Circuit explained in
Berger -- and in Mazza v. Am. Honda Motor Co., 666 F.3d 581, 595
(9th Cir. 2012), which Berger discusses -- Tobacco II was a case
where exposure could be presumed, because it arose “in the
context of a decades-long tobacco advertising campaign where
there was little doubt that almost every class member had been
exposed to defendants’ misleading statements, and defendants
were not just denying the truth but representing the opposite.”
Mazza, 666 F.3d at 596 (citation omitted).
The instant case, by contrast, does not provide the same
“extensive and longterm fraudulent advertising campaign.”
Berger, 741 F.3d at 1068 (citation omitted).
Far from the
detailed scheme to misdirect alleged by the Tobacco II class
plaintiffs, the allegedly fraudulent scheme pressed by
plaintiffs here is nebulous.
Plus, unlike the parties in
Tobacco II, here, the relationships between plaintiffs and AS
27
are governed by contract; if plaintiffs were to have been
uniformly deceived with respect to the services they purchased
from AS, one would expect the contract setting forth the terms
of that purchase to play some role.
Plaintiffs also contend that AS uses its website as a
“script” during conversations with customers and prospective
customers, thus increasing the chances that class members were
uniformly exposed to the relevant representations.
Plaintiffs’
only support for this contention, however, is vague deposition
testimony from the Senior Vice President of Marketing at AS.
At
one point, the deponent testified that certain marketing
services would first be posted on the website and then,
“[d]epending on the imprint, depending on the event, we also
might do a promotional e-mail from the marketing department.”
And later, he explained that when a salesperson is discussing a
marketing service with a customer or potential customer, “[f]or
some services, there are what we would call template e-mails
that they are supposed to use.
But in most cases, they are
supposed to point people to the website.”
On its face, this
testimony does not substantiate plaintiffs’ claim that website
representations about iUniverse’s marketing services were
repeated to a large number of class members as a “script.”
Plaintiffs cannot show the uniformity necessary to make out
28
predominance here.
Aware of this substantial obstacle to class-wide relief,
plaintiffs pivot and contend that their claims are not actually
premised on each class member’s reliance on a particular
misrepresentation.
Indeed, they contend that a class may be
certified because every class member was subject to a common
deceptive scheme.
Plaintiffs rely on In re First Alliance
Mortgage Co., where the Ninth Circuit reasoned:
That [defendant]’s fraudulent system . . . did not
consist of a specifically-worded false statement
repeated to each and every borrower of the plaintiff
class . . . does not make [defendant] immune to classwide accountability. The class action mechanism would
be impotent if a defendant could escape much of his
potential liability for fraud by simply altering the
wording or format of his misrepresentations across the
class of victims.
471 F.3d 977, 992 (9th Cir. 2006).
In First Alliance, however,
[t]he evidence . . . support[ed] the finding . . .
that there was, in fact, a centrally-orchestrated
scheme to mislead borrowers through a standardized
protocol the sales agents were carefully trained to
perform. . . . The record shows, for instance, that
loan officers were trained to misrepresent the monthly
payment on the loan to make it appear lower than the
borrower’s prior mortgage payment, and when asked
about points, to falsely state that “all fees and
costs have already been computed into your monthly
payment,” and then to immediately redirect the
borrower’s attention to another document.
Id. at 991-92.
In other words, although a script was not
required, some evidence of a centrally-orchestrated scheme with
concrete misrepresentations was.
29
Despite the completion of
discovery, no such evidence has been presented here.
AS raises several other substantial defects in plaintiffs’
application for certification of a class.
Because those
discussed above are fatal to plaintiffs’ application, it is
unnecessary to discuss the remaining arguments addressed in the
parties’ briefs.
CONCLUSION
Plaintiffs’ February 13 motion for class certification is
denied.
SO ORDERED:
Dated:
New York, New York
July 1, 2015
________________________________
DENISE COTE
United States District Judge
30
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