GUZMAN V. DIAMOND CANDLES, LLC
Filing
47
MEMORANDUM OPINION AND ORDER signed by JUDGE THOMAS D. SCHROEDER on 09/30/2016; that Diamond's motion to dismiss (Doc. 43 ) is GRANTED as to Guzmans claims, which are DISMISSED WITHOUT PREJUDICE and that Guzman's motion for interim disc overy (Doc. 12 ) is DENIED. As to the motion to dismiss the claims of Roberson (Doc. 43 ), the parties brief the jurisdictional questions raised in this Memorandum Opinion and Order. Roberson shall have 21 days within which to file her brief, D iamond shall have 21 days to respond, and Roberson shall have 14 days to file a reply. Plaintiff's motion for class certification (Doc. 15 ) shall remain STAYED pending the resolution of Diamond's motion to dismiss as to Roberson's claim. (Garland, Leah)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
JOSEPHINE GUZMAN and TIFFINY
ROBERSON, individually and as
representatives of a class of
those similarly situated,
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Plaintiffs,
v.
DIAMOND CANDLES, LLC,
Defendant.
1:15cv422
MEMORANDUM OPINION AND ORDER
THOMAS D. SCHROEDER, District Judge.
This is a putative class action involving claims of unfair
and deceptive conduct.
the
amended
complaint
Before the court is the motion to dismiss
by
Defendant
Diamond
Candles,
LLC
(“Diamond”) (Doc. 43) and the motion of Plaintiff Josephine Guzman
for interim discovery (Doc. 12). 1
For the reasons set forth below,
the motion to dismiss will be granted as it relates to Guzman’s
claims and deferred with instructions for further briefing as it
relates to Plaintiff Tiffiny Roberson’s claims.
Guzman’s motion
for interim discovery will be denied.
I.
BACKGROUND
The amended complaint alleges the following facts, which the
1
Guzman’s motion for class certification (Doc. 15) has been deferred by
an earlier order (Doc. 24) pending the resolution of Diamond’s motion
to dismiss.
court accepts as true and construes in the light most favorable to
Plaintiffs for purposes of the present motions:
Diamond is a candle manufacturer headquartered in Durham,
North Carolina. (Doc. 42 ¶ 12.) It sells its products exclusively
through its website.
(Id. ¶ 9.)
Inside every candle is a ring
worth approximately $10 and a code the purchaser can enter on
Diamond’s website to discover whether she has won an additional
ring worth up to $5,000.
A previous version of the promotion hid
the more valuable ring in the candle itself.
(Id. ¶¶ 25–30.)
Guzman is a resident of Congers, New York.
(Id. ¶ 10.)
2015, she purchased a candle through Diamond’s website.
¶ 57.)
(Id.
But for the Ring Reveal promotion, Guzman would not have
made the purchase.
(Id. ¶ 59.)
Roberson is a resident of Henderson, North Carolina.
¶ 11.)
In
(Id.
She purchased candles from Diamond’s website on February
12, 2014, and August 19, 2015.
(Id. ¶¶ 60, 62.)
But for the Ring
Reveal promotion, she, too, would not have purchased candles from
Diamond.
(Id. ¶ 64.)
Plaintiffs bring claims against Diamond for unjust enrichment
and violations of North Carolina’s Unfair and Deceptive Trade
Practices Act (“UDTPA”), N.C. Gen. Stat. § 75-1.1, et seq.
42 ¶¶ 75–100.)
(Doc.
illegal lottery.
They contend that the Ring Reveal promotion is an
Initially, Guzman was the only named Plaintiff,
and Diamond moved to dismiss the action on the grounds that the
2
promotion is not an illegal lottery and that Guzman’s claims are
not cognizable under North Carolina law.
(Doc. 10.)
In response,
Guzman moved for immediate discovery (Doc. 12) and for leave to
amend the complaint to add a North Carolina plaintiff (Doc. 34).
The court held oral argument on the motions on March 23, 2016,
and, as a consequence, granted leave to amend the complaint. (Doc.
40.)
Plaintiffs filed an amended complaint naming Roberson as an
additional Plaintiff (Doc. 42), to which Diamond responded with a
new motion to dismiss for failure to state a claim (Doc. 43).
The
dismissal and discovery motions are now fully briefed and ready
for resolution.
II.
ANALYSIS
A.
Guzman’s Claims
Guzman is a resident of New York, yet she frames her claim
solely under North Carolina law.
Diamond argues that only New
York law could apply to her claim.
Before reaching the merits of
Diamond’s motion to dismiss, therefore, the court must determine
which body of law a North Carolina court would apply to Guzman’s
claims.
In doing so, the court applies the forum State’s choice
of law rules.
New England Leather Co. v. Feuer Leather Corp., 942
F.2d 253, 255 (4th Cir. 1991).
Claims
under
North
Carolina’s
UDTPA
are
tortious nor wholly contractual in nature.”
“neither
wholly
Bernard v. Cent.
Carolina Truck Sales, Inc., 68 N.C. App. 228, 230, 314 S.E.2d 582,
3
584 (1984) (quoting Slaney v. Westwood Auto, Inc., 366 Mass. 688,
704, 322 N.E.2d 768, 779 (1975)).
There is thus a split of
authority among North Carolina courts as to the proper choice of
law rule to apply to UDTPA claims.
Stetser v. TAP Pharm. Prods.,
Inc., 165 N.C. App. 1, 15, 598 S.E.2d 570, 580 (2004); New England
Leather Co., 942 F.2d at 255.
At least one panel of the North
Carolina Court of Appeals followed the traditional lex loci rule,
holding that “the law of the state where the injuries are sustained
should govern” UDTPA claims.
See Stetser, 165 N.C. App. at 15,
598 S.E.2d at 580 (quoting United Va. Bank v. Air-Lift Assocs.,
Inc., 79 N.C. App. 315, 321, 339 S.E.2d 90, 93 (1986)).
Another
panel of that same court held much earlier that “the law of the
state having the most significant relationship to the occurrence
giving rise to the action” should apply.
Id. (quoting Andrew
Jackson Sales v. Bi-Lo Stores, Inc., 68 N.C. App. 222, 225, 314
S.E.2d 797, 799 (1984)).
The North Carolina Supreme Court has not
resolved this split of authority. 2
2
Id.
At the March 23, 2016 hearing, Guzman and Roberson acknowledged that
North Carolina courts have applied different choice of law tests to UDTPA
claims. Diamond argues, however, that the North Carolina Supreme Court,
Court of Appeals, and Business Court all applied the lex loci test in
their most recent cases on this issue. (See Doc. 28 at 4 (citing Boudreau
v. Baughman, 322 N.C. 331, 335, 368 S.E.2d 849, 853–54 (1988); United
Va. Bank, 79 N.C. App. at 321, 339 S.E.2d at 94 (applying the “law of
the State where the last act occurred giving rise to defendants'
injury”); Synovus Bank v. Parks, No. 10 CVS 5819, 2013 WL 3965424, at
*5 (N.C. Super. Ct. July 30, 2012) (applying the lex loci test to
allegations of unfair and deceptive trade practices)).)
Guzman, by
contrast, argues that the appropriate test depends on the facts of each
4
In the present context, federal courts appear to favor the
lex loci rule over the substantial relationship test.
United
Dominion Indus., Inc. v. Overhead Door Corp., 762 F. Supp. 126,
129 (W.D.N.C. 1991) (concluding “that a North Carolina court would
apply the lex loci test” to a UDTPA claim).
Federal courts apply
the most significant relationship test where the lex loci test
fails to yield a clear answer.
Edmondson v. Am. Motorcycle Ass'n,
Inc., No. 99-1299, 2001 WL 91104, at *12 (4th Cir. Feb. 2, 2001)
(“We have held that when the place of injury is open to debate in
regard to an unfair trade practices claim, North Carolina choice
of law rules require a court to apply the law of the state with
the most significant relationship to the transaction.” (citing New
England Leather Co., 942 F.2d at 255)).
This court will follow
the same approach here. 3
case and that courts apply the most significant relationship test to
claims arising outside the personal injury context. (See Doc. 22 at 15
(citing Food Lion, Inc. v. Capital Cities/ABC, Inc., 951 F. Supp. 1224,
1228 (M.D.N.C. 1996) (concluding that since the lex loci test may not
always be easy to apply, the most significant relationship test makes
sense “in this case”)).)
3
With regard to Guzman’s unjust enrichment claim, the parties have not
thoroughly addressed the choice of law issue, and the authorities the
parties cite conflict. Compare Arabian Am. Oil Co. v. Anderson, No. 883574, 1989 WL 37405, at *1 (4th Cir. Apr. 5, 1989) (per curiam) (affirming
the trial court’s application of the lex loci test to a standalone
unjust-enrichment claim under North Carolina law), with Yancey v.
Remington Arms Co., LLC, No. 1:12CV477, 2013 WL 5462205, at *3, *12
(M.D.N.C. Sept. 30, 2013) (applying the most significant relationship
test to unjust enrichment claims associated with breach of warranty
claims on the sale of goods), adopted in relevant part sub nom. Maxwell
v. Remington Arms Co. LLC, No. 1:10CV918, 2014 WL 5808795, at *3 n.2
(M.D.N.C. Nov. 7, 2014). Guzman’s UDTPA claim provides the only basis
5
In this case, application of the lex loci rule would result
in New York law governing Guzman’s claims.
Under the lex loci
rule, the “the state where the injury occurred is considered the
situs of the claim.”
Stetser, 165 N.C. App. at 14, 598 S.E.2d at
580 (quoting Boudreau v. Baughman, 322 N.C. 331, 335, 368 S.E.2d
849, 853–54 (1988)).
clear,
the
“location
When the exact location of the injury is not
of
a
plaintiff’s
residence
or
place
of
business may be useful for determining the place of a plaintiff’s
injury.”
Harco Nat’l Ins. Co. v. Grant Thornton LLP, 206 N.C.
App. 687, 697, 698 S.E.2d 719, 726 (2010).
Here, the amended
complaint is silent as to the location of Guzman’s bank accounts
and the computer from which she purchased her candle.
Given her
New York residence, however, any economic injury most likely
occurred there, a point Guzman conceded at the hearing. Therefore,
under the lex loci test, New York law governs Guzman’s claims.
Application of the most significant relationship test would
not alter this conclusion.
“[T]here are few North Carolina cases
which interpret the meaning of the most significant relationship
test,” particularly outside the personal injury context.
Yancey
v. Remington Arms Co., No. 1:12CV477, 2013 WL 5462205, at *3
(M.D.N.C. Sept. 30, 2013) (quoting Dassault Falcon Jet Corp. v.
for her unjust enrichment claim; in other words, if Diamond’s conduct
was not unfair or deceptive, then it is not unjust for Diamond to retain
the proceeds of the transaction with Guzman.
Accordingly, the court
will apply the same choice of law analysis to both the UDTPA and unjust
enrichment claims.
6
Oberflex, Inc., 909 F. Supp. 345, 352 (M.D.N.C. 1995)), adopted in
relevant
part
sub
nom.
Maxwell
v.
Remington
Arms
Co.,
No.
1:10CV918, 2014 WL 5808795, at *3 n.2 (M.D.N.C. Nov. 7, 2014).
Federal courts analyzing North Carolina UDPTA claims under the
most significant relationship test have focused on “where the
relationship between the parties was created and where it was
centered.”
Jacobs v. Cent. Transp., Inc., 891 F. Supp. 1088, 1111
(E.D.N.C. 1995), rev’d on other grounds, 1996 WL 223688 (4th Cir.
May 3, 1996); see also New England Leather Co., 942 F.2d at 256.
Here, the parties’ relationship took place entirely online and by
mail.
Guzman ordered her candle online, and it is unclear where
the candle was manufactured or stored.
Guzman’s complaint does
not allege that she suffered any injury in North Carolina.
As
such, this standard is of little help.
When North Carolina courts have applied the most significant
relationship test to UDTPA claims, they have engaged in brief,
fact-specific
authorities.
inquiries
with
little
reference
to
other
See, e.g., Andrew Jackson Sales, 68 N.C. App. at
225, 314 S.E.2d at 799; Michael v. Greene, 63 N.C. App. 713, 715,
306 S.E.2d 144, 145 (1983).
When North Carolina courts apply the
most significant relationship test to other kinds of claims, they
engage
in
fact-specific
inquiries
and
adhere
Restatement (Second) of Conflict of Laws.
loosely
to
the
See, e.g., Terry v.
Pullman Trailmobile, 92 N.C. App. 687, 693, 376 S.E.2d 47, 50
7
(1989).
Factors under the Restatement analysis include “(a) the
place where the injury occurred, (b) the place where the conduct
causing
the
injury
occurred,
(c)
the
domicile,
residence,
nationality, place of incorporation and place of business of the
parties, and (d) the place where the relationship, if any, between
the parties is centered.”
Restatement (Second) of Conflict of
Laws § 145 (Am. Law Inst. 1971).
The court’s analysis should also
be guided by “the relevant policies of the forum” and “the basic
policies underlying the particular field of law.”
Id. § 6(2).
The first factor essentially replicates the lex loci test and
therefore strongly favors New York law.
The second factor favors
North Carolina law because the complaint alleges that Diamond’s
relevant
conduct
(alleging
that
occurred
Diamond’s
in
that
business
State.
model
(See
was
Doc.
42
¶ 9
“conceived
and
implemented” in North Carolina and that Diamond “operates its
enterprise” there); id. ¶ 74 (alleging that Diamond administered
its marketing and website, took orders, and sold candles from its
headquarters in North Carolina).)
The third and fourth factors
appear to be a wash, as Guzman and Diamond are domiciled in
different States and their relationship existed solely online,
rather than in any physical space.
“[T]he relevant policies of
the forum” and “the basic policies underlying” the UDTPA favor
applying New York law.
Guzman seeks the benefit of the UDTPA as
a consumer protection statute.
Given this context, New York’s
8
interest
in
protecting
its
own
consumers
outweighs
Carolina’s interest in protecting foreign consumers.
North
See Pilgrim
v. Univ. Health Card, LLC, 660 F.3d 943, 946 (6th Cir. 2011) (“No
doubt, States have an independent interest in preventing deceptive
or
fraudulent
borders.
practices
by
companies
operating
within
their
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.”
(emphasis in original)).
Guzman nevertheless contends that Diamond should be bound by
a disclosure on its website that any dispute related to the website
will be governed by North Carolina law.
(Doc. 42 ¶ 9.)
She argues
that this provision supports applying North Carolina law to her
claims because all her interactions with Diamond occurred via the
website.
(See id.)
But as the Fourth Circuit has explained, the
“nature of the liability allegedly to be imposed by the [UDTPA]
statute is ex delicto, not ex contractu.”
ITCO Corp. v. Michelin
Tire Corp., 722 F.2d 42, 49 n.11 (4th Cir. 1983).
Contractual
choice of law provisions should be “set aside” where, as here, the
dispute does not involve any issue of contractual construction,
interpretation, or enforceability.
Id.
And even if the court
were to consider the choice of law provisions on Diamond’s website,
this factor tends more toward being neutral because the website
also states that the Ring Reveal promotion “is subject to the
9
federal law, and laws and regulations of the states where the
Contest is run.”
(Doc. 11-2 at 2. 4)
Applying New York law to Guzman’s claims is also consistent
with the desire of courts to avoid extraterritorial application of
State laws that would implicate constitutional concerns.
See,
e.g., Carolina Trucks & Equip., Inc. v. Volvo Trucks of N.A., Inc.,
492 F.3d 484, 489–90 (4th Cir. 2007) (“By reaching this holding as
a
matter
of
statutory
construction,
we
avoid
constitutional
problems inherent in a broader interpretation of South Carolina
law.
The principle that state laws may not generally operate
extraterritorially is one of constitutional magnitude.
One state
may not project its legislation into another.” (citations and
internal quotation marks omitted)); ITCO Corp., 722 F.2d at 48 n.9
(stating that the UDTPA presents “no cause for constitutional
concern,” but only “[a]bsent some reason to believe that the
[statute] is an attempt directly to regulate interstate commerce,
and is not an act designed to address primarily local concerns
which happens to have an occasional incidental, but not excessive,
effect upon interstate commerce”); The ‘In’ Porters, S.A. v. Hanes
Printables,
Inc.,
663
F.
Supp.
4
494,
502
(M.D.N.C.
1987)
Diamond attached a copy of the official rules governing the Ring Reveal
promotion to its motion to dismiss, and Guzman does not dispute the
authenticity if this document. As a result, the court may consider this
document without converting Diamond’s motion to dismiss into one for
summary judgment. Sec. of State for Def. v. Trimble Navigation Ltd.,
484 F.3d 700, 705 (4th Cir. 2007).
10
(“Application of the [UDTPA] in cases having only an incidental
local effect not only would be contrary to the Fourth Circuit’s
interpretation of the [UDTPA], but also would render the [UDTPA]
constitutionally suspect.
[UDTPA’s]
The commerce clause mandates that the
extraterritorial
application
be
justified
by
local
concerns and not be excessively burdensome on interstate commerce.
The court believes that limiting the scope of the [UDTPA] to cases
involving substantial effect on a plaintiff’s in-state business
operation is consistent with, and perhaps required by, the commerce
clause.”).
Finally, Guzman urges the court to forego ruling on Diamond’s
motion to dismiss and instead to grant her motion to permit interim
discovery.
Such discovery, she contends, will permit her to
determine the “connection of the Defendant’s business with North
Carolina” and the extent to which Diamond offers alternative means
of entry into the Ring Reveal promotion for those who do not wish
to purchase a candle.
(Doc. 13 at 1–2.)
In light of the court’s
choice of law analysis, however, there is no need for discovery on
either of these topics.
As noted above, the court has assumed
that all of Diamond’s conduct occurred in North Carolina and
weighed this factor in Guzman’s favor.
Discovery on this issue
could not reveal any meaningful information that would alter the
outcome of the choice of law analysis. Guzman’s motion for interim
discovery (Doc. 12) will therefore be denied.
11
Ordinarily, the choice of law inquiry would not directly
result in the dismissal of a plaintiff’s claims.
Here, however,
the amended complaint limits recovery to North Carolina law, and
that is the only law the parties have addressed in their briefing.
It appears this was strategic, as the lawsuit seeks to certify a
national class under the application of North Carolina law.
At
the hearing on these motions, Guzman agreed that her claims are
structured such that if the court were to conclude that North
Carolina law did not govern them, the proper course would be to
dismiss
this
action
without
prejudice.
Consequently,
having
concluded that New York, and not North Carolina, law applies to
Guzman’s
claims,
Guzman’s
claims
will
be
dismissed
without
prejudice to her ability to file her claim in an appropriate court
under the appropriate law. 5
B.
Roberson’s Claims
The
complaint
and
amended
complaint
assert
this
court’s
subject matter jurisdiction based on the Class Action Fairness Act
of 2005 (“CAFA”).
(Doc. 1 ¶ 12, Doc. 42 ¶ 13.)
CAFA relaxes
diversity of citizenship requirements but requires at least one
member of the putative class to be diverse from the defendant.
See Dart Cherokee Basin Operating Co., LLC v. Owens, 135 S. Ct.
547, 551–52 (2014).
This jurisdictional requirement was alleged
5
This conclusion does not prohibit Guzman from pursuing her claim in
this court under the appropriate law.
12
and met when Guzman, a New York citizen, was a party.
But with
her dismissal on the ground that North Carolina’s UDTPA cannot be
applied extra-territorially, and with the only named Plaintiff
being Roberson, a North Carolina resident pursuing only a North
Carolina UDTPA claim, a question exists whether the court has
subject matter jurisdiction under CAFA or otherwise.
Cf. Martinez
v. Duke Energy Corp., No. 03-2192, 2005 WL 1009648, at *4 (4th
Cir. May 2, 2005) (finding that plaintiffs’ addition of a nondiverse defendant in an amended complaint destroyed the requisite
complete diversity among the parties). 6
The court foreshadowed
this potential issue at the March 23 hearing, yet the parties’
briefing does not address it.
Nevertheless, before proceeding
further the court has an independent duty to satisfy itself that
it has subject matter jurisdiction, even when the parties fail to
object.
Arbaugh v. Y&H Corp., 546 U.S. 500, 501 (2006).
The court will therefore direct the parties to address whether
this court has subject matter jurisdiction and, if so, the basis
for it.
In doing so, the parties should identify which party bears
what burdens of proof; whether those burdens have been met (and
why); and whether, assuming CAFA applies, the court should (or
6
Unpublished opinions of the Fourth Circuit are not precedential. See
Collins v. Pond Creek Mining Co., 468 F.3d 213, 219 (4th Cir. 2006)
(recognizing that “we ordinarily do not accord precedential value to our
unpublished decisions” and that such decisions “are entitled only to the
weight they generate by the persuasiveness of their reasoning” (citation
omitted)).
13
must)
decline
to
exercise
jurisdiction
under
28
U.S.C.
§§ 1332(d)(3) or (d)(4).
III. CONCLUSION
For the reasons stated,
IT IS THEREFORE ORDERED that Diamond’s motion to dismiss (Doc.
43) is GRANTED as to Guzman’s claims, which are DISMISSED WITHOUT
PREJUDICE.
IT
IS
FURTHER
ORDERED
that
Guzman’s
motion
for
interim
discovery (Doc. 12) is DENIED.
IT IS FURTHER ORDERED that, as to the motion to dismiss the
claims of Roberson (Doc. 43), the parties brief the jurisdictional
questions raised in this Memorandum Opinion and Order.
shall have 21 days within which to file her brief,
Roberson
Diamond shall
have 21 days to respond, and Roberson shall have 14 days to file
a reply.
IT IS FURTHER ORDERED that Plaintiff’s motion for class
certification (Doc. 15) shall remain STAYED pending the resolution
of Diamond’s motion to dismiss as to Roberson’s claim.
/s/
Thomas D. Schroeder
United States District Judge
September 30, 2016
14
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