Fejzulai v. Sam's West Inc et al
Filing
77
ORDER granting 47 Motion to Dismiss and Plaintiffs' SCUTPA claim is Dismissed to the extent it is brought in a representative capacity. Signed by Honorable Bruce Howe Hendricks on 9/7/16.(alew, )
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
GREENVILLE DIVISION
Myriam Fejzulai, et al.
) Civil Action No.: 6:14-3601-BHH
)
Plaintiffs, )
vs.
)
)
Opinion and Order
Sam’s West, Inc., et al.
)
)
Defendants. )
_________________________________ )
This matter is before the Court on Defendants’ Motion to Dismiss Class Claims
for Alleged Violation of the South Carolina Unfair Trade Practices Act (“SCUTPA”) (ECF
No. 47). For the reasons set forth in this Order, Defendants’ Motion is granted and the
SCUTPA claim is dismissed to the extent it is brought in a representative capacity.
BACKGROUND
Plaintiffs filed this putative class action on September 10, 2014, alleging a breach
of contract claim founded on certain terms and conditions of the Sam’s Club
Membership Agreement (“Membership Agreement”). (ECF No. 1.) Specifically, Plaintiffs
allege that Defendants have, on divers occasions, breached the “200% Freshness
Guarantee” (“Guarantee”) found in the Membership Agreement by failing to refund
200% of the purchase price of any returned item subject to the Guarantee (or
alternatively refund 100% of the purchase price and replace the item, as provided in the
Guarantee). (Id. ¶¶ 28-31.) The operative pleading in this case is now Plaintiffs’ Second
Amended Complaint, which includes the original breach of contract claim, as well as
claims for injunctive and declaratory relief and violation of SCUTPA, all premised on the
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same putative failures to honor the Guarantee. (ECF No. 41 ¶¶ 33-42, 48-57.) An indepth summary of the alleged facts is not necessary to the resolution of the pending
Motion, which turns on a purely legal issue.
STANDARD OF REVIEW
A plaintiff’s complaint should set forth “a short and plain statement . . . showing
that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Rule 8 “does not require
‘detailed factual allegations,’ but it demands more than an unadorned, the-defendantunlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “To survive a motion to dismiss,
a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to
relief that is plausible on its face.’” Id. (quoting Twombly, 550 U.S. at 570). “A claim has
facial plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
(quoting Twombly, 550 U.S. at 556). In considering a motion to dismiss under Fed. R.
Civ. P. 12(b)(6), a court “accepts all well-pled facts as true and construes these facts in
the
light
most
favorable
to
the
plaintiff
. . . .”
Nemet
Chevrolet,
Ltd.
v.
Consumeraffairs.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009). A court should grant a
Rule 12(b)(6) motion if, “after accepting all well-pleaded allegations in the plaintiff’s
complaint as true and drawing all reasonable factual inferences from those facts in the
plaintiff’s favor, it appears certain that the plaintiff cannot prove any set of facts in
support of his claim entitling him to relief.” Edwards v. City of Goldsboro, 178 F.3d 231,
244 (4th Cir. 1999).
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DISCUSSION
Plaintiffs’ cause of action for violation of SCUTPA seeks to represent a South
Carolina subclass. (ECF No. 41 ¶¶ 49 (“For those class members such as Plaintiffs who
are, or were, residents of South Carolina during the applicable class period, Plaintiffs
allege that with respect to those class members, Defendants have violated the South
Carolina Unfair Trade Practices Act, S.C. Code § 39-5-10, et seq.”).) In their Motion,
Defendants seek dismissal of the SCUTPA claim to the extent it is asserted on behalf of
a putative subclass. (ECF No. 47-1 at 2.) Because the Court agrees with Defendants
that SCUTPA claims may not be brought by a private party in a representative capacity,
the Court grants the Motion to Dismiss, as more fully set forth below.
The text of SCUTPA expressly prohibits the pursuit of class action claims:
Any person who suffers any ascertainable loss of money or property, real
or personal, as a result of the use or employment by another person of an
unfair or deceptive method, act or practice declared unlawful by § 39-5-20
may bring an action individually, but not in a representative capacity, to
recover actual damages.
S.C. Code § 39-5-140(a) (emphasis added). Various courts have confirmed that
SCUTPA claims cannot be pursued on a representative basis. See, e.g., Gunnells v.
Healthplan Servs., 348 F.3d 417, 423 (4th Cir. 2003) (affirming by implication the district
court’s refusal to certify a SCUTPA suit as a class action pursuant to S.C. Code § 39-5140); In re TD Bank, N.A., 150 F. Supp. 3d 593, 634-35 (D.S.C. 2015) (dismissing the
plaintiffs’ SCUTPA class claims); In re Bldg. Materials Corp. of Am. Asphalt Roofing
Shingle Prod. Liab. Litig., No. 3:11-CV-02784-JMC, 2013 WL 1316562, at *9 (D.S.C.
Mar. 27, 2013) (“Although similar in purpose [to the New Jersey Consumer Fraud Act],
South Carolina’s statutory consumer fraud claims based on deceptive trade practices
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may not proceed in a representative capacity.”); Stalvey v. Am. Bank Holdings, Inc., No.
4:13-CV-714, 2013 WL 6019320, *4 (D.S.C. Nov. 13, 2013) (granting motion to dismiss
the plaintiff’s representative claims under SCUPTA); In re MI Windows & Doors, Inc.
Prod. Liab. Litig., No. 2:11-CV-00167-DCN, 2012 WL 5408563, at *5 (D.S.C. Nov. 6,
2012) (“[P]laintiffs cannot bring their SCUTPA claim on behalf of a putative class.”);
Harris v. Sand Canyon Corp., 274 F.R.D. 556, 565 (D.S.C. 2010) (“It seems clear from
the language of SCUTPA that class action suits are forbidden under the Act, and the
South Carolina Supreme Court has held as such.”); Harris v. Option One Mortgage
Corp., 261 F.R.D. 98, 111 (D.S.C. 2009) (“It seems clear from the language of SCUTPA
that class action suits are forbidden under the Act, and the Fourth Circuit has
acknowledged this rule in [Gunnells].”); Dema v. Tenet Physician Servs.-Hilton Head,
Inc., 678 S.E.2d 430, 434 (S.C. 2009) (“[B]ecause SCUTPA claims may not be
maintained in a class action lawsuit, the trial court properly dismissed Appellant’s
claim.”). Accordingly, a rather straightforward application of the statutory text and
relevant case law dictates dismissal of Plaintiffs’ SCUTPA claim to the extent it is
pursued in a representative capacity.
Plaintiffs respond that the U.S. Supreme Court’s decision in Shady Grove
Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393 (2010), dictates that Federal
Rule of Civil Procedure 23, and not S.C. Code Ann. § 39-5-140, governs whether a
class action may be maintained under SCUTPA in a federal court sitting in diversity
jurisdiction. (See ECF No. 48 at 2-5.) Plaintiffs further argue, either explicitly or by
implication, that the various decisions by courts in this district applying Shady Grove to
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SCUTPA have done so incorrectly.1 (See id. at 5-8.) Finally, Plaintiffs urge the Court to
adopt the Eleventh Circuit’s analysis in Lisk v. Lumber One Wood Preserving, LLC, 792
F.3d 1331 (11th Cir. 2015), which held that class claims under the Alabama Deceptive
Trade Practices Act (“ADTPA”) were permissible because the statutory prohibition on
private class actions in the ADTPA was superseded by Rule 23 after Shady Grove. See
Lisk, 792 F.3d at 1334-38.
In Shady Grove, the Supreme Court stated in a plurality opinion, “Rule 23
unambiguously authorizes any plaintiff, in any federal civil proceeding, to maintain a
class action if the Rule’s prerequisites are met. We cannot contort its text, even to avert
a collision with state law that might render it invalid.” 559 U.S. at 406 (emphasis in
original). Moreover, “Congress itself has created the possibility that the same case may
follow a different course if filed in federal instead of state court.” Id. at 416. Accordingly,
the Shady Grove court held that a New York law that broadly prohibited class actions in
suits seeking penalties or statutory minimum damages conflicted with Rule 23 and was
preempted such that it would not apply in a federal court sitting in diversity. Id. at 398401. The Shady Grove court further held that Rule 23 was not ultra vires under the
Rules Enabling Act, 28 U.S.C. § 2072, in this context; in other words, Rule 23 did not
impermissibly “abridge, enlarge or modify any substantive right.” Id. at 406-410; see 28
U.S.C. § 2072(b).
The decision in Shady Grove was issued by a severely fragmented court, which
has presented rather confusing questions of interpretation for federal courts seeking to
1
This includes Judge Norton’s decision in In re MI Windows & Doors, Inc. Prod. Liab. Litig., No. 2:11-CV00167-DCN, 2012 WL 5408563 (D.S.C. Nov. 6, 2012), Judge Lewis’ decision in Stalvey v. Am. Bank
Holdings, Inc., No. 4:13-CV-714, 2013 WL 6019320 (D.S.C. Nov. 13, 2013), and the undersigned’s
decision in In re TD Bank, N.A., 150 F. Supp. 3d 593 (D.S.C. 2015).
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enforce the Shady Grove ruling. Nonetheless, under standard rules of interpretation
applied to plurality opinions like Shady Grove, a majority of courts have concluded that
Justice Stevens’ concurring opinion is controlling in view of the “narrowest grounds”
principle.2 Stalvey, 2013 WL 6019320 at *4; see, e.g., In re Packaged Ice Antitrust Litig.,
779 F. Supp. 2d 642, 660 (E.D. Mich. 2011) (referencing multiple cases); James River
Ins. Co. v. Rapid Funding, LLC, 658 F.3d 1207, 1217 (10th Cir. 2011) (noting that the
Tenth Circuit has understood Justice Stevens’ opinion to be controlling); but see Lisk,
792 F.3d at 1336-37 (leaving unresolved the issue of whether the binding opinion in
Shady Grove is Justice Scalia’s plurality opinion or Justice Stevens’ concurrence).
The undersigned finds the following language from Justice Stevens’ opinion most
helpful to resolving the operative question of whether SCUPTA’s prohibition of class
action claims is preempted by Rule 23, “A federal rule . . . cannot govern a particular
case in which the rule would displace a state law that is procedural in the ordinary use
of the term but is so intertwined with a state right or remedy that it functions to define
the scope of the state-created right.” Shady Grove, 559 U.S. at 423 (J. Stevens,
concurring) (emphasis added). This is precisely the scenario presented by section 39-5140(a), wherein the state legislature enmeshed SCUTPA’s procedural vehicle with the
claimant’s right in a manner specifically designed to prohibit representative lawsuits.
The legislature thereby functionally defined the scope of the right by way of the
procedural limitation. Justice Stevens further stated, “The Enabling Act’s limitation does
not mean that federal rules cannot displace state policy judgments; it means only that
2
“When a fragmented Court decides a case and no single rationale explaining the result enjoys the
assent of five Justices, ‘the holding of the Court may be viewed as that position taken by those Members
who concurred in the judgments on the narrowest grounds . . . .’” Marks v. United States, 430 U.S. 188,
193 (1977) (quoting Gregg v. Georgia, 428 U.S. 153, 169 n. 15 (1976) (opinion of Stewart, Powell, and
Stevens, JJ.)). “This test is more easily stated than applied . . . .” Nichols v. United States, 511 U.S. 738,
745 (1994).
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federal rules cannot displace a State’s definition of its own rights or remedies.” Id. at
418 (J. Stevens, concurring) (citing Sibbach v. Wilson & Co., 312 U.S. 1, 13-14 (1941)
(reasoning that “the phrase ‘substantive rights’” embraces only those state rights that
are sought to be enforced in the judicial proceedings)). Again, South Carolina has
deliberately defined consumers’ SCUTPA rights in a manner that limits their procedural
redress to individual claims. To allow Rule 23 to supplant that definition would be to
displace the State’s effort to narrow the potential scope of the right.
As Judge Lewis noted in Stalvey, SCUTPA is importantly different from the state
law at issue in Shady Grove because the New York law had no substantive component.
Stalvey, 2013 WL 6019320 at *4; see N.Y. Civ. Prac. Law Ann. § 901(b).3 Putting aside
the confusing questions of application that arise from a fragmentary plurality opinion, the
core of the Shady Grove ruling dictates, rather unremarkably, that a federal procedural
rule regarding class actions trumps a state procedural rule regarding class actions
where they conflict and when the suit is brought pursuant to diversity jurisdiction. By
contrast, “the prohibitions against class actions ingrained in the very text of the
SCUTPA and Consumer Protection code are substantive portions of South Carolina law
and are not trumped by Federal Rule of Civil Procedure 23, even in light of the Shady
Grove decision.” Stalvey, 2013 WL 6019320 at *4.
Plaintiffs encourage the Court to rely on the holding in Lisk v. Lumber One Wood
Preserving, LLC to find that the application of Rule 23 allows class treatment of claims
3
The relevant provision of New York law, contained in a rule entitled “Prerequisites to a class action,”
stated: “Unless a statute creating or imposing a penalty, or a minimum measure of recovery specifically
authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of
recovery created or imposed by statute may not be maintained as a class action.” N.Y. Civ. Prac. Law
Ann. § 901(b). The remainder of the New York law is virtually identical, both in language and class
certification requirements, to the relevant portions of Rule 23. Compare N.Y. Civ. Prac. Law Ann.
§ 901(a), with Fed. R. Civ. P. 23(a) & (b)(3).
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under SCUTPA in the same way that the Eleventh Circuit found that Rule 23 allowed
representative claims under a comparable Alabama consumer protection statute. (ECF
No. 48 at 2-9.) Specifically, Plaintiffs argue that the location of a class prohibition within
a state code should not control, quoting the Lisk ruling, “the question whether a federal
rule abridges, enlarges, or modifies a substantive right turns on matters of substance—
not on the placement of a statute within a state code.” 792 F.3d at 1336. Plaintiffs
further assert that there is no relevant, meaningful distinction between the class
prohibitions at issue in Shady Grove, Lisk, and the case sub judice, and that those other
cases should direct the Court to permit the representative claims here.
The Court simply disagrees with the Plaintiffs’ perception of the New York statute
at issue in Shady Grove and its relative similarity to section 39-5-140. As already
explained, the rules in conflict in Shady Grove were purely procedural in nature, one
state and one federal. In such an instance, so long as the federal rule does not abridge,
enlarge, or modify any substantive right, the state rule must give way in a diversity suit.
See 28 U.S.C. § 2702(b); U.S. Const. art. VI, cl. 2. This is not true, however, when the
state procedural rule is integrally and intentionally “intertwined” with the substantive right
at issue, as is the case here.
The class prohibition at issue in Lisk presents a closer analogue to section 39-5140. The ADTPA, like SCUTPA, includes its prohibition on private class actions in the
same general section of the code, though in a different subsection than the private right
of action. Alabama Code § 8-19-10 states in relevant part:
(a) Any person who commits one or more of the acts or practices declared
unlawful under this chapter and thereby causes monetary damage to a
consumer, and any person who commits one or more of the acts or
practices declared unlawful in subdivisions (19) and (20) of Section 8-19-5
8
and thereby causes monetary damage to another person, shall be liable to
each consumer or other person for:
(1) Any actual damages sustained by such consumer or person, or
the sum of $100, whichever is greater; or
(2) Up to three times any actual damages, in the court’s discretion .
. . . ; and
(3) In the case of any successful action or counterclaim to enforce
the foregoing liability or in which injunctive relief is obtained, the
costs of the action or counterclaim, together with a reasonable
attorney’s fee . . . .
....
(f) A consumer or other person bringing an action under this chapter may
not bring an action on behalf of a class; provided, however, that the office
of the Attorney General or district attorney shall have the authority to bring
action in a representative capacity on behalf of any named person or
persons . . . .
Ala. Code § 8-19-10(a) & (f). The Lisk court explained its comparison of the ADTPA to
the New York law from Shady Grove in this way:
To be sure, the New York prohibition on statutory-penalty class actions
was included in a procedural statute addressing class actions generally;
the prohibition was not part of the statute that created the statutory
penalty. The Alabama class-action prohibition, in contrast, is part of the
ADTPA itself. Some district courts have said this is controlling. But how a
state chooses to organize its statutes affects the analysis not at all.
792 F.3d at 1336 (internal citation omitted).
The Court agrees that the location of a class prohibition within a state code, in
and of itself, does not control whether that class prohibition will survive a Rule 23
pleading scheme in federal court. The Court disagrees and finds Lisk unpersuasive,
however, to the extent that the Lisk court was asserting that the location of a class
prohibition can have no impact on the scope of the underlying substantive right. Where,
as is true of section 39-5-140, the class prohibition is part of the same sentence that
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conveys the substantive right, the undersigned believes it would be an irresponsible
reading of the statute not to account for that class prohibition as shaping the scope of
the right conveyed. The Court need not speculate about what result it would have
reached if conducting a similar analysis of Code of Ala. § 8-19-10, wherein the
procedural element of the statute (subsection (f), class prohibition) is distinct from the
substantive element (subsection (a), private right of action). The bottom line is that Lisk
(1) applied Shady Grove to a different statute than the one at issue in this case, (2) was
issued in a different federal circuit not binding upon this Court, and (3) is unpersuasive
on the grounds for which Plaintiffs advance it as authority.
In summary, the seed from which Plaintiffs’ SCUTPA cause of action must
germinate simply does not contain the requisite DNA to grow into a class action claim.
Without section 39-5-140(a), Plaintiffs would lack a right of action under SCUTPA. To
interpret Rule 23, a purely procedural directive, as permissive of class claims under
SCUTPA would be to modify by fiat the substantive right of action defined in section 395-140(a), and, continuing the analogy, would be tantamount to genetically engineering
that substantive right. SCUTPA claimants should not be permitted to transform the
nature and scope of the statutory right conferred upon them merely by pleading in
federal court pursuant to Rule 23. Such a result would be more than an embodiment of
“the possibility that the same case may follow a different course if filed in federal instead
of state court,” see Shady Grove, 559 U.S. at 416; it would be an alteration of the
underlying right. With due respect to courts that have concluded otherwise when
presented with similar problems of analysis, the undersigned believes that this putative
enlargement and/or modification of the underlying state-legislature-created right is
10
precisely what the Rules Enabling Act is designed to prevent. See 28 U.S.C. § 2072(b).
There is no need to speculate about why South Carolina legislators limited the form in
which SCUTPA claims may be pursued to an individual right of action—though the
Court could name a number of likely reasons without much imagination—the fact is they
did. The undersigned continues to view SCUTPA’s prohibition on class claims not as
purely procedural, but rather so intertwined with the substantive right conveyed by
section 39-5-140 as to render any supposed preemption of that law by Rule 23 a
violation of the Rules Enabling Act. The Court declines to contravene the express
direction of the legislature that created the right in question, and dismisses Plaintiffs’
representative SCUTPA claims accordingly. The named Plaintiffs’ individual SCUTPA
claims remain viable.
CONCLUSION
For the reasons set forth above, Defendants’ Motion to Dismiss (ECF No. 47) is
GRANTED, and Plaintiffs’ SCUTPA claim is DISMISSED to the extent it is brought in a
representative capacity.
IT IS SO ORDERED.
/s/ Bruce Howe Hendricks
United States District Judge
September 7, 2016
Greenville, South Carolina
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